MassMutual
Participation Investors
Report for the
Nine Months Ended September 30, 2008
[LOGO]
ADVISER
Babson Capital Management LLC
1500 Main Street, P.O. 15189
Springfield, Massachusetts 01115-5189
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
Boston, Massachusetts 02110
COUNSEL TO THE TRUST
Ropes & Gray LLP
Boston, Massachusetts 02110
CUSTODIAN
Citibank, N.A.
New York, New York 10043
TRANSFER AGENT & REGISTRAR
Shareholder Financial Services, Inc.
P.O. Box 173673
Denver, Colorado 80217-3673
1-800-647-7374
INTERNET WEBSITE
www.babsoncapital.com/mpv
MassMutual Participation Investors
c/o Babson Capital Management LLC
[LOGO] 1500 Main Street, Suite 600
Springfield, Massachusetts 01115
(413) 226-1516
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INVESTMENT OBJECTIVE AND POLICY
MassMutual Participation Investors (the "Trust") is a closed end management
investment company, first offered to the public in 1988, whose shares are traded
on the New York Stock Exchange under the trading symbol "MPV". The Trust's share
price can be found in the financial section of most newspapers as "MassPrt" or
"MassMuPrt" under the New York Stock Exchange listings or Closed-End Fund
Listings.
The Trust's investment objective is to maximize total return by providing a high
level of current income, the potential for growth of income, and capital
appreciation. The Trust's principal investments are privately placed,
below-investment grade, long-term debt obligations purchased directly from their
issuers, which tend to be smaller companies. At least half of these investments
normally include equity features such as common stock, warrants, conversion
rights, or other equity features that provide the Trust with the opportunity to
realize capital gains. The Trust will also invest in publicly traded debt
securities (including high yield securities), again with an emphasis on those
with equity features, and in convertible preferred stocks and, subject to
certain limitations, readily marketable equity securities. Below investment
grade or high yield securities have predominantly speculative characteristics
with respect to the capacity of the issuer to pay interest and repay principal.
In addition, the Trust may temporarily invest in high quality, readily
marketable securities.
Babson Capital Management LLC ("Babson Capital") manages the Trust on a total
return basis. The Trust distributes substantially all of its net income to
shareholders each year. Accordingly, the Trust pays dividends to shareholders
quarterly in January, May, August, and November. All registered shareholders are
automatically enrolled in the Dividend Reinvestment and Cash Purchase Plan
unless cash distributions are requested.
FORM N-Q
The Trust files its complete schedule of portfolio holdings with the U.S.
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. This information is available (i) on the SEC's
website at http://www.sec.gov; and (ii) at the SEC's Public Reference Room in
Washington, DC (which information on their operation may be obtained by calling
1-800-SEC-0330). A complete schedule of portfolio holdings as of each quarter
end is available upon request by calling, toll-free, 866-399-1516.
PROXY VOTING POLICIES & PROCEDURES; PROXY VOTING RECORD
The Trustees of the Trust have delegated proxy voting responsibilities relating
to the voting of securities held by the Trust to Babson Capital. A description
of Babson Capital's proxy voting policies and procedures is available (1)
without charge, upon request, by calling, toll-free 866-399-1516; (2) on the
Trust's website: http://www.babsoncapital.com/mpv; and (3) on the SEC's website
at http://www.sec.gov. Information regarding how the Trust voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available (1) on the Trust's website:
http://www.babsoncapital.com/mpv; and (2) on the SEC's website at
http://www.sec.gov.
MPV
Listed
NYSE
MassMutual Participation Investors
TO OUR SHAREHOLDERS
October 31, 2008
We are pleased to present the September 30, 2008 Quarterly Report of MassMutual
Participation Investors (the "Trust").
The Board of Trustees declared a quarterly dividend of 25 cents per share,
payable on November 14, 2008 to shareholders of record on October 31, 2008. The
Trust had previously paid a 25 cent per share dividend for the preceding
quarter.
During the quarter ended September 30, 2008, net assets of the Trust decreased
to $121,973,464 or $12.29 per share compared to $125,650,592 or $12.68 per share
on June 30, 2008, which translates into a -1.13% total return for the quarter,
based on the change in the Trust's net assets assuming the reinvestment of all
dividends. Longer term, the Trust returned 1.14%, 15.73%, and 12.22% for the 1-,
5- and 10-year time periods, respectively, based on the change in the Trust's
net assets assuming the reinvestment of all dividends. The Trust earned 33 cents
per share of net investment income for the quarter, of which 6 cents per share
was from nonrecurring items. The Trust earned 23 cents per share in the previous
quarter.
The mezzanine and private equity markets in which the Trust participates were
very active during most of the third quarter. Deal flow was very strong as
evidenced by the number of new investments the Trust made during the quarter.
The leverage and pricing of these new investments was favorable from the Trust's
perspective. Leverage levels continued their downward trend while pricing on
mezzanine and private equity investments continued to increase throughout the
quarter. As the quarter ended however, the turmoil in the financial markets
began to impact middle market buyout activity. Senior debt financing became
significantly more expensive and increasingly scarce as a number of senior debt
providers withdrew from the market. This has resulted in a slowdown in new deal
activity which is likely to continue throughout the rest of 2008.
During the quarter, the Trust made private placement investments in eleven new
issuers, totaling approximately $12.5 million. The eleven new issuers were All
Current Holding Company, C D N T, Inc., Crane Rental Corporation, Hospitality
Mints Holding Company, K P I Holdings, Inc., M V I Holding, Inc., MedSystems
Holdings LLC, MEGTEC Holdings, Inc., Milwaukee Gear Company, Synteract Holdings
Corporation and Xaloy Superior Holdings, Inc. The weighted average coupon of
these investments was 12.96%. (A brief description of these investments can be
found in the Consolidated Schedule of Investments.)
U.S. equity markets, as approximated by the Russell 2000 Index, decreased 1.11%
for the quarter. U.S. fixed income markets, as approximated by the Lehman
Brothers U.S. Corporate High Yield Index decreased 8.89% for the quarter.
During the quarter ended September 30, 2008, the market price of the Trust
decreased 14.3% from $13.19 per share to $11.31 per share. The Trust's market
price of $11.31 per share equated to an 8.0% discount to the September 30, 2008
net asset value per share. The Trust's average quarter-end premium for the 3-,
5- and 10-year periods was 9.4%, 10.2% and 6.3%, respectively.
Thank you for your continued interest in and support of MassMutual Participation
Investors.
Sincerely,
/s/ Clifford M. Noreen
Clifford M. Noreen
President
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PORTFOLIO COMPOSITION AS OF 9/30/08 *
[PIE CHART APPEARS HERE]
Private / Restricted Equity Public Equity
14.2% 1.1%
Cash & Short Term Investments Private / 144A High Yield Debt
8.3% 62.8%
Public High Yield Debt
13.6%
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* Based on market value of total investments (including cash)
Cautionary Notice: Certain statements contained in this report may be "forward
looking" statements. Investors are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date on which they are
made and which reflect management's current estimates, projections, expectations
or beliefs, and which are subject to risks and uncertainties that may cause
actual results to differ materially. These statements are subject to change at
any time based upon economic, market or other conditions and may not be relied
upon as investment advice or an indication of the Trust's trading intent.
References to specific securities are not recommendations of such securities,
and may not be representative of the Trust's current or future investments. We
undertake no obligation to publicly update forward looking statements, whether
as a result of new information, future events, or otherwise.
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1
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2008
(UNAUDITED)
ASSETS:
Investments
(See Consolidated Schedule of Investments)
Corporate restricted securities at fair value
(Cost - $110,193,404) $ 101,851,295
Corporate public securities at market value
(Cost - $24,078,261) 19,453,296
Short-term securities at amortized cost 10,127,791
-------------
131,432,382
Cash 862,687
Interest receivable 2,984,918
Receivable for investments sold 217,006
Other assets 6,294
-------------
TOTAL ASSETS 135,503,287
-------------
LIABILITIES:
Payable for investments purchased 866,069
Investment advisory fee payable 274,440
Note payable 12,000,000
Interest payable 262,933
Accrued expenses 126,381
-------------
TOTAL LIABILITIES 13,529,823
-------------
TOTAL NET ASSETS $ 121,973,464
=============
NET ASSETS:
Common shares, par value $.01 per share; an unlimited
number authorized $ 99,272
Additional paid-in capital 92,588,454
Retained net realized gain on investments, prior years 32,808,045
Undistributed net investment income 4,155,177
Accumulated net realized gain on investments 5,289,590
Net unrealized depreciation of investments (12,967,074)
-------------
TOTAL NET ASSETS $ 121,973,464
=============
COMMON SHARES ISSUED AND OUTSTANDING 9,927,243
=============
NET ASSET VALUE PER SHARE $ 12.29
=============
See Notes to Consolidated Financial Statements
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2
CONSOLIDATED STATEMENT OF OPERATIONS MassMutual Participation Investors
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(UNAUDITED)
INVESTMENT INCOME:
Interest $ 9,186,525
Dividends 647,849
Other 45,671
-------------
TOTAL INVESTMENT INCOME 9,880,045
-------------
EXPENSES:
Investment advisory fees 843,191
Interest 528,229
Trustees' fees and expenses 126,000
Professional fees 121,100
Reports to shareholders 81,000
Custodian fees 21,757
Transfer agent/registrar's expenses 18,000
Other 25,265
-------------
TOTAL EXPENSES 1,764,542
-------------
INVESTMENT INCOME - NET 8,115,503
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments before taxes 4,947,574
Income tax expense (141,562)
-------------
Net realized gain on investments 4,806,012
Net change in unrealized appreciation of investments (13,468,994)
-------------
NET LOSS ON INVESTMENTS (8,662,982)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (547,479)
=============
See Notes to Consolidated Financial Statements
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3
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(UNAUDITED)
NET DECREASE IN CASH:
Cash flows from operating activities:
Purchases/Proceeds/Maturities from short-term portfolio
securities, net $ (2,359,170)
Purchases of portfolio securities (26,406,808)
Proceeds from disposition of portfolio securities 30,659,592
Interest, dividends and other received 9,472,761
Interest expense paid (358,051)
Operating expenses paid (1,242,360)
Income taxes paid (897,154)
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,868,810
-------------
Cash flows from financing activities:
Cash dividends paid from net investment income (9,694,682)
Cash dividends paid from net realized gain on investments (187,646)
Receipts for shares issued on reinvestment of dividends 847,131
-------------
NET CASH USED FOR FINANCING ACTIVITIES (9,035,197)
-------------
NET DECREASE IN CASH (166,387)
Cash - beginning of year 1,029,074
-------------
CASH - END OF PERIOD $ 862,687
=============
RECONCILIATION OF NET DECREASE IN NET ASSETS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (547,479)
-------------
Decrease in investments 8,407,398
Decrease in interest receivable 8,523
Decrease in receivable for investments sold 738,346
Increase in other assets (6,294)
Increase in payable for investments purchased 866,069
Decrease in investment advisory fee payable (10,467)
Increase in interest payable 170,178
Increase in accrued expenses 1,266
Decrease in accrued taxes payable (755,592)
Decrease in other payables (3,138)
-------------
TOTAL ADJUSTMENTS TO NET ASSETS FROM OPERATIONS 9,416,289
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 8,868,810
=============
See Notes to Consolidated Financial Statements
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4
CONSOLIDATED STATEMENTS MassMutual Participation Investors
OF CHANGES IN NET ASSETS
For the nine
months ended For the
09/30/08 year ended
(Unaudited) 12/31/07
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income - net $ 8,115,503 $ 12,057,960
Net realized gain on investments 4,806,012 1,184,026
Net change in unrealized appreciation of investments (13,468,994) (1,644,141)
------------- -------------
Net (decrease) increase in net assets resulting from operations (547,479) 11,597,845
Increase from common shares issued on reinvestment of dividends
Common shares issued (2008 - 65,632; 2007 - 56,329) 847,131 828,061
Dividends to shareholders from:
Net investment income (2008 - $0.50; 2007 - $1.23 per share) (4,951,522) (12,127,939)
Net realized gains on investments (2007 - $0.02 per share) -- (187,646)
------------- -------------
TOTAL (DECREASE) INCREASE IN NET ASSETS (4,651,870) 110,321
NET ASSETS, BEGINNING OF YEAR 126,625,334 126,515,013
------------- -------------
NET ASSETS, END OF PERIOD/YEAR (including undistributed net investment
income of $4,155,117 and $991,196, respectively) $ 121,973,464 $ 126,625,334
============= =============
See Notes to Consolidated Financial Statements
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5
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF BENEFICIAL INTEREST OUTSTANDING:
For the
nine months
ended For the years ended December 31,
09/30/2008 -----------------------------------------------------------------
(Unaudited) 2007 2006 2005 2004 2003
--------- --------- --------- --------- --------- ---------
Net asset value:
Beginning of year $ 12.84 $ 12.90 $ 12.21 $ 11.13 $ 9.84 $ 8.78
--------- --------- --------- --------- --------- ---------
Net investment income (a) 0.82 1.23 1.10 0.99 1.00 0.80
Net realized and unrealized
gain (loss) on investments (0.87) (0.05) 0.77 1.09(b) 1.36 1.21
--------- --------- --------- --------- --------- ---------
Total from investment operations (0.05) 1.18 1.87 2.08 2.36 2.01
--------- --------- --------- --------- --------- ---------
Dividends from net investment
income to common shareholders (0.50) (1.23) (1.18) (1.01) (1.10) (0.96)
Dividends from net realized gain
on investments to common shareholders -- (0.02) (0.01) -- -- --
Increase from dividends reinvested 0.00(c) 0.01 0.01 0.01 0.03 0.01
--------- --------- --------- --------- --------- ---------
Total dividends (0.50) (1.24) (1.18) (1.00) (1.07) (0.95)
--------- --------- --------- --------- --------- ---------
Net asset value: End of period/year $ 12.29 $ 12.84 $ 12.90 $ 12.21 $ 11.13 $ 9.84
--------- --------- --------- --------- --------- ---------
Per share market value:
End of period/year $ 11.31 $ 13.18 $ 14.70 $ 14.05 $ 13.31 $ 11.65
========= ========= ========= ========= ========= =========
Total investment return
Net asset value (d) (0.45%) 9.95% 18.64% 22.51% 25.14% 23.72%
Market value (10.08%) (1.30%) 16.81% 17.25% 25.77% 35.50%
Net assets (in millions):
End of period/year $ 121.97 $ 126.63 $ 126.52 $ 119.02 $ 107.61 $ 94.40
Ratio of operating expenses
to average net assets 1.32%(e) 1.36% 1.17% 1.45% 1.63% 1.65%
Ratio of interest expense
to average net assets 0.56%(e) 0.56% 0.57% 0.80% 0.89% 0.97%
Ratio of income tax expense
to average net assets (f) 0.15%(e) 0.48% 2.68% 2.83% 0.16% --
Ratio of total expenses before custodian fee
reduction to average net assets (f) 2.03%(e) 2.40% 4.46% 5.12% 2.68% 2.62%
Ratio of net expenses after custodian fee
reduction to average net assets (f) 2.03%(e) 2.40% 4.42% 5.08% 2.68% 2.62%
Ratio of net investment income
to average net assets 8.64%(e) 9.32% 8.43% 8.45% 9.60% 8.55%
Portfolio turnover 22% 33% 34% 32% 51% 55%
(a) Calculated using average shares.
(b) Amount includes $0.10 per share in litigation proceeds.
(c) Rounds to less than $0.01 per share.
(d) Net asset value return represents portfolio returns based on change in the Trust's net asset value assuming the reinvestment of
all dividends and distributions which differs from the total investment return based on the Trust's market value due to the
difference between the Trust's net asset value and the market value of its shares outstanding; past performance is no guarantee
of future results.
(e) Annualized.
(f) As additional information, this ratio is included to reflect the taxes paid on retained long-term gains. These taxes paid are
netted against realized capital gains in the Statement of Operations. The taxes paid are treated as deemed distributions and a
credit for the taxes paid is passed on to shareholders.
Senior borrowings:
Total principal amount (in millions) $ 12 $ 12 $ 12 $ 12 $ 22.5 $ 22.5
Asset coverage per $1,000 of indebtedness $ 11,167 $ 11,552 $ 11,543 $ 10,918 $ 5,783 $ 5,195
See Notes to Consolidated Financial Statements
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6
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES - 83.50%:(A) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
PRIVATE PLACEMENT INVESTMENTS - 79.98%
A H C HOLDING COMPANY, INC.
A designer and manufacturer of boilers and water heaters for the commercial sector.
15% Senior Subordinated Note due 2015 $ 1,253,897 11/21/07 $ 1,228,767 $ 1,178,107
Limited Partnership Interest (B) 7.93% int. 11/21/07 119,009 113,060
1,347,776 1,291,167
A T I ACQUISITION COMPANY
A for-profit post-secondary school serving students in Texas, Florida and Arizona.
12% Senior Subordinated Note due 2012 $ 1,125,000 04/08/04 1,125,000 1,125,000
Warrant, exercisable until 2012, to purchase
preferred stock at $.01 per share (B) 7 shs. 11/16/07 -- 9,340
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share (B) 1,230 shs. 04/08/04 -- 317,351
------------ ------------
1,125,000 1,451,691
------------ ------------
A W X HOLDINGS CORPORATION
A provider of aerial equipment rental, sales and repair services to non-residential construction and maintenance contractors
operating in the State of Indiana.
10.5% Senior Secured Term Note due 2014 $ 420,000 05/15/08 411,600 407,558
13% Senior Subordinated Note due 2015 $ 420,000 05/15/08 377,087 403,586
Common Stock (B) 60,000 shs. 05/15/08 60,000 57,000
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B) 21,099 shs. 05/15/08 35,654 211
------------ ------------
884,341 868,355
------------ ------------
ADVANCED TECHNOLOGIES HOLDINGS
A provider of factory maintenance services to industrial companies.
15% Senior Subordinated Note due 2013 $ 1,096,623 12/27/07 1,074,753 1,065,318
Preferred Stock (B) 546 shs. 12/27/07 270,000 256,501
------------ ------------
1,344,753 1,321,819
------------ ------------
AERO HOLDINGS, INC.
A provider of geospatial services to corporate and government clients.
10.5% Senior Secured Term Note due 2014 $ 930,000 03/09/07 916,050 902,291
14% Senior Subordinated Note due 2015 $ 720,000 03/09/07 650,014 693,665
Common Stock (B) 150,000 shs. 03/09/07 150,000 186,799
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B) 37,780 shs. 03/09/07 63,730 47,048
------------ ------------
1,779,794 1,829,803
------------ ------------
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7
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
ALL CURRENT HOLDING COMPANY
A specialty re-seller of essential electrical parts and components primarily serving wholesale distributors.
12% Senior Subordinated Note due 2015 $ 603,697 09/26/08 $ 548,163 $ 584,225
Common Stock (B) 713 shs. 09/26/08 71,303 67,735
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B) 507 shs. 09/26/08 46,584 5
------------ ------------
666,050 651,965
------------ ------------
AMERICAN HOSPICE MANAGEMENT HOLDING LLC
A for-profit hospice care provider in the United States.
12% Senior Subordinated Note due 2013 $ 1,687,503 * 1,606,040 1,660,100
Preferred Class A Unit (B) 1,706 uts. ** 170,600 85,300
Preferred Class B Unit (B) 808 uts. 06/09/08 80,789 80,789
Common Class B Unit (B) 16,100 uts. 01/22/04 1 --
Common Class D Unit (B) 3,690 uts. 09/12/06 -- --
------------ ------------
1,857,430 1,826,189
------------ ------------
ARROW TRU-LINE HOLDINGS, INC.
A manufacturer of hardware for residential and commercial overhead garage doors in North America.
12% Senior Subordinated Note due 2012 $ 861,702 05/18/05 824,182 798,322
Common Stock (B) 263 shs. 05/18/05 263,298 24,212
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 69 shs. 05/18/05 59,362 6,348
------------ ------------
1,146,842 828,882
------------ ------------
BRAVO SPORTS HOLDING CORPORATION
A designer and marketer of niche branded consumer products including canopies, trampolines, in-line skates, skateboards, and
urethane wheels.
12.5% Senior Subordinated Note due 2014 $ 1,207,902 06/30/06 1,143,951 1,181,592
Preferred Stock Class A (B) 465 shs. 06/30/06 141,946 96,613
Common Stock (B) 1 sh. 06/30/06 152 --
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 164 shs. 06/30/06 48,760 33,954
------------ ------------
1,334,809 1,312,159
------------ ------------
C D N T, INC.
A value-added converter and distributor of specialty pressure sensitive adhesives, foams, films, and foils.
10.5% Senior Secured Term Note due 2014 $ 429,070 08/07/08 420,489 419,400
12.5% Senior Subordinated Note due 2015 $ 429,070 08/07/08 387,954 415,200
Common Stock (B) 41,860 shs. 08/07/08 41,860 39,767
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B) 32,914 shs. 08/07/08 32,965 329
------------ ------------
883,268 874,696
------------ ------------
* 01/22/04 and 06/09/08.
** 01/22/04 and 09/12/06.
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8
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
CAPESUCCESS LLC
A provider of diversified staffing services.
Preferred Membership Interests (B) 806 uts. 04/29/00 $ 3,598 $ --
Common Membership Interests (B) 10,421 uts. 04/29/00 46,706 --
------------ ------------
50,304 --
------------ ------------
CAPITAL SPECIALTY PLASTICS, INC.
A producer of desiccant strips used for packaging pharmaceutical products.
Common Stock (B) 55 shs. * 252 279,466
COEUR, INC.
A producer of proprietary, disposable power injection syringes.
8.75% Senior Secured Term Note due 2010 $ 141,304 04/30/03 141,304 141,304
11.5% Senior Subordinated Note due 2011 $ 242,754 04/30/03 232,402 242,754
Common Stock (B) 72,464 shs. 04/30/03 72,463 134,240
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 50,099 shs. 04/30/03 23,317 92,808
------------ ------------
469,486 611,106
------------ ------------
CONNECTICUT ELECTRIC, INC.
A supplier and distributor of electrical products sold into the retail and wholesale markets.
12% Senior Subordinated Note due 2014 $ 1,267,387 01/12/07 1,182,283 1,060,997
Limited Liability Company Unit Class A (B) 82,613 uts. 01/12/07 82,613 7,385
Limited Liability Company Unit Class C (B) 59,756 uts. 01/12/07 59,756 5,342
------------ ------------
1,324,652 1,073,724
------------ ------------
CONNOR SPORT COURT INTERNATIONAL, INC.
A designer and manufacturer of outdoor and indoor synthetic sports flooring and other temporary flooring products.
Preferred Stock Series B-2 (B) 9,081 shs. 07/05/07 370,796 741,592
Preferred Stock Series C (B) 4,757 shs. 07/05/07 158,912 243,157
Common Stock (B) 380 shs. 07/05/07 4 4
Limited Partnership Interest (B) 4.43% int. ** 103,135 --
------------ ------------
632,847 984,753
------------ ------------
COREPHARMA LLC
A manufacturer of oral dose generic pharmaceuticals targeted at niche applications.
12% Senior Subordinated Note due 2013 $ 1,350,000 08/04/05 1,295,663 1,295,762
Warrant, exercisable until 2013, to purchase
common stock at $.001 per share (B) 10 shs. 08/04/05 72,617 53,992
------------ ------------
1,368,280 1,349,754
------------ ------------
* 12/30/97 and 05/29/99.
** 08/12/04 and 01/14/05.
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9
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
CRANE RENTAL CORPORATION
A crane rental company.
13% Senior Subordinated Note due 2015 $ 1,215,000 08/21/08 $ 1,088,381 $ 1,181,016
Common Stock (B) 135,000 shs. 08/21/08 135,000 128,250
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 72,037 shs. 08/21/08 103,143 720
------------ ------------
1,326,524 1,309,986
------------ ------------
DAVIS-STANDARD LLC
A manufacturer, assembler, and installer of a broad range of capital equipment that is used in the extrusion, conversion, and
processing of plastic materials.
12% Senior Subordinated Note due 2014 $ 978,261 10/30/06 921,876 978,261
Limited Partnership Interest (B) 0.97% int. 10/30/06 371,739 704,858
Warrant, exercisable until 2014, to purchase
preferred stock at $.01 per share (B) 26 shs. 10/30/06 26,380 31,249
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 18 shs. 10/30/06 18,000 70,988
------------ ------------
1,337,995 1,785,356
------------ ------------
DIVERSCO, INC./DHI HOLDINGS, INC.
A contract provider of janitorial and equipment maintenance services and temporary production labor to industrial customers.
Membership Interests of MM/Lincap
Diversco Investments Ltd. LLC (B) 13.57% int. 08/27/98 366,495 --
Preferred Stock (B) 1,639 shs. 12/14/01 1,392,067 633,325
Warrants, exercisable until 2011, to purchase
common stock of DHI Holdings, Inc. at $.01 per share (B) 6,676 shs. * 201,655 --
------------ ------------
1,960,217 633,325
------------ ------------
DUNCAN SYSTEMS, INC.
A distributor of windshields and side glass for the recreational vehicle market.
10% Senior Secured Term Note due 2013 $ 308,571 11/01/06 303,942 291,247
13% Senior Subordinated Note due 2014 $ 488,572 11/01/06 441,047 452,970
Common Stock (B) 102,857 shs. 11/01/06 102,857 90,668
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 32,294 shs. 11/01/06 44,663 28,467
------------ ------------
892,509 863,352
------------ ------------
DWYER GROUP, INC.
A franchiser of a variety of home repair services.
Common Stock (B) 3,656 shs. ** 365,600 594,683
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 1,077 shs. 10/30/03 98,719 175,121
------------ ------------
464,319 769,804
------------ ------------
* 10/24/96 and 08/28/98.
** 10/30/03 and 01/02/04.
--------------------------------------------------------------------------------------------------------------------------------
10
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
E S P HOLDCO, INC.
A manufacturer of power protection technology for commercial office equipment, primarily supplying the office equipment dealer
network.
14% Senior Subordinated Note due 2015 $ 1,186,688 01/08/08 $ 1,165,996 $ 1,118,010
Common Stock (B) 349 shs. 01/08/08 174,701 165,775
------------ ------------
1,340,697 1,283,785
------------ ------------
E X C ACQUISITION CORPORATION
A manufacturer of pre-filled syringes and pump systems used for intravenous drug delivery.
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 11 shs. 06/28/04 40,875 105,249
------------ ------------
ELECTRA BICYCLE COMPANY LLC
A designer and marketer of branded leisure bicycles.
15.5% Senior Secured Term Note A due 2009 $ 36,437 04/12/07 35,709 36,437
10.5% Senior Secured Term Note B due 2012 $ 360,729 04/12/07 355,590 360,729
12% Senior Secured Term Note C due 2012 $ 291,498 04/12/07 271,410 297,328
Limited Liability Company Unit Series F 36,913 uts. 04/12/07 36,913 89,792
Limited Liability Company Unit Series G 2,852 uts. 04/12/07 2,852 6,938
------------ ------------
702,474 791,224
------------ ------------
ENZYMATIC THERAPY, INC.
A manufacturer and distributor of branded natural medicines and nutritional supplements.
Limited Partnership Interest (B) 0.70% int. 03/30/00 281,250 189,028
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 15,415 shs. 03/30/00 135,000 118,640
------------ ------------
416,250 307,668
------------ ------------
EVANS CONSOLES, INC.
A designer and manufacturer of consoles and control center systems.
Common Stock (B) 45,000 shs. 05/06/04 6 541,417
------------ ------------
F H S HOLDINGS LLC
A national provider of customized disease management services to large self-insured employers.
12% Senior Subordinated Note due 2014 $ 1,265,625 06/01/06 1,189,095 1,139,063
Preferred Unit (B) 84 uts. 06/01/06 84,368 69,107
Common Unit Class B (B) 734 shs. 06/01/06 64,779 --
------------ ------------
1,338,242 1,208,170
------------ ------------
--------------------------------------------------------------------------------------------------------------------------------
11
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
FLUTES, INC.
An independent manufacturer of micro fluted corrugated sheet material for the food and consumer products packaging industries.
10% Senior Secured Term Note due 2013 $ 524,791 04/13/06 $ 516,919 $ 474,533
14% Senior Subordinated Note due 2014 $ 317,177 04/13/06 288,542 285,739
Common Stock (B) 62,535 shs. 04/13/06 62,535 --
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 17,680 shs. 04/13/06 27,676 --
------------ ------------
895,672 760,272
------------ ------------
FOWLER HOLDING, INC.
A provider of site development services to residential homebuilders and developers in the Raleigh/Durham region of North Carolina.
12% Senior Subordinated Note due 2013 $ 1,252,174 02/03/06 1,153,491 939,131
Common Stock (B) 98 shs. 02/03/06 97,826 --
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 135 shs. 02/03/06 110,348 --
------------ ------------
1,361,665 939,131
------------ ------------
FUEL SYSTEMS HOLDING CORPORATION
An independent North American supplier of fuel tanks for a wide variety of commercial vehicles.
12% Senior Subordinated Note due 2014 $ 1,237,500 01/31/06 1,163,687 618,750
Preferred Stock (B) 16,792 shs. 06/12/08 16,792 --
Common Stock (B) 112,500 shs. 01/31/06 112,500 --
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 73,275 shs. 01/31/06 63,113 --
------------ ------------
1,356,092 618,750
------------ ------------
GOLDEN COUNTY FOODS HOLDING, INC.
A manufacturer of frozen appetizers and snacks.
12% Senior Subordinated Note due 2015 $ 1,012,500 11/01/07 914,607 911,250
8% Series A Convertible Preferred Stock, convertible into
4.25% of the fully diluted common shares (B) 77,643 shs. 11/01/07 77,643 776
------------ ------------
992,250 912,026
------------ ------------
GQ HOLDINGS LLC
A developer and distributor of tools, equipment, and supplies to the natural and engineered stone industry.
15% Senior Subordinated Note due 2015 $ 1,217,159 06/27/08 1,192,816 1,155,703
Common Stock (B) 3,867 shs. 06/27/08 132,841 119,555
------------ ------------
1,325,657 1,275,258
------------ ------------
--------------------------------------------------------------------------------------------------------------------------------
12
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
H M HOLDING COMPANY
A designer, manufacturer, and importer of promotional and wood furniture.
12% Senior Subordinated Note due 2013 (D) $ 1,170,000 02/10/06 $ 1,084,725 $ --
Preferred Stock (B) 21 shs. * 21,428 --
Common Stock (B) 180 shs. 02/10/06 180,000 --
Warrant, exercisable until 2013, to purchase
common stock at $.02 per share (B) 67 shs. 02/10/06 61,875 --
------------ ------------
1,348,028 --
------------ ------------
HIGHGATE CAPITAL LLC
An acquirer of controlling or substantial interests in manufacturing and marketing entities.
Series A Preferred Units (B) 0.30% int. 07/21/94 91,867 --
------------ ------------
HOME DeCOR HOLDING COMPANY
A designer, manufacturer and marketer of framed art and wall decor products.
12.5% Senior Subordinated Note due 2012 $ 1,081,731 ** 1,010,598 1,029,620
Common Stock (B) 33 shs. ** 33,216 30,540
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share (B) 106 shs. ** 105,618 97,098
------------ ------------
1,149,432 1,157,258
------------ ------------
HOSPITALITY MINTS HOLDING COMPANY
A manufacturer of individually-wrapped imprinted promotional mints.
12% Senior Subordinated Note due 2016 $ 1,098,837 08/19/08 1,016,628 1,060,674
Common Stock (B) 251 shs. 08/19/08 251,163 238,602
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 65 shs. 08/19/08 60,233 1
------------ ------------
1,328,024 1,299,277
------------ ------------
INSURANCE CLAIMS MANAGEMENT, INC.
A third party administrator providing auto and property claim administration services for insurance companies.
Common Stock (B) 37 shs. 02/27/07 1,100 58,496
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 11 shs. 02/27/07 324 17,232
------------ ------------
1,424 75,728
------------ ------------
INTEGRATION TECHNOLOGY SYSTEMS, INC.
A manufacturer of steel protective computer and network systems for the industrial and office environments.
12% Senior Secured Note due on demand $ 25,055 03/01/04 1 --
Common Stock (B) 130 shs. 06/01/00 149,500 --
------------ ------------
149,501 --
------------ ------------
* 09/18/07 and 06/27/08.
** 06/30/04 and 08/19/04.
--------------------------------------------------------------------------------------------------------------------------------
13
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
JASON, INC.
A diversified manufacturing company serving various industrial markets.
13% Senior Subordinated Note due 2010 $ 510,187 08/04/00 $ 489,260 $ 496,193
Limited Partnership Interest of
Saw Mill Capital Fund II, L.P. (B) 1.30% int. 08/03/00 469,245 217,778
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 26,931 shs. 08/04/00 61,101 43,736
------------ ------------
1,019,606 757,707
------------ ------------
JUSTRITE MANUFACTURING ACQUISITION CO.
A manufacturer of safety products such as storage cabinets and containers.
12% Senior Subordinated Note due 2011 $ 843,750 12/15/04 811,651 828,608
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 594 shs. 12/15/04 53,528 134,301
------------ ------------
865,179 962,909
------------ ------------
K H O F HOLDINGS, INC.
A manufacturer of premium disposable tableware products serving both the foodservice and consumer channels.
14% Senior Subordinated Note due 2014 $ 1,250,794 10/15/07 1,225,985 1,202,116
Common Stock (B) 116,827 shs. 10/15/07 116,827 110,986
------------ ------------
1,342,812 1,313,102
------------ ------------
K N B HOLDINGS CORPORATION
A designer, manufacturer and marketer of products for the custom framing market.
13.5% Senior Subordinated Note due 2013 $ 1,319,800 05/25/06 1,265,235 1,273,660
Common Stock (B) 71,053 shs. 05/25/06 71,053 56,160
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 43,600 shs. 05/25/06 37,871 34,461
------------ ------------
1,374,159 1,364,281
------------ ------------
K P I HOLDINGS, INC.
Pace Industries, a subsidiary of Leggett & Platt, is the largest player in the U.S. non-automotive, non-ferrous die casting segment.
13% Senior Subordinated Note due 2014 $ 1,115,217 07/16/08 1,042,077 1,074,407
Common Stock (B) 235 shs. 07/15/08 234,783 223,041
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B) 51 shs. 07/16/08 50,836 1
------------ ------------
1,327,696 1,297,449
------------ ------------
K W P I HOLDINGS CORPORATION
A manufacturer and distributor of vinyl windows and patio doors throughout the northwestern United States.
12% Senior Subordinated Note due 2014 $ 1,227,000 03/14/07 1,129,537 1,081,930
Common Stock (B) 123 shs. 03/13/07 123,000 55,798
Warrant, exercisable until 2017, to purchase
common stock at $.01 per share (B) 89 shs. 03/14/07 85,890 40,374
------------ ------------
1,338,427 1,178,102
------------ ------------
--------------------------------------------------------------------------------------------------------------------------------
14
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
K-TEK HOLDING CORPORATION
A manufacturer of instrumentation for liquid and bulk solids level detection for process and storage tanks.
14% Senior Secured Note due 2015 $ 1,169,454 12/20/07 $ 1,148,265 $ 1,107,567
Preferred Stock (B) 192,314 shs. 12/20/07 192,314 182,698
Common Stock (B) 54,326 shs. 12/20/07 543 543
------------ ------------
1,341,122 1,290,808
------------ ------------
M V I HOLDING, INC.
A manufacturer of large precision machined metal components used in equipment which services a variety of industries, including
the oil & gas, mining, and defense markets.
13% Senior Subordinated Note due 2016 $ 642,857 09/12/08 595,286 616,118
Common Stock (B) 32 shs. 09/12/08 32,143 30,533
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B) 35 shs. 09/12/08 34,714 --
------------ ------------
662,143 646,651
------------ ------------
MAIL COMMUNICATIONS GROUP, INC.
A provider of mail processing and handling services, lettershop services, and commercial printing services.
12.5% Senior Subordinated Note due 2014 $ 516,177 05/04/07 483,072 502,385
Limited Liability Company Unit (B) 12,763 uts. * 166,481 222,064
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 1,787 shs. 05/04/07 22,781 31,091
------------ ------------
672,334 755,540
------------ ------------
MAVERICK ACQUISITION COMPANY
A manufacturer of capsules that cover the cork and neck of wine bottles.
7.19% Senior Secured Tranche A Note due 2010 (C) $ 210,124 09/03/04 210,124 207,666
12% Senior Secured Tranche B Note due 2011 $ 179,104 09/03/04 166,653 167,088
Limited Partnership Interest (B) 4.48% int. 09/03/04 33,582 18,944
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 243 shs. 09/03/04 22,556 13,688
------------ ------------
432,915 407,386
------------ ------------
MEDSYSTEMS HOLDINGS LLC
A manufacturer of enteral feeding products, such as feeding tubes and other products related to assisted feeding.
13% Senior Subordinated Note due 2015 $ 607,878 08/29/08 532,585 590,022
Preferred Unit (B) 66 uts. 08/29/08 66,451 63,128
Common Unit Class A (B) 671 uts. 08/29/08 671 637
Common Unit Class B (B) 250 uts. 08/29/08 63,564 3
------------ ------------
663,271 653,790
------------ ------------
* 05/04/07 and 01/02/08.
--------------------------------------------------------------------------------------------------------------------------------
15
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
MEGTEC HOLDINGS, INC.
A supplier of industrial and environmental products and services to a broad array of industries, including the printing, coating,
converting, pharmaceutical, electronic, chemical, wood processing, and coal mining industries.
12% Senior Subordinated Note due 2016 $ 1,144,068 09/24/08 $ 1,048,910 $ 1,102,398
Preferred Stock (B) 56 shs. 09/24/08 54,040 1
Limited Partnership Interest (B) 205,932 int. 09/16/08 205,932 195,635
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B) 18 shs. 09/24/08 18,237 --
------------ ------------
1,327,119 1,298,034
------------ ------------
MICROGROUP, INC.
A manufacturer of precision parts and assemblies, and a value-added supplier of metal tubing and bars.
12% Senior Subordinated Note due 2013 $ 1,421,795 * 1,352,225 1,380,265
Common Stock (B) 238 shs. * 238,000 379,588
Warrant, exercisable until 2013, to purchase
common stock at $.02 per share (B) 87 shs. * 86,281 138,454
------------ ------------
1,676,506 1,898,307
------------ ------------
MILWAUKEE GEAR COMPANY
A manufacturer of high-precision custom gears and gear drives used by original equipment manufacturers operating in a number of
industries.
13% Senior Subordinated Note due 2014 $ 1,246,154 07/21/08 1,171,406 1,207,656
Preferred Stock (B) 139 shs. 07/21/08 138,374 131,459
Common Stock (B) 9 shs. 07/21/08 10,000 9,500
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 6 shs. 07/21/08 5,510 --
------------ ------------
1,325,290 1,348,615
------------ ------------
MOMENTUM HOLDING CO.
A designer and supplier of upholstery fabric to commercial furniture manufacturers and architectural and design firms.
Limited Partnership Interest (B) 11.24% int. 08/04/06 56,198 122,296
Warrant, exercisable until 2014, to purchase
common stock at $.02 per share (B) 586 shs. 08/04/06 56,705 127,480
------------ ------------
112,903 249,776
------------ ------------
MONESSEN HOLDING CORPORATION
A designer and manufacturer of a broad line of gas, wood, and electric hearth products and accessories.
14% Senior Subordinated Note due 2014 $ 1,439,663 07/25/08 1,344,852 1,295,696
Warrant, exercisable until 2014, to purchase
common stock at $.02 per share (B) 81 shs. 03/31/06 73,125 --
------------ ------------
1,417,977 1,295,696
------------ ------------
* 08/12/05 and 09/11/06.
--------------------------------------------------------------------------------------------------------------------------------
16
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
MORTON INDUSTRIAL GROUP, INC.
A manufacturer of highly engineered metal fabricated components.
12% Senior Subordinated Note due 2014 (D) $ 1,292,246 08/25/06 $ 1,187,021 $ 1,163,021
30% Convertible Preferred Stock (B) 41,289 shs. 07/28/08 19,708 37,160
------------ ------------
1,206,729 1,200,181
------------ ------------
NABCO, INC.
A producer of explosive containment vessels in the United States.
14% Senior Subordinated Note due 2014 $ 403,451 02/24/06 353,614 201,725
Limited Liability Company Unit (B) 437 uts. * 436,984 --
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 68 shs. 02/24/06 19,687 --
------------ ------------
810,285 201,725
------------ ------------
NAVIS GLOBAL
A designer, manufacturer, seller and servicer of finishing machinery for the knit and woven segments of the global textile industry.
12% Senior Subordinated Note due 2014 (D) $ 705,457 05/28/04 630,721 352,729
8.75% Senior Secured Note due 2011 (D) $ 327,478 05/28/04 327,478 311,104
Common Stock (B) 385,233 shs. 05/28/04 385,233 --
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 116,521 shs. 05/28/04 74,736 --
------------ ------------
1,418,168 663,833
------------ ------------
NESCO HOLDINGS CORPORATION
A sales and leasing company that provides equipment to the electric utility, telecommunications, and various other industries.
12% Senior Subordinated Note due 2015 $ 1,125,000 08/02/07 999,658 1,088,710
Common Stock (B) 225,000 shs. 08/02/07 225,000 235,324
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B) 63,191 shs. 08/02/07 102,842 66,090
------------ ------------
1,327,500 1,390,124
------------ ------------
NETSHAPE TECHNOLOGIES, INC.
A manufacturer of powder metal and metal injection molded precision components used in industrial, consumer, and other applications.
12% Senior Subordinated Note due 2014 $ 810,000 02/02/07 745,713 742,854
Limited Partnership Interest of
Saw Mill PCG Partners LLC (B) 1.38% int. 02/01/07 540,000 202,661
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 48 shs. 02/02/07 48,087 18,048
------------ ------------
1,333,800 963,563
------------ ------------
* 02/24/06 and 06/22/07.
--------------------------------------------------------------------------------------------------------------------------------
17
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
NYLONCRAFT, INC.
A supplier of engineered plastic components for the automotive industry.
9% Senior Secured Note due 2009 $ 464,286 01/28/02 $ 464,286 $ 441,072
11.5% Senior Subordinated Note due 2012 $ 857,143 01/28/02 817,130 642,857
Common Stock (B) 178,571 shs. 01/28/02 178,571 --
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 138,928 shs. 01/28/02 92,597 --
------------ ------------
1,552,584 1,083,929
------------ ------------
OAKRIVER TECHNOLOGY, INC.
Designs, engineers and assembles high precision automated process equipment for the medical device industry, with a focus on
defibrillators and stents.
10% Senior Secured Note due 2012 $ 298,260 01/03/06 293,786 282,102
13% Senior Subordinated Note due 2013 $ 392,709 01/03/06 357,571 362,344
Common Stock (B) 184,176 shs. 01/03/06 184,176 --
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 43,073 shs. 01/03/06 35,900 --
------------ ------------
871,433 644,446
------------ ------------
OLYMPIC SALES, INC.
A boat retailer in Washington state, Oregon, California and British Columbia.
12% Senior Subordinated Note due 2008 (D) $ 511,000 08/07/98 511,000 102,200
12% Senior Subordinated Note due 2008 (D) $ 244,154 02/09/00 213,313 48,831
Limited Partnership Interest of Riverside
VIII, VIII-A and VIII-B Holding Company, L.P. 10.66% int. * 808,386 --
Warrants, exercisable until 2008, to purchase
common stock at $.01 per share (B) 15,166 shs. ** 206,041 --
------------ ------------
1,738,740 151,031
------------ ------------
ONTARIO DRIVE & GEAR LTD.
A manufacturer of all-wheel drive, off-road amphibious vehicles and related accessories.
Limited Liability Company Unit (B) 1,942 uts. 01/17/06 302,885 596,733
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 328 shs. 01/17/06 90,424 100,751
------------ ------------
393,309 697,484
------------ ------------
P A S HOLDCO LLC
An independent provider of maintenance, repair and overhaul services to the aerospace gas turbine engine and airframe markets.
14% Senior Subordinated Note due 2014 $ 1,194,205 07/03/06 1,141,182 1,137,482
Preferred Unit (B) 202 uts. 07/03/06 202,320 179,862
Preferred Unit (B) 36 uts. 07/03/06 36,420 32,377
Common Unit Class I (B) 78 uts. 07/03/06 -- --
Common Unit Class L (B) 17 uts. 07/03/06 -- --
------------ ------------
1,379,922 1,349,721
------------ ------------
* 08/07/98, 02/23/99, 12/22/99 and 02/25/03.
** 08/07/98 and 02/29/00.
--------------------------------------------------------------------------------------------------------------------------------
18
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
P I I HOLDING CORPORATION
A manufacturer of plastic film and bags for the general industrial, medical, and food industries.
12% Senior Subordinated Note due 2013 $ 1,215,000 03/31/06 $ 1,147,616 $ 1,207,586
Preferred Stock (B) 19 shs. 03/31/06 174,492 207,361
Common Stock (B) 12 shs. 03/31/06 13,500 42,082
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 7 shs. 03/31/06 5,888 24,487
------------ ------------
1,341,496 1,481,516
------------ ------------
PACIFIC CONSOLIDATED HOLDINGS LLC
A manufacturer of rugged, mobile liquid and gaseous oxygen and nitrogen generating systems used in the global defense, oil & gas,
and medical sectors.
12% Senior Subordinated Note due 2012 $ 690,683 04/27/07 638,586 632,592
Limited Liability Company Unit (B) 928,962 uts. 04/27/07 33,477 --
------------ ------------
672,063 632,592
------------ ------------
PARADIGM PACKAGING, INC.
A manufacturer of plastic bottles and closures for the nutritional, pharmaceutical, personal care, and food packaging markets.
12% Senior Subordinated Note due 2011 $ 1,125,000 12/19/00 1,063,885 1,072,274
Membership Interests of MM/Lincap
PPI Investments, Inc., LLC (B) 1.28% int. 12/21/00 140,625 --
------------ ------------
1,204,510 1,072,274
------------ ------------
POSTLE ALUMINUM COMPANY LLC
A manufacturer and distributor of aluminum extruded products.
12% Senior Subordinated Note due 2014 $ 1,080,000 10/02/06 1,008,327 990,169
Limited Liability Company Unit 733 uts. 10/02/06 270,000 143,198
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 182 shs. 10/02/06 65,988 35,616
------------ ------------
1,344,315 1,168,983
------------ ------------
POWER SERVICES HOLDING COMPANY
A provider of industrial motor repair services, predictive and preventative maintenance, and performance improvement consulting,
serving the petrochemical, mining, power generation, metals, and paper industries.
12% Senior Subordinated Note due 2016 $ 1,255,814 02/11/08 1,145,918 1,199,108
Limited Partnership Interest (B) 94,092 int. 02/11/08 94,092 89,387
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 700 shs. 02/11/08 88,723 7
------------ ------------
1,328,733 1,288,502
------------ ------------
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.
9.8% Redeemable Exchangeable Preferred Stock (B) 332 shs. 08/12/94 33,217 --
Common Stock (B) 867 shs. * 42,365 --
------------ ------------
75,582 --
------------ ------------
* 08/12/94 and 11/14/01.
--------------------------------------------------------------------------------------------------------------------------------
19
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
QUALIS AUTOMOTIVE LLC
A distributor of aftermarket automotive brake and chassis products.
12% Senior Subordinated Note due 2012 $ 937,500 05/28/04 $ 831,176 $ 912,633
Common Stock 187,500 shs. 05/28/04 187,500 53,976
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share 199,969 shs. 05/28/04 199,969 57,565
------------ ------------
1,218,645 1,024,174
------------ ------------
QUALSERV CORPORATION
A provider of foodservice equipment and supplies to major restaurant chains and their franchisees.
Limited Partnership Interest (B) 4.90% int. 07/09/04 1 --
------------ ------------
R A J MANUFACTURING HOLDINGS LLC
A designer and manufacturer of women's swimwear sold under a variety of licensed brand names.
12.5% Senior Subordinated Note due 2014 $ 1,200,277 12/15/06 1,106,663 1,154,704
Limited Liability Company Unit (B) 1,497 uts. 12/15/06 149,723 102,150
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 2 shs. 12/15/06 69,609 48,204
------------ ------------
1,325,995 1,305,058
------------ ------------
R E I DELAWARE HOLDING, INC.
An engineer and manufacturer of highly complex, close tolerance components, assemblies, tooling and custom automation equipment
primarily for aerospace, medical and defense/radar markets.
12% Senior Subordinated Note due 2016 $ 1,350,000 01/18/08 1,306,541 1,278,304
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B) 3 shs. 01/18/08 16,459 --
------------ ------------
1,323,000 1,278,304
------------ ------------
RADIAC ABRASIVES, INC.
A manufacturer of bonded abrasive and super abrasive grinding wheels in the United States.
12% Senior Subordinated Note due 2014 $ 1,196,809 02/10/06 1,123,436 1,215,066
Common Stock (B) 153,191 shs. 02/10/06 153,191 226,102
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 69,647 shs. 02/10/06 63,421 102,795
------------ ------------
1,340,048 1,543,963
------------ ------------
ROYAL BATHS MANUFACTURING COMPANY
A manufacturer and distributor of acrylic and cultured marble bathroom products.
12.5% Senior Subordinated Note due 2011 $ 562,500 11/14/03 528,627 526,334
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 74 shs. 11/14/03 65,089 27,343
------------ ------------
593,716 553,677
------------ ------------
SAFETY SPEED CUT MANUFACTURING COMPANY, INC.
A manufacturer of vertical panel saws and routers for the wood working industry.
Class B Common Stock (B) 846 shs. 06/02/99 146,456 510,588
------------ ------------
--------------------------------------------------------------------------------------------------------------------------------
20
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
SAVAGE SPORTS HOLDING, INC.
A manufacturer of sporting firearms.
12% Senior Subordinated Note due 2012 $ 814,655 09/10/04 $ 775,956 $ 777,007
Common Stock (B) 324 shs. * 340,378 301,311
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 71 shs. 09/10/04 60,129 65,786
------------ ------------
1,176,463 1,144,104
------------ ------------
SMART SOURCE HOLDINGS LLC
A short-term computer rental company.
12% Senior Subordinated Note due 2015 $ 1,176,924 ** 1,072,771 1,141,278
Limited Liability Company Unit (B) 328 uts. ** 337,796 355,379
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B) 83 shs. ** 87,231 90,018
------------ ------------
1,497,798 1,586,675
------------ ------------
SPECIALTY FOODS GROUP, INC.
A manufacturer and distributor of branded meat products.
Limited Partnership Interest of MHD Holdings LLC (B) 0.76% int. 08/29/00 363,576 --
------------ ------------
STANTON CARPET HOLDING CO.
A designer and marketer of high and mid-priced decorative carpets and rugs.
12.13% Senior Subordinated Note due 2014 $ 1,185,366 08/01/06 1,120,766 1,130,571
Common Stock (B) 165 shs. 08/01/06 164,634 223,041
Warrant, exercisable until 2014, to purchase
common stock at $.02 per share (B) 55 shs. 08/01/06 49,390 74,284
1,334,790 1,427,896
SYNTERACT HOLDINGS CORPORATION
A provider of outsourced clinical trial management services to pharmaceutical and biotechnology companies.
14% Senior Subordinated Note due 2016 $ 1,350,000 09/02/08 1,256,872 1,313,901
Warrant, exercisable until 2018, to purchase
preferred stock at $.01 per share (B) 678 shs. 09/02/08 6,629 7
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B) 6,778 shs. 09/02/08 59,661 68
------------ ------------
1,323,162 1,313,976
------------ ------------
T H I ACQUISITION, INC.
A machine servicing company providing value-added steel services to long steel products.
12% Senior Subordinated Note due 2016 $ 1,350,000 01/14/08 1,276,383 1,277,387
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 5 shs. 01/14/08 46,617 --
------------ ------------
1,323,000 1,277,387
------------ ------------
* 09/10/04 and 10/05/07.
** 08/31/07 and 03/06/08.
--------------------------------------------------------------------------------------------------------------------------------
21
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
TANGENT RAIL CORPORATION
A manufacturer of rail ties and provider of specialty services to the North American railroad industry.
13% Senior Subordinated Note due 2015 $ 1,173,909 10/14/05 $ 1,033,473 $ 1,158,385
Common Stock 1,167 shs. 10/14/05 1,167 563,902
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share 631 shs. 09/30/08 300,683 304,903
------------ ------------
1,335,323 2,027,190
------------ ------------
TERRA RENEWAL LLC
A provider of wastewater residual management and required environmental reporting, permitting, nutrient management planning and
record keeping to companies involved in poultry and food processing.
6.74% Senior Secured Tranche B Note due 2012 (C) $ 14,838 * 14,747 14,587
7.05% Senior Secured Tranche B Note due 2012 (C) $ 851,552 * 848,436 837,152
8.25% Senior Secured Tranche B Note due 2012 (C) $ 824 09/30/08 819 810
12% Senior Subordinated Note due 2014 $ 664,062 ** 635,312 646,985
Limited Partnership Interest of
Saw Mill Capital Fund V, L.P. (B) 2.27% int. 03/01/05 66,448 456,735
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 41 shs. 04/28/06 33,738 79,403
------------ ------------
1,599,500 2,035,672
------------ ------------
TORRENT GROUP HOLDINGS, INC.
A contractor specializing in the sales and installation of engineered drywells for the retention and filtration of stormwater and
nuisance water flow.
12.5% Senior Subordinated Note due 2013 $ 1,185,366 10/26/07 1,113,016 1,131,248
Series A Preferred Stock (B) 219 shs. 10/26/07 219,203 156,401
------------ ------------
1,332,219 1,287,649
------------ ------------
TOTAL E & S, INC.
A manufacturer of a wide variety of equipment used in the oil and gas industry.
10.5% Senior Secured Term Note due 2013 $ 486,487 03/02/07 479,190 475,966
13% Senior Subordinated Note due 2014 $ 341,971 03/02/07 280,347 331,252
Common Stock (B) 71,542 shs. 03/02/07 71,542 71,453
Warrant, exercisable until 2014 to purchase
common stock at $.01 per share (B) 19,733 shs. 03/02/07 54,784 19,709
------------ ------------
885,863 898,380
------------ ------------
TRANSPAC HOLDING COMPANY
A designer, importer, and wholesaler of home decor and seasonal gift products.
12% Senior Subordinated Note due 2015 $ 938,651 10/31/07 876,491 871,275
Common Stock (B) 110 shs. 10/31/07 110,430 104,909
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B) 50 shs. 10/31/07 46,380 1
------------ ------------
1,033,301 976,185
------------ ------------
* 04/28/06 and 12/21/06.
** 04/28/06 and 09/13/06.
--------------------------------------------------------------------------------------------------------------------------------
22
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
TRANSTAR HOLDING COMPANY
A distributor of aftermarket automotive transmission parts.
12% Senior Subordinated Note due 2014 $ 918,000 08/31/05 $ 885,837 $ 887,519
Common Stock (B) 571 shs. * 570,944 634,146
Warrant, exercisable until 2013, to purchase
common stock at $.02 per share (B) 46 shs. 08/31/05 41,021 50,537
------------ ------------
1,497,802 1,572,202
------------ ------------
TRANZONIC COMPANIES (THE)
A producer of commercial and industrial supplies, such as safety products, janitorial supplies, work apparel, washroom and restroom
supplies and sanitary care products.
13% Senior Subordinated Note due 2010 $ 1,356,000 02/05/98 1,301,348 1,356,000
Common Stock (B) 315 shs. 02/04/98 315,000 434,759
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 222 shs. 02/05/98 184,416 306,402
------------ ------------
1,800,764 2,097,161
------------ ------------
TRUCK BODIES & EQUIPMENT INTERNATIONAL
A designer and manufacturer of accessories for heavy and medium duty trucks, primarily dump bodies, hoists, various forms of
flat-bed bodies, landscape bodies and other accessories.
12% Senior Subordinated Note due 2013 (D) $ 1,222,698 ** 1,133,973 611,349
Common Stock (B) 393 shs. ** 423,985 --
Warrant, exercisable until 2013, to purchase
common stock at $.02 per share (B) 81 shs. ** 84,650 --
------------ ------------
1,642,608 611,349
------------ ------------
TRUSTILE DOORS, INC.
A manufacturer and distributor of interior doors.
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 3,060 shs. 04/11/03 37,821 160,620
------------ ------------
U M A ENTERPRISES, INC.
An importer and wholesaler of home decor products.
15% Senior Subordinated Note due 2015 $ 890,956 02/08/08 873,251 853,498
Convertible Preferred Stock (B) 470 shs. 02/08/08 469,565 446,082
------------ ------------
1,342,816 1,299,580
------------ ------------
U-LINE CORPORATION
A manufacturer of high-end, built-in, undercounter ice making, wine storage and refrigeration appliances.
12.5% Senior Subordinated Note due 2012 $ 996,500 04/30/04 928,727 955,233
Common Stock (B) 96 shs. 04/30/04 96,400 54,455
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 122 shs. 04/30/04 112,106 68,916
------------ ------------
1,137,233 1,078,604
------------ ------------
* 08/31/05 and 04/30/07.
** 07/19/05 and 12/22/05.
--------------------------------------------------------------------------------------------------------------------------------
23
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
VICTORY VENTURES LLC
An acquirer of controlling or substantial interests in other entities.
Series A Preferred Units (B) 1 ut. 12/02/96 $ 236 $ --
------------ ------------
VISIONEERING, INC.
A designer and manufacturer of tooling and fixtures for the aerospace industry.
10.5% Senior Secured Term Loan due 2013 $ 458,824 05/17/07 451,941 447,027
13% Senior Subordinated Note due 2014 $ 370,588 05/17/07 335,429 356,127
Common Stock (B) 70,588 shs. 05/17/07 70,588 55,964
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 20,003 shs. 05/17/07 31,460 15,859
------------ ------------
889,418 874,977
------------ ------------
VITALITY FOODSERVICE, INC.
A non-carbonated beverage dispensing company focused on the foodservice industry.
13% Senior Subordinated Note due 2011 $ 999,153 09/24/04 944,101 920,613
Common Stock (B) 14,006 shs. * 140,064 131,766
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 12,593 shs. 09/24/04 98,938 118,472
------------ ------------
1,183,103 1,170,851
------------ ------------
VITEX PACKAGING GROUP, INC.
A manufacturer of specialty packaging, primarily envelopes and tags used on tea bags.
12.5% Senior Subordinated Note due 2012 $ 900,000 07/19/04 785,152 450,000
14.5% PIK Note due 2010 $ 181,280 06/30/07 163,152 90,640
Limited Liability Company Unit Class A (B) 219,375 uts. 07/19/04 219,375 --
Limited Liability Company Unit Class B (B) 96,848 uts. 07/19/04 96,848 --
------------ ------------
1,264,527 540,640
------------ ------------
WAGGIN' TRAIN HOLDINGS LLC
A producer of premium quality meat dog treats.
14% Senior Subordinated Note due 2014 $ 1,140,441 11/15/07 1,117,595 1,053,394
Limited Liability Company Unit Class B (B) 224 uts. 11/15/07 223,757 201,384
Limited Liability Company Unit Class C (B) 224 uts. 11/15/07 -- 2
------------ ------------
1,341,352 1,254,780
------------ ------------
WALLS INDUSTRIES, INC.
A provider of branded workwear and sporting goods apparel.
Limited Partnership Interest (B) 0.20% int. 07/12/04 1,974 --
Common Stock (B) 2,133 shs. 12/21/07 -- --
------------ ------------
1,974 --
------------ ------------
* 09/24/04 and 12/22/06.
--------------------------------------------------------------------------------------------------------------------------------
24
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Principal Amount
Shares, Units
or Ownership Acquisition
CORPORATE RESTRICTED SECURITIES:(A)(Continued) Percentage Date Cost Fair Value
------------ -------- ------------ ------------
WELLBORN FOREST HOLDING CO.
A manufacturer of semi-custom kitchen and bath cabinetry.
12.13% Senior Subordinated Note due 2014 $ 911,250 11/30/06 $ 853,861 $ 848,850
Common Stock (B) 101 shs. 11/30/06 101,250 63,242
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 51 shs. 11/30/06 45,790 31,574
------------ ------------
1,000,901 943,666
------------ ------------
WORKPLACE MEDIA HOLDING CO.
A direct marketer specializing in providing advertisers with access to consumers in the workplace.
13% Senior Subordinated Note due 2015 $ 613,692 05/14/07 561,543 552,323
Limited Partnership Interest (B) 12.26% int. 05/14/07 61,308 --
Warrant, exercisable until 2015, to purchase
common stock at $.02 per share (B) 47 shs. 05/14/07 44,186 --
------------ ------------
667,037 552,323
------------ ------------
XALOY SUPERIOR HOLDINGS, INC.
A provider of melt processing components and ancillary equipment for both plastic injection molding and extrusion applications.
15% Senior Subordinated Note due 2015 $ 1,200,000 09/08/08 1,176,000 1,160,867
Common Stock (B) 150 shs. 09/08/08 150,000 142,500
------------ ------------
1,326,000 1,303,367
------------ ------------
TOTAL PRIVATE PLACEMENT INVESTMENTS (E) 105,220,680 97,551,620
------------ ------------
--------------------------------------------------------------------------------------------------------------------------------
25
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008
(Unaudited)
Shares or
Interest Due Principal
CORPORATE RESTRICTED SECURITIES: (A) (Continued) Rate Date Amount Cost Fair Value
------- -------- ------------ ------------ ------------
RULE 144A SECURITIES - 3.52%:
BONDS - 3.52%
Cenveo Corporation 10.500% 08/15/16 $ 45,000 $ 45,000 $ 41,850
Charter Communications Op LLC 8.000 04/30/12 750,000 736,875 671,250
Compucom Systems, Inc. 12.500 10/01/15 670,000 648,852 601,325
Douglas Dynamics LLC 7.750 01/15/12 485,000 462,116 397,700
G F S I, Inc. (C) 10.500 06/01/11 375,000 360,505 337,500
Intergen NV 9.000 06/30/17 375,000 371,959 375,000
Nortek, Inc. 10.000 12/01/13 100,000 98,957 89,000
Packaging Dynamics Corporation of America 10.000 05/01/16 975,000 969,813 633,750
Ryerson, Inc. 12.000 11/01/15 30,000 30,000 25,500
Ticketmaster 10.750 08/01/16 250,000 250,000 235,000
TRW Automotive, Inc. 7.250 03/15/17 500,000 440,000 395,000
Tunica-Biloxi Gaming Authority 9.000 11/15/15 540,000 556,374 496,800
------------ ------------
TOTAL BONDS 4,970,451 4,299,675
------------ ------------
CONVERTIBLE PREFERRED STOCK - 0.00%
ETEX Corporation (B) 194 179 --
------------ ------------
TOTAL CONVERTIBLE PREFERRED STOCK 179 --
------------ ------------
PREFERRED STOCK - 0.00%
TherOX, Inc. (B) 26 1,032 --
------------ ------------
TOTAL PREFERRED STOCK 1,032 --
------------ ------------
COMMON STOCK - 0.00%
Touchstone Health Partnership (B) 292 1,062 --
------------ ------------
TOTAL COMMON STOCK 1,062 --
------------ ------------
TOTAL RULE 144A SECURITIES 4,972,724 4,299,675
------------ ------------
TOTAL CORPORATE RESTRICTED SECURITIES $110,193,404 $101,851,295
------------ ------------
----------------------------------------------------------------------------------------------------------------
26
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Interest Due Principal Market
CORPORATE PUBLIC SECURITIES - 15.95%: (A) Rate Date Amount Cost Value
------- -------- ------------ ------------ ------------
BONDS - 14.64%
Appleton Papers, Inc. 8.125% 06/15/11 $ 250,000 $ 250,000 $ 219,375
Aramark Corporation (C) 6.301 02/01/15 100,000 100,000 87,500
Boyd Gaming Corporation 7.125 02/01/16 150,000 146,625 103,875
C R H America, Inc. 5.300 10/15/13 500,000 418,430 455,690
Cincinnati Bell, Inc. 8.375 01/15/14 550,000 503,750 478,500
Clayton Williams Energy, Inc. 7.750 08/01/13 375,000 357,000 328,125
Countrywide Alternative Loan Trust (C) 3.508 11/20/35 979,837 719,706 625,875
Electronic Data Systems Corporation 7.125 10/15/09 500,000 501,538 508,060
Ford Motor Credit Co. 7.375 10/28/09 525,000 523,688 422,082
Gencorp, Inc. 9.500 08/15/13 130,000 130,000 128,050
General Motors Acceptance Corporation 5.850 01/14/09 750,000 740,604 641,003
Goodyear Tire & Rubber Co. 9.000 07/01/15 64,000 65,196 63,360
Hughes Network Systems 9.500 04/15/14 525,000 534,876 509,250
Indymac INDX Mortgage Loan Trust 3.417 11/25/36 998,668 716,884 614,962
Inergy LP 8.250 03/01/16 75,000 75,000 69,000
Intelsat Bermuda Ltd 9.250 06/15/16 690,000 715,887 641,700
Interline Brands, Inc. 8.125 06/15/14 830,000 824,237 821,700
Iron Mountain, Inc. 8.750 07/15/18 500,000 514,119 507,500
Majestic Star Casino LLC 9.500 10/15/10 250,000 250,000 112,500
Manitowoc Company, Inc. 7.125 11/01/13 100,000 100,000 93,000
Mariner Energy, Inc. 8.000 05/15/17 400,000 402,494 338,000
Mediacom Broadband LLC 8.500 10/15/15 750,000 765,191 618,750
Neiman Marcus Group, Inc. 10.375 10/15/15 600,000 600,000 502,500
NOVA Chemicals Corporation (C) 5.953 11/15/13 515,000 511,538 427,450
O E D Corp/Diamond Jo Company Guarantee 8.750 04/15/12 500,000 492,980 455,000
Petrohawk Energy Corporation 9.125 07/15/13 750,000 761,460 705,000
Pliant Corporation (C) 11.850 06/15/09 809,482 817,343 696,154
Quebecor Media, Inc. 7.750 03/15/16 575,000 551,385 503,125
Quicksilver Resources, Inc. 7.125 04/01/16 600,000 583,125 489,000
Range Resources Corporation 7.250 05/01/18 25,000 25,000 23,625
Rental Service Corporation 9.500 12/01/14 500,000 506,308 378,750
Rogers Wireless, Inc. 7.500 03/15/15 560,000 591,888 569,233
Sheridan Acquisition Corporation 10.250 08/15/11 225,000 222,001 200,250
Steel Dynamics, Inc. 6.750 04/01/15 100,000 100,000 86,000
Stewart & Stevenson LLC 10.000 07/15/14 750,000 770,765 656,250
Tenneco, Inc. 8.625 11/15/14 500,000 501,092 397,500
----------------------------------------------------------------------------------------------------------------
27
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008
(Unaudited)
Interest Due Principal Market
CORPORATE PUBLIC SECURITIES:(A)(Continued) Rate Date Amount Cost Value
------- -------- ------------ ------------ ------------
Tenneco, Inc. 8.125% 11/15/15 $ 50,000 $ 50,000 $ 42,750
Tesoro Petroleum Corporation 6.500 06/01/17 250,000 250,000 200,000
Texas Industries, Inc. 7.250 07/15/13 35,000 35,000 30,450
Titan International, Inc. 8.000 01/15/12 70,000 70,000 67,900
Transdigm, Inc. 7.750 07/15/14 150,000 151,259 141,000
Tube City IMS Corporation 9.750 02/01/15 1,000,000 991,246 890,000
United Components, Inc. 9.375 06/15/13 535,000 535,765 444,050
United Rentals, Inc. 7.750 11/15/13 325,000 325,000 247,813
Virgin Media Finance PLC 9.125 08/15/16 790,000 813,009 661,625
Vought Aircraft Industries 8.000 07/15/11 650,000 647,991 565,500
Warner Music Group Corporation 7.375 04/15/14 125,000 125,000 92,813
------------ ------------
TOTAL BONDS 20,384,380 17,861,595
------------ ------------
COMMON STOCK - 1.15%
CKX, Inc. (B) 52,500 422,625 323,400
Directed Electronics, Inc. (B) 195,118 982,868 195,118
Distributed Energy Systems Corporation (B) 14,000 177,078 210
El Paso Corporation (B) 35,000 435,272 446,600
EnerNOC, Inc. (B) 23,500 648,410 242,990
ITC^DeltaCom, Inc. (B) 94,588 827,645 184,447
Intrepid Potash, Inc. (B) 185 5,920 5,498
------------ ------------
TOTAL COMMON STOCK 3,499,818 1,398,263
------------ ------------
CONVERTIBLE BONDS - 0.16%
Citadel Broadcasting Corporation 4.000% 02/15/11 250,000 194,063 193,438
------------ ------------
TOTAL CONVERTIBLE BONDS 194,063 193,438
------------ ------------
TOTAL CORPORATE PUBLIC SECURITIES $ 24,078,261 $ 19,453,296
------------ ------------
----------------------------------------------------------------------------------------------------------------
28
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Interest Due Principal Market
SHORT-TERM SECURITIES: Rate/Yield* Date Amount Cost Value
------- -------- ------------ ------------ ------------
COMMERCIAL PAPER - 8.30%
Clorox Company 6.007 % 10/01/08 $ 832,000 $ 832,000 $ 832,000
Computer Sciences Corporation 5.506 10/02/08 2,503,000 2,502,618 2,502,618
Dominion Resources, Inc. 6.087 10/03/08 2,536,000 2,535,143 2,535,143
Duke Energy Carolinas LLC 6.007 10/06/08 1,753,000 1,751,539 1,751,539
Textron, Inc. 6.007 10/07/08 2,509,000 2,506,491 2,506,491
------------ ------------
TOTAL SHORT-TERM SECURITIES $ 10,127,791 $ 10,127,791
------------ ------------
TOTAL INVESTMENTS 107.75% $144,399,456 $131,432,382
============ ------------
Other Assets 3.34 4,070,905
Liabilities (11.09) (13,529,823)
------ ------------
TOTAL NET ASSETS 100.00% $121,973,464
====== ============
(A) In each of the convertible note, warrant, and common stock investments, the issuer has agreed to provide
certain registration rights.
(B) Non-income producing security.
(C) Variable rate security; rate indicated is as of 09/30/08.
(D) Defaulted security; interest not accrued.
(E) Illiquid security. At September 30, 2008, the values of these securities amounted to $97,551,620 or 79.98%
of net assets.
* Effective yield at purchase
PIK - Payment-in-kind
----------------------------------------------------------------------------------------------------------------
29
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008
(Unaudited)
Fair Value/ Fair Value/
INDUSTRY CLASSIFICATION: Market Value Market Value
-------------- --------------
AEROSPACE - 2.92% BUILDINGS & REAL ESTATE - 1.12%
Gencorp, Inc. $ 128,050 K W P I Holdings Corporation $ 1,178,102
Hughes Network Systems 509,250 Texas Industries, Inc. 30,450
P A S Holdco LLC 1,349,721 TruStile Doors, Inc. 160,620
Transdigm, Inc. 141,000 --------------
Visioneering, Inc. 874,977 1,369,172
Vought Aircraft Industries 565,500 --------------
-------------- CHEMICAL, PLASTICS & RUBBER - 0.58%
3,568,498 Capital Specialty Plastics, Inc. 279,466
-------------- NOVA Chemicals Corporation 427,450
AUTOMOBILE - 5.87% --------------
Fuel Systems Holding Corporation 618,750 706,916
Goodyear Tire & Rubber Co. 63,360 --------------
Jason, Inc. 757,707 CONSUMER PRODUCTS - 7.42%
Nyloncraft, Inc. 1,083,929 Aero Holdings, Inc. 1,829,803
Ontario Drive & Gear Ltd. 697,484 Bravo Sports Holding Corporation 1,312,159
Qualis Automotive LLC 1,024,174 G F S I, Inc. 337,500
Tenneco, Inc. 440,250 K N B Holdings Corporation 1,364,281
Titan International, Inc. 67,900 Momentum Holding Co. 249,776
Transtar Holding Company 1,572,202 R A J Manufacturing Holdings LLC 1,305,058
TRW Automotive, Inc. 395,000 Royal Baths Manufacturing Company 553,677
United Components, Inc. 444,050 The Tranzonic Companies 2,097,161
-------------- Walls Industries, Inc. --
7,164,806 --------------
-------------- 9,049,415
BEVERAGE, DRUG & FOOD - 2.84% --------------
Aramark Corporation 87,500 CONTAINERS, PACKAGING & GLASS - 4.58%
Golden County Foods Holding, Inc. 912,026 Flutes, Inc. 760,272
Hospitality Mints Holding Company 1,299,277 Maverick Acquisition Company 407,386
Specialty Foods Group, Inc. -- P I I Holding Corporation 1,481,516
Vitality Foodservice, Inc. 1,170,851 Packaging Dynamics Corporation of America 633,750
-------------- Paradigm Packaging, Inc. 1,072,274
3,469,654 Pliant Corporation 696,154
-------------- Vitex Packaging Group, Inc. 540,640
BROADCASTING & ENTERTAINMENT - 2.48% --------------
Charter Communications Op LLC 671,250 5,591,992
Citadel Broadcasting Corporation 193,438 --------------
CKX, Inc. 323,400 DISTRIBUTION - 0.71%
Mediacom Broadband LLC 618,750 Duncan Systems, Inc. 863,352
Virgin Media Finance PLC 661,625 QualServ Corporation --
Workplace Media Holding Co. 552,323 --------------
-------------- 863,352
3,020,786 --------------
--------------
------------------------------------------------------------------------------------------------------------------------------------
30
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Fair Value/ Fair Value/
INDUSTRY CLASSIFICATION:(Continued) Market Value Market Value
-------------- --------------
DIVERSIFIED/CONGLOMERATE, FARMING & AGRICULTURE - 1.03%
MANUFACTURING - 10.32% Protein Genetics, Inc. $ --
A H C Holdings Company, Inc. $ 1,291,167 Waggin' Train Holdings LLC 1,254,780
Arrow Tru-Line Holdings, Inc. 828,882 --------------
C D N T, Inc. 874,696 1,254,780
Douglas Dynamics LLC 397,700 --------------
Evans Consoles, Inc. 541,417 FINANCIAL SERVICES - 0.87%
K P I Holdings, Inc. 1,297,449 Ford Motor Credit Co. 422,082
MEGTEC Holdings, Inc. 1,298,034 General Motors Acceptance Corporation 641,003
Milwaukee Gear Company 1,348,615 Highgate Capital LLC --
Nortek, Inc. 89,000 Victory Ventures LLC --
Postle Aluminum Company LLC 1,168,983 --------------
Radiac Abrasives, Inc. 1,543,963 1,063,085
Truck Bodies & Equipment International 611,349 --------------
Xaloy Superior Holdings, Inc. 1,303,367 HEALTHCARE, EDUCATION & CHILDCARE - 4.76%
-------------- A T I Acquisition Company 1,451,691
12,594,622 American Hospice Management Holding LLC 1,826,189
-------------- F H S Holdings LLC 1,208,170
DIVERSIFIED/CONGLOMERATE, SERVICE - 9.12% Synteract Holdings Corporation 1,313,976
A W X Holdings Corporation 868,355 Touchstone Health Partnership --
Advanced Technologies Holdings 1,321,819 --------------
C R H America, Inc. 455,690 5,800,026
CapeSuccess LLC -- --------------
Crane Rental Corporation 1,309,986 HOME & OFFICE FURNISHINGS, HOUSEWARES,
Diversco, Inc./DHI Holdings, Inc. 633,325 AND DURABLE CONSUMER PRODUCTS - 9.38%
Dwyer Group, Inc. 769,804 Connor Sport Court International, Inc. 984,753
Fowler Holding, Inc. 939,131 H M Holding Company --
GQ Holdings LLC 1,275,258 Home Decor Holding Company 1,157,258
Insurance Claims Management, Inc. 75,728 Justrite Manufacturing Acquisition Co. 962,909
Interline Brands, Inc. 821,700 K H O F Holdings, Inc. 1,313,102
Iron Mountain, Inc. 507,500 Monessen Holding Corporation 1,295,696
Mail Communications Group, Inc. 755,540 Stanton Carpet Holding Co. 1,427,896
Nesco Holdings Corporation 1,390,124 Transpac Holdings Company 976,185
-------------- U M A Enterprises, Inc. 1,299,580
11,123,960 U-Line Corporation 1,078,604
-------------- Wellborn Forest Holding Co. 943,666
ELECTRONICS - 1.46% --------------
Connecticut Electric, Inc. 1,073,724 11,439,649
Directed Electronics, Inc. 195,118 --------------
Distributed Energy Systems Corporation 210
Electronic Data Systems Corporation 508,060
--------------
1,777,112
--------------
------------------------------------------------------------------------------------------------------------------------------------
31
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008
(Unaudited)
Fair Value/ Fair Value/
INDUSTRY CLASSIFICATION:(Continued) Market Value Market Value
-------------- --------------
LEISURE, AMUSEMENT, ENTERTAINMENT - 2.81% MINING, STEEL, IRON & NON PRECIOUS
Boyd Gaming Corporation $ 103,875 METALS - 1.87%
Electra Bicycle Company LLC 791,224 Ryerson, Inc. $ 25,500
Majestic Star Casino LLC 112,500 Steel Dynamics, Inc. 86,000
O E D Corp/Diamond Jo Company Guarantee 455,000 T H I Acquisition, Inc. 1,277,387
Savage Sports Holding, Inc. 1,144,104 Tube City IMS Corporation 890,000
Ticketmaster 235,000 --------------
Tunica-Biloxi Gaming Authority 496,800 2,278,887
Warner Music Group Corporation 92,813 --------------
-------------- MORTGAGE-BACKED SECURITIES - 1.02%
3,431,316 Countrywide Alternative Loan Trust 625,875
-------------- Indymac INDX Mortgage Loan Trust 614,962
MACHINERY - 10.08% --------------
Davis-Standard LLC 1,785,356 1,240,837
E S P Holdco, Inc. 1,283,785 --------------
Integration Technology Systems, Inc. -- NATURAL RESOURCES - 0.24%
K-Tek Holdings Corporation 1,290,808 Appleton Papers, Inc. 219,375
M V I Holding, Inc. 646,651 Cenveo Corporation 41,850
Manitowoc Company, Inc. 93,000 Intrepid Potash, Inc. 5,498
Morton Industrial Group, Inc. 1,200,181 Range Resources Corporation 23,625
Navis Global 663,833 --------------
NetShape Technologies, Inc. 963,563 290,348
Pacific Consolidated Holdings LLC 632,592 --------------
Power Services Holding Company 1,288,502 OIL & GAS - 1.85%
R E I Delaware Holding, Inc. 1,278,304 Clayton Williams Energy, Inc. 328,125
Safety Speed Cut Manufacturing Company, Inc. 510,588 Mariner Energy, Inc. 338,000
Stewart & Stevenson LLC 656,250 Quicksilver Resources, Inc. 489,000
-------------- Tesoro Petroleum Corporation 200,000
12,293,413 Total E & S, Inc. 898,380
-------------- --------------
MEDICAL DEVICES/BIOTECH - 3.21% 2,253,505
Coeur, Inc. 611,106 --------------
E X C Acquisition Corporation 105,249 PHARMACEUTICALS - 1.36%
ETEX Corporation -- CorePharma LLC 1,349,754
MedSystems Holdings LLC 653,790 Enzymatic Therapy, Inc. 307,668
MicroGroup, Inc. 1,898,307 --------------
OakRiver Technology, Inc. 644,446 1,657,422
TherOX, Inc. -- --------------
-------------- PUBLISHING/PRINTING - 0.58%
3,912,898 Quebecor Media, Inc. 503,125
-------------- Sheridan Acquisition Corporation 200,250
--------------
703,375
--------------
RETAIL STORES - 1.05%
Neiman Marcus Group, Inc. 502,500
Olympic Sales, Inc. 151,031
Rental Service Corporation 378,750
United Rentals, Inc. 247,813
--------------
1,280,094
--------------
------------------------------------------------------------------------------------------------------------------------------------
32
CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2008 MassMutual Participation Investors
(Unaudited)
Fair Value/ Fair Value/
INDUSTRY CLASSIFICATION:(Continued) Market Value Market Value
-------------- --------------
TECHNOLOGY - 1.99% UTILITIES - 1.31%
Compucom Systems, Inc. $ 601,325 El Paso Corporation $ 446,600
EnerNOC, Inc. 242,990 Inergy LP 69,000
Smart Source Holdings LLC 1,586,675 Intergen NV 375,000
-------------- Petrohawk Energy Corporation 705,000
2,430,990 --------------
-------------- 1,595,600
TELECOMMUNICATIONS - 2.07% --------------
All Current Holding Company 651,965 WASTE MANAGEMENT / POLLUTION - 2.72%
Cincinnati Bell, Inc. 478,500 Terra Renewal LLC 2,035,672
Intelsat Bermuda Ltd. 641,700 Torrent Group Holdings, Inc. 1,287,649
ITC^DeltaCom, Inc. 184,447 --------------
Rogers Wireless, Inc. 569,233 3,323,321
-------------- --------------
2,525,845 Total Corporate Restricted and
-------------- Public Securities - 99.45% $ 121,304,591
TRANSPORTATION - 1.83% ==============
NABCO, Inc. 201,725
Tangent Rail Corporation 2,027,190
--------------
2,228,915
--------------
See Notes to Consolidated Financial Statements
------------------------------------------------------------------------------------------------------------------------------------
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 diversified closed-end management investment company. Babson
Capital Management LLC ("Babson Capital"), a wholly-owned indirect subsidiary
of Massachusetts Mutual Life Insurance Company ("MassMutual"), acts as its
investment adviser. The Trust's investment objective is to maximize total
return by providing a high level of current income, the potential for growth
of income, and capital appreciation. The Trust's principal investments are
privately placed, below-investment grade, long-term debt obligations
purchased directly from their issuers, which tend to be smaller companies. At
least half of these investments normally include equity features such as
common stock, warrants, conversion rights, or other equity features that
provide the Trust with the opportunity to realize capital gains. The Trust
will also invest in publicly traded debt securities (including high yield
securities), again with an emphasis on those with equity features, and in
convertible preferred stocks and, subject to certain limitations, readily
marketable equity securities. Below-investment grade or high yield securities
have predominantly speculative characteristics with respect to the capacity
of the issuer to pay interest and repay capital. In addition, the Trust may
temporarily invest in high quality, readily marketable securities.
On January 27, 1998, the Board of Trustees authorized the formation of a
wholly owned subsidiary of the Trust ("MMPI Subsidiary Trust") for the
purpose of holding certain investments. The results of the MMPI Subsidiary
Trust are consolidated in the accompanying financial statements. Footnote 2.D
below discusses the federal tax consequences of the MMPI Subsidiary Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Trust in the preparation of its consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America.
A. VALUATION OF INVESTMENTS:
Valuation of a security in the Trust's portfolio is made on the basis of the
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 public offering for which a registration statement is in effect under
the Securities Act of 1933, as amended (the "1933 Act") or pursuant to a
transaction that is exempt from registration under the 1933 Act.
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 Trust's Board of Trustees (the "Trustees"). Each restricted
security is valued by the Trustees at the time of its acquisition 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 at the time of acquisition by the Trust.
Values greater or less than cost are used thereafter for restricted
securities in appropriate circumstances. Among the factors ordinarily
considered are the existence of restrictions upon the sale of a security held
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; in the
case of 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 for purchase; 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 any other factors affecting fair value, all
in accordance with the Investment Company Act of 1940, as amended (the "1940
Act"). In making valuations, opinions of counsel may be 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 Trustees,
however, consider all factors in fixing any discount, including the filing of
a registration statement for such securities under the 1933 Act and any other
developments which are likely to increase the probability that the securities
may be publicly sold by the Trust without restriction.
The Trustees meet at least once each quarter to approve the value of 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 or of Babson Capital. In making
valuations,
--------------------------------------------------------------------------------
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(Unaudited) MassMutual Participation Investors
the Trustees will consider reports by Babson Capital analyzing each portfolio
security in accordance with the relevant factors referred to above. Babson
Capital has agreed to provide such reports to the Trust at least quarterly.
The consolidated financial statements include private placement restricted
securities valued at $97,551,620 (79.98% of net assets) as of September 30,
2008 whose values have been estimated by the 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 Rule 144A restricted securities and 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, 2008,
subject to discount where appropriate, and are approved by the Trustees.
Short-term securities with more than sixty days to maturity are valued at
fair value 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 the trade date. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis, including the amortization of premiums and accretion of
discounts on bonds held using the yield-to-maturity method. The Trust does
not accrue income when payment is delinquent and when management believes
payment is questionable.
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.
C. USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
D. FEDERAL INCOME TAXES:
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 that Trustees either designate the net realized long-term gains as
undistributed and pay the federal capital gains taxes thereon, or distribute
all or a portion of such net gains.
The Trust is taxed as a regulated investment company and is therefore limited
as to the amount of non-qualified income that it may receive as the result of
operating a trade or business, e.g. the Trust's pro rata share of income
allocable to the Trust by a partnership operating company. The Trust's
violation of this limitation could result in the loss of its status as a
regulated investment company, thereby subjecting all of its net income and
capital gains to corporate taxes prior to distribution to its shareholders.
The Trust, from time-to-time, identifies investment opportunities in the
securities of entities that could cause such trade or business income to be
allocable to the Trust. The MMPI Subsidiary Trust (described in Footnote 1,
above) was formed in order to allow investment in such securities without
adversely affecting the Trust's status as a regulated investment company.
The MMPI Subsidiary Trust is not taxed as a regulated investment company.
Accordingly, prior to the Trust receiving any distributions from the MMPI
Subsidiary Trust, all of the MMPI Subsidiary Trust's taxable income and
realized gains, including non-qualified income and realized gains, is subject
to taxation at prevailing corporate tax rates. For the nine months ended
September 30, 2008, the MMPI Subsidiary Trust has not accrued any income tax
expense.
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes " An
interpretation of FASB Statement No. 109 ("FIN 48"). Management has analyzed
the Trust's tax positions taken on federal income tax returns for all open
tax years and has concluded that as of September 30, 2008, no provision for
income tax would be required in the Trust's financial statements. The Trust's
federal and state income and federal excise tax returns for tax years for
which the applicable statutes of limitations have not expired are subject to
examination by the Internal Revenue Service and state departments of revenue.
E. DISTRIBUTIONS TO SHAREHOLDERS:
The Trust records distributions to shareholders from net investment income
and net realized gains, if any, on the ex-dividend date. The Trust's net
investment income dividend is declared four times per year, in April, July,
October, and December. The Trust's net realized capital gain distribution, if
any, is declared in December.
F. EXPENSE REDUCTION:
Citibank, N.A. ("Citibank") serves as custodian to the Trust. Pursuant to the
custodian agreement, Citibank receives a fee reduced by credits on cash
balances the Trust maintains with Citibank. All credit balances, if any, used
to reduce the Trust's custodian fees are reported as fees paid indirectly on
the Statement of Operations. For the nine months ended September 30, 2008,
there were no credit balances used to reduce custodian fees.
--------------------------------------------------------------------------------
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES CONTRACT
A. SERVICES:
Under an Investment Advisory and Administrative Services Contract (the
"Contract") with the Trust, Babson Capital has agreed to use its best efforts
to present to the Trust a continuing and suitable investment program
consistent with the investment objectives and policies of the Trust. Babson
Capital represents 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, Babson
Capital also provides administration of the day-to-day operations of the
Trust and provides the Trust with office space and office equipment,
accounting and bookkeeping services, and necessary executive, clerical and
secretarial personnel for the performance of the foregoing services.
B. FEE:
For its services under the Contract, Babson Capital is paid a quarterly
investment advisory 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. A majority of the Trustees, including
a majority of the Trustees who are not interested persons of the Trust or of
Babson Capital, approve the valuation of the Trust's net assets as of such
day.
4. SENIOR SECURED INDEBTEDNESS
A. NOTE PAYABLE:
MassMutual holds the Trust's $12,000,000 Senior Fixed Rate Convertible Note
(the "Note") issued by the Trust in 1995. The Note, as amended, is due
December 13, 2011 and accrues interest at 5.80% per annum. MassMutual, at its
option, can convert the principal amount of the Note into common shares. The
dollar amount of principal would be converted into an equivalent dollar
amount of common shares based upon the average price of the common shares for
ten business days prior to the notice of conversion. For the nine months
ended September 30, 2008, the Trust incurred total interest expense on the
Note of $522,000.
The Trust may redeem the Note, in whole or in part, at the principal amount
proposed to be redeemed together with the accrued and unpaid interest thereon
through the redemption date plus a Make Whole Premium. The Make Whole Premium
equals the excess of (i) the present value of the scheduled payments of
principal and interest which the Trust would have paid but for the proposed
redemption, discounted at the rate of interest of U.S. Treasury obligations
whose maturity approximates that of the Note plus 0.50% over (ii) the
principal of the Note proposed to be redeemed.
B. REVOLVING CREDIT AGREEMENT:
The Trust $15,000,000 revolving credit agreement (the "Revolver") with Bank
of America N.A. matured on May 30, 2008.
For the nine month period ended September 30, 2008, the Trust incurred a
total expense on the Revolver of $6,229. The expense was incurred on the
undrawn portion of the Revolver from January 1, 2008 to the maturity date on
May 30, 2008.
5. PURCHASES AND SALES OF INVESTMENTS
FOR THE NINE
MONTHS ENDED
9/30/2008
COST OF PROCEEDS FROM
INVESTMENTS SALES OR
ACQUIRED MATURITIES
------------ ------------
Corporate restricted securities $ 23,214,916 $ 15,996,869
Corporate public securities 4,057,961 13,924,377
The aggregate cost of investments is substantially the same for financial
reporting and federal income tax purposes as of September 30, 2008. The net
unrealized depreciation of investments for financial reporting and federal
tax purposes as of September 30, 2008 is $12,967,074 and consists of
$7,394,739 appreciation and $20,361,813 depreciation.
6. QUARTERLY RESULTS OF INVESTMENT OPERATIONS
MARCH 31, 2008
AMOUNT PER SHARE
------------ ---------
Investment income $ 3,200,898
Net investment income 2,597,669 $ 0.26
Net realized and unrealized
loss on investments (net of taxes) (2,528,865) (0.26)
JUNE 30, 2008
AMOUNT PER SHARE
------------ ---------
Investment income $ 2,861,287
Net investment income 2,280,789 $ 0.23
Net realized and unrealized
loss on investments (net of taxes) (1,496,914) (0.15)
SEPTEMBER 30, 2008
AMOUNT PER SHARE
------------ ---------
Investment income $ 3,817,860
Net investment income 3,237,045 $ 0.33
Net realized and unrealized
loss on investments (net of taxes) (4,637,203) (0.46)
--------------------------------------------------------------------------------
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(Unaudited) MassMutual Participation Investors
7. FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Trust adopted FASB Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157
clarifies the definition of fair value, establishes a framework for measuring
fair values and requires additional disclosures about the use of fair value
measurements. FAS 157 requires companies to provide expanded information
about the assets and liabilities measured at fair value and the potential
effect of these fair valuations of an entity's financial performance.
Various inputs are used in determining the value of the Trust's investments.
Using the hierarchy established under FAS 157, these inputs are summarized in
the three broad levels listed below:
Level 1: quoted prices in active markets for identical securities
Level 2: other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayments speeds, credit risk,
etc.)
Level 3: significant unobservable inputs (including the Trust's own
assumptions in determining the fair value of investments)
The inputs and methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Trust's net assets
as of September 30, 2008:
ASSETS TOTAL LEVEL 1 LEVEL 2 LEVEL 3
-----------------------------------------------------------------------------
Restricted Securities $101,851,295 $ -- $ 4,299,675 $97,551,620
Public Securities 19,453,296 1,398,263 18,055,033 --
Short-term Securities 10,127,791 -- 10,127,791 --
-----------------------------------------------------------------------------
TOTAL $131,432,382 $1,398,263 32,482,499 $97,551,620
Following is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value:
RESTRICTED PUBLIC SHORT-TERM
ASSETS SECURITIES SECURITIES SECURITIES TOTAL
-----------------------------------------------------------------------------
Beginning balance
at 12/31/2007 $94,083,138 $ -- $ -- $94,083,138
Total gains or losses
(realized/unrealized)
included in earnings* (4,629,851) -- -- (4,629,851)
Purchases, sales,
issuances & settlements
(net) 8,098,333 -- -- 8,098,333
-----------------------------------------------------------------------------
ENDING BALANCE
AT 9/30/08 $97,551,620 $ -- $ -- $97,551,620
*The amount of total gains or losses for the period included in earnings
attributable to the change in unrealized gains or losses relating to Level 3
assets still held at 9/30/08 is ($6,182,251).
--------------------------------------------------------------------------------
37
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MassMutual Participation Investors
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MassMutual Participation Investors offers a Dividend Reinvestment and Cash
Purchase Plan. The Plan provides a simple and automatic way for shareholders to
add to their holdings in the Trust through the receipt of dividend shares issued
by the Trust or through the reinvestment of cash dividends in Trust shares
purchased in the open market. The dividends of each shareholder will be
automatically reinvested in the Trust by Shareholder Financial Services Inc.,
the Transfer Agent, in accordance with the Plan, unless such shareholder elects
not to participate by providing written notice to the Transfer Agent. A
shareholder may terminate his or her participation by notifying the Transfer
Agent in writing.
Participating shareholders may also make additional contributions to the Plan
from their own funds. Such contributions may be made by personal check or other
means in an amount not less than $100 nor more than $5,000 per quarter. Cash
contributions must be received by the Transfer Agent at least five days (but no
more then 30 days) before the payment date of a dividend or distributions.
Whenever the Trust declares a dividend payable in cash or shares, the Transfer
Agent, acting on behalf of each participating shareholder, will take the
dividend in shares only if the net asset value is lower than the market price
plus an estimated brokerage commission as of the close of business on the
valuation day. The valuation day is the last day preceding the day of dividend
payment. When the dividend is to be taken in shares, the number of shares to be
received is determined by dividing the cash dividend by the net asset value as
of the close of business on the valuation date or, if greater than net asset
value, 95% of the closing share price. If the net asset value of the shares is
higher than the market value plus an estimated commission, the Transfer Agent,
consistent with obtaining the best price and execution, will buy shares on the
open market at current prices promptly after the dividend payment date.
The reinvestment of dividends does not, in anyway, relieve participating
shareholders of any federal, state or local tax. For federal income tax
purposes, the amount reportable in respect of a dividend received in
newly-issued shares of the Trust will be the fair market value of the shares
received, which will be reportable as ordinary income and/or capital gains.
As compensation for its services, the Transfer Agent receives a fee of 5% of any
dividend and cash contribution (in no event in excess of $2.50 per distribution
per shareholder.)
Any questions regarding the Plan should be addressed to Shareholder Financial
Services, Inc., Agent for MassMutual Participation Investors' Dividend
Reinvestment and Cash Purchase Plan, P.O. Box 173673, Denver, CO 80217-3673.
MEMBERS OF THE BOARD OF TRUSTEES OFFICERS
Donald Glickman Roger W. Crandall
Chairman
Robert E. Joyal
Clifford M. Noreen
William J. Barrett President
Michael H. Brown* James M. Roy
Vice President & Chief
Donald E. Benson* Financial Officer
Dr. Corine T. Norgaard* Patricia J. Walsh
Vice President, Secretary
Roger W. Crandall & Chief Legal Officer
Martin T. Hart Jill A. Fields
Vice President
Maleyne M. Syracuse
Michael P. Hermsen
*Member of the Audit Committee Vice President
Mary Wilson Kibbe
Vice President
Michael L. Klofas
Vice President
Richard E. Spencer, II
Vice President
Daniel J. Florence
Treasurer
John T. Davitt, Jr.
Comptroller
Melissa M. LaGrant
Chief Compliance Officer
MassMutual
Participation Investors
PI3555