Edgar Filing: BABSON CAPITAL PARTICIPATION INVESTORS

mmpi-formn30d_17816.htm

	Babson Capital Participation Investors
	Report for the Three Months Ended March 31, 2015

Adviser	Transfer Agent & Registrar
Babson Capital Management LLC 1500 Main Street, P.O. Box 15189 Springfield, Massachusetts 01115-5189	DST Systems, Inc. P.O. Box 219086 Kansas City, Missouri 64121-9086 1-800-647-7374

Independent Registered Public Accounting Firm KPMG LLP Boston, Massachusetts 02110	Internet Website www.babsoncapital.com/mpv

Counsel to the Trust		Babson Capital Participation Investors
Ropes & Gray LLP		c/o Babson Capital Management LLC
Boston, Massachusetts 02110		1500 Main Street, Suite 2200
		Springfield, Massachusetts 01115
Custodian		(413) 226-1516
State Street Bank and Trust Company
Boston, Massachusetts 02116

Investment Objective and Policy

Babson Capital Participation Investors (the “Trust”) is a closed- end management investment company, first offered to the public in 1988, whose shares are traded on the New York Stock Exchange under the trading symbol “MPV”. The Trust’s share price can be found in the financial section of most newspapers under either the New York Stock Exchange listings or Closed- End Fund Listings.

The Trust’s investment objective is to maximize total return by providing a high level of current income, the potential for growth of income, and capital appreciation. The Trust’s principal investments are privately placed, below-investment grade (as defined below), long-term debt obligations purchased directly from their issuers, which tend to be smaller companies. These investments may include equity features such as warrants, conversion rights, or other equity features that provide the Trust with the opportunity to realize capital gains. The Trust will also invest in publicly traded debt securities (including high yield securities), and in convertible preferred stocks and, subject to certain limitations, readily marketable equity securities. Below- investment grade or high yield securities have predominantly speculative characteristics with respect to the capacity of the issuer to pay interest and repay principal. The Trust is prohibited from purchasing below-investment grade securities if, after giving effect to the purchase, more than 75% of the Trusts’ total assets would be invested in below-investment grade securities, which are securities that are rated, at the time of purchase, BB or B by S&P or Ba or B by Moody’s, or, if unrated, are believed by Babson Capital Management LLC (“Babson Capital”) to be of an equivalent quality. In addition, the Trust will not invest in any debt security that is rated, at the time of acquisition, below B by S&P or Moody’s, or if unrated, is believed by Babson Capital to be of an equivalent quality. In addition, the Trust may invest in high quality, readily marketable securities.

Babson Capital manages the Trust on a total return basis. The Trust distributes substantially all of its net income to shareholders each year. Accordingly, the Trust pays dividends to shareholders in January, May, August, and November. All registered shareholders are automatically enrolled in the Dividend Reinvestment and Cash Purchase Plan unless cash distributions are requested.

Form N-Q

The Trust files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. This information is available (i) on the SEC’s website at http://www.sec.gov; and (ii) at the SEC’s Public Reference Room in Washington, DC (which information on their operation may be obtained by calling 1-800-SEC-0330). A complete schedule of portfolio holdings as of each quarter-end is available upon request by calling, toll-free, 866-399-1516.

Proxy Voting Policies & Procedures; Proxy Voting Record

The Trustees of the Trust have delegated proxy voting responsibilities relating to the voting of securities held by the Trust to Babson Capital. A description of Babson Capital’s proxy voting policies and procedures is available (1) without charge, upon request, by calling, toll-free 866-399-1516; (2) on the Trust’s website: http://www.babsoncapital.com/mpv; and (3) on the SEC’s website at http://www.sec.gov. Information regarding how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) on the Trust’s website: http://www.babsoncapital.com/mpv; and (2) on the SEC’s website at http://www.sec.gov.

Babson Capital Participation Investors

TO OUR SHAREHOLDERS

April 30, 2015

We are pleased to present the March 31, 2015 Quarterly Report of Babson Capital Participation Investors (the “Trust”).

The Board of Trustees declared a quarterly dividend of $0.27 per share, payable on May 15, 2015 to shareholders of record on May 1, 2015. The Trust paid a $0.27 per share dividend for the preceding quarter. The Trust earned $0.24 per share of net investment income, including $0.03 per share of non-recurring income, for the first quarter of 2015, compared to $0.26 per share, including $0.03 per share of non-recurring income, in the previous quarter.

During the first quarter, the net assets of the Trust increased to $143,704,328 or $13.93 per share compared to $137,568,919 or $13.35 per share on December 31, 2014. This translates into a 4.3% 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 15.2%, 14.3%, 14.4%, 12.1% and 12.4% for the 1, 3, 5, 10, and 25-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 8.3% during the quarter, from $13.23 per share as of December 31, 2014 to $12.13 per share as of March 31, 2015. The Trust’s market price of $12.13 per share equates to a 12.9% discount to the March 31, 2015 net asset value per share of $13.93. The Trust’s average quarter-end premium for the 3, 5 and 10-year periods was 7.2%, 11.6% and 8.9%, respectively. U.S. equity markets, as approximated by the Russell 2000 Index, increased 4.3% for the quarter. U.S. fixed income markets, as approximated by the Barclays Capital U.S. Corporate High Yield Index, increased 2.5% for the quarter.

The Trust closed five new private placement investments during the first quarter. The five new investments were in AFC - Dell Holding Corporation, Animal Supply Company, Compass Chemical International LLC, Tristar Global Energy Solutions, Inc. and York Wall 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 $7,746,000.

It was an active first quarter for the Trust in terms of new investments. Middle market merger and acquisition activity, a key driver of deal flow for the Trust, was steady during the quarter. We expect deal flow to remain steady for the rest of the year, assuming no significant external shocks to the market, so we are optimistic about the level of new investment activity 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 buyout transactions today. Average purchase price multiples for small companies continue to be at their highest levels in the past 15 years. Leverage multiples are also elevated and are near their highs of the past 15 years as well. Though we are actively making new investments on behalf of the Trust in this market, we do 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 first quarter. 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 five investments and benefited from dividends associated with the recapitalization of one company during the quarter. We realized significant gains from these transactions. We continue to have a backlog of portfolio companies that are in the process of being sold, with a number of these expected to close this year. We had five portfolio companies fully or partially prepay their debt instruments held by the Trust during the quarter. This lower level of prepayment activity is welcome after the unprecedented levels of prepayments we experienced in 2013 and early 2014.

(Continued)

The Trust was able to maintain its $0.27 per share quarterly dividend for the first 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 exit and prepayment 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, earnings available for the quarterly dividend would have been $0.21 per share for the first quarter. This quarter, the Trust earned an additional $0.03 per share of non-recurring income, and utilized $0.03 per share of earnings carry-forwards to maintain the $0.27 per share quarterly dividend. The Trust continues to have available earnings carry-forwards which should be available to supplement recurring income for the next few quarters. 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 and grow net investment income. 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. As we move through 2015, we and the Board of Trustees will continue to evaluate the current and future earnings capacity of the Trust and formulate a dividend strategy that is consistent with that earnings level.

Thank you for your continued interest in and support of Babson Capital Participation Investors.

Sincerely,

Michael L. Klofas

President

* Based on market value of total investments (including cash)

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

Babson Capital Participation Investors

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

March 31, 2015

(Unaudited)

Assets:
Investments
(See Consolidated Schedule of Investments)
Corporate restricted securities at fair value
(Cost - $87,663,033)	$	88,118,442
Corporate restricted securities at market value
(Cost - $22,511,664)		22,776,416
Corporate public securities at market value
(Cost - $39,448,753)		40,309,311
Short-term securities at amortized cost		1,999,839
Total investments (Cost - $151,623,289)		153,204,008
Cash		5,850,169
Interest receivable		1,747,830
Other assets		25,840
Total assets		160,827,847

Liabilities:
Note payable		15,000,000
Payable for investments purchased		708,000
Deferred tax liability		584,505
Investment advisory fee payable		323,335
Tax payable		306,507
Interest payable		27,267
Accrued expenses		173,905
Total liabilities		17,123,519
Total net assets	$	143,704,328

Net Assets:
Common shares, par value $.01 per share	$	103,148
Additional paid-in capital		97,901,079
Retained net realized gain on investments, prior years		40,289,888
Undistributed net investment income		3,461,531
Accumulated net realized gain on investments		952,468
Net unrealized appreciation of investments		996,214
Total net assets	$	143,704,328
Common shares issued and outstanding (14,787,750 authorized)		10,314,898
Net asset value per share	$	13.93

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENT OF OPERATIONS

For the three months ended March 31, 2015 (Unaudited)

Investment Income:
Interest	$	3,243,338
Dividends		61,779
Other		3,463
Total investment income		3,308,580

Expenses:
Investment advisory fees		323,335
Interest		153,375
Professional fees		58,216
Trustees’ fees and expenses		24,000
Reports to shareholders		18,000
Custodian fees		8,064
Other		18,838
Total expenses		603,828
Investment income - net		2,704,752

Net realized and unrealized gain on investments:
Net realized gain on investments before taxes		1,623,253
Income tax expense		(17,841	)
Net realized gain on investments after taxes		1,605,412
Net change in unrealized appreciation of investments before taxes		1,814,902
Net change in deferred income tax expense		(174,886	)
Net change in unrealized appreciation of investments after taxes		1,640,016
Net gain on investments		3,245,428
Net increase in net assets resulting from operations	$	5,950,180

See Notes to Consolidated Financial Statements

Babson Capital Participation Investors

CONSOLIDATED STATEMENT OF CASH FLOWS

For the three months ended March 31, 2015

(Unaudited)

Net decrease in cash:
Cash flows from operating activities:
Purchases/Proceeds/Maturities from short-term portfolio securities, net	$	4,501,672
Purchases of portfolio securities		(13,894,634	)
Proceeds from disposition of portfolio securities		10,426,819
Interest, dividends and other income received		2,764,108
Interest expense paid		(153,375	)
Operating expenses paid		(497,837	)
Income taxes paid		(1,159,619	)
Net cash provided by operating activities		1,987,134

Cash flows from financing activities:
Cash dividends paid from net investment income		(2,781,293	)
Receipts for shares issued on reinvestment of dividends		185,229
Net cash used for financing activities		(2,596,064	)

Net decrease in cash		(608,930	)
Cash - beginning of year		6,459,099
Cash - end of period	$	5,850,169

Reconciliation of net increase in net assets to net cash provided by operating activities:

Net increase in net assets resulting from operations	$	5,950,180
Increase in investments		(3,380,455	)
Increase in interest receivable		(268,318	)
Increase in other assets		(7,997	)
Increase in payable for investments purchased		708,000
Increase in deferred tax liability		174,886
Increase in investment advisory fee payable		13,805
Decrease in tax payable		(1,141,778	)
Decrease in accrued expenses		(61,189	)
Total adjustments to net assets from operations		(3,963,046	)
Net cash provided by operating activities	$	1,987,134

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

	For the three
	months ended		For the
	03/31/2015		year ended
	(Unaudited)		12/31/2014
Increase in net assets:

Operations:
Investment income - net	$	2,704,752	$	10,671,491
Net realized gain on investments after taxes		1,605,412		5,032,760
Net change in unrealized appreciation of investments after taxes		1,640,016		800,181
Net increase in net assets resulting from operations		5,950,180		16,504,432

Increase from common shares issued on reinvestment of dividends
Common shares issued (2015 - 13,813; 2014 - 56,918)		185,229		751,903

Dividends to shareholders from:
Net investment income (2015 - $0.00 per share; 2014 - $0.96 per share)		—		(9,866,694	)
Net realized gains (2015 - $0.00 per share; 2014 - $0.12 per share)		—		(1,236,130	)
Total increase in net assets		6,135,409		6,153,511

Net assets, beginning of year		137,568,919		131,415,408

Net assets, end of period/year (including undistributed net investment
income of $3,461,531 and $756,779, respectively)	$	143,704,328	$	137,568,919

See Notes to Consolidated Financial Statements

Babson Capital Participation Investors

CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS

Selected data for each share of beneficial interest outstanding:

	For the three months
	ended 03/31/2015			For the years ended December 31,
	(Unaudited)			2014			2013			2012			2011
Net asset value:
Beginning of year	$	13.35		$	12.83		$	12.56		$	11.90		$	11.89
Net investment income (a)		0.26			1.04			1.00			1.08			1.14
Net realized and unrealized
gain (loss) on investments		0.31			0.57			0.35			0.64			0.08
Total from investment operations		0.57			1.61			1.35			1.72			1.22
Dividends from net investment
income to common shareholders		—			(0.96	)		(1.08	)		(1.04	)		(1.23	)
Dividends from realized gain
on investments to common shareholders		—			(0.12	)		—			(0.04	)		(0.00	)(b)
Increase from dividends reinvested		0.01			(0.01	)		(0.00	)(b)		0.02			0.02
Total dividends		0.01			(1.09	)		(1.08	)		(1.06	)		(1.21	)
Net asset value: End of period/year	$	13.93		$	13.35		$	12.83		$	12.56		$	11.90
Per share market value:
End of period/year	$	12.13		$	13.23		$	12.88		$	13.91		$	15.85
Total investment return
Net asset value (c)		4.34	%		13.61	%		10.97	%		15.89	%		10.56	%
Market value (c)		(8.31	)%		12.54	%		0.47	%		(4.54	%)		24.16	%
Net assets (in millions):
End of period/year	$	143.70		$	137.57		$	131.42		$	127.87		$	120.32
Ratio of total expenses
to average net assets		1.79	%(e)		2.84	%(e)		2.15	%		2.83	%		2.18	%
Ratio of operating expenses
to average net assets		1.30	%(e)		1.49	%(e)		1.51	%		1.51	%		1.42	%
Ratio of interest expense
to average net assets		0.44	%(e)		0.45	%(e)		0.47	%		0.49	%		0.56	%
Ratio of income tax expense
to average net assets (d)		0.05	%(e)		0.90	%(e)		0.17	%		0.83	%		0.20	%
Ratio of net investment income
to average net assets		7.82	%(e)		7.82	%(e)		7.77	%		8.82	%		9.33	%
Portfolio turnover		7	%		32	%		30	%		34	%		21	%

(a)	Calculated using average shares.

(b)	Rounds to less than $0.01 per share.

(c)

Net asset value return represents portfolio returns based on change in the Trust’s net asset value assuming the reinvestment of all dividends and distributions which differs from the total investment return based on the Trust’s market value due to the difference between the Trust’s net asset value and the market value of its shares outstanding; past performance is no guarantee of future results.

(d)

As additional information, this ratio is included to reflect the taxes paid on retained long-term gains. These taxes paid are netted against realized capital gains in the Statement of Operations. The taxes paid are treated as deemed distributions and a credit for the taxes paid is passed on to shareholders.

(e)	Annualized

Senior borrowings:


Total principal amount (in millions)	$	15	$	15	$	15	$	15	$	15
Asset coverage per $1,000 of indebtedness	$	10,536	$	10,347	$	9,761	$	9,525	$	9,021

See Notes to Consolidated Financial Statements

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2015

(Unaudited)

Corporate Restricted Securities - 77.17%: (A)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

Private Placement Investments - 61.32%
1492 Acquisition LLC
A leading producer of premium Italian cured meats and deli meats in the U.S.
14% Senior Subordinated Note due 10/17/2019	$	680,877	10/17/12	$	670,806	$	671,900
Limited Liability Company Unit Class A Common (B)	11,364 uts.		10/17/12		11,364		—
Limited Liability Company Unit Class A Preferred (B)	102 uts.		10/17/12		102,270		83,636
					784,440		755,536
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 12/21/2020	$	1,049,256	12/20/13		1,031,204		1,059,749
Limited Liability Company Unit Class A (B)	3,094 uts.		*		153,704		310,149
Limited Liability Company Unit Class B (B)	1,479 uts.		10/09/09		52,999		148,258
* 10/09/09 and 12/20/13.					1,237,907		1,518,156

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 05/15/2015 (D)	$	420,000	05/15/08		413,944		210,000
13% Senior Subordinated Note due 05/15/2015 (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 07/31/2019	$	181,818	08/01/12		167,780		183,636
Preferred Stock Series A (B)	125,000 shs.		08/01/12		125,000		267,789
Warrant, exercisable until 2022, to purchase
common stock at $.02 per share (B)	22,414 shs.		08/01/12		42,446		45,820
					335,226		497,245
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		—		—

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 12/07/2018	$	1,134,615	12/07/12		1,122,532		1,145,961
Limited Liability Company Unit (B)	1,431 uts.		*		143,077		200,983
* 12/07/12 and 07/11/13.					1,265,609		1,346,944

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

Advanced Technologies Holdings
A provider of factory maintenance services to industrial companies.
Preferred Stock Series A (B)	332 shs.		12/27/07	$	164,016	$	504,839
Convertible Preferred Stock Series B (B)	28 shs.		01/04/11		21,600		42,327
					185,616		547,166
AFC - Dell Holding Corporation
A distributor and provider of inventory management services for “C-Parts” used by OEMs in their manufacturing and production facilities.
12.5% Senior Subordinated Note due 09/27/2020	$	1,181,250	03/27/15		1,157,666		1,180,785
Preferred Stock (B)	1,122 shs.		03/27/15		112,154		106,546
Common Stock (B)	346 shs.		03/27/15		346		329
					1,270,166		1,287,660
Airxcel Holdings
A leading manufacturer of a broad range of climate control solutions, including air-conditioners, heat pumps, cooking appliances, furnaces, powered vents, and water heaters.
12.5% Senior Subordinated Note due 11/18/2020	$	1,444,973	11/18/14		1,417,444		1,467,174
Limited Liability Company Unit	288 uts.		11/18/14		288,000		288,414
					1,705,444		1,755,588
American Hospice Management Holding LLC
A for-profit hospice care provider in the United States.
12% Senior Subordinated Note due 03/31/2020 (D)	$	1,237,502	*		1,237,364		1,237,502
Preferred Class A Unit (B)	1,706 uts.		**		170,600		—
Preferred Class B Unit (B)	808 uts.		06/09/08		80,789		82,044
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.					1,488,754		1,319,546
** 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		344,334

Animal Supply Company
A distributor of pet products to independent pet stores, veterinary clients and other pet specialty retailers.
9.5% Senior Subordinated Note due 09/05/2019	$	1,725,000	03/30/15		1,699,156		1,698,894

Arch Global Precision LLC
A leading manufacturer of high tolerance precision components and consumable tools.
Limited Liability Company Unit Class B (B)	20 uts.		12/21/11		28,418		96,609
Limited Liability Company Unit Class C (B)	230 uts.		12/21/11		221,582		962,404
					250,000		1,059,013

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or 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 02/01/2020	$	1,698,197	*	$	1,673,777	$	1,718,850
Limited Partnership Interest	524 uts.		08/01/14		523,950		505,751
* 05/21/13 and 08/01/14.					2,197,727		2,224,601

Arrow Tru-Line Holdings, Inc.
A manufacturer of hardware for residential and commercial overhead garage doors in North America.
Preferred Stock (B)	27 shs.		10/16/09		26,825		105,183
Common Stock (B)	213 shs.		05/18/05		212,588		64,387
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)	56 shs.		05/18/05		47,929		16,880
					287,342		186,450
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 07/31/2021	$	505,280	07/31/14		496,232		437,022
Limited Liability Company Unit	36,964 uts.		07/31/14		369,643		335,394
					865,875		772,416
Blue Wave Products, Inc.
A distributor of pool supplies.
10% Senior Secured Term Note due 09/30/2018	$	278,014	10/12/12		274,359		278,014
13% Senior Subordinated Note due 09/30/2019	$	325,673	10/12/12		307,992		332,187
Common Stock (B)	51,064 shs.		10/12/12		51,064		130,718
Warrant, exercisable until 2022, to purchase
common stock at $.01 per share (B)	20,216 shs.		10/12/12		20,216		51,751
					653,631		792,670
BP SCI LLC
A leading value-added distributor of branded pipes, valves, and fittings (PVF) to diversified end markets.
Limited Liability Company Unit Class A (B)	417 uts.		10/17/12		41,667		264,417
Limited Liability Company Unit Class B (B)	167 uts.		10/17/12		166,666		217,112
					208,333		481,529

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 06/30/2015	$	1,207,902	06/30/06		1,205,503		1,207,902
Preferred Stock Class A (B)	465 shs.		06/30/06		141,946		—
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		—
					1,396,361		1,207,902

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

CG Holdings Manufacturing Company
A coating provider serving the automotive, agricultural, heavy truck and other end markets.
13% Senior Subordinated Note due 11/01/2019	$	1,412,605	*	$	1,344,932	$	1,446,895
Preferred Stock (B)	1,350 shs.		*		134,972		148,279
Preferred Stock (B)	489 shs.		*		48,721		53,743
Common Stock (B)	140 shs.		*		14,864		49,629
Warrant, exercisable until 2023, to purchase
common stock at $.01 per share (B)	58 shs.		*		5,430		20,614
* 05/09/13 and 11/01/13.					1,548,919		1,719,160

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 01/19/2018	$	759,373	01/19/11		736,969		759,373
14% Senior Subordinated Note due 08/03/2019	$	197,855	08/03/12		195,122		199,834
Common Stock (B)	375 shs.		01/19/11		37,500		53,958
Warrant, exercisable until 2021, to purchase
common stock at $.01 per share (B)	295 shs.		01/19/11		29,250		42,414
					998,841		1,055,579
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 03/26/2018	$	424,765	03/26/12		416,456		424,765
10% Senior Subordinated Note due 09/12/2015	$	6,330	09/15/14		6,330		6,341
Common Stock (B)	1,327 shs.		*		132,700		114,137
Warrant, exercisable until 2022, to purchase
common stock at $.01 per share (B)	57 shs.		03/26/12		5,740		4,903
* 03/26/12, 05/25/12 and 06/19/12.					561,226		550,146

Clarion Brands Holding Corp.
A portfolio of six over-the-counter (OTC) pharmaceutical brands whose products are used to treat tinnitus or ringing of the ear, excessive sweating, urinary tract infections, muscle pain, and skin conditions.
12.5% Senior Subordinated Note due 09/31/2021	$	1,579,965	10/01/14		1,550,043		1,597,245
Common Stock (B)	1,568 shs.		10/01/14		156,818		101,933
					1,706,861		1,699,178
Clough, Harbour and Associates
An engineering service firm that is located in Albany, NY.
Preferred Stock (B)	147 shs.		12/02/08		146,594		386,035

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

Compass Chemical International LLC
A manufacturer and supplier of standard and specialty formulated chemicals, primarily phosphoric acid derivatives called phosphonates.
13% Senior Subordinated Note due 10/04/2020	$	1,497,159	03/04/15	$	1,467,337	$	1,505,930
Limited Liability Company Unit (B)	230 uts.		03/04/15		230,000		218,500
					1,697,337		1,724,430
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		75,779
Limited Liability Company Unit Class C (B)	59,756 uts.		01/12/07		59,756		58,740
Limited Liability Company Unit Class D (B)	671,525 uts.		05/03/10		—		764,819
Limited Liability Company Unit Class E (B)	1,102 uts.		05/03/10		—		—
					142,369		899,338
Crane Rental Corporation
A crane rental company since 1960, headquartered in Florida.
13% Senior Subordinated Note due 11/30/2015	$	695,250	08/21/08		685,923		695,250
Common Stock (B)	135,000 shs.		08/21/08		135,000		131,042
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)	72,037 shs.		08/21/08		103,143		69,925
					924,066		896,217
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 11/22/2019	$	1,230,793	11/22/13		1,210,799		1,255,409
Common Stock (B)	31,044 shs.		11/22/13		443,182		351,092
					1,653,981		1,606,501
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		180,421
Preferred Stock Series A (B)	114 shs.		10/27/09		104,374		131,819
Common Stock (B)	38 shs.		10/26/09		38,244		—
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)	28 shs.		10/27/09		25,735		—
					324,821		312,240
DPL Holding Corporation
A distributor and manufacturer of aftermarket undercarriage parts for medium and heavy duty trucks and trailers.
14% Senior Subordinated Note due 05/04/2019	$	1,355,790	05/04/12		1,337,839		1,369,348
Preferred Stock (B)	25 shs.		05/04/12		252,434		299,750
Common Stock (B)	25 shs.		05/04/12		28,048		141,682
					1,618,321		1,810,780

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

Dunn Paper
A provider of specialty paper for niche product applications.
11.25% Senior Subordinated Note due 06/30/2020	$	1,463,636	12/30/14	$	1,435,350	$	1,476,340
Preferred Stock (B)	261 shs.		12/30/14		261,364		248,292
					1,696,714		1,724,632
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		348,365

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.
Common Stock (B)	50 shs.		02/01/10		50,000		92,355
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)	119 shs.		02/01/10		107,100		220,211
					157,100		312,566
ECG Consulting Group
A healthcare management consulting company who provides strategic, financial, operational, and technology related consulting services to healthcare providers.
11.75% Senior Subordinated Note due 11/21/2020	$	1,297,229	11/19/14		1,268,999		1,315,413
Limited Liability Company Unit (B)	230 uts.		11/19/14		71,875		63,514
					1,340,874		1,378,927
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 07/26/2019	$	441,985	07/26/13		434,941		450,824
Common Stock (B)	1,535 shs.		07/26/13		153,474		237,819
					588,415		688,643
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 10/04/2019	$	944,278	04/04/14		928,071		945,855
Common Stock (B)	31 shs.		04/04/14		77,533		77,525
					1,005,604		1,023,380
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		68,601
Limited Liability Company Unit (B)	171 uts.		09/27/10		17,073		146,331
					75,418		214,932

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

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		117,250
Limited Liability Company Unit Class B-2 (B)	8,248 uts.		12/15/10		8,248		14,700
Limited Liability Company Unit Class B-3 (B)	6,522 uts.		08/30/12		15,000		13,234
Limited Liability Company Unit Class C (B)	1,575 uts.		12/20/10		16,009		24,288
					105,046		250,031
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		134,128

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		30,638
Limited Liability Company Unit Preferred (B)	76 uts.		10/05/12		75,920		87,765
					76,687		118,403
GenNx Novel Holding, Inc.
A manufacturer and distributor of nutraceutical ingredients.
13% Senior Subordinated Note due 03/27/2020	$	1,582,025	03/27/14		1,554,416		1,582,024
Common Stock (B)	15,500 shs.		03/27/14		155,000		110,834
					1,709,416		1,692,858
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 03/27/2019	$	1,178,161	03/27/13		1,161,098		1,178,161
Common Stock (B)	1,181 shs.		03/27/13		118,110		172,884
					1,279,208		1,351,045
Golden County Foods Holding, Inc.
A manufacturer of frozen appetizers and snacks.
14% Senior Subordinated Note due 11/13/2019 (D)	$	38,950	11/13/13		231,183		—
Preferred Stock (B)	151,643 shs.		11/13/13		77,643		—
Preferred Stock Series F (B)	155,800 shs.		11/13/13		924,731		—
					1,233,557		—

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

Grakon Parent
The leading designer and manufacturer of highly-engineered and customized LED and incandescent lighting systems for transportation-based markets.
12% Senior Subordinated Note due 04/30/2021	$	1,550,169	10/31/14	$	1,520,514	$	1,568,855
Common Stock (B)	175 shs.		10/31/14		174,831		179,002
					1,695,345		1,747,857
GTI Holding Company
A designer, developer, and marketer of precision specialty hand tools and handheld test instruments.
12% Senior Subordinated Note due 02/05/2020	$	727,865	02/05/14		683,399		733,985
Common Stock (B)	846 shs.		02/05/14		84,636		83,538
Warrant, exercisable until 2024, to purchase
common stock at $.01 per share (B)	397 shs.		02/05/14		36,816		39,202
					804,851		856,725
Handi Quilter Holding Company
A designer and manufacturer of long-arm quilting machines and related components for the consumer quilting market.
12% Senior Subordinated Note due 06/19/2021	$	1,437,500	12/19/14		1,409,581		1,451,307
Limited Liability Company (B)	288 uts.		12/19/14		287,500		288,256
Limited Liability Company (B)	2,875 uts.		12/19/14		—		12,649
					1,697,081		1,752,212
Hartland Controls Holding Corporation
A manufacturer and distributor of electronic and electromechanical components.
14% Senior Subordinated Note due 08/14/2019	$	1,089,948	02/14/14		1,071,330		1,111,747
Common Stock (B)	821 shs.		02/14/14		822		159,342
Preferred Stock Series A (B)	2,547 shs.		02/14/14		254,734		277,795
					1,326,886		1,548,884
Healthcare Direct Holding Company
A direct-to-customer marketer of discount dental plans.
Common Stock (B)	517 shs.		03/09/12		51,724		75,360

HHI Group, LLC
A developer, marketer, and distributor of hobby-grade radio control products.
14% Senior Subordinated Note due 01/17/2020	$	1,560,524	01/17/14		1,534,271		1,573,524
Limited Liability Company Unit (B)	102 uts.		01/17/14		101,563		69,599
					1,635,834		1,643,123

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 03/15/2018	$	703,125	04/15/13	671,312	709,912
Limited Liability Company Unit (B)	234 uts.		04/15/13	234,375	179,237
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)	37,177 shs.		04/15/13	32,344	27,008
				938,031	916,157

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

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 08/19/2016	$	1,098,837	08/19/08		1,076,215		1,098,837
Common Stock (B)	251 shs.		08/19/08		251,163		80,488
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)	65 shs.		08/19/08		60,233		20,805
					1,387,611		1,200,130
HVAC Holdings, Inc.
A provider of integrated energy efficiency services and maintenance programs for HVAC systems.
12.5% Senior Subordinated Note due 09/27/2019	$	1,190,423	09/27/12		1,172,944		1,202,327
Limited Liability Company Unit Class A Common (B)	910 uts.		09/27/12		910		30,553
Limited Liability Company Unit Class A Preferred (B)	1,127 uts.		09/27/12		112,726		142,206
					1,286,580		1,375,086
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		187,527

Impact Confections
An independent manufacturer and marketer of confectionery products including Warheads® brand sour candies, Melster® brand classic candies, and co-manufactured/private label classic candies.
13% Senior Subordinated Note due 11/04/2020	$	1,067,920	11/10/14		1,047,582		1,082,329
Common Stock (B)	2,300 shs.		11/10/14		230,000		157,913
					1,277,582		1,240,242
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		244,680

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

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	$	202,522
Preferred Stock B (B)	0.06 shs.		12/20/10		—		74
Common Stock	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		57,920
					272,310		260,516
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 06/10/2019	$	1,342,391	12/11/13		1,320,212		1,369,239
Limited Liability Company Unit Class A (B)	283 uts.		12/11/13		139,258		473,448
					1,459,470		1,842,687
JMH Investors LLC
A developer and manufacturer of custom formulations for a wide variety of foods.
14.25% Senior Subordinated Note due 12/05/2019	$	1,087,841	12/05/12		1,071,893		1,030,740
Limited Liability Company Unit (B)	311,710 uts.		12/05/12		224,937		72,633
					1,296,830		1,103,373
K & N Parent, Inc.
A manufacturer and supplier of automotive aftermarket performance air filters and intake systems.
Preferred Stock Series A	102 shs.		12/23/11		—		—
Preferred Stock Series B	29 shs.		12/23/11		—		—
Common Stock	163 shs.		*		6,522		159,147
* 12/23/11 and 06/30/14.					6,522		159,147

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		57,403
Warrant, exercisable until 2016, to purchase
common stock at $.01 per share (B)	43,600 shs.		05/25/06		37,871		35,224
					108,924		92,627
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		98,987
Convertible Preferred Stock Series D (B)	13 shs.		09/17/09		12,958		42,120
Common Stock (B)	235 shs.		07/15/08		234,783		205,326
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)	51 shs.		07/16/08		50,836		44,462
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)	67 shs.		09/17/09		—		58,945
					327,925		449,840

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

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	12,764 uts.		*		166,481		272,034
Warrant, exercisable until 2017, to purchase
common stock at $.01 per share (B)	1,787 shs.		05/04/07		22,781		38,087
* 05/04/07 and 01/02/08.					189,262		310,121

Manhattan Beachwear Holding Company
A designer and distributor of women’s swimwear.
12.5% Senior Subordinated Note due 01/15/2018	$	419,971	01/15/10		393,820		419,971
15% Senior Subordinated Note due 01/15/2018	$	114,537	10/05/10		113,455		114,537
Common Stock (B)	35 shs.		10/05/10		35,400		41,474
Common Stock Class B (B)	118 shs.		01/15/10		117,647		137,836
Warrant, exercisable until 2019, to purchase
common stock at $.01 per share (B)	104 shs.		10/05/10		94,579		121,985
					754,901		835,803
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		46,152		87,236
Common Unit Class A (B)	671 uts.		08/29/08		671		102,806
Common Unit Class B (B)	263 uts.		08/29/08		63,564		40,330
					110,387		230,372
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 10/30/2019	$	454,295	09/22/11		448,780		444,420
Limited Liability Company Unit Series A	228 uts.		05/07/14		14,760		12,073
Limited Liability Company Unit Series B (B)	155,945 uts.		09/22/11		155,945		165,648
					619,485		622,141
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 09/30/2021	$	1,087,462	09/30/14		1,066,839		1,102,664
Common Stock Class B (B)	219,545 shs.		09/30/14		219,545		208,568
					1,286,384		1,311,232

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

MicroGroup, Inc.
A manufacturer of precision parts and assemblies, and a value-added supplier of metal tubing and bars.
7% Senior Subordinated Note due 06/30/2015 (D)	$	902,727	*	$	865,676	$	816
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 2015, to purchase
common stock at $.02 per share (B)	87 shs.		*		86,281		—
* 08/12/05 and 09/11/06.					1,688,697		816

MNX Holding Company
An international third party logistics company providing customized logistics services to customers across the globe.
14% Senior Subordinated Note due 11/02/2019	$	1,264,828	11/02/12		1,246,530		1,227,058
Common Stock (B)	45 shs.		11/02/12		44,643		13,198
					1,291,173		1,240,256
Money Mailer
A leading provider of hyperlocal shared direct mail advertising as well as interactive and online advertising solutions through its nationwide production and distribution network.
Preferred Stock	1,332,865 shs.		12/10/14		1,312,872		1,332,865

Motion Controls Holdings
A manufacturer of high performance mechanical motion control and linkage products.
14.25% Senior Subordinated Note due 08/15/2020	$	978,576	11/30/10		968,944		978,576
Limited Liability Company Unit Class B-1 (B)	75,000 uts.		11/30/10		—		79,711
Limited Liability Company Unit Class B-2 (B)	6,801 uts.		11/30/10		—		7,228
					968,944		1,065,515
NABCO, Inc.
A producer of explosive containment vessels in the United States.
Common Stock (B)	429 shs.		12/20/12		306,091		211,706

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

NetShape Technologies, Inc.
A manufacturer of powder metal and metal injection molded precision components used in industrial, consumer, and other applications.
12% Senior Subordinated Note due 06/10/2020	$	810,000	02/02/07	$	809,080	$	810,000
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		230,429
Limited Liability Company Unit Class D-2 of
Saw Mill PCG Partners LLC (B)	68 uts.		04/29/11		34,547		155,551
Limited Liability Company Unit Class D-3 of
Saw Mill PCG Partners LLC (B)	104 uts.		12/10/14		103,904		109,926
* 12/18/08 and 09/30/09.					1,665,641		1,305,906

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		127,471
Warrant, exercisable until 2019, to purchase
common stock at $.01 per share (B)	2,605 shs.		*		260,479		190,818
* 07/09/09 and 08/09/10.					434,485		318,289

O E C Holding Corporation
A provider of elevator maintenance, repair and modernization services.
13% Senior Subordinated Note due 08/23/2018	$	444,445	06/04/10		425,307		444,445
Preferred Stock Series A (B)	554 shs.		06/04/10		55,354		68,453
Preferred Stock Series B (B)	311 shs.		06/04/10		31,125		—
Common Stock (B)	344 shs.		06/04/10		344		—
					512,130		512,898
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		1,547,014
Preferred Stock Series B (B)	7,059 shs.		05/22/09		290,050		50,527
Common Stock (B)	21,462 shs.		05/22/09		993,816		—
					1,342,900		1,597,541
Petroplex Inv Holdings LLC
A leading provider of acidizing services to E&P customers in the Permian Basin.
Limited Liability Company Unit	156,250 uts.		11/29/12		156,250		187,390

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

Polytex Holdings LLC
A manufacturer of water based inks and related products serving primarily the wall covering market.
13% Senior Subordinated Note due 01/31/2020	$	1,043,599	07/31/14	$	1,024,662	$	1,054,416
Limited Liability Company Unit	148,096 uts.		07/31/14		148,096		197,530
					1,172,758		1,251,946
PPC Event Services
A special event equipment rental business.
14% Senior Subordinated Note due 05/20/2020	$	1,126,856	11/20/14		1,105,323		1,143,332
Limited Liability Company Unit (B)	3,450 uts.		11/20/14		172,500		169,565
					1,277,823		1,312,897
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 01/02/2017 (D)	$	49,908	01/02/14		217,411		49,908
Limited Liability Company Unit (B)	1,497 uts.		12/15/06		149,723		—
Limited Liability Company Unit Class B Common (B)	6 uts.		01/02/14		219,593		—
limited liability company unit series 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		—
					1,030,643		424,216
REVSpring, Inc.
A provider of accounts receivable management and revenue cycle management services to customers in the healthcare, financial and utility industries.
Limited Liability Company Unit Class A (B)		13,548 uts.	*		135,477		179,387
*10/21/11 and 08/03/12.

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.
Preferred Stock (B)	2,098 shs.		03/30/12		83,920		107,781
Common Stock (B)	983 shs.		03/30/12		9,830		74,042
					93,750		181,823
Signature Systems Holding Company
A seller and installer of a variety of modular surfaces, industrial matting and related products used for ground protection.
Common Stock (B)	76 shs.		03/15/13		75,509		200,510
Warrant, exercisable until 2023, to purchase
common stock A at $.01 per share (B)	31 shs.		03/15/13		28,316		81,920
					103,825		282,430

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or 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	$	345,865
Warrant, exercisable until 2015, to purchase
common stock at $.01 per share (B)	83 shs.		*		67,467		87,608
* 08/31/07 and 03/06/08.					328,729		433,473

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 10/18/2019	$	749,830	10/18/13		737,746		705,688
Common Stock (B)	841 shs.		10/18/13		84,100		27,572
					821,846		733,260
Spartan Foods Holding Company
A manufacturer of branded pizza crusts and pancakes.
12.25% Senior Subordinated Note due 03/01/2019	$	605,299	12/15/09		556,139		605,299
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)	136 shs.		12/15/09		120,234		109,082
					676,373		714,381
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 06/13/2019	$	1,059,783	12/13/13		1,041,110		1,059,119
Preferred Stock Series A (B)	158,967 shs.		12/13/13		158,967		194,761
					1,200,077		1,253,880
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 12/14/2017	$	1,049,142	12/14/10		1,020,077		1,057,110
14% Senior Subordinated PIK Note due 12/14/2017	$	102,810	08/17/12		100,684		102,810
Common Stock (B)	38 shs.		12/14/10		38,168		36,095
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)	37 shs.		12/14/10		37,249		35,225
					1,196,178		1,231,240

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

Synteract Holdings Corporation
A provider of outsourced clinical trial management services to pharmaceutical and biotechnology companies.
14% Senior Subordinated Note due 02/26/2019	$	2,174,616	09/02/08	$	2,122,784	$	2,174,615
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		—
					2,214,753		2,174,615
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 12/31/2018 (D)	$	1,062,258	12/05/13		—		1,009,145
15% Senior Subordinated Note due 12/05/2020 (D)	$	46,798	12/05/13		219,203		14,039
Warrant, exercisable until 2023, to purchase
common stock at $.01 per share (B)	28,079 shs.		12/05/13		—		—
					219,203		1,023,184
Transpac Holding Company
A designer, importer, and wholesaler of home décor and seasonal gift products.
8% Senior Subordinated Note due 10/31/2015 (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 07/05/2019	$	1,529,337	07/05/13		1,505,948		1,544,630
Limited Liability Company Unit Class A (B)	147,727 shs.		07/05/13		147,727		178,241
					1,653,675		1,722,871
Tristar Global Energy Solutions, Inc.
A hydrocarbon and decontamination services provider serving refineries worldwide.
12.5% Senior Subordinated Note due 07/31/2020	$	1,113,822	01/23/15		1,091,583		1,111,678

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or Ownership Percentage		Acquisition Date	Cost		Fair Value

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.
Preferred Stock Series B (B)	128 shs.		10/20/08	$	127,677	$	504,735
Common Stock (B)	393 shs.		*		423,985		121,176
Warrant, exercisable until 2017, to purchase
common stock at $.02 per share (B)	81 shs.		*		84,650		25,025
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)	558 shs.		10/20/08		—		172,099
* 07/19/05 and 12/22/05.					636,312		823,035

TruStile Doors, Inc.
A manufacturer and distributor of interior doors.
Limited Liability Company Unit (B)	5,888 uts.		02/28/11		78,125		373,764

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		331,785
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		331,785

VP Holding Company
A provider of school transportation services for special-needs and homeless children in Massachusetts.
13% Senior Subordinated Note due 03/31/2021	$	504,354	03/31/14		495,534		519,485
Common Stock (B)	3,632 shs.		03/31/14		363,158		410,884
					858,692		930,369
Wellborn Forest Holding Company
A manufacturer of semi-custom kitchen and bath cabinetry.
8% Senior Subordinated Note due 09/30/2017 (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		109,020
Common Stock (B)	353 shs.		06/08/10		353		83,647
					70,661		192,667

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Principal Amount, Shares, Units or 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 12/16/2018	$	794,521	12/16/10	$	755,974	$	794,521
Common Stock (B)	205 shs.		12/16/10		205,480		105,697
Warrant, exercisable until 2018, to purchase
common stock at $.01 per share (B)	55 shs.		12/16/10		49,334		28,405
					1,010,788		928,623
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 06/12/2020	$	925,425	11/03/11		914,563		930,115
Common Stock	1,500 shs.		11/03/11		150,000		167,490
					1,064,563		1,097,605
York Wall Holding Company
A designer, manufacturer and marketer of wall covering products for both residential and commercial wall coverings.
12.5% Senior Subordinated Note due 03/04/2021	$	1,543,170	03/04/15		1,512,606		1,552,800
Common Stock (B)	1,835 shs.		03/04/15		183,500		174,325
					1,696,106		1,727,125

Total Private Placement Investments (E)				$	87,663,033	$	88,118,442

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Interest Rate			Due Date	Principal Amount		Cost		Market Value

Rule 144A Securities - 15.85%:

Bonds - 15.85%
Acadia Healthcare Company Inc.		5.625	%	02/15/23	$	317,000	$	317,000	$	322,548
Alliant Techsystems Inc.		5.250		10/01/21		500,000		500,000		507,500
Amsted Industries		5.375		09/15/24		240,000		240,000		240,000
ArcelorMittal		6.125		06/01/18		500,000		508,867		537,250
Audatex North America, Inc.		6.125		11/01/23		210,000		219,142		222,075
Belden Inc.		5.250		07/15/24		210,000		210,000		211,575
California Resources Corporation		6.000		11/15/24		480,000		480,000		421,200
CITGO Petroleum Corporation		6.250		08/15/22		425,000		425,000		412,250
Consolidated Energy Finance S.A.		6.750		10/15/19		447,000		442,534		450,353
Cornerstone Chemical Company		9.375		03/15/18		375,000		381,637		388,125
CTP Transportation Products, LLC		8.250		12/15/19		310,000		310,000		319,300
Dean Foods		6.500		03/15/23		329,000		329,000		330,645
Endo Finance LLC		5.375		01/31/23		500,000		490,602		498,750
Family Tree Escrow, LLC		5.750		03/01/23		156,000		156,000		164,190
First Data Corporation		7.375		06/15/19		250,000		250,000		261,250
Forest Laboratories, Inc.		5.000		12/15/21		370,000		370,000		411,423
Forest Laboratories, Inc.		4.875		02/15/21		500,000		500,000		551,227
Harron Communications, L.P.		9.125		04/01/20		250,000		271,457		273,750
HD Supply, Inc.		5.250		12/15/21		127,000		127,000		130,810
Hilcorp Energy Company		5.000		12/01/24		335,000		335,000		314,900
H.J. Heinz Company		4.875		02/15/25		500,000		500,000		541,875
Huntington Ingalls Industries		5.000		12/15/21		500,000		500,000		521,250
International Wire Group		8.500		10/15/17		500,000		523,083		517,500
J.B. Poindexter Co., Inc.		9.000		04/01/22		500,000		500,000		542,500
JBS USA Holdings, Inc.		7.750		10/28/20		375,000		392,572		396,563
Jupiter Resources Inc.		8.500		10/01/22		500,000		475,531		410,000
Kenan Advantage Group, Inc.		8.375		12/15/18		500,000		515,303		520,000
Kindred Escrow Corp. II		8.750		01/15/23		500,000		500,000		547,500
LBC Tank Terminals Holding Netherlands B.V.		6.875		05/15/23		663,000		681,962		677,917
Mallinckrodt PLC		5.750		08/01/22		500,000		500,000		516,250
MEG Energy Corporation		6.375		01/30/23		500,000		500,000		460,000
MEG Energy Corporation		7.000		03/31/24		500,000		500,000		471,250
Micron Technology, Inc.		5.250		08/01/23		494,000		494,000		502,645
Moog Inc.		5.250		12/01/22		246,000		246,000		253,380
Netflix, Inc.		5.500		02/15/22		299,000		299,000		305,728
Nielsen Finance LLC		5.000		04/15/22		271,000		273,009		272,694

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Restricted Securities: (A) (Continued)	Interest Rate			Due Date	Shares or Principal Amount		Cost		Market Value

Numericable Group SA		4.875	%	05/15/19	$	240,000	$	240,000	$	238,800
NXP BV/NXP Funding LLC		3.750		06/01/18		750,000		750,000		765,000
OpenText Corporation		5.625		01/15/23		382,000		382,000		396,325
Paperworks Industries, Inc.		9.500		08/15/19		500,000		510,642		512,500
Paragon Offshore plc.		6.750		07/15/22		500,000		161,455		165,000
Penske Corporation		4.875		07/11/22		500,000		498,309		540,927
Prestige Brands Holdings, Inc.		5.375		12/15/21		650,000		650,000		658,125
Safway Group Holding LLC/Finance Corporation		7.000		05/15/18		250,000		250,000		247,500
Sirius XM Radio Inc.		5.875		10/01/20		445,000		445,000		463,913
Sunoco LP		6.375		04/01/23		500,000		500,000		515,000
Topaz Marine S.A.		8.625		11/01/18		500,000		500,000		440,020
Townsquare Radio, LLC		9.000		04/01/19		500,000		534,888		532,930
Unitymedia KabelBW GmbH		6.125		01/15/25		500,000		500,000		528,750
Univision Communications		5.125		05/15/23		160,000		160,000		162,400
UPCB Finance IV Limited		5.375		01/15/25		208,000		208,000		208,000
Valeant Pharmaceuticals International		7.000		10/01/20		250,000		250,609		260,938
VRX Escrow Corp.		6.125		04/15/25		382,000		382,000		395,370
Welltec A/S		8.000		02/01/19		375,000		370,180		352,500
West Corporation		5.375		07/15/22		500,000		490,682		488,750
XPO Logistics, Inc.		7.875		09/01/19		451,000		464,200		477,495
Total Bonds								22,511,664		22,776,416

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								22,511,664		22,776,416

Total Corporate Restricted Securities							$	110,174,697	$	110,894,858

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Public Securities -28.05%: (A)	Interest Rate			Due Date	Principal Amount		Cost		Market Value

Bank Loans - 0.12%
Aquilex Holdings LLC		5.000	%	12/31/20		169,262		168,911		167,147
Total Bank Loans							$	168,911	$	167,147

Bonds - 27.93%
AAAR Corporation		7.250	%	01/15/22	$	1,000,000	$	1,051,056	$	1,135,000
Access Midstream Partners, L.P.		4.875		03/15/24		500,000		500,000		502,500
Accuride Corp		9.500		08/01/18		500,000		488,187		521,250
ADT Corporation		6.250		10/15/21		500,000		516,198		532,500
Alcoa, Inc.		6.150		08/15/20		600,000		622,165		676,986
Ally Financial, Inc.		5.500		02/15/17		750,000		757,286		780,000
Alta Mesa Financial Services		9.625		10/15/18		383,000		372,324		291,080
American Axle & Manufacturing, Inc.		5.125		02/15/19		120,000		120,000		123,600
Anglogold Holdings PLC		5.375		04/15/20		600,000		603,846		593,456
Anixter, Inc.		5.125		10/01/21		165,000		165,000		169,538
Antero Resources Corporation		5.375		11/01/21		395,000		395,000		383,150
Avis Budget Car Rental		9.750		03/15/20		375,000		375,000		408,525
B&G Foods, Inc.		4.625		06/01/21		440,000		440,000		439,450
Bank of America Corporation		4.000		04/01/24		500,000		498,281		531,858
Bonanza Creek Energy, Inc.		5.750		02/01/23		500,000		500,000		460,000
Brunswick Corporation		7.125		08/01/27		500,000		504,443		535,000
Calpine Corporation		5.750		01/15/25		340,000		340,000		342,550
Calumet Specialty Products Partners L.P.		7.625		01/15/22		500,000		501,345		505,000
CCO Holdings Capital Corporation		5.250		09/30/22		500,000		496,013		511,250
CCO Holdings Capital Corporation		5.750		01/15/24		500,000		484,067		519,375
CHC Helicopter SA		9.250		10/15/20		900,000		848,382		760,500
Chrysler Group, LLC		8.000		06/15/19		210,000		224,057		220,238
Chrysler Group, LLC		8.250		06/15/21		210,000		229,236		232,913
Cimarex Energy Co.		5.875		05/01/22		500,000		533,141		532,500
CIT Group, Inc.		5.000		08/15/22		500,000		500,000		513,125
CIT Group, Inc.		3.875		02/19/19		500,000		500,000		495,000
Clearwater Paper Corporation		4.500		02/01/23		500,000		495,837		492,500
Commercial Metals Company		4.875		05/15/23		750,000		751,337		708,750
Continental Resources, Inc.		5.000		09/15/22		500,000		509,282		493,125
CVR Refining LLC		6.500		11/01/22		350,000		339,343		350,000
Dana Holding Corporation		5.500		12/15/24		265,000		265,000		272,950
DaVita, Inc.		5.750		08/15/22		500,000		500,000		531,250
D.R. Horton, Inc.		4.000		02/15/20		500,000		500,000		507,000
Duke Realty Limited Partnership		3.875		10/15/22		500,000		504,724		522,449

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

Corporate Public Securities: (A) (Continued)	Interest Rate			Due Date	Principal Amount		Cost		Market Value

Forum Energy Technologies		6.250	%	10/01/21	$	160,000	$	160,000	$	150,000
Frontier Communications Corporation		6.875		01/15/25		500,000		491,148		495,000
General Electric Capital Corporation		5.500		01/08/20		500,000		498,913		578,951
HCA Holdings, Inc.		3.750		03/15/19		500,000		500,000		506,720
Headwaters, Inc.		7.625		04/01/19		305,000		305,093		317,719
HealthSouth Corporation		7.750		09/15/22		365,000		365,678		385,531
Hertz Corporation		6.750		04/15/19		220,000		217,886		227,150
Hilton Worldwide Holdings, Inc.		5.625		10/15/21		750,000		750,000		789,375
Hornbeck Offshore Services, Inc.		5.000		03/01/21		500,000		500,000		397,500
Icahn Enterprises L.P.		4.875		03/15/19		475,000		475,000		483,906
Icahn Enterprises L.P.		6.000		08/01/20		600,000		610,104		623,280
International Game Technology		7.500		06/15/19		500,000		499,855		533,428
Jabil Circuit, Inc.		4.700		09/15/22		500,000		499,975		517,500
Johnson Controls, Inc.		5.500		01/15/16		500,000		484,963		518,250
Kraft Foods, Inc.		5.375		02/10/20		500,000		509,566		572,942
Laboratory Corporation of America Holdings		3.600		02/01/25		500,000		499,229		502,041
Lamar Media Corp.		5.375		01/15/24		160,000		160,000		166,800
Lazard Group LLC		4.250		11/14/20		500,000		498,641		534,364
Lear Corporation		4.750		01/15/23		375,000		368,732		376,875
Lennar Corporation		4.500		11/15/19		250,000		250,602		256,875
Lennar Corporation		4.750		11/15/22		375,000		370,137		381,563
Lifepoint Hospitals, Inc.		5.500		12/01/21		350,000		359,437		366,625
MarkWest Energy Partners, L.P.		4.875		12/01/24		500,000		500,000		511,200
Masco Corporation		7.125		03/15/20		350,000		349,999		410,375
MasTec, Inc.		4.875		03/15/23		500,000		490,960		467,500
Meritor, Inc.		6.750		06/15/21		1,000,000		1,000,000		1,035,000
Morgan Stanley		5.500		01/26/20		500,000		498,507		568,246
NBC Universal Media LLC		5.150		04/30/20		500,000		499,573		573,847
NRG Energy, Inc.		6.250		07/15/22		500,000		500,000		513,750
Omnova Solutions, Inc.		7.875		11/01/18		600,000		607,420		609,000
Perry Ellis International, Inc.		7.875		04/01/19		375,000		372,514		387,188
Precision Drilling Corporation		6.625		11/15/20		250,000		255,685		235,625
Qwest Diagnostic, Inc.		4.750		01/30/20		500,000		499,273		548,039
Regency Energy Partners LP		5.875		03/01/22		425,000		418,768		461,125
Rosetta Resources Inc.		5.875		06/01/22		500,000		500,000		471,250
R.R. Donnelley & Sons Company		6.000		04/01/24		500,000		500,000		516,250
Sprint Corporation		7.125		06/15/24		155,000		155,000		151,125
Sprint Nextel Corporation		6.000		12/01/16		500,000		505,205		522,000
Steelcase, Inc.		6.375		02/15/21		500,000		505,756		573,593

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

	Interest			Due	Principal				Market
Corporate Public Securities (A) (Continued)	Rate			Date	Amount		Cost		Value

Stone Energy Corporation		7.500	%	11/15/22	$	500,000	$	513,296	$	452,500
Suburban Propane Partners, L.P.		5.750		03/01/25		500,000		500,000		510,000
Tech Data Corporation		3.750		09/21/17		500,000		503,855		515,193
Time Warner Cable, Inc.		5.000		02/01/20		500,000		494,394		557,979
T-Mobile USA Inc.		6.464		04/28/19		340,000		343,457		350,625
T-Mobile USA Inc.		6.731		04/28/22		210,000		207,359		221,025
Tronox Finance LLC		6.375		08/15/20		375,000		367,724		366,563
Tyson Foods, Inc.		4.500		06/15/22		500,000		512,838		551,651
Weatherford International		4.500		04/15/22		500,000		516,701		456,994
William Lyon Homes		7.000		08/15/22		500,000		500,000		515,625
WPX Energy, Inc.		5.250		09/15/24		425,000		425,000		373,788
Xerium Technologies, Inc.		8.875		06/15/18		416,000		431,048		429,520
Total Bonds							$	39,279,841	$	40,133,339

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

									Market
Corporate Public Securities (A) (Continued)					Shares		Cost		Value

Common Stock - 0.00%
Nortek, Inc. (B)						100	$	1	$	8,825
Total Common Stock								1		8,825

Total Corporate Public Securities							$	39,448,753	$	40,309,311


	Interest			Due	Principal				Market
Short-Term Securities:	Rate/Yield^			Date	Amount		Cost		Value

Commercial Paper - 1.39%

Pentair Finance		0.590	%	4/6/15	$	2,000,000	$	1,999,839	$	1,999,839
Total Short-Term Securities							$	1,999,839	$	1,999,839

Total Investments		106.61	%				$	151,623,289	$	153,204,008

Other Assets		5.31								7,623,839
Liabilities		(11.92	)							(17,123,519	)
Total Net Assets		100.00	%						$	143,704,328

(A)	In each of the convertible note, warrant, and common stock investments, the issuer has agreed to provide certain registration rights.

(B)	Non-income producing security.

(C)	Security valued at fair value using methods determined in good faith by or under the direction of the Board of Trustees.

(D)	Defaulted security; interest not accrued.

(E)	Illiquid security. As of March 31, 2015, the values of these securities amounted to $88,118,442 or 61.32% of net assets.

^	Effective yield at purchase

PIK -

Payment-in-kind

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

	Fair Value/			Fair Value/
Industry Classification:	Market Value			Market Value

AEROSPACE - 2.40%			Spartan Foods Holding Company		$	714,381
AAR Corporation	$	1,135,000	Tyson Foods, Inc.			551,651
Alliant Techsystems Inc.		507,500				10,067,144
Merex Holding Corporation		622,141	BROADCASTING & ENTERTAINMENT - 2.74%
Moog Inc.		253,380	HOP Entertainment LLC			—
Whitcraft Holdings, Inc.		928,623	Lamar Media Corporation			166,800
		3,446,644	Money Mailer			1,332,865
AUTOMOBILE - 7.05%			NBC Universal Media LLC			573,847
Accuride Corp		521,250	Numericable Group SA			238,800
American Axle & Manufacturing, Inc.		123,600	Time Warner Cable, Inc.			557,979
Avis Budget Car Rental		408,525	Sundance Investco LLC			—
CG Holdings Manufacturing Company		1,719,160	Townsquare Radio, LLC			532,930
Chrysler Group, LLC		453,151	Unitymedia KabelBW GmbH			528,750
Dana Holding Corporation		272,950				3,931,971
DPL Holding Corporation		1,810,780	BUILDINGS & REAL ESTATE - 3.42%
Grakon Parent		1,747,857	ACP Cascade Holdings LLC			—
Ideal Tridon Holdings, Inc.		187,527	D.R. Horton, Inc.			507,000
J A C Holding Enterprises, Inc.		260,516	Duke Realty Limited Partnership			522,449
Johnson Controls, Inc.		518,250	Lennar Corporation			638,438
K & N Parent, Inc.		159,147	Masco Corporation			410,375
Lear Corporation		376,875	MasTec, Inc.			467,500
Meritor, Inc.		1,035,000	Safway Group Holding LLC/Finance Corporation			247,500
Penske Corporation		540,927	Sunrise Windows Holding Company			1,231,240
		10,135,515	TruStile Doors, Inc.			373,764
BEVERAGE, DRUG & FOOD - 7.00%			William Lyon Homes			515,625
1492 Acquisition LLC		755,536				4,913,891
B&G Foods, Inc.		439,450	CHEMICAL, PLASTICS & RUBBER - 3.02%
Dean Foods		330,645	Compass Chemical International LLC			1,724,430
Eatem Holding Company		312,566	Cornerstone Chemical Company			388,125
H.J. Heinz Company		541,875	Omnova Solutions, Inc.			609,000
JBS USA Holdings, Inc.		396,563	Polytex Holdings LLC			1,251,946
F F C Holding Corporation		214,932	Tronox Finance LLC			366,563
Gennx Novel Holding, Inc.		1,692,858				4,340,064
Golden County Foods Holding, Inc.		—	CONSUMER PRODUCTS - 12.33%
Hospitality Mints Holding Company		1,200,130	AMS Holding LLC			344,334
Impact Confections		1,240,242	Animal Supply Company			1,698,894
JMH Investors LLC		1,103,373	Bravo Sports Holding Corporation			1,207,902
Kraft Foods, Inc.		572,942	Clearwater Paper Corporation			492,500
			Custom Engineered Wheels, Inc.			312,240

See Notes to Consolidated Financial Statements

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

	Fair Value/			Fair Value/
Industry Classification: (Continued)	Market Value			Market Value

gloProfessional Holdings, Inc.	$	1,351,045	Hi-Rel Group LLC	$	916,157
GTI Holding Company		856,725	Janus Group Holdings LLC		1,842,687
Handi Quilter Holding Company		1,752,212	J.B. Poindexter Co., Inc.		542,500
HHI Group, LLC		1,643,123	K P I Holdings, Inc.		449,840
K N B Holdings Corporation		92,627	Nortek, Inc.		8,825
Manhattan Beachwear Holding Company		835,803	O E C Holding Corporation		512,898
Micron Technology, Inc.		502,645	Strahman Holdings Inc		1,253,880
NXP BV/NXP Funding LLC		765,000	Truck Bodies & Equipment International		823,035
Perry Ellis International, Inc.		387,188			12,100,191
Prestige Brands Holdings, Inc.		—	DIVERSIFIED/CONGLOMERATE,
R A J Manufacturing Holdings LLC		424,216	SERVICE - 9.98%
R.R. Donnelley & Sons Company		516,250	ADT Corporation		532,500
Tranzonic Holdings LLC		1,722,871	AFC - Dell Holding Corporation		1,287,660
Xerium Technologies, Inc.		429,520	A S C Group, Inc.		1,518,156
York Wall Holding Company		1,727,125	A W X Holdings Corporation		210,000
		17,062,220	Advanced Technologies Holdings		547,166
CONTAINERS, PACKAGING & GLASS - 1.10%			Anglogold Holdings PLC		593,456
Paperworks Industries, Inc.		512,500	Bank of America Corporation		531,858
SMB Machinery Holdings, Inc.		733,260	Church Services Holding Company		550,146
Vitex Packaging Group, Inc.		331,785	Clough, Harbour and Associates		386,035
		1,577,545	Crane Rental Corporation		896,217
DISTRIBUTION - 3.49%			EPM Holding Company		688,643
ARI Holding Corporation		2,224,601	Hilton Worldwide Holdings, Inc.		789,375
Blue Wave Products, Inc.		792,670	HVAC Holdings, Inc.		1,375,086
BP SCI LLC		481,529	Insurance Claims Management, Inc.		244,680
HD Supply, Inc.		130,810	Mail Communications Group, Inc.		310,121
Signature Systems Holding Company		282,430	Northwest Mailing Services, Inc.		318,289
WP Supply Holding Corporation		1,097,605	Pearlman Enterprises, Inc.		1,597,541
		5,009,645	PPC Event Services		1,312,897
DIVERSIFIED/CONGLOMERATE,			Safety Infrastructure Solutions		181,823
MANUFACTURING - 8.42%			Sirius XM Radio Inc.		463,913
Advanced Manufacturing Enterprises LLC		1,346,944			14,335,562
Amsted Industries		240,000	ELECTRONICS - 1.97%
Arrow Tru-Line Holdings, Inc.		186,450	Anixter, Inc.		169,538
CTP Transportation Products, LLC		319,300	Belden Inc.		211,575
Dunn Paper		1,724,632	Connecticut Electric, Inc.		899,338
F G I Equity LLC		250,031	International Wire Group		517,500
G C Holdings		134,128	Jabil Circuit, Inc.		517,500
Hartland Controls Holding Corporation		1,548,884	Tech Data Corporation		515,193
					2,830,644

See Notes to Consolidated Financial Statements

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

	Fair Value/			Fair Value/
Industry Classification: (Continued)	Market Value			Market Value

FINANCIAL SERVICES - 6.07%			HOME & OFFICE FURNISHINGS, HOUSEWARES, AND
Ally Financial, Inc.	$	780,000	DURABLE CONSUMER PRODUCTS - 1.62%
Alta Mesa Financial Services		291,080	Airxcel Holdings	$	1,755,588
CIT Group, Inc.		1,008,125	Steelcase, Inc.		573,593
Consolidated Energy Finance S.A.		450,353	Transpac Holding Company		—
General Electric Capital Corporation		578,951	Wellborn Forest Holding Company		—
Harron Communications, L.P.		273,750			2,329,181
Icahn Enterprises L.P.		1,107,186	LEISURE, AMUSEMENT,
Lazard Group LLC		534,364	ENTERTAINMENT - 1.86%
LBC Tank Terminals Holding Netherlands B.V.		677,917	Brunswick Corporation		535,000
Morgan Stanley		568,246	CTM Holding, Inc.		1,606,501
Nielsen Finance LLC		272,694	International Game Technology		533,428
Pentair Finance		1,999,839			2,674,929
REVSpring, Inc.		179,387	MACHINERY - 3.22%
		8,721,892	ABC Industries, Inc.		497,245
HEALTHCARE, EDUCATION &			Arch Global Precision LLC		1,059,013
CHILDCARE - 7.69%			E S P Holdco, Inc.		348,365
Acadia Healthcare Company Inc.		322,548	Motion Controls Holdings		1,065,515
American Hospice Management Holding LLC		1,319,546	M V I Holding, Inc.		—
CHG Alternative Education Holding Company		1,055,579	NetShape Technologies, Inc.		1,305,906
DaVita, Inc.		531,250	Welltec A/S		352,500
GD Dental Services LLC		118,403			4,628,544
ECG Consulting Group		1,378,927	MEDICAL DEVICES/BIOTECH - 0.52%
ERG Holding Company LLC		1,023,380	ETEX Corporation		—
HCA Holdings, Inc.		506,720	Mallinckrodt PLC		516,250
Healthcare Direct Holding Company		75,360	MedSystems Holdings LLC		230,372
HealthSouth Corporation		385,531	MicroGroup, Inc.		816
Kindred Escrow Corp. II		547,500	TherOX, Inc.		—
Laboratory Corporation of America Holdings		502,041			747,438
Lifepoint Hospitals, Inc.		366,625	MINING, STEEL, IRON & NON-PRECIOUS
Qwest Diagnostic, Inc.		548,039	METALS - 0.96%
Synteract Holdings Corporation		2,174,615	Alcoa, Inc.		676,986
Touchstone Health Partnership		—	Commercial Metals Company		708,750
Wheaton Holding Corporation		192,667			1,385,736
		11,048,731	NATURAL RESOURCES - 0.58%
			ArcelorMittal		537,250
			Headwaters, Inc.		317,719
					854,969

See Notes to Consolidated Financial Statements

Babson Capital Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)

March 31, 2015

(Unaudited)

	Fair Value/			Fair Value/
Industry Classification: (Continued)	Market Value			Market Value

OIL & GAS - 8.33%			TECHNOLOGY - 1.13%
Access Midstream Partners, L.P.	$	502,500	Audatex North America, Inc.	$	222,075
Antero Resources Corporation		383,150	First Data Corporation		261,250
Avantech Testing Services LLC		772,416	Netflix, Inc.		305,728
Bonanza Creek Energy, Inc.		460,000	OpenText Corporation		396,325
California Resources Corporation		421,200	Smart Source Holdings LLC		433,473
Calumet Specialty Products Partners L.P.		505,000			1,618,851
Cimarex Energy Co.		532,500	TELECOMMUNICATIONS - 2.53%
CITGO Petroleum Corporation		412,250	CCO Holdings Capital Corporation		1,030,625
Continental Resources, Inc.		493,125	Frontier Communications Corporation		495,000
CVR Refining LLC		350,000	Sprint Corporation		151,125
Forum Energy Technologies		150,000	Sprint Nextel Corporation		522,000
Hilcorp Energy Company		314,900	T-Mobile USA Inc.		571,650
Hornbeck Offshore Services, Inc.		397,500	Univision Communications		162,400
Jupiter Resources Inc.		410,000	UPCB Finance IV Limited		208,000
MarkWest Energy Partners, L.P.		511,200	West Corporation		488,750
MEG Energy Corporation		931,250			3,629,550
Paragon Offshore plc.		165,000	TRANSPORTATION - 3.71%
Petroplex Inv Holdings LLC		187,390	CHC Helicopter SA		760,500
Precision Drilling Corporation		235,625	Hertz Corporation		227,150
Regency Energy Partners LP		461,125	Huntington Ingalls Industries		521,250
Rosetta Resources Inc.		471,250	Kenan Advantage Group, Inc.		520,000
Stone Energy Corporation		452,500	MNX Holding Company		1,240,256
Sunoco LP		515,000	NABCO, Inc.		211,706
Tristar Global Energy Solutions, Inc.		1,111,678	Topaz Marine S.A.		440,020
Weatherford International		456,994	VP Holding Company		930,369
WPX Energy, Inc.		373,788	XPO Logistics, Inc.		477,495
		11,977,341			5,328,746
PHARMACEUTICALS - 2.66%			UTILITIES - 0.60%
Clarion Brands Holding Corp.		1,699,178	Calpine Corporation		342,550
Endo Finance LLC		498,750	NRG Energy, Inc.		513,750
Forest Laboratories, Inc.		962,650			856,300
Valeant Pharmaceuticals International		260,938	WASTE MANAGEMENT / POLLUTION - 1.74%
VRX Escrow Corp.		395,370	Aquilex Holdings LLC		167,147
		3,816,886	MES Partners, Inc.		1,311,232
RETAIL STORES - 0.47%			Torrent Group Holdings, Inc.		1,023,184
Family Tree Escrow, LLC		164,190			2,501,563
Suburban Propane Partners, L.P.		510,000
		674,190	Total Investments - 106.61%	$	153,204,008

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

1. History Babson Capital Participation Investors (the “Trust”) was organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated April 7, 1988. The Trust is a diversified closed-end management investment company. Babson Capital Management LLC (“Babson Capital”), a wholly-owned indirect subsidiary of Massachusetts Mutual Life Insurance Company (“MassMutual”), acts as its investment adviser. The Trust’s investment objective is to maximize total return by providing a high level of current income, the potential for growth of income, and capital appreciation. The Trust’s principal investments are privately placed, below-investment grade, long-term debt obligations purchased directly from their issuers, which tend to be smaller companies. The Trust will also invest in publicly traded debt securities (including high yield securities), and in convertible preferred stocks and, subject to certain limitations, readily marketable equity securities. Below-investment grade or high yield securities have predominantly speculative characteristics with respect to the capacity of the issuer to pay interest and repay capital. In addition, the Trust may 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.		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 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 $88,118,442 (61.32% of net assets) as of March 31, 2015 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 March 31, 2015, 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. 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.
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”). The Trustees have determined that the Trust is an investment company in accordance with Accounting Standards Codification (“ASC”) 946, Financial Services - Investment Companies, for the purpose of financial reporting. 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

Babson Capital Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(Unaudited)

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.		Both the company’s EBITDA and valuation multiple are considered significant unobservable inputs. Significant increases/ (decreases) to the company’s EBITDA and/or valuation multiple would result in significant increases/(decreases) to the equity value. An increase/(decrease) to the discount would result in a (decrease)/increase to the equity value. 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 March 31, 2015.





		Fair Values Hierarchy

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.		Valuation	Unobservable		Weighted
		Technique	Inputs	Range	Average
	Corporate	Discounted	Discount	8.0% to	12.6%
	Bonds	Cash Flows	Rate	18.7%
	Equity	Market	Valuation	4.6x to	7.6x
	Securities	Approach	Multiple	13.0x
			Discount	0% to 24%	3.0%
			for lack of
			marketability
			EBITDA	$0.8 million	$17.4
				to $142.8 million	million
	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)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(Unaudited)

The following is a summary of the inputs used to value the Trust’s net assets as of March 31, 2015:

Assets	Total		Level 1		Level 2		Level 3
Restricted Securities
Corporate Bonds		85,719,001		—		22,776,416		62,942,585
Common Stock - U.S.		7,563,098		—		—		7,563,098
Preferred Stock		7,011,678		—		—		7,011,678
Partnerships and LLCs		10,601,084		—		—		10,601,081
Public Securities
Bank Loans		167,147		—		167,147		—
Corporate Bonds		40,133,339		—		40,133,339		—
Common Stock - U.S.		8,825		8,825		—		—
Short-term Securities		1,999,839		—		1,999,839		—
Total	$	153,204,008	$	8,825	$	65,076,741	$	88,118,442

See information disaggregated by security type and industry classification in the Consolidated Schedule of Investments.

Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:

														Transfers
	Beginning													in and /		Ending
	balance at		Included											or out of		balance at
Assets	12/31/2014		in earnings		Purchases			Sales			Prepayments			Level 3		03/31/2015

Restricted Securities
Corporate Bonds	$	59,265,205	$	250,468	$	7,135,017		$	(488,617	)	$	(3,219,488	)	$	—		62,942,585
Common Stock - U.S.		8,548,845		534,262		182,936			(1,702,945	)		—			—		7,563,098
Preferred Stock		6,123,833		955,615		(573	)		(67,197	)		—			—		7,011,678
Partnerships and LLCs		9,571,615		847,906		323,337			(141,777	)		—			—		10,601,081
Public Securities
Common Stock		—		—		—			—			—			—		—

	$	83,509,498	$	2,588,251	$	7,640,717		$	(2,400,536	)	$	(73,219,488	)	$	—		88,118,442

There were no transfers into or out of Level 1 or Level 2 assets.

Income, Gains and Losses included in Net Increase in Net Assets resulting from operations for the year are presented in the following accounts on the Statement of Operation:

	Net Increase in Net Assets Resulting from Operations		Change in Unrealized Gains & (Losses) in Net Assets from assets still held
Interest (Amortization)	$	54,985	$	—
Net Realized Gain on
Investments before Taxes		1,712,840		—
Net Change in Unrealized
Depreciation of
Investments Before Taxes		820,426		2,593,829

Babson Capital Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(Unaudited)

B. Accounting for Investments: Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis, including the amortization of premiums and accretion of discounts on bonds held using the yield-to-maturity method. The Trust does not accrue income when payment is delinquent and when management believes payment is questionable. Realized gains and losses on investment transactions and unrealized appreciation and depreciation of investments are reported for financial statement and Federal income tax purposes on the identified cost method. C. Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. D. Federal Income Taxes: The Trust has elected to be taxed as a “regulated investment company” under the Internal Revenue Code, and intends to maintain this qualification and to distribute substantially all of its net taxable income to its shareholders. In any year when net long-term capital gains are realized by the Trust, management, after evaluating the prevailing economic conditions, will recommend that Trustees either designate the net realized long-term gains as undistributed and pay the federal capital gains taxes thereon, or distribute all or a portion of such net gains. The Trust is taxed as a regulated investment company and is therefore limited as to the amount of non-qualified income that it may receive as the result of operating a trade or business, e.g. the Trust’s pro rata share of income allocable to the Trust by a partnership operating company. The Trust’s violation of this limitation could result in the loss of its status as a regulated investment company, thereby subjecting all of its net income and capital gains to corporate taxes prior to distribution to its shareholders. The Trust, from time-to-time, identifies investment opportunities in the securities of entities that could cause such trade or business income to be allocable to the Trust. The PI Subsidiary Trust (described in Footnote 1, above) was formed in order to allow investment in such securities without adversely affecting the Trust’s status as a regulated investment company. The PI Subsidiary Trust is not taxed as a regulated investment company. Accordingly, prior to the Trust receiving any distributions from the PI Subsidiary Trust, all of the PI Subsidiary Trust’s taxable income and realized gains, including non-qualified income and realized gains, is subject to taxation at prevailing corporate tax rates. As of March 31, 2015, the PI Subsidiary Trust has incurred income tax expense of $17,841.		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 March 31, 2015, the PI Subsidiary Trust has a deferred tax liability of $584,505. 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 three months ended March 31, 2015. 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(Unaudited)

4.	Senior Indebtedness
	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 three months ended March 31, 2015, the Trust incurred total interest expense on the Note of $153,375. 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.















5.	Purchases and Sales of Investments

	For the three months ended 03/31/2015
	Cost of Investments Acquired		Proceeds from Sales or Maturities
Corporate restricted securities	$	12,852,759	$	1,749,875
Corporate public securities		7,316,052		3,110,767

The aggregate cost of investments is substantially the same for financial reporting and Federal income tax purposes as of March 31, 2015. The net unrealized appreciation of investments for financial reporting and Federal tax purposes as of March 31, 2015 is $1,580,719 and consists of $14,295,593 appreciation and $12,714,874 depreciation. Net unrealized depreciation of investments on the Statement of Assets and Liabilities reflects the balance net of a deferred tax liability of $584,505 on net unrealized gains on the PI Subsidiary Trust.

Babson Capital Participation Investors

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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.

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

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

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

■	Our Internet website.

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

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

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

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

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

Babson Capital Participation Investors

Members of the Board of Trustees

William J. Barrett

Michael H. Brown*

Barbara M. Ginader

Edward P. Grace III

Robert E. Joyal

Clifford M. Noreen

Susan B. Sweeney*

Maleyne M. Syracuse*

*Member of the Audit Committee

Officers

Clifford M. Noreen

Chairman

Michael L. Klofas

President

James M. Roy

Vice President & Chief

Financial Officer

Christopher A. DeFrancis

Vice President, Secretary &

Chief Legal Officer

Sean Feeley

Vice President

Richard E. Spencer, II

Vice President

Daniel J. Florence

Treasurer

Melissa M. LaGrant

Chief Compliance Officer

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

Babson Capital Participation Investors (the “Trust”) offers a Dividend Reinvestment and Cash Purchase Plan (the “Plan”). The Plan provides a simple and automatic way for shareholders to add to their holdings in the Trust through the receipt of dividend shares issued by the Trust or through the reinvestment of cash dividends in Trust shares purchased in the open market. The dividends of each shareholder will be automatically reinvested in the Trust by DST Systems, Inc., the Transfer Agent, in accordance with the Plan, unless such shareholder elects not to participate by providing written notice to the Transfer Agent. A shareholder may terminate his or her participation by notifying the Transfer Agent in writing.

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

Whenever the Trust declares a dividend payable in cash or shares, the Transfer Agent, acting on behalf of each participating shareholder, will take the dividend in shares only if the net asset value is lower than the market price plus an estimated brokerage commission as of the close of business on the valuation day. The valuation day is the last day preceding the day of dividend payment. When the dividend is to be taken in shares, the number of shares to be received is determined by dividing the cash dividend by the net asset value as of the close of business on the valuation date or, if greater than net asset value, 95% of the closing share price. If the net asset value of the shares is higher than the market value plus an estimated commission, the Transfer Agent, consistent with obtaining the best price and execution, will buy shares on the open market at current prices promptly after the dividend payment date.

The reinvestment of dividends does not, in any way, relieve participating shareholders of any federal, state or local tax. For federal income tax purposes, the amount reportable in respect of a dividend received in newly-issued shares of the Trust will be the fair market value of the shares received, which will be reportable as ordinary income and/or capital gains.

As compensation for its services, the Transfer Agent receives a fee of 5% of any dividend and cash contribution (in no event in excess of $2.50 per distribution per shareholder.)

Any questions regarding the Plan should be addressed to DST Systems, Inc., Agent for Babson Capital Participation Investors’ Dividend Reinvestment and Cash Purchase Plan, P.O. Box 219086, Kansas City, MO 64121-9086.

			Babson Capital Participation Investors


	PI6217