---

 

 

 

 

 

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

TO OUR SHAREHOLDERS

 

October 31, 2016

 

 

 

We are pleased to present the September 30, 2016 Quarterly Report of Barings Participation Investors (the "Trust").

 

As I am sure you have noticed, in September we changed the name of the Trust from Babson Capital Participation Investors to Barings Participation Investors. The name change was made to clarify the Trust's relationship with the Trust's investment adviser, Barings LLC. Barings LLC, and its predecessors, has been the investment adviser for the Trust since the Trust's inception in 1988, and will continue in this capacity. Other than the name of the Trust, nothing else has changed – the Trust's investment objectives, philosophies and policies are unchanged; even the Trust's New York Stock Exchange trading symbol, "MPV", is unchanged. All we have is a new name – Barings Participation Investors.

 

The Board of Trustees declared a quarterly dividend of $0.27 per share, payable on November 18, 2016 to shareholders of record on November 7, 2016. The Trust paid a $0.27 per share dividend for the preceding quarter. The Trust earned $0.23 per share of net investment income for the third quarter of 2016, compared to $0.25 per share in the previous quarter.

 

During the third quarter, the net assets of the Trust increased to $141,496,822 or $13.65 per share, compared to $139,379,949 or $13.46 per share on June 30, 2016. This translates into a 3.5% total return for the quarter, based on the change in the Trust's net assets assuming the reinvestment of all dividends. Longer term, the Trust returned 8.4%, 10.3%, 11.2%, 9.7% and 12.2% for the 1-, 3-, 5-, 10-, and 25-year time periods, respectively, based on the change in the Trust's net assets assuming the reinvestment of all dividends.

 

The Trust's share price decreased 1.2% during the quarter, from $14.73 per share as of June 30, 2016 to $14.55 per share as of September 30, 2016. The Trust's market price of $14.55 per share equates to a 6.6% premium over the September 30, 2016 net asset value per share of $13.65. The Trust's average quarter-end premium for the 3-, 5- and 10-year periods was 1.5%, 8.2% and 7.4%, respectively. U.S. equity markets, as approximated by the Russell 2000 Index, increased 9.0% for the quarter. U.S. fixed income markets, as approximated by the Barclays Capital U.S. Corporate High Yield Index, increased 5.6% for the quarter.

 

The Trust closed two new private placement investments, as well as four add-on investments in existing portfolio companies, during the third quarter. The two new investments were in Dunn Paper and Happy Floors Acquisition, Inc., while the four add-on investments were in Clarion Brands Holding Corp., CTM Holding, Inc., ERG Holding Company LLC and HVAC Holdings, Inc. A brief description of these investments can be found in the Consolidated Schedule of Investments. The total amount invested by the Trust in these transactions was $5,327,000.

 

While deal flow remained relatively steady, our investment activity measured by new closed platform investments moderated during the third quarter as several opportunities took longer to complete and therefore did not close during the quarter. Some of these opportunities have now, in fact, closed allowing the fourth quarter to start off with good momentum. With a steady pipeline of investment opportunities, we remain cautiously optimistic about the prospects for new investment activity for the balance of 2016 and into early 2017. That said, high purchase price multiples, aggressive credit terms, increased competition in middle market finance, and the 2016 election all may have an impact on investment activity in the near term. Purchase multiples continue to remain above historical averages, and while leverage multiples appear to have stabilized, they also remain above historical averages. Furthermore, credit terms have loosened somewhat which has added risk to investment opportunities. While we continue to actively pursue new investments on behalf of the Trust, we do so cautiously and with credit discipline, consistent with our longstanding investment philosophy of seeking to take prudent levels of risk and getting paid appropriately for the risk taken.

 

The Trust's remaining portfolio remains in good condition with the number of companies on our watch list and/or in default continuing to be below historical averages. We exited four investments during the quarter, three of which resulted in realized gains while one long-time troubled investment, Airworx, resulted in a loss. In one of the three successful exits, the Trust subsequently reinvested with the new buyer. We also had one company fully prepay its subordinated notes, one company partially prepay its subordinated notes, and one company refinance its subordinated debt with the Trust participating in the issue of new subordinated notes. Of note, the Trust continues to hold investments in a number of companies that we expect to be sold over the next two to three quarters.

 

While the Trust was able to maintain its $0.27 per share quarterly dividend for the third quarter, we must make note again, as we have for several quarters now, that this dividend level may not be sustainable. The Trust's net investment income per share from recurring sources of $0.25 for the third quarter was once again below the dividend rate. Net

 

(Continued)

 

 

 

---

investment income per share from recurring sources has been below the dividend rate for every quarter since the second quarter of 2012. As we have discussed in prior reports, net investment income is down principally due to the considerable reduction in the number of private debt securities in the portfolio resulting from the high level of exit and prepayment activity that occurred in 2013 and 2014, and the challenges of replacing that level of exits and prepayments in a prudent and timely manner. Furthermore, competitive market conditions have put downward pressure on investment returns from what they were just a couple of years ago. While we have made some progress in rebuilding the private portfolio of late, it remains below its former size. Unless market conditions change dramatically, it is unlikely that we will be able to completely rebuild the portfolio back to its former size in the near term and grow net investment income sufficiently to maintain the quarterly dividend at current levels. We have been able to maintain the $0.27 per share quarterly dividend with recurring income, supplemented with non-recurring income and earnings carried forward from prior quarters. Over time, however, the Trust's dividend-paying ability tends to be correlated with its recurring earnings capacity. This quarter, the Trust utilized $0.04 per share of earnings carry-forwards to maintain the $0.27 per share quarterly dividend ($0.02 to maintain the dividend and $0.02 to off-set a non-recurring write-off). Barring an unforeseen favorable change in the market or significant non-recurring income events, it is a distinct possibility that we may have to reduce the dividend in the future from the current $0.27 per share quarterly rate to a level that is consistent with the Trust's recurring income levels. We and the Board of Trustees will continue to evaluate the current and future earnings capacity of the Trust and formulate a dividend strategy that is consistent with that earnings level.

 

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

 

Sincerely,

 

 

Robert M. Shettle

President

 

Portfolio Composition as of 9/30/2016*

 

 

 

 

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

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

 

---

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

September 30, 2016

(Unaudited)

 

Assets:
Investments (See Consolidated Schedule of Investments)
Corporate restricted securities at fair value (Cost - $96,700,255)		$	98,517,161
Corporate restricted securities at market value (Cost - $19,645,379)			19,545,713
Corporate public securities at market value (Cost - $25,156,003)			25,766,096
Short-term securities at amortized cost			8,497,870
Total investments (Cost - $149,999,507)			152,326,840
Cash			6,545,182
Interest receivable			1,406,412
Other assets			48,733
Total assets			160,327,167
Liabilities:
Note payable			15,000,000
Payable for investments purchased			1,690,500
Deferred tax liability			1,112,849
Investment advisory fee payable			631,973
Interest payable			27,267
Accrued expenses			367,756
Total liabilities			18,830,345
Total net assets		$	141,496,822
Net Assets:
Common shares, par value $.01 per share		$	103,691
Additional paid-in capital			95,814,366
Retained net realized gain on investments, prior years			40,511,310
Undistributed net investment income			3,028,592
Accumulated net realized gain on investments			824,379
Net unrealized appreciation of investments			1,214,484
Total net assets		$	141,496,822
Common shares issued and outstanding (14,787,750 authorized)			10,369,161
Net asset value per share		$	13.65

 

 

 

 

 

See Notes to Consolidated Financial Statements

 

---

CONSOLIDATED STATEMENT OF OPERATIONS

For the nine months ended September 30, 2016

(Unaudited)

 

 

 

Investment Income:
Interest		$	8,919,324
Dividends			120,953
Other			159,021
Total investment income			9,199,298
Expenses:
Investment advisory fees			943,470
Interest			460,125
Trustees' fees and expenses			225,000
Professional fees			182,665
Reports to shareholders			72,000
Custodian fees			18,000
Other			85,266
Total expenses			1,986,526
Investment income - net			7,212,772
Net realized and unrealized gain on investments:
Net realized gain on investments before taxes			923,822
Income tax expense			(187,753	)
Net realized gain on investments after taxes			736,069
Net change in unrealized appreciation of investments before taxes			3,830,541
Net change in deferred income tax expense			(603,761	)
Net change in unrealized appreciation of investments after taxes			3,226,780
Net gain on investments			3,962,849
Net increase in net assets resulting from operations		$	11,175,621

 

 

 

 

 

 

See Notes to Consolidated Financial Statements

 

---

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the nine months ended September 30, 2016

(Unaudited)

 

 

Net decrease in cash:
Cash flows from operating activities:
Purchases/Proceeds/Maturities from short-term portfolio securities, net		$	(4,457,112	)
Purchases of portfolio securities			(31,478,259	)
Proceeds from disposition of portfolio securities			37,456,857
Interest, dividends and other income received			8,372,416
Interest expense paid			(460,125	)
Operating expenses paid			(1,091,558	)
Income taxes paid			(662,200	)
Net cash provided by operating activities			7,680,019
Cash flows from financing activities:
Cash dividends paid from net investment income			(8,377,234	)
Receipts for shares issued on reinvestment of dividends			560,135
Net cash used for financing activities			(7,817,099	)
Net decrease in cash			(137,080	)
Cash - beginning of year			6,682,262
Cash - end of period		$	6,545,182
Reconciliation of net increase in net assets to net cash provided by operating activities:
Net increase in net assets resulting from operations		$	11,175,621
Increase in investments			(5,935,159	)
Decrease in interest receivable			206,850
Increase in other assets			(21,950	)
Increase in deferred tax liability			603,761
Increase in investment advisory fee payable			327,436
Increase in payable for investments purchased			1,690,500
Increase in accrued expenses			107,407
Decrease in tax payable			(474,447	)
Total adjustments to net assets from operations			(3,495,602	)
Net cash provided by operating activities		$	7,680,019

 

 

 

 

See Notes to Consolidated Financial Statements

 

---

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

 

 

		For the nine months ended 09/30/2016 (Unaudited)				For the year ended 12/31/2015
Increase/(decrease) in net assets:
Operations:
Investment income - net		$	7,212,772			$	9,762,813
Net realized gain on investments after taxes			736,069				161,395
Net change in unrealized appreciation/(depreciation) of investments after taxes			3,226,780				(1,368,494	)
Net increase in net assets resulting from operations			11,175,621				8,555,714
Increase from common shares issued on reinvestment of dividends
Common shares issued (2016 - 40,770; 2015 - 27,306)			560,135				368,734
Dividends to shareholders from:
Net investment income (2016 - $0.54 per share; 2015 - $1.08 per share)			(5,588,568	)			(11,143,733	)
Total increase/(decrease) in net assets			6,147,188				(2,219,285	)
Net assets, beginning of period/year			135,349,634				137,568,919
Net assets, end of period/year (including undistributed net investment income of $3,028,592 and $1,404,388, respectively)		$	141,496,822			$	135,349,634

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements

 

---

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS

Selected data for each share of beneficial interest outstanding:

 

		For the nine months ended 09/30/16 (Unaudited)				For the years ended December 31,
						2015				2014				2013				2012
Net asset value:
Beginning of period/year		$	13.10			$	13.35			$	12.83			$	12.56			$	11.90
Net investment income (a)			0.70				0.95				1.04				1.00				1.08
Net realized and unrealized gain (loss) on investments			0.38				(0.12)				0.57				0.35				0.64
Total from investment operations			1.08				0.83				1.61				1.35				1.72
Dividends from net investment income to common shareholders			(0.54)				(1.08)				(0.96)				(1.08)				(1.04)
Dividends from realized gain on investments to common shareholders			—				—				(0.12)				—				(0.04)
Increase from dividends reinvested			0.01				(0.00)(b)				(0.01)				(0.00)(b)				0.02
Total dividends			(0.53)				(1.08)				(1.09)				(1.08)				(1.06)
Net asset value: End of period/year		$	13.65			$	13.10			$	13.35			$	12.83			$	12.56
Per share market value:
End of period/year		$	14.55			$	13.75			$	13.23			$	12.88			$	13.91
Total investment return
Net asset value (c)			8.44%				6.23%				13.61%				10.97%				15.89%
Market value (c)			9.94%				12.66%				12.54%				0.47%				(4.54%)
Net assets (in millions):
End of period/year		$	141.50			$	135.35			$	137.57			$	131.42			$	127.87
Ratio of total expenses to average net assets			2.09%(e)				2.17%				2.84%				2.15%				2.83%
Ratio of operating expenses to average net assets			1.47%(e)				1.49%				1.49%				1.51%				1.51%
Ratio of interest expense to average net assets			0.44%(e)				0.44%				0.45%				0.47%				0.49%
Ratio of income tax expense to average net assets (d)			0.18%(e)				0.24%				0.90%				0.17%				0.83%
Ratio of net investment income to average net assets			6.96%(e)				6.95%				7.82%				7.77%				8.82%
Portfolio turnover			24%				30%				32%				30%				34%

 

 

(a)	Calculated using average shares.

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

(c)

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

(d)

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

(e)	Annualized.

 

Senior borrowings:
Total principal amount (in millions)		$	15			$	15			$	15			$	15			$	15
Asset coverage per $1,000 of indebtedness		$	10,433			$	10,023			$	10,171			$	9,761			$	9,525

 

 

 

 

 

See Notes to Consolidated Financial Statements

 

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CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities - 83.44%: (A)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date				Cost				Fair Value
Private Placement Investments - 69.63%: (C)
1492 Acquisition LLC
A leading producer of premium Italian cured meats and deli meats in the U.S.
Limited Liability Company Unit Class A Preferred (B)		102 uts.				10/17/12				$	102,270			$	137,055
Limited Liability Company Unit Class A Common (B)		11,364 uts.				10/17/12					11,364				153,952
											113,634				291,007
ABC Industries, Inc.
A manufacturer of mine and tunneling ventilation products in the U.S.
13% Senior Subordinated Note due 07/31/2019		$	139,205			08/01/12					131,415				138,330
Preferred Stock Series A (B)		125,000 shs.				08/01/12					125,000				224,686
Warrant, exercisable until 2022, to purchase common stock at $.02 per share (B)		22,414 shs.				08/01/12					42,446				37,857
											298,861				400,873
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.					*				207,910				—
* 12/07/12, 07/11/13 and 06/30/15.
Advanced Technologies Holdings
A provider of factory maintenance services to industrial companies.
Preferred Stock Series A (B)		152 shs.				12/27/07					75,131				329,556
Convertible Preferred Stock Series B (B)		28 shs.				01/04/11					21,600				60,321
											96,731				389,877
AFC - Dell Holding Corporation
A distributor and provider of inventory management services for "C-Parts" used by OEMs in their manufacturing and production facilities.
12.5% Senior Subordinated Note due 09/27/2020		$	1,200,329			03/27/15					1,181,644				1,224,335
Preferred Stock (B)		1,122 shs.				03/27/15					112,154				114,673
Common Stock (B)		346 shs.				03/27/15					346				—
											1,294,144				1,339,008
Airxcel Holdings
A leading manufacturer of a broad range of climate control solutions, including air-conditioners, heat pumps, cooking appliances, furnaces, powered vents, and water heaters.
12.5% Senior Subordinated Note due 11/18/2020		$	1,477,791			11/18/14					1,455,792				1,516,078
Limited Liability Company Unit		288 uts.				11/18/14					288,000				438,245
											1,743,792				1,954,323

 

 

 

 

 

---

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities: (A) (Continued)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date				Cost				Fair Value
AMS Holding LLC
A leading multi-channel direct marketer of high-value collectible coins and proprietary-branded jewelry and watches.
Limited Liability Company Unit Class A Preferred (B)		114 uts.				10/04/12				$	113,636			$	287,929
Animal Supply Company
A distributor of pet products to independent pet stores, veterinary clients and other pet specialty retailers.
11.75% Second Lien Term Loan due 09/17/2019		$	1,759,500			03/30/15					1,742,382				1,700,068
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.
12% Senior Subordinated Note due 4/22/2023		$	1,386,057			04/22/16					1,363,211				1,417,034
Limited Liability Company Unit (B)		345,000 uts.				04/20/16					345,000				296,700
											1,708,211				1,713,734
ARI Holding Corporation
A leading national supplier of products used primarily by specialty contractors.
11.5% Senior Subordinated Note due 02/01/2020		$	1,710,973				*				1,692,711				1,710,973
Limited Partnership Interest		524 uts.				08/01/14					523,950				665,268
* 05/21/13 and 08/01/14.											2,216,661				2,376,241
ASC Holdings, Inc.
A manufacturer of capital equipment used by corrugated box manufacturers.
13% Senior Subordinated Note due 05/18/2021		$	746,816			11/19/15					733,695				747,330
Limited Liability Company Unit (B)		111,100 uts.				11/18/15					111,100				60,661
											844,795				807,991
Aurora Parts & Accessories LLC
A distributor of aftermarket over-the-road semi-trailer parts and accessories sold to customers across North America.
11% Senior Subordinated Note due 02/17/2022		$	1,515,400			08/17/15					1,489,554				1,560,862
Preferred Stock (B)		210 shs.				08/17/15					209,390				199,743
Common Stock (B)		210 shs.				08/17/15					210				—
											1,699,154				1,760,605
Avantech Testing Services LLC
A manufacturer of custom Non-Destructive Testing ("NDT") systems and provider of NDT and inspections services primarily to the oil country tubular goods market.
15% Senior Subordinated Note due 01/31/2021 (D)		$	500,587			07/31/14					491,228				—
Limited Liability Company Unit		45,504 uts.					*				—				—
* 07/31/14 and 10/14/15.											491,228				—

 

 

 

 

---

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities: (A) (Continued)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date				Cost				Fair Value
Blue Wave Products, Inc.
A distributor of pool supplies.
10% Senior Secured Term Note due 09/30/2018		$	158,865			10/12/12				$	157,586			$	158,865
13% Senior Subordinated Note due 09/30/2019		$	330,589			10/12/12					317,601				330,589
Common Stock (B)		51,064 shs.				10/12/12					51,064				216,167
Warrant, exercisable until 2022, to purchase common stock at $.01 per share (B)		20,216 shs.				10/12/12					20,216				85,580
											546,467				791,201
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.
12.5% Senior Subordinated Note due 06/30/2021		$	1,597,826			06/30/15					1,571,194				495,326
Common Stock (B)		1,417 shs.				06/30/15					156,800				—
											1,727,994				495,326
BP SCI LLC
A leading value-added distributor of branded pipes, valves, and fittings (PVF) to diversified end markets.
Limited Liability Company Unit Class A (B)		417 uts.				10/17/12					41,667				107,220
Limited Liability Company Unit Class B (B)		167 uts.				10/17/12					166,666				259,831
											208,333				367,051
CG Holdings Manufacturing Company
A coating provider serving the automotive, agricultural, heavy truck and other end markets.
13% Senior Subordinated Note due 11/01/2019		$	1,412,605				*				1,359,332				1,412,605
Preferred Stock (B)		1,350 shs.					*				134,972				166,134
Preferred Stock (B)		489 shs.					*				48,721				60,214
Common Stock (B)		140 shs.					*				14,864				103,140
Warrant, exercisable until 2023, to purchase common stock at $.01 per share (B)		58 shs.					*				5,430				42,841
* 05/09/13 and 11/01/13.											1,563,319				1,784,934
CHG Alternative Education Holding Company
A leading provider of publicly-funded, for profit pre-K-12 education services targeting special needs children at therapeutic day schools and "at risk" youth through alternative education programs.
13.5% Senior Subordinated Note due 01/19/2018		$	776,910			01/19/11					765,508				776,910
14% Senior Subordinated Note due 08/03/2019		$	203,967			08/03/12					201,998				203,967
Common Stock (B)		375 shs.				01/19/11					37,500				55,102
Warrant, exercisable until 2021, to purchase common stock at $.01 per share (B)		295 shs.				01/19/11					29,250				43,313
											1,034,256				1,079,292

 

 

 

 

---

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities: (A) (Continued)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date				Cost				Fair Value
Church Services Holding Company
A provider of diversified residential services to homeowners in the Houston, Dallas, and Austin markets.
14.5% Senior Subordinated Note due 03/26/2018		$	192,847			03/26/12				$	190,667			$	170,381
Preferred Stock Series A (B)		65 shs.				09/22/16					6,465				—
Preferred Stock (B)		548 shs.				04/11/16					54,762				—
Common Stock (B)		1,327 shs.				*					132,700				—
Warrant, exercisable until 2022, to purchase common stock at $.01 per share (B)		57 shs.				03/26/12					5,740				—
* 03/26/12, 05/25/12 and 06/19/12.											390,334				170,381
Clarion Brands Holding Corp.
A portfolio of six over-the-counter (OTC) pharmaceutical brands whose products are used to treat tinnitus or ringing of the ear, excessive sweating, urinary tract infections, muscle pain, and skin conditions.
12.5% Senior Subordinated Note due 04/01/2021		$	2,015,881			*					1,983,139				2,016,289
Limited Liability Company Unit		1,853 uts.				07/18/16					189,267				211,221
* 10/01/14 and 07/18/16.											2,172,406				2,227,510
Clough, Harbour and Associates
An engineering service firm that is located in Albany, NY.
Preferred Stock (B)		147 shs.				12/02/08					146,594				712,348
Compass Chemical International LLC
A manufacturer and supplier of standard and specialty formulated chemicals, primarily phosphoric acid derivatives called phosphonates.
Limited Liability Company Unit (B)		230 uts.				03/04/15					147,304				121,590
Connecticut Electric, Inc.
A supplier and distributor of electrical products sold into the retail and wholesale markets.
Limited Liability Company Unit Class A (B)		82,613 uts.				01/12/07					82,613				106,761
Limited Liability Company Unit Class C (B)		59,756 uts.				01/12/07					59,756				82,643
Limited Liability Company Unit Class D (B)		671,525 uts.				05/03/10					—				854,555
Limited Liability Company Unit Class E (B)		1,102 uts.				05/03/10					—				135,815
											142,369				1,179,774
CORA Health Services, Inc.
A provider of outpatient rehabilitation therapy services.
12.75% Senior Subordinated Note due 06/30/2023		$	761,597			06/30/16					746,978				766,395
Common Stock Class A (B)		3,791 shs.				06/30/16					3,791				3,791
Preferred Stock Series A (B)		758 shs.				06/30/16					72,033				72,033
											822,802				842,219

 

 

 

 

---

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities: (A) (Continued)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date				Cost				Fair Value
CTM Holding, Inc.
A leading owner and operator of coin-operated children's rides, penny presses and candy kiosks in the U.S.
15% Senior Subordinated Note due 11/22/2019		$	1,287,228			11/22/13				$	1,272,237			$	1,294,241
Common Stock (B)		90 shs.				*					514,284				417,956
* 11/22/13 and 09/16/16.											1,786,521				1,712,197
DPL Holding Corporation
A distributor and manufacturer of aftermarket undercarriage parts for medium and heavy duty trucks and trailers.
14% Senior Subordinated Note due 05/04/2019		$	1,396,975			05/04/12					1,384,436				1,392,497
Preferred Stock (B)		25 shs.				05/04/12					252,434				298,403
Common Stock (B)		25 shs.				05/04/12					28,048				—
											1,664,918				1,690,900
Dunn Paper
A provider of specialty paper for niche product applications.
9.75% Second Lien Term Loan due 08/31/2023		$	1,725,000			09/28/16					1,690,500				1,690,500
Eagle Family Foods, Inc.
A producer of low-cost branded and private label canned milk.
10.05% Last Out Term Loan due 12/31/2021		$	1,725,000			12/22/15					1,702,371				1,707,157
ECG Consulting Group
A healthcare management consulting company who provides strategic, financial, operational, and technology related consulting services to healthcare providers.
11.75% Senior Subordinated Note due 11/21/2020		$	1,311,891			11/21/14					1,289,412				1,338,129
Limited Liability Company Unit (B)		230 uts.				11/19/14					71,875				73,186
											1,361,287				1,411,315
ERG Holding Company LLC
A provider of inpatient and outpatient clinical trial services to pharmaceutical companies and contract research organizations.
13.5% Senior Subordinated Note due 10/04/2019		$	965,724			04/04/14					953,838				975,382
14% Senior Subordinated Note due 10/04/2019		$	253,243			07/01/16					248,512				255,277
Common Stock (B)		31 shs.				04/04/14					77,533				95,445
											1,279,883				1,326,104
F F C Holding Corporation
A leading U.S. manufacturer of private label frozen novelty and ice cream products.
Limited Liability Company Unit Preferred (B)		171 uts.				09/27/10					58,345				77,219
Limited Liability Company Unit Common (B)		171 uts.				09/27/10					17,073				170,340
											75,418				247,559

 

 

 

 

 

---

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities: (A) (Continued)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date			Cost				Fair Value
F G I Equity LLC
A manufacturer of a broad range of filters and related products that are used in commercial, light industrial, healthcare, gas turbine, nuclear, laboratory, clean room, hotel, educational system, and food processing settings.
Limited Liability Company Unit 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				170,517
Limited Liability Company Unit Class B-2 (B)		8,248 uts.				12/15/10				8,248				21,378
Limited Liability Company Unit Class B-3 (B)		6,522 uts.				08/30/12				15,000				18,599
Limited Liability Company Unit Class C (B)		1,575 uts.				12/20/10				16,009				33,013
										105,046				324,066
FMH Holdings Corporation
A designer and manufacturer of highly engineered components for the aerospace, defense and space industries.
11.5% Senior Subordinated Note due 11/01/2020		$	1,443,937			05/01/15				1,421,549				1,458,376
Common Stock (B)		148 shs.				05/01/15				148,096				244,251
										1,569,645				1,702,627
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				100,760
Limited Liability Company Unit Common (B)		767 uts.				10/05/12				767				30,346
										76,687				131,106
GenNx Novel Holding, Inc.
A manufacturer and distributor of nutraceutical ingredients.
15% Senior Subordinated Note due 03/27/2020		$	1,605,904			03/27/14				1,585,021				1,465,750
Common Stock (B)		15,500 shs.				03/27/14				155,000				38,929
										1,740,021				1,504,679
gloProfessional Holdings, Inc.
A marketer and distributor of premium mineral-based cosmetics, cosmeceuticals and professional hair care products to the professional spa and physician's office channels.
14% Senior Subordinated Note due 03/27/2019		$	1,213,951			03/27/13				1,202,198				1,204,687
Common Stock (B)		1,181 shs.				03/27/13				118,110				133,052
										1,320,308				1,337,739
Glynlyon Holding Companies, Inc.
A technology-enabled curriculum provider of K-12 and support services predominantly to small and medium public school districts.
12% Senior Subordinated Note due 01/05/2022		$	1,588,809			01/15/16				1,559,903				1,636,473
Common Stock (B)		147 shs.				01/15/16				147,436				156,650
										1,707,339				1,793,123

 

 

 

 

 

---

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities: (A) (Continued)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date				Cost				Fair Value
GlynnDevins Acquisition Corporation
A marketing communications agency that services senior living facilities.
Preferred Stock Series A (B)		342 shs.				06/19/15				$	70,683			$	76,522
Common Stock (B)		342 shs.				06/19/15					2,945				8,264
											73,628				84,786
Grakon Parent
The leading designer and manufacturer of highly-engineered and customized LED and incandescent lighting systems for transportation-based markets.
Common Stock (B)		175 shs.				10/31/14					174,831				215,591
GTI Holding Company
A designer, developer, and marketer of precision specialty hand tools and handheld test instruments.
12% Senior Subordinated Note due 02/05/2020		$	727,865			02/05/14					694,191				706,432
Common Stock (B)		846 shs.				02/05/14					84,636				90,673
Warrant, exercisable until 2024, to purchase common stock at $.01 per share (B)		397 shs.				02/05/14					36,816				42,550
											815,643				839,655
Handi Quilter Holding Company
A designer and manufacturer of long-arm quilting machines and related components for the consumer quilting market.
12% Senior Subordinated Note due 06/19/2021		$	1,437,500			12/19/14					1,414,503				1,484,004
Limited Liability Company Unit Preferred (B)		359 uts.					*				359,375				364,224
Limited Liability Company Unit Common Class A (B)		3,594 uts.				12/19/14					—				—
* 12/19/14 and 04/29/16.											1,773,878				1,848,228
Happy Floors Acquisition, Inc.
A wholesale importer and value-added distributor of premium European flooring tile to residential and commercial end markets.
12.5% Senior Subordinated Note due 07/01/2022		$	1,579,439			07/01/16					1,549,228				1,584,876
Common Stock (B)		150 shs.				07/01/16					149,500				149,500
											1,698,728				1,734,376
Hartland Controls Holding Corporation
A manufacturer and distributor of electronic and electromechanical components.
14% Senior Subordinated Note due 08/14/2019		$	1,100,874			02/14/14					1,087,386				1,111,883
12% Senior Subordinated Note due 08/14/2019		$	431,250			06/22/15					428,064				439,875
Preferred Stock Series A (B)		1,140 shs.				02/14/14					114,011				126,157
Common Stock (B)		821 shs.				02/14/14					822				284,157
											1,630,283				1,962,072

 

 

 

 

---

Barings Participation Investors

(formerly known as Babson Capital Participation Investors)

 

September 30, 2016

(Unaudited)

 

Corporate Restricted Securities: (A) (Continued)		Principal Amount, Shares, Units or Ownership Percentage				Acquisition Date			Cost				Fair Value
Healthcare Direct Holding Company
A direct-to-customer marketer of discount dental plans.
Common Stock (B)		517 shs.				03/09/12			$	21,419			$	107,056
HHI Group, LLC
A developer, marketer, and distributor of hobby-grade radio control products.
16% Senior Subordinated Note due 01/17/2020		$	1,705,848			01/17/14				1,686,231				1,475,827
Limited Liability Company Unit (B)		102 uts.				01/17/14				101,563				2,232
										1,787,794				1,478,059
Hi-Rel Group LLC
A manufacturer and distributor of precision metal piece parts for the microelectronic packaging industry, serving the aerospace/defense, telecommunications, and medical end markets.
12% Senior Subordinated Note due 04/15/2021		$	703,125			04/15/13				682,277				710,156
Limited Liability Company Unit (B)		234 uts.				04/15/13				234,375				1,114,724
Warrant, exercisable until 2020, to purchase common stock at $.01 per share (B)		37,177 shs.				04/15/13				32,344				212,238
										948,996				2,037,118
Hollandia Produce LLC
A hydroponic greenhouse producer of branded root vegetables.
13.75% Senior Subordinated Note due 03/31/2021		$	1,320,718			12/30/15				1,297,748				1,328,186
HOP Entertainment LLC
A provider of post production equipment and services to producers of television shows and motion pictures.
Limited Liability Company Unit Class F (B)		47 uts.				10/14/11				—				—
Limited Liability Company Unit Class G (B)		114 uts.				10/14/11				—				—
Limited Liability Company Unit Class H (B)		47 uts.				10/14/11				—				—
Limited Liability Company Unit Class I (B)		47 uts.				10/14/11				—				—
										—				—
Hospitality Mints Holding Company
A manufacturer of individually-wrapped imprinted promotional mints.
12% Senior Subordinated Note due 10/01/2018		$	1,098,837			08/19/08				1,094,457				1,028,587
Common Stock (B)		251 shs.				08/19/08				251,163				45,976
Warrant, exercisable until 2018, to purchase common stock at $.01 per share (B)		65 shs.				08/19/08				60,233				11,884
										1,405,853				1,086,447