<PAGE>
To Our Shareholders July 31, 1996
We are pleased to present MassMutual Corporate Investors' report for the first
six months of 1996.
The Trustees declared a dividend of $.70 per share payable on August 8, 1996 to
shareholders of record on July 31, 1996. A dividend of $.70 per share was paid
in the preceding quarter.
Despite an increase in interest rates during the first half of the year, which
lowers bond values, Corporate Investors achieved record setting asset levels.
Aided in part by the rising stock market and some favorable events in our
private portfolio, the Trust's net asset value ended the second quarter up 7.3%
from the first quarter. This performance outpaced both the S&P Industrial Stock
Index and the Lehman Brothers Government/Corporate Bond Index which were up 5.1%
and 0.5% respectively. For the first half, the Trust's total return based on net
asset value was 8.6%, compared with an 11.5% gain in the S&P and a loss of 1.9%
in the Lehman Index.
The Trust had an outstanding quarter in terms of capital gains, realizing net
gains of over $10 million. The Trust's biggest gain realized during the quarter
came from one of our private investments, Steerage Corporation, which we put on
our books about 2 1/2 years ago. Litton Industries Inc. acquired Sperry
Marine Inc., whose parent company is Steerage Corporation, in a transaction that
produced a gain of nearly $5.7 million for the Trust. Also from our private
investment portfolio we continued to sell portions of Monro Muffler Brake, Inc.
for a gain of nearly $514 thousand, and RailTex, Inc. for a gain of $376
thousand. On the public side, we eliminated positions in Chesapeake Energy Corp.
and Republic Industries, Inc. realizing gains of approximately $760 thousand and
$628 thousand respectively. These numbers bring our year-to-date net realized
gains to $16.4 million or $3.85 per share. Of the $3.85, $.92 represents short-
term gains which are distributed to shareholders each year.
There are also some noteworthy unrealized gains in the Trust's private placement
portfolio. CompuCom Systems, Inc.'s stock price rose over 26% during the
quarter, boosting the value of our 836,720 shares. Another one of our
investments, TransMontaigne Oil Company, merged with a public company, Sheffield
Exploration Company. Each share of TransMontaigne was converted into one share
of the surviving corporation, whose stock price ended the quarter at $11.25. Our
common stock has a cost of $3.09 per share and our warrants have an exercise
price of $3.60 per warrant creating good value for the portfolio.
The second quarter's net investment income declined modestly to $2,701,597 or
63.5 cents per share from $2,758,149 or 64.8 cents per share from the previous
quarter, as we continue to see some of our older, higher coupon investments
mature. However, we closed on two new private placement investments and made an
additional investment in Classic Sports Partners, L.P. during the quarter. The
new investments are Hussey Seating Company and NM Holdings, LLC. Hussey is a
family owned business founded over 160 years ago, which now is the leading North
American manufacturer of spectator seating. NM Holdings is a special purpose
enterprise formed for the purpose of acquiring film rights to completed motion
pictures from Twentieth Century Fox Film Corporation. Together, these
investments provide an average yield of approximately 10.8% and have equity
features. In addition to the new investments, there are three more private
placement investment opportunities under review which will be purchased pending
successful negotiations.
We thank you for your continued support and interest in Corporate Investors.
Sincerely,
/s/ Stuart H. Reese
Stuart H. Reese
President
<PAGE>
Statement of Assets and Liabilities MassMutual Corporate Investors
June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION> 1996 1995
------------ ------------
<S> <C> <C>
Assets:
Investments (Notes 2A, 2B and 5)
(See Schedule of Investments)
Corporate restricted securities at fair value
(Cost 1996 - $116,423,554; 1995 - $97,496,185) $124,691,206 $102,803,550
Corporate public securities at market value
(Cost 1996 - $68,814,467; 1995 - $64,785,111) 72,559,344 66,097,060
Short-term securities at cost plus earned discount which
approximates market value 425,000 12,874,899
------------ ------------
197,675,550 181,775,509
Cash 1,392,888 905,603
Interest and dividends receivable, net 3,364,756 3,424,836
Receivable for investments sold 1,107,343 1,680,879
Other assets 8,085 8,085
------------ ------------
Total assets $203,548,622 $187,794,912
============ ============
Liabilities:
Payable for investments purchased $2,727,481 $3,852,173
Management fee payable (Note 3) 674,565 611,604
Note payable (Note 4) 20,000,000 20,000,000
Interest payable (Note 4) 136,211 136,211
Accrued expenses 126,284 100,492
------------ ------------
Total liabilities 23,664,541 24,700,480
------------ ------------
Net Assets:
Common shares, par value $1.00 per share;
an unlimited number authorized 4,256,724 4,256,724
Additional paid-in capital 98,590,717 98,590,717
Retained net realized gain on investments, prior years 45,926,213 42,226,727
Undistributed net investment income (Note 2D) 2,703,592 2,694,408
Undistributed net realized gain on investments 16,394,306 8,706,542
Net unrealized appreciation of investments (Note 2A) 12,012,529 6,619,314
------------ ------------
Total net assets 179,884,081 163,094,432
------------ ------------
Total liabilities and net assets $203,548,622 $187,794,912
============ ============
Common shares issued and outstanding 4,256,724 4,256,724
============ ============
Net asset value per share $ 42.26 $ 38.31
============ ============
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
2
<PAGE>
Statement of Operations MassMutual Corporate Investors
For the six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest $ 7,331,406 $ 7,007,983
Dividends 143,753 337,851
----------- ------------
Total Income 7,475,159 7,345,834
------------ ------------
Expenses:
Management fee (Note 3) 1,314,156 1,169,000
Trustees' fees and expenses 48,786 46,411
Transfer Agent/Registrar's expenses 62,545 64,305
Custodian's fees -- 12,264
Interest (Note 4) 533,000 533,000
Reports to shareholders 17,040 17,040
Audit and legal 25,115 22,333
Other 14,771 12,763
------------ ------------
Total expenses 2,015,413 1,877,116
------------ ------------
Net investment income 5,459,746 5,468,718
------------ ------------
Net realized and unrealized gain (loss) on investments (Notes 2A and 2B):
Net realized gain on investments 16,394,306 8,685,290
Net change in unrealized appreciation of investments (7,553,308) 11,686,978
------------ ------------
Net gain on investments 8,840,998 20,372,268
------------ ------------
Net increase in net assets resulting from operations $ 14,300,744 $ 25,840,986
============ ============
See Notes to Financial Statements.
- ------------------------------------------------------------------------------------------------------------------------------------
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows MassMutual Corporate Investors
For the six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---------- -----------
<S>
Net increase (decrease) in cash: <C> <C>
Cash flows from operating activities:
Interest and dividends received $7,472,016 $6,535,572
Interest expense paid (533,000) (533,000)
Operating expenses paid (1,450,438) (1,277,614)
Federal income tax paid (1,984,882) --
---------- ----------
Net cash provided by operating activities 3,503,696 4,724,958
---------- ----------
Cash flows from investing activities:
Change in short-term portfolio securities, net 2,849,398 (7,994,399)
Purchase of portfolio securities (67,571,788) (44,525,335)
Proceeds from disposition of portfolio securities 69,961,883 54,647,452
---------- ----------
Net cash provided by investing activities 5,239,493 2,127,718
---------- ----------
Net cash provided by operating and investing activities 8,743,189 6,852,676
---------- ----------
Cash flows from financing activities:
Cash dividends paid from net investment income (5,732,141) (5,005,900)
Cash dividends paid from net realized gain on investments (4,143,459) (953,514)
---------- ----------
Net cash used for financing activities (9,875,600) (5,959,414)
---------- ----------
Net (decrease) increase in cash (1,132,411) 893,262
Cash - beginning of year 2,525,299 12,341
---------- ----------
Cash - end of period 1,392,888 $905,603
========== ==========
Reconciliation of net increase (decrease) in net assets to net cash from
operating and investing activities:
Net increase in net assets resulting from operations $14,300,744 $25,840,986
----------- -----------
Increase in investments (2,489,493) (22,905,410)
(Increase) decrease in interest and dividends receivable, net 397,811 (433,256)
Decrease in receivable for investments sold 83,143 439,767
Increase in other assets (8,085) (8,085)
Increase (decrease) in payable for investments purchased (1,588,024) 3,852,172
Increase in management fee payable 42,454 85,730
Decrease in accrued expenses (10,479) (19,228)
Decrease in accrued taxes (1,984,882) --
----------- ------------
Total adjustments to net assets from operations (5,557,555) (18,988,310)
----------- ------------
Net cash provided by operating and investing activities $ 8,743,189 $ 6,852,676
=========== ============
</TABLE>
See notes to Financial Statements
- --------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets MassMutual Corporate Investors
For the six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,459,746 $ 5,468,718
Net realized gain on investments 16,394,306 8,685,290
Net change in unrealized appreciation of investments (7,553,308) 11,686,978
------------ ------------
Net increase in net assets resulting from operations 14,300,744 25,840,986
Dividends to shareholders from:
Net investment income (1996 - $.70 per share; 1995 - $.70 per share) (2,979,707) (2,979,707)
------------ ------------
Total increase 11,321,037 22,861,279
Net Assets, beginning of year 168,563,044 140,233,153
------------ ------------
Net Assets, end of period (including undistributed net investment income
in 1996 - $2,703,592; 1995 - $2,694,408) $179,884,081 $163,094,432
============ ============
See Notes to Financial Statements.
- ------------------------------------------------------------------------------------------------------------------------------------
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Selected Per Share Data MassMutual Corporate Investors
Selected data for each common share outstanding for the periods ended:
For the
six months For the
ended 6/30/96 year ended
(Unaudited) 12/31/95
------------- ----------
<S> <C> <C>
Net asset value:
Beginning of period $ 39.60 $ 32.94
------------- ----------
Net investment income 1.28 2.63
Net realized and unrealized gain on investments 2.08 7.75
------------- ----------
Total from investment operations 3.36 10.38
------------- ----------
Dividends from net investment income to common shareholders (.70) (2.63)
Distributions from net realized gain on investments to common shareholders -- (1.09)
Total distributions (.70) (3.72)
------------- ----------
Net asset value:
End of period $ 42.26 $ 39.60
============= ==========
Per Share Market Value:
End of period $ 34.50 $ 35.75
============= ==========
Total Investment Return:
Market Value (1.61)%* 29.19%
Net Asset Value 8.57%* 33.76%
Net assets (in millions):
End of period $ 179.88 $ 168.56
Ratio of expenses to average net assets 1.17%* 2.45%
Ratio of net investment income to average net assets 4.33%* 7.09%
Portfolio turnover 35.02%* 66.90%
</TABLE>
*Percentages represent results for the period and are not annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6
<PAGE>
Schedule of Investments MassMutual Corporate Investors
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities - 61.77%: (A) Amount Date Date (Note 2B) (Note 2A)
--------------- --------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
American Exploration Company - A.S.E.
An independent oil and gas company engaged
principally in the acquisition, development and
management of oil and gas properties.
11% Senior Subordinated Note due 2001 $ 3,000,000 12/27/91 $ 2,964,600 $ 2,961,288 $ 2,930,100
Warrant, exercisable until 2001, to purchase
81,026 shares of common stock at $22.37
per share (B) 81,026 shs. 12/27/91 49,714 38,712 81,026
-------------- ------------ ------------
3,014,314 3,000,000 3,011,126
-------------- ------------ ------------
Ammirati & Puris, Inc.
An advertising agency that specializes in
representing a limited number of large and
high quality clients.
14% Senior Secured Note due 1998 $ 1,750,000 11/23/93 1,714,300 1,750,000 1,890,875
-------------- ------------ ------------
BP Prudhoe Bay Royalty Trust - N.Y.S.E.
A trust which shares in the production of
petroleum from the Alaskan North Slope.
26,180 Units of Beneficial Interest 26,180 uts. 2/28/89 654,500 415,660 392,700
-------------- ------------ ------------
Cains Foods, L.P.
A producer of mayonnaise, sauce and pickle
products for both the retail and food service
markets.
10% Senior Secured Term Note due 2004 $ 1,513,512 9/29/95 1,513,512 1,513,843 1,484,755
11.5% Senior Subordinated Note due 2004 $ 945,945 9/29/95 895,706 898,351 927,878
8% Junior Subordinated Convertible Note
due 2004, convertible into 78 partnership
points at $1,388.89 per point $ 108,108 9/29/95 108,108 108,108 208,606
Warrant, exercisable until 2006, to purchase
39 partnership points at $.01 per point (B) 39 pts. 9/29/95 50,261 50,261 97,787
-------------- ------------ ------------
2,567,587 2,570,563 2,719,026
-------------- ------------ ------------
Catalina Lighting, Inc. - N.Y.S.E.
A designer, importer and distributor of residential
and office lighting fixtures.
8% Convertible Subordinated Note due 2002,
convertible into 200,000 shares of common
stock at $7.50 per share $ 1,500,000 3/31/94 1,420,050 1,500,000 1,398,600
-------------- ------------ ------------
Classic Sports Partners, L.P.
A cable sports television network.
Limited Partnership Interest 644 uts. * 544,444 644,444 515,555
-------------- ------------ ------------
The Coast Distribution System - A.S.E.
A wholesale distributor of recreational vehicles
and marine parts and accessories.
11.2% Senior Subordinated Secured Note
due 1999 $ 350,050 6/26/89 361,217 350,050 356,141
Common Stock (B) 130,753 shs. 6/27/85 674,685 678,636 760,821
-------------- ------------ ------------
1,035,902 1,028,686 1,116,962
-------------- ------------ ------------
</TABLE>
*4/18/95 and 6/3/96.
- --------------------------------------------------------------------------------
7
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
--------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CompuCom Systems, Inc. - O.T.C.
A personal computer dealer specializing in
serving corporate accounts.
Common Stock (B) 836,720 shs. 9/24/92 $ 1,822,376 $ 1,840,784 $ 8,644,364
-------------- ------------ ------------
Consumer Product Enterprises, Inc.
A manufacturer of colored acrylic felt for
consumer use.
10.75% Senior Secured Term Note due 2003 $ 1,399,580 12/8/95 1,413,996 1,399,580 1,372,568
12% Senior Subordinated Note due 2005 $ 922,800 12/8/95 926,584 873,373 882,381
Senior Secured Floating Rate Revolving
Credit Note due 2000 $ 230,700 12/8/95 230,700 230,700 230,700
Common Stock (B) 184,560 shs. 12/8/95 138,420 184,560 138,420
Warrant, exercisable until 2005, to purchase
138,420 shares of common stock at $.01
per share (B) 138,420 shs. 12/8/95 1,384 50,853 1,384
-------------- ------------ ------------
2,711,084 2,739,066 2,625,453
-------------- ------------ ------------
Control Devices, Inc.
A producer of high quality electromechanical
circuit protector devices and photo-optic sensors.
10% Senior Secured Note due 2004 $ 1,829,100 7/29/94 1,834,587 1,829,100 1,918,543
11% Senior Subordinated Note due 2004 $ 783,900 7/29/94 772,063 783,900 831,875
11% Cumulative Preferred Stock 101 shs. 7/29/94 89,306 101,036 103,744
Common Stock (B) 75,933 shs. 7/29/94 25,259 25,259 230,647
Warrant, exercisable until 2004, to purchase
98,267 shares of common stock at $.01
per share (B) 98,267 shs. 7/29/94 983 -- 297,748
-------------- ------------ ------------
2,722,198 2,739,295 3,382,557
-------------- ------------ ------------
Corrections Corporation of America - O.T.C.
An operator of private prisons and correctional
facilities for federal, state and local governments.
11.08% Senior Secured Note due 2000 $ 417,801 12/11/90 423,004 417,279 439,945
-------------- ------------ ------------
D&K Wholesale Drug, Inc. - O.T.C.
A wholesale pharmaceutical distribution company.
11% Subordinated Note due 1997 $ 1,083,334 12/29/87 991,684 1,083,334 1,083,225
11% Convertible Subordinated Note due 1997,
convertible into 265,490 shares of common
stock at $3.30 per share $ 875,000 12/29/87 956,113 875,000 1,269,386
-------------- ------------ ------------
1,947,797 1,958,334 2,352,611
-------------- ------------ ------------
Delta Beverage Group, Inc.
A Pepsi soft drink bottler.
Common Stock (B) 966 shs. 3/8/88 181,486 2,006,380 181,486
-------------- ------------ ------------
Edmund Publications Corporation
A publisher of paperback books.
12.5% Senior Note due 1996 (B) $ 1,937,500 9/9/88 1,912,700 1,937,500 193,750
12.5% Convertible Senior Note due 1996,
convertible into 50 shares of common
stock at $1,250 per share (B) $ 62,500 9/9/88 67,594 62,500 6,250
-------------- ------------ ------------
1,980,294 2,000,000 200,000
-------------- ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Elgin National Industries, Inc.
An operator in the specialty fastener, mineral
processing equipment, engineering, construction
and electrical distribution industries.
13% Senior Subordinated Note due 2001 $ 2,000,000 9/24/93 $ 1,943,216 $ 1,983,216 $ 2,013,000
10% Preferred Stock 2,339 shs. 9/24/93 176,964 233,925 184,918
Common Stock (B) 161 shs. 9/24/93 16,075 16,075 121
Warrant, exercisable from 1998 until 2001,
to purchase 168 shares of common stock at
$.01 per share (B) 168 shs. 9/24/93 17 16,782 17
-------------- -------------- --------------
2,136,272 2,249,998 2,198,056
-------------- -------------- --------------
Engel Industries, Inc.
A manufacturer of specialized metal fabricating
equipment.
10% Senior Secured Note due 1996 $ 175,000 11/5/86 152,040 175,000 175,000
13% Senior Note due 1995 (B) $ 585,000 8/30/85 592,254 585,000 234,000
14% Subordinated Note due 1995 (B) $ 115,000 8/30/85 117,300 115,000 17,250
14% Convertible Subordinated Note due 1995,
convertible into 350 shares of common stock
at $500 per share (B) $ 175,000 8/30/85 179,620 175,000 26,250
-------------- -------------- --------------
1,041,214 1,050,000 452,500
-------------- -------------- --------------
Exide Electronics Group, Inc. - O.T.C.
A manufacturer and servicer of uninterruptible
power systems.
Common Stock (B) 229,358 shs. 9/2/92 2,972,400 3,000,000 2,069,954
-------------- -------------- --------------
Fay's, Inc. - N.Y.S.E.
An operator of a discount drug store chain.
10% Convertible Senior Note due 1998,
convertible into 95,566 shares of common
stock at $5.23 per share $ 500,000 1/31/83 485,800 500,000 677,322
-------------- -------------- --------------
Fleming Acquisition Corporation
A supplier of high-quality, premium printed
labels for distilled spirits, wine, food and
household products.
15% Senior Subordinated Note due 2005 $ 2,792,680 * 2,760,003 2,636,892 2,819,210
Common Stock (B) 545 shs. 4/28/95 141,111 272,500 12,467
Warrant, exercisable until 2005, to
purchase 380 shares of common stock
at $.01 per share (B) 380 shs. 4/28/95 98,235 170,455 8,684
Incentive Warrant, exercisable from 1998
until 2000, to purchase 19 shares of common
stock at $.01 per share (B) 19 shs. 4/28/95 3,308 2,273 439
-------------- -------------- --------------
3,002,657 3,082,120 2,840,800
-------------- -------------- --------------
</TABLE>
*4/28/95, 8/1/95, 11/1/95 and 5/1/96.
- -------------------------------------------------------------------------------
9
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Hardy Oil & Gas USA, Inc.
Engages in the exploration and development of
oil and gas reserves.
8.46% Guaranteed Senior Note due 2004 $ 3,000,000 1/11/95 $ 2,904,300 $ 3,000,000 $ 2,783,400
Warrant, exercisable until 2004, to purchase
270,000 shares of common stock at o1.86
per share (B) 270,000 shs. 1/11/95 27,000 -- 203,985
-------------- -------------- --------------
2,931,300 3,000,000 2,987,385
-------------- -------------- --------------
Hein-Werner Corp. - A.S.E.
A manufacturer of automotive service and collision
repair equipment and hydraulic cylinders.
8% Convertible Subordinated Note due 1999,
convertible into 227,617 shares of common
stock at $6.59 per share $ 1,500,000 9/29/89 1,459,650 1,500,000 1,529,591
-------------- -------------- --------------
Highland Homes Holdings, Inc.
A single family homebuilder operating in the
Dallas-Fort Worth and Atlanta areas.
10.75% Senior Note due 1999 $ 3,000,000 11/18/93 2,970,300 2,959,098 3,017,100
Warrant, exercisable until 2001, to purchase
21 shares of common stock at $17,897.31
per share (B) 21 shs. 11/18/93 2 40,902 209
-------------- -------------- --------------
2,970,302 3,000,000 3,017,309
-------------- -------------- --------------
Hussey Seating Company
A manufacturer of spectator seating products.
10% Senior Secured Note due 2003 $ 900,000 6/12/96 876,240 900,000 884,250
12% Subordinated Secured Note due 2006 $ 1,350,000 6/12/96 1,327,320 1,125,547 1,351,080
Senior Secured Floating Rate Note due 2003 $ 900,000 6/12/96 891,090 900,000 891,180
Senior Secured Floating Rate Revolving Note
due 2003 $ 990,000 6/12/96 980,298 990,000 980,298
Warrant, exercisable until 2006, to purchase
3,553 shares of common stock at $.01 per
share (B) 3,553 shs. 6/12/96 36 225,000 36
-------------- -------------- --------------
4,074,984 4,140,547 4,106,844
-------------- -------------- --------------
Intermetrics, Inc.
A provider of software systems, services and
products to a variety of information technology
users.
13% Senior Subordinated Note due 2002 $ 800,000 8/31/95 813,520 703,253 807,040
Senior Floating Rate Revolving Term Note
due 2002 $ 1,333,280 8/31/95 1,320,881 1,333,280 1,322,214
Common Stock (B) 11,085 shs. 8/31/95 51,961 69,281 51,961
Warrant, exercisable until 2007, to purchase
21,176 shares of Class D common stock at
$.01 per share (B) 21,176 shs. 8/31/95 2,118 104,000 2,118
-------------- -------------- --------------
2,188,480 2,209,814 2,183,333
-------------- -------------- --------------
</TABLE>
- -------------------------------------------------------------------------------
10
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Jackson Products, Inc.
Manufactures and distributes a variety of
industrial and highway safety products.
12.25% Senior Subordinated Note due 2004 $ 1,971,000 8/16/95 $ 1,971,000 $ 1,933,433 $ 1,959,174
13.25% Cumulative Exchangeable Preferred Stock 9,855 shs. 8/16/95 985,500 823,332 818,227
Common Stock (B) 43,426 shs. 8/16/95 43,426 43,426 43,426
Warrant, exercisable until 2005, to purchase
199,898 shares of common stock at $.01
per share (B) 199,898 shs. 8/16/95 199,735 199,735 1,999
-------------- -------------- --------------
3,199,661 2,999,926 2,822,826
-------------- -------------- --------------
Kuhlman Corporation - N.Y.S.E.
A manufacturer of non-automotive engine
components.
Warrant, exercisable until 2002, to purchase
100,000 shares of common stock at $8.32
per share (B) 100,000 shs. 4/30/92 106,000 162,000 734,440
Latin Communications Group
An operator of Spanish-language media in
North America.
10.4% Senior Secured Note due 2001 $ 1,750,000 2/14/95 1,752,275 1,750,000 1,767,325
Senior Secured Floating Rate Revolving
Note due 2002 $ 575,000 * 575,000 575,000 564,535
Secured Floating Rate Term Note due 1998 $ 187,500 12/1/95 182,588 187,500 183,863
7% Convertible Preferred Series A Stock,
convertible into 18,000 shares of common
stock at $10 per share 18,000 shs. 2/14/95 160,549 180,000 157,382
Convertible Preferred Series B Stock,
convertible into 32,000 shares of common
stock at $10 per share 32,000 shs. 2/14/95 240,000 320,000 240,000
Common Stock (B) 28,920 shs. ** 228,396 312,504 234,360
-------------- -------------- --------------
3,138,808 3,325,004 3,147,465
-------------- -------------- --------------
Maloney Industries, Inc.
Engineers and manufactures process systems for
the oil and gas industry.
13% Subordinated Note due 2004 $ 2,250,000 10/26/95 2,378,250 2,025,000 2,088,383
Limited Partnership Interest 568 uts. 10/20/95 506,250 675,000 506,250
Warrant, exercisable until 2004, to purchase
297 shares of common stock at $.01
per share (B) 297 shs. 10/26/95 297 -- 297
-------------- -------------- --------------
2,884,797 2,700,000 2,594,930
-------------- -------------- --------------
</TABLE>
*7/13/95 and 12/1/95.
**12/1/95 and 2/27/96.
- --------------------------------------------------------------------------------
11
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Maxtec International Corp.
A manufacturer and distributor of precision
test and measurement equipment and overhead
crane control systems.
12.5% Subordinated Secured Note due 2003 $ 659,340 6/28/95 $ 673,120 $ 500,124 $ 661,780
Senior Floating Rate Revolving Credit
Facility due 2001 $ 659,341 6/28/95 659,341 659,341 652,351
Senior Secured Floating Rate Note due 2001 $ 923,077 6/28/95 913,847 923,679 916,523
Common Stock (B) 76,923 shs. 6/28/95 192,115 230,769 173,077
Warrant, exercisable from 1998 until 2005,
to purchase 39,563 shares of common stock
at $.01 per share (B) 39,563 shs. 6/28/95 98,581 171,429 39,563
-------------- -------------- --------------
2,537,004 2,485,342 2,443,294
-------------- -------------- --------------
Mercury Computer Systems, Inc.
A designer, manufacturer and marketer of
computer systems.
Common Stock (B) 500,000 shs. 12/21/87 1,487,700 1,500,000 2,295,000
Monro Muffler Brake, Inc. - O.T.C.
An operator of retail muffler and brake shops.
Common Stock 38,929 shs. 4/19/85 62,717 51,210 643,788
NM Holdings LLC
A company created to acquire motion picture
film rights from Twentieth Century Fox.
10% Senior Note due 2001 $ 1,000,000 6/28/96 980,600 1,000,000 980,600
12% Subordinated Note due 2001 $ 980,000 6/28/96 982,156 980,000 982,156
Membership interest 20,000 int. 6/28/96 15,000 20,000 15,000
-------------- -------------- --------------
1,977,756 2,000,000 1,977,756
-------------- -------------- --------------
Nu Horizons Electronics Corp. - O.T.C.
A distributor of high technology active and
passive electronic devices.
8.25% Convertible Subordinated Note due
2002, convertible into 156,867 shares of
common stock at $9 per share $ 1,411,800 8/31/94 1,425,918 1,411,800 1,561,804
PanEnergy Corporation (formerly Associated
Natural Gas Corporation) - N.Y.S.E.
An owner and operator of natural gas gathering,
transmission and processing facilities.
9% Convertible Subordinated Note due 2004,
convertible into 135,563 shares of common
stock at $22.13 per share $ 3,000,000 12/30/92 2,934,000 3,000,000 4,010,958
-------------- -------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PAR Acquisition Corp.
A manufacturer of fuel handling systems for
nuclear power plants and hazardous waste.
14.5% Senior Subordinated Note due 2000 $ 833,333 2/5/93 $ 832,000 $ 833,333 $ 858,500
8% Convertible Preferred Stock due 2001,
convertible into 83,333 shares of common
stock at $2 per share 83,333 shs. 2/5/93 166,667 166,667 148,115
Common Stock (B) 133,333 shs. 2/5/93 333,333 333,333 160,000
------------- -------------- --------------
1,332,000 1,333,333 1,166,615
------------- -------------- --------------
Pharmaceutical Buyers, Inc.
A group purchasing organization which specializes
in arranging and negotiating contracts for the
purchase of pharmaceutical goods and medical
equipment.
10.5% Senior Secured Note due 2005 $ 967,500 11/30/95 1,008,232 967,500 974,176
10.5% Senior Secured Convertible Note
due 2005, convertible into 4 shares of
common stock at $50,000 per share $ 195,000 11/30/95 205,355 195,000 206,572
Common Stock (B) 7 shs. 11/30/95 253,125 337,500 253,125
------------- -------------- --------------
1,466,712 1,500,000 1,433,873
------------- -------------- --------------
Piedmont Holding, Inc.
A general aviation fixed based operator with
repair, maintenance and overhaul certification.
12% Senior Subordinated Note due 2001 $ 2,714,283 7/15/92 2,736,540 2,714,283 2,846,740
Senior Redeemable Cumulative Preferred Stock 281,939 shs. 7/15/92 281,939 281,939 281,939
Common Stock (B) 3,771 shs. 7/15/92 2,564 3,771 126,615
Warrant, exercisable until 2001, to purchase
5,042 shares of common stock at $.05
per share (B) 5,042 shs. 7/15/92 3,227 -- 169,089
------------- -------------- --------------
3,024,270 2,999,993 3,424,383
------------- -------------- --------------
PRN Holdings, Inc.
Rents critical care equipment to hospitals
and other healthcare providers.
10.25% Senior Subordinated Note due 2004 $ 3,000,000 9/30/94 2,876,100 2,943,750 3,052,200
Warrant, exercisable from 1997 until 2004, to
purchase 33 shares of common stock at $.01
per share (B) 33 shs. 9/30/94 2,000 56,250 358,186
------------- -------------- --------------
2,878,100 3,000,000 3,410,386
------------- -------------- --------------
Protein Genetics, Inc.
A producer of bovine artificial insemination
products, related breeding and healthcare
products and specialty genetics sold to the
dairy and beef industries.
11.67% Senior Secured Note due 2004 $ 1,200,000 8/12/94 1,184,160 1,200,000 924,960
11.51% Junior Secured Note due 1999 $ 800,000 8/12/94 783,040 800,000 590,640
9.8% Redeemable Exchangeable
Preferred Stock 10,000 shs. 8/12/94 847,900 1,000,000 390,000
Common Stock (B) 1,492 shs. 8/12/94 15 -- 11
------------- -------------- --------------
2,815,115 3,000,000 1,905,611
------------- -------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
RailTex, Inc. - O.T.C.
An operator of short-line railroads in the Midwest,
West and Canada.
12% Senior Subordinated Note due 2002 $ 1,500,000 2/16/93 $ 1,599,150 $ 1,500,000 $ 1,704,900
Common Stock (B) 71,000 shs. 2/16/93 681,600 681,600 1,736,838
------------- -------------- --------------
2,280,750 2,181,600 3,441,738
------------- -------------- --------------
Rent-Way, Inc. - O.T.C.
Operates rent-to-own stores in Ohio,
Pennsylvania and Florida.
10% Convertible Subordinated Note due 2002,
convertible into 201,207 shares of common
stock at $9.94 per share $ 2,000,000 7/18/95 1,991,220 2,000,000 2,193,158
Warrant, exercisable until 2002, to purchase
20,000 shares of common stock at $9.94
per share (B) 20,000 shs. 7/18/95 200 -- 69,860
------------- -------------- --------------
1,991,420 2,000,000 2,263,018
------------- -------------- --------------
Sequentia, Inc.
A manufacturer and distributor of fiberglass
reinforced panels used in commercial, industrial
and residential applications.
12% Subordinated Note due 2004 $ 2,281,400 12/14/95 2,418,284 1,819,859 2,111,436
Limited Partnership Interest of KS Holdings, L.P. 7,186 uts. 12/14/95 538,950 718,600 359,300
Warrant, exercisable until 2004, to purchase
5,449 shares of common stock at $.01 per
share (B) 5,449 shs. 12/14/95 5,449 479,094 2,725
------------- -------------- --------------
2,962,683 3,017,553 2,473,461
------------- -------------- --------------
Star International Holdings, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004 $ 1,755,224 5/27/94 1,675,010 1,665,672 1,637,022
10.5% Subordinated Note due 2004 $ 716,418 5/27/94 716,418 716,418 680,526
Common Stock (B) 4,310 shs. 5/27/94 259,735 259,735 45,096
Warrant, exercisable until 2004, to purchase
3,224 shares of common stock at $.01
per share (B) 3,224 shs. 5/27/94 32 -- 33,707
------------- -------------- --------------
2,651,195 2,641,825 2,396,351
------------- -------------- --------------
Summey Outdoor Advertising, Inc.
An operator of an outdoor advertising business
in North Carolina and South Carolina.
12% Senior Note (with contingent interest)
due 1995 (B) $ 937,500 12/13/83 886,500 937,500 468,750
10.25% Senior Note due 1999 $ 743,750 9/30/87 669,003 743,750 371,875
10.25% Convertible Senior Note due 1999,
convertible into 4% of the Company $ 50,000 9/30/87 48,795 50,000 25,000
------------- -------------- --------------
1,604,298 1,731,250 865,625
------------- -------------- --------------
Supreme Industries, Inc. - A.S.E.
A manufacturer of modular homes and truck bodies.
Common Stock (B) 536,049 shs. * 1,226,108 1,279,976 3,769,095
Common Stock of Contempri Homes, Inc. (B) 229,925 shs. 12/31/92 7,040 4,952 22,993
Common Stock of TGC Industries, Inc. (B) 19,082 shs. 9/30/86 9,497 9,497 14,312
------------- -------------- --------------
1,242,645 1,294,425 3,806,400
------------- -------------- --------------
</TABLE>
*5/23/79, 12/15/95 and 6/9/96.
- --------------------------------------------------------------------------------
14
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Telex Communications, Inc.
A producer of electronic and communications
products.
Warrant, exercisable until 2004, to purchase 9,239
shares of common stock at $.01 per share (B) 9,239 shs. 5/30/89 $ 92 $ 9 $ 9,239
------------- -------------- --------------
TransMontaigne Oil Company - A.S.E.
An independent petroleum products marketing
company.
12.75% Senior Subordinated Debenture
due 2000 $ 1,200,000 3/28/91 1,274,280 1,175,591 1,250,160
Common Stock (B) 258,720 shs. * 400,000 798,595 1,746,360
Warrant, exercisable until 2001, to purchase
74,606 shares of common stock at $3.60
per share (B) 74,606 shs. 3/28/91 7,461 42,000 342,442
------------- -------------- --------------
1,681,741 2,016,186 3,338,962
------------- -------------- --------------
Unidata, Inc.
A manufacturer and distributor of database
management software.
11.5% Senior Subordinated Note $ 2,500,000 12/14/95 2,538,500 2,384,733 2,463,000
due 2003
Common Stock (B) 125,000 shs. 12/14/95 375,000 500,000 375,000
Warrant, exercisable from 1997 until 2003,
to purchase 62,500 shares of common stock
at $1 per share (B) 62,500 shs. 12/14/95 625 124,250 625
------------- -------------- --------------
2,914,125 3,008,983 2,838,625
------------- -------------- --------------
Unipac Corporation
A manufacturer of laminated materials which are
used to seal a variety of packaging containers.
12% Senior Secured Note due 2004 $ 375,000 2/9/96 379,800 336,033 366,300
Senior Secured Floating Rate Note due 2002 $ 982,031 2/9/96 982,031 982,031 972,211
Senior Secured Floating Rate Revolving
Credit Facility due 2002 $ 75,000 2/9/96 75,000 75,000 73,673
Limited Partnership Interest of Riverside II
Holding Company L.P. 84 uts. 2/9/96 70,251 93,667 70,251
Warrant, exercisable from 2000 until 2004, to
purchase 41 shares of common stock at $.01
per share (B) 41 shs. 2/9/96 4 40,313 4
------------- -------------- --------------
1,507,086 1,527,044 1,482,439
------------- -------------- --------------
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide
variety of industries.
11% Senior Secured Note due 2005 $ 1,676,700 5/3/95 1,854,095 1,676,700 1,794,069
12% Subordinated Note due 2005 $ 652,050 5/3/95 733,622 618,363 705,714
Common Stock (B) 4,911 shs. 5/3/95 162,652 391,230 4,911
Warrant, exercisable until 2005, to purchase
2,795 shares of common stock at $.01
per share (B) 2,795 shs. 5/3/95 92,549 35,923 2,795
------------- -------------- --------------
2,842,918 2,722,216 2,507,489
------------- -------------- --------------
</TABLE>
*3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95.
- --------------------------------------------------------------------------------
15
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/96
Corporate Restricted Securities (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Victory Capital LLC
Acquires controlling or substantial interests in
manufacturing and marketing entities.
3% Convertible Preferred Stock, convertible
into 100,000 shares of common stock at $10
per share (B) 100,000 shs. 7/21/94 $ 950,000 $ 1,000,000 $ 950,000
------------ ------------ ------------
Wright & Lato, Inc.
A manufacturer of gold wedding bands and rings.
16% Subordinated Note due 1997 $ 175,750 12/6/83 159,842 175,750 172,007
14% Convertible Subordinated Note due
1997, convertible into 15,000 shares of
common stock at $4.28 per share $ 64,250 12/6/83 63,363 64,250 62,194
------------ ------------ ------------
223,205 240,000 234,201
------------ ------------ ------------
Sub-Total Corporate Restricted Securities $100,125,111 103,192,669 111,115,031
============ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Market Value
Interest Due Principal Cost at 6/30/96
Rule 144A Securities: (A) Rate Date Amount (Note 2B) (Note 2A)
----------------- ------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Convertible Bonds - 4.81%
Garnet Resources Corporation 9.500% 12/21/98 $ 500,000 500,000 395,000
Grand Metropolitan PLC 6.500 1/31/00 600,000 600,000 657,000
Home Shopping Network 5.880 3/1/06 1,000,000 1,000,000 1,230,000
Imax Corporation 5.750 4/1/03 600,000 600,000 597,000
Marriott International, Inc. 0.000 3/25/11 1,000,000 538,181 550,000
Molton Metal Technology 5.500 5/1/06 900,000 900,000 859,500
Renal Treatment Centers, Inc. 5.625 7/15/06 475,000 475,000 458,375
Softkey International, Inc. 5.500 11/1/00 1,330,000 996,363 1,044,050
Sunglass Hut International, Inc. 5.250 6/15/03 475,000 478,281 484,500
Thermo Electron Corporation 4.250 1/1/03 250,000 250,000 307,500
Thermo Terratech, Inc. 4.625 5/1/03 90,000 90,000 90,000
Turner Broadcasting System, Inc. 0.000 2/13/07 3,090,000 1,414,354 1,444,575
United Waste Systems, Inc. 4.500 6/1/01 500,000 500,000 538,750
------------ --------- ---------
Sub-Total Rule 144A Convertible Bonds 10,810,000 8,342,179 8,656,250
------------ --------- ---------
Bonds - 1.06%
Clark Schwebel, Inc. 10.500 4/15/06 300,000 300,000 309,750
Remington Products Company 11.000 5/15/06 600,000 595,506 594,000
SFX Broadcasting, Inc. 10.750 5/15/06 1,000,000 1,000,000 992,500
----------- --------- ---------
Sub-Total Rule 144A Bonds $ 1,900,000 1,895,506 1,896,250
=========== --------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Market Value
Cost at 6/30/96
Rule 144A Securities: (A) (Continued) Shares (Note 2B) (Note 2A)
---------- ----------- -----------
<S> <C> <C> <C>
Convertible Preferred Stock -- 1.68%
Greenfield Capital Trust, Inc. 9,600 $ 493,200 $ 496,800
SFX Broadcasting, Inc. 15,000 750,000 780,000
Time Warner, Inc. 1,500 1,500,000 1,468,125
Unocal Corporation 5,000 250,000 278,750
----------- -----------
Sub-Total Rule 144A Convertible
Preferred Stock 2,993,200 3,023,675
----------- -----------
Total Rule 144A Securities 13,230,885 13,576,175
----------- -----------
Total Corporate Restricted Securities 116,423,554 124,691,206
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Market Value
Interest Due Principal Cost at 6/30/96
Corporate Public Securities: Rate Date Amount (Note 2B) (Note 2A)
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Convertible Bonds -- 6.13%
California Microwave, Inc. 5.250% 12/15/03 $ 490,000 403,375 411,600
Comcast Corporation 1.125 4/15/07 2,990,000 1,546,920 1,450,150
Hilton Hotels, Inc. 5.000 5/15/06 2,000,000 2,000,000 2,130,000
Hollinger, Inc. 0.000 10/15/13 4,000,000 1,317,257 1,315,200
Magna International, Inc. 5.000 10/15/02 600,000 613,125 624,000
Mascotech, Inc. 4.500 12/15/03 800,000 645,250 636,000
MEDIQ Incorporated 7.500 7/15/03 1,000,000 1,000,000 840,000
Republic of Italy 5.000 6/28/01 300,000 300,000 310,500
Savoy Pictures Entertainment, Inc. 7.000 7/1/03 1,250,000 1,287,500 962,500
Tenet Healthcare Corporation 6.000 12/1/05 850,000 850,000 850,000
Time Warner, Inc. 0.000 6/22/13 2,000,000 789,201 835,000
United States Cellular Corporation 6.089 6/15/15 2,000,000 652,193 670,000
------------ ----------- -----------
Total Convertible Bonds $ 18,280,000 11,404,821 11,034,950
============ ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Warrants Market Value
Interest Due or Principal Cost at 6/30/96
Corporate Public Securities: (Continued) Rate Date Amount (Note 2B) (Note 2A)
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Bonds -- 23.13%
American Rice, Inc. 13.000% 7/31/02 $ 1,250,000 $ 1,180,549 $ 1,118,750
Atlas Air, Inc. 12.250 12/1/02 2,000,000 2,000,000 2,175,000
Cabot Safety Acquisition Corporation 12.500 7/15/05 1,000,000 1,000,000 1,110,000
Central Rents, Inc. 12.875 12/15/03 1,880,000 1,755,412 1,880,000
CF Cable TV, Inc. 9.125 7/15/07 650,000 650,000 646,750
Collins & Aikman Products 11.500 4/15/06 1,000,000 1,000,000 1,012,500
Consolidated Cigar Corporation 10.500 3/1/03 500,000 500,000 518,750
Crown Packaging Ltd. 10.750 11/1/00 750,000 750,000 652,500
Data Documents, Inc. 13.500 7/15/02 3,028,000 3,033,290 3,270,240
Decorative Homes Accents, Inc. 13.000 6/30/02 1,000,000 1,000,000 790,000
Doane Products Company 10.625 3/1/06 150,000 150,000 150,000
Florist Transworld Delivery, Inc. 14.000 12/15/01 1,175,000 1,139,015 1,157,375
Foodbrands America, Inc. 10.750 5/15/06 1,750,000 1,750,000 1,750,000
Greenwich Air Services, Inc. 10.500 6/1/06 1,500,000 1,500,000 1,485,000
Harman International Industries Incorporated 12.000 8/1/02 1,000,000 992,770 1,085,000
Harrah's Operating Company, Inc. 8.750 3/15/00 1,000,000 957,400 1,005,000
Harvard Industries, Inc. 11.125 8/1/05 350,000 354,813 329,000
Hosiery Corporation of America 13.750 8/1/02 1,000,000 987,800 1,085,000
Imax Corporation 7.000 3/1/01 1,000,000 937,701 970,000
Indah Kiah International Corporation 11.875 6/15/02 1,000,000 1,000,000 1,050,000
International Wire Group, Inc. 11.750 6/1/05 750,000 750,000 731,250
Ivex Packaging Corporation 12.500 12/15/02 250,000 266,562 263,125
Jordan Industries, Inc. 10.375 8/1/03 1,000,000 1,000,000 950,000
Key Plastics, Inc. 14.000 11/15/99 750,000 760,462 759,375
MEDIQ/PRN Life Support Services, Inc. 12.125 7/1/99 1,000,000 1,000,000 1,080,000
Northwest Airlines Corp. 12.091 12/31/00 894,384 927,924 939,104
Northwest Airlines Corp. 10.150 1/2/05 750,000 750,000 755,625
Peoples Telephone Company, Inc. 12.250 7/15/02 750,000 750,000 727,500
Pronet, Inc. 10.875 9/15/06 1,250,000 1,251,875 1,200,000
RXI Holdings, Inc. 14.000 7/15/02 2,800,000 2,754,740 2,240,000
Telemundo Group, Inc. 7.000 2/15/06 1,250,000 1,143,351 1,112,500
Telex Communications, Inc. 12.000 7/15/04 1,500,000 1,500,000 1,605,000
Trans-Resources, Inc. 11.875 7/1/02 1,000,000 1,032,500 950,000
Tultex Corporation 10.625 3/15/05 1,000,000 1,000,000 1,025,000
USAir, Inc. 9.625 2/1/01 1,000,000 1,000,000 940,000
ValuJet, Inc. 10.250 4/15/01 700,000 702,500 540,750
Van De Kamps, Inc. 12.000 9/15/05 350,000 350,000 372,750
Venture Holdings Trust 9.750 4/1/04 1,300,000 1,300,000 1,072,500
Waban, Inc. 11.000 5/15/04 500,000 500,000 520,000
Worldcorp, Inc. 13.875 8/15/97 235,000 229,125 225,600
Wyndham Hotel Corp. 10.500 5/15/06 350,000 350,000 348,250
-------------- ------------ ------------
Total Bonds $ 42,362,384 41,957,789 41,599,194
============== ------------ ------------
Warrants - .09%
Central Rents, Inc. (B) 1,880 shs. 67,837 112,800
RXI Holdings, Inc. (B) 2,800 shs. 50,540 28
Western Transmedia Co., Inc. (B) 183,117 shs. 45,780 45,779
------------ ------------
Total Warrants 164,157 158,607
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Market Value
Cost at 6/30/96
Corporate Public Securities: (Continued) Shares (Note 2B) (Note 2A)
---------- ------------ ------------
<S> <C> <C> <C>
Common Stock - 9.62%
America West Airlines, Inc. (B) 4,900 $ 98,294 $ 107,800
Amerisource Health Corporation (B) 19,250 673,750 640,063
AMR Corp. (B) 10,127 800,000 921,519
Benson Petroleum, Ltd. (B) 200,000 154,408 146,660
C-Tec Corporation 17,500 481,250 520,625
Check Point Software Technologies Ltd. (B) 2,100 29,400 50,400
Computer Horizons Corporation 38,850 342,825 1,534,575
Continental Airlines, Inc. (B) 17,500 936,250 1,080,625
Data Documents, Inc. (B) 33,894 52 415,202
Decorative Homes Accents, Inc. (B) 1,000 -- 12,125
Diamond Offshore Drilling, Inc. (B) 5,250 258,562 300,563
Donna Karan International Inc. (B) 3,500 84,000 98,000
Energy Conversion Devices, Inc. (B) 19,250 346,500 437,938
Entremed, Inc. (B) 52,500 800,625 787,500
Esmor Correctional Services, Inc. (B) 9,553 53,206 145,683
Extended Stay America, Inc. (B) 35,000 1,085,000 1,102,500
Foodbrands America Inc. (B) 52,500 413,437 675,938
Florist Transworld Delivery, Inc. 14,686 41,258 70,493
GTech Holdings Corporation (B) 35,000 1,006,250 1,036,875
Harvard Industries, Inc. (B) 17,500 416,500 214,375
HFS Inc. (B) 17,500 1,085,000 1,225,000
LCS Industries, Inc. 35,000 546,831 420,000
MEDIQ Incorporated (B) 150,000 574,147 881,250
Staffing Resources, Inc. 105,000 577,500 2,625,000
Sweetwater, Inc. (B) 26,000 182,000 78,000
Vans, Inc. (B) 8,750 166,250 148,750
Wackenhut Corporation 26,250 616,875 482,344
Western Transmedia Co., Inc. (B) 405,590 760,889 760,481
WMS Industries, Inc. (B) 15,900 366,284 391,538
------------ ------------
Total Common Stock 12,897,343 17,311,822
============ ============
Convertible Preferred Stock - 1.36%
Integon Corp. 9,700 485,000 560,175
Kmart Financing, Inc. 5,900 295,000 320,075
Merrill Lynch & Co. 26,500 606,187 586,445
Occidental Petroleum Corporation 15,900 795,000 987,867
RXI Holdings, Inc. 209,170 209,170 209
------------ ------------
Total Convertible Preferred Stock 2,390,357 2,454,771
------------ ------------
Total Corporate Public Securities 68,814,467 72,559,344
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
<TABLE>
<CAPTION>
Market Value
Due Principal Cost at 6/30/96
Short-Term Securities: Yield Date Amount (Note 2B) (Note 2A)
--------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Commercial Paper - .24%
Public Service Electric and Gas Company 5.672% 7/1/96 $ 425,000 $ 425,000 $ 425,000
------------ ------------ ------------
Total Short-Term Securities $ 425,000 425,000 425,000
============ ------------ ------------
Total Investments - 109.89% $185,663,021 197,675,550
============ ------------
Other Assets - 3.26 5,873,072
Liabilities - (13.15) (23,664,541)
------ ------------
Total Net Assets - 100.00% $179,884,081
====== ============
</TABLE>
(A) In each of the convertible note, warrant, convertible preferred and common
stock investments, the issuer has agreed to provide certain registration
rights.
(B) Non-income producing security.
INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
Fair Value
at 6/30/96
Corporate Restricted Securities: (Note 2A)
-----------
<S> <C>
ADVERTISING - 1.53%
Ammirati & Puris, Inc. $ 1,890,875
Summey Outdoor Advertising, Inc. 865,625
-----------
2,756,500
-----------
AUTO PARTS - .36%
Monro Muffler Brake, Inc. 643,788
-----------
BEVERAGES - .10%
Delta Beverage Group, Inc. 181,486
-----------
BUILDING MATERIALS - 3.79%
Highland Homes Holdings, Inc. 3,017,309
Supreme Industries, Inc. 3,806,400
-----------
6,823,709
-----------
COMMUNICATIONS - 5.33%
Classic Sports Partners, L.P. 515,555
Home Shopping Network 1,230,000
Latin Communications Group 3,147,465
SFX Broadcasting, Inc. 1,772,500
Telex Communications, Inc. 9,239
Time Warner, Inc. 1,468,125
Turner Broadcasting System, Inc. 1,444,575
-----------
9,587,459
-----------
<CAPTION>
Fair Value
at 6/30/96
Corporate Restricted Securities: (Continued) (Note 2A)
-----------
<S> <C>
ELECTRICAL EQUIPMENT/
ELECTRONICS - 12.32%
Catalina Lighting, Inc. $ 1,398,600
Clark Schwebel, Inc. 309,750
CompuCom Systems, Inc. 8,644,364
Control Devices, Inc. 3,382,557
Exide Electronics Group, Inc. 2,069,954
Intermetrics, Inc. 2,183,333
Mercury Computer Systems, Inc. 2,295,000
Nu Horizons Electronics Corp. 1,561,804
Thermo Electron Corporation 307,500
-----------
22,152,862
-----------
HEALTH CARE - 3.46%
D&K Wholesale Drug, Inc. 2,352,611
PRN Holdings, Inc. 3,410,386
Renal Treatment Centers, Inc. 458,375
-----------
6,221,372
JEWELRY - .13% -----------
Wright & Lato, Inc. 234,201
-----------
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
Schedule of Investments (Continued)
June 30, 1996
INDUSTRY CLASSIFICATION (Continued)
<TABLE>
<CAPTION>
Fair Value
at 6/30/96
Corporate Restricted Securities: (Continued) (Note 2A)
------------
<S> <C>
MANUFACTURING-INDUSTRIAL AND
CONSUMER PRODUCTS - 19.07%
Consumer Product Enterprises, Inc. $ 2,625,453
Elgin National Industries, Inc. 2,198,056
Fleming Acquisition Corporation 2,840,800
Hein-Werner Corp. 1,529,591
Hussey Seating Company 4,106,844
Imax Corporation 597,000
Jackson Products, Inc. 2,822,826
Kuhlman Corporation 734,440
Maxtec International Corp. 2,443,294
PAR Acquisition Corp. 1,166,615
Remington Products Company 594,000
Sequentia, Inc. 2,473,461
Star International Holdings, Inc. 2,396,351
Unidata, Inc. 2,838,625
Unipac Corporation 1,482,439
U.S. Netting, Inc. 2,507,489
Victory Capital LLC 950,000
------------
34,307,284
------------
METAL FABRICATING - .73%
Engel Industries, Inc. 452,500
Molton Metal Technology 859,500
------------
1,312,000
------------
MISCELLANEOUS - 3.62%
Greenfield Capital Trust, Inc. 496,800
Marriott International, Inc. 550,000
NM Holdings LLC 1,977,756
Protein Genetics, Inc. 1,905,611
Softkey International, Inc. 1,044,050
United Waste Systems, Inc. 538,750
------------
6,512,967
------------
<CAPTION>
Fair Value
at 6/30/96
Corporate Restricted Securities: (Continued) (Note 2A)
------------
<S> <C>
OIL AND GAS SERVICE - 9.46%
American Exploration Company $ 3,011,126
BP Prudhoe Bay Royalty Trust 392,700
Garnet Resources Corporation 395,000
Hardy Oil & Gas USA, Inc. 2,987,385
Maloney Industries, Inc. 2,594,930
PanEnergy Corporation 4,010,958
TransMontaigne Oil Company 3,338,962
Unocal Corporation 278,750
------------
17,009,811
------------
PUBLISHING - .11%
Edmund Publications Corporation 200,000
------------
RECREATIONAL SUPPLIES/
EQUIPMENT - .62%
The Coast Distribution System 1,116,962
------------
RETAILING - 4.58%
Cains Foods, L.P. 2,719,026
Fay's, Inc. 677,322
Grand Metropolitan PLC 657,000
Pharmaceutical Buyers, Inc. 1,433,873
Rent-Way, Inc. 2,263,018
Sunglass Hut International, Inc. 484,500
------------
8,234,739
------------
SERVICES - 4.11%
Corrections Corporation of America 439,945
Piedmont Holding, Inc. 3,424,383
RailTex, Inc. 3,441,738
Thermo Terratech, Inc. 90,000
------------
7,396,066
------------
Total Corporate Restricted
Securities - 69.32% $124,691,206
============
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS MASSMUTUAL CORPORATE INVESTORS
(Unaudited)
1. History
MassMutual Corporate Investors (the "Trust") is a closed-end, non-
diversified investment company. Massachusetts Mutual Life Insurance Company
("MassMutual") acts as its investment adviser.
The Trust commenced operations in 1971 as a Delaware corporation. Pursuant to
an Agreement and Plan of Reorganization dated November 14, 1985, approved by
shareholders, the Trust was organized as a Massachusetts business trust
effective November 28, 1985.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed
consistently by the Trust in the preparation of the financial statements in
conformity with generally accepted accounting principles.
A. Valuation of Investments:
Nearly all securities which are acquired by the Trust directly from the
issuers and shares into which such securities may be converted or which may
be purchased on the exercise of warrants attached to such securities will be
subject to legal or contractual delays in or restrictions on resale and will
therefore be "restricted securities". Generally speaking, as contrasted
with open-market sales of unrestricted securities which may be effected
immediately if the market is adequate, restricted securities can be sold only
in a directly negotiated transaction to a limited number of purchasers or in
a public offering for which a registration statement is in effect under the
Securities Act of 1933.
The value of restricted securities, and of any other assets for which there
are no reliable market quotations, is the fair value as determined in good
faith by the Trustees. Each restricted security is valued by the Trustees as
of the time of the acquisition thereof and quarterly thereafter. The Trustees
have established guidelines to aid in the valuation of each security.
Generally, restricted securities are initially valued at cost or less at the
time of acquisition by the Trust. Values greater or less than cost are used
thereafter for restricted securities in appropriate circumstances. Among the
factors ordinarily considered are the existence of restrictions upon the sale
of the security by the Trust; an estimate of the existence and extent of a
market for the security; the estimated period of time during which the
security will not be freely marketable; the estimated expenses of registering
or otherwise qualifying the security for public sale; estimated underwriting
commissions if underwriting would be required to effect a sale; in the case
of a convertible security, whether or not it would trade on the basis of its
stock equivalent; if it is a debt obligation which would trade independently
of any equity equivalent, the current yields on comparable securities; the
estimated amount of the floating supply of such securities available; the
proportion of the issue held by the Trust; any changes in the financial
condition and prospects of the issuers; the existence of merger proposals or
tender offers affecting the issuers; and in addition any other factors
affecting fair value, all in accordance with the Investment Company Act of
1940. In making valuations, opinions of counsel are relied upon as to whether
or not securities are restricted securities and as to the legal requirements
for public sale.
When market quotations are readily available for unrestricted securities of
an issuer, restricted securities of the same class are generally valued at a
discount from the market price of such unrestricted securities. The Trustees,
however, consider all factors in fixing any discount, including the filing of
a registration statement for such securities under the Securities Act of 1933
and any other developments which are likely to increase the probability that
the securities may be publicly sold by the Trust without restriction.
The Board of Trustees of the Trust meets at least once in each quarter to
value the Trust's portfolio securities as of the close of business on the
last business day of the preceding quarter. This valuation requires the
approval of a majority of the Trustees of the Trust, including a majority of
Trustees who are not interested persons of the Trust (otherwise than as
Trustees) or of MassMutual. In making valuations, the Trustees will consider
reports by MassMutual analyzing each portfolio security in accordance with
the relevant factors referred to above. MassMutual has agreed to provide such
reports to the Trust at least quarterly.
The financial statements include restricted securities valued at $124,691,206
(69.32% of net assets) as of June 30, 1996 ($102,803,550 at June 30, 1995)
whose values have been estimated by the Board of Trustees in the absence of
readily ascertainable market values. Due to the inherent uncertainty of
valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and
the differences could be material.
- --------------------------------------------------------------------------------
22
<PAGE>
Notes to Financial Statements (Continued)
The values for corporate public securities are stated at the last reported
sales price or at prices based upon quotations obtained from brokers and
dealers as of June 30, 1996, subject to discount where appropriate, and are
approved by the Trustees.
Short-term securities with more than sixty days to maturity are valued at
market and short-term securities having a maturity of sixty days or less are
valued at amortized cost which approximates market value.
B. Accounting for Investments:
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
The cost basis of debt securities is not adjusted for amortization of premium
or accrual of discount since the Trust does not generally intend to hold such
investments until maturity; however, the Trust has elected to accrue for
financial reporting purposes, certain discounts which are required to be
accrued for federal income tax purposes.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
The Trust does not accrue income when payment is delinquent or when
management believes payment is questionable.
C. Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
D. Federal Income Taxes:
No provision for federal taxes on net investment income and short-term
capital gains is considered necessary because the Trust has elected to be
taxed as a "regulated investment company" under the Internal Revenue Code,
and intends to maintain this qualification and to distribute substantially
all of its net taxable income to its shareholders. In any year when net long-
term capital gains are realized by the Trust, management, after evaluating
the prevailing economic conditions, will recommend to the Trustees either to
designate the net realized long-term gains as undistributed and to pay the
federal capital gains taxes thereon or to distribute such net gains.
3. Management Fee
Under an investment services contract, MassMutual has agreed to invest for
its general account concurrently with the Trust in each restricted security
purchased by the Trust. MassMutual, in addition to originating and sharing in
the purchase of such securities, represents the Trust in any negotiations
with issuers, investment banking firms, securities brokers or dealers and
other institutions or investors relating to the Trust's investments.
MassMutual provides a continuing review of the investment operations of the
Trust. MassMutual also provides the Trust with office space and office
equipment, accounting and bookkeeping services, and necessary executive,
clerical and secretarial personnel for the performance of the foregoing
services.
Under the investment services contract, as amended July 1, 1988, the Trust
pays MassMutual a quarterly base rate (the "Base Fee Rate") of 5/16
of 1% of the value of the Trust's net assets as of the end of each fiscal
quarter, approximately equivalent to 1.25% of the net asset value of the
Trust on an annual basis, plus or minus a quarterly performance adjustment
(the "Performance Adjustment") of up to 1/16 of 1%, approximately
equivalent to .25% on an annual basis.
The Performance Adjustment is based on the Trust's performance as compared to
a benchmark rate of return (the "Target Rate") equal to 5.0 percentage
points plus an unweighted, arithmetic average of the rates of return on the
Standard & Poor's Industrial Stock Price Index and the Lehman Brothers
Intermediate Corporate Bond Index over a rolling three-year period (the
"Measurement Period") comprising the twelve quarters ending on the last day
of each quarter (the "Valuation Date"). The Performance Adjustment is equal
to 5% of the difference between the Trust's actual rate of return over the
Measurement Period and the Target Rate. If the Trust's actual rate of return
exceeds the Target Rate, the Base Fee Rate is increased by an amount equal to
the Performance Adjustment; if the Trust's actual rate of return is less than
the Target Rate, the Base Fee Rate is reduced by the Performance Adjustment.
The advisory fee payable by the Trust is equal to the Base Fee Rate (as
adjusted by the Performance Adjustment) times the net asset value of the
Trust as of the Valuation Date. The Performance Adjustment for the quarter
ended June 30, 1996 was plus .0625%.
- --------------------------------------------------------------------------------
23
<PAGE>
Notes to Financial Statements (Continued)
4. Note Payable
On November 5, 1993, the Trust sold to MassMutual at par a $20,000,000 Senior
Fixed Rate Convertible Note due November 15, 2000 (the "Note") which accrues
at 5.33% per annum. The Note holder, at their option, can convert the
principal amount of the Note into common shares. The dollar amount of
principal converted would be converted into an equivalent dollar amount of
common shares based upon the average price of the common shares for ten
business days prior to the notice of conversion.
5. Purchases and Sales of Investments
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
6/30/96 6/30/95
------------ ------------
Cost of Investments Acquired
----------------------------
<S> <C> <C>
Corporate restricted securities $ 22,730,200 $ 24,473,298
Corporate public securities 43,557,906 24,175,223
Short-term securities 137,113,899 157,371,979
<CAPTION>
Proceeds from Sales or Maturities
---------------------------------
<S> <C> <C>
Corporate restricted securities $ 23,418,933 $ 21,159,245
Corporate public securities 46,225,168 32,935,456
Short-term securities 139,963,296 149,377,580
</TABLE>
The aggregate cost of investments is the same for financial reporting and
federal income tax purposes as of June 30, 1996. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of June 30, 1996 is $12,012,529 and consists of $27,059,700 appreciation
and $15,047,171 depreciation.
The aggregate cost of investments was the same for financial reporting and
federal income tax purposes as of June 30, 1995. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of June 30, 1995 was $6,619,314 and consisted of $20,693,935 appreciation
and $14,074,621 depreciation.
6. Quarterly Results of Investment Operations (Unaudited)
<TABLE>
<CAPTION>
Per Per
Amount Share Amount Share
----------- ------ ----------- -----
March 31, 1996 March 31, 1995
------------------- ------------------
<S> <C> <C> <C> <C>
Investment income $ 3,739,245 $ 3,623,939
Net investment income 2,758,149 $ .65 2,738,763 $ .64
Net realized and unrealized (loss)
gain on investments (763,492) (.18) 5,667,087 1.33
<CAPTION>
June 30, 1996 June 30, 1995
------------------- ------------------
<S> <C> <C> <C> <C>
Investment income 3,735,914 3,721,895
Net investment income 2,701,597 .63 2,729,955 .64
Net realized and unrealized gain on
investments 9,604,490 2.26 14,705,181 3.45
</TABLE>
- --------------------------------------------------------------------------------
24
