-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JgCMsui9WH2yq0CC7R9sDA3fXxnjPtQs1dDyg9TwdwVPanyWe4XvSggQKeUq9NSf Kl3F9O3C1NocZ9LMAS9jAA== 0000950109-97-007078.txt : 19971124 0000950109-97-007078.hdr.sgml : 19971124 ACCESSION NUMBER: 0000950109-97-007078 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971121 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASSMUTUAL PARTICIPATION INVESTORS CENTRAL INDEX KEY: 0000831655 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 043025730 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05531 FILM NUMBER: 97725757 BUSINESS ADDRESS: STREET 1: 1295 STATE ST CITY: SPRINGFIELD STATE: MA ZIP: 01111 BUSINESS PHONE: 4137888411 MAIL ADDRESS: STREET 1: 1295 STATE STREET CITY: SPRINGFIELD STATE: MA ZIP: 01111 FORMER COMPANY: FORMER CONFORMED NAME: MASSMUTUAL CORPORATE INVESTORS II DATE OF NAME CHANGE: 19880417 N-30D 1 QUARTERLY REPORT TO OUR SHAREHOLDERS OCTOBER 31, 1997 We are pleased to present MassMutual Participation Investors' report for the first nine months of 1997. The Trustees declared a dividend of $.22 per share payable on November 14, 1997 to shareholders of record on October 31, 1997. This is the third consecutive increase to the quarterly dividend. A dividend of $.21 was paid in the preceding quarter. This increase in the dividend is attributable to higher quarterly net investment income of $2,097,193 versus $1,959,604 a quarter ago. The net assets of the Trust hit another all-time high of $12.43 per share at September 30, 1997 versus $11.65 per share on June 30. This translated into a 8.61% return for the third quarter, based on change in net assets with reinvestment of dividends. This outpaced both the S&P Industrial Stock Index and Lehman Brothers Government/Corporate Index, which were up 6.71% and 3.50% respectively. For the first nine months of the year, the Trust's total return, as measured by change in net assets with reinvestment of dividends was 22.28% compared to 6.33% for the Lehman Government/Corporate and 29.02% for the S&P Industrial Stock Index. For the third quarter ended September 30, 1997, the results in the Lipper Closed-End Funds Performance Analysis*, which classifies the Trust in the General Bond Funds category, ranked the Trust's performance number two for the 3 month, year-to-date, 1, and 5 year periods. The Trust was ranked number one for the two-year period. Golden Bear Acquisition Corp.; Lloyd's Barbecue Company; N2K, Inc.; Process Chemicals, LLC; and TACC International Corporation are five new private placement investments made during the quarter. Golden Bear manufactures asphalt and specialty lubricating and processing oils and Lloyd's manufactures and markets packaged barbecue meats and related products. In both cases buyout sponsors with whom we have solid relationships made investments alongside ours. N2K is one of the first music companies to successfully merge on-line technology with original music and entertainment content. We provided financing in the form of a bridge loan with warrants to provide growth capital until an initial public offering was achieved. On October 19, 1997, N2K had it's initial public offering and was able to repay our loan leaving us with warrants with a nice unrealized gain. TACC International Corporation is a leading domestic manufacturer of adhesives and sealants to which we provided financing for two acquisitions. Process Chemicals was formed by a buyout group as a platform company to acquire specialty chemical and mineral companies. All of these investments allow us to participate in the long-term growth of the companies via their equity features while providing a weighted average coupon on their fixed income components of approximately 12.8%. For a more complete description of our investments in these companies, see the Schedule of Investments section of this report. The Trust realized over $2.8 million (or $.31 per share) in net capital gains during the quarter. $732 thousand (or $.08 per share) came from the partial sale of Exide Electronics common stock. Over half of the position of this private placement investment had been sold at quarter end. On the public securities side, we sold our remaining position of SFX Broadcasting realizing a gain of $739 thousand. While our realized gains for the third quarter were not as substantial as the second quarter, our total net gains for the first nine months of the year amounted to $12,368,092 or $1.34 per share of which $1,861,782 or $.20 per share represents net short-term gains. Net short-term gains are distributed to shareholders each year. The Trustees and management appreciate the continued interest and support of the shareholders of Participation Investors. We invite you to visit our new internet site at www.massmutual.com/mpv. Sincerely, /s/ Stuart H. Reese Stuart H. Reese President *Source: Lipper Analytical Services STATEMENT OF ASSETS AND LIABILITIES MASSMUTUAL PARTICIPATION INVESTORS September 30, 1997 and 1996 (Unaudited)
1997 1996 ------------ ------------ Assets: Investments (Notes 2A, 2B and 5) (See Schedule of Investments) Corporate restricted securities at fair value (Cost 1997 - $104,641,759; 1996 - $69,616,103) $112,419,920 $ 75,012,726 Corporate public securities at market value (Cost 1997 - $15,648,992; 1996 - $24,115,826) 17,412,982 25,349,969 Short-term securities at cost plus earned discount which approximates market value -- 10,865,636 ------------ ------------ 129,832,902 111,228,331 Cash 2,296,531 1,025,792 Interest and dividends receivable, net 2,420,697 2,036,789 Receivable for investments sold 1,172,472 1,504,766 Other assets 4,043 4,043 ------------ ------------ Total assets $135,726,645 $115,799,721 ============ ============ Liabilities: Payable for investments purchased $ 3,583,377 $ 1,616,137 Management fee payable (Note 3) 257,780 228,679 Note payable (Note 4A) 12,000,000 12,000,000 Revolving Credit Agreement (Note 4B) 5,000,000 -- Interest payable (Notes 4A and 4B) 197,140 170,940 Accrued expenses 119,289 148,636 ------------ ------------ Total liabilities 21,157,586 14,164,392 ------------ ------------ 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) 2,208,865 1,936,012 Undistributed net realized gain on investments 12,406,547 7,498,107 Net unrealized appreciation of investments (Notes 2A, 2B and 5) 9,542,151 6,630,766 ------------ ------------ Total net assets 114,569,059 101,635,329 ------------ ------------ Total liabilities and net assets $135,726,645 $115,799,721 ============ ============ Shares of beneficial interest issued and outstanding 9,216,665 9,216,665 ============ ============ Net asset value per share $ 12.43 $ 11.03 ============ ============
See Notes to Financial Statements. - -------------------------------------------------------------------------------- 2 STATEMENT OF OPERATIONS MASSMUTUAL PARTICIPATION INVESTORS For the nine months ended September 30, 1997 and 1996 (Unaudited)
1997 1996 ----------- ----------- Investment Income (Note 2B): Interest $ 7,306,936 $ 6,626,956 Dividends 210,102 110,085 ----------- ----------- Total income 7,517,038 6,737,041 ----------- ----------- Expenses: Management fee (Note 3) 725,742 666,858 Trustees' fees and expenses 45,032 39,748 Transfer Agent/Registrar's expenses 32,947 33,500 Interest (Notes 4A and 4B) 660,479 623,700 Reports to shareholders 10,000 20,513 Audit and legal 29,960 32,615 Other 32,405 16,510 ----------- ----------- Total expenses 1,536,565 1,433,444 ----------- ----------- Net investment income 5,980,473 5,303,597 ----------- ----------- Net realized and unrealized gain (loss) on investments (Notes 2A and 2B): Net realized gain on investments 12,368,092 7,498,107 Net change in unrealized appreciation of investments 2,845,468 (2,950,185) ----------- ----------- Net gain on investments 15,213,560 4,547,922 ----------- ----------- Net increase in net assets resulting from operations $21,194,033 $ 9,851,519 =========== ===========
See Notes to Financial Statements. - -------------------------------------------------------------------------------- 3 STATEMENT OF CASH FLOWS MASSMUTUAL PARTICIPATION INVESTORS For the nine months ended September 30, 1997 and 1996 (Unaudited)
1997 1996 ------------ ------------ Net increase (decrease) in cash: Cash flows from operating activities: Interest and dividends received $ 6,343,852 $ 5,786,219 Interest expense paid (634,279) (623,700) Operating expenses paid (862,631) (807,212) Federal income tax paid (2,606,720) (203,518) ------------ ------------ Net cash provided by operating activities 2,240,222 4,151,789 ------------ ------------ Cash flows from investing activities: Change in short-term portfolio securities, net 5,012,546 1,300,220 Purchase of portfolio securities (70,732,435) (41,482,978) Proceeds from disposition of portfolio securities 68,341,950 42,281,855 ------------ ------------ Net cash provided by investing activities 2,622,061 2,099,097 ------------ ------------ Net cash provided by operating and investing activities 4,862,283 6,250,886 ------------ ------------ Cash flows from financing activities: Cash dividends paid from net investment income (5,672,704) (5,253,499) Cash dividends paid from net realized gain on investments (1,884,962) -- Cash received from issuance of debt 5,000,000 -- Cash paid for issuance of debt (12,500) -- ------------ ------------ Net cash used for financing activities (2,570,166) (5,253,499) ------------ ------------ Net increase in cash 2,292,117 997,387 Cash -- beginning of year 4,414 28,405 ------------ ------------ Cash -- end of period $ 2,296,531 $ 1,025,792 ============ ============ Reconciliation of net increase (decrease) in net assets to net cash from operating and investing activities: Net increase in net assets resulting from operations $ 21,194,033 $ 9,851,519 ------------ ------------ Increase in investments (19,126,391) (3,641,070) Increase in interest and dividends receivable, net (880,258) (231,915) (Increase) decrease in receivable for investments sold 2,797,630 (638,756) Increase in other assets (4,043) (4,043) Increase in payable for investments purchased 3,448,377 1,116,137 Increase in management fee payable 39,184 14,285 Increase in interest payable 26,200 -- Increase in amortized bond issuance costs 12,500 -- Increase in accrued expenses (38,229) (11,753) Decrease in accrued taxes (2,606,720) (203,518) ------------ ------------ Total adjustments to net assets from operations (16,331,750) (3,600,633) ------------ ------------ Net cash provided by operating and investing activities $ 4,862,283 $ 6,250,886 ============ ============
See Notes to Financial Statements. - -------------------------------------------------------------------------------- 4 STATEMENT OF CHANGES IN NET ASSETS MASSMUTUAL PARTICIPATION INVESTORS For the nine months ended September 30, 1997 and 1996 (Unaudited)
1997 1996 ------------- ------------- Increase (decrease) in net assets: Operations: Net investment income $ 5,980,473 $ 5,303,597 Net realized gain on investments 12,368,092 7,498,107 Net change in unrealized appreciation of investments 2,845,468 (2,950,185) ------------- ------------- Net increase in net assets resulting from operations 21,194,033 9,851,519 Dividends to shareholders from: Net investment income (1997 - $ .41 per share; 1996 - $ .38 per share) (3,778,833) (3,502,333) ------------- ------------- Total increase 17,415,200 6,349,186 Net Assets, beginning of year 97,153,859 95,286,143 ------------- ------------- Net Assets, end of period (including undistributed net investment income in 1997 - $2,208,865; 1996 - $1,936,012) $ 114,569,059 $ 101,635,329 ============= =============
See Notes to Financial Statements. - -------------------------------------------------------------------------------- 5 SELECTED PER SHARE DATA MASSMUTUAL PARTICIPATION INVESTORS Selected data for each share of beneficial interest outstanding for the periods ended:
For the nine months For the ended 9/30/97 year ended (Unaudited) 12/31/96 ---------- --------- Net asset value: Beginning of year $ 10.54 $ 10.34 ---------- --------- Net investment income .65 .76 Net realized and unrealized gain on investments 1.65 .42 ---------- --------- Total from investment operations 2.30 1.18 ---------- --------- Dividends from net investment income to common shareholders (0.41) (0.78) Distributions from net realized gain on investments to common shareholders -- (0.20) ---------- --------- Total distributions (0.41) (.98) Net asset value: End of period $ 12.43 $ 10.54 ========== ========= Per share market value: End of period $ 10.88 $ 9.25 ========== ========= Total investment return: Market value 22.32%* 15.40% Net asset value 22.28%* 14.60% Net assets (in millions): End of period $ 114.60 $ 97.15 Ratio of operating expenses to average net assets .84%* 1.11% Ratio of interest expenses to average net assets .64%* .85% Ratio of expenses to average net assets 1.48%* 1.96% Ratio of net investment income to average net assets 5.76%* 7.18% Portfolio turnover 57.59%* 68.48%
*Percentages represent results for the period and are not annualized. See Notes to Financial Statements. - -------------------------------------------------------------------------------- 6 SCHEDULE OF INVESTMENTS MASSMUTUAL PARTICIPATION INVESTORS September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities - 73.46%: (A) Amount Date Date (Note 2B) (Note 2A) ------------- ----------- -------------- --------- ---------- A.T.-Sentinel, Inc. A leveraged lease transaction guaranteed by E.I Dupont, the chemical company. 9.52% First Preferred Ship Mortgage Note $ 224,041 8/22/89 $ 221,621 $ 227,401 $ 224,982 ----------- ----------- ----------- due 1998 AccTech, LLC A designer and marketer of specialized cleaning products. Senior Floating Rate Revolving Credit Note $ 230,460 10/31/96 230,460 230,460 220,090 due 2002 Senior Secured Series A Floating Rate Note $ 375,250 10/31/96 369,625 375,250 363,617 due 2002 10.1% Senior Secured Series A Note due 2002 $ 563,350 10/31/96 548,928 563,350 548,759 12% Senior Secured Series B Note due 2004 $ 549,000 10/31/96 577,603 498,505 570,740 Membership Interests (B) 2 int. 10/31/96 131,756 166,000 131,756 Warrant, exercisable until 2004, to purchase 1 int. 10/31/96 -- 54,900 -- Membership Interests at $.01 per interest (B) ----------- ----------- ----------- 1,858,372 1,888,465 1,834,962 ----------- ----------- ----------- American Exploration Company - A.S.E. An independent oil and gas company engaged principally in the acquisition, development and management of oil and gas properties. 11% Senior Subordinated Note due 2004 $ 1,500,000 12/27/91 1,482,300 1,480,644 1,598,550 Warrant, exercisable until 2004, to purchase 51,671 shs. 12/27/91 24,857 19,356 249,726 common stock at $15.53 per share (B) ----------- ----------- ----------- 1,507,157 1,500,000 1,848,276 ----------- ----------- ----------- 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 $ 166,667 11/23/93 163,267 166,667 173,267 ----------- ----------- ----------- 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 1,584,983 1,682,341 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 1,754,156 1,791,254 ----------- ----------- ----------- Berkshire Medical Center, Inc. A non-profit, regional acute care hospital. 10.5% Senior Note due 1999 $ 616,364 5/15/89 616,364 616,364 631,465 ----------- ----------- ----------- 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 8/16/94 719,776 765,496 810,880 ----------- ----------- ----------- 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. 2/28/89 329,750 197,945 238,244 ----------- ----------- -----------
- -------------------------------------------------------------------------------- 7 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) -------------- ----------- -------------- --------- ---------- 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 $1,541,800 ---------- ---------- ---------- 2003, convertible into common stock at $20.16 per share C&K Manufacturing and Sales Company A manufacturer and distributor of branded packaging and supply products. Senior Secured Floating Rate Revolving $ 325,850 8/29/96 325,850 325,850 308,743 Credit Facility due 2002 Senior Secured Series A Floating Rate Term $1,172,085 8/29/96 1,159,544 1,172,085 1,123,092 Note due 2002 12% Series B Term Note due 2004 $ 266,000 8/29/96 261,877 253,809 255,998 Membership Interests (B) 133 int. 8/29/96 106,400 131,420 106,400 Warrant, exercisable until 2004, to purchase 37 8 int. 8/29/96 -- 13,300 -- Membership Interests at $.01 per interest (B) ---------- ---------- ---------- 1,853,671 1,896,464 1,794,233 ---------- ---------- ---------- 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 $ 108,108 9/29/95 108,108 108,108 107,427 Credit Note due 2000 10% Senior Secured Term Note due 2004 $ 756,756 9/29/95 756,756 756,756 752,594 11.5% Senior Subordinated Note due 2004 $ 472,975 9/29/95 447,855 452,085 471,887 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) ---------- ---------- ---------- 1,391,903 1,396,133 1,475,044 ---------- ---------- ---------- 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 3/31/94 355,012 375,000 344,625 2002, convertible into common stock at $7.31 ---------- ---------- ---------- per share Cirrus Logic, Inc. A designer and manufacturer of integrated circuits. 10.14% Secured Leverage Lease Notes due $ 719,093 11/1/96 697,880 719,093 692,559 2004 10.22% Secured Leverage Lease Notes due $ 677,578 11/1/96 662,536 677,578 658,538 2002 ---------- ---------- ---------- 1,360,416 1,396,671 1,351,097 ---------- ---------- ---------- Classic Sports, Inc. A cable sports television network. Convertible Preferred Stock, convertible into 322 shs. * 272,222 152,062 459,164 common stock at $1,000 per share (B) ---------- ---------- ---------- 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 6/26/89 481,691 466,800 465,960 due 1999 ---------- ---------- ----------
*4/18/95 and 6/3/96. - -------------------------------------------------------------------------------- 8 SCHEDULE OF INVESTMENTS (Continued) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) -------------- ------------- -------------- ----------- ------------- Consumer Product Enterprises, Inc. A manufacturer of colored acrylic felt for consumer use. Senior Secured Floating Rate Revolving $ 73,055 12/8/95 $ 73,055 $ 73,055 $ 73,055 Credit Notes due 2000 10.75% Senior Secured Term Note due 2003 $ 607,103 12/8/95 613,386 607,103 607,770 12% Senior Subordinated Note due 2005 $ 400,287 12/8/95 401,929 380,454 396,885 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) ----------- ----------- ----------- 1,158,272 1,178,318 1,147,612 ----------- ----------- ----------- Contico International, Inc. A developer, manufacturer and marketer of consumer, commercial and industrial plastic products. 12% Senior Subordinated Note due 2003 $ 500,000 3/23/93 522,800 500,000 523,850 ----------- ----------- ----------- Control Devices, Inc. -- O.T.C A producer of high quality electromechanical circuit protector devices and photo-optic sensors. Common Stock (B) 58,000 shs. * 8,737 8,737 782,997 ----------- ----------- ----------- Discount Auto Parts A retailer of auto parts. 9.8% Senior Secured Note due 2003 $ 900,000 11/2/89 869,490 900,000 957,330 ----------- ----------- ----------- 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 $ 216,359 10/24/96 215,040 216,359 215,299 10.16% Senior Term Note due 2002 $ 649,078 10/24/96 649,857 649,078 659,139 12% Senior Subordinated Note due 2003 $ 624,000 10/24/96 638,414 557,136 654,077 Membership Interests (B) 1,491 int. 10/24/96 111,821 152,095 111,821 Warrant, exercisable to 2003, to purchase 896 int. 10/24/96 9 73,745 9 Membership Interests at $.01 per interest (B) ----------- ----------- ----------- 1,615,141 1,648,413 1,640,345 ----------- ----------- ----------- 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 1,752,360 convertible into common stock at $4.26 per share ----------- ----------- ----------- Elgin National Industries, Inc. An operator in the specialty fastener, mineral processing equipment, engineering, construction and electrical distribution industries. 13% Senior Subordinated Note due 2001 $ 1,333,333 9/24/93 1,295,477 1,322,145 1,353,333 10% Preferred Stock 1,560 shs. 9/24/93 117,976 155,950 135,255 Common Stock (B) 107 shs. 9/24/93 10,717 10,717 61,414 Warrant, exercisable from 1998 until 2001, to 112 shs. 9/24/93 11 11,188 64,180 purchase common stock at $.01 per share (B) ----------- ----------- ----------- 1,424,181 1,500,000 1,614,182 ----------- ----------- ----------- Exide Electronics Group, Inc. -- O.T.C A manufacturer and servicer of uninterruptible power systems. Common Stock (B) 45,329 shs. 9/2/92 587,447 592,902 979,694 ----------- ----------- -----------
* 7/29/94 and 10/8/96. - -------------------------------------------------------------------------------- 9 SCHEDULE OF INVESTMENTS (Continued) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) -------------- ------------- -------------- ----------- ------------- 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 Corp. 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 1,521,506 1,575,294 12% Preferred Stock 156 shs. 7/18/97 157,454 155,556 158,060 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 1,750,992 1,762,747 ---------- ---------- ---------- Hardy Oil & Gas USA, Inc. Engages in exploration and development of oil and gas reserves 8.46% Guaranteed Senior Note due 2004 $ 1,500,000 1/11/95 1,452,150 1,500,000 1,541,400 Warrant, exercisable until 2005, to purchase 136,467 shs. 1/11/95 13,500 -- 257,923 common stock at (pounds)1.84 per share (B) ---------- ---------- ---------- 1,465,650 1,500,000 1,799,323 ---------- ---------- ---------- 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 1,161,093 1,371,270 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 1,717,554 1,672,115 ---------- ---------- ---------- Hatco Corporation A specialty chemical company focused on the production of industrial synthetic lubricants and plasticizers Senior Secured Floating Rate Term Loan due $ 1,750,000 1/31/97 1,739,675 1,750,000 1,748,425 2003 ---------- ---------- ---------- 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 -- -- 64,252 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 $ 562,500 11/18/93 556,931 554,824 582,525 Warrant, exercisable until 2001, to purchase 3 shs. 11/18/93 -- 5,118 9,057 common stock at $17,897.31 per share (B) ---------- ---------- ---------- 556,931 559,942 591,582 ---------- ---------- ----------
10 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) -------------- ------------- -------------- ----------- ------------- 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 10.06% Senior Secured Note due 2000 $ 137,625 12/21/90 135,324 137,625 141,382 ----------- ----------- ----------- Hussey Seating Company A manufacturer of spectator seating products Senior Secured Floating Rate Revolving $ 168,750 6/12/96 167,096 168,750 167,383 Note due 2003 Senior Secured Floating Rate Note due 2003 $ 394,565 6/12/96 390,659 394,565 394,565 10% Senior Secured Note due 2003 $ 430,435 6/12/96 419,071 430,435 427,034 12% Subordinated Secured Note due 2006 $ 675,000 6/12/96 663,660 571,665 696,532 Warrant, exercisable until 2006, to purchase 1,776 shs. 6/12/96 18 112,500 18 common stock at $.01 per share (B) ----------- ----------- ----------- 1,640,504 1,677,915 1,685,532 ----------- ----------- ----------- Intermetrics, Inc. A provider of software systems, services and products to a variety of information technology users Senior Floating Rate Revolving Credit Note $ 120,000 5/30/97 120,000 120,000 120,000 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 8/31/95 406,760 357,691 418,243 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 25,418 503 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) ----------- ----------- ----------- 1,214,242 1,230,373 1,206,228 ----------- ----------- ----------- J. Baker, Inc. -- O.T.C A wholesaler and retailer of shoes 11.71% Senior Subordinated Note due 1999 $ 600,000 6/21/89 598,440 600,000 596,460 Warrant, exercisable until 1999, to purchase $ 27,355 6/21/89 2,736 73,285 2,736 common stock at $18.80 per share (B) ----------- ----------- ----------- 601,176 673,285 599,196 ----------- ----------- ----------- 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 1,004,996 13.25% Cumulative Exchangeable Preferred 49 shs. 8/16/95 492,800 411,708 420,518 Stock 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 1,446,045 ----------- ----------- ----------- 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 1,516,102 1,694,339 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 1,682,802 1,730,637 ----------- ----------- -----------
11 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) -------------- ------------- -------------- ----------- ------------- 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 9/30/97 813,750 813,750 982,847 Membership Interests of LFPI Mainstreet (B) 936 uts. 9/30/97 936,250 936,250 749,000 ----------- ----------- ----------- 1,750,000 1,750,000 1,731,847 ----------- ----------- ----------- 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 1,106,966 Limited Partnership Interests (B) 284 uts. 10/20/95 253,125 366,629 292,994 Warrant, exercisable until 2004 to purchase 148 uts. 10/26/95 148 -- 153,047 Limited Partnership Interests at $.01 per unit (B) ----------- ----------- ----------- 1,442,398 1,379,129 1,553,007 ----------- ----------- ----------- 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 6/28/95 230,769 230,769 229,015 Facility due 2001 Common Stock (B) 38,462 shs. 6/28/95 96,059 115,386 86,540 Warrant, exercisable from 1998 until 2005, 19,795 shs. 6/28/95 49,325 85,714 19,795 to purchase common stock at $.01 per share (B) ----------- ----------- ----------- 376,153 431,869 335,350 ----------- ----------- ----------- N2K, Inc. A music entertainment company, which uses the internet as a global platform for the promoting and merchandising of music and related merchandise 14% Senior Note due 1998 $ 500,000 8/6/97 496,800 500,000 498,300 Warrant, exercisable until 2004, to purchase 13,889 shs. 8/6/97 556 -- 556 common stock at $12 per share (B) ----------- ----------- ----------- 497,356 500,000 498,856 ----------- ----------- ----------- NM Holdings LLC A company created to acquire motion picture film rights from Twentieth Century Fox 10% Senior Note due 2001 $ 500,000 6/28/96 490,300 500,000 500,750 12% Subordinated Note due 2001 $ 490,000 6/28/96 491,078 490,000 500,192 Membership Interests 10,000 int. 6/28/96 7,500 1,213 7,500 ----------- ----------- ----------- 988,878 991,213 1,008,442 ----------- ----------- ----------- 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 8/31/94 712,959 705,900 751,148 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 1,786,575 ----------- ----------- -----------
* 2/14/95, 12/1/95 and 2/27/96. - -------------------------------------------------------------------------------- 12 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) -------------- ------------- -------------- ----------- ------------- 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 $ 856,416 8% Convertible Preferred Stock due 2001, 83,333 shs. 2/5/93 166,667 166,667 159,067 convertible into common stock at $2 per share Common Stock (B) 133,333 shs. 2/5/93 333,333 333,333 153,600 ----------- ----------- ----------- 1,332,000 1,333,333 1,169,083 ----------- ----------- ----------- 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 1,740,900 ----------- ----------- ----------- 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 11/30/95 425,958 408,750 427,021 10.5% Senior Secured Convertible Note due $ 97,500 11/30/95 102,668 97,500 109,356 2005, convertible into common stock at $50,000 per share Common Stock 3 shs. 11/30/95 113,906 169,000 105,260 ----------- ----------- ----------- 642,532 675,250 641,637 ----------- ----------- ----------- 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 1,125,567 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 1,344,735 ----------- ----------- ----------- Plastipak Packaging, Inc. A manufacturer of plastic containers. 10.64% Senior Subordinated Note due 2006 $ 1,750,000 10/25/96 1,701,875 1,707,292 1,752,450 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 1,754,105 1,783,551 ----------- ----------- ----------- Precision Dynamics, Inc. A manufacturer of custom-designed solenoid valves and controls. Senior Secured Floating Rate Revolving $ 317,850 7/22/96 314,703 317,850 315,116 Credit Facility due 2003 Senior Secured Floating Rate Term Note $ 1,450,700 7/22/96 1,436,483 1,450,700 1,439,385 due 2003 12% Senior Secured Term Note due 2004 $ 245,000 7/22/96 241,766 200,254 249,826 8% Preferred Stock 116 shs. 7/22/96 110,120 115,911 110,115 Common Stock (B) 299 shs. 7/22/96 10,849 14,489 10,847 Warrant, exercisable until 2004, to purchase 162 shs. 7/22/96 2 49,000 2 common stock at $.01 per share (B) ----------- ----------- ----------- 2,113,923 2,148,204 2,125,291 ----------- ----------- ----------- 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 1,000,000 975,600 Common Membership Interests 4 int. 7/31/97 11 12 11 ----------- ----------- ----------- 983,811 1,000,012 975,611 ----------- ----------- -----------
* 12/20/96, 3/20/97 and 6/20/97. - -------------------------------------------------------------------------------- 13 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) --------------- ------------- -------------- ------------ -------------- 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 $ 344,080 11.51% Junior Secured Note due 1999 $ 200,000 8/12/94 195,760 200,000 166,640 9.8% Redeemable Exchangeable Preferred Stock 3,333 shs. 8/12/94 282,633 333,333 141,767 Common Stock (B) 497 shs. 8/12/94 5 -- 4 ------------ ------------ ------------ 873,118 933,333 652,491 ------------ ------------ ------------ 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 2/16/93 799,575 750,000 832,725 Common Stock (B) 17,750 shs. 2/16/93 170,400 170,400 286,662 ------------ ------------ ------------ 969,975 920,400 1,119,387 ------------ ------------ ------------ Rent-Way, Inc. -- O.T.C Operates rent-to-own stores in Ohio, Pennsylvania and New York. 10% Convertible Subordinated Note due $ 1,000,000 7/18/95 995,610 1,000,000 1,912,700 2002, convertible into common stock at $9.94 per share Warrant, exercisable until 2002, to purchase 10,000 shs. 7/18/95 -- -- 97,930 common stock at $9.94 per share (B) ------------ ------------ ------------ 995,610 1,000,000 2,010,630 ------------ ------------ ------------ 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 1,209,142 932,239 1,113,665 Limited Partnership Interests of KS Holdings, L.P. (B) 3,593 uts. 12/14/95 269,475 339,371 269,475 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 1,511,157 1,384,503 ------------ ------------ ------------ Star International Holdings, Inc. A manufacturer of commercial cooking appliances. 9.65% Senior Secured Note due 2004 $ 382,835 5/27/94 382,835 382,835 383,907 10.5% Subordinated Note due 2004 $ 179,104 5/27/94 179,104 179,104 176,203 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) ------------ ------------ ------------ 626,851 626,843 595,483 ------------ ------------ ------------ Stonehurst I LLC A wholly-owned subsidiary of Tenneco, Inc., whose business includes natural gas, auto parts and packaging. Floating Rate Subordinated Note due 2004 $ 1,444,500 12/29/94 1,444,500 1,444,500 1,444,500 5.05% Membership Interest 5,050 int. 12/29/94 55,000 47,618 55,500 ------------ ------------ ------------ 1,499,500 1,492,118 1,500,000 ------------ ------------ ------------ 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 1,234,856 1,366,719 Limited Partnership Interests of Green Grass 40,774 uts. 3/13/97 146,786 223,750 146,786 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 1,798,967 1,779,392 ------------ ------------ ------------
- -------------------------------------------------------------------------------- 14 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) --------------- ------------- -------------- ------------ -------------- 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 $ 853,271 $ 857,150 8% Convertible Redeemable Preferred Stock 4,122 shs. 8/8/97 847,613 875,000 858,025 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 1,750,220 1,715,183 ------------ ------------ ------------ 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 1,241,051 Convertible Preferred Stock, convertible into common stock at $1,000 per share (B) 560 shs. 7/25/96 504,000 560,000 504,000 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 1,745,072 ------------ ------------ ------------ 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 1,182,028 1,274,520 due 2000 Common Stock (B) 203,165 shs. * 314,108 598,597 3,006,842 Warrant, exercisable until 2001, to purchase 74,606 shs. 3/28/91 7,461 42,000 889,304 common stock at $3.60 per share (B) ------------ ------------ ------------ 1,595,849 1,822,625 5,170,666 ------------ ------------ ------------ 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 1,332,836 Limited Partnership Interests of Riverside V 1,091 uts. 3/21/97 133,532 147,832 133,532 Holding Company L.P. Limited Partnership Interests of Riverside V-A 2,335 uts. 3/21/97 302,511 316,309 302,511 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) ------------ ------------ ------------ 1,733,996 1,720,941 1,770,443 ------------ ------------ ------------ 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 1,152,316 1,383,893 Limited Partnership Interests (B) 4,123 uts. 6/17/97 371,070 412,300 371,070 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 1,753,152 1,754,969 ------------ ------------ ------------ U.S. Netting, Inc. A manufacturer of plastic netting for a wide variety of industries. 11% Senior Secured Note due 2005 $ 792,200 5/3/95 876,015 792,200 862,864 12% Subordinated Note due 2005 $ 326,200 5/3/95 367,008 310,751 374,445 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 1,316,642 1,262,648 ------------ ------------ ------------
*3/28/91, 12/18/91, 9/30/92, 9/30/93, 9/30/94, 3/31/95 and 5/9/95. - -------------------------------------------------------------------------------- 15 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Units, Warrants or Fair Value Fair Value Principal Acquisition at Acquisition Cost at 9/30/97 Corporate Restricted Securities: (A) (Continued) Amount Date Date (Note 2B) (Note 2A) --------------- ------------- -------------- ------------ -------------- U.S. Silica Company A producer of high grade industrial and specialty ground silica sands in North America. 15% Senior Subordinated Notes due 2005 $ 1,184,288 * $ 1,257,584 $ 1,184,223 $ 1,276,426 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) ------------ ------------ ------------ 1,701,547 1,767,588 1,717,118 ------------ ------------ ------------ 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 1,203,650 1,181,875 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 1,515,775 1,369,687 ------------ ------------ ------------ Unipac Corporation A manufacturer of laminated materials which are used to seal a variety of packaging containers. Senior Secured Floating Rate Note due 2002 $ 197,109 2/9/96 195,020 197,109 197,109 12% Senior Secured Note due 2004 $ 121,875 2/9/96 123,435 110,748 130,894 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. ** 56,194 108,617 162,594 Holding Company L.P. (B) Warrant, exercisable from 2000 until 2004, 21 uts. 2/9/96 2 20,156 54,711 to purchase Limited Partnership Interests of Riverside II Holding Company L.P. at $.01 per unit ------------ ------------ ------------ 730,901 792,880 901,558 ------------ ------------ ------------ US Air, Inc. A domestic and international airline. 10.8% Series A Secured Loan Certificates $ 430,259 6/29/94 365,720 377,072 439,424 due 2003 ------------ ------------ ------------ Valero Energy Corporation An owner and operator of a specialized petroleum refinery and engages in petroleum product marketing operations. 10.58% Senior Note due 2000 $ 285,714 12/20/90 290,477 285,714 295,600 ------------ ------------ ------------ Victory Ventures, LLC Acquires controlling or substantial interests in other entities. Series A Preferred Units (B) 2,817 uts. 12/2/96 3,175 15,874 26,765 ------------ ------------ ------------ Sub-Total Corporate Restricted Securities $ 76,743,938 77,407,580 84,158,730 ============ ------------ ------------
* 12/19/96 and 2/15/97. ** 2/9/96 and 9/25/96. - -------------------------------------------------------------------------------- 16 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Warrants or Market Value Interest Due Principal Cost at 9/30/97 RULE 144A SECURITIES: (A) Rate Date Amount (Note 2B) (Note 2A) -------- -------- ----------- ----------- ------------ BONDS -- 17.99% ADV Accessory & AAS CAP 9.750% 10/01/07 $ 575,000 $ 574,996 $ 575,000 Amtran, Inc. 10.500 08/01/04 500,000 500,000 510,000 Anchor Advanced Products 11.750 04/01/04 560,000 581,750 596,400 Archibald Candy Corp. 10.250 07/01/04 420,000 420,000 441,000 Atlantic Coast Airlines Inc. 8.750 01/01/07 783,000 784,063 790,830 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 1,030,000 Aurora Foods, Inc. 9.875 02/15/07 750,000 768,750 772,500 Doskocil Manufacturing Co., Inc. 10.125 09/15/07 100,000 100,000 103,000 Enserch Exploration, Inc. 7.540 01/02/09 1,000,000 1,000,000 1,003,750 H M H Properties, Inc. 8.875 07/15/07 250,000 250,000 256,875 I C N Pharmaceuticals, Inc. 9.250 08/15/05 350,000 350,000 364,875 Indah Kiat Pulp & Paper Corporation 10.000 07/01/07 700,000 695,429 684,250 Integrated Health Services 9.250 01/15/08 750,000 750,000 761,250 International Wire Group 11.750 06/01/05 450,000 489,375 492,750 ITT Publicmedia BV 9.375 09/15/07 420,000 425,475 436,800 Jordan Industries, Inc. 10.375 08/01/07 300,000 300,000 309,000 Jordan Telecom Products 9.875 08/01/07 1,050,000 1,040,798 1,078,875 L-3 Corporation 10.375 05/01/07 400,000 400,000 433,000 McLeod USA Incorporated 9.250 07/15/07 300,000 300,000 321,000 Neenah Corporation 11.125 05/01/07 250,000 250,000 271,875 Nortek, Inc. 9.125 09/01/07 450,000 446,364 454,500 Rogers Cantel Inc. 8.300 10/01/07 750,000 747,990 750,000 Shoppers Food Warehouse 9.750 06/15/04 475,000 475,219 485,688 Southern Foods 9.875 09/01/07 450,000 450,000 465,750 Sovereign Speciality Chemicals 9.500 08/01/07 175,000 175,000 178,500 Speedway Motorsports, Inc. 8.500 08/15/07 225,000 224,388 226,688 T C W Leveraged Income Trust, LP 8.410 03/31/04 1,500,000 1,500,000 1,545,000 Telex Communications, Inc. 10.500 05/01/07 1,250,000 1,261,250 1,278,125 Therma-Wave, Inc. 10.625 05/15/04 370,000 375,625 396,825 Tjiwi Kima Fin Mauritius LTD 10.000 08/01/04 375,000 372,956 367,969 United Refining Company 10.750 06/15/07 1,400,000 1,400,000 1,442,000 Von Hoffman Press, Inc. 10.375 05/15/07 325,000 327,250 344,500 W R Carpenter North America 10.625 06/15/07 550,000 556,344 558,250 Wavetek Corporation 10.125 06/15/07 110,000 110,000 114,400 Williams Scotsman, Inc. 9.875 06/01/07 400,000 400,000 404,000 ----------- ---------- ---------- SUBTOTAL RULE 144A BONDS $20,063,000 20,165,272 20,616,225 =========== ---------- ---------- CONVERTIBLE BONDS -- 5.53% Continental Airlines, Inc. 6.750 04/15/06 $ 300,000 278,625 426,750 Costco Companies, Inc. 0.000 08/19/17 600,000 300,984 321,000 CUC International, Inc. 3.000 02/15/02 600,000 600,000 698,250 Cymer Inc. 3.500 08/06/04 175,000 176,000 159,250 Grand Metropolitan PLC 6.500 01/31/00 200,000 200,000 285,000 Halter Marine 4.500 09/15/04 150,000 150,000 176,250 Interpublic Group Company 1.800 09/16/04 200,000 160,214 165,500 Key Energy Group 5.000 09/15/04 500,000 500,000 508,750 Level One Communications, Inc. 4.000 09/01/04 200,000 200,000 233,000 Molten Metal Technology 5.500 05/01/06 450,000 450,000 184,500 Roche Holdings, Inc. 0.000 05/06/12 3,125,000 1,250,396 1,375,000 Scholastic Corp. 5.000 08/15/05 600,000 484,688 540,000 Smartalk Teleservices 5.750 09/15/04 300,000 300,000 327,000 Tel-Save 4.500 09/15/02 500,000 500,000 575,000 Thermo Electron Corporation 4.250 01/01/03 175,000 175,000 204,312 Tower Automotive, Inc. 5.000 08/01/04 150,000 150,000 159,375 ----------- --------- --------- SUBTOTAL RULE 144A CONVERTIBLE BONDS $ 8,225,000 5,875,907 6,338,937 =========== --------- ---------
------------------------------------------------------------------------------- 17 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited)
Shares, Warrants or Market Value Interest Due Principal Cost at 9/30/97 RULE 144A SECURITIES: (A) (Continued) Rate Date Amount (Note 2B) (Note 2A) -------- ---- ----------- ------------ ------------ CONVERTIBLE PREFERRED STOCK -- 1.14% D T Industries 20,000 $ 1,000,000 $ 1,100,000 Qualcomm Financial Trust 3,860 193,000 206,028 ------------ ------------ SUBTOTAL RULE 144A CONVERTIBLE PREFERRED STOCK 1,193,000 1,306,028 ------------ ------------ TOTAL RULE 144A SECURITIES 27,234,179 28,261,190 ------------ ------------ TOTAL CORPORATE RESTRICTED SECURITIES 104,641,759 112,419,920 ------------ ------------ CORPORATE PUBLIC SECURITIES: BONDS -- 7.98% Airplanes Pass Thru Trust 8.150% 03/15/19 $1,500,000 1,498,674 1,564,395 Amphenol Corporation 9.875 05/15/07 200,000 200,000 208,000 Callon Petroleum Company 10.125 09/15/02 250,000 248,560 250,000 Central Rents, Inc. 12.875 12/15/03 800,000 751,650 812,000 Chesapeake Energy Corporation 8.500 03/15/12 250,000 229,812 243,125 Data Documents, Inc. 13.500 07/15/02 1,429,000 1,433,158 1,614,770 Dawson Production Services 9.375 02/01/07 400,000 394,000 417,000 Decisionone Corporation 9.750 08/01/07 75,000 75,000 78,375 Decorative Home Accents, Inc. 13.000 06/30/02 350,000 350,000 157,500 Florist Transworld Delivery, Inc. 14.000 12/15/01 375,000 385,688 412,500 Great American Cookie Co. 10.875 01/15/01 585,000 574,500 596,700 Hosiery Corporation of America 13.750 08/01/02 500,000 493,900 540,000 Key Plastics, Inc. 14.000 11/15/99 350,000 354,912 394,765 Northwest Airlines Corp. 12.092 12/31/00 395,372 408,222 408,222 Northwest Airlines Corp. 8.970 01/02/15 982,308 982,308 1,083,328 Pierce Leahy Corp. 9.125 07/15/07 75,000 75,000 78,562 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 75,000 ---------- --------- --------- TOTAL BONDS $8,791,680 8,732,413 9,138,242 ========== --------- --------- COMMON STOCK -- 3.76% 4Health Inc. (B) 6,000 33,375 28,872 American Country Holdings Inc. (B) 54,000 188,722 118,098 Atlas Air, Inc. (B) 2,600 52,650 72,961 Avis Rent A Car, Inc. (B) 1,650 28,050 39,394 Bell & Howell Company (B) 6,300 180,337 204,353 Benson Petroleum, LTD. (B) 100,000 77,204 126,700 Central Rents, Inc. 930 33,722 46,500 Chesapeake Energy Corporation 5,000 168,125 56,875 Collins & Aikman Corporation (B) 17,400 104,238 191,400 Complete Business Solutions (B) 5,000 141,250 142,500 Data Documents, Inc. (B) 10,717 16 226,397 Dawson Production Services (B) 19,492 245,578 411,768 Decorative Home Accents, Inc. (B) 350 -- -- Edutrek International (B) 750 10,500 19,969 Florida Panthers Holdings, Inc. (B) 12,000 231,000 282,744 Florist Transworld Delivery, Inc. (B) 4,687 13,754 37,496 Gulf Indonesia Resources, Ltd. (B) 3,000 58,500 66,750 Hosiery Corporation of America (B) 500 -- 35,000 J. D. Edwards & Company 1,500 34,500 50,250 LCS Industries, Inc. 15,000 234,356 285,000 Marker International (B) 30,000 187,500 157,500 Network Solutions, Inc. (B) 750 13,500 16,312 NextLink Communications, Inc. (B) 6,900 117,300 165,600 Red Roof Inns, Inc. (B) 19,200 272,607 364,800 Republic Industries, Inc. (B) 15,000 368,438 494,055 Staffing Resources, Inc. (B) 45,000 247,500 360,000 Startek, Inc. (B) 22,500 351,525 305,145 --------- --------- TOTAL COMMON STOCK 3,394,247 4,306,439 --------- ---------
- -------------------------------------------------------------------------------- 18 Schedule of Investments (Continued) September 30, 1997 (Unaudited)
Shares, Yield/ Warrants or Market Value Interest Due Principal Cost at 9/30/97 CORPORATE PUBLIC SECURITIES: (Continued) Rate Date Amount (Note 2B) (Note 2A) -------- -------- ----------- ------------ ------------- CONVERTIBLE BONDS -- 3.35% Continental Airlines 6.750% 04/15/06 $ 200,000 $ 185,500 $ 284,500 Dura Pharmaceuticals 3.500 07/15/02 450,000 454,219 477,000 Hilton Hotels 5.000 05/15/06 695,000 695,000 823,575 Home Depot, Inc. 3.250 10/01/01 335,000 332,238 409,538 Kent Electronics 4.500 09/01/04 150,000 150,000 150,375 Loews Corp. 3.125 09/15/07 750,000 750,000 781,875 Reptron Electronics Inc. 6.750 08/01/04 100,000 100,000 95,000 Savoy Pictures Entertainment 7.000 07/01/03 650,000 505,375 565,500 USA Waste Services, Inc. 4.000 02/01/02 225,000 225,000 247,500 ---------- ------------ ------------ TOTAL CONVERTIBLE BONDS $3,555,000 3,397,332 3,834,863 ========== ------------ ------------ CONVERTIBLE PREFERRED STOCK -- 0.11% Sinclair Broadcasting Group, Inc. (B) 2,500 125,000 133,438 ------------ ------------ TOTAL CONVERTIBLE PREFERRED STOCK 125,000 133,438 ------------ ------------ Total Corporate Public Securities 15,648,992 17,412,982 ------------ ------------ Total Investments -- 113.32% $120,290,751 129,832,902 ============ ------------ Other Assets -- 5.14 5,893,743 Liabilities -- (18.46) (21,157,586) ------- ------------ TOTAL NET ASSETS -- 100.00% $114,569,059 ======= ============
(A) In each of the convertible note, warrant, convertible preferred and common stock investments, the issuer has agreed to provide certain registration rights. (B) Nonincome producing security. - -------------------------------------------------------------------------------- 19 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited) INDUSTRY CLASSIFICATION
Fair Value at 9/30/97 CORPORATE RESTRICTED SECURITIES: (Note 2A) ---------- ADVERTISING -- .15% Ammirati & Puris, Inc. $ 173,267 ----------- AUTO PARTS -- .14% Tower Automotive, Inc. 159,375 ----------- BEVERAGES -- 1.56% Associated Vintage Group, Inc. 1,791,254 ----------- BUILDING MATERIALS -- .91% Highland Homes Holdings, Inc. 591,582 Nortek, Inc. 454,500 ----------- 1,046,082 ----------- CHEMICAL -- 4.98% A.T.-Sentinel, Inc. 224,982 AccTech, LLC 1,834,962 Hatco Corporation 1,748,425 Sovereign Speciality Chemicals 178,500 TACC International Corporation 1,715,183 ----------- 5,702,052 ----------- COMMUNICATIONS -- 5.04% Classic Sports, Inc. 459,164 Jordan Industries, Inc. 309,000 Jordan Telecom Products 1,078,875 Latin Communications Group 442,190 Level One Communications, Inc. 233,000 McLeod USA Incorporated 321,000 Rogers Cantel Inc. 750,000 Smartalk Teleservices 327,000 TelSave 575,000 Telex Communications, Inc. 1,278,125 ----------- 5,773,354 ----------- ELECTRICAL EQUIPMENT/ ELECTRONICS -- 7.19% Catalina Lighting, Inc. 344,625 Cirrus Logic, Inc. 1,351,097 Control Devices, Inc. 782,997 Exide Electronics Group, Inc. 979,694 Intermetrics, Inc. 1,206,228 International Wire Group 492,750 Nu Horizons Electronics Corp. 751,148 Precision Dynamics, Inc. 2,125,291 Thermo Electron Corporation 204,312 ----------- 8,238,142 ----------- Fair Value at 9/30/97 CORPORATE RESTRICTED SECURITIES: (Continued) (Note 2A) ---------- HEALTH CARE -- 2.07% Berkshire Medical Center, Inc. $ 631,465 I C N Pharmaceuticals, Inc. 364,875 Roche Holdings, Inc. 1,375,000 ----------- 2,371,340 ----------- MANUFACTURING -- INDUSTRIAL AND CONSUMER PRODUCTS -- 28.16% C&K Manufacturing and Sales Company 1,794,233 Consumer Product Enterprises, Inc. 1,147,612 Contico International, Inc. 523,850 CUC International, Inc. 698,250 Cymer Inc. 159,250 Doskocil Manufacturing Co., Inc. 103,000 Elgin National Industries, Inc. 1,614,182 Fleming Acquisition Corporation 17,666 Golden Bear Acquisition Corp. 1,762,747 Hartzell Manufacturing, Inc. 1,672,115 Hein-Werner Corp. 64,252 Hudson River Capital, LLC 210,735 Hussey Seating Company 1,685,532 Jackson Products, Inc. 1,446,045 Kappler Safety Group, Inc. 1,730,637 Maxtec International Corp. 335,350 Pacific Coast Feather Company 1,786,575 PAR Acquisition Corp. 1,169,083 Plastipak Packaging, Inc. 1,783,551 Sequentia, Inc. 1,384,503 Star International Holdings, Inc. 595,483 Swing N'Slide Corporation 1,779,392 Trend Plastics, Inc. 1,770,443 Truseal Technologies, Inc. 1,754,969 U.S. Netting, Inc. 1,262,648 U.S. Silica Company 1,717,118 Unidata, Inc. 1,369,687 Unipac Corporation 901,558 Victory Ventures, LLC 26,765 ----------- 32,267,231 ----------- METAL FABRICATING -- .16% Molten Metal Technology 184,500 ----------- MISCELLANEOUS -- 20.57% ADV Accessory & AAS CAP 575,000 Anchor Advanced Products 596,400 Archibald Candy Corp. 441,000 Aurora Foods, Inc. 772,500 Boyle Leasing Technologies, Inc. 810,880
- -------------------------------------------------------------------------------- 20 SCHEDULE OF INVESTMENTS (CONTINUED) September 30, 1997 (Unaudited) INDUSTRY CLASSIFICATION (Continued)
Fair Value at 9/30/97 CORPORATE RESTRICTED SECURITIES: (Continued) (Note 2A) ---------- MISCELLANEOUS (Continued) D T Industries $ 1,100,000 Eagle Pacific Industries, Inc. 1,752,360 Enserch Exploration, Inc. 1,003,750 H M H Properties, Inc. 256,875 Halter Marine 176,250 Indah Kiat Pulp & Paper Corporation 684,250 Key Energy Group 508,750 L-3 Corporation 433,000 Lloyd's Barbecue Company 1,731,847 N2K, Inc. 498,856 Neenah Corporation 271,875 NM Holdings LLC 1,008,442 Paribas Capital Funding LLC 1,740,900 Process Chemicals, LLC 975,611 Protein Genetics, Inc. 652,491 Qualcomm Financial Trust 206,028 Southern Foods 465,750 Speedway Motorsports, Inc. 226,688 Stonehurst I LLC 1,500,000 T C W Leveraged Income Trust, LP 1,545,000 Therma-Wave, Inc. 396,825 Tjiwi Kima Fin Mauritius LTD 367,969 United Refining Company 1,442,000 Von Hoffman Press, Inc. 344,500 W R Carpenter North America 558,250 Wavetek Corporation 114,400 Williams Scotsman, Inc. 404,000 ----------- 23,562,447 ----------- OIL AND GAS SERVICE -- 9.52% American Exploration Company 1,848,276 BP Prudhoe Bay Royalty Trust 238,244 Hardy Oil & Gas USA, Inc. 1,799,323 Maloney Industries, Inc. 1,553,007 TransMontaigne Oil Company 5,170,666 Valero Energy Corporation 295,600 ----------- 10,905,116 ----------- Fair Value at 9/30/97 CORPORATE RESTRICTED SECURITIES: (Continued) (Note 2A) ---------- PUBLISHING -- .47% Scholastic Corp. $ 540,000 ------------ RECREATIONAL SUPPLIES/ EQUIPMENT -- .41% Coast Distribution System, The 465,960 ------------ RETAILING -- 5.91% Cains Foods, L.P. 1,475,044 Costco Companies, Inc. 321,000 Discount Auto Parts 957,330 Grand Metropolitan PLC 285,000 J. Baker, Inc. 599,196 Pharmaceutical Buyers Inc. 641,637 Rent-Way, Inc. 2,010,630 Shoppers Food Warehouse 485,688 ------------ 6,775,525 ------------ SERVICES -- 10.88% Amtran, Inc. 510,000 Atlantic Coast Airlines Inc. 790,830 Atlantic Express 371,000 Atlas Air, Inc. 1,030,000 Budget Group, The 1,541,800 Continental Airlines, Inc. 426,750 Diversco, Inc. 1,640,345 Hunton & Williams 141,382 Integrated Health Services 761,250 Interpublic Group Company 165,500 ITT Publicmedia BV 436,800 Piedmont Holding, Inc. 1,344,735 RailTex, Inc. 1,119,387 Tidewater Holdings, Inc. 1,745,072 US Air, Inc. 439,424 ------------ 12,464,275 ------------ TOTAL CORPORATE RESTRICTED SECURITIES -- 98.12% $112,419,920 ============
- -------------------------------------------------------------------------------- 21 NOTES TO FINANCIAL STATEMENTS MASSMUTUAL PARTICIPATION INVESTORS (Unaudited) 1. History MassMutual Participation Investors (the "Trust") was organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated April 7, 1988. The Trust is a closed-end diversified management investment company, whose investment objective is to maximize total return by providing a high level of current income, the potential for growth of such income, and capital appreciation, by investing primarily in a portfolio of privately placed fixed-income securities, at least half of which normally will include equity features. 2. Significant Accounting Policies The following is a summary of significant accounting policies followed consistently by the Trust in the preparation of the financial statements in conformity with generally accepted accounting principles. A. Valuation of Investments: Valuation of a security in the Trust's portfolio is made on the basis of market price whenever market quotations are readily available and all securities of the same class held by the Trust can be readily sold in such market. 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 $112,419,920 (98.12% of net assets) as of September 30, 1997 ($75,012,726 at September 30, 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 September 30, 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 shortterm securities having a maturity of sixty days or less are valued at amortized cost which approximates market value. - -------------------------------------------------------------------------------- 22 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 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. - -------------------------------------------------------------------------------- 23 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 September 30, 1997, there were $5,000,000 in outstanding loans against the Revolver. For the period from May 29, 1997 through September 30, 1997, the Fund incurred $8,657 of expense related to the undrawn portion. 5. Purchases and Sales of Investments
FOR THE FOR THE NINE MONTHS NINE MONTHS ENDED 9/30/97 ended 9/30/96 --------------- --------------- Cost of Investments Acquired -------------------------------- Corporate restricted securities $ 60,701,631 $ 20,368,586 Corporate public securities 13,671,382 22,399,217 Short-term securities 168,830,059 256,416,380 PROCEEDS FROM SALES OR MATURITIES --------------------------------- Corporate restricted securities $ 41,028,759 $ 17,835,481 Corporate public securities 24,521,685 25,093,769 Short-term securities 173,842,605 257,716,600
The aggregate cost of investments is the same for financial reporting and federal income tax purposes as of September 30, 1997. The net unrealized appreciation of investments for financial reporting and federal tax purposes as of September 30, 1997 is $9,542,151 and consists of $14,259,894 appreciation and $4,717,743 depreciation. The aggregate cost of investments was the same for financial reporting and federal income tax purposes as of September 30, 1996. The net unrealized appreciation of investments for financial reporting and federal tax purposes as of September 30, 1996 was $6,630,766 and consisted of $11,130,091 appreciation and $4,499,325 depreciation. 6. Quarterly Results of Investment Operations
PER PER AMOUNT SHARE AMOUNT SHARE --------- ----- ------ ----- MARCH 31, 1997 MARCH 31, 1996 ------------------ -------------------- 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) JUNE 30, 1997 JUNE 30, 1996 ----------------- -------------------- 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 ------------------ ------------------ 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
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