UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

 

Investment Company Act file number   811-5531

 

 

 

 

 

Barings Participation Investors

 

 

(Exact name of registrant as specified in charter)

 

 

 

 

 

 

1500 Main Street, P.O. Box 15189, Springfield, MA 01115-5189

 

 

(Address of principal executive offices) (Zip code)

 

 

 

 

 

 

Janice M. Bishop, Vice President, Secretary and Chief Legal Officer

Independence Wharf, 470 Atlantic Ave., Boston, MA 02210

 

 

(Name and address of agent for service)

 



 


 

Registrant's telephone number, including area code: 413-226-1000

 

Date of fiscal year end: 12/31

 

Date of reporting period: 12/31/18

 

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles.

 

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 110 F Street NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507.

 


 

ITEM 1. REPORT TO STOCKHOLDERS.

 

Attached hereto is the annual shareholder report transmitted to shareholders pursuant to Rule 30e-1 of the Investment Company Act of 1940, as amended.

 

 

 

 

 

 


 
 
 
 
 
 
 
 
 
 

 
 
 
 
   
 
 
 
 
 
2018  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
Barings     
PARTICIPATION INVESTORS     
2018 Annual Report     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund's annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund's website http://www.barings.com/MPV, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
 
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank).
 
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account.
 
 
 


BARINGS PARTICIPATION INVESTORS
Barings Participation Investors (the "Trust") is a closed-end management investment company, first offered to the public in 1988, whose shares are traded on the New York Stock Exchange under the trading symbol "MPV". The Trust's share price can be found in the financial section of newspapers under either the New York Stock Exchange listings or Closed-End Fund listings.
 
INVESTMENT OBJECTIVE & POLICY
The Trust's investment objective is to maintain a portfolio of securities providing a current yield and, when available, an opportunity for capital gains. The Trust's principal investments are privately placed, below-investment grade, long-term debt obligations including bank loans and mezzanine debt instruments. Such direct placement securities may, in some cases, be accompanied by equity features such as common stock, preferred stock, warrants, conversion rights, or other equity features. The Trust typically purchases these investments, which are not publicly tradable, directly from their issuers in private placement transactions. These investments are typically made to small or middle market companies. In addition, the Trust may invest, subject to certain limitations, in marketable debt securities (including high yield and/or investment grade securities) and marketable common stock. 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.
 
The Trust distributes substantially all of its net income to shareholders each year. Accordingly, the Trust pays dividends to shareholders four times a year in January, May, August, and November. All registered shareholders are automatically enrolled in the Dividend Reinvestment and Cash Purchase Plan unless cash distributions are requested.
 
In this report, you will find a complete listing of the Trust's holdings. We encourage you to read this section carefully for a better understanding of the Trust. We cordially invite all shareholders to attend the Trust's Annual Meeting of Shareholders, which will be held on April 24, 2019 at 1:00 P.M. in Charlotte, North Carolina.
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 Barings LLC ("Barings"). A description of Barings' proxy voting policies and procedures is available (1) without charge, upon request, by calling, toll-free 1-866-399-1516; (2) on the Trust's website at http://www.barings.com/mpv and (3) on the U.S. Securities and Exchange Commission's ("SEC") 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, 2018 is available (1) on the Trust's website at http://www.barings.com/mpv and (2) on the SEC's website at http://www.sec.gov.
 
FORM N-Q
The Trust files its complete schedule of portfolio holdings with the 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 on the Trust's website at http://www.barings.com/mpv or upon request by calling, toll-free, 1-866-399-1516.
 
LEGAL MATTERS
The Trust has entered into contractual arrangements with an investment adviser, transfer agent and custodian (collectively "service providers") who each provide services to the Trust. Shareholders are not parties to, or intended beneficiaries of, these contractual arrangements, and these contractual arrangements are not intended to create and shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the Trust.
 
Under the Trust's Bylaws, any claims asserted against or on behalf of the Trust, including claims against Trustees and officers must be brought in courts located within the Commonwealth of Massachusetts.
 
The Trust's registration statement and this shareholder report are not contracts between the Trust and its shareholders and do not give rise to any contractual rights or obligations or any shareholder rights other than any rights conferred explicitly by federal or state securities laws that may not be waived.
 
 


BARINGS PARTICIPATION INVESTORS
c / o Barings LLC
1500 Main Street
P.O. Box 15189
Springfield, Massachusetts 01115-5189
(413) 226-1516
http://www.barings.com/mpv
 
ADVISER
Barings LLC
300 South Tryon St., Suite 2500
Charlotte, NC 28202
 
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
Boston, Massachusetts 02111
COUNSEL TO THE TRUST
Ropes & Gray LLP
Boston, Massachusetts 02110
 
CUSTODIAN
State Street Bank and Trust Company
Boston, MA 02110
 
TRANSFER AGENT & REGISTRAR
DST Systems, Inc.
P.O. Box 219086
Kansas City, MO 64121-9086
1-800-647-7374
 
 
          
   
 


 
2018 Annual Report


 
 
PORTFOLIO COMPOSITION AS OF 12/31/18*
 
PORTFOLIO COMPOSITION AS OF 12/31/17*
 
 
*
Based on market value of total investments
 

1
 
Barings Participation Investors

TOTAL ANNUAL PORTFOLIO RETURN (AS OF 12/31 EACH YEAR)*
 
*
Data for Barings Participation Investors (the "Trust") represents returns based on the change in the Trust's net asset value assuming the reinvestment of all dividends and distributions. These returns differ from the total investment return based on market value of the Trust's shares due to the difference between the Trust's net asset value of its shares outstanding (See page 12 for total investment return based on market value). Past performance is no guarantee of future results.
**
The Credit Suisse Leveraged Loan Index was added for 2018 to represent the Trust's portfolio composition which now includes a material amount of floating rate securities.

2
 
2018 Annual Report

TO OUR SHAREHOLDERS
I am pleased to share with you the Trust's Annual Report for the year ended December 31, 2018.
PORTFOLIO PERFORMANCE
The Trust's net total portfolio rate of return for 2018 was 2.53%, as measured by the change in net asset value assuming the reinvestment of all dividends and distributions. The Trust's total net assets were $138,749,101 or $13.18 per share, as of December 31, 2018. This compares to $145,480,065 or $13.91 per share, as of December 31, 2017. The Trust paid a quarterly dividend of $0.27 per share for each of the four quarters of 2018, for a total annual dividend of $1.08 per share. In 2017, the Trust also paid four quarterly dividends of $0.27 per share, for a total annual dividend of $1.08 per share. Net taxable investment income for 2018 was $1.04 per share, including approximately $0.04 per share of non-recurring income, compared to 2017 net taxable investment income of $1.04 per share, which included approximately $0.09 per share of non-recurring income.
The Trust's stock price increased 6.7% during 2018, from $14.10 as of December 31, 2017 to $15.05 as of December 31, 2018. The Trust's stock price of $15.05 as of December 31, 2018 equates to a 14.2% premium over the December 31, 2018 net asset value per share of $13.18. The Trust's average quarter-end premium for the 3-, 5-, and 10-year periods ended December 31, 2018 was 6.0%, 2.5% and 7.5%, respectively.
The table below lists the average annual net returns of the Trust's portfolio, based on the change in net assets and assuming the reinvestment of all dividends and distributions at net asset value. Average annual returns of the Bloomberg Barclays U.S. Corporate High Yield Index and the Russell 2000 Index for the 1-, 3-, 5-, 10- and 25-year periods and the Credit Suisse Leveraged Loan Index for the 1-year period ended December 31, 2018 are provided for comparison purposes only.
 
 
The Trust
Bloomberg Barclays U.S.
Corporate High Yield Index
Russell
2000 Index
Credit Suisse
Leveraged
Loan Index
 
       
1 Year
2.53%
-2.08%
-11.01%
1.14%
 
       
3 Years
8.42%
7.23%
7.36%
 
 
       
5 Years
8.99%
3.83%
4.41%
 
 
       
10 Years
10.82%
11.12%
11.97%
 
 
       
25 Years
11.91%
6.95%
8.28%
 
Past performance is no guarantee of future results.
PORTFOLIO ACTIVITY
The Trust had a very active fourth quarter, closing on 15 new private placement investments and three add-on investments in existing portfolio companies representing $23,961,648 of invested capital. For the year, the Trust closed 32 new private placement investments, and 14 add-on investments in existing portfolio companies. A brief description of these investments can be found in the Consolidated Schedule of Investments. The total amount invested by the Trust in private placement investments in 2018 was $52,534,366 which was significantly higher than the $23,786,056 of new private placement investments made by the Trust in 2017, and the highest annual dollar volume since inception.
 

3

 
Barings Participation Investors

 
Throughout 2018, the Trust's level of new investment activity benefited from several factors: the expansion of the Trust's target investment criteria; expansion of Barings' (the Trust's investment advisor) private debt platform; and overall activity within the private debt market. These favorable items were partially offset by the continuance of hyper-competitive and aggressive market conditions. While overall middle market sponsored private debt investment activity increased slightly (3%) in 2018, volume in the second half of the year was 26% lower than that of the first half of the year (source: Thomson Reuters Middle Market Weekly 2018 Sponsored Review, January 11, 2019). Competition for new investment opportunities remained intense due to the amount of fresh capital that continues to flow into the private debt and private equity markets. As a result, companies continued to be pursued aggressively by both buyers and lenders, causing high purchase price multiples and leverage levels to continue to be prevalent in the market. In 2018, average purchase price multiples for middle market companies remained relatively unchanged, but at a level of approximately 10.5 times EBITDA plus-or-minus depending on the amount of a company's EBITDA (S&P Global LCD M&A Stats, December 31, 2018). While average purchase price multiples remained relatively flat, average debt multiples increased modestly in 2018 to 6.2x total leverage and [6.0x] senior leverage, the highest levels for each since 2003 (Thomson Reuters Middle Market Weekly 2018 Sponsored Review, January 11, 2019).
 
In addition to working on new investment activity, we continue to maintain our focus on managing and maintaining the quality of the portfolio. As such, the credit quality of the Trust's existing portfolio remained stable throughout the year. We believe the number of companies on our watch list or in default continues to remain at an acceptable level.
 
We had 22 companies exit from the Trust's portfolio during 2018. This level of exit activity remains relatively high for the Trust's portfolio from an overall historical perspective, but is comparable to realization levels since 2014, which have ranged from 18-32 exits annually. In 19 of these exits, the Trust realized a positive return on its investment. In our view, the relatively high realization activity in recent years is yet another indicator of how active and aggressive the middle market M&A and debt markets have been, and continue to be.
 
During 2018, the Trust had eight portfolio companies fully or partially pre-pay their debt obligations, with two of these transactions resulting in dividend payments to the Trust as a result of its equity holdings in those companies. These prepayment transactions are generally driven by performing companies seeking to take advantage of lower interest rates and the abundant availability of debt capital. Unless replaced by new private debt investments, these prepayments reduce net investment income. The level of refinancing activity the portfolio has experienced has remained relatively stable since 2016.
OUTLOOK FOR 2019
As we enter 2019, we believe debt markets continue to look promising. Default rates remain at relatively low levels, there is plenty of both private equity and private debt capacity, which should continue to drive middle market M&A activity, and our pipeline of investment opportunities remains relatively stable and healthy. However, as mentioned above, the dynamics within that market have been, and are expected to remain aggressive. Regardless of market conditions, we will continue to employ on behalf of the Trust the same investment philosophy that has served it well since its inception: investing in companies which we believe have a strong business proposition, solid cash flow and experienced, ethical management. We believe this philosophy, along with Barings' seasoned investment-management team, positions the Trust well to meet its long-term investment objectives.
 
The Trust was able to maintain its $0.27 per share quarterly dividend in 2018 for a total annual dividend of $1.08 per share. As has been mentioned in prior reports, recurring
 
 

4
 
2018 Annual Report

investment income alone has generally not been sufficient to fully fund the current dividend rate and has been supplemented by non-recurring income. While recurring investment income continues to improve, it may not be sufficient to fully fund the current dividend rate in the future. Net investment income has generally been below the dividend rate since 2013 due principally to the considerable reduction in the number of higher yielding private debt securities resulting from prepayments and realizations in the portfolio, combined with generally lower investment returns available due to market and competitive dynamics in recent years and currently. As evidenced by the record level of investment activity the Trust experienced in 2018, we continued to make good progress in growing recurring investment income in 2018. Furthermore, the percentage of the portfolio in floating rate debt securities increased considerably in 2018 to 40% compared to 11% a year ago. All of the above said, we expect that the level of recurring investment income generated by the Trust in 2019 combined with the availability of earnings carry forwards and other non-recurring income will allow us to maintain the current dividend rate over the next several quarters. Over time, however, the Trust's dividend paying ability tends to be correlated with its recurring earnings capacity.
 
As always, I would like to thank you for your continued interest in and support of Barings Participation Investors. I look forward to seeing you at the Trust's annual shareholder meeting in Charlotte, NC, on April 24, 2019.
 
Robert M. Shettle
President
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

5
 
Barings Participation Investors

 
 
2018
Dividends
Record
Date
Total
Paid
Ordinary
Income
Short-Term
Gains
Long-Term
Gains
Regular
    5/7/2018
0.2700
0.2700
      —
      —
Regular
    8/6/2018
0.2700
0.2700
      —
      —
Regular
10/29/2018
0.2700
0.2700
      —
      —
Regular
12/31/2018
0.2700
0.2700
      —
      —
   
1.0800
1.0800
0.0000
0.0000
 
The following table summarizes the tax effects of the retention of capital gains for 2018:
 
 
Amount Per Share
Form 2439
2018 Gains Retained
0.1611
Line 1a
Long-Term Gains Retained
0.1611
 
Taxes Paid
0.0338
Line 2*
Basis Adjustment
0.1273
        **
 
*
If you are not subject to federal capital gains tax (e.g. charitable organizations, IRAs and Keogh Plans) you may be able to claim a refund by filing Form 990-T.
**
For federal income tax purposes, you may increase the adjusted cost basis of your shares by this amount (the excess of Line 1a over Line 2).
 
 
 
 
Annual
Dividend
Qualified for Dividend
Received Deduction***
Qualified Dividends****
Interest Earned on
U.S. Gov't. Obligations
Amount Per
Share
Percent
Amount Per
Share
Percent
Amount Per
Share
Percent
Amount Per
Share
$1.08
0.4901%
0.0053
0.4901%
0.0053
0%
0.0000
 
***
Not available to individual shareholders
****
Qualified dividends are reported in Box 1b on IRS Form 1099-Div for 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

6
 
 
 
 
BARINGS PARTICIPATION INVESTORS
 
Financial Report
 
 
 
   
     
Consolidated Statement of Assets and Liabilities
8
 
     
Consolidated Statement of Operations
9
 
     
Consolidated Statement of Cash Flows
10
 
     
Consolidated Statements of Changes in Net Assets
11
 
     
Consolidated Selected Financial Highlights
12
 
     
Consolidated Schedule of Investments
13-40
 
     
Notes to Consolidated Financial Statements
41-48
 
     
Report of Independent Registered Public Accounting Firm
49
 
     
Interested Trustees
50-51
 
     
Independent Trustees
52-53
 
     
Officers of the Trust
54
 
 
 
 
 
 
 
 
 
 
 
Barings Participation Investors

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
December 31, 2018
 
 
Assets:
     
Investments
     
(See Consolidated Schedule of Investments)
     
Corporate restricted securities at fair value
     
(Cost - $124,529,101)
 
$
119,792,375
 
Corporate restricted securities at market value
       
(Cost - $10,693,379)
   
9,805,696
 
Corporate public securities at market value
       
(Cost - $12,246,890)
   
11,582,369
 
         
Total investments (Cost - $147,469,370)
   
141,180,440
 
         
         
Cash
   
16,436,971
 
Interest receivable
   
1,184,648
 
Other assets
   
2,243
 
         
Total assets
   
158,804,302
 
 
       
         
Liabilities:
       
Note payable
   
15,000,000
 
Dividend payable
   
2,842,263
 
Payable for investments purchased
   
938,470
 
Tax payable
   
847,206
 
Investment advisory fee payable
   
312,185
 
Interest payable
   
27,267
 
Accrued expenses
   
87,810
 
         
Total liabilities
   
20,055,201
 
 
       
         
Commitments and Contingencies (See Note 8)
       
         
Total net assets
 
$
138,749,101
 
 
       
         
Net Assets:
       
Common shares, par value $.01 per share
 
$
105,269
 
Additional paid-in capital
   
141,458,031
 
Total distributable earnings (loss)
   
(2,814,199
)
         
Total net assets
 
$
138,749,101
 
 
       
         
Common shares issued and outstanding (14,787,750 authorized)
   
10,526,899
 
         
Net asset value per share
 
$
13.18
 
 
       
 
See Notes to Consolidated Financial Statements
8
 
2018 Annual Report

CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2018
 
 
Investment Income:
     
Interest
 
$
13,200,378
 
Dividends
   
365,130
 
Other
   
103,482
 
         
Total investment income
   
13,668,990
 
 
       
         
Expenses:
       
Investment advisory fees
   
1,292,637
 
Interest
   
613,500
 
Professional fees
   
312,259
 
Trustees' fees and expenses
   
240,000
 
Reports to shareholders
   
129,000
 
Custodian fees
   
14,000
 
Other
   
270,355
 
         
Total expenses
   
2,871,751
 
 
       
         
Investment income - net
   
10,797,239
 
         
Net realized and unrealized loss on investments:
       
Net realized gain on investments before taxes
   
3,803,683
 
Income tax expense
   
(1,129,002
)
         
Net realized gain on investments after taxes
   
2,674,681
 
         
Net increase (decrease) in unrealized appreciation (depreciation) of investments before taxes
   
(10,602,075
)
Net (increase) decrease in deferred income tax expense
   
769,713
 
         
Net increase (decrease) in unrealized appreciation (depreciation) of investments after taxes
   
(9,832,362
)
         
Net loss on investments
   
(7,157,681
)
         
Net increase in net assets resulting from operations
 
$
3,639,558
 
 
       
 
See Notes to Consolidated Financial Statements
9
 
Barings Participation Investors

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 2018
 
 
Net increase in cash:
     
       
Cash flows from operating activities:
     
Purchases/Proceeds/Maturities from short-term portfolio securities, net
 
$
6,101,007
 
Purchases of portfolio securities
   
(69,469,670
)
Proceeds from disposition of portfolio securities
   
77,682,385
 
Interest, dividends and other income received
   
11,749,601
 
Interest expense paid
   
(613,500
)
Operating expenses paid
   
(2,338,921
)
Income taxes paid
   
(2,095,145
)
 
       
Net cash provided by operating activities
   
21,015,757
 
 
       
         
Cash flows from financing activities:
       
Cash dividends paid from net investment income
   
(11,323,475
)
Receipts for shares issued on reinvestment of dividends
   
971,512
 
         
Net cash used for financing activities
   
(10,351,963
)
 
       
Net increase in cash
   
10,663,794
 
         
Cash - beginning of year
   
5,773,177
 
         
Cash - end of year
 
$
16,436,971
 
 
       
         
Reconciliation of net increase in net assets to net
cash provided by operating activities:
       
         
Net increase in net assets resulting from operations
 
$
3,639,558
 
         
Decrease in investments
   
18,120,181
 
Decrease in interest receivable
   
110,303
 
Decrease in other assets
   
23,771
 
Increase in payable for investments purchased
   
938,470
 
Decrease in tax payable
   
(966,143
)
Decrease in investment advisory fee payable
   
(15,145
)
Decrease in accrued expenses
   
(65,525
)
Decrease in deferred tax liability
   
(769,713
)
         
Total adjustments to net assets from operations
   
17,376,199
 
         
Net cash provided by operating activities
 
$
21,015,757
 
 
       
 
See Notes to Consolidated Financial Statements
10
 
2018 Annual Report

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 2018 and 2017
 
 
 
 
2018
   
2017
 
Increase in net assets:
           
             
Operations:
           
Investment income - net
 
$
10,797,239
   
$
11,340,081
 
Net realized gain on investments after taxes
   
2,674,681
     
2,280,108
 
Net change in unrealized (depreciation) appreciation of investments after taxes
   
(9,832,362
)
   
5,517,329
 
                 
Net increase in net assets resulting from operations
   
3,639,558
     
19,137,518
 
                 
Increase from common shares issued on reinvestment of dividends
               
Common shares issued (2018 - 68,737; 2017 - 71,989)
   
971,512
     
1,001,726
 
                 
Dividends to shareholders from:
               
Distributable earnings to Common Stock Shareholders (2018 - $1.08 per share; 2017 - $1.08 per share)
   
(11,342,034
)
   
(11,265,910
)
                 
Total (decrease) / increase in net assets
   
(6,730,964
)
   
8,873,334
 
                 
Net assets, beginning of year
   
145,480,065
     
136,606,731
 
                 
Net assets, end of year (1)
 
$
138,749,101
   
$
145,480,065
 
 
               
 
(1)
Includes undistributed net investment income of $730,313 in 2017. The requirement to disclose the corresponding amount as of December 31, 2018 was eliminated.
 
See Notes to Consolidated Financial Statements
11
 
Barings Participation Investors

CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding:
 
 
 
 
For the years ended December 31,
 
 
 
2018
   
2017
   
2016
   
2015
   
2014
 
Net asset value:
                             
Beginning of year
 
$
13.91
   
$
13.15
   
$
13.10
   
$
13.35
   
$
12.83
 
                                         
Net investment income (a)
   
1.03
     
1.09
     
1.00
     
0.95
     
1.04
 
Net realized and unrealized gain (loss) on
investments
   
(0.68
)
   
0.75
     
0.13
     
(0.12
)
   
0.57
 
                                         
Total from investment operations
   
0.35
     
1.84
     
1.13
     
0.83
     
1.61
 
                                         
Dividends from net investment income to
common shareholders
   
(1.08
)
   
(1.08
)
   
(1.08
)
   
(1.08
)
   
(0.96
)
Dividends from realized gain on
investments to common shareholders
   
     
     
     
     
(0.12
)
Increase from dividends reinvested
   
(0.00
)(b)
   
(0.00
)(b)
   
(0.00
)(b)
   
(0.00
)(b)
   
(0.01
)
                                         
Total dividends
   
(1.08
)
   
(1.08
)
   
(1.08
)
   
(1.08
)
   
(1.09
)
                                         
Net asset value: End of year
 
$
13.18
   
$
13.91
   
$
13.15
   
$
13.10
   
$
13.35
 
                                         
Per share market value: End of year
 
$
15.05
   
$
14.10
   
$
14.20
   
$
13.75
   
$
13.23
 
                                         
Total investment return
                                       
Net asset value (c)
   
2.53%
 
   
14.29%
 
   
8.75%
 
   
6.23%
 
   
13.61%
 
Market value (c)
   
15.02%
 
   
7.21%
 
   
11.45%
 
   
12.66%
 
   
12.54%
 
                                         
Net assets (in millions): End of year
 
$
138.75
   
$
145.48
   
$
136.61
   
$
135.35
   
$
137.57
 
Ratio of total expenses to average net assets (d)
   
2.76%
 
   
3.23%
 
   
2.26%
 
   
2.17%
 
   
2.84%
 
Ratio of operating expenses to average net assets
   
1.56%
 
   
1.49%
 
   
1.35%
 
   
1.49%
 
   
1.49%
 
Ratio of interest expense to average net assets
   
0.42%
 
   
0.43%
 
   
0.44%
 
   
0.44%
 
   
0.45%
 
Ratio of income tax expense to average net assets
   
0.78%
 
   
1.31%
 
   
0.47%
 
   
0.24%
 
   
0.90%
 
Ratio of net investment income to average net assets
   
7.47%
 
   
7.92%
 
   
7.45%
 
   
6.95%
 
   
7.82%
 
Portfolio turnover
   
48%
 
   
24%
 
   
31%
 
   
30%
 
   
32%
 
 
(a)
Calculated using average shares.
(b)
Rounds to less than $0.01 per share.
(c)
Net asset value return represents portfolio returns based on change in the Trust's net asset value assuming the reinvestment of all dividends and distributions which differs from the total investment return based on the Trust's market value due to the difference between the Trust's net asset value and the market value of its shares outstanding; past performance is no guarantee of future results.
(d)
Total expenses include income tax expense.
 
Senior borrowings:
                             
                               
Total principal amount (in millions)
 
$
15
   
$
15
   
$
15
   
$
15
   
$
15
 
                                         
Asset coverage per $1,000 of
indebtedness
 
$
10,250
   
$
10,699
   
$
10,107
   
$
10,023
   
$
10,171
 
 
 
 
See Notes to Consolidated Financial Statements
12
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2018
 
 
Corporate Restricted Securities - 93.40%: (A)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
   
Private Placement Investments - 86.33%: (C)
 
   
1A Smart Start, Inc.
 
A designer, distributor and lessor of ignition interlock devices ("IIDs"). IIDs are sophisticated breathalyzers wired to a vehicles ignition system.
 
10.77% Second Lien Term Loan due
12/22/2022 (LIBOR + 8.250%)
 
$
1,725,000
   
12/21/17
   
$
1,698,097
   
$
1,671,471
 
 
                             
   
ABC Industries, Inc.
 
A manufacturer of mine and tunneling ventilation products in the U.S.
 
13% Senior Subordinated Note due
07/31/2019
 
$
109,335
   
08/01/12
     
107,863
     
108,981
 
Preferred Stock Series A (B)
 
125,000 shs.
   
08/01/12
     
125,000
     
239,998
 
Warrant, exercisable until 2022, to purchase
common stock at $.02 per share (B)
 
22,414 shs.
   
08/01/12
     
42,446
     
40,248
 
 
                 
275,309
     
389,227
 
 
                             
Accelerate Learning
 
A provider of standards-based, digital science education content of K-12 schools.
 
6.97% Term Loan due 12/31/2024
(LIBOR + 4.500%)
 
$
1,089,110
   
12/19/18
     
1,067,446
     
1,060,653
 
 
                             
                               
Advanced Manufacturing Enterprises LLC
                             
A designer and manufacturer of large, custom gearing products for a number of critical customer applications.
 
Limited Liability Company Unit (B)
 
1,945 uts.
     
*
     
207,911
     
49,410
 
* 12/07/12, 07/11/13 and 06/30/15.
                               
   
   
AFC - Dell Holding Corporation
 
A distributor and provider of inventory management services for "C-Parts" used by OEMs in their manufacturing and production facilities.
 
12.5% (1% PIK) Senior Subordinated Note
due 02/28/2022
 
$
1,543,832
     
*
     
1,528,525
     
1,516,274
 
Preferred Stock (B)
 
1,174 shs.
      **
 
   
117,405
     
132,375
 
Common Stock (B)
 
363 shs.
      **
 
   
363
     
 
* 03/27/15 and 11/16/18.
                   
1,646,293
     
1,648,649
 
** 03/27/15 and 11/15/18.
                               
 
 
 
See Notes to Consolidated Financial Statements
13
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
   
AM Conservation Holding Corp.
 
A supplier of energy efficiency ("EE") products, including lighting, shower heads and aerators, and weatherization products such as door seals and weather stripping.
 
11.5% (1.5% PIK) Senior Subordinated
Note due 04/30/2023
 
$
1,568,182
     
10/31/16
   
$
1,548,972
   
$
1,561,850
 
11.5% (1.25% PIK) Senior
Subordinated Note due 04/30/2023
 
$
206,039
     
10/06/17
     
202,621
     
204,792
 
Common Stock (B)
 
156,818 shs.
     
10/31/16
     
156,818
     
193,923
 
 
           
 
     
1,908,411
     
1,960,565
 
 
           
 
                 
AMS Holding LLC
 
A leading multi-channel direct marketer of high-value collectible coins and proprietary-branded jewelry and watches.
 
Limited Liability Company Unit Class A
Preferred (B)(F)
 
114 uts.
     
10/04/12
     
113,636
     
221,379
 
   
   
API Technologies Corp.
 
A designer, developer and manufacturer of electronic systems, subsystems, modules and secure communications for technically demanding defense, aerospace and commercial applications in the U.S. and internationally.
 
Limited Liability Company Unit
 
0.40% int.
     
04/20/16
     
240,741
     
458,850
 
 
           
 
                 
   
ASC Holdings, Inc.
 
A manufacturer of capital equipment used by corrugated box manufacturers.
 
13% (1% PIK) Senior Subordinated
Note due 05/18/2021
 
$
763,789
     
11/19/15
     
756,053
     
700,809
 
Limited Liability Company Unit (B)
 
111,100 uts.
     
11/18/15
     
111,100
     
9,332
 
 
           
 
     
867,153
     
710,141
 
   
Audio Precision
 
A provider of high-end audio test and measurement sensing instrumentation software and accessories.
 
7.8% Term Loan due 7/27/2024
(LIBOR + 5.000%)
 
$
1,800,000
     
10/30/18
     
1,765,065
     
1,741,763
 
 
           
 
                 
 
See Notes to Consolidated Financial Statements
14
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                         
Aurora Parts & Accessories LLC
                       
A distributor of aftermarket over-the-road semi-trailer parts and accessories sold to customers across North America.
 
14% Junior Subordinated Note due
08/17/2022
 
$
10,856
   
08/30/18
   
$
10,856
   
$
10,657
 
11% Senior Subordinated Note due
02/17/2022
 
$
1,515,400
   
08/17/15
     
1,498,848
     
1,455,745
 
Preferred Stock (B)
 
210 shs.
   
08/17/15
     
209,390
     
110,304
 
Common Stock (B)
 
210 shs.
   
08/17/15
     
210
     
 
 
                 
1,719,304
     
1,576,706
 
 
                             
Avantech Testing Services LLC
 
A manufacturer of custom Non-Destructive Testing ("NDT") systems and provider of NDT and inspections services primarily to the oil country tubular goods market.
 
15% (3.75% PIK) Senior Subordinated
Note due 03/31/2021 (D)
 
$
6,777
   
07/31/14
     
6,650
     
 
Limited Liability Company Unit (B)(F)
 
45,504 uts.
     
*
     
     
 
Limited Liability Company Unit Class C
Preferred (B)(F)
 
78,358 uts.
   
09/29/17
     
484,578
     
 
* 07/31/14 and 10/14/15.
                   
491,228
     
 
 
                               
   
BBB Industries LLC
 
A supplier of re-manufactured parts to the North American automotive aftermarket.
 
10.88% Second Lien Term Loan due
06/26/2026 (LIBOR + 8.500%)
 
$
1,725,000
   
08/02/18
     
1,675,874
     
1,653,036
 
 
                               
   
BCC Software, Inc.
 
A provider of software and data solutions which enhance mail processing to help direct mail marketers realize discounts from the U.S. Postal Service, avoid penalties associated with mailing errors, and improve the accuracy and efficiency of marketing campaigns.
 
12% (1% PIK) Senior Subordinated
Note due 04/11/2023
 
$
1,510,174
   
10/11/17
     
1,485,416
     
1,460,714
 
Preferred Stock Series A (B)
 
23 shs.
   
10/11/17
     
232,373
     
232,400
 
Common Stock Class A (B)
 
735 shs.
   
10/11/17
     
735
     
22,846
 
 
                   
1,718,524
     
1,715,960
 
 
                               
BDP International, Inc.
         
A provider of transportation and related services to the chemical and life sciences industries.
 
8.11% Term Loan due 12/14/2024
(LIBOR + 5.250%)
 
$
2,465,000
   
12/18/18
     
2,415,993
     
2,415,916
 
 
                               
 
 
See Notes to Consolidated Financial Statements
15
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
   
BEI Precision Systems & Space Company, Inc.
 
A provider of advanced design, manufacturing, and testing for custom optical encoder-based positioning systems, precision accelerometers, and micro scanners.
 
12% (1% PIK) Senior Subordinated
Note due 04/28/2024
 
$
1,473,398
     
04/28/17
   
$
1,449,288
   
$
1,397,590
 
Limited Liability Company Unit (B)(F)
 
2,760 uts.
     
04/28/17
     
276,000
     
186,914
 
 
           
 
     
1,725,288
     
1,584,504
 
 
           
 
                 
Blue Wave Products, Inc.
 
A distributor of pool supplies.
 
13% (1% PIK) Senior Subordinated
Note due 09/30/2019
 
$
252,892
     
10/12/12
     
249,921
     
252,892
 
Common Stock (B)
 
51,064 shs.
     
10/12/12
     
51,064
     
145,303
 
Warrant, exercisable until 2022, to purchase
common stock at $.01 per share (B)
 
20,216 shs.
     
10/12/12
     
20,216
     
57,525
 
 
           
 
     
321,201
     
455,720
 
 
           
 
                 
BlueSpire Holding, Inc.
 
A marketing services firm that integrates strategy, technology, and content to deliver customized marketing solutions for clients in the senior living, financial services and healthcare end markets.
 
Common Stock (B)
 
29,560 shs.
     
06/30/15
     
937,438
     
 
 
           
 
                 
   
Brown Machine LLC
 
A designer and manufacturer of thermoforming equipment used in the production of plastic packaging containers within the food and beverage industry.
 
7.77% Term Loan due 10/4/2024
(LIBOR + 5.250%)
 
$
717,276
     
10/03/18
     
708,674
     
699,521
 
 
           
 
                 
   
Cadence, Inc.
 
A full-service contract manufacturer ("CMO") and supplier of advanced products, technologies, and services to medical device, life science, and industrial companies.
 
7.02% Lien Term Loan due
04/30/2025 (LIBOR + 4.500%)
 
$
809,793
     
05/14/18
     
795,023
     
780,997
 
 
           
 
                 
   
Cadent, LLC
 
A provider of advertising solutions driven by data and technology.
 
9.75% Term Loan due 09/07/2023
(LIBOR + 5.500%)
 
$
1,026,038
     
09/04/18
     
1,016,377
     
1,020,908
 
 
           
 
                 
 
See Notes to Consolidated Financial Statements
16
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
   
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% (1.5% PIK) Senior Subordinated
Note due 06/19/2020
 
$
803,928
     
01/19/11
   
$
800,189
   
$
794,598
 
14% (2% PIK) Senior Subordinated
Note due 06/19/2020
 
$
213,473
     
08/03/12
     
212,593
     
209,307
 
Common Stock (B)
 
375 shs.
     
01/19/11
     
37,500
     
23,508
 
Warrant, exercisable until 2021, to purchase
common stock at $.01 per share (B)
 
295 shs.
     
01/19/11
     
29,250
     
18,478
 
 
           
 
     
1,079,532
     
1,045,891
 
 
           
 
                 
Clarion Brands Holding Corp.
 
A portfolio of six over-the-counter (OTC) pharmaceutical brands whose products are used to treat tinnitus or ringing of the ear, excessive sweating, urinary tract infections, muscle pain, and skin conditions.
 
Limited Liability Company Unit (B)
 
1,853 uts.
     
07/18/16
     
189,267
     
298,771
 
 
           
 
                 
                                 
Claritas Holdings, Inc.
           
 
                 
A market research company that provides market segmentation insights to customers engaged in direct-to-consumer and business-to-business marketing activities.
 
8.48% Term Loan due 12/31/2023
(LIBOR + 6.000%)
 
$
1,657,645
     
12/20/18
     
1,616,454
     
1,610,950
 
 
           
 
                 
                                 
Clubessential LLC
           
 
                 
A leading SaaS platform for private clubs and resorts.
 
11.89% Senior Subordinated Note due
01/12/24 (LIBOR +9.500%)
 
$
1,787,305
     
01/16/18
     
1,756,555
     
1,781,313
 
 
           
 
                 
                                 
CORA Health Services, Inc.
           
 
                 
A provider of outpatient rehabilitation therapy services.
 
11% (1% PIK) Term Loan due
05/05/2025
 
$
2,090,080
     
05/01/18
     
1,466,710
     
1,434,759
 
Preferred Stock Series A (B)
 
758 shs.
     
06/30/16
     
38,258
     
94,031
 
Common Stock Class A (B)
 
3,791 shs.
     
06/30/16
     
3,791
     
65,015
 
 
           
 
     
1,508,759
     
1,593,805
 
 
           
 
                 
 
 
 
See Notes to Consolidated Financial Statements
17
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                         
Del Real LLC
                       
A manufacturer and distributor of fully-prepared fresh refrigerated Hispanic entrees as well as side dishes that are typically sold on a heat-and-serve basis at retail grocers.
 
11% Senior Subordinated Note due
04/06/2023
 
$
1,420,588
   
10/07/16
   
$
1,399,719
   
$
1,317,618
 
Limited Liability Company Unit (B)(F)
 
336,487 uts.
     
*
     
343,121
     
201,892
 
* 10/07/16 and 07/25/18.
                   
1,742,840
     
1,519,510
 
 
                               
   
Discovery Education, Inc.
 
A provider of standards-based, digital education content for K-12 schools.
 
7.55% Term Loan due 04/30/2024
(LIBOR + 4.750%)
 
$
1,921,590
   
04/20/18
     
1,887,471
     
1,853,011
 
 
                               
                                 
DPL Holding Corporation
                               
A distributor and manufacturer of aftermarket undercarriage parts for medium and heavy duty trucks and trailers.
 
Preferred Stock (B)
 
25 shs.
   
05/04/12
     
252,434
     
268,499
 
Common Stock (B)
 
25 shs.
   
05/04/12
     
28,048
     
 
 
                   
280,482
     
268,499
 
 
                               
DuBois Chemicals, Inc.
                               
A provider of consumable, value-added specialty cleaning chemical solutions to the industrial, transportation paper and water markets.
 
10.52% Second Lien Term Loan due
08/31/2025 (LIBOR + 8.000%)
 
$
1,725,000
   
09/19/18
     
1,708,395
     
1,690,500
 
 
                               
                                 
Dunn Paper
                               
A provider of specialty paper for niche product applications.
 
11.27% Second Lien Term Loan due
08/26/2023 (LIBOR + 8.750%)
 
$
1,725,000
   
09/28/16
     
1,701,633
     
1,733,625
 
 
                               
 
See Notes to Consolidated Financial Statements
18
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
   
ECG Consulting Group
 
A healthcare management consulting company who provides strategic, financial, operational, and technology related consulting services to healthcare providers.
 
11.5% (0.5% PIK) Senior Subordinated
Note due 06/20/2025
 
$
759,667
     
06/20/18
   
$
745,369
   
$
747,433
 
11.5% (0.5% PIK) Senior Subordinated
Note due 06/20/2025
 
$
1,330,242
     
11/21/14
     
1,316,512
     
1,308,819
 
Limited Liability Company Unit (F)
 
230 uts.
     
11/19/14
     
36,199
     
85,002
 
 
           
 
     
2,098,080
     
2,141,254
 
 
           
 
                 
Electronic Power Systems
           
 
                 
A provider of electrical testing services for apparatus equipment and protection & controls infrastructure.
 
7.48% Term Loan due 12/21/2024
(LIBOR + 5.000%)
 
$
1,765,951
     
12/21/18
     
1,739,510
     
1,739,279
 
Common Stock (B)
 
52 shs.
     
12/28/18
     
52,176
     
52,180
 
 
           
 
     
1,791,686
     
1,791,459
 
 
           
 
                 
Elite Sportwear Holding, LLC
 
A designer and manufacturer of gymnastics, competitive cheerleading and swimwear apparel in the U.S. and internationally.
 
11.5% (1% PIK) Senior Subordinated
Note due 01/14/2022 (D)
 
$
1,588,640
     
10/14/16
     
1,568,694
     
1,509,208
 
Limited Liability Company Unit (B)(F)
 
101 uts.
     
10/14/16
     
159,722
     
43,414
 
 
           
 
     
1,728,416
     
1,552,622
 
 
           
 
                 
English Color & Supply LLC
           
 
                 
A distributor of aftermarket automotive paint and related products to collision repair shops, auto dealerships and fleet customers through a network of stores in the Southern U.S.
 
11.5% (0.5% PIK) Senior Subordinated
Note due 12/31/2023
 
$
1,337,291
     
06/30/17
     
1,315,893
     
1,290,527
 
Limited Liability Company Unit (B)(F)
 
397,695 uts.
     
06/30/17
     
397,695
     
297,477
 
 
           
 
     
1,713,588
     
1,588,004
 
 
           
 
                 
E.S.P. Associates, P.A.
 
A professional services firm providing engineering, surveying and planning services to infrastructure projects.
 
12% (1% PIK) Senior Subordinated
Note due 10/04/2023
 
$
691,952
     
04/04/18
     
679,573
     
693,941
 
Limited Liability Company Unit (B)
 
229 uts.
     
04/04/18
     
228,955
     
256,294
 
 
           
 
     
908,528
     
950,235
 
 
           
 
                 
 
 
See Notes to Consolidated Financial Statements
19
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
   
F F C Holding Corporation
 
A leading U.S. manufacturer of private label frozen novelty and ice cream products.
 
Limited Liability Company Unit Series A
Preferred (B)
 
171 uts.
     
09/27/10
   
$
58,345
   
$
46,577
 
Limited Liability Company Unit Series B
Preferred (B)
 
34 uts.
     
12/27/18
     
34,050
     
119,175
 
Limited Liability Company Unit Common (B)
 
171 uts.
     
09/27/10
     
17,073
     
 
 
         
 
     
109,468
     
165,752
 
 
         
 
                 
F G I Equity LLC
 
A manufacturer of a broad range of filters and related products that are used in commercial, light industrial, healthcare, gas turbine, nuclear, laboratory, clean room, hotel, educational system, and food processing settings.
 
Limited Liability Company Unit Preferred (B)
 
80,559 uts.
     
04/15/14
     
     
80,559
 
Limited Liability Company Unit Class B-1 (B)
 
65,789 uts.
     
12/15/10
     
65,789
     
436,644
 
Limited Liability Company Unit Class B-2 (B)
 
8,248 uts.
     
12/15/10
     
8,248
     
54,742
 
Limited Liability Company Unit Class B-3 (B)
 
6,522 uts.
     
08/30/12
     
15,000
     
44,981
 
Limited Liability Company Unit Class C (B)
 
1,575 uts.
     
12/20/10
     
16,009
     
70,213
 
 
         
 
     
105,046
     
687,139
 
 
         
 
                 
GD Dental Services LLC
 
A provider of convenient "onestop" general, specialty, and cosmetic dental services with 21 offices located throughout South and Central Florida.
 
Limited Liability Company Unit Preferred (B)
 
76 uts.
     
10/05/12
     
75,920
     
 
Limited Liability Company Unit Common (B)
 
767 uts.
     
10/05/12
     
767
     
 
 
         
 
     
76,687
     
 
 
         
 
                 
GlobalTranz
 
A provider of freight brokerage, utilizing a proprietary technology platform that provides multimodal transportation and logistics solutions by connecting shippers with carriers.
 
10.52% Second Lien Term Loan due
10/16/2026 (LIBOR + 8.000%)
 
$
1,725,000
     
10/15/18
     
1,699,729
     
1,678,760
 
 
           
 
                 
   
gloProfessional Holdings, Inc.
 
A marketer and distributor of premium mineral-based cosmetics, cosmeceuticals and professional hair care products to the professional spa and physician's office channels.
 
14% (2% PIK) Senior Subordinated Note
due 03/27/2019 (D)
 
$
1,232,251
     
03/27/13
     
1,230,664
     
1,109,026
 
Common Stock (B)
 
1,181 shs.
     
03/27/13
     
118,110
     
6,920
 
 
           
 
     
1,348,774
     
1,115,946
 
 
           
 
                 
 
 
See Notes to Consolidated Financial Statements
20
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                         
Glynlyon Holding Companies, Inc.
                       
A technology-enabled curriculum provider of K-12 and support services predominantly to small and medium public school districts.
 
Common Stock
 
147 shs.
   
01/15/16
   
$
103,205
   
$
243,134
 
 
                           
                             
GraphPad Software, Inc.
                           
A provider of data analysis, statistics and graphing software solution for scientific research applications, with a focus on the life sciences and academic end-markets.
 
8.81% Term Loan due 12/21/2022
(LIBOR + 6.000%)
 
$
2,440,350
   
12/19/17
     
2,399,942
     
2,363,892
 
 
                             
   
GTI Holding Company
 
A designer, developer, and marketer of precision specialty hand tools and handheld test instruments.
 
12% Senior Subordinated Note due
05/22/2023
 
$
727,865
   
02/05/14
     
707,582
     
722,486
 
Common Stock (B)
 
1,046 shs.
     
*
     
104,636
     
119,038
 
Warrant, exercisable until 2027, to purchase
common stock at $.01 per share (B)
 
397 shs
   
02/05/14
     
36,816
     
45,180
 
* 02/05/14 and 11/22/17.
                   
849,034
     
886,704
 
 
                               
   
Handi Quilter Holding Company (Premier Needle Arts)
 
A designer and manufacturer of long-arm quilting machines and related components for the consumer quilting market.
 
Limited Liability Company Unit
Preferred (B)
 
372 uts.
     
*
     
371,644
     
481,157
 
Limited Liability Company Unit
Common Class A (B)
 
3,594 uts.
   
12/19/14
     
     
30,375
 
* 12/19/14 and 04/29/16.
                   
371,644
     
511,532
 
 
                               
   
Happy Floors Acquisition, Inc.
 
A wholesale importer and value-added distributor of premium European flooring tile to residential and commercial end markets.
 
11.5% (1% PIK) Senior Subordinated
Note due 01/01/2023
 
$
996,381
   
07/01/16
     
983,653
     
1,004,479
 
Common Stock (B)
 
150 shs.
   
07/01/16
     
149,500
     
176,618
 
 
                   
1,133,153
     
1,181,097
 
 
                               
 
See Notes to Consolidated Financial Statements
21
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
   
Hartland Controls Holding Corporation
 
A manufacturer and distributor of electronic and electromechanical components.
 
14% (2% PIK) Senior Subordinated
Note due 08/14/2020
 
$
1,151,416
   
02/14/14
   
$
1,145,052
   
$
1,151,416
 
12% Senior Subordinated Note due
08/14/2020
 
$
431,250
   
06/22/15
     
429,781
     
428,442
 
Common Stock (B)
 
821 shs.
   
02/14/14
     
822
     
257,990
 
 
                 
1,575,655
     
1,837,848
 
 
                             
Healthline Media, Inc.
 
A consumer health platform that offers a variety of health-based articles and information for consumers.
 
7.61% Term Loan due 11/20/2023
(LIBOR + 4.750%)
 
$
1,653,907
   
11/20/18
     
1,621,463
     
1,601,518
 
 
                             
   
HHI Group, LLC
 
A developer, marketer, and distributor of hobby-grade radio control products.
 
14% (2% PIK) Senior Subordinated
Note due 11/26/2020
 
$
1,684,156
   
01/17/14
     
1,675,163
     
1,684,156
 
Limited Liability Company Unit (B)(F)
 
102 uts.
   
01/17/14
     
101,563
     
35,657
 
 
                 
1,776,726
     
1,719,813
 
 
                             
Hollandia Produce LLC
 
A hydroponic greenhouse producer of branded root vegetables.
 
11% (3.25% PIK) Senior Subordinated
Note due 03/31/2021
 
$
1,446,427
     
*
     
1,433,689
     
1,388,883
 
10.35% Term Loan due 12/12/2020
(LIBOR + 8.000%)
 
$
109,916
   
04/06/18
     
109,916
     
108,801
 
10.35% Term Loan due 12/11/2020
(LIBOR + 8.000%)
 
$
146,780
   
04/06/18
     
146,780
     
145,292
 
* 12/30/15 and 12/23/16.
                   
1,690,385
     
1,642,976
 
 
                               
   
Holley Performance Products
 
A provider of automotive aftermarket performance products.
 
7.51% Term Loan due 10/17/2024
(LIBOR + 5.000%)
 
$
2,465,000
   
10/24/18
     
2,428,839
     
2,403,375
 
 
                               
 
See Notes to Consolidated Financial Statements
22
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
   
HOP Entertainment LLC
 
A provider of post production equipment and services to producers of television shows and motion pictures.
 
Limited Liability Company Unit Class F (B)(F)
 
47 uts.
     
10/14/11
   
$
   
$
 
Limited Liability Company Unit Class G (B)(F)
 
114 uts.
     
10/14/11
     
     
 
Limited Liability Company Unit Class H (B)(F)
 
47 uts.
     
10/14/11
     
     
 
Limited Liability Company Unit Class I (B)(F)
 
47 uts.
     
10/14/11
     
     
 
 
         
 
     
     
 
 
         
 
                 
Impact Confections
 
An independent manufacturer and marketer of confectionery products including Warheads® brand sour candies, Melster® brand classic candies, and co-manufactured/private label classic candies.
 
15% (15% PIK) Senior Subordinated Note
due 11/10/2020 (D)
 
$
1,355,591
     
11/10/14
     
1,347,132
     
 
Common Stock (B)
 
2,300 shs.
     
11/10/14
     
230,000
     
 
 
           
 
     
1,577,132
     
 
 
           
 
                 
JMH Investors LLC
           
 
                 
A developer and manufacturer of custom formulations for a wide variety of foods.
 
Limited Liability Company Unit (B)(F)
 
1,038,805 uts.
     
12/05/12
     
232,207
     
 
Limited Liability Company Unit Class A-1 (B)(F)
 
159,048 uts.
     
10/31/16
     
159,048
     
335,449
 
Limited Liability Company Unit Class A-2 (B)(F)
 
1,032,609 uts.
     
10/31/16
     
     
221,650
 
 
           
 
     
391,255
     
557,099
 
 
           
 
                 
K P I Holdings, Inc.
 
The largest player in the U.S. non-automotive, non-ferrous die casting segment.
                 
Limited Liability Company Unit Class C
Preferred (B)
 
40 uts.
     
06/30/15
     
     
91,197
 
Common Stock (B)
 
353 shs.
     
07/15/08
     
285,619
     
287,319
 
 
           
 
     
285,619
     
378,516
 
 
           
 
                 
LAC Acquisition LLC
 
A provider of center-based applied behavior analysis treatment centers for children diagnosed with autism spectrum disorder.
 
8.05% Term Loan due 10/01/2024
(LIBOR + 5.750%)
 
$
1,775,556
     
10/01/18
     
847,554
     
825,675
 
Limited Liability Company Unit Class A (F)
 
22,222 uts.
     
10/01/18
     
22,222
     
22,222
 
 
           
 
     
869,776
     
847,897
 
 
           
 
                 
 
 
 
 
See Notes to Consolidated Financial Statements
23
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
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
04/30/2019 (D)
 
$
419,971
   
01/15/10
   
$
404,121
   
$
377,974
 
15% (2.5% PIK) Senior Subordinated Note
due 04/30/2019 (D)
 
$
115,253
   
10/05/10
     
114,604
     
103,727
 
Common Stock (B)
 
35 shs.
   
10/05/10
     
35,400
     
1,248
 
Common Stock Class B (B)
 
118 shs.
   
01/15/10
     
117,647
     
4,146
 
Warrant, exercisable until 2019, to purchase
common stock at $.01 per share (B)
 
104 shs.
   
10/05/10
     
94,579
     
3,670
 
 
                 
766,351
     
490,765
 
 
                             
Master Cutlery LLC
                             
A designer and marketer of a wide assortment of knives and swords.
 
13% Senior Subordinated Note due
04/17/2020
 
$
868,102
   
04/17/15
     
865,444
     
260,431
 
Limited Liability Company Unit
 
5 uts.
   
04/17/15
     
678,329
     
 
 
                 
1,543,773
     
260,431
 
 
                             
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.
 
16% Senior Subordinated Note due
03/03/2022 (D)
 
$
454,295
   
09/22/11
     
449,013
     
408,866
 
15% PIK Senior Subordinated Note due
04/30/2022 (D)
 
$
23,839
   
08/18/15
     
23,839
     
19,071
 
14% PIK Senior Subordinated Note due
06/30/2019
 
$
71,123
     
*
     
71,123
     
70,783
 
Common Stock Class A (B)
 
83,080 shs.
      **
 
   
170,705
     
 
* 10/21/16, 01/27/17 and 10/13/17.
                   
714,680
     
498,720
 
** 08/18/15, 10/20/16 and 01/27/17.
                               
                                 
                                 
MES Partners, Inc.
                               
An industrial service business offering an array of cleaning and environmental services to the Gulf Coast region of the U.S.
 
12% (1% PIK) Senior Subordinated Note due
09/30/2021
 
$
1,128,963
   
09/30/14
     
1,118,231
     
1,126,225
 
12% Senior Subordinated Note due
09/30/2021
 
$
303,293
   
02/28/18
     
298,463
     
302,558
 
Common Stock Class B (B)
 
259,252 shs.
     
*
     
244,163
     
110,822
 
* 09/30/14 and 02/28/18.
                   
1,660,857
     
1,539,605
 
 
                               
 
See Notes to Consolidated Financial Statements
24
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
                           
MeTEOR Education LLC
         
 
             
A leading provider of classroom and common area design services, furnishings, equipment and instructional support to K-12 schools.
 
12% Senior Subordinated Note due
6/20/23
 
$
915,819
     
03/09/18
   
$
899,927
   
$
878,707
 
Limited Liability Company Unit (B)(F)
 
182 uts.
     
03/09/18
     
183,164
     
85,511
 
 
           
 
     
1,083,091
     
964,218
 
 
           
 
                 
Midwest Industrial Rubber, Inc.
           
 
                 
A supplier of industrial maintenance, repair, and operations ("MRO") products, specializing in the fabrication and distribution of lightweight conveyor belting and related conveyor components and accessories.
 
12% (1% PIK) Senior Subordinated
Note due 12/02/2022
 
$
1,586,265
     
12/02/16
     
1,563,480
     
1,560,536
 
Preferred Stock (B)
 
1,711 shs.
     
12/02/16
     
171,116
     
192,523
 
Common Stock (B)
 
242 shs.
     
12/02/16
     
242
     
 
 
           
 
     
1,734,838
     
1,753,059
 
 
           
 
                 
Motion Controls Holdings
           
 
                 
A manufacturer of high performance mechanical motion control and linkage products.
 
14.25% (1.75% PIK) Senior
Subordinated Note due 08/15/2020
 
$
289,261
     
11/30/10
     
288,169
     
287,578
 
Limited Liability Company Unit Class B-1 (B)(F)
 
75,000 uts.
     
11/30/10
     
     
46,048
 
Limited Liability Company Unit Class B-2 (B)(F)
 
6,801 uts.
     
11/30/10
     
     
4,176
 
 
           
 
     
288,169
     
337,802
 
 
           
 
                 
New Mountain Learning, LLC
           
 
                 
A leading provider of blended learning solutions to the K-12 and post-secondary school market.
 
8.3% Term Loan due 3/16/2024
(LIBOR + 5.500%)
 
$
1,792,448
     
03/15/18
     
1,667,004
     
1,579,246
 
 
           
 
                 
                                 
NSi Industries Holdings, Inc.
           
 
                 
A manufacturer and distributer of electrical components and accessories to small to mid-sized electrical wholesalers.
 
12.75% (1.75% PIK) Senior
Subordinated Note due 05/17/2023
 
$
1,527,814
     
06/30/16
     
1,506,611
     
1,500,255
 
Common Stock (B)
 
207 shs.
     
05/17/16
     
207,000
     
285,704
 
 
           
 
     
1,713,611
     
1,785,959
 
 
           
 
                 
 
 
 
See Notes to Consolidated Financial Statements
25
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                         
PANOS Brands LLC
                       
A marketer and distributor of branded consumer foods in the specialty, natural, better-for-you,"free from" healthy and gluten-free categories.
 
12% (1% PIK) Senior Subordinated
Note due 08/17/2022
 
$
1,775,705
   
02/17/17
   
$
1,753,482
   
$
1,741,511
 
Common Stock Class B (B)
 
380,545 shs.
     
*
     
380,545
     
672,170
 
* 01/29/16 and 02/17/17.
                   
2,134,027
     
2,413,681
 
 
                               
                                 
Pegasus Transtech Corporation
                               
A provider of end-to-end document, driver and logistics management solutions, which enable its customers (carriers, brokers, and drivers) to operate more efficiently, reduce manual overhead, enhance compliance, and shorten cash conversion cycles.
 
11.25% Term Loan due 11/16/2022
 
$
377,295
   
11/14/17
     
369,331
     
362,551
 
8.77% Term Loan due 11/17/2024
(LIBOR + 6.250%)
 
$
2,107,746
   
11/14/17
     
1,926,005
     
1,897,306
 
 
                   
2,295,336
     
2,259,857
 
 
                               
Petroplex Inv Holdings LLC
                               
A leading provider of acidizing services to E&P customers in the Permian Basin.
 
Limited Liability Company
 
0.40% int.
     
*
     
175,339
     
19,341
 
* 11/29/12 and 12/20/16.
                               
                                 
                                 
Polytex Holdings LLC
                               
A manufacturer of water based inks and related products serving primarily the wall covering market.
 
13.9% (1% PIK) Senior Subordinated
Note due 01/31/2020
 
$
1,069,985
   
07/31/14
     
1,064,183
     
641,991
 
Limited Liability Company Unit
 
148,096 uts.
   
07/31/14
     
148,096
     
 
Limited Liability Company Unit Class F
 
36,976 uts.
     
*
     
24,802
     
 
* 09/28/17 and 02/15/18.
                   
1,237,081
     
641,991
 
 
                               
   
PPC Event Services
 
A special event equipment rental business.
 
14% (2% PIK) Senior Subordinated
Note due 05/20/2020
 
$
1,214,394
   
11/20/14
     
1,207,138
     
1,203,133
 
Limited Liability Company Unit (B)
 
3,450 uts.
   
11/20/14
     
172,500
     
278,537
 
Limited Liability Company Unit Series A-1 (B)
 
339 uts.
   
03/16/16
     
42,419
     
27,872
 
 
                   
1,422,057
     
1,509,542
 
 
                               
 
See Notes to Consolidated Financial Statements
26
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
   
Randy's Worldwide Automotive
 
A designer and distributor of automotive aftermarket parts.
 
Common Stock (B)
 
118 shs.
     
05/12/15
   
$
118,476
   
$
292,087
 
 
         
 
                 
                               
ReelCraft Industries, Inc.
         
 
                 
A designer and manufacturer of heavy-duty reels for diversified industrial, mobile equipment OEM, auto aftermarket, government/military and other end markets.
 
10.5% (0.5% PIK) Senior Subordinated
Note due 02/28/2023
 
$
1,439,631
     
11/13/17
     
1,439,631
     
1,430,541
 
Limited Liability Company Unit Class B
 
293,617 uts.
     
11/13/17
     
184,688
     
295,497
 
 
           
 
     
1,624,319
     
1,726,038
 
 
           
 
                 
REVSpring, Inc.
 
A provider of accounts receivable management and revenue cycle management services to customers in the healthcare, financial and utility industries.
 
10.77% Second Lien Term Loan due
10/11/2026 (LIBOR + 8.250%)
 
$
1,725,000
     
10/11/18
     
1,674,702
     
1,653,195
 
 
           
 
                 
   
Rock-it Cargo
 
A provider of specialized international logistics solutions to the music touring, performing arts, live events, fine art and specialty industries.
 
7.55% Term Loan due 06/22/2024
(LIBOR + 4.750%)
 
$
2,458,838
     
07/30/18
     
2,401,685
     
2,414,845
 
 
           
 
                 
   
ROI Solutions
 
Call center outsourcing and end user engagement services provider.
 
7.40% Term Loan due 07/31/2024
(LIBOR + 5.000%)
 
$
1,632,970
     
07/31/18
     
639,688
     
617,269
 
 
           
 
                 
   
Sandvine Corporation
 
A provider of active network intelligence solutions.
 
10.52% Second Lien Term Loan due
11/02/2026 (LIBOR + 8.000%)
 
$
1,725,000
     
11/01/18
     
1,682,761
     
1,662,066
 
 
See Notes to Consolidated Financial Statements
27
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
   
Sara Lee Frozen Foods
 
A provider of frozen bakery products, desserts and sweet baked goods.
 
7.02% Lien Term Loan due
07/31/2024 (LIBOR + 4.500%)
 
$
1,533,288
   
07/27/18
   
$
1,501,227
   
$
1,478,353
 
 
                             
   
Signature Systems Holding Company
 
A seller and installer of a variety of modular surfaces, industrial matting and related products used for ground protection.
 
Common Stock (B)
 
76 shs.
   
03/15/13
     
75,509
     
354,424
 
Warrant, exercisable until 2023, to purchase
common stock A at $.01 per share (B)
 
31 shs.
   
03/15/13
     
28,316
     
144,802
 
 
                 
103,825
     
499,226
 
 
                             
Smart Source Holdings LLC
 
A short-term computer rental company.
 
Limited Liability Company Unit (B)
 
328 uts.
     
*
     
261,262
     
553,468
 
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)
 
83 shs.
     
*
     
67,467
     
140,194
 
* 08/31/07 and 03/06/08.
                   
328,729
     
693,662
 
 
                               
   
SMB Machinery Holdings, Inc.
 
A reseller of used, rebuilt and refurbished packaging and processing equipment, primarily serving the bottling and food manufacturing industries.
 
14% (2% PIK) Senior Subordinated
Note due 10/18/2019 (D)
 
$
738,694
   
10/18/13
     
726,147
     
 
Common Stock (B)
 
841 shs.
   
10/18/13
     
84,100
     
 
 
                   
810,247
     
 
 
                               
Speciifed Air Solutions
 
A manufacturer and distributor of heating, dehumidification and other air quality solutions.
 
10.5% (0.5% PIK) Senior Subordinated
Note due 06/19/2024
 
$
1,224,710
   
12/19/18
     
1,210,965
     
1,205,637
 
 
                               
 
 
 
See Notes to Consolidated Financial Statements
28
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
   
Acquisition
Date
   
Cost
   
Fair Value
 
                         
SR Smith LLC
                       
A manufacturer of mine and tunneling ventilation products in the United States.
 
11% Senior Subordinated Note due
03/27/2022
   
1,084,565
     
*
   
$
1,076,881
   
$
1,064,049
 
Limited Liability Company Unit Series A
 
229 uts.
     
*
     
1,060,968
     
1,391,567
 
* 03/27/07 and 08/07/18.
                   
2,137,849
     
2,455,616
 
 
                               
                                 
Strahman Holdings Inc.
                               
A manufacturer of industrial valves and wash down equipment for a variety of industries, including chemical, petrochemical, polymer, pharmaceutical, food processing, beverage and mining.
 
Preferred Stock Series A (B)
 
158,967 shs.
   
12/13/13
     
158,967
     
264,530
 
Preferred Stock Series A-2 (B)
 
26,543 shs.
   
09/10/15
     
29,994
     
44,169
 
 
                   
188,961
     
308,699
 
 
                               
Strategic Insight, Inc.
                               
A provider of largely proprietary data, market research, and business intelligence to the global asset management industry.
 
12.05% Second Lien Term Loan due
12/21/2024 (LIBOR + 9.250%)
 
$
1,725,000
   
12/28/17
     
1,691,791
     
1,614,796
 
 
                               
                                 
Sunrise Windows Holding Company
                               
A manufacturer and marketer of premium vinyl windows exclusively selling to the residential remodeling and replacement market.
 
16% Senior Subordinated Note due
05/28/2020 (D)
 
$
1,812,109
     
*
     
1,358,229
     
1,359,082
 
Common Stock (B)
 
38 shs.
   
12/14/10
     
38,168
     
 
Warrant, exercisable until 2020, to purchase
common stock at $.01 per share (B)
 
37 shs.
   
12/14/10
     
37,249
     
 
* 12/14/10, 08/17/12 and 03/31/16.
                   
1,433,646
     
1,359,082
 
 
                               
                                 
Sunvair Aerospace Group Inc.
                               
An aerospace maintenance, repair, and overhaul provider servicing landing gears on narrow body aircraft.
 
12% (1% PIK) Senior Subordinated
Note due 07/31/2021 (D)
 
$
1,405,417
   
07/31/15
     
1,393,909
     
1,124,334
 
Common Stock (B)
 
68 shs.
     
*
     
104,986
     
 
* 07/31/15 and 11/08/17.
                   
1,498,895
     
1,124,334
 
 
See Notes to Consolidated Financial Statements
29
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
                           
Team Drive-Away Holdings LLC
         
 
             
An asset-light provider of over the road driveaway services for class 8 trucks and specialized equipment.
 
Limited Liability Company Unit
 
95,800 uts.
     
10/15/15
   
$
67,186
   
$
238,350
 
 
         
 
                 
                               
Therma-Stor Holdings LLC
         
 
                 
A designer and manufacturer of dehumidifiers and water damage restoration equipment for residential and commercial applications.
 
10.5% (0.5% PIK) Senior Subordinated
Note due 11/30/2023
 
$
1,373,151
     
11/30/17
     
1,373,151
     
1,326,170
 
Limited Liability Company Unit (B)
 
359,375 uts.
     
11/30/17
     
342,851
     
352,017
 
 
           
 
     
1,716,002
     
1,678,187
 
 
           
 
                 
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.
 
15% (7.5% PIK) Senior Subordinated
Note due 12/05/2020
 
$
48,146
     
12/05/13
     
96,242
     
48,146
 
Warrant, exercisable until 2023, to purchase
common stock at $.01 per share (B)
 
28,079 shs.
     
12/05/13
     
     
23,586
 
 
           
 
     
96,242
     
71,732
 
 
           
 
                 
Trident Maritime Systems
           
 
                 
A leading provider of turnkey marine vessel systems and solutions for government and commercial new ship construction as well as repair, refurbishment, and retrofit markets worldwide.
 
8.3% Term Loan due 04/30/2024
(LIBOR + 5.500%)
 
$
2,452,675
     
05/14/18
     
2,402,888
     
2,359,695
 
 
           
 
                 
                                 
Tristar Global Energy Solutions, Inc.
           
 
                 
A hydrocarbon and decontamination services provider serving refineries worldwide.
 
12.5% (1.5% PIK) Senior Subordinated
Note due 07/31/2020
 
$
1,178,146
     
01/23/15
     
1,170,387
     
1,119,216
 
 
           
 
                 
                                 
Trystar, Inc.
           
 
                 
A niche manufacturer of temporary power distribution products for the power rental, industrial, commercial utility and back-up emergency markets.
 
7.39% Term Loan due 10/01/2023
(LIBOR + 5.000%)
 
$
2,299,167
     
09/28/18
     
2,261,022
     
2,230,925
 
Limited Liability Company Unit (B)(F)
 
47 uts.
     
09/28/18
     
46,562
     
46,560
 
 
           
 
     
2,307,584
     
2,277,485
 
 
           
 
                 
 
See Notes to Consolidated Financial Statements
30
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
                           
U.S. Legal Support, Inc.
         
 
             
A provider of court reporting, record retrieval and other legal supplemental services.
 
8.46% Term Loan due 11/12/2024
(LIBOR + 5.750%)
 
$
2,146,743
     
11/29/18
   
$
1,698,180
   
$
1,674,217
 
 
           
 
                 
                                 
U.S. Retirement and Benefit Partners, Inc.
           
 
                 
A leading independent provider of outsourced benefit design and administration and retirement services, primarily to K-12 school districts, employee unions, and governmental agencies.
 
11.55% Second Lien Term Loan due
02/14/2023 (LIBOR + 8.500%)
 
$
1,725,000
     
03/05/18
     
1,577,503
     
1,550,018
 
 
           
 
                 
                                 
UBEO, LLC
           
 
                 
A dealer and servicer of printers and copiers to medium sized businesses.
 
11% Term Loan due 10/03/2024
 
$
1,725,000
     
11/05/18
     
1,338,359
     
1,318,700
 
 
           
 
                 
                                 
Velocity Technology Solutions, Inc.
           
 
                 
A provider of outsourced hosting services for enterprise resource planning software applications and information technology infrastructure to mid and large-sized enterprises.
 
8.8% Lien Term Loan due 12/07/2023
(LIBOR + 6.000%)
 
$
2,079,000
     
12/07/17
     
2,061,879
     
2,035,312
 
 
           
 
                 
                                 
VP Holding Company
           
 
                 
A provider of school transportation services for special-needs and homeless children in Massachusetts and Connecticut.
 
8.31% Lien Term Loan due 05/22/2024
(LIBOR + 5.500%)
 
$
2,457,025
     
05/17/18
     
1,718,028
     
1,675,956
 
 
           
 
                 
                                 
Westminster Acquisition LLC
           
 
                 
A manufacturer of premium, all-natural oyster cracker products sold under the Westminster and Olde Cape Cod brands.
 
12% (1% PIK) Senior Subordinated
Note due 02/03/2021
 
$
383,062
     
08/03/15
     
379,999
     
372,140
 
Limited Liability Company Unit (B)(F)
 
370,241 uts.
     
08/03/15
     
370,241
     
326,974
 
 
           
 
     
750,240
     
699,114
 
 
 
 
 
See Notes to Consolidated Financial Statements
31
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Principal Amount,
Shares, Units or
Ownership Percentage
     
Acquisition
Date
   
Cost
   
Fair Value
 
                           
Whitebridge Pet Brands Holdings, LLC
         
 
             
A manufacturer and marketer of branded, all-natural treats and foods for dogs and cats.
 
11.5% (0.5% PIK) Senior Subordinated
Note due 08/18/2021
 
$
1,493,808
     
04/18/17
   
$
1,479,478
   
$
1,465,334
 
Limited Liability Company Unit Class A (B)(F)
 
123 uts.
     
04/18/17
     
148,096
     
144,577
 
Limited Liability Company Unit Class B (B)(F)
 
123 uts.
     
04/18/17
     
     
1,919
 
 
           
 
     
1,627,574
     
1,611,830
 
 
           
 
                 
Wolf-Gordon, Inc.
           
 
                 
A designer and specialty distributor of wallcoverings and related building products, including textiles, paint, and writeable surfaces.
 
Common Stock (B)
 
157 shs.
     
01/22/16
     
156,818
     
210,017
 
 
           
 
                 
                                 
WP Supply Holding Corporation
           
 
                 
A distributor of fresh fruits and vegetables to grocery wholesalers and foodservice distributors in the upper Midwest.
 
14.5% (2.5% PIK) Senior Subordinated
Note due 06/12/2020
 
$
1,016,084
     
11/03/11
     
1,016,047
     
993,390
 
Common Stock (B)
 
1,500 shs.
     
11/03/11
     
150,000
     
99,555
 
 
           
 
     
1,166,047
     
1,092,945
 
 
           
 
                 
York Wall Holding Company
           
 
                 
A designer, manufacturer and marketer of wall covering products for both residential and commercial wall coverings.
 
14.5% (1.5% PIK) Senior Subordinated
Note due 03/04/2021 (D)
 
$
1,946,834
     
03/04/15
     
1,549,582
     
1,810,199
 
Common Stock (B)
 
2,046 shs.
     
*
     
200,418
     
152,457
 
* 03/04/15 and 02/07/18
           
 
     
1,750,000
     
1,962,656
 
                                 
                                 
Total Private Placement Investments (E)
           
  
   
$
124,529,101
   
$
119,792,375
 
 
See Notes to Consolidated Financial Statements
32
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Interest
Rate
 
Maturity
Date
 
Principal
Amount
   
Cost
   
Market Value
 
                           
Rule 144A Securities - 7.07%:
     
 
                 
                           
Bonds - 7.07%
     
 
                 
Acrisure, LLC
   
7.000
%
11/15/25
 
$
385,000
   
$
351,945
   
$
328,212
 
Alliance Residential Company
   
7.500
 
05/01/25
   
385,000
     
399,157
     
385,962
 
Altice Financing S.A.
   
7.500
 
05/15/26
   
308,000
     
308,000
     
281,050
 
Amsted Industries
   
5.375
 
09/15/24
   
185,000
     
185,000
     
174,362
 
Avantor Inc.
   
6.000
 
10/01/24
   
313,000
     
313,000
     
307,522
 
Avantor Inc.
   
9.000
 
10/01/25
   
385,000
     
397,522
     
385,000
 
Boyne USA, Inc.
   
7.250
 
05/01/25
   
129,000
     
129,000
     
133,192
 
CITGO Petroleum Corporation
   
6.250
 
08/15/22
   
328,000
     
328,000
     
317,340
 
CVR Partners, L.P.
   
9.250
 
06/15/23
   
385,000
     
378,178
     
400,400
 
Enterprise Merger Sub Inc.
   
8.750
 
10/15/26
   
385,000
     
385,000
     
333,025
 
Financial & Risk US Holdings, Inc.
   
6.250
 
05/15/26
   
116,000
     
116,000
     
111,940
 
Financial & Risk US Holdings, Inc.
   
8.250
 
11/15/26
   
150,000
     
150,000
     
137,062
 
First Quantum Minerals Ltd.
   
7.500
 
04/01/25
   
500,000
     
483,143
     
412,500
 
First Quantum Minerals Ltd.
   
7.250
 
04/01/23
   
385,000
     
380,884
     
338,800
 
Hertz Corporation
   
7.625
 
06/01/22
   
385,000
     
385,000
     
362,863
 
Hilcorp Energy Company
   
5.000
 
12/01/24
   
258,000
     
258,000
     
228,330
 
IAMGOLD Corporation
   
7.000
 
04/15/25
   
385,000
     
385,000
     
361,900
 
Intelsat Connect Finance
   
9.500
 
02/15/23
   
385,000
     
376,577
     
331,100
 
Jonah Energy LLC
   
7.250
 
10/15/25
   
385,000
     
330,651
     
246,400
 
LBC Tank Terminals Holding Netherlands B.V.
   
6.875
 
05/15/23
   
511,000
     
518,767
     
454,790
 
Mattamy Group Corp.
   
6.500
 
10/01/25
   
385,000
     
377,615
     
344,575
 
New Enterprise Stone & Lime Co., Inc.
   
6.250
 
03/15/26
   
385,000
     
391,293
     
350,350
 
New Gold Inc.
   
6.250
 
11/15/22
   
500,000
     
501,783
     
420,000
 
OPE KAG Finance Sub
   
7.875
 
07/31/23
   
385,000
     
396,952
     
368,638
 
Sinclair Broadcast Group, Inc.
   
5.875
 
03/15/26
   
157,000
     
157,000
     
146,403
 
Sinclair Television Group, Inc.
   
5.125
 
02/15/27
   
385,000
     
385,000
     
339,763
 
Suncoke Energy
   
7.500
 
06/15/25
   
385,000
     
379,932
     
364,788
 
Topaz Marine S.A.
   
9.125
 
07/26/22
   
500,000
     
500,000
     
500,580
 
Vine Oil & Gas, LP
   
8.750
 
04/15/23
   
385,000
     
358,227
     
304,150
 
Virgin Media Secured Finance PLC
   
5.250
 
01/15/26
   
385,000
     
385,753
     
352,756
 
VRX Escrow Corp.
   
6.125
 
04/15/25
   
140,000
     
140,000
     
122,150
 
Warrior Met Coal, Inc.
   
8.000
 
11/01/24
   
161,000
     
161,000
     
159,793
 
                                   
Total Bonds
       
 
           
10,693,379
     
9,805,696
 
 
       
 
                       
 
 
 
See Notes to Consolidated Financial Statements
33
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Restricted Securities: (A)
(Continued)
 
Interest
Rate
 
Maturity
Date
 
Principal
Amount
   
Cost
   
Market Value
 
                           
Common Stock - 0.00%
       
 
                 
TherOX, Inc. (B)
       
   
 
$
2
   
$
   
$
 
Touchstone Health Partnership (B)
       
 
   
292
     
     
 
                                   
Total Common Stock
       
 
           
     
 
 
       
 
                       
                                   
Total Rule 144A Securities
       
 
           
10,693,379
     
9,805,696
 
 
       
 
                       
 
See Notes to Consolidated Financial Statements
34
 
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Public Securities - 8.35%: (A)
 
LIBOR
Spread
 
Interest
Rate
 
Maturity
Date
 
Principal
Amount
   
Cost
   
Market Value
 
                               
Bank Loans - 4.72%
         
 
                 
Argon Medical Devices, Inc.
 
8.000
%
10.522
%
01/23/26
 
$
500,000
   
$
503,750
   
$
493,750
 
Bass Pro Group, LLC
 
5.000
 
7.522
 
09/25/24
   
184,488
     
183,577
     
176,093
 
Big River Steel LLC
 
5.000
 
7.803
 
08/11/23
   
117,875
     
116,960
     
116,401
 
BMC Software Finance, Inc.
 
4.250
 
7.053
 
10/02/25
   
500,000
     
495,172
     
481,095
 
CenturyLink Inc.
 
2.750
 
5.272
 
01/03/25
   
497,487
     
494,041
     
463,161
 
Confie Seguros Holding II Co.
 
8.500
 
11.238
 
11/02/25
   
446,131
     
437,394
     
432,002
 
Edelman Financial Services
 
6.750
 
9.186
 
07/20/26
   
128,178
     
127,572
     
121,769
 
Fieldwood Energy LLC
 
7.250
 
9.772
 
04/11/23
   
977,612
     
938,470
     
849,545
 
Getty Images, Inc.
 
3.500
 
6.022
 
10/18/19
   
388,558
     
381,129
     
376,901
 
Gulf Finance, LLC
 
5.250
 
7.780
 
08/25/23
   
250,884
     
249,239
     
190,358
 
ION Trading Technologies Sarl
 
4.000
 
6.522
 
11/21/24
   
273,603
     
267,113
     
257,871
 
OCI Beaumont LLC
 
4.000
 
6.803
 
02/14/25
   
121,369
     
121,235
     
118,790
 
PowerSchool
 
6.750
 
9.097
 
08/01/26
   
500,000
     
495,254
     
490,000
 
Prospect Medical Holdings, Inc.
 
5.500
 
7.938
 
02/13/24
   
254,161
     
249,792
     
250,348
 
PS Logistics LLC
 
4.750
 
7.277
 
03/01/25
   
498,750
     
503,229
     
483,787
 
Schenectady International Group Inc.
 
4.750
 
7.186
 
10/15/25
   
307,325
     
295,356
     
295,032
 
Seadrill Partners Finco, LLC
 
6.000
 
8.822
 
02/21/21
   
463,459
     
339,245
     
361,790
 
STS Operating, Inc.
 
8.000
 
10.522
 
04/25/26
   
500,000
     
505,000
     
468,750
 
Summit Midstream Holdings, LLC
 
6.000
 
8.522
 
05/15/22
   
111,360
     
110,629
     
108,855
 
                                     
Total Bank Loans
         
 
           
6,814,157
     
6,536,298
 
 
         
 
                       
                                     
Bonds - 3.20%
         
 
                       
AMC Entertainment Holdings Inc.
     
6.125
 
05/15/27
   
385,000
     
375,003
     
329,175
 
Anchorage Capital Group, LLC
 
7.250
 
9.686
 
01/15/29
   
500,000
     
517,187
     
499,958
 
Brunswick Corporation
     
7.125
 
08/01/27
   
500,000
     
503,441
     
552,418
 
Dish DBS Corporation
     
7.750
 
07/01/26
   
385,000
     
414,429
     
318,588
 
Laredo Petroleum, Inc.
     
5.625
 
01/15/22
   
385,000
     
371,814
     
345,538
 
Laredo Petroleum, Inc.
     
6.250
 
03/15/23
   
385,000
     
385,869
     
345,538
 
M/I Homes, Inc.
     
5.625
 
08/01/25
   
385,000
     
367,052
     
352,275
 
Oasis Petroleum Inc.
     
6.875
 
03/15/22
   
424,000
     
408,751
     
399,620
 
PBF Holding Company LLC
     
7.250
 
06/15/25
   
385,000
     
397,472
     
361,900
 
Pitney Bowes Inc.
     
3.875
 
10/01/21
   
385,000
     
379,276
     
360,456
 
William Lyon Homes
     
7.000
 
08/15/22
   
284,000
     
284,000
     
281,160
 
WPX Energy, Inc.
     
5.250
 
09/15/24
   
328,000
     
328,000
     
296,840
 
                                     
Total Bonds
         
 
           
4,732,294
     
4,443,466
 
 
         
 
                       
 
 
 
 
See Notes to Consolidated Financial Statements
35
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Corporate Public Securities: (A)
(Continued)
 
LIBOR
Spread
 
Interest
Rate
 
Maturity
Date
 
Principal
Amount
   
Cost
   
Market Value
 
                               
Common Stock - 0.10%
 
 
     
 
                 
Jupiter Resources Inc.
 
 
     
   
 
$
41,472
   
$
200,439
   
$
141,005
 
                                     
Total Common Stock
 
 
     
 
           
200,439
     
141,005
 
 
 
 
     
 
                       
                                     
Preferred Stock - 0.33%
 
 
     
 
                       
B. Riley Financial Inc.
 
 
     
 
   
20,000
     
500,000
     
461,600
 
                                     
Total Preferred Stock
 
 
     
 
           
500,000
     
461,600
 
 
 
 
     
 
                       
Total Corporate Public Securities
 
 
     
 
         
$
12,246,890
   
$
11,582,369
 
 
 
 
     
 
                       
Total Investments
 
 
 
101.75
%
 
         
$
147,469,370
   
$
141,180,440
 
                                     
Other Assets
 
 
 
12.70
 
 
                   
17,623,862
 
Liabilities
 
 
 
(14.45
)
 
                   
(20,055,201
)
 
 
 
     
 
                       
Total Net Assets
 
 
 
100.00
%
 
                 
$
138,749,101
 
 
 
 
     
 
                       
 
 
(A)
In each of the convertible note, warrant, and common stock investments, the issuer has agreed to provide certain registration rights.
(B)
Non-income producing security.
(C)
Security valued at fair value using methods determined in good faith by or under the direction of the Board of Trustees.
(D)
Defaulted security; interest not accrued.
(E)
Illiquid security. As of December 31, 2018 the values of these securities amounted to $119,792,375 or 86.33% of net assets.
(F)
Held in PI Subsidiary Trust
PIK - Payment-in-kind
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements
36
 
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Industry Classification:
 
Fair Value/
Market Value
 
   
AEROSPACE & DEFENSE - 4.34%
 
API Technologies Corp.
 
$
458,850
 
BEI Precision Systems & Space
Company, Inc.
   
1,584,504
 
Merex Holding Corporation
   
498,720
 
Sunvair Aerospace Group Inc.
   
1,124,334
 
Trident Maritime Systems
   
2,359,695
 
 
   
6,026,103
 
 
       
AUTOMOTIVE - 5.61%
 
Aurora Parts & Accessories LLC
   
1,576,706
 
BBB Industries LLC
   
1,653,036
 
DPL Holding Corporation
   
268,499
 
English Color & Supply LLC
   
1,588,004
 
Holley Performance Products
   
2,403,375
 
Randy's Worldwide Automotive
   
292,087
 
 
   
7,781,707
 
 
       
BUILDING MATERIALS - 3.93%
 
Happy Floors Acquisition, Inc.
   
1,181,097
 
New Enterprise Stone & Lime Co., Inc.
   
350,350
 
NSi Industries Holdings, Inc.
   
1,785,959
 
Signature Systems Holding Company
   
499,226
 
Sunrise Windows Holding Company
   
1,359,082
 
Torrent Group Holdings, Inc.
   
71,732
 
Wolf-Gordon, Inc.
   
210,017
 
 
   
5,457,463
 
 
       
CABLE & SATELLITE - 0.49%
 
Intelsat Connect Finance
   
331,100
 
Virgin Media Secured Finance PLC
   
352,756
 
 
   
683,856
 
 
       
CHEMICALS - 2.60%
 
CVR Partners, L.P.
   
400,400
 
DuBois Chemicals, Inc.
   
1,690,500
 
LBC Tank Terminals Holding
Netherlands B.V.
   
454,790
 
OCI Beaumont LLC
   
118,790
 
   
Fair Value/
Market Value
 
         
Polytex Holdings LLC
 
$
641,991
 
Schenectady International Group Inc.
   
295,032
 
 
   
3,601,503
 
 
       
CONSUMER CYCLICAL SERVICES - 4.09%
 
Accelerate Learning
   
1,060,653
 
CHG Alternative Education Holding
Company
   
1,045,891
 
MeTEOR Education LLC
   
964,218
 
PPC Event Services
   
1,509,542
 
PS Logistics LLC
   
483,787
 
ROI Solutions
   
617,269
 
 
   
5,681,360
 
 
       
CONSUMER PRODUCTS - 8.91%
 
AMS Holding LLC
   
221,379
 
Blue Wave Products, Inc.
   
455,720
 
Elite Sportwear Holding, LLC
   
1,552,622
 
gloProfessional Holdings, Inc.
   
1,115,946
 
GTI Holding Company
   
886,704
 
Handi Quilter Holding Company
   
511,532
 
HHI Group, LLC
   
1,719,813
 
Manhattan Beachwear Holding
Company
   
490,765
 
Master Cutlery LLC
   
260,431
 
New Mountain Learning, LLC
   
1,579,246
 
Whitebridge Pet Brands Holdings, LLC
   
1,611,830
 
York Wall Holding Company
   
1,962,656
 
 
   
12,368,644
 
 
       
DIVERSIFIED MANUFACTURING - 7.54%
 
ABC Industries, Inc.
   
389,227
 
Advanced Manufacturing
Enterprises LLC
   
49,410
 
Amsted Industries
   
174,362
 
F G I Equity LLC
   
687,139
 
K P I Holdings, Inc.
   
378,516
 
Motion Controls Holdings
   
337,802
 
Reelcraft Industries, Inc.
   
1,726,038
 
 
 
See Notes to Consolidated Financial Statements
37
 
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Industry Classification: (Continued)
 
Fair Value/
Market Value
 
         
SR Smith LLC
 
$
2,455,616
 
Strahman Holdings Inc.
   
308,699
 
Therma-Stor Holdings LLC
   
1,678,187
 
Trystar, Inc.
   
2,277,485
 
 
   
10,462,481
 
 
       
ELECTRIC - 2.70%
 
AM Conservation Holding Corp.
   
1,960,565
 
Electronic Power Systems
   
1,791,459
 
 
   
3,752,024
 
 
       
FINANCIAL OTHER - 3.79%
 
Acrisure, LLC
   
328,212
 
Anchorage Capital Group, LLC
   
499,958
 
B. Riley Financial Inc.
   
461,600
 
Confie Seguros Holding II Co.
   
432,002
 
Edelman Financial Services
   
121,769
 
Financial & Risk US Holdings, Inc.
   
249,002
 
Strategic Insight, Inc.
   
1,614,796
 
U.S. Retirement and Benefit Partners, Inc.
   
1,550,018
 
 
   
5,257,357
 
 
       
FOOD & BEVERAGE - 6.90%
 
Del Real LLC
   
1,519,510
 
F F C Holding Corporation
   
165,752
 
Hollandia Produce LLC
   
1,642,976
 
Impact Confections
   
 
JMH Investors LLC
   
557,099
 
PANOS Brands LLC
   
2,413,681
 
Sara Lee Frozen Foods
   
1,478,353
 
Westminster Acquisition LLC
   
699,114
 
WP Supply Holding Corporation
   
1,092,945
 
 
   
9,569,430
 
 
       
HEALTHCARE - 6.38%
 
Argon Medical Devices, Inc.
   
493,750
 
Avantor Inc.
   
692,522
 
Cadence, Inc.
   
780,997
 
CORA Health Services, Inc.
   
1,593,805
 
   
Fair Value/
Market Value
 
         
ECG Consulting Group
 
$
2,141,254
 
Enterprise Merger Sub Inc.
   
333,025
 
GD Dental Services LLC
   
 
Healthline Media, Inc.
   
1,601,518
 
LAC Acquisition LLC
   
847,897
 
Prospect Medical Holdings, Inc.
   
250,348
 
TherOX, Inc.
   
 
Touchstone Health Partnership
   
 
VRX Escrow Corp.
   
122,150
 
 
   
8,857,266
 
 
       
HOME CONSTRUCTION - 0.70%
 
Mattamy Group Corp.
   
344,575
 
M/I Homes, Inc.
   
352,275
 
William Lyon Homes
   
281,160
 
 
   
978,010
 
 
       
INDEPENDENT - 1.84%
 
Fieldwood Energy LLC
   
849,545
 
Hilcorp Energy Company
   
228,330
 
Jonah Energy LLC
   
246,400
 
Jupiter Resources Inc.
   
141,005
 
Laredo Petroleum, Inc.
   
691,076
 
Oasis Petroleum Inc.
   
399,620
 
 
   
2,555,976
 
 
       
INDUSTRIAL OTHER - 7.52%
 
AFC - Dell Holding Corporation
   
1,648,649
 
Brunswick Corporation
   
552,418
 
E.S.P. Associates, P.A.
   
950,235
 
Hartland Controls Holding Corporation
   
1,837,848
 
Midwest Industrial Rubber, Inc.
   
1,753,059
 
Smart Source Holdings LLC
   
693,662
 
SMB Machinery Holdings, Inc.
   
 
Speciifed Air Solutions
   
1,205,637
 
STS Operating, Inc.
   
468,750
 
UBEO, LLC
   
1,318,700
 
 
   
10,428,958
 
 
 
See Notes to Consolidated Financial Statements
38
 
 
2018 Annual Report

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Industry Classification: (Continued)
 
Fair Value/
Market Value
 
   
MEDIA & ENTERTAINMENT - 3.26%
 
AMC Entertainment Holdings Inc.
 
$
329,175
 
BlueSpire Holding, Inc.
   
 
Boyne USA, Inc.
   
133,192
 
Cadent, LLC
   
1,020,908
 
Discovery Education, Inc.
   
1,853,011
 
Dish DBS Corporation
   
318,588
 
Getty Images, Inc.
   
376,901
 
HOP Entertainment LLC
   
 
Sinclair Broadcast Group, Inc.
   
146,403
 
Sinclair Television Group, Inc.
   
339,763
 
 
   
4,517,941
 
 
       
METALS & MINING - 1.84%
 
Alliance Residential Company
   
385,962
 
Big River Steel LLC
   
116,401
 
First Quantum Minerals Ltd.
   
751,300
 
IAMGOLD Corporation
   
361,900
 
New Gold Inc.
   
420,000
 
Suncoke Energy
   
364,788
 
Warrior Met Coal, Inc.
   
159,793
 
 
   
2,560,144
 
 
       
MIDSTREAM - 0.22%
 
Gulf Finance, LLC
   
190,358
 
Summit Midstream Holdings, LLC
   
108,855
 
 
   
299,213
 
 
       
OIL FIELD SERVICES - 1.07%
 
Avantech Testing Services LLC
   
 
Petroplex Inv Holdings LLC
   
19,341
 
Seadrill Partners Finco, LLC
   
361,790
 
Topaz Marine S.A.
   
500,580
 
WPX Energy, Inc.
   
296,840
 
Vine Oil & Gas, LP
   
304,150
 
 
   
1,482,701
 
 
       
PACKAGING - 1.02%
 
ASC Holdings, Inc.
   
710,141
 
   
Fair Value/
Market Value
 
Brown Machine LLC
 
$
699,521
 
 
   
1,409,662
 
 
       
PAPER - 1.25%
 
Dunn Paper
   
1,733,625
 
 
       
PHARMACEUTICALS - 0.22%
       
Clarion Brands Holding Corp.
   
298,771
 
 
       
REFINING - 2.41%
 
CITGO Petroleum Corporation
   
317,340
 
MES Partners, Inc.
   
1,539,605
 
PBF Holding Company LLC
   
361,900
 
Tristar Global Energy Solutions, Inc.
   
1,119,216
 
 
   
3,338,061
 
 
       
RETAILERS - 0.13%
 
Bass Pro Group, LLC
   
176,093
 
 
       
TECHNOLOGY - 14.23%
       
1A Smart Start, Inc.
   
1,671,471
 
Audio Precision
   
1,741,763
 
BCC Software, Inc.
   
1,715,960
 
BMC Software Finance, Inc.
   
481,095
 
Claritas Holdings, Inc.
   
1,610,950
 
Clubessential LLC
   
1,781,313
 
Glynlyon Holding Companies, Inc.
   
243,134
 
GraphPad Software, Inc.
   
2,363,892
 
ION Trading Technologies Sarl
   
257,871
 
Pitney Bowes Inc.
   
360,456
 
PowerSchool
   
490,000
 
REVSpring, Inc.
   
1,653,195
 
U.S. Legal Support, Inc.
   
1,674,217
 
Sandvine Corporation
   
1,662,066
 
Velocity Technology Solutions, Inc.
   
2,035,312
 
 
   
19,742,695
 
 
       
TELECOMMUNICATIONS - 0.20%
       
Altice Financing S.A.
   
281,050
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements
39
 
Barings Participation Investors

CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 2018
 
 
Industry Classification: (Continued)
 
Fair Value/
Market Value
 
       
TRANSPORTATION SERVICES - 8.23%
     
BDP International, Inc.
 
$
2,415,916
 
GlobalTranz
   
1,678,760
 
Hertz Corporation
   
362,863
 
OPE KAG Finance Sub
   
368,638
 
Pegasus Transtech Corporation
   
2,259,857
 
Rock-it Cargo
   
2,414,845
 
Team Drive-Away Holdings LLC
   
238,350
 
VP Holding Company
   
1,675,956
 
 
   
11,415,185
 
 
       
WIRELESS - 0.33%
       
CenturyLink Inc.
   
463,161
 
 
       
         
Total Investments - 101.75%
(Cost - $147,469,370)
 
$
141,180,440
 
 
 
 


 
See Notes to Consolidated Financial Statements
40
 
 
2018 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
1.
History
Barings Participation Investors (the "Trust") was organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated April 7, 1988.
The Trust is a diversified closed-end management investment company. Barings LLC ("Barings"), 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 current yield and, when available, an opportunity for capital gains. The Trust's principal investments are privately placed, below-investment grade, long-term debt obligations including bank loans and mezzanine debt instruments. Such direct placement securities may, in some cases, be accompanied by equity features such as common stock, preferred stock, warrants, conversion rights, or other equity features. The Trust typically purchases these investments, which are not publicly tradable, directly from their issuers in private placement transactions. These investments are typically made to small or middle market companies. In addition, the Trust may invest, subject to certain limitations, in marketable debt securities (including high yield and/or investment grade securities) and marketable common stock. 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 ("PI Subsidiary Trust") for the purpose of holding certain investments. The results of the PI Subsidiary Trust are consolidated in the accompanying financial statements. Footnote 2.D below discusses the Federal tax consequences of the PI Subsidiary Trust.
2.
Significant Accounting Policies
The following is a summary of significant accounting policies followed consistently by the Trust in the preparation of its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The Trustees have determined that the Trust is an investment company in accordance with Accounting Standards Codification ("ASC") 946, Financial Services - Investment Companies, for the purpose of financial reporting.
A. Fair Value Measurements:
 
Under U.S. GAAP, fair value represents the price that should be received to sell an asset (exit price) in an orderly transaction between willing market participants at the measurement date.
Determination of Fair Value
The determination of the fair value of the Trust's investments is the responsibility of the Trust's Board of Trustees (the "Trustees"). The Trustees have adopted procedures for the valuation of the Trust's securities and have delegated responsibility for applying those procedures to Barings. Barings has established a Pricing Committee which is responsible for setting the guidelines used in following the procedures adopted by the Trustees ensuring that those guidelines are being followed. Barings considers all relevant factors that are reasonably available, through either public information or information available to Barings, 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 Barings. In approving valuations, the Trustees will consider reports by Barings analyzing each portfolio security in accordance with the procedures and guidelines referred to above, which include the relevant factors referred to below. Barings has agreed to provide such reports to the Trust at least quarterly. The consolidated financial statements include private placement restricted securities valued at $119,792,375 (86.33% of net assets) as of December 31, 2018 the values of which 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 at Market Value – Bank Loans, Corporate Bonds, Preferred Stocks and Common Stocks
The Trust uses external independent third-party pricing services to determine the fair values of its Corporate Public Securities. At December 31, 2018, 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.
 
 
 
 
 

41

 
 
Barings Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
Public debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Trust's pricing services use multiple valuation techniques to determine fair value. In instances where significant market activity exists, the pricing services may utilize a market based approach through which quotes from market makers are used to determine fair value. In instances where significant market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal underlying prepayments, collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.
 
The Trust's investments in bank loans are normally valued at the bid quotation obtained from dealers in loans by an independent pricing service in accordance with the Trust's valuation policies and procedures approved by the Trustees.
 
Public equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sales price of that day.
 
At least annually, Barings 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 Barings 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 reviews also include an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations. 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. Barings 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 at Fair Value – Bank Loans, 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. Increases/(decreases) in the discount rate would result in a (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 at Fair Value – 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, to senior and junior subordinated debt, to preferred stock, then finally 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. Increases/(decreases) to the company's EBITDA and/or valuation multiple would result in increases/(decreases) to the equity value.
 
Short-Term Securities
 
Short-term securities with more than sixty days to maturity are valued at fair value, using external independent third-party services. Short-term securities, of sufficient credit quality, having a maturity of sixty days or less are valued at amortized cost, which approximates fair value.
 
New Accounting Pronouncement
 
In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which simplifies the disclosure requirements on fair value measurement. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and early adoption is permitted. The Trust early adopted, and applied, ASU 2018-13 for the year ended December 31, 2018. The adoption of this accounting guidance did not have a material impact on the Trust's financial statements.
 
 
 
 

42

 
 
2018 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
Fair Value Hierarchy
The Trust categorizes its investments measured at fair value in three levels, based on the inputs and assumptions used to determine fair value. These levels are as follows:
Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Trust's own assumptions in determining the fair value of investments)
The following table summarizes the levels in the fair value hierarchy into which the Trust's financial instruments are categorized as of December 31, 2018.
The fair values of the Trust's investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2018 are as follows:
 
Assets:
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Restricted Securities
                       
Corporate Bonds
 
$
59,419,234
   
$
   
$
9,805,696
   
$
49,613,537
 
Bank Loans
   
56,358,155
     
     
     
56,358,155
 
Common Stock - U.S.
   
4,250,108
     
     
     
4,250,108
 
Preferred Stock
   
2,197,761
     
     
     
2,197,761
 
Partnerships and LLCs
   
7,372,814
     
     
     
7,372,814
 
Public Securities
                               
Bank Loans
   
6,536,299
     
     
4,887,840
     
1,648,460
 
Corporate Bonds
   
4,443,464
     
     
4,443,464
     
 
Common Stock - U.S.
   
141,005
     
     
     
141,005
 
Preferred Stock
   
461,600
     
     
461,600
     
 
Short-term Securities
   
     
     
     
 
Total
 
$
141,180,440
   
$
   
$
19,598,600
   
$
121,581,840
 
See information disaggregated by security type and industry classification in the Consolidated Schedule of Investments.
 
 
Quantitative Information about Level 3 Fair Value Measurements
The following table represents quantitative information about Level 3 fair value measurements as of December 31, 2018.
 
 
Fair Value
Valuation Technique
Unobservable Inputs
Range
Weighted**
Bank Loans
$8,496,867
Broker Quote
Single Broker
94.3% to 100.5%
98.3%
 
$49,509,747
Discounted Cash Flows
Discount Rate
5.4% to 12.8%
7.7%
Corporate Bonds
$42,699,828
Discounted Cash Flows
Discount Rate
7.7% to 18.5%
13.1%
 
$6,913,709
Market Approach
Valuation Multiple
3.8x to 9.5x
7.3x
 
 
 
EBITDA
$0.5 million to $15.3 million
$7.8 million
Equity Securities*
$13,699,721
Market Approach
Valuation Multiple
3.8x to 14.1x
8.5x
 
 
 
EBITDA
$0.5 million to $279.6 million
$30.2 million
 
$141,005
Broker Quote
Single Broker
$3.40
$3.40
Certain of the Trust's Level 3 equity securities investments have been valued using unadjusted inputs that have not been internally developed by the Trust, including recently purchased securities held at cost. As a result, fair value of assets of $120,962 have been excluded from the preceding table.
*
Including partnerships and LLC's
**
The weighted averages disclosed in the table above were weighted by relative fair value

43
 
 
Barings Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
 
Assets:
 
Beginning
balance
at 12/31/2017
   
Included in
earnings
   
Purchases
   
Sales
   
Prepayments
   
Transfers
into
Level 3
   
Transfers
out
of Level 3
   
Ending
balance at
12/31/2018
 
Restricted Securities
                                               
Corporate Bonds
 
$
68,182,386
   
$
(2,650,952
)
 
$
6,440,035
   
$
(10,595,245
)
 
$
(11,762,687
)
 
$
   
$
   
$
49,613,537
 
Bank Loans
   
15,737,992
     
(675,429
)
   
45,322,329
     
     
(4,026,737
)
   
     
     
56,358,155
 
Common Stock - U.S.
   
6,911,240
     
1,455,000
     
1,020,961
     
(5,137,093
)
   
     
     
     
4,250,108
 
Preferred Stock
   
3,142,012
     
(678,302
)
   
(141,343
)
   
(124,606
)
   
     
     
     
2,197,761
 
Partnerships and LLCs
   
13,444,928
     
459,380
     
778,527
     
(7,310,021
)
   
     
     
     
7,372,814
 
Public Securities
                                                               
Bank Loans
   
523,461
     
(37,206
)
   
1,608,410
     
(196,999
)
   
(417,916
)
 
$
1,998,878
     
(1,830,169
)
   
1,648,460
 
Common Stock - U.S.
   
     
(59,434
)
   
200,439
     
     
     
     
     
141,005
 
   
$
107,942,020
   
$
(2,186,943
)
 
$
55,229,358
   
$
(23,363,964
)
 
$
(16,207,340
)
 
$
1,998,878
   
$
(1,830,169
)
 
$
121,581,840
 
 
 
Income, Gains and Losses on Level 3 assets included in Net Increase in Net Assets resulting from Operations for the year are presented in the following accounts on the Statement of Operations:
 
   
Net Increase in
Net Assets Resulting
from Operations
   
Change in Unrealized
Gains & (Losses)
in Net Assets
from assets still held
 
Interest (Amortization)
 
$
1,034,142
   
$
 
Net realized gain on investments before taxes
   
4,819,307
     
 
Net change in unrealized appreciation of investments before taxes
   
(8,040,392
)
   
(4,641,587
)
 
 
 
B.
Accounting for Investments:
 
Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis, including the amortization of premiums and accretion of discounts on bonds held. The Trust does not accrue income when payment is delinquent and when management believes payment is questionable.
 
Realized gains and losses on investment transactions are reported for financial statement and Federal income tax purposes on the identified cost method.
 
C. Use of Estimates:
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
D. Federal Income Taxes:
 
The Trust has elected to be taxed as a "regulated investment company" under the Internal Revenue Code, and intends to maintain this qualification and to distribute substantially all of its net taxable income to its shareholders. In any year when net long-term capital gains are realized by the Trust, management, after evaluating the prevailing economic conditions, will recommend that Trustees either designate the net realized long-term gains as undistributed and pay the federal capital gains taxes thereon, or distribute all or a portion of such net gains. In 2018, the Trust incurred $358,635 of tax as a result of retained capital gains.
 
The Trust is taxed as a regulated investment company and is therefore limited as to the amount of non-qualified income that it may receive as the result of operating a trade or business, e.g. the Trust's pro rata share of income allocable to the Trust by a partnership operating company. The Trust's violation of this limitation could result in the loss of its status as a regulated investment company, thereby subjecting all of its net income and capital gains to corporate taxes prior to distribution to its shareholders. The Trust, from time-to-time, identifies investment opportunities in the securities of entities that could cause such trade or business income to be allocable to the Trust. The PI
 
 
 
 

44

 
 
2018 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
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.
 
Net investment income and net realized gains or losses of the Trust as presented under U.S. GAAP may differ from distributable taxable earnings due to earnings from the PI Subsidiary Trust as well as certain permanent and temporary differences in the recognition of income and realized gains or losses on certain investments. In accordance with U.S. GAAP, the Trust has made reclassifications among its capital accounts. These reclassifications are intended to adjust the components of the Trust's net assets to reflect the tax character of permanent book/tax differences and have no impact on the net assets or net asset value of the Trust. As of December 31, 2018, the Trust made reclassifications to increase or (decrease) the components of net assets detailed below:
 
Paid-in
Capital
Total Distributable
Earnings
Retained
Capital Gains
($562,059)
(1,703,402)
$2,265,461
 
The Trusts' current income tax expense as shown on the Statement of Operations is $1,129,002 which is comprised of income tax expense on long term capital gains retained related to the regulated investment company of $358,764 as well as taxes related to the PI Subsidiary Trust as described in the table below of $770,238.
 
The PI Subsidiary Trust is not taxed as a regulated investment company. Accordingly, prior to the Trust receiving any distributions from the PI Subsidiary Trust, all of the PI Subsidiary Trust's taxable income and realized gains, including non-qualified income and realized gains, is subject to taxation at prevailing corporate tax rates.
 
The components of income taxes included in the consolidated statement of operations for the year ended December 31, 2018 were as follows:
 
Income tax expense (benefit)
 
Current:
     
Federal
 
$
517,735
 
State
   
252,503
 
 
       
Total current
   
770,238
 
 
       
Deferred:
       
Federal
 
$
 
State
   
 
 
       
Total deferred
   
 
 
       
Total income tax expense from continuing operations
 
$
770,238
 
 
       
 
 
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 December 31, 2018, the PI Subsidiary Trust has no deferred tax liability.
 
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2018 were as follows:
 
Deferred tax assets:
 
Unrealized loss on investments
 
$
244,670
 
 
       
Total deferred tax assets
   
244,670
 
 Less valuation allowance
   
(244,670
)
 
       
Net deferred tax asset
   
 
 
       
Unrealized gain on investments
   
 
 
       
Total deferred tax liabilities
   
 
 
       
Net deferred tax liability
 
$
 
 
       
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. Tax positions not deemed to meet the "more-likely-than-not" threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. 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 year ended December 31, 2018.
 
A reconciliation of the differences between the PI Subsidiary Trust's income tax expense and the amount computed by applying the prevailing U.S. federal tax rate to pretax income for the year ended December 31, 2018 is as follows:
 
 
 
Amount
   
Percentage
 
             
Provision for income taxes at the U.S. federal rate
 
$
(155,420
)
   
21.00
%
                 
State tax, net of federal effect
   
33,859
     
-4.58
%
                 
Change in valuation allowance
   
769,713
     
-104.00
%
                 
Other
   
122,086
     
-16.49
%
 
               
Income tax expense
 
$
770,238
     
-104.07
%
 
               
 
 
 
 

45

 
 
Barings Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
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.
The tax basis components of distributable earnings at December 31, 2018 are as follows:
 
Undistributed Ordinary Income
 
$
227,094
 
         
Accumulated Realized Gain
   
3,797,433
 
         
Net Unrealized Appreciation/(Depreciation)
   
(6,838,726
)
 
The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are primarily due to partnership investments.
The following information is provided on a tax basis as of December 31, 2018:
 
Tax Cost
 
$
148,019,166
 
         
Tax Unrealized Appreciation
   
4,947,082
 
         
Tax Unrealized Depreciation
   
(11,785,808
)
         
Net Unrealized Depreciation
   
(6,838,726
)
 
The tax character of distributions declared during the years ended December 31, 2018 and 2017 was as follows:
 
Distributions paid from:
 
2018
   
2017
 
             
Ordinary Income
 
$
11,342,034
   
$
11,265,910
 
 
3.
Investment Advisory and Administrative Services Contract
A. Services:
 
Under an Investment Advisory and Administrative Services Contract (the "Contract") with the Trust, Barings has agreed to use its best efforts to present to the Trust a continuing and suitable investment program consistent with the investment objectives and policies of the Trust. Barings 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, Barings 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, Barings is paid a quarterly investment advisory fee equal to 0.225% of the value of the Trust's net assets as of the last business day of each fiscal quarter, an amount approximately equivalent to 0.90% on an annual basis. A majority of the Trustees, including a majority of the Trustees who are not interested persons of the Trust or of Barings, approve the valuation of the Trust's net assets as of such day.
4.
Senior Indebtedness
MassMutual holds the Trust's $15,000,000 Senior Fixed Rate Convertible Note (the "Note") issued by the Trust on December 13, 2011. The Note is due December 13, 2023 and accrues interest at 4.09% per annum. MassMutual, at its option, can convert the principal amount of the Note into common shares. The dollar amount of principal would be converted into an equivalent dollar amount of common shares based upon the average price of the common shares for ten business days prior to the notice of conversion. For the year ended December 31, 2018, the Trust incurred total interest expense on the Note of $613,500.
 
The Trust may redeem the Note, in whole or in part, at the principal amount proposed to be redeemed together with the accrued and unpaid interest thereon through the redemption date plus the Make Whole Premium. The Make Whole Premium equals the excess of (i) the present value of the scheduled payments of principal and interest which the Trust would have paid but for the proposed redemption, discounted at the rate of interest of U.S. Treasury obligations whose maturity approximates that of the Note plus 0.50% over (ii) the principal of the Note proposed to be redeemed.
 
Management estimates that the fair value of the Note was $15,353,130 as of December 31, 2018. The fair value measurement of the Note would be categorized as a Level 3 under ASC 820.
5.
Purchases and Sales of Investments
 
 
 
For the year ended
12/31/18
 
 
 
Cost of
Investments
Acquired
   
Proceeds
from
Sales or
Maturities
 
             
Corporate restricted securities
 
$
60,275,541
   
$
48,023,873
 
                 
Corporate public securities
   
10,132,599
     
29,658,512
 

 
 

46
 
 
2018 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
The net unrealized depreciation of investments for financial reporting purposes as of December 31, 2018 is $(6,288,930) and consists of $5,553,819 appreciation and $11,842,749 depreciation.
 
6.
Quarterly Results of Investment Operations (Unaudited)
 
 
 
March 31, 2018
 
 
 
Amount
   
Per Share
 
             
Investment income
 
$
3,392,477
       
Net investment income
   
2,738,514
   
$
0.26
 
Net realized and unrealized loss on investments (net of taxes)
   
(2,552,957
)
   
(0.24
)
                 
 
 
 
 
June 30, 2018
 
 
 
Amount
   
Per Share
 
                 
Investment income
 
$
3,359,783
         
Net investment income
   
2,713,074
   
$
0.26
 
Net realized and unrealized loss on investments (net of taxes)
   
(2,104,355
)
   
(0.20
)
                 
 
 
 
 
September 30, 2018
 
 
 
Amount
   
Per Share
 
                 
Investment income
 
$
3,555,549
         
Net investment income
   
2,887,579
   
$
0.28
 
Net realized and unrealized gain on investments (net of taxes)
   
1,650,014
     
0.15
 
                 
 
 
 
 
December 31, 2018
 
 
 
Amount
   
Per Share
 
                 
Investment income
 
$
3,361,181
         
Net investment income
   
2,458,072
   
$
0.23
 
Net realized and unrealized loss on investments (net of taxes)
   
(4,150,383
)
   
(0.39
)
 
7.
Investment Risks
In the normal course of its business, the Trust trades various financial instruments and enters into certain investment activities with investment risks. These risks include: (i) market risk, (ii) volatility risk and (iii) credit, counterparty and liquidity risk. It is the Trust's policy to identify, measure and monitor risk through various mechanisms including risk management strategies and credit policies. These include monitoring risk guidelines and diversifying exposures across a variety of instruments, markets and counterparties. There can be no assurance that the Trust will be able to implement its credit guidelines or that its risk monitoring strategies will be successful.
 
8.
Commitments and Contingencies
During the normal course of business, the Trust may enter into contracts and agreements that contain a variety of representations and warranties. The exposure, if any, to the Trust under these arrangements is unknown as this would involve future claims that may or may not be made against the Trust and which have not yet occurred. The Trust has no history of prior claims related to such contracts and agreements.
 
At December 31, 2018, the Trust had the following unfunded commitments:
 
Investment
 
Unfunded Amount
 
ROI Solutions
 
$
961,561
 
LAC Acquisition LLC
 
$
888,889
 
VP Holding Company
 
$
693,100
 
CORA Health Services
 
$
623,370
 
Specified Air Solutions
 
$
500,290
 
U.S. Legal Support, Inc.
 
$
406,141
 
UBEO, LLC
 
$
352,841
 
Pegasus Transtech Corporation
 
$
136,944
 
U.S. Retirement and Benefit Partners, Inc.
 
$
117,300
 
New Mountain Learning, LLC
 
$
93,362
 
Polytex Holdings LLC
 
$
14,274
 
 
9.
Aggregate Remuneration Paid to Officers, Trustees and Their Affiliated Persons
For the year ended December 31, 2018, the Trust paid its Trustees aggregate remuneration of $256,000. During the year, the Trust did not pay any compensation to any of its Trustees who are "interested persons" (as defined by the 1940 Act) of the Trust. The Trust classifies Messrs. Noreen and Joyal as "interested persons" of the Trust.
 
All of the Trust's officers are employees of Barings or MassMutual. Pursuant to the Contract, the Trust does not compensate its officers who are employees of Barings or MassMutual (except for the Chief Compliance Officer of the Trust unless assumed by Barings). For the year ended December 31, 2018, Barings paid the compensation of the Chief Compliance Officer of the Trust.
 
Mr. Noreen, one of the Trust's Trustees, is an "affiliated person" (as defined by the 1940 Act) of MassMutual and Barings.
 

47

 
 
Barings Participation Investors

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
In addition to the amounts payable pursuant to the Contract, the Trust paid Barings $3,831 to reimburse expenses paid on behalf of the Trust.
 
10.
Certifications
As required under New York Stock Exchange ("NYSE") Corporate Governance Rules, the Trust's principal executive officer has certified to the NYSE that he was not aware, as of the certification date, of any violation by the Trust of the NYSE's Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Trust's principal executive and principal financial officers have made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q, relating to, among other things, the Trust's disclosure controls and procedures and internal control over financial reporting, as applicable.
 
11.
Subsequent Events
The Trust has evaluated the possibility of subsequent events after the balance sheet date of December 31, 2018, through the date that the financial statements are issued. The Trust has determined that there are no material events that would require recognition or disclosure in this report through this date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

48

 
 
2018 Annual Report

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of Barings Participation Investors
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities of Barings Participation Investors and subsidiary (collectively, the "Trust"), including the consolidated schedule of investments, as of December 31, 2018, the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the consolidated financial statements) and the consolidated financial highlights for each of the years in the five-year period then ended. In our opinion, the consolidated financial statements and consolidated financial highlights present fairly, in all material respects, the financial position of the Trust as of December 31, 2018, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements and consolidated financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and consolidated financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements and consolidated financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements and consolidated financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2018, by correspondence with custodians and brokers or by other appropriate auditing procedures when replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and consolidated financial highlights. We believe that our audits provide a reasonable basis for our opinion.
 
We have served as the auditor of the Trust since 2004.
Boston, Massachusetts
February 28, 2019
 
 
 
 
 
 
 
 
 

49
 
 
Barings Participation Investors

INTERESTED TRUSTEES
 
 
Name (Age), Address
Position(s) With
The Trust(s)
Office Term and Length
of Time Served
Principal Occupations
During Past 5 Years
Portfolios Overseen
in Fund Complex
Other Directorships
Held by Director
Clifford M. Noreen* (61)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
Trustee,
Chairman
Term expires 2021;
Trustee since 2009
Deputy Chief Investment Officer and Managing Director (since 2016), MassMutual; President (2008-2016), Vice Chairman (2007-2008), Member of the Board of Managers (2006-2016), Managing Director (2000-2016), Barings; President (2005-2009), Vice President (1993-2005) of the Trusts.
2
Chairman and Trustee (since 2009), President (2005-2009), Vice President (1993-2005), Barings Corporate Investors; President (since 2009), Senior Vice President (1996-2009), HYP Management LLC (LLC Manager); Member of the Board of Managers (since 2008), Jefferies Finance LLC (finance company); Chairman and Chief Executive Officer (since 2009), Member of the Board of Managers (since 2007), MMC Equipment Finance LLC; Chairman (since 2009), Trustee (since 2005), President (2005-2009), CI Subsidiary Trust and PI Subsidiary Trust; Member of the Investment Committee (since 1999), Diocese of Springfield; Member of the Investment Committee (since 2015), Baystate Health Systems; Member of the Board of Managers (2011-2016), Wood Creek Capital Management, LLC (investment advisory firm); Director (2005-2013), MassMutual Corporate Value Limited (investment company); Director (2005-2013), MassMutual Corporate Value Partners Limited (investment company);.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*
Mr. Noreen is classified as an "interested person" of each Trust and Barings (as defined by the 1940 Act), because of his position as an Officer of each Trust and his former position as President of Barings.
 
 
 
 

50

 
2018 Annual Report

INTERESTED TRUSTEES
 
 
Name (Age), Address
Position(s) With
The Trust(s)
Office Term and Length
of Time Served
Principal Occupations
During Past 5 Years
Portfolios Overseen
in Fund Complex
Other Directorships
Held by Director
Robert E. Joyal* (74)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
Trustee /
Nominee
Term expires 2019;
Trustee since 2003
Retired (since 2003); President (2001-2003), Barings; President (1993-2003) of the Trusts.
106
Trustee (since 2003), President (1993-2003), Barings Corporate Investors; Trustee (since 2003), MassMutual Select Funds (open-end investment company advised by MassMutual); Trustee (since 2003), MML Series Investment Funds (open-end investment company advised by MassMutual); Trustee (since 2012), MML Series Investment Funds II (open-end investment company advised by MassMutual); Trustee (since 2012), MassMutual Premier Funds (open-end investment company advised by MassMutual); Director (since 2013), Leucadia National Corporation (holding company owning businesses ranging from insurance to telecommunications); Director (2012-2017), Ormat Technologies, Inc. (geothermal energy company); Director (2013-2016), Baring Asset Management (Korea) Limited (company that engages in asset management, business administration and investment management); Director (2006-2014), Jefferies Group, Inc. (financial services).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*
Mr. Joyal retired as President of Barings in June 2003. In addition and as noted above, Mr. Joyal is a Director of Leucadia National Corporation, which is the parent company of Jefferies Finance, LLC, and a former Director of Jefferies Group, Inc., which has a wholly-owned broker-dealer subsidiary that may execute portfolio transactions and/or engage in principal transactions with the Trusts, other investment companies advised by Barings or any other advisory accounts over which Barings has brokerage placement discretion. Accordingly, the Trusts have determined to classify Mr. Joyal as an "interested person" of the Trusts and Barings (as defined by the 1940 Act).
 
 
 

51
 
 
Barings Participation Investors

INDEPENDENT TRUSTEES
 
 
 
Name (Age), Address
Position(s) With
The Trust(s)
Office Term and Length
of Time Served
Principal Occupations
During Past 5 Years
Portfolios Overseen
in Fund Complex
Other Directorships
Held by Director
Michael H. Brown (61)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
 
Trustee
Term expires 2020;
Trustee since 2005
Private Investor; Managing Director (1994-2005), Morgan Stanley.
2
Trustee (since 2005), Barings Corporate Investors; Independent Director (2006-2014), Invicta Holdings LLC and its subsidiaries (derivative trading company owned indirectly by MassMutual).
 
 
 
 
 
 
Barbara M. Ginader (62)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
Trustee
Term expires 2020;
Trustee since 2013
Retired (since 2017); Managing Director and General Partner (1993-2017), Boston Ventures Management (private equity firm).
2
Trustee (since 2013), Barings Corporate Investors; Member of the Board of Overseers (since 2013), MSPCA-Angell Memorial Hospital; Member of the Grants Committee (2012-2017), IECA Foundation; Managing Director (1993-2017), Boston Ventures V, L.P. (private equity fund); Managing Director (1993-2016), Boston Ventures VI, L.P. (private equity fund).
 
 
 
 
 
 
Edward P. Grace III (68)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
Trustee
Term expires 2021;
Trustee since 2012
President (since 1997), Phelps Grace International, Inc. (investment management); Managing Director (since 1998), Grace Venture Partners LP (venture capital fund); Senior Advisor (2011-2017), Angelo Gordon & Co. (investment adviser).
2
Trustee (since 2012), Barings Corporate Investors; Director (since 2012), Benihana, Inc. (restaurant chain); Director (2011-2018), Firebirds Wood Fired Holding Corporation (restaurant chain); Director (since 1998), Shawmut Design and Construction (construction management and general contracting firm); Director (2010-2017), Larkburger, Inc. (restaurant chain).
 
 
 
 
 
 
Susan B. Sweeney (66)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
Trustee /
Nominee
Term expires 2019;
Trustee since 2012
Retired (since 2014); Senior Vice President and Chief Investment Officer (2010-2014), Selective Insurance Company of America; Senior Managing Director (2008-2010), Ironwood Capital.
106
Trustee (since 2012), Barings Corporate Investors; Trustee (since 2009), MassMutual Select Funds (open-end investment company advised by MassMutual); Trustee (since 2009), MML Series Investment Funds (open-end investment company advised by MassMutual); Trustee (since 2012), MML Series Investment Funds II (open-end investment company advised by MassMutual); Trustee (since 2012), MassMutual Premier Funds (open-end investment company advised by MassMutual).
 
 
 
 
 
 
 
 
 
 
 
 
 

52
 

 
2018 Annual Report

INDEPENDENT TRUSTEES
 
 
Name (Age), Address
Position(s) With
The Trust(s)
Office Term and Length
of Time Served
Principal Occupations
During Past 5 Years
Portfolios Overseen
in Fund Complex
Other Directorships
Held by Director
Maleyne M. Syracuse (62)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
Trustee
Term expires 2020;
Trustee since 2007
Private Investor (since 2007); Managing Director (2000-2007), JP Morgan Securities, Inc. (investment banking); Managing Director (1999-2000), Deutsche Bank Securities; Managing Director (1981-1999), Bankers Trust/BT Securities.
2
Trustee (since 2007), Barings Corporate Investors, Member of the Board of Directors (since 1998) and President of the Board (since 2002), Peters Valley School of Craft (non-profit arts organization); Member of the Board of Directors (since 2014) and Treasurer (since 2017), Charles Lawrence Keith & Clara Miller Foundation (non-profit philanthropic foundation); Member of the Board of Directors (since 2015) and Treasurer of the Board (since 2016), Greater Pike Community Foundation (non-profit philanthropic foundation).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

53

 
Barings Participation Investors

OFFICERS OF THE TRUST
 
 
Name (Age), Address
Position(s) With
The Trust(s)
Office Term* and Length
of Time Served
Principal Occupations(s)
During Past 5 Years
Robert M. Shettle (51)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
 
President
Since 2016
President (since 2016), Vice President (2015-2016) of Barings Corporate Investors; Managing Director (since 2006), Director (1998-2006), Barings; President (since 2016), Vice President (2005-2016), CI Subsidiary Trust and PI Subsidiary Trust.
 
 
 
 
James M. Roy (56)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
 
Vice President
and
Chief Financial Officer
Since 2005
Vice President and Chief Financial Officer (since 2005), Treasurer (2003-2005), Associate Treasurer (1999-2003) of Barings Corporate Investors; Managing Director (since 2005), Director (2000-2005), Barings; Trustee (since 2005), Treasurer (since 2005), Controller (2003-2005), CI Subsidiary Trust and PI Subsidiary Trust.
 
 
 
 
Janice M. Bishop (53)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
Vice President, Secretary
and Chief Legal Officer
Since 2015
Secretary and Chief Legal Officer (since 2018), Barings BDC, Inc.; Vice President, Secretary and Chief Legal Officer (since 2015), Associate Secretary (2008-2015) of Barings Corporate Investors; Vice President, Secretary and Chief Legal Officer (since 2013), Barings Funds Trust (open-end investment company advised by Barings); Vice President, Secretary and Chief Legal Officer (since 2012), Barings Global Short Duration High Yield Fund (closed-end investment company advised by Barings); Senior Counsel and Managing Director (since 2014), Counsel (2007-2014), Barings; Vice President and Secretary (since 2015), Assistant Secretary (2008-2015), CI Subsidiary Trust and PI Subsidiary Trust.
 
 
 
 
Melissa M. LaGrant (45)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
 
Chief Compliance
Officer
Since 2006
Managing Director and Deputy Chief Compliance Officer (since 2019), Managing Director (since 2006), Barings; Chief Compliance Officer (since 2006), Barings Corporate Investor; Chief Compliance Officer (since 2018), Barings BDC, Inc.; Chief Compliance Officer (since 2013), Barings Finance LLC; Chief Compliance Officer (since 2013), Barings Funds Trust (open-end investment company advised by Barings); Chief Compliance Officer (since 2012), Barings Global Short Duration High Yield Fund (closed-end investment company advised by Barings).
 
 
 
 
Christopher Hanscom (36)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
 
Treasurer
Since 2017
Treasurer (since 2017), Barings Corporate Investors; Director (since 2018), Associate Director (2015-2018), Analyst (2005-2015), Barings.
 
 
 
 
Sean Feeley (51)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
 
Vice President
Since 2011
Managing Director (since 2003), Barings; Vice President (since 2011), Barings Corporate Investors; President (since 2017), Vice President (2012-2017), Barings Global Short Duration High Yield Fund (closed-end investment company advised by Barings); Vice President (since 2011), CI Subsidiary Trust and PI Subsidiary Trust.
 
 
 
 
Christina Emery (45)
 
1500 Main Street
P.O. Box 15189
Springfield, MA 01115-5189
 
Vice President
Since 2018
Vice President (since 2018), Barings Corporate Investors; Managing Director (since 2005), Barings.
 
*
Officers hold their position with the Trusts until a successor has been duly elected and qualified. Officers are generally elected annually by the Board of each Trust. The officers were last elected on July 25, 2018.
 

54
 

 
2018 Annual Report


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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55
 

 
Barings Participation Investors


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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56

 
Barings Participation Investors

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

Barings Participation Investors (the "Trust") offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan"). The Plan provides a simple and automatic way for shareholders to add to their holdings in the Trust through the receipt of dividend shares issued by the Trust or through the reinvestment of cash dividends in Trust shares purchased in the open market. The dividends of each shareholder will be automatically reinvested in the Trust by DST Systems, Inc., the Transfer Agent, in accordance with the Plan, unless such shareholder elects not to participate by providing written notice to the Transfer Agent. A shareholder may terminate his or her participation by notifying the Transfer Agent in writing.
 
Participating shareholders may also make additional contributions to the Plan from their own funds. Such contributions may be made by personal check or other means in an amount not less than $100 nor more than $5,000 per quarter. Cash contributions must be received by the Transfer Agent at least five days (but no more then 30 days) before the payment date of a dividend or distribution.
 
Whenever the Trust declares a dividend payable in cash or shares, the Transfer Agent, acting on behalf of each participating shareholder, will take the dividend in shares only if the net asset value is lower than the market price plus an estimated brokerage commission as of the close of business on the valuation day. The valuation day is the last day preceding the day of dividend payment. When the dividend is to be taken in shares, the number of shares to be received is determined by dividing the cash dividend by the net asset value as of the close of business on the valuation date or, if greater than net asset value, 95% of the closing share price. If the net asset value of the shares is higher than the market value plus an estimated commission, the Transfer Agent, consistent with obtaining the best price and execution, will buy shares on the open market at current prices promptly after the dividend payment date.
 
The reinvestment of dividends does not, in any way, relieve participating shareholders of any federal, state or local tax. For federal income tax purposes, the amount reportable in respect of a dividend received in newly-issued shares of the Trust will be the fair market value of the shares received, which will be reportable as ordinary income and/or capital gains.
 
As compensation for its services, the Transfer Agent receives a fee of 5% of any dividend and cash contribution (in no event in excess of $2.50 per distribution per shareholder.)
 
Any questions regarding the Plan should be addressed to DST Systems, Inc., Agent for Barings Participation Investors' Dividend Reinvestment and Cash Purchase Plan, P.O. Box 219086, Kansans City, MO 64121-9086.
 
Members of the Board of Trustees
Michael H. Brown*
Private Investor
Barbara M. Ginader*
Retired Managing Director and General Partner
Boston Ventures Management
 
Edward P. Grace*
President
Phelps Grace International, Inc
Robert E. Joyal
Retired President,
Barings LLC
Clifford M. Noreen
Deputy Chief Investment Officer
Massachusetts Mutual Life Insurance Company
 
Susan B. Sweeney*
Private Investor
Maleyne M. Syracuse*
Private Investor
 
 
 
Officers
Clifford M. Noreen
Chairman
Robert M. Shettle
President
James M. Roy
Vice President &
Chief Financial Officer
Janice M. Bishop
Vice President, Secretary &
Chief Legal Officer
 
Sean Feeley
Vice President
Christopher D. Hanscom
Treasurer
Melissa M. LaGrant
Chief Compliance Officer
Christina Emery
Vice President
 
 
* Member of the Audit Committee
 
1
 
 
 
         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barings
PARTICIPATION INVESTORS
2018 Annual Report
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PI6370   
 
 

ITEM 2. CODE OF ETHICS.

 

The Registrant adopted a Code of Ethics for Senior Financials Officers (the "Code") on October 17, 2003, which is available on the Registrant's website at www.barings.com/mpv. During the period covered by this Form N-CSR, there were no amendments to, or waivers from, the Code.

  

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

 

The Registrant's Board of Trustees has determined that Mr. Michael H. Brown, a Trustee of the Registrant and a member of its Audit Committee, is an audit committee financial expert. Mr. Brown is "independent" for purposes of this Item 3 as required by applicable regulation.

 

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

The Registrant has engaged its principal accountant, KPMG LLP, to perform audit services, audit-related services, tax services and other services during the past two fiscal years. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years by KPMG LLP.

 

Fees Billed to the Registrant:

 

 

 

KPMG LLP

 

 

KPMG LLP

 

 

 

Year Ended

 

 

Year Ended

 

 

 

December 31,

2018

 

 

December 31,

2017

 

Audit Fees

 

$ 117,150

 

 

$ 97,625

 

Audit-Related Fees

 

 

17,500

 

 

 

0

 

Tax Fees

 

 

45,665

 

 

 

45,665

 

All Other Fees

 

 

0

 

 

 

0

 

Total Fees

 

$ 180,315

 

 

$ 143,290

 


 

Non-Audit Fees Billed to Barings and MassMutual:

 

 

 

KPMG LLP

 

 

KPMG LLP

 

 

 

Year Ended

 

 

Year Ended

 

 

December 31,

2018

 

 

December 31,

2017

 

Audit-Related Fees

 

$ 1,425,297

 

 

$ 1,618,525

 

Tax Fees

 

 

415,500

 

 

 

30,000

 

All Other Fees

 

 

2,730

 

 

 

202,280

 

Total Fees

 

$ 1,843,527

 

 

$ 1,850,805

 


 

The category "Audit Fees" refers to performing an audit of the Registrant's annual financial statements or services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements for those fiscal years. The category "Audit-Related Fees" reflects fees billed by KPMG LLP for various non-audit and non-tax services rendered to the Registrant, Barings and MassMutual, such as a SOC - 1 review, consulting and agreed upon procedures reports. Preparation of Federal, state and local income tax and tax compliance work are representative of the fees reported in the "Tax Fees" category. The category "All Other Fees" represents fees billed by KPMG LLP for consulting rendered to the Registrant, Barings and MassMutual.

 

The Sarbanes-Oxley Act of 2002 and its implementing regulations allow the Registrant's Audit Committee to establish a pre-approval policy for certain services rendered by the Registrant's principal accountant. During 2016, the Registrant's Audit Committee approved all of the services rendered to the Registrant by KPMG LLP and did not rely on such a pre-approval policy for any such services.

 

The Audit Committee has also reviewed the aggregate fees billed for professional services rendered by KPMG LLP for 2017 and 2018 for the Registrant and for the non-audit services provided to Barings, and Barings' parent, MassMutual. As part of this review, the Audit Committee considered whether the provision of such non-audit services was compatible with maintaining the principal accountant's independence.

 

The 2017 fees billed represent final 2017 amounts, which may differ from the preliminary figures available as of the filing date of the Registrant's 2017 Annual Form N-CSR and includes, among other things, fees for services that may not have been billed as of the filing date of the Registrant's 2017 Annual Form N-CSR, but are now properly included in the 2017 fees billed to the Registrant, Barings and MassMutual.

  


ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

 

The Registrant maintains an Audit Committee composed exclusively of Trustees of the Registrant who qualify as "independent" Trustees under the current listing standards of the New York Stock Exchange and the rules of the U.S. Securities and Exchange Commission. The Audit Committee operates pursuant to a written Audit Committee Charter, which is available (1) on the Registrant's website, www.barings.com/mpv; and (2) without charge, upon request, by calling, toll-free 866-399-1516. The current members of the Audit Committee are Michael H. Brown, Barbara M. Ginader, Edward P. Grace, III, Susan B. Sweeney and Maleyne M. Syracuse.

 

 

ITEM 6. SCHEDULE OF INVESTMENTS

 

A schedule of investments for the Registrant is included as part of this report to shareholders under Item 1 of this Form N-CSR.

 

 

ITEM 7.  DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.


The Registrant's Board of Trustees has delegated proxy voting responsibilities relating to the voting securities held by the Registrant to its investment adviser, Barings LLC ("Barings"). A summary of Barings' proxy voting policies and procedures are set forth below.

 

Summary of Barings' Proxy Voting Policy:

Barings understands that the voting of proxies is an integral part of its investment management responsibility and believes, as a general principle, that proxies should be acted upon (voted or abstained) solely in the best interest of its clients (i.e. in a manner believed by Barings to best pursue a client's investment objectives).  To implement this general principle, Barings engages a proxy service provider (the "Service Provider") that is responsible for processing and maintaining records of proxy votes.  In addition, the Service Provider will retain the services of an independent third party research provider (the "Research Provider") to provide research and recommendations on proxies.  It is Barings' Global Proxy Voting Policy to generally vote proxies in accordance with the recommendations of the Research Provider.  In circumstances where the Research Provider has not provided recommendations with respect to a proxy, Barings will vote in accordance with the Research Provider's proxy voting guidelines (the "Guidelines").  In circumstances where the Research Provider has not provided a recommendation or has not contemplated an issue within its Guidelines, the proxy will be analyzed on a case-by-case basis.

Barings recognizes that there are times when it is in the best interest of clients to vote proxies (i) against the Research Provider's recommendations or (ii) in instances where the Research Provider has not provided a recommendation vote against the Guidelines.  Barings can vote, in whole or in part, against the Research Provider's recommendations or Guidelines, as it deems appropriate.  The procedures set forth in the Global Proxy Voting Policy are designed to ensure that votes against the Research Provider's recommendations or Guidelines are made in the best interests of clients and are not the result of any material conflict of interest (a "Material Conflict").  For purposes of the Global Proxy Voting Policy, a Material Conflict is defined as any position, relationship or interest, financial or otherwise, of Barings or a Barings associate that could reasonably be expected to affect the independence or judgment concerning proxy voting.

Summary of Barings' Proxy Voting Procedures:

Barings will vote all client proxies for which it has proxy voting discretion, where no Material Conflict exists, in accordance with the Research Provider's recommendations or Guidelines, unless (i) Barings is unable or determines not to vote a proxy in accordance with the Global Proxy Voting Policy or (ii) an authorized investment person or designee (a "Proxy Analyst") determines that it is in the client's best interests to vote against the Research Provider's recommendations or Guidelines.  In such cases where a Proxy Analyst believes a proxy should be voted against the Research Provider's recommendations or Guidelines, the proxy administrator will vote the proxy in accordance with the Proxy Analyst's recommendation as long as (i) no other Proxy Analyst disagrees with such recommendation and (ii) no known Material Conflict is identified by the Proxy Analyst(s) or the proxy administrator.  If a Material Conflict is identified by a Proxy Analyst or the proxy administrator, the proxy will be submitted to the Trading Practices Committee to determine how the proxy is to be voted in order to achieve that client's best interests.

No associate, officer, director or board of managers/directors of Barings or its affiliates (other than those assigned such responsibilities under the Global Proxy Voting Policy) can influence how Barings votes client proxies, unless such person has been requested to provide assistance by a Proxy Analyst or Trading Practices Committee member and has disclosed any known Material Conflict.  Pre-vote communications with proxy solicitors are prohibited.  In the event that pre-vote communications occur, it should be reported to the Trading Practices Committee or Barings' Chief Compliance Officer prior to voting.  Any questions or concerns regarding proxy-solicitor arrangements should be addressed to Barings' Chief Compliance Officer.

Investment management agreements generally delegate the authority to vote proxies to Barings in accordance with Barings' Global Proxy Voting Policy.  In the event an investment management agreement is silent on proxy voting, Barings should obtain written instructions from the client as to their voting preference.  However, when the client does not provide written instructions as to their voting preferences, Barings will assume proxy voting responsibilities.  In the event that a client makes a written request regarding voting, Barings will vote as instructed.

Obtaining a Copy of the Proxy Voting Policy

Clients can obtain a copy of Barings' Proxy Voting Policy and information about how Barings voted proxies related to their securities, free of charge, by contacting the Chief Compliance Officer, Barings LLC, 1500 Main Street, Suite 2800, P.O. Box 15189, Springfield, MA 01115-5189, or calling toll-free, 1-877-766-0014.

 

ITEM 8.  PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

 
The following disclosure item is made as of the date of this Form N-CSR unless otherwise indicated.

PORTFOLIO MANAGER.  Robert M. Shettle serves as the President of the Registrant (since June 2016) and as one of its Portfolio Managers.  Mr. Shettle began his service to the Registrant in 2015 as a Vice President.  With over 19 years of industry experience, Mr. Shettle is a Managing Director of Barings and Head of the North America Mezzanine and Private Equity Group of Barings.  He joined Barings in 2006.  Prior to joining Barings, he spent six years at Fleet National Bank as a Vice President and commercial loan officer and three years at Anderson Consulting.  At Barings, he has focused on originating, analyzing, structuring and documenting mezzanine and private equity investments.  Mr. Shettle holds a B.S. from the University of Connecticut and a M.B.A. from Rensselaer Polytechnic Institute.  He is also a Chartered Financial Analyst.  Mr. Shettle also presently serves as President of Barings Participation Investors, another closed-end management investment company advised by Barings.

PORTFOLIO MANAGEMENT TEAM.  Mr. Shettle has primary responsibility for overseeing the investment of the Registrant's portfolio, with the day-to-day investment management responsibility of the Registrant's portfolio being shared with the following Barings' investment professional (together with the Portfolio Manager, the "Portfolio Team").
 
Sean Feeley is responsible for the day-to-day management of the Registrant's public high yield and investment grade fixed income portfolio.  Mr. Feeley has been a Vice President of the Registrant since 2011.  Mr. Feeley is a Managing Director of Barings and head of the High Yield Research Team with over 24 years of industry experience in high yield bonds and loans in various investment strategies.  Prior to joining Barings in 2003, he was a Vice President at Cigna Investment Management in project finance and a Vice President at Credit Suisse in leveraged loan finance.  Mr. Feeley holds a B.S. from Canisius College and an M.B.A. from Cornell University. Mr. Feeley is a Certified Public Accountant and a Chartered Financial Analyst.  Mr. Feeley also serves as Vice President of Barings Participation Investors and President of Barings Global Short Duration High Yield Fund, both closed-end management investment companies advised by Barings.
 
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO TEAM.  The members of the Registrant's Portfolio Team also have primary responsibility for the day-to-day management of other Barings advisory accounts, including, among others, closed-end and open-end investment companies, private investment funds, MassMutual-affiliated accounts, as well as separate accounts for institutional clients. These advisory accounts are identified below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGEMENT TEAM.

 

 

 

 

 

 

 

 

 

 

NUMBER OF

 

 

 

 

 

 

 

 

 

 

 

 

ACCOUNTS

 

 

APPROXIMATE

 

 

 

 

TOTAL

 

 

 

 

WITH

 

 

ASSET SIZE OF

 

 

 

 

NUMBER

 

 

APPROXIMATE

 

PERFORMANCE-

 

 

PERFORMANCE-

PORTFOLIO

 

ACCOUNT

 

OF

 

 

TOTAL ASSET

 

BASED

 

 

BASED ADVISORY

TEAM

 

CATEGORY

 

ACCOUNTS

 

 

SIZE1, 2

 

ADVISORY FEE

 

 

FEE ACCOUNTS1, 2

 

 

 

 

 

 

 

 

 

 

 

 

 

Eric

 

Registered

 

 

4

 

 

$1,129.65

 

 

0

 

 

$0

Lloyd 3

 

Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Pooled

 

 

4

 

 

$1,318.04

 

 

0

 

 

$0

 

 

Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

0

 

 

$0

 

 

0

 

 

$0

 

 

Accounts

 

 

 

 

 

 

 

 

 

 

 

 

                             
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert M.

 

Registered

 

 

1

 

 

$327.82

 

 

0

 

 

$0

Shettle

 

Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Pooled

 

 

9

 

 

$436.66

 

 

0

 

 

$0

 

 

Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

0

 

 

$0

 

 

0

 

 

$0

 

 

Accounts4

 

 

 

 

 

 

 

 

 

 

 

 

                             
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sean

 

Registered

 

 

5

 

 

$1,596.51

 

 

0

 

 

$0

Feeley

 

Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Pooled

 

 

9

 

 

$2,101.91

 

 

0

 

 

$0

 

 

Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

22

 

 

$2,827.01

 

 

0

 

 

$0

 

 

Accounts5

 

 

 

 

 

 

 

 

 

 

 

 

 
 
1
Account assets have been calculated as of December 31, 2018.

2
Account size in millions.
 
3
Mr. Lloyd, as head of Barings' Global Private Finance Group, has overall responsibility for all middle market senior and mezzanine securities managed by Barings.  Except for the accounts noted in the table above, Mr. Lloyd is not primarily responsible for the day-to-day management of other accounts managed by Barings' Global Private Finance Group.
 
4
Mr. Shettle manages the middle market senior and mezzanine securities of the general investment account of Massachusetts Mutual Life Insurance Company and C.M. Life Insurance Company; however, these assets are not represented in the table above.

5
Mr. Feeley managed the high yield sector of the general investment account of Massachusetts Mutual Life Insurance Company and C.M. Life Insurance Company; however, these assets are not represented in the table above.
 
 


MATERIAL CONFLICTS OF INTEREST.  The potential for material conflicts of interest may exist as the members of the Portfolio Management Team have responsibilities for the day-to-day management of multiple advisory accounts.  These conflicts may be heightened to the extent the individual, Barings and/or an affiliate has an investment in one or more of such accounts.  Barings has identified (and summarized below) areas where material conflicts of interest are most likely to arise, and has adopted policies and procedures that it believes are reasonable to address such conflicts.

Transactions with Affiliates:  From time to time, Barings or its affiliates, including MassMutual and its affiliates acts as principal, buys securities or other investments for itself from or sells securities or other investments it owns to its advisory clients.  Likewise, Barings can either directly or on behalf of MassMutual, purchase and/or hold securities or other investments that are subsequently sold or transferred to advisory clients.  Barings has a conflict of interest in connection with a transaction where it or an affiliate is acting as principal since it has an incentive to favor itself or its affiliates over its advisory clients in connection with the transaction.  To address the conflicts of interest, Barings has adopted a Transactions with Affiliates Policy, which ensures any such transaction is consistent with Barings' fiduciary obligations to act in the best interests of its clients, including its ability to obtain best execution in connection with the transaction, and is in compliance with applicable legal and regulatory requirements.

Cross Trades:  Barings can effect cross-trades on behalf of its advisory clients whereby one advisory client buys securities or other investments from or sells securities or other investments to another advisory client.  Barings can also effect cross-trades involving advisory accounts or funds in which it or its affiliates, including MassMutual, and their respective employees, have an ownership interest or for which Barings is entitled to earn a performance fee.  As a result, Barings has a conflict of interest in connection with the cross-trade since it has an incentive to favor the advisory client or fund in which it or its affiliate has an ownership interest and/or is entitled to a performance fee.  To address the conflicts of interest, Barings has adopted a Transactions with Affiliates Policy, which ensures any such cross-trade is consistent with Barings' fiduciary obligations to act in the best interests of each of its advisory clients, including its ability to obtain best execution for each advisory client in connection with the cross-trade transaction, and is in compliance with applicable legal and regulatory requirements.  Barings will not receive a commission or any other remuneration (other than its advisory fee) for effecting cross-trades between advisory clients.

Loan Origination Transactions:  While Barings or its affiliates generally do not act as an underwriter or member of a syndicate in connection with a securities offering, Barings or its affiliates (or an unaffiliated entity in which Barings or its affiliates have an ownership interest) can act as an underwriter, originator, agent, or member of a syndicate in connection with the origination of senior secured loans or other lending arrangements with borrowers, where such loans are purchased by Barings advisory clients during or after the original syndication.  Barings advisory clients purchase such loans directly from Barings or its affiliates (or an unaffiliated entity in which Barings or its affiliates have an ownership interest) or from other members of the lending syndicate.  In connection with such loan originations, Barings or its affiliates, either directly or indirectly, receive underwriting, origination, or agent fees.  As a result, Barings has a conflict of interest in connection with such loan origination transactions since it has an incentive to base its investment recommendation to its advisory clients on the amount of compensation, underwriting, origination or agent fees it would receive rather than on its advisory clients' best interests.  To address the conflict of interest, Barings has adopted a Transactions with Affiliates Policy, which ensures any such transaction is consistent with Barings' fiduciary obligations to act in the best interests of its clients, including its ability to obtain best execution in connection with the transaction, and is in compliance with applicable legal and regulatory requirements.

Investments by Advisory Clients:  Barings has the ability to invest client assets in securities or other investments that are also held by (i) Barings or its affiliates, including MassMutual, (ii) other Barings advisory accounts, (iii) funds or accounts in which Barings or its affiliates or their respective employees have an ownership or economic interest or (iv) employees of Barings or its affiliates.  Barings also has the ability, on behalf of its advisory clients, to invest in the same or different securities or instruments of issuers in which (a) Barings or its affiliates, including MassMutual, (b) other Barings advisory accounts, (c) funds or accounts in which Barings, its affiliates, or their respective employees have an ownership or economic interest or (d) employees of Barings or its affiliates, have an ownership interest as a holder of the debt, equity or other instruments of the issuer.  Barings has a conflict of interest in connection with any such transaction since investments by its advisory clients can directly or indirectly benefit Barings and/or its affiliates and employees by potentially increasing the value of the securities or instruments it holds in the issuer.  Any investment by Barings on behalf of its advisory clients will be consistent with its fiduciary obligations to act in the best interests of its advisory clients, and otherwise be consistent with such clients' investment objectives and restrictions.

Barings or its affiliates can recommend that clients invest in registered or unregistered investment companies, including private investment funds such as hedge funds, private equity funds or structured funds (i) advised by Barings or an affiliate, (ii) in which Barings, an affiliate or their respective employees has an ownership or economic interest or (iii) with respect to which Barings or an affiliate has an interest in the entity entitled to receive the fees paid by such funds.  Barings has a conflict of interest in connection with any such recommendation since it has an incentive to base its recommendation to invest in such investment companies or private funds on the fees that Barings or its affiliates would earn as a result of the investment by its advisory clients in the investment companies or private funds.  Any recommendation to invest in a Barings advised fund or other investment company will be consistent with Barings' fiduciary obligations to act in the best interests of its advisory clients, consistent with such clients' investment objectives and restrictions. In certain limited circumstances, Barings offers to clients that invest in private investment funds that it advises an equity interest in entities that receive advisory fees and carried profits interest from such funds.


Employee Co-Investment Barings permits certain of its portfolio managers and other eligible employees to invest in certain private investment funds advised by Barings or its affiliates and/or share in the performance fees received by Barings from such funds.  If the portfolio manager or other eligible employee was responsible for both the portfolio management of the private fund and other Barings advisory accounts, such person would have a conflict of interest in connection with investment decisions since the person has an incentive to direct the best investment ideas, or to allocate trades, in favor of the fund in which he or she is invested or otherwise entitled to share in the performance fees received from such fund.  To address the conflicts of interest, Barings has adopted a Side by Side Management of Private Investment Funds and Other Advisory Accounts Policy which requires, among others things, that Barings treat each of its advisory clients in a manner consistent with its fiduciary obligations and prohibits Barings from favoring any particular advisory account as a result of the ownership or economic interests of Barings, its affiliates or employees, in such advisory account.  Any investment by a Barings employee in one of its private funds is also governed by Barings' Global Employee Co-Investment Policy, which ensures that any co-investment by a Barings employee is consistent with Barings' Global Code of Ethics Policy.

Management of Multiple Accounts As noted above, Barings' portfolio managers are often responsible for the day-to-day management of multiple accounts, including, among others, separate accounts for institutional clients, closed-end and open-end registered investment companies, and/or private investment funds (such as hedge funds, private equity funds and structured funds), as well as for proprietary accounts of Barings and its affiliates, including MassMutual and its affiliates.  The potential for material conflicts of interest exist whenever a portfolio manager has responsibility for the day-to-day management of multiple advisory accounts.  These conflicts are heightened to the extent a portfolio manager is responsible for managing a proprietary account for Barings or its affiliates or where the portfolio manager, Barings and/or an affiliate has an investment in one or more of such accounts or an interest in the performance of one or more of such accounts (e.g., through the receipt of a performance fee).

Investment Allocation:  Such potential conflicts include those relating to allocation of investment opportunities.  For example, it is possible that an investment opportunity is suitable for more than one account managed by Barings, but is not available in sufficient quantities for all accounts to participate fully.  Similarly, there can be limited opportunity to sell an investment held by multiple accounts.  A conflict arises where the portfolio manager has an incentive to treat an account preferentially because the account pays Barings or its affiliates a performance-based fee or the portfolio manager, Barings or an affiliate has an ownership or other economic interest in the account.  As noted above, Barings also acts as an investment manager for certain of its affiliates, including MassMutual.  These affiliate accounts sometimes co-invest jointly and concurrently with Barings' other advisory clients and therefore share in the allocation of such investment opportunities.  To address the conflicts of interest associated with the allocation of trading and investment opportunities, Barings has adopted a Global Investment Allocation Policy and trade allocation procedures that govern the allocation of portfolio transactions and investment opportunities across multiple advisory accounts, including affiliated accounts, which are summarized below under Item 12 – Brokerage Practices, Global Investment Allocation Policy.  In addition, as noted above, to address the conflicts, Barings has adopted a Side by Side Management of Private Investment Funds and Other Advisory Accounts Policy which requires, among others things, that Barings treat each of its advisory clients in a manner consistent with its fiduciary obligations and prohibits Barings from favoring any particular advisory account as a result of the ownership or economic interests of Barings, its affiliates or employees, in such advisory accounts.  Any investment by a Barings employee in one of its private funds is also governed by Barings' Global Employee Co-Investment Policy, which ensures that any co-investment by a Barings employee is consistent with Barings' Global Code of Ethics Policy.

Personal Securities Transactions; Short Sales:  Potential material conflicts of interest also arise related to the knowledge and timing of an account's trades, investment opportunities and broker or dealer selection.  Barings and its portfolio managers have information about the size, timing and possible market impact of the trades of each account they manage.  It is possible that portfolio managers could use this information for their personal advantage and/or to the advantage or disadvantage of various accounts which they manage.  For example, a portfolio manager could cause a favored account to "front run" an account's trade or sell short a security for an account immediately prior to another account's sale of that security.  To address these conflicts, Barings has adopted policies and procedures, including a Global Short Sale Policy, which ensures that the use of short sales by Barings is consistent with Barings' fiduciary obligations to its clients, a Side by Side Management of Private Investment Funds and Other Advisory Accounts Policy, which requires, among other things, that Barings treat each of its advisory clients in a manner consistent with its fiduciary obligations and prohibits Barings from favoring any particular account as a result of the ownership or economic interest of Barings, its affiliates or employees and a Global Code of Ethics Policy.

Trade Errors:  Potential material conflicts of interest also arise if a trade error occurs in a client account.  A trade error is deemed to occur if there is a deviation by Barings from the applicable standard of care in connection with the placement, execution or settlement of a trade for an advisory account that results in (1) Barings purchasing assets not permitted or authorized by a client's investment advisory agreement or otherwise failing to follow a client's specific investment directives; (2) Barings purchasing or selling the wrong security or the wrong amount of securities on behalf of a client's account; or (3) Barings purchasing or selling assets for, or allocating assets to, the wrong client account.  When correcting these errors, conflicts of interest between Barings and its advisory accounts arise as decisions are made on whether to cancel, reverse or reallocate the erroneous trades.  In order to address the conflicts, Barings has adopted a Global Client Account Errors Policy governing the resolution of trading errors, and will follow the Global Client Account Errors Policy in order to ensure that trade errors are handled promptly and appropriately and that any action taken to remedy an error places the interest of a client ahead of Barings' interest.


Best Execution; Directed or Restricted Brokerage:  With respect to securities and other transactions (including, but not limited to, derivatives transactions) for most of the accounts it manages, Barings determines which broker, dealer or other counterparty to use to execute each order, consistent with its fiduciary duty to seek best execution of the transaction.  Barings manages certain accounts, however, for clients who limit its discretion with respect to the selection of counterparties or direct it to execute such client's transactions through a particular counterparty.  In these cases, trades for such an account in a particular security or other transaction can be placed separately from, rather than aggregated with, those in the same security or transaction for other accounts.  Placing separate transaction orders for a security or transaction can temporarily affect the market price of the security or transaction or otherwise affect the execution of the transaction to the possible detriment of one or more of the other account(s) involved.  Barings has adopted a Global Best Execution Policy and a Directed or Restricted Brokerage Policy which are summarized below under Item 12 –Brokerage Practices, Counterparty Selection/Recommendations and Directed/Restricted Brokerage.

Barings and its portfolio managers or employees have other actual or potential conflicts of interest in managing an advisory account, and the list above is not a complete description of every conflict of interest that could be deemed to exist.
 
COMPENSATION.  Compensation packages at Barings are structured such that key professionals have a vested interest in the continuing success of the firm.  Portfolio managers' compensation is comprised of base salary and a discretionarily allocated incentive bonus, which includes a performance-driven annual bonus, and may include a deferred long-term incentive bonus and also may contain a performance fee award.  As part of the firm's continuing effort to monitor retention, Barings participates in annual compensation surveys of investment management firms to ensure that Barings' compensation is competitive with industry norms. 

The base salary component is generally positioned at mid-market. Increases are tied to market, individual performance evaluations and budget constraints. 

Portfolio Managers may receive a yearly incentive bonus.  Factors impacting the potential bonuses include but are not limited to: i) investment performance of funds/accounts managed by a Portfolio Manager, ii) financial performance of Barings, iii) client satisfaction, iv) collaboration, v) risk management and vi) integrity. 

Long-term incentives are designed to share the long-term success of the firm and take the form of deferred cash awards, which may include an award that resembles phantom restricted stock; linking the value of the award to a formula which includes Babson's overall earnings, revenue and assets under management.  A voluntary separation of service will result in a forfeiture of unvested long-term incentive awards. 
 
BENEFICIAL OWNERSHIP: As of December 31, 2018, members of the Portfolio Management Team, beneficially owned the following dollar range of equity securities in the Registrant:

  

Portfolio Management Team:

 

Dollar Range of Beneficially Owned* Equity Securities of the Registrant:

 

 

 

Eric Lloyd

 

$0

Robert M. Shettle

 

$0

Sean Feeley

 

$0


*  Beneficial ownership has been determined in accordance with Rule 16(a)-1(a)(2) under the Securities Exchange Act of 1934, as amended. 
 

 

ITEM 9.  PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
 

Not applicable for this filing.

 

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

Not applicable for this filing.

 

 

ITEM 11. CONTROLS AND PROCEDURES.

 

(a)

The principal executive officer and principal financial officer of the Registrant evaluated the effectiveness of the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) as of a date within 90 days of the filing date of this report and based on that evaluation have concluded that such disclosure controls and procedures are effective to provide reasonable assurance that material information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

 

(b)

There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) during the Registrant's second fiscal half year that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

 

 
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
 
 
  (a)
Not applicable.
 
 
  (b)
Not applicable.
 

 

ITEM 13. EXHIBITS.

 

(a)(1)

ANY CODE OF ETHICS, OR AMENDMENTS THERETO, THAT IS THE SUBJECT OF DISCLOSURE REQUIRED BY ITEM 2, TO THE EXTENT THAT THE REGISTRANT INTENDS TO SATISFY THE ITEM 2 REQUIREMENTS THROUGH THE FILING OF AN EXHIBIT.

 

Not applicable for this filing.

 

(a)(2)

A SEPARATE CERTIFICATION FOR EACH PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER OF THE REGISTRANT AS REQUIRED BY RULE 30a-2 UNDER THE ACT.

 

Attached hereto as EX-99.31.1

 

Attached hereto as EX-99.31.2

 

(a)(3)

ANY WRITTEN SOLICITATION TO PURCHASE SECURITIES UNDER RULE 23c-1 UNDER THE ACT (17 CFR 270.23c-1) SENT OR GIVEN DURING THE PERIOD COVERED BY THE REPORT BY OR ON BEHALF OF THE REGISTRANT TO 10 OR MORE PERSONS.

 

Not applicable for this filing.

 

(b)

CERTIFICATIONS PURSUANT TO RULE 302-2(b) UNDER THE ACT.

 

Attached hereto as EX-99.32

 


 


 SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

(Registrant):

Barings Participation Investors

By:

/s/ Robert M. Shettle

Robert M. Shettle, President

Date:

March 8, 2019



 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By:

/s/ Robert M. Shettle

Robert M. Shettle, President

Date:

March 8, 2019

By:

/s/ James M. Roy

James M. Roy, Vice President and

Chief Financial Officer

Date:

March 8, 2019