FIDUCIARY CAPITAL PARTNERS L P, 10-K405, 1999-03-30

FIDUCIARY CAPITAL PARTNERS L P
10-K405, 1999-03-30

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<PAGE> 1
FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998
-----------------------------------------------------
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
----------------------- -----------------------

Commission file number 0-17737
----------------------------------------------------------

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
- --------------------------- ---------------------------
(Address of principal (Zip Code)
executive offices)

Registrant's telephone number, including area code: (303) 446-2187

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Limited Partnership Interests
-----------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.

<PAGE> 2

Fiduciary Capital Partners, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1998

Table of Contents
<TABLE>
<CAPTION>

Page
----
<S> <C> <C>
Part I

Item 1 Business........................................................1
Item 2 Properties......................................................7
Item 3 Legal Proceedings...............................................8
Item 4 Submission of Matters to a Vote
of Security Holders.........................................8

Part II

Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.............................9
Item 6 Selected Financial Data.........................................9
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations .................................11
Item 8 Financial Statements and
Supplementary Data........................................F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.......................................20

Part III

Item 10 Directors and Executive Officers
of the Registrant .........................................21
Item 11 Executive Compensation.........................................24
Item 12 Security Ownership of Certain
Beneficial Owners and Management ..........................24
Item 13 Certain Relationships and
Related Transactions ......................................25

Part IV

Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K....................................26
</TABLE>

<PAGE> 3

PART I

Item 1. Business

General

Fiduciary Capital Partners, L.P. (the "Fund" or the "Registrant") is a limited
partnership organized under the laws of the State of Delaware on October 20,
1988. The managing general partner of the Fund is FCM Fiduciary Capital
Management Company, a Delaware general partnership (the "Managing General
Partner" or "FCM"). The independent general partners of the Fund are E. Bruce
Fredrikson, Mark A. Sargent and Phillip Siegel (the "Independent General
Partners"). (The Managing Partner and the Independent General Partners are
collectively referred to herein as the "General Partners.")

The general partners of the Managing General Partner are FCM Fiduciary Capital
Corporation, a Delaware corporation, Mezzanine Capital Corporation, a Delaware
corporation and an affiliate of PaineWebber Incorporated ("PaineWebber"), and
Paul Bagley. Paul Bagley owns 100% of the stock of FCM Fiduciary Capital
Corporation.

The Managing General Partner serves as investment adviser ("Investment Adviser")
to the Fund and is responsible for the identification of all investments made by
the Fund and all other investment advisory services necessary for the operation
of the Fund in carrying out its investment objectives and policies. The
Independent General Partners oversee the investment activities of the Investment
Adviser.

The Fund has elected to operate as a business development company under the
Investment Company Act of 1940, as amended. The investment objective of the Fund
is to provide current income and capital appreciation by investing primarily in
subordinated debt and related equity securities issued as the mezzanine
financing of privately structured, friendly leveraged buyouts, leveraged
acquisitions and leveraged recapitalizations. A separate fund, Fiduciary Capital
Pension Partners, L.P., a Delaware limited partnership ("FCPP") was also formed
on October 20, 1988 for tax-exempt investors with investment objectives,
policies and restrictions similar to those of the Fund. The Fund and FCPP
co-invest in the investments; however, each fund is accounted for separately.

On January 26, 1990, the Fund and its affiliate, FCPP (collectively, the
"Funds"), began a public offering of their units of limited partnership
interests (the "Units"). The Units were registered pursuant to a Registration
Statement on Form N-2 under the Securities Act of 1933, as amended.

The Funds collectively held three closings for the sale of the Units during the
period from August 14, 1990 through October 18, 1990. As a result of the
closings, the Funds sold 65,898 Units representing an aggregate purchase price
of $65,898,000. Of these amounts, 36,102 Units representing an aggregate
purchase price of $36,102,000 and 29,796 Units representing an aggregate
purchase price of $29,796,000 were received by the Fund and FCPP, respectively.

A special meeting of the Fund's Limited Partners was held on October 1, 1993. At
the meeting, the Limited Partners approved the extension of the Fund's
investment period until December 31, 1995 and the adoption of a fundamental
policy of periodic unit repurchases. In connection with the adoption of the
repurchase policy, each $1,000 Unit was redenominated into fifty $20 Units.
After giving effect to this redenomination, the Fund had 1,805,100 Units
outstanding as of October 1, 1993.

Pursuant to the terms of the repurchase policy, the Fund has annually offered to
repurchase from its Limited Partners up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a

1
<PAGE> 4

fee (not to exceed 2%) to be retained by the Fund to offset expenses incurred in
connection with the repurchase offer. If the number of tendered Units in any
year exceeds 7.5% of the outstanding Units, the Fund's General Partners may vote
to repurchase up to an additional 2% of the outstanding Units.

Repurchases of Units since the adoption of the plan are summarized as follows:

<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
--------------------------- ------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
- ---------------- -------- -------------- --------- ----------
<S> <C> <C> <C> <C>
November 1993 117,979 6.54% $ 18.35 $ 17.98
November 1994 160,172 9.49% 18.41 18.04
November 1995 119,705 7.84% 19.67 19.28
November 1996 108,068 7.68% 15.91 15.59
November 1997 97,612 7.51% 13.97 13.69
November 1998 91,870 7.65% 9.73 9.54
</TABLE>

The Fund's investment period ended on December 31, 1995. Although the Fund has
been permitted to make additional investments in existing portfolio companies
since 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. Consequently, the Fund has been in a liquidation mode.
Since the middle of 1997, the Fund has liquidated a significant percentage of
its investments and has distributed approximately $5.03 per Unit to the Limited
Partners, with the cash coming primarily from the liquidation of these
investments. The Fund presently has only four remaining investments in portfolio
companies, which are expected to generate only limited amounts of interest
income for the Fund during 1999 and future years.

As a result of these developments, the Fund is not expected to have sufficient
liquidity to continue to (i) fund quarterly cash distributions, (ii) fund the
annual repurchase offers, and (iii) pay its operating expenses. Accordingly, the
General Partners are presently considering a number of alternative actions
through which the Fund could be liquidated during 1999 or 2000. Once a specific
plan of liquidation is developed, the General Partners will follow the requisite
regulatory procedures required to liquidate the Fund. The procedures are
expected to include requesting Limited Partner approval of the liquidation plan
through a proxy solicitation.

It is currently anticipated that the Fund will not have sufficient liquidity to
fund a repurchase offer during 1999. If the Fund does not have sufficient
liquidity, the General Partners have the authority to forego the repurchase
offer under the terms of the Fund's repurchase policy. In addition, the
termination of the annual repurchase offer is expected to be included in any
plan of liquidation that is submitted to the Limited Partners for their
approval.

Each Fund's participation in the following portfolio investments is in
proportion to the amount of capital that each Fund had available for investment
at the time each investment was acquired. All amounts shown in this Report with
respect to investments represent only the Fund's proportionate share of the
amounts involved.

Portfolio Investments

As of December 31, 1998, the Fund held portfolio investments in three Managed
Companies, with an aggregate cost of approximately $9.0 million and one
investment in a Non-Managed Company with a cost of approximately $1.3 million.
Managed Companies are those to which significant managerial assistance is
offered.

2
<PAGE> 5

During 1998, the Fund purchased $2,488,950 of LMC Corporation ("LMC") common
stock as an additional follow-on investment. In addition, the outstanding
principal amount of the LMC 12% Senior Subordinated Revolving Notes due October
31, 2000, decreased by $54,640, from $1,967,040 at December 31, 1997 to
$1,912,400 at December 31, 1998. (For a further discussion of LMC, see section
below, "Follow-On Investments in 1998".)

Also in 1998, the Fund sold all of its Mobile Technology, Inc. ("MTI") stock and
warrants and received final distributions from the escrow accounts that were
established during 1996 in connection with the sale of the Fund's Huntington
Holdings, Inc. ("Huntington") stock. The Fund received $268,989 in proceeds from
these transactions. The Fund also wrote off the entire cost of its equity
investment in AR Accessories Group, Inc. ("ARA") (formerly known as Amity
Leather Products Co.) as a realized loss following ARA's liquidation in
bankruptcy and exchanged its Atlas Environmental, Inc. ("Atlas") subordinated
notes and warrants for WasteMasters, Inc. ("WMI") common stock. (For a further
discussion, see section below, "Disposition of Portfolio Investments in 1998".)

The Fund also stopped accruing interest on its RBM Senior Subordinated Secured
Notes during 1998. (For a further discussion, see section below, "Other
Portfolio Investments".)

Follow-On Investments in 1998

LMC Corporation

The Company LMC has long been a leading U.S. manufacturer of low ground pressure
track vehicles used for construction, infrastructure development and
landscaping. The primary purchasers of these vehicles include private
contractors, ski resorts, utility companies and governmental agencies for use on
construction sites and/or environmentally sensitive locations.

LMC has developed and is selling its most powerful and versatile tracked vehicle
to date, the TrackMaster 75(TM). Manufactured with significantly improved
efficiency in LMC's newly acquired facility, the TrackMaster 75(TM) can carry a
2,500 pound payload at a rate of 8 miles per hour while impacting the ground at
less than 2 pounds per square inch.

Manufacturing takes place under one roof at LMC corporate headquarters located
at the LMC Business Park in Brigham City, Utah. This site affords LMC increased
flexibility in its manufacturing processes as well as the potential to sub-lease
space to other firms.

In recent years, LMC has reported significant operating losses and negative
EBITDA. For the fiscal year ended September 30, 1998, LMC reported a net loss of
approximately $4.5 million and negative EBITDA of approximately $3.3 million. As
of September 30, 1998, LMC had total assets of approximately $9 million and
shareholders' equity of approximately $250,000.

LMC is pursuing a multi-year strategy of market repositioning and corporate
restructuring. This strategy focuses on (i) emphasizing the sale of current
products with higher margins, (ii) developing and introducing new products to
expand the company's offerings to niche markets, and (iii) controlling
manufacturing costs by implementing productivity initiatives. LMC's ability to
achieve profitable operations is dependent on its ability to successfully
implement this management strategy and the availability of necessary debt or
equity financing.

History of Investment During June 1994, the Fund invested $2,551,920 in LMC. The
investment consisted of $2,604,000 of 13.00% Senior Subordinated Notes due May
31, 1999 with warrants to acquire common stock.

3
<PAGE> 6

During February 1996, the Fund participated in a financial restructuring of its
LMC investment. The Fund converted its existing LMC subordinated debt and
warrants into preferred stock and purchased $545,600 of new common stock. As a
result of the restructuring, the Fund increased its ownership of LMC's common
stock from approximately 13% to approximately 27%.

During November 1996, the Fund purchased $1,967,040 of LMC's 12% Senior
Subordinated Revolving Notes due October 31, 2000. The outstanding principal
balance of these revolving notes, which fluctuates, totaled $1,912,400 at
December 31, 1998.

During February and March 1998, the Fund purchased $551,000 of LMC's Senior
Subordinated Revolving Notes due August 20, 1998.

During April 1998, the Fund agreed to again restructure and increase its
aggregate investment in LMC. In the restructuring, $1,639,200 of the Fund's LMC
Senior Subordinated Revolving Notes due October 31, 2000 were converted into
additional LMC common stock. This left LMC with the ability to reborrow the
$1,639,200. Since that time, LMC has periodically made draw downs under the
terms of the Revolving Note agreement to fund working capital requirements and
to retire the $551,000 of LMC Senior Subordinated Revolving Notes due August 20,
1998, as described in the preceding paragraph. As a result of this second
restructuring, the Fund's percentage ownership of LMC's common stock increased
from approximately 27% to approximately 48%.

During August 1998, the Fund purchased an additional 1,699,500 shares of LMC
common stock for $849,750. As a result of this stock purchase, the Fund's
percentage ownership of LMC's common stock increased from approximately 48% to
approximately 50%.

Dispositions of Portfolio Investments in 1998

Huntington Holdings, Inc. During 1992, the Fund purchased subordinated notes and
warrants to purchase common stock in Huntington. During February 1994,
Huntington prepaid the subordinated notes that the Fund held.

The Fund continued to hold the warrants to purchase common stock until 1996.
During December 1995, Huntington entered into a letter of intent, under the
terms of which all Huntington stock would be sold for cash. The sale was
consummated during February 1996. The Fund's share of the actual sales proceeds
totaled $1,511,364, of which $1,320,711 was received during February 1996. The
balance of the sales proceeds was held in escrow to pay transaction expenses, to
fund 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. During 1998, an agreement was reached with the
buyer with regard to purchase price adjustments and other claims and the escrow
accounts were liquidated. The Fund received additional distributions of $19,920,
$81,429, $76,343 and $1,177 during September 1996, May 1997, June 1998 and
August 1998, respectively. The selling shareholders, including the Fund, could
be required under certain of the seller's representations to reimburse the buyer
for certain costs and expenses, even though the escrow account has been
liquidated.

Huntington, headquartered in Huntington, Indiana, is one of the largest
manufacturers and marketers of maintenance and cleaning chemicals in North
America. Huntington produces a wide range of intermediate and final-stage
cleansers, sterilants and disinfectants for use by hospitals, schools, nursing
homes and various industries.

AR Accessories Group, Inc. During 1992, the Fund purchased subordinated notes,
warrants to purchase Class B common stock and Class A common stock in ARA.
During August 1994, ARA prepaid the subordinated notes that the Fund held. The
Fund continued to hold the Class A common stock and the warrants to purchase
Class B common stock.

4
<PAGE> 7

During February 1998, ARA hired a crisis manager to assist it in addressing
continuing significant declines in the company's sales and profits. The hiring
of the crisis manager was precipitated by ARA's lenders, which notified ARA of
defaults under its credit lines and demanded that ARA repay overadvances that
were made during 1997. The Fund was notified that ARA was considering a number
of options for solving these problems, including a possible bankruptcy filing
and the sale of the company, or certain of its operations.

ARA filed for bankruptcy protection during March 1998. ARA's assets were
liquidated at auction during May 1998, with the proceeds from the sale
satisfying only a portion of ARA's debt. The cost of the Fund's equity
investment in ARA was written off as a realized loss during May 1998.

ARA manufactured men's and ladies' fine personal leather goods and distributed
these products to department stores, mass merchandisers and company-owned Wallet
Works stores. ARA marketed its products under the brand names of Rolfs, Amity
and LaGarde. Headquartered in West Bend, Wisconsin, the Company was founded in
1915 and was family-controlled prior to a management buyout in 1992.

Mobile Technology, Inc. During 1991, the Fund purchased subordinated notes and
various equity securities in MTI and its parent company.

The Fund stopped accruing interest on the MTI notes that it held, effective
October 1, 1992. During January 1993, MTI commenced restructuring negotiations
with its various lenders outside of bankruptcy proceedings. These restructuring
negotiations were successfully completed and the restructuring was consummated
during July 1994. Pursuant to the terms of the restructuring, the Fund and MTI's
other subordinated lenders exchanged their subordinated notes for common stock.
The Fund recognized a realized loss of $3,987,656 during 1994 as a result of
this restructuring.

During August 1996, MTI consummated a second financial restructuring pursuant to
which a substantial amount of its remaining corporate debt was converted to
equity. In this restructuring, the existing shareholders, including the Fund,
received a reduced number of shares of common stock, along with warrants to
purchase additional common stock.

During January 1998, MTI entered into an agreement pursuant to which the company
was sold. This sale was consummated June 1998, with the Fund receiving $191,469
from the sale of its MTI common stock and warrants.

MTI, headquartered in Los Angeles, California, is a provider of magnetic
resonance imaging and computed tomography mobile shared-services.

WasteMasters, Inc. and Atlas Environmental, Inc. During January 1996, the Fund
invested $3,855,398 in Atlas. The investment consisted of $3,934,080 of 13.5%
Senior Subordinated Secured Notes due January 19, 2003, with warrants to acquire
common stock. The warrants had an exercise price of $8.00 per share.

The companies that Atlas acquired during 1996 with the proceeds of the Fund's
subordinated debt investment did not perform 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.

5
<PAGE> 8

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. During November
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. During January 1997, Atlas filed for Chapter 11 bankruptcy
protection.

As a result of these developments, the Fund stopped accruing interest on the
subordinated notes during April 1996 and wrote the carrying value of its Atlas
investment down during 1996 and 1997 to a nominal amount.

During June 1998, the Fund exchanged its Atlas subordinated notes and warrants
for 989,414 shares of common stock in WMI, an Atlanta, Georgia based waste
management company.

Pursuant to the terms of the exchange agreement, the Fund is prohibited from
selling its WMI common stock for 24 months. In addition, the Fund granted the
entity acquiring the Fund's Atlas securities a call on the Fund's WMI common
stock during the 24 month lock up period and a right to first refusal
thereafter. The call price is $11.25 per share.

The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 (an average of the closing bid and ask prices) on June
3, 1998 (the date of the exchange). However, due to a number of factors,
including the speculative nature of the WMI stock, the two year lock up period
and the relative size of the Fund's stock position, FCM recorded the WMI stock
at the same nominal value that the Atlas securities had previously been carried
by the Fund.

The Fund recorded a realized loss of $2,560,453 on the exchange, which is equal
to the amount of the loss that the Fund claimed for income tax purposes from the
disposition of the Atlas securities. The balance of the unrealized loss
previously recorded by the Fund with respect to the Atlas securities continues
to be carried by the Fund as an unrealized loss.

The 52-week low for the WMI common stock is $0.16 per share and the current bid
price (March 24, 1999) is $0.31 per share.

Other Portfolio Investments

KEMET Corporation ("KEMET") The Fund acquired various subordinated debt and
equity investments in KEMET and its subsidiary, KEMET Electronics Corporation
("KEMET Electronics"), during 1991 and 1993.

During October 1992, KEMET completed an initial public offering ("IPO") of its
common stock. The stock trades on the NASDAQ National Market System under the
symbol "KMET". During June 1993, KEMET Electronics prepaid its subordinated
notes which the Fund held following the successful completion of a secondary
stock offering. As of December 31, 1993, the Fund continued to hold the KEMET
common stock and warrants. During 1994, the Fund exercised its warrants and sold
a portion of the common stock, realizing total sales proceeds of $1,528,731.
During 1995, the Fund sold additional shares of stock, realizing total
additional sales proceeds of $3,903,055. KEMET also declared a two-for-one stock
split during 1995. The Fund has not sold any additional shares since 1995.

The Fund has 27,944 shares of KEMET stock remaining as of December 31, 1998. The
Fund's cost basis in its KEMET stock is approximately $.35 per share. At
December 31, 1998, the stock closed at $11.4375 (an average of the closing bid
and ask prices).

6
<PAGE> 9

KEMET, headquartered in Greenville, South Carolina, is a leading manufacturer
and distributor of both solid tantalum and monolithic ceramic capacitors used as
components in circuit boards.

R.B.M. Precision Metal Products, Inc. ("RBM") During May 1995, the Fund invested
$1,430,800 in RBM. The investment consisted of $1,460,000 of 13.00% Senior
Subordinated Secured Notes due May 24, 2002, with warrants to acquire common
stock.

RBM had a record year for fiscal 1998, with sales of approximately $30 million
and EBITDA of approximately $2.7 million. However, these sales were achieved
primarily through one contract with Digital Equipment Corporation ("DEC").
During August 1998, RBM notified the Fund that anticipated sales to DEC and
other large customers were expected to decline significantly in the upcoming
year. Of particular concern were sales to DEC, which has been acquired by Compaq
Computer Corp. As a result of the expected decline in sales, RBM began the
process of restructuring its debt, including the subordinated debt held by the
Fund. The Fund received the quarterly interest payment that was due from RBM on
August 24, 1998. The interest payment that was due during November 1998 was
deferred and became part of the restructuring amounts.

During December 1998, RBM and its lenders completed a restructuring under which
a new senior lender, Norwest Business Credit, replaced Bank of America. As part
of this transaction, RBM's equity sponsor contributed additional equity to the
company and the subordinated lenders, including the Fund, agreed to accept
shares of RBM's common stock as payment for the next three quarterly interest
payments beginning with the payment that was due during November 1998. As a
consequence, the Fund's ownership of RBM, on a fully-diluted basis, increased
from 6.6% to 8.1%, assuming exercise of its warrants. The restructuring was
designed to provide RBM with a period of time in which to secure additional
customers and return to a more stable financial position under which RBM could
meet its interest obligations to its creditors, including the Fund. As a result
of these developments, the Fund stopped accruing interest on its RBM Senior
Subordinated Secured Notes effective August 25, 1998.

RBM, headquartered in Colorado Springs, Colorado, is a manufacturer of precision
sheet metal enclosures, chassis and assemblies for business machines.

Competition

The Fund's investment period ended on December 31, 1995, and the Fund is engaged
in an orderly liquidation. Each of the Fund's remaining four portfolio companies
experience substantial competition in their respective businesses.

Employees

The Fund has no employees. As discussed above, the Managing General Partner
manages the Fund's investments, subject to the supervisory oversight of the
Independent General Partners, and performs services on behalf of the Fund. The
General Partners are entitled to certain fees and reimbursements of certain
out-of-pocket expenses incurred in connection with the performance of these
management services. See Item 10 of this Report, "Directors and Executive
Officers of the Registrant" and Item 13 of this Report, "Certain Relationships
and Related Transactions".

Item 2. Properties

The Fund does not own or lease any physical properties.

7
<PAGE> 10

Item 3. Legal Proceedings

On December 23, 1997, LMC commenced an action against Paul Wallace, a director
of LMC and the trustee of its discontinued pension plan, in an effort to recover
for a significant underfunding of LMC's discontinued pension plan. On January
27, 1998, LMC Holding Co. ("LMC Holding"), which held approximately 50% of the
issued and outstanding common stock of LMC on that date, commenced an action
against the Fund, FCPP and each of Paul Bagley, the Chairman of the Board and
Chief Executive Officer of FCM, W. Duke DeGrassi, the President of FCM, and
Donald R. Jackson, the Senior Vice President, Treasurer, Chief Financial Officer
and Compliance Officer of FCM (collectively, the "Individual Defendants"), in
their capacities as officers of FCM, in the First Judicial District Court in and
for Cache County, State of Utah, entitled LMC Holding Co. v. Fiduciary Capital
Partners, L.P., et al., Civil No. 98-0100077 (the "LMC Action"). LMC Holding is
controlled by Paul Wallace. FCM believes that the LMC Action was commenced in
response to the action previously filed by LMC against Mr. Wallace. The Fund,
FCPP and the Individual Defendants entered into a settlement agreement with LMC
Holding, effective April 20, 1998. As part of the settlement, the Fund and FCPP
have been able to increase their percentage ownership of LMC in exchange for the
additional capital contributions. The LMC Action was subsequently dismissed with
prejudice. FCM believes that the additional investment by the Fund and FCPP will
allow LMC to implement a business plan designed to restore it to profitability
within the next few years. LMC continues to pursue its legal action against Mr.
Wallace with respect to the underfunding of its discontinued pension plan.

FCM believes that none of the above discussed litigation will have any material
adverse effect on the business, financial condition and results of operations of
the Fund, taken as a whole, beyond the reserves that have been established.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Limited Partners of the Fund, through
the solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended December 31, 1998.

8
<PAGE> 11

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

There is no organized trading market for the purchase and sale of the Units and
certain measures have been adopted and implemented to assure that no such
organized trading market will develop.

The Fund's Limited Partners adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund has annually offered 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.

Repurchases of Units since the adoption of the plan are summarized in Item 1 of
this Report, "Business".

As of March 1, 1999, the number of Limited Partners of record was approximately
1,750.

The Fund made the following distributions to its partners with respect to 1997
and 1998:

Quarter During Total Amount of
Which Distributed Amount of Distribution
Cash was Generated Distribution(1) Per $20 Unit Payment Date
------------------ --------------- ------------ ----------------
<S> <C> <C> <C>
1st Quarter 1997 $ 393,690 $ .30 May 15, 1997
2nd Quarter 1997 393,690 .30 August 14, 1997
3rd Quarter 1997 1,705,988 1.30 November 14, 1997
4th Quarter 1997 1,213,701 1.00 February 13, 1998
1st Quarter 1998 1,327,456 1.13/1.00(2) May 15, 1998
2nd Quarter 1998 1,207,004 1.00 August 14, 1998
3rd Quarter 1998 364,110 .30 November 13, 1998
4th Quarter 1998 336,271 .30 February 12, 1999
</TABLE>

- -----------------
(1) Includes distributions to the Managing General Partner.
(2) The per Unit distribution amount varied between $1.00 and $1.13
depending upon the closing in which the particular Units were issued.
This disproportionate cash distribution resulted from the Units being
issued on different dates during 1990, and thus being entitled to
differing Preferred Return amounts, as defined in the Fund's
Partnership Agreement. These disproportionate distribution rates
eliminated the remaining Preferred Return amounts, leaving all Units on
an equal basis going forward.

Cash distributions for 1997 were paid out of net investment income (27.4%),
realized gains on investments (51.4%) and a return of capital (21.2%). Cash
distributions for 1998 were paid out of net investment income (4.0%), realized
gains on investments (53.9%) and a return of capital (42.1%).

The Fund currently expects 1999 distributions to continue at a rate of $.30 per
Unit per quarter for all Limited Partners, subject to discontinuance pursuant to
a plan of liquidation, if one is approved.

Item 6. Selected Financial Data

9
<PAGE> 12

investments in new portfolio companies. Consequently, the Fund has been in a
liquidation mode. Since the middle of 1997, the Fund has liquidated a
significant percentage of its investments and has distributed approximately
$5.03 per Unit to the Limited Partners, with the cash coming primarily from the
liquidation of these investments. The Fund presently has only four remaining
investments in portfolio companies, which are expected to generate only limited
amounts of interest income for the Fund during 1999 and future years.

The following selected financial data of the Fund has been derived from the
financial statements for the indicated periods. The information set forth below
should be read in conjunction with the Fund's financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Items 8 and 7, respectively, of this Report.

<TABLE>
<CAPTION>
As of December 31
or Year Ended December 31
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 743 $ 1,647 $ 1,600 $ 2,669 $ 2,802
Net Investment Income 108 1,017 952 2,037 2,127
Net Realized and Unrealized
(Loss) Gain on Investments (1,089) (314) (1,358) (2,592) 1,824
Cash Distributions Declared
to Partners 3,235 3,707 1,673 1,815 2,995
Repurchase of Units 894 1,364 1,719 2,355 2,949
Total Assets 11,254 17,195 20,751 24,143 29,188
Net Assets 10,347 15,457 19,825 23,623 28,347
Value of Investments 10,281 16,788 20,357 23,799 27,729

Per Unit of Limited Partnership
Interest:
Net Investment Income(1) .08 .78 .68 1.33 1.26
Net Realized and Unrealized
(Loss) Gain on Investments(1) (.80) (.25) (.96) (1.70) 1.08
Cash Distributions Declared
to Partners(2) 2.70 2.90 1.20 1.20 1.80
Net Asset Value 9.51 12.91 15.28 16.79 18.55
</TABLE>

- ---------------
(1) Calculated using the weighted average number of Units outstanding
during the years ended December 31, 1998, 1997, 1996, 1995 and 1994 of
1,190,993, 1,288,211, 1,395,138, 1,513,503 and 1,669,129, respectively.
(2) Distribution amounts are reflected during the year in which the cash
for the distribution was generated. A portion of the actual cash
distributions are paid subsequent to such year.

<PAGE> 13

FIDUCIARY CAPITAL PARTNERS, L.P.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion should be read in conjunction with the Fund's audited
Financial Statements and the Notes thereto. This Report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, effects of
competition and the Year 2000 issue on the business of the portfolio companies
and other factors discussed elsewhere in this Report. Readers are urged to
consider statements that include the terms "believes", "expects", "plans",
"anticipates", "intends" or the like to be uncertain and forward-looking. The
Fund undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of anticipated or unanticipated events.

Liquidity and Capital Resources

During 1990, the Fund completed a public offering of its Units. Net offering
proceeds available to the Fund, after deducting commissions and other offering
costs, totaled $31,860,015.

The Fund's Limited Partners adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund has annually offered to
purchase from its Limited Partners, up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to purchase
up to an additional 2% of the outstanding Units.

Repurchases of Units since the adoption of the plan are summarized as follows:

As of December 31, 1998, the Fund held portfolio investments in three Managed
Companies, with an aggregate cost of approximately $9.0 million, and one
investment in a Non-Managed Company, with a cost of approximately $1.3 million.
These portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments, represent
approximately 74.8% of the Fund's net assets. When acquired, these portfolio
investments generally consisted of high-yield subordinated debt, linked with an
equity participation or a comparable participation feature. These securities
were typically issued in

<PAGE> 14

private placement transactions and were subject to certain restrictions on
transfer or sale, thereby limiting their liquidity. A number of the portfolio
companies have prepaid their subordinated debt that the Fund held. In addition,
three of the portfolio companies have successfully completed IPOs of their
stock. The Fund has sold the stock it held in these three companies, except for
a portion of its KEMET stock.

As of December 31, 1998, the Fund's remaining assets were invested in short-term
commercial paper. These funds are available to fund the annual repurchase offer,
to fund follow-on investments in existing portfolio companies, to pay Fund
expenses and for distribution to the partners.

During 1998, the Fund sold its MTI stock and warrants and received final
distributions from the escrow account that was established during 1996 in
connection with the sale of the Fund's Huntington stock. In total, the Fund
received $268,989 in proceeds from these transactions.

Accrued interest receivable increased $26,412 from $76,821 at December 31, 1997
to $103,233 at December 31, 1998. This increase resulted primarily from the fact
that the quarterly interest payment that was due on the LMC notes on October 1,
1998 was not received by the Fund until January 1999. The impact of the past due
status of this LMC interest payment was partially offset by the Fund's decision
to stop accruing interest on the RBM notes effective during August 1998.

Other assets decreased $34,201 from $66,060 at December 31, 1997 to $31,859 at
December 31, 1998. This decrease resulted primarily from the collection of a
receivable from LMC for legal fees that the Fund advanced on behalf of LMC
during 1997.

Accounts payable and accrued liabilities increased $54,523 from $484,837 at
December 31, 1997 to $539,360 at December 31, 1998. This increase resulted
primarily from an increase in the Fund's litigation related reserve during 1998.
This reserve represents $506,660, or approximately 94%, of the total accounts
payable and accrued liabilities at December 31, 1998.

Distributions payable to partners decreased $877,430, from $1,213,701 at
December 31, 1997 to $336,271 at December 31, 1998. This decrease resulted from
both a decrease in the quarterly distribution rate from $1.00 per Unit for the
fourth quarter of 1997 to $.30 per Unit for the fourth quarter of 1998 and from
a 7.65% decrease in the number of outstanding Units as a result of the
repurchase of Units by the Fund during November 1998.

During 1998, the Fund declared quarterly cash distributions to its partners in
the aggregate amount of $3,234,841, which were paid during the months of May,
August and November 1998 and February 1999. The per Unit distribution rate for
the first quarter of 1998 varied between $1.00 and $1.13 depending upon the
closing in which the particular Units were issued. This disproportionate cash
distribution resulted from the Units being issued on different days during 1990,
and thus being entitled to differing Preferred Return amounts, as defined in the
Fund's Partnership Agreement. The disproportionate rates eliminated the
remaining Preferred Return amounts, leaving all Units on an equal basis going
forward. The per Unit distribution rates were $1.00, $.30 and $.30 for all Units
for the second, third and fourth quarters of 1998, respectively. In the
aggregate, the 1998 distributions were paid out of current net investment income
(4.0%), realized gains on investments (53.9%) and a return of capital (42.1%).

The Fund has accrued approximately $507,000 for certain known potential
liabilities related to a former investment of the Fund. In addition, the Fund
may be exposed to other asserted or unasserted legal claims encountered in the
course of its activities, past and present. Other than those amounts for which
the Fund has specifically accrued, management does not believe the ultimate
resolution of these matters will have a material impact on the operating
results, financial position or cash flows of the Fund.

12
<PAGE> 15

Results of Operations

Investment Income and Expenses

The Fund's investment income consists primarily of interest income earned from
the various debt investments held by the Fund. The Fund also received dividend
income during 1997 from the ENI Holding Corp. ("ENI") preferred stock, which was
sold during 1997. Major expenses include professional fees, fund administration
fees, investment advisory fees and administrative expenses.

1998 Compared to 1997

The Fund's net investment income was $107,781 for the year ended December 31,
1998 on total investment income of $743,018 as compared to net investment income
of $1,016,693 on total investment income of $1,646,796 for the prior year. Net
investment income per limited partnership unit decreased from $.78 to $.08 and
the ratio of net investment income to average net assets decreased from 5.69% to
0.84% for the year ended December 31, 1998 in comparison to the prior year.

Net investment income for the year ended December 31, 1998 decreased primarily
as a result of a decrease in investment income in comparison to the prior year.

Investment income decreased $903,778, or 54.9%, for the year ended December 31,
1998 in comparison to the prior year. This decrease resulted primarily from (i)
the prepayment of the Fund's Elgin National Industries, Inc. ("Elgin")
subordinated debt investment during November 1997, (ii) the disposition of the
ENI preferred stock during November 1997, and (iii) the decision to stop
accruing interest on the Fund's RBM subordinated debt investment effective
during August 1998. The combined negative impact of these items was partially
offset by increases in the amount of interest income earned on temporary
investments and the various LMC debt investments.

Total expenses increased $5,134, or 0.8%, for the year ended December 31, 1998
in comparison to the prior year. This increase resulted primarily from increases
in other expenses and Independent General Partner fees and expenses. These
increases were substantially offset by a decrease in investment advisory fees
and, to a lesser extent, by a small decrease in professional fees.

Other expenses increased during 1998 primarily as a result of insurance expense
associated with a new liability insurance policy for the Fund's general partners
that was initially purchased during September 1997.

Independent General Partner fees and expenses increased during 1998 primarily
because one of the Fund's three Independent General Partners resigned during the
fourth quarter of 1996 and was not replaced until the third quarter of 1997.

Investment advisory fees decreased during 1998 primarily as a result of (i) the
repurchase of Units during November 1997 and 1998, (ii) the payment of quarterly
cash distributions during 1998 that exceeded the Limited Partners' Preferred
Return (as defined in the Fund's Partnership Agreement) and (iii) losses
realized by the Fund during the second quarter of 1998 with respect to the MTI,
Atlas and ARA investments. All three of these items decreased the amount of the
Fund's available capital (as defined in the Fund's Partnership Agreement), which
is the base with respect to which the investment advisory fees are calculated.

<PAGE> 16

1997 Compared to 1996

The Fund's net investment income was $1,016,693 for the year ended December 31,
1997 on total investment income of $1,646,796 as compared to net investment
income of $951,907 on total investment income of $1,600,487 for the prior year.
Net investment income per limited partnership unit increased from $.68 to $.78,
and the ratio of net investment income to average net assets increased from
4.19% to 5.69% for the year ended December 31, 1997 in comparison to the prior
year.

Net investment income for the year ended December 31, 1997 increased 6.8% as a
result of a small increase in investment income and a small decrease in total
expenses. Net investment income per limited partnership unit increased 14.7%.
The percentage increase in net investment income per limited partnership unit
exceeded the percentage increase in net investment income because of a decrease
in the weighted average number of limited partnership units outstanding, which
resulted from the repurchase of Units by the Fund during both November 1996 and
1997.

Investment income increased $46,309, or 2.9%, for the year ended December 31,
1997 in comparison to the prior year. This increase resulted primarily from the
receipt of the accumulated preferred stock dividends that were paid on the ENI
preferred stock at the time of its disposition. The positive impact of the ENI
dividend income was significantly offset by a decrease in interest income. A
number of factors contributed to the decline in interest income, including (i)
the decision to stop accruing interest on the Fund's Atlas subordinated debt
investment effective April 1996, (ii) the prepayment of the Fund's Elgin
subordinated debt investment during November 1997, and (iii) reduced amounts of
temporary investments as a result of the Fund utilizing a portion of its cash
reserves to fund the LMC follow-on investment and to repurchase Units during
both November 1996 and 1997. The negative effect of these items was partially
offset by the increase in interest income earned on the LMC follow-on
investment.

Total expenses decreased $18,477, or 2.8%, for the year ended December 31, 1997
in comparison to 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.

The investment advisory fees paid to FCM decreased during 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 1997 and as a result of
the repurchase of Units during November 1996 and 1997. 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 1997 primarily as a result of consulting fees
and expenses paid during 1996 in connection with the Canadian's bankruptcy
proceedings.

Professional fees increased during 1997 primarily 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 decided not to pursue this proposal.

Net Realized Gain (Loss) on Investments

The Fund realized net losses of $3,948,869 during the year ended December 31,
1996, net gains of $3,545,258 during the year ended December 31, 1997 and net
losses of $3,008,930 during the year ended December 31, 1998.

<PAGE> 17

During 1996, the Fund realized a gain from the sale of the Fund's Huntington
investment and realized a loss on the Fund's Canadian's investment. The net
realized gain for 1997 resulted from gains on the Fund's Neodata Corporation,
Elgin, ENI and Huntington investments, including a prepayment premium, and an
additional realized loss on the Fund's Canadian's investment.

The Fund owned an equity position in ARA (formerly known as Amity Leather
Products Co.) since 1992. This equity position was acquired in connection with a
subordinated debt investment, which ARA prepaid during 1994.

ARA reported significantly reduced earnings and cash flows from operations
during 1997. During February 1998, ARA hired a crisis manager to assist it in
addressing continuing significant declines in the company's sales and profits.
The hiring of this crisis manager was precipitated by ARA's lenders, which
notified ARA of defaults under its credit lines and demanded that ARA repay
overadvances that were made during 1997. The Fund was notified that ARA was
considering a number of options for solving these problems, including a possible
bankruptcy filing and the sale of the company, or certain of its operations.

ARA filed for bankruptcy protection during March 1998. ARA's assets were
liquidated at auction during May 1998, with the proceeds from the sale
satisfying only a portion of ARA's debt. The $378,011 cost of the Fund's equity
investment in ARA was written off as a realized loss during May 1998.

During June 1998, the Fund received $191,469 from the sale of its MTI common
stock and warrants. The Fund recorded a realized loss of $96,461 from this sale.

The Fund's Huntington stock was sold for cash during February 1996. The Fund's
share of the sales proceeds totaled $1,511,364, of which $1,320,711 was received
during February 1996. The balance of the sales proceeds was held in escrow to
pay various transaction expenses, to fund 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. An
agreement was reached with the buyer with regard to purchase price adjustments
and other claims and the escrow accounts were liquidated during 1998. The Fund
received distributions from the escrow accounts of $19,920, $81,429, $76,343 and
$1,177 during September 1996, May 1997, June 1998 and August 1998, respectively.
The Fund recognized realized gains of $1,236,821, $81,429 and $77,520 from this
transaction during 1996, 1997 and 1998, respectively. The selling shareholders,
including the Fund, could be required under certain of the seller's
representations to reimburse the buyer for certain costs and expenses, even
though the escrow accounts have been liquidated.

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. During November
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.

As a result of these developments, the Fund stopped accruing interest on its
Atlas investment during April 1996 and recorded writedowns of $1,180,224 and
$2,702,022 during 1996 and 1997, respectively, in the carrying value of the
investment. The remaining carrying value of the Fund's Atlas investment as of
December 31, 1997 was $2.

15
<PAGE> 18

On June 3, 1998, the Fund exchanged its Atlas subordinated notes and warrants
for 989,414 shares of common stock of WMI, an Atlanta, Georgia based waste
management company. Pursuant to the terms of the agreement, the Fund is
prohibited from selling its WMI common stock for 24 months. In addition, the
Fund granted the entity acquiring the Fund's Atlas securities a call on the
Fund's WMI common stock during the 24 month lock up period and a right of first
refusal thereafter. The call price is $11.25 per share.

The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 and $0.33 (an average of the closing bid and ask
prices) on June 3, 1998 and December 31, 1998, respectively. Based on these
prices, the Fund's WMI had trading values of $1,761,157 on the date of the
exchange (June 3, 1998) and $326,507 on December 31, 1998. However, due to a
number of factors, including the speculative nature of the WMI stock, the two
year lock up period and the relative size of the Fund's stock position versus
the daily trading volume, FCM has decided to carry the WMI stock at the same
nominal value that the Atlas securities were previously carried by the Fund. The
52-week low for the WMI common stock is $0.16 per share.

The Fund recorded a realized loss of $2,560,453 on the exchange, which is equal
to the amount of the loss which the Fund claimed for income tax purposes from
the disposition of the Atlas securities. The $1,321,794 balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.

The Fund incurred approximately $50,000 of realized losses during the year ended
December 31, 1998 as a result of adjustments relating to certain previously held
investments.

Net Unrealized Gain (Loss) on Investments

FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an average
of the closing bid and ask prices, as of the valuation date.

Fair value for securities that are not traded in any liquid public markets or
that are privately held are determined pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method will be
used only with respect to completed transactions or firm offers made by
sophisticated, independent investors.

Prior to 1996, the Fund had recorded cumulative net unrealized loss on
investments of $3,275,329. During 1996, the Fund recorded $94,187 of unrealized
gain and $1,344,097 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1996 with respect to which the Fund had recorded
$3,841,121 of net unrealized loss during prior years. Therefore, at December 31,
1996, the Fund had net unrealized loss on investments of $684,118.

During 1997, the Fund recorded $11,869 of unrealized gain and $3,976,377 of
unrealized loss on investments. In addition, the Fund disposed of investments
during 1997 with respect to which the Fund had recorded $105,369 of net
unrealized loss during prior years. Therefore, at December 31, 1997, the Fund
had net unrealized loss on investments of $4,543,257.

<PAGE> 19

The net decrease in unrealized loss on investments during 1998 and the
cumulative net unrealized loss on investments at December 31, 1998, consisted of
the following components:

<TABLE>
<CAPTION>
Net Changes Net Unrealized
in Unrealized Gain (Loss)
Gain (Loss) Recorded as of
Portfolio Investment During 1998 December 31, 1998
-------------------- ------------- -----------------
<S> <C> <C>
Unrealized net loss recorded during
prior years with respect to investments
disposed of during 1998 $ 4,214,940 $ --

KEMET (220,059) 309,704
LMC -- (858,080)
RBM (753,634) (753,634)
WMI (1,321,794) (1,321,794)
------------- -----------
$ 1,919,453 $(2,623,804)
============= ===========
</TABLE>

KEMET completed an IPO of its common stock during 1992. The stock, which trades
on the NASDAQ National Market System, closed at $11.4375 (an average of the
closing bid and ask prices) on December 31, 1998. This price is down from the
closing price of $19.3125 on December 31, 1997. Based on the $11.4375 closing
trading price of the common stock, the 27,944 shares of common stock that the
Fund held at December 31, 1998 had a market value of $319,609.

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.

LMC has a defined contribution plan (the "Plan"), which was closed during 1995.
The current and previous trustees of the Plan failed to assure that the Plan was
properly funded. In order to rectify this problem, LMC has made demands on the
current and previous trustees of the Plan and the previous controlling
shareholders that these parties make the necessary payments to the Plan. LMC has
filed suit against the current trustee, whose wholly-owned company currently
owns approximately 9% of LMC's common stock, and expects to prevail in this
litigation, although there can be no assurance that this will be the case.

The Internal Revenue Service ("IRS") performed an audit on the Plan during 1998,
in which it reviewed certain of the years with respect to which the Plan was not
properly funded. At the conclusion of their audit, the IRS notified LMC that it
had determined the underfunding for the years reviewed to be $243,385. The IRS
also imposed a penalty of $12,362, which LMC has paid. LMC is currently in
discussions with the IRS concerning how and when the $243,385 assessment, and
the related interest, must be paid. If LMC is required to make the payments
prior to resolution of the litigation with the current trustee of the Plan, it
will have a negative impact on LMC's working capital availability. In addition,
it is possible that additional assessments could be made in the future for
underfundings of the Plan with respect to earlier years.

As a result of this matter and its potential impact on LMC, the Fund recorded an
additional $317,280 write down in the value of its LMC investment during 1997.
On a cumulative basis, as of December 31, 1998, the Fund's LMC investment has
been written down in value by $858,080. The Fund and LMC's other stockholders
made follow-on investments in LMC during 1996, 1997 and 1998 in order to provide
LMC with working capital required to fund significant continuing operating
losses, develop a new product, finance the downpayment on and move to a new
facility and to purchase capital equipment needed to modernize the company's
production operations.

17
<PAGE> 20

During December 1998, RBM and its lenders completed a restructuring under which
a new senior lender, Norwest Business Credit, replaced Bank of America. As part
of this transaction, RBM's equity sponsor contributed additional equity to the
company and the subordinated lenders, including the Fund, agreed to accept
shares of RBM's common stock as payment for the next three quarterly interest
payments beginning with the payment that was due during November 1998. As a
consequence, the Fund's ownership of RBM, on a fully-diluted basis, increased
from 6.6% to 8.1%, assuming exercise of its warrants. The restructuring was
designed to provide RBM with a period of time in which to secure additional
customers and return to a more stable financial position under which RBM could
meet its interest obligations to its creditors, including the Fund. Cash
receipts from interest income to the Fund are expected to decrease as a result
of the restructuring.

As a result of these developments, the Fund stopped accruing interest on its RBM
subordinated debt effective August 24, 1998. In addition, the Fund recorded
aggregate writedowns of $753,634 relating to RBM during the year ended December
31, 1998.

See "Net Realized Gain (Loss) on Investments" for a discussion of the unrealized
loss on the Fund's WMI stock investment.

FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.

Readiness for Year 2000

FCM has completed a review of the accounting and other information systems that
are currently being utilized by FCM and the Fund with regard to Year 2000
issues. This review involved both actual tests of parts of the information
systems that were conducted by third party consultants and representations
received from various software vendors. FCM believes that all of these systems
are Year 2000 compliant. All of the costs associated with this review were paid
by FCM.

FCM also corresponded with appropriate third parties, such as the Fund's
custodian and transfer agent, concerning whether their information systems are
Year 2000 compliant. These third parties have represented that their information
systems are either currently Year 2000 compliant or that they have identified
the scope of required upgrades or changes to their information systems that are
needed and that they have a plan in place to complete these upgrades on a timely
basis.

As a result of the above discussion review, Year 2000 issues are not expected to
have any material adverse effects on the Fund's results of operations or
financial condition.

18
<PAGE> 21

Inflation and Changing Prices

Inflation has had no material impact on the operations or financial condition of
the Fund from inception through December 31, 1998. However, inflation and
changing prices, in addition to other factors, may effect the value and the
eventual selling price of the Fund's remaining investments.

19
<PAGE> 22

Item 8. Financial Statements and Supplementary Data

FIDUCIARY CAPITAL PARTNERS, L.P.

<TABLE>
<CAPTION>
List of Financial Statements Page
- ---------------------------- ----
<S> <C>
Report of Independent Public Accountants F-2

Schedule of Investments - December 31, 1998 F-3

Balance Sheets - December 31, 1998 and 1997 F-5

Statements of Operations for each of the years
ended December 31, 1998, 1997 and 1996 F-6

Statements of Cash Flows for each of the years
ended December 31, 1998, 1997 and 1996 F-7

Statements of Changes in Net Assets for each of the
years ended December 31, 1998, 1997 and 1996 F-8

Selected Per Unit Data and Ratios for each of the years
ended December 31, 1998, 1997, 1996, 1995 and 1994 F-9

Notes to Financial Statements F-10
</TABLE>

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
(1) the information required is disclosed in the financial statements and notes
thereto; (2) the schedules are not required under the related instructions; or
(3) the schedules are inapplicable.

F-1
<PAGE> 23

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Fiduciary Capital Partners, L.P.:

We have audited the accompanying balance sheets of Fiduciary Capital Partners,
L.P. (a Delaware limited partnership) as of December 31, 1998 and 1997,
including the schedule of investments as of December 31, 1998, and the related
statements of operations, cash flows and changes in net assets for each of the
three years in the period ended December 31, 1998 and the selected per unit data
and ratios for the five years then ended. These financial statements and per
unit data and ratios are the responsibility of the partnership's managing
general partner. Our responsibility is to express an opinion on these financial
statements and per unit data and ratios based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per unit data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 and 1997, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and selected per unit data and ratios
referred to above present fairly, in all material respects, the financial
position of Fiduciary Capital Partners, L.P. as of December 31, 1998 and 1997,
and the results of its operations, its cash flows and the changes in its net
assets for each of the three years in the period ended December 31, 1998, and
the selected per unit data and ratios for the five years then ended, in
conformity with generally accepted accounting principles.

As discussed in Note 2, the financial statements include investment securities
valued at $7,415,493 at December 31, 1998 (71.7% of net assets) and $6,055,136
at December 31, 1997 (39.2% of net assets) whose values have been estimated by
the managing general partner in the absence of readily ascertainable market
values. However, because of the inherent uncertainty of valuation, the managing
general partner's estimate of values may differ significantly from the values
that would have been used had a ready market existed for the securities and the
differences could be material.

/s/ Arthur Andersen LLP

Denver, Colorado
February 5, 1999.

F-2
<PAGE> 24

FIDUCIARY CAPITAL PARTNERS, L.P.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 1998

<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 $ 319,609
------------ -----------
9,905 319,609 3.1%
------------ ----------- ------
$1,912,400 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 (Note 5) 12/29/98 1,912,400 1,912,400

260,400 sh. LMC Corporation, 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,596,621 2,596,621

5,523,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 3,034,549 2,176,469
52.08 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
------------ -----------
7,543,571 6,685,491 65.0
------------ ----------- ------
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(2) 05/24/95 1,400,680 730,000

11,060.6 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 82,955 1

14,392 sh. R.B.M. Precision Metal
Products, Inc., Common
Stock* 12/09/98 1 1
------------ -----------
1,483,636 730,002 7.1
------------ ----------- ------
Total Investments in Managed Companies (74.8% of net assets) 9,037,112 7,735,102 75.2
------------ ----------- ------

NON-MANAGED COMPANY:

989,414 sh. WasteMasters, Inc.,
Common Stock(3)* 06/03/98 1,321,795 1
------------ -----------
Total Investment in Non-Managed Company (0.0% of net assets) 1,321,795 1 0.0
------------ ----------- ------
</TABLE>

The accompanying notes to financial statements are an
integral part of this schedule.

F-3
<PAGE> 25

FIDUCIARY CAPITAL PARTNERS, L.P.

SCHEDULE OF INVESTMENTS (CONTINUED)

DECEMBER 31, 1998

TEMPORARY INVESTMENTS:

$2,550,000 Ford Motor Credit Corporation,
5.27% Notes due 1/11/99 12/28/98 2,546,274 2,546,274
------------ -----------
Total Temporary Investments (24.6% of net assets) 2,546,274 2,546,274 24.8
------------ ----------- ------
Total Investments (99.4% of net assets) $12,905,181 $10,281,377 100.0%
============ =========== ======
</TABLE>

(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in three equal annual installments of
$486,667 commencing on May 24, 2000.
(3) The WasteMasters, Inc. common stock, which trades on the NASDAQ Small Cap
Market System, is subject to a 24 month lock up period, a call option and a
right of first refusal.
* Non-income producing security.

The accompanying notes to financial statements are an
integral part of this schedule.

F-4
<PAGE> 26

FIDUCIARY CAPITAL PARTNERS, L.P.

BALANCE SHEETS - DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:

Investments (Notes 2, 10, 11 and 12)
Portfolio investments, at fair value:
Managed companies (amortized cost -
$9,037,112 and $11,138,061,
respectively) $ 7,735,102 $ 6,594,804
Non-managed company (amortized cost-
$1,321,795) 1 --
Temporary investments, at amortized cost 2,546,274 10,193,557
------------ ------------
Total investments 10,281,377 16,788,361
Cash and cash equivalents (Note 2) 837,202 263,694
Accrued interest receivable (Note 12) 103,233 76,821
Other assets 31,859 66,060
------------ ------------
Total assets $ 11,253,671 $ 17,194,936
============ ============

LIABILITIES:

Due to affiliates (Notes 6, 7, 8 and 9) $ 31,197 $ 39,123
Accounts payable and accrued liabilities 539,360 484,837
Distributions payable to partners (Note 3) 336,271 1,213,701
------------ ------------

Total liabilities 906,828 1,737,661
------------ ------------

COMMITMENTS AND CONTINGENCIES (Note 13)

NET ASSETS (Notes 3 and 4):

Managing General Partner (207,011) (54,555)
Limited Partners (equivalent to $9.51
and $12.91, respectively, per limited
partnership unit based on 1,109,694
and 1,201,564 units outstanding) (Note 5) 10,553,854 15,511,830
------------ ------------

Total net assets 10,346,843 15,457,275
------------ ------------

Total liabilities and net assets $ 11,253,671 $ 17,194,936
============ ============
</TABLE>

The accompanying notes to financial statements are an
integral part of these financial statements.

F-5

<PAGE> 27

FIDUCIARY CAPITAL PARTNERS, L.P.

STATEMENTS OF OPERATIONS

FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:

Income:
Interest $ 728,803 $ 1,329,751 $ 1,569,923
Dividend -- 292,981 --
Other income 14,215 24,064 30,564
----------- ----------- -----------

Total investment income 743,018 1,646,796 1,600,487
----------- ----------- -----------
Expenses:
Professional fees 164,127 169,499 159,165
Fund administration fees (Note 7) 143,370 143,370 143,370
Investment advisory fees (Note 6) 119,733 141,646 160,179
Administrative expenses (Note 7) 81,105 81,105 81,105
Independent General Partner fees
and expenses (Note 8) 61,231 55,219 55,990
Other expenses 65,671 39,264 48,771
----------- ----------- -----------

Total expenses 635,237 630,103 648,580
----------- ----------- -----------

NET INVESTMENT INCOME 107,781 1,016,693 951,907
----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:

Net realized (loss) gain on investments
(Note 10) (3,008,930) 3,545,258 (3,948,869)
Net change in unrealized loss on
investments (Note 11) 1,919,453 (3,859,138) 2,591,211
----------- ----------- -----------

Net loss on investments (1,089,477) (313,880) (1,357,658)
----------- ----------- -----------

NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (981,696) $ 702,813 $ (405,751)
=========== =========== ===========
</TABLE>

The accompanying notes to financial statements are an
integral part of these financial statements.

F-6

<PAGE> 28

FIDUCIARY CAPITAL PARTNERS, L.P.

STATEMENTS OF CASH FLOWS

FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (981,696) $ 702,813 $ (405,751)
Adjustments to reconcile net (decrease) increase
in net assets resulting from operations
to net cash provided by operating activities:
Accreted discount on portfolio investments (12,929) (39,028) (42,587)
Change in assets and liabilities:
Accrued interest receivable (26,412) 36,988 26,681
Other assets 34,201 (58,412) (4,442)
Due to affiliates (7,926) (13,532) (7,717)
Accounts payable and accrued liabilities 2,997 (20,670) 17,195
Net realized loss (gain) on investments 3,008,930 (3,545,258) 3,948,869)
Net change in unrealized loss on investments (1,919,453) 3,859,138 (2,591,211)
------------ ------------ ------------
Net cash provided by operating activities 97,712 922,039 941,037
------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (3,531,710) (1,005,376) (5,384,518)
Proceeds from dispositions of portfolio investments 1,366,389 10,721,487 1,340,631
Sale (purchase) of temporary investments, net 7,647,283 (6,396,301) 6,599,536
------------ ------------ ------------
Net cash provided by investing activities 5,481,962 3,319,810 2,555,649
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (4,112,271) (2,887,058) (1,705,750)
Repurchase of limited partnership units (893,895) (1,363,640) (1,719,362)
------------ ------------ ------------
Net cash used in financing activities (5,006,166) (4,250,698) (3,425,112)
------------ ------------ ------------

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 573,508 (8,849) 71,574

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 263,694 272,543 200,969
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 837,202 $ 263,694 $ 272,543
============ ============ ============

NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investments exchanged for other investments $ 1,639,200 $ -- $ --
============ ============ ============
</TABLE>

The accompanying notes to financial statements are an
integral part of these financial statements.

F-7
<PAGE> 29

FIDUCIARY CAPITAL PARTNERS, L.P.

STATEMENTS OF CHANGES IN NET ASSETS

FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 107,781 $ 1,016,693 $ 951,907
Net realized (loss) gain on investments (3,008,930) 3,545,258 (3,948,869)
Net change in unrealized loss on
investments 1,919,453 (3,859,138) 2,591,211
------------ ------------ ------------
Net (decrease) increase in net
assets resulting from operations (981,696) 702,813 (405,751)

Repurchase of limited partnership units
(Note 5) (893,895) (1,363,640) (1,719,362)

Distributions to partners from -
Net investment income (129,001) (1,016,693) (1,174,520)
Realized gain on investments (1,742,647) (1,905,894) (498,482)
Return of capital (1,363,193) (784,482) --
------------ ------------ ------------

Total decrease in net assets (5,110,432) (4,367,896) (3,798,115)

Net assets:

Beginning of year 15,457,275 19,825,171 23,623,286
------------ ------------ ------------

End of year (including no
undistributed net investment
income) $ 10,346,843 $ 15,457,275 $ 19,825,171
============ ============ ============
</TABLE>

The accompanying notes to financial statements are an
integral part of these financial statements.

F-8

<PAGE> 30

FIDUCIARY CAPITAL PARTNERS, L.P.

SELECTED PER UNIT DATA AND RATIOS

FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per Unit Data:
Investment income(1) $ .54 $ 1.26 $ 1.14 $ 1.74 $ 1.66
Expenses(1) (.46) (.48) (.46) (.41) (.40)
------ ------ ------ ------ ------
Net investment income(1) .08 .78 .68 1.33 1.26

Net realized (loss) gain on investments(1) (2.20) 2.72 (2.80) 3.00 (1.50)

Net change in unrealized loss on
investments(1) 1.40 (2.97) 1.84 (4.70) 2.58

Effect of unit repurchases on
net asset value .02 -- (.03) (.19) .03

Distributions declared to partners (2.70) (2.90) (1.20) (1.20) (1.80)
------ ------ ------ ------ ------

Net (decrease) increase in
net asset value (3.40) (2.37) (1.51) (1.76) .57

Net asset value:
Beginning of year 12.91 15.28 16.79 18.55 17.98
------ ------ ------ ------ ------
End of year $ 9.51 $12.91 $15.28 $16.79 $18.55
====== ====== ====== ====== ======

Ratios:
Ratio of expenses to average net assets 4.92% 3.53% 2.85% 2.23% 2.24%
Ratio of net investment income to
average net assets 0.84% 5.69% 4.19% 7.19% 7.06%

Number of limited partnership units
at end of year 1,109,694 1,201,564 1,299,176 1,407,244 1,526,949
</TABLE>

- -------------

(1) Calculated using the weighted average number of limited partnership units
outstanding during the years ended December 31, 1998, 1997, 1996, 1995
and 1994 of 1,190,993, 1,288,211, 1,395,138, 1,513,503 and 1,669,129,
respectively.

The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.

F-9

<PAGE> 31

FIDUCIARY CAPITAL PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

1. ORGANIZATION AND PURPOSE

Fiduciary Capital Partners, L.P. (the "Fund"), a Delaware limited partnership,
was formed on October 20, 1988 to operate as a business development company
under the Investment Company Act of 1940. The Fund's operations commenced on
August 14, 1990.

FCM Fiduciary Capital Management Company ("FCM"), the Managing General Partner
of, and the investment adviser to, the Fund, is responsible, subject to the
supervision of the Independent General Partners, for overseeing and monitoring
the Fund's investments.

The investment objective of the Fund is to provide current income and capital
appreciation by investing primarily in subordinated debt and related equity
securities issued as the mezzanine financing of privately structured, friendly
leveraged buyouts, leveraged acquisitions and leveraged recapitalizations. These
investments are referred to herein as "portfolio investments". Managed companies
are those to which significant managerial assistance is offered.

As set forth in the Partnership Agreement, the Fund's investment period ended on
December 31, 1995. Although the Fund is permitted to make additional investments
in existing portfolio companies, the Fund is no longer permitted to acquire
investments in new portfolio companies. A number of alternative actions through
which the Fund could be liquidated during 1999 or 2000 are currently being
considered. Once a specific plan of liquidation is developed, the requisite
regulatory procedures required to liquidate the Fund will be followed. These
procedures are expected to include requesting Limited Partner approval of the
liquidation plan through a proxy solicitation.

A separate fund, Fiduciary Capital Pension Partners, L.P. ("FCPP"), was also
formed on October 20, 1988 for tax-exempt investors with investment objectives,
policies and restrictions similar to those of the Fund. While the Fund and FCPP
have co-invested in each of the portfolio investments, each fund is accounted
for separately. Each fund's participation in the portfolio investments is in
proportion to the amount of capital that each fund had available for investment
at the time each investment was acquired. Certain expenses are allocated between
the funds based on the amount of each fund's total capital. The accompanying
financial statements include only the activities of the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Accounting Method The Fund maintains its accounting records, prepares financial
statements and files its tax returns using the accrual method of accounting.

F-10
<PAGE> 32

FIDUCIARY CAPITAL PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

Realized and Unrealized Gain or Loss on Investments Realized gains and losses
are recorded upon disposition of investments and are calculated based upon the
difference between the proceeds and the cost basis determined using the specific
identification method. All other changes in the valuation of investments, as
determined by FCM, are included as changes in the unrealized appreciation or
depreciation of investments in the Fund's Statements of Operations.

Valuation of Investments FCM values the Fund's investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and for
which market quotations are available, valuations are set by the closing sales,
or an average of the closing bid and ask prices, as of the valuation date. The
Fund discounts these closing market prices between 5% and 20% to reflect lack of
liquidity if the Fund's securities are subject to legal or contractual trading
restrictions, or to reflect the potential market impact which could result from
the sale of the securities, if the Fund and FCPP combined own a material
percentage of the outstanding securities. The amount of the discount varies
based upon the type of restriction, the time remaining on the restriction and
the size of the holding.

Fair value for securities that are not fully traded in any liquid public markets
or that are privately held are determined pursuant to valuation policies and
procedures which have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). Debt
securities with attached warrants for the purchase of common stock are initially
recorded at a discount from face value equal to the estimated relative value of
the warrants at date of investment. The discount is amortized to income as an
adjustment to yield from the debt securities. Face value less unamortized
discount represents the "amortized cost" of the debt securities.

The cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal valuations
are based upon such factors as the portfolio company's earnings, cash flow and
net worth, the market prices for similar securities of comparable companies and
an assessment of the portfolio company's future financial prospects. In a case
of unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.

Temporary investments with maturities of less than 60 days are stated at
amortized cost, which approximates market value. Under this method, temporary
investments are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until maturity
of the investment.

Cash and Cash Equivalents The Fund considers investments in money market funds
to be cash equivalents.

Interest Receivable on Notes Notes are placed on non-accrual status in the event
of a default (after any applicable grace period expires) or if FCM determines
that there is no reasonable expectation of collecting the interest.

F-11
<PAGE> 33

FIDUCIARY CAPITAL PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND 1997

Income Taxes No provision for income taxes has been made in the financial
statements because taxes on Fund income are the responsibility of the individual
partners rather than the Fund.

Investment Transactions The Fund records portfolio investment transactions on
the date on which it obtains an enforceable right to demand the securities or
payment thereof and records temporary investment transactions on the trade date.
Realized gains and losses on investments are determined on the basis of specific
identification for both accounting and tax purposes.

3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS

Pursuant to the Partnership Agreement, all income derived from temporary
investments will be distributed and allocated 99% to the Limited Partners and 1%
to FCM. Net investment income will, in general, be distributed and allocated:
(i) 99% to the Limited Partners and 1% to FCM until the Limited Partners have
received a cumulative non-compounded preferred return of 9% per annum on their
capital contributions to the Fund, then (ii) 70% to the Limited Partners and 30%
to FCM until FCM has received 10% of all current and prior distributions and
allocations, and thereafter, (iii) 90% to the Limited Partners and 10% to FCM.

Proceeds from capital transactions will, in general, be distributed and
allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative, non-compounded preferred return of 9% per
annum on their capital contributions to the Fund from net investment income,
capital transactions, or both, then (ii) 100% to the Limited Partners until they
have received a return of their capital contributions to the Fund, and
thereafter, (iii) 80% to the Limited Partners and 20% to FCM.

Prior to 1998, cash distributions and earnings of the Fund were allocated 99% to
the Limited Partners and 1% to FCM. Pursuant to the terms of the Fund's
Partnership Agreement, the Fund's 1998 loss was allocated approximately 87% to
the Limited Partners and approximately 13% to FCM, and the portion of the 1998
cash distributions that exceeded the partners' cumulative preferred return
amounts was allocated 100% to the Limited Partners.

4. CAPITAL CONTRIBUTIONS

Upon formation of the Fund, FCM contributed $4,000 for its general partner
interest in the Fund. Units of limited partnership interest ("Units") were then
sold in a public offering. The Fund held three closings between August 14, 1990
and October 18, 1990, receiving gross offering proceeds of $36,102,000.
Commissions and other offering costs were charged against proceeds resulting in
net capital contributions from Limited Partners of $31,860,015.

F-12
<PAGE> 34

FIDUCIARY CAPITAL PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND 1997

5. PERIODIC UNIT REPURCHASE PLAN

The Fund's Limited Partners adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund has annually offered to
repurchase from its Limited Partners, up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units. If Units in excess
if this amount are tendered, Units are purchased on a pro-rated basis, after
giving priority to investors owning less than 100 Units.

Repurchases of Units since the adoption of the plan are summarized as follows:

6. INVESTMENT ADVISORY FEES

As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement, net of certain fees received
directly by FCM from the Fund's portfolio companies. Investment advisory fees of
$119,733, $141,646 and $160,179 were incurred by the Fund for 1998, 1997 and
1996, respectively.

7. FUND ADMINISTRATION FEES

As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of .45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $143,370 were
incurred each year by the Fund during 1998, 1997 and 1996. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $81,105 each year during 1998, 1997 and 1996.

F-13
<PAGE> 35

FIDUCIARY CAPITAL PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND 1997

8. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES

As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and FCPP, an annual fee of $30,000,
payable monthly in arrears, together with all out-of-pocket expenses. Each
fund's allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses of $61,231, $55,219 and $55,990 were
incurred by the Fund for 1998, 1997 and 1996, respectively.

9. OTHER RELATED PARTY TRANSACTIONS

FCM and its affiliates are entitled to reimbursement of direct expenses paid on
behalf of the Fund. Such reimbursements amounted to $231,913, $311,347 and
$226,061 during 1998, 1997 and 1996, respectively.

10. PORTFOLIO INVESTMENTS

The Fund's portfolio investments consist primarily of high-yield private
placement securities issued as the mezzanine financing of privately structured,
friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations, and are generally linked with an equity participation. The
risk of loss upon default by an issuer is greater than with investment grade
securities because high-yield securities are generally unsecured and are usually
subordinated to other creditors of the issuer. Also, these issuers usually have
higher levels of indebtedness and are more sensitive to adverse economic
conditions than investment grade issuers. Most of these securities are subject
to resale restrictions and generally there is no quoted market for such
securities.

Although the Fund cannot eliminate the risks associated with its investments in
these high-yield securities, it has established risk management procedures. The
Fund subjects each prospective investment to rigorous analysis, and makes only
those investments that are recommended by FCM and that meet the Fund's
investment guidelines or that have otherwise been approved by the Independent
General Partners. The Fund also has procedures in place to continually monitor
its portfolio companies.

As of December 31, 1998, the Fund held portfolio investments in three Managed
Companies, with an aggregate cost of approximately $9.0 million, and one
portfolio investment in a Non-Managed Company, with a cost of approximately $1.3
million. During the year ended December 31, 1998, the Fund acquired additional
follow-on investments in LMC Corporation ("LMC") at a net aggregate cost of
approximately $2.4 million.

During 1998, the Fund (i) sold all of its Mobile Technology, Inc. stock and
warrants, (ii) received final distributions from the escrow account that was
established during 1996 in connection with the sale of its Huntington Holdings,
Inc. stock, and (iii) wrote off the cost of its equity investment in AR
Accessories Group, Inc. ("ARA") (formerly known as Amity Leather Products Co.)
as a realized loss following ARA's bankruptcy liquidation. The Fund received
$268,989 in proceeds from these three transactions, resulting in aggregate net
realized losses of $396,952.

During June 1998, the Fund exchanged its Atlas Environmental, Inc. ("Atlas")
subordinated notes (which were in default) and warrants for 989,414 shares of
common stock in WasteMasters, Inc. ("WMI"). Pursuant to the

F-14

<PAGE> 36

FIDUCIARY CAPITAL PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND 1997

terms of the exchange agreement, the Fund is prohibited from selling its WMI
common stock of 24 months. In addition, the Fund granted the entity acquiring
the Fund's Atlas securities a call on the Fund's WMI common stock during the 24
month lock up period and a right to first refusal thereafter. The call price is
$11.25 per share.

The WMI common stock, which trades on the NASDAQ Small Cap Market System closed
at $1.78 (an average of the closing bid and ask prices) on the date of the
exchange. However, due to a number of factors, including the speculative nature
of the WMI stock, the two year lock up period and the relative size of the
Fund's stock position versus the daily trading volume, the Fund is carrying the
WMI stock at the same nominal value ($1) that the Atlas securities had
previously been carried by the Fund. The 52-week low for the WMI common stock is
$0.28 per share and the price as of December 31, 1998 was $0.32.

The Fund recorded a realized loss of $2,560,453 on the exchange, which is equal
to the amount of the loss that the Fund expects to claim for income tax purposes
from the disposition of the Atlas securities. The $1,321,794 balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.

The Fund has pledged the common stock it owns in LMC Credit Corp. as collateral
for the corporation's debt. None of the Fund's other portfolio investments are
pledged or otherwise encumbered.

11. UNREALIZED GAIN (LOSS) ON INVESTMENTS

As of December 31, 1997, the Fund had recorded net unrealized loss on
investments of $4,543,257. During 1998, the Fund recorded $2,295,487 of
unrealized loss on investments. In addition, the Fund disposed of investments
during 1998 with respect to which the Fund had recorded $4,214,940 of net
unrealized loss during prior years. Therefore, at December 31, 1998, the Fund
had recorded net unrealized loss on investments of $2,623,804.

12. NON-ACCRUAL STATUS OF INVESTMENTS

In accordance with the Fund's accounting policies, the Fund stopped accruing
interest on the Atlas Senior Subordinated Secured Notes effective April 20, 1996
and the R.B.M. Precision Metal Products, Inc. ("RBM") Senior Subordinated
Secured Notes effective August 25, 1998.

During 1998, the Atlas Senior Subordinated Secured Notes were exchanged for WMI
common stock. Thus, as of December 31, 1998, the Fund's only debt investment on
non-accrual status was the RBM Senior Subordinated Secured Notes.

13. COMMITMENTS AND CONTINGENCIES

LMC Commitment. LMC is entitled to draw down a total of $1,967,040 pursuant to
the terms of the Senior Subordinated Revolving Notes held by the Fund. As of
December 31, 1998, LMC had drawn down $1,912,400. The remaining $54,640 was
drawn down during January 1999.

F-15

<PAGE> 37

FIDUCIARY CAPITAL PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND 1997

Litigation. The Fund has accrued approximately $507,000 for certain known
potential liabilities related to a former investment of the Fund. In addition,
the Fund may be exposed to other asserted or unasserted legal claims encountered
in the course of its activities, past and present. Other than those amounts for
which the Fund has specifically accrued, management does not believe the
ultimate resolution of these matters will have a material adverse impact on the
operating results, financial position or cash flows of the Fund.

14. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING

The following is a reconciliation of the net increase in net assets resulting
from operations in the accompanying financial statements to the taxable income
reported for federal income tax purposes:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net (decrease) increase in net assets resulting
from operations per financial statements $ (981,696) $ 702,813 $ (405,751)
Increase (decrease) resulting from:
Unrealized loss on investments (1,919,453) 3,859,138 (2,591,211)
Realized gains and losses on investments (3,540,468) (90,867) 590,620
Fee income, net of amortization -- (57,426) (22,781)
Interest income 150,888 -- --
Other (12,936) (26,213) (23,708)
----------- ----------- -----------
Taxable income (loss) per federal
income tax return $(6,303,665) $ 4,387,445 $(2,452,831)
=========== =========== ===========
</TABLE>

The following is a reconciliation of the amount of the Fund's net assets as
shown in the accompanying financial statements and the tax bases of the Fund's
net assets:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net assets per financial statements $10,346,843 $15,457,275 $19,825,171
Realized gains and losses on investments 506,660 4,047,128 4,137,995
Syndication, organization and
start-up costs, net 3,243,217 3,352,335 3,363,008
Unrealized loss on investments 2,623,804 4,543,257 684,118
Distributions payable 336,271 1,213,701 393,690
Additional stock basis 150,888 -- --
Fee income, net of amortization -- -- 57,426
Accrued expenses 23,000 23,000 25,950
----------- ----------- -----------
Tax bases of net assets $17,230,683 $28,636,696 $28,487,358
=========== =========== ===========
</TABLE>

F-16
<PAGE> 38

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

There were no changes in accountants or disagreements with accountants with
respect to accounting or financial disclosure issues during 1998 or 1997.

20
<PAGE> 39

PART III

Item 10. Directors and Executive Officers of the Registrant

The Fund has no directors or executive officers. The General Partners of the
Fund jointly manage and control the affairs of the Fund and have general
responsibility and authority in all matters affecting its business.

FCM serves as Investment Adviser to the Fund and is responsible for the
identification of all investments made by the Fund and all other investment
advisory services necessary for the operation of the Fund in carrying out its
investment objectives and policies. The Investment Committee of FCM is
responsible for approval of all investment decisions of FCM with respect to the
Fund and consists of seven members. Five of the seven members are appointed by
FCM Fiduciary Capital Corporation ("FCC") and two are appointed by Mezzanine
Capital Corporation ("MCC"). The current members of the Investment Committee are
Paul Bagley, W. Duke DeGrassi and Michael G. Rafferty, appointed by FCC; and
Gerald F. Goertz, Jr. and Clifford B. Wattley, appointed by MCC. Election of two
additional members to the Investment Committee by FCC remains undetermined as of
the date of this Report. The Independent General Partners oversee the investment
activities of the Investment Adviser.

Information concerning the directors and executive officers of the Managing
General Partner (and of its partners) and the Independent General Partners is as
follows:

FCM Fiduciary Capital Management Company
----------------------------------------
(a Delaware general partnership, the partners of which
are FCM Fiduciary Capital Corporation, Mezzanine
Capital Corporation and Paul Bagley)

<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
Paul Bagley Chairman and Chief Executive Officer
W. Duke DeGrassi President
Donald R. Jackson Senior Vice President, Treasurer,
Chief Financial and Accounting
Officer and Compliance Officer
</TABLE>

Paul Bagley, age 56, is Chairman, Chief Executive Officer and an Investment
Committee Member of FCM. Mr. Bagley is a founding principal of Stone Pine
Capital, LLC, a group that provides mezzanine capital to fund acquisitions,
buyouts, growth and recapitalization and is also associated with Stone Pine
Asset Management, LLC and Stone Pine Investment Banking, LLC. Mr. Bagley was
Chief Executive Officer of Laidlaw Holdings, Inc., an investment services
company, from January 1995 until November 1996. For more than twenty years prior
to October 1988, Mr. Bagley was engaged in investment banking activities with
Shearson Lehman Hutton Inc. and its predecessor, E.F. Hutton & Company Inc. Mr.
Bagley served in various capacities with Shearson and E.F. Hutton, including
Executive Vice President and Director, Managing Director, Head of Direct
Investment Origination and Manager of Corporate Finance. Mr. Bagley serves as
Chairman of the Board of Directors of Silver Screen Management, Inc. and
International Film Investors, Inc., which manage film portfolios. Mr. Bagley is
also a director of Consolidated Capital of North America, Inc. and Hollis-Eden
Pharmaceuticals, Inc., both publicly held companies, LMC Corporation, a
privately held manufacturer of low ground pressure vehicles, and Hamilton Lane
Private Equity Fund, PLC, an Irish Stock Exchange listed investment partnership.
Mr. Bagley graduated from the University of California at Berkeley in 1965 with
a B.Sc. in Business and Economics and from Harvard Business School in 1968 with
an M.B.A. in Finance.

21
<PAGE> 40

W. Duke DeGrassi, age 52, is the President and an Investment Committee Member of
FCM. Mr. DeGrassi is also the Chief Investment Officer of Hamilton Lane Advisors
and an owner of The Stone Pine Companies, a group of private entities, that
provide asset management and investment banking services to third parties, which
are not related to the Funds. From May 1988 to December 1993, Mr. DeGrassi was a
Corporate Vice President with PaineWebber Incorporated. From 1986 and until
joining PaineWebber, Mr. DeGrassi was a Vice President in the Direct Investments
Group at Shearson Lehman Hutton Inc. Prior to that, Mr. DeGrassi spent seventeen
years as a financial executive in the energy business, working both domestically
and in foreign operations. Mr. DeGrassi received a Bachelor of Business
Administration in accounting from the University of Texas at Austin in 1969. Mr.
DeGrassi serves as Chairman of the Board and Chief Executive Officer of LMC
Corporation.

Donald R. Jackson, age 49, is a Senior Vice President, Treasurer, Chief
Financial and Accounting Officer and Compliance Officer of FCM. Mr. Jackson is
also an owner of The Stone Pine Companies, a group of private entities, that
provide asset management and investment banking services to third parties, which
are not related to the Funds. From January 1990 to June 1994, Mr. Jackson was a
Corporate Vice President with PaineWebber Incorporated, where he was involved in
the financial administration of various publicly and privately offered
investment programs. During 1989, Mr. Jackson was self-employed. Immediately
prior to that he was a First Vice President in the Direct Investments Group with
Shearson Lehman Hutton Inc. From 1972 to 1986, Mr. Jackson was associated with
the accounting firm of Arthur Andersen & Co., serving as a partner from 1981 to
1986. He received a Bachelor of Science degree in accounting in 1971 from the
University of Denver and is a Certified Public Accountant. Mr. Jackson serves as
a director of LMC Corporation and Consolidated Capital of North America, Inc.

FCM Fiduciary Capital Corporation
---------------------------------
<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
Paul Bagley Chief Executive Officer and
Sole Member of the Board
of Directors
W. Duke DeGrassi President
Donald R. Jackson Vice President, Treasurer, Secretary
and Chief Financial and Accounting
Officer
</TABLE>

For information regarding Paul Bagley, W. Duke DeGrassi, and Donald R. Jackson
see the above section concerning the management of FCM.

Mezzanine Capital Corporation
-----------------------------
<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
Gerald F. Goertz, Jr. President and Director
Clifford B. Wattley Vice President, Assistant Secretary
and Director
Stephen R. Dyer Vice President, Assistant Secretary
and Director
Carmine Fusco Vice President, Secretary, Treasurer
and Chief Financial and
Accounting Officer
</TABLE>

<PAGE> 41

Gerald F. Goertz, Jr., age 41, is the President and a Director of Mezzanine
Capital Corporation. Mr. Goertz joined PaineWebber Incorporated in December 1990
and holds the position of Senior Vice President and Director of Specialized
Investment Services. Prior to joining PaineWebber Incorporated, Mr. Goertz was
associated with CG Realty Advisors and The Freeman Company. He received his
Bachelor of Arts degree in Business Administration in 1979 from Vanderbilt
University and his Juris Doctorate and Masters of Business Administration from
Memphis State University in 1982.

Clifford B. Wattley, age 49, is a Vice President, Assistant Secretary and
Director of Mezzanine Capital Corporation. Mr. Wattley is a Corporate Vice
President with PaineWebber Incorporated, having joined the firm in 1986. He also
was employed previously by Paine, Webber, Jackson & Curtis from 1979 to 1980.
From 1986 to 1992, Mr. Wattley participated in PaineWebber's Principal
Transactions Group. From 1992, Mr. Wattley has been a member of the Private
Investment Department. He holds a Bachelor of Science degree in engineering from
Columbia University and a Masters in Business Administration from Harvard
University.

Stephen R. Dyer, age 39, is a Vice President, Assistant Secretary and Director
of Mezzanine Capital Corporation. He joined PaineWebber Incorporated in June
1988 as a Divisional Vice President and is currently a Senior Vice President and
Director of Private Investments. Prior to joining PaineWebber Incorporated, Mr.
Dyer had been employed, since June 1987, as an Assistant Vice President in the
Retail National Products Group of L.F. Rothschild & Co. Incorporated. Prior to
joining L.F. Rothschild, he was employed, beginning in January 1985, as an
Associate in the Real Estate Department of Thomson McKinnon Securities Inc. From
July 1981 to August 1983, Mr. Dyer was on the audit staff of the accounting firm
of Arthur Young & Company. He received his Bachelor of Science degree in
Accounting in 1981 from Boston College and a Masters of Business Administration
from Indiana University in December 1984. Mr. Dyer is a Certified Public
Accountant.

Carmine Fusco, age 30, is a Vice President, Secretary, Treasurer and Chief
Financial and Accounting Officer of Mezzanine Capital Corporation. He also
serves as an Assistant Vice President within the Private Investments Department
of PaineWebber Incorporated. Mr. Fusco was previously employed as a Financial
Valuation Consultant in the Business Valuation Group of Deloitte & Touche, LLP
from January 1997 to August 1998. He was employed as a Commodity Fund Analyst in
the Managed Futures Department of Dean Witter Reynolds Incorporated, from
October 1994 to November 1995. Prior to joining Dean Witter, Mr. Fusco was a
Mutual Fund Accountant with the Bank of New York Company Incorporated. He
received his Bachelor of Science degree in Accounting and Finance in May 1991
from Rider University and a Master of Business Administration from Seton Hall
University in June 1996.

Independent General Partners

A. E. Bruce Fredrikson

E. Bruce Fredrikson, age 61, has been an Independent General Partner since 1992.
Dr. Fredrikson is a Professor of Finance at Syracuse University School of
Management where he has taught since 1966 and has previously served as Chairman
of the Finance Department. Dr. Fredrikson has a bachelor's degree in economics
from Princeton University and a master's degree in business administration and a
Ph.D. in finance from Columbia University. Dr. Fredrikson serves as a director
of Innodata Corporation, Track Data Corporation, Eagle Finance Corp. and
Vidikron Technologies Group, Inc.

B. Mark A. Sargent

Mark A. Sargent, age 47, is the Dean and a Professor of Law at Villanova
University School of Law. From 1989 to 1997, he was a Professor of Law at the
University of Maryland School of Law, and served as Associate Dean from 1995 to
1997. Mr. Sargent is also currently a member of the editorial boards for several
business law

<PAGE> 42

publications, a consultant on corporate and securities law matters, and an
arbitrator for disputes in the securities industry. Mr. Sargent has a bachelors
degree from Wesleyan University, a masters degree in history from Cornell
University and a J.D. degree from Cornell Law School.

C. Phillip Siegel

Phillip Siegel, age 56, is an independent business consultant. From May 1996
through February 1998, Mr. Siegel was a Vice President and Chief Financial
Officer of Health Management Systems, Inc. From 1993 until May 1996, Mr. Siegel
was an independent business consultant. He served as senior executive officer of
Presidential Life Insurance Company from December 1989 until February 1993, most
recently as Senior Vice President. During 1988, Mr. Siegel served as Chief
Operating Officer and Chief Financial Officer of Sherwood Group and Sherwood
Securities. From 1972 through 1987, Mr. Siegel served in various senior
executive capacities for the American subsidiary of Reuters Limited, PLC,
including as Vice President for Acquisitions, as Vice President and General
Counsel, and as the senior financial officer. Mr. Siegel is a director of
WestPoint Stevens, Inc. (and Chairman of its Audit Committee) and Vice Chairman
of Vidikron Technologies Group, Inc.

Compliance with Section 16(a) of the Exchange Act

Based solely upon a review of Forms 3 and 4 furnished to the Fund during 1998
and 1999, and written representations by the persons listed above, the Fund has
not identified any such person that failed to file on a timely basis the forms
required by Section 16(a) of the Exchange Act for fiscal year 1998.

Item 11. Executive Compensation

No compensation was paid by the Fund to the officers and directors of the
General Partners during 1998. See Item 13 of this Report, "Certain Relationships
and Related Transactions" for a description of the compensation and fees paid to
the General Partners and their affiliates by the Fund during 1998.

Item 12. Security Ownership of Certain Beneficial Owners and Management

(a) As of the date hereof, no person is known by the Fund to be the
beneficial owner of more than 5% of the Units of the Fund. The
Fund has no directors or officers, and none of the General
Partners of the Fund owns any Units.

The name and address of the Managing General Partner is as
follows:

FCM Fiduciary Capital Management Company
410 17th Street, Suite 400
Denver, Colorado 80202

(b) No directors of FCM Fiduciary Capital Corporation, no directors
or officers of Mezzanine Capital Corporation and no Independent
General Partners owned any Units as of March 1, 1999. One officer
of FCM Fiduciary Capital Management Company and FCM Fiduciary
Capital Corporation owned 650 Units as of March 1, 1999.

(c) The Fund knows of no arrangements, the operation of the terms of
which may at a subsequent date result in a change in control of
the Fund.

<PAGE> 43

Item 13. Certain Relationships and Related Transactions

The Fund may co-invest in portfolio investments with FCPP, under certain terms
and conditions, pursuant to a co-investment order issued by the Securities and
Exchange Commission. The Funds have co-invested in the past and are continuing
to do so. See Item 1 of this Report, "Business", for a description of these
co-investments.

The General Partners and their affiliates have received, or will receive,
certain types of compensation, fees or other distributions in connection with
the operations of the Fund. The fees and compensation were determined in
accordance with the applicable provisions of the Partnership Agreement.

Following is a summary of the amounts paid, or payable, to the General Partners
and their affiliates for 1998.

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, net of
certain fees received directly by FCM from the Fund's portfolio companies.
During 1998, FCM earned investment advisory fees of $119,733.

Fund Administration Fees. As compensation for its services as fund
administrator, FCM receives a monthly fee at an annual rate of .45% of net
proceeds available for investment, as defined in the Partnership Agreement.
During 1998, FCM earned fund administration fees of $143,370. The Fund also
reimbursed FCM for $81,105 of administrative expenses incurred in providing
accounting and investor services to the Fund during 1998.

Independent General Partner Fees and Expenses. As compensation for services
rendered to the Fund, each of the Independent General Partners receives from the
Fund and FCPP an annual fee of $30,000, payable monthly in arrears, together
with all out-of-pocket expenses. Each fund's allocation of these fees and
expenses is based on the relative number of outstanding Units. Fees and expenses
of $61,231 were incurred by the Fund during 1998.

Accountable Expenses. FCM and its affiliates are entitled to reimbursement of
direct expenses paid on behalf of the Fund. During 1998, such reimbursements
amounted to $231,913.

Partnership Interest. FCM received cash distributions of $24,775 as its
allocable share of the Fund's distributions for 1998. In addition, $(127,681) of
the Fund's net investment income and net loss on investments for 1998 was
allocated to FCM.

<PAGE> 44

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) and (d) The following documents are filed as part of this Report:

1. Financial Statements: See List of Financial Statements in
Item 8.

2. Financial Statement Schedules: None.

(b) The Partnership did not file any reports on Form 8-K during the
fourth quarter of the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 (a) Fourth Amended and Restated Certificate of Limited
Partnership of Fiduciary Capital Partners, L.P., dated as of
January 29, 1990. Filed as Exhibit 3.1(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.*

(b) Second Amended and Restated Agreement of Limited Partnership
of Fiduciary Capital Partners, L.P., dated as of October 1,
1993. Filed as Exhibit 3.1(b) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.*

(c) Amendment Number One to the Second Amended and Restated
Agreement of Limited Partnership of Fiduciary Capital
Partners, L.P., dated as of October 1, 1993. Filed as
Exhibit 3.1(c) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.*

10.1 Investment Advisory Contract, dated as of October 1, 1993,
between Fiduciary Capital Partners, L.P. and FCM Fiduciary
Capital Management Company. Filed as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.*

10.2 (a) Custody Agreement, dated as of July 19, 1990, between
Fiduciary Capital Partners, L.P. and M&I First National
Bank. Filed as Exhibit 10-C to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.*

(b) Amendment to Custody Agreement of Fiduciary Capital
Partners, L.P., dated as of October 13, 1992. Filed as
Exhibit 10.2(b) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.*

(c) Second Amendment to Custody Agreement of Fiduciary Capital
Partners, L.P., dated as of January 21, 1994. Filed as
Exhibit 10.2(c) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.*
</TABLE>

- -------------------
* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
Regulations under the Securities Exchange Act of 1934, reference is made to
the document previously filed with the Commission which is incorporated
herein by reference.

26
<PAGE> 45

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>

10.3 Administrative Services Contract, dated as of August 14,
1990, between Fiduciary Capital Partners, L.P. and FFCA
Fiduciary Capital Management Company. Filed as Exhibit 10-D
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.*

10.4 Transfer Agent Agreement, dated as of July 1, 1992, by and
among Fiduciary Capital Partners, L.P., FFCA Fiduciary
Capital Management Company and Service Data Corporation.
Filed as Exhibit 10.4 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992.*

11.1 Statement of Computation of Net Investment Income per
Limited Partnership Unit.

20.1 Report Furnished to Securities Holders.

27.1 Financial Data Schedule.

28.1 Portions of the Prospectus of Fiduciary Capital Partners,
L.P. and Fiduciary Capital Pension Partners, L.P., dated
January 24, 1990, filed with the Securities and Exchange
Commission pursuant to Rule 424(b), as supplemented by
Supplements dated August 15, 1990, September 18, 1990 and
October 11, 1990 filed with the Securities and Exchange
Commission pursuant to Rule 497(b). Filed as Exhibit 28 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.*
</TABLE>

<PAGE> 46

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 24, 1999

FIDUCIARY CAPITAL PARTNERS, L.P.
(Registrant)

By: FCM FIDUCIARY CAPITAL MANAGEMENT COMPANY
its Managing General Partner

By: /s/ W. Duke DeGrassi
----------------------------
W. Duke DeGrassi
President

By: /s/ Donald R. Jackson
----------------------------
Donald R. Jackson
Senior Vice President, Treasurer and
Chief Financial and Accounting Officer

By: E. BRUCE FREDRIKSON
Independent General Partner

/s/ E. Bruce Fredrikson
----------------------------

By: MARK A. SARGENT
Independent General Partner

/s/ Mark A. Sargent
----------------------------

By: PHILLIP SIEGEL
Independent General Partner

/s/ Phillip Siegel
----------------------------

28
<PAGE> 47

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following person on behalf of the
Registrant and in the capacities indicated on March 24, 1999.

SIGNATURE OF THE SOLE DIRECTOR OF THE MANAGING GENERAL PARTNER OF FCM
FIDUCIARY CAPITAL MANAGEMENT COMPANY (A DELAWARE GENERAL PARTNERSHIP),
MANAGING GENERAL PARTNER OF THE REGISTRANT.

Signature Title

/s/ Paul Bagley Chief Executive Officer and Sole
-------------------------- Director of FCM Fiduciary Capital
Paul Bagley Corporation, managing general partner
of FCM Fiduciary Capital Management
Company

29
<PAGE> 48
EXHIBIT INDEX

11.1 Statement of Computation of Net Investment Income per
Limited Partnership Unit.

20.1 Report Furnished to Securities Holders.

27.1 Financial Data Schedule.

- -------------------
* See Item 14(c) for statement of location of exhibits incorporated by
reference.

<PAGE> 1

FIDUCIARY CAPITAL PARTNERS, L.P.

STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT

<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Investment Income $ 107,781 $1,016,693 $ 951,907

Percentage Allocable to Limited Partners 87% 99% 99%
---------- ---------- ----------

Net Investment Income
Allocable to Limited Partners $ 93,769 $1,006,526 $ 942,388
========== ========== ==========

Weighted Average Number of Limited
Partnership Units Outstanding 1,190,993 1,288,211 1,395,138
========== ========== ==========

Net Investment Income
Per Limited Partnership Unit $ .08 $ .78 $ .68
========== ========== ==========
</TABLE>

<PAGE> 1

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------

----------------------------
THIRD QUARTER REPORT
1998

<PAGE> 2

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
MESSAGE TO INVESTORS

Dear Investor:

In recent months, there have been a number of significant developments with
respect to the Fund and several of its remaining portfolio investments. We will
highlight the most significant of these developments in this letter. In
addition, we will briefly summarize the results of the 1998 repurchase offer and
the status of your distributions.

INVESTMENT UPDATE

LMC Corporation ("LMC") During early 1998, LMC determined that it needed $6
million to fund the development of its new product (the TrackMaster), finance
the downpayment on and move to a new facility, purchase capital equipment needed
to modernize the company's production operations and to provide working capital.
In order to raise this capital, LMC offered to its three existing shareholders
the right to purchase 12 million additional common shares at a price of $.50 per
share. The Fund was offered 4,977,900 shares and purchased all of such shares
for a total consideration of $2,488,950. As a result of purchasing these
additional shares, the Fund now owns approximately 50% of LMC's common stock.
Fiduciary Capital Pension Partners, L.P., an affiliated Fund ("FCPP"), also
purchased the shares it was offered. The two funds now control approximately 91%
of LMC's common stock.

LMC's third shareholder, Paul Wallace, had until November 1, 1998 to exercise
the right to purchase 3,000,000 shares for $1.5 million. He did not exercise
this right and the Fund and FCPP are currently deciding whether to exercise the
right they now have to purchase these additional shares. In order to complete
the original capitalization plan, the two funds intend to invest an additional
$1.5 million either through the purchase of the available shares or other
combinations of debt and equity.

In September 1998, LMC purchased a 158,000 square foot office and manufacturing
facility in Brigham City, Utah from Thiokol Chemical for an aggregate purchase
price of $1,760,000. The company is currently in the process of moving its
operations to this facility. (Please see a copy of LMC's announcement regarding
this move that is included along with this Quarterly Report.) LMC's previous
facility, which consisted of eleven separate buildings in Logan, Utah, was
outdated and inefficient. This new facility allows LMC to house its operations
in one building and is expected to significantly reduce manufacturing costs. As
part of the new facility, the company has installed a

-----------------
ONE

<PAGE> 3

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------

state of the art paint facility, which is expected to improve product quality
and to generate additional revenues from contract painting for other
manufacturers. As part of the move, LMC acquired other new capital equipment,
which is also expected to create significant operating efficiencies. The monthly
costs associated with buying this building are less than the amounts LMC was
previously expending on lease payments and we expect further economies through
subleasing of excess office and manufacturing space.

During October 1998, Caterpillar Inc. ("Caterpillar") acquired a major stake in
A.S.V., Inc. ("ASV"), the leader in the skid loader market, and has the option
to ultimately take control of ASV for a purchase price based on a valuation in
excess of $200 million. LMC introduced its skid loader, the TrackMaster, earlier
this year. While Caterpillar will be a strong competitor, we believe that its
acquisition of ASV validates LMC's strategy and concept that there is a very
large market for this new product. We believe that LMC has a superior machine
and that LMC will be successful in capturing a significant share of this market.

R.B.M. Precision Metal Products, Inc. ("RBM") Preliminary year end financial
results indicate that RBM had a record year for fiscal 1998, with sales of
approximately $30 million and EBITDA of approximately $3 million. However, these
sales were achieved primarily through one contract with Digital Equipment
Corporation ("DEC"). During August 1998, RBM notified the Fund that anticipated
sales to DEC and other large customers were expected to decline significantly in
the upcoming year. Of particular concern, were sales to DEC, which has been
acquired by Compaq Computer Corp. As a result of the expected decline in sales,
RBM is in the process of restructuring its debt, including the subordinated debt
held by the Fund. The Fund received the quarterly interest payment that was due
from RBM on August 24, 1998. The interest payment that was due during November
1998 was deferred and became part of the restructuring amounts. Cash receipts
from interest income to the Fund are expected to decrease as a result of the
restructuring.

In early December, RBM and its lenders completed a restructuring under which a
new senior lender, Norwest Business Credit, replaced Bank of America. As part of
this transaction, 13I, RBM's equity sponsor, contributed additional equity to
the company and the subordinated lenders, including the Fund, agreed to accept
shares of RBM's common stock as payment for the next three quarterly interest
payments beginning with the payment that was due during November 1998. As a
consequence, the Fund's ownership of RBM, on a fully-diluted basis, increased
from 6.6% to 8.3%, assuming exercise of its warrants. The restructuring was
designed to provide RBM with a period of time in which to secure additional
customers and return to a more stable financial position under which RBM could

--------------------
TWO

<PAGE> 4

FIDUCIARY CAPITAL PARTNERS, L.P.

meet its interest obligations to its creditors, including the Fund. We are
closely monitoring this situation and will keep you informed as developments
occur.

Atlas Environmental, Inc. ("Atlas") On June 3, 1998, the Fund exchanged its
Atlas subordinated notes (which were in default) and warrants for 989,414 shares
of common stock in WasteMasters, Inc. ("WMI"), an Atlanta, Georgia based waste
management company.

Pursuant to the terms of the exchange agreement, the Fund is prohibited from
selling its WMI common stock for 24 months. In addition, the Fund granted the
entity acquiring the Fund's Atlas securities a call on the Fund's WMI common
stock during the 24 month lock up period and a right of first refusal
thereafter. The call price is $11.25 per share.

The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 and $.97 (an average of the closing bid and ask
prices) on June 3, 1998 (the date of the exchange) and September 30, 1998,
respectively. However, due to a number of factors, including the speculative
nature of the WMI stock, the two year lock up period and the relative size of
the Fund's stock position, the Fund is carrying the WMI stock at the same
nominal value ($1) that the Atlas securities had previously been carried by the
Fund. The 52 week low for the WMI common stock is $.25 per share and the current
price (December 14, 1998) is $.42.

INVESTMENT PERFORMANCE

The following analysis reflects only the Fund's investments that have gone full
cycle, i.e., the investments that have been sold and with respect to which the
Fund has recorded a realized gain or loss. Thus, investments that the Fund still
owns, such as LMC, RBM and WMI, are not included.

As reflected in the following graph and the schedules on pages seven and eight

-----------------
THREE

<PAGE> 5

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------

of this Quarterly Report, the Fund invested a total of $50.6 million in
subordinated debt investments and received total realized proceeds of $57.6
million, including interest income, fees and prepayment penalties. In
the aggregate, these debt investments yielded a return on investment of 1.1 to 1
and an annualized internal rate of return of 7.60%. The Fund also invested $3.7
million in equity securities, from which it realized total proceeds of $13.3
million. In the aggregate, these equity investments yielded a return on
investment of 3.6 to 1 and an internal rate of return of 33.19%. Please note
that prior performance is not necessarily indicative of future results.

[GRAPH]

We are actively attempting to realize the greatest possible returns from the
Fund's remaining investments.

NET ASSET VALUE

The Fund's net asset value per Unit was $10.05 at September 30, 1998 and $9.73
at November 13, 1998. The November 13th net asset value was used to establish
the repurchase price for the 1998 repurchase offer. These net asset values
compare to net asset values of $12.91 at December 31, 1997 and $10.66 at June
30, 1998.

The decline in the net asset value from December 31, 1997 to September 30, 1998
resulted primarily from the fact that a significant portion of the cash
distributions for the nine months ended September 30, 1998 represented a return
of capital. In addition, during this nine month period the Fund recorded net

-----------------
FOUR

<PAGE> 6

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------

losses (including both realized and unrealized components) on investments,
primarily with respect to its RBM, AR Accessories Group, Inc. and KEMET
Corporation ("KEMET") investments.

The decrease in the net asset value from September 30, 1998 to November 13, 1998
was primarily the result of the recording of an additional unrealized loss with
respect to the RBM investment.

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 has annually offered to
repurchase 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 1998 repurchase offer was mailed to investors during October 1998. Investors
tendered 147,198 Units, or approximately 12.25% of the Fund's outstanding Units,
for repurchase. The Fund repurchased 91,870 Units, or approximately 7.65% of the
Fund's outstanding Units, during November 1998 at a net asset value per Unit of
$9.73 ($9.54, net of the 2% fee).

In the letter that accompanied the repurchase offer, we indicated that we
believe that the 1998 repurchase offer will be the Fund's last repurchase offer.
We intend to present a plan of dissolution to the Fund's Independent General
Partners at their January meeting. As part of this plan, the Fund would cease to
be a Registered Investment Company during 1999. We will provide more detail when
a final plan has been approved.

CASH DISTRIBUTIONS AND STATUS OF FUND

The distribution for the third quarter of 1998 was paid on November 13, 1998 in
an amount equal to $.30 per Unit. Cumulative cash distributions paid to
investors since the Fund's inception during 1990 total between $15.12 and $14.80
on a per Unit ($20.00 cost) basis, depending upon the closing in which the
particular Units were issued.

----------------
FIVE

<PAGE> 7

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

The distribution for the fourth quarter of 1998, which will be paid on February
12, 1999, will also be equal to $.30 per Unit. A significant portion of the 1998
distributions constitute a return of capital.

Distributions are expected to continue at the $.30 per Unit rate during 1999,
subject to discontinuance pursuant to the plan of liquidation, if it is
approved.

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. The follow-on investment in LMC discussed above is expected to be the
last such investment by the Fund. Consequently, the Fund is now in a liquidation
mode. Since the middle of 1997, the Fund has liquidated its investments in
Neodata Corporation, Elgin National Industries, Inc. and Mobile Technology, Inc.
In this same period, the Fund has distributed to investors approximately $4.73
per Unit, with the cash coming in large part from the liquidation of these
investments. At the present time, the Fund has only four remaining investments:
LMC, RBM, KEMET and WMI. LMC is by far the largest of these investments and we
believe that significant values may be realized if the current management plan
is successfully implemented. Our liquidation plan will attempt to preserve these
values for the Fund's investors, probably by making LMC a publicly traded
company.

* * * * * * * *

If you have any questions concerning your investment in the Fund, please call us
AT 800-866-7607.

Sincerely,

/s/ Paul Bagley

Paul Bagley, Chairman
FCM Fiduciary Capital Management Company

/s/ W. Duke DeGrassi

W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company

December 14, 1998

-----------------
SIX

<PAGE> 8

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
DEBT INVESTMENTS
REALIZED GAINS AND LOSSES (1)
(unaudited)
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Internal
Year of Investment / Year of Gain(1) Rate of
Portfolio Company(2) Repayment Cost Proceeds(1) (Loss) Return
- -------------------- --------- ----------- ----------- ----------- -------

<S> <C> <C> <C> <C> <C>
1990
Carr-Gottstein Foods Co. 1993 $ 2,940,260 $ 4,998,722 $ 2,058,462 23.56%
Midwest Dental Products
Corporation 1992 5,478,467 7,946,060 2,467,593 22.63
Neodata Corporation 1993 2,684,449 3,877,613 1,193,164 17.11

1991
KEMET Corporation 1993 4,014,737 5,494,046 1,479,309 17.63
Mobile Technology, Inc. 1998 3,777,475 1,030,215 (2,747,260) N/A

1992
Huntington Holdings, Inc. 1994 5,292,479 7,480,171 2,187,692 20.07
AR Accessories Group, Inc. 1994 5,478,467 6,686,926 1,208,459 11.74

1993
ENI Holding Corp. 1997 5,914,363 9,477,926 3,563,563 13.91
KB Alloys, Inc. 1995 3,489,783 5,185,069 1,695,286 18.32
KEMET Corporation 1993 2,054,425 2,186,222 131,797 26.41
Protection One, Inc. 1995 985,660 1,338,165 352,505 22.11

1994
Canadian's Holdings, Inc. 1996 2,876,392 367,216 (2,509,176) N/A

1995
Canadian's Holdings, Inc. 1996 1,750,113 62,294 (1,687,819) N/A

1996
Atlas Environmental, Inc. 1998 3,814,633 1,456,045 (2,358,588) N/A
----------- ----------- ----------- -------
Totals $50,551,703 $57,586,690 $ 7,034,987 7.60%
=========== =========== =========== =======
</TABLE>

(1) Includes interest income, fees and prepayment penalties. Note that
prior performance is not necessarily indicative of future results.

(2) Includes investment in subsidiaries, if applicable.

----------------
SEVEN

<PAGE> 9

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
EQUITY INVESTMENTS

REALIZED GAINS AND LOSSES
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Internal
Year of Investment / Year of Gain Rate of
Portfolio Company(1) Realization Cost Proceeds (Loss) Return
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1990
Carr-Gottstein Foods Co. 1995 $ 894,666 $ 1,450,374 $ 555,708 9.78%
Neodata Corporation 1997 41,089 1,118,393 1,077,304 52.07

1991
KEMET Corporation 1994/1995 70,616 4,547,055 4,476,439 112.37
Mobile Technology, Inc. 1992 440,586 -- (440,586) N/A

1992
Huntington Holdings, Inc. 1996/1998 103,811 1,478,483 1,374,672 70.10
Neodata Corporation 1997 296,858 309,103 12,245 0.81
AR Accessories Group, Inc. 1994 273,920 -- (273,920) N/A

1993
ENI Holding Corp. 1997 811,976 3,327,051 2,515,075 34.60
KEMET Corporation 1994 600,443 883,564 283,121 41.10
Protection One, Inc. 1995 97,340 146,641 49,301 21.02

1994
Canadian's Holdings, Inc. 1996 39,782 -- (39,782) N/A

1996
Atlas Environmental, Inc. 1998 40,765 -- (40,765) N/A
----------- ----------- ----------- ---------
Totals $ 3,711,852 $13,260,664 $ 9,548,812 33.19%
=========== =========== =========== =========
</TABLE>

(1) Note that prior performance is not necessarily indicative of future
results.

(2) Includes investment in subsidiaries, if applicable.

---------------
EIGHT

<PAGE> 10

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>

SEPTEMBER 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- --------- ---------- ---------- --------- ----- -----------
MANAGED COMPANIES:
<S> <C> <C> <C> <C> <C>

27,944 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 9,905 $ 314,370
---------- ---------
9,905 314,370 2.5%
---------- --------- ------------
$1,611,880 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 (Note 5) 09/23/98 1,611,880 1,611,880

260,400 sh. LMC Corporation, 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,596,621 2,596,621

5,523,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 3,034,549 2,176,469

52.08 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
---------- ---------
7,243,051 6,384,971 50.7
---------- --------- ------------
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(2) 05/24/95 1,402,387 1,121,910

11,060.6 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 82,955 1
---------- ---------
1,485,342 1,121,911 8.9
---------- --------- ------------
Total Investments in Managed
Companies (65.2% of net assets) 8,738,298 7,821,252 62.1
---------- --------- ------------
NON-MANAGED COMPANY:

989,414 sh. WasteMasters, Inc.,
Common Stock(3)* 06/03/98 1,321,795 1
---------- --------- ------------
Total Investment in Non-Managed
Company (0.0% of net assets) 1,321,795 1 0.0
========== ========= ============
</TABLE>

The accompanying notes to financial statements
are an integral part of this schedule.

-----------------
NINE

<PAGE> 11

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 (UNAUDITED)
- ----------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- --------- ---------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS:

$4,775,000 American Express
Credit Corp., 5.26%
Notes due 10/2/98 09/15/98 4,774,304 4,774,304
----------- -----------
Total Temporary Investments
(39.8% of net assets) 4,774,304 4,774,304 37.9
----------- ----------- -----------
Total Investments (105.0% of net assets) $14,834,397 $12,595,557 100.0%
=========== =========== ===========
</TABLE>

(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.

(2) The notes will amortize in three equal annual installments of $486,667
commencing on May 24, 2000.

(3) The WasteMasters, Inc. common stock, which trades on the NASDAQ Small Cap
System, is subject to a 24 month lock up period, a call option and a right
of first refusal.

* Non-income producing security.

The accompanying notes to financial statements
are an integral part of this schedule.

---------------
TEN

<PAGE> 12

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$8,738,298 and $11,138,061,
respectively) $ 7,821,252 $ 6,594,804
Non-managed company (amortized cost -
$1,321,795) 1 --
Temporary investments, at amortized cost 4,774,304 10,193,557
------------ ------------
Total investments 12,595,557 16,788,361
Cash and cash equivalents 230,711 263,694
Accrued interest receivable 68,434 76,821
Other assets 31,519 66,060
------------ ------------
Total assets $ 12,926,221 $ 17,194,936
============ ============
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 40,108 $ 39,123
Accounts payable and accrued liabilities 525,927 484,837
Distributions payable to partners 364,110 1,213,701
------------ ------------
Total liabilities 930,145 1,737,661
============ ============

COMMITMENTS AND CONTINGENCIES (NOTE 5)

NET ASSETS:
Managing General Partner (81,593) (54,555)
Limited Partners (equivalent to $10.05
and $12.91, respectively, per limited
partnership unit based on 1,201,564
units outstanding) 12,077,669 15,511,830
------------ ------------
Net assets 11,996,076 15,457,275
------------ ------------
Total liabilities and net assets $ 12,926,221 $ 17,194,936
============ ============
</TABLE>

The accompanying notes to financial statements
are an integral part of these financial statements.

---------------
ELEVEN

<PAGE> 13
FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 181,301 $ 357,418
----------- -----------
Total investment income 181,301 357,418
----------- -----------
Expenses:
Professional fees 25,100 72,453
Investment advisory fees (Note 2) 26,285 38,671
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) 12,610 21,098
Other expenses 16,443 9,335
----------- -----------
Total expenses 136,556 197,675
----------- -----------
NET INVESTMENT INCOME 44,745 159,743
----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (11,704) 1,076,669
Net change in unrealized loss
on investments (416,699) (421,760)
----------- -----------
Net (loss) gain on investments (428,403) 654,909
----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (383,658) $ 814,652
=========== ===========
</TABLE>

The accompanying notes to financial statements
are an integral part of these financial statements.

---------------
TWELVE

<PAGE> 14

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- ----------------------------------------------------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 642,188 $ 1,027,725
----------- -----------
Total investment income 642,188 1,027,725
----------- -----------
Expenses:
Professional fees 150,548 148,417
Investment advisory fees (Note 2) 95,036 105,085
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) 48,766 43,086
Other expenses 50,481 24,873
----------- -----------
Total expenses 513,187 489,817
----------- -----------
NET INVESTMENT INCOME 129,001 537,908
----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (2,996,048) 1,158,098
Net change in unrealized loss
on investments 2,304,417 (1,765,014)
----------- -----------
Net loss on investments (691,631) (606,916)
----------- -----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (562,630) $ (69,008)
=========== ===========
</TABLE>

The accompanying notes to financial statements
are an integral part of these financial statements.

---------------
THIRTEEN

<PAGE> 15

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets
resulting from operations $ (562,630) $ (69,008)
Adjustments to reconcile net decrease
in net assets resulting from operations to net
cash provided by operating activities:
Accreted discount on portfolio investments (14,636) (31,857)
Change in assets and liabilities:
Accrued interest receivable 8,387 (32,593)
Other assets 34,542 (25,121)
Payable to affiliates 985 32,253
Accounts payable and accrued liabilities 2,446 (3,500)
Net realized loss (gain) on investments 2,996,048 (1,158,098)
Net change in unrealized loss
on investments (2,304,417) 1,765,014
----------- -----------
Net cash provided by operating activities 160,725 477,090
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (3,231,190) (948,004)
Proceeds from dispositions of portfolio investments 1,366,389 1,508,925
Sale of temporary investments, net 5,419,253 197,256
----------- -----------
Net cash provided by investing activities 3,554,452 758,177
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (3,748,160) (1,181,069)
----------- -----------
Net cash used in financing activities (3,748,160) (1,181,069)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (32,983) 54,198
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 263,694 272,543
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 230,711 $ 326,741
----------- -----------
Noncash Investing and Financing Activities:
Investments exchanged for other investments $ 1,639,201 $ --
=========== ===========
</TABLE>

The accompanying notes to financial statements
are an integral part of these financial statements.

---------------
FOURTEEN
<PAGE> 16

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND FOR
THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
- ----------------------------------------------------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 129,001 $ 1,016,693
Net realized (loss) gain on investments (2,996,048) 3,545,258
Net change in unrealized loss on investments 2,304,417 (3,859,138)
------------ ------------
Net (decrease) increase in net assets
resulting from operations (562,630) 702,813
Repurchase of limited partnership units -- (1,363,640)
Distributions to partners from -
Net investment income (129,001) (1,016,693)
Realized gain on investments (1,742,647) (1,905,894)
Return of capital (1,026,921) (784,482)
------------ ------------
Total decrease in net assets (3,461,199) (4,367,896)
Net assets:
Beginning of period 15,457,275 19,825,171
------------ ------------
End of period (including no undistributed
net investment income) $ 11,996,076 $ 15,457,275
============ ============
</TABLE>

The accompanying notes to financial statements
are an integral part of these financial statements.

---------------
FIFTEEN
<PAGE> 17

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,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ .15 $ .27 $ .53 $ .78
Expenses (.11) (.15) (.42) (.37)
--------- --------- --------- ---------
Net investment income .04 .12 .11 .41
Net realized (loss) gain
on investments (.01) .82 (2.47) .88
Net change in unrealized
loss on investments (.34) (.32) 1.90 (1.34)
Distributions declared to partners (.30) (1.30) (2.40) (1.90)
--------- --------- --------- ---------
Net decrease in net asset value (.61) (.68) (2.86) (1.95)
Net asset value:
Beginning of period 10.66 14.01 12.91 15.28
--------- --------- --------- ---------
End of period $ 10.05 $ 13.33 $ 10.05 $ 13.33
========= ========= ========= =========
RATIOS (ANNUALIZED):
Ratio of expenses to average
net assets 4.42% 4.47% 5.05% 3.53%
Ratio of net investment income to
average net assets 1.45% 3.61% 1.27% 3.88%
Number of limited partnership
units at end of period 1,201,564 1,299,176 1,201,564 1,299,176
</TABLE>

The accompanying notes to financial statements are an integral
part of these selected per unit data and ratios.

---------------
SIXTEEN

<PAGE> 18

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1998 (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 Fiduciary Capital Partners, L.P. (the "Fund"), necessary to fairly present
the financial position of the Fund as of September 30, 1998 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, 1997.

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
$95,036 were paid by the Fund for the nine months ended September 30, 1998.

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, 1998. 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, 1998.

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, ("FCPP") (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, 1998 totaled $48,766.

---------------
SEVENTEEN

<PAGE> 19

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)

5. COMMITMENTS AND CONTINGENCIES

LMC Commitment LMC Corporation (formerly, LMC Operating Corp.) ("LMC") is
entitled to draw down a total of $1,967,040 pursuant to the terms of the Senior
Subordinated Revolving Notes held by the Fund. At September 30, 1998, LMC had
drawn down $1,611,880.

LMC Litigation On December 23, 1997, LMC commenced an action against Paul
Wallace, a director of LMC and the trustee of its discontinued pension plan, in
an effort to recover for a significant underfunding of LMC's discontinued
pension plan. On January 27, 1998, LMC Holding Co. ("LMC Holding"), which held
approximately 50% of the issued and outstanding common stock of LMC on that
date, commenced an action against the Fund, FCPP and each of Paul Bagley, the
Chairman of the Board and Chief Executive Officer of FCM, W. Duke DeGrassi, the
President of FCM, and Donald R. Jackson, the Senior Vice President, Treasurer,
Chief Financial Officer and Compliance Officer of FCM (collectively, the
"Individual Defendants"), in their capacities as officers of FCM, in the First
Judicial District Court in and for Cache County, State of Utah, entitled LMC
Holding Co. v. Fiduciary Capital Partners, L.P., et al., Civil No. 98-0100077
(the "LMC Action"). LMC Holding is controlled by Paul Wallace. FCM believes that
the LMC Action was commenced in response to the action previously filed by LMC
against Mr. Wallace. The Fund, FCPP and the Individual Defendants entered into a
settlement agreement with LMC Holding, effective April 20, 1998. As part of the
settlement, the Fund and FCPP have been able to increase their percentage
ownership of LMC in exchange for the additional capital contributions. The LMC
Action was subsequently dismissed with prejudice. FCM believes that the
additional investment by the Fund and FCPP will allow LMC to implement a
business plan designed to restore it to profitability within the next few years.
LMC continues to pursue its legal action against Mr. Wallace with respect to the
underfunding of its discontinued pension plan.

---------------
EIGHTEEN

<PAGE> 20

FIDUCIARY CAPITAL PARTNERS, L.P.
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in conjunction with the Fund's unaudited
Financial Statements and the Notes thereto. This report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund cannot always
predict what factors would cause actual results to differ materially from those
indicated by the forward looking statements, factors that might cause such a
difference include general economic and business conditions, competition and
other factors discussed elsewhere in this report. Readers are urged to consider
statements that include the terms "believes", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward looking. The Fund undertakes
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of anticipated or unanticipated events.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1998, the Fund held portfolio investments in three Managed
Companies and one Non-Managed Company, with an aggregate cost of approximately
$10.1 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 65.2% of the Fund's net assets.
When acquired, these portfolio investments generally consisted of high-yield
subordinated debt, linked with an equity participation or a comparable
participation feature in middle market companies. These securities were
typically issued in private placement transactions and were subject to certain
restrictions on transfer or sale, thereby limiting their liquidity.

A number of the portfolio companies have prepaid their subordinated debt that
the Fund held. In addition, three of the portfolio companies have successfully
completed initial public offerings ("IPOs") of their stock. The Fund has sold
the stock it held in these three companies, except for a portion of its KEMET
Corporation ("KEMET") stock.

As of September 30, 1998, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund the annual
repurchase offer, to fund follow-on investments in existing portfolio companies,
to pay Fund expenses and for distribution to the partners.

Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
will annually offer to purchase from its Limited Partners up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the

---------------
NINETEEN

<PAGE> 21

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

outstanding Units, the Fund's General Partners may vote to repurchase up to an
additional 2% of the outstanding Units. The 1998 repurchase offer was mailed to
the Limited Partners during October 1998. The actual redemption of tendered
Units will occur on November 20, 1998.

During February 1998, the Fund agreed to purchase $551,000 of LMC's Senior
Subordinated Revolving Notes due August 20, 1998. This investment was funded
during February and March 1998.

During April 1998, the Fund agreed to restructure and increase its aggregate
investment in LMC. In the restructuring, $1,639,200 of the Fund's LMC Senior
Subordinated Revolving Notes due October 31, 2000 were converted into additional
LMC common stock. This left LMC with the ability to reborrow the $1,639,200. As
of September 30, 1998, LMC has drawn down $1,284,040 of the $1,639,200 under the
terms of the Revolving Note agreement to fund working capital requirements and
to retire the $551,000 of LMC Senior Subordinated Revolving Notes due August 20,
1998, as described in the preceding paragraph. As a result of the restructuring,
the Fund's percentage ownership of LMC's common stock increased from
approximately 27% to approximately 48%.

During the nine months ended September 30, 1998, the Fund sold all of its Mobile
Technology, Inc. ("MTI") stock and warrants and received two distributions from
the escrow account that was established during 1996 in connection with the sale
of the Fund's Huntington Holdings, Inc. ("Huntington") stock. In total, the Fund
received $268,989 in proceeds from these transactions.

Other assets decreased $34,541 from $66,060 at December 31, 1997 to $31,519 at
September 30, 1998. This decrease resulted primarily from the collection of a
receivable from LMC for legal fees that the Fund advanced on behalf of LMC.

Distributions payable to partners decreased $849,591, from $1,213,701 at
December 31, 1997 to $364,110 at September 30, 1998. This decrease resulted from
a decrease in the quarterly distribution rate from $1.00 per Unit for the fourth
quarter of 1997 to $.30 per Unit for the third quarter of 1998.

During the nine months ended September 30, 1998, the Fund paid cash
distributions pertaining to the fourth quarter of 1997 and the first and second
quarters of 1998, in the amounts of $1,213,701, $1,327,455 and $1,207,004,
respectively. The distribution for the fourth quarter of 1997 and the second
quarter of 1998 was equal to $1.00 per Unit for all Limited Partners. The per
Unit distribution rate for the first quarter of 1998 varied

---------------
TWENTY

<PAGE> 22

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

between $1.00 and $1.13 depending upon the closing in which the particular Units
were issued. This disproportionate cash distribution resulted from the Units
being issued on different dates during 1990, and thus being entitled to
differing Preferred Return amounts, as defined in the Fund's Partnership
Agreement. These disproportionate distribution rates eliminated the remaining
Preferred Return amounts, leaving all Units on an equal basis going forward.

The distribution for the third quarter of 1998 will be paid on November 13, 1998
at a rate of $.30 per Unit for all Limited Partners. The Fund currently expects
the distribution for the fourth quarter of 1998, which is payable during
February 1999, to also be made at a rate of $.30 per Unit for all Limited
Partners. A significant portion of the 1998 distributions constitute a return of
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. Consequently, the Fund is now in a liquidation mode. Since the middle
of 1997, the Fund has liquidated its investments in Neodata Corporation, Elgin
National Industries, Inc. and MTI. In this same period, the Fund has distributed
to Limited Partners approximately $4.43 per Unit, with the cash coming in large
part from the liquidation of these investments. At the present time, the Fund
has only four remaining investments: LMC, R.B.M. Precision Metal Products, Inc.
("RBM"), KEMET and WasteMasters, Inc. ("WMI"). By far the Fund's largest
remaining investment is in LMC, of which a large portion consists of that
company's common stock and only a small amount is subordinated debt which
generates current income. KEMET and WMI are publicly-traded companies and the
Fund's investment in these companies consists solely of common stock.

FCM believes it is unlikely that the investments in LMC and RBM will be
liquidated in the next year and therefore the Fund will likely not have
sufficient cash to make regular quarterly distributions throughout 1999.
Considering this situation, FCM recognizes the need to expedite the liquidation
of the Fund and has been investigating a number of alternative measures which
would allow the Fund to be liquidated even before the LMC and RBM investments
can be liquidated. We expect to have a plan formulated within the next few
months and would then distribute a proxy to the Limited Partners which would
describe the plan and solicit Limited Partner approval.

RESULTS OF OPERATIONS

INVESTMENT INCOME AND EXPENSES

The Fund's net investment income was $44,745 for the three months ended
September 30, 1998 as compared to net investment income of $159,743 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased

---------------
TWENTY-ONE

<PAGE> 23

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

from $.12 to $.04 and the ratio of net investment income to average net assets
decreased from 3.61% to 1.45% for the three months ended September 30, 1998 as
compared to the corresponding period of the prior year.

The Fund's net investment income was $129,001 for the nine months ended
September 30, 1998 as compared to net investment income of $537,908 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.41 to $.11 and the ratio of net investment
income to average net assets decreased from 3.88% to 1.27% for the nine months
ended September 30, 1998 as compared to the corresponding period of the prior
year.

Net investment income for both the three and nine month periods ended September
30, 1998 decreased primarily as a result of a decrease in investment income as
compared to the corresponding periods of the prior year.

Investment income decreased $176,117 and $385,537, or 49.3% and 37.5%, for the
three and nine month periods ended September 30, 1998, as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the prepayment of the Fund's Elgin National Industries Inc. subordinated debt
investment during November 1997. The Fund's total investments also decreased as
a result of the Fund's repurchase of 7.51% of its Units during the fourth
quarter of 1997. The negative effect of these items was partially offset by
increases in interest income earned on temporary investments and on the LMC
follow-on investments that were acquired during 1997 and 1998.

Total expenses decreased $61,119, or 30.9%, for the three months ended September
30, 1998, as compared to the corresponding period of the prior year. This
decrease resulted primarily from decreases in professional fees, investment
advisory fees and Independent General Partner fees and expenses. These decreases
were partially offset by an increase in other expenses.

Total expenses increased $23,370, or 4.8%, for the nine months ended September
30, 1998, as compared to the corresponding period of the prior year. This
increase resulted primarily from increases in other expenses, professional fees
and Independent General Partner fees and expenses. The negative effect of these
items was partially offset by a decrease in investment advisory fees.

Professional fees decreased during the three months ended September 30, 1998 as
compared to the corresponding period of the prior year, primarily because of
fees incurred during the prior year in connection with the Fund's analysis of an
abandoned proposal, pursuant to which the Fund's Units would have been exchanged
for shares in a newly-formed Delaware Business Trust. Professional fees
increased slightly for the nine months ended September 30, 1998 as compared to
the corresponding period of the prior year. The decrease discussed above with
respect the three months ended September 30, 1998, was more than offset by legal
fees incurred during the first six months of 1998 in connection with the LMC
litigation.

---------------
TWENTY-TWO
<PAGE> 24

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

The investment advisory fees decreased during the three and nine month periods
ended September 30, 1998 as compared to the corresponding periods of the prior
year. These decreases resulted primarily from the effect of the repurchase of
Units during the fourth quarter of 1997 and losses realized by the Fund during
the second quarter of 1998 with respect to the MTI, Atlas Environmental, Inc.
("Atlas") and AR Accessories Group, Inc. ("ARA") portfolio investments. Both the
repurchase of the Units and the realization of the losses 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.

Independent General Partner fees and expenses decreased during the three months
ended September 30, 1998 because during the corresponding period of the prior
year the Fund paid fees and expenses to two incoming and one outgoing
Independent General partners during a transition period during which new
Independent General partners were being elected. The fees and expenses increased
during the nine months ended September 30, 1998 because one of the Fund's three
Independent General Partners resigned during the fourth quarter of 1996 and was
not replaced until the third quarter of 1997.

Other expenses increased during the three and nine month periods ended September
30, 1998 as compared to the corresponding periods of the prior year, primarily
as a result of insurance expense associated with a new liability insurance
policy for the Fund's general partners that was initially purchased during
September 1997.

NET REALIZED GAIN (LOSS) ON INVESTMENTS

ARA reported significantly reduced earnings and cash flows from operations
during 1997. During February 1998, ARA hired a crisis manager to assist it in
addressing continuing significant declines in the company's sales and profits.
The hiring of this crisis manager was precipitated by ARA's lenders, who
notified ARA of defaults under its credit lines and demanded that ARA repay
overadvances that were made during 1997. The Fund was notified that ARA was
considering a number of options for solving these problems, including a possible
bankruptcy filing and the sale of the company, or certain of its operations.

ARA filed for bankruptcy protection during March 1998. ARA's assets were
liquidated at auction during May 1998, with the proceeds from the sale
satisfying only a portion of ARA's debt. The $378,011 cost of the Fund's equity
investment in ARA was written off as a realized loss during May 1998.

---------------
TWENTY-THREE

<PAGE> 25

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

On June 1, 1998, the Fund received $191,469 from the sale of its MTI common
stock and warrants. This amount represents approximately 95% of the sales
proceeds that the Company expected the sellers to receive from the sale. The
remaining 5%, or approximately $10,000, is being held in escrow pending the
resolution of a dispute over whether the sellers or the buyer should receive the
benefit of warrant exercise proceeds. The Fund recorded a realized loss of
$96,461 from this sale. The Fund will record a reduction of the realized loss
if, and when, it actually receives a distribution of any of the escrowed funds.

The Fund's Huntington stock was sold for cash during February 1996. The Fund's
share of the sales proceeds totaled $1,511,364, of which $1,320,711 was received
during February 1996. The balance of the sales proceeds were held in escrow to
pay various transaction expenses, to fund 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. An
agreement was reached with the buyer with regard to purchase price adjustments
and other claims and the escrow accounts have been liquidated. The Fund received
additional distributions of $19,920, $81,429, $76,343 and $1,177 during
September 1996, May 1997, June 1998 and August 1998, respectively. The Fund
recognized realized gains of $1,236,821, $81,429 and $77,520 from this
transaction during 1996, 1997 and 1998, respectively.

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.

On June 3, 1998, the Fund exchanged its Atlas subordinated notes and warrants
for 989,414 shares of WMI common sock. WMI is an Atlanta, Georgia based waste
management company that has recently announced an aggressive acquisition
program.

---------------
TWENTY-FOUR

<PAGE> 26

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

Pursuant to the terms of the exchange agreement, the Fund is prohibited from
selling its WMI common stock for 24 months. In addition, the Fund granted the
entity acquiring the Fund's Atlas securities a call on the Fund's WMI common
stock during the 24 month lock up period and a right of first refusal
thereafter, both of which are priced at $11.25 per share.

The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 and $0.97 (an average of the closing bid and ask
prices) on June 3, 1998 and September 30, 1998, respectively. Based on these
prices, the Fund's WMI had trading values of $1,761,157 on the date of the
exchange (June 3, 1998) and $959,732 on September 30, 1998. However, due to a
number of factors, including the speculative nature of the WMI stock, the two
year lock up period and the relative size of the Fund's stock position, FCM has
decided to carry the WMI stock at the same nominal value that the Atlas
securities were previously carried by the Fund. The 52 week low for the WMI
common stock is $0.25 per share.

The Fund recorded a realized loss of $2,560,453 on the exchange, which is equal
to the amount of the loss which the Fund expects to claim for income tax
purposes from the disposition of the Atlas securities. The balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.

The Fund is continuing to accrue an interest reserve with respect to the
potential Canadian's sales tax at a 12% annualized rate, or $12,881 and $38,643,
respectively, for the three and nine month periods ended September 30, 1998.
These amounts are recorded as realized losses in the Fund's Statements of
Operations.

NET UNREALIZED GAIN (LOSS) ON INVESTMENTS

---------------
TWENTY-FIVE

<PAGE> 27

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

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, 1997, the Fund had recorded $529,763 of unrealized gain and
$5,073,020 of unrealized loss on investments. Therefore, as of December 31,
1997, the Fund had recorded a total net unrealized loss on investments of
$4,543,257.

The net increase in unrealized loss on investments during the three and nine
month periods ended September 30, 1998 and the cumulative net unrealized loss on
investments as of September 30, 1998 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, 1998 September 30, 1998 September 30, 1998
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Unrealized losses recorded
during prior periods with
respect to investments disposed
of during the period $ -- $ 4,214,940 $ --
KEMET (53,268) (225,298) 304,465
LMC -- -- (858,080)
RBM (363,431) (363,431) (363,431)
WMI -- (1,321,794) (1,321,794)
------------ ------------ ------------
$ (416,699) $ 2,304,417 $ (2,238,840)
============ ============ ============
</TABLE>

KEMET completed an IPO of its common stock during 1992. The stock, which trades
on the NASDAQ National Market System, closed at $11.25 (an average of the
closing bid and ask prices) on September 30, 1998. This price is down from the
closing prices of $13.15625 and $19.3125 on June 30, 1998 and December 31, 1997,
respectively. Based on the $11.25 closing trading price of the common stock, the
27,944 shares of common stock that the Fund held at September 30, 1998 had a
market value of $314,370.

During August 1998, RBM notified the Fund that anticipated sales to certain
large customers were expected to decline significantly in the upcoming year. Of
particular concern, were sales to Digital Equipment Corporation, which has been
acquired by Compaq Computer Corp. As a result of the anticipated decline in
sales, RBM is attempting to restructure its debt, including the subordinated
notes held by the Fund. The Fund received the quarterly interest payment that
was due from RBM on August 24, 1998. As part of the proposed restructuring, RBM
has asked the Fund to defer the quarterly interest payments due in November
1998, February 1999 and May 1999. The

---------------
TWENTY-SIX
<PAGE> 28

FIDUCIARY CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------

Fund is presently working with RBM and its other lenders to arrive at a
satisfactory restructuring. As a result of these developments, the Fund recorded
a $363,431 writedown at September 30, 1998 in the carrying value of its RBM
investment.

See "Net Realized Gain (Loss) on Investments" for a discussion of the unrealized
loss on the Fund's WMI stock investment.

FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.

READINESS FOR YEAR 2000

As a result of the above discussed review, Year 2000 issues are not expected to
have any material adverse effects on the Fund's results of operations or
financial condition.

---------------
TWENTY-SEVEN

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 12,905,181
<INVESTMENTS-AT-VALUE> 10,281,377
<RECEIVABLES> 103,233
<ASSETS-OTHER> 31,859
<OTHER-ITEMS-ASSETS> 837,202
<TOTAL-ASSETS> 11,253,671
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 906,828
<TOTAL-LIABILITIES> 906,828
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,109,694
<SHARES-COMMON-PRIOR> 1,201,564
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,623,804)
<NET-ASSETS> 10,346,843
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 728,803
<OTHER-INCOME> 14,215
<EXPENSES-NET> 635,237
<NET-INVESTMENT-INCOME> 107,781
<REALIZED-GAINS-CURRENT> (3,008,930)
<APPREC-INCREASE-CURRENT> 1,919,453
<NET-CHANGE-FROM-OPS> (981,696)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 129,001
<DISTRIBUTIONS-OF-GAINS> 1,742,647
<DISTRIBUTIONS-OTHER> 1,363,193
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 91,870
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,110,432)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,665,127
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 119,733
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 635,237
<AVERAGE-NET-ASSETS> 12,901,072
<PER-SHARE-NAV-BEGIN> 12.91
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> (.80)
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> 1.44
<RETURNS-OF-CAPITAL> 1.13
<PER-SHARE-NAV-END> 9.51
<EXPENSE-RATIO> 4.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>