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SCHEDULE 14A
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
MASSMUTUAL CORPORATE INVESTORS
-------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
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MASSMUTUAL CORPORATE INVESTORS
Springfield, Massachusetts 01115
[LOGO]
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
AND
PROXY STATEMENT
TIME
Monday, August 8, 2005
at 11:00 a.m.
PLACE
Oak Room
Massachusetts Mutual
Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
--------------------------------------------------------------------------------
Whether or not you expect to attend the Special Meeting in person, please
date, fill in and sign the enclosed proxy card and mail it in the enclosed
return envelope which requires no postage if mailed in the United States or
vote by internet or phone by using the instructions found on the proxy card.
--------------------------------------------------------------------------------
MASSMUTUAL CORPORATE INVESTORS
Springfield, Massachusetts
June 20, 2005
Dear Shareholder:
A Special Meeting of Shareholders of MassMutual Corporate Investors (the
"Trust") will be held in the Oak Room of Massachusetts Mutual Life Insurance
Company, 1295 State Street, Springfield, Massachusetts 01111, at 11:00 a.m.,
Eastern Time, on Monday, August 8, 2005.
At the Special Meeting, shareholders will be asked to approve a new
Investment Services Contract between the Trust and Babson Capital Management LLC
which, among other things, would eliminate the performance fee component of the
Trust's current advisory fee. The Board of Trustees has unanimously recommended
that shareholders approve the new Investment Services Contract.
A Question and Answer ("Q&A"), a Notice, and a Proxy Statement regarding
the meeting, a proxy card for your vote, and a postage prepaid envelope in which
to return your proxy card are enclosed. By promptly returning the enclosed proxy
card or by placing your vote by internet or phone (as instructed on the proxy
card) you can help avoid the expense of follow-up letters and calls to obtain a
quorum of the Trust's outstanding shares at the Special Meeting.
Sincerely,
/s/ Stuart H. Reese
--------------------------
Stuart H. Reese
Chairman
IMPORTANT INFORMATION FOR
MASSMUTUAL CORPORATE INVESTORS SHAREHOLDERS
QUESTIONS & ANSWERS FROM BABSON CAPITAL MANAGEMENT LLC
Please read the complete text of the enclosed Proxy Statement. For your
convenience, we have provided a brief overview of the matter to be voted upon.
Your vote is important. If you have any questions regarding the proposal
or how to vote your proxy, please call toll free 877-256-6082.
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. As a shareholder of the Trust, you are being asked to approve a new
Investment Services Contract (the "New Contract") between MassMutual
Corporate Investors (the "Trust") and its investment adviser, Babson
Capital Management LLC ("Babson Capital"), a wholly-owned, indirect
subsidiary of Massachusetts Mutual Life Insurance Company.
Q. WILL THERE BE ANY CHANGE IN THE MANAGEMENT OF THE TRUST UNDER THE PROPOSED
NEW CONTRACT?
A. No. Babson Capital, which currently serves as the Trust's investment
adviser pursuant to an investment services contract dated July 1, 1988, as
amended (the "Current Contract"), will continue to serve as the Trust's
investment adviser under the New Contract. Your approval of the New
Contract will not change the level, nature, or quality of the services
provided by Babson Capital to the Trust.
Q. WILL THERE BE ANY CHANGE IN THE ADVISORY FEE UNDER THE PROPOSED NEW
CONTRACT?
A. Yes. The New Contract eliminates the Current Contract's performance
adjustment to Babson Capital's advisory fee.
Under the Current Contract, the Trust pays Babson Capital a quarterly base
advisory fee (the "Base Fee") of 5/16 of 1% of the net asset value of the
Trust as of the end of each fiscal quarter (approximately equivalent to
1.25% on an annual basis), plus or minus a performance adjustment (the
"Performance Adjustment") of up to 1/16 of 1% of the Trust's net asset
value (approximately equivalent to plus or minus 0.25% on an annual
basis). Under the New Contract, the Trust will pay Babson Capital a
quarterly investment advisory fee equal to the Current Contract's Base Fee
(approximately equivalent to 1.25% on an annual basis), with no
performance adjustment.
Q. IS THE NEW CONTRACT BEING PROPOSED BECAUSE OF THE TRUST'S RECENT
PERFORMANCE?
A. No. Babson Capital has earned the maximum positive performance adjustment
under the Current Contract for each of the past 17 quarters and the New
Contract eliminates any performance adjustment.
Q. WHY IS THE NEW CONTRACT BEING PROPOSED?
A. In connection with a Securities and Exchange Commission (the "SEC")
nationwide sweep examination of investment companies having performance
fees, the
ii
Trust received a letter stating that the SEC staff interprets Section 205
of the Investment Advisers Act of 1940 in a way that is inconsistent with
the methodology for calculating the performance fee set forth in the
Current Contract.
To immediately address this issue, Babson Capital agreed to waive a
portion of its fee (the "Fee Waiver") for each quarter equal to the
amount, if any, by which (A) the investment advisory fee calculated in the
manner described in the Current Contract exceeds (B) the sum of (i) the
Base Fee plus or minus (ii) the Performance Adjustment applied against the
average quarter-end net assets of the Trust for the twelve-quarter period
ending on such quarter.
Going forward, Babson Capital has proposed the New Contract, which it
believes is fair to the Trust's shareholders and is fair to Babson
Capital.
Q. WILL THE TRUST PAY MORE IN ADVISORY FEES UNDER THE NEW CONTRACT?
A. During the first 18 months of the New Contract, the Trust is guaranteed
not to pay more in investment advisory fees than it is currently obligated
to pay under the Current Contract.
While the fee paid to Babson Capital thereafter could be higher or lower
than under the Current Contract (depending on the Trust's performance),
the 1.25% average annual fee payable under the proposed New Contract is
lower than the average annual performance-adjusted advisory fee that would
have been calculated under the Current Contract with Fee Waiver.
Q. HOW DO THE BOARD OF TRUSTEES OF THE TRUST RECOMMEND THAT I VOTE?
A. The Trust's Board of Trustees unanimously recommends that you vote "FOR"
the proposed New Contract.
Q. WHO IS PAYING THE EXPENSES RELATED TO THE SPECIAL MEETING?
A. Babson Capital has agreed to pay the expenses related to the Special
Meeting.
Q. HOW DO I PLACE MY PROXY VOTE?
A. You can vote in one of four ways:
By Mail: Use the enclosed proxy card to record your vote, then return the
card in the postage-paid envelope provided.
By Telephone: Please see the instructions on the proxy card.
Using the Internet: Please see the instructions on the proxy card.
In Person: By attending the Special Meeting and voting your shares.
Q. WHAT IF I DO NOT RETURN MY PROXY VOTE?
A. Your proxy vote is needed to ensure that a quorum is achieved and that the
proposal can be acted upon. Your immediate response on the enclosed proxy
card, by phone, or by internet will help save on the costs of any meeting
adjournments and further solicitations for a shareholder vote. We
encourage all shareholders to participate in voting on this matter.
VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED.
iii
MASSMUTUAL CORPORATE INVESTORS
Notice of Special Meeting of Shareholders
To the Shareholders of
MassMutual Corporate Investors:
A Special Meeting of Shareholders of MassMutual Corporate Investors (the
"Trust") will be held in the Oak Room of Massachusetts Mutual Life Insurance
Company, 1295 State Street, Springfield, Massachusetts 01111, on Monday, August
8, 2005, at 11:00 a.m., Eastern Time, for the following purposes: (1) to approve
a new Investment Services Contract between the Trust and Babson Capital
Management LLC which, among other things, would eliminate the performance fee
component of the Trust's current advisory fee; and (2) to transact such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
Holders of record of the shares of the Trust at the close of business on
June 10, 2005, are entitled to vote at the meeting or any adjournment thereof.
By order of the Board of
Trustees,
/s/ Stephen L. Kuhn
--------------------------------
Stephen L. Kuhn
Vice President and
Secretary
Springfield, Massachusetts
June 20, 2005
iv
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of MassMutual Corporate Investors (the "Trust")
for use at a Special Meeting of its Shareholders, or any adjournment thereof
(the "Special Meeting"), to be held in the Oak Room of Massachusetts Mutual Life
Insurance Company ("MassMutual"), 1295 State Street, Springfield, Massachusetts
01111, on Monday, August 8, 2005, at 11:00 a.m., Eastern Time.
Any person giving a proxy has power to revoke it by mail, telephone,
internet, or in person at any time prior to its exercise by executing a
superseding proxy or by submitting a notice of revocation to the Trust. All
properly executed and unrevoked proxies received in time for the Special Meeting
will be voted in accordance with the instructions contained therein.
Holders of record of common shares of the Trust ("shares") at the close of
business on June 10, 2005 (the "Record Date") will be entitled to one vote per
share on all business of the meeting and any adjournments thereof. There were
9,028,531 shares outstanding on the Record Date.
To the knowledge of the Trust, there are no owners of 5% or more of the
outstanding shares of the Trust. MassMutual owns a $20,000,000 Senior Fixed
Rate Convertible Note due November 15, 2007 (the "Note") issued by the Trust.
MassMutual, at its option, may convert the principal amount of the Note into
shares. The dollar amount of principal would be converted into an equivalent
dollar amount of shares based upon the average price of the shares for the ten
business days prior to the notice of conversion. As of the Record Date,
MassMutual had not elected to convert the Note and did not own any voting shares
of the Trust.
This Proxy Statement and the accompanying letter to shareholders from the
Chairman of the Board of Trustees, Question and Answer, Notice of Special
Meeting of Shareholders, and proxy card are being mailed on or about June 20,
2005, to shareholders of record as of the Record Date. The Trust's principal
business office is MassMutual Corporate Investors, c/o Babson Capital Management
LLC ("Babson Capital"), 1500 Main Street, Suite 600, Springfield, Massachusetts
01115.
Pursuant to the Trust's By-Laws, the presence at the Special Meeting, in
person or by proxy, of shareholders entitled to cast a majority of the votes
shall be a quorum for the transaction of business. An affirmative "majority
vote" of the Trust's shares is required to approve the proposed new Investment
Services Contract (the "New Contract") with Babson Capital. An affirmative
"majority vote" means either (1) the vote of the holders of at least 67% of the
Trust's shares present in person or by proxy, if more than 50% of the Trust's
outstanding shares are present or represented by proxy, or (2) a vote of the
majority of the outstanding shares of the Trust, whichever is less.
Votes cast by proxy or in person at the Special Meeting will be counted by
persons appointed by the Trust to act as election inspectors for the meeting.
The election inspectors will count the total number of votes cast "for" approval
of the proposed New Contract for purposes of determining whether sufficient
affirmative votes have
1
been cast. The election inspectors will count shares represented by proxies that
withhold authority to vote or that reflect abstentions or "broker non-votes"
(i.e., shares held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or the persons entitled to vote and
(ii) the broker or nominee does not exercise the discretionary voting power on a
particular matter) as shares that are present and entitled to vote on the matter
for purposes of determining the presence of a quorum. As to the approval of the
New Contract, abstentions and broker non-votes have the effect of a negative
vote.
PROPOSALS
(1) APPROVAL OF THE NEW INVESTMENT SERVICES CONTRACT
The only matter to be acted upon at the Special Meeting is the approval of
a new investment services contract with Babson Capital (the "New Contract").
Babson Capital currently acts as investment adviser to the Trust pursuant to an
Assignment and Novation Agreement to an Investment Services Contract, dated July
1, 1988 between MassMutual and the Trust (the "Current Contract"), which was
last submitted to and approved by the shareholders of the Trust at the 2004
Annual Meeting of the Shareholders held on April 30, 2004.
As described more fully below, the principal change in the New Contract is
the elimination of the Current Contract's performance adjustment to Babson
Capital's advisory fee. Under the New Contract, Babson Capital would receive a
quarterly management fee of 5/16 of 1% of net asset value ("NAV"), approximately
equivalent to 1.25% on an annual basis (which equals the Base Fee under the
Current Contract), with no performance adjustment. The New Contract would also
update certain other provisions of the Current Contract.
The Board of Trustees of the Trust (including a majority of the Trustees
who are not "interested persons" of the Trust or Babson Capital) unanimously
approved, and recommend that the shareholders of the Trust approve, the New
Contract. The New Contract, if approved by the shareholders of the Trust, will
replace the Current Contract, effective October 1, 2005 (or the first day of the
first quarter following shareholder approval).
SUMMARY OF THE NEW CONTRACT
A summary of the proposed New Contract and how it differs from the Current
Contract is set forth below. The form of the proposed New Contract is attached
hereto as Appendix A. This summary of the proposed New Contract is qualified in
its entirety by reference to such appendix. Unless otherwise indicated, the
following description applies to both the Current Contract and the New Contract
(together, the "Contracts").
ADVISORY FEE
Under the New Contract, the Trust will pay Babson Capital a quarterly
investment advisory fee equal to 5/16 of 1% (with no performance adjustment) of
the Trust's NAV as of the end of each fiscal quarter (approximately equivalent
to 1.25% on an annual basis) (the "Flat Fee"); provided that for the initial
eighteen-month period only
2
(the "Transition Period") the advisory fee will be the lesser of: (i) the Flat
Fee or (ii) the fee that would have been due under the Current Contract (taking
into account the Fee Waiver described below).
Under the Current Contract, the Trust pays Babson Capital a quarterly base
fee (the "Base Fee") of 5/16 of 1% of the net asset value of the Trust as of the
end of each fiscal quarter (approximately equivalent to 1.25% on an annual
basis), plus or minus a performance adjustment (the "Performance Adjustment") of
up to 1/16 of 1% of the NAV of the Trust (approximately equivalent to plus or
minus 0.25% on an annual basis). The Performance Adjustment is based on the
Trust's performance as compared to a benchmark rate of return (the "Target
Rate") equal to 5.0 percentage points plus an unweighted, arithmetic average of
the rates of return on the Standard & Poor's Industrial Composite (the "S&P
Industrials," formerly named the Standard & Poor's Industrial Price Index) and
the Lehman Brothers Intermediate U.S. Credit Index (the "Intermediate Bond
Index," formerly named "Lehman Brothers Intermediate Corporate Bond Index") over
a rolling three-year period (the "Measurement Period") comprising the twelve
quarters ending on the last day of each quarter (the "Valuation Date"). The
Performance Adjustment is equal to 5% of the difference between the Trust's
actual rate of return over the Measurement Period and the Target Rate. If the
Trust's actual rate of return exceeds the Target Rate, the Base Fee is increased
by an amount equal to the Performance Adjustment; if the Trust's actual rate of
return is less than the Target Rate, the Base Fee is reduced by the Performance
Adjustment. The Performance Adjustment is subject to a maximum and minimum range
of 1/16 of 1% of the NAV of the Trust (approximately equivalent to 0.25% on an
annual basis). The advisory fee payable under the Current Contract is equal to
the Base Fee (as adjusted by the Performance Adjustment) times the NAV of the
Trust as of the Valuation Date.
In connection with a nationwide sweep examination of investment companies
having performance fees conducted by the staff of the Fort Worth, Texas regional
office of the Securities and Exchange Commission (the "SEC"), the Trust recently
received a letter (the "SEC Letter") stating that the SEC staff interprets
Section 205 of the Investment Advisers Act of 1940, as amended (the "Advisers
Act") and the rules promulgated thereunder in a way that is inconsistent with
the methodology for calculating the performance fee set forth in the Current
Contract. Retroactive adjustment to the calculation methodology for the period
since July 1, 1988 (the period during which the Performance Adjustment has been
in effect) using the SEC staff's methodology would result in a reduction in
aggregate investment advisory fees for that period. As a result, Babson Capital
reduced its investment advisory fee for the quarters ended December 31, 2004 and
March 31, 2005 by an aggregate amount of $269,788 ($176,223 for the quarter
ended December 31, 2004 and $93,565 for the quarter ended March 31, 2005), which
represented the excess of the aggregate investment advisory fee calculated total
under the Current Contract for the period from July 1, 1988 through March 31,
2005, over the fee calculated using the methodology identified by the SEC staff,
together with interest. Consistent with the SEC Letter, Babson Capital has also
agreed to waive (the "Fee Waiver") for each quarter the amount, if any, by which
(A) the investment advisory fee calculated in the manner described in the
Current Contract exceeds (B) the sum of (i) the
3
Base Fee plus or minus (ii) the Performance Adjustment applied against the
average quarter-end net assets of the Trust for the twelve-quarter period ending
on such quarter.
ADVISORY FEE COMPARISON
During 2004 and under the Current Contract, Babson Capital would have
received aggregate management fees of $3,103,783 in accordance with the Fee
Waiver (the actual amount was $2,899,395 due to certain adjustments relating to
prior fiscal periods). If the proposed New Contract had been in effect for 2004
Babson Capital would have received $2,635,465 in advisory fees from the Trust.
Based on these numbers, the Trust would have paid $468,318 less in advisory fees
last year had the New Contract been in effect for 2004 or a 15% reduction in the
fees for the year.
The following table compares the Trust's investment advisory fees for the
past fifteen years as calculated under the Current Contract with Fee Waiver had
it been in effect for this period versus the advisory fees that would have been
calculated under
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CURRENT CONTRACT(1) NEW CONTRACT
ANNUAL FEES AS A % OF ANNUAL FEES AS A % OF
AVERAGE QUARTERLY NAV AVERAGE QUARTERLY NAV
YEAR DURING THE YEAR DURING THE YEAR
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2004 1.47% 1.25%
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2003 1.49% 1.25%
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2002 1.50% 1.25%
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2001 1.50% 1.25%
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2000 1.21% 1.25%
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1999 1.00% 1.25%
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1998 1.35% 1.25%
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1997 1.47% 1.25%
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1996 1.47% 1.25%
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1995 1.47% 1.25%
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1994 1.48% 1.25%
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1993 1.36% 1.25%
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1992 1.05% 1.25%
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1991 0.99% 1.25%
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1990 0.98% 1.25%
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AVERAGE 1.32% 1.25%
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1 Calculated using the SEC's methodology and Fee Waiver.
4
the proposed New Contract had it been in effect for this period. The average fee
rate calculated under the Current Contract with the Fee Waiver (1.32%) exceeds
the average fee rate under the proposed New Contract (1.25%).
FEES AND EXPENSES
The following table and example describe the fees and expenses that a
shareholder may pay if the shareholder were to buy and hold shares of the Trust.
The table shows the Trust's annual expenses (based upon the Trust's average net
assets in 2004) under (i) the proposed New Contract, (ii) the Current Contract
(without a performance adjustment), (iii) the Current Contract (with the
greatest downward performance adjustment using the SEC's performance fee
methodology), and (iv) the Current Contract (with the greatest upward
performance adjustment using the SEC's performance fee methodology).
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SHAREHOLDER TRANSACTION EXPENSES CURRENT CONTRACT AND NEW CONTRACT
================================================================================
Dividend Reinvestment Transaction 5% of any dividend and cash contribution, if
Fees (amounts are paid to the any, received on behalf of a participating
Trust's transfer agent directly shareholder, but in no event in excess of
by each registered shareholder) $2.50 per distribution per shareholder
================================================================================
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BASED ON BASED ON
CURRENT CURRENT
ANNUAL EXPENSES BASED ON MANAGEMENT MANAGEMENT
(AS A PERCENTAGE OF CURRENT FEE (WITH FEE (WITH
AVERAGE 2004 NET BASED ON MANAGEMENT GREATEST GREATEST
ASSETS) (EXPENSES NEW CONTRACT FEE (WITHOUT DOWNWARD UPWARD
THAT ARE DEDUCTED MANAGEMENT PERFORMANCE PERFORMANCE PERFORMANCE
FROM TRUST ASSETS) FEE ADJUSTMENT) ADJUSTMENT) ADJUSTMENT)
================================================================================
Management 1.25% 1.25% 1.00% 1.47%
Fees (1) (2) (3) (3)
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Interest Payments 0.76% 0.76% 0.76% 0.76%
on Borrowed Funds
--------------------------------------------------------------------------------
Other Expenses 0.52% 0.52% 0.52% 0.52%
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Total Annual Fund 2.53% 2.53% 2.28% 2.75%
Operating Expenses
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1 Under the New Contract the Trust will pay Babson Capital a quarterly base
rate management fee of 5/16 of 1% of the net asset value of the Trust
(approximately equivalent to 1.25% on an annual basis). Note: During the
first 18 months of the New Contract, the Trust is guaranteed not to pay more
in investment management fees than it is currently obligated to pay under the
Current Contract. See Appendix A. Consequently, the 1.25% management fee is
the highest possible fee payable under the New Contract.
2 Under the Current Contract the Trust pays Babson Capital a quarterly base
rate of 5/16 of 1% of the net asset value of the Trust (approximately
equivalent to 1.25% on an annual basis). The information in this column
assumes Babson Capital has only received its Base Fee without the Performance
Adjustment.
3 Calculation of the performance adjustment is based on the Fee Waiver. Note:
The Trust earned the highest upward performance adjustment in 2004.
5
Example
This Example is intended to help you compare the cost of investing in the
Trust. The table below shows Trust expenses under the proposed New Contract, the
Current Contract (without a performance adjustment), the Current Contract (with
the greatest downward performance adjustment using the SEC staff's performance
fee methodology), and the Current Contract (with the greatest upward performance
adjustment using the SEC staff's performance fee methodology). The Example
assumes that you invest $1,000 in the Trust at net asset value for the time
periods indicated and then sell all your shares on the Trust's net asset value
at the end of those periods. It also assumes a 5% return on the Trust's net
asset value each year, that the Trust's operating expenses remain the same and
that all dividends and distributions are reinvested. The assumptions upon which
the Example is based are likely to vary from any investor's personal
circumstances and should not be considered a representation of future expenses;
your actual expenses may be higher or lower than those shown.
================================================================================
1 YEAR 3 YEARS 5 YEARS 10 YEARS
================================================================================
NEW CONTRACT FEES $26.24 $80.60 $137.57 $292.28
--------------------------------------------------------------------------------
FEES UNDER CURRENT CONTRACT $26.24 $80.60 $137.57 $292.28
(WITHOUT PERFORMANCE ADJUSTMENT)
--------------------------------------------------------------------------------
FEES UNDER CURRENT CONTRACT $23.70 $73.00 $124.91 $267.14
(BASED ON CURRENT MANAGEMENT
FEE WITH GREATEST DOWNWARD
PERFORMANCE ADJUSTMENT)
--------------------------------------------------------------------------------
FEES UNDER CURRENT CONTRACT $28.46 $87.22 $148.55 $313.80
(BASED ON CURRENT MANAGEMENT
FEE WITH GREATEST UPWARD
PERFORMANCE ADJUSTMENT)
================================================================================
BABSON CAPITAL SERVICES AND EXPENSES
Under the Contracts, Babson Capital is required to provide the Trust with
a continuing investment program consistent with its investment objectives. The
Trust's objectives include investments in a wide variety of private placement
securities with equity features. 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.
Under the Contracts, Babson Capital, at its expense, investigates and
conducts relations with the issuers of securities purchased or to be purchased
directly by the Trust and represents the Trust in any negotiations with issuers,
investment banking firms, securities brokers or dealers and other institutions
or investors relating to the Trust's investments. Babson Capital provides
administration of the day-to-day investment operations of the Trust and provides
the Trust with expenses of office rent,
6
telephone, utilities, office furniture, equipment and other office expenses of
the Trust; safekeeping facilities; accounting and bookkeeping services; and
necessary executive, clerical and secretarial personnel for the performance of
the foregoing services.
Under the Contracts, Babson Capital, subject to the supervision of the
Trustees of the Trust, at its expense, furnishes (or makes provision for) the
management and administrative services necessary for the operation of the Trust.
These services include providing facilities for maintaining the Trust's
organization (e.g., conducting Board, Committee and Shareholder meetings),
supervising relations with the Trust's custodian, transfer agent, accountants
and other persons dealing with the Trust, providing assistance for pricing of
the Trust's portfolio securities, coordinating the preparation of shareholder
communications and conducting shareholder relations, maintaining the Trust's
records, and furnishing reports, evaluations and analyses on a variety of
subjects for the Trustees of the Trust. The Current Contract requires that
Babson Capital submit written reports analyzing each portfolio security at least
quarterly. The New Contract provides that such reports will be provided with
such frequency as the Board of Trustees requests. The Board has requested, and
Babson Capital has agreed, to continue to provide such reports on a quarterly
basis.
TRUST EXPENSES
Under the Contracts, the Trust pays the fees and expenses of Trustees who
are not officers or employees of Babson Capital (see below for Chief Compliance
Officer exception). The Trust also pays the fees and expenses of independent
advisers, independent contractors, consultants, managers and other agents which
it employs other than through Babson Capital. In addition, the Trust is
responsible for the payment of legal fees and expenses; the fees and
disbursements of transfer agents, dividend disbursing agents, registrars,
independent accountants, and custodians and depositories of its assets; taxes
and governmental fees; the cost of preparing and mailing share certificates,
dividends, reports, notices and proxy materials to shareholders (except for the
cost of this proxy); brokers' commissions or underwriting fees; and insurance as
may be required by its Board of Trustees. The New Contract does not contain a
provision found in the Current Contract provision relating to Babson Capital's
obligation to reimburse the Trust for amounts by which the Trust's aggregate
annual expenses exceed expense limitations imposed by any State, as States no
longer have the legal authority to impose expense limitations on investment
companies.
EMPLOYEES AND OFFICERS EXPENSES
The Contracts provide that Babson Capital shall pay the compensation and
expenses of all officers of the Trust who are employees or officers of Babson
Capital. The New Contract provides that the Trust is responsible for paying the
compensation of the Trust's Chief Compliance Officer ("CCO"), unless Babson
Capital agrees to do so. Under SEC Rule 38a-1 under the Investment Company Act
of 1940, as amended (the "1940 Act"), the Trust is required to designate a CCO
and approve such person's compensation. The Trust's CCO is currently a Babson
Capital employee who is paid by Babson Capital. Babson Capital has not proposed
any change to this current arrangement. Rather, the revised provision allows the
Trust to pay the CCO if the law is changed
7
to require it to do so or if the Board of Trustees was to determine in the
future that it is more appropriate that all or some of the CCO's compensation be
paid by the Trust.
PROVISIONS RELATING TO SECTION 17(d) ORDER
Under the Contracts, Babson Capital agrees to use its best efforts to
present a continuing and suitable investment program consistent with the Trust's
investment objectives and policies. Under the Current Contract, MassMutual is
obligated to (i) request issuers of securities which MassMutual is prepared to
invest in to also offer such securities to the Trust, (ii) concurrently invest
with the Trust in each private placement in which the Trust invests, and (iii)
share expenses jointly incurred with the Trust in connection with joint
investments in proportion to the relative amount MassMutual and the Trust are
purchasing. These provisions are not included in the New Contract although these
expense obligations are imposed on MassMutual and/or Babson Capital under an
Exemptive Order issued by the SEC under Section 17(d) of the 1940 Act, as
amended on August 8, 2000, which governs the Trust's participation in the
negotiated private placement securities.
WAIVERS AND AMENDMENTS
The New Contract requires that changes or waivers be agreed to by the
parties. The Current Contract is more specific, requiring that amendments or
waivers to the contract be in writing.
TERMINATION AND TERM
The Contracts are both terminable on 60 days' written notice by the
Trust's Board of Trustees, by a "majority vote" of the Trust's shares, or by
Babson Capital. The Contracts will terminate automatically in the event of their
assignment within the meaning of the 1940 Act. The Current Contract provided for
an initial term of 1-year and remains in force from year to year so long as
approved annually in the manner set forth in the Contract. As permitted by the
1940 Act, the New Contract will have an initial term of two years and would
remain in force from year to year thereafter to the extent consistent with the
1940 Act.
LIABILITY
The Contracts provide that Babson Capital shall not be liable to the Trust
or its shareholders, except in the event of Babson Capital's willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
reckless disregard to its obligations and duties under the Contracts.
PRINCIPAL TRANSACTIONS
The Current Contract provides that in connection with the purchase or
sales of portfolio securities for the account of the Trust, neither Babson
Capital nor any of its directors, officers or employees will act as principal
(i.e., act for its own account) or receive any commission. The New Contract
provides more flexibility by eliminating this contractual prohibition against
such types of self-dealing; thereby permitting such types of transactions but
only to the extent consistent with the 1940 Act and the rules and regulations
adopted thereunder by the SEC.
8
USAGE OF "MASSMUTUAL" NAME
The New Contract provides that the Trust's right to use the name
"MassMutual" is subject to Babson Capital's on-going permission to use the name.
The Current Contract provides that the Trust must cease using the "MassMutual"
name if Babson Capital is terminated or resigns as the Trust's investment
adviser.
BASIS FOR TRUSTEES' RECOMMENDATION TO APPROVE THE CONTRACTS
At a meeting of the Board of Trustees of the Trust held on April 22, 2005,
the Board of Trustees (including a majority of the Trustees who are not
"interested persons" of the Trust or Babson Capital) unanimously (1) approved,
and recommend that the shareholders of the Trust approve, the proposed New
Contract, and (2) approved the continuance of the Current Contract until such
time as the New Contract becomes effective following its approval by the Trust's
shareholders.
Prior to the meeting, the Board of Trustees requested and received from
Ropes & Gray LLP ("Ropes & Gray"), counsel to the Trust, a memorandum describing
the Board of Trustees' legal responsibilities in connection with its review and
approval of the Contracts. The Board of Trustees also requested and received
from Babson Capital extensive written and oral information regarding: the
principal terms of the Contracts; the reasons why Babson Capital was proposing
the New Contract; Babson Capital and its personnel; the Trust's investment
performance, including comparative performance information; the nature and
quality of the services provided by Babson Capital to the Trust; the fee
arrangements, including a comparison of the fees payable under the Current and
New Contracts; fee and expense information, including comparative fee and
expense information; profitability of the advisory arrangement to Babson
Capital; and "fall-out" benefits to Babson Capital resulting from the Contracts.
Among other things, the Trustees discussed and considered with management
(i) the aforementioned guidance provided by Ropes & Gray and the information
provided by Babson Capital prior to the meeting and (ii) the reasons Babson
Capital put forth in support of its recommendation that the Trustees approve the
New Contract without the Current Contract's Performance Adjustment. These
reasons are summarized below.
o PERFORMANCE FEES HAVE COME UNDER INCREASED REGULATORY SCRUTINY. Babson
Capital has addressed the issues raised in the SEC Letter temporarily
by means of the Waiver Letter. Switching to the Flat Fee under the
proposed New Contract would represent a more permanent solution.
o THE FEE STRUCTURE OF THE NEW CONTRACT IS FAIR TO TRUST SHAREHOLDERS.
Since 1990, the Trust would have paid Babson Capital and its
predecessor, MassMutual, an average annual advisory fee under the
Current Contract (calculated in accordance with the Fee Waiver) that
was higher than the 1.25% flat fee being proposed under the New
Contract. Moreover, for the first eighteen months of the New Contract,
shareholders of the Trust are guaranteed that they will not pay an
advisory fee greater than what would be due under the Current
Contract.
9
o THE FEE STRUCTURE OF THE NEW CONTRACT IS FAIR TO BABSON CAPITAL. Even
without a performance incentive fee and, potentially, with a lower
overall fee under the New Contract, Babson Capital will be fairly
compensated and incented to provide high quality investment management
services to the Trust since the Trust is required to be offered the
opportunity to co-invest in portfolio securities with MassMutual,
Babson Capital's corporate parent.
o THE FEE STRUCTURE OF THE NEW CONTRACT IS FAIR IN LIGHT OF THE SERVICES
TO BE PROVIDED. There will be no change in the level of services
required to be delivered by Babson Capital under the New Contract.
o CHANGING FROM A PERFORMANCE FEE TO A FIXED FEE RESULTS IN GREATER
CERTAINTY. Since neither Babson Capital nor the Trust has any control
over the make-up or public availability of the two market indices used
as the performance measure under the Current Contract, there is no
certainty that the indices will always be available measures under
Section 205 of the Advisers Act. Switching to the Flat Fee under the
proposed New Contract would eliminate this uncertainty.
In their deliberations, the Trustees considered all factors that they
believed relevant. Although, the Trustees did not identify any particular
information that was all-important or controlling, and individual Trustees
attributed different weight to various factors, the following is a summary of
the material factors and conclusions that formed the basis of the Trustees'
determination to (1) approve, and recommend that the shareholders of the Trust
approve, the proposed New Contract, and (2) approve the continuance of the
Current Contract until such time as the New Contract becomes effective following
its approval by the Trust's shareholders.
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY BABSON CAPITAL
In evaluating the scope and quality of the services provided by Babson
Capital, the Trustees considered, among other factors: (i) the scope of services
required to be provided by Babson Capital under the Contracts; (ii) Babson
Capital's ability to find and negotiate private placement securities having
equity features; (iii) the experience and quality of Babson Capital's staff;
(iv) the financial strength of Babson Capital's financial condition; (v) the
nature of the private placement market compared to public markets (including the
fact that finding, analyzing, negotiating and servicing private placement
securities is more labor-intensive than buying and selling public securities and
the administration of private placement securities is more extensive, expensive,
and requires greater time and expertise than a portfolio of only public
securities); (vi) the Trust's ability to co-invest in negotiated private
placements with MassMutual; and (vii) the expansion of the scope of services
provided by Babson Capital as result of regulatory and legislative initiatives
that have required increased legal, compliance and business attention and
diligence. Based on such considerations, the Board of Trustees concluded that,
overall, they were satisfied with the nature, extent and quality of services
provided, and expected to be provided in the future, under both the renewed
Current Contract and the proposed New Contract.
10
INVESTMENT PERFORMANCE
The Board also examined the Trust's short-term, intermediate-term, and
long-term performance as compared against appropriate benchmark indices
presented at the meeting, which showed that the Trust had outperformed such
indices for the 1, 3, 5, and 10-year periods. In addition, the Trustees
considered comparisons of the Trust's performance with the performance of (i)
selected closed-end investment companies and funds that may invest in private
placement securities and/or bank loans; (ii) selected business development
companies with comparable types of investments; and (iii) investment companies
included in the Lipper closed-end bond universe. It was acknowledged that, while
such comparisons are helpful in judging performance, they are not directly
comparable in terms of types of investments and due to the fact that the
business development companies often reported returns based on market value,
which is affected by factors other than the performance of the underlying
portfolio investments. Based on these considerations and the detailed
performance information provided to the Trustees at the regular Board meetings
each quarter, the Trustees concluded that the Trust's absolute and relative
performance over time have been sufficient to warrant approval of the Contracts.
ADVISORY FEE/COST OF SERVICES PROVIDED AND PROFITABILITY/MANAGER'S "FALL-OUT"
BENEFITS
In connection with the Trustees' consideration of the advisory fee paid by
the Trust to Babson Capital under the Current Contract and the proposed New
Contract, Babson Capital noted that it was unaware of any closed-end investment
companies that are directly comparable to the Trust in terms of the types of
investments and percentages invested in private placement securities (which
require more extensive advisory and administrative services than a portfolio of
publicly traded securities, as previously discussed) other than MassMutual
Participation Investors ("Participation Investors"), which also is advised by
Babson Capital and pays a quarterly advisory fee equal to 0.225% of the fund's
NAV (an amount equivalent to 0.90% on an annual basis). In considering the fee
rate recommended under the New Contract, the Trustees noted: the Trust's
different investment objectives and that the 0.90% annual advisory fee for
Participation Investors has been in effect since 1988, whereas the annual
advisory fee for Tower Square Capital Partners, L.P., a more recent private
mezzanine fund managed by Babson Capital that commenced operations in 2002, is
1.5% of committed capital during the 5 year investment period and 1.25% of net
invested capital thereafter plus an incentive allocation of 20% of net realized
gains after investors have received a cumulative 8% internal rate of return.
With respect to the proposed Flat Fee under the New Contract, the Trustees
also took into consideration the following factors: switching to the Flat Fee
provides a permanent response to the issues raised in the SEC Letter and the
increased regulatory scrutiny surrounding performance fees more generally; the
advisory fee proposed under the New Contract is less than the average annual fee
that had been paid pursuant to the performance fee formula under the Current
Contract; shareholders would be guaranteed not to pay more fees under the New
Contract during the Transition Period than would have been paid under the
Current Contract; there would be no changes in
11
the services being provided by Babson Capital to the Trust under the New
Contract; and Babson Capital had sufficient incentives to continue to provide
the same high level of services under the New Contract even without the
performance fee. With respect to the advisory fee payable under the Current
Contract, the Trustees also considered the appropriateness of the two indices
that comprised the Trust's performance benchmark and the Fee Waiver agreed to by
Babson Capital.
At the request of the Trustees, Babson Capital also provided information
concerning the profitability of Babson Capital's advisory relationship with the
Trust. The Board also considered the non-economic benefits Babson Capital and
its affiliates derived from its relationship with the Trust, including the
reputational benefits derived from having the Trust listed on the New York Stock
Exchange, and the de minimis amount of commissions resulting from the Trust's
portfolio transactions used by Babson Capital for third-party soft dollar
arrangements (less than $1,500). The Trustees recognized that Babson Capital
should be entitled to earn a reasonable level of profits for services provided
to the Trust and, based on their review, concluded that they were satisfied that
Babson Capital's level of profitability from its relationship with the Trust was
not excessive and that the advisory fee structures under the Current Contract
and the New Contract are reasonable.
ECONOMIES OF SCALE
The Trustees considered the concept of economies of scale and possible
advisory fee reductions if the Trust were to grow in assets. Given that the
Trust is not continuously offering shares, such growth seemed unlikely. The
Trustees also examined the scale down features of selected competitive funds and
noted that the minimum starting point for fee reductions in those funds was at
least $200 million whereas the Trust had $218,505,148 in net assets as of
December 31, 2004. The Trustees further noted that the Trust is a relatively
small, closed-end registered investment company that has not grown significantly
in the past and is not likely to grow in the future. The Trustees concluded that
the absence of breakpoints in the fee schedule under the Current Contract and
the proposed New Contract were acceptable given the Trust's size and
circumstances.
ABOUT THE INVESTMENT ADVISER
Babson Capital provides investment management and administrative services
to the Trust pursuant to the Current Contract and would continue to do so under
the proposed New Contract. Babson Capital, a SEC-registered investment adviser
since 1940, currently has over $90 billion in assets under management and
provides investment management services to registered investment companies,
unregistered investment companies, institutional investors (such as insurance
companies, pension plans, endowments and foundations) and high net worth
investors.
Babson Capital is a Delaware limited liability company and MassMutual
Holding LLC is the direct owner of 100% of the voting shares of Babson Capital.
MassMutual owns all of the voting shares of MassMutual Holding LLC. MassMutual
and MassMutual Holding LLC are each located at 1295 State Street, Springfield,
Massachusetts, 01111. Babson Capital has an office at 1500 Main Street in
Springfield,
12
Massachusetts, 01115, and its principal office is located at One Memorial Drive,
Cambridge, Massachusetts 02142. Babson Capital has additional offices in
Charlotte, Chicago, Dallas, Hartford, Newport Beach, New York, and Washington
D.C. and its indirect subsidiary, Babson Capital Europe Limited, is
headquartered in London.
Babson Capital employs approximately 585 individuals, including over 150
investment professionals. Babson Capital's roots trace back to two separate
investment operations: David L. Babson & Company Inc., an equity investment
manager established in 1940, and the Investment Management Division of
MassMutual, founded in 1851. MassMutual acquired David L. Babson & Company Inc.
in 1995 and spun off its Investment Management Division into Babson in 2000.
Effective July 1, 2004, David L. Babson & Company Inc. converted from a
corporation to a single-member limited liability company and changed its name to
Babson Capital Management LLC.
The following chart lists the name, address and principal occupation of
Babson Capital's principal executive officer and members of the Board of
Managers of Babson Capital.
--------------------------------------------------------------------------------
Name Address Principal Occupation
--------------------------------------------------------------------------------
David J. Brennan Baring Asset Member of Board of Managers
Management Inc. and Vice Chairman of Babson
127 High Street, Capital; Chairman of Baring
Suite 2700 Asset Management Inc.
Boston, MA 02110-2723
--------------------------------------------------------------------------------
Roger W. Crandall 1500 Main Street, Member and Chairman of Board
Suite 600 of Managers and Chairman of
Springfield, MA 01115 Babson Capital; Executive Vice
President and Chief Investment
Officer of MassMutual.
--------------------------------------------------------------------------------
William F. Glavin, Jr. One Memorial Drive Member of Board of Managers,
Cambridge, MA 02142 President, Chief Executive
Officer and Chief Compliance
Officer of Babson Capital.
--------------------------------------------------------------------------------
Robert Liguori MassMutual Life Ins. Co. Member of Board of Managers
1295 State Street of Babson Capital; Senior Vice
Springfield, MA 01111 President and Co-General
Counsel of MassMutual.
--------------------------------------------------------------------------------
Kevin M. McClintock One Memorial Drive Member of Board of Managers,
Cambridge, MA 02142 Managing Director and Head
of Equity Management of
Babson Capital.
--------------------------------------------------------------------------------
Michael T. Rollings MassMutual Life Ins. Co. Member of Board of Managers
1295 State Street of Babson Capital; Senior Vice
Springfield, MA 01111 President and Deputy Chief
Financial Officer of MassMutual.
--------------------------------------------------------------------------------
13
In addition to Mr. Crandall, other officers of the Trust who are officers
of Babson Capital are: Stephen L. Kuhn, Clifford M. Noreen, Charles C. McCobb,
John T. Davitt, Jr., James M. Roy, Mary Ellen Wesneski, Mary W. Kibbe, Michael
P. Hermsen, Michael L. Klofas, Richard E. Spencer, II, John E. Deitelbaum, Laura
L. Grant, Paul R. Dias, and Shaun Corish. Each of the individuals referenced in
the immediately preceding sentence and Stuart Reese, due to their employment at
Babson Capital or MassMutual, and Trustee Robert Joyal (as an "interested
person" of the Trust and Babson Capital) may be deemed to have a substantial
interest in the approval of the New Contract.
OTHER FUNDS ADVISED BY BABSON CAPITAL HAVING SIMILAR INVESTMENT OBJECTIVES
Babson Capital advises MassMutual Participation Investors ("Participation
Investors"), a closed-end, diversified management investment company, having a
similar -- but not identical -- investment objective to that of the Trust. The
same individuals who serve on the Trusts' Board of Trustees serve as Trustees of
Participation Investors. Babson Capital's Investment Advisory and Administrative
Services Contract with Participation Investors-- which was entered into in
1988-- provides that Babson Capital is to be paid a quarterly fee equal to
0.225% of the value of the net assets of Participation Investors as of the close
of business on the last business day of each fiscal quarter (approximately
equivalent to .90% on an annual basis). Babson Capital has not waived, reduced,
or otherwise agreed to reduce its compensation under its advisory contract with
Participation Investors.
--------------------------------------------------------------------------------
NET ASSETS AS OF ADVISORY FEE
NAME OF FUND 03/31/05 (ON AN ANNUAL BASIS)
--------------------------------------------------------------------------------
MassMutual approximately
Participation Investors $111.1 million .90% of net assets
--------------------------------------------------------------------------------
In addition to Participation Investors, Babson Capital manages Tower
Square Capital Partners, L.P. ("Tower Square"), a mezzanine investment fund
excepted from the definition of an investment company under the 1940 Act, which
commenced operations in 2002. Babson Capital receives from Tower Square an
investment advisory fee of 1.5% of committed capital during the 5 year
investment period and 1.25% of net invested capital thereafter plus an incentive
fee of 20% of net realized gains after investors have received a cumulative 8%
internal rate of return.
--------------------------------------------------------------------------------
COMMITTED CAPITAL ADVISORY FEE
NAME OF FUND AS OF 03/31/05 (ON AN ANNUAL BASIS)
--------------------------------------------------------------------------------
Tower Square $265.25 million 1.5% of committed capital
Capital Partners, L.P. during the 5 year investment
period and 1.25% of net
invested capital thereafter,
plus an incentive allocation
of 20% of net realized gains
after investors have
received a cumulative
internal rate of return of
8%
--------------------------------------------------------------------------------
14
In addition to acting as investment adviser and administrator to the Trust
and Participation Investors, Babson Capital also serves as investment
sub-adviser to certain other funds that invest in private placement securities.
CERTAIN BROKERAGE MATTERS
Portfolio turnover for the fiscal year ended December 31, 2004 was 53.45%.
Beginning in the fourth quarter of 2004, the Trust has treated Jefferies &
Company, Inc. as an "affiliate of an affiliate" for purposes of the 1940 Act.
During this period the Trust indirectly paid to Jefferies less than $500 in
selling concessions.
SHARE OWNERSHIP OF TRUSTEES AND EXECUTIVE OFFICERS
Set forth below is information concerning beneficial ownership, as of May
31, 2005, of the Trust's shares by each Trustee and Executive Officer of the
Trust and by the Trust's Trustees and Executive Officers as a group.
BENEFICIAL OWNERSHIP OF TRUST SHARES - MAY 31, 2005(1)
================================================================================
NAME OF INDIVIDUAL SHARES BENEFICIALLY PERCENTAGE OF OUT-
OR GROUP OWNED(1) STANDING SHARES OWNED
================================================================================
D. Benson(5) 2,500 (2)
--------------------------------------------------------------------------------
D. Glickman 9,600 0.11%
--------------------------------------------------------------------------------
M. Hart(6) 17,800 0.20%
--------------------------------------------------------------------------------
R. Joyal 3,670 (2)
--------------------------------------------------------------------------------
J. Laughery 4,834 (2)
--------------------------------------------------------------------------------
C. Norgaard 492(3) (2)
--------------------------------------------------------------------------------
S. Reese 17,106(4) 0.19%
--------------------------------------------------------------------------------
All Trustees and Executive
Officers as a Group 57,284 0.62%
================================================================================
-------------------------------
1 This information, not being within the knowledge of the Trust, is based on
information furnished by each Trustee and executive officer as of May 31,
2005 and a review of Forms 4 filed with the SEC since that date. Beneficial
ownership is as defined under Section 13(d) of the Securities Exchange Act of
1934, as amended. Except as otherwise indicated by footnote, the persons
named in the table have sole voting and investment power with respect to all
of the shares beneficially owned by them. Fractional shares are not reported.
2 Less than one-tenth of one percent not listed.
3 Ms. Norgaard has shared voting and investment power with respect to the
shares listed above.
4 Includes 330 shares with respect to which Mr. Reese has shared voting and
investment power.
5 Mr. Benson has a beneficial ownership interest in the Benson Family Limited
Partnership No. 2, which owns 0.863% ($985,512 in value) of MassMutual High
Yield Partners II LLC and 1.80% ($1,056,608 in value) of Corporate Value
Partners Limited, each an investment fund that may be deemed to be controlled
by MassMutual.
6 Mr. Hart owns 0.878% ($1,002,560 in value) of MassMutual High Yield Partners
II LLC and 0.90% ($528,304 in value) of MassMutual Corporate Value Partners
Limited, each an investment fund that may be deemed to be controlled by
MassMutual.
15
(2) OTHER BUSINESS
The Board of Trustees knows of no business to be brought before the
Special Meeting other than as set forth above. If, however, any other matters
properly come before the meeting, it is the intention of the persons named in
the enclosed proxy card to vote proxies on such matters in accordance with their
best judgment.
CERTAIN ADMINISTRATIVE SERVICES
MassMutual provides certain administrative services to the Trust
including, but not limited to, accounting services, meeting facilities, legal
support, report preparation and other services provided to Babson Capital, the
Trust's investment adviser. MassMutual is compensated by the Trust for certain
of these services. The total fees paid by the Trust to MassMutual in 2004 was
$15,154.(1) MassMutual's principal business address is 1295 State Street,
Springfield, MA, 01111.
PROXY SOLICITATION
Proxies will be solicited by mail and may be solicited in person, by
telephone, by email, or other electronic means approved by officers of the
Trust. The expenses connected with the solicitation of these proxies and with
any further proxies which may be solicited by the Trust's officers with regard
to the Special Meeting will be borne by Babson Capital. In addition, the Trust
has retained MIS, an Automated Data Processing, Inc. company, to solicit
proxies, which will involve additional expenses, payable by Babson Capital. The
anticipated reimbursable solicitation costs will be approximately $16,000. MIS
has also been contracted to coordinate the proxy solicitation process, mail the
proxy statements and proxy, and tabulate and provide voting updates. Babson
Capital will reimburse banks, brokers, and other persons holding the Trust's
shares registered in their names or in the names of their nominees, for their
expenses incurred in sending proxy material to and obtaining proxies from the
beneficial owners of such shares. Babson Capital will reimburse the Trust for
any other costs directly related to the Special Meeting and the solicitation of
proxies for the Special Meeting.
PROPOSALS BY SHAREHOLDERS AND COMMUNICATIONS
WITH THE BOARD OF TRUSTEES
Any shareholder intending to present a proposal at the Annual Meeting of
shareholders to be held in 2006 who wishes to have such proposal included in the
Trust's proxy material for that meeting should forward the written proposal to
the Trust, Attention: Secretary. Proposals must be received on or before
November 1, 2005, to be considered for inclusion in the Trust's proxy material
for its 2006 Annual Meeting.
Pursuant to procedures approved by the Trust's Board of Trustees,
including a majority of the Trustees who are not "interested persons of the
Trust" as defined in
-------------------------------
1 Total amount paid to MassMutual does not include interest on the Note issued
by the Trust in 1995. For the year ended December 31, 2004, the Trust
incurred total interest expense on the Note of $1,478,000.
16
Section 2(a)(19) of the 1940 Act, shareholders may mail written communications
to the Board by writing the Trust's Chief Financial Officer at the Office of the
Trust's investment adviser or by emailing the Trust's Chief Financial Officer at
MCIMAILBOX@MASSMUTUAL.COM. When writing to the Trust's Board, shareholders
should identify themselves, the fact that the communication is directed to the
Board, and any relevant information regarding their Trust holdings.
If any shareholders desire additional information about the matters
proposed for action, management will be glad to hear from them and to provide
further information.
17
ANNUAL REPORT
The Annual Report of the Trust for its fiscal year ended December 31,
2004, including financial statements, a schedule of the Trust's investments as
of such date and other data, was mailed on or about March 1, 2005. The financial
statements included in such Annual Report are incorporated herein by reference.
Any shareholder may request a copy of the Annual Report and the most recent
semi-annual report, which will be furnished without charge, by calling
(toll-free) the Trust's transfer agent, Shareholder Financial Services, Inc., at
1-800-647-7374 or by writing to the Trust at MassMutual Corporate Investors c/o
Babson Capital Management LLC, 1500 Main Street, Suite 600, Springfield,
Massachusetts 01115.
By order of the Board of
Trustees,
/s/ Stephen L. Kuhn
----------------------------------
Stephen L. Kuhn
Vice President and
Secretary
1500 Main Street
Springfield, Massachusetts 01115
June 20, 2005
APPENDIX A
MASSMUTUAL CORPORATE INVESTORS
1500 Main Street, Suite 600
Springfield, Massachusetts 01115
October 1, 2005
Babson Capital Management LLC
1500 Main Street
Springfield, Massachusetts 01115
INVESTMENT SERVICES CONTRACT
MassMutual Corporate Investors (the "Trust") has been organized as a
voluntary association (commonly referred to as a business trust) under the laws
of The Commonwealth of Massachusetts to engage in the business of investing in
securities. Its Board of Trustees has selected you to act as the sole investment
adviser of the Trust and to provide certain other services, as more fully set
forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF TRUST DOCUMENTS. The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust as in effect as of the date hereof;
(b) By-Laws of the Trust as in effect on the date hereof; and
(c) Orders and No-Action Letters of the Securities and Exchange Commission
relating to the Trust's relations with you.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
2. INVESTMENT SERVICES. You will use your best efforts to present to the
Trust a continuing and suitable investment program consistent with the
investment objective and policies of the Trust. In the performance of your
duties hereunder, subject always to the provisions contained in the documents
delivered to you pursuant to Section 1 as each of the same may from time to time
be amended or supplemented, you will at your expense:
(a) furnish the Trust with advice and recommendations consistent with the
investment policies of the Trust with respect to the purchase, holding and
disposition of portfolio securities;
(b) advise the Trust in connection with policy decisions to be made by its
Board of Trustees and, as requested, furnish the Trust with research, economic
and statistical data in connection with the Trust's investments and investment
policies;
A-1
(c) provide administration of the day-to-day investment operations of the
Trust;
(d) investigate and conduct relations with the issuers of securities
purchased or to be purchased directly by the Trust;
(e) submit reports analyzing each portfolio security of the Trust with such
frequency as may be requested by the Trust's Board of Trustees;
(f) represent the Trust in any negotiations relating to the Trust's
investments with issuers, investment banking firms, securities brokers or
dealers, and other institutions or investors;
(g) provide accounting and bookkeeping services to the Trust and maintain
and preserve such accounts, books and other documents as may be required by
regulations of the Securities and Exchange Commission, provided that all such
accounts, books, and other documents shall at all times be the property of the
Trust and will be surrendered by you to the Trust on request;
(h) provide office space and office equipment, safekeeping facilities, the
use of accounting equipment when required, and necessary executive, clerical,
and secretarial personnel for the performance of the foregoing services; and
(i) from time to time or at any time requested by the Trust's Board of
Trustees, make reports to the Trust of your performance of the foregoing
services and furnish advice and recommendations with respect to other aspects of
the business affairs of the Trust.
3. EXPENSES OF THE ADVISER. Subject to Section 4, you will pay:
(a) the compensation and expenses of all officers and employees of the
Trust and all Trustees of the Trust who are officers or employees of you;
(b) the expenses of office rent, telephone, utilities, office furniture,
equipment, and other office expenses of the Trust; and
(c) any other expenses incurred by you in connection with the performance
of your duties hereunder.
4. EXPENSES OF THE TRUST. You will not be required to pay any expenses of
the Trust not expressly assumed by you. In particular, and without limiting the
generality of the foregoing, you will not be required to pay:
(a) the expenses, including legal expenses, of the organization of the
Trust and the initial registration and qualification of its Shares of Beneficial
Interest for sale;
(b) the fees and expenses of Trustees who are not officers or employees of
you, and of independent advisers, independent contractors, consultants, chief
compliance officer, managers, and other agents employed by the Trust other than
through you;
(c) legal fees and expenses;
A-2
(d) the fees or disbursements of custodians and depositories of the Trust's
assets, auditors, transfer agents, dividend disbursing agents, and registrars;
(e) taxes or governmental fees;
(f) the cost of preparing and mailing dividends, distributions, reports,
notices, and proxy material to shareholders;
(g) brokers' commissions or underwriting fees; and
(h) insurance as required by the Trust's Board of Trustees.
5. COMPENSATION OF THE ADVISER.
(a) Subject to subsection (b) hereof, for all services to be rendered and
payments to be made by you as provided in Sections 2 and 3 hereof, the Trust
will pay you within 30 days after the last business day of each fiscal quarter
of the Trust an advisory fee (the "Flat Advisory Fee") equal to 5/16 of 1% of
the value of the net assets of the Trust as of the close of trading on the New
York Stock Exchange on such business day in such quarter, provided that if the
first quarter during which this Contract shall be in effect is less than 90
days, such fee for such quarter shall be in an appropriately pro-rated amount.
The value of the net assets of the Trust shall be determined pursuant to the
applicable provisions of the By-Laws of the Trust delivered to you pursuant to
Section 1 hereof and such other procedures and policies as may from time to time
be established by the Trustees.
(b) For the period commencing on the date hereof and continuing until the
sixth quarter end thereafter, the Trust will pay you within 30 days after the
last business day of each fiscal quarter of the Trust the lower of (i) the Flat
Advisory Fee or (ii) the lower of (a) the fee otherwise payable pursuant to
Paragraphs (a) through (d) of Section 6 of the prior investment services contact
between you and the Trust dated July 1, 1988, as amended and novated (the "Old
Contract") or (b) the sum of (i) 5/16% times the ending net asset value ("NAV")
for that quarter plus or minus (ii) the Performance Adjustment (as defined in
the Old Contract) applied against the average quarter-end net assets for the
Trust for the twelve-quarter period ending on such quarter.
6. OTHER ACTIVITIES OF ADVISER. Nothing herein contained shall prevent you
from engaging in other businesses or from acting as adviser to any other person
or entity even though having investment policies similar to the Trust's.
7. NO PARTNERSHIP OR JOINT VENTURE. The Trust and you are not partners or
joint venturers with each other and nothing herein shall be construed so as to
make them such partners or joint venturers or impose any liability as such on
either of them.
8. NAME OF TRUST. The Trust may use the name "MassMutual" or any name
derived from or similar to the name "Massachusetts Mutual" or "Massachusetts
Mutual Life Insurance Company" only with your permission for so long as this
Contract or any extension, renewal or amendment hereof remains in effect. At
such
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time as such an agreement shall no longer be in effect or upon your request, the
Trust will (to the extent that it lawfully can) cease to use such a name or any
other name indicating that it is advised by or otherwise connected with
Massachusetts Mutual Life Insurance Company.
9. LIMITATION OF LIABILITY OF ADVISER. You shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Contract relates, except a loss
resulting from willful misfeasance, bad faith, or gross negligence on your part
in the performance of your duties or from reckless disregard by you of your
obligations and duties under this Contract. Any person, even though also
employed by you, who may be or become an employee of and paid by the Trust shall
be deemed, when acting within the scope of his employment by the Trust, to be
acting in such employment solely for the Trust and not as your employee or
agent. Any of your officers or employees rendering services to the Trust or to
its officers or employees, or acting in any business of the Trust pursuant to
the undertakings contained in this Contract, shall be deemed to render such
service solely to the Trust and in no respect to act under your control or
direction although paid by you.
10. DURATION AND TERMINATION OF THIS CONTRACT. This Contract shall remain
in force for two years from the date hereof,(1) and from year to year thereafter
to the extent consistent with the Investment Company Act of 1940. This Contract
may, on 60 days' written notice, be terminated at any time without the payment
of any penalty, by the Board of Trustees of the Trust, by vote of a majority of
the outstanding voting securities of the Trust, or by you. This Contract shall
automatically terminate in the event of its assignment by the Trust or by you.
In interpreting the provisions of this Section 10, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (particularly the definitions
of "assignment" and "voting security") shall be applied.
11. AMENDMENT OF THIS CONTRACT. This Contract may be changed or waived by
the agreement of the parties.
12. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Contract may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13. DECLARATION OF TRUST. This Contract is executed on behalf of the Trust
under a Declaration of Trust, dated September 13, 1985, as amended, on file with
the Secretary of The Commonwealth of Massachusetts. The obligations of this
Contract are not
_______________
1 This Contract is expected to take effect on the first day of the first fiscal
quarter following the date of shareholder approval.
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binding upon any of the Trustees, shareholders, officers, employees, or agents
of the Trust individually but are binding only upon the assets and property of
the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
MASSMUTUAL CORPORATE INVESTORS
By
-----------------------------------
President
The foregoing Contract is hereby accepted as of the date thereof.
BABSON CAPITAL MANAGEMENT LLC
By
-----------------------------------
Chief Executive Officer
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_______________________________________________________________
| |
| THREE EASY WAYS TO VOTE YOUR PROXY |
| READ THE PROXY STATEMENT AND |
MASSMUTUAL CORPORATE INVESTORS | HAVE THE PROXY CARD AT HAND. |
C/O BABSON CAPITAL MANAGEMENT LLC | TELEPHONE: Call 1-800-690-6903 and follow the simple |
1500 MAIN STREET | instructions. |
SUITE 600 | INTERNET: Go to WWW.PROXYVOTE.COM and follow the on-line |
SPRINGFIELD, MA 01115 | directions. |
| MAIL: Vote, sign, date and return your proxy by mail. |
| |
| IF YOU VOTE BY TELEPHONE OR INTERNET, DO NOT MAIL YOUR PROXY. |
|_______________________________________________________________|
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: MASSM1 KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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MASSMUTUAL CORPORATE INVESTORS
Vote On Proposal
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL. FOR AGAINST ABSTAIN
(1) Approval of a new Investment Services Contract between the Trust and Babson [ ] [ ] [ ]
Capital Management LLC providing for, among other things, an elimination of
the performance fee component of the Trust's current advisory fee; and
(2) In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Special Meeting.
For address changes, please check this box and
write them on the back where indicated. [ ]
YES NO Please sign exactly as your name or names
Please indicate if you plan to attend this meeting. [ ] [ ] appear. When signing as joint tenant, all
parties to the joint tenancy should sign.
When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title as such.
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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MASSMUTUAL CORPORATE INVESTORS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Stephen L. Kuhn and James M. Roy, and each of
them, attorneys and proxies of the undersigned, with power of substitution to
vote all shares of MassMutual Corporate Investors (the "Trust") which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Trust to be held in the Oak Room of Massachusetts Mutual Life Insurance Company,
1295 State Street, Springfield, Massachusetts 01111, on Monday, August 8, 2005,
at 11:00 a.m. Eastern Time, and at any adjournments thereof (the "Special
Meeting").
THIS PROXY WILL BE VOTED ON ITEM (1) IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN
ON THIS CARD, AND IN THE ABSENCE OF INSTRUCTIONS THE UNDERSIGNED HEREBY
AUTHORIZES THE AFORESAID PROXY OR PROXIES TO VOTE FOR ITEM (1).
Adress Changes:_________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(If you noted any address changes above, please mark corresponding box on
other side.)
PLEASE SIGN AND DATE ON THE REVERSE SIDE