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SCHEDULE 14A
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
MassMutual Participation Investors
----------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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MASSMUTUAL PARTICIPATION INVESTORS
Springfield, Massachusetts 01115
[COMPANY LOGO]
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
AND
PROXY STATEMENT
TIME
FRIDAY, APRIL 11, 2003
AT 1:00 P.M.
PLACE
OAK ROOM
MASSACHUSETTS MUTUAL
LIFE INSURANCE COMPANY
1295 STATE STREET
SPRINGFIELD, MASSACHUSETTS 01111
- --------------------------------------------------------------------------------
Please date, fill in and sign the enclosed form of proxy and mail it in
the enclosed return envelope which requires no postage if mailed in the
United States.
- --------------------------------------------------------------------------------
MASSMUTUAL PARTICIPATION INVESTORS
Springfield, Massachusetts
Dear Shareholder:
The 2003 Annual Meeting of Shareholders will be held in the Oak Room of
Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield,
Massachusetts 01111, at 1:00 p.m., Eastern Time, on Friday, April 11, 2003. A
Notice and a Proxy Statement regarding the meeting, a proxy card for your vote
at the meeting and a postage prepaid envelope in which to return your proxy card
are enclosed.
BY PROMPTLY RETURNING THE ENCLOSED PROXY CARD, YOU CAN HELP THE TRUST AVOID
THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO OBTAIN THE ATTENDANCE
OF A MAJORITY OF THE OUTSTANDING SHARES. You are earnestly requested to sign and
return the proxy card in order that the necessary quorum may be represented at
the meeting. If you find you can be present in person, you may, if you wish,
revoke your proxy then and vote your shares in person.
At the meeting, shareholders will be asked to elect one Trustee and to
re-elect two Trustees, to ratify the selection of Deloitte & Touche LLP as
auditors, and to approve the existing Investment Advisory and Administrative
Services Contract dated October 7, 1988, with David L. Babson & Company Inc.
The Trustees recommend that the shareholders elect the nominated Trustees,
ratify the selection of Deloitte & Touche LLP, and approve the continuance of
the contract with David L. Babson & Company Inc.
I look forward to your attendance at this meeting because it will provide
us with an opportunity to inform you about the progress of the Trust.
Sincerely,
/s/ Stuart H. Reese
------------------------
Stuart H. Reese
Chairman
1
MASSMUTUAL PARTICIPATION INVESTORS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
MASSMUTUAL PARTICIPATION INVESTORS:
The Annual Meeting of Shareholders of MASSMUTUAL PARTICIPATION INVESTORS
(the "Trust") will be held in the Oak Room of Massachusetts Mutual Life
Insurance Company, 1295 State Street, Springfield, Massachusetts 01111, on
Friday, April 11, 2003, at 1:00 p.m., Eastern Time, for the following purposes:
(1) To elect Robert E. Joyal as Trustee for a one-year term, and to
re-elect Stuart H. Reese and Martin T. Hart as Trustees for three-year terms,
and until their successors are duly elected and qualified;
(2) To ratify the selection of Deloitte & Touche LLP as auditors of the
Trust for the fiscal year ending December 31, 2003;
(3) To approve the Trust's existing Investment Advisory and Administrative
Services Contract with David L. Babson & Company Inc. dated October 7, 1988 and
last submitted to a vote of the Trust's shareholders on April 19, 2002 for
ratification; and
(4) To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Holders of record of the shares of beneficial interest of the Trust at the
close of business on February 11, 2003, are entitled to vote at the meeting or
any adjournment thereof.
By order of the Board of Trustees,
/s/ Stephen L. Kuhn
----------------------------
Stephen L. Kuhn
VICE PRESIDENT AND SECRETARY
Springfield, Massachusetts
February 28, 2003
2
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of MASSMUTUAL PARTICIPATION INVESTORS (the
"Trust") for use at the Annual Meeting of its Shareholders, to be held in the
Oak Room of Massachusetts Mutual Life Insurance Company (the "Insurance
Company"), 1295 State Street, Springfield, Massachusetts 01111, on Friday, April
11, 2003, at 1:00 p.m., Eastern time.
Any person giving a proxy has power to revoke it by mail or in person at
any time prior to its exercise by executing a superseding proxy or by submitting
a notice of revocation to the Trust. All properly executed and unrevoked proxies
received in time for the meeting will be voted in accordance with the
instructions contained therein.
Holders of the shares of beneficial interest of the Trust ("shares") of
record at the close of business on February 11, 2003, will be entitled to one
vote per share on all business of the meeting and any adjournments. There were
9,539,631 shares outstanding on the record date. To the best knowledge of the
Trust, the only beneficial owner of more than 5% of the outstanding shares of
the Trust is the Insurance Company. The Insurance Company may be deemed a
beneficial owner of more than 5% of the outstanding shares of the Trust by
reason of its owning a $12,000,000 Senior Fixed Rate Convertible Note due
December 13, 2011 (the "Note") issued by the Trust. The Insurance Company, at
its option, can convert the principal amount of the Note into shares. The dollar
amount of principal would be converted into an equivalent dollar amount of
shares based upon the average price of the shares for ten business days prior to
the notice of conversion.
This Proxy Statement and the accompanying letter to shareholders from the
Chairman of the Board of Trustees, Notice of Annual Meeting of Shareholders and
proxy card are being mailed on or about February 28, 2003, to shareholders of
record on February 11, 2003, the record date. The Trust's principal business
office is 1500 Main Street, Suite 1100, Springfield, Massachusetts 01115.
3
Pursuant to the Trust's By-Laws, the presence at the Annual Meeting, in
person or by proxy, of Shareholders entitled to cast a majority of the votes
shall be a quorum for the transaction of business. A plurality of the votes cast
is required to elect Trustees. Thus, the three nominees for election as Trustees
at the Annual Meeting who receive the greatest number of votes properly cast for
the election of trustees shall be elected Trustees. Under the Trust's
Declaration of Trust a majority of the shares voted is required to ratify the
selection of independent accountants.
To the extent that a vote is legally required, an affirmative "majority
vote" of the Trust's shares is required to approve the continuance of the
Trust's Investment Advisory and Administrative Services Contract dated October
7, 1988 (the "Contract"), with David L. Babson & Company Inc. ("Babson"). An
affirmative "majority vote" means either (1) the holders of at least 67% of the
Trust's shares present in person or by proxy, if more than 50% of the Trust's
outstanding shares are present or represented by proxy, or (2) a majority of the
outstanding shares of the Trust, whichever is less.
Votes cast by proxy or in person at the Annual Meeting will be counted by
persons appointed by the Trust to act as election inspectors for the meeting.
The election inspectors will count the total number of votes cast "for" approval
of the proposals for purposes of determining whether sufficient affirmative
votes have been cast. The election inspectors will count shares represented by
proxies that withhold authority to vote for a nominee for election as a Trustee
or that reflect abstentions or "broker non-votes" (i.e., shares held by brokers
or nominees as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote, and (ii) the broker or
nominee does not exercise the discretionary voting power on a particular matter)
as shares that are present and entitled to vote on the matter for purposes of
determining the presence of a quorum. As to the continuance of the Contract,
abstentions or broker non-votes have the effect of a negative vote. With respect
to the election of Trustees and the ratification of the selection of an
independent accountant, abstentions and broker non-
4
votes have no effect on the outcome of the proposal so long as a quorum is
present.
(1) ELECTION OF TRUSTEES
The Board of Trustees is currently comprised of eight Trustees with terms
expiring in 2003, 2004, and 2005. The terms of Stuart H. Reese, Richard G.
Dooley and Martin T. Hart expire this year. Mr. Dooley, who is 73, will be
retiring from the Board. Mr. Reese and Mr. Hart have been nominated for
re-election for three-year terms. Mr. Robert E. Joyal has been nominated for a
one-year term. All nominees, if elected, are to serve their respective terms,
and until each of their successors is duly elected and qualified.
INFORMATION CONCERNING TRUSTEES, NOMINEES FOR TRUSTEE AND OFFICERS OF THE TRUST
Set forth below after the name of each nominee for Trustee, and for each
Trustee whose term will continue after this meeting, is his or her present
office with the Trust, age, year of election as trustee, year that his or her
term ends, principal occupation or employment during the past five years,
certain other directorships held by them, and certain other information required
to be disclosed in this proxy statement. Also, set forth after the name of each
Officer is his or her position with the Trust, principal occupation or
employment for the past five years and the date upon which his or her position
began.
[PLEASE REFER TO THE TABLE ON NEXT PAGE.]
SHARE OWNERSHIP OF TRUSTEES, NOMINEES AND EXECUTIVE OFFICERS
The tables on page 18 display information concerning beneficial ownership,
as of December 31, 2002 of the Trust's shares by each Trustee, and by the
Trust's nominees for Trustee and executive officers as a group.
5
INTERESTED TRUSTEES
NAME (AGE) PRINCIPAL OCCUPATION NUMBER OF
ADDRESS DURING THE PAST FIVE YEARS/ SERVICE BEGAN/ PORTFOLIOS
POSITION WITH THE FUND OTHER DIRECTORSHIPS TERM ENDS OVERSEEN
- ----------------------------- -------------------------------------------------- ---------------- ---------------
STUART H. REESE** (47) Executive Vice President and Chief Investment 1999/2003*** 41
Officer (since 1999) of the Insurance Company;
MassMutual Life Ins. Co. Director and CEO (since 2000) and President
1295 State Street (2000-2001) of Babson; Chief Executive Director
Springfield, MA 01111 (1997-1999) and Senior Vice President (1993-1997) ***NOMINEE FOR
of the Insurance Company; President (1993-1999), RE-ELECTION
TRUSTEE Chairman and Trustee (1999) of MML Series FOR A THREE-
CHAIRMAN (since 1999) Investment Fund; Director (since 1995), MassMutual YEAR TERM.
PRESIDENT (1993-1999) Corporate Value Partners Limited (investment
company); President (1994-1999), Chairman and
Trustee (1999) of MassMutual Institutional Funds;
Director (since 1993), MML Baystate Life Insurance
NOMINEE Company; Advisory Board Member (since 1995),
FOR RE-ELECTION Kirtland Capital Partners (investment
partnership); Advisory Board Member (since 1996),
MassMutual High Yield Partners II LLC (investment
partnership); Director (since 1996),
6
CM Assurance Company; Director (since 1996), CM
Benefit Insurance Company; Director (since 1996),
CM Life Insurance Company; Director (since 1996),
CM International, Inc.; Chairman (since 1999) and
Director (since 1996), Antares Capital Corporation
(high yield bank loans); Director (since 1996),
Charter Oak Capital Management, Inc.; Director
(since 1996), State House I Corporation; President
(since 1998), MassMutual/Darby CBO LLC; Director
(since 1999), MLDP Holdings (investment company);
Chairman (since 2000), Cornerstone Real Estate
Advisers Inc.; Trustee, Chairman (since 1999) and
President (1993-1999), MassMutual Corporate
Investors (closed-end investment company advised
by Babson).
- --------------------------------------------------------------------------------
** Mr. Reese in an "interested person" of the Trust (as defined in the
Investment Company Act of 1940, amended) because of his position as an Officer
of the Trust, an executive officer of the Insurance Company and a Director and
CEO of Babson.
7
NAME (AGE) PRINCIPAL OCCUPATION NUMBER OF
ADDRESS DURING THE PAST FIVE YEARS/ SERVICE BEGAN/ PORTFOLIOS
POSITION WITH THE FUND OTHER DIRECTORSHIPS TERM ENDS OVERSEEN
- ----------------------------- -------------------------------------------------- ---------------- ---------------
ROBERT E. JOYAL** (58) President (since 2001) and Managing Director 2003-2004*** 2
(2000-2001) of Babson; Executive Director
MassMutual Participation (1997-1999), Vice President and Managing Director
Investors (1987-1997) of the Insurance Company; Director
1500 Main Street (since 1996), Antares Capital Corporation (high
Suite 1100 yield bank loans); Director (since 1999), ***NOMINEE
Springfield, MA 01115 MassMutual Corporate Value Partners Limited FOR A ONE-YEAR
(investment company); Advisory Board Member (since TERM.
1996), MassMutual High Yield Partners II LLC
(investment company); President (since 1999),
MassMutual Corporate Investors; President (since
NOMINEE 1999), MassMutual Participation Investors.
FOR TRUSTEE
- --------------------------------------------------------------------------------
**Mr. Joyal is an "interested person" of the Trust (as defined in the Investment
Company Act of 1940, amended) because of his position as President of the Trust
and President of Babson.
8
INDEPENDENT TRUSTEES
NAME (AGE) PRINCIPAL OCCUPATION NUMBER OF
ADDRESS DURING THE PAST FIVE YEARS/ SERVICE BEGAN/ PORTFOLIOS
POSITION WITH THE FUND OTHER DIRECTORSHIPS TERM ENDS OVERSEEN
- ----------------------------- -------------------------------------------------- ---------------- ---------------
DONALD E. BENSON (72) Executive Vice President and Director (since 1988/2004 2
1992), Marquette Financial Companies (financial
MassMutual Participation services); Partner (since 1996), Benson Family
Investors Limited Partnership No. 1 and Benson Family
1500 Main Street Limited Partnership No. 2 (investment
Suite 1100 partnerships); Partner (since 1987), Benson,
Springfield, MA 01115 Pinckney, Oates Partnership (building
partnership); Director (since 1997), National
Mercantile Bancorp (bank holding company) and
TRUSTEE Mercantile National Bank; Director, Mesaba
Holdings, Inc. (commuter airline); Trustee (since
1986), MassMutual Corporate Investors (closed-end
investment company advised by Babson).
- --------------------------------------------------------------------------------
9
NAME (AGE) PRINCIPAL OCCUPATION NUMBER OF
ADDRESS DURING THE PAST FIVE YEARS/ SERVICE BEGAN/ PORTFOLIOS
POSITION WITH THE FUND OTHER DIRECTORSHIPS TERM ENDS OVERSEEN
- ----------------------------- -------------------------------------------------- ---------------- ---------------
DONALD GLICKMAN (69) Chairman (since 1992), Donald Glickman and 1992 /2004 2
Company, Inc. (investment banking); Director
MassMutual Participation (1988-2000), CalTex Industries, Inc. (manufacturer
Investors of windows); Director (since 1984), Monro Muffler
1500 Main Street Brake, Inc. (automobile repair service); Director
Suite 1100 (since 1998), MSC Software, Inc.; Chairman (since
Springfield, MA 01115 1998), Elgar Electronics (manufacturer of
electronic power supplies); Director (since 2002),
TRUSTEE Racal Instrument Group (manufacturer of electronic
test equipment); Director (since 2002), OAOT, Inc.
(ITC services); Director (since 1999) SDI, Inc.
(manufacturer of airbag initiations); Partner
(since 1992), J.F. Lehman & Co. (private
investments); Trustee (since 1992), MassMutual
Corporate Investors (closed-end investment company
advised by Babson).
- --------------------------------------------------------------------------------
10
- ----------------------------- -------------------------------------------------- ---------------- ---------------
MARTIN T. HART (67) Private Investor; President and Director 1991 /2003*** 2
(1983-2000), H Corporation; Partner (1986-2000),
Consolidated Nursery Properties (wholesale nursery
MassMutual Participation and garden center); Director (since 1997), T- ***NOMINEE
Investors Netiks (communications company); Director (since FOR RE-ELECTION
1500 Main Street 1999), ValueClick Inc. (internet advertising FOR A THREE-YEAR
Suite 1100 company); Director (since 2002), Spectranetics TERM.
Springfield, MA 01115 Corporation (medical device company); Trustee
(since 1991), MassMutual Corporate Investors
TRUSTEE (closed-end investment company advised by Babson).
NOMINEE FOR RE-
ELECTION
- --------------------------------------------------------------------------------
11
NAME (AGE) PRINCIPAL OCCUPATION NUMBER OF
ADDRESS DURING THE PAST FIVE YEARS/ SERVICE BEGAN/ PORTFOLIOS
POSITION WITH THE FUND OTHER DIRECTORSHIPS TERM ENDS OVERSEEN
- ----------------------------- -------------------------------------------------- ---------------- ---------------
STEVEN A. KANDARIAN (50) Executive Director (since 2001), Pension Benefit 2002/2005 13
Guaranty Corp. (a Federal pension agency);
MassMutual Participation Managing Director (1993-2001), Orion Partners,
Investors L.P. (a private equity fund); Trustee (since
1500 Main Street 2002), The DLB Fund Group (open-end investment
Suite 1100 company advised by Babson); Trustee (since 2002),
Springfield, MA 01115 MassMutual Corporate Investors (a closed-end
investment company advised by Babson).
TRUSTEE
- ----------------------------- -------------------------------------------------- ---------------- ---------------
JACK A. LAUGHERY (68) Chairman (1997-1998), President and Partner (since 1996 /2005 2
1996), Laughery Investments; Chairman (1997-1998),
MassMutual Participation Papa John's New England (food service); Director
Investors (since 1993), Papa John's International (food
1500 Main Street service companies); Director (since 1994), Houston
Pizza Venture LLC (pizza
12
Suite 1100 restaurant); Partner (since 1987), Coastal
Springfield, MA 01115 Lodging (hotels); Part Owner (since 1998), Rocky
Mount Harley Davidson; Partner (since 1996), Papa
John's Iowa; Director (since 2001) Papa John's
TRUSTEE United (food service); Trustee (since 1996),
MassMutual Corporate Investors (closed-end
investment company advised by Babson).
- ----------------------------- -------------------------------------------------- ---------------- ---------------
CORINE T. NORGAARD (65) Dean (since 1996), Barney School of Business and 1998 /2005 2
Public Administration, University of Hartford;
MassMutual Participation Director (since 1997), The Advest Bank; Trustee
Investors (since 1993), Aetna Series Fund (investment
1500 Main Street company); Director (since 1992), Aetna Variable
Suite 1100 Series Fund; Trustee (since 1998), MassMutual
Springfield, MA 01115 Corporate Investors (a closed-end investment
company advised by Babson).
TRUSTEE
- --------------------------------------------------------------------------------
13
OFFICERS OF THE TRUST
NAME (AGE)
ADDRESS PRINCIPAL OCCUPATION POSITION HELD
POSITION WITH THE FUND DURING THE PAST FIVE YEARS SINCE THIS DATE
- ----------------------------- -------------------------------------------------- ---------------
ROBERT E. JOYAL (58) President (since 2001) and Managing Director 1999
(2000-2001) of Babson; Executive Director
MassMutual Participation (1997-1999), Vice President and Managing Director
Investors (1987-1997) of the Insurance Company; Director
1500 Main Street (since 1996), Antares Capital Corporation;
Suite 1100 Director (since 1999), MassMutual Corporate Value
Springfield, MA 01115 Partners Limited; Advisory Board Member (since
1996), MassMutual High Yield Partners II LLC;
President (since 1999), MassMutual Corporate
PRESIDENT Investors; President (since 1999), MassMutual
Participation Investors.
- --------------------------------------------------------------------------------
14
- ----------------------------- -------------------------------------------------- ---------------
CLIFFORD M. NOREEN (45) Vice President (since 1993) of the Trust; Managing 1993
Director (since 2000) of Babson; Managing Director
MassMutual Participation (1996-1999), Vice President (1995-1996) of the
Investors Insurance Company; Vice-President (since 1993) of
1500 Main Street MassMutual Corporate Investors.
Suite 1100
Springfield, MA 01115
VICE PRESIDENT
- ----------------------------- -------------------------------------------------- ---------------
ROGER W. CRANDALL (38) Vice President (since 2002) of the Trust; Managing 2002
Director (since 2000) of Babson; Managing Director
MassMutual Participation (1993-2000) of the Insurance Company; Vice
Investors President (since 2002) of MassMutual Corporate
1500 Main Street Investors.
Suite 1100
Springfield, MA 01115
VICE PRESIDENT
- --------------------------------------------------------------------------------
15
NAME (AGE)
ADDRESS PRINCIPAL OCCUPATION POSITION HELD
POSITION WITH THE FUND DURING THE PAST FIVE YEARS SINCE THIS DATE
- ----------------------------- -------------------------------------------------- ---------------
STEPHEN L. KUHN (56) Vice President and Secretary (since 1988) of the 1988
Trust; General Counsel and Clerk (since 2000) of
MassMutual Participation Babson; Senior Vice President and Deputy General
Investors Counsel (since 1999), Vice President and Deputy
1500 Main Street General Counsel (1998-1999), Vice President and
Suite 1100 Associate General Counsel (1992-1998) of the
Springfield, MA 01115 Insurance Company; Vice President (since 1989) and
Secretary (since 1980) MassMutual Corporate
VICE PRESIDENT & SECRETARY Investors.
- ----------------------------- -------------------------------------------------- ---------------
CHARLES C. MCCOBB, JR. (59) Chief Financial Officer (since 1998) and Vice Chief
President (since 1997) of the Trust; Managing Financial
MassMutual Participation Director (since 2000) of Babson; Managing Director Officer
Investors (1997-1999) of the Insurance Company; Managing (since 1998)
1500 Main Street Director and Vice President (1994-1997), Citicorp,
Suite 1100 Inc. (banking); Chief Financial Officer (since Vice President
Springfield, MA 01115 1998) and Vice President (since 1997), MassMutual (since 1997)
Corporate Investors.
CHIEF FINANCIAL OFFICER
VICE PRESIDENT
- --------------------------------------------------------------------------------
16
- ----------------------------- -------------------------------------------------- ---------------
MARK B. ACKERMAN (37) Treasurer (since 1998), Comptroller (1997-1998) 1998
and Associate Treasurer (1995-1998) of the Trust;
MassMutual Participation Managing Director (since 2000) of Babson;
Investors Investment Director (1994-1999) of the Insurance
1500 Main Street Company; Treasurer (since 1998), Comptroller
Suite 1100 (1997-1998) and Associate Treasurer (1995-1998),
Springfield, MA 01115 MassMutual Corporate Investors.
TREASURER
- ----------------------------- -------------------------------------------------- ---------------
JOHN T. DAVITT, JR. (35) Comptroller (since 2001) of the Trust; Director 2001
(since 2000) of Babson; Associate Director
MassMutual Participation (1997-1999) of the Insurance Company; Comptroller
Investors (since 2001), MassMutual Corporate Investors.
1500 Main Street
Suite 1100
Springfield, MA 01115
COMPTROLLER
- --------------------------------------------------------------------------------
17
BENEFICIAL OWNERSHIP OF TRUST SHARES
DECEMBER 31, 2002*
NAME OF SHARES PERCENTAGE OF
INDIVIDUAL BENEFICIALLY OUTSTANDING
OR GROUP OWNED* SHARES OWNED
- -------- ------ ------------
D. Benson 7,726 **
R. Dooley 2,019 **
D. Glickman 2,540 **
M. Hart 44,438 0.47%
R. Joyal 4,194 0.14%
S. Kandarian None **
J. Laughery 6,333 **
C. Norgaard 1,011 **
S. Reese 11,827 0.12%
All Trustees, Nominees
and Executive Officers
as a Group 81,530 0.96%
DOLLAR RANGES OF SHARES OWNED BY TRUSTEES AND NOMINEES FOR TRUSTEE*
NAME OF DOLLAR RANGE AGGREGATE DOLLAR RANGE
NOMINEE/ OF SHARES OF SHARES IN THE FAMILY
TRUSTEE IN THE FUND*** INVESTMENT COMPANIES
- ------- -------------- --------------------
D. Benson $50,001-$100,000 Over $100,000
R. Dooley $10,001-$50,000 Over $100,000
D. Glickman $10,001-$50,000 Over $100,000
M. Hart Over $100,000 Over $100,000
R. Joyal Over $100,000 Over $100,000
S. Kandarian $0 $0
J. Laughery $50,000-$100,000 Over $100,000
C. Norgaard under $10,000 $10,001-$50,000
S. Reese Over $100,000 Over $100,000
- --------------
*This information, not being within the knowledge of the Trust, has been
furnished by each nominee, Trustee and officer. Beneficial ownership is as
defined under Section 13(d) of the Securities Exchange Act of 1934, as amended.
Fractional shares are not reported.
**Less than one-tenth of one percent is not listed.
*** Market Value as of January 23, 2003
18
INFORMATION CONCERNING COMMITTEES AND MEETINGS OF THE BOARD OF TRUSTEES
The Board of Trustees has an Audit Committee composed exclusively of
Trustees who are not "interested persons" of the Trust, which operates pursuant
to a written Charter appearing on page 38 of this proxy statement as Appendix A.
Its present members are Messrs. Benson and Hart, and Ms. Norgaard. Each member
of the Audit Committee qualifies as an "independent" Trustee under the current
listing standards of the New York Stock Exchange and the rules of U.S.
Securities and Exchange Commission. The Audit Committee reviews the independence
of the Trust's independent accountants and the Trust's financial statements and
operations. The Committee also recommends to the Board of Trustees the
engagement of the Trust's independent auditors, and reviews with the auditors
the plan and scope of their audit for each year, the results of the audit when
completed and their fees for services performed. The Audit Committee also
supervises investigations into matters relating to audit function. During the
twelve months ended December 31, 2002, the Audit Committee held three meetings,
one of which was by telephone.
The Trust also has a Joint Transactions Committee, made up of the
independent Trustees, that reviews certain investment transactions. This
Committee acts primarily by written consent and fifteen consents were executed
by committee members, approving 15 investments during the past fiscal year. The
Committee met informally four times during the year in conjunction with the
quarterly meetings of the full Board.
In addition, the Trust has a Nominating Committee whose members are also
the independent Trustees. The Nominating Committee is responsible for nominating
independent Trustees. The Nominating Committee may consider nominations
submitted by the Trust's shareholders at its discretion. This Committee met once
during fiscal year 2002.
During the past fiscal year, the Board of Trustees held five regular
meetings (one of which was held by means of a telephone conference). All
Trustees attended
19
at least 80% of all of the meetings of the Board of Trustees.
TRANSACTIONS WITH AND REMUNERATION OF OFFICERS AND TRUSTEES
Pursuant to the Contract, Babson paid the expenses of the Trust's officers
and employees and of all Trustees of the Trust who were officers or employees of
Babson, with the exception of Mr. Reese and Mr. Dooley, whose compensation was
paid by the Insurance Company. Thus during its fiscal year ended December 31,
2002, the Trust did not pay any compensation to any of its officers or employees
or to any of its Trustees who were also officers or employees of Babson or the
Insurance Company. Mr. Kandarian, who is an executive director of a U.S.
Government agency, does not receive any compensation for his services as a
Trustee, other than out-of-pocket expenses incurred to attend meetings. Babson
will pay the expenses of the Trust's officers and employees and of all Trustees
of the Trust who are officers or employees of Babson. The Insurance Company will
pay the expenses of the Trust's officers and employees and of all Trustees of
the Trust who are officers or employees of the Insurance Company.
Trustees who are not officers or employees of the Insurance Company or
Babson receive fees of $1,250 for each Trustees' meeting which they attend and
annual Trustees' fees of $8,000. No fees are paid for Trustees' meetings
conducted by telephone conference or by unanimous written consent. Members of
the Audit Committee and Nominating Committee receive an additional fee of $1,000
per meeting, including meetings conducted by telephone. The fees were increased
by the Board of Trustees on October 19, 2001, effective as of January 1, 2002.
Pursuant to a deferred compensation plan, Trustees may defer receipt of their
fees until their retirement from the Board or some other time at their election.
The aggregate direct remuneration of these Trustees and reimbursement of their
travel expenses paid by the Trust during the fiscal year ended December 31, 2002
was approximately $82,203.
20
The following table discloses the compensation paid to the Trust's
independent Trustees for the fiscal year ended December 31, 2002. Each of the
independent Trustees also serves as a Trustee of one other closed-end investment
company managed by Babson. (Both funds collectively referred to as the "Fund
Family").
TOTAL
AGGREGATE COMPENSATION
NAME OF COMPENSATION FROM FUND
TRUSTEE FROM TRUST FAMILY
------- ---------- ------
Donald E. Benson $17,000 $41,000
Milton Cooper 5,500 13,500
Donald Glickman 14,000 35,000
Martin T. Hart 15,750 37,750
Jack A. Laughery 14,000 35,000
Corine T. Norgaard 17,000 41,000
(2) RATIFICATION OR REJECTION OF
APPROVAL OF AUDITORS
Upon the recommendation of the Audit Committee, the Trust's Board of
Trustees, including a majority of the independent Trustees, approved the
appointment of Deloitte & Touche LLP to act as auditors for the Trust for the
fiscal year ending December 31, 2003. Deloitte & Touche LLP has assured the
Trust that they are independent public accountants and have no direct or
material indirect interest in the Trust.
Shareholder approval of the Trust's auditors is not a requirement of law.
The Board of Trustees, however, believes it is desirable for the Trust's
shareholders to have an opportunity to give or withhold such approval. If such
approval is withheld the Trustees will determine what action to take in the best
interests of shareholders of the Trust. Approval of the auditors will require
the affirmative "majority vote" of the shareholders.
A representative of Deloitte & Touche LLP is expected to be present at the
forthcoming Annual Meeting. This representative shall have the opportunity to
make a statement if he or she desires to do so, and it
21
is expected that such representative will be available to respond to appropriate
questions from shareholders.
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Trust's financial reporting process on
behalf of the Board of Trustees and operates under a written Charter adopted by
the Board of Trustees. The Audit Committee meets with the Trust's management
("Management") and independent public accountants and reports the results of its
activities to the Board of Trustees. Management has the primary responsibility
for the financial statements and the reporting process including the system of
internal controls. In connection with the Committee's and independent
accountant's responsibilities, Management advised that the Trust's financial
statements were prepared in conformity with generally accepted accounting
principles.
Accordingly, the Audit Committee has:
o Reviewed and discussed the audited financial statements for the
fiscal year ended December 31, 2002 with Management and Deloitte &
Touche LLP, the Trust's independent public accountants;
o Discussed with Deloitte & Touche LLP those matters required to be
discussed by SAS 61 (Codification of Statements on Auditing Standards);
and
o Received the written disclosure and the letter from Deloitte & Touche
LLP required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and has discussed with
Deloitte & Touche LLP its independence.
The Audit Committee has also reviewed the aggregate fees billed for
professional services rendered by Deloitte & Touche LLP for the Trust and for
the non-audit services provided to Babson, and Babson's parent, the Insurance
Company. As part of this review, the
22
Audit Committee considered whether the provision of such non-audit services were
compatible with maintaining the principal accountant's independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee presents this Report to the Trust's Board of Trustees and recommends
that the Board of Trustees (1) include the December 31, 2002 audited financial
statements in the Annual Report to shareholders for the fiscal year ended
December 31, 2002, and (2) file such Annual Report with the Securities and
Exchange Commission and the New York Stock Exchange. The Audit Committee and the
Board have also recommended reappointment of Deloitte & Touche LLP as the
Trust's independent auditors.
SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF TRUSTEES
Donald E. Benson, Audit Committee Chair
Martin T. Hart, Audit Committee Member
Corine T. Norgaard, Audit Committee Member
The Board of Trustees reviewed this Report and approved the audited financial
statements for publication in the Trust's Annual Report.
AUDIT COMMITTEE MEMBERS
The Audit Committee is composed of Donald E. Benson, Martin T. Hart and
Corine T. Norgaard.
FEES PAID TO INDEPENDENT AUDITORS
FEES BILLED TO THE TRUST
DECEMBER 31, 2002 DECEMBER 31, 2001
Audit Fees $34,000 $27,700
Audit-Related Fees 5,500* 0
Tax Fees 7,400 7,400
All Other Fees 0 0
------- -------
Total Fees $46,900 $35,100
======= =======
*Included as part of Audit in 2001
23
NON-AUDIT FEES BILLED TO BABSON AND THE INSURANCE COMPANY
DECEMBER 31, 2002 DECEMBER 31, 2001
Audit-Related Fees 380,850 258,420
Tax Fees 18,350 2,000
All Other Fees 22,104 43,400
-------- --------
Total Fees $421,304 $303,820
======== ========
The enclosed proxy card provides space for instructions directing the proxies
named therein to vote for or against ratification of the selection of Deloitte &
Touche LLP.
(3) APPROVAL OF EXISTING INVESTMENT
ADVISORY AND ADMINISTRATIVE
SERVICES CONTRACT
The Contract entitles the Trust to certain investment advisory and
administrative services. Under the Contract, the Trust paid an advisory fee of
$793,994 to Babson for the fiscal year ended December 31, 2002.
At its meeting on January 17, 2003, the Board of Trustees (including a
majority of the independent Trustees) approved, and voted to recommend that the
shareholders approve, the continuance of the existing Contract with Babson.
Among other things, the Board considered the nature of the services provided to
the Trust by Babson, including the nature of the private placement market
compared to public markets. Babson is required to provide the Trust with a
continuing investment program consistent with its objectives, that includes
investments in private placement debt securities without equity features,
private placement debt securities and preferred stock with equity features
attached, publicly-traded investment-grade and non-investment grade debt
securities and certain temporary investments. The Trustees concluded that Babson
has a sizeable, experienced and competent staff of investment professionals
(including analysts, traders,
24
and other support personnel) to support investment activities for a wide variety
of investments.
The Trustees also considered the expenses of the Trust assumed by Babson
under the Contract; the actual fees paid to Babson by the Trust for the services
provided and expenses assumed; a comparison of the Trust's fee schedule to fees
charged by other investment advisers whose investment activities include private
placement securities (including possible economy of scale and incentive fee
features); and possible benefits to Babson as a result of the Contract
(including intangibles such as increased visibility in the financial community).
In connection with the investment and administrative services provided to
the Trust by Babson, the Trustees concluded that the administration of private
placement securities is more extensive, expensive, and requires greater time and
expertise than a portfolio of only public securities. Valuation of private
placement securities, for example, is more time consuming and requires
significantly more expertise than valuation of publicly-traded securities. In
making comparisons with other funds, therefore, the Trustees considered the
percentage of the Trust's portfolio comprised of private placement securities.
The Trustees also considered the Trust's investment performance over
various periods of time; comparisons of the Trust's investment performance to
other funds investing in restricted securities and equities and to stock and
bond indices; the quality of service provided by Babson (including the size,
experience and professionalism of Babson's investment, accounting and compliance
staffs); the profitability of the Contract to Babson; the Trust's expenses and
its expense ratio compared to other similar funds; Babson's soft dollar
practices and possible alternatives to their engagement of Babson.
The Trustees concluded, among other things, that the investment performance
of the Trust's portfolio for the one and three year periods ended September 30,
2002 was satisfactory and that its expense ratio (excluding interest expenses)
for the fiscal year ended December 31, 2002 was competitive. Based on their
25
consideration of these and other factors, the Trustees, including a majority of
the Trustees who are not "interested persons" (as defined by the Investment
Company Act of 1940), of the Trust or of Babson, approved, and recommended that
shareholders approve, the continuation of the Contract with Babson as now in
effect.
Prior to the Annual Meeting of Shareholders on April 11, 2003, the Trustees
will meet again to review their approval and recommendation. Subject to such
further review by the Board of Trustees, the Contract will be submitted to the
Trust's shareholders for their approval or disapproval at the forthcoming Annual
Meeting.
SUMMARY OF THE CONTRACT
Under the Contract, Babson has agreed to use its best efforts to present to
the Trust a continuing and suitable investment program consistent with the
investment objectives, policies and restrictions of the Trust. The Insurance
Company has retained its obligation to request each issuer of securities that
the Insurance Company is prepared to purchase at direct placement, and that
would be consistent with the investment policies of the Trust, to also offer
such securities to the Trust. The Insurance Company agreed to use its best
efforts to insure that such request is acceded to.
Babson, at its expense, investigates and conducts relations with the
issuers of securities purchased or to be purchased directly by the Trust and
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. Babson provides administration of the day-to-day
investment operations of the Trust and provides the Trust with office space and
office equipment, safekeeping facilities, accounting and bookkeeping services,
and necessary executive, clerical and secretarial personnel for the performance
of the foregoing services.
Either Babson or the Insurance Company pays the compensation and expenses
of all officers and executive
26
employees of the Trust, and of all Trustees of the Trust who are officers or
employees of Babson or the Insurance Company. Babson pays the expenses of office
rent, telephone, utilities, office furniture, equipment and other office
expenses of the Trust.
In addition, Babson, subject to the supervision of the Trustees of the
Trust, will, at its expense, furnish (or make provision for) the management and
administrative services necessary for the operation of the Trust. These services
include providing facilities for maintaining the Trust's organization (e.g.,
conducting Board, Committee and Shareholder meetings), supervising relations
with the Trust's custodian, transfer agent, accountants and other persons
dealing with the Trust, providing for pricing of the Trust's portfolio
securities, coordinating the preparation of shareholder communications and
conducting shareholder relations, maintaining the Trust's records, developing
management services for the Trust and furnishing reports, evaluations and
analyses on a variety of subjects for the Trustees of the Trust.
The Trust pays the fees and expenses of Trustees who are not officers or
employees of Babson or the Insurance Company. The Trust also pays the fees and
expenses of independent advisers, independent contractors, consultants, managers
and other agents which it employs other than through Babson. In addition, the
Trust is responsible for the payment of legal fees and expenses; the fees and
disbursements of transfer agents, dividend disbursing agents, registrars,
independent accountants, and custodians and depositories of its assets;
out-of-pocket business travel expenses incurred by Trustees, officers or
employees of the Trust; taxes and governmental fees; the cost of preparing and
mailing share certificates, dividends, reports, notices and proxy materials to
shareholders; brokers' commissions or underwriting fees; and insurance as may be
required by its Board of Trustees.
Expenses incurred jointly by the Trust, Babson, the Insurance Company,
MassMutual Corporate Investors (another closed-end investment company advised by
Babson), and other investment funds advised by Babson, or any of them that are
directly associated with the joint purchase or sale of securities by any such
27
parties are shared by such parties in proportion to the relative amounts of such
securities each is purchasing or selling.
Under the Contract, the Trust pays Babson a quarterly fee equal to 0.225%
of the value of the net assets of the Trust 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 of the Trust, including a majority of Trustees of the
Trust who are not "interested persons" of the Trust or of Babson, must approve
each valuation of the Trust's net assets used to calculate Babson's fee.
At a meeting on January 17, 2003, the Board of Trustees of the Trust
approved the valuations being made as of the close of business on December 31,
2002, and arrived at a net asset value of the Trust at that date of $83,586,663.
The Contract provides that Babson will reimburse the Trust for any amount,
not exceeding Babson's entire fee for any year, by which the aggregate annual
expenses (including the management fee, but excluding interest, taxes, brokerage
expenses and extraordinary expenses) incurred by the Trust in such year exceed
any expense limitation imposed by any state securities law or regulations
thereunder applicable to the Trust. This requirement for reimbursement of
expenses may be amended or rescinded with the approval of a majority of the
Trustees of the Trust who are not "interested persons" of the Trust or of Babson
in response to changes in the requirements of state law, provided that no
amendment or rescission shall be given retroactive effect unless required by the
change in state law.
Under the Contract, the Trust may use the name "MassMutual" or any name
derived from or similar to the name "Massachusetts Mutual" or "Massachusetts
Mutual Life Insurance Company" only for so long as the Contract or any
extension, renewal or amendment thereof remains in effect. When it is no longer
in effect, the Trust will (to the extent that it lawfully can) cease to use such
a name or any other name indicating that it is advised by or otherwise connected
with the Insurance Company. The assignment of the Contract
28
to Babson did not affect the Trust's right to use the name "MassMutual."
The Contract also provides that Babson shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Babson in the performance of its duties or from reckless disregard by Babson of
its obligations and duties under the Contract.
The Contract is terminable on 60 days' written notice by the Trust's Board
of Trustees, by a "majority vote" of the Trust's shares or by Babson. It will
terminate automatically in the event of its assignment within the meaning of the
Investment Company Act.
Until terminated, the Contract will remain in force from year to year to
the extent approved at least annually (a) by vote of a majority of Trustees of
the Trust who are not "interested persons" of the Trust or of Babson, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
specifically either by the Trust's Board of Trustees or by a "majority vote" of
the Trust's shares.
Shareholder approval of the continuance of the Contract is not a
requirement of law. The Board of Trustees, however, believes it is desirable for
the Trust's shareholders to have an opportunity to give or withhold such
approval. If such approval is withheld the Contract will not automatically
terminate but the Trustees will determine what action to take in the best
interests of shareholders of the Trust. Approval of continuance of the Contract
will require the affirmative "majority vote" of the shareholders.
ALLOCATION OF PORTFOLIO BROKERAGE
Transactions in direct placement securities are on a negotiated basis.
Brokers and dealers who execute any portfolio transaction for the Trust will be
selected primarily on the basis of obtaining the best price and execution of
each transaction. In seeking the best price and execution for securities traded
only in the over-
29
the-counter market, the Trust will normally deal directly with the principal
market makers unless a more favorable price may be obtained through other
brokers or dealers.
When it can be done consistent with the policy of obtaining best price and
execution, it is Babson's practice to place orders with brokers and dealers who
supply market quotations to the Trust or its agents for portfolio evaluation
purposes, or who supply research, market and statistical information to the
Trust or Babson. Except for implementing the policy stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. Although certain research, market and statistical information
from brokers and dealers can be useful to the Trust and Babson, it is the
opinion of Babson that such information is only supplementary to Babson's own
research effort since the information must still be analyzed, weighed and
reviewed by Babson's staff. Such information may be useful to Babson in
providing services to clients other than the Trust, and not all such information
will be used by Babson in connection with the Trust. Conversely, such
information provided to Babson by brokers and dealers through whom other clients
of Babson effect securities transactions may be useful to Babson in providing
services to the Trust.
During the fiscal year ended December 31, 2002, the Trust paid an aggregate
sum of $7,444 in brokerage commissions. Portfolio turnover for the fiscal year
ended December 31, 2002 was 35.32%.
CERTAIN ADMINISTRATIVE SERVICES
The Insurance Company provides certain administrative services to the Trust
including, but not limited to, meeting facilities, legal and other services
provided to the Trust's Investment Adviser. The Insurance Company's principal
business address is 1295 State Street, Springfield, MA, 01111.
30
INVESTMENT ADVISER
The names and addresses of the principal executive officer and each
director of Babson and his or her principal occupations are set forth below:
STUART H. REESE
1295 STATE STREET
SPRINGFIELD, MASSACHUSETTS 01111
Director, Chairman and CEO of David L. Babson & Company Inc.
Executive Vice President and Chief Investment Officer
of Massachusetts Mutual Life Insurance Company
ROBERT E. JOYAL
1500 MAIN STREET, SUITE 2800
SPRINGFIELD, MASSACHUSETTS 01115
Director, President and Chief Operating Officer of
David L. Babson & Company Inc.
ROBERT LIGUORI
1295 STATE STREET
SPRINGFIELD, MASSACHUSETTS 01111
Director of David L. Babson & Company Inc.
Senior Vice President and Deputy General Counsel of
Massachusetts Mutual Life Insurance Company
KEVIN M. MCCLINTOCK
ONE MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02142
Director and Managing Director of David L. Babson &
Company Inc.
31
FRANK L. TARANTINO
ONE MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02142
Director, Chief Financial Officer, Chief Administrative Officer and
Managing Director of David L. Babson & Company Inc.
Executive Officers of the Trust who are officers or employees of Babson
(other than Trustees) are listed below with their principal occupation or
employment during the past five years. The term of each such Executive Officer
is until the next meeting of the Board of Trustees following the 2003 Annual
Meeting of Shareholders and until his successor shall have been chosen and
qualified.
ROBERT E. JOYAL
President (since 2001), Director and Chief Operating Officer (since 2000)
and Managing Director (2000-2001), Babson; Executive Director (1997-1999),Vice
President and Managing Director (1987-1997) of the Insurance Company; Director
(since 1996), Antares Capital Corporation; Director (since 1999), MassMutual
Corporate Value Partners Limited; Advisory Board Member (since 1996), MassMutual
High Yield Partners II, LLC; President (since 1999), MassMutual Corporate
Investors (closed-end investment company advised by Babson); President (since
1999), MassMutual Participation Investors (closed-end investment company advised
by Babson). Age 58.
CLIFFORD M. NOREEN
Vice President (since 1993) of the Trust; Managing Director (since 2000) of
Babson; Managing Director (1996-1999), Vice President (1995-1996), of the
Insurance Company; Vice-President (since 1993), of MassMutual Corporate
Investors. Age: 45.
32
ROGER W. CRANDALL
Vice President (since 2002) of the Trust; Managing Director (since 2000) of
Babson; Managing Director (1993-2000) of MassMutual Life Insurance Company; Vice
President (since 2002) of MassMutual Corporate Investors. Age: 38.
STEPHEN L. KUHN
Vice President and Secretary (since 1988) of the Trust; General Counsel and
Clerk (since 2000) of Babson; Senior Vice President and Deputy General Counsel
(since 1999), Vice President and Deputy General Counsel (1998-1999), Vice
President and Associate General Counsel (1992-1998) of the Insurance Company;
Vice President (since 1989) and Secretary (since 1980) of MassMutual Corporate
Investors. Age: 56.
CHARLES C. MCCOBB, JR.
Chief Financial Officer (since 1998), and Vice President (since 1997) of
the Trust; Managing Director (since 2000) of Babson; Managing Director
(1997-1999), of the Insurance Company; Managing Director and Vice President
(1994-1997), Citicorp, Inc. (banking); Chief Financial Officer (since 1998), and
Vice President (since 1997) of MassMutual Corporate Investors. Age: 59.
MARK B. ACKERMAN
Treasurer (since 1998), Comptroller (1997-1998), and Associate Treasurer
(1995-1998) of the Trust; Managing Director (since 2000) of Babson; Investment
Director (1994-1999) of the Insurance Company; Treasurer (since 1998),
Comptroller (1997-1998), and Associate Treasurer (1995-1998), MassMutual
Corporate Investors. Age: 37.
Other officers of the Trust who are officers or employees of the Babson
are: Mark A. Ahmed, Shaun Corish, John T. Davitt, Jr., Andrew C. Dickey,
Christopher P. Dowd, Walter T. Dwyer, Robert M. Feingold, Jill A. Fields, Laura
L. Grant, Dean R. Graves, Michael P. Hermsen, Patrick J. Joyce, Mary
33
Wilson Kibbe, Michael L. Klofas, Kathleen L. Kraez, Lisa M. Kusek, Audrey Meyer
Lampert, Mary S. Law, Thomas S. Li, Kathleen Lynch, Mary Ann Z. McCarthy,
Richard C. Morrison, Emeka Onukwugha, Elisabeth A. Perenick, James M. Roy,
Thomas Shea, Robert M. Shettle, Richard E. Spencer II, J. Steven Staggs, Brian
S. Toth and John B. Wheeler.
DLB Acquisition Corporation is the direct owner of 100% of the voting
shares of Babson. MassMutual Holding Company owns approximately 98% of the
voting shares of DLB Acquisition Corporation. The Insurance Company owns all of
the voting shares of MassMutual Holding Company. All of these corporations are
located at 1295 State Street, Springfield, Massachusetts, 01111. Babson also has
an office at 1500 Main Street, Suite 1100, Springfield, Massachusetts, 01115,
but its main office is located at One Memorial Drive, Cambridge, Massachusetts
02142.
Babson also advises MassMutual Corporate Investors ("Corporate Investors"),
a closed-end, non-diversified management investment company, having a similar
investment objective as the Trust and having net assets of $171,028,431 as of
December 31, 2002. Babson's Investment Services Contract with Corporate
Investors provides that Babson is to be paid a base rate (the "Base Fee Rate")
of 5/16 of 1% of the net asset value of Corporate Investors (approximately
equivalent to 1.25% on an annual basis), plus or minus a performance adjustment
(the "Performance Adjustment"). The Performance Adjustment is based on Corporate
Investors' performance as compared to a benchmark rate of return (the "Target
Rate") equal to 5.0 percentage points plus an unweighted, arithmetic average of
the rates of return on the Standard & Poor's Industrials Stock Price Index (the
"S&P Industrials") and the Lehman Brothers Intermediate Credit Bond Index (the
"Intermediate Bond Index," formerly named the "Lehman Brothers Intermediate
Corporate Bond Index") over a rolling three-year period (the "Measurement
Period") comprising the twelve quarters ending on the last day of each quarter
(the "Valuation Date").
The Performance Adjustment is equal to 5% of the difference between
Corporate Investors' actual rate of return over the Measurement Period and the
Target Rate. If Corporate Investors' actual rate of return exceeds the
34
Target Rate, the Base Fee Rate is increased by an amount equal to the
Performance Adjustment; if Corporate Investors' actual rate of return is less
than the Target Rate, the Base Fee Rate is reduced by the Performance
Adjustment. The Performance Adjustment is subject to a maximum and minimum range
of 1/16 of 1% of the net asset value of Corporate Investors (approximately
equivalent to .25% on an annual basis). The advisory fee payable by Corporate
Investors is equal to the Base Fee Rate (as adjusted by the Performance
Adjustment) times the net asset value of Corporate Investors as of the Valuation
Date.
NET ASSETS ADVISORY FEE
AS OF (ON AN
NAME OF FUND 12/31/02 ANNUAL BASIS)
- ------------ -------- -------------
MassMutual 1.25% of net assets PLUS
Corporate $171.0 million Performance Incentive of
Investors +/- .25% (1.0% to 1.50%)
In addition to acting as investment adviser and administrator to the Trust
and Corporate Investors, Babson acts as investment sub-adviser to certain series
of MML Series Investment Fund and MassMutual Institutional Funds, open-end
management investment companies investing primarily in publicly traded
securities. Babson also acts as adviser to The DLB Fund Group, another
multi-series, open-end management investment company investing primarily in
publicly traded securities.
(4) OTHER BUSINESS
The Board of Trustees knows of no business to be brought before the meeting
other than as set forth above. If, however, any other matters properly come
before the meeting, it is the intention of the persons named in the enclosed
proxy card to vote proxies on such matters in accordance with their best
judgment.
SECTION 16 (A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
During the fiscal year two Babson employees who had reporting
responsibilities with respect to transactions in securities failed to timely
file a Form 3 and Form 4 respectively. Mr. Davitt inadvertently failed to timely
file a
35
Form 3 upon becoming Comptroller of the Trust. Ms. Fortier inadvertently failed
to timely file a Form 4 upon leaving her position as Comptroller of the Trust.
PROPOSALS BY SHAREHOLDERS
Any shareholder intending to present a proposal at the Annual Meeting to be
held in 2004 who wishes to have such proposal included in the Trust's proxy
material for that meeting should forward the written proposal to the Trust,
Attention: Secretary. Proposals must be received on or before November 3, 2003
to be considered for inclusion in the Trust's proxy material for its 2004 Annual
Meeting.
ADDITIONAL INFORMATION
Proxies will be solicited by mail and may be solicited in person or by
telephone or facsimile by officers of the Trust. The expenses connected with the
solicitation of these proxies and with any further proxies which may be
solicited by the Trust's officers in person, by telephone or by facsimile will
be borne by the Trust. In addition, the Trust may retain an outside firm to
solicit proxies, which would involve additional expenses, payable by the Trust.
If the Trust does retain such an outside firm, the anticipated cost would be
approximately $16,000. The Trust will reimburse banks, brokers, and other
persons holding the Trust's shares registered in their names or in the names of
their nominees, for their expenses incurred in sending proxy material to and
obtaining proxies from the beneficial owners of such shares, which reimbursement
will not be submitted to a vote of the Trust's shareholders.
If any shareholders desire additional information about the matters
proposed for action, the management will be glad to hear from them and to
provide further information.
36
ANNUAL REPORT
THE ANNUAL REPORT OF THE TRUST FOR ITS FISCAL YEAR ENDED DECEMBER 31, 2002,
INCLUDING FINANCIAL STATEMENTS, A SCHEDULE OF THE TRUST'S INVESTMENTS AS OF SUCH
DATE AND OTHER DATA, WILL BE MAILED ON OR ABOUT FEBRUARY 28, 2003, TO ALL
SHAREHOLDERS OF RECORD. THE FINANCIAL STATEMENTS INCLUDED IN SUCH ANNUAL REPORT
ARE INCORPORATED HEREIN BY REFERENCE. ANY SHAREHOLDER MAY REQUEST A COPY OF THE
ANNUAL REPORT AND THE MOST RECENT SEMI-ANNUAL REPORT, WHICH WILL BE FURNISHED
WITHOUT CHARGE, BY CALLING (TOLL-FREE) THE TRUST'S TRANSFER AGENT, SHAREHOLDER
FINANCIAL SERVICES, INC., AT 1-800-647-7374.
By order of the
Board of Trustees,
/s/ Stephen L. Kuhn
------------------------------
Stephen L. Kuhn
VICE PRESIDENT AND SECRETARY
1500 Main Street, Suite 1100
Springfield, Massachusetts 01111
February 28, 2003
37
APPENDIX A
MASSMUTUAL PARTICIPATION INVESTORS
AUDIT COMMITTEE CHARTER
ADOPTED APRIL 28, 2000
REVISED JULY 19, 2002
1. The Audit Committee shall be composed entirely of Trustees that are
free of any relationship that would, in the opinion of the Board,
interfere with the exercise of their independent judgment
("independent Trustees"). The Audit Committee shall be composed of at
least three Trustees. Each member of the Audit Committee:
(a) will be financially literate, as such qualification is
interpreted by the Trust's Board of Trustees, or become
financially literate within a reasonable period of time after his
or her appointment to the Audit Committee; and
(b) at least one member of the Audit Committee must have accounting
or related financial management expertise, as determined by the
Board of Trustees in its business judgment.
38
2. The purposes of the Audit Committee are:
(a) to oversee the Trust's accounting and financial reporting
policies and practices;
(b) to oversee the quality and objectivity of the Trust's financial
statements and the independent audit thereof;
(c) to act as a liaison between the Trust's independent auditors and
the full Board of Trustees, and
(d) to provide immediate access for the independent accountants to
report any special matters they believe should be brought to the
attention of the Board of Trustees.
The function of the Audit Committee is oversight; it is management's
responsibility to maintain appropriate systems for accounting and
internal control, and the independent auditor's responsibility to plan
and carry out a proper audit.
3. To carry out its purposes, the Audit Committee shall have the
following duties and powers:
(a) to recommend the selection, retention or termination of
independent auditors and, in connection therewith, to evaluate
the independence of the auditors, and to receive the auditors'
specific representations as to their independence;
(b) to meet with the Trust's independent auditors, including
39
private meetings, as necessary (i) to review the arrangements for
the annual audit and any special audits; (ii) to discuss any
matters of concern brought to their attention relating to the
Trust's financial statements, including any adjustments to such
statements recommended by the independent auditors, or other
results of said audit(s); (iii) to consider the auditors'
comments with respect to the Trust's financial policies,
procedures and internal accounting controls and management's
responses thereto; and (iv) to review the form of opinion the
auditors propose to render to the Board and shareholders;
(c) to review reports concerning any changes in accounting principles
or practices proposed by management or the independent auditors;
(d) to receive an update regarding the results, or current status of
any regulatory examinations;
(e) to review the fees charged by the independent auditors for audit
and non-audit services brought to the Committee's attention by
management or the auditors;
(f) to review any unusual or significant commitments or contingent
liabilities that have arisen:
(g) to investigate improprieties or suspected improprieties, if any,
in the Trust's operations; and
40
(h) to report its activities to the full Board on a regular basis and
to make such recommendations with respect to the above and other
matters as the Committee may deem necessary or appropriate.
4. The Committee shall meet annually and is empowered to hold special
meetings as circumstances require.
5. The Committee shall meet annually with the Chief Financial Officer of
the Trust to review any items of concern to the Committee or
management including management's comments on the performance of the
independent auditors.
6. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain
special counsel and other experts or consultants at the expense of the
Trust.
7. The Committee shall review this charter at least annually and
recommend any changes to the full Board of Trustees.
41
L4288p 203
- --------------------------------------------------------------------------------
MASSMUTUAL PARTICIPATION INVESTORS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Stephen L. Kuhn and Charles C. McCobb, Jr.,
and each of them, attorneys and proxies of the undersigned, with power of
substitution to vote all shares of MassMutual Participation Investors (the
"Trust") which the undersigned is entitled to vote at the Annual Meeting of
shareholders of the Trust to be held in the Oak Room of Massachusetts Mutual
Life Insurance Company, 1295 State Street, Springfield, Massachusetts 01111, on
Friday, April 11, 2003, at 1:00 p.m. Eastern time, and at any adjournments
thereof (the "Annual Meeting").
THIS PROXY WILL BE VOTED ON ITEMS (1), (2) AND (3) IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN ON THIS CARD, AND IN THE ABSENCE OF INSTRUCTIONS THE
UNDERSIGNED HEREBY AUTHORIZES THE AFORESAID PROXY OR PROXIES TO VOTE FOR ITEMS
(1), (2) AND (3).
THIS PROXY WILL BE VOTED ON ITEM (4) IN THE SOLE AND ABSOLUTE DISCRETION OF
THE PROXY AND IN THE ABSENCE OF INSTRUCTIONS THE UNDERSIGNED HEREBY AUTHORIZES
THE AFOREMENTIONED PROXY OR PROXIES TO VOTE ON ANY MATTER RAISED PURSUANT TO
ITEM (4).
Address Changes: _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(If you noted any address changes/comments above,
please mark corresponding box on other side.)
PLEASE SIGN ON REVERSE SIDE
SEE REVERSE SIDE
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MASSMUTUAL PARTICIPATION INVESTORS MASSMUTUAL PARTICIPATION INVESTORS
C/O DAVID L. BABSON & COMPANY INC. THIS PROXY IS SOLICITED ON BEHALF
1500 MAIN STREET OF THE BOARD OF TRUSTEES
SPRINGFIELD, MA 01115 The undersigned hereby appoints
Stephen L. Kuhn and Charles C.
McCobb, Jr., and each of them,
attorneys and proxies of the
undersigned, with power of
substitution to vote all shares of
MassMutual Participation Investors
(the "Trust") which the undersigned
is entitled to vote at the Annual
Meeting of shareholders of the Trust
to be held in the Oak Room of
Massachusetts Mutual Life Insurance
Company, 1295 State Street,
Springfield, Massachusetts 01111, on
Friday, April 11, 2003, at 1:00 p.m.
Eastern time, and at any adjournments
thereof (the "Annual Meeting").
THIS PROXY WILL BE VOTED ON ITEMS
(1), (2) AND (3) IN ACCORDANCE WITH
THE INSTRUCTIONS GIVEN ON THIS CARD,
AND IN THE ABSENCE OF INSTRUCTIONS
THE UNDERSIGNED HEREBY AUTHORIZES THE
AFORESAID PROXY OR PROXIES TO VOTE
FOR ITEMS (1), (2) AND (3).
To vote by Mail
THIS PROXY WILL BE VOTED ON ITEM (4)
1) Read the Proxy Statement. IN THE SOLE AND ABSOLUTE DISCRETION
2) Check the appropriate boxes on OF THE PROXY AND IN THE ABSENCE OF
the proxy card below. INSTRUCTIONS THE UNDERSIGNED HEREBY
3) Sign and date the proxy card. AUTHORIZES THE AFOREMENTIONED PROXY
4) Return the proxy card in the OR PROXIES TO VOTE ON ANY MATTER
envelope provided. RAISED PURSUANT TO ITEM (4).
TO VOTE, MARK BLOCKS BELOW IN BLUE OR
BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
- --------------------------------------------------------------------------------
MASSMUTUAL PARTICIPATION INVESTORS
1. Election of Trustees FOR WITHHELD FOR ALL
ALL ALL EXCEPT
Nominee: Robert E. Joyal for the term set [_] [_] [_]
forth in the proxy statement.
To withhold authority to vote, mark
Nominees for re-election: Stuart H. Reese "For All Except" and write the
and Martin T. Hart for the terms set forth nominee's number on the line below.
in the proxy statement. ___________________________________
FOR AGAINST ABSTAIN
2. Ratification of the selection of [_] [_] [_]
Deloitte & Touche L.L.P. as auditors
for the fiscal year ending December
31, 2003.
3. Approval of continuance of the Trust's [_] [_] [_]
Investment Advisory and Administrative
Services Contract with David L. Babson
& Company Inc. dated October 7, 1988.
4. In their discretion, the proxies are
authorized to vote on any other business
that may properly come before the Annual
Meeting. The Proxies are hereby authorized
to vote on any other business in their sole
and absolute discretion.
Please sign exactly as your name or names appear. When signing as joint tenant,
all parties to the joint tenancy should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title as
such. Please mail the completed and signed proxy to SFSI, P.O. Box 173673,
Denver, CO 80217-36
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT. [ ]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING. [ ]
Signature: Date:
Signature:(Joint Owner) Date: