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, 1996
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.
<PAGE>
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, 1996 and December 31, 1995 5
Statements of Operations - For the Three and Nine
Months Ended September 30, 1996 and 1995 6
Statements of Changes in Net Assets - For the Nine
Months Ended September 30, 1996 and 1995 7
Statements of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1995 8
Statement of Changes in Partners' Capital -
For the Nine Months Ended September 30, 1996 9
Schedule of Portfolio Investments - September 30, 1996 10
Supplemental Schedule of Realized Gains and Losses
For the Nine Months Ended September 30, 1996 15
Notes to Financial Statements 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 23
PART II - OTHER INFORMATION
Item 6. Exhibits 27
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS,L.P.
STATEMENTS OF ASSETS
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C> <C>
September 30, 1996
ASSETS: Notes (Unaudited) December 31, 1995
Investments 2,10,12
Enhanced Yield Investments at Value-
Managed Companies
(amortized cost of $60,996,883 at
September 30, 1996 and $110,558,741
at December 31, 1995) $ 64,277,096 $ 83,988,222
Non-Managed Companies
(amortized cost of $20,668,068 at
September 30, 1996 and $4,092,050
at December 31, 1995) 30,004,871 5,330,092
Temporary Investments
(at amortized cost ) 10,001,856 20,356,353
Cash 252,750 74,501
Interest Receivable 2,12 1,173,731 751,346
Note Receivable 3,4 1,867,405 1,928,690
Prepaid Expenses 2,650 7,906
TOTAL ASSETS $ 107,580,359 $ 112,437,110
================ ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Professional Fees Payable 9 $ 85,662 $ 25,484
Independent General Partners' Fees Payable 8 22,795 15,273
Fund Administrative Expenses Payable 7 23,928 36,617
Other Accrued Liabilities 11,663 5,858
Total Liabilities 144,048 83,232
Partners' Capital
Managing General Partner 3,4 1,492,702 1,448,956
Limited Partners (284,611 Units) 4 105,943,609 110,904,922
Total Partners' Capital 107,436,311 112,353,878
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 107,580,359 $ 112,437,110
================ ===============
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C> <C> <C>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
INVESTMENT INCOME- Notes 2,12:
Interest $ 1,141,590 $ 2,038,993 $ 3,411,384 $ 6,256,498
Discount 10,172 12,766 33,645 36,889
Dividend - - 3,760,524 -
TOTAL INVESTMENT INCOME 1,151,762 2,051,759 7,205,553 6,293,387
EXPENSES:
Investment Advisory Fee- Note 6 249,764 338,234 824,674 1,104,449
Fund Administration Fees and Expenses- Note 7 229,860 237,577 767,058 820,415
Independent General Partners'
Fees and Expenses- Note 8 49,636 38,000 147,971 128,469
Professional Fees - Note 9 123,906 7,570 141,179 37,257
Insurance Fees - - 5,256 -
Valuation Expenses - 5,750 19,021 13,235
TOTAL EXPENSES 653,166 627,131 1,905,159 2,103,825
NET INVESTMENT INCOME 498,596 1,424,628 5,300,394 4,189,562
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS- Note 12 29,715,206 (12,918,142) 37,949,493 (22,543,056)
NET REALIZED (LOSSES) GAINS ON INVESTMENTS- Note 10 (12,705,316) 4,567,590 (25,779,920) 4,650,333
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 17,508,486 $ (6,925,924) $ 17,469,967 $ (13,703,161)
================ ================ =============== ==============
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<S> <C> <C>
For the Nine Months Ended
September 30, 1996 September 30, 1995
FROM OPERATIONS:
Net Investment Income $ 5,300,394 $ 4,189,562
Net Change In Unrealized Appreciation
(Depreciation) on Investments 37,949,493 (22,543,056)
Net Realized (Losses) Gains on Investments (25,779,920) 4,650,333
Net Increase (Decrease) in Net Assets
Resulting from Operations 17,469,967 (13,703,161)
Cash Distributions to Partners (22,326,249) (28,513,725)
Reduction in Managing General Partners' Contribution (61,285) (207,142)
Total Decrease (4,917,567) (42,424,028)
NET ASSETS:
Beginning of Period 112,353,878 157,930,203
End of Period $ 107,436,311 $ 115,506,175
================= =================
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<S> <C> <C>
For the Nine Months Ended
INCREASE (DECREASE) IN CASH September 30, 1996 September 30, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and Discount Income $ 6,398,571 $ 6,822,785
Fund Administration Fees & Expenses (779,746) (849,566)
Investment Advisory Fee (824,674) (1,104,449)
Independent General Partners' Fees and Expenses (140,449) (126,670)
Valuation Expenses (13,216) (19,762)
Sale (Purchase)of Temporary Investments, Net 10,823,692 13,872,040
Proceeds from Sales and Principal Payments of
Enhanced Yield Investments 7,121,320 9,888,786
Professional Fees (80,625) (40,442)
Insurance Fees (375) (3,967)
Net Cash Provided by Operating Activities 22,504,498 28,438,755
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (22,326,249) (28,513,725)
Net Cash Used in Financing Activities (22,326,249) (28,513,725)
Net Increase (Decrease) in Cash 178,249 (74,970)
Cash at the Beginning of the Period 74,501 157,275
Cash at the End of the Period $ 252,750 $ 82,305
================= =================
RECONCILIATION OF NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Increase (Decrease) In Net Assets
Resulting From Operations $ 17,469,967 $ (13,703,161)
Adjustments to Reconcile Net Decrease in Net Assets
Resulting from Operations to Net Cash Provided by Operating
Activities:
Decrease in Investments 43,724,932 19,110,494
Increase (Decrease) in Accrued Interest (806,981) 529,397
Increase (Decrease) in Other Accrued Liabilities 5,805 (6,527)
Decrease in Fund Administration Expenses Payable (12,688) (29,151)
Decrease (Increase) in Prepaid Expenses 5,256 (3,967)
Net Change in Unrealized (Appreciation)
Depreciation on Investments (37,949,493) 22,543,056
Increase in Independent General
Partners' Fees Payable 7,522 1,799
Increase (Decrease) in Professional Fees Payable 60,178 (3,185)
Total Adjustments 5,034,531 42,141,916
Net Cash Provided by Operating Activities $ 22,504,498 $ 28,438,755
================= =================
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
<S> <C> <C> <C> <C>
Managing Limited
Notes General Partner Partners Total
-------- ---------------- ------------- --------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Partners' Capital at January 1, 1996 $ 1,448,956 $ 110,904,922 $ 112,353,878
Cash Distributions to Partners (69,669) (22,256,580) (22,326,249)
Reduction in Managing General Partners' Contribution 3 (61,285) - (61,285)
Allocation of Net Investment Income 11 53,004 5,247,390 5,300,394
Allocation of Net Unrealized Appreciation
on Investments 12 379,495 37,569,998 37,949,493
Allocation of Net Realized Losses on Investments (257,799) (25,522,121) (25,779,920)
Partners' Capital at September 30, 1996 $ 1,492,702 $ 105,943,609 $ 107,436,311
=========== ============== ==============
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS,L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ---------------------------------------------- ----------- ------------- ------------- ----------- -------------
ENHANCED YIELD INVESTMENTS
MANAGED COMPANIES
CONSUMER PRODUCTS MANUFACTURING
LEXMARK INTERNATIONAL GROUP, INC. - NOTE 12
$ 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
1,327,476 Shares Lexmark International Group, Inc.,
Class B Common Stock (c) 03/27/91 8,849,843 8,849,843 27,047,325
----------- ------------ -------------
28,517,191 28,517,191 46,714,673 44.80
----------- ------------ -----------------------
MISCELLANEOUS MANUFACTURING
QUANTEGY ACQUISITION CORP. - NOTES 10, 12
(FORMERLY AMPEX RECORDING MEDIA CORP.)
162 Shares Quantegy Acquisition Corp., Common Stock 11/13/95 3,464,732 3,464,732 3,464,732
22,690 Shares Ampex Recording Media Corp.,
Class A Common Stock **(d) 12/31/90 &
06/28/91 182,360 182,360 142,947
------------ ---------- -----------
3,647,092 3,647,092 3,607,679 3.46
------------ ---------- -----------------------
RI HOLDINGS, INC. - NOTE 12
$ 24,387,177 RI Holdings, Inc.,
Sr. Sub. Nts. 16% due 08/31/01*(a)(b) 04/25/94 11,824,318 11,824,318 487,744
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
453,189.90 Shares RI Holdings, Inc., Common Stock** 05/01/96 4,532 4,532 0
------------ ----------- -----------
14,882,644 14,882,644 487,744 0.47
------------ ----------- -----------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS,L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONTINUED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ----------------------------------------- ------------ ----------- ----------- --------- -------------
LEATHER AND LEATHER PRODUCTS
LEATHER U.S., INC. - NOTE 12
(FORMERLY UNITED STATES LEATHER HOLDINGS, INC.)
795.00 Shares Leather U.S., Inc., Common Stock 04/09/96 $ 9,342,000 $ 9,342,000 $ 9,342,000
------------ ----------- -----------
9,342,000 9,342,000 9,342,000 8.96
------------ ----------- -----------------------
DISTRIBUTION SERVICES
WB BOTTLING CORPORATION
3,135 Shares WB Bottling Corp., Preferred Stock** 09/12/90 313,500 313,500 0
41,663 Shares WB Bottling Corp., Common Stock** 09/12/90 &
08/11/92 169,456 169,456 0
----------- ----------- -----------
482,956 482,956 0 0.00
----------- ----------- -----------------------
MISCELLANEOUS RETAIL
R&S/STRAUSS, INC.
(FORMERLY WSR ACQUISITION CORPORATION)
$ 1,815,000 R&S/Strauss, Inc., 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/Strauss, 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 3.95
----------- ------------ -----------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $ 60,996,883 $ 60,996,883 $64,277,096 61.64%
--------------------------------------- ------------ ------------ -----------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS,L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONTINUED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ------------------------------------------- ------------- ----------- ------------ ---------- -----------
NON-MANAGED COMPANIES
DISTRIBUTION SERVICES
WESTERN PIONEER, INC.-NOTES 10, 12
$ 9,460,000 Western Pioneer, Inc.,
Sr. Sub. Nts. 10% due 11/30/07*(b) 11/30/94 $ 1,219,460 $ 1,219,460 $ 4,730,000
162,161 Warrants Western Pioneer, Inc.,
Common Stock Purchase Warrants ** 11/30/94 0 0 0
----------- ------------ ------------
1,219,460 1,219,460 4,730,000 4.53
----------- ------------ -----------------------
BROADCASTING
APOLLO RADIO HOLDING CO., INC. - NOTE 12
57.75 Shares Apollo Radio Holding Co., Inc., Common Stock** 06/01/90 119,942 119,942 895,172
49.5 Shares Apollo Radio Holding Co., Inc., Common Stock** 04/03/90 102,808 102,808 767,295
17.8749 Warrants Apollo Radio Holding Co., Inc., Common Stock
Purchase Warrants** 04/03/90 0 0 0
----------- ------------ -------------
222,750 222,750 1,662,467 1.59
----------- ------------ ------------------------
HEALTH SERVICES
MTI HOLDINGS, INC. - NOTES 10,12
$ 221,310 MTI Holdings, Inc.,
Sr. Sec. Nt. 12% due 07/15/03* (b) 08/06/96 221,310 221,310 221,310
15,772 Shares MTI Holdings, Inc., Common Stock** 08/06/96 236,580 236,580 236,580
4,397 Warrants MTI Holdings, Inc., Common Stock
Purchase Warrants 08/06/96 0 0 0
--------- ---------- ----------
457,890 457,890 457,890 0.44
--------- ---------- ---------------------
PRINTING, PUBLISHING AND ALLIED LINES
AMERICAN PAPER GROUP, LTD.
$ 1,209,417 American Paper Group, Ltd.,
Sub. Nts. 5% due 12/31/00* 01/18/94 820,467 935,846 935,846
2,021 Shares American Paper Holdings Inc., Common Stock** 01/18/94 136,903 136,903 136,903
--------- ---------- ----------
957,370 1,072,749 1,072,749 1.03
--------- ---------- ---------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS,L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONTINUED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ----------------------------------------- ------------ ----------- ----------- --------- -------------
MISCELLANEOUS RETAIL
PERGAMENT HOME CENTERS, INC.- NOTE 12
$ 3,236,800 Pergament Acq. Corp., Home Centers, Inc.
Floating Rate Demand Note due 07/31/00* (b) 10/18/91 $ 3,236,800 $ 3,236,800 $ 2,427,600
380.80 Shares Pergament Holding, Corp., Common Stock Class B ** 02/28/89 8,568,000 8,568,000 0
139.0545 Shares Pergament Holding, Corp., Common Stock Class C ** 02/28/89 0 0 0
----------- ------------ -----------
11,804,800 11,804,800 2,427,600 2.33
----------- ------------ ---------------------
BANKING AND FINANCE
BANK UNITED CORP. - NOTES 10,12
(FORMERLY USAT HOLDINGS INC.)
877,908 Shares Bank United Corp., Class A Common Stock (c) 01/05/90 &
12/19/91 5,890,419 5,890,419 19,654,165
----------- ----------- -----------
5,890,419 5,890,419 19,654,165 18.85
----------- ----------- ---------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $20,552,689 $20,668,068 $30,004,871 28.77%
------------------------------------------ ----------- ----------- ---------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $81,549,572 $81,664,951 $94,281,967 90.41%
---------------------------------------------- ----------- ----------- ---------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS,L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONCLUDED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ------------------------------------------- ------------- ----------- ------------ ---------- -----------
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$ 5,000,000 Colgate Palmolive, 5.43% due 10/29/96 09/24/96 $ 4,973,604 $ 4,978,883 $ 4,978,883
$ 3,230,000 Jefferson Smurfit, 5.50% due 12/24/96 09/24/96 3,185,094 3,188,548 3,188,548
$ 1,855,000 Morgan Guaranty Trust Co., 5.47% due 12/13/96 09/24/96 1,832,451 1,834,425 1,834,425
------------ ----------- -----------
TOTAL INVESTMENT IN COMMERCIAL PAPER $ 9,991,149 $10,001,856 $ 10,001,856 9.59%
------------------------------------ ------------ ----------- -------------------------
TOTAL TEMPORARY INVESTMENTS $ 9,991,149 $10,001,856 $ 10,001,856 9.59%
--------------------------- ------------ ----------- -------------------------
TOTAL INVESTMENT PORTFOLIO $ 91,540,721 $91,666,807 $104,283,823 100.00%
-------------------------- ============ ============ =========================
SUMMARY OF INVESTMENTS
Subordinated Notes $ 41,114,703 $ 41,230,082 $ 32,594,848 31.26%
Preferred Stock 313,500 313,500 0 0.00
Common Stock and Warrants 40,121,369 40,121,369 61,687,119 59.15
Temporary Investments 9,991,149 10,001,856 10,001,856 9.59
------------ ------------ -------------------------
$ 91,540,721 $91,666,807 $104,283,823 100.00%
============ ============ =========================
* Restricted Security
** Restricted Non-income Producing Security
(a) Includes receipt of payment-in-kind securities.
(b) Non-accrual investment status.
(c) Pubicly traded class of securities.
(d) Underlying security pubicly traded.
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PAR VALUE OR
DATE OF NUMBER OF AMORTIZED NET REALIZED
SECURITY TRANSACTION SHARES COST PROCEEDS GAIN (LOSS)
Polaris Pool Systems, Inc.
Common Stock 1/22/96 $ - $ - $ 177,185(A) $ 177,185
ASR Acquisition Corp.
Common Stock various 219,745 34,561 2,045,112 2,010,551
Total Net Realized Gains for the Three
Months Ended March 31, 1996 $ 34,561 $ 2,222,297 $ 2,187,736
=========== =========== ============
Polaris Pool Systems, Inc.
Common Stock 6/03/96 - $ - $ 85,169(A) $ 85,169
U.S. Leather Holdings, Inc.
15% Sr. Sub. Deb.* 4/09/96 $ 18,684,000 $21,875,262 $ 9,342,000(B) $(12,533,262)
8% Sr. Pref. Stock 4/09/96 3,800.89 2,576,000 - (2,576,000)
Jr. Sub. Pref. Stock 4/09/96 191,504 - - -
Warrants 4/09/96 191,504 238,247 - (238,247)
Total Net Realized Losses for the Three
Months Ended June 30, 1996 $24,689,509 $ 9,427,169 $(15,262,340)
=========== =========== ============
MTI Holdings, Inc.,
5% Sr. Sec. Note 8/06/96 $ 915,779 $ 915,779 $ 221,310(B) $ (694,469)
Common Stock 8/06/96 43,436 990,000 236,580(B) (753,420)
Bank United Corp.
Common Stock 8/14/96 207,492 1,338,639 3,911,224 2,572,585
Tulip Holding Corp.
14.5% Sub Note 9/12/96 $ 8,530,073 8,514,414 5,687 (8,508,727)
16.5% Sub Note 9/12/96 $ 2,446,735 2,446,735 - (2,446,735)
15% Exch. Preferred Stock 9/12/96 2,843.3625 2,843,362 - (2,843,362)
Common Stock 9/12/96 153,104 30,636 - (30,636)
Ampex Recording Media Corp.
Common Stock 9/30/96 22,977 184,505 183,953 (552)
Total Net Realized Losses for the Three
Months Ended September 30, 1996 $17,264,070 $ 4,558,754 $(12,705,316)
=========== =========== ============
Total Net Realized Losses for the Nine $41,988,140 $16,208,220 $(25,779,920)
Months Ended September 30, 1996 =========== =========== ============
(A) Proceeds represent a distribution to the Fund from the escrow account.
(B) Proeeds represent fair value of exchange.
* Includes Payment in Kind Notes.
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
EQUITABLE CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(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.
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. The total
value of securities without a readily ascertainable market value is $47,437,530
and $46,116,681 as of September 30, 1996 and December 31, 1995, respectively,
representing 44.1% and 41.0% of total assets, respectively. 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.
<PAGE>
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.
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.
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.
<PAGE>
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, 1996 resulted in
a $61,284 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.
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, 1996.
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.
<PAGE>
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, 1996 and 1995 were $824,674 and $1,104,449, respectively. The
decrease from 1995 to 1996 in 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 (i) Minimum Fee and (ii) 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, 1996 and 1995 were $630,453
and $683,070 respectively.
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, 1996 and 1995, the Fund
incurred Administrative Expenses of $136,605 and $137,345, 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, 1996 and 1995, the Fund incurred
$147,971 and $128,469, respectively, of Independent General Partners' Fees and
Expenses.
9. Related Party Transactions
For the nine months ended September 30, 1996, the Fund paid expenses of
$73,550 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, 1995, the Fund paid expenses of $34,192 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.
<PAGE>
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.
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.
During the three months ended September 30, 1996, the Fund received a total
of $236,500 from Western Pioneer, Inc. 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.
On August 6, 1996, a comprehensive restructuring closed for MTI Holdings,
Inc. The existing note was exchanged for new 12% Senior Secured Notes and equity
of the reorganized company consisting of common stock and common stock purchase
warrants. The Fund recognized a loss of $1,447,889 on this transaction.
On August 14, 1996, the Fund sold 207,492 shares of Bank United Corp.
(formerly USAT Holdings Inc.) common stock for $3,911,224 and recognized a gain
of $2,572,585.
On September 12, 1996, the Fund sold its Tulip Holding Corp. 14.5%
Subordinated Notes for $5,687 and recognized a loss of $8,508,727 on the sale.
The 16.5% Subordinated Notes, Series A Exchangeable Preferred Stock and Class A
Common Stock were deemed worthless resulting in a total realized loss of
$5,320,733 to the Fund.
On September 30, 1996, the Fund sold 22,977 shares of Ampex Recording Media
Corp. Class A Comon Stock for $183,953 which resulted in a loss of $552 to the
Fund.
As of September 30, 1996, the Fund had investments in six 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 six Non-Managed Companies (a Non-Managed Company is
one to which such assistance is not provided) totaling $82,997,461 (including
$854,000 capitalized cost of payment-in-kind securities), consisting of
$41,809,172 in senior notes and subordinated notes, $313,500 in preferred stock
and purchase warrants and $40,874,789 in common stock.
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;
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, 1996, earnings were allocated 99%
to the Limited Partners, as a class, and 1% to the Managing General Partner.
<PAGE>
12. Unrealized Appreciation/Depreciation and Non-Accrual of Investments
For the nine months ended September 30, 1996, the Fund recorded net
unrealized appreciation on Enhanced Yield Investments of $37,949,493 compared to
$22,543,056 of unrealized depreciation for the nine months ended September 30,
1995. Such appreciation was the result of adjustments in value made with respect
to the following investments during the nine months ended September 30, 1996:
The amount includes the reversal of $12,626,984, $2,576,000 and $238,247 of
unrealized depreciation of U.S. Leather Holdings, Inc. senior subordinated
notes, senior subordinated preferred stock and non-voting common stock purchase
warrants, respectively, due to a restructuring on April 9, 1996. On March 31,
1996, U.S. Leather Holdings, Inc. 15% Senior Subordinated Notes were written
down from 60% to 50% of par, resulting in unrealized depreciation of $1,840,387
to the Fund.
On March 31, 1996, Pergament Home Centers, Inc. Class B Common Stock was
written down from 25% of cost to zero, resulting in unrealized depreciation of
$2,142,000. On June 30, 1996, Pergament Home Centers, Inc. Floating Rate Demand
Note was written down from 100% to 75% of par, resulting in unrealized
depreciation of $809,200 to the Fund.
On March 31, 1996, RI Holdings, Inc. senior subordinated notes were written
down to 30% of par, resulting in unrealized depreciation of $2,145,567 to the
Fund. On May 1, 1996, the Fund received additional shares of Class B Common
Stock from RI Holdings. The Fund exchanged outstanding debt for the new common
stock issued, resulting in unrealized depreciation of $1,360 to the Fund. On
June 30, 1996, RI Holdings, Inc. senior subordinated notes were written down
from 30% to 15% of par, resulting in unrealized depreciation of $3,658,076 to
the Fund. On September 30, 1996, RI Holdings, Inc. senior subordinated notes
were written down from 15% to 2% or par, resulting in unrealized depreciation of
$3,170,333 to the Fund.
Due to an increase in the quoted market price of Lexmark International
Group, Inc. common stock, the Fund recorded total unrealized appreciation of
$2,571,985 at September 30, 1996. The equity was valued at 100% of the closing
market price at September 30, 1996 as compared to 90% at March 31, 1996,
resulting in unrealized appreciation of $2,671,546 to the Fund.
Due to a decrease in the quoted market price of the Ampex Recording Media
Corp. Class A Common Stock, the Fund recorded total unrealized depreciation of
$22,690 at September 30, 1996. Also, due to the sale of common stock on
September 30, 1996, $16,773 of unrealized depreciation was reversed. Due to an
increase in the quoted market price of the Ampex Recording Media Corp. Class A
Common Stock Warrants, the Fund recorded total unrealized appreciation of
$150,701 at June 30, 1996. The equity was valued at 80% of the closing market
price at September 30, 1996, due to contractual restrictions on resale.
On March 31, 1996, Apollo Radio common stock was written up, pending a cash
distribution expected in the second half of 1996, resulting in unrealized
appreciation of $449,717 to the Fund.
Due to the sale of the Class B Common Stock investment in ASR Acquisition
Corp. in March 1996, the Fund reversed the unrealized appreciation recorded of
$1,695,930.
On August 6, 1996, the Fund reversed a total of $1,447,889 of unrealized
depreciation in MTI Holdings, Inc. due to a restructuring.
Due to the sale of the Tulip Holding Corproation 14.5% Subordinated Notes
on September 12, 1996, the Fund reversed the unrealized depreciation recorded of
$8,516,679. The Fund also reversed $5,320,733 of unrealized depreciation for the
16.5% Subordinated Notes, 15% Exchangeable Preferred Stock and Class A Common
Stock which were deemed worthless as of September 30, 1996. On June 30, 1996,
Tulip Holding Corporation subordinated notes were written down from 5% of par to
zero, resulting in unrealized depreciation of $426,504 to the Fund.
On September 30, 1996, the Western Pioneer, Inc. senior subordinated note
was written up to 50% of the original par value, resulting in unrealized
appreciation of $3,510,540 to the Fund.
Due to an increase in the quoted market price of Bank United Corp. common
stock, the Fund recorded total unrealized appreciation of $13,763,746 at
September 30, 1996. The equity was valued at 90% of the closing market price at
September 30, 1996, due to contractual restrictions on resale.
<PAGE>
The following investments have been on non-accrual status as of the
respective dates:
Pergament Home Centers, Inc.
Floating Rate Demand Note July 1, 1996
MTI Holdings, Inc. 12%
Senior Secured Note October 1, 1995
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
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, 1995, the tax basis of
the Fund's assets was greater than the amounts reported in the Financial
Statements by $60,536,688. 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.
14. Subsequent Events
On November 6, 1996, the Independent General Partners approved an aggregate
cash distribution of $5,021,836 for the three months ended September 30, 1996,
which is expected to be paid on November 14, 1996 to the Limited Partners. The
amount distributed to Limited Partners on record as of September 30, 1996 was
$5,017,692 or $17.63 per Unit (of which $2,060,584 is capital returned from
investments and the reserve in the third quarter of 1996). On a per Unit basis,
this distribution to Limited Partners includes $8.95 of realized gains, $1.44 of
income from operations, $5.50 of return of capital and $1.74 of capital returned
from reserve. The Managing General Partner's one percent allocation of $50,684
was reduced by its one percent allocation of realized gains and capital returned
from investments during the third quarter of 1996, of $46,540 (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 $4,144.
<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
As of September 30, 1996, the Fund had a total of 12 Enhanced Yield
Investments at a net cost of $82,997,461 (inclusive of the receipt of securities
having a capitalized cost of $854,000 received as payment-in-kind interest on
certain Enhanced Yield Investments).
Proceeds from Investments
During the nine months ended September 30, 1996, the Fund received proceeds
from the following investments:
On January 10 and June 3 1996, the Fund received additional proceeds of
$177,185 and $85,169, respectively, from Polaris Pool Systems, Inc. The money
represents 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.
During the nine months ended September 30, 1996, the Fund received a total
of $709,500 and $187,444 from Western Pioneer, Inc. and U.S. Leather Holdings,
Inc., respectively, as principal paydowns of the senior notes held by the Fund.
No gain, loss or income has been recorded on the transactions.
During March 1996, the Fund sold its remaining ASR Acquisition Corp. common
stock for $2,045,112 and recognized a gain of $2,010,551 on the sale.
On April 9, 1996, the Equitable investors foreclosed on the common stock of
United States Leather Holdings, Inc. All securities held by the Fund have been
surrendered and cancelled in exchange for 795 shares of common stock in Leather
U.S., Inc. The shares will have a cost basis of 50% of the original par value of
the 15% Senior Debentures surrendered.
On May 8, 1996, the Fund received dividend income of $3,760,524 from Bank
United Corp.
On August 6, 1996, a comprehensive restructuring closed for MTI Holdings,
Inc. The Fund recognized a loss of $1,447,889 on this transaction.
On August 14, 1996, the Fund sold 207,492 shares of Bank United Corp.
(formerly USAT Holdings Inc.) common stock for $3,911,224 and recognized a gain
of $2,572,585.
On September 12, 1996, the Fund sold its Tulip Holding Corp. 14.5%
Subordinated Notes for $5,687 and recognized a loss of $8,508,727 on the sale.
The 16.5% Subordinated Notes, Series A Exchangeable Preferred Stock and Class A
Common Stock were deemed worthless resulting in a total realized loss of
$5,320,733 to the Fund.
On September 30, 1996, the Fund sold 22,977 shares of Ampex Recording Media
Corp. Class A Comon Stock for $183,953 which resulted in a loss of $552 to the
Fund.
For additional information, refer to the Supplemental Schedule of Realized
Gains and Losses and Note 10 to the Financial Statements.
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.
<PAGE>
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.
Results of Operations
For the three months ended September 30, 1996, net investment income
decreased by $926,032, as compared to the same period in 1995. For the nine
months ended September 30, 1996, net investment income increased by $1,110,832,
as compared to the same period in 1995. Net investment income is comprised of
investment income (primarily interest and dividend income) offset by expenses.
The increase in the 1996 net investment income versus the comparative period in
1995, reflects the increase in dividend income partially offset by the decrease
in Investment Advisory Fees and Fund Administration Fees and Expenses.
For the three and nine months ended September 30, 1996, the Fund had
investment income of $1,151,762 and $7,205,553, respectively, as compared to
$2,051,759 and $6,293,387, respectively, for the same periods in 1995. The
increase in 1996 investment income of 14% was primarily due to an increase in
dividend income partially offset by a decrease in the amount of accrual status
debt securities held by the Fund due to the sales and repayments of Enhanced
Yield Investments.
The Fund incurred expenses of $653,166 and $1,905,159 for the three and
nine months ended September 30, 1996, as compared to $627,131 and $2,103,825 for
the same periods in 1995. The decrease in the 1996 expenses of $198,666 was
primarily due to a decrease to Investment Advisory Fees and Fund Administration
Fees and Expenses paid 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 an increase in net assets resulting from operations
for the nine months ended September 30, 1996 in the amount of $17,469,967 as
compared to a decrease of $13,703,161 for the comparative period in 1995. The
increase in net assets for the nine months ended September 30, 1996 is comprised
of net investment income of $5,300,394, net realized losses of $25,779,920
offset by a net change in unrealized appreciation of $37,949,493. For the
comparable period in 1995, the decrease in net assets was 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 $22,543,056 (see Statements of
Operations in the Financial Statements).
For the three months ended September 30, 1996 and 1995, the Fund incurred
Investment Advisory Fees of $249,764 and $338,234, respectively. For the nine
months ended September 30, 1996 and 1995, the Fund incurred Investment Advisory
Fees of $824,674 and $1,104,449, 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, 1996 and 1995
were $229,860 and $237,577 respectively, and for the nine months ended September
30, 1996 and 1995 were $767,058 and $820,415, respectively. The decrease from
1995 to 1996 of $53,357 is primarily due to a decrease in the Fund's Available
Capital on which the Fund Administration Fee is based, resulting primarily from
redemptions of debt obligations held by the Fund (which is a component of
Available Capital). In accordance with the Partnership Agreement, beginning in
October 1996, the Fund Administration Fee will change to an annual fee of
$300,000 plus 100% of all direct out-of-pocket expenses incurred by the Fund
Administrator on behalf of the Fund.
Independent General Partners' Fees and Expenses incurred for the three and
nine months ended September 30, 1996 and 1995 were $49,636 and $147,971,
respectively and $38,000 and $128,469, respectively.
The Fund incurred Professional Fees of $123,906 and $141,179 for the three
and nine months ended September 30, 1996, respectively. Professional Fees
incurred for the same periods in 1995 were $7,570 and $37,257, respectively.
(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.
For the nine months ended September 30, 1996, the Fund recorded net
unrealized appreciation on Enhanced Yield Investments of $37,949,493 as compared
to $22,543,056 of unrealized depreciation for the nine months ended September
30, 1995. The change in unrealized appreciation was primarily the result of
unrealized appreciation in Lexmark International Group, Inc., Bank United Corp.
and Western Pioneer, Inc., the reversal of unrealized depreciation in U.S.
Leather Holdings, Inc., Tulip Holding Corp. and MTI Holdings, Inc. offset by
unrealized depreciation in RI Holdings, Inc. and Pergament Home Centers, Inc.
<PAGE>
The following investments have been on non-accrual status as of the
respective dates:
Pergament Home Centers, Inc.
Floating Rate Demand Note July 1, 1996
MTI Holdings, Inc. 12%
Senior Secured Note October 1, 1995
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
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, 1996, the Fund
recorded net realized losses of $12,705,316 and $25,779,920, respectively, on
transactions involving four Enhanced Yield Investments. For the three and nine
months ended September 30, 1995, the Fund recorded net realized gains on
investments of $4,567,590 and $4,650,333, respectively, on transactions
involving three 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, 1996, Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27 - Financial Data Schedule for the quarter ending
September 30, 1996.
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.
*** 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 12th day of
November, 1996.
EQUITABLE CAPITAL PARTNERS, L.P.
By: Alliance Corporate Finance Group Incorporated,
as Managing General Partner,
Dated: November 12, 1996 /s/ James R. Wilson
James R. Wilson
Title: President
Dated: November 12, 1996 /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 12th day of
November, 1996.
EQUITABLE CAPITAL PARTNERS, L.P.
By: Alliance Corporate Finance Group Incorporated,
as Managing General Partner,
Dated: November 12, 1996
James R. Wilson
Title: President
Dated: November 12, 1996
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
1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 81,549,572
<INVESTMENTS-AT-VALUE> 94,281,967
<RECEIVABLES> 3,041,136
<ASSETS-OTHER> 2,650
<OTHER-ITEMS-ASSETS> 0
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<OTHER-ITEMS-LIABILITIES> 144,048
<TOTAL-LIABILITIES> 144,048
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 284,611
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<OTHER-INCOME> 33,645
<EXPENSES-NET> 1,905,159
<NET-INVESTMENT-INCOME> 5,300,394
<REALIZED-GAINS-CURRENT> (25,779,920)
<APPREC-INCREASE-CURRENT> 37,949,493
<NET-CHANGE-FROM-OPS> 17,469,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,258,342
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<PER-SHARE-NAV-BEGIN> 389.67
<PER-SHARE-NII> 18.44
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