SEC Info - Babson Capital Participation Investors

	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

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.

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.

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

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

	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	%

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	-	-

	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

	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

	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

	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

	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

	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

	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

	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

	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

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

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

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

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

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

	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

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.

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

	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

	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

	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

	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

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

	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

	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

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

	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

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.

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)

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.


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.

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.

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■	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.

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

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

	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

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

	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

Babson Capital Participation Investors – ‘N-30D’ for 9/30/14

On: Tuesday, 11/25/14, at 11:50am ET · Effective: 11/25/14 · For: 9/30/14 · Accession #: 1072613-14-477 · File #: 811-05531

Previous ‘N-30D’: ‘N-30D’ on 5/30/14 for 3/31/14 · Next: ‘N-30D’ on 5/29/15 for 3/31/15 · Latest: ‘N-30D’ on 11/29/18 for 9/30/18

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1
Filing Table of Contents

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Dates Referenced Herein and Documents Incorporated by Reference

					Shares or
Corporate Restricted Securities: (A) (Continued)	Interest			Due	Principal				Market
Corporate Restricted Securities: (A) (Continued)	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

									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

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

														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

	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

This ‘N-30D’ Filing	Date	Other Filings

	12/13/23
Filed on / Effective on:	11/25/14	N-Q
	11/14/14
	11/3/14
	10/31/14
For Period End:	9/30/14	N-Q
	6/30/14	N-CSRS, N-PX, NSAR-A
	3/31/14	N-30D, N-Q
	12/13/11
	1/27/98
		List all Filings

Babson Capital Participation Investors – ‘N-30D’ for 9/30/14

On: Tuesday, 11/25/14, at 11:50am ET · Effective: 11/25/14 · For: 9/30/14 · Accession #: 1072613-14-477 · File #: 811-05531

Previous ‘N-30D’: ‘N-30D’ on 5/30/14 for 3/31/14 · Next: ‘N-30D’ on 5/29/15 for 3/31/15 · Latest: ‘N-30D’ on 11/29/18 for 9/30/18

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1Filing Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1
Filing Table of Contents