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, 1997
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) 979-1000
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, 1997 and December 31, 1996 5
Statements of Operations - For the Three Months
Ended March 31, 1997 and 1996 6
Statements of Changes in Net Assets - For the Three
Months Ended March 31, 1997 and 1996 7
Statements of Cash Flows - For the Three Months Ended
March 31, 1997 and 1996 8
Statement of Changes in Partners' Capital -
For the Three Months Ended March 31, 1997 9
Schedule of Portfolio Investments - March 31, 1997 10
Supplemental Schedule of Realized Gains and Losses
For the Three Months Ended March 31, 1997 13
Notes to Financial Statements 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
PART II - OTHER INFORMATION
Item 6. Exhibits 25
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C> <C>
March 31, 1997
ASSETS: Notes Unaudited December 31, 1996
Investments 2,10,12
Enhanced Yield Investments at Value-
Managed Companies
(amortized cost of $19,485,541 at
March 31, 1997 and $46,361,524
at December 31, 1996) $ 6,183,310 $ 47,988,305
Non-Managed Companies
(amortized cost of $13,007,781 at
March 31, 1997 and $12,961,638
at December 31, 1996) 14,840,699 14,814,796
Temporary Investments
(at amortized cost) 45,751,616 20,550,637
Cash 70,725 62,948
Interest Receivable 2,12 95,606 876,677
Note Receivable 3,4 1,130,967 1,178,728
Prepaid Expenses & Other Assets 5,126 80,223
TOTAL ASSETS $ 68,078,049 $ 85,552,314
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Professional Fees Payable 9 $ 55,905 $ 52,641
Independent General Partners' Fees Payable 8 13,208 20,846
Fund Administrative Expenses Payable 7 32,831 43,085
Other Accrued Liabilities 101,376 6,101
Total Liabilities 203,320 122,673
Partners' Capital
Managing General Partner 3,4 1,027,516 1,099,814
Limited Partners (221,072 Units) 4 66,847,213 84,329,827
Total Partners' Capital 67,874,729 85,429,641
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 68,078,049 $ 85,552,314
============= =============
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>
For the Three Months Ended
March 31, 1997 March 31, 1996
INVESTMENT INCOME- Notes 2,12:
Interest $ 1,172,266 $ 1,149,706
Discount -- 5,780
Dividend 60,536 --
TOTAL INVESTMENT INCOME 1,232,802 1,155,486
EXPENSES:
Investment Advisory Fee- Note 6 250,434 236,152
Fund Administration Fees and Expenses- Note 7 57,831 185,572
Independent General Partners'
Fees and Expenses - Note 8 35,000 48,603
Professional Fees - Note 9 88,618 6,175
Insurance Fees -- 4,410
Valuation Expenses 2,700 6,646
TOTAL EXPENSES 434,583 487,558
NET INVESTMENT INCOME 798,219 667,928
NET CHANGE IN UNREALIZED DEPRECIATION ON INVESTMENTS - Note 12 (14,949,252) (3,736,918)
NET REALIZED GAINS ON INVESTMENTS - Note 10 12,656,880 1,077,600
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,494,153) $ (1,991,390)
============= =============
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, 1997 March 31, 1996
FROM OPERATIONS:
Net Decrease in Net Assets
Resulting from Operations $ (1,494,153) $ (1,991,390)
Cash Distributions to Partners (16,012,999) (10,274,966)
Reduction in Managing General Partners'
Contribution (47,760) (36,462)
Total Decrease (17,554,912) (12,302,818)
NET ASSETS:
Beginning of Period 85,429,641 88,842,112
End of Period $ 67,874,729 $ 76,539,294
============ ============
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, 1997 March 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and Discount Income $ 5,778,306 $ 912,024
Fund Administration Fees & Expenses (68,085) (196,078)
Investment Advisory Fee (155,328) (236,152)
Independent General Partners' Fees and Expenses (42,638) (43,328)
Valuation Expenses (2,531) --
Sale (Purchase) of Temporary Investments, Net (24,905,926) 8,445,152
Proceeds from Sales and Principal Payments of
Enhanced Yield Investments 35,504,946 1,359,506
Professional Fees (85,353) (4,484)
Insurance Fees (2,615) --
Net Cash Provided by Operating Activities 16,020,776 10,236,640
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (16,012,999) (10,274,966)
Net Cash Used in Financing Activities (16,012,999) (10,274,966)
Net Increase (Decrease) in Cash 7,777 (38,326)
Cash at the Beginning of the Period 62,948 39,181
Cash at the End of the Period $ 70,725 $ 855
=============== ===============
RECONCILIATION OF NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Decrease In Net Assets
Resulting From Operations $ (1,494,153) $ (1,991,390)
Adjustments to Reconcile Net Decrease in Net Assets
Resulting from Operations to Net Cash Provided by Operating
Activities:
(Increase) Decrease in Investments (2,057,861) 8,727,055
Decrease (Increase) in Accrued Interest 4,545,505 (243,462)
Increase in Other Accrued Liabilities 95,275 6,646
Decrease in Fund Administration Expenses Payable (10,254) (10,506)
(Increase) Decrease in Prepaid Expenses (2,615) 4,412
Net Change in Unrealized Depreciation on Investments 14,949,252 3,736,918
(Decrease) Increase in Independent General
Partners' Fees Payable (7,638) 5,276
Increase in Professional Fees Payable 3,265 1,691
Total Adjustments 17,514,929 12,228,030
Net Cash Provided by Operating Activities $ 16,020,776 $ 10,236,640
=============== ===============
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 THREE MONTHS ENDED MARCH 31, 1997
Partners' Capital at January 1, 1997 $ 1,099,814 $ 84,329,827 $ 85,429,641
Cash Distributions to Partners (9,597) (16,003,402) (16,012,999)
Reduction in Managing General Partners' Contribution 3 (47,760) -- (47,760)
Allocation of Net Investment Income 11 7,983 790,236 798,219
Allocation of Net Unrealized Depreciation
on Investments 12 (149,493) (14,799,759) (14,949,252)
Allocation of Net Realized Gains on Investments 126,569 12,530,311 12,656,880
Partners' Capital at March 31, 1997 $ 1,027,516 $ 66,847,213 $ 67,874,729
============ ============ ============
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(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
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
------------ ----------- ------------
2,722,290 2,722,290 2,722,290 4.08%
------------ ----------- ------------------------
RI HOLDINGS, INC.
$ 12,972,582 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 0.36
----------- ------------ ----------------------
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 1,095,788
----------- ------------ ----------
7,308,000 7,308,000 1,095,788 1.64
----------- ------------ ---------------------
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 3.19
----------- ----------- ------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $19,485,541 $19,485,541 $ 6,183,310 9.27%
--------------------------------------- ----------- ----------- -------------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(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
CONSUMER PRODUCTS MANUFACTURING
LEXMARK INTERNATIONAL GROUP, INC. - NOTES 10,12
393,269 Shares Lexmark International Group, Inc.,
Class B Common Stock (c) 03/27/91 $ 2,621,774 $ 2,621,774 $ 9,536,773
----------- ------------ ------------
2,621,774 2,621,774 9,536,773 14.28%
----------- ------------ -----------------------
DISTRIBUTION SERVICES
WESTERN PIONEER, INC.
$ 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 3.54
--------- ----------- ----------------------
HEALTH SERVICES
MTI HOLDINGS, INC.
$ 113,386 MTI Holdings, Inc.,
Sr. Sec. Nt. 12% due 07/01/03* 08/06/96 113,386 113,386 113,386
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
---------- ---------- -----------
235,261 235,261 235,261 0.35
---------- ---------- -----------------------
MISCELLANEOUS RETAIL
PERGAMENT HOME CENTERS, INC.- NOTES 10,12
$ 2,543,200 Pergament Acq. Corp., Home Centers, Inc.
Floating Rate Demand Note due 07/31/00*(b) 10/18/91 2,439,833 2,439,833 1,271,600
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
----------- ----------- -----------
9,171,833 9,171,833 1,271,600 1.90
----------- ----------- -----------------------
BANKING AND FINANCE
BANK UNITED CORP. - NOTES 10,12
(FORMERLY USAT HOLDINGS INC.)
48,531 Shares Bank United Corp., Class A Common Stock (c) 01/05/90 325,624 325,624 1,431,665
----------- ------------ ------------
325,624 325,624 1,431,665 2.14
----------- ------------ ------------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $13,007,781 $13,007,781 $14,840,699 22.21%
------------------------------------------ ---------- ----------- ------------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $32,493,322 $32,493,322 $21,024,009 31.48%
---------------------------------------------- ----------- ----------- ------------------------
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1997
(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
$ 1,200,000 Certain Funding Corp., 5.40% due 4/02/97 1/22/97 $ 1,187,400 $ 1,199,820 $ 1,199,820
$ 7,500,000 Dakota Funding Inc., 5.33% due 4/07/97 2/11/97 7,438,927 7,493,338 7,493,338
$ 1,300,000 ASCC Commercial Paper, 5.40% due 4/16/97 3/19/97 1,294,540 1,297,075 1,297,075
$ 3,500,000 Ranger Funding Corp., 5.65% due 4/07/97 3/25/97 3,492,859 3,496,704 3,496,704
$ 3,500,000 Clipper Receivables, 5.58% due 4/22/97 3/25/97 3,484,810 3,488,607 3,488,607
$ 3,500,000 Sheffield Receivables Corp., 5.57% due 4/25/97 3/25/97 3,483,213 3,487,003 3,487,003
$ 3,500,000 Eureka Corp., 5.56% due 5/13/97 3/25/97 3,473,513 3,477,297 3,477,297
$ 3,500,000 Old Line Funding, 5.62% due 4/21/97 3/25/97 3,485,248 3,489,072 3,489,072
$ 3,500,000 Barton Capital Corp., 5.57% due 5/07/97 3/25/97 3,476,714 3,480,505 3,480,505
$ 3,500,000 Windmill Funding Corp., 5.58% due 5/01/97 3/25/97 3,479,927 3,483,725 3,483,725
$ 3,500,000 Triple A Funding, 5.70% due 4/10/97 3/25/97 3,491,133 3,495,013 3,495,013
$ 2,300,000 Greenwich Funding, 5.57% due 4/28/97 3/25/97 2,287,901 2,290,392 2,290,392
$ 3,500,000 Delaware Funding Corp., 5.60% due 4/30/97 3/25/97 3,480,400 3,484,211 3,484,211
$ 2,100,000 PHH Group Inc., 5.62% due 5/05/97 3/31/97 2,088,526 2,088,854 2,088,854
------------ -------------- ------------
TOTAL INVESTMENT IN COMMERCIAL PAPER $ 45,645,111 $ 45,751,616 $ 45,751,616 68.52%
------------------------------------ ------------ -------------- --------------------
TOTAL TEMPORARY INVESTMENTS $ 45,645,111 $ 45,751,616 $ 45,751,616 68.52%
--------------------------- ------------ -------------- --------------------
TOTAL INVESTMENT PORTFOLIO $ 78,138,433 $ 78,244,938 $ 66,775,625 100.00%
-------------------------- ============ ============== ====================
SUMMARY OF INVESTMENTS
Subordinated Notes $ 11,155,426 $ 11,155,426 $ 6,115,618 9.16%
Common Stock and Warrants 21,337,896 21,337,896 14,908,391 22.32
Temporary Investments 45,645,111 45,751,616 45,751,616 68.52
------------ -------------- --------------------
TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS $ 78,138,433 $ 78,244,938 $ 66,775,625 100.00%
---------------------------------------------- ============ ============== ====================
* 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.
</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, 1997
(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 1/15/97 $ -- $ -- $ 542 (A) $ 542
Lexmark International Group, Inc.
Class B Common Stock various 22,641 150,941 582,684 431,743
Bank United Corp.
Class A Common Stock various 383,872 2,575,631 10,740,739 8,165,108
Lexmark International, Inc.
14.25% Sr. Sub. Note 3/24/97 $24,103,269 24,103,269 28,162,756 4,059,487
Total Net Realized Gains for the
Three Months Ended March 31, 1997 $26,829,841 $39,486,721 $12,656,880
=========== =========== ===========
(A) Proceeds represent a distribution to the Retirement Fund from the escrow account.
See the Accompanying Notes to the Financial Statements.
</TABLE>
<PAGE>
EQUITABLE CAPITAL PARTNERS (RETIREMENT FUND), L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(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
$10,055,571 and $40,903,485 as of March 31, 1997 and December 31, 1996,
respectively, representing 14.8% and 47.8% 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
As discussed in Note 13, 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, 1997, resulted in a $47,760 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.
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 Retirement Funds, less 80% of commitment, transaction, investment banking
and "break-up" or other fees related to the Retirement Fund's investments (the
"Minimum Amount"). 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.
As stated in the Partnership Agreement, the Retirement Fund's allocable
share of the Minimum Amount is $874,350, or $218,588 per quarter. Investment
Advisory Fees at March 31, 1997, reflect an adjustment for the difference
between the Minimum Amount due to the Investment Advisor and what was paid for
quarters ending December 31, 1996 and March 31, 1997.
The Investment Advisory Fee is paid quarterly in advance. The Investment
Advisory Fees incurred by the Retirement Fund for the three months ended March
31, 1997 and 1996 were $250,434 and $236,152, respectively.
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, 1997 and 1996 were $25,000 and $169,610,
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, 1997 and 1996, the Retirement
Fund incurred Administrative expenses of $32,831 and $15,962, respectively,
which consisted primarily of printing, audit and tax return preparation and
custodian fees paid for by MLFAI on behalf of the Retirement Fund.
<PAGE>
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, 1997 and 1996, the Retirement Fund
incurred $35,000 and $48,603, respectively, of Independent General Partners'
Fees and Expenses.
9. Related Party Transactions
For the three months ended March 31, 1997 and 1996, the Retirement Fund
paid expenses of $8,566 and $6,175, respectively, as reimbursement for amounts
paid 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.
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.
<PAGE>
On January 2, 1997, the Retirement Fund received $51,224 from Pergament
Home Centers, Inc. as a principal paydown of the Floating Rate Demand Note held
by the Retirement Fund. No gain, loss or income has been recorded on this
transaction.
On January 15, 1997, the Retirement Fund received additional proceeds of
$542 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 first quarter of 1997, the Retirement Fund sold 22,641 shares of
Lexmark International Group, Inc. Class B Common Stock for $582,684 resulting in
a gain of $431,743 to the Retirement Fund.
In February 1997, the Retirement Fund sold 383,872 shares of Bank United
Corp. Class A Common Stock for $10,740,739 resulting in a gain of $8,165,108 to
the Retirement Fund.
On March 24, 1997, the Retirement Fund received a prepayment on Lexmark
International, Inc.'s 14.25% Senior Subordinated Notes outstanding, in the
principal amount of $24,103,269 together with a prepayment penalty of $4,059,487
and $791,892 of accrued interest. The transaction resulted in a gain of
$4,059,487 to the Retirement Fund.
All of the proceeds received during the first quarter of 1997 will be
distributed to Limited Partners of record as of March 31, 1997 on May 14, 1997.
As of March 31, 1997, the Retirement Fund had investments in 4 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 5 Non-Managed Companies (a
Non-Managed Company is one to which such assistance is not provided) totaling
$32,493,322 (including $422,439 capitalized cost of payment-in-kind securities),
consisting of $11,155,426 in senior notes and subordinated notes and $21,337,896
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, 1997, 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 three months ended March 31, 1997, the Retirement Fund recorded net
unrealized depreciation on Enhanced Yield Investments of $14,949,252 as compared
to $3,736,918 for the three months ended March 31, 1996. Such depreciation was
the result of adjustments in value made with respect to the following
investments during the three months ended March 31, 1997:
The amount includes the reversal of $6,545,973 of unrealized appreciation
of Bank United Corp. Class A Common Stock, due to the sale of 383,872 shares in
February 1997. Due to an increase in the quoted market price of Bank United
Corp. Class A Common Stock and the equity being valued at 100% of the closing
market price as compared to 90% at December 31, 1996, the Retirement Fund
recorded unrealized appreciation of $143,167 at March 31, 1997.
Due to the sale of 22,641 shares of Lexmark International Group, Inc. Class
B Common Stock in January 1997, the Retirement Fund reversed $1,801,801 of
unrealized appreciation.
On March 31, 1997, Leather U.S., Inc. common stock was written down from
100% to 15% of remaining cost, resulting in unrealized depreciation of
$6,212,212 to the Retirement Fund.
On March 31, 1997, the Pergament Home Centers, Inc. Floating Rate Demand
Note was written down from 75% to 50% of par, resulting in unrealized
depreciation of $532,433 to the Retirement Fund.
The following investments have been on non-accrual status as of the respective
dates:
Pergament Home Centers, Inc.
Floating Rate Demand Note July 1, 1996
Western Pioneer, Inc. 10%
Senior Subordinated Note November 30, 1994
RI Holdings, Inc. 16%
Senior Subordinated Notes April 25, 1994
Alliance Corporate continues to monitor the 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
1996, the tax basis of the Retirement Fund's assets was greater than the amounts
reported in the Financial Statements by $21,205,814. 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, 1997, the Independent General Partners approved an aggregate cash
distribution of $39,727,934 for the three months ended March 31, 1997, which was
paid on May 14, 1997. The amount distributed to Limited Partners was $39,722,217
or $179.68 per Unit (of which $26,625,912 is capital returned from investments
during the first quarter of 1997), to Limited Partners of record at March 31,
1997. On a per Unit basis, this distribution to Limited Partners includes $56.68
of realized gains, $2.56 of income from operations and $120.44 of return of
capital. The Managing General Partner's one percent allocation of $401,235 was
reduced by its one percent allocation of realized gains and capital returned
from investments during the first quarter of 1997, of $395,517 (which is being
held as a Deferred Distribution Amount pursuant to the Partnership Agreement),
resulting in a net distribution of $5,717.
<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, 1997, the Retirement Fund had a total of 9 Enhanced Yield
Investments at a net cost of $32,493,322 (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, 1997, the Retirement Fund received
proceeds from the following investments:
On January 2, 1997, the Retirement Fund received $51,224 from Pergament
Home Centers, Inc. as a principal paydown of the Floating Rate Demand Note held
by the Retirement Fund. No gain, loss or income has been recorded on this
transaction.
On January 15, 1997, the Retirement Fund received additional proceeds of
$542 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 first quarter of 1997, the Retirement Fund sold 22,641 shares of
Lexmark International Group, Inc. Class B Common Stock for $582,684 resulting in
a gain of $431,743 to the Retirement Fund.
In February 1997, the Retirement Fund sold 383,872 shares of Bank United
Corp. Class A Common Stock for $10,740,739 resulting in a gain of $8,165,108 to
the Retirement Fund.
On March 24, 1997, the Retirement Fund received a prepayment on Lexmark
International, Inc.'s 14.25% Senior Subordinated Notes outstanding, in the
principal amount of $24,103,269 together with a prepayment penalty of $4,059,487
and $791,892 of accrued interest. The transaction resulted in a gain of
$4,059,487 to the Retirement Fund.
All of the proceeds received during the first quarter of 1997 will be
distributed to Limited Partners of record as of March 31, 1997 on May 14, 1997.
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.
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.
<PAGE>
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, 1997, net investment income increased
by $130,291 as compared to the same period in 1996. Net investment income is
comprised of investment income (primarily interest and dividend income) offset
by expenses. The increase in the 1997 net investment income versus the
comparative period in 1996, reflects the increase in interest and dividend
income partially offset by the decrease in Fund Administration Fees and
Expenses.
For the three months ended March 31, 1997, the Retirement Fund had
investment income of $1,232,802, as compared to $1,155,486 for the same period
in 1996. The increase in 1997 investment income of 6.7% was primarily due to an
increase in dividend income.
The Retirement Fund incurred expenses of $434,583 for the three months
ended March 31, 1997, as compared to $487,558 for the same period in 1996. The
decrease in the 1997 expenses of $52,975 was primarily due to a decrease in 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 Professional Fees.
The Retirement Fund experienced a decrease in net assets resulting from
operations for the three months ended March 31, 1997 in the amount of
$1,494,153, as compared to a decrease of $1,991,390 for the comparative period
in 1996. The decrease in net assets for the three months ended March 31, 1997 is
comprised of net investment income of $798,219, net realized gains of
$12,656,880 offset by a net change in unrealized depreciation of $14,949,252.
For the comparable period in 1996, the decrease in net assets was 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 (see Statements of
Operations in the Financial Statements).
<PAGE>
For the three months ended March 31, 1997 and 1996, the Retirement Fund
incurred Investment Advisory Fees of $250,434 and $236,152, respectively, (as
described in Note 6 to the Financial Statements). The increase in the Investment
Advisory Fees is due an adjustment for the difference between the Minimum Amount
Due and the Investment Advisory Fee paid for the quarters ended December 31,
1996 and March 31, 1997.
The Retirement Fund Administration Fees and Expenses (as described in Note
7 to the Financial Statements) for the three months ended March 31, 1997 and
1996 were $57,831 and $185,572, respectively. The decrease from 1996 to 1997 of
$127,741 is due primarily to a decrease in the Retirement Fund's Available
Capital on which the Fund Administation 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 October 13, 1996,
the Fund Administation Fee was changed to an annual fee of $100,000 plus 100% of
all direct out-of-pocket expenses incurred by the Fund Administrator on behalf
of the Retirement Fund.
Independent General Partners' Fees and Expenses incurred for the three
months ended March 31, 1997 and 1996, were $35,000 and $48,603, respectively.
The Retirement Fund incurred Professional Fees of $88,618 and $6,175 for
the three months ended March 31, 1997 and 1996, respectively. For the three
months ended March 31, 1997, the Retirement Fund incurred $8,566 of related
party legal fees. (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, 1997, the Retirement Fund recorded net
unrealized depreciation on Enhanced Yield Investments of $14,949,252 as compared
to $3,736,918 for the three months ended March 31, 1996. The change in
unrealized depreciation was primarily the result of unrealized depreciation in
Leather U.S., Inc. and Pergament Home Centers, Inc. and the reversal of
unrealized appreciation in Lexmark International Group, Inc. and Bank United
Corp., offset by unrealized appreciation in Bank United Corp.
<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
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
During the three months ended March 31, 1997, the Retirement Fund recorded
net realized gains of $12,656,880 on transactions involving three Enhanced Yield
Investments. For the three months ended March 31, 1996, the Retirement Fund
recorded net realized gains on investments of $1,077,600 on transactions
involving two 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 March 31, 1997, 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, 1997.
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 13th day of May,
1997.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group
Incorporated, as Managing General Partner
Dated: May 13, 1997 /s/ James R. Wilson
-----------------------------
James R. Wilson
Title: President
Dated: May 13, 1997 /s/ Andy Pitsillos
------------------------------
Andy Pitsillos
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 13th day of May, 1997.
EQUITABLE CAPITAL PARTNERS
(RETIREMENT FUND), L.P.
By: Alliance Corporate Finance Group
Incorporated, as Managing General Partner
Dated: May 13, 1997
James R. Wilson
Title: President
Dated: May 13, 1997
Andy Pitsillos
Title: Vice President and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the first quarter of
1997Form 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 32,493,322
<INVESTMENTS-AT-VALUE> 21,024,009
<RECEIVABLES> 1,226,573
<ASSETS-OTHER> 5,126
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,078,049
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203,320
<TOTAL-LIABILITIES> 203,320
<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
<ACCUMULATED-NET-GAINS> 0
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<APPREC-INCREASE-CURRENT> (14,949,252)
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<NET-CHANGE-IN-ASSETS> (17,554,912)
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</TABLE>
