UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-5531
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MassMutual Participation Investors
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(Exact name of registrant as specified in charter)
1500 Main Street, Suite 600, Springfield, MA 01115
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(Address of principal executive offices) (Zip code)
Stephen L. Kuhn, Vice President and Secretary
1500 Main Street, Suite 2800, Springfield, MA 01115
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(Name and address of agent for service)
Registrant's telephone number, including area code: 413-226-1000
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
Attached hereto is the annual shareholder report transmitted to
shareholders pursuant to Rule 30e-1 of the Investment Company Act of
1940, as amended.
2004
Annual
Report
MassMutual Participation Investors
MassMutual
Participation
Investors
MassMutual Participation Investors is a closed-end investment company, first
offered to the public over a decade ago and is listed on the New York Stock
Exchange.
MASSMUTUAL
PARTICIPATION INVESTORS
c/o Babson Capital Management LLC
1500 Main Street, Suite 600
Springfield, Massachusetts 01115
(413) 226-1516
ADVISER
Babson Capital Management LLC
1500 Main Street
Springfield, Massachusetts 01115
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
PROXY VOTING POLICIES & PROCEDURES;
PROXY VOTING RECORD
The Trustees of MassMutual Participation Investors have delegated proxy voting
responsibilities relating to the voting of securities held by the Trust to
Babson Capital Management LLC. 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 MassMutual Participation Investors'
website: http://www. babsoncapital.com/mpv; and (3) on the U.S. Securities and
Exchange Commission ("SEC") 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 MassMutual
Participation Investors" website: http://www.babsoncapital.com/mpv; and (2) on
the SEC's website at http://www.sec.gov.
FORM N-Q
MassMutual Participation Investors files its complete schedule of portfolio
holdings with the U.S. Securities and Exchange Commission for the first and
third quarters of each fiscal year on Form N-Q. This information is available
(i) on the U.S. Securities and Exchange Commission's website at
http://www.sec.gov; and (ii) at the U.S. Securities and Exchange Commission'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.
MassMutual Participation Investors
Investment
Objective
and Policy
MassMutual Participation Investors (the "Trust") is a closed-end 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.
[PIE CHART APPEARS HERE]
Portfolio Composition as of 12/31/04*
Public High
Yield Debt 24%
Private Investment
Grade Debt 1%
Cash & Short Term
Investments 7%
Private/Restricted
Equity 14%
Public Equity 2%
Private High
Yield Debt 52%
*Based on value of total investments
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 corporate 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 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. In addition, the
Trust may temporarily invest in high quality, readily marketable securities.
Babson Capital Management LLC 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.
In this report you will find a complete listing of the Trust's holdings. We
encourage you to read this section carefully for a better understanding of the
Trust. We cordially invite all shareholders to attend the MassMutual
Participation Investors Annual Meeting of Shareholders, which will be held on
April 22, 2005 at 1:00 P.M. in Springfield, Massachusetts.
1
MassMutual Participation Investors
To
Our
Shareholders
On July 1, 2004, David L. Babson & Company Inc., the investment adviser to
MassMutual Participation Investors (the "Trust"), announced that it was renaming
itself as Babson Capital Management LLC. The Trust continues to be managed by
the same individuals and there should be no change in the level of service
provided.
I am pleased to share with you the Trust's Annual Report for the year ended
December 31, 2004.
[PHOTO APPEARS HERE]
Left to right:
Roger W. Crandall
President
Stuart H. Reese
Chairman
The Trust's total portfolio rate of return for 2004 was 25.14%, as measured by
the change in net asset value, assuming the reinvestment of all dividends and
distributions.
2
M a s s M u t u a l P a r t i c i p a t i o n I n v e s t o r s
Total Annual Portfolio Return (as of 12/31 each year)*
[BAR CHART APPEARS HERE]
Lehman Brothers
Standard & Poor's Intermediate U.S.
MassMutual Participation Industrials Composite Credit Index (Formerly
Investors (Based on change (Formerly called the called the Lehman
in the net asset value with Standard & Poor's Brothers Intermediate
reinvested dividends) Industrial Price Index.) Corporate Bond Index.)
2004 25.14% 2004 10.20% 2004 4.08
2003 23.72% 2003 28.34% 2003 6.91
2002 5.70% 2002 -23.51% 2002 10.14
2001 3.41% 2001 -11.67% 2001 9.77
2000 8.11% 2000 -16.26% 2000 9.46
1999 4.77% 1999 25.89% 1999 0.16
1998 10.91% 1998 33.77% 1998 8.29
1997 24.10% 1997 31.04% 1997 8.36
1996 14.60% 1996 23.03% 1996 3.97
1995 26.11% 1995 34.64% 1995 18.99
*Data for MassMutual Participation Investors represents portfolio returns based
on change in the net asset value assuming the reinvestment of all dividends and
distributions which differs from the total investment return based on market
value due to the difference between the net asset value and the market value of
the shares outstanding (see page 12 for total investment return based on market
value); past performance is no guarantee of future results.
[PHOTO APPEARS HERE]
Left to right:
Stephen L. Kuhn
Vice President and Secretary
Clifford M. Noreen
Vice President
Charles C. McCobb, Jr.
Vice President and Chief Financial Officer
The Trust continues to repeatedly employ the investment philosophy that has
served it well since its inception: investing in companies which we believe to
have a strong business proposition, solid cash flow and experienced, ethical
management.
3
MassMutual Participation Investors
The Trust's
2004 Portfolio
Performance
The Trust's total portfolio rate of return for 2004 was 25.14%, as measured by
the change in net asset value, assuming the reinvestment of all dividends and
distributions. The Trust's total net assets were $107,610,007, or $11.13 per
share, as of December 31, 2004, compared to $94,396,591, or $9.84 per share, as
of December 31, 2003. The Trust's quarterly per-share dividend increased in the
first and second quarters of 2004 and remained stable for each of the next two
quarters of 2004: from 20 cents per share paid for each quarter in 2003 to 21
cents per share paid in May, to 24 cents per share paid in August and in
November. While the regular fourth quarter dividend paid in January remained at
24 cents per share, the Trust declared a special year-end dividend of 12 cents
per share paid in January to shareholders of record on December 31, 2004.
Aspecial 5 cent per share dividend was also paid in August, bringing total
dividends for the year to $1.10 per share. All in all, we are very pleased with
the Trust's 2004 portfolio performance.
Lehman Lehman Standard
Brothers Brothers & Poor's
The U.S. Corporate Intermediate Industrials Russell
Trust High Yield Index U.S. Credit Index* Composite** 2000 Index
1 Year 25.14% 11.13% 4.08% 10.20% 18.33%
3 Year 17.85% 12.22% 7.01% 2.66% 11.48%
5 Year 12.84% 6.97% 8.05% -4.37% 6.61%
10 Year 14.32% 8.13% 7.91% 11.31% 11.54%
* Formerly called the Lehman Brothers Intermediate Corporate Bond Index.
** Formerly called the Standard & Poor's Industrial Price Index.
The above table lists the average annual returns of the Trust's portfolio, based
on change in net assets, assuming the reinvestment of all dividends and
distributions, compared to the average annual returns of selected equity and
fixed income market indices for the 1, 3, 5 and 10 years ended December 31,
2004.
The U.S. economy and investment markets showed surprising resilience in 2004,
holding steady despite several factors: short-term interest rates were raised
five times during the year by the Federal Reserve Board for a total increase of
1.25 percent; oil reaching a record high price of $50 a barrel; a weakening
dollar; the worst hurricane season in 40 years; the ongoing war in Iraq; and a
highly charged Presidential election campaign.
4
MassMutual Participation Investors
While historically events such as these have had a negative economic impact,
indications are that the U.S. economy continues to improve. U.S. Gross Domestic
Product grew at a 4.4 percent rate for the year and the unemployment rate
dropped to 5.4 percent from 5.7 percent. Nevertheless, at the close of 2004,
both the Dow Jones Industrial Average and the Standard & Poor's 500 Index were
at their highest levels since pre-September 11, 2001.
Corporate credit defaults around the globe continued their downward trend
(although possibly plateauing at year-end), which provided a more stable
environment for investors. In the U.S., the speculative-grade issuer-weighted
default rate fell to 2.2% at year-end from a starting point of 5.2% in 2003, as
reported by Moody's Investors Service. Meanwhile, 2004 saw dollardenominated
high-yield bond issuance approach $134.8 billion, keeping pace with the $135.7
billion issued in 2003, according to Credit Suisse First Boston. The value of
mergers and acquisitions among domestic companies reached $834 billion, a tally
surpassed only in the record year of 2000, according to Thompson Financial. This
is an indication of the amount of capital available in the market to finance
deals; however, this environment has caused the markets in which the Trust
participates to become very competitive.
Overall, the Trust closed 23 new private placement transactions during 2004 and
added to seven existing private placement investments, a relatively large number
compared with previous years. To keep pace with this activity, Babson Capital
has added additional investment professionals to its mezzanine and private
equity group.
New private placement transactions during the year were: ATI Acquisition
Company; AWC Holding Company; American Hospice Management Holding LLC; Augusta
Sportswear Holding Co.; Chemed Corporation (Roto-Rooter, Inc.); Eagle Pack Pet
Foods, Inc.; EXC Acquisition Corporation; Home Decor Holding Company; Justrite
Manufacturing Acquisition Co.; Kele and Associates, Inc.; Maverick Acquisition
Company; Maxon Corporation; Nonni's Food Company; Qualis Automotive LLC;
Qualserv Corporation; River Ranch Fresh Foods LLC; Savage Sports Holding, Inc.;
Sport Court International, Inc.; Tubular Textile Machinery; U-Line Corporation;
Vitality Foodservice, Inc.; Vitex Packaging Group, Inc.; and Walls Industries,
Inc.
In addition, the Trust added to existing private placement investments in
Brampton Fasteners Co. Ltd., Colibri Holdings Corp., Delstar Holding
Corporation, Dwyer Group, Inc., Home Decor Holding Company, MedAssist, Inc. and
Shelter Acquisition, Inc.
[PHOTO APPEARS HERE]
Left to right:
Michael L. Klofas
Vice President
Richard E. Spencer, II
Vice President
Michael P. Hermsen
Vice President
5
MassMutual Participation Investors
The Outlook for 2005
For 2005, expectations are mixed. The Fed will likely continue to raise
short-term rates, and many analysts believe long-term interest rates may rise as
well. The global economy is focused on the budget and current account deficits
in the U.S., with the risk of further dollar weakness. Oil prices will continue
to have a risk premium because of instability and conflict in the Middle East.
While economic indicators such as unemployment levels, manufacturing activity
and consumer confidence looked promising at year-end, no one can predict the
future with any degree of certainty.
Stronger equity and credit markets have helped fuel increased M & Aactivity -
pushing valuations toward the high end of historical ranges. The margin of
safety in many investments has been reduced, requiring investors to increase the
scrutiny of each opportunity.
Regardless of the economic environment, however, the Trust continues to
repeatedly employ the investment philosophy that has served it well since its
inception: investing in companies which we believe to have a strong business
proposition, solid cash flow and experienced, ethical management. This
philosophy, combined with Babson Capital's seasoned investment-management team
and the Trust's financial position, contribute to the Trust's being well
positioned for future investment opportunities that meet its investment
objectives and policies. As always, I would like to thank you for your continued
interest in and support of MassMutual Participation Investors.
Sincerely,
/S/ Roger W. Crandall
Roger W. Crandall
President
Cautionary Notice: Certain statements contained in this report to shareholders
may be "forward looking" statements within the meaning of the Private Securities
Litigation Act of 1995. These statements are not guarantees of future
performance and actual results may differ materially from those forecasted.
2004 Record Net Investment Short-Term
Dividends Date Income Gains Tax Effect
--------------------------------------------------------------------------------
Regular 05/07/04 $0.2100 -
07/30/04 0.2400 -
11/01/04 0.2400 -
12/31/04 0.2400 -
Special 07/30/04 0.0500 -
12/31/04 0.1200 -
--------------------------------------------------------------------------------
$1.1000 - $1.10
--------------------------------------------------------------------------------
The Trust did not have distributable net long-term capital gains in 2004.
Qualified for Dividend Interest Earned on
Annual Dividend Received Deduction*** Qualified Dividends**** U.S. Gov't. Obligations
Amount Per Share Percent Amount Per Share Percent Amount Per Share Percent Amount Per Share
----------------------------------------------------------------------------------------------------
$1.10 19.0189% 0.2092 19.0131% 0.2091 0.0000% 0.0000
*Not available to individual shareholders
**Qualified dividends are reported in Box 1b on IRS Form 1099-Div for 2004
6
MassMutual Participation Investors
Financial
Report
Consolidated Statement of Assets and Liabilities . . . . . . . . . . . . . . 8
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . 9
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . .10
Consolidated Statements of Changes in Net Assets . . . . . . . . . . . . . .11
Consolidated Selected Financial Highlights . . . . . . . . . . . . . . . . .12
Consolidated Schedule of Investments . . . . . . . . . . . . . . . . . . 13-35
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 36-39
Interested Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . 40-41
Independent Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . 42-44
Officers of the Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Report of Independent Registered Public Accounting Firm. . . . . . . . . . .46
7
MassMutual Participation Investors
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments
(See Consolidated Schedule of Investments)
Corporate restricted securities at fair value
(Cost - $97,473,283) $ 94,748,375
Corporate public securities at market value
(Cost - $26,736,731) 28,442,620
Short-term securities at cost plus earned discount
which approximates market value 5,580,402
-------------
128,771,397
Cash 2,370,051
Interest and dividends receivable 1,867,335
Receivable for investments sold 1,528,675
-------------
TOTAL ASSETS $ 134,537,458
=============
Liabilities:
Dividend payable $ 3,482,121
Management fee payable 241,672
Note payable 12,000,000
Revolving Credit Agreement 10,500,000
Interest payable 113,824
Accrued expenses 173,415
Accrued taxes payable 416,419
-------------
TOTAL LIABILITIES 26,927,451
-------------
Net Assets:
Common shares, par value $.01 per share; an unlimited number authorized 96,726
Additional paid-in capital 89,614,164
Retained net realized gain on investments, prior years 19,858,001
Undistributed net investment income 460,827
Accumulated net realized loss on investments (1,400,692)
Net unrealized depreciation of investments (1,019,019)
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TOTAL NET ASSETS 107,610,007
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TOTAL LIABILITIES AND NET ASSETS $ 134,537,458
=============
COMMON SHARES ISSUED AND OUTSTANDING 9,672,559
=============
NET ASSET VALUE PER SHARE $ 11.13
=============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
MassMutual Participation Investors
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME:
Interest $ 10,936,609
Dividends 1,321,969
-------------
TOTAL INVESTMENT INCOME 12,258,578
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EXPENSES:
Management fees 918,716
Interest 902,667
Trustees' fees and expenses 105,000
Transfer agent/registrar's expenses 21,400
Reports to shareholders 80,000
Professional fees 286,400
Other 72,170
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TOTAL EXPENSES 2,386,353
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Net investment income before income tax expense 9,872,225
Income tax expense 158,788
-------------
INVESTMENT INCOME - NET ($1.00 PER SHARE) 9,713,437
Net realized and unrealized gain on investments:
Realized gain on investments before taxes 1,196,570
Income tax expense (504,437)
-------------
NET REALIZED GAIN ON INVESTMENTS 692,133
Net change in unrealized depreciation of investments 12,493,998
-------------
Net gain on investments 13,186,131
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,899,568
=============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
MassMutual Participation Investors
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2004
NET DECREASE IN CASH:
Cash flows from operating activities:
Interest and dividends received $ 11,479,341
Interest expense paid (892,461)
Operating expenses paid (1,429,857)
Income taxes paid (1,157,345)
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,999,678
-------------
Cash flows from investing activities:
Purchases/Proceeds/Maturities from short-term portfolio securities, net 2,243,440
Purchases of portfolio securities (60,887,585)
Proceeds from disposition of portfolio securities 58,157,598
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NET CASH USED FOR INVESTING ACTIVITIES (486,547)
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NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES 7,513,131
-------------
Cash flows from financing activities:
Increase in receipts for shares issued on reinvestment of dividends 927,073
Cash dividends paid from net investment income (10,583,854)
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NET CASH USED FOR FINANCING ACTIVITIES (9,656,781)
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NET DECREASE IN CASH (2,143,650)
Cash - beginning of year 4,513,701
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CASH - END OF YEAR $ 2,370,051
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS TO NET CASH
PROVIDED BY OPERATING AND INVESTING ACTIVITIES:
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,899,568
-------------
Increase in investments (15,293,608)
Increase in interest and dividends receivable (41,885)
Decrease in receivable for investments sold 379,141
Increase in management fee payable 28,955
Increase in interest payable 10,206
Increase in accrued expenses 11,249
Decrease in accrued taxes payable (480,495)
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TOTAL ADJUSTMENTS TO NET ASSETS FROM OPERATIONS (15,386,437)
-------------
NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES $ 7,513,131
=============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
MassMutual Participation Investors
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
-----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
Operations:
Investment income - net $ 9,713,437 $ 7,705,514
Net realized gain on investments 692,133 2,040,865
Net change in unrealized depreciation of investments 12,493,998 9,587,627
------------- -------------
Net increase in net assets resulting from operations 22,899,568 19,334,006
Net increase in shares of beneficial interest transactions 927,073 662,855
(common shares issued: 2004 - 81,587; 2003 - 69,917)
Dividends to shareholders from:
Net investment income (2004 - $1.10 per share; 2003 - $0.96 per share) (10,613,225) (9,186,933)
------------- -------------
TOTAL INCREASE IN NET ASSETS 13,213,416 10,809,928
NET ASSETS, BEGINNING OF YEAR 94,396,591 83,586,663
------------- -------------
NET ASSETS, END OF YEAR $ 107,610,007 $ 94,396,591
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
11
MassMutual Participation Investors
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding:
For the years ended December 31, 2004 2003 2002 2001 2000
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE: BEGINNING OF YEAR $ 9.84 $ 8.78 $ 9.12 $ 9.75 $ 10.40
-------- -------- -------- -------- --------
Net investment income 1.00 0.80 0.87 0.93 1.00
Net realized and unrealized
gain (loss) on investments 1.36 1.21 (0.35) (0.61) (0.14)
-------- -------- -------- -------- --------
Total from investment operations 2.36 2.01 0.52 0.32 0.86
-------- -------- -------- -------- --------
Dividends from net investment
income to common shareholders (1.10) (0.96) (0.86) (0.96) (0.96)
Distributions from net realized gain
on investments to common shareholders -- -- -- -- (0.55)
Change from issuance of shares 0.03 0.01 -- 0.01 --
Total distributions (1.07) (0.95) (0.86) (0.95) (1.51)
-------- -------- -------- -------- --------
NET ASSET VALUE: END OF YEAR $ 11.13 $ 9.84 $ 8.78 $ 9.12 $ 9.75
-------- -------- -------- -------- --------
PER SHARE MARKET VALUE: END OF YEAR $ 13.31 $ 11.65 $ 9.40 $ 9.10 $ 10.94
-------- -------- -------- -------- --------
Total investment return
Market value 25.77% 35.50% 12.58% (8.02)% 22.91%
Net asset value* 25.14% 23.72% 5.70% 3.41% 8.11%
Net assets (in millions):
End of year $ 107.61 $ 94.40 $ 83.59 $ 86.09 $ 90.95
Ratio of operating expenses
to average net assets 1.63% 1.65% 1.27% 1.22% 1.28%
Ratio of interest expense
to average net assets 0.89% 0.97% 1.08% 1.47% 1.54%
Ratio of total expenses
to average net assets 2.52% 2.62% 2.35% 2.69% 2.82%
Ratio of net investment income
to average net assets 9.60% 8.55% 9.42% 9.70% 9.20%
Portfolio turnover 51.25% 55.08% 35.32% 21.58% 55.97%
* Net asset value return represents portfolio returns based on change in the net
asset value assuming the reinvestment of all dividends and distributions which
differs from the total investment return based on market value due to the
difference between the net asset value and the market value of the shares
outstanding; past performance in no guarantee of future results.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - 88.05%: (A) Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
Private Placement Investments - 80.57%
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 $ 1,126,139
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 1,230 shs. 04/08/04 -- 12
------------ ------------
1,125,000 1,126,151
------------ ------------
AWC HOLDING COMPANY
Amanufacturer and distributor of aluminum and vinyl windows and doors in the Southwest and Southeast regions of the U.S.
12% Senior Subordinated Note due 2012 $ 1,125,000 05/18/04 1,017,400 1,021,210
Limited Partnership Interest
of A W C Investment, LLC (B) 132 uts. 05/18/04 112,500 101,252
------------ ------------
1,129,900 1,122,462
------------ ------------
ADORN, INC
Amanufacturer of wall panels, cabinets, moldings and countertops for houses and recreational vehicles.
12.5% Subordinated Note due 2010 $ 1,125,000 02/29/00 1,022,875 1,131,000
Warrant, exercisable until 2010, to purchase
common stock at $.02 per share (B) 192 shs. 02/29/00 162,931 145,515
------------ ------------
1,185,806 1,276,515
------------ ------------
AMERICA'S BODY COMPANY, INC./LCP HOLDING CO
A designer and manufacturer of commercial work vehicles
12% Preferred Stock Series C (B) 197 shs. 12/16/03 875,000 1,575,000
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share (B) 40 shs. * 256,667 --
------------ ------------
*11/02/98 and 12/24/03 1,131,667 1,575,000
------------ ------------
AMERICAN HOSPICE MANAGEMENT HOLDING LLC
A for-profit hospice care provider in the United States
12% Senior Subordinated Note due 2010 $ 1,125,000 01/22/04 1,002,113 1,170,000
Preferred Class A Unit (B) 1,337 uts. 01/22/04 133,700 120,330
Common Class B Unit (B) 1,610 uts. 01/22/04 -- --
------------ ------------
1,135,813 1,290,330
------------ ------------
AUGUSTA SPORTSWEAR HOLDING CO
Amanufacturer and distributor of athletic apparel, activewear and team uniforms.
12% Senior Subordinated Note due 2012 $ 893,000 12/31/04 829,746 899,787
Common Stock (B) 232 shs. 12/31/04 232,000 208,800
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 73 shs. 12/31/04 63,254 1
------------ ------------
1,125,000 1,108,588
------------ ------------
13
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
BEACON MEDICAL PRODUCTS, INC
A designer, manufacturer and marketer of medical air and gas distribution systems.
Senior Secured Floating Rate Revolving Credit
Facility due 2007 $ 65,896 04/09/02 $ 65,896 $ 65,572
Senior Secured Tranche A Floating Rate Note due 2008 $ 490,243 04/09/02 490,243 485,326
12% Senior Secured Note due 2010 $ 412,112 04/09/02 354,853 433,507
Limited Partnership Interest of Riverside Capital
Appreciation Fund IV, L.P. (B) 6.38% int. 04/09/02 87,045 80,691
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 794 shs. 04/09/02 72,856 73,635
------------ ------------
1,070,893 1,138,731
------------ ------------
BETA BRANDS LTD
Amanufacturer of hard candy and chocolate-coated products sold primarily to the Canadian market.
5% Promissory Note due 2009 (B) $ 96,698 03/31/04 96,698 --
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 2,421 shs. 03/31/04 1 --
------------ ------------
96,699 --
------------ ------------
BETTER MINERALS & AGGREGATES
A producer of high grade industrial and specialty silica sands
14% Redeemable Preferred Stock (B) 499 shs. 09/30/99 272,912 54,525
Convertible Preferred Stock Series A and B, convertible
into common stock at $9.26 per share (B) 62,997 shs. 12/19/96 583,300 --
Common Stock (B) 10,013 shs. 09/30/99 399,505 --
Warrants, exercisable until 2005 and 2010, to
purchase common stock at $.01 per share (B) 5,700 shs. * 64,247 --
------------ ------------
*12/19/96 and 09/30/99 1,319,964 54,525
------------ ------------
BRAMPTON FASTENER CO. LTD
A value-added national distributor of maintenance, repair and operating supplies such as fasteners, electrical components and tools.
8% Senior Secured Term A Note due 2009 $ 430,000 12/31/04 430,000 408,500
12% Senior Secured Term B Note due 2009 $ 430,000 12/31/04 430,000 408,500
Limited Partnership Interest of Brafasco Investors LLC (B) 44,000 uts. 12/31/04 44,000 41,800
Preferred Stock (B) 155 shs. 12/31/04 -- 146,946
------------ ------------
904,000 1,005,746
------------ ------------
C & M CONVEYOR, INC
Amanufacturer and supplier of material handling systems to the corrugated sheet and container industry.
9.5% Senior Secured Term Note due 2007 $ 569,277 09/13/02 569,277 575,940
11% Senior Subordinated Note due 2010 $ 478,916 09/13/02 454,724 490,442
Common Stock (B) 180,723 shs. 09/13/02 180,723 144,578
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 78,386 shs. 09/13/02 34,428 784
------------ ------------
1,239,152 1,211,744
------------ ------------
14
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
CAINS FOODS, L.P.
A producer of mayonnaise and sauce products for both the retail and food service markets.
Limited Partnership Interest (B) 58 uts. 09/29/95 $ 79,184 $ 205,837
CAPESUCCESS LLC
A provider of diversified staffing services
Preferred Membership Interests (B) 806 uts. 04/29/00 3,598 180
Common Membership Interests (B) 10,421 uts. 04/29/00 46,706 2,332
------------ ------------
50,304 2,512
------------ ------------
CAPITAL SPECIALTY PLASTICS, INC
A producer of desiccant strips used for packaging pharmaceuticals products.
Common Stock (B) 55 shs. * 252 252
------------ ------------
*12/30/97 and 05/29/99
CHEMED CORPORATION
An operator in the residential and commercial repair-and-maintenance service industry
through two wholly owned subsidiaries, Roto-Rooter and Service America.
Common Stock 10,500 shs. 02/24/04 525,000 704,655
------------ ------------
COEUR, INC
A producer of proprietary, disposable power injection syringes
8.75% Senior Secured Term Note due 2010 $ 326,087 04/30/03 326,087 335,846
11.5% Senior Subordinated Note due 2011 $ 242,754 04/30/03 222,486 250,270
Common Stock (B) 72,463 shs. 04/30/03 72,463 65,217
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 50,099 shs. 04/30/03 23,317 501
------------ ------------
644,353 651,834
------------ ------------
COINING CORPORATION OF AMERICA LLC
Amanufacturer of close tolerance parts and metal stampings
Senior Secured Floating Rate Revolving Credit
Facility due 2006 $ 74,074 01/07/02 74,074 71,400
Senior Secured Floating Rate Tranche A Note due 2007 $ 567,901 06/26/01 567,901 524,448
13% Senior Secured Tranche B Note due 2006 $ 370,370 06/26/01 370,370 360,393
Limited Partnership Interest (B) 3.65% int. 06/26/01 185,185 148,148
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 61,163 shs. 06/26/01 45,370 612
------------ ------------
1,242,900 1,105,001
------------ ------------
15
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
COLIBRI HOLDINGS CORPORATION
Amanufacturer and distributor of wild bird feeders and accessories
12.5% Senior Subordinated Note due 2008 $ 843,750 09/22/00 $ 756,431 $ 804,797
28% Preferred Stock (B) 38 shs. 11/02/01 37,500 37,322
20% Preferred Stock (B) 35 shs. 03/09/04 35,156 34,066
Common Stock (B) 756 shs. 09/22/00 281,250 140,625
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 446 shs. 09/22/00 140,625 4
------------ ------------
1,250,962 1,016,814
------------ ------------
CORVEST GROUP, INC
Amanufacturer and distributor of promotional products
12% Senior Subordinated Note due 2007 (B) $ 2,045,455 * 1,985,526 1,840,910
Common Stock (B) 30 shs. * 51,136 12,784
Limited Partnership Interest (B) 10.23% int. * 150,810 37,955
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share (B) 171 shs. * 157,343 73,721
------------ ------------
*03/05/99 and 03/24/99 2,344,815 1,965,370
------------ ------------
DELSTAR HOLDING CORPORATION
Amanufacturer of plastic netting for a wide variety of industries
Convertible Preferred Stock, convertible into common
stock at $10 per share (B) 1,758 shs. 10/05/01 213,691 197,751
Convertible Preferred Stock, convertible into common
stock at $11.84 per share (B) 206 shs. 09/16/04 24,414 23,193
------------ ------------
238,105 220,944
------------ ------------
DEXTER MAGNETICS TECHNOLOGIES, INC
A designer, fabricator, assembler and distributor of industrial magnets and subassemblies in North America and Europe.
12% Senior Subordinated Note due 2006 $ 203,804 07/19/01 188,323 204,432
Common Stock (B) 310 shs. 07/19/01 309,783 331,077
Warrant, exercisable until 2006, to purchase
common stock at $.01 per share (B) 157 shs. 07/19/01 132,677 167,804
------------ ------------
630,783 703,313
------------ ------------
DIRECTED ELECTRONICS, INC
A designer and distributor of brand name automotive security systems, audio products and installation accessories.
Class B Common Stock (B) 19,394 shs. 12/22/99 -- 296,723
Limited Partnership Interest (B) 4.61% int. 12/22/99 1 444,616
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share (B) 25,713 shs. 12/22/99 -- 393,407
------------ ------------
1 1,134,746
------------ ------------
16
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
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 1,392,067 696,032
Warrants, exercisable until 2011, to purchase
common stock of DHI Holdings, Inc. at $.01 per share (B) 6,676 shs. * 201,655 --
------------ ------------
*10/24/96 and 08/28/98 1,960,217 696,032
------------ ------------
DWYER GROUP, INC
A franchiser of a variety of home repair services
14% Senior Subordinated Note due 2011 $ 984,375 10/30/03 893,453 990,915
Common Stock (B) 3,656 shs. ** 365,600 329,040
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 1,077 shs. 10/30/03 98,719 11
------------ ------------
**10/30/03 and 01/02/04 1,357,772 1,319,966
------------ ------------
E X C ACQUISITION CORPORATION
Amanufacturer of pre-filled syringes and pump systems used for intravenous drug delivery.
15% Senior Subordinated Note due 2012 $ 1,133,507 06/28/04 1,094,102 1,178,765
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 11 shs. 06/28/04 40,875 --
------------ ------------
1,134,977 1,178,765
------------ ------------
EAGLE PACK PET FOODS, INC
Amanufacturer of premium pet food sold through independent pet stores.
14% Senior Subordinated Note due 2011 $ 562,500 09/24/04 542,078 563,485
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 2,163 shs. 09/24/04 20,893 22
------------ ------------
562,971 563,507
------------ ------------
EAGLE WINDOW & DOOR HOLDING CO
Amanufacturer of wood and aluminum-clad wood windows and doors
12% Senior Subordinated Note due 2010 $ 1,000,000 05/06/02 882,029 1,030,000
Common Stock (B) 125 shs. 05/06/02 125,000 222,738
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 232 shs. 05/06/02 150,000 413,292
------------ ------------
1,157,029 1,666,030
------------ ------------
EAST RIVER VENTURES I, L.P.
An acquirer of controlling or substantial interests in other entities.
Limited Partnership Interest (B) 0.04% int. 01/01/01 7,238 6,821
------------ ------------
17
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
ENZYMATIC THERAPY, INC
Amanufacturer and distributor of branded natural medicines and nutritional supplements.
13% Senior Subordinated Note due 2006 (B) $ 843,750 09/17/02 $ 714,590 $ 506,250
Limited Partnership Interest (B) 0.70% int. 03/30/00 281,250 2,813
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 253 shs. 03/30/00 135,000 3
------------ ------------
1,130,840 509,066
------------ ------------
EURO-PRO CORPORATION
A designer, marketer and distributor of floor care, steam cleaning and small kitchen products and appliances.
13.25% Senior Subordinated Note due 2011 $ 1,125,000 09/09/03 1,107,962 1,127,729
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 23,229 shs. 09/09/03 18,869 232
------------ ------------
1,126,831 1,127,961
------------ ------------
EVANS CONSOLES, INC
A designer and manufacturer of consoles and control center systems
10% Senior Secured Note due 2006 $ 100,634 05/06/04 100,634 100,634
Limited Partnership Interest of CM
Equity Partners (B) 1.21% int. 02/11/98 64,535 --
Common Stock (B) 45,000 shs. 05/06/04 6 --
------------ ------------
165,175 100,634
------------ ------------
G C-SUN HOLDINGS, L.P.
A value-added national distributor of maintenance, repair and operating supplies such as fasteners, electrical components and tools.
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 469 shs. 03/02/00 185,220 --
------------ ------------
HAMILTON FUNERAL SERVICES CENTERS, INC
A privately held owner and operator of funeral homes in the United States.
16.5% Senior Subordinated Note due 2007 (B) $ 2,208,026 * 2,147,182 220,803
Warrant, exercisable until 2007, to purchase
common stock at $1 per share (B) 196,421 shs. * 28,131 --
------------ ------------
*01/25/99 and 07/16/99 2,175,313 220,803
------------ ------------
HIGHGATE CAPITAL LLC
An acquirer of controlling or substantial interests in manufacturing and marketing entities.
Series A Preferred Units (B) 0.30% int. 7/21/94 96,320 681
------------ ------------
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 ** 978,815 1,103,739
Common Stock (B) 33 shs. ** 33,216 29,898
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 106 shs. ** 105,618 1
------------ ------------
**06/30/04 and 08/19/04 1,117,649 1,133,638
------------ ------------
18
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
HUSSEY SEATING CORPORATION
Amanufacturer of spectator seating products
Senior Secured Floating Rate Revolving Note due 2006 $ 1,054,767 06/12/96 $ 1,054,767 $ 843,814
Senior Secured Floating Rate Note due 2006 $ 216,563 * 216,563 173,250
12% Senior Subordinated Note due 2006 $ 675,000 03/31/03 675,000 337,500
Common Stock (B) 2,860 shs. 03/12/04 112,500 --
------------ ------------
*06/12/96 and 08/03/01 2,058,830 1,354,564
------------ ------------
INTEGRATION TECHNOLOGY SYSTEMS, INC
Amanufacturer of steel protective computer and network systems for the industrial and office environments.
16.5% Senior Secured Note due 2006 $ 915,185 03/01/04 914,115 881,758
Common Stock (B) 130 shs. 06/01/00 149,500 74,750
------------ ------------
1,063,615 956,508
------------ ------------
JASON, INC
A diversified manufacturing company serving various industrial markets.
13% Senior Subordinated Note due 2008 $ 510,187 08/04/00 472,342 470,822
14% Cumulative Redeemable Preferred Stock Series A (B) 153 shs. 08/04/00 153,119 143,760
Limited Partnership Interest of
Saw Mill Capital Fund II, L.P. (B) 1.30% int. 08/03/00 469,275 234,663
Warrants, exercisable until 2008 and 2009, to purchase
common stock at $.01 per share (B) 26,931 shs. 08/04/00 61,101 269
------------ ------------
1,155,837 849,514
------------ ------------
JUSTRITE MANUFACTURING ACQUISITION CO
Amanufacturer of safety products such as storage cabinets and containers.
12% Senior Subordinated Note due 2011 $ 843,750 12/15/04 790,278 841,011
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 593 shs. 12/15/04 53,528 6
------------ ------------
843,806 841,017
------------ ------------
KEEPSAKE QUILTING, INC
A seller of quilting fabrics, books, patterns, kits and notions to consumers.
Senior Secured Floating Rate Revolving Note due 2005 $ 20,967 06/16/00 20,967 20,946
Senior Secured Floating Rate Tranche A Note due 2007 $ 382,653 06/16/00 382,653 379,534
12% Senior Secured Tranche B Note due 2008 $ 314,509 06/16/00 299,810 323,944
Limited Partnership Interest of
Riverside XVI Holding Company, L.P. (B) 3.02% int. 06/12/00 190,563 142,886
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 633 shs. 06/12/00 26,209 47,463
------------ ------------
920,202 914,773
------------ ------------
KELE AND ASSOCIATES, INC
A distributor of building automation control products
12% Senior Subordinated Note due 2012 $ 969,643 02/27/04 881,847 972,097
Common Stock (B) 18 shs. 02/27/04 244,608 262,127
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 6 shs. 02/27/04 4,124 --
------------ ------------
1,130,579 1,234,224
------------ ------------
19
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
KENAN-ADVANTAGE TRANSPORT COMPANY
A transporter of light petroleum, petrochemicals, lubricants and residual fuels.
12.5% Senior Subordinated Note due 2009 $ 962,170 04/30/01 $ 962,170 $ 981,413
Preferred Stock (B) 163 shs. 04/30/01 163,000 326,000
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 142 shs. 04/30/01 7 1
------------ ------------
1,125,177 1,307,414
------------ ------------
LANCASTER LABORATORIES, INC
A laboratory testing operation in the United States
Common Stock (B) 455,739 shs. 09/25/00 312,254 434,775
------------ ------------
LIH INVESTORS, L.P.
Amanufacturer and marketer of a broad line of external accessories for new and used sport utility vehicles, trucks and vans.
12.5% Senior Subordinated Note due 2008 $ 2,036,000 * 1,841,488 2,054,121
Common Stock (B) 3,057 shs. * 213,998 181,892
Warrant, exercisable until 2006, to purchase
common stock at $.11 per share (B) 8,245 shs. * 318,838 490,578
------------ ------------
*12/23/98 and 01/28/99 2,374,324 2,726,591
------------ ------------
MAVERICK ACQUISITION COMPANY
Amanufacturer of capsules that cover the cork and neck of wine bottles.
Senior Secured Floating Rate Tranche A Note due 2010 $ 447,762 09/03/04 447,762 442,616
12% Senior Secured Tranche B Note due 2011 $ 179,104 09/03/04 157,137 183,503
Limited Partnership Interest (B) 4.48% int. 09/03/04 33,582 30,224
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 243 shs. 09/03/04 22,556 2
------------ ------------
661,037 656,345
------------ ------------
MAXON CORPORATION
Amanufacturer of industrial combustion equipment and related shut-off valves and control valves.
12% Senior Subordinated Note due 2012 $ 549,837 09/30/04 498,812 546,517
8.75% Senior Subordinated Note due 2012 $ 732,065 09/30/04 732,065 735,812
Common Stock (B) 218,099 shs. 09/30/04 218,099 196,289
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 87,755 shs. 09/30/04 51,941 878
------------ ------------
1,500,917 1,479,496
------------ ------------
MEDASSIST, INC
A provider of patient eligibility and accounts receivable management services to hospitals and physician practices.
12% Senior Subordinated Note due 2011 $ 1,125,000 05/01/03 1,106,518 1,158,750
8% Preferred Stock (B) 44 shs. 10/28/04 44,289 44,319
Common Stock (B) 13,863 shs. 10/28/04 18,576 31,163
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 44,054 shs. 05/01/03 21,534 99,034
------------ ------------
1,190,917 1,333,266
------------ ------------
20
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
MOSS, INC
Amanufacturer and distributor of large display and exhibit structures.
Senior Secured Floating Rate Tranche A Note due 2007 $ 515,185 09/21/00 $ 515,185 $ 515,185
12% Senior Secured Tranche B Note due 2008 $ 192,200 09/21/00 181,087 192,200
Limited Partnership Interest of
Riverside Capital Appreciation Fund I, L.P. (B) 21.37% int. * 178,069 178,061
Warrant, exercisable until 2008, to purchase
common stock at $100 per share (B) 264 shs. 09/21/00 23,064 3
------------ ------------
*09/20/00 and 05/23/02 897,405 885,449
------------ ------------
MUSTANG VENTURES COMPANY
A natural gas gathering and processing operation located in Oklahoma and Texas.
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 8,752 shs. 12/11/02 261,264 496,624
------------ ------------
NEFF MOTIVATION, INC
Amanufacturer and distributor of customized awards and sportswear to schools.
12.5% Senior Subordinated Note due 2011 $ 562,500 01/31/03 479,589 584,885
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 112 shs. 01/31/03 95,625 46,025
------------ ------------
575,214 630,910
------------ ------------
NONNI'S FOOD COMPANY
A producer and distributor of premium biscotti and bagel chips in North America.
12.25% Senior Subordinated Note due 2012 $ 986,538 03/29/04 982,661 1,035,865
10% Preferred Stock (B) 135 shs. 03/29/04 135,044 140,233
Common Stock (B) 3,418 shs. 03/29/04 3,418 3,076
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 4,565 shs. 03/29/04 3,877 46
------------ ------------
1,125,000 1,179,220
------------ ------------
NPC, INC
Amanufacturer of flexible connectors and equipment used in the installation of sewers and storm drain pipelines.
Senior Secured Floating Rate Revolving Note due 2006 $ 139,085 06/25/99 139,085 136,786
Senior Secured Floating Rate Note due 2006 $ 1,118,644 06/25/99 1,118,629 1,099,382
12% Senior Secured Tranche B Note due 2007 $ 559,322 06/25/99 523,076 559,322
Limited Partnership Interest of Riverside XIII
Holding Company L.P. (B) 1.93% int. 06/11/99 169,648 126,536
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share (B) 115 shs. 06/25/99 81,356 1
------------ ------------
2,031,794 1,922,027
------------ ------------
21
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount 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 $ 520,353
11.5% Senior Subordinated Note due 2012 $ 857,143 01/28/02 781,959 968,043
Common Stock (B) 178,571 shs. 01/28/02 178,571 186,428
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 138,928 shs. 01/28/02 92,597 143,790
------------ ------------
1,517,413 1,818,614
------------ ------------
OLYMPIC SALES, INC
A boat retailer in Washington state, Oregon and California and British Columbia.
12% Senior Subordinated Note due 2006 $ 1,387,000 08/07/98 1,346,108 1,266,377
12% Senior Subordinated Note due 2008 $ 244,154 02/09/00 229,383 208,471
Limited Partnership Interest of Riverside VIII, VIII-A and
VIII-B Holding Company, L.P. (B) 795,964 uts. * 808,274 415,321
Warrants, exercisable until 2007 and 2008, to purchase
common stock at $.01 per share (B) 15,166 shs. ** 206,041 152
------------ ------------
*08/07/98, 02/23/99, 12/22/99 and 02/25/03. **08/07/98 and 02/29/00 2,589,806 1,890,321
------------ ------------
PARADIGM PACKAGING, INC
Amanufacturer of plastic bottles and closures for the nutritional, pharmaceutical, personal care and food packaging markets.
12% Senior Subordinated Note due 2008 $ 1,125,000 12/19/00 1,035,530 1,147,500
Membership Interests of MM/Lincap
PPI Investments, Inc., LLC (B) 1.28% int. 12/21/00 140,625 316,406
------------ ------------
1,176,155 1,463,906
------------ ------------
P H I HOLDING COMPANY
A retailer of mid-priced gift items, home and garden decor, accessories and other similar consumer products.
12.5% Senior Subordinated Note due 2010 $ 1,125,000 10/25/02 987,414 1,158,750
Warrant, exercisable until 2010, to purchase
common stock at $.02 per share (B) 186 shs. 10/25/02 157,102 250,992
------------ ------------
1,144,516 1,409,742
------------ ------------
PRECISION DYNAMICS, INC
Amanufacturer of custom-designed solenoid valves and controls
Senior Secured Floating Rate Revolving Credit
Facility due 2005 $ 366,750 07/22/96 366,750 366,750
Senior Secured Floating Rate Term Note
due 2005 $ 207,825 07/22/96 207,825 207,825
12% Senior Secured Term Note due 2005 $ 163,000 07/22/96 161,319 163,000
8% Preferred Stock 219 shs. 07/22/96 116,014 115,929
Common Stock (B) 299 shs. 07/22/96 14,489 14,489
Warrant, exercisable until 2005, to purchase
common stock at $.01 per share (B) 162 shs. 07/22/96 49,000 2
------------ ------------
915,397 867,995
------------ ------------
22
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
PROCESS CHEMICALS LLC
A specialty chemical company that manufactures processed chemicals for the fertilizer, asphalt and concrete industries.
Common Membership Interests 4.50% int. * $ 4 $ 144,000
------------ ------------
*07/31/97 and 01/04/99
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 --
------------ ------------
**11/14/01 and 08/12/94 75,582 --
------------ ------------
PW EAGLE, INC. - O.T.C
An extruder of small and medium diameter plastic pipe and tubing in the United States.
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share (B) 101,505 shs. 09/16/99 1 201,538
------------ ------------
QUALIS AUTOMOTIVE LLC
A distributor of aftermarket automotive brake and chassis products
12% Senior Subordinated Note due 2012 $ 937,500 05/28/04 746,877 970,975
Common Stock (B) 187,500 shs. 05/28/04 187,500 168,750
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 199,969 shs. 05/28/04 199,969 2,000
------------ ------------
1,134,346 1,141,725
------------ ------------
QUALSERV CORPORATION
A provider of foodservice equipment and supplies, to major restaurant chains and their franchisees.
14% Senior Subordinated Note due 2012 $ 992,415 07/09/04 967,378 982,986
Limited Partnership Interest (B) 4.90% int. 07/09/04 137,195 123,476
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 280 shs. 07/09/04 25,973 3
------------ ------------
1,130,546 1,106,465
------------ ------------
RIVER RANCH FRESH FOODS LLC
A supplier of fresh produce to the retail and foodservice channels
13% Senior Subordinated Note due 2011 $ 975,000 09/29/04 893,174 989,431
Limited Partnership Interest (B) 21,499 uts. 09/29/04 150,000 134,997
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 12,481 shs. 09/29/04 83,596 125
------------ ------------
1,126,770 1,124,553
------------ ------------
23
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
ROYAL BATHS MANUFACTURING COMPANY
Amanufacturer and distributor of acrylic and cultured marble bathroom products.
12.5% Senior Subordinated Note due 2011 $ 562,500 11/14/03 $ 502,670 $ 558,884
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 74 shs. 11/14/03 65,089 1
------------ ------------
567,759 558,885
------------ ------------
SAFETY SPEED CUT MANUFACTURING COMPANY, INC
Amanufacturer of vertical panel saws and routers for the wood working industry.
Senior Secured Floating Rate Revolving Note due 2006 $ 21,536 05/01/03 21,536 21,848
Senior Secured Floating Rate Tranche A Note due 2007 $ 726,850 06/02/99 726,850 726,850
12% Senior Secured Tranche B Note due 2007 $ 646,089 06/02/99 646,089 646,089
Class B Common Stock (B) 846 shs. 06/02/99 146,456 249,062
------------ ------------
1,540,931 1,643,849
------------ ------------
SAVAGE SPORTS HOLDING, INC
Amanufacturer of sporting firearms
12% Senior Subordinated Note due 2012 $ 814,655 09/10/04 755,560 827,973
Common Stock (B) 310 shs. 09/10/04 310,345 279,315
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 71 shs. 09/10/04 60,129 1
------------ ------------
1,126,034 1,107,289
------------ ------------
SELIG ACQUISITION CORPORATION
Amanufacturer of container sealing materials for bottles used in consumer products.
12% Senior Subordinated Note due 2009 $ 1,125,000 06/13/02 1,053,330 1,145,250
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 1,064 shs. 06/13/02 96,365 266,123
------------ ------------
1,149,695 1,411,373
------------ ------------
SHELTER ACQUISITION, INC
A distributor of roofing supplies and products throughout the Midwest.
12.5% Senior Subordinated Note due 2008 $ 803,571 08/01/02 722,936 819,642
Common Stock (B) 477,411 shs. * 477,411 429,670
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 139,470 shs. 08/01/02 114,589 1,395
------------ ------------
*08/01/02, 01/17/03 and 12/31/04 1,314,936 1,250,707
------------ ------------
SNYDER INDUSTRIES, INC
Amanufacturer of proprietary rotationally molded polyethylene containers.
12.25% Senior Subordinated Note due 2008 $ 2,250,000 12/06/99 2,081,366 2,250,000
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share (B) 369 shs. 12/06/99 306,818 111,135
------------ ------------
2,388,184 2,361,135
------------ ------------
24
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY FOODS GROUP, INC
Amanufacturer and distributor of branded meat products
Limited Partnership Interest of MHD Holdings LLC (B) 0.76% int. 08/29/00 $ 278,907 $ 71,836
SPORT COURT INTERNATIONAL, INC
A designer and manufacturer of synthetic indoor and outdoor sports flooring and other temporary flooring products.
Senior Secured Floating Rate Revolving Note due 2009 $ 106,143 08/12/04 106,143 105,177
Senior Secured Floating Rate Note due 2009 $ 301,240 08/12/04 301,240 298,294
12% Senior Secured Note due 2012 $ 145,304 08/12/04 135,547 147,380
Limited Partnership Interest (B) 4.44% int. 08/12/04 37,617 33,856
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 19 shs. 08/12/04 10,056 --
------------ ------------
590,603 584,707
------------ ------------
STRATEGIC EQUIPMENT & SUPPLY CORPORATION, INC
A provider of kitchen and restaurant design, equipment fabrication and installation services.
12% Senior Subordinated Note due 2008 $ 2,250,000 01/14/00 2,049,142 2,250,000
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 61,862 shs. 01/14/00 382,501 --
------------ ------------
2,431,643 2,250,000
------------ ------------
SYNVENTIVE EQUITY LLC
Amanufacturer of hot runner systems used in the plastic injection molding process.
12% Senior Subordinated Note due 2007 $ 975,000 08/21/03 941,375 994,500
Limited Partnership Interest (B) 1.05% int. 08/20/03 150,000 666,000
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 45,942 shs. 08/21/03 45,000 203,982
------------ ------------
1,136,375 1,864,482
------------ ------------
THE TRANZONIC COMPANIES
A producer of commercial and industrial supplies, such as safety products,
janitorial supplies, work apparel, washroom and restroom supplies and sanitary care products.
13% Senior Subordinated Note due 2009 $ 1,356,000 02/05/98 1,245,985 1,356,000
Common Stock (B) 315 shs. 02/04/98 315,000 267,238
Warrant, exercisable until 2006, to purchase
common stock at $.01 per share (B) 222 shs. 02/05/98 184,416 188,337
------------ ------------
1,745,401 1,811,575
------------ ------------
TIDEWATER HOLDINGS, INC
An operator of a barge transportation line on the Columbia/Snake River system.
17% Preferred Stock (B) 280 shs. 12/23/02 280,000 266,000
Convertible Preferred Stock, convertible into
common stock at $1,000 per share (B) 560 shs. 07/25/96 560,000 504,000
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 237 shs. 07/25/96 24,103 213,192
------------ ------------
864,103 983,192
------------ ------------
25
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
TOMAH HOLDINGS, INC
Amanufacturer of specialty chemicals
16% Senior Subordinated Note due 2011 $ 773,875 12/08/03 $ 747,819 $ 792,845
16% Preferred Stock Series A (B) 20 shs. 12/08/03 334,393 342,590
Common Stock (B) 2,789 shs. 12/08/03 69,602 62,641
------------ ------------
1,151,814 1,198,076
------------ ------------
TRONAIR, INC
A designer, engineer and manufacturer of ground support equipment for the business, commuter and commercial aviation markets.
10.5% Senior Secured Term Note due 2008 $ 902,572 01/20/00 902,572 916,772
12% Senior Subordinated Note due 2010 $ 758,100 01/20/00 722,668 778,788
Common Stock (B) 129,960 shs. 01/20/00 129,960 103,968
Warrant, exercisable until 2010, to purchase
common stock at $1 per share (B) 148,912 shs. 01/20/00 56,316 1,489
------------ ------------
1,811,516 1,801,017
------------ ------------
TRUSTILE DOORS, INC
Amanufacturer and distributor of interior doors
12.5% Senior Subordinated Note due 2010 $ 562,500 04/11/03 520,114 572,134
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 3,060 shs. 04/11/03 50,625 31
------------ ------------
570,739 572,165
------------ ------------
TUBULAR TEXTILE MACHINERY
A designer, manufacturer, sale and servicer of finishing machinery for the knit and woven segments of the global textile industry.
12% Senior Subordinated Note due 2014 $ 705,457 05/28/04 633,419 723,581
8.75% Senior Secured Note due 2011 $ 409,310 05/28/04 409,310 421,778
Common Stock (B) 385,233 shs. 05/28/04 385,233 346,710
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 116,521 shs. 05/28/04 74,736 1,165
------------ ------------
1,502,698 1,493,234
------------ ------------
TVI, INC
A retailer of used clothing in the United States, Canada and Australia.
Common Stock (B) 187,500 shs. 05/02/00 187,500 219,375
------------ ------------
U S M HOLDINGS CORPORATION
A provider of facility maintenance services to retail and corporate clients with multiple locations.
12% Senior Subordinated Note due 2011 $ 947,368 08/06/03 805,342 972,711
Preferred Stock (B) 1,771 shs. 08/06/03 177,086 177,097
Common Stock (B) 546 shs. 08/06/03 546 546
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 502 shs. 08/06/03 157,869 5
------------ ------------
1,140,843 1,150,359
------------ ------------
26
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
U-LINE CORPORATION
Amanufacturer of high-end, built-in, undercounter icemaking, wine storage and refrigeration appliances
12.5% Senior Subordinated Note due 2012 $ 996,500 04/30/04 $ 889,236 $ 1,015,555
10% Junior Subordinated Note due 2012 $ 33,705 04/30/04 33,713 33,922
Common Stock (B) 96 shs. 04/30/04 96,400 86,760
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 122 shs. 04/30/04 112,106 1
------------ ------------
1,131,455 1,136,238
------------ ------------
VICTORY VENTURES LLC
An acquirer of controlling or substantial interests in other entities.
Series A Preferred Units (B) 0.03% int. 12/02/96 1 2
------------ ------------
VITALITY FOODSERVICE, INC
A non-carbonated beverage dispensing company focused on the foodservice industry.
13% Senior Subordinated Note due 2011 $ 999,153 09/24/04 902,468 1,013,444
Common Stock (B) 12,585 shs. 09/24/04 125,850 113,265
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 12,593 shs. 09/24/04 98,938 126
------------ ------------
1,127,256 1,126,835
------------ ------------
VITEX PACKAGING GROUP, INC
Amanufacturer of specialty packaging, primarily envelopes and tags used on tea bags and medical and food products.
12.5% Senior Subordinated Note due 2012 $ 900,000 07/19/04 785,152 905,838
Limited Partnership Interest Class A (B) 219,375 uts. 07/19/04 219,375 197,438
Limited Partnership Interest Class B (B) 96,848 uts. 07/19/04 96,848 87,163
------------ ------------
1,101,375 1,190,439
------------ ------------
WALLS INDUSTRIES, INC
A provider of branded workwear and sporting goods apparel
10% Senior Subordinated Lien Note due 2009 $ 532,895 07/12/04 532,895 527,376
14% Senior Subordinated Note due 2012 $ 555,056 07/12/04 553,519 549,499
Limited Partnership Interest (B) 0.20% int. 07/12/04 19,737 17,763
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 2,133 shs. 07/12/04 1,500 21
------------ ------------
1,107,651 1,094,659
------------ ------------
WASHINGTON INVENTORY SERVICES, INC
A provider of physical inventory taking and other related services to retailers.
12.5% Senior Subordinated Note due 2011 $ 569,524 11/03/00 556,209 575,215
Senior Preferred Stock (B) 2,484 shs. 11/01/00 118,605 116,227
Class B Common Stock (B) 4,743 shs. 11/01/00 4,743 43,669
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 2,107 shs. 11/03/00 -- 19,380
------------ ------------
679,557 754,491
------------ ------------
27
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares,
Units Warrants,
Ownership or Acquisition
Corporate Restricted Securities - (A)continued Principal Amount Date Cost Fair Value
----------------------------------------------------------------------------------------------------------------------------------
WEASLER HOLDINGS LLC
Amanufacturer of mechanical power transmission components for the agricultural, lawn and turf industries.
Limited Partnership Interest (B) 0.82% int. 02/03/03 $ 53,570 $ 62,141
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 136 shs. 02/04/03 111,086 157,377
------------ ------------
164,656 219,518
------------ ------------
WICOR AMERICAS, INC
Amanufacturer of cellulose based insulation products, systems and services for electrical transformer equipment manufacturers.
20% Senior Subordinated Secured Note due 2009 $ 1,380,834 11/09/01 1,373,399 1,332,965
------------ ------------
Total Private Placement Investments $ 88,871,844 $ 86,704,953
------------ ------------
28
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares or
Interest Due Principal
Corporate Restricted Securities:(a) continued Rate Date Amount Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
RULE 144A SECURITIES - 7.48%: (A)
BONDS - 7.06%
A E S Corporation 8.750% 05/15/13 $ 425,000 $ 478,421 $ 482,906
A E S Corporation 9.000 05/15/15 175,000 175,000 200,375
BCP Caylux Holding Lux SCA 9.625 06/15/14 550,000 551,697 620,125
Blockbuster, Inc. 9.000 09/01/12 275,000 277,178 271,563
Bombardier Capital, Inc. 6.125 06/29/06 500,000 511,197 500,000
Bombardier, Inc. 6.300 05/01/14 500,000 440,315 433,750
Cablevision Systems Corporation 6.669 04/01/09 450,000 450,000 477,000
Charter Communications Op LLC 8.000 04/30/12 500,000 498,750 520,000
Douglas Dynamics LLC 7.750 01/15/12 175,000 175,000 177,406
GulfMark Offshore, Inc. 7.750 07/15/14 300,000 298,725 318,000
Interactive Health LLC 7.250 04/01/11 500,000 409,555 435,000
Jostens I H Corporation 7.625 10/01/12 325,000 325,000 338,000
K 2, Inc. 7.375 07/01/14 150,000 150,000 164,250
Magnachip Semiconductor 8.000 12/15/14 50,000 50,000 52,125
Markwest Energy 6.875 11/01/14 250,000 250,000 253,750
Metaldyne Corporation 10.000 11/01/13 340,000 342,164 323,000
Pinnacle Foods Holding 8.250 12/01/13 225,000 225,000 214,313
Rogers Wireless, Inc. 7.250 12/15/12 90,000 90,000 95,400
Rogers Wireless, Inc. 7.500 03/15/15 60,000 60,000 63,300
Rogers Wireless, Inc. 8.000 12/15/12 90,000 90,000 95,175
Siebe PLC 6.500 01/15/10 350,000 308,000 334,250
T C W Lev Income Trust, L.P. 8.410 09/30/04 978,571 978,571 146,785
Tenet Healthcare Corporation 9.875 07/01/14 350,000 341,859 381,500
Texas Genco LLC 6.875 12/15/14 350,000 350,000 361,813
Universal City Florida 7.200 05/01/10 100,000 100,000 104,000
Universal City Florida 8.375 05/01/10 100,000 100,000 103,750
Warner Music Group 7.375 04/15/14 125,000 125,000 128,125
------------ ------------ ------------
TOTAL BONDS $ 8,283,571 8,151,432 7,595,661
------------ ------------ ------------
CONVERTIBLE BONDS - 0.42%
Cymer, Inc. 3.500% 02/15/09 $ 450,000 $ 450,000 $ 447,750
------------ ------------ ------------
TOTAL CONVERTIBLE BONDS $ 450,000 450,000 447,750
------------ ------------ ------------
WARRANTS - 0.00%
Winsloew Furniture, Inc. (B) 700 $ 7 $ 11
------------ ------------
TOTAL WARRANTS 7 11
------------ ------------
TOTAL RULE 144A SECURITIES 8,601,439 8,043,422
------------ ------------
TOTAL CORPORATE RESTRICTED SECURITIES $ 97,473,283 $ 94,748,375
------------ ------------
29
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Interest Due Principal
Corporate Public Securities -- 26.43%:(A) Rate Date Amount Cost Market Value
---------------------------------------------------------------------------------------------------------------------------------
BONDS - 22.91%
A E P Industries, Inc. 9.875% 11/15/07 $ 150,000 $ 142,875 $ 152,625
Abitibi-Consolidated, Inc. 7.750 06/15/11 500,000 518,334 525,000
Activant Solutions, Inc. 10.500 06/15/11 475,000 482,042 510,625
Aearo Co. 8.250 04/15/12 225,000 225,000 231,750
Allied Waste NA 7.875 04/15/13 500,000 513,750 512,500
American Media Operation, Inc. 8.875 01/15/11 475,000 475,719 505,281
Appleton Papers, Inc. 8.125 06/15/11 250,000 250,000 269,375
Argo Tech Corporation 9.250 06/01/11 425,000 425,000 466,438
Arrow Electronics, Inc. 7.000 01/15/07 500,000 526,264 529,321
C S C Holdings, Inc. 7.625 04/01/11 250,000 251,087 269,375
Cadmus Communications Corporation 8.375 06/15/14 350,000 350,000 381,063
Chemed Corporation 8.750 02/24/11 600,000 600,000 627,000
Chesapeake Energy Corporation 7.000 08/15/14 150,000 150,000 159,750
Cincinnati Bell, Inc. 8.375 01/15/14 550,000 503,750 556,875
Collins & Aikman Products Co. 10.750 12/31/11 450,000 462,329 459,000
Del Monte Corporation 8.625 12/15/12 200,000 200,000 224,000
Dollar Financial Group 9.750 11/15/11 325,000 325,000 352,625
Dominos, Inc. 8.250 07/01/11 109,000 108,213 119,083
Electronic Data Systems Corporation 7.125 10/15/09 500,000 506,278 550,694
Esterline Technologies 7.750 06/15/13 175,000 175,000 191,188
Ford Motor Credit Co. 5.800 01/12/09 500,000 499,070 511,071
G F S I, Inc. 9.625 03/01/07 375,000 336,673 363,750
Gencorp, Inc. 9.500 08/15/13 200,000 200,000 223,000
General Motors Accept Corporation 5.850 01/14/09 500,000 503,739 506,584
General Nutrition Center 8.500 12/01/10 425,000 425,000 401,625
Goodyear Tire & Rubber Co. 7.857 08/15/11 350,000 327,250 355,250
Hexcel Corporation 9.750 01/15/09 340,000 340,000 353,600
Houghton Mifflin Co. 9.875 02/01/13 500,000 528,331 547,500
Huntsman LLC 11.625 10/15/10 250,000 247,038 295,625
Imax Corporation 9.625 12/01/10 250,000 250,000 272,500
Intrawest Corporation 7.500 10/15/13 250,000 250,000 265,938
Koppers, Inc. 9.875 10/15/13 250,000 250,000 285,000
Leucadia National Corporation 7.000 08/15/13 350,000 357,276 360,500
Lodgenet Entertainment Corporation 9.500 06/15/13 375,000 375,000 414,375
Lyondell Chemical Co. 9.500 12/15/08 450,000 460,675 488,250
M G M Mirage, Inc. 6.000 10/01/09 225,000 228,211 230,625
M S X International, Inc. 11.000 10/15/07 175,000 173,502 176,750
Majestic Star Casino LLC 9.500 10/15/10 250,000 250,000 265,000
Manitowoc Company, Inc. 7.125 11/01/13 100,000 100,000 108,250
Mediacom LLC 9.500 01/15/13 600,000 592,750 602,250
Nalco Co. 7.750 11/15/11 250,000 250,000 270,000
Neff Corporation 10.250 06/01/08 90,000 89,000 86,625
Nextel Communications Corporation 7.375 08/01/15 400,000 410,585 440,000
North Amer Energy Partners 8.750 12/01/11 200,000 200,000 204,000
Northwest Airlines Corporation 8.970 01/02/15 711,425 711,425 481,300
Numatics, Inc. 9.625 04/01/08 375,000 376,877 343,125
O E D Corp/Diamond Jo Company Guarantee 8.750 04/15/12 500,000 492,980 490,000
Offshore Logistics, Inc. 6.125 06/15/13 350,000 350,000 355,250
30
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Interest Due Principal
Corporate Public Securities:(A) continued Rate Date Amount Cost Market Value
---------------------------------------------------------------------------------------------------------------------------------
Pacific Energy Partners 7.125% 06/15/14 $ 250,000 $ 252,209 $ 266,250
Pliant Corporation 0.000 06/15/09 675,000 575,807 623,531
Quintiles Transnational Corporation 10.000 10/01/13 250,000 250,000 280,000
Rayovac Corporation 8.500 10/01/13 175,000 175,000 194,250
Rent-A-Center, Inc. 7.500 05/01/10 250,000 250,000 259,063
Rent-Way, Inc. 11.875 06/15/10 450,000 472,456 506,813
Rhodia SA 8.875 06/01/11 250,000 249,834 251,875
Rhodia SA 10.250 06/01/10 250,000 252,757 281,250
S P X Corporation 6.250 06/15/11 250,000 250,000 263,750
Service Corporation International 6.000 12/15/05 21,000 21,095 21,367
Sheridan Acquisition Corporation 10.250 08/15/11 225,000 222,001 246,093
Sports Club Co. 11.375 03/15/06 100,000 97,000 97,000
Tekni-Plex, Inc. 12.750 06/15/10 500,000 483,500 475,000
Telex Communications, Inc. 11.500 10/15/08 250,000 250,000 272,500
Tenet Healthcare Corporation 6.375 12/01/11 250,000 241,250 231,875
Triton P C S, Inc. 8.500 06/01/13 500,000 500,000 482,500
Tyco International Group SA 6.375 10/15/11 150,000 148,500 165,607
United Rentals, Inc. 7.750 11/15/13 325,000 325,000 318,500
Utilicorp United, Inc. 9.950 02/01/11 500,000 553,587 566,250
Vicorp Restaurants, Inc. 10.500 04/15/11 300,000 296,373 301,500
Vought Aircraft Industries 8.000 07/15/11 650,000 649,409 632,125
Williams Scotsman, Inc. 9.875 06/01/07 250,000 246,250 250,000
Wornick Co. 10.875 07/15/11 350,000 350,000 379,750
------------ ------------ ------------
TOTAL BONDS $ 23,921,425 23,878,051 24,658,160
------------ ------------ ------------
31
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Shares or
Interest Due Principal
Corporate Public Securities:(A) continued Rate Date Amount Cost Market Value
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 2.94%
Bill Barrett Corporation (B) 14,800 $ 370,000 $ 473,452
Calamos Asset Management, Inc. (B) 7,500 135,000 202,500
Conor Medsystems, Inc. (B) 1,700 22,100 23,545
Distributed Energy Systems 14,000 177,078 35,000
Dreamworks Animation SKG (B) 3,500 98,000 131,285
Foundation Coal Holdings, Inc. (B) 1,800 39,600 41,508
H C I Direct, Inc. (B) 500 -- --
Iowa Telecomm Services, Inc. (B) 3,500 66,500 75,495
Las Vegas Sands Corporation (B) 300 8,700 14,400
Orange 21, Inc. (B) 5,200 45,500 54,340
Rent-Way, Inc. (B) 46,432 458,123 371,920
The 9 Limited (B) 1,700 28,900 40,154
Transmontaigne, Inc. (B) 277,771 909,179 1,702,736
------------ ------------
TOTAL COMMON STOCK 2,358,680 3,166,335
------------ ------------
CONVERTIBLE BONDS - 0.58%
Leucadia National Corporation 3.750% 04/15/14 $ 500,000 $ 500,000 $ 618,125
------------ ------------ ------------
TOTAL CONVERTIBLE BONDS $ 500,000 500,000 618,125
------------ ------------ ------------
TOTAL CORPORATE PUBLIC SECURITIES $ 26,736,731 $ 28,442,620
------------ ------------
Interest Due Principal Market
Short-Term Securities Rate/yield Date Amount Cost Value
---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 5.19%
Albertson's, Inc. 2.401% 01/04/05 $ 1,059,000 $ 1,058,788 $ 1,058,788
DaimlerChrysler NA Holding Corporation 2.250 01/03/05 558,000 557,930 557,930
DaimlerChrysler NA Holding Corporation 2.400 01/07/05 990,000 989,604 989,604
Kinder Morgan Energy Partners L.P. 2.451 01/06/05 1,500,000 1,499,490 1,499,490
Ryder System, Inc. 2.500 01/05/05 1,475,000 1,474,590 1,474,590
------------ ------------ ------------
Total Short-Term Securities $ 5,582,000 $ 5,580,402 $ 5,580,402
------------ ------------ ------------
Total Investments 119.67% $129,790,416 $128,771,397
------------ ------------
Other Assets 5.35 5,766,061
Liabilities (25.02) (26,927,451)
------ ------------
TOTAL NET ASSETS 100.00% $107,610,007
====== ============
(A) In each of the convertible note, warrant, convertible preferred and common
stock investments, the issuer has agreed to provide certain registration
rights.
(B) Non-income producing security.
See Notes to Consolidated Financial Statements.
32
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Fair Value/
Industry Classification: Market Value
---------------------------------------------------------------
AEROSPACE - 2.99%
Argo Tech Corporation $ 466,438
Bombardier, Inc. 433,750
Esterline Technologies 191,188
Hexcel Corporation 353,600
Qualis Automotive LLC 1,141,725
Vought Aircraft Industries 632,125
------------
3,218,826
------------
AIRLINES - 0.45%
Northwest Airlines Corporation 481,300
------------
AUTOMOBILE - 7.74%
America's Body Company, Inc./LCP Holding Co. 1,575,000
Collins & Aikman Products Co. 459,000
Gencorp, Inc. 223,000
Goodyear Tire & Rubber Co. 355,250
Jason, Inc. 849,514
LIH Investors, L.P. 2,726,591
Metaldyne Corporation 323,000
Nyloncraft, Inc. 1,818,614
------------
8,329,969
------------
BEVERAGE, DRUG & FOOD - 5.12%
Beta Brands Ltd --
Cains Foods, L.P. 205,837
Del Monte Corporation 224,000
Dominos, Inc. 119,083
Eagle Pack Pet Foods, Inc. 563,507
Nonni's Food Company 1,179,220
Pinnacle Food Holding 214,313
River Ranch Fresh Foods LLC 1,124,553
Specialty Foods Group, Inc. 71,836
Vicorp Restaurants, Inc. 301,500
Vitality Foodservice, Inc. 1,126,835
Wornick Co. 379,750
------------
5,510,434
------------
BROADCASTING & ENTERTAINMENT - 2.12%
C S C Holdings, Inc. 269,375
Cablevision Systems Corporation 477,000
Charter Communications Op LLC 520,000
Lodgenet Entertainment Corporation 414,375
Mediacom LLC 602,250
------------
2,283,000
------------
Fair Value/
Industry Classification: continued Market Value
---------------------------------------------------------------
BUILDINGS & REAL ESTATE - 5.47%
AW C Holding Company $ 1,122,462
Adorn, Inc. 1,276,515
Eagle Window & Door Holding Co. 1,666,030
Shelter Acquisition, Inc. 1,250,707
TruStile Doors, Inc. 572,165
------------
5,887,879
------------
CARGO TRANSPORT - 2.13%
Kenan-Advantage Transport Company 1,307,414
Tidewater Holdings, Inc. 983,192
------------
2,290,606
------------
CHEMICAL, PLASTICS & RUBBER - 2.74%
Capital Specialty Plastics, Inc. 252
Huntsman LLC 295,625
Koppers, Inc. 285,000
Lyondell Chemical Co. 488,250
Process Chemicals LLC 144,000
Rhodia SA 533,125
Tomah Holdings, Inc. 1,198,076
------------
2,944,328
------------
CONSUMER PRODUCTS - 9.67%
Appleton Papers, Inc. 269,375
Augusta Sportswear Holding Co. 1,108,588
Colibri Holdings Corporation 1,016,814
Euro-Pro Corporation 1,127,961
G F S I, Inc. 363,750
H C I Direct, Inc. --
Justrite Manufacturing Acquisition Co. 841,017
K 2, Inc. 164,250
Maverick Acquisition Company 656,345
Neff Motivation, Inc. 86,625
Rayovac Corporation 194,250
Royal Baths Manufacturing Company 558,885
Savage Sports Holding, Inc. 1,107,289
The Tranzonic Companies 1,811,575
Walls Industries, Inc. 1,094,659
Winsloew Furniture, Inc. 11
------------
10,401,394
------------
CONTAINERS, PACKAGING & GLASS - 7.14%
A E P Industries, Inc. 152,625
Paradigm Packaging, Inc. 1,463,906
Pliant Corporation 623,531
Selig Acquisition Corporation 1,411,373
Snyder Industries, Inc. 2,361,135
Tekni-Plex, Inc. 475,000
Vitex Packaging, Inc. 1,190,439
------------
7,678,009
------------
33
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Fair Value/
Industry Classification: continued Market Value
---------------------------------------------------------------
DISTRIBUTION - 7.03%
Brampton Fastener Co. Ltd $ 1,005,746
Corvest Group, Inc. 1,965,370
G C-Sun Holdings L.P. --
Kele and Associates, Inc. 1,234,224
QualServ Corporation 1,106,465
Strategic Equip & Supply Corporation, Inc. 2,250,000
------------
7,561,805
------------
DIVERSIFIED/CONGLOMERATE, MANUFACTURING - 4.05%
Activant Solutions, Inc. 510,625
Coining of America LLC 1,105,001
Dexter Magnetics Technologies, Inc. 703,313
Douglas Dynamics LLC 177,406
Evans Consoles, Inc. 100,634
S P X Corporation 263,750
Tyco International Group SA 165,607
Wicor Americas, Inc. 1,332,965
------------
4,359,301
------------
DIVERSIFIED/CONGLOMERATE, SERVICE - 8.06%
Abitibi-Consolidated, Inc. 525,000
Allied Waste NA 512,500
Calamos Asset Management, Inc. 202,500
CapeSuccess LLC 2,512
Chemed Corporation 1,331,655
Diversco, Inc./DHI Holdings, Inc. 696,032
Dreamworks Animation SKG 131,285
Dwyer Group, Inc. 1,319,966
Hamilton Funeral Services Centers, Inc. 220,803
Lancaster Laboratories, Inc. 434,775
Moss, Inc. 885,449
M S X International, Inc. 176,750
Orange 21, Inc. 54,340
Service Corporation International 21,367
The 9 Limited 40,154
U S M Holdings Corporation 1,150,359
Universal City Florida 207,750
Washington Inventory Services, Inc. 754,491
------------
8,667,688
------------
Fair Value/
Industry Classification: continued Market Value
---------------------------------------------------------------
ELECTRONICS - 4.18%
A E S Corporation $ 683,281
Arrow Electronics, Inc. 529,321
Directed Electronics, Inc. 1,134,746
Distributed Energy Systems 35,000
Electronic Data Systems Corporation 550,694
Precision Dynamics, Inc. 867,995
Siebe PLC 334,250
Texas Genco LLC 361,813
------------
4,497,100
------------
FARMING & AGRICULTURE - 0.00%
Protein Genetics, Inc. --
------------
FINANCIAL SERVICES - 3.60%
BCP Caylux Holding Lux SCA 620,125
Bombardier Capital, Inc. 500,000
Dollar Financial Group 352,625
East River Ventures I, L.P. 6,821
Ford Motor Credit Co. 511,071
General Motors Acceptance Corporation 506,584
Highgate Capital LLC 681
Leucadia National Corporation 978,625
T C W Leveraged Income Trust, L.P. 146,785
Victory Ventures LLC 2
Williams Scotsman, Inc. 250,000
------------
3,873,319
------------
HEALTHCARE, EDUCATION & CHILDCARE - 4.74%
A T I Acquisition Company 1,126,151
American Hospice Management Holding LLC 1,290,330
Conor Medsystems, Inc. 23,545
Interactive Health LLC 435,000
MedAssist, Inc. 1,333,266
Quintiles Transnational Corporation 280,000
Tenet Healthcare Corporation 613,375
------------
5,101,667
------------
HOME & OFFICE FURNISHINGS, HOUSEWARES,
AND DURABLE CONSUMER PRODUCTS - 3.91%
Home Decor Holding Company 1,133,638
Hussey Seating Corporation 1,354,564
Sport Court International, Inc. 584,707
U-Line Corporation 1,136,238
------------
4,209,147
------------
34
MassMutual Participation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2004
Fair Value/
Industry Classification: continued Market Value
---------------------------------------------------------------
LEISURE, AMUSEMENT, ENTERTAINMENT - 2.40%
IMAX Corporation $ 272,500
Intrawest Corporation 265,938
Keepsake Quilting, Inc. 914,773
Las Vegas Sands Corporation 14,400
M G M Mirage, Inc. 230,625
Majestic Star Casino LLC 265,000
O E D Corp/Diamond Jo Company Guarantee 490,000
Warner Music Group 128,125
------------
2,581,361
------------
MACHINERY - 12.52%
Aearo Co. 231,750
C & M Conveyor, Inc. 1,211,744
Integration Technology Systems, Inc. 956,508
Manitowoc Company, Inc. 108,250
Maxon Corporation 1,479,496
NPC, Inc. 1,922,027
Numatics, Inc. 343,125
PW Eagle, Inc. 201,538
Safety Speed Cut Manufacturing Company, Inc. 1,643,849
Synventive Equity LLC 1,864,482
Tronair, Inc. 1,801,017
Tubular Textile Machinery 1,493,234
Weasler Holdings LLC 219,518
------------
13,476,538
------------
MEDICAL DEVICES/BIOTECH - 2.76%
Beacon Medical Products, Inc. 1,138,731
Coeur, Inc. 651,834
E X C Acquisition Corporation 1,178,765
------------
2,969,330
------------
MINING, STEEL, IRON & NON PRECIOUS METALS - 0.05%
Better Minerals & Aggregates 54,525
------------
OIL & GAS - 3.29%
Chesapeake Energy Corporation 159,750
Foundation Coal Holdings, Inc. 41,508
GulfMark Offshore, Inc. 318,000
Mustang Ventures Company 496,624
North American Energy Partners 204,000
Offshore Logistics, Inc. 355,250
Pacific Energy Partners 266,250
Transmontaigne, Inc. 1,702,736
------------
3,544,118
------------
Fair Value/
Industry Classification: continued Market Value
---------------------------------------------------------------
PHARMACEUTICALS - 0.47%
Enzymatic Therapy, Inc. $ 509,066
------------
PUBLISHING/PRINTING - 1.87%
American Media Operation, Inc. 505,281
Cadmus Communications Corporation 381,063
Houghton Mifflin Co. 547,500
Jostens I H Corporation 338,000
Sheridan Acquisition Corporation 246,093
------------
2,017,937
------------
RETAIL STORES - 5.93%
Blockbuster, Inc. 271,563
General Nutrition Center 401,625
Neff Corporation 630,910
Olympic Sales, Inc. 1,890,321
P H I Holding Company 1,409,742
Rent-A-Center, Inc. 259,063
Rent-Way, Inc. 878,733
Sports Club Co. 97,000
TVI, Inc. 219,375
United Rentals, Inc. 318,500
------------
6,376,832
------------
Technology - 0.74%
Convera Corporation
Cymer, Inc. 447,750
Delstar Holding Corporation 220,944
Iowa Telecomm Services, Inc. 75,495
Magnachip Semiconductor 52,125
------------
796,314
------------
Telecommunications - 1.86%
Cincinnati Bell, Inc. 556,875
Nextel Communications Corporation 440,000
Rogers Wireless, Inc. 253,875
Telex Communications, Inc. 272,500
Triton P C S, Inc. 482,500
------------
2,005,750
------------
Utilities - 1.45%
Bill Barrett Corporation 473,452
Markwest Energy 253,750
Nalco Co. 270,000
Utilicorp United, Inc. 566,250
1,563,452
35
------------
TOTAL CORPORATE RESTRICTED
AND PUBLIC SECURITIES - 114.48% $123,190,995
============
See Notes to Consolidated Financial Statements.
35
MassMutual Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
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, formerly David L. Babson & Company Inc. ("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 such income, and capital
appreciation, by investing primarily in a portfolio of privately placed below
investment grade, long-term corporate debt obligations purchased directly from
their issuers, at least half of which normally will include equity features.
On January 27, 1998, the Board of Trustees authorized the formation of a wholly
owned subsidiary ("MMPI Subsidiary Trust") for the purpose of holding certain
investments. The results of the MMPI Subsidiary Trust have been 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
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 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, absent an exemption from registration, restricted
securities can be sold only in a public offering for which a registration
statement is in effect under the Securities Act of 1933.
The value of restricted securities, and of any other assets for which there
are no reliable market quotations, is the fair value as determined in good
faith by the Trust's Board of Trustees (the "Trustees"). Each restricted
security is valued by the Trustees as of 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 thereafter used 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. 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
Securities Act of 1933 and any other developments which are likely to
increase the probability that the securities may be publicly sold by the
Trust without restriction.
The Trust's Board of Trustees meets at least once in each quarter to value
the Trust's portfolio securities as of the close of business on the last
business day of the preceding quarter. This valuation requires the approval
of a majority of the Trustees of the Trust, including a majority of the
Trustees who are not interested persons of the Trust or of Babson Capital,
the Trust's investment adviser. In making valuations, the Trustees will
consider Babson Capital's reports 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 restricted securities valued
at $86,704,953 (80.57% of net assets) as of December 31, 2004 whose values
have been determined by the Board of Trustees in the absence of readily
ascertainable market values. Due to the inherent uncertainty of valuation,
those values may differ significantly from the values that would have been
used had a ready market for the securities existed, and the differences
could be material.
The values for corporate public securities are stated at the last reported
sales price or at prices based upon quotations obtained from brokers and
dealers as of December 31, 2004, 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.
36
MassMutual Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
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. The Trust does not accrue income when payment is
delinquent and when management believes payment is questionable.
Discounts and premiums on securities purchased are amortized, over the
lives of the respective securities.
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. For the year ended December
31, 2004, the Trust has a net tax basis capital loss carry-forward of
$1,352,300 available to offset future net realized capital gains. $841,404
and $510,896 of the loss carry-forward expires on December 31, 2010 and
December 31, 2011, respectively, if not offset by net realized capital
gains before the expiration dates. To the extent that such carry-forward is
used by the Trust, no capital gain distributions or designation as
undistributed will be made.
In 2004, the Trust re-classified a total of $668,738 to undistributed net
investment income. $594,934 was re-classified from accumulated net realized
loss on investments and $73,804 was re-classified from additional paid in
capital to more accurately display the Trust's financial position. These
re-classifications had no impact on net asset value.
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's 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 year ended
December 31, 2004 the MMPI Subsidiary Trust has accrued income tax expense
on income and realized gains of $158,788 and $504,437, respectively.
E. DISTRIBUTIONS TO SHAREHOLDERS
The Trust records distributions to shareholders from net investment income
and net realized gains, if any, on the exdividend 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.
The tax character of distributions paid during the years ended December 31,
2004 and 2003 were as follows:
Distributions paid from: 2004 2003
-----------------------------------
Ordinary Income $10,613,225 $9,186,933
As of December 31, 2004, the components of distributable earnings on a tax
basis included $471,327 of undistributed ordinary income. Such
distributions and distributable earnings on a tax basis are determined in
conformity with income tax regulations, which may differ from accounting
principles generally accepted in the United States.
Net investment income of the Trust as presented under accounting principles
generally accepted in the United States differs from distributed earnings
due to a distribution made from after tax earnings of the MMPI Subsidiary
Trust to the Trust. The Trust treats the distribution from the MMPI
Subsidiary Trust as taxable earnings.
3. INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEE
Under an Investment Advisory and Administrative Services 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 has further agreed that it
will request each issuer of securities which MassMutual is prepared to purchase
in a private placement, and which would be consistent with the investment
objectives and policies of the Trust, to also offer such securities to the
Trust. Babson Capital will use its best efforts to insure that issuers accede to
such requests. MassMutual has agreed that, subject to such orders of the
Securities and Exchange Commission as may apply, it will invest concurrently
with the Trust in any such investment. 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 provides administration of
37
MassMutual Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
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.
For its services under the Investment Advisory and Administrative Services
Contract, Babson Capital is paid a quarterly 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. Amajority 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 year ended December 31, 2004, the Trust incurred total interest
expense on the Note of $696,000.
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 Notes proposed to be redeemed.
B. REVOLVING CREDIT AGREEMENT
The Trust entered into a $15,000,000 Revolving Credit Agreement with Fleet
National Bank (the "Agent Bank") dated May 29, 1997, which had a stated
matured on May 31, 2004. The maturity date of this loan was extended to May
31, 2007, and its terms amended and restated pursuant to the First Amended
and Restated Revolving Credit Agreement (the "Revolver") dated May 27,
2004, between the Trust and the Agent Bank.
The Revolver bears interest payable quarterly in arrears at a per annum
rate that varies depending upon whether the Trust requests a Base Rate Loan
or LIBOR Rate Loan. Interest on Base Rate loans equals the higher of: (i)
the annual "Base Rate" as set periodically by the Agent Bank and (ii) the
most recent Federal Funds Effective Rate plus .50% per annum. Per annum
interest on LIBOR Rate Loans equals .60% plus the London Inter Bank Offered
Rate ("LIBOR") rate, divided by 1 minus LIBOR Reserve Rate. The Trust also
incurs expense on the undrawn portion of the total Revolver at a rate of
.25% per annum. The Trust incurred closing costs on the Revolver of $7,500.
As of December 31, 2004, there was $10,500,000 in outstanding loans against
the Revolver and the average blended rate of interest attributable to the
Revolver was 1.87%. For the year ended December 31, 2004, the Trust
incurred total interest expense on the Revolver of $196,594, plus $10,073
related to the undrawn portion.
5. PURCHASES AND SALES OF INVESTMENTS
FOR THE YEAR COST OF INVESTMENTS
ENDED 12/31/2004 ACQUIRED
--------------------------------------------------------------------------------
Corporate restricted securities $ 48,196,766
Corporate public securities 12,690,819
Short-term securities 370,517,074
--------------------------------------------------------------------------------
PROCEEDS FROM
SALES OR MATURITIES
--------------------------------------------------------------------------------
Corporate restricted securities $ 47,358,132
Corporate public securities 10,420,325
Short-term securities 372,760,514
--------------------------------------------------------------------------------
The net unrealized depreciation of investments for federal tax purposes as of
December 31, 2004 is $1,067,412 and consists of $12,464,414 appreciation and
$13,531,826 depreciation.
6. QUARTERLY RESULTS OF INVESTMENT OPERATIONS
(unaudited)
AMOUNT PER SHARE
--------------------------------------------------------------------------------
MARCH 31, 2004
--------------------------------------------------------------------------------
Investment income $2,659,387
Net investment income 2,102,013 $ 0.22
Net realized and unrealized
gain on investments 1,898,079 0.20
--------------------------------------------------------------------------------
JUNE 30, 2004
--------------------------------------------------------------------------------
Investment income 3,448,275
Net investment income 2,871,018 0.29
Net realized and unrealized
gain on investments 2,538,265 0.26
--------------------------------------------------------------------------------
SEPTEMBER 30, 2004
--------------------------------------------------------------------------------
Investment income 3,186,182
Net investment income 2,612,780 0.27
Net realized and unrealized
gain on investments 2,515,404 0.26
--------------------------------------------------------------------------------
DECEMBER 31, 2004
--------------------------------------------------------------------------------
Investment income 2,964,734
Net investment income 2,127,626 0.22
Net realized and unrealized
gain on investments 6,234,383 0.64
38
MassMutual Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
7. AGGREGATE REMUNERATION PAID TO OFFICERS, TRUSTEES AND THEIR
AFFILIATED PERSONS
During 2004, the Trust paid its Trustees aggregate remuneration of $101,107. The
Trust does not pay any compensation to any of its Trustees who are "interested
persons" (as defined by the Investment Company Act of 1940, as amended [the "40
Act"]) of the Trust. Accordingly, the Trust classifies Messers. Reese and Joyal
as "interested persons" of the Trust.
All of the Trust's officers are employees of Babson Capital or MassMutual.
Pursuant to the Investment Advisory and Administrative Services Contract, the
Trust does not compensate its officers who are employees of Babson Capital or
MassMutual.
MassMutual and Babson Capital are "affiliated persons" (as defined by the 40
Act) of Mr. Reese, one of the Trust's Trustees. The Trust did not make any
payments to Babson Capital during 2004, other than amounts payable to Babson
Capital pursuant to the Investment Advisory and Administrative Services
Contract. During 2004, the Trust paid the following amounts to MassMutual,
exclusive of interest expense on the Note explained in Footnote 4A:
Preparation of the Trust's Quarterly
and Annual Reports to Shareholders $12,427
Preparation of the Certain of the
Trust's Shareholder communications 1,167
Preparation of the Trust's
Annual Proxy Statements 1,194
--------------------------------------------------------------------------------
$14,788
--------------------------------------------------------------------------------
8. CONTINGENCIES
The Trust, together with other investors including MassMutual, is a plaintiff in
litigation in connection with private placement investments made by the Trust in
Sharp International Corporation ("Sharp"). Three managing shareholders of Sharp,
which is currently being liquidated in Chapter 11 liquidation proceedings, have
pleaded guilty to criminal fraud charges. Initially, two separate civil lawsuits
were brought in New York state court in an attempt to recover damages for lost
investment funds from Sharp's working capital lender and auditors. The first
lawsuit involving Sharp's working capital lender was dismissed prior to trial.
An appeal of this dismissal was unsuccessful. The second lawsuit against Sharp's
auditors is continuing. The parties to the lawsuit, including the Trust, have
submitted the matters which are the subject of the lawsuit to the non-binding
mediation proceedings. The mediation proceedings were unsuccessful. The trial
for this lawsuit is scheduled to begin in April 2005. The Trust is unable to
estimate any potential recovery from this lawsuit as of December 31, 2004.
9. CERTIFICATIONS
As required under New York Stock Exchange ("NYSE") Corporate Governance Rules,
the Trust's principal executive officer has certified to the NYSE that he was
not aware, as of the certification date, of any violation by the Trust of the
NYSE's Corporate Governance listing standards. In addition, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Trust's
principal executive and principal financial officers have made quarterly
certifications, included in filings with the Securities and Exchange Commission
on Forms N-CSR and N-Q, relating to, among other things, the fund's disclosure
controls and procedures and internal control over financial reporting, as
applicable.
39
MassMutual Participation Investors
INTERESTED TRUSTEES
OFFICE PORTFOLIOS
POSITION TERM/LENGTH OVERSEEN OTHER
WITH OF TIME PRINCIPAL OCCUPATION(S) IN FUND DIRECTORSHIPS
NAME (AGE), ADDRESS THE TRUST SERVED DURING PAST 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
STUART H. REESE* (49) Trustee 3 years/ Executive Vice President 41 Trustee, Chairman (since 1999) and
1 year, and Chief Investment President (1993-1999) of the Trust; Director
Massachusetts Mutual 10 months Officer (since 1999) of (since 1995), MassMutual Corporate Value
Life Insurance Company MassMutual; Chairman Partners Limited (investment company);
1295 State Street Chairman 1 year/ and CEO (since 2000), President (1994-1999), Chairman and Trustee
Springfield, MA01111 (since 1999) 7 months Director (2000-2004), (since 1999), MassMutual Select Funds,
Member of the Board of formerly MassMutual Institutional Funds
Managers (since 2004), and (an open-end investment company advised
President (2000-2001 and by MassMutual); President (1993-1999),
2003-2005) of Babson; Chairman and Trustee (since 1999),
Chief Executive Director MML Series Investment Fund (an openend
(1997-1999), Senior Vice investment company advised by
President (1993-1997) of MassMutual); Advisory Board Member
MassMutual. (since 1995), Kirtland Capital Partners
(investment partnership); Advisory Board
Member (since 1996), MassMutual High
Yield Partners II LLC (investment company);
Chairman (since 1999) and Director (since
1996), Antares Capital Corporation (bank
loan syndication); Director (since 1996),
Charter Oak Capital Management, Inc.;
President (since 1998), MassMutual/Darby
CBO LLC (investment company); Director
(since 1999), MLDP Holdings; Chairman
(since 2000), Cornerstone Real Estate
Advisers Inc.; Trustee (since 1998),
President (1998-2001) and Chairman (since
2001), MMCI Subsidiary Trust and MMPI
Subsidiary Trust; Trustee, Chairman (since
1999), and President (1993-1999), MassMutual
Corporate Investors (closed-end investment
company advised by Babson).
* Mr. Reese is an "interested person" of the Trust (as defined in the
Investment Company Act of 1940, amended) because of his position as an
Officer of the Trust, an Executive Officer of MassMutual and Chairman,
Member of the Board of Managers and CEO of Babson.
40
MassMutual Participation Investors
INTERESTED TRUSTEES
OFFICE PORTFOLIOS
POSITION TERM/LENGTH OVERSEEN OTHER
WITH OF TIME PRINCIPAL OCCUPATION(S) IN FUND DIRECTORSHIPS
NAME (AGE), ADDRESS THE TRUST SERVED DURING PAST 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
ROBERT E. JOYAL** (60) Trustee 3 years/ President (2001-2003), 41 President (1999-2003) and Trustee (since
(since 2003) 10 months Managing Director 2003) of the Trust; Director (since 1996),
MassMutual (2000-2001) and Executive Antares Capital Corporation (bank loan
Participation Investors Director (1999-2000) of syndication); Director (since 2003), Pemco
1500 Main Street Babson; Executive Director Aviation Group, Inc.; Trustee (since 2003),
Suite 600 (1997-1999) of MassMutual. MML Series Investment Fund (an openend
Springfield, MA01115 investment company advised by
MassMutual); Trustee (since 2003),
MassMutual Select Funds, formerly
MassMutual Institutional Funds (an
open-end investment company advised
by MassMutual); Trustee (1998-2003),
Senior Vice President (1998-2001) and
President (2001-2003), MMCI Subsidiary
Trust and MMPI Subsidiary Trust; President
(1999-2003), Trustee (since 2003), MassMutual
Corporate Investors (closed-end investment
company advised by Babson).
** Mr. Joyal retired as President of Babson in June 2003. He continues to
serve as a director or trustee of several entities affiliated with
MassMutual, Babson's indirect parent company. Accordingly, the Trust
classifies Mr. Joyal as an "interested person" of the Trust and Babson (as
defined in the Investment Company Act of 1940, amended).
41
MassMutual Participation Investors
INDEPENDENT TRUSTEES
OFFICE PORTFOLIOS
POSITION TERM/LENGTH OVERSEEN OTHER
WITH OF TIME PRINCIPAL OCCUPATION(S) IN FUND DIRECTORSHIPS
NAME (AGE), ADDRESS THE TRUST SERVED DURING PAST 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
DONALD E. BENSON (74) Trustee 3 years/ Executive Vice President 2 Director (since 1997), MAIR Holdings, Inc.
(since 1988) 10 months and Director (since 1992), (commuter airline holding company);
MassMutual Marquette Financial Director (since 1997), National Mercantile
Participation Investors Companies (financial Bancorp (bank holding company) and
1500 Main Street services); Partner (since Mercantile National Bank; Trustee (since
Suite 600 1996), Benson Family 1986), MassMutual Corporate Investors
Springfield, MA01115 Limited Partnership (closed-end investment company advised
No. 1 and Benson Family by Babson).
Limited Partnership No. 2
(investment partnerships);
Partner (1987-2004),
Benson, Pinckney, Oates
Partnership (building
partnership).
------------------------------------------------------------------------------------------------------------------------------------
DONALD GLICKMAN (71) Trustee 3 years/ Chairman (since 1992), 2 Director (1988-2000), CalTex Industries,
(since 1992) 10 months Donald Glickman and Inc. (manufacturer of windows); Director
MassMutual Company, Inc. (investment (since 1984), Monro Muffler Brake, Inc.
Participation Investors banking); Partner (since (automobile repair service); Director
1500 Main Street 1992), J.F. Lehman & Co. (since 1998), MSC Software, Inc.; Chairman
Suite 600 (private investments). (1998-2003), Elgar Electronics (manufacturer
Springfield, MA01115 of electronic power supplies); Director
(since 2002), Racal Instrument Group
(manufacturer of electronic test equipment);
Director (2002-2004), OAOT, Inc. (ITC
Services); Director (since 1999) SDI, Inc.
(manufacturer of airbag initiations); Trustee
(since 1992), MassMutual Corporate Investors
(closed-end investment company advised
by Babson).
42
MassMutual Participation Investors
INDEPENDENT TRUSTEES
OFFICE PORTFOLIOS
POSITION TERM/LENGTH OVERSEEN OTHER
WITH OF TIME PRINCIPAL OCCUPATION(S) IN FUND DIRECTORSHIPS
NAME (AGE), ADDRESS THE TRUST SERVED DURING PAST 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
MARTIN T. HART (69) Trustee 3 years/ Private Investor; President 2 Director (since 2004), Texas Roadhouse,
(since 1991) 1 year, and Director (since 1983), Inc.; Director (since 1999), ValueClick Inc.
MassMutual 10 months H Corporation. (internet advertising company); Director
Participation Investors (since 2002), Spectranetics Corp. (medical
1500 Main Street device company); Trustee (since 1991),
Suite 600 MassMutual Corporate Investors
Springfield, MA01115 (closed-end investment company advised
by Babson).
------------------------------------------------------------------------------------------------------------------------------------
STEVEN A. KANDARIAN (52) Trustee 3 years/ Consultant, financial 22 Trustee (since 2002), MassMutual Premier
(since 2002) 2 years, services (since 2004); Funds, formerly The DLB Fund Group (an
MassMutual 10 months Executive Director (2001- open-end investment company advised by
Participation Investors 2004); Pension Benefit MassMutual); Trustee (since 2002), MassMutual
1500 Main Street Guaranty Corp., (a Federal Corporate Investors (a closed-end investment
Suite 600 pension agency); Managing company advised by Babson).
Springfield, MA01115 Director (1993-2001), Orion
Partners, L.P. (a private
equity fund).
43
MassMutual Participation Investors
INDEPENDENT TRUSTEES
OFFICE PORTFOLIOS
POSITION TERM/LENGTH OVERSEEN OTHER
WITH OF TIME PRINCIPAL OCCUPATION(S) IN FUND DIRECTORSHIPS
NAME (AGE), ADDRESS THE TRUST SERVED DURING PAST 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
JACK A. LAUGHERY (70) Trustee 3 years/ President and Partner 2 Director (since 1993), Papa John's
(since 1996) 2 years, (since 1996), Laughery International (food service companies);
MassMutual 10 months Investments. Director (since 1994), Houston Pizza
Participation Investors Venture LLC (pizza restaurant); Part Owner
1500 Main Street (1998-2004), Rocky Mount Harley Davidson;
Suite 600 Partner (since 1996), Papa John's Iowa;
Springfield, MA01115 Director (since 2001), Papa John's United
(food service); Director (1997-1998), PJ New
England; Trustee (since 1996), MassMutual
Corporate Investors (closed-end investment
company advised by Babson).
------------------------------------------------------------------------------------------------------------------------------------
CORINE T. NORGAARD (67) Trustee 3 years/ President (since 2004), 22 Trustee (since 2004), MassMutual Premier
(since 1998) 2 years, Thompson Enterprises Real Funds, formerly The DLB Fund Group (an
MassMutual 10 months Estate Investment; Dean open-end investment company advised by
Participation Investors (1996-2004), Barney School MassMutual); Director (1997-2004), The
1500 Main Street of Business, University of Advest Bank; Director (since 2004), Frontier
Suite 600 Hartford. Trust Company, FSB (Federal Savings
Springfield, MA01115 Bank); Trustee (since 1993), ING Series
Funds (investment company); Director
(since 1992), ING Variable Series Funds;
Trustee (since 1998), MassMutual Corporate
Investors (a closed-end investment
company advised by Babson).
44
MassMutual Participation Investors
OFFICERS OF THE TRUST
PRINCIPAL
POSITION OFFICE TERM/ OCCUPATION(S)
WITH LENGTH OF DURING PAST
NAME (AGE), ADDRESS THE TRUST TIME SERVED 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
ROGER W. CRANDALL (40) President 1 year/ President (since 2003) and Vice President (2002-2003) of the Trust; Vice
7 months Chairman (since 2005), Director (2003-2004), Member of Board of Managers
MassMutual (since 2004), and Managing Director (since 2000) of Babson; Managing
Participation Investors Director (1993-2000) of MassMutual; Trustee and President (since 2003),
1500 Main Street, Suite 600 MMCI Subsidiary Trust and MMPI Subsidiary Trust; President (since 2003),
Springfield, MA 01115 Vice President (2002-2003), MassMutual Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
CLIFFORD M. NOREEN (47) Vice 1 year/ Vice President (since 1993) of the Trust; Managing Director (since 2000)
President 7 months of Babson; Managing Director (1996-1999) of MassMutual; Vice President
MassMutual (since 1993), MassMutual Corporate Investors.
Participation Investors
1500 Main Street, Suite 600
Springfield, MA 01115
------------------------------------------------------------------------------------------------------------------------------------
STEPHEN L. KUHN (58) Vice 1 year/ Vice President and Secretary (since 1988) of the Trust; General Counsel and
President 7 months Clerk (since 2000) of Babson; Senior Vice President (since 1999), Deputy
MassMutual and General Counsel (since 1998), and Assistant Secretary (since 1996) of
Participation Investors Secretary MassMutual; Secretary (since 1998), MMCI Subsidiary Trust and MMPI
1500 Main Street, Suite 600 Subsidiary Trust; Vice President (since 1989) and Secretary (since 1980) of
Springfield, MA 01115 MassMutual Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
CHARLES C. MCCOBB, JR. (61) Vice 1 year/ Chief Financial Officer (since 1998) and Vice President (since 1997) of the
President 7 months Trust; Managing Director (since 2000) of Babson; Managing Director (1997-
MassMutual and Chief 1999) of MassMutual; Trustee, Vice President, Treasurer and Chief Financial
Participation Investors Financial Officer (since 1998), MMCI Subsidiary Trust and MMPI Subsidiary Trust;
1500 Main Street, Suite 600 Officer Chief Financial Officer (since 1998) and Vice-President (since 1997),
Springfield, MA 01115 MassMutual Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
JOHN T. DAVITT, JR. (37) Comptroller 1 year/ Comptroller (since 2001) of the Trust, Director (since 2000) of Babson;
7 months Associate Director (1997-1999) of MassMutual; Comptroller (since 2001) of
MassMutual MassMutal Corporate Investors.
Participation Investors
1500 Main Street, Suite 600
Springfield, MA 01115
------------------------------------------------------------------------------------------------------------------------------------
JAMES M. ROY (42) Treasurer 1 year/ Treasurer (since 2003) and Associate Treasurer (1999-2003) of the Trust;
7 months Director (since 2000) of Babson; Associate Director (1996-1999) of
MassMutual MassMutual; Controller (since 2003), MMCI Subsidiary Trust and MMPI
Participation Investors Subsidiary Trust; Treasurer (since 2003), Associate Treasurer (1999-2003),
1500 Main Street, Suite 600 MassMutual Corporate Investors.
Springfield, MA 01115
------------------------------------------------------------------------------------------------------------------------------------
MARY ELLEN WESNESKI (54) Chief 1 year/ Chief Compliance Officer (since 2004) of the Trust, Managing Director
Compliance 7 months (since 1999) of Babson, Chief Compliance Officer (since 2004) of
MassMutual Officer MassMutual Corporate Investors.
Participation Investors
1500 Main Street, Suite 600
Springfield, MA 01115
------------------------------------------------------------------------------------------------------------------------------------
45
MassMutual Participation Investors
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of MassMutual Participation Investors
We have audited the accompanying statement of assets and liabilities of
MassMutual Participation Investors (the "Trust"), including the schedule of
investments, as of December 31, 2004, and the related statements of operations
and cash flows, the statement of changes in net assets, and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
December 31, 2003 and financial highlights for each of the years in the fouryear
period ended December 31, 2003 were audited by the Trust's previous auditors
whose report, dated February 6, 2004, expressed an unqualified opinion on that
financial statement and those financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers, or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MassMutual Participation Investors as of December 31, 2004, and the results of
its operations, its cash flows, the changes in its net assets, and the financial
highlights for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
February 7, 2005
46
[PHOTO APPEARS HERE]
MEMBERS OF THE BOARD OF TRUSTEES
Donald Glickman
Chairman, Donald Glickman
& Company, Inc.
Robert E. Joyal
Retired President of
Babson Capital Management LLC
Jack A. Laughery
President and Partner,
Laughery Investments
Steven A. Kandarian
Consultant, financial services
Donald E. Benson*
Executive Vice President
and Director,
Marquette Financial Companies
Corine T. Norgaard*
President, Thompson Enterprises
Real Estate Investment
Stuart H. Reese
Executive Vice President and
Chief Investment Officer,
Massachusetts Mutual
Life Insurance Company
Martin T. Hart*
Private Investor
*Member of the Audit Committee
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MassMutual Participation Investors offers a Dividend Reinvestment and Cash
Purchase Plan. The Plan provides a simple and automatic way for shareholders to
add to their holdings in the Trust through the receipt of dividend shares issued
by the Trust or through the reinvestment of cash dividends in Trust shares
purchased in the open market. The dividends of each shareholder will be
automatically reinvested in the Trust by Shareholder Financial Services Inc.,
the Transfer Agent, in accordance with the Plan, unless such shareholder elects
not to participate by providing written notice to the Transfer Agent. A
shareholder may terminate his or her participation by notifying the Transfer
Agent in writing.
Participating shareholders may also make additional contributions to the Plan
from their own funds. Such contributions may be made by personal check or other
means in an amount not less than $100 nor more than $5,000 per quarter.
Whenever the Trust declares a dividend payable in cash or shares, the Transfer
Agent, acting on behalf of each participating shareholder, will take the
dividend in shares only if the net asset value is lower than the market price
plus an estimated brokerage commission as of the close of business on the
valuation day. The valuation day is the last day preceding the day of dividend
payment. When the dividend is to be taken in shares, the number of shares to be
received is determined by dividing the cash dividend by the net asset value as
of the close of business on the valuation date or, if greater than net asset
value, 95% of the closing share price. If the net asset value of the shares is
higher than the market value plus an estimated commission, the Transfer Agent,
consistent with obtaining the best price and execution, will buy shares on the
open market at current prices promptly after the dividend payment date.
The reinvestment of dividends does not, in any way, relieve participating
shareholders of any federal, state or local tax. For federal income tax
purposes, the amount reportable in respect of a dividend received in
newly-issued shares of the Trust will be the fair market value of the shares
received, which will be reportable as ordinary income and/or capital gains.
As compensation for its services, the Transfer Agent receives a fee of 5% of any
dividend and cash contribution (in no event in excess of $2.50 per distribution
per shareholder.)
Any questions regarding the Plan should be addressed to Shareholder Financial
Services, Inc., Agent for MassMutual Participation Investors' Dividend
Reinvestment and Cash Purchase Plan, P.O. Box 173673, Denver, CO 80217-3673.
OFFICERS
Stuart H. Reese Stephen L. Kuhn Michael L. Klofas James M. Roy
Chairman Vice President & Secretary Vice President Treasurer
Roger W. Crandall Michael P. Hermsen Clifford M. Noreen John T. Davitt, Jr.
President Vice President Vice President Comptroller
Charles C. McCobb, Jr. Mary Wilson Kibbe Richard E. Spencer, II Mary Ellen Wesneski
Vice President & Chief Vice President Vice President Chief Compliance Officer
Financial Officer
[LOGO]
MassMutual Participation Investors DB1036 205
ITEM 2. CODE OF ETHICS.
The Registrant adopted a Code of Ethics for Senior Financial Officers
(the "Code") on October 17, 2003, which is available on the
Registrant's website at www.babsoncapital.com/mpv. During the period
covered by this Form N-CSR, there were no amendments to, or waivers
from, the Code.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board of Trustees has determined that Mr. Donald E.
Benson, a Trustee of the Registrant and a member of its Audit
Committee, is an audit committee financial expert. Mr. Benson is
"independent" for purposes of this Item 3 as required by applicable
regulation.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED TO REGISTRANT
KPMG LLP DELOITTE & TOUCHE LLP*
Year Ended Year Ended
December 31, December 31,
2004 2003
---------- ----------
Audit Fees $ 32,500 $ 49,500
Audit-Related Fees 5,000 5,500
Tax Fees 8,500 7,400
All Other Fees 0 0
---------- ----------
Total Fees $ 46,000 $ 62,400
========== ==========
NON-AUDIT FEES BILLED TO BABSON AND MASSMUTUAL
KPMG LLP DELOITTE & TOUCHE LLP*
Year Ended Year Ended
December 31, December 31,
2004 2003
---------- ----------
Audit-Related Fees $ 406,900 $ 340,000
Tax Fees 35,138 35,100
All Other Fees 400,000 5,000
---------- ----------
Total Fees $ 842,038 $ 380,100
========== ==========
*Deloitte & Touche LLP ("D&T") was the Registrant's independent
auditors for the 2003 fiscal year audit. KPMG LLP ("KPMG") was the
Registrant's independent auditors for the 2004 fiscal year audit.
The category "Audit Related Fees" reflects fees billed by KPMG or D&T
for services related to the audit and other assurance services
performed in connection with the audit engagements of the Registrant,
Babson Capital Management LLC ("Babson") and Massachusetts Mutual Life
Insurance Company ("MassMutual"). Preparation of Federal, state and
local income tax and compliance work are representative of the fees
billed in the "Tax Fees" category. The category "All Other Fees"
represents fees billed by KPMG or D&T for various non-audit and non-tax
services rendered to Babson and MassMutual, such as SAS 70 review,
agreed upon procedures reports, and tax consulting.
The Sarbanes-Oxley Act of 2002 and its implementing regulations allows
the Registrant's Audit Committee to establish a pre-approval policy for
certain services rendered by the Registrant's independent accountants.
During 2004, the Registrant's Audit Committee approved all of the
services rendered to the Registrant by KPMG and did not rely on such a
pre-approval policy for any such services.
The Audit Committee reviewed the aggregate fees billed for professional
services rendered by KPMG for the Registrant and for the non-audit
services provided to Babson, and Babson's parent, MassMutual. As part
of this review, the Audit Committee considered whether the provision of
such non-audit services were compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant maintains an Audit Committee composed exclusively of
Trustees of the Registrant who qualify as "independent" Trustees under
the current listing standards of the New York Stock Exchange and the
rules of U.S. Securities and Exchange Commission. The Committee
operates pursuant to a written Audit Committee Charter, which is
available (1) on the Registrant's website, www.babsoncapital.com/mpv;
and (2) without charge, upon request, by calling, toll-free
866-399-1516. The current members of the Audit Committee are Donald E.
Benson, Martin T. Hart, and Corine T. Norgaard.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable for this filing.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant's Board of Trustees delegated proxy voting
responsibilities relating to voting securities held by the Registrant
to its investment adviser, Babson Capital Management LLC ("Babson"). A
summary of Babson's proxy voting policies and procedures is set forth
below.
Summary of Babson's Proxy Voting Policy
---------------------------------------
Babson views the voting of proxies as an integral part of its
investment management responsibility and believes, as a general
principle, that proxies should be voted solely in the best interests of
its clients (i.e. prudently and in a manner believed by Babson to best
protect and enhance an investor's returns). To implement this general
principle, it is Babson's policy to generally vote proxies in
accordance with the recommendations of Institutional Shareholder
Services ("ISS"), a recognized authority on proxy voting and corporate
governance, or, in cases where ISS has not made any recommendations
with respect to a proxy, in accordance with ISS's proxy voting
guidelines.
Babson recognizes, however, that there may be times when Babson
believes that it will be in the best interests of clients holding the
securities to (1) vote against ISS's recommendations or (2) in cases
where ISS has not provided Babson with any recommendations with respect
to a proxy, vote against ISS's proxy voting guidelines. Babson may
vote, in whole or part, against ISS's recommendations or ISS's proxy
voting guidelines, as applicable, if such vote is authorized by the
Policy. The procedures set forth in the Policy are designed to ensure
that votes against ISS's recommendations or proxy voting guidelines
have been made in the best interests of clients and are not the result
of any material conflict of interest (a "Material Conflict").
Summary of Babson's Proxy Voting Procedures
-------------------------------------------
Babson has (1) established a Proxy Committee that is responsible for
the implementation and governance of the Policy and (2) designated
Proxy Administrators who will receive and post proxies for voting with
ISS. In accordance with the Policy, Babson will generally vote all
client proxies in accordance with ISS's recommendation or proxy voting
guidelines, unless a person authorized by the Proxy Committee (each a
"Proxy Analyst") determines that it is in its clients' best interest to
vote against ISS's recommendation or proxy voting guidelines. In these
cases, Babson will vote against ISS's recommendation or proxy voting
guidelines, so long as no other Proxy Analyst reviewing such proxy
disagrees with such recommendation, and no known Material Conflict is
identified by the Proxy Analyst(s) or the Proxy Administrator.
Otherwise, the proxy is to be submitted to a member of the Proxy
Committee, who shall determine how to vote the proxy unless (i) the
Proxy Administrator has identified a Babson Material Conflict or (ii)
said Proxy Committee member has identified a Material Conflict. In such
cases, the proxy shall be submitted to the Proxy Committee, which may
authorize a vote against ISS's recommendation or proxy voting
guidelines only if the Proxy Committee determines that such vote is in
the clients' best interests.
No employee, officer or director of Babson or its affiliates (other
than those assigned such responsibilities under the Policy) may
influence how Babson votes any proxy, unless such person has been
requested to provide such assistance by a Portfolio Manager or Proxy
Committee member and has disclosed any known Material Conflict. Any
pre-vote communications prohibited by the Policy shall be reported to
the Proxy Committee member prior to voting and to Babson's General
Counsel.
Obtaining a Copy of the Policy
------------------------------
The full text of Babson's Policy is available (1) without charge, upon
request, by calling 1-866-399-1516 or (2) on the Registrant's website,
www.babsoncapital.com/mpv.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable for this filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable for this filing.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable for this filing.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The principal executive officer and principal financial officer
of the Registrant evaluated the effectiveness of the Registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act")) as of a
date within 90 days of the filing date of this report and based
on that evaluation have concluded that such disclosure controls
and procedures are effective to provide reasonable assurance that
material information required to be disclosed by the Registrant
on Form N-CSR is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) There were no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act)
during the Registrant's second fiscal half-year that have
materially affected, or are reasonably likely to materially
affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) ANY CODE OF ETHICS, OR AMENDMENTS THERETO, THAT IS THE SUBJECT OF
DISCLOSURE REQUIRED BY ITEM 2, TO THE EXTENT THAT THE REGISTRANT
INTENDS TO SATISFY THE ITEM 2 REQUIREMENTS THROUGH THE FILING OF
AN EXHIBIT.
None.
(a)(2) A SEPARATE CERTIFICATION FOR EACH PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER OF THE REGISTRANT AS REQUIRED BY RULE
30a-2 UNDER THE ACT.
Attached hereto as EX-99.31.1
Attached hereto as EX-99.31.2
(a)(3) ANY WRITTEN SOLICITATION TO PURCHASE SECURITIES UNDER RULE 23c-1
UNDER THE ACT (17 CFR 270.23c-1) SENT OR GIVEN DURING THE PERIOD
COVERED BY THE REPORT BY OR ON BEHALF OF THE REGISTRANT TO 10 OR
MORE PERSONS.
Not Applicable for this filing.
(b) CERTIFICATIONS PURSUANT TO RULE 302-2(b) UNDER THE ACT.
Attached hereto as EX-99.32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): MassMutual Participation Investors
----------------------------------
By: /s/ Roger W. Crandall
----------------------------------
Roger W. Crandall, President
----------------------------------
Date: March 4, 2005
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Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Roger W. Crandall
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Roger W. Crandall, President
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Date: March 4, 2005
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By: /s/ Charles C. McCobb, Jr.
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Charles C. McCobb, Jr., Vice
President, and Chief Financial Officer
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Date: March 4, 2005
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