UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-5531
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MassMutual Participation Investors
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(Exact name of registrant as specified in charter)
1500 Main Street, Suite 600, P.O. Box 15189, Springfield, MA 01115-5189
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(Address of principal executive offices) (Zip code)
Rodney J. Dillman, Vice President and Secretary
1500 Main Street, Suite 2800, P.O. Box 15189, Springfield, MA 01115-5189
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(Name and address of agent for service)
Registrant's telephone number, including area code: 413-226-1000
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31/06
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
Attached hereto is the annual shareholder report transmitted to
shareholders pursuant to Rule 30e-1 of the Investment Company Act of
1940, as amended.
[PHOTO]
[LOGO] MASSMUTUAL PARTICIPATION INVESTORS
2006 ANNUAL REPORT
MassMutual Participation Investors
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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
[BACKGROUND PHOTO]
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 SEC for the first and third quarters of each fiscal year on
Form N-Q. This information is available (i) on the SEC's website at
http://www.sec.gov; and (ii) at the SEC's Public Reference Room in Washington,
DC (which information on their operation may be obtained by calling
1-800-SEC-0330). A complete schedule of portfolio holdings as of each
quarter-end is available upon request by calling, toll-free, 866-399-1516. Or
visiting www.babsoncapital.com/mpv.
MASSMUTUAL PARTICIPATION INVESTORS
MassMutual Participation Investors is a closed-end investment company, first
offered to the public in 1988, whose shares are traded on the New York Stock
Exchange.
MassMutual Participation Investors
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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 understanding of the
Trust. We cordially invite all shareholders to attend the Trust's Annual Meeting
of Shareholders, which will be held on April 27, 2007 at 1:00 P.M. in
Springfield, Massachusetts.
[BACKGROUND PHOTO]
PORTFOLIO COMPOSITION AS OF 12/31/06*
[PIE CHART APPEARS HERE]
Private High
Yield Debt 47.2%
Private/Restricted
Equity 16.0%
Cash & Short Term
Investments 6.6%
Public High
Yield Debt 23.9%
Public Equity 0.5%
Private Investment
Grade Debt 5.8%
*BASED ON VALUE OF TOTAL INVESTMENTS (INCLUDING CASH)
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MassMutual Participation Investors
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[BACKGROUND PHOTO]
TO OUR SHAREHOLDERS
I am pleased to share with you the Trust's Annual Report for the year ended
December 31, 2006.
THE TRUST'S 2006 PORTFOLIO PERFORMANCE
The Trust's net total portfolio rate of return for 2006 was 18.64%, as measured
by the change in net asset value, assuming the reinvestment of all dividends
and distributions. The Trust's total net assets were $126,515,013, or $12.90 per
share, as of December 31, 2006 compared to $119,018,966, or $12.21 per share,
as of December 31, 2005. The Trust paid a quarterly dividend of 24 cents per
share each quarter in 2006, with the fourth quarter dividend paid in January
2007. In addition, the Trust declared a special year-end dividend of 23 cents
per share, paid in January 2007 to shareholders of record on December 29,
2006, bringing total dividends for the year to $1.19. All in all, we are very
pleased with the Trust's 2006 portfolio performance.
[PHOTO OF OFFICERS]
LEFT TO RIGHT:
Clifford M. Noreen
PRESIDENT
Roger W. Crandall
CHAIRMAN
2
MassMutual Participation Investors
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TOTAL ANNUAL PORTFOLIO RETURN (AS OF 12/31 EACH YEAR)*
[BAR CHART APPEARS HERE]
24.10 10.91 4.77 8.11 3.41 5.70 23.72 25.14 22.51 18.64 MASSMUTUAL PARTICIPATION
INVESTORS (BASED ON CHANGE
IN THE NET ASSET VALUE WITH
REINVESTED DIVIDENDS)
31.04 33.77 25.89 -16.26 -11.67 -23.51 28.34 10.20 3.98 14.79 STANDARD & POOR'S
INDUSTRIALS COMPOSITE
(FORMERLY CALLED THE STANDARD
& POOR'S INDUSTRIAL PRICE INDEX)
8.36 8.29 0.16 9.46 9.77 10.14 6.91 4.08 1.42 4.49 LEHMAN BROTHERS
INTERMEDIATE
U.S. CREDIT INDEX
(FORMERLY CALLED THE LEHMAN
BROTHERS INTERMEDIATE
CORPORATE BOND INDEX)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
*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]
LEFT TO RIGHT:
James M. Roy
VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
Rodney J. Dillman
VICE PRESIDENT, SECRETARY &
CHIEF LEGAL OFFICER
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MassMutual Participation Investors
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The table shown below lists the average annual 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,
2006.
The U.S. economy and investment markets started the year slowly amid lukewarm
expectations due to concerns over inflation and the housing market, yet 2006
concluded with some very strong performance, especially in the equity markets. A
key date was June 29th, when the Federal Reserve Board completed its fourth and
final quarter-point interest rate increase for the year (and 17th since
mid-2004).
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 18.64% 11.85% 4.49% 14.79% 18.37%
3 Year 22.07% 8.49% 3.32% 9.57% 13.56%
5 Year 18.92% 10.18% 5.37% 5.25% 11.39%
10 Year 14.39% 6.59% 6.25% 7.72% 9.44%
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.
LEFT TO RIGHT:
Jill A. Fields
VICE PRESIDENT
Michael P. Hermsen
VICE PRESIDENT
Michael L. Klofas
VICE PRESIDENT
Richard E. Spencer, II
VICE PRESIDENT
[PHOTO OF OFFICERS]
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MassMutual Participation Investors
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Eventually, commodity prices tumbled, relieving some inflation fears, and
economic growth was sustained even as the housing market declined. The market
focused on continued solid earnings growth, reasonable inflation and stable
interest rates.
Overall, the US economy remains in good shape, but not without question marks.
The unemployment rate in 2006 dropped to 4.5 percent from 5 percent the previous
year, according to the US Department of Labor. However, core inflation was up to
2.6 percent from 2.2 percent in both 2005 and 2004, and the value of the dollar
versus several other currencies dropped in 2006 and is expected to continue to
drop in 2007.
Investors continued to witness an ever stronger corporate-credit market in 2006.
Corporate credit defaults around the globe continued their downward trend for
the fifth consecutive year, as reported by Moody's Investors Service. Moody's
global issuerweighted speculative-grade default rate finished the year at 1.7
percent, down from 1.9 percent in 2005 and its lowest level since 1996. Moody's
expects the default rate to climb in 2007 but remain well below its historical
average of 5 percent.
Overall, the Trust closed 24 new private placement transactions during 2006 - a
record number - and added to eight existing private placement investments. Total
direct placement volume of $31,176,825 is also a record for the Trust.
New private placement transactions invested in during the year were: Momentum
Holding Co.; NABCO, Inc.; Duncan Systems, Inc.; Flutes Inc.; OakRiver
Technology, Inc.; Overton's Holding Company.; Magnatech International Inc.;
Wellborn Forest Holding Co.; Bravo Sports Holding Corporation; Davis- Standard
LLC; F H S Holdings LLC; Fowler Holding, Inc.; Fuel Systems Holding Corporation;
H M Holding Company; K N B Holdings Corporation; Monessen Holding Corporation;
Morton Industrial Group, Inc.; Ontario Drive & Gear Ltd.; PAS Holdco LLC; P I I
Holding Corporation; Postle Aluminum Company LLC; R A J Manufacturing Holdings
LLC; Radiac Abrasives, Inc.; and Stanton Carpet Holding Co.
In addition, the Trust added to existing private placement investments in
Augusta Sportswear Holding Co.; A T I Acquisition Company; American Hospice
Management Holding LLC; River Ranch Fresh Foods LLC; Consolidated Foundries
Holdings; Eagle Pack Pet Foods, Inc.; MicroGroup, Inc.; and Terra Renewal
Services, Inc.
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MassMutual Participation Investors
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THE OUTLOOK FOR 2007
Optimism abounds at the beginning of 2007 based on events in the fourth quarter
of 2006, but history reminds us that there are no assurances a year will finish
as it starts. Consumer confidence remains strong, and there are indications that
the housing market may be through the worst of the downturn that started in
2006. Oil prices fell precipitously at the end of 2006 after significant
increases in 2004 and 2005. The Fed indicates that it is on hold with interest
rates for the time being, and the corporate debt market appears in good shape.
However, Treasury bond activity is sending mixed signals, the dollar continues
to drop, 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.
Regarding mergers and acquisitions (M&A), there are strong indications that the
record M&Aactivity of 2006 around the globe could continue into 2007. Last year
was the world's most active M&A environment ever, with $3.79 trillion in
announced deals worldwide, up 38 percent from 2005, according to Thomson
Financial. Private equity firms had a larger than ever role last year, taking
part in 20 percent of these deals, and it is estimated that these firms still
have some $750 billion in capital ready to go to work. Buyout firms also appear
more willing than most corporations to use debt financing, and the current good
health of credit markets may allow buyout firms to push the M&A boom further.
Regardless of the economic environment, however, the Trust continues to
repeatedly employ the investment philosophy that has served it well since its
inception: investing in companies which we believe have a strong business
proposition, solid cash flow and experienced, ethical management. This
philosophy, combined with Babson Capital's seasoned investment management team
and the Trust's financial position, contribute to the Trust being well
positioned for future investment opportunities that meet its investment
objectives and policies. As always, I would like to thank you for your continued
interest in and support of MassMutual Participation Investors.
Sincerely,
/s/ Clifford M. Noreen
--------------------------
Clifford M. Noreen,
PRESIDENT
CAUTIONARY NOTICE: CERTAIN STATEMENTS CONTAINED IN THIS REPORT TO SHAREHOLDERS
MAY BE "FORWARD LOOKING" STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION ACT OF 1995. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE FORECASTED.
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2006 Record Net Investment Short-Term Tax
Dividends Date Income Gains Effect
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Regular 05/02/06 $0.2400 --
07/28/06 0.2400 --
10/30/06 0.2400 --
12/29/06 0.2400 --
Special 12/29/06 0.2200 0.0100
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$1.1800 $0.0100 $1.1900
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The following table summarizes the tax effects of the retention of capital gains
for 2006:
Amount Per Share Form 2439
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2006 Gains Retained 0.9928 Line 1a
Long-Term Gains Retained 0.9928
Taxes Paid 0.3475 Line 2*
Basis Adjustment 0.6453 **
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* 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
---------------------------------------------------------------------------------------------------------------
$1.19 14.4857% 0.1713 14.4871% 0.1714 0.0000% 0.0000
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*** NOT AVAILABLE TO INDIVIDUAL SHAREHOLDERS
****QUALIFIED DIVIDENDS ARE REPORTED IN BOX 1B ON IRS FORM 1099-DIV FOR 2006
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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 Participation Investors
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CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS:
Investments
(See Consolidated Schedule of Investments)
Corporate restricted securities at fair value
(Cost - $97,784,691) $ 99,625,434
Corporate public securities at market value
(Cost - $34,528,692) 35,218,236
Short-term securities at amortized cost 6,854,407
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141,698,077
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Cash 2,643,735
Interest and dividends receivable 3,000,826
Receivable for investments sold 256,492
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TOTAL ASSETS 147,599,130
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LIABILITIES:
Dividend payable 4,608,487
Investment advisory fee payable 284,659
Note payable 12,000,000
Interest payable 88,933
Accrued expenses 142,737
Accrued taxes payable 3,959,301
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TOTAL LIABILITIES 21,084,117
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TOTAL NET ASSETS $ 126,515,013
=============
NET ASSETS:
Common shares, par value $.01 per share; an unlimited
number authorized $ 98,053
Additional paid-in capital 90,947,008
Retained net realized gain on investments, prior years 25,860,275
Undistributed net investment income 1,028,648
Accumulated net realized gain on investments 6,434,968
Net unrealized appreciation of investments 2,146,061
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TOTAL NET ASSETS $ 126,515,013
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COMMON SHARES ISSUED AND OUTSTANDING 9,805,282
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NET ASSET VALUE PER SHARE $ 12.90
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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MassMutual Participation Investors
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CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME:
Interest $ 11,954,924
Dividends 787,336
Other 205,254
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TOTAL INVESTMENT INCOME 12,947,514
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EXPENSES:
Investment advisory fees 1,159,175
Interest 733,292
Trustees' fees and expenses 128,000
Professional fees 83,604
Reports to shareholders 65,000
Custodian fees 27,500
Transfer agent/registrar's expenses 14,400
Other 54,890
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TOTAL EXPENSES 2,265,861
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Fees paid indirectly (see Footnote 2.F) (47,009)
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NET EXPENSES 2,218,852
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INVESTMENT INCOME - NET 10,728,662
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments before taxes 10,368,862
Income tax expense (3,635,746)
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Net realized gain on investments 6,733,116
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Net change in unrealized appreciation of investments before taxes 1,023,375
Net change in deferred income tax expense (208,811)
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Net change in unrealized appreciation of investments 814,564
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NET GAIN ON INVESTMENTS 7,547,680
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,276,342
=============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006
NET DECREASE IN CASH:
Cash flows from operating activities:
Interest, dividends and other received $ 11,530,240
Interest expense paid (733,292)
Operating expenses paid (1,526,054)
Income taxes paid (3,599,198)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 5,671,696
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Cash flows from investing activities:
Purchases/Proceeds/Maturities from short-term portfolio
securities, net 8,044,134
Purchases of portfolio securities (48,350,275)
Proceeds from disposition of portfolio securities 43,509,939
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NET CASH PROVIDED BY INVESTING ACTIVITIES 3,203,798
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NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES 8,875,494
=============
Cash flows from financing activities:
Cash dividends paid from net investment income (9,865,614)
Receipts for shares issued on reinvestment of dividends 867,979
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NET CASH USED FOR FINANCING ACTIVITIES (8,997,635)
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NET DECREASE IN CASH (122,141)
Cash - beginning of year 2,765,876
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CASH - END OF YEAR $ 2,643,735
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS TO NET CASH
PROVIDED BY OPERATING AND INVESTING ACTIVITIES:
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,276,342
-------------
Increase in investments (9,278,181)
Increase in interest and dividends receivable (556,307)
Decrease in receivable for investments sold 228,775
Decrease in other assets 12,780
Increase in investment advisory fee payable 16,866
Decrease in accrued expenses (70,140)
Increase in accrued taxes payable 245,359
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TOTAL ADJUSTMENTS TO NET ASSETS FROM OPERATIONS (9,400,848)
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NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES $ 8,875,494
=============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 2005
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
Operations:
Investment income - net $ 10,728,662 $ 9,643,282
Net realized gain on investments 6,733,116 8,306,079
Net change in unrealized appreciation
(depreciation) of investments 814,564 2,350,516
------------ ------------
Net increase in net assets resulting from
operations 18,276,342 20,299,877
------------ ------------
Increase from common shares issued on reinvestment
of dividends Common shares issued (2006 - 61,052;
2005 - 71,671) 867,979 927,722
Dividends to shareholders from:
Net investment income (2006 - $1.18 per share;
2005 - $1.01 per share) (11,551,712) (9,818,640)
Net realized gains on investments
(2006 - $.01 per share) (96,562) --
------------ ------------
TOTAL INCREASE IN NET ASSETS 7,496,047 11,408,959
------------ ------------
NET ASSETS, BEGINNING OF YEAR 119,018,966 107,610,007
------------ ------------
NET ASSETS, END OF YEAR (INCLUDING UNDISTRIBUTED NET
INVESTMENT INCOME OF $1,028,648 AND $923,836,
RESPECTIVELY) $126,515,013 $119,018,966
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding:
For the years ended December 31, 2006 2005 2004 2003 2002
-----------------------------------------------------------------------------------------------------
NET ASSET VALUE: BEGINNING OF YEAR $ 12.21 $ 11.13 $ 9.84 $ 8.78 $ 9.12
---------- ---------- ---------- ---------- ----------
Net investment income(a) 1.10 0.99 1.00 0.80 0.87
Net realized and unrealized
gain (loss) on investments 0.77 1.09 1.36 1.21 (0.35)
Total from investment operations 1.87 2.08 2.36 2.01 0.52
---------- ---------- ---------- ---------- ----------
Dividends from net investment
income to common shareholders (1.18) (1.01) (1.10) (0.96) (0.86)
Dividends from net realized gain
on investments to common shareholders (0.01) -- -- -- --
Increase from dividends reinvested 0.01 0.01 0.03 0.01 --
Total dividends (1.18) (1.00) (1.07) (0.95) (0.86)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE: END OF YEAR $ 12.90 $ 12.21 $ 11.13 $ 9.84 $ 8.78
---------- ---------- ---------- ---------- ----------
PER SHARE MARKET VALUE: END OF YEAR $ 14.70 $ 14.05 $ 13.31 $ 11.65 $ 9.40
========== ========== ========== ========== ==========
Total investment return
Market value 16.81% 17.25% 25.77% 35.50% 12.58%
Net asset value(c) 18.64% 22.51% 25.14% 23.72% 5.70%
Net assets (in millions):
End of year $ 126.52 $ 119.02 $ 107.61 $ 94.40 $ 83.59
Ratio of operating expenses
to average net assets 1.17% 1.45% 1.63% 1.65% 1.27%
Ratio of interest expense
to average net assets 0.57% 0.80% 0.89% 0.97% 1.08%
Ratio of total expenses before custodian
reduction to average net assets 1.78% 2.28% 2.52% 2.62% 2.35%
Ratio of net expenses after custodian
reduction to average net assets 1.74% 2.25% 2.52% 2.62% 2.35%
Ratio of net investment income
to average net assets 8.43% 8.45% 9.60% 8.55% 9.42%
Portfolio turnover 34.14% 31.50% 51.25% 55.08% 35.32%
(A) CALCULATED USING AVERAGE SHARES.
(B) AMOUNT INCLUDES $0.10 PER SHARE IN LITIGATION PROCEEDS.
(C) 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.
Senior securities:
Total principal amount (in millions) $ 12 $ 12 $ 22.5 $ 22.5 $ 22.5
Asset coverage per $1,000 of indebtedness $ 11,543 $ 10,918 $ 5,783 $ 5,195 $ 4,715
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 12
12
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities - 78.75%:(A) Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
Private Placement Investments - 73.90%
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 $ 1,058,908
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share (B) 1,230 shs. 04/08/04 -- 12
Warrant, exercisable until 2012, to purchase
preferred stock at $.01 per share (B) 33,505 shs. 03/23/06 33,860 335
------------- -------------
1,158,860 1,059,255
------------- -------------
ADORN, INC.
A manufacturer of wall panels, cabinets, moldings and countertops for houses and recreational vehicles.
12.5% Subordinated Note due 2012 $ 775,862 02/29/00 734,067 775,862
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share 192 shs. 02/29/00 162,931 324,694
------------- -------------
896,998 1,100,556
------------- -------------
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 04/08/05 553,180 595,000
Limited Partnership Interest (B) 0.19% int. 04/07/05 41,667 87,507
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 66 shs. 04/08/05 64,833 138,810
------------- -------------
659,680 821,317
------------- -------------
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 1,029,447 1,145,170
Preferred Class A Unit (B) 1,706 uts. * 170,600 170,600
Common Class B Unit 16,100 uts. 01/22/04 1 18,315
Common Class D Unit (B) 3,690 uts. 09/12/06 -- 4,198
------------- -------------
*01/22/04 AND 09/12/06. 1,200,048 1,338,283
------------- -------------
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 05/18/05 811,574 872,505
Common Stock (B) 263 shs. 05/18/05 263,298 268,416
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 69 shs. 05/18/05 59,362 70,371
------------- -------------
1,134,234 1,211,292
------------- -------------
AUGUSTA SPORTSWEAR HOLDING CO.
A manufacturer and distributor of athletic apparel, activewear and team uniforms.
12% Senior Subordinated Note due 2012 $ 893,000 12/31/04 839,870 922,706
Common Stock (B) 275 shs. ** 275,108 494,950
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 73 shs. 12/31/04 63,254 130,956
------------- -------------
**12/31/04, 03/31/05 AND 05/02/06. 1,178,232 1,548,612
------------- -------------
13
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
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 --
------------- -------------
BRAVO SPORTS HOLDING CORPORATION
A designer and marketer of niche branded consumer products including canopies, trampolines, in-line skates, skateboards,
and urethane wheels.
12.5% Senior Subordinated Note due 2014 $ 1,207,902 06/30/06 1,136,740 1,176,705
Preferred Stock Class A (B) 465 shs. 06/30/06 141,946 134,850
Common Stock (B) 1 sh. 06/30/06 152 145
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 164 shs. 06/30/06 48,760 2
------------- -------------
1,327,598 1,311,702
------------- -------------
CAINS FOODS, L.P.
A producer of mayonnaise and sauce products for both the retail and food service markets.
Limited Partnership Interest 1.81% int. 09/29/95 22,519 63,647
------------- -------------
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 27,704
------------- -------------
*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 $ 264,493 04/30/03 264,493 268,940
11.5% Senior Subordinated Note due 2011 $ 242,754 04/30/03 227,143 245,122
Common Stock (B) 72,464 shs. 04/30/03 72,463 142,827
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 50,099 shs. 04/30/03 23,317 98,745
------------- -------------
587,416 755,634
------------- -------------
COINING CORPORATION OF AMERICA LLC
A manufacturer of close tolerance parts and metal stampings.
10.62% Senior Secured Revolving
Credit Facility due 2007 (C) $ 24,691 01/07/02 24,691 24,593
10.62% Senior Secured Tranche A Note due 2007 (C) $ 403,358 06/26/01 403,358 400,429
13% Senior Secured Tranche B Note due 2008 $ 370,370 06/26/01 370,370 373,488
Limited Partnership Interest (B) 3.65% int. 06/26/01 185,185 941,666
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 61,163 shs. 06/26/01 45,370 311,015
------------- -------------
1,028,974 2,051,191
------------- -------------
14
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair 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 (D) $ 1,059,417 * $ 974,588 $ 953,475
Limited Partnership Interest (B) 4.43% int. ** 103,135 1,031
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. 1,162,552 954,507
------------- -------------
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 1,110,419 1,166,892
Common Stock (B) 269 shs. *** 278,521 242,388
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 54 shs. 06/15/05 53,295 1
------------- -------------
***06/15/05 AND 05/22/06. 1,442,235 1,409,281
------------- -------------
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 1,284,609 1,363,500
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 10 shs. 08/04/05 72,617 35,827
------------- -------------
1,357,226 1,399,327
------------- -------------
DAVIS-STANDARD LLC
A manufacturer, assembler, and installer of a broad range of capital equipment that is used in the extrusion, conversion,
and processing of plastic materials.
12% Senior Subordinated Note due 2014 $ 978,261 10/30/06 914,798 963,283
Limited Partnership Interest (B) 371,739 uts. 10/30/06 371,739 353,152
Warrant, exercisable until 2014, to purchase
preferred stock at $.01 per share (B) 26 shs. 10/30/06 26,380 --
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 18 shs. 10/30/06 18,000 --
------------- -------------
1,330,917 1,316,435
------------- -------------
DEXTER MAGNETICS TECHNOLOGIES, INC.
A designer, fabricator, assembler and distributor of industrial magnets and subassemblies in North America and Europe.
Common Stock 310 shs. 07/19/01 185,869 426,449
Warrant, exercisable until 2007, to purchase
common stock at $.01 per share 157 shs. 07/19/01 69,872 216,143
------------- -------------
255,741 642,592
------------- -------------
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 1,306,847
Common Stock (B) 68,301 shs. 06/17/06 942,350 782,046
Limited Partnership Interest (B) 4.61% int. **** -- 188,164
------------- -------------
****12/22/99 AND 09/14/05. 982,868 2,277,057
------------- -------------
15
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
DIVERSCO, INC./DHI HOLDINGS, INC.
A contract provider of janitorial and equipment maintenance services and temporary production labor to industrial customers.
Membership Interests of MM/Lincap
Diversco Investments Ltd. LLC (B) 13.57% int. 08/27/98 $ 366,495 $ --
Preferred Stock (B) 1,639 shs. 12/14/01 1,392,067 696,032
Warrants, exercisable until 2011, to purchase
common stock of DHI Holdings, Inc. at $.01 per share (B) 6,676 shs. * 201,655 --
------------- -------------
*10/24/96 AND 08/28/98. 1,960,217 696,032
------------- -------------
DUNCAN SYSTEMS, INC.
A distributor of windshields and side glass for the recreational vehicle market.
10% Senior Secured Term Note due 2013 $ 308,571 11/01/06 303,942 302,750
13% Senior Subordinated Note due 2014 $ 488,572 11/01/06 434,739 478,071
Common Stock (B) 102,857 shs. 11/01/06 102,857 97,714
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 32,294 shs. 11/01/06 44,663 323
------------- -------------
886,201 878,858
------------- -------------
DWYER GROUP, INC.
A franchiser of a variety of home repair services.
Common Stock (B) 3,656 shs. ** 365,600 380,224
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 1,077 shs. 10/30/03 98,719 111,967
------------- -------------
**10/30/03 AND 01/02/04. 464,319 492,191
------------- -------------
E X C ACQUISITION CORPORATION
A manufacturer of pre-filled syringes and pump systems used for intravenous drug delivery.
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 11 shs. 06/28/04 40,875 72,676
------------- -------------
EAGLE PACK PET FOODS, INC.
A manufacturer of premium pet food sold through independent pet stores.
12% Senior Subordinated Note due 2011 $ 803,572 *** 783,149 811,608
Warrant, exercisable until 2011, to purchase
common stock at $.02 per share 2,163 shs. 09/24/04 20,893 45,273
------------- -------------
***09/24/04 AND 4/20/06. 804,042 856,881
------------- -------------
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 33,750
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 15,415 shs. 03/30/00 135,000 22,500
------------- -------------
416,250 56,250
------------- -------------
EVANS CONSOLES, INC.
A designer and manufacturer of consoles and control center systems
Common Stock (B) 45,000 shs. 05/06/04 6 --
F H S HOLDINGS LLC
A national provider of customized disease management services to large self-insured employers.
12% Senior Subordinated Note due 2014 $ 1,265,625 06/01/06 1,178,426 1,285,097
Preferred Unit (B) 84 uts. 06/01/06 83,530 75,177
Common Unit (B) 844 uts. 06/01/06 844 759
Common Unit Class B (B) 734 shs. 06/01/06 64,779 58,301
------------- -------------
1,327,579 1,419,334
------------- -------------
16
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
FLUTES, INC.
An independent manufacturer of micro fluted corrugated sheet material for the food and consumer products packaging industries.
10% Senior Secured Term Note due 2013 $ 524,791 04/13/06 $ 516,919 $ 528,418
14% Senior Subordinated Note due 2014 $ 315,599 04/13/06 282,970 318,158
Common Stock (B) 62,535 shs. 04/13/06 62,535 56,282
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 17,680 shs. 04/13/06 27,676 177
------------- -------------
890,100 903,035
------------- -------------
FOWLER HOLDING, INC.
Aprovider of site development services to residential homebuilders and developers in the
Raleigh/Durham region of North Carolina.
12% Senior Subordinated Note due 2013 $ 1,252,174 02/03/06 1,131,875 1,235,862
Common Stock (B) 98 shs. 02/03/06 97,826 88,047
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 135 shs. 02/03/06 110,348 1
------------- -------------
1,340,049 1,323,910
------------- -------------
FUEL SYSTEMS HOLDING CORPORATION
An independent North American supplier of fuel tanks for a wide variety of commercial vehicles.
12% Senior Subordinated Note due 2014 $ 1,237,500 01/31/06 1,153,828 1,258,023
Common Stock (B) 112,500 shs. 01/31/06 112,500 101,250
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 73,275 shs. 01/31/06 63,113 733
------------- -------------
1,329,441 1,360,006
------------- -------------
H M HOLDING COMPANY
A designer, manufacturer, and importer of promotional and wood furniture.
12% Senior Subordinated Note due 2013 $ 1,170,000 02/10/06 1,088,439 1,133,764
Common Stock (B) 180 shs. 02/10/06 180,000 144,000
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 67 shs. 02/10/06 61,875 1
------------- -------------
1,330,314 1,277,765
------------- -------------
HIGHGATE CAPITAL LLC
An acquirer of controlling or substantial interests in manufacturing and marketing entities.
Series A Preferred Units (B) 0.30% int. 07/21/94 91,867 --
HOME DECOR HOLDING COMPANY
A designer, manufacturer and marketer of framed art and wall decor products.
12.5% Senior Subordinated Note due 2012 $ 1,081,731 * 993,714 1,105,240
Common Stock (B) 33 shs. * 33,216 44,369
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share (B) 106 shs. * 105,618 141,066
------------- -------------
*06/30/04 AND 08/19/04. 1,132,548 1,290,675
------------- -------------
INTEGRATION TECHNOLOGY SYSTEMS, INC.
A manufacturer of steel protective computer and network systems for the industrial and office environments.
12% Senior Secured Note due 2007 $ 949,004 03/01/04 938,546 711,753
Common Stock (B) 130 shs. 06/01/00 149,500 --
------------- -------------
1,088,046 711,753
------------- -------------
17
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
ITC^DELTACOM, INC.
A provider of integrated communications services in the southeastern United States.
13.88% Senior Secured Note due 2009 (C) $ 1,184,808 07/26/05 $ 1,161,309 $ 1,187,637
17.38% Senior Secured Note due 2009 (C) $ 192,284 07/26/05 169,489 192,200
Warrant, exercisable until 2009, to purchase
convertible preferred stock at $.01 per share (B) 54,468 shs. 07/26/05 18,156 138,349
------------- -------------
1,348,954 1,518,186
------------- -------------
JASON, INC.
A diversified manufacturing company serving various industrial markets.
13% Senior Subordinated Note due 2008 $ 510,187 08/04/00 489,272 505,085
14% Cumulative Redeemable Preferred Stock Series A (B) 153 shs. 08/04/00 153,119 148,525
Limited Partnership Interest of
Saw Mill Capital Fund II, L.P. (B) 1.30% int. 08/03/00 469,245 375,461
Warrants, exercisable until 2008 and 2009, to purchase
common stock at $.01 per share (B) 26,931 shs. 08/04/00 61,101 21,544
------------- -------------
1,172,737 1,050,615
------------- -------------
JUSTRITE MANUFACTURING ACQUISITION CO.
A manufacturer of safety products such as storage cabinets and containers.
12% Senior Subordinated Note due 2011 $ 843,750 12/15/04 800,394 852,188
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 594 shs. 12/15/04 53,528 41,672
------------- -------------
853,922 893,860
------------- -------------
K N B HOLDINGS CORPORATION
A designer, manufacturer and marketer of products for the custom framing market.
13.5% Senior Subordinated Note due 2013 $ 1,285,669 05/25/06 1,224,165 1,282,434
Common Stock (B) 71,053 shs. 05/25/06 71,053 63,948
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 43,600 shs. 05/25/06 37,871 436
------------- -------------
1,333,089 1,346,818
------------- -------------
KEEPSAKE QUILTING, INC.
A seller of quilting fabrics, books, patterns, kits and notions to consumers.
8.87% Senior Secured Revolving Note due 2007 (C) $ 62,902 06/16/00 62,902 63,165
8.87% Senior Secured Tranche A Note due 2007 (C) $ 78,627 07/19/00 78,627 78,279
12% Senior Secured Tranche B Note due 2008 $ 314,509 06/16/00 307,577 316,523
Limited Partnership Interest of
Riverside XVI Holding Company, L.P. (B) 3.02% int. 06/12/00 190,563 184,682
Warrant, exercisable until 2008, to purchase
common stock at $.01 per share (B) 633 shs. 06/12/00 26,209 61,908
------------- -------------
665,878 704,557
------------- -------------
KELE AND ASSOCIATES, INC.
A distributor of building automation control products.
12% Senior Subordinated Note due 2012 $ 969,643 02/27/04 897,914 998,732
Preferred Stock (B) 12 shs. 11/24/04 237,794 241,915
Common Stock (B) 6 shs. 02/27/04 6,814 125,367
Warrant, exercisable until 2012, to purchase
common stock at $.02 per share (B) 6 shs. 02/27/04 4,124 114,661
------------- -------------
1,146,646 1,480,675
------------- -------------
KEYSTONE NORTH AMERICA, INC.
An operator of funeral homes in North America.
Common Stock 28,577 shs. 02/08/05 137,444 146,086
------------- -------------
18
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
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 * $ 1,913,294 $ 1,730,600
Common Stock (B) 3,057 shs. * 213,998 3,363
Warrant, exercisable until 2008, to purchase
common stock at $.11 per share (B) 8,245 shs. * 318,838 --
------------- -------------
*12/23/98 AND 01/28/99. 2,446,130 1,733,963
------------- -------------
MAGNATECH INTERNATIONAL, INC.
A supplier of process equipment and related parts used in the manufacturing of medium and high-pressure reinforced hoses.
12% Senior Subordinated Note due 2014 $ 675,000 04/05/06 628,522 681,138
13% Preferred Stock (B) 299 shs. 04/05/06 299,295 284,335
Common Stock (B) 66 shs. 04/05/06 66,202 62,890
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 7 shs. 04/05/06 6,832 --
------------- -------------
1,000,851 1,028,363
------------- -------------
MAVERICK ACQUISITION COMPANY
A manufacturer of capsules that cover the cork and neck of wine bottles.
9.87% Senior Secured Tranche A Note due 2010 (C) $ 382,783 09/03/04 382,783 384,625
12% Senior Secured Tranche B Note due 2011 $ 179,104 09/03/04 161,544 180,060
Limited Partnership Interest (B) 4.48% int. 09/03/04 33,582 30,722
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 243 shs. 09/03/04 22,556 22,198
------------- -------------
600,465 617,605
------------- -------------
MAXON CORPORATION
A manufacturer of industrial combustion equipment and related shut-off valves and control valves.
12% Senior Subordinated Note due 2012 $ 549,837 09/30/04 507,885 566,089
8.75% Senior Subordinated Note due 2012 $ 660,322 09/30/04 660,322 680,840
Common Stock (B) 218,099 shs. 09/30/04 218,099 480,908
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 87,755 shs. 09/30/04 51,941 193,500
------------- -------------
1,438,247 1,921,337
------------- -------------
MEDASSIST, INC.
A provider of patient eligibility and accounts receivable management services to hospitals and physician practices.
8% Preferred Stock (B) 44 shs. 10/28/04 44,289 44,646
Common Stock (B) 13,863 shs. 10/28/04 18,576 43,432
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 47,090 shs. 05/01/03 21,534 147,537
------------- -------------
84,399 235,615
------------- -------------
MICROGROUP, INC.
A manufacturer of precision parts and assemblies, and a value-added supplier of metal tubing and bars.
12% Senior Subordinated Note due 2013 $ 1,421,795 ** 1,337,558 1,447,925
Common Stock (B) 238 shs. ** 238,000 435,673
Warrant, exercisable until 2013, to purchase
common stock at $.02 per share (B) 87 shs. ** 86,281 158,911
------------- -------------
**08/12/05 AND 09/11/06. 1,661,839 2,042,509
------------- -------------
19
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
MOMENTUM HOLDING CO.
A designer and supplier of upholstery fabric to commercial furniture manufacturers and architectural and design firms.
12% Senior Subordinated Note due 2014 $ 618,802 08/04/06 $ 551,243 $ 626,742
Limited Partnership Interest (B) 56,198 uts. 08/04/06 56,198 50,578
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 586 shs. 08/04/06 56,705 6
------------- -------------
664,146 677,326
------------- -------------
MONESSEN HOLDING CORPORATION
A designer and manufacturer of a broad line of gas, wood and electric hearth products and accessories.
12% Senior Subordinated Note due 2014 $ 1,350,000 03/31/06 1,253,658 1,284,120
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 81 shs. 03/31/06 73,125 1
------------- -------------
1,326,783 1,284,121
------------- -------------
MORTON INDUSTRIAL GROUP, INC.
A manufacturer of highly engineered metal fabricated components.
12% Senior Subordinated Note due 2014 $ 1,292,246 08/25/06 1,188,781 1,313,626
Common Stock (B) 57,754 shs. 08/25/06 57,754 51,979
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 91,923 shs. 08/25/06 79,380 919
------------- -------------
1,325,915 1,366,524
------------- -------------
MOSS, INC.
A manufacturer and distributor of large display and exhibit structures.
9.37% Senior Secured Revolving Note due 2010 (C) $ 94,118 07/03/06 94,118 94,923
9.37% Senior Secured Tranche A Note due 2010 (C) $ 529,412 12/21/05 524,118 532,217
12% Senior Secured Tranche B Note due 2010 $ 200,000 12/21/05 177,059 202,571
Limited Partnership Interest of
Riverside Capital Appreciation Fund I, L.P. (B) 19.20% int. * 29 68,849
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 122 shs. 12/21/05 20,941 11,925
------------- -------------
*09/20/00 AND 05/23/02. 816,265 910,485
------------- -------------
NABCO, INC.
A producer of explosive containment vessels in the United States.
12% Senior Subordinated Note due 2014 $ 330,882 02/24/06 305,770 323,659
Limited Partnership Interest (B) 344 uts. 02/24/06 344,120 326,914
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 26 shs. 02/24/06 19,687 --
------------- -------------
669,577 650,573
------------- -------------
NEFF MOTIVATION, INC.
A manufacturer and distributor of customized awards and sportswear to schools.
12.5% Senior Subordinated Note due 2011 $ 562,500 01/31/03 497,912 573,750
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 112 shs. 01/31/03 95,625 159,856
------------- -------------
593,537 733,606
------------- -------------
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 03/29/04 982,661 993,037
10% Preferred Stock (B) 135 shs. 03/29/04 135,044 135,691
Common Stock (B) 3,418 shs. 03/29/04 3,418 38,053
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 4,565 shs. 03/29/04 3,877 50,818
------------- -------------
1,125,000 1,217,599
------------- -------------
20
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
NYLONCRAFT, INC.
A supplier of engineered plastic components for the automotive industry.
9% Senior Secured Note due 2009 $ 464,286 01/28/02 $ 464,286 $ 441,072
11.5% Senior Subordinated Note due 2012 $ 857,143 01/28/02 798,500 428,572
Common Stock (B) 178,571 shs. 01/28/02 178,571 --
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 138,928 shs. 01/28/02 92,597 --
------------- -------------
1,533,954 869,644
------------- -------------
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 1,182,417 1,281,275
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
------------- -------------
1,328,557 1,366,266
------------- -------------
OAKRIVER TECHNOLOGY, INC.
Designs, engineers and assembles high precision automated process equipment for the medical device industry, with a focus on
defibrillators and stents.
10% Senior Secured Note due 2012 $ 323,115 01/03/06 318,268 321,624
13% Senior Subordinated Note due 2013 $ 392,709 01/03/06 351,682 391,024
Common Stock (B) 184,176 shs. 01/03/06 184,176 165,758
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 43,073 shs. 01/03/06 35,900 431
------------- -------------
890,026 878,837
------------- -------------
OLYMPIC SALES, INC.
A boat retailer in Washington state, Oregon, California and British Columbia.
12% Senior Subordinated Note due 2008 $ 803,000 08/07/98 803,000 776,556
12% Senior Subordinated Note due 2008 $ 244,154 02/09/00 239,963 240,907
Limited Partnership Interest of Riverside VIII, VIII-A and
VIII-B Holding Company, L.P. 10.66% int. * 808,386 808,347
Warrants, exercisable until 2007 and 2008, to purchase
common stock at $.01 per share (B) 15,166 shs. ** 206,041 204,198
------------- -------------
*08/07/98, 02/23/99, 12/22/99 AND 02/25/03. **08/07/98 AND 02/29/00. 2,057,390 2,030,008
------------- -------------
ONTARIO DRIVE & GEAR LTD.
A manufacturer of all-wheel drive, off-road amphibious vehicles and related accessories.
13% Senior Subordinated Note due 2013 $ 1,047,115 01/17/06 944,412 1,051,993
Limited Partnership Interest (B) 1,942 uts. 01/17/06 302,885 272,597
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 328 shs. 01/17/06 90,424 3
------------- -------------
1,337,721 1,324,593
------------- -------------
OVERTON'S HOLDING COMPANY
A marketer of marine and water sports accessories in the United States.
12% Senior Subordinated Note due 2014 $ 962,104 04/28/06 900,817 965,315
Common Stock (B) 50 shs. 04/28/06 50,000 45,000
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 49 shs. 04/28/06 44,322 --
------------- -------------
995,139 1,010,315
------------- -------------
21
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
P A S HOLDCO LLC
An independent provider of maintenance, repair and overhaul services to the aerospace gas turbine engine and airframe markets.
14% Senior Subordinated Note due 2014 $ 1,153,231 07/03/06 $ 1,094,990 $ 1,152,181
Preferred Unit (B) 202 uts. 07/03/06 202,320 192,204
Preferred Unit (B) 36 uts. 07/03/06 36,420 34,599
Common Unit Class I (B) 78 uts. 07/03/06 -- 1
Common Unit Class L (B) 17 uts. 07/03/06 -- --
------------- -------------
1,333,730 1,378,985
------------- -------------
P I I HOLDING CORPORATION
A manufacturer of plastic film and bags for the general industrial, medical, and food industries.
12% Senior Subordinated Note due 2013 $ 1,215,000 03/31/06 1,136,027 1,216,049
Preferred Stock (B) 19 shs. 03/31/06 174,492 165,788
Common Stock (B) 12 shs. 03/31/06 13,500 12,150
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 7 shs. 03/31/06 5,888 --
------------- -------------
1,329,907 1,393,987
------------- -------------
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 1,073,876 1,116,048
Membership Interests of MM/Lincap
PPI Investments, Inc., LLC (B) 1.28% int. 12/21/00 140,625 148,258
------------- -------------
1,214,501 1,264,306
------------- -------------
POSTLE ALUMINUM COMPANY LLC
A manufacturer and distributor of aluminum extruded products.
12% Senior Subordinated Note due 2014 $ 1,080,000 10/02/06 998,951 1,074,663
Limited Partnership Interest (B) 733 uts. 10/02/06 270,000 256,499
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 182 shs. 10/02/06 65,988 2
------------- -------------
1,334,939 1,331,164
------------- -------------
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 05/28/04 785,250 947,784
Common Stock 187,500 shs. 05/28/04 187,500 216,000
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share 199,969 shs. 05/28/04 199,969 230,364
------------- -------------
1,172,719 1,394,148
------------- -------------
QUALSERV CORPORATION
A provider of foodservice equipment and supplies to major restaurant chains and their franchisees.
14% Senior Subordinated Note due 2012 (D) $ 1,002,475 07/09/04 976,254 --
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 --
------------- -------------
22
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
R A J MANUFACTURING HOLDINGS LLC
A designer and manufacturer of women's swimwear sold under a variety of licensed brand names.
12.5% Senior Subordinated Note due 2014 $ 1,200,277 12/15/06 $ 1,106,663 $ 1,175,644
Limited Partnership Interest (B) 1,497 uts. 12/15/06 149,723 142,237
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 2 shs. 12/15/06 69,609 --
------------- -------------
1,325,995 1,317,881
------------- -------------
RADIAC ABRASIVES, INC.
A manufacturer of bonded abrasive and super abrasive grinding wheels in the United States.
12% Senior Subordinated Note due 2014 $ 1,196,809 02/10/06 1,114,411 1,218,999
Common Stock (B) 153,191 shs. 02/10/06 153,191 137,872
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 69,647 shs. 02/10/06 63,421 696
------------- -------------
1,331,023 1,357,567
------------- -------------
RIVER RANCH FRESH FOODS LLC
A supplier of fresh produce to the retail and foodservice channels.
13% Senior Subordinated Note due 2011 (D) $ 975,000 09/29/04 891,404 780,000
Limited Partnership Interest (B) 21,500 uts. 09/29/04 150,000 --
18% Preferred Stock (B) 75,000 shs. 11/16/06 75,000 75,000
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 12,481 shs. 09/29/04 83,596 --
------------- -------------
1,200,000 855,000
------------- -------------
ROYAL BATHS MANUFACTURING COMPANY
A manufacturer and distributor of acrylic and cultured marble bathroom products.
12.5% Senior Subordinated Note due 2011 $ 562,500 11/14/03 514,735 573,750
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 74 shs. 11/14/03 65,089 92,853
------------- -------------
579,824 666,603
------------- -------------
SAFETY SPEED CUT MANUFACTURING COMPANY, INC
A manufacturer of vertical panel saws and routers for the wood working industry.
8.87% Senior Secured Tranche A Note due 2007 (C) $ 161,522 06/02/99 161,522 161,522
12% Senior Secured Tranche B Note due 2007 $ 646,089 06/02/99 646,089 646,089
Class B Common Stock (B) 846 shs. 06/02/99 146,456 602,800
------------- -------------
954,067 1,410,411
------------- -------------
SAVAGE SPORTS HOLDING, INC.
A manufacturer of sporting firearms.
12% Senior Subordinated Note due 2012 $ 814,655 09/10/04 765,149 821,280
Common Stock (B) 310 shs. 09/10/04 310,345 248,347
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 71 shs. 09/10/04 60,129 56,607
------------- -------------
1,135,623 1,126,234
------------- -------------
SPECIALTY FOODS GROUP, INC.
A manufacturer and distributor of branded meat products.
Limited Partnership Interest of MHD Holdings LLC 0.76% int. 08/29/00 363,576 --
------------- -------------
23
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
STANTON CARPET HOLDING CO.
A designer and marketer of high and mid-priced decorative carpets and rugs.
12.13% Senior Subordinated Note due 2014 $ 1,185,366 08/01/06 $ 1,113,468 $ 1,189,678
Common Stock (B) 165 shs. 08/01/06 164,634 148,167
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 55 shs. 08/01/06 49,390 1
------------- -------------
1,327,492 1,337,846
------------- -------------
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 33,462 7,465
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 45,942 shs. 08/21/03 10,249 10,249
------------- -------------
43,711 17,714
------------- -------------
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 1,008,884 1,197,387
Preferred Stock 701 shs. 10/14/05 70,078 72,254
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
------------- -------------
1,235,989 1,270,697
------------- -------------
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.
8.64% Senior Secured Tranche B Note due 2012 (C) $ 912,655 04/28/06 910,259 903,346
12% Senior Subordinated Note due 2014 $ 664,062 * 632,101 666,577
Limited Partnership Interest of
Saw Mill Capital Fund V, L.P . 2.30% int 03/01/05 123,281 110,955
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B) 41 shs. 04/28/06 34,627 --
------------- -------------
*04/28/06 and 09/13/06. 1,700,268 1,680,878
------------- -------------
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 1,285,366 1,356,000
Common Stock (B) 315 shs. 02/04/98 315,000 221,130
Warrant, exercisable until 2009, to purchase
common stock at $.01 per share (B) 222 shs. 02/05/98 184,416 155,844
------------- -------------
1,784,782 1,732,974
------------- -------------
TRANSTAR HOLDING COMPANY
A distributor of aftermarket automotive transmission parts
12% Senior Subordinated Note due 2013 $ 918,000 08/31/05 880,660 944,514
Common Stock (B) 432 shs. 08/31/05 432,000 410,400
Warrant, exercisable until 2013, to purchase
common stock at $.01 per share (B) 46 shs. 08/31/05 41,021 --
------------- -------------
1,353,681 1,354,914
------------- -------------
24
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair 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 $ 451,394 01/20/00 $ 451,394 $ 453,225
12% Senior Subordinated Note due 2010 $ 758,100 01/20/00 735,787 773,124
Common Stock (B) 129,960 shs. 01/20/00 129,960 329,838
Warrant, exercisable until 2010, to purchase
common stock at $1 per share (B) 148,911 shs. 01/20/00 56,316 377,936
------------- -------------
1,373,457 1,934,123
------------- -------------
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 * 1,141,888 1,266,483
Common Stock (B) 393 shs. * 423,985 966,671
Warrant, exercisable until 2013, to purchase
common stock at $.02 per share (B) 81 shs. * 84,650 199,634
------------- -------------
*07/19/05 AND 12/22/05. 1,650,523 2,432,788
------------- -------------
TRUSTILE DOORS, INC.
A manufacturer and distributor of interior doors.
12.5% Senior Subordinated Note due 2010 $ 562,500 04/11/03 532,625 573,654
Warrant, exercisable until 2010, to purchase
common stock at $.01 per share (B) 3,060 shs. 04/11/03 50,625 104,669
------------- -------------
583,250 678,323
------------- -------------
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 05/28/04 643,782 699,863
8.75% Senior Secured Note due 2011 $ 409,310 05/28/04 409,310 408,949
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
------------- -------------
1,513,061 1,437,425
------------- -------------
U S S HOLDINGS, INC.
A producer of high grade industrial and specialty silica sands.
14% Redeemable Preferred Stock (B) 499 shs. 09/30/99 272,912 466,871
Convertible Preferred Stock Series A and B, convertible
into common stock at $8.02 per share (B) 72,720 shs. 12/19/96 583,365 --
Common Stock (B) 10,013 shs. 09/30/99 399,505 --
Warrants, exercisable until 2010, to
purchase common stock at $.01 per share (B) 2,459 shs. ** 64,182 --
------------- -------------
**12/19/96 AND 09/30/99. 1,319,964 466,871
------------- -------------
U-LINE CORPORATION
A manufacturer of high-end, built-in, undercounter ice making, wine storage and refrigeration appliances.
12.5% Senior Subordinated Note due 2012 $ 996,500 04/30/04 907,638 996,500
Common Stock (B) 96 shs. 04/30/04 96,400 144,889
Warrant, exercisable until 2012, to purchase
common stock at $.01 per share (B) 122 shs. 04/30/04 112,106 183,366
------------- -------------
1,116,144 1,324,755
------------- -------------
25
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares, Units,
Warrants,
Ownership or Acquisition
Corporate Restricted Securities:(A) continued Principal Amount Date Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
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 $ --
------------- -------------
VITALITY FOODSERVICE, INC.
A non-carbonated beverage dispensing company focused on the foodservice industry.
13% Senior Subordinated Note due 2011 $ 999,153 09/24/04 921,681 899,238
Common Stock (B) 14,006 shs. * 140,064 112,048
Warrant, exercisable until 2011, to purchase
common stock at $.01 per share (B) 12,593 shs. 09/24/04 98,938 100,744
------------- -------------
*09/24/04 AND 12/22/06 1,160,683 1,112,030
------------- -------------
VITEX PACKAGING GROUP, INC.
A manufacturer of specialty packaging, primarily envelopes and tags used on tea bags.
12.5% Senior Subordinated Note due 2012 $ 900,000 07/19/04 785,152 825,750
Limited Partnership Interest Class A (B) 0.93% int. 07/19/04 219,375 186,469
Limited Partnership Interest Class B (B) 0.41% int. 07/19/04 96,848 82,321
------------- -------------
1,101,375 1,094,540
------------- -------------
WALLS INDUSTRIES, INC.
A provider of branded workwear and sporting goods apparel.
12.36% Senior Subordinated Lien Note due 2009 (C) $ 444,079 07/12/04 444,079 444,701
14% Senior Subordinated Note due 2012 $ 574,613 07/12/04 573,282 586,105
Limited Partnership Interest (B) 0.20% int. 07/12/04 19,737 390,425
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 2,133 shs. 07/12/04 1,500 42,198
------------- -------------
1,038,598 1,463,429
------------- -------------
WELLBORN FOREST HOLDING CO.
A manufacturer of semi-custom kitchen and bath cabinetry.
12.13% Senior Subordinated Note due 2014 $ 911,250 11/30/06 847,271 891,749
Common Stock (B) 101 shs. 11/30/06 101,250 96,188
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B) 51 shs. 11/30/06 45,790 1
------------- -------------
994,311 987,938
------------- -------------
TOTAL PRIVATE PLACEMENT INVESTMENTS $ 91,700,517 $ 93,493,887
------------- -------------
26
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares or
Interest Due Principal
Corporate Restricted Securities:(A) continued Rate Date Amount Cost Fair Value
---------------------------------------------------------------------------------------------------------------------------------
Rule 144A Securities - 4.85%: (A)
BONDS - 4.85%
A E S Corporation 8.750% 05/15/13 $ 425,000 $ 467,406 $ 455,281
A E S Corporation 9.000 05/15/15 175,000 175,000 188,125
Bombardier, Inc. 6.300 05/01/14 500,000 440,315 470,000
Charter Communications Op LLC 8.000 04/30/12 250,000 249,375 259,688
Douglas Dynamics LLC 7.750 01/15/12 325,000 326,610 305,500
G F S I, Inc. (C) 11.500 06/01/11 375,000 340,343 367,500
H C A, Inc. 9.250 11/15/16 500,000 508,733 535,625
Idearc, Inc. 8.000 11/15/16 300,000 300,000 304,500
Opti Canada, Inc. 8.250 12/15/14 200,000 200,000 205,500
Packaging Dynamics Corporation of America 10.000 05/01/16 850,000 859,989 850,000
Rental Service Corporation 9.500 12/01/14 500,000 507,435 516,250
Stewart & Stevenson LLC 10.000 07/15/14 600,000 613,244 630,000
T C W Lev Income Trust LP 8.410 11/30/07 330,002 330,002 277,564
Tenaska Alabama Partners LP 7.000 06/30/21 179,304 179,304 178,076
Titan International, Inc. 8.000 01/15/12 70,000 70,000 70,438
Tunica-Biloxi Gaming Authority 9.000 11/15/15 500,000 516,411 517,500
------------ ------------
TOTAL BONDS $ 6,084,167 6,131,547
------------ ------------
WARRANTS - 0.00%
Winsloew Furniture, Inc. (B) 700 $ 7 $ --
------------ ------------
TOTAL WARRANTS 7 --
------------ ------------
TOTAL RULE 144A SECURITIES 6,084,174 6,131,547
------------ ------------
TOTAL CORPORATE RESTRICTED SECURITIES $ 97,784,691 $ 99,625,434
------------ ------------
27
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Interest Due Principal
Corporate Public Securities-- 27.84%:(A) Rate Date Amount Cost Market Value
---------------------------------------------------------------------------------------------------------------------------------
BONDS - 26.58%
Allied Waste NA 7.875% 04/15/13 $ 500,000 $ 513,506 $ 515,625
Appleton Papers, Inc. 8.125 06/15/11 250,000 250,000 255,000
Argo Tech Corporation 9.250 06/01/11 425,000 425,000 459,000
Arrow Electronics, Inc. 7.000 01/15/07 500,000 500,579 500,197
Atlas Pipeline Partners 8.125 12/15/15 600,000 612,415 616,500
BCP Crystal US Holdings Corporation 9.625 06/15/14 355,000 355,000 392,275
Basic Energy Services 7.125 04/15/16 625,000 610,043 615,625
Blockbuster, Inc. (C) 9.000 09/01/12 275,000 276,316 266,063
Cablevision Systems Corporation 8.000 04/15/12 500,000 506,862 491,250
Cadmus Communications Corporation 8.375 06/15/14 500,000 497,375 497,500
Chemed Corporation 8.750 02/24/11 600,000 600,000 621,000
Chesapeake Energy Corporation 7.000 08/15/14 650,000 674,161 660,563
Cincinnati Bell, Inc. 8.375 01/15/14 550,000 503,750 565,125
Clayton Williams Energy, Inc. 7.750 08/01/13 575,000 557,000 530,438
Del Monte Corporation 8.625 12/15/12 200,000 200,000 211,000
Dominos Pizza, Inc. 8.250 07/01/11 109,000 108,213 112,951
Dynegy Holdings, Inc. 8.375 05/01/16 665,000 676,736 698,250
Edison Mission Energy 7.750 06/15/16 235,000 235,000 249,100
El Paso Corporation 7.875 06/15/12 250,000 263,663 268,125
Electronic Data Systems Corporation 7.125 10/15/09 500,000 503,903 521,252
Esterline Technologies 7.750 06/15/13 175,000 175,000 178,500
Exco Resources, Inc. 7.250 01/15/11 500,000 488,750 507,500
Ford Motor Credit Co. 7.375 10/28/09 750,000 748,125 751,598
Ford Motor Credit Co. 8.000 12/15/16 150,000 147,483 148,778
Gencorp, Inc. 9.500 08/15/13 130,000 130,000 137,800
Geo Sub Corporation 11.000 05/15/12 500,000 516,143 482,500
General Motors Acceptance Corporation 5.850 01/14/09 750,000 742,308 747,158
Goodyear Tire & Rubber Co. 7.857 08/15/11 350,000 327,250 351,750
Goodyear Tire & Rubber Co. 9.000 07/01/15 100,000 102,000 104,750
GulfMark Offshore, Inc. 7.750 07/15/14 300,000 298,725 306,000
Harrah's Operating Co. 6.500 06/01/16 450,000 399,000 402,908
Inergy LP 8.250 03/01/16 75,000 75,000 78,750
Intelsat Subsidiary Holding Company Ltd. (C) 10.484 01/15/12 475,000 479,353 479,156
Interline Brands, Inc. 8.125 06/15/14 150,000 148,925 154,125
Iron Mountain, Inc. 8.750 07/15/18 500,000 515,655 530,000
K 2, Inc. 7.375 07/01/14 150,000 150,528 151,500
Koppers, Inc. 9.875 10/15/13 170,000 170,000 184,875
Lazard LLC 7.125 05/15/15 375,000 374,704 388,431
Leucadia National Corporation 7.000 08/15/13 350,000 355,939 355,250
Liberty Media Corporation 5.700 05/15/13 500,000 475,805 471,069
Lodgenet Entertainment Corporation 9.500 06/15/13 375,000 375,000 404,063
M G M Mirage, Inc. 6.000 10/01/09 225,000 226,974 224,438
Mac-Gray Corporation 7.625 08/15/15 300,000 300,000 304,500
Majestic Star Casino LLC 9.500 10/15/10 250,000 250,000 262,500
Manitowoc Company, Inc. 7.125 11/01/13 100,000 100,000 101,000
Markwest Energy Operating Co. 6.875 11/01/14 550,000 532,750 530,750
28
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Interest Due Principal
Corporate Public Securities:(A) continued Rate Date Amount Cost Market Value
---------------------------------------------------------------------------------------------------------------------------------
BONDS, CONTINUED
Mediacom LLC 9.500% 01/15/13 $ 750,000 $ 745,553 $ 772,500
Metaldyne Corporation (C) 10.000 11/01/13 340,000 341,882 363,800
N R G Energy, Inc. 7.375 02/01/16 600,000 598,750 603,000
Nalco Co. 7.750 11/15/11 250,000 250,000 255,625
National Wine & Spirits, Inc. 10.125 01/15/09 25,000 25,233 25,000
Neiman Marcus Group, Inc. 10.375 10/15/15 600,000 600,000 667,500
Nextel Communications, Inc. 7.375 08/01/15 400,000 408,834 410,170
North American Energy Partners 8.750 12/01/11 200,000 200,000 201,000
Nova Chemicals Corporation (C) 8.502 11/15/13 215,000 215,000 215,000
NTLCable PLC 9.125 08/15/16 690,000 709,720 728,813
O E D Corp/Diamond Jo Company Guarantee 8.750 04/15/12 500,000 492,980 495,000
Offshore Logistics, Inc. 6.125 06/15/13 350,000 350,000 330,750
PQ Corporation 7.500 02/15/13 685,000 677,350 674,725
Pacific Energy Partners 7.125 06/15/14 250,000 251,860 256,553
Pacific Energy Partners 6.250 09/15/15 100,000 99,544 97,764
Petrohawk Energy Corporation 9.125 07/15/13 500,000 498,992 525,000
Pinnacle Foods Group 8.250 12/01/13 225,000 225,000 230,344
Pliant Corporation (C) 11.850 06/15/09 681,103 686,506 743,252
Primedia, Inc. 8.000 05/15/13 500,000 513,632 483,750
Quicksilver Resources, Inc 7.125 04/01/16 600,000 583,125 586,500
Rent-A-Center, Inc. 7.500 05/01/10 250,000 250,000 250,625
Rock-Tenn Co. 8.200 08/15/11 500,000 503,255 527,500
Rogers Wireless, Inc. 7.500 03/15/15 560,000 598,555 607,600
Service Corporation International (C) 7.000 06/15/17 500,000 495,015 506,250
Sheridan Acquisition Corporation 10.250 08/15/11 225,000 222,001 234,000
Sierra Pacific Resources 6.750 08/15/17 330,000 331,577 323,667
Tekni-Plex, Inc. 12.750 06/15/10 500,000 483,500 456,250
Tenet Healthcare Corporation 6.375 12/01/11 250,000 241,250 228,750
Tenet Healthcare Corporation 9.875 07/01/14 350,000 341,859 356,125
Tenneco, Inc. 8.625 11/15/14 500,000 501,250 510,000
Tennessee Gas Pipeline Co. 7.000 03/15/27 250,000 261,869 263,478
Texas Industries, Inc. 7.250 07/15/13 35,000 35,000 35,525
Triton PCS, Inc. 8.500 06/01/13 500,000 500,000 478,750
Tyco International Group SA 6.375 10/15/11 150,000 148,500 156,972
Unisys Corporation 8.000 10/15/12 90,000 90,000 88,988
United Components, Inc. 9.375 06/15/13 535,000 536,267 553,725
United Rentals, Inc. 7.750 11/15/13 325,000 325,000 326,217
Universal City Florida (C) 8.375 05/01/10 100,000 100,000 102,500
Universal City Florida (C) 10.121 05/01/10 100,000 100,000 103,250
Vought Aircraft Industries 8.000 07/15/11 650,000 648,706 625,625
Warner Music Group 7.375 04/15/14 125,000 125,000 123,750
Wornick Co. 10.875 07/15/11 350,000 350,000 313,250
------------ ------------
TOTAL BONDS $ 33,137,504 $ 33,625,331
------------ ------------
29
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Shares or
Interest Due Principal
Corporate Public Securities:(A)continued Rate Date Amount Cost Market Value
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 0.55%
Allegiant Travel Co. (B) 7,000 $ 126,000 $ 196,420
Distributed Energy Systems Corporation (B) 14,000 177,078 50,400
Heelys, Inc. (B) 5,000 105,000 160,550
Isilon Systems, Inc. (B) 500 6,500 13,800
Melco PBL Entertainment (B) 4,000 76,000 85,040
Nymex Holdings, Inc. (B) 1,500 88,500 186,015
Triana Solar Ltd (B) 200 3,700 3,780
------------ ------------
Total Common Stock 582,778 696,005
------------ ------------
CONVERTIBLE BONDS - 0.71%
Citadel Broadcasting Corporation 1.875% 02/15/11 $ 300,000 $ 232,875 $ 243,375
ICOS Corporation 2.000 07/01/23 375,000 298,125 367,969
Q L T, Inc. 3.000 09/15/23 305,000 277,410 285,556
------------ ------------
Total Convertible Bonds 808,410 896,900
------------ ------------
Total Corporate Public Securities $ 34,528,692 $ 35,218,236
------------ ------------
Interest Due Principal
Short-Term Securities: Rate/Yield Date Amount Cost Market Value
---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 5.41%
Cadbury Schweppes Finance plc 5.354% 01/02/07 $ 2,587,000 $ 2,585,847 $ 2,585,847
ConocoPhillips 5.354 01/03/07 2,000,000 1,998,811 1,998,811
Kraft Foods, Inc. 5.450 01/04/07 775,000 774,419 774,419
Whirlpool Corporation 5.375 01/02/07 1,496,000 1,495,330 1,495,330
------------ ------------
Total Short-Term Securities $ 6,854,407 $ 6,854,407
------------ ------------
Total Investments 112.00% $139,167,790 $141,698,077
------ ============ ------------
Other Assets 4.66 5,901,053
Liabilities (16.66) (21,084,117)
------ ------------
Total Net Assets 100.00% $126,515,013
====== ============
(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 12/31/06.
(D) DEFAULTED SECURITY; INTEREST NOT ACCRUED.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Fair Value/ Fair Value/
Industry Classification: Market Value Industry Classification: continued Market Value
------------------------------------------------------------ ------------------------------------------------------------
AEROSPACE - 3.31% BUILDINGS & REAL ESTATE - 1.43%
Argo Tech Corporation $ 459,000 Adorn, Inc. $ 1,100,556
Consolidated Foundries Holdings 1,409,281 Texas Industries, Inc. 35,525
Esterline Technologies 178,500 TruStile Doors, Inc. 678,323
Gencorp, Inc. 137,800 ------------
P A S Holdco LLC 1,378,985 1,814,404
Vought Aircraft Industries 625,625 ------------
------------ CHEMICAL, PLASTICS & RUBBER - 1.38%
4,189,191 BCP Crystal US Holdings Corporation 392,275
------------ Capital Specialty Plastics, Inc. 27,704
AUTOMOBILE - 10.03% Koppers, Inc. 184,875
Ford Motor Credit Co. 900,376 Nalco Co. 255,625
Fuel Systems Holding Corporation 1,360,006 Nova Chemicals Corporation 215,000
General Motors Acceptance Corporation 747,158 P Q Corporation 674,725
Goodyear Tire & Rubber Co. 456,500 ------------
Jason, Inc. 1,050,615 1,750,204
LIH Investors, L.P. 1,733,963 ------------
Metaldyne Corporation 363,800 CONSUMER PRODUCTS - 8.83%
Nyloncraft, Inc. 869,644 Augusta Sportswear Holding Co. 1,548,612
Ontario Drive & Gear Ltd. 1,324,593 Bravo Sports Holding Corporation 1,311,702
Qualis Automotive LLC 1,394,148 G F S I, Inc. 367,500
Tenneco, Inc. 510,000 K N B Holdings Corporation 1,346,818
Titan International, Inc. 70,438 Momentum Holding Co. 677,326
Transtar Holding Company 1,354,914 Neff Motivation, Inc. 733,606
United Components, Inc. 553,725 R A J Manufacturing Holdings LLC 1,317,881
------------ Royal Baths Manufacturing Company 666,603
12,689,880 The Tranzonic Companies 1,732,974
------------ Walls Industries, Inc. 1,463,429
BEVERAGE, DRUG & FOOD - 3.95% Winsloew Furniture, Inc. --
Beta Brands Ltd. -- ------------
Cains Foods, L.P. 63,647 11,166,451
Del Monte Corporation 211,000 ------------
Dominos Pizza, Inc. 112,951 CONTAINERS, PACKAGING & GLASS - 5.79%
Eagle Pack Pet Foods, Inc. 856,881 Flutes, Inc. 903,035
National Wine & Spirits, Inc. 25,000 Maverick Acquisition Company 617,605
Nonni's Food Company 1,217,599 P I I Holding Corporation 1,393,987
Pinnacle Foods Group 230,344 Packaging Dynamics Corporation of America 850,000
River Ranch Fresh Foods LLC 855,000 Paradigm Packaging, Inc. 1,264,306
Specialty Foods Group, Inc. -- Pliant Corporation 743,252
Vitality Foodservice, Inc. 1,112,030 Tekni-Plex, Inc. 456,250
Wornick Co. 313,250 Vitex Packaging, Inc. 1,094,540
------------ ------------
4,997,702 7,322,975
------------ ------------
BROADCASTING & ENTERTAINMENT - 2.09% DISTRIBUTION - 3.76%
Cablevision Systems Corporation 491,250 Duncan Systems, Inc. 878,858
Charter Communications Op LLC 259,688 Kele and Associates, Inc. 1,480,675
Citadel Broadcasting Corporation 243,375 Magnatech International, Inc. 1,028,363
Liberty Media Corporation 471,069 O R S Nasco Holding, Inc. 1,366,266
Lodgenet Entertainment Corporation 404,063 QualServ Corporation --
Mediacom LLC 772,500 Strategic Equipment & Supply Corporation, Inc. --
------------ ------------
2,641,945 4,754,162
------------ ------------
31
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Fair Value/ Fair Value/
Industry Classification: continued Market Value Industry Classification: continued Market Value
------------------------------------------------------------ ------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE, HEALTHCARE, EDUCATION & CHILDCARE - 4.61%
MANUFACTURING - 8.90% A T I Acquisition Company $ 1,059,255
AmerCable, Inc. $ 821,317 American Hospice Management Holding LLC 1,338,283
Arrow Tru-Line Holdings, Inc. 1,211,292 F H S Holdings LLC 1,419,334
Bombardier, Inc. 470,000 H C A, Inc. 535,625
Coining Corporation of America LLC 2,051,191 ICOS Corporation 367,969
Dexter Magnetics Technologies, Inc. 642,592 MedAssist, Inc. 235,615
Douglas Dynamics LLC 305,500 Q L T, Inc. 285,556
Evans Consoles, Inc. -- Tenet Healthcare Corporation 584,875
Geo Sub Corporation 482,500 ------------
Postle Aluminum Company LLC 1,331,164 5,826,512
Radiac Abrasives, Inc. 1,357,567 ------------
Truck Bodies & Equipment International 2,432,788 HOME & OFFICE FURNISHINGS, HOUSEWARES,
Tyco International Group SA 156,972 AND DURABLE CONSUMER PRODUCTS - 7.39%
------------ Connor Sport Court International, Inc. 954,507
11,262,883 H M Holding Company 1,277,765
------------ Home Decor Holding Company 1,290,675
DIVERSIFIED/CONGLOMERATE, SERVICE - 4.90% Justrite Manufacturing Acquisition Co. 893,860
Allied Waste NA 515,625 Monessen Holding Corporation 1,284,121
CapeSuccess LLC 2,512 Stanton Carpet Holding Co. 1,337,846
Chemed Corporation 621,000 U-Line Corporation 1,324,755
Diversco, Inc./DHI Holdings, Inc. 696,032 Wellborn Forest Holding Co. 987,938
Dwyer Group, Inc. 492,191 ------------
Fowler Holding, Inc. 1,323,910 9,351,467
Interline Brands, Inc. 154,125 ------------
Iron Mountain, Inc. 530,000 LEISURE, AMUSEMENT, ENTERTAINMENT - 4.20%
Keystone North America, Inc. 146,086 Harrah's Operating Co. 402,908
Mac-Gray Corporation 304,500 K 2, Inc. 151,500
Moss, Inc. 910,485 Keepsake Quilting, Inc. 704,557
Service Corporation International 506,250 M G M Mirage, Inc. 224,438
------------ Majestic Star Casino LLC 262,500
6,202,716 Melco PBL Entertainment 85,040
------------ O E D Corp/Diamond Jo Company Guarantee 495,000
ELECTRONICS - 3.16% Overton's Holding Company 1,010,315
A E S Corporation 643,406 Savage Sports Holding, Inc. 1,126,234
Arrow Electronics, Inc. 500,197 Tunica-Biloxi Gaming Authority 517,500
Directed Electronics, Inc. 2,277,057 Universal City Florida 205,750
Distributed Energy Systems Corporation 50,400 Warner Music Group 123,750
Electronic Data Systems Corporation 521,252 ------------
------------ 5,309,492
3,992,312 ------------
------------ MACHINERY - 8.57%
FARMING & AGRICULTURE - 0.00% Davis-Standard LLC 1,316,435
Protein Genetics, Inc. -- Integration Technology Systems, Inc. 711,753
------------ Manitowoc Company, Inc. 101,000
FINANCIAL SERVICES - 0.95% Maxon Corporation 1,921,337
Highgate Capital LLC -- Morton Industrial Group, Inc. 1,366,524
Lazard LLC 388,431 Safety Speed Cut Manufacturing Company, Inc. 1,410,411
Leucadia National Corporation 355,250 Stewart & Stevenson LLC 630,000
Nymex Holdings, Inc. 186,015 Synventive Equity LLC 17,714
T C W Leveraged Income Trust, L.P. 277,564 Tronair, Inc. 1,934,123
Victory Ventures LLC -- Tubular Textile Machinery 1,437,425
------------ ------------
1,207,260 10,846,722
------------ ------------
32
MassMutual Paticipation Investors
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006
Fair Value/ Fair Value/
Industry Classification: continued Market Value Industry Classification: continued Market Value
------------------------------------------------------------ ------------------------------------------------------------
MEDICAL DEVICES/BIOTECH - 2.96% TECHNOLOGY - 0.07%
Coeur, Inc. $ 755,634 Triana Solar Ltd. $ 3,780
E X C Acquisition Corporation 72,676 Unisys Corporation 88,988
MicroGroup, Inc. 2,042,509 ------------
OakRiver Technology, Inc. 878,837 92,768
------------ ------------
3,749,656 TELECOMMUNICATIONS - 3.80%
------------ Cincinnati Bell, Inc. 565,125
MINING, STEEL, IRON & Intelsat Subsidiary Holding Company Ltd. 479,156
NON PRECIOUS METALS - 0.37% Isilon Systems, Inc. 13,800
U S S Holdings, Inc. 466,871 ITC^DeltaCom, Inc. 1,518,186
------------ Nextel Communications, Inc. 410,170
NATURAL RESOURCES - 0.62% NTL Cable PLC 728,813
Appleton Papers, Inc. 255,000 Rogers Wireless, Inc. 607,600
Rock-Tenn Co. 527,500 Triton P C S, Inc. 478,750
------------ ------------
782,500 4,801,600
------------ ------------
OIL AND GAS - 4.03% TRANSPORTATION - 1.68%
Atlas Pipeline Partners 616,500 Allegiant Travel Co. 196,420
Basic Energy Services 615,625 NABCO, Inc. 650,573
Chesapeake Energy Corporation 660,563 Tangent Rail Corporation 1,270,697
Clayton Williams Energy, Inc. 530,438 ------------
El Paso Corporation 268,125 2,117,690
Exco Resources, Inc. 507,500 ------------
GulfMark Offshore, Inc. 306,000 UTILITIES - 2.80%
North American Energy Partners 201,000 Dynegy Holdings, Inc. 698,250
Offshore Logistics, Inc. 330,750 Edison Mission Energy 249,100
Opti Canada, Inc. 205,500 Inergy LP 78,750
Quicksilver Resources, Inc. 586,500 Markwest Energy Operating Co. 530,750
Tennessee Gas Pipeline Co. 263,478 N R G Energy, Inc. 603,000
------------ Pacific Energy Partners 354,317
5,091,979 Petrohawk Energy Corporation 525,000
------------ Sierra Pacific Resources 323,667
PHARMACEUTICALS - 1.15% Tenaska Alabama Partners LP 178,076
CorePharma LLC 1,399,327 ------------
Enzymatic Therapy, Inc. 56,250 3,540,910
------------ ------------
1,455,577 WASTE MANAGEMENT / POLLUTION - 1.33%
------------ Terra Renewal Services, Inc. 1,680,878
PUBLISHING/PRINTING - 1.20% ------------
Cadmus Communications Corporation 497,500 TOTAL CORPORATE RESTRICTED
Idearc, Inc. 304,500 AND PUBLIC SECURITIES - 106.59% $134,843,670
Primedia, Inc 483,750 ============
Sheridan Acquisition Corporation 234,000
------------ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1,519,750
------------
RETAIL STORES - 3.33%
Blockbuster, Inc. 266,063
Heelys, Inc. 160,550
Neiman Marcus Group, Inc. 667,500
Olympic Sales, Inc. 2,030,008
Rent-A-Center, Inc. 250,625
Rental Service Corporation 516,250
United Rentals, Inc. 326,217
------------
4,217,213
------------
33
MassMutual Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 attached to such securities will be
subject to legal or contractual delays in, or restrictions on, resale and
will therefore be "restricted securities". Generally speaking, as contrasted
with open-market sales of unrestricted securities, which may be effected
immediately if the market is adequate, 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, including warrants, 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 approve the value of the
Trust's portfolio securities as of the close of business on the last business
day of the preceding quarter. This valuation requires the approval of a
majority of the Trustees of the Trust, including a majority of the Trustees
who are not interested persons of the Trust or of Babson Capital. In making
valuations, 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 $93,493,887 (73.90% of net assets) as of December 31,
2006 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 Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
The values for Rule 144A restricted securities and corporate public
securities are stated at the last reported sales price or at prices based
upon quotations obtained from brokers and dealers as of December 31, 2006,
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 using the yield-to-maturity method. The Trust does not
accrue income when payment is delinquent and when management believes payment
is questionable.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
C. USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
D. FEDERAL INCOME TAXES:
The Trust has elected to be taxed as a "regulated investment company" under
the Internal Revenue Code, and intends to maintain this qualification, and to
distribute substantially all of its net taxable income to its shareholders.
In any year when net long-term capital gains are realized by the Trust,
management, after evaluating the prevailing economic conditions, will
recommend that Trustees either designate the net realized long-term gains as
undistributed and pay the federal capital gains taxes thereon, or distribute
all or a portion of such net gains. For the year ended December 31, 2006, the
Trust had a net realized taxable long-term capital gain balance of
$9,831,327, which the Trustees voted to retain and pay the federal capital
gain tax thereon. The Trust has accrued income tax expense of $3,407,168 on
the Statement of Operations related to the retained realized capital gains.
In 2006, the Trust re-classified a total of $927,862 to undistributed net
investment income. $900,000 was re-classified from accumulated net realized
gain on investments and $27,862 was re-classified from additional paid in
capital to more accurately display the Trust's financial position on a
tax-basis 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, 2006, the MMPI Subsidiary Trust has accrued income tax expense on net
realized gains of $228,578 and increased accrued deferred income tax expenses
on net unrealized gains by $208,811.
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 declared during the years ended December
31, 2006 and 2005 was as follows:
DISTRIBUTIONS PAID FROM: 2006 2005
--------------------------
Ordinary Income $11,648,274 $ 9,818,640
As of December 31, 2006, the components of distributable earnings on a tax
basis included $1,067,029 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.
F. EXPENSE REDUCTION:
Citibank, N.A. ("Citibank") serves as custodian to the Trust. Pursuant to the
custodian agreement, Citibank receives a fee
35
MassMutual Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
reduced by credits on cash balances the Trust maintains with Citibank. All
credit balances, if any, used to reduce the Trust's custodian fees are
reported as fees paid indirectly on the Statement of Operations.
3. INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEE
A. SERVICES:
Under an Investment Advisory and Administrative Services Contract (the
"Contract") with the Trust, Babson Capital has agreed to use its best efforts
to present to the Trust a continuing and suitable investment program
consistent with the investment objectives and policies of the Trust. Babson
Capital represents the Trust in any negotiations with issuers, investment
banking firms, securities brokers or dealers and other institutions or
investors relating to the Trust's investments. Under the Contract, Babson
Capital also provides administration of the day-to-day operations of the
Trust and provides the Trust with office space and office equipment,
accounting and bookkeeping services, and necessary executive, clerical and
secretarial personnel for the performance of the foregoing services.
B: FEE:
For its services under the Contract, Babson Capital is paid a quarterly
Investment Advisory fee equal to .225% of the value of the Trust's net assets
as of the last business day of each fiscal quarter, an amount approximately
equivalent to .90% on an annual basis. A majority of the Trustees, including
a majority of the Trustees who are not interested persons of the Trust or of
Babson Capital, approve the valuation of the Trust's net assets as of such
day.
4. SENIOR SECURED INDEBTEDNESS:
A. NOTE PAYABLE:
MassMutual holds the Trust's $12,000,000 Senior Fixed Rate Convertible Note
(the "Note") issued by the Trust in 1995. The Note, as amended, is due
December 13, 2011 and accrues interest at 5.80% per annum. MassMutual, at its
option, can convert the principal amount of the Note into common shares. The
dollar amount of principal would be converted into an equivalent dollar
amount of common shares based upon the average price of the common shares for
ten business days prior to the notice of conversion. For the year ended
December 31, 2006, 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 Note 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 maturity date of 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, 2006, there were no outstanding loans against the
Revolver. For the year ended December 31, 2006, the Trust incurred expense on
the Revolver of $37,292 related to the undrawn portion.
5. PURCHASES AND SALES OF INVESTMENTS
FOR THE YEAR COST OF INVESTMENTS
ENDED 12/31/2006 ACQUIRED
------------------------------------------------------------------------
Corporate restricted securities $ 38,190,067
Corporate public securities 10,160,208
PROCEEDS FROM
SALES OR MATURITIES
------------------------------------------------------------------------
Corporate restricted securities $ 26,895,345
Corporate public securities 16,385,819
The aggregate cost of investments is substantially the same for financial
reporting and federal income tax purposes as of December 31, 2006. The net
unrealized appreciation of investments for financial reporting and federal tax
purposes as of December 31, 2006 is $2,530,287 and consists of $13,025,470
appreciation and $10,495,183 depreciation.
Net unrealized appreciation of investments on the Statement of Assets and
Liabilities reflects the balance net of a deferred tax accrual of $384,226 on
net unrealized gains in the MMPI Subsidiary Trust.
36
MassMutual Participation Investors
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
6. QUARTERLY RESULTS OF INVESTMENT OPERATIONS (UNAUDITED)
AMOUNT PER SHARE
--------------------------------------------------------------------------------
MARCH 31, 2006
--------------------------------------------------------------------------------
Investment income $3,229,245
Net investment income 2,668,897 $ 0.27
Net realized and unrealized
gain on investments (net of taxes) 3,988,640 0.41
--------------------------------------------------------------------------------
JUNE 30, 2006
--------------------------------------------------------------------------------
Investment income 3,094,537
Net investment income 2,530,332 0.26
Net realized and unrealized
gain on investments (net of taxes) 3,610,163 0.37
--------------------------------------------------------------------------------
SEPTEMBER 30, 2006
--------------------------------------------------------------------------------
Investment income 3,090,554
Net investment income 2,542,211 0.26
Net realized and unrealized
gain on investments (net of taxes) 2,345,586 0.24
--------------------------------------------------------------------------------
DECEMBER 31, 2006
--------------------------------------------------------------------------------
Investment income 3,533,178
Net investment income 2,987,222 0.31
Net realized and unrealized
loss on investments (net of taxes) (2,396,709) (0.25)
7. AGGREGATE REMUNERATION PAID TO OFFICERS, TRUSTEES AND THEIR AFFILIATED
PERSONS
For the year ended December 31, 2006, the Trust paid its Trustees aggregate
remuneration of $126,875. During the year 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 Messrs. Crandall and Joyal as "interested
persons" of the Trust.
All of the Trust's officers are employees of Babson Capital or MassMutual.
Pursuant to the 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, 2006, other than
amounts payable to Babson Capital pursuant to the Contract. For the year ended
December 31, 2006, 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 $12,823
Preparation of Certain of the
Trust's Shareholder Communications 208
Preparation of the Trust's
Annual Proxy Statements 241
-------
$13,272
=======
8. NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES -- AN
INTERPRETATION OF FASB STATEMENT 109 ("FIN 48"). FIN 48 supplements FASB 109 by
prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The adoption of FIN 48 will require financial statements
to be adjusted to reflect only those tax positions that are more likely than not
to be sustained as of the adoption date. Management of the Trust is currently
evaluating the impact that the adoption of FIN 48 will have on the financial
statements. FIN 48 will become effective for fiscal years beginning after
December 15, 2006.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relates to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Trust does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period. FAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
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, 2006, and the related statements of operations
and cash flows for the year then ended and the statements of changes in net
assets for each of the years in the two-year period then ended and the financial
highlights for each of the years in the three-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 highlights based on our audits. The financial
highlights for each of the years in the two-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, 2006 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, 2006, 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 9, 2007
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* (42) Trustee 3 years/ Executive Vice President 2 Trustee, Chairman (since
Massachusetts Mutual (since 2005) 1 year, and Chief Investment 2005), President
Life Insurance Company 7 months Officer (since 2005) of (2003-2005), and Vice
1295 State Street Chairman MassMutual; and President (2002-2003),
Springfield, MA 01111 (since 2005) 1 year/ Chairman (since 2005), of the Trust; Director
7 months President and Chief (since 2004), Babson
Executive Officer (since Capital Europe Limited
2006), Vice Chairman (an institutional
(2005), Member of the debt-fund manager);
Board of Managers (since Director (since 2005),
2004), Member of the Babson Capital Japan KK
Board of Directors (2003- (a Japanese registered
2004), and Managing investment adviser);
Director of Babson Capital Non- Executive Director
(2000-2005). (since 2005), Baring
Asset Management Limited
(an investment
manager/adviser);
Chairman (since 2005),
Cornerstone Real Estate
Advisers LLC (an
investment adviser);
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 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);
Chairman and Chief
Executive Officer (since
2006), MassMutual
Capital Partners
(investment company);
Director (since 2006),
Invicta Advisers LLC
(derivative trading
company); Director
(since 2006), Invicta
Capital LLC (derivative
trading company);
Director (since 2006),
Invicta Credit LLC
(derivative trading
company); Director
(since 2006), Invicta
Holdings LLC (derivative
trading 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 (closedend
investment company
advised by Babson
Capital).
*MR. CRANDALL IS CLASSIFIED AS AN "INTERESTED PERSON" OF THE TRUST AND BABSON
CAPITAL (AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED) BECAUSE
OF HIS POSITION AS AN OFFICER OF THE TRUST; AND CHAIRMAN, PRESIDENT , CHIEF
EXECUTIVE OFFICER, AND MEMBER OF THE BOARD OF MANAGERS OF BABSON CAPITAL.
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* (62) Trustee 3 years/ President (2001-2003) 51 President (1999-2003)
MassMutual (since 2003) 2 years, of Babson Capital. and Trustee (since
Participation Investors 10 months 2003), of the Trust;
1500 Main Street Director (since 2006),
Suite 600 Jefferies Group, Inc.
P.O. Box 15189 (financial services);
Springfield, MA 01115-5189 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. IN ADDITION AND
AS NOTED ABOVE, MR. JOYAL IS A DIRECTOR OF JEFFERIES GROUP, INC., WHICH HAS A
WHOLLY OWNED BROKER-DEALER SUBSIDIARY THAT MAY EXECUTE PORTFOLIO TRANSACTIONS
AND/OR ENGAGE IN PRINCIPAL TRANSACTIONS WITH THE TRUST, OTHER INVESTMENT
COMPANIES ADVISED BY BABSON CAPITAL OR ANY OTHER ADVISORY ACCOUNTS OVER WHICH
BABSON CAPITAL HAS BROKERAGE PLACEMENT DISCRETION. ACCORDINGLY, THE TRUST HAS
DETERMINED TO CLASSIFY MR. JOYAL AS AN "INTERESTED PERSON" OF THE TRUST AND
BABSON CAPITAL (AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
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
------------------------------------------------------------------------------------------------------------------------------------
WILLIAM J. BARRETT (67) Trustee 3 years/ President (since 2002), 2 Trustee (since 2006),
MassMutual (since 2006) 10 months* Barrett-Gardner Associates, MassMutual Corporate
Participation Investors Inc. (investments); and Investors (a closed-end
1500 Main Street Senior Vice President Investment company
Suite 600 (1976-2002), Janney advised by Babson
P.O. Box 15189 Montgomery Scott LLC Capital).
Springfield, MA 01115-5189 (investments).
------------------------------------------------------------------------------------------------------------------------------------
DONALD E. BENSON (76) Trustee 3 years/ Executive Vice President 2 Director (since 1997),
MassMutual (since 1988) 2 years, and Director (since 1992), MAIR Holdings, Inc.
Participation Investors 10 months Marquette Financial (commuter airline
1500 Main Street Companies (financial holding company);
Suite 600 services); Partner (since Director (since 1997),
P.O. Box 15189 1996), Benson Family National Mercantile
Springfield, MA 01115-5189 Limited Partnership No. 1 Bancorp (bank holding
and Benson Family company); and Trustee
Limited Partnership No. 2 (since 1986), MassMutual
(investment partnerships); Corporate Investors
and Partner (1987-2004), (closed-end investment
Benson, Pinckney, Oates company advised by
Partnership (building Babson Capital).
partnership).
*MR. BARRETT WAS ELECTED BY THE BOARD OF TRUSTEES TO FILL A NEWLY CREATED BOARD
SEAT ON JULY 18, 2006.
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
------------------------------------------------------------------------------------------------------------------------------------
MICHAEL H. BROWN (50) Trustee 3 years/ Private Investor; 2 Trustee (since 2005),
MassMutual (since 2005) 1 year, and Managing Director MassMutual Corporate
Participation Investors 7 months (1994-2005), Investors (a closed-end
1500 Main Street Morgan Stanley. investment company
Suite 600 advised by Babson
P.O. Box 15189 Capital); Independent
Springfield, MA 01115-5189 Director (since 2006),
Invicta Holdings LLC (a
derivitive trading
company).
------------------------------------------------------------------------------------------------------------------------------------
DONALD GLICKMAN (73) Trustee 3 years/ Chairman (since 1992), 2 Director (since 1984),
MassMutual (since 1992) 2 years, Donald Glickman Monro Muffler Brake,
Participation Investors 10 months and Company, Inc. Inc. (automobile repair
1500 Main Street (private investments); service); Director
Suite 600 and Partner (since 1992), (since 1998), MSC
P.O. Box 15189 J.F. Lehman & Co. Software, Corp.
Springfield, MA 01115-5189 (private investments). (simulation software);
and Trustee (since
1992), MassMutual
Corporate Investors
(closed-end investment
company advised by
Babson Capital).
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
------------------------------------------------------------------------------------------------------------------------------------
MARTIN T. HART (71) Trustee 3 years/ Private Investor; and 2 Director (since 2004),
MassMutual (since 1991) 10 months President and Director Texas Roadhouse, Inc.
Participation Investors (since 1983), H Investment (operates restaurant
1500 Main Street Company LLC (family chain); Director (since
Suite 600 partnership). 1999), ValueClick Inc.
P.O. Box 15189 (internet advertising
Springfield, MA 01115-5189 company); Director
(since 2002),
Spectranetics Corp.
(medical device
company); and Trustee
(since 1991), MassMutual
Corporate Investors
(closed-end investment
company advised by
Babson Capital).
------------------------------------------------------------------------------------------------------------------------------------
CORINE T. NORGAARD (69) Trustee 3 years/ President, (2004-2005), 33 Trustee (since 2005),
MassMutual (since 1998) 1 year, Thompson Enterprises MML Series Investment
Participation Investors 10 months Real Estate Investment; Fund II (an open-end
1500 Main Street and Dean (1996-2004), investment company
Suite 600 Barney School of Business, advised by MassMutual);
P.O. Box 15189 University of Hartford. Trustee (since 2004),
Springfield, MA 01115-5189 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).
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 (49) President 1 year/ President (since 2005), Vice President (1993-2005) of the Trust;
MassMutual 7 months Member of the Board of Managers (since 2006), and Managing
Participation Investors Director (since 2000) of Babson Capital; Trustee (since 2005),
1500 Main Street o Suite 600 and President (since 2005) MMCI Subsidiary Trust and MMPI
P.O. Box 15189 Subsidiary Trust; and President (since 2005), Vice President
Springfield, MA 01115-5189 (1993-2005), MassMutual Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
RODNEY J. DILLMAN (54) Vice 1 year/ Vice President, Secretary, and Chief Legal Officer (since 2006)
MassMutual President, 7 months of the Trust; Vice President and Associate General Counsel (since
Participation Investors Secretary, 2000) of MassMutual; General Counsel and Secretary (since 2006)
1500 Main Street o Suite 600 and Chief of Babson Capital; Secretary (since 2006), MMCI Subsidiary Trust
P.O. Box 15189 Legal and MMPI Subsidiary Trust; and Vice President, Secretary, and
Springfield, MA 01115-5189 Officer Chief Legal Officer (since 2006), MassMutual Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
JAMES M. ROY (44) Vice 1 year/ Vice President and Chief Financial Officer (since 2005),
MassMutual President 7 months Treasurer (2003-2005), and Associate Treasurer (1999-2003) of the
Participation Investors and Chief Trust; Managing Director (since 2005), and Director (2000-2005)
1500 Main Street o Suite 600 Financial of Babson Capital; Trustee (since 2005), Treasurer (since 2005),
P.O. Box 15189 Officer and Controller (2003-2005), MMCI Subsidiary Trust and MMPI
Springfield, MA 01115-5189 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. (39) Comptroller 1 year/ Comptroller (since 2001) of the Trust; Director (since 2000) of
MassMutual 7 months Babson Capital; Controller (since 2005), MMCI Subsidiary Trust
Participation Investors and MMPI Subsidiary Trust; and Comptroller (since 2001),
1500 Main Street o Suite 600 MassMutual Corporate Investors.
P.O. Box 15189
Springfield, MA 01115-5189
------------------------------------------------------------------------------------------------------------------------------------
MELISSA M. LAGRANT (33) Chief 1 year/ Chief Compliance Officer (since 2006) of the Trust; Managing
MassMutual Compliance 7 months Director (since 2005) of Babson Capital; Vice President and
Participation Investors Officer Senior Compliance Trading Manager (2003-2005), Loomis, Sayles &
1500 Main Street o Suite 600 Company, L.P.; Assistant Vice President- Business Risk Management
P.O. Box 15189 Group (2002-2003), and Assistant Vice President- Investment
Springfield, MA 01115-5189 Compliance (2001-2002), Zurich Scudder Investments/Deutsche Asset
Management; and Chief Compliance Officer (since 2006), MassMutual
Corporate Investors.
------------------------------------------------------------------------------------------------------------------------------------
RONALD S. TALAIA (38) Treasurer 1 year/ Treasurer (since 2006) of the Trust; Director (since 2001) of
MassMutual 7 months Babson Capital; and Treasurer (since 2006), MassMutual Corporate
Participation Investors Investors.
1500 Main Street o Suite 600
P.O. Box 15189
Springfield, MA 01115-5189
44
MassMutual Participation Investors
Members of the Board of Trustees
[PHOTO]
Left to right:
Donald Glickman
CHAIRMAN, DONALD GLICKMAN
& COMPANY, INC.
Robert E. Joyal
RETIRED PRESIDENT OF
BABSON CAPITAL MANAGEMENT LLC
William J. Barrett
PRESIDENT, BARRETT-GARDNER
ASSOCIATES, INC.
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
MassMutual Participation Investors offers a Dividend Reinvestment and Cash
Purchase Plan. The Plan provides a simple and automatic way for shareholders to
add to their holdings in the Trust through the receipt of dividend shares issued
by the Trust or through the reinvestment of cash dividends in Trust shares
purchased in the open market. The dividends of each shareholder will be
automatically reinvested in the Trust by Shareholder Financial Services Inc.,
the Transfer Agent, in accordance with the Plan, unless such shareholder elects
not to participate by providing written notice to the Transfer Agent. A
shareholder may terminate his or her participation by notifying the Transfer
Agent in writing.
Participating shareholders may also make additional contributions to the Plan
from their own funds. Such contributions may be made by personal check or other
means in an amount not less than $100 nor more than $5,000 per quarter.
Whenever the Trust declares a dividend payable in cash or shares, the Transfer
Agent, acting on behalf of each participating shareholder, will take the
dividend in shares only if the net asset value is lower than the market price
plus an estimated brokerage commission as of the close of business on the
valuation day. The valuation day is the last day preceding the day of dividend
payment. When the dividend is to be taken in shares, the number of shares to be
received is determined by dividing the cash dividend by the net asset value as
of the close of business on the valuation date or, if greater than net asset
value, 95% of the closing share price. If the net asset value of the shares is
higher than the market value plus an estimated commission, the Transfer Agent,
consistent with obtaining the best price and execution, will buy shares on the
open market at current prices promptly after the dividend payment date.
The reinvestment of dividends does not, in any way, relieve participating
shareholders of any federal, state or local tax. For federal income tax
purposes, the amount reportable in respect of a dividend received in
newly-issued shares of the Trust will be the fair market value of the shares
received, which will be reportable as ordinary income and/or capital gains.
As compensation for its services, the Transfer Agent receives a fee of 5% of any
dividend and cash contribution (in no event in excess of $2.50 per distribution
per shareholder.)
Any questions regarding the Plan should be addressed to Shareholder Financial
Services, Inc., Agent for MassMutual Participation Investors' Dividend
Reinvestment and Cash Purchase Plan, P.O. Box 173673, Denver, CO 80217-3673.
Dividend Reinvestment and Cash Purchase Plan
Officers
Roger W. Crandall
CHAIRMAN
Clifford M. Noreen
PRESIDENT
James M. Roy
VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
Rodney J. Dillman
VICE PRESIDENT, SECRETARY &
CHIEF LEGAL OFFICER
Jill A. Fields
VICE PRESIDENT
Michael P. Hermsen
VICE PRESIDENT
Mary Wilson Kibbe
VICE PRESIDENT
Michael L. Klofas
VICE PRESIDENT
Richard E. Spencer, II
VICE PRESIDENT
Ronald S. Talaia
TREASURER
John T. Davitt, Jr.
COMPTROLLER
Melissa M. LaGrant
CHIEF COMPLIANCE OFFICER
[LOGO] MassMutual Participation Investors DB 1036 207
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,
2006 2005
---------- ----------
Audit Fees $ 35,500 $ 39,200
Audit-Related Fees 5,400 5,000
Tax Fees 34,500 25,900
All Other Fees 0 0
---------- ----------
Total Fees $ 75,400 $ 70,100
========== ==========
NON-AUDIT FEES BILLED TO BABSON CAPITAL AND MASSMUTUAL
KPMG LLP KPMG LLP
Year Ended Year Ended
December 31, December 31,
2006 2005
---------- ----------
Audit-Related Fees $ 988,727 $1,229,916
Tax Fees 18,000 0
All Other Fees 0 0
---------- ----------
Total Fees $1,006,727 $1,229,916
========== ==========
The category "Audit Related Fees" reflects fees billed by KPMG for
various non-audit and non-tax services rendered to the Registrant,
Babson Capital Management LLC ("Babson Capital") and Massachusetts
Mutual Life Insurance Company ("MassMutual"), such as SAS 70 review,
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 2006, 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 2005 fees billed represent final 2005 amounts, which may
differ from the preliminary figures available as of the filing date of
the Trust's 2006 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 2006 Annual Form N-CSR, but are now properly included in
the 2005 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 25
years of industry experience, Mr. Noreen is a Managing Director and a
Member of the Board of Managers of Babson Capital Management LLC
("Babson Capital") and head of Babson Capital's Corporate Securities
Group, where he oversees public equities and corporate credit related
investments, including public and private bonds, mezzanine, and private
equity investments, and 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 registered 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 has been a Vice
President of the Registrant since 2006. Ms. Fields is a Managing
Director of Babson Capital with over 20 years of industry experience in
high yield total return, structured credit, leveraged loans and private
placemet investing. 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 1 $251.7 million 1 $251.7 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 1 $56.5 million 1 $56.5 million
-----------------------------------------------------------------------------------------
Other Accounts 0 N/A 0 N/A
-----------------------------------------------------------------------------------------
Jill A. Registered Investment
Fields Companies 3 $867.1 million 1 $251.7 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 1 $49.7 million 1 $49.7 million
-----------------------------------------------------------------------------------------
Other Accounts 3 $545.6 million 0 N/A
-----------------------------------------------------------------------------------------
Michael P. Registered Investment
Hermsen Companies 1 $251.7 million 1 $251.7 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 5 $577.3 million 5 $577.3 million
-----------------------------------------------------------------------------------------
Other Accounts 1(C) $1.38 billion N/A N/A
-----------------------------------------------------------------------------------------
Michael L. Registered Investment
Klofas Companies 1 $251.7 million 1 $251.7 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 5 $577.3 million 5 $577.3 million
-----------------------------------------------------------------------------------------
Other Accounts 1(C) $1.38 billion N/A N/A
-----------------------------------------------------------------------------------------
Richard E. Registered Investment
Spencer II Companies 1 $251.7 million 1 $251.7 million
-----------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles 5 $577.3 million 5 $577.3 million
-----------------------------------------------------------------------------------------
Other Accounts 1(C) $1.38 billion N/A N/A
(A) Account asset size has been calculated as of December 31, 2006.
(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 $58.5
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, 2006, 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 6, 2007
----------------------------------
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 6, 2007
----------------------------------
By: /s/ James M. Roy
----------------------------------
James M. Roy, Vice President, and
Chief Financial Officer
----------------------------------
Date: March 6, 2007
----------------------------------