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Previous: GRUBB & ELLIS CO, S-8, 1998-11-23 |
Next: SALOMON BROTHERS OPPORTUNITY FUND INC, 24F-2NT, 1998-11-23 |
<PAGE>
MassMutual
CORPORATE
INVESTORS
[ARTWORK APPEARS HERE]
REPORT for the NINE
MONTHS ENDED 9/30/98
<PAGE>
MassMutual Corporate Investors
1295 State Street
Springfield, Massachusetts 01111
(413) 744-8480
[LOGO OF MCI APPEARS HERE]
[ARTWORK APPEARS HERE] Adviser
Massachusetts Mutual
Life Insurance Company
Auditor
PricewaterhouseCoopers LLP
Springfield, Massachusetts 01101
Custodian
The Chase Manhattan Bank, N.A.
Transfer Agent & Registrar
Shareholder Financial Services, Inc.
P.O. Box 173673
Denver, Colorado 80217-3673
1-800-647-7374
Internet website: www.massmutual.com/mci
Investment Objective and Policy
MassMutual Corporate Investors, a closed-end investment company, was offered to
the public in September 1971 and its shares are listed on the New York Stock
Exchange. The share price of Corporate Investors can be found in the financial
section of most newspapers as "MassCp" or "MassMuInv" under the New York Stock
Exchange listings. The trading symbol is "MCI".
The Trust's investment objective is to maintain a portfolio of securities
providing a fixed yield and at the same time offering an opportunity for capital
gains. The principal investments are long-term corporate debt obligations and
occasionally preferred stocks purchased directly from issuers. These provide a
fixed yield and potential capital gains through warrants, conversion rights, or
other equity features which are a prerequisite to every private placement
purchased.
Corporate Investors' current portfolio is characterized by broad industrial
diversification. The entire portfolio is shown in the Schedule of Investments in
the Financial Section of this Report.
The Trust holds investments in a number of companies that are not publicly
traded at this time. Capital gains may be realized on holdings of private
companies through various methods, including directly negotiated sales, put
options and initial public offerings of stock.
The Trust pays quarterly dividends and intends to distribute substantially all
of its net income to shareholders each year. All distributions are paid in cash
unless the shareholder elects to participate in the Dividend Reinvestment and
Share Purchase Plan.
Dividends are distributed in January, May, August, and November.
<PAGE>
TO THE SHAREHOLDERS OF MASSMUTUAL CORPORATE INVESTORS:
The following is a report for the first nine months of 1998.
The financial markets experienced significant turmoil during the third quarter.
Emerging market volatility and economic uncertainty caused high yield bonds,
small cap stocks, and convertible securities to post one of the worst quarters
on record. As tough as the markets were, the Trust experienced only a modest
decline in value with net assets falling to $24.03 per share at September 30,
1998 from $25.16 per share at June 30, 1998. As a result, the total return of
the Trust for the quarter was down 2.94%, but still up 9.58% year-to-date, as
measured by change in net assets with reinvestment of dividends.
By comparison, the S&P Industrial Stock Index was down 7.78% for the quarter and
up 9.56% year-to-date while the Lehman Government/Corporate Bond Index was up
4.95% for the quarter and up 9.33% year-to-date. However, the companies in which
we invest are generally much smaller than those found in the S&P or Lehman
Indices. Indices more representative of the type of companies in which we invest
would be the Merrill Lynch High Yield Index, which posted a loss of 3.58% during
the quarter, and the Russell 2000 Index, which declined 20.15% during the
quarter. Year-to-date these indices were up 0.77% and down 16.21% respectively.
Net investment income for the third quarter was $3,142,399 or 36.7 cents per
share compared to $3,260 991 or 38.1 cents per share a quarter ago. Part of the
decline in net income was attributable to a one-time expense of 1.0 cents per
share that the Trust incurred during the quarter. A quarterly dividend of $.40
per share was declared and is payable on November 12, 1998 to shareholders of
record on October 30, 1998.
The Trust realized over $11.4 million in gains (or $1.33 per share) during the
quarter. This brings our year-to-date capital gains to $20.6 million (or $2.40
per share.) Of the $2.40 per share, $.56 per share represents short-term capital
gains which, if not offset, must be distributed to shareholders each year.
However, given the recent market volatility, there can be no assurance that the
entire amount of short-term gains will not be offset by short-term losses before
year-end.
Of the $11.4 million in gains realized during the quarter, almost $9 million
came from four of our private placement investments. Sequentia, Inc., a
manufacturer and distributor of fiberglass reinforced panels, struggled
initially, but ended up repaying its subordinated notes and partnership
interests leaving the Trust with a realized gain of over $3.7 million. Unipac
Corporation, a manufacturer of laminated materials that are used to seal a
variety of packaging containers, repaid its senior notes and partnership
interests leaving the Trust with a gain of $2.4 million. TAAC International
Corporation, a leading domestic manufacturer of adhesives and sealants, also
repaid its notes and preferred stock leaving the Trust with a realized gain of
$1.5 million. And finally, an additional gain was realized from a sale that
occurred in January 1998. We sold our warrants of Hein-Werner Corporation back
to the company in January of 1998. At that time, we realized a gain on the sale.
However, we also entered into an "option purchase agreement", which stated that
if another company acquired more than 51% of the shares of Hein-Werner, there
would be a price adjustment to the warrants we sold. This indeed did occur when
Snap-On Inc. bought Hein-Werner, and the Trust received an additional $1.3
million.
Before the markets' volatility began to slow the flow of new private placement
investments, we were able to add some new and old names to our private placement
portfolio. The investment transactions included Diversco, Inc., Maloney
Industries Inc., Merit Industries, Olympic Boat Centers and Sharp International.
These investments have a weighted average coupon of over 11.79% on their fixed
income components. (A brief description of these investments is provided in the
Schedule of Investments.)
Our shareholders are probably aware of the global Year 2000 or "Y2K" issue.
MassMutual has been addressing the Y2K issue since 1996 and it is one of the
company's highest priorities. MassMutual's multi-year Project 2000 is currently
estimated to cost slightly less than $90 million enterprise-wide. Code
correction of all information technology department-supported applications is
expected to be substantially complete by December 31, 1998. MassMutual's
critical computer technology hardware and software is also expected to be "Year
2000 Compliant" according to MassMutual's standards by December 31, 1998. All
business areas are expected to be "Year 2000 Compliant" by June 30, 1999.
Testing will continue through 1999. MassMutual is currently identifying areas
requiring Year 2000 contingency plans and the decision points to execute them.
To address the issue of interdependency between the company and external
entities, MassMutual is seeking assurances from vendors, service providers and
governments to determine their Year 2000 readiness, and is verifying those
assurances wherever possible.
Although we approach this period of market volatility with caution, we view it
as an opportunity to prudently select portfolio companies. The Trustees and
management appreciate the continued interest and support of the shareholders of
MassMutual Corporate Investors.
Sincerely,
/s/ Stuart H. Reese
Stuart H. Reese
President
1
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES MASSMUTUAL CORPORATE INVESTORS
September 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 - $157,239,627; 1997 - $165,771,465) $164,017,692 $179,888,968
Corporate public securities at market value
(Cost 1998 - $54,353,203; 1997 - $40,995,454) 51,599,128 45,966,639
Short-term securities at cost plus earned discount which
approximates market value 5,964,684 --
------------ ------------
221,581,504 225,855,607
Cash 1,177,095 --
Interest and dividends receivable, net 3,618,938 3,988,779
Receivable for investments sold 4,050,198 3,855,606
Other assets 8,106 4,043
------------ ------------
Total assets $230,435,841 $233,704,035
============ ============
Liabilities:
Payable for investments purchased $ 3,354,111 $ 3,941,700
Management fee payable (Note 3) 770,319 782,593
Note payable (Note 4) 20,000,000 20,000,000
Interest payable (Note 4) 136,211 136,211
Accrued expenses 77,389 95,715
Other liabilities 167,498 56,444
------------ ------------
Total liabilities 24,505,528 25,012,663
------------ ------------
Net Assets:
Common shares, par value $1.00 per share;
an unlimited number authorized (Note 6) 8,569,162 4,256,724
Additional paid-in capital 95,644,211 98,590,717
Retained net realized gain on investments, prior years 73,493,073 57,447,542
Undistributed net investment income (Note 2D) 3,576,753 3,391,077
Undistributed net realized gain on investments 20,623,124 25,916,624
Net unrealized appreciation (depreciation) of investments (Notes 2A, 2B and 5) 4,023,990 19,088,688
------------ ------------
Total net assets 205,930,313 208,691,372
------------ ------------
Total liabilities and net assets $230,435,841 $233,704,035
============ ============
Common shares issued and outstanding (Note 6) 8,569,162 8,513,448
============ ============
Net asset value per share $ 24.03 $ 24.51
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
2
<PAGE>
STATEMENT OF OPERATIONS MASSMUTUAL CORPORATE INVESTORS
For the nine months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest $ 12,785,932 $ 12,240,028
Dividends 540,126 471,483
------------ ------------
Total income 13,326,058 12,711,511
------------ ------------
Expenses:
Management fee (Note 3) 2,371,203 2,180,847
Trustees' fees and expenses 99,173 80,467
Transfer Agent/Registrar's expenses 45,000 64,706
Interest (Note 4) 799,500 799,500
Reports to shareholders 18,000 20,520
Audit and legal 41,266 42,294
Other 113,189 20,207
------------ ------------
Total expenses 3,487,331 3,208,541
------------ ------------
Net investment income (1998 - $1.15 per share; 1997 - $1.12 per share) 9,838,727 9,502,970
------------ ------------
Net realized and unrealized gain (loss) on investments (Notes 2A and 2B):
Net realized gain on investments 20,604,991 25,916,624
Net change in unrealized appreciation/depreciation of investments (11,889,461) 7,132,248
------------ ------------
Net gain on investments 8,715,530 33,048,872
------------ ------------
Net increase in net assets resulting from operations $ 18,554,257 $ 42,551,842
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
3
<PAGE>
STATEMENT OF CASH FLOWS MASSMUTUAL CORPORATE INVESTORS
For the nine months ended September 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 $ 12,650,708 $ 11,335,499
Interest expense paid (799,500) (799,500)
Operating expenses paid (2,548,609) (2,251,470)
Federal income tax paid (8,639,902) (6,210,942)
------------- -------------
Net cash provided for operating activities 662,697 2,073,587
------------- -------------
Cash flows from investing activities:
Change in short-term portfolio securities, net (2,967,283) 920,211
Purchase of portfolio securities (97,698,906) (100,117,322)
Proceeds from disposition of portfolio securities 113,819,069 109,640,091
------------- -------------
Net cash provided by investing activities 13,152,880 10,442,980
------------- -------------
Net cash provided by operating and investing activities 13,815,577 12,516,567
------------- -------------
Cash flows from financing activities:
Increase in receipts for shares issued on reinvestment of dividends 1,365,932 --
Cash dividends paid from net investment income (9,616,867) (8,684,884)
Cash dividends paid from net realized gain on investments (4,467,858) (3,915,019)
------------- -------------
Net cash used for financing activities (12,718,793) (12,599,903)
------------- -------------
Net increase (decrease) in cash 1,096,784 (83,336)
Cash - beginning of year 80,311 83,336
------------- -------------
Cash - end of period $ 1,177,095 $ --
============= =============
Reconciliation of net increase (decrease) in net assets to net cash from
operating and investing activities:
Net increase in net assets resulting from operations $ 18,554,257 $ 42,551,842
------------- -------------
(Increase) decrease in investments 4,672,530 (23,369,542)
(Increase) decrease in interest and dividends receivable, net (48,549) (972,378)
(Increase) decrease in receivable for investments sold (3,890,486) (3,173,072)
(Increase) decrease in other assets (8,106) (4,043)
Increase (decrease) in payable for investments purchased 3,204,111 3,593,575
Increase (decrease) in management fee payable 47,100 136,583
Increase (decrease) in accrued expenses (75,378) (35,456)
Increase (decrease) in accrued taxes (8,639,902) (6,210,942)
------------- -------------
Total adjustments to net assets from operations (4,738,680) (30,035,275)
------------- -------------
Net cash provided by operating and investing activities $ 13,815,577 $ 12,516,567
============= =============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
4
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS MASSMUTUAL CORPORATE INVESTORS
For the nine months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 9,838,727 $ 9,502,970
Net realized gain on investments 20,604,991 25,916,624
Net change in unrealized appreciation/depreciation of investments (11,889,461) 7,132,248
------------- -------------
Net increase in net assets resulting from operations 18,554,257 42,551,842
Increase in receipts for shares issued on reinvestment of dividends 1,365,932 --
Dividends to shareholders from:
Net investment income (1998 - $.80 per share; 1997 - $.72 per share) (6,848,294) (6,129,683)
------------- -------------
Total increase 13,071,895 36,422,159
Net Assets, beginning of year 192,858,418 172,269,213
------------- -------------
Net Assets, end of period (including undistributed net investment income
in 1998 - $3,576,753; 1997 - $3,391,077) $ 205,930,313 $ 208,691,372
============= =============
</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
nine months For the
ended 9/30/98 year ended
(Unaudited) 12/31/97
------------- -----------
<S> <C> <C>
Net asset value:
Beginning of year $ 22.65 $ 20.23
---------- ----------
Net investment income 1.15 1.49
Net realized and unrealized gain on investments 1.03 2.87
---------- ----------
Total from investment operations 2.18 4.36
---------- ----------
Dividends from net investment income to common shareholders (0.80) (1.42)
Distributions from net realized gain on investments to common shareholders -- (.52)
---------- ----------
Total distributions (0.80) (1.94)
---------- ----------
Net asset value:
End of period $ 24.03 $ 22.65
========== ==========
Per share market value:
End of period $ 22.50 $ 25.75
========== ==========
Total investment return:
Market value (9.75)%* 52.43%
Net asset value 9.58 %* 27.14%
Net assets (in millions):
End of period $ 205.93 $ 192.86
Ratio of operating expenses to average net assets 1.32%* 1.69%
Ratio of interest expenses to average net assets .39%* .56%
Ratio of total expenses to average net assets 1.71%* 2.25%
Ratio of net investment income to average net assets 3.27%* 6.66%
Portfolio turnover 41.25%* 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
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
Corporate Restricted Securities - 79.64%: (A) Amount Date Date (Note 2B) (Note 2A)
----------- ----------- -------------- -------- ---------
Private Placement Investments - 70.56%
<S> <C> <C> <C> <C> <C>
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 $ 406,260
due 2002
Senior Secured Series A Floating Rate Note $ 715,389 10/31/96 704,665 715,389 357,694
due 2002
10.1% Senior Secured Series A Note due 2002 $ 986,000 10/31/96 960,758 986,000 493,000
12% Senior Secured Series B Note due 2004 $ 1,098,000 10/31/96 1,155,206 1,007,643 549,000
Membership Interests (B) 5 int. 10/31/96 264,080 228,524 33,010
Warrant, exercisable until 2004, to purchase 3 int. 10/31/96 -- 109,800 --
Membership Interests at $.01 per interest (B) ---------- ---------- ----------
3,897,229 3,859,876 1,838,964
---------- ---------- ----------
Adventure Entertainment Corporation
An owner and operator of themed family
entertainment centers
7% Redeemable Series B Preferred Stock 1,746 shs. 10/31/97 170,197 1,691,286 1,690,440
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) ---------- ---------- ----------
170,261 1,716,291 1,690,504
---------- ---------- ----------
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 11/23/93 571,434 583,334 587,184
---------- ---------- ----------
Ardent Software, Inc.
A manufacturer and distributor of database management software
Common Stock (B) 83,770 shs. 12/14/95 251,310 686,750 837,700
---------- ---------- ----------
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 3,187,682 3,401,033
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 3,526,028 3,618,891
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
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 $ 1,252,211 8/31/95 $1,252,211 $1,252,211 $1,252,212
due 2002
13% Senior Subordinated Note due 2002 $ 799,318 8/31/95 8,135 721,855 844,479
Class A Common Stock (B) 13,453 shs. 8/31/95 15,799 18,384 33,901
Class B Common Stock (B) 37,200 shs. 8/31/95 43,689 50,837 93,744
Class G Common Stock (B) 96,846 shs. 8/31/95 113,733 104,000 244,051
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 -- -- --
---------- ---------- ----------
1,433,567 2,147,287 2,468,387
---------- ---------- ----------
Beta Brands, Inc. - T.S.E
A manufacturer of hard candy and chocolate-coated
products sold primarily to the Canadian market
Senior Secured Revolving Credit note due 2005 $ 46,479 12/23/97 46,479 46,479 46,479
Senior Secured Tranche A Floating Rate Note $ 2,294,000 12/23/97 2,273,813 2,294,000 2,275,877
due 2004
14.75% Senior Secured Tranche B Note due 2005 $ 664,510 12/23/97 691,090 664,510 691,090
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 interest (B) ---------- ---------- ----------
3,662,460 3,816,157 3,664,524
---------- ---------- ----------
C&K Manufacturing and Sales Company
A manufacturer and distributor of branded packaging
and supply products
Senior Secured Floating Rate Revolving Credit $ 651,700 8/29/96 651,700 651,700 325,850
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 8/29/96 524,738 510,937 266,500
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 3,729,122 1,790,567
---------- ---------- ----------
Cains Foods, L.P.
A producer of mayonnaise, sauce and pickle products
for both the retail and food service markets
Senior Secured Floating Rate Revolving Credit $ 540,540 9/29/95 540,540 540,540 533,838
Note due 2000
10% Senior Secured Term Note due 2004 $ 1,297,296 9/29/95 1,297,296 1,297,296 1,311,696
11.5% Senior Subordinated Note due 2004 $ 945,945 9/29/95 895,706 909,222 966,377
8% Junior Subordinated Convertible Note due $ 108,108 9/29/95 108,108 108,108 134,086
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) ---------- ---------- ----------
2,891,911 2,905,427 3,008,853
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Capitol Vial, Inc.
A producer of plastic vial containers.
19% Senior Subordinated Note due 2004 $ 3,659,874 12/30/97 $3,583,017 $3,659,874 $3,613,760
Common Stock (B) 66 shs. 12/30/97 263 328 263
---------- ---------- ----------
3,583,280 3,660,202 3,614,023
---------- ---------- ----------
Catalina Lighting, Inc. - N.Y.S.E
A designer, importer and distributor of residential
and office lighting fixtures
8% Convertible Subordinated Note due 2002, $ 1,500,000 3/31/94 1,420,050 1,500,000 1,354,800
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 11,344
---------- ---------- ----------
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 6/26/89 120,474 116,750 107,363
due 1999 ---------- ---------- ----------
Consumer Product Enterprises, Inc.
A manufacturer of colored acrylic felt for
consumer use
Senior Secured Floating Rate Revolving Credit $ 146,110 12/8/95 146,110 146,110 144,723
Notes due 2000
10.75% Senior Secured Term Note due 2003 $ 1,214,205 12/8/95 1,226,772 1,214,205 1,216,391
12% Senior Subordinated Note due 2005 $ 800,575 12/8/95 803,858 763,671 796,412
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) ---------- ---------- ----------
2,316,544 2,359,399 2,297,330
---------- ---------- ----------
Control Devices, Inc. - O.T.C
A producer of high quality electromechanical circuit
protector devices and photo-optic sensors
Common Stock (B) 290,332 shs. * 43,737 26,242 3,171,881
---------- ---------- ----------
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 4,539,869
---------- ---------- ----------
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 43,111 shs. 5/12/98 -- -- 431
per share (B) ---------- ---------- ----------
500,000 500,000 400,431
---------- ---------- ----------
</TABLE>
(*) 7/29/94 and 10/8/96.
- --------------------------------------------------------------------------------
9
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
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.
12% Senior Subordinated Note due 2006 $ 2,814,000 8/28/98 2,799,086 2,558,689 2,811,187
Membership Interests of DHI Holdings, Inc. (B) 7,341 int. 8/27/98 587,272 734,090 587,272
Warrant, exercisable to 2003 & 2006, to purchase 3,627 int. * 36 403,427 36
Membership Interests at $.01 per interest (B)
---------- ----------- -----------
3,386,394 3,696,206 3,398,495
---------- ----------- -----------
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 3,397,020
convertible into common stock at $4.26 per share ---------- ----------- -----------
Evans Consoles, Inc.
A designer and manufacturer of consoles and control
center systems
Senior Secured Tranche A Floating Rate Note $ 1,280,000 3/2/98 1,270,272 1,280,000 1,271,040
due 2005
8.85% Senior Secured Tranche A Note due 2005 $ 1,280,000 3/2/98 1,192,192 1,280,000 1,213,184
11.75% Senior Secured Tranche B Note due 2006 $ 700,000 3/2/98 743,750 592,535 752,430
Common Stock (B) 26,906 shs. ** 75,600 94,880 75,601
Limited Partnership Interests of CM Equity 1,264 int. ** 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)
---------- ----------- -----------
3,383,318 3,485,860 3,413,759
---------- ----------- -----------
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 until 19 shs. 4/28/95 3,339 2,273 985
2000, to purchase common stock at $.01 per share (B)
---------- ----------- -----------
1,332,685 445,228 48,477
---------- ----------- -----------
</TABLE>
* 10/24/96 and 8/28/98.
**2/11/98 and 4/8/98.
- --------------------------------------------------------------------------------
10
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Golden Bear Oil Specialties
A manufacturer of asphalt and specialty lubricating
and processing oils.
17% Senior Subordinated Note due 2005 $3,236,684 7/18/97 $3,267,757 $3,170,245 $3,218,559
12% Series A Convertible Preferred Stock 252 shs. 6/19/98 251,770 251,768 248,950
12% Preferred Stock 311 shs. 7/18/97 31,491 311,111 161,995
Common Stock (B) 20,800 shs. 7/18/97 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)
---------- ---------- ----------
3,638,160 3,880,963 3,630,116
---------- ---------- ----------
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
---------- ---------- ----------
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 2,348,366 2,680,139
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 3,464,960 3,284,552
---------- ---------- ----------
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 1,490,826 1,535,400
---------- ---------- ----------
Hudson River Capital, LLC
Acquires controlling or substantial interests in
manufacturing and marketing entities
Series A Preferred Units (B) 88,730 uts. 7/21/94 787,305 570,981 842,935
---------- ---------- ----------
Hussey Seating Company
A manufacturer of spectator seating products
Senior Secured Floating Rate Revolving Note 450,000 6/12/96 445,589 450,000 450,000
due 2003
Senior Secured Floating Rate Note due 2003 $ 675,000 6/12/96 668,318 675,000 675,000
10% Senior Secured Note due 2003 $ 675,000 6/12/96 657,180 675,000 675,000
12% Subordinated Secured Note due 2006 $1,350,000 6/12/96 1,327,320 1,159,877 1,479,600
Warrant, exercisable until 2006, to purchase 3,553 shs. 6/12/96 36 225,000 342,058
common stock at $.01 per share (B)
---------- ---------- ----------
3,098,443 3,184,877 3,621,658
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Iron Mountain Inc. - O.T.C.
A records management company.
Common Stock (B) 7,075 shs. 6/26/98 $ -- $ 135,236 $ 191,025
---------- ---------- ----------
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 3,073,651 3,384,995
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 3,406,951 3,489,266
---------- ---------- ----------
Latin Communications Group
An operator of Spanish-language media in
North America
5% Subordinated Note due 2005 $ 46,594 2/4/98 32,616 33,517 33,478
Common Stock (B) 89,836 shs. * 638,887 826,484 898,360
---------- ---------- ----------
671,503 860,001 931,838
---------- ---------- ----------
Lloyd's Barbecue Company
A manufacturer and marketer of packaged barbecue
meats and related products
18% Senior Subordinated Note due 2006 $ 1,726,615 9/30/97 1,726,615 1,726,615 1,812,945
Membership Interests of LFPI Mainstreet (B) 18,725 uts. 9/30/97 1,870,300 1,872,742 1,685,250
---------- ---------- ----------
3,596,915 3,599,357 3,498,195
---------- ---------- ----------
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 10,334
---------- ---------- ----------
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 2,200,973
Limited Partnership Interests (B) 568 uts. 10/20/95 506,250 677,832 570,141
Limited Partnership Interests of APS Growth 671 uts. 9/28/98 682,583 800,000 803,016
LLC (B)
Warrant, exercisable until 2004, to purchase 297 uts. 10/26/95 297 -- 297,816
Limited Partnership Interests at $.01 per unit (B)
---------- ---------- ----------
3,567,380 3,502,832 3,871,946
---------- ---------- ----------
</TABLE>
*2/14/95, 12/1/95, 2/27/96 and 2/4/98.
- --------------------------------------------------------------------------------
12
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
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.
Senior Floating Rate Revolving Credit Facility $ 329,668 6/28/95 $ 329,668 $ 329,668 $ 329,668
due 2001
Common Stock (B) 76923 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)
---------- ---------- ----------
620,364 731,866 576,923
---------- ---------- ----------
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 5,844,746
---------- ---------- ----------
Merit Industries, Inc.
A designer and manufacturer of coin-operated video
and dart games
12% Senior Sub Note due 2006 $ 2,516,293 8/19/98 2,469,238 2,331,715 2,480,310
Limited Partnership Interest 983,707 int. 8/12/98 885,336 927,543 885,336
Warrants, exercisable until 2006, to purchase 1,855 int. 8/19/98 19 185,411 19
Limited Partnership interests at $.01 per share (B)
---------- ---------- ----------
3,354,593 3,444,669 3,365,665
---------- ---------- ----------
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 -- 2,778
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 2002, $ 1,411,800 8/31/94 1,425,918 1,411,800 1,518,250
convertible into common stock at $9 per share ---------- ---------- ----------
Olympic Boat
An operator of boat dealerships in Washington
State and British Columbia
12% Senior Subordinated Note due 2006 $ 2,774,000 8/7/98 2,764,568 2,425,118 2,771,226
Limited Partnership Interest (B) 826,046 int. 8/7/98 743,441 738,385 743,442
Warrant, exercisable until 2007, to purchase 25,793 int. 8/7/98 258 350,400 258
Limited Partnership Interests at $.01 per interest (B)
---------- ---------- ----------
3,508,267 3,513,903 3,514,926
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
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 $ 525,000 2/5/93 $ 524,160 $ 525,000 $ 525,000
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
---------- ---------- ----------
1,024,160 1,025,000 1,287,666
---------- ---------- ----------
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 11/30/95 756,174 725,625 761,689
10.5% Senior Secured Convertible Note due $ 195,000 11/30/95 205,335 195,000 223,665
2005, convertible into common stock at
$50,000 per share
Common Stock 7 shs. 11/30/95 227,812 337,500 200,506
---------- ---------- ----------
1,189,321 1,258,125 1,185,860
---------- ---------- ----------
Plastipak Packaging, Inc.
A manufacturer of plastic containers
10.64% Senior Subordinated Note due 2006 $ 3,500,000 10/25/96 3,403,750 3,422,919 3,585,050
Warrant, exercisable until 2006, to purchase 97 shs. 10/25/96 55,599 93,625 72,141
common stock at $.01 per share (B)
---------- ---------- ----------
3,459,349 3,516,544 3,657,191
---------- ---------- ----------
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 2,521,354 2,830,312
Limited Partnership Interests of Green Grass 81,548 uts. 3/13/97 293,573 417,728 256,876
Capital II, LLC (B)
Warrant, exercisable until 2005, to purchase 148,044 uts. 3/13/97 531,774 680,722 465,154
Limited Partnership Interests of Green Grass
Capital II, LLC at $.01 per unit (B) ---------- ---------- ----------
3,410,347 3,619,804 3,552,342
---------- ---------- ----------
Precision Dynamics, Inc.
A manufacturer of custom-designed solenoid
valves and controls
Senior Secured Floating Rate Revolving Credit 782,400 7/22/96 774,654 782,400 776,531
Facility due 2003
Senior Secured Floating Rate Term Note due 2003 $ 2,608,000 7/22/96 2,582,442 2,608,000 2,591,048
12% Senior Secured Term Note due 2004 $ 489,000 7/22/96 482,545 408,103 508,511
8% Preferred Stock 232 shs. 7/22/96 220,231 231,822 194,019
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)
---------- ---------- ----------
4,081,574 4,157,103 4,100,730
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
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 $2,016,800
Common Membership Interests (B) 9 int. 7/31/97 23 25 23
---------- ---------- ----------
1,967,623 1,950,864 2,016,823
---------- ---------- ----------
Protein Genetics, Inc.
A producer of bovine artificial insemination
products, breeding and healthcare products and
related 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 1,200,000 840,000
11.51% Junior Secured Note due 1999 $ 600,000 8/12/94 587,280 600,000 360,000
9.8% Redeemable Exchangeable Preferred Stock 10,000 shs. 8/12/94 847,900 1,000,000 250,000
Common Stock (B) 1,492 shs. 8/12/94 15 -- 149
---------- ---------- ----------
2,619,355 2,800,000 1,450,149
---------- ---------- ----------
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 1,629,300
Common Stock (B) 35,500 shs. 2/16/93 340,800 340,800 396,269
---------- ---------- ----------
1,939,950 1,840,800 2,025,569
---------- ---------- ----------
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 -- 286,494
common stock at $9.94 per share (B) ---------- ---------- ----------
Sharp International Corp.
A designer and distributor of wrist watches,
clocks, pens and mechanical pencils
11% Subordinated Debenture due 2006 $ 2,200,000 7/10/98 2,108,260 2,169,743 2,110,460
Warrants, exercisable until 2006, to purchase 35,528 shs. 7/10/98 355 30,171 355
common stock at $.01 per share (B)
---------- ---------- ----------
2,108,615 2,199,914 2,110,815
---------- ---------- ----------
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 1,375,768
10.5% Subordinated Note due 2004 $ 716,418 5/27/94 716,418 716,418 724,585
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 2,361,108
---------- ---------- ----------
Supreme Industries, Inc. - A.S.E
A manufacturer of modular homes and truck bodies
Common Stock (B) 578,533 shs. * 1,323,282 1,243,471 5,011,542
---------- ---------- ----------
</TABLE>
(*)5/23/79, 12/15/95 and 6/9/96.
- --------------------------------------------------------------------------------
15
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
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 $2,339,426 $2,475,200
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 3,507,642 3,541,603
---------- ---------- ----------
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 1,187,357 1,241,040
Common Stock (B) 258,720 shs. * 400,000 798,595 3,051,292
Warrant, exercisable until 2001, to purchase 74,606 shs. 3/28/91 7,461 42,000 651,586
common stock at $3.60 per share (B)
---------- ---------- ----------
1,681,741 2,027,952 4,943,918
---------- ---------- ----------
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 2,360,634 2,783,598
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 3,359,466 3,350,602
---------- ---------- ----------
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 2,510,566 2,513,500
Limited Partnership Interests of Riverside V 5,359 uts. ** 655,759 591,115 655,760
Holding Company L.P.
Limited Partnership Interests of Riverside V-A 11,467 uts. ** 1,485,581 1,264,026 1,137,624
Holding Company L.P.
Warrant, exercisable until 2005, to purchase 3,131 uts. 3/21/97 3,131 3,131 3,131
Limited Partnership Interests at $.01 per unit (B)
---------- ---------- ----------
4,737,146 4,368,838 4,310,015
---------- ---------- ----------
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 30,000 3,000,000 2,935,500
Common Stock (B) 71,429 shs. 4/17/98 500,003 500,003 225,001
Warrant, exercisable until 2005, to purchase 95,709 shs. 4/17/98 -- -- 9,571
common stock at $7 per share (B)
---------- ---------- ----------
530,003 3,500,003 3,170,072
---------- ---------- ----------
</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.
- --------------------------------------------------------------------------------
16
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/98
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 $ 2,329,446 $ 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 3,531,039 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 1,501,288
12% Subordinated Note due 2005 $ 652,050 5/3/95 733,622 623,769 692,673
Common Stock (B) 4,911 shs. 5/3/95 162,652 391,230 26,166
Warrant, exercisable until 2005, to purchase 2,795 shs. 5/3/95 92,549 35,923 14,869
common stock at $.01 per share (B)
------------ ------------ ------------
2,585,402 2,494,745 2,234,996
------------ ------------ ------------
U.S. Silica Company
A producer of high grade industrial and specialty
ground silica sands in North America
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) ------------ ------------ ------------
887,988 1,166,830 879,156
------------ ------------ ------------
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
------------ ------------ ------------
Vitex Packaging, Inc.
A manufacturer of specialty packaging, primarily
envelopes and tags used on tea bags
Senior Secured Floating Rate Revolving Credit $ 800,476 1/2/98 794,072 800,477 794,793
Facility due 2003
Senior Secured Floating Rate Term Note due 2005 $ 2,184,000 1/2/98 2,166,746 2,184,000 2,168,712
12% Senior Secured Tranche B Note due 2007 $ 672,000 1/2/98 678,787 621,600 682,147
Limited Partnership Interests of Riverside VI 323,782 int. 12/30/97 2,590 300,443 259,025
Holding Company L.P.
Warrant, exercisable until 2007, to purchase 89 shs. 1/2/98 1 50,402 1
common stock at $.01 per share (B)
------------ ------------ ------------
3,642,196 3,956,922 3,904,678
------------ ------------ ------------
Sub-total Private Placement Investments $124,387,740 133,741,181 145,313,956
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares or Market Value
Interest Due Principal Cost at 9/30/98
Rule 144A Securities: 9.08% (A) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Bonds - 5.24%
Atlantic Coast Airlines Inc. 8.750% 01/01/07 $ 554,252 $ 554,252 $ 565,648
Bell Sports, Inc. 11.000 08/15/08 400,000 400,000 384,000
Brand Scaffold Services 10.250 02/15/08 400,000 382,510 372,000
Building Materials Corp. 7.750 07/15/05 175,000 169,761 170,625
Climachem, Inc. 10.750 12/01/07 175,000 168,019 168,000
Cuddy International Corp. 10.750 12/01/07 525,000 517,535 456,750
DeCrane Aircraft 12.000 09/30/08 700,000 700,000 703,500
Derby Cycle Corp. 10.000 05/15/08 650,000 650,000 598,000
Doe Run Resources Corp. 11.250 03/15/05 300,000 300,000 247,500
Great Lakes Dredge & Dock Corp. 11.250 08/15/08 450,000 450,000 441,000
Grove Worldwide 9.250 05/01/08 160,000 139,234 139,200
IMPAC Group Inc. 10.125 03/15/08 750,000 750,000 720,000
JTM Industries / ISG Resources, Inc. 10.000 04/15/08 300,000 300,000 303,000
M J D Communications Inc. 10.000 05/01/08 250,000 250,000 247,500
M J D Communications Inc. 9.500 05/01/08 100,000 100,000 99,000
McLeodUSA Incorporated 8.375 03/15/08 650,000 660,125 638,625
Mediacom LLC 8.500 04/15/08 450,000 447,767 451,575
Mrs. Fields Original Cookies, Inc. 10.125 12/01/04 800,000 776,388 752,000
NE Restaurant Company, Inc. 10.750 07/15/08 520,000 516,250 509,600
Nortek Inc. 8.875 08/01/08 500,000 498,225 483,750
Numatics Inc. 9.625 04/01/08 400,000 406,188 356,000
Oxford Health Plans 11.000 05/15/05 100,000 100,000 87,000
Philipp Brothers Chemicals, Inc. 9.875 06/01/08 110,000 105,602 104,500
Renter's Choice, Inc. 11.000 08/15/08 450,000 450,000 435,375
Tenet Healthcare Corp. 8.125 12/01/08 600,000 607,500 607,500
Tjiwi Kima Fin Mauritius LTD 10.000 08/01/04 500,000 497,610 215,000
Von Hoffman Press, Inc. 10.375 05/15/07 530,000 534,312 530,000
----------- ----------- -----------
Total Bonds $11,499,252 11,431,278 10,786,648
=========== =========== ===========
Common Stock - 0.10%
Energy Conversion Devices Inc. 32,500 430,625 184,844
Jordan Telecom Products 70 14,000 17,500
----------- -----------
Total Common Stock 444,625 202,344
----------- -----------
Convertible Bonds - 2.59%
Antec Corp. 4.500 05/15/03 $ 300,000 300,000 267,000
Arbor Software Corporation 4.500 03/15/05 200,000 200,000 136,682
Concentra Managed Care, Inc. 4.500 03/15/03 600,000 600,000 371,316
Cymer Inc. 3.500 08/06/04 375,000 377,500 231,439
Equity Corporation International 4.500 12/31/04 400,000 400,000 442,216
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 1,142,220
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 9/30/98
Rule 144A Securities: (A) (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Convertible Bonds (Continued)
Key Energy Group 5.000% 09/15/04 $ 1,000,000 $ 1,000,000 $ 624,700
Mark IV Industries 4.750 11/01/04 750,000 711,874 621,728
Oak Industries 4.875 03/01/08 150,000 154,500 136,312
Smartalk Teleservices 5.750 09/15/04 300,000 300,000 149,250
Sunbeam Corporation 0.000 03/25/18 3,750,000 1,432,707 600,000
Tel-Save 4.500 09/15/02 1,080,000 1,077,462 563,943
------------ ------------ ------------
Total Convertible Bonds $ 10,905,000 8,554,043 5,334,306
============ ============ ============
Convertible Preferred Stock - 1.11%
D T Industries 40,000 2,000,000 1,145,000
Newell Financial Trust 20,250 1,012,500 1,149,188
------------ ------------
Total Convertible Preferred Stock 3,012,500 2,294,188
------------ ------------
Preferred Stock - 0.03%
Jordan Telecom Products 70 56,000 70,000
------------ ------------
Total Preferred Stock 56,000 70,000
------------ ------------
Warrants - 0.01%
Energy Conversion Devices Inc. 32,500 -- 16,250
------------ ------------
Total Warrants -- 16,250
------------ ------------
Total Rule 144A Securities 23,498,446 18,703,736
------------ ------------
Total Corporate Restricted Securities 157,239,627 164,017,692
------------ ------------
Corporate Public Securities: (A)
Bonds - 13.79%
Advanced Micro Devices 11.000 08/01/03 $ 105,000 111,300 106,050
Aearo Company 12.500 07/15/05 1,000,000 1,000,000 1,077,500
AMC Entertainment 9.500 03/15/09 140,000 131,783 131,600
Amphenol Corporation 9.875 05/15/07 400,000 400,000 374,000
Amtran, Inc. 10.500 08/01/04 600,000 600,000 600,000
Anchor Advanced Products 11.750 04/01/04 410,000 413,000 430,500
Atlantic Express 10.750 02/01/04 1,375,000 1,392,719 1,402,500
Callon Petroleum Company 10.125 09/15/02 500,000 497,620 488,750
Canadian Airlines Corporation 10.000 05/01/05 455,000 456,000 423,150
Canadian Airlines Corporation 12.250 08/01/06 400,000 370,216 352,000
Central Tractor Farm & Country, Inc. 10.625 04/01/07 600,000 586,500 582,000
Continental Airlines, Inc. 9.500 12/15/01 750,000 750,000 780,000
Continental Airlines, Inc. 11.500 04/02/08 631,669 675,886 675,886
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares or Market Value
Interest Due Principal Cost at 9/30/98
Corporate Public Securities: (A) (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Bonds (Continued)
DecisionOne Corporation 9.750% 08/01/07 $ 525,000 $ 523,374 $ 341,250
Florist Transworld Delivery, Inc. 14.000 12/15/01 1,475,000 1,461,970 1,563,500
Fundy Cable LTD 11.000 11/15/05 740,000 781,125 777,000
Gray Communications System, Inc. 10.625 10/01/06 300,000 316,500 315,000
Hosiery Corporation of America 13.750 08/01/02 1,000,000 992,084 1,050,000
Indah Kiat International Corporation 11.875 06/15/02 1,000,000 1,000,000 520,000
International Wire Group, Inc. 11.750 06/01/05 550,000 598,125 563,750
International Wire Group, Inc. 11.750 06/01/05 750,000 750,000 768,750
Jordan Industries, Inc. 10.375 08/01/07 500,000 500,000 477,500
Jordan Telecom Products 9.875 08/01/07 1,150,000 1,140,765 1,081,000
Key Plastics, Inc. 14.000 11/15/99 750,000 760,462 791,250
Keystone Consolidated Ind. Inc. 9.625 08/01/07 100,000 90,518 91,000
Loewen Group Inc. 8.250 10/15/03 125,000 118,760 119,375
Loewen Group Inc. 8.250 04/15/03 250,000 234,445 238,750
MCMS Inc. 9.750 03/01/08 600,000 600,000 336,000
Morris Materials Handling 9.500 04/01/08 300,000 300,000 216,000
Neenah Corporation 11.125 05/01/07 300,000 300,000 303,000
Neff Corp. 10.250 06/01/08 130,000 129,189 130,000
Nextel Communications 9.950 02/15/08 575,000 363,369 345,000
Nortek Inc. 9.125 09/01/07 150,000 145,508 146,250
Northwest Airlines Corp. 10.150 01/02/05 550,413 550,413 612,378
Numatics Inc. 9.625 04/01/08 220,000 201,534 198,000
Pillotex Corporation 10.000 11/15/06 100,000 103,000 102,750
Pillotex Corporation 9.000 12/15/07 70,000 68,605 66,150
Red Roof Inns, Inc. 9.625 12/15/03 325,000 325,812 317,688
Remington Products Company 11.000 05/15/06 600,000 596,210 456,000
Rogers Cantel Inc. 9.375 06/01/08 275,000 279,125 280,500
Scotsman Group, Inc. 8.625 12/15/07 230,000 229,614 223,100
Scovill Fastener, Inc. 11.250 11/30/07 500,000 500,000 450,000
Sovereign Speciality Chemicals 9.500 08/01/07 200,000 200,000 193,000
Speedway Motorsports, Inc. 8.500 08/15/07 275,000 274,324 281,875
Sun Media Corporation 9.500 05/15/07 450,000 469,750 441,000
Sun Media Corporation 9.500 02/15/07 175,000 175,875 174,125
Tekni-Plex Inc. 9.250 03/01/08 650,000 650,000 628,875
Telex Communications, Inc. 10.500 05/01/07 1,150,000 1,162,938 897,000
Therma-Wave, Inc. 10.625 05/15/04 710,000 653,519 340,800
Trans World Airlines 11.500 12/15/04 500,000 494,602 480,000
Unicco Service Co. 9.875 10/15/07 325,000 323,559 299,000
United Refining Company 10.750 06/15/07 1,750,000 1,750,000 1,400,000
W R Carpenter North America 10.625 06/15/07 625,000 631,957 615,625
Wavetek Corporation 10.125 06/15/07 130,000 130,000 119,600
Williams Scotsman, Inc. 9.875 06/01/07 910,000 908,842 891,800
Windmere Durable Holdings, Inc. 10.000 07/31/08 360,000 349,448 309,600
Worldtex, Inc. 9.625 12/15/07 600,000 600,000 534,000
Ziff-Davis Inc. 8.500 05/01/08 500,000 498,213 485,000
----------- ----------- -----------
Total Bonds $30,817,082 30,618,558 28,396,177
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares or Market Value
Interest Due Principal Cost at 9/30/98
Corporate Public Securities: (A) (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock - 7.89%
A M R Corporation (B) 4,900 $ 356,105 $ 271,645
American Country Holdings Inc. (B) 405,590 760,889 633,734
Benson Petroleum, LTD. (B) 200,000 154,408 124,480
BP Prudhoe Bay Royalty Trust 26,180 372,266 245,439
Budget Group, The (B) 106,059 2,209,423 2,419,471
Career Blazers, Inc. (B) 105,000 577,500 695,625
Central Rents, Inc. (B) 1,880 67,856 56,400
Collins & Aikman Corporation (B) 40,200 240,834 276,375
Corporate Office Properties 56,050 588,525 444,897
Dura Automotive Systems Inc. (B) 6,710 219,752 173,621
Excalibur Technologies Corp. (B) 23,334 230,210 172,088
Florida Panthers Holdings, Inc. (B) 35,502 681,042 383,865
Florist Transworld Delivery, Inc. (B) 29,372 41,258 146,860
General Chemical Group, Inc. 10,200 261,398 192,525
General Instrument Corp. (B) 16,100 383,680 348,162
Hardy Oil & Gas PLC 278,227 819,741 763,015
Hosiery Corporation of America (B) 1,000 -- 50,000
Irwin Naturals (B) 27,000 151,000 135,000
LCS Industries, Inc. 35,000 546,831 463,750
Marker International (B) 54,250 339,062 54,250
McLeodUSA Incorporated (B) 10,893 423,720 238,284
Midway Airlines Corp. (B) 27,088 505,057 267,494
N2K, Inc. (B) 23,834 625,789 171,307
Oxford Health Plans (B) 24,375 459,901 252,891
Pathways Group Inc. (B) 28,655 640,350 458,480
Pool Energy Services Co. (B) 4,900 39,703 44,712
Princeton Video Image, Inc. (B) 70,000 490,000 288,750
Red Roof Inns, Inc. (B) 33,200 481,272 558,175
Rent-Way, Inc. (B) 201,207 2,000,000 4,954,722
Republic Industries, Inc. (B) 35,000 859,688 509,689
Supreme Industries, Inc. 19,082 9,497 11,926
Swiss Army Brands, Inc. (B) 39,000 393,825 390,000
TSR Inc. (B) 6,500 42,640 42,640
----------- -----------
Total Common Stock $15,973,222 16,240,272
=========== ===========
Convertible Bonds - 3.34%
Advanced Micro Devices 6.000% 05/15/05 $ 270,000 $ 215,446 209,471
Clear Channel Communications 2.625 04/01/03 650,000 650,000 656,500
Diamond Offshore Drilling 3.750 02/15/07 900,000 896,968 846,495
Dura Pharmaceuticals 3.500 07/15/02 590,000 597,031 404,474
EMCOR Group, Inc. (B) 5.750 04/01/05 650,000 650,000 536,250
Family Golf Centers, Inc. 5.750 10/15/04 630,000 609,596 582,750
Hilton Hotels 5.000 05/15/06 1,385,000 1,385,000 1,195,726
Kellstorm Industries, Inc. 5.500 06/15/03 975,000 833,409 720,486
Oak Industries 4.875 03/01/08 225,000 203,019 204,469
Reptron Electronics Inc. 6.750 08/01/04 200,000 200,000 119,500
Savoy Pictures Entertainment 7.000 07/01/03 1,250,000 1,287,500 1,187,500
Smartalk Teleservices 5.750 09/15/04 187,000 187,675 207,500
----------- ----------- -----------
Total Convertible Bonds $ 7,912,000 7,715,644 6,871,121
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares
Warrants or Market Value
Interest Due Principal Cost at 9/30/98
Corporate Public Securities: (A) (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Warrants - 0.04%
American Country Holdings Inc. (B) $ 45,779 $ 91,558
------------- -------------
Total Warrants 45,779 91,558
------------- -------------
Total Corporate Public Securities 54,353,203 51,599,128
------------- -------------
Short-Term Securities:(A)
Commercial Paper - 2.90%
Conagra Inc. 5.673% 10/02/98 $ 1,345,000 1,344,787 1,344,787
Enron Corporation 5.829 10/01/98 4,000,000 4,000,000 4,000,000
Indiana Michigan Power 6.002 10/01/98 620,000 619,897 619,897
------------- ------------- -------------
Total Short-Term Securities $ 5,965,000 5,964,684 5,964,684
============= ============= =============
Total Investments - 107.60% $ 217,557,514 221,581,504
============= =============
Other Assets - 4.30 8,854,337
Liabilities - (11.90) (24,505,528)
------ -------------
Total Net Assets - 100.00% $ 205,930,313
====== =============
</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)
September 30, 1998
(Unaudited)
INDUSTRY CLASSIFICATION
Fair Value
at 9/30/98
Corporate Restricted Securities: (Note 2A)
----------
AUTOMOBILE - 0.35%
Coast Distribution System, The $ 107,363
Mark IV Industries 621,728
-----------
729,091
-----------
BEVERAGE, FOOD & TOBACCO - 7.25%
Associated Vintage Group, Inc. 3,618,891
Beta Brands, Inc. 3,664,524
Cains Foods, L.P. 3,008,853
Delta Beverage Group, Inc. 198,118
Grand Lyon Enterprises LLC 198,312
Lloyd's Barbecue Company 3,498,195
Mrs. Fields Original Cookies, Inc. 752,000
-----------
14,938,893
-----------
BROADCASTING & ENTERTAINMENT - 0.67%
Latin Communications Group 931,838
Mediacom LLC 451,575
-----------
1,383,413
-----------
BUILDINGS & REAL ESTATE - 5.21%
Building Materials Corp. 170,625
Highland Homes Holdings, Inc. 1,535,400
Nortek Inc. 483,750
Supreme Industries, Inc. 5,011,542
Truseal Technologies, Inc. 3,524,153
-----------
10,725,470
-----------
CARGO TRANSPORT - 2.70%
RailTex, Inc. 2,025,569
Tidewater Holdings, Inc. 3,541,603
-----------
5,567,172
-----------
CHEMICAL, PLASTICS & RUBBER - 5.10%
AccTech, LLC 1,838,964
Philipp Brothers Chemicals, Inc. 104,500
Process Chemicals, LLC 2,016,823
Trend Technologies, Inc. 4,310,015
U.S. Netting, Inc. 2,234,996
-----------
10,505,298
-----------
CONSUMER PRODUCTS - 2.70%
Consumer Product Enterprises, Inc. 2,297,330
Newell Financial Trust 1,149,188
Sharp International Corp. 2,110,815
-----------
5,557,333
-----------
CONTAINERS, PACKAGING &
GLASS - 6.65%
C&K Manufacturing and Sales Company 1,790,567
Capitol Vial, Inc. 3,614,023
IMPAC Group Inc. 720,000
Plastipak Packaging, Inc. 3,657,191
Vitex Packaging, Inc. 3,904,678
-----------
13,686,459
-----------
DIVERSIFIED/CONGLOMERATE -
MANUFACTURING - 15.17%
Cymer Inc. $ 231,439
Decrane Aircraft, Inc. 703,500
D T Industries 1,145,000
Eagle Pacific Industries, Inc. 3,397,020
Energy Conversion Devices Inc. 201,094
Evans Consoles, Inc. 3,413,759
Fleming Acquisition Corporation 48,477
Golden Bear Oil Specialties 3,630,116
Grove Worldwide 139,200
Hartzell Manufacturing, Inc. 3,284,552
Hudson River Capital, LLC 842,935
Hussey Seating Company 3,621,658
Jackson Products, Inc. 998,585
Kappler Safety Group, Inc. 3,489,266
Maxtec International Corp. 576,923
PAR Acquisition Corp. 1,287,666
The Tranzonic Companies 3,350,602
U.S. Silica Company 879,156
-----------
31,240,948
-----------
DIVERSIFIED/CONGLOMERATE -
SERVICE - 2.82%
Ammirati & Puris, Inc. 587,184
Diversco, Inc./DHI Holdings, Inc. 3,398,495
Great Lakes Dredge & Dock Corp. 441,000
Iron Mountain Inc. 191,025
Pharmaceutical Buyers, Inc. 1,185,860
-----------
5,803,564
-----------
ELECTRONICS - 10.51%
Arbor Software Corporation 136,682
Ardent Software, Inc. 837,700
Averstar, Inc. 2,468,387
Control Devices, Inc. 3,171,881
Dealer Solutions Holdings, Inc. 400,431
Mercury Computer Systems 5,844,746
Nu Horizons Electronics Corp. 1,518,250
Precision Dynamics, Inc. 4,100,730
Tridex Corp. 3,170,072
-----------
21,648,879
-----------
FARMING & AGRICULTURE - 0.93%
Cuddy International Corp. 456,750
Protein Genetics, Inc. 1,450,149
-----------
1,906,899
-----------
HEALTHCARE, EDUCATION &
CHILDCARE - 3.28%
Concentra Managed Care, Inc. 371,316
D&K Healthcare Resources, Inc. 4,539,869
Healthsouth Corporation 1,142,220
Oxford Health Plans 87,000
Tenet Healthcare Corp. 607,500
-----------
6,747,905
-----------
- --------------------------------------------------------------------------------
23
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(Unaudited)
INDUSTRY CLASSIFICATION (Continued)
Fair Value
at 9/30/98
Corporate Restricted Securities: (Continued) (Note 2A)
----------
HOME & OFFICE FURNISHINGS,
HOUSEWARES, AND DURABLE
CONSUMER PRODUCTS - 2.09%
Catalina Lighting, Inc. $ 1,354,800
Star International Holdings, Inc. 2,361,108
Sunbeam Corporation 600,000
------------
4,315,908
------------
HOTELS, MOTELS, INNS &
GAMING - 0.25%
NE Restaurant Company, Inc. 509,600
------------
LEISURE, AMUSEMENT,
ENTERTAINMENT - 6.37%
Adventure Entertainment Corporation 1,690,504
Bell Sports, Inc. 384,000
Derby Cycle Corp. 598,000
Merit Industries, Inc. 3,365,665
N2K, Inc. 2,778
Olympic Boat 3,514,926
Playcore, Inc . 3,552,342
------------
13,108,215
------------
MACHINERY - 0.17%
Numatics Inc. 356,000
------------
MINING, STEEL, IRON &
NON PRECIOUS METALS - 0.15%
JTM Industries / ISG Resources, Inc. 303,000
------------
MISCELLANEOUS - 0.71%
Brand Scaffold Services 372,000
Climachem, Inc. 168,000
Doe Run Resources Corp. 247,500
Equity Corporation International 442,216
Tjiwi Kima Fin Mauritius LTD 215,000
Victory Ventures, LLC 22,540
------------
1,467,256
------------
OIL AND GAS - 4.62%
Chaparral Resources, Inc. $ 11,344
Garnet Resources Corporation 47,500
Key Energy Group 624,700
Louis Dreyfus Natural Gas Corporation 10,334
Maloney Industries, Inc. 3,871,946
TransMontaigne Oil Company 4,943,918
------------
9,509,742
------------
PERSONAL TRANSPORTATION - 0.27%
Atlantic Coast Airlines Inc. 565,648
------------
PRINTING & PUBLISHING - 0.26%
Von Hoffman Press, Inc. 530,000
------------
RETAIL STORES - 0.35%
Rent-Way, Inc. 286,494
Renter's Choice, Inc. 435,375
------------
721,869
------------
TELECOMMUNICATIONS - 1.06%
Antec Corp. 267,000
Jordan Telecom Products 87,500
M J D Communications Inc. 346,500
McLeodUSA Incorporated 638,625
Oak Industries 136,312
Smartalk Teleservices 149,250
Tel-Save 563,943
------------
2,189,130
------------
Total Corporate Restricted
Securities - 79.64% $164,017,692
============
- --------------------------------------------------------------------------------
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 Board of Trustees of the Trust (the "Trustees"). Each restricted
security is valued by the Trustees at the time of the purchase thereof and at
least 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 extent of any discount at which the security was acquired; 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; changes in the financial condition and prospects of the
issuer; the existence of merger proposals or tender offers affecting the
issuer; 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 $164,017,692
(79.64% of net assets) as of September 30, 1998 ($179,888,968 at September 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
September 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 and 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.
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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 each of the quarters ended
were:
Performance
Adjustment Amount
----------- ------
March 31, 1998 0.0625% 132,060.00
June 30, 1998 0.0625% 134,754.00
September 30, 1998 0.0625% 128,387.00
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
nine months nine months
ended 9/30/98 ended 9/30/97
------------- -------------
Cost of Investments Acquired
----------------------------
Corporate restricted securities $61,940,246 $73,951,448
Corporate public securities 32,349,143 30,043,849
Short-term securities 329,794,334 248,273,494
Proceeds from Sales or Maturities
---------------------------------
Corporate restricted securities $63,234,294 $57,469,085
Corporate public securities 47,477,021 55,356,234
Short-term securities 326,827,053 249,193,705
- --------------------------------------------------------------------------------
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 September 30, 1998. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of September 30, 1998 is $4,023,990 and consists of $30,455,428
appreciation and $26,431,438 depreciation.
The aggregate cost of investments was the same for financial reporting and
federal income tax purposes as of September 30, 1997. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of September 30, 1997 was $19,088,688 and consisted of $31,627,158
appreciation and $12,538,470 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 14,075,440 1.65 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 4,030,073 .47 14,759,526 1.73
September 30, 1998 September 30, 1997
------------------ -----------------
Investment income 4,341,687 4,509,234
Net investment income 3,142,399 .37 3,378,460 .40
Net realized and unrealized gain on investments (9,389,983) (1.10) 14,584,447 1.71
</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.
- --------------------------------------------------------------------------------
28
<PAGE>
Trustees
Donald E. Benson*
Marshall D. Butler
MiltonCooper
Richard G. Dooley
Donald Glickman
Martin T. Hart*
Jack A. Laughery
Corine T. Norgaard
Gary E. Wendlandt
*Member of the Audit Committee
[ARTWORK APPEARS HERE]
Officers
Gary E. Wendlandt, Chairman
Richard G. Dooley, Vice Chairman
Stuart H. Reese, President
Robert E. Joyal, Senior Vice
President
Charles C. McCobb, Jr., Vice President
Chief Financial
Officer
Stephen L. Kuhn, Vice President
Secretary
Michael P. Hermsen, Vice President
William N. Holm, Vice President
Mary Wilson Kibbe, Vice President
Michael L. Klofas, Vice President
John B. Joyce, Vice President
Richard C. Morrison, Vice President
Clifford M. Noreen, Vice President
Mark B. Ackerman, Treasurer
Victoria Fortier, Comptroller
Dividend Reinvestment and Share Purchase Plan
MassMutual Corporate Investors offers a Dividend Reinvestment and Share Purchase
Plan. The Plan provides a simple way for shareholders to add to their holdings
in the Trust through the receipt of dividend shares issued by the Trust or
through the reinvestment of cash dividends in Trust shares purchased in the open
market. A shareholder may join the Plan by filling out and mailing an
authorization card to Shareholder Financial Services, Inc., the Transfer Agent.
Participating shareholders will continue to participate until they notify the
Transfer Agent, in writing, of their desire to terminate participation. Unless a
shareholder elects to participate in the Plan, he or she will, in effect, have
elected to receive dividends and distributions in cash.
Participating shareholders may also make additional contributions to the Plan
from their own funds. Such contributions may be made by personal check or other
means in an amount not less than $10 nor more than $5,000 per quarter.
Whenever the Trust declares a dividend payable in cash or shares, the Transfer
Agent, acting on behalf of each participating shareholder, will take the
dividend in shares only if the net asset value is lower than the market price
plus an estimated brokerage commission as of the close of business on the
valuation day. The valuation day is the last day preceding the day of dividend
payment. When the dividend is to be taken in shares, the number of shares to be
received is determined by dividing the cash dividend by the net asset value as
of the close of business on the valuation date or, if greater than net asset
value, 95% of the closing share price. If the net asset value of the shares is
higher than the market value plus an estimated commission, the Transfer Agent,
consistent with obtaining the best price and execution, will buy shares on the
open market at current prices promptly after the dividend payment date.
The reinvestment of dividends does not, in any way, relieve participating
shareholders of any federal, state or local tax. For federal income tax
purposes, the amount reportable in respect of a dividend received in
newly-issued shares of the Trust will be the fair market value of the shares
received, which will be reportable as ordinary income and/or capital gains.
As compensation for its services, the Transfer Agent receives a fee of 5% of any
dividend and cash contribution (in no event in excess of $2.50 per distribution
per shareholder.)
Any questions regarding the Plan should be addressed to Shareholder Financial
Services, Inc., Agent for MassMutual Corporate Investors' Dividend Reinvestment
and Share Purchase Plan, P.O. Box 173673, Denver CO 80217-3673.
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