<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________________ to ____________________
Commission file number 0-17737
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Fiduciary Capital Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 86-0653600
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(State of organization) (I.R.S. Employer
Identification No.)
410 17th Street
Suite 400 80202
Denver, Colorado --------------
- ---------------------- (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code (800) 866-7607
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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 .
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Fiduciary Capital Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1996
<TABLE>
<CAPTION>
Table of Contents
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Page
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<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
June 30, 1996 3
Balance Sheets - June 30, 1996 and
December 31, 1995 5
Statements of Operations for the three
months ended June 30, 1996 and 1995 6
Statements of Operations for the six
months ended June 30, 1996 and 1995 7
Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 8
Statements of Changes in Net Assets for
the six months ended June 30, 1996 and
for the year ended December 31, 1995 9
Selected Per Unit Data and Ratios 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDUCIARY CAPITAL PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
JUNE 30 1996
(unaudited)
<TABLE>
<CAPTION>
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Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
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<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
182,453.91 sh. Neodata Corporation,
10.00% Class A Convertible 12/27/90 &
Preferred Stock - Series 2* 09/30/92 $ 337,945 $ 1
10,607.78 sh. Neodata Corporation, 12/27/90 &
Common Stock* 09/30/92 1 1
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337,946 2 0.0%
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27,944 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 9,905 562,373
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9,905 562,373 2.4
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75,856 sh. Amity Leather Products Co.,
Warrants to Purchase Class B
Common Stock* 07/30/92 104,091 817,355
27,392 sh. Amity Leather Products Co.,
Class A Common Stock* 07/30/92 273,920 295,151
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378,011 1,112,506 4.7
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$6,087,185 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(2) 09/24/93 5,966,905 5,966,905
7,119.71 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 711,971 908,949
489.27 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 48,927 48,927
510.83 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 51,078 51,078
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6,778,881 6,975,859 29.7
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260,400 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,596,621 2,596,621
27.28 sh. LMC Operating Corp.,
Common Stock* 02/09/96 545,599 4,799
52.08 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
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3,142,221 2,601,421 11.1
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42,404 sh. MTI Holdings II, Inc., 07/06/94 &
Common Stock* 12/28/94 287,930 38,164
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287,930 38,164 0.2
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</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
3
<PAGE> 4
FIDUCIARY CAPITAL PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
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Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
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<S> <C> <C> <C> <C> <C>
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,362,908 1,362,908
497.639 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 82,955 82,955
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1,445,863 1,445,863 6.1
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$3,934,080 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 01/19/03(4) 01/25/96 3,823,599 3,823,599
407,659 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(5)* 01/25/96 40,766 40,766
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3,864,365 3,864,365 16.4
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Total Investments in Managed Companies (70.6% of net assets) 16,245,122 16,600,553 70.6
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TEMPORARY INVESTMENTS:
$3,450,000 Cargill, Inc.,
5.06% Notes due 07/03/96 06/19/96 3,449,030 3,449,030
$3,450,000 International Business
Machines Corporation,
5.10% Notes due 07/03/96 06/19/96 3,449,023 3,449,023
- ----------------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (29.4% of net assets) 6,898,053 6,898,053 29.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments (100.0% of net assets) $23,143,175 $23,498,606 100.0%
==================================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in eight equal quarterly installments of $760,898
commencing on 11/30/99.
(3) The notes will amortize in three equal annual installments of $486,667
commencing on 5/24/00.
(4) The notes will amortize in five equal annual installments of $786,816
commencing on 1/19/99. (Note 5)
(5) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board.
The warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
4
<PAGE> 5
FIDUCIARY CAPITAL PARTNERS, L.P.
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
ASSETS:
Investments (Note 5):
Portfolio investments, at value :
Managed companies (amortized cost -
$16,245,122 and $16,677,145,
respectively) $ 16,600,553 $ 13,401,816
Temporary investments, at amortized cost 6,898,053 10,396,792
---------------- -----------------
Total investments 23,498,606 23,798,608
Cash and cash equivalents 321,123 200,969
Accrued interest receivable (Note 5) 196,567 140,490
Other assets 2,695 3,206
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Total assets $ 24,018,991 $ 24,143,273
================ =================
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 48,340 $ 60,372
Accounts payable and accrued liabilities 47,855 33,177
Distributions payable to partners 426,438 426,438
---------------- -----------------
Total liabilities 522,633 519,987
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CONTINGENCIES (Note 6)
NET ASSETS:
Managing General Partner (4,994) (3,725)
Limited Partners (equivalent to $16.70
and $16.79, respectively, per limited
partnership unit based on 1,407,244
units outstanding) 23,501,352 23,627,011
---------------- -----------------
Net assets 23,496,358 23,623,286
---------------- -----------------
Total liabilities and net assets $ 24,018,991 $ 24,143,273
================ =================
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
5
<PAGE> 6
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 496,579 $ 728,420
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Total investment income 496,579 728,420
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Expenses:
Investment advisory fees (Note 2) 41,888 58,353
Professional fees 35,092 15,153
Fund administration fees (Note 3) 35,842 35,842
Administrative expenses (Note 3) 20,277 20,277
Independent General Partner fees
and expenses (Note 4) 13,625 14,084
Other expenses 14,449 9,377
Amortization - 2,790
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Total expenses 161,173 155,876
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NET INVESTMENT INCOME 335,406 572,544
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REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments - 2,080,925
Net change in unrealized (loss) gain
on investments (52,061) (772,676)
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Net (loss) gain on investments (52,061) 1,308,249
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NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 283,345 $ 1,880,793
============== =============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 7
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 980,223 $ 1,433,175
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Total investment income 980,223 1,433,175
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Expenses:
Investment advisory fees (Note 2) 90,610 116,706
Professional fees 81,624 32,441
Fund administration fees (Note 3) 71,685 71,685
Administrative expenses (Note 3) 40,553 40,553
Independent General Partner fees
and expenses (Note 4) 31,943 32,946
Other expenses 29,205 17,901
Amortization - 5,580
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Total expenses 345,620 317,812
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NET INVESTMENT INCOME 634,603 1,115,363
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REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (3,539,416) 2,399,777
Net change in unrealized gain (loss)
on investments 3,630,760 (727,238)
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Net gain on investments 91,344 1,672,539
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NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 725,947 $ 2,787,902
============= =============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
7
<PAGE> 8
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 725,947 $ 2,787,902
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Accreted discount on portfolio investments (27,106) (42,649)
Amortization - 5,580
Change in assets and liabilities:
Accrued interest receivable (56,077) (150,923)
Other assets 511 1,327
Payable to affiliates (12,032) (1,662)
Accounts payable and accrued liabilities 14,678 (9,379)
Prepaid interest income - (60,146)
Net realized loss (gain) on investments 3,539,416 (2,399,777)
Net change in unrealized (gain) loss
on investments (3,630,760) 727,238
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Net cash provided by operating activities 554,577 857,511
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (4,400,998) (1,564,946)
Proceeds from dispositions of portfolio investments 1,320,711 4,082,154
Sale (purchase) of temporary investments, net 3,498,739 (2,260,284)
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Net cash provided by investing activities 418,452 256,924
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (852,875) (1,156,780)
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Net cash used in financing activities (852,875) (1,156,780)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 120,154 (42,345)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 200,969 171,999
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 321,123 $ 129,654
============ =============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
8
<PAGE> 9
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 634,603 $ 2,037,186
Net realized gain (loss) on investments (3,539,416) 4,588,421
Net change in unrealized (loss) gain
on investments 3,630,760 (7,180,010)
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Net increase (decrease) in net assets
resulting from operations 725,947 (554,403)
Repurchase of limited partnership units - (2,354,597)
Distributions to partners from net
investment income (852,875) (1,814,573)
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Total decrease in net assets (126,928) (4,723,573)
Net assets:
Beginning of period 23,623,286 28,346,859
----------- -----------
End of period (including undistributed
net investment income of $4,341
and $222,613, respectively) $23,496,358 $23,623,286
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
9
<PAGE> 10
FIDUCIARY CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .35 $ .47 $ .69 $ .93
Expenses ( .11) (.10) (.24) (.21)
------- -------- -------- ----------
Net investment income .24 .37 .45 .72
Net realized gain (loss) on investments - 1.35 (2.49) 1.56
Net change in unrealized (loss) gain
on investments ( .04) (.50) 2.55 (.47)
Distributions declared to partners ( .30) (.30) (.60) (.60)
------- -------- -------- ----------
Net (decrease) increase in net asset value ( .10) .92 (.09) 1.21
Net asset value:
Beginning of period 16.80 18.84 16.79 18.55
------- -------- -------- ----------
End of period $ 16.70 $ 19.76 $ 16.70 $ 19.76
======= ======== ======== ==========
Ratios (annualized):
Ratio of expenses to average net assets 2.74% 2.11% 2.93% 2.18%
Ratio of net investment income to
average net assets 5.69% 7.76% 5.38% 7.66%
Number of limited partnership units at end of period 1,407,244 1,526,949 1,407,244 1,526,949
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
10
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FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of June 30, 1996 and the results of its operations, changes in
net assets and its cash flows for the periods then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements
included in the Fund's annual audited financial statements for the year ended
December 31, 1995.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$90,610 were paid by the Fund for the six months ended June 30, 1996.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $71,685 were paid by the Fund for the six months ended June 30, 1996. FCM
is also reimbursed, subject to various limitations, for administrative expenses
incurred in providing accounting and investor services to the Fund. The Fund
reimbursed FCM for administrative expenses of $40,553 for the six months ended
June 30, 1996.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and Fiduciary Capital
Pension Partners, L.P., an affiliated fund, (collectively, the "Funds") an
annual fee of $30,000, payable monthly in arrears, together with all
out-of-pocket expenses. Each Fund's allocation of these fees and expenses is
based on the relative number of outstanding Units. Fees and expenses paid by
the Fund for the six months ended June 30, 1996 totaled $31,943.
5. PORTFOLIO INVESTMENTS
The companies which Atlas Environmental, Inc. ("Atlas") acquired with
the proceeds of the Fund's subordinated debt investment have not performed as
well as expected, and as a consequence, Atlas has defaulted on certain
financial covenants in its agreements with its senior lender and with the Fund.
The senior lender, the Bank of New York, has reacted to the covenant defaults
by limiting Atlas' availability under its revolving credit facility and by
instructing Atlas not to pay the interest on the Fund's subordinated debt that
was payable on
11
<PAGE> 12
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(unaudited)
July 19, 1996 in the amount of $134,250. In accordance with the intercreditor
agreement between the Fund and the Bank of New York, the bank can block
payments to the Fund for up to 180 days. During August 1996, the company
entered into a letter of intent, under the terms of which some of the company's
businesses would be sold for cash. This sale, if consummated, would provide
cash to pay the Fund's interest. As a result, the Fund accrued the interest
due on the subordinated debt as of June 30, 1996.
6. CONTINGENCIES
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated ("PaineWebber") and a number of its
affiliates concerning the sale of 70 different limited partnerships and other
direct investment programs. During May 1995, the Court entered an order
certifying the class and dismissing the class action against FCM without
prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement
agreement, which has been preliminarily approved by the Court. The agreement
provides for the complete resolution of the class action litigation, including
releases in favor of the Fund and FCM, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships,
including the Fund. The details of the settlement are described in a notice
mailed directly to class members at the direction of the Court. A final
hearing on the fairness of the proposed settlement has been scheduled for
October 25, 1996.
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities (not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $16.2 million. These
portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represent approximately 70.6% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and were subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies
have prepaid their subordinated debt that the Fund held. In addition, three of
the portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of June 30, 1996, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
During January 1996, the Fund invested $3,855,398 in Atlas
Environmental, Inc. ("Atlas"). The investment consists of $3,934,080 of 13.5%
Senior Subordinated Secured Notes due January 19, 2003, with warrants to
acquire 407,659 shares of common stock. The warrants have an exercise price of
$8.00 per share. The Atlas common stock is currently traded over the counter
on a limited basis with quotations provided via the OTC Bulletin Board under
the symbol "ATEV".
The companies which Atlas acquired with the proceeds of the Fund's
subordinated debt investment have not performed as well as expected, and as a
consequence, Atlas has defaulted on certain financial covenants in its
agreements with its senior lender and with the Fund. The senior lender, the
Bank of New York, has reacted to the covenant defaults by limiting Atlas'
availability under its revolving credit facility and by instructing Atlas not
to pay the interest on the Fund's subordinated debt that was payable on July
19, 1996 in the amount of $134,250. In accordance with the intercreditor
agreement between the Fund and the Bank of New York, the bank can block
payments to the Fund for up to 180 days. During August 1996, the company
entered into a letter of intent, under the terms of which some of the company's
businesses would be sold for cash. This sale, if consummated, would provide
cash to pay the Fund's interest. As a result, the Fund accrued the interest
due on the subordinated debt as of June 30, 1996.
During February 1996, the Fund sold its Huntington Holdings, Inc.
("Huntington") warrants. As discussed below, the Fund received $1,320,711 of
proceeds from this transaction. These proceeds have been reserved by the
Managing General Partner to partially fund either the Fund's 1996 repurchase
offer or any additional follow-on investments that the Fund may make in
existing portfolio companies.
During June 1994, the Fund invested $2,551,920 in LMC Operating Corp.
("LMC"). The investment consisted of $2,604,000 of 13.00% Senior Subordinated
Notes due May 31, 1999 with warrants to acquire common stock.
While LMC has experienced significant operating difficulties since the
Fund acquired its LMC investment during 1994, it is now progressing quite
satisfactorily under the guidance of its new management team. The major
accomplishment has been the re-engineering and modernization of the product
line. Initial responses from customers and other industry sources have been
positive. LMC is optimistic about the prospects for sales of its "utility"
models and are hopeful about fleet grooming sales.
13
<PAGE> 14
LMC is also trying to diversify its product line to reduce the
seasonality of its business and increase the utilization of its manufacturing
facility. It is concentrating on vehicles with low ground pressure in order to
utilize the engineering and manufacturing expertise gained from snow grooming
equipment. The projects currently underway are a joint venture with AEBI, a
Swiss company that manufactures grooming equipment utilized on golf courses
and highways, and the internal development of a tracked utility vehicle
designed for use by landscape and other contractors. Both projects are
progressing satisfactorily.
These projects may necessitate additional follow-on investments by the
Fund. We are also exploring other possible acquisitions, including one which
would result in a reverse merger into a small public company and a public
listing for LMC shares. Any such merger or acquisition may also require
additional Fund investment. The Fund currently owns 27% of LMC and our
affiliate, Fiduciary Capital Pension Partners, owns 23%.
Pursuant to the terms of the Fund's periodic unit repurchase policy
that was adopted by the Fund's Limited Partners during 1993, the Fund will
annually offer to purchase from its Limited Partners up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding
Units. The 1996 repurchase offer will be mailed to the Limited Partners during
October 1996. The actual redemption of tendered Units will occur on November
21, 1996.
Accrued interest receivable increased $56,077 from $140,490 at
December 31, 1995 to $196,567 at June 30, 1996. This increase resulted
primarily from the accrual of interest due on the Atlas notes that were
acquired during January 1996. This increase was partially offset by a
decrease, to zero, in the accrued interest receivable attributable to the
Fund's Canadian's investment.
During the six months ended June 30, 1996, the Fund paid cash
distributions pertaining to the fourth quarter of 1995 and the first quarter of
1996, each in the amount of $426,438. The distribution for the second quarter
of 1996 will be paid on August 15, 1996. These quarterly distributions are
equal to $.30 per Unit and represent an annualized rate equal to 6.0% of
contributed capital.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments in
new portfolio companies, except to fund commitments made prior to December 31,
1995. This will impact the amount of the Fund's quarterly distributions for
1996 and subsequent years because all proceeds from dispositions or maturities
of investments will be distributed to investors, except to the extent the cash
is needed to fund the annual repurchase offer or to fund any follow-on
investments that the Fund may make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to the
financial restructuring of LMC. As discussed above, one of the committed
investments, Atlas, was acquired during January 1996 and the LMC financial
restructuring was consummated during February 1996. The other two committed
investments have been abandoned. The portion of the Fund's available capital
that was reserved for these abandoned investments is now reserved to fund
either the Fund's 1996 repurchase offer or any additional follow-on investments
that the Fund may make in existing portfolio companies.
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber and a number of it affiliates concerning the
sale of 70 different limited partnerships and other direct investment programs.
During May 1995, the Court entered an
14
<PAGE> 15
order certifying the class and dismissing the class action against FCM without
prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement
agreement, which has been preliminarily approved by the Court. The agreement
provides for the complete resolution of the class action litigation, including
releases in favor of the Fund and FCM, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships,
including the Fund. The details of the settlement are described in a notice
mailed directly to class members at the direction of the Court. A final
hearing on the fairness of the proposed settlement has been scheduled for
October 25, 1996.
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities (not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $335,406 for the three months
ended June 30, 1996 as compared to net investment income of $572,544 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.37 to $.24 and the ratio of net investment
income to average net assets decreased from 7.76% to 5.69% for the three months
ended June 30, 1996 as compared to the corresponding period of the prior year.
The Fund's net investment income was $634,603 for the six months ended
June 30, 1996 as compared to net investment income of $1,115,363 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.72 to $.45 and the ratio of net investment
income to average net assets decreased from 7.66% to 5.38% for the six months
ended June 30, 1996 as compared to the corresponding period of the prior year.
Net investment income for both the three and six month periods ended
June 30, 1996 decreased primarily as a result of decreases in investment
income.
Investment income decreased $231,841 and $452,952, or 29.4% and 31.6%,
for the three and six month periods ended June 30, 1996, respectively, as
compared to the corresponding periods of the prior year. These decreases
resulted primarily from the conversion of the Fund's LMC debt securities into
non-dividend paying equity securities and the Canadian's bankruptcy. (Both of
these items are discussed elsewhere in this Report.) The Fund's total
investments also decreased as a result of the Fund's repurchase of 7.84% of its
Units during the fourth quarter of 1995.
Total expenses increased $5,297 and $27,808, or 3.4% and 8.0%, for the
three and six month periods ended June 30, 1996, respectively, as compared to
the corresponding periods of the prior year. These increases resulted
primarily from increases in professional fees and other expenses. These
increases were primarily the result of legal fees and other
15
<PAGE> 16
costs incurred in connection with Canadian's bankruptcy proceedings. The
increases in professional fees and other expenses were partially offset by
decreases in investment advisory fees and amortization expense. The investment
advisory fees decreased as a result of the repurchase of Units by the Fund
during the fourth quarter of 1995 and the realization during February 1996 of
the loss on the Fund's Canadian's investment. Both the repurchase of Units
and the realization of the Canadian's loss decreased the amount of the Fund's
available capital (as defined in the Partnership Agreement), which is the base
with respect to which the investment advisory fees are calculated. The Fund
amortized its organization costs over a five year period beginning with the
inception of the Fund in 1990. Therefore, these costs became fully amortized
during 1995.
Net Realized Gain (Loss) on Investments
Canadian's was a women's specialty retailer, which had 53 stores on
the East Coast, including stores in the New York City and Philadelphia
metropolitan areas. As widely reported in the business press, retailers almost
universally experienced extremely disappointing sales during the 1995 holiday
season. Women's specialty retailers were especially hard hit. This situation
was exacerbated by severe winter weather which hampered store operations from
Boston to Washington, D.C. As a result, a number of apparel retailers filed
for bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996 and ceasing all
operations during March 1996. As discussed in the Fund's previous filings,
Canadian's had embarked on a significant cost cutting program during the fall
of 1995, which included closing marginal stores and reducing general and
administrative costs. However, these measures were not sufficient to offset
the negative impact of the unusually bad holiday season.
As a result of these developments, it became evident that the Fund
will not recover any of its Canadian's investment. Accordingly, the Fund
recognized the $4,756,316 loss on its Canadian's investment as a realized loss
during the three months ended March 31, 1996. This loss recognition did not
significantly affect the Fund's total net gain (loss) on investments for the
six months ended June 30, 1996 because all but $5 of the loss was recorded as
an unrealized loss during 1995.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled $1,511,364, of which $1,320,711 was received during February
1996. The balance is being held in escrow to fund various transaction expenses
and potential contingent purchase price adjustments, and as collateral for
potential claims of the buyer with respect to representations made by the
selling shareholders, including the Fund. While the escrow amount must be
maintained for a two year period, certain of the sellers' representations will
survive for longer periods of time, which could result in the Fund being
required to reimburse the purchaser for certain costs and expenses after the
escrow is released. The Fund valued the Huntington warrants at December 31,
1995 at an amount approximately equal to 75% of the ultimate sales proceeds
(not including the Fund's share of the escrow) due to the inherent uncertainty
that existed at that time as to whether the sale would actually be consummated.
The Fund recognized a realized gain of $1,216,901 from this
transaction during February 1996. The Fund has not assigned any value to its
$190,653 share of the escrow because it is uncertain how much, if any, of the
escrowed funds will ultimately be received by the Fund. Additional gain will
be recognized if the Fund actually receives a distribution of any of the
escrowed funds.
16
<PAGE> 17
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and
for which market quotations are available, valuations are set by the closing
sales, or an average of the closing bid and ask prices, as of the valuation
date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment
is valued initially based upon its original cost to the Fund ("cost method").
The cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings,
cash flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future financial
prospects. In a case of unsuccessful operations, the appraisal may be based
upon liquidation value. Appraisal valuations are necessarily subjective. The
Fund also may use, when available, third-party transactions in a portfolio
company's securities as the basis of valuation ("private market method"). The
private market method is used only with respect to completed transactions or
firm offers made by sophisticated, independent investors.
As of December 31, 1995, the Fund had recorded $2,609,492 of
unrealized gain and $5,884,821 of unrealized loss on investments. Therefore,
as of December 31, 1995, the Fund had recorded a total net unrealized loss on
investments of $3,275,329.
The net increase in unrealized gain (loss) of investments during the
three and six month periods ended June 30, 1996 and the cumulative net
unrealized gain on investments as of June 30, 1996, consisted of the following
components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
------------------------------------------------------
During the Three During the Six
Months Ended Months Ended As of
Portfolio Company June 30, 1996 June 30, 1996 June 30, 1996
- ---------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Unrealized net loss recorded during
prior periods with respect to
investments disposed of during
the period $ - $3,841,121 $ -
Neodata - - (337,944)
KEMET (69,860) (108,283) 552,468
Amity - (137,677) 734,495
Elgin / ENI 17,799 35,599 196,978
LMC - - (540,800)
MTI II - - (249,766)
----------- ---------- --------------
$ (52,061) $3,630,760 $ 355,431
=========== ========== ==============
</TABLE>
The Neodata Corporation ("Neodata") stock was written down to a
negligible amount during 1995. The Partnership has consistently valued this
investment based upon a multiple of Neodata's cash flow. Because Neodata's
long-term debt presently provides for the accrual, rather than current payment,
of interest, the company's debt has grown to a level which exceeds the Fund's
valuation.
KEMET completed an IPO of its common stock during 1992. The stock,
which trades on the NASDAQ National Market System, closed at $20.125 (an
average of the closing bid and ask prices) on June 30, 1996. This price is
down from the closing prices of $34.125 on December 31, 1995 and $22.625 on
March 31, 1996. Based on the $20.125
17
<PAGE> 18
closing trading price of the common stock, the 27,944 shares of common stock
that the Fund held at June 30, 1996 had a market value of $562,373.
The Amity warrants and common stock were written down in value at
March 31, 1996 to bring Amity's valuation more in line with the valuation of
other comparable companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value
quarterly to reflect the amount of the cumulative 10% preferential dividend
that has accrued with respect to the preferred stock.
LMC experienced significant operating problems after the Fund acquired
its LMC investment during 1994 and the Fund was involved in a restructuring of
its LMC investment during 1995. In the restructuring, the Fund's existing LMC
subordinated debt and warrants were converted into preferred stock and the Fund
purchased $545,600 of new common stock. As a result of LMC's operational
difficulties and the fact that the Fund now owns equity securities rather than
debt securities, the Fund wrote its LMC investment down by $540,800 during
1995.
The MTI II common stock was written down in value during 1994 based
upon an independent third party valuation of the company that was obtained by
MTI II's management.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
18
<PAGE> 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending directly against the
Fund.
As previously reported, FCM, the Managing General Partner of the Fund,
was named as a defendant in a class action lawsuit against PaineWebber and a
number of its affiliates concerning its sale of 70 different limited
partnerships and other direct investment programs, including the offering of
the Units. Plaintiffs in the lawsuit allege, among other things, that the
defendants violated federal securities laws and committed common law fraud in
the marketing of direct investments.
On May 30, 1995, the United States District Court for the Southern
District of New York entered an order certifying the class and dismissing the
class action against FCM without prejudice. PaineWebber and Mezzanine Capital
Corporation, a minority general partner in FCM and an affiliate of PaineWebber,
remain as defendants.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation that the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is
approved by the court, there can be no assurance what, if any, payment or
non-monetary benefits will be made available to unitholders in the Fund.
During February 1996, approximately 150 plaintiffs filed an action in
Sacramento, California Superior Court against PaineWebber and various
affiliated entities concerning the plaintiffs' purchase of various limited
partnership interests. The complaint alleges, among other things, that
PaineWebber and its related entities committed fraud by selling or promoting
limited partnership investments that were unsuitable for the plaintiffs and by
overstating the benefits, understating the risks and failing to state material
facts concerning the investments. The complaint seeks compensatory damages of
$15 million, plus punitive damages.
The Fund was not named as a defendant in either lawsuit. However,
pursuant to certain contractual arrangements between FCM and PaineWebber in
connection with the offering of the Units, the Fund may be required to
indemnify PaineWebber and its affiliates for their costs and liability in
connection with any class action claims relating to the Fund. FCM believes
that the Fund's exposure with respect to the indemnity will not have any
material adverse effect on the Fund's financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11.1 Statement of Computation of Net Investment Income Per Limited
Partnership Unit.
19.1 Reports Furnished to Securities Holders.
27.1 Financial Data Schedule.
</TABLE>
19
<PAGE> 20
(b) The Registrant did not file any reports on Form 8-K during the
second quarter of the fiscal year ending December 31, 1996.
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Fiduciary Capital Partners, L.P.
(Registrant)
By: FCM Fiduciary Capital Management
Company Managing General Partner
Date: August 12, 1996 By: /s/ DONALD R. JACKSON
-----------------------------
Donald R. Jackson
Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C>
11.1 Statement of Computation of Net Investment Income Per Limited Partnership Unit.
19.1 Report Furnished to Securities Holders.
27.1 Financial Data Schedule.
</TABLE>
E-1
<PAGE> 1
EXHIBIT 11.1
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net Investment Income $ 335,406 $ 572,544 $ 634,603 $ 1,115,363
Percentage Allocable to Limited Partners 99% 99% 99% 99%
------------ ------------ ------------ -----------
Net Investment Income Allocable
to Limited Partners $ 332,052 $ 566,819 $ 628,257 $ 1,104,209
============ ============ ============ ===========
Weighted Average Number of Limited
Partnership Units Outstanding 1,407,244 1,526,949 1,407,244 1,526,949
============ ============ ============ ===========
Net Investment Income Per Limited
Partnership Unit $ .24 $ .37 $ .45 $ .72
============ ============ ============ ===========
</TABLE>
<PAGE> 1
CONTENTS
<TABLE>
<S> <C>
Fund Profile and Financial Highlights One
Message to Investors Two
Profiles of Portfolio Companies Five
Schedule of Investments Six
Balance Sheets Nine
Statements of Operations Ten
Statements of Cash Flows Eleven
Statements of Changes in Net Assets Twelve
Selected Per Unit Data and Ratios Thirteen
Notes to Financial Statements Fourteen
Report of Independent Public Accountants Eighteen
Management's Discussion and Analysis of
Financial Condition and Results of Operations Nineteen
</TABLE>
<PAGE> 2
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
FUND PROFILE
Fiduciary Capital Partners, L.P. (the "Fund") is a Delaware limited
partnership that commenced operations on August 14, 1990. The Fund has elected
to operate as a business development company under the Investment Company Act
of 1940, as amended. The investment objective of the Fund is to provide current
income and capital appreciation by investing primarily in subordinated debt and
related equity securities issued as the mezzanine financing of privately
structured, friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
As of December 31
or Year Ended December 31
1995 1994 1993 1992 1991
---------------------------------------------------------------
(in thousands, except per Unit amounts)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 2,669 $ 2,802 $ 3,133 $ 4,396 $ 3,827
Net Investment Income 2,037 2,127 2,400 3,703 3,168
Net Realized and Unrealized
(Loss) Gain on Investments (2,592) 1,824 180 513 -
Cash Distributions Declared to Partners 1,815 2,995 3,228 3,282 2,872
Cash Utilized to Repurchase Units 2,355 2,949 2,165 - -
Total Assets 24,143 29,188 31,188 34,068 33,104
Net Assets 23,623 28,347 30,339 33,153 32,219
Value of Investments 23,799 27,729 30,465 33,419 31,917
Per Unit of Limited Partnership Interest:(1)
Net Investment Income 1.33(2) 1.26(2) 1.33(2) 2.03 1.74
Net Realized and Unrealized
(Loss) Gain on Investments (1.70)(2) 1.08(2) .10(2) .29 -
Cash Distributions Declared to Partners(3) 1.20 1.80 1.80 1.80 1.58
Net Asset Value 16.79 18.55 17.98 18.36 17.84
</TABLE>
- --------------
(1) Effective October 1, 1993, each $1,000 Unit was redenominated into
fifty $20 Units. All amounts shown for prior periods have been
restated to give effect to this redenomination.
(2) Calculated using the weighted average number of Units outstanding
during the years ended December 31, 1995, 1994 and 1993 of 1,513,503,
1,669,129 and 1,791,201, respectively.
(3) Distribution amounts are reflected during the period in which the cash
for the distribution was generated. A portion of the actual cash
distributions are paid subsequent to such period.
------------------------------
ONE
<PAGE> 3
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
Dear Investor:
We are pleased to provide a summary of the recent activities of
Fiduciary Capital Partners, L.P. This Annual Report includes the Fund's audited
financial statements for the year ended December 31, 1995. Unaudited interim
financial statements for the first quarter of 1996 are also enclosed along with
this Annual Report.
HIGHLIGHTS
-- Distributions for 1995 totaled $1.20 per Unit, which
represents an annualized rate equal to 6.0% of contributed
capital.
-- The Fund's net asset value per Unit was $16.79 at December 31,
1995 and $16.80 at March 31, 1996 as compared to $18.55 at
December 31, 1994.
-- The Fund redeemed 7.84% of its outstanding Units during
November 1995 pursuant to the Fund's annual repurchase offer.
[NET ASSET VALUE AND CUMULATIVE DISTRIBUTIONS PER UNIT CHART]
CASH DISTRIBUTIONS
The Fund paid cash distributions of $.30 per Unit for each quarter of
1995. Each of these quarterly distributions represented an annualized rate
equal to 6.0% of contributed capital. The 1995 cash distributions were paid
entirely out of current net investment income.
The distribution for the first quarter of 1996 was paid on May 15,
1996 in an amount equal to $.30 per Unit, or an annualized rate equal to 6.0%
of contributed capital. This distribution consisted entirely of current and
accumulated net investment income. We expect the remaining 1996 distributions
to be made at the same 6.0% rate or greater.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments in
new portfolio companies, except to fund commitments made prior to December 31,
1995. This will impact the amount of the Fund's quarterly distributions for
subsequent years because all proceeds from future dispositions or maturities of
investments will be distributed to investors, except to the extent the cash is
needed to fund the annual repurchase offer or to fund any additional follow-on
investments that the Fund may make in existing portfolio companies.
INVESTMENT ACTIVITY
The Fund's subordinated debt investment in Protection One Alarm
Monitoring, Inc. was prepaid during 1995. In addition, the Fund sold its
subordinated debt investment in KB Alloys, Inc., all of its Carr-Gottstein
Foods Co. and Protection One, Inc. common stock and a portion of its KEMET
Corporation common stock during 1995. In the aggregate, the Fund recognized
approximately $4.59 million of net gain, including applicable prepayment
premiums, from these transactions.
During May 1995, the Fund acquired a new portfolio investment in
R.B.M. Precision Metal Products, Inc. ("RBM") at a cost of approximately $1.43
million. RBM, headquartered in Colorado Springs, Colorado, is a manufacturer of
precision sheet metal enclosures, chassis and assemblies for business machines.
Its principal customer is Hewlett Packard. This new investment consists of
$1,460,000 of 13.00% Senior Subordinated Secured Notes due May 24, 2002, with
warrants to acquire common stock.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled approximately $1.5 million, of which approximately $1.3
million was received during February 1996. The balance is being held in escrow
to fund various transaction expenses and potential
------------------------------
TWO
<PAGE> 4
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
contingent purchase price adjustments, and as collateral for potential claims
of the buyer with respect to representations made by the selling shareholders,
including the Fund. While the escrow amount must be maintained for a two year
period, certain of the sellers' representations will survive for longer periods
of time, which could result in the Fund being required to reimburse the
purchaser for certain costs and expenses after the escrow is released. The Fund
valued the Huntington warrants at December 31, 1995 at an amount approximately
equal to 75% of the ultimate sales proceeds (not including the Fund's share of
the escrow) due to the inherent uncertainty that existed at that time as to
whether the sale would actually be consummated. The Fund recognized a realized
gain of approximately $1.2 million for this transaction during February 1996.
The Fund has not assigned any value to its share of the escrow because it is
uncertain how much, if any, of the escrowed funds will ultimately be received
by the Fund. Additional gain will be recognized if the Fund actually receives a
distribution of any of the escrowed funds.
During June 1994, the Fund acquired an investment in LMC Operating
Corp. ("LMC"). LMC, headquartered in Logan, Utah, is the leading U.S.
manufacturer of light ground pressure vehicles, which are used primarily as
snow-groomers. The investment consisted of $2,604,000 of 13.00% Senior
Subordinated Notes due May 31, 1999, with warrants to acquire common stock.
LMC has experienced significant operating difficulties since the Fund
acquired its LMC investment during 1994. LMC's majority owner has taken a
number of steps to improve LMC's operating and financial performance. These
steps included hiring new senior management and significantly reducing staff.
The majority owner has also contributed a significant amount of additional
capital. However, it is anticipated that it will take some time for the company
to regain its previous market position and return to profitability.
During 1995, the majority owner requested that the Fund participate in
a financial restructuring of LMC. The Fund agreed to the proposed
restructuring, which was consummated during February 1996. As part of the
restructuring, the Fund converted its existing LMC subordinated debt and
warrants into preferred stock and agreed to make a follow-on investment for the
purchase of $545,600 of new common stock. As a result of the restructuring, the
Fund increased its ownership of LMC from approximately 13% to approximately
27%. Due to LMC's operational difficulties and the fact that the Fund now owns
equity securities rather than debt securities, the Fund wrote its LMC
investment down by $540,800 during November 1995.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. One of the committed investments, Atlas Environmental,
Inc. ("Atlas"), was acquired during January 1996. The other two committed
investments have been abandoned. The portion of the Fund's available capital
that had been reserved for these abandoned investments is now reserved to fund
either the Fund's 1996 annual repurchase offer or any additional follow-on
investments that the Fund may make in existing portfolio companies.
The Fund's Atlas investment was acquired at a cost of approximately
$3.86 million. Atlas, headquartered in Plantation, Florida, is a holding
company that owns and manages companies in certain segments of the
environmental services industry. The investment consists of $3,934,080 of 13.5%
Senior Subordinated Secured Notes due January 19, 2003, with warrants to
acquire 407,659 shares of common stock. The warrants have an exercise price of
$8.00 per share. The Atlas common stock is currently traded over the counter
on a limited basis with quotations provided via the OTC Bulletin Board under
the symbol "ATEV".
Canadian's was a women's specialty retailer, which had 53 stores on
the East Coast, including stores in the New York City and Philadelphia
metropolitan areas. As widely reported in the business press, retailers almost
universally experienced extremely disappointing sales during the 1995 holiday
season. Women's specialty retailers were especially hard hit. This situation
was exacerbated by severe winter weather which hampered store operations from
Boston to Washington, D.C. As a result, a number of apparel retailers filed for
bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996 and ceasing all
operations during March 1996. As discussed in previous correspondence,
Canadian's had embarked on a significant cost cutting program during the fall
of 1995, which included closing marginal stores and reducing general and
administrative costs. However, these measures were not sufficient to offset
the negative impact of the unusually bad holiday season.
As a result of these developments, it is evident that the Fund will
not recover any of its approximately $4.76 million investment in Canadian's.
Accordingly, the Fund recorded an unrealized loss for this amount during 1995.
The loss became a realized loss during February 1996.
NET UNREALIZED GAIN (LOSS) ON PORTFOLIO INVESTMENTS
The cumulative net unrealized gain (loss) on investments held
------------------------------
THREE
<PAGE> 5
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
by the Fund at March 31, 1996 and December 31, 1995, consisted of the following
components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-----------------------------------------------
March 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Amity $734,495 $ 872,172
KEMET 622,328 660,751
Elgin / ENI 179,179 161,379
MTI II (249,766) (249,766)
Neodata (337,944) (337,944)
LMC (540,800) (540,800)
Huntington - 915,190
Canadian's - (4,756,311)
- -----------------------------------------------------------------------------------------------
$407,492 $(3,275,329)
===============================================================================================
</TABLE>
The KEMET equity investment consists of publicly traded common stock
that was valued based upon actual trading prices. The Amity, Elgin/ENI, MTI II
and Neodata valuation adjustments all relate to equity securities held by the
Fund that are not traded in any liquid public markets. These equity securities
were valued by the Managing General Partner pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. The valuations are based upon such factors as the
portfolio company's earnings, cash flow and net worth, the market prices for
similar securities of comparable companies and an assessment of the portfolio
company's future financial prospects. As discussed above, the unrealized gain
(loss) at December 31, 1995 with respect to the Huntington and Canadian's
investments were realized during the three months ended March 31, 1996.
PERIODIC UNIT REPURCHASE POLICY
The Fund's investors adopted a periodic unit repurchase plan during
1993. Pursuant to the terms of the repurchase policy, the Fund will annually
offer to purchase from investors, up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units. During November
1995, 119,705 Units (7.84% of the outstanding Units) were redeemed at a net
asset value per Unit of $19.67 ($19.28, net of the 2% fee).
The next opportunity to have the Fund repurchase your Units will occur
during the fourth quarter of 1996. The repurchase offer will be mailed to
investors on October 7, 1996, and the deadline for tendering Units for
repurchase will be October 31, 1996. The repurchase price will be based on the
net asset value per Unit on November 14, 1996 and payment for tendered Units
will be made on November 21, 1996.
* * *
If you have any questions regarding your investment in the Fund,
please call us at 800-866-7607.
Sincerely,
Paul Bagley, Chairman
FCM Fiduciary Capital Management Company
W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company
May 17, 1996
------------------------------
FOUR
<PAGE> 6
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
PROFILES OF PORTFOLIO COMPANIES
Neodata Corporation ("Neodata") Neodata, headquartered in Louisville,
Colorado, is the largest contract fulfillment company in the world and a leader
in providing fulfillment and marketing services to the magazine publishing
industry.
KEMET Corporation ("KEMET") KEMET, headquartered in Greenville, South
Carolina, is a leading manufacturer and distributor of both solid tantalum and
monolithic ceramic capacitors used as components in circuit boards. The KEMET
stock is listed on the NASDAQ National Market System.
VALUE OF 1995 YEAR-END INVESTMENTS BY PORTFOLIO COMPANY
[PIE CHART]
Note: As of December 31, 1995, the Fund also held investments in Neodata and
Canadian's, which were valued at a negligible amount.
Huntington Holdings, Inc. ("Huntington") Huntington, headquartered in
Huntington, Indiana, is one of the largest manufacturers and marketers of
maintenance and cleaning chemicals in North America. Huntington produces a wide
range of intermediate and final-stage cleansers, sterilants and disinfectants
for use by hospitals, schools, nursing homes and various industries. Huntington
was recently sold to Ecolab Inc., a New York Stock Exchange listed company.
Amity Leather Products Co. ("Amity") Amity, headquartered in West
Bend, Wisconsin, manufactures men's and ladies' fine personal leather goods and
distributes these products to department stores, mass merchandisers and
company-owned Wallet Works stores. Amity markets its products under the brand
names of Rolfs, Amity and LaGarde.
Elgin National Industries, Inc. ("Elgin") Elgin, headquartered in
Chicago, Illinois, is a diversified industrial company that is organized into
three distinct segments. The Industrial Products Group manufactures specialty
industrial threaded fasteners. The Manufacturing Group manufactures machinery
and equipment for niches in coal and other mineral processing markets. The
Engineering and Construction Group provides a full range of engineering, design
and construction management services, including serving as a general contractor
under turn-key design and build contracts.
LMC Operating Corp. ("LMC") LMC, headquartered in Logan, Utah, is the
leading U.S. manufacturer of light ground pressure vehicles. These vehicles are
primarily used as snow-groomers and have several alternative uses including
infrastructure development and maintenance in remote locations, right-of-way
clean-up, search and rescue and military troop deployment. Primary purchasers
of the vehicles include ski resorts, utility companies and various governmental
agencies.
MTI Holdings II, Inc. ("MTI II") MTI II's subsidiary, Mobile
Technology, Inc. ("MTI"), is a provider of magnetic resonance imaging ("MRI")
and computed tomography mobile shared-services.
Canadian's Corp. ("Canadian's") Canadian's, headquartered in
Fairfield, New Jersey, is a specialty retailer of moderately priced junior
women's apparel and accessories. Canadian's filed for Chapter 11 bankruptcy
protection on February 21, 1996.
R.B.M. Precision Metal Products, Inc. ("RBM") RBM, headquarterd in
Colorado Springs, Colorado, is a manufacturer of precision sheet metal
enclosures, chassis and assemblies for business machines. Its principal
customer is Hewlett Packard.
------------------------------
FIVE
<PAGE> 7
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
182,453.91 sh. Neodata Corporation,
10.00% Class A Convertible 12/27/90 &
Preferred Stock - Series 2* 09/30/92 $ 337,945 $ 1
10,607.78 sh. Neodata Corporation, 12/27/90 &
Common Stock* 09/30/92 1 1
- ---------------------------------------------------------------------------------------------------------------------------
337,946 2 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
27,944 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 9,905 670,656
- ---------------------------------------------------------------------------------------------------------------------------
9,905 670,656 2.8
- ---------------------------------------------------------------------------------------------------------------------------
358.2 sh. Huntington Holdings, Inc.,
Warrants to Purchase
Common Stock(2)* 01/31/92 103,811 1,019,001
- ---------------------------------------------------------------------------------------------------------------------------
103,811 1,019,001 4.3
- ---------------------------------------------------------------------------------------------------------------------------
75,856 sh. Amity Leather Products Co.,
Warrants to Purchase Class B
Common Stock* 07/30/92 104,091 918,506
27,392 sh. Amity Leather Products Co.,
Class A Common Stock* 07/30/92 273,920 331,677
- ---------------------------------------------------------------------------------------------------------------------------
378,011 1,250,183 5.3
- ---------------------------------------------------------------------------------------------------------------------------
$6,087,185 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 5,955,900 5,955,900
7,119.71 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 711,971 873,350
489.27 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 48,927 48,927
510.83 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 51,078 51,078
- ---------------------------------------------------------------------------------------------------------------------------
6,767,876 6,929,255 29.1
- ---------------------------------------------------------------------------------------------------------------------------
$2,604,000 LMC Operating Corp.,
13.00% Senior Secured
Subordinated Term Notes
due 5/31/99(4)* 06/10/94 2,479,440 2,055,819
17.447 sh. LMC Operating Corp.,
Warrants to Purchase
Common Stock* 06/10/94 117,180 1
17.36 sh. LMC Credit Corp.,
Warrants to Purchase
Common Stock* 06/10/94 1 1
- ---------------------------------------------------------------------------------------------------------------------------
2,596,621 2,055,821 8.6
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
------------------------------
SIX
<PAGE> 8
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
42,404 sh. MTI Holdings II, Inc., 07/06/94 &
Common Stock* 12/28/94 287,930 38,164
- ---------------------------------------------------------------------------------------------------------------------------
287,930 38,164 0.2
- ---------------------------------------------------------------------------------------------------------------------------
$2,733,000 Canadian's Corp.,
13.50% Subordinated 09/09/94 &
Notes due 09/01/02(5)* 12/29/94 2,629,752 1
$334,000 Canadian's Holdings, Inc.,
12.00% Exchangeable
Redeemable Debentures 09/09/94 &
due 8/31/04(6)* 12/29/94 318,784 1
$147,778 Canadian's Corp.,
Promissory Notes
due 01/31/97(7)* 05/08/95 137,164 1
1,392,336 sh. Canadian's Holdings, Inc.,
Common Stock* 09/22/95 39,782 1
$1,630,834 Canadian's Corp.,
Collateralized Loan
Guarantee earning
interest at 13.75%
due 08/31/04 09/22/95 1,630,834 1
- ---------------------------------------------------------------------------------------------------------------------------
4,756,316 5 0.0
- ---------------------------------------------------------------------------------------------------------------------------
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(8) 05/24/95 1,355,774 1,355,774
497.639 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 82,955 82,955
- ---------------------------------------------------------------------------------------------------------------------------
1,438,729 1,438,729 6.0
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (56.7% of net assets) 16,677,145 13,401,816 56.3
- ---------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$5,200,000 Ford Motor Credit Corporation,
5.563% Notes due 01/03/96 12/19/95 5,198,396 5,198,396
$5,200,000 General Electric Capital Corp.,
5.563% Notes due 01/03/96 12/19/95 5,198,396 5,198,396
- ---------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (44.0% of net assets) 10,396,792 10,396,792 43.7
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (100.7% of net assets) $27,073,937 $23,798,608 100.0%
===========================================================================================================================
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
------------------------------
SEVEN
<PAGE> 9
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Pursuant to the terms of the Fund's agreement with Huntington Holdings,
Inc., under certain circumstances the number of shares issuable upon
exercise of the warrants held by the Fund will increase periodically. The
most recent such increase occurred on August 1, 1995 when the Fund received
the right to an additional 33.6 shares.
(3) The notes will amortize in eight equal quarterly installments of $760,898
commencing on 11/30/99.
(4) The notes will amortize as follows: $32,623 on 9/01/97, $33,683 on
12/01/97, $34,777 on 3/01/98, $35,908 on 6/01/98, $37,075 on 9/01/98,
$38,280 on 12/01/98, $39,524 on 3/01/99 and $2,352,130 on 5/31/99. The
accrual of interest on the notes was discontinued by the Fund effective
December 1, 1995. In addition, the Fund has agreed to restructure its LMC
investment. The restructuring will involve a conversion of the Fund's
existing subordinated debt and warrants into preferred stock and a
follow-on investment in LMC for the purchase of new common stock. (Notes 12
and 13)
(5) The notes will amortize in twelve equal quarterly installments of $227,750
commencing on 12/01/99. The notes also bear contingent additional interest
to be computed under a specified formula. The accrual of interest on the
notes was discontinued by the Fund effective December 31, 1995. (Note 12)
(6) The debentures are convertible into Canadian's Holdings, Inc. common stock.
The accrual of interest on the debentures was discontinued by the Fund
effective April 1, 1995. (Note 12)
(7) The notes bear interest equal to the prime rate, plus 5%. The accrual of
interest on the notes was discontinued by the Fund effective October 1,
1995. (Note 12)
(8) The notes will amortize in three equal annual installments of $486,667
commencing on 5/24/00.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
------------------------------
EIGHT
<PAGE> 10
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments (Notes 2, 10, 11, 12 and 13)
Portfolio investments, at value:
Managed companies (amortized cost -
$16,677,145 and $18,948,391, respectively) $13,401,816 $22,853,071
Temporary investments, at amortized cost 10,396,792 4,876,188
- --------------------------------------------------------------------------------------------------------
Total investments 23,798,608 27,729,259
Cash and cash equivalents (Note 2) 200,969 171,999
Accrued interest receivable (Note 12) 140,490 627,846
Other assets, including receivables from sale of investments 3,206 659,011
- --------------------------------------------------------------------------------------------------------
Total assets $24,143,273 $29,188,115
========================================================================================================
LIABILITIES:
Due to affiliates (Notes 6, 7, 8 and 9) $ 60,372 $ 52,354
Accounts payable and accrued liabilities 33,177 34,688
Prepaid interest income - 60,146
Distributions payable to partners (Note 3) 426,438 694,068
- --------------------------------------------------------------------------------------------------------
Total liabilities 519,987 841,256
- --------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
NET ASSETS (NOTES 3 AND 4):
Managing General Partner (3,725) 19,965
Limited Partners (equivalent to $16.79
and $18.55, respectively, per limited
partnership unit based on 1,407,244
and 1,526,949 units outstanding) (Note 5) 23,627,011 28,326,894
- --------------------------------------------------------------------------------------------------------
Net assets 23,623,286 28,346,859
- --------------------------------------------------------------------------------------------------------
Total liabilities and net assets $24,143,273 $29,188,115
========================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
------------------------------
NINE
<PAGE> 11
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $2,626,521 $2,748,575 $3,132,724
Other income 42,325 53,171 -
- -----------------------------------------------------------------------------------------------------------------------
Total investment income 2,668,846 2,801,746 3,132,724
- -----------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 6) 228,980 274,085 316,113
Fund administration fees (Note 7) 143,370 143,370 143,370
Independent General Partner fees
and expenses (Note 8) 58,015 57,620 55,687
Administrative expenses (Note 7) 80,147 80,269 81,695
Professional fees 71,869 51,252 59,701
Amortization 9,323 11,160 11,160
Other expenses 39,956 57,101 64,982
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 631,660 674,857 732,708
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,037,186 2,126,889 2,400,016
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (Note 10) 4,588,421 (2,532,109) 1,089,907
Net change in unrealized (loss) gain
on investments (Note 11) (7,180,010) 4,356,233 (910,109)
- -----------------------------------------------------------------------------------------------------------------------
Net (loss) gain on investments (2,591,589) 1,824,124 179,798
- -----------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (554,403) $3,951,013 $2,579,814
=======================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
------------------------------
TEN
<PAGE> 12
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (554,403) $ 3,951,013 $ 2,579,814
Adjustments to reconcile net increase
in net assets resulting from operations
to net cash provided by operating activities:
Accreted discount on portfolio investments (84,359) (57,498) (34,431)
Amortization 9,323 11,160 11,160
Change in assets and liabilities:
Accrued interest receivable 487,356 (252,799) (106,925)
Other assets 1,334 4,749 (3,014)
Due to affiliates 9,164 712 (16,859)
Accounts payable and accrued liabilities (1,511) 3,263 4,500
Prepaid interest income (60,146) 60,146 -
Net realized (gain) loss on investments (4,588,421) 2,532,109 (1,089,907)
Net change in unrealized loss (gain)
on investments 7,180,010 (4,356,233) 910,109
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,398,347 1,896,622 2,254,447
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (3,198,810) (5,524,231) (13,953,009)
Proceeds from dispositions of portfolio investments 10,786,839 12,210,282 12,855,622
(Purchase) sale of temporary investments, net (5,520,606) (2,712,730) 4,265,332
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,067,423 3,973,321 3,167,945
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (2,082,203) (3,067,492) (3,282,000)
Repurchase of limited partnership units (2,354,597) (2,948,767) (2,164,915)
Deferred repurchase plan costs - 1,036 (1,036)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,436,800) (6,015,223) (5,447,951)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 28,970 (145,280) (25,559)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 171,999 317,279 342,838
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 200,969 $ 171,999 $ 317,279
- -----------------------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Investments exchanged for other investments $ - $ 287,930 $ -
=======================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
------------------------------
ELEVEN
<PAGE> 13
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 2,037,186 $ 2,126,889 $ 2,400,016
Net realized gain (loss) on investments 4,588,421 (2,532,109) 1,089,907
Net change in unrealized (loss) gain
on investments (7,180,010) 4,356,233 (910,109)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets
resulting from operations (554,403) 3,951,013 2,579,814
Repurchase of limited partnership units (Note 5) (2,354,597) (2,948,767) (2,164,915)
Distributions to partners from -
Net investment income (1,814,573) (2,126,889) (3,175,434)
Realized gain on investments - (867,798) (52,939)
- -----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (4,723,573) (1,992,441) (2,813,474)
Net assets:
Beginning of year 28,346,859 30,339,300 33,152,774
- -----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $222,613, $0 and $0, respectively) $23,623,286 $28,346,859 $30,339,300
=======================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
------------------------------
TWELVE
<PAGE> 14
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS(1)
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ 1.74(2) $ 1.66(2) $ 1.73 (2) $ 2.41 $ 2.10
Expenses (.41)(2) (.40)(2) (.40)(2) (.38) (.36)
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 1.33(2) 1.26(2) 1.33 (2) 2.03 1.74
Net realized gain (loss) on investments 3.00(2) (1.50)(2) .60 (2) .03 -
Net change in unrealized (loss) gain
on investments (4.70)(2) 2.58(2) (.50)(2) .26 -
Effect of unit repurchases on
net asset value (.19) .03 (.01) - -
Distributions declared to partners (1.20) (1.80) (1.80) (1.80) (1.58)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net asset value (1.76) .57 (.38) .52 .16
Net asset value:
Beginning of period 18.55 17.98 18.36 17.84 17.68
- -----------------------------------------------------------------------------------------------------------------------
End of period $16.79 $18.55 $17.98 $18.36 $17.84
=======================================================================================================================
RATIOS:
Ratio of expenses to average net assets 2.23% 2.24% 2.24% 2.13% 2.03%
Ratio of net investment income to
average net assets 7.19% 7.06% 7.34% 11.36% 9.74%
Number of limited partnership units
at end of period(1) 1,407,244 1,526,949 1,687,121 1,805,100 1,805,100
</TABLE>
- ---------------
(1) Effective October 1, 1993, each $1,000 limited partnership unit was
redenominated into fifty $20 limited partnership units. All amounts
shown for prior periods have been restated to give effect to this
redenomination.
(2) Calculated using the weighted average number of limited partnership
units outstanding during the years ended December 31, 1995, 1994 and
1993 of 1,513,503, 1,669,129 and 1,791,201, respectively.
The accompanying notes to financial statements are an integral part of
these selected per unit data and ratios.
------------------------------
THIRTEEN
<PAGE> 15
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND PURPOSE
Fiduciary Capital Partners, L.P. (the "Fund"), a Delaware limited
partnership, was formed on October 20, 1988 to operate as a business
development company under the Investment Company Act of 1940. The Fund's
operations commenced on August 14, 1990.
FCM Fiduciary Capital Management Company ("FCM"), the Managing General
Partner of, and the investment adviser to, the Fund, is responsible, subject to
the supervision of the Independent General Partners, for overseeing and
monitoring the Fund's investments.
The investment objective of the Fund is to provide current income and
capital appreciation by investing primarily in subordinated debt and related
equity securities issued as the mezzanine financing of privately structured,
friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations. These investments are referred to herein as "portfolio
investments". Managed companies are those to which significant managerial
assistance is offered.
As set forth in the Partnership Agreement, the Fund's investment
period ended on December 31, 1995. Although the Fund is permitted to make
additional investments in existing portfolio companies, the Fund is no longer
permitted to acquire investments in new portfolio companies, except to fund
commitments made prior to December 31, 1995. (See Note 13.)
A separate fund, Fiduciary Capital Pension Partners, L.P. ("FCPP"),
was also formed on October 20, 1988 for tax-exempt investors with investment
objectives, policies and restrictions similar to those of the Fund. While the
Fund and FCPP have co-invested in each of the portfolio investments, each fund
is accounted for separately. Each fund's participation in the portfolio
investments is in proportion to the amount of capital that each fund had
available for investment at the time each investment was acquired. Certain
expenses are allocated between the funds based on the amount of each fund's
total capital. The accompanying financial statements include only the
activities of the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
Accounting Method The Fund maintains its accounting records, prepares
financial statements and files its tax returns using the accrual method of
accounting.
Valuation of Investments FCM values the Fund's investments on a weekly
basis utilizing a variety of methods. For securities that are publicly traded
and for which market quotations are available, valuations are set by the
closing sales, or an average of the closing bid and asked prices, as of the
valuation date. The Fund discounts these closing market prices between 5% and
20% to reflect lack of liquidity, if the Fund's securities are subject to legal
or contractual trading restrictions, or to reflect the potential market impact
which could result from the sale of the securities, if the Fund and FCPP
combined own a material percentage of the outstanding securities. The amount of
the discount varies based upon the type of restriction, the time remaining on
the restriction and the size of the holding.
Fair value for securities that are not fully traded in any liquid
public markets or that are privately held are determined pursuant to valuation
policies and procedures which have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment is
valued initially based upon its original cost to the Fund ("cost method"). Debt
securities with attached warrants for the purchase of common stock are
initially recorded at a discount from face value equal to the estimated
relative value of the warrants at date of investment. The discount is amortized
to income as an adjustment to yield from the debt securities. Face value less
unamortized discount represents the "amortized cost" of the debt securities.
The cost method is used until significant developments affecting the
portfolio company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings,
cash flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future financial
prospects. In a case of unsuccessful operations, the appraisal may be based
upon liquidation value. Appraisal valuations are necessarily subjective. The
Fund also may use, when available, third-party transactions in a portfolio
company's securities as the basis of valuation ("private market method"). The
private market method is used only with respect to completed transactions or
firm offers made by sophisticated, independent investors.
Temporary investments with maturities of less than 60 days are stated
at amortized cost, which approximates market value. Under this method,
temporary investments are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the investment.
Cash and Cash Equivalents The Fund considers investments
------------------------------
FOURTEEN
<PAGE> 16
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
in money market funds to be cash equivalents.
Interest Receivable on Notes Notes are placed on non-accrual status in
the event of a default (after any applicable grace period expires) or if FCM
determines that there is no reasonable expectation of collecting the interest.
Income Taxes No provision for income taxes has been made in the
financial statements because taxes on Fund income are the responsibility of the
individual partners rather than the Fund.
Investment Transactions The Fund records portfolio investment
transactions on the date on which it obtains an enforceable right to demand the
securities or payment thereof and records temporary investment transactions on
the trade date. Realized gains and losses on investments are determined on the
basis of specific identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from
temporary investments will be distributed and allocated 99% to the Limited
Partners and 1% to FCM. Net investment income will, in general, be distributed
and allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative non-compounded preferred return of 9% per
annum on their capital contributions to the Fund, then (ii) 70% to the Limited
Partners and 30% to FCM until FCM has received 10% of all current and prior
distributions and allocations, and thereafter, (iii) 90% to the Limited
Partners and 10% to FCM.
Proceeds from capital transactions will, in general, be distributed
and allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative, non-compounded preferred return of 9% per
annum on their capital contribution to the Fund from net investment income,
capital transactions, or both, then (ii) 100% to the Limited Partners until
they have received a return of their capital contributions to the Fund, and
thereafter, (iii) 80% to the Limited Partners and 20% to FCM.
All cash distributions and earnings since the inception of the Fund
have been allocated 99% to the Limited Partners and 1% to FCM.
4. CAPITAL CONTRIBUTIONS
Upon formation of the Fund, FCM contributed $4,000 for its general
partner interest in the Fund. Units of limited partnership interest ("Units")
were then sold in a public offering. The Fund held three closings between
August 14, 1990 and October 18, 1990, receiving gross offering proceeds of
$36,102,000. Commissions and other offering costs were charged against proceeds
resulting in net capital contributions from Limited Partners of $31,860,015.
5. PERIODIC UNIT REPURCHASE PLAN
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to repurchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding
Units.
Repurchases of Units since the adoption of the plan can be summarized
as follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
----------------- ------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
---------------- ------ ----- ----- ------
<S> <C> <C> <C> <C>
November 1993 117,979 6.54% $18.35 $17.98
November 1994 160,172 9.49% 18.41 18.04
November 1995 119,705 7.84% 19.67 19.28
</TABLE>
6. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$228,980, $274,085 and $316,113 were incurred by the Fund for 1995, 1994 and
1993, respectively.
7. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $143,370 were incurred each year by the Fund during 1995, 1994 and 1993. FCM
is also reimbursed, subject to various limitations, for administrative expenses
incurred in providing accounting and investor services to the Fund. The Fund
reimbursed FCM for administrative expenses of $80,147, $80,269 and $81,695 for
1995, 1994 and 1993, respectively.
------------------------------
FIFTEEN
<PAGE> 17
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and FCPP an annual fee of
$30,000, payable monthly in arrears, together with all out-of-pocket expenses.
Each fund's allocation of these fees and expenses is based on the relative
number of outstanding Units. Fees and expenses of $58,015, $57,620 and $55,687
were incurred by the Fund for 1995, 1994 and 1993, respectively.
9. OTHER RELATED PARTY TRANSACTIONS
FCM and its affiliates are entitled to reimbursement of certain direct
expenses paid on behalf of the Fund. Such reimbursable expenses amounted to
$172,443, $175,297 and $242,719 during 1995, 1994 and 1993, respectively.
10. PORTFOLIO INVESTMENTS
The Fund's portfolio investments consist primarily of high-yield
private placement securities issued as the mezzanine financing of privately
structured, friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations, and are generally linked with an equity participation. The
risk of loss upon default by an issuer is greater than with investment grade
securities because high-yield securities are generally unsecured and are
usually subordinated to other creditors of the issuer. Also, these issuers
usually have higher levels of indebtedness and are more sensitive to adverse
economic conditions than investment grade issuers. Most of these securities are
subject to resale restrictions and generally there is no quoted market for such
securities.
Although the Fund cannot eliminate the risks associated with its
investments in these high-yield securities, it has established risk management
procedures. The Fund subjects each prospective investment to rigorous analysis,
and makes only those investments that are recommended by FCM and that meet the
Fund's investment guidelines or that have otherwise been approved by the
Independent General Partners. The Fund also has procedures in place to
continually monitor its portfolio companies.
As of December 31, 1995, the Fund held portfolio investments in nine
Managed Companies, with an aggregate cost of approximately $16.7 million.
During the year ended December 31, 1995, the Fund exercised the Protection One,
Inc. warrants it held, acquired a new portfolio investment in R.B.M. Precision
Metal Products, Inc. and acquired two follow-on investments in Canadian's
Corp. ("Canadian's") at a total cost of approximately $3.2 million.
The Fund's subordinated debt investment in Protection One Alarm
Monitoring, Inc. was prepaid during 1995. In addition, the Fund sold its
subordinated debt investment in KB Alloys, Inc., all of its Carr-Gottstein
Foods Co. and Protection One, Inc. common stock and a portion of its KEMET
Corporation common stock during 1995. The Fund received $10,141,691 in
proceeds, including applicable prepayment premiums, resulting in aggregate
realized gains of $4,588,421.
The Fund has pledged the common stock and warrants it owns in Amity
Leather Products Co. ("Amity") as collateral for Amity's corporate debt. None
of the Fund's other portfolio investments have been pledged or otherwise
encumbered.
11. UNREALIZED GAIN (LOSS) ON INVESTMENTS
As of December 31, 1994, the Fund had recorded net unrealized gain on
investments of $3,904,681. During 1995, the Fund recorded $777,782 of
unrealized gain and $5,622,311 of unrealized loss on investments. In addition,
the Fund disposed of investments during 1995 with respect to which the Fund had
recorded $2,335,481 of net unrealized gain during prior years. Therefore, at
December 31, 1995, the Fund had net unrealized loss on investments of
$3,275,329.
12. NON-ACCRUAL STATUS OF INVESTMENTS
In accordance with the Fund's accounting policies, the Fund stopped
accruing interest on (i) the Canadian's Holdings, Inc. Exchangeable Redeemable
Debentures effective April 1, 1995, (ii) the Canadian's Promissory Notes
effective October 1, 1995, (iii) the Canadian's Subordinated Notes effective
December 1, 1995 and (iv) the LMC Operating Corp. ("LMC") Senior Subordinated
Notes effective December 1, 1995.
13. COMMITMENTS AND CONTINGENCIES
As of December 31, 1995, the Fund had issued commitments to make new
portfolio investments in Atlas Environmental, Inc. ("Atlas"), Monaco Finance,
Inc. and Advantage Funding Group, Inc. In addition, the Fund had agreed in
principle to a restructuring of its LMC investment, which involves a conversion
of the Fund's existing subordinated debt and warrants into preferred stock and
a follow-on investment in LMC for the purchase of new common stock.
On January 25, 1996, the Fund closed the investment in Atlas, a
managed company, at a cost of $3,855,398. The investment consists of $3,934,080
of 13.5% Senior Subordinated
------------------------------
SIXTEEN
<PAGE> 18
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Secured Notes due January 19, 2003, with warrants to acquire 407,659 shares of
common stock. The warrants have an exercise price of $8.00 per share. The Atlas
common stock is currently traded over the counter on a limited basis with
quotations provided via the OTC Bulletin Board under the symbol "ATEV".
The proposed Advantage investment was abandoned during January 1996.
The portion of the Fund's available capital that had been reserved for this
investment is now reserved to fund the Fund's 1996 annual repurchase offer.
The Fund may not ultimately fund both of the remaining commitments
since each of the commitments is subject to various contingencies.
FCM had been named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated and a number of its affiliates
concerning the sale of 70 different limited partnerships and other direct
investment programs. During May 1995, the Court entered an order certifying the
class and dismissing the class action against FCM without prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is
approved by the court, there can be no assurance what, if any, payment or
non-monetary benefits will be made available to unitholders in the Fund.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
14. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net increase in net assets
resulting from operations in the accompanying financial statements to the
taxable income reported for federal income tax purposes:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net (decrease) increase
in net assets resulting
from operations per
financial statements $ (554,403) $3,951,013 $2,579,814
Increase (decrease)
resulting from:
Unrealized loss (gain)
on investments 7,180,010 (4,356,233) 910,109
Interest income 43,604 (43,604) -
Fee income, net of
amortization (78,385) (29,167) 187,759
Amortization of
organization and
start-up costs (14,367) (29,452) (29,452)
Losses on investments
not yet recognized for
income tax purposes - 3,547,375 -
Other (45,884) (51,753) 7,100
- -----------------------------------------------------------------------------------------------------------------------
Taxable income per
federal income tax
return $6,530,575 $2,988,179 $3,655,330
=======================================================================================================================
</TABLE>
The following is a reconciliation of the amount of the Fund's net
assets as shown in the accompanying financial statements and the tax bases of
the Fund's net assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets per
financial statements $23,623,286 $28,346,859 $30,339,300
Losses on investments
not yet recognized for
income tax purposes 3,547,375 3,547,375 -
Syndication, organization
and start-up costs, net 3,360,886 3,371,072 3,805,823
Unrealized loss (gain) on
investments 3,275,329 (3,904,680) 451,553
Distributions payable 426,438 694,068 -
Fee income, net of
amortization 80,207 158,592 187,759
Accrued expenses 20,176 24,518 23,100
Prepaid interest income - 60,146 -
Accrued interest income - (103,750) -
- -----------------------------------------------------------------------------------------------------------------------
Tax bases of net assets $34,333,697 $32,194,200 $34,807,535
=======================================================================================================================
</TABLE>
------------------------------
SEVENTEEN
<PAGE> 19
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Fiduciary Capital Partners, L.P.:
We have audited the accompanying balance sheets of Fiduciary Capital
Partners, L.P. (a Delaware limited partnership) as of December 31, 1995 and
1994, including the schedule of investments as of December 31, 1995, and the
related statements of operations, cash flows and changes in net assets for each
of the three years in the period ended December 31, 1995 and the selected per
unit data and ratios for the five years then ended. These financial statements
and per unit data and ratios are the responsibility of the partnership's
managing general partner. Our responsibility is to express an opinion on these
financial statements and per unit data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per unit data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 and 1994, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per unit data
and ratios referred to above present fairly, in all material respects, the
financial position of Fiduciary Capital Partners, L.P. as of December 31, 1995
and 1994, and the results of its operations, its cash flows and the changes in
its net assets for each of the three years in the period ended December 31,
1995, and the selected per unit data and ratios for the five years then ended,
in conformity with generally accepted accounting principles.
As discussed in Note 2, the financial statements include investment
securities valued at $12,731,160 at December 31, 1995 (53.9% of net assets) and
$19,079,860 at December 31, 1994 (67.3% of net assets) whose values have been
estimated by the managing general partner in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, the managing general partner's estimate of values may differ
significantly from the values that would have been used had a ready market
existed for the securities and the differences could be material.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 6, 1996.
------------------------------
EIGHTEEN
<PAGE> 20
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During 1990, the Fund completed a public offering of its Units. Net
offering proceeds available to the Fund, after deducting commissions and other
offering costs, totaled $31,860,015.
The Fund has authority to borrow funds for operational purposes. To
date, however, the Fund has not borrowed any funds and it has no established
credit arrangements.
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to purchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to purchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan can be summarized
as follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
----------------- ------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
- ---------------- ------ ----- ----- ------
<S> <C> <C> <C> <C>
November 1993 117,979 6.54% $18.35 $17.98
November 1994 160,172 9.49% 18.41 18.04
November 1995 119,705 7.84% 19.67 19.28
</TABLE>
As of December 31, 1995, the Fund held portfolio investments in nine
Managed Companies, with an aggregate cost of approximately $16.7 million. These
portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represent approximately 56.7% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature.
These securities were typically issued in private placement transactions and
were subject to certain restrictions on transfer or sale, thereby limiting
their liquidity. A number of the portfolio companies have prepaid their
subordinated debt that the Fund held. In addition, three of the portfolio
companies have successfully completed IPOs of their stock. The Fund has sold
the stock it held in these three companies, except for a portion of its KEMET
stock.
As of December 31, 1995, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available for investment, for
distribution to the partners or to fund the annual repurchase offer.
During the year ended December 31, 1995, the Fund exercised the
Protection One warrants it held, acquired a new portfolio investment in RBM and
acquired two follow-on investments in Canadian's at a total cost of
approximately $3.2 million.
The Fund's subordinated debt investment in Protection One Alarm
Monitoring, Inc. ("Protection One Alarm") was prepaid during 1995. In addition,
the Fund sold its subordinated debt investment in KB Alloys, Inc. ("KB
Alloys"), all of its Carr-Gottstein Foods Co. ("Carr-Gottstein") and Protection
One, Inc. ("Protection One") common stock and a portion of its KEMET common
stock during 1995. In the aggregate, the Fund received approximately $10.1
million in proceeds, including applicable prepayment premiums, from these
transactions.
Accrued interest receivable decreased $487,356 from $627,846 at
December 31, 1994 to $140,490 at December 31, 1995. This decrease resulted
primarily from the sale of the Fund's subordinated debt investment in KB Alloys
during 1995 and the placing of the LMC subordinated debt on non-accrual status
effective December 1, 1995. Under the terms of KB Alloys notes, a portion of
the interest could be deferred at KB Alloys' option. As of December 31, 1994,
KB Alloys had elected to defer payment of $462,634 of interest, which was
included in the accrued interest receivable amount at December 31, 1994. As
discussed below, the Fund stopped accruing interest on the LMC subordinated
debt as a result of a commitment made by the Fund during November 1995 to
exchange its LMC debt investment for LMC preferred stock as part of a financial
restructuring of LMC.
Other assets decreased $655,805, from $659,011 at December 31, 1994 to
$3,206 at December 31, 1995. The balance at December 31, 1994 included a
$645,148 receivable from the sale of KEMET common stock during December 1994.
This amount was received by the Fund during January 1995. This decrease also
resulted from a small decrease in prepaid expenses and the amortization of
deferred organization expenses.
Prepaid interest income decreased from $60,146 at December 31, 1994 to
zero at December 31, 1995. This prepaid interest income was related to the
Canadian's 13.50% Subordinated Notes, which required interest to be paid
quarterly, in advance, to the Fund. Effective June 1, 1995, the notes were
amended to provide for the interest to be paid monthly, in advance, on the
first day of each month. The Fund placed these notes on non-accrual status
effective December 1, 1995.
Distributions payable to partners decreased $267,630, from
------------------------------
NINETEEN
<PAGE> 21
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$694,068 at December 31, 1994 to $426,438 at December 31, 1995. This decrease
resulted primarily from a decrease in the quarterly distribution rate from $.45
per Unit to $.30 per Unit. The decrease also reflects a decrease in the number
of outstanding Units as a result of the repurchase of Units by the Fund during
November 1995.
For 1995, the Fund declared cash distributions to its partners in the
aggregate amount of $1,814,573. The distributions were paid in four equal (on a
per-Unit basis) quarterly payments during the months of May, August and
November 1995 and February 1996. Each of the distributions was equal to an
annualized rate equal to 6% of contributed capital ($.30 per Unit) and were
paid entirely out of current net investment income.
The Fund expects 1996 distributions, beginning with the distribution
payable during May 1996, to be made at a 6% distribution rate ($.30 per Unit
per quarter) or greater. The Fund's investment period ended on December 31,
1995. Although the Fund is permitted to make additional investments in
existing portfolio companies after 1995, the Fund is no longer permitted to
acquire investments in new portfolio companies, except to fund commitments made
prior to December 31, 1995. This will impact the amount of the Fund's quarterly
distributions for 1996 and subsequent years because all proceeds from future
dispositions or maturities of investments will be distributed to investors,
except to the extent the cash is needed to fund the annual repurchase offer or
to fund any follow-on investments that the Fund may make in existing portfolio
companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to a
financial restructuring of LMC, which involves a conversion of the Fund's
existing subordinated debt and warrants into preferred stock and a follow-on
investment in LMC for the purchase of new common stock.
One of the committed investments was acquired during January 1996, and
a second investment is still pending (subject to various contingencies). In
addition, the follow-on investment in LMC was made during February 1996. The
third committed investment was abandoned. The portion of the Fund's available
capital that had been reserved for the abandoned investment is now reserved to
fund the Fund's 1996 annual repurchase offer.
FCM had been named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated and a number of its affiliates
concerning the sale of 70 different limited partnerships and other direct
investment programs. During May 1995, the Court entered an order certifying the
class and dismissing the class action against FCM without prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is
approved by the court, there can be no assurance what, if any, payment or
non-monetary benefits will be made available to unitholders in the Fund.
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities (not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's investment income consists primarily of interest income
earned from the various debt investments which have been acquired by the Fund.
Major expenses include the investment advisory fee, fund administration fee,
professional fees and administrative expenses.
1995 Compared to 1994
The Fund's net investment income was $2,037,186 for the year ended
December 31, 1995 on total investment income of $2,668,846 as compared to net
investment income of $2,126,889 on total investment income of $2,801,746 for
the prior year. Net investment income per limited partnership unit increased
from $1.26 to $1.33, and the ratio of net investment income to average net
assets increased from 7.06% to 7.19% for the year ended December 31, 1995 in
comparison to the prior year.
Although total net investment income decreased from 1994 to 1995, net
investment income per limited partnership unit increased. This occurred because
of a decrease in the weighted average number of limited partnership units
outstanding, which resulted from the repurchase of Units by the Fund during
both
------------------------------
TWENTY
<PAGE> 22
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
November 1994 and 1995.
Net investment income for the year ended December 31, 1995 decreased
primarily as a result of a decrease in investment income. The negative effect
of the decrease in investment income was partially offset by a decrease in
total expenses.
Investment income decreased $132,900, or 4.7%, for the year ended
December 31, 1995 in comparison to the prior year. This decrease resulted
primarily from the $230,483 loss on the sale of the receivable for deferred
interest due from KB Alloys, which was recorded as a reduction of interest
income. In addition, there was a decrease from 1994 to 1995 in the amount of
the Fund's average net assets and the Fund stopped accruing interest on its
subordinated debt investments in Canadian's and LMC (see discussion below). The
negative effect of these three items was partially offset by higher interest
rates on both the Fund's temporary and subordinated debt investments.
The Fund had average net assets of approximately $28.3 million during
the year ended December 31, 1995 as compared to approximately $30.1 million
during the prior year. This 6.0% decrease in average net assets occurred
primarily as a result of the Fund's repurchase of its Units during both
November 1994 and 1995. The negative effect of the repurchase of Units was
partially offset by net gains achieved with respect to the Fund's investments
(primarily the KEMET common stock).
Total expenses decreased $43,197, or 6.4%, for the year ended December
31, 1995 in comparison to the prior year. This percentage decrease was greater
than the 6.0% decline in the Fund's average net assets from 1994 to 1995. This
decrease resulted primarily from decreases in investment advisory fees and
other expenses. The investment advisory fees decreased as a result of the
repurchase of Units during November 1994 and 1995 and the realization during
July 1994 of the loss on the Fund's MTI investment. Both the repurchase of
Units and the realization of the MTI loss decreased the amount of the Fund's
available capital (as defined in the Partnership Agreement) which is the base
with respect to which the investment advisory fees are calculated. Other
expenses decreased primarily as a result of a decrease in consulting fees.
These decreases were partially offset by an increase in professional fees.
1994 Compared to 1993
The Fund's net investment income was $2,126,889 for the year ended
December 31, 1994 on total investment income of $2,801,746 as compared to net
investment income of $2,400,016 on total investment income of $3,132,724 for
the prior year. Net investment income per limited partnership unit decreased
from $1.33 to $1.26, and the ratio of net investment income to average net
assets decreased from 7.34% to 7.06% for the year ended December 31, 1994 in
comparison to the prior year.
Net investment income for the year ended December 31, 1994 decreased
primarily as a result of a decrease in investment income. The negative effect
of the decrease in investment income was partially offset by a decrease in
total expenses.
Investment income decreased $330,978, or 10.6%, for the year ended
December 31, 1994 in comparison to the prior year. This decrease resulted
primarily from a decrease of approximately 7.9% in the Fund's average net
assets. The decrease in average net assets was primarily a result of the
repurchase of Units by the Fund during both November 1993 and 1994. In
addition, there was an increase from 1993 to 1994 in the relative portion of
the Fund's total net assets that were invested in lower-yielding temporary
investments and non-income producing equity investments and a decrease in the
portion invested in higher-yielding subordinated debt investments. The negative
effect of these items was partially offset by higher interest rates obtained in
recent months on the Fund's temporary investments.
Total expenses decreased $57,851, or 7.9%, for the year ended December
31, 1994 in comparison to the prior year. This aggregate decrease was equal to
the percentage decline in the Fund's average net assets from 1993 to 1994. The
decrease resulted primarily from decreases in investment advisory fees,
professional fees and other expenses. The investment advisory fees decreased as
a result of the repurchase of Units during November 1993 and 1994 and the
realization during July 1994 of the loss on the Fund's MTI investment. Both the
repurchase of Units and the realization of the MTI loss decreased the amount of
the Fund's available capital (as defined in the Partnership Agreement), which
is the base with respect to which the investment advisory fees are calculated.
The decrease in professional fees and other expenses resulted primarily from
legal fees and other costs incurred during 1993 in connection with the
preparation of the proxy and consent solicitation.
NET REALIZED GAIN (LOSS) ON INVESTMENTS
The Fund realized gains of $1,089,907 during the year ended December
31, 1993, net losses of $2,532,109 during the year ended December 31, 1994 and
gains of $4,588,421 during the year ended December 31, 1995.
The realized gains for 1993 consisted of gains, including applicable
prepayment premiums, resulting from the prepayment by Neodata, KEMET
Electronics and Carr-Gottstein of subordinated notes which were held by the
Fund. During 1994,
------------------------------
TWENTY-ONE
<PAGE> 23
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
the Fund realized gains, including applicable prepayment premiums, resulting
from the prepayment by Huntington and Amity of subordinated notes that were
held by the Fund and the sale of a portion of the KEMET common stock that was
held by the Fund. The Fund also recognized a substantial realized loss as a
result of MTI's financial restructuring which occurred during 1994.
The realized gains for 1995 resulted from the following transactions:
On February 28, 1995, the Fund sold 10,547 shares of KEMET common
stock. The Fund received $326,324 of sales proceeds, resulting in a realized
gain of $318,852.
During April and May 1995, the Fund sold an additional 44,920 shares
of KEMET common stock. The Fund received $1,973,532 of sales proceeds,
resulting in realized gains of $1,941,692.
On May 17, 1995, Protection One Alarm prepaid its $1,083,000 of 12.00%
Senior Subordinated Notes that were carried by the Fund at an amortized cost of
$997,917. The Fund received $1,137,150 of proceeds, including a prepayment
premium, resulting in a realized gain of $139,233.
On July 25, 1995, the Fund sold 9,587 shares of KEMET common stock.
The Fund received $646,873 of sales proceeds, resulting in a realized gain of
$640,078.
On October 13, 1995, Carr-Gottstein announced that it was offering to
purchase approximately 49% of its outstanding shares at a purchase price of
$11.00 per share. The day before the offer, the stock was trading at $6.125 per
share. The Fund tendered all of its 178,934 shares, of which 89,268 shares were
repurchased by the company for a total amount of $981,948. The Fund sold its
remaining shares in the open market shortly after the tender offer was
completed. The Fund received $468,462 for the remaining 89,666 shares. In
total, the Fund realized a gain of $555,708 from the disposition of its
Carr-Gottstein stock.
On November 6, 1995, the Fund sold 27,396 shares of KEMET common
stock. The Fund received $956,326 of sales proceeds resulting in a realized
gain of $946,617.
During November 1995, the Fund sold all of its Protection One common
stock. The Fund received $146,589 of sales proceeds resulting in a realized
gain of $46,241.
On December 4, 1995, the Fund sold the $3,561,003 of KB Alloys Senior
Subordinated Term Notes it held to an unrelated institutional investor at a
price of $4,002,044. KB Alloys was paying current interest on these notes at a
rate of 13% per annum and, in addition the Fund was accruing a deferred
interest component at a rate of 8% per annum. At the date of the sale, the
notes had an amortized cost of $3,504,500 and accrued deferred interest totaled
$728,027. Thus, the sales price was $230,483 less than the sum of the
amortized cost of the notes and the accrued deferred interest. The $230,483 was
recorded as an adjustment to interest income.
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
FCM values the Fund's portfolio investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and for
which market quotations are available, valuations are set by the closing sales,
or an average of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not fully traded in any liquid
public markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment is
valued initially based upon its original cost to the Fund ("cost method"). The
cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal valuations
are based upon such factors as the portfolio company's earnings, cash flow and
net worth, the market prices for similar securities of comparable companies and
an assessment of the portfolio company's future financial prospects. In a case
of unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method will be
used only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
Prior to 1992, the Fund had recorded cumulative net unrealized gain on
investments of $458,556. During 1993, the Fund recorded $548,663 of unrealized
gain and $802,365 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1993 with respect to which the Fund had recorded
$656,407 of unrealized gain during prior years. Therefore, at December 31,
1993, the Fund had net unrealized loss on investments of $451,553.
During 1994, the Fund recorded $2,085,990 of unrealized gain and
$1,274,817 of unrealized loss on investments. In addition, the Fund disposed
of investments during 1994 with respect to which
------------------------------
TWENTY-TWO
<PAGE> 24
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
the Fund had recorded $3,545,061 of net unrealized loss during prior years.
Therefore, at December 31, 1994, the Fund had net unrealized gain on
investments of $3,904,681.
The net decrease in unrealized gain on investments during 1995 and the
cumulative net unrealized loss on investments at December 31, 1995, consisted
of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
As of
Portfolio Investment During 1995 December 31, 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Unrealized net gain recorded during prior
years with respect to investments
disposed of during 1995 $(2,335,481) $ -
Neodata (325,200) (337,944)
KEMET 280,748 660,751
Huntington 338,228 915,190
Amity 87,610 872,172
Elgin / ENI 71,196 161,379
LMC (540,800) (540,800)
MTI II - (249,766)
Canadian's (4,756,311) (4,756,311)
- -------------------------------------------------------------------------------
$(7,180,010) $(3,275,329)
===============================================================================
</TABLE>
The Neodata stock was written down to a negligible amount at March 31,
1995. The Fund has consistently valued this investment based upon a multiple of
Neodata's cash flow. Because Neodata's long-term debt presently provides for
the accrual, rather than current payment, of interest, the Company's debt has
grown to a level which now exceeds the Fund's valuation.
KEMET completed an IPO of its common stock on October 21, 1992. KEMET
also declared a two-for-one stock split effective September 20, 1995. The
stock, which trades on the NASDAQ National Market System, closed at $24.00 (an
average of the closing bid and ask prices) on December 31, 1995. This price is
up from the closing price (as restated for the two-for-one stock split) of
$14.6875 on December 31, 1994. Based on the $24.00 closing trading price of the
common stock, the 27,944 shares of common stock that the Fund held at December
31, 1995 had a market value of $670,656.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled $1,511,364, of which $1,320,711 was received during February
1996. The balance is being held in escrow to fund various transaction expenses
and potential contingent purchase price adjustments, and as collateral for
potential claims of the buyer with respect to representations made by the
selling shareholders, including the Fund. While the escrow amount must be
maintained for a two year period, certain of the sellers' representations will
survive for longer periods of time, which could result in the Fund being
required to reimburse the purchaser for certain costs and expenses after the
escrow is released. The Fund valued the Huntington warrants at December 31,
1995 at an amount approximately equal to 75% of the ultimate sales proceeds
(not including the Fund's share of the escrow) due to the inherent uncertainty
that existed at that time as to whether the sale would actually be consummated.
The Amity warrants and common stock were written up in value during
1995 to bring Amity's valuation more in line with the valuation of comparable
companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value
quarterly to reflect the amount of the cumulative 10% preferential dividend
that is accruing with respect to the preferred stock.
The MTI II common stock was written down in value at December 31, 1994
based upon an independent third party valuation of the company which was
obtained by MTI's management.
LMC has experienced significant operating difficulties since the Fund
acquired its LMC investment during 1994. LMC's majority owner has taken a
number of steps to improve LMC's operating and financial performance. These
steps included hiring new senior management and significantly reducing staff.
The majority owner has also contributed a significant amount of additional
capital. However, it is anticipated that it will take some time for the company
to regain its previous market position and return to profitability.
During 1995, the majority owner requested that the Fund convert its
subordinated debt and warrants to preferred stock and make a follow-on
investment of $545,454 in order to help fund new product development. The Fund
agreed to the proposed restructuring, which was consummated during February
1996. As a result of the restructuring, the Fund increased its ownership
percentage from approximately 13% to approximately 27%. Due to LMC's
operational difficulties and the fact that the Fund will now own equity
securities rather than debt securities, the Fund wrote its LMC investment down
by $540,800 during November 1995.
Canadian's is a women's specialty retailer, which had 53 stores on the
East Coast, including stores in the New York City and Philadelphia metropolitan
areas. As widely reported in the
------------------------------
TWENTY-THREE
<PAGE> 25
FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
business press, retailers almost universally experienced extremely disappointing
sales during the 1995 holiday season. Women's specialty retailers were
especially hard hit. This situation was exacerbated by severe winter weather
which hampered store operations from Boston to Washington, D.C. As a result, a
number of apparel retailers have filed for bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996. As discussed in the
Fund's previous filings, Canadian's had embarked on a significant cost cutting
program during the fall of 1995, which included closing marginal stores and
reducing general and administrative costs. However, these measures were not
sufficient to offset the negative impact of the unusually bad holiday season.
The Fund expects to recover little, if any, of its Canadian's investment. As a
result of these developments, the Fund wrote its Canadian's investment down to
a negligible amount at December 31, 1995.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
INFLATION AND CHANGING PRICES
Inflation has had no material impact on the operations or financial
condition of the Fund from inception through December 31, 1995. However,
inflation and changing prices, in addition to other factors, may effect the
value and the eventual selling price of the Fund's investments.
------------------------------
TWENTY-FOUR
<PAGE> 26
FUND INFORMATION
FIDUCIARY CAPITAL PARTNERS, L.P.
410 17th Street, Suite 400
Denver, Colorado 80202
(800) 866-7607
MANAGING GENERAL PARTNER
FCM Fiduciary Capital Management Company
AUDITORS
Arthur Andersen LLP
Denver, Colorado
LEGAL COUNSEL
Dorsey & Whitney P.L.L.P.
Denver, Colorado
TRANSFER AGENT
Service Data Corporation
Omaha, Nebraska
A copy of the Annual Report
on Form 10-K, as filed with the
Securities and Exchange Commission,
will be furnished without charge to
Limited Partners upon request.
<PAGE> 27
FIDUCIARY CAPITAL PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
MARCH 31, 1996
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
182,453.91 sh. Neodata Corporation,
10.00% Class A Convertible 12/27/90 &
Preferred Stock - Series 2* 09/30/92 $ 337,945 $ 1
10,607.78 sh. Neodata Corporation, 12/27/90 &
Common Stock* 09/30/92 1 1
- ----------------------------------------------------------------------------------------------------------------------------
337,946 2 0.0
- ----------------------------------------------------------------------------------------------------------------------------
27,944 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 9,905 632,233
- ----------------------------------------------------------------------------------------------------------------------------
9,905 632,233 2.7
- ----------------------------------------------------------------------------------------------------------------------------
75,856 sh. Amity Leather Products Co.,
Warrants to Purchase Class B
Common Stock* 07/30/92 104,091 817,355
27,392 sh. Amity Leather Products Co.,
Class A Common Stock* 07/30/92 273,920 295,151
- ----------------------------------------------------------------------------------------------------------------------------
378,011 1,112,506 4.7
- ----------------------------------------------------------------------------------------------------------------------------
$6,087,185 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(2) 09/24/93 5,961,309 5,961,309
7,119.71 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 711,971 891,150
489.27 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 48,927 48,927
510.83 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 51,078 51,078
- ----------------------------------------------------------------------------------------------------------------------------
6,773,285 6,952,464 29.4
- ----------------------------------------------------------------------------------------------------------------------------
260,400 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,596,621 2,596,621
27.28 sh. LMC Operating Corp.,
Common Stock* 02/09/96 545,599 4,799
52.08 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- ----------------------------------------------------------------------------------------------------------------------------
3,142,221 2,601,421 11.0
- ----------------------------------------------------------------------------------------------------------------------------
42,404 sh. MTI Holdings II, Inc., 07/06/94 &
Common Stock* 12/28/94 287,930 38,164
- ----------------------------------------------------------------------------------------------------------------------------
287,930 38,164 0.2
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
1
<PAGE> 28
FIDUCIARY CAPITAL PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,359,276 1,359,276
497.639 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 82,955 82,955
- --------------------------------------------------------------------------------------------------------------------------------
1,442,231 1,442,231 6.1
- --------------------------------------------------------------------------------------------------------------------------------
$3,934,080 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 01/19/03(4) 01/25/96 3,818,578 3,818,578
407,659 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(5)* 01/25/96 40,766 40,766
- --------------------------------------------------------------------------------------------------------------------------------
3,859,344 3,859,344 16.3
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment in Managed Companies (70.4% of net assets) 16,230,873 16,638,365 70.4
- --------------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$3,500,000 Ford Motor Credit Corporation,
5.13% Notes due 04/10/96 03/27/96 3,495,520 3,495,520
$3,500,000 Anheuser-Busch Companies,
Inc., 5.09% Notes due 04/10/96 03/27/96 3,495,555 3,495,555
- --------------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (29.6% of net assets) 6,991,075 6,991,075 29.6
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments (100.0% of net assets) $23,221,948 $23,629,440 100.0%
=================================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in eight equal quarterly installments of $760,898
commencing on 11/30/99.
(3) The notes will amortize in three equal annual installments of $486,667
commencing on 5/24/00.
(4) The notes will amortize in five equal annual installments of $786,816
commencing on 1/19/99.
(5) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
2
<PAGE> 29
FIDUCIARY CAPITAL PARTNERS, L.P.
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS:
<S> <C> <C>
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$16,230,873 and $16,677,145,
respectively) $16,638,365 $13,401,816
Temporary investments, at amortized cost 6,991,075 10,396,792
----------- -----------
Total investments 23,629,440 23,798,608
Cash and cash equivalents 894,871 200,969
Accrued interest receivable 200,709 140,490
Other assets 7,337 3,206
----------- -----------
Total assets $24,732,357 $24,143,273
=========== ===========
LIABILITIES:
Payable for investments purchased $ 545,600 $ -
Payable to affiliates (Notes 2, 3 and 4) 73,694 60,372
Accounts payable and accrued liabilities 47,175 33,177
Distributions payable to partners 426,438 426,438
----------- -----------
Total liabilities 1,092,907 519,987
----------- -----------
CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (3,563) (3,725)
Limited Partners (equivalent to $16.80
and $16.79, respectively, per limited
partnership unit based on 1,407,244
units outstanding) 23,643,013 23,627,011
----------- -----------
Net assets 23,639,450 23,623,286
----------- -----------
Total liabilities and net assets $24,732,357 $24,143,273
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
3
<PAGE> 30
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 483,644 $ 704,755
---------- ---------
Total investment income 483,644 704,755
---------- ---------
Expenses:
Investment advisory fees (Note 2) 48,722 58,353
Professional fees 46,532 17,288
Fund administration fees (Note 3) 35,843 35,843
Administrative expenses (Note 3) 20,276 20,276
Independent General Partner fees
and expenses (Note 4) 18,318 18,862
Other expenses 14,756 8,524
Amortization - 2,790
---------- ---------
Total expenses 184,447 161,936
---------- ---------
NET INVESTMENT INCOME 299,197 542,819
---------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (3,539,416) 318,852
Net change in unrealized gain (loss)
on investments 3,682,821 45,438
---------- ---------
Net gain on investments 143,405 364,290
---------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 442,602 $ 907,109
========== =========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
4
<PAGE> 31
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 442,602 $ 907,109
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Accreted discount on portfolio investments (12,857) (19,434)
Amortization - 2,790
Change in assets and liabilities:
Accrued interest receivable (60,219) (105,878)
Other assets (4,131) (3,345)
Payable to affiliates 13,322 (11,116)
Accounts payable and accrued liabilities 13,998 10,042
Prepaid interest income - 2,372
Net realized loss (gain) on investments 3,539,416 (318,852)
Net change in unrealized (gain) loss
on investments (3,682,821) (45,438)
---------- ---------
Net cash provided by operating activities 249,310 418,250
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (3,855,398) (1,146)
Proceeds from dispositions of portfolio investments 1,320,711 971,472
Sale (purchase) of temporary investments, net 3,405,717 (713,004)
---------- ---------
Net cash provided by investing activities 871,030 257,322
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (426,438) (694,068)
---------- ---------
Net cash used in financing activities (426,438) (694,068)
---------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 693,902 (18,496)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 200,969 171,999
---------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 894,871 $ 153,503
========== =========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
5
<PAGE> 32
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 299,197 $ 2,037,186
Net realized (loss) gain on investments (3,539,416) 4,588,421
Net change in unrealized gain (loss)
on investments 3,682,821 (7,180,010)
------------- ------------
Net increase (decrease) in net assets
resulting from operations 442,602 (554,403)
Repurchase of limited partnership units - (2,354,597)
Distributions to partners from net
investment income (426,438) (1,814,573)
------------- ------------
Total increase (decrease) in net assets 16,164 (4,723,573)
Net assets:
Beginning of period 23,623,286 28,346,859
------------- ------------
End of period (including undistributed
net investment income of $95,372
and $222,613, respectively) $ 23,639,450 $ 23,623,286
============= ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 33
FIDUCIARY CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Per Unit Data:
Investment income $ .34 $ .46
Expenses (.13) (.11)
------------ -----------
Net investment income .21 .35
Net realized (loss) gain on investments (2.49) .21
Net change in unrealized gain (loss)
on investments 2.59 .03
Distributions declared to partners (.30) (.30)
------------ -----------
Net increase in net asset value .01 .29
Net asset value:
Beginning of period 16.79 18.55
------------ -----------
End of period $ 16.80 $ 18.84
============ ===========
Ratios (annualized):
Ratio of expenses to average net assets 3.12% 2.27%
Ratio of net investment income to
average net assets 5.06% 7.60%
Number of limited partnership units at end of period 1,407,244 1,526,949
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
7
<PAGE> 34
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of March 31, 1996 and the results of its operations, changes in
net assets and its cash flows for the period then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements
included in the Fund's annual audited financial statements for the year ended
December 31, 1995.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$48,722 were paid by the Fund for the three months ended March 31, 1996.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $35,843 were paid by the Fund for the three months ended March 31, 1996.
FCM is also reimbursed, subject to various limitations, for administrative
expenses incurred in providing accounting and investor services to the Fund.
The Fund reimbursed FCM for administrative expenses of $20,276 for the three
months ended March 31, 1996.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and Fiduciary Capital
Pension Partners, L.P., an affiliated fund, (collectively, the "Funds") an
annual fee of $30,000, payable monthly in arrears, together with all
out-of-pocket expenses. Each Fund's allocation of these fees and expenses is
based on the relative number of outstanding Units. Fees and expenses paid by
the Fund for the three months ended March 31, 1996 totaled $18,318.
5. CONTINGENCIES
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated ("PaineWebber") and a number of its
affiliates concerning the sale of 70 different limited partnerships and other
direct investment programs. During May 1995, the Court entered an order
certifying the class and dismissing the class action against FCM without
prejudice.
8
<PAGE> 35
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(unaudited)
During January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of
New York to be used to resolve the litigation in accordance with a definitive
settlement agreement and plan of allocation which the parties expect to submit
to the court for its consideration and approval within the next several months.
Until a definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits will
be made available to unitholders in the Fund.
A similar, though smaller, suit was filed against PaineWebber and various
affiliated entities (not including FCM) during February 1996 in a California
state court.
FCM believes that this litigation will be resolved without any material
adverse effect on the Fund's financial condition.
9
<PAGE> 36
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $16.2 million. These
portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represent approximately 70.4% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and were subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies
have prepaid their subordinated debt that the Fund held. In addition, three of
the portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of March 31, 1996, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
During February 1996, the Fund sold its Huntington Holdings, Inc.
("Huntington") warrants. As discussed below, the Fund received $1,320,711 of
proceeds from this transaction. These proceeds have been reserved by the
Managing General Partner to partially fund either the Fund's 1996 repurchase
offer or any additional follow-on investments that the Fund may make in
existing portfolio companies.
During January 1996, the Fund invested $3,855,398 in Atlas
Environmental, Inc. ("Atlas"). The investment consists of $3,934,080 of 13.5%
Senior Subordinated Secured Notes due January 19, 2003, with warrants to
acquire 407,659 shares of common stock. The warrants have an exercise price of
$8.00 per share. The Atlas common stock is currently traded over the counter
on a limited basis with quotations provided via the OTC Bulletin Board under
the symbol "ATEV".
During June 1994, the Fund invested $2,551,920 in LMC Operating Corp.
("LMC"). The investment consisted of $2,604,000 of 13.00% Senior Subordinated
Notes due May 31, 1999 with warrants to acquire common stock.
LMC has experienced significant operating difficulties since the Fund
acquired its LMC investment during 1994. LMC's majority owner has taken a
number of steps to improve LMC's operating and financial performance. These
steps included hiring new senior management and significantly reducing staff.
The majority owner has also contributed a significant amount of additional
capital. However, it is anticipated that it will take some time for the
company to regain its previous market position and return to profitability.
During 1995, the majority owner requested that the Fund participate in
a financial restructuring of LMC. The Fund agreed to the proposed
restructuring, which was consummated during February 1996. As part of the
restructuring, the Fund converted its existing LMC subordinated debt and
warrants into preferred stock and agreed to make a follow-on investment for the
purchase of $545,600 of new common stock. As a result of the restructuring,
the Fund increased its ownership of LMC from approximately 13% to approximately
27%.
Pursuant to the terms of the Fund's periodic unit repurchase policy
that was adopted by the Fund's Limited Partners during 1993, the Fund will
annually offer to purchase from
10
<PAGE> 37
its Limited Partners up to 7.5% of its outstanding Units for an amount equal to
the current net asset value per Unit, net of a fee (not to exceed 2%) to be
retained by the Fund to offset expenses incurred in connection with the
repurchase offer. If the number of tendered Units in any year exceeds 7.5% of
the outstanding Units, the Fund's General Partners may vote to repurchase up to
an additional 2% of the outstanding Units. The 1996 repurchase offer will be
mailed to the Limited Partners during October 1996. The actual redemption of
tendered Units will occur on November 21, 1996.
Accrued interest receivable increased $60,219 from $140,490 at
December 31, 1995 to $200,709 at March 31, 1996. This increase resulted
primarily from the accrual of interest due on the Atlas notes that were
acquired during January 1996. This increase was partially offset by a
decrease, to zero, in the accrued interest receivable attributable to the
Fund's Canadian's investment.
The $545,600 payable for investments purchased at March 31, 1996
represents the follow-on investment in LMC (as discussed above). Although the
LMC financial restructuring was consummated during February 1996, the Fund did
not actually fund the purchase of the new LMC common stock until April 1996.
During the three months ended March 31, 1996, the Fund paid a cash
distribution pertaining to the fourth quarter of 1995, in the amount of
$426,438. The distribution for the first quarter of 1996 will be paid on May
15, 1996. Both of these quarterly distributions are equal to $.30 per Unit and
represent an annualized rate equal to 6.0% of contributed capital.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments in
new portfolio companies, except to fund commitments made prior to December 31,
1995. This will impact the amount of the Fund's quarterly distributions for
1996 and subsequent years because all proceeds from dispositions or maturities
of investments will be distributed to investors, except to the extent the cash
is needed to fund the annual repurchase offer or to fund any follow-on
investments that the Fund may make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to the
financial restructuring of LMC. As discussed above, one of the committed
investments, Atlas, was acquired during January 1996 and the LMC financial
restructuring was consummated during February 1996. The other two committed
investments have been abandoned. The portion of the Fund's available capital
that had been reserved for these abandoned investments is now reserved to fund
either the Fund's 1996 repurchase offer or any additional follow-on investments
that the Fund may make in existing portfolio companies.
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber and a number of it affiliates concerning the
sale of 70 different limited partnerships and other direct investment programs.
During May 1995, the Court entered an order certifying the class and dismissing
the class action against FCM without prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is
approved by the court, there can be no assurance what, if any, payment or
non-monetary benefits will be made available to unitholders in the Fund.
11
<PAGE> 38
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities (not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $299,197 for the three months
ended March 31, 1996 as compared to net investment income of $542,819 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.35 to $.21 and the ratio of net investment
income to average net assets decreased from 7.60% to 5.06% for the three months
ended March 31, 1996 as compared to the corresponding period of the prior year.
Net investment income for the three months ended March 31, 1996
decreased primarily as a result of a decrease in investment income.
Investment income decreased $221,111, or 31.4%, for the three months
ended March 31, 1996, as compared to the corresponding period of the prior
year. This decrease resulted primarily from the conversion of the Fund's LMC
debt securities into non-dividend paying equity securities and the Canadian's
bankruptcy. (Both of these items are discussed elsewhere in this Report.) The
Fund's total investments also decreased as a result of the Fund's repurchase of
7.84% of its Units during the fourth quarter of 1995.
Total expenses increased $22,511, or 13.9%, for the three months ended
March 31, 1996, as compared to the corresponding period of the prior year.
This increase resulted primarily from increases in professional fees and other
expenses. These increases were primarily the result of legal fees and other
costs incurred in connection with Canadian's bankruptcy proceedings. The
increases in professional fees and other expenses were partially offset by
decreases in investment advisory fees and amortization expense. The investment
advisory fees decreased as a result of the repurchase of Units by the Fund
during the fourth quarter of 1995 and the realization during February 1996 of
the loss on the Fund's Canadian's investment. Both the repurchase of Units
and the realization of the Canadian's loss decreased the amount of the Fund's
available capital (as defined in the Partnership Agreement), which is the base
with respect to which the investment advisory fees are calculated. The Fund
amortized its organization costs over a five year period beginning with the
inception of the Fund in 1990. Therefore, these costs became fully amortized
during 1995.
Net Realized Gain (Loss) on Investments
Canadian's was a women's specialty retailer, which had 53 stores on
the East Coast, including stores in the New York City and Philadelphia
metropolitan areas. As widely reported in the business press, retailers almost
universally experienced extremely disappointing sales during the 1995 holiday
season. Women's specialty retailers were especially hard hit. This situation
was exacerbated by severe winter weather which hampered store operations from
Boston to Washington, D.C. As a result, a number of apparel retailers filed
for bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996 and ceasing all
operations during March 1996. As discussed in the Fund's previous filings,
Canadian's had embarked on a significant cost
12
<PAGE> 39
cutting program during the fall of 1995, which included closing marginal stores
and reducing general and administrative costs. However, these measures were
not sufficient to offset the negative impact of the unusually bad holiday
season.
As a result of these developments, it is now evident that the Fund
will not recover any of its Canadian's investment. Accordingly, the Fund
recognized the $4,756,316 loss on its Canadian's investment as a realized loss
during the three months ended March 31, 1996. This loss recognition did not
significantly affect the Fund's total net gain (loss) on investments for the
three months ended March 31, 1996 because all but $5 of the loss was recorded
as an unrealized loss during 1995.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled $1,511,364, of which $1,320,711 was received during February
1996. The balance is being held in escrow to fund various transaction expenses
and potential contingent purchase price adjustments, and as collateral for
potential claims of the buyer with respect to representations made by the
selling shareholders, including the Fund. While the escrow amount must be
maintained for a two year period, certain of the sellers' representations will
survive for longer periods of time, which could result in the Fund being
required to reimburse the purchaser for certain costs and expenses after the
escrow is released. The Fund valued the Huntington warrants at December 31,
1995 at an amount approximately equal to 75% of the ultimate sales proceeds
(not including the Fund's share of the escrow) due to the inherent uncertainty
that existed at that time as to whether the sale would actually be consummated.
The Fund recognized a realized gain of $1,216,901 from this
transaction during February 1996. The Fund has not assigned any value to its
$190,653 share of the escrow because it is uncertain how much, if any, of the
escrowed funds will ultimately be received by the Fund. Additional gain will
be recognized if the Fund actually receives a distribution of any of the
escrowed funds.
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and
for which market quotations are available, valuations are set by the closing
sales, or an average of the closing bid and ask prices, as of the valuation
date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment
is valued initially based upon its original cost to the Fund ("cost method").
The cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings,
cash flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future financial
prospects. In a case of unsuccessful operations, the appraisal may be based
upon liquidation value. Appraisal valuations are necessarily subjective. The
Fund also may use, when available, third-party transactions in a portfolio
company's securities as the basis of valuation ("private market method"). The
private market method is used only with respect to completed transactions or
firm offers made by sophisticated, independent investors.
As of December 31, 1995, the Fund had recorded $2,609,492 of
unrealized gain and $5,884,821 of unrealized loss on investments. Therefore,
as of December 31, 1995, the Fund had recorded a total net unrealized loss on
investments of $3,275,329.
13
<PAGE> 40
The net increase in unrealized gain (loss) of investments during the
three months ended March 31, 1996 and the cumulative net unrealized gain on
investments as of March 31, 1996, consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-------------------------------
During the Three
Months Ended As of
Portfolio Company March 31, 1996 March 31, 1996
- ---------------------------------- --------------- ---------------
<S> <C> <C>
Unrealized net loss recorded during
prior periods with respect to
investments disposed of during
the period $ 3,841,121 $ -
Neodata - (337,944)
KEMET (38,423) 622,328
Amity (137,677) 734,495
Elgin/ENI 17,800 179,179
LMC - (540,800)
MTI II - (249,766)
------------ -----------
$ 3,682,821 $ 407,492
============ ===========
</TABLE>
The Neodata Corporation ("Neodata") stock was written down to a
negligible amount during 1995. The Partnership has consistently valued this
investment based upon a multiple of Neodata's cash flow. Because Neodata's
long-term debt presently provides for the accrual, rather than current payment,
of interest, the Company's debt has grown to a level which exceeds the
Partnership's valuation.
KEMET completed an IPO of its common stock during 1992. The stock,
which trades on the NASDAQ National Market System, closed at $22.625 (an
average of the closing bid and ask prices) on March 31, 1996. This price is
down from the closing price of $34.125 on December 31, 1995. Based on the
$22.625 closing trading price of the common stock, the 27,944 shares of common
stock that the Fund held at March 31, 1996 had a market value of $632,233.
The Amity warrants and common stock were written down in value at
March 31, 1996 to bring Amity's valuation more in line with the valuation of
other comparable companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value
quarterly to reflect the amount of the cumulative 10% preferential dividend
that has accrued with respect to the preferred stock.
As discussed above, LMC has experienced significant operating problems
since the Fund acquired its LMC investment during 1994 and the Fund's LMC
investment was recently restructured. As a result of LMC's operational
difficulties and the fact that the Fund now owns equity securities rather than
debt securities, the Fund wrote its LMC investment down by $540,800 during
1995.
The MTI II common stock was written down in value during 1994 based
upon an independent third party valuation of the company that was obtained by
MTI II's management.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
14
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 23,143,175
<INVESTMENTS-AT-VALUE> 23,498,606
<RECEIVABLES> 196,567
<ASSETS-OTHER> 2,695
<OTHER-ITEMS-ASSETS> 321,123
<TOTAL-ASSETS> 24,018,991
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 522,633
<TOTAL-LIABILITIES> 522,633
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,407,244
<SHARES-COMMON-PRIOR> 1,407,244
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 218,272
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 355,431
<NET-ASSETS> 23,496,358
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 980,223
<OTHER-INCOME> 0
<EXPENSES-NET> 345,620
<NET-INVESTMENT-INCOME> 634,603
<REALIZED-GAINS-CURRENT> (3,539,416)
<APPREC-INCREASE-CURRENT> 3,630,760
<NET-CHANGE-FROM-OPS> 725,947
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 852,875
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (126,928)
<ACCUMULATED-NII-PRIOR> 222,613
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 90,610
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 345,620
<AVERAGE-NET-ASSETS> 23,586,363
<PER-SHARE-NAV-BEGIN> 16.79
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> .60
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.70
<EXPENSE-RATIO> 2.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
