<PAGE>
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1997 Annual Report
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[LOGO OF MASSMUTUAL PARTICIPATION
INVESTORS APPEARS HERE]
[PHOTO OF LAPTOP APPEARS HERE]
<PAGE>
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www.massmutual.com/mpv
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MassMutual Participation Investors
1295 State Street
Springfield, Massachusetts 01111
(413) 744-8480
Adviser
Massachusetts Mutual
Life Insurance Company
Auditor
Coopers & Lybrand L.L.P.
Springfield, Massachusetts 01101
Custodian
The Chase Manhattan Bank, N.A.
Transfer Agent & Registrar
Shareholder Financial Services, Inc.
P.O. Box 173673
Denver, Colorado 80217-3673
1-800-647-7374
[LOGO OF MPV
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.
MassMutual Participation Investors' Annual Meeting of Shareholders is scheduled
to be held on April 24, 1998 at 1:00 p.m. in Springfield, Massachusetts. We
cordially invite all shareholders to attend.
<PAGE>
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To Our Shareholders
- --------------------------------------------------------------------------------
We welcome this opportunity to provide you MassMutual Participation Investors'
1997 Annual Report.
1997 Highlights
We are pleased to report that Participation Investors was the number two
performing closed-end bond fund for the year 1997 as reported by Lipper
Analytical Services. (The number one fund was MassMutual Corporate Investors.)
The Trust also raised its quarterly dividend three times over the course of the
year, declared a year-end extra dividend, closed twenty new or add-on private
placements, reported record-high net asset values, enjoyed a record-high stock
market price, and established our website on the Internet.
We were able to increase our quarterly dividend three times throughout the year.
In May, the Trustees increased the quarterly dividend to 20 cents per share from
the previous distribution level of 19 cents per share. Then in July the
quarterly dividend was raised to 21 cents per share, and in October it was
raised again to the 22 cent-per-share level. In addition to the 22 cents per
share declared in December, a 17 cent-per-share extra dividend was declared.
This all adds up to $1.02 per share distributed for 1997.
The net asset value per share of the Trust increased during the year ending at
$11.52. This is up from the $10.54 per-share level at the end of 1996.
[PHOTO APPEARS HERE]
Portfolio Review
In keeping with our investment objective, we invest in a portfolio of securities
to maximize total return by providing a high level of current income, and the
potential for capital appreciation. Private placement investments, which are
purchased directly from an issuer, are our primary investments. In that regard,
private placement activity in the Trust remained strong. In total, the Trust
closed twenty new or add-on private placement investments during the year. This
brought our private placement holdings to 77% of the portfolio, up from 75% at
the end of 1996. During the fourth quarter, we invested in seven private
placements totaling approximately $6.7 million. The new investments are as
follows: Adventure Entertainment Corporation, Beta Brands, Inc., Capitol Vial,
Inc., MW Investors I, LLC, Vitex Packaging, Inc., and two add-on investments in
Trend Plastics, Inc. (A brief description of these companies is provided in the
Schedule of Investments.) The fixed income components of these investments have
a weighted average coupon of 13.2% and offer the potential of capital gains via
their equity features.
The Trust participated heavily in the 144A market. For the year, the Trust
purchased one hundred and six issues for a total investment of $42.3 million.
Many of the issues purchased throughout the year were either sold at a gain or
converted into public securities. (Our current holdings are shown at the end of
our Corporate Restricted Securities section of the Schedule of Investments.)
Even though interest rates declined during the year, we were able to increase
the net earnings of the Trust and raise of our quarterly dividend. Our net
earnings went from $7,019,846, or $.76 per share in 1996, to $8,013,308, or $.87
per share in 1997. This was done without any compromise of our ability to
generate capital gains. In fact, Participation Investors had a record year for
realized capital gains.
Despite the number of private placement investments that were purchased during
the year, a number of names disappeared. However, we are very pleased that many
of these investments left us significant capital gains. For the year, the Trust
realized $9.5 million in capital gains from our traditional private placement
investments. Some of the highlights are listed below.
<TABLE>
<CAPTION>
Issuer Gains ($000s) Issuer Gains ($000s)
- ------ ------------- ------ -------------
<S> <C> <C> <C>
Classic Sports, Inc. 931 PanEnergy Corp. 1,586
Compucom Systems 1,122 Schwitzer, Inc. 833
Exide Electronics Group, Inc. 1,438 Telex Communications, Inc. 3,540
</TABLE>
1
<PAGE>
In the public portfolio, Participation Investors was also very successful in
generating capital gains in addition to providing investment income. For the
year, the public portfolio realized $5.0 million in capital gains. In total, the
Trust realized capital gains of over $14.5 million, $2.1 million of which were
realized in the fourth quarter.
Performance
As mentioned previously, the Trust was ranked by Lipper Analytical Services as
the number two performing closed-end bond fund, of 344 funds, for 1997. This
performance is based on a 24.1% gain for the year as measured by the change in
net assets, with dividends reinvested. Our one-year performance compares
favorably to the S&P Industrial Stock Index, which was up 31.0%, and the Lehman
Government/Corporate Index, which was up 9.8%. In terms of shareholders'
realization, the one-year total return based on the change in the stock market
price, assuming reinvestment of dividends, was 43.1%. All in all, a top-notch
year for investors in Participation Investors no matter how you view it.
-------------------
TOTAL ANNUAL RETURN
-------------------
[BARGRAPH APPEARS HERE]
MassMutual Participation S&P Industrial Lehman Brothers Government/
Investors Stock Index Corporate Bond Index
1993 15.01 9.05 11.03
1994 4.03 3.83 -3.51
1995 26.11 34.64 19.24
1996 14.6 23.03 2.9
1997 24.1 31.04 9.75
More Positive News From The U.S.
As we begin 1998, the U.S. economy appears to be embarking on its eighth
consecutive year of expansion. By almost any measure, 1997 was a solidly good
year. Consumption was up, consumer confidence reached a 28-year high,
unemployment hit a 24-year low, gains were made in personal income and corporate
profits, housing starts and new and existing housing sales were up, and the
Federal budget deficit was tightened to a point where 1998 may even see a small
surplus.
All of this happened against a backdrop of declining price pressures. Without
inflationary pressures, the Federal Reserve, which had raised interest rates by
25 basis points in March, did not take action again for the remainder of the
year, and rates consequently declined.
Against Uncertainty From Overseas
Working counter to the forces supporting the domestic economy over the past year
was the financial breakdown in the Pacific Rim. After years of over-investment,
weak infrastructure and poor economic policy, high-flying markets including
South Korea, Thailand and Indonesia suffered tremendous losses during the second
half of 1997.
The problems these economies face are deep and far-reaching, and recognition of
this fact has caused turmoil in markets throughout the world. The U.S. has seen
effects of the Asian crisis on a number of levels. The uncertainty it has
created added volatility to an already nervous stock market, precipitating a one
day drop of over 500 points in late October. A flight to quality in the currency
markets bolstered the U.S. dollar, making American exports expensive in overseas
markets. Domestic firms that rely on sales to Asian markets may see profits come
under pressure as orders decline, and competitive price pressures from Asian
exporters may impact the ability of companies to raise prices on a global basis.
Strength Overcame Volatility in Stocks and Turned a Profitable Year for Bonds
Even though the U.S. stock market increased in volatility, it turned in
impressive results for the third consecutive year. American corporations have
invested in both the technology and the human resources they need to remain
competitive and profitable in the global market. During 1997, gains in the
market were driven both by corporate earnings and net flows of cash into equity
mutual funds.
2
<PAGE>
The bond market also advanced during 1997. After the Federal Reserve's March
tightening, interest rates began to decline, and bonds rallied as a result.
During the second half of the year, investors moved into bonds as a safe haven
from the stock market volatility.
We expect the positive economic factors that determined 1997's market to
outweigh Asian concerns as 1998 continues. We also expect another year of
economic growth, but at less vigorous levels than what we've seen recently. In
any event, recent volatility reminds us of the need to be paid for taking risk.
All told, we should be well positioned to act on the opportunities the coming
year presents.
Sincerely,
/s/ Stuart H. Reese
Stuart H. Reese
President
[PHOTO APPEARS HERE]
(left to right) Robert E. Joyal, Senior Vice President, Stephen L. Kuhn, Vice
President and Secretary, Clifford M. Noreen, Vice President, Hamline C. Wilson,
Vice President and Chief Financial Officer, and Charles C. McCobb, Jr, Vice
President
Tax Information:
The following table summarizes, for income tax purposes, the cash distributions
paid by MassMutual Participation Investors for the calendar year 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1997 Dividend Payments Net Investment Income Short-term gains Tax Effect
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1.02 $0.8307 $0.1893 $1.02 represents income for
tax purposes
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the tax effects of the retention of long-term
capital gains for 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Amount Per Share Form 2439 Schedule D (individual)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 Gains Retained $1.3822 Line 1a Line 11, column (f)
- -----------------------------------------------------------------------------------------------------------
Mid-term Gains Retained (28%) $0.1334 Line 1b Line 11, column (g)
- -----------------------------------------------------------------------------------------------------------
Long-term Gains Retained (20%) $1.2488
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Taxes Paid $0.4838 Line 2 Tax credit*
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Basis Adjustment $0.8984 **
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* If you are not subject to federal tax (e.g., a charitable organization, IRA,
or Keogh Plan), you may be able to claim a refund by filing From 990-T.
** For federal tax purposes, you may increase the adjusted basis of your
shares by this amount (the excess of Line 1a over Line 2).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Qualified for Dividend Interest Earned On
Annual Dividend Received Deduction U.S. Government Obligations
- -----------------------------------------------------------------------------------------------------------
Amount Per Share Percent Amount Per Share Percent Amount Per Share
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1.02 3.8233% $0.0316 0.0000% $0.0000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Investments (Notes 2A, 2B and 5)
(See Schedule of Investments)
Corporate restricted securities at fair value
(Cost 1997 - $98,863,703; 1996 - $76,225,729) $104,464,368 $ 81,145,818
Corporate public securities at market value
(Cost 1997 - $27,615,706; 1996 - $22,874,309) 29,080,135 24,650,903
Short-term securities at cost plus earned discount which
approximates market value 1,399,717 4,909,790
------------ ------------
134,944,220 110,706,511
Cash 62,841 4,414
Interest and dividends receivable, net 2,390,354 1,540,439
Receivable for investments sold 84,332 3,970,102
------------ ------------
Total assets $137,481,747 $116,221,466
============ ============
Liabilities:
Dividend payable $ 3,594,499 $ 3,778,833
Payable for investments purchased 100,000 135,000
Management fee payable (Note 3) 238,850 218,596
Note payable (Note 4A) 12,000,000 12,000,000
Revolving credit agreement (Note 4B) 10,500,000 --
Interest payable (Notes 4A and 4B) 222,821 170,940
Accrued expenses 211,353 157,518
Accrued taxes (Note 2D) 4,458,639 2,606,720
------------ ------------
Total liabilities 31,326,162 19,067,607
------------ ------------
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 5,423,509 582,457
Undistributed net investment income (Note 2D) 402,704 7,224
Undistributed net realized gain on investments 8,276,291 4,879,508
Net unrealized appreciation of investments (Notes 2A, 2B and 5) 7,065,094 6,696,683
------------ ------------
Total net assets 106,155,585 97,153,859
------------ ------------
Total liabilities and net assets $137,481,747 $116,221,466
============ ============
Shares of beneficial interest issued and outstanding 9,216,665 9,216,665
============ ============
Net asset value per share $ 11.52 $ 10.54
============ ============
</TABLE>
See Notes to Financial Statements.
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4
<PAGE>
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STATEMENT OF OPERATIONS MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest $ 9,882,497 $ 8,784,434
Dividends 292,721 147,618
------------ ------------
Total income 10,175,218 8,932,052
------------ ------------
Expenses:
Management fee (Note 3) 964,592 885,454
Trustees' fees and expenses 66,974 55,690
Transfer Agent/Registrar's expenses 49,925 48,500
Interest (Notes 4A and 4B) 983,508 831,600
Reports to shareholders 13,000 26,513
Audit and legal 45,900 42,935
Other 38,011 21,514
------------ ------------
Total expenses 2,161,910 1,912,206
------------ ------------
Net investment income (1997 - $.87 per share;
1996 - $.76 per share) 8,013,308 7,019,846
------------ ------------
Net realized and unrealized gain (loss) on investments (Notes 2A and 2B):
Realized gain on investments 14,479,645 9,371,190
Provision for federal income taxes (Note 2D) (4,458,639) (2,606,720)
------------ ------------
Net realized gain on investments 10,021,006 6,764,470
Net change in unrealized appreciation of investments 368,411 (2,884,268)
------------ ------------
Net gain on investments 10,389,417 3,880,202
------------ ------------
Net increase in net assets resulting from operations $ 18,402,725 $ 10,900,048
============ ============
</TABLE>
See Notes to Financial Statements.
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5
<PAGE>
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STATEMENT OF CASH FLOWS MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash:
Cash flows from operating activities:
Interest and dividends received $ 8,956,003 $ 8,260,976
Interest expense paid (931,627) (831,600)
Operating expenses paid (1,091,813) (1,079,275)
Federal income tax paid (2,606,720) (203,518)
------------ ------------
Net cash provided by operating activities 4,325,843 6,146,583
------------ ------------
Cash flows from investing activities:
Change in short-term portfolio securities, net 3,626,497 7,420,201
Purchase of portfolio securities (96,366,567) (69,704,405)
Proceeds from disposition of portfolio securities 87,570,487 63,118,295
------------ ------------
Net cash (used for) provided by investing activities (5,169,583) 834,091
------------ ------------
Net cash (used for) provided by operating and investing activities (843,740) 6,980,674
------------ ------------
Cash flows from financing activities:
Cash dividends paid from net investment income (7,700,370) (7,004,665)
Cash dividends paid from net realized gain on investments (1,884,963) --
Proceeds from borrowings under revolving credit agreement 10,500,000 --
Note issuance costs paid (12,500) --
------------ ------------
Net cash provided by (used for) financing activities 902,167 (7,004,665)
------------ ------------
Net increase (decrease) in cash 58,427 (23,991)
Cash - beginning of year 4,414 28,405
------------ ------------
Cash - end of year $ 62,841 $ 4,414
============ ============
Reconciliation of net increase (decrease) in net assets to net cash from
operating and investing activities:
Net increase in net assets resulting from operations $ 18,402,725 $ 10,900,048
------------ ------------
Increase in investments (24,237,709) (3,119,250)
(Increase) decrease in interest and dividends receivable, net (849,915) 264,435
(Increase) decrease in receivable for investments sold 3,885,770 (3,104,092)
Decrease in payable for investments purchased (35,000) (365,000)
Increase in management fee payable 20,254 4,202
Increase in interest payable 51,881 --
Note issuance costs paid 12,500 --
Increase (decrease) in accrued expenses 53,835 (2,871)
Increase in accrued taxes 1,851,919 2,403,202
------------ ------------
Total adjustments to net assets from operations (19,246,465) (3,919,374)
------------ ------------
Net cash (used for) provided by operating and investing activities $ (843,740) $ 6,980,674
============ ============
</TABLE>
See Notes to Financial Statements.
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6
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 8,013,308 $ 7,019,846
Net realized gain on investments 10,021,006 6,764,470
Net change in unrealized appreciation of investments 368,411 (2,884,268)
------------- -------------
Net increase in net assets resulting from operations 18,402,725 10,900,048
Dividends to shareholders from:
Net investment income (1997 - $.83 per share; 1996 - $.78 per share) (7,617,829) (7,147,370)
Net realized gains on investments (1997 - $.19 per share; 1996 - $.20 per share) (1,783,170) (1,884,962)
------------- -------------
Total increase 9,040,726 1,867,716
Net Assets, beginning of year 97,153,859 95,286,143
------------- -------------
Net Assets, end of year (including undistributed net investment
income in 1997 - $402,704; 1996 - $7,224) $ 106,155,585 $ 97,153,859
============= =============
</TABLE>
See Notes to Financial Statements.
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7
<PAGE>
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SELECTED PER SHARE DATA MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
Selected data for each share of beneficial interest outstanding for the periods
ended:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $ 10.54 $ 10.34 $ 8.84 $ 9.13 $ 8.58 $ 8.58 $ 8.29
---------- --------- --------- --------- --------- --------- ---------
Net investment income .87 .76 .73 .66 .68 .69 .82
Net realized and
unrealized gain (loss)
on investments 1.13 .42 1.50 (.30) .57 .07 .35
---------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 2.00 1.18 2.23 .36 1.25 .76 1.17
---------- --------- --------- --------- --------- --------- ---------
Dividends from net
investment income to
common shareholders (.83) (.78) (.73) (.65) (.69) (.69) (.82)
Distributions from net
realized gain on
investments to common
shareholders (.19) (.20) -- -- -- (.07) (.06)
Distributions from return
of capital to common
shareholders -- -- -- -- (.01) -- --
---------- --------- --------- --------- --------- --------- ---------
Total distributions (1.02) (.98) (.73) (.65) (.70) (.76) (.88)
---------- --------- --------- --------- --------- --------- ---------
Net asset value:
End of period $ 11.52 $ 10.54 $ 10.34 $ 8.84 $ 9.13 $ 8.58 $ 8.58
---------- --------- --------- --------- --------- --------- ---------
Per share market value:
End of period $ 11.63 $ 9.25 $ 9.13 $ 7.38 $ 8.00 $ 7.38 $ 8.63
========== ========= ========= ========= ========= ========= =========
Total investment return:
Market value 43.05% 15.40% 34.65% .35% 17.67% (6.33)% 44.00%
Net asset value 24.10% 14.60% 26.11% 4.02% 15.01% 9.11% 14.34%
Net assets (in millions):
End of period $ 106.16 $ 97.15 $ 95.29 $ 81.43 $ 84.11 $ 79.05 $ 78.76
Ratio of operating
expenses to average
net assets 1.12% 1.11% 1.28% 1.25% 1.26% 1.26% 1.28%
Ratio of interest expense
to average net assets .93% .85% .43% -- -- -- --
Ratio of total expenses
to average net assets 2.05% 1.96% 1.71% 1.25% 1.26% 1.26% 1.28%
Ratio of net investment
income to average net assets 7.59% 7.18% 7.56% 7.30% 7.66% 7.89% 9.50%
Portfolio turnover 70.88% 68.48% 59.27% 51.42% 34.28% 36.04 32.98%
<CAPTION>
For the
period
10/6/88
(Inception)
through
1990 1989 12/31/88
---- ---- --------
<S> <C> <C> <C>
Net asset value:
Beginning of period $ 9.14 $ 9.21 $ 9.30
--------- --------- ---------
Net investment income .87 .86 .12
Net realized and
unrealized gain (loss)
on investments (.84) (.05) (.07)
--------- --------- ---------
Total from investment
operations .03 .81 .05
--------- --------- ---------
Dividends from net
investment income to
common shareholders (.88) (.84) (.12)
Distributions from net
realized gain on
investments to common
shareholders -- (.04) (.02)
Distributions from return
of capital to common
shareholders -- -- --
--------- --------- ---------
Total distributions (.88) (.88) (.14)
--------- --------- ---------
Net asset value:
End of period $ 8.29 $ 9.14 $ 9.21
--------- --------- ---------
Per share market value:
End of period 6.63 $ 8.25 $ 9.88
========= ========= =========
Total investment return:
Market value (9.82)% (7.77)% (1.00)%*
Net asset value .31% 9.10% .54%*
Net assets (in millions):
End of period $ 75.82 $ 83.58 $ 84.15
Ratio of operating
expenses to average
net assets 1.23% 1.27% 0.27%*
Ratio of interest expense
to average net assets -- -- --
Ratio of total expenses
to average net assets 1.23% 1.27% 0.27%*
Ratio of net investment
income to average net assets 9.79% 9.18% 1.73%*
Portfolio turnover 16.25% 77.84 27.96%*
</TABLE>
* Percentages represent results for the period and are not annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MASSMUTUAL PARTICIPATION INVESTORS
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities - 76.65%: (A) Amount Date Date (Note 2B) (Note 2A)
------------ ----------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
A.T.-Sentinel, Inc.
A leveraged lease transaction guaranteed by E.I
Dupont, the chemical company
9.52% First Preferred Ship Mortgage Note $ 60,962 8/22/89 $ 60,303 $ 61,876 $ 61,071
due 1998 ------------ --------- ---------
AccTech, LLC
A designer and marketer of specialized cleaning
products
Senior Floating Rate Revolving Credit Note $ 252,540 10/31/96 252,540 252,540 232,438
due 2002
Senior Secured Series A Floating Rate Note $ 368,667 10/31/96 363,140 368,667 348,906
due 2002
10.1% Senior Secured Series A Note due $ 553,467 10/31/96 539,298 553,467 531,051
2002
12% Senior Secured Series B Note due 2004 $ 549,000 10/31/96 577,603 499,810 554,325
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) --------- --------- ---------
1,864,337 1,843,655 1,790,241
--------- --------- ---------
Adventure Entertainment Corporation
An owner and operator of themed family
entertainment centers
7% Redeemable Series B Preferred Stock 833 shs. 10/31/97 799,664 820,505 809,182
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) --------- --------- ---------
799,696 833,000 809,214
--------- --------- ---------
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 88,200
--------- --------- ---------
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 1,587,324 1,706,186
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 1,756,497 1,815,099
--------- --------- ---------
Berkshire Medical Center, Inc.
A non-profit, regional acute care hospital
10.5% Senior Note due 1999 $ 430,909 5/15/89 430,909 430,909 445,129
--------- --------- ---------
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Beta Brands, Inc.
A manufacturer of hard candy and chocolate-coated
products sold primarily to the Canadian market.
Senior Secured Floating Rate Tranche A Note
due 2004 $1,147,000 12/23/97 $ 1,136,906 $ 1,147,000 $ 1,136,906
14.75% Senior Secured Tranche B Note due 2005 $ 330,000 12/23/97 343,200 330,000 343,200
Limited Partnership Interests of CM Equity 4,056 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)
------------- ------------ -----------
1,805,646 1,882,584 1,805,646
------------- ------------ -----------
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 8/16/94 719,776 769,957 814,560
------------- ------------ -----------
BP Prudhoe Bay Royalty Trust - N.Y.S.E
A trust which shares in the production of petroleum
from the Alaskan North Slope.
Beneficial Interests 13,190 uts. 2/28/89 329,750 195,261 211,864
------------- ------------ -----------
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 1,710,400
------------- ------------ -----------
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 8/29/96 325,850 325,850 162,924
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 8/29/96 261,877 254,090 133,000
Membership Interests (B) 133 int. 8/29/96 106,400 98,371 13,300
Warrant, exercisable until 2004, to purchase 8 int. 8/29/96 1 13,300 1
Membership Interests at $.01 per interest (B)
------------- ------------ -----------
1,853,672 1,863,696 895,268
------------- ------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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 $ 216,216 9/29/95 $ 216,216 $ 216,216 $ 214,940
Credit Note due 2000
10% Senior Secured Term Note due 2004 $ 756,756 9/29/95 756,756 756,756 760,464
11.5% Senior Subordinated Note due 2004 $ 472,975 9/29/95 447,855 452,718 479,313
8% Junior Subordinated Convertible Note $ 54,054 9/29/95 54,054 54,054 97,454
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 45,682
partnership points at $.01 per point (B)
-------------- ----------- -----------
1,500,011 1,504,874 1,597,853
-------------- ----------- -----------
Capitol Vial, Inc.
A producer of plastic vial containers
19% Senior Subordinated Notes due 2004 $ 1,750,000 12/30/97 1,715,000 1,750,000 1,713,250
Common Stock (B) 33 shs. 12/30/97 131 164 131
-------------- ----------- -----------
1,715,131 1,750,164 1,713,381
-------------- ----------- -----------
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 3/31/94 355,012 375,000 350,625
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 5,535
-------------- ----------- -----------
Cirrus Logic, Inc.
A designer and manufacturer of integrated circuits
10.14% Secured Leverage Lease Notes due $ 711,720 11/1/96 690,726 711,720 692,930
2004
10.22% Secured Leverage Lease Notes due $ 622,578 11/1/96 608,757 622,578 609,940
2002
-------------- ----------- -----------
1,299,483 1,334,298 1,302,870
-------------- ----------- -----------
Coast Distribution System, The - A.S.E
A wholesale distributor of recreational vehicle
and marine parts and accessories
11.2% Senior Subordinated Secured Note $ 466,800 6/26/89 481,691 466,800 393,699
due 1999 -------------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
--------------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Consumer Product Enterprises, Inc.
A manufacturer of colored acrylic felt for
consumer use.
Senior Secured Floating Rate Revolving $ 76,900 12/8/95 $ 76,900 $ 76,900 $ 76,431
Credit Notes due 2000
10.75% Senior Secured Term Note due 2003 $ 607,103 12/8/95 613,386 607,103 608,985
12% Senior Subordinated Note due 2005 $ 400,287 12/8/95 401,929 380,806 398,766
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) ------------ ---------- -----------
1,162,117 1,182,515 1,154,084
------------ ---------- -----------
Contico International, Inc.
A developer, manufacturer and marketer of consumer,
commercial and industrial plastic products.
12% Senior Subordinated Note due 2003 $ 500,000 3/23/93 522,800 500,000 526,850
------------ ---------- -----------
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 1,175,458
------------ ---------- -----------
Discount Auto Parts
A retailer of auto parts.
9.8% Senior Secured Note due 2003 $ 900,000 11/2/89 869,490 900,000 961,200
------------ ---------- -----------
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 $ 212,812 10/24/96 211,514 212,813 211,834
10.16% Senior Term Note due 2002 $ 638,438 10/24/96 639,203 638,438 652,739
12% Senior Subordinated Note due 2003 $ 624,000 10/24/96 638,414 559,169 662,750
Membership Interests (B) 1491 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) ------------ ---------- -----------
1,600,961 1,633,260 1,639,153
------------ ---------- -----------
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 1,779,560
convertible into common stock at $4.26 per share ------------ ---------- -----------
</TABLE>
*7/29/94 and 10/8/96.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
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 $ 10,161
Warrant, exercisable until 2005, to purchase 190 shs. 4/28/95 49,116 85,226 7,144
common stock at $.01 per share (B)
Incentive Warrant, exercisable from 1998 10 shs. 4/28/95 1,671 1,136 361
until 2000, to purchase common stock at $.01
per share (B)
------------ ---------- -----------
660,695 221,362 17,666
------------ ---------- -----------
Golden Bear Acquisition Corporation
A manufacturer of asphalt and specialty lubricating
and processing oils.
17% Senior Subordinated Note due 2005 $ 1,556,000 7/18/97 1,570,938 1,522,143 1,596,145
12% Preferred Stock 156 shs. 7/18/97 157,454 155,556 161,005
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)
------------ ---------- -----------
1,757,785 1,751,629 1,786,543
------------ ---------- -----------
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 1,560,450
Warrant, exercisable until 2005, to purchase 136,541 shs. 1/11/95 13,500 -- 172,042
common stock at (Pound)1.84 per share (B)
------------ ---------- -----------
1,465,650 1,500,000 1,732,492
------------ ---------- -----------
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 1,164,166 1,374,816
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 1,720,627 1,675,661
------------ ---------- -----------
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>
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Hein-Werner Corp. - A.S.E.
A manufacturer of automotive service and collision
repair equipment and hydraulic cylinders.
Warrant, exercisable until 1999, to purchase 59,713 shs. 9/3/96 $ -- $ -- $ 49,323
common stock at $6.28 per share (B) ----------- ----------- ------------
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 11/18/93 371,288 369,882 392,700
Warrant, exercisable until 2001, to purchase 3 shs. 11/18/93 -- 5,118 9,057
common stock at $17,897.31 per share (B)
------------ ----------- ------------
371,288 375,000 401,757
------------ ----------- ------------
Hudson River Capital LLC
Acquires controlling or substantial interests in
manufacturing and marketing entities.
Series A Preferred Units (B) 22,183 uts. 7/21/94 196,827 221,826 210,735
------------ ----------- ------------
Hunton & Williams
A major law firm in Richmond, Virginia.
9.84% Senior Secured Note due 2000 $ 137,625 12/21/90 135,324 137,625 141,300
------------ ----------- ------------
Hussey Seating Company
A manufacturer of spectator seating products.
Senior Secured Floating Rate Revolving $ 202,500 6/12/96 200,516 202,500 202,500
Note due 2003
Senior Secured Floating Rate Note due 2003 $ 393,750 6/12/96 389,852 393,750 393,750
10% Senior Secured Note due 2003 $ 393,750 6/12/96 383,355 393,750 393,159
12% Subordinated Secured Note due 2006 $ 675,000 6/12/96 663,660 573,622 718,605
Warrant, exercisable until 2006, to purchase 1,776 shs. 6/12/96 18 112,500 18
common stock at $.01 per share (B)
------------ ----------- ------------
1,637,401 1,676,122 1,708,032
------------ ----------- ------------
Intermetrics, Inc.
A provider of software systems, services and
products to a variety of information technology
users.
Senior Floating Rate Revolving Credit Note $ 192,000 5/30/97 192,000 192,000 192,000
due 2001
Senior Floating Rate Revolving Term Note $ 666,072 8/31/95 660,441 666,072 666,072
due 2002
13% Senior Subordinated Note due 2002 $ 399,659 8/31/95 406,760 359,063 422,320
Class A Common Stock (B) 1,471 shs. 8/31/95 6,895 9,192 182
Class B Common Stock (B) 4,067 shs. 8/31/95 19,087 25,418 504
Warrant, exercisable until 2007 to purchase 10,588 shs. 8/31/95 1,059 52,000 1,228
Class D common stock at $.01 per share (B)
------------ ----------- ------------
1,286,242 1,303,745 1,282,306
------------ ----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
J. Baker, Inc. -- O.T.C.
A wholesaler and retailer of shoes.
11.96% Senior Subordinated Note due 1999 $ 600,000 6/21/89 $ 598,440 $ 600,000 $ 515,760
Warrant, exercisable until 1999, to purchase $ 27,355 6/21/89 2,736 73,285 274
common stock at $18.80 per share (B)
------------ ---------- -----------
601,176 673,285 516,034
------------ ---------- -----------
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 1,031,098
13.25% Cumulative Preferred Stock 49 shs. 8/16/95 492,800 411,708 432,170
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 1,483,799
------------ ---------- -----------
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 1,521,123 1,713,509
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 1,687,823 1,749,807
------------ ---------- -----------
Latin Communications Group
An operator of Spanish-language media in North
America.
Common Stock (B) 44,219 shs. * 314,472 406,252 442,190
------------ ---------- -----------
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. 9/30/97 936,250 936,372 842,625
------------ ---------- -----------
1,750,000 1,750,122 1,705,200
------------ ---------- -----------
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 19,356 127,627
------------ ---------- -----------
common stock at $17.81 per share (B)
</TABLE>
* 2/14/95, 12/1/95 and 2/27/96.
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
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 $ 1,012,500 10/26/95 $ 1,189,125 $ 1,012,500 $ 1,106,055
Limited Partnership Interests (B) 284 uts. 10/20/95 253,125 338,915 148,389
Warrant, exercisable until 2004, to purchase 148 uts. 10/26/95 148 - 77,511
Limited Partnership Interests at $.01 per unit (B)
------------ ------------ ------------
1,442,398 1,351,415 1,331,955
------------ ------------ ------------
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 wholly-owned subsidiary of Tenneco, Inc.,
whose business includes natural gas, auto parts
and packaging.
Floating Rate Subordinated Note due 2007 $ 1,685,250 12/29/97 1,674,633 1,685,250 1,674,633
5.05% Membership Interest 2,590 int. 12/29/97 64,750 64,750 64,750
------------ ------------ ------------
1,739,383 1,750,000 1,739,383
------------ ------------ ------------
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. 8/6/97 556 - 32,817
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 $ 705,900 8/31/94 712,959 705,900 758,207
2002, 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 1,807,050
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
PAR Acquisition Corp.
A manufacturer of fuel handling systems for
nuclear power plants and hazardous waste.
14.5% Senior Subordinated Note due 2000 $ 833,333 2/5/93 $ 832,000 $ 833,333 $ 855,500
8% Convertible Preferred Stock due 2001, 83,333 shs. 2/5/93 166,667 166,667 161,917
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 1,230,750
------------ ------------ ------------
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 that engages in petroleum product marketing
operations.
10.58% Senior Note due 2000 $ 214,286 12/20/90 217,858 214,286 223,993
------------ ------------ ------------
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 $ 408,750 11/30/95 425,958 408,750 431,150
10.5% Senior Secured Convertible Note due $ 97,500 11/30/95 102,668 97,500 111,179
2005, convertible into common stock at
$50,000 per share
Common Stock 3 shs. 11/30/95 113,906 169,000 105,260
------------ ------------ ------------
642,532 675,250 647,589
------------ ------------ ------------
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 1,126,435
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 1,345,603
------------ ------------ ------------
Plastipak Packaging, Inc.
A manufacturer of plastic containers.
10.64% Senior Subordinated Note due 2006 $ 1,750,000 10/25/96 1,701,875 1,708,477 1,778,875
Warrant, exercisable until 2006, to purchase 49 shs. 10/25/96 27,799 46,813 31,101
common stock at $.01 per share (B)
------------ ------------ ------------
1,729,674 1,755,290 1,809,976
------------ ------------ ------------
</TABLE>
*12/20/96, 3/20/97 and 6/20/97
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Precision Dynamics, Inc.
A manufacturer of custom-designed solenoid
valves and controls.
Senior Secured Floating Rate Revolving $ 309,700 7/22/96 $ 306,634 $ 309,70 $ 307,099
Credit Facility due 2003
Senior Secured Floating Rate Term Note $ 1,401,800 7/22/96 1,388,062 1,401,800 1,391,287
due 2003
12% Senior Secured Term Note due 2004 $ 245,000 7/22/96 241,766 201,252 253,281
8% Preferred Stock 116 shs. 7/22/96 110,120 115,911 94,572
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)
------------ ----------- -----------
2,057,433 2,092,152 2,061,560
------------ ----------- -----------
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. 7/31/97 983,800 995,107 995,800
Common Membership Interests 4 int. 7/31/97 11 12 11
------------ ----------- -----------
983,811 995,119 995,811
------------ ----------- -----------
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 8/12/94 394,720 400,000 345,280
11.51% Junior Secured Note due 1999 $ 200,000 8/12/94 195,760 200,000 170,400
9.8% Redeemable Exchangeable Preferred Stock 3,333 shs. 8/12/94 282,633 333,333 144,167
Common Stock (B) 497 shs. 8/12/94 5 - 4
------------ ----------- -----------
873,118 933,333 659,851
------------ ----------- -----------
RailTex, Inc. - O.T.C.
An operator of short-line railroads in the Midwest,
West and Canada.
12% Subordinated Note due 2002 $ 750,000 2/16/93 799,575 750,000 830,025
Common Stock (B) 17,750 shs. 2/16/93 170,400 170,400 241,347
------------ ----------- -----------
969,975 920,400 1,071,372
------------ ----------- -----------
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 1,768,098
Warrant, exercisable until 2002, to purchase 10,000 shs. 7/18/95 100 - 85,370
common stock at $9.94 per share (B)
------------ ----------- -----------
100 1,000,000 1,853,468
------------ ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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 $ 937,103 $ 1,178,115
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 1,363
Limited Partnership Interests of KS
Holdings, L.P. at $.01 per unit (B)
------------ ----------- -----------
1,481,342 1,536,021 1,502,848
------------ ----------- -----------
Star International, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004 $ 382,835 5/27/94 382,835 382,835 387,582
10.5% Subordinated Note due 2004 $ 179,104 5/27/94 179,104 179,104 179,301
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)
------------ ----------- -----------
626,851 626,843 602,256
------------ ----------- -----------
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 1,241,086 1,390,781
Limited Partnership Interests of Green Grass 40,774 uts. 3/13/97 146,786 223,781 130,477
Capital II, LLC (B)
Warrant, exercisable until 2005, to purchase 74,022 uts. 3/13/97 265,887 340,361 236,278
Limited Partnership Interests of Green Grass
Capital II, LLC at $.01 per unit (B)
------------ ----------- -----------
1,705,173 1,805,228 1,757,536
------------ ----------- -----------
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 8/8/97 849,538 853,837 869,575
8% Convertible Redeemable Preferred Stock 4,122 shs. 8/8/97 847,613 875,000 875,000
Warrant, exercisable until 2005, to purchase 780 shs. 8/8/97 8 21,949 8
common stock at $.01 per share (B)
------------ ----------- -----------
1,697,159 1,750,786 1,744,583
------------ ----------- -----------
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 1,261,995
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 1,766,016
------------ ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
TransMontaigne Oil Company - A.S.E.
An independent petroleum products marketing
company.
12.75% Senior Subordinated Debenture $ 1,200,000 3/28/91 $ 1,274,280 $ 1,183,408 $ 1,291,080
due 2000
Common Stock (B) 203,165 shs. * 314,108 598,597 2,590,354
Warrant, exercisable until 2001, to purchase 74,606 shs. 3/28/91 7,461 42,000 680,407
common stock at $3.60 per share (B)
------------ ----------- -----------
1,595,849 1,824,005 4,561,841
------------ ----------- -----------
Trend 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 1,336,355
Limited Partnership Interests of Riverside V 2,680 uts. ** 327,880 295,778 327,881
Holding Company L.P.
Limited Partnership Interests of Riverside V-A 5,734 uts. ** 742,789 632,584 742,788
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 2,185,162 2,408,588
------------ ----------- -----------
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 1,154,954 1,404,900
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 1,755,821 1,775,976
------------ ----------- -----------
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide
variety of industries.
11% Senior Secured Note due 2005 $ 792,200 5/3/95 876,015 792,200 861,676
12% Subordinated Note due 2005 $ 326,200 5/3/95 367,008 311,061 374,934
Common Stock (B) 2,457 shs. 5/3/95 81,376 195,720 16,157
Warrant, exercisable until 2005, to purchase 1,398 shs. 5/3/95 46,291 17,971 9,182
common stock at $.01 per share (B)
------------ ----------- -----------
1,370,690 1,316,952 1,261,949
------------ ----------- -----------
</TABLE>
* 3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95.
** 3/21/97, 10/16/97 and 11/19/97.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
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 $ 1,190,210 * $ 1,263,872 $ 1,190,145 $ 1,285,426
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)
------------- ------------- -------------
1,707,835 1,773,510 1,726,118
------------- ------------- -------------
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 1,206,112 1,196,625
Common Stock (B) 62,500 shs. 12/14/95 187,500 250,000 187,500
Warrant, exercisable until 2003, to purchase 31,250 shs. 12/14/95 312 62,125 312
common stock at $1 per share (B)
------------- ------------- -------------
1,457,062 1,518,237 1,384,437
------------- ------------- -------------
Unipac Corporation
A manufacturer of laminated materials which are
used to seal a variety of packaging containers.
Senior Secured Floating Rate Note due 2002 $ 69,023 2/9/96 68,292 69,023 69,023
12% Senior Secured Note due 2004 $ 121,875 2/9/96 123,435 111,090 132,271
Acquisition Line of Credit due 2002 $ 356,250 9/30/96 356,250 356,250 356,250
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, to 21 uts. 2/9/96 2 20,156 54,711
purchase Limited Partnership Interests of
Riverside II Holding Company L.P. at $.01
per unit (B)
------------- ------------- -------------
604,173 623,136 774,849
------------- ------------- -------------
US Air, Inc.
A domestic and international airline.
10.8% Series A Secured Loan Certificates $ 430,259 6/29/94 365,720 377,072 448,761
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
------------- ------------- -------------
</TABLE>
* 12/19/96 and 2/15/97.
** 2/9/96 and 9/25/96.
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 12/31/97
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Vitex Packaging, Inc.
A manufacturer of specialty packaging, primarily
envelopes and tags used on tea bags.
Limited Partnership Interests of Riverside VI 611 int. 12/30/97 $ 48,873 $ 61,091 $ 48,873
Holding Company L.P.
Limited Partnership Interests of Riverside 1,008 int. 12/30/97 80,640 100,800 80,640
VI-A Holding Company L.P. ------------ ------------ ------------
129,513 161,891 129,513
------------ ------------ ------------
Sub-Total Corporate Restricted Securities $ 75,072,112 76,679,417 81,363,640
============ ------------ ------------
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 12/31/97
Rule 144A Securities: (A) Rate Date Amount (Note 2B) (Note 2A)
-------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Bonds - 13.59%
ADV Accessory & AAS CAP 9.750% 10/01/07 $ 575,000 574,996 566,375
AEP Industries, Inc. 9.875 11/15/07 750,000 744,180 770,625
American Lawyer Media 9.750 12/15/07 300,000 300,000 304,500
Amtran, Inc. 10.500 08/01/04 500,000 500,000 522,540
Atlantic Coast Airlines Inc. 8.750 01/01/07 783,000 784,062 783,000
Atlantic Express 10.750 02/01/04 350,000 362,250 371,875
Climachem, Inc. 10.750 12/01/07 250,000 250,000 257,500
Cuddy International Corp. 10.750 12/01/07 700,000 689,542 705,250
Doskocil Manufacturing Co., Inc. 10.125 09/15/07 200,000 203,750 209,000
Enserch Exploration, Inc. 7.540 01/02/09 1,000,000 1,000,000 1,012,500
Indah Kiat Pulp & Paper Corporation 10.000 07/01/07 700,000 695,429 581,000
Integrated Health Services 9.250 01/15/08 750,000 750,000 763,125
ITT Publicmedia BV 9.375 09/15/07 420,000 425,475 441,000
Kitty Hawk Inc. 9.950 11/15/04 500,000 500,000 502,500
McLeodUSA Incorporated 9.250 07/15/07 300,000 300,000 312,750
Petroliam Nasional Berhad 7.125 10/18/06 350,000 321,230 321,685
Scovill Fastener, Inc. 11.250 11/30/07 350,000 350,000 357,000
Southern Foods 9.875 09/01/07 450,000 450,000 470,250
Sovereign Speciality Chemicals 9.500 08/01/07 175,000 175,000 179,813
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 08/01/04 375,000 372,956 311,250
Unicco Service Co. 9.875 10/15/07 275,000 273,708 275,000
United Refining Company 10.750 06/15/07 1,400,000 1,400,000 1,473,500
Von Hoffman Press, Inc. 10.375 05/15/07 325,000 327,250 347,750
W R Carpenter North America 10.625 06/15/07 550,000 556,344 569,250
Worldtex, Inc. 9.625 12/15/07 500,000 500,000 512,500
------------ ----------- -----------
Sub-Total Rule 144A Bonds $ 14,328,000 14,306,172 14,421,538
============ ----------- -----------
Convertible Bonds - 6.30%
Atria Communities, Inc. 5.000 10/15/02 $ 250,000 250,000 255,937
Continental Airlines, Inc. 6.750 04/15/06 300,000 278,625 507,882
Costco Companies, Inc. 0.000 08/19/17 600,000 303,605 351,528
CUC International, Inc. 3.000 02/15/02 600,000 600,000 750,564
Cymer Inc. 3.500 08/06/04 175,000 176,000 131,472
Family Golf Centers, Inc. 5.750 10/15/04 150,000 150,000 159,480
Grand Metropolitan PLC 6.500 01/31/00 200,000 200,000 277,944
</TABLE>
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 12/31/97
Rule 144A Securities: (A) (Continued) Rate Date Amount (Note 2B) (Note 2A)
---------- ------ ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Convertible Bonds (Continued)
Halter Marine 4.500% 09/15/04 $ 75,000 $ 75,000 $ 82,581
Kellstorm Industries, Inc. 5.750 10/15/02 200,000 200,000 218,928
Key Energy Group 5.000 09/15/04 500,000 500,000 428,750
Mark IV Industries 4.750 11/01/04 450,000 427,125 418,500
Omnicom, Inc. 2.250 01/06/13 100,000 100,000 105,375
Roche Holdings, Inc. 0.000 05/06/12 2,660,000 1,081,196 1,226,925
Scholastic Corp. 5.000 08/15/05 600,000 484,688 531,750
Smartalk Teleservices 5.750 09/15/04 300,000 300,000 320,097
Tel-Save 4.500 09/15/02 650,000 644,375 629,298
Thermo Electron Corporation 4.250 01/01/03 175,000 175,000 217,875
Tower Automotive, Inc. 5.000 08/01/04 75,000 75,000 77,866
----------- ----------- -----------
Sub-Total Rule 144A Convertible Bonds $ 8,060,000 6,020,614 6,692,752
=========== ----------- -----------
Convertible Preferred Stock - 1.87%
Big Flower Trust 7,150 357,500 366,438
D T Industries 20,000 1,000,000 1,095,000
Newell Financial Trust 10,000 500,000 525,000
----------- -----------
Sub-Total Rule 144A Convertible Preferred Stock 1,857,500 1,986,438
----------- -----------
Total Rule 144A Securities 22,184,286 23,100,728
----------- -----------
Total Corporate Restricted Securities 98,863,703 104,464,368
----------- -----------
Corporate Public Securities:
Bonds - 17.24%
Advanced Micro Devices 11.000% 08/01/03 $ 350,000 371,000 374,500
Airplanes Pass Thru Trust 8.150 03/15/19 1,500,000 1,498,674 1,596,210
Amphenol Corporation 9.875 05/15/07 200,000 200,000 212,000
Anchor Advanced Products 11.750 04/01/04 560,000 581,750 588,000
Archibald Candy Corp. 10.250 07/01/04 420,000 420,000 438,900
Atlas Air, Inc. 10.750 08/01/05 1,000,000 1,000,000 1,060,000
Aurora Foods, Inc. 9.875 02/15/07 750,000 768,750 787,500
Callon Petroleum Company 10.125 09/15/02 250,000 248,560 250,000
Central Rents, Inc. 12.875 12/15/03 615,000 582,375 624,225
Chesapeake Energy Corporation 8.500 03/15/12 250,000 229,813 248,750
Dawson Production Services 9.375 02/01/07 400,000 394,000 421,500
DecisionOne Corporation 9.750 08/01/07 75,000 75,000 77,250
Decorative Home Accents, Inc. 13.000 06/30/02 350,000 350,000 87,500
Florist Transworld Delivery, Inc. 14.000 12/15/01 375,000 385,688 417,188
Friendly Ice Cream Corporation 10.500 12/01/07 200,000 200,000 202,500
Great American Cookie Co. 10.875 01/15/01 660,000 651,750 674,850
H M H Properties, Inc. 8.875 07/15/07 250,000 250,000 263,125
Hosiery Corporation of America 13.750 08/01/02 500,000 493,900 540,000
I C N Pharmaceuticals, Inc. 9.250 08/15/05 350,000 350,000 369,250
International Wire Group, Inc. 11.750 06/01/05 450,000 489,375 492,750
Jordan Industries, Inc. 10.375 08/01/07 300,000 300,000 303,750
Jordan Telecom Products 9.875 08/01/07 1,050,000 1,040,798 1,081,500
Key Plastics, Inc. 14.000 11/15/99 350,000 354,912 381,500
Korea Development Bank 7.250 05/15/06 450,000 415,606 351,630
L-3 Corporation 10.375 05/01/07 400,000 400,000 433,000
</TABLE>
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares,
Yield/ Warrants or Market Value
Interest Due Principal Cost at 12/31/97
Corporate Public Securities: (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Bonds (Continued)
Neenah Corporation 11.125% 05/01/07 $ 250,000 $ 250,000 $ 273,750
Nortek Inc. 9.125 09/01/07 450,000 446,364 453,375
Northwest Airlines Corp. 12.092 12/31/00 340,710 351,783 349,228
Northwest Airlines Corp. 8.970 01/02/15 982,308 982,308 1,099,890
Pierce Leahy Corp. 9.125 07/15/07 75,000 75,000 77,625
Pohang Iron & Steel Company 7.125 11/01/06 350,000 317,961 260,222
Rogers Cantel Inc. 8.300 10/01/07 750,000 747,990 744,375
Scotsman Group, Inc. 8.625 12/15/07 100,000 99,732 100,375
Speedway Motorsports, Inc. 8.500 08/15/07 225,000 224,388 229,500
Spinnaker Industries 10.750 10/15/06 200,000 202,625 204,000
Sun Media Corporation 9.500 05/15/07 75,000 74,404 80,250
Telex Communications, Inc. 10.500 05/01/07 1,250,000 1,261,250 1,231,250
Therma-Wave, Inc. 10.625 05/15/04 370,000 375,625 392,200
Wavetek Corporation 10.125 06/15/07 110,000 110,000 113,850
Williams Scotsman, Inc. 9.875 06/01/07 400,000 400,000 412,000
------------ ------------ ------------
Total Bonds $ 17,983,018 17,971,381 18,299,268
============ ------------ ------------
Common Stock - 6.47%
4Health Inc. (B) $ 6,000 33,375 30,750
American Country Holdings (B) 54,000 188,722 97,848
American Skiing Corp. (B) 15,000 270,000 223,125
AMF Bowling, Inc. (B) 14,400 280,800 360,000
Atlas Air, Inc. (B) 2,600 52,650 62,400
Avis Rent A Car, Inc. (B) 1,650 28,050 52,696
Benson Petroleum, LTD. (B) 100,000 77,204 104,900
Central Rents, Inc. 930 33,722 46,500
Collins & Aikman Corporation (B) 17,400 104,238 150,075
Computer Horizons Corporation (B) 1,200 31,972 54,600
Conning Corporation (B) 12,000 162,000 201,000
Corporate Express 11,789 16 151,780
Dawson Production Services (B) 19,492 245,578 338,673
Decorative Home Accents, Inc. (B) 350 - -
Dril-Quip, Inc. (B) 750 18,000 26,344
Echostar Communications (B) 5,000 97,500 83,750
Edutrek International (B) 750 10,500 19,500
ESG RE Limited (B) 22,800 456,000 535,800
Excalibur Technologies Corp. (B) 10,000 98,656 85,620
Florida Panthers Holdings, Inc. (B) 19,500 373,004 336,375
Florist Transworld Delivery, Inc. (B) 4,687 13,754 46,870
Friendly Ice Cream Corporation (B) 30,000 540,000 348,750
General Chemical Group, Inc. 3,000 77,161 80,250
Herley Industries, Inc. (B) 10,000 120,000 120,620
Hosiery Corporation of America (B) 500 - 35,000
International Home Foods, Inc. (B) 15,000 300,000 420,000
Ivex Packaging Corporation (B) 12,000 192,000 288,000
J. D. Edwards & Company (B) 1,500 34,500 44,250
King World Productions (B) 7,800 380,380 450,450
LCS Industries, Inc. 15,000 234,356 217,500
Marker International (B) 30,000 187,500 120,000
N2K, Inc. (B) 18,000 342,000 263,250
NextLink Communications, Inc. (B) 6,900 117,300 147,053
Petersen Companies, Inc. (B) 1,200 21,000 27,600
</TABLE>
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Shares,
Yield/ Warrants or Market Value
Interest Due Principal Cost at 12/31/97
Corporate Public Securities: (Continued) Rate Date Amount (Note 2B) (Note 2A)
------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Common Stock (Continued)
Princeton Video Image, Inc. (B) $ 30,000 $ 210,000 $ 281,250
Red Roof Inns, Inc. (B) 19,200 272,607 293,990
Republic Industries, Inc. (B) 15,000 368,438 349,680
Staffing Resources, Inc. (B) 45,000 247,500 360,000
USA Floral Products, Inc. (B) 745 9,685 11,734
------------ ------------
Total Common Stock 6,230,168 6,867,983
------------ ------------
Convertible Bonds - 3.54%
Continental Airlines 6.750% 04/15/06 200,000 185,500 338,588
Dura Pharmaceuticals 3.500 07/15/02 315,000 319,219 352,529
Hilton Hotels 5.000 05/15/06 695,000 695,000 773,236
Home Depot, Inc. 3.250 10/01/01 335,000 332,238 440,106
Level One Communications 4.000 09/01/04 140,000 125,825 132,300
Loews Corp. 3.125 09/15/07 600,000 600,000 603,438
Reptron Electronics Inc. 6.750 08/01/04 100,000 100,000 73,875
Savoy Pictures Entertainment 7.000 07/01/03 650,000 505,375 598,812
USA Waste Services, Inc. 4.000 02/01/02 225,000 225,000 248,625
World Color Press, Inc. 6.000 10/01/07 200,000 200,000 192,000
------------ ------------ ------------
Total Convertible Bonds $ 3,460,000 3,288,157 3,753,509
============ ------------ ------------
Convertible Preferred Stock - .13%
Sinclair Broadcasting Group, Inc. (B) 2,500 125,000 143,125
------------ ------------
Total Convertible Preferred Stock 125,000 143,125
------------ ------------
Warrants - .01%
Herley Industries, Inc. (B) 10,000 1,000 16,250
------------ ------------
Total Warrants 1,000 16,250
------------ ------------
Total Corporate Public Securities 27,615,706 29,080,135
------------ ------------
Short-Term Securities:
Commercial Paper - 1.32%
Crown Cork & Seal Company, Inc. 7.204% 1/2/98 $ 250,000 249,950 249,950
Federal Signal Corp. 7.302 1/2/98 1,150,000 1,149,767 1,149,767
------------ ------------ ------------
Total Short-Term Securities $ 1,400,000 1,399,717 1,399,717
============ ------------ ------------
Total Investments-127.12% $127,879,126 134,944,220
============ ------------
Other Assets - 2.39 2,537,527
Liabilities - (29.51) (31,326,162)
------ ------------
Total Net Assets - 100.00% $106,155,585
====== ============
</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.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
INDUSTRY CLASSIFICATION
Fair Value
at 12/31/97
Corporate Restricted Securities: (Note 2A)
-------------
ADVERTISING - .53%
Ammirati & Puris, Inc. $ 88,200
Big Flower Trust 366,438
Omnicom, Inc. 105,375
-------------
560,013
-------------
AUTO PARTS - 1.71%
MW Investors I LLC 1,739,383
Tower Automotive, Inc. 77,866
-------------
1,817,249
-------------
BEVERAGES - 1.71%
Associated Vintage Group, Inc. 1,815,099
-------------
BUILDING MATERIALS - .38%
Highland Homes Holdings, Inc. 401,757
-------------
CHEMICAL - 5.15%
AccTech, LLC 1,790,241
Hatco Corporation 1,750,000
Sovereign Speciality Chemicals 179,813
TACC International Corporation 1,744,583
-------------
5,464,637
-------------
COMMUNICATIONS - 1.61%
Latin Communications Group 442,190
McLeodUSA Incorporated 312,750
Smartalk Teleservices 320,097
Tel-Save 629,298
-------------
1,704,335
-------------
ELECTRICAL EQUIPMENT /
ELECTRONICS - 6.73%
Catalina Lighting, Inc. 350,625
Cirrus Logic, Inc. 1,302,870
Control Devices, Inc. 1,175,458
Intermetrics, Inc. 1,282,306
Nu Horizons Electronics Corp. 758,207
Precision Dynamics, Inc. 2,061,560
Thermo Electron Corporation 217,875
-------------
7,148,901
-------------
ENTERTAINMENT - .76%
Adventure Entertainment Corporation 809,214
-------------
HEALTH CARE - 1.82%
Atria Communities, Inc. 255,937
Berkshire Medical Center, Inc. 445,129
Roche Holdings, Inc. 1,226,925
-------------
1,927,991
-------------
MANUFACTURING - INDUSTRIAL AND
CONSUMER PRODUCTS - 34.24%
AEP Industries, Inc. 770,625
Beta Brands, Inc. 1,805,646
C&K Manufacturing and Sales Company 895,268
Capitol Vial, Inc. 1,713,381
Consumer Product Enterprises, Inc. 1,154,084
Contico International, Inc. 526,850
CUC International, Inc. 750,564
Cymer Inc. 131,472
Doskocil Manufacturing Co., Inc. 209,000
Fleming Acquisition Corporation 17,666
Golden Bear Acquisition Corporation 1,786,543
Hartzell Manufacturing, Inc. 1,675,661
Hein-Werner Corp. 49,323
Hudson River Capital LLC 210,735
Hussey Seating Company 1,708,032
Jackson Products, Inc. 1,483,799
Kappler Safety Group, Inc. 1,749,807
Kellstorm Industries, Inc. 218,928
Mark IV Industries 418,500
Maxtec International Corp. 354,412
Newell Financial Trust 525,000
Pacific Coast Feather Company 1,807,050
PAR Acquisition Corp. 1,230,750
Plastipak Packaging, Inc. 1,809,976
Sequentia, Inc. 1,502,848
Star International, Inc. 602,256
Swing N'Slide Corporation 1,757,536
Trend Plastics, Inc. 2,408,588
Truseal Technologies, Inc. 1,775,976
U.S. Netting, Inc. 1,261,949
U.S. Silica Company 1,726,118
Unidata, Inc. 1,384,437
Unipac Corporation 774,849
Victory Ventures LLC 26,765
Vitex Packaging, Inc. 129,513
-------------
36,353,907
-------------
MISCELLANEOUS - 17.01%
ADV Accessory & AAS CAP 566,375
A.T.-Sentinel, Inc. 61,071
Boyle Leasing Technologies, Inc. 814,560
Climachem, Inc. 257,500
Cuddy International Corp. 705,250
D T Industries 1,095,000
Eagle Pacific Industries, Inc. 1,779,560
Enserch Exploration, Inc. 1,012,500
Halter Marine 82,581
Indah Kiat Pulp & Paper Corporation 581,000
Key Energy Group 428,750
Lloyd's Barbecue Company 1,705,200
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997
INDUSTRY CLASSIFICATION (Continued)
Fair Value
at 12/31/97
Corporate Restricted Securities: (Continued) (Note 2A)
------------
MISCELLANEOUS (Continued)
N2K, Inc. $ 32,817
Paribas Capital Funding LLC 1,740,375
Process Chemicals, LLC 995,811
Protein Genetics, Inc. 659,851
Scovill Fastener, Inc. 357,000
Southern Foods 470,250
T C W Leveraged Income Trust, LP 1,500,000
Tjiwi Kima Fin Mauritius LTD 311,250
United Refining Company 1,473,500
Von Hoffman Press, Inc. 347,750
W R Carpenter North America 569,250
Worldtex, Inc. 512,500
------------
18,059,701
------------
OIL AND GAS SERVICE - 8.02%
BP Prudhoe Bay Royalty Trust 211,864
Chaparral Resources, Inc. 5,535
Hardy Oil & Gas PLC 1,732,492
Louis Dreyfus Natural Gas Corporation 127,627
Maloney Industries, Inc. 1,331,955
Petroliam Nasional Berhad 321,685
PG&E Gas Transmission 223,993
TransMontaigne Oil Company 4,561,841
------------
8,516,992
------------
PUBLISHING - .79%
American Lawyer Media 304,500
Scholastic Corp. 531,750
------------
836,250
------------
RECREATIONAL SUPPLIES / EQUIPMENT - .52%
Coast Distribution System, The 393,699
Family Golf Centers, Inc. 159,480
------------
553,179
------------
RETAILING - 5.85%
Cains Foods, L.P. 1,597,853
Costco Companies, Inc. 351,528
Discount Auto Parts 961,200
Grand Metropolitan PLC 277,944
J. Baker, Inc. 516,034
Pharmaceutical Buyers Inc. 647,589
Rent-Way, Inc. 1,853,468
------------
6,205,616
------------
SERVICES - 11.58%
Amtran, Inc. 522,540
Atlantic Coast Airlines Inc. 783,000
Atlantic Express 371,875
Budget Group, The 1,710,400
Continental Airlines, Inc. 507,882
Diversco, Inc. 1,639,153
Hunton & Williams 141,300
Integrated Health Services 763,125
ITT Publicmedia BV 441,000
Kitty Hawk Inc. 502,500
Piedmont Holding, Inc. 1,345,603
RailTex, Inc. 1,071,372
Tidewater Holdings, Inc. 1,766,016
Unicco Service Co. 275,000
US Air, Inc. 448,761
------------
12,289,527
------------
Total Corporate Restricted
Securities - 98.41% $104,464,368
============
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27
<PAGE>
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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 provide such reports to the Trust at least
quarterly.
The financial statements include restricted securities valued at $104,464,368
(98.41% of net assets) as of December 31, 1997 ($81,145,818 at December 31,
1996) 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, 1997, 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.
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28
<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
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.
4. Senior 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. MassMutual, 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 years ended December 31, 1997 and 1996, the
Trust incurred total interest expense on the Note of $831,600.
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
B. Revolving Credit Agreement
The Trust entered into a $15,000,000 senior floating rate, revolving credit
agreement (the "Revolver") with Fleet National Bank, pursuant to a credit
agreement dated May 29, 1997, with a maturity date of May 31, 2004. Under the
Revolving Credit Agreement, the Trust is subject to certain covenants,
including, but not limited to, restrictions on the total indebtedness of the
Trust, certain restrictions on investments and compliance with certain
financial tests.
The Revolver bears interest at a variable rate. Loans on the Revolver are
charged a rate equal to the Eurodollar rate plus a margin of .40 percent per
annum or the most recent Federal Funds rate plus a margin of .50 percent per
annum. The Trust also incurs interest expense on the undrawn portion of the
total approved credit agreement at a rate of .185 percent per annum.
As of December 31, 1997, there were $10,500,000 in outstanding loans against
the Revolver and the average blended rate of interest charged on the Revolver
was 6.16%. For the period ended December 31, 1997, the Trust incurred total
interest expense on the Revolver of $151,908, including $12,392 related to
the undrawn portion.
5. Purchases and Sales of Investments
For the year For the year
ended 12/31/97 ended 12/31/96
-------------- --------------
Cost of Investments Acquired
----------------------------
Corporate restricted securities $ 74,935,861 $ 37,805,712
Corporate public securities 21,657,390 31,761,606
Short-term securities 203,448,960 341,235,659
Proceeds from Sales or Maturities
---------------------------------
Corporate restricted securities $ 53,756,027 $ 31,185,321
Corporate public securities 29,937,498 35,043,644
Short-term securities 207,075,457 348,655,861
The aggregate cost of investments is the same for financial reporting and
federal income tax purposes as of December 31, 1997. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of December 31, 1997 is $7,065,094 and consists of $13,402,901
appreciation and $6,337,807 depreciation.
The aggregate cost of investments was the same for financial reporting and
federal income tax purposes as of December 31, 1996. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of December 31, 1996 was $6,696,683 and consisted of $11,454,327
appreciation and $4,757,644 depreciation.
6. Quarterly Results of Investment Operations
<TABLE>
<CAPTION>
Per Per
Amount Share Amount Share
------------- --------- ---------- ----------
March 31, 1997 March 31, 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Investment income $ 2,398,479 $ 2,202,678
Net investment income 1,923,676 $ .21 1,734,964 $ .19
Net realized and unrealized gain (loss) on investments 1,504,885 .16 (1,372,604) (.15)
<CAPTION>
June 30, 1997 June 30, 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Investment income 2,461,213 2,197,345
Net investment income 1,959,604 .21 1,717,737 .19
Net realized and unrealized gain on investments 6,702,154 .73 3,482,897 .38
September 30, 1997 September 30, 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Investment income 2,657,346 2,337,018
Net investment income 2,097,193 .23 1,850,896 .20
Net realized and unrealized gain on investments 7,006,521 .76 2,437,629 .27
December 31, 1997 December 31, 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Investment income 2,658,180 2,195,011
Net investment income 2,032,835 .22 1,716,249 .19
Net realized and unrealized loss on investments (4,824,143) (.52) (667,720) (.07)
</TABLE>
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30
<PAGE>
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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 (the "Trust") as of December 31, 1997 and
1996, including the schedule of investments as of December 31, 1997, and the
related statements of operations, cash flows and changes in net assets for each
of the years then ended, and the selected per-share data and ratios for the nine
years in the period ended December 31, 1997 and for the period from October 6,
1988 (inception) to December 31, 1988. These financial statements and selected
per-share data and ratios are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
selected per-share data and ratios 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 selected per-
share data and ratios 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 of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. Securities owned as of December 31, 1997 were also verified by
examination. 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 selected per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of MassMutual Participation Investors as of December 31, 1997 and 1996,
the results of its operations, its cash flows and its changes in its net assets
for the years then ended, and the selected per-share data and ratios for each of
the nine years in the period ended December 31, 1997 and for the period from
October 6, 1988 (inception) to December 31, 1988, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Springfield, Massachusetts
January 30, 1998
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31
<PAGE>
- --------------------------------------------------------------------------------
MEMBERS OF THE BOARD OF TRUSTEES JANUARY 30, 1998
- --------------------------------------------------------------------------------
[PHOTO OF GARY E. WENDLANDT [PHOTO OF RICHARD G. DOOLEY
APPEARS HERE] APPEARS HERE]
Gary E. Wendlandt Richard G. Dooley
Executive Vice President Retired Executive Vice President
and Chief Investment Officer, and Chief Investment Officer,
Massachusetts Mutual Massachusetts Mutual
Life Insurance Company Life Insurance Company
[PHOTO OF DONALD E. BENSON [PHOTO OF MARSHALL D. BUTLER [PHOTO OF MILTON
APPEARS HERE] APPEARS HERE] COOPER APPEARS HERE]
Donald E. Benson* Marshall D. Butler Milton Cooper
Executive Vice President Chairman, Chairman,
and Director, Nitzanim AVX Kyocera Kimco Realty Corp.
Marquette Bancshares Inc. Venture Capital Fund
[PHOTO OF SUMNER L. FELDBERG [PHOTO OF DONALD GLICKMAN
APPEARS HERE] APPEARS HERE]
Sumner L. Feldberg Donald Glickman
Retired Chairman of the Board, Chairman,
Waban, Inc. Donald Glickman & Company, Inc.
[PHOTO OF MARTIN T. HART [PHOTO OF JACK A. LAUGHERY
APPEARS HERE] APPEARS HERE]
Martin T. Hart* Jack A. Laughery
President and Director, Chairman,
H Corporation Papa John's New England
*Member of the Audit Committee
<PAGE>
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www.massmutual.com/mpv
- --------------------------------------------------------------------------------
Officers
Gary E. Wendlandt
Chairman
Richard G. Dooley
Vice Chairman
Stuart H. Reese
President
Robert E. Joyal
Senior Vice President
Hamline C. Wilson
Vice President &
Chief Financial Officer
Stephen L. Kuhn
Vice President &
Secretary
John B. Joyce
Vice President
Charles C. McCobb, Jr.
Vice President
Richard C. Morrison
Vice President
Clifford M. Noreen
Vice President
Mary E. Wilson
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.
[LOGO OF MASSMUTUAL APPEARS HERE]
<PAGE>
[LOGO OF MASSMUTUAL PARTICIPATION INVESTORS APPEARS HERE]
MassMutual Participation Investors
