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: March 31, 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 March 31, 1996 and December 31, 1995 5
Statements of Operations - For the Three Months
Ended March 31, 1996 and 1995 6
Statements of Changes in Net Assets - For the Three
Months Ended March 31, 1996 and 1995 7
Statements of Cash Flows - For the Three Months Ended
March 31, 1996 and 1995 8
Statement of Changes in Partners' Capital -
For the Three Months Ended March 31, 1996 9
Schedule of Portfolio Investments - March 31, 1996 10
Supplemental Schedule of Realized Gains and Losses
For the Three Months Ended March 31, 1996 16
Notes to Financial Statements 17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 25
PART II - OTHER INFORMATION
Item 6. Exhibits 29
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C> <C>
Unaudited
ASSETS: Notes March 31, 1996 December 31, 1995
Investments 2,10,12
Enhanced Yield Investments at Value-
Managed Companies
(amortized cost of $82,783,331
at March 31, 1996 and $83,389,283
at December 31, 1995) $ 63,750,745 $ 67,489,913
Non-Managed Companies
(amortized cost of $2,502,402 at
March 31, 1996 and $2,121,174
at December 31, 1995) 2,498,394 2,720,868
Temporary Investments
(at amortized cost) 8,261,850 16,536,723
Cash 855 39,180
Interest Receivable 2,12 902,592 886,589
Note Receivable 3,4 1,207,754 1,245,982
Prepaid Expenses 2,511 6,923
TOTAL ASSETS $ 76,624,701 $ 88,926,178
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Professional Fees Payable 9 $ 41,762 $ 40,833
Independent General Partners' Fees 8 14,819 10,547
Fund Administrative Expenses Payable 7 17,939 28,445
Other Accrued Liabilities 10,887 4,241
Total Liabilities 85,407 84,066
Partners' Capital
Managing General Partner 3,4 987,277 1,058,667
Limited Partners (221,072 Units) 4 75,552,017 87,783,445
Total Partners' Capital 76,539,294 88,842,112
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 76,624,701 $ 88,926,178
=============== ==============
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C>
For the Three Months Ended
March 31, 1996 March 31, 1995
INVESTMENT INCOME- Notes 2,12:
Interest $ 1,149,706 $ 1,955,403
Discount 5,780 6,377
TOTAL INVESTMENT INCOME 1,155,486 1,961,780
EXPENSES:
Investment Advisory Fee- Note 6 236,152 294,992
Fund Administration Fees and Expenses
- Note 7 185,572 201,978
Independent General Partners'
Fees and Expenses - Note 8 48,603 45,385
Professional Fees - Note 9 6,175 9,440
Insurance Fees 4,410 -
Valuation Expenses 6,646 -
TOTAL EXPENSES 487,558 551,795
NET INVESTMENT INCOME 667,928 1,409,985
NET CHANGE IN UNREALIZED
DEPRECIATION ON INVESTMENTS- Note 12 (3,736,918) (3,076,319)
NET REALIZED GAINS ON INVESTMENTS- Note 10 1,077,600 40,754
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (1,991,390) $ (1,625,580)
============ =============
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 Three Months Ended
March 31, 1996 March 31, 1995
FROM OPERATIONS:
Net Investment Income $ 667,928 $ 1,409,985
Net Change In Unrealized
Depreciation on Investments (3,736,918) (3,076,319)
Net Realized Gains on Investments 1,077,600 40,754
Net Decrease in Net Assets
Resulting from Operations (1,991,390) (1,625,580)
Cash Distributions to Partners (10,274,966) (12,469,357)
Reduction in Managing General
Partners' Contribution (36,462) (89,469)
Total Decrease (12,302,818) (14,184,406)
NET ASSETS:
Beginning of Period 88,842,112 115,578,330
End of Period $ 76,539,294 $101,393,924
============ ============
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 Three Months Ended
INCREASE (DECREASE) IN CASH March 31, 1996 March 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and Discount Income $ 912,024 $ 939,971
Fund Administration Fees & Expenses (196,078) (213,006)
Investment Advisory Fee (236,152) (294,992)
Independent General Partners' Fees
and Expenses (43,328) (40,458)
Valuation Expenses - -
Sale (Purchase) of Temporary Investments, Net 8,445,152 11,833,125
Proceeds from Sales and Principal Payments
of Enhanced Yield Investments 1,359,506 174,678
Professional Fees (4,484) (15,031)
Insurance Fees - -
Net Cash Provided by Operating Activities 10,236,640 12,384,287
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (10,274,966) (12,469,357)
Net Cash Used in Financing Activities (10,274,966) (12,469,357)
Net Decrease in Cash (38,326) (85,070)
Cash at the Beginning of the Period 39,181 85,291
Cash at the End of the Period $ 855 $ 221
============= =============
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Decrease In Net Assets Resulting From $ (1,991,390) $ (1,625,580)
Operations
Adjustments to Reconcile Net Decrease in Net Assets
Resulting from Operations to Net Cash
Provided by Operating Activities:
Decrease in Investments 8,727,055 11,973,049
Increase in Accrued Interest (243,462) (1,033,810)
Increase in Other Accrued Liabilities 6,646 -
Decrease in Fund Administration Expenses Payable (10,506) (11,028)
Decrease in Prepaid Expenses 4,412 -
Net Change in Unrealized Depreciation
on Investments 3,736,918 3,076,319
Increase in Independent General
Partners' Fees Payable 5,276 4,927
Increase in Professional Fees Payable 1,691 410
Total Adjustments 12,228,030 14,009,867
Net Cash Provided by Operating Activities $ 10,236,640 $ 12,384,287
============= =============
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
Notes General Limited
Partner Partners Total
FOR THE THREE MONTHS ENDED MARCH 31, 1996
Partners' Capital at January 1, 1996 $ 1,058,667 $ 87,783,445 $ 88,842,112
Cash Distributions to Partners (15,015) (10,259,951) (10,274,966)
Reduction in Managing General Partners'
Contribution 3 (36,462) - (36,462)
Allocation of Net Investment Income 11 6,680 661,248 667,928
Allocation of Net Unrealized Depreciation
on Investments 12 (37,369) (3,699,549) (3,736,918)
Allocation of Net Realized Gains on
Investments 10,776 1,066,824 1,077,600
Partners' Capital at March 31, 1996 $ 987,277 $ 75,552,017 $ 76,539,294
=========== ============ ============
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 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.
$ 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**(d) 03/27/91 6,676,200 6,676,200 17,462,436
------------ ------------ ------------
30,779,469 30,779,469 41,565,705 55.78
------------ ------------ ------------------------
TULIP HOLDING CORPORATION - NOTE 12
$ 4,394,282 Tulip Holding Corp.,
Sub. Nt. 14.5% due 12/29/97*(a)(b) 12/29/89 4,378,507 4,387,388 219,714
$ 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 Shares Tulip Holding Corp., Class A Common Stock ** 12/29/89 15,780 15,780 0
------------ ------------ ------------
7,121,353 7,130,234 219,714 0.30
------------ ------------ ------------------------
BANKING AND FINANCE
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 4.78
------------ ------------ ------------------------
MISCELLANEOUS MANUFACTURING
QUANTEGY ACQUISITION CORP.
(FORMERLY AMPEX RECORDING MEDIA)
123.50 Shares Quantegy Acquisition Corp., Common Stock 11/13/95 2,722,290 2,722,290 2,722,290
35,882 Warrants Ampex Recording Media Corp.,
Warrants to Purchase 12/31/90 &
Class A Common Stock **(e) 06/28/91 288,251 288,251 175,822
------------ ----------- ------------
3,010,541 3,010,541 2,898,112 3.89
------------ ----------- ------------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 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
- ------------------- ----------------------------------------- ------------ ------------- ------------- ----------- -----------
RI HOLDINGS, INC. - NOTES 10, 12
$ 12,013,827 RI Holdings, Inc.,
Sr. Sub. Nts. 16% due 08/31/01*(a)(b) 04/25/94 $ 5,826,150 $ 5,826,150 $ 3,604,148
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 3,604,148 4.84
----------- ------------ -----------------------
LEATHER AND LEATHER PRODUCTS
UNITED STATES LEATHER HOLDINGS, INC.
$ 14,469,368 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 1/31/04* 08/06/93 14,369,254 14,380,243 7,234,684
$ 36,251 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 11/30/93 36,251 36,251 0
$ 439,565 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 02/28/94 439,565 439,565 0
$ 414,946 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 11/30/94 414,946 414,946 0
$ 571,130 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 02/28/95 571,130 571,130 0
$ 250,334 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 05/31/95 250,334 250,334 0
$ 402,926 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 08/31/95 402,926 402,926 0
$ 617,345 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 11/30/95 617,345 617,345 0
$ 488,503 U.S. Leather Holdings, Inc.,
Sr. Sub. Deb. 15% due 8/05/98*(a) 02/29/96 0 0 0
2,986.41 Shares U.S. Leather Holdings, Inc.,
Sr. Sub. Pref. Stock 8% redeemable
03/31/01*(a)(b) 08/06/93 2,024,000 2,024,000 0
150,231 Shares U.S. Leather Holdings, Inc.,
Jr. Sub. Pref. Stock *(a)(b) 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
----------- ------------ -----------
19,312,669 19,323,658 7,234,684 9.71
----------- ------------ ----------------------
DISTRIBUTION SERVICES
WB BOTTLING CORPORATION - NOTE 12
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
----------- ------------ ----------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 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* 10/18/91 $ 2,543,200 $ 2,543,200 $ 2,543,200
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 2,543,200 3.41
----------- ----------- ------------------------
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 2.85
----------- ----------- ------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $82,763,461 $82,783,331 $63,750,745 85.56%
--------------------------------------- ----------- ----------- -------------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 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. - Note 10
$ 4,139,550 Western Pioneer, Inc.,
Sr. Sub. Nts. 10% due 12/01/02*(b) 11/30/94 $ 889,790 $ 889,790 $ 889,790
81,081 Warrants Western Pioneer, Inc.,
Common Stock Purchase Warrants ** 11/30/94 0 0 0
--------- ----------- -----------
889,790 889,790 889,790 1.19
--------- ----------- ----------------------
BROADCASTING
APOLLO RADIO HOLDING CO., INC.
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 1.15
--------- ----------- ----------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 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
- ------------------- ----------------------------------------- ------------- ---------- ----------- ---------- -------------
HEALTH SERVICES
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 0.32
---------- ---------- -----------------------
PRINTING, PUBLISHING AND ALLIED LINES
AMERICAN PAPER GROUP, LTD.
$ 595,683 American Paper Group, Ltd.,
Sub. Nts. 5% due 12/31/00* 01/18/94 404,111 449,033 449,033
996 Shares American Paper Holdings Inc.,
Common Stock** 01/18/94 67,469 67,469 67,469
---------- ---------- -----------
471,580 516,502 516,502 0.69
---------- ---------- -----------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $2,457,480 $ 2,502,402 $ 2,498,394 3.35%
------------------------------------------ ---------- ----------- ------------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $85,220,941 $85,285,733 $66,249,139 88.91%
---------------------------------------------- ----------- ----------- ------------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 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
TIME DEPOSITS
$ 393,000 State Street Bank & Trust
2.75% due 04/01/96 03/29/96 $ 393,000 $ 393,000 $ 393,000
----------- ----------- -----------
TOTAL INVESTMENT IN TIME DEPOSITS $ 393,000 $ 393,000 $ 393,000 0.53%
--------------------------------- ----------- ----------- -------------------------
COMMERCIAL PAPER
$ 7,000,000 Sumitomo Corp of America,
5.25% due 04/02/96 02/29/96 $ 6,966,313 $ 6,998,979 $ 6,998,979
$ 500,000 Goldman Sachs, 5.35% due 04/02/96 03/18/96 498,885 498,885 499,926
$ 370,000 Barton Capital Corp, 5.42% due 04/02/96 03/21/96 369,334 369,334 369,945
------------ ----------- -----------
TOTAL INVESTMENT IN COMMERCIAL PAPER $ 7,834,532 $ 7,867,198 $ 7,868,850 10.56%
------------------------------------ ------------ ----------- -------------------------
TOTAL TEMPORARY INVESTMENTS $ 8,227,532 $ 8,260,198 $ 8,261,850 11.09%
--------------------------- ------------ ----------- -------------------------
TOTAL INVESTMENT PORTFOLIO $ 93,448,473 $93,545,931 $74,510,989 100.00%
-------------------------- ============ =========== =========================
SUMMARY OF INVESTMENTS
Subordinated Notes $ 59,105,441 $59,170,233 $41,404,518 55.57%
Preferred Stock 3,650,263 3,650,263 0 0.00
Common Stock and Warrants 22,465,237 22,465,23 24,844,621 33.34
Temporary Investments 8,227,532 8,260,198 8,261,850 11.09
------------ ----------- -------------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $ 93,448,473 $93,545,931 $74,510,989 100.00%
---------------------------------------------- ============ =========== =========================
* Restricted Security
** Restricted Non-income Proddducing Security
*** Affiliated Companies
(a) Includes receipt of payment-in-kind securities.
(b) Non-accrual investment status.
(c) Includes capitalized deferred income.
(d) Pubicly traded class of securities.
(e) 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 THREE MONTHS ENDED MARCH 31, 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
========= =========== ==========
(A) Proceeds represent a distribution to the Retirement Fund from the escrow
account.
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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
$48,610,881 and $28,806,626 as of March 31, 1996 and December 31, 1995,
respectively, representing 63.4% 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 three months ended March 31, 1996,
resulted in a $36,462 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 March 31, 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 three months
ended March 31, 1996 and 1995 were $236,152, and $294,992, 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.
<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
three months ended March 31, 1996 and 1995 were $169,610 and $185,080,
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 three months ended March 31, 1996 and 1995, the Retirement
Fund incurred Administrative expenses of $15,962 and $16,898, 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 three months ended March 31, 1996 and 1995, the Retirement Fund
incurred $48,603 and $45,385, respectively, of Independent General Partners'
Fees and Expenses.
9. Related Party Transactions
For the three months ended March 31, 1996, the Retirement Fund paid expenses
of $6,175 as reimbursement for amounts paid for legal services provided by
Equitable Life in connection with the Retirement Fund's Enhanced Yield
Investments. For the three months ended March 31, 1995, the Retirement Fund did
not incur any expenses 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 January 10, 1996, the Retirement Fund received additional proceeds of
$87,270 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. The amount received
will be distributed to Limited Partners of record as of January 10, 1996.
During the three months ended March 31, 1996, the Retirement Fund received a
total of $118,250 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 and the amounts will be distributed as return of capital to the
Limited Partners.
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.
As of March 31, 1996, the Retirement Fund had investments in nine 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
$85,220,941 (including $422,439 capitalized cost of payment-in-kind securities),
consisting of $59,105,441 in senior notes and subordinated notes, $3,650,263 in
preferred stock and purchase warrants and $22,465,237 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 three months ended March 31, 1996, earnings were allocated 99% to
the Limited Partners, as a class, and 1% to the Managing General Partner.
12. Unrealized Appreciation/Depreciation and Non-Accrual of Investments
For the three months ended March 31, 1996, the Retirement Fund recorded net
unrealized depreciation on Enhanced Yield Investments of $3,736,918 as compared
to $3,076,319 for the three months ended March 31, 1995. Such depreciation was
the result of adjustments in value made with respect to the following
investments during the three months ended March 31, 1996:
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 March 31, 1996, RI Holding, Inc. senior subordinated notes were written
down to 30% of par, resulting in unrealized depreciation of $1,056,772 to the
Retirement Fund.
Due to an increase in the quoted market price of the Lexmark International
Group, Inc. common stock held by the Retirement Fund at March 31, 1996, the
Retirement Fund recorded unrealized appreciation of $1,013,948. The equity was
valued at 90% of the closing market price at March 31, 1996, due to contractual
restrictions on resale.
Due to an increase in the quoted market price of the Ampex Recording Media
Corp. Class A Common Stock Warrants held by the Retirement Fund at March 31,
1996, the Retirement Fund recorded unrealized appreciation of $32,294. The
equity was valued at 80% of the closing market price at March 31, 1996, due to
contractual restrictions on resale.
On March 31, 1996, Apollo Radio common stock was written up, pending a cash
distribution expected in July 1996, resulting in unrealized appreciation of
$231,672 to the Retirement Fund.
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.
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.
The following investments have been on non-accrual status as of the respective
dates:
U.S. Leather Holdings, Inc. 15%
Senior Subordinated Note October 1, 1995
MTI Holdings, Inc. 5%
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
Tulip Holding, Corp. 14.5% and 16.5%
Subordinated Notes January 1, 1994
<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
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 May 8, 1996, the Independent General Partners approved an aggregate cash
distribution of $1,971,592 for the three months ended March 31, 1996 which was
paid on May 15, 1996 to the Limited Partners. The amount distributed to Limited
Partners on record as of March 31, 1996 was $1,965,330 or $8.89 per Unit (of
which $278,551 is capital returned from investments in the first quarter of
1996). On a per Unit basis, this distribution to Limited Partners includes $4.83
of realized gains, $2.80 of income from operations and $1.26 of return of
capital. The Managing General Partner's one percent allocation of $19,852 was
reduced by its one percent allocation of realized gains and capital returned
from investments during the first quarter of 1996, of $13,590 (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 $6,262.
<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 March 31, 1996, the Retirement Fund had a total of 13 Enhanced Yield
Investments at a net cost of $85,220,941 (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 three months ended March 31, 1996, the Retirement Fund received
proceeds from the following investments:
On January 10, 1996, the Retirement Fund received additional proceeds of
$87,270 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. The amount received
will be distributed to Limited Partners of record as of January 10, 1996.
During the three months ended March 31, 1996, the Retirement Fund received a
total of $118,250 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 and the amounts will be distributed as return of capital to the
Limited Partners.
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.
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 and time deposits 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 months ended March 31, 1996, net investment income decreased
by $742,057 as compared to the same period in 1995. Net investment income is
comprised of investment income (primarily interest and discount income) offset
by expenses. The decrease in the 1996 net investment income versus the
comparative period in 1995, reflects the decrease in interest and discount
income (excluding temporary investments) partially offset by the decrease in
Investment Advisory Fees and Fund Administration Fees and Expenses.
For the three months ended March 31, 1996, the Retirement Fund had
investment income of $1,155,486, as compared to $1,961,780 for the same period
in 1995. The decrease in 1996 investment income of 41% 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.
The Retirement Fund incurred expenses of $487,558 for the three months ended
March 31, 1996, as compared to $551,795 for the same period in 1995. The
decrease in the 1996 expenses of $64,237 was primarily due to a decrease in
Investment Advisory Fees, Fund Administration Fees and Expenses paid 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 three months ended March 31, 1996 in the amount of
$1,991,390, as compared to a decrease of $1,625,580 for the comparative period
in 1995. The decrease in net assets for the three months ended March 31, 1996 is
comprised of net investment income of $667,928, net realized gains of $1,077,600
offset by a net change in unrealized depreciation of $3,736,918. For the
comparable period in 1995, the decrease in net assets was comprised of net
investment income of $1,409,985, net realized gains of $40,754 offset by a net
change in unrealized depreciation of $3,076,319 (see Statements of Operations in
the Financial Statements).
For the three months ended March 31, 1996 and 1995, the Retirement Fund
incurred Investment Advisory Fees of $236,152 and $294,992, 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 March 31, 1996 and 1995
were $185,572 and $201,978, respectively. The decrease from 1995 to 1996 of
$16,406 is primarily due to a decrease in Administrative Fees paid to the
Retirement Fund Administrator under the Retirement Fund's Administrative
Services Agreement.
Independent General Partners' Fees and Expenses incurred for the three
months ended March 31, 1996 and 1995, were $48,603 and $45,385, respectively.
The Retirement Fund incurred Professional Fees of $6,175 and $9,440 for the
three months ended March 31, 1996 and 1995, 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.
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 three months ended March 31, 1996, the Retirement Fund recorded net
unrealized depreciation on Enhanced Yield Investments of $3,736,918 as compared
to $3,076,319 for the three months ended March 31,1995. The change in unrealized
depreciation was primarily the result of unrealized depreciation in RI Holdings,
Inc., Pergament Home Centers, Inc. and U.S. Leather Holdings, Inc., the reversal
of unrealized appreciation in ASR Acquistion Corp., offset by unrealized
appreciation in Lexmark International Group, Inc. and Apollo Radio Holding Co.,
Inc.
<PAGE>
The following investments have been on non-accrual status as of the
respective dates:
U.S. Leather Holdings, Inc. 15%
Senior Subordinated Note October 1, 1995
MTI Holdings, Inc. 5%
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
Tulip Holding, Corp. 14.5% and 16.5%
Subordinated Notes January 1, 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
During the three months ended March 31, 1996, the Retirement Fund recorded
net realized gains of $1,077,600 on transactions involving two Enhanced Yield
Investments. For the three months ended March 31, 1995, the Retirement Fund
recorded net realized gains on investments of $40,754 on transactions involving
one Enhanced Yield Investment (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 March 31, 1996, Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule for the quarter ending March 31, 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 15th day of May,
1996.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group,
Incorporated, as Managing General Partner
Dated: May 15, 1996 /s/ Frank Savage
Frank Savage
Title: Chairman of the Board
Dated: May 15, 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 15th day of May, 1996.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group,
Incorporated, as Managing General Partner
Dated: May 15, 1996
Frank Savage
Title: Chairman of the Board
Dated: May 15, 1996
Laura Mah
Title: Vice President and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the first 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 85,220,941
<INVESTMENTS-AT-VALUE> 66,249,139
<RECEIVABLES> 2,110,346
<ASSETS-OTHER> 2,511
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,624,701
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<TOTAL-LIABILITIES> 85,407
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 221,072
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<REALIZED-GAINS-CURRENT> 1,077,600
<APPREC-INCREASE-CURRENT> (3,736,918)
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<DISTRIBUTIONS-OF-INCOME> 6,664,860
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