<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 September 30, 1997
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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
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Commission file number 0-17737
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Fiduciary Capital Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware 86-0653600
- ----------------------- -------------------
(State of organization) (I.R.S. Employer
Identification No.)
410 17th Street
Suite 400
Denver, Colorado 80202
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (800) 866-7607
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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<PAGE> 2
Fiduciary Capital Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1997
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
September 30, 1997 3
Balance Sheets - September 30, 1997 and
December 31, 1996 5
Statements of Operations for the three months
ended September 30, 1997 and 1996 6
Statements of Operations for the nine months
ended September 30, 1997 and 1996 7
Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 8
Statements of Changes in Net Assets for
the nine months ended September 30, 1997
and for the year ended December 31, 1996 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
SEPTEMBER 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
27,944 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 9,905 $ 853,165
- --------------------------------------------------------------------------------------------------------------------------
9,905 853,165 4.5%
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75,856 sh. AR Accessories Group,
Inc., Warrants to
Purchase Class B
Common Stock(2)* 07/30/92 104,091 1
27,392 sh. AR Accessories Group,
Inc., Class A Common
Stock(2)* 07/30/92 273,920 260,223
- --------------------------------------------------------------------------------------------------------------------------
378,011 260,224 1.3
- --------------------------------------------------------------------------------------------------------------------------
$6,087,185 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 5,997,905 5,997,905
7,119.71 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 711,971 997,945
489.27 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 48,927 633,980
510.83 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 51,078 607,222
- --------------------------------------------------------------------------------------------------------------------------
6,809,881 8,237,052 43.3
- --------------------------------------------------------------------------------------------------------------------------
$1,931,524 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4) 11/01/96 1,931,524 1,931,524
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
- --------------------------------------------------------------------------------------------------------------------------
5,073,745 4,532,945 23.8
- --------------------------------------------------------------------------------------------------------------------------
</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)
SEPTEMBER 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,608 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 227,438 59,581
4,278 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 60,492 27,763
- --------------------------------------------------------------------------------------------------------------------------
287,930 87,344 0.5
- --------------------------------------------------------------------------------------------------------------------------
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,383,220 1,383,220
11,060.6 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 82,955 82,955
- --------------------------------------------------------------------------------------------------------------------------
1,466,175 1,466,175 7.7
- --------------------------------------------------------------------------------------------------------------------------
$3,934,080 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 1/19/03(7)* 01/25/96 3,819,626 1
407,659 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(8)* 01/25/96 40,766 1
- --------------------------------------------------------------------------------------------------------------------------
3,860,392 2 0.0
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Total Investments in Managed Companies (89.4% of net assets) 17,886,039 15,436,907 81.1
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$3,600,000 Ford Motor Credit
Corporation, 5.23%
Notes due 10/01/97 09/16/97 3,600,000 3,600,000
- --------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (20.9% of net assets) 3,600,000 3,600,000 18.9
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (110.3% of net assets) $21,486,039 $19,036,907 100.0%
==========================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to AR Accessories
Group, Inc. during 1996.
(3) The notes will amortize in eight equal quarterly installments of $760,898
commencing on November 30, 1999.
(4) The Fund has committed to provide up to $1,967,040 of subordinated debt
financing pursuant to the terms of these notes.
(5) The warrants have exercise prices of $19.30 per share (1,277 shares) and
$34.30 per share (3,001 shares).
(6) The notes will amortize in three equal annual installments of $486,667
commencing on May 24, 2000.
(7) The notes will amortize in five equal annual installments of $786,816 com-
mencing on January 19, 1999. The accrual of interest on the notes was dis-
continued by the Fund effective April 20, 1996.
(8) 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
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$17,886,039 and $17,244,123
respectively) $ 15,436,907 $ 16,560,005
Temporary investments, at amortized cost 3,600,000 3,797,256
------------ ------------
Total investments 19,036,907 20,357,261
Cash and cash equivalents 326,741 272,543
Accrued interest receivable 146,402 113,809
Other assets 32,769 7,648
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Total assets $ 19,542,819 $ 20,751,261
============ ============
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 84,908 $ 52,655
Accounts payable and accrued liabilities 489,127 479,745
Distributions payable to partners 1,705,989 393,690
------------ ------------
Total liabilities 2,280,024 926,090
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (50,136) (24,512)
Limited Partners (equivalent to $13.33
and $15.28, respectively, per limited
partnership unit based on 1,299,176 units outstanding) 17,312,931 19,849,683
------------ ------------
Net assets 17,262,795 19,825,171
------------ ------------
Total liabilities and net assets $ 19,542,819 $ 20,751,261
============ ============
</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 SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 357,418 $ 491,818
----------- -----------
Total investment income 357,418 491,818
----------- -----------
Expenses:
Investment advisory fees (Note 2) 38,671 41,887
Professional fees 72,453 30,332
Fund administration fees (Note 3) 35,843 35,843
Administrative expenses (Note 3) 20,275 20,275
Independent General Partner fees
and expenses (Note 4) 21,098 12,693
Other expenses 9,335 9,048
----------- -----------
Total expenses 197,675 150,078
----------- -----------
NET INVESTMENT INCOME 159,743 341,740
----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 1,076,669 (409,453)
Net change in unrealized (loss) gain
on investments (421,760) 46,029
----------- -----------
Net gain (loss) on investments 654,909 (363,424)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 814,652 $ (21,684)
=========== ===========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 1,027,725 $ 1,472,041
----------- -----------
Total investment income 1,027,725 1,472,041
----------- -----------
Expenses:
Investment advisory fees (Note 2) 105,085 132,497
Professional fees 148,417 111,956
Fund administration fees (Note 3) 107,528 107,528
Administrative expenses (Note 3) 60,828 60,828
Independent General Partner fees
and expenses (Note 4) 43,086 44,636
Other expenses 24,873 38,253
----------- -----------
Total expenses 489,817 495,698
----------- -----------
NET INVESTMENT INCOME 537,908 976,343
----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 1,158,098 (3,948,869)
Net change in unrealized (loss) gain
on investments (1,765,014) 3,676,789
----------- -----------
Net loss on investments (606,916) (272,080)
----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (69,008) $ 704,263
=========== ===========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets resulting from operations $ (69,008) $ 704,263
Adjustments to reconcile net (decrease) increase in net
assets resulting from operations to net cash :
Accreted discount on portfolio investments (31,857) (41,864)
Change in assets and liabilities:
Accrued interest receivable (32,593) (194,068)
Other assets (25,121) 368
Payable to affiliates 32,253 (2,876)
Accounts payable and accrued liabilities (3,500) 4,595
Net realized (gain) loss on investments (1,158,098) 3,948,869
Net change in unrealized loss (gain)
on investments 1,765,014 (3,676,789)
----------- -----------
Net cash provided by operating activities 477,090 742,498
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (948,004) (4,400,998)
Proceeds from dispositions of portfolio investments 1,508,925 1,340,631
Sale of temporary investments, net 197,256 3,754,255
----------- -----------
Net cash provided by investing activities 758,177 693,888
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,181,069) (1,279,313)
----------- -----------
Net cash used in financing activities (1,181,069) (1,279,313)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 54,198 157,073
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 272,543 200,969
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 326,741 $ 358,042
=========== ===========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 537,908 $ 951,907
Net realized gain (loss) on investments 1,158,098 (3,948,869)
Net change in unrealized (loss) gain
on investments (1,765,014) 2,591,211
------------ ------------
Net decrease in net assets
resulting from operations (69,008) (405,751)
Repurchase of limited partnership units -- (1,719,362)
Distributions to partners from -
Net investment income (537,908) (1,174,520)
Realized gain on investments (1,170,979) (498,482)
Return of capital (784,481) --
------------ ------------
Total decrease in net assets (2,562,376) (3,798,115)
Net assets:
Beginning of period 19,825,171 23,623,286
------------ ------------
End of period (including no undistributed
net investment income) $ 17,262,795 $ 19,825,171
============ ============
</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 Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .27 $ .35 $ .78 $ 1.04
Expenses (.15) (.11) (.37) (.35)
--------- --------- --------- ---------
Net investment income .12 .24 .41 .69
Net realized gain (loss) on investments .82 (.29) .88 (2.78)
Net change in unrealized (loss) gain
on investments (.32) .04 (1.34) 2.59
Distributions declared to partners (1.30) (.30) (1.90) (.90)
--------- --------- --------- ---------
Net decrease in net asset value (.68) (.31) (1.95) (.40)
Net asset value:
Beginning of period 14.01 16.70 15.28 16.79
--------- --------- --------- ---------
End of period $ 13.33 $ 16.39 $ 13.33 $ 16.39
========= ========= ========= =========
Ratios (annualized):
Ratio of expenses to average net assets 4.47% 2.58% 3.53% 2.82%
Ratio of net investment income to
average net assets 3.61% 5.87% 3.88% 5.55%
Number of limited partnership units at end of period 1,299,176 1,407,244 1,299,176 1,407,244
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
10
<PAGE> 11
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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 September 30, 1997 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, 1996.
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
$105,085 were paid by the Fund for the nine months ended September 30, 1997.
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 $107,528
were paid by the Fund for the nine months ended September 30, 1997. 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 $60,828 for the nine months ended September
30, 1997.
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 nine months ended September 30, 1997 totaled $43,086.
5. CONTINGENCIES
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Holdings, Inc. ("Canadian's") Chapter 11 bankruptcy case against
Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger. On March
19, 1997, the Bankruptcy Court denied the Fund's claim. As a result of the
Court's decision, the Fund dropped this litigation, while preserving its rights
to pursue litigation against Finova at a later date. Beginning July 1, 1997, the
Fund began accruing additional reserves at a 12%
11
<PAGE> 12
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(unaudited)
annualized rate, or $12,881 for the three months ended September 30, 1997.
FCM believes that any potential liability to the Fund resulting from
Canadian's outstanding sales tax liabilities will not have any material adverse
effect on the Fund's financial condition, beyond the reserve that has been
established.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Fund held portfolio investments in seven
Managed Companies, with an aggregate cost of approximately $17.9 million. The
value of these portfolio investments, which were made from net offering proceeds
and the reinvestment of proceeds from the sale of other portfolio investments,
represents approximately 89.4% 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 are 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 September 30, 1997, 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.
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 annually
offers 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 1997
repurchase offer was mailed to the Limited Partners on October 6, 1997. The
actual redemption of tendered Units will occur on November 21, 1997.
During November 1996, the Fund agreed to provide up to $1,967,040 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $983,520
was advanced at that time. The Fund advanced an additional $948,004 during 1997.
This follow-on investment consists of 12% Senior Subordinated Revolving Notes
due October 31, 2000.
Accrued interest receivable increased $32,593 from $113,809 at December
31, 1996 to $146,402 at September 30, 1997. This increase resulted primarily
from the accrued interest related to the additional LMC subordinated debt, which
is discussed in the preceding paragraph.
Other assets increased $25,121 from $7,648 at December 31, 1996 to
$32,769 at September 30, 1997. This increase resulted primarily from an increase
in prepaid insurance associated with a new liability insurance policy for the
Fund's general partners.
Payable to affiliates increased $32,253 from $52,655 at December 31,
1996 to $84,908 at September 30, 1997. This increase resulted primarily from the
$32,500 annual premium that is payable with respect to the new liability
insurance policy for the Fund's general partners.
Distributions payable to partners increased $1,312,299 from $393,690 at
December 31, 1996 to $1,705,989 at September 30, 1997. This increase represents
the special distribution of proceeds from the sale of the Fund's Neodata
Corporation ("Neodata") investment. This special distribution, which is equal to
$1.00 per Unit, will be paid along with the regular quarterly distribution of
$.30 per Unit on November 14, 1997 to investors of record on September 30, 1997.
13
<PAGE> 14
During the nine months ended September 30, 1997, the Fund paid cash
distributions pertaining to the fourth quarter of 1996 and the first and second
quarters of 1997, each in the amount of $393,690. These quarterly distributions
were 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. This will impact the amount of the Fund's quarterly
distributions for 1997 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.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $159,743 for the three months
ended September 30, 1997 as compared to net investment income of $341,740 for
the corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.24 to $.12 and the ratio of net investment
income to average net assets decreased from 5.87% to 3.61% for the three months
ended September 30, 1997 as compared to the corresponding period of the prior
year.
The Fund's net investment income was $537,908 for the nine months ended
September 30, 1997 as compared to net investment income of $976,343 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.69 to $.41 and the ratio of net investment
income to average net assets decreased from 5.55% to 3.88% for the nine months
ended September 30, 1997 as compared to the corresponding period of the prior
year.
Net investment income for the three months ended September 30, 1997
decreased both as a result of a decrease in investment income and an increase in
total expenses. Net investment income for the nine months ended September 30,
1997 decreased primarily as a result of a decrease in investment income. The
decrease in investment income for the nine months ended September 30, 1997 was
partially offset by a small decrease in total expenses.
Investment income decreased $134,400 and $444,316, or 27.3% and 30.2%,
for the three and nine month periods ended September 30, 1997 as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the Atlas Environmental, Inc. ("Atlas") Chapter 11 bankruptcy filing and the
related decision to discontinue accruing the interest due on the Atlas notes
held by the Fund. The Fund's total investments also decreased as a result of the
Fund's repurchase of 7.68% of its Units during the fourth quarter of 1996.
Total expenses increased $47,597, or 31.7%, for the three months ended
September 30, 1997 as compared to the corresponding period of the prior year.
This increase resulted primarily from increases in professional fees and
Independent General Partner fees and expenses. These increases were partially
offset by a decrease in investment advisory fees.
Total expenses decreased $5,881, or 1.2%, for the nine months ended
September 30, 1997 as compared to the corresponding period of the prior year.
This decrease resulted primarily from decreases in investment advisory fees and
other expenses. These decreases were partially offset by an increase in
professional fees.
14
<PAGE> 15
Professional fees increased during both the three and nine month
periods ended September 30, 1997 because of fees incurred in connection with the
Fund's analysis of a proposal pursuant to which its Units would have been
exchanged for shares in a newly-formed Delaware Business Trust. FCM has decided
not to pursue this proposal at this time.
Independent General Partner fees and expenses increased during the
three months ended September 30, 1997 because the Fund was obligated to pay fees
and expenses to both incoming and outgoing Independent General Partners during
the transition period during which new Independent General Partners were being
elected.
The investment advisory fees paid to FCM decreased during both the
three and nine month periods ended September 30, 1997, primarily as a result of
the direct receipt by FCM of consulting fees from LMC, one of the Fund's
portfolio companies during the first quarter of 1996 and as a result of the
repurchase of Units during November 1996. Pursuant to the terms of the Fund's
investment advisory agreement with FCM, the investment advisory fees payable to
FCM by the Fund are reduced by the amount of any fees that FCM receives directly
from any of the Fund's portfolio companies. The repurchase of Units 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 during the nine months ended September 30,
1997 primarily as a result of consulting fees and expenses paid during 1996 in
connection with the Canadian's bankruptcy proceedings.
Net Realized Gain on Investments
The net realized gain for the three months ended September 30, 1997
consisted of a gain on sale of the Fund's Neodata investment and a realized loss
on the Fund's Canadian's investment. The net realized gain for the nine months
ended September 30, 1997 also included a gain from the sale of the Fund's
investment in Huntington Holdings, Inc. ("Huntington").
The Fund has owned an equity position in Neodata since 1990, which it
acquired at a cost of $337,946. In addition, the Fund previously owned Neodata
subordinated notes, which were prepaid during May 1993.
During August 1997, Electronic Data Systems Corporation ("EDS") offered
to purchase all of Neodata's stock that it did not already own. Hicks Muse, the
owner of a controlling portion of Neodata's common stock, accepted the offer.
The purchase by EDS closed on September 2, 1997. The Fund received $1,427,496 of
cash proceeds from the sale of its Neodata stock, resulting in a realized gain
of $1,089,550.
Beginning July 1, 1997, the Fund began accruing additional Canadian's
sale tax related reserves at a 12% annualized rate, or $12,881 for the three
months ended September 30, 1997. This additional accrued amount was recorded as
an additional realized loss in the Fund's Statements of Operations.
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, with
the balance held by the buyer in escrow. A portion of the escrowed funds was
used to pay various transaction expenses and the Fund received additional
distributions of $19,920 and $81,429 during September 1996 and May 1997,
respectively. The remaining balance will continue to be held in escrow until
February 1998 to be available to fund any contingent purchase price adjustments
and as collateral for potential claims of the buyer with respect to
representations made by the selling
15
<PAGE> 16
shareholders, including the Fund. The Fund recognized realized gains of
$1,236,821 and $81,429 from this transaction during 1996 and the second quarter
of 1997, respectively. Additional gain will be recognized if, and when, the Fund
actually receives a distribution of any of the remaining 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
are 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, 1996, the Fund had recorded $1,601,626 of unrealized
gain and $2,285,744 of unrealized loss on investments. Therefore, as of December
31, 1996, the Fund had recorded a total net unrealized loss on investments of
$684,118.
The net increase in unrealized loss on investments during the three and
nine month periods ended September 30, 1997 and the cumulative net unrealized
loss on investments as of September 30, 1997, consisted of the following
components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-------------------------------
During the Three During the Nine
Months Ended Months Ended As of
Portfolio Company September 30, 1997 September 30, 1997 September 30, 1997
- ------------------------------------ ------------------ -------------------- ------------------
<S> <C> <C> <C>
Unrealized net loss recorded during
prior periods with respect to
investments disposed of during
the period $ 337,944 $ 337,944 $ -
KEMET 156,311 208,706 843,260
ARA -- (852,283) (117,787)
Elgin / ENI 17,799 1,194,595 1,427,171
LMC -- -- (540,800)
MTI 31,288 26,190 (200,586)
Atlas (965,102) (2,680,166) (3,860,390)
----------- ----------- -----------
$ (421,760) $(1,765,014) $(2,449,132)
=========== =========== ===========
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock,
which trades on the NASDAQ National Market System, closed at $30.53125 (an
average of the closing bid and ask prices) on September 30, 1997. This price is
up from the closing prices of $23.0625 on December 31, 1996 and $24.9375 on June
30, 1997. Based on the $30.53125 closing trading price of the common stock, the
27,944 shares of common stock that the Fund held at September 30, 1997 had a
market value of $853,165.
16
<PAGE> 17
AR Accessories Group, Inc. ("ARA") reported significantly reduced
earnings and cash flow from operations for its most recent fiscal year. In
addition, the price earnings ratios of comparable companies in its industry have
declined recently. As a result of these factors, the ARA warrants and common
stock were written down in value by $852,283 at March 31, 1997.
During June 1997, the Fund received a written offer from ENI Holding
Corp. ("ENI") management to prepay the Fund's subordinated debt, redeem the
Fund's preferred stock and purchase the Fund's Class B common stock and
warrants. The offer, which was contingent on management's ability to secure
adequate financing on satisfactory terms, was reviewed by all of the
subordinated debt holders and rejected as inadequate. As a result of this offer,
the Fund wrote the Class B common stock and warrants up in value at June 30,
1997 by $1,141,197 to an amount equal to 80% of the price offered by management.
In recent weeks, ENI management has made an improved offer, which is currently
under consideration and negotiation. In addition, the ENI preferred stock is
being written up in value quarterly to reflect the accrual of the cumulative 10%
preferential dividend.
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's investment was converted from debt
securities to equity securities, the Fund wrote its LMC investment down by
$540,800 during 1995.
The MTI common stock was written down in value during 1994 based upon
an independent third party valuation of the company that was obtained by MTI's
management. During August 1996, MTI consummated a financial restructuring
pursuant to which a substantial amount of its corporate debt was converted to
equity. In the restructuring, the existing shareholders, including the Fund,
received a reduced number of shares of common stock, along with warrants to
purchase additional common stock. The Fund's valuation of its MTI investment was
reduced by $5,098 at March 31, 1997 and increased by $31,288 at September 30,
1997 based upon an analysis of MTI's reported earnings and cash flows.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As a
result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments on the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the
terms of which some of the company's businesses would be sold for cash. On
November 5, 1996, the purchaser notified Atlas that it wanted to renegotiate the
terms of the transaction, including a reduction in the purchase price. Atlas
management was unable to reach a revised agreement with the purchaser and Atlas
remained in default on its debt. On January 17, 1997, Atlas filed for Chapter 11
bankruptcy protection. Atlas is currently developing a plan of reorganization
for submission to the bankruptcy court that provides for the continued operation
of its businesses, including a series of strategic asset acquisitions and
dispositions.
As a result of these developments, the Fund stopped accruing interest
on its Atlas investment effective April 20, 1996 and recorded writedowns of
$1,180,224, $1,715,064 and $965,102 in the carrying value of the investment
during the fourth quarter of 1996 and the second and third quarters of 1997,
respectively. The remaining carrying value of the Fund's Atlas investment is $2.
17
<PAGE> 18
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 against the Fund.
As discussed in prior filings, on October 3, 1996, the Fund commenced
an adversary proceeding in the Canadian's Holdings, Inc. ("Canadian's") Chapter
11 bankruptcy case against Finova Capital Corporation ("Finova"), Benson Selzer
and Joseph Eiger. The complaint sought a declaratory judgment that sales taxes
collected by Canadian's and turned over to Finova were "trust funds" collected
by Canadian's on behalf of various state tax authorities. Through the complaint,
the Fund objected to Finova's secured claim against Canadian's, which was
guaranteed by Benson Selzer and Joseph Eiger, and sought to recover the sales
tax and certain other amounts for the benefit of Canadian's bankruptcy estate.
As a result of this litigation and the issues involved, the Fund accrued
$429,373 during 1996 for legal costs and possible payments that may be required
to settle the litigation or to fund the payment of Canadian's outstanding sales
tax liabilities. On March 19, 1997, the Bankruptcy Court denied the Fund's
claim. As a result of the Court's decision, the Fund dropped this litigation,
while preserving its rights to pursue litigation against Finova at a later date.
Beginning July 1, 1997, the Fund began accruing additional reserves at a 12%
annualized rate, or $12,881 for the three months ended September 30, 1997.
As discussed in prior filings, a class action lawsuit was filed during
1994 against PaineWebber and a number of its affiliates concerning the sale of
various limited partnership and other direct investment programs, including the
offering of the Units.
In 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. A definitive settlement was agreed to in July 1996
and in March 1997, the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members. The investors who had
objected to the settlement have recently appealed the District Court's approval
to the Unites States Court of Appeals for the Second Circuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
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.
(b) The Registrant filed one report on Form 8-K during the third
quarter of the fiscal year ending December 31, 1997. The
report was dated September 2, 1997, and was filed with the
Securities and Exchange Commission on September 18, 1997, to
report the sale of the Fund's Neodata stock and the amount and
record date of the Fund's cash distribution for the third
quarter of 1997.
19
<PAGE> 20
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: November 4, 1997 By: /s/ Donald R. Jackson
-------------------------------------
Donald R. Jackson
Chief Financial Officer
20
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
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.
E-1
<PAGE> 1
Exhibit No. 11.1
Statement of Computation of Net
Investment Income Per Limited
Partnership Unit
<PAGE> 2
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Investment Income $ 159,743 $ 341,740 $ 537,908 $ 976,343
Percentage Allocable to Limited Partners 99% 99% 99% 99%
---------- ---------- ---------- ----------
Net Investment Income Allocable
to Limited Partners $ 158,146 $ 338,323 $ 532,529 $ 966,580
========== ========== ========== ==========
Weighted Average Number of Limited
Partnership Units Outstanding 1,299,176 1,407,244 1,299,176 1,407,244
========== ========== ========== ==========
Net Investment Income Per Limited
Partnership Unit $ .12 $ .24 $ .41 $ .69
========== ========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit No. 19.1
Report Furnished to
Securities Holders
<PAGE> 2
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
-----------------------
SECOND QUARTER REPORT
1997
<PAGE> 3
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
MESSAGE TO INVESTORS
Dear Investor:
The Fund's net asset value per Unit was $14.01 at June 30, 1997. The Fund held
portfolio investments in eight companies, which represented approximately 87.0%
of the Fund's net assets. The Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments in existing companies, to pay Fund expenses, for distribution to the
partners or to fund the annual repurchase offer.
INVESTMENT UPDATE
ENI Holding Corp. ("ENI") During June 1997, the Fund received a written offer
from ENI management to prepay the Fund's subordinated debt, redeem the Fund's
preferred stock and purchase the Fund's Class B common stock and warrants. The
offer, which was contingent on management's ability to secure adequate financing
on satisfactory terms, was reviewed by all of the subordinated debt holders and
rejected as inadequate. As a result of this offer, the Fund wrote the Class B
common stock and warrants up in value at June 30, 1997 by $1,141,197 to an
amount equal to 80% of the price offered by management. In addition, the ENI
preferred stock is being written up in value quarterly to reflect the accrual of
the cumulative 10% preferential dividend.
In recent weeks, ENI management has made an improved offer, which is currently
under consideration and negotiation. If this revised offer is ultimately
accepted, the transaction is scheduled to be consummated prior to December 31,
1997. However, it could be delayed substantially.
LMC Operating Corp. ("LMC") During October 1996, FCM renegotiated the management
structure of LMC with the other major owner and FCM representatives now
constitute the majority of LMC Board members. Mr. DeGrassi is Chairman and CEO
of LMC and is actively involved in the day-to-day management of the company.
Since FCM has taken control of the company, LMC has clearly defined its
strategic direction and limited its
-------------------
ONE
<PAGE> 4
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
line of products, has implemented significant cost reductions, including a
headcount reduction of approximately 33%, and has proceeded with the development
of a very promising new product, the Skid Trak.
Although LMC will report a loss for the fiscal year ending September 30, 1997,
for the first time in many years, the company has generated a positive gross
margin and is expecting to be cash flow positive in the upcoming fiscal year.
LMC is best known for its ski area groomers and utility vehicles, which it began
manufacturing in 1961. It designs and builds each machine in Logan, Utah,
selling to customers worldwide. LMC's experience with these low ground-pressure,
tracked vehicles and the need to diversify the product line led the company to
develop the new Skid Trak.
The Skid Trak is an all season utility vehicle with extremely low ground
pressure which makes it suitable for a variety of industries and businesses,
including sod farms, grain elevators, orchards, vineyards, nurseries, golf
courses, landscaping, marsh maintenance and a wide variety of tasks undertaken
by general contractors. The Skid Trak is a loader, dozer and tool carrier, that
resembles a small front-end loader, but does not create the same degree of
surface damage.
LMC has been testing the Skid Trak prototype for a number of months and recently
began a limited production run. Full-scale production will begin by the end of
1997 and the company expects to sell as many as 60 of these machines in its next
fiscal year. LMC's engineering department has incorporated a number of product
improvements and innovations into the Skid Trak, which we believe will make it a
very competitive product.
Atlas Environmental, Inc. ("Atlas") In previous reports, we have discussed the
disappointing performance of this investment. Atlas has defaulted on the
interest payments due to the Fund and has filed for bankruptcy. Atlas is
currently developing a plan of reorganization for submission to the bankruptcy
court that provides for the continued operation of its businesses, including a
series of strategic asset acquisitions and dispositions. As a result of these
developments, the Fund stopped accruing interest
-------------------
TWO
<PAGE> 5
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
on its Atlas investment effective April 20, 1996 and recorded writedowns of
$1,180,224 and $1,715,064 in the carrying value of its investment during the
fourth quarter of 1996 and the second quarter of 1997, respectively. The
remaining carrying value of the Fund's Atlas investment is $965,104. Under
certain circumstances, the Fund may consider a follow-on investment to
facilitate the asset acquisitions necessary to implement the reorganization
plan.
Neodata Corporation ("Neodata") During August 1997, Electronic Data Systems
Corporation ("EDS") offered to purchase for cash all of Neodata's outstanding
stock that it did not already own. Hicks, Muse, the owner of a controlling
portion of Neodata's common stock, accepted the offer. The purchase by EDS
closed on September 2, 1997, and the Fund received $1,427,496 of cash proceeds
from the sale of its Neodata stock. The Fund had originally invested $337,946 in
its Neodata stock.
CASH DISTRIBUTIONS
The distribution for the second quarter of 1997 was paid on August 14, 1997 in
an amount equal to $.30 per Unit, or an annualized rate equal to 6.0% of
contributed capital. On a combined basis, the cash distributions for the first
and second quarters of 1997 consisted of current net investment income (48.0%),
realized gain on investments (10.3%) and a return of capital (41.7%).
In light of the Neodata sale, the distribution for the third quarter of 1997
will include both the regular $.30 per Unit distribution and a special
distribution of $1.00 per Unit. The record date for this distribution will be
September 30, 1997, and the distribution will be paid on November 14, 1997. All
investors will receive this distribution if they are record holders as of
September 30, 1997. This will not be affected by the 1997 Periodic Repurchase
(see below).
If the proposed ENI transaction (see above) is consummated, management expects
to increase the regular quarterly distribution from $.30 to $.45 per Unit,
beginning in 1998. There may also be another special distribution. The bulk of
the distribution increase will be derived from return of capital
-------------------
THREE
<PAGE> 6
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
and gains on sale of investments.
IN-KIND DISTRIBUTION
Management is considering the conversion of some portion of the LMC debt the
Fund holds into common shares, and the subsequent distribution of these shares
to the Fund's investors. We are exploring the regulatory and legal aspects of
this transaction, as well as negotiating with the other major shareholder of LMC
regarding this possible conversion. Any shares distributed would be listed on a
national stock exchange and would be freely tradable. Although no assurance can
be given that the conversion will take place, if it does, we would expect the
distribution of the shares to occur before the end of the second quarter of
1998.
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 is required to 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. If Units in excess
of this amount are tendered, Units are purchased on a pro-rated basis, after
giving priority to investors owning less than 100 Units.
The next opportunity to have the Fund repurchase your Units will occur during
the fourth quarter of 1997. The repurchase offer will be mailed to investors on
October 6, 1997, and the deadline for tendering Units for repurchase will be
October 31, 1997. The repurchase price will be based on the net asset value per
Unit on November 14, 1997, and payment for tendered Units will be made on
November 21, 1997. Separate advance notices of each of these dates will be
mailed.
-------------------
FOUR
<PAGE> 7
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
PROPOSED EXCHANGE
In the Fund's 1996 Annual Report, we discussed a plan that was being considered
pursuant to which your Units would be exchanged for shares in a newly-formed
Delaware Business Trust that would operate as a business development company and
make investments in the same manner as the Fund has in the past. The primary
reasons for this proposed exchange would be to grow the Fund, to provide
liquidity for your investment through the listing of the shares of the Trust on
the American Stock Exchange and to simplify tax reporting for the Fund's
investors.
There is considerable uncertainty as to whether the exchange will ultimately be
proposed and/or approved. There are numerous business, legal and regulatory
issues which are currently being analyzed. Once this analysis is completed, we
will be in a position to decide whether or not to pursue the proposal and
solicit the required approvals of the Fund's Independent General Partners and
investors.
In the Fund's 1996 Annual Report, we also discussed the fact that the 1997
repurchase offer would be eliminated if the exchange described above was
approved on a timely basis. However, it is now evident that the exchange will
not be submitted for approval as soon as previously anticipated. As a result,
the 1997 repurchase offer will occur as scheduled.
INDEPENDENT GENERAL PARTNERS
Since November 1996, the Fund has had two Independent General Partners ("IGPs"),
Norman J. Peer and E. Bruce Fredrikson. During July 1997, Mr. Peer was appointed
a Superior Court Judge for the State of New Jersey. Pursuant to New Jersey State
law, Mr. Peer was unable to continue to serve as an IGP after his term as a
judge commenced.
During July 1997, Messrs. Peer and Fredrikson interviewed a number of candidates
and elected two new IGPs, Mark A. Sargent and Phillip Siegel. Immediately
following the election of the new IGPs, Mr. Peer submitted his resignation. Mr.
Sargent is the Dean and a Professor of Law at the Villanova University School of
Law. Mr. Siegel is a Vice President and
-------------------
FIVE
<PAGE> 8
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
Chief Financial Officer of Health Management Systems, Inc.
We have enjoyed working with Mr. Peer for the last eight years, during which he
has served as an IGP and provided invaluable counsel and judgment. We are sorry
to lose him, but we are confident that he will provide the people of New Jersey
with outstanding service in this very important position. We are looking forward
to working with Messrs. Sargent and Siegel in the future and believe that we are
extremely fortunate to be able to attract two such highly qualified individuals.
* * * * * * * *
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
September 8, 1997
-------------------
SIX
<PAGE> 9
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
SCHEDULE OF INVESTMENTS
JUNE 30, 1997 (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 9,905 696,854
- -----------------------------------------------------------------------------------------------
9,905 696,854 3.7
- -----------------------------------------------------------------------------------------------
75,856 sh. ar accessories group,
incorporated, Warrants
to Purchase Class B
Common Stock(2)* 07/30/92 104,091 1
27,392 sh. ar accessories group,
incorporated, Class A
Common Stock(2)* 07/30/92 273,920 260,223
- -----------------------------------------------------------------------------------------------
378,011 260,224 1.4
- -----------------------------------------------------------------------------------------------
$6,087,185 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 5,991,279 5,991,279
7,119.71 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 711,971 980,146
489.27 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 48,927 633,980
510.83 sh. ENI Holding Corp.,
Warrants to Purchase Class
B Common Stock* 09/24/93 51,078 607,222
- -----------------------------------------------------------------------------------------------
6,803,255 8,212,627 44.0
- -----------------------------------------------------------------------------------------------
$1,538,116 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4) 11/01/96 1,538,116 1,538,116
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
- -----------------------------------------------------------------------------------------------
4,680,337 4,139,537 22.1
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are
an integral part of this schedule.
-------------------
SEVEN
<PAGE> 10
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,608 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 227,438 45,488
4,272 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 60,492 10,568
- ----------------------------------------------------------------------------------------------
287,930 56,056 0.3
- ----------------------------------------------------------------------------------------------
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,378,853 1,378,853
11,060.6 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 82,955 82,955
- ----------------------------------------------------------------------------------------------
1,461,808 1,461,808 7.8
- ----------------------------------------------------------------------------------------------
$3,934,080 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due
1/19/03(7)* 01/25/96 3,819,626 965,103
407,659 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(8)* 01/25/96 40,766 1
- ----------------------------------------------------------------------------------------------
3,860,392 965,104 5.2
- ----------------------------------------------------------------------------------------------
Total Investments in Managed
Companies (87.0% of net assets) 17,819,584 15,792,212 84.5
- ----------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,900,000 Ford Motor Credit
Corporation, 5.24%
Notes due 7/02/97 06/18/97 2,899,579 2,899,579
- ----------------------------------------------------------------------------------------------
Total Temporary Investments (16.0% of net assets) 2,899,579 2,899,579 15.5
- ----------------------------------------------------------------------------------------------
Total Investments (103.0% of net assets) $20,719,163 $18,691,791 100.0%
==============================================================================================
</TABLE>
The accompanying notes to financial statements are
an integral part of this schedule.
-------------------
EIGHT
<PAGE> 11
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
SCHEDULE OF INVESTMENTS (CONTINUED)
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to ar accessories
group, incorporated during 1996.
(3) The notes will amortize in eight equal quarterly installments of $760,898
commencing on November 30, 1999.
(4) The Fund has committed to provide up to $1,967,040 of subordinated debt
financing pursuant to the terms of these notes.
(5) The warrants have exercise prices of $20.00 per share (1,281 shares) and
$35.00 per share (2,991 shares).
(6) The notes will amortize in three equal annual installments of $486,667
commencing on May 24, 2000.
(7) The notes will amortize in five equal annual installments of $786,816
commencing on January 19, 1999. The accrual of interest on the notes was
discontinued by the Fund effective April 20, 1996.
(8) 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.
-------------------
NINE
<PAGE> 12
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$17,819,584 and $17,244,123,
respectively) $ 15,792,212 $ 16,560,005
Temporary investments, at amortized cost 2,899,579 3,797,256
- --------------------------------------------------------------------------------
Total investments 18,691,791 20,357,261
Cash and cash equivalents 232,555 272,543
Accrued interest receivable 124,725 113,809
Other assets 45,662 7,648
- --------------------------------------------------------------------------------
Total assets $ 19,094,733 $ 20,751,261
================================================================================
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 61,778 $ 52,655
Accounts payable and accrued liabilities 485,133 479,745
Distributions payable to partners 393,690 393,690
- --------------------------------------------------------------------------------
Total liabilities 940,601 926,090
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
NET ASSETS:
Managing General Partner (41,222) (24,512)
Limited Partners (equivalent to $14.01
and $15.28, respectively, per limited
partnership unit based on 1,299,176
units outstanding) 18,195,354 19,849,683
- --------------------------------------------------------------------------------
Net assets 18,154,132 19,825,171
- --------------------------------------------------------------------------------
Total liabilities and net assets $ 19,094,733 $ 20,751,261
================================================================================
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
-------------------
TEN
<PAGE> 13
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 336,462 $ 496,579
- --------------------------------------------------------------------------------
Total investment income 336,462 496,579
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 44,135 41,888
Professional fees 22,957 35,092
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) 11,023 13,625
Other expenses 7,099 14,449
- --------------------------------------------------------------------------------
Total expenses 141,333 161,173
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 195,129 335,406
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 81,429 --
Net change in unrealized loss
on investments (388,403) (52,061)
- --------------------------------------------------------------------------------
Net loss on investments (306,974) (52,061)
- --------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(111,845) $ 283,345
================================================================================
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
-------------------
ELEVEN
<PAGE> 14
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 670,307 $ 980,223
- --------------------------------------------------------------------------------
Total investment income 670,307 980,223
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 66,414 90,610
Professional fees 75,964 81,624
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) 24,696 31,943
Other expenses 12,831 29,205
- --------------------------------------------------------------------------------
Total expenses 292,143 345,620
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 378,164 634,603
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 81,429 (3,539,416)
Net change in unrealized (loss) gain
on investments (1,343,253) 3,630,760
- --------------------------------------------------------------------------------
Net (loss) gain on investments (1,261,824) 91,344
- --------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (883,660) $ 725,947
================================================================================
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
-------------------
TWELVE
<PAGE> 15
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (883,660) $ 725,947
Adjustments to reconcile net (decrease) increase
in net assets resulting from operations to net
cash provided by operating activities:
Accreted discount on portfolio investments (20,864) (27,106)
Change in assets and liabilities:
Accrued interest receivable (10,916) (56,077)
Other assets (38,014) 511
Payable to affiliates 9,123 (12,032)
Accounts payable and accrued liabilities 5,388 14,678
Net realized (gain) loss on investments (81,429) 3,539,416
Net change in unrealized loss (gain)
on investments 1,343,253 (3,630,760)
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 322,881 554,577
- --------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (554,596) (4,400,998)
Proceeds from dispositions of portfolio investments 81,429 1,320,711
Sale of temporary investments, net 897,677 3,498,739
- --------------------------------------------------------------------------------------
Net cash provided by investing activities 424,510 418,452
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (787,379) (852,875)
- --------------------------------------------------------------------------------------
Net cash used in financing activities (787,379) (852,875)
- --------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (39,988) 120,154
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 272,543 200,969
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 232,555 $ 321,123
======================================================================================
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
-------------------
THIRTEEN
<PAGE> 16
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND FOR
THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 378,164 $ 951,907
Net realized gain (loss) on investments 81,429 (3,948,869)
Net change in unrealized (loss) gain on investments (1,343,253) 2,591,211
- --------------------------------------------------------------------------------------
Net decrease in net assets resulting
from operations (883,660) (405,751)
Repurchase of limited partnership units -- (1,719,362)
Distributions to partners from -
Net investment income (378,164) (1,174,520)
Realized gain on investments (81,429) (498,482)
Return of capital (327,786) --
- --------------------------------------------------------------------------------------
Total decrease in net assets (1,671,039) (3,798,115)
Net assets:
Beginning of period 19,825,171 23,623,286
- --------------------------------------------------------------------------------------
End of period (including no undistributed
net investment income) $ 18,154,132 $ 19,825,171
======================================================================================
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
-------------------
FOURTEEN
<PAGE> 17
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER UNIT DATA
Investment income $ .26 $ .35 $ .51 $ .69
Expenses (.11) (.11) (.22) (.24)
- -------------------------------------------------------------------------------------------------------------------
Net investment income .15 .24 .29 .45
Net realized gain (loss) on investments .06 -- .06 (2.49)
Net change in unrealized (loss) gain
on investments (.29) (.04) (1.02) 2.55
Distributions declared to partners (.30) (.30) (.60) (.60)
- -------------------------------------------------------------------------------------------------------------------
Net decrease in net asset value (.38) (.10) (1.27) (.09)
Net asset value:
Beginning of period 14.39 16.80 15.28 16.79
- -------------------------------------------------------------------------------------------------------------------
End of period $ 14.01 $ 16.70 $ 14.01 $ 16.70
===================================================================================================================
RATIOS (ANNUALIZED):
Ratio of expenses to average net assets 3.07% 2.74% 3.09% 2.93%
Ratio of net investment income to
average net assets 4.24% 5.69% 4.00% 5.38%
Number of limited partnership units at
end of period 1,299,176 1,407,244 1,299,176 1,407,244
</TABLE>
The accompanying notes to financial statements are
an integral part of these selected per unit data and ratios.
-------------------
FIFTEEN
<PAGE> 18
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (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, 1997 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, 1996.
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
$66,414 were paid by the Fund for the six months ended June 30, 1997.
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, 1997. 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,
1997.
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,
-------------------
SIXTEEN
<PAGE> 19
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1997 totaled $24,696.
5. CONTINGENCIES
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Holdings, Inc. ("Canadian's) Chapter 11 bankruptcy case against
Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger. The
complaint sought a declaratory judgment that sales taxes collected by Canadian's
and turned over to Finova were "trust funds" collected by Canadian's on behalf
of various state tax authorities. Through the complaint, the Fund objected to
Finova's secured claim against Canadian's, which was guaranteed by Benson Selzer
and Joseph Eiger, and sought to recover the sales tax and certain other amounts
for the benefit of Canadian's bankruptcy estate. As a result of this litigation
and the issues involved, the Fund accrued $429,373 during 1996 for legal costs
and possible payments that may be required to settle the litigation or to fund
the payment of Canadian's outstanding sales tax liabilities. On March 19, 1997,
the Bankruptcy Court denied the Fund's claim. As a result of the Court's
decision, the Fund dropped this litigation, while preserving its rights to
pursue litigation against Finova at a later date.
FCM believes that any potential liability to the Fund resulting from
Canadian's outstanding sales tax liabilities will not have any material adverse
effect on the Fund's financial condition, beyond the reserve that has been
established.
-------------------
SEVENTEEN
<PAGE> 20
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Fund held portfolio investments in eight Managed
Companies, with an aggregate cost of approximately $17.8 million. The value of
these portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represents approximately 87.0% 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 are 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, 1997, 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.
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 annually offers
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 1997 repurchase
offer will be mailed to the Limited Partners during October 1997. The actual
redemption of tendered Units will occur on November 21, 1997.
During November 1996, the Fund agreed to provide up to $1,967,040 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $983,520
was advanced at that time. The Fund advanced an additional $554,596 during May
and June 1997. This follow-on investment consists of 12% Senior Subordinated
Revolving Notes due October 31, 2000.
-------------------
EIGHTEEN
<PAGE> 21
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
Other assets increased $38,014 from $7,648 at December 31, 1996 to $45,662
at June 30, 1997. This increase resulted primarily from deferred legal fees
incurred in connection with a proposal pursuant to which the Fund's Units would
be exchanged for shares in a newly-formed Delaware Business Trust that would
operate as a business development company and make investments in the same
manner as the Fund has in the past. The primary reasons for this proposed
exchange would be to provide liquidity to the Fund's investors through the
listing of the shares of the Trust on the American Stock Exchange and simplified
tax reporting.
There is considerable uncertainty as to whether the exchange will
ultimately be proposed and/or approved. There are numerous business, legal and
regulatory issues which are currently being addressed. Once this analysis is
completed, FCM will be in a position to decide whether or not to pursue the
proposal and solicit the required approvals of the Fund's General Partners and
investors.
During the six months ended June 30, 1997, the Fund paid cash distributions
pertaining to the fourth quarter of 1996 and the first quarter of 1997, each in
the amount of $393,690. The distribution for the second quarter of 1997 will be
paid on August 14, 1997. 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. This will impact the amount of the Fund's quarterly
distributions for 1997 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.
See Note 5 to the financial statements for a discussion of litigation
associated with the Canadian's Chapter 11 bankruptcy case. FCM believes that any
potential liability to the Fund resulting from Canadian's outstanding sales tax
liabilities will not have any material adverse effect on the Fund's financial
condition, beyond the reserve that has been established.
-------------------
NINETEEN
<PAGE> 22
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment income was $195,129 for the three months ended
June 30, 1997 as compared to net investment income of $355,406 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.24 to $.15 and the ratio of net investment
income to average net assets decreased from 5.69% to 4.24% for the three months
ended June 30, 1997 as compared to the corresponding period of the prior year.
The Fund's net investment income was $378,164 for the six months ended June
30, 1997 as compared to net investment income of $634,603 for the corresponding
period of the prior year. Net investment income per limited partnership unit
decreased from $.45 to $.29 and the ratio of net investment income to average
net assets decreased from 5.38% to 4.00% for the six months ended June 30, 1997
as compared to the corresponding period of the prior year.
Net investment income for both the three and six month periods ended June
30, 1997 decreased primarily as a result of a decrease in investment income. The
decreases in net investment income were partially offset by decreases in total
expenses.
Investment income decreased $160,117 and $309,916, or 32.2% and 31.6%, for
the three and six month periods ended June 30, 1997, as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the Atlas Environmental, Inc. ("Atlas") Chapter 11 bankruptcy filing and the
related decision to discontinue accruing the interest due on the Atlas notes
held by the Fund. The Fund's total investments also decreased as a result of the
Fund's repurchase of 7.68% of its Units during the fourth quarter of 1996.
Total expenses decreased $19,840 and $53,477, or 12.3% and 15.5%, for the
three and six month periods ended June 30, 1997 as compared to the corresponding
periods of the prior year. These decreases resulted primarily from decreases in
Independent General Partner fees and expenses, professional fees and other
expenses. In addition, for the six months ended June 30, 1997 there was a
decrease in investment advisory fees.
Independent General Partner fees and expenses declined because one of the
Fund's three Independent General Partners resigned and had not yet been replaced
as of June 30, 1997. Professional fees and other expenses decreased primarily
-------------------
TWENTY
<PAGE> 23
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
because of legal fees and expenses incurred during the prior year in connection
with the Canadian's bankruptcy proceedings.
The investment advisory fees paid to FCM decreased primarily as a result of
the direct receipt by FCM of consulting fees from LMC, one of the Fund's
portfolio companies during the first quarter of 1996. Pursuant to the terms of
the Fund's investment advisory agreement with FCM, the investment advisory fees
payable to FCM by the Fund are reduced by the amount of any fees that FCM
receives directly from any of the Fund's portfolio companies.
NET REALIZED GAIN ON INVESTMENTS
The net realized gain for the three and six month periods ended June 30,
1997 resulted from the recognition of additional gain from the sale of the
Fund's investment in Huntington Holdings, Inc. ("Huntington").
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, with
the balance held by the buyer in escrow. A portion of the escrowed funds was
used to pay various transaction expenses and the Fund received additional
distributions of $19,920 and $81,429 during September 1996 and May 1997,
respectively. The remaining balance will continue to be held in escrow until
February 1998 to be available to fund any 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. The Fund
recognized realized gains of $1,236,821 and $81,429 from this transaction during
1996 and the second quarter of 1997, respectively. Additional gain will be
recognized if, and when, the Fund actually receives a distribution of any of the
remaining 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.
-------------------
TWENTY-ONE
<PAGE> 24
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
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, 1996, the Fund had recorded $1,601,626 of unrealized
gain and $2,285,744 of unrealized loss on investments. Therefore, as of December
31, 1996, the Fund had recorded a total net unrealized loss on investments of
$684,118.
The net increase in unrealized loss on investments during the three and six
month periods ended June 30, 1997 and the cumulative net unrealized loss on
investments as of June 30, 1997, 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, 1997 June 30, 1997 June 30, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Neodata $ -- $ -- $ (337,944)
KEMET 167,665 52,395 686,949
ar accessories -- (852,283) (117,787)
Elgin / ENI 1,158,996 1,176,797 1,409,372
LMC -- -- (540,800)
MTI -- (5,098) (231,874)
Atlas (1,715,064) (1,715,064) (2,895,288)
- ----------------------------------------------------------------------------------------
$ (388,403) $ (1,343,253) $(2,027,372)
========================================================================================
</TABLE>
The Neodata Corporation ("Neodata") stock was written down to a negligible
amount during 1995. The Partnership has consistently valued this investment
-------------------
TWENTY-TWO
<PAGE> 25
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
based upon a multiple of Neodata's cash flow. Because Neodata's long-term debt
previously provided 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 $24.9375 (an average of
the closing bid and ask prices) on June 30, 1997. This price is up from the
closing prices of $23.0625 on December 31, 1996 and $18.9375 on March 31, 1997.
Based on the $24.9375 closing trading price of the common stock, the 27,944
shares of common stock that the Fund held at June 30, 1997 had a market value of
$696,854.
ar accessories group, incorporated ("AAG") reported significantly reduced
earnings and cash flow from operations for its most recent fiscal year. In
addition, the price earnings ratios of comparable companies in its industry have
declined recently. As a result of these factors, the AAG warrants and common
stock were written down in value by $852,283 at March 31, 1997.
During June 1997, the Fund received a formal written offer from ENI Holding
Corp. ("ENI") management to repay the Fund's subordinated debt, redeem the
Fund's preferred stock and purchase the Fund's Class B common stock and
warrants. The offer was contingent on management's ability to secure adequate
financing on satisfactory terms. As a result of this offer, the Fund wrote the
Class B common stock and warrants up in value at June 30, 1997 by $1,141,197 to
an amount equal to 80% of the price offered by management. In addition, the ENI
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's investment was converted from debt
securities to equity securities, the Fund wrote its LMC investment down by
$540,800 during 1995.
The MTI common stock was written down in value during 1994 based upon an
independent third party valuation of the company that was obtained by MTI's
-------------------
TWENTY-THREE
<PAGE> 26
FIDUCIARY CAPITAL PARTNERS, L.P.
================================================================================
management. During August 1996, MTI consummated a financial restructuring
pursuant to which a substantial amount of its corporate debt was converted to
equity. In the restructuring, the existing shareholders, including the Fund,
received a reduced number of shares of common stock, along with warrants to
purchase additional common stock. The Fund's valuation of its MTI investment was
increased by $22,990 following the restructuring based upon an analysis of MTI's
earnings and cash flows. The Fund's valuation was reduced by $5,098 at March 31,
1997 based upon MTI's reported results for 1996.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As a
result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments on the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the terms
of which some of the company's businesses would be sold for cash. On November 5,
1996, the purchaser notified Atlas that it wanted to renegotiate the terms of
the transaction, including a reduction in the purchase price. Atlas management
was unable to reach a revised agreement with the purchaser and Atlas remained in
default on its debt. On January 17, 1997, Atlas filed for Chapter 11 bankruptcy
protection. Atlas is currently developing a plan of reorganization for
submission to the bankruptcy court that provides for the continued operation of
its businesses, following a series of strategic asset acquisitions and
dispositions.
As a result of these developments, the Fund stopped accruing interest on
its Atlas investment effective April 20, 1996 and recorded writedowns of
$1,180,224 and $1,715,064 in the carrying value of the investment during the
fourth quarter of 1996 and the second quarter of 1997, respectively.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
-------------------
TWENTY-FOUR
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 21,486,039
<INVESTMENTS-AT-VALUE> 19,036,907
<RECEIVABLES> 146,402
<ASSETS-OTHER> 32,769
<OTHER-ITEMS-ASSETS> 326,741
<TOTAL-ASSETS> 19,542,819
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,280,024
<TOTAL-LIABILITIES> 2,280,024
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,299,176
<SHARES-COMMON-PRIOR> 1,299,176
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,449,132)
<NET-ASSETS> 17,262,795
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,027,725
<OTHER-INCOME> 0
<EXPENSES-NET> 489,817
<NET-INVESTMENT-INCOME> 537,908
<REALIZED-GAINS-CURRENT> 1,158,098
<APPREC-INCREASE-CURRENT> (1,765,014)
<NET-CHANGE-FROM-OPS> (69,008)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 537,908
<DISTRIBUTIONS-OF-GAINS> 1,170,979
<DISTRIBUTIONS-OTHER> 784,481
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,562,376)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 105,085
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 489,817
<AVERAGE-NET-ASSETS> 18,475,441
<PER-SHARE-NAV-BEGIN> 15.28
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> (.46)
<PER-SHARE-DIVIDEND> .41
<PER-SHARE-DISTRIBUTIONS> .89
<RETURNS-OF-CAPITAL> .60
<PER-SHARE-NAV-END> 13.33
<EXPENSE-RATIO> 3.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
