mmci-formn30d_17421.htm
 
 
 
 

 
 
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, MO 64121-9086
1-800-647-7374
 
Independent Registered Public Accounting Firm   Internet Website
KPMG LLP
Boston, Massachusetts 02110
 
www.babsoncapital.com/mci
   
Babson Capital Corporate Investors
Counsel to the Trust   c/o Babson Capital Management LLC
Ropes & Gray LLP   1500 Main Street, Suite 2200
Boston, Massachusetts 02110  
Springfield, Massachusetts 01115
    (413) 226-1516
Custodian    
State Street Bank and Trust Company    
Boston, Massachusetts 02116    
     
     
Investment Objective and Policy   Form N-Q
     
Babson Capital Corporate Investors (the "Trust") is a closed-end management investment company, first offered to the public in 1971, whose shares are traded on the New York Stock Exchange under the trading symbol "MCI". 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 maintain a portfolio of securities providing a fixed yield and at the same time offering an opportunity for capital gains. The Trust's principal investments are privately placed, below-investment grade, long-­term debt obligations with equity features such as common stock, warrants, conversion rights, or other equity features and, occasionally, preferred stocks. The Trust typically purchases these investments, which are not publicly tradable, directly from their issuers in private placement transactions. These investments are typically mezzanine debt instruments with accompanying private equity securities made to small or middle market companies. In addition, the Trust may temporarily invest, subject to certain limitations, in marketable investment grade debt securities, other marketable debt securities (including high yield securities) and marketable common stocks. 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.
 
Babson Capital Management LLC ("Babson Capital") manages the Trust on a total return basis. The Trust distributes substantially all of its net income to shareholders each year. Accordingly, the Trust pays dividends to shareholders in January, May, August, and November. The Trust pays dividends to its shareholders in cash, unless the shareholder elects to participate in the Dividend Reinvestment and Share Purchase Plan.
 
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/mci; 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/mci; and (2) on the SEC's website at http://www.sec.gov.

 
 
 
 
   
 
 
 

 
 
Babson Capital Corporate Investors
 
To Our Shareholders

October 31, 2012

We are pleased to present the September 30, 2012 Quarterly Report of Babson Capital Corporate Investors (the “Trust”).

The Board of Trustees declared a quarterly dividend of 30 cents per share, payable on November 9, 2012 to shareholders of record on October 29, 2012. The Trust paid a 30 cent per share dividend for the preceding quarter. The Trust earned 31 cents per share of net investment income for the third quarter of 2012, compared to 31 cents per share in the previous quarter.

During the third quarter, the net assets of the Trust increased to $258,813,018 or $13.48 per share compared to $250,797,661 or $13.08 per share on June 30, 2012. This translates into a 5.4% total return for the quarter, based on the change in the Trust’s net assets assuming the reinvestment of all dividends. Longer term, the Trust returned 13.0%, 15.2%, 8.8%, 13.6%, and 12.9% for the 1-, 3-, 5-, 10-, and 25-year time periods, respectively, based on the change in the Trust’s net assets assuming the reinvestment of all dividends.

The Trust’s share price increased 8.9% during the quarter, from $15.33 per share as of June 30, 2012 to $16.70 per share as of September 30, 2012. The Trust’s market price of $16.70 per share equates to a 23.9% premium over the September 30, 2012 net asset value per share of $13.48. The Trust’s average quarter-end premium for the 3, 5 and 10-year periods was 20.4%, 12.6% and 11.9%, respectively. U.S. equity markets, as approximated by the Russell 2000 Index, increased 5.3% for the quarter. U.S. fixed income markets, as approximated by the Barclays Capital U.S. Corporate High Yield Index, increased 4.5% for the quarter.

The Trust closed two new private placement investments and four “follow-on” investments in existing portfolio companies during the third quarter. The two new investments were in ABC Industries, Inc. and HVAC Holdings, Inc., while the four follow-on investments were in CHG Alternative Education Holding Company, DPC Holdings LLC, LPC Holding Company and Merex Holding Corporation. 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 $7,554,000.

U.S. middle market buyout activity picked up nicely in the third quarter of 2012, and has remained strong so far in the fourth quarter. Despite the increase in deal activity, the continued abundance of capital, including senior debt, mezzanine debt and equity capital, has caused purchase price multiples and leverage levels for middle market transactions to remain high. In the face of these aggressive market conditions, we were pleased to be able to close six new investments in the third quarter. We expect our fourth quarter investment activity to be even stronger. In fact, in the first month of the fourth quarter, we have already closed five new investments and we have several more in process. Though we are actively closing new deals, we are doing so cautiously and with discipline, consistent with our longstanding investment philosophy of taking prudent levels of risk and getting paid appropriately for the risks taken. This approach has served us well for many years and through all kinds of market cycles.

We continue to be pleased with the performance of our portfolio companies, as most reported improved operating results in the third quarter of 2012. Several more of our companies were also able to resume paying cash interest on their debt obligations due to their improved financial results and liquidity positions. Realization activity for the Trust in the third quarter was strong once again, with four companies, Aero Holdings, Inc., Nyloncraft, Inc., Power Services Holding Company, and Stanton Carpet Holding Company, sold for nice gains. The Nyloncraft realization is particularly noteworthy. In January 2002, we made our original investment in the company, which is a supplier of plastic components to the U.S. automotive industry. Nyloncraft’s performance was negatively impacted by the
 
(continued)
 
1
 
 

 
severe downturn in the auto industry in 2008-2009. Thanks to the efforts of the transaction sponsor, Hammond, Kennedy, Whitney & Company, and the company’s management team, the company survived the downturn and actually gained market share as the industry rebounded in 2010. Our patience with the company ultimately paid off as the company was sold in September 2012 and we realized nearly two and one-half times our original investment. Since the end of the third quarter, we have had another three companies sold, bringing the year-to-date total to 14 realizations for the portfolio. We have a few more companies that we expect to be sold by year-end. Overall, 2012 will be a very strong year for portfolio company sales. In addition to this realization activity, refinancing activity, in which the Trust’s subordinated note holdings are fully or partially prepaid, continues at a high level, as companies seek to take advantage of improved operating performance, low interest rates and credit availability. We have had 14 full or partial prepayments so far this year. As mentioned in prior reports, strong realization and refinancing activity is a double-edged sword, as the resulting loss of income-producing investments could adversely impact the Trust’s ability to sustain its dividend level. We have been fortunate that our new investment activity in recent periods has been strong and has enabled us to maintain the income-generating capacity of the portfolio.
 
Thank you for your continued interest in and support of Babson Capital Corporate Investors.

Sincerely,
 
 
 
   
Michael L. Klofas  
President  
 
 
 
 
* Based on market value of total investments (including cash)

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

2
 
 

 
 
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
 
 
Assets:
     
Investments
     
(See Consolidated Schedule of Investments)
     
Corporate restricted securities at fair value
     
(Cost  -  $244,716,370)
  $ 226,513,949  
Corporate restricted securities at market value
       
(Cost  -  $16,328,579)
    16,905,740  
Corporate public securities at market value
       
(Cost  -  $30,421,509)
    31,741,549  
Short-term securities at amortized cost
    6,999,817  
Total investments (Cost  -  $298,466,275)
    282,161,055  
Cash
    7,529,428  
Interest receivable
    3,370,440  
Receivable for investments sold
    23,986  
Other assets
    62,964  
         
Total assets
    293,147,873  
         
Liabilities:
       
Note payable
    30,000,000  
Payable for investments purchased
    2,000,000  
Investment advisory fee payable
    808,791  
Deferred tax liability
    1,079,246  
Interest payable
    202,400  
Accrued expenses
    244,418  
         
Total liabilities
    34,334,855  
         
Total net assets
  $ 258,813,018  
         
Net Assets:
       
Common shares, par value $1.00 per share
  $ 19,204,886  
Additional paid-in capital
    110,198,158  
Retained net realized gain on investments, prior years
    127,807,139  
Undistributed net investment income
    9,208,004  
Accumulated net realized gain on investments
    9,779,297  
Net unrealized depreciation of investments
    (17,384,466 )
         
Total net assets
  $ 258,813,018  
         
Common shares issued and outstanding (23,798,420 authorized)
    19,204,886  
         
Net asset value per share
  $ 13.48  
 
 
See Notes to Consolidated Financial Statements

3
 
 

 
 
CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 2012
 
(Unaudited)
 
 
 
Investment Income:
     
Interest
  $ 21,145,837  
Dividends
    743,334  
Other
    210,324  
         
Total investment income
    22,099,495  
         
Expenses:
       
Investment advisory fees
    2,366,545  
Interest
    1,188,295  
Trustees’ fees and expenses
    370,000  
Professional fees
    200,656  
Reports to shareholders
    79,500  
Custodian fees
    25,200  
Other
    44,506  
         
Total expenses
    4,274,702  
         
Investment income - net
    17,824,793  
         
Net realized and unrealized gain on investments:
       
Net realized gain on investments before taxes
    7,769,410  
Income tax expense
    (8,559 )
Net realized gain on investments after taxes
    7,760,851  
Net change in unrealized depreciation of investments before taxes
    745,915  
Net change in deferred income tax expense
    (85,511 )
Net change in unrealized depreciation of investments after taxes
    660,404  
         
Net gain on investments
    8,421,255  
         
Net increase in net assets resulting from operations
  $ 26,246,048  
 
 
See Notes to Consolidated Financial Statements

4
 
 

 
 
CONSOLIDATED STATEMENT OF CASH FLOWS
Babson Capital Corporate Investors
For the nine months ended September 30, 2012
(Unaudited)
 
Net increase in cash:
     
Cash flows from operating activities:
     
Purchases/Proceeds/Maturities from short-term portfolio securities, net
  $ (2,717,990 )
Purchases of portfolio securities
    (54,177,637 )
Proceeds from disposition of portfolio securities
    61,936,081  
Interest, dividends and other income received
    17,852,866  
Interest expense paid
    (1,188,000 )
Operating expenses paid
    (3,010,009 )
Income taxes paid
    (8,559 )
         
Net cash provided by operating activities
    18,686,752  
         
Cash flows from financing activities:
       
Cash dividends paid from net investment income
    (20,069,396 )
Receipts for shares issued on reinvestment of dividends
    2,111,237  
Net cash used for financing activities
    (17,958,159 )
         
Net increase in cash
    728,593  
Cash - beginning of year
    6,800,835  
         
Cash - end of period
  $ 7,529,428  
         
Reconciliation of net increase in net assets to net cash provided by operating activities:
       
         
Net increase in net assets resulting from operations
  $ 26,246,048  
Increase in investments
    (9,112,839 )
Increase in interest receivable
    (696,604 )
Increase in receivable for investments sold
    (23,986 )
Decrease in other assets
    111,929  
Increase in payable for investments purchased
    2,000,000  
Increase in deferred tax liability
    85,511  
Increase in investment advisory fee payable
    52,717  
Increase in interest payable
    295  
Increase in accrued expenses
    23,681  
Total adjustments to net assets from operations
    (7,559,296 )
         
Net cash provided by operating activities
  $ 18,686,752  
 
 
See Notes to Consolidated Financial Statements

5
 
 

 
 
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 
 
 
 
   
For the nine
       
   
months ended
   
For the
 
   
09/30/2012
   
year ended
 
   
(Unaudited)
   
12/31/2011
 
Increase in net assets:
           
             
Operations:
           
Investment income - net
  $ 17,824,793     $ 24,417,226  
Net realized gain on investments after taxes
    7,760,851       848,378  
Net change in unrealized depreciation of investments after taxes
    660,404       2,341,410  
Net increase in net assets resulting from operations
    26,246,048       27,607,014  
                 
Increase from common shares issued on reinvestment of dividends
               
Common shares issued  (2012 - 134,676; 2011 - 156,934)
    2,111,237       2,426,607  
                 
Dividends to shareholders from:
               
Net investment income (2012 - $0.60 per share; 2011 - $1.34 per share)
    (11,487,801 )     (25,488,812 )
Net realized gains (2012 - $0.00; 2011 - $0.01 per share)
    -       (186,150 )
Total increase in net assets
    16,869,484       4,358,659  
                 
Net assets, beginning of year
    241,943,534       237,584,875  
                 
Net assets, end of period/year (including undistributed net investment
               
income of $9,208,004 and $2,871,012, respectively)
  $ 258,813,018     $ 241,943,534  
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements

6
 
 

 
 
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding:
 Babson Capital Corporate Investors
 
   
For the nine months
                               
   
ended 09/30/2012
      For the years ended December 31,  
   
(Unaudited)(a)
   
2011(a)
   
2010(a)
   
2009(a)
   
2008(a)
   
2007(a)
 
Net asset value:
                                   
Beginning of year
  $ 12.69     $ 12.56     $ 11.45     $ 11.17     $ 13.60     $ 13.76  
Net investment income (b)
    0.93       1.29       1.13       1.03       1.16       1.28  
Net realized and unrealized
                                               
gain (loss) on investments
    0.44       0.17       1.06       0.33       (2.51 )     (0.17 )
Total from investment operations
    1.37       1.46       2.19       1.36       (1.35 )     1.11  
Dividends from net investment
                                               
income to common shareholders
    (0.60 )     (1.34 )     (1.08 )     (1.08 )     (1.08 )     (1.29 )
Dividends from realized gain
                                               
on investments to common shareholders
    -       (0.01 )     -       -       -       -  
Increase from dividends reinvested
    0.02       0.02       0.00 (c)     0.00 (c)     0.00 (c)     0.02  
Total dividends
    (0.58 )     (1.33 )     (1.08 )     (1.08 )     (1.08 )     (1.27 )
Net asset value: End of period/year
  $ 13.48     $ 12.69     $ 12.56     $ 11.45     $ 11.17     $ 13.60  
Per share market value:
                                               
End of period/year
  $ 16.70     $ 17.99     $ 15.28     $ 12.55     $ 9.63     $ 15.10  
Total investment return
                                               
Net asset value (d)
    11.19 %     12.00 %     19.81 %     12.64 %     (10.34 %)     8.72 %
Market value (d)
    (3.40 %)     27.92 %     31.73 %     39.89 %     (30.44 %)     (8.78 %)
Net assets (in millions):
                                               
End of period/year
  $ 258.81     $ 241.94     $ 237.58     $ 214.44     $ 208.14     $ 251.16  
Ratio of operating expenses
                                               
to average net assets
    1.66 %(f)     1.62 %     1.60 %     1.58 %     1.49 %     1.55 %
Ratio of interest expense
                                               
to average net assets
    0.64 %(f)     0.64 %     0.70 %     0.75 %     0.67 %     0.59 %
Ratio of income tax expense
                                               
to average net assets (e)
    0.00 %(f)     0.16 %     0.27 %     0.00 %     0.00 %     0.35 %
Ratio of total expenses
                                               
to average net assets
    2.30 %(f)     2.42 %     2.57 %     2.33 %     2.16 %     2.49 %
Ratio of net investment income
                                               
to average net assets
    9.57 %(f)     9.91 %     9.46 %     9.06 %     9.01 %     9.17 %
Portfolio turnover
    21 %     21 %     39 %     23 %     32 %     35 %
 
(a)  
Per share amounts were adjusted to reflect a 2:1 stock split effective February 18, 2011.
(b)  
Calculated using average shares.
(c)  
Rounds to less than $0.01 per share.
(d)  
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.
(e)  
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.
(f)  
Annualized
 
Senior borrowings:
                                   
Total principal amount (in millions)
  $ 30          $ 30     $ 30     $ 30     $ 30     $ 30  
Asset coverage per $1,000
                                               
of indebtedness
  $ 9,627     $ 9,065     $ 8,919     $ 8,148     $ 7,938     $ 9,372  
 
See Notes to Consolidated Financial Statements

7
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2012
(Unaudited)
 
Corporate Restricted Securities - 94.05%: (A)  
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
     
Cost
     
Fair Value
 
                         
Private Placement Investments - 87.52%                                
 
A E Company, Inc.
A designer and manufacturer of machined parts and assembly structures for the commercial and military aerospace industries.
Common Stock (B)
 
323,077 shs.
     
11/10/09
    $ 323,077     $ 303,366  
Warrant, exercisable until 2019, to purchase
                             
common stock at $.01 per share (B)
 
161,538 shs.
     
11/10/09
      119,991       151,683  
                    443,068       455,049  
A H C Holding Company, Inc.
                             
A designer and manufacturer of boilers and water heaters for the commercial sector.
                         
15% Senior Subordinated Note due 2015
  $ 2,694,390      
11/21/07
      2,666,678       2,694,390  
Limited Partnership Interest (B)
 
23.16% int.
     
11/21/07
      224,795       311,902  
                      2,891,473       3,006,292  
A S A P Industries LLC
                               
A designer and manufacturer of components used on oil and natural gas wells.
                         
Limited Liability Company Unit Class A-2 (B)
 
1,276 uts.
     
12/31/08
      140,406       637,019  
Limited Liability Company Unit Class A-3 (B)
 
1,149 uts.
     
12/31/08
      126,365       573,319  
                      266,771       1,210,338  
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.
12.75% Senior Subordinated Note due 2016
  $ 2,318,182    
10/09/09
      2,085,293       2,341,364  
Limited Liability Company Unit Class A (B)
 
4,128 uts.
    *                405,691       559,916  
Limited Liability Company Unit Class B (B)
 
2,782 uts.
   
10/09/09
      273,352       377,346  
* 10/09/09 and 10/27/10.
                    2,764,336       3,278,626  
 
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 2014 (D)
  $ 735,000      
05/15/08
      724,402       661,500  
13% Senior Subordinated Note due 2015 (D)
  $ 735,000      
05/15/08
      673,096       -  
Common Stock (B)
 
105,000 shs.
     
05/15/08
      105,000       -  
Warrant, exercisable until 2015, to purchase
                               
common stock at $.01 per share (B)
 
36,923 shs.
     
05/15/08
      62,395       -  
                               
ABC Industries, Inc.
                         
A manufacturer of mine and tunneling ventilation products in the U.S.
                     
13% Senior Subordinated Note due 2019
  $ 1,800,000      
08/01/12
      1,613,774       1,802,425  
Preferred Stock Series A (B)
450,000 shs.
     
08/01/12
      450,000       427,500  
Warrant, exercisable until 2022, to purchase
                               
common stock at $.01 per share (B)
 
80,690 shs.
     
08/01/12
      152,805       807  
                      2,216,579       2,230,732  
 

8
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
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)
 
1,031 shs.
   
12/27/07
    $ 510,000     $ 1,276,354  
Convertible Preferred Stock Series B (B)
 
52 shs.
   
01/04/11
      40,800       65,006  
                  550,800       1,341,360  
All Current Holding Company
                           
A specialty re-seller of essential electrical parts and components primarily serving wholesale distributors.
               
12% Senior Subordinated Note due 2015
    1,140,317    
09/26/08
      1,082,958       1,140,317  
Common Stock (B)
 
1,347 shs.
   
09/26/08
      134,683       183,832  
Warrant, exercisable until 2018, to purchase
                             
common stock at $.01 per share (B)
 
958 shs.
   
09/26/08
      87,993       130,743  
                    1,305,634       1,454,892  
American Hospice Management Holding LLC
                             
A for-profit hospice care provider in the United States.
                             
12% Senior Subordinated Note due 2013
    3,187,495     *                3,145,605       3,187,495  
Preferred Class A Unit (B)
 
3,223 uts.
    **                322,300       634,953  
Preferred Class B Unit (B)
 
1,526 uts.
   
06/09/08
      152,626       177,528  
Common Class B Unit (B)
 
30,420 uts.
   
01/22/04
      1       -  
Common Class D Unit (B)
 
6,980 uts.
   
09/12/06
      1       -  
* 01/22/04 and 06/09/08.
                  3,620,533       3,999,976  
** 01/22/04 and 09/12/06.
                             

Apex Analytix Holding Corporation
A provider of audit recovery and fraud detection services and software to commercial and retail businesses in the U.S. and Europe.
12.5% Senior Subordinated Note due 2017
  $ 1,912,500    
04/28/09
      1,734,443       1,912,500  
Preferred Stock Series B (B)
 
3,065 shs.
   
04/28/09
      306,507       186,529  
Common Stock (B)
 
1,366 shs.
   
04/28/09
      1,366       83,134  
                    2,042,316       2,182,163  
Arch Global Precision LLC
                             
A leading manufacturer of high tolerance precision components and consumable tools.
           
14.75% Senior Subordinated Note due 2018
  $ 2,298,294    
12/21/11
      2,243,557       2,408,479  
Limited Liability Company Unit Class B (B)
 
85 uts.
   
12/21/11
      85,250       111,125  
Limited Liability Company Unit Class C (B)
 
665 uts.
   
12/21/11
      664,750       866,515  
                    2,993,557       3,386,119  
 

9
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
   
 
Acquisition
Date
   
Cost
   
Fair Value
 
                         
Arrow Tru-Line Holdings, Inc.
                       
A manufacturer of hardware for residential and commercial overhead garage doors in North America.
           
8% Senior Subordinated Note due 2014 (D)
  $ 1,990,935    
05/18/05
    $ 1,823,261     $ 1,692,295  
Preferred Stock (B)
 
63 shs.
   
10/16/09
      62,756       -  
Common Stock (B)
 
497 shs.
   
05/18/05
      497,340       -  
Warrant, exercisable until 2014, to purchase
                             
common stock at $.01 per share (B)
 
130 shs.
   
05/18/05
      112,128       -  
                    2,495,485       1,692,295  
Associated Diversified Services
                             
A provider of routine maintenance and repair services primarily to electric utility companies predominantly on electric power distribution lines.
 
10% Senior Secured Term Note due 2016 (C)
  $ 648,000    
09/30/10
      636,132       657,925  
13% Senior Subordinated Note due 2017
  $ 853,714    
09/30/10
      778,863       853,714  
Limited Liability Company Unit Class B (B)
 
92,571 uts.
   
09/30/10
      92,571       113,694  
Limited Liability Company Unit Class B (B)
 
70,765 uts.
   
09/30/10
      70,765       86,912  
                    1,578,331       1,712,245  
Baby Jogger Holdings LLC
                             
A designer and marketer of premium baby strollers and stroller accessories.
                       
14% Senior Subordinated Note due 2019
  $ 2,798,579    
04/20/12
      2,745,539       2,851,530  
Common Stock (B)
 
2,261 shs.
   
04/20/12
      226,132       265,012  
                    2,971,671       3,116,542  
Barcodes Group, Inc.
                             
A distributor and reseller of automatic identification and data capture equipment, including mobile computers, scanners, point-of-sale systems, labels, and accessories.  
13.5% Senior Subordinated Note due 2016
  $ 1,955,205    
07/27/10
      1,885,107       1,974,757  
Preferred Stock (B)
 
39 shs.
   
07/27/10
      394,487       394,500  
Common Stock Class A (B)
 
131 shs.
   
07/27/10
      1,310       296,705  
Warrant, exercisable until 2020, to purchase
                             
common stock at $.01 per share (B)
 
23 shs.
   
07/27/10
      227       51,458  
                    2,281,131       2,717,420  
Bravo Sports Holding Corporation
                             
A designer and marketer of niche branded consumer products including canopies, trampolines, in-line skates, skateboards, and urethane wheels.
 
12.5% Senior Subordinated Note due 2014
  $ 2,281,593    
06/30/06
      2,237,788       570,398  
Preferred Stock Class A (B)
 
879 shs.
   
06/30/06
      268,121       -  
Common Stock (B)
 
1 sh.
   
06/30/06
      286       -  
Warrant, exercisable until 2014, to purchase
                             
common stock at $.01 per share (B)
 
309 shs.
   
06/30/06
      92,102       -  
                    2,598,297       570,398  
 

10
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
Corporate Restricted Securities: (A) (Continued)  
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
    Cost     Fair Value  
                         
C D N T, Inc.                        
A value-added converter and distributor of specialty pressure sensitive adhesives, foams, films, and foils.              
10.5% Senior Secured Term Note due 2014
  $ 328,506    
08/07/08
    $ 326,041     $ 328,506  
12.5% Senior Subordinated Note due 2015
  $ 750,872    
08/07/08
      712,498       750,872  
Common Stock (B)
 
73,256 shs.
   
08/07/08
      73,256       84,105  
Warrant, exercisable until 2018, to purchase
                             
common stock at $.01 per share (B)
 
57,600 shs.
   
08/07/08
      57,689       66,131  
                    1,169,484       1,229,614  
Capital Specialty Plastics, Inc.
                             
A producer of desiccant strips used for packaging pharmaceutical products.
                       
Common Stock (B)
 
109 shs.
    *                503       1,134,288  
* 12/30/97 and 05/29/99.
                             
 
CHG Alternative Education Holding Company
A leading provider of publicly-funded, for profit pre-K-12 education services targeting special needs children at therapeutic day schools and “at risk” youth through alternative education programs
13.5% Senior Subordinated Note due 2018
  $ 2,193,333    
01/19/11
      2,084,748       2,254,379  
14% Senior Subordinated Note due 2019
  $ 564,313    
08/03/12
      553,226       567,027  
Common Stock (B)
 
1,125 shs.
   
01/19/11
      112,500       95,902  
Warrant, exercisable until 2021, to purchase
                             
common stock at $.01 per share (B)
 
884 shs.
   
01/19/11
      87,750       75,385  
                    2,838,224       2,992,693  
Church Services Holding Company
                             
A provider of diversified residential services to homeowners in the Houston, Dallas, and Austin markets.
                 
14.5% Senior Subordinated Note due 2018
  $ 1,212,298    
03/26/12
      1,173,576       1,248,667  
Common Stock (B)
 
3,981 shs.
    *                398,100       569,836  
Warrant, exercisable until 2022, to purchase
                             
common stock at $.01 per share (B)
 
172 shs.
   
03/26/12
      17,220       24,620  
* 03/26/12, 05/25/12 and 06/19/12.
                  1,588,896       1,843,123  
                               
Clough, Harbour and Associates
                             
An engineering service firm that is located in Albany, NY.
                             
Preferred Stock (B)
 
277 shs.
   
12/02/08
      276,900       171,840  
                               
Coeur, Inc.
                             
A producer of proprietary, disposable power injection syringes.
                             
12% Senior Subordinated Note due 2016
  $ 1,214,286    
10/10/08
      1,140,828       1,214,286  
Common Stock (B)
 
607 shs.
   
10/10/08
      60,714       95,805  
Warrant, exercisable until 2018, to purchase
                             
common stock at $.01 per share (B)
 
934 shs.
   
10/10/08
      91,071       147,395  
                    1,292,613       1,457,486  
 

11
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
Connecticut Electric, Inc.
                       
A supplier and distributor of electrical products sold into the retail and wholesale markets.
             
10% Senior Subordinated Note due 2014 (D)
  $ 1,456,429    
01/12/07
    $ 1,358,675     $ 1,310,786  
Limited Liability Company Unit Class A (B)
 
156,046 uts.
   
01/12/07
      156,046       31,383  
Limited Liability Company Unit Class C (B)
 
112,873 uts.
   
01/12/07
      112,873       22,700  
Limited Liability Company Unit Class D (B)
 
1,268,437 uts.
   
05/03/10
      -       255,097  
Limited Liability Company Unit Class E (B)
 
2,081 uts.
   
05/03/10
      -       418  
                    1,627,594       1,620,384  
Connor Sport Court International, Inc.
                             
A designer and manufacturer of outdoor and indoor synthetic sports flooring and other temporary flooring products.
       
Preferred Stock Series B-2 (B)
 
17,152 shs.
   
07/05/07
      700,392       1,699,774  
Preferred Stock Series C (B)
 
7,080 shs.
   
07/05/07
      236,503       701,590  
Common Stock (B)
 
718 shs.
   
07/05/07
      7       -  
Limited Partnership Interest (B)
 
12.64% int.
    *                189,586       -  
* 08/12/04 and 01/14/05.
                  1,126,488       2,401,364  
                               
CorePharma LLC
                             
A manufacturer of oral dose generic pharmaceuticals targeted at niche applications.
                       
Warrant, exercisable until 2013, to purchase
                             
common stock at $.001 per share (B)
 
20 shs.
   
08/04/05
      137,166       1,088,093  
                               
Crane Rental Corporation
                             
A crane rental company since 1960, headquartered in Florida.
                             
13% Senior Subordinated Note due 2015
  $ 2,295,000    
08/21/08
      2,164,521       2,254,410  
Common Stock (B)
 
255,000 shs.
   
08/21/08
      255,000       -  
Warrant, exercisable until 2016, to purchase
                             
common stock at $.01 per share (B)
 
136,070 shs.
   
08/21/08
      194,826       -  
                    2,614,347       2,254,410  
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.
12.5% Senior Subordinated Note due 2016
  $ 1,937,020    
10/27/09
      1,755,851       1,972,286  
Preferred Stock PIK (B)
 
296 shs.
   
10/27/09
      295,550       270,852  
Preferred Stock Series A (B)
 
216 shs.
   
10/27/09
      197,152       197,895  
Common Stock (B)
 
72 shs.
   
10/27/09
      72,238       -  
Warrant, exercisable until 2016, to purchase
                             
common stock at $.01 per share (B)
 
53 shs.
   
10/27/09
      48,608       -  
                    2,369,399       2,441,033  
 

12
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
Corporate Restricted Securities: (A) (Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
    Cost     Fair Value  
                         
DPC Holdings LLC                        
A provider of accounts receivable management and revenue cycle management services to customers in the healthcare, financial and utility industries.          
14% Senior Subordinated Note due 2018
  $ 3,396,439     *              $ 3,336,049     $ 3,472,985  
Limited Liability Company Unit Class A (B)
 
40,643 uts.
    *                406,432       259,028  
* 10/21/11 and 08/03/12.
                  3,742,481       3,734,013  
                               
DPL Holding Corporation
                             
A distributor and manufacturer of aftermarket undercarriage parts for medium and heavy duty trucks and trailers.
         
14% Senior Subordinated Note due 2019
  $ 2,474,492    
05/04/12
      2,427,627       2,571,888  
Preferred Stock (B)
 
49 shs.
   
05/04/12
      490,910       497,118  
Common Stock (B)
 
49 shs.
   
05/04/12
      54,546       27,405  
                    2,973,083       3,096,411  
Duncan Systems, Inc.
                             
A distributor of windshields and side glass for the recreational vehicle market.
                       
10% Senior Secured Term Note due 2013
  $ 270,000    
11/01/06
      269,175       268,518  
13% Senior Subordinated Note due 2014
  $ 855,000    
11/01/06
      818,362       843,343  
Common Stock (B)
 
180,000 shs.
   
11/01/06
      180,000       13,884  
Warrant, exercisable until 2014, to purchase
                             
common stock at $.01 per share (B)
 
56,514 shs.
   
11/01/06
      78,160       4,359  
                    1,345,697       1,130,104  
 
E S P Holdco, Inc.
A manufacturer of power protection technology for commercial office equipment, primarily supplying the office equipment dealer network.
14% Senior Subordinated Note due 2015
  $ 2,439,866    
01/08/08
      2,414,996       2,439,866  
Common Stock (B)
 
660 shs.
   
01/08/08
      329,990       347,436  
                    2,744,986       2,787,302  
E X C Acquisition Corporation
                             
A manufacturer of pre-filled syringes and pump systems used for intravenous drug delivery.
                 
Warrant, exercisable until 2014, to purchase
                             
common stock at $.01 per share (B)
 
22 shs.
   
06/28/04
      77,208       26,449  

Eatem Holding Company
A developer and manufacturer of savory flavor systems for soups, sauces, gravies, and other products produced by food manufacturers for retail and foodservice end products.
12.5% Senior Subordinated Note due 2018
  $ 2,850,000    
02/01/10
      2,551,613       2,877,612  
Common Stock (B)
 
150 shs.
   
02/01/10
      150,000       125,803  
Warrant, exercisable until 2018, to purchase
                             
common stock at $.01 per share (B)
 
358 shs.
   
02/01/10
      321,300       299,956  
                    3,022,913       3,303,371  
 

13
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
 
Acquisition
Date
   
Cost
    Fair Value  
                         
ELT Holding Company
                         
A provider of web-based ethics and compliance training solutions for companies in the United States.
             
14% Senior Subordinated Note due 2019
  $ 2,759,639  
03/01/12
    $ 2,708,132     $ 2,806,434  
Common Stock (B)
 
122 shs.
 
03/01/12
      272,727       202,834  
                      2,980,859       3,009,268  
F C X Holdings Corporation
                               
A distributor of specialty/technical valves, actuators, accessories, and process instrumentation supplying a number of industrial, high purity, and energy end markets in North America.
15% Senior Subordinated Note due 2017
  $ 2,380,188    
10/06/08
      2,357,039       2,380,188  
14% Senior Subordinated Note due 2017
  $ 644,928    
03/02/12
      633,456       677,175  
Preferred Stock Series A (B)
 
441 shs.
    *                44,100       63,426  
Preferred Stock Series B (B)
 
4,341 shs.
   
10/06/08
      434,074       624,333  
Common Stock (B)
 
3,069 shs.
   
10/06/08
      3,069       326,477  
* 12/30/10 and 07/01/11.
                    3,471,738       4,071,599  
                                 
F F C Holding Corporation
                               
A leading U.S. manufacturer of private label frozen novelty and ice cream products.
                         
16% Senior Subordinated Note due 2017
  $ 2,668,407    
09/27/10
      2,630,185       2,695,091  
Limited Liability Company Units Preferred (B)
 
512 uts.
   
09/27/10
      460,976       530,914  
Limited Liability Company Units (B)
 
512 uts.
   
09/27/10
      51,220       375,470  
                      3,142,381       3,601,475  
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.
14.25% Senior Subordinated Note due 2016
  $ 2,689,355    
12/15/10
      2,631,299       2,743,142  
14.25% Senior Subordinated Note due 2016
  $ 668,864    
02/29/12
      669,077       688,930  
Limited Liability Company Unit Class B-1 (B)
394,737 uts.
   
12/15/10
      394,737       737,605  
Limited Liability Company Unit Class B-2 (B)
 
49,488 uts.
   
12/15/10
      49,488       92,473  
Limited Liability Company Unit Class B-3 (B)
 
39,130 uts.
   
08/30/12
      90,000       73,119  
                      3,834,601       4,335,269  
F H Equity LLC
                               
A designer and manufacturer of a full line of automatic transmission filters and filtration systems for passenger vehicles.
         
14% Senior Subordinated Note due 2017
  $ 3,110,024    
12/20/10
      3,006,805       3,110,024  
Limited Liability Company Unit Class C (B)
 
9,449 uts.
   
12/20/10
      96,056       75,302  
                      3,102,861       3,185,326  
Flutes, Inc.
                               
An independent manufacturer of micro fluted corrugated sheet material for the food and consumer products packaging industries.
10% Senior Secured Term Note due 2013 (D)   $ 918,385    
04/13/06
      908,339       367,354  
14% Senior Subordinated Note due 2013 (D)   $ 555,059    
04/13/06
      509,089       -  
                            1,417,428       367,354  
 

14
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
Corporate Restricted Securities: (A) (Continued)
  Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
    Cost     Fair Value  
                         
G C Holdings
                         
A leading manufacturer of gaming tickets, industrial recording charts, security-enabled point-of sale receipts, and medical charts and supplies.  
12.5% Senior Subordinated Note due 2017
  $ 3,000,000    
10/19/10
    $ 2,838,230     $ 3,060,000  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
594 shs.
   
10/19/10
      140,875       800,410  
                      2,979,105       3,860,410  
Golden County Foods Holding, Inc.
                               
A manufacturer of frozen appetizers and snacks.
                               
16% Senior Subordinated Note due 2015 (D)
  $ 1,912,500    
11/01/07
      1,772,199       -  
14% PIK Note due 2015 (D)
  $ 472,711    
12/31/08
      411,209       -  
8% Series A Convertible Preferred Stock, convertible into
                               
common shares (B)
 
287,658 shs.
   
11/01/07
      146,658       -  
                      2,330,066       -  
H M Holding Company
                               
A designer, manufacturer, and importer of promotional and wood furniture.
                         
7.5% Senior Subordinated Note due 2014 (D)
  $ 685,100    
10/15/09
      512,231       171,275  
Preferred Stock (B)
 
40 shs.
    *                40,476       -  
Preferred Stock Series B (B)
 
2,055 shs.
   
10/15/09
      1,536,694       -  
Common Stock (B)
 
340 shs.
   
02/10/06
      340,000       -  
Common Stock Class C (B)
 
560 shs.
   
10/15/09
      -       -  
Warrant, exercisable until 2013, to purchase
                               
common stock at $.02 per share (B)
 
126 shs.
   
02/10/06
      116,875       -  
* 09/18/07 and 06/27/08.
                    2,546,276       171,275  
                                 
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 2017
  $ 1,384,615    
11/14/11
      1,290,697       1,438,334  
Common Stock (B)
 
115 shs.
   
11/14/11
      115,385       126,074  
Warrant, exercisable until 2021, to purchase
                               
common stock at $.01 per share (B)
 
83 shs.
   
11/14/11
      76,788       90,259  
                      1,482,870       1,654,667  
Healthcare Direct Holding Company
                               
A direct-to-consumer marketer of discount dental plans.
                               
14% Senior Subordinated Note due 2019
  $ 2,118,884    
03/09/12
      2,079,267       2,160,361  
Common Stock (B)
 
1,552 shs.
   
03/09/12
      155,172       132,387  
                      2,234,439       2,292,748  
 

15
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)  
Principal Amount,
Shares, Units or
Ownership Percentage
    Acquisition
Date
   
Cost
    Fair Value  
                         
HGGC Citadel Plastics Holdings                          
A world-leading source for thermoset and thermoplastic compounds.
                         
14% Senior Subordinated Note due 2019
  $ 2,729,746    
02/29/12
    $ 2,678,814     $ 2,775,997  
Common Stock (B)
 
302 shs.
   
02/29/12
      302,419       286,181  
                      2,981,233       3,062,178  
Home Décor Holding Company
                               
A designer, manufacturer and marketer of framed art and wall décor products.
                         
Common Stock (B)
 
63 shs.
    *                62,742       150,176  
Warrant, exercisable until 2013, to purchase
                               
common stock at $.02 per share (B)
 
200 shs.
    *                199,501       477,529  
* 06/30/04 and 08/19/04.
                    262,243       627,705  
                                 
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)
 
89 uts.
   
10/14/11
      -       -  
Limited Liability Company Unit Class G (B)
 
215 uts.
   
10/14/11
      -       -  
Limited Liability Company Unit Class H (B)
 
89 uts.
   
10/14/11
      -       -  
Limited Liability Company Unit Class I (B)
 
89 uts.
   
10/14/11
      -       -  
                      -       -  
Hospitality Mints Holding Company
                               
A manufacturer of individually-wrapped imprinted promotional mints.
                         
14% Senior Subordinated Note due 2016
  $ 2,963,853    
08/19/08
      2,839,176       2,815,660  
Common Stock (B)
 
474 shs.
   
08/19/08
      474,419       11,388  
Warrant, exercisable until 2016, to purchase
                               
common stock at $.01 per share (B)
 
123 shs.
   
08/19/08
      113,773       2,943  
                      3,427,368       2,829,991  
HVAC Holdings, Inc.
                               
A provider of integrated energy efficiency services and maintenance programs for HVAC systems.
                 
14% Senior Subordinated Note due 2019
  $ 2,727,273    
09/27/12
      2,672,778       2,724,866  
Preferred Stock Series A (B)
 
2,705 shs.
   
09/27/12
      270,542       256,975  
Common Stock (B)
 
2,185 shs.
   
09/27/12
      2,185       2,076  
                      2,945,505       2,983,917  
Ideal Tridon Holdings, Inc.
                               
A designer and manufacturer of clamps and couplings used in automotive and industrial end markets.
                 
13.5% Senior Subordinated Note due 2018
  $ 2,760,082    
10/27/11
      2,710,681       2,834,997  
Common Stock (B)
 
279 shs.
   
10/27/11
      278,561       301,490  
                      2,989,242       3,136,487  
Insurance Claims Management, Inc.
                               
A third party administrator providing auto and property claim administration services for insurance companies.
         
Common Stock (B)
 
89 shs.
   
02/27/07
      2,689       543,085  
 

16
 
 

 
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
International Offshore Services LLC
                       
A leading provider of marine transportation services, platform decommissioning, and salvage services to oil and gas producers in the shallow waters of the Gulf of Mexico.  
14.25% Senior Subordinated Secured Note due 2017 (D)
  $ 2,550,000    
07/07/09
    $ 2,335,431     $ 637,500  
Limited Liability Company Unit (B)
 
3,112 uts.
   
07/07/09
      186,684       -  
                    2,522,115       637,500  
J A C Holding Enterprises, Inc.
                             
A supplier of luggage racks and accessories to the original equipment manufacturers.
                       
12.5% Senior Subordinated Note due 2017
  $ 2,500,000    
12/20/10
      2,192,907       2,333,664  
Preferred Stock A (B)
 
495 shs.
   
12/20/10
      495,000       202,803  
Preferred Stock B (B)
 
0.17 shs.
   
12/20/10
      -       68  
Common Stock (B)
 
100 shs.
   
12/20/10
      5,000       -  
Warrant, exercisable until 2020, to purchase
                             
common stock at $.01 per share (B)
 
36 shs.
   
12/20/10
      316,931       -  
                    3,009,838       2,536,535  
Jason Partners Holdings LLC
                               
A diversified manufacturing company serving various industrial markets.
                         
Limited Liability Company Unit (B)
 
90 uts.
   
09/21/10
      848,275       48,185  
                             
K & N Parent, Inc.
                               
A manufacturer and supplier of automotive aftermarket performance air filters and intake systems.
                 
14% Senior Subordinated Note due 2017
  $ 2,621,739    
12/23/11
      2,573,287       2,725,771  
Preferred Stock Series A (B)
 
305 shs.
   
12/23/11
      289,733       289,731  
Preferred Stock Series B (B)
 
86 shs.
   
12/23/11
      82,006       82,004  
Common Stock (B)
 
391 shs.
   
12/23/11
      19,565       52,083  
                      2,964,591       3,149,589  
K N B Holdings Corporation
                               
A designer, manufacturer and marketer of products for the custom framing market.
                         
15% Senior Subordinated Note due 2017
  $ 4,480,715     *                4,161,086       4,480,715  
Common Stock (B)
134,210 shs.
   
05/25/06
      134,210       78,712  
Warrant, exercisable until 2013, to purchase
                               
common stock at $.01 per share (B)
 
82,357 shs.
   
05/25/06
      71,534       48,301  
* 05/25/06 and 04/12/11.
                    4,366,830       4,607,728  

K P H I Holdings, Inc.
A manufacturer of highly engineered plastic and metal components for a diverse range of end-markets, including medical, consumer and industrial, automotive and defense.
15% Senior Subordinated Note due 2017
  $ 2,728,750    
12/10/10
      2,685,405       2,788,965  
Common Stock (B)
 
698,478 shs.
   
12/10/10
      698,478       520,038  
                      3,383,883       3,309,003  
 

17
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
    Cost    
Fair Value
 
                         
K P I Holdings, Inc.
                       
The largest player in the U.S. non-automotive, non-ferrous die casting segment.
                     
12.75% Senior Subordinated Note due 2015
  $ 2,691,932    
07/16/08
    $ 2,560,297     $ 2,557,336  
Convertible Preferred Stock Series C (B)
 
55 shs.
   
06/30/09
      55,435       110,000  
Convertible Preferred Stock Series D (B)
 
24 shs.
   
09/17/09
      24,476       73,410  
Common Stock (B)
 
443 shs.
   
07/15/08
      443,478       -  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
96 shs.
   
07/16/08
      96,024       -  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
128 shs.
   
09/17/09
      -       -  
                      3,179,710       2,740,746  
K W P I Holdings Corporation
                               
A manufacturer and distributor of vinyl windows and patio doors throughout the northwestern United States.
         
12% Senior Subordinated Note due 2015 (D)
  $ 3,162,920    
03/14/07
      2,878,056       -  
Preferred Stock PIK (B)
 
1,499 shs.
   
02/07/11
      579,500       -  
Common Stock (B)
 
232 shs.
   
03/13/07
      232,000       -  
Warrant, exercisable until 2019, to purchase
                               
preferred stock at $.01 per share (B)
 
134 shs.
   
07/07/09
      -       -  
Warrant, exercisable until 2017, to purchase
                               
common stock at $.01 per share (B)
 
167 shs.
   
03/14/07
      162,260       -  
                      3,851,816       -  
LPC Holding Company
                               
A designer and manufacturer of precision-molded silicone rubber components that are utilized in the medical and automotive end markets.
13.5% Senior Subordinated Note due 2018
  $ 3,473,267    
08/15/11
      3,411,467       3,542,732  
Common Stock (B)
 
315 shs.
   
08/15/11
      315,057       264,777  
                      3,726,524       3,807,509  
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)
 
61 shs.
   
09/12/08
      60,714       122,869  
Warrant, exercisable until 2018, to purchase
                           
common stock at $.01 per share (B)
 
66 shs.
   
09/12/08
      65,571       132,705  
                  126,285       255,574  
Mail Communications Group, Inc.
                               
A provider of mail processing and handling services, lettershop services, and commercial printing services.
                 
Limited Liability Company Unit (B)
 
24,109 uts.
    *                314,464       455,392  
Warrant, exercisable until 2014, to purchase
                               
common stock at $.01 per share (B)
 
3,375 shs.
   
05/04/07
      43,031       63,750  
* 05/04/07 and 01/02/08.
                    357,495       519,142  
 

18
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
Manhattan Beachwear Holding Company
                       
A designer and distributor of women’s swimwear.
                         
12.5% Senior Subordinated Note due 2018
  $ 1,259,914    
01/15/10
    $ 1,134,298     $ 1,259,914  
15% Senior Subordinated Note due 2018
  $ 322,856    
10/05/10
      317,646       318,694  
Common Stock (B)
 
106 shs.
   
10/05/10
      106,200       169,472  
Common Stock Class B (B)
 
353 shs.
   
01/15/10
      352,941       563,216  
Warrant, exercisable until 2019, to purchase
                               
common stock at $.01 per share (B)
 
312 shs.
   
01/15/10
      283,738       498,444  
                      2,194,823       2,809,740  
Marshall Physicians Services LLC
                               
A provider of emergency department and hospital medicine services to hospitals located in the state of Kentucky. The Company was founded in 1999 and is owned by seven practicing physicians.
13% Senior Subordinated Note due 2016
  $ 1,333,619    
09/20/11
      1,309,954       1,370,654  
Limited Liability Company Unit Class A (B)
 
8,700 uts.
   
09/20/11
      180,000       106,379  
Limited Liability Company Unit Class D (B)
 
874 uts.
   
09/20/11
      -       10,690  
                    1,489,954       1,487,723  
MBWS Ultimate Holdco, Inc.
                               
A provider of services throughout North Dakota that address the fluid management and related transportation needs of an oil well.
12% Senior Subordinated Note due 2016
  $ 3,352,486     *                3,106,322       3,386,011  
Preferred Stock Series A (B)
 
4,164 shs.
   
09/07/10
      416,392       1,567,919  
Common Stock (B)
 
487 shs.
   
03/01/11
      48,677       183,376  
Common Stock (B)
 
458 shs.
   
09/07/10
      45,845       172,456  
Warrant, exercisable until 2020, to purchase
                               
common stock at $.01 per share (B)
 
310 shs.
   
03/01/11
      30,975       116,728  
Warrant, exercisable until 2016, to purchase
                               
common stock at $.01 per share (B)
 
1,158 shs.
   
09/07/10
      115,870       436,035  
* 09/07/10 and 03/01/11.
                    3,764,081       5,862,525  
                                 
MedSystems Holdings LLC
                               
A manufacturer of enteral feeding products, such as feeding tubes and other products related to assisted feeding.
         
13% Senior Subordinated Note due 2015
  $ 1,196,042    
08/29/08
      1,114,314       1,196,042  
Preferred Unit (B)
 
126 uts.
   
08/29/08
      125,519       170,127  
Common Unit Class A (B)
 
1,268 uts.
   
08/29/08
      1,268       17,003  
Common Unit Class B (B)
 
472 uts.
   
08/29/08
      120,064       6,327  
                      1,361,165       1,389,499  
 

19
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)  
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
MEGTEC Holdings, Inc.
                           
A supplier of industrial and environmental products and services to a broad array of industries.
             
Preferred Stock (B)
 
107 shs.
   
09/24/08
    $ 103,255     $ 149,800  
Limited Partnership Interest (B)
 
1.40% int.
   
09/16/08
      388,983       461,674  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
35 shs.
   
09/24/08
      33,268       26,513  
                      525,506       637,987  
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 2018
  $ 1,273,585    
09/22/11
      1,250,463       1,311,793  
Limited Liability Company Unit Series B (B)
467,833 uts.
   
09/22/11
      467,833       -  
                    1,718,296       1,311,793  
MicroGroup, Inc.
                             
A manufacturer of precision parts and assemblies, and a value-added supplier of metal tubing and bars.
                 
12% Senior Subordinated Note due 2013 (D)
  $ 2,685,614     *                2,577,220       671,403  
Common Stock (B)
 
450 shs.
    *                450,000       -  
Warrant, exercisable until 2013, to purchase
                               
common stock at $.02 per share (B)
 
164 shs.
    *                162,974       -  
* 08/12/05 and 09/11/06.
                    3,190,194       671,403  
                                 
Monessen Holding Corporation
                               
A designer and manufacturer of a broad line of gas, wood, and electric hearth products and accessories.
                 
15% Senior Subordinated Note due 2015 (D)
  $ 1,556,056    
06/28/11
      1,034,632       -  
7% Senior Subordinated Note due 2014 (D)
  $ 2,550,000    
06/28/11
      2,420,572       -  
Warrant, exercisable until 2014, to purchase
                               
common stock at $.02 per share (B)
 
152 shs.
   
03/31/06
      138,125       -  
                      3,593,329       -  
Motion Controls Holdings
                               
A manufacturer of high performance mechanical motion control and linkage products.
                         
14.25% Senior Subordinated Note due 2017
  $ 2,808,696    
11/30/10
      2,766,355       2,864,870  
Limited Liability Company Unit Class B-1 (B)
281,250 uts.
   
11/30/10
      -       250,155  
Limited Liability Company Unit Class B-2 (B)
 
25,504 uts.
   
11/30/10
      -       22,684  
                      2,766,355       3,137,709  
NABCO, Inc.
                               
A producer of explosive containment vessels in the United States.
                               
14% Senior Subordinated Note due 2014 (D)
  $ 625,000    
02/24/06
      578,174       156,250  
Limited Liability Company Unit (B)
 
825 uts.
    *                825,410       -  
Warrant, exercisable until 2016, to purchase
                               
common stock at $.01 per share (B)
 
129 shs.
   
02/24/06
      37,188       -  
* 02/24/06 and 06/22/07.
                    1,440,772       156,250  
 

20
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
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.
     
14% Senior Subordinated Note due 2014
  $ 2,004,985    
02/02/07
    $ 1,847,121     $ 1,804,486  
Limited Partnership Interest of
                             
Saw Mill PCG Partners LLC (B)
 
2.73% int.
   
02/01/07
      1,110,810       -  
Limited Liability Company Unit Class D of
                             
Saw Mill PCG Partners LLC (B)
 
17 uts.
    *                16,759       -  
Limited Liability Company Unit Class D-1 of
                               
Saw Mill PCG Partners LLC (B)
 
229 uts.
   
09/30/09
      228,858       -  
Limited Liability Company Unit Class D-2 of
                               
Saw Mill PCG Partners LLC (B)
 
128 uts.
   
04/29/11
      65,256       -  
* 12/18/08 and 09/30/09.
                    3,268,804       1,804,486  
                                 
Newark Group, Inc.
                               
A major producer of paper products from recycled materials.
                               
Common Stock (B)
 
134,520 shs.
   
09/02/10
      796,863       259,422  

Nicoat Acquisitions LLC
A manufacturer of water-based and ultraviolet coatings for high-performance graphic arts, packaging and other specialty coating applications.
12.5% Senior Subordinated Note due 2016
  $ 1,448,276    
11/05/10
      1,344,306       1,477,241  
Limited Liability Company Unit Series B (B)
 
51,724 uts.
   
11/05/10
      51,724       59,065  
Limited Liability Company Unit Series B (B)
 
104,792 uts.
   
11/05/10
      104,792       119,664  
Limited Liability Company Unit Series F (B)
 
156,516 uts.
   
11/05/10
      -       364,584  
                      1,500,822       2,020,554  
Northwest Mailing Services, Inc.
                               
A producer of promotional materials for companies that use direct mail as part of their customer retention and loyalty programs.
12% Senior Subordinated Note due 2016
  $ 2,818,421     *                2,437,520       2,828,549  
Limited Partnership Interest (B)
 
3,287 uts.
    *                328,679       82,319  
Warrant, exercisable until 2019, to purchase
                               
common stock at $.01 per share (B)
 
4,920 shs.
    *                492,016       123,227  
* 07/09/09 and 08/09/10.
                    3,258,215       3,034,095  
                                 
NT Holding Company
                               
A leading developer, manufacturer and provider of medical products used primarily in interventional pain management.
       
12% Senior Subordinated Note due 2019
  $ 2,649,351    
02/02/11
      2,465,583       2,702,338  
Common Stock (B)
 
377 shs.
    *                377,399       327,321  
Warrant, exercisable until 2021, to purchase
                               
common stock at $.01 per share (B)
 
176 shs.
   
02/02/11
      158,961       152,871  
* 02/02/11 and 06/30/11.
                    3,001,943       3,182,530  
 

21
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
    Acquisition
Date
    Cost     Fair Value  
                         
O E C Holding Corporation
                       
A provider of elevator maintenance, repair and modernization services.
                     
13% Senior Subordinated Note due 2017
  $ 1,333,333    
06/04/10
    $ 1,240,083     $ 1,330,362  
Preferred Stock Series A (B)
 
1,661 shs.
   
06/04/10
      166,062       64,529  
Preferred Stock Series B (B)
 
934 shs.
   
06/04/10
      93,376       36,284  
Common Stock (B)
 
1,032 shs.
   
06/04/10
      1,032       -  
                      1,500,553       1,431,175  
Ontario Drive & Gear Ltd.
                               
A manufacturer of all-wheel drive, off-road amphibious vehicles and related accessories.
                         
Limited Liability Company Unit (B)
 
3,667 uts.
   
01/17/06
      572,115       1,499,473  
Warrant, exercisable until 2013, to purchase
                               
common stock at $.01 per share (B)
 
619 shs.
   
01/17/06
      170,801       253,164  
                      742,916       1,752,637  
P K C Holding Corporation
                               
A manufacturer of plastic film and badges for the general industrial, medical, and food industries.
                 
14% Senior Subordinated Note due 2016
  $ 3,038,395    
12/21/10
      2,987,146       3,099,163  
Preferred Stock Class A (B)
 
54 shs.
   
12/21/10
      340,718       518,364  
Common Stock (B)
 
54 shs.
   
12/21/10
      25,500       -  
                      3,353,364       3,617,527  
P P T Holdings LLC
                               
A high-end packaging solutions provider that targets customers who have multiple packaging needs, require a high number of low volume SKUs, short lead times, technical expertise, and overall supply chain management.
15% Senior Subordinated Note due 2017
  $ 2,826,838    
12/20/10
      2,782,371       2,824,807  
Limited Liability Company Unit Class A (B)
 
99 uts.
   
12/20/10
      318,215       217,345  
Limited Liability Company Unit Class B (B)
 
99 uts.
   
12/20/10
      3,214       217,345  
                      3,103,800       3,259,497  
Pacific Consolidated Holdings LLC
                               
A manufacturer of rugged, mobile liquid and gaseous oxygen and nitrogen generating systems used in the global defense, oil and gas, and medical sectors.  
14% Senior Subordinated Note due 2012 (D)
  $ 1,393,591    
04/27/07
      1,359,161       487,757  
5% Senior Subordinated Note due 2012
  $ 79,688    
07/21/10
      79,688       79,688  
Preferred Shares Series E (B)
 
79,688 uts.
   
07/21/10
      -       -  
Limited Liability Company Unit (B)
1,754,707 uts.
   
04/27/07
      63,233       -  
                      1,502,082       567,445  
Paradigm Packaging, Inc.
                               
A manufacturer of plastic bottles and closures for the nutritional, pharmaceutical, personal care, and food packaging markets.
 
12% Senior Subordinated Note due 2015
  $ 1,593,750    
12/19/00
      1,590,440       1,593,750  
Warrant, exercisable until 2015, to purchase
                               
common stock at $.01 per share (B)
 
372 shs.
   
12/21/00
      265,625       -  
                      1,856,065       1,593,750  
 

22
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
Corporate Restricted Securities: (A) (Continued)
  Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
Pearlman Enterprises, Inc.
                       
A developer and distributor of tools, equipment, and supplies to the natural and engineered stone industry.
 
Preferred Stock Series A (B)
 
2,334 shs.
   
05/22/09
    $ 111,508     $ -  
Preferred Stock Series B (B)
 
13,334 shs.
   
05/22/09
      547,872       -  
Common Stock (B)
 
40,540 shs.
   
05/22/09
      1,877,208       -  
                  2,536,588       -  
Postle Aluminum Company LLC
                             
A manufacturer and distributor of aluminum extruded products.
                   
15% Senior Subordinated Note due 2013
  $ 1,640,246    
06/03/10
      1,628,684       1,640,246  
3% Senior Subordinated PIK Note due 2014
  $ 2,283,699    
10/02/06
      2,088,210       2,283,699  
Limited Liability Company Unit Class A (B)
 
1,384 uts.
   
10/02/06
      510,000       122,458  
Limited Liability Company Unit (B)
 
143 uts.
   
05/22/09
      642       12,652  
Warrant, exercisable until 2016, to purchase
                               
common stock at $.01 per share (B)
 
8,595 shs.
   
10/02/06
      124,644       760,467  
                      4,352,180       4,819,522  
Precision Wire Holding Company
                               
A manufacturer of specialty medical wires that are used in non-elective minimally invasive surgical procedures.
   
14.25% Senior Subordinated Note due 2016
  $ 2,662,718    
11/12/09
      2,476,506       2,715,972  
Warrant, exercisable until 2019, to purchase
                               
common stock at $.01 per share (B)
 
206 shs.
   
11/12/09
      203,944       222,459  
                      2,680,450       2,938,431  
Qualis Automotive LLC
                               
A distributor of aftermarket automotive brake and chassis products.
                 
Common Stock (B)
354,167 shs.
   
05/28/04
      354,166       569,856  
Warrant, exercisable until 2014, to purchase
                               
common stock at $.01 per share (B)
377,719 shs.
   
05/28/04
      377,719       607,751  
                      731,885       1,177,607  
R A J Manufacturing Holdings LLC
                               
A designer and manufacturer of women’s swimwear sold under a variety of licensed brand names.
   
12.5% Senior Subordinated Note due 2014
  $ 1,411,274    
12/15/06
      1,366,912       1,411,274  
Limited Liability Company Unit (B)
 
2,828 uts.
   
12/15/06
      282,810       126,275  
Warrant, exercisable until 2014, to purchase
                               
common stock at $.01 per share (B)
 
3 shs.
   
12/15/06
      131,483       59,549  
                      1,781,205       1,597,098  
 

23
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
    Acquisition
Date
    Cost     Fair Value  
                         
RM Holding Company
                       
A specialty distributor of home medical care equipment.
                         
13% Senior Subordinated Note due 2018
  $ 1,380,952    
02/09/12
    $ 1,302,189     $ 1,417,962  
Common Stock (B)
 
1,108 shs.
   
02/09/12
      11       107,485  
Preferred Stock (B)
119,037 shs.
   
02/09/12
      119,037       123,775  
Warrant, exercisable until 2022, to purchase
                               
preferred stock A at $.01 per share (B)
 
36,263 shs.
   
02/09/12
      35,940       37,416  
Warrant, exercisable until 2022, to purchase
                               
preferred stock B at $.01 per share (B)
 
21,202 shs.
   
02/09/12
      21,202       22,046  
Warrant, exercisable until 2022, to purchase
                               
common stock at $.01 per share (B)
 
556 shs.
   
02/09/12
      -       53,896  
                      1,478,379       1,762,580  
Royal Baths Manufacturing Company
                               
A manufacturer and distributor of acrylic and cultured marble bathroom products.
                         
12.5% Senior Subordinated Note due 2016
  $ 531,250    
11/14/03
      523,458       531,250  
Warrant, exercisable until 2016, to purchase
                               
common stock at $.01 per share (B)
 
140 shs.
   
11/14/03
      122,946       96,355  
                      646,404       627,605  
Safety Infrastructure Solutions
                               
A provider of trench safety equipment to a diverse customer base across multiple end markets in Texas and the Southwestern United States.
15% Senior Subordinated Note due 2018
  $ 1,968,750    
03/30/12
      1,940,800       2,053,457  
Preferred Stock (B)
 
6,294 shs.
   
03/30/12
      251,758       257,711  
Common Stock (B)
 
2,949 shs.
   
03/30/12
      29,492       50,219  
                      2,222,050       2,361,387  
Sencore Holding Company
                               
A designer, manufacturer, and marketer of decoders, receivers and modulators sold to broadcasters, satellite, cable and telecom operators for encoding/decoding analog and digital transmission video signals.
 
12.5% Senior Subordinated Note due 2014 (D)
  $ 2,185,882    
01/15/09
      1,560,231       -  
                                 
Smart Source Holdings LLC
                               
A short-term computer rental company.
                               
12% Senior Subordinated Note due 2015
  $ 2,223,076       *                2,119,039       2,223,076  
Limited Liability Company Unit (B)
 
619 uts.
      *                631,592       610,953  
Warrant, exercisable until 2015, to purchase
                               
common stock at $.01 per share (B)
 
157 shs.
      *                164,769       154,775  
* 08/31/07 and 03/06/08.
                    2,915,400       2,988,804  
 

24
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
                         
Corporate Restricted Securities: (A) (Continued)
  Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
Snacks Parent Corporation
                         
The world’s largest provider of trail mixes and a leading provider of snack nuts, dried fruits, and other healthy snack products.
   
13% Senior Subordinated Note due 2017
  $ 2,655,386    
11/12/10
    $ 2,527,523     $ 2,591,569  
Preferred Stock A (B)
 
3,395 shs.
   
11/12/10
      322,495       312,584  
Preferred Stock B (B)
 
1,575 shs.
   
11/12/10
      149,650       145,051  
Common Stock (B)
 
19,737 shs.
   
11/12/10
      19,737       -  
Warrant, exercisable until 2020, to purchase
                               
common stock at $.01 per share (B)
 
5,418 shs.
   
11/12/10
      5,418       -  
                      3,024,823       3,049,204  
SouthernCare Holdings, Inc.
                               
A hospice company providing palliative care services to terminally ill patients.
                         
14% Senior Subordinated Note due 2018
  $ 2,773,001    
12/01/11
      2,723,048       2,849,182  
Common Stock (B)
 
2,727 shs.
   
12/01/11
      272,727       234,792  
                      2,995,775       3,083,974  
Spartan Foods Holding Company
                               
A manufacturer of branded pizza crusts and pancakes.
                               
14.25% Senior Subordinated PIK Note due 2017
  $ 2,267,934    
12/15/09
      2,014,564       2,154,538  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
257 shs.
   
12/15/09
      227,109       56,875  
                      2,241,673       2,211,413  
Specialty Commodities, Inc.
                               
A distributor of specialty food ingredients.
                               
Common Stock (B)
 
30,000 shs.
   
10/23/08
      300,000       206,613  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
11,054 shs.
   
10/23/08
      100,650       76,130  
                      400,650       282,743  
Strata/WLA Holding Corporation
                               
A leading independent anatomic pathology laboratory that conducts over 320,000 tests annually to customers in 40 U.S. states and in Canada and Venezuela.
14.5% Senior Subordinated Note due 2018
  $ 2,859,573    
07/01/11
      2,810,495       2,883,983  
Preferred Stock Series A (B)
 
228 shs.
   
07/01/11
      228,137       117,200  
                      3,038,632       3,001,183  
Sundance Investco LLC
                               
A provider of post-production services to producers of movies and television shows.
                         
Limited Liability Company Unit Class A (B)
 
6,429 shs.
   
03/31/10
      -       -  
 

25
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
Corporate Restricted Securities: (A) (Continued)
  Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
Sunrise Windows Holding Company
                         
A manufacturer and marketer of premium vinyl windows exclusively selling to the residential remodeling and replacement market.
 
12% Senior Subordinated Note due 2017
  $ 2,992,312    
12/14/10
    $ 2,849,388     $ 2,918,035  
14% Senior Subordinated PIK Note due 2017
  $ 228,343    
08/17/12
      217,966       222,675  
Common Stock (B)
 
115 shs.
   
12/14/10
      114,504       40,634  
Warrant, exercisable until 2020, to purchase
                               
common stock at $.01 per share (B)
 
112 shs.
   
12/14/10
      111,747       39,658  
                      3,293,605       3,221,002  
Synteract Holdings Corporation
                               
A provider of outsourced clinical trial management services to pharmaceutical and biotechnology companies.
         
14.5% Senior Subordinated Note due 2017
  $ 2,689,601    
09/02/08
      2,571,073       2,689,601  
Redeemable Preferred Stock Series A (B)
 
1,280 shs.
   
09/02/08
      12,523       33,826  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
12,803 shs.
   
09/02/08
      112,693       -  
                      2,696,289       2,723,427  
T H I Acquisition, Inc.
                               
A machine servicing company providing value-added steel services to long steel products.
                 
Warrant, exercisable until 2016, to purchase
                               
common stock at $.01 per share (B)
 
9 shs.
   
01/14/08
      88,054       390,170  

Terra Renewal LLC
A provider of wastewater residual management and required environmental reporting, permitting, nutrient management planning and record keeping to companies involved in poultry and food processing.
12% Senior Subordinated Note due 2014 (D)
  $ 1,162,110     *                1,127,650       -  
7.44% Term Note due 2013 (C)
  $ 1,241,279    
08/10/12
      1,241,279       1,055,087  
9.25% Term Note due 2013 (C)
  $ 1,653    
08/31/12
      1,653       1,405  
7.32% Term Note due 2013 (C)
  $ 3,607    
09/10/12
      3,607       3,066  
Common Stock Class B
 
55 shs.
    *                7,783       -  
Limited Partnership Interest of
                               
Saw Mill Capital Fund V, LLC (B)
 
3.97% int.
    **                205,558       -  
Warrant, exercisable until 2016, to purchase
                               
common stock at $.01 per share (B)
 
72 shs.
   
04/28/06
      59,041       -  
* 04/28/06 and 09/13/06.
                    2,646,571       1,059,558  
** 03/01/05 and 10/10/08.
                               
 

26
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors

Corporate Restricted Securities: (A) (Continued)   Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
    Fair Value  
                         
Torrent Group Holdings, Inc.                          
A contractor specializing in the sales and installation of engineered drywells for the retention and filtration of stormwater and nuisance water flow.  
14.5% Senior Subordinated Note due 2014 (D)
  $ 2,455,561    
10/26/07
    $ 2,147,354     $ 2,332,782  
Series B Preferred Stock (B)
 
182 shs.
   
03/31/10
      -       1,347  
Common Stock (B)
 
515 shs.
   
03/31/10
      414,051       -  
                      2,561,405       2,334,129  
Transpac Holding Company
                               
A designer, importer and wholesaler of home décor and seasonal gift products.
                         
12% Senior Subordinated Note due 2015
  $ 1,773,006    
10/31/07
      1,681,410       1,790,736  
Common Stock (B)
 
209 shs.
   
10/31/07
      208,589       54,256  
Warrant, exercisable until 2015, to purchase
                               
common stock at $.01 per share (B)
 
94 shs.
   
10/31/07
      87,607       24,497  
                      1,977,606       1,869,489  
Tranzonic Companies (The)
                               
A producer of commercial and industrial supplies, such as safety products, janitorial supplies, work apparel, washroom and restroom supplies and sanitary care products.
13% Senior Subordinated Note due 2015
  $ 1,084,800    
02/05/98
      1,081,441       1,084,800  
Common Stock (B)
 
630 shs.
   
02/04/98
      630,000       693,384  
Warrant, exercisable until 2013, to purchase
                               
common stock at $.01 per share (B)
 
444 shs.
   
02/05/98
      368,832       488,670  
                      2,080,273       2,266,854  
Truck Bodies & Equipment International
                               
A designer and manufacturer of accessories for heavy and medium duty trucks, primarily dump bodies, hoists, various forms of flat-bed bodies, landscape bodies and other accessories.
12% Senior Subordinated Note due 2013
  $ 2,309,541     *                2,180,397       2,252,708  
Preferred Stock Series B (B)
 
241 shs.
   
10/20/08
      241,172       199,669  
Common Stock (B)
 
742 shs.
    *                800,860       -  
Warrant, exercisable until 2014, to purchase
                               
common stock at $.02 per share (B)
 
153 shs.
    *                159,894       -  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.01 per share (B)
 
1,054 shs.
   
10/20/08
      -       -  
* 07/19/05 and 12/22/05.
                    3,382,323       2,452,377  
                                 
TruStile Doors, Inc.
                               
A manufacturer and distributor of interior doors.
                               
Limited Liability Company Unit
 
11,775 uts.
   
02/28/11
      250,000       347,393  
Warrant, exercisable until 2013, to purchase
                               
common stock at $.01 per share (B)
 
5,781 shs.
   
04/11/03
      68,059       28,964  
                      318,059       376,357  
 

27
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
 
Corporate Restricted Securities: (A) (Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
    Acquisition
Date
    Cost    
Fair Value
 
                         
U-Line Corporation
                         
A manufacturer of high-end, built-in, undercounter ice making, wine storage and refrigeration appliances.
       
Common Stock (B)
 
182 shs.
   
04/30/04
    $ 182,200     $ 154,743  
Warrant, exercisable until 2016, to purchase
                             
common stock at $.01 per share (B)
 
230 shs.
   
04/30/04
      211,736       195,696  
                    393,936       350,439  
U M A Enterprises, Inc.
                             
An importer and wholesaler of home décor products.
                             
Convertible Preferred Stock (B)
 
887 shs.
   
02/08/08
      886,956       1,436,498  
                               
Visioneering, Inc.
                             
A designer and manufacturer of tooling and fixtures for the aerospace industry.
                         
10.5% Senior Secured Term Loan due 2013
  $ 725,735    
05/17/07
      724,301       710,648  
13% Senior Subordinated Note due 2014
  $ 648,530    
05/17/07
      625,374       629,095  
18% PIK Convertible Preferred Stock (B)
 
37,381 shs.
   
03/13/09
      72,519       -  
Common Stock (B)
123,529 shs.
   
05/17/07
      123,529       -  
Warrant, exercisable until 2014, to purchase
                               
common stock at $.01 per share (B)
 
35,006 shs.
   
05/17/07
      55,055       -  
                      1,600,778       1,339,743  
Vitex Packaging Group, Inc.
                               
A manufacturer of specialty packaging, primarily envelopes and tags used on tea bags.
                         
10% Senior Subordinated PIK Note due 2012
  $ 206,269    
10/29/09
      205,865       204,396  
5% Senior Subordinated PIK Note due 2012 (D)
  $ 900,748    
06/30/07
      846,681       899,236  
Class B Unit (B)
767,881 uts.
   
10/29/09
      348,058       -  
Class C Unit (B)
850,000 uts.
   
10/29/09
      780,572       734,903  
Limited Liability Company Unit Class A (B)
723,465 uts.
    *                433,222       -  
Limited Liability Company Unit Class B (B)
182,935 uts.
   
07/19/04
      182,935       -  
* 07/19/04 and 10/29/09.
                    2,797,333       1,838,535  
                                 
Wellborn Forest Holding Company
                               
A manufacturer of semi-custom kitchen and bath cabinetry.
                               
12.13% Senior Subordinated Note due 2014
  $ 1,721,250    
11/30/06
      1,638,669       1,549,125  
Common Stock (B)
 
191 shs.
   
11/30/06
      191,250       -  
Warrant, exercisable until 2014, to purchase
                               
common stock at $.01 per share (B)
 
95 shs.
   
11/30/06
      86,493       -  
                      1,916,412       1,549,125  
 

28
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
Babson Capital Corporate Investors
September 30, 2012
(Unaudited)
 
Corporate Restricted Securities: (A) (Continued)    
Principal  Amount,
Shares,  Units or
Ownership  Percentage
   
Acquisition
Date
     
Cost
    Fair Value  
                             
Wheaton Holding Corporation                            
A distributor and manufacturer of laboratory supply products and packaging.                            
Preferred Stock Series B (B)
 
2,109 shs.
     
06/08/10
    $ 210,924     $ 217,552  
Common Stock (B)
 
1,058 shs.
     
06/08/10
      1,058       109,093  
                      211,982       326,645  
Whitcraft Holdings, Inc.
                               
A leading independent manufacturer of precision formed, machined, and fabricated flight-critical aerospace components.
         
12% Senior Subordinated Note due 2018
  $ 2,383,562      
12/16/10
      2,216,076       2,431,233  
Common Stock (B)
 
616 shs.
     
12/16/10
      616,438       503,356  
Warrant, exercisable until 2018, to purchase
                               
common stock at $.02 per share (B)
 
166 shs.
     
12/16/10
      148,003       135,254  
                      2,980,517       3,069,843  
Workplace Media Holding Company
                               
A direct marketer specializing in providing advertisers with access to consumers in the workplace.
                 
13% Senior Subordinated Note due 2015 (D)
  $ 1,235,800      
05/14/07
      1,136,081       -  
Limited Partnership Interest (B)
 
23.16% int.
     
05/14/07
      115,804       -  
Warrant, exercisable until 2015, to purchase
                               
common stock at $.02 per share (B)
 
88 shs.
     
05/14/07
      83,462       -  
                      1,335,347       -  
WP Supply Holding Corporation
                               
A distributor of fresh fruits and vegetables to grocery wholesalers and foodservice distributors in the upper Midwest.
         
14.5% Senior Subordinated Note due 2018
  $ 2,608,577      
11/03/11
      2,561,574       2,632,738  
Common Stock (B)
 
4,500 shs.
     
11/03/11
      450,000       317,532  
                      3,011,574       2,950,270  
                                 
                                 
Total Private Placement Investments (E)
                  $ 244,716,370     $ 226,513,949  


29
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
 
   
Interest
 
Due
 
Principal
         
Market
 
Corporate Restricted Securities: (A) (Continued)
 
Rate
 
Date
 
Amount
   
Cost
   
Value
 
                           
Rule 144A Securities - 6.53%:
                         
                           
Bonds - 6.48%
                         
Audatex North America, Inc.
    6.750 %
06/15/18
  $ 250,000     $ 250,000     $ 266,875  
Calpine Corporation
    7.500  
02/15/21
    750,000       770,260       810,000  
Calumet Specialty Products Partners L.P.
    9.625  
08/01/20
    1,000,000       982,276       1,077,500  
Coffeyville Resources LLC
    9.000  
04/01/15
    54,000       53,854       57,645  
Community Choice Financial, Inc.
    10.750  
05/01/19
    505,000       514,846       492,375  
Dish DBS Corporation
    5.875  
07/15/22
    500,000       503,698       512,500  
Everest Acquisition LLC/Everest Acquisition Finance, Inc.
    9.375  
05/01/20
    1,000,000       1,017,041       1,090,000  
First Data Corporation
    7.375  
06/15/19
    850,000       853,058       876,563  
First Data Corporation
    8.750  
01/15/22
    1,000,000       1,009,826       1,007,500  
FMG Resources
    7.000  
11/01/15
    750,000       772,973       746,250  
FMG Resources
    6.875  
04/01/22
    1,000,000       960,089       915,000  
Hilcorp Energy Company
    7.625  
04/15/21
    725,000       694,674       797,500  
Hovnanian Enterprises, Inc.
    7.250  
10/15/20
    1,000,000       1,000,000       1,025,000  
International Automotive Component
    9.125  
06/01/18
    1,000,000       947,664       960,000  
MGM Resorts International
    6.750  
10/01/20
    1,000,000       1,000,000       1,000,000  
Nielsen Finance LLC
    4.500  
10/01/20
    1,000,000       1,000,000       993,750  
Samson Investment Company
    9.750  
02/15/20
    750,000       737,233       772,500  
SandRidge Energy, Inc.
    8.000  
06/01/18
    360,000       362,985       378,000  
Suburban Propane Partners, L.P.
    7.500  
10/01/18
    168,000       178,267       179,760  
Unit Corporation
    6.625  
05/15/21
    1,000,000       987,696       1,032,500  
Valeant Pharmaceuticals International
    6.750  
10/01/17
    70,000       69,715       74,550  
Valeant Pharmaceuticals International
    7.000  
10/01/20
    880,000       881,751       926,200  
Welltec A/S
    8.000  
02/01/19
    750,000       735,664       780,000  
Total Bonds
                      16,283,570       16,771,968  
 

30
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
Babson Capital Corporate Investors
September 30, 2012
(Unaudited)
 
   
Interest
   
Due
               
Market
 
Corporate Restricted Securities: (A) (Continued)
 
Rate
   
Date
   
Shares
   
Cost
   
Value
 
                               
Convertible Preferred Stock - 0.00%
                             
ETEX Corporation (B)
                    777     $ -     $ -  
Total Convertible Preferred Stock
                            -       -  
                                         
Preferred Stock - 0.05%
                                       
Ally Financial
                    143       45,009       133,772  
TherOX, Inc. (B)
                    103       -       -  
Total Preferred Stock
                            45,009       133,772  
                                         
Common Stock - 0.00%
                                       
Touchstone Health Partnership (B)
                    1,168       -       -  
Total Common Stock
                            -       -  
                                         
Total Rule 144A Securities
                            16,328,579       16,905,740  
                                         
Total Corporate Restricted Securities
                          $ 261,044,949     $ 243,419,689  
 
 
 
 
 

 

31
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)

   
Interest
 
Due
 
Principal
         
Market
 
Corporate Public Securities -12.26%: (A)
 
Rate
 
Date
 
Amount
   
Cost
   
Value
 
                           
Bonds - 12.07%
                         
Accuride Corp
    9.500 %
08/01/18
  $ 1,500,000     $ 1,541,698     $ 1,541,250  
Affinia Group, Inc.
    9.000  
11/30/14
    50,000       49,268       50,250  
Alere, Inc.
    9.000  
05/15/16
    700,000       737,112       747,250  
Ally Financial, Inc.
    5.500  
02/15/17
    1,500,000       1,532,155       1,567,924  
Alta Mesa Financial Services
    9.625  
10/15/18
    1,500,000       1,501,643       1,500,000  
American Axle & Manufacturing Holding, Inc.
    7.875  
03/01/17
    750,000       649,361       781,875  
Arch Coal, Inc.
    7.000  
06/15/19
    150,000       150,000       126,000  
Avis Budget Car Rental
    9.750  
03/15/20
    750,000       750,000       856,875  
B E Aerospace, Inc.
    6.875  
10/01/20
    850,000       869,765       943,500  
Berry Plastics Corporation  (C)
    5.039  
02/15/15
    500,000       483,173       501,250  
Bill Barrett Corporation
    7.000  
10/15/22
    1,000,000       958,185       1,027,500  
Calumet Specialty Products Partners L.P.
    9.375  
05/01/19
    750,000       700,460       806,250  
CCO Holdings Capital Corporation
    7.250  
10/30/17
    750,000       768,217       817,500  
Chemtura Corporation
    7.875  
09/01/18
    500,000       527,648       543,750  
Chesapeake Energy Corporation
    6.775  
03/15/19
    750,000       737,471       751,875  
Cooper-Standard Automotive
    8.500  
05/01/18
    750,000       795,982       811,875  
Crosstex Energy L.P.
    8.875  
02/15/18
    225,000       221,469       240,750  
Energy Future Holdings
    10.000  
01/15/20
    400,000       403,577       441,000  
Energy Transfer Equity LP
    7.500  
10/15/20
    100,000       100,000       113,500  
Evertec, Inc.
    11.000  
10/01/18
    1,335,000       1,388,298       1,425,112  
Fidelity National Information
    7.875  
07/15/20
    125,000       125,000       139,688  
Goodrich Petroleum Corporation
    8.875  
03/15/19
    360,000       360,000       348,300  
HCA Holdings, Inc.
    7.750  
05/15/21
    1,000,000       1,045,544       1,090,000  
Headwaters, Inc.
    7.625  
04/01/19
    850,000       850,214       862,750  
Health Management Association
    6.125  
04/15/16
    750,000       770,464       817,500  
Huntington Ingalls Industries
    7.125  
03/15/21
    750,000       779,096       807,187  
Michael Foods, Inc.
    9.750  
07/15/18
    75,000       75,000       83,625  
Nexstar Broadcasting Group, Inc.
    8.875  
04/15/17
    175,000       174,188       190,313  
Nexeo Solutions LLC
    8.375  
03/01/18
    40,000       40,000       39,600  
Northern Tier Energy LLC
    10.500  
12/01/17
    608,000       631,954       665,760  
NRG Energy, Inc.
    8.500  
06/15/19
    750,000       773,018       810,000  
Nuveen Investments
    5.500  
09/15/15
    1,500,000       1,377,759       1,425,000  
Omnova Solutions, Inc.
    7.875  
11/01/18
    1,500,000       1,529,152       1,515,000  
Perry Ellis International, Inc.
    7.875  
04/01/19
    750,000       742,746       776,250  
Pinnacle Foods Finance LLC
    9.250  
04/01/15
    227,000       230,572       232,107  
Precision Drilling Corporation
    6.625  
11/15/20
    750,000       773,005       798,750  
Quebecor Media, Inc.
    7.750  
03/15/16
    1,050,000       1,012,615       1,081,500  
Quiksilver, Inc.
    6.875  
04/15/15
    315,000       301,307       313,425  


32
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
Babson Capital Corporate Investors
September 30, 2012
(Unaudited)
 
           
Shares, or
             
   
Interest
 
Due
 
Principal
         
Market
 
Corporate Public Securities: (A) (Continued)
 
Rate
 
Date
 
Amount
   
Cost
   
Value
 
                                   
Reynolds Group Escrow, LLC
  $ 7.750 %
10/15/16
  $ 750,000     $ 790,457     $ 781,875  
Spectrum Brands, Inc.
    9.500  
06/15/18
    125,000       123,653       140,938  
Sprint Nextel Corporation
    6.000  
12/01/16
    1,000,000       1,024,594       1,030,000  
Thermadyne Holdings Corporation
    9.000  
12/15/17
    750,000       795,670       798,750  
Tomkins, Inc.
    9.250  
10/01/18
    107,000       107,000       119,305  
United Rentals, Inc.
    10.875  
06/15/16
    125,000       122,690       139,063  
Venoco, Inc.
    8.875  
02/15/19
    500,000       508,977       435,000  
Visteon Corporation
    6.750  
04/15/19
    200,000       200,000       210,000  
Total Bonds
                      30,130,157       31,246,972  
                                   
Common Stock - 0.19%
                                 
Bally Total Fitness Holding Corporation (B) (F)
              29       2       -  
Chase Packaging Corporation (B)
              9,541       -       239  
Intrepid Potash, Inc. (B)
              365       11,680       7,840  
Nortek, Inc. (B)
              175       1       9,578  
Rue21, Inc. (B)
              650       12,350       20,248  
Supreme Industries, Inc. (B)
              125,116       267,319       456,673  
Total Common Stock
                      291,352       494,578  
                                   
Total Corporate Public Securities
                    $ 30,421,509     $ 31,741,549  
 
 
   
Interest
 
Due
 
Principal
         
Market
 
Short-Term Securities:
 
Rate/Yield^
 
Date
 
Amount
   
Cost
   
Value
 
Commercial Paper - 2.71%
                         
NSTAR Electric Company
    0.180 %
10/05/12
  $ 4,000,000     $ 3,999,920     $ 3,999,920  
Wisconsin Gas Company
    0.310  
10/10/12
    3,500,000       2,999,897       2,299,897  
Total Short-Term Securities
                    $ 6,999,817     $ 6,999,817  
                                   
Total Investments
    109.02 %             $ 298,466,275     $ 282,161,055  
Other Assets
    4.25                         10,986,818  
Liabilities
    (13.27 )                       (34,334,855 )
Total Net Assets
    100.00 %                     $ 258,813,018  
 
(A)
In each of the convertible note, warrant, convertible preferred and common stock investments, the issuer has agreed to provide certain registration rights.
(B)
Non-income producing security.
(C)
Variable rate security; rate indicated is as of September 30, 2012.
(D)
Defaulted security; interest not accrued.
(E)
Illiquid security.  As of September 30, 2012, the value of these securities amounted to $226,513,949 or 87.52% of net assets.
(F)
Security valued at fair value using methods determined in good faith by or under the direction of the Board of Trustees.
^ Effective yield at purchase
PIK - Payment-in-kind 

33
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
 
September 30, 2012
(Unaudited)
 
   
Fair Value/
     
Fair Value/
 
Industry Classification:
 
Market Value
     
Market Value
 
               
AEROSPACE - 2.75%         BROADCASTING & ENTERTAINMENT - 0.27%  
A E Company, Inc.
  $ 455,049  
Dish DBS Corporation
  $ 512,500  
B E Aerospace, Inc.
    943,500  
HOP Entertainment LLC
    -  
Merex Holding Corporation
    1,311,793  
Nexstar Broadcasting Group, Inc.
    190,312  
Visioneering, Inc.
    1,339,743  
Sundance Investco LLC
    -  
Whitcraft Holdings, Inc.
    3,069,843  
Workplace Media Holding Company
    -  
      7,119,928         702,812  
AUTOMOBILE - 7.92%
       
BUILDINGS & REAL ESTATE - 1.79%
       
Accuride Corp
    1,541,250  
K W P I Holdings Corporation
    -  
American Axle & Manufacturing Holding, Inc.
    781,875  
Hovnanian Enterprises, Inc.
    1,025,000  
Audatex North America, Inc.
    266,875  
Sunrise Windows Holding Company
    3,221,002  
Avis Budget Car Rental
    856,875  
TruStile Doors, Inc.
    376,357  
Cooper-Standard Automotive
    811,875         4,622,359  
DPL Holding Corporation
    3,096,411  
CHEMICAL, PLASTICS & RUBBER - 1.80%
       
F H Equity LLC
    3,185,326  
Capital Specialty Plastics, Inc.
    1,134,288  
International Automotive Component
    960,000  
Nicoat Acquisitions LLC
    2,020,554  
J A C Holding Enterprises, Inc.
    2,536,535  
Omnova Solutions, Inc.
    1,515,000  
Jason Partners Holdings LLC
    48,185         4,669,842  
K & N Parent, Inc.
    3,149,589  
CONSUMER PRODUCTS - 8.80%
       
Ontario Drive & Gear Ltd.
    1,752,637  
Baby Jogger Holdings LLC
    3,116,542  
Qualis Automotive LLC
    1,177,607  
Bravo Sports Holding Corporation
    570,398  
Tomkins, Inc.
    119,305  
Custom Engineered Wheels, Inc.
    2,441,033  
Visteon Corporation
    210,000  
Handi Quilter Holding Company
    1,654,667  
      20,494,345  
K N B Holdings Corporation
    4,607,728  
BEVERAGE, DRUG & FOOD - 5.93%
       
Manhattan Beachwear Holding Company
    2,809,740  
Eatem Holding Company
    3,303,371  
Perry Ellis International, Inc.
    776,250  
F F C Holding Corporation
    3,601,475  
R A J Manufacturing Holdings LLC
    1,597,098  
Golden County Foods Holding, Inc.
    -  
Tranzonic Companies (The)
    2,266,854  
Hospitality Mints Holding Company
    2,829,991  
WP Supply Holding Corporation
    2,950,270  
Michael Foods, Inc.
    83,625         22,790,580  
Snacks Parent Corporation
    3,049,204  
CONTAINERS, PACKAGING & GLASS - 4.32%
 
Spartan Foods Holding Company
    2,211,413  
Berry Plastics Corporation
    501,250  
Specialty Commodities, Inc.
    282,743  
Chase Packaging Corporation
    239  
      15,361,822  
Flutes, Inc.
    367,354  
         
P K C Holding Corporation
    3,617,527  
         
P P T Holdings LLC
    3,259,497  
         
Paradigm Packaging, Inc.
    1,593,750  
         
Vitex Packaging Group, Inc.
    1,838,535  
                11,178,152  
 

34
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(Unaudited)
Babson Capital Corporate Investors
 
   
Fair Value/
     
Fair Value/
 
Industry Classification: (Continued)
 
Market Value
     
Market Value
 
           
DISTRIBUTION - 2.69%
     
DIVERSIFIED/CONGLOMERATE, SERVICE - 10.04%
 
Duncan Systems, Inc.
  $ 1,130,104  
A S C Group, Inc.
  $ 3,278,626  
F C X Holdings Corporation
    4,071,599  
A W X Holdings Corporation
    661,500  
RM Holding Company
    1,762,580  
Advanced Technologies Holdings
    1,341,360  
      6,964,283  
Affinia Group, Inc.
    50,250  
DIVERSIFIED/CONGLOMERATE,
       
Apex Analytix Holding Corporation
    2,182,163  
MANUFACTURING - 16.43%
       
Associated Diversified Services
    1,712,245  
A H C Holding Company, Inc.
    3,006,292  
Church Services Holding Company
    1,843,123  
Arrow Tru-Line Holdings, Inc.
    1,692,295  
Clough, Harbour and Associates
    171,840  
C D N T, Inc.
    1,229,614  
Crane Rental Corporation
    2,254,410  
F G I Equity LLC
    4,335,269  
ELT Holding Company
    3,009,268  
G C Holdings
    3,860,410  
HVAC Holdings, Inc.
    2,983,917  
Harris Corporation
    2,999,897  
Insurance Claims Management, Inc.
    543,085  
HGGC Citadel Plastics Holdings
    3,062,178  
Mail Communications Group, Inc.
    519,142  
Ideal Tridon Holdings, Inc.
    3,136,487  
Nexeo Solutions LLC
    39,600  
K P H I Holdings, Inc.
    3,309,003  
Northwest Mailing Services, Inc.
    3,034,095  
K P I Holdings, Inc.
    2,740,746  
Pearlman Enterprises, Inc.
    -  
LPC Holding Company
    3,807,509  
Safety Infrastructure Solutions
    2,361,387  
MEGTEC Holdings, Inc.
    637,987         25,986,011  
Nortek, Inc.
    9,578  
ELECTRONICS - 1.68%
       
O E C Holding Corporation
    1,431,175  
Barcodes Group, Inc.
    2,717,420  
Postle Aluminum Company LLC
    4,819,522  
Connecticut Electric, Inc.
    1,620,384  
Truck Bodies & Equipment International
    2,452,377         4,337,804  
      42,530,339  
FINANCIAL SERVICES - 4.11%
       
         
Ally Financial, Inc.
    1,701,696  
         
Alta Mesa Financial Services
    1,500,000  
         
Community Choice Financial, Inc.
    492,375  
         
DPC Holdings LLC
    3,734,013  
         
Nielsen Finance LLC
    993,750  
         
Nuveen Investments
    1,425,000  
         
Reynolds Group Escrow, LLC
    781,875  
                10,626,709  
 

35
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
 
September 30, 2012
(Unaudited)
 
   
Fair Value/
     
Fair Value/
 
Industry Classification: (Continued)
 
Market Value
     
Market Value
 
               
HEALTHCARE, EDUCATION &
     
MACHINERY - 6.73%
     
CHILDCARE - 7.98%
     
A S A P Industries LLC
  $ 1,210,338  
Alere, Inc.
  $ 747,250  
ABC Industries, Inc.
    2,230,732  
American Hospice Management Holding LLC
    3,999,976  
Arch Global Precision LLC
    3,386,119  
CHG Alternative Education Holding Company
    2,992,693  
E S P Holdco, Inc.
    2,787,302  
Healthcare Direct Holding Company
    2,292,748  
M V I Holding, Inc.
    255,574  
Marshall Physicians Services LLC
    1,487,723  
Motion Controls Holdings
    3,137,709  
SouthernCare Holdings, Inc.
    3,083,974  
NetShape Technologies, Inc.
    1,804,486  
Strata/WLA Holding Corporation
    3,001,183  
Pacific Consolidated Holdings LLC
    567,445  
Synteract Holdings Corporation
    2,723,427  
Supreme Industries, Inc.
    456,673  
Touchstone Health Partnership
    -  
Thermadyne Holdings Corporation
    798,750  
Wheaton Holding Corporation
    326,645  
Welltec A/S
    780,000  
      20,655,619         17,415,128  
         
MEDICAL DEVICES/BIOTECH - 5.23%
       
HOME & OFFICE FURNISHINGS, HOUSEWARES
 
Chemtura Corporation
    543,750  
& DURABLE CONSUMER PRODUCTS - 3.67%        
Coeur, Inc.
    1,457,486  
Connor Sport Court International, Inc.
    2,401,364  
E X C Acquisition Corporation
    26,449  
H M Holding Company
    171,275  
ETEX Corporation
    -  
Home Décor Holding Company
    627,705  
Evertec, Inc.
    1,425,112  
Monessen Holding Corporation
    -  
HCA Holdings, Inc.
    1,090,000  
Quiksilver, Inc.
    313,425  
Health Management Association
    817,500  
Royal Baths Manufacturing Company
    627,605  
MedSystems Holdings LLC
    1,389,499  
Spectrum Brands, Inc.
    140,938  
MicroGroup, Inc.
    671,403  
Transpac Holding Company
    1,869,489  
NT Holding Company
    3,182,530  
U-Line Corporation
    350,439  
Precision Wire Holding Company
    2,938,431  
U M A Enterprises, Inc.
    1,436,498  
TherOX, Inc.
    -  
Wellborn Forest Holding Company
    1,549,125         13,542,160  
      9,487,863            
LEISURE, AMUSEMENT & ENTERTAINMENT - 0.39%
 
MINING, STEEL, IRON & NON-PRECIOUS METALS - 0.79%
 
Bally Total Fitness Holding Corporation
    -  
FMG Resources
    1,661,250  
MGM Resorts International
    1,000,000  
T H I Acquisition, Inc.
    390,170  
      1,000,000         2,051,420  
 

36
 
 

 
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
Babson Capital Corporate Investors
September 30, 2012
(Unaudited)
 
   
Fair Value/
     
Fair Value/
 
Industry Classification: (Continued)
 
Market Value
     
Market Value
 
               
NATURAL RESOURCES - 0.53%
     
TECHNOLOGY - 1.94%
     
Arch Coal, Inc.
  $ 126,000  
Fidelity National Information
  $ 139,688  
Headwaters, Inc.
    862,750  
First Data Corporation
    1,884,063  
Intrepid Potash, Inc.
    7,840  
Sencore Holding Company
    -  
SandRidge Energy, Inc.
    378,000  
Smart Source Holdings LLC
    2,988,804  
      1,374,590         5,012,555  
OIL & GAS - 6.36%
       
TELECOMMUNICATIONS - 1.28%
       
Bill Barrett Corporation
    1,027,500  
All Current Holding Company
    1,454,892  
Calumet Specialty Products Partners L.P.
    1,883,750  
CCO Holdings Capital Corporation
    817,500  
Chesapeake Energy Corporation
    751,875  
Sprint Nextel Corporation
    1,030,000  
Coffeyville Resources LLC
    57,645         3,302,392  
Energy Transfer Equity LP
    113,500  
TRANSPORTATION - 0.37%
       
Everest Acquisition LLC/Everest Acquisition
       
Huntington Ingalls Industries
    807,187  
Finance, Inc.
    1,090,000  
NABCO, Inc.
    156,250  
Goodrich Petroleum Corporation
    348,300         963,437  
Hilcorp Energy Company
    797,500  
UTILITIES - 2.43%
       
International Offshore Services LLC
    637,500  
Calpine Corporation
    810,000  
MBWS Ultimate Holdco, Inc.
    5,862,525  
Crosstex Energy L.P.
    240,750  
Northern Tier Energy LLC
    665,760  
Energy Future Holdings
    441,000  
Precision Drilling Corporation
    798,750  
Florida Power and Light Company
    3,999,920  
Samson Investment Company
    772,500  
NRG Energy, Inc.
    810,000  
Suburban Propane Partners, L.P.
    179,760         6,301,670  
Unit Corporation
    1,032,500  
WASTE MANAGEMENT/
       
Venoco, Inc.
    435,000  
POLLUTION - 1.31%
       
      16,454,365  
Terra Renewal LLC
    1,059,558  
PHARMACEUTICALS - 0.81%
       
Torrent Group Holdings, Inc.
    2,334,129  
CorePharma LLC
    1,088,093         3,393,687  
Valeant Pharmaceuticals International
    1,000,750            
      2,088,843            
PUBLISHING/PRINTING - 0.52%
        Total Investments - 109.02%   $ 282,161,055  
Newark Group, Inc.
    259,422            
Quebecor Media, Inc.
    1,081,500            
      1,340,922            
RETAIL STORES - 0.15%
                 
Pinnacle Foods Finance LLC
    232,107            
Rue21, Inc.
    20,248            
United Rentals, Inc.
    139,063            
      391,418            
 

37
 
 

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.  
History    
 
Babson Capital Corporate Investors (the “Trust”) commenced operations in 1971 as a Delaware corporation. Pursuant to an Agreement and Plan of Reorganization dated November 14, 1985, approved by shareholders, the Trust was reorganized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts, effective November 28, 1985. Effective December 16, 2011, the Trust’s name was changed to Babson Capital Corporate Investors. Prior to December 16, 2011, the Trust’s name was MassMutual Corporate Investors.

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 maintain a portfolio of securities providing a fixed yield and at the same time offering an opportunity for capital gains. The Trust’s principal investments are privately placed, below-investment grade, long-term debt obligations with equity features such as common stock, warrants, conversion rights, or other equity features and, occasionally, preferred stocks. The Trust typically purchases these investments, which are not publicly tradable, directly from their issuers in private placement transactions. These investments are typically mezzanine debt instruments with accompanying private equity securities made to small or middle market companies. In addition, the Trust may temporarily invest, subject to certain limitations, in marketable investment grade debt securities, other marketable debt securities (including high yield securities) and marketable common stocks. 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.

On January 27, 1998, the Board of Trustees authorized the formation of a wholly-owned subsidiary of the Trust (“CI Subsidiary Trust”) for the purpose of holding certain investments. The results of CI Subsidiary Trust are consolidated in the accompanying financial statements. Footnote 2.D below discusses the Federal tax consequences of the CI Subsidiary Trust.
 
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 determination of fair value under 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 and ensuring that those guidelines are being followed. Babson Capital considers all relevant factors that are reasonably available, through either public information or information directly 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 $226,513,949 (87.52% of net assets) as of September 30, 2012 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 – Corporate Bonds, Preferred Stocks and Common Stocks
The Trust uses external independent third-party pricing services to determine the fair values of its Corporate Public Securities. At September 30, 2012, 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
 
     
2.   Significant Accounting Policies  
 
The following is a summary of significant accounting policies followed consistently by the Trust in the preparation of its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

A.  Fair Value Measurements:
Under U.S. GAAP, fair value represents the price that should be received to sell an asset (exit price) in an orderly transaction between market participants at the measurement date.
 
 

38
 
 

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Babson Capital Corporate Investors
(Unaudited)  
 
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.

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 included 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.

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.

Both the company’s EBITDA and valuation multiple are considered significant unobservable inputs. Significant increases/ (decreases) to the company’s trailing twelve months EBITDA and/or the valuation multiple would result in significant increases/(decreases) 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 September 30, 2012.
 
     
Valuation
Technique
 
Unobservable
Inputs
 
 
Range
  Corporate   Discounted   Discount   5.7% to
  Bonds   Cash Flows   Rate   15.5%
               
  Equity   Market   Valuation   1.9x to
  Securities   Approach   Multiple   10.0x
          Discount for lack   0% to
          of marketability   5%
   
 
Fair Value Hierarchy

The Company 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)

The following is a summary of the inputs used to value the Trust’s net assets as of September 30, 2012:
     

39
 
 

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
 
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:

Assets:
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Restricted Securities
                       
Corporate Bonds
  $ 197,340,345     $ -     $ 16,771,968     $ 180,568,377  
Common Stock - U.S.
    19,444,505       -       -       19,444,505  
Preferred Stock
    12,907,589       -       133,772       12,773,817  
Partnerships and LLCs
    13,727,250       -       -       13,727,250  
Public Securities
                               
Corporate Bonds
    31,246,971       -       31,246,971       -  
Common Stock - U.S.
    494,578       494,578       -       -  
Short-term Securities
    6,999,817       -       6,999,817       -  
Total
  $ 282,161,055     $ 494,578     $ 55,152,528     $ 226,513,949  

See information disaggregated by security type and industry classification in the Consolidated Schedule of Investments.
 
There were no transfers into or out of Level 1 or Level 2 assets.
 
   
Beginning
                            Transfers in    
Ending
 
   
balance
   
Included in
                      and/or    
balance at
 
Assets:
 
at 12/31/2011
   
earnings
   
Purchases
   
Sales
   
Prepayments
    out of Level 3    
09/30/2012
 
Restricted Securities
                                         
Corporate Bonds
  $ 190,217,815     $ 932,779     $ 32,255,741     $ (15,792,274 )   $ (27,045,684 )   $ -     $ 180,568,377  
Common Stock - U.S.
    21,607,181       4,157,899       1,699,995       (8,020,570 )     -       -       19,444,505  
Preferred Stock
    12,275,194       1,181,430       1,582,248       (2,265,055 )     -       -       12,773,817  
Partnerships and LLCs
    13,205,570       675,655       236,233       (390,208 )     -       -       13,727,250  
Public Securities
                                                       
Common Stock
    7       (7 )     -       -       -       -       -  
    $ 237,305,767     $ 6,947,756     $ 35,774,217     $ (26,468,107 )   $ (27,045,684 )   $ -     $ 226,513,949  

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

B.     Accounting for Investments:
 
   
Net Increase in Net
Assets Resulting from
Operations
   
Change in Unrealized Gains & (Losses) in Net Assets from assets still held
 
             
Interest (Amortization)
    1,097,374       -  
                 
Net realized gain on
               
investments before taxes
    7,098,284       -  
                 
Net change in unrealized
               
depreciation of investments
               
before taxes.
    (1,247,902 )     3,707,032  
 
 
 
 
 

40
 
 

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Babson Capital Corporate Investors
(Unaudited)  
 
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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

D.     Federal Income Taxes:

The Trust has elected to be taxed as a “regulated investment company” under the Internal Revenue Code, and intends to maintain this qualification and to distribute substantially all of its net taxable income to its shareholders. In any year when net long-term capital gains are realized by the Trust, management, after evaluating the prevailing economic conditions, will recommend that the 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 CI 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 CI Subsidiary Trust is not taxed as a regulated investment company. Accordingly, prior to the Trust receiving any distributions from the CI Subsidiary Trust, all of the CI Subsidiary Trust’s taxable income and realized gains, including non-qualified income and realized gains, is subject to taxation at prevailing corporate tax rates. As of September 30, 2012, the CI Subsidiary Trust has incurred income tax expense of $8,559.
 
3.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities and their respective tax basis. As of September 30, 2012, the CI Subsidiary Trust has a deferred tax liability of $1,079,246.

Beginning with the 2009 annual financial statements, the Trust recognizes a tax benefit from an uncertain position only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. If this threshold is met, the Trust measures the tax benefit as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Trust has evaluated and determined that the tax positions did not have a material effect on the Trust’s financial position and results of operations for the nine months ended September 30, 2012.

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.

 
Investment Services Contract

A.     Services:

Under an Investment Services Contract (the “Contract”) with the Trust, Babson Capital agrees 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 of 0.3125% of the net asset value of the Trust as of the last business day of each fiscal quarter, which is approximately equal to 1.25% annually. A majority of the Trustees, including a majority of the Trustees who are not interested persons of the Trust or of Babson Capital, approve the valuation of the Trust’s net assets as of such day.
 

41
 
 

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
 
4.    Senior Indebtedness

MassMutual holds the Trust’s $30,000,000 Senior Fixed Rate Convertible Note (the “Note”) issued by the Trust on November 15, 2007. The Note is due November 15, 2017 and accrues interest at 5.28% per annum. MassMutual, at its option, can convert the principal amount of the Note into common shares. The dollar amount of principal would be converted into an equivalent dollar amount of common shares based upon the average price of the common shares for ten business days prior to the notice of conversion. For the nine months ended September 30, 2012, the Trust incurred total interest expense on the Note of $1,188,295.

The Trust may redeem the Note, in whole or in part, at the principal amount proposed to be redeemed together with the accrued and unpaid interest thereon through the redemption date plus a Make Whole Premium. The Make Whole Premium equals the excess of (i) the present value of the scheduled payments of principal and interest which the Trust would have paid but for the proposed redemption, discounted at the rate of interest of U.S. Treasury obligations whose maturity approximates that of the Note plus 0.50% over (ii) the principal of the Note proposed to be redeemed.
 
6. Quarterly Results of Investment Operations
      March 31, 2012
      Amount   Per Share
  Investment income $ 7,478,371    
  Net investment income   6,069,502 $ 0.32
  Net realized and unrealized        
  loss on investments (net of taxes)   (1,257,635)   (0.07)
           
      June 30, 2012
      Amount   Per Share
  Investment income $ 7,311,856    
  Net investment income   5,897,527 $ 0.31
  Net realized and unrealized        
  gain on investments (net of taxes)   2,354,096   0.12
           
      September 30, 2012
      Amount   Per Share
5.    Purchases and Sales of Investments   Investment income $ 7,309,268    
   
For the nine
 
Net investment income
 
5,857,764
$ 0.31
    months ended   Net realized and unrealized        
    09/30/2012       gain on investments (net of taxes)  
7,324,794
 
0.38
   
Cost of
Investments
Acquired
 
Proceeds
from
Sales or
Maturities
           
        Corporate restricted securities $ 44,704,752 $  54,323,488            
        Corporate public securities   11,472,885   7,069,942            
     
The aggregate cost of investments is substantially the same for financial reporting and Federal income tax purposes as of September 30, 2012. The net unrealized depreciation of investments for financial reporting and Federal tax purposes as of September 30, 2012 is $16,305,220 and consists of $28,455,233 appreciation and $44,760,453 depreciation.
 
Net unrealized depreciation of investments on the Statement of Assets and Liabilities reflects the balance net of a deferred tax accrual of $1,079,246 on net unrealized gains on the CI Subsidiary Trust.
   
     
 
 

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  Babson Capital Corporate Investors
 
Members of the Board of
Trustees

Donald Glickman
 
Robert E. Joyal
 
William J. Barrett
 
Michael H. Brown*
 
Donald E. Benson*
 
Clifford M. Noreen
 
Martin T. Hart
 
Maleyne M. Syracuse*
 
Edward P. Grace III
 
Susan B. Sweeney
 
*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
 
Sean Feeley
Vice President
 
Michael P. Hermsen
Vice President
 
Mary Wilson Kibbe
Vice President
 
Richard E. Spencer, II
Vice President
 
Daniel J. Florence
Treasurer
 
John T. Davitt, Jr.
Comptroller
 
Melissa M. LaGrant
Chief Compliance Officer
 
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN

Babson Capital Corporate Investors offers a Dividend Reinvestment and Share Purchase Plan (the “Plan”). The Plan provides a simple way for shareholders to add to their holdings in the Trust through the receipt of dividend shares issued by the Trust or through the investment of cash dividends in Trust shares purchased in the open market. A shareholder may join the Plan by fiilling out and mailing an authorization card to DST Systems, Inc., the Transfer Agent.

Participating shareholders will continue to participate until they notify the Transfer Agent, in writing, of their desire to terminate participation. Unless a shareholder elects to participate in the Plan, he or she will, in effect, have elected to receive dividends and distributions in cash. 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 $10 nor more than $5,000 per quarter. Cash contributions must be received by the Transfer Agent at least five days (but no more than 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 Corporate Investors’ Dividend Reinvestment and Share Purchase Plan, P.O. Box 219086, Kansas City, MO 64121-9086.