<PAGE>
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS JANUARY 31, 1996
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF PRESIDENT STUART H. REESE APPEARS HERE]
It is a pleasure to submit to you MassMutual Participation Investors' Annual
Report covering the year ended December 31, 1995. This has been a particularly
rewarding year for investors after weathering the difficult markets of 1994. The
Trust's results this year included an increase in the quarterly dividend to $.19
per share from $.18 per share paid during the first three quarters; increased
net investment income; a net asset value at a record level; the realization of
significant capital gains; and sixteen new private placement investments.
PORTFOLIO ACTIVITY
During the fourth quarter, net investment income was 18.1 cents per share. As we
mentioned in our last quarterly report, two of our private placement issuers,
CompuCom Systems, and Exide Electronics, forced conversion of our notes into
stock. Since this occurred in the fourth quarter, our earnings were slightly
lower than expected. However, we were very active in the private placement
market during the quarter as we closed six new investments totalling
approximately $6.7 million. The six new investments are Consumer Product
Enterprises, Inc., Maloney Industries, Inc., Pharmaceutical Buyers, Inc.,
Sequentia, Inc., Unidata, Inc., and an add-on investment in Latin Communications
Group. (A brief description of these companies is provided in the Schedule of
Investments.) The fixed income components of these investments have an average
coupon of over 11.5% and offer the potential of capital gains via their equity
features. For the year, our sixteen new investments helped bring the Trust's net
investment income up to $.73 per share from $.66 per share in 1994.
We were also very active in the 144A market during the year, where we purchased
seventeen issues at a cost of nearly $6.9 million. The 144A issues are
restricted in the sense that they can only be resold to qualified institutional
buyers. However, due to the number of qualified buyers participating in the
market, most essentially trade like public securities. Many of the 144A
securities we purchased this year were either sold at a gain, or have since
converted to public securities through registration and face no trading
restrictions. The remainder are listed in our Corporate Restricted Securities
section of the Schedule of Investments.
EQUITY ORIENTATION
Medium- to long-term corporate debt obligations which provide the Trust with
current income and enable us to pay dividends and expenses, are the core of
Participation Investors' portfolio. Sometimes our investments provide the Trust
with the opportunity to participate in any future prosperity of a company by
means of an equity participation feature. Our equity participation is normally
obtained through conversion features, warrants to purchase common stock or the
direct purchase of the issuer's common stock. As of January 15, 1996, there were
six private placement portfolio companies, whose stock are publicly traded, in
which the combined stock market value exceeded the Trust's cost by approximately
$5.1 million. At December 31, 1995, equity related issues accounted for
approximately 28% of the portfolio.
[PIE CHART APPEARS HERE]
1
<PAGE>
CAPITAL GAINS
For the year, we generated over $2.8 million in capital gains, offset the
Trust's $2.2 million capital loss carryforward, and realized nearly $581,500 in
net gains. The following table lists some of the larger capital gains realized
from partial or complete dispositions of investments from our private portfolio.
Capital gains in CompuCom Systems, Inc., and Nu Horizons Electronics Corp., were
realized in the fourth quarter.
<TABLE>
<CAPTION>
Issuer Gain ($000s)
------ ------------
<S> <C>
CP Clare Corporation 743
CompuCom Systems, Inc. 497
Corrections Corporation of America 109
Golden States Vintners 188
National R.V., Inc. 138
Nu Horizons Electronics Corp. 251
RailTex, Inc. 206
Schwitzer U.S., Inc. 253
Wirckraft Industries, Inc. 142
</TABLE>
Of the total net gains realized during the year, roughly $750,000 were from our
public portfolio. Participation Investors continues to be successful in finding
relative values and generating additional income and gains from the public
markets.
PERFORMANCE
From a performance perspective, investors in the Trust did very well. With our
net asset value per share setting record-high levels during the year, we ended
1995 at an all-time high of $10.34, after dividends and taxes, as compared to
$8.84 per share at the end of 1994. The Trust's total return performance for the
year ended December 31, 1995 based on stock market price and reinvestment of
dividends was 34.7%, while based on earnings and change in net asset value total
return was 26.1%. In comparison, the Lehman Brothers Government/Corporate Bond
Index was up 19.2% and the Standard & Poor's Industrial Stock Index was up 34.6%
for the same period. The following chart shows the performance of Participation
Investors over the last three years compared to some recognized benchmarks.
[PERFORMANCE CHART APPEARS HERE]
2
<PAGE>
On The Economic Front
The past year saw the continuation of a very good economic environment for
investors in both stocks and bonds. The U.S. economic growth rate as measured by
Gross Domestic Product continued to slow throughout the year from its heated
level of 4.1% in 1994 to roughly 2.5% in 1995. The Federal Reserve Board, which
had been raising rates during 1994 in an attempt to slow growth somewhat, was
able to change course and move rates lower. Because the economy is cyclical, the
Fed wanted growth to slow to a more moderate, sustainable level - a "soft
landing" from 1994's rapid pace - to prolong the positive part of the current
economic cycle.
While the Federal Reserve Board actually increased rates as late as February
1995, the bond market had begun to rally as early as November 1994 on the belief
that growth would slow enough to indicate a change in monetary policy. The
market was correct. The Fed's February rate increase of 1/2 point was followed
during the year by two cuts of 1/4 point each in July and December. Yields on
U.S. securities fell significantly during this period, which drove dramatic
price appreciation for Treasuries. The prices in most other bond sectors
followed suit, with 1995 resulting in one of the strongest bull markets for
bonds in history.
Backed by low interest rates and a strong bond market, stocks reached all-time
highs in 1995. The Dow Jones Industrial Average made new highs almost daily,
hitting a peak of 5216 and closing the year at 5117. In addition to support from
the bond market, stocks reacted to continued positive earnings reports, merger
and consolidation activity, an improving export picture and increasing
productivity and efficiency throughout corporate America.
Even in the face of a slower economy, sales and earnings remained strong through
the end of 1995. The U.S. had its biggest productivity gain on record in 1995
and exports grew, aided in the early part of the year by a weak dollar, which in
turn created improvements in trade. Going into 1996, we expect to see exports
remain strong, as U.S. businesses recognize that future growth will come in part
from operating in a global market. This opinion is supported by the heavy
outlays we have seen for business equipment, which should further enhance
competitiveness, productivity and export activity for the coming year.
We expect this environment will lead to a satisfactory flow of investment
opportunities for the Trust. Thank you for your continued support and interest
in Participation Investors.
Sincerely,
/s/ Stuart H. Reese
Stuart H. Reese
President
Tax Information
Dividends received by shareholders from net investment income must be reported
for federal income tax purposes as ordinary income. Dividend payments made in
May, August, November 1995, and January 1996 are taxable in the 1995 tax year.
The Trust distributed $.73 per share of net investment income for the year 1995.
In years when net long-term capital gains are realized, the Board of Trustees
either votes to retain the gains for reinvestment, or to distribute them to
shareholders. For 1995, the Trustees voted to retain the gains for future
growth. These gains, even though not distributed to shareholders, are taxable.
In January 1996, the Trust distributed IRS Form 2439 to shareholders of record
as of December 29, 1995. Your proportionate share of the retained capital gains
is reported on Line 1 of the form ($.063090 per share) and must be reported on
Schedule D of your income tax return as long-term capital gains. Since the Trust
paid the required federal income tax on the retained capital gains, you are
entitled to a tax credit. Your share of the tax paid by the Trust is shown on
Line 2 of IRS Form 2439 ($.022082 per share) and should be reflected on your tax
return as a tax credit (which will reduce your Federal income tax liability and
might result in a tax refund). Those shareholders whose accounts are not subject
to federal capital gains tax (e.g. charitable organizations, IRAs and Keogh
Plans) can claim a refund by filing Form 990-T. In addition, all shareholders
are entitled to increase, for federal income tax purposes, the cost basis of
their shares by the excess of Line 1 over Line 2. This amounts to $.041008 per
share.
The extent to which the following dividend payments qualify (as provided in the
Internal Revenue Code and subject to certain limitations set forth therein) for
the dividend received deduction for corporations, is shown in the table below.
Also shown is the amount of interest earned on U.S. Government obligations.
<TABLE>
<CAPTION>
Qualified for Dividend Interest Earned On
Annual Received Deduction U.S. Government Obligation
Dividend ------------------ --------------------------
Amount Percent Amount Per Share Percent Amount Per Share
- -------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
$.73 2.5748% $0.0188 1.6255% $0.0119
</TABLE>
3
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES MassMutual Participation Investors
December 31, 1995 and 1994
<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 - $62,704,806; 1994 - $56,498,926) $ 69,576,592 $ 55,921,260
Corporate public securities at market value
(Cost 1995 - $23,690,129; 1994 - $26,019,187) 26,399,294 24,958,852
Short-term securities at cost plus earned discount which
approximates market value 11,611,375 610,000
------------ ------------
107,587,261 81,490,112
Cash 28,405 12,641
Interest and dividends receivable, net 1,804,874 1,603,944
Receivable for investments sold 866,010 79,828
------------ ------------
Total assets $110,286,550 $ 83,186,525
============ ============
Liabilities:
Dividend payable $ 1,751,166 $ 1,474,666
Payable for investments purchased 500,000 --
Management fee payable (Note 4) 214,394 183,219
Note payable (Note 5) 12,000,000 --
Interest payable (Note 5) 170,940 --
Accrued expenses 160,389 98,054
Accrued taxes (Note 2D) 203,518 --
------------ ------------
Total liabilities 15,000,407 1,755,939
============ ============
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 2D) 134,748 121,227
Accumulated net realized gain (loss) on investments (Note 3) 377,962 (2,245,122)
Net unrealized appreciation (depreciation) of investments (Notes 2A and 6) 9,580,951 (1,638,001)
------------ ------------
Total net assets 95,286,143 81,430,586
------------ ------------
Total liabilities and net assets $110,286,550 $ 83,186,525
============ ============
Shares of beneficial interest issued and outstanding 9,216,665 9,216,665
============ ============
Net asset value per share $ 10.34 $ 8.84
============ ============
</TABLE>
See Notes to Financial Statements.
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4
<PAGE>
STATEMENT OF OPERATIONS MassMutual Participation Investors
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest $ 8,088,960 $ 7,057,641
Dividends 173,463 106,150
------------ ------------
Total income 8,262,423 7,163,791
------------ ------------
Expenses:
Management fee (Note 4) 822,845 751,532
Trustees' fees and expenses 50,625 51,299
Transfer Agent/Registrar's expenses 90,187 70,454
Custodian's fees 18,647 23,834
Interest (Note 5) 378,840 --
Reports to shareholders 56,787 56,287
Audit and legal 70,731 67,356
Other 32,075 28,016
------------ ------------
Total expenses 1,520,737 1,048,778
------------ ------------
Net investment income 6,741,686 6,115,013
------------ ------------
Net realized and unrealized gain (loss) on investments (Notes 2A and 2B):
Realized gain (loss) on investments (Note 3) 2,826,602 (205,081)
Provision for federal income tax (Note 2D) (203,518) --
------------ ------------
Net realized gain (loss) on investments (Note 3) 2,623,084 (205,081)
Net change in unrealized appreciation/depreciation of investments 11,218,952 (2,597,529)
------------ ------------
Net gain (loss) on investments 13,842,036 (2,802,610)
------------ ------------
Net increase in net assets resulting from operations $ 20,583,722 $ 3,312,403
============ ============
</TABLE>
See Notes to Financial Statements.
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5
<PAGE>
STATEMENT OF CASH FLOWS MassMutual Participation Investors
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash:
Cash flows from operating activities:
Interest and dividends received $ 7,444,894 $ 6,440,703
Interest expense paid (207,900) --
Operating expenses paid (1,048,387) (1,011,445)
------------ ------------
Net cash provided by operating activities 6,188,607 5,429,258
------------ ------------
Cash flows from investing activities:
Change in short-term portfolio securities, net (10,571,196) 6,610,189
Purchase of portfolio securities (51,299,056) (47,064,845)
Proceeds from disposition of portfolio securities 50,149,075 41,112,877
------------ ------------
Net cash (used for) provided by investing activities (11,721,177) 658,221
------------ ------------
Net cash (used for) provided by operating and investing activities (5,532,570) 6,087,479
------------ ------------
Cash flows from financing activities:
Cash dividends paid from net investment income (6,451,666) (6,010,215)
Cash dividends paid from return of capital -- (72,784)
Issuance of convertible senior note 12,000,000 --
------------ ------------
Net cash provided by (used for) financing activities 5,548,334 (6,082,999)
------------ ------------
Net increase in cash 15,764 4,480
Cash - beginning of year 12,641 8,161
------------ ------------
Cash - end of year $ 28,405 $ 12,641
------------ ------------
Reconciliation of net increase (decrease) in net assets to net cash from
operating and investing activities:
Net increase in net assets resulting from operations $ 20,583,722 $ 3,312,403
------------ ------------
(Increase) decrease in investments (26,097,149) 3,181,403
Increase in interest and dividends receivable, net (200,930) (457,543)
(Increase) decrease in receivable for investments sold (786,182) 13,883
Increase in payable for investments purchased 500,000 --
Increase (decrease) in management fee payable 31,175 (6,026)
Increase in interest payable 170,940 --
Increase in accrued expenses 62,336 43,359
Increase in accrued taxes 203,518 --
------------ ------------
Total adjustments to net assets from operations (26,116,292) 2,775,076
------------ ------------
Net cash (used for) provided by operating and investing activities $ (5,532,570) $ 6,087,479
============ ============
</TABLE>
See Notes to Financial Statements.
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6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS MassMutual Participation Investors
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,741,686 $ 6,115,013
Net realized gain (loss) on investments 2,623,084 (205,081)
Net change in unrealized appreciation/depreciation of investments 11,218,952 (2,597,529)
------------ ------------
Net increase in net assets resulting from operations 20,583,722 3,312,403
Dividends to shareholders from:
Net investment income (1995 - $.73 per share; 1994 - $.65 per share) (6,728,165) (5,990,833)
------------ ------------
Total increase (decrease) 13,855,557 (2,678,430)
Net Assets, beginning of year 81,430,586 84,109,016
------------ ------------
Net Assets, end of year (including undistributed net investment
income in 1995 - $134,748; 1994 - $121,227) $ 95,286,143 $ 81,430,586
============ ============
</TABLE>
See Notes to Financial Statements.
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7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
Selected data for each share of beneficial interest outstanding for the periods
ended:
<TABLE>
<CAPTION>
For the
period
10/6/88
For the years ended December 31, (Inception)
------------------------------------------------------------------- through
1995 1994 1993 1992 1991 1990 1989 12/31/88
------- ------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $ 8.84 $ 9.13 $ 8.58 $ 8.58 $ 8.29 $ 9.14 $ 9.21 $ 9.30
------- ------- ------- ------- ------- ------- ------- ---------
Net investment income .73 .66 .68 .69 .82 .87 .86 .12
Net realized and unrealized gain
(loss) on investments 1.50 (.30) .57 .07 .35 (.84) (.05) (.07)
------- ------- ------- ------- ------- ------- ------- ---------
Total from investment operations 2.23 .36 1.25 .76 1.17 .03 .81 .05
------- ------- ------- ------- ------- ------- ------- ---------
Dividends from net investment
income to common shareholders (.73) (.65) (.69) (.69) (.82) (.88) (.84) (.12)
Distributions from net realized
gain on investments to common
shareholders -- -- -- (.07) (.06) -- (.04) (.02)
Distributions from return of capital
to common shareholders -- -- (.01) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ---------
Total distributions (.73) (.65) (.70) (.76) (.88) (.88) (.88) (.14)
------- ------- ------- ------- ------- ------- ------- ---------
Net asset value:
End of period $ 10.34 $ 8.84 $ 9.13 $ 8.58 $ 8.58 $ 8.29 $ 9.14 $ 9.21
======= ======= ======= ======= ======= ======= ======= =========
Per share market value:
End of period $ 9.13 $ 7.38 $ 8.00 $ 7.38 $ 8.63 $ 6.63 $ 8.25 $ 9.88
======= ======= ======= ======= ======= ======= ======= =========
Total investment return:
Market value 34.65% .35% 17.67% (6.33)% 44.00% (9.82)% (7.77)% (1.00)%*
Net asset value 26.11% 4.03% 15.01% 9.11% 14.34% .31% 9.10% .54%*
Net assets (in thousands):
End of period $95,286 $81,431 $84,109 $79,046 $78,763 $75,821 $83,584 $ 84,149
Ratio of expenses to average
net assets 1.71% 1.25% 1.26% 1.26% 1.28% 1.23% 1.27% .27%*
Ratio of net investment income
to average net assets 7.56% 7.30% 7.66% 7.89% 9.50% 9.79% 9.18% 1.73%*
Portfolio turnover 59.27% 51.42% 34.28% 36.04% 32.98% 16.25% 77.84% 27.96%*
</TABLE>
*Percentages represent results for the period stated and are not annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MassMutual Partication Investors
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities - 73.02%: (A) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
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 $ 794,700
------------ ------------ ------------
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 1,456,200
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 1,496,713
------------ ------------ ------------
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 11/23/93 244,900 250,000 281,175
------------ ------------ ------------
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 1,662,675
------------ ------------ ------------
Atlantic Aviation Corporation
An operator and provider of business aircraft
services and fueling services to commercial airlines.
9.85% Senior Note due 1999 $ 771,175 1/31/90 744,824 771,175 760,224
------------ ------------ ------------
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 1,186,536 1,204,440
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 1,259,821 1,207,011
------------ ------------ ------------
Berkshire Medical Center, Inc.
A non profit, regional acute care hospital.
10.5% Senior Note due 1999 $ 784,091 5/15/89 784,091 784,091 830,274
------------ ------------ ------------
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 8/16/94 899,723 921,507 1,000,600
------------ ------------ ------------
</TABLE>
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9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
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 $ 215,761 $ 192,904
------------ ------------ ------------
C & S Wholesale Grocers, Inc.
A food wholesaler in New England and New York.
10.47% Senior Note due 2001 $ 300,000 7/3/91 304,371 300,000 329,310
------------ ------------ ------------
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 9/29/95 750,778 756,756 770,226
11.5% Senior Subordinated Note due 2004 $ 472,975 9/29/95 471,414 448,351 487,968
Senior Secured Revolving Floating Rate
Term Note due 2000 $ 75,676 11/6/95 75,676 75,676 75,676
8% Junior Subordinated Convertible Note
due 2004, convertible into 39 partnership
points at $1,388.89 per point $ 54,054 9/29/95 42,148 54,054 44,248
Warrant, exercisable until 2006, to purchase
19 partnership points at $.01 per point (B) 19 pts. 9/29/95 19 25,130 19
------------ ------------ ------------
1,340,035 1,359,967 1,378,137
------------ ------------ ------------
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 50,000 shares of common
stock at $7.50 per share $ 375,000 3/31/94 355,013 375,000 358,982
------------ ------------ ------------
The Chronicle Publishing Company
A media company including newspaper publishing,
television broadcasting and cable operations.
9.5% Senior Note due 1997 $ 333,333 2/21/91 320,933 331,853 339,500
------------ ------------ ------------
Classic Sports Partners, L.P.
A cable sports television network.
Limited Partnership Interest (B) 3,000 uts. 4/18/95 270,000 300,000 240,000
------------ ------------ ------------
The Coast Distribution System - A.S.E.
A wholesale distributor of recreational vehicle and
marine parts and accessories.
11.2% Senior Subordinated Secured Note
due 1999 $ 933,400 6/26/89 963,176 933,400 972,323
------------ ------------ ------------
Columbia Sportswear Company
A manufacturer and marketer of outerwear and
sportswear.
10.75% Senior Note due 1996 $ 187,500 6/20/89 190,875 187,500 190,913
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
CompuCom Systems, Inc. - O.T.C.
A personal computer dealer specializing in serving
corporate accounts.
Common Stock (B) 536,861 shs. 9/24/92 $ 1,167,630 $ 1,181,095 $ 4,845,171
------------ ------------ ------------
Consumer Product Enterprises, Inc.
A manufacturer of colored acrylic felt for
consumer use.
10.75% Senior Secured Term Note due 2003 $ 699,790 12/8/95 706,998 699,790 710,357
12% Senior Subordinated Note due 2005 $ 461,400 12/8/95 463,292 436,053 466,937
Senior Secured Floating Rate Credit
Note due 2000 $ 153,800 12/8/95 153,800 153,800 153,800
Common Stock (B) 92,280 shs. 12/8/95 69,210 92,280 69,210
Warrant, exercisable until 2005, to purchase
69,210 shares of common stock at $.01
per share (B) 69,210 shs. 12/8/95 692 25,426 692
------------ ------------ ------------
1,393,992 1,407,349 1,400,996
------------ ------------ ------------
Contico International, Inc.
A developer, manufacturer and marketer of
consumer, commercial and industrial plastic
products.
12% Senior Subordinated Note due 2003 $ 500,000 3/23/93 522,800 500,000 540,050
------------ ------------ ------------
Control Devices, Inc.
A producer of high quality electromechanical
circuit protector devices and photo-optic sensors.
10% Senior Secured Note due 2004 $ 609,000 7/29/94 610,827 609,000 662,897
11% Senior Subordinated Note due 2004 $ 261,000 7/29/94 257,059 261,000 289,005
11% Cumulative Preferred Stock 34 shs. 7/29/94 29,734 33,640 36,610
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 1,067,872
------------ ------------ ------------
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 $ 305,100 12/11/90 304,924 304,718 332,193
------------ ------------ ------------
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 1,311,720
------------ ------------ ------------
Duty Free International, Inc.
A retailer of duty free merchandise.
10.42% Senior Note due 1996 $ 150,000 3/23/89 145,230 150,000 150,525
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A)(Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Elgin National Industries, Inc.
An operator in the specialty fastener, mineral
processing equipment, engineering, construction
and electrical distribution industries.
13% Senior Subordinated Note due 2001 $ 1,333,333 9/24/93 $ 1,330,578 $ 1,322,145 $ 1,385,333
10% Preferred Stock 1,559 shs. 9/24/93 117,976 155,950 125,680
Common Stock (B) 107 shs. 9/24/93 10,717 10,717 20,118
Warrant, exercisable from 1998 until 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 1,531,142
------------ ------------ ------------
Exide Corporation - N.Y.S.E.
A manufacturer of lead acid batteries.
2.9% Convertible Senior Subordinated Note
due 2005, convertible into 2,509 shares of
common stock at $57.65 per share (C) $ 200,000 12/11/95 144,500 144,834 144,500
------------ ------------ -----------
Exide Electronics Group, Inc. - O.T.C.
A manufacturer and servicer of uninterruptible
power systems.
Common Stock (B) 114,679 shs. 9/2/92 1,486,200 1,500,000 1,606,938
------------ ------------ ------------
Fay's, Inc. - N.Y.S.E.
An operator of a discount drug store chain.
9.95% Mortgage Note due 2004 $ 1,227,500 12/14/89 1,193,990 1,227,500 1,296,977
------------ ------------ ------------
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 4/5/91 356,966 357,026 369,379
------------ ------------ ------------
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 $ 1,385,300 * 1,379,026 1,303,632 1,480,470
Common Stock (B) 270 shs. 4/28/95 70,559 135,000 6,893
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 4,846
Incentive Warrant, exercisable from 1998 until
2000, to purchase 10 shares of common stock
at $.01 per share (B) 10 shs. 4/28/95 1,656 1,136 245
------------ ------------ ------------
1,500,357 1,524,995 1,492,454
------------ ------------ ------------
</TABLE>
*4/28/95, 8/1/95 and 11/1/95.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Forschner Enterprises, Inc.
Acquires controlling or substantial interests in
manufacturing and marketing entities.
3% Convertible Preferred Stock, convertible
into 25,000 shares of common stock at $10
per share (B) 25,000 shs. 7/21/94 $ 250,000 $ 250,000 $ 237,500
------------ ------------ ------------
Grand Metropolitan PLC -
London Stock Exchange
A leading international branded consumer products
group.
6.5% Convertible Senior Debenture due 2000,
convertible into 686 shares of common stock
at Pounds 4.37 per share (C) $ 300,000 1/17/95 300,000 300,000 348,000
------------ ------------ ------------
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 1,450,650
Warrant, exercisable until 2004, to purchase
135,000 shares of common stock at Pounds 1.86
per share (B) 135,000 shs. 1/11/95 13,500 -- 22,950
------------ ------------ ------------
1,466,100 1,500,000 1,473,600
------------ ------------ ------------
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 1,486,485
------------ ------------ ------------
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 11/18/93 742,575 739,765 769,500
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
------------ ------------ ------------
742,576 750,000 769,552
------------ ------------ ------------
Hunton & Williams
A major law firm in Richmond, Virginia.
10.06% Senior Secured Note due 2000 $ 262,375 12/21/90 254,294 262,375 273,421
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Intermetrics, Inc.
A provider of software systems, services and
products to a variety of information technology
users.
13% Senior Subordinated Note due 2002 $ 400,000 8/31/95 $ 406,760 $ 349,405 $ 419,880
Senior Revolving Floating Rate Term Note
due 2002 $ 666,640 8/31/95 660,440 666,640 660,640
Common Stock (B) 5,542 shs. 8/31/95 25,978 34,638 25,978
Warrant, exercisable until 2007, 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 1,102,683 1,107,557
------------ ------------ ------------
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 1,025,878
13.25% Cumulative Exchangeable Preferred
Stock 4,928 shs. 8/16/95 407,467 411,708 429,205
Common Stock (B) 21,713 shs. 8/16/95 21,702 21,702 21,702
Warrant, exercisable until 2005, to purchase
99,919 shares of common stock at $.01
per share (B) 99,919 shs. 8/16/95 999 99,866 999
------------ ------------ ------------
1,392,316 1,499,502 1,477,784
------------ ------------ ------------
Kuhlman Corporation - 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 81,000 180,185
------------ ------------ ------------
Latin Communications Group
An operator of Spanish-language media in
North America.
10.4% Senior Secured Note due 2001 $ 875,000 2/14/95 876,138 875,000 915,338
Senior Secured Revolving Floating Rate
Note due 2002 $ 287,500 * 287,500 287,500 281,980
Secured Floating Rate Term Note
due 1998 $ 93,750 11/30/95 91,294 93,750 91,378
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 82,935
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
Common Stock 5,938 shs. 11/30/95 46,895 62,502 44,874
------------ ------------ ------------
1,502,102 1,568,752 1,536,505
------------ ------------ ------------
</TABLE>
*7/13/95 and 11/30/95.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Maloney Industries, Inc.
Engineers and manufactures process systems for
the oil and gas industry.
13% Subordinated Note due 2004 $ 1,125,000 10/26/95 $ 1,189,125 $ 1,125,000 $ 1,211,850
Limited Partnership Interest (B) 284 uts. 10/20/95 253,125 337,500 253,125
Warrant, exercisable until 2004, to purchase 148
shares of common stock at $.01 per share (B) 148 shs. 10/26/95 148 -- 148
------------ ------------ ------------
1,442,398 1,462,500 1,465,123
------------ ------------ ------------
Maxtec International Corp.
A manufacturer and distributor of precision
test and measurement equipment and overhead
crane control systems.
12.5% Subordinated Secured Note due 2003 $ 329,670 6/28/95 336,560 246,834 344,176
Senior Revolving Credit Facility due 2001 $ 329,670 6/28/95 325,516 329,670 325,813
Floating Rate Senior Secured Note due 2001 $ 494,505 6/28/95 490,301 494,505 490,599
Common Stock (B) 38,462 shs. 6/28/95 96,059 115,386 86,540
Warrant, exercisable until 2005, to purchase
19,781 shares of common stock at $.01
per share (B) 19,781 shs. 6/28/95 49,291 85,714 19,781
------------ ------------ ------------
1,297,727 1,272,109 1,266,909
------------ ------------ ------------
Nu Horizon Electronics Corp. - O.T.C.
A distributor of high technology active and passive
electronics devices.
8.25% Convertible Subordinated Note due
2002, convertible into 117,566 shares of common
stock at $9 per share $ 1,058,097 8/31/94 1,070,477 1,058,097 1,773,787
------------ ------------ ------------
PAR Acquisition Corp.
A manufacturer of fuel handling systems for
nuclear power plants and hazardous waste.
14.5% Senior Subordinated Note due 2000 $ 833,333 2/5/93 832,000 833,333 881,833
8% Convertible Preferred Stock due 2001,
convertible into 83,333 shares of common
stock at $2 per share 83,333 shs. 2/5/93 166,667 166,667 150,847
Common Stock (B) 133,333 shs. 2/5/93 333,333 333,333 44,800
------------ ------------ ------------
1,332,000 1,333,333 1,077,480
------------ ------------ ------------
Penske Truck Leasing, L.P.
A full service maintenance truck leasing company.
9.73% Senior Secured Note due 1996 $ 750,000 11/15/89 732,750 750,000 765,675
------------ ------------ ------------
Pharmaceutical Buyers, Inc.
A group purchasing organization which specializes
in arranging and negotiating contracts for the
purchase of pharmaceutical goods and medical
equipment.
10.5% Senior Secured Note due 2005 $ 483,750 11/30/95 504,116 483,750 508,905
10.5% Senior Secured Convertible Note due
2005, convertible into 2 shares of common
stock at $50,000 per share $ 97,500 11/30/95 102,677 97,500 103,935
Common Stock (B) 3 shs. 11/30/95 126,750 169,000 126,750
------------ ------------ ------------
733,543 750,250 739,590
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
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 $ 1,468,166
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 1,704,366
------------ ------------ ------------
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 1,593,150
Warrant, exercisable from 1997
until 2004, to purchase 17 shares of
common stock at $.01 per share (B) 17 shs. 9/30/94 1,000 28,125 179,093
------------ ------------ ------------
1,472,875 1,500,000 1,772,243
------------ ------------ ------------
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 8/12/94 394,720 400,000 427,200
11.51% Junior Secured Note due 1999 $ 266,667 8/12/94 261,014 266,667 273,067
9.8% Redeemable Exchangeable Preferred Stock 3,333 shs. 8/12/94 282,634 333,333 313,367
Common Stock (B) 497 shs. 8/12/94 5 -- 36,573
------------ ------------ ------------
938,373 1,000,000 1,050,207
------------ ------------ ------------
Quad-Graphics Inc.
A commercial printing company.
10.48% Secured Note due 2000 $ 914,597 * 900,878 914,597 973,223
------------ ------------ ------------
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 2/16/93 799,575 750,000 892,875
Common Stock 62,500 shs. 2/16/93 600,075 600,000 1,246,875
------------ ------------ ------------
1,399,650 1,350,000 2,139,750
------------ ------------ ------------
Rent-Way, Inc. - O.T.C.
Operates nineteen 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 (C) $ 1,000,000 7/18/95 1,000,000 1,000,000 1,044,540
Warrant, exercisable until 2002, to
purchase 10,000 shares of common
stock at $10.54 per share (B) (C) 10,000 shs. 7/18/95 -- -- 100
------------ ------------ ------------
1,000,000 1,000,000 1,044,640
------------ ------------ ------------
</TABLE>
*6/7/89, 8/3/89 and 9/28/89.
- --------------------------------------------------------------------------------
16
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- -------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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 $ 538,300
------------ ------------ ------------
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 (C) $ 100,000 9/28/95 81,170 81,703 94,500
------------ ------------ ------------
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 $ 1,263,489 8/22/89 1,249,843 1,282,442 1,296,593
------------ ------------ ------------
Sequentia, Inc.
A manufacturer and distributor of fiberglass
reinforced panels used in commercial, industrial
and residential applications.
12% Subordinated Note due 2004 $ 1,140,770 12/14/95 1,209,142 901,893 1,217,013
Partnership Interest of KS Holdings, L.P. (B) 3,593 uts. 12/14/95 265,425 359,300 269,475
Warrant, exercisable until 2004, to purchase
2,725 shares of common stock at $.01
per share (B) 2,725 shs. 12/14/95 2,725 239,547 2,725
------------ ------------ ------------
1,477,292 1,500,740 1,489,213
------------ ------------ ------------
Southern Credit Corporation
A diversified secured lending and leasing company.
10.58% Senior Note due 1996 $ 195,000 4/13/89 190,047 195,000 196,775
------------ ------------ ------------
Staples, Inc. - O.T.C.
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 (C) $ 575,000 9/12/95 575,000 575,000 575,000
------------ ------------ ------------
Star International Holdings, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004 $ 438,805 5/29/94 418,752 438,805 445,958
10.5% Subordinated Note due 2004 $ 179,104 5/29/94 162,913 179,104 179,516
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
------------ ------------ ------------
640,087 682,813 683,896
------------ ------------ ------------
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 11/12/93 614,065 617,647 657,485
Class A Common Stock (B) 17,647 shs. 11/12/93 136,059 132,353 165,574
------------ ------------ ------------
750,124 750,000 823,059
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- -------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Stonehurst I LLC
A wholly owned subsidiary of Tenneco, Inc.,
whose business includes natural gas, auto
parts and packaging.
Floating Rate Subordinated Note due 2004 $ 1,444,500 12/29/94 $ 1,444,500 $ 1,444,500 $ 1,439,878
5.05% Membership Interest (B) $ 55,500 12/29/94 55,000 55,500 55,500
------------ ------------ ------------
1,499,500 1,500,000 1,495,378
------------ ------------ ------------
Tele-Communications, Inc.
An owner and operator of cable television systems.
9.68% Senior Note due 1999 $ 800,000 12/21/89 786,720 800,000 843,440
------------ ------------ ------------
Telex Communications, Inc.
A producer of electronic and communications 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 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 $ 441,200 3/28/91 431,982 441,200 441,244
------------ ------------ ------------
Thermo Electron Corporation - N.Y.S.E.
Manufactures electronic medical equipment.
4.25% Convertible Note due 2003, convertible
into 8,818 shares of common stock at $56.70
per share (C) $ 500,000 11/28/95 500,000 500,000 547,500
------------ ------------ ------------
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 1,173,226 1,293,600
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 1,813,823 1,749,974
------------ ------------ ------------
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 (C) $ 1,500,000 6/23/94 586,875 657,176 678,750
------------ ------------ ------------
</TABLE>
*3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95.
- -------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/95
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Unidata, Inc.
A manufacturer and distributor of database
management software.
11.5% Senior Subordinated Note due 2003 $ 1,250,000 12/14/95 $ 1,269,250 $ 1,188,263 $ 1,275,875
Common Stock 62,500 shs. 12/14/95 187,500 250,000 187,500
Warrant, exercisable from 1997 until 2003,
to purchase 31,250 shares of common stock
at $1 per share (B) 31,250 shs. 12/14/95 313 62,125 313
------------ ------------ ------------
1,457,063 1,500,388 1,463,688
------------ ------------ ------------
United States Filter Corporation - N.Y.S.E.
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 (C) $ 250,000 9/13/95 250,000 250,000 291,250
------------ ------------ ------------
Unocal Corporation - N.Y.S.E.
An integrated crude oil and natural gas company
with interest in chemical geothermal energy
and metals.
$3.50 Convertible Preferred Stock, convertible
into 8,130 shares of common stock at $30.75
per share (C) 5,000 shs. 7/21/92 250,000 250,000 271,250
------------ ------------ ------------
Uno-Ven Company
A partnership in an oil refinery and related
midwestern marketing operations.
10.1% Senior Secured Note due 2003 $ 857,143 12/1/89 835,888 857,143 954,000
------------ ------------ ------------
USAir, Inc.
A domestic and international airline.
10.8% Series A Secured Loan Certificates
due 2003 $ 572,835 6/29/94 486,910 494,034 529,185
------------ ------------ ------------
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide
variety of industries.
11% Senior Secured Note due 2005 $ 838,800 5/3/95 927,545 838,800 947,257
12% Subordinated Note due 2005 $ 326,200 5/3/95 326,200 308,843 381,980
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
------------ ------------ ------------
1,381,412 1,361,334 1,456,904
------------ ------------ ------------
Valero Energy Corporation
An owner and operator of a specialized petroleum
refinery and engages in petroleum product
marketing operations.
10.58% Senior Note due 2000 $ 357,143 12/20/90 363,098 357,143 366,286
------------ ------------ ------------
Total Corporate Restricted Securities $ 61,805,819 62,704,806 69,576,592
============ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Interest Due Principal Cost at 12/31/95
Corporate Public Securities: Rate Date Amount (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Convertible Bonds - 2.60%
General Instrument Corporation 5.000% 6/15/01 $ 500,000 $ 498,876 $ 547,500
Leucadia National Corporation 5.250 2/1/03 1,000,000 1,000,000 1,020,000
Magna International, Inc. 5.000 10/15/02 375,000 380,625 380,625
Savoy Pictures Entertainment, Inc. 7.000 7/1/03 650,000 505,375 533,000
------------ ----------- ------------
Total Convertible Bonds $ 2,525,000 2,384,876 2,481,125
============ ----------- ------------
Bonds - 18.80%
American Airlines 9.780 11/26/11 $ 1,000,000 1,000,000 1,182,200
American Rice, Inc. 13.000 7/31/02 750,000 706,256 705,000
CF Cable TV, Inc. 9.125 7/15/07 350,000 350,000 359,188
Central Rents, Inc. 12.875 12/15/03 930,000 869,288 930,000
Chesapeake Energy Corporation 12.000 3/1/01 450,000 430,598 483,750
Comdisco Inc. 7.750 9/1/99 1,500,000 1,598,265 1,585,350
Continental Cablevision, Inc. 8.875 9/15/05 500,000 454,375 523,750
Data Documents, Inc. 13.500 7/15/02 1,429,000 1,433,158 1,557,610
Decorative Home Accents, Inc. 13.000 6/30/02 500,000 500,000 495,000
Florist Transworld Delivery, Inc. 14.000 12/15/01 375,000 361,973 386,250
GMAC 1992-E Grantor Trust 4.750 8/15/97 193,000 194,296 192,154
Harvard Industries, Inc. 9.250 1/15/04 250,000 252,063 250,000
Honda Auto Receivables 1992-A Grantor Trust 4.900 6/15/98 97,662 97,494 97,326
Hosiery Corporation of America 13.750 8/1/02 500,000 493,900 540,000
IVAC Corp. 9.250 12/1/02 50,000 50,000 51,750
Imax Corporation 7.000 3/1/01 500,000 449,557 491,250
Jordan Industries, Inc. 10.375 8/1/03 500,000 490,625 445,000
Key Plastics, Inc. 14.000 11/15/99 350,000 354,913 357,000
Northwest Airlines Corp. 12.092 12/31/00 981,779 1,013,687 1,040,686
Pathmark Stores, Inc. 9.625 5/1/02 750,000 743,750 729,375
Peoples Telephone Company, Inc. 12.250 7/15/02 250,000 250,000 200,000
Red Roof Inns, Inc. 9.625 12/15/03 500,000 466,250 490,000
RXI Holdings, Inc. 14.000 7/15/02 1,400,000 1,376,208 1,358,000
Sealy Corporation 9.500 5/1/03 500,000 482,250 502,500
Super Rite Corporation 10.625 4/1/02 1,000,000 1,089,200 1,095,000
Telex Communications, Inc. 12.000 7/15/04 750,000 750,000 761,250
USG Corporation 9.250 9/15/01 500,000 475,625 535,000
Van De Kamps, Inc. 12.000 9/15/05 150,000 150,000 156,000
Venture Holdings Trust 9.750 4/1/04 500,000 463,750 417,500
------------ ----------- -----------
Total Bonds $17,506,441 17,347,481 17,917,889
============ ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Warrants or Cost at 12/31/95
Corporate Public Securities: (Continued) Shares (Note 2B) (Note 2A)
----------- --------- ------------
<S> <C> <C> <C>
Warrants - .25%
Central Rents, Inc. (B) 930 shs. $ 33,712 $ 55,800
Data Documents, Inc. (B) 15,817 shs. -- 134,447
Florist Transworld Delivery,
Inc. (B) 375 shs. 13,750 18,750
RXI Holdings, Inc. (B) 1,400 shs. 25,270 28,000
----------- -----------
Total Warrants 72,732 236,997
----------- -----------
Common Stock - 4.81%
Allmerica Financial Corporation 3,000 shs. 63,000 81,000
Amerisource Health Corporation (B) 9,481 shs. 3,216 324,735
Arbor Software Corporation (B) 150 shs. 2,550 7,088
Ascent Entertainment Group, Inc. (B) 22,500 shs. 341,064 354,375
Benson Petroleum, LTD (B) 100,000 shs. 77,204 76,000
Boston Beer Company (B) 1,500 shs. 30,000 35,625
CKS Group, Inc. (B) 600 shs. 10,200 23,400
Canadian National Railway Company (B) 3,000 shs. 36,000 46,500
Computer Horizons Corporation 11,100 shs. 146,925 421,800
Data Documents, Inc. (B) 4,500 shs. 40,500 38,813
Decorative Home Accents, Inc. (B) 500 shs. -- 5,000
DST Systems, Inc. (B) 1,500 shs. 31,500 42,750
Estee Lauder Cosmetics, Inc. (B) 1,500 shs. 39,000 52,313
Extended Stay America, Inc. (B) 4,500 shs. 58,500 123,750
Foodbrands America Inc. (B) 22,500 shs. 177,188 270,000
Gucci Group NV (B) 1,500 shs. 33,000 58,313
Harvard Industries, Inc. (B) 7,500 shs. 178,500 191,250
Lexmark International Group, Inc. (B) 14,700 shs. 294,000 268,275
MSC Industrial Direct Company (B) 3,000 shs. 57,000 82,500
Neuromedical Systems, Inc. (B) 3,000 shs. 45,000 60,375
Pete's Brewing Company (B) 300 shs. 5,400 4,200
Sandisk Corporation (B) 300 shs. 3,000 4,500
Scopus Technology, Inc. (B) 150 shs. 1,800 3,788
Southwest Airlines 35,715 shs. 500,000 830,374
Staffing Resources, Inc. 45,000 shs. 247,500 663,750
Total Renal Care Holdings, Inc. (B) 7,500 shs. 116,250 221,250
United States Filter Corporation (B) 7,500 shs. 169,687 199,688
Western Transmedia Co., Inc. (B) 54,000 shs. 188,723 87,750
----------- -----------
Total Common Stock 2,896,707 4,579,162
----------- -----------
Convertible Preferred Stock - 1.24%
Integon Corp. 10,000 shs. 500,000 600,000
Occidental Petroleum Corporation 7,900 shs. 395,000 490,788
RXI Holdings, Inc. 93,333 shs. 93,333 93,333
----------- -----------
Total Convertible Preferred Stock 988,333 1,184,121
----------- -----------
Total Corporate Public Securities 23,690,129 26,399,294
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Interest/ Due Principal Cost at 12/31/95
Short Term Securities: Yield Date Amount (Note 2B) (Note 2A)
--------- ---- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Commercial Paper- 12.19%
ConAgra, Inc. 5.913% 1/3/96 $ 1,305,000 $ 1,304,572 $ 1,304,572
Cox Enterprises, Inc. 6.072 1/8/96 1,390,000 1,388,362 1,388,362
GTE Corporation 5.824 1/12/96 1,500,000 1,497,337 1,497,337
ORIX Credit Alliance, Inc. 6.014 1/4/96 1,500,000 1,499,250 1,499,250
Pennsylvania Power & Light Company 6.014 1/5/96 1,500,000 1,499,000 1,499,000
Public Service Company of Colorado 6.214 1/9/96 1,500,000 1,497,933 1,497,933
SUPERVALU, Inc. 5.811 1/2/96 1,500,000 1,499,759 1,499,759
Texas Utilities Electric Co. 5.822 1/22/96 1,430,000 1,425,162 1,425,162
----------- ----------- -----------
Total Short Term Securities $11,625,000 11,611,375 11,611,375
=========== ----------- -----------
Total Investments - 112.91% $98,006,310 107,587,261
=========== -----------
Other Assets - 2.83 2,699,289
Liabilities - (15.74) (15,000,407)
------- -----------
Total Net Assets - 100.00% $ 95,286,143
====== ============
</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.
(C) Indicates that securities are eligible for sale under S.E.C. Rule 144A.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
December 31, 1995
INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
Fair Value
at 12/31/95
Corporate Restricted Securities: (Note 2A)
-----------
<S> <C>
ADVERTISING - 1.91%
Ammirati & Puris, Inc. $ 281,175
Latin Communications Group 1,536,505
-----------
1,817,680
-----------
APPAREL MANUFACTURING - .20%
Columbia Sportswear Company 190,913
-----------
BUILDING MATERIALS - .81%
Highland Homes Holdings, Inc. 769,552
-----------
CHEMICAL - 1.36%
A.T.-Sentinel, Inc. 1,296,593
-----------
COMMUNICATIONS - 2.42%
Classic Sports Partners, L.P. 240,000
Rogers Cablesystems Limited 538,300
Tele-Communications, Inc. 843,440
Telex Communications, Inc. 1,467
Turner Broadcasting Systems, Inc. 678,750
-----------
2,301,957
-----------
ELECTRICAL EQUIPMENT/
ELECTRONICS - 12.73%
Catalina Lighting, Inc. 358,982
CompuCom Systems, Inc. 4,845,171
Control Devices, Inc. 1,067,872
Exide Electronics Group, Inc. 1,606,938
Intermetrics, Inc. 1,107,557
Nu Horizon Electronics Corp. 1,773,787
Steerage Corporation 823,059
Thermo Electron Corporation 547,500
-----------
12,130,866
-----------
HEALTH CARE - 2.73%
Berkshire Medical Center, Inc. 830,274
PRN Holdings, Inc. 1,772,243
-----------
2,602,517
-----------
LEASING - 2.06%
Boyle Leasing Technologies, Inc. 1,000,600
Penske Truck Leasing, L.P. 765,675
Southern Credit Corporation 196,775
-----------
1,963,050
-----------
MANUFACTURING-INDUSTRIAL AND
CONSUMER PRODUCTS - 17.51%
Consumer Product Enterprises, Inc. 1,400,996
Contico International, Inc. 540,050
Elgin National Industries, Inc. 1,531,142
Exide Corporation 144,500
Firth Rixson, Inc. 369,379
Fleming Acquisition Corporation 1,492,454
Forschner Enterprises, Inc. 237,500
Hein-Werner Corp. 1,486,485
Jackson Products, Inc. 1,477,784
Kuhlman Corporation 180,185
Maxtec International Corp. 1,266,909
PAR Acquisition Corp. 1,077,480
Sandoz Capital BVI, Ltd. 94,500
<CAPTION>
Fair Value
at 12/31/95
Corporate Restricted Securities: (Continued) (Note 2A)
-----------
<S> <C>
MANUFACTURING-INDUSTRIAL AND
CONSUMER PRODUCTS (Continued)
Sequentia, Inc. $ 1,489,213
Star International Holdings, Inc. 683,896
Unidata, Inc. 1,463,688
United States Filter Corporation 291,250
US Netting, Inc. 1,456,904
-----------
16,684,315
-----------
MISCELLANEOUS - 3.96%
Allen's Creek Enterprises, Inc. 794,700
Protein Genetics, Inc. 1,050,207
Stonehurst I LLC 1,495,378
Terminal 91 Realty, L.P. 441,244
-----------
3,781,529
-----------
OIL AND GAS SERVICE - 10.11%
American Exploration Company 1,496,713
Associated Natural Gas Corporation 1,662,675
BP Prudhoe Bay Royalty Trust 192,904
Hardy Oil & Gas USA, Inc. 1,473,600
Maloney Industries, Inc. 1,465,123
TransMontaigne Oil Company 1,749,974
Unocal Corporation 271,250
Uno-Ven Company 954,000
Valero Energy Corporation 366,286
-----------
9,632,525
-----------
PUBLISHING - 1.38%
The Chronicle Publishing Company 339,500
Quad-Graphics Inc. 973,223
-----------
1,312,723
-----------
RECREATIONAL SUPPLIES/
EQUIPMENT - 1.02%
The Coast Distribution System 972,323
-----------
RETAILING - 8.80%
J. Baker, Inc. 1,207,011
C & S Wholesale Grocers, Inc. 329,310
Cains Foods, L.P. 1,378,137
Discount Auto Parts 1,311,720
Duty Free International, Inc. 150,525
Fay's, Inc. 1,296,977
Grand Metropolitan PLC 348,000
Pharmaceutical Buyers, Inc. 739,590
Rent-Way, Inc. 1,044,640
Staples, Inc. 575,000
-----------
8,380,910
-----------
SERVICES - 6.02%
Atlantic Aviation Corporation 760,224
Corrections Corporation of America 332,193
Hunton & Williams 273,421
Piedmont Holding, Inc. 1,704,366
RailTex, Inc. 2,139,750
USAir, Inc. 529,185
-----------
5,739,139
-----------
Total Corporate Restricted
Securities - 73.02% $69,576,592
===========
</TABLE>
See Notes to Financial Statements
- -------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
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 the 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 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 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 make such reports to the Trust at least quarterly.
The financial statements include restricted securities valued at $69,576,592
(73.02% of net assets) as of December 31, 1995 ($55,921,260 at December 31,
1994) whose values have been estimated by the Board of Trustees in the
absence of readily ascertainable market values. Due to the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the differences could be material.
The values for corporate public securities are stated at the last reported
sales price or at prices based upon quotations obtained from brokers and
dealers as of December 31, 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.
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
B. Accounting for Investments:
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
The cost basis of debt securities is not adjusted for amortization of
premium or accrual of discount since the Trust does not generally intend to
hold such investments until maturity; however, the Trust has elected to
accrue for financial reporting purposes, certain discounts which are
required to be accrued for federal income tax purposes.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
The Trust does not accrue income when payment is delinquent or when
management believes payment is questionable.
C. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
D. Federal Income Taxes:
No provision for federal taxes on net investment income and short-term
capital gains is considered necessary because the Trust has elected to be
taxed as a "regulated investment company" under the Internal Revenue Code,
and intends to maintain this qualification and to distribute substantially
all of its net taxable income to its shareholders. In any year when net
long-term capital gains are realized by the Trust, management, after
evaluating the prevailing economic conditions, will recommend to the
Trustees either to designate the net realized long-term gains as
undistributed and to pay the federal capital gains taxes thereon or to
distribute such net gains.
During the year ended December 31, 1995, net long-term capital gains, after
utilization of the capital loss carryforward, for financial reporting and
federal income tax purposes are $581,480 and were retained by the Trust and
taxed at a rate of 35%.
3. Utilization of Capital Loss Carryforward
During the year ended December 31, 1995, the Trust utilized a capital loss
carryforward amounting to $2,245,122.
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 investment 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 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 MassMutual, approve the valuation of the Trust's net assets as of
such day.
- -------------------------------------------------------------------------------
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS(continued)
5. Note Payable
On July 15, 1995, the Trust sold to MassMutual at par a $12,000,000 Senior
Fixed Rate Convertible Note due July 15, 2002 (the "Note") which accrues at
6.93% per annum. The Note holder, at their option, can convert the principle
amount of the Note into common shares. The dollar amount of principle converted
would be converted into an equivalent dollar amount of common shares based upon
the average price of the common shares for ten business days prior to the notice
of conversion.
6. Purchases and Sales of Investments
<TABLE>
<CAPTION>
For the For the
year ended year ended
12/31/95 12/31/94
------------ ------------
Cost of Investments Acquired
----------------------------
<S> <C> <C>
Corporate restricted securities $ 29,171,853 $ 13,156,673
Corporate public securities 22,817,004 34,117,261
Short-term securities 252,201,855 152,389,420
<CAPTION> Proceeds from Sales or Maturities
---------------------------------
<S> <C> <C>
Corporate restricted securities $ 21,864,023 $ 14,850,910
Corporate public securities 29,025,083 26,181,624
Short-term securities 241,630,659 158,999,610
</TABLE>
The aggregate cost of investments is the same for financial reporting and
federal income tax purposes as of December 31, 1995. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of December 31, 1995 is $9,580,951 and consists of $12,085,333
appreciation and $2,504,382 depreciation.
The aggregate cost of investments for financial reporting and federal income
tax purposes as of December 31, 1994 was $83,128,113 and $83,130,147,
respectively. The net unrealized depreciation of investments for financial
reporting purposes as of December 31, 1994 was $1,638,001 and consisted of
$3,500,381 appreciation and $5,138,382 depreciation. The net unrealized
depreciation of investments for federal tax purposes as of December 31, 1994
was $1,640,035 and consisted of $3,500,381 appreciation and $5,140,416
depreciation.
7. Quarterly Results of Investment Operations (Unaudited)
<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 $ .19 1,510,119 $ .16
Net realized and unrealized gain (loss) on investments 1,976,583 .21 (168,246) (.02)
June 30, 1995 June 30, 1994
-------------------------- ---------------------------
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)
September 30, 1995 September 30, 1994
-------------------------- ---------------------------
Investment income 2,128,621 1,806,347
Net investment income 1,685,319 .18 1,537,026 .17
Net realized and unrealized gain (loss) on investments 1,758,056 .19 233,582 .03
December 31, 1995 December 31, 1994
-------------------------- ---------------------------
Investment income 2,196,938 1,882,910
Net investment income 1,666,471 .18 1,632,632 .17
Net realized and unrealized gain (loss) on investments 3,481,928 .38 (967,124) (.10)
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of MassMutual Participation Investors
We have audited the accompanying statement of assets and liabilities of
MassMutual Participation Investors as of December 31, 1995 and 1994, including
the schedule of investments as of December 31, 1995, and the related statements
of operations, cash flows and changes in net assets for each of the years
then ended, and the financial highlights for each of the seven years in the
period ended December 31, 1995 and for the period October 6, 1988 (inception) to
December 31, 1988. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation, by correspondence with the
custodian and brokers, and examination of securities owned as of December 31,
1995. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MassMutual Participation Investors as of December 31, 1995 and 1994, the results
of its operations, its cash flows and the changes in its net assets for each of
the years then ended, and the financial highlights for each of the seven years
in the period ended December 31, 1995 and for the period October 6, 1988
(inception) to December 31, 1988, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Springfield, Massachusetts
January 31, 1996
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
MEMBERS OF THE BOARD OF TRUSTEES
- --------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C>
(Standing, left to right) (Seated, left to right)
RICHARD G. DOOLEY MARSHALL D. BUTLER
Retired Executive Vice President and Chief Chairman and Chief Executive Officer,
Investment Officer of Massachusetts Mutual AVX Corporation
Life Insurance Company
MILTON COOPER
GARY E. WENDLANDT Chairman, Kimco Realty Corp.
Executive Vice President and Chief
Investment Officer of Massachusetts Mutual (Inset, top to bottom)
Life Insurance Company MARTIN T. HART*
President and Director,
DONALD E. BENSON* H Corporation
Executive Vice President and Director,
Marquette Bancshares Inc. SUMNER L. FELDBERG
Chairman of the Board,
DONALD GLICKMAN Waban, Inc.
Chairman, Donald Glickman & Company, Inc.
*Member of the Audit Committee
- ------------------------------------------------------------------------------------------------------
</TABLE>
