<PAGE>
MassMutual
PARTICIPATION
INVESTORS
[LOGO OF MASSMUTUAL PARTICIPATION INVESTORS APPEARS HERE]
REPORT for the THREE
MONTHS ENDED 3/31/98
<PAGE>
[LETTERHEAD OF MASSMUTUAL PARTICIPATION INVESTORS APPEARS HERE]
Investment Objective and Policy
MassMutual Participation Investors, a closed-end investment company, had its
initial public offering in October 1988 and its shares are listed on the New
York Stock Exchange. The share price of Participation Investors can be found in
the financial section of most newspapers as "MasPrt" under the New York Stock
Exchange listings. The trading symbol is "MPV".
The investment objective of the Trust is to maximize total return by providing a
high level of current income, the potential for growth of income, and capital
appreciation, by investing primarily in a portfolio of privately placed fixed-
income securities, at least half of which normally include equity features. The
Trust will also invest in publicly-traded securities, again with emphasis on
convertible issues. Equity related issues provide the opportunity to realize
capital gains, which, if realized, will be reinvested in income-producing
securities, permitting the Trust to increase its future dividend payments.
The Trust pays quarterly dividends from net investment income and intends to
distribute substantially all of its net income to shareholders each year. All
registered shareholders are automatically enrolled in Dividend Reinvestment and
Cash Purchase Plan unless cash distributions are requested.
Dividends are distributed in January, May, August, and November.
<PAGE>
TO OUR SHAREHOLDERS APRIL 30, 1998
We are pleased to present MassMutual Participation Investors' report for the
first three months of 1998.
The Trust got off to a good start this year with net assets per share increasing
to $12.02 at March 31, 1998 from $11.52 per share on December 31, 1997. This
represents a 4.3% increase in value. By comparison, the S&P Industrial Stock
Index and the Lehman Brothers Government/Corporate Bond Index were up 14.7% and
1.5% respectively.
We are also pleased to report that the regular quarterly dividend was increased
to 24 cents per share from the 22 cent-per-share level paid in the prior
quarter. The dividend is payable on May 15, 1998 to shareholders of record on
May 6, 1998. The net earnings of the Trust for the quarter ended March 31, 1998
were $2,261,923 or 24 cents per share as compared with $2,032,835 or 22 cents
per share a quarter ago. It should be noted that unlike other quarters, the
fourth quarter's earnings are affected by income or losses that are passed
through to the Trust by our partnership investments. In the fourth quarter of
1997, we recognized a loss of $141,023 or 0.02 cents per share on these
partnership investments.
New private placement investments made during the quarter included Evans
Consoles, Inc., The Tranzonic Companies, add-on positions in Latin
Communications Group, Inc. and Averstar, Inc. and the completion of our
investment in Vitex Packaging, Inc. These investments have a weighted average
coupon of over 10.2% on their fixed income components. (A brief description of
these investments is provided in the Schedule of Investments.) In keeping with
our investment style, we do not attempt to forecast the markets or make tactical
bets. Rather, we invest on a "bottom-up" basis, in companies where we find the
best fundamental value.
We were very active in our public portfolio as we had to raise nearly $8 million
in January to pay our regular and extra dividends and to pay our taxes on our
retained long-term gains. The Trust realized over $2.5 million (or $.27 per
share) in net capital gains during the quarter, with nearly $2.1 million
attributable to the sale of securities from our public portfolio. Of the $.27
per share, $.19 per share represents net short-term gains which, if not offset,
must be distributed to shareholders each year.
At the tenth Annual Meeting of Shareholders held on April 24, 1998, Richard G.
Dooley, Donald E. Benson and Donald Glickman were re-elected as Trustees for
three-year terms and Corine T. Norgaard, a new Trustee of the Trust, was elected
for a one-year term. Coopers & Lybrand L.L.P. was re-elected as auditor of the
Trust, and the Investment Advisory and Administrative Services Contract between
the Trust and Massachusetts Mutual Life Insurance Company was approved.
The Trustees and management appreciate the continued interest and support of the
shareholders of Participation Investors.
Sincerely,
/s/ Stuart H. Reese
Stuart H. Reese
President
1
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES MASSMUTUAL PARTICIPATION INVESTORS
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Investments (Notes 2A, 2B and 5)
(See Schedule of Investments)
Corporate restricted securities at fair value
(Cost 1998 - $96,622,517; 1997 - $82,841,776) $102,190,099 $ 88,392,070
Corporate public securities at market value
(Cost 1998 - $26,077,539; 1997 - $17,404,931) 27,463,855 18,626,334
Short-term securities at cost plus earned discount which
approximates market value 1,499,748 1,998,938
------------ ------------
131,153,702 109,017,342
Cash -- 29,955
Interest and dividends receivable, net 2,726,807 1,777,761
Receivable for investments sold 487,249 2,589,794
Other assets 12,128 12,128
------------ ------------
Total assets $134,379,886 $113,426,980
============ ============
Liabilities:
Payable for investments purchased $ 37,800 $ 300,000
Management fee payable (Note 3) 250,053 226,310
Note payable (Note 4A) 12,000,000 12,000,000
Revolving Credit Agreement (Note 4B) 10,500,000 --
Interest payable (Notes 4A and 4B) 220,431 170,940
Other liabilities 127,853 --
Accrued expenses 109,173 147,310
------------ ------------
Total liabilities 23,245,310 12,844,560
------------ ------------
Net Assets:
Shares of beneficial interest, par value $.01 per share;
an unlimited number authorized 92,422 92,167
Additional paid-in capital 85,192,147 84,895,820
Retained net realized gain on investments, prior years 13,703,839 5,423,509
Undistributed net investment income (Note 2D) 2,664,627 1,930,900
Undistributed net realized gain on investments 2,527,643 1,468,327
Net unrealized appreciation of investments (Notes 2A, 2B and 5) 6,953,898 6,771,697
------------ ------------
Total net assets 111,134,576 100,582,420
------------ ------------
Total liabilities and net assets $134,379,886 $113,426,980
============ ============
Shares of beneficial interest issued and outstanding 9,242,210 9,216,665
============ ============
Net asset value per share $ 12.02 $ 10.91
============ ============
</TABLE>
See Notes to Financial Statements.
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2
<PAGE>
STATEMENT OF OPERATIONS MASSMUTUAL PARTICIPATION INVESTORS
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Investment Income (Note 2B):
Interest $ 2,824,417 $ 2,340,793
Dividends 109,749 57,686
----------- -----------
Total income 2,934,166 2,398,479
----------- -----------
Expenses:
Management fee (Note 3) 250,053 226,310
Trustees' fees and expenses 17,168 12,874
Transfer Agent/Registrar's expenses 16,755 8,947
Interest (Notes 4A and 4B) 369,820 207,900
Reports to shareholders 3,000 4,000
Audit and legal 10,320 9,320
Other 5,127 5,452
----------- -----------
Total expenses 672,243 474,803
----------- -----------
Net investment income (1998 - $.24 per share; 1997 - $.21 per share) 2,261,923 1,923,676
----------- -----------
Net realized and unrealized gain (loss) on investments (Notes 2A and 2B):
Net realized gain on investments 2,531,681 1,429,871
Net change in unrealized appreciation of investments (111,196) 75,014
----------- -----------
Net gain on investments 2,420,485 1,504,885
----------- -----------
Net increase in net assets resulting from operations $ 4,682,408 $ 3,428,561
=========== ===========
</TABLE>
See Notes to Financial Statements.
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3
<PAGE>
STATEMENT OF CASH FLOWS MASSMUTUAL PARTICIPATION INVESTORS
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash:
Cash flows from operating activities:
Interest and dividends received $ 2,474,040 $ 2,048,468
Interest expense paid (372,211) (207,900)
Operating expenses paid (393,400) (269,397)
Federal income tax paid (4,458,639) (2,606,720)
------------ ------------
Net cash used for operating activities (2,750,210) (1,035,549)
------------ ------------
Cash flows from investing activities:
Change in short-term portfolio securities, net 53,947 2,957,088
Purchase of portfolio securities (16,440,302) (16,158,276)
Proceeds from disposition of portfolio securities 22,371,640 18,041,111
------------ ------------
Net cash provided by investing activities 5,985,285 4,839,923
------------ ------------
Net cash provided by operating and investing activities 3,235,075 3,804,374
------------ ------------
Cash flows from financing activities:
Cash received for shares issued on reinvestment of dividends 296,583 --
Cash dividends paid from net investment income (1,849,784) (1,893,871)
Cash dividends paid from net realized gain on investments (1,744,715) (1,884,962)
------------ ------------
Net cash used for financing activities (3,297,916) (3,778,833)
------------ ------------
Net increase (decrease) in cash (62,841) 25,541
Cash - beginning of year 62,841 4,414
------------ ------------
Cash - end of period $ -- $ 29,955
============ ============
Reconciliation of net increase (decrease) in net assets
to net cash from operating and investing activities:
Net increase in net assets resulting from operations $ 4,682,408 $ 3,428,561
------------ ------------
Decrease in investments 3,790,518 1,689,169
Increase in interest and dividends receivable, net (336,453) (237,322)
(Increase) decrease in receivable for investments sold (402,917) 1,380,308
Increase in other assets (12,128) (12,128)
Increase (decrease) in payable for investments purchased (62,200) 165,000
Increase in management fee payable 11,203 7,714
Decrease in interest payable (2,390) --
Increase in accounts payable 127,853 --
Decrease in accrued expenses (102,180) (10,208)
Decrease in accrued taxes (4,458,639) (2,606,720)
------------ ------------
Total adjustments to net assets from operations (1,447,333) 375,813
------------ ------------
Net cash provided by operating and investing activities $ 3,235,075 $ 3,804,374
============ ============
</TABLE>
See Notes to Financial Statements.
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4
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS MASSMUTUAL PARTICIPATION INVESTORS
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,261,923 $ 1,923,676
Net realized gain on investments 2,531,681 1,429,871
Net change in unrealized appreciation of investments (111,196) 75,014
------------ ------------
Net increase in net assets resulting from operations 4,682,408 3,428,561
Net increase in capital share transactions 296,583 --
------------ ------------
Total increase 4,978,991 3,428,561
------------ ------------
Net Assets, beginning of year 106,155,585 97,153,859
------------ ------------
Net Assets, end of period (including undistributed net investment
income in 1998 - $2,664,628; 1997 - $1,930,900) $111,134,576 $100,582,420
============ ============
</TABLE>
See Notes to Financial Statements.
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5
<PAGE>
SELECTED PER SHARE DATA MASSMUTUAL PARTICIPATION INVESTORS
Selected data for each share of beneficial interest outstanding for the periods
ended:
<TABLE>
<CAPTION>
For the
three months For the
ended 3/31/98 year ended
(Unaudited) 12/31/97
------------- ----------
<S> <C> <C>
Net asset value:
Beginning of year $ 11.52 $ 10.54
---------- ----------
Net investment income .24 .87
Net realized and unrealized gain on investments .26 1.13
---------- ----------
Total from investment operations .50 2.00
---------- ----------
Dividends from net investment income to common shareholders -- (.83)
Distributions from net realized gain on investments to common shareholders -- (.19)
---------- ----------
Total distributions -- (1.02)
---------- ----------
Net asset value:
End of period $ 12.02 $ 11.52
========== ==========
Per share market value:
End of period $ 10.88 $ 11.63
========== ==========
Total investment return:
Market value 5.85%(*) 43.05%
Net asset value 4.34%(*) 24.10%
Net assets (in millions):
End of period $ 111.13 $ 106.16
Ratio of operating expenses to average net assets .25%(*) 1.12%
Ratio of interest expenses to average net assets .37%(*) .93%
Ratio of expenses to average net assets .62%(*) 2.05%
Ratio of net investment income to average net assets 2.08%(*) 7.59%
Portfolio turnover 12.67%(*) 70.88%
</TABLE>
(*)Percentages represent results for the period and are not annualized
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6
<PAGE>
SCHEDULE OF INVESTMENTS MASSMUTUAL PARTICIPATION INVESTORS
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities - 91.95%: (A) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Private Placement Investments - 77.52%
AccTech, LLC
A designer and marketer of specialized cleaning
products.
Senior Floating Rate Revolving Credit Note $ 340,380 10/31/96 $ 340,380 $ 340,380 $ 314,273
due 2002
Senior Secured Series A Floating Rate Note $ 357,694 10/31/96 352,333 357,695 339,381
due 2002
10.1% Senior Secured Series A Note due 2002 $ 536,994 10/31/96 523,247 536,995 515,407
12% Senior Secured Series B Note due 2004 $ 549,000 10/31/96 577,603 501,162 552,568
Membership Interests (B) 2 int. 10/31/96 131,756 114,271 123,521
Warrant, exercisable until 2004, to purchase 1 int. 10/31/96 -- 54,900 --
Membership Interests at $.01 per interest (B)
------------ ------------ ------------
1,925,319 1,905,403 1,845,150
------------ ------------ ------------
Adventure Entertainment Corporation
An owner and operator of themed family
entertainment centers.
7% Redeemable Series B Preferred Stock 848 shs. 10/31/97 82,605 834,864 820,257
Warrant, exercisable until 2005, to purchase 3,222 shs. 10/31/97 32 12,495 32
Class A Common Stock at $.01 per share (B)
------------ ------------ ------------
82,637 847,359 820,289
------------ ------------ ------------
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 $ 83,333 11/23/93 81,633 83,333 86,792
------------ ------------ ------------
Ardent Software, Inc. - O.T.C.
A manufacturer and distributor of database
management software
Common Stock (B) 41,885 shs. 12/14/95 125,655 343,375 485,866
------------ ------------ ------------
Associated Vintage Group, Inc.
A provider of custom wine production services in
the United States.
11% Senior Subordinated Note due 2005 $ 1,667,500 3/19/97 1,637,318 1,589,665 1,700,016
Common Stock (B) 15,675 shs. 3/19/97 61,875 82,500 61,869
Warrant, exercisable until 2005, to purchase 47,044 shs. 3/19/97 47,044 86,673 47,044
common stock at $.01 per share (B)
------------ ------------ ------------
1,746,237 1,758,838 1,808,929
------------ ------------ ------------
Averstar, Inc.
A provider of software systems, services and products
to a variety of information technology users.
Senior Floating Rate Revolving Term Note $ 646,089 8/31/95 646,089 646,089 646,089
due 2002
Senior Secured Floating Rate Note due 2001 $ 1,100,000 2/27/98 1,090,320 1,100,000 1,090,650
13% Senior Subordinated Note due 2002 $ 399,659 8/31/95 4,068 360,516 420,401
Class A Common Stock (B) 6,726 shs. 8/31/95 6,895 9,192 834
Class B Common Stock (B) 18,600 shs. 8/31/95 19,087 25,418 2,306
Class G Common Stock (B) 48,423 shs. 8/31/95 1,059 52,000 6,004
Class A Common Stock of IES Holdings, Inc. (B) 1,471 shs. 2/27/98 -- -- --
Class B Common Stock of IES Holdings, Inc. (B) 4,067 shs. 2/27/98 -- -- --
Warrant, to purchase Class D
Common Stock of IES Holdings, Inc. (B) 10,588 shs. 2/27/98 -- -- --
------------ ------------ ------------
1,767,518 2,193,215 2,166,284
------------ ------------ ------------
Berkshire Medical Center, Inc.
A non-profit, regional acute care hospital.
10.5% Senior Note due 1999 $ 430,909 5/15/89 430,909 430,909 442,199
------------ ------------ ------------
</TABLE>
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7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Beta Brands, Inc. - T.S.E.
A manufacturer of hard candy and chocolate-coated
products sold primarily to the Canadian market.
Senior Secured Tranche A Floating Rate $ 1,147,000 12/23/97 $ 1,136,906 $ 1,147,000 $ 1,137,250
Note due 2004
14.75% Senior Secured Tranche B Note due 2005 $ 332,255 12/23/97 345,545 332,255 345,545
Limited Partnership Interests of CM Equity 405,584 int. 12/22/97 324,467 405,584 324,467
Partners (B)
Warrant, exercisable until 2005, to purchase 107,267 shs. 12/23/97 1,073 -- 1,073
Limited Partnership Interests at $.81 per interest (B)
-------------- ----------- -----------
1,807,991 1,884,839 1,808,335
-------------- ----------- -----------
Boyle Leasing Technologies, Inc.
A leasing company specializing in the leasing and
rental of microticket business equipment.
12% Senior Subordinated Note due 2001 $ 800,000 8/16/94 719,776 774,418 818,480
-------------- ----------- -----------
Budget Group, The - O.T.C.
An operator of Budget Rent-A-Car franchises, retail
used car sales facilities and van pool territories.
7% Convertible Subordinated Note due $ 1,000,000 12/18/96 899,220 1,000,000 1,855,800
2003, convertible into common stock at -------------- ----------- -----------
$20.16 per share
C&K Manufacturing and Sales Company
A manufacturer and distributor of branded packaging
and supply products.
Senior Secured Floating Rate Revolving $ 325,850 8/29/96 325,850 325,850 162,925
Credit Facility due 2002
Senior Secured Series A Floating Rate Term $ 1,172,085 8/29/96 1,159,544 1,172,085 586,043
Note due 2002
12% Series B Term Note due 2004 $ 266,000 8/29/96 261,877 254,380 133,000
Membership Interests (B) 133 int. 8/29/96 106,400 98,371 13,300
Warrant, exercisable until 2004, to purchase 37 8 int. 8/29/96 -- 13,300 --
Membership Interests at $.01 per interest (B)
-------------- ----------- -----------
1,853,671 1,863,986 895,268
-------------- ----------- -----------
Cains Foods, L.P.
A producer of mayonnaise, sauce and pickle products
for both the retail and food service markets.
Senior Secured Floating Rate Revolving $ 324,324 9/29/95 324,324 324,324 320,140
Credit Note due 2000
10% Senior Secured Term Note due 2004 $ 756,756 9/29/95 756,756 756,756 758,724
11.5% Senior Subordinated Note due 2004 $ 472,975 9/29/95 447,855 453,350 477,610
8% Junior Subordinated Convertible Note $ 54,054 9/29/95 54,054 54,054 67,773
due 2004, convertible into partnership points
at $1,388.89 per point
Warrant, exercisable until 2006, to purchase 19 pts. 9/29/95 25,130 25,130 31,769
partnership points at $.01 per point (B)
-------------- ----------- -----------
1,608,119 1,613,614 1,656,016
-------------- ----------- -----------
Capitol Vial, Inc.
A producer of plastic vial containers.
19% Senior Subordinated Note due 2004 $ 1,750,000 12/30/97 1,713,250 1,750,000 1,710,100
Common Stock (B) 33 shs. 12/30/97 131 164 131
-------------- ----------- -----------
1,713,381 1,750,164 1,710,231
-------------- ----------- -----------
</TABLE>
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8
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities:(A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Catalina Lighting, Inc. - N.Y.S.E
A designer, importer and distributor of residential
and office lighting fixtures.
8% Convertible Subordinated Note due 2002, $ 375,000 3/31/94 $ 355,012 $ 375,000 $ 335,550
convertible into common stock at $7.31 per share ------------- ------------ -------------
Chaparral Resources, Inc. - O.T.C
An international oil and gas exploration and
production company.
Common Stock (B) 2,460 shs. 12/3/97 1,599 1,599 5,397
------------- ------------ -------------
Cirrus Logic, Inc. - O.T.C
A designer and manufacturer of integrated circuits.
10.14% Secured Leverage Lease Notes due 2004 $ 587,007 11/1/96 569,692 695,223 680,902
10.22% Secured Leverage Lease Notes due 2002 $ 622,578 11/1/96 608,757 622,578 613,302
------------- ------------ -------------
1,178,449 1,317,801 1,294,204
------------- ------------ -------------
Coast Distribution System, The - A.S.E.
A wholesale distributor of recreational vehicle and
marine parts and accessories.
11.2% Senior Subordinated Secured Note due 1999 $ 466,800 6/26/89 481,691 466,800 404,716
------------- ------------ -------------
Consumer Product Enterprises, Inc.
A manufacturer of colored acrylic felt for
consumer use.
10.75% Senior Secured Term Note due 2003 $ 607,103 12/8/95 613,386 607,103 607,831
12% Senior Subordinated Note due 2005 $ 400,287 12/8/95 401,929 381,172 397,245
Common Stock (B) 92,280 shs. 12/8/95 69,210 92,280 69,210
Warrant, exercisable until 2005, to purchase 69,210 shs. 12/8/95 692 25,426 692
common stock at $.01 per share (B)
------------- ------------ -------------
1,085,217 1,105,981 1,074,978
------------- ------------ -------------
Contico International, Inc.
A developer, manufacturer and marketer of consumer,
commercial and industrial plastic products.
12% Senior Subordinated Note due 2003 $ 500,000 3/23/93 522,800 500,000 524,150
------------- ------------ -------------
Control Devices, Inc. - O.T.C.
A producer of high quality electromechanical circuit
protector devices and photo-optic sensors.
Common Stock (B) 77,333 shs. * 11,650 8,737 1,129,542
------------- ------------ -------------
Discount Auto Parts
A retailer of auto parts.
9.8% Senior Secured Note due 2003 $ 900,000 11/2/89 869,490 900,000 949,410
------------- ------------ -------------
Diversco, Inc.
A contract provider of janitorial and equipment
maintenance services and temporary production
labor to industrial customers.
Senior Floating Rate Term Note due 2002 $ 207,492 10/24/96 206,226 207,492 206,579
10.16% Senior Term Note due 2002 $ 622,477 10/24/96 623,223 622,477 634,615
12% Senior Subordinated Note due 2003 $ 624,000 10/24/96 638,414 561,293 659,631
Membership Interests (B) 1,491 int. 10/24/96 111,821 149,095 111,821
Warrant, exercisable to 2003, to purchase 896 int. 10/24/96 9 73,745 9
Membership Interests at $.01 per interest (B)
------------- ------------ -------------
1,579,693 1,614,102 1,612,655
------------- ------------ -------------
</TABLE>
*7/29/94 and 10/8/96.
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9
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities:(A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Eagle Pacific Industries, Inc. - O.T.C.
An extruder of small and medium diameter plastic pipe
and tubing in the United States.
8% Redeemable Convertible Preferred Stock. 1,700 shs. 5/9/97 $ 1,692,860 $ 1,700,000 $ 1,750,150
------------- ------------ -------------
convertible into common stock at $4.26 per share
Evans Consoles, Inc.
A designer and manufacturer of consoles and control
center systems.
Senior Secured Tranche A Floating Rate Note $ 640,000 3/2/98 635,136 640,000 635,200
due 2005
8.85% Senior Secured Tranche A Note due 2005 $ 640,000 3/2/98 596,096 640,000 596,800
11.75% Senior Secured Tranche B Note due 2006 $ 350,000 3/2/98 371,875 294,283 371,910
Common Stock (B) 13,524 shs. 2/11/98 38,000 47,500 38,003
Limited Partnership Interests of CM Equity 630 int. 2/11/98 50,400 63,000 50,400
Partners (B)
Warrant, exercisable until 2006, to purchase 17,391 shs. 3/2/98 174 56,000 174
common stock at $.01 per share (B)
------------- ------------ -------------
1,691,681 1,740,783 1,692,487
------------- ------------ -------------
Fleming Acquisition Corporation
A supplier of high-quality, premium printed labels for
distilled spirits, wine, food and household products.
Common Stock (B) 270 shs. 4/28/95 609,908 135,000 13,867
Warrant, exercisable until 2005, to purchase 190 shs. 4/28/95 49,116 85,226 9,750
common stock at $.01 per share (B)
Incentive Warrant, exercisable from 1998 until 2000, 10 shs. 4/28/95 1,671 1,136 493
to purchase common stock at $.01 per share (B)
------------- ------------ -------------
660,695 221,362 24,110
------------- ------------ -------------
Golden Bear Acquisition Corp.
A manufacturer of asphalt and specialty lubricating
and processing oils.
17% Senior Subordinated Note due 2005 $ 1,587,120 7/18/97 1,602,356 1,553,899 1,622,672
12% Preferred Stock 156 shs. 7/18/97 15,746 155,556 160,289
Common Stock (B) 7,000 shs. 7/18/97 29,190 38,920 29,190
Warrant, exercisable until 2005, to purchase 11,670 shs. 7/18/97 117 35,010 117
common stock at $.001 per share (B)
Warrant, exercisable until 2010, to purchase 8,556 shs. 7/18/97 86 -- 86
common stock at $.001 per share (B)
------------- ------------ -------------
1,647,495 1,783,385 1,812,354
------------- ------------ -------------
Hardy Oil & Gas PLC - L.S.E
Engages in exploration and development of oil
and gas reserves.
8.46% Senior Note due 2004 $ 1,500,000 1/11/95 1,452,150 1,500,000 1,553,700
Warrant, exercisable until 2005, to purchase 136,541 shs. 1/11/95 13,507 -- 155,111
common stock at (Pounds)1.84 per share (B)
------------- ------------ -------------
1,465,657 1,500,000 1,708,811
------------- ------------ -------------
Hartzell Manufacturing, Inc.
A provider of contract engineering, manufacturing,
and assembly services for a variety of industrial
manufacturing companies.
12.5% Senior Subordinated note due 2005 $ 1,313,100 4/18/97 1,329,514 1,167,245 1,354,069
Common Stock (B) 35,322 shs. 4/18/97 299,165 398,889 299,176
Warrant, exercisable until 2005, to purchase 16,689 shs. 4/18/97 1,669 157,572 1,669
common stock at $.01 per share (B)
------------- ------------ -------------
1,630,348 1,723,706 1,654,914
------------- ------------ -------------
Hatco Corporation
A specialty chemical company focused on the
production of industrial synthetic lubricants and
plasticizers.
Senior Secured Floating Rate Term Loan due 2003 $ 1,750,000 1/31/97 1,739,675 1,750,000 1,750,000
------------- ------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Highland Homes Holdings, Inc.
A single family home builder operating in the
Dallas-Fort Worth and Atlanta areas.
12.75% Senior Note due 1999 $ 375,000 11/18/93 $ 371,288 $ 369,882 $ 389,400
10% Promissory Note due 1998 $ 26,798 2/9/98 -- 26,798 26,755
----------- ----------- -----------
371,288 396,680 416,155
----------- ----------- -----------
Hudson River Capital, LLC
Acquires controlling or substantial interests in
manufacturing and marketing entities
Series A Preferred Units (B) 22,183 uts. 7/21/94 196,827 176,556 210,735
----------- ----------- -----------
Hunton & Williams
A major law firm in Richmond, Virginia.
10.06% Senior Secured Note due 2000 $ 90,875 12/21/90 89,356 90,875 93,692
----------- ----------- -----------
Hussey Seating Company
A manufacturer of spectator seating products.
Senior Secured Floating Rate Note due 2003 $ 375,000 6/12/96 371,288 375,000 375,000
10% Senior Secured Note due 2003 $ 375,000 6/12/96 365,100 375,000 374,475
12% Subordinated Secured Note due 2006 $ 675,000 6/12/96 663,660 575,655 714,892
Warrant, exercisable until 2006, to purchase 1,776 shs. 6/12/96 18 112,500 18
common stock at $.01 per share (B)
----------- ----------- -----------
1,400,066 1,438,155 1,464,385
----------- ----------- -----------
J. Baker, Inc. - O.T.C.
A wholesaler and retailer of shoes
12.21% Senior Subordinated Note due 1999 $ 600,000 6/21/89 598,440 600,000 530,760
Warrant, exercisable until 1999, to purchase $ 27,355 6/21/89 2,736 73,285 274
common stock at $18.80 per share (B) ----------- ----------- -----------
601,176 673,285 531,034
----------- ----------- -----------
Jackson Products, Inc.
Manufactures and distributes a variety of industrial
and highway safety products.
12.25% Senior Subordinated Note due 2004 $ 985,000 8/16/95 985,000 966,226 1,026,764
13.25% Cumulative Exchangeable Preferred Stock 49 shs. 8/16/95 492,800 411,708 430,317
Common Stock (B) 217 shs. 8/16/95 21,702 21,702 19,532
Warrant, exercisable until 2005, to purchase 999 shs. 8/16/95 99,838 99,866 999
common stock at $.01 per share (B) ----------- ----------- -----------
1,599,340 1,499,502 1,477,612
----------- ----------- -----------
Kappler Safety Group, Inc.
A manufacturer of protective apparel for the
industrial/safety, clean room and healthcare markets.
13% Senior Subordinated Note due 2004 $ 1,667,000 12/2/96 1,692,505 1,526,670 1,707,508
Warrant, exercisable until 2004, to purchase 28,717 shs. 12/2/96 28,717 166,700 36,298
common stock at $.01 per share (B) ----------- ----------- -----------
1,721,222 1,693,370 1,743,806
----------- ----------- -----------
Latin Communications Group
An operator of Spanish-language media in
North America.
5% Subordinated Note due 2005 $ 23,297 2/4/98 16,308 16,412 16,143
Common Stock (B) 44,918 shs. (*) 319,444 413,242 449,180
----------- ----------- -----------
335,752 429,654 465,323
----------- ----------- -----------
Lloyd's Barbecue Company
A manufacturer and marketer of packaged barbecue
meats and related products.
18% Senior Subordinated Note due 2006 $ 813,750 9/30/97 813,750 813,750 862,575
Membership Interests of LFPI Mainstreet (B) 9,362 uts. 9/30/97 9,365,001 936,372 842,625
----------- ----------- -----------
10,178,751 1,750,122 1,705,200
----------- ----------- -----------
</TABLE>
(*)2/14/95, 12/1/95, 2/27/96 and 2/4/98.
- --------------------------------------------------------------------------------
11
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Louis Dreyfus Natural Gas Corporation - A.S.E.
An independent oil and gas company engaged
principally in the acquisition, development and
management of oil and gas properties
Warrant, exercisable until 2004, to purchase 51,671 shs. 12/27/91 $ 24,857 $ 19,356 $ 105,254
common stock at $17.81 per share (B) ---------- ---------- ----------
Maloney Industries, Inc.
Engineers and manufactures process systems for the
oil and gas industry
13% Subordinated Note due 2004 $1,012,500 10/26/95 1,189,125 1,012,500 1,099,372
Limited Partnership Interests (B) 284 uts. 10/20/95 253,125 338,915 149,028
Warrant, exercisable until 2004, to purchase 148 uts. 10/26/95 148 -- 77,845
Limited Partnership Interests at $.01 per unit (B)
---------- ---------- ----------
1,442,398 1,351,415 1,326,245
---------- ---------- ----------
Maxtec International Corp.
A manufacturer and distributor of precision test and
measurement equipment and overhead crane control
systems
Senior Floating Rate Revolving Credit $ 230,769 6/28/95 230,769 230,769 230,769
Facility due 2001
Common Stock (B) 38,462 shs. 6/28/95 96,059 115,386 103,848
Warrant, exercisable from 1998 until 2005, to 19,795 shs. 6/28/95 49,325 85,714 19,795
purchase common stock at $.01 per share (B)
---------- ---------- ----------
376,153 431,869 354,412
---------- ---------- ----------
MW Investors I LLC
A structured investment relying on Tenneco, Inc.,
whose business includes natural gas, auto parts
and packaging
Floating Rate Subordinated Note due 2007 $1,685,250 12/29/97 1,685,250 1,685,250 1,674,802
5.05% Membership Interest 2,590 int. 12/29/97 28,208 64,239 64,750
---------- ---------- ----------
1,713,458 1,749,489 1,739,552
---------- ---------- ----------
N2K, Inc. - O.T.C
A music entertainment company which uses the
internet as a global platform for the promoting and
merchandising of music and related merchandise
Warrant, exercisable until 2004, to purchase 13,889 shs. 8/6/97 139 -- 223,446
common stock at $12 per share (B) ---------- ---------- ----------
Nu Horizons Electronics Corp. - O.T.C
A distributor of high technology active and passive
electronic devices
8.25% Convertible Subordinated Note due 2002, $ 705,900 8/31/94 712,959 705,900 755,595
convertible into common stock at $9 per share ---------- ---------- ----------
Pacific Coast Feather Company
A manufacturer and marketer of natural fill and
synthetic fill bed pillows and comforters
15.5% Senior Subordinated Note due 2004 $1,750,000 6/27/97 1,768,025 1,750,000 1,800,750
---------- ---------- ----------
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 2/5/93 832,000 833,333 850,583
8% Convertible Preferred Stock due 2001, 83,333 shs. 2/5/93 166,667 166,667 163,000
convertible into common stock at $2 per share
Common Stock (B) 133,333 shs. 2/5/93 333,333 333,333 213,333
---------- ---------- ----------
1,332,000 1,333,333 1,226,916
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Paribas Capital Funding LLC
A collateralized loan obligation managed by the
U.S. Merchant Banking Group of Banque Paribas
Subordinated Floating Rate Note due 2010 $1,750,000 * $ 1,743,472 $ 1,750,000 $ 1,740,375
----------- ----------- -----------
PG&E Gas Transmission
An owner and operator of a specialized petroleum
refinery and engages in petroleum product marketing
operations
10.58% Senior Note due 2000 $ 214,286 12/20/90 217,858 214,286 222,622
----------- ----------- -----------
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 $ 362,812 11/30/95 378,087 362,813 379,720
10.5% Senior Secured Convertible Note due $ 97,500 11/30/95 102,668 97,500 110,575
2005, convertible into common stock at
$50,000 per share
Common Stock 3 shs. 11/30/95 113,906 169,000 105,260
----------- ----------- -----------
594,661 629,313 595,555
----------- ----------- -----------
Piedmont Holding, Inc.
A general aviation fixed based operator with repair,
maintenance and overhaul certification
12% Senior Subordinated Note due 2001 $1,085,721 7/15/92 1,094,624 1,085,721 1,119,812
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 33,513
Warrant, exercisable until 2001, to purchase 2,521 shs. 7/15/92 1,613 -- 44,672
common stock at $.05 per share (B)
----------- ----------- -----------
1,238,503 1,228,591 1,338,980
----------- ----------- -----------
Plastipak Packaging, Inc.
A manufacturer of plastic containers
10.64% Senior Subordinated Note due 2006 $1,750,000 10/25/96 1,701,875 1,709,696 1,772,575
Warrant, exercisable until 2006, to purchase 49 shs. 10/25/96 27,799 46,812 36,189
common stock at $.01 per share (B)
----------- ----------- -----------
1,729,674 1,756,508 1,808,764
----------- ----------- -----------
Precision Dynamics, Inc.
A manufacturer of custom-designed solenoid valves
and controls
Senior Secured Floating Rate Revolving $ 252,650 7/22/96 250,149 252,650 250,604
Credit Facility due 2003
Senior Secured Floating Rate Term Note due 2003 $1,369,200 7/22/96 1,355,782 1,369,200 1,359,479
12% Senior Secured Term Note due 2004 $ 245,000 7/22/96 241,766 202,293 252,301
8% Preferred Stock 116 shs. 7/22/96 110,120 115,911 94,676
Common Stock (B) 299 shs. 7/22/96 10,849 14,489 9,953
Warrant, exercisable until 2004, to purchase 162 shs. 7/22/96 2 49,000 5,368
common stock at $.01 per share (B)
----------- ----------- -----------
1,968,668 2,003,543 1,972,381
----------- ----------- -----------
Process Chemicals, LLC
A platform company used by C3 Chemical Ventures
to acquire specialty chemical and mineral companies
6% Redeemable Preferred Membership Interests 10,000 int. 7/31/97 983,800 975,419 991,800
Common Membership Interests 4 int. 7/31/97 11 12 11
----------- ----------- -----------
983,811 975,431 991,811
----------- ----------- -----------
</TABLE>
* 12/20/96, 3/20/97 and 6/20/97.
- --------------------------------------------------------------------------------
13
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
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 $ 346,520
11.51% Junior Secured Note due 1999 $ 200,000 8/12/94 195,760 200,000 174,280
9.8% Redeemable Exchangeable Preferred Stock 3,333 shs. 8/12/94 282,633 333,333 146,700
Common Stock (B) 497 shs. 8/12/94 5 -- 750
---------- ---------- ----------
873,118 933,333 668,250
---------- ---------- ----------
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 2/16/93 799,575 750,000 818,025
Common Stock (B) 17750 shs. 2/16/93 170,400 170,400 278,231
---------- ---------- ----------
969,975 920,400 1,096,256
---------- ---------- ----------
Rent-Way, Inc. - O.T.C.
Operates rent-to-own stores in Ohio, Pennsylvania
and New York.
Common Stock(B) 100,603 shs. 7/18/95 1,000,000 1,000,000 2,269,905
Warrant, exercisable until 2002, to purchase 10,000 shs. 7/18/95 100 -- 134,980
common stock at $9.94 per share (B)
---------- ---------- ----------
1,000,100 1,000,000 2,404,885
---------- ---------- ----------
Sequentia, Inc.
A manufacturer and distributor of fiberglass
reinforced panels used in commercial, industrial
and residential applications.
12% Subordinated Note due 2004 $ 1,140,700 12/14/95 1,209,142 942,651 1,173,666
Limited Partnership Interests of KS 3,593 uts. 12/14/95 269,475 359,371 323,370
Holdings, L.P. (B)
Warrant, exercisable until 2004, to purchase 2,725 uts. 12/14/95 2,725 239,547 1,362
Limited Partnership Interests of KS
Holdings, L.P. at $.01 per unit (B)
---------- ---------- ----------
1,481,342 1,541,569 1,498,398
---------- ---------- ----------
Star International Holdings, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004 $ 382,835 5/27/94 382,835 382,835 386,548
10.5% Subordinated Note due 2004 $ 179,104 5/27/94 179,104 179,104 178,674
Common Stock (B) 1,077 shs. 5/27/94 64,904 64,904 20,236
Warrant, exercisable until 2004, to purchase 806 shs. 5/27/94 8 -- 15,137
common stock at $.01 per share (B)
---------- ---------- ----------
626,851 626,843 600,595
---------- ---------- ----------
Swing N'Slide Corporation - A.S.E.
A manufacturer and distributor of home playground
equipment and accessories.
12% Subordinated Note due 2005 $ 1,562,500 3/13/97 1,292,500 1,247,423 1,390,312
Limited Partnership Interests of Green Grass 40,774 uts. 3/13/97 146,786 208,866 122,322
Capital II, LLC (B)
Warrant, exercisable until 2005, to purchase 74,022 uts. 3/13/97 265,887 340,361 221,474
Limited Partnership Interests of Green Grass
Capital II, LLC at $.01 per unit (B)
---------- ---------- ----------
1,705,173 1,796,650 1,734,108
---------- ---------- ----------
TACC International Corporation
A leading domestic manufacturer of adhesives and
sealants in the building and construction industries.
12.5% Subordinated Note due 2005 $ 875,000 8/8/97 849,538 854,423 867,212
8% Convertible Redeemable Preferred Stock 4,122 shs. 8/8/97 399,298 875,000 871,341
Warrant, exercisable until 2005, to purchase 780 shs. 8/8/97 8 21,949 8
common stock at $.01 per share (B)
---------- ---------- ----------
1,248,844 1,751,372 1,738,561
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Tidewater Holdings, Inc.
An operator of a barge transportation line on the
Columbia/Snake River system.
12.5% Senior Subordinated Note due 2006 $ 1,190,000 7/25/96 $ 1,194,046 $ 1,167,146 $ 1,249,500
Convertible Preferred Stock, convertible into 560 shs. 7/25/96 504,000 560,000 504,000
common stock at $1,000 per share (B)
Warrant, exercisable until 2008, to purchase 237 shs. 7/25/96 21 24,103 21
common stock at $.01 per share (B)
----------- ----------- -----------
1,698,067 1,751,249 1,753,521
----------- ----------- -----------
TransMontaigne Oil Company - A.S.E
An independent petroleum products marketing
company.
12.75% Senior Subordinated Debenture due 2000 $ 1,200,000 3/28/91 1,274,280 1,184,942 1,281,240
Common Stock (B) 203,165 shs. * 314,108 598,597 2,417,664
Warrant, exercisable until 2001, to purchase 74,606 shs. 3/28/91 7,461 42,000 620,722
common stock at $3.60 per share (B)
----------- ----------- -----------
1,595,849 1,825,539 4,319,626
----------- ----------- -----------
Tranzonic Companies, The
A producer of commercial and industrial supplies,
such as safety products, janitorial supplies, work
apparel, washroom and restroom supplies and
sanitary care products.
12.5% Senior Subordinated Note due 2006 $ 1,356,000 2/4/98 1,381,086 1,173,448 1,374,170
Common Stock (B) 315 shs. 2/4/98 283,500 315,000 283,500
Warrants to purchase shares of class B 222 shs. 2/4/98 2 184,416 2
common stock at .01 per share (B)
----------- ----------- -----------
1,664,588 1,672,864 1,657,672
----------- ----------- -----------
Plastics, Inc.
A manufacturer and assembler of plastic injection
molded parts.
12% Subordinated Note due 2005 $ 1,256,800 3/21/97 1,296,389 1,255,236 1,269,117
Limited Partnership Interests of Riverside V 2,680 uts. ** 327,880 295,558 327,881
Holding Company L.P.
Limited Partnership Interests of Riverside 5,734 uts. ** 742,789 632,012 742,789
V-A Holding Company L.P.
Warrant, exercisable until 2005, to purchase 1,564 uts. 3/21/97 1,564 1,564 1,564
Limited Partnership Interests at $.01 per unit (B)
----------- ----------- -----------
2,368,622 2,184,370 2,341,351
----------- ----------- -----------
Truseal Technologies, Inc.
A manufacturer of sealant systems for the North
American window and door market.
12.25% Senior Subordinated Note due 2006 $ 1,338,000 6/23/97 1,367,168 1,157,773 1,399,682
Limited Partnership Interests (B) 4,123 uts. 6/17/97 371,070 412,331 371,070
Warrant, exercisable until 2006, to purchase 630 uts. 6/23/97 6 188,536 6
Limited Partnership Interests at $.01 per unit (B)
----------- ----------- -----------
1,738,244 1,758,640 1,770,758
----------- ----------- -----------
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide variety
of industries.
11% Senior Secured Note due 2005 $ 792,200 5/3/95 876,015 792,200 856,210
12% Subordinated Note due 2005 $ 326,200 5/3/95 367,008 311,378 372,390
Common Stock (B) 2,457 shs. 5/3/95 81,376 195,720 6,958
Warrant, exercisable until 2005, to purchase 1,398 shs. 5/3/95 46,291 17,971 3,948
common stock at $.01 per share (B)
----------- ----------- -----------
1,370,690 1,317,269 1,239,506
----------- ----------- -----------
</TABLE>
*3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/15/95 and 5/9/95.
**3/21/97, 10/16/97 and 11/19/97.
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 3/31/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------ ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Silica Company
A producer of high grade industrial and specialty
ground silica sands in North America
15% Senior Subordinated Notes due 2005 $ 1,196,161 (*) $ 1,270,191 $ 1,196,096 $ 1,291,854
Redeemable Preferred Stock Series A (B) 20,999 shs. 12/19/96 145,826 194,435 145,817
Convertible Preferred Stock Series B, 41,998 shs. 12/19/96 291,655 388,865 291,634
convertible into Series B common stock at
$9.26 per share (B)
Warrant, exercisable until 2005, to purchase 3,241 uts. 12/19/96 6,482 65 3,241
Series A Preferred Stock and Series B Preferred
Stock at $.01 per unit (B) ----------- ----------- -----------
1,714,154 1,779,461 1,732,546
----------- ----------- -----------
Unipac Corporation
A manufacturer of laminated materials which are
used to seal a variety of packaging containers
Senior Secured Floating Rate Note due 2002 $ 62,812 2/9/96 62,147 62,813 62,812
12% Senior Secured Note due 2004 $ 121,875 2/9/96 123,435 111,444 131,540
Acquisition Line of Credit due 2002 $ 351,562 9/30/96 351,562 351,562 351,562
Limited Partnership Interests of Riverside II 61 uts. (**) 56,194 66,617 162,594
Holding Company L.P. (B)
Warrant, exercisable from 2000 until 2004, 21 uts. 2/9/96 2 20,156 54,711
to purchase Limited Partnership Interests of
Riverside II Holding Company L.P. at
$.01 per unit ----------- ----------- -----------
593,340 612,592 763,219
----------- ----------- -----------
US Air, Inc.
A domestic and international airline
10.8% Series A Secured Loan Certificates $ 378,528 6/29/94 321,749 342,073 394,730
due 2003 ----------- ----------- -----------
Victory Ventures, LLC
Acquires controlling or substantial interests in other
entities
Series A Preferred Units (B) 2,817 uts. 12/2/96 1,576 14,275 26,765
----------- ----------- -----------
Vitex Packaging, Inc.
A manufacturer of specialty packaging, primarily
envelopes and tags used on tea bags
Senior Secured Floating Rate Revolving $ 425,438 1/2/98 422,034 425,438 422,162
Credit Facility due 2003
Senior Secured Floating Rate Term Note $ 1,092,000 1/2/98 1,083,373 1,092,000 1,083,701
due 2005
12% Senior Secured Tranche B Note due 2007 $ 336,000 1/2/98 339,394 310,800 336,168
Limited Partnership Interests of Riverside VI 61,092 int. 12/30/97 489 56,687 48,874
Holding Company L.P. (B)
Limited Partnership Interests of Riverside 100,800 int. 12/30/97 806 93,534 80,640
VI-A Holding Company L.P. (B)
Warrant, exercisable until 2007, to purchase 44 shs. 1/2/98 -- 25,200 --
common stock at $.01 per share (B) ----------- ----------- -----------
1,846,096 2,003,659 1,971,545
----------- ----------- -----------
Total Private Placement Investments $86,534,870 81,038,100 86,145,959
=========== =========== ===========
</TABLE>
(*)12/19/96 and 2/15/97.
(**)2/9/96 and 9/25/96.
- --------------------------------------------------------------------------------
16
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 3/31/98
Rule 144A Securities - 14.43%: (A) Rate Date Amount (Note 2B) (Note 2A)
----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bonds - 8.86%
ADV Accessory & AAS CAP 9.750% 10/01/07 $ 575,000 $ 574,996 $ 589,375
AEP Industries, Inc. 9.875 11/15/07 750,000 744,180 786,562
Atlantic Coast Airlines Inc. 8.750 01/01/07 746,553 747,570 752,153
Brand Scaffold Services 10.250 02/15/08 150,000 150,000 155,250
Cuddy International Corp. 10.750 12/01/07 700,000 689,542 700,000
Doskocil Manufacturing Co., Inc. 10.125 09/15/07 200,000 203,750 213,000
Enserch Exploration, Inc. 7.540 01/02/09 956,233 956,233 952,647
Kitty Hawk Inc. 9.950 11/15/04 500,000 500,000 515,000
MCMS Inc. 9.750 03/01/08 500,000 500,000 503,750
Morris Materials Handling 9.500 04/01/08 300,000 300,000 301,500
Numatics Inc. 9.625 04/01/08 350,000 355,156 357,438
Petroliam Nasional Berhad 7.125 10/18/06 350,000 321,230 324,198
Scovill Fastener, Inc. 11.250 11/30/07 350,000 350,000 365,750
Southern Foods 9.870 09/01/07 450,000 450,000 479,250
Sovereign Speciality Chemicals 9.500 08/01/07 175,000 175,000 184,625
T C W Leveraged Income Trust, LP 8.410 03/31/04 1,500,000 1,500,000 1,500,000
Tjiwi Kima Fin Mauritius LTD 10.000 08/01/04 375,000 372,956 313,125
Von Hoffman Press, Inc. 10.375 05/15/07 325,000 327,250 347,750
Worldtex, Inc. 9.625 12/15/07 500,000 500,000 507,500
Sub-Total Rule 144A Bonds $9,752,786 9,717,863 9,848,873
========== =========== ============
Convertible Bonds - 4.00%
Arbor Software Corporation 4.500 03/15/05 $ 100,000 100,000 105,481
Centocor Inc. 4.750 02/15/05 300,000 300,000 341,286
Costco Companies, Inc. 0.000 08/19/17 100,000 51,041 66,397
Cymer Inc. 3.500 08/06/04 175,000 176,000 141,645
Data Processing Resource Corporation 5.250 04/01/05 125,000 125,000 135,625
Equity Corporation International 4.500 12/31/04 200,000 200,000 213,316
Healthsouth Corporation 3.250 04/01/03 750,000 750,000 748,117
Kellstorm Industries, Inc. 5.750 10/15/02 200,000 200,000 229,608
Key Energy Group 5.000 09/15/04 500,000 500,000 406,345
Mark IV Industries 4.750 11/01/04 450,000 427,125 425,952
Smartalk Teleservices 5.750 09/15/04 300,000 300,000 382,782
Sunbeam Corporation 0.000 03/25/18 1,875,000 698,888 679,688
Tel-Save 4.500 09/15/02 540,000 538,500 569,025
---------- ----------- ------------
Sub-Total Rule 144A Convertible Bonds $5,615,000 4,366,554 4,445,267
========== =========== ============
Convertible Preferred Stock - 1.57%
D T Industries 20,000 1,000,000 1,180,000
Newell Financial Trust 10,000 500,000 570,000
----------- ------------
Sub-Total Rule 144A Convertible Preferred Stock 1,500,000 1,750,000
----------- ------------
Total Rule 144A Securities 15,584,417 16,044,140
----------- ------------
Total Corporate Restricted Securities 96,622,517 102,190,099
----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 3/31/98
Corporate Public Securities: Rate Date Amount (Note 2B) (Note 2A)
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Bonds - 17.59%
Advanced Micro Devices 11.000% 08/01/03 $ 265,000 $ 280,900 $ 283,550
Airplanes Pass Thru Trust 8.150 03/15/19 1,500,000 1,498,674 1,602,285
Amphenol Corporation 9.875 05/15/07 200,000 200,000 214,000
Amtran, Inc. 10.500 08/01/04 500,000 500,000 530,365
Anchor Advanced Products 11.750 04/01/04 560,000 581,750 618,800
Archibald Candy Corp. 10.250 07/01/04 420,000 420,000 446,250
Atlantic Express 10.750 02/01/04 350,000 362,250 372,312
Atlas Air, Inc. 10.750 08/01/05 1,000,000 1,000,000 1,080,000
Callon Petroleum Company 10.125 09/15/02 250,000 248,560 261,060
Central Rents, Inc. 12.875 12/15/03 615,000 582,375 624,225
Chesapeake Energy Corporation 8.500 03/15/12 120,000 110,588 115,200
Dawson Production Services 9.375 02/01/07 250,000 246,250 256,875
DecisionOne Corporation 9.750 08/01/07 75,000 75,000 73,125
Decorative Home Accents, Inc. 13.000 06/30/02 350,000 350,000 189,000
Florist Transworld Delivery, Inc. 14.000 12/15/01 375,000 385,688 416,250
Great American Cookie Co. 10.875 01/15/01 660,000 651,750 683,100
Hosiery Corporation of America 13.750 08/01/02 500,000 493,900 548,750
Indah Kiat Pulp & Paper Corporation 10.000 07/01/07 700,000 695,429 579,250
International Wire Group, Inc. 11.750 06/01/05 450,000 489,375 499,500
Jordan Industries, Inc. 10.375 08/01/07 300,000 300,000 311,250
Jordan Telecom Products 9.875 08/01/07 1,050,000 1,040,798 1,113,000
Key Plastics, Inc. 14.000 11/15/99 350,000 354,912 383,250
Korea Development Bank 7.250 05/15/06 450,000 415,606 397,984
Neenah Corporation 11.125 05/01/07 250,000 250,000 276,875
Nortek Inc. 9.125 09/01/07 450,000 446,364 468,000
Northwest Airlines Corp. 12.092 12/31/00 247,238 255,273 248,474
Northwest Airlines Corp. 8.970 01/02/15 977,052 977,052 1,082,232
Pierce Leahy Corp. 9.125 07/15/07 75,000 75,000 78,750
Pohang Iron & Steel Company 7.125 11/01/06 350,000 317,961 298,326
Rogers Cantel Inc. 8.300 10/01/07 750,000 747,990 750,000
Scotsman Group, Inc. 8.625 12/15/07 100,000 99,732 101,500
Speedway Motorsports, Inc. 8.500 08/15/07 225,000 224,388 233,438
Telex Communications, Inc. 10.500 05/01/07 1,250,000 1,261,250 1,150,000
Therma-Wave, Inc. 10.625 05/15/04 370,000 375,625 384,800
Unicco Service Co. 9.875 10/15/07 275,000 273,708 281,592
United Refining Company 10.750 06/15/07 1,400,000 1,400,000 1,470,000
W R Carpenter North America 10.625 06/05/07 550,000 556,344 587,125
Wavetek Corporation 10.125 06/15/07 110,000 110,000 112,750
Williams Scotsman, Inc. 9.875 06/01/07 400,000 400,000 420,000
------------ ------------- ------------
Total Bonds $19,069,290 19,054,492 19,543,243
============ ============= ============
<CAPTION>
<S> <C> <C> <C>
Common Stock - 3.83%
4Health Inc. (B) 6,000 33,375 27,750
American Country Holdings Inc. (B) 54,000 188,722 113,022
American Skiing Corp. (B) 15,000 270,000 251,250
Benson Petroleum, LTD. (B) 100,000 77,204 107,784
BP Prudhoe Bay Royalty Trust 13,190 193,066 193,728
Central Rents, Inc. 930 33,722 55,800
Collins & Aikman Corporation (B) 17,400 104,238 158,775
Columbia Sportswear Company (B) 2,100 37,800 44,362
Corporate Express 11,788 16 117,503
Dawson Production Services (B) 19,492 245,578 246,087
Decorative Home Accents, Inc. (B) 350 -- 4
EMCOR Group, Inc. (B) 2,500 54,687 53,750
Excalibur Technologies Corp. (B) 10,000 98,656 116,250
Exodus Communications Inc. (B) 1,050 15,750 29,400
Florida Panthers Holdings, Inc. (B) 19,500 373,004 433,875
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Yield/ Warrants or Market Value
Interest Due Principal Cost at 3/31/98
Corporate Public Securities: (Continued) Rate Date Amount (Note 2B) (Note 2A)
---------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock (Continued)
Florist Transworld Delivery, Inc. (B) 4,687 $ 13,754 $ 46,870
General Chemical Group, Inc. 4,400 112,772 127,323
Herley Industries, Inc. (B) 1,900 22,800 26,480
Hosiery Corporation of America (B) 500 -- 35,000
LCS Industries, Inc. 15,000 234,356 241,875
Marker International (B) 30,000 187,500 110,610
N2K, Inc. (B) 15,000 285,000 448,125
Princeton Video Image, Inc. (B) 30,000 210,000 243,750
Red Roof Inns, Inc. (B) 19,200 272,607 350,400
Republic Industries, Inc. (B) 15,000 368,438 387,180
Staffing Resources, Inc. (B) 45,000 247,500 286,875
------------- -------------
Total Common Stock 3,680,545 4,253,828
------------- -------------
Convertible Bonds - 3.28%
Clear Channel Communications 2.625% 04/01/03 $ 350,000 350,000 348,250
Dura Pharmaceuticals 3.500 07/15/02 315,000 319,219 270,746
EMCOR Group, Inc. (B) 5.750 04/01/05 300,000 300,000 305,250
Hilton Hotels 5.000 05/15/06 695,000 695,000 781,006
Home Depot, Inc. 3.250 10/01/01 335,000 332,238 496,219
Loews Corp. 3.125 09/15/07 450,000 450,000 433,800
Reptron Electronics Inc. 6.750 08/01/04 100,000 100,000 80,000
Savoy Pictures Entertainment 7.000 07/01/03 650,000 505,375 611,000
USA Waste Services, Inc. 4.000 02/01/02 90,000 90,000 106,384
World Color Press, Inc. 6.000 10/01/07 200,000 200,000 216,542
------------ ------------- -------------
Total Convertible Bonds $ 3,485,000 3,341,832 3,649,197
------------ ------------- -------------
Warrants - .02%
Herley Industries, Inc. (B) 6,700 670 17,587
------------- -------------
Total Warrants 670 17,587
------------- -------------
Total Corporate Public Securities 26,077,539 27,463,855
------------- -------------
Short-Term Securities:
Commercial Paper - 1.35%
ConAgra, Inc. 6.050% 1/2/98 $ 1,500,000 1,499,748 1,499,748
------------ ------------- -------------
Total Short-Term Securities $ 1,500,000 1,499,748 1,499,748
============ ------------- -------------
Total Investments - 118.02% $ 124,199,804 131,153,702
============= -------------
Other Assets - 2.90 3,226,184
Liabilities - (20.92) (23,245,310)
-------------
Total Net Assets - 100.00% $ 111,134,576
=============
</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.
- --------------------------------------------------------------------------------
19
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
INDUSTRY CLASSIFICATION
Fair Value
at 3/31/98
Corporate Restricted Securities: (Note 2A)
----------
AEROSPACE & DEFENSE - .21%
Kellstorm Industries, Inc. $ 229,608
----------
AUTOMOBILE - 1.28%
ADV Accessory & AAS CAP 589,375
Coast Distribution System, The 404,716
Mark IV Industries 425,952
----------
1,420,043
----------
BEVERAGE, FOOD & TOBACCO - 6.71%
Associated Vintage Group, Inc. 1,808,929
Beta Brands, Inc. 1,808,335
Cains Foods, L.P. 1,656,016
Lloyd's Barbecue Company 1,705,200
Southern Foods 479,250
----------
7,457,730
----------
BROADCASTING & ENTERTAINMENT - .42%
Latin Communications Group 465,323
----------
BUILDINGS & REAL ESTATE - 1.97%
Highland Homes Holdings, Inc. 416,155
Truseal Technologies, Inc. 1,770,758
----------
2,186,913
----------
CARGO TRANSPORT - 3.03%
Kitty Hawk Inc. 515,000
RailTex, Inc. 1,096,256
Tidewater Holdings, Inc. 1,753,521
----------
3,364,777
----------
CHEMICAL, PLASTICS & RUBBER - 9.55%
AccTech, LLC 1,845,150
Contico International, Inc. 524,150
Hatco Corporation 1,750,000
Process Chemicals, LLC 991,811
Sovereign Speciality Chemicals 184,625
TACC International Corporation 1,738,561
Trend Plastics, Inc. 2,341,351
U.S. Netting, Inc. 1,239,506
----------
10,615,154
----------
CONSUMER PRODUCTS - 1.48%
Consumer Product Enterprises, Inc. 1,074,978
Newell Financial Trust 570,000
----------
1,644,978
----------
CONTAINERS, PACKAGING & GLASS - 7.14%
AEP Industries, Inc. 786,562
C&K Manufacturing and Sales Company 895,268
Capitol Vial, Inc. 1,710,231
Plastipak Packaging, Inc. 1,808,764
Unipac Corporation 763,219
Vitex Packaging, Inc. 1,971,545
----------
7,935,589
----------
DIVERSIFIED/CONGLOMERATE -
MANUFACTURING - 18.72%
Cymer Inc. 141,645
D T Industries 1,180,000
Doskocil Manufacturing Co., Inc. 213,000
Eagle Pacific Industries, Inc. 1,750,150
Evans Consoles, Inc. 1,692,487
Fleming Acquisition Corporation 24,110
Golden Bear Acquisition Corp. 1,812,354
Hartzell Manufacturing, Inc. 1,654,914
Hudson River Capital, LLC 210,735
Hussey Seating Company 1,464,385
Jackson Products, Inc. 1,477,612
Kappler Safety Group, Inc. 1,743,806
Maxtec International Corp. 354,412
Morris Materials Handling 301,500
Pacific Coast Feather Company 1,800,750
PAR Acquisition Corp. 1,226,916
Scovill Fastener, Inc. 365,750
Tranzonic Companies, The 1,657,672
U.S. Silica Company 1,732,546
----------
20,804,744
----------
DIVERSIFIED/CONGLOMERATE -
SERVICE - 2.27%
Ammirati & Puris, Inc. 86,792
Data Processing Resource Corporation 135,625
Diversco, Inc. 1,612,655
Hunton & Williams 93,692
Pharmaceutical Buyers, Inc. 595,555
----------
2,524,319
----------
ELECTRONICS - 7.57%
Arbor Software Corporation 105,481
Ardent Software, Inc. 485,866
Averstar, Inc. 2,166,284
Cirrus Logic, Inc. 1,294,204
Control Devices, Inc. 1,129,542
MCMS Inc. 503,750
Nu Horizons Electronics Corp. 755,595
Precision Dynamics, Inc. 1,972,381
----------
8,413,103
----------
ENTERTAINMENT - .74%
Adventure Entertainment Corporation 820,289
----------
FARMING & AGRICULTURE - 1.23%
Cuddy International Corp. 700,000
Protein Genetics, Inc. 668,250
----------
1,368,250
----------
FINANCE - 3.87%
Boyle Leasing Technologies, Inc. 818,480
MW Investors I LLC 1,739,551
Paribas Capital Funding LLC 1,740,375
----------
4,298,406
----------
- --------------------------------------------------------------------------------
20
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1998
(Unaudited)
INDUSTRY CLASSIFICATION (Continued)
Fair Value
at 3/31/98
Corporate Restricted Securities: (Continued) (Note 2A)
----------
HEALTHCARE, EDUCATION &
CHILDCARE - 1.38%
Berkshire Medical Center, Inc. $ 442,199
Centocor Inc. 341,286
Healthsouth Corporation 748,117
------------
1,531,602
------------
HOME & OFFICE FURNISHINGS, HOUSEWARES,
AND DURABLE CONSUMER PRODUCTS - 2.80%
Catalina Lighting, Inc. 335,550
Sequentia, Inc. 1,498,398
Star International Holdings, Inc. 600,595
Sunbeam Corporation 679,688
------------
3,114,231
------------
LEISURE, AMUSEMENT,
ENTERTAINMENT - 1.76%
N2K, Inc. 223,446
Swing N'Slide Corporation 1,734,108
------------
1,957,554
------------
MACHINERY - .32%
Numatics Inc. 357,438
------------
MISCELLANEOUS - 2.84%
Brand Scaffold Services 155,250
Enserch Exploration, Inc. 952,647
Equity Corporation International 213,316
T C W Leveraged Income Trust, LP 1,500,000
Tjiwi Kima Fin Mauritius LTD 313,125
Victory Ventures, LLC 26,765
------------
3,161,103
------------
OIL AND GAS - 7.57%
Chaparral Resources, Inc. $ 5,397
Hardy Oil & Gas PLC 1,708,811
Key Energy Group 406,345
Louis Dreyfus Natural Gas Corporation 105,254
Maloney Industries, Inc. 1,326,245
Petroliam Nasional Berhad 324,198
PG+E Gas Transmission 222,622
TransMontaigne Oil Company 4,319,626
------------
8,418,498
------------
PERSONAL TRANSPORTATION - 3.91%
Atlantic Coast Airlines Inc. 752,153
Budget Group, The 1,855,800
Piedmont Holding, Inc. 1,338,981
US Air, Inc. 394,730
------------
4,341,664
------------
PRINTING & PUBLISHING - .31%
Von Hoffman Press, Inc. 347,750
------------
RETAIL STORES - 3.55%
Costco Companies, Inc. 66,397
Discount Auto Parts 949,410
J. Baker, Inc. 531,034
Rent-Way, Inc. 2,404,885
------------
3,951,726
------------
TELECOMMUNICATIONS - .86%
Smartalk Teleservices 382,782
Tel-Save 569,025
------------
951,807
------------
TEXTILES & LEATHER - .46%
Worldtex, Inc. 507,500
------------
Total Corporate Restricted
Securities - 91.95% $102,190,099
============
- --------------------------------------------------------------------------------
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS MASSMUTUAL PARTICIPATION INVESTORS
(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.
Nearly all securities which are acquired by the Trust directly from the
issuers and shares into which such securities may be converted or which may
be purchased on the exercise of warrants attached to such securities will be
subject to legal or contractual delays in or restrictions on resale and will
therefore be "restricted securities". Generally speaking, as contrasted with
open-market sales of unrestricted securities which may be effected
immediately if the market is adequate, restricted securities can be sold only
in a directly negotiated transaction to a limited number of purchasers or in
a public offering for which a registration statement is in effect under the
Securities Act of 1933.
The value of restricted securities, and of any other assets for which there
are no reliable market quotations, is the fair value as determined in good
faith by the Board of Trustees of the Trust. 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 provide such reports to the Trust at least
quarterly.
- --------------------------------------------------------------------------------
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The financial statements include restricted securities valued at $102,190,099
(91.95% of net assets) as of March 31, 1998 ($88,392,070 at March 31, 1997)
whose values have been estimated by the Board of Trustees in the absence of
readily ascertainable market values. Due to the inherent uncertainty of
valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and
the differences could be material.
The values for corporate public securities are stated at the last reported
sales price or at prices based upon quotations obtained from brokers and
dealers as of March 31, 1998, subject to discount where appropriate, and are
approved by the Trustees.
Short-term securities with more than sixty days to maturity are valued at
market and short-term securities having a maturity of sixty days or less are
valued at amortized cost which approximates market value.
B. Accounting for Investments:
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
The cost basis of debt securities is not adjusted for amortization of premium
since the Trust does not generally intend to hold such investments until
maturity; however, the Trust has elected to accrue for financial reporting
purposes, certain discounts which are required to be accrued for federal
income tax purposes.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
The Trust does not accrue income when payment is delinquent or when
management believes payment is questionable.
C. Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of 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.
3. 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 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.
- --------------------------------------------------------------------------------
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Senior Secured Indebtedness:
A. 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 its option, can convert the principal
amount of the Note into common shares. The dollar amount of principal would
be converted into an equivalent dollar amount of common shares based upon the
average price of the common shares for ten business days prior to the notice
of conversion. For each of the periods ended March 31, 1998 and 1997, the
Trust incurred total interest expense on the Note of $207,900.
B. Revolving Credit Agreement
The Fund entered into a $15,000,000 senior secured, floating rate, revolving
credit agreement (the "Revolver") with Fleet National Bank (the "Agent
Bank"), pursuant to a credit agreement dated May 29, 1997, with a maturity
date of May 31, 2004.
The Revolver bears interest at a variable per annum rate equal to the one,
two, three or six-month Eurodollar rate plus a margin of .40 percent per
annum. Interest is paid to the Agent Bank as it becomes due. The Fund also
incurs expense on the undrawn portion of the total approved credit agreement
at a rate of .185 percent per annum.
As of March 31, 1998, there were $10,500,000 in outstanding loans against the
Revolver and the average blended rate of interest charged on the Revolver was
6.15%. For the period ended March 31, 1998, the Fund incurred total interest
expense on the Revolver of $161,920, including $2,007 related to the undrawn
portion.
5. Purchases and Sales of Investments
For the For the
three months three months
ended 3/31/98 ended 3/31/97
------------- -------------
Cost of Investments Acquired
----------------------------
Corporate restricted securities $ 14,650,560 $ 13,087,901
Corporate public securities 1,815,147 3,291,609
Short-term securities 56,432,938 66,782,394
Proceeds from Sales or Maturities
---------------------------------
Corporate restricted securities $ 13,607,083 $ 6,365,793
Corporate public securities 9,169,668 10,296,945
Short-term securities 56,359,032 69,739,482
The aggregate cost of investments is the same for financial reporting and
federal income tax purposes as of March 31, 1998. The net unrealized
appreciation of investments for financial reporting and federal tax purposes as
of March 31, 1998 is $6,953,898 and consists of $13,068,725 appreciation and
$6,114,827 depreciation.
The aggregate cost of investments was the same for financial reporting and
federal income tax purposes as of March 31, 1997. The net unrealized
appreciation of investments for financial reporting and federal tax purposes as
of March 31, 1997 was $6,771,697 and consisted of $11,917,819 appreciation and
$5,146,122 depreciation.
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24
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Trustees Officers
Donald E. Benson* [LOGO Gary E. Wendlandt, Chairman
Marshall D. Butler APPEARS Richard G. Dooley, Vice Chairman
Milton Cooper HERE] Stuart H. Reese, President
Richard G. Dooley Robert E. Joyal, Senior Vice
Donald Glickman President
Martin T. Hart* Charles C. McCobb, Jr., Vice President &
Jack A. Laughery Chief Financial
Corine T. Norgaard Officer
Gary E. Wendlandt Stephen L. Kuhn, Vice President &
Secretary
Michael P. Hermsen, Vice President
William N. Holm, Vice President
* Member of the Audit Committee Mary Wilson Kibbe, Vice President
Michael L. Klofas, Vice President
John B. Joyce, Vice President
Richard C. Morrison, Vice President
Clifford M. Noreen, Vice President
Raymond B. Woolson, Treasurer
Mark B. Ackerman, Comptroller
Dividend Reinvestment and Cash Purchase Plan
MassMutual Participation Investors offers a Dividend Reinvestment and Cash
Purchase Plan. The Plan provides a simple and automatic way for shareholders to
add to their holdings in the Trust through the receipt of dividend shares issued
by the Trust or through the reinvestment of cash dividends in Trust shares
purchased in the open market. The dividends of each shareholder will be
automatically reinvested in the Trust by Shareholder Financial Services Inc.,
the Transfer Agent, in accordance with the Plan, unless such shareholder elects
not to participate by providing written notice to the Transfer Agent. A
shareholder may terminate his or her participation by notifying the Transfer
Agent in writing.
Participating shareholders may also make additional contributions to the Plan
from their own funds. Such contributions may be made by personal check or other
means in an amount not less than $100 nor more than $5,000 per quarter.
Whenever the Trust declares a dividend payable in cash or shares, the Transfer
Agent, acting on behalf of each participating shareholder, will take the
dividend in shares only if the net asset value is lower than the market price
plus an estimated brokerage commission as of the close of business on the
valuation day. The valuation day is the last day preceding the day of dividend
payment. When the dividend is to be taken in shares, the number of shares to be
received is determined by dividing the cash dividend by the net asset value as
of the close of business on the valuation date or, if greater than net asset
value, 95% of the closing share price. If the net asset value of the shares is
higher than the market value plus an estimated commission, the Transfer Agent,
consistent with obtaining the best price and execution, will buy shares on the
open market at current prices promptly after the dividend payment date.
The reinvestment of dividends does not, in any way, relieve participating
shareholders of any federal, state or local tax. For federal income tax
purposes, the amount reportable in respect of a dividend received in
newly-issued shares of the Trust will be the fair market value of the shares
received, which will be reportable as ordinary income and/or capital gains.
As compensation for its services, the Transfer Agent receives a fee of 5% of any
dividend and cash contribution (in no event in excess of $2.50 per distribution
per shareholder.)
Any questions regarding the Plan should be addressed to Shareholder Financial
Services, Inc., Agent for MassMutual Participation Investors' Dividend
Reinvestment and Cash Purchase Plan, P.O. Box 173673, Denver CO 80217-3673.
