UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended: September 30, 1995
Commission File Number 0-16531
EQUITABLE CAPITAL PARTNERS, L.P.
(Exact name of registrant as specified in its governing instruments)
Delaware 13-3486115
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1345 Avenue of the Americas
New York, New York 10105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:(212) 969-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Selected information from the Prospectus, dated July 15, 1988, and filed with
the Securities and Exchange Commission on July 19, 1988 (File No. 33-20093), is
incorporated by reference into Parts I, II and III of this Quarterly Report on
Form 10-Q.
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EQUITABLE CAPITAL PARTNERS, L.P.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Statements of Assets, Liabilities and Partners'
Capital as of September 30, 1995 and December 31, 1994 3
Statements of Operations - For the Three and Nine
Months Ended September 30, 1995 and 1994 4
Statements of Changes in Net Assets - For the Nine
Months Ended September 30, 1995 and 1994 5
Statements of Cash Flows - For the Nine Months Ended
September 30, 1995 and 1994 6
Statement of Changes in Partners' Capital -
For the Nine Months Ended September 30, 1995 7
Schedule of Portfolio Investments - September 30, 1995 8
Supplemental Schedule of Realized Gains and Losses
For the Nine Months Ended September 30, 1995 14
Notes to Financial Statements 15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
PART II - OTHER INFORMATION
Item 6. Exhibits 30
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<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
September
30, 1995 December 31,
Notes (Unaudited) 1994
<S> <C> <C> <C>
ASSETS:
Investments 2,10,12
Enhanced Yield Investments at Value-
Managed Companies
(amortized cost of $120,720,908 at
September 30, 1995 and $125,851,772
at December 31, 1994) $ 86,238,955 $108,250,458
Non-Managed Companies
(amortized cost of $22,381,604 at
September 30, 1995 and $23,400,149
at December 31, 1994) 6,360,928 13,041,887
Temporary Investments
(at amortized cost) 18,391,821 31,713,674
Cash 82,305 157,275
Interest Receivable 2,12 2,522,964 2,691,595
Note Receivable 3,4 1,977,328 2,184,472
Prepaid Expenses 3,967 -
TOTAL ASSETS $115,578,268 $158,039,361
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Professional Fees Payable 9 $ 23,947 $ 27,132
Independent General Partners'
Fees Payable 8 14,123 12,325
Fund Administrative Expenses
Payable 7 22,556 51,707
Other Accrued Liabilities 11,467 17,994
Total Liabilities 72,093 109,158
Partners' Capital
Managing General Partner 3,4 1,431,522 1,828,320
Limited Partners (284,611 Units) 4 114,074,653 156,101,883
Total Partners' Capital 115,506,175 157,930,203
TOTAL LIABILITIES AND PARTNERS' CAPITAL $115,578,268 $158,039,361
</TABLE>
See the Accompanying Notes to Financial Statements.
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<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September September September September
30, 1995 30, 1994 30, 1995 30, 1994
<S> <C> <C> <C> <C>
INVESTMENT INCOME - NOTES 2,12:
Interest $ 2,038,993 $1,523,010 $ 6,256,498 $ 6,988,079
Discount 12,766 199,146 36,889 702,420
TOTAL INVESTMENT INCOME 2,051,759 1,722,156 6,293,387 7,690,499
EXPENSES:
Investment Advisory Fee - Note 6 338,234 441,324 1,104,449 1,414,011
Fund Administration Fees and Expenses - Note 7 237,577 285,304 820,415 1,166,110
Independent General Partners' Fees and Expenses - Note 8 38,000 34,231 128,469 130,518
Professional Fees - Note 9 7,570 54,898 37,257 62,601
Valuation Expenses 5,750 7,000 13,235 26,758
Insurance Fees - 702 - 2,755
TOTAL EXPENSES 627,131 823,459 2,103,825 2,802,753
NET INVESTMENT INCOME 1,424,628 898,697 4,189,562 4,887,746
NET CHANGE IN UNREALIZED DEPRECIATION ON
INVESTMENTS - Note 12 (12,918,142) (3,277,544) (22,543,056) (23,682,840)
NET REALIZED GAINS ON INVESTMENTS- Note 10 4,567,590 5,524,430 4,650,333 12,657,649
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (6,925,924) $3,145,583 $(13,703,161) $(6,137,445)
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
For the Nine Months Ended
September 30, September 30,
FROM OPERATIONS: 1995 1994
<S> <C> <C>
Net Investment Income $ 4,189,562 $ 4,887,746
Net Change in Unrealized Depreciation
on Investments (22,543,056) (23,682,840)
Net Realized Gains on Investments 4,650,333 12,657,649
Net Decrease in Net Assets Resulting
from Operations (13,703,161) (6,137,445)
Cash Distributions to Partners (28,513,725) (40,164,126)
Reduction in Managing General Partners'
Contribution (207,142) (225,854)
Total Decrease (42,424,028) (46,527,425)
NET ASSETS:
Beginning of Period 157,930,203 219,924,070
End of Period $115,506,175 $173,396,645
See the Accompanying Notes to Financial Statements.
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30, September 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and Discount Income $ 6,822,785 $ 9,419,424
Fund Administration Fees and Expenses (849,566) (1,123,140)
Investment Advisory Fee (1,104,449) (1,414,011)
Independent General Partners' Fees and Expenses (126,670) (132,252)
Valuation Expenses (19,762) (31,256)
Sale of Temporary Investments, Net 13,872,040 10,425,430
Proceeds from Sales and Principal Payments
of Enhanced Yield Investments 9,888,786 23,228,697
Other Accrued Liabilities - (8,475)
Professional Fees (40,442) (54,537)
Insurance Fees (3,967) (4,139)
Net Cash Provided by Operating Activities 28,438,755 40,305,741
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (28,513,725) (40,164,126)
Net Cash Used in Financing Activities (28,513,725) (40,164,126)
Net Increase (Decrease) in Cash (74,970) 141,615
Cash at the Beginning of the Period 157,275 28,396
Cash at the End of the Period $ 82,305 $ 170,011
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Decrease in Net Assets Resulting From Operations $ (13,703,161) $ (6,137,445)
Adjustments to Reconcile Net Decrease in Net Assets
Resulting from Operations to Net Cash Provided by
Operating Activities:
Decrease in Investments 19,110,494 31,554,208
Decrease in Accrued Interest,
Dividends and Discount Receivables 529,397 1,728,923
Increase in Receivable for Investments Sold - (10,557,728)
Decrease in Other Accrued Liabilities (6,527) (17,112)
(Decrease) Increase in Fund Administration
Expenses Payable (29,151) 42,970
(Increase) Decrease in Prepaid Expenses (3,967) 2,755
Net Change in Unrealized Depreciation on Investments 22,543,056 23,682,840
Increase (Decrease) in Independent General Partners'
Fees Payable 1,799 (1,675)
(Decrease) Increase in Professional Fees Payable (3,185) 8,005
Total Adjustments 42,141,916 46,443,186
Net Cash Provided by Operating Activities $ 28,438,755 $ 40,305,741
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
Managing
General Limited
Notes Partner Partners Total
<S> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Partners' Capital at January 1, 1995 $1,828,320 $156,101,883 $157,930,203
Cash Distributions to Partners (52,625) (28,461,100) (28,513,725)
Reduction in Managing General Partner's
Contribution 3 (207,142) - (207,142)
Allocation of Net Investment Income 11 41,896 4,147,666 4,189,562
Allocation of Net Unrealized Depreciation
on Investments 12 (225,430) (22,317,626) (22,543,056)
Allocation of Net Realized Gains on Investments 46,503 4,603,830 4,650,333
Partners' Capital at September 30, 1995 $1,431,522 $114,074,653 $115,506,175
See the Accompanying Notes to Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
ENHANCED YIELD INVESTMENTS
MANAGED COMPANIES
AMERICAN PAPER GROUP, LTD.
$1,209,417 American Paper Group, Ltd., Sub. Nts. 5% due 12/31/00* 01/18/94 $ 820,467 $ 888,861 $ 888,861
2,021 Shares American Paper Holdings Inc., Common Stock** 01/18/94 136,903 136,903 136,903
957,370 1,025,764 1,025,764 0.92
AMPEX RECORDING MEDIA CORP.
(Formerly 319 Holdings, Inc.)
$9,660,000 Ampex Recording Media Corp., Sr. Sub. Nt. Series A
14% due 07/31/99*(b) 12/31/90 7,052,513 7,349,917 2,415,000
$3,360,000 Ampex Recording Media Corp., Sr. Sub. Nt. Series B
14% due 07/31/99*(b) 06/28/91 2,468,723 2,551,726 840,000
$1,414,610 Ampex Recording Media Corp., Sr. Sub. Nt. Series A
18.4% due 07/31/99*(b)(c) 01/31/93 676,200 676,200 155,607
$ 492,038 Ampex Recording Media Corp., Sr. Sub. Nt. Series B
18.4% due 07/31/99*(b)(c) 01/31/93 235,200 235,200 54,125
14.742 Warrants Ampex Recording Media Corp., Class B Common Stock 12/31/90 &
Purchase Warrants**(e) 06/28/91 366,408 366,408 102,455
10,799,044 11,179,451 3,567,187 3.21
LEXMARK HOLDING, INC.
$19,667,348 Lexmark International, Inc., Sr. Sub. Nts. 14.25%
due 03/31/01* 03/27/91 19,667,348 19,667,348 19,667,348
123,987 Shares Lexington Holding, Inc., Class B Common Stock** 03/27/91 12,398,690 12,398,690 16,738,232
32,066,038 32,066,038 36,405,580 32.80
PERGAMENT HOME CENTERS, INC. - Note 12
$ 3,236,800 Pergament Acq. Corp., Home Centers, Inc. Floating
Rate Demand Note due 07/31/00* 10/18/91 3,236,800 3,236,800 3,236,800
380.80 Shares Pergament Holding, Corp., Common Stock Class B** 02/28/89 8,568,000 8,568,000 2,142,000
139.0545 Shares Pergament Holding, Corp., Common Stock Class C** 02/28/89 0 0 0
11,804,800 11,804,800 5,378,800 4.85
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
RI HOLDINGS, INC. - Notes 10,12
$22,584,916 RI Holdings, Inc., Sr. Sub. Nts. 16% due
08/31/01*(a)(b) 04/25/94 $11,828,850 $11,828,850 $ 9,463,080
304,934 Shares RI Holdings, Inc., Common Stock** 09/01/89 3,049,340 3,049,340 0
212,407.91 Shares RI Holdings, Inc., Common Stock** Various 2,124 2,124 0
46,062.5 Shares RI Holdings, Inc., Common Stock** 04/25/94 461 461 0
186,879.68 Shares RI Holdings, Inc., Common Stock** 05/09/95 1,869 1,869 0
14,882,644 14,882,644 9,463,080 8.53
TULIP HOLDING CORPORATION - Note 12
$ 8,530,088 Tulip Holding Corp., Sub. Nt.14.5% due
12/29/97*(a)(b) 12/29/89 8,499,467 8,516,694 426,504
$ 428,255 Tulip Holding Corp., Sub. Nt.16.5% due
06/30/94*(a)(b)(c) 12/31/91 428,255 428,255 0
$ 1,390,676 Tulip Holding Corp., Sub. Nt.16.5% due
06/30/94*(a)(b)(c) 12/31/92 1,390,676 1,390,676 0
$ 627,804 Tulip Holding Corp., Sub. Nt.16.5% due
06/30/94*(a)(b)(c) 12/31/93 627,804 627,804 0
2,843.3625 Shares Tulip Holding Corp., Series A Exchangeable
Pref.Stock 15%*(b) 12/29/89 2,843,362 2,843,362 0
153,104 Warrants Tulip Holding Corp., Common Stock Purchase Warrants** 12/29/89 30,621 30,621 0
13,820,185 13,837,412 426,504 0.38
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES LEATHER HOLDINGS, INC.
$18,684,000 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 01/31/04* 08/06/93 $ 18,556,021 $ 18,569,686 $ 18,569,686
$ 46,341 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 11/30/93 46,341 46,341 0
$ 561,907 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 02/28/94 561,907 561,907 0
$ 530,436 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 11/30/94 530,436 530,436 0
$ 730,090 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 02/28/95 730,090 730,090 0
$ 320,008 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 05/31/95 320,008 320,008 0
$ 515,070 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 08/31/95 515,070 515,070 0
3,514.13 Shares U.S. Leather Holdings, Inc., Sr. Sub. Pref. Stock
8% redeemable 03/31/01*(a) 12/30/88 2,576,000 2,576,000 0
191,504 Shares U.S. Leather Holdings, Inc., Jr. Sub. Pref.
Stock*(a) 08/06/93 0 0 0
191,504 Warrants U.S. Leather Holdings, Inc., Non-Voting Common Stock
Purchase Warrants** 08/06/93 238,247 238,247 0
24,074,120 24,087,785 18,569,686 16.73
USAT HOLDINGS INC.
603 Shares USAT Holdings Inc., Common Stock** 01/05/90 &
12/19/91 7,229,058 7,229,058 7,229,058
7,229,058 7,229,058 7,229,058 6.52
WB BOTTLING CORPORATION - Note 12
3,135 Shares WB Bottling Corp., Preferred Stock** 09/12/90 313,500 313,500 31,350
41,663 Shares WB Bottling Corp., Common Stock** 09/12/90 &
08/11/92 169,456 169,456 16,946
482,956 482,956 48,296 0.04
WSR ACQUISITION CORPORATION
$ 1,815,000 Whitlock Acq. Corp., Sr. Sub. Nt. 15% due 05/31/00* 06/13/90 1,815,000 1,815,000 1,815,000
$ 2,310,000 R&S Acq. Corp., Inc., Sr. Sub. Nt. 15% due 05/31/00* 06/13/90 2,310,000 2,310,000 2,310,000
4,125,000 4,125,000 4,125,000 3.72
TOTAL INVESTMENT IN MANAGED COMPANIES $120,241,215 $120,720,908 $86,238,955 77.70
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
NON-MANAGED COMPANIES
AMERICAN SAFETY RAZOR COMPANY - Notes 10, 12
216,593 Shares ASR Acquisition Corp., Common Stock(d) 04/14/89 $ 34,056 $ 34,056 $2,057,634
3,152 Shares ASR Acquisition Corp., Common Stock(d) 05/22/89 505 505 29,944
34,561 34,561 2,087,578 1.88
APOLLO RADIO HOLDING CO., INC.
$1,650,000 Apollo Radio Holding Co., Inc. Sr. Sub. Nt.
15% due 01/01/97* 06/01/90 1,650,000 1,650,000 1,650,000
57.75 Shares Apollo Radio Holding Co., Inc., Common Stock** 06/01/90 119,942 119,942 0
49.5 Shares Apollo Radio Holding Co., Inc., Common Stock** 04/03/90 102,808 102,808 0
17.8749 Warrants Apollo Radio Holding Co., Inc., Common Stock
Purchase Warrants** 04/03/90 0 0 0
1,872,750 1,872,750 1,650,000 1.49
COLOR YOUR WORLD, CORP. - Note 12
28,000,000 Units CYW, Sr. Partnership Units** 01/05/89 16,403,054 16,403,054 0
500 Units CYW, Jr. Partnership Units** 01/05/89 0 0 0
16,403,054 16,403,054 0 0.00
MTI HOLDINGS, INC. - Notes 10,12
$915,779 MTI Holdings, Inc., Sr. Sec. Nt. 5% due 08/15/99* 07/01/94 915,779 915,779 457,890
43,436 Shares MTI Holdings, Inc., Class B Common Stock** 07/01/94 990,000 990,000 0
1,905,779 1,905,779 457,890 0.41
See the Accompanying Notes to Financial Statements.
</TABLE>
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<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
WESTERN PIONEER, INC. - Note 10
$ 9,460,000 Western Pioneer, Inc., Sr. Sub. Nts. 10% due
12/01/02*(b) 11/30/94 $ 2,165,460 $ 2,165,460 $ 2,165,460
162,161 Warrants Western Pioneer, Inc., Common Stock Purchase
Warrants** 11/30/94 0 0 0
2,165,460 2,165,460 2,165,460 1.95
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $ 22,381,604 $ 22,381,604 $ 6,360,928 5.73
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $142,622,819 $143,102,512 $ 92,599,883 83.43
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONCLUDED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$ 450,000 South West Bell, 5.58% due 10/11/95 07/12/95 $ 443,653 $ 449,302 $ 449,302
$7,100,000 October Corp., 5.775% due 10/17/95 09/08/95 7,055,581 7,081,777 7,081,777
$3,900,000 Allomon Funding Corp., 5.75% due 10/03/95 09/19/95 3,891,279 3,898,754 3,898,754
$3,770,000 ESC Securitization, 5.73% due 10/05/95 09/22/95 3,762,199 3,767,600 3,767,600
$3,200,000 Ford Motor Credit, 5.74% due 10/12/95 09/27/95 3,192,347 3,194,388 3,194,388
TOTAL INVESTMENT IN COMMERCIAL PAPER 18,345,059 18,391,821 18,391,821 16.57
TOTAL TEMPORARY INVESTMENTS $ 18,345,059 $ 18,391,821 $ 18,391,821 16.57
TOTAL INVESTMENT PORTFOLIO $160,967,878 $161,494,333 $110,991,704 100.00%
* Restricted Security
** Restricted Non-income Producing Security
*** Affiliated Companies
(a) Includes receipt of payment-in-kind securities.
(b) Non-accrual investment status.
(c) Includes capitalized deferred income.
(d) Publicly traded class of securities.
(e) Underlying security publicly traded.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
PAR VALUE OR
DATE OF NUMBER OF AMORTIZED NET REALIZED
SECURITY TRANSACTION SHARES COST PROCEEDS GAIN (LOSS)
<S> <C> <C> <C> <C> <C>
Polaris Pool Systems
Common Stock 03/22/95 - $ - $82,743(A) $82,743
Total Net Realized Gains for the
Three Months Ended March 31, 1995 - 82,743 82,743
Total Net Realized Gains for the
Three Months Ended June 30, 1995 - - -
Haddon
Common Stock 08/09/95 - - 54,118(A) 54,118
Polaris Pool Systems
Common Stock 08/09/95 - - 16,245(A) 16,245
ASR Acquisition Corp.
Series B Subordinated 13.5% Notes 08/03/95 3,045,312 3,045,312 3,106,218 60,906
J.P. Foodservice, Inc.
Common Stock 09/15/95 507,490 4,390,261 8,344,264 3,954,003
Multi-Turf
Common Stock 09/30/95 152.46 39,312 521,630 482,318
Total Net Realized Gains for the
Three Months Ended September 30, 1995 7,474,885 12,042,475 4,567,590
Total Net Realized Gains for the
Nine Months Ended September 30, 1995 $7,474,885 $12,125,218 $4,650,333
(A) Proceeds represent a distribution to the Fund from the escrow account.
See the Accompanying Notes to Financial Statements.
</TABLE>
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2078.LBO-33
EQUITABLE CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
1. Organization and Purpose
Equitable Capital Partners, L.P. (the "Fund") was formed along with
Equitable Capital Partners (Retirement Fund), L.P. (the "Retirement Fund," and
collectively with the Fund referred to as the "Funds") and the Certificates of
Limited Partnership were filed under the Delaware Revised Uniform Limited
Partnership Act on February 2, 1988. The Funds' operations commenced on October
13, 1988.
On July 22, 1993, Equitable Capital Management Corporation ("Equitable
Capital"), formerly the Managing General Partner and investment adviser of the
Funds, transferred substantially all of the assets comprising Equitable
Capital's business to Alliance Capital Management L.P. ("Alliance Capital") and
its wholly-owned subsidiary, Alliance Corporate Finance Group Incorporated
("Alliance Corporate"). In connection with such transaction, the limited
partners, (the "Limited Partners") of the Funds voted to approve a new
investment advisory agreement between the Funds and Alliance Corporate and also
voted to admit Alliance Corporate as Managing General Partner of the Funds to
succeed Equitable Capital. Accordingly, on July 22, 1993, the closing date of
the transaction described above, (i) Alliance Corporate was admitted as the
successor Managing General Partner of the Funds (ii) Equitable Capital withdrew
from the Funds as Managing General Partner and assigned all of its interest as
General Partner to Alliance Corporate and (iii) Alliance Corporate succeeded
Equitable Capital as the investment adviser to the Funds pursuant to a new
investment advisory agreement. Alliance Corporate (the "Investment Adviser") is
a registered investment adviser under the Investment Advisers Act of 1940.
Prior to July 22, 1993, Equitable Capital was responsible, subject to the
supervision of the independent general partners of the Funds (the "Independent
General Partners"), for the management of the Fund's investments. As of July 22,
1993, Alliance Corporate assumed such responsibilities in its capacity as
Managing General Partner and Investment Adviser of the Funds.
The Funds have elected to operate as business development companies under
the Investment Company Act of 1940, as amended. The Funds seek current income
and capital appreciation potential through investments in privately-structured,
friendly leveraged acquisitions and other leveraged transactions. The Funds have
pursued this objective by investing primarily in subordinated debt and related
equity securities ("Enhanced Yield Investments") issued in conjunction with the
"mezzanine financing" of friendly leveraged acquisitions and leveraged
recapitalizations.
As stated in the Partnership Agreement, the Fund will terminate on October
13, 1998, subject to the right of the Independent General Partners to extend the
term of the Fund for up to two additional one year periods, after which the Fund
will liquidate any remaining investments within five years.
2. Significant Accounting Policies
Basis of Accounting
For financial reporting purposes, the Fund's records are maintained using
the accrual method of accounting.
<PAGE>
Valuation of Investments
Securities are valued at market or fair value. Market value is used for
securities for which market quotations are readily available. For securities
without a readily ascertainable market value, fair value is determined, on a
quarterly basis, in good faith by the General Partners of the Fund. In
connection with such determination, the Managing General Partner has established
a valuation committee comprised of senior executives to assess the Fund's
portfolio and make recommendations regarding the value of the Fund's portfolio
securities. This valuation committee uses available market information and
appropriate valuation methodologies. In addition, the Managing General Partner
has retained Arthur D. Little, Inc., a nationally recognized independent
valuation consultant, to review such valuations.
For privately issued securities in which the Fund typically invests, the
fair value of an investment is its initial cost, adjusted for amortization of
discount or premium and as subsequently adjusted to reflect the occurrence of
significant developments. "Significant developments" are business, economic or
market events that may affect a company in which an investment has been made or
the securities comprising such investment. For example, significant developments
that could result in a writedown in value include, among other things, events of
default with respect to payment obligations or other developments indicating
that a portfolio company's performance may fall short of acceptable levels. A
writeup in value of an investment could take place when a significant favorable
development occurs, such as a transaction representing the partial sale of an
investment that would result in a capital gain, or company performance exceeding
expected levels on a sustained basis. Although the General Partners use their
best judgment in determining the fair value of these investments, there are
inherent limitations in any valuation technique involving securities of the type
in which the Fund invests. Therefore, the fair values resented herein are not
necessarily indicative of the amount which the Fund could realize in a current
transaction.
Temporary Investments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Temporary Investments which
mature in more than 60 days, for which market quotations are readily available,
are valued at the most recent bid price or the equivalent quoted yield obtained
from one or more of the market makers.
Interest Receivable on Investments
Investments will generally be placed on non-accrual status in the event of a
default (after applicable grace period expires) or if the Managing General
Partner determines that there is no reasonable expectation of collecting
interest.
Payment-In-Kind Securities
All payment-in-kind securities received in lieu of cash interest payments
from the Fund's portfolio companies are recorded at face value, unless the
Managing General Partner determines that there is no reasonable expectation of
collecting the full principal amounts of such securities.
Income Taxes
No provision for income taxes has been made since all income and losses are
allocated to the Fund's partners ("Partners") for inclusion in their respective
tax returns.
<PAGE>
Investment Transactions
Enhanced Yield Investments - The Fund records transactions on the date on
which it obtains an enforceable right to demand the securities or payment
thereof.
Temporary Investments - The Fund records transactions on the trade date.
Realized gains and losses on investments are determined on the basis of
specific identification for accounting and tax purposes.
Sales, Marketing and Offering Expenses and Sales Commissions
Sales commissions and selling discounts have been allocated to the specific
Partners' accounts to which they are applicable. Sales, marketing and offering
expenses are allocated between the Funds in proportion to the number of units
issued by each Fund and to the Partners in proportion to their capital
contributions.
3. Note Receivable
On July 22, 1993, pursuant to the terms of the Fund's Amended and Restated
Agreement of Limited Partnership, Alliance Corporate, as the successor Managing
General Partner of the Fund, has contributed a non-interest bearing promissory
note (the "Note") to the Fund in an aggregate amount equal to 1.01% of the
aggregate Net Capital Contributions of all Limited Partners (less distributions
representing returns of capital). Net Capital Contributions are comprised of
gross offering proceeds, after giving effect to volume discounts (and after
netting of sales commissions, organization, offering and sales and marketing
expenses), less returns of capital distributed to Limited Partners. The
principal amount of the Note is reduced proportionally as such Limited Partners
receive distributions representing additional returns of capital. Such
distributions received for the nine months ended September 30, 1995 resulted in
a $207,142 reduction of the principal amount of the Note. The promissory note of
Equitable Capital was cancelled upon the contribution of Alliance Corporate's
note.
4. Capital Contributions
On October 13, 1988, the Fund closed the initial public offering of its
units of Limited Partner interests ("Units"). Equitable Capital, the Fund's
Managing General Partner at that time, accepted subscriptions for 284,611 Units
and admitted 18,288 Limited Partners.
The Limited Partners' total capital contributions were $283,873,400, after
giving effect to volume discounts allowed of $737,600. Equitable Capital's
aggregate capital contribution was in the form of a promissory note in the
principal amount of $2,641,469. On July 22, 1993, Equitable Capital's note was
cancelled and Alliance Corporate, as successor Managing General Partner, made a
capital contribution in the form of a promissory note on such date, as described
in Note 3. Sales, marketing and offering expenses and selling commissions have
been charged against proceeds resulting in net capital contributed by Limited
Partners of $261,531,542.
Allocation of income, loss and distributions of cash are made in accordance
with the Partnership Agreement as further discussed in Note 11.
<PAGE>
5. Sales, Marketing and Offering Expenses and Sales Commissions
The Fund expended a total of $535,631 for the reimbursement of sales and
marketing expenses. Aggregate sales and marketing expenses of the Funds may not
exceed $2,528,415 or 0.5% of the aggregate capital contributions and were
allocated proportionately to the number of Units issued by each Fund. Aggregate
sales and marketing expenses for the Funds totalled $951,683.
The Fund also paid $2,098,311 for the reimbursement of offering expenses.
These expenses, along with the offering expenses of the Retirement Fund and the
organizational expenses of the Funds, may not exceed $6,000,000. Aggregate
offering and organizational expenses for the Funds totalled $4,711,806 as of
September 30, 1995.
For their services as selling agent, the Fund paid sales commissions to
Merrill Lynch, Pierce, Fenner & Smith Incorporated in the amount of $19,185,170,
of which Equico Securities Corporation, an affiliate of Equitable Capital, a
related party, received $317,150 as a selected dealer.
6. Investment Advisory Fee
As of July 22, 1993, Alliance Corporate has been receiving a quarterly
Investment Advisory Fee, at the annual rate of 1.0% of the Fund's Available
Capital, with a minimum annual payment of $2,000,000 collectively for the Funds,
less 80% of commitment, transaction, investment banking and "break-up" or other
fees related to the Fund's investments ("Deductible Fees"). Available Capital is
defined as the sum of the aggregate Net Capital Contributions of the Partners
less the cumulative amount of returns of capital distributed to Partners and
realized losses from investments. Since becoming the successor Managing General
Partner of the Fund, Alliance Corporate has not received any Deductible Fees.
Alliance Corporate is a related party of the Fund.
The Investment Advisory Fee is calculated and paid quarterly in advance. The
Investment Advisory Fees paid by the Fund for the nine months ended September
30, 1995 and 1994 were $1,104,449 and $1,414,011, respectively. The decrease
from 1994 to 1995 Investment Advisory Fees is due primarily to the return of
capital to Limited Partners, which reduced the Fund's Available Capital, on
which the Investment Advisory Fee is based.
7. Fund Administration Fee and Expenses
As compensation for its services during the fourth through seventh year of
operation of the Funds, ML Fund Administrators, Inc. ("MLFAI"), as the Fund
administrator, is entitled to receive from the Funds an annual amount equal to
the greater of the (l) Minimum Fee and (ll) the Funds' prorated proportion
(based on the number of Units issued by the Funds) of 0.45% of the excess of the
aggregate net offering proceeds of the Units issued by the Funds over 50% of the
aggregate amount of capital reductions of the Funds (subject to an annual
maximum of $3.2 million). The Minimum Fee is 1.0% of the gross offering price of
Units in the Funds, but not greater than $500,000. The Fund Administration Fee
is calculated and paid quarterly in advance. The Fund Administration Fees paid
by the Fund for the nine months ended September 30, 1995 and 1994 were $683,070
and $744,675, respectively.
<PAGE>
In addition to the Fund Administration Fee, MLFAI is entitled to receive
reimbursement for a portion of direct out-of-pocket expenses incurred in
connection with the administration of the Retirement Fund, commencing on October
13, 1992. For the nine months ended September 30, 1995 and 1994, the Fund
incurred Administrative Expenses of $137,345 and $421,435, respectively, which
consisted primarily of printing, audit and tax return preparation and custodian
fees paid for by MLFAI on behalf of the Fund.
8. Independent General Partners' Fees and Expenses
As compensation for their services, each Independent General Partner is
entitled to a $30,000 annual fee (payable quarterly) from the Fund in addition
to $500 for each meeting attended and reimbursement for any out-of-pocket
expenses. In accordance with the Fund's Partnership Agreement, the amount of the
annual fee is reviewed annually by the Independent General Partners.
For the nine months ended September 30, 1995 and 1994, the Fund incurred
$128,469 and $130,518, respectively, of Independent General Partners' Fees and
Expenses.
9. Related Party Transactions
For the nine months ended September 30, 1995, the Fund paid expenses of
$34,192 as reimbursement for amounts paid for legal services provided by
Equitable Life in connection with the Fund's Enhanced Yield Investments. For the
nine months ended September 30, 1994, the Fund paid expenses of $54,289 as
reimbursement for legal services provided by Equitable Life in connection with
the Fund's Enhanced Yield Investments. The Fund is paying Alliance Corporate an
Investment Advisory Fee for its services as described in Note 6. Additionally,
the Fund paid sales commissions to Equico Securities, a related party, as
described in Note 5.
10. Investment Transactions
The Fund is invested primarily in Enhanced Yield Investments, also known in
the securities industry as "high yield securities". The securities in which the
Fund has invested were issued in conjunction with the mezzanine financing of
privately structured, friendly leveraged acquisitions, recapitalizations and
other leveraged financings, and are generally linked with an equity
participation. Enhanced Yield Investments are debt and preferred equity
securities that are unrated or are rated by Standard & Poor's Corporation as BB
or lower and by Moody's Investor Services, Inc. as Ba or lower. Risk of loss
upon default by the issuer is significantly greater with Enhanced Yield
Investments than with investment grade securities because Enhanced Yield
Investments are generally unsecured and are often subordinated to other
creditors of the issuer. Also, these issuers usually have high levels of
indebtedness and are more sensitive to adverse economic conditions, such as a
recession or increasing interest rates, than investment grade issuers. Most of
these securities are subject to resale restrictions and generally there is no
quoted market for such securities.
<PAGE>
Although the Fund cannot eliminate its risks associated with participation
in Enhanced Yield Investments, it has established risk management policies. The
Fund subjected each prospective investment to rigorous analysis, and will make
only those investments that have been recommended by the Managing General
Partner and that meet the Fund's investment guidelines or that have otherwise
been approved by the Independent General Partners. Fund investments are measured
against specified Fund investment and performance guidelines. To limit the
exposure of the Fund's capital in any single issuer, the Fund limits the amount
of its investment in a particular issuer. The Fund also continually monitors
portfolio companies in order to minimize the risks associated with participation
in Enhanced Yield Investments.
On August 3, 1995, the Fund sold its American Safety Razor Company 13.5%
Series B Subordinated Notes for $3,106,218 and recognized a gain of $60,906 on
the sale.
On August 9, 1995, the Fund received an additional $16,245 and $54,118 from
Polaris Pool Systems and Haddon Craftsman, respectively. The monies represent
proceeds from the sale of the investments from prior years that have been held
in escrow for future adjustments and expenses not paid on the sale dates. The
amounts received are recorded and will be distributed as gains.
On September 15, 1995 the Fund sold its common stock investment in JP
Foodservice, Inc. for $8,344,264, which resulted in a gain to the Fund of
$3,954,003.
During the three months ended September 30, 1995, the Fund received total
proceeds of $521,630 from Multi-Turf as paydown of the equity held, which
resulted in a gain of $482,318 to the Fund.
During the three months ended September 30, 1995, the Fund received a total
of $236,500 and $9,354 from Western Pioneer and MTI Holdings, respectively, as
principal paydowns of the senior notes held by the Fund. No gain, loss or income
has been recorded on these transactions and the amounts will be distributed as
return of capital to the Limited Partners.
As of September 30, 1995, the Fund had investments in ten Managed Companies
(a Managed Company is one to which the Fund, the Managing General Partner or
other persons in the Fund's investor group make significant managerial
assistance available) and five Non-Managed Companies (a Non-Managed Company is
one to which such assistance is not provided) totalling $142,622,819 (including
$3,557,850 capitalized cost of payment-in-kind securities), consisting of
$87,048,415 in senior notes and subordinated notes, $5,732,862 in preferred
stock and purchase warrants, $33,438,488 in common stock and purchase warrants
and $16,403,054 in partnership interests.
11. Allocation of Profits and Losses
Pursuant to the terms of the Partnership Agreement, net investment income
and gains and losses on investments are generally allocated between the Managing
General Partner and the Limited Partners based upon cash distributions as
follows:
first, 99% to the Limited Partners and 1% to the Managing General Partner
until the Limited Partners have received a cumulative priority return of 10%
non-compounded on an annual basis on their investments in Enhanced Yield
Investments;
<PAGE>
second, 70% to the Limited Partners and 30% to the Managing General Partner
until the Managing General Partner has received 20% of all current and prior
distributions on such investments;
and thereafter, 80% to the Limited Partners and 20% to the Managing
General Partner.
For the nine months ended September 30, 1995, earnings were allocated 99% to
the Limited Partners, as a class, and 1% to the Managing General Partner.
12. Unrealized Appreciation/Depreciation and Non-Accrual of Investments
For the nine months ended September 30, 1995, the Fund recorded net
unrealized depreciation on Enhanced Yield Investments of $22,543,056 compared to
$23,682,840 for the nine months ended September 30, 1994. Such depreciation was
the result of adjustments in value made with respect to the following
investments during the nine months ended September 30, 1995:
On March 31, 1995, Pergament Home Centers, Inc. Class B Common Stock was
written down from 75% to 25% of cost, resulting in unrealized depreciation of
$4,284,000.
The RI Holdings, Inc. common stock purchased on May 9, 1995 was valued at
zero, resulting in unrealized depreciation of $1,869 to the Fund.
Due to an increase in the quoted market price of JP Foodservice common stock
held by the Fund at June 30, 1995, the Fund recorded unrealized appreciation of
$2,169,520. The equity was valued at 90% of the closing market price at June 30,
1995, due to contractual restrictions on resale.
On June 30, 1995, MTI Holdings, Inc. Class B Common Stock was written down
from 100% to zero and the 5% Senior Secured Note was written down from 100% to
75% of par, resulting in total unrealized depreciation of $1,221,283 to the
Fund. Due to principal paydowns during the three months ended September 30,
1995, $2,338 of unrealized depreciation was reversed.
On June 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was written
down from 50% to 25% of par, resulting in unrealized depreciation of $2,132,522
to the Fund.
On June 30, 1995, due to a default of an interest payment on senior notes
held by a third party, the WB Bottling Corporation preferred and common stock
held by the Fund were written down from 100% to 10% of cost, resulting in total
unrealized depreciation of $434,660 to the Fund.
On June 30, 1995, Color Your World, Corp. senior partnership units were
written down from 100% to zero, resulting in unrealized depreciation of
$3,280,610 to the Fund.
Due to the sale of the common stock investment in JP Foodservice, Inc. on
September 15, 1995, the Fund reversed the unrealized appreciation recorded of
$2,004,108.
Due to the decline in the quoted market price of American Safety Razor
common stock, the Fund recorded total unrealized depreciation of $933,916 at
September 30, 1995.
<PAGE>
On September 30, 1995, Ampex Recording Media Corp. 14% and 18.4% Senior
Subordinated Series A Notes were written down from 50% to 25% of par value,
which resulted in unrealized depreciation of $3,464,731 to the Fund.
On September 30, 1995, US Leather Holdings, Inc. 8% Senior Subordinated
Preferred Stock and the 15% Senior Subordinated PIK Notes were written down to
zero, which resulted in unrealized depreciation of $5,022,252 to the Fund.
On September 30, 1995, MTI Holdings, Inc. 5% Senior Secured Note was written
down from 75% to 50% of par value, which resulted in unrealized depreciation of
$228,945 to the Fund.
On September 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was
written down from 25% to 5% of par, resulting in unrealized depreciation of
$1,706,018 to the Fund.
The following investments have been on non-accrual status as of the
respective dates:
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Tulip Holding, Corp. 14.5% and 16.5%
Subordinated Notes January 1, 1994
Ampex Recording Media Corp. 14%
and 18.4% Senior Subordinated Notes January 31, 1993
Alliance Corporate continues to monitor the Fund's portfolio closely. As a
matter of standard procedure, Alliance Corporate reviews each portfolio
company's financial statements at least quarterly, and often monthly. Investment
managers routinely review and discuss financial and operating results with the
companies' management and equity sponsors, and attend periodic board of
directors meetings, as appropriate. In some cases, Alliance Corporate officers,
acting on behalf of the Fund, serve as directors on the boards of portfolio
companies. When problems arise, communication with management and sponsors often
occurs on a daily basis.
13. Income Taxes
No provision for income taxes has been made since all income and losses are
allocated to the Fund's partners for inclusion in their respective tax returns.
Pursuant to Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes, the Fund is required to disclose any difference between the
tax bases of the Fund's assets and liabilities versus the amounts reported in
the Financial Statements. Generally, the tax bases of the Fund's assets
approximate the amortized cost amounts reported in the Financial Statements.
This amount is computed annually and as of December 31, 1994, the tax basis of
the Fund's assets was greater than the amounts reported in the Financial
Statements by $51,780,054. This difference is primarily attributable to
unrealized depreciation on investments which has not been recognized for tax
purposes. Additionally, certain realized gains and losses due to restructurings
were treated differently for tax purposes than for financial reporting purposes.
<PAGE>
14. Subsequent Events
On October 26,1995, Apollo Radio paid in full the 15% Subordinated Note held
by the Fund plus all accrued interest. Total proceeds received were $3,513,365,
which will be distributed with the fourth quarter distribution on February 14,
1996.
On November 8, 1995, the Independent General Partners approved an aggregate
cash distribution of $12,660,532 for the three months ended September 30, 1995,
which was paid on November 14, 1995 to the Limited Partners. The amount
distributed to Limited Partners on record as of September 30, 1995 was
$12,631,036 or $44.38 per Unit (of which $4,815,618 is capital returned from
investments in the third quarter of 1995). On a per Unit basis, this
distribution to Limited Partners includes $17.20 of realized gains, $10.26 of
income from operations and $16.92 of return of capital. The Managing General
Partner's one percent allocation of $127,586 was reduced by its one percent
allocation of realized gains and capital returned from investments of $98,091
(which is being held as a Deferred Distribution Amount pursuant to the
Partnership Agreement), resulting in a net distribution to the Managing General
Partners of $29,495.
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
Net Proceeds of Offering
On October 13, 1988, the Fund completed the initial public offering of
Units, admitting 18,288 Limited Partners who purchased 284,611 Units. The net
proceeds available for investment by the Fund after such offering were
$261,499,657 after volume discounts, sales commissions and organizational,
offering, sales and marketing expenses.
Investments
During the nine months ended September 30, 1995, the Fund made a follow-on
investment in RI Holdings, Inc. Under the terms of RI Holdings senior
subordinated notes, the Fund receives common stock at a cost of one cent per
share for each interest payment date on which RI Holdings delivers
payment-in-kind securities in lieu of a cash payment. On May 9, 1995, the Fund
purchased 186,880 shares of RI Holdings common stock.
As of September 30, 1995, the Fund had a total of 15 Enhanced Yield
Investments at a net cost of $142,622,819 (inclusive of the receipt of
securities having a capitalized cost of $3,557,850 received as payment-in-kind
interest on certain Enhanced Yield Investments).
Proceeds from Investments
During the nine months ended September 30, 1995, the Fund received proceeds
from the following investments:
On March 22, 1995, the Fund received $82,743 from the sale of Polaris Pool
Systems at September 30, 1994. The payment represents part of the gain on sale
that was withheld in escrow for future adjustments and expenses not paid on the
closing date.
During the nine months ended September 30, 1995, the Fund received a total
of $709,500 and $27,814 from Western Pioneer and MTI Holdings, respectively, as
principal paydowns of the senior notes held by the Fund. No gain or loss has
been recorded on the transactions and the amounts will be distributed as return
of capital to the Limited Partners.
On August 3, 1995, the Fund sold its American Safety Razor Company 13.5%
Series B Subordinated Notes for $3,106,218 and recognized a gain of $60,906 on
the sale.
On August 9, 1995, the Fund received an additional $16,245 and $54,118 from
Polaris Pool Systems and Haddon Craftsman, respectively. The monies represent
proceeds from the sale of the investments from prior years that have been held
in escrow for future adjustments and expenses not paid on the sale dates. The
amounts received are recorded and will be distributed as gains.
On September 15, 1995 the Fund sold its common stock investment in JP
Foodservice, Inc. for $8,344,264, which resulted in a gain to the Fund of
$3,954,003.
<PAGE>
During the nine months ended September 30, 1995, the Fund received total
proceeds of $521,630 from Multi-Turf which resulted in a gain of $482,318 to the
Fund.
The Fund's Enhanced Yield Investments are typically issued in private
placement transactions and are subject to certain restrictions on transfer, and
are thus relatively illiquid. The balance of the Fund's assets at the end of the
period covered by this report was invested in Temporary Investments, comprised
of commercial paper with maturities of less than sixty days.
All cash dividends, interest and other income received by the Fund in excess
of expenses of operation and reserves for expenses and certain investments and
liabilities are distributed to the Limited Partners of the Fund and to Alliance
Corporate, as the Managing General Partner, within 45 days after the end of each
calendar quarter. Before each quarterly cash distribution, the Fund will analyze
the then current cash projections and determine the amount of any additional
reserves it deems necessary.
Participation in Enhanced Yield Investments
The Fund is invested primarily in Enhanced Yield Investments, also known in
the securities industry as "high yield securities". The securities in which the
Fund has invested were issued in conjunction with the mezzanine financing of
privately structured, friendly leveraged acquisitions, recapitalizations and
other leveraged financings, and are generally linked with an equity
participation. Enhanced Yield Investments are debt and preferred equity
securities that are unrated or are rated by Standard & Poor's Corporation as BB
or lower and by Moody's Investor Services, Inc. as Ba or lower. Risk of loss
upon default by the issuer is significantly greater with Enhanced Yield
Investments than with investment grade securities because Enhanced Yield
Investments are generally unsecured and are often subordinated to other
creditors of the issuer. Also, these issuers usually have high levels of
indebtedness and are more sensitive to adverse economic conditions, such as a
recession or increasing interest rates, than investment grade issuers. Most of
these securities are subject to resale restrictions and generally there is no
quoted market for such securities.
Although the Fund cannot eliminate its risks associated with participation
in Enhanced Yield Investments, it has established risk management policies. The
Fund subjects each prospective investment to rigorous analysis, and makes only
those investments that have been recommended by the Managing General Partner and
that meet the Fund's investment guidelines or that have otherwise been approved
by the Independent General Partners.
Fund investments are measured against specified Fund investment and
performance guidelines. To limit the exposure of the Fund's capital in any
single issuer, the Fund limits the amount of its investment in a particular
issuer. The Fund also continually monitors portfolio companies in order to
minimize the risks associated with participation in Enhanced Yield Investments.
<PAGE>
Results of Operations
For the three months ended September 30, 1995, net investment income
increased by $525,931 and for the nine months ended September 30, 1995, it
decreased by $698,184 as compared to the same periods in 1994. Net investment
income is comprised of investment income (primarily interest and discount
income) offset by expenses. The decrease in the 1995 net investment income
versus the comparative period in 1994, reflects the decrease in interest and
discount income (excluding temporary investments) partially offset by the
decrease in Investment Advisory Fees, Fund Administration Fees and Expenses and
Valuation Expenses.
For the three and nine months ended September 30, 1995, the Fund had
investment income of $2,051,759 and $6,293,387, respectively, as compared to
$1,722,156 and $7,690,499, respectively, for the same periods in 1994. The
decrease in 1995 investment income of 18% was primarily due to a decrease in the
amount of accrual status debt securities held by the Fund due to the sales and
repayments of four Enhanced Yield Investments, subsequent to the nine months
ending September 30, 1994. This decrease, however, was offset by the increase in
interest rates for commercial paper from September 30, 1994 to September 30,
1995.
The Fund incurred expenses of $627,131 and $2,103,825 for the three and nine
months ended September 30, 1995, respectively, as compared to $823,459 and
$2,802,753 for the same periods in 1994. The decrease in the 1995 expenses of
$698,928 was primarily due to a decrease to Investment Advisory Fees and Fund
Administration Fees and Expenses paid and the Valuation Expenses incurred by the
Fund. The Fund's major expenses consist of the Investment Advisory Fee, the Fund
Administration Fees and Expenses and Independent General Partners' Fees and
Expenses.
The Fund experienced a decrease in net assets resulting from operations for
the nine months ended September 30, 1995 in the amount of $11,997,143 as
compared to a decrease of $6,137,445 for the comparative period in 1994. The
decrease in net assets for the nine months ended September 30, 1995 is comprised
of net investment income of $4,189,562, net realized gains of $4,650,333 offset
by a net change in unrealized depreciation of $20,837,038. For the comparable
period in 1994, the decrease in net assets was comprised of net investment
income of $4,887,746, net realized gains of $12,657,649 offset by a net change
in unrealized depreciation of $23,682,840 (see Statements of Operations in the
Financial Statements). The realized gains recorded for the nine months ending
September 30, 1994 included the sales of American Safety Razor, Career Horizons
and Polaris Pool Systems. The unrealized depreciation recorded for the nine
months ended September 30, 1994 included the writedown of investments in Western
Pioneer, Pergament, Ampex Recording Media and Tulip Holding Corp.
For the three months ended September 30, 1995 and 1994 the Fund incurred
Investment Advisory Fees of $338,234 and $441,324, respectively. For the nine
months ended September 30, 1995 and 1994, the Fund incurred Investment Advisory
Fees of $1,104,449 and $1,414,011, respectively (as described in Note 6 to the
Financial Statements). The decrease in the Investment Advisory Fees is due to a
decrease in the Fund's Available Capital on which the Investment Advisory Fee is
based, resulting primarily from redemptions of debt obligations held by the Fund
(which is a component of Available Capital).
<PAGE>
The Fund Administration Fees and Expenses (as described in Note 7 to the
Financial Statements) for the three months ended September 30, 1995 and 1994
were $237,577 and $285,304, respectively, and for the nine months ended
September 30, 1995 and 1994 were $820,415 and $1,166,110, respectively. The
decrease from 1994 to 1995 of $345,695 is primarily due to a decrease in the
Administrative Expenses reimbursed to the Fund Administrator under the Fund's
Administrative Services Agreement. During the nine months ended September 30,
1995 and 1994, the Fund incurred a total of $137,345 and $421,435, respectively,
of Administrative Expenses which consisted primarily of printing, audit and tax
return preparation and custodian fees paid for by MLFAI on behalf of the Fund.
Independent General Partners' Fees and Expenses incurred for the three and
nine months ended September 30, 1995 and 1994 were $38,000 and $128,469,
respectively and $34,231 and $130,518, respectively. The decrease of $2,049 from
1994 to 1995 was mainly due to a decrease in legal fees incurred by the
Independent General Partners.
The Fund incurred Professional Fees of $7,570 and $37,257 for the three and
nine months ended September 30, 1995, respectively. Professional Fees incurred
for the same periods in 1994 were $54,898 and $62,601, respectively. The
decrease from 1994 to 1995 reflects the decrease in amounts reimbursed to
Equitable Life for legal services. (See Note 9 to the Financial Statements).
Unrealized Appreciation/Depreciation and Non-Accrual of Investments
The General Partners of the Fund determine, on a quarterly basis, the fair
value of the Fund's portfolio securities that do not have a readily
ascertainable market value. They are assisted in connection with such
determination by the Managing General Partner, which has established a valuation
committee comprised of senior executives to assess the Fund's portfolio and make
recommendations regarding the value of its portfolio securities. This valuation
committee uses available market information and appropriate valuation
methodologies. In addition, the Managing General Partner has retained Arthur D.
Little, Inc., a nationally recognized independent valuation consultant, to
review such valuations.
For privately issued securities in which the Fund typically invests, the
fair value of an investment is its initial cost, adjusted for amortization of
discount or premium and as subsequently adjusted to reflect the occurrence of
significant developments. "Significant developments" are business, economic or
market events that may affect a company in which an investment has been made or
the securities comprising such investment. For example, significant developments
that could result in a writedown in value include, among other things, events of
default with respect to payment obligations or other developments indicating
that a portfolio company's performance may fall short of acceptable levels. A
writeup in value of an investment could take place when a significant favorable
development occurs, such as a transaction representing the partial sale of an
investment that would result in a capital gain or company performance exceeding
expected levels on a sustained basis.
Although the General Partners use their best judgment in determining the
fair value of these investments, there are inherent limitations in any valuation
technique involving securities of the type in which the Fund invests. Therefore,
the fair values presented herein are not necessarily indicative of the amount
which the Fund could realize in a current transaction.
<PAGE>
For the nine months ended September 30, 1995, the Fund recorded net
unrealized depreciation on Enhanced Yield Investments of $22,543,056 as compared
to $23,682,840 for the nine months ended September 30, 1994. Such depreciation
was the result of adjustments in value made with respect to the following
investments during the nine months ended September 30, 1995:
On March 31, 1995, Pergament Home Centers, Inc. Class B Common Stock was
written down from 75% to 25% of cost, resulting in unrealized depreciation of
$4,284,000.
The RI Holdings, Inc. common stock purchased on May 9, 1995 was valued at
zero, resulting in unrealized depreciation of $1,869 to the Fund.
Due to an increase in the quoted market price of JP Foodservice common stock
held by the Fund at June 30, 1995, the Fund recorded unrealized appreciation of
$2,169,520. The equity was valued at 90% of the closing market price at June 30,
1995, due to contractual restrictions on resale.
On June 30, 1995, MTI Holdings, Inc. Class B Common Stock was written down
from 100% to zero and the 5% Senior Secured Note was written down from 100% to
75% of par, resulting in total unrealized depreciation of $1,221,283 to the
Fund. Due to principal paydowns during the three months ended September 30,
1995, $2,338 of unrealized depreciation was reversed.
On June 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was written
down from 50% to 25% of par, resulting in unrealized depreciation of $2,132,522
to the Fund.
On June 30, 1995, due to a default of an interest payment on senior notes
held by a third party, the WB Bottling Corporation preferred and common stock
held by the Fund were written down from 100% to 10% of cost, resulting in total
unrealized depreciation of $434,660 to the Fund.
On June 30, 1995, Color Your World, Corp. senior partnership units were
written down from 100% to zero, resulting in unrealized depreciation of
$3,280,610 to the Fund.
Due to the sale of the common stock investment in JP Foodservice, Inc. on
September 15, 1995, the Fund reversed the unrealized appreciation recorded of
$2,004,108.
Due to the decline in the quoted market price of American Safety Razor
common stock, the Fund recorded total unrealized depreciation of $933,916 at
September 30, 1995.
On September 30, 1995, Ampex Recording Media Corp. 14% and 18.4% Senior
Subordinated Series A Notes were written down from 50% to 25% of par value,
which resulted in unrealized depreciation of $3,464,731 to the Fund.
On September 30, 1995, US Leather Holdings, Inc. 8% Senior Subordinated
Preferred Stock and the 15% Senior Subordinated PIK Notes were written down to
zero, which resulted in unrealized depreciation of $5,022,252 to the Fund.
On September 30, 1995, MTI Holdings, Inc. 5% Senior Secured Note was written
down from 75% to 50% of par value, which resulted in unrealized depreciation of
$228,945 to the Fund.
On September 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was
written down from 25% to 5% of par, resulting in unrealized depreciation of
$1,706,018 to the Fund.
<PAGE>
The following investments have been on non-accrual status as of the
respective dates:
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Tulip Holding, Corp. 14.5% and 16.5%
Subordinated Notes January 1, 1994
Ampex Recording Media Corp. 14%
and 18.4% Senior Subordinated Notes January 31, 1993
Alliance Corporate continues to monitor the Fund's portfolio closely. As a
matter of standard procedure, Alliance Corporate reviews each portfolio
company's financial statements at least quarterly, and often monthly. Investment
managers routinely review and discuss financial and operating results with the
companies' management and equity sponsors, and attend periodic board of
directors meetings, as appropriate. In some cases, Alliance Corporate officers,
acting on behalf of the Funds, serve as directors on the boards of portfolio
companies. When problems arise, communication with management and sponsors often
occurs on a daily basis.
Realized Gains and Losses on Investments
During the three and nine months ended September 30, 1995, the Fund recorded
net realized gains of $4,567,590 and $4,650,333, respectively, on transactions
involving three Enhanced Yield Investments. For the three and nine months ended
September 30, 1994, the Fund recorded net realized gains on investments of
$5,524,430 and $12,657,649, respectively, on transactions involving four
Enhanced Yield Investments (see Note 10 to the Financial Statements and the
Supplemental Schedule of Realized Gains and Losses).
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 4 are herewith omitted as the response to items is either
none or not applicable for the September 30, 1995, Form 10-Q.
Item 5. Other Information
Lexmark (to be renamed Lexmark International Group, Inc.) one of the Fund's
portfolio companies, has filed a registration statement with the Securities and
Exchange Commission with respect to an initial public offering of shares of
common stock ("the Offering") by certain of the existing holders of such common
stock. The Fund holds 1,859,805 shares of Lexmark common stock (as adjusted for
a 15 to 1 stock split effective at the time of the Offering), approximately 25%
of which are expected to be sold pro rata by the Fund in the Offering. It is
anticipated that the offering will commence on or about November 15, 1995,
subject to economic and market conditions. There can be no assurance that such
Offering will occur. Upon the closing of such Offering (if any), the Fund will
file a Report on Form 8-K with the Securities and Exchange Commission.
On November 9, 1995, the SEC issued an exemptive order to permit Donaldson,
Lufkin & Jenrette Securities Corporation, a "related person" of the Fund within
the meaning of the Investment Company Act of 1940, to participate as an
underwriter in the initial public offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule for the quarter ending September 30,
1995.
3.1 Amended and Restated Certificate of Limited Partnership, dated as
of April 12, 1989*
4.1 Amended and Restated Agreement of Limited Partnership, dated as
of October 13, 1988**
10.1 Investment Advisory Agreement, dated July 22, 1993, between
Registrant and Alliance Corporate Finance Group Incorporated****
10.2 Administrative Services Agreement, dated October 13, 1988, among
the Registrant, Equitable Capital Management Corporation and ML
Fund Administrators, Inc.**
10.3 Credit Agreement dated as of June 27, 1989, between Equitable
Capital Partners, L.P. and Wells Fargo Bank, N.A.***
* Incorporated by reference to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, filed with the Securities and
Exchange Commission on March 29, 1990.
** Incorporated by reference to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, filed with the Securities and
Exchange Commission on March 29, 1989.
<PAGE>
*** Incorporated by reference to the Fund's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1989, filed with the Securities and
Exchange Commission on August 14, 1989.
**** Incorporated by reference to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, filed with the Securities and
Exchange Commission on March 28, 1994.
(b) Reports on Form 8-K - None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 14th day of
November, 1995.
EQUITABLE CAPITAL PARTNERS, L.P.
By: Alliance Corporate Finance Group Incorporated,
as Managing General Partner,
Dated: November 14, 1995 /s/ Frank Savage
Frank Savage
Title: Chairman of the Board
Dated: November 14, 1995 /s/ Laura Mah
Laura Mah
Title: Vice President and Chief
Accounting Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 14th day of
November, 1995.
EQUITABLE CAPITAL PARTNERS, L.P.
By: Alliance Corporate Finance Group Incorporated,
as Managing General Partner,
Dated: November 14, 1995
Frank Savage
Title: Chairman of the Board
Dated: November 14, 1995
Laura Mah
Title: Vice President and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the third quarter of
1995 Form 10-Q Balance Sheets and Statements of Operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 142,622,819
<INVESTMENTS-AT-VALUE> 92,599,883
<RECEIVABLES> 4,500,292
<ASSETS-OTHER> 3,967
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,578,268
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 72,093
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 284,611
<SHARES-COMMON-PRIOR> 284,611
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<NET-ASSETS> 115,506,175
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<INTEREST-INCOME> 6,256,498
<OTHER-INCOME> 36,889
<EXPENSES-NET> 2,103,825
<NET-INVESTMENT-INCOME> 4,189,562
<REALIZED-GAINS-CURRENT> 4,650,333
<APPREC-INCREASE-CURRENT> (22,543,056)
<NET-CHANGE-FROM-OPS> (13,703,161)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,004,658
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 20,509,067
<NUMBER-OF-SHARES-SOLD> 0
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<NET-CHANGE-IN-ASSETS> (42,424,028)
<ACCUMULATED-NII-PRIOR> 0
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<AVERAGE-NET-ASSETS> 136,718,199
<PER-SHARE-NAV-BEGIN> 548.47
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