UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended: September 30, 1995
Commission File Number 01-16532
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
(Exact name of registrant as specified in its governing instruments)
Delaware 13-3486106
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1345 Avenue of the Americas
New York, New York 10105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:(212) 969-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Selected information from the Prospectus, dated July 15, 1988, and filed with
the Securities and Exchange Commission on July 19, 1988 (File No. 33-20093), is
incorporated by reference into Parts I, II and III of this Quarterly Report on
Form 10-Q.
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EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Statements of Assets, Liabilities and Partners'
Capital as of September 30, 1995 and December 31, 1994 3
Statements of Operations - For the Three and Nine
Months Ended September 30, 1995 and 1994 4
Statements of Changes in Net Assets - For the Nine
Months Ended September 30, 1995 and 1994 5
Statements of Cash Flows - For the Nine Months Ended
September 30, 1995 and 1994 6
Statement of Changes in Partners' Capital -
For the Nine Months Ended September 30, 1995 7
Schedule of Portfolio Investments - September 30, 1995 8
Supplemental Schedule of Realized Gains and Losses
For the Nine Months Ended September 30, 1995 14
Notes to Financial Statements 15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
PART II - OTHER INFORMATION
Item 6. Exhibits 30
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
September
30, 1995 December 31,
Notes (Unaudited) 1994
<S> <C> <C> <C>
ASSETS:
Investments 2,10,12
Enhanced Yield Investments at Value-
Managed Companies
(amortized cost of $91,268,556 at
September 30, 1995 and $93,252,115 at
December 31, 1994) $ 69,382,195 $ 83,511,586
Non-Managed Companies
(amortized cost of $3,089,424 at
September 30, 1995 and $3,534,916 at
December 31, 1994) 3,240,260 4,891,456
Temporary Investments
(at amortized cost) 12,967,463 23,524,901
Cash 23,900 85,291
Interest Receivable 2,12 2,000,235 2,238,868
Note Receivable 3,4 1,268,197 1,410,450
Prepaid Expenses 3,477 -
TOTAL ASSETS $ 88,885,727 $115,662,552
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Professional Fees Payable 9 $ 17,388 $ 24,161
Independent General Partners'
Fees Payable 8 11,500 9,566
Fund Administrative Expenses Payable 7 17,522 40,168
Other Accrued Liabilities 6,991 10,327
Total Liabilities 53,401 84,222
Partners' Capital
Managing General Partner 3,4 1,034,337 1,288,272
Limited Partners (221,072 Units) 4 87,797,989 114,290,058
Total Partners' Capital 88,832,326 115,578,330
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 88,885,727 $115,662,552
</TABLE>
See the Accompanying Notes to Financial Statements.
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September September September September
30, 1995 30, 1994 30, 1995 30, 1994
<S> <C> <C> <C> <C>
INVESTMENT INCOME - NOTES 2,12:
Interest $ 1,855,528 $ 1,572,865 $ 5,677,183 $ 5,783,729
Discount 6,778 190,866 19,592 611,274
TOTAL INVESTMENT INCOME 1,862,306 1,763,731 5,696,775 6,395,003
EXPENSES:
Investment Advisory Fee - Note 6 247,041 308,691 795,572 975,017
Fund Administration Fees and Expenses - Note 7 184,540 221,614 637,269 905,812
Independent General Partners' Fees and Expenses - Note 8 37,100 34,151 124,664 126,979
Professional Fees - Note 9 7,748 38,723 25,281 146,956
Valuation Expenses 2,700 4,000 6,381 15,672
Insurance Fees - 702 - 2,755
TOTAL EXPENSES 479,129 607,881 1,589,167 2,173,191
NET INVESTMENT INCOME 1,383,177 1,155,850 4,107,608 4,221,812
NET CHANGE IN UNREALIZED DEPRECIATION
ON INVESTMENTS - Note 12 (8,885,165) (1,670,150) (13,351,536) (13,566,947)
NET REALIZED GAINS ON INVESTMENTS- Note 10 2,261,832 2,653,331 2,302,586 6,325,884
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(5,240,156) $ 2,139,031 $(6,941,342) $(3,019,251)
See the Accompanying Notes to Financial Statements.
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
For the Nine Months Ended
September 30, September 30,
FROM OPERATIONS: 1995 1994
<S> <C> <C>
Net Investment Income $ 4,107,608 $ 4,221,812
Net Change in Unrealized Depreciation
on Investments (13,351,536) (13,566,947)
Net Realized Gains on Investments 2,302,586 6,325,884
Net Decrease in Net Assets Resulting
from Operations (6,941,342) (3,019,251)
Cash Distributions to Partners (19,662,409) (23,235,407)
Reduction in Managing General Partners'
Contribution (142,253) (126,197)
Total Decrease (26,746,004) (26,380,855)
NET ASSETS:
Beginning of Period 115,578,330 145,821,277
End of Period $ 88,832,326 $119,440,422
See the Accompanying Notes to Financial Statements.
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30, September 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and Discount Income $ 5,200,443 $ 7,200,669
Fund Administration Fees and Expenses (659,915) (872,432)
Investment Advisory Fee (795,572) (975,017)
Independent General Partners' Fees and Expenses (122,731) (126,412)
Valuation Expenses (9,717) (15,472)
Sale of Temporary Investments, Net 11,132,486 5,728,307
Proceeds from Sales and Principal Payments
of Enhanced Yield Investments 4,891,556 12,557,431
Professional Fees (32,055) (132,230)
Insurance Fees (3,477) (4,140)
General Partner Distribution Payable - (47,582)
Net Cash Provided by Operating Activities 19,601,018 23,313,122
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (19,662,409) (23,235,407)
Net Cash Used in Financing Activities (19,662,409) (23,235,407)
Net Increase (Decrease) in Cash (61,391) 77,715
Cash at the Beginning of the Period 85,291 68,254
Cash at the End of the Period $ 23,900 $ 145,969
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Decrease in Net Assets Resulting From Operations $ (6,941,342) $ (3,019,251)
Adjustments to Reconcile Net Decrease in Net Assets
Resulting from Operations to Net Cash Provided by
Operating Activities:
Decrease in Investments 13,721,454 17,160,009
(Increase) Decrease in Accrued Interest
and Discount Receivables (496,332) 805,665
Increase in Receivable for Investments Sold - (5,200,154)
Decrease in Other Accrued Liabilities (3,336) (51,520)
Increase (Decrease) in Fund Administration
Expenses Payable (22,646) 33,380
(Increase) Decrease in Prepaid Expenses (3,477) 2,755
Net Change in Unrealized Depreciation on Investments 13,351,536 13,566,947
Increase in Independent General Partners' Fees Payable 1,934 566
Increase (Decrease) in Professional Fees Payable (6,773) 14,725
Total Adjustments 26,542,360 26,332,373
Net Cash Provided by Operating Activities $ 19,601,018 $23,313,122
See the Accompanying Notes to Financial Statements.
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
Managing
General Limited
Notes Partner Partners Total
<S> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Partners' Capital at January 1, 1995 $1,288,272 $114,290,058 $115,578,330
Cash Distributions to Partners (42,269) (19,620,140) (19,662,409)
Reduction in Managing General Partner's
Contribution 3 (142,253) - (142,253)
Allocation of Net Investment Income 11 41,076 4,066,532 4,107,608
Allocation of Net Unrealized Depreciation
on Investments 12 (133,515) (13,218,021) (13,351,536)
Allocation of Net Realized Gains
on Investments 23,026 2,279,560 2,302,586
Partners' Capital at September 30, 1995 $1,034,337 $ 87,797,989 $ 88,832,326
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
ENHANCED YIELD INVESTMENTS
MANAGED COMPANIES
AMERICAN PAPER GROUP, LTD.
$ 595,683 American Paper Group, Ltd., Sub. Nts. 5% due 12/31/00* 01/18/94 $ 404,111 $ 437,798 $ 437,798
996 Shares American Paper Holdings Inc., Common Stock** 01/18/94 67,469 67,469 67,469
471,580 505,267 505,267 0.59
AMPEX RECORDING MEDIA CORP.
(Formerly 319 Holdings, Inc.)
$7,590,000 Ampex Recording Media Corp., Sr. Sub. Nt. Series A
14% due 07/31/99*(b) 12/31/90 5,541,261 5,775,086 1,897,500
$2,640,000 Ampex Recording Media Corp., Sr. Sub. Nt. Series B
14% due 07/31/99*(b) 06/28/91 1,939,711 2,004,927 660,000
$1,111,480 Ampex Recording Media Corp., Sr. Sub. Nt. Series A
18.4% due 07/31/99*(b)(c) 01/31/93 531,300 531,300 122,263
$ 386,602 Ampex Recording Media Corp., Sr. Sub. Nt. Series B
18.4% due 07/31/99*(b)(c) 01/31/93 184,800 184,800 42,527
11.583 Warrants Ampex Recording Media Corp., Class B Common Stock 12/31/90 &
Purchase Warrants**(e) 06/28/91 287,892 287,892 80,500
8,484,964 8,784,005 2,802,790 3.27
LEXMARK HOLDING, INC.
$24,103,269 Lexmark International, Inc., Sr. Sub. Nts. 14.25%
due 03/31/01* 03/27/91 24,103,269 24,103,269 24,103,269
93,534.07 Shares Lexmark Holding, Inc., Class B Common Stock** 03/27/91 9,353,407 9,353,407 12,627,099
33,456,676 33,456,676 36,730,368 42.91
PERGAMENT HOME CENTERS, INC. - Note 12
$2,543,200 Pergament Acq. Corp., Home Centers, Inc. Floating Rate
Demand Note due 07/31/00* 10/18/91 2,543,200 2,543,200 2,543,200
299.2 Shares Pergament Holding, Corp., Common Stock Class B** 02/28/89 6,732,000 6,732,000 1,683,000
109.2571 Shares Pergament Holding, Corp., Common Stock Class C** 02/28/89 0 0 0
9,275,200 9,275,200 4,226,200 4.94
RI HOLDINGS, INC. - Notes 10,12
$11,123,914 RI Holdings, Inc., Sr. Sub. Nts. 16% due
08/31/01*(a)(b) 04/25/94 5,826,150 5,826,150 4,660,920
150,191 Shares RI Holdings, Inc., Common Stock** 09/01/89 1,501,910 1,501,910 0
104,211.03 Shares RI Holdings, Inc., Common Stock** Various 1,044 1,044 0
22,687.5 Shares RI Holdings, Inc., Common Stock** 04/25/94 227 227 0
92,045.09 Shares RI Holdings, Inc., Common Stock** 05/09/95 920 920 0
7,330,251 7,330,251 4,660,920 5.45
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
TULIP HOLDING CORPORATION - Note 12
$ 4,394,288 Tulip Holding Corp., Sub. Nt.14.5% due
12/29/97*(a)(b) 12/29/89 $ 4,378,513 $ 4,387,394 $ 219,714
$ 222,161 Tulip Holding Corp., Sub. Nt.16.5% due
06/30/94*(a)(b)(c) 12/31/91 222,161 222,161 0
$ 716,680 Tulip Holding Corp., Sub. Nt.16.5% due
06/30/94*(a)(b)(c) 12/31/92 716,680 716,680 0
$ 323,462 Tulip Holding Corp., Sub. Nt.16.5% due
06/30/94*(a)(b)(c) 12/31/93 323,462 323,462 0
1,464.763 Shares Tulip Holding Corp., Series A Exchangeable
Pref.Stock 15%*(b) 12/29/89 1,464,763 1,464,763 0
78,872 Warrants Tulip Holding Corp., Common Stock Purchase Warrants** 12/29/89 15,774 15,774 0
7,121,353 7,130,234 219,714 0.26
UNITED STATES LEATHER HOLDINGS, INC. - Note 12
$14,616,000 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 01/31/04* 08/06/93 14,515,886 14,526,875 14,526,875
$ 36,251 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 11/30/93 36,251 36,251 0
$ 439,565 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 02/28/94 439,565 439,565 0
$ 414,946 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 11/30/94 414,946 414,946 0
$ 571,130 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 02/28/95 571,130 571,130 0
$ 250,334 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 05/31/95 250,334 250,334 0
$ 402,926 U.S. Leather Holdings, Inc., Sr. Sub. Deb. 15%
due 08/05/98*(a) 08/31/95 402,926 402,926 0
2,761.11 Shares U.S. Leather Holdings, Inc., Sr. Sub. Pref. Stock
8% redeemable 03/31/01*(a) 08/06/93 2,024,000 2,024,000 0
150,231 Shares U.S. Leather Holdings, Inc., Jr. Sub. Pref.
Stock*(a) 08/06/93 0 0 0
150,231 Warrants U.S. Leather Holdings, Inc., Non-Voting Common
Stock Purchase Warrants** 08/06/93 186,918 186,918 0
18,841,956 18,852,945 14,526,875 16.97
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
USAT HOLDINGS INC.
297 Shares USAT Holdings, Inc., Common Stock** 01/05/90 &
12/19/91 $ 3,560,182 $ 3,560,182 $ 3,560,182
3,560,182 3,560,182 3,560,182 4.16
WB BOTTLING CORPORATION - Note 12
1.615 Shares WB Bottling Corp., Preferred Stock** 09/12/90 161,500 161,500 16,150
21,463 Shares WB Bottling Corp., Common Stock** 09/12/90 &
08/11/92 87,296 87,296 8,729
248,796 248,796 24,879 0.03
WSR ACQUISITION CORPORATION
$ 935,000 Whitlock Acq. Corp., Sr. Sub. Nt. 15% due 05/31/00* 06/13/90 935,000 935,000 935,000
$ 1,190,000 R&S Acq. Corp., Inc., Sr. Sub. Nt. 15% due 05/31/00* 06/13/90 1,190,000 1,190,000 1,190,000
2,125,000 2,125,000 2,125,000 2.48
TOTAL INVESTMENT IN MANAGED COMPANIES $90,915,958 $91,268,556 $69,382,195 81.06
See the Accompanying Notes to Financial Statements.
</TABLE>
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
NON-MANAGED COMPANIES
AMERICAN SAFETY RAZOR COMPANY - Notes 10,12
106,670 Shares ASR Acquisition Corp., Common Stock(d) 04/14/89 $ 16,778 $ 16,778 $1,013,365
1,571 Shares ASR Acquisition Corp., Common Stock(d) 05/22/89 246 246 14,925
17,024 17,024 1,028,290 1.20
APOLLO RADIO HOLDING CO., INC.
$ 850,000 Apollo Radio Holding Co., Inc. Sr. Sub. Nt.
15% due 01/01/97* 06/01/90 850,000 850,000 850,000
29.75 Shares Apollo Radio Holding Co., Inc., Common Stock** 06/01/90 61,788 61,788 0
25.5 Shares Apollo Radio Holding Co., Inc., Common Stock** 04/03/90 52,962 52,962 0
9.2083 Warrants Apollo Radio Holding Co., Inc., Common Stock
Purchase Warrants** 04/03/90 0 0 0
964,750 964,750 850,000 0.99
MTI HOLDINGS, INC. - Notes 10,12
$ 471,360 MTI Holdings, Inc., Sr. Sec. Nt. 5% due 08/15/99* 07/01/94 471,360 471,360 235,680
22,376 Shares MTI Holdings, Inc., Class B Common Stock** 07/01/94 510,000 510,000 0
981,360 981,360 235,680 0.28
See the Accompanying Notes to Financial Statements.
</TABLE>
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONTINUED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
WESTERN PIONEER, INC. - Notes 10,12
$ 4,730,800 Western Pioneer, Inc., Sr. Sub. Nts. 10% due
12/01/02*(b) 11/30/94 $ 1,126,290 $ 1,126,290 $ 1,126,290
81,081 Warrants Western Pioneer, Inc., Common Stock Purchase
Warrants** 11/30/94 0 0 0
1,126,290 1,126,290 1,126,290 1.32
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $ 3,089,424 $ 3,089,424 $ 3,240,260 3.79
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $94,005,382 $94,357,980 $72,622,455 84.85
See the Accompanying Notes to Financial Statements.
</TABLE>
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
(CONCLUDED)
Principal % Of
Amount/ Investment Investment Amortized Value Total
Shares Investment Date Cost Cost (Note 2) Investments
<S> <C> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$2,450,000 South West Bell, 5.58% due 10/11/95 07/12/95 $ 2,415,443 $ 2,446,203 $ 2,446,203
$2,100,000 General Electric Capital, 5.75% due 10/04/95 08/15/95 2,083,229 2,098,994 2,098,994
$1,900,000 October Corp., 5.775% due 10/17/95 09/08/95 1,888,113 1,895,123 1,895,123
$4,100,000 Allomon Funding Corp., 5.75% due 10/03/95 09/19/95 4,090,832 4,098,690 4,098,690
$2,430,000 ESC Securitization, 5.73% due 10/05/95 09/22/95 2,424,972 2,428,453 2,428,453
TOTAL INVESTMENT IN COMMERCIAL PAPER 12,902,589 12,967,463 12,967,463 15.15
TOTAL TEMPORARY INVESTMENTS $ 12,902,589 $ 12,967,463 $ 12,967,463 15.15
TOTAL INVESTMENT PORTFOLIO $106,907,971 $107,325,443 $ 85,589,918 100.00%
* Restricted Security
** Restricted Non-income Producing Security
*** Affiliated Companies
(a) Includes receipt of payment-in-kind securities.
(b) Non-accrual investment status.
(c) Includes capitalized deferred income.
(d) Publicly traded class of securities.
(e) Underlying security publicly traded.
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<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
PAR VALUE OR
DATE OF NUMBER OF AMORTIZED NET REALIZED
SECURITY TRANSACTION SHARES COST PROCEEDS GAIN (LOSS)
<S> <C> <C> <C> <C> <C>
Polaris Pool Systems
Common Stock 03/22/95 - $ - $40,754(A) $40,754
Total Net Realized Gains for the
Three Months Ended March 31, 1995 - 40,754 40,754
Total Net Realized Gains for the
Three Months Ended June 30, 1995 - - -
Haddon
Common Stock 08/09/95 - - 27,879(A) 27,879
Polaris Pool Systems
Common Stock 08/09/95 - - 8,001(A) 8,001
ASR Acquisition Corp.
Series B Subordinated 13.5% Notes 08/03/95 1,499,929 1,499,929 1,529,928 29,999
J.P. Foodservice, Inc.
Common Stock 09/15/95 249,957 2,162,364 4,109,845 1,947,481
Multi-Turf
Common Stock 09/30/95 78.54 20,251 268,723 248,472
Total Net Realized Gains for the
Three Months Ended September 30, 1995 3,682,544 5,944,376 2,261,832
Total Net Realized Gains for the
Nine Months Ended September 30, 1995 $3,682,544 $5,985,130 $2,302,586
(A) Proceeds represent a distribution to the Fund from the escrow account.
See the Accompanying Notes to Financial Statements.
</TABLE>
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EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
1. Organization and Purpose
Equitable Capital Partners, L.P. (the "Fund") was formed along with
Equitable Capital Partners (Retirement Fund), L.P. (the "Retirement Fund," and
collectively with the Fund referred to as the "Funds") and the Certificates of
Limited Partnership were filed under the Delaware Revised Uniform Limited
Partnership Act on February 2, 1988. The Funds' operations commenced on October
13, 1988.
On July 22, 1993, Equitable Capital Management Corporation ("Equitable
Capital"), formerly the Managing General Partner and investment adviser of the
Funds, transferred substantially all of the assets comprising Equitable
Capital's business to Alliance Capital Management L.P. ("Alliance Capital") and
its wholly-owned subsidiary, Alliance Corporate Finance Group Incorporated
("Alliance Corporate"). In connection with such transaction, the limited
partners (the "Limited Partners"), of the Funds voted to approve a new
investment advisory agreement between the Funds and Alliance Corporate and also
voted to admit Alliance Corporate as Managing General Partner of the Funds to
succeed Equitable Capital. Accordingly, on July 22, 1993, the closing date of
the transaction described above, (i) Alliance Corporate was admitted as the
successor Managing General Partner of the Funds (ii) Equitable Capital withdrew
from the Funds as Managing General Partner and assigned all of its interest as
General Partner to Alliance Corporate and (iii) Alliance Corporate succeeded
Equitable Capital as the investment adviser to the Funds pursuant to a new
investment advisory agreement. Alliance Corporate (the "Investment Adviser") is
a registered investment adviser under the Investment Advisers Act of 1940.
Prior to July 22, 1993, Equitable Capital was responsible, subject to the
supervision of the independent general partners of the Funds (the "Independent
General Partners"), for the management of the 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 Retirement Fund will terminate
on October 13, 1998, subject to the right of the Independent General Partners to
extend the term of the Retirement Fund for up to two additional one year
periods, after which the Retirement Fund will liquidate any remaining
investments within five years.
<PAGE>
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 Retirement Fund.
In connection with such determination, the Managing General Partner has
established a valuation committee comprised of senior executives to assess the
Retirement Fund's portfolio and make recommendations regarding the value of the
Retirement Fund's portfolio securities. This valuation committee uses available
market information and appropriate valuation methodologies. In addition, the
Managing General Partner has retained Arthur D. Little, Inc., a nationally
recognized independent valuation consultant, to review such valuations.
For privately issued securities in which the Retirement Fund typically
invests, the fair value of an investment is its initial cost, adjusted for
amortization of discount or premium and as subsequently adjusted to reflect the
occurrence of significant developments. "Significant developments" are business,
economic or market events that may affect a company in which an investment has
been made or the securities comprising such investment. For example, significant
developments that could result in a writedown in value include, among other
things, events of default with respect to payment obligations or other
developments indicating that a portfolio company's performance may fall short of
acceptable levels. A writeup in value of an investment could take place when a
significant favorable development occurs, such as a transaction representing the
partial sale of an investment that would result in a capital gain, or company
performance exceeding expected levels on a sustained basis. Although the General
Partners use their best judgment in determining the fair values of these
investments, there are inherent limitations in any valuation technique involving
securities of the type in which the Retirement Fund invests. Therefore, the fair
values presented herein are not necessarily indicative of the amount which the
Retirement 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.
<PAGE>
Payment-In-Kind Securities
All payment-in-kind securities received in lieu of cash interest payments
from the Retirement Fund's portfolio companies are recorded at face value,
unless the Managing General Partner determines that there is no reasonable
expectation of collecting the full principal amounts of such securities.
Income Taxes
No provision for income taxes has been made since all income and losses are
allocated to the Retirement Fund's partners ("Partners") for inclusion in their
respective tax returns.
Investment Transactions
Enhanced Yield Investments - The Retirement Fund records transactions on the
date on which it obtains an enforceable right to demand the securities or
payment thereof.
Temporary Investments - The Retirement Fund records transactions on the
trade date.
Realized gains and losses on investments are determined on the basis of
specific identification for accounting and tax purposes.
Sales, Marketing and Offering Expenses and Sales Commissions
Sales commissions and selling discounts have been allocated to the specific
Partners' accounts to which they are applicable. Sales, marketing and offering
expenses are allocated between the Funds in proportion to the number of units
issued by each Fund and to the Partners in proportion to their capital
contributions.
3. Note Receivable
On July 22, 1993, pursuant to the terms of the Retirement Fund's Amended and
Restated Agreement of Limited Partnership, Alliance Corporate, as the successor
Managing General Partner of the Retirement Fund, has contributed a non-interest
bearing promissory note (the "Note") to the Retirement Fund in an aggregate
amount equal to 1.01% of the aggregate Net Capital Contributions of all Limited
Partners (less distributions representing returns of capital). Net Capital
Contributions are comprised of gross offering proceeds, after giving effect to
volume discounts (and after netting of sales commissions, organization, offering
and sales and marketing expenses), less returns of capital distributed to
Limited Partners. The principal amount of the Note is reduced proportionally as
such Limited Partners receive distributions representing additional returns of
capital. Such distributions received for the nine months ended September 30,
1995, resulted in a $142,253 reduction of the principal amount of the Note. The
promissory note of Equitable Capital was canceled upon the contribution of
Alliance Corporate's Note.
<PAGE>
4. Capital Contributions
On October 13, 1988, the Retirement Fund closed the initial public offering
of its units of Limited Partner interests ("Units"). Equitable Capital, the
Retirement Fund's Managing General Partner at that time, accepted subscriptions
for 221,072 Units and admitted 26,304 Limited Partners.
The Limited Partners' total capital contributions were $220,848,730, after
giving effect to volume discounts allowed of $223,270. Equitable Capital's
aggregate capital contribution was in the form of a promissory note in the
principal amount of $2,051,783. On July 22, 1993, Equitable Capital's note was
canceled and Alliance Corporate, as successor Managing General Partner, made a
capital contribution in the form of a promissory note, on such date, as
described in Note 3. Sales, marketing and offering expenses and selling
commissions have been charged against proceeds resulting in net capital
contributed by Limited Partners of $203,146,793.
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 Retirement Fund expended a total of $416,052 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 Retirement Fund also paid $1,627,385 for the reimbursement of offering
expenses. These expenses, along with the offering expenses of Equitable Capital
Partners, L.P. 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 as of September 30, 1995.
For their services as selling agent, the Retirement Fund paid sales
commissions to Merrill Lynch, Pierce, Fenner & Smith Incorporated in the amount
of $15,251,770, of which Equico Securities Corporation, an affiliate of
Equitable Capital, a related party, received $168,150 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 Retirement 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 Retirement 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 Retirement Fund, Alliance
Corporate has not received any Deductible Fees. Alliance Corporate is a related
party of the Retirement Fund.
The Investment Advisory Fee is calculated and paid quarterly, in advance.
The Investment Advisory Fees paid by the Retirement Fund for the nine months
ended September 30, 1995 and 1994 were $795,572, and $975,017, respectively. The
decrease from 1994 to 1995 Investment Advisory Fees is due primarily to the
return of capital to Limited Partners, which reduced the Retirement Fund's
Available Capital, on which the Investment Advisory Fee is based.
<PAGE>
7. Fund Administration Fee and Expenses
As compensation for its services during the fourth through seventh year of
operation of the Funds, ML Fund Administrators, Inc. ("MLFAI"), as the
Retirement Fund administrator, is entitled to receive from the Funds an annual
amount equal to the greater of the (i) Minimum Fee and (ii) the Funds' prorated
proportion (based on the number of Units issued by the Funds) of 0.45% of the
excess of the aggregate net offering proceeds of the Units issued by the Funds
over 50% of the aggregate amount of capital reductions of the Funds (subject to
an annual maximum of $3.2 million). The Minimum Fee is 1.0% of the gross
offering price of Units in the Funds, but not greater than $500,000. The
Retirement Fund Administration Fee is calculated and paid quarterly, in advance.
The Retirement Fund Administration Fees paid by the Retirement Fund for the nine
months ended September 30, 1995 and 1994 were $530,576 and $611,808,
respectively.
In addition to the Retirement Fund Administration Fee, MLFAI is entitled to
receive reimbursement for a portion of direct out-of-pocket expenses incurred in
connection with the administration of the Retirement Fund, commencing on October
13, 1992. For the nine months ended September 30, 1995 and 1994, the Retirement
Fund incurred Administrative expenses of $106,693 and $294,004, 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 Retirement Fund in
addition to $500 for each meeting attended and reimbursement for any
out-of-pocket expenses. In accordance with the Retirement Fund's Partnership
Agreement, the amount of the annual fee is reviewed annually by the Independent
General Partners.
For the nine months ended September 30, 1995 and 1994, the Retirement Fund
incurred $124,664 and $126,979, respectively, of Independent General Partners'
Fees and Expenses.
9. Related Party Transactions
For the nine months ended September 30, 1995, the Retirement Fund paid
expenses of $18,445 as reimbursement for amounts paid for legal services
provided by Equitable Life in connection with the Retirement Fund's Enhanced
Yield Investments. For the nine months ended September 30, 1994, the Retirement
Fund paid expenses of $53,611 as reimbursement for legal services provided by
Equitable Life in connection with the Retirement Fund's Enhanced Yield
Investments. The Retirement Fund is paying Alliance Corporate an Investment
Advisory Fee for its services as described in Note 6. Additionally, the
Retirement Fund paid sales commissions to Equico Securities, a related party, as
described in Note 5.
<PAGE>
10. Investment Transactions
The Retirement Fund is invested primarily in Enhanced Yield Investments,
also known in the securities industry as "high yield securities". The securities
in which the Retirement 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 Retirement Fund cannot eliminate its risks associated with
participation in Enhanced Yield Investments, it has established risk management
policies. The Retirement Fund subjects 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 Retirement Fund's investment
guidelines or that have otherwise been approved by the Independent General
Partners. The Retirement Fund investments are measured against specified
Retirement Fund investment and performance guidelines. To limit the exposure of
the Retirement Fund's capital in any single issuer, the Retirement Fund limits
the amount of its investment in a particular issuer. The Retirement Fund also
continually monitors portfolio companies in order to minimize the risks
associated with participation in Enhanced Yield Investments.
On August 3, 1995, the Retirement Fund sold its American Safety Razor
Company 13.5% Series B Subordinated Notes for $1,529,928 and recognized a gain
of $29,999 on the sale.
On August 9, 1995, the Retirement Fund received an additional $8,001 and
$27,879 from Polaris Pool Systems and Haddon Craftsman, respectively. The monies
represent proceeds from the sale of the investments from prior years that have
been held in escrow for future adjustments and expenses not paid on the sale
dates. The amounts received are recorded and will be distributed as gains.
On September 15, 1995 the Retirement Fund sold its common stock investment
in JP Foodservice, Inc. for $4,109,845, which resulted in a gain to the
Retirement Fund of $1,947,481.
During the three months ended September 30, 1995, the Retirement Fund
received total proceeds of $268,723 from Multi-Turf as paydown of the equity
held, which resulted in a gain of $248,472 to the Retirement Fund.
During the three months ended September 30, 1995, the Retirement Fund
received a total of $118,250 and $4,824 from Western Pioneer and MTI Holdings,
respectively, as principal paydowns of the senior notes held by the Retirement
Fund. No gain, loss or income has been recorded on these transactions and the
amounts will be distributed as return of capital to the Limited Partners.
<PAGE>
As of September 30, 1995, the Retirement Fund had investments in ten Managed
Companies (a Managed Company is one to which the Retirement Fund, the Managing
General Partner or other persons in the Retirement Fund's investor group make
significant managerial assistance available) and four Non-Managed Companies (a
Non-Managed Company is one to which such assistance is not
provided) totaling $94,005,382 (including $2,537,590 capitalized cost of
payment- in-kind securities), consisting of $67,918,306 in senior notes and
subordinated notes, $3,650,263 in preferred stock and purchase warrants and
$22,436,813 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 nine months ended September 30, 1995, earnings were allocated 99% to
the Limited Partners, as a class, and 1% to the Managing General Partner.
12. Unrealized Appreciation/Depreciation and Non-Accrual of Investments
For the nine months ended September 30, 1995, the Retirement Fund recorded
net unrealized depreciation on Enhanced Yield Investments of $13,351,536 as
compared to $13,566,947 for the nine months ended September 30, 1994. Such
depreciation was the result of adjustments in value made with respect to the
following investments during the nine months ended September 30, 1995:
On March 31, 1995, Pergament Home Centers, Inc. Class B Common Stock was
written down from 75% to 25% of cost, resulting in unrealized depreciation of
$3,366,000.
The RI Holdings, Inc. common stock purchased on May 9, 1995 was valued at
zero, resulting in unrealized depreciation of $920 to the Retirement Fund.
On June 30, 1995, MTI Holdings, Inc. Class B Common Stock was written down
from 100% to zero and the 5% Senior Secured Note was written down from 100% to
75% of par, resulting in total unrealized depreciation of $629,046 to
the Retirement Fund. Due to principal paydowns during the three months ended
September 30, 1995, $1,206 of unrealized depreciation was reversed.
<PAGE>
Due to an increase in the quoted market price of JP Foodservice common stock
held by the Retirement Fund at June 30, 1995, the Retirement Fund recorded
unrealized appreciation of $1,068,566. The equity was valued at 90% of the
closing market price at June 30, 1995, due to contractual restrictions on
resale.
On June 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was written
down from 50% to 25% of par, resulting in unrealized depreciation of $1,098,572
to the Retirement Fund.
On June 30, 1995, due to a default of an interest payment on senior notes
held by a third party, the WB Bottling Corporation preferred and common stock
held by the Retirement Fund were written down from 100% to 10% of cost,
resulting in total unrealized depreciation of $223,917 to the Retirement Fund.
Due to the sale of the common stock investment in JP Foodservice, Inc. on
September 15, 1995, the Retirement Fund reversed the unrealized appreciation
recorded of $987,090.
Due to the decline in the quoted market price of American Safety Razor
common stock, the Retirement Fund recorded a total unrealized depreciation of
$460,024 at September 30, 1995.
On September 30, 1995, Ampex Recording Media Corp. 14% and 18.4% Senior
Subordinated Series A Notes were written down from 50% to 25% of par value,
which resulted in unrealized depreciation of $2,722,289 to the Retirement Fund.
On September 30, 1995, US Leather Holdings, Inc. 8% Senior Subordinated
Preferred Stock and the 15% Senior Subordinated PIK Notes were written down to
zero, which resulted in unrealized depreciation of $3,936,752 to the Retirement
Fund.
On September 30, 1995, MTI Holdings, Inc. 5% Senior Secured Note was written
down from 75% to 50% of par value, which resulted in unrealized depreciation of
$117,840 to the Retirement Fund.
On September 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was
written down from 25% to 5% of par, resulting in unrealized depreciation of
$878,858 to the Retirement Fund.
The following investments have been on non-accrual status as of the respective
dates:
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Tulip Holding, Corp. 14.5% and 16.5%
Subordinated Notes January 1, 1994
Ampex Recording Media Corp. 14%
and 18.4% Senior Subordinated Notes January 31, 1993
<PAGE>
Alliance Corporate continues to monitor the Retirement 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.
13. Income Taxes
No provision for income taxes has been made since all income and losses are
allocated to the Retirement Fund's partners for inclusion in their respective
tax returns.
Pursuant to Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes, the Retirement Fund is required to disclose any difference
between the tax bases of the Retirement Fund's assets and liabilities versus the
amounts reported in the Financial Statements. Generally, the tax bases of the
Retirement Fund's assets approximate the amortized cost amounts reported in the
Financial Statements. This amount is computed annually and as of December 31
1994, the tax basis of the Retirement Fund's assets was greater than the amounts
reported in the Financial Statements by $29,940,202. This difference is
primarily attributable to unrealized depreciation on investments which has not
been recognized for tax purposes. Additionally, certain realized gains and
losses due to restructurings were treated differently for tax purposes than for
financial reporting purposes.
14. Subsequent Events
On October 26,1995, Apollo Radio paid in full the 15% Subordinated Note held
by the Retirement Fund plus all accrued interest. Total proceeds received were
$1,809,915, which will be distributed with the fourth quarter distribution on
February 14, 1996.
On November 8, 1995, the Independent General Partners approved an aggregate
cash distribution of $6,735,548 for the three months ended September 30, 1995,
which was paid on November 14, 1995 to the Limited Partners. The amount
distributed to Limited Partners on record as of September 30, 1995 was
$6,716,167 or $30.38 per Unit (of which $2,374,313 is capital returned from
investments in the second quarter of 1995). On a per Unit basis, this
distribution to Limited Partners includes $10.96 of realized gains, $8.68 of
income from operations and $10.74 of return of capital. The Managing General
Partner's one percent allocation of $67,840 was reduced by its one percent
allocation of realized gains and capital returned from investments of $48,459
(which is being held as a Deferred Distribution Amount pursuant to the
Partnership Agreement), resulting in a net distribution to the Managing General
Partners of $19,381.
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
Net Proceeds of Offering
On October 13, 1988, the Retirement Fund completed the initial public
offering of Units, admitting 26,304 Limited Partners who purchased 221,072
Units. The net proceeds available for investment by the Retirement Fund after
such offering less return of capital to Limited Partners were $181,514,467 after
volume discounts, sales commissions and organizational, offering, sales and
marketing expenses.
Investments
During the nine months ended September 30, 1995, the Retirement Fund made a
follow-on investment in RI Holdings, Inc. Under the terms of RI Holdings senior
subordinated notes, the Retirement Fund receives common stock at a cost of one
cent per share for each interest payment date on which RI Holdings delivers
payment-in-kind securities in lieu of a cash payment. On May 9, 1995, the
Retirement Fund purchased 92,045 shares of RI Holdings common stock.
As of September 30, 1995, the Retirement Fund had a total of 14 Enhanced
Yield Investments at a net cost of $94,005,382 (inclusive of the receipt of
securities having a capitalized cost of $2,537,590 received as payment-in-kind
interest on certain Enhanced Yield Investments).
Proceeds from Investments
During the nine months ended September 30, 1995, the Retirement Fund
received proceeds from the following investments:
On March 22, 1995, the Retirement Fund received $40,754 from the sale of
Polaris Pool Systems at September 30, 1994. The payment represents part of the
gain on sale that was withheld in escrow for future adjustments and expenses not
paid on the closing date.
During the nine months ended September 30, 1995, the Retirement Fund
received a total of $354,750 and $14,733 from Western Pioneer and MTI Holdings,
respectively, as principal paydowns of the senior notes held by the Retirement
Fund. No gain or loss has been recorded on the transactions and the amounts will
be distributed as return of capital to the Limited Partners.
On August 3, 1995, the Retirement Fund sold its American Safety Razor
Company 13.5% Series B Subordinated Notes for $1,529,928 and recognized a gain
of $29,999 on the sale.
On August 9, 1995, the Retirement Fund received an additional $8,001 and
$27,879 from Polaris Pool Systems and Haddon Craftsman, respectively. The monies
represent proceeds from the sale of the investments from prior years that have
been held in escrow for future adjustments and expenses not paid on the sale
dates. The amounts received are recorded and will be distributed as gains.
On September 15, 1995 the Retirement Fund sold its common stock investment
in JP Foodservice, Inc. for $4,109,845, which resulted in a gain to the
Retirement Fund of $1,947,481.
<PAGE>
During the nine months ended September 30, 1995, the Retirement Fund
received total proceeds of $268,723 from Multi-Turf which resulted in a gain of
$248,472 to the Retirement Fund.
The Retirement 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 Retirement 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.
The Retirement Fund, which is designed for tax-exempt investors, is not
permitted to borrow to finance investments. The Partnership Agreement imposes
certain limits on the use of proceeds from the disposition of investments for
reinvestments.
All cash dividends, interest and other income received by the Retirement
Fund in excess of expenses of operation and reserves for expenses and certain
investments and liabilities are distributed to the Limited Partners of the
Retirement 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 Retirement 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 Retirement Fund is invested primarily in Enhanced Yield Investments,
also known in the securities industry as "high yield securities". The securities
in which the Retirement 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 Retirement Fund cannot eliminate its risks associated with
participation in Enhanced Yield Investments, it has established risk management
policies. The Retirement 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 Retirement Fund's investment
guidelines or that have otherwise been approved by the Independent General
Partners.
The Retirement Fund investments are measured against specified Retirement
Fund investment and performance guidelines. To limit the exposure of the
Retirement Fund's capital in any single issuer, the Retirement Fund limits the
amount of its investment in a particular issuer. The Retirement Fund also
continually monitors portfolio companies in order to minimize the risks
associated with participation in Enhanced Yield Investments.
<PAGE>
Results of Operations
For the three months ended September 30, 1995, net investment income
increased by $227,327 and for the nine months ended September 30, 1995, it
decreased by $114,204, as compared to the same periods in 1994. Net investment
income is comprised of investment income (primarily interest and discount
income) offset by expenses. The decrease in the 1995 net investment income
versus the comparative period in 1994, reflects the decrease in interest and
discount income (excluding temporary investments) partially offset by the
decrease in Investment Advisory Fees, Fund Administration Fees and Expenses and
Valuation Expenses.
For the three and nine months ended September 30, 1995, the Retirement Fund
had investment income of $1,862,306 and $5,696,775, respectively, as compared to
$1,763,731 and $6,395,003, respectively, for the same periods in 1994. The
decrease in 1995 investment income of 11% was primarily due to a decrease in the
amount of accrual status debt securities held by the Retirement Fund due to the
sales and repayments of four Enhanced Yield Investments, subsequent to the nine
months ending September 30, 1994. This decrease, however, was offset by the
increase in interest rates for commercial paper from September 30, 1994 to
September 30, 1995.
The Retirement Fund incurred expenses of $479,129 and $1,589,167 for the
three and nine months ended September 30, 1995, respectively, as compared to
$607,881 and $2,173,191, respectively, for the same periods in 1994. The
decrease in the 1995 expenses of $584,024 was primarily due to a decrease in
Investment Advisory Fees and Fund Administration Fees and Expenses paid,
Valuation Expenses and the Professional Fees incurred by the Retirement Fund.
The Retirement Fund's major expenses consist of the Investment Advisory Fee, the
Fund Administration Fees and Independent General Partners' Fees and Expenses.
The Retirement Fund experienced a decrease in net assets resulting from
operations for the nine months ended September 30, 1995 in the amount of
$6,941,342, as compared to a decrease of $3,019,251 for the comparative period
in 1994. The decrease in net assets for the nine months ended September 30, 1995
is comprised of net investment income of $4,107,608, net realized gains of
$2,302,586 offset by a net change in unrealized depreciation of $13,351,536. For
the comparable period in 1994, the decrease in net assets was comprised of net
investment income of $4,221,812, net realized gains of $6,325,884 offset by a
net change in unrealized depreciation of $13,566,947 (see Statements of
Operations in the Financial Statements). The realized gains recorded for the
nine months ended September 30, 1994 included the sales of American Safety
Razor, Career Horizons and Polaris Pool Systems. The unrealized depreciation
recorded for the nine months ended September 30, 1994 included the writedown of
investments in Tulip Holding Corp., Pergament, Ampex Recording Media and Western
Pioneer.
For the three months ended September 30, 1995 and 1994, the Retirement Fund
incurred Investment Advisory Fees of $247,041 and $308,691, respectively. For
the nine months ended September 30, 1995 and 1994, the Retirement Fund incurred
Investment Advisory Fees of $795,572 and $975,017, respectively (as described in
Note 6 to the Financial Statements). The decrease in the Investment Advisory
Fees is due to a decrease in the Retirement Fund's Available Capital, on which
the Investment Advisory Fee is based, resulting primarily from redemptions of
debt obligations held by the Retirement Fund (which is a component of Available
Capital).
<PAGE>
The Retirement Fund Administration Fees and Expenses (as described in Note 7
to the Financial Statements) for the three months ended September 30, 1995 and
1994 were $184,540 and $221,614, respectively, and for the nine months ended
September 30, 1995 and 1994 were $637,269 and $905,812, respectively. The
decrease from 1994 to 1995 of $268,543 is primarily due to a decrease in
Administrative Expenses reimbursed to the Retirement Fund Administrator under
the Retirement Fund's Administrative Services Agreement. During the nine months
ended September 30, 1995 and 1994, the Retirement Fund incurred a total of
$89,795 and $294,004, respectively, of Administrative Expenses which consisted
primarily of printing, audit and tax return preparation and custodian fees paid
for by MLFAI on behalf of the Retirement Fund.
Independent General Partners' Fees and Expenses incurred for the three and
nine months ended September 30, 1995 and 1994, were $37,100 and $124,664,
respectively, and $34,151 and $126,979, respectively. The decrease of $2,315
from 1994 to 1995 was mainly due to a decrease in legal fees incurred by the
Independent General Partners.
The Retirement Fund incurred Professional Fees of $7,748 and $25,281 for the
three and nine months ended September 30, 1995, respectively. Professional Fees
incurred for the same periods in 1994 were $38,723 and $146,956, respectively.
The decrease from 1994 to 1995 reflects the decrease in amounts incurred for
legal services. (See Note 9 to the Financial Statements).
Unrealized Appreciation/Depreciation and Non-Accrual of Investments
The General Partners of the Retirement Fund determine, on a quarterly basis,
the fair value of the Retirement 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 Retirement 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 Retirement 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 Retirement Fund invests.
Therefore, the fair values presented herein are not necessarily indicative of
the amount which the Retirement Fund could realize in a current transaction.
<PAGE>
For the nine months ended September 30, 1995, the Retirement Fund recorded
net unrealized depreciation on Enhanced Yield Investments of $13,351,536 as
compared to $13,566,947 for the nine months ended September 30, 1994. Such
depreciation was the result of adjustments in value made with respect to the
following investments during the nine months ended September 30,1995:
On March 31, 1995, Pergament Home Centers, Inc. Class B Common Stock was
written down from 75% to 25% of cost, resulting in unrealized depreciation of
$3,366,000.
The RI Holdings, Inc. common stock purchased on May 9, 1995 was valued at
zero, resulting in unrealized depreciation of $920 to the Retirement Fund.
On June 30, 1995, MTI Holdings, Inc. Class B Common Stock was written down
from 100% to zero and the 5% Senior Secured Note was written down from 100% to
75% of par, resulting in total unrealized depreciation of $629,046 to
the Retirement Fund. Due to principal paydowns during the three months ended
September 30, 1995, $1,206 of unrealized depreciation was reversed.
Due to an increase in the quoted market price of JP Foodservice common stock
held by the Retirement Fund at June 30, 1995, the Retirement Fund recorded
unrealized appreciation of $1,068,566. The equity was valued at 90% of the
closing market price at June 30, 1995, due to contractual restrictions on
resale.
On June 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was written
down from 50% to 25% of par, resulting in unrealized depreciation of $1,098,572
to the Retirement Fund.
On June 30, 1995, due to a default of an interest payment on senior notes
held by a third party, the WB Bottling Corporation preferred and common stock
held by the Retirement Fund were written down from 100% to 10% of cost,
resulting in total unrealized depreciation of $223,917 to the Retirement Fund.
Due to the sale of the common stock investment in JP Foodservice, Inc. on
September 15, 1995, the Retirement Fund reversed the unrealized appreciation
recorded of $987,090.
Due to the decline in the quoted market price of American Safety Razor
common stock, the Retirement Fund recorded a total unrealized depreciation of
$460,024 at September 30, 1995.
On September 30, 1995, Ampex Recording Media Corp. 14% and 18.4% Senior
Subordinated Series A Notes were written down from 50% to 25% of par value,
which resulted in unrealized depreciation of $2,722,289 to the Retirement Fund.
On September 30, 1995, US Leather Holdings, Inc. 8% Senior Subordinated
Preferred Stock and the 15% Senior Subordinated PIK Notes were written down to
zero, which resulted in unrealized depreciation of $3,936,752 to the Retirement
Fund.
On September 30,1995, MTI Holdings, Inc. 5% Senior Secured Note was written
down from 75% to 50% of par value which resulted in unrealized depreciation of
$117,840 to the Retirement Fund.
<PAGE>
On September 30, 1995, Tulip Holding Corp. 14.5% Subordinated Note was
written down from 25% to 5% of par, resulting in unrealized depreciation of
$878,858 to the Retirement Fund.
The following investments have been on non-accrual status as of the
respective dates:
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Tulip Holding, Corp. 14.5% and 16.5%
Subordinated Notes January 1, 1994
Ampex Recording Media Corp. 14%
and 18.4% Senior Subordinated Notes January 31, 1993
Alliance Corporate continues to monitor the Retirement Fund's portfolio
closely. As a matter of standard procedure, Alliance Corporate reviews each
portfolio company's financial statements at least quarterly, and often monthly.
Investment managers routinely review and discuss financial and operating results
with the companies' management and equity sponsors, and attend periodic board of
directors meetings, as appropriate. In some cases, Alliance Corporate officers,
acting on behalf of the Funds, serve as directors on the boards of portfolio
companies. When problems arise, communication with management and sponsors often
occurs on a daily basis.
Realized Gains and Losses on Investments
During the three and nine months ended September 30, 1995, the Retirement
Fund recorded net realized gains of $2,261,832 and $2,302,586, respectively, on
transactions involving three Enhanced Yield Investments. For the three and nine
months ended September 30, 1994, the Retirement Fund recorded net realized gains
on investments of $2,653,331 and $6,325,884, respectively, on transactions
involving four Enhanced Yield Investments (see Note 10 to the Financial
Statements and the Supplemental Schedule of Realized Gains and Losses).
<PAGE>
PART II - OTHER INFORMATION
Items 1 though 4 are herewith omitted as the response to all items is either
none or not applicable for the September 30, 1995, Form 10-Q.
Item 5. Other Information
Lexmark (to be renamed Lexmark International Group, Inc.) one of the
Retirement Fund's portfolio companies, has filed a registration statement with
the Securities and Exchange Commission with respect to an initial public
offering of shares of common stock ("the Offering") by certain of the existing
holders of such common stock. The Retirement Fund holds 1,403,011 shares of
Lexmark common stock (as adjusted for a 15 to 1 stock split effective at the
time of the Offering), approximately 25% of which are expected to be sold pro
rata by the Retirement Fund in the Offering. It is anticipated that the offering
will commence on or about November 15, 1995, subject to economic and market
conditions. There can be no assurance that such Offering will occur. Upon the
closing of such Offering (if any), the Retirement Fund will file a Report on
Form 8-K with the Securities and Exchange Commission.
On November 9, 1995, the SEC issued an exemptive order to permit Donaldson,
Lufkin & Jenrette Securities Corporation, a "related person" of the Retirement
Fund within the meaning of the Investment Company Act of 1940, to participate as
an underwriter in the initial public offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule for the quarter ending September 30,
1995.
3.1 Amended and Restated Certificate of Limited Partnership, dated
as of April 12, 1989*
4.1 Amended and Restated Agreement of Limited Partnership, dated as
of October 13, 1988**
10.1 Investment Advisory Agreement, dated July 22, 1993, between
Registrant and Alliance Corporate Finance Group Incorporated***
10.2 Administrative Services Agreement, dated October 13, 1988, among
the Registrant, Equitable Capital Management Corporation and
ML Fund Administrators, Inc.**
* Incorporated by reference to the Retirement 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 Retirement 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 Retirement Fund's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, filed with the
Securities and Exchange Commission on March 28, 1994.
(b) Reports on Form 8-K - None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 14th day of
November, 1995.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group,
Incorporated, as Managing General Partner
Dated: November 14, 1995 /s/ Frank Savage
Frank Savage
Title: Chairman of the Board
Dated: November 14, 1995 /s/ Laura Mah
Laura Mah
Title: Vice President and Chief
Accounting Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 14th day of November, 1995.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group,
Incorporated, as Managing General Partner
Dated: November 14, 1995
Frank Savage
Title: Chairman of the Board
Dated: November 14, 1995
Laura Mah
Title: Vice President and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the third quarter of
1995 Form 10-Q Balance Sheets and Statements of Operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 94,005,382
<INVESTMENTS-AT-VALUE> 72,622,455
<RECEIVABLES> 3,268,432
<ASSETS-OTHER> 3,477
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,885,727
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,401
<TOTAL-LIABILITIES> 53,401
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 221,072
<SHARES-COMMON-PRIOR> 221,072
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (21,735,524)
<NET-ASSETS> 88,832,326
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,677,183
<OTHER-INCOME> 19,592
<EXPENSES-NET> 1,589,167
<NET-INVESTMENT-INCOME> 4,107,608
<REALIZED-GAINS-CURRENT> 2,302,586
<APPREC-INCREASE-CURRENT> (13,351,536)
<NET-CHANGE-FROM-OPS> (6,941,342)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,577,912
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 14,084,497
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (26,746,004)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 795,572
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<GROSS-EXPENSE> 1,589,167
<AVERAGE-NET-ASSETS> 102,205,328
<PER-SHARE-NAV-BEGIN> 516.98
<PER-SHARE-NII> 18.58
<PER-SHARE-GAIN-APPREC> 10.42
<PER-SHARE-DIVIDEND> 0
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</TABLE>
