<PAGE>
TO OUR SHAREHOLDERS:
We are pleased to present MassMutual Participation Investors' report for the
second quarter of 1995.
The Trust's net asset value per share surged to a record $9.96 from $9.23 at the
end of the prior quarter, clearly benefitting from declining interest rates and
a continued rally in the stock market. Net investment income for the quarter
held steady at $1,685,907 or $.18 per share compared with $1,703,989 or $.18 per
share in the prior quarter. The Trust's total return based on earnings and
change in net asset value was 18.4% for the twelve months ended June 30, 1995.
In comparison, the Lehman Brothers Corporate Bond Index was up 15.1% and the
Standard & Poor's Industrial Index was up 28.8% for the same period.
The Trust produced capital gains of $1,876,931 or $.20 per share during the
quarter, bringing our gains-to-date to $2,443,323 or $.27 per share.
Participation Investors currently has a capital loss carry-forward of $.24 per
share which can be used to offset the capital gains for tax purposes. Our
largest gain came in June from C.P. Clare Corporation, which completed a public
offering and subsequently pre-paid our note and warrants. Other partial or
complete sales from our private investment portfolio resulting in significant
gains were Golden State Vintners, Schwitzer U.S., Inc., and Wirekraft
Industries, Inc. with gains totalling approximately $744,000. We are pleased
with the nearly $270,000 in gains realized during the quarter from the sales of
our publicly traded investments.
At the July Board meeting, the Trustees declared a dividend of 18 cents per
share payable on August 10, 1995 to shareholders of record on July 31, 1995. A
dividend of 18 cents per share was paid in the preceding quarter.
At June 30, 1995 the Trust was 90.5% invested in long-term issues, having 9.5%
of the portfolio in cash and cash equivalents. Since the spread between
short-term and long-term interest rates is very narrow by historical measures,
we are comfortable with our short-term holdings until appropriate new private
financings are identified. The Trust presently has two-thirds of the portfolio
invested in sixty five private placement and Rule 144A issues. As of mid-July,
1995, there were six private placement companies in the portfolio in which the
combined public stock market value exceeded the Trust's cost or exercise price
by approximately $5 million.
New private placement investments added to the portfolio during the quarter
include the following: Classic Sports Partners, L.P., Fleming Acquisition
Corporation, Maxtec International Corp., and U.S. Netting, Inc. Together, the
fixed income component of these new investments should contribute an average
interest rate of 11.2% in addition to providing capital gains potential. We also
increased our equity position in TransMontaigne Oil Company (formerly
Continental Ozark Corporation). A brief description of these companies is
provided in the Schedule of Investments. We thank you for your continued support
and interest in Participation Investors.
Sincerely,Interleaf Frame: Auto
/s/ Stuart H. Reese
----------------------
Stuart H. Reese
President
July 31, 1995
1
<PAGE>
MassMutual Participation Investors
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Assets:
Investments (Notes 2A, 2B and 5)
(See Schedule of Investments)
Corporate restricted securities at fair value
(Cost 1995 - $56,371,301; 1994 - $52,966,537)..... $ 59,833,175 $ 53,369,847
Corporate public securities at market value
(Cost 1995 - $21,124,658; 1994 - $27,310,749)..... 22,183,512 26,068,643
Short-term securities at cost plus earned discount
which approximates market value................... 8,503,926 3,003,969
------------ ------------
90,520,613 82,442,459
Cash............................................... 58,192 571,552
Interest and dividends receivable, net............. 1,601,614 1,554,264
Receivable for investments sold.................... 835,045 161,963
Receivable for principal payments.................. -- 25,714
Other assets....................................... 8,085 8,085
------------ ------------
Total assets...................................... $ 93,023,549 $ 84,764,037
============ ============
Liabilities:
Payable for investments purchased.................. $ 957,139 $ 1,096,192
Management fee payable (Note 4).................... 206,468 187,692
Accrued expenses................................... 96,408 61,683
------------ ------------
Total liabilities................................. 1,260,015 1,345,567
------------ ------------
Net Assets:
Shares of beneficial interest, par value $.01 per
share; an unlimited number authorized............. 92,167 92,167
Additional paid-in capital......................... 84,895,820 84,895,820
Retained net realized gain on investments,
prior years....................................... 204,495 204,495
Undistributed net investment income (Note 2C)...... 1,852,123 1,375,569
Accumulated net realized gain (loss) on
investments (Note 3).............................. 198,201 (2,310,785)
Net unrealized appreciation (depreciation) of
investments (Notes 2A and 5)...................... 4,520,728 (838,796)
------------ ------------
Total net assets.................................. 91,763,534 83,418,470
------------ ------------
Total liabilities and net assets.................. $ 93,023,549 $ 84,764,037
============ ============
Shares of beneficial interest issued and
outstanding....................................... 9,216,665 9,216,665
============ ============
Net asset value per share.......................... $ 9.96 $ 9.05
============ ============
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest........................................... $ 3,842,414 $ 3,440,101
Dividends.......................................... 94,450 34,433
------------ ------------
Total income...................................... 3,936,864 3,474,534
------------ ------------
Expenses:
Management fee (Note 4)............................ 397,968 379,956
Trustees' fees and expenses........................ 24,679 26,686
Transfer Agent/Registrar's expenses................ 55,187 50,993
Custodian's fees................................... 12,431 11,403
Reports to shareholders............................ 21,207 16,841
Audit and legal.................................... 25,020 32,382
Other.............................................. 10,476 10,918
------------ ------------
Total expenses.................................... 546,968 529,179
------------ ------------
Net investment income.............................. 3,389,896 2,945,355
------------ ------------
Net realized and unrealized gain (loss) on
investments (Notes 2A and 2B):
Net realized gain (loss) on investments (Note 3)... 2,443,323 (270,744)
Net change in unrealized appreciation/depreciation
of investments.................................... 6,158,729 (1,798,324)
------------ ------------
Net gain (loss) on investments.................... 8,602,052 (2,069,068)
------------ ------------
Net increase in net assets resulting
from operations................................... $ 11,991,948 $ 876,287
============ ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
STATEMENT OF CASH FLOWS
For the six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Net increase in cash:
Cash flows from operating activities:
Interest and dividends received................... $ 3,766,230 $ 2,879,590
Operating expenses paid........................... (525,364) (523,745)
------------ ------------
Net cash provided by operating activities......... 3,240,866 2,355,845
------------ ------------
Cash flows from investing activities:
Change in short-term portfolio securities, net.... (7,841,402) 4,202,697
Purchase of portfolio securities.................. (17,549,028) (26,282,994)
Proceeds from disposition of portfolio securities. 25,328,781 23,421,508
------------ ------------
Net cash (used for) provided by
investing activities............................. (61,649) 1,341,211
------------ ------------
Net cash provided by operating and
investing activities............................. 3,179,217 3,697,056
------------ ------------
Cash flows from financing activities:
Cash dividends paid from net investment
income........................................... (3,133,666) (3,060,882)
Cash dividends paid from return of capital........ -- (72,784)
------------ ------------
Net cash used for financing activities............ (3,133,666) (3,133,666)
------------ ------------
Net increase in cash............................... 45,551 563,390
Cash - beginning of year........................... 12,641 8,162
------------ ------------
Cash - end of period............................... $ 58,192 $ 571,552
============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
STATEMENT OF CASH FLOWS (Continued)
For the six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Reconciliation of net increase (decrease) in net
assets to net cash from operating and investing
activities:
Net increase in net assets resulting
from operations................................... $ 11,991,948 $ 876,287
------------ ------------
(Increase) decrease in investments................. (9,030,501) 2,229,055
(Increase) decrease in interest and dividends
receivable, net................................... 2,330 (407,863)
Increase in receivable for investments sold........ (826,646) (161,963)
Decrease in receivable for principal
payments.......................................... 71,429 67,998
Increase in other assets........................... (8,085) (8,085)
Increase in payable for investments purchased...... 957,139 1,096,192
Increase (decrease) in management fee payable...... 23,249 (1,553)
Increase (decrease) in accrued expenses............ (1,646) 6,988
------------ ------------
Total adjustments to net assets from
operations....................................... (8,812,731) 2,820,769
------------ ------------
Net cash provided by operating and
investing activities............................. $ 3,179,217 $ 3,697,056
============ ============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............................. $ 3,389,896 $ 2,945,355
Net realized gain (loss) on investments........... 2,443,323 (270,744)
Net change in unrealized appreciation/depreciation
of investments.................................... 6,158,729 (1,798,324)
------------ ------------
Net increase in net assets resulting
from operations................................... 11,991,948 876,287
Dividends to shareholders from:
Net investment income (1995 - $.18 per share;
1994 - $.17 per share)............................ (1,659,000) (1,566,833)
------------ ------------
Total increase (decrease)........................ 10,332,948 (690,546)
Net Assets, beginning of year...................... 81,430,586 84,109,016
------------ ------------
Net Assets, end of period (including undistributed
net investment income in 1995 - $1,852,123;
1994 - $1,375,569)................................ $ 91,763,534 $ 83,418,470
============ ============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
SELECTED PER SHARE DATA
Selected data for each share of beneficial interest outstanding for the periods
ended:
<TABLE>
<CAPTION>
For the
period ended For the
6/30/95 year ended
(Unaudited) 12/31/94
------------ -----------
<S> <C> <C>
Net asset value:
Beginning of period......................... $ 8.84 $ 9.13
------- -------
Net investment income........................ .36 .66
Net realized and unrealized gain (loss)
on investments.............................. .94 (.30)
------- -------
Total from investment operations............. 1.30 .36
------- -------
Dividends from net investment income to
common shareholders......................... (.18) (.65)
------- -------
Total distributions.......................... (.18) (.65)
------- -------
Net asset value:
End of period............................... $ 9.96 $ 8.84
======= =======
Per share market value:
End of period............................... $ 8.50 $ 7.38
======= =======
Total investment return:
Market value................................ 17.85%* .35%
Net asset value............................. 14.87%* 4.03%
Net assets (in thousands):
End of period............................... $91,764 $81,431
Ratio of expenses to average net assets...... .64%* 1.25%
Ratio of net investment income to average
net assets.................................. 3.97%* 7.30%
Portfolio turnover........................... 22.75%* 51.42%
</TABLE>
*Percentages represent results for the period and are not annualized.
See Notes to Financial Statements.
7
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 1995
(Unaudited)
Corporate Restricted Securities - 65.20%: (A)
Allen's Creek Enterprises, Inc.
A fully integrated industrial biotechnology company.
9.99% Senior Note due 2000
American Exploration Company - A.S.E.
An independent oil and gas company engaged principally in the acquisition,
development and management of oil and gas properties.
11% Senior Subordinated Note due 2001
Warrant, exercisable until 2001, to purchase 40,513 shares of common stock at
$22.37 per share (B)
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
Associated Natural Gas Corporation - N.Y.S.E.
A natural gas marketing company which purchases and resells natural gas to
utilities and industrial users.
9% Convertible Subordinated Note due 2004, convertible into 67,781 shares of
Panhandle Eastern common stock at $22.13 per share
Atlantic Aviation Corporation
An operator and provider of business aircraft services and fueling services to
commercial airlines.
9.85% Senior Note due 1999
J. Baker, Inc. - O.T.C.
A wholesaler and retailer of shoes.
11.21% Senior Subordinated Note due 1999
Warrant, exercisable until 1999, to purchase 25,714 shares of common stock at
$20 per share (B)
Berkshire Medical Center, Inc.
A non-profit, regional acute care hospital.
10.5% Senior Note due 1999
8
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- ---------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
$ 750,000 3/23/90 $ 736,800 $ 750,000 $ 787,200
---------- ---------- ----------
$1,500,000 12/27/91 1,482,300 1,480,644 1,404,900
40,513 shs. 12/27/91 24,857 19,356 40,513
---------- ---------- ----------
1,507,157 1,500,000 1,445,413
---------- ---------- ----------
$ 250,000 11/23/93 244,900 250,000 285,350
---------- ---------- ----------
$1,500,000 12/30/92 1,467,000 1,500,000 1,565,708
---------- ---------- ----------
$ 803,675 1/31/90 789,825 803,675 775,787
---------- ---------- ----------
$1,200,000 6/21/89 1,196,880 1,181,900 1,264,080
25,714 shs. 6/21/89 2,571 73,285 2,571
---------- ---------- ----------
1,199,451 1,255,185 1,266,651
---------- ---------- ----------
$ 935,455 5/15/89 935,455 935,455 978,299
---------- ---------- ----------
</TABLE>
9
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
Boyle Leasing Technologies, Inc.
A leasing company specializing in the leasing and rental of microticket business
equipment.
12% Senior Subordinated Note due 2001
BP Prudhoe Bay Royalty Trust - N.Y.S.E.
A trust which shares in the production of petroleum from the Alaskan North
Slope.
13,190 Units of Beneficial Interest
C & S Wholesale Grocers, Inc.
A food wholesaler in New England and New York.
10.47% Senior Note due 2001
Catalina Lighting, Inc. - N.Y.S.E.
A designer, importer and distributor of residential and office lighting
fixtures.
8% Convertible Subordinated Note due 2002, convertible into 63,506 shares of
common stock at $11.81 per share
The Chronicle Publishing Company
A media company including newspaper publishing, television broadcasting and
cable operations.
9.5% Senior Note due 1997
Classic Sports Partners, L.P.
A cable sports television network.
300,000 Units of Limited Partnership Interests
The Coast Distribution System - A.S.E.
A wholesale distributor of recreational vehicles and marine parts and
accessories.
11.2% Senior Subordinated Secured Note due 1999
Columbia Sportswear Company
A manufacturer and marketer of outerwear and sportswear.
10.75% Senior Note due 1996
10
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- ---------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
$1,000,000 8/16/94 $899,723 $912,570 $972,600
-------- -------- --------
13,190 uts. 2/28/89 329,750 223,725 224,230
-------- -------- --------
$ 350,000 7/3/91 355,100 350,000 374,010
-------- -------- --------
$ 750,000 3/31/94 710,025 750,000 758,175
-------- -------- --------
$ 333,333 2/21/91 320,933 331,853 340,300
-------- -------- --------
300,000 uts. 4/18/95 270,000 300,000 270,000
-------- -------- --------
$ 933,400 6/26/89 963,176 933,400 968,029
-------- -------- --------
$ 375,000 6/20/89 381,750 375,000 383,850
-------- -------- --------
</TABLE>
11
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
CompuCom Systems, Inc. - O.T.C.
A personal computer dealer specializing in serving corporate accounts.
9% Convertible Subordinated Note due 2002, convertible into 681,818 shares of
common stock at $2.20 per share
Contico International, Inc.
A developer, manufacturer and marketer of consumer, commercial and industrial
plastic products.
12% Senior Subordinated Note due 2003
Control Devices, Inc.
A producer of high quality electromechanical circuit protector devices and
photo-optic sensors.
10% Senior Secured Note due 2004
11% Senior Subordinated Note due 2004
11% Cumulative Preferred Stock
Common Stock (B)
Warrant, exercisable until 2004, to purchase 32,718 shares of common stock at
$.01 per share (B)
Corrections Corporation of America - O.T.C.
An operator of private prisons and correctional facilities for federal, state
and local governments.
11.08% Senior Secured Note due 2000
Warrant, exercisable until 2000, to purchase 3,750 shares of common stock at
$7.14 per share (B)
Decorative Home Accents, Inc.
A designer, manufacturer and marketer of an extensive line of decorative home
accessories.
13% Senior Note due 2002
Discount Auto Parts
A retailer of auto parts.
9.8% Senior Secured Note due 2003
12
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- -------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
$1,500,000 9/24/92 $1,482,900 $1,500,000 $2,752,841
---------- ---------- ----------
$ 500,000 3/23/93 522,800 500,000 539,400
---------- ---------- ----------
$ 609,000 7/29/94 610,827 609,000 646,210
$ 261,000 7/29/94 257,059 261,000 280,314
34 shs. 7/29/94 29,734 33,640 34,861
25,282 shs. 7/29/94 8,410 8,410 34,700
32,718 shs. 7/29/94 327 -- 44,660
---------- ---------- ----------
906,357 912,050 1,040,745
---------- ---------- ----------
$ 330,981 12/11/90 330,790 330,567 356,334
3,750 shs. 12/11/90 27,150 27,150 122,461
---------- ---------- ----------
357,940 357,717 478,795
---------- ---------- ----------
$ 500,000 6/30/95 500,000 500,000 500,000
---------- ---------- ----------
$1,200,000 11/2/89 1,159,320 1,200,000 1,272,360
---------- ---------- ----------
</TABLE>
13
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
Duty Free International, Inc.
A retailer of duty free merchandise.
10.42% Senior Note due 1996
Elgin National Industries, Inc.
An operator in the specialty fastener, mineral processing equipment,
engineering, construction and electrical distribution industries.
13% Senior Subordinated Note due 2001
10% Preferred Stock
Common Stock (B)
Warrant, exercisable from 1998 to 2001, to purchase 112 shares of common stock
at $.01 per share (B)
Exide Electronics Group, Inc. - O.T.C.
A manufacturer and servicer of uninterruptible power systems.
8.375% Convertible Subordinated Note due 2000, convertible into 114,679 shares
of common stock at $13.08 per share
Fay's, Inc. - N.Y.S.E.
An operator of a discount drug store chain.
9.95% Mortgage Note due 2004
Firth Rixson, Inc.
A U.S. subsidiary of Johnson & Firth Brown; a producer of specialty metal
components, steel and iron castings, and specialty engineering.
9.82% Senior Guaranteed Note due 2001
Fleming Acquisition Corporation
A supplier of high-quality, premium printed labels for distilled spirits, wine,
food and household products.
15% Senior Subordinated Note due 2005
Common Stock
Warrant, exercisable until 2005, to purchase 190 shares of common stock at $.01
per share (B)
Incentive Warrants, exercisable from 1998 to 2000, to purchase 10 shares of
common stock at $.01 per share (B)
14
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- ---------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
$ 300,000 3/23/89 $ 290,460 $ 300,000 $ 301,110
---------- ---------- ----------
$1,333,333 9/24/93 1,330,578 1,322,145 1,380,800
1,559 shs. 9/24/93 117,976 155,950 123,185
107 shs. 9/24/93 10,717 10,717 20,118
112 shs. 9/24/93 11 11,188 11
---------- ---------- ----------
1,459,282 1,500,000 1,524,114
---------- ---------- ----------
$1,500,000 9/2/92 1,486,200 1,500,000 2,373,854
---------- ---------- ----------
$1,363,750 12/14/89 1,326,520 1,363,750 1,418,436
---------- ---------- ----------
$ 357,026 4/5/91 356,966 357,026 353,242
---------- ---------- ----------
$1,363,636 4/28/95 1,357,363 1,278,445 1,357,363
270 shs. 4/28/95 70,559 135,000 69,850
190 shs. 4/28/95 49,116 85,227 49,116
10 shs. 4/28/95 1,656 1,136 1,656
---------- ---------- ----------
1,478,694 1,499,808 1,477,985
---------- ---------- ----------
</TABLE>
15
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
Forschner Enterprises, Inc.
Acquires controlling or substantial interests in manufacturing and marketing
entities.
3% Convertible Preferred Stock, convertible into 1.95% of the Company
Grand Metropolitan Public Limited Company - London Stock Exchange
A leading international branded consumer products group.
6.5% Convertible Senior Debenture due 2000, convertible into 43,710 share of
common stock at $6.86 per share
Hardy Oil & Gas USA, Inc.
Engages in exploration and development of oil and gas reserves.
8.46% Guaranteed Senior Note due 2004
Warrant, exercisable until 2004, to purchase 135,000 shares of common stock at
1.86 pounds per share (B)
Hein-Werner Corp. - A.S.E.
A manufacturer of automotive service and collision repair equipment and
hydraulic cylinders.
8% Convertible Subordinated Note due 1999, convertible into 227,617 shares of
common stock at $6.59 per share
Highland Homes Holdings, Inc.
A single family homebuilder operating in the Dallas-Fort Worth and Atlanta
areas.
9.75% Senior Note due 2001
Warrant, exercisable until 2001, to purchase 5 shares of common stock at
$17,897.31 per share (B)
Hosiery Corporation of America, Inc.
A manufacturer and distributor of women's hosiery products.
13.75% Senior Subordinated Note due 2002
Hunton & Williams
A major law firm in Richmond, Virginia.
10.06% Senior Secured Note due 2000
16
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- ---------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
25,000 shs. 7/21/94 $ 250,000 $ 250,000 $ 237,500
---------- ---------- ----------
$ 300,000 1/17/95 300,000 300,000 318,750
---------- ---------- ----------
$1,500,000 1/11/95 1,452,600 1,500,000 1,416,450
135,000 shs. 1/11/95 13,500 -- 13,500
---------- ---------- ----------
1,466,100 1,500,000 1,429,950
---------- ---------- ----------
$1,500,000 9/29/89 1,459,650 1,500,000 1,454,828
---------- ---------- ----------
$ 750,000 11/18/93 742,575 739,765 752,025
5 shs. 11/18/93 1 10,235 52
---------- ---------- ----------
742,576 750,000 752,077
---------- ---------- ----------
$ 500,000 10/12/94 493,900 493,900 495,000
---------- ---------- ----------
$ 262,375 12/21/90 254,294 262,375 272,004
---------- ---------- ----------
</TABLE>
17
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
Latin Communications Group
An advertising agency that specializes in Spanish-language advertising to the
New York City metropolitan market.
10.4% Senior Secured Note due 2001
7% Convertible Preferred Series A Stock, convertible into 9,000 shares of
common stock at $10 per share
Convertible Preferred Series B Stock, convertible into 16,000 shares of common
stock at $10 per share
Maxtec International Corp.
A manufacturer and distributor of precision test and measurement equipment for
overhead cranes.
12.5% Subordinated Secured Note due 2003
Senior Revolving Credit Facility Note due 2001
Senior Secured Floating Rate Note due 2001
Common Stock (B)
Warrant, exercisable until 2005, to purchase 19,795 shares of common stock at
$.01 per share (B)
National R.V., Inc. - O.T.C.
A manufacturer and distributor of recreational vehicles nationwide.
Common Stock (B)
Nu Horizon Electronics Corp. - O.T.C.
A distributor of high technology active and passive electronic devices.
8.25% Convertible Subordinated Note due 2002, convertible into 1.78% of the
Company
PAR Acquisition Corp.
A manufacturer of fuel handling systems for nuclear power plants and hazardous
waste.
14.5% Senior Subordinated Note due 2000
8% Convertible Preferred Stock due 2001, convertible into 6.67% of the Company
Common Stock (B)
Penske Truck Leasing, L.P.
A full service maintenance truck leasing company.
9.73% Senior Secured Note due 1996
18
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- -------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
$ 875,000 2/14/95 $ 876,138 $ 875,000 $ 902,913
9,000 shs. 2/14/95 80,275 90,000 85,325
16,000 shs. 2/14/95 120,000 160,000 120,000
---------- ---------- ----------
1,076,413 1,125,000 1,108,238
---------- ---------- ----------
$ 239,670 6/28/95 336,560 243,995 325,549
$ 329,670 6/28/95 325,516 329,670 334,549
$ 527,473 6/28/95 522,989 527,472 522,989
38,462 shs. 6/28/95 96,059 115,386 96,059
19,795 shs. 6/28/95 49,291 85,714 49,291
---------- ---------- ----------
1,330,415 1,302,237 1,328,437
---------- ---------- ----------
24,672 shs. 10/29/91 18,670 40,560 199,234
---------- ---------- ----------
$1,500,000 8/31/94 1,517,550 1,500,000 1,517,670
---------- ---------- ----------
$ 833,333 2/5/93 832,000 833,333 871,583
83,333 shs. 2/5/93 166,667 166,667 144,540
133,333 shs. 2/5/93 333,333 333,333 44,800
---------- ---------- ----------
1,332,000 1,333,333 1,060,923
---------- ---------- ----------
$1,125,000 11/15/89 1,099,125 1,125,000 1,146,038
---------- ---------- ----------
</TABLE>
19
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
Piedmont Holding, Inc.
A general aviation fixed based operator with repair, maintenance and overhaul
certification.
12% Senior Subordinated Note due 2001
Senior Redeemable Cumulative Preferred Stock
Common Stock (B)
Warrant, exercisable until 2001, to purchase 2,521 shares of common stock at
$.05 per share (B)
PRN Holdings, Inc.
Rents critical care equipment to hospitals and other healthcare providers.
10.25% Senior Subordinated Note due 2004
Warrant, exercisable from 1997 to 2004, to purchase 1.5% of the Company (B)
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
11.51% Junior Secured Note due 1999
9.8% Redeemable Exchangeable Preferred Stock
Common Stock (B)
Quad-Graphics Inc.
A commercial printing company.
10.48% Secured Note due 2000
Quanex Corporation
A manufacturer of specialty metals.
10.77% Senior Note due 2000
RailTex, Inc. - O.T.C.
An operator of short-line railroads in the Midwest, West and Canada.
12% Senior Subordinated Note due 2002
Common Stock
Rogers Cablesystems Limited
A provider of cable television service in Canada.
11.09% Senior Subordinated Note due 2000
20
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- --------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
$1,357,151 7/15/92 $ 1,368,280 $ 1,357,151 $ 1,453,509
140,983 shs. 7/15/92 140,983 140,983 140,983
1,887 shs. 7/15/92 1,283 1,887 40,804
2,521 shs. 7/15/92 1,613 -- 54,413
------------ ------------ ------------
1,512,159 1,500,021 1,689,709
------------ ------------ ------------
$1,500,000 9/30/94 1,471,875 1,471,875 1,546,650
17 shs. 9/30/94 1,000 28,125 139,574
------------ ------------ ------------
1,472,875 1,500,000 1,686,224
------------ ------------ ------------
$ 400,000 8/12/94 394,720 400,000 415,200
$ 266,667 8/12/94 261,014 266,667 269,307
3,333 shs. 8/12/94 282,634 333,333 301,667
497 shs. 8/12/94 5 -- 5
------------ ------------ ------------
938,373 1,000,000 986,179
------------ ------------ ------------
$1,038,426 * 1,022,850 1,038,426 1,097,928
------------ ------------ ------------
$ 500,000 8/23/90 486,450 500,000 533,950
$ 750,000 2/16/93 799,575 750,000 876,825
62,500 shs. 2/16/93 600,075 600,000 1,410,156
------------ ------------ ------------
1,399,650 1,350,000 2,286,981
------------ ------------ ------------
$ 500,000 6/20/90 493,450 500,000 532,600
------------ ------------ ------------
</TABLE>
*6/7/89, 8/3/89 and 9/28/89.
21
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
RXI Holdings, Inc.
A manufacturer and distributor of plastic containers for the food, household
chemical, agricultural and personal care markets.
14% Senior Note due 2002
10% Series B Preferred Stock, with warrants
Warrants, exercisable until 2002, to purchase 1,400 shares of common stock at
$15.64 per share (B)
A.T.-Sentinel, Inc.
A leveraged lease transaction guaranteed by E.I. Dupont, the chemical company.
9.52% First Preferred Ship Mortgage Note due 1998
Schwitzer U.S., Inc. - N.Y.S.E.
A manufacturer of non-automotive engine components.
Warrant, exercisable until 2002, to purchase 50,000 shares of Kuhlman Corp.
common stock at $8.32 per share (B)
Southern Credit Corporation
A diversified secured lending and leasing company.
10.58% Senior Note due 1996
Star International Holdings, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004
10.5% Subordinated Note due 2004
Common Stock (B)
Warrant, exercisable until 2004, to purchase 806 shares of common stock at $.01
per share (B)
Steerage Corporation
A manufacturer and designer of marine electronic devices including navigation
and control systems, sensors, radar and communication systems.
10% Subordinated Note due 2003
Class A Common Stock (B)
22
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- -------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
$1,400,000 2/3/95 $ 1,374,730 $ 1,375,166 $ 1,403,500
93,333 shs. 2/3/95 93,333 93,333 93,333
1,400 shs. 2/3/95 25,270 25,270 25,270
------------ ------------ ------------
1,493,333 1,493,769 1,522,103
------------ ------------ ------------
$1,500,416 8/22/89 1,484,212 1,522,922 1,536,576
------------ ------------ ------------
50,000 shs. 4/30/92 53,000 81,000 121,125
------------ ------------ ------------
$ 390,000 4/13/89 380,094 390,000 395,226
------------ ------------ ------------
$ 438,805 5/29/94 418,752 438,805 434,461
$ 179,104 5/29/94 162,913 179,104 171,994
1,077 shs. 5/29/94 58,414 64,904 58,414
806 shs. 5/29/94 8 -- 8
------------ ------------ ------------
640,087 682,813 664,877
------------ ------------ ------------
$ 617,647 11/12/93 614,065 617,647 637,350
17,647 shs. 11/12/93 136,059 132,353 165,574
------------ ------------ ------------
750,124 750,000 802,924
------------ ------------ ------------
</TABLE>
23
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
Stonehurst I LLC
A wholly owned subsidiary of Tenneco, Inc., whose businesses include natural
gas, auto parts and packaging.
Floating Rate Subordinated Note due 2004
Common Stock (B)
Tele-Communications, Inc.
An owner and operator of cable television systems.
9.68% Senior Note due 1999
Telex Communications, Inc.
A producer of electronic and communication products.
Warrant, exercisable until 2004, to purchase 5,544 shares of common stock at
$.01 per share (B)
Terminal 91 Realty, L.P.
A subsidiary of Arctic Alaska Fisheries Corporation, which operates a cold
storage facility. Arctic Alaska Fisheries is the Guarantor of the loan.
9.75% Guaranteed Mortgage Note due 1996
TransMontaigne Oil Company
An independent petroleum products marketing company.
12.75% Senior Subordinated Debenture due 2000
Common Stock (B)
Warrant, exercisable until 2001, to purchase 74,606 shares of common stock at
$3.60 per share (B)
Turner Broadcasting Systems, Inc. - A.S.E.
Engages in cable TV broadcasting.
Zero Coupon Convertible Subordinated Note due 2007, convertible into 19,175
shares of common stock at $26.88 per share
Unocal Corporation - N.Y.S.E.
An integrated crude oil and natural gas company with interests in chemical
geothermal energy and metals.
$3.50 Convertible Preferred Stock, convertible into 8,130 shares of common
stock at $30.75 per share
24
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- --------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
$ 1,444,500 12/29/94 $ 1,444,500 $ 1,444,500 $ 1,439,444
5,050 shs. 12/29/94 55,000 55,500 55,500
------------ ------------ ------------
1,499,500 1,500,000 1,494,944
------------ ------------ ------------
$ 1,000,000 12/21/89 983,400 1,000,000 1,039,400
------------ ------------ ------------
5,544 shs. 5/30/89 55 6 87,363
------------ ------------ ------------
$ 449,600 3/28/91 440,206 449,600 453,871
------------ ------------ ------------
$ 1,200,000 3/28/91 1,274,280 1,171,123 1,270,320
203,165 shs. * 490,810 598,597 486,865
74,606 shs. 3/28/91 7,461 42,000 7,461
------------ ------------ ------------
1,772,551 1,811,720 1,764,646
------------ ------------ ------------
$ 1,500,000 6/23/94 586,875 633,228 645,000
------------ ------------ ------------
5,000 shs. 7/21/92 250,000 250,000 265,000
------------ ------------ ------------
</TABLE>
*3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95.
25
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Restricted Securities: (A) (Continued)
Uno-Ven Company
A partnership in an oil refinery and related midwestern marketing operations.
10.1% Senior Secured Note due 2003
US Air, Inc.
A domestic and international airline.
10.8% Series A Secured Loan Certificates due 2003
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide variety of industries.
11% Senior Secured Note due 2005
12% Subordinated Note due 2000
Revolving Credit Note due 2000
Common Stock (B)
Warrants, exercisable until 2005, to purchase 1,398 shares of common stock at
$.01 per share (B)
Valero Energy Corporation
An owner and operator of a specialized petroleum refinery engaging in petroleum
product marketing operations.
10.58% Senior Note due 2000
Wakebourne PLC - London Stock Exchange
A U.K. public company engaged in the computer services and networking systems
business.
Common Stock (B)
Total Corporate Restricted Securities...........................................
26
<PAGE>
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/95
Amount Date Date (Note 2B) (Note 2A)
- ---------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
$ 885,714 12/1/89 $ 863,750 $ 885,714 $ 956,837
----------- ------------ ------------
$ 572,835 6/29/94 486,910 494,034 513,317
----------- ------------ ------------
$ 927,545 5/3/95 927,545 838,800 947,509
$ 367,008 5/3/95 367,008 308,375 379,469
$ 34,484 5/3/95 34,484 34,484 34,484
2,457 shs. 5/3/95 81,376 195,720 81,376
1,398 shs. 5/3/95 46,291 17,971 46,291
----------- ------------ ------------
1,456,704 1,395,350 1,489,129
----------- ------------ ------------
$ 428,571 12/20/90 435,717 428,571 432,257
----------- ------------ ------------
170,898 shs. 3/10/92 881,836 1,070,508 85,876
----------- ------------ ------------
$55,563,338 56,371,301 59,833,175
=========== ------------ ------------
</TABLE>
27
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Public Securities:
Convertible Bonds - 3.00%
Graphic Industries, Inc.............................................
Hospitality Franchise Systems, Inc..................................
Leucadia National Corporation.......................................
Ogden Corp..........................................................
Savoy Pictures Entertainment, Inc...................................
Total Convertible Bonds
Bonds - 15.00%
American Airlines, Inc..............................................
Central Rents, Inc..................................................
Chesapeake Energy Corporation.......................................
Comdisco Inc........................................................
Continental Cablevision, Inc........................................
Data Documents, Inc.................................................
El Paso Funding Corporation (B).....................................
Florist Transworld Delivery.........................................
GMAC 1992-E Grantor Trust...........................................
Honda Auto Receivables 1992-A Grantor Trust.........................
Imax Corporation....................................................
Jordan Industries, Inc..............................................
Orchard Supply Hardware Corporation.................................
Red Roof Inns, Inc..................................................
Rowan Companies, Inc................................................
Sealy Corporation...................................................
Telex Communications, Inc...........................................
Trism, Inc..........................................................
USG Corporation.....................................................
United States Treasury..............................................
Venture Holdings Trust..............................................
Total Bonds..........................................................
28
<PAGE>
<TABLE>
<CAPTION>
Market
Value at
Interest Due Principal Cost 6/30/95
Rate Date Amount (Note 2B) (Note 2A)
------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
7.000% 5/15/06 $ 400,000 $ 388,000 $ 348,000
4.500 10/1/99 380,000 380,000 431,300
5.250 2/1/03 1,000,000 1,000,000 1,025,000
5.750 10/20/02 490,000 443,350 436,100
7.000 7/1/03 650,000 505,375 513,500
------------ ------------ ------------
$ 2,920,000 2,716,725 2,753,900
============ ------------ ------------
9.780 11/26/11 $ 1,000,000 1,000,000 1,121,250
12.875 12/15/03 730,000 667,288 726,350
12.000 3/1/01 450,000 428,566 463,500
7.750 9/1/99 1,500,000 1,598,265 1,558,425
8.875 9/15/05 500,000 454,375 510,000
13.500 7/15/02 1,400,000 1,400,750 1,435,000
9.375 10/1/96 200,000 174,526 108,000
14.000 12/15/01 375,000 361,245 375,000
4.750 8/15/97 311,342 313,434 308,422
4.900 6/15/98 166,367 166,081 165,223
7.000 3/1/01 500,000 438,294 457,500
10.375 8/1/03 500,000 490,625 461,250
9.375 2/15/02 500,000 447,250 440,000
9.625 12/15/03 500,000 466,250 495,000
11.875 12/1/01 500,000 537,500 535,000
9.500 5/1/03 500,000 482,250 490,000
12.000 7/15/04 750,000 750,000 750,938
10.750 12/15/00 500,000 501,875 492,500
9.250 9/15/01 500,000 475,625 512,500
5.000 1/31/99 2,000,000 1,990,156 1,939,380
9.750 4/1/04 500,000 463,750 420,000
------------ ------------ ------------
$ 13,882,709 13,608,105 13,765,238
============ ------------ ------------
</TABLE>
29
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Public Securities: (Continued)
Warrants - .05%
Central Rents, Inc. (B).............................................
Florist Transworld Delivery (B).....................................
MVR, Inc./Value Support (B).........................................
Payless Cashways, Inc. (B)..........................................
Total Warrants.......................................................
Common Stock - 4.48%
Amerisource Health Corporation (B)..................................
BDM International, Inc..............................................
Benson Petroleum, LTD...............................................
Borders Group Inc...................................................
Computer Horizons Corporation.......................................
Dendrite International, Inc.........................................
Excalibur Technologies Corporation..................................
First Industrial Realty Trust, Inc..................................
Foodbrands America Inc..............................................
General Instruments Corporation.....................................
General Motors Corporation..........................................
Gilmacher Realty Trust..............................................
Global Directmail Corporation.......................................
Interence Corporation...............................................
Kemet Corporation...................................................
Lincoln Snacks Company..............................................
Marker International, Inc...........................................
SFX Broadcasting, Inc...............................................
Southwest Airlines..................................................
Staffing Resources, Inc.............................................
Western Transmedia Co., Inc.........................................
Zale Corporation (B)................................................
Total Common Stock...................................................
30
<PAGE>
<TABLE>
<CAPTION>
Market
Value at
Warrants or Cost 6/30/95
Shares (Note 2B) (Note 2A)
- --------------- ------------ ------------
<S> <C> <C>
730 shs. $ 21,712 $ 18,250
375 shs. 13,750 18,750
22,500 shs. 956 1,406
500 shs. 2,688 12,500
------------ ------------
39,106 50,906
------------ ------------
9,481 shs. 3,216 212,438
900 shs. 16,650 18,338
100,000 shs. 77,204 84,540
25,250 shs. 372,200 362,969
15,000 shs. 202,500 240,000
900 shs. 13,050 14,963
3,000 shs. 18,750 48,000
3,600 shs. 84,600 73,800
22,500 shs. 177,188 298,125
7,500 shs. 257,812 287,813
7,500 shs. 266,962 326,250
6,000 shs. 126,000 124,500
12,000 shs. 214,710 237,000
900 shs. 9,900 12,600
3,750 shs. 191,250 195,938
3,500 shs. 6,562 10,938
7,500 shs. 53,438 47,813
3,750 shs. 91,875 100,313
35,715 shs. 500,000 852,696
45,000 shs. 247,500 393,750
54,000 shs. 188,723 151,902
969 shs. 145,632 13,082
------------ ------------
3,265,722 4,107,768
------------ ------------
</TABLE>
31
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
Corporate Public Securities: (Continued)
Convertible Preferred Stock - 1.64%
Arkansas Best Corp..................................................
Integon Corp........................................................
Occidental Petroleum Corporation....................................
St. Paul Capital L.L.C..............................................
Total Convertible Preferred Stock....................................
Total Corporate Public Securities....................................
Short-Term Securities:
Commercial Paper - 9.27%
Ford Motor Credit Company...........................................
GTE Hawaiian Telephone, Inc.........................................
General Motors Acceptance Corporation...............................
Indiana & Michigan Power Company....................................
Rite Aid Corporation................................................
Ryder System, Inc...................................................
SUPERVALU, Inc......................................................
Tyson Foods Inc.....................................................
Total Short-Term Securities..........................................
Total Investments - 98.64%.......................................
Other Assets - 2.73........................................
Liabilities - (1.37).......................................
------
Total Net Assets - 100.00%......................................
======
(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.
See Notes to Financial Statements.
32
<PAGE>
<TABLE>
<CAPTION>
Market
Value at
Cost 6/30/95
Shares (Note 2B) (Note 2A)
----------- ----------- -----------
<S> <C> <C>
7,500 shs. $ 375,000 $ 281,250
10,000 shs. 500,000 521,250
7,900 shs. 395,000 468,075
4,500 shs. 225,000 235,125
----------- -----------
1,495,000 1,505,700
----------- -----------
21,124,658 22,183,512
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Market
Value at
Interest Due Principal Cost 6/30/95
Yield Date Amount (Note 2B) (Note 2A)
- -------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
5.980% 7/7/95 $ 120,000 120,000 120,000
6.508 7/24/95 1,500,000 1,493,790 1,493,790
6.031 7/10/95 205,000 205,000 205,000
6.160 7/7/95 1,240,000 1,238,729 1,238,729
6.164 7/13/95 1,500,000 1,496,925 1,496,925
6.113 7/5/95 1,500,000 1,498,983 1,498,983
6.080 7/6/95 1,500,000 1,498,735 1,498,735
6.121 7/21/95 955,000 951,764 951,764
---------- ----------- -----------
$8,520,000 8,503,926 8,503,926
========== ----------- -----------
$85,999,885 90,520,613
=========== -----------
2,502,936
(1,260,015)
-----------
$91,763,534
===========
</TABLE>
33
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
Fair Value
at 6/30/95 Percentage
Corporate Restricted Securities: (Note 2A) Net Assets
------------- -----------
<S> <C> <C>
ADVERTISING
Ammirati & Puris, Inc. $ 285,350
Latin Communications Group 1,108,238
------------
1,393,588 1.52%
------------
APPAREL MANUFACTURING
Columbia Sportswear Company 383,850
Hosiery Corporation of America, Inc. 495,000
------------
878,850 .96
------------
BUILDING MATERIALS
Highland Homes Holdings, Inc. 752,077 .82
------------
CHEMICAL
A.T.-Sentinel, Inc. 1,536,576 1.67
------------
COMMUNICATIONS
Classic Sports Partners, L.P. 270,000
Rogers Cablesystems Limited 532,600
Tele-Communications, Inc. 1,039,400
Telex Communications, Inc. 87,363
Turner Broadcasting Systems, Inc. 645,000
------------
2,574,363 2.81
------------
ELECTRICAL EQUIPMENT/ELECTRONICS
Catalina Lighting, Inc. 758,175
CompuCom Systems, Inc. 2,752,841
Control Devices, Inc. 1,040,745
Exide Electronics Group, Inc. 2,373,854
Nu Horizon Electronics Corp. 1,517,670
Steerage Corporation 802,924
Wakebourne PLC 85,876
------------
9,332,085 10.17
------------
</TABLE>
34
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Fair Value
at 6/30/95 Percentage
Corporate Restricted Securities: (Continued) (Note 2A) Net Assets
------------- -----------
<S> <C> <C>
HEALTH CARE
Berkshire Medical Center, Inc. $ 978,299
PRN Holdings, Inc. 1,686,224
------------
2,664,523 2.90%
------------
LEASING
Boyle Leasing Technologies, Inc. 972,600
Penske Truck Leasing, L.P. 1,146,038
Southern Credit Corporation 395,226
------------
2,513,864 2.74
------------
MANUFACTURING - INDUSTRIAL AND
CONSUMER PRODUCTS
Contico International, Inc. 539,400
Decorative Home Accents, Inc. 500,000
Elgin National Industries, Inc. 1,524,114
Firth Rixson, Inc. 353,242
Fleming Acquisition Corporation 1,477,985
Forschner Enterprises, Inc. 237,500
Hein-Werner Corp. 1,454,828
Maxtec International Corp. 1,328,437
PAR Acquisition Corp. 1,060,923
Quanex Corporation 533,950
RXI Holdings, Inc. 1,522,103
Schwitzer U.S., Inc. 121,125
Star International Holdings, Inc. 664,877
US Netting, Inc. 1,489,129
------------
12,807,613 13.95
------------
</TABLE>
35
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Fair Value
at 6/30/95 Percentage
Corporate Restricted Securities: (Continued) (Note 2A) Net Assets
------------- -----------
<S> <C> <C>
MISCELLANEOUS
Allen's Creek Enterprises, Inc. $ 787,200
Protein Genetics, Inc. 986,179
Stonehurst I LLC 1,494,944
Terminal 91 Realty, L.P. 453,871
------------
3,722,194 4.05%
------------
OIL AND GAS SERVICE
American Exploration Company 1,445,413
Associated Natural Gas Corporation 1,565,708
BP Prudhoe Bay Royalty Trust 224,230
Hardy Oil & Gas USA, Inc. 1,429,950
TransMontaigne Oil Company 1,764,646
Unocal Corporation 265,000
Uno-Ven Company 956,837
Valero Energy Corporation 432,257
------------
8,084,041 8.81
------------
PUBLISHING
The Chronicle Publishing Company 340,300
Quad-Graphics Inc. 1,097,928
------------
1,438,228 1.57
------------
RECREATIONAL SUPPLIES/EQUIPMENT
The Coast Distribution System 968,029
National R.V., Inc. 199,234
------------
1,167,263 1.27
------------
</TABLE>
36
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Fair Value
at 6/30/95 Percentage
Corporate Restricted Securities: (Continued) (Note 2A) Net Assets
------------- -----------
<S> <C> <C>
RETAILING
J. Baker, Inc. $ 1,266,651
C & S Wholesale Grocers, Inc. 374,010
Discount Auto Parts 1,272,360
Duty Free International, Inc. 301,110
Fay's, Inc. 1,418,436
Grand Metropolitan Public Limited Company 318,750
------------
4,951,317 5.40%
------------
SERVICES
Atlantic Aviation Corporation 775,787
Corrections Corporation of America 478,795
Hunton & Williams 272,004
Piedmont Holding, Inc. 1,689,709
RailTex, Inc. 2,286,981
US Air, Inc. 513,317
------------
6,016,593 6.56
------------ ------
Total Corporate Restricted Securities $ 59,833,175 65.20%
============ ======
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. History
MassMutual Participation Investors (the "Trust") was organized as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts pursuant to a Declaration of Trust dated April 7, 1988.
The Trust is a closed-end diversified management investment company, whose
investment objective is to maximize total return by providing a high level of
current income, the potential for growth of such income, and capital
appreciation, by investing primarily in a portfolio of privately placed
fixed-income securities, at least half of which normally will include equity
features.
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.
The value of restricted securities, and of any other assets for which there
are no reliable market quotations, is their fair value as determined in
good faith by the Board of Trustees of the Trust. Each restricted security
is valued by the Board 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 to the Trust. Values greater or less than
cost are thereafter used for restricted securities in appropriate
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
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 the 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
Board, however, considers all factors in fixing any discount, including the
filing of a registration statement for such securities under the Securities
Act of 1933 and any other developments which are likely to increase the
probability that the securities may be publicly sold by the Trust without
restriction.
The Board of Trustees of the Trust meets at least once in each quarter to
value the Trust's portfolio securities as of the close of business on the
last business day of the preceding quarter. This valuation requires the
approval of a majority of the Trustees of the Trust, including a majority
of the Trustees who are not interested persons of the Trust (otherwise than
as Trustees) or of Massachusetts
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Mutual Life Insurance Company ("MassMutual"), the Trust's investment
adviser and administrator. 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 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, 1995, subject to discount where appropriate, and are
approved by the Trustees.
Short-term securities with more than sixty days to maturity are valued at
market and short-term securities having a maturity of sixty days or less
are valued at amortized cost, which approximates market value.
B. Accounting for Investments: Investment transactions are accounted for on
trade date. Dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
The cost basis of debt securities is not adjusted for amortization of
premium or accrual of discount since the Trust does not generally intend to
hold such investments until maturity; however, the Trust has elected to
accrue, for financial reporting purposes, certain discounts which are
required to be accrued for federal income tax purposes.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
The Trust does not accrue income when payment is delinquent or when
management believes payment is questionable.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
C. Federal Income Taxes: No provision for federal taxes on net investment
income and short-term capital gains is considered necessary because the
Trust has elected to be taxed as a "regulated investment company" under
the Internal Revenue Code, and intends to maintain this qualification and
to distribute substantially all of its net taxable income to its
shareholders. In any year when net long-term capital gains are realized by
the Trust, management, after evaluating the prevailing economic conditions,
will recommend to the Trustees either to designate the net realized
long-term gains as undistributed and to pay the federal capital gains taxes
thereon or to distribute such net gains.
3. Capital Loss Carryforward
The accumulated net realized loss on investments results in a capital loss
carryforward of $2,245,122 which is available for federal income tax purposes
to offset future capital gains. Of the total carryforward, $2,040,041 expires
December 31, 2000 and $205,081 expires December 31, 2001.
4. Investment Advisory and Administrative Services Fee
Under an investment advisory and administrative services contract with the
Trust, MassMutual has agreed to use its best efforts to present to the Trust a
continuing and suitable investment program consistent with the investment
objective and policies of the Trust. MassMutual has further agreed that it
will request each issuer of securities which MassMutual is prepared to
purchase in a private placement, and which would be consistent with the
investment policies of the Trust, to offer such securities also to the Trust
and that it will use its best efforts to insure that such request is acceded
to. MassMutual has agreed that, subject to such orders of the Securities and
Exchange Commission as may apply, it will invest concurrently with the Trust
in any such invest-
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
ment. MassMutual will also represent 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. Under the
contract, MassMutual is obligated to provide administration of the day-to-day
operations of the Trust and will provide 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.
For its services under the investment advisory and administrative services
contract, MassMutual is paid a quarterly advisory and administrative services
fee equal to .225% of the value of the Trust's net assets as of the last
business day of each fiscal quarter, an amount approximately equivalent to
.90% on an annual basis, provided that a majority of the Trustees, including a
majority of the Trustees who are not interested persons of the Trust or of
MassMutual, approve the valuation of the Trust's net assets as of such day.
5. Purchases and Sales of Investments
<TABLE>
<CAPTION>
For the six months ended
6/30/95 6/30/94
------- -------
Cost of Investments Acquired
----------------------------
<S> <C> <C>
Corporate restricted securities... $ 11,131,065 $ 3,553,400
Corporate public securities....... 7,482,884 23,923,037
Short-term securities............. 82,520,542 108,915,292
<CAPTION>
Proceeds from Sales
or Maturities
-------------------
<S> <C> <C>
Corporate restricted securities... $ 13,145,899 $ 8,727,972
Corporate public securities....... 12,890,594 14,784,443
Short-term securities............. 74,679,140 113,117,990
</TABLE>
42
<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, 1995. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of June 30, 1995 is $4,520,728 and consists of $7,337,199 appreciation and
$2,816,471 depreciation.
The aggregate cost of investments for financial reporting and federal income
tax purposes as of June 30, 1994 was $83,281,255 and $83,299,052,
respectively. The net unrealized depreciation of investments for financial
reporting purposes as of June 30, 1994 was $838,796 and consisted of
$4,105,905 appreciation and $4,944,701 depreciation. The net unrealized
depreciation of investments for federal income tax purposes as of June 30,
1994 was $856,593 and consisted of $4,105,905 appreciation and $4,962,498
depreciation.
6. Quarterly Results of Investment Operations
<TABLE>
<CAPTION>
Per Per
Amount Share Amount Share
------ ----- ------ -----
March 31, 1995 March 31, 1994
-------------- ----------------
<S> <C> <C> <C> <C>
Investment Income................ $ 1,961,463 $ 1,766,038
Net investment income............ 1,703,989 $0.18 1,510,119 $0.16
Net realized and unrealized
gain (loss) on investments...... 1,976,583 .21 (168,246) (.02)
<CAPTION>
June 30, 1995 June 30, 1994
------------- -------------
<S> <C> <C> <C> <C>
Investment Income................ 1,975,401 1,708,496
Net investment income............ 1,685,907 .18 1,435,236 .16
Net realized and unrealized
gain (loss) on investments...... 6,625,469 .72 (1,900,822) (.21)
</TABLE>
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