<PAGE>
TO OUR SHAREHOLDERS JULY 31, 1998
We are pleased to present MassMutual Corporate Investors' report for the first
six months of 1998.
The net assets of the Trust continued their upward trend increasing to $25.16
per share at June 30, 1998 from $24.71 per share at March 31, 1998. The total
return for the Trust for the quarter was 3.49%, and 12.90% year-to-date, as
measured by change in net assets with reinvestment of dividends. By comparison,
the S&P Industrial Stock Index and the Lehman Government/Corporate Bond Index
were up 3.56% and 2.61%, respectively, for the quarter and 18.81% and 4.17%,
respectively, for the six months ended June 30, 1998.
Net investment income for the second quarter was $3,260,991 or 38.1 cents per
share compared to $3,435,337 or 40.1 cents per share a quarter ago. It should be
noted that we paid $15.9 million in dividends and taxes on our long-term gains
during the first quarter - money which, until paid, was sitting in income
generating investments. The second quarter's results did not benefit from the
temporarily high asset levels of the first quarter. A quarterly dividend of $.40
per share was declared and is payable on August 14, 1998 to shareholders of
record on July 31, 1998. A dividend of $.40 was paid a quarter ago.
In our private placement portfolio, there were several noteworthy events that
occurred during the quarter. Jackson Products Inc., a private placement
investment made in 1995, prepaid its notes and preferred stock at a premium,
returning more than our entire original investment, and left us with all our
equity upside. In 1996, we made an investment in convertible subordinated notes
of The Budget Group. The company converted our notes in June, and gave us
additional shares in lieu of a prepayment premium. These shares became freely
tradable as of July 17, 1998 and represent a substantial unrealized capital gain
for the Trust. In October of 1997, our convertible subordinated notes of
Rent-Way were converted into common stock. The common stock was fully registered
but the Fund was subject to a Lock-Up Agreement, which has now expired making
the stock freely tradable. These events in the portfolio illustrate how the Fund
is able to add value from its private placement investments by offering
opportunity for capital gains.
New private placement investments made during the quarter included Dealer
Solutions Holdings Inc., Grand Lyon Enterprises LLC, and an add-on position in
Golden Bear Oil Specialty. These investments have a weighted average coupon of
12% on their fixed income components. (A brief description of these investments
is provided in the Schedule of Investments.)
We realized net capital gains of over $2.2 million (or $.26 per share) during
the quarter. Nearly $1.3 million of these gains is attributable to the sale of
securities from our public investments. This brings our year-to-date capital
gains to over $9.1 million (or $1.07 per share.) Of the $1.07 per share, $.55
per share represents net short-term gains which, if not offset, must be
distributed to shareholders each year.
The Trustees and management appreciate the continued interest and support of the
shareholders of Corporate Investors.
Sincerely,
/s/ Stuart H. Reese
Stuart H. Reese
President
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES MASSMUTUAL CORPORATE INVESTORS
June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Investments (Notes 2A, 2B and 5)
(See Schedule of Investments)
Corporate restricted securities at fair value
(Cost 1998 - $156,823,176; 1997 - $152,342,683) $176,835,540 $159,255,782
Corporate public securities at market value
(Cost 1998 - $46,761,118; 1997 - $45,197,831) 51,574,409 48,661,820
Short-term securities at cost plus earned discount which
approximates market value 4,474,649 770,000
------------ ------------
232,884,598 208,687,602
Cash 427,625 229,270
Interest and dividends receivable, net 3,688,610 3,409,116
Receivable for investments sold 1,570,858 4,334,276
Other assets 16,212 8,669
------------ ------------
Total assets $238,587,903 $216,668,933
============ ============
Liabilities:
Payable for investments purchased $ 1,965,152 $ 1,871,000
Management fee payable (Note 3) 808,521 726,885
Note payable (Note 4) 20,000,000 20,000,000
Interest payable (Note 4) 136,211 136,211
Accrued expenses 72,456 98,963
------------ ------------
Total liabilities 22,982,340 22,833,059
------------ ------------
Net Assets:
Common shares, par value $1.00 per share;
an unlimited number authorized (Note 6) 8,569,162 8,513,448
Additional paid-in capital 95,644,211 94,333,993
Retained net realized gain on investments, prior years 73,493,073 57,447,542
Undistributed net investment income (Note 2D) 3,862,019 3,120,026
Undistributed net realized gain on investments 9,211,443 20,043,777
Net unrealized appreciation of investments (Notes 2A, 2B and 5) 24,825,655 10,377,088
------------ ------------
Total net assets 215,605,563 193,835,874
------------ ------------
Total liabilities and net assets $238,587,903 $216,668,933
============ ============
Common shares issued and outstanding (Note 6) 8,569,162 8,513,448
============ ============
Net asset value per share $ 25.16 $ 22.77
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
2
<PAGE>
STATEMENT OF OPERATIONS MASSMUTUAL CORPORATE INVESTORS
For the six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest $ 8,602,363 $ 7,935,645
Dividends 382,008 266,632
------------ ------------
Total income 8,984,371 8,202,277
------------ ------------
Expenses:
Management fee (Note 3) 1,600,884 1,398,254
Trustees' fees and expenses 65,155 52,700
Transfer Agent/Registrar's expenses 30,000 39,706
Interest (Note 4) 533,000 533,000
Reports to shareholders 12,000 14,520
Audit and legal 27,514 28,515
Other 19,490 11,072
------------ ------------
Total expenses 2,288,043 2,077,767
------------ ------------
Net investment income (1998 - $.78 per share; 1997 - $.72 per share) 6,696,328 6,124,510
------------ ------------
Net realized and unrealized gain (loss) on investments (Notes 2A and 2B):
Net realized gain on investments 9,193,310 20,043,777
Net change in unrealized appreciation/depreciation of investments 8,912,203 (1,579,352)
------------ ------------
Net gain on investments 18,105,513 18,464,425
------------ ------------
Net increase in net assets resulting from operations $ 24,801,841 $ 24,588,935
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
3
<PAGE>
STATEMENT OF CASH FLOWS MASSMUTUAL CORPORATE INVESTORS
For the six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash:
Cash flows from operating activities:
Interest and dividends received $ 8,501,895 $ 7,560,140
Interest expense paid (533,000) (533,000)
Operating expenses paid (1,750,052) (1,496,100)
Federal income tax paid (8,639,902) (6,210,942)
------------ ------------
Net cash used for operating activities (2,421,059) (679,902)
------------ ------------
Cash flows from investing activities:
Change in short-term portfolio securities, net (1,587,745) 109,745
Purchase of portfolio securities (58,337,903) (60,650,337)
Proceeds from disposition of portfolio securities 71,985,147 70,858,922
------------ ------------
Net cash provided by investing activities 12,059,499 10,318,330
------------ ------------
Net cash provided by operating and investing activities 9,638,440 9,638,428
------------ ------------
Cash flows from financing activities:
Increase in receipts for shares issued on reinvestment of dividends 1,365,931 --
Cash dividends paid from net investment income (6,189,199) (5,577,475)
Cash dividends paid from net realized gain on investments (4,467,858) (3,915,019)
------------ ------------
Net cash used for financing activities (9,291,126) (9,492,494)
------------ ------------
Net increase in cash 347,314 145,934
Cash - beginning of year 80,311 83,336
------------ ------------
Cash - end of period $ 427,625 $ 229,270
============ ============
Reconciliation of net increase (decrease) in net assets to net cash from
operating and investing activities:
Net increase in net assets resulting from operations $ 24,801,841 $ 24,588,935
------------ ------------
(Increase) decrease in investments (6,798,062) (6,257,981)
(Increase) decrease in interest and dividends receivable, net (118,221) (392,715)
(Increase) decrease in receivable for investments sold (1,411,146) (3,651,742)
(Increase) decrease in other assets (16,212) (8,669)
Increase (decrease) in payable for investments purchased 1,815,152 1,522,875
Increase (decrease) in management fee payable 85,301 80,875
Increase (decrease) in accrued expenses (80,311) (32,208)
Increase (decrease) in accrued taxes (8,639,902) (6,210,942)
------------ ------------
Total adjustments to net assets from operations (15,163,401) (14,950,507)
------------ ------------
Net cash provided by operating and investing activities $ 9,638,440 $ 9,638,428
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
4
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS MASSMUTUAL CORPORATE INVESTORS
For the six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,696,328 $ 6,124,510
Net realized gain on investments 9,193,310 20,043,777
Net change in unrealized appreciation/depreciation of investments 8,912,203 (1,579,352)
------------- -------------
Net increase in net assets resulting from operations 24,801,841 24,588,935
Increase in receipts for shares issued on reinvestment of dividends 1,365,931 --
Dividends to shareholders from:
Net investment income (1998 - $.40 per share; 1997 - $.36 per share) (3,420,627) (3,022,274)
------------- -------------
Total increase (decrease) 22,747,145 21,566,661
Net Assets, beginning of year 192,858,418 172,269,213
------------- -------------
Net Assets, end of period (including undistributed net investment income
in 1998 - $3,862,019; 1997 - $3,120,026) $ 215,605,563 $ 193,835,874
============= =============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
5
<PAGE>
SELECTED PER SHARE DATA MASSMUTUAL CORPORATE INVESTORS
Selected data for each common share outstanding for the periods ended:
<TABLE>
<CAPTION>
For the
six months For the
ended 6/30/98 year ended
(Unaudited) 12/31/97
------------- ----------
<S> <C> <C>
Net asset value:
Beginning of year $ 22.65 $ 20.23
---------- ----------
Net investment income .78 1.49
Net realized and unrealized gain on investments 2.13 2.87
---------- ----------
Total from investment operations 2.91 4.36
---------- ----------
Dividends from net investment income to common shareholders (0.40) (1.42)
Distributions from net realized gain on investments to common shareholders -- (.52)
---------- ----------
Total distributions (0.40) (1.94)
---------- ----------
Net asset value:
End of period $ 25.16 $ 22.65
========== ==========
Per share market value:
End of period $ 25.13 $ 25.75
========== ==========
Total investment return:
Market value (.86)%* 52.43%
Net asset value 12.90%* 27.14%
Net assets (in millions):
End of period $ 215.60 $ 192.86
Ratio of operating expenses to average net assets .86%* 1.69%
Ratio of interest expenses to average net assets .26%* .56%
Ratio of total expenses to average net assets 1.12%* 2.25%
Ratio of net investment income to average net assets 3.28%* 6.66%
Portfolio turnover 27.34%* 66.23%
</TABLE>
*Percentages represent results for the period and are not annualized.
All per share amounts have been restated after giving effect to the two-for-one
split of the Trust's common shares authorized on December 19, 1997 effective
January 20, 1998.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6
<PAGE>
SCHEDULE OF INVESTMENTS MASSMUTUAL CORPORATE INVESTORS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities - 82.02%: (A) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Private Placement Investments - 73.98%
AccTech, LLC
A designer and marketer of specialized cleaning
products.
Senior Floating Rate Revolving Credit Note $ 812,520 10/31/96 $ 812,520 $ 812,520 $ 451,761
due 2002
Senior Secured Series A Floating Rate Note $ 715,389 10/31/96 704,665 715,389 397,756
due 2002
10.1% Senior Secured Series A Note due 2002 $ 1,018,222 10/31/96 992,156 1,018,222 734,546
12% Senior Secured Series B Note due 2004 $ 1,098,000 10/31/96 1,155,206 1,005,128 789,901
Membership Interests (B) 5 int. 10/31/96 264,080 228,524 165,050
Warrant, exercisable until 2004, to purchase 3 int. 10/31/96 -- 109,800 --
Membership Interests at $.01 per interest (B)
------------ ------------ ------------
3,928,627 3,889,583 2,539,014
------------ ------------ ------------
Adventure Entertainment Corporation
An owner and operator of themed family
entertainment centers.
7% Redeemable Series B Preferred Stock 1,716 shs. 10/31/97 167,270 1,691,286 1,689,422
Warrant, exercisable until 2005, to purchase 6,447 shs. 10/31/97 64 25,005 64
Class A Common Stock at $.01 per share (B)
------------ ------------ ------------
167,334 1,716,291 1,689,486
------------ ------------ ------------
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 $ 583,334 11/23/93 571,434 583,334 597,859
------------ ------------ ------------
Ardent Software, Inc. - O.T.C.
A manufacturer and distributor of database
management software.
Common Stock (B) 83,770 shs. 12/14/95 251,310 686,750 921,470
------------ ------------ ------------
Associated Vintage Group, Inc.
A provider of custom wine production services in
the United States.
11% Senior Subordinated Note due 2005 $ 3,335,000 3/19/97 3,274,636 3,184,022 3,436,718
Common Stock (B) 31,350 shs. 3/19/97 123,750 165,000 123,751
Warrant, exercisable until 2005, to purchase 94,107 shs. 3/19/97 94,107 173,346 94,107
common stock at $.01 per share (B)
------------ ------------ ------------
3,492,493 3,522,368 3,654,576
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Averstar, Inc.
A provider of software systems, services and products
to a variety of information technology users.
Senior Floating Rate Revolving Term Note $ 1,292,177 8/31/95 $ 1,292,177 $ 1,292,177 $ 1,292,177
due 2002
13% Senior Subordinated Note due 2002 $ 799,318 8/31/95 8,135 724,237 846,558
Class A Common Stock (B) 13,453 shs. 8/31/95 15,799 18,384 1,665
Class B Common Stock (B) 37,200 shs. 8/31/95 43,689 50,837 4,605
Class G Common Stock (B) 96,846 shs. 8/31/95 113,733 104,000 11,989
Class A Common Stock of I E S Holdings (B) 2,941 shs. 2/27/98 -- -- --
Class B Common Stock of I E S Holdings (B) 8,134 shs. 2/27/98 -- -- --
Warrants of I E S Holdings (B) 21,176 shs. 2/27/98 -- -- --
------------ ------------ ------------
1,473,533 2,189,635 2,156,994
------------ ------------ ------------
Beta Brands, Inc. - T.S.E.
A manufacturer of hard candy and chocolate-coated
products sold primarily to the Canadian market.
Senior Secured Tranche A Floating Rate $ 2,294,000 12/23/97 2,273,813 2,294,000 2,275,189
Note due 2004
14.75% Senior Secured Tranche B Note due $ 664,510 12/23/97 691,090 664,510 691,090
2005
Limited Partnership Interests of CM Equity 811,168 int. 12/22/97 648,934 811,168 648,934
Partners (B)
Warrant, exercisable until 2005, to purchase 214,419 shs. 12/23/97 2,144 -- 2,144
common stock at $.81 per share (B)
------------ ------------ ------------
3,615,981 3,769,678 3,617,357
------------ ------------ ------------
Budget Group, The - O.T.C.
An operator of Budget Rent-A-Car franchises, retail
used car sales facilities and van pool territories.
Common Stock 107,645 shs. 12/18/96 1,798,440 2,241,254 3,265,949
------------ ------------ ------------
C&K Manufacturing and Sales Company
A manufacturer and distributor of branded
packaging and supply products.
Senior Secured Floating Rate Revolving $ 651,700 8/29/96 651,700 651,700 325,850
Credit Facility due 2002
Senior Secured Series A Floating Rate Term $ 2,343,234 8/29/96 2,318,161 2,343,234 1,171,617
Note due 2002
12% Series B Term Note due 2004 $ 533,000 8/29/96 524,738 510,317 266,500
Membership Interests (B) 266 int. 8/29/96 212,800 196,601 26,600
Warrant, exercisable until 2004, to purchase 16 int. 8/29/96 1 26,650 --
Membership Interests at $.01 per interest (B)
------------ ------------ ------------
3,707,400 3,728,502 1,790,567
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
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 $ 1,513,512 $ 1,528,798
11.5% Senior Subordinated Note due 2004 $ 945,945 9/29/95 895,706 907,964 966,756
8% Junior Subordinated Convertible Note $ 108,108 9/29/95 108,108 108,108 134,086
due 2004, convertible into partnership points
at $1,388.89 per point
Warrant, exercisable until 2006, to purchase 39 pts. 9/29/95 50,261 50,261 62,856
partnership points at $.01 per point (B)
------------ ------------ ------------
2,567,587 2,579,845 2,692,496
------------ ------------ ------------
Capitol Vial, Inc.
A producer of plastic vial containers.
19% Senior Subordinated Note due 2004 $ 3,605,788 12/30/97 3,530,066 3,605,788 3,557,831
Common Stock (B) 66 shs. 12/30/97 263 328 263
------------ ------------ ------------
3,530,329 3,606,116 3,558,094
------------ ------------ ------------
Catalina Lighting, Inc. - N.Y.S.E.
A designer, importer and distributor of residential
and office lighting fixtures.
8% Convertible Subordinated Note due $ 1,500,000 3/31/94 1,420,050 1,500,000 1,336,050
2002, convertible into common stock at $7.31 ------------ ------------ ------------
per share
Chaparral Resources, Inc. - O.T.C.
An international oil and gas exploration and
production company.
Common Stock (B) 9,838 shs. 12/3/97 6,395 6,395 14,942
------------ ------------ ------------
Coast Distribution System, The - A.S.E.
A wholesale distributor of recreational vehicle and
marine parts and accessories.
11.2% Senior Subordinated Secured Note $ 116,750 6/26/89 120,474 116,750 104,188
due 1999
Common Stock (B) 41,279 shs. 6/27/85 213,001 226,624 147,058
------------ ------------ ------------
333,475 343,374 251,246
------------ ------------ ------------
Consumer Product Enterprises, Inc.
A manufacturer of colored acrylic felt for
consumer use.
10.75% Senior Secured Term Note due 2003 $ 1,214,205 12/8/95 1,226,772 1,214,205 1,223,069
12% Senior Subordinated Note due 2005 $ 800,575 12/8/95 803,858 763,097 806,899
Common Stock (B) 184,560 shs. 12/8/95 138,420 184,560 138,420
Warrant, exercisable until 2005, to purchase 138,420 shs. 12/8/95 1,384 50,853 1,384
common stock at $.01 per share (B)
------------ ------------ ------------
2,170,434 2,212,715 2,169,772
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Control Devices, Inc. - O.T.C.
A producer of high quality electromechanical circuit
protector devices and photo-optic sensors.
Common Stock (B) 290,333 shs. (*) $ 43,737 $ 26,242 $ 3,585,611
------------ ------------ ------------
D&K Healthcare Resources, Inc. - O.T.C.
A wholesale pharmaceutical distribution company.
Common Stock (B) 265,489 shs. 12/29/87 875,000 875,000 5,422,621
------------ ------------ ------------
Dealer Solutions Holdings, Inc.
A vertical application software company.
Convertible Preferred Stock (B) 222,222 shs. 5/12/98 500,000 500,000 400,000
Warrant to purchase common stock
at $.01 per share (B) 43,111 shs. 5/12/98 -- -- 431
------------ ------------ ------------
500,000 500,000 400,431
------------ ------------ ------------
Delta Beverage Group, Inc.
A Pepsi soft drink bottler.
Common Stock (B) 966 shs. 3/8/88 181,486 2,006,380 198,118
------------ ------------ ------------
Diversco, Inc./DHI Holdings, Inc. A contract provider of
janitorial and equipment maintenance services and
temporary production labor to industrial customers.
Senior Floating Rate Term Note due 2002 $ 404,566 10/24/96 402,099 404,566 402,908
10.16% Senior Term Note due 2002 $ 1,213,699 10/24/96 1,215,155 1,213,699 1,242,949
12% Senior Subordinated Note due 2003 $ 1,249,000 10/24/96 1,277,852 1,127,740 1,332,933
Membership Interests of MM/Lincap Diversco
Investments Ltd., LLC (B) 2,992 int. 10/24/96 224,393 299,190 224,392
Warrant, exercisable to 2003, to purchase 1,791 shs. 10/24/96 18 147,609 18
Common stock of DHI Holdings, Inc.
at $.01 per share (B)
------------ ------------ ------------
3,119,517 3,192,804 3,203,200
------------ ------------ ------------
Eagle Pacific Industries, Inc. - O.T.C.
An extruder of small and medium diameter plastic
pipe and tubing in the United States.
8% Redeemable Convertible Preferred Stock, 3,300 shs. 5/9/97 3,286,140 3,300,000 3,398,670
convertible into common stock at $4.26 per share ------------ ------------ ------------
(*)7/29/94 and 10/8/96.
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Evans Consoles, Inc.
A designer and manufacturer of consoles and control
center systems.
Senior Secured Floating Rate Revolving $ 100,000 3/2/98 $ 100,000 $ 100,000 $ 100,000
Credit Facility due 2005
Senior Secured Tranche A Floating Rate $ 1,280,000 3/2/98 1,270,272 1,280,000 1,270,656
Note due 2005
8.85% Senior Secured Tranche A Note $ 1,280,000 3/2/98 1,192,192 1,280,000 1,209,984
due 2005
11.75% Senior Secured Tranche B Note $ 700,000 3/2/98 743,750 590,317 753,270
due 2006
Common Stock (B) 26,906 shs. 2/11/98 75,600 94,880 75,601
Limited Partnership Interests of CM Equity 1,264 int. 2/11/98 101,156 126,445 101,156
Partners (B)
Warrant, exercisable until 2006, to purchase 34,783 shs. 3/2/98 348 112,000 348
common stock at $.01 per share (B)
------------ ---------- -----------
3,483,318 3,583,642 3,511,015
------------ ---------- -----------
Fleming Acquisition Corporation
A supplier of high-quality, premium printed labels for
distilled spirits, wine, food and household products.
Common Stock (B) 545 shs. 4/28/95 1,231,111 272,500 27,991
Warrant, exercisable until 2005, to purchase 380 shs. 4/28/95 98,235 170,455 19,501
common stock at $.01 per share (B)
Incentive Warrant, exercisable from 1998 19 shs. 4/28/95 3,339 2,273 985
until 2000, to purchase common stock at $.01
per share (B)
------------ ---------- -----------
1,332,685 445,228 48,477
------------ ---------- -----------
Golden Bear Oil Specialities
A manufacturer of asphalt and specialty lubricating and
processing oils.
17% Senior Subordinated Note due 2005 $ 3,173,220 7/18/97 3,203,683 3,108,069 3,153,863
12% Series A Convertible Preferred Stock 252 shs. 6/19/98 251,770 251,768 244,041
12% Preferred Stock 311 shs. 7/18/97 31,491 311,111 160,751
Common Stock (B) 20,800 shs. * 86,738 77,840 208
Warrant, exercisable until 2005, to purchase 23,333 shs. 7/18/97 233 69,999 233
common stock at $.001 per share (B)
Warrant, exercisable until 2010, to purchase 17,111 shs. 7/18/97 171 -- 171
common stock at $.001 per share (B)
------------ ---------- -----------
3,574,086 3,818,787 3,559,267
------------ ---------- -----------
Grand Lyon Enterprises LLC
A manufacturer and marketer of Grand Lyon
Bordeaux Ketchup.
Limited Liability Interests (B) 2,203 int. 5/15/98 220,347 220,347 198,312
------------ ---------- -----------
* 7/18/97 and 6/19/98
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Hartzell Manufacturing, Inc.
A provider of contract engineering, manufacturing, and
assembly services for a variety of industrial
manufacturing companies.
12.5% Senior Subordinated note due 2005 $ 2,626,300 4/18/97 $ 2,659,129 $ 2,341,830 $ 2,680,664
Common Stock (B) 70,968 shs. 4/18/97 601,074 801,438 601,075
Warrant, exercisable until 2005, to purchase 33,379 shs. 4/18/97 3,338 315,156 3,338
common stock at $.01 per share (B)
------------ ----------- ------------
3,263,541 3,458,424 3,285,077
------------ ----------- ------------
Highland Homes Holdings, Inc.
A single family home builder operating in the
Dallas-Fort Worth and Atlanta areas.
12.75% Senior Note due 1999 $ 1,500,000 11/18/93 1,485,150 1,479,549 1,548,900
------------ ----------- ------------
Hudson River Capital, LLC
Acquires controlling or substantial interests in
manufacturing and marketing entities.
Series A Preferred Units (B) 88,730 uts. 7/21/94 787,305 706,226 842,935
------------ ----------- ------------
Hussey Seating Company
A manufacturer of spectator seating products.
Senior Secured Floating Rate Revolving Credit $ 450,000 6/12/96 445,590 450,000 450,000
Note due 2003
Senior Secured Floating Rate Note due 2003 $ 712,500 6/12/96 705,447 712,500 712,500
10% Senior Secured Note due 2003 $ 712,500 6/12/96 693,690 712,500 711,574
12% Subordinated Secured Note due 2006 $ 1,350,000 6/12/96 1,327,320 1,155,540 1,448,685
Warrant, exercisable until 2006, to purchase 3,553 shs. 6/12/96 36 225,000 377,648
common stock at $.01 per share (B)
------------ ----------- ------------
3,172,083 3,255,540 3,700,407
------------ ----------- ------------
Jackson Products, Inc.
Manufactures and distributes a variety of industrial
and highway safety products.
Common Stock (B) 434 shs. 8/16/95 43,426 43,426 178,220
Warrant, exercisable until 2005, to purchase 1,999 shs. 8/16/95 199,735 199,735 820,365
common stock at $.01 per share (B)
------------ ----------- ------------
243,161 243,161 998,585
------------ ----------- ------------
Kappler Safety Group, Inc.
A manufacturer of protective apparel for the
industrial/safety, clean room and healthcare markets.
13% Senior Subordinated Note due 2004 $ 3,333,000 12/2/96 3,383,995 3,063,522 3,442,656
Warrant, exercisable until 2004, to purchase 57,418 shs. 12/2/96 57,418 333,300 104,271
common stock at $.01 per share (B)
------------ ----------- ------------
3,441,413 3,396,822 3,546,927
------------ ----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Latin Communications Group
An operator of Spanish-language media in
North America.
5% Subordinated Note due 2005 $ 46,594 2/4/98 $ 32,616 $ 33,167 $ 33,110
Common Stock (B) 89,836 shs. * 638,887 826,484 898,360
------------ ---------- -----------
671,503 859,651 931,470
------------ ---------- -----------
Lloyd's Barbecue Company
A manufacturer and marketer of packaged barbecue
meats and related products.
18% Senior Subordinated Note due 2006 $ 1,676,325 9/30/97 1,676,325 1,676,325 1,776,904
Membership Interests of LFPI Mainstreet (B) 18,725 uts. 9/30/97 1,870,300 1,872,742 1,685,250
------------ ---------- -----------
3,546,625 3,549,067 3,462,154
------------ ---------- -----------
Louis Dreyfus Natural Gas Corporation - A.S.E.
An independent oil and gas company engaged
principally in the acquisition, development and
management of oil and gas properties.
Warrant, exercisable until 2004, to purchase 103,342 shs. 12/27/91 49,714 38,712 280,811
common stock at $17.81 per share (B) ------------ ---------- ------------
Maloney Industries, Inc.
Engineers and manufactures process systems for
the oil and gas industry.
13% Subordinated Note due 2004 $ 2,025,000 10/26/95 2,378,250 2,025,000 2,209,882
Limited Partnership Interests (B) 568 uts. 10/20/95 506,250 677,832 613,108
Warrant, exercisable until 2004, to purchase 297 uts. 10/26/95 297 -- 320,260
Limited Partnership Interests at $.01 per unit (B)
------------ ---------- -----------
2,884,797 2,702,832 3,143,250
------------ ---------- -----------
Maxtec International Corp.
A manufacturer and distributor of precision test
and measurement equipment and overhead crane
control systems.
Senior Floating Rate Revolving Credit $ 461,538 6/28/95 61,538 461,538 461,538
Facility due 2001
Common Stock (B) 76,923 shs. 6/28/95 192,115 230,769 207,692
Warrant, exercisable from 1998 until 2005, to 39,563 shs. 6/28/95 98,581 171,429 39,563
purchase common stock at $.01 per share (B)
------------ ---------- -----------
752,234 863,736 708,793
------------ ---------- -----------
Mercury Computer Systems - O.T.C.
A designer, manufacturer and marketer of high
performance computer systems for computationally-
intense scientific and engineering applications.
Common Stock (B) 393,750 shs. 12/31/87 1,171,564 1,181,250 5,423,906
------------ ---------- -----------
</TABLE>
*2/14/95, 12/1/95, 2/27/96 and 2/4/98.
- --------------------------------------------------------------------------------
13
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ------------ --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
N2K, Inc. - O.T.C.
A music entertainment company which uses the internet as
a global platform for the promoting and merchandising of
music and related merchandise.
Warrant, exercisable until 2004, to purchase 27,777 shs. 8/6/97 $ 278 $ -- $ 190,620
common stock at $12 per share (B) ------------ ----------- ------------
Nu Horizons Electronics Corp. - O.T.C.
A distributor of high technology active and passive
electronic devices.
8.25% Convertible Subordinated Note due $ 1,411,800 8/31/94 1,425,918 1,411,800 1,520,650
2002, convertible into common stock at $9 ------------ ----------- ------------
per share
PAR Acquisition Corp.
A manufacturer of fuel handling systems for nuclear power
plants and hazardous waste.
14.5% Senior Subordinated Note due 2000 $ 629,166 2/5/93 628,160 629,166 629,166
8% Convertible Preferred Stock due 2001, 83,333 shs. 2/5/93 166,667 166,667 293,333
convertible into common stock at $2 per share
Common Stock (B) 133,333 shs. 2/5/93 333,333 333,333 469,333
------------ ----------- ------------
1,128,160 1,129,166 1,391,832
------------ ----------- ------------
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 $ 725,625 11/30/95 756,174 725,625 763,793
10.5% Senior Secured Convertible Note
series (B) due $ 195,000 11/30/95 205,335 195,000 224,016
2005, convertible into common stock at
$50,000 per share
Common Stock 7 shs. 11/30/95 253,125 337,500 200,506
------------ ----------- ------------
1,214,634 1,258,125 1,188,315
------------ ----------- ------------
Piedmont Holding, Inc.
A general aviation fixed based operator with repair,
maintenance and overhaul certification.
12% Senior Subordinated Note due 2001 $ 1,492,856 7/15/92 1,505,097 1,492,856 1,492,856
Senior Redeemable Cumulative Preferred 281,939 shs. 7/15/92 281,939 281,939 281,939
A Stock
Common Stock (B) 3,771 shs. 7/15/92 2,564 3,771 460,062
Warrant, exercisable until 2001, to purchase 5,042 shs. 7/15/92 3,227 -- 615,124
common stock at $.05 per share (B)
------------ ----------- ------------
1,792,827 1,778,566 2,849,981
------------ ----------- ------------
</TABLE>
- -------------------------------------------------------------------------------
14
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Plastipak Packaging, Inc.
A manufacturer of plastic containers.
10.64% Senior Subordinated Note due 2006 $ 3,500,000 10/25/96 $ 3,403,750 $ 3,421,837 $ 3,586,450
Warrant, exercisable until 2006, to purchase 97 shs. 10/25/96 55,593 93,625 72,134
common stock at $.01 per share (B)
------------ ------------ ------------
3,459,343 3,515,462 3,658,584
------------ ------------ ------------
Playcore, Inc. - A.S.E.
A manufacturer and distributor of home playground
equipment and accessories.
12% Subordinated Note due 2005 $ 3,125,000 3/13/97 2,585,000 2,508,383 2,821,562
Limited Partnership Interests of Green Grass 81,548 uts. 3/13/97 293,573 417,728 293,573
Capital II, LLC (B)
Warrant, exercisable until 2005, to purchase 148,044 uts. 3/13/97 531,774 680,722 531,774
Limited Partnership Interests of Green Grass
Capital II, LLC at $.01 per unit (B)
------------ ------------ ------------
3,410,347 3,606,833 3,646,909
------------ ------------ ------------
Precision Dynamics, Inc.
A manufacturer of custom-designed solenoid valves and
controls.
Senior Secured Floating Rate Revolving $ 603,100 7/22/96 597,129 603,100 598,396
Credit Facility due 2003
Senior Secured Floating Rate Term Note $ 2,673,200 7/22/96 2,647,003 2,673,200 2,655,023
due 2003
12% Senior Secured Term Note due 2004 $ 489,000 7/22/96 482,545 405,923 508,951
8% Preferred Stock 232 shs. 7/22/96 220,231 231,822 192,998
Common Stock (B) 599 shs. 7/22/96 21,699 28,978 19,907
Warrant, exercisable until 2004, to purchase 322 shs. 7/22/96 3 97,800 10,714
common stock at $.01 per share (B)
------------ ------------ ------------
3,968,610 4,040,823 3,985,989
------------ ------------ ------------
Process Chemicals, LLC
A platform company used by C3 Chemical Ventures to acquire
specialty chemical and mineral companies.
6% Redeemable Preferred Membership Interests 20,000 int. 7/31/97 1,967,600 1,950,839 2,016,000
Common Membership Interests (B) 9 int. 7/31/97 23 25 23
------------ ------------ ------------
1,967,623 1,950,864 2,016,023
------------ ------------ ------------
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 1,200,000 855,720
11.51% Junior Secured Note due 1999 $ 600,000 8/12/94 587,280 600,000 510,300
9.8% Redeemable Exchangeable Preferred 10,000 shs. 8/12/94 847,900 1,000,000 379,900
Stock
Common Stock (B) 1,492 shs. 8/12/94 15 -- 2,249
------------ ------------ ------------
2,619,355 2,800,000 1,748,169
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
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 $ 1,639,050
Common Stock (B) 35,500 shs. 2/16/93 340,800 340,800 446,856
------------ ------------ ------------
1,939,950 1,840,800 2,085,906
------------ ------------ ------------
Rent-Way, Inc. - O.T.C.
Operates rent-to-own stores in Ohio, Pennsylvania
and New York.
Warrant, exercisable until 2002, to purchase 20,000 shs. 7/18/95 200 -- 397,530
common stock at $9.94 per share (B) ------------ ------------ ------------
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 1,896,400 2,281,400
Limited Partnership Interests of KS 7,186 uts. 12/14/95 538,950 718,741 2,155,800
Holdings, L.P. (B)
Warrant, exercisable until 2004, to purchase 5,449 uts. 12/14/95 5,449 479,094 1,634,700
Limited Partnership Interests of KS
Holdings, L.P. at $.01 per unit (B)
------------ ------------ ------------
2,962,683 3,094,235 6,071,900
------------ ------------ ------------
Star International Holdings, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004 $ 1,352,239 5/27/94 1,352,239 1,352,239 1,376,986
10.5% Subordinated Note due 2004 $ 716,418 5/27/94 716,418 716,418 724,514
Common Stock (B) 4,310 shs. 5/27/94 259,735 259,735 149,188
Warrant, exercisable until 2004, to purchase 3,224 shs. 5/27/94 32 -- 111,567
common stock at $.01 per share (B)
------------ ------------ ------------
2,328,424 2,328,392 2,362,255
------------ ------------ ------------
Supreme Industries, Inc. - A.S.E.
A manufacturer of modular homes and truck bodies.
Common Stock (B) 578,532 shs. * 1,323,280 1,243,470 6,248,147
Common Stock of TGC Industries, Inc. (B) 19,082 shs. 9/30/86 9,497 9,497 9,839
------------ ------------ ------------
1,332,777 1,252,967 6,257,986
------------ ------------ ------------
TACC International Corporation
A leading domestic manufacturer of adhesives and
sealants in the building and construction industries.
12.5% Subordinated Note due 2005 $ 1,750,000 8/8/97 1,699,075 1,710,055 1,754,200
8% Convertible Redeemable Preferred Stock 8,244 shs. 8/8/97 798,596 1,750,000 1,771,561
Warrant, exercisable until 2005, to purchase 1,560 shs. 8/8/97 16 43,898 16
common stock at $.01 per share (B
------------ ------------ ------------
2,497,687 3,503,953 3,525,777
------------ ------------ ------------
</TABLE>
*5/23/79, 12/15/95 and 6/9/96.
- -------------------------------------------------------------------------------
16
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Tidewater Holdings, Inc.
An operator of a barge transportation line on the
Columbia/Snake River system.
12.5% Senior Subordinated Note due 2006 $ 2,380,000 7/25/96 $ 2,388,092 $ 2,334,464 $ 2,499,000
Convertible Preferred Stock, convertible into 1,120 shs. 7/25/96 1,008,000 1,120,000 749,408
common stock at $1,000 per share (B)
Warrant, exercisable until 2008, to purchase 474 shs. 7/25/96 43 48,216 316,995
common stock at $.01 per share (B)
------------ ----------- ------------
3,396,135 3,502,680 3,565,403
------------ ----------- ------------
TransMontaigne Oil Company - A.S.E.
An independent petroleum products marketing company.
12.75% Senior Subordinated Debenture due $ 1,200,000 3/28/91 1,274,280 1,186,475 1,279,320
2000
Common Stock (B) 258,720 shs. * 400,000 798,595 3,271,206
Warrant, exercisable until 2001, to purchase 74,606 shs. 3/28/91 7,461 42,000 715,003
common stock at $3.60 per share (B)
------------ ----------- ------------
1,681,741 2,027,070 5,265,529
------------ ----------- ------------
The Tranzonic Companies
A producer of commercial and industrial supplies, such as
safety products, janitorial supplies, work apparel,
washroom and restroom supplies and sanitary care products.
12.5% Senior Subordinated Note due 2006 $ 2,712,000 2/4/98 2,762,172 2,354,422 2,783,868
Common Stock (B) 630 shs. 2/4/98 567,000 630,000 567,000
Warrants to purchase shares of class B 444 shs. 2/4/98 4 368,832 4
common stock at .01 per share (B)
------------ ----------- ------------
3,329,176 3,353,254 3,350,872
------------ ----------- ------------
Trend Technologies, Inc.
A manufacturer and assembler of plastic injection
molded parts.
12% Subordinated Note due 2005 $ 2,513,500 3/21/97 2,592,675 2,510,371 2,570,054
Limited Partnership Interests of Riverside V 5,359 uts. ** 655,759 591,115 655,760
Holding Company L.P. (B)
Limited Partnership Interests of Riverside 11,467 uts. ** 1,485,581 1,264,026 1,137,628
V-A Holding Company L.P. (B)
Warrant, exercisable until 2005, to purchase 3,129 uts. 3/21/97 3,129 3,129 3,129
Limited Partnership Interests at $.01 per unit (B)
------------ ----------- ------------
4,737,144 4,368,641 4,366,571
------------ ----------- ------------
Tridex Corp. - O.T.C.
A designer and manufacturer of point-of-sale monitors and
keyboards used by retailers and restaurants.
12% Senior Subordinated Note due 2005 $ 3,000,000 4/17/98 3,000,000 3,000,000 2,992,800
Common Stock (B) 71,429 shs. 4/17/98 500,003 500,003 466,071
Warrant, exercisable until 2005, to purchase 95,709 uts. 5/27/98 -- -- 19,740
Common Stock at $7.00 per share (B)
------------ ----------- ------------
3,500,003 3,500,003 3,478,611
------------ ----------- ------------
</TABLE>
*3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95.
**3/21/97, 10/16/97 and 11/19/97.
- --------------------------------------------------------------------------------
17
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------ ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Truseal Technologies, Inc.
A manufacturer of sealant systems for the North American
window and door market.
12.25% Senior Subordinated Note due 2006 $ 2,675,000 6/23/97 $ 2,733,315 $ 2,320,419 $ 2,782,000
Limited Partnership Interests (B) 8,246 uts. 6/17/97 742,140 824,661 742,140
Warrant, exercisable until 2006, to purchase 1,258 uts. 6/23/97 13 376,932 13
Limited Partnership Interests at $.01 per unit (B)
------------ ------------ ------------
3,475,468 3,522,012 3,524,153
------------ ------------ ------------
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide variety of
industries.
11% Senior Secured Note due 2005 $ 1,443,823 5/3/95 1,596,579 1,443,823 1,504,030
12% Subordinated Note due 2005 $ 652,050 5/3/95 733,622 623,088 696,650
Common Stock (B) 4,911 shs. 5/3/95 162,652 391,230 13,554
Warrant, exercisable until 2005, to purchase 2,795 shs. 5/3/95 92,549 35,923 7,692
common stock at $.01 per share (B)
------------ ------------ ------------
2,585,402 2,494,064 2,221,926
------------ ------------ ------------
U.S. Silica Company
A producer of high grade industrial and specialty ground
silica sands in North America.
15% Senior Subordinated Notes due 2005 $ 2,404,180 * 2,552,974 2,404,050 2,596,515
Redeemable Preferred Stock Series A (B) 42,001 shs. 12/19/96 291,673 388,898 291,672
Convertible Preferred Stock Series B, 84,002 shs. 12/19/96 583,352 777,802 583,343
convertible into Series B common stock at
$9.26 per share (B)
Warrant, exercisable until 2005, to purchase 6,481 uts. 12/19/96 12,963 130 4,141
Series A Preferred Stock and Series B
Preferred Stock at $.01 per unit (B)
------------ ------------ ------------
3,440,962 3,570,880 3,475,671
------------ ------------ ------------
Unipac Corporation
A manufacturer of laminated materials which are used to
seal a variety of packaging containers.
12% Senior Secured Note due 2004 $ 243,750 2/9/96 246,870 223,625 265,005
Acquisition Line of Credit due 2002 $ 638,203 9/30/96 638,203 638,203 638,203
Limited Partnership Interests of Riverside II 123 uts. ** 112,407 133,232 612,219
Holding Company L.P. (B)
Warrant, exercisable from 2000 until 2004, to 41 uts. 2/9/96 4 40,312 205,920
purchase Limited Partnership Interests of
Riverside II Holding Company L.P. at $.01
per unit (B)
------------ ------------ ------------
997,484 1,035,372 1,721,347
------------ ------------ ------------
Victory Ventures, LLC
Acquires controlling or substantial interests in other
entities.
Series A Preferred Units (B) 11,270 uts. 12/2/96 12,701 57,101 22,540
------------ ------------ ------------
</TABLE>
*12/19/96 and 2/15/97.
**2/9/96 and 9/25/96.
- --------------------------------------------------------------------------------
18
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Vitex Packaging, Inc.
A manufacturer of specialty packaging, primarily envelopes
and tags used on tea bags.
Senior Secured Floating Rate Revolving $ 850,876 1/2/98 $ 844,069 $ 850,876 $ 844,579
Credit Facility due 2003
Senior Secured Floating Rate Term Note due 2005 $ 2,184,000 1/2/98 2,166,746 2,184,000 2,168,056
12% Senior Secured Tranche B Note due 2007 $ 672,000 1/2/98 678,787 621,600 682,013
Limited Partnership Interests of Riverside VI 122,182 int. 12/30/97 977 98,843 97,745
Holding Company L.P. (B)
Limited Partnership Interests of Riverside 201,600 int. 12/30/97 1,613 201,600 161,280
VI-A Holding Company L.P. (B)
Warrant, exercisable until 2007, to purchase 89 shs. 1/2/98 1 50,400 1
common stock at $.01 per share (B)
------------ ------------ ------------
3,692,193 4,007,319 3,953,674
------------ ------------ ------------
Sub-total Private Placement Investments $130,017,453 137,229,622 159,499,532
============ ============ ============
<CAPTION>
Shares or Market Value
Interest Due Principal Cost at 6/30/98
Rule 144A Securities: 8.04% (A) Rate Date Amount (Note 2B) (Note 2A)
----------- ------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Bonds - 3.31%
Atlantic Coast Airlines Inc. 8.750% 01/01/07 $ 572,072 572,072 564,532
Brand Scaffold Services 10.250 02/15/08 150,000 150,000 152,250
Cuddy International Corp. 10.750 12/01/07 800,000 788,048 772,000
Derby Cycle Corp. 10.000 05/15/08 650,000 650,000 645,125
Doe Run Resources Corp. 11.250 03/15/05 300,000 300,000 306,000
JTM Industries 10.000 04/15/08 300,000 300,000 304,500
IMPAC Group Inc. 10.125 03/15/08 750,000 750,000 748,125
M J D Communications Inc. 9.500 05/01/08 100,000 100,000 102,000
M J D Communications Inc. 0.000 05/01/08 250,000 250,000 248,750
McLeodUSA Incorporated 8.375 03/15/08 650,000 660,125 651,625
MCMS Inc. 9.750 03/01/08 600,000 600,000 552,000
Morris Materials Handling 9.500 04/01/08 300,000 300,000 279,000
Numatics Inc. 9.625 04/01/08 400,000 406,188 404,000
Oxford Health Plans 11.000 05/15/05 150,000 150,000 153,000
Tjiwi Kima Fin Mauritius LTD 10.000 08/01/04 500,000 497,275 350,000
Trans World Airlines 11.375 03/01/06 500,000 500,000 501,250
Von Hoffman Press, Inc. 10.375 05/15/07 380,000 382,362 397,100
------------- ------------- -------------
Total Bonds $ 7,352,072 7,356,070 7,131,257
============= ============= =============
Common Stock - 0.15%
Jordan Telecom Products 70 14,000 17,500
Energy Conversion Devices Inc. 32,500 430,625 314,828
------------- ------------- -------------
Total Common Stock 444,625 332,328
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares or Market Value
Interest Due Principal Cost at 6/30/98
Rule 144A Securities: (A) (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Convertible Bonds - 3.12%
Antec Corp. 4.500% 05/15/03 $ 300,000 $ 300,000 $ 345,000
Arbor Software Corporation 4.500 03/15/05 200,000 200,000 175,652
Concentra Managed Care, Inc. 4.500 03/15/03 600,000 600,000 535,500
Cymer Inc. 3.500 08/06/04 375,000 377,500 285,495
Equity Corporation International 4.500 12/31/04 400,000 400,000 436,876
Garnet Resources Corporation 9.500 12/21/98 500,000 500,000 47,500
Healthsouth Corporation 3.250 04/01/03 1,500,000 1,500,000 1,485,000
Key Energy Group 5.000 09/15/04 1,000,000 1,000,000 771,880
Mark IV Industries 4.750 11/01/04 750,000 711,875 688,125
Smartalk Teleservices 5.750 09/15/04 300,000 300,000 249,171
Sunbeam Corporation 0.000 03/25/18 3,750,000 1,415,234 848,438
Tel-Save 4.500 09/15/02 1,080,000 1,077,000 857,876
------------ ------------ ------------
Total Convertible Bonds $ 10,755,000 8,381,609 6,726,513
============ ============ ============
Convertible Preferred Stock - 1.46%
Chesapeake Energy Corporation 6,855 342,750 287,910
D T Industries 40,000 2,000,000 1,610,000
Newell Financial Trust 20,250 1,012,500 1,174,500
Jordan Telecom Products 70 56,000 73,500
------------ ------------ ------------
Total Convertible Preferred Stock 3,411,250 3,145,910
------------ ------------
Total Rule 144A Securities 19,593,554 17,336,008
------------ ------------
Total Corporate Restricted Securities 156,823,176 176,835,540
------------ ------------
Corporate Public Securities: (A)
Bonds - 11.63%
Advanced Micro Devices 11.000 08/01/03 $ 300,000 318,000 316,500
Aearo Company 12.500 07/15/05 1,000,000 1,000,000 1,122,500
Amphenol Corporation 9.875 05/15/07 400,000 400,000 426,000
Amtran, Inc. 10.500 08/01/04 600,000 600,000 637,500
Anchor Advanced Products 11.750 04/01/04 410,000 413,000 451,000
Atlantic Express 10.750 02/01/04 950,000 964,000 1,007,000
Callon Petroleum Company 10.125 09/15/02 500,000 497,120 511,250
Canadian Airlines Corporation 10.000 05/01/05 500,000 501,000 507,500
Chesapeake Energy Corporation 8.500 03/15/12 240,000 221,238 223,200
Continental Airlines, Inc. 9.500 12/15/01 750,000 750,000 791,250
DecisionOne Corporation 9.750 08/01/07 525,000 523,250 506,625
Florist Transworld Delivery, Inc. 14.000 12/15/01 1,475,000 1,460,557 1,607,750
Great American Cookie Co. 10.875 01/15/01 1,385,000 1,367,500 1,433,476
Hosiery Corporation of America 13.750 08/01/02 1,000,000 987,800 1,100,000
Indah Kiat International Corporation 11.875 06/15/02 1,000,000 1,000,000 800,000
International Wire Group, Inc. 11.750 06/01/05 750,000 750,000 825,000
International Wire Group, Inc. 11.750 06/01/05 550,000 598,125 602,938
Jordan Industries, Inc. 10.375 08/01/07 500,000 500,000 512,500
Jordan Telecom Products 9.875 08/01/07 1,150,000 1,139,907 1,173,000
Key Plastics, Inc. 14.000 11/15/99 750,000 760,462 819,376
Neenah Corporation 11.125 05/01/07 300,000 300,000 327,000
Northwest Airlines Corp. 10.150 01/02/05 579,786 579,786 628,894
Remington Products Company 11.000 05/15/06 600,000 595,506 547,500
Scotsman Group, Inc. 8.625 12/15/07 150,000 149,598 150,750
Scovill Fastener, Inc. 11.250 11/30/07 500,000 500,000 513,750
Sovereign Speciality Chemicals 9.500 08/01/07 200,000 200,000 204,000
Speedway Motorsports, Inc. 8.500 08/15/07 275,000 274,252 284,625
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 6/30/98
Corporate Public Securities: (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Bonds (Continued)
Tekni-Plex Inc. 9.250% 08/03/01 $ 650,000 $ 650,000 $ 650,000
Telex Communications, Inc. 10.500 05/01/07 1,150,000 1,162,939 1,035,000
Therma-Wave, Inc. 10.625 05/15/04 450,000 457,500 405,000
Trans World Airlines 11.500 12/15/04 500,000 494,110 526,250
Unicco Service Co. 9.875 10/15/07 325,000 323,472 328,250
United Refining Company 10.750 06/15/07 1,750,000 1,750,000 1,680,000
W R Carpenter North America 10.625 06/05/07 625,000 631,917 657,812
Wavetek Corporation 10.125 06/15/07 130,000 130,000 135,200
Williams Scotsman, Inc. 9.875 06/01/07 500,000 500,000 520,000
Worldtex, Inc. 9.625 12/15/07 600,000 600,000 600,000
Ziff-Davis Inc. 8.500 05/01/08 500,000 498,170 505,000
----------- ----------- -----------
Total Bonds $24,519,786 24,549,209 25,073,396
=========== =========== ===========
Common Stock - 8.90%
4Health Inc. (B) 27,000 151,000 190,674
American Country Holdings Inc. (B) 405,590 760,889 684,230
Benson Petroleum, LTD. (B) 200,000 154,408 184,000
BP Prudhoe Bay Royalty Trust 26,180 371,846 279,799
Career Blazers, Inc. (B) 105,000 577,500 630,000
Central Rents, Inc. 1,880 67,856 75,200
Collins & Aikman Corporation (B) 40,200 240,834 298,967
Corporate Office Properties 74,750 784,875 663,406
Dawson Production Services (B) 45,242 570,064 678,630
Dura Automotive Systems Inc. (B) 10,835 354,846 348,074
Excalibur Technologies Corp. (B) 23,334 230,210 256,674
Florida Panthers Holdings, Inc. (B) 35,502 681,042 698,928
Florist Transworld Delivery, Inc. (B) 29,373 41,258 146,865
General Chemical Group, Inc. 10,200 261,398 283,050
General Instrument Corp.(B) 16,100 383,680 435,714
Hardy Oil & Gas PLC (B) 278,227 819,741 972,125
Hosiery Corporation of America (B) 1,000 0 70,000
LCS Industries, Inc. 35,000 546,831 511,875
Marker International (B) 70,000 437,500 131,250
McLeodUSA Incorporated(B) 5,417 212,617 210,586
Midway Airlines Corp.(B) 27,088 505,057 518,058
N2K, Inc. (B) 23,834 625,789 467,742
Niagara Mohawk Power Corporation 29,250 413,156 436,907
Oxford Health Plans(B) 24,375 459,901 373,230
Pathways Group Inc.(B) 21,667 513,529 414,381
Princeton Video Image, Inc. (B) 70,000 490,000 323,750
Red Roof Inns, Inc. (B) 33,200 481,272 562,308
Rent-Way, Inc. (B) 201,207 2,000,000 6,136,814
Republic Industries, Inc. (B) 35,000 859,688 875,000
Republic Services Inc.(B) 55,250 1,326,000 1,326,000
----------- ----------- -----------
Total Common Stock $15,322,787 19,184,237
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 6/30/98
Corporate Public Securities: (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Convertible Bonds - 3.35%
Clear Channel Communications 2.625% 04/01/03 $ 650,000 $ 650,000 $ 698,750
Dura Pharmaceuticals 3.500 07/15/02 590,000 597,031 497,518
EMCOR Group, Inc. (B) 5.750 04/01/05 650,000 650,000 615,875
Hilton Hotels 5.000 05/15/06 1,385,000 1,385,000 1,431,647
Home Depot, Inc. 3.250 10/01/01 675,000 669,312 1,255,500
Loews Corp. 3.125 09/15/07 900,000 900,000 817,092
Oak Industries 4.875 03/01/08 150,000 154,500 164,626
Reptron Electronics Inc. 6.750 08/01/04 200,000 200,000 158,500
Savoy Pictures Entertainment 7.000 07/01/03 1,250,000 1,287,500 1,206,250
World Color Press, Inc. 6.000 10/01/07 350,000 350,000 379,460
------------- ------------- -------------
Total Convertible Bonds $ 6,800,000 6,843,343 7,225,218
============= ------------- -------------
Warrants - 0.04%
American Country Holdings Inc. (B) 183,117 45,779 91,558
------------- -------------
Total Warrants 45,779 91,558
------------- -------------
Total Corporate Public Securities 46,761,118 51,574,409
------------- -------------
Short-Term Securities:
Commercial Paper - 2.08%
Enron Corporation 6.302 7/2/98 2,005,000 2,004,649 2,004,649
VF Corporation 6.152 7/1/98 2,470,000 2,470,000 2,470,000
------------- ------------- -------------
Total Short-Term Securities $ 4,475,000 4,474,649 4,474,649
============= ------------- -------------
Total Investments - 108.02% $ 208,058,943 232,884,598
============= -------------
Other Assets - 2.64 5,703,305
Liabilities - (10.66) (22,982,340)
------- -------------
Total Net Assets - 100.00% $ 215,605,563
======= =============
</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.
- --------------------------------------------------------------------------------
22
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
INDUSTRY CLASSIFICATION
Fair Value
at 6/30/98
Corporate Restricted Securities: (Note 2A)
-----------
AUTOMOBILE - 0.44%
Coast Distribution System, The $ 251,246
Mark IV Industries 688,125
-----------
939,371
-----------
BEVERAGE, FOOD & TOBACCO - 6.41%
Associated Vintage Group, Inc. 3,654,576
Beta Brands, Inc. 3,617,357
Cains Foods, L.P. 2,692,496
Delta Beverage Group, Inc. 198,118
Grand Lyon Enterprises LLC 198,312
Lloyd's Barbecue Company 3,462,154
-----------
13,823,013
-----------
BROADCASTING & ENTERTAINMENT - 0.43%
Latin Communications Group 931,470
-----------
BUILDINGS & REAL ESTATE - 5.26%
Highland Homes Holdings, Inc. 1,548,900
Supreme Industries, Inc. 6,257,986
Truseal Technologies, Inc. 3,524,153
-----------
11,331,039
-----------
CARGO TRANSPORT - 2.62%
RailTex, Inc. 2,085,906
Tidewater Holdings, Inc. 3,565,403
-----------
5,651,309
-----------
CHEMICAL, PLASTICS & RUBBER - 6.80%
AccTech, LLC 2,539,014
Process Chemicals, LLC 2,016,023
TACC International Corporation 3,525,777
Trend Plastics, Inc. 4,366,571
U.S. Netting, Inc. 2,221,926
-----------
14,669,311
-----------
CONSUMER PRODUCTS - 1.69%
Consumer Product Enterprises, Inc. 2,169,772
JTM Industries 304,500
Newell Financial Trust 1,174,500
-----------
3,648,772
-----------
CONTAINERS, PACKAGING & GLASS - 7.16%
C&K Manufacturing and Sales Company 1,790,567
Capitol Vial, Inc. 3,558,094
IMPAC Group Inc. 748,125
Plastipak Packaging, Inc. 3,658,584
Unipac Corporation 1,721,347
Vitex Packaging, Inc. 3,953,675
-----------
15,430,392
-----------
DIVERSIFIED/CONGLOMERATE -
MANUFACTURING - 15.91%
Cymer Inc. 285,495
D T Industries 1,610,000
Eagle Pacific Industries, Inc. 3,398,670
Energy Conversion Devices Inc. 314,828
Evans Consoles, Inc. 3,511,015
Fleming Acquisition Corporation 48,477
Golden Bear Oil Specialities 3,559,267
Hartzell Manufacturing, Inc. 3,285,077
Hudson River Capital, LLC 842,935
Hussey Seating Company 3,700,407
Jackson Products, Inc. 998,585
Kappler Safety Group, Inc. 3,546,927
Maxtec International Corp. 708,793
Morris Materials Handling 279,000
PAR Acquisition Corp. 1,391,832
The Tranzonic Companies 3,350,872
U.S. Silica Company 3,475,671
-----------
34,307,851
-----------
DIVERSIFIED/CONGLOMERATE -
SERVICE - 2.31%
Ammirati & Puris, Inc. 597,859
Diversco, Inc. 3,203,200
Pharmaceutical Buyers, Inc. 1,188,315
-----------
4,989,374
-----------
ELECTRONICS - 10.30%
Arbor Software Corporation 175,652
Ardent Software, Inc. 921,470
Averstar, Inc. 2,156,994
Control Devices, Inc. 3,585,611
Dealer Solutions Holdings, Inc. 400,431
MCMS Inc. 552,000
Mercury Computer Systems 5,423,906
Nu Horizons Electronics Corp. 1,520,650
Precision Dynamics, Inc. 3,985,988
Tridex Corp. 3,478,611
-----------
22,201,313
-----------
ENTERTAINMENT - 0.78%
Adventure Entertainment Corporation 1,689,486
-----------
FARMING & AGRICULTURE - 1.17%
Cuddy International Corp. 772,000
Protein Genetics, Inc. 1,748,169
-----------
2,520,169
-----------
- --------------------------------------------------------------------------------
23
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
INDUSTRY CLASSIFICATION (Continued)
Fair Value
at 6/30/98
Corporate Restricted Securities: (Continued) (Note 2A)
------------
HEALTHCARE, EDUCATION &
CHILDCARE - 3.52%
Concentra Managed Care, Inc. $ 535,500
D&K Healthcare Resources, Inc. 5,422,621
Healthsouth Corporation 1,485,000
Oxford Health Plans 153,000
------------
7,596,121
------------
HOME & OFFICE FURNISHINGS,
HOUSEWARES, AND DURABLE
CONSUMER PRODUCTS - 4.93%
Catalina Lighting, Inc. 1,336,050
Sequentia, Inc. 6,071,900
Star International Holdings, Inc. 2,362,255
Sunbeam Corporation 848,438
------------
10,618,643
------------
LEISURE, AMUSEMENT,
ENTERTAINMENT - 2.08%
Derby Cycle Corp. 645,125
N2K, Inc. 190,620
Playcore, Inc. 3,646,909
------------
4,482,654
------------
MACHINERY - 0.19%
Numatics Inc. 404,000
------------
MISCELLANEOUS - 0.59%
Brand Scaffold Services 152,250
Doe Run Resources Corp. 306,000
Equity Corporation International 436,876
Tjiwi Kima Fin Mauritius LTD 350,000
Victory Ventures, LLC 22,540
------------
1,267,666
------------
OIL AND GAS - 4.55%
Chaparral Resources, Inc. 14,942
Chesapeake Energy Corporation 287,910
Garnet Resources Corporation 47,500
Key Energy Group 771,880
Louis Dreyfus Natural Gas Corporation 280,811
Maloney Industries, Inc. 3,143,250
TransMontaigne Oil Company 5,265,527
------------
9,811,820
------------
PERSONAL TRANSPORTATION - 3.33%
Atlantic Coast Airlines Inc. 564,533
Budget Group, The 3,265,949
Piedmont Holding, Inc. 2,849,982
Trans World Airlines 501,250
------------
7,181,714
------------
PRINTING & PUBLISHING - 0.19%
Von Hoffman Press, Inc. 397,100
------------
RETAIL STORES - 0.18%
Rent-Way, Inc. 397,530
------------
TELECOMMUNICATIONS - 1.18%
Antec Corp. 345,000
Jordan Telecom Products 91,000
M J D Communications Inc. 350,750
McLeodUSA Incorporated 651,625
Smartalk Teleservices 249,171
Tel-Save 857,876
------------
2,545,422
------------
Total Corporate Restricted
Securities - 82.02% $176,835,540
============
- --------------------------------------------------------------------------------
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS MASSMUTUAL CORPORATE INVESTORS
(Unaudited)
1. History
MassMutual Corporate Investors (the "Trust") is a closed-end, non-diversified
management 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.
On January 27, 1998, the Board of Trustees authorized the formation of a
totally held subsidiary ("MMCI Subsidiary Trust") for the purpose of holding
certain investments. The results of MMCI Subsidiary Trust have been
consolidated in the accompanying financial statements.
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:
Valuation of a security in the Trust's portfolio is made on the basis of
market price whenever market quotations are readily available and all
securities of the same class held by the Trust can be readily sold in such
market.
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.
- --------------------------------------------------------------------------------
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $176,835,540
(82.02% of net assets) as of June 30, 1998 ($159,255,782 at June 30, 1997)
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.
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, 1998, 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
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.
- --------------------------------------------------------------------------------
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, safekeeping facilities, 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 March
31, 1998 was plus .0625%.
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 its option, can convert the principal
amount of the Note into common shares. The dollar amount of principal 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
For the For the
six months six months
ended 6/30/98 ended 6/30/97
------------- -------------
Cost of Investments Acquired
----------------------------
Corporate restricted securities $ 41,714,586 $ 43,552,955
Corporate public securities 18,663,688 18,788,603
Short-term securities 190,298,352 162,686,025
Proceeds from Sales or Maturities
---------------------------------
Corporate restricted securities $ 37,554,813 $ 35,457,035
Corporate public securities 35,710,065 39,056,761
Short-term securities 188,710,607 162,795,770
- --------------------------------------------------------------------------------
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The aggregate cost of investments is the same for financial reporting and
federal income tax purposes as of June 30, 1998. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of June 30, 1998 is $24,825,654 and consists of $41,874,561 appreciation
and $17,048,908 depreciation.
The aggregate cost of investments was the same for financial reporting and
federal income tax purposes as of June 30, 1997. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of June 30, 1997 was $10,377,088 and consisted of $24,363,047 appreciation
and $13,985,959 depreciation.
6. Quarterly Results of Investment Operations
<TABLE>
<CAPTION>
Per Per
Amount Share Amount Share
---------- -------- ------------- --------
March 31, 1998 March 31, 1997
------------------------ ---------------------------
<S> <C> <C> <C> <C>
Investment income $4,573,718 $ 4,060,824
Net investment income 3,435,337 $ .40 3,057,559 $ .36
Net realized and unrealized gain (loss) on investments 6,931,997 .81 3,704,899 .44
June 30, 1998 June 30, 1997
------------------------ ---------------------------
Investment income 4,410,653 4,141,453
Net investment income 3,260,991 .38 3,066,951 .36
Net realized and unrealized gain on investments 2,261,313 .26 14,759,526 1.73
</TABLE>
7. Common Shares
On December 19, 1997, the Board of Trustees authorized a two-for-one split of
the Trust's common shares effective January 20, 1998 on shares outstanding at
the close of business on December 31, 1997. The stock split increased the
common shares outstanding to 8,513,448 from 4,256,724. All per share amounts
have been restated after giving effect to the two-for-one split of the
Trust's common shares.
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