SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended Commission File Number
December 31, 1996 1-16531
EQUITABLE CAPITAL PARTNERS, L.P.
(Exact name of registrant as specified in its governing instruments)
Delaware 13-3486115
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1345 Avenue of the Americas
New York, New York 10105
(Address of principal executive offices) (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 ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 Annual
Report on Form 10-K.
<PAGE>
Part I
Item 1. Business
Formation
Equitable Capital Partners, L.P. (the "Fund" or the "Registrant") was
formed along with Equitable Capital Partners (Retirement Fund), L.P. (the
"Retirement Fund," and collectively with the Fund referred to as the "Funds").
The Certificates of Limited Partnership were filed under the Delaware Revised
Uniform Limited Partnership Act on February 2, 1988 and the Funds' operations
commenced on October 13, 1988. The Fund seeks current income and capital
appreciation potential by investing in privately structured, friendly leveraged
acquisitions and leverage recapitalizations. The Fund pursues this objective by
investing primarily in subordinated debt and related equity securities
("Mezzanine Investments") issued in conjunction with the "mezzanine financing"
of leveraged acquisitions and leveraged recapitalizations. Mezzanine
Investments, follow-on investments, bridge investments and certain other
investments which the Fund is permitted to invest in are referred to herein as
"Enhanced Yield Investments."
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 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 (the "Managing General
Partner") to succeed Equitable Capital. Accordingly, on July 22, 1993, the
closing date of the transaction described above, Alliance Corporate was admitted
as the successor Managing General Partner of the Funds. Equitable Capital
assigned all of its interest as General Partner to Alliance Corporate. Robert F.
Shapiro, Robert W. Lear, Alton G. Marshall and William G. Sharwell, who are not
affiliated with Alliance Corporate or "interested persons" of the Funds for
purposes of the Investment Company Act of 1940 as amended (the "Investment
Company Act"), serve as the Funds' independent general partners (the
"Independent General Partners"). Messrs. Shapiro and Lear have served since June
1988, and Mr. Marshall and Dr. Sharwell since 1989. The Managing General Partner
is an indirect partially-owned subsidiary of The Equitable Life Assurance
Society of the United States ("Equitable Life") and is a registered investment
adviser under the Investment Advisers Act of 1940, as amended. In addition,
Alliance Corporate was admitted as the successor investment adviser to the Funds
(the "Investment Adviser") pursuant to a new investment advisory agreement
executed as of July 22, 1993 and since such date, has been responsible, subject
to the supervision of the Independent General Partners, for the management of
the Funds' investments.
The Fund elected to operate as a business development company under the
Investment Company Act of 1940, as amended. As such, it is subject to certain
provisions of the Investment Company Act. The description of the Fund's
investment objective and policies, its management arrangements and certain
provisions of the Investment Company Act applicable to the Fund are set forth in
the information contained in the Prospectus of the Fund, dated July 15, 1988
(the "Prospectus"), filed with the Securities and Exchange Commission (the
"Commission") pursuant to Rule 424(b) under the Securities Act of 1933, as
amended (the "Securities Act"), on July 19, 1988 under the following captions:
"Investment Objective and Policies," "Management Arrangements" and "Regulation."
Such information is incorporated by reference into this Item 1.
The Funds jointly offered an aggregate of 1,000,000 units of limited
partnership interest ("Units") to investors in a public offering registered
under the Securities Act pursuant to a Registration Statement on Form N-2 (File
No. 33-20093), which was declared effective under the Securities Act by the
Commission on July 15, 1988. Merrill Lynch, Pierce, Fenner & Smith (the
"Agent"), an affiliate of ML Fund Administrators, Inc. (the "Fund
Administrator"), acted as selling agent for the Units offered by the Fund.
<PAGE>
On October 13, 1988, the Fund issued 284,611 Units to investors, and
Equitable Capital, as Managing General Partner, admitted 18,288 investors as
limited partners of the Fund (the "Limited Partners"). The net proceeds of the
offering of such Units to the Fund was $264,688,230 after giving effect to
volume discounts of $737,600 and the payment of $19,185,170 in sales commissions
to the Agent. Equitable Capital, in its capacity as Managing General Partner,
contributed a demand promissory note in the principal amount of $2,641,836 as
required by the Amended and Restated Agreement of Limited Partnership, dated as
of October 13, 1988 (the "Partnership Agreement"), pursuant to which the Fund
had been organized . Equitable Capital reduced this note by $367 resulting from
actual syndication expenses paid in excess of original estimates. The public
offering has been concluded.
In connection with its organization and offering, the Fund incurred
$554,631 in organizational expenses and $2,633,942 in offering, sales and
marketing expenses. The organizational expenses were amortized on a
straight-line basis over a sixty month period that commenced on October 13,
1988. Such expenses were fully amortized as of October 31, 1993. The offering,
sales and marketing expenses incurred by the Fund have been paid and accounted
for as a charge to the capital account of the Fund's partners. The net proceeds
available for investment by the Fund after such offering less the return of
capital distributed to the Limited Partners of $45,247,457 equaled $216,252,200.
Investments
As set forth in the Partnership Agreement, the Fund's investment period
ended on October 12, 1991, three years after the Fund's operations commenced.
Thereafter, the Fund is not permitted to acquire new Enhanced Yield Investments,
but can make follow-on investments in existing portfolio companies. During the
year ended December 31, 1996, the Fund made a follow-on investment in one
Managed Company (as defined in the Prospectus) at a total cost of $4,532.
During the year ended December 31, 1995, the Fund made a follow-on
investment in one Managed Company at a total cost of $1,869 and paid $457 in
additional consideration to exercise warrants. During the year ended December
31, 1994, the Fund made a follow-on investment in one Managed Company at a total
cost of $461.
As of December 31, 1996, the Fund had a total of 9 Enhanced Yield
Investments at a net cost of $74,398,957 (inclusive of the receipt of securities
having a capitalized cost of $854,000 received as payment-in-kind interest on
certain Enhanced Yield Investments). During 1996, 1995 and 1994, the Fund
received $28,181,211, $21,907,154, and $54,858,990, respectively, in principal
payments and prepayments relating to certain Enhanced Yield Investments.
Pending investments in Enhanced Yield Investments, the net proceeds of
the public offering were invested in certain temporary investments, consisting
principally of commercial paper with maturities of less than sixty days.
Currently, proceeds that are not invested in Enhanced Yield Investments or
returned to Limited Partners are held in such temporary investments.
<PAGE>
New Investments in 1996
The Fund's investment period ended on October 12, 1991. Accordingly, the
Fund made no new investments in 1996.
Follow-on Investments in 1996
In 1996, the Fund made a single follow-on investment as described below:
RI Holdings, Inc. ("Rowe")
Rowe is engaged in the design, engineering and manufacturing of
jukeboxes, bill acceptors and currency changers.
Under the terms of Rowe's senior subordinated notes, the Fund receives
common stock at a nominal cost of one cent per share for each interest payment
date on which Rowe delivers payment-in-kind securities in lieu of making a cash
payment. On May 1, 1996, the Fund acquired 453,189.90 shares of Common Stock of
RI Holdings, Inc. for a total cost of $4,532.
As of December 31, 1996, the Fund's investment in Rowe totaled
$14,882,644 which includes senior subordinated PIK notes.
Competition
The Fund competes with other entities having a similar investment
objective. In addition, since Enhanced Yield Investments are selected and
managed exclusively by Alliance Corporate on behalf of the Fund, other entities
which compete with Alliance Corporate with respect to such investments therefore
compete with the Fund. Competitors include other private and public mezzanine
funds, other business development companies, investment partnerships and
corporations, small business investment companies and large industrial and
financial companies investing directly or through affiliates and individuals.
Employees
The Fund has no employees. The Managing General Partner, subject to the
supervision of the Independent General Partners, manages and controls the Fund's
investments. Certain officers of Alliance Corporate have been designated as
agents of the Fund with titles corresponding to the titles of the offices held
by such persons with Alliance Corporate. The Fund Administrator performs
administrative services for the Fund on behalf of the Managing General Partner.
Item 2. Properties
The Fund does not own or lease any physical properties.
Item 3. Legal Proceedings
The Fund is not party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Units are illiquid securities and are subject to significant
restrictions on transfer. The information in the Prospectus under the caption
"Transferability of Units" is incorporated in this Item 5 by reference. There is
no established trading market for the Units. The Partnership Agreement contains
restrictions that are intended to prevent the development of a public market.
The number of holders of Units as of December 31, 1996 was 17,505. The
Managing General Partner holds a general partner interest in the Fund and does
not hold any Units. Pursuant to the terms of the Partnership Agreement, the Fund
generally makes distributions within 45 days after the end of each calendar
quarter of cash income received from investments in excess of expenses of
operation, reserves for expenses and certain investments and liabilities. Net
cash receipts representing cumulative income and gains are distributed as soon
as practicable after the related disposition. Such distributions are allocated
among the Managing General Partner, and the Limited Partners, in general, 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% noncompounded
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. The Fund's distribution procedures are described in
detail in the Prospectus under the caption "Distributions and Allocations"; the
information under such caption is incorporated by reference in this Item 5.
On February 5, 1997, the Independent General Partners approved an aggregate
cash distribution of $21,719,699 for the three months ended December 31, 1996,
which was paid on February 14, 1997. The amount distributed to Limited Partners
was $21,710,127, or $76.28 per Unit (of which $6,651,359 is capital returned
from investments during the fourth quarter of 1996), to Limited Partners of
record at December 31, 1996. On a per Unit basis, this distribution to Limited
Partners includes $49.58 of realized gains, $3.33 of income from operations and
$23.37 of return of capital. The Managing General Partner's one percent
allocation of $219,294 was reduced by its one percent allocation of realized
gains and capital returned from investments during the fourth quarter of 1996,
of $209,722 (which is being held as a Deferred Distribution Amount pursuant to
the Partnership Agreement), resulting in a net distribution of $9,572.
<PAGE>
Item 6. Selection Financial Data
For the Years Ended
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992
TOTAL FUND INFORMATION: ----------------- ----------------- ----------------- ----------------- -----------------
Cash Distributions $ 27,348,085 (a) $ 41,174,256 (c) $ 54,554,528 $ 45,172,973 $ 22,883,377
Net Assets 110,839,732 112,353,878 157,930,203 219,924,070 245,894,872
Total Assets 110,974,943 112,437,110 158,039,361 220,036,182 268,779,984
Outstanding Loan Payable - - - - 22,702,377
Net Investment Income 5,918,157 5,215,211 6,924,128 15,218,052 21,588,983
Net Change in Unrealized
Appreciation (Depreciation)
on Investments 31,877,152 2,627,096 (15,853,762) 1,053,093 32,754,922
Net Realized (Losses) Gains
on Investments (12,010,831) (11,988,596) 1,758,116 3,120,202 (31,104,609)
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Cash Distributions $ 95.83 (a) $ 144.38 (c) $ 191.33 $ 157.98 $ 79.76
Cumulative Cash Distributions 891.77 (b) 795.94 651.56 460.23 302.25
Investment Income 28.80 27.77 36.53 70.47 103.31
Expenses (8.22) (9.63) (12.44) (17.54) (28.21)
Net Investment Income 20.59 18.14 24.09 52.93 75.10
Net Unrealized Appreciation
(Depreciation) on Investments 110.88 9.14 (55.15) 3.66 113.94
Net Realized (Losses) Gains
on Investments (41.78) (41.70) 6.12 10.85 (108.20)
Net Asset Value 383.53 390.82 548.47 764.75 855.28
</TABLE>
(a) Includes Return of Capital of $8,128,490 or $28.56 per LP Unit.
(b) Includes Return of Capital of $276.52 per LP Unit.
(c) Includes Return of Capital of $25,324,686 or $88.98 per LP Unit.
<PAGE>
Item 7. 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 year ended December 31, 1996, the Fund made a follow-on
investment in one Managed Company at a total cost of $4,532.
As of December 31, 1996, the Fund had a total of 9 Enhanced Yield
Investments at a net cost of $74,398,957 (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 year ended December 31, 1996, the Fund received the following
proceeds:
During the year ended December 31, 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 or loss has been recorded on the transactions.
During the year ended December 31, 1996, the Fund received additional
proceeds of $266,713 from Polaris Pool Systems, Inc. The money represents
proceeds from the sale of the investment from prior years that have been held in
escrow for future adjustments and expenses not paid on the sale dates. These
proceeds were recorded and distributed as gains.
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 $1,449,097 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 Common Stock for $182,953 which resulted in a loss of $1,552 to
the Fund. The Fund sold its remaining 22,690 shares of Ampex Recording Media
Corp. Class A Common Stock on November 29, 1996,for $182,946 and recognized a
gain of $586 on the sale.
<PAGE>
During the fourth quarter of 1996, the Fund sold 775,858 shares of Lexmark
International Group, Inc. common stock for $18,057,338 resulting in a gain of
$12,884,925 to the Fund.
On November 6, 1996, the Apollo Radio Holding Co., Inc. common stock and
warrants held by the Fund were redeemed. The Fund received proceeds of
$1,587,133 which resulted in a realized gain of $1,364,383 to the Fund.
On December 17, 1996, the Fund sold its American Paper Group, Ltd. 5%
Subordinated Notes and common stock for $1,108,132 resulting in no gain or loss
to the Fund.
During the year ended December 31, 1996, the Fund received a total of
$131,558 from Pergament Home Centers, Inc., as principal paydowns of the
Floating Rate Demand Note held by the Fund. No gain or loss has been recorded on
the transactions.
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.
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 below investment grade, i.e., unrated or rated by Standard &
Poor's Corporation as BB or lower or 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 year ended December 31, 1996, the Fund had net investment income of
$5,918,157, an increase of $702,946 from the net investment income of $5,215,211
for the year ended December 31, 1995. The Fund had net investment income of
$6,924,128 for the same period in 1994. 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 year ended December 31, 1996, the Fund had investment income of
$8,279,977, as compared to $7,984,889 for the same period in 1995 and
$10,501,426 for the same period in 1994. The increase in 1996 investment income
of 3.7% versus 1995 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
during 1996. (See Note 12 to the Financial Statements). The decrease in the 1995
investment income of 24% versus the comparative period in 1994 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 Enhanced Yield investments during 1995.
The Fund incurred expenses of $2,361,820 for the year ended December 31,
1996, as compared to $2,769,678 for the same period in 1995 and $3,577,298 for
the same period in 1994. The decrease in the 1996 expenses versus 1995 expenses
of $407,858 was primarily due to the decrease in the Investment Advisory Fee and
Fund Administration Fees and Expenses. The decrease in the 1995 expenses versus
1994 expenses of $807,620 was primarily due to the decrease in the Investment
Advisory Fee and Fund Administration Fees and Expenses.
The Fund experienced an increase in net assets resulting from operations
for the year ended December 31, 1996 in the amount of $25,784,478 as compared to
a decrease of $4,146,289 for the same period in 1995. The increase in net assets
resulting from operations in 1996 versus 1995 is attributable to an increase in
net investment income of $702,946, an increase in unrealized appreciation of
$29,250,056 offset by an increase in net realized losses of $22,235 (see
Statement of Operations in the Financial Statements). The decrease in net assets
resulting from operations in 1995 of $4,146,289 as compared to a decrease in
1994 of $7,171,518 was attributable to a decrease in net investment income of
$1,708,917, a decrease in net realized gains of $13,746,712 offset by a change
in unrealized appreciation of $18,480,858.
For the year ended December 31, 1996, the Fund incurred an Investment
Advisory Fee of $1,037,447 (as described in Note 6 to the Financial Statements).
For the years ended December 31, 1995 and 1994, the Fund incurred Investment
Advisory Fees of $1,442,458 and $1,855,152, respectively. The decrease in
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).
The Fund Administration Fees and Expenses (as described in Note 7 to the
Financial Statements) for the years ended December 31, 1996, 1995 and 1994, were
$916,209, $1,077,666, and $1,459,516, respectively. The decrease of $161,457
from 1995 to 1996 is due primarily 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). During the years ended December 31, 1996, 1995 and 1994, the
Fund incurred a total of $192,068, $173,962 and $473,142, respectively, of
administrative expenses consisting primarily of printing, audit and tax return
preparation and custodian fees paid for by the Fund Administrator.
In accordance with the Partnership Agreement, beginning October 13, 1996,
the Fund Administration Fee was changed 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.
For the years ended December 31, 1996, 1995 and 1994, the Fund did not
incur any interest or loan fees.
Independent General Partners' Fees and Expenses incurred for the years
ended December 31, 1996, 1995 and 1994 were $192,279, $167,152, and $164,518,
respectively. The changes are attributable to fluctuations in legal fees
incurred by the Independent General Partners. (See Note 9 to the Financial
Statements).
The Fund incurred professional fees of $183,323, $69,167 and $62,601 for
the years ended December 31, 1996, 1995 and 1994, respectively, which were
primarily comprised of legal fees reimbursed to Debevoise & Plimpton and
Equitable Life for legal services (See Note 9 to the Financial Statements).
<PAGE>
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
write-up 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 years ended December 31, 1996 and 1995, the Fund recorded net
unrealized appreciation on Enhanced Yield Investments of $31,877,152 and
$2,627,096, respectively. For the year ended December 31, 1994, the Fund
recorded net unrealized depreciation on Enhanced Yield Investments of
$15,853,762. The change of $29,381,614 from 1995 to 1996, in unrealized
appreciation was primarily the result of unrealized appreciation in Bank United
Corp., Lexmark International Group, Inc. and Western Pioneer, Inc. and the
reversal of unrealized depreciation in Leather U.S., Inc., Tulip Holding Corp.,
MTI Holdings, Inc. and WB Bottling Corporation, offset by writedowns in RI
Holdings, Inc., Pergament Home Centers, Inc., U.S. Leather Holdings, Inc. and
Tulip Holding Corp. and the reversal of unrealized appreciation in Lexmark
International Group, Inc., American Safety Razor Company and Apollo Radio
Holding Co., Inc. (See Note 12 to the Financial Statements).
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.
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
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Realized Gains and Losses on Investments
For the year ended December 31, 1996, the Fund recorded net realized losses
of $12,010,831 on transactions involving 10 Enhanced Yield Investments. (See
Note 10 to the Financial Statements and the Supplemental Schedule of Realized
Gains and Losses). For the years ended December 31, 1995 and 1994, the Fund
realized a net loss on investments of $11,988,596 and a net gain of $1,758,116,
respectively.
<PAGE>
Item 8. Financial Statements and Supplementary Data
EQUITABLE CAPITAL PARTNERS, L.P.
TABLE OF CONTENTS
Independent Auditors' Report
Statements of Assets, Liabilities and Partners' Capital as of
December 31, 1996 and 1995
Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Net Assets
For the Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1996, 1995 and 1994
Schedule of Portfolio Investments - December 31, 1996
Supplemental Schedule of Realized Gains and Losses
For the Year Ended December 31, 1996
Notes to Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
Equitable Capital Partners, L.P.
We have audited the accompanying statements of assets, liabilities and
partners' capital of Equitable Capital Partners, L.P. (the "Fund") as of
December 31, 1996 and 1995, including the schedule of portfolio investments, as
of December 31, 1996, and the related statements of operations, cash flows,
changes in net assets and changes in partners' capital for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Fund's General Partners. Our responsibility is to express
an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures include
confirmation of securities owned as of December 31, 1996, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Fund as of December 31, 1996 and 1995,
the results of operations, its cash flows and the changes in its net assets and
partners' capital for the respective stated periods, in conformity with
generally accepted accounting principles.
As explained in Note 2, the financial statements of the Fund include
securities valued at $44,569,548 and $46,116,681, as of December 31, 1996 and
1995 respectively, representing 40.2 and 41.0 percent of total assets,
respectively, whose values have been estimated by the General Partners of the
Fund in the absence of readily ascertainable market values. We have reviewed the
procedures used by the General Partners in arriving at their estimate of value
of such securities and have inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the securities existed, and the differences could be
material.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule of
realized gains and losses for the year ended December 31, 1996 is presented for
the purposes of additional analysis and is not a required part of the basic
financial statements. This schedule is the responsibility of the Fund's General
Partners. Such schedule has been subjected to the auditing procedures applied in
our audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects when considered in relation to the basic
financial statements taken as a whole.
Deloitte & Touche LLP
New York, New York
February 21, 1997
<PAGE>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<S> <C> <C> <C>
For the Years Ended
ASSETS: Notes December 31, 1996 December 31, 1995
----------------- -----------------
Investments 2,10,12
Enhanced Yield Investments at Value-
Managed Companies
(amortized cost of $55,159,154 at
December 31, 1996 and $110,558,741
at December 31, 1995) $ 52,325,273 $ 83,988,222
Non-Managed Companies
(amortized cost of $19,239,803 at
December 31, 1996 and $4,092,050
at December 31, 1995) 28,618,359 5,330,092
Temporary Investments
(at amortized cost ) 27,105,414 20,356,353
Cash 91,206 74,501
Interest Receivable 2,12 753,608 751,346
Note Receivable 3,4 1,846,593 1,928,690
Prepaid Expenses & Other Assets 102,932 7,906
TOTAL ASSETS $110,843,385 $112,437,110
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Professional Fees Payable 9 $ 40,107 $ 25,484
Independent General Partners' Fees Payable 8 24,456 15,273
Fund Administrative Expenses Payable 7 58,985 36,617
Other Accrued Liabilities 11,663 5,858
Total Liabilities 135,211 83,232
Partners' Capital
Managing General Partner 3,4 1,550,892 1,448,956
Limited Partners (284,611 Units) 4 109,157,282 110,904,922
Total Partners' Capital 110,708,174 112,353,878
TOTAL LIABILITIES AND PARTNERS' CAPITAL $110,843,385 $112,437,110
============ ============
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
For the Years Ended
December 31, 1996 December 31, 1995 December 31, 1994
INVESTMENT INCOME- Notes 2,12: ----------------- ----------------- -----------------
Interest $ 4,478,309 $ 7,936,925 $ 9,384,869
Discount 41,144 47,964 1,116,557
Dividend 3,760,524 - -
TOTAL INVESTMENT INCOME 8,279,977 7,984,889 10,501,426
EXPENSES:
Investment Advisory Fee- Note 6 1,037,447 1,442,458 1,855,152
Fund Administration Fees and Expenses- Note 7 916,209 1,077,666 1,459,516
Independent General Partners'
Fees and Expenses- Note 8 192,279 167,152 164,518
Professional Fees - Note 9 183,323 69,167 62,601
Insurance Fees 5,256 - 2,755
Valuation Expenses 27,306 13,235 32,756
TOTAL EXPENSES 2,361,820 2,769,678 3,577,298
NET INVESTMENT INCOME 5,918,157 5,215,211 6,924,128
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS- Note 12 31,877,152 2,627,096 (15,853,762)
NET REALIZED (LOSSES) GAINS ON INVESTMENTS- Note 10 (12,010,831) (11,988,596) 1,758,116
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 25,784,478 $ (4,146,289) $ (7,171,518)
================= ================= =================
</TABLE>
See the Accompanying Notes to Financial Statements
<PAGE>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOW
<TABLE>
<S> <C> <C> <C>
For the Years Ended
INCREASE (DECREASE) IN CASH December 31, 1996 December 31, 1995 December 31, 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ----------------- ----------------- -----------------
Interest and Discount Income $ 7,505,048 $ 9,797,734 $ 13,169,441
Fund Administration Fees & Expenses (893,841) (1,092,756) (1,407,807)
Investment Advisory Fee (1,037,447) (1,442,458) (1,855,152)
Independent General Partners' Fees and Expenses (183,096) (164,204) (166,193)
Valuation Expenses (21,501) (25,370) (47,262)
(Purchase) Sale of Temporary Investments, Net (6,016,884) 12,191,972 (9,775,337)
Purchase of Enhanced Yield Investments - (1,869) (461)
Proceeds from Sales and Principal Payments of
Enhanced Yield Investments 28,181,211 21,907,154 54,858,990
Professional Fees (168,325) (70,815) (88,469)
Insurance Fees (375) (7,906) (4,343)
Net Cash Provided by Operating Activities 27,364,790 41,091,482 54,683,407
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (27,348,085) (41,174,256) (54,554,528)
Net Cash Used in Financing Activities (27,348,085) (41,174,256) (54,554,528)
Net Increase (Decrease) in Cash 16,705 (82,774) 128,879
Cash at the Beginning of the Period 74,501 157,275 28,396
Cash at the End of the Period $ 91,206 $ 74,501 $ 157,275
================= ================= ================
RECONCILIATION OF NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Increase (Decrease) In Net Assets
Resulting From Operations $ 25,784,478 $ (4,146,289) $ (7,171,518)
Adjustments to Reconcile Net Increase (Decrease) in
Net Assets Resulting from Operations to Net Cash
Provided by Operating Activities:
Decrease in Investments 34,175,157 46,085,852 43,333,548
(Decrease) Increase in Accrued Interest (774,928) 1,812,846 2,667,814
Increase (Decrease) in Other Accrued Liabilities 5,805 (10,370) (27,118)
Increase (Decrease) in Fund Administration Expenses Payable 22,368 (15,090) 51,707
Decrease (Increase) in Prepaid Expenses 5,256 (7,906) 2,755
Net Change in Unrealized (Appreciation)
Depreciation on Investments (31,877,152) (2,627,096) 15,853,762
Increase (Decrease) in Independent General
Partners' Fees Payable 9,183 1,945 (1,675)
Increase (Decrease) in Professional Fees Payable 14,623 (2,410) (25,868)
Total Adjustments 1,580,312 45,237,771 61,854,925
Net Cash Provided by Operating Activities $ 27,364,790 $ 41,091,482 $ 54,683,407
================ ================= ================
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C> <C>
For the Years Ended
December 31, 1996 December 31, 1995 December 31, 1994
FROM OPERATIONS: ----------------- ----------------- -----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 25,784,478 $ (4,146,289) $ (7,171,518)
Cash Distributions to Partners (27,348,085) (41,174,256) (54,554,528)
Reduction in Managing General Partners' Contribution (82,097) (255,780) (267,821)
Total Decrease (1,645,704) (45,576,325) (61,993,867)
NET ASSETS:
Beginning of Period 112,353,878 157,930,203 219,924,070
End of Period $ 110,708,174 $ 112,353,878 $ 157,930,203
================= ================= ================
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<S> <C> <C> <C> <C>
Managing Limited
Notes General Partner Partners Total
------ --------------- --------- ---------
FOR THE YEAR ENDED DECEMBER 31, 1994
Partners' Capital at January 1, 1994 $ 2,267,762 $217,656,308 $219,924,070
Cash Distributions to Partners (99,905) (54,454,623) (54,554,528)
Reduction in Managing General Partners' Contribution 3 (267,821) - (267,821)
Allocation of Net Investment Income 11 69,241 6,854,887 6,924,128
Allocation of Net Unrealized Depreciation
on Investments 12 (158,538) (15,695,224) (15,853,762)
Allocation of Net Realized Gains on Investments 17,581 1,740,535 1,758,116
Partners' Capital at December 31, 1994 $ 1,828,320 $156,101,883 $157,930,203
=========== ============ ============
FOR THE YEAR ENDED DECEMBER 31, 1995
Partners' Capital at January 1, 1995 $ 1,828,320 $156,101,883 $157,930,203
Cash Distributions to Partners (82,120) (41,092,136) (41,174,256)
Reduction in Managing General Partners' Contribution 3 (255,780) - (255,780)
Allocation of Net Investment Income 11 52,152 5,163,059 5,215,211
Allocation of Net Unrealized Appreciation
on Investments 12 26,271 2,600,825 2,627,096
Allocation of Net Realized Losses on Investments (119,887) (11,868,709) (11,988,596)
Partners' Capital at December 31, 1995 $ 1,448,956 $110,904,922 $112,353,878
=========== ============ ============
FOR THE YEAR ENDED DECEMBER 31, 1996
Partners' Capital at January 1, 1996 $ 1,448,956 $110,904,922 $112,353,878
Cash Distributions to Partners (73,813) (27,274,272) (27,348,085)
Reduction in Managing General Partners' Contribution 3 (82,097) - (82,097)
Allocation of Net Investment Income 11 59,182 5,858,975 5,918,157
Allocation of Net Unrealized Appreciation
on Investments 12 318,772 31,558,380 31,877,152
Allocation of Net Realized Losses on Investments (120,108) (11,890,723) (12,010,831)
Partners' Capital at December 31, 1996 $ 1,550,892 $109,157,282 $110,708,174
=========== ============ ============
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
<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 10
$ 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
551,618 Shares Lexmark International Group, Inc.,
Class B Common Stock (c) 03/27/91 3,677,430 3,677,430 15,238,449
----------- ------------ -------------
23,344,778 23,344,778 34,905,797 32.30
----------- ------------ -----------------------
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
------------ ---------- -----------
3,464,732 3,464,732 3,464,732 3.21
------------ ---------- -----------------------
RI HOLDINGS, INC. - NOTE 12
$ 26,338,272 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 0.45
------------ ----------- -----------------------
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 8.65
------------ ----------- -----------------------
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 3.82
----------- ------------ -----------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $ 55,159,154 $ 55,159,154 $52,325,273 48.43%
--------------------------------------- ------------ ------------ -----------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
<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 4.38
----------- ------------ ----------------------
HEALTH SERVICES
MTI HOLDINGS, INC. - NOTES 10,12
$ 220,102 MTI Holdings, Inc.,
Sr. Sec. Nt. 12% due 07/01/03* 08/06/96 220,102 220,102 220,102
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
--------- ---------- ----------
456,682 456,682 456,682 0.42
--------- ---------- --------------------
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 3,105,242 3,105,242 2,296,042
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
----------- ----------- -----------
11,673,242 11,673,242 2,296,042 2.12
----------- ----------- ---------------------
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 21,135,635
----------- ----------- -----------
5,890,419 5,890,419 21,135,635 19.56
----------- ----------- ---------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $19,239,803 $19,239,803 $28,618,359 26.48%
------------------------------------------ ----------- ----------- ---------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $74,398,957 $74,398,957 $80,943,632 74.91%
---------------------------------------------- ----------- ----------- ---------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(CONCLUDED)
<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
$ 2,000,000 ASCC Commercial Paper, 5.34% due 2/27/97 12/03/96 $ 1,974,487 $ 1,983,090 $ 1,983,090
$ 4,600,000 ASCC Commercial Paper, 5.33% due 3/18/97 12/11/96 4,533,938 4,548,240 4,548,240
$ 5,600,000 Old Line Funding, 5.50% due 2/27/97 12/18/96 5,539,255 5,551,233 5,551,233
$ 3,400,000 Barton Capital Corp., 5.20% due 2/14/97 12/19/96 3,370,284 3,377,061 3,377,061
$ 3,300,000 Receivable Capital Corp., 5.60% due 2/21/97 12/26/96 3,270,740 3,273,820 3,273,820
$ 900,000 Jefferson Smurfit, 5.46% due 3/18/97 12/30/96 889,353 889,626 889,626
$ 7,500,000 Triple A Funding, 5.65% due 1/16/97 12/31/96 7,481,167 7,482,344 7,482,344
------------- ------------ ------------
TOTAL INVESTMENT IN COMMERCIAL PAPER $ 27,059,224 $ 27,105,414 $ 27,105,414 25.09
------------- ------------ ---------------------
TOTAL TEMPORARY INVESTMENTS $ 27,059,224 $ 27,105,414 $ 27,105,414 25.09
------------- ------------ ---------------------
TOTAL INVESTMENT PORTFOLIO $ 101,458,181 $101,504,371 $108,049,046 100.00%
============= ============ =====================
SUMMARY OF INVESTMENTS
Subordinated Notes $ 40,161,470 $ 40,161,470 $ 31,526,236 29.18
Common Stock and Warrants 34,237,487 34,237,487 49,417,396 45.73
Temporary Investments 27,059,224 27,105,414 27,105,414 25.09
------------- ------------ ---------------------
$ 101,458,181 $101,504,371 $108,049,046 100.00%
============= ============ =====================
* Restricted Security
** Restricted Non-income Producing Security
(a) Includes receipt of payment-in-kind securities.
(b) Non-accrual investment status.
(c) Publicly traded class of securities.
</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 YEAR ENDED DECEMBER 31, 1996
<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. Sub. 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 $ 915,779 915,779 220,102 (B) (695,677)
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 2,843.362 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 22,977 184,505 182,953 (1,552)
Total Net Realized Losses for the
Three Months Ended September 30, 1996 $17,264,070 $ 4,556,546 $(12,707,524)
=========== =========== ============
Lexmark International Group, Inc.
Common Stock various 775,858 5,172,413 18,057,338 12,884,925
Polaris Pool Systems, Inc.
Common Stock 10/28/96 - - 4,359 (A) 4,359
Apollo Radio Holding Co., Inc.
Common Stock 11/06/96 107.25 222,750 1,587,133 1,364,383
Warrants 11/06/96 17.8749 - - -
Ampex Recording Media Corp.
Common Stock 11/29/96 22,690 182,360 182,946 586
American Paper Group, Ltd.
5% Sub. Note 12/17/96 $ 1,209,417 943,345 943,345 -
Common Stock 12/17/96 2,021 136,903 136,903 -
WB Bottling Corporation
Preferred Stock 12/31/96 3,135 313,500 - (313,500)
Common Stock 12/31/96 41,663 169,456 - (169,456)
Total Net Realized Gains for the
Three Months Ended December 31, 1996 $ 7,140,727 $20,912,024 $ 13,771,297
=========== =========== ============
Total Net Realized Losses for the
Year Ended December 31, 1996 $49,128,867 $37,118,036 $(12,010,831)
=========== =========== ============
(A) Proceeds represent a distribution to the Fund from the escrow account.
(B) Proceeds 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
DECEMBER 31, 1996
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
Fund, 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 Fund 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 Funds' 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 $44,569,548
and $46,116,681, as of December 31, 1996 and 1995, respectively, representing
40.2% 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 write down 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
write up 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
As discussed in Note 13, 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 are 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 year ended December 31, 1996 resulted in a
$82,097 reduction of the principal amount of the Note. The promissory note of
Equitable Capital was canceled 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
canceled and Alliance Corporate 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 totaled $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 totaled $4,711,806.
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 years ended December 31,
1996, 1995 and 1994 were $1,037,447, $1,442,458, and $1,855,152, respectively.
The decrease from 1995 to 1996 in the Investment Advisory Fee is due primarily
to the return of capital distributed to Limited Partners, which reduced the
Fund's Available Capital, on which the Investment Advisory Fee is based.
<PAGE>
7. Fund Administration Fees 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% 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 years ended December 31, 1996, 1995 and 1994, were
$724,141, $903,704, and $986,374, 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 years ended December 31, 1996 and 1995, the Fund incurred
Administrative Expenses of $192,068 and $173,962 respectively, which consisted
primarily of printing, audit and tax return preparation and custodian fees paid
for by MLFAI on behalf of the Retirement 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 plus reimbursement for any out-of-pocket
expenses. In accordance with the Fund's Partnership Agreement, the amount of
such fee is reviewed annually by the Independent General Partners.
For the years ended December 31, 1996, 1995 and 1994, the Fund incurred
$192,279, $167,152, and $164,518, respectively, of Independent General Partners'
Fees and Expenses.
9. Related Party Transactions
For the years ended December 31, 1996, 1995 and 1994, the Fund paid
expenses of $76,426, $44,530, and $87,221, respectively, as reimbursement for
amounts paid 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 year ended December 31, 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 pay downs of the senior notes held by the Fund.
No gain or loss has been recorded on the transactions.
During the year ended December 31, 1996, the Fund received additional
proceeds of $266,713 from Polaris Pool Systems, Inc. The money represents
proceeds from the sale of the investment from prior years that have been held in
escrow for future adjustments and expenses not paid on the sale dates. These
proceeds were recorded and distributed as gains.
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 $1,449,097 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 Common Stock for $182,953 which resulted in a loss of $1,552 to
the Fund. The Fund sold its remaining 22,690 shares of Ampex Recording Media
Corp. Class A Common Stock on November 29, 1996, for $182,946 and recognized a
gain of $586 on the sale.
<PAGE>
During the fourth quarter of 1996, the Fund sold 775,858 shares of Lexmark
International Group, Inc. common stock for $18,057,338 resulting in a gain of
$12,884,925 to the Fund.
On November 6, 1996, the Apollo Radio Holding Co., Inc. common stock and
warrants held by the Fund were redeemed. The Fund received proceeds of
$1,587,133 which resulted in a realized gain of $1,364,383 to the Fund.
On December 17, 1996, the Fund sold its American Paper Group, Ltd. 5%
Subordinated Notes and common stock for $1,108,132 resulting in no gain or loss
to the Fund.
During the year ended December 31, 1996, the Fund received a total of
$131,558 from Pergament Home Centers, Inc., as principal pay downs of the
Floating Rate Demand Note held by the Fund. No gain or loss has been recorded on
the transactions.
As of December 31, 1996, the Fund had investments in 5 Managed Companies (a
Managed Company is one to which the Fund, the Managing General Partner or other
persons in the Fund's investor group makes significant managerial assistance
available) and 4 Non-Managed Companies (a Non-Managed Company is one to which
such assistance is not provided) totaling $74,398,957 (including $854,000
capitalized cost of payment-in-kind securities), consisting of $40,161,470 in
senior notes and subordinated notes and $34,237,487 in common stock and purchase
warrants.
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 year ended December 31, 1996, 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 year ended December 31, 1996, the Fund recorded net unrealized
appreciation on Enhanced Yield Investments of $31,877,152. Such appreciation was
the result of adjustments in value made with respect to the following
investments during 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.
<PAGE>
Due to the sale of 775,858 shares of Lexmark International Group, Inc.
common stock during the fourth quarter 1996, the Fund reversed $6,636,463 of
unrealized appreciation. 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.
On November 29, 1996, the Fund reversed a total of $39,413 of unrealized
depreciation due to the sale of the remaining 22,690 shares of Ampex Recording
Media Corp. Class A Common Stock. 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 November 6, 1996, the Fund reversed a total of $1,439,717 of unrealized
appreciation in Apollo Radio Holding Co., Inc. due to the redemption of the
common stock and warrants held by the Fund. 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 Corporation 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 $1,481,470 at December
31, 1996. 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
December 31, 1996, due to contractual restrictions on resale.
On December 31, 1996, the Fund's preferred stock and common stock
investments in WB Bottling Corporation were rendered worthless. As a result, the
Fund reversed a total of $482,956 of unrealized depreciation.
For the years ended December 31, 1995 and 1994, the Fund recorded net
unrealized appreciation of $2,627,096 and net unrealized depreciation of
$15,853,762, respectively.
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
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.
<PAGE>
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 basis of the Fund's assets and liabilities versus the amounts reported in
the Financial Statements. Generally, the tax basis 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, 1996, the tax basis of
the Fund's assets was greater than the amounts reported in the Financial
Statements by $30,331,565. 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 restructuring
were treated differently for tax purposes, but not for financial reporting
purposes.
14. Subsequent Distributions
On February 5, 1997, the Independent General Partners approved an aggregate
cash distribution of $21,719,699 for the three months ended December 31, 1996,
which was paid on February 14, 1997. The amount distributed to Limited Partners
was $21,710,127, or $76.28 per Unit (of which $6,651,359 is capital returned
from investments during the fourth quarter of 1996), to Limited Partners of
record at December 31, 1996. On a per Unit basis, this distribution to Limited
Partners includes $49.58 of realized gains, $3.33 of income from operations and
$23.37 of return of capital. The Managing General Partner's one percent
allocation of $219,294 was reduced by its one percent allocation of realized
gains and capital returned from investments during the fourth quarter of 1996,
of $209,722 (which is being held as a Deferred Distribution Amount pursuant to
the Partnership Agreement), resulting in a net distribution of $9,572.
15. Subsequent Events
In January 1997, the Fund sold 30,002 shares of Lexmark International
Group, Inc. at an average price of $25.74 per share and generated $772,125 of
net proceeds, which includes realized gains of $572,111.
Certain shareholders of Bank United Corp. participated in a secondary
offering of approximately 4.1 million shares of its common stock (which includes
the underwriters' over-allotment option) in February 1997. The Fund sold an
aggregate of 779,543 shares at a net price of $27.98 per share. The Fund
received total net proceeds of $21,811,613.14 and realized gains of
$16,581,184.92. The Fund still holds 98,365 shares of Bank United Corp.,
representing approximately 11% of its original shareholdings. The shares of Bank
United Corp. are traded on the NASDAQ under the ticker symbol "BNKU".
On February 21, 1997, the Fund received a prepayment notice from Lexmark
International Inc. stating that it will prepay its outstanding $19,667,348 of
Senior Subordinated Notes held by the Fund, together with accrued interest and a
contractual prepayment premium, on March 24, 1997. The amount of the prepayment
premium will be a function of interest rate levels just prior to the time of
prepayment.
Total proceeds received by the Fund from these transactions are expected to
be distributed to the Limited Partners as part of the regular quarterly cash
distribution to be made in May 1997.
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The Fund
The Fund's general partners (the "General Partners") are responsible for
the management and administration of the Fund. The General Partners consist of
Alliance Corporate succeeding Equitable Capital, as the Managing General
Partner, and four individuals serving as Independent General Partners. Each
Independent General Partner is not an "interested person" of the Fund as such
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act").
Independent General Partners
The Independent General Partners provide overall guidance and supervision
with respect to the operations of the Fund and perform the various duties
imposed on the directors of business development companies by the Investment
Company Act of 1940. The Independent General Partners supervise the Managing
General Partner and must, with respect to any Enhanced Yield Investment, either
certify that it meets the Fund's investment guidelines or specifically approve
it. The Independent General Partners are also responsible for approving certain
transactions pursuant to the conditions of an exemptive order issued by the
Securities and Exchange Commission (the "Commission") under which the Fund
operates. In addition, if a portfolio company is in material default with
respect to its payment obligations under any lending agreement to which it is a
party or has a ratio of earnings before interest, taxes and depreciation to cash
fixed charges of 1.1 to 1 or less for the latest fiscal year for which financial
statements are available, the Independent General Partners are required to
approve any changes in the terms of the Fund's investment in such portfolio
company.
Messrs. Robert W. Lear and Robert F. Shapiro have served as Independent
General Partners of the Fund and the Retirement Fund since June 1988. On April
12, 1989, Mr. Alton G. Marshall and Dr. William G. Sharwell were admitted to the
Fund and the Retirement Fund, increasing the total number of Independent General
Partners to four. Each Independent General Partner shall hold office until his
removal or withdrawal pursuant to the provisions of the Partnership Agreement.
Mr. Lear, age 79, has been an Executive-in-Residence and Visiting Professor
at the Columbia University Graduate School of Business since 1977. He is also a
director of Cambrex Corp. and the Korea Fund (a closed-end investment fund). Mr.
Lear is a trustee of the Scudder Institutional Funds (mutual funds) and a member
of the advisory board of the Welsh, Carson, Anderson, Stowe Venture Capital
Funds.
Mr. Shapiro, age 62, is the President of RFS & Associates, Inc.
(consultants and investments). From 1986 to 1987 he was the Co-Chairman of
Wertheim Schroeder & Co. Inc. (investment bankers) and from 1974 to 1986 he was
the President of its predecessor, Wertheim & Co. Inc. Mr. Shapiro is a director
of TJX Companies, Inc. (specialty retailing), a director of American Building
Companies and the Burnham Fund Inc. (mutual fund). Mr. Shapiro was Chairman of
the Securities Industry Association in 1985.
Mr. Marshall, age 75, is Senior Fellow of the Nelson A. Rockefeller
Institute of Government. He is also President of Alton G. Marshall Associates,
Inc. (real estate consultants). He was Chairman and Chief Executive Officer of
Lincoln Savings Bank from 1984 to 1991. He is also a Director of New York State
Electric and Gas Corporation. He is a Trustee of EQK Realty Investors I and EQK
Green Acres (real estate investors), and a Trustee of The Hudson River Trust,
which is a mutual fund receiving investment advice from Alliance Capital.
Dr. Sharwell, age 76, served as the President of Pace University from 1984
to 1990, after retiring in 1984 as Senior Vice President of AT&T. He is also a
director of USLife Corporation, American Biogenetic Sciences, Inc. and United
States Life Insurance Company.
<PAGE>
Managing General Partner
The Managing General Partner is responsible for purchasing investments
for the Fund which the Independent General Partners have reviewed for compliance
with the investment guidelines or otherwise approved, for providing
administrative services to the Fund and for the admission of assignee Limited
Partners to the Fund.
Management of Alliance Corporate and the Fund
The senior officers of Alliance Corporate responsible for overseeing the
management of the Fund are:
Position with Alliance Corporate Finance
Group Incorporated
----------------------------------------
James R. Wilson President
William Gobbo, Jr. Senior Vice President
James D. Neidhart Senior Vice President
Laura Mah Vice President and Chief Accounting Officer
James R. Wilson, age 50, is the President of Alliance Corporate and is in
charge of Alliance Corporate's Finance Department. He has specialized in private
placement investment management for over 20 years. He joined Equitable Life in
1970. From 1975 to 1978, he was in charge of the Private Placement Department's
Atlanta regional office, responsible for making direct placement loans to middle
market companies. He then returned to the home office to supervise the credit
review and approval procedures of all six regional offices. In 1980, Mr. Wilson
joined the Investment Recovery Division of Equitable Capital Management
Corporation and subsequently became its head. During his tenure in investment
recovery, he was instrumental in a number of major restructurings and
recapitalizations of troubled companies and served as chairman of several
creditors' committees. Mr. Wilson was elected senior vice president and deputy
head of Equitable Capital's Corporate Finance Department in 1985, and in 1991 he
became executive vice president and head of the Corporate Finance Department. He
was named President of Alliance Corporate Finance Group in 1993 in connection
with the Alliance Capital/Equitable Capital merger. Mr. Wilson has served on
several corporate Boards and presently is a director of US Leather, Inc. He is
active in private placement industry events, has been a speaker at many industry
conferences on leveraged buyouts and mezzanine finance and served as Chairman of
the annual Private Placement Conference in 1994. Mr. Wilson is a graduate of
Denison University and holds an MBA from the University of Pittsburgh.
Mr. William Gobbo, Jr., age 52, is a Senior Vice President of Alliance
Corporate. Mr. Gobbo joined Alliance Corporate through the combination with
Equitable Capital. Mr. Gobbo joined Equitable Life in 1967 as an economist in
the office of Equitable's Chief Economist. He joined the Private Placement
Department in 1976 and in 1984 became head of an investment group that was
responsible for the Department's lending activities involving financial
institutions and heavy industrial companies.
<PAGE>
Mr. James D. Neidhart, age 52, is a Senior Vice President of Alliance
Corporate. He is head of the Investment Recovery Division of Alliance Corporate
responsible for the management of public and private investments in companies
that have encountered troubled financial situations. He has been actively
involved in over 20-25 restructurings, playing in most a leadership role
including chairmanship of committees critical to the restructuring process. Mr.
Neidhart, who joined Alliance Corporate through the combination with Equitable
Capital, had been employed by Equitable Capital in its workout group since 1986.
Prior to that, he had nine years of experience in private placement investments
and workout transactions with the Prudential Insurance Company of America, three
years of commercial lending experience with Harris Trust and Savings Bank and
served six years as an Officer in the U.S. Air Force.
Mrs. Laura Mah, age 41, is a Vice President of Alliance Capital and
co-manages the Insurance Services Group. She is responsible for accounting and
reporting for assets managed by Alliance Capital for insurance clients,
including mutual funds, partnerships, general, separate and advisory accounts.
Mrs. Mah joined Alliance Capital through the combination with Equitable Capital.
Prior to that, she was an Assistant Vice President with Shearson Lehman Hutton
for five years. She is a Certified Public Accountant.
The Investment Adviser
As a result of the combination of the businesses of Equitable Capital and
Alliance Capital, Equitable Capital's investment advisory agreement with the
Fund terminated in accordance with its terms on July 22, 1993. On that date,
Alliance Corporate succeeded Equitable Capital as the Fund's investment adviser.
As investment adviser to the Fund, Alliance Corporate is responsible for the
identification, management and liquidation of all investments for the Fund.
The Administrator
The Administrator performs certain operating and administrative services
for the Fund on behalf of the Managing General Partner pursuant to an
administrative services agreement, dated October 13, 1988, among the Fund,
Equitable Capital and the Administrator.
The information contained in the Prospectus under the caption "Management
Arrangements" is incorporated by reference into this Item 10.
Item 11. Executive Compensation
The information with respect to compensation of the Independent General
Partners set forth under the caption "Management Arrangements -- The Independent
General Partners" in the Prospectus is incorporated by reference into this Item
11. The Fund paid Mr. Lear $36,890, Mr. Shapiro $36,250, Mr. Marshall $36,935
and Dr. Sharwell $35,500 in fees with respect to their services as Independent
General Partners in 1996.
The information with respect to the "Fund Administration Fee and Expenses"
payable to the Managing General Partner and the Administrator set forth under
the caption "Management Arrangements -- The Managing General Partner" in the
Prospectus is incorporated by reference into this Item 11. The Fund paid
$893,841 to the Administrator, through the Managing General Partner in 1996.
The information with respect to the "Investment Advisory Fee" payable to
Alliance Corporate (and distributions from the Managing General Partner) set
forth under the caption "Management Arrangements -- Description of Investment
Advisory Agreements" in the Prospectus is incorporated by reference into this
Item 11. The Fund paid Alliance Corporate $1,037,447 with respect to the
Investment Advisory Fees for 1996. The Managing General Partner's 1% allocation
of net investment income from Temporary Investments, which in 1996 amounted to
$280, is credited against the Investment Advisory Fees, as required by the
Partnership Agreement.
Alliance Corporate, as Managing General Partner, received $73,812
representing distributions of net investment income in 1996.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of the date of this report, no person or entity is known by the Fund
to be the beneficial owner of more than 5% of the total number of outstanding
Units.
The Independent General Partners and directors and officers of Alliance
Corporate own as a group 777 Units, or less than 1% of the total Units
outstanding.
Item 13. Certain Relationships and Related Transactions
The Fund co-invests in Enhanced Yield Investments with the Retirement Fund
and certain affiliates of Equitable Capital pursuant to the terms of an
exemptive order granted by the Commission on August 11, 1988 permitting
coinvestments on certain terms and conditions, Equitable Capital Partners, L.P.,
et al. (812-6983) IC-16522, August 11, 1988 (the "Order"). On December 31, 1990,
the Commission granted a request to amend such Order to: (I) permit any person
serving as an officer, director or employee of Equitable Life or any of its
subsidiaries to serve as a director of Equitable Capital; (ii) permit Equitable
Life and its subsidiaries (other than Equitable Capital) and certain other
affiliates of Equitable Capital to invest as limited partners in sponsor limited
partnerships which invest in transactions in which the Funds also invest; and
(iii) amend and restate all of the conditions and undertakings contained in the
August 11, 1988 Order to conform them to those contained in the application
filed with the Commission on behalf of Equitable Capital Partners II, L.P. and
Equitable Capital Partners (Retirement Fund) II, L.P. Equitable Capital
Partners, L.P., et al. (812-7328) IC - 17925, December 31, 1990.
Pursuant to such arrangements, the Fund co-invested in the Enhanced Yield
Investments listed above in Item 1 (with the exception of Color Your World,
Inc.) with the Retirement Fund and one or more of the following: Equitable Deal
Flow Fund, L.P., Equitable Capital Private Income and Equity Partnership II,
L.P., Equitable Life, Equitable Variable Life Insurance Company, Tandem
Insurance Group, Inc. and Royal Tandem Insurance Company.
In connection with the transaction that resulted in the succession of
Alliance Corporate as Managing General Partner of, and Investment Adviser to,
the Fund and Equitable Capital Partners (Retirement Fund), L.P. (the "Retirement
Fund"), Equitable Capital and Alliance Corporate received two exemptive orders
from the Securities and Exchange Commission permitting the Fund, the Retirement
Fund and Alliance to rely on the exemptive orders previously issued to Equitable
Capital and the Funds, subject to the same conditions and undertakings under
such orders as applied to Equitable Capital.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Financial Statement
Schedules and Exhibits
See Item 8. Financial Statements and Supplementary Data "Table of Contents."
Exhibits
<TABLE>
<S> <C>
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.***
13.1 (a) Forms 10-Q
Form 8-K *****
28.1 Portions of Prospectus of Registrant and Equitable Capital Partners,
L.P., dated July 15, 1988, incorporated by reference into this Annual
Report on Form 10-K
* 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 Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, filed with the
Securities and Exchange Commission on March 29, 1993.
**** 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.
***** Incorporated by reference to the Fund's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, filed with the
Securities and Exchange Commission on November 22, 1995.
</TABLE>
<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 18th day of March,
1997.
EQUITABLE CAPITAL PARTNERS, L.P.
By: Alliance Corporate Finance Group Incorporated,
as Managing General Partner,
Dated: March 18, 1997 -------------------------------
James R. Wilson
Title: President
Dated: March 18, 1997 --------------------------------
Laura Mah
Title: Vice President and Chief
Accounting Officer
<PAGE>
Pursuant to the Requirements of the Securities and Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 18th day of March, 1997.
Signature Title
________________________ Independent General Partner of
Robert W. Lear Equitable Capital Partners, L.P.
________________________ Independent General Partner of
Robert F. Shapiro Equitable Capital Partners, L.P.
________________________ Independent General Partner of
Alton G. Marshall Equitable Capital Partners, L.P.
________________________ Independent General Partner of
William G. Sharwell Equitable Capital Partners, L.P.
________________________ President and Director of
James R. Wilson Alliance Corporate
________________________
Dave H. Williams Director of Alliance Corporate
________________________
Bruce W. Calvert Director of Alliance Corporate
________________________
John D. Carifa Director of Alliance Corporate
________________________
Frank Savage Director of Alliance Corporate
________________________ Co-Chairman, Co-Chief Executive Officer
Mark Arnold and Director of Alliance Corporate
________________________ Co-Chairman, Co-Chief Executive Officer
Alastair Tedford and Director of Alliance Corporate
<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 18th day of March,
1997.
EQUITABLE CAPITAL PARTNERS, L.P.
By: Alliance Corporate Finance Group Incorporated,
as Managing General Partner,
Dated: March 18, 1997 /s/ James R. Wilson
-----------------------------
James R. Wilson
Title: President
Dated: March 18, 1997 /s/ Laura Mah
----------------------------
Laura Mah
Title: Vice President and Chief
Accounting Officer
<PAGE>
Pursuant to the Requirements of the Securities and Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 18th day of March, 1997.
Signature Title
/s/ Robert W. Lear Independent General Partner of
Robert W. Lear Equitable Capital Partners, L.P.
/s/ Robert F. Shapiro Independent General Partner of
Robert F. Shapiro Equitable Capital Partners, L.P.
/s/ Alton G. Marshall Independent General Partner of
Alton G. Marshall Equitable Capital Partners, L.P.
/s/ William G. Sharwell Independent General Partner of
William G. Sharwell Equitable Capital Partners, L.P.
/s/ James R. Wilson President and Director of
James R. Wilson Alliance Corporate
/s/ Dave H. Williams
Dave H. Williams Director of Alliance Corporate
/s/ Bruce W. Calvert
Bruce W. Calvert Director of Alliance Corporate
/s/ John D. Carifa
John D. Carifa Director of Alliance Corporate
/s/ Frank Savage
Frank Savage Director of Alliance Corporate
/s/ Mark Arnold Co-Chairman, Co-Chief Executive Officer
Mark Arnold and Director of Alliance Corporate
/s/ Alastair Tedford Co-Chairman, Co-Chief Executive Officer
Alastair Tedford and Director of Alliance Corporate
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the fourth quarter of
1996 Form 10-K Balance Sheets and Statements of Operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 74,398,957
<INVESTMENTS-AT-VALUE> 80,943,632
<RECEIVABLES> 2,600,201
<ASSETS-OTHER> 102,932
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 110,843,385
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 135,211
<TOTAL-LIABILITIES> 135,211
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 284,611
<SHARES-COMMON-PRIOR> 284,611
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,544,670
<NET-ASSETS> 110,708,174
<DIVIDEND-INCOME> 3,760,524
<INTEREST-INCOME> 4,478,309
<OTHER-INCOME> 41,144
<EXPENSES-NET> 2,361,820
<NET-INVESTMENT-INCOME> 5,918,157
<REALIZED-GAINS-CURRENT> (12,010,831)
<APPREC-INCREASE-CURRENT> 31,877,152
<NET-CHANGE-FROM-OPS> 25,784,478
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,219,594
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 8,128,491
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,645,704)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,037,447
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,361,820
<AVERAGE-NET-ASSETS> 111,531,026
<PER-SHARE-NAV-BEGIN> 389.67
<PER-SHARE-NII> 20.59
<PER-SHARE-GAIN-APPREC> (41.78)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 95.83
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 383.53
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>