UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended: September 30, 1996
Commission File Number 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.
<PAGE>
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, 1996 and December 31, 1995 5
Statements of Operations - For the Three and Nine Months
Ended September 30, 1996 and 1995 6
Statements of Changes in Net Assets - For the Nine
Months Ended September 30, 1996 and 1995 7
Statements of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1995 8
Statement of Changes in Partners' Capital -
For the Nine Months Ended September 30, 1996 9
Schedule of Portfolio Investments - September 30, 1996 10
Supplemental Schedule of Realized Gains and Losses
For the Nine Months Ended September 30, 1996 15
Notes to Financial Statements 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 23
PART II - OTHER INFORMATION
Item 6. Exhibits 27
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C> <C>
September 30, 1996
ASSETS: Notes Unaudited December 31, 1995
Investments 2,10,12
Enhanced Yield Investments at Value-
Managed Companies
(amortized cost of $50,657,091 at
September 30, 1996 and $83,389,283
at December 31, 1995) $ 57,015,250 $ 67,489,913
Non-Managed Companies
(amortized cost of $13,708,583 at
September 30, 1996 and $2,121,174
at December 31, 1995) 15,573,733 2,720,868
Temporary Investments
(at amortized cost) 8,700,502 16,536,723
Cash 84,922 39,180
Interest Receivable 2,12 1,015,950 886,589
Note Receivable 3,4 1,347,503 1,245,982
Prepaid Expenses 2,511 6,923
TOTAL ASSETS $ 83,740,371 $ 88,926,178
============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Professional Fees Payable 9 $ 45,730 $ 40,833
Independent General Partners' Fees Payable 8 19,780 10,547
Fund Administrative Expenses Payable 7 15,852 28,445
Other Accrued Liabilities 6,100 4,241
Total Liabilities 87,462 84,066
Partners' Capital
Managing General Partner 3,4 1,069,497 1,058,667
Limited Partners (221,072 Units) 4 82,583,412 87,783,445
Total Partners' Capital 83,652,909 88,842,112
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 83,740,371 $ 88,926,178
=============== ================
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C> <C> <C>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
INVESTMENT INCOME- Notes 2,12:
Interest $ 1,171,274 $ 1,855,528 $ 3,500,251 $ 5,677,183
Discount 4,950 6,778 16,511 19,592
Dividend - - 1,852,195 -
TOTAL INVESTMENT INCOME 1,176,224 1,862,306 5,368,957 5,696,775
EXPENSES:
Investment Advisory Fee- Note 6 211,996 247,041 660,839 795,572
Fund Administration Fees and Expenses- Note 7 175,810 184,540 593,088 637,269
Independent General Partners'
Fees and Expenses - Note 8 47,262 37,100 141,382 124,664
Professional Fees - Note 9 101,931 7,748 109,233 25,281
Insurance Fees - - 4,410 -
Valuation Expenses - 2,700 9,446 6,381
TOTAL EXPENSES 536,999 479,129 1,518,398 1,589,167
NET INVESTMENT INCOME 639,225 1,383,177 3,850,559 4,107,608
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS- Note 12 15,051,391 (8,885,165) 23,522,984 (13,351,536)
NET REALIZED (LOSSES) GAINS ON INVESTMENTS- Note 10 (6,605,542) 2,261,832 (17,501,651) 2,302,586
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 9,085,074 $ (5,240,156) $ 9,871,892 $ (6,941,342)
============= ============== ============= =============
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<S> <C> <C>
For the Nine Months Ended
September 30, 1996 September 30, 1995
FROM OPERATIONS:
Net Investment Income $ 3,850,559 $ 4,107,608
Net Change In Unrealized Appreciation
(Depreciation) on Investments 23,522,984 (13,351,536)
Net Realized (Losses) Gains on Investments (17,501,651) 2,302,586
Net Increase (Decrease) in Net Assets
Resulting from Operations 9,871,892 (6,941,342)
Cash Distributions to Partners (15,020,637) (19,662,409)
Reduction in Managing General Partners'
Contribution (40,458) (142,253)
Total Decrease (5,189,203) (26,746,004)
NET ASSETS:
Beginning of Period 88,842,112 115,578,330
End of Period $ 83,652,909 $ 88,832,326
================= =================
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<S> <C> <C>
For the Nine Months Ended
INCREASE (DECREASE) IN CASH September 30, 1996 September 30, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and Discount Income $ 2,905,311 $ 5,200,443
Fund Administration Fees & Expenses (605,681) (659,915)
Investment Advisory Fee (660,839) (795,572)
Independent General Partners' Fees and Expenses (131,146) (122,731)
Valuation Expenses (7,586) (9,717)
Sale (Purchase) of Temporary Investments, Net 8,250,397 11,132,486
Proceeds from Sales and Principal Payments of
Enhanced Yield Investments 5,419,496 4,891,556
Professional Fees (103,199) (32,055)
Insurance Fees (375) (3,477)
Net Cash Provided by Operating Activities 15,066,378 19,601,018
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (15,020,637) (19,662,409)
Net Cash Used in Financing Activities (15,020,637) (19,662,409)
Net Decrease in Cash 45,741 (61,391)
Cash at the Beginning of the Period 39,181 85,291
Cash at the End of the Period $ 84,922 $ 23,900
================= =================
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 $ 9,871,892 $ (6,941,342)
Adjustments to Reconcile Net Decrease in Net Assets
Resulting from Operations to Net Cash Provided by Operating
Activities:
Decrease in Investments 31,171,546 13,721,454
Increase in Accrued Interest (2,463,649) (496,332)
Increase (Decrease) in Other Accrued Liabilities 1,859 (3,336)
Decrease in Fund Administration Expenses Payable (12,593) (22,646)
Decrease (Increase) in Prepaid Expenses 4,412 (3,477)
Net Change in Unrealized (Appreciation)
Depreciation on Investments (23,522,984) 13,351,536
Increase in Independent General
Partners' Fees Payable 10,236 1,934
Increase (Decrease) in Professional Fees Payable 5,659 (6,773)
Total Adjustments 5,194,486 26,542,360
Net Cash Provided by Operating Activities $ 15,066,378 $ 19,601,018
================= =================
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
<S> <C> <C> <C> <C>
Managing Limited
Notes General Partner Partners Total
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Partners' Capital at January 1, 1996 $ 1,058,667 $ 87,783,445 $ 88,842,112
Cash Distributions to Partners (47,431) (14,973,206) (15,020,637)
Reduction in Managing General Partners' Contribution 3 (40,458) - (40,458)
Allocation of Net Investment Income 11 38,506 3,812,053 3,850,559
Allocation of Net Unrealized Appreciation
on Investments 12 235,230 23,287,754 23,522,984
Allocation of Net Realized Losses on Investments (175,017) (17,326,634) (17,501,651)
Partners' Capital at September 30, 1996 $ 1,069,497 $ 82,583,412 $ 83,652,909
=========== ============ ==============
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------ ---------------------------------------------- ---------- ------------ ------------ ------------- -----------
ENHANCED YIELD INVESTMENTS
MANAGED COMPANIES
CONSUMER PRODUCTS MANUFACTURING
LEXMARK INTERNATIONAL GROUP, INC. - NOTE 12
$ 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
1,001,430 Shares Lexmark International Group, Inc.,
Class B Common Stock (c) 03/27/91 6,676,200 6,676,200 20,404,136
------------ ------------ ------------
30,779,469 30,779,469 44,507,405 54.75
------------ ------------ ------------------------
MISCELLANEOUS MANUFACTURING
QUANTEGY ACQUISITION CORP. - NOTES 10, 12
(FORMERLY AMPEX RECORDING MEDIA)
123.50 Shares Quantegy Acquisition Corp., Common Stock 11/13/95 2,722,290 2,722,290 2,722,290
17,829 Shares Ampex Recording Media Corp.,
Class A Common Stock **(d) 12/31/90 &
06/28/91 143,285 143,285 112,323
------------ ----------- ------------
2,865,575 2,865,575 2,834,613 3.49
------------ ----------- -------------------------
RI HOLDINGS, INC. - NOTES 10, 12
$ 12,011,595 RI Holdings, Inc.,
Sr. Sub. Nts. 16% due 08/31/01*(a)(b) 04/25/94 5,823,918 5,823,918 240,232
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
223,212.92 Shares RI Holdings, Inc., Common Stock** 05/01/96 2,232 2,232 0
----------- ------------ ----------
7,330,251 7,330,251 240,232 0.30
----------- ------------ -----------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONTINUED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ----------------------------------------- ------------ ------------- ------------- ----------- -----------
LEATHER AND LEATHER PRODUCTS
LEATHER U.S., INC. - NOTE 12
(FORMERLY UNITED STATES LEATHER HOLDINGS, INC.)
621.90 Shares Leather U.S., Inc., Common Stock 04/09/96 $ 7,308,000 $ 7,308,000 $ 7,308,000
----------- ------------ -----------
7,308,000 7,308,000 7,308,000 8.99
----------- ------------ ----------------------
DISTRIBUTION SERVICES
WB BOTTLING CORPORATION
1,615 Shares WB Bottling Corp., Preferred Stock** 09/12/90 161,500 161,500 0
21,463 Shares WB Bottling Corp., Common Stock** 09/12/90 &
08/11/92 87,296 87,296 0
----------- ------------ -----------
248,796 248,796 0 0.00
----------- ------------ ----------------------
MISCELLANEOUS RETAIL
R&S/STRAUSS, INC.
(FORMERLY WSR ACQUISITION CORP.)
$ 935,000 R&S/Strauss, Inc.,
Sr. Sub. Nt. 15% due 05/31/00* 06/13/90 935,000 935,000 935,000
$ 1,190,000 R&S/Strauss, 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 2.61
----------- ----------- ------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $50,657,091 $50,657,091 $57,015,250 70.14%
--------------------------------------- ----------- ----------- -------------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONTINUED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- -------------------------------------------- ------------ ---------- ------------- ------------- -------------
NON-MANAGED COMPANIES
DISTRIBUTION SERVICES
WESTERN PIONEER, INC. - NOTES 10,12
$ 4,730,800 Western Pioneer, Inc.,
Sr. Sub. Nts. 10% due 11/30/07*(b) 11/30/94 $ 653,289 $ 653,289 $ 2,365,400
81,081 Warrants Western Pioneer, Inc.,
Common Stock Purchase Warrants ** 11/30/94 0 0 0
--------- ----------- -----------
653,289 653,289 2,365,400 2.91
--------- ----------- ----------------------
BROADCASTING
APOLLO RADIO HOLDING CO., INC. - NOTE 12
29.75 Shares Apollo Radio Holding Co., Inc.,
Common Stock** 06/01/90 61,788 61,788 461,147
25.5 Shares Apollo Radio Holding Co., Inc.,
Common Stock** 04/03/90 52,962 52,962 395,275
9.2083 Warrants Apollo Radio Holding Co., Inc.,
Common Stock Purchase Warrants** 04/03/90 0 0 0
--------- ----------- -----------
114,750 114,750 856,422 1.05
--------- ----------- ----------------------
HEALTH SERVICES
MTI HOLDINGS, INC. - NOTES 10,12
$ 113,805 MTI Holdings, Inc.,
Sr. Sec. Nt. 12% due 07/15/03* (b) 08/06/96 113,805 113,805 113,805
8,125 Shares MTI Holdings, Inc., Common Stock** 08/06/96 121,875 121,875 121,875
2,264 Warrants MTI Holdings, Inc., Common Stock
Purchase Warrants 08/06/96 0 0 0
---------- ---------- -----------
235,680 235,680 235,680 0.29
---------- ---------- -----------------------
PRINTING, PUBLISHING AND ALLIED LINES
AMERICAN PAPER GROUP, LTD.
$ 595,683 American Paper Group, Ltd.,
Sub. Nts. 5% due 12/31/00* 01/18/94 404,111 460,940 460,940
996 Shares American Paper Holdings Inc.,
Common Stock** 01/18/94 67,469 67,469 67,469
---------- ---------- -----------
471,580 528,409 528,409 0.65
---------- ---------- -----------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONTINUED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ----------------------------------------- ------------ ------------- ------------- ----------- -----------
MISCELLANEOUS RETAIL
PERGAMENT HOME CENTERS, INC.- NOTE 12
$ 2,543,200 Pergament Acq. Corp., Home Centers, Inc.
Floating Rate Demand Note due 07/31/00*(b) 10/18/91 $ 2,543,200 $ 2,543,200 $ 1,907,400
299.2 Shares Pergament Holdings, Corp.,
Common Stock Class B ** 02/28/89 6,732,000 6,732,000 0
109.2571 Shares Pergament Holdings, Corp.,
Common Stock Class C ** 02/28/89 0 0 0
----------- ----------- ------------
9,275,200 9,275,200 1,907,400 2.35
----------- ----------- ------------------------
BANKING AND FINANCE
BANK UNITED CORP. - NOTES 10,12
(FORMERLY USAT HOLDINGS INC.)
432,403 Shares Bank United Corp., Class A Common Stock (c) 01/05/90 &
12/19/91 2,901,255 2,901,255 9,680,422
------------ ------------ ------------
2,901,255 2,901,255 9,680,422 11.91
------------ ------------ ------------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $13,651,754 $13,708,583 $15,573,733 19.16%
------------------------------------------ ---------- ----------- ------------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $64,308,845 $64,365,674 $72,588,983 89.30%
---------------------------------------------- ----------- ----------- ------------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(CONCLUDED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL INVESTMENT INVESTMENT AMORTIZED VALUE % OF TOTAL
AMOUNT/SHARES INVESTMENT DATE COST COST (NOTE 2) INVESTMENTS
- ------------------- ------------------------------------------ ----------- ---------- ------------ ---------- ------------
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$ 5,000,000 Colgate Palmolive, 5.43% due 10/29/96 09/24/96 $ 4,973,604 $ 4,978,884 $ 4,978,884
$ 3,770,000 Jefferson Smurfit, 5.50% due 12/24/96 09/24/96 3,717,587 3,721,618 3,721,618
------------ ----------- -----------
TOTAL INVESTMENT IN COMMERCIAL PAPER $ 8,691,191 $ 8,700,502 $ 8,700,502 10.70%
------------------------------------ ------------ ----------- -------------------------
TOTAL TEMPORARY INVESTMENTS $ 8,691,191 $ 8,700,502 $ 8,700,502 10.70%
--------------------------- ------------ ----------- -------------------------
TOTAL INVESTMENT PORTFOLIO $ 73,000,036 $73,066,176 $81,289,485 100.00%
-------------------------- ============ =========== =========================
SUMMARY OF INVESTMENTS
Subordinated Notes $ 35,766,592 $35,823,421 $31,316,046 38.53%
Preferred Stock 161,500 161,500 0 0.00
Common Stock and Warrants 28,380,753 28,380,753 41,272,937 50.77
Temporary Investments 8,691,191 8,700,502 8,700,502 10.70
------------ ----------- -------------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $ 73,000,036 $73,066,176 $81,289,485 100.00%
---------------------------------------------- ============ =========== =========================
* Restricted Security
** Restricted Non-income Producing Security
(a) Includes receipt of payment-in-kind securities.
(b) Non-accrual investment status.
(c) Pubicly traded class of securities.
(d) Underlying security pubicly traded.
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PAR VALUE OR
DATE OF NUMBER OF AMORTIZED NET REALIZED
SECURITY TRANSACTION SHARES COST PROCEEDS GAIN (LOSS)
Polaris Pool Systems, Inc.
Common Stock 1/22/96 $ - $ - $ 87,270 (A) $ 87,270
ASR Acquisition Corp.
Common Stock various 108,241 17,024 1,007,354 990,330
Total Net Realized Gains for the Three
Months Ended March 31, 1996 $ 17,024 $ 1,094,624 $ 1,077,600
============ =========== ============
Polaris Pool Systems, Inc.
Common Stock 6/03/96 - $ - $ 41,949 (A) $ 41,949
U.S. Leather Holdings, Inc.
15% Sr. Sub. Deb.* 4/09/96 $14,616,000 $ 17,112,740 $ 7,308,000 (B) $ (9,804,740)
8% Sr. Pref. Stock 4/09/96 $ 2,986.41 2,024,000 - (2,024,000)
Jr. Sub. Pref. Stock 4/09/96 150,231 - - -
Warrants 4/09/96 150,231 186,918 - (186,918)
Total Net Realized Losses for the Three
Months Ended June 30, 1996 $ 19,323,658 $ 7,349,949 $(11,973,709)
============ =========== ============
MTI Holdings, Inc.
5% Sr. Sec. Note 8/06/96 $ 471,360 $ 471,360 $ 113,805 (B) $ (357,555)
Common Stock 8/06/96 22,376 510,000 121,875 (B) (388,125)
Bank United Corp.
Common Stock 8/14/96 102,197 658,926 1,926,413 1,267,487
Tulip Holding Corp.
14.5% Sub. Note 9/12/96 $ 4,394,282 4,386,212 2,929 (4,383,283)
16.5% Sub. Note 9/12/96 $ 1,262,303 1,262,303 - (1,262,303)
15% Exch. Preferred Stock 9/12/96 1,464.763 1,464,763 - (1,464,763)
Common Stock 9/12/96 78,872 15,780 - (15,780)
Ampex Recording Media Corp.
Common Stock 9/30/96 18,053 144,966 143,746 (1,220)
Total Net Realized Losses for the Three $ 8,914,310 $ 2,308,768 $(6,605,542)
Months Ended September 30, 1996 ============ =========== ===========
Total Net Realized Losses for the Nine $ 28,254,992 $10,753,341 $(17,501,651)
Months Ended September 30, 1996 ============ =========== ============
(A) Proceeds represent a distribution to the Retirement Fund from the escrow
account.
(B) Proceeds represent fair value of exchange.
* Includes Payment-in-Kind Notes.
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(UNAUDITED)
1. Organization and Purpose
Equitable Capital Partners, L.P. (the "Fund") was formed along with
Equitable Capital Partners (Retirement Fund), L.P. (the "Retirement Fund," and
collectively with the Fund referred to as the "Funds") and the Certificates of
Limited Partnership were filed under the Delaware Revised Uniform Limited
Partnership Act on February 2, 1988. The Funds' operations commenced on October
13, 1988.
On July 22, 1993, Equitable Capital Management Corporation ("Equitable
Capital"), formerly the Managing General Partner and investment adviser of the
Funds, transferred substantially all of the assets comprising Equitable
Capital's business to Alliance Capital Management L.P. ("Alliance Capital") and
its wholly-owned subsidiary, Alliance Corporate Finance Group Incorporated
("Alliance Corporate"). In connection with such transaction, the limited
partners (the "Limited Partners"), of the Funds voted to approve a new
investment advisory agreement between the Funds and Alliance Corporate and also
voted to admit Alliance Corporate as Managing General Partner of the Funds to
succeed Equitable Capital. Accordingly, on July 22, 1993, the closing date of
the transaction described above, (i) Alliance Corporate was admitted as the
successor Managing General Partner of the Funds (ii) Equitable Capital withdrew
from the Funds as Managing General Partner and assigned all of its interest as
General Partner to Alliance Corporate and (iii) Alliance Corporate succeeded
Equitable Capital as the investment adviser to the Funds pursuant to a new
investment advisory agreement. Alliance Corporate (the "Investment Adviser") is
a registered investment adviser under the Investment Advisers Act of 1940.
Prior to July 22, 1993, Equitable Capital was responsible, subject to the
supervision of the independent general partners of the Funds (the "Independent
General Partners"), for the management of the 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.
The total value of securities without a readily ascertainable market value is
$42,392,102 and $28,806,626 as of September 30, 1996 and December 31, 1995,
respectively, representing 50.6% and 32.4% 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 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, 1996, resulted in a $40,458 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 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.
<PAGE>
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 June 30, 1996.
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, 1996 and 1995 were $660,839 and $795,572, respectively. The
decrease from 1995 to 1996 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.
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, 1996 and 1995 were $489,705 and $530,576,
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, 1996 and 1995, the Retirement
Fund incurred Administrative expenses of $103,383 and $106,693, 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, 1996 and 1995, the Retirement Fund
incurred $141,382 and $124,664, respectively, of Independent General Partners'
Fees and Expenses.
9. Related Party Transactions
For the nine months ended September 30, 1996, the Retirement Fund paid
expenses of $99,751 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, 1995, the Retirement
Fund paid expenses of $18,445 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.
During the three months ended September 30, 1996, the Retirement Fund
received a total of $118,250 from Western Pioneer, Inc. as principal paydowns of
the senior notes held by the Retirement Fund. No gain, loss or income has been
recorded on this transaction and the amount will be distributed as return of
capital to the Limited Partners.
On August 6, 1996 a comprehensive restructuring closed for MTI Holdings,
Inc. The existing note was exchanged for new 12% Senior Secured Notes and equity
of the reorganized company consisting of common stock and common stock purchase
warrants. The Retirement Fund recognized a loss of $745,680 on this transaction.
On August 14, 1996, the Retirement Fund sold 102,197 shares of Bank United
Corp. (formerly USAT Holdings Inc.) common stock for $1,926,413 and recognized a
gain of $1,267,487.
On September 12, 1996, the Retirement Fund sold its Tulip Holding Corp.
14.5% Subordinated Notes for $2,930 and recognized a loss of $4,383,283 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
$2,742,846 to the Retirement Fund.
On September 30, 1996, the Retirement Fund sold 18,053 shares of Ampex
Recording Media Corp. Class A Common Stock for $143,746 which resulted in a loss
of $1,220 to the Retirement Fund.
As of September 30, 1996, the Retirement Fund had investments in six
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 six Non-Managed
Companies (a Non-Managed Company is one to which such assistance is not
provided) totaling $65,054,525 (including $422,439 capitalized cost of
payment-in-kind securities), consisting of $36,124,147 in senior notes and
subordinated notes, $161,500 in preferred stock and purchase warrants and
$28,768,878 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, 1996, earnings were allocated 99%
to the Limited Partners, as a class, and 1% to the Managing General Partner.
<PAGE>
12. Unrealized Appreciation/Depreciation and Non-Accrual of Investments
For the nine months ended September 30, 1996, the Retirement Fund recorded
net unrealized appreciation on Enhanced Yield Investments of $23,522,984 as
compared to $13,351,536 of unrealized depreciation for the nine months ended
September 30, 1995. Such appreciation was the result of adjustments in value
made with respect to the following investments during the nine months ended
September 30, 1996:
The amount includes the reversal of $9,878,056, $2,024,000 and $186,918 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 $1,439,686
to the Retirement 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
$1,683,000. 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 $635,800 to the Retirement Fund.
On March 31, 1996, RI Holdings, Inc. senior subordinated notes were written
down to 30% of par, resulting in unrealized depreciation of $1,056,772 to the
Retirement Fund. On May 1, 1996, the Retirement Fund received additional shares
of Class B Common Stock from RI Holdings. The Retirement Fund exchanged
outstanding debt for the new common stock issued, resulting in unrealized
depreciation of $670 to the Retirement 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 $1,801,739 to the Retirement Fund. On September 30,
1996, RI Holdings, Inc. senior subordinated notes were written down from 15% to
2% of par, resulting in unrealized depreciation of $1,561,507 to the Retirement
Fund.
Due to an increase in the quoted market price of the Lexmark International
Group, Inc. common stock, the Retirement Fund recorded total unrealized
appreciation of $1,940,270 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 $2,015,378 to the Retirement
Fund.
Due to a decrease in the quoted market price of the Ampex Recording Media
Corp. Class A Common Stock, the Retirement Fund recorded total unrealized
depreciation of $17,829 at September 30, 1996. Also, due to the sale of common
stock on September 30, 1996, $13,178 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 Retirement Fund recorded total unrealized
appreciation of $118,411 at June 30, 1996. The equity was valued at 80% of the
closing market price at September 30, 1996, due to contractual restrictions on
resale.
On March 31, 1996, Apollo Radio common stock was written up, pending a cash
distribution expected in the second half of 1996, resulting in unrealized
appreciation of $231,672 to the Retirement Fund.
Due to the sale of the Class B Common Stock investment in ASR Acquisition
Corp. in March 1996, the Retirement Fund reversed the unrealized appreciation
recorded of $835,374.
on August 6, 1996, the Retirement Fund reversed a total of $745,680 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 Retirement Fund reversed the unrealized depreciation
recorded of $4,387,388. The Retirement Fund also reversed $2,742,846 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 $219,714 to the Retirement 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 $1,712,111 to the Retirement Fund.
Due to an increase in the quoted market price of Bank United Corp. common
stock, the Retirement Fund recorded total unrealized appreciation of $6,779,167
at September 30, 1996. The equity was valued at 90% of the closing market price
at September 30, 1996, due to contractual restrictions on resale.
<PAGE>
The following investments have been on non-accrual status as of the respective
dates:
Pergament Home Centers, Inc.
Floating Rate Demand Note July 1, 1996
MTI Holdings, Inc. 12%
Senior Secured Note October 1, 1995
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Alliance Corporate continues to monitor the 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
1995, the tax basis of the Retirement Fund's assets was greater than the amounts
reported in the Financial Statements by $38,950,769. This difference is
primarily attributable to unrealized depreciation on investments which has not
been recognized for tax purposes. Additionally, certain realized gains and
losses due to restructurings were treated differently for tax purposes than for
financial reporting purposes.
14. Subsequent Events
On November 6, 1996, the Independent General Partners approved an aggregate
cash distribution of $4,363,635 for the three months ended September 30, 1996
which is expected to be paid on November 14, 1996 to the Limited Partners. The
amount distributed to Limited Partners on record as of September 30, 1996 was
$4,357,329 or $19.71 per Unit (of which $2,478,217 is capital returned from
investments and the reserve in the third quarter of 1996). On a per Unit basis,
this distribution to Limited Partners includes $5.68 of realized gains, $2.82 of
income from operations, $3.49 of return of capital and $7.72 of capital returned
from reserve. The Managing General Partner's one percent allocation of $44,013
was reduced by its one percent allocation of realized gains and capital returned
from investments during the third quarter of 1996, of $37,707 (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 $6,306.
<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
As of September 30, 1996, the Retirement Fund had a total of 12 Enhanced
Yield Investments at a net cost of $65,054,525 (inclusive of the receipt of
securities having a capitalized cost of $422,439 received as payment-in-kind
interest on certain Enhanced Yield Investments).
Proceeds from Investments
During the nine months ended September 30, 1996, the Retirement Fund
received proceeds from the following investments:
On January 10 and June 3, 1996, the Retirement Fund received additional
proceeds of $87,270 and $41,949, respectively, from Polaris Pool Systems, Inc.
The money represents proceeds from the sale of the investments from prior years
that have been held in escrow for future adjustments and expenses not paid on
the sale dates.
During the nine months ended September 30, 1996, the Retirement Fund
received a total of $354,750 and $146,632 from Western Pioneer, Inc. and U.S.
Leather Holdings, Inc., respectively, as principal paydowns of the senior notes
held by the Retirement Fund. No gain, loss or income has been recorded on these
transactions.
During March 1996, the Retirement Fund sold its remaining ASR Acquisition
Corp. common stock for $1,007,354 and recognized a gain of $990,330 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 Retirement Fund
have been surrendered and cancelled in exchange for 621.90 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 Retirement Fund received dividend income of $1,852,198
from Bank United Corp.
On August 6, 1996, a comprehensive restructuring closed for MTI Holdings,
Inc. The Retirement Fund recognized a loss of $745,680 on this transaction.
On August 14, 1996, the Retirement Fund sold 102,197 shares of Bank United
Corp. (formerly USAT Holdings Inc.) common stock for $1,926,413 and recognized a
gain of $1,267,487.
On September 12, 1996, the Retirement Fund sold its Tulip Holding Corp.
14.5% Subordinated Notes for $2,930 and recognized a loss of $4,383,283 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
$2,742,846 to the Retirement Fund.
On September 30, 1996, the Retirement Fund sold 18,053 shares of Ampex
Recording Media Corp. Class A Common Stock for $143,746 which resulted in a loss
of $1,220 to the Retirement Fund.
For additional information, refer to the Supplemental Schedule of Realized
Gains and Losses and Note 10 to the Financial Statements.
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.
<PAGE>
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.
Results of Operations
For the three and nine months ended September 30, 1996, net investment
income decreased by $743,952 and $257,049, respectively, as compared to the same
periods in 1995. Net investment income is comprised of investment income
(primarily interest and dividend income) offset by expenses. The decrease in the
1996 net investment income versus the comparative periods in 1995, reflects the
decrease in interest income partially offset by the increase in dividend income
and the decrease in Investment Advisory Fees and Fund Administration Fees and
Expenses.
For the three and nine months ended September 30, 1996, the Retirement Fund
had investment income of $1,176,224 and $5,368,957, respectively, as compared to
$1,862,306 and $5,696,775, respectively, for the same periods in 1995. The
decrease in 1996 investment income of 6% 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 Enhanced Yield Investments partially offset by an
increase in dividend income.
<PAGE>
The Retirement Fund incurred expenses of $536,999 and $1,518,398 for the
three and nine months ended September 30, 1996, as compared to $479,129 and
$1,589,167, respectively, for the same periods in 1995. The decrease in the 1996
expenses of $70,769 was primarily due to a decrease in Investment Advisory Fees
and Fund Administration Fees and Expenses paid 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 an increase in net assets resulting from
operations for the nine months ended September 30, 1996 in the amount of
$9,871,892, as compared to a decrease of $6,941,342 for the comparative period
in 1995. The increase in net assets for the nine months ended September 30, 1996
is comprised of net investment income of $3,850,559, net realized losses of
$17,501,651 offset by a net change in unrealized appreciation of $23,522,984.
For the comparable period in 1995, the decrease in net assets was 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 (see Statements of
Operations in the Financial Statements).
For the three months ended September 30, 1996 and 1995, the Retirement Fund
incurred Investment Advisory Fees of $211,996 and $247,041, respectively. For
the nine months ended September 30, 1996 and 1995, the Retirement Fund incurred
Investment Advisory Fees of $660,839 and $795,572, 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).
The Retirement Fund Administration Fees and Expenses (as described in Note
7 to the Financial Statements) for the three months ended September 30, 1996 and
1995 were $175,810 and $184,540, respectively and for the nine months ended
September 30, 1996 and 1995 were $593,088 and $637,269, respectively. The
decrease from 1995 to 1996 of $44,181 is primarily due to a decrease in the
Retirement Fund's Available Capital on which the Retirement Fund Administration
Fee is based, resulting primarily from redemptions of debt obligations held by
the Retirement Fund (which is a component of Available Capital). In accordance
with the Partnership Agreement, beginning in October 1996, the Retirement Fund
Administration Fee will change to an annual fee of $100,000 plus 100% of all
direct out-of-pocket expenses incurred by the Retirement Fund Administrator on
behalf of the Retirement Fund.
Independent General Partners' Fees and Expenses incurred for the three and
nine months ended September 30, 1996 and 1995, were $47,262 and $141,382,
respectively, and $37,100 and $124,664, respectively.
The Retirement Fund incurred Professional Fees of $101,931 and $109,233 for
the three and nine months ended September 30, 1996, respectively. Professional
Fees incurred for the same periods in 1995 were $7,748 and $25,281,
respectively. (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.
<PAGE>
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.
For the nine months ended September 30, 1996, the Retirement Fund recorded
net unrealized appreciation on Enhanced Yield Investments of $23,522,984 as
compared to $13,351,536 of unrealized depreciation for the nine months ended
September 30, 1995. The change in unrealized appreciation was primarily the
result of unrealized appreciation in Lexmark International Group, Inc., Bank
United Corp. and Western Pioneer, Inc., the reversal of unrealized depreciation
in U.S. Leather Holdings, Inc., Tulip Holding Corp. and MTI Holdings, Inc.
offset by unrealized depreciation in RI Holdings, Inc. and Pergament Home
Centers, Inc.
The following investments have been on non-accrual status as of the respective
dates:
Pergament Home Centers, Inc.
Floating Rate Demand Note July 1, 1996
MTI Holdings, Inc. 12%
Senior Secured Note October 1, 1995
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Alliance Corporate continues to monitor the 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
For the three and nine months ended September 30, 1996, the Retirement Fund
recorded net realized losses of $6,605,542 and $17,501,651, respectively, on
transactions involving four Enhanced Yield Investments. During the three and
nine months ended September 30, 1995, the Retirement Fund recorded net realized
gains on investments of $2,261,832 and $2,302,586, respectively, on transactions
involving three Enhanced Yield Investments (see Note 10 to the Financial
Statements and the Supplemental Schedule of Realized Gains and Losses).
<PAGE>
PART II - OTHER INFORMATION
Items 1 though 5 are herewith omitted as the response to all items is either
none or not applicable for the September 30, 1996, Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27 - Financial Data Schedule for the quarter ending
September 30, 1996.
3.1 Amended and Restated Certificate of Limited Partnership, dated
as of April 12, 1989*
4.1 Amended and Restated Agreement of Limited Partnership, dated as
of October 13, 1988**
10.1 Investment Advisory Agreement, dated July 22, 1993, between
Registrant and Alliance Corporate Finance Group Incorporated***
10.2 Administrative Services Agreement, dated October 13, 1988, among
the Registrant, Equitable Capital Management Corporation and
ML Fund Administrators, Inc.**
* 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 12th day of
November, 1996.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group,
Incorporated, as Managing General Partner
Dated: November 12, 1996 /s/ James R. Wilson
James R. Wilson
Title: President
Dated: November 12, 1996 /s/ Laura Mah
Laura Mah
Title: Vice President and Chief
Accounting Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 12th day of November, 1996.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group,
Incorporated, as Managing General Partner
Dated: November 12, 1996
James R. Wilson
Title: President
Dated: November 12, 1996
Laura Mah
Title: Vice President and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the third quarter
of 1996 Form 10-Q Balance Sheets and Statements of Operations and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 64,308,845
<INVESTMENTS-AT-VALUE> 72,588,983
<RECEIVABLES> 2,363,453
<ASSETS-OTHER> 2,511
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 83,740,371
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,462
<TOTAL-LIABILITIES> 87,462
<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> 8,223,309
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<DIVIDEND-INCOME> 1,852,195
<INTEREST-INCOME> 3,500,251
<OTHER-INCOME> 16,511
<EXPENSES-NET> 1,518,398
<NET-INVESTMENT-INCOME> 3,850,559
<REALIZED-GAINS-CURRENT> (17,501,651)
<APPREC-INCREASE-CURRENT> 23,522,984
<NET-CHANGE-FROM-OPS> 9,871,892
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,014,812
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4,005,825
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,189,203)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 660,839
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<GROSS-EXPENSE> 1,518,398
<AVERAGE-NET-ASSETS> 86,247,511
<PER-SHARE-NAV-BEGIN> 397.08
<PER-SHARE-NII> 17.24
<PER-SHARE-GAIN-APPREC> (78.38)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 67.73
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</TABLE>
