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
---------------------------------------------
MassMutual Participation Investors
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1500 Main Street, Suite 600, Springfield, MA 01115
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Stephen L. Kuhn, Vice President and Secretary
1500 Main Street, Suite 2800, Springfield, MA 01115
--------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 413-226-1000
----------------------------
Date of fiscal year end: 12/31
------------------
Date of reporting period: 12/31/05
------------------
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.
================================================================================
2005 Annual Report
[LOGO]
MassMutual Participation Investors
================================================================================
MassMutual Participation Investors
MASSMUTUAL
PARTICIPATION INVESTORS
c/o Babson Capital Management LLC
1500 Main Street, Suite 600
Springfield, Massachusetts 01115
(413) 226-1516
http://www.babsoncapital.com/mpv
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
------
MPV
Listed
NYSE
------
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
MassMutual Participation Investors is a closed-end investment company, first
offered to the public over a decade ago, whose shares are traded on the New York
Stock Exchange.
MassMutual Participation Investors
INVESTMENT OBJECTIVE & 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 either the New York Stock Exchange listings or Closed-End Fund listings.
The Trust's investment objective is to maximize total return by providing a high
level of current income, the potential for growth of income, and capital
appreciation. The Trust's principal investments are privately placed,
below-investment grade, long-term 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 ("Babson Capital") manages the Trust on a total
return basis. The Trust distributes substantially all of its net income to
shareholders each year. Accordingly, the Trust pays dividends to shareholders
quarterly in January, May, August, and November. All registered shareholders are
automatically enrolled in the Dividend Reinvestment and Cash Purchase Plan
unless cash distributions are requested.
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 under-standing of the
Trust. We cordially invite all shareholders to attend the Trust's Annual Meeting
of Shareholders, which will be held on April 21, 2006 at 1:00 P.M. in
Springfield, Massachusetts.
--------------------------------------------------------------------------------
Portfolio Composition as of 12/31/05*
--------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Private/Restricted
Equity 14%
Cash & Short Term
Investments 13%
Public Investment
Grade Debt 1%
Public High
Yield Debt 28%
Public Equity 3%
Private High
Yield Debt 40%
Private Investment
Grade Debt 1%
*BASED ON VALUE OF TOTAL INVESTMENTS
1
MassMutual Participation Investors
To Our Shareholders
As the Trust announced in July, Stuart H. Reese stepped down as a Trustee and
Chairman of the Board of Trustees as a result of his new position as President
and CEO of Massachusetts Mutual Life Insurance Company ("MassMutual"). Roger W.
Crandall, the Trust's former President, was appointed as a Trustee and elected
to replace Mr. Reese as Chairman of the Board of Trustees. Additionally, I was
elected to succeed Mr. Crandall as President of the Trust.
I am pleased to share with you the Trust's Annual Report for the year ended
December 31, 2005.
We cordially invite all shareholders to attend the MassMutual Participation
Investors Annual Meeting of Shareholders, which will be held on April 21, 2006
at 1:00 P.M. in Springfield, Massachusetts.
[PHOTO OF PRESIDENT AND CHAIRMAN APPEARS HERE]
LEFT TO RIGHT:
Clifford M. Noreen
PRESIDENT
Roger W. Crandall
CHAIRMAN
2
MassMutual Participation Investors
--------------------------------------------------------------------------------
Total Annual Portfolio Return (as of 12/31 each year)*
--------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
Lehman Brothers
Intermediate
Standard & Poor's U.S. Credit Index
MassMutual Participation Industrials Composite (Formerly called the
Investors (Based on change (Formerly called the Lehman Brothers
in the net asset value Standard & Poor's Intermediate
with reinvested dividends) Industrial Price Index) Corporate Bond Index)
2005 22.51% 2005 3.98% 2005 1.42
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
*DATA FOR MASSMUTUAL PARTICIPATION INVESTORS (THE "TRUST") REPRESENTS PORTFOLIO
RETURNS BASED ON CHANGE IN THE TRUST'S NET ASSET VALUE ASSUMING THE REINVESTMENT
OF ALL DIVIDENDS AND DISTRIBUTIONS WHICH DIFFERS FROM THE TOTAL INVESTMENT
RETURN BASED ON MARKET VALUE DUE TO THE DIFFERENCE BETWEEN THE TRUST'S NET ASSET
VALUE AND THE MARKET VALUE OF ITS SHARES OUTSTANDING (SEE PAGE 12 FOR TOTAL
INVESTMENT RETURN BASED ON MARKET VALUE); PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS.
[PHOTO OF OFFICERS APPEARS HERE]
LEFT TO RIGHT:
James M. Roy
VICE PRESIDENT &
CHIEF FINANCIAL
OFFICER
Stephen L. Kuhn
VICE PRESIDENT,
SECRETARY &
CHIEF LEGAL OFFICER
3
MassMutual Participation Investors
THE TRUST'S 2005 PORTFOLIO PERFORMANCE
The Trust's total portfolio rate of return for 2005 was 22.51%, as measured by
the change in net asset value, assuming the reinvestment of all dividends and
distributions. The Trust's total net assets were $119,018,966, or $12.21 per
share, as of December 31, 2005, compared to $107,610,007, or $11.13 per share,
as of December 31, 2004. The Trust paid a quarterly dividend of 24 cents per
share each quarter in 2005, with the fourth quarter dividend paid in January
2006. In addition, the Trust declared a special year-end dividend of 5 cents per
share paid in January 2006 to shareholders of record on December 30, 2005,
bringing total dividends for the year to $1.01. All in all, we are very pleased
with the Trust's 2005 portfolio performance.
The table shown below lists the average annual net returns of the Trust's
portfolio, based on the 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, 2005.
The U.S. economy and investment markets weathered the storms - both literally
and figuratively - of 2005, as the economy remained healthy despite dramatic
events. The most devastating hurricane in U.S. history - Katrina - caused oil
prices to spike to over $70 a barrel in August before settling back to $60 by
December; natural gas prices are also up. Short-term interest rates were raised
eight times during the year by the Federal Reserve Board (the "Fed") for a total
increase of 2 percent.
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 22.51% 2.74% 1.42% 3.98% 4.55%
3 Year 23.79% 13.77% 4.11% 13.72% 22.13%
5 Year 15.70% 8.85% 6.41% -0.14% 8.22%
10 Year 13.99% 6.54% 6.20% 8.47% 9.26%
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* FORMERLY CALLED THE LEHMAN BROTHERS INTERMEDIATE CORPORATE BOND INDEX.
** FORMERLY CALLED THE STANDARD & POOR'S INDUSTRIAL PRICE INDEX.
4
MassMutual Participation Investors
While historically events such as these have had a negative economic impact,
indications are that the U.S. economy remains strong and is improving. The
unemployment rate in 2005 dropped to 5 percent from 5.4 percent the previous
year. Core inflation is about 2 percent and the value of the dollar versus
several other currencies improved after three years of decline. U.S. Gross
Domestic Product has grown at an annualized rate of more than 4 percent during
the past two years.
Investors continue to witness a strong corporate-credit market in 2005.
Corporate credit defaults around the globe continued their downward trend for
the fourth consecutive year, as reported by Moody's Investors Service. Moody's
global issuer-weighted speculative-grade default rate finished the year at 1.9
percent, down from 2.3 percent in 2004 and its lowest level since 1997. Moody's
expects the default rate to climb this year, but still stay below the rate's
historical annual average of 4.9 percent.
Overall, the Trust closed 13 new private placement transactions during 2005 and
invested additional capital in three existing private placement investments,
fewer than in 2004 but consistent with activity of prior years.
New private placement transactions during the year were: AmerCable, Inc.; Arrow
Tru-Line Holdings, Inc.; C & J Spec-Rent MITTED] Services, Inc.; Connor Sport
Court International, Inc.; Consolidated Foundries Holdings; CorePharma LLC;
ITC^DeltaCom, Inc.; MicroGroup, Inc.; O R S Nasco Holding, Inc.; Tangent Rail
Corporation; Terra Renewal Services, Inc.; Transtar Holding Company; and Truck
Bodies & Equipment International.
In addition, the Trust added to existing private placement investments in
Augusta Sportswear Holding Co.; Directed Electronics, Inc.; and Moss, Inc.
The Trust also had realizations in over 16 private placement investments.
[PHOTO APPEARS HERE]
5
MassMutual Participation Investors
The Outlook for 2006
There are no clear signals that identify prospects for 2006. There is room for
optimism in that the Fed presently indicates it does not expect to continue to
raise interest rates, which are still low by historical standards. The economy
continues to chug along at better-than-expected growth rates, but a return to
more normal growth seems likely if inflation is to remain muted. Consumer
confidence remains strong, but higher energy prices and cooling of the housing
market may slow consumer spending. The rising global demand for energy continues
to push prices up. Geopolitical risk worldwide and instability and conflict in
the Middle East could create new problems at any time. As always, no one can
predict the future with any degree of certainty.
Indications are that merger and acquisition activity could be high in 2006. Last
year was the world's most active merger and acquisition environment since 2000,
with some $1.3 trillion in announced deals in the U.S. alone, according to
Thomson Financial. Private equity firms raised a record $86.2 billion in 2005,
and are expected to put that to work in 2006. Many corporations also have strong
cash positions as well. The market for deals in the coming year will be very
competitive, requiring investors to fully scrutinize each opportunity.
Regardless of the economic environment, however, the Trust continues to
repeatedly employ the investment philosophy and process that has served it well
since its inception: investing in companies which we believe have a strong
business model, solid cash flow, reasonable financial leverage, 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 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, CAUTIONARY NOTICE: CERTAIN
STATEMENTS CONTAINED IN THIS REPORT
/s/ Clifford M. Noreen TO SHAREHOLDERS MAY BE "FORWARD
LOOKING" STATEMENTS WITHIN THE
Clifford M. Noreen, MEANING OF THE PRIVATE SECURITIES
PRESIDENT LITIGATION ACT OF 1995. THESE
STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM
THOSE FORECASTED.
--------------------------------------------------------------------------------
2005 Record Net Investment Short-Term Ordinary
Dividends Date Income Gains Income
--------------------------------------------------------------------------------
Regular 05/02/05 $0.2400 --
07/29/05 0.2400 --
10/31/05 0.2400 --
12/30/05 0.2400 --
Special 12/30/05 0.0500 --
--------------------------------------------------------------------------------
$1.0100 $1.0100
--------------------------------------------------------------------------------
The following table summarizes the tax effects of the retention of capital gains
for 2005:
Amount Per Share Form 2439
--------------------------------------------------------------------------------
2005 Gains Retained 0.9477 Line 1a
Long-Term Gains Retained 0.9477
Taxes Paid 0.3317 Line 2*
Basis Adjustment 0.6160 **
--------------------------------------------------------------------------------
* IF YOU ARE NOT SUBJECT TO FEDERAL CAPITAL GAINS TAX (E.G., CHARITABLE
ORGANIZATIONS, IRAS AND KEOGH PLANS), YOU MAY BE ABLE TO CLAIM A REFUND BY
FILING FORM 990-T.
** FOR FEDERAL INCOME TAX PURPOSES, YOU MAY INCREASE THE ADJUSTED COST BASIS
OF YOUR SHARES BY THIS AMOUNT (THE EXCESS OF LINE 1A OVER LINE 2).
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
-------------------------------------------------------------------------------------------------------------------
$1.01 9.9904% 0.1002 9.9904% 0.1002 0.0000% 0.0000
*** NOT AVAILABLE TO INDIVIDUAL SHAREHOLDERS
**** QUALIFIED DIVIDENDS ARE REPORTED IN BOX 1B ON IRS FORM 1099-DIV FOR 2005
6
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 .................................... 13-33
Notes to Consolidated Financial Statements .............................. 34-37
Report of Independent Registered Public Accounting Firm ................. 38
Interested Trustees ..................................................... 39-40
Independent Trustees .................................................... 41-43
Officers of the Trust ................................................... 44
MassMutual Paticipation Investors
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments
(See Consolidated Schedule of Investments)
Corporate restricted securities at fair value
(Cost - $85,392,554) $ 84,550,715
Corporate public securities at market value
(Cost - $ 31,111,570) 33,460,320
Short-term securities at amortized cost 14,408,861
------------
132,419,896
------------
Cash 2,765,876
Interest and dividends receivable 2,444,519
Receivable for investments sold 485,267
Other assets 12,780
------------
TOTAL ASSETS 138,128,338
------------
LIABILITIES:
Dividend payable 2,825,827
Investment advisory fee payable 267,793
Note payable 12,000,000
Interest payable 88,933
Accrued expenses 212,877
Accrued taxes payable 3,713,942
------------
TOTAL LIABILITIES 19,109,372
------------
TOTAL NET ASSETS $119,018,966
============
NET ASSETS:
Common shares, par value $.01 per share; an unlimited number authorized $ 97,442
Additional paid-in capital 90,107,502
Retained net realized gain on investments, prior years 19,858,001
Undistributed net investment income 923,836
Accumulated net realized gain on investments 6,700,688
Net unrealized appreciation of investments 1,331,497
------------
TOTAL NET ASSETS $119,018,966
------------
COMMON SHARES ISSUED AND OUTSTANDING 9,744,230
------------
NET ASSET VALUE PER SHARE $ 12.21
============
See Notes to Consolidated Financial Statements.
8
MassMutual Paticipation Investors
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Interest $ 11,353,955
Dividends 857,590
------------
TOTAL INVESTMENT INCOME 12,211,545
------------
EXPENSES:
Investment advisory fees 1,045,524
Interest 908,729
Trustees' fees and expenses 122,400
Transfer agent/registrar's expenses 26,400
Reports to shareholders 120,000
Legal fees 180,000
Audit fees 117,600
Other 19,784
------------
TOTAL EXPENSES 2,540,437
------------
Investment income before income tax expense 9,671,108
------------
Income tax expense (27,826)
------------
INVESTMENT INCOME - NET 9,643,282
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments before taxes 11,856,942
Income tax expense (3,550,863)
------------
Net realized gain on investments 8,306,079
------------
Net change in unrealized depreciation of investments before taxes 2,525,930
Deferred income tax expense (175,414)
------------
Net change in unrealized depreciation of investments 2,350,516
------------
NET GAIN ON INVESTMENTS 10,656,595
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 20,299,877
============
See Notes to Consolidated Financial Statements.
9
MassMutual Paticipation Investors
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 2005
Net increase in cash:
Cash flows from operating activities:
Interest and dividends received $ 10,984,108
Interest expense paid (933,620)
Operating expenses paid (1,566,125)
Income taxes paid (456,580)
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,027,783
------------
Cash flows from investing activities:
Purchases/Proceeds/Maturities from short-term portfolio securities, net (8,567,184)
Purchases of portfolio securities (38,126,210)
Proceeds from disposition of portfolio securities 59,108,648
------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 12,415,254
------------
NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES 20,443,037
------------
Cash flows from financing activities:
Repayment of borrowings on Revolving Credit Agreement (10,500,000)
Cash dividends paid from net investment income (10,474,934)
Receipts for shares issued on reinvestment of dividends 927,722
------------
NET CASH USED FOR FINANCING ACTIVITIES (20,047,212)
------------
NET INCREASE IN CASH 395,825
Cash - beginning of year 2,370,051
------------
CASH - END OF YEAR $ 2,765,876
============
RECONCILIATION OF NET INCREASE IN NET ASSETS TO NET CASH
PROVIDED BY OPERATING AND INVESTING ACTIVITIES:
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 20,299,877
------------
Increase in investments (3,648,499)
Increase in interest and dividends receivable (577,184)
Decrease in receivable for investments sold 1,043,408
Increase in other assets (12,780)
Increase in investment advisory fee payable 26,121
Decrease in interest payable (24,891)
Increase in accrued expenses 39,462
Increase in accrued taxes payable 3,297,523
------------
TOTAL ADJUSTMENTS TO NET ASSETS FROM OPERATIONS 143,160
------------
NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES $ 20,443,037
============
See Notes to Consolidated Financial Statements.
10
MassMutual Paticipation Investors
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005 2004
-------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
Operations:
Investment income - net $ 9,643,282 $ 9,713,437
Net realized gain on investments 8,306,079 692,133
Net change in unrealized depreciation of investments 2,350,516 12,493,998
-------------- --------------
Net increase in net assets resulting from operations 20,299,877 22,899,568
-------------- --------------
Increase from common shares issued on reinvestment of dividends
Common shares issued (2005 - 71,671; 2004 - 81,587) 927,722 927,073
Dividends to shareholders from:
Net investment income (2005 - $1.01 per share; 2004 - $1.10 per share) (9,818,640) (10,613,225)
-------------- --------------
TOTAL INCREASE IN NET ASSETS 11,408,959 13,213,416
-------------- --------------
NET ASSETS, BEGINNING OF YEAR 107,610,007 94,396,591
-------------- --------------
NET ASSETS, END OF YEAR $ 119,018,966 $ 107,610,007
============== ==============
See Notes to Consolidated Financial Statements.
11
MassMutual Paticipation Investors
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding:
For the years ended December 31, 2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------------------------
Net asset value: Beginning of year $ 11.13 $ 9.84 $ 8.78 $ 9.12 $ 9.75
-------- -------- -------- -------- --------
Net investment income+ 0.99 1.00 0.80 0.87 0.93
Net realized and unrealized
gain (loss) on investments 1.09** 1.36 1.21 (0.35) (0.61)
-------- -------- -------- -------- --------
Total from investment operations 2.08 2.36 2.01 0.52 0.32
-------- -------- -------- -------- --------
Dividends from net investment
income to common shareholders (1.01) (1.10) (0.96) (0.86) (0.96)
Change from issuance of shares 0.01 0.03 0.01 -- 0.01
-------- -------- -------- -------- --------
Total distributions (1.00) (1.07) (0.95) (0.86) (0.95)
-------- -------- -------- -------- --------
Net asset value: End of year $ 12.21 $ 11.13 $ 9.84 $ 8.78 $ 9.12
-------- -------- -------- -------- --------
Per share market value: End of year $ 14.05 $ 13.31 $ 11.65 $ 9.40 $ 9.10
======== ======== ======== ======== ========
Total investment return
Market value 17.25% 25.77% 35.50% 12.58% (8.02)%
Net asset value* 22.51% 25.14% 23.72% 5.70% 3.41%
Net assets (in millions):
End of year $ 119.02 $ 107.61 $ 94.40 $ 83.59 $ 86.09
Ratio of operating expenses
to average net assets 1.45% 1.63% 1.65% 1.27% 1.22%
Ratio of interest expense
to average net assets 0.80% 0.89% 0.97% 1.08% 1.47%
Ratio of total expenses
to average net assets 2.25% 2.52% 2.62% 2.35% 2.69%
Ratio of net investment income
to average net assets 8.45% 9.60% 8.55% 9.42% 9.70%
Portfolio turnover 31.50% 51.25% 55.08% 35.32% 21.58%
+ Calculated using average shares.
* Net asset value return represents portfolio returns based on change in the
Trust's net asset value assuming the reinvestment of all dividends and
distributions which differs from the total investment return based on the
Trust's market value due to the difference between the Trust's net asset
value and the market value of its shares outstanding; past performance is no
guarantee of future results.
** Amount includes $0.10 per share in litigation proceeds (see Footnote 8).
See Notes to Consolidated Financial Statements.
12
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities - 71.04%:(A) Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
Private Placement Investments - 62.99%
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 $ 1,056,546
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share (B) 1,230 shs. 04/08/04 -- 12
------------- -------------
1,125,000 1,056,558
------------- -------------
A W C HOLDING COMPANY
A manufacturer 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 1,026,416 1,144,989
Limited Partnership Interest of
A W C Investments LLC (B) 0.74% int. 05/18/04 112,500 306,945
------------- -------------
1,138,916 1,451,934
------------- -------------
ADORN, INC.
A manufacturer of wall panels, cabinets, moldings and countertops for houses and recreational vehicles.
12.5% Subordinated Note due 2010 $ 1,125,000 02/29/00 1,041,664 1,125,000
Warrant, exercisable until 2010, to purchase
common stock at $.02 per share (B) 192 shs. 02/29/00 162,931 277,171
------------- -------------
1,204,595 1,402,171
------------- -------------
AMERCABLE, INC.
A manufacturer of electric power, instrumentation and control cables, primarily for the mining and oil and gas industries.
12% Senior Subordinated Note due 2013 $ 583,333 04/08/05 550,293 587,802
Limited Partnership Interest (B) 0.19% int. 04/07/05 41,667 37,503
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 66 shs. 04/08/05 64,833 1
------------- -------------
656,793 625,306
------------- -------------
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 1,014,796 1,143,846
Preferred Class A Unit (B) 1,337 uts. 01/22/04 133,700 120,330
Common Class B Unit 1,610 uts. 01/22/04 -- 154,458
------------- -------------
1,148,496 1,418,634
------------- -------------
ARROW TRU-LINE HOLDINGS, INC.
A manufacturer of hardware for residential and commercial overhead garage doors in North America.
12% Senior Subordinated Note due 2012 $ 861,702 05/18/05 805,622 859,820
Common Stock (B) 263 shs. 05/18/05 263,298 236,970
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 69 shs. 05/18/05 59,362 1
------------- -------------
1,128,282 1,096,791
------------- -------------
13
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
AUGUSTA SPORTSWEAR HOLDING CO.
A manufacturer and distributor of athletic apparel, activewear and team uniforms.
12% Senior Subordinated Note due 2012 $ 893,000 12/31/04 $ 834,486 $ 910,073
Common Stock (B) 261 shs. * 261,000 234,900
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 73 shs. 12/31/04 63,254 1
------------- -------------
*12/31/04 and 03/31/05. 1,158,740 1,144,974
------------- -------------
BEACON MEDICAL PRODUCTS, INC.
A designer, manufacturer and marketer of medical air and gas distribution systems.
8.08% Senior Secured Revolving Credit
Facility due 2007 (C) $ 131,792 04/09/02 131,792 132,049
8.08% Senior Secured Tranche A Note due 2008 (C) $ 368,549 04/09/02 368,549 368,549
12% Senior Secured Note due 2010 $ 412,112 04/09/02 362,445 428,596
Limited Partnership Interest of Riverside Capital
Appreciation Fund IV, L.P. (B) 5.09% int. 04/09/02 87,045 140,170
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 794 shs. 04/09/02 72,856 127,872
------------- -------------
1,022,687 1,197,236
------------- -------------
BETA BRANDS LTD
A manufacturer 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 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
------------- -------------
C & J SPEC-RENT SERVICES, INC.
A provider of coiled tubing and pressure pumping services to the oil and gas industry in Texas and Louisiana.
10% Senior Secured Term Note due 2012 $ 886,597 08/12/05 886,567 891,894
14% Senior Subordinated Note due 2013 $ 644,776 08/12/05 585,645 641,352
Common Stock (B) 268,657 shs. 08/12/05 268,657 241,791
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 49,552 shs. 08/12/05 60,910 496
------------- -------------
1,801,779 1,775,533
------------- -------------
14
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
C & M CONVEYOR, INC.
A manufacturer and supplier of material handling systems to the corrugated sheet and container industry.
9.5% Senior Secured Term Note due 2007 $ 433,735 09/13/02 $ 433,735 $ 434,990
11% Senior Subordinated Note due 2010 $ 478,916 09/13/02 460,313 482,378
Common Stock (B) 180,723 shs. 09/13/02 180,723 271,085
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 78,386 shs. 09/13/02 34,428 117,579
------------- -------------
1,109,199 1,306,032
------------- -------------
CAINS FOODS, L.P.
A producer of mayonnaise and sauce products for both the retail and food service markets.
Limited Partnership Interest 6.49% int. 09/29/95 79,184 500,413
------------- -------------
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 pharmaceutical products.
Common Stock (B) 55 shs. * 252 1,078
------------- -------------
*12/30/97 and 05/29/99.
COEUR, INC.
A producer of proprietary, disposable power injection syringes.
8.75% Senior Secured Term Note due 2010 $ 326,087 04/30/03 326,087 328,423
11.5% Senior Subordinated Note due 2011 $ 242,754 04/30/03 224,660 246,103
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
------------- -------------
646,527 640,244
------------- -------------
COINING CORPORATION OF AMERICA LLC
A manufacturer of close tolerance parts and metal stampings.
9.25% Senior Secured Revolving Credit
Facility due 2006 (C) $ 92,593 01/07/02 92,593 91,408
9.25% Senior Secured Tranche A Note due 2007 (C) $ 483,605 06/26/01 483,605 464,516
13% Senior Secured Tranche B Note due 2006 $ 370,370 06/26/01 370,370 360,976
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
------------- -------------
1,177,123 1,065,660
------------- -------------
15
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
CONNOR SPORT COURT INTERNATIONAL, INC.
A designer and manufacturer of outdoor and indoor synthetic sports flooring and other temporary flooring products.
12% Senior Subordinated Note due 2012 $ 1,059,417 * $ 980,587 $ 953,475
Limited Partnership Interest (B) 4.43% int. ** 103,135 82,508
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 92 shs. * 84,829 1
------------- -------------
*08/12/04 and 01/18/05. **08/12/04 and 01/14/05. 1,168,551 1,035,984
------------- -------------
CONSOLIDATED FOUNDRIES HOLDINGS
A manufacturer of engineered cast metal components for the global aerospace and defense industries.
12% Senior Subordinated Note due 2013 $ 1,157,143 06/15/05 1,106,094 1,161,073
Common Stock (B) 193 shs. 06/15/05 192,857 173,574
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 54 shs. 06/15/05 53,295 1
------------- -------------
1,352,246 1,334,648
------------- -------------
COREPHARMA LLC
A manufacturer of oral dose generic pharmaceuticals targeted at niche applications.
12% Senior Subordinated Note due 2013 $ 1,350,000 08/04/05 1,279,353 1,334,060
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 10 shs. 08/04/05 72,617 --
------------- -------------
1,351,970 1,334,060
------------- -------------
CORVEST GROUP, INC.
A manufacturer and distributor of promotional products.
12% Senior Subordinated Note due 2007 $ 2,045,455 *** 1,972,457 1,022,728
Common Stock (B) 30 shs. *** 51,136 5,114
Limited Partnership Interest (B) 10.23% int. *** 150,377 15,182
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share (B) 171 shs. *** 157,343 29,489
------------- -------------
***03/05/99 and 03/24/99. 2,331,313 1,072,513
------------- -------------
DEXTER MAGNETICS TECHNOLOGIES, INC.
A designer, fabricator, assembler and distributor of industrial magnets and subassemblies in North America and Europe.
Common Stock (B) 310 shs. 07/19/01 309,783 367,858
Warrant, exercisable until 2006, to purchase
common stock at $.01 per share (B) 157 shs. 07/19/01 132,677 186,446
------------- -------------
442,460 554,304
------------- -------------
DIRECTED ELECTRONICS, INC.
A designer and distributor of brand name automotive security systems, audio products and installation accessories.
Common Stock (B) 126,817 shs. 12/19/05 40,518 1,597,892
Limited Partnership Interest (B) 4.61% int. **** 6,302 198,354
------------- -------------
****12/22/99 and 09/14/05. 46,820 1,796,246
------------- -------------
16
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost 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 1,252,858
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 1,252,858
------------- -------------
DWYER GROUP, INC.
A franchiser of a variety of home repair services.
14% Senior Subordinated Note due 2011 $ 984,375 10/30/03 901,330 1,004,063
Common Stock (B) 3,656 shs. ** 365,600 314,134
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 1,077 shs. 10/30/03 98,719 92,506
------------- -------------
**10/30/03 and 01/02/04. 1,365,649 1,410,703
------------- -------------
E X C ACQUISITION CORPORATION
A manufacturer of pre-filled syringes and pump systems used for intravenous drug delivery.
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share 11 shs. 06/28/04 40,875 59,692
------------- -------------
EAGLE PACK PET FOODS, INC.
A manufacturer of premium pet food sold through independent pet stores.
14% Senior Subordinated Note due 2011 $ 562,500 09/24/04 543,981 573,750
Warrant, exercisable until 2011, to purchase
common stock at $.02 per share (B) 2,163 shs. 09/24/04 20,893 38,069
------------- -------------
564,874 611,819
------------- -------------
EAST RIVER VENTURES I, L.P.
An acquirer of controlling or substantial interests in other entities
Limited Partnership Interest (B) 0.03% int. 01/01/01 6,710 5,423
------------- -------------
ENZYMATIC THERAPY, INC.
A manufacturer and distributor of branded natural medicines and nutritional supplements.
Limited Partnership Interest (B) 0.70% int. 03/30/00 281,250 2,813
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 15,415 shs. 03/30/00 135,000 154
------------- -------------
416,250 2,967
------------- -------------
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 1,106,131 1,012,500
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 23,229 shs. 09/09/03 18,869 232
------------- -------------
1,125,000 1,012,732
------------- -------------
17
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
EVANS CONSOLES, INC.
A designer and manufacturer of consoles and control center systems.
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 --
------------- -------------
64,541 --
------------- -------------
HIGHGATE CAPITAL LLC
An acquirer of controlling or substantial interests in manufacturing and marketing entities.
Series A Preferred Units (B) 0.30% int. 07/21/94 91,867 737
------------- -------------
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 * 985,755 1,102,284
Common Stock (B) 33 shs. * 33,216 38,120
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 106 shs. * 105,618 121,199
------------- -------------
*06/30/04 and 08/19/04. 1,124,589 1,261,603
------------- -------------
INTEGRATION TECHNOLOGY SYSTEMS, INC.
A manufacturer of steel protective computer and network systems for the industrial and office environments.
12% Senior Secured Note due 2006 $ 949,004 03/01/04 938,546 711,753
Common Stock (B) 130 shs. 06/01/00 149,500 --
------------- -------------
1,088,046 711,753
------------- -------------
ITC^DELTACOM, INC.
A provider of integrated communications services in the southeastern United States.
12.81% Senior Secured Note due 2009 (C) $ 1,168,440 07/26/05 1,168,440 1,168,089
16.31% Senior Secured Note due 2009 (C) $ 181,560 07/26/05 181,560 182,087
Warrant, exercisable until 2009, to purchase
convertible preferred stock at $.01 per share (B) 54,468 shs. 07/26/05 -- 68,085
------------- -------------
1,350,000 1,418,261
------------- -------------
JASON, INC.
A diversified manufacturing company serving various industrial markets.
13% Senior Subordinated Note due 2008 $ 510,187 08/04/00 480,162 505,379
14% Cumulative Redeemable Preferred Stock Series A (B) 153 shs. 08/04/00 153,119 150,330
Limited Partnership Interest of
Saw Mill Capital Fund II, L.P. (B) 1.30% int. 08/03/00 469,250 375,461
Warrants, exercisable until 2008 and 2009, to purchase
common stock at $.01 per share (B) 26,931 shs. 08/04/00 61,101 24,844
------------- -------------
1,163,632 1,056,014
------------- -------------
18
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
JUSTRITE MANUFACTURING ACQUISITION CO.
A manufacturer of safety products such as storage cabinets and containers.
12% Senior Subordinated Note due 2011 $ 843,750 12/15/04 $ 795,078 $ 832,871
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 594 shs. 12/15/04 53,528 6
------------- -------------
848,606 832,877
------------- -------------
KEEPSAKE QUILTING, INC.
A seller of quilting fabrics, books, patterns, kits and notions to consumers.
7.35% Senior Secured Revolving Note due 2006 (C) $ 20,967 06/16/00 20,967 20,938
7.94% Senior Secured Tranche A Note due 2007 (C) $ 235,882 06/16/00 235,882 234,741
12% Senior Secured Tranche B Note due 2008 $ 314,509 06/16/00 303,432 320,799
Limited Partnership Interest of
Riverside XVI Holding Company, L.P. (B) 3.02% int. 06/12/00 190,563 179,689
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 633 shs. 06/12/00 26,209 59,688
------------- -------------
777,053 815,855
------------- -------------
KELE AND ASSOCIATES, INC.
A distributor of building automation control products.
12% Senior Subordinated Note due 2012 $ 969,643 02/27/04 889,319 972,157
Preferred Stock (B) 12 shs. 11/24/04 237,794 241,915
Common Stock (B) 6 shs. 02/27/04 6,814 55,706
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share (B) 6 shs. 02/27/04 4,124 50,948
------------- -------------
1,138,051 1,320,726
------------- -------------
KEYSTONE NORTH AMERICA, INC.
An operator of funeral homes in North America.
Common Stock 28,577 shs. 02/08/05 137,444 171,462
------------- -------------
LIH INVESTORS, L.P.
A manufacturer 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 * 1,874,786 2,034,722
Common Stock (B) 3,057 shs. * 213,998 117,695
Warrant, exercisable until 2006, to purchase
common stock at $.11 per share (B) 8,245 shs. * 318,838 317,433
------------- -------------
*12/23/98 and 01/28/99. 2,407,622 2,469,850
------------- -------------
19
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
MAVERICK ACQUISITION COMPANY
A manufacturer of capsules that cover the cork and neck of wine bottles.
8.57% Senior Secured Tranche A Note due 2010 (C) $ 436,568 09/03/04 $ 436,568 $ 436,673
12% Senior Secured Tranche B Note due 2011 $ 179,104 09/03/04 159,178 181,161
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
------------- -------------
651,884 648,060
------------- -------------
MAXON CORPORATION
A manufacturer of industrial combustion equipment and related shut-off valves and control valves.
12% Senior Subordinated Note due 2012 $ 549,837 09/30/04 503,063 553,170
8.75% Senior Subordinated Note due 2012 $ 732,065 09/30/04 732,065 741,938
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
------------- -------------
1,505,168 1,492,275
------------- -------------
MEDASSIST, INC.
A provider of patient eligibility and accounts receivable management services to hospitals and physician practices.
8% Preferred Stock 44 shs. 10/28/04 44,289 45,044
Common Stock 13,863 shs. 10/28/04 18,576 21,459
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share 47,090 shs. 05/01/03 21,534 72,472
------------- -------------
84,399 138,975
------------- -------------
MICROGROUP, INC.
A manufacturer of precision parts and assemblies, and a value-added supplier of metal tubing and bars.
12% Senior Subordinated Note due 2013 $ 1,134,000 08/12/05 1,063,236 1,109,039
Common Stock (B) 216 shs. 08/12/05 216,000 194,400
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 73 shs. 08/12/05 72,576 1
------------- -------------
1,351,812 1,303,440
------------- -------------
MOSS, INC.
A manufacturer and distributor of large display and exhibit structures.
8.51% Senior Secured Revolving Note due 2010 (C) $ 23,529 12/21/05 22,353 23,305
8.51% Senior Secured Tranche A Note due 2010 (C) $ 582,353 12/21/05 576,529 576,788
12% Senior Secured Tranche B Note due 2010 $ 200,000 12/21/05 177,059 200,295
Limited Partnership Interest of
Riverside Capital Appreciation Fund I, L.P. (B) 19.20% int. * 178,069 222,576
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 122 shs. 12/21/05 20,941 1
------------- -------------
*09/20/00 and 05/23/02. 974,951 1,022,965
------------- -------------
20
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
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 $ 1,185,877
------------- -------------
NEFF MOTIVATION, INC.
A manufacturer and distributor of customized awards and sportswear to schools.
12.5% Senior Subordinated Note due 2011 $ 562,500 01/31/03 488,034 579,375
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 112 shs. 01/31/03 95,625 46,352
------------- -------------
583,659 625,727
------------- -------------
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 03/29/04 982,661 999,443
10% Preferred Stock (B) 135 shs. 03/29/04 135,044 136,592
Common Stock (B) 3,418 shs. 03/29/04 3,418 25,430
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 4,565 shs. 03/29/04 3,877 33,925
------------- -------------
1,125,000 1,195,390
------------- -------------
NYLONCRAFT, INC.
A supplier of engineered plastic components for the automotive industry.
9% Senior Secured Note due 2009 $ 464,286 01/28/02 464,286 462,402
11.5% Senior Subordinated Note due 2012 $ 857,143 01/28/02 789,393 843,510
Common Stock (B) 178,571 shs. 01/28/02 178,571 122,143
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 138,928 shs. 01/28/02 92,597 93,777
------------- -------------
1,524,847 1,521,832
------------- -------------
O R S NASCO HOLDING, INC.
A wholesale distributor of industrial supplies in North America.
13% Senior Subordinated Note due 2013 $ 1,256,152 12/20/05 1,178,737 1,242,232
Common Stock (B) 93,848 shs. 12/20/05 93,848 84,463
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B) 52,820 shs. 12/20/05 52,292 528
------------- -------------
1,324,877 1,327,223
------------- -------------
OLYMPIC SALES, INC.
A boat retailer in Washington state, Oregon and California and British Columbia.
14% Senior Subordinated Note due 2006 $ 1,241,000 08/07/98 1,241,000 1,221,735
12% Senior Subordinated Note due 2008 $ 244,154 02/09/00 234,242 235,305
Limited Partnership Interest of Riverside VIII, VIII-A and
VIII-B Holding Company, L.P. 10.66% int. * 808,300 694,818
Warrants, exercisable until 2007 and 2008, to purchase
common stock at $.01 per share (B) 15,166 shs. ** 206,041 46,955
------------- -------------
*08/07/98, 02/23/99, 12/22/99 and 02/25/03. **08/07/98 and 02/29/00. 2,489,583 2,198,813
------------- -------------
21
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
PARADIGM PACKAGING, INC.
A manufacturer of plastic bottles and closures for the nutritional, pharmaceutical, personal care and food packaging markets.
12% Senior Subordinated Note due 2008 $ 1,125,000 12/19/00 $ 1,053,347 $ 1,129,722
Membership Interests of MM/Lincap
PPI Investments, Inc. LLC (B) 1.28% int. 12/21/00 140,625 79,804
------------- -------------
1,193,972 1,209,526
------------- -------------
PRECISION DYNAMICS, INC.
A manufacturer of custom-designed solenoid valves and controls.
8% Senior Secured Revolving Credit
Facility due 2006 (C) $ 207,825 07/22/96 207,825 207,825
12% Senior Secured Term Note due 2006 $ 163,000 07/22/96 161,941 163,000
8% Preferred Stock 228 shs. 07/22/96 116,023 231,888
Common Stock (B) 299 shs. 07/22/96 14,489 43,467
Warrant, exercisable until 2006, to purchase
common stock at $.01 per share (B) 162 shs. 07/22/96 49,000 2
------------- -------------
549,278 646,182
------------- -------------
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 --
------------- -------------
QUALIS AUTOMOTIVE LLC
A distributor of aftermarket automotive brake and chassis products.
12% Senior Subordinated Note due 2012 $ 937,500 05/28/04 764,486 954,336
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
------------- -------------
1,151,955 1,125,086
------------- -------------
QUALSERV CORPORATION
A provider of foodservice equipment and supplies to major restaurant chains and their franchisees.
14% Senior Subordinated Note due 2012 $ 1,002,475 07/09/04 976,254 601,485
Limited Partnership Interest (B) 4.90% int. 07/09/04 137,195 --
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 280 shs. 07/09/04 25,973 --
------------- -------------
1,139,422 601,485
------------- -------------
22
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
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 $ 900,785 $ 906,750
Limited Partnership Interest (B) 21,500 uts. 09/29/04 150,000 122,998
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 12,481 shs. 09/29/04 83,596 125
------------- -------------
1,134,381 1,029,873
------------- -------------
ROYAL BATHS MANUFACTURING COMPANY
A manufacturer and distributor of acrylic and cultured marble bathroom products.
12.5% Senior Subordinated Note due 2011 $ 562,500 11/14/03 508,263 565,447
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 74 shs. 11/14/03 65,089 37,756
------------- -------------
573,352 603,203
------------- -------------
SAFETY SPEED CUT MANUFACTURING COMPANY, INC.
A manufacturer of vertical panel saws and routers for the wood working industry.
7.36% Senior Secured Tranche A Note due 2007 (C) $ 457,646 06/02/99 457,646 457,645
12% Senior Secured Tranche B Note due 2007 $ 646,089 06/02/99 646,089 646,089
Class B Common Stock (B) 846 shs. 06/02/99 146,456 290,455
------------- -------------
1,250,191 1,394,189
------------- -------------
SAVAGE SPORTS HOLDING, INC.
A manufacturer of sporting firearms.
12% Senior Subordinated Note due 2012 $ 814,655 09/10/04 760,039 817,605
Common Stock (B) 310 shs. 09/10/04 310,345 253,171
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 71 shs. 09/10/04 60,129 57,706
------------- -------------
1,130,513 1,128,482
------------- -------------
SPECIALTY FOODS GROUP, INC.
A manufacturer and distributor of branded meat products.
Limited Partnership Interest of MHD Holdings LLC 0.76% int. 08/29/00 307,860 --
------------- -------------
STRATEGIC EQUIPMENT & SUPPLY CORPORATION, INC.
A provider of kitchen and restaurant design, equipment fabrication and installation services.
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 61,862 shs. 01/14/00 382,501 --
------------- -------------
SYNVENTIVE EQUITY LLC
A manufacturer of hot runner systems used in the plastic injection molding process.
Limited Partnership Interest (B) 1.05% int. 08/20/03 33,463 5,972
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 45,942 shs. 08/21/03 10,249 8,199
------------- -------------
43,712 14,171
------------- -------------
23
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
TANGENT RAIL CORPORATION
A manufacturer of rail ties and provides specialty services to the North American railroad industry.
13% Senior Subordinated Note due 2013 $ 1,173,909 10/14/05 $ 996,370 $ 1,150,960
Preferred Stock (B) 1,749 shs. 10/14/05 174,924 169,724
Common Stock (B) 1,167 shs. 10/14/05 1,167 1,050
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 618 shs. 10/14/05 155,860 6
------------- -------------
1,328,321 1,321,740
------------- -------------
TERRA RENEWAL SERVICES, INC.
A provider of wastewater residual management and required environmental reporting, permitting,
nutrient management planning and record keeping to companies involved in poultry and food processing.
7.78% Senior Secured Term A Note due 2010 (C) $ 116,797 03/01/05 116,797 116,797
7.78% Senior Secured Term B Note due 2012 (C) $ 207,421 03/01/05 207,421 207,014
12% Senior Subordinated Note due 2013 $ 585,937 03/01/05 555,847 574,203
Limited Partnership Interest of
Saw Mill Capital Fund V, L.P. (B) 2.30% int. 03/01/05 235,547 211,995
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B) 37 shs. 03/01/05 32,098 --
------------- -------------
1,147,710 1,110,009
------------- -------------
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 1,264,256 1,356,000
Common Stock (B) 315 shs. 02/04/98 315,000 318,371
Warrant, exercisable until 2006, to purchase
common stock at $.01 per share (B) 222 shs. 02/05/98 184,416 224,375
------------- -------------
1,763,672 1,898,746
------------- -------------
TOMAH HOLDINGS, INC.
A manufacturer of specialty chemicals.
16% Senior Subordinated Note due 2011 $ 797,091 * 773,452 797,090
16% Preferred Stock Series A (B) 20 shs. 12/08/03 334,393 485,310
Common Stock (B) 11,246 shs. ** 111,066 194,491
------------- -------------
*12/08/03 and 12/30/05. **12/08/03 and 07/01/05. 1,218,911 1,476,891
------------- -------------
TRANSTAR HOLDING COMPANY
A distributor of aftermarket automotive transmission parts.
12% Senior Subordinated Note due 2013 $ 918,000 08/31/05 877,564 907,820
Common Stock (B) 432 shs. 08/31/05 432,000 388,800
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 46 shs. 08/31/05 41,021 --
------------- -------------
1,350,585 1,296,620
------------- -------------
24
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
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 $ 676,983 01/20/00 $ 676,983 $ 677,910
12% Senior Subordinated Note due 2010 $ 758,100 01/20/00 728,537 762,620
Common Stock (B) 129,960 shs. 01/20/00 129,960 116,964
Warrant, exercisable until 2010, to purchase
common stock at $1 per share (B) 148,912 shs. 01/20/00 56,316 1,489
------------- -------------
1,591,796 1,558,983
------------- -------------
TRUCK BODIES & EQUIPMENT INTERNATIONAL
A designer and manufacturer of accessories for heavy and medium duty trucks, primarily dump bodies,
hoists, various forms of flat-bed bodies, landscape bodies and other accessories.
12% Senior Subordinated Note due 2013 $ 1,222,698 * 1,135,937 1,232,851
Common Stock (B) 393 shs. * 423,985 531,803
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 81 shs. * 84,650 109,826
------------- -------------
*07/19/05 and 12/22/05. 1,644,572 1,874,480
------------- -------------
TRUSTILE DOORS, INC.
A manufacturer and distributor of interior doors.
12.5% Senior Subordinated Note due 2010 $ 562,500 04/11/03 525,923 560,329
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 3,060 shs. 04/11/03 50,625 17,491
------------- -------------
576,548 577,820
------------- -------------
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 05/28/04 638,277 686,945
8.75% Senior Secured Note due 2011 $ 409,310 05/28/04 409,310 404,377
Common Stock (B) 385,233 shs. 05/28/04 385,233 327,448
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 116,521 shs. 05/28/04 74,736 1,165
------------- -------------
1,507,556 1,419,935
------------- -------------
TVI, INC.
A retailer of used clothing in the United States, Canada and Australia.
Common Stock (B) 187,500 shs. 05/02/00 187,500 202,500
------------- -------------
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 $ 473,684 08/06/03 409,394 487,895
Preferred Stock 1,361 shs. 08/06/03 136,089 136,098
Common Stock (B) 546 shs. 08/06/03 546 546
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share 502 shs. 08/06/03 157,869 502
------------- -------------
703,898 625,041
------------- -------------
25
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares, Units,
Warrants,
Ownership
or Principal Acquisition Fair
Corporate Restricted Securities:(A) continued Amount Date Cost Value
---------------------------------------------------------------------------------------------------------------------------------
U-LINE CORPORATION
A manufacturer of high-end, built-in, undercounter icemaking, wine storage and refrigeration appliances.
12.5% Senior Subordinated Note due 2012 $ 996,500 04/30/04 $ 897,779 $ 1,024,616
Common Stock (B) 96 shs. 04/30/04 96,400 95,436
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 122 shs. 04/30/04 112,106 120,780
------------- -------------
1,106,285 1,240,832
------------- -------------
VICTORY VENTURES LLC
An acquirer of controlling or substantial interests in other entities.
Series A Preferred Units (B) 0.04% 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 09/24/04 911,355 1,001,135
Common Stock (B) 12,585 shs. 09/24/04 125,850 172,767
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 12,593 shs. 09/24/04 98,938 172,877
------------- -------------
1,136,143 1,346,779
------------- -------------
VITEX PACKAGING GROUP, INC.
A manufacturer 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 07/19/04 785,151 867,051
Limited Partnership Interest Class A (B) 0.93% int. 07/19/04 219,375 197,438
Limited Partnership Interest Class B (B) 0.41% int. 07/19/04 96,848 87,163
------------- -------------
1,101,374 1,151,652
------------- -------------
WALLS INDUSTRIES, INC.
A provider of branded workwear and sporting goods apparel.
10% Senior Subordinated Lien Note due 2009 $ 532,895 07/12/04 532,895 537,763
14% Senior Subordinated Note due 2012 $ 566,163 07/12/04 564,740 579,245
Limited Partnership Interest (B) 0.20% int. 07/12/04 19,737 53,290
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 2,133 shs. 07/12/04 1,500 5,741
1,118,872 1,176,039
------------- -------------
Total Private Placement Investments $ 75,522,833 $ 74,973,531
------------- -------------
26
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares or
Interest Due Principal Market
Rule 144A Securities - 8.05%: (A) Rate Date Amount Cost Value
---------------------------------------------------------------------------------------------------------------------------------
BONDS - 6.95%
A E S Corporation 8.750% 05/15/13 $ 425,000 $ 473,492 $ 462,719
A E S Corporation 9.000 05/15/15 175,000 175,000 191,625
Activant Solutions, Inc. (C) 10.054 04/01/10 400,000 400,000 412,500
Atlas Pipeline Partners 8.125 12/15/15 100,000 100,000 100,875
Blockbuster, Inc. 9.000 09/01/12 275,000 276,986 242,000
Bombardier Capital, Inc. 6.125 06/29/06 500,000 503,795 500,000
Bombardier, Inc. 6.300 05/01/14 500,000 440,315 437,500
Charter Communications Op LLC 8.000 04/30/12 500,000 498,750 497,500
Douglas Dynamics LLC 7.750 01/15/12 325,000 326,864 313,625
Hertz Corporation 10.500 01/01/16 25,000 25,000 25,750
Intelsat Bermuda, Ltd. 8.695 01/15/12 225,000 225,000 228,656
Intelsat Bermuda, Ltd. 8.250 01/15/13 250,000 250,000 252,500
Interactive Health LLC 7.250 04/01/11 500,000 420,156 405,000
Markwest Energy 6.875 11/01/14 250,000 250,000 230,000
Neiman Marcus Group, Inc. 10.375 10/15/15 600,000 600,000 609,750
NOVAChemicals Corporation 7.561 11/15/13 250,000 250,000 255,313
P Q Corporation 7.500 02/15/13 685,000 677,350 637,050
Pacific Energy Partners 6.250 09/15/15 100,000 99,544 98,500
Pogo Producing Co. 6.875 10/01/17 250,000 250,000 243,750
Service Corporation International 7.500 06/15/17 500,000 495,015 496,250
Siebe PLC 6.500 01/15/10 350,000 308,000 311,500
Sierra Pacific Resources 6.750 08/15/17 330,000 331,652 328,350
Sungard Data Systems 9.125 08/15/13 75,000 75,000 77,625
T C W Lev Income Trust L.P. (B) 8.410 11/30/06 581,430 581,430 313,972
Tenaska Alabama Partners L.P. 7.000 06/30/21 175,830 175,830 176,891
Texas Genco LLC 6.875 12/15/14 350,000 350,000 378,875
Texas Industries, Inc. 7.250 07/15/13 35,000 35,000 36,313
------------ ------------ ------------
TOTAL BONDS $ 8,732,260 8,594,179 8,264,389
------------ ------------ ------------
CONVERTIBLE BONDS - 1.10%
Cymer, Inc. 3.500% 02/15/09 $ 450,000 $ 450,000 $ 440,438
ICOS Corporation 2.000 07/01/23 375,000 298,125 301,875
Q L T, Inc. 3.000 09/15/23 305,000 277,410 269,544
Wesco International, Inc. 2.625 10/15/25 250,000 250,000 300,938
------------ ------------ ------------
TOTAL CONVERTIBLE BONDS $ 1,380,000 1,275,535 1,312,795
------------ ------------ ------------
WARRANTS - 0.00%
Winsloew Furniture, Inc. (B) 700 $ 7 $ --
------------ ------------ ------------
TOTAL WARRANTS 7 --
TOTAL RULE 144A SECURITIES 9,869,721 9,577,184
------------ ------------
TOTAL CORPORATE RESTRICTED SECURITIES $ 85,392,554 $ 84,550,715
------------ ------------
27
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Interest Due Principal Market
Corporate Public Securities - 28.11%: (A) Rate Date Amount Cost Value
---------------------------------------------------------------------------------------------------------------------------------
BONDS - 24.12%
Abitibi-Consolidated, Inc. 7.750% 06/15/11 $ 500,000 $ 516,007 $ 476,250
Activant Solutions, Inc. 10.500 06/15/11 325,000 325,807 355,875
Aearo Co. 8.250 04/15/12 225,000 225,000 228,375
Allied Waste NA 7.875 04/15/13 500,000 513,653 516,250
American Media Operation, Inc. 8.875 01/15/11 475,000 475,625 403,750
Appleton Papers, Inc. 8.125 06/15/11 250,000 250,000 243,125
Argo Tech Corporation 9.250 06/01/11 425,000 425,000 435,625
Arrow Electronics, Inc. 7.000 01/15/07 500,000 513,692 509,002
BCP Crystal US Holdings Corporation 9.625 06/15/14 355,000 355,000 394,938
C S C Holdings, Inc. 7.625 04/01/11 250,000 250,945 248,750
Cablevision Systems Corporation (C) 8.716 04/01/09 450,000 450,000 454,500
Cadmus Communications Corporation 8.375 06/15/14 350,000 350,000 359,625
Chemed Corporation 8.750 02/24/11 600,000 600,000 643,500
Chesapeake Energy Corporation 7.000 08/15/14 650,000 676,423 672,750
Cincinnati Bell, Inc. 8.375 01/15/14 550,000 503,750 541,063
Clayton Williams Energy, Inc. 7.750 08/01/13 375,000 375,000 360,000
Del Monte Corporation 8.625 12/15/12 200,000 200,000 212,500
Dollar Financial Group 9.750 11/15/11 325,000 325,000 334,750
Dominos, Inc. 8.250 07/01/11 109,000 108,213 113,905
Electronic Data Systems Corporation 7.125 10/15/09 500,000 505,130 531,299
Esterline Technologies 7.750 06/15/13 175,000 175,000 182,875
Ford Motor Credit Co. 5.800 01/12/09 500,000 499,070 436,170
Ford Motor Credit Co. 7.375 10/28/09 750,000 748,125 665,165
G F S I, Inc. 9.625 03/01/07 375,000 340,353 337,500
Gencorp, Inc. 9.500 08/15/13 130,000 130,000 139,750
General Motors Acceptance Corporation 5.850 01/14/09 750,000 743,204 670,970
Goodyear Tire & Rubber Co. 7.857 08/15/11 350,000 327,250 341,250
GulfMark Offshore, Inc. 7.750 07/15/14 300,000 298,725 312,000
Houghton Mifflin Co. 9.875 02/01/13 500,000 527,261 534,375
Huntsman LLC 11.625 10/15/10 163,000 161,068 185,616
Intrawest Corporation 7.500 10/15/13 250,000 250,000 253,125
K 2, Inc. 7.375 07/01/14 150,000 150,579 149,250
Koppers, Inc. 9.875 10/15/13 250,000 250,000 271,250
Lazard LLC 7.125 05/15/15 375,000 374,704 393,784
Leucadia National Corporation 7.000 08/15/13 350,000 356,629 348,250
Liberty Media Corporation 5.700 05/15/13 500,000 475,805 465,881
Lodgenet Entertainment Corporation 9.500 06/15/13 375,000 375,000 407,813
Lyondell Chemical Co. 9.500 12/15/08 265,000 259,155 277,588
M G M Mirage, Inc. 6.000 10/01/09 225,000 227,619 223,593
M S X International, Inc. 11.000 10/15/07 175,000 173,502 174,124
Mac-Gray Corporation 7.625 08/15/15 300,000 300,000 302,250
Magnachip Semiconductor 8.000 12/15/14 50,000 50,000 47,750
Majestic Star Casino LLC 9.500 10/15/10 250,000 250,000 263,124
Manitowoc Company, Inc. 7.125 11/01/13 100,000 100,000 102,750
Mediacom LLC 9.500 01/15/13 750,000 745,887 732,187
Metaldyne Corporation 10.000 11/01/13 340,000 342,028 307,700
28
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Interest Due Principal Market
Corporate Public Securities:(A)continued Rate Date Amount Cost Value
---------------------------------------------------------------------------------------------------------------------------------
BONDS, CONTINUED
Moog, Inc. 6.250% 01/15/15 $ 60,000 $ 60,000 $ 59,100
Nalco Co. 7.750 11/15/11 250,000 250,000 256,874
National Wine & Spirits, Inc. 10.125 01/15/09 25,000 25,331 25,250
Nextel Communications, Inc. 7.375 08/01/15 400,000 409,909 422,126
North Amercan Energy Partners 8.750 12/01/11 200,000 200,000 188,500
O E D Corp/Diamond Jo Company Guarantee 8.750 04/15/12 500,000 492,980 487,500
Offshore Logistics, Inc. 6.125 06/15/13 350,000 350,000 327,250
Pacific Energy Partners 7.125 06/15/14 250,000 252,044 257,500
Pinnacle Foods Group 8.250 12/01/13 225,000 225,000 214,312
Pliant Corporation 11.625 06/15/09 607,802 621,366 644,270
Primedia, Inc. 8.000 05/15/13 500,000 513,738 423,125
Quintiles Transnational Corporation 10.000 10/01/13 250,000 250,000 278,750
Rayovac Corporation 8.500 10/01/13 175,000 175,000 152,688
Rent-A-Center, Inc. 7.500 05/01/10 250,000 250,000 238,750
Rent-Way, Inc. 11.875 06/15/10 450,000 468,627 478,688
Rhodia SA 8.875 06/01/11 250,000 249,834 256,250
Rhodia SA 10.250 06/01/10 250,000 252,352 273,750
Rock-Tenn Co. 8.200 08/15/11 500,000 503,749 507,500
Rogers Wireless, Inc. 7.250 12/15/12 90,000 90,000 94,613
Rogers Wireless, Inc. 7.500 03/15/15 560,000 602,043 604,800
Rogers Wireless, Inc. 8.000 12/15/12 90,000 90,000 95,288
Samsonite Corporation 8.875 06/01/11 500,000 523,498 517,500
Sheridan Acquisition Corporation 10.250 08/15/11 225,000 222,001 231,469
Sports Club Co. 11.375 03/15/06 100,000 97,000 99,125
Tekni-Plex, Inc. 12.750 06/15/10 500,000 483,500 272,500
Telex Communications, Inc. 11.500 10/15/08 250,000 250,000 266,250
Tenet Healthcare Corporation 6.375 12/01/11 250,000 241,250 228,125
Tenet Healthcare Corporation 9.875 07/01/14 350,000 341,859 354,375
Transmontaigne, Inc. 9.125 06/01/10 255,000 250,538 250,538
Triton P C S, Inc. 8.500 06/01/13 500,000 500,000 465,000
Tyco International Group SA 6.375 10/15/11 150,000 148,500 155,789
Unisys Corporation 8.000 10/15/12 90,000 90,000 83,250
United Components, Inc. 9.375 06/15/13 500,000 502,496 497,500
United Rentals, Inc. 7.750 11/15/13 325,000 325,000 316,875
Universal City Florida (C) 9.000 05/01/10 100,000 100,000 100,500
Universal City Florida 8.375 05/01/10 100,000 100,000 97,750
Utilicorp United, Inc. 9.950 02/01/11 500,000 546,427 551,250
Vicorp Restaurants, Inc. 10.500 04/15/11 300,000 296,373 278,250
Vought Aircraft Industries 8.000 07/15/11 650,000 649,072 607,750
Warner Music Group 7.375 04/15/14 125,000 125,000 124,063
Wornick Co. 10.875 07/15/11 350,000 350,000 358,750
------------ ------------ ------------
TOTAL BONDS $ 28,964,802 29,049,696 28,705,415
------------ ------------ ------------
29
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Shares or
Interest Due Principal Market
Corporate Public Securities:(A)continued Rate Date Amount Cost Value
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 3.31%
Copa Holdings SA (B) 3,400 $ 68,000 $ 92,820
DealerTrack Holdings, Inc. (B) 1,600 27,200 33,568
Distributed Energy Systems Corporation (B) 14,000 177,078 105,840
H C I Direct, Inc. (B) 500 -- --
PW Eagle, Inc. (B) 101,236 1 2,075,338
Rent-Way, Inc. (B) 46,432 458,123 296,700
Transmontaigne, Inc. (B) 203,165 598,597 1,340,889
------------ ------------
TOTAL COMMON STOCK 1,328,999 3,945,155
------------ ------------
CONVERTIBLE BONDS - 0.68%
Citadel Broadcasting Corporation 1.875% 02/15/11 $ 300,000 $ 232,875 $ 232,875
Leucadia National Corporation 3.750 04/15/14 500,000 500,000 576,875
------------ ------------ ------------
TOTAL CONVERTIBLE BONDS $ 800,000 732,875 809,750
------------ ------------ ------------
TOTAL CORPORATE PUBLIC SECURITIES $ 31,111,570 $ 33,460,320
------------ ------------
Interest Due Principal Market
Short-Term Securities: Rate/Yield Date Amount Cost Value
---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 12.11%
Centex Corporation 4.392% 01/13/06 $ 1,780,000 $ 1,777,184 $ 1,777,184
Consolidated Natural Gas Co. 4.484 01/06/06 2,450,000 2,448,171 2,448,171
DaimlerChrysler NA Holding Corporation 4.443 01/13/06 2,264,000 2,260,378 2,260,378
Florida Power & Light Co. 4.378 01/13/06 1,004,000 1,002,416 1,002,416
Fortune Brands, Inc. 4.503 01/03/06 1,405,000 1,404,473 1,404,473
Kinder Morgan Energy Partners L.P. 4.503 01/04/06 2,435,000 2,433,783 2,433,783
Newell Rubbermaid, Inc. 4.411 01/13/06 608,000 607,034 607,034
Wisconsin Gas Co. 4.337 01/12/06 2,479,000 2,475,422 2,475,422
------------ ------------ ------------
Total Short-Term Securities $ 14,425,000 $ 14,408,861 $ 14,408,861
============ ------------ ------------
Total Investments 111.26% $130,912,985 $132,419,896
============ ------------
Other Assets 4.80 5,708,442
Liabilities (16.06) (19,109,372)
------ ------------
Total Net Assets 100.00% $119,018,966
====== ============
(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.
(C) Variable rate security; rate indicated is as of 12/31/05.
See Notes to Consolidated Financial Statements.
30
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Fair Value/ Fair Value/
Industry Classification: Market Value Industry Classification: continued Market Value
------------------------------------------------------------ ------------------------------------------------------------
AEROSPACE - 2.52% CHEMICAL, PLASTICS & RUBBER - 3.05%
Argo Tech Corporation $ 435,625 Capital Specialty Plastics, Inc. $ 1,078
Bombardier, Inc. 437,500 Huntsman LLC 185,616
Consolidated Foundries Holdings 1,334,648 Koppers, Inc. 271,250
Esterline Technologies 182,875 Lyondell Chemical Co. 277,588
Vought Aircraft Industries 607,750 NOVA Chemicals Corporation 255,313
------------ P Q Corporation 637,050
2,998,398 Rhodia SA 530,000
------------ Tomah Holdings, Inc. 1,476,891
AUTOMOBILE - 7.36% ------------
Gencorp, Inc. 139,750 3,634,786
Goodyear Tire & Rubber Co. 341,250 ------------
Jason, Inc. 1,056,014 CONSUMER PRODUCTS - 7.14%
LIH Investors, L.P. 2,469,850 Appleton Papers, Inc. 243,125
Metaldyne Corporation 307,700 Augusta Sportswear Holding Co. 1,144,974
Nyloncraft, Inc. 1,521,832 Euro-Pro Corporation 1,012,732
Qualis Automotive LLC 1,125,086 G F S I, Inc. 337,500
Transtar Holding Company 1,296,620 H C I Direct, Inc. --
United Components, Inc. 497,500 K 2, Inc. 149,250
------------ Maverick Acquisition Company 648,060
8,755,602 Rayovac Corporation 152,688
------------ Royal Baths Manufacturing Company 603,203
BEVERAGE, DRUG & FOOD - 4.95% Savage Sports Holding, Inc. 1,128,482
Beta Brands Ltd. -- The Tranzonic Companies 1,898,746
Cains Foods, L.P. 500,413 Walls Industries, Inc. 1,176,039
Del Monte Corporation 212,500 Winsloew Furniture, Inc. --
Dominos, Inc. 113,905 ------------
Eagle Pack Pet Foods, Inc. 611,819 8,494,799
National Wine & Spirits, Inc. 25,250 ------------
Nonni's Food Company 1,195,390 CONTAINERS, PACKAGING & GLASS - 2.75%
Pinnacle Foods Group 214,312 Paradigm Packaging, Inc. 1,209,526
River Ranch Fresh Foods LLC 1,029,873 Pliant Corporation 644,270
Specialty Foods Group, Inc. -- Tekni-Plex, Inc. 272,500
Vicorp Restaurants, Inc. 278,250 Vitex Packaging, Inc. 1,151,652
Vitality Foodservice, Inc. 1,346,779 ------------
Wornick Co. 358,750 3,277,948
------------ ------------
5,887,241 DISTRIBUTION - 3.63%
------------ Corvest Group, Inc. 1,072,513
BROADCASTING & ENTERTAINMENT - 2.55% Kele and Associates, Inc. 1,320,726
C S C Holdings, Inc. 248,750 O R S Nasco Holding, Inc. 1,327,223
Cablevision Systems Corporation 454,500 QualServ Corporation 601,485
Charter Communications Op LLC 497,500 Strategic Equipment & Supply Corporation, Inc. --
Citadel Broadcasting Corporation 232,875 ------------
Liberty Media Corporation 465,881 4,321,947
Lodgenet Entertainment Corporation 407,813 ------------
Mediacom LLC 732,187 DIVERSIFIED/CONGLOMERATE, MANUFACTURING - 6.55%
------------ Activant Solutions, Inc. 768,375
3,039,506 AmerCable, Inc. 625,306
------------ Arrow Tru-Line Holdings, Inc. 1,096,791
BUILDINGS & REAL ESTATE - 2.91% Coining Corporation of America LLC 1,065,660
AW C Holding Company 1,451,934 Dexter Magnetics Technologies, Inc. 554,304
Adorn, Inc. 1,402,171 Douglas Dynamics LLC 313,625
Texas Industries, Inc. 36,313 Evans Consoles, Inc. --
TruStile Doors, Inc. 577,820 Justrite Manufacturing Acquisition Co. 832,877
------------ Rock-Tenn Co. 507,500
3,468,238 Truck Bodies & Equipment International 1,874,480
------------ Tyco International Group SA 155,789
------------
7,794,707
------------
31
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Fair Value/ Fair Value/
Industry Classification: Market Value Industry Classification: continued Market Value
------------------------------------------------------------ ------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE, SERVICE - 6.38% HEALTHCARE, EDUCATION & CHILDCARE - 3.74%
Abitibi-Consolidated, Inc. $ 476,250 A T I Acquisition Company $ 1,056,558
Allied Waste NA 516,250 American Hospice Management Holding LLC 1,418,634
CapeSuccess LLC 2,512 ICOS Corporation 301,875
Chemed Corporation 643,500 Interactive Health LLC 405,000
Diversco, Inc./DHI Holdings, Inc. 1,252,858 MedAssist, Inc. 138,975
Dwyer Group, Inc. 1,410,703 Q L T, Inc. 269,544
Keystone North America, Inc. 171,462 Quintiles Transnational Corporation 278,750
Mac-Gray Corporation 302,250 Tenet Healthcare Corporation 582,500
Moss, Inc. 1,022,965 ------------
M S X International, Inc. 174,124 4,451,836
Service Corporation International 496,250 ------------
U S M Holdings Corporation 625,041 HOME & OFFICE FURNISHINGS, HOUSEWARES,
Universal City Florida 198,250 AND DURABLE CONSUMER PRODUCTS - 3.41%
Wesco International, Inc. 300,938 Connor Sport Court International, Inc. 1,035,984
------------ Home Decor Holding Company 1,261,603
7,593,353 Samsonite Corporation 517,500
------------ U-Line Corporation 1,240,832
ELECTRONICS - 4.15% ------------
A E S Corporation 654,344 4,055,919
Arrow Electronics, Inc. 509,002 ------------
Directed Electronics, Inc. 1,796,246 LEISURE, AMUSEMENT, ENTERTAINMENT - 1.82%
Distributed Energy Systems 105,840 Intrawest Corporation 253,125
Electronic Data Systems Corporation 531,299 Keepsake Quilting, Inc. 815,855
Precision Dynamics, Inc. 646,182 M G M Mirage, Inc. 223,593
Siebe PLC 311,500 Majestic Star Casino LLC 263,124
Texas Genco LLC 378,875 O E D Corp/Diamond Jo Company Guarantee 487,500
------------ Warner Music Group 124,063
4,933,288 ------------
------------ 2,167,260
FARMING & AGRICULTURE - 0.00% ------------
Protein Genetics, Inc. -- MACHINERY - 8.66%
Aearo Co. 228,375
FINANCIAL SERVICES - 3.90% C & M Conveyor, Inc. 1,306,032
BCP Crystal US Holding Corporation 394,938 Integration Technology Systems, Inc. 711,753
Bombardier Capital, Inc. 500,000 Manitowoc Company, Inc. 102,750
Dollar Financial Group 334,750 Maxon Corporation 1,492,275
East River Ventures I, L.P. 5,423 PW Eagle, Inc. 2,075,338
Ford Motor Credit Co. 1,101,335 Safety Speed Cut Manufacturing Company, Inc. 1,394,189
General Motors Acceptance Corporation 670,970 Synventive Equity LLC 14,171
Highgate Capital LLC 737 Tronair, Inc. 1,558,983
Lazard LLC 393,784 Tubular Textile Machinery 1,419,935
Leucadia National Corporation 925,125 ------------
T C W Leveraged Income Trust, L.P. 313,972 10,303,801
Victory Ventures LLC 2 ------------
------------ MEDICAL DEVICES/BIOTECH - 2.69%
4,641,036 Beacon Medical Products, Inc. 1,197,236
------------ Coeur, Inc. 640,244
E X C Acquisition Corporation 59,692
MicroGroup, Inc. 1,303,440
------------
3,200,612
------------
MINING, STEEL, IRON & NON PRECIOUS METALS - 0.05%
Better Minerals & Aggregates 54,525
------------
32
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2005
Fair Value/ Fair Value/
Industry Classification: continued Market Value Industry Classification: continued Market Value
------------------------------------------------------------ ------------------------------------------------------------
OIL AND GAS - 5.89% TELECOMMUNICATIONS - 3.69%
C & J Spec-Rent Services, Inc. $ 1,775,533 Cincinnati Bell, Inc. $ 541,063
Chesapeake Energy Corporation 672,750 Intelsat Bermuda, Ltd. 481,156
Clayton Williams Energy, Inc. 360,000 ITC^DeltaCom, Inc. 1,418,261
GulfMark Offshore, Inc. 312,000 Nextel Communications, Inc. 422,126
Mustang Ventures Company 1,185,877 Rogers Wireless, Inc. 794,701
North American Energy Partners 188,500 Telex Communications, Inc. 266,250
Offshore Logistics, Inc. 327,250 Triton P C S, Inc. 465,000
Pacific Energy Partners 356,000 ------------
Pogo Producing Co. 243,750 4,388,557
Transmontaigne, Inc. 1,591,427 ------------
------------ TRANSPORTATION - 1.21%
7,013,087 Copa Holdings SA 92,820
------------ Hertz Corporation 25,750
PHARMACEUTICALS - 1.12% Tangent Rail Corporation 1,321,740
CorePharma LLC 1,334,060 ------------
Enzymatic Therapy, Inc. 2,967 1,440,310
------------ ------------
1,337,027 UTILITIES - 1.43%
------------ Atlas Pipeline Partners 100,875
PUBLISHING/PRINTING - 1.64% Markwest Energy 230,000
American Media Operation, Inc. 403,750 Moog, Inc. 59,100
Cadmus Communications Corporation 359,625 Nalco Co. 256,874
Houghton Mifflin Co. 534,375 Sierra Pacific Resources 328,350
Primedia, Inc. 423,125 Tenaska Alabama Partners L.P. 176,891
Sheridan Acquisition Corporation 231,469 Utilicorp United, Inc. 551,250
------------ ------------
1,952,344 1,703,340
------------ ------------
RETAIL STORES - 4.46% WASTE MANAGEMENT/POLLUTION - 0.93%
Blockbuster, Inc. 242,000 Terra Renewal Services, Inc. 1,110,009
Neff Motivation, Inc. 625,727 ------------
Neiman Marcus Group, Inc. 609,750 Total Corporate Restricted
Olympic Sales, Inc. 2,198,813 and Public Securities - 99.15% $118,011,035
Rent-A-Center, Inc. 238,750 ============
Rent-Way, Inc. 775,388
Sports Club Co. 99,125 See Notes to Consolidated Financial Statements.
TVI, Inc. 202,500
United Rentals, Inc. 316,875
------------
5,308,928
------------
TECHNOLOGY - 0.57%
Cymer, Inc. 440,438
DealerTrack Holdings, Inc. 33,568
Magnachip Semiconductor 47,750
Sungard Data Systems 77,625
Unisys Corporation 83,250
------------
682,631
------------
33
MassMutual Paticipation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
1. HISTORY
MassMutual Participation Investors (the "Trust") was organized as a
Massachusetts business trust under the laws of the Commonwealth of Massachusetts
pursuant to a Declaration of Trust dated April 7, 1988.
The Trust is a diversified closed-end management investment company. Babson
Capital Management LLC ("Babson Capital"), a wholly-owned indirect subsidiary of
Massachusetts Mutual Life Insurance Company ("MassMutual"), acts as its
investment adviser. The Trust's investment objective is to maximize total return
by providing a high level of current income, the potential for growth of 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 of the Trust ("MMPI Subsidiary Trust") for the purpose of
holding certain investments. The results of the MMPI Subsidiary Trust are
consolidated in the accompanying financial statements. Footnote 2.D below
discusses the federal tax consequences of the MMPI Subsidiary Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Trust in the preparation of its consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America.
A. VALUATION OF INVESTMENTS:
Valuation of a security in the Trust's portfolio is made on the basis of
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, as amended (the
"1933 Act").
The value of restricted securities, and of any other assets for which there
are no reliable market quotations, is the fair value as determined in good
faith by the Trust's Board of Trustees (the "Trustees"). Each restricted
security is valued by the Trustees 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 (the "1940
Act"). In making valuations, opinions of counsel may be relied upon as to
whether or not securities are restricted securities and as to the legal
requirements for public sale.
When market quotations are readily available for unrestricted securities of
an issuer, restricted securities of the same class are generally valued at a
discount from the market price of such unrestricted securities. The Trustees,
however, consider all factors in fixing any discount, including the filing of
a registration statement for such securities under the 1933 Act and any other
developments which are likely to increase the probability that the securities
may be publicly sold by the Trust without restriction.
The Trustees meet at least once 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 private placement restricted
securities valued at $74,973,531 (62.99% of net assets) as of December 31,
2005 whose values have been determined by the 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.
34
MassMutual Paticipation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
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, 2005, subject to discount where appropriate, and
are approved by the Trustees.
Short-term securities with more than sixty days to maturity are valued at
fair value and short-term securities having a maturity of sixty days or less
are valued at amortized cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS:
Investment transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis including the amortization of premiums and accretion of
discount on bonds held. The Trust does not accrue income when payment is
delinquent and when management believes payment is questionable.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
C. USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
D. FEDERAL INCOME TAXES:
The Trust has elected to be taxed as a "regulated investment company" under
the Internal Revenue Code and intends to maintain this qualification and to
distribute substantially all of its net taxable income to its shareholders.
In any year when net long-term capital gains are realized by the Trust,
management, after evaluating the prevailing economic conditions, will
recommend that Trustees either designate the net realized long-term gains as
undistributed and pay the federal capital gains taxes thereon, or distribute
all or a portion of such net gains. For the year ended December 31, 2005, the
Trust had a net realized taxable long-term capital gain balance of
$9,234,268, which the Trustees voted to retain and pay the federal capital
gain tax thereon. The Trust has accrued a provision for federal taxes of
$3,231,994 on the Statement of Operations related to the retained realized
capital gains.
In 2005, the Trust re-classified a total of $638,367 to undistributed net
investment income. $204,699 was re-classified from accumulated net realized
gain on investments and $433,668 was re-classified from additional paid in
capital to more accurately display the Trust's capital financial position or
a taxbasis in accordance with accounting principles generally accepted in the
United States of America. 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, 2005, the MMPI Subsidiary Trust has accrued tax expense on net income of
$27,826, on net realized gains of $318,869 and deferred tax expense on net
unrealized gains of $175,414.
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,
2005 and 2004 was as follows.
DISTRIBUTIONS PAID FROM: 2005 2004
-----------------------------
Ordinary Income $ 9,818,640 $ 10,613,225
As of December 31, 2005, the components of distributable earnings on a tax
basis included $968,724 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 of America.
Net investment income of the Trust as presented under accounting principles
generally accepted in the United States of America differs from distributable
earnings due to earnings from the MMPI Subsidiary Trust as well as timing
differences in the recognition of income on certain investments.
35
MassMutual Paticipation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
3. INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES FEE
Under an Investment Advisory and Administrative Services Contract (the
"Contract") with the Trust, Babson Capital has agreed to use its best efforts to
present to the Trust a continuing and suitable investment program consistent
with the investment objectives and policies of the Trust. Babson Capital
represents the Trust in any negotiations with issuers, investment banking firms,
securities brokers or dealers and other institutions or investors relating to
the Trust's investments. Under the Contract, Babson Capital provides
administration of the day-to-day operations of the Trust and provides the Trust
with office space and office equipment, accounting and bookkeeping services, and
necessary executive, clerical and secretarial personnel for the performance of
the foregoing services.
For its services under the Contract, Babson Capital is paid a quarterly
Investment Advisory fee equal to .225% of the value of the Trust's net assets as
of the last business day of each fiscal quarter, an amount approximately
equivalent to .90% on an annual basis. A majority of the Trustees, including a
majority of the Trustees who are not interested persons of the Trust or of
Babson Capital, approve the valuation of the Trust's net assets as of such day.
In addition, during the year ended December 31, 2005, the Trust was reimbursed
$22,443 by an affiliate of Babson Capital due to a trading error.
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, 2005, 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 Bank of
America (formerly 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.
As of December 31, 2005, there were no outstanding loans against the
Revolver. The average daily outstanding balance was $10,500,000 and the
average blended rate of interest attributable to the Revolver was 3.27%. For
the year ended December 31, 2005, the Trust incurred total interest expense
on the Revolver of $190,044, plus $22,685 related to the undrawn portion.
5. PURCHASES AND SALES OF INVESTMENTS
FOR THE YEAR COST OF INVESTMENTS
ENDED 12/31/2005 ACQUIRED
--------------------------------------------------------------------------
Corporate restricted securities $ 30,337,054
Corporate public securities 7,789,156
PROCEEDS FROM
SALES OR MATURITIES
--------------------------------------------------------------------------
Corporate restricted securities $ 50,471,728
Corporate public securities 7,593,513
--------------------------------------------------------------------------
The aggregate cost of investments is substantially the same for financial
reporting and federal income tax purposes as of December 31, 2005. The net
unrealized appreciation of investments for financial reporting and federal tax
purposes as of December 31, 2005 is $1,506,911 and consists of $12,021,463
appreciation and $10,514,552 depreciation.
Net unrealized appreciation of investments of the Statement of Assets and
Liabilities reflects the balance net of a deferred tax accrual of $175,414 on
net unrealized gains in the MMPI Subsidiary Trust.
36
MassMutual Paticipation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
6. QUARTERLY RESULTS OF INVESTMENT OPERATIONS
(UNAUDITED)
Amount Per Share
-----------------------------------------------------------------------------
March 31, 2005
-----------------------------------------------------------------------------
Investment income $ 2,833,525
Net investment income 2,192,726 $ 0.23
Net realized and unrealized
gain on investments (net of taxes) 1,002,116 0.10
-----------------------------------------------------------------------------
June 30, 2005
-----------------------------------------------------------------------------
Investment income 2,971,531
Net investment income 2,302,919 0.23
Net realized and unrealized
gain on investments (net of taxes) 4,574,450 0.47
-----------------------------------------------------------------------------
September 30, 2005
-----------------------------------------------------------------------------
Investment income 3,010,835
Net investment income 2,391,949 0.25
Net realized and unrealized
gain on investments (net of taxes) 2,781,680 0.29
-----------------------------------------------------------------------------
December 31, 2005
-----------------------------------------------------------------------------
Investment income 3,395,654
Net investment income (net of taxes) 2,755,688 0.28
Net realized and unrealized
gain on investments (net of taxes) 2,298,349 0.23
7. AGGREGATE REMUNERATION PAID TO OFFICERS,
TRUSTEES AND THEIR AFFILIATED PERSONS
During 2005, the Trust paid its Trustees aggregate remuneration of $111,625.
During this period the Trust did not pay any compensation to any of its Trustees
who are "interested persons" (as defined by the 1940 Act) of the Trust. The
Trust classifies Messers Crandall and Joyal and former Trustee Stuart H. Reese
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.
Mr. Crandall, one of the Trust's Trustees is an "affiliated person" (as defined
by the 1940 Act) of MassMutual and Babson Capital. The Trust did not make any
payments to Babson Capital for the year ended December 31, 2005, other than
amounts payable to Babson Capital pursuant to the Investment Advisory and
Administrative Services Contract. For the year ended December 31, 2005, the
Trust paid the following amounts to MassMutual, exclusive of interest expense on
the Note explained in Footnote 4.A:
Preparation of the Trust's Quarterly
and Annual Reports to Shareholders $ 15,439
Preparation of Certain of the
Trust's Shareholder communications 526
Preparation of the Trust's
Annual Proxy Statements 1,084
-----------------------------------------------------------------------------
$ 17,049
-----------------------------------------------------------------------------
8. CONTINGENCIES
The Trust, together with other investors including MassMutual, was 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 was settled in the Spring of 2005. Under
the terms of the settlement agreement, the Trust would recover all legal fees it
incurred to prosecute the lawsuit, as well as additional amounts. A related
lawsuit brought by the Trustee of Sharp bankruptcy estate against Sharp's
auditors on behalf of unsecured creditors, including the Trust, was also settled
at the same time. Total proceeds to be distributed to the Trust as a result of
the settlement of these two lawsuits against Sharp's auditors are expected to be
approximately $950,000. To date $934,353 has been received by the Trust.
9. CERTIFICATIONS (UNAUDITED)
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 Trust's disclosure
controls and procedures and internal control over financial reporting, as
applicable.
37
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, 2005, and the related statements of operations
and cash flows for the year then ended and the statements of changes in net
assets and financial highlights for each of the years in the two-year period
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 high-lights based on our
audits. The financial highlights for each of the years in the three-year period
ended December 31, 2003 were audited by other independent registered public
accountants whose report, dated February 6, 2004, expressed an unqualified
opinion on those financial highlights.
We conducted our audits 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 verification of
securities owned as of December 31, 2005 by counting of securities at the
custodian and confirmation of securities owned as of December 31, 2005, by
correspondence with the custodian and brokers, or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MassMutual Participation Investors as of December 31, 2005, and the results of
its operations, its cash flows, the changes in its net assets, and the financial
highlights for the years described above in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Boston, Massachusetts
February 6, 2006
38
MassMutual Participation Investors
INTERESTED TRUSTEES
PRINCIPAL PORTFOLIOS
POSITION OCCUPATION(S) OVERSEEN OTHER
NAME (AGE), WITH OFFICE TERM/LENGTH DURING PAST IN FUND DIRECTORSHIPS
ADDRESS THE TRUST OF TIME SERVED 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
ROGER W. CRANDALL* (41) Trustee 3 years/ Executive Vice President 2 Trustee, Chairman (since
Massachusetts Mutual (since 2005) 7 months** and Chief Investment 2005), President
Life Insurance Company Officer (since 2005) of (2003-2005), and Vice
1295 State Street Chairman 1 year/ MassMutual; and Chairman President (2002-2003), of
Springfield, MA 01111 (since 2005) 7 months*** (since 2005), Vice the Trust; Director
Chairman (2005), Member (since 2004), Babson
NOMINEE FOR TRUSTEE of the Board of Managers Capital Europe Limited
(since 2004), Director (an institutional
(2003-2004), and Managing debt-fund manager);
Director of Babson Director (since 2005),
Capital (2000-2005). Babson Capital Japan KK
(a Japanese registered
investment adviser); Non-
Executive Director (since
2005), Baring Asset
Management Limited (an
investment
manager/adviser);
Chairman (since 2005),
Cornerstone Real Estate
Advisers LLC (an
investment adviser);
Director (since 1996),
HYP Management LLC (LLC
manager); Director (since
2003), MassMutual
Corporate Value Partners
Limited (investment
company); Director (since
2003), MassMutual
Corporate Value Limited
(investment company);
Director (since 2005),
MassMutual Holdings
(Bermuda) Ltd. (holding
company); Director (since
2005), MassMutual Holding
MSC, Inc. (holding
company); Director (since
1996), MMHC Investment
LLC (investment company);
Director (since 2004),
MML Assurance, Inc. (a
New York insurance
company); Director (since
2005), Oppenheimer
Acquisition Corp.
(holding company);
Director (since 2004),
Jefferies Babson Finance
LLC (a joint venture
between Jefferies Group
Inc. and Babson Capital);
Director (since 2004),
Great Lakes LLC
(investment company);
Director (since 1999),
SAAR Holdings CDO Ltd.
(investment company);
Trustee (since 2003),
President (2003-2005),
and Chairman (since
2005), MMCI Subsidiary
Trust and MMPI Subsidiary
Trust; and Trustee (since
2005), Chairman (since
2005), President
(2003-2005), and Vice
President (2002-2003), of
MassMutual Corporate
Investors (closed-end
investment company
advised by Babson
Capital).
* MR. CRANDALL IS AN "INTERESTED PERSON" OF THE TRUST AND BABSON CAPITAL (AS
DEFINED BY THE 1940 ACT) BECAUSE OF HIS POSITION AS AN OFFICER OF THE
TRUST; AN EXECUTIVE OFFICER OF MASSMUTUAL; AND CHAIRMAN AND MEMBER OF THE
BOARD OF MANAGERS OF BABSON CAPITAL.
** MR. CRANDALL WAS APPOINTED TO THE BOARD OF TRUSTEES ON JULY 15, 2005 TO
FILL THE VACANT SEAT CREATED BY THE RESIGNATION OF STUART H. REESE, THE
TERM OF WHICH EXPIRES IN 2006.
*** MR. CRANDALL WAS ELECTED CHAIRMAN OF THE BOARD OF TRUSTEES ON JULY 15,
2005.
39
MassMutual Participation Investors
INTERESTED TRUSTEES
PRINCIPAL PORTFOLIOS
POSITION OCCUPATION(S) OVERSEEN OTHER
NAME (AGE), WITH OFFICE TERM/LENGTH DURING PAST IN FUND DIRECTORSHIPS
ADDRESS THE TRUST OF TIME SERVED 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
ROBERT E. JOYAL* (61) Trustee 3 years/ President (2001-2003), 33 President (1999-2003) and
MassMutual (since 2003) 1 year, Managing Director Trustee (since 2003), of
Participation Investors 10 months (2000-2001), and the Trust; Director
1500 Main Street Executive Director (since 2006), Jefferies
Suite 600 (1999-2000) of Babson Group Inc. (global
Springfield, MA 01115 Capital; and Executive investment bank and
Director (1997- 1999) of institutional securities
MassMutual. firm); Director (since
2005), York Enhanced
Strategies Fund (a
closed-end investment
company); Director (since
2003), Pemco Aviation
Group, Inc. (aircraft
maintenance and
overhaul); Trustee (since
2003), MassMutual Select
Funds, formerly
MassMutual Institutional
Funds, (an open-end
investment company
advised by MassMutual);
Trustee (since 2003), MML
Series Investment Fund
(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;
and President
(1999-2003), Trustee
(since 2003), MassMutual
Corporate Investors
(closed-end investment
company advised by Babson
Capital).
* MR. JOYAL RETIRED AS PRESIDENT OF BABSON CAPITAL IN JUNE 2003. HE CONTINUES
TO SERVE AS A DIRECTOR OR TRUSTEE OF SEVERAL ENTITIES AFFILIATED WITH
MASSMUTUAL, BABSON CAPITAL'S INDIRECT PARENT COMPANY. ACCORDINGLY, THE
TRUST CLASSIFIES MR. JOYAL AS AN "INTERESTED PERSON" OF THE TRUST AND
BABSON CAPITAL (AS DEFINED BY THE 1940 ACT).
40
MassMutual Participation Investors
INDEPENDENT TRUSTEES
PRINCIPAL PORTFOLIOS
POSITION OCCUPATION(S) OVERSEEN OTHER
NAME (AGE), WITH OFFICE TERM/LENGTH DURING PAST IN FUND DIRECTORSHIPS
ADDRESS THE TRUST OF TIME SERVED 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
MICHAEL H. BROWN (49) Trustee 3 years/ Private Investor; and 2 Trustee (since 2005),
MassMutual (since 2005) 7 months* Managing Director MassMutual Corporate
Participation Investors (1994-2005), Morgan Investors (a closed-end
1500 Main Street Stanley. investment company advised
Suite 600 by Babson Capital).
Springfield, MA 01115
------------------------------------------------------------------------------------------------------------------------------------
JACK A. LAUGHERY (71) Trustee 3 years/ President and Partner 2 Director (since 1993),
MassMutual (since 1996) 10 months (since 1996), Papa John's International
Participation Investors Laughery Investments (food service companies);
1500 Main Street (private investments). and Trustee (since 1996),
Suite 600 MassMutual Corporate
Springfield, MA 01115 Investors (closed-end
investment company advised
by Babson Capital).
* MR. BROWN WAS ELECTED BY THE BOARD OF TRUSTEES TO FILL A NEWLY CREATED
BOARD SEAT ON JULY 15, 2005.
41
MassMutual Participation Investors
INDEPENDENT TRUSTEES
PRINCIPAL PORTFOLIOS
POSITION OCCUPATION(S) OVERSEEN OTHER
NAME (AGE), WITH OFFICE TERM/LENGTH DURING PAST IN FUND DIRECTORSHIPS
ADDRESS THE TRUST OF TIME SERVED 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
CORINE T. NORGAARD (68) Trustee 3 years/ President, (2004-2005), 32 Trustee (since 2005), MML
MassMutual (since 1998) 10 months Thompson Enterprises Real Series Investment Fund II
Participation Investors Estate Investment; and (an open-end investment
1500 Main Street Dean (1996-2004), Barney company advised by
Suite 600 School of Business, MassMutual); Trustee
Springfield, MA 01115 University of Hartford. (since 2004), MassMutual
Premier Funds, formerly
The DLB Fund Group (an
open-end investment
company advised by
MassMutual); Trustee
(since 1993), ING Series
Fund (investment company);
Director (since 1992), ING
Variable Series Fund; and
Trustee (since 1998),
MassMutual Corporate
Investors (a closed-end
investment company advised
by Babson Capital).
------------------------------------------------------------------------------------------------------------------------------------
DONALD E. BENSON (75) Trustee 3 years/ Executive Vice President 2 Director (since 1997),
MassMutual (since 1988) 1 year, and Director (since 1992), MAIR Holdings, Inc.
Participation Investors 10 months Marquette Financial (commuter airline holding
1500 Main Street Companies (financial company); Director (since
Suite 600 services); Partner (since 1997), National Mercantile
Springfield, MA 01115 1996), Benson Family Bancorp (bank holding
Limited Partnership No. 1 company); and Trustee
and Benson Family Limited (since 1986), MassMutual
Partnership No. 2 Corporate Investors
(investment partnerships); (closed-end investment
and Partner (1987-2004), company advised by Babson
Benson, Pinckney, Oates Capital).
Partnership (building
partnership).
42
MassMutual Participation Investors
INDEPENDENT TRUSTEES
PRINCIPAL PORTFOLIOS
POSITION OCCUPATION(S) OVERSEEN OTHER
NAME (AGE), WITH OFFICE TERM/LENGTH DURING PAST IN FUND DIRECTORSHIPS
ADDRESS THE TRUST OF TIME SERVED 5 YEARS COMPLEX HELD BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
DONALD GLICKMAN (72) Trustee 3 years/ Chairman (since 1992), 2 Director (since 1984),
MassMutual (since 1992) 1 year, Donald Glickman and Monro Muffler Brake, Inc.
Participation Investors 10 months Company, Inc. (investment (automobile repair
1500 Main Street banking); and Partner service); Director (since
Suite 600 (since 1992), J.F. Lehman 1998), MSC Software, Corp.
Springfield, MA 01115 & Co. (private (simulation software);
investments). Director (2002-2006),
OAOT, Inc. (ITC Services);
and Trustee (since 1992),
MassMutual Corporate
Investors (closed-end
investment company advised
by Babson Capital).
------------------------------------------------------------------------------------------------------------------------------------
MARTIN T. HART (70) Trustee 3 years/ Private Investor; and 2 Director (since 2004),
MassMutual (since 1991) 2 years, President and Director Texas Roadhouse, Inc.
Participation Investors 10 months (since 1983), H Investment (operates restaurant
1500 Main Street Company LLC (family chain); Director (since
Suite 600 partnership). 1999), ValueClick Inc.
Springfield, MA 01115 (internet advertising
company); Director (since
2002), Spectranetics Corp.
NOMINEE (medical device company);
FOR TRUSTEE and Trustee (since 1991),
MassMutual Corporate
Investors (closed-end
investment company advised
by Babson Capital).
43
MassMutual Participation Investors
OFFICERS OF THE TRUST
PRINCIPAL
POSITION OCCUPATION(S)
NAME (AGE), WITH OFFICE TERM/LENGTH DURING PAST
ADDRESS THE TRUST OF TIME SERVED 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
CLIFFORD M. NOREEN (48) President 1 year/ President (since 2005), Vice President (1993-2005) of the Trust;
MassMutual 7 months Managing Director (since 2000) of Babson Capital; Managing Director
Participation Investors (1996-1999) of MassMutual; Trustee (since 2005), and President
1500 Main Street (since 2005), MMCI Subsidiary Trust and MMPI Subsidiary Trust; and
Suite 600 President (since 2005), Vice President (1993-2005), MassMutual
Springfield, MA 01115 Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
STEPHEN L. KUHN (59) Vice 1 year/ Vice President (since 1989) and Secretary (since 1980) of the Trust;
MassMutual President, 7 months Senior Vice President (since 1999), Deputy General Counsel (since
Participation Investors Secretary, 1998), and Secretary (since 2005) of MassMutual; General Counsel and
1500 Main Street and Chief Secretary (2000-2006) of Babson Capital; Secretary (since 1998),
Suite 600 Legal MMCI Subsidiary Trust and MMPI Subsidiary Trust; and Vice President
Springfield, MA 01115 Officer (since 1989) and Secretary (since 1980), MassMutual Corporate
Investors.
------------------------------------------------------------------------------------------------------------------------------------
JAMES M. ROY (43) Vice 1 year/ Vice President and Chief Financial Officer (since 2005), Treasurer
MassMutual President 7 months (2003-2005) and Associate Treasurer (1999-2003) of the Trust;
Participation Investors and Chief Director (since 2000) of Babson Capital; Associate Director
1500 Main Street Financial (1996-1999) of MassMutual; Trustee (since 2005), Treasurer (since
Suite 600 Officer 2005), and Controller (2003-2005), MMCI Subsidiary Trust and MMPI
Springfield, MA 01115 Subsidiary Trust; and Vice President and Chief Financial Officer
(since 2005), Treasurer (2003-2005) and Associate Treasurer
(1999-2003), MassMutual Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
JOHN T. DAVITT, JR. (38) Comptroller 1 year/ Comptroller (since 2001) of the Trust; Director (since 2000) of
MassMutual 7 months Babson Capital; Associate Director (1997-1999) of MassMutual;
Participation Investors Controller (since 2005), MMCI Subsidiary Trust and MMPI Subsidiary
1500 Main Street Trust; and Comptroller (since 2001), MassMutual Corporate Investors.
Suite 600
Springfield, MA 01115
------------------------------------------------------------------------------------------------------------------------------------
MELISSA M. LAGRANT (32) Chief 6 months/ Chief Compliance Officer (since 2006) of the Trust; Managing
MassMutual Compliance 1 month* Director (since 2005) of Babson Capital; Vice President and Senior
Participation Investors Officer Compliance Trading Manager (2003-2005), Loomis, Sayles & Company,
1500 Main Street L.P.; Assistant Vice President-Business Risk Management Group
Suite 600 (2002-2003), and Assistant Vice President-Investment Compliance
Springfield, MA 01115 (2001-2002), Zurich Scudder Investments/Deutsche Asset Management;
and Chief Compliance Officer (since 2006), MassMutual Corporate
Investors.
------------------------------------------------------------------------------------------------------------------------------------
LAURA L. GRANT (33) Treasurer 1 year/ Treasurer (since 2005) of the Trust; Associate Director (since 2000)
MassMutual 7 months of Babson Capital; and Treasurer (since 2005), MassMutual Corporate
Participation Investors Investors.
1500 Main Street
Suite 600
Springfield, MA 01115
* MELISSA LAGRANT WAS ELECTED CHIEF COMPLIANCE OFFICER BY THE BOARD ON
JANUARY 20, 2006 TO FILL THE VACANCY CREATED BY MARY ELLEN WESNESKI'S
RESIGNATION AS CHIEF COMPLIANCE OFFICER ON NOVEMBER 18, 2005.
44
MassMutual Participation Investors
[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
Michael H. Brown
Private Investor
Donald E. Benson*
Executive Vice President
and Director,
Marquette Financial Companies
Corine T. Norgaard*
President, Thompson Enterprises
Real Estate Investment
Roger W. Crandall
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 Share-holder Financial Services Inc.,
the Transfer Agent, in accordance with the Plan, unless such share-holder 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 8021 7-3673.
--------------------------------------------------------------------------------
Officers
--------------------------------------------------------------------------------
Roger W. Crandall James M. Roy Michael P. Hermsen Michael L. Klofas Laura L. Grant
CHAIRMAN VICE PRESIDENT & VICE PRESIDENT VICE PRESIDENT TREASURER
CHIEF FINANCIAL OFFICER
Clifford M. Noreen Mary Wilson Kibbe Richard E. Spencer, II John T. Davitt, Jr.
PRESIDENT Stephen L. Kuhn VICE PRESIDENT VICE PRESIDENT COMPTROLLER
VICE PRESIDENT, SECRETARY
& CHIEF LEGAL OFFICER Melissa M. LaGrant
CHIEF COMPLIANCE
OFFICER
[LOGO]
MassMutual Participation Investors DB1036 206
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 THE REGISTRANT
KPMG LLP KPMG LLP
Year Ended Year Ended
December 31, December 31,
2005 2004
---------- ----------
Audit Fees $ 39,000 $ 32,500
Audit-Related Fees 5,200 5,000
Tax Fees 32,900 33,500
All Other Fees 0 0
---------- ----------
Total Fees $ 77,100 $ 71,000
========== ==========
NON-AUDIT FEES BILLED TO BABSON CAPITAL AND MASSMUTUAL
KPMG LLP KPMG LLP
Year Ended Year Ended
December 31, December 31,
2005 2004
---------- ----------
Audit-Related Fees $1,271,816 $ 362,400
Tax Fees 0 0
All Other Fees 0 400,000
---------- ----------
Total Fees $1,271,816 $ 762,400
========== ==========
The category "Audit Related Fees" reflects fees billed by KPMG
for services reasonably related to the audit and tax services rendered
to the Registrant, Babson Capital Management LLC ("Babson Capital")
and Massachusetts Mutual Life Insurance Company ("MassMutual"), such
as SAS 70 review, a Sarbanes-Oxley Readiness Assessment and agreed
upon procedures reports. 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 for tax consulting rendered to Babson Capital and
MassMutual. 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 2005, 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 Capital, and Babson Capital'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.
The 2004 fees billed represent final 2004 amounts, which may
differ from the preliminary figures available as of the filing date of
the Trust's 2005 Annual Form N-CSR and includes, among other things,
fees for services that may not have been billed as of the filing date
of the Trust's 2005 Annual Form N-CSR, but are now properly included
in the 2004 fees billed to the Trust, Babson Capital, and MassMutual.
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
Capital"). A summary of Babson Capital's proxy voting policies and
procedures is set forth below.
Summary of Babson Capital's Proxy Voting Policy
-----------------------------------------------
Babson Capital 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 Capital'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 Capital recognizes, however, that there may be times when Babson
Capital 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 Capital with any
recommendations with respect to a proxy, vote against ISS's proxy
voting guidelines. Babson Capital 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 Capital's Proxy Voting Procedures
---------------------------------------------------
Babson Capital 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 Capital 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 Capital 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 Capital 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 Capital or its affiliates
(other than those assigned such responsibilities under the Policy) may
influence how Babson Capital 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 Capital's
General Counsel.
Obtaining a Copy of the Policy
------------------------------
The full text of Babson Capital'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.
The following disclosure item is made as of the date of this Form N-CSR
unless otherwise indicated.
PORTFOLIO MANAGER. Clifford M. Noreen serves as the President of the
Registrant (since 2005) and as its Portfolio Manager. Mr. Noreen began
his service to the Registrant in 1993 as a Vice President. With over 24
years of industry experience, Mr. Noreen is a Managing Director of
Babson Capital Management LLC ("Babson Capital") and head of Babson
Capital's Corporate Securities Group, where he oversees all corporate
credit related investments, including public and private bonds,
mezzanine, and private equity investments, as well as structured credit
products. Mr. Noreen joined Massachusetts Mutual Life Insurance Company
("MassMutual"), Babson Capital's parent company, in 1985 and began
leading its High Yield Team in 1992, where he was responsible for
oversight of all public high yield portfolios. In 2004, Mr. Noreen
assumed responsibility for Babson Capital's Public Corporate Credit
Group, which included the Investment Grade and High Yield Institutional
Fixed Income teams. Mr. Noreen also presently serves as President of
MassMutual Corporate Investors, another closed-end investment company
advised by Babson Capital. Mr. Noreen holds a B.A. from the University
of Massachusetts and an M.B.A from American International College.
PORTFOLIO MANAGEMENT TEAM. Mr. Noreen has primary responsibility for
overseeing the investment of the Registrant's portfolio, with the
day-to-day investment management responsibility of the Registrant's
portfolio being shared with the following Babson Capital investment
professionals (together with the Portfolio Manager, the "Portfolio
Team").
Michael P. Hermsen, Michael L. Klofas, and Richard E. Spencer II are
each a Vice President of the Registrant and a managing Director of
Babson Capital. Together they are responsible for managing Babson
Capital's Mezzanine Investment and Private Equity Investments team
within the Corporate Securities Group, which is responsible for
finding, analyzing, negotiating and servicing mezzanine private
placement securities for the Registrant.
Mr. Hermsen joined MassMutual in 1990 and has been an officer of the
Registrant since 1992. Previously, he worked at Teachers Insurance and
Annuity Association where he was a generalist private placement
analyst. At MassMutual and then Babson Capital, Mr. Hermsen has
analyzed and invested in traditional private placements, high yield
public and private bonds, and leveraged bank loans. He has also been
responsible for managing a small portfolio of distressed investments.
Since 1993, he has focused on originating, analyzing, structuring and
documenting mezzanine and private equity investments. He holds a B.A.
from Bowdoin College and an M.B.A. from Columbia University.
Mr. Klofas joined MassMutual in 1988 and has been an officer of the
Registrant since 1989. Prior to joining MassMutual, he spent two years
at a small venture capital firm and two years at a national public
accounting firm. At MassMutual and then Babson Capital, Mr. Klofas has
analyzed and invested in traditional private placements and high yield
public bonds. He also spent four years leading Babson Capital's workout
and restructuring activities. Since 1993, he has focused on
originating, analyzing, structuring and documenting mezzanine and
private equity investments. Mr. Klofas holds a B.A. from Brandeis
University and an M.B.A. from Babson College as well as a Certified
Public Accountant designation.
Mr. Spencer joined MassMutual in 1989 after three years as a corporate
loan analyst at a major New England bank. He has been an officer of
Registrant since 1990. At MassMutual and then Babson Capital, Mr.
Spencer has analyzed and invested in traditional private placements,
high yield public and private bonds, leveraged bank loans, mezzanine
debt and private equity. From 1993 to 1999, he was the lead
restructuring professional at Babson Capital. Since 1999, Mr. Spencer
has been focused on the origination, analysis, structuring and
documentation of mezzanine and private equity investments. He holds a
B.A. from Bucknell University and an M.B.A. from the State University
of New York at Buffalo.
Starting in 2006, Jill A. Fields assumed primary day-to-day
responsibility for managing the Registrant's public high yield and
investment grade fixed income portfolio. Ms. Fields, a Managing
Director of Babson Capital with over 19 years of industry experience,
is responsible for portfolio management of Babson Capital's high yield
total return strategy. Prior to joining Babson Capital in 1997, she was
a credit analyst at Shawmut National Bank, and the Director of
Corporate Bond Research at Hartford Life Insurance Group. Ms. Fields
holds a B.S. from Pennsylvania State University and an M.B.A. from the
University of Connecticut.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO TEAM. The members of the
Registrant's Portfolio Team also have primary responsibility for the
day-to-day management of other Babson Capital advisory accounts,
including, among others, closed-end and open-end investment companies,
private investment funds, MassMutual-affiliated accounts, as well as
separate accounts for institutional clients. These advisory accounts
are identified below.
NUMBER OF
ACCOUNTS APPROXIMATE
TOTAL WITH ASSET SIZE OF
NUMBER APPROXIMATE PERFORMANCE- PERFORMANCE-
PORTFOLIO ACCOUNT OF TOTAL ASSET BASED BASED ADVISORY
TEAM CATEGORY ACCOUNTS SIZE(A) ADVISORY FEE FEE ACCOUNTS(A)
------------ --------------------- -------- ------------ ------------ --------------
Clifford M. Registered Investment
Noreen(B) Companies 2 $431.7 million 1 $256.3 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 2 $112.6 million 2 $112.6 million
-----------------------------------------------------------------------------------------
Other Accounts 2 $133.7 million 2 $133.7 million
-----------------------------------------------------------------------------------------
Jill A. Registered Investment
Fields Companies 3 $790.5 million 1 $256.3 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 3 $214.3 million 3 $214.3 million
-----------------------------------------------------------------------------------------
Other Accounts 3 $361.2 million 2 $133.9 Million
-----------------------------------------------------------------------------------------
Michael P. Registered Investment
Hermsen Companies 1 $256.3 million 1 $256.3 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 5 $341.2 million 5 $341.2 million
-----------------------------------------------------------------------------------------
Other Accounts 1(C) $1.1 billion N/A N/A
-----------------------------------------------------------------------------------------
Michael L. Registered Investment
Klofas Companies 1 $256.3 million 1 $256.3 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 5 $341.2 million 5 $341.2 million
-----------------------------------------------------------------------------------------
Other Accounts 1(C) $1.1 billion N/A N/A
-----------------------------------------------------------------------------------------
Richard E. Registered Investment
Spencer II Companies 1 $256.3 million 1 $256.3 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 5 $341.2 million 5 $341.2 million
-----------------------------------------------------------------------------------------
Other Accounts 1(C) $1.1 billion N/A N/A
(A) Account asset size has been calculated as of December 31, 2005.
(B) Mr. Noreen, as the head of Babson Capital's Corporate Securities
Group, has overall responsibility for all corporate credit related
investments, including public and private bonds, mezzanine, and
private equity investments, as well as structured credit products
managed by Babson Capital. Except for the accounts noted in the table
above, Mr. Noreen is not primarily responsible for the day-to-day
management of the other accounts managed by Babson Capital's Corporate
Securities Group.
(C) The listed account and managed assets represent that portion of the
general investment account of MassMutual and C.M. Life Insurance
Company for which an individual Portfolio Team member has primary
day-to-day responsibility. As of December 31, 2005, Babson Capital's
total general investment account assets under management were $56.9
billion dollars.
MATERIAL CONFLICTS OF INTEREST. The potential for material conflicts of
interest may exist as the members of the Portfolio Team have
responsibilities for the day-to-day management of multiple accounts.
These conflicts may be heightened to the extent the individual, Babson
Capital and/or an affiliate has an investment in one or much of such
accounts or an interest in the performance of such accounts. Babson
Capital has identified (and summarized below) areas where material
conflicts of interest are most likely to arise, and has adopted
policies and procedures that it believes are reasonably designed to
address such conflicts.
It is possible that an investment opportunity may be suitable for both
the Registrant and other accounts managed by a member of the Portfolio
Team, but may not be available in sufficient quantities for both the
Registrant and the other accounts to participate fully. Similarly,
there may be limited opportunity to sell an investment held by the
Registrant and another account. A conflict may arise where a member of
the Portfolio Team may have an incentive to treat an account
preferentially as compared to the Registrant because the account pays
Babson Capital a performance-based fee or a member of the Portfolio
Team, Babson Capital, or an affiliate has an interest in the account.
Babson Capital has adopted an investment allocation policy and trade
allocation procedures to address allocation of portfolio transactions
and investment opportunities across multiple clients. These policies
are designed to achieve fair and equitable treatment of all clients
over time, and specifically prohibit allocations based on performance
of an account, the amount or structure of the management fee,
performance fee or profit sharing allocations, participation or
investment by an employee, Babson Capital or an affiliate, whether the
account is public, private, proprietary or third party. Additionally,
the Registrant, MassMutual, Babson Capital, MassMutual Corporate
Investors, and any private investment company advised or sub-advised by
Babson Capital have obtained a blanket order from the Securities and
Exchange Commission pursuant to Section 17(d), and Rule 17(d)-1
thereunder, of the Investment Company Act of 1940, as amended, which
sets forth the conditions by which the entities can engage in private
placement co-investment activities.
Potential material conflicts of interest may also arise related to the
knowledge and timing of the Registrant's trades, investment
opportunities and broker selection. A member of the Portfolio Team will
have information about the size, timing and possible market impact of
the Registrant's trades. It is theoretically possible that a member of
the Portfolio Team could use this information for his or her personal
advantage or the advantage of other accounts he manages or the possible
detriment of the Registrant. For example, a member of the Portfolio
Team could front run a fund's trade or short sell a security for an
account immediately prior to the Registrant's sale of that security. To
address these conflicts, Babson Capital has adopted policies and
procedures governing employees' personal securities transactions, the
use of short sales, and trading between the Registrant and other
accounts managed by members of the Portfolio Team or accounts owned by
Babson Capital or its affiliates.
With respect to securities transactions for the Registrant, Babson
Capital determines which broker to use to execute each order,
consistent with its duty to seek best execution of the transaction.
Babson Capital manages certain other accounts, however, where Babson
Capital may be limited by the client with respect to the selection of
brokers or directed to trade such client's transactions through a
particular broker. In these cases, trades for a fund in a particular
security may be placed separately from, rather than aggregated with,
such other accounts. Placing separate transaction orders for a security
may temporarily affect the market price of the security or otherwise
affect the execution of the transaction to the possible detriment of a
fund or the other account(s) involved. Babson Capital has policies and
procedures that address best execution and directed brokerage.
Members of the Portfolio Team may also face other potential conflicts
of interest in managing the Registrant, and the above is not a complete
description of every conflict of interest that could be deemed to exist
in managing both the Registrant and the other accounts listed above.
COMPENSATION. The current Babson Capital compensation and incentive
program for investment professionals is designed to attract, motivate
and retain high-performing individuals.
To help Babson Capital make informed decisions, the Company
participates in annual compensation surveys of investment management
firms using McLagan Partners, in addition to other industry specific
resources. The firms selected for periodic peer-group comparisons
typically have similar asset size or business mix. Annually, a review
is conducted of total compensation versus market, to ensure that
individual pay is competitive with the defined overall market.
The compensation package for the members of the Portfolio Team is
comprised of a market-driven base salary, a performance-driven annual
bonus, and discretionary long-term incentives. The performance-driven
bonus is based on the performance of the accounts managed by the
members of the Portfolio Team relative to appropriate benchmarks,
including with respect to the Registrant, to the Lehman Brothers
Intermediate U.S. Credit and the S & P Industrial Index, in addition to
the Russell 2000 Index and Lehman Brothers U.S. Corporate High Yield
Index. Performance of the Registrant, like other accounts Portfolio
Team members manage, are evaluated on a pre-tax basis, and are reviewed
over one and three-year periods, with greater emphasis given to the
latter. There are other factors that affect bonus awards to a lesser
extent, such as client satisfaction, teamwork, the assets under
management, and the overall success of Babson Capital. Such factors are
considered as a part of the overall annual bonus evaluation process by
the management of Babson Capital.
Long-Term incentives are designed to share with participants the
longer-term value created in Babson Capital. Long-term incentives may
take the form of deferred cash awards (including deferred cash awards
that provide a portfolio manager with the economic equivalent of a
"shareholder" interest in the firm by linking the value of the award to
a formula which ties to the value of the business), and/or, in the case
of a portfolio manager who manages a private investment fund with a
performance fee, a deferred cash award or a direct profit sharing
interest that results in the manager receiving amounts based on the
amount of the performance fee paid by such fund. These long-term
incentives vest over time and are granted annually, based upon the same
criteria used to determine the performance-driven annual bonus detailed
above. Because the Portfolio Team members are generally responsible for
multiple accounts (including the Registrant), they are compensated on
the overall performance of the accounts that they manage, rather than a
specific account, except for the portion of compensation relating to
any performance fee award.
BENEFICIAL OWNERSHIP. As of December 31, 2005, members of the Portfolio
Team beneficially owned the following dollar range of equity securities
in the Registrant:
DOLLAR RANGE OF BENEFICIALLY OWNED*
PORTFOLIO TEAM EQUITY SECURITIES OF THE REGISTRANT
---------------------- -----------------------------------
Clifford M. Noreen None
Jill A. Fields None
Michael P. Hermsen $10,001-$50,000
Michael L. Klofas None
Richard E. Spencer II None
* Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2)
under the Securities Exchange Act of 1934, as amended.
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/ Clifford M Noreen
----------------------------------
Clifford M Noreen, President
----------------------------------
Date: March 10, 2006
----------------------------------
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/ Clifford M Noreen
----------------------------------
Clifford M Noreen, President
----------------------------------
Date: March 10, 2006
----------------------------------
By: /s/ James M. Roy
----------------------------------
James M. Roy, Vice President, and
Chief Financial Officer
----------------------------------
Date: March 10, 2006
----------------------------------