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Previous: CONNECT INC, 8-A12G/A, 1998-08-28 |
Next: INSURED MUNICIPALS INCOME TRUST 48TH INSURED MULTI SERIES, 497J, 1998-08-28 |
<PAGE>
TO OUR SHAREHOLDERS JULY 31, 1998
We are pleased to present MassMutual Participation Investors' report for the
first six months of 1998.
The net assets of the Trust continued their upward trend increasing to $12.21
per share at June 30, 1998 from $12.02 per share at March 31, 1998. The total
return for the Trust for the quarter was 3.64%, and 8.13% year-to-date, as
measured by change in net assets with reinvestment of dividends. By comparison,
the S&P Industrial Stock Index and the Lehman Government/Corporate Bond Index
were up 3.56% and 2.61%, respectively, for the quarter and 18.81% and 4.17%,
respectively, for the six months ended June 30, 1998.
Net investment income for the second quarter was $2,186,277 or 23.6 cents per
share compared to $2,261,923 or 24.5 cents per share a quarter ago. It should be
noted that we paid $7.7 million in dividends and taxes on our long-term gains
during the first quarter - money which, until paid, was sitting in income
generating investments. The second quarter's results did not benefit from the
temporarily high asset levels of the first quarter. A quarterly dividend of $.24
per share was declared and is payable on August 14, 1998 to shareholders of
record on July 31, 1998. A dividend of $.24 was paid a quarter ago.
In our private placement portfolio, there were several noteworthy events that
occurred during the quarter. Jackson Products Inc., a private placement
investment made in 1995, prepaid its notes and preferred stock at a premium,
returning more than our entire original investment, and left us with all our
equity upside. In 1996, we made an investment in convertible subordinated notes
of The Budget Group. The company converted our notes in June, and gave us
additional shares in lieu of a prepayment premium. These shares became freely
tradable as of July 17, 1998 and represent a substantial unrealized capital gain
for the Trust. In October of 1997, our convertible subordinated notes of
Rent-Way were converted into common stock. The common stock was fully registered
but the Fund was subject to a Lock-Up Agreement, which has now expired making
the stock freely tradable. These events in the portfolio illustrate how the Fund
is able to add value from its private placement investments by offering
opportunity for capital gains.
New private placement investments made during the quarter included Dealer
Solutions Holdings Inc., Grand Lyon Enterprises LLC, an add-on position in
Golden Bear Oil Specialty and Tridex Corporation. These investments have a
weighted average coupon of 12% on their fixed income components. (A brief
description of these investments is provided in the Schedule of Investments.)
We realized net capital gains of over $1.1 million (or $.12 per share) during
the quarter. Nearly $585 thousand of these gains is attributable to the sale of
securities from our public investments. This brings our year-to-date capital
gains to over $3.6 million (or $.39 per share.) Of the $.39 per share, $.27 per
share represents net short-term gains which, if not offset, must be distributed
to shareholders each year.
The Trustees and management appreciate the continued interest and support of the
shareholders of Participation Investors.
Sincerely,
/s/ Stuart H. Reese
Stuart H. Reese
President
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES MASSMUTUAL PARTICIPATION INVESTORS
June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Investments (Notes 2A, 2B and 5)
(See Schedule of Investments)
Corporate restricted securities at fair value
(Cost 1998 - $93,117,763; 1997 - $64,888,418) $ 98,303,910 $ 97,984,382
Corporate public securities at market value
(Cost 1998 - $30,296,545; 1997 - $25,636,565) 32,785,630 19,661,880
Short-term securities at cost plus earned discount which
approximates market value 3,097,763 1,057,938
------------ ------------
134,187,303 118,704,200
Cash 249,187 1,261,202
Interest and dividends receivable, net 2,367,715 1,935,383
Receivable for investments sold 429,202 458,366
Unamortized bond issuance costs -- 12,277
Other assets 8,085 8,085
------------ ------------
Total assets $137,241,492 $122,379,513
============ ============
Liabilities:
Payable for investments purchased $ 1,058,606 $ 2,441,087
Management fee payable (Note 3) 254,418 241,652
Note payable (Note 4A) 12,000,000 12,000,000
Revolving Credit Agreement (Note 4B) 10,500,000 --
Interest payable (Notes 4A and 4B) 251,348 171,016
Accrued expenses 102,336 124,913
------------ ------------
Total liabilities 24,166,708 14,978,668
------------ ------------
Net Assets:
Shares of beneficial interest, par value $.01 per share;
an unlimited number authorized 92,572 92,167
Additional paid-in capital 85,371,053 84,895,820
Retained net realized gain on investments, prior years 13,703,839 5,423,509
Undistributed net investment income (Note 2D) 2,632,773 2,047,172
Undistributed net realized gain on investments 3,599,315 9,560,548
Net unrealized appreciation of investments (Notes 2A, 2B and 5) 7,675,232 5,381,629
------------ ------------
Total net assets 113,074,784 107,400,845
------------ ------------
Total liabilities and net assets $137,241,492 $122,379,513
=========== ============
Shares of beneficial interest issued and outstanding 9,257,181 9,216,665
============ ============
Net asset value per share $ 12.21 $ 11.65
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
2
<PAGE>
STATEMENT OF OPERATIONS MASSMUTUAL PARTICIPATION INVESTORS
For the six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investment Income (Note 2B):
Interest $ 5,615,099 $ 4,740,289
Dividends 188,956 119,403
------------ ------------
Total income 5,804,055 4,859,692
------------ ------------
Expenses:
Management fee (Note 3) 504,471 467,962
Trustees' fees and expenses 41,595 29,209
Transfer Agent/Registrar's expenses 28,755 20,947
Custodian's fees 3,000 --
Interest (Notes 4A and 4B) 738,951 418,309
Reports to shareholders 6,000 7,000
Audit and legal 20,640 19,640
Bond issuance cost -- 223
Other 12,443 13,122
------------ ------------
Total expenses 1,355,855 976,412
------------ ------------
Net investment income (1998 - $.24 per share; 1997 - $.21 per share) 4,448,200 3,883,280
------------ ------------
Net realized and unrealized gain (loss) on investments (Notes 2A and 2B):
Net realized gain on investments 3,603,354 9,522,093
Net change in unrealized appreciation of investments 610,138 (1,315,054)
------------ ------------
Net gain on investments 4,213,492 8,207,039
Net increase in net assets resulting from operations $ 8,661,692 $ 12,090,319
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
3
<PAGE>
STATEMENT OF CASH FLOWS MASSMUTUAL PARTICIPATION
For the six months ended June 30, 1998 and 1997 INVESTORS
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash:
Cash flows from operating activities:
Interest and dividends received $ 5,614,553 $ 4,247,979
Interest expense paid (710,424) (418,233)
Operating expenses paid (710,353) (567,429)
Federal income tax paid (4,458,639) (2,606,720)
------------ ------------
Net cash (used for) provided by operating activities (264,863) 655,597
------------ ------------
Cash flows from investing activities:
Change in short-term portfolio securities, net (1,647,184) 3,943,475
Purchase of portfolio securities (31,523,938) (44,005,372)
Proceeds from disposition of portfolio securities 38,959,323 46,297,754
------------ ------------
Net cash provided by investing activities 5,788,201 6,235,857
------------ ------------
Net cash provided by operating and investing activities 5,523,338 6,891,454
------------ ------------
Cash flows from financing activities:
Cash received for shares issued on reinvestment of dividends 475,637 --
Cash dividends paid from net investment income (4,067,914) (3,737,204)
Cash dividends paid from net realized gain on investments (1,744,715) (1,884,962)
Cash paid for issuance of debt -- (12,500)
------------ ------------
Net cash used for financing activities (5,336,992) (5,634,666)
------------ ------------
Net increase in cash 186,346 1,256,788
Cash - beginning of year 62,841 4,414
------------ ------------
Cash - end of period $ 249,187 $ 1,261,202
============ ============
Reconciliation of net increase (decrease) in net assets to net cash from
operating and investing activities:
Net increase in net assets resulting from operations $ 8,661,692 $ 12,090,319
------------ ------------
(Increase) decrease in investments 756,917 (7,997,689)
(Increase) decrease in interest and dividends receivable, net 22,639 (394,944)
(Increase) decrease in receivable for investments sold (344,870) 3,511,736
Increase in other assets (8,085) (8,085)
Increase in payable for investments purchased 958,606 2,306,087
Increase in management fee payable 15,568 23,056
Increase in interest payable 28,527 76
Increase in amortized bond issuance costs -- 223
Decrease in accrued expenses (109,017) (32,605)
Decrease in accrued taxes (4,458,639) (2,606,720)
------------ ------------
Total adjustments to net assets from operations (3,138,354) (5,198,865)
------------ ------------
Net cash provided by operating and investing activities $ 5,523,338 $ 6,891,454
============ ============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
4
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS MASSMUTUAL PARTICIPATION
For the six months ended June 30, 1998 and 1997 INVESTORS
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,448,200 $ 3,883,280
Net realized gain on investments 3,603,354 9,522,093
Net change in unrealized appreciation of investments 610,138 (1,315,054)
------------- -------------
Net increase in net assets resulting from operations 8,661,692 12,090,319
Increase in receipts for shares issued on reinvestment of dividends 475,637 --
Dividends to shareholders from:
Net investment income (1998-$.24 per share; 1997-$.20 per share) (2,218,130) (1,843,333)
------------- -------------
Total increase 6,919,199 10,246,986
Net Assets, beginning of year 106,155,585 97,153,859
------------- -------------
Net Assets, end of period (including undistributed net investment
income in 1998 - $2,632,773; 1997 - $2,047,172) $ 113,074,784 $ 107,400,845
============= =============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
5
<PAGE>
SELECTED PER SHARE DATA MASSMUTUAL PARTICIPATION INVESTORS
Selected data for each share of beneficial
interest outstanding for the periods ended:
<TABLE>
<CAPTION>
For the
six months For the
ended 6/30/98 year ended
(Unaudited) 12/31/97
------------- ----------
<S> <C> <C>
Net asset value:
Beginning of year $ 11.52 $ 10.54
---------- ----------
Net investment income .48 .87
Net realized and unrealized gain on investments .45 1.13
---------- ----------
Total from investment operations .93 2.00
---------- ----------
Dividends from net investment income to common shareholders (.24) (.83)
Distributions from net realized gain on investments common shareholders -- (.19)
---------- ----------
Total distributions (.24) (1.02)
---------- ----------
Net asset value:
End of period $ 12.21 $ 11.52
========== ==========
Per share market value:
End of period $ 12.38 $ 11.63
========== ==========
Total investment return:
Market value 8.54%(*) 43.05%
Net asset value 8.13%(*) 24.10%
Net assets (in millions):
End of period $ 113.07 $ 106.16
Ratio of operating expenses to average net assets .56%* 1.12%
Ratio of interest expenses to average net assets .67%* .93%
Ratio of expenses to average net assets 1.23%* 2.05%
Ratio of net investment income to average net assets 4.06%* 7.59%
Portfolio turnover 25.04%* 70.88%
</TABLE>
*Percentages represent results for the period and are not annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6
<PAGE>
SCHEDULE OF INVESTMENTS MASSMUTUAL PARTICIPATION INVESTORS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities - 86.94%: (A) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Private Placement Investments - 75.84%
AccTech, LLC
A designer and marketer of specialized cleaning
products.
Senior Floating Rate Revolving Credit Note $ 406,260 10/31/96 $ 406,260 $ 406,260 $ 225,881
due 2002
Senior Secured Series A Floating Rate Note $ 357,694 10/31/96 352,333 357,694 198,878
due 2002
10.1% Senior Secured Series A Note due 2002 $ 509,544 10/31/96 496,500 509,544 367,585
12% Senior Secured Series B Note due 2004 $ 549,000 10/31/96 577,603 502,562 394,951
Membership Interests (B) 2 int. 10/31/96 131,756 114,271 82,347
Warrant, exercisable until 2004, to purchase 1 int. 10/31/96 -- 54,900 --
Membership Interests at $.01 per interest (B)
------------ ------------ ------------
1,964,452 1,945,231 1,269,642
------------ ------------ ------------
Adventure Entertainment Corporation
An owner and operator of themed family
entertainment centers
7% Redeemable Series B Preferred Stock 858 shs. 10/31/97 83,585 845,135 844,204
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)
------------ ------------ ------------
83,617 857,630 844,236
------------ ------------ ------------
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 85,408
------------ ------------ ------------
Ardent Software, Inc. - O.T.C
A manufacturer and distributor of database
management software
Common Stock (B) 41,885 shs. 12/14/95 125,655 343,375 460,735
------------ ------------ ------------
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 1,592,009 1,718,359
Common Stock (B) 15,675 shs. 3/19/97 61,875 82,500 61,876
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 1,761,182 1,827,279
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Averstar, Inc.
A provider of software systems, services and products
to a variety of information technology users.
Senior Floating Rate Revolving Term Note $ 646,089 8/31/95 $ 646,089 $ 646,089 $ 646,089
due 2002
Senior Secured Floating Rate Note due 2001 $ 1,100,000 2/27/98 1,090,320 1,100,000 1,091,310
13% Senior Subordinated Note due 2002 $ 399,659 8/31/95 4,068 362,021 423,279
Class A Common Stock (B) 6,726 shs. 8/31/95 6,895 9,192 833
Class B Common Stock (B) 18,600 shs. 8/31/95 19,087 25,418 2,303
Class G Common Stock (B) 48,423 shs. 8/31/95 1,059 52,000 5,995
Class A Common Stock of I E S Holdings (B) 1,471 shs. 2/27/98 -- -- --
Class B Common Stock of I E S Holdings (B) 4,067 shs. 2/27/98 -- -- --
Warrants of I E S Holdings (B) 10,588 shs. 2/27/98 -- -- --
---------- ---------- ----------
1,767,518 2,194,720 2,169,809
---------- ---------- ----------
Berkshire Medical Center, Inc.
A non-profit, regional acute care hospital
10.5% Senior Note due 1999 $ 430,909 5/15/89 430,909 430,909 440,432
---------- ---------- ----------
Beta Brands, Inc. - T.S.E
A manufacturer of hard candy and chocolate-coated
products sold primarily to the Canadian market
Senior Secured Tranche A Floating Rate $ 1,147,000 12/23/97 1,136,906 1,147,000 1,137,595
Note due 2004
14.75% Senior Secured Tranche B Note $ 332,255 12/23/97 345,545 332,255 345,545
due 2005
Limited Partnership Interests of CM Equity 405,584 int. 12/22/97 324,467 405,584 324,467
Partners (B)
Warrant, exercisable until 2005, to purchase 107,267 shs. 12/23/97 1,073 -- 1,073
common stock at $.81 per share (B)
---------- ---------- ----------
1,807,991 1,884,839 1,808,680
---------- ---------- ----------
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 8/16/94 719,776 778,880 824,960
---------- ---------- ----------
Budget Group, The - O.T.C
An operator of Budget Rent-A-Car franchises, retail
used car sales facilities and van pool territories
Common Stock 53,823 shs. 12/18/96 899,220 1,120,637 1,632,990
---------- ---------- ----------
C&K Manufacturing and Sales Company
A manufacturer and distributor of branded packaging
and supply products
Senior Secured Floating Rate Revolving $ 325,850 8/29/96 325,850 325,850 162,925
Credit Facility due 2002
Senior Secured Series A Floating Rate Term $ 1,172,085 8/29/96 1,159,544 1,172,085 586,043
Note due 2002
12% Series B Term Note due 2004 $ 266,000 8/29/96 261,877 254,679 133,000
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 -- 13,300 --
Membership Interests at $.01 per interest (B)
---------- ---------- ----------
1,853,671 1,864,285 895,268
---------- ---------- ----------
</TABLE>
- -------------------------------------------------------------------------------
8
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
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.
10% Senior Secured Term Note due 2004 $ 756,756 9/29/95 $ 756,756 $ 756,756 $ 764,399
11.5% Senior Subordinated Note due 2004 $ 472,975 9/29/95 447,855 453,983 483,380
8% Junior Subordinated Convertible Note $ 54,054 9/29/95 54,054 54,054 67,043
due 2004, convertible into partnership points
at $1,388.89 per point
Warrant, exercisable until 2006, to purchase 19 pts. 9/29/95 25,130 25,130 31,428
partnership points at $.01 per point (B)
---------- ---------- ----------
1,283,795 1,289,923 1,346,250
---------- ---------- ----------
Capitol Vial, Inc.
A producer of plastic vial containers
19% Senior Subordinated Note due 2004 $ 1,802,894 12/30/97 1,765,033 1,802,894 1,778,915
Common Stock (B) 33 shs. 12/30/97 131 164 131
---------- ---------- ----------
1,765,164 1,803,058 1,779,046
---------- ---------- ----------
Catalina Lighting, Inc. - N.Y.S.E
A designer, importer and distributor of residential and
office lighting fixtures
8% Convertible Subordinated Note due $ 375,000 3/31/94 355,012 375,000 334,013
2002, 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 3,736
Cirrus Logic, Inc. - O.T.C
A designer and manufacturer of integrated circuits
10.22% Secured Leverage Lease Notes $ 622,578 11/1/96 608,757 622,578 617,597
due 2002
10.14% Secured Leverage Lease Notes $ 660,580 11/1/96 640,318 660,580 652,389
due 2004
---------- ---------- ----------
1,249,075 1,283,158 1,269,986
---------- ---------- ----------
Coast Distribution System, The - A.S.E
A wholesale distributor of recreational vehicle and
marine parts and accessories
11.2% Senior Subordinated Secured Note $ 233,500 6/26/89 240,949 233,500 208,375
due 1999 ---------- ---------- ----------
Consumer Product Enterprises, Inc.
A manufacturer of colored acrylic felt for
consumer use
10.75% Senior Secured Term Note due 2003 $ 607,103 12/8/95 613,386 607,103 611,534
12% Senior Subordinated Note due 2005 $ 400,287 12/8/95 401,929 381,546 403,450
Common Stock (B) 92,280 shs. 12/8/95 69,210 92,280 69,210
Warrant, exercisable until 2005, to purchase 69,210 shs. 12/8/95 692 25,426 692
common stock at $.01 per share (B)
---------- ---------- ----------
1,085,217 1,106,355 1,084,886
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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 $ 525,650
---------- ---------- ----------
Control Devices, Inc. - O.T.C
A producer of high quality electromechanical circuit
protector devices and
photo-optic sensors
Common Stock (B) 96,666 shs. * 14,562 8,737 1,193,825
---------- ---------- ----------
Dealer Solutions Holdings, Inc.
A vertical application software company
Convertible Preferred Stock (B) 111,111 shs. 5/12/98 200,000 250,000 200,000
Warrants, to purchase common
stock at $.01 per share (B) 21,556 shs. 5/12/98 -- -- 216
---------- ---------- ----------
200,000 250,000 200,216
---------- ---------- ----------
Discount Auto Parts A retailer of auto parts
9.8% Senior Secured Note due 2003 $ 750,000 11/2/89 724,575 750,000 800,250
---------- ---------- ----------
Diversco, Inc./DHI Holdings, Inc.
A contract provider of janitorial and equipment
maintenance services and temporary production
labor to industrial customers
Senior Floating Rate Term Note due 2002 $ 202,172 10/24/96 200,939 202,172 201,343
10.16% Senior Term Note due 2002 $ 606,516 10/24/96 607,243 606,516 621,133
12% Senior Subordinated Note due 2003 $ 624,000 10/24/96 638,414 563,416 665,933
Membership Interests of MM/Lincap Diversco 1,491 int. 10/24/96 111,821 149,095 111,821
Investments LTD., LLC (B)
Warrant, exercisable to 2003, to purchase 896 shs. 10/24/96 9 73,745 9
common stock of DHI Holdings, Inc.
at $.01 per share (B)
---------- ---------- ----------
1,558,426 1,594,944 1,600,239
---------- ---------- ----------
Eagle Pacific Industries, Inc. - O.T.C
An extruder of small and medium diameter plastic pipe
and tubing in the United States
8% Redeemable Convertible Preferred Stock, 1,700 shs. 5/9/97 1,692,860 1,700,000 1,750,830
---------- ---------- ----------
convertible into common stock at $4.26 per share
</TABLE>
*7/29/94 and 10/8/96.
- --------------------------------------------------------------------------------
10
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities:(A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Evans Consoles, Inc.
A designer and manufacturer of consoles and
control center systems.
Senior Secured Floating Rate $ 50,000 4/23/98 $ 50,000 $ 50,000 $ 50,000
Revolving Credit Facility due 2005
Senior Secured Tranche A Floating Rate $ 640,000 3/2/98 635,136 640,000 635,328
Note due 2005
8.85% Senior Secured Tranche A Note $ 640,000 3/2/98 596,096 640,000 604,992
due 2005
11.75% Senior Secured Tranche B Note $ 350,000 3/2/98 371,875 295,158 376,635
due 2006
Common Stock (B) 13,524 shs. 2/11/98 38,000 47,691 38,000
Limited Partnership Interests of CM Equity 635 int. 2/11/98 50,820 63,525 50,820
Partners (B)
Warrant, exercisable until 2006, to purchase 17,391 shs. 3/2/98 174 56,000 174
common stock at $.01 per share (B)
---------- ----------- -----------
1,742,101 1,792,374 1,755,949
---------- ----------- -----------
Fleming Acquisition Corporation
A supplier of high-quality, premium printed labels for
distilled spirits, wine, food and household products
Common Stock (B) 270 shs. 4/28/95 609,908 135,000 13,867
Warrant, exercisable until 2005, to purchase 190 shs. 4/28/95 49,116 85,226 9,750
common stock at $.01 per share (B)
Incentive Warrant, exercisable from 1998 10 shs. 4/28/95 1,671 1,136 493
until 2000, to purchase common stock at $.01
per share (B)
---------- ----------- -----------
660,695 221,362 24,110
---------- ----------- -----------
Golden Bear Oil Specialties
A manufacturer of asphalt and specialty lubricating
and processing oils.
17% Senior Subordinated Note due 2005 $ 1,587,120 7/18/97 1,602,356 1,554,535 1,577,439
12% Series A Convertible Preferred Stock 126 shs. 6/19/98 121,723 125,884 122,015
12% Preferred Stock 156 shs. 7/18/97 15,746 155,556 80,378
Common Stock (B) 10,400 shs. * 41 38,920 104
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)
---------- ----------- -----------
1,740,069 1,909,905 1,780,139
---------- ----------- -----------
Grand Lyon Enterprises LLC
A manufacturer and marketer of Grand Lyon Bordeaux Ketchup.
Limited Liability Interests (B) 1,102 int. 5/15/98 99,157 110,174 99,157
---------- ----------- -----------
</TABLE>
*7/18/97 and 6/19/98.
- --------------------------------------------------------------------------------
11
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
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 $1,567,650
---------- ---------- ----------
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 1,170,869 1,340,281
Common Stock (B) 35,322 shs. 4/18/97 299,165 398,889 299,165
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 1,727,330 1,641,115
---------- ---------- ----------
Hatco Corporation
A specialty chemical company focused on the
production of industrial synthetic lubricants and
plasticizers.
Senior Secured Floating Rate Term Loan $ 1,750,000 1/31/97 1,739,675 1,750,000 1,750,000
due 2003 ---------- ---------- ----------
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 11/18/93 371,288 369,883 387,225
---------- ---------- ----------
Hudson River Capital, LLC
Acquires controlling or substantial interests in
manufacturing and marketing entities.
Series A Preferred Units (B) 22,183 uts. 7/21/94 196,827 176,556 210,735
---------- ---------- ----------
Hunton & Williams
A major law firm in Richmond, Virginia.
9.84% Senior Secured Note due 2000 $ 90,875 12/21/90 89,356 90,875 94,028
---------- ---------- ----------
Hussey Seating Company
A manufacturer of spectator seating products.
Senior Secured Floating Rate Revolving $ 225,000 6/12/96 222,795 225,000 225,000
Note due 2003
Senior Secured Floating Rate Note due 2003 $ 356,250 6/12/96 352,723 356,250 356,250
10% Senior Secured Note due 2003 $ 356,250 6/12/96 346,845 356,250 355,787
12% Subordinated Secured Note due 2006 $ 675,000 6/12/96 663,660 577,768 724,343
Warrant, exercisable until 2006, to purchase 1,776 shs. 6/12/96 18 112,500 188,771
common stock at $.01 per share (B)
---------- ---------- ----------
1,586,041 1,627,768 1,850,151
---------- ---------- ----------
J. Baker, Inc. - O.T.C.
A wholesaler and retailer of shoes.
12.46% Senior Subordinated Note due 1999 $ 300,000 6/21/89 299,220 300,000 273,120
Warrant, exercisable until 1999, to purchase $ 27,355 6/21/89 2,736 73,285 274
common stock at $18.80 per share (B)
---------- ---------- ----------
301,956 373,285 273,394
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Jackson Products, Inc.
Manufactures and distributes a variety of industrial
and highway safety products.
Common Stock (B) 217 shs. 8/16/95 $ 21,702 $ 21,702 $ 89,065
Warrant, exercisable until 2005, to purchase 999 shs. 8/16/95 99,838 99,866 410,060
common stock at $.01 per share (B)
-------------- ----------- ----------
121,540 121,568 499,125
-------------- ----------- ----------
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 1,532,218 1,721,844
Warrant, exercisable until 2004, to purchase 28,717 shs. 12/2/96 28,717 166,700 52,150
common stock at $.01 per share (B)
-------------- ----------- ----------
1,721,222 1,698,918 1,773,994
-------------- ----------- ----------
Latin Communications Group
An operator of Spanish-language media in
North America.
5% Subordinated Note due 2005 $ 23,297 2/4/98 16,308 16,583 16,555
Common Stock (B) 44,918 shs. * 319,444 413,242 449,180
-------------- ----------- ----------
335,752 429,825 465,735
-------------- ----------- ----------
Lloyd's Barbecue Company
A manufacturer and marketer of packaged barbecue
meats and related products.
18% Senior Subordinated Note due 2006 $ 838,162 9/30/97 838,162 838,163 888,452
Membership Interests of LPPI Mainstreet (B) 9,362 uts. 9/30/97 936,250 936,372 842,625
-------------- ----------- ----------
1,774,412 1,774,535 1,731,077
-------------- ----------- ----------
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 19,356 140,406
common stock at $17.81 per share (B) -------------- ----------- ----------
Maloney Industries, Inc.
Engineers and manufactures process systems for
the oil and gas industry.
13% Subordinated Note due 2004 $ 1,012,500 10/26/95 1,189,125 1,012,500 1,104,941
Limited Partnership Interests (B) 284 uts. 10/20/95 253,125 338,915 306,554
Warrant, exercisable until 2004, to purchase 148 uts. 10/26/95 148 -- 160,130
Limited Partnership Interests at $.01 per unit (B)
-------------- ----------- ----------
1,442,398 1,351,415 1,571,625
-------------- ----------- ----------
</TABLE>
*2/14/95, 12/1/95, 2/27/96 and 2/4/98.
- --------------------------------------------------------------------------------
13
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C>
Maxtec International Corp.
A manufacturer and distributor of precision test
and measurement equipment and overhead crane
control systems.
Senior Floating Rate Revolving Credit $ 230,769 6/28/95 $ 230,769 $ 230,769 $ 230,769
Facility due 2001
Common Stock (B) 38,462 shs. 6/28/95 96,059 115,386 103,848
Warrant, exercisable from 1998 until 2005, to 19,795 shs. 6/28/95 49,325 85,714 19,795
purchase common stock at $.01 per share (B)
---------- ---------- ----------
376,153 431,869 354,412
---------- ---------- ----------
MW Investors I LLC
A structured investment relying on Tenneco, Inc.,
whose business includes natural gas, auto parts and
packaging.
Floating Rate Subordinated Note due 2007 $ 1,685,250 12/29/97 1,685,250 1,685,250 1,662,162
Membership Interest (B) 2,590 int. 12/29/97 28,208 62,280 64,750
---------- ---------- ----------
1,713,458 1,747,530 1,726,912
---------- ---------- ----------
N2K, Inc. - O.T.C.
A music entertainment company which uses the
internet as a global platform for the promoting and
merchandising of music and related merchandise.
Warrant, exercisable until 2004, to purchase 13,889 shs. 8/6/97 139 -- 95,313
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 8/31/94 712,959 705,900 760,325
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 1,816,325
---------- ---------- ----------
PAR Acquisition Corp.
A manufacturer of fuel handling systems for nuclear
power plants and hazardous waste.
14.5% Senior Subordinated Note due 2000 $ 629,166 2/5/93 628,160 629,166 629,166
8% Convertible Preferred Stock due 2001, 83,333 shs. 2/5/93 166,667 166,667 293,333
convertible into common stock at $2 per share
Common Stock (B) 133,333 shs. 2/5/93 333,333 333,333 469,333
---------- ---------- ----------
1,128,160 1,129,166 1,391,832
---------- ---------- ----------
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 1,740,550
---------- ---------- ----------
</TABLE>
*12/20/96, 3/20/97 and 6/20/97
- --------------------------------------------------------------------------------
14
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PG+E Gas Transmission
An owner and operator of a specialized petroleum
refinery and engages in petroleum product marketing
operations.
10.58% Series A Senior Note due 2000 $ 214,286 12/20/90 $ 217,858 $ 214,286 $ 217,843
---------- ---------- ----------
Pharmaceutical Buyers, Inc.
A group purchasing organization which specializes in
arranging and negotiating contracts for the purchase
of pharmaceutical goods and medical equipment.
10.5% Senior Secured Note due 2005 $ 362,812 11/30/95 378,087 362,813 381,896
10.5% Senior Secured Convertible Note due $ 97,500 11/30/95 102,668 97,500 112,008
2005, convertible into common stock at
$50,000 per share
Common Stock 3 shs. 11/30/95 113,906 169,000 100,401
---------- ---------- ----------
594,661 629,313 594,305
---------- ---------- ----------
Piedmont Holding, Inc.
A general aviation fixed based operator with repair,
maintenance and overhaul certification.
12% Senior Subordinated Note due 2001 $ 746,433 7/15/92 752,554 746,433 746,433
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 1,887 230,214
Warrant, exercisable until 2001, to purchase 2,521 shs. 7/15/92 1,613 -- 307,562
common stock at $.05 per share (B)
---------- ---------- ----------
896,433 889,303 1,425,192
---------- ---------- ----------
Plastipak Packaging, Inc.
A manufacturer of plastic containers.
10.64% Senior Subordinated Note due 2006 $1,750,000 10/25/96 1,701,875 1,710,916 1,793,225
Warrant, exercisable until 2006, to purchase 49 shs. 10/25/96 27,799 46,812 36,071
common stock at $.01 per share (B)
---------- ---------- ----------
1,729,674 1,757,728 1,829,296
---------- ---------- ----------
Playcore, Inc. - 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 1,254,189 1,410,781
Limited Partnership Interests of Green Grass 40,774 uts. 3/13/97 146,786 208,866 146,786
Capital II, LLC (B)
Warrant, exercisable until 2005, to purchase 74,022 uts. 3/13/97 265,887 340,361 265,887
Limited Partnership Interests of Green Grass
Capital II, LLC at $.01 per unit (B)
---------- ---------- ----------
1,705,173 1,803,416 1,823,454
---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
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 $ 301,550 7/22/96 $ 298,565 $ 301,550 $ 299,198
Credit Facility due 2003
Senior Secured Floating Rate Term Note due 2003 $ 1,336,600 7/22/96 1,323,501 1,336,600 1,327,511
12% Senior Secured Term Note due 2004 $ 244,500 7/22/96 241,273 202,961 254,476
8% Preferred Stock 116 shs. 7/22/96 110,120 115,911 96,503
Common Stock (B) 299 shs. 7/22/96 10,849 14,489 9,953
Warrant, exercisable until 2004, to purchase 162 shs. 7/22/96 2 49,000 5,368
common stock at $.01 per share (B) -------------- ---------- ----------
1,984,310 2,020,511 1,993,009
-------------- ---------- ----------
Process Chemicals, LLC
A platform company used by C3 Chemical Ventures
to acquire specialty chemical and mineral companies.
6% Redeemable Preferred Membership Interests 10,000 int. 7/31/97 983,800 975,419 1,008,000
Common Membership Interests (B) 4 int. 7/31/97 11 12 11
------------- ---------- ----------
983,811 975,431 1,008,011
------------- ---------- ----------
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 8/12/94 394,720 400,000 285,240
11.51% Junior Secured Note due 1999 $ 200,000 8/12/94 195,760 200,000 170,100
9.8% Redeemable Exchangeable Preferred Stock 3,333 shs. 8/12/94 282,633 333,333 126,633
Common Stock (B) 497 shs. 8/12/94 5 -- 750
------------- ---------- ----------
873,118 933,333 582,723
------------- ---------- ----------
RailTex, Inc. - O.T.C.
An operator of short-line railroads in the Midwest,
West and Canada.
12% Senior Subordinated Note due 2002 $ 750,000 2/16/93 799,575 750,000 819,525
Common Stock (B) 17,750 shs. 2/16/93 170,400 170,400 223,428
-------------- ---------- ----------
969,975 920,400 1,042,953
------------- ---------- ----------
Rent-Way, Inc. - O.T.C.
Operates rent-to-own stores in Ohio, Pennsylvania
and New York.
Warrant, exercisable until 2002, to purchase 10,000 shs. 7/18/95 100 -- 198,765
common stock at $9.94 per share (B) ------------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
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 $ 948,199 $ 1,140,700
Limited Partnership Interests of KS 3,593 uts. 12/14/95 269,475 359,371 1,077,900
Holdings, L.P. (B)
Warrant, exercisable until 2004, to purchase 2,725 uts. 12/14/95 2,725 239,547 817,500
Limited Partnership Interests of KS
Holdings, L.P. at $.01 per unit (B)
----------- ---------- ------------
1,481,342 1,547,117 3,036,100
----------- ---------- ------------
Star International Holdings, Inc.
A manufacturer of commercial cooking appliances.
9.65% Senior Secured Note due 2004 $ 338,059 5/27/94 338,059 338,059 344,245
10.5% Subordinated Note due 2004 $ 179,104 5/27/94 179,104 179,104 181,128
Common Stock (B) 1,077 shs. 5/27/94 64,904 64,904 37,280
Warrant, exercisable until 2004, to purchase 806 shs. 5/27/94 8 -- 27,892
common stock at $.01 per share (B)
----------- ---------- ------------
582,075 582,067 590,545
----------- ---------- ------------
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 8/8/97 849,538 855,027 877,100
8% Convertible Redeemable Preferred Stock 4,122 shs. 8/8/97 399,298 875,000 885,781
Warrant, exercisable until 2005, to purchase 780 shs. 8/8/97 8 21,949 8
common stock at $.01 per share (B)
----------- ---------- ------------
1,248,844 1,751,976 1,762,889
----------- ---------- ------------
Tidewater Holdings, Inc.
An operator of a barge transportation line on the
Columbia/Snake River system.
12.5% Senior Subordinated Note due 2006 $ 1,190,000 7/25/96 1,194,046 1,167,146 1,249,500
Convertible Preferred Stock, convertible into 560 shs. 7/25/96 504,000 560,000 374,704
common stock at $1,000 per share (B)
Warrant, exercisable until 2008, to purchase 237 shs. 7/25/96 21 24,103 158,498
common stock at $.01 per share (B)
----------- ---------- ------------
1,698,067 1,751,249 1,782,702
----------- ---------- ------------
TransMontaigne Oil Company - A.S.E.
An independent petroleum products marketing
company.
12.75% Senior Subordinated Debenture due $ 1,200,000 3/28/91 1,274,280 1,186,476 1,279,320
2000
Common Stock (B) 203,165 shs. * 314,108 598,597 2,568,778
Warrant, exercisable until 2001, to purchase 74,606 shs. 3/28/91 7,461 42,000 715,002
common stock at $3.60 per share (B)
----------- ---------- ------------
1,595,849 1,827,073 4,563,100
----------- ---------- ------------
</TABLE>
*3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95.
- --------------------------------------------------------------------------------
17
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
The Tranzonic Companies
A producer of commercial and industrial supplies,
such as safety products, janitorial supplies, work
apparel, washroom and restroom supplies and
sanitary care products.
12.5% Senior Subordinated Note due 2006 $ 1,356,000 2/5/98 $ 1,381,086 $1,177,211 $1,391,934
Common Stock (B) 315 shs. 2/4/98 283,500 315,000 283,500
Warrants to purchase shares of class B 222 shs. 2/5/98 2 184,416 2
common stock at .01 per share (B)
-------------- ---------- ----------
1,664,588 1,676,627 1,675,436
-------------- ---------- ----------
Trend Technologies, 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 1,285,078
Limited Partnership Interests of Riverside V 2,680 uts. * 327,880 295,558 327,881
Holding Company L.P. (B)
Limited Partnership Interests of Riverside 5,734 uts. * 742,789 632,012 568,813
V-A Holding Company L.P. (B)
Warrant, exercisable until 2005, to purchase 1,564 uts. 3/21/97 1,564 1,564 1,564
Limited Partnership Interests at $.01 per unit (B)
-------------- ---------- ----------
2,368,622 2,184,370 2,183,336
-------------- ---------- ----------
Tridex Corp. - O.T.C
A designer and manufacturer of point-of-sale monitors
and keyboards used by retailers and restaurants.
12% Senior Subordinated Note due 2005 $ 1,500,000 4/17/98 1,500,000 1,500,000 1,496,400
Common Stock (B) 35,714 shs. 4/17/98 249,998 249,998 233,036
Warrant, exercisable until 2005, to purchase 47,854 shs. 5/27/98 -- -- 9,870
common stock at $7 per share (B)
-------------- ---------- ----------
1,749,998 1,749,998 1,739,306
-------------- ---------- ----------
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 1,160,643 1,391,520
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 1,761,510 1,762,596
-------------- ---------- ----------
U.S. Netting, Inc.
A manufacturer of plastic netting for a wide variety
of industries.
11% Senior Secured Note due 2005 $ 722,300 5/3/95 798,719 722,300 752,420
12% Subordinated Note due 2005 $ 326,200 5/3/95 367,008 311,709 348,512
Common Stock (B) 2,457 shs. 5/3/95 81,376 195,720 6,781
Warrant, exercisable until 2005, to purchase 1,398 shs. 5/3/95 46,291 17,971 3,847
common stock at $.01 per share (B)
-------------- ---------- ----------
1,293,394 1,247,700 1,111,560
-------------- ---------- ----------
</TABLE>
* 3/21/97, 10/16/97 and 11/19/97
- --------------------------------------------------------------------------------
18
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares, Units,
Warrants or Fair Value Fair Value
Principal Acquisition at Acquisition Cost at 6/30/98
Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A)
-------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Silica Company
A producer of high grade industrial and specialty
ground silica sands in North America.
15% Senior Subordinated Notes due 2005 $ 1,202,141 * $ 1,276,542 $ 1,202,077 $ 1,298,313
Redeemable Preferred Stock Series A (B) 20,999 shs. 12/19/96 145,826 194,435 145,825
Convertible Preferred Stock Series B, 41,998 shs. 12/19/96 291,655 388,865 291,651
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 2,071
Series A Preferred Stock and Series B
Preferred Stock at $.01 per unit (B)
-------------- ----------- -----------
1,720,505 1,785,442 1,737,860
-------------- ----------- -----------
Unipac Corporation
A manufacturer of laminated materials which are
used to seal a variety of packaging containers
12% Senior Secured Note due 2004 $ 121,875 2/9/96 123,435 111,811 132,503
Acquisition Line of Credit due 2002 $ 319,102 9/30/96 319,102 319,102 319,102
Limited Partnership Interests of Riverside II 61 uts. ** 56,194 66,617 306,060
Holding Company L.P. (B)
Warrant, exercisable from 2000 until 2004, to 21 uts. 2/9/96 2 20,156 102,985
purchase Limited Partnership Interests of
Riverside II Holding Company L.P. at $.01
per unit (B)
-------------- ----------- -----------
498,733 517,686 860,650
-------------- ----------- -----------
US Air, Inc.
A domestic and international airline
10.8% Series A Secured Loan Certificates $ 378,528 6/29/94 321,749 342,073 396,584
due 2003 -------------- ----------- -----------
Victory Ventures, LLC
Acquires controlling or substantial interests in
other entities
Series A Preferred Units (B) 2,817 uts. 12/2/96 3,175 14,275 5,635
-------------- ----------- -----------
Vitex Packaging, Inc.
A manufacturer of specialty packaging, primarily
envelopes and tags used on tea bags
Senior Secured Floating Rate Revolving $ 425,438 1/2/98 422,034 425,438 422,290
Credit Facility due 2003
Senior Secured Floating Rate Tranche A $ 1,092,000 1/2/98 1,083,373 1,092,000 1,084,028
Note due 2005
12% Senior Secured Tranche B Note due 2007 $ 336,000 1/2/98 339,394 310,800 341,006
Limited Partnership Interests of Riverside VI 61,092 int. 12/30/97 489 56,687 48,874
Holding Company L.P. (B)
Limited Partnership Interests of Riverside 100,800 int. 12/30/97 806 93,534 80,640
VI-A Holding Company L.P. (B)
Warrant, exercisable until 2007, to purchase 44 shs. 1/2/98 -- 25,200 --
common stock at $.01 per share (B)
-------------- ----------- -----------
1,846,096 2,003,659 1,976,838
-------------- ----------- -----------
Sub-Total Private Placement Investments $ 76,413,317 79,607,432 85,758,713
============== =========== ===========
</TABLE>
* 12/19/96 and 2/15/97
** 2/9/96 and 9/25/96
- --------------------------------------------------------------------------------
19
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 6/30/98
Rule 144A Securities - 11.10%: (A) Rate Date Amount (Note 2B) (Note 2A)
-------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Bonds - 6.95%
ADV Accessory & AAS CAP 9.750% 10/01/07 $ 575,000 $ 574,996 $ 575,000
Atlantic Coast Airlines Inc. 8.750 01/01/07 746,553 747,570 736,714
Brand Scaffold Services 10.250 02/15/08 150,000 150,000 152,250
Cuddy International Corp. 10.750 12/01/07 700,000 689,542 675,500
Derby Cycle Corp. 10.000 05/15/08 600,000 600,000 595,500
Enserch Exploration, Inc. 7.540 01/02/09 956,233 956,234 956,233
M J D Communications Inc. 9.500 05/01/08 75,000 75,000 76,500
M J D Communications Inc. 0.000 05/01/08 200,000 200,000 199,000
McLeodUSA Incorporated 8.375 03/15/08 275,000 284,281 275,688
MCMS Inc. 9.750 03/01/08 500,000 500,000 460,000
Morris Materials Handling 9.500 04/01/08 300,000 300,000 279,000
Numatics Inc. 9.625 04/01/08 350,000 355,156 353,500
Oxford Health Plans 11.000 05/15/05 125,000 125,000 127,500
Petroliam Nasional Berhad 7.125 10/18/06 350,000 321,230 295,113
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 08/01/04 375,000 372,956 262,500
Von Hoffman Press, Inc. 10.375 05/15/07 325,000 327,250 339,625
----------- ----------- -----------
Total Bonds $ 8,102,786 8,079,215 7,859,623
=========== =========== ===========
Common Stock - 0.15%
Energy Conversion Devices Inc. 17,500 231,875 169,522
----------- -----------
Total Common Stock 231,875 169,522
----------- -----------
Convertible Bonds - 2.77%
Antec Corp. 4.500 05/15/03 $ 150,000 150,000 172,500
Arbor Software Corporation 4.500 03/15/05 100,000 100,000 87,826
Cymer Inc. 3.500 08/06/04 175,000 176,000 133,231
Equity Corporation International 4.500 12/31/04 200,000 200,000 218,438
Healthsouth Corporation 3.250 04/01/03 750,000 750,000 742,500
Key Energy Group 5.000 09/15/04 500,000 500,000 385,940
Mark IV Industries 4.750 11/01/04 450,000 427,125 412,875
Smartalk Teleservices 5.750 09/15/04 150,000 150,000 124,585
Sunbeam Corporation 0.000 03/25/18 1,875,000 707,616 424,219
Tel-Save 4.500 09/15/02 540,000 538,500 428,938
----------- ----------- -----------
Total Convertible Bonds $ 4,890,000 3,699,241 3,131,052
=========== =========== ===========
Convertible Preferred Stock - 1.23%
D T Industries 20,000 1,000,000 805,000
Newell Financial Trust 10,000 500,000 580,000
----------- -----------
Total Convertible Preferred Stock 1,500,000 1,385,000
----------- -----------
Total Rule 144A Securities 13,510,331 12,545,197
----------- -----------
Total Corporate Restricted Securities 93,117,763 98,303,910
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants or Market Value
Interest Due Principal Cost at 6/30/98
Corporate Public Securities: (A) Rate Date Amount (Note 2B) (Note 2A)
--------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Bonds - 17.55%
Advanced Micro Devices 11.000% 08/01/03 $ 265,000 $ 280,900 $ 279,575
AEP Industries, Inc. 9.875 11/15/07 750,000 744,180 768,750
Airplanes Pass Thru Trust 8.150 03/15/19 1,492,800 1,491,480 1,604,581
Amphenol Corporation 9.875 05/15/07 200,000 200,000 213,000
Amtran, Inc. 10.500 08/01/04 500,000 500,000 531,250
Anchor Advanced Products 11.750 04/01/04 560,000 581,750 616,000
Archibald Candy Corp. 10.250 07/01/04 420,000 420,000 445,200
Atlantic Express 10.750 02/01/04 350,000 362,250 371,000
Atlas Air, Inc. 10.750 08/01/05 1,000,000 1,000,000 1,072,500
Callon Petroleum Company 10.125 09/15/02 250,000 248,560 255,625
Canadian Airlines Corporation 10.000 05/01/05 250,000 250,500 253,750
Chesapeake Energy Corporation 8.500 03/15/12 120,000 110,588 111,600
DecisionOne Corporation 9.750 08/01/07 75,000 75,000 72,375
Florist Transworld Delivery, Inc. 14.000 12/15/01 375,000 385,688 408,750
Great American Cookie Co. 10.875 01/15/01 660,000 651,750 683,100
Hosiery Corporation of America 13.750 08/01/02 500,000 493,900 550,000
Indah Kiat Pulp & Paper Corporation 10.000 07/01/07 400,000 397,388 284,000
International Wire Group, Inc. 11.750 06/01/05 450,000 489,375 493,312
Jordan Industries, Inc. 10.375 08/01/07 300,000 300,000 307,500
Jordan Telecom Products 9.875 08/01/07 1,050,000 1,040,798 1,071,000
Key Plastics, Inc. 14.000 11/15/99 350,000 354,912 382,375
Kitty Hawk Inc. 9.950 11/15/04 500,000 500,000 517,500
Korea Development Bank 7.250 05/15/06 450,000 415,606 363,753
Neenah Corporation 11.125 05/01/07 250,000 250,000 272,500
Northwest Airlines Corp. 8.970 01/02/15 977,052 977,052 1,095,207
Pohang Iron & Steel Company 7.125 11/01/06 350,000 317,961 270,148
Rogers Cantel Inc. 8.300 10/01/07 750,000 747,990 735,938
Scotsman Group, Inc. 8.625 12/15/07 100,000 99,732 100,500
Scovill Fastener, Inc. 11.250 11/30/07 350,000 350,000 359,625
Sovereign Speciality Chemicals 9.500 08/01/07 175,000 175,000 178,500
Speedway Motorsports, Inc. 8.500 08/15/07 225,000 224,388 232,875
Telex Communications, Inc. 10.500 05/01/07 1,250,000 1,261,250 1,125,000
Therma-Wave, Inc. 10.625 05/15/04 370,000 375,625 333,000
Unicco Service Co. 9.875 10/15/07 275,000 273,708 277,750
United Refining Company 10.750 06/15/07 1,400,000 1,400,000 1,344,000
W R Carpenter North America 10.625 06/05/07 550,000 556,344 578,875
Wavetek Corporation 10.125 06/15/07 110,000 110,000 114,400
Williams Scotsman, Inc. 9.875 06/01/07 400,000 400,000 416,000
Worldtex, Inc. 9.625 12/15/07 500,000 500,000 500,000
Ziff-Davis Inc. 8.500 05/01/08 250,000 249,085 252,500
----------- ----------- -----------
Total Bonds $19,549,852 19,562,760 19,843,314
=========== =========== ===========
Common Stock - 8.19%
4Health Inc. (B) 6,000 33,375 42,372
American Country Holdings Inc. (B) 54,000 188,722 91,098
Benson Petroleum, LTD. (B) 100,000 77,204 92,000
BP Prudhoe Bay Royalty Trust 13,190 187,355 140,968
Career Blazers, Inc. (B) 45,000 247,500 270,000
Central Rents, Inc. 930 33,722 37,200
Collins & Aikman Corporation (B) 17,400 104,238 129,404
Corporate Office Properties 40,250 422,625 357,219
Dawson Production Services (B) 19,492 245,578 292,380
Dura Automotive Systems Inc. (B) 5,835 191,096 187,449
Excalibur Technologies Corp. (B) 10,000 98,656 110,000
Florida Panthers Holdings, Inc. (B) 19,500 373,004 383,896
Florist Transworld Delivery, Inc. (B) 9,374 13,754 46,870
General Chemical Group, Inc. 4,400 112,772 122,100
General Instrument Corp. (B) 8,700 207,332 235,448
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Shares,
Yield/ Warrants or Market Value
Interest Due Principal Cost at 6/30/98
Corporate Public Securities: (Continued) Rate Date Amount (Note 2B) (Note 2A)
-------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Common Stock (Continued)
Hardy Oil & Gas PLC (B) 139,113 $ 409,869 $ 486,061
Hosiery Corporation of America (B) 500 -- 35,000
LCS Industries, Inc. 15,000 234,356 219,375
Marker International (B) 30,000 187,500 56,250
McLeodUSA Incorporated (B) 2,917 114,492 113,398
Midway Airlines Corp. (B) 14,586 271,956 278,957
N2K, Inc. (B) 12,836 337,006 251,906
Niagara Mohawk Power Corporation 15,750 222,469 235,258
Oxford Health Plans (B) 13,125 247,639 200,970
Pathways Group Inc. (B) 11,673 276,690 223,246
Princeton Video Image, Inc. (B) 30,000 210,000 138,750
Red Roof Inns, Inc. (B) 19,200 272,607 325,190
Rent-Way, Inc. (B) 100,603 1,000,000 3,068,392
Republic Industries, Inc. (B) 15,000 368,437 375,000
Republic Services Inc. (B) 29,750 714,000 714,000
------------- -----------
Total Common Stock 7,403,954 9,260,157
------------- -----------
Convertible Bonds - 3.26%
Clear Channel Communications 2.625% 04/01/03 350,000 350,000 376,250
Dura Pharmaceuticals 3.500 07/15/02 315,000 319,219 265,624
EMCOR Group, Inc. (B) 5.750 04/01/05 300,000 300,000 284,250
Hilton Hotels 5.000 05/15/06 695,000 695,000 718,408
Home Depot, Inc. 3.250 10/01/01 335,000 332,237 623,100
Loews Corp. 3.125 09/15/07 450,000 450,000 408,546
Oak Industries 4.875 03/01/08 100,000 103,000 109,751
Reptron Electronics Inc. 6.750 08/01/04 100,000 100,000 79,250
Savoy Pictures Entertainment 7.000 07/01/03 650,000 505,375 627,250
World Color Press, Inc. 6.000 10/01/07 175,000 175,000 189,730
------------- ------------- -----------
Total Convertible Bonds $ 3,470,000 3,329,831 3,682,159
============= ------------- -----------
Total Corporate Public Securities 30,296,545 32,785,630
------------- -----------
Short-Term Securities:
Commercial Paper - 2.74%
ConAgra, Inc. 6.024 7/1/98 $ 115,000 115,000 115,000
Enron Corporation 6.302 7/2/98 1,353,000 1,352,763 1,352,763
Textron Financial Corp. 6.006 7/1/98 175,000 175,000 175,000
VF Corp. 6.152 7/1/98 1,455,000 1,455,000 1,455,000
------------- ------------- -----------
Total Short-Term Securities $ 3,098,000 3,097,763 3,097,763
============= ------------- -----------
Total Investments -118.67% $ 126,512,071 134,187,303
============= -----------
Other Assets - 2.70 3,054,189
Liabilities - (21.37) (24,166,708)
------ ------------
Total Net Assets - 100.00% $113,074,784
====== ============
</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.
- --------------------------------------------------------------------------------
22
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
INDUSTRY CLASSIFICATION
Fair Value
at 6/30/98
Corporate Restricted Securities: (Note 2A)
----------
AUTOMOBILE - 1.06%
ADV Accessory & AAS CAP $ 575,000
Coast Distribution System, The 208,375
Mark IV Industries 412,875
----------
1,196,250
----------
BEVERAGE, FOOD & TOBACCO - 6.02%
Associated Vintage Group, Inc. 1,827,279
Beta Brands, Inc. 1,808,680
Cains Foods, L.P. 1,346,250
Grand Lyon Enterprises LLC 99,157
Lloyd's Barbecue Company 1,731,077
----------
6,812,443
----------
BROADCASTING & ENTERTAINMENT - 0.41%
Latin Communications Group 465,735
----------
BUILDINGS & REAL ESTATE - 1.90%
Highland Homes Holdings, Inc. 387,225
Truseal Technologies, Inc. 1,762,596
----------
2,149,821
----------
CARGO TRANSPORT - 2.50%
RailTex, Inc. 1,042,953
Tidewater Holdings, Inc. 1,782,702
----------
2,825,655
----------
CHEMICAL, PLASTICS & RUBBER - 8.50%
AccTech, LLC 1,269,642
Contico International, Inc. 525,650
Hatco Corporation 1,750,000
Process Chemicals, LLC 1,008,011
TACC International Corporation 1,762,889
Trend Plastics, Inc. 2,183,336
U.S. Netting, Inc. 1,111,560
----------
9,611,088
----------
CONSUMER PRODUCTS - 1.47%
Consumer Product Enterprises, Inc. 1,084,886
Newell Financial Trust 580,000
----------
1,664,886
----------
CONTAINERS, PACKAGING & GLASS - 6.49%
C&K Manufacturing and Sales Company 895,268
Capitol Vial, Inc. 1,779,046
Plastipak Packaging, Inc. 1,829,296
Unipac Corporation 860,650
Vitex Packaging, Inc. 1,976,838
----------
7,341,098
----------
DIVERSIFIED/CONGLOMERATE -
MANUFACTURING - 17.38%
Cymer Inc. $ 133,231
D T Industries 805,000
Eagle Pacific Industries, Inc. 1,750,830
Energy Conversion Devices Inc. 169,522
Evans Consoles, Inc. 1,755,949
Fleming Acquisition Corporation 24,110
Golden Bear Oil Specialities 1,780,139
Hartzell Manufacturing, Inc. 1,641,115
Hudson River Capital, LLC 210,735
Hussey Seating Company 1,850,151
Jackson Products, Inc. 499,125
Kappler Safety Group, Inc. 1,773,994
Maxtec International Corp. 354,412
Morris Materials Handling 279,000
Pacific Coast Feather Company 1,816,325
PAR Acquisition Corp. 1,391,832
The Tranzonic Companies 1,675,436
U.S. Silica Company 1,737,860
----------
19,648,766
----------
DIVERSIFIED/CONGLOMERATE -
SERVICE - 2.10%
Ammirati & Puris, Inc. 85,408
Diversco, Inc. 1,600,239
Hunton & Williams 94,028
Pharmaceutical Buyers, Inc. 594,305
----------
2,373,980
----------
ELECTRONICS - 9.14%
Arbor Software Corporation 87,826
Ardent Software, Inc. 460,735
Averstar, Inc. 2,169,809
Cirrus Logic, Inc. 1,269,986
Control Devices, Inc. 1,193,825
Dealer Solutions Holdings, Inc. 200,216
MCMS Inc. 460,000
Nu Horizons Electronics Corp. 760,325
Precision Dynamics, Inc. 1,993,009
Tridex Corp. 1,739,306
----------
10,335,037
----------
FARMING & AGRICULTURE - 1.11%
Cuddy International Corp. 675,500
Protein Genetics, Inc. 582,723
----------
1,258,223
----------
- --------------------------------------------------------------------------------
23
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1998
(Unaudited)
INDUSTRY CLASSIFICATION (Continued)
Fair Value
at 6/30/98
Corporate Restricted Securities: (Continued) (Note 2A)
-----------
FINANCE - 3.80%
Boyle Leasing Technologies, Inc. $ 824,960
MW Investors I LLC 1,726,912
Paribas Capital Funding LLC 1,740,550
-----------
4,292,422
-----------
HEALTHCARE, EDUCATION &
CHILDCARE - 1.16%
Berkshire Medical Center, Inc. 440,432
Healthsouth Corporation 742,500
Oxford Health Plans 127,500
-----------
1,310,432
-----------
HOME & OFFICE FURNISHINGS,
HOUSEWARES, AND DURABLE
CONSUMER PRODUCTS - 3.88%
Catalina Lighting, Inc. 334,013
Sequentia, Inc. 3,036,100
Star International Holdings, Inc. 590,545
Sunbeam Corporation 424,219
-----------
4,384,877
-----------
LEISURE, AMUSEMENT,
ENTERTAINMENT - 2.97%
Adventure Entertainment Corporation 844,236
Derby Cycle Corp. 595,500
N2K, Inc. 95,313
Playcore, Inc. 1,823,454
-----------
3,358,503
-----------
MACHINERY - 0.31%
Numatics Inc. 353,500
-----------
MISCELLANEOUS - 2.74%
Brand Scaffold Services 152,250
Enserch Exploration, Inc. 956,233
Equity Corporation International 218,438
T C W Leveraged Income Trust, LP 1,500,000
Tjiwi Kima Fin Mauritius LTD 262,500
Victory Ventures, LLC 5,635
-----------
3,095,056
-----------
OIL AND GAS - 7.73%
Chaparral Resources, Inc. $ 3,736
Hardy Oil & Gas PLC 1,567,650
Key Energy Group 385,940
Louis Dreyfus Natural Gas Corporation 140,406
Maloney Industries, Inc. 1,571,625
Petroliam Nasional Berhad 295,113
PG+E Gas Transmission 217,843
TransMontaigne Oil Company 4,563,100
-----------
8,745,413
-----------
PERSONAL TRANSPORTATION - 3.71%
Atlantic Coast Airlines Inc. 736,714
Budget Group, The 1,632,990
Piedmont Holding, Inc. 1,425,192
US Air, Inc. 396,584
-----------
4,191,480
-----------
PRINTING & PUBLISHING - 0.30%
Von Hoffman Press, Inc. 339,625
-----------
RETAIL STORES - 1.13%
Discount Auto Parts 800,250
J. Baker, Inc. 273,394
Rent-Way, Inc. 198,765
-----------
1,272,409
-----------
TELECOMMUNICATIONS - 1.13%
Antec Corp. 172,500
M J D Communications Inc. 275,500
McLeodUSA Incorporated 275,688
Smartalk Teleservices 124,585
Tel-Save 428,938
-----------
1,277,211
-----------
Total Corporate Restricted
Securities - 86.94% $98,303,910
===========
- --------------------------------------------------------------------------------
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS MASSMUTUAL PARTICIPATION INVESTORS
(Unaudited)
1. History
MassMutual Participation Investors (the "Trust") was organized as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts pursuant to a Declaration of Trust dated April 7, 1988.
The Trust is a closed-end diversified management investment company, whose
investment objective is to maximize total return by providing a high level of
current income, the potential for growth of such income, and capital
appreciation, by investing primarily in a portfolio of privately placed
fixed-income securities, at least half of which normally will include equity
features.
On January 27, 1998, the Board of Trustees authorized the formation of a
totally held subsidiary ("MMPI Subsidiary Trust") for the purpose of holding
certain investments. The results of MMPI Subsidiary Trust have been
consolidated in the accompanying financial statements.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed
consistently by the Trust in the preparation of the financial statements in
conformity with generally accepted accounting principles.
A. Valuation of Investments:
Valuation of a security in the Trust's portfolio is made on the basis of
market price whenever market quotations are readily available and all
securities of the same class held by the Trust can be readily sold in such
market.
Nearly all securities which are acquired by the Trust directly from the
issuers and shares into which such securities may be converted or which may
be purchased on the exercise of warrants attached to such securities will be
subject to legal or contractual delays in or restrictions on resale and will
therefore be "restricted securities". Generally speaking, as contrasted with
open-market sales of unrestricted securities which may be effected
immediately if the market is adequate, restricted securities can be sold only
in a directly negotiated transaction to a limited number of purchasers or in
a public offering for which a registration statement is in effect under the
Securities Act of 1933.
The value of restricted securities, and of any other assets for which there
are no reliable market quotations, is the fair value as determined in good
faith by the Board of Trustees of the Trust. Each restricted security is
valued by the Board at the time of the purchase thereof and at least
quarterly thereafter. The Trustees have established guidelines to aid in the
valuation of each security. Generally, restricted securities are initially
valued at cost or less to the Trust. Values greater or less than cost are
thereafter used for restricted securities in appropriate circumstances. Among
the factors ordinarily considered are the existence of restrictions upon the
sale of the security by the Trust; an estimate of the existence and the
extent of a market for the security; the extent of any discount at which the
security was acquired; the estimated period of time during which the security
will not be freely marketable; the estimated expenses of registering or
otherwise qualifying the security for public sale; estimated underwriting
commissions if underwriting would be required to effect a sale; in the case
of a convertible security, whether or not it would trade on the basis of its
stock equivalent; if it is a debt obligation which would trade independently
of any equity equivalent, the current yields on comparable securities; the
estimated amount of the floating supply of such securities available; the
proportion of the issue held by the Trust; changes in the financial condition
and prospects of the issuer; the existence of merger proposals or tender
offers affecting the issuer; and in addition, any other factors affecting
fair value, all in accordance with the Investment Company Act of 1940. In
making valuations, opinions of counsel are relied upon as to whether or not
securities are restricted securities and as to the legal requirements for
public sale.
When market quotations are readily available for unrestricted securities of
an issuer, restricted securities of the same class are generally valued at a
discount from the market price of such unrestricted securities. The Board,
however, considers all factors in fixing any discount, including the filing
of a registration statement for such securities under the Securities Act of
1933 and any other developments which are likely to increase the probability
that the securities may be publicly sold by the Trust without restriction.
The Board of Trustees of the Trust meets at least once in each quarter to
value the Trust's portfolio securities as of the close of business on the
last business day of the preceding quarter. This valuation requires the
approval of a majority of the Trustees of the Trust, including a majority of
the Trustees who are not interested persons of the Trust (otherwise than
- --------------------------------------------------------------------------------
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $98,303,910
(86.94% of net assets) as of June 30, 1998 ($97,984,382 at June 30, 1997)
whose values have been estimated by the Board of Trustees in the absence of
readily ascertainable market values. Due to the inherent uncertainty of
valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and
the differences could be material.
The values for corporate public securities are stated at the last reported
sales price or at prices based upon quotations obtained from brokers and
dealers as of June 30, 1998, subject to discount where appropriate, and are
approved by the Trustees.
Short-term securities with more than sixty days to maturity are valued at
market and short-term securities having a maturity of sixty days or less are
valued at amortized cost which approximates market value.
B. Accounting for Investments:
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
The cost basis of debt securities is not adjusted for amortization of premium
since the Trust does not generally intend to hold such investments until
maturity; however, the Trust has elected to accrue for financial reporting
purposes, certain discounts which are required to be accrued for federal
income tax purposes.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
The Trust does not accrue income when payment is delinquent or when
management believes payment is questionable.
C. Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
D. Federal Income Taxes:
No provision for federal taxes on net investment income and short-term
capital gains is considered necessary because the Trust has elected to be
taxed as a "regulated investment company" under the Internal Revenue Code,
and intends to maintain this qualification and to distribute substantially
all of its net taxable income to its shareholders. In any year when net
long-term capital gains are realized by the Trust, management, after
evaluating the prevailing economic conditions, will recommend to the Trustees
either to designate the net realized long-term gains as undistributed and to
pay the federal capital gains taxes thereon or to distribute such net gains.
3. Investment Advisory and Administrative Services Fee
Under an investment advisory and administrative services contract with the
Trust, MassMutual has agreed to use its best efforts to present to the Trust
a continuing and suitable investment program consistent with the investment
objective and policies of the Trust. MassMutual has further agreed that it
will request each issuer of securities which MassMutual is prepared to
purchase in a private placement, and which would be consistent with the
investment policies of the Trust, to offer such securities also to the Trust
and that it will use its best efforts to insure that such request is acceded
to. MassMutual has agreed that, subject to such orders of the Securities and
Exchange Commission as may apply, it will invest concurrently with the Trust
in any such investment. MassMutual will also represent the Trust in any
negotiations with issuers, investment banking firms, securities brokers or
dealers and other institutions or investors relating to the Trust's
investments. Under the contract, MassMutual is obligated to provide
administration of the day-to-day operations of the Trust and will provide the
Trust with office space and office equipment, safekeeping facilities,
accounting and bookkeeping services, and necessary executive, clerical and
secretarial personnel for the performance of the foregoing services.
- --------------------------------------------------------------------------------
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Secured Indebtedness:
A. Note Payable
On July 15, 1995, the Trust sold to MassMutual at par a $12,000,000 Senior
Fixed Rate Convertible Note due July 15, 2002 (the "Note") which accrues at
6.93% per annum. The Note holder, at its option, can convert the principal
amount of the Note into common shares. The dollar amount of principal would
be converted into an equivalent dollar amount of common shares based upon the
average price of the common shares for ten business days prior to the notice
of conversion. For each of the periods ended June 30, 1998 and 1997, the
Trust incurred total interest expense on the Note of $207,900.
B. Revolving Credit Agreement
The Fund entered into a $15,000,000 senior secured, floating rate, revolving
credit agreement (the "Revolver") with Fleet National Bank (the "Agent
Bank"), pursuant to a credit agreement dated May 29, 1997, with a maturity
date of May 31, 2004.
The Revolver bears interest at a variable per annum rate equal to the one,
two, three or six-month Eurodollar rate plus a margin of .40 percent per
annum. Interest is paid to the Agent Bank as it becomes due. The Fund also
incurs expense on the undrawn portion of the total approved credit agreement
at a rate of .185 percent per annum.
As of June 30, 1998, there were $10,500,000 in outstanding loans against the
Revolver and the average blended rate of interest charged on the Revolver was
6.15%. For the period ended June 30, 1998, the Fund incurred total interest
expense on the Revolver of $323,151, including $4,083 related to the undrawn
portion. For the period from May 29, 1997 through June 30, 1997, the Fund
incurred $2,509 of expense related to the undrawn portion.
5. Purchases and Sales of Investments
For the For the
six months six months
ended 6/30/98 ended 6/30/97
------------- -------------
Cost of Investments Acquired
----------------------------
Corporate restricted securities $ 23,226,856 $ 38,307,821
Corporate public securities 9,416,833 8,122,229
Short-term securities 121,566,453 135,950,336
Proceeds from Sales or Maturities
---------------------------------
Corporate restricted securities $ 22,306,519 $ 26,920,707
Corporate public securities 17,005,579 15,866,890
Short-term securities 119,919,269 139,893,810
The aggregate cost of investments is the same for financial reporting and
federal income tax purposes as of June 30, 1998. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of June 30, 1998 is $7,675,232 and consists of $15,210,894 appreciation
and $7,535,662 depreciation.
The aggregate cost of investments was the same for financial reporting and
federal income tax purposes as of June 30, 1997. The net unrealized
appreciation of investments for financial reporting and federal tax purposes
as of June 30, 1997 was $6,017,790 and consisted of $10,815,078 appreciation
and $4,797,288 depreciation.
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27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Quarterly Results of Investment Operations
<TABLE>
<CAPTION>
Per Per
Amount Share Amount Share
----------- ----- ---------- -----
March 31, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C> <C> <C>
Investment income $2,934,166 $2,398,479
Net investment income 2,261,923 $ .24 1,923,676 $ .21
Net realized and unrealized gain (loss) on investments 2,420,485 .26 1,504,885 .16
June 30, 1998 June 30, 1997
------------------ ------------------
Investment income 2,869,889 2,461,213
Net investment income 2,186,277 .24 1,959,604 .21
Net realized and unrealized gain (loss) on investments 1,793,007 .19 6,702,154 .73
</TABLE>
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28
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