In 2013, each Fund paid MassMutual an
investment management fee of .05% based on a percentage of each Fund’s average daily net assets.
A discussion regarding the basis for the Trustees
approving any investment advisory contract of the Funds is available in the Funds’ semiannual report to shareholders dated June 30, 2013, or will be available in the Funds’ semiannual reports to shareholders dated June 30, 2014.
Each Fund also pays MML Advisers an administrative and shareholder services fee to compensate it for providing general administrative services to the
Funds and for providing or causing to be provided ongoing shareholder servicing to direct and indirect investors in the Funds. MML Advisers pays substantially all of the fee to MassMutual in respect of shareholder servicing and investor
recordkeeping services provided by it, or another entity with whom MassMutual has contracted. The fee is calculated and paid based on the average daily net assets attributable to each share class of the Fund separately, and is paid at the following
annual rates: .10% for Class R5 shares; .15% for Service Class shares, Administrative Class shares, and Class A shares; and .20% for Class R4 shares and Class R3 shares. Class I shares do not pay any administrative and shareholder services fee.
As the investment adviser to the Funds, MML Advisers is responsible for furnishing a continuous investment program for the Funds, determining the
Underlying Funds in which the Funds will invest from time to time, and the portions of their assets the Funds will invest in those Underlying Funds. MML Advisers places purchase and redemption orders for shares of the Underlying Funds on behalf of
the Funds. These functions are performed by MML Advisers’ Asset Allocation Committee, led by Bruce Picard Jr., CFA. Mr. Picard, an Investment Director and portfolio manager, joined MML Advisers in 2014. Mr. Picard is also an Investment
Director for the Retirement Services Investment Services Division of MassMutual, which he joined in 2005. Prior to joining MassMutual, Mr. Picard was a Vice President at Loomis, Sayles & Co. LP. In addition to Mr. Picard, the
regular members of MML Advisers’ Asset Allocation Committee include Michael Eldredge, CFA and Frederick (Rick) Schulitz, CFA. Mr. Eldredge, Head of Investments and a portfolio manager, joined MML Advisers in 2014. He leads a team of
investment professionals who conduct money manager research for MML Advisers. Mr. Eldredge has also been a Vice President for the Retirement Services Investment Services Division of MassMutual since 2008. Prior to joining MassMutual,
Mr. Eldredge was a Vice President at ING US Financial Services, where he worked in various positions covering investment due diligence and fund analysis for the company’s Fund Strategy and Due Diligence unit. Mr. Schulitz, an
Investment Director and portfolio manager, joined MML Advisers in 2014. Mr. Schulitz is also an Investment Director for the Retirement Services Investment Services Division of MassMutual, which he joined in 2006. Prior to joining MassMutual,
Mr. Schulitz held Director positions at Prudential Retirement and ING.
MML Advisers also provides advice and recommendations to the Trustees, and
performs such review and oversight functions as the Trustees may reasonably request, as to the continuing appropriateness of the investment objective, strategies, and policies of each Fund, valuations of portfolio securities, and other matters
relating generally to the investment program of each Fund. MML Advisers is also responsible for, among others things, board reporting and assistance in the annual advisory contract renewal process.
The Funds’ SAI provides additional information about each portfolio manager’s compensation, other accounts managed by the portfolio managers, and
each portfolio manager’s ownership of securities in the relevant Fund.
Appendix A – Description of Underlying Funds
The summaries below are based solely on information contained in the prospectuses of
each Underlying Fund, as filed with the Securities and Exchange Commission, as of a recent date. These summaries are for convenient reference only and are qualified in their entirety by reference to the current prospectuses and statements of
additional information of each Underlying Fund. Further information about each Underlying Fund, including a copy of an Underlying Fund’s most recent prospectus, SAI, and annual and semi-annual reports, can be found on the SEC’s EDGAR
database on its Internet site at http://www.sec.gov or can be obtained free of charge, upon request, by calling 1-888-309-3539.
Equity Funds
—Domestic Equity Funds
MassMutual Premier Disciplined Growth Fund
Subadvised
by: Babson Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks to outperform the
total return performance of its benchmark index, the Russell 1000
®
Growth Index
1
, while maintaining risk characteristics similar to those of
the benchmark.
Principal Investment Strategies
Under normal circumstances, the Fund invests substantially all (but no less than 80%) of its net assets in common stocks of companies whose market
capitalizations at the time of purchase are within the market capitalization range of companies included within the Russell 1000 Growth Index (“Index”) (as of December 31, 2013, $1.27 billion to $504.48 billion). The Index is an
unmanaged index that contains those stocks with a greater than average growth orientation among the stocks of the 1000 largest U.S. companies based on total market capitalization. The Fund may use futures contracts as a substitute for direct
investments. Use of derivatives by the Fund may create investment leverage.
MassMutual Premier Disciplined Value Fund
Subadvised by: Babson Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks to outperform the total return performance of its benchmark index, the Russell
1000
®
Value Index
2
, while maintaining risk characteristics similar to those of the benchmark.
Principal Investment Strategies
Under normal
circumstances, the Fund invests substantially all (but not less than 80%) of its net assets in common stocks of companies whose market capitalizations at the time of purchase are within the market capitalization range of companies included in the
Russell 1000
®
Value Index (“Index”) (as of December 31, 2013, $1.14 billion to $504.48 billion). The Index is a market capitalization-weighted index of those stocks of the
1,000 largest US-domiciled companies that exhibit value-oriented characteristics. The Fund may use futures contracts as a substitute for direct investments. Use of derivatives by the Fund may create investment leverage.
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1
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The Fund is not promoted, sponsored, or endorsed by, nor in any way affiliated with Russell Investment Group (“Russell”). Russell is not responsible for and has not reviewed the Fund nor any associated
literature or publications and Russell makes no representation or warranty, express or implied, as to their accuracy, or completeness, or otherwise. The Russell 1000
®
Growth Index and Russell
®
are trademarks of the Frank Russell Company.
|
|
2
|
The Fund is not promoted, sponsored, or endorsed by, nor in any way affiliated with Russell Investment Group (“Russell”). Russell is not responsible for and has not reviewed the Fund nor any associated
literature or publications and Russell makes no representation or warranty, express or implied, as to their accuracy, or completeness, or otherwise. The Russell 1000
®
Value Index and Russell
®
are trademarks of the Frank Russell Company.
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– 140 –
MassMutual Select Blue Chip Growth Fund
Subadvised by: T. Rowe Price Associates, Inc.
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks growth of capital over the long term.
Principal Investment Strategies
Under normal
circumstances, the Fund invests at least 80% of net assets in the common stocks of large- and medium-sized blue chip growth companies. The Fund’s subadviser,
T. Rowe Price Associates, Inc.
(“T. Rowe Price”), currently defines
blue chip growth companies to mean firms that, in its view, are well-established in their industries and have the potential for above-average earnings growth. Equity securities may include common stocks, preferred stocks, securities convertible into
common or preferred stock, rights, and warrants. While most assets will be invested in equity securities of U.S. companies, the Fund may also invest up to 20% of its total assets in foreign securities and American Depositary Receipts
(“ADRs”), including emerging market securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select
Diversified Value Fund
Subadvised by: Brandywine Global Investment Management, LLC and Loomis, Sayles & Company, L.P.
(Underlying Fund for all Funds)
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
The Fund normally invests at least 80% of its net assets in stocks, securities convertible into stocks, and other securities, such as warrants and stock
rights, whose value is based on stock prices. The Fund typically invests most of its assets in securities of U.S. companies, but may invest up to 25% of its total assets in foreign securities and American Depositary Receipts (“ADRs”),
including emerging market securities. The Fund is managed by two subadvisers, each being responsible for a portion of the portfolio, but not necessarily equally weighted. The Fund may invest in real estate investment trusts (“REITs”) and
Rule 144A securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select Focused Value Fund
Subadvised by: Harris Associates, L.P.
(Underlying
Fund for all Funds)
Investment Objective
This
Fund seeks growth of capital over the long-term.
Principal Investment Strategies
The Fund invests primarily in equity securities of U.S. companies that the Fund’s subadviser,
Harris Associates L.P.
(“Harris”), believes
are undervalued. Equity securities may include common stocks, preferred stocks, securities convertible into common or preferred stocks, rights, and warrants, of issuers of any size. The Fund typically invests most of its assets in equity securities
of U.S. companies, but may invest in foreign securities and American Depositary Receipts (“ADRs”), including emerging market securities. The Fund generally will not invest more than 25% of its total assets in foreign securities, and will
not invest more than 5% of its total assets in emerging market securities. The Fund may hold a portion of its assets in cash or cash equivalents. The Fund is non-diversified, which means that it may hold larger positions in a smaller number of
stocks than a diversified fund.
– 141 –
MassMutual Select Fundamental Growth Fund
Subadvised by: Wellington Management Company, LLP
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks long-term growth of capital.
Principal Investment Strategies
The Fund invests
primarily in domestic equity securities that the Fund’s subadviser,
Wellington Management Company, LLP
(“Wellington Management”), believes offer the potential for long-term growth. Equity securities may include common stocks,
preferred stocks, securities convertible into common or preferred stock, rights, and warrants, of issuers of any size. While most assets will be invested in equity securities of U.S. companies, the Fund may also invest up to 20% of its total assets
in foreign securities and American Depositary Receipts (“ADRs”), including emerging market securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select Fundamental Value Fund
Subadvised
by: Wellington Management Company, LLP
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks long-term total
return.
Principal Investment Strategies
The Fund
invests primarily in equity securities of issuers that the Fund’s subadviser,
Wellington Management Company, LLP
(“Wellington Management”), believes are undervalued. Under normal circumstances, the Fund invests at least 80% of
its net assets in equity securities. Equity securities include common stock, preferred stock, securities convertible into common or preferred stock, rights, and warrants. Although the Fund may invest in companies of any size, the Fund will tend to
focus on companies with large market capitalizations (which Wellington Management believes are generally above $2 billion). The Fund may invest up to 20% of its total assets in the securities of foreign issuers and American Depositary Receipts
(“ADRs”), including emerging market securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select
Growth Opportunities Fund
Subadvised by: Sands Capital Management, LLC and Delaware Investment Fund Advisers
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks long-term capital appreciation.
Principal Investment Strategies
This Fund seeks to
achieve its objective by investing primarily in equity securities of U.S. companies. Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities. Equity securities may include common stocks, preferred stocks,
securities convertible into common or preferred stock, rights, and warrants. The Fund typically invests most of its assets in equity securities of U.S. companies, but may invest up to 20% of its total assets in foreign securities and American
Depositary Receipts (“ADRs”), including emerging market securities. The Fund may hold a portion of its assets in cash or cash equivalents. The Fund is non-diversified, which means that it may hold larger positions in a smaller number of
stocks than a diversified Fund.
MassMutual Select Large Cap Value Fund
Subadvised by: Columbia Management Investment Advisers, LLC and Huber Capital Management, LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks both capital growth and income.
– 142 –
Principal Investment Strategies
The Fund invests primarily in large-capitalization companies that the Fund’s subadvisers,
Columbia Management Investment Advisers, LLC
(“Columbia Management”) and
Huber Capital Management, LLC
(“Huber Capital Management”), believe are undervalued. Under normal circumstances, the Fund invests at least 80% of its net assets in the stocks of large-cap
companies. The subadvisers currently define “large-cap” companies as those whose market capitalizations at the time of purchase are within the market capitalization range of companies included in the Russell 1000
®
Index (as of January 31, 2014, between $930 million and $446.76 billion). The Fund has the flexibility to invest in companies of any size and invest in non-equity securities. While most
assets typically will be invested in equity securities of U.S. companies, the Fund may invest up to 20% of its total assets in foreign securities and American Depositary Receipts (“ADRs”), including emerging market securities. Equity
securities may include common stocks, preferred stocks, securities convertible into common or preferred stock, rights, and warrants. The Fund may at times invest a substantial portion of its assets in obligations of issuers in one or more market,
economic, or industry sectors. The Fund may hold a portion of its assets in cash or cash equivalents.
The Fund may use equity-linked notes, a type of
derivative, for hedging purposes, to earn additional income, or as a substitute for direct investments. Use of equity-linked notes by the Fund may create investment leverage.
MassMutual Select Mid Cap Growth Equity II Fund
Subadvised by: T. Rowe Price Associates, Inc. and Frontier Capital Management Company, LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks growth of capital over the long-term.
Principal Investment Strategies
The Fund invests
primarily in equity securities of mid-capitalization companies that the Fund’s subadvisers,
T. Rowe Price Associates, Inc.
(“T. Rowe Price”) and
Frontier Capital Management Company, LLC
(“Frontier”), believe
offer the potential for long-term growth. Equity securities may include common stocks, preferred stocks, securities convertible into common or preferred stock, rights, and warrants. Under normal circumstances, the Fund invests at least 80% of its
net assets in a broadly diversified portfolio of common stocks of mid-cap companies whose earnings the subadvisers expect to grow at a faster rate than the average company. The subadvisers currently define “mid-cap” companies as those
whose market capitalizations at the time of purchase fall within the market capitalization range of companies included in either the S&P MidCap 400
®
Index or the Russell Midcap
®
Growth Index (as of January 31, 2014, between $1.02 billion and $31.26 billion). The Fund may invest up to 20% of its net assets in stocks whose market capitalizations are outside of that
capitalization range. The Fund typically invests most of its assets in equity securities of U.S. companies, but may invest in foreign securities and American Depositary Receipts (“ADRs”), including emerging market securities. The Fund
generally will not invest more than 25% of its total assets in foreign securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select Mid-Cap Value Fund
Subadvised by:
NFJ Investment Group LLC and Systematic Financial Management, L.P.
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks growth of capital
over the long-term.
Principal Investment Strategies
The Fund invests primarily in equity securities of mid-capitalization companies that the subadvisers believe are undervalued. Equity securities may include
common stocks, preferred stocks, securities convertible into common or preferred stock, rights, and warrants. Under normal circumstances, the Fund invests at least 80% of its net assets in the stocks of mid-cap companies. The subadvisers currently
define “mid-cap” companies as those whose market capitalizations at the time of purchase are between $500 million and $10 billion or fall within the market capitalization range of companies included in the Russell Midcap
®
Value Index (as of January 31, 2014, between $930 million and $26.06 billion). The Fund typically invests most of its assets in equity securities of U.S.
– 143 –
companies, but may gain exposure to non-U.S. issuers through the purchase of American Depositary Receipts (“ADRs”). The Fund may also invest a portion of its assets in real estate
investment trusts (“REITs”). The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select Small Cap Growth
Equity Fund
Subadvised by: Wellington Management Company, LLP, Waddell & Reed Investment Management Company, and Montibus Capital
Management LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks long-term capital
appreciation.
Principal Investment Strategies
The
Fund invests primarily in equity securities of smaller companies that the subadvisers believe offer potential for long-term growth. Under normal circumstances, the Fund invests at least 80% of its net assets in the securities of companies whose
market capitalizations at the time of purchase are within the market capitalization range of companies included in the Russell 2000
®
Index or the S&P SmallCap 600 Index (as of
January 31, 2014, between $4 million and $5.95 billion). Equity securities may include common stocks, preferred stocks, securities convertible into common or preferred stock, rights, and warrants. While most assets typically will be invested in
common stocks of U.S. companies, the Fund also may invest up to 20% of its total assets in foreign securities, including emerging market securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select Small Cap Value Equity Fund
Subadvised by: Wellington Management Company, LLP and Barrow, Hanley, Mewhinney & Strauss, LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks to maximize total return through investment primarily in small capitalization equity securities.
Principal Investment Strategies
The Fund invests
primarily in common stocks of small-capitalization companies that the subadvisers believe are undervalued. Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of companies whose market capitalizations at
the time of purchase are within the market capitalization range of companies included in the Russell 2000
®
Index or the S&P SmallCap 600 Index (as of January 31, 2014, between $4
million and $5.95 billion). Equity securities may include common stocks, preferred stock, rights, and warrants. The Fund typically invests most of its assets in U.S. companies, but may invest up to 20% of its total assets in foreign securities,
including emerging market securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select Small Company Growth
Fund
Subadvised by: Montibus Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks long-term capital appreciation.
Principal Investment Strategies
The Fund invests
primarily in equity securities of smaller companies that the Fund’s subadviser believes offer potential for long-term growth. Under normal circumstances, the Fund invests at least 80% of its net assets in the securities of companies whose
market capitalizations at the time of purchase are within the market capitalization range of companies included in the Russell 2000
®
Index or the S&P SmallCap 600 Index (as of
January 31, 2014, between $4 million and $5.95 billion). Equity securities may include common stocks, rights, and warrants. While most assets typically will be invested in common stocks of U.S. companies, the Fund also may invest up to 20% of
its total assets in foreign securities and American Depositary Receipts (“ADRs”), including emerging market
– 144 –
securities. The Fund may use futures contracts (including equity index futures contracts based primarily on the Russell 2000 Index) as a substitute for direct investments. Use of derivatives by
the Fund may create investment leverage. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Select Small Company Value
Fund
Subadvised by: Federated Clover Investment Advisors, T. Rowe Price Associates, Inc. and EARNEST Partners, LLC
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks to achieve long-term growth of capital by investing primarily in a diversified portfolio of equity securities of smaller companies.
Principal Investment Strategies
The Fund invests
primarily in equity securities that the subadvisers consider to be undervalued. Under normal circumstances, the Fund invests at least 80% of its net assets in the securities of companies whose market capitalizations at the time of purchase are
within the market capitalization range of companies included in the Russell 2000
®
Index or the S&P SmallCap 600 Index (as of January 31, 2014, between $4 million and $5.95 billion).
Equity securities may include common stocks, preferred stocks, securities convertible into common or preferred stock, rights, and warrants. The Fund typically invests most of its assets in equity securities of U.S. companies, but may invest in
foreign securities and American Depositary Receipts (“ADRs”), including emerging market securities. The Fund generally will not invest more than 20% of its total assets in foreign securities. The Fund may invest in real estate investment
trusts (“REITs”) and exchange-traded funds. The Fund may at times invest a substantial portion of its assets in obligations of issuers in one or more market, economic, or industry sectors. The Fund may hold a portion of its assets in cash
or cash equivalents.
MM Russell
®
2000 Small Cap Index Fund
Subadvised by: Northern Trust Investments, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks to provide investment results approximating (before fees and expenses) the aggregate price and dividend performance of the securities
included in the Russell 2000
®
Index
3
.
Principal Investment Strategies
Under normal
circumstances, the Fund invests at least 80% (and, typically, substantially all) of its net assets in the equity securities of companies included in the Russell 2000 Index (“Index”), in weightings that approximate the relative composition
of the securities contained in the Index, and in Russell 2000 Index futures contracts. The Index is a widely recognized, unmanaged index representative of common stocks of smaller capitalized U.S. companies. The companies in the Index are selected
according to their total market capitalization. However, companies are
not
selected by Frank Russell Company for inclusion in the Index because they are expected to have superior stock price performance relative to the stock market in general
or other stocks in particular. As of January 31, 2014, the market capitalization range of companies included in the Index was $4 million to $5.95 billion. If the securities represented in the Index were to become concentrated in any particular
industry, the Fund’s investments would likewise be concentrated in securities of issuers in that industry; the Index is not currently concentrated in any single industry.
|
3
|
The Fund is not promoted, sponsored, or endorsed by, nor in any way affiliated with Russell Investment Group (“Russell”). Russell is not responsible for and has not reviewed the Fund nor any associated
literature or publications and Russell makes no representation or warranty, express or implied, as to their accuracy, or completeness, or otherwise. The Russell 2000
®
Index and Russell
®
are trademarks of the Frank Russell Company.
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– 145 –
MM S&P
®
Mid Cap Index Fund
Subadvised by: Northern Trust Investments, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks to provide investment results approximating (before fees and expenses) the aggregate price and dividend performance of the securities
included in the Standard & Poor’s MidCap 400
®
Index (“S&P MidCap 400 Index”)
4
.
Principal Investment Strategies
Under normal
circumstances, the Fund invests at least 80% (and, typically, substantially all) of its net assets in the equity securities of companies included in the S&P MidCap 400 Index (“Index”), in weightings that approximate the relative
composition of the securities contained in the Index, and in S&P MidCap 400 Index futures contracts. The Index is a widely recognized, unmanaged index representative of common stocks of mid-capitalized U.S. companies. The companies chosen for
inclusion in the Index tend to be industry leaders within the U.S. economy as determined by Standard & Poor’s
®
. However, companies are not selected by Standard &
Poor’s for inclusion in the Index because they are expected to have superior stock price performance relative to the market in general or other stocks in particular. As of January 31, 2014, the market capitalization range of companies
included in the Index was $1.02 billion to $12.05 billion. If the securities represented in the Index were to become concentrated in any particular industry, the Fund’s investments would likewise be concentrated in securities of issuers in that
industry; the Index is not currently concentrated in any single industry.
Oppenheimer Real Estate Fund
Advised by: OFI Global Asset Management, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks total return.
Principal Investment
Strategies
Under normal market conditions, the Fund invests at least 80% of its net assets (including borrowings for investment purposes) in common
stocks and other equity securities of real estate companies. The Fund considers a real estate company to be one that derives at least 50% of its revenues from, or invests at least 50% of its assets in, the ownership, construction, financing,
management or sale of commercial, industrial or residential real estate. The Fund primarily invests in real estate investment trusts (“REITs”) but may also invest in real estate operating companies (“REOCs”) and other real estate
related securities. The assets of the REITs that the Fund invests in are primarily land and buildings, although the Fund may invest in REITs that hold mortgages or a combination of investments types.
—International/Global Equity Funds
MassMutual Premier Focused International Fund
Subadvised by: Baring International Investment Limited
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks long term capital appreciation.
|
4
|
The S&P MidCap 400 Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by MML Advisers. Standard &
Poor’s
®
, S&P
®
and S&P MidCap 400
®
are registered trademarks of
Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones
®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these
trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by MML Advisers. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any
representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P MidCap 400 Index.
|
– 146 –
Principal Investment Strategies
The Fund normally invests a minimum of 90% of its net assets in equity securities. Equity securities may include common stocks, preferred stocks, securities
convertible into common or preferred stock, rights, and warrants of issuers of any size, as well as depositary receipts and exchange-traded funds. The Fund may invest in developed and emerging markets; however, the Fund will typically invest in a
minimum of 30 issuers organized, headquartered or having a substantial portion of their assets in or deriving a substantial portion of their revenues from countries appearing in the Morgan Stanley Capital International Europe, Australasia, Far East
Index (the “EAFE Index”). The Fund will normally invest no more than 10% of its net assets in options, warrants, convertible securities, and fixed income securities. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Premier International Equity Fund
Subadvised by: OFI Global Institutional, Inc.
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks to achieve long-term capital appreciation by investing primarily in common stock of foreign companies.
Principal Investment Strategies
The Fund invests
primarily in the common stock of growth companies that are domiciled or that have their primary operations outside of the United States. Under normal circumstances, the Fund invests at least 80% of its net assets in securities of foreign companies.
The Fund may invest 100% of its total assets in such securities. The Fund may invest in emerging markets as well as in developed markets throughout the world. From time to time, the Fund may place greater emphasis on investing in one or more
particular regions (such as Asia, Europe, or Latin America). Under normal market conditions, the Fund will:
|
·
|
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invest at least 65% of its total assets in common and preferred stocks of issuers in at least three different countries outside of the United States, and
|
|
·
|
|
emphasize investments in common stock of issuers that the portfolio manager considers to be “growth” companies.
|
The Fund does not limit its investments to issuers within a specific market capitalization range and at times may invest a substantial portion of its assets
in one or more particular capitalization ranges. Equity securities in which the Fund invests may include common stocks, depositary receipts, preferred stocks, securities convertible into common or preferred stock, rights, and warrants. The Fund may
but will not necessarily engage in foreign currency forward contracts to take long or short positions in foreign currencies in order to enhance the Fund’s investment return or to attempt to protect against adverse changes in currency exchange
rates. Use of derivatives by the Fund may create investment leverage. The Fund may hold a portion of its assets in cash or cash equivalents.
MassMutual Premier Strategic Emerging Markets Fund
Subadvised by: OFI Global Institutional, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks long-term capital growth.
Principal
Investment Strategies
The Fund mainly invests in common stocks of issuers in developing and emerging markets throughout the world and at times it may
invest up to 100% of its total assets in foreign securities. Under normal market conditions, the Fund will invest at least 80% of its net assets in equity securities of issuers whose principal activities are in a developing (or emerging) market,
i.e. are in a developing market or are economically tied to a developing market country. The Fund will invest in at least three developing markets. The Fund focuses on companies with above-average earnings growth. The Fund may hold a portion of its
assets in cash or cash equivalents.
– 147 –
MassMutual Select Diversified International Fund
Subadvised by: J.P. Morgan Investment Management Inc.
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks growth of capital over the long-term.
Principal Investment Strategies
The Fund invests
primarily in equity securities from developed countries included in the MSCI EAFE
®
Value Index, which is the Fund’s benchmark. The Fund may invest up to 15% of its total assets in equity
securities of issuers in emerging markets countries. The Fund typically does not invest in U.S. companies. The Fund may invest a substantial part of its assets in just one region or country.
Equity securities in which the Fund invests may include common stocks, preferred stocks, securities convertible into common or preferred stock, depositary
receipts, rights and warrants to buy common stocks, and privately placed securities.
MassMutual Select Overseas Fund
Subadvised by: J.P. Morgan Investment Management Inc., Massachusetts Financial Services Company, and Harris Associates L.P.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks growth of capital over the long-term by investing in foreign equity securities.
Principal Investment Strategies
Under normal
circumstances, the Fund invests at least 80% of its net assets in stocks of foreign companies, including companies located in Europe, Latin America, and Asia. The Fund may invest in equity securities of issuers in emerging markets. Equity securities
may include common stocks, preferred stocks, securities convertible into common or preferred stocks, depositary receipts, rights and warrants, of issuers of any size. The Fund may but will not necessarily engage in foreign currency forward contracts
to attempt to protect against adverse changes in currency exchange rates. The Fund may use futures contracts as a substitute for direct investments. Use of derivatives by the Fund may create investment leverage. The Fund may hold a portion of its
assets in cash or cash equivalents.
MM MSCI EAFE
®
International Index Fund
Subadvised by: Northern Trust Investments, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks to provide investment results approximating (before fees and expenses) the aggregate price and dividend performance of the securities
included in the MSCI EAFE
®
Index
5
.
Principal Investment Strategies
Under normal
circumstances, the Fund invests at least 80% (and, typically, substantially all) of its net assets in the equity securities of companies included in the MSCI EAFE Index (“Index”), in weightings that approximate the relative composition of
the securities contained in the Index, and in MSCI EAFE Index futures contracts. The Index is a widely recognized, unmanaged index representative of equity securities in developed markets, excluding the U.S. and Canada. As of January 31, 2014,
the market capitalization range of companies included in the Index was
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The Fund is not sponsored, endorsed, sold, or promoted by MSCI Inc. (“MSCI”), any of its affiliates, any of its information providers, or any other third party involved in, or related to, compiling, computing,
or creating any MSCI index (collectively, the “MSCI Parties”). The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index names are service mark(s) of MSCI or its affiliates and have been licensed for use for certain
purposes by MML Advisers. None of the MSCI Parties makes any representation or warranty, express or implied, to the issuer or owners of the Fund or any other person or entity regarding the advisability of investing in funds generally or in the Fund
particularly or the ability of any MSCI index to track corresponding stock market performance.
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– 148 –
$1.65 billion to $233.71 billion, and the Index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. If the securities represented in the Index were to become concentrated in any particular industry, the
Fund’s investments would likewise be concentrated in securities of issuers in that industry; the Index is not currently concentrated in any single industry.
Oppenheimer Developing Markets Fund
Advised by: OFI
Global Asset Management, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks capital
appreciation.
Principal Investment Strategies
The
Fund mainly invests in common stocks of issuers in developing and emerging markets throughout the world and at times it may invest up to 100% of its total assets in foreign securities. Under normal market conditions, the Fund will invest at least
80% of its net assets, plus borrowings for investment purposes, in equity securities of issuers whose principal activities are in a developing market, i.e. are in a developing market or are economically tied to a developing market country. The Fund
will invest in at least three developing markets. The Fund focuses on companies with above-average earnings growth.
Oppenheimer Global Real Estate
Fund
Advised by: OFI Global Asset Management, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks total return.
Principal Investment
Strategies
Under normal market conditions, the Fund invests at least 80% of its net assets (including borrowings for investment purposes) in common
stocks and other equity securities of real estate companies. The Fund invests in a number of different countries throughout the world, including the U.S. Under normal market conditions, the Fund will invest a significant portion of its assets
(generally 40% or more) in equity securities of real estate companies domiciled outside of the U.S. or having a majority of their assets or real estate activities outside of the U.S. The Fund’s foreign investments may include securities of both
developed and emerging markets.
Fixed Income & Short Term/Money Market Funds
Babson Global Floating Rate Fund
Advised by: Babson
Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
The investment objective of Babson
Global Floating Rate Fund (“Global Floating Rate Fund” or the “Fund”) is to seek a high level of current income. Preservation of capital is a secondary goal.
Principal Investment Strategies
Under normal market
conditions, the Fund will invest at least 80% of its net assets in income-producing floating rate debt securities, consisting of floating rate loans, bonds and notes, issued primarily by North American and Western European companies. For this
purpose, debt instruments issued by issuers based in the Channel Islands, Cayman Islands and Bermuda will be considered North American and Western European companies. (This policy is non-fundamental and may be changed by the Trustees upon at least
60 days’ prior written notice to shareholders.) The Manager expects that such instruments will primarily, at the time of purchase, be rated below investment grade (commonly referred to as “junk bonds”) by at least one credit rating
agency (below Baa3 by Moody’s Investors
– 149 –
Services, Inc. (“Moody’s”) or below BBB- by either Standard & Poor’s Rating Services, a division of the McGraw-Hill Company, Inc. (“S&P”), or Fitch,
Inc. (“Fitch”)) or unrated but judged by the Manager or Babson Capital Global Advisors Limited (the “Sub-Adviser” and together with the Manager, “Babson Capital”), to be of comparable quality.
MassMutual Premier Core Bond Fund
Subadvised by:
Babson Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
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.
Principal Investment Strategies
Under normal
circumstances, the Fund invests at least 80% of its net assets in investment grade fixed income securities (rated Baa or higher by Moody’s or BBB or higher by Standard & Poor’s or, if unrated, determined to be of comparable
quality by the subadviser). These typically include U.S. dollar-denominated corporate obligations, securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, U.S. and foreign issuer dollar-denominated bonds
including, but not limited to, corporate obligations, government and agency issues, private placement bonds, securities subject to resale pursuant to Rule 144A, mortgage-backed, and other asset-backed securities.
MassMutual Premier High Yield Fund
Subadvised by:
Babson Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks to achieve a high
level of total return, with an emphasis on current income, by investing primarily in high yield debt and related securities.
Principal Investment
Strategies
The Fund invests primarily in lower rated U.S. debt securities (“junk” or “high yield” bonds), including securities in
default. Debt securities may include, for example, corporate bonds, mortgage-backed and asset-backed securities, and obligations of the U.S. government or its agencies or instrumentalities. Under normal circumstances, the Fund invests at least 80%
of its net assets in lower rated fixed income securities (rated below Baa3 by Moody’s or BBB-by Standard & Poor’s (using the lower rating) or, if unrated, determined by the Fund’s subadviser,
Babson Capital
Management LLC
(“Babson Capital”), to be of comparable quality). The Fund may also invest in convertible securities, preferred stocks, warrants, bank loans, and other fixed income securities, including Rule 144A securities, of both
U.S. and foreign issuers. Currently, Babson Capital does not expect that the Fund will invest more than 20% of its total assets in bank loans. The Fund may invest up to 15% of its total assets in securities that are not denominated in U.S. dollars
including, but not limited to, corporate bonds, government and agency issues, Rule 144A securities, convertible securities, bank loans, mortgage-backed, and asset-backed securities.
MassMutual Premier Inflation-Protected and Income Fund
Subadvised by: Babson Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks to achieve as high a total rate of real return on an annual basis as is considered consistent with prudent investment risk and the
preservation of capital.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets in inflation-indexed bonds and other income-producing securities. Inflation-indexed
bonds are instruments indexed or otherwise linked to general measures of inflation because their principal is typically adjusted to reflect general movements of inflation in the
– 150 –
country of issue. The Fund may invest in inflation-indexed bonds of various maturities issued by the U.S. and non-U.S. governments or their agencies or instrumentalities, by government-
sponsored enterprises, or by corporations.
The Fund may also invest in other income-producing securities of any kind (including, but not limited to,
corporate bonds and notes, Rule 144A securities, U.S. and non-U.S. government and agency or instrumentality bonds, money market instruments, and mortgage-related and asset-backed securities). The Fund may enter into repurchase agreement
transactions. The Fund may hold a portion of its assets in cash or cash equivalents. The Fund may invest up to 15% of its total assets in securities that are not denominated in U.S. dollars.
MassMutual Premier Money Market Fund
Subadvised by:
Babson Capital Management LLC
(Underlying Fund for MassMutual RetireSMART
SM
Conservative Fund,
MassMutual RetireSMART
SM
Moderate Fund, MassMutual RetireSMART
SM
In Retirement Fund, MassMutual RetireSMART
SM
2010 Fund, MassMutual RetireSMART
SM
2015 Fund, MassMutual RetireSMART
SM
2020 Fund, and
MassMutual RetireSMART
SM
2025 Fund)
Investment Objective
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.
Principal Investment Strategies
The Fund invests in high quality U.S. dollar-denominated debt instruments of domestic and foreign issuers, including commercial paper and other corporate
obligations, including Rule 144A securities, securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and certificates of deposit and bankers’ acceptances. The Fund may enter into repurchase agreement
transactions.
MassMutual Premier Short-Duration Bond Fund
Subadvised by: Babson Capital Management LLC
(Underlying Fund for all Funds)
Investment Objective
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.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets in investment grade fixed income securities (rated Baa or higher by Moody’s or
BBB or higher by Standard & Poor’s or, if unrated, determined to be of comparable quality by the subadviser). These typically include U.S. dollar-denominated corporate obligations, securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, U.S. and foreign issuer dollar-denominated bonds including, but not limited to, corporate obligations, government and agency issues, private placement bonds, securities subject to resale pursuant to Rule 144A,
mortgage-backed, and other asset-backed securities.
MassMutual Select PIMCO Total Return Fund
Subadvised by: Pacific Investment Management Company LLC
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks maximum total return, consistent with preservation of capital and prudent investment management.
Principal Investment Strategies
Under normal
circumstances, the Fund invests at least 65% of its total assets in a diversified portfolio of fixed income securities of varying maturities. (For purposes of this 65% requirement, the Fund may include among its investments exposures created under
derivatives transactions.) Fixed income securities include the following bonds,
– 151 –
debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities: securities issued or guaranteed by the U.S. government, its agencies, or
government-sponsored enterprises; corporate debt securities, including convertible securities and corporate commercial paper; mortgage-backed and other asset-backed securities; inflation-indexed bonds issued both by governments and corporations;
structured notes, including structured products and event-linked bonds; bank capital and trust preferred securities; loan participations and assignments; delayed funding loans and revolving credit facilities; bank certificates of deposit, fixed time
deposits, and bankers’ acceptances; repurchase agreements on fixed income securities and reverse repurchase agreements on fixed income securities; debt securities issued by states or local governments and their agencies, authorities, and other
government-sponsored enterprises; obligations of non-U.S. governments or their subdivisions, agencies, and government-sponsored enterprises; and obligations of international agencies or supranational entities. The Fund may invest up to 30% of its
total assets in non-U.S. dollar-denominated securities of these entities, and may invest without limit in U.S. dollar-denominated securities of foreign issuers. The Fund will normally limit its foreign currency exposure (from non-U.S. dollar-
denominated securities or currencies) to 20% of its total assets. The Fund may also invest up to 15% of its total assets in emerging markets.
The Fund
may but will not necessarily engage in foreign currency transactions, including forward contracts, options on currency, futures contracts, and swap contracts, to take long or short positions in foreign currencies in order to enhance the Fund’s
investment return or to attempt to protect against adverse changes in currency exchange rates. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of additional exchange-traded and over-the-counter
derivatives, including futures contracts (for hedging purposes, to adjust various portfolio characteristics, including the duration (interest rate volatility) of the Fund’s portfolio, or as a substitute for direct investments); interest rate
swaps (for hedging purposes, to adjust various portfolio characteristics, including the duration (interest rate volatility) of the Fund’s portfolio, or as a substitute for direct investments); and credit default swaps (for hedging purposes, to
adjust various portfolio characteristics, including the duration (interest rate volatility) of the Fund’s portfolio, or as a substitute for direct investments). The Fund may also purchase and sell exchange-traded and over-the-counter options
for hedging purposes. Use of derivatives by the Fund may create investment leverage. The Fund may invest up to 10% of its total assets in preferred stocks and convertible securities. The Fund may also invest in money market securities, including
commercial paper. The Fund may hold a portion of its assets in cash or cash equivalents. The Fund may sell securities short for hedging or investment purposes.
MassMutual Select Strategic Bond Fund
Subadvised by:
Western Asset Management Company and Western Asset Management Company Limited
(Underlying Fund for all Funds)
Investment Objective
This Fund seeks a superior total
rate of return by investing in fixed income instruments.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets in U.S. dollar-denominated fixed income securities and other debt instruments of
domestic and foreign entities, including corporate bonds, securities issued or guaranteed as to principal or interest by the U.S. government or its agencies or instrumentalities, mortgage-backed or asset-backed securities, and money market
instruments. The Fund may invest up to 20% of its total assets in non-U.S. dollar-denominated securities of these entities. The Fund may also invest in emerging markets. The Fund may but will not necessarily engage in foreign currency transactions,
including forward contracts, options on currency, futures contracts, and swap contracts, to attempt to protect against adverse changes in currency exchange rates. In pursuing its investment objective, the Fund may (but is not obligated to) use a
wide variety of additional exchange-traded and over-the-counter derivatives, including futures contracts (for hedging purposes or to adjust various portfolio characteristics, including the duration (interest rate volatility) of the Fund’s
portfolio); interest rate swaps (for hedging purposes or to adjust various portfolio characteristics, including the duration (interest rate volatility) of the Fund’s portfolio); credit default swaps (for hedging purposes, to earn additional
income, or as a substitute for direct investments); and hybrid instruments (as a substitute for direct investments). The Fund may also purchase and sell exchange-traded and over-the-counter options for hedging purposes, to adjust various portfolio
characteristics, including the duration (interest rate volatility) of the Fund’s portfolio, or as a substitute for direct investments. Use of derivatives by the Fund may create investment leverage. The Fund may also invest in money market
securities, including commercial paper. The Fund may hold a portion of its assets in cash or cash equivalents.
– 152 –
Oppenheimer International Bond Fund
Advised by: OFI Global Asset Management, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks total return.
Principal Investment
Strategies
The Fund invests mainly in debt securities of foreign government and corporate issuers. A debt security is a security representing money
borrowed by the issuer that must be repaid. The terms of a debt security specify the amount of principal, the interest rate or discount, and the time or times at which payments are due. The Fund can invest in various types of debt securities,
generally referred to as “bonds,” including government bonds, corporate debt obligations, “structured” notes, participation interests in loans, “zero coupon” or “stripped” securities, certain
mortgage-related securities or asset-backed securities and other debt obligations.
Under normal market conditions, the Fund invests at least 80% of its
net assets (plus borrowings for investment purposes) in debt securities. The Fund typically invests in at least three countries other than the United States. The Fund invests in debt securities of issuers in both developed and emerging markets
throughout the world.
The Fund may buy securities issued by companies of any size or market capitalization range and at times might emphasize securities
of issuers in a particular capitalization range. It can invest in debt securities having short, intermediate or long maturities.
Other Funds
Oppenheimer Commodity Strategy Total Return Fund
Advised by: OFI Global Asset Management, Inc.
(Underlying Fund for all Funds)
Investment Objective
The Fund seeks total return.
Principal Investment
Strategies
The Fund mainly invests in a combination of commodity-linked derivatives and corporate and governmental fixed-income securities.
Derivatives are investments whose value depends on (or is “derived” from) the value of an underlying security, asset, interest rate, index or currency. A commodity-linked derivative’s value is generally linked to the price movement of
a particular commodity, commodity index, or commodity option or futures contract. Some commodity-linked derivatives may be based on a multiple of those price movements.
Commodity-linked derivatives provide exposure to the commodities markets without investing directly in physical commodities. They include commodity-linked
notes, swaps, futures and options that are linked to the price movements of a physical commodity such as heating oil, livestock, or agricultural products; a commodity index such as the Dow Jones-UBS Commodity Index Total Return (“DJ-UBS
Commodity Index”); a commodity option or futures contract; or some other readily measurable variable that reflects changes in the value of particular commodities or commodities markets.
– 153 –
MASSMUTUAL SELECT FUNDS
100 Bright Meadow Blvd.
Enfield,
Connecticut 06082
Learning More About the Funds
You can learn more about the Funds by reading the Funds’
Annual and Semiannual Reports
and the
SAI
. You may obtain free copies of this
information from the Funds or from the SEC using one or more of the methods set forth below. 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 each Fund’s portfolio securities as of the end of such period. The SAI provides additional information about the Funds and will provide you with 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
Select Funds:
You may request information about the Funds free of charge (including the Annual/Semiannual Reports and the SAI) or make shareholder inquiries by calling
1-888-309-3539
or by writing MassMutual Select Funds, c/o
MML Investment Advisers, LLC, 100 Bright Meadow Blvd., Enfield, Connecticut 06082,
Attention: Retirement Services Marketing
. You may also obtain copies of the Annual/Semiannual Reports and the SAI free of charge at
http://www.massmutual.com/funds.
From the SEC:
You may review and copy information about the Funds (including the Annual/
Semiannual Reports and the SAI) at the SEC’s Public Reference Room in Washington, D.C. (call 1-202-551-8090 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. 20549-1520 or by electronic request at publicinfo@sec.gov. Alternatively, if you have access to the Internet, you may obtain information about the Funds
from the SEC’s EDGAR database on its 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:
811-8274
.
MASSMUTUAL SELECT FUNDS
100 Bright Meadow Blvd.
Enfield, CT 06082
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 SELECT FUNDS (THE “TRUST”) DATED APRIL 1,
2014, REVISED AS OF APRIL 2, 2014, AS AMENDED FROM TIME TO TIME (THE “PROSPECTUS”). THIS SAI INCORPORATES HEREIN THE FINANCIAL STATEMENTS OF THE FUNDS BY REFERENCE TO THE TRUST’S ANNUAL REPORT AS OF DECEMBER 31, 2013 (THE “ANNUAL
REPORT”). TO OBTAIN A PROSPECTUS OR AN ANNUAL REPORT, CALL TOLL-FREE
1-888-309-3539,
OR WRITE THE TRUST AT THE ABOVE ADDRESS.
This SAI relates to the following Funds:
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Fund Name
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Class I
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Class R5
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Service Class
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Administrative
Class
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Class A
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Class R4
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Class R3
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MassMutual RetireSMART
SM
Conservative Fund
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MRCUX
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MRCSX
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MRCYX
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MRCLX
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MCTAX
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MRCZX
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MRCVX
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MassMutual RetireSMART
SM
Moderate Fund
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MRMUX
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MROSX
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MRMYX
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MRMLX
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MRMAX
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MRMZX
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MRMTX
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MassMutual RetireSMART
SM
Moderate Growth Fund
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MROUX
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MRSSX
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MROYX
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MRSLX
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MOGAX
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MROZX
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MROTX
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MassMutual RetireSMART
SM
Growth Fund
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MRGUX
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MRRSX
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MRGYX
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MRGLX
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MRRAX
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MRGZX
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MRGVX
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MassMutual RetireSMART
SM
In Retirement Fund
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MDRVX
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MDRTX
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MDRSX
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MDRYX
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MRDAX
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MDRZX
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MDRNX
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MassMutual RetireSMART
SM
2010 Fund
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MRXUX
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MRXTX
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MRXSX
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MRXYX
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MRXAX
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MRXZX
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MRXNX
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MassMutual RetireSMART
SM
2015 Fund
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MMJUX
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MMJTX
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MMJSX
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MMJYX
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MMJAX
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MMJZX
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MMJNX
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MassMutual RetireSMART
SM
2020 Fund
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MRTDX
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MRTBX
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MRTSX
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MRTYX
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MRTAX
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MRTHX
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MRTNX
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MassMutual RetireSMART
SM
2025 Fund
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MMNUX
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MMNTX
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MMISX
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MMIYX
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MMSDX
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MMNZX
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MMNRX
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MassMutual RetireSMART
SM
2030 Fund
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MRYUX
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MRYTX
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MRYSX
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MRYYX
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MRYAX
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MRYZX
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MRYNX
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MassMutual RetireSMART
SM
2035 Fund
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MMXUX
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MMXTX
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MMXSX
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MMXYX
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MMXAX
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MMXZX
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MMXNX
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MassMutual RetireSMART
SM
2040 Fund
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MRFUX
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MRFTX
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MFRSX
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MRFYX
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MRFAX
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MRFZX
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MFRNX
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MassMutual RetireSMART
SM
2045 Fund
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MMKUX
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MMKTX
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MMKSX
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MMKYX
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MMKAX
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MMKZX
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MMKNX
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MassMutual RetireSMART
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2050 Fund
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MMRUX
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MMRTX
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MMTSX
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MMRYX
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MMARX
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MMRZX
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MMRNX
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MassMutual RetireSMART
SM
2055 Fund
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MMWZX
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MMWUX
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MMWSX
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MMWYX
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MMWAX
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MMWEX
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MMWTX
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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 MML Distributors, LLC (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.
Dated April 1, 2014, Revised as of April 3, 2014
B-1
TABLE OF CONTENTS
B-2
GENERAL INFORMATION
MassMutual Select Funds (the
“Trust”) is a professionally managed, open-end investment company. This Statement of Additional Information (“SAI”) describes the following 15 diversified series of the Trust: (1) MassMutual RetireSMART
SM
Conservative Fund (“RetireSMART Conservative Fund”),
(2) MassMutual RetireSMART
SM
Moderate Fund
(“RetireSMART Moderate Fund”), (3) MassMutual RetireSMART
SM
Moderate Growth Fund (“RetireSMART Moderate Growth Fund”), (4) MassMutual RetireSMART
SM
Growth Fund (“RetireSMART Growth Fund”), (5) MassMutual RetireSMART
SM
In Retirement Fund (“RetireSMART In Retirement Fund”),
(6) MassMutual RetireSMART
SM
2010 Fund
(“RetireSMART 2010 Fund”), (7) MassMutual RetireSMART
SM
2015 Fund (“RetireSMART 2015 Fund”), (8) MassMutual
RetireSMART
SM
2020 Fund (“RetireSMART 2020
Fund”), (9) MassMutual RetireSMART
SM
2025 Fund
(“RetireSMART 2025 Fund”), (10) MassMutual RetireSMART
SM
2030 Fund (“RetireSMART 2030 Fund”), (11) MassMutual
RetireSMART
SM
2035 Fund (“RetireSMART 2035
Fund”), (12) MassMutual RetireSMART
SM
2040 Fund
(“RetireSMART 2040 Fund”), (13) MassMutual RetireSMART
SM
2045 Fund (“RetireSMART 2045 Fund”), (14) MassMutual
RetireSMART
SM
2050 Fund (“RetireSMART 2050
Fund”), and (15) MassMutual RetireSMART
SM
2055 Fund
(“RetireSMART 2055 Fund”) (each individually referred to as a “Fund” or collectively as the “Funds”). Currently, the Trustees have authorized a total of 37 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 and restated as of November 21, 2011, as it may be further amended from
time to time (the “Declaration of Trust”). The investment adviser for each of the Funds is MML Investment Advisers, LLC (“MML 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 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 voting securities (which, under the Investment Company Act of 1940, as amended (the “1940 Act”) and the rules thereunder and as used in this SAI and in the Prospectus, means the lesser of (l) 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 (the “Board”)
may adopt new or amend or delete existing non-fundamental investment policies and restrictions without shareholder approval. There is no guarantee that any Fund will achieve its investment objective.
Unless otherwise specified, each Fund may engage in the
investment practices and techniques described below to the extent consistent with such Fund’s investment objective and fundamental investment restrictions. Not all Funds necessarily will utilize all or any of these practices and techniques at
any one time or at all. Investment policies and restrictions described below are non-fundamental and may be changed by the Trustees without shareholder approval, unless otherwise noted. 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.
Each RetireSMART Fund seeks to achieve its investment objective by investing in a combination of domestic and international mutual funds
sponsored by MassMutual or its affiliates (“Underlying Funds”)
1
using an asset allocation strategy. In managing their portfolios of investments, the Underlying Funds may purchase various securities and investment related instruments and make use of various investment
techniques, including, but
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Funds can include MassMutual Select Funds, MassMutual Premier Funds (which are advised by MML Advisers), Babson Funds, and Oppenheimer Funds (which are advised by
Babson Capital Management LLC (“Babson Capital”) and OFI Global Asset Management, Inc. (“OFI Global Asset Management”), respectively). Each of Babson Capital and OFI Global Asset Management is a majority owned, indirect
subsidiary of MassMutual.
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not limited to, those described below. Except as otherwise stated, references in this section to “the Funds,” “each Fund,” or “a Fund” may relate to the Funds, one
or more Underlying Funds, or both.
Asset-Based Securities
A Fund may invest in debt, preferred, or
convertible securities, the principal amount, redemption terms, or conversion terms of which are related to the market price of some natural resource asset such as gold bullion. These securities are referred to as “asset-based securities.”
If an asset-based security is backed by a bank letter of credit or other similar facility, the investment adviser or subadviser may take such backing into account in determining the creditworthiness of the issuer. While the market prices for an
asset-based security and the related natural resource asset generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-based securities may not be secured by a security interest in or
claim on the underlying natural resource asset. The asset-based securities in which a Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Certain asset-based securities may be payable at
maturity in cash at the stated principal amount or, at the option of the holder, directly in a stated amount of the asset to which it is related. In such instance, because no Fund presently intends to invest directly in natural resource assets, a
Fund would sell the asset-based security in the secondary market, to the extent one exists, prior to maturity if the value of the stated amount of the asset exceeds the stated principal amount and thereby realize the appreciation in the underlying
asset. Certain restrictions imposed on the Funds by the Internal Revenue Code of 1986, as amended (the “Code”), may limit the Funds’ ability to invest in certain natural resource-based securities.
Precious Metal-Related Securities
. A Fund may invest
in the equity securities of companies that explore for, extract, process, or deal in precious metals (e.g., gold, silver, and platinum), and in asset-based securities indexed to the value of such metals. Such securities may be purchased when they
are believed to be attractively priced in relation to the value of a company’s precious metal-related assets or when the values of precious metals are expected to benefit from inflationary pressure or other economic, political, or financial
uncertainty or instability. Based on historical experience, during periods of economic or financial instability the securities of companies involved in precious metals may be subject to extreme price fluctuations, reflecting the high volatility of
precious metal prices during such periods. In addition, the instability of precious metal prices may result in volatile earnings of precious metal-related companies, which may, in turn, adversely affect the financial condition of such companies.
The major producers of gold include the Republic
of South Africa, Russia, Canada, the United States, Brazil, and Australia. Sales of gold by Russia are largely unpredictable and often relate to political and economic considerations rather than to market forces. Economic, financial, social, and
political factors within South Africa may significantly affect South African gold production.
Bank Capital Securities
Certain of the Funds may invest in bank capital securities. Bank capital securities are issued by banks to help fulfill their regulatory capital requirements. Many bank capital securities are commonly
thought of as hybrids of debt and preferred stock. Some bank capital securities are perpetual (with no maturity date), callable, and have a cumulative interest deferral feature. This means that under certain conditions, the issuer bank can withhold
payment of interest until a later date, likely increasing the credit and interest rate risks of an investment in those securities.
Bank Loans
Certain of the Funds may invest in bank loans including, for example, corporate loans, loan participations, direct debt, bank debt, and
bridge debt. A Fund may invest in a loan by lending money to a borrower directly as part of a syndicate of lenders. In a syndicated loan, the agent that originated and structured the loan typically administers and enforces the loan on behalf of the
syndicate. In such cases, the agent is normally responsible for the collection of principal and interest payments from the borrower and the apportionment of these payments to
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the credit of all institutions that are parties to the loan agreement. A Fund will generally rely on the agent to receive and forward to the Fund its portion of the principal and interest
payments on the loan. Failure by the agent to fulfill its obligations may delay or adversely affect receipt of payment by a Fund.
A Fund may invest in loans through novations, assignments, and participation interests. In a novation, a Fund typically assumes all of the
rights of a lending institution in a loan, including the right to receive payments of principal and interest and other amounts directly from the borrower and to enforce its rights as a lender directly against the borrower. When a Fund takes an
assignment of a loan, the Fund acquires some or all of the interest of another lender (or assignee) in the loan. In such cases, the Fund may be required generally to rely upon the assignor to demand payment and enforce rights under the loan. (There
may be one or more assignors prior in time to the Fund.) If a Fund acquires a participation in the loan made by a third party loan investor, the Fund typically will have a contractual relationship only with the loan investor, not with the borrower.
As a result, a Fund may have the right to receive payments of principal, interest, and any fees to which it is entitled only from the loan investor selling the participation and only upon receipt by such loan investor of such payments from the
borrower. In connection with participations, a Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights with respect to any funds acquired by other loan investors through set-off
against the borrower, and the Fund may not directly benefit from the collateral supporting the loan in which it has purchased the participation. As a result, a Fund assumes the credit risk of both the borrower and the loan investor selling the
participation. In the event of the insolvency of the loan investor selling a participation, a Fund may be treated as a general creditor of such loan investor. In addition, because loan participations are not generally rated by independent credit
rating agencies, a decision by a Fund to invest in a particular loan participation will depend almost exclusively on its investment adviser’s or subadviser’s credit analysis of the borrower.
Loans in which a Fund may invest are subject generally to the
same risks as debt securities in which the Fund may invest. In addition, loans in which a Fund may invest, including bridge loans, are generally made to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs, and other
corporate activities, including bridge loans. A significant portion of the loans purchased by a Fund may represent interests in loans made to finance highly leveraged corporate acquisitions, known as “leveraged buy-out” transactions,
leveraged recapitalization loans, and other types of acquisition financing. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions.
Loans generally are subject to restrictions on
transfer, and only limited opportunities may exist to sell loans in secondary markets. As a result, a Fund may be unable to sell loans at a time when it may otherwise be desirable to do so or may be able to sell them only at a price that is less
than their fair market value.
Certain of the
loans acquired by a Fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Fund would have an obligation to advance its portion
of such additional borrowings upon the terms specified in the loan participation. A Fund may be required to fund such advances at times and in circumstances where the Fund might not otherwise choose to make a loan to the borrower.
The value of collateral, if any, securing a loan can decline,
or may be insufficient to meet the borrower’s obligations or difficult to liquidate. In addition, a Fund’s access to collateral may be limited by bankruptcy or other insolvency laws. If a secured loan is foreclosed, a Fund could become
part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. A bankruptcy or restructuring can result in the loan being converted to an equity ownership interest in the borrower. In
addition, under legal theories of lender liability, a Fund potentially might be held liable as a co-lender.
Borrowings
A Fund is required at all times to maintain its assets at a level at least three times the amount of all of its borrowings (the “300% asset coverage test”). Borrowings for this purpose include
obligations under any futures
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contract on a debt obligation. The Securities and Exchange Commission (“SEC”) has taken the position that certain transactions, such as entering into reverse repurchase agreements,
engaging in dollar roll transactions, selling securities short (other than short sales
“against-the-box”),
buying and selling certain derivatives (such as
future contracts), and selling (or writing) put and call options, and other trading practices that have a leveraging effect on the capital structure of a fund or are economically equivalent to borrowing can be viewed as borrowing by the fund for
purposes of the 1940 Act. A borrowing transaction (including, without limitation, a reverse repurchase agreement transaction) will not be considered to constitute the issuance of a “senior security” by a fund, and therefore such
transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund (1) maintains an offsetting financial position; (2) segregates liquid assets equal (as determined on a daily
mark-to-market
basis) in value to the fund’s potential economic exposure under the borrowing transaction; or (3) otherwise “covers” the transaction in
accordance with SEC guidance. Any borrowings that come to exceed the 300% asset coverage requirement will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with this requirement.
Cash and Short-Term Debt Securities
Money Market Instruments Generally
. The Funds
may invest in money market securities, including money market funds. Money market securities are high-quality, short-term debt instruments that may be issued by the U.S. Government, corporations, banks, or other entities. They may have fixed,
variable, or floating interest rates. Some money market securities in which the Funds may invest are described below.
Bank Obligations
.
The Funds may invest in bank obligations, including certificates of deposit, time deposits,
bankers’ acceptances, and other short-term obligations of domestic banks, foreign subsidiaries of domestic banks, foreign branches of domestic banks, and domestic and foreign branches of foreign banks, domestic savings and loan associations,
and other banking institutions.
Certificates of
deposit (“CDs”) are negotiable certificates evidencing the obligations of a bank to repay funds deposited with it for a specified period of time. Time deposits are non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits which may be held by the Funds will not benefit from insurance from the Bank Insurance Fund or the Savings Association Insurance Fund administered by the Federal Deposit Insurance Corporation.
Bankers’ acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and the drawer to pay the face amount of the instrument upon
maturity. The other short-term obligations may include uninsured, direct obligations, bearing fixed, floating, or variable interest rates.
The Funds may invest in certificates of deposit and bankers’ acceptances of U.S. banks and savings and loan associations, London
branches of U.S. banks, and U.S. branches of foreign banks. 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.
Cash, Short-Term Instruments, and Temporary Investments
.
The Funds may hold any portion of their assets in cash or cash equivalents at any time or for an extended time. The
Funds’ investment adviser or subadvisers will determine the amount of the Funds’ assets to be held in cash or cash equivalents at their sole discretion, based on such factors as they may consider appropriate under the circumstances. The
Funds may hold a portion of their assets in cash, for example, in order to provide for expenses or anticipated redemption payments or for temporary defensive purposes. The Funds may also hold a portion of their assets in cash as part of the
Funds’ investment programs or asset allocation strategies, in amounts considered appropriate by the Funds’ investment adviser or subadvisers. To the extent the Funds hold assets in cash and otherwise uninvested,
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the ability of the Funds to meet their objectives may be limited. The Funds may invest in high quality money market instruments. The instruments in which the Funds may invest include, without
limitation: (i) short-term obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (including government-sponsored enterprises); (ii) CDs, bankers’ acceptances, fixed time deposits, and other
obligations of domestic banks (including foreign branches); (iii) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than one year; (iv) repurchase
agreements; and (v) short-term obligations of foreign banks (including U.S. branches).
Commercial Paper and Short-Term Corporate Debt Instruments
.
The Funds may invest in commercial paper (including variable amount master demand notes) consisting of short-term,
unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is usually sold on a discount basis and, other than asset-backed commercial paper, usually has a maturity at the time of issuance not exceeding
nine months. Variable amount master demand notes are demand obligations that permit the investment of fluctuating amounts at varying market rates of interest pursuant to arrangements between the issuer and a commercial bank acting as agent for the
payee of such notes whereby both parties have the right to vary the amount of the outstanding indebtedness on the notes. The investment adviser or subadvisers monitor on an ongoing basis the ability of an issuer of a demand instrument to pay
principal and interest on demand. The Funds also may invest in non-convertible corporate debt securities (e.g., bonds and debentures) with not more than one year remaining to maturity at the date of settlement.
Letters of Credit
.
Certain of the
debt obligations (including municipal securities, certificates of participation, commercial paper, and other short-term obligations) which the Funds may purchase may be backed by an unconditional and irrevocable letter of credit of a bank, savings
and loan association, or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer.
Common and Preferred Stocks
Stocks represent shares of ownership in a company. Generally, preferred stock has a specified dividend and ranks after bonds and before
common stocks in its claim on income for dividend payments and on assets should the company be liquidated. After other claims are satisfied, common stockholders participate in company profits on a pro-rata basis. Profits may be paid out in dividends
or reinvested in the company to help it grow. Increases and decreases in earnings are usually reflected in a company’s stock price, so common stocks generally have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, preferred stocks may be purchased where the issuer has omitted, or is in the danger of omitting, payment of its dividend. Such investments would be made primarily for their capital
appreciation.
Concentration Policy
For purposes of each Fund’s concentration limitation as
disclosed in this SAI, the Funds apply such policy to direct investments in the securities of issuers in a particular industry, as determined by a Fund’s investment adviser or subadviser. A Fund’s investment adviser or subadviser may
analyze the characteristics of a particular issuer and security and assign an industry or sector classification consistent with those characteristics in the event that the third party classification provider used by the investment adviser or
subadviser does not assign a classification or the investment adviser or subadviser, in consultation with the Fund’s Chief Compliance Officer, determines that another industry or sector classification is more appropriate.
Convertible Securities
The Funds may invest in debt or preferred equity securities
convertible into, or exchangeable for, common stock at a stated price or rate. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than nonconvertible securities. They generally
participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. In recent years,
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convertibles have been developed which combine higher or lower current income with options and other features. Convertible securities are subject to the risks of debt and equity securities.
Derivatives
General
. Derivatives are
financial instruments whose values are based on the values of one or more indicators, such as a security, asset, currency, interest rate, or index. Derivative transactions can create investment leverage and may be highly volatile. It is possible
that a derivative transaction will result in a loss greater than the principal amount invested. A Fund may not be able to close out a derivative transaction at a favorable time or price.
A Fund’s use of derivative instruments involves risks different from, and possibly greater than, the risks
associated with investing directly in securities and other more traditional investments. Derivative products can be highly specialized instruments that may require investment techniques and risk analyses different from those associated with stocks
and bonds. Derivatives are subject to a number of risks, such as potential changes in value in response to interest rate changes or other market developments or as a result of the counterparty’s credit quality and the risk that a derivative
transaction may not have the effect a Fund’s investment adviser or subadviser anticipated. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value of a derivative may not correlate perfectly
with the underlying asset, rate, or index. Derivative transactions can create investment leverage and may be highly volatile. When a Fund invests in a derivative instrument, it could lose more than the principal amount invested. Also, suitable
derivative transactions may not be available in all circumstances, and there can be no assurance that a Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial. Many derivative transactions are entered
into “over the counter” (not on an exchange or contract market); as a result, the value of such a derivative transaction will depend on the ability and the willingness of the Fund’s counterparty to perform its obligations under the
transaction. A Fund may be required to segregate certain of its assets on the books of its custodian with respect to derivatives transactions entered into by the Fund. A liquid secondary market may not always exist for a Fund’s derivative
positions at any time. Use of derivatives may increase the amount and timing of taxes payable by shareholders. Although the use of derivatives is intended to enhance a Fund’s performance, it may instead reduce returns and increase volatility.
A Fund may enter into cleared derivatives
transactions. Certain clearinghouses currently offer clearing for a limited number of types of derivatives transactions, including principally credit derivatives. In a cleared derivative transaction, a Fund typically enters into the transaction with
a financial institution counterparty, and performance of the transaction is effectively guaranteed by a central clearinghouse, thereby reducing or eliminating the Fund’s exposure to the credit risk of its original counterparty (although the
Fund is subject to the credit risk of the clearinghouse). Under the Dodd-Frank Act, many other types of derivatives transactions will be required to be cleared in the future. It is expected that market participants will experience new and/or
additional regulations, requirements, compliance burdens, and associated costs in connection with cleared derivatives. In connection with cleared derivatives transactions, a Fund will likely be required to comply with margin requirements meeting
minimum levels set by clearing organizations, and may be required to reserve against its liabilities. The margin required by a clearinghouse may be greater than the margin a Fund would be required to post in an uncleared transaction. New position
limits (which may apply to all clients of an investment adviser or subadviser collectively and to both cleared and uncleared transactions) may limit the ability of a Fund to enter into derivatives transactions. The clearing requirement will likely
increase the cost of a Fund’s derivatives transactions and may limit the availability to a Fund of derivatives contracts that it might otherwise wish to use. Because the clearing requirement is new and related regulations are still under
development, it is not possible to predict with accuracy the effect of the clearing requirement on Fund’s operations.
No Fund has the obligation to enter into derivatives transactions at any time or under any circumstances. In addition, nothing in this SAI
is intended to limit in any way any purpose for which a Fund may enter into any type of derivatives transaction; a Fund may use derivatives transactions for hedging purposes or generally for purposes of enhancing its investment return.
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Foreign Currency Exchange Transactions
A Fund may enter into foreign currency exchange transactions
for hedging purposes in order to protect against uncertainty in the level of future foreign currency exchange rates, or for other, non-hedging purposes—for example, a Fund may take a long or short position with respect to a foreign currency in
which none of the Fund’s assets or liabilities are denominated, or where the position is in excess of the amount of any such assets or liabilities, in order to take advantage of anticipated changes in the relative values of those currencies.
There can be no assurance that appropriate foreign currency transactions will be available for a Fund at any time or that a Fund will enter into such transactions at any time or under any circumstances even if appropriate transactions are available
to it. A Fund may purchase or sell a foreign currency on a spot (i.e
.
, cash) basis at the prevailing spot rate. A Fund may also enter into contracts to deliver in the future an amount of one currency in return for an amount of another
currency (“forward contracts”) and may purchase and sell foreign currency futures contracts. (Foreign currency futures contracts are similar to financial futures contracts, except that they typically contemplate the delivery of foreign
currencies; see “Financial Futures Contracts,” below.) A Fund may also purchase or sell options on foreign currencies or options on foreign currency futures contracts.
A Fund may enter into foreign currency exchange transactions
in order to hedge against a change in the values of assets or liabilities denominated in one or more foreign currencies due to changes in currency exchange rates.
A Fund may also enter into foreign currency transactions to
adjust generally the exposure of its portfolio to various foreign currencies. For example, a Fund with a large exposure to securities denominated in euros might want to continue to hold those securities, but to trade its exposure to the euro to
exposure to, say, the Japanese Yen. In that case, the Fund might take a short position in the euro and a long position in the Yen. A Fund may also use foreign currency transactions to hedge the value of the Fund’s portfolio against the
Fund’s benchmark index.
The value of any
currency, including U.S. dollars and foreign currencies, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of foreign currencies (and therefore the values of foreign currency
options, forward contracts, and futures contracts) may be affected significantly, fixed, or supported directly or indirectly by U.S. and foreign government actions. Government intervention may increase risks involved in purchasing or selling foreign
currency options, forward contracts, and futures contracts, since exchange rates may not be free to fluctuate in response to other market forces. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or
disposing of foreign currencies.
Because foreign
currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the use of foreign currency options, investors may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last-sale information for foreign currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market.
Currency Forward and Futures Contracts
. A foreign currency forward contract involves an obligation to
deliver in the future, which may be any fixed number of days from the date of the contract as agreed by the parties, an amount of one currency in return for an amount of another currency, at an exchange rate set at the time of the contract. The
contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract frequently has no margin requirement,
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and no commissions are charged for trades. A foreign currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at
an exchange rate set at the time of the contract. Foreign currency futures contracts traded in the United States are designed by and traded on exchanges regulated by the Commodity Futures Trading Commission (the “CFTC”), such as the New
York Mercantile Exchange. Foreign currency futures contracts will typically require a Fund to post both initial margin and variation margin.
Foreign currency forward contracts differ from foreign currency futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund will
make delivery of the currency or currencies specified in the contract in return for the other currency or currencies specified in the contract (or, if the forward contract is a non-deliverable forward contract, settle the contract on a net basis
with the counterparty) or, at or prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange and a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts
and related options may be closed out only on an exchange or board of trade which provides a secondary market in such contracts or options. Although a Fund will normally purchase or sell foreign currency futures contracts and related options only on
exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position and, in the event of adverse price movements, a Fund would continue to be required to make daily cash payments of variation margin on its futures positions. A Fund’s
ability to close out a foreign currency forward contract will depend on the willingness of its counterparty to engage in an offsetting transaction.
Because foreign currency forward contracts are private transactions between a Fund and its counterparty, any benefit of such contracts to
the Fund will depend upon the willingness and ability of the counterparty to perform its obligations. In the case of a futures contract, a Fund would typically look to the commodity exchange or contract market (or its clearinghouse) for performance.
Certain non-deliverable forward currency contracts are expected to become subject to mandatory clearing requirements in the future, and a Fund’s counterparty in such a case would be a central derivatives clearing organization.
Foreign Currency
Options
. Options on foreign currencies operate similarly to options on securities, and are traded primarily in the over-the-counter market, although options on foreign currencies have recently been listed on several
exchanges. Such options will be purchased or written only when an investment adviser or subadviser believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. Options on foreign currencies are affected by all of those factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the foreign currency and the U.S. dollar, and may have no
relationship to the investment merits of a foreign security.
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Foreign Currency Conversion
. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a profit based on the difference (the “spread”) between prices at which they buy and sell various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should a Fund desire to resell that currency to the dealer.
Foreign Currency Swap Agreements
. A Fund may enter into currency swaps to protect against adverse changes in
exchange rates between the U.S. dollar and other currencies or as a means of making indirect investments in foreign currencies. Currency swaps involve the individually negotiated exchange by a Fund with another party of a series of payments in
specified currencies in amounts determined pursuant to the terms of the swap agreement. (See “Swap Agreements and Options on Swap Agreements,” below.)
Foreign currency derivatives transactions may be highly volatile and may give rise to investment leverage.
Financial Futures Contracts
A Fund may enter into futures contracts, including interest
rate futures contracts, securities index futures contracts, and futures contracts on fixed income securities (collectively referred to as “financial futures contracts”).
A Fund may use interest rate futures contracts to adjust the
interest rate sensitivity (duration) of its portfolio or the credit exposure of the portfolio. Interest rate futures contracts obligate the long or short holder to take or make delivery of a specified quantity of a financial instrument, such as a
specific fixed-income security, during a specified future period at a specified price.
A Fund may use index futures contracts to hedge against broad market risks to its portfolio or to gain broad market exposure when it holds uninvested cash or as an inexpensive substitute for cash
investments directly in securities or other assets, including commodities and precious metals. Securities index futures contracts are contracts to buy or sell units of a securities index at a specified future date at a price agreed upon when the
contract is made and are settled in cash.
The
following example illustrates generally the manner in which index futures contracts operate. The Standard & Poor’s 100 Stock Index (the “S&P 100 Index”) is composed of 100 selected common stocks, most of which are listed
on the New York Stock Exchange (the “NYSE”). The S&P 100 Index assigns relative weightings to the common stocks included in the Index, and the Index fluctuates with changes in the market values of those common stocks. In the case of
the S&P 100 Index, contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one contract would be worth $18,000 (100 units x $180). The stock index futures contract specifies that no delivery of the actual
stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of
the contract. For example, if a Fund enters into a stock index futures contract to buy 100 units of the S&P 100 Index at a specified future date at a contract price of $180 and the S&P 100 Index is at $184 on that future date, the Fund will
gain $400 (100 units x gain of $4). If the Fund enters into a stock index futures contract to sell 100 units of the stock index at a specified future date at a contract price of $180 and the S&P 100 Index is at $182 on that future date, the Fund
will lose $200 (100 units x loss of $2).
Positions in financial futures contracts may be closed out only on an exchange or board of trade which provides a secondary market for
such futures.
There are special risks associated
with entering into financial futures contracts. The skills needed to use financial futures contracts effectively are different from those needed to select a Fund’s investments. There may be an imperfect correlation between the price movements
of financial futures contracts and the price movements of the securities in which a Fund invests. There is also a risk that a Fund will be unable to close a position in a financial futures contract when desired because there is no liquid secondary
market for it.
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The risk of loss in trading financial futures contracts can be substantial due to the low
margin deposits required and the extremely high degree of leverage involved in futures pricing. Relatively small price movements in a financial futures contract could have an immediate and substantial impact, which may be favorable or unfavorable to
a Fund. It is possible for a price-related loss to exceed the amount of a Fund’s margin deposit.
Although some financial futures contracts by their terms call for the actual delivery or acquisition of securities at expiration, in most
cases the contractual commitment is closed out before expiration. The offsetting of a contractual obligation is accomplished by purchasing (or selling as the case may be) on a commodities or futures exchange an identical financial futures contract
calling for delivery in the same month. Such a transaction, if effected through a member of an exchange, cancels the obligation to make or take delivery of the securities. A Fund will incur brokerage fees when it purchases or sells financial futures
contracts, and will be required to maintain margin deposits. If a liquid secondary market does not exist when a Fund wishes to close out a financial futures contract, it will not be able to do so and will continue to be required to make daily cash
payments of variation margin in the event of adverse price movements.
Each Fund has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act (the “CEA”) and, therefore, is not subject to registration
or regulation as a pool operator under the CEA. To be eligible to claim such an exclusion, a Fund may only use futures contracts, options on such futures, commodity options and certain swaps solely for “bona fide hedging purposes,” or must
limit its use of such instruments for non-bona fide hedging purposes to certain de minimis amounts. It is possible that that exclusion may in the future cease to be available with respect to one or more Funds. In any case where the exclusion is
unavailable to a Fund, additional CFTC-mandated disclosure, reporting, and recordkeeping obligations would apply with respect to that Fund. Compliance with the CFTC’s regulatory requirements could increase Fund expenses and potentially
adversely affect a Fund’s total return.
Margin Payments
. When a Fund purchases or sells a financial futures contract, it is required to deposit with
the broker an amount of cash, U.S. Treasury bills, or other permissible collateral equal to a small percentage of the amount of the financial futures contract. This amount is known as “initial margin.” The nature of initial margin is
different from that of margin in security transactions in that it does not involve borrowing money to finance transactions. Rather, initial margin is similar to a performance bond or good faith deposit that is returned to a Fund upon termination of
the contract, assuming the Fund satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process known as “marking to market.” These payments are called “variation margin” and are made as the value of
the underlying financial futures contract fluctuates. For example, when a Fund sells an index futures contract and the price of the underlying index rises above the delivery price, the Fund’s position declines in value. The Fund then pays the
broker a variation margin payment equal to the difference between the delivery price of the index futures contract and the value of the index underlying the index futures contract. Conversely, if the price of the underlying index falls below the
delivery price of the contract, the Fund’s futures position increases in value. The broker then must make a variation margin payment equal to the difference between the delivery price of the index futures contract and the value of the index
underlying the index futures contract.
When a
Fund terminates a position in a financial futures contract, a final determination of variation margin is made, additional cash is paid by or to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission
costs.
Options on Financial Futures
Contracts
. A Fund may purchase and write call and put options on financial futures contracts. An option on a financial futures contract gives the purchaser the right, in return for the premium paid, to assume a position in
a financial futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the holder would assume the
underlying futures position and would receive a variation margin payment of cash or securities approximating the increase in the value of the holder’s option position. If an
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option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Special Risks of Transactions in Financial Futures Contracts and Related Options.
Financial futures contracts entail risks. The risks associated with purchasing and writing
put and call options on financial futures contracts can be influenced by the market for financial futures contracts. An increase in the market value of a financial futures contract on which the Fund has written an option may cause the option to be
exercised. In this situation, the benefit to a Fund would be limited to the value of the exercise price of the option and, if a Fund closes out the option, the cost of entering into the offsetting transaction could exceed the premium the Fund
initially received for writing the option. In addition, a Fund’s ability to enter into an offsetting transaction depends upon the market’s demand for such financial futures contracts. If a purchased option expires unexercised, a Fund would
realize a loss in the amount of the premium paid for the option.
If an investment adviser’s or subadviser’s judgment about the general direction of interest rates or markets is wrong, the overall performance may be poorer than if no financial futures
contracts had been entered into.
Liquidity
risks
. Positions in financial futures contracts may be closed out only on an exchange or board of trade which provides a secondary market for such futures. Although the Funds intend to purchase or sell financial futures
contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange or board of trade will exist for any particular contract or at any particular
time. If there is not a liquid secondary market at a particular time, it may not be possible to close a position in a financial futures contract at such time and, in the event of adverse price movements, a Fund would continue to be required to make
daily cash payments of variation margin. However, in the event financial futures contracts are used to hedge portfolio securities, such securities will not generally be sold until the financial futures contracts can be terminated. In such
circumstances, an increase in the price of the portfolio securities, if any, may partially or completely offset losses on the financial futures contracts.
The ability to establish and close out positions in options on financial futures contracts will be subject to the development and
maintenance of a liquid secondary market. It is not certain that such a market will develop. Although a Fund generally will purchase only those options for which there appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option or at any particular time. In the event no such market exists for particular options, it might not be possible to effect closing transactions in such options, with the result that
a Fund would have to exercise the options in order to realize any profit.
Hedging risks
. There are several risks in connection with the use by a Fund of financial futures contracts and related options as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the financial futures contracts and options and movements in the underlying securities or index or movements in the prices of a Fund’s securities which are the subject of a hedge.
Successful use of financial futures contracts and
options by a Fund for hedging purposes is also subject to an investment adviser’s or subadviser’s ability to predict correctly movements in the direction of the market. It is possible that, where a Fund has purchased puts on financial
futures contracts to hedge its portfolio against a decline in the market, the securities or index on which the puts are purchased may increase in value and the value of securities held in the portfolio may decline. If this occurred, the Fund would
lose money on the puts and also experience a decline in the value of its portfolio securities. In addition, the prices of financial futures contracts, for a number of reasons, may not correlate perfectly with movements in the underlying securities
or index due to certain market distortions. First, all participants in the futures market are subject to margin deposit requirements. Such requirements may cause investors to close financial futures contracts through offsetting transactions which
could distort the normal relationship between the underlying security or index and futures markets. Second, the margin requirements in the futures markets are less onerous than margin requirements in the securities markets in
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general, and as a result the futures markets may attract more speculators than the securities markets do. Increased participation by speculators in the futures markets may also cause temporary
price distortions. Due to the possibility of price distortion, even a correct forecast of general market trends by an investment adviser or subadviser still may not result in a successful hedging transaction over a very short time period.
Other Risks
. A Fund
will incur brokerage fees in connection with its transactions in financial futures contracts and related options. In addition, while financial futures contracts and options on financial futures contracts will be purchased and sold to reduce certain
risks, those transactions themselves entail certain other risks. Thus, while a Fund may benefit from the use of financial futures contracts and related options, unanticipated changes in interest rates or stock price movements may result in a poorer
overall performance for the Fund than if it had not entered into any financial futures contracts or options transactions. Moreover, in the event of an imperfect correlation between the position in the financial futures contract and the portfolio
position that is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss.
Swap Agreements and Options on Swap Agreements
A Fund may engage in swap transactions, including interest
rate swap agreements, credit default swaps, and total return swaps. A Fund may enter into swap transactions for any purpose consistent with its investment objectives and policies, such as for the purpose of attempting to obtain or preserve a
particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets, 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.
Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more
than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an
interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” (i.e
.
, the return on or increase in value of a particular dollar amount
invested at a particular interest rate or in a “basket” of securities representing a particular index). When a Fund enters into an interest rate swap, it typically agrees to make payments to its counterparty based on a specified
long-
or short-term interest rate, and will receive payments from its counterparty based on another interest rate. Other forms of swap agreements include interest rate caps, under which, in return for a specified
payment stream, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”; interest rate floors, under which, in return for a specified payment stream, one party agrees to make
payments to the other to the extent that interest rates fall below a specified rate, or “floor”; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against
interest rate movements exceeding given minimum or maximum levels. A Fund may enter into an interest rate swap in order, for example, to hedge against the effect of interest rate changes on the value of specific securities in its portfolio, or to
adjust the interest rate sensitivity (duration) or the credit exposure of its portfolio overall, or otherwise as a substitute for a direct investment in debt securities.
A Fund may enter into total return swaps. In a total return
swap, one party typically agrees to pay to the other a short-term interest rate in return for a payment at one or more times in the future based on the increase in the value of an underlying security or other asset, or index of securities or assets;
if the underlying security, asset, or index declines in value, the party that pays the short-term interest rate must also pay to its counterparty a payment based on the amount of the decline. A Fund may take either side of such a swap, and so may
take a long or short position in the underlying security, asset, or index. A Fund may enter into a total return swap to hedge against an exposure in its portfolio (including to adjust the duration or credit quality of a Fund’s bond portfolio)
or generally to put cash to work efficiently in the markets in anticipation of, or as a replacement for, cash investments. A Fund may also enter into a total return swap to gain exposure to securities or markets in which it might not be able to
invest directly (in
so-called
market access transactions).
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A Fund also may enter into credit default swap transactions. In a credit default swap, one
party provides what is in effect insurance against a default or other adverse credit event affecting an issuer of debt securities (typically referred to as a “reference entity”). In general, the protection “buyer” in a credit
default swap is obligated to pay the protection “seller” an upfront amount or a periodic stream of payments over the term of the swap. If a “credit event” occurs, the buyer has the right to deliver to the seller bonds or other
obligations of the reference entity (with a value up to the full notional value of the swap), and to receive a payment equal to the par value of the bonds or other obligations. Credit events that would trigger a request that the seller make payment
are specific to each credit default swap agreement, but generally include bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium. A Fund may be either the buyer or seller in a credit default
swap transaction. When a Fund buys protection, it may or may not own securities of the reference entity. If it does own securities of the reference entity, the swap serves as a hedge against a decline in the value of the securities due to the
occurrence of a credit event involving the issuer of the securities. If the Fund does not own securities of the reference entity, the credit default swap may be seen to create a short position in the reference entity. If a Fund is a buyer and no
credit event occurs, the Fund will typically recover nothing under the swap, but will have had to pay the required upfront payment or stream of continuing payments under the swap. When a Fund sells protection under a credit default swap, the
position may have the effect of creating leverage in the Fund’s portfolio through the Fund’s indirect long exposure to the issuer or securities on which the swap is written. When a Fund sells protection, it may do so either to earn
additional income or to create such a “synthetic” long position. Credit default swaps involve general market risks, illiquidity risk, counterparty risk, and credit risk.
A Fund may also enter into options on swap agreements
(“swaptions”). A swaption is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel, or otherwise modify an existing swap agreement, at some designated
future time on specified terms. A Fund may write (sell) and purchase put and call swaptions. Depending on the terms of the particular option agreement, a Fund will generally incur a greater degree of risk when it writes a swaption than it will
incur when it purchases a swaption. When a Fund purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Fund writes a swaption, upon exercise of the
option the Fund will become obligated according to the terms of the underlying agreement. A Fund may enter into swaptions for the same purposes as swaps.
Whether a Fund’s use of swap agreements or swaptions will be successful will depend on the investment adviser’s or
subadviser’s ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterparty. Certain restrictions imposed on the Funds by the Code, may limit the Funds’ ability to use swap agreements. The swap market is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation, could adversely affect a Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
Swaps are highly specialized instruments that require
investment techniques, risk analyses, and tax planning different from those associated with traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index but also of the swap itself,
without the benefit of observing the performance of the swap under all possible market conditions. Because they are two party contracts that may be subject to contractual restrictions on transferability and termination and because they may have
terms of greater than seven days, swap agreements may be considered to be illiquid and subject to a Fund’s limitation on investments in illiquid securities. To the extent that a swap is not liquid, it may not be possible to initiate a
transaction or liquidate a position at an advantageous time or price, which may result in significant losses.
Like most other investments, swap agreements are subject to the risk that the market value of the instrument will change in a way
detrimental to a Fund’s interest. A Fund bears the risk that an investment adviser or subadviser will not accurately forecast future market trends or the values of assets, reference rates, indexes, or
B-15
other economic factors in establishing swap positions for the Fund. If an investment adviser or subadviser attempts to use a swap as a hedge against, or as a substitute for, a portfolio
investment, the Fund will be exposed to the risk that the swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Fund. While hedging strategies involving swap instruments
can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Fund investments. Many swaps are complex and often valued subjectively.
The U.S. Congress, various exchanges and regulatory and
self-regulatory authorities have undertaken reviews of derivatives trading in recent periods. Among the actions that have been taken or proposed to be taken are new position limits and reporting requirements, new or more stringent daily price
fluctuation limits for futures and options transactions, new or increased margin and reserve requirements for various types of derivatives transactions, and mandatory clearing, trading, and reporting requirements for many derivatives. Additional
measures are under active consideration and as a result there may be further actions that adversely affect the regulation of instruments in which the Funds invest. It is possible that these or similar measures could potentially limit or completely
restrict the ability of a Fund to use these instruments as a part of its investment strategy. Limits or restrictions applicable to the counterparties with which the Funds engage in derivative transactions could also prevent the Funds from using
these instruments.
Options, Rights, and
Warrants
A Fund may purchase and sell
put and call options on securities to enhance investment performance or to protect against changes in market prices. A Fund that invests in debt securities may also purchase and sell put and call options to adjust the interest rate sensitivity of
its portfolio or the credit exposure of the portfolio.
Call options.
A Fund may write call options on its securities to realize a greater current return through the receipt of premiums. Such option transactions may also be used
as a limited form of hedging against a decline in the price of securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the writer to sell, a security at the exercise price at any time before the expiration date. A Fund may write covered call options or
uncovered call options. A call option is “covered” if the writer, at all times while obligated as a writer, either owns the underlying securities (or comparable securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of securities. When a Fund has written an uncovered call option, the Fund will not necessarily hold securities offsetting the risk to the Fund. As a result, if the call option
were exercised, the Fund might be required to purchase the security that is the subject of the call at the market price at the time of exercise. The Fund’s exposure on such an option is theoretically unlimited. There is also a risk, especially
with less liquid preferred and debt securities, that the security may not be available for purchase.
A Fund will receive a premium from writing a call option, which increases the Fund’s return in the event the option expires
unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the
amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security.
In return for the premium received when it writes a covered
call option, a Fund takes the risk during the life of the option that it will be required to deliver the underlying security at a price below the current market value of the security or, in the case of a covered call option, to give up some or all
of the opportunity to profit from an increase in the market price of the securities covering the call option.
In the case of a covered option, the Fund also retains the risk of loss should the price of the securities decline. If the covered option
expires unexercised, the Fund realizes a gain equal to the premium, which may be offset by a decline in price of the underlying security. If the option is exercised, the Fund realizes a gain or loss
B-16
equal to the difference between the Fund’s cost for the underlying security and the proceeds of sale (exercise price minus commissions) plus the amount of the premium.
A Fund may enter into closing purchase transactions in order
to realize a profit or limit a loss on a previously written call option or, in the case of a covered call option, to free itself to sell the underlying security or to write another call on the security, or protect a security from being called in an
unexpected market rise.
Any profits from a closing purchase transaction in the case of a covered call option may be offset by a decline in the value of the underlying security. Conversely, because increases in the market price of a call
option will generally reflect increases in the market price of the underlying security, any loss resulting from a closing purchase transaction relating to a covered call option is likely to be offset in whole or in part by unrealized appreciation of
the underlying security owned by the Fund.
Put
options
. A Fund may write put options in order to enhance its current return by taking a long directional position as to a security or index of securities. Such options transactions may also be used as a limited form of
hedging against an increase in the price of securities that the Fund plans to purchase. A put option gives the holder the right to sell, and obligates the writer to buy, a security at the exercise price at any time before the expiration date. A Fund
may write covered or uncovered put options. A put option is “covered” if the writer segregates cash and high-grade short-term debt obligations or other permissible collateral equal to the price to be paid if the option is exercised.
By writing a put option, the Fund assumes the
risk that it may be required to purchase the underlying security for an exercise price higher than its then current market value, resulting in a potential capital loss unless the security later appreciates in value. A Fund may terminate a put option
that it has written before it expires by entering into a closing purchase transaction. Any loss from this transaction may be partially or entirely offset by the premium received on the terminated option.
Purchasing put and call
options
. A Fund may also purchase put options to protect portfolio holdings against a decline in market value. This protection lasts for the life of the put option because the Fund, as a holder of the option, may sell the
underlying security at the exercise price regardless of any decline in its market price. A Fund may also purchase a put option hoping to profit from an anticipated decline in the value of the underlying security. In order for a put option to be
profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that the Fund must pay. If the Fund holds the security underlying the option, these costs will
reduce any profit the Fund might have realized had it sold the underlying security instead of buying the put option.
A Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security’s market price. A Fund
may also purchase a call option as a long directional investment hoping to profit from an anticipated increase in the value of the underlying security. In order for a call option to be profitable, the market price of the underlying security must
rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
A Fund may also buy and sell combinations of put and call
options on the same underlying security to earn additional income.
A Fund may purchase or sell “structured options,” which may comprise multiple option exposures within a single security. The risk and return characteristics of a structured option will
vary depending on the nature of the underlying option exposures. The Fund may use such options for hedging purposes or as a substitute for direct investments in options or securities. The Fund’s use of structured options may create
investment leverage.
B-17
Options on foreign securities
. A Fund may purchase and sell
options on foreign securities if an investment adviser or subadviser believes that the investment characteristics of such options, including the risks of investing in such options, are consistent with the Fund’s investment objective. It is
expected that risks related to such options will not differ materially from risks related to options on U.S. securities. However, position limits and other rules of foreign exchanges may differ from those in the United States. In addition, options
markets in some countries, many of which are relatively new, may be less liquid than comparable markets in the United States.
Options on securities indices
. A Fund may write or purchase options on securities indices, subject to its
general investment restrictions regarding options transactions. Index options are similar to options on individual securities in that the purchaser of an index option acquires the right to buy (in the case of a call) or sell (in the case of a put),
and the writer undertakes the obligation to sell or buy (as the case may be), units of an index at a stated exercise price during the term of the option. Instead of giving the right to take or make actual delivery of securities, the holder of an
index option has the right to receive a cash “exercise settlement amount.” This amount is equal to the amount by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by a fixed “index multiplier.”
In cases where a Fund uses index options for hedging purposes, price movements in securities which a Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of a securities index and, therefore, a Fund bears the risk of a loss on a securities index option which is not completely offset by movements in the price of such securities. Because
securities index options are settled in cash, a call writer cannot determine the amount of its settlement obligations in advance and, unlike call writing on a specific security, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding underlying securities. A Fund may, however, cover call options written on a securities index by holding a mix of securities which substantially replicate the movement of the index or by holding a call option on
the securities index with an exercise price no higher than the call option sold.
A Fund may purchase or sell options on stock indices in order to close out its outstanding positions in options on stock indices which it has purchased. A Fund may also allow such options to expire
unexercised.
Compared to the purchase or sale of
futures contracts, the purchase of call or put options on an index involves less potential risk to a Fund because the maximum amount at risk is the premium paid for the options plus transactions costs. The writing of a put or call option on an index
involves risks similar to those risks relating to the purchase or sale of index futures contracts.
Risks involved in the sale of options
. The successful use of a Fund’s options strategies depends on the ability of an investment adviser or subadviser to forecast
correctly interest rate and market movements. For example, if a Fund were to write a covered call option based on an investment adviser’s or subadviser’s expectation that the price of the underlying security would fall, but the price were
to rise instead, the Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if a Fund were to write a put option based on an investment adviser’s or subadviser’s expectation that the
price of the underlying security would rise, but the price were to fall instead, the Fund could be required to purchase the security upon exercise at a price higher than the current market price.
When a Fund purchases an option, it runs the risk that it
will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction before the option’s expiration. If the price of the underlying security does not
rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by a Fund in the
underlying security, since the Fund will not realize a loss if the security’s price does not change.
The effective use of options also depends on a Fund’s ability to terminate option positions at times when an investment adviser or
subadviser deems it desirable to do so. There is no assurance that a Fund will be able to effect closing transactions at any particular time or at an acceptable price.
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If a secondary market in options were to become unavailable, a Fund could no longer engage
in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market
could become temporarily unavailable if unusual events—such as volume in excess of trading or clearing capability—were to interrupt its normal operations.
A market may at times find it necessary to impose
restrictions on particular types of options transactions, such as opening transactions. If an underlying security ceases to meet qualifications imposed by the market or the Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in existing series may be prohibited. If an options market were to become unavailable, a Fund as a holder of an option would be able to realize profits or limit losses only by
exercising the option, and the Fund, as option writer, would remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options purchased or sold by a Fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, a Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation or other options markets may impose exercise restrictions. If a prohibition on exercise
is imposed at the time when trading in the option has also been halted, a Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If the Options Clearing Corporation were to
determine that the available supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event of exercise, it may prohibit indefinitely the exercise of put options. A Fund, as holder of
such a put option, could lose its entire investment if the prohibition remained in effect until the put option’s expiration.
Foreign-traded options are subject to many of the same risks presented by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a
result, option premiums may not reflect the current prices of the underlying interest in the United States.
Exchanges have established limits on the maximum number of options an investor or group of investors acting in concert may write. The
Funds, an investment adviser or subadviser, and other clients of the investment adviser or subadviser may constitute such a group. These limits restrict a Fund’s ability to purchase or sell particular options.
Over-the-counter
options.
A Fund may purchase or sell
over-the-counter
(“OTC”) options. OTC
options are not traded on securities or options exchanges or backed by clearinghouses. Rather, they are entered into directly between a Fund and the counterparty to the option. In the case of an OTC option purchased by the Fund, the value of the
option to the Fund will depend on the willingness and ability of the option writer to perform its obligations to the Fund. In addition, OTC options may not be transferable and there may be little or no secondary market for them, so they may be
considered illiquid. It may not be possible to enter into closing transactions with respect to OTC options or otherwise to terminate such options, and as a result a Fund may be required to remain obligated on an unfavorable OTC option until its
expiration. It may be difficult under certain circumstances to value OTC options.
Rights and Warrants to Purchase Securities; Index Warrants; International.
A Fund may invest in rights and warrants to purchase securities. Rights or warrants generally give
the holder the right to receive, upon exercise, a security at a stated price. Funds typically use rights and warrants in a manner similar to their use of options on securities, as described above. Risks associated with the use of rights or warrants
are generally similar to risks associated with the use of options. Rights and warrants typically do not carry with them dividend or voting rights with respect to the underlying securities, or any rights in the assets of the issuer. In addition, the
value of a right or a warrant will likely, but will not necessarily, change with the value of the underlying securities, and a right or a warrant ceases to have value if it is not exercised prior to its expiration date.
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Bonds issued with warrants attached to purchase equity securities have many characteristics
of convertible bonds and their prices may, to some degree, reflect the performance of the underlying stock. Bonds also may be issued with warrants attached to purchase additional fixed income securities.
A Fund may also invest in equity-linked warrants. A Fund
purchases equity-linked warrants from a broker, who in turn is expected to purchase shares in the local market. If the Fund exercises its warrant, the shares are expected to be sold and the warrant redeemed with the proceeds. Typically, each warrant
represents one share of the underlying stock. Therefore, the price and performance of the warrant are directly linked to the underlying stock, less transaction costs. In addition to the market risk related to the underlying holdings, a Fund bears
counterparty risk with respect to the issuing broker. There is currently no active trading market for equity-linked warrants, and they may be highly illiquid.
In addition to warrants on securities, a Fund may purchase put warrants and call warrants whose values vary depending on the change in the
value of one or more specified securities indices (“index-linked warrants”). Index-linked warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to
receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index-linked warrant, the
holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of
a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the exercise price is greater than the value of the underlying index, or, in the case of a put warrant, the exercise price is less than the value of the underlying index. If a Fund were not
to exercise an index-linked warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant.
A Fund using index-linked warrants would normally do so in a manner similar to its use of options on securities indices. The risks of a
Fund’s use of index-linked warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index-linked warrants are issued in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other institution that issues the warrant. Also, index-linked warrants may have longer terms than index options.
Index-linked
warrants are not likely to
be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index-linked warrants may limit a Fund’s ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise
wish to do.
Some Funds may make indirect
investment in foreign equity securities, through international warrants, local access products, participation notes, or low exercise price warrants. International warrants are financial instruments issued by banks or other financial institutions,
which may or may not be traded on a foreign exchange. International warrants are a form of derivative security that may give holders the right to buy or sell an underlying security or a basket of securities from or to the issuer for a particular
price or may entitle holders to receive a cash payment relating to the value of the underlying security or basket of securities. International warrants are similar to options in that they are exercisable by the holder for an underlying security or
the value of that security, but are generally exercisable over a longer term than typical options. These types of instruments may be American style exercise, which means that they can be exercised at any time on or before the expiration date of the
international warrant, or European style exercise, which means that they may be exercised only on the expiration date. International warrants have an exercise price, which is typically fixed when the warrants are issued.
Some Funds may invest in low exercise price warrants, which
are warrants with an exercise price that is very low relative to the market price of the underlying instrument at the time of issue (e.g
.
, one cent or less). The buyer of a low exercise price warrant effectively pays the full value of the
underlying common stock at the outset. In the case of any exercise of warrants, there may be a time delay between the time a holder of warrants gives instructions to exercise and the time the price of the common stock relating to exercise or the
settlement date is determined,
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during which time the price of the underlying security could change significantly. These warrants entail substantial credit risk, since the issuer of the warrant holds the purchase price of the
warrant (approximately equal to the value of the underlying investment at the time of the warrant’s issue) for the life of the warrant.
The exercise or settlement date of the warrants and other instruments described above may be affected by certain market disruption events,
such as difficulties relating to the exchange of a local currency into U.S. dollars, the imposition of capital controls by a local jurisdiction or changes in the laws relating to foreign investments. These events could lead to a change in the
exercise date or settlement currency of the instruments, or postponement of the settlement date. In some cases, if the market disruption events continue for a certain period of time, the warrants may become worthless, resulting in a total loss of
the purchase price of the warrants.
Investments
in these instruments involve the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or cash in lieu thereof. These instruments may also be subject to liquidity risk because there may be a limited
secondary market for trading the warrants. They are also subject, like other investments in foreign securities, to foreign risk and currency risk.
Equity-Linked Notes
An equity-linked note (ELN) is a debt instrument whose value changes based on changes in the value of a single equity security, basket of
equity securities, or an index of equity securities. An equity-linked note may or may not pay interest. See “Hybrid Instruments,” below.
Hybrid Instruments
Hybrid instruments are generally considered derivatives and include indexed or structured securities, and combine elements of many
derivatives transactions with those of debt, preferred equity, or a depositary instrument. A Fund may use a hybrid instrument as a substitute for any type of cash or derivative investment which it might make for any purpose.
A hybrid instrument may be a debt security, preferred stock,
warrant, convertible security, certificate of deposit, or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption or retirement, is determined by reference
to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles, or commodities (collectively, “underlying assets”), or by another index, economic factor, or other measure, including
interest rates, currency exchange rates, or commodities or securities indices (collectively, “benchmarks”). Hybrid instruments may take a number of forms, including, for example, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of an index, security, or other measure at a future time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities where the conversion
terms relate to a particular commodity.
The risks
of investing in a hybrid instrument may, depending on the nature of the instrument, reflect a combination of the risks of investing in securities, options, futures, currencies, or other types of investments. An investment in a hybrid instrument as a
debt instrument may entail significant risks that are not associated with a similar investment in a traditional debt instrument that has a fixed principal amount, is denominated in U.S. dollars, or bears interest either at a fixed rate or a floating
rate determined by reference to a common, nationally published benchmark. The risks of a particular hybrid instrument will depend upon the terms of the instrument, but may include the possibility of significant changes in the benchmark(s) or the
prices of the underlying assets to which the instrument is linked. Such risks generally depend upon factors unrelated to the operations or credit quality of the issuer of the hybrid instrument, and may not be foreseen by the purchaser, such as
financial or market developments, economic and political events, the supply and demand of the underlying assets, and interest rate movements. Hybrid instruments may be highly volatile and their use by a Fund may not be successful.
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Hybrid instruments are potentially more volatile and carry greater market risks than
traditional debt instruments. Hybrid instruments may be highly leveraged. Depending on the structure of the particular hybrid instrument, changes in a benchmark may be magnified by the terms of the hybrid instrument and have an even more dramatic
and substantial effect upon the value of the hybrid instrument. Also, the prices of the hybrid instrument and the benchmark or underlying asset may not move in the same direction or at the same time.
Hybrid instruments may also carry liquidity risk since they
typically trade over-the-counter, and are not backed by a central clearing organization. The instruments are often “customized” to meet the portfolio needs of a particular investor, and therefore, the number of investors that are willing
and able to buy such instruments in the secondary market may be smaller than that for more traditional debt securities. Under certain conditions, the redemption value of such an investment could be zero. In addition, because the purchase and sale of
hybrid investments would likely take place in an over-the-counter market without the guarantee of a central clearing organization, or in a transaction between a Fund and the issuer of the hybrid instrument, the instruments will not likely be
actively traded. Hybrid instruments also may not be subject to regulation by the CFTC, the SEC, or any other governmental regulatory authority.
When a Fund invests in a hybrid instrument, it takes on the credit risk of the issuer of the hybrid instrument. In that respect, a hybrid
instrument may create greater risks than investments directly in the securities or other assets underlying the hybrid instrument because the Fund is exposed both to losses on those securities or other assets and to the credit risk of the issuer of
the hybrid instrument. A hybrid instrument may also pose greater risks than other derivatives based on the same securities or assets because, when it purchases the instrument, a Fund may be required to pay all, or most, of the notional amount of the
investment by way of purchase price, whereas many other derivatives require a Fund to post only a relatively small portion of the notional amount by way of margin or similar arrangements.
Structured Investments
A structured investment typically involves the buyout by a
financial institution of one or more securities or other assets (the “underlying instruments”) with a specially created corporation or trust, which in turn issues one or more classes of securities (“structured securities”) backed
by, or representing different interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such
as varying maturities, payment priorities, and interest rate provisions, and the extent of such payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk generally will reflect that of the underlying instruments. Investments in a structured security may be subordinated to the right of payment of another class of securities.
Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and there currently is no active trading
market for structured securities, and they may be highly illiquid and difficult to value. Because the purchase and sale of structured securities would likely take place in an
over-the-counter
market without the guarantee of a central clearing organization, or in a transaction between a Fund and the issuer of the structured securities, the
creditworthiness of the counterparty of the issuer of the structured securities would be an additional risk factor the Fund would have to consider and monitor.
Commodity-Linked “Structured” Securities.
Certain Funds may invest in commodity-linked structured
securities to gain exposure to commodities markets. Certain structured products may provide exposure to the commodities markets. Commodity-linked structured securities may be equity or debt securities, may be leveraged or unleveraged, and may
present investment characteristics and risks of an investment in a security and one or more underlying commodities. Certain restrictions imposed on the Funds by the Code may limit the Funds’ ability to invest in certain commodity-linked
structured securities.
Credit-Linked
Securities.
Credit-linked securities are typically issued by a limited purpose trust or other vehicle that, in turn, invests in a basket of derivative instruments, such as credit default swaps, interest rate
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swaps, and other securities or transactions, in order to provide exposure to certain high yield or other fixed income issuers or markets. For example, a Fund may invest in credit-linked
securities in order to gain exposure to the high yield markets pending investment of cash and/or to remain fully invested when more traditional income producing securities are not available. A Fund’s return on its investments in credit-linked
securities will depend on the investment performance of the investments held in the trust or other vehicle. A Fund’s investments in these instruments are indirectly subject to the risks associated with the derivative instruments in which the
trust or other vehicle invests, including, among others, credit risk, default, or similar event risk, counterparty risk, interest rate risk, leverage risk, and management risk. There will likely be no established trading market for credit-linked
securities and they may be illiquid.
Because the
performance of structured hybrid instruments is linked to the performance of an underlying commodity, commodity index, or other economic variable, those investments are subject to “market risks” with respect to the movements of the
commodity markets and may be subject to certain other risks that do not affect traditional equity and debt securities. If the interest payment on a hybrid instrument is linked to the value of a particular commodity, commodity index, or other
economic variable and the underlying investment loses value, the purchaser might not receive the anticipated interest on its investment. If the amount of principal to be repaid on a structured hybrid instrument is linked to the value of a particular
commodity, commodity index, or other economic variable, the purchaser might not receive all or any of the principal at maturity of the investment.
The values of structured hybrid instruments may fluctuate significantly because the values of the underlying investments to which they are
linked are themselves extremely volatile, and the Fund may lose most or all of the value of its investment in a hybrid instrument. Additionally, the particular terms of a structured hybrid instrument may create economic leverage by contemplating
payments that are based on a multiple of the price increase or decrease of the underlying commodity, commodity index, or other economic variable. A liquid secondary market may not exist for structured hybrid instruments, which may make it difficult
to sell such instruments at an acceptable price or to value them accurately.
A Fund’s investment in structured products may be subject to limits under applicable law.
When-Issued, Delayed-Delivery, To-Be-Announced, Forward Commitment, and Standby Commitment Transactions
A Fund may enter into when-issued, delayed-delivery,
to-be-announced (“TBA”), or forward commitment transactions in order to lock in the purchase price of the underlying security or in order to adjust the interest rate exposure of the Fund’s existing portfolio. In when-issued,
delayed-delivery, or forward commitment transactions, a Fund commits to purchase or sell particular securities, with payment and delivery to take place at a future date. In the case of TBA purchase commitments, the unit price and the estimated
principal amount are established when the Fund enters into a commitment, with the actual principal amount being within a specified range of the estimate. Although a Fund does not typically pay for the securities in these types of transactions until
they are delivered, it immediately assumes the risks of ownership, including the risk of price fluctuation. If a Fund’s counterparty fails to deliver a security purchased on a when-issued, delayed-delivery, TBA, or forward commitment basis,
there may be a loss, and the Fund may have missed an opportunity to make an alternative investment.
A Fund may also enter into standby commitment agreements, obligating the Fund, for a specified period, to buy a specified amount of a security at the option of the issuer, upon the issuance of the
security. The price at which the Fund would purchase the security is set at the time of the agreement. In return for its promise to purchase the security, a Fund receives a commitment fee. The Fund receives this fee whether or not it is ultimately
required to purchase the security. The securities subject to a standby commitment will not necessarily be issued, and, if they are issued, the value of the securities on the date of issuance may be significantly less than the price at which the Fund
is required to purchase them.
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Prior to settlement of these transactions, the value of the subject securities will
fluctuate. In addition, because the Fund is not required to make payment under these transactions until the delivery date, they may result in a form of leverage.
Distressed Securities
A Fund may invest in securities, including loans purchased
in the secondary market, that are the subject of bankruptcy proceedings or otherwise in default or in risk of being in default as to the repayment of principal and/ or interest at the time of acquisition by the Fund or that are rated in the lower
rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s and CC or lower by S&P or Fitch) or, if unrated, are in the judgment of the investment adviser or subadviser of
equivalent quality (“Distressed Securities”). Investment in Distressed Securities is speculative and involves significant risks.
A Fund will generally make such investments only when the investment adviser or subadviser believes it is reasonably likely that the
issuer of the Distressed Securities will make an exchange offer or will be the subject of a plan of reorganization pursuant to which the Fund will receive new securities in return for the Distressed Securities. However, there can be no assurance
that such an exchange offer will be made or that such a plan of reorganization will be adopted. In addition, a significant period of time may pass between the time at which a Fund makes its investment in Distressed Securities and the time that any
such exchange offer or plan of reorganization is completed. During this period, it is unlikely that a Fund will receive any interest payments on the Distressed Securities, the Fund will be subject to significant uncertainty as to whether or not the
exchange offer or plan of reorganization will be completed and the Fund may be required to bear certain extraordinary expenses to protect and recover its investment. Even if an exchange offer is made or plan of reorganization is adopted with respect
to Distressed Securities held by a Fund, there can be no assurance that the securities or other assets received by a Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have
been anticipated when the investment was made. Moreover, any securities received by a Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. Similarly, if a Fund participates in negotiations with respect
to any exchange offer or plan of reorganization with respect to an issuer of Distressed Securities, the Fund may be restricted from disposing of such securities.
Dollar Roll Transactions
A Fund may enter into dollar roll transactions, in which the
Fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts to purchase substantially similar securities on a specified future date from the same party. A Fund may invest in dollar rolls in order to benefit
from anticipated changes in pricing for the mortgage-backed securities during the term of the transaction, or for the purpose of creating investment leverage.
In a dollar roll, the securities that are to be purchased will be of the same type as the securities sold, but will be supported by
different pools of mortgages. A Fund that engages in a dollar roll forgoes principal and interest paid on the sold securities during the roll period, but is compensated by the difference between the current sales price and the lower forward price
for the future purchase. In addition, a Fund may benefit by investing the transaction proceeds during the roll period. Dollar roll transactions generally have the effect of creating leverage in a Fund’s portfolio.
Dollar rolls involve the risk that the Fund’s
counterparty will be unable to deliver the mortgage-backed securities underlying the dollar roll at the fixed time. If the counterparty files for bankruptcy or becomes insolvent, the counterparty or its representative may ask for and receive an
extension of time to decide whether to enforce the Fund’s repurchase obligation. A Fund’s use of the transaction proceeds may be restricted pending such decision. A Fund may enter into dollar roll transactions without limit up to the
amount permitted under applicable law.
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Exchange-Traded Funds (ETFs)
These are a type of investment company bought and sold on a
securities exchange. An ETF represents a fixed portfolio of securities designed to track a particular market index. A Fund could purchase an ETF to gain exposure to a portion of the U.S. or a foreign market. The risks of owning an ETF generally
reflect the risks of owning the underlying securities they are designed to track, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees which increase their costs. As a shareholder in an ETF, Fund
shareholders would indirectly pay a portion of that ETF’s expenses, including its advisory, administration, brokerage, shareholder servicing, and other expenses. At the same time a Fund would continue to pay its own management fees and other
expenses. Investments in ETFs are subject to the limitations applicable to investments in other investment companies discussed below.
Exchange Traded Notes (ETNs)
ETNs are senior, unsecured debt securities typically issued by financial institutions. An ETN’s return is typically based on the
performance of a particular market index, and the value of the index may be impacted by market forces that affect the value of ETNs in unexpected ways. ETNs are similar to Structured Investments, except that they are typically listed on an exchange
and traded in the secondary market. See “Structured Investments” in this SAI. The return on an ETN is based on the performance of the specified market index, and an investor may, at maturity, realize a negative return on the investment.
ETNs typically do not make periodic interest payments and principal is not protected. The repayment of principal and any additional return due either at maturity or upon repurchase by the issuer depends on the issuer’s ability to pay,
regardless of the performance of the underlying index. Accordingly, ETNs are subject to credit risk that the issuer will default or will be unable to make timely payments of principal. Certain events can impact an ETN issuer’s financial
situation and ability to make timely payments to ETN holders, including economic, political, legal, or regulatory changes and natural disasters. Event risk is unpredictable and can significantly impact ETN holders.
The market value of an ETN may be influenced by, among other
things, time to maturity, level of supply and demand of the ETN, volatility and lack of liquidity in the underlying assets, changes in the applicable interest rates, the current performance of the market index to which the ETN is linked, and the
credit rating of the ETN issuer. The market value of an ETN may differ from the performance of the applicable market index and there may be times when an ETN trades at a premium or discount. This difference in price may be due to the fact that the
supply and demand in the market for ETNs at any point in time is not always identical to the supply and demand in the market for the securities underlying the market index that the ETN seeks to track. A change in the issuer’s credit rating may
also impact the value of an ETN without regard to the level of the underlying market index. ETNs are also subject to tax risk. No assurance can be given that the Internal Revenue Service (“IRS”) will accept, or a court will uphold, how the
Funds characterize and treat ETNs for tax purposes.
A Fund’s ability to sell its ETN holdings may be limited by the availability of a secondary market. In addition, although an ETN may
be listed on an exchange, the issuer may not be required to maintain the listing and there can be no assurance that a secondary market will exist for an ETN. Some ETNs may be relatively illiquid and may therefore be difficult to purchase or sell at
a fair price. Leveraged ETNs may offer the potential for greater return, but their values may be highly volatile.
Fixed Income Securities
Certain of the debt securities in which the Funds may invest may not offer as high a yield as may be achieved from lower quality instruments having less safety. If a Fund disposes 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.
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As discussed, a decline in prevailing levels of interest rates generally increases the value
of debt securities in a Fund’s portfolio, while an increase in rates usually reduces the value of those securities. As a result, to the extent that a Fund invests in debt securities, interest rate fluctuations will affect its net asset value
(“NAV”), but not the income it receives from its debt securities. In addition, if the debt securities contain call, prepayment, or redemption provisions, during a period of declining interest rates, those securities are likely to be
redeemed, and a Fund would probably be unable to replace them with securities having as great a yield.
Investment in medium- or lower-grade debt securities involves greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt this market and adversely affect the value of outstanding bonds and the ability of the issuers to repay principal and interest. In addition, lower-quality bonds are less sensitive to interest
rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in servicing their principal and interest payment obligations. Furthermore, medium- and lower-grade debt securities tend to be less marketable than higher-quality debt securities because the market for them is less
broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its
portfolio securities. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions.
Foreign Securities
Each Fund may invest in foreign securities. Foreign securities include securities of foreign companies and foreign governments (or
agencies or subdivisions thereof). 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 or its delegate under applicable rules adopted by the
SEC. In buying foreign securities, each Fund may convert U.S. dollars into foreign currency.
The globalization and integration of the world economic system and related financial markets have made it increasingly difficult to define issuers geographically. Accordingly, the Funds intend to construe
geographic terms such as “foreign,” “non-U.S.,” “European,” “Latin American,” “Asian,” and “emerging markets” in the manner that affords to the Funds the greatest flexibility in seeking to
achieve the investment objective(s) of the relevant Fund. Specifically, unless otherwise stated, in circumstances where the investment objective and/or strategy is to invest (a) exclusively in “foreign securities,” “non-U.S.
securities,” “European securities,” “Latin American securities,” “Asian securities,” or “emerging markets” (or similar directions) or (b) at least some percentage of the Fund’s assets in foreign
securities, etc., the Fund will take the view that a security meets this description so long as the issuer of a security is tied economically to the particular country or geographic region indicated by words of the relevant investment objective
and/or strategy (the “Relevant Language”). For these purposes the issuer of a security is deemed to have that tie if:
(i) the issuer is organized under the laws of the country or a country within the geographic region suggested
by the Relevant Language or maintains its principal place of business in that country or region; or
(ii) the securities are traded principally in the country or region suggested by the Relevant Language; or
(iii) the issuer,
during its most recent fiscal year, derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in the country or region suggested by the Relevant Language or has at least 50% of its assets in
that country or region.
In addition, the Funds
intend to treat derivative securities (e.g., call options) by reference to the underlying security. Conversely, if the investment objective and/or strategy of a Fund limits the percentage of assets that may be invested in “foreign
securities,” etc. or prohibits such investments altogether, a Fund intends to categorize securities as “foreign,” etc. only if the security possesses all of the attributes described above in clauses (i), (ii), and (iii).
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Foreign securities also include securities of foreign issuers represented by American
Depositary Receipts (“ADRs”). ADRs are issued by a U.S. depository institution, but they represent a specified quantity of shares of a non-U.S. stock company. In addition to ADRs, a Fund may invest in sponsored or unsponsored Global
Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”) to the extent they become 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. Each of 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. Foreign securities 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. 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 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
B-27
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 economies. In
particular, countries with emerging markets may have relatively unstable governments, present the risk of nationalization of businesses, or may have restrictions on foreign ownership or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies 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.
Illiquid Securities
Each Fund may invest not more than 15% of its net assets in
“illiquid securities,” which are securities that are not readily marketable (including securities whose disposition is restricted by contract or under federal securities laws), including, generally, securities that cannot be sold or
disposed of in the ordinary course of business within seven calendar days at approximately the values ascribed to them by a Fund. A Fund may not be able to dispose of such securities in a timely fashion and for a fair price, which could result in
losses to a Fund. In addition, illiquid securities are generally more difficult to value. Illiquid securities may include repurchase agreements with maturities greater than seven days, futures contracts and options thereon for which a liquid
secondary market does not exist, time deposits maturing in more than seven calendar days, and securities of new and early stage companies whose securities are not publicly traded. The Funds may also purchase securities eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “1933 Act”). Such securities may be determined to be liquid by the Board, the investment adviser, and/or the subadviser, if such
determination by the investment adviser or subadviser 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.
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. The investment adviser or subadvisers monitor holdings of illiquid securities on an ongoing basis to determine whether to sell any holding
to maintain adequate liquidity.
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Index-Related Securities (Equity Equivalents)
The Funds may invest in certain types of securities that
enable investors to purchase or sell shares in a portfolio of securities that seeks to track the performance of an underlying index or a portion of an index. Such Equity Equivalents include, among others, DIAMONDS (interests in a portfolio of
securities that seeks to track the performance of the Dow Jones Industrial Average), SPDRs or Standard & Poor’s Depositary Receipts (interests in a portfolio of securities that seeks to track the performance of the S&P 500 Index), WEBS
or World Equity Benchmark Shares (interests in a portfolio of securities that seeks to track the performance of a benchmark index of a particular foreign country’s stocks), and the Nasdaq-100 Trust (interests in a portfolio of securities of the
largest and most actively traded non-financial companies listed on the Nasdaq Stock Market). Such securities are similar to index mutual funds, but they are traded on various stock exchanges or secondary markets. The value of these securities is
dependent upon the performance of the underlying index on which they are based. Thus, these securities are subject to the same risks as their underlying indexes as well as the securities that make up those indices. For example, if the securities
comprising an index that an index-related security seeks to track perform poorly, the index-related security will lose value.
Equity Equivalents may be used for several purposes, including to simulate full investment in the underlying index while retaining a cash
balance for fund management purposes, to facilitate trading, to reduce transaction costs, or to seek higher investment returns where an Equity Equivalent is priced more attractively than securities in the underlying index. Because the expense
associated with an investment in Equity Equivalents may be substantially lower than the expense of small investments directly in the securities comprising the indices they seek to track, investments in Equity Equivalents may provide a cost-effective
means of diversifying the fund’s assets across a broad range of equity securities.
The prices of Equity Equivalents are derived and based upon the securities held by the particular investment company. Accordingly, the level of risk involved in the purchase or sale of an Equity
Equivalent is similar to the risk involved in the purchase or sale of traditional common stock, with the exception that the pricing mechanism for such instruments is based on a basket of stocks. The market prices of Equity Equivalents are expected
to fluctuate in accordance with both changes in the NAVs of their underlying indices and the supply and demand for the instruments on the exchanges on which they are traded. Substantial market or other disruptions affecting an Equity Equivalent
could adversely affect the liquidity and value of the shares of the fund investing in such instruments.
Inflation-Indexed Bonds
Inflation-indexed bonds are fixed income securities whose principal value or coupon is periodically adjusted according to the rate of inflation. Inflation-indexed securities issued by the U.S. Treasury
have maturities of five, ten, twenty, or thirty years, although it is possible that securities with other maturities will be issued in the future. The U.S. Treasury securities pay interest on a semi-annual basis, equal to a fixed percentage of the
inflation-adjusted principal amount. For example, if a Fund purchased an inflation-indexed bond with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5% semi-annually), and inflation over the first six months were 1%, the
mid-year par value of the bond would be $1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the second half of the year resulted in the whole years’ inflation equaling 3%, the end-of-year
par value of the bond would be $1,030 and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and
consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S.
Treasury inflation-indexed bonds, even during a period of deflation. However, the current market value of the bonds is not guaranteed, and will fluctuate. The Funds may also invest in other inflation related bonds which may or may not provide a
similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
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The value of inflation-indexed bonds is expected to change in response to changes in real
interest rates. Real interest rates in turn are tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline,
leading to an increase in value of inflation-indexed bonds. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-indexed bonds.
While the values of these securities are expected to be
protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these
securities may not be protected to the extent that the increase is not reflected in the bond’s inflation measure.
The periodic adjustment of U.S. Treasury inflation-indexed bonds is tied to the Consumer Price Index for All Urban Consumers
(“CPI-U”), which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation, and energy. Inflation-indexed bonds
issued by a foreign government are generally adjusted to reflect a comparable inflation index, calculated by that government. There can be no assurance that the CPI-U or any foreign inflation index will accurately measure the real rate of inflation
in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States.
Any increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income,
even though investors do not receive their principal until maturity.
IPOs and Other Limited Opportunities
Some Funds may purchase securities of companies that are offered pursuant to an initial public offering (“IPO”) or other similar limited opportunities. Although companies can be any age or
size at the time of their IPO, they are often smaller and have a limited operating history, which involves a greater potential for the value of their securities to be impaired following the IPO. The price of a company’s securities may be
highly unstable at the time of its IPO and for a period thereafter due to factors such as market psychology prevailing at the time of the IPO, the absence of a prior public market, the small number of shares available, and limited availability of
investor information. Securities purchased in IPOs have a tendency to fluctuate in value significantly shortly after the IPO relative to the price at which they were purchased. These fluctuations could impact the NAV and return earned on a
Fund’s shares. Investors in IPOs can be adversely affected by substantial dilution in the value of their shares, by sales of additional shares, and by concentration of control in existing management and principal shareholders. In
addition, all of the factors that affect the performance of an economy or equity markets may have a greater impact on the shares of IPO companies. IPO securities tend to involve greater risk due, in part, to public perception and the lack of
publicly available information and trading history.
Lower-Rated Debt Securities
A Fund may purchase lower-rated debt securities, sometimes referred to as “junk” or “high yield” bonds. The lower
ratings of certain securities held by a Fund reflect a greater possibility that adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability
of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payment of interest and principal would likely make the values of securities held by the Fund more volatile and could limit
the Fund’s ability to sell its securities at prices approximating the values a Fund had placed on such securities. In the absence of a liquid trading market for securities held by it, the Fund may be unable at times to establish the fair market
value of such securities. The rating assigned to a security by S&P or Moody’s does not reflect an assessment of the volatility of the security’s market value or of the liquidity of an investment in the security. (The term
“lower-rated debt securities” includes securities that are not rated but are considered by a Fund’s investment adviser or subadviser to be of comparable quality to other lower-rated debt securities.)
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Like those of other fixed income securities, the values of lower-rated securities fluctuate
in response to changes in interest rates. Thus, a decrease in interest rates generally will result in an increase in the value of a Fund’s fixed income securities. Conversely, during periods of rising interest rates, the value of a Fund’s
fixed income securities generally will decline. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the values of portfolio securities generally will not
affect cash income derived from such securities, but will affect the Fund’s NAV.
Issuers of lower-rated securities are often highly leveraged, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may
be impaired. In addition, such issuers may not have more traditional methods of financing available to them, and may be unable to repay debt at maturity by refinancing. The risk of loss due to default in payment of interest or principal by such
issuers is significantly greater because such securities frequently are unsecured and subordinated to the prior payment of senior indebtedness. Certain of the lower-rated securities in which a Fund may invest are issued to raise funds in connection
with the acquisition of a company, in
so-called
“leveraged
buy-out”
transactions. The highly leveraged capital structure of such issuers may make them
especially vulnerable to adverse changes in economic conditions.
Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell lower-rated securities when the
Fund’s investment adviser or subadviser believes it advisable to do so or may be able to sell such securities only at prices lower than might otherwise be available. In many cases, lower-rated securities may be purchased in private placements
and, accordingly, will be subject to restrictions on resale as a matter of contract or under securities laws. Under such circumstances, it may also be more difficult to determine the fair values of such securities for purposes of computing a
Fund’s NAV. In order to enforce its rights in the event of a default under lower-rated securities, a Fund may be required to take possession of and manage assets securing the issuer’s obligations on such securities, which may increase the
Fund’s operating expenses and adversely affect the Fund’s NAV. A Fund may also be limited in its ability to enforce its rights and may incur greater costs in enforcing its rights in the event an issuer becomes the subject of bankruptcy
proceedings. In addition, the Funds’ intention to qualify as “regulated investment companies” under the Code may limit the extent to which a Fund may exercise its rights by taking possession of such assets.
Certain securities held by a Fund may permit the issuer at
its option to “call,” or redeem, its securities. If an issuer were to redeem securities held by a Fund during a time of declining interest rates, the Fund may not be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Lower-rated
securities may be subject to certain risks not typically associated with “investment grade” securities, such as the following: (i) reliable and objective information about the value of
lower-rated
obligations may be difficult to obtain because the market for such securities may be thinner and less active than that for investment grade obligations; (ii) adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of lower than investment grade obligations, and, in turn, adversely affect their market; (iii) companies that issue lower-rated obligations may be
in the growth stage of their development, or may be financially troubled or highly leveraged, so they may not have more traditional methods of financing available to them; (iv) when other institutional investors dispose of their holdings of
lower-rated debt securities, the general market and the prices for such securities could be adversely affected; and (v) the market for lower-rated securities could be impaired if legislative proposals to limit their use in connection with
corporate reorganizations or to limit their tax and other advantages are enacted.
Master Limited Partnerships
Certain of the Funds may invest in master limited partnerships (“MLPs”), which are limited partnerships in which ownership units are publicly traded. MLPs often own or own interests in
properties or businesses that are related to oil and gas industries, including pipelines, although MLPs may invest in other types of investments,
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including credit-related investments. Generally, an MLP is operated under the supervision of one or more managing general partners. Limited partners (like a Fund when it invests in an MLP) are
not involved in the day-to-day management of the partnership. Certain of the Funds also may invest in companies who serve (or whose affiliates serve) as MLP general partners.
Investments in MLPs are generally subject to many of the
risks that apply to partnerships. For example, holders of the units of MLPs may have limited control and limited voting rights on matters affecting the partnership. There may be fewer corporate protections afforded investors in an MLP than investors
in a corporation. Conflicts of interest may exist among unit holders, subordinated unit holders, and the general partner of an MLP, including those arising from incentive distribution payments. MLPs that concentrate in a particular industry or
region are subject to risks associated with such industry or region. MLPs holding credit-related investments are subject to interest rate risk and the risk of default on payment obligations by debt issuers. Investments held by MLPs may be illiquid.
MLP units may trade infrequently and in limited volume, and they may be subject to more abrupt or erratic price movements than securities of larger or more broadly based companies.
Certain of the Funds may also hold investments in limited
liability companies that have many of the same characteristics and are subject to many of the same risks as master limited partnerships.
The manner and extent of a Fund’s investments in MLPs and limited liability companies may be limited by its intention to qualify as a
regulated investment company under the Code, and any such investments by the Fund may adversely affect the ability of the Fund so to qualify.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities, including collateralized mortgage obligations (“CMOs”) and certain stripped mortgage-backed
securities, represent a participation in, or are secured by, mortgage loans. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such
items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, receivables from credit card agreements, home equity loans, and student loans. Asset-backed securities may also include
collateralized debt obligations as described below.
A Fund may invest in mortgage-backed securities issued or guaranteed by (i) U.S. Government agencies or instrumentalities such as the
Government National Mortgage Association (“GNMA”) (also known as Ginnie Mae), the Federal National Mortgage Association (“FNMA”) (also known as Fannie Mae), and the Federal Home Loan Mortgage Corporation (“FHLMC”) (also
known as Freddie Mac) or (ii) other issuers, including private companies. Privately issued mortgage-backed securities may include securities backed by commercial mortgages, which are mortgages on commercial, rather than residential, real
estate.
Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying assets. Unlike traditional debt securities, which may pay a fixed rate of interest until maturity, when the entire principal amount comes due, payments on certain mortgage-backed securities
include both interest and a partial repayment of principal. Besides the scheduled repayment of principal, repayments of principal may result from the voluntary prepayment, refinancing, or foreclosure of the underlying mortgage loans. If property
owners make unscheduled prepayments of their mortgage loans, these prepayments will result in early payment of the applicable mortgage-related securities. In that event a Fund may be unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as high a yield as the mortgage-related securities. Consequently, early payment associated with mortgage-related securities may cause these securities to experience significantly greater
price and yield volatility than that experienced by traditional fixed-income securities. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the
mortgages, and other social and demographic conditions. During periods of falling interest rates, the rate of mortgage prepayments tends to increase, thereby
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tending to decrease the life of mortgage-related securities. During periods of rising interest rates, the rate of mortgage prepayments usually decreases, thereby tending to increase the life of
mortgage-related securities. If the life of a mortgage-related security is inaccurately predicted, a Fund may not be able to realize the rate of return the investment adviser or subadviser expected.
Mortgage-backed and asset-backed securities are less
effective than other types of securities as a means of “locking in” attractive long-term interest rates. One reason is the need to reinvest prepayments of principal; another is the possibility of significant unscheduled prepayments
resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities
of comparable maturities, although they may have a similar or greater risk of decline in market value during periods of rising interest rates. Prepayments may also significantly shorten the effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods of rising interest rates, a reduction in prepayments may increase the effective maturities of these securities, subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and, therefore, potentially increasing the volatility of the Funds. The terms of certain asset-backed securities may require early prepayment in response to certain credit events potentially
affecting the values of the asset-backed securities.
At times, some mortgage-backed and asset-backed securities will have higher than market interest rates and therefore will be purchased at a premium above their par value. Prepayments may cause losses on
securities purchased at a premium.
CMOs may be
issued by a U.S. Government agency or instrumentality or by a private issuer. Although payment of the principal of, and interest on, the underlying collateral securing privately issued CMOs may be guaranteed by the U.S. Government or its agencies or
instrumentalities, these CMOs represent obligations solely of the private issuer and are not insured or guaranteed by the U.S. Government, its agencies or instrumentalities, or any other person or entity.
CMOs typically issue multiple classes of securities, having
different maturities, interest rates, and payment schedules, and with the principal and interest on the underlying mortgages allocated among the several classes in various ways. Payment of interest or principal on some classes or series of CMOs may
be subordinated to payments on other classes or series and may be subject to contingencies; or some classes or series may bear some or all of the risk of default on the underlying mortgages. CMOs of different classes or series are generally retired
in sequence as the underlying mortgage loans in the mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the classes or series of a CMO with the earliest maturities generally will be retired prior to their maturities. Thus,
the early retirement of particular classes or series of a CMO would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Conversely, slower than anticipated prepayments can extend the effective maturities
of CMOs, subjecting them to a greater risk of decline in market value in response to rising interest rates than traditional debt securities, and, therefore, potentially increasing their volatility. Certain classes or series of CMOs may experience
high levels of volatility in response to changes in interest rates and other factors.
Stripped mortgage-backed securities are usually structured with two classes that receive payments of interest or principal on a pool of mortgage loans. Stripped mortgage-backed securities may experience
very high levels of volatility in response to changes in interest rates. The yield to maturity on an interest only or “IO” class of stripped mortgage-backed securities is extremely sensitive not only to changes in prevailing interest rates
but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments will typically result in a substantial decline in the value of IOs and may have a significant adverse effect on a
Fund’s yield to maturity to the extent it invests in IOs. If the assets underlying the IO experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully, or at all, its initial investment in these securities.
Conversely, principal only securities or “POs” tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated.
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The secondary market for stripped mortgage-backed securities may be more volatile and less
liquid than that for other mortgage-backed securities, potentially limiting a Fund’s ability to buy or sell those securities at any particular time.
Subprime mortgage loans, which typically are made to less creditworthy borrowers, have a higher risk of default than conventional mortgage
loans. Therefore, mortgage-backed securities backed by subprime mortgage loans may suffer significantly greater declines in value due to defaults, and may experience high levels of volatility.
GNMA is a government-owned corporation that is an agency of the U.S. Department of Housing and Urban
Development. It guarantees, with the full faith and credit of the United States, full and timely payment of all monthly principal and interest on its mortgage-backed securities.
In September 2008, the U.S. Treasury placed FNMA and FHLMC
under conservatorship and appointed the Federal Housing Finance Agency (FHFA) to manage their daily operations. In addition, the U.S. Treasury entered into purchase agreements with FNMA and FHLMC to provide them with capital in exchange for senior
preferred stock. The conservatorship has no specified termination date. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA. Participation certificates representing interests in mortgages from
FHLMC’s national portfolio are guaranteed as to the timely payment of interest and principal by FHLMC.
A Fund may invest in collateralized debt obligations (“CDOs”), including collateralized bond obligations (“CBOs”),
collateralized loan obligations (“CLOs”), and other similarly structured securities. CBOs, CLOs, and other CDOs are types of asset-backed securities. A CBO is typically an obligation of a trust backed (or collateralized) by a pool of
securities, often including high risk, below investment grade fixed income securities. The collateral may include many different types of fixed income securities such as high yield debt, residential privately issued mortgage-related securities,
commercial privately issued mortgage-related securities, trust preferred securities, and emerging market debt. A CLO is typically an obligation of a trust backed (or collateralized) by a pool of loans, which may include, among others, domestic and
foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. Other types of CDOs may include, by way of example, obligations of trusts
backed by other types of assets representing obligations of various types, and may include high risk, below investment grade obligations. CBOs, CLOs, and other CDOs may pay management fees and administrative expenses. The risk profile of an
investment in a CBO, CLO, or other CDO depends largely on the type of the collateral securities and the class of the instrument in which a Fund invests.
For CBOs, CLOs, and other CDOs, the cash flows from the trust are split into two or more portions, called tranches, varying in risk and
yield. The riskiest portion is the “equity” tranche which typically bears the effects of defaults from the bonds or loans in the trust in the first instance and may serve to protect other, senior tranches from defaults. Typically, the more
senior the tranche in a CBO, CLO, or other CDO, the higher its rating, although senior tranches can experience substantial losses due to actual defaults. The market values of CBO, CLO, and CDO obligations may be affected by a number of factors,
including, among others, changes in interest rates, defaults affecting junior tranches, market anticipation of defaults, and general market aversion to CBO, CLO, or other CDO securities as a class, or to the collateral backing them.
CBOs, CLOs, and other CDOs may be illiquid. In addition to
the risks associated with debt securities discussed elsewhere in this SAI and the Funds’ Prospectus (e.g., interest rate risk and the risk of default), CBOs, CLOs, and other CDOs carry additional risks including, but not limited to: (i) the
possibility that distributions from collateral securities will not be adequate to make interest or other payments on a CBO’s, CLO’s, or other CDO’s obligations; (ii) the collateral may decline in value or be in default; (iii) the risk
that Funds may invest in tranches of CBOs, CLOs, or other CDOs that are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or
unexpected investment results.
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Other Income-Producing Securities
Other types of income-producing securities the Funds may purchase, include, but are not limited to, the
following:
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Variable and floating rate obligations.
These types of securities have variable or floating rates of interest and, under
certain limited circumstances, may have varying principal amounts. These securities pay interest at rates that are adjusted periodically according to a specified formula, usually with reference to some interest rate index or market interest rate.
The floating rate tends to decrease the security’s price sensitivity to changes in interest rates. These types of securities are relatively long-term instruments that often carry demand features permitting the holder to demand payment of
principal at any time or at specified intervals prior to maturity.
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In order to use these investments most effectively, a Fund’s investment adviser or subadviser must correctly assess probable movements in interest rates. This
involves different skills than those used to select most portfolio securities. If the investment adviser or subadviser incorrectly forecasts such movements, a Fund could be adversely affected by the use of variable or floating rate obligations.
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Standby commitments.
These instruments, which are similar to a put, give a Fund the option to obligate a broker, dealer,
or bank to repurchase a security held by the Fund at a specified price.
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Tender option bonds.
Tender option bonds are relatively long-term bonds that are coupled with the agreement of a third
party, such as a broker, dealer, or bank, to grant the holders of such securities the option to tender the securities to the institution at periodic intervals.
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Inverse floaters.
These are debt instruments whose interest bears an inverse relationship to the interest rate on another
security. Similar to variable and floating rate obligations, effective use of inverse floaters requires skills different from those needed to select most portfolio securities. If movements in interest rates are incorrectly anticipated, a Fund could
lose money or the NAV of its shares could decline by the use of inverse floaters.
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Strip bonds.
Strip bonds are debt securities that are stripped of their interest, usually by a financial intermediary,
after the securities are issued. The market value of these securities generally fluctuates more in response to changes in interest rates than interest-paying securities of comparable maturities.
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Standby commitments, tender option bonds, and instruments
with demand features are primarily used by the Funds for the purpose of increasing the liquidity of a Fund’s portfolio.
Other Investment Companies
Certain markets are closed in whole or in part to equity investments by foreigners. A Fund may be able to invest in such markets solely or
primarily through governmentally authorized investment vehicles or companies. Each Underlying Fund generally may invest up to 10% of its total assets in the aggregate in shares of other investment companies and up to 5% of its assets in any one
investment company, as long as no investment represents more than 3% of the outstanding voting stock of the acquired investment company at the time of investment. The RetireSMART Funds rely on Section 12(d)(1)(G) of the 1940 Act, and therefore these
limitations do not apply to the RetireSMART Funds. Investment in another investment company may involve the payment of a premium above the value of such issuers’ portfolio securities, and is subject to market availability. The Underlying Funds
do not intend to invest in such vehicles or funds unless, in the judgment of the Underlying Fund’s investment adviser or subadviser, and subject to an Underlying Fund’s investment restrictions set forth in its Prospectus and SAI, the
potential benefits of the investment justify the payment of any applicable premium or sales charge. As a shareholder in an investment company, Fund shareholders indirectly pay a portion of that investment company’s expenses, including its
advisory, administration, brokerage, shareholder servicing, and other expenses. At the same time a Fund continues to pay its own management fees and other expenses. This section shall not prevent an Underlying Fund from investing its assets in money
market funds in compliance with the 1940 Act.
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Partly Paid Securities
These securities are paid for on an installment basis. A
partly paid security trades net of outstanding installment payments—the buyer “takes over payments.” The buyer’s rights are typically restricted until the security is fully paid. If the value of a partly paid security declines
before a Fund finishes paying for it, the Fund will still owe the payments, but may find it hard to sell and as a result will incur a loss.
Portfolio Management
A Fund’s investment adviser or subadviser uses trading as a means of managing the portfolio of the Fund in seeking to achieve its
investment objective. Transactions will occur when a Fund’s investment adviser or subadviser 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 Fund’s investment adviser’s or subadviser’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 may be increased. In addition, high turnover in a
Fund could result in additional brokerage commissions to be paid by that Fund. See also “Taxation” below.
The Funds may pay brokerage commissions to affiliates of one or more affiliates of the Funds’ investment adviser or subadvisers.
Portfolio Turnover
Although portfolio turnover is not a limiting factor with
respect to investment decisions for the RetireSMART Funds, the RetireSMART Funds expect to experience relatively modest portfolio turnover rates. It is anticipated that under normal circumstances the annual portfolio turnover rate of each
RetireSMART Fund will generally not exceed 100%. However, in any particular year, market conditions may result in greater turnover rates than the investment adviser currently anticipates for these Funds. The investment adviser or subadviser of
certain Underlying Funds will make changes to such Underlying Fund’s portfolios whenever it believes such changes are desirable and, consequently, certain Underlying Funds’ portfolio turnover may be high. For Underlying Funds, portfolio
turnover involves brokerage commissions and other transaction costs, which the relevant Underlying Fund will bear directly (and which RetireSMART Funds will bear indirectly), and could involve realization of capital gains that would be taxable when
distributed to shareholders. The RetireSMART Funds’ portfolio transactions should generally involve trades in the Underlying Funds that do not entail brokerage commissions. To the extent that portfolio turnover results in realization of net
short-term capital gains, such gains ordinarily are taxed to shareholders at ordinary income tax rates. Portfolio turnover rates of the RetireSMART Funds are shown in the “Fees and Expenses of the Fund” and “Financial Highlights”
sections of the Prospectus. See the “Taxation” and “Portfolio Transactions and Brokerage” sections in this SAI for additional information.
Real Estate-Related Investments; Real Estate Investment Trusts
Factors affecting the performance of real estate may include
excess supply of real property in certain markets, changes in zoning laws, completion of construction, changes in real estate value and property taxes, sufficient level of occupancy, adequate rent to cover operating expenses, and local and regional
markets for competing assets. The performance of real estate may also be affected by changes in interest rates, prudent management of insurance risks, and social and economic trends.
Real estate investment trusts (“REITs”) that may be purchased by a Fund include equity REITs, which
own real estate directly, mortgage REITs, which make construction, development, or long-term mortgage loans, and hybrid REITs, which share characteristics of equity REITs and mortgage REITs. Equity REITs will be affected
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by, among other things, changes in the value of the underlying property owned by the REITs, while mortgage REITs will be affected by, among other things, the value of the properties to which they
have extended credit. REITs are dependent upon the skill of each REIT’s management.
A Fund could, under certain circumstances, own real estate directly as a result of a default on debt securities it owns or from an in-kind distribution of real estate from a REIT. Risks associated with
such ownership could include potential liabilities under environmental laws and the costs of other regulatory compliance. If a Fund has rental income or income from the direct disposition of real property, the receipt of such income may adversely
affect its ability to retain its tax status as a regulated investment company and thus its ability to avoid taxation on its income and gains distributed to its shareholders. REITs are also subject to substantial cash flow dependency, defaults by
borrowers, self-liquidation, and the risk of failing to qualify for tax-free pass-through of income under the Code and/or to maintain exempt status under the 1940 Act. If a Fund invests in REITs, investors would bear not only a proportionate share
of the expenses of that Fund, but also, indirectly, expenses of the REITs.
Repurchase Agreements
A repurchase agreement is a contract under which a Fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the Fund’s cost plus interest). Repurchase agreements may also be viewed as loans made by a Fund which are collateralized by the securities subject to repurchase. The
investment adviser or subadviser will monitor such transactions to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller
defaults, a Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement including interest. 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 collateral to the seller’s estate. There is no limit on the Funds’ investment in repurchase agreements.
Restricted Securities
Restricted securities are subject to legal restrictions on their sale. Difficulty in selling securities may result in a loss or be costly
to a Fund. Restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the 1933 Act, or in a registered public offering. Where registration is required, the holder of a
registered security may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time it may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were to develop, the holder might obtain a less favorable price than prevailed when it decided to seek registration of the security.
Reverse Repurchase Agreements and Treasury Rolls
A Fund may enter into reverse repurchase agreements or
Treasury rolls with banks and broker-dealers to enhance return. Reverse repurchase agreements involve sales by a Fund of portfolio securities concurrently with an agreement by the Fund to repurchase the same securities at a later date at a fixed
price (typically equal to the original sale price plus interest). During the reverse repurchase agreement period, the Fund continues to receive principal and interest payments on the securities and also has the opportunity to earn a return on the
purchase price received by it from the counterparty. Similarly, in a Treasury roll transaction, a Fund sells a Treasury security and simultaneously enters into an agreement to repurchase the security from the buyer at a later date, at the original
sale price plus interest. The repurchase price is typically adjusted to provide the Fund the economic benefit of any interest that accrued on the Treasury security during the term of the transaction. The Fund may use the purchase price received by
it to earn additional return during the term of the Treasury roll transaction.
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Reverse repurchase agreements and Treasury rolls are similar to a secured borrowing of a Fund and generally create investment leverage. If the counterparty in such a transaction files for
bankruptcy or becomes insolvent, a Fund’s use of the proceeds from the sale of its securities may be restricted or forfeited, and the counterparty may fail to return/resell the securities in question to the Fund. A Fund may enter into reverse
repurchase agreements or Treasury rolls without limit up to the amount permitted under applicable law.
Securities Lending
A Fund may lend its portfolio securities. The Fund expects that, in connection with any securities loan: (1) the loan will be secured continuously by collateral consisting of U.S. Government
securities, cash, or cash equivalents adjusted daily to have market value at least equal to the current market value of the securities loaned; (2) the Fund will have the right at any time on reasonable notice to call the loan and regain the
securities loaned; (3) the Fund will receive an amount equal to any interest or dividends paid on the loaned securities; and (4) the aggregate market value of securities the Fund has loaned will not at any time exceed one-third (or such other lower
limit as the Board may establish) of the total assets of the Fund. The risks in lending portfolio securities, as with other extensions of credit, include a possible delay in recovering the loaned securities or a possible loss of rights in the
collateral should the borrower fail financially. Voting rights or rights to consent with respect to the loaned securities pass to the borrower, although a Fund would retain the right to call the loans at any time on reasonable notice, and may do so
in order that the securities may be voted in an appropriate case.
A Fund’s securities loans will be made by a third-party agent appointed by the Fund, although the agent is only permitted to make loans to borrowers previously approved by the Fund’s Board. Any
cash collateral securing a loan of securities by a Fund will typically be invested by the agent. The investment of the collateral will be at the risk and for the account of the Fund. The earnings on the investment of collateral will be split between
the Fund and the agent; as a result, the agent may have an incentive to invest the collateral in riskier investments than if it were not to share in the earnings. It is possible that any loss on the investment of collateral for a securities loan
will exceed (potentially by a substantial amount) the Fund’s earnings on the loan.
Short Sales
A short sale is a transaction in which a fund sells a security it does not own in anticipation that the market price of that security will decline. When a fund makes a short sale on a security, it must
borrow the security sold short and deliver it to a broker dealer through which it made the short sale as collateral for its obligation to deliver the security upon the conclusion of the sale. A fund may have to pay a fee to borrow particular
securities and is often obligated to pay over any accrued interest and dividends on such borrowed securities. If the price of the security sold short increases between the time of the short sale and the time a fund replaces the borrowed security, a
fund will incur a loss, which could be unlimited, in cases where a fund is unable for whatever reason to close out its short position; conversely, if the price declines, a fund will realize a capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. The successful use of short selling may be adversely impacted by imperfect correlation between movements in the price of the security sold short and the securities being hedged.
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.
Trade Claims
Certain of the Funds may purchase trade claims and other obligations of, or claims against, companies in bankruptcy proceedings. Trade
claims are claims for payment by vendors and suppliers for products and services
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previously furnished to the companies in question. Other claims may include, for example, claims for payment under financial or derivatives obligations. Trade claims may be purchased directly
from the creditor or through brokers or from dealers, and are typically purchased at a significant discount from their face amounts. There is no guarantee that a debtor will ever be able to satisfy its obligations on such claims. Trade claims are
subject to the risks associated with low-quality and distressed obligations.
U.S. Government Securities
The Funds may invest in U.S. Government securities. These include obligations issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities. Payment of principal and interest on
U.S. Government obligations (i) may be backed by the full faith and credit of the United States (as with U.S. Treasury obligations and GNMA certificates) or (ii) may be backed solely by the issuing or guaranteeing agency or instrumentality itself
(as with FNMA notes). In the latter case, the investor must look principally to the agency or instrumentality issuing or guaranteeing the obligation for ultimate repayment. Such agency or instrumentality may be privately owned. There can be no
assurance that the U.S. Government would provide financial support to its agencies or instrumentalities where it is not obligated to do so. U.S. Government securities are subject to interest rate risk, and, in some cases, may be subject to credit
risk. Although FHLMC and FNMA are now under conservatorship by the Federal Housing Finance Agency, and are benefiting from a liquidity backstop of the U.S. Treasury, no assurance can be given that these initiatives will be successful. As a general
matter, the value of debt instruments, including U.S. Government obligations, declines when market interest rates increase and rises when market interest rates decrease. Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
Utility Industries
Risks that are intrinsic to the utility industries include difficulty in obtaining an adequate return on invested capital, difficulty in
financing large construction programs during an inflationary period, restrictions on operations and increased cost and delays attributable to environmental considerations and regulation, difficulty in raising capital in adequate amounts on
reasonable terms in periods of high inflation and unsettled capital markets, technological innovations that may render existing plants, equipment, or products obsolete, the potential impact of natural or
man-made
disasters, increased costs and reduced availability of certain types of fuel, occasionally reduced availability and high costs of natural gas for resale, the effects of energy conservation, the
effects of a national energy policy and lengthy delays and greatly increased costs and other problems associated with the design, construction, licensing, regulation, and operation of nuclear facilities for electric generation, including, among
other considerations, the problems associated with the use of radioactive materials and the disposal of radioactive wastes. There are substantial differences among the regulatory practices and policies of various jurisdictions, and any given
regulatory agency may make major shifts in policy from time to time. There is no assurance that regulatory authorities will, in the future, grant rate increases or that such increases will be adequate to permit the payment of dividends on common
stocks issued by a utility company. Additionally, existing and possible future regulatory legislation may make it even more difficult for utilities to obtain adequate relief. Certain of the issuers of securities held in the Fund’s portfolio may
own or operate nuclear generating facilities. Governmental authorities may from time to time review existing policies and impose additional requirements governing the licensing, construction and operation of nuclear power plants. Prolonged changes
in climatic conditions can also have a significant impact on both the revenues of an electric and gas utility as well as the expenses of a utility, particularly a hydro-based electric utility.
Utility companies in the United States and in foreign countries are generally subject to regulation. In the
United States, most utility companies are regulated by state and/or federal authorities. Such regulation is intended to ensure appropriate standards of service and adequate capacity to meet public demand. Generally, prices are also regulated in the
United States and in foreign countries with the intention of protecting the public while ensuring that the rate of return earned by utility companies is sufficient to allow them to attract capital in order to grow and continue to provide appropriate
services. There can be no assurance that such pricing policies or rates of return will continue in the future.
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The nature of regulation of the utility industries continues to evolve both in the United
States and in foreign countries. In recent years, changes in regulation in the United States increasingly have allowed utility companies to provide services and products outside their traditional geographic areas and lines of business, creating new
areas of competition within the industries. In some instances, utility companies are operating on an unregulated basis. Because of trends toward deregulation and the evolution of independent power producers as well as new entrants to the field of
telecommunications,
non-regulated
providers of utility services have become a significant part of their respective industries. The investment adviser or subadviser believes that the emergence of competition
and deregulation will result in certain utility companies being able to earn more than their traditional regulated rates of return, while others may be forced to defend their core business from increased competition and may be less profitable.
Reduced profitability, as well as new uses of funds (such as for expansion, operations, or stock buybacks) could result in cuts in dividend payout rates. The investment adviser or subadviser seeks to take advantage of favorable investment
opportunities that may arise from these structural changes. Of course, there can be no assurance that favorable developments will occur in the future.
Foreign utility companies are also subject to regulation, although such regulations may or may not be comparable to those in the United
States. Foreign utility companies may be more heavily regulated by their respective governments than utilities in the United States and, as in the United States, generally are required to seek government approval for rate increases. In addition,
many foreign utilities use fuels that may cause more pollution than those used in the United States, which may require such utilities to invest in pollution control equipment to meet any proposed pollution restrictions. Foreign regulatory systems
vary from country to country and may evolve in ways different from regulation in the United States.
A Fund’s investment policies are designed to enable it to capitalize on evolving investment opportunities throughout the world. For example, the rapid growth of certain foreign economies will
necessitate expansion of capacity in the utility industries in those countries. Although many foreign utility companies currently are government-owned, thereby limiting current investment opportunities for a Fund, the investment adviser or
subadviser believes that, in order to attract significant capital for growth, foreign governments are likely to seek global investors through the privatization of their utility industries. Privatization, which refers to the trend toward investor
ownership of assets rather than government ownership, is expected to occur in newer, faster-growing economies and in mature economies. Of course, there is no assurance that such favorable developments will occur or that investment opportunities in
foreign markets will increase.
The revenues of
domestic and foreign utility companies generally reflect the economic growth and development in the geographic areas in which they do business. The investment adviser or subadviser will take into account anticipated economic growth rates and other
economic developments when selecting securities of utility companies.
Zero-Coupon, Step Coupon and Pay-In-Kind Securities
Other debt securities in which the Funds may invest include zero coupon, step coupon, and pay-in-kind instruments. Zero coupon bonds are
issued and traded at a discount from their face value. They do not entitle the holder to any periodic payment of interest prior to maturity. Step coupon bonds trade at a discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter. The discount from the face amount or par value depends on the time remaining until cash payments begin, prevailing interest rates, liquidity of the security, and the
perceived credit quality of the issue. Pay-in-kind bonds normally give the issuer an option to pay cash at a coupon payment date or give the holder of the security a similar bond with the same coupon rate and a face value equal to the amount of the
coupon payment that would have been made.
Current
federal income tax law requires holders of zero coupon and step coupon securities to report the portion of the original issue discount on such securities that accrues during a given year as interest income, even though holders receive no cash
payments of interest during the year. In order to qualify as a regulated investment
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company under the Code, a Fund must distribute its investment company taxable income, including the original issue discount accrued on zero coupon or step coupon bonds. Because a Fund will not
receive cash payments on a current basis in respect of accrued original issue discount on zero coupon or step coupon bonds during the period before interest payments begin, in some years that Fund may have to distribute cash obtained from other
sources in order to satisfy the distribution requirements under the Code. A Fund might obtain such cash from selling other portfolio holdings which might cause a Fund to incur capital gains or losses on the sale. Additionally, these actions are
likely to reduce the assets to which Fund expenses could be allocated and to reduce the rate of return for a Fund. In some circumstances, such sales might be necessary in order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for a Fund to sell the securities at the time.
Generally, the market prices of zero coupon, step coupon, and pay-in-kind securities are more volatile than the prices of securities that pay interest periodically and in cash and are likely to respond to
changes in interest rates to a greater degree than other types of debt securities.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Trustees of the Funds, including a majority of Trustees who are not “interested persons” of the Funds (as defined in the
1940 Act), have adopted policies and procedures with respect to the disclosure of the Funds’ portfolio holdings. These policies and procedures generally provide that no disclosure of portfolio holdings information may be made unless publicly
disclosed as described below or made as part of the daily investment activities of the Funds to the Funds’ investment adviser or any of its affiliates who provide services to the Funds, which by explicit agreement or by virtue of their
respective duties to the Funds, are required to maintain confidentiality of the information disclosed. Certain limited exceptions pursuant to the Funds’ policies and procedures are described below. The Funds’ portfolio holdings information
may not be disseminated for compensation. Any exceptions to the Funds’ policies and procedures may be made only if approved in writing by the Funds’ Principal Executive Officer and the Funds’ Chief Compliance Officer as being in the
best interests of the relevant Fund, and then only if the recipients are subject to a written confidentiality agreement specifying that the relevant Fund’s portfolio holdings information is the confidential property of the Fund and may not be
used for any purpose except in connection with the provision of services to the Fund and, in particular, that such information may not be traded upon. Any such exceptions must be reported to the Funds’ Board at its next regularly scheduled
meeting. It was determined that these policies and procedures are reasonably designed to ensure that disclosure of portfolio holdings information is in the best interests of a Fund’s shareholders and appropriately address the potential for
conflicts between the interests of a Fund’s shareholders, on the one hand, and those of MML Advisers or any affiliated person of the Fund or MML Advisers on the other.
Acting pursuant to the policies and procedures adopted by the
Trustees of the Funds, the Funds’ investment adviser is primarily responsible for compliance with these policies and procedures, which includes maintaining such internal informational barriers (e.g., “Chinese walls”) as each believes
are reasonably necessary for preventing the unauthorized disclosure of portfolio holdings information. Pursuant to Rule
38a-1
under the 1940 Act, the Trustees will periodically (as needed, but at least
annually) receive reports from the Funds’ Chief Compliance Officer regarding the operation of these policies and procedures, including a confirmation by the Chief Compliance Officer that the investment adviser’s and the Underlying
Funds’ subadvisers’ policies, procedures, and/or processes are reasonably designed to comply with the Funds’ policies and procedures in this regard.
Public Disclosures
The Funds’ portfolio holdings are currently disclosed
to the public through required filings with the SEC and as described below. The Funds file their portfolio holdings with the SEC for each fiscal quarter on
Form N-CSR
(with respect to each annual period
and semi-annual period) no later than 70 days after the end of the applicable quarter and Form
N-Q
(with respect to the first and third quarters of the Funds’ fiscal year) no later
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than 60 days after the end of the applicable quarter. Shareholders may obtain the Funds’ Form
N-CSR
and
N-Q
filings on the SEC’s Web site at http://www.sec.gov. The Funds’ annual and semiannual reports are also mailed to shareholders no later than 60 days after the end of the applicable quarter.
The Funds’ most recent portfolio holdings as of the end
of each quarter are available on http://www.massmutual.com/funds no earlier than 15 calendar days after the end of each quarter.
In addition, each Fund’s top ten holdings are made available in quarterly reports on http://www.massmutual.com/funds as soon as
possible after each calendar quarter-end. A Fund’s portfolio holdings may also be made available on http://www.massmutual.com/funds at other times as approved in writing by the Funds’ Principal Executive Officer and the Funds’ Chief
Compliance Officer as being in the best interests of the relevant Fund.
Other Disclosures
Acting pursuant to the policies and procedures adopted by the Trustees of the Funds, and to the extent permitted under the 1933 and 1940 Acts, the Funds and the Funds’ investment adviser may
distribute (or authorize the Funds’ custodians to distribute) information regarding the Funds’ portfolio holdings more frequently than as provided to the public on a confidential basis to various service providers and others who require
such information in order to fulfill their contractual duties with respect to the routine investment activities or operations of the Funds. Such service providers or others must, by explicit agreement or by virtue of their respective duties to the
Funds, be required to maintain confidentiality of the information disclosed. These service providers include the Funds’ custodian and sub-administrator (State Street Bank and Trust Company (“State Street”)), the Funds’
independent registered public accounting firm (Deloitte & Touche LLP), legal counsel (Ropes & Gray LLP), financial printer (R.R. Donnelley), any proxy voting service employed by the Funds, MML Advisers, or any of the Underlying
Funds’ subadvisers, providers of portfolio analysis tools, and any pricing services employed by the Funds.
The Funds or the Funds’ investment adviser may also periodically provide
non-public
information about their portfolio holdings to rating and ranking organizations, such as Lipper Inc. and Morningstar Inc., in connection with those firms’ research on and classification of the Funds and in order to gather information about how
the Funds’ attributes (such as volatility, turnover, and expenses) compared with those of peer funds. In addition, the Funds or the Funds’ investment adviser may also distribute (or authorize the Funds’ custodian to distribute)
information regarding the Funds’ portfolio holdings more frequently than as provided to the public on a confidential basis to various service providers and others who require such information in order to fulfill
non-routine
legitimate business activities related to the management, investment activities, or operations of the Funds. Such disclosures may be made only if (i) the recipients of such information are
subject to a written confidentiality agreement specifying that the Funds’ portfolio holdings information is the confidential property of the Funds and may not be used for any purpose except in connection with the provision of services to the
Funds and, in particular, that such information may not be traded upon; and (ii) if the Funds’ Chief Compliance Officer (or a person designated by the Chief Compliance Officer) determines that, under the circumstances, disclosure is in the
best interests of the relevant Fund’s shareholders. The information distributed is limited to the information that the Funds, or MML Advisers believes is reasonably necessary in connection with the services provided by the recipient receiving
the information.
INVESTMENT RESTRICTIONS OF THE FUNDS
FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS
The following is a description of certain
fundamental restrictions on investments of the Funds which may not be changed without a vote of a majority of the outstanding shares of the applicable Fund. Investment
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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 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. Each Fund may not:
(1) purchase securities (other than
securities issued, guaranteed or sponsored by the U.S. Government or its agencies or instrumentalities or securities issued by investment companies) of any one issuer if, as a result, more than 5% of a Fund’s total assets would be invested in
the securities of such issuer or the Fund would own more than 10% of the outstanding voting securities of such issuer, except that up to 25% of the Fund’s total assets may be invested without regard to these limitations.
(2) purchase commodities or commodity
contracts, except that a Fund may enter into futures contracts, options, options on futures, and other financial or commodity transactions to the extent consistent with applicable law and the Fund’s Prospectus and SAI at the time.
(3) purchase or sell real estate except
that it may dispose of real estate acquired as a result of the ownership of securities or other instruments. (This restriction does not prohibit a Fund from investing in securities or other instruments backed by real estate or in securities of
companies engaged in the real estate business.)
(4) participate in the underwriting of securities, except to the extent that a Fund may be deemed an underwriter under federal securities laws by reason of acquisitions or distributions of portfolio
securities (e.g., investments in restricted securities and instruments subject to such limits as imposed by the Board and/or law).
(5) make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder (as such
statute, rules or regulations may be amended from time to time) or by guidance regarding or interpretations of, or exemptive orders under, the 1940 Act or the rules or regulations thereunder published by appropriate regulatory authorities.
(6) borrow money or issue
senior securities, except to the extent permitted by the 1940 Act, the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding or interpretations of, or exemptive orders
under, the 1940 Act or the rules or regulations thereunder published by appropriate regulatory authorities.
(7) concentrate its investments in any one industry, as determined by the Board, and in this connection a Fund will not
acquire securities of companies in any one industry if, immediately after giving effect to any such acquisition, 25% or more of the value of the total assets of the Fund would be invested in such industry, with the following exceptions:
(a) There is no limitation for securities
issued or guaranteed by the U.S. government or its agencies or instrumentalities.
(b) There is no limitation for securities issued by other investment companies.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS
In addition to the investment restrictions adopted as
fundamental policies set forth above, the Funds operate with certain non-fundamental policies that may be changed by a vote of a majority of the Board members at any time.
In accordance with such policies, each Fund may not:
(1) to the extent
required by applicable law at the time, purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of its total assets.
(2) sell securities short, but reserves the right to sell securities short against
the box.
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(3) invest more than 15% of its net assets in illiquid
securities. This restriction does not limit the purchase of securities eligible for resale to qualified institutional buyers pursuant to Rule 144A under the 1933 Act, provided that such securities are determined to be liquid by MML Advisers or the
subadviser pursuant to Board approved guidelines.
With respect to limitation (3) above, 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. If, through a change in values, net assets, or other circumstances, the Fund were in a position where
more than 15% of its net assets was invested in illiquid securities, it would take appropriate orderly steps, as deemed necessary, to protect liquidity.
Notwithstanding the foregoing fundamental or non-fundamental investment restrictions, the Underlying Funds in which the RetireSMART Funds
may invest have adopted certain investment limitations that may be more or less restrictive than those listed above, thereby permitting a RetireSMART Fund to engage indirectly in investment strategies that are prohibited under the investment
limitations listed above.
In accordance with each
RetireSMART Fund’s investment program as set forth in the Prospectus, a RetireSMART Fund may invest 25% or more of its assets in any one Underlying Fund. While each RetireSMART Fund does not intend to concentrate its investments in a particular
industry, a RetireSMART Fund may indirectly concentrate in a particular industry or group of industries through its investments in one or more Underlying Funds.
MANAGEMENT OF THE TRUST
The Trust has a Board comprised of ten Trustees, a majority
of which are not “interested persons” (as defined in the 1940 Act) of the Trust. The Board is generally responsible for the management and oversight 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. To assist them in this role, the Trustees who are not “interested persons” of the Trust (“Independent Trustees”)
have retained independent legal counsel. As investment adviser to the Funds MML Advisers 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, and other principal business affiliations during the past five years.
The Board has appointed an Independent Trustee Chairman of the Trust. The Chairman presides at Board meetings and may call a Board or
committee meeting when he deems it necessary. The Chairman participates in the preparation of Board meeting agendas and may generally facilitate communications among the Trustees, and between the Trustees and the Trust’s management, officers,
and independent legal counsel, between meetings. The Chairman may also perform such other functions as may be requested by the Board from time to time. The Board has established the four standing committees described below, and may form working
groups or ad hoc committees as needed.
The Board
believes this leadership structure is appropriate because it allows the Board to exercise informed and independent judgment, and allocates areas of responsibility among committees or working groups of Trustees and the full Board in a manner that
enhances effective oversight. The Board also believes that having a majority of Independent Trustees is appropriate and in the best interest of the Funds’ shareholders. However, in the Board’s opinion, having interested persons serve as
Trustees brings both corporate and financial viewpoints that are significant elements in its decision-making process. The Board reviews it leadership structure at least annually and may make changes to it at any time, including in response to
changes in the characteristics or circumstances of the Trust.
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Independent Trustees
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Richard H. Ayers
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Chairman and Trustee of the Trust
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100 Bright Meadow Blvd.
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Enfield, CT 06082
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Age: 71
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Chairman since 2010
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Trustee since 1996
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Trustee of 92 portfolios in fund complex
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Retired; Director
(2008-2011), Celera Corporation; Director (1996-2008), Applera Corporation; Chairman (since 2010), Trustee (since 1999), MML Series Investment Fund (open-end investment company); Chairman and Trustee (since 2012), MML Series Investment Fund II
(open-end investment company); Chairman and Trustee (since 2012), MassMutual Premier Funds (open-end investment company).
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Allan W. Blair
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Trustee of the Trust
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100 Bright Meadow Blvd.
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|
Enfield, CT 06082
|
|
|
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Age: 65
|
|
|
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Trustee since 2003
|
|
|
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Trustee of 92 portfolios in fund complex
|
|
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President and Chief Executive
Officer (since 1996), Economic Development Council of Western Massachusetts; President and Chief Executive Officer (since 1984), Westover Metropolitan Development Corporation; Trustee (since 2003), MML Series Investment Fund (open-end investment
company); Trustee (since 2012), MML Series Investment Fund II (open-end investment company); Trustee (since 2012), MassMutual Premier Funds (open-end investment company).
|
|
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Nabil N. El-Hage
|
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Trustee of the Trust
|
|
100 Bright Meadow Blvd.
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Enfield, CT 06082
|
|
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Age: 55
|
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Trustee since 2012
|
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Trustee of 92 portfolios in fund complex
|
|
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Consultant (since 2010);
Chairman (since 2011), Academy of Executive Education, LLC; Senior Associate Dean for External Relations (2009-2010), Thomas Henry Carroll Ford Foundation Adjunct Professor of Business Administration (2009-2010), Professor of Management Practice
(2005-2009), Harvard Business School; Director (2007-2010), Virtual Radiologic Corporation; Trustee (since 2003), Chairman (2006-2012), MassMutual Premier Funds (open-end investment company); Trustee (since 2005), Chairman (2006-2012), MML Series
Investment Fund II (open-end investment company); Trustee (since 2012), MML Series Investment Fund (open-end investment company).
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Maria D. Furman
|
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Trustee of the Trust
|
|
100 Bright Meadow Blvd.
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Enfield, CT 06082
|
|
|
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Age: 60
|
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|
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Trustee since 2012
|
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|
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Trustee of 92 portfolios in fund complex
|
|
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Retired; Trustee (since
2011), GMO Series Trust (open-end investment company); Trustee (since 2004), MassMutual Premier Funds (open-end investment company); Trustee (since 2005), MML Series Investment Fund II (open-end investment company); Trustee (since 2012), MML Series
Investment Fund (open-end investment company).
B-45
|
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R. Alan Hunter, Jr.
|
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Trustee of the Trust
|
|
100 Bright Meadow Blvd.
|
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|
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Enfield, CT 06082
|
|
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Age: 67
|
|
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Trustee since 2003
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Trustee of 92 portfolios in fund complex
|
|
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Retired; Director (since
2007), Actuant Corporation; Trustee (since 2003), MML Series Investment Fund (open-end investment company); Trustee (since 2012), MML Series Investment Fund II (open-end investment company); Trustee (since 2012), MassMutual Premier Funds (open-end
investment company).
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F. William Marshall, Jr.
|
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Trustee of the Trust
|
|
100 Bright Meadow Blvd.
|
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Enfield, CT 06082
|
|
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Age: 71
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|
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Trustee since 1996
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|
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Trustee of 131 portfolios in fund complex
1
|
|
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Retired; Consultant
(1999-2009); Trustee (since 2000), Denver Board – Oppenheimer Funds; Trustee (since 1996), MML Series Investment Fund (open-end investment company); Trustee (since 2012), MML Series Investment Fund II (open-end investment company); Trustee
(since 2012), MassMutual Premier Funds (open-end investment company).
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C. Ann Merrifield
|
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Trustee of the Trust
|
|
100 Bright Meadow Blvd.
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Enfield, CT 06082
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Age: 63
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Trustee since 2012
|
|
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Trustee of 92 portfolios in fund complex
|
|
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President and Chief Executive
Officer (since 2012), PathoGenetix; Senior Vice President, Genzyme Business Excellence Initiative (2009-2011), President, Biosurgery (2003-2009), Genzyme Corporation; Trustee (since 2004), MassMutual Premier Funds (open-end investment company);
Trustee (since 2005), MML Series Investment Fund II (open-end investment company); Trustee (since 2012), MML Series Investment Fund (open-end investment company).
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Susan B. Sweeney
|
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Trustee of the Trust
|
|
100 Bright Meadow Blvd.
|
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Enfield, CT 06082
|
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Age: 61
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Trustee since 2009
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Trustee of 94 portfolios in fund complex
2
|
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Senior Vice President and
Chief Investment Officer (since 2010), Selective Insurance Group (property and casualty company); Senior Managing Director (2008-2010), Ironwood Capital (private equity firm); Trustee (since 2012), Babson Capital Corporate Investors (closed-end
investment company); Trustee (since 2012), Babson Capital Participation Investors (closed-end investment company); Trustee (since 2009), MML Series Investment Fund
(open-end
investment company); Trustee (since
2012), MML Series Investment Fund II (open-end investment company); Trustee (since 2012), MassMutual Premier Funds (open-end investment company).
B-46
|
1
|
Denver Board – Oppenheimer Funds is deemed to be part of the Fund Complex because it is managed by OFI Global Asset Management, Inc., an affiliate of MML Advisers.
|
Interested Trustees
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Robert E. Joyal
3
|
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Trustee of the Trust
|
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100 Bright Meadow Blvd.
|
|
|
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Enfield, CT 06082
|
|
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Age: 69
|
|
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Trustee since 2003
|
|
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Trustee of 94 portfolios in fund complex
2
|
|
Retired; Director (since
2013), Leucadia National Corporation (holding company); Director (since 2012), Ormat Technologies, Inc.; Director (since 2006), Jefferies Group, Inc. (investment bank); Director (2007-2011), Scottish Re Group Ltd.; Director (2003-2010), Alabama
Aircraft Industries, Inc.; Trustee (since 2003), Babson Capital Corporate Investors (closed-end investment company); Trustee (since 2003), Babson Capital Participation Investors (closed-end investment company); Trustee (since 2003), MML Series
Investment Fund (open-end investment company); Trustee (since 2012), MML Series Investment Fund II (open-end investment company); Trustee (since 2012), MassMutual Premier Funds (open-end investment company).
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Elaine A. Sarsynski
4
|
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Trustee of the Trust
|
|
100 Bright Meadow Blvd.
|
|
|
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Enfield, CT 06082
|
|
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Age: 58
|
|
|
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Trustee since 2008
|
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|
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Trustee of 92 portfolios in fund complex
|
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Executive Vice President
(since 2008), MassMutual Retirement Services Division, MassMutual; Chairman (since 2006), MassMutual International LLC; Director (since 2012), Horizon Technology Finance Management LLC; Director (since 2013), MML Advisers; Trustee (since 2008), MML
Series Investment Fund (open-end investment company); Vice Chairperson (2011-2012), Trustee (since 2011), MML Series Investment Fund II (open-end investment company); Vice Chairperson (2011-2012), Trustee (since 2011), MassMutual Premier Funds
(open-end investment company).
|
2
|
Babson Capital Participation Investors and Babson Capital Corporate Investors are deemed to be a part of the Fund Complex because they are managed by Babson Capital
Management LLC, an affiliate of MML Advisers.
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3
|
Mr. Joyal is an “Interested Person,” as that term is defined in the 1940 Act, through his position as a director of Jefferies Group, Inc., a broker-dealer
that may execute portfolio transactions and/or engage in principal transactions with the Funds, other investment companies advised by MML Advisers or holding themselves out to investors as related companies for purposes of investment or investor
services, or any other advisory accounts over which MML Advisers has brokerage placement discretion.
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4
|
Ms. Sarsynski is an Interested Person as a director of MML Advisers.
|
B-47
Principal Officers
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Michael C. Eldredge
100 Bright Meadow Blvd.
Enfield, CT 06082
Age: 49
Officer since 2009
Officer of 92 portfolios in fund complex
|
|
Vice President of the Trust
|
Head of Investments and
portfolio manager (since 2014), MML Advisers; Vice President (since 2008), MassMutual; Vice President (2005-2008), ING; Vice President (since 2009), MassMutual Premier Funds
(open-end
investment company); Vice
President (since 2009), MML Series Investment Fund
(open-end
investment company); Vice President (since 2009), MML Series Investment Fund II
(open-end
investment
company).
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Andrew M. Goldberg
100 Bright Meadow Blvd.
Enfield, CT 06082
Age: 47
Officer since 2001
Officer of 92 portfolios in fund complex
|
|
Vice President, Secretary, and Chief Legal Officer of the Trust
|
Assistant Vice President and
Counsel (since 2004), MassMutual; Assistant Secretary (since 2013), MML Advisers; Vice President, Secretary (formerly known as “Clerk”), and Chief Legal Officer (since 2008), Assistant Clerk (2004-2008), MassMutual Premier Funds (open-end
investment company); Vice President, Secretary, and Chief Legal Officer (since 2008), Assistant Secretary (2001- 2008), MML Series Investment Fund (open-end investment company); Vice President, Secretary (formerly known as “Clerk”), and
Chief Legal Officer (since 2008), Assistant Clerk (2005-2008), MML Series Investment Fund II (open-end investment company).
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Nicholas H. Palmerino
100 Bright Meadow Blvd.
Enfield, CT 06082
Age: 48
Officer since 2006
Officer of 92 portfolios in fund complex
|
|
Chief Financial Officer and Treasurer of the Trust
|
Assistant Vice President
(since 2006), MassMutual; Chief Financial Officer and Treasurer (since 2006), MassMutual Premier Funds
(open-end
investment company); Chief Financial Officer and Treasurer (since 2006), MML Series Investment
Fund
(open-end
investment company); Chief Financial Officer and Treasurer (since 2006), MML Series Investment Fund II
(open-end
investment company).
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|
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Philip S. Wellman
100 Bright Meadow Blvd.
Enfield, CT 06082
Age: 49
Officer since 2007
Officer of 92 portfolios in fund complex
|
|
Vice President and Chief Compliance Officer of the Trust
|
Vice President and Chief
Compliance Officer (since 2013), MML Advisers; Vice President and Associate General Counsel (since 2014), Vice President, Associate General Counsel, and Chief Compliance Officer (Mutual Funds and Investment Advisory) (2008-2014), Vice President,
Associate General Counsel, and Chief Compliance Officer (Mutual Funds) (2007-2008), MassMutual; Vice President and Chief Compliance Officer (since 2007), MassMutual Premier Funds (open-end investment company); Vice President and Chief Compliance
Officer (since 2007), MML Series Investment Fund (open-end investment company); Vice President and Chief Compliance Officer (since 2007), MML Series Investment Fund II (open-end investment company).
B-48
|
|
|
|
|
Eric H. Wietsma
100 Bright Meadow Blvd.
Enfield, CT 06082
Age: 47
Officer since 2006
Officer of 92 portfolios in fund complex
|
|
President of the Trust
|
Director and President (since
2013), MML Advisers; Senior Vice President (since 2010), Corporate Vice President (2007-2010), MassMutual; President (since 2008), Vice President (2006-2008), MassMutual Premier Funds
(open-end
investment
company); Vice President (since 2006), MML Series Investment Fund
(open-end
investment company); Vice President (since 2006), MML Series Investment Fund II
(open-end
investment company).
Each Trustee of the Trust
serves until the next meeting of shareholders called for the purpose of electing Trustees and until the election and qualification of his or her successor or until he or she dies, resigns, or is removed. Notwithstanding the foregoing, a Trustee
shall retire and cease to serve as a Trustee upon the conclusion of the calendar year in which such Trustee attains the age of seventy-two years.
The Chairperson is elected to hold such office for a term of three years or until their successor is elected and qualified to carry out
the duties and responsibilities of their office, or until he or she retires, dies, resigns, is removed, or becomes disqualified.
The President, Treasurer, and Secretary are elected to hold such office until their successor is elected and qualified to carry out the
duties and responsibilities of their office, or until he or she dies, resigns, is removed, or becomes disqualified. Each other officer shall hold office at the pleasure of the Trustees.
Additional Information About the Trustees
In addition to the information set forth above, the
following specific experience, qualifications, attributes, and skills apply to each Trustee. Each Trustee was appointed to serve on the Board based on his or her overall experience and the Board did not identify any specific qualification as
all-important or controlling. The information in this section should not be understood to mean that any of the Trustees is an “expert” within the meaning of the federal securities laws.
Richard H. Ayers
—As a director and audit
committee member of several publicly traded companies, Mr. Ayers has experience with financial, regulatory, and operational issues. He also held executive positions with a manufacturing company for 25 years and has experience as a governance
chairman of a non-profit organization. Mr. Ayers holds a BS and an MS in Industrial Management from Massachusetts Institute of Technology.
Allan W. Blair
—As a trustee and audit and compliance committee member of a large healthcare system, Mr. Blair has
experience with financial, regulatory, and operational issues. He also has served as CEO of several non-profit organizations for over 28 years. Mr. Blair holds a BA from the University of Massachusetts at Amherst and a JD from Western New England
College School of Law.
Nabil N.
El-Hage
—As a former CEO or CFO of various public companies, Mr. El-Hage has experience with financial, regulatory, and operational issues. He has also taught corporate finance at the graduate level, and has served as a director for more
than a dozen public and private companies and as an associate at a venture capital firm. Mr. El-Hage holds a BS in Electronic Engineering from Yale University and an MBA with high distinction from Harvard University.
B-49
Maria D. Furman
—As a trustee and chairperson or member of the audit and
investment committees of various educational organizations, Ms. Furman has experience with financial, regulatory, and operational issues. She also has served as an audit and investment committee member and a director, treasurer, and investment
committee chair for environmental, educational, and healthcare organizations. Ms. Furman is a CFA charterholder and holds a BA from the University of Massachusetts at Dartmouth.
R. Alan Hunter, Jr.
—As the former chairman of the
board of a non-profit organization and a current director of a publicly traded company, Mr. Hunter has experience with financial, regulatory, and operational issues. He also held executive positions with a manufacturing company. Mr. Hunter holds a
BA from Dickinson College and an MBA from the University of Pennsylvania.
Robert E. Joyal
—As a director of several publicly traded companies, a trustee of various investment companies, and a former executive of an investment management company, Mr. Joyal has
experience with financial, regulatory, and operational issues. Mr. Joyal is a Chartered Financial Analyst. He holds a BA from St. Michael’s College and an MBA from Western New England College.
F. William Marshall, Jr.
—As an executive of
several banking companies over the past 20 years, Mr. Marshall has experience with financial, regulatory, and operational issues. He has over 35 years of banking experience and has participated on investment and finance committees (including
chairperson) of various organizations. Mr. Marshall holds a BSBA from Washington University and completed the Advanced Management Program at Harvard Business School.
C. Ann Merrifield
—As a trustee of a healthcare
organization, former partner of a consulting firm, and investment officer at a large insurance company, Ms. Merrifield has experience with financial, regulatory, and operational issues. She also has served as an audit committee member for a
manufacturing company. Ms. Merrifield holds a BA and M. Ed. from the University of Maine and an MBA from Amos Tuck School of Business Administration at Dartmouth College.
Elaine A. Sarsynski
—As an executive of a
financial services company and a director of a number of its subsidiaries with over 25 years of financial services experience, Ms. Sarsynski has experience with financial, regulatory, and operational issues. She also has experience managing
government and municipal activities and offering consulting services to the real estate industry. Ms. Sarsynski has FINRA Series 7 and 24 registrations and holds a BA from Smith College in economics and an MBA in finance and accounting from Columbia
University.
Susan B. Sweeney
—As an
executive of a financial services company with over 30 years of financial services experience, Ms. Sweeney has experience with financial, regulatory, and operational issues. Ms. Sweeney holds a BS in Business Studies from Connecticut Board for State
Academic Awards, an MBA from Harvard Business School, and a Doctor of Humane Letters from Charter Oak State College.
Board Committees and Meetings
The full Board met four times during 2013.
Audit Committee.
The Trust has an Audit Committee, consisting of Trustees who are not
“interested persons” (as defined in the 1940 Act) of the Trust. The Audit Committee, whose members are Messrs. Blair,
El-Hage,
and Hunter and Msses. Furman and Sweeney, oversees the
Trust’s accounting and financial reporting policies and practices, its internal controls, and internal controls of certain service providers; oversees the quality and objectivity of the Trust’s financial statements and the independent
audit thereof; evaluates the independence of the Trust’s independent registered public accounting firm; evaluates the overall performance and compensation of the Chief Compliance Officer; acts as liaison between the Trust’s independent
registered public accounting firm and the full Board; and provides immediate access for the Trust’s independent registered public
B-50
accounting firm to report any special matters they believe should be brought to the attention of the full Board. During 2013, the Audit Committee met three times.
Nominating
Committee.
The Trust has a Nominating Committee, consisting of each Trustee who is not an “interested person” of the Trust. There are no regular meetings of the Nominating Committee, but rather meetings are
held as appropriate. During 2013, the Nominating Committee met once. The Nominating Committee (a) identifies individuals qualified to become independent members of the Funds’ Board in the event that a position currently filled by an
Independent Trustee is vacated or created; (b) evaluates the qualifications of Independent Trustee candidates; (c) nominates Independent Trustee nominees for election or appointment to the Board; (d) sets any standards necessary or
qualifications for service on the Board; (e) recommends periodically to the full Board an Independent Trustee to serve as Chairperson; (f) evaluates at least annually the independence and overall performance of counsel to the Independent Trustees;
and (g) annually reviews the compensation of the Independent Trustees.
The Nominating Committee will consider and evaluate nominee candidates properly submitted by shareholders of the Trust in the same manner as it considers and evaluates candidates recommended by other
sources. A recommendation of a shareholder of the Trust must be submitted as described below to be considered properly submitted for purposes of the Nominating Committee’s consideration. The shareholders of the Trust must submit any such
recommendation (a “Shareholder Recommendation”) in writing to the Trust’s Nominating Committee, to the attention of the Secretary, at the address of the principal executive offices of the Trust, which is 100 Bright Meadow Blvd.,
Enfield, CT 06082. The Shareholder Recommendation must be delivered to or mailed and received at the principal executive offices of the Trust at least 60 calendar days before the date of the meeting at which the Nominating Committee is to select a
nominee for Independent Trustee. The Shareholder Recommendation must include: (i) a statement in writing setting forth: (A) the name, age, date of birth, phone number, business address, residence address, nationality, and pertinent qualifications of
the person recommended by the shareholder (the “Shareholder Candidate”), including an explanation of why the shareholder believes the Candidate will make a good Trustee; (B) the class or series and number of all shares of the Funds
owned of record or beneficially by the Shareholder Candidate, as reported to such shareholder by the Shareholder Candidate; (C) any other information regarding the Shareholder Candidate called for with respect to director nominees by paragraphs (a),
(d), (e), and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), adopted by the SEC (or the corresponding provisions of
any regulation or rule subsequently adopted by the SEC or any successor agency applicable to the Funds); (D) any other information regarding the Shareholder Candidate that would be required to be disclosed if the Shareholder Candidate were a nominee
in a proxy statement or other filing required to be made in connection with solicitation of proxies for election of trustees or directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (E)
whether the recommending shareholder believes that the Shareholder Candidate is or will be an “interested person” (as defined in Section 2(a)(19) of the 1940 Act) of the Funds and, if not an “interested person,” information
regarding the Shareholder Candidate that will be sufficient for the Funds to make such determination; (ii) the written and signed consent of the Shareholder Candidate to be named as a nominee, consenting to (1) the disclosure, as may be necessary or
appropriate, of such Shareholder Candidate’s information submitted in accordance with (i) above; and (2) service as a Trustee if elected; (iii) the recommending shareholder’s name as it appears on the Funds’ books, the number of all
shares of each series of the Funds owned beneficially and of record by the recommending shareholder; (iv) a description of all arrangements or understandings between the recommending shareholder and the Shareholder Candidate and any other person or
persons (including their names) pursuant to which the Shareholder Recommendation is being made by the recommending shareholder; and (v) such other information as the Nominating Committee may require the Shareholder Candidate to furnish as it may
reasonably require or deem necessary to determine the eligibility of such Shareholder Candidate to serve as a Trustee or to satisfy applicable law.
Shareholders may send other communications to the Trustees by addressing such correspondence directly to the Secretary of the Trust, c/o
Massachusetts Mutual Life Insurance Company, 100 Bright Meadow Blvd.,
B-51
Enfield, CT 06082. When writing to the Board, shareholders should identify themselves, the fact that the communication is directed to the Board, the Fund they are writing about, and any relevant
information regarding their Fund holdings. Except as provided below, the Secretary shall either (i) provide a copy of each shareholder communication to the Board at its next regularly scheduled meeting or (ii) if the Secretary determines
that the communication requires more immediate attention, forward the communication to the Board promptly after receipt. The Secretary will also provide a copy of each shareholder communication to the Trust’s Chief Compliance Officer.
The Secretary may, in good faith, determine that
a shareholder communication should not be provided to the Board because it does not reasonably relate to the Trust or its operations, management, activities, policies, service providers, Board, officers, shareholders, or other matters relating to an
investment in the Funds or is otherwise ministerial in nature (such as a request for Fund literature, share data, or financial information). The Secretary will provide to the Board on a quarterly basis a summary of the shareholder communications not
provided to the Board by virtue of this paragraph.
Contract Committee.
The Trust has a Contract Committee, consisting of each Trustee who is not an
“interested person” of the Trust. During 2013, the Contract Committee met four times. The Contract Committee performs the specific tasks assigned to independent trustees by the 1940 Act, including the periodic consideration of the
Trust’s investment management agreements and subadvisory agreements.
Governance Committee.
The Trust has a Governance Committee, whose members are Messrs. Blair, Joyal, and Marshall and Msses. Furman, Merrifield, and Sarsynski. During
2013, the Governance Committee met once. The Governance Committee oversees board governance issues including, but not limited to, the following: (i) to evaluate the board and committee structure and the performance of Trustees, (ii) to
consider and address any conflicts, and (iii) to consider the retirement policies of the Board.
Risk Oversight
As registered investment companies, the Funds are subject to a variety of risks, including, among others, investment risks, financial risks, compliance risks, and operational risks. The Funds’
investment adviser and administrator, MML Advisers, has primary responsibility for the Funds’ risk management on a day-to-day basis as part of its overall responsibilities. The Underlying Funds’ advisers or subadvisers are primarily
responsible for managing investment risk as part of their day-to-day investment management responsibilities, as well as operational risks at their respective firms. The Funds’ investment adviser and Chief Compliance Officer also assist the
Board in overseeing the significant investment policies of the Funds and monitor the various compliance policies and procedures approved by the Board as a part of its oversight responsibilities.
In discharging its oversight responsibilities, the Board
considers risk management issues throughout the year by reviewing regular reports prepared by the Funds’ investment adviser and Chief Compliance Officer, as well as special written reports or presentations provided on a variety of risk issues,
as needed. For example, the investment adviser reports to the Board quarterly on the investment performance of each of the Funds, the financial performance of the Funds, overall market and economic conditions, and legal and regulatory developments
that may impact the Funds. The Fund’s Chief Compliance Officer, who reports directly to the Board’s Independent Trustees, provides presentations to the Board at its quarterly meetings and an annual report to the Board concerning (i)
compliance matters relating to the Funds, the Funds’ investment adviser and Underlying Funds’ subadvisers, and the Funds’ other key service providers; (ii) regulatory developments; (iii) business continuity programs; and (iv) various
risks identified as part of the Funds’ compliance program assessments. The Funds’ Chief Compliance Officer also meets at least quarterly in executive session with the Independent Trustees, and communicates significant compliance-related
issues and regulatory developments to the Audit Committee between Board meetings.
B-52
In addressing issues regarding the Funds’ risk management between meetings, appropriate
representatives of the investment adviser communicate with the Chairman of the Trust, the Chairman of the Audit Committee, or the Funds’ Chief Compliance Officer. As appropriate, the Trustees confer among themselves, or with the Funds’
Chief Compliance Officer, the investment adviser, other service providers, and independent legal counsel, to identify and review risk management issues that may be placed on the full Board’s agenda.
The Board also relies on its committees to administer the
Board’s oversight function. The Audit Committee assists the Board in reviewing with the investment adviser and the Funds’ independent auditors, at various times throughout the year, matters relating to the annual audits, financial
accounting and reporting matters, and the internal control environment at the service providers that provide financial accounting and reporting for the Funds. The Audit Committee also meets annually with representatives of the investment
adviser’s Corporate Audit Department to review the results of internal audits of relevance to the Funds. This and the Board’s other committees present reports to the Board that may prompt further discussion of issues concerning the
oversight of the Funds’ risk management. The Board may also discuss particular risks that are not addressed in the committee process.
Share Ownership of Trustees and Officers of the Trust
The table below sets forth information regarding the Trustees’ beneficial ownership of Fund shares, based on the value of such shares
as of December 31, 2013.
|
|
|
|
|
|
|
Name of Trustee
|
|
The Dollar Range of Equity
Securities Beneficially
Owned
in the Trust
|
|
Aggregate Dollar Range of Equity
Securities in All Registered
Investment Companies
Overseen
by Trustee in Family of
Investment Companies
|
|
Independent Trustees
|
|
|
|
|
|
Richard H. Ayers
|
|
None
|
|
None
|
|
Allan W. Blair
|
|
None
|
|
over $100,000
|
|
Nabil N. El-Hage
|
|
None
|
|
$10,001-$50,000
|
|
Maria D. Furman
|
|
None
|
|
None
|
|
R. Alan Hunter, Jr.
|
|
None
|
|
None
|
|
F. William Marshall, Jr.
|
|
None
|
|
None
|
|
C. Ann Merrifield
|
|
None
|
|
None
|
|
Susan B. Sweeney
|
|
None
|
|
None
|
|
Interested Trustees
|
|
|
|
|
|
Robert E. Joyal
|
|
None
|
|
None
|
|
Elaine A. Sarsynski
|
|
None
|
|
None
|
The ownership information
shown above does not include units of separate investment accounts that invest in one or more registered investment companies overseen by a Trustee in the family of investment companies held in a 401(k) plan or amounts held under a deferred
compensation plan that are valued based on “shadow investments” in one or more such registered investment companies. As of December 31, 2013, these amounts were as follows: Mr. Ayers, over $100,000; Mr. Blair, over $100,000; Mr. El-Hage,
over $100,000; Ms. Furman, over $100,000; Mr. Hunter, over $100,000; Mr. Joyal, over $100,000; Mr. Marshall, $10,001-$50,000; and Ms. Sarsynski, over $100,000.
As of March 3, 2014, the Trustees and officers of the Trust,
individually and as a group, did not beneficially own outstanding shares of any of the Funds.
To the knowledge of the Trust, as of December 31, 2013, the Independent Trustees and their immediate family members did not own beneficially or of record securities of an investment adviser, subadviser,
principal underwriter, or sponsoring insurance company of the Funds or a person (other than a registered investment
B-53
company) directly or indirectly controlling, controlled by, or under common control with an investment adviser, subadviser, principal underwriter, or sponsoring insurance company of the Funds.
Trustee Compensation
Effective January 1, 2014, the Trust, on behalf of each
Fund, pays each of its Trustees who is not an officer or employee of MassMutual a fee of $16,100 per quarter plus a fee of $2,760 per
in-person
meeting attended and the annual Contract Committee meeting. The
Chairperson of the Board is paid an additional 50% of the quarterly fee, the
in-person
meeting fee, and the Contract Committee meeting fee. The Chairperson of the Audit Committee is paid an additional 10% of
the quarterly fee, the
in-person
meeting fee, and the Contract Committee meeting fee. The Chairpersons of each of the Contract Committee, the Nominating Committee, and the Governance Committee are paid an
additional 5% of the quarterly fee, the
in-person
meeting fee, and the Contract Committee meeting fee. Such Trustees who serve on the Audit Committee, other than the Chairperson, are paid an additional 4% of
the quarterly fee, the
in-person
meeting fee, and the Contract Committee meeting fee. No additional fees are paid for attending any other committee meetings or any special telephonic meetings. 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.
During 2013, the Trust, on behalf of each Fund,
paid each of its Trustees who was not an officer or employee of MassMutual a fee of $13,950 per quarter plus a fee of $2,700 per in-person meeting attended and the annual Contract Committee meeting. The Chairperson of the Board was paid an
additional 50% of the quarterly fee, the in-person meeting fee, and the Contract Committee meeting fee. The Chairperson of the Audit Committee was paid an additional 10% of the quarterly fee, the in-person meeting fee, and the Contract Committee
meeting fee. The Chairpersons of each of the Contract Committee, the Nominating Committee, and the Governance Committee were paid an additional 5% of the quarterly fee, the in-person meeting fee, and the Contract Committee meeting fee. Such Trustees
who served on the Audit Committee, other than the Chairperson, were paid an additional 4% of the quarterly fee, the in-person meeting fee, and the Contract Committee meeting fee. No additional fees were paid for attending any other committee
meetings or any special telephonic meetings. In addition, the Trust reimbursed out-of-pocket business travel expenses to such Trustees. Trustees who were officers or employees of MassMutual received no fees from the Trust.
The following table discloses actual compensation paid to
Trustees of the Trust during the 2013 fiscal year. The Trust has no pension or retirement plan, but does have a deferred compensation plan. The plan provides for amounts deferred prior to July 1, 2008, plus interest, to be credited a rate of
interest of eight percent (8%). Amounts deferred after July 1, 2008, plus or minus earnings, are “shadow invested” and earn the rate of return equal to the rate of return earned by the funds in which such amounts are shadow invested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Aggregate Compensation
from the Trust
|
|
|
Deferred Compensation and
Interest Accrued as part of
Fund Expenses
|
|
|
Total Compensation
from the Trust
and Fund Complex
Paid to Trustees
|
|
|
Richard H. Ayers
|
|
|
N/A
|
|
|
$
|
311,143
|
|
|
$
|
573,803
|
|
|
Allan W. Blair
|
|
$
|
72,072
|
|
|
|
N/A
|
|
|
$
|
160,160
|
|
|
Nabil N. El-Hage
|
|
|
N/A
|
|
|
$
|
65,669
|
|
|
$
|
145,932
|
|
|
Maria D. Furman
|
|
|
N/A
|
|
|
$
|
76,949
|
|
|
$
|
191,754
|
|
|
R. Alan Hunter, Jr.
|
|
$
|
76,230
|
|
|
$
|
56,252
|
|
|
$
|
248,606
|
|
|
Robert E. Joyal
|
|
|
N/A
|
|
|
$
|
250,245
|
|
|
$
|
445,664
|
|
|
F. William Marshall, Jr.
|
|
$
|
72,765
|
|
|
$
|
3,639
|
|
|
$
|
426,966
|
|
|
C. Ann Merrifield
|
|
$
|
69,300
|
|
|
|
N/A
|
|
|
$
|
154,000
|
|
|
Elaine A. Sarsynski
1
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Susan B. Sweeney
|
|
$
|
72,072
|
|
|
|
N/A
|
|
|
$
|
266,160
|
|
|
1
|
Ms. Sarsynski, as an employee of MassMutual, received no compensation for her role as a Trustee to the Trust.
|
B-54
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 3, 2014, to the Trust’s
knowledge, the following persons owned of record or beneficially 5% or more of the outstanding shares of the indicated classes of the Funds set forth below. Such ownership may be beneficially held by individuals or entities other than the owner
listed. To the extent that any listed shareholder beneficially owns more than 25% of a Fund, it may be deemed to “control” such Fund within the meaning of the 1940 Act. The effect of such control may be to reduce the ability of other
shareholders of the Fund to take actions requiring the affirmative vote of holders of a plurality or majority of the Fund’s shares without the approval of the controlling shareholder.
MassMutual RetireSMART Conservative Fund
1
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
95.22
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
91.30
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
8.70
|
%
|
|
|
|
|
|
Class R5
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
76.56
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
22.04
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
67.49
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
32.51
|
%
|
MassMutual
RetireSMART Moderate Fund
2
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
88.16
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
11.82
|
%
|
B-55
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
87.65
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
12.35
|
%
|
|
|
|
|
|
Class R5
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
72.18
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
27.79
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
90.48
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
9.52
|
%
|
MassMutual
RetireSMART Moderate Growth Fund
3
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
94.58
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
5.40
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
93.60
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
6.40
|
%
|
|
|
|
|
|
Class R5
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
53.62
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
46.25
|
%
|
B-56
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
87.50
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
12.50
|
%
|
MassMutual
RetireSMART Growth Fund
4
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
84.13
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
15.87
|
%
|
|
|
|
|
Administrative
Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
94.22
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
5.78
|
%
|
|
|
|
|
|
Class R5
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
65.68
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
34.25
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
MassMutual
RetireSMART In Retirement Fund
5
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
46.12
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
30.39
|
%
|
B-57
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
Class R3
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
85.63
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
13.26
|
%
|
|
|
|
|
|
Administrative Class
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
52.03
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
30.68
|
%
|
|
|
|
|
|
|
|
First County Bank Trust Department
FBO Tata Chemical NA
100 Prospect Street, 4th Floor
Stamford, CT 06901
|
|
|
13.42
|
%
|
MassMutual
RetireSMART 2010 Fund
6
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
41.36
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
27.11
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
70.42
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
29.58
|
%
|
|
|
|
|
|
Class R3
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
89.50
|
%
|
B-58
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
9.09
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
61.67
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
36.78
|
%
|
MassMutual
RetireSMART 2015 Fund
7
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
60.66
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
38.55
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
72.83
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
27.17
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
95.40
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
MassMutual
RetireSMART 2020 Fund
8
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
49.23
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
26.64
|
%
|
B-59
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
85.21
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
14.78
|
%
|
|
|
|
|
|
Class R3
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
87.95
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
11.14
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
77.21
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
20.80
|
%
|
MassMutual
RetireSMART 2025 Fund
9
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
70.49
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
27.69
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
67.33
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
32.67
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
89.10
|
%
|
B-60
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
10.90
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
MassMutual
RetireSMART 2030 Fund
10
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
59.09
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
25.90
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
82.14
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
17.85
|
%
|
|
|
|
|
|
Class R3
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
85.42
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
13.80
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
78.19
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
21.81
|
%
|
B-61
MassMutual RetireSMART 2035
Fund
11
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
77.03
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
22.60
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
66.78
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
33.22
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
94.23
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
5.77
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
99.81
|
%
|
MassMutual
RetireSMART 2040 Fund
12
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
66.21
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
25.51
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
82.45
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
17.55
|
%
|
B-62
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
Class R3
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
85.18
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
14.58
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
79.47
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
19.16
|
%
|
MassMutual
RetireSMART 2045 Fund
13
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
69.44
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
29.56
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
74.58
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
25.42
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
99.62
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
96.83
|
%
|
MassMutual
RetireSMART 2050 Fund
14
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
66.29
|
%
|
B-63
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
32.67
|
%
|
|
|
|
|
|
Class L*
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
49.65
|
%
|
|
|
|
|
|
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
49.13
|
%
|
|
|
|
|
|
Class R3
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
90.36
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
8.65
|
%
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
73.89
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
26.11
|
%
|
MassMutual
RetireSMART 2055 Fund
15
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
Class A
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
59.54
|
%
|
|
|
|
|
|
|
|
Taynik & Co.
c/o State Street Bank
P.O. Box 9130 FPG90
Boston, MA 02117
|
|
|
40.46
|
%
|
|
|
|
|
|
Class L*
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
|
|
|
|
Service Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
B-64
|
|
|
|
|
|
|
|
|
Class
|
|
Name and Address of Beneficial Owner
|
|
Percent of Class
|
|
|
|
|
|
|
Administrative Class
|
|
MassMutual
100 Bright Meadow Blvd
Enfield, CT 06082
|
|
|
100
|
%
|
|
*
|
As of March 14, 2014, Class L merged into Administrative Class.
|
|
1
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 91.86% of MassMutual RetireSMART Conservative Fund and therefore
may be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
|
2
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 87.46% of MassMutual RetireSMART Moderate Fund and therefore may
be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
|
3
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 92.79% of MassMutual RetireSMART Moderate Growth Fund and
therefore may be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of
Massachusetts.
|
|
4
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 85.77% of MassMutual RetireSMART Growth Fund and therefore may be
presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
|
5
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082, and Taynik & Co., P.O. Box 9130 FPG90, Boston, MA 02117,
owned 61.71% and 27.06%, respectively, of MassMutual RetireSMART In Retirement Fund and therefore may be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by
individuals or entities other than MassMutual and Taynik & Co. MassMutual and Taynik & Co. are organized under the laws of Massachusetts.
|
|
6
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 74.04% of MassMutual RetireSMART 2010 Fund and therefore may be
presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
|
7
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082, and Taynik & Co., P.O. Box 9130 FPG90, Boston, MA 02117,
owned 72.39% and 27.35%, respectively, of MassMutual RetireSMART 2015 Fund and therefore may be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or
entities other than MassMutual and Taynik & Co. MassMutual and Taynik & Co. are organized under the laws of Massachusetts.
|
|
8
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 78.56% of MassMutual RetireSMART 2020 Fund and therefore may be
presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
|
9
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082, and Taynik & Co., P.O. Box 9130 FPG90, Boston, MA 02117,
owned 63.09% and 36.30%, respectively, of MassMutual RetireSMART 2025 Fund and therefore may be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or
entities other than MassMutual and Taynik & Co. MassMutual and Taynik & Co. are organized under the laws of Massachusetts.
|
|
10
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 79.19% of MassMutual RetireSMART 2030 Fund and therefore may be
presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
B-65
|
11
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082, and Taynik & Co., P.O. Box 9130 FPG90, Boston, MA 02117,
owned 66.52% and 33.36%, respectively, of MassMutual RetireSMART 2035 Fund and therefore may be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or
entities other than MassMutual and Taynik & Co. MassMutual and Taynik & Co. are organized under the laws of Massachusetts.
|
|
12
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 80.91% of MassMutual RetireSMART 2040 Fund and therefore may be
presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
|
13
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082, and Taynik & Co., P.O. Box 9130 FPG90, Boston, MA 02117,
owned 71.38% and 28.27%, respectively, of MassMutual RetireSMART 2045 Fund and therefore may be presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or
entities other than MassMutual and Taynik & Co. MassMutual and Taynik & Co. are organized under the laws of Massachusetts.
|
|
14
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 81.22% of MassMutual RetireSMART 2050 Fund and therefore may be
presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
|
15
|
As of March 3, 2014, MassMutual, 100 Bright Meadow Blvd, Enfield, CT 06082 owned 93.56% of MassMutual RetireSMART 2055 Fund and therefore may be
presumed to “control” the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than MassMutual. MassMutual is organized under the laws of Massachusetts.
|
INVESTMENT ADVISORY AND OTHER SERVICE AGREEMENTS
Investment Adviser
Effective April 1, 2014, MML Advisers, a wholly-owned subsidiary of MassMutual, serves as investment adviser to each Fund pursuant to
Investment Management Agreements with the Trust on behalf of the Funds (each, an “Advisory Agreement”). Under each Advisory Agreement, MML Advisers is obligated to provide for the management of each Fund’s portfolio of securities,
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. MassMutual served as the Funds’ investment adviser
pursuant to the Advisory Agreements through March 31, 2014.
The Advisory Agreement with each Fund may be terminated by the Board or by MML Advisers without penalty: (i) at any time for cause or by agreement of the parties or (ii) by either party upon sixty
days’ written notice to the other party. In addition, each Advisory Agreement automatically terminates if it is assigned or if its continuance is not specifically approved at least annually (after its initial 2 year period) by the Board or by
the holders of a majority of the outstanding voting securities of the applicable Fund, and in either case by a majority of the Trustees who are not parties to the Advisory Agreement or interested persons of any such party. MML Advisers’
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.
MML Advisers also serves as investment
adviser to: MassMutual Select PIMCO Total Return Fund, MassMutual Select Strategic Bond Fund, MassMutual Select BlackRock Global Allocation Fund, MassMutual Select Diversified Value Fund, MassMutual Select Fundamental Value Fund, MassMutual Select
Large Cap Value Fund, MM S&P 500
®
Index Fund, MassMutual Select Focused Value Fund, MassMutual Select
Fundamental Growth Fund, MassMutual Select Blue Chip Growth Fund, MassMutual Select Growth Opportunities Fund, MassMutual Select
Mid-Cap
Value Fund, MassMutual Select Small Cap Value Equity Fund, MassMutual
Select Small Company Value Fund, MM S&P
®
Mid Cap Index Fund, MM Russell 2000
®
B-66
Small Cap Index Fund, MassMutual Select Mid Cap Growth Equity II Fund, MassMutual Select Small Cap Growth Equity Fund, MassMutual Select Small Company Growth Fund, MassMutual Select Diversified
International Fund, MM MSCI EAFE
®
International Index Fund, MassMutual Select Overseas Fund, which are series of
the Trust; MassMutual Premier Money Market Fund, MassMutual Premier Short-Duration Bond Fund, MassMutual Premier Inflation-Protected and Income Fund, MassMutual Premier Core Bond Fund, MassMutual Premier Diversified Bond Fund, MassMutual Premier
High Yield Fund, MassMutual Premier Balanced Fund, MassMutual Barings Dynamic Allocation Fund, MassMutual Premier Value Fund, MassMutual Premier Disciplined Value Fund, MassMutual Premier Main Street Fund, MassMutual Premier Capital Appreciation
Fund, MassMutual Premier Disciplined Growth Fund, MassMutual Premier Small Cap Opportunities Fund, MassMutual Premier Global Fund, MassMutual Premier International Equity Fund, MassMutual Premier Focused International Fund, and MassMutual Premier
Strategic Emerging Markets Fund, which are series of MassMutual Premier Funds, an open-end management investment company; MML Aggressive Allocation Fund, MML American Funds
®
Core Allocation Fund, MML American
Funds
®
Growth Fund, MML American Funds
®
International Fund, MML Balanced Allocation Fund, MML Blue Chip Growth Fund, MML Conservative Allocation Fund, MML Equity Income Fund, MML Equity Index Fund, MML
Focused Equity Fund, MML Foreign Fund, MML Fundamental Growth Fund, MML Fundamental Value Fund, MML Global Fund, MML Growth Allocation Fund, MML Growth & Income Fund, MML Income & Growth Fund, MML International Equity Fund, MML Large Cap
Growth Fund, MML Large Cap Value Fund, MML Mid Cap Growth Fund, MML Mid Cap Value Fund, MML Moderate Allocation Fund, MML PIMCO Total Return Fund, MML Small Cap Growth Equity Fund, MML Small Company Value Fund, and MML Small/Mid Cap Value Fund,
which are series of MML Series Investment Fund, an open-end management investment company; MML Blend Fund, MML China Fund, MML Equity Fund, MML High Yield Fund, MML Inflation-Protected and Income Fund, MML Managed Bond Fund, MML Money Market Fund,
MML Short-Duration Bond Fund, MML Small Cap Equity Fund, and MML Strategic Emerging Markets Fund, which are series of MML Series Investment Fund II, an open-end management investment company; certain wholly-owned subsidiaries of MassMutual; and
various employee benefit plans and separate investment accounts in which employee benefit plans invest.
No fees will be payable by the Trust, on behalf of the Funds, to MML Advisers.
Administrator,
Sub-Administrator,
and Shareholder Servicing Agent
Effective April 1, 2014, MML Advisers has entered into an
administrative and shareholder services agreement (the “Administrative and Shareholder Services Agreement”) with the Trust, on behalf of each Fund, pursuant to which MML Advisers is obligated to provide certain administrative and
shareholder services. MML Advisers 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 and Shareholder Services Agreement. MML Advisers has entered into a
sub-administration
agreement with State Street pursuant to which State Street assists in many aspects of fund administration. Pursuant to a letter agreement between the Trust, MML Advisers, and State Street, the
Trust has agreed to pay State Street for the services it provides pursuant to the sub-administration agreement with MML Advisers, although MML Advisers remains ultimately responsible for the payment of any such fees owed to State Street. MassMutual
served as the Funds’ administrator pursuant to an administrative and shareholder services agreement with each Fund through March 31, 2014. The Trust, on behalf of each Fund, pays MML Advisers an administrative services fee monthly at an annual
rate based upon the average daily net assets of the applicable class of shares of each Fund as shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class I
|
|
|
Class R5
|
|
|
Service
Class
|
|
|
Administrative
Class
|
|
|
Class A
|
|
|
Class R4
|
|
|
Class R3
|
|
|
RetireSMART Conservative Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART Moderate Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART Moderate Growth Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART Growth Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART In Retirement Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2010 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2015 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2020 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
B-67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class I
|
|
|
Class R5
|
|
|
Service
Class
|
|
|
Administrative
Class
|
|
|
Class A
|
|
|
Class R4
|
|
|
Class R3
|
|
|
RetireSMART 2025 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2030 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2035 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2040 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2045 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2050 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
RetireSMART 2055 Fund
|
|
|
None
|
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
Effective April 1, 2014, the
Trust has entered into a separate Supplemental Shareholder Services Agreement with MassMutual, on behalf of Service Class shares, Administrative Class shares, and Class A shares of each Fund. Fees payable under the Supplemental Shareholder
Services Agreement are intended to compensate MassMutual for its provision of shareholder services to the Funds’ investors and are calculated and paid based on the average daily net assets attributable to the relevant share classes of the Funds
separately, at the following annual rates: .05% for Service Class shares, and .15% for Administrative Class shares and Class A shares. MassMutual may pay these fees to other intermediaries for providing shareholder services to the Funds’
investors. Pursuant to the Advisory Agreements and Administrative and Shareholder Services Agreement described above, for the fiscal years ended December 31, 2013, December 31, 2012, and December 31, 2011, the amount of Advisory fees
paid by each Fund, the amount of Administrative fees paid by each Fund, the amount of any Administrative fees waived by MassMutual, and the amount of any fees reimbursed by MassMutual are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
|
|
|
Advisory
Fees Paid
|
|
|
Administrative
Fees Paid
|
|
|
Administrative
Fees Waived
|
|
|
Other
Expenses
Reimbursed
|
|
|
RetireSMART Conservative Fund
|
|
$
|
113,536
|
|
|
$
|
396,136
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
RetireSMART Moderate Fund
|
|
|
227,078
|
|
|
|
921,062
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART Moderate Growth Fund
|
|
|
176,414
|
|
|
|
796,855
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART Growth Fund
1
|
|
|
44,651
|
|
|
|
200,136
|
|
|
|
—
|
|
|
|
(54,364
|
)
|
|
RetireSMART In Retirement Fund
2
|
|
|
44,035
|
|
|
|
186,433
|
|
|
|
(2,258
|
)
|
|
|
—
|
|
|
RetireSMART 2010 Fund
3
|
|
|
53,559
|
|
|
|
214,185
|
|
|
|
(2,660
|
)
|
|
|
—
|
|
|
RetireSMART 2015 Fund
4
|
|
|
7,068
|
|
|
|
29,624
|
|
|
|
—
|
|
|
|
(73,824
|
)
|
|
RetireSMART 2020 Fund
5
|
|
|
215,751
|
|
|
|
1,038,529
|
|
|
|
(10,179
|
)
|
|
|
—
|
|
|
RetireSMART 2025 Fund
4
|
|
|
7,450
|
|
|
|
36,599
|
|
|
|
—
|
|
|
|
(74,920
|
)
|
|
RetireSMART 2030 Fund
6
|
|
|
189,384
|
|
|
|
908,039
|
|
|
|
(17,491
|
)
|
|
|
—
|
|
|
RetireSMART 2035 Fund
4
|
|
|
6,007
|
|
|
|
29,627
|
|
|
|
—
|
|
|
|
(74,158
|
)
|
|
RetireSMART 2040 Fund
7
|
|
|
122,365
|
|
|
|
569,819
|
|
|
|
(11,332
|
)
|
|
|
—
|
|
|
RetireSMART 2045 Fund
4
|
|
|
3,273
|
|
|
|
15,873
|
|
|
|
—
|
|
|
|
(72,710
|
)
|
|
RetireSMART 2050 Fund
8
|
|
|
31,917
|
|
|
|
131,965
|
|
|
|
—
|
|
|
|
(94,976
|
)
|
|
RetireSMART 2055 Fund
9
|
|
|
150
|
|
|
|
601
|
|
|
|
—
|
|
|
|
(40,303
|
)
|
|
1
|
The expenses in the above table reflect a written agreement by MassMutual to bear the expenses (other than the management, Rule 12b-1 and
administrative fees, interest, taxes, brokerage commissions, extraordinary litigation and legal expenses, Acquired Fund fees and expenses, short sale dividend and loan expense or other non-recurring or unusual expenses such as, for example,
organizational expenses and shareholder meeting expenses) of Classes R5, Service, Administrative, and A of the Fund in excess of 0.03% of the average daily net asset values of each such class through December 31, 2013.
|
|
2
|
For the period January 1, 2013 through March 31, 2013, the expenses in the above table reflect a voluntary agreement by MassMutual to waive
administrative and shareholder service fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.56%.
|
|
3
|
For the period January 1, 2013 through March 31, 2013, the expenses in the above table reflect a voluntary agreement by MassMutual to waive
administrative and shareholder service fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.58%.
|
|
4
|
The expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than extraordinary litigation
and legal expenses, Acquired Fund fees and expenses, interest expense, short sale dividend and loan expense, or other non-recurring or unusual expenses such as, for
|
B-68
|
|
example, organizational expenses and shareholder meeting expenses) through June 31, 2013, to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise
exceed 0.10%, 0.15%, 0.25%, and 0.50% for Classes Service, Administrative, L, and A, respectively. Effective July 1, 2013, the expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than
extraordinary litigation and legal expenses, Acquired Fund fees and expenses, interest expense, short sale dividend and loan expense, or other non-recurring or unusual expenses such as, for example, organizational expenses and shareholder meeting
expenses) through December 31, 2013, to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise exceed 0.23%, 0.28%, 0.38%, and 0.63% for Classes Service, Administrative, L, and A, respectively.
|
|
5
|
For the period January 1, 2013 through March 31, 2013, the expenses in the above table reflect a voluntary agreement by MassMutual to waive
administrative and shareholder service fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.64%.
|
|
6
|
For the period January 1, 2013 through March 31, 2013, the expenses in the above table reflect a voluntary agreement by MassMutual to waive
administrative and shareholder service fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.67%.
|
|
7
|
For the period January 1, 2013 through March 31, 2013, the expenses in the above table reflect a voluntary agreement by MassMutual to waive
administrative and shareholder service fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.68%.
|
|
8
|
The expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than extraordinary litigation
and legal expenses, Acquired Fund fees and expenses, interest expense, short sale dividend and loan expense, or other non-recurring or unusual expenses such as, for example, organizational expenses and shareholder meeting expenses) through June 31,
2013, to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise exceed 0.10%, 0.15%, 0.25%, 0.50% and 0.80% for Classes Service, Administrative, L, A, and R3, respectively. Effective July 1, 2013, the
expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than extraordinary litigation and legal expenses, Acquired Fund fees and expenses, interest expense, short sale dividend and loan
expense, or other non-recurring or unusual expenses such as, for example, organizational expenses and shareholder meeting expenses) through December 31, 2013, to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would
otherwise exceed 0.23%, 0.28%, 0.38%, 0.63%, and 0.93% for Classes Service, Administrative, L, A, and R3, respectively.
|
|
9
|
Commenced Operations on September 17, 2013. The expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of
the Fund (other than extraordinary litigation and legal expenses, Acquired Fund fees and expenses, interest expense, short sale dividend and loan expense, or other non-recurring or unusual expenses such as, for example, organizational expenses and
shareholder meeting expenses) through December 31, 2013, to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise exceed 0.23%, 0.28%, 0.38%, and 0.63% for Classes Service, Administrative, L, and A,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
|
|
|
Advisory
Fees Paid
|
|
|
Administrative
Fees Paid
|
|
|
Administrative
Fees Waived
|
|
|
Other
Expenses
Reimbursed
|
|
|
RetireSMART Conservative Fund
|
|
$
|
121,790
|
|
|
$
|
390,009
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
RetireSMART Moderate Fund
|
|
|
245,561
|
|
|
|
868,955
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART Moderate Growth Fund
|
|
|
182,823
|
|
|
|
640,150
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART Growth Fund
1
|
|
|
34,012
|
|
|
|
120,031
|
|
|
|
—
|
|
|
|
(52,615
|
)
|
|
RetireSMART In Retirement Fund
2
|
|
|
47,092
|
|
|
|
134,378
|
|
|
|
(1,170
|
)
|
|
|
—
|
|
|
RetireSMART 2010 Fund
3
|
|
|
53,458
|
|
|
|
127,090
|
|
|
|
(1,377
|
)
|
|
|
—
|
|
|
RetireSMART 2015 Fund
4
|
|
|
2,075
|
|
|
|
3,503
|
|
|
|
—
|
|
|
|
(66,684
|
)
|
|
RetireSMART 2020 Fund
5
|
|
|
190,209
|
|
|
|
547,583
|
|
|
|
(4,981
|
)
|
|
|
—
|
|
|
RetireSMART 2025 Fund
4
|
|
|
1,717
|
|
|
|
4,801
|
|
|
|
(64
|
)
6
|
|
|
(67,628
|
)
|
|
RetireSMART 2030 Fund
7
|
|
|
159,514
|
|
|
|
443,937
|
|
|
|
(8,416
|
)
|
|
|
—
|
|
|
RetireSMART 2035 Fund
4
|
|
|
1,436
|
|
|
|
3,807
|
|
|
|
(52
|
)
6
|
|
|
(67,310
|
)
|
B-69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
|
|
|
Advisory
Fees Paid
|
|
|
Administrative
Fees Paid
|
|
|
Administrative
Fees Waived
|
|
|
Other
Expenses
Reimbursed
|
|
|
RetireSMART 2040 Fund
8
|
|
$
|
100,771
|
|
|
$
|
250,602
|
|
|
$
|
(5,439
|
)
|
|
$
|
—
|
|
|
RetireSMART 2045 Fund
4
|
|
|
912
|
|
|
|
2,213
|
|
|
|
(30
|
)
6
|
|
|
(66,937
|
)
|
|
RetireSMART 2050 Fund
9
|
|
|
20,342
|
|
|
|
39,479
|
|
|
|
(592
|
)
6
|
|
|
(69,796
|
)
|
|
1
|
The expenses in the above table reflect a written agreement by MassMutual to bear the expenses (other than the management, Rule 12b-1 and
administrative fees, interest, taxes, brokerage commissions, extraordinary litigation and legal expenses, Acquired Fund fees and expenses, or other non-recurring or unusual expenses such as, for example, organizational expenses and shareholder
meeting expenses) of Classes R5, Service, Administrative, and A of the Fund in excess of 0.03% of the average daily net asset values of each such class through December 31, 2012.
|
|
2
|
The expenses in the above table reflect a voluntary agreement by MassMutual, effective November 16, 2012, to waive administrative and shareholder
services fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.56%. The waiver was in effect through December 31, 2012.
|
|
3
|
The expenses in the above table reflect a voluntary agreement by MassMutual, effective November 16, 2012, to waive administrative and shareholder
services fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.58%. The waiver was in effect through December 31, 2012.
|
|
4
|
The expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than extraordinary litigation
and legal expenses, Acquired Fund fees and expenses, interest expense, short sale dividend and loan expense, or other non-recurring or unusual expenses such as, for example, organizational expenses and shareholder meeting expenses) through December
31, 2012, to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise exceed 0.10%, 0.15%, 0.25%, and 0.50% for Classes Service, Administrative, L, and A, respectively.
|
|
5
|
The expenses in the above table reflect a voluntary agreement by MassMutual, effective November 16, 2012, to waive administrative and shareholder
services fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.64%. The waiver was in effect through December 31, 2012.
|
|
6
|
Reflects additional administrative and shareholder services fees voluntarily waived by MassMutual.
|
|
7
|
The expenses in the above table reflect a voluntary agreement by MassMutual, effective November 16, 2012, to waive administrative and shareholder
services fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.67%. The waiver was in effect through December 31, 2012.
|
|
8
|
The expenses in the above table reflect a voluntary agreement by MassMutual, effective November 16, 2012, to waive administrative and shareholder
services fees of each class of the Fund to the extent that Acquired Fund fees and expenses would otherwise exceed 0.68%. The waiver was in effect through December 31, 2012.
|
|
9
|
The expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than extraordinary litigation
and legal expenses, Acquired Fund fees and expenses, interest expense, short sale dividend and loan expense, or other non-recurring or unusual expenses such as, for example, organizational expenses and shareholder meeting expenses) through December
31, 2012, to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise exceed 0.10%, 0.15%, 0.25%, 0.50%, and 0.80% for classes Service, Administrative, L, A, and R3, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
|
Advisory Fee
Fees Paid
|
|
|
Administrative
Fees Paid
|
|
|
Other
Expenses
Reimbursed
|
|
|
RetireSMART Conservative Fund
1
|
|
$
|
69,107
|
|
|
$
|
220,870
|
|
|
$
|
—
|
|
|
RetireSMART Moderate Fund
1
|
|
|
133,562
|
|
|
|
477,366
|
|
|
|
—
|
|
|
RetireSMART Moderate Growth Fund
1
|
|
|
102,219
|
|
|
|
347,359
|
|
|
|
—
|
|
|
RetireSMART Growth Fund
1,2
|
|
|
16,749
|
|
|
|
56,845
|
|
|
|
(45,637
|
)
|
|
RetireSMART In Retirement Fund
|
|
|
50,430
|
|
|
|
127,851
|
|
|
|
—
|
|
|
RetireSMART 2010 Fund
|
|
|
53,473
|
|
|
|
115,841
|
|
|
|
—
|
|
|
RetireSMART 2015 Fund
3
|
|
|
858
|
|
|
|
1,189
|
|
|
|
(63,656
|
)
|
B-70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
|
Advisory Fee
Fees Paid
|
|
|
Administrative
Fees Paid
|
|
|
Other
Expenses
Reimbursed
|
|
|
RetireSMART 2020 Fund
|
|
$
|
185,174
|
|
|
$
|
471,903
|
|
|
$
|
—
|
|
|
RetireSMART 2025 Fund
3
|
|
|
776
|
|
|
|
1,386
|
|
|
|
(65,182
|
)
|
|
RetireSMART 2030 Fund
|
|
|
150,470
|
|
|
|
371,448
|
|
|
|
—
|
|
|
RetireSMART 2035 Fund
3
|
|
|
776
|
|
|
|
1,249
|
|
|
|
(63,303
|
)
|
|
RetireSMART 2040 Fund
|
|
|
92,468
|
|
|
|
199,939
|
|
|
|
—
|
|
|
RetireSMART 2045 Fund
3
|
|
|
629
|
|
|
|
848
|
|
|
|
(64,133
|
)
|
|
RetireSMART 2050 Fund
4
|
|
|
14,974
|
|
|
|
19,235
|
|
|
|
(59,812
|
)
|
|
1
|
Commenced operations on June 20, 2011.
|
|
2
|
The expenses in the above table reflect a written agreement by MassMutual to bear the expenses (other than the management, Rule
12b-1
and administrative fees, interest, taxes, brokerage commissions, extraordinary litigation and legal expenses, Acquired Fund fees and expenses, or other
non-recurring
or
unusual expenses such as, for example, organizational expenses and shareholder meeting expenses) of Classes R5, Service, Administrative, and A of the Fund in excess of 0.03% of the average daily net asset values of each such class through
December 31, 2011.
|
|
3
|
The expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than extraordinary litigation
and legal expenses, Acquired Fund fees and expenses, or other
non-recurring
or unusual expenses such as, for example, organizational expenses and shareholder meeting expenses) through December 31, 2011,
to the extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise exceed 0.10%, 0.15%, 0.25%, and 0.50% for Classes Service, Administrative, L, and A, respectively.
|
|
4
|
The expenses in the above table reflect a written agreement by MassMutual to cap the fees and expenses of the Fund (other than extraordinary litigation
and legal expenses, Acquired Fund fees and expenses, or other
non-recurring
or unusual expenses such as, for example, organizational expenses and shareholder meeting expenses) through December 31, 2011, to the
extent that Total Annual Fund Operating Expenses after Expense Reimbursement would otherwise exceed 0.10%, 0.15%, 0.25%, 0.50%, and 0.80% for classes Service, Administrative, L, A, and R3, respectively.
|
THE DISTRIBUTOR
The Funds’ shares are continuously distributed by MML
Distributors, LLC (the “Distributor”), located at 1295 State Street, Springfield, Massachusetts 01111-0001, pursuant to a Principal Underwriter Agreement with the Trust dated as of February 6, 2006, as amended (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 wholly-owned subsidiary of MassMutual.
The Distribution Agreement continued 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.
MML Advisers may make payments, out of its own assets, to securities dealers and other firms that enter into agreements providing the Distributor with access to representatives of those firms for the sale
of shares of the Funds or with other marketing or administrative services with respect to the Funds. These payments may be a specific dollar amount, may be based on the number of customer accounts maintained by a firm, or may be based on a
percentage of the value of shares of the Funds sold to, or held by, customers of the firm.
B-71
CLASS A, CLASS R4, AND CLASS R3 DISTRIBUTION AND SERVICE PLAN
The Trust has adopted, with respect to the
Class A, Class R4, and Class R3 shares of each Fund, an Amended and Restated Rule 12b-1 Plan (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 Plan, by vote cast in person at a meeting called for the purpose of voting on the Plan, approved the Plan on February 13, 2014 for each Fund and share
class.
Continuance of the Plan is subject to
annual approval by a vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for that purpose. All material amendments to the Plan must be likewise approved by the Trustees and the Independent
Trustees. The Plan may not be amended in order to increase materially the costs which a Fund may bear for distribution pursuant to the Plan without also being approved by a majority of the outstanding voting securities of the relevant class of the
Fund. The Plan terminates automatically in the event of its assignment and may be terminated without penalty, at any time, by a vote of a majority of the Independent Trustees or by a vote of a majority of the outstanding voting securities of the
relevant class of the Fund. The Plan provides that the Distributor shall provide to the Trustees, and the Board shall review at least quarterly, a written report of the amounts expended and the purposes for which such expenditures were made.
The Plan is a compensation plan, authorizing
payments to the Distributor up to the following annual rates: Class A and Class R4 shares – 0.25% of the average daily net assets of the class; Class R3 shares – 0.50% of the average daily net assets of the class. A Fund may make payments
under the Plan to compensate the Distributor for services provided and expenses incurred by it for purposes of promoting the sale of the relevant class of shares, reducing redemptions of shares, or maintaining or improving services provided to
shareholders.
The following table approximately
discloses the 12b-1 fees paid in the fiscal year ending December 31, 2013 by the Trust under its 12b-1 plan for Class A and Class R3 shares of the Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
12b-1
Servicing
Fees
|
|
|
Class R3
12b-1
Servicing
Fees
|
|
|
Class R3
12b-1
Distribution
Fees
|
|
|
RetireSMART Conservative Fund
1
|
|
$
|
374,631
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
RetireSMART Moderate Fund
1
|
|
|
699,688
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART Moderate Growth Fund
1
|
|
|
541,686
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART Growth Fund
1
|
|
|
134,856
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART In Retirement Fund
|
|
|
53,042
|
|
|
|
289
|
|
|
|
289
|
|
|
RetireSMART 2010 Fund
|
|
|
60,578
|
|
|
|
2,764
|
|
|
|
2,764
|
|
|
RetireSMART 2015 Fund
1
|
|
|
7,437
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART 2020 Fund
|
|
|
230,940
|
|
|
|
7,310
|
|
|
|
7,310
|
|
|
RetireSMART 2025 Fund
1
|
|
|
8,304
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART 2030 Fund
|
|
|
188,522
|
|
|
|
8,203
|
|
|
|
8,203
|
|
|
RetireSMART 2035 Fund
1
|
|
|
7,604
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART 2040 Fund
|
|
|
117,344
|
|
|
|
7,789
|
|
|
|
7,789
|
|
|
RetireSMART 2045 Fund
1
|
|
|
5,023
|
|
|
|
—
|
|
|
|
—
|
|
|
RetireSMART 2050 Fund
|
|
|
24,712
|
|
|
|
5,219
|
|
|
|
5,219
|
|
|
RetireSMART 2055 Fund
1
,2
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,454,442
|
|
|
$
|
31,574
|
|
|
$
|
31,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Class R3 shares of the Fund were not available until April 1, 2014.
|
|
2
|
Commenced operations on September 17, 2013.
|
B-72
CUSTODIANS, DIVIDEND DISBURSING AGENT, AND TRANSFER AGENT
State Street, located at 200 Clarendon
Street, Boston, Massachusetts 02116, is the custodian of each Fund’s investments (the “Custodian”). State Street is the Funds’ transfer agent and dividend disbursing agent (the “Transfer Agent”). As custodian, State
Street 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
REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte
& Touche LLP, located at 200 Berkeley Street, Boston, Massachusetts 02116, is the Trust’s independent registered public accounting firm.
CODES OF ETHICS
The Trust, MML Advisers, and the Distributor have each adopted a code of ethics (the “Codes of Ethics”) pursuant to Rule 17j-1
under the 1940 Act and Rule 204A-1 under the Advisers Act. The Codes of Ethics permit Fund personnel to invest in securities, including securities that may be purchased or held by a Fund, for their own accounts, but require compliance with various
pre-clearance requirements (with certain exceptions). The Codes of Ethics are on public file with, and are available from, the SEC.
PORTFOLIO TRANSACTIONS AND BROKERAGE
All orders for the purchase or sale of portfolio securities
for the Funds (normally, shares of Underlying Funds) are placed on behalf of each Fund by MML Advisers, pursuant to authority contained in each Fund’s management contract. A Fund will not incur any commissions or sales charges when it invests
in Underlying Funds.
DESCRIPTION OF SHARES
The Trust, an open-end, management investment company, is
organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust dated May 28, 1993 which was amended and restated as of November 21, 2011. A copy of the Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts. The fiscal year for each Fund ends on December 31.
The Declaration of Trust permits the Trustees, without shareholder approval, to issue an unlimited number of shares and divide those
shares into an unlimited number of series of shares, representing separate investment portfolios with rights determined by the Trustees. Shares of the Funds are transferable and have no preemptive, subscription, or conversion rights. Shares of the
Funds are entitled to dividends as declared by the Trustees. In the event of liquidation of a Fund, the Trustees would distribute, after paying or otherwise providing for all charges, taxes, expenses, and liabilities belonging to the Fund, the
remaining assets belonging to the Fund among the holders of outstanding shares of the Fund. The Trustees have currently authorized the issuance of an unlimited number of full and fractional shares of 37 series, 15 of which are described in this SAI.
The Trustees may divide the shares of any series
into two or more classes having such preferences or special or relative rights and privileges as the Trustees may determine, without obtaining shareholder approval. The Trustees have currently authorized the establishment and designation of up to 7
classes of shares for each series of the Trust: Class I Shares, Class R5 Shares, Service Class Shares, Administrative Class Shares, Class A Shares,
B-73
Class R4 Shares, and Class R3 Shares. All shares of a particular class of each series represent an equal proportionate interest in the assets and liabilities belonging to that series allocable to
that class.
The Trustees may also, without
shareholder approval, combine two or more existing series (or classes) into a single series (or class).
The Declaration of Trust provides for the perpetual existence of the Trust. The Declaration of Trust, however, provides that the Trust may
be terminated at any time by vote of at least 50% of the shares of each series entitled to vote and voting separately by series or by the Trustees by written notice to the shareholders. Any series of the Trust may be terminated by vote of at least
50% of shareholders of that series or by the Trustees by written notice to the shareholders of that series.
Shares of the Funds entitle their holders to one vote per share, with fractional shares voting proportionally, in the election of Trustees
and on other matters submitted to the vote of shareholders. On any matter submitted to a vote of shareholders, all shares of the Trust then entitled to vote shall, except as otherwise provided in the Declaration of Trust, or the Bylaws, 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 series or classes materially differently, shares will be
voted by individual series or class; and (ii) when the Trustees have determined that the matter affects only the interests of one or more series or classes, then only shareholders of such series or classes shall be entitled to vote thereon. A
separate vote will be taken by the applicable Fund on matters affecting the particular Fund, as determined by the Trustees. For example, a change in a fundamental investment policy for a particular Fund would be voted upon only by shareholders of
that Fund. In addition, a separate vote will be taken by the applicable class of a Fund on matters affecting the particular class, as determined by the Trustees. For example, the adoption of a distribution plan relating to a particular class and
requiring shareholder approval would be voted upon only by shareholders of that class. Shares of each Fund have noncumulative voting rights with respect to the election of trustees.
The Trust is not required to hold annual meetings of its shareholders. However, special meetings of the
shareholders may be called for the purpose of electing Trustees and for such other purposes as may be prescribed by law, by the Declaration of Trust, or by the Bylaws. There will normally be no meetings of shareholders for the purpose of electing
Trustees except that the Trust will hold a shareholders’ meeting as required by applicable law or regulation.
The Declaration of Trust may be amended by the Trustees without a shareholder vote, except to the extent a shareholder vote is required by
applicable law, the Declaration of Trust, or the Bylaws, or as the Trustees may otherwise determine.
Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for
the obligations of the Trust. However, the Declaration of Trust disclaims liability of the shareholders, Trustees, or officers for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and require that
notice of such disclaimer be given in each note, bond, contract, instrument, certificate, or undertaking made or issued on behalf of the Trust by the Trustees or officers. In addition, the Declaration of Trust provides that shareholders of a Fund
are entitled to indemnification out of the assets of their Fund to the extent that they are held personally liable for the obligations of their Fund solely by reason of being or having been a shareholder. Thus, the risk of a shareholder of a Fund
incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and his or her Fund is unable to meet its obligations.
The Declaration of Trust also permits the Trustees to charge
shareholders directly for custodial, transfer agency, and servicing expenses, but the Trustees have no present intention to charge shareholders directly for such expenses.
B-74
The Declaration of Trust further provides that a Trustee will not be personally liable for
errors of judgment or mistakes of fact or law. However, nothing in the Declaration of Trust protects a Trustee against any liability to which the Trustee would otherwise be subject by reason of his or her own willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his or her office. The Declaration of Trust also provides for indemnification of each of its Trustees and officers, except that such Trustees and officers may not be
indemnified against any liability to the Trust or its shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her
office.
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 NAV: (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, as determined by the SEC, restricted; (c) when an emergency exists as determined by the SEC so that disposal of the Fund’s investments or a determination of its NAV 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 NAV of each Fund’s shares is determined once daily
as of the close of regular trading on the NYSE, on each day the NYSE is open for trading (a “Business Day”). The NYSE normally closes at 4:00 p.m. Eastern Time, but may close earlier on some days. The NYSE currently is not open for trading
on New Year’s Day, Martin Luther King, Jr. Day, President’s Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Each Fund calculates the NAV of each of its classes of shares by dividing the
total value of the assets attributable to that class, less the liabilities attributable to that class, by the number of shares of that class that are outstanding.
The NAV of each Fund is based upon the net asset values of
its corresponding Underlying Funds. Shares of the Underlying Funds are valued at their closing net asset values as reported on each Business Day.
Certain Underlying Funds may invest in securities that are traded principally in foreign markets and that trade on weekends and other days
when the Funds do not price their shares. As a result, the values of the Funds’ portfolio securities may change on days when the prices of the Funds’ shares are not calculated. The prices of the Funds’ shares will reflect any such
changes when the prices of the Funds’ shares are next calculated, which is the next Business Day.
The prospectuses and SAIs for the Underlying Funds explain the valuation methods for the Underlying Funds, including the circumstances
under which the Underlying Funds may use fair value pricing and the effects of doing so. Such prospectuses and SAIs are available on the SEC EDGAR database on its Internet site at www.sec.gov.
The proceeds received by each Fund for each issue or sale of its shares, all net investment income, and
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 Trust’s 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.
B-75
Expenses with respect to any two or more Funds are to be allocated in proportion to the NAVs 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 will be allocated in proportion to the NAVs of the respective classes.
TAXATION
Taxation of the Funds: In General
Each Fund has elected or intends to elect and intends to
qualify each year to be taxed as a regulated investment company under Subchapter M of 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 for each taxable year from
|
|
|
(i)
|
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, but not limited to, gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies and
|
|
|
(ii)
|
net income derived from interests in “qualified publicly traded partnerships” (as defined below);
|
|
|
(b)
|
distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (generally taxable ordinary income and the excess, if any,
of net short-term capital gains over net long-term capital losses) and its net tax-exempt income, if any, for such year; and
|
|
|
(c)
|
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, securities of other regulated investment companies, 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 (x) in the securities of any one issuer or two or more issuers which the Fund controls and that are
engaged in the same, similar, or related trades or businesses (other than U.S. Government securities), or (y) in the securities of one or more qualified publicly traded partnerships (as defined below).
|
For purposes of the 90% gross income requirement described in
(a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized directly by the regulated
investment company. However, 100% of the net income derived from an interest in a “qualified publicly traded partnership” will be treated as qualifying income. A “qualified publicly traded partnership” is a partnership
(x) the interests in which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof, and (y) that derives less than 90% of its income from the qualifying income
described in paragraph (a)(i). In general, such entities will be treated as partnerships for federal income tax purposes because they meet the passive income requirement under Code section 7704(c)(2). In addition, although in general the passive
loss rules of the Code do not apply to regulated investment companies, such rules do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership.
For purposes of the diversification test in (c) above, the
term “outstanding voting securities of such issuer” will include the equity securities of a qualified publicly traded partnership. Also for purposes of the diversification test in (c) above, the identification of the issuer (or, in some
cases, issuers) of a particular Fund investment can depend on the terms and conditions of that investment. In some cases, identification of the issuer (or issuers) is uncertain under current law, and an adverse determination or future guidance by
the IRS with respect to identification of the issuer for a particular type of investment may adversely affect the Fund’s ability to meet the diversification test in (c) above.
B-76
In general, if a Fund qualifies as a regulated investment company that is accorded special
tax treatment, that Fund will not be subject to federal income tax on income paid in a timely manner to its shareholders in the form of dividends (including capital gain dividends). As a series of a Massachusetts business trust, a Fund under present
law will not be subject to any excise or income taxes imposed by Massachusetts.
If a Fund were to fail to meet the income, diversification, or distribution test described above, the Fund could in some cases cure such failure, including by paying a Fund-level tax, paying interest,
making additional distributions, or disposing of certain assets. If a Fund were ineligible to or otherwise did not cure such failure for any year, or if a Fund were otherwise to fail to qualify as a regulated investment company in any taxable year,
that Fund would be subject to tax on its taxable income at corporate rates. In addition, all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to
shareholders as dividend income. Some portions of such distributions may be eligible for the dividends received deduction in the case of corporate shareholders or possibly to be treated as qualified dividend income to individual shareholders.
Finally, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial distributions before requalifying as a regulated investment company.
Each Fund intends to distribute at least annually to its shareholders all or substantially all of its
investment company taxable income (computed without regard to the dividends-paid deduction) and net capital gain. Investment company taxable income or net capital gain that is retained by a Fund will be subject to tax at regular corporate rates.
However, a Fund may designate any retained net capital gain amount as undistributed capital gains in a timely notice to its shareholders who (i) will be required to include in income for federal income tax purposes, as long-term capital gain,
their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their federal income tax liabilities, if any, and to claim refunds to the
extent the credit exceeds such liabilities. If a Fund makes this designation, the tax basis of shares owned by a shareholder of a Fund will, for Federal income tax purposes, be increased by an amount equal to the difference between the amount of
undistributed capital gains included in the shareholder’s gross income under clause (i) of the preceding sentence and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence. A Fund is not required to, and there
can be no assurance the Fund will, make this designation if it retains all or a portion of its net capital gain in a taxable year.
In determining its net capital gain, including in connection with determining the amount available to support a capital gain dividend, its
taxable income, and its earnings and profits, a regulated investment company may elect to treat any post-October capital loss (defined as the greatest of net capital loss, net long-term capital loss, or net short-term capital loss, in each case
attributable to the portion of the taxable year after October 31) and certain late-year ordinary losses (generally, (i) net ordinary losses from the sale, exchange or other taxable disposition of property, attributable to the portion of the taxable
year after October 31, plus (ii) other net ordinary losses attributable to the portion of the taxable year after December 31) as if incurred in the succeeding taxable year.
Capital losses in excess of capital gains (“net capital
losses”) are not permitted to be deducted against a Fund’s net investment income. If a Fund has a net capital loss for any year, the amount thereof may be carried forward to offset capital gains in future years, thereby reducing the amount
the Fund would otherwise be required to distribute in such future years to qualify for the special tax treatment accorded regulated investment companies and avoid a Fund-level tax. If a Fund incurs or has incurred net capital losses in taxable years
beginning after December 22, 2010 (“post-2010 losses”), those losses will be carried forward to one or more subsequent taxable years without expiration; any such carryforward losses will retain their character as short-term or
long-term. If a Fund incurred net capital losses in a taxable year beginning on or before December 22, 2010 (“pre-2011 losses”), the Fund is permitted to carry such losses forward for eight taxable years; in the year to which they are
carried forward, such losses are treated as short-term capital losses that first offset any short-term capital gains, and then offset any long-term capital gains. A Fund must use any post-2010 losses, which will not expire, before it uses any
pre-2011
losses. This may increase the likelihood that pre-2011 losses, if any, will expire unused. See the most recent annual shareholder report for each Fund’s capital loss carryovers as of the end of its
most recently ended fiscal year.
B-77
A nondeductible 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 income for the calendar year plus 98.2% of its capital gain net
income recognized during the one-year period ending on October 31 (or later, if the Fund is permitted to elect and so elects) plus undistributed amounts from prior years. For these purposes, ordinary gains and losses from the sale, exchange or other
taxable disposition of property that would be properly taken into account after October 31 (or later if a Fund makes the election referred to above) are treated as arising on January 1 of the following calendar year. Each Fund intends to make
distributions sufficient to avoid imposition of the excise tax, although there can be no assurance that it will be able to do so. 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.
Under current law, a Fund may treat the portion of redemption proceeds paid to redeeming shareholders that
represents the redeeming shareholders’ portion of the undistributed investment company taxable income and net capital gain of the Fund as a distribution of investment company taxable income and net capital gain on the Fund’s tax return.
This practice, which involves the use of tax equalization, will have the effect of reducing the amount of income and gains that a Fund is required to distribute as dividends to shareholders in order for the Fund to avoid federal income tax and
excise tax. This practice may also reduce the amount of the distributions required to be made to
non-redeeming
shareholders. The amount of any undistributed income will be reflected in the value of the shares
of the Fund, and thus the total return on a shareholder’s investment will not be reduced as a result of the distribution policy.
Fund Distributions
Except in the case of certain shareholders eligible for preferential tax treatment, e.g., qualified retirement or pension trusts,
shareholders of each Fund generally will be subject to federal income taxes on Fund distributions as described herein. Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares through a dividend
reinvestment plan. A shareholder whose distributions are reinvested in shares will be treated as having received a dividend equal to the fair market value of the new shares issued to the shareholder.
Distributions are taxable to shareholders even if they are
paid from income or gains earned by a Fund before a shareholder’s investment (and thus were included in the price the shareholder paid for his or her shares), even though such dividends and distributions may economically represent a return of a
particular shareholder’s investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund’s NAV reflects gains that are unrealized, or income or gains that are realized but not distributed. Such
realized income or gains may be required to be distributed even when the Fund’s NAV also reflects unrealized losses.
Distributions by each Fund of investment income generally will be taxable to shareholders as ordinary income. Taxes on distributions of
capital gains are determined by how long the Fund or Underlying Fund owned (or is deemed to have owned) the investments that generated them, rather than by how long a shareholder has owned his or her shares. Distributions of gains from the sale of
investments that the Fund or Underlying Fund owned for one year or less will be taxable as ordinary income. Properly reported distributions of long-term capital gains, if any, will be taxable to shareholders as long-term capital gains. Tax rules can
alter a Fund’s or Underlying Fund’s holding period in investments and thereby affect the tax treatment of gain or loss on such investments.
Distributions of investment income reported by a Fund as derived from “qualified dividend income” will be taxed in the hands of
individuals at the rates applicable to long-term capital gains, provided that the shareholder, the Fund, and the Underlying Fund meet certain holding period and other requirements. In order for some portion of the dividends received by a Fund
shareholder to be “qualified dividend income,” the Fund must meet certain
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holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet certain holding period and other requirements with
respect to the Fund’s shares. A dividend will not be treated as qualified dividend income (at either the Underlying Fund, Fund, or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61
days during the
121-day
period beginning on the date which is 60 days before the date on which such share becomes
ex-dividend
with respect to such dividend (or, in the
case of certain preferred stock, 91 days during the
181-day
period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of
investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such
a foreign corporation that is readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company.
In general, distributions of investment income reported by
each Fund as derived from qualified dividend income will be treated as qualified dividend income by a shareholder taxed as an individual, provided the shareholder meets the holding period and other requirements described above with respect to the
Fund’s shares. If the aggregate qualified dividends received by a Fund during any taxable year are 95% or more of its gross income (excluding net long-term capital gain over net short-term capital loss), then 100% of the Fund’s dividends
(other than dividends properly reported as Capital Gain Dividends) will be eligible to be treated as qualified dividend income. If a Fund receives dividends from an Underlying Fund, and the Underlying Fund reports such dividends as qualified
dividend income, then the Fund is permitted, in turn, to report a portion of its distributions as qualified dividend income, provided the Fund meets the holding period and other requirements with respect to shares of the Underlying Fund.
Dividends of net investment income received by corporate
shareholders of each Fund will qualify for the 70% dividends received deduction generally available to corporations to the extent those dividends are reported as being attributable to qualifying dividends received by the Fund from domestic
corporations for the taxable year. A dividend received by a Fund will not be treated as a dividend eligible for the dividends-received deduction (1) if it has been received with respect to any share of stock that the Fund has held for less than 46
days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90 days
before such date in the case of certain preferred stock) or (2) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related
property. Moreover, the dividends received deduction may otherwise be disallowed or reduced (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or (2) by application of various
provisions of the Code (for instance, the dividends-received deduction is reduced in the case of a dividend received on debt-financed portfolio stock (generally, stock acquired with borrowed funds)). If a Fund receives dividends from an Underlying
Fund, and the Underlying Fund reports such dividends as eligible for the dividends-received deduction, then the Fund is permitted, in turn, to report a portion of its distributions as eligible for the dividends-received deduction, provided that the
Fund meets the holding period and other requirements with respect to shares of the Underlying Fund.
Section 1411 of the Code generally imposes a 3.8% Medicare contribution tax on the net investment income of certain individuals whose income exceeds certain threshold amounts, and of certain trusts and
estates under similar rules. The details of the implementation of this tax remain subject to future guidance. For these purposes, “net investment income” generally includes, among other things, (i) distributions paid by a Fund of net
investment income and capital gains as described above, and (ii) any net gain from the sale, exchange or other taxable disposition of Fund shares. Shareholders are advised to consult their tax advisers regarding the possible implications of this
additional tax on their investment in the Fund.
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If a Fund makes a distribution to a shareholder in excess of its current and accumulated
“earnings and profits” in and with respect to any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder’s tax basis in his or her shares, and thereafter as capital gain. A return
of capital is not taxable, but it reduces a shareholder’s tax basis in his or her shares, thus reducing any loss or increasing any gain on the shareholder’s subsequent taxable disposition of his or her shares.
Sales, Redemptions, and Exchanges
Sales, 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 generally will be long-term capital gain or
loss, provided the shareholder holds the shares as a capital asset. Otherwise, the gain or loss on a taxable disposition of Fund shares will be treated as short-term capital gain or loss. However, a loss on a sale of Fund shares held by a
shareholder 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. Further, no loss will be allowed on a sale of Fund shares to the
extent the shareholder acquires identical shares of the same Fund within 30 days before or after the disposition. In such case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. In the case of individuals
holding shares in a Fund directly, upon the sale, redemption or exchange of Fund shares, the Fund or, in the case of shares purchased through a financial intermediary, the financial intermediary may be required to provide the shareholder and the IRS
with cost basis and certain other related tax information about the Fund shares sold, redeemed or exchanged. See the Funds’ Prospectus for more information.
Under Treasury regulations, if a shareholder recognizes a
loss with respect to Fund shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio
securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to
shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should
consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Foreign Taxes and Investments
Investment income and gains received by an Underlying Fund from sources outside the United States might be subject to foreign taxes that
are withheld at the source or other foreign taxes. The effective rate of these foreign taxes cannot be determined in advance because it depends on the specific countries in which an Underlying Fund’s assets will be invested, the amount of the
assets invested in each such country and the possibility of treaty relief.
Because the Funds are “fund of funds” that invest their assets in shares of Underlying Funds, each Fund is permitted to elect to pass through to its shareholders foreign income and other similar
taxes paid by the Fund (if any) in respect of foreign securities held by an Underlying Fund in which it invests that itself elected to pass such taxes through to its shareholders, so that shareholders of the Fund will be eligible to claim a tax
credit or deduction for such taxes. However, even if a Fund qualifies to make such election for any year, it may determine not to do so.
If such an election is made, the ability of shareholders of the Fund to claim a foreign tax credit will be subject to limitations imposed
by 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
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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, 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 foreign income taxes passed through by the Fund. 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. To the extent a Fund makes this election, the Fund will notify its shareholders each year of the amount of dividends and distributions and the shareholders’ pro
rata shares of qualified taxes paid by Underlying Funds to foreign countries and passed through by the Fund (if any).
Certain Tax Information Concerning Funds of Funds
Because the Funds are “funds of funds” that invest their assets in shares of Underlying Funds, their distributable income and
gains will normally consist entirely of distributions from Underlying Funds and gains and losses on the disposition of shares of Underlying Funds. To the extent that an Underlying Fund realizes net losses on its investments for a given taxable
year, a Fund will not be able to recognize its share of those losses to offset distributions of net income or capital gains realized from other Underlying Funds in which it invests until it disposes of shares of the Underlying Fund (although such
losses of an Underlying Fund may reduce distributions to the Fund from that Underlying Fund in future taxable years). Moreover, even when a Fund does make a disposition of shares of an Underlying Fund, a portion of its loss may be recognized as a
long-term capital loss, which a Fund will not be able to offset against its ordinary income (including distributions of any net short-term capital gains realized by an Underlying Fund).
In addition, in certain circumstances, the “wash sale” rules under Section 1091 of the Code may apply
to a Fund’s sales of Underlying Fund shares that have generated losses. A wash sale occurs if shares of an Underlying Fund are sold by the Fund at a loss and the Fund acquires additional shares of that same Underlying Fund 30 days before or
after the date of the sale. The wash-sale rules could defer losses in the Fund’s hands on sales of Underlying Fund shares (to the extent such sales are wash sales) for extended (and, in certain cases, potentially indefinite) periods of time.
As a result of the foregoing rules, and certain
other special rules, the amounts of net investment income and net capital gains that a Fund will be required to distribute to shareholders may be greater than such amounts would have been had the Fund invested directly in the securities held by the
Underlying Funds. For similar reasons, the character of distributions from a Fund will not necessarily be the same as it would have been had the Fund invested directly in the securities held by the Underlying Funds. The use of a fund of funds
structure can therefore affect the amount, timing and character of distributions to shareholders, and may increase the amount of taxes payable by shareholders.
The foregoing is only a general description of the federal tax consequences of a fund of funds structure. Accordingly, prospective
purchasers of shares of a fund of funds are urged to consult their tax advisers with specific reference to their own tax situations, including the potential application of state, local, and foreign taxes.
Certain Investments in Mortgage-Related Securities
An Underlying Fund may invest directly or indirectly in
residual interests in real estate mortgage investment conduits (“REMICs”) (including by investing in residual interests in CMOs with respect to which an election to be treated as a REMIC is in effect) or equity interests in taxable
mortgage pools (“TMPs”). Under a notice issued by the IRS and Treasury regulations that have not yet been issued, but may apply retroactively, a portion of an Underlying Fund’s income that is attributable to a residual interest in a
REMIC or an equity interest in a TMP (referred to in the Code as an “excess inclusion”) will be subject to federal income tax in all events. This notice also provides, and the regulations are expected to provide, that excess inclusion
income of a regulated investment
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company, such as the Underlying Funds and, in turn, the Funds, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders,
with the same consequences as if the shareholders held the related REMIC or TMP interest directly. As a result, a Fund investing in such interests may not be a suitable investment for charitable remainder trusts, as noted below.
In general, excess inclusion income allocated to shareholders
(i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income (“UBTI”) to entities (including a qualified pension plan, an
individual retirement account, a 401(k) plan, a Keogh plan, or other
tax-exempt
entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and
otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a
non-U.S.
shareholder, will not qualify for any reduction in U.S. federal
withholding tax. A shareholder will be subject to U.S. federal income tax on such inclusions notwithstanding any exemption from such income tax otherwise available under the Code.
Unrelated Business Taxable Income
Income of a regulated investment company that would be UBTI
if earned directly by a tax-exempt entity generally will not be attributed as UBTI to a tax-exempt shareholder of the regulated investment company. Notwithstanding this “blocking” effect, a
tax-exempt
shareholder of a Fund could realize UBTI by virtue of its investment in a Fund if shares in that Fund constitute debt-financed property in the hands of the
tax-exempt
shareholder within the meaning of Code Section 514(b). A tax-exempt shareholder may also recognize UBTI if a Fund recognizes “excess inclusion income” derived from direct or indirect
investments by Underlying Funds in residual interests in REMICs or equity interests in TMPs as described above.
Special tax consequences also apply to charitable remainder trusts (“CRTs”) that invest in regulated investment companies that
invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation enacted in December 2006, a CRT, as defined in section 664 of the Code, that realizes UBTI for a taxable year must pay an excise tax
annually of an amount equal to such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI solely as a result of investing in a Fund that recognizes “excess inclusion income” (which is described earlier). Rather, if
at any time during any taxable year a CRT or one of certain other
tax-exempt
shareholders that is treated as a “disqualified organization” under the Code (such as the United States, a state or
political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a Fund that recognizes “excess inclusion income,” then such Fund will be subject to a tax on that portion of
its “excess inclusion income” for the taxable year that is allocable to such shareholders at the highest federal corporate income tax rate. The extent to which the IRS guidance in respect of CRTs remains applicable in light of the December
2006 CRT legislation is unclear. To the extent permitted under the 1940 Act, the Funds may elect to allocate any such tax specially to the applicable CRT, or other shareholder, and thus reduce such shareholder’s distributions for the year by
the amount of the tax that relates to such shareholder’s interest in the Funds. CRTs are urged to consult their tax advisers concerning the consequences of investing in the Funds.
Backup Withholding
Each Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable dividends and other distributions
paid to and proceeds of share sales, exchanges, or redemptions made by any individual shareholder who fails to furnish the Fund with a correct taxpayer identification number (TIN), who has under-reported dividends or interest income, or who fails to
certify to the Fund that he or she is not subject to such withholding. The backup withholding tax rate is 28%.
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Non U.S. Shareholders
In general, dividends (other than capital gain dividends)
paid by a Fund to a shareholder that is not a “United States person” within the meaning of the Code (such shareholder, a “foreign person”) are subject to withholding of U.S. federal income tax at a rate of thirty percent
(30%) (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be
subject to withholding.
However, for
distributions with respect to taxable years of a Fund beginning before January 1, 2014, a Fund was not required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that had not
provided a satisfactory statement that the beneficial owner was not a U.S. person, (x) to the extent that the dividend was attributable to certain interest on an obligation if the foreign person was the issuer or was a ten percent
(10%) shareholder of the issuer, (y) that was within certain foreign countries that had inadequate information exchange with the United States, or (z) to the extent the dividend was attributable to interest paid by a person that is a
“related person” of the foreign person and the foreign person was a controlled foreign corporation) from U.S.-source interest income that, in general, would not have been subject to U.S. federal income tax if earned directly by an
individual foreign person, to the extent such distributions were properly reported as such by a Fund (an “interest-related dividend”), and (ii) with respect to distributions (other than (a) distributions to an individual foreign
person who was present in the United States for a period or periods aggregating 183 days or more during the year of the distribution and (b) distributions subject to special rules regarding the disposition of U.S. real property interests) of net
short-term capital gains in excess of net long-term capital losses, in each case to the extent such distributions were properly reported as such by a Fund (a “short-term capital gain dividend”). If a Fund invested in an Underlying Fund
that paid such distributions to the Fund, the distributions would retain their character as not subject to withholding if properly reported by the Fund when paid to the Fund’s foreign persons. The Funds generally have not reported potentially
eligible distributions as interest-related or short-term capital gain dividends in respect of taxable years of the Funds beginning before January 1, 2014 and thus treated such dividends, in whole or in part, as ineligible for these exemptions from
withholding. In the case of shares held through an intermediary, the intermediary may have withhold even if the Fund reported a distribution as an interest-related or short-term capital gain dividend. Foreign persons should contact their
intermediaries regarding the application of these rules to their accounts.
These exemptions from withholding for interest-related and short-term capital gain dividends have expired for distributions with respect to taxable years of the Fund beginning on or after January 1, 2014.
Therefore, as of the date of this SAI, the Funds (or intermediaries, as applicable) are currently required to withhold on distributions to foreign persons attributable to net interest or short-term capital gains that were formerly eligible for this
withholding exemption. It is currently unclear whether Congress will extend these exemptions for distributions with respect to taxable years of the Funds beginning on or after January 1, 2014, and what the terms of such an extension would be,
including whether such extension would have retroactive effect.
Under U.S. federal tax law, a beneficial holder of shares who or which is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses)
realized on the sale of shares of a Fund or on capital gain dividends unless (i) such gain or capital gain dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States or
(ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating one hundred eighty-three (183) days or more during the year of the sale or capital gain dividend and certain other
conditions are met.
Beneficial holders that are
foreign persons with respect to whom income from a Fund is effectively connected with a trade or business conducted by the foreign shareholder within the United States will in general be subject to U.S. federal income tax on the income derived from
the Fund at the graduated rates applicable to U.S. citizens, residents or domestic corporations, whether such income is received in cash or reinvested in shares of the Fund and, in the case of a foreign corporation, may also be subject to a branch
profits tax. If a foreign
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shareholder is eligible for the benefits of a tax treaty, any effectively connected income or gain will generally be subject to U.S. federal income tax on a net basis only if it is also
attributable to a permanent establishment maintained by the shareholder in the United States. More generally, foreign shareholders who are residents in a country with an income tax treaty with the United States may obtain different tax results than
those described herein, and are urged to consult their tax advisers.
Certain Additional Reporting and Withholding Requirements
The Foreign Account Tax Compliance Act (“FATCA”) generally requires a Fund to obtain information sufficient to identify the
status of each of its shareholders under FATCA as described more fully below. If a shareholder fails to provide this information or otherwise fails to comply with FATCA, a Fund may be required to withhold under FATCA at a rate of 30% with respect to
that shareholder on dividends (other than exempt- interest dividends), including capital gain dividends, and the proceeds of the sale, redemption or exchange of Fund shares. If a payment by a Fund is subject to FATCA withholding, the Fund is
required to withhold even if such payment would otherwise be exempt from withholding under the rules applicable to foreign shareholders described above (e.g., capital gain dividends and short-term capital gain and interest-related dividends),
beginning as early as July 1, 2014.
Each
prospective investor is urged to consult its tax adviser regarding the applicability of FATCA and any other reporting requirements with respect to the prospective investor’s own situation, including investments through an intermediary.
General Considerations
Special tax rules apply to investments though defined
contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a Fund as an investment through such plans and the precise effect of an investment on their particular tax
situation.
The foregoing discussion of the U.S.
federal income tax consequences of investment in the Funds is a general and abbreviated summary based on the applicable provisions of the Code, U.S. Treasury regulations, and other applicable authority 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, possibly with retroactive effect. This discussion of the federal income tax
treatment of the Funds and their 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 Funds may be made.
Shareholders should consult their tax advisers as to their own tax situation, including possible foreign, state, and local taxes.
EXPERTS
Ropes & Gray LLP, The Prudential Tower, 800 Boylston Street, Boston, Massachusetts 02199-3600 serves as counsel to the Trust.
The audited financial statements of the Funds are
set forth in the Trust’s Annual Reports as of December 31, 2013, and are incorporated herein by reference in reliance upon the reports of Deloitte & Touche LLP, independent registered public accounting firm, given on the authority of that
firm as experts in accounting and auditing. Copies of the Trust’s Annual Reports as of December 31, 2013 are available, without charge, upon request by calling 1-888-309-3539.
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GLOSSARY
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 a Fund’s investment adviser’s or Underlying Fund’s adviser’s or subadviser’s estimates of future economic parameters, which may vary from actual future values.
NRSRO:
means a nationally
recognized statistical rating organization. For a description of the ratings of three NRSROs, S&P, Moody’s, and Fitch, 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.
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 Select Funds
is the designation of the Trustees under a Declaration of Trust dated May 28, 1993, as amended and
restated as of November 21, 2011, as it may be further 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 series of the Trust shall be bound.
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