<PAGE>
TO OUR SHAREHOLDERS:
We are pleased to present MassMutual Participation Investors' report for the
first nine months of 1995.
The net asset value per share of Participation Investors reached another record
high at $10.15 primarily reflecting continued strength in our equity related
investments. Net investment income for the nine months increased to $5.1 million
or $.55 per share from $4.5 million or $.49 per share for the comparable period
in 1994. Net investment income for the quarter held steady at $.18 per share.
In order to ensure that the Trust is well positioned to capitalize on the strong
private placement market, the Trust issued a $12,000,000, 6.93% senior
convertible note to Massachusetts Mutual Life Insurance Company. Some of these
proceeds were put to work during the quarter as we completed three new
financings. The new purchases are Cains Foods, L.P., Intermetrics, Inc., and
Jackson Products, Inc. and total about $3.8 million. Together these investments
provide a weighted average coupon of about 11.3% in addition to their capital
gains potential via their equity features. A brief description of these
companies is provided in the Schedule of Investments.
The Trust's total return performance based on earnings and change in net asset
value was 20.3% for the twelve months ended September 30, 1995. In comparison,
the Lehman Brothers Government/Corporate Bond Index was up 14.3% and the
Standard & Poor's Industrial Stock Index was up 28.1% for the same period.
The Trust realized capital gains of $692,751 or $.08 per share during the third
quarter, bringing our year-to-date gains to $3,136,074 or $.34 per share. From
our private portfolio, we partially or completely disposed of two companies at a
net gain of $251,722 for the quarter. On the public side, we continued to be
very successful in generating gains and realized $441,029 of net profits during
the quarter. These gains more than offset the Trust's $2,245,122 in capital loss
carry forward.
At September 30, 1995, the Trust had 60.9% of the portfolio invested in seventy
four private placement and Rule 144A issues. Of this amount, 19.5% was invested
in investment grade issues. Counting our publicly traded issues, 41.1% of the
portfolio was invested in investment grade securities. Despite the gains
realized during the year, as of mid-October, 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 $5.5 million.
At the October Board meeting, the Trustees declared a dividend of 18 cents per
share payable on November 9, 1995 to shareholders of record on October 31, 1995.
A dividend of 18 cents per share was paid in the preceding quarter. We thank you
for your continued support and interest in Participation Investors.
Sincerely,
/s/Stuart H. Reese
Stuart H. Reese
President
October 31, 1995
1
<PAGE>
MassMutual Participation Investors
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Assets:
Investments (Notes 2A, 2B and 6)
(See Schedule of Investments)
Corporate restricted securities at fair value
(Cost 1995 - $61,811,373; 1994 - $55,982,476)..... $ 65,721,854 $ 56,279,576
Corporate public securities at market value
(Cost 1995 - $25,082,502; 1994 - $27,410,680)..... 26,758,054 26,369,036
Short-term securities at cost plus earned discount
which approximates market value................... 14,191,350 --
------------ ------------
106,671,258 82,648,612
Cash............................................... 1,251,160 211,073
Interest and dividends receivable, net............. 1,787,421 1,616,051
Receivable for investments sold.................... 103,369 1,435,399
Receivable for principal payments.................. 318,092 238,827
Other assets....................................... 4,043 4,043
------------ ------------
Total assets..................................... $110,135,343 $ 86,154,005
------------ ------------
Liabilities:
Payable for investments purchased.................. $ 4,069,029 $ 2,167,625
Management fee payable (Note 4).................... 210,483 188,357
Note payable (Note 5).............................. 12,000,000 --
Interest payable (Note 5).......................... 170,940 --
Accrued expenses................................... 136,981 83,611
Total liabilities................................ 16,587,433 2,439,593
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)...... 1,878,444 1,437,928
Accumulated net realized gain (loss) on
investments (Note 3).............................. 890,951 (2,171,454)
Net unrealized appreciation (depreciation) of
investments (Notes 2A and 6)...................... 5,586,033 (744,544)
------------ ------------
Total net assets................................. 93,547,910 83,714,412
------------ ------------
Total liabilities and net assets................. $110,135,343 $ 86,154,005
------------ ------------
Shares of beneficial interest issued and
outstanding....................................... 9,216,665 9,216,665
============ ============
Net asset value per share.......................... $ 10.15 $ 9.08
============ ============
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
STATEMENT OF OPERATIONS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest........................................... $ 5,922,260 $ 5,227,125
Dividends.......................................... 143,225 53,756
------------ ------------
Total income..................................... 6,065,485 5,280,881
------------ ------------
Expenses:
Management fee (Note 4)............................ 608,451 568,313
Trustees' fees and expenses........................ 38,270 38,562
Transfer Agent/Registrar's expenses................ 70,187 81,986
Custodian's fees................................... 18,647 17,619
Interest (Note 5).................................. 170,940 --
Reports to shareholders............................ 32,247 25,261
Audit and legal.................................... 35,890 47,320
Other.............................................. 15,638 19,439
------------ ------------
Total expenses................................... 990,270 798,500
------------ ------------
Net investment income.............................. 5,075,215 4,482,381
------------ ------------
Net realized and unrealized gain (loss) on
investments (Notes 2A and 2B):
Net realized gain (loss) on investments (Note 3)... 3,136,074 (131,413)
Net change in unrealized appreciation/depreciation
of investments.................................... 7,224,034 (1,704,073)
------------ ------------
Net gain (loss) on investments.................... 10,360,108 (1,835,486)
------------ ------------
Net increase in net assets resulting
from operations................................... $ 15,435,323 $ 2,646,895
============ ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash:
Cash flows from operating activities:
Interest and dividends received................... $ 5,452,261 $ 4,581,591
Operating expenses paid........................... (753,140) (770,472)
------------ ------------
Net cash provided by operating activities........ 4,699,121 3,811,119
------------ ------------
Cash flows from investing activities:
Change in short-term portfolio securities, net.... (13,303,549) 7,217,959
Purchase of portfolio securities.................. (30,168,077) (35,858,300)
Proceeds from disposition of portfolio securities. 32,803,690 29,640,466
------------ ------------
Net cash (used for) provided by investing
activities....................................... (10,667,936) 1,000,125
------------ ------------
Net cash (used for) provided by operating
and investing activities......................... (5,968,815) 4,811,244
Cash flows from financing activities:
Cash dividends paid from net investment
income........................................... (4,792,666) (4,535,548)
Cash dividends paid from return of capital........ -- (72,785)
Issuance of Convertible Senior Note............... 12,000,000 --
------------ ------------
Net cash provided by (used for) financing
activities....................................... 7,207,334 (4,608,333)
------------ ------------
Net increase in cash............................... 1,238,519 202,911
Cash - beginning of year........................... 12,641 8,162
------------ ------------
Cash - end of period............................... $ 1,251,160 $ 211,073
============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
STATEMENT OF CASH FLOWS (Continued)
For the nine months ended September 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................................... $ 15,435,323 $ 2,646,895
------------ ------------
(Increase) decrease in investments................. (25,181,146) 2,022,903
Increase in interest and dividends
receivable, net................................... (183,477) (469,650)
Increase in receivable for investments sold........ (94,969) (1,435,399)
Increase in receivable for principal
payments.......................................... (246,663) (145,115)
Increase in other assets........................... (4,043) (4,043)
Increase in payable for investments purchased...... 4,069,029 2,167,625
Increase (decrease) in management fee payable...... 27,264 (888)
Increase in interest payable....................... 170,940 --
Increase in accrued expenses....................... 38,927 28,916
------------ ------------
Total adjustments to net assets from
operations...................................... (21,404,138) 2,164,349
------------ ------------
Net cash (used for) provided by operating
and investing activities........................ $ (5,968,815)$ 4,811,244
============ ============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............................. $ 5,075,215 $ 4,482,381
Net realized gain (loss) on investments........... 3,136,074 (131,413)
Net change in unrealized appreciation/depreciation
of investments................................... 7,224,034 (1,704,073)
------------ ------------
Net increase in net assets resulting
from operations.................................. 15,435,323 2,646,895
Dividends to shareholders from:
Net investment income (1995 - $.36 per share;
1994 - $.33 per share)........................... (3,317,999) (3,041,499)
------------ ------------
Total increase (decrease)....................... 12,117,324 (394,604)
Net assets, beginning of year...................... 81,430,586 84,109,016
------------ ------------
Net assets, end of period (including
undistributed net investment income in
1995 - $1,878,444; 1994 - $1,437,928)............. $ 93,547,910 $ 83,714,412
============ ============
</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
9/30/95 year ended
(Unaudited) 12/31/94
----------- ----------
<S> <C> <C>
Net asset value:
Beginning of year................................. $ 8.84 $ 9.13
--------- ---------
Net investment income.............................. .55 .66
Net realized and unrealized gain (loss)
on investments.................................... 1.12 (.30)
--------- ---------
Total from investment operations................... 1.67 .36
--------- ---------
Dividends from net investment income to
common shareholders............................... (.36) (.65)
--------- ---------
Total distributions................................ (.36) (.65)
--------- ---------
Net asset value:
End of period..................................... $ 10.15 $ 8.84
========= =========
Per share market value:
End of period..................................... $ 8.75 $ 7.38
========= =========
Total investment return:
Market value...................................... 23.86%* .35%
Net asset value................................... 19.19%* 4.03%
Net assets (in thousands):
End of period..................................... $ 93,548 $ 81,431
Ratio of expenses to average net assets............ 1.13%* 1.25%
Ratio of net investment income to average
net assets........................................ 5.80%* 7.30%
Portfolio turnover................................. 39.67%* 51.42%
</TABLE>
*Percentages represent results for the period and are not annualized.
See Notes to Financial Statements.
7
<PAGE>
SCHEDULE OF INVESTMENTS
September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
--------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Corporate Restricted Securities - 70.25%: (A)
Allen's Creek Enterprises, Inc.
A fully integrated industrial biotechnology company.
9.99% Senior Note due 2000 $ 750,000 3/23/90 $ 736,800 $ 750,000 $ 785,250
------------ ----------- -----------
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 $ 1,500,000 12/27/91 1,482,300 1,480,644 1,424,400
Warrant, exercisable until 2001, to purchase 40,513 shares
of common stock at $22.37 per share (B) 40,513 shs. 12/27/91 24,857 19,356 40,513
------------ ----------- -----------
1,507,157 1,500,000 1,464,913
------------ ----------- -----------
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 $ 250,000 11/23/93 244,900 250,000 282,350
------------ ----------- -----------
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 $ 1,500,000 12/30/92 1,467,000 1,500,000 1,625,396
------------ ----------- -----------
Atlantic Aviation Corporation
An operator and provider of business aircraft services and
fueling services to commercial airlines.
9.85% Senior Note due 1999 $ 878,425 1/31/90 773,855 787,425 762,700
------------ ----------- -----------
J. Baker, Inc. - O.T.C.
A wholesaler and retailer of shoes.
11.21% Senior Subordinated Note due 1999 $ 1,200,000 6/21/89 1,196,880 1,184,218 1,247,880
Warrant, exercisable until 1999, to purchase 25,714
shares of common stock at $20 per share (B) 25,714 shs. 6/21/89 2,571 73,285 2,571
------------ ----------- -----------
1,199,451 1,257,503 1,250,451
------------ ----------- -----------
Berkshire Medical Center, Inc.
A non-profit, regional acute care hospital.
10.5% Senior Note due 1999 $ 935,455 5/15/89 935,455 935,455 975,586
------------ ----------- -----------
</TABLE>
8
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
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 $ 1,000,000 8/16/94 $ 899,723 $ 916,986 $ 983,200
------------ ----------- -----------
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 13,190 uts. 2/28/89 329,750 220,604 206,094
------------ ----------- -----------
C & S Wholesale Grocers, Inc.
A food wholesaler in New England and New York.
10.47% Senior Note due 2001 $ 300,000 7/3/91 304,371 300,000 324,930
------------ ----------- -----------
Cains Foods, L.P.
A producer of mayonnaise, sauce and pickle products for
both the retail and food service markets.
10% Senior Secured Term Note due 2004 $ 756,756 9/29/95 750,778 756,756 750,778
11% Senior Subordinated Note due 2004 $ 472,975 9/29/95 471,414 447,856 471,414
8% Junior Subordinated Convertible Note due 2004,
convertible into 39 partnership units at $1,388.89 per unit $ 54,054 9/29/95 42,148 54,054 42,148
Warrant, exercisable until 2006, to purchase 19 partnership
units at $.01 per unit (B) 19 uts. 9/29/95 19 25,130 19
------------ ----------- -----------
1,264,359 1,283,796 1,264,359
------------ ----------- -----------
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 $ 750,000 3/31/94 710,025 750,000 712,688
------------ ----------- -----------
The Chronicle Publishing Company
A media company including newspaper publishing, television
broadcasting and cable operations.
9.5% Senior Note due 1997 $ 333,333 2/21/91 320,933 331,853 339,966
------------ ----------- -----------
Classic Sports Partners, L.P.
A cable sports television network.
300,000 Units of Limited Partnership Interests 300,000 uts. 4/18/95 270,000 300,000 270,000
------------ ----------- -----------
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 $ 933,400 6/26/89 963,176 933,400 966,069
------------ ----------- -----------
</TABLE>
9
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
--------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Corporate Restricted Securities: (A) (Continued)
Columbia Sportswear Company
A manufacturer and marketer of outerwear and sportswear.
10.75% Senior Note due 1996 $ 375,000 6/20/89 $ 381,750 $ 375,000 $ 380,925
------------ ----------- -----------
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 $ 1,500,000 9/24/92 1,482,900 1,500,000 3,767,045
------------ ----------- -----------
Contico International, Inc.
A developer, manufacturer and marketer of consumer,
commercial and industrial plastic products.
12% Senior Subordinated Note due 2003 $ 500,000 3/23/93 522,800 500,000 539,550
------------ ----------- -----------
Control Devices, Inc.
A producer of high quality electromechanical circuit
protector devices and photo-optic sensors.
10% Senior Secured Note due 2004 $ 609,000 7/29/94 610,827 609,000 647,123
11% Senior Subordinated Note due 2004 $ 261,000 7/29/94 257,059 261,000 280,810
11% Cumulative Preferred Stock 34 shs. 7/29/94 29,734 33,640 35,002
Common Stock (B) 25,282 shs. 7/29/94 8,410 8,410 34,700
Warrant, exercisable until 2004, to purchase 32,718
shares of common stock at $.01 per share (B) 32,718 shs. 7/29/94 327 -- 44,660
------------ ----------- -----------
906,357 912,050 1,042,295
------------ ----------- -----------
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 $ 330,114 12/11/90 329,924 329,702 354,344
------------ ----------- -----------
Decorative Home Accents, Inc.
A designer, manufacturer and marketer of an extensive
line of decorative home accessories.
13% Senior Note due 2002 $ 500,000 6/30/95 500,000 500,000 500,000
------------ ----------- -----------
Discount Auto Parts
A retailer of auto parts.
9.8% Senior Secured Note due 2003 $ 1,200,000 11/2/89 1,159,320 1,200,000 1,271,880
------------ ----------- -----------
</TABLE>
10
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
--------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Corporate Restricted Securities: (A) (Continued)
Duty Free International, Inc.
A retailer of duty free merchandise.
10.42% Senior Note due 1996 $ 150,000 3/23/89 $ 145,230 $ 150,000 $ 150,615
------------ ----------- -----------
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 $ 1,333,333 9/24/93 1,330,578 1,322,145 1,382,800
10% Preferred Stock 1,559 shs. 9/24/93 117,976 155,950 124,370
Common Stock (B) 107 shs. 9/24/93 10,717 10,717 20,118
Warrant, exercisable from 1998 to 2001, to purchase 112
shares of common stock at $.01 per share (B) 112 shs. 9/24/93 11 11,188 11
------------ ----------- -----------
1,459,282 1,500,000 1,527,299
------------ ----------- -----------
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 $ 1,500,000 9/2/92 1,486,200 1,500,000 1,935,207
------------ ----------- -----------
Fay's, Inc. - N.Y.S.E.
An operator of a discount drug store chain.
9.95% Mortgage Note due 2004 $ 1,363,750 12/14/89 1,326,520 1,363,750 1,406,845
------------ ----------- -----------
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 $ 357,026 4/5/91 356,966 357,026 354,098
------------ ----------- -----------
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 $ 1,363,636 4/28/95 1,357,363 1,290,966 1,427,209
Common Stock 270 shs. 4/28/95 70,559 135,000 48,179
Warrant, exercisable until 2005, to purchase 190 shares of
common stock at $.01 per share (B) 190 shs. 4/28/95 49,116 85,227 33,878
Incentive Warrants, exercisable from 1998 to 2000, to
purchase 10 shares of common stock at $.01 per share (B) 10 shs. 4/28/95 1,656 1,136 1,713
------------ ----------- -----------
1,478,694 1,512,329 1,510,979
------------ ----------- -----------
</TABLE>
11
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
--------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
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 25,000 shs. 7/21/94 $ 250,000 $ 250,000 $ 237,500
------------ ----------- -----------
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 $ 300,000 1/17/95 300,000 300,000 340,500
------------ ----------- -----------
Hardy Oil & Gas USA, Inc.
Engages in exploration and development of oil and
gas reserves.
8.46% Guaranteed Senior Note due 2004 $ 1,500,000 1/11/95 1,452,600 1,500,000 1,423,650
Warrant, exercisable until 2004, to purchase 135,000
shares of common stock at (Pound)1.86 per share (B) 135,000 shs. 1/11/95 13,500 -- 13,500
------------ ----------- -----------
1,466,100 1,500,000 1,437,150
------------ ----------- -----------
Harvard Industries, Inc.
Designs, engineers and manufactures accessories, parts
and components for the automobile industry.
11.125% Senior Note $ 100,000 7/25/95 100,000 100,000 101,000
------------ ----------- -----------
Hein-Werner Corp. - A.S.E.
A manufacturer of automotive service and collision
repair equipment and hydraulic cylinders.
8% Convertible Subordinated Note due 1999, convertible into
227,617 shares of common stock at $6.59 per share $ 1,500,000 9/29/89 1,459,650 1,500,000 1,466,798
------------ ----------- -----------
Herff Jones, Inc.
A leading manufacturer of recognition awards, educational and
graduation related products for the scholastic market in the
United States.
11% Senior Subordinated Note due 2005 $ 100,000 8/14/95 100,000 100,000 103,250
------------ ----------- -----------
Highland Homes Holdings, Inc.
A single family homebuilder operating in the Dallas-Fort
Worth and Atlanta areas.
9.75% Senior Note due 2001 $ 750,000 11/18/93 742,575 739,765 753,900
Warrant, exercisable until 2001, to purchase 5 shares of
common stock at $17,897.31 per share (B) 5 shs. 11/18/93 1 10,235 52
------------ ----------- -----------
742,576 750,000 753,952
------------ ----------- -----------
Hunton & Williams
A major law firm in Richmond, Virginia.
10.06% Senior Secured Note due 2000 $ 262,375 12/21/90 254,294 262,375 271,506
------------ ----------- -----------
</TABLE>
12
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
--------------- ----------- ------------ ----------- -----------
<C> <C> <C> <C> <C>
Corporate Restricted Securities: (A) (Continued)
Intermetrics, Inc.
A provider of software systems, services and products
to a variety of information technology users.
13% Senior Subordinated Note due 2002 $ 666,640 8/31/95 $ 660,440 $ 666,640 $ 660,507
Floating Rate Senior Term Note due 2002 $ 400,000 8/31/95 406,760 348,351 409,280
Common Stock (B) 5,542 shs. 8/31/95 25,978 34,638 25,978
Warrants, exercisable until 2005 to purchase 10,588
shares of Class D common stock at $.01 per share (B) 10,588 shs. 8/31/95 1,059 52,000 1,059
------------ ----------- -----------
1,094,237 1,101,629 1,096,824
------------ ----------- -----------
Jackson Products, Inc.
Manufactures and distributes a variety of industrial
and highway safety products.
12.25% Senior Subordinated Note due 2004 $ 985,000 8/16/95 962,148 966,226 994,555
13.25% Cumulative Preferred Stock 4,928 shs. 8/16/95 407,467 411,708 415,743
Common Stock (B) 21,713 shs. 8/16/95 21,702 21,702 21,702
Warrants, exercisable until 2005, to purchase 99,919
shares of common stock at $.01 per share (B) 99,866 shs. 8/16/95 999 99,866 999
------------ ----------- -----------
1,392,316 1,499,502 1,432,999
------------ ----------- -----------
Kuhlman Corporation (formerly 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 common stock at $8.32 per share (B) 50,000 shs. 4/30/92 53,000 81,000 165,425
------------ ----------- -----------
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 $ 875,000 2/14/95 876,138 875,000 904,488
Floating Rate Revolving Credit Facility due 2001 $ 162,500 7/13/95 162,500 162,500 161,411
7% Convertible Preferred Series A Stock, convertible into
9,000 shares of common stock at $10 per share 9,000 shs. 2/14/95 80,275 90,000 86,009
Convertible Preferred Series B Stock, convertible into
16,000 shares of common stock at $10 per share 16,000 shs. 2/14/95 120,000 160,000 120,000
------------ ----------- -----------
1,238,913 1,287,500 1,271,908
------------ ----------- -----------
</TABLE>
13
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
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 for overhead cranes.
12.5% Subordinated Secured Note due 2003 $ 239,670 6/28/95 $ 336,560 $ 245,299 $ 335,505
Floating Rate Senior Revolving Credit Facility due 2001 $ 329,670 6/28/95 325,516 329,670 325,681
Senior Secured Floating Rate Note due 2001 $ 510,989 6/28/95 506,645 510,989 506,799
Common Stock (B) 38,462 shs. 6/28/95 96,059 115,386 86,540
Warrant, exercisable until 2005, to purchase 19,795
shares of common stock at $.01 per share (B) 19,795 shs. 6/28/95 49,291 85,714 19,781
------------ ----------- -----------
1,314,071 1,287,058 1,274,306
------------ ----------- -----------
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 $ 1,500,000 8/31/94 1,517,550 1,500,000 1,980,000
------------ ----------- -----------
PAR Acquisition Corp.
A manufacturer of fuel handling systems for nuclear
power plants and hazardous waste. $ 833,333 2/5/93 832,000 833,333 871,166
14.5% Senior Subordinated Note due 2000 83,333 shs. 2/5/93 166,667 166,667 146,117
8% Convertible Preferred Stock due 2001, convertible
into 6.67% of the Company Common Stock (B) 133,333 shs. 2/5/93 333,333 333,333 44,800
------------ ----------- -----------
1,332,000 1,333,333 1,062,083
------------ ----------- -----------
Penske Truck Leasing, L.P.
A full service maintenance truck leasing company.
9.73% Senior Secured Note due 1996 $ 1,125,000 11/15/89 1,099,125 1,125,000 1,141,425
------------ ----------- -----------
Piedmont Holding, Inc.
A general aviation fixed based operator with repair,
maintenance and overhaul certification.
12% Senior Subordinated Note due 2001 $ 1,357,151 7/15/92 1,368,280 1,357,151 1,450,930
Senior Redeemable Cumulative Preferred Stock 140,983 shs. 7/15/92 140,983 140,983 140,983
Common Stock (B) 1,887 shs. 7/15/92 1,283 1,887 40,804
Warrant, exercisable until 2001, to purchase 2,521
shares of common stock at $.05 per share (B) 2,521 shs. 7/15/92 1,613 -- 54,413
------------ ----------- -----------
1,512,159 1,500,021 1,687,130
------------ ----------- -----------
Premier Parks, Inc.
A leading theme park operator.
12% Senior Note due 2003 $ 250,000 8/15/95 250,000 250,000 252,500
------------ ----------- -----------
</TABLE>
14
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Corporate Restricted Securities: (A) (Continued)
PRN Holdings, Inc.
Rents critical care equipment to hospitals and
other healthcare providers.
10.25% Senior Subordinated Note due 2004 $ 1,500,000 9/30/94 $ 1,471,875 $ 1,471,875 $ 1,550,700
Warrant, exercisable from 1997 to 2004, to
purchase 1.5% of the Company (B) 17 shs. 9/30/94 1,000 28,125 139,574
------------- ------------- -------------
1,472,875 1,500,000 1,690,274
------------- ------------- -------------
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 $ 400,000 8/12/94 394,720 400,000 416,200
11.51% Junior Secured Note due 1999 $ 266,667 8/12/94 261,014 266,667 269,600
9.8% Redeemable Exchangeable Preferred Stock 3,333 shs. 8/12/94 282,634 333,333 303,367
Common Stock (B) 497 shs. 8/12/94 5 -- 5
------------- ------------- -------------
938,373 1,000,000 989,172
------------- ------------- -------------
Quad-Graphics Inc.
A commercial printing company.
10.48% Secured Note due 2000 $ 1,038,426 * 1,022,850 914,597 968,650
------------- ------------- -------------
Quanex Corporation
A manufacturer of specialty metals.
10.77% Senior Note due 2000 $ 416,668 8/23/90 405,376 416,668 448,210
------------- ------------- -------------
RailTex, Inc. - O.T.C.
An operator of short-line railroads in the
Midwest, West and Canada.
12% Senior Subordinated Note due 2002 $ 750,000 2/16/93 799,575 750,000 875,400
Common Stock 62,500 shs. 2/16/93 600,075 600,000 1,187,500
------------- ------------- -------------
1,399,650 1,350,000 2,062,900
------------- ------------- ------------
Rent-Way, Inc.
Operates rent-to-own stores in Ohio, Pennsylvania
and Florida.
10% Convertible Subordinated Note due 2002,
convertible into 94,877 shares of common stock
at $10.54 per share $ 1,000,000 7/21/95 995,610 1,000,000 1,017,030
Warrants, exercisable to 2002, to purchase
10,000 shares of common stock at $10.54 per
share (B) 10,000 shs. 7/21/95 100 -- 100
------------- ------------- -------------
995,710 1,000,000 1,017,130
------------- ------------- -------------
Rogers Cablesystems Limited
A provider of cable television service in Canada.
11.09% Senior Subordinated Note due 2000 $ 500,000 6/20/90 493,450 500,000 531,800
------------- ------------- -------------
</TABLE>
*6/7/89, 8/3/89 and 9/28/89.
15
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
Corporate Restricted Securities: (A) (Continued)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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 $ 1,400,000 2/3/95 $1,374,730 $1,375,667 $1,414,000
10% Series B Preferred Stock 93,333 shs. 2/3/95 93,333 93,333 93,333
Warrants, exercisable until 2002, to
purchase 1,400 shares of common stock at
$15.64 per share (B) 1,400 shs. 2/3/95 25,270 25,270 25,270
---------- ---------- ----------
1,493,333 1,494,270 1,532,603
---------- ---------- ----------
Sandoz Capital BVI Ltd.
A manufacturer of chemicals and pharmaceuticals.
2% Convertible Note due 2002, convertible
into 885 shares of common stock at $91.72
per share $ 100,000 9/28/95 81,170 81,170 84,750
---------- ---------- ----------
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 $ 1,442,660 8/22/89 1,427,079 1,419,373 1,429,581
---------- ---------- ----------
Southern Credit Corporation
A diversified secured lending and leasing
company.
10.58% Senior Note due 1996 $ 390,000 4/13/89 380,094 390,000 392,886
---------- ---------- ----------
Staples, Inc.
An owner and operator of high-volume office
superstores.
4.5% Convertible Note due 2000, convertible
into 17,424 shares of common stock at $33
per share $ 575,000 9/12/95 575,000 575,000 606,625
---------- ---------- ----------
Star International Holdings, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004 $ 438,805 5/29/94 418,752 438,805 435,821
10.5% Subordinated Note due 2004 $ 179,104 5/29/94 162,913 179,104 172,907
Common Stock (B) 1,077 shs. 5/29/94 58,414 64,904 58,414
Warrant, exercisable until 2004, to purchase
806 shares of common stock at $.01 per share (B) 806 shs. 5/29/94 8 -- 8
---------- ---------- ----------
640,087 682,813 667,150
---------- ---------- ----------
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 $ 617,647 11/12/93 614,065 617,647 639,141
Class A Common Stock (B) 17,647 shs. 11/12/93 136,059 132,353 165,574
---------- ---------- ----------
750,124 750,000 804,715
---------- ---------- ----------
</TABLE>
16
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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 $ 1,444,500 12/29/94 $1,444,500 $1,444,500 $1,439,589
Common Stock (B) 5,050 shs. 12/29/94 55,000 55,500 55,500
---------- ---------- ----------
1,499,500 1,500,000 1,495,089
---------- ---------- ----------
Tele-Communications, Inc.
An owner and operator of cable television
systems.
9.68% Senior Note due 1999 $ 1,000,000 12/21/89 983,400 1,000,000 1,037,100
---------- ---------- ----------
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) 5,544 shs. 5/30/89 55 6 1,467
---------- ---------- ----------
Terminal 91 Realty, L.P.
A subsidiary of the Guarantor, Arctic Alaska
Fisheries Corporation, which operates a cold
storage facility.
9.75% Guaranteed Mortgage Note due 1996 $ 445,400 3/28/91 436,094 445,400 447,627
---------- ---------- ----------
TransMontaigne Oil Company
An independent petroleum products marketing
company.
12.75% Senior Subordinated Debenture due 2000 $ 1,200,000 3/28/91 1,274,280 1,172,162 1,270,800
Common Stock (B) 203,165 shs. * 490,810 598,597 448,913
Warrant, exercisable until 2001, to purchase
74,606 shares of common stock at $3.60 per
share (B) 74,606 shs. 3/28/91 7,461 42,000 7,461
---------- ---------- ----------
1,772,551 1,812,759 1,727,174
---------- ---------- ----------
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 $ 1,500,000 6/23/94 586,875 645,099 667,500
---------- ---------- ----------
United States Filter Corporation
A designer and manufacturer of systems and
equipment for the water and wastewater
treatment industry.
6% Convertible Note due 2005, convertible
into 9,091 shares of common stock at $27.50
per share $ 250,000 9/13/95 250,000 250,000 267,500
---------- ---------- ----------
</TABLE>
*3/28/91, 12/16/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95.
17
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 9/30/95
Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Corporate Restricted Securities: (A) (Continued)
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......................................... 5,000 shs. 7/21/92 $ 250,000 $ 250,000 $ 267,500
----------- ---------- ----------
Uno-Ven Company
A partnership in an oil refinery and related
midwestern marketing operations.
10.1% Senior Secured Note due 2003................ $ 885,714 12/1/89 863,750 885,714 957,634
----------- ---------- ----------
US Air, Inc.
A domestic and international airline.
10.8% Series A Secured Loan Certificates due 2003. $ 572,835 6/29/94 486,910 494,034 516,869
----------- ---------- ----------
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide
variety of industries.
11% Senior Secured Note due 2005.................. $ 927,545 5/3/95 927,545 838,800 936,520
12% Subordinated Note due 2005.................... $ 367,008 5/3/95 367,008 308,603 373,890
Common Stock (B).................................. 2,457 shs. 5/3/95 81,376 195,720 81,376
Warrants, exercisable until 2005, to purchase
1,398 shares of common stock at $.01 per
share (B)......................................... 1,398 shs. 5/3/95 46,291 17,971 46,291
----------- ---------- ----------
1,422,220 1,361,094 1,438,077
----------- ---------- ----------
Valero Energy Corporation
An owner and operator of a specialized petroleum
refinery engaging in petroleum product marketing
operations.
10.58% Senior Note due 2000....................... $428,571 12/20/90 435,717 428,571 432,685
----------- ---------- ----------
Van De Kamps, Inc.
A producer and marketer of a retail brand of frozen
seafood.
12% Senior Subordinated Note due 2005............. $150,000 9/14/95 150,000 150,000 151,500
----------- ---------- ----------
Wakebourne PLC - London Stock Exchange
A U.K. public company engaged in the computer
services and networking systems business.
Common Stock (B).................................. 170,898 shs. 3/10/92 881,836 1,070,508 56,396
----------- ---------- ----------
Total Corporate Restricted Securities............... $61,032,968 61,811,373 65,721,854
=========== ========== ==========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
Market
Value at
Interest Due Principal Cost 9/30/95
Rate Date Amount (Note 2B) (Note 2A)
-------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Corporate Public Securities:
Convertible Bonds - 1.83%
American Travelers Corporation.................. 6.500% 10/1/05 $ 100,000 $ 100,000 $ 103,250
Leucadia National Corporation................... 5.250 2/1/03 1,000,000 1,000,000 1,110,000
Savoy Pictures Entertainment, Inc............... 7.000 7/1/03 650,000 505,375 494,000
----------- ----------- -----------
Total Convertible Bonds.......................... $ 1,750,000 1,605,375 1,707,250
=========== =========== ===========
Bonds - 21.13%
AES Corporation................................. 9.750 6/15/00 $ 500,000 513,125 511,250
American Airlines, Inc.......................... 9.780 11/26/11 1,000,000 1,000,000 1,159,000
American Rice, Inc.............................. 13.000 7/31/02 750,000 705,366 705,000
CF Cable TV Inc................................. 9.125 7/15/07 350,000 350,000 353,500
Central Rents, Inc.............................. 12.875 12/15/03 730,000 667,288 730,000
Chesapeake Energy Corporation................... 12.000 3/1/01 450,000 429,582 470,250
Comdisco Inc.................................... 7.750 9/1/99 1,500,000 1,598,265 1,556,340
Continental Cablevision, Inc.................... 8.875 9/15/05 500,000 454,375 511,250
Data Documents, Inc............................. 13.500 7/15/02 1,400,000 1,400,750 1,445,500
El Paso Funding Corporation (B)................. 9.375 10/1/96 200,000 174,526 126,000
Florist Transworld Delivery..................... 14.000 12/15/01 375,000 361,607 378,750
GMAC 1992-E Grantor Trust....................... 4.750 8/15/97 247,344 249,006 245,410
Gulf Canada Resources, Inc...................... 9.250 1/15/04 750,000 743,438 742,500
Honda Auto Receivables 1992-A Grantor Trust..... 4.900 6/15/98 128,252 128,031 127,450
Hosiery Corporation of America.................. 13.750 8/1/02 500,000 493,900 520,000
Imax Corporation................................ 7.000 3/1/01 500,000 445,189 472,500
Jordan Industries, Inc.......................... 10.375 8/1/03 500,000 490,625 467,500
Northwest Airlines, Inc......................... 12.092 12/31/00 1,000,000 1,032,500 1,030,000
Orchard Supply Hardware Corporation............. 9.375 2/15/02 500,000 447,250 462,500
Pathmark Stores, Inc............................ 9.625 5/1/02 750,000 743,750 738,750
Peoples Telephone Company, Inc.................. 12.250 7/15/02 250,000 250,000 255,000
Red Roof Inns, Inc.............................. 9.625 12/15/03 500,000 466,250 486,250
Rowan Companies, Inc............................ 11.875 12/1/01 500,000 537,500 541,250
Sealy Corporation............................... 9.500 5/1/03 500,000 482,250 495,000
Super Rite Foods................................ 10.625 4/1/02 1,000,000 1,089,200 1,070,000
Telex Communications, Inc....................... 12.000 7/15/04 750,000 750,000 768,750
Trism, Inc...................................... 10.750 12/15/00 500,000 501,875 498,750
USG Corporation................................. 9.250 9/15/01 500,000 475,625 528,750
United States Treasury.......................... 5.000 1/31/99 2,000,000 1,990,156 1,942,180
Venture Holdings Trust.......................... 9.750 4/1/04 500,000 463,750 425,000
----------- ----------- -----------
Total Bonds...................................... $19,630,596 19,435,179 19,764,380
=========== =========== ===========
</TABLE>
19
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Market
Value at
Warrants or Cost 9/30/95
Shares (Note 2B) (Note 2A)
------------ ----------- -----------
<S> <C> <C> <C>
Corporate Public Securities: (Continued)
Warrants - .05%
Central Rents, Inc. (B)............................. 730 shs. $ 21,712 $ 18,250
Data Documents (B).................................. 1,400 shs. -- 3,850
Florist Transworld Delivery (B)..................... 375 shs. 13,750 18,750
MVR, Inc./Value Support (B)......................... 22,500 shs. 956 1,035
----------- -----------
Total Warrants....................................... 36,418 41,885
----------- -----------
Common Stock - 4.20%
American Standard................................... 9,000 shs. 271,537 265,500
Amerisource Health Corporation (B).................. 9,481 shs. 3,216 255,995
Bell & Howell Holdings Company...................... 6,000 shs. 140,475 153,000
Benson Petroleum, LTD............................... 100,000 shs. 77,204 108,000
Black Box Corporation............................... 12,375 shs. 207,281 228,938
Computer Horizons Corporation....................... 11,250 shs. 153,750 225,000
Corporate Express, Inc.............................. 15,000 shs. 363,281 365,625
Foodbrands America Inc.............................. 22,500 shs. 177,188 323,438
Harvard Industries, Inc............................. 7,500 shs. 178,500 200,625
Southwest Airlines.................................. 35,715 shs. 500,000 901,804
Staffing Resources, Inc............................. 45,000 shs. 247,500 540,000
Western Transmedia Co., Inc......................... 54,000 shs. 188,723 121,500
Worldcom, Inc....................................... 7,500 shs. 226,875 240,938
----------- -----------
Total Common Stock................................... 2,735,530 3,930,363
----------- -----------
Convertible Preferred Stock - 1.40%
Arkansas Best Corp.................................. 7,500 shs. 375,000 299,063
Integon Corp........................................ 10,000 shs. 500,000 550,000
Occidental Petroleum Corporation.................... 7,900 shs. 395,000 465,113
----------- -----------
Total Convertible Preferred Stock.................... 1,270,000 1,314,176
----------- -----------
Total Corporate Public Securities.................... 25,082,502 26,758,054
----------- -----------
</TABLE>
20
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Market
Value at
Interest/ Due Principal Cost 9/30/95
Yield Date Amount (Note 2B) (Note 2A)
--------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Short-Term Securities:
Commercial Paper - 15.17%
ConAgra, Inc............................ 5.860% 10/2/95 $ 1,500,000 1,499,758 1,499,756
Dana Credit Corporation................. 5.907 10/5/95 1,500,000 1,499,020 1,499,020
GTE Hawaiian Telephone, Inc............. 5.863 10/6/95 622,000 621,494 621,494
General Motors Acceptance Corporation... 5.710 10/3/95 155,000 155,000 155,000
General Motors Acceptance Corporation... 5.808 10/6/95 117,000 117,000 117,000
General Motors Acceptance Corporation... 5.814 10/13/95 943,000 943,000 943,000
General Motors Acceptance Corporation... 5.866 10/16/95 239,000 239,000 239,000
Kerr McGee Credit Corporation........... 5.875 10/24/95 1,500,000 1,494,394 1,494,394
ORIX Credit Alliance, Inc............... 5.893 10/4/95 1,160,000 1,159,432 1,159,432
Portland General Electric Company....... 5.913 10/10/95 1,285,000 1,283,105 1,283,105
Rayonier, Inc........................... 5.907 10/12/95 1,500,000 1,497,305 1,497,305
Rite Aid Corporation.................... 5.898 10/11/95 1,500,000 1,497,554 1,497,554
Super Value Stores, Inc................. 5.876 10/23/95 1,230,000 1,225,603 1,225,603
Tyson Foods, Inc........................ 5.873 10/3/95 960,000 959,687 959,687
----------- ------------ ------------
Total Short-Term Securities............... $14,211,000 14,191,350 14,191,350
=========== ------------ ------------
Total Investments - 114.03%......... $101,085,225 106,671,258
============ ------------
Other Assets - 3.70 ......... 3,464,085
Liabilities - (17.73)......... (16,587,433)
------ ------------
Total Net Assets - 100.00%......... $ 93,547,910
====== ============
</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.
21
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
Fair Value
at 9/30/95 Percentage
Corporate Restricted Securities: (Note 2A) Net Assets
----------- ----------
<S> <C> <C>
ADVERTISING
Ammirati & Puris, Inc. $ 282,350
Latin Communications Group 1,271,908
-----------
1,554,258 1.66%
-----------
APPAREL MANUFACTURING
Columbia Sportswear Company 380,925 .41
-----------
BUILDING MATERIALS
Highland Homes Holdings, Inc. 753,952 .81
-----------
CHEMICAL
A.T.-Sentinel, Inc. 1,429,581 1.53
-----------
COMMUNICATIONS
Classic Sports Partners, L.P. 270,000
Rogers Cablesystems Limited 531,800
Tele-Communications, Inc. 1,037,100
Telex Communications, Inc. 1,467
Turner Broadcasting Systems, Inc. 667,500
-----------
2,507,867 2.68
-----------
ELECTRICAL EQUIPMENT/ELECTRONICS
Catalina Lighting, Inc. 712,688
CompuCom Systems, Inc. 3,767,045
Control Devices, Inc. 1,042,295
Exide Electronics Group, Inc. 1,935,207
Intermetrics, Inc. 1,096,824
Nu Horizon Electronics Corp. 1,980,000
Steerage Corporation 804,715
Wakebourne PLC 56,396
-----------
11,395,170 12.18
-----------
</TABLE>
22
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Fair Value
at 9/30/95 Percentage
Corporate Restricted Securities: (Continued) (Note 2A) Net Assets
----------- ----------
<S> <C> <C>
HEALTH CARE
Berkshire Medical Center, Inc. $ 975,586
PRN Holdings, Inc. 1,690,274
-----------
2,665,860 2.85%
-----------
LEASING
Boyle Leasing Technologies, Inc. 983,200
Penske Truck Leasing, L.P. 1,141,425
Southern Credit Corporation 392,886
-----------
2,517,511 2.69
-----------
MANUFACTURING - INDUSTRIAL AND
CONSUMER PRODUCTS
Contico International, Inc. 539,550
Decorative Home Accents, Inc. 500,000
Elgin National Industries, Inc. 1,527,299
Firth Rixson, Inc. 354,098
Fleming Acquisition Corporation 1,510,979
Forschner Enterprises, Inc. 237,500
Harvard Industries, Inc. 101,000
Hein-Werner Corp. 1,466,798
Herff Jones, Inc. 103,250
Jackson Products, Inc. 1,432,999
Kuhlman Corporation 165,425
Maxtec International Corp. 1,274,306
PAR Acquisition Corp. 1,062,083
Quanex Corporation 448,210
RXI Holdings, Inc. 1,532,603
Sandoz Capital BVI Ltd. 84,750
Star International Holdings, Inc. 667,150
United States Filter Corporation 267,500
U.S. Netting, Inc. 1,438,077
-----------
14,713,577 15.73
-----------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
Fair Value
at 9/30/95 Percentage
Corporate Restricted Securities: (Continued) (Note 2A) Net Assets
---------- ----------
<S> <C> <C>
MISCELLANEOUS
Allen's Creek Enterprises, Inc. $ 785,250
Premier Parks, Inc. 252,500
Protein Genetics, Inc. 989,172
Stonehurst I LLC 1,495,089
Terminal 91 Realty, L.P. 447,627
----------
3,969,638 4.23%
----------
OIL AND GAS SERVICE
American Exploration Company 1,464,913
Associated Natural Gas Corporation 1,625,396
BP Prudhoe Bay Royalty Trust 206,094
Hardy Oil & Gas USA, Inc. 1,437,150
TransMontaigne Oil Company 1,727,174
Unocal Corporation 267,500
Uno-Ven Company 957,634
Valero Energy Corporation 432,685
----------
8,118,546 8.68
----------
PUBLISHING
The Chronicle Publishing Company 339,966
Quad-Graphics Inc. 968,650
----------
1,308,616 1.40
----------
RECREATIONAL SUPPLIES/EQUIPMENT
The Coast Distribution System 966,069 1.03
----------
</TABLE>
24
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Fair Value
at 9/30/95 Percentage
Corporate Restricted Securities: (Continued) (Note 2A) Net Assets
----------- ----------
<S> <C> <C>
RETAILING
J. Baker, Inc. $ 1,250,451
C & S Wholesale Grocers, Inc. 324,930
Cains Foods, L.P. 1,264,359
Discount Auto Parts 1,271,880
Duty Free International, Inc. 150,615
Fay's, Inc. 1,406,845
Grand Metropolitan Public Limited Company 340,500
Rent-Way, Inc. 1,017,130
Staples, Inc. 606,625
Van De Kamps, Inc. 151,500
-----------
7,784,835 8.32%
-----------
SERVICES
Atlantic Aviation Corporation 762,700
Corrections Corporation of America 354,344
Hunton & Williams 271,506
Piedmont Holding, Inc. 1,687,130
RailTex, Inc. 2,062,900
US Air, Inc. 516,869
-----------
5,655,449 6.05
----------- ----------
Total Corporate Restricted Securities $65,721,854 70.25%
=========== ==========
</TABLE>
See Notes to Financial Statements.
25
<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
26
<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
27
<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 September 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.
28
<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-
29
<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. Note Payable
On July 15, 1995, the Trust sold to MassMutual at par a $12,000,000 Senior
Fixed Rate Convertible Note due June 15, 2002 (the "Note") which accrues at
6.93% per annum. The Note is convertible into the Trust's common shares at
any time at the stated conversion price per share.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Purchases and Sales of Investments
<TABLE>
<CAPTION>
For the nine months ended
9/30/95 9/30/94
------- -------
Cost of Investments Acquired
----------------------------
<S> <C> <C>
Corporate restricted securities......... $ 18,018,844 $ 9,733,527
Corporate public securities............. 16,364,708 28,456,924
Short-term securities................... 177,444,681 129,028,625
<CAPTION>
Proceeds from Sales
or Maturities
------------------------------
<S> <C> <C>
Corporate restricted securities......... $ 14,100,993 $ 12,122,074
Corporate public securities............. 18,999,142 19,037,222
Short-term securities................... 164,141,132 136,246,584
</TABLE>
The aggregate cost of investments is the same for financial reporting and
federal income tax purposes as of September 30, 1995. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of September 30, 1995 is $5,586,033 and consists of $8,565,091 appreciation
and $2,979,058 depreciation.
The aggregate cost of investments for financial reporting and federal income
tax purposes as of September 30, 1994 was $83,393,156 and $83,404,186,
respectively. The net unrealized depreciation of investments for financial
reporting purposes as of September 30, 1994 was $744,544 and consisted of
$4,339,332 appreciation and $5,083,876 depreciation. The net unrealized
depreciation of investments for federal income tax purposes as of September
30, 1994 was $755,574 and consisted of $4,339,332 appreciation and $5,094,906
depreciation.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
7. 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 $ .18 1,510,119 $ .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)
<CAPTION>
September 30, 1995 September 30, 1994
------------------ ------------------
<S> <C> <C> <C> <C>
Investment income............. 2,128,621 1,806,347
Net investment income......... 1,685,319 .18 1,537,026 .17
Net realized and unrealized
gain on investments.......... 1,758,056 .19 233,582 .03
</TABLE>
32
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