mmpi-formn30d_17730.htm
 
 
Babson Capital
Participation Investors
 
 
 
 
 Report for the
Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
 
 
 
 
 
 
Adviser   Transfer Agent & Registrar
Babson Capital Management LLC
1500 Main Street, P.O. Box 15189
Springfield, Massachusetts 01115-5189
 
 
DST Systems, Inc.
P.O. Box 219086
Kansas City, Missouri 64121-9086
1-800-647-7374
     
Independent Registered Public Accounting Firm
KPMG LLP
Boston, Massachusetts 02110
 
Internet Website
www.babsoncapital.com/mpv
     
Counsel to the Trust
 
Babson Capital Participation Investors
Ropes & Gray LLP  
c/o Babson Capital Management LLC
Boston, Massachusetts 02110
 
1500 Main Street, Suite 2200
   
Springfield, Massachusetts 01115
Custodian  
(413) 226-1516
State Street Bank and Trust Company    
Boston, Massachusetts 02116
   
     
     
Investment Objective and Policy
Babson Capital Participation Investors (the "Trust") is a closed-end management investment company, first offered to the public in 1988, whose shares are traded on the New York Stock Exchange under the trading symbol "MPV". The Trust's share price can be found in the financial section of most newspapers 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 (as defined below), long-term debt obligations purchased directly from their issuers, which tend to be smaller companies. These investments may 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), and in convertible preferred stocks and, subject to certain limitations, readily marketable equity securities. Below-investment grade or high yield securities have predominantly speculative characteristics with respect to the capacity of the issuer to pay interest and repay principal. The Trust is prohibited from purchasing below-investment grade securities if, after giving effect to the purchase, more than 75% of the Trusts' total assets would be invested in below-investment grade securities, which are securities that are rated, at the time of purchase, BB or B by S&P or Ba or B by Moody's, or, if unrated, are believed by Babson Capital Management LLC ("Babson Capital") to be of an equivalent quality. In addition, the Trust will not invest in any debt security that is rated, at the time of acquisition, below B by S&P or Moody's, or if unrated, is believed by Babson Capital to be of an equivalent quality. In addition, the Trust may invest in high quality, readily marketable securities.
 
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 in January, May, August, and November. All registered shareholders are automatically enrolled in the Dividend Reinvestment and Cash Purchase Plan unless cash distributions are requested.
 
Form N-Q
The Trust files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. This information is available (i) on the SEC's website at http://www.sec.gov; and (ii) at the SEC's Public Reference Room in Washington, DC (which information on their operation may be obtained by calling 1-800-SEC-0330). A complete schedule of portfolio holdings as of each quarter-end is available upon request by calling, toll-free, 866-399-1516.
 
Proxy Voting Policies & Procedures; Proxy Voting Record
The Trustees of the Trust have delegated proxy voting responsibilities relating to the voting of securities held by the Trust to Babson Capital. A description of Babson Capital's proxy voting policies and procedures is available (1) without charge, upon request, by calling, toll-free 866-399-1516; (2) on the Trust's website: http://www.babsoncapital.com/mpv; and (3) on the SEC's website at http://www.sec.gov. Information regarding how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) on the Trust's website: http://www.babsoncapital.com/mpv; and (2) on the SEC's website at http://www.sec.gov.
 
 
 

 
Babson Capital Participation Investors
 
TO OUR SHAREHOLDERS
 
October 31, 2014
 
 
We are pleased to present the September 30, 2014 Quarterly Report of Babson Capital Participation Investors (the “Trust”).

The Board of Trustees declared a quarterly dividend of $0.27 per share, payable on November 14, 2014 to shareholders of record on November 3, 2014. The Trust paid a $0.27 per share dividend for the preceding quarter. The Trust earned $0.29 per share of net investment income, including $0.08 per share of non-recurring income, for the third quarter of 2014, compared to $0.24 per share, including $0.02 per share of non-recurring income, in the previous quarter.

During the third quarter, the net assets of the Trust increased to $140,207,012 or $13.63 per share compared to $139,691,726 or $13.60 per share on June 30, 2014. This translates into a 2.2% total return for the quarter, based on the change in the Trust’s net assets assuming the reinvestment of all dividends. Longer term, the Trust returned 13.3%, 12.8%, 13.7%, and 12.6% for the 1, 3, 5, and 10-year periods, respectively, based on the change in the Trust’s net assets assuming the reinvestment of all dividends.

The Trust’s share price decreased 0.6% during the quarter, from $13.68 per share as of June 30, 2014 to $13.60 per share as of September 30, 2014. The Trust’s market price of $13.60 per share equates to a 0.2% discount below the September 30, 2014 net asset value per share of $13.63. The Trust’s average quarter-end premium for the 3, 5 and 10-year periods was 12.4%, 12.8% and 9.9%, respectively. U.S. equity markets, as approximated by the Russell 2000 Index, decreased 7.4% for the quarter. U.S. fixed income markets, as approximated by the Barclays Capital U.S. Corporate High Yield Index, decreased 1.9% for the quarter.

The Trust closed three new private placement investments, as well as two “add-on” investments in existing portfolio companies, during the third quarter. The three new investments were in Avantech Testing Services LLC, MES Partners, Inc. and Polytex Holdings LLC, while the two add-on investments were in ARI Holding Corporation and Church Services Holding Company. A brief description of these investments can be found in the Consolidated Schedule of Investments. The total amount invested by the Trust in these transactions was $3,764,000.

We are pleased with the level of new investment activity in the third quarter. Middle market merger and acquisition activity has remained robust so far in the fourth quarter, and we are optimistic about the level of new investment closings for the Trust through year end. The dark cloud on the horizon though, continues to be the high purchase prices and leverage levels that are common in the market today. Purchase price multiples and leverage levels are at or above the peak levels we last saw in 2007. Though we are making new investments in this market, we are doing so cautiously and with discipline, consistent with our longstanding investment philosophy of seeking to take prudent levels of risk and getting paid appropriately for the risk taken. We are not willing to provide financial leverage at levels that we believe are imprudent. This approach has served us well over the long term and through all kinds of market cycles.

The condition of the Trust’s existing portfolio remained solid through the third quarter. Sales and earnings for the Trust’s portfolio of companies as a whole continued their upward momentum. We had significantly more credit upgrades then downgrades during the quarter. The number of companies on our watch list and in default continues to be at or near the lowest level we have seen over the last five years. We successfully exited eight investments and benefited from dividends associated with the recapitalization of three companies during the third quarter. We realized significant gains from these transactions. We continue to have a large backlog of portfolio companies that are in the process of being sold, with a number of these expected to close this year. We only had two portfolio companies prepay their debt instruments held by the Trust during the quarter. This low level of prepayment activity is welcome after the unprecedented levels of prepayments we experienced in 2013, when 32 of the Trust’s portfolio companies fully or partially prepaid their debt obligations to the Trust.
(Continued)

1
 
 

 
 
The Trust was able to maintain its $0.27 per share quarterly dividend for the third quarter even though net investment income per share, excluding non-recurring income, was once again below the dividend rate. Net investment income per share from recurring sources has been below the dividend rate for every quarter since the second quarter of 2012. As we have discussed in prior reports, net investment income is down due principally to the considerable reduction in the number of private debt securities in the portfolio resulting from the high level of prepayment and exit activity that has occurred in recent quarters. We have been able to maintain the $0.27 per share quarterly dividend with current income, non-recurring income and earnings carried forward from prior quarters. Over time, however, the Trust’s dividend-paying ability tends to be correlated with its recurring earnings capacity. Absent non-recurring income and earnings carried forward from prior quarters, earnings available for the quarterly dividend would have been approximately $0.21 per share for the third quarter. This quarter, the Trust earned an unusually high $0.08 per share of non-recurring income, mostly due to dividend distributions from the recapitalization of a few portfolio companies. This income has replenished the Trust’s earnings carry-forwards somewhat and should be available to supplement recurring income for the fourth quarter of 2014. Unless market conditions change dramatically though, it is still unlikely that we will be able to rebuild the portfolio back to its former size in the near term. As a result, it is likely that in 2015 we will have to reduce the dividend from the current $0.27 per share quarterly rate. We and the Board of Trustees will continue to evaluate the current and future earnings capacity of the Trust and formulate a dividend strategy that is consistent with that earnings level.
 
Thank you for your continued interest in and support of Babson Capital Participation Investors.
 
Sincerely,
 
 
Michael L. Klofas
President
 


 
 
* Based on market value of total investments (including cash)
Cautionary Notice: Certain statements contained in this report may be “forward looking” statements. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and which reflect management’s current estimates, projections, expectations or beliefs, and which are subject to risks and uncertainties that may cause actual results to differ materially. These statements are subject to change at any time based upon economic, market or other conditions and may not be relied upon as investment advice or an indication of the Trust’s trading intent. References to specific securities are not recommendations of such securities, and may not be representative of the Trust’s current or future investments. We undertake no obligation to publicly update forward looking statements, whether as a result of new information, future events, or otherwise.
 

2
 
 

 
Babson Capital Participation Investors

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
September 30, 2014
(Unaudited)
 
Assets:
     
Investments
     
(See Consolidated Schedule of Investments)
     
Corporate restricted securities at fair value      
(Cost - $84,008,596)
  $ 83,562,794  
Corporate restricted securities at market value
       
(Cost - $18,012,165)
    18,078,369  
Corporate public securities at market value
       
(Cost - $41,975,812)
    43,101,237  
Short-term securities at amortized cost
    5,799,712  
Total investments (Cost -$149,796,285)
    150,542,112  
Cash
    4,662,639  
Interest receivable
    1,521,185  
Other assets
    35,107  
Total assets
    156,761,043  
         
Liabilities:
       
Note payable
    15,000,000  
Payable for investments purchased
    480,000  
Investment advisory fee payable
    315,466  
Tax payable
    292,512  
Deferred tax liability
    153,395  
Interest payable
    27,267  
Accrued expenses
    285,391  
Total liabilities
    16,554,031  
Total net assets
  $ 140,207,012  
         
Net Assets:
       
Common shares, par value $.01 per share
  $ 102,874  
Additional paid-in capital
    96,943,891  
Retained net realized gain on investments, prior years
    37,186,148  
Undistributed net investment income
    2,677,311  
Accumulated net realized gain on investments
    2,704,356  
Net unrealized appreciation of investments
    592,432  
Total net assets
  $ 140,207,012  
Common shares issued and outstanding (14,787,750 authorized)
    10,287,396  
Net asset value per share
  $ 13.63  
 
 
 
See Notes to Consolidated Financial Statements

3
 
 

 
 
CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 2014
(Unaudited)
 
Investment Income:      
Interest
  $ 8,966,338  
Dividends
    963,456  
Other
    180,731  
Total investment income
    10,110,525  
         
Expenses:
       
Investment advisory fees
    928,729  
Interest
    460,125  
Trustees’ fees and expenses
    222,000  
Professional fees
    214,825  
Reports to shareholders
    66,000  
Custodian fees
    22,000  
Other
    226,660  
Total expenses
    2,140,339  
Investment income - net
    7,970,186  
         
Net realized and unrealized gain on investments:
       
Net realized gain on investments before taxes
    3,847,415  
Income tax expense
    (85,847
Net realized gain on investments after taxes
    3,761,568  
Net change in unrealized appreciation of investments before taxes
    1,519,250  
Net change in deferred income tax expense
    517,165  
Net change in unrealized appreciation of investments after taxes
    2,036,415  
Net gain on investments
    5,797,983  
Net increase in net assets resulting from operations
  $ 13,768,169  
 
 
 
See Notes to Consolidated Financial Statements

4
 
 

 
Babson Capital Participation Investors

CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2014
(Unaudited)
 
Net decrease in cash:
     
Cash flows from operating activities:
     
Purchases/Proceeds/Maturities from short-term portfolio securities, net
  $ 2,709,748  
Purchases of portfolio securities
    (29,487,001 )
Proceeds from disposition of portfolio securities
    22,477,991  
Interest, dividends and other income received
    8,803,514  
Interest expense paid
    (460,125 )
Operating expenses paid
    (1,612,981 )
Income taxes paid
    (127,339 )
Net cash provided by operating activities
    2,303,807  
         
Cash flows from financing activities:
       
Cash dividends paid from net investment income
    (8,309,859 )
Receipts for shares issued on reinvestment of dividends
    567,369  
Net cash used for financing activities
    (7,742,490 )
         
Net decrease in cash
    (5,438,683 )
Cash - beginning of year
    10,101,322  
Cash - end of period
  $ 4,662,639  
         
Reconciliation of net increase in net assets to net cash provided by operating activities:
       
         
Net increase in net assets resulting from operations
  $ 13,768,169  
Increase in investments
    (11,000,557 )
Increase in interest receivable
    (264,421 )
Increase in other assets
    (16,984 )
Decrease in deferred tax liability
    (517,165 )
Increase in payable for investments purchased
    309,024  
Increase in investment advisory fee payable
    19,781  
Decrease in tax payable
    (41,492 )
Increase in accrued expenses
    47,452  
Total adjustments to net assets from operations
    (11,464,362 )
Net cash provided by operating activities
  $ 2,303,807  
 
 
 
See Notes to Consolidated Financial Statements 

5
 
 

 
 
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 
   
For the nine
       
   
months ended
   
For the
 
   
09/30/2014
   
year ended
 
   
(Unaudited)
   
12/31/2013
 
Increase in net assets:
           
             
Operations:
           
Investment income - net
  $ 7,970,186     $ 10,228,050  
Net realized gain on investments after taxes
    3,761,568       (1,116,143 )
Net change in unrealized apprciation of investments after taxes
    2,036,415       4,650,973  
Net increase in net assets resulting from operations
    13,768,169       13,762,880  
                 
Increase from common shares issued on reinvestment of dividends
               
Common shares issued (2014 - 43,229; 2013 - 60,918)
    567,369       817,760  
                 
Dividends to shareholders from:
               
Net investment income (2014 - $0.54 per share; 2013 - $1.08 per share)
    (5,543,934 )     (11,039,357 )
Total increase in net assets
    8,791,604       3,541,283  
                 
Net assets, beginning of year
    131,415,408       127,874,125  
                 
Net assets, end of period/year (including undistributed net investment
               
income of $2,677,311 and $251,059, respectively)
  $ 140,207,012     $ 131,415,408  
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements

6
 
 

 
 
Babson Capital Participation Investors

 
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding:
 
   
For the nine months ended 09/30/2014
   
For the years ended December 31,
 
   
(Unaudited)
   
2013
   
2012
   
2011
   
2010
   
2009
 
Net asset value:
                                   
Beginning of year
  $ 12.83     $ 12.56     $ 11.90     $ 11.89     $ 10.91     $ 11.10  
Net investment income (a)
    0.78       1.00       1.08       1.14       1.02       0.94  
Net realized and unrealized
                                               
gain (loss) on investments
    0.56       0.35       0.64       0.08       0.95       (0.13 )
Total from investment operations
    1.34       1.35       1.72       1.22       1.97       0.81  
Dividends from net investment
                                               
income to common shareholders
    (0.54 )     (1.08 )     (1.04 )     (1.23 )     (1.00 )     (1.00 )
Dividends from realized gain
                                               
on investments to common shareholders
    -       -       (0.04 )     (0.00 )(b)     -       -  
Increase from dividends reinvested
    0.00       (0.00 )(b)     0.02       0.02       0.01       (0.00 )(b)
Total dividends
    (0.54 )     (1.08 )     (1.06 )     (1.21 )     (0.99 )     (1.00 )
Net asset value: End of period/year
  $ 13.63     $ 12.83     $ 12.56     $ 11.90     $ 11.89     $ 10.91  
Per share market value:
                                               
End of period/year
  $ 13.60     $ 12.88     $ 13.91     $ 15.85     $ 13.88     $ 12.20  
Total investment return
                                               
Net asset value (c)
    10.61 %     10.97 %     15.89 %     10.56 %     18.71 %     7.60 %
Market value (c)
    10.03 %     0.47 %     (4.54 %)     24.16 %     22.94 %     40.86 %
Net assets (in millions):
                                               
End of period/year
  $ 140.21     $ 131.42     $ 127.87     $ 120.32     $ 119.54     $ 108.93  
Ratio of total expenses
                                               
to average net assets
    2.18 %(e)     2.15 %     2.83 %     2.18 %     2.53 %     2.04 %
Ratio of operating expenses
                                               
to average net assets
    1.65 %(e)     1.51 %     1.51 %     1.42 %     1.46 %     1.41 %
Ratio of interest expense
                                               
to average net assets
    0.45 %(e)     0.47 %     0.49 %     0.56 %     0.61 %     0.63 %
Ratio of income tax expense
                                               
to average net assets (d)
    0.08 %(e)     0.17 %     0.83 %     0.20 %     0.46 %     0.00 %
Ratio of net investment income
                                               
to average net assets
    7.84 %(e)     7.77 %     8.82 %     9.33 %     8.96 %     8.55 %
Portfolio turnover
    16 %     30 %     34 %     21 %     27 %     23 %
 
(a)  
Calculated using average shares.
(b)  
Rounds to less than $0.01 per share.
(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.
(d)  
As additional information, this ratio is included to reflect the taxes paid on retained long-term gains. These taxes paid are netted against realized capital gains in the Statement of Operations. The taxes paid are treated as deemed distributions and a credit for the taxes paid is passed on to shareholders.
(e)  
Annualized
 
Senior borrowings:
                                   
Total principal amount (in millions)
  $ 15     $ 15     $ 15     $ 15     $ 12     $ 12  
Asset coverage per $1,000 of indebtedness
  $
10,347
    $ 9,761     $ 9,525     $ 9,021     $ 10,962     $ 10,077  
 
See Notes to Consolidated Financial Statements

7
 
 

 

CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2014
(Unaudited)
 
      Principal Amount,                    
     Shares, Units or                    
Corporate Restricted Securities - 72.49%: (A)  
 Ownership
Percentage
   
Acquisition
Date
    Cost     Fair Value  
                             
Private Placement Investments - 59.60%
                           
                             
1492 Acquisition LLC
                           
A leading producer of premium Italian cured meats and deli meats in the U.S.
                     
14% Senior Subordinated Note due 2019
  674,119      
10/17/12
    $ 663,287     $ 656,110  
Limited Liability Company Unit Class A Common (B)
   
11,364 uts.
     
10/17/12
      11,364       23,351  
Limited Liability Company Unit Class A Preferred (B)
   
102 uts.
     
10/17/12
      102,270       114,802  
                      776,921       794,263  
A H C Holding Company, Inc.
                               
A designer and manufacturer of boilers and water heaters for the commercial sector.
                         
Limited Partnership Interest (B)
   
12.26% int.
     
11/21/07
      96,028       268,077  

A S C Group, Inc.
A designer and manufacturer of high reliability encryption equipment, communications products, computing systems and electronic components primarily for the military and aerospace sectors.
14% Senior Subordinated Note due 2020
  1,038,842      
12/20/13
      1,019,796       1,059,619  
Limited Liability Company Unit Class A (B)
   
3,094 uts.
                   *       153,704       252,387  
Limited Liability Company Unit Class B (B)
   
1,479 uts.
     
10/09/09
      52,999       120,646  
* 10/09/09 and 12/20/13.
                    1,226,499       1,432,652  

A W X Holdings Corporation
A provider of aerial equipment rental, sales and repair services to non-residential construction and maintenance contractors operating in the State of Indiana.
10.5% Senior Secured Term Note due 2015 (D)
  420,000      
05/15/08
      413,944       210,000  
13% Senior Subordinated Note due 2015 (D)
  420,000      
05/15/08
      384,627       -  
Common Stock (B)
   
60,000 shs.
     
05/15/08
      60,000       -  
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B)
   
21,099 shs.
     
05/15/08
      35,654       -  
                      894,225       210,000  
ABC Industries, Inc.
                               
A manufacturer of mine and tunneling ventilation products in the U.S.
                         
13% Senior Subordinated Note due 2019
  500,000      
08/01/12
      458,357       505,000  
Preferred Stock Series A (B)
   
125,000 shs.
     
08/01/12
      125,000       205,601  
Warrant, exercisable until 2022, to purchase
common stock at $.02 per share (B)
   
22,414 shs.
     
08/01/12
      42,446       34,743  
                      625,803       745,344  
ACP Cascade Holdings LLC
                               
A manufacturer and distributor of vinyl windows and patio doors throughout the northwestern United States.
         
Limited Liability Company Unit Class B (B)
   
32 uts.
     
11/09/12
      -       -  
 

8
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
    Cost     Fair Value  
                           
Advanced Manufacturing Enterprises LLC
                         
A designer and manufacturer of large, custom gearing products for a number of critical customer applications.
14% Senior Subordinated Note due 2018
  $ 1,134,615      
12/07/12
    $ 1,121,321     $ 1,128,253  
Limited Liability Company Unit (B)
 
1,431 uts.
                   *       143,077       135,637  
* 12/07/12 and 07/11/13.
                    1,264,398       1,263,890  
                                 
Advanced Technologies Holdings
                               
A provider of factory maintenance services to industrial companies.
                               
Preferred Stock Series A (B)
 
332 shs.
     
12/27/07
      164,016       569,025  
Convertible Preferred Stock Series B (B)
 
28 shs.
     
01/04/11
      21,600       47,709  
                      185,616       616,734  
All Current Holding Company
                               
A specialty re-seller of essential electrical parts and components primarily serving wholesale distributors.
Common Stock (B)
 
713 shs.
     
09/26/08
      71,303       143,369  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
507 shs.
     
09/26/08
      46,584       101,947  
                      117,887       245,316  
American Hospice Management Holding LLC
                               
A for-profit hospice care provider in the United States.
                               
12% Senior Subordinated Note due 2014
  $ 1,237,502                    *       1,237,097       1,175,627  
Preferred Class A Unit (B)
 
1,706 uts.
                **       170,600       -  
Preferred Class B Unit (B)
 
808 uts.
     
06/09/08
      80,789       99,345  
Common Class B Unit (B)
 
16,100 uts.
     
01/22/04
      1       -  
Common Class D Unit (B)
 
3,690 uts.
     
09/12/06
      -       -  
* 01/22/04 and 06/09/08.
                    1,488,487       1,274,972  
** 01/22/04 and 09/16/06.
                               
                                 
AMS Holding LLC
                               
A leading multi-channel direct marketer of high-value collectible coins and proprietary-branded jewelry and watches.
 
Limited Liability Company Unit Class A Preferred (B)
 
114 uts.
     
10/04/12
      113,636       259,206  
                                 
Arch Global Precision LLC
                               
A leading manufacturer of high tolerance precision components and consumable tools.
14.75% Senior Subordinated Note due 2018
  $ 809,261      
12/21/11
      795,148       825,447  
Limited Liability Company Unit Class B (B)
 
26 uts.
     
12/21/11
      28,418       82,769  
Limited Liability Company Unit Class C (B)
 
224 uts.
     
12/21/11
      221,582       666,604  
                      1,045,148       1,574,820  
 

9
 
 

 

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Principal Amount,
                   
    Shares, Units or    
 
             
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
    Cost     Fair Value  
                           
ARI Holding Corporation
                         
A leading national supplier of products used primarily by specialty contractors.
                     
11.5% Senior Subordinated Note due 2020
  $ 1,693,960                    *     $ 1,667,715     $ 1,689,953  
Limited Partnership Interest
 
524 uts.
     
08/01/14
      523,950       373,869  
* 05/21/13 and 08/01/14.
                    2,191,665       2,063,822  
                                 
Arrow Tru-Line Holdings, Inc.
                               
A manufacturer of hardware for residential and commercial overhead garage doors in North America.
                 
12% Senior Subordinated Note due 2016
  $ 157,795      
10/16/09
      140,234       157,795  
Preferred Stock (B)
 
33 shs.
     
10/16/09
      33,224       118,313  
Common Stock (B)
 
263 shs.
     
05/18/05
      263,298       19,947  
Warrant, exercisable until 2014, to purchase
common stock at $.01 per share (B)
 
69 shs.
     
05/18/05
      59,362       5,230  
                      496,118       301,285  
Avantech Testing Services LLC
                               
A manufacturer of custom Non-Destructive Testing (“NDT”) systems and provider of NDT and inspections services primarily to the oil country tubular goods market.
15% Senior Subordinated Note due 2020
  $ 495,937      
07/31/14
      486,278       495,099  
Limited Liability Company Unit
 
36,964 uts.
     
07/31/14
      369,643       351,161  
                      855,921       846,260  
Baby Jogger Holdings LLC
                               
A designer and marketer of premium baby strollers and stroller accessories.
                         
14% Senior Subordinated Note due 2019
  $ 942,213      
04/20/12
      928,315       951,635  
Common Stock (B)
 
754 shs.
     
04/20/12
      75,376       132,805  
                      1,003,691       1,084,440  
Blue Wave Products, Inc.
                               
A distributor of pool supplies.
                               
10% Senior Secured Term Note due 2018
  $ 317,730      
10/12/12
      313,067       317,730  
13% Senior Subordinated Note due 2019
  $ 324,051      
10/12/12
      305,018       326,573  
Common Stock (B)
 
51,064 shs.
     
10/12/12
      51,064       85,982  
Warrant, exercisable until 2022, to purchase
common stock at $.01 per share (B)
 
20,216 shs.
     
10/12/12
      20,216       34,040  
                      689,365       764,325  
BP SCI LLC
                               
A leading value-added distributor of branded pipes, valves, and fittings (PVF) to diversified end markets.
 
14% Senior Subordinated Note due 2018
  $ 1,083,231      
10/17/12
      1,067,363       1,094,064  
Limited Liability Company Unit Class A (B)
 
417 uts.
     
10/17/12
      41,667       135,136  
Limited Liability Company Unit Class B (B)
 
167 uts.
     
10/17/12
      166,666       204,384  
                      1,275,696       1,433,584  
 

10
 
 

 
Babson Capital Participation Investors
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Principal Amount,
                   
   
Shares, Units or
                   
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                           
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 2015
  $ 1,207,902      
06/30/06
    $ 1,205,503     $ 1,181,543  
Preferred Stock Class A (B)
 
465 shs.
     
06/30/06
      141,946       110,914  
Common Stock (B)
 
1 sh.
     
06/30/06
      152       -  
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B)
 
164 shs.
     
06/30/06
      48,760       38,980  
                      1,396,361       1,331,437  
C D N T, Inc.
                               
A value-added converter and distributor of specialty pressure sensitive adhesives, foams, films, and foils.
         
12.5% Senior Subordinated Note due 2015
  $ 429,070      
08/07/08
      421,725       429,070  
Common Stock (B)
 
41,860 shs.
     
08/07/08
      41,860       98,784  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
32,914 shs.
     
08/07/08
      32,965       77,673  
                      496,550       605,527  
Capital Specialty Plastics, Inc.
                               
A producer of desiccant strips used for packaging pharmaceutical products.
                         
Common Stock (B)
 
55 shs.
                   *       252       787,507  
*12/30/97, 05/29/99 and 02/28/01.
                               
                                 
CG Holdings Manufacturing Company
                               
A coating provider serving the automotive, agricultural, heavy truck and other end markets.
                 
13% Senior Subordinated Note due 2019
  $ 1,412,605                    *       1,340,747       1,443,693  
Preferred Stock (B)
 
1,350 shs.
                   *       134,972       140,472  
Preferred Stock (B)
 
489 shs.
                   *       48,721       50,913  
Common Stock (B)
 
140 shs.
                   *       14,864       -  
Warrant, exercisable until 2023, to purchase
common stock at $.01 per share (B)
 
58 shs.
     
05/09/13
      5,430       -  
*05/09/13 and 11/01/13.
                    1,544,734       1,635,078  

CHG Alternative Education Holding Company
A leading provider of publicly-funded, for profit pre-K-12 education services targeting special needs children at therapeutic day schools and “at risk” youth through alternative education programs.
13.5% Senior Subordinated Note due 2018
  $ 753,647      
01/19/11
      728,089       761,184  
14% Senior Subordinated Note due 2019
  $ 195,870      
08/03/12
      192,916       197,828  
Common Stock (B)
 
375 shs.
     
01/19/11
      37,500       57,107  
Warrant, exercisable until 2021, to purchase
common stock at $.01 per share (B)
 
295 shs.
     
01/19/11
      29,250       44,889  
                    987,755       1,061,008  
 

11
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                               
Church Services Holding Company
                             
A provider of diversified residential services to homeowners in the Houston, Dallas, and Austin markets.
14.5% Senior Subordinated Note due 2018
  $ 420,549      
03/26/12
    $ 411,172     $ 420,663  
10% Senior Subordinated Note due 2015
  $ 6,025      
09/15/14
      6,025       6,027  
Common Stock (B)
 
1,327 shs.
                   *       132,700       66,862  
Warrant, exercisable until 2022, to purchase
common stock at $.01 per share (B)
 
57 shs.
     
03/26/12
      5,740       2,872  
* 03/26/12, 05/25/12 and 06/19/12.
                    555,637       496,424  
                                 
Clough, Harbour and Associates
                               
An engineering service firm that is located in Albany, NY.
                               
Preferred Stock (B)
 
147 shs.
     
12/02/08
      146,594       211,819  
                                 
Connecticut Electric, Inc.
                               
A supplier and distributor of electrical products sold into the retail and wholesale markets.
                 
Limited Liability Company Unit Class A (B)
 
82,613 uts.
     
01/12/07
      82,613       59,984  
Limited Liability Company Unit Class C (B)
 
59,756 uts.
     
01/12/07
      59,756       46,496  
Limited Liability Company Unit Class D (B)
 
671,525 uts.
     
05/03/10
      -       749,628  
Limited Liability Company Unit Class E (B)
 
1,102 uts.
     
05/03/10
      -       -  
                      142,369       856,108  
Connor Sport Court International, Inc.
                               
A designer and manufacturer of outdoor and indoor synthetic sports flooring and other temporary flooring products.
 
Preferred Stock Series B-2 (B)
 
9,081 shs.
     
07/05/07
      370,796       302,691  
Preferred Stock Series C (B)
 
3,748 shs.
     
07/05/07
      125,207       980,238  
Common Stock (B)
 
380 shs.
     
07/05/07
      4       174  
Limited Partnership Interest (B)
 
6.88% int.
                   *       103,135       -  
*08/12/04 and 01/14/05.
                    599,142       1,283,103  
                                 
CorePharma LLC
                               
A manufacturer of oral dose generic pharmaceuticals targeted at niche applications.
                         
Warrant, exercisable until 2015, to purchase
common stock at $.001 per share (B)
 
10 shs.
     
08/04/05
      72,617       232,303  
                                 
Crane Rental Corporation
                               
A crane rental company since 1960, headquartered in Florida.
                               
13% Senior Subordinated Note due 2015
  $ 1,032,750      
08/21/08
      1,009,377       1,032,750  
Common Stock (B)
 
135,000 shs.
     
08/21/08
      135,000       70,263  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
72,037 shs.
     
08/21/08
      103,143       37,493  
                    1,247,520       1,140,506  
 

12
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
   
Shares, Units or
   
 
             
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                               
CTM Holding, Inc.
                             
A leading owner and operator of coin-operated children’s rides, penny presses and candy kiosks in the U.S.
         
15% Senior Subordinated Note due 2019
  $ 1,212,537      
11/22/13
    $ 1,191,121     $ 1,242,637  
Common Stock (B)
 
31,044 shs.
     
11/22/13
      443,182       372,508  
                      1,634,303       1,615,145  
Custom Engineered Wheels, Inc.
                               
A manufacturer of custom engineered, non-pneumatic plastic wheels and plastic tread cap tires used primarily for lawn and garden products and wheelchairs.
Preferred Stock PIK (B)
 
156 shs.
     
10/26/09
      156,468       228,842  
Preferred Stock Series A (B)
 
114 shs.
     
10/27/09
      104,374       167,196  
Common Stock (B)
 
38 shs.
     
10/26/09
      38,244       25,120  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
28 shs.
     
10/27/09
      25,735       18,354  
                    324,821       439,512  
DPL Holding Corporation
                             
A distributor and manufacturer of aftermarket undercarriage parts for medium and heavy duty trucks and trailers.
         
14% Senior Subordinated Note due 2019
  $ 1,342,333      
05/04/12
      1,322,822       1,334,277  
Preferred Stock (B)
 
25 shs.
     
05/04/12
      252,434       288,094  
Common Stock (B)
 
25 shs.
     
05/04/12
      28,048       71,226  
                      1,603,304       1,693,597  
E S P Holdco, Inc.                                
A manufacturer of power protection technology for commercial office equipment, primarily supplying the office equipment dealer network.
Common Stock (B)    
349 shs.
      01/08/08      
174,701
     
247,931
 
 
Eatem Holding Company
A developer and manufacturer of savory flavor systems for soups, sauces, gravies, and other products produced by food manufacturers for retail and foodservice end products.
12.5% Senior Subordinated Note due 2018
  $ 950,000      
02/01/10
      878,917       959,500  
Common Stock (B)
 
50 shs.
     
02/01/10
      50,000       74,031  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
119 shs.
     
02/01/10
      107,100       176,520  
                      1,036,017       1,210,051  
ELT Holding Company
                               
A provider of web-based ethics and compliance training solutions for companies in the United States.
                 
Common Stock (B)
 
41 shs.
     
03/01/12
      90,909       216,563  
 

13
 
 

 

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Principal Amount,
                   
   
Shares, Units or
                   
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                           
EPM Holding Company                          
A provider of non-discretionary regulatory driven engineering services that support mission critical safety and operational aspects of nuclear power plants.  
14.5% Senior Subordinated Note due 2019
  $ 592,713      
07/26/13
    $ 582,748     $ 604,567  
Common Stock (B)
 
1,535 shs.
     
07/26/13
      153,474       99,755  
                      736,222       704,322  
ERG Holding Company LLC
                               
A provider of inpatient and outpatient clinical trial services to pharmaceutical companies and contract research organizations.
 
13.5% Senior Subordinated Note due 2019
  $ 937,235      
04/04/14
      919,777       943,673  
Common Stock (B)
 
31 shs.
     
04/04/14
      77,533       77,525  
                      997,310       1,021,198  
F F C Holding Corporation
                               
A leading U.S. manufacturer of private label frozen novelty and ice cream products.
                         
Limited Liability Company Unit Preferred (B)
 
171 uts.
     
09/27/10
      58,345       207,629  
Limited Liability Company Unit (B)
 
171 uts.
     
09/27/10
      17,073       29,308  
                      75,418       236,937  
F G I Equity LLC
                               
A manufacturer of a broad range of filters and related products that are used in commercial, light industrial, healthcare, gas turbine, nuclear, laboratory, clean room, hotel, educational system, and food processing settings.
Limited Liability Company Unit (B)
   
80,559 uts.
     
04/15/14
      -       80,559  
Limited Liability Company Unit Class B-1 (B)
   
65,789 uts.
     
12/15/10
      65,789       109,214  
Limited Liability Company Unit Class B-2 (B)
   
8,248 uts.
     
12/15/10
      8,248       13,692  
Limited Liability Company Unit Class B-3 (B)
   
6,522 uts.
     
08/30/12
      15,000       12,438  
Limited Liability Company Unit Class C (B)
   
1,575 uts.
     
12/20/10
      16,009       23,221  
                      105,046       239,124  
G C Holdings                                
A leading manufacturer of gaming tickets, industrial recording charts, security-enabled point-of sale receipts, and medical charts and supplies.
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
    198 shs.       10/19/10      
46,958
     
110,776
 
                                 
GD Dental Services LLC                                
A provider of convenient “onestop” general, specialty, and cosmetic dental services with 21 offices located throughout South and Central Florida.  
Limited Liability Company Unit Common (B)     767 uts.       10/05/12      
767
     
38,719
 
Limited Liability Company Unit Preferred (B)     76 uts.       10/05/12      
75,920
     
84,330
 
                      76,687       123,049  
 

14
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                           
GenNx Novel Holding, Inc.
                             
A manufacturer and distributor of nutraceutical ingredients.
                             
13% Senior Subordinated Note due 2020
  $ 1,574,145      
03/27/14
    $ 1,544,635     $ 1,582,730  
Common Stock (B)
 
155 shs.
     
03/27/14
      155,000       138,817  
                      1,699,635       1,721,547  
gloProfessional Holdings, Inc.
A marketer and distributor of premium mineral-based cosmetics, cosmeceuticals and professional hair care products to the professional spa and physician’s office channels.
14% Senior Subordinated Note due 2019
  $ 1,166,467      
03/27/13
      1,147,861       1,170,317  
Common Stock (B)
 
1,181 shs.
     
03/27/13
      118,110       151,188  
                      1,265,971       1,321,505  
Golden County Foods Holding, Inc.
                               
A manufacturer of frozen appetizers and snacks.
                               
14% Senior Subordinated Note due 2019 (D)
  $ 38,950      
11/13/13
      231,183       -  
Preferred Stock (B)
 
151,643 shs.
     
11/13/13
      77,643       -  
Preferred Stock Series F (B)
 
77,900 shs.
     
11/13/13
      924,731       -  
                      1,233,557       -  
GTI Holding Company
                               
A designer, developer, and marketer of precision specialty hand tools and handheld test instruments.
 
12% Senior Subordinated Note due 2020
  $ 727,865      
02/05/14
      680,264       731,286  
Common Stock (B)
 
846 shs.
     
02/05/14
      84,636       73,172  
Warrant, exercisable until 2024, to purchase
common stock at $.01 per share (B)
 
397 shs.
     
02/05/14
      36,816       34,337  
                      801,716       838,795  
Handi Quilter Holding Company
                               
A designer and manufacturer of long-arm quilting machines and related components for the consumer quilting market.
         
Common Stock (B)
 
38 shs.
     
11/14/11
      38,461       131,232  
Warrant, exercisable until 2021, to purchase
common stock at $.01 per share (B)
 
28 shs.
     
11/14/11
      25,596       93,971  
                      64,057       225,203  
Hartland Controls Holding Corporation
                               
A manufacturer and distributor of electronic and electromechanical components.
                         
14% Senior Subordinated Note due 2019
  $ 1,089,948      
02/14/14
      1,069,856       1,122,497  
Common Stock (B)
 
821 shs.
     
02/14/14
      822       63,584  
Preferred Stock Series A (B)
 
2,547 shs.
     
02/14/14
      254,734       264,304  
                    1,325,412       1,450,385  
 

15
 
 

 

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                           
Healthcare Direct Holding Company
                             
A direct-to-customer marketer of discount dental plans.
                             
14% Senior Subordinated Note due 2019 (D)
  $ 735,452      
03/09/12
    $ 723,238     $ 723,327  
16% Senior Subordinated PIK Note due 2019
  $ 46,370      
03/31/14
      46,370       45,564  
Common Stock (B)
 
517 shs.
     
03/09/12
      51,724       58,902  
                      821,332       827,793  
HHI Group, LLC
                               
A developer, marketer, and distributor of hobby-grade radio control products.
                         
14% Senior Subordinated Note due 2020
  $ 1,545,035      
01/17/14
      1,516,945       1,552,484  
Limited Liability Company Unit (B)
 
102 uts.
     
01/17/14
      101,563       84,037  
                      1,618,508       1,636,521  
Hi-Rel Group LLC
                               
A manufacturer and distributor of precision metal piece parts for the microelectronic packaging industry, serving the aerospace/ defense, telecommunications, and medical end markets.
12% Senior Subordinated Note due 2018
  $ 703,125      
04/15/13
      667,202       698,815  
Limited Liability Company Unit (B)
 
234 uts.
     
04/15/13
      234,375       96,328  
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)
 
37,177 shs.
     
04/15/13
      32,344       14,551  
                      933,921       809,694  
HOP Entertainment LLC
                               
A provider of post production equipment and services to producers of television shows and motion pictures.
         
Limited Liability Company Unit Class F (B)
 
47 uts.
     
10/14/11
      -       -  
Limited Liability Company Unit Class G (B)
 
114 uts.
     
10/14/11
      -       -  
Limited Liability Company Unit Class H (B)
 
47 uts.
     
10/14/11
      -       -  
Limited Liability Company Unit Class I (B)
 
47 uts.
     
10/14/11
      -       -  
                      -       -  
Hospitality Mints Holding Company
                               
A manufacturer of individually-wrapped imprinted promotional mints.
                         
12% Senior Subordinated Note due 2016
  $ 1,098,837      
08/19/08
      1,069,741       1,092,999  
Common Stock (B)
 
251 shs.
     
08/19/08
      251,163       85,737  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
65 shs.
     
08/19/08
      60,233       22,161  
                      1,381,137       1,200,897  
HVAC Holdings, Inc.
                               
A provider of integrated energy efficiency services and maintenance programs for HVAC systems.
                 
14% Senior Subordinated Note due 2019
  $ 1,182,884      
09/27/12
      1,164,576       1,189,202  
Preferred Stock Series A (B)
 
1,127 shs.
     
09/27/12
      112,726       139,257  
Common Stock (B)
 
910 shs.
     
09/27/12
      910       2,147  
                    1,278,212       1,330,606  
 

16
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                               
Ideal Tridon Holdings, Inc.
                             
A designer and manufacturer of clamps and couplings used in automotive and industrial end markets.
Common Stock (B)
 
93 shs.
     
10/27/11
    $ 92,854     $ 197,968  
                               
Insurance Claims Management, Inc.
                             
A third party administrator providing auto and property claim administration services for insurance companies.
         
Common Stock (B)
 
47 shs.
     
02/27/07
      1,424       325,945  
                               
J A C Holding Enterprises, Inc.
                             
A supplier of luggage racks and accessories to the original equipment manufacturers.
 
Preferred Stock A (B)
 
165 shs.
     
12/20/10
      165,000       -  
Preferred Stock B (B)
 
0.06 shs.
     
12/20/10
      -       -  
Common Stock (B)
 
33 shs.
     
12/20/10
      1,667       -  
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)
 
12 shs.
     
12/20/10
      105,643       -  
                    272,310       -  
Janus Group Holdings LLC
                             
A manufacturer of roll-up doors and hallway systems that are primarily used in self-storage facilities.
 
13.5% Senior Subordinated Note due 2019
  $ 1,342,391      
12/11/13
      1,318,315       1,382,663  
Limited Liability Company Unit Class A (B)
 
283 uts.
     
12/11/13
      232,837       567,229  
                      1,551,152       1,949,892  
JMH Investors LLC
                               
A developer and manufacturer of custom formulations for a wide variety of foods.
 
14.25% Senior Subordinated Note due 2019
  $ 1,075,706      
12/05/12
      1,058,602       1,011,322  
Limited Liability Company Unit (B)
 
217,391 uts.
     
12/05/12
      217,391       98,234  
                      1,275,993       1,109,556  
K & N Parent, Inc.
                               
A manufacturer and supplier of automotive aftermarket performance air filters and intake systems.
Preferred Stock Series A (B)
 
102 shs.
     
12/23/11
      -       -  
Preferred Stock Series B (B)
 
29 shs.
     
12/23/11
      -       -  
Common Stock (B)
 
163 shs.
     
             *
      6,522       132,624  
* 12/23/11 and 06/30/14.
                    6,522       132,624  
                                 
K N B Holdings Corporation
                               
A designer, manufacturer and marketer of products for the custom framing market.
   
Common Stock (B)
 
71,053 shs.
     
05/24/06
      71,053       68,148  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
43,600 shs.
     
05/25/06
      37,871       41,817  
                    108,924       109,965  
 

17
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                                 
K P I Holdings, Inc.
                               
The largest player in the U.S. non-automotive, non-ferrous die casting segment.
                         
Convertible Preferred Stock Series C (B)
   
29 shs.
     
06/30/09
    $ 29,348     $ 88,547  
Convertible Preferred Stock Series D (B)
   
13 shs.
     
09/17/09
      12,958       38,880  
Common Stock (B)
   
235 shs.
     
07/15/08
      234,783       168,560  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
   
51 shs.
     
07/16/08
      50,836       36,501  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
   
67 shs.
     
09/17/09
      -       48,390  
                      327,925       380,878  
LPC Holding Company                                
A designer and manufacturer of precision-molded silicone rubber components that are utilized in the medical and automotive end markets.
Common Stock (B)     105 shs.       08/15/11      
105,019
     
147,625
 
 
M V I Holding, Inc.
A manufacturer of large precision machined metal components used in equipment which services a variety of industries, including the oil and gas, mining, and defense markets.
Common Stock (B)
 
32 shs.
     
09/12/08
      32,143       -  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
35 shs.
     
09/12/08
      34,714       -  
                    66,857       -  
Mail Communications Group, Inc.
                             
A provider of mail processing and handling services, lettershop services, and commercial printing services.
                 
Limited Liability Company Unit (B)
 
12,764 uts.
                   *       166,481       177,028  
Warrant, exercisable until 2017, to purchase
common stock at $.01 per share (B)
 
1,787 shs.
     
05/04/07
      22,781       24,785  
* 05/04/07 and 01/02/08.
                  189,262       201,813  
                               
Manhattan Beachwear Holding Company
                             
A designer and distributor of women’s swimwear.
                             
12.5% Senior Subordinated Note due 2018
  $ 419,971      
01/15/10
      390,193       419,971  
15% Senior Subordinated Note due 2018
  $ 113,118      
10/05/10
      111,884       112,569  
Common Stock (B)
 
35 shs.
     
10/05/10
      35,400       82,998  
Common Stock (B)
 
118 shs.
     
01/15/10
      117,647       275,841  
Warrant, exercisable until 2019, to purchase
common stock at $.01 per share (B)
 
104 shs.
     
10/05/10
      94,579       244,118  
                    749,703       1,135,497  
 

18
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                                 
MedSystems Holdings LLC
                               
A manufacturer of enteral feeding products, such as feeding tubes and other products related to assisted feeding.
 
Preferred Unit (B)
   
66 uts.
     
08/29/08
    $ 66,451     $ 83,821  
Common Unit Class A (B)
   
671 uts.
     
08/29/08
      671       96,410  
Common Unit Class B (B)
   
263 uts.
     
08/29/08
      63,564       37,821  
                      130,686       218,052  
Merex Holding Corporation
                               
A provider of after-market spare parts and components, as well as Maintenance, Repair and Overhaul services for “out of production” or “legacy” aerospace and defense systems that are no longer effectively supported by the original equipment manufacturers.
14% Senior Subordinated Note due 2019
  $ 454,295      
09/22/11
      448,144       454,295  
Limited Liability Company Unit Series A
 
228 uts.
     
05/07/14
      14,760       11,341  
Limited Liability Company Unit Series B (B)
 
155,945 uts.
     
09/22/11
      155,945       149,873  
                      618,849       615,509  
MicroGroup, Inc.
                               
A manufacturer of precision parts and assemblies, and a value-added supplier of metal tubing and bars.
                 
7% Senior Subordinated Note due 2014 (D)
  $ 902,727                    *       865,676       -  
Preferred Stock Series A (B)
 
519 shs.
     
10/10/12
      498,734       -  
Common Stock (B)
 
238 shs.
                   *       238,000       -  
Common Stock Series B (B)
 
597 shs.
     
10/10/12
      6       -  
Warrant, exercisable until 2014, to purchase
common stock at $.02 per share (B)
 
87 shs.
                   *       86,281       -  
*08/12/05 and 09/11/06.
                    1,688,697       -  
                                 
MES Partners, Inc.
                               
An industrial service business offering an array of cleaning and environmental services to the Gulf Coast region of the U.S.
         
12% Senior Subordinated Note due 2021
  $ 1,082,045      
09/30/14
      1,060,410       1,079,511  
Common Stock Class B (B)
 
219,545 shs.
     
09/30/14
      219,545       208,568  
                      1,279,955       1,288,079  
MNX Holding Company
                               
An international third party logistics company providing customized logistics services to customers across the globe.
         
14% Senior Subordinated Note due 2019
  $ 1,252,274      
11/02/12
      1,232,608       1,155,158  
Common Stock (B)
 
45 shs.
     
11/02/12
      44,643       -  
                      1,277,251       1,155,158  
Motion Controls Holdings
                               
A manufacturer of high performance mechanical motion control and linkage products.
                         
14.25% Senior Subordinated Note due 2020
  $ 969,976      
11/30/10
      959,792       969,976  
Limited Liability Company Unit Class B-1 (B)
 
75,000 uts.
     
11/30/10
      -       79,918  
Limited Liability Company Unit Class B-2 (B)  
6,801 uts.
      11/30/10       -       7,247  
                    959,792       1,057,141  
 

19
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or    
 
             
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                                 
NABCO, Inc.
                               
A producer of explosive containment vessels in the United States.
                         
Common Stock (B)
   
429 shs.
     
12/20/12
    $ 306,091     $ -  

NetShape Technologies, Inc.
A manufacturer of powder metal and metal injection molded precision components used in industrial, consumer, and other applications.
14% Senior Subordinated Note due 2015
  $ 1,061,463      
02/02/07
      1,048,639       1,013,273  
Limited Partnership Interest of
                               
Saw Mill PCG Partners LLC (B)
 
1.38% int.
     
02/01/07
      588,077       -  
Limited Liability Company Unit Class D of
                               
Saw Mill PCG Partners LLC (B)
 
9 uts.
                  *       8,873       -  
Limited Liability Company Unit Class D-1 of
                               
Saw Mill PCG Partners LLC (B)
 
121 uts.
     
09/30/09
      121,160       14,435  
Limited Liability Company Unit Class D-2 of
                               
Saw Mill PCG Partners LLC (B)
 
68 uts.
     
04/29/11
      34,547       140,038  
* 12/18/08 and 09/30/09.
                    1,801,296       1,167,746  

Nicoat Acquisitions LLC
A manufacturer of water-based and ultraviolet coatings for high-performance graphic arts, packaging and other specialty coating applications.
14% Senior Subordinated Note due 2018
  $ 486,792      
11/05/10
      461,436       486,792  
Limited Liability Company Unit Series B (B)
 
17,241 uts.
     
11/05/10
      17,241       34,741  
Limited Liability Company Unit Series B (B)
 
34,931 uts.
     
11/05/10
      34,931       70,386  
Limited Liability Company Unit Series F (B)
 
34,931 uts.
     
11/05/10
      -       8,698  
                      513,608       600,617  
Northwest Mailing Services, Inc.
A producer of promotional materials for companies that use direct mail as part of their customer retention and loyalty programs.
Limited Partnership Interest (B)
 
1,740 uts.
                  *       174,006       143,941  
Warrant, exercisable until 2019, to purchase
common stock at $.01 per share (B)
 
2,605 shs.
                  *       260,479       215,474  
*07/09/09 and 08/09/10.
                  434,485       359,415  
                               
O E C Holding Corporation
                             
A provider of elevator maintenance, repair and modernization services.
                         
13% Senior Subordinated Note due 2018
  $ 444,445      
06/04/10
      423,174       444,445  
Preferred Stock Series A (B)
 
554 shs.
     
06/04/10
      55,354       24,804  
Preferred Stock Series B (B)
 
311 shs.
     
06/04/10
      31,125       -  
Common Stock (B)  
344 shs.
      06/04/10       344       -  
                    509,997       469,249  
 

20
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or    
 
             
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                                 
P K C Holding Corporation
                               
A manufacturer of plastic film and badges for the general industrial, medical, and food industries.
                 
Preferred Stock Class A (B)
   
29 shs.
     
12/21/10
    $ 180,380     $ 351,657  
Common Stock (B)
   
29 shs.
     
12/21/10
      13,500       181,324  
                      193,880       532,981  
P P T Holdings LLC
                               
A high-end packaging solutions provider that targets customers who have multiple packaging needs, require a high number of low volume SKUs, short lead times, technical expertise, and overall supply chain management.
15% Senior Subordinated Note due 2017
  $ 1,001,150      
12/20/10
      990,702       1,001,150  
Limited Liability Company Unit Class A (B)
 
33 uts.
     
12/20/10
      106,071       139,255  
Limited Liability Company Unit Class B (B)
 
33 uts.
     
12/20/10
      1,072       40,883  
                      1,097,845       1,181,288  
Pearlman Enterprises, Inc.
A developer and distributor of tools, equipment and supplies to the natural and engineered stone industry.
Preferred Stock Series A (B)
 
1,236 shs.
     
05/22/09
      59,034       456,990  
Preferred Stock Series B (B)
 
7,059 shs.
     
05/22/09
      290,050       -  
Common Stock (B)
 
21,462 shs.
     
05/22/09
      993,816       -  
                    1,342,900       456,990  
Petroplex Inv Holdings LLC
                             
A leading provider of acidizing services to E&P customers in the Permian Basin.
                         
16% Senior Subordinated Note due 2018
  $ 1,177,984      
11/29/12
      1,157,234       1,228,178  
Limited Liability Company Unit (B)
 
156,250 uts.
     
11/29/12
      156,250       229,503  
                      1,313,484       1,457,681  
Polytex Holdings LLC
A manufacturer of water based inks and related products serving primarily the wall covering market.
13% Senior Subordinated Note due 2020
  $ 1,038,401      
07/31/14
      1,018,109       1,035,640  
Limited Liability Company Unit
 
148,096 uts.
     
07/31/14
      148,096       140,691  
                      1,166,205       1,176,331  
 

21
 
 

 

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Principal Amount,
                   
   
Shares, Units or
                   
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                               
Precision Wire Holding Company
                             
A manufacturer of specialty medical wires that are used in non-elective minimally invasive surgical procedures.
         
Warrant, exercisable until 2019, to purchase
common stock at $.01 per share (B)
 
109 shs.
     
11/12/09
      107,970       210,035  
                               
R A J Manufacturing Holdings LLC
                             
A designer and manufacturer of women’s swimwear sold under a variety of licensed brand names.
                 
8% Senior Subordinated Note due 2017
  $ 49,908      
01/02/14
    $ 217,411     $ 49,908  
Limited Liability Company Unit (B)
 
1,497 uts.
     
12/15/06
      149,723       37,324  
Limited Liability Company Unit Class B Common (B)
 
6 uts.
     
01/02/14
      219,593       54,742  
Limited Liability Company Unit Class B-1 Preferred (B)
 
9 uts.
     
01/02/14
      374,307       374,308  
Warrant, exercisable until 2017, to purchase
common stock at $.01 per share (B)
 
2 shs.
     
12/15/06
      69,609       17,613  
                      1,030,643       533,895  
REVSpring, Inc.
A provider of accounts receivable management and revenue cycle management services to customers in the healthcare, financial and utility industries.
14% Senior Subordinated Note due 2018
  $ 1,178,233                   *       1,164,395       1,197,078  
Limited Liability Company Unit Class A (B)
 
13,548 uts.
                  *       135,477       169,020  
* 10/21/11 and 08/03/12.
                    1,299,872       1,366,098  
                                 
Rose City Holding Company
                               
A designer and printer of folding cartons and packaging for food and beverage manufacturers on the West Coast.
         
Preferred Stock (B)
 
39,062 shs.
     
12/11/12
      39,062       45,626  
Common Stock (B)
 
39 shs.
     
12/11/12
      4       43,687  
                      39,066       89,313  
Safety Infrastructure Solutions
                               
A provider of trench safety equipment to a diverse customer base across multiple end markets in Texas and the Southwestern United States.
15% Senior Subordinated Note due 2018
  $ 843,750                   *       834,773       852,188  
Preferred Stock (B)
 
2,098 shs.
     
03/30/12
      83,920       102,964  
Common Stock (B)
 
983 shs.
     
03/30/12
      9,830       46,154  
* 03/30/12 and 05/16/13.
                    928,523       1,001,306  

Sencore Holding Company
A designer, manufacturer, and marketer of decoders, receivers and modulators sold to broadcasters, satellite, cable and telecom operators for encoding/decoding analog and digital transmission video signals.
7% Senior Subordinated Note due 2015 (D)
  $ 1,404,092      
01/15/09
      826,004       280,818  
                                 
Signature Systems Holding Company
                               
A seller and installer of a variety of modular surfaces, industrial matting and related products used for ground protection.
       
12.5% Senior Subordinated Note due 2021
  $ 755,088      
03/15/13
      716,861       770,190  
Common Stock (B)
 
76 shs.
     
03/15/13
      75,509       165,494  
Warrant, exercisable until 2023, to purchase
common stock A at $.01 per share (B)
 
31 shs.
      03/15/13       28,316       67,613  
                    820,686       1,003,297  
 

22
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Principal Amount,
                   
   
Shares, Units or
                   
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                               
Smart Source Holdings LLC
                             
A short-term computer rental company.
                             
Limited Liability Company Unit (B)
 
328 uts.
                  *     $ 261,262     $ 460,993  
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B)
 
83 shs.
                  *       67,467       116,770  
* 08/31/07 and 03/06/08.
                  328,729       577,763  
                               
SMB Machinery Holdings, Inc.
                             
A reseller of used, rebuilt and refurbished packaging and processing equipment, primarily serving the bottling and food manufacturing industries.
 
14% Senior Subordinated Note due 2019
  $ 742,387      
10/18/13
      729,393       716,422  
Common Stock (B)
 
841 shs.
     
10/18/13
      84,100       -  
                      813,493       716,422  
Spartan Foods Holding Company
                               
A manufacturer of branded pizza crusts and pancakes.
                               
14.25% Senior Subordinated Note due 2017
  $ 605,299      
12/15/09
      551,342       605,299  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
136 shs.
     
12/15/09
      120,234       85,327  
                      671,576       690,626  
Specialty Commodities, Inc.
                               
A distributor of specialty food ingredients.
                               
Common Stock (B)
 
16 shs.
     
10/23/08
      158,824       415,436  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
6 shs.
     
10/23/08
      53,285       156,946  
                      212,109       572,382  
Stag Parkway Holding Company
                               
A distributor of RV parts and accessories in the United States.
                               
13% Senior Subordinated Note due 2018
  $ 1,152,104      
12/19/12
      1,110,920       1,152,104  
Common Stock (B)
 
118 shs.
     
12/19/12
      118,203       152,651  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
35 shs.
     
12/19/12
      31,848       44,827  
                      1,260,971       1,349,582  
Strahman Holdings Inc
                               
A manufacturer of industrial valves and wash down equipment for a variety of industries, including chemical, petrochemical, polymer, pharmaceutical, food processing, beverage and mining.
 
14% Senior Subordinated Note due 2019
  $ 1,059,783      
12/13/13
      1,040,079       1,082,446  
Preferred Stock Series A (B)    
158,967 shs.
      12/13/13       158,967       123,594  
                      1,199,046       1,206,040  
 

23
 
 

 

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
    Principal Amount,                    
    Shares, Units or                    
Corporate Restricted Securities: (A) (Continued)  
Ownership
Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                                 
Strata/WLA Holding Corporation
                               
A leading independent anatomic pathology laboratory that conducts over 320,000 tests annually to customers in 40 U.S. states and in Canada and Venezuela.
14.5% Senior Subordinated Note due 2018 (D)
  $ 959,148      
07/01/11
    $ 943,703     $ -  
Preferred Stock Series A (B)
 
76 shs.
     
07/01/11
      76,046       -  
                      1,019,749       -  
Sundance Investco LLC
                               
A provider of post-production services to producers of movies and television shows.
                         
Limited Liability Company Unit Class A (B)
 
3,405 uts.
     
03/31/10
      -       -  

Sunrise Windows Holding Company
A manufacturer and marketer of premium vinyl windows exclusively selling to the residential remodeling and replacement market.
14% Senior Subordinated Note due 2017   $ 1,038,557      
12/14/10
      1,005,216       1,038,027  
14% Senior Subordinated PIK Note due 2017   $ 95,902      
08/17/12
      93,467       95,853  
Common Stock (B)
 
38 shs.
     
12/14/10
      38,168       30,254  
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)
 
37 shs.
     
12/14/10
      37,249       29,525  
                      1,174,100       1,193,659  
Synteract Holdings Corporation
                               
A provider of outsourced clinical trial management services to pharmaceutical and biotechnology companies.  
14% Senior Subordinated Note due 2019   $ 2,028,477      
09/02/08
      1,972,019       1,829,477  
Preferred Stock Series D (B)
 
257 shs.
     
02/27/13
      25,678       -  
Redeemable Preferred Stock Series A (B)
 
678 shs.
     
10/03/08
      6,630       -  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
6,778 shs.
     
09/02/08
      59,661       -  
                      2,063,988       1,829,477  

Terra Renewal LLC
A provider of wastewater residual management and required environmental reporting, permitting, nutrient management planning and record keeping to companies involved in poultry and food processing.
10% Senior Subordinated Note due 2016 (D)
  $ 350,860                   *       9,345       350,860  
Common Stock Class B
 
32 shs.
                  *       -       -  
Limited Partnership Interest of
                               
Saw Mill Capital Fund V, LLC (B)
 
2.27% int.
                **       65,387       -  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
41 shs.
     
04/28/06
      33,738       -  
* 04/28/06 and 09/13/06.
                    108,470       350,860  
**03/01/05 and 10/10/08.


24
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
Corporate Restricted Securities: (A) (Continued)
 
Principal Amount,
Shares, Units or
Ownership
Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
                           
Torrent Group Holdings, Inc.
                         
A contractor specializing in the sales and installation of engineered drywells for the retention and filtration of stormwater and nuisance water flow.
 
3% Senior Subordinated Note due 2018 (D)
  $ 1,062,258      
12/05/13
    $ -     $ 1,009,145  
15% Senior Subordinated Note due 2020 (D)
  $ 46,798      
12/05/13
      219,203       -  
Warrant, exercisable until 2023, to purchase
common stock at $.01 per share (B)
    28,079      
12/05/13
      -       -  
                      219,203       1,009,145  
Transpac Holding Company
                               
A designer, importer, and wholesaler of home décor and seasonal gift products.
       
12% Senior Subordinated Note due 2015 (D)
  $ 938,651      
10/31/07
      909,276       -  
Common Stock (B)
 
110 shs.
     
10/31/07
      110,430       -  
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B)
 
50 shs.
     
10/31/07
      46,380       -  
                      1,066,086       -  
Tranzonic Holdings LLC
                               
A producer of commercial and industrial supplies, such as safety products, janitorial supplies, work apparel, washroom and restroom supplies and sanitary care products.
 
14% Senior Subordinated Note due 2019
  $ 1,514,157      
07/05/13
      1,488,841       1,525,643  
Limited Liability Company Unit Class A (B)
 
147,727 shs.
     
07/05/13
      147,727       167,189  
                      1,636,568       1,692,832  
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 2016
  $ 727,062                   *       716,260       727,062  
Preferred Stock Series B (B)
 
128 shs.
     
10/20/08
      127,677       454,860  
Common Stock (B)
 
393 shs.
                  *       423,985       24,154  
Warrant, exercisable until 2017, to purchase
common stock at $.02 per share (B)
 
81 shs.
                  *       84,650       4,988  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
558 shs.
     
10/20/08
      -       34,304  
* 07/19/05 and 12/22/05.
                    1,352,572       1,245,368  
                                 
TruStile Doors, Inc.
                               
A manufacturer and distributor of interior doors.
               
Limited Liability Company Unit (B)
 
5,888 uts.
     
02/28/11
      78,125       219,025  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
3,060 shs.
      04/11/03       36,032       31,747  
                    114,157       250,772  
 
 
 

25
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Principal Amount,
                     
   
Shares, Units or
     
 
             
Corporate Restricted Securities: (A) (Continued)
 
Ownership
Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
                           
U-Line Corporation
                             
A manufacturer of high-end, built-in, undercounter ice making, wine storage and refrigeration appliances.
         
Common Stock (B)
 
96 shs.
     
04/30/04
    $ 96,400     $ 234,588  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
122 shs.
     
04/30/04
      112,106       296,885  
                    208,506       531,473  
U M A Enterprises, Inc.
                             
An importer and wholesaler of home décor products.
                             
15% Senior Subordinated Note 2021
  $ 1,236,665      
06/06/14
      338,374       1,259,667  
Warrant, exercisable until 2024, to purchase
common stock at $.01 per share (B)
 
791 shs.
     
06/06/14
      -       41,071  
                      338,374       1,300,738  
Vitex Packaging Group, Inc.
                               
A manufacturer of specialty packaging, primarily envelopes and tags used on tea bags.
                         
Class B Unit (B)
 
406,525 uts.
     
10/29/09
      184,266       -  
Class C Unit (B)
 
450,000 uts.
     
10/29/09
      413,244       78,922  
Limited Liability Company Unit Class A (B)
 
383,011 uts.
                  *       229,353       -  
Limited Liability Company Unit Class B (B)
 
96,848 uts.
     
07/19/04
      96,848       -  
* 07/19/04 and 10/29/09.
                    923,711       78,922  
                                 
VP Holding Company
                               
A provider of school transportation services for special-needs and homeless children in Massachusetts.
         
13% Senior Subordinated Note due 2020
  $ 501,842      
03/31/14
      492,420       515,330  
Common Stock (B)
 
3,632 shs.
     
03/31/14
      363,158       318,330  
                      855,578       833,660  
Wellborn Forest Holding Company
                               
A manufacturer of semi-custom kitchen and bath cabinetry.
                               
8% Senior Subordinated Note due 2017 (D)
  $ 1,680,931      
11/30/06
      867,531       -  
Common Stock (B)
 
101 shs.
     
11/30/06
      101,250       -  
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)
 
51 shs.
     
11/30/06
      45,790       -  
                      1,014,571       -  
Wheaton Holding Corporation
                               
A distributor and manufacturer of laboratory supply products and packaging.
                         
Preferred Stock Series B (B)
 
703 shs.
     
06/08/10
      70,308       103,791  
Common Stock (B)  
353 shs.
      06/08/10       353       50,883  
                    70,661       154,674  
 

26
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Principal Amount,
                     
   
Shares, Units or
                     
Corporate Restricted Securities: (A) (Continued)
 
Ownership
Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
                           
Whitcraft Holdings, Inc.
                             
A leading independent manufacturer of precision formed, machined, and fabricated flight-critical aerospace components.
 
12% Senior Subordinated Note due 2018
  $ 794,521      
12/16/10
    $ 752,050     $ 789,863  
Common Stock (B)
 
205 shs.
     
12/16/10
      205,480       80,162  
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)
 
55 shs.
     
12/16/10
      49,334       21,542  
                      1,006,864       891,567  
WP Supply Holding Corporation
                               
A distributor of fresh fruits and vegetables to grocery wholesalers and foodservice distributors in the upper Midwest.
 
14.5% Senior Subordinated Note due 2018
  $ 913,965      
11/03/11
      901,995       932,243  
Common Stock (B)
 
1,500 shs.
     
11/03/11
      150,000       200,866  
                      1,051,995       1,133,109  
                                 
Total Private Placement Investments (E)
                  $ 84,008,596     $ 83,562,794  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

27
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Interest
   
Due
 
Principal
         
Market
 
Corporate Restricted Securities: (A) (Continued)
 
Rate
   
Date
 
Amount
   
Cost
   
Value
 
                             
Rule 144A Securities - 12.89%:
                           
                             
Bonds - 12.89%
                           
Alliant Techsystems Inc.
    5.250 %  
10/01/21
  $ 500,000     $ 500,000     $ 501,250  
Amsted Industries
    5.375    
09/15/24
    240,000       240,000       232,800  
ArcelorMittal
    6.125    
06/01/18
    500,000       510,135       530,000  
Belden Inc.
    5.250    
07/15/24
    210,000       210,000       201,075  
California Resources Corporation
    6.000    
11/15/24
    480,000       480,000       493,200  
CITGO Petroleum Corporation
    6.250    
08/15/22
    425,000       425,000       442,000  
Cornerstone Chemical Company
    9.375    
03/15/18
    375,000       382,618       393,750  
CTP Transportation Products, LLC
    8.250    
12/15/19
    310,000       310,000       330,925  
Endo Finance LLC
    5.375    
01/31/23
    500,000       490,131       477,500  
First Data Corporation
    7.375    
06/15/19
    250,000       250,000       263,150  
Forest Laboratories, Inc.
    5.000    
12/15/21
    370,000       370,000       395,486  
Forest Laboratories, Inc.
    4.875    
02/15/21
    500,000       500,000       533,390  
Hercules Offshore, Inc.
    7.500    
10/01/21
    750,000       750,000       603,750  
Hilcorp Energy Company
    7.625    
04/15/21
    325,000       313,798       342,062  
Hilcorp Energy Company
    5.000    
12/01/24
    335,000       335,000       322,438  
Hilton Worldwide Holdings, Inc.
    5.625    
10/15/21
    750,000       750,000       772,500  
J.B. Poindexter Co., Inc.
    9.000    
04/01/22
    500,000       500,000       536,875  
JBS USA Holdings, Inc.
    7.750    
10/28/20
    375,000       393,858       398,437  
Jupiter Resources Inc.
    8.500    
10/01/22
    500,000       476,206       443,750  
Lamar Media Corporation
    5.375    
01/15/24
    160,000       160,000       160,400  
LBC Tank Terminals Holding Netherlands B.V.
    6.875    
05/15/23
    663,000       682,849       706,095  
Mallinckrodt PLC
    5.750    
08/01/22
    500,000       500,000       503,750  
MEG Energy Corporation
    6.375    
01/30/23
    500,000       500,000       504,375  
MEG Energy Corporation
    7.000    
03/31/24
    500,000       500,000       517,500  
Niska Gas Storage Partners LLC
    6.500    
04/01/19
    500,000       500,000       437,500  
NRG Energy, Inc.
    6.250    
07/15/22
    500,000       500,000       512,813  
Numericable Group SA
    4.875    
05/15/19
    240,000       240,000       237,000  
NXP BV/NXP Funding LLC
    3.750    
06/01/18
    750,000       750,000       736,875  
Paperworks Industries, Inc.
    9.500    
08/15/19
    500,000       511,612       508,750  
Penske Corporation
    4.875    
07/11/22
    500,000       498,226       537,322  
RKI Inc.
    8.500    
08/01/21
    500,000       502,232       516,250  
Prestige Brands Holdings, Inc.
    5.375    
12/15/21
    650,000       650,000       611,000  
 

28
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
             
Shares or
             
Corporate Restricted Securities: (A) (Continued)
 
Interest
   
Due
 
Principal
         
Market
 
 
Rate
   
Date
 
Amount
   
Cost
   
Value
 
                                     
Safway Group Holding LLC/Finance Corporation
    7.000 %  
05/15/18
  $ 250,000     $ 250,000     $ 254,375  
Sirius XM Radio Inc.
    5.875    
10/01/20
    445,000       445,000       450,563  
Sprint Corporation
    7.125    
06/15/24
    155,000       155,000       156,163  
Topaz Marine S.A.
    8.625    
11/01/18
    500,000       500,000       517,600  
Univision Communications
    5.125    
05/15/23
    160,000       160,000       162,000  
Valeant Pharmaceuticals International
    7.000    
10/01/20
    250,000       250,656       261,250  
Welltec A/S
    8.000    
02/01/19
    375,000       369,673       388,125  
West Corporation
    5.375    
07/15/22
    500,000       490,171       461,250  
William Lyon Homes
    7.000    
08/15/22
    500,000       500,000       506,250  
XPO Logistics, Inc.
    7.875    
09/01/19
    210,000       210,000       216,825  
Total Bonds
                        18,012,165       18,078,369  
                                     
Convertible Preferred Stock - 0.00%
                                   
ETEX Corporation (B)
                194       -       -  
Total Convertible Preferred Stock
                        -       -  
                                     
Preferred Stock - 0.00%
                                   
TherOX, Inc. (B)
                26       -       -  
Total Preferred Stock
                        -       -  
                                     
Common Stock - 0.00%
                                   
Touchstone Health Partnership (B)
                292       -       -  
Total Common Stock
                        -       -  
                                     
Total Rule 144A Securities
                        18,012,165       18,078,369  
                                     
Total Corporate Restricted Securities
                      $ 102,020,761     $ 101,641,163  


29
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)

   
Interest
   
Due
 
Principal
         
Market
 
Corporate Public Securities - 30.74%: (A)
 
Rate
   
Date
 
Amount
   
Cost
   
Value
 
                             
Bank Loans - 0.22%
                           
American Energy - Marcellus, LLC
    5.250 %  
07/09/21
  $ 139,318       138,639       137,968  
Aquilex Holdings LLC
    5.250    
12/31/20
    170,119       169,736       168,134  
Total Bank Loans
                        308,375       306,102  
                                     
Bonds - 30.51%
                                   
AAR Corporation
    7.250 %  
01/15/22
  $ 1,000,000     $ 1,054,036     $ 1,075,000  
Access Midstream Partners, L.P.
    4.875    
03/15/24
    500,000       500,000       511,250  
Accuride Corp
    9.500    
08/01/18
    500,000       486,764       521,250  
ADT Corporation
    6.250    
10/15/21
    500,000       517,213       517,500  
Alcoa, Inc.
    6.150    
08/15/20
    600,000       623,917       661,296  
Alliant Techsystems Inc.
    6.875    
09/15/20
    500,000       530,057       537,500  
Ally Financial, Inc.
    5.500    
02/15/17
    750,000       759,121       780,000  
Alta Mesa Financial Services
    9.625    
10/15/18
    750,000       732,692       776,250  
Anixter, Inc.
    5.125    
10/01/21
    165,000       165,000       162,938  
Antero Resources Corporation
    5.375    
11/01/21
    395,000       395,000       393,025  
American Axle & Manufacturing, Inc.
    5.125    
02/15/19
    120,000       120,000       119,400  
Anglogold Holdings PLC
    5.375    
04/15/20
    600,000       604,178       602,466  
Avis Budget Car Rental
    9.750    
03/15/20
    375,000       375,000       412,500  
B E Aerospace, Inc.
    6.875    
10/01/20
    250,000       255,446       266,875  
B&G Foods, Inc.
    4.625    
06/01/21
    440,000       440,000       419,100  
Bank of America Corporation
    4.000    
04/01/24
    500,000       498,202       505,211  
Bill Barrett Corporation
    7.000    
10/15/22
    500,000       482,088       496,250  
Bonanza Creek Energy, Inc.
    5.750    
02/01/23
    500,000       500,000       480,000  
Braskem Finance Ltd.
    6.450    
02/03/24
    375,000       375,000       390,000  
Brunswick Corporation
    7.125    
08/01/27
    500,000       504,558       540,000  
Calumet Specialty Products Partners L.P.
    7.625    
01/15/22
    500,000       502,492       507,500  
Calpine Corporation
    5.750    
01/15/25
    340,000       340,000       330,225  
CCO Holdings Capital Corporation
    5.250    
09/30/22
    500,000       495,804       489,375  
CCO Holdings Capital Corporation
    5.750    
01/15/24
    500,000       483,396       497,500  
Centurytel, Inc.
    5.000    
02/15/15
    500,000       501,358       503,750  
CHC Helicopter SA
    9.250    
10/15/20
    900,000       845,060       958,500  
Chrysler Group, LLC
    8.000    
06/15/19
    210,000       225,503       222,863  
Chrysler Group, LLC
    8.250    
06/15/21
    210,000       230,482       228,900  
Cimarex Energy Co.
    5.875    
05/01/22
    500,000       535,098       537,500  
CIT Group, Inc.
    5.000    
08/15/22
    500,000       500,000       501,250  
CIT Group, Inc.
    3.875    
02/19/19
    500,000       500,000       491,250  
Clearwater Paper Corporation
    4.500    
02/01/23
    500,000       495,621       477,500  
Coeur d’Alene Mines Corporation
    7.875    
02/01/21
    500,000       501,648       468,750  


30
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Interest
   
Due
 
Principal
         
Market
 
Corporate Public Securities: (A) (Continued)
 
Rate
   
Date
 
Amount
   
Cost
   
Value
 
                                     
Commercial Metals Company
    4.875 %  
05/15/23
  $ 750,000     $ 751,402     $ 720,000  
Continental Resources, Inc.
    5.000    
09/15/22
    500,000       509,802       527,500  
CVR Refining LLC
    6.500    
11/01/22
    350,000       338,819       357,000  
DaVita, Inc.
    5.750    
08/15/22
    500,000       500,000       518,125  
Duke Realty Limited Partnership
    3.875    
10/15/22
    500,000       505,672       505,619  
Ensco PLC
    3.250    
03/15/16
    600,000       599,223       618,040  
Equifax, Inc.
    4.450    
12/01/14
    500,000       500,693       500,734  
Forum Energy Technologies
    6.250    
10/01/21
    160,000       160,000       164,400  
GATX Corporation
    4.750    
05/15/15
    500,000       502,065       512,517  
General Electric Capital Corporation
    5.500    
01/08/20
    500,000       498,818       572,989  
HCA Holdings, Inc.
    3.750    
03/15/19
    500,000       500,000       488,750  
Headwaters, Inc.
    7.625    
04/01/19
    305,000       305,104       317,963  
HealthSouth Corporation
    7.750    
09/15/22
    405,000       405,797       431,831  
Hertz Corporation
    6.750    
04/15/19
    220,000       217,666       226,875  
Hornbeck Offshore Services, Inc.
    5.000    
03/01/21
    500,000       500,000       475,000  
Icahn Enterprises L.P.
    4.875    
03/15/19
    475,000       475,000       467,875  
Icahn Enterprises L.P.
    6.000    
08/01/20
    600,000       610,908       616,500  
International Game Technology
    7.500    
06/15/19
    500,000       499,841       565,619  
Jabil Circuit, Inc.
    4.700    
09/15/22
    500,000       499,972       503,125  
Johnson Controls, Inc.
    5.500    
01/15/16
    500,000       476,038       529,966  
Kraft Foods, Inc.
    5.375    
02/10/20
    500,000       510,428       566,877  
Lazard Group LLC
    4.250    
11/14/20
    500,000       498,535       522,710  
Lear Corporation
    4.750    
01/15/23
    375,000       368,409       370,313  
Lennar Corporation
    4.750    
11/15/22
    375,000       369,919       362,813  
Lifepoint Hospitals, Inc.
    5.500    
12/01/21
    350,000       360,032       354,375  
Linn Energy, LLC
    8.625    
04/15/20
    500,000       504,334       516,875  
Masco Corporation
    7.125    
03/15/20
    350,000       349,999       402,500  
MasTec, Inc.
    4.875    
03/15/23
    500,000       490,504       467,500  
Meritor, Inc.
    6.750    
06/15/21
    1,000,000       1,000,000       1,040,000  
Morgan Stanley
    5.500    
01/26/20
    500,000       498,376       560,626  
NBC Universal Media LLC
    5.150    
04/30/20
    500,000       499,542       567,688  
Nexeo Solutions LLC
    8.375    
03/01/18
    20,000       20,000       19,800  
Omnova Solutions, Inc.
    7.875    
11/01/18
    750,000       760,416       763,125  
Peabody Energy Corporation
    6.000    
11/15/18
    500,000       500,424       490,000  
Perry Ellis International, Inc.
    7.875    
04/01/19
    375,000       372,268       378,750  
Precision Drilling Corporation
    6.625    
11/15/20
    250,000       256,106       259,375  
Qwest Diagnostic, Inc.
    4.750    
01/30/20
    500,000       499,208       539,908  
Regency Energy Partners LP
    5.875    
03/01/22
    425,000       418,425       442,000  
Rosetta Resources Inc.
    5.875    
06/01/22
    500,000       500,000       498,125  
 

31
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Interest
 
Due
 
Principal
         
Market
 
Corporate Public Securities (A)
 
Rate
 
Date
 
Amount
   
Cost
   
Value
 
                           
R.R. Donnelley & Sons Company
    6.000 %
04/01/24
  $ 500,000     $ 500,000     $ 493,750  
Samson Investment Company
    9.750  
02/15/20
    350,000       342,356       317,625  
ServiceMaster Company
    7.000  
08/15/20
    325,000       325,000       338,000  
Sprint Nextel Corporation
    6.000  
12/01/16
    500,000       506,697       525,937  
Steelcase, Inc.
    6.375  
02/15/21
    500,000       506,161       578,656  
Stone Energy Corporation
    7.500  
11/15/22
    500,000       513,950       515,150  
Tech Data Corporation
    3.750  
09/21/17
    500,000       504,599       517,850  
Tesoro Logistics LP
    5.875  
10/01/20
    391,000       398,923       404,684  
Time Warner Cable, Inc.
    5.000  
02/01/20
    500,000       493,895       555,623  
T-Mobile USA Inc.
    6.464  
04/28/19
    340,000       344,632       353,175  
T-Mobile USA Inc.
    6.731  
04/28/22
    210,000       207,550       214,725  
T-Mobile USA Inc.
    6.836  
04/28/23
    65,000       63,640       66,788  
Tronox Finance LLC
    6.375  
08/15/20
    375,000       367,178       376,406  
Tyson Foods, Inc.
    4.500  
06/15/22
    500,000       513,598       529,917  
Unit Corporation
    6.625  
05/15/21
    500,000       494,960       501,250  
Weatherford International Limited
    4.500  
04/15/22
    500,000       517,722       520,557  
WPX Energy, Inc.
    5.250  
09/15/24
    425,000       425,000       412,250  
Xerium Technologies, Inc.
    8.875  
06/15/18
    416,000       433,096       438,880  
Total Bonds
                      41,667,436       42,787,685  
 

32
 
 

 
Babson Capital Participation Investors
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
                       
Market
 
Corporate Public Securities (A)
         
Shares
   
Cost
   
Value
 
                           
Common Stock - 0.01%
                         
Nortek, Inc. (B)
            100     $ 1     $ 7,450  
Total Common Stock
                    1       7,450  
                                 
Total Corporate Public Securities
                  $ 41,975,812     $ 43,101,237  
 
 
 
                           
   
Interest
 
Due
  Principal            
Market
 
Short-Term Securities:
 
Rate/Yield
 
Date
  Amount    
Cost
   
Value
 
Commercial Paper - 4.14%
                               
Ameren Corporation
    0.260 %
10/10/14
  $ 2,300,000     $ 2,299,839     $ 2,299,839  
Enbridge Inc.
    0.284  
10/18/14
    2,000,000       1,999,891       1,999,891  
Equifax, Inc.
    0.220  
10/03/14
    1,500,000       1,499,982       1,499,982  
Total Short-Term Securities
                    $ 5,799,712     $ 5,799,712  
                                   
Total Investments
    107.37 %             $ 149,796,285     $ 150,542,112  
Other Assets
    4.44                         6,218,931  
Liabilities
    (11.81 )                       (16,554,031 )
Total Net Assets
    100.00 %                     $ 140,207,012  
 
 
 
(A)  
In each of the convertible note, warrant, and common stock investments, the issuer has agreed to provide certain registration rights.
(B)  
Non-income producing security.
(C)  
Variable rate security; rate indicated is as of September 30, 2014.
(D)  
Defaulted security; interest not accrued.
(E)  
Illiquid security. As of September 30, 2014, the values of these securities amounted to $83,562,794 or 59.6% of net assets.
^
Effective yield at purchase
PIK -
Payment-in-kind
 
 
 
 

 

33
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Fair Value/
   
Fair Value/
 
Industry Classification:
 
Market Value
   
Market Value
 
               
AEROSPACE - 2.77%
     
BROADCASTING & ENTERTAINMENT - 1.08%
 
AAR Corporation
  $ 1,075,000  
Lamar Media Corporation
  $ 160,400  
Alliant Techsystems Inc.
    1,038,750  
HOP Entertainment LLC
    -  
B E Aerospace, Inc.
    266,875  
NBC Universal Media LLC
    567,688  
Merex Holding Corporation
    615,509  
Numericable Group SA
    237,000  
Whitcraft Holdings, Inc.
    891,567  
Time Warner Cable, Inc.
    555,623  
      3,887,701  
Sundance Investco LLC
    -  
AUTOMOBILE - 5.45%
              1,520,711  
Accuride Corp
    521,250  
BUILDINGS & REAL ESTATE - 2.81%
 
American Axle & Manufacturing, Inc.
    119,400  
ACP Cascade Holdings LLC
    -  
Avis Budget Car Rental
    412,500  
Duke Realty Limited Partnership
    505,619  
CG Holdings Manufacturing Company
    1,635,078  
Lennar Corporation
    362,813  
Chrysler Group, LLC
    451,763  
Masco Corporation
    402,500  
DPL Holding Corporation
    1,693,597  
MasTec, Inc.
    467,500  
Ideal Tridon Holdings, Inc.
    197,968  
Safway Group Holding LLC/Finance Corporation
    254,375  
J A C Holding Enterprises, Inc.
    -  
Sunrise Windows Holding Company
    1,193,659  
Johnson Controls, Inc.
    529,966  
TruStile Doors, Inc.
    250,772  
K & N Parent, Inc.
    132,624  
William Lyon Homes
    506,250  
Lear Corporation
    370,313         3,943,488  
Meritor, Inc.
    1,040,000  
CHEMICAL, PLASTICS & RUBBER - 2.92%
 
Penske Corporation
    537,322  
Capital Specialty Plastics, Inc.
    787,507  
      7,641,781  
Cornerstone Chemical Company
    393,750  
BEVERAGE, DRUG & FOOD - 6.74%
       
Nicoat Acquisitions LLC
    600,617  
1492 Acquisition LLC
    794,263  
Omnova Solutions, Inc.
    763,125  
B&G Foods, Inc.
    419,100  
Polytex Holdings LLC
    1,176,331  
Eatem Holding Company
    1,210,051  
Tronox Finance LLC
    376,406  
JBS USA Holdings, Inc.
    398,437         4,097,736  
F F C Holding Corporation
    236,937  
CONSUMER PRODUCTS - 9.80%
       
Gennx Novel Holding, Inc.
    1,721,547  
AMS Holding LLC
    259,206  
Golden County Foods Holding, Inc.
    -  
Baby Jogger Holdings LLC
    1,084,440  
Hospitality Mints Holding Company
    1,200,897  
Bravo Sports Holding Corporation
    1,331,437  
JMH Investors LLC
    1,109,556  
Clearwater Paper Corporation
    477,500  
Kraft Foods, Inc.
    566,877  
Custom Engineered Wheels, Inc.
    439,512  
Spartan Foods Holding Company
    690,626  
gloProfessional Holdings, Inc.
    1,321,505  
Specialty Commodities, Inc.
    572,382  
GTI Holding Company
    838,795  
Tyson Foods, Inc.
    529,917  
Handi Quilter Holding Company
    225,203  
      9,450,590  
HHI Group, LLC
    1,636,521  
         
K N B Holdings Corporation
    109,965  
         
Manhattan Beachwear Holding Company
    1,135,497  
 
See Notes to Consolidated Financial Statements

34
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Fair Value/
     
Fair Value/
 
Industry Classification: (Continued)
 
Market Value
     
Market Value
 
               
NXP BV/NXP Funding LLC
  $ 736,875  
K P I Holdings, Inc.
  $ 380,878  
Perry Ellis International, Inc.
    378,750  
LPC Holding Company
    147,625  
Prestige Brands Holdings, Inc.
    611,000  
Nortek, Inc.
    7,450  
R A J Manufacturing Holdings LLC
    533,895  
O E C Holding Corporation
    469,249  
R.R. Donnelley & Sons Company
    493,750  
Strahman Holdings Inc
    1,206,040  
Tranzonic Holdings LLC
    1,692,832  
Truck Bodies & Equipment International
    1,245,368  
Xerium Technologies, Inc.
    438,880         11,555,860  
      13,745,563  
DIVERSIFIED/CONGLOMERATE, SERVICE - 9.92%
 
CONTAINERS, PACKAGING & GLASS - 2.22%
 
ADT Corporation
    517,500  
Paperworks Industries, Inc.
    508,750  
A S C Group, Inc.
    1,432,652  
P K C Holding Corporation
    532,981  
A W X Holdings Corporation
    210,000  
P P T Holdings LLC
    1,181,288  
Advanced Technologies Holdings
    616,734  
Rose City Holding Company
    89,313  
Anglogold Holdings PLC
    602,466  
SMB Machinery Holdings, Inc.
    716,422  
Bank of America Corporation
    505,211  
Vitex Packaging Group, Inc.
    78,922  
Church Services Holding Company
    496,424  
      3,107,676  
Clough, Harbour and Associates
    211,819  
DISTRIBUTION - 5.53%
       
Crane Rental Corporation
    1,140,506  
ARI Holding Corporation
    2,063,822  
ELT Holding Company
    216,563  
Blue Wave Products, Inc.
    764,325  
EPM Holding Company
    704,322  
BP SCI LLC
    1,433,584  
Equifax, Inc.
    2,000,716  
Signature Systems Holding Company
    1,003,297  
Hilton Worldwide Holdings, Inc.
    772,500  
Stag Parkway Holding Company
    1,349,582  
HVAC Holdings, Inc.
    1,330,606  
WP Supply Holding Corporation
    1,133,109  
Insurance Claims Management, Inc.
    325,945  
      7,747,719  
Mail Communications Group, Inc.
    201,813  
DIVERSIFIED/CONGLOMERATE,
       
Nexeo Solutions LLC
    19,800  
MANUFACTURING - 8.24%
       
Northwest Mailing Services, Inc.
    359,415  
A H C Holding Company, Inc.
    268,077  
Pearlman Enterprises, Inc.
    456,990  
Advanced Manufacturing Enterprises LLC
    1,263,890  
Safety Infrastructure Solutions
    1,001,306  
Amsted Industries
    232,800  
ServiceMaster Company
    338,000  
Arrow Tru-Line Holdings, Inc.
    301,285  
Sirius XM Radio Inc.
    450,563  
C D N T, Inc.
    605,527         13,911,851  
CTP Transportation Products, LLC
    330,925  
ELECTRONICS - 1.60%
       
F G I Equity LLC
    239,124  
Anixter, Inc.
    162,938  
G C Holdings
    110,776  
Belden Inc.
    201,075  
Hartland Controls Holding Corporation
    1,450,385  
Connecticut Electric, Inc.
    856,108  
Hi-Rel Group LLC
    809,694  
Jabil Circuit, Inc.
    503,125  
Janus Group Holdings LLC
    1,949,892  
Tech Data Corporation
    517,850  
J.B. Poindexter Co., Inc.
    536,875         2,241,096  
 
 
See Notes to Consolidated Financial Statements

35
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Fair Value/
     
Fair Value/
 
Industry Classification: (Continued)
 
Market Value
     
Market Value
 
               
FINANCIAL SERVICES - 5.89%
     
LEISURE, AMUSEMENT, ENTERTAINMENT - 1.94%
 
Ally Financial, Inc.
  $ 780,000  
Brunswick Corporation
  $ 540,000  
Alta Mesa Financial Services
    776,250  
CTM Holding, Inc.
    1,615,145  
Braskem Finance Ltd.
    390,000  
International Game Technology
    565,619  
CIT Group, Inc.
    992,500         2,720,764  
GATX Corporation
    512,517  
MACHINERY - 3.70%
       
General Electric Capital Corporation
    572,989  
ABC Industries, Inc.
    745,344  
Icahn Enterprises L.P.
    1,084,375  
Arch Global Precision LLC
    1,574,820  
Lazard Group LLC
    522,710  
E S P Holdco, Inc.
    247,931  
LBC Tank Terminals Holding Netherlands B.V.
    706,095  
Motion Controls Holdings
    1,057,141  
Morgan Stanley
    560,626  
M V I Holding, Inc.
    -  
REVSpring, Inc.
    1,366,098  
NetShape Technologies, Inc.
    1,167,746  
      8,264,160  
Welltec A/S
    388,125  
HEALTHCARE, EDUCATION & CHILDCARE - 6.15%
        5,181,107  
American Hospice Management Holding LLC
    1,274,972  
MEDICAL DEVICES/BIOTECH - 0.67%
 
CHG Alternative Education Holding Company
    1,061,008  
ETEX Corporation
    -  
DaVita, Inc.
    518,125  
Mallinckrodt PLC
    503,750  
GD Dental Services LLC
    123,049  
MedSystems Holdings LLC
    218,052  
ERG Holding Company LLC
    1,021,198  
MicroGroup, Inc.
    -  
HCA Holdings, Inc.
    488,750  
Precision Wire Holding Company
    210,035  
Healthcare Direct Holding Company
    827,793  
TherOX, Inc.
    -  
HealthSouth Corporation
    431,831         931,837  
Lifepoint Hospitals, Inc.
    354,375  
MINING, STEEL, IRON
       
Qwest Diagnostic, Inc.
    539,908  
& NON-PRECIOUS METALS - 1.67%
       
Strata/WLA Holding Corporation
    -  
Alcoa, Inc.
    661,296  
Synteract Holdings Corporation
    1,829,477  
Coeurd’ Alene Mines Corporation
    468,750  
Touchstone Health Partnership
    -  
Commercial Metals Company
    720,000  
Wheaton Holding Corporation
    154,674  
Peabody Energy Corporation
    490,000  
      8,625,160         2,340,046  
HOME & OFFICE FURNISHINGS, HOUSEWARES,
 
NATURAL RESOURCES - 0.60%
       
AND DURABLE CONSUMER PRODUCTS - 2.64%
 
ArcelorMittal
    530,000  
Connor Sport Court International, Inc.
    1,283,103  
Headwaters, Inc.
    317,963  
Steelcase, Inc.
    578,656         847,963  
Transpac Holding Company
    -  
OIL & GAS - 13.21%
       
U-Line Corporation
    531,473  
Access Midstream Partners, L.P.
    511,250  
U M A Enterprises, Inc.
    1,300,738  
American Energy - Marcellus, LLC
    137,968  
Wellborn Forest Holding Company
    -  
Antero Resources Corporation
    393,025  
      3,693,970  
Avantech Testing Services LLC
    846,260  
         
Bill Barrett Corporation
    496,250  
         
Bonanza Creek Energy, Inc.
    480,000  
 
 
See Notes to Consolidated Financial Statements

36
 
 

 
Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2014
(Unaudited)
 
   
Fair Value/
     
Fair Value/
 
Industry Classification: (Continued)
 
Market Value
     
Market Value
 
               
California Resources Corporation
  $ 493,200  
TELECOMMUNICATIONS - 2.62%
     
Calumet Specialty Products Partners L.P.
    507,500  
All Current Holding Company
  $ 245,316  
Cimarex Energy Co.
    537,500  
CCO Holdings Capital Corporation
    986,875  
CITGO Petroleum Corporation
    442,000  
Centurytel, Inc.
    503,750  
Continental Resources, Inc.
    527,500  
Sprint Corporation
    156,163  
CVR Refining LLC
    357,000  
Sprint Nextel Corporation
    525,937  
Enbridge Inc.
    1,999,891  
T-Mobile USA Inc.
    634,688  
Ensco PLC
    618,040  
Univision Communications
    162,000  
Forum Energy Technologies
    164,400  
West Corporation
    461,250  
Hercules Offshore, Inc.
    603,750         3,675,979  
Hilcorp Energy Company
    664,500  
TRANSPORTATION - 2.79%
       
Hornbeck Offshore Services, Inc.
    475,000  
CHC Helicopter SA
    958,500  
Jupiter Resources Inc.
    443,750  
Hertz Corporation
    226,875  
Linn Energy, LLC
    516,875  
MNX Holding Company
    1,155,158  
MEG Energy Corporation
    1,021,875  
NABCO, Inc.
    -  
Niska Gas Storage Partners LLC
    437,500  
Topaz Marine S.A.
    517,600  
Petroplex Inv Holdings LLC
    1,457,681  
VP Holding Company
    833,660  
Precision Drilling Corporation
    259,375  
XPO Logistics, Inc.
    216,825  
Regency Energy Partners LP
    442,000         3,908,618  
RKI Inc.
    516,250  
UTILITIES - 2.24%
       
Rosetta Resources Inc.
    498,125  
Ameren Corporation
    2,299,839  
Samson Investment Company
    317,625  
Calpine Corporation
    330,225  
Stone Energy Corporation
    515,150  
NRG Energy, Inc.
    512,813  
Tesoro Logistics LP
    404,684         3,142,877  
Unit Corporation
    501,250  
WASTE MANAGEMENT / POLLUTION - 2.01%
 
Weatherford International Limited
    520,557  
Aquilex Holdings LLC
    168,134  
WPX Energy, Inc.
    412,250  
MES Partners, Inc.
    1,288,079  
      18,519,981  
Terra Renewal LLC
    350,860  
PHARMACEUTICALS - 1.36%
       
Torrent Group Holdings, Inc.
    1,009,145  
CorePharma LLC
    232,303         2,816,218  
Endo Finance LLC
    477,500            
Forest Laboratories, Inc.
    928,876  
Total Investments - 107.37%
  $ 150,542,112  
Valeant Pharmaceuticals International
    261,250            
      1,899,929            
TECHNOLOGY - 0.80%
                 
First Data Corporation
    263,150            
Sencore Holding Company
    280,818            
Smart Source Holdings LLC
    577,763            
      1,121,731            
 
 
See Notes to Consolidated Financial Statements

37
 
 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.   History
Babson Capital Participation Investors (the “Trust”) was organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated April 7, 1988.

The Trust is a diversified closed-end management investment company. Babson Capital Management LLC (“Babson Capital”), a wholly-owned indirect subsidiary of Massachusetts Mutual Life Insurance Company (“MassMutual”), acts as its investment adviser. The Trust’s investment objective is to maximize total return by providing a high level of current income, the potential for growth of income, and capital appreciation. The Trust’s principal investments are privately placed, below-investment grade, long-term debt obligations purchased directly from their issuers, which tend to be smaller companies. The Trust will also invest in publicly traded debt securities (including high yield securities), and in convertible preferred stocks and, subject to certain limitations, readily marketable equity securities. Below-investment grade or high yield securities have predominantly speculative characteristics with respect to the capacity of the issuer to pay interest and repay capital. In addition, the Trust may temporarily invest in high quality, readily marketable securities.

On January 27, 1998, the Board of Trustees authorized the formation of a wholly-owned subsidiary of the Trust (“PI Subsidiary Trust”) for the purpose of holding certain investments. The results of the PI Subsidiary Trust are consolidated in the accompanying financial statements. Footnote 2.D below discusses the Federal tax consequences of the PI Subsidiary Trust.
 
available, through either public information or information available to Babson Capital, when determining the fair value of a security. The Trustees meet at least once each quarter to approve the value of the Trust’s portfolio securities as of the close of business on the last business day of the preceding quarter. This valuation requires the approval of a majority of the Trustees of the Trust, including a majority of the Trustees who are not interested persons of the Trust or of Babson Capital. In approving valuations, the Trustees will consider reports by Babson Capital analyzing each portfolio security in accordance with the procedures and guidelines referred to above, which include the relevant factors referred to below. 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 $83,562,794 (59.60% of net assets) as of September 30, 2014 whose values have been estimated by the Trustees based on the process described above in the absence of readily ascertainable market values. Due to the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.

Following is a description of valuation methodologies used for assets recorded at fair value.
 
Corporate Public Securities – Bank Loans, Corporate Bonds, Preferred Stocks and Common Stocks
The Trust uses external independent third-party pricing services to determine the fair values of its Corporate Public Securities. At September 30, 2014, 100% of the carrying value of these investments was from external pricing services. In the event that the primary pricing service does not provide a price, the Trust utilizes the pricing provided by a secondary pricing service.
 
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 (“U.S. GAAP”).
 
A.  Fair Value Measurements:
Under U.S. GAAP, fair value represents the price that should be received to sell an asset (exit price) in an orderly transaction between willing market participants at the measurement date.
 
Determination of Fair Value
The determination of the fair value of the Trust’s investments is the responsibility of the Trust’s Board of Trustees (the “Trustees”). The Trustees have adopted procedures for the valuation of the Trust’s securities and has delegated responsibility for applying those procedures to Babson Capital. Babson Capital has established a Pricing Committee which is responsible for setting the guidelines used in following the procedures adopted by the Trustees ensuring that those guidelines are being followed. Babson Capital considers all relevant factors that are reasonably
 
 
Public debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Trust’s pricing services use multiple valuation techniques to determine fair value. In instances where significant market activity exists, the pricing services may utilize a market based approach through which quotes from market makers are used to determine fair value. In instances where significant market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal underlying prepayments, collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.

The Trust’s investments in bank loans are normally valued at the bid quotation obtained from dealers in loans by an independent pricing service in accordance with the Trust’s valuation policies and procedures approved by the Trustees.
 
Public equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sales price of that day.
 

38
 
 

 
Babson Capital Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
 
Annually, Babson Capital conducts reviews of the primary pricing vendors to validate that the inputs used in that vendors’ pricing process are deemed to be market observable as defined in the standard. While Babson Capital is not provided access to proprietary models of the vendors, the reviews have included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. The review also includes an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process Babson Capital continues to perform annually. In addition, the pricing vendors have an established challenge process in place for all security valuations, which facilitates identification and resolution of prices that fall outside expected ranges. Babson Capital believes that the prices received from the pricing vendors are representative of prices that would be received to sell the assets at the measurement date (exit prices) and are classified appropriately in the hierarchy.
 
Short-Term Securities
Short-term securities, of sufficient credit quality, with more than sixty days to maturity are valued at fair value, using external independent third-party services. Short-term securities having a maturity of sixty days or less are valued at amortized cost, which approximates fair value.
 
Quantitative Information about Level 3 Fair Value Measurements
The following table represents quantitative information about Level 3 fair value measurements as of September 30, 2014.
 
 
 
 
   
   
     
Corporate Restricted Securities - Corporate Bonds
The fair value of certain notes is determined using an internal model that discounts the anticipated cash flows of those notes using a specific discount rate. Changes to that discount rate are driven by changes in general interest rates, probabilities of default and credit adjustments. The discount rate used within the models to discount the future anticipated cash flows is considered a significant unobservable input. Significant increases/(decreases) in the discount rate would result in a significant (decrease)/increase to the notes’ fair value.

The fair value of certain distressed notes is based on an enterprise waterfall methodology which is discussed in the equity security valuation section below.
 
Corporate Restricted Securities - Common Stock, Preferred Stock and Partnerships & LLC's
The fair value of equity securities is determined using an enterprise waterfall methodology. Under this methodology, the enterprise value of the company is first estimated and that value is then allocated to the company’s outstanding debt and equity securities based on the documented priority of each class of securities in the capital structure. Generally, the waterfall proceeds from senior debt tranches of the capital structure to senior then junior subordinated debt, followed by each class of preferred stock and finally the common stock.

To estimate a company’s enterprise value, the company’s trailing twelve months earnings before interest, taxes, depreciation and amortization (“EBITDA”) is multiplied by a valuation multiple. A discount for lack of marketability is applied to the end result.

Both the company’s EBITDA and valuation multiple are considered significant unobservable inputs.
   
Valuation
Unobservable
 
Weighted
   
Technique
Inputs
Range
Average
 
Corporate
Discounted
Discount
9.9% to
13.9%
 
Bonds
Cash Flows
Rate
20.7%
 
 
Equity
Market
Valuation
4.4x to
7.5x
 
Securities
Approach
Multiple
11.5x
 
     
Discount
0% to 24%
5.6%
     
for lack of
   
     
marketability
   
     
EBITDA
$0.0 million
$18.7
        to $137.0 million million
 
 
 
 
 
Fair Values Hierarchy
The Trust categorizes its investments measured at fair value in three levels, based on the inputs and assumptions used to determine fair value. These levels are as follows:

Level 1 – quoted prices in active markets for identical securities
 
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
 
Level 3 – significant unobservable inputs (including the Trust’s own assumptions in determining the fair value of investments)
 

39
 
 

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
 
The following is a summary of the inputs used to value the Trust's net assets as of September 30, 2014:
 
Assets
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Restricted Securities
                       
Corporate Bonds
    77,712,473       -       18,078,369       59,634,104  
Common Stock - U.S.
    9,755,616       -       -       9,755,616  
Preferred Stock
    5,617,101       -       -       5,617,101  
Partnerships and LLCs
    8,555,973       -       -       8,555,973  
Public Securities
                               
Bank Loans
    306,102       -       306,102       -  
Corporate Bonds
    42,787,685       -       42,787,685       -  
Common Stock - U.S.
    7,450       7,450       -       -  
Short-term Securities
    5,799,712       -       5,799,712       -  
Total
  $ 150,542,112     $ 7,450     $ 66,971,868     $ 83,562,794  
 
See information disaggregated by security type and industry classification in the Consolidated Schedule of Investments.
 
 
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
 
                                 
Transfers
       
   
Beginning
                           
in and /
   
Ending
 
   
balance at
   
Included
                     
or out of
   
balance at
 
Assets
 
12/31/2013
   
in earnings
   
Purchases
   
Sales
   
Prepayments
   
Level 3
   
09/30/2014
 
Restricted Securities
                                         
Corporate Bonds
  $ 56,939,587     $ 2,829,912     $ 10,875,152     $ (3,318,338 )   $ (7,692,209 )   $ -     $ 59,634,104  
Common Stock - U.S.
    9,668,741       1,918,502       717,965       (957,463 )     -       -       11,347,745  
Preferred Stock
    6,926,282       489,628       (123,526 )     (1,675,283 )     -       -       5,617,101  
Partnerships and LLCs
    9,491,997       46,456       1,637,511       (2,619,991 )     -       -       8,555,973  
Public Securities
                                                       
Common Stock
    -       -       -       -       -       -       -  
    $ 83,026,607     $ 5,436,662     $ 13,371,633     $ (10,579,899 )   $ (7,692,209 )   $ -     $ 83,562,794  
 
 
There were no transfers into or out of Level 1 or Level 2 assets.

Income, Gains and Losses included in Net Increase in Net Assets resulting from operations for the year are presented in the following accounts on the Statement of Operation:
 
   
Net Increase in Net
Assets Resulting from
Operations
   
Change in Unrealized
Gains & (Losses) in Net
Assets from assets still
held
 
                 
Interest (Amortization)
  $ 221,176       -  
                 
Net Realized Gain on
               
Investments before Taxes
  $ 3,149,920       -  
                 
Net Change in Unrealized
               
Depreciation of
               
Investments Before Taxes
  $ 2,065,566       4,707,955  
 
 
 

40
 
 

 
Babson Capital Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
 
B.  Accounting for Investments:
Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis, including the amortization of premiums and accretion of discounts on bonds held using the yield-to-maturity method. The Trust does not accrue income when payment is delinquent and when management believes payment is questionable.

Realized gains and losses on investment transactions and unrealized appreciation and depreciation of investments are reported for financial statement and Federal income tax purposes on the identified cost method.
 
C.  Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

D.  Federal Income Taxes:
The Trust has elected to be taxed as a “regulated investment company” under the Internal Revenue Code, and intends to maintain this qualification and to distribute substantially all of its net taxable income to its shareholders. In any year when net long-term capital gains are realized by the Trust, management, after evaluating the prevailing economic conditions, will recommend that Trustees either designate the net realized long-term gains as undistributed and pay the federal capital gains taxes thereon, or distribute all or a portion of such net gains.

The Trust is taxed as a regulated investment company and is therefore limited as to the amount of non-qualified income that it may receive as the result of operating a trade or business, e.g. the Trust’s pro rata share of income allocable to the Trust by a partnership operating company. The Trust’s violation of this limitation could result in the loss of its status as a regulated investment company, thereby subjecting all of its net income and capital gains to corporate taxes prior to distribution to its shareholders. The Trust, from time-to-time, identifies investment opportunities in the securities of entities that could cause such trade or business income to be allocable to the Trust. The PI 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 PI Subsidiary Trust is not taxed as a regulated investment company. Accordingly, prior to the Trust receiving any distributions from the PI Subsidiary Trust, all of the PI Subsidiary Trust’s taxable income and realized gains, including non-qualified income and realized gains, is subject to taxation at prevailing corporate tax rates. As of September 30, 2014, the PI Subsidiary Trust has incurred income tax expense of $85,847.
 
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities and their respective tax basis. As of September 30, 2014, the PI Subsidiary Trust has a deferred tax liability of $153,395.

The Trust recognizes a tax benefit from an uncertain position only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. If this threshold is met, the Trust measures the tax benefit as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Trust has evaluated and determined that the tax positions did not have a material effect on the Trust’s financial position and results of operations for the nine months ended September 30, 2014.
 
E.  Distributions to Shareholders:
The Trust records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. The Trust’s net investment income dividend is declared four times per year, in April, July, October, and December. The Trust’s net realized capital gain distribution, if any, is declared in December.
3. Investment Advisory and Administrative Services Contract
 
 
A. Services:
Under an Investment Advisory and Administrative Services Contract (the “Contract”) with the Trust, Babson Capital has agreed to use its best efforts to present to the Trust a continuing and suitable investment program consistent with the investment objectives and policies of the Trust. Babson Capital represents the Trust in any negotiations with issuers, investment banking firms, securities brokers or dealers and other institutions or investors relating to the Trust’s investments. Under the Contract, Babson Capital also provides administration of the day-to-day operations of the Trust and provides the Trust with office space and office equipment, accounting and bookkeeping services, and necessary executive, clerical and secretarial personnel for the performance of the foregoing services.

B. Fee:
For its services under the Contract, Babson Capital is paid a quarterly investment advisory fee equal to 0.225% of the value of the Trust’s net assets as of the last business day of each fiscal quarter, an amount approximately equivalent to 0.90% 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.
 

41
 
 

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
 
             
4.
Senior Indebtedness
6.
Quarterly Results of Investment Operations (Unaudited)
 
             
 
MassMutual holds the Trust’s $15,000,000 Senior Fixed Rate Convertible Note (the “Note”) issued by the Trust on December 13, 2011. The Note is due December 13, 2023 and accrues interest at 4.09% per annum. MassMutual, at its option, can convert the principal amount of the Note into common shares. The dollar amount of principal would be converted into an equivalent dollar amount of common shares based upon the average price of the common shares for ten business days prior to the notice of conversion. For the nine months ended September 30, 2014, the Trust incurred total interest expense on the Note of $460,125.

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 the 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.
     
March 31, 2014
 
       
Amount
   
Per Share
 
   
Investment income
  $
3,338,986
       
   
Net investment income
   
2,505,401
    $ 0.24  
   
Net realized and unrealized
               
   
gain on investments (net of taxes)
   
1,277,356
      0.12  
                     
       
June 30, 2014
 
       
Amount
   
Per Share
 
   
Investment income
  $
3,100,579
         
   
Net investment income
   
2,438,053
    $ 0.24  
   
Net realized and unrealized
               
    gain on investments (net of taxes)
4,441,559
      0.43  
                     
       
September 30, 2014
 
       
Amount
   
Per Share
 
     
Investment income
  $
3,670,960
         
     
Net investment income
   
3,026,732
    $ 0.29  
     
Net realized and unrealized
               
     
gain on investments (net of taxes)
   
79,068
      0.01  
5.
Purchases and Sales of Investments
                   
     
For the nine
months ended
09/30/14
   
     
Cost of
Investments
Acquired
   
Proceeds from
Sales or
Maturities
   
 
Corporate restricted securities
  $
22,796,681
    $
19,587,152
   
 
Corporate public securities
   
6,999,344
     
2,890,839
   
                     
 
 
The aggregate cost of investments is substantially the same for financial reporting and Federal income tax purposes as of September 30, 2014. The net unrealized appreciation of investments for financial reporting and Federal tax purposes as of September 30, 2014 is $745,827 and consists of $16,422,259 appreciation and $15,676,432 depreciation.

Net unrealized depreciation of investments on the Statement of Assets and Liabilities reflects the balance net of a deferred tax liability of $ 153,395 on net unrealized gains on the PI Subsidiary Trust.
   
 

42
 
 

 
Babson Capital Participation Investors


 
 

 
 
 
 
 
 
 
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43
 
 

 

JOINT PRIVACY NOTICE OF BABSON CAPITAL MANAGEMENT LLC, BABSON CAPITAL SECURITIES LLC, BABSON CAPITAL CORPORATE INVESTORS AND BABSON CAPITAL PARTICIPATION INVESTORS

When you use Babson Capital Management LLC (“Babson Capital”) as your investment adviser, invest in Babson Capital Corporate Investors or Babson Capital Participation Investors (collectively, the “Funds”), or use Babson Capital Securities LLC, you entrust us not only with your hard-earned assets but also with your personal and financial data. We consider your data to be private and confidential, and protecting its confidentiality is important to us. Our policies and procedures regarding your personal information are summarized below.

We may collect non-public personal information about you from:

Applications or other forms, interviews, or by other means;

Consumer or other reporting agencies, government agencies, employers or others;

Your transactions with us, our affiliates, or others; and

Our Internet website.

We may share the financial information we collect with our financial service affiliates, such as insurance companies, investment companies and securities broker-dealers. Additionally, so that we may continue to offer you products and services that best meet your investment needs and to effect transactions that you request or authorize, we may disclose the information we collect, as described above, to companies that perform administrative or marketing services on our behalf, such as transfer agents, custodian banks, service providers or printers and mailers that assist us in the distribution of investor materials or that provide operational support to Babson Capital entities. These companies are required to protect this information and will use this information only for the services for which we hire them, and are not permitted to use or share this information for any other purpose. Some of these companies may perform such services in jurisdictions other than the United States. We may share some or all of the information we collect with other financial institutions with whom we jointly market products. This may be done only if it is permitted in the state in which you live. Some disclosures may be limited to your name, contact and transaction information with us or our affiliates.

Any disclosures will be only to the extent permitted by federal and state law. Certain disclosures may require us to get an “opt-in” or “opt-out” from you. If this is required, we will do so before information is shared. Otherwise, we do not share any personal information about our customers or former customers unless authorized by the customer or as permitted by law.

We restrict access to personal information about you to those employees who need to know that information to provide products and services to you. We maintain physical, electronic and procedural safeguards that comply with legal standards to guard your personal information. As an added measure, we do not include personal or account information in non-secure e-mails that we send you via the Internet without your prior consent. We advise you not to send such information to us in non-secure e-mails.

This joint notice describes the privacy policies of Babson Capital, the Funds and Babson Capital Securities LLC. It applies to all Babson Capital and the Funds accounts you presently have, or may open in the future, using your social security number or federal taxpayer identification number – whether or not you remain a shareholder of our Funds or as an advisory client of Babson Capital. As mandated by rules issued by the Securities and Exchange Commission, we will be sending you this notice annually, as long as you own shares in the Funds or have an account with Babson Capital.

Babson Capital Securities LLC is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). Investors may obtain information about SIPC including the SIPC brochure by contacting SIPC online at www.sipc.org or calling (202)-371-8300. Investors may obtain information about FINRA including the FINRA Investor Brochure by contacting FINRA online at www.finra.org or calling (800) 289-9999.
 

44
 
 

 
Babson Capital Participation Investors
 
Members of the Board of Trustees
 
William J. Barrett
 
Michael H. Brown*
 
Barbara M. Ginader

Edward P. Grace III

Robert E. Joyal

Clifford M. Noreen
 
Susan B. Sweeney*

Maleyne M. Syracuse*
 
 
*Member of the Audit Committee

 
Officers
Clifford M. Noreen
Chairman
 
Michael L. Klofas
President

James M. Roy
Vice President & Chief
Financial Officer

Christopher A. DeFrancis
Vice President, Secretary &
Chief Legal Officer

Sean Feeley
Vice President

Richard E. Spencer, II
Vice President

Daniel J. Florence
Treasurer

Melissa M. LaGrant
Chief Compliance Officer
 
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

Babson Capital Participation Investors (the “Trust”) offers a Dividend Reinvestment and Cash Purchase Plan (the “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 DST Systems, Inc., the Transfer Agent, in accordance with the Plan, unless such shareholder elects not to participate by providing written notice to the Transfer Agent. A shareholder may terminate his or her participation by notifying the Transfer Agent in writing.

Participating shareholders may also make additional contributions to the Plan from their own funds. Such contributions may be made by personal check or other means in an amount not less than $100 nor more than $5,000 per quarter. Cash contributions must be received by the Transfer Agent at least five days (but no more then 30 days) before the payment date of a dividend or distribution.

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 DST Systems, Inc., Agent for Babson Capital Participation Investors’ Dividend Reinvestment and Cash Purchase Plan, P.O. Box 219086, Kansas City, MO 64121-9086.
 

 
 
 

 
 
 
Babson Capital
Participation Investors
 
     
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  PI6217