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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17738
Fiduciary Capital Pension Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware 86-0653603
(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.
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Fiduciary Capital Pension Partners, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1995
Table of Contents
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Page
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Part I
Item 1 Business............................................................................ 1
Item 2 Properties.......................................................................... 8
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............................................................. 10
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............................................................ 18
Part III
Item 10 Directors and Executive Officers
of the Registrant .............................................................. 19
Item 11 Executive Compensation.............................................................. 22
Item 12 Security Ownership of Certain
Beneficial Owners and Management ............................................... 22
Item 13 Certain Relationships and
Related Transactions ........................................................... 22
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K ........................................................ 24
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PART I
Item 1. Business
General
Fiduciary Capital Pension 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 Norman J. Peer, Robert H. Arnold, and E. Bruce Fredrikson (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, 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 Partners, L.P., a Delaware limited partnership ("FCP") was
also formed on October 20, 1988 for taxable investors with investment
objectives, policies and restrictions similar to those of the Fund. The Fund and
FCP co-invest in the investments; however, each fund is accounted for
separately.
On January 26, 1990, the Fund and its affiliate, FCP (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, 29,796 Units representing an aggregate
purchase price of $29,796,000 and 36,102 Units representing an aggregate
purchase price of $36,102,000 were received by the Fund and FCP, 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 1,489,800 Units
outstanding as of October 1, 1993.
Pursuant to the terms of the repurchase policy, the Fund will annually
offer to repurchase from its Limited Partners up to 7.5% of its outstanding
Units for an amount equal to the current net asset value per Unit, net of a fee
(not to exceed 2%) to be retained by the Fund to offset expenses incurred in
connection with the repurchase offer. If the number of tendered Units in any
year exceeds 7.5% of the outstanding Units, the Fund's General Partners may vote
to repurchase up to an additional 2% of the outstanding Units.
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Repurchases of Units since the adoption of the plan can be summarized
as follows:
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Units Repurchased Net Asset Value per Unit
------------------------------------ -------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------- ----------------- ------ ----------
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November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
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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, 1995, the Fund held portfolio investments in nine
Managed Companies, with an aggregate cost of approximately $14.3 million. As of
December 31, 1995, the Fund had no investments in Non-Managed Companies. Managed
Companies are those to which significant managerial assistance is offered.
During the year ended December 31, 1995, the Fund exercised the
warrants it held in Protection One, Inc. ("Protection One"), acquired a new
portfolio investment in R.B.M. Precision Metal Products, Inc. ("RBM") and
acquired two follow-on investments in Canadian's Corp. ("Canadian's") at a total
cost of approximately $2.7 million.
The Fund's subordinated debt investment in Protection One Alarm
Monitoring, Inc. ("Protection One Alarm") was prepaid during 1995. In addition,
the Fund sold its subordinated debt investment in KB Alloys, Inc. ("KB Alloys"),
all of its Carr-Gottstein Foods Co. ("Carr-Gottstein") and Protection One common
stock and a portion of its KEMET Corporation ("KEMET") common stock during 1995.
In the aggregate, the Fund received approximately $8.4 million in proceeds,
including applicable prepayment premiums, from these transactions.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio companies
after 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies, except to fund commitments made prior to December 31, 1995.
As of December 31, 1995, the Fund had committed to make new portfolio
investments in Atlas Environmental, Inc. ("Atlas"), Monaco Finance, Inc.
("Monaco") and Advantage Funding Group, Inc. ("Advantage"). In addition, the
Fund had agreed in principle to a financial restructuring of its LMC Operating
Corp. ("LMC") investment, which involves a conversion of the Fund's existing
subordinated debt and warrants into preferred stock and a follow-on investment
in LMC for the purchase of new common stock. If these investments were
ultimately funded at the expected amounts, the Fund would have utilized all of
the capital that was available for investment as of December 31, 1995.
As discussed below, the Atlas and LMC investments were acquired by the
Fund during January and February 1996, respectively. The proposed Monaco
investment is still subject to various contingencies. The proposed Advantage
investment was abandoned during 1996. The portion of the Fund's available
capital that had been reserved for the Advantage investment is now reserved to
fund the Fund's 1996 annual repurchase offer.
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New Portfolio Investments in 1994
R.B.M. Precision Metal Products, Inc. On May 24, 1995, the Fund
invested $1,264,200 in RBM. The investment consisted of $1,290,000 of 13.00%
Senior Subordinated Secured Notes due May 24, 2002, with warrants to acquire
common stock.
RBM, headquartered in Colorado Springs, Colorado, is a manufacturer of
precision sheet metal enclosures, chassis and assemblies for business machines.
Its principal customer is Hewlett Packard.
Follow-On Investments in 1994
Canadian's Corp. During September 1994, the Fund invested $1,798,000 in
Canadian's and its parent company, Canadian's Holdings, Inc. ("Canadian's
Holdings"). The investment consisted of (a) $1,624,000 of Canadian's 13.50%
Subordinated Notes with warrants to acquire common stock and (b) $232,000 of
Canadian's Holdings 12.00% Exchangeable Redeemable Debentures that are
convertible into Canadian's common stock. Both the Notes and the Debentures also
bear contingent additional interest to be computed under specified formulas.
Canadian's emerged from Chapter 11 bankruptcy proceedings in conjunction with
the restructuring in which the Fund participated.
During December 1994, the Fund made a follow-on investment of $802,190
in Canadian's and Canadian's Holdings. The investment consisted of (a) $768,000
of Canadian's 13.50% Subordinated Notes with warrants to acquire common stock
and (b) $59,000 of Canadian's Holdings 12.00% Exchangeable Redeemable Debentures
that are convertible into Canadian's common stock. Both the Notes and Debentures
also bear contingent additional interest to be computed under specified
formulas. The proceeds from the Fund's investment was used by Canadian's as a
portion of the capital needed to finance the acquisition of store leases, a
computer system, point-of-sale terminals and store fixtures from The Ormonds
Shops, Inc., a retailer operating under the protection of the federal bankruptcy
laws.
During May 1995, the Fund made a second follow-on investment of
$117,000 in Canadian's. The investment consisted of $130,000 of floating rate
Promissory Notes, with warrants to purchase common stock. The Funds and certain
of Canadian's equity investors provided loans to the company in order to fund
working capital shortages at the company.
During September 1995, the Fund made a third follow-on investment of
$1,369,166 in Canadian's. This investment consisted of a Collateralized Loan
Guarantee earning interest at 13.75% and stock in Canadian's Holdings. In
addition, the Fund received stock in Canadian's Holdings for all of the existing
warrants previously held by the Fund. This debt investment is senior to all of
Canadian's other debt, except for its revolving credit facility.
Canadian's, headquartered in Fairfield, New Jersey, is a specialty
retailer of moderately priced junior women's apparel and accessories.
As discussed in Item 7 of this Report, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", on February 21,
1996, Canadian's and Canadian's Holdings both filed for Chapter 11 bankruptcy
protection. The Fund has written its Candian's investment down to a negligible
amount at December 31, 1995.
Dispositions of Portfolio Investments in 1994
KEMET Corporation 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
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completion of a secondary stock offering. As of December 31, 1993, the Fund
continued to hold the common stock and warrants of KEMET, representing a total
of 135,864 shares.
During 1994, the Fund exercised its warrants and sold 56,336 shares of
the common stock, realizing total sales proceeds of $1,261,685. As of December
31, 1994, the Fund owned 76,528 shares of KEMET common stock.
The Fund periodically sold additional shares of KEMET common stock
during 1995. During February 1995, the Fund sold 8,705 shares at an average net
sales price of approximately $31.00. During April and May 1995, the Fund sold
37,080 shares at an average net sales price of approximately $43.93. During July
1995, the Fund sold 7,913 shares at an average net sales price of approximately
$67.47. Following a two-for-one stock split, an additional 22,604 shares were
sold during November 1995 at an average net sales price of approximately $34.91.
The Fund has 23,056 shares of KEMET stock remaining as of December 31, 1995. The
Fund's cost basis in its KEMET stock is approximately $.35 per share. At
December 31, 1995, the stock closed at $24.00 (an average of the closing bid and
ask prices).
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.
Protection One Alarm Monitoring, Inc. During 1993, the Fund invested
$917,000 in Protection One Alarm and its parent company, Protection One. The
investment consisted of $917,000 aggregate principal amount of 12.00% Senior
Subordinated Notes due November 1, 2003, with warrants to purchase common stock
in the parent company.
During September 1994, Protection One completed an IPO of its common
stock. The stock trades on the NASDAQ National Market System under the symbol
"ALRM". During May 1995, Protection One Alarm prepaid the $917,000 of 12.00%
Senior Subordinated Notes that the Fund held, at par, along with a prepayment
premium of $45,850.
During July 1995, the Fund exercised the warrants it held, receiving
15,405 shares of Protection One common stock. During November 1995, the Fund
sold all of its Protection One stock, receiving $124,173 of sales proceeds.
Protection One is a Portland, Oregon-based security alarm company
operating in five western states.
Carr-Gottstein Foods Company During 1990, the Fund purchased
subordinated notes and common stock in Carr-Gottstein. During July 1993,
Carr-Gottstein prepaid the subordinated notes following a sucessful IPO of its
common stock. The stock trades on the New York Stock Exchange under the symbol
"CGF".
The Fund continued to hold 147,678 shares of Carr-Gottstein common
stock until 1995. During October 1995, Carr-Gottstein announced that it was
offering to purchase up to 7,500,000 (approximately 49%) of its outstanding
shares at a purchase price of $11.00 per share. The day before the offer, the
stock was trading at $6.125 per share. The Fund tendered all of its 147,678
shares, of which 73,674 shares were repurchased by the Company for a total
consideration of $810,414. The Fund sold its remaining shares in the open market
shortly after the tender offer was completed. The Fund received a total of
$386,604 for the remaining 74,004 shares.
Carr-Gottstein has been the leading food and drug retailer in Alaska
since 1915 and is the largest private employer in Alaska.
KB Alloys, Inc. During 1993, the Fund invested $2,878,978 in KB Alloys.
The investment consisted of $2,938,997 aggregate principal amount of 20.00%
Senior Subordinated Notes due June 30, 2001. KB Alloys is required to pay 13.00%
interest currently, while the remaining 7.00% of the interest may be deferred at
the borrower's option. During any period in which the payment of interest is
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deferred, the interest rate on the notes increases from 20.00% to 21.00%. To
date, KB Alloys has elected to defer payment of the interest.
During December 1995, the Fund sold these notes to an unrelated
institutional investor at a price of $3,302,956. As described above, KB Alloys
was paying current interest on these notes at a rate of 13% per annum and, in
addition, the Fund was accruing a deferred interest component at a rate of 8%
per annum. The accrued deferred interest totaled $600,862 at the date of the
sale. The sales price was less than the sum of the amortized cost of the notes
and the total accrued interest, resulting in a book loss of $190,369. This book
loss was recorded in the financial statements as an adjustment of interest
income.
KB Alloys, headquartered in Reading, Pennsylvania, is a leading North
American manufacturer of aluminum master alloys. Master alloys are added during
the production of aluminum to enhance or supply physical properties and to
function as a hardener, refiner or promoter of electrical conductivity. The
company has manufacturing facilities in Kentucky and Washington.
1995 Commitments Funded During 1996
Atlas Environmental, Inc. On January 25, 1996, the Fund invested
$3,200,602 in Atlas. The investment consists of $3,265,920 of 13.5% Senior
Subordinated Secured Notes due January 19, 2003, with warrants to acquire
338,423 shares of common stock. The warrants have an exercise price of $8.00 per
share. The Atlas common stock is currently traded over the counter on a limited
basis with quotations provided via the OTC Bulletin Board under the symbol
"ATEV".
Atlas, headquartered on Plantation Florida, is a holding company that
owns and manages companies in certain segments of the environmental services
industry.
LMC Operating Corp. On June 10, 1994, the Fund invested $2,348,080 in
LMC. The investment consisted of $2,396,000 of 13.00% Senior Subordinated Notes
due May 31, 1999 with warrants to acquire common stock.
LMC paid the 1995 interest payments on the Senior Subordinated Notes
held by the Fund out of an escrow account which was established and funded in
connection with the Fund's acquisition of the notes. The escrow account was
established to fund the interest payments in the event LMC was otherwise unable
to fund the payment.
On February 9, 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 made a follow-on investment for the purchase
of $454,546 of new common stock. As a result of the restructuring, the Fund
increased its ownership of LMC from approximately 12% to approximately 23%.
LMC, headquartered in Logan, Utah, is the leading U.S. manufacturer of
light track vehicles. These vehicles are primarily used as snow-groomers and
have several alternative uses including infrastructure development and
maintenance in remote locations, right-of-way cleanup, search and rescue and
military troop deployment. Primary purchasers of the vehicles include ski
resorts, utility companies and various governmental agencies.
Other Portfolio Investments
Neodata Services, Inc. ("Neodata Services") During 1991, the Fund
purchased subordinated notes in Neodata Services and warrants to purchase common
stock of Neodata Corporation ("Neodata"), the parent company of Neodata
Services.
During 1992, Neodata raised additional equity via a rights offering to
existing shareholders. The
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Fund elected to purchase additional common stock in the rights offering in order
to maintain its existing ownership position in Neodata.
During May 1993, Neodata Services prepaid the subordinated notes that
the Fund held following a successful refinancing of the Company's debt at a
lower interest rate.
During November 1994, Neodata's stockholders approved a
recapitalization of the company. Pursuant to the terms of the recapitalization
plan, the Fund received a combination of 10.00% Class A convertible preferred
stock and new common stock in exchange for its old common stock and warrants.
The Neodata stock was written down to a negligible amount at March 31,
1995. The Fund has consistently valued this investment based upon a multiple of
Neodata's cash flow. Because Neodata's long-term debt presently provides for the
accrual, rather than current payment, of interest, the Company's debt has grown
to a level which now exceeds the Fund's valuation.
Neodata, headquartered in Louisville, Colorado, is the largest contract
fulfillment company in the world and a leader in providing fulfillment and
marketing services to the magazine publishing industry.
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 $1,247,229, of which $1,089,896 was received during February 1996. The
balance is being held in escrow to fund various transaction expenses and
potential contingent purchase price adjustments, and as collateral for potential
claims of the buyer with respect to representations made by the selling
shareholders, including the Fund. The escrow amount must be maintained for a two
year period. The Fund valued the Huntington warrants at December 31, 1995 at an
amount approximately equal to 75% of the ultimate sales proceeds (not including
the Fund's share of the escrow) due to the inherent uncertainty that existed at
that time as to whether the sale would actually be consummated.
Pursuant to the terms of the Fund's agreement with Huntington, under
certain circumstances the number of shares issuable upon exercise of the
warrants held by the Fund increased periodically. The last such increase
occurred on August 1, 1995 when the Fund received the rights to an additional
27.7 shares.
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.
Amity Leather Products Co. During 1992, the Fund purchased subordinated
notes, warrants to purchase Class B common stock and Class A common stock in
Amity. During August 1994, Amity prepaid the subordinated notes that the Fund
held.
The Fund continues to hold the Class A common stock and the warrants to
purchase Class B common stock. As of December 31, 1995, the Fund had recorded
$719,828 of net unrealized appreciation in the value of its remaining Amity
investment.
Amity manufactures men's and ladies' fine personal leather goods and
distributes these products to department stores, mass merchandisers and
company-owned Wallet Works stores. Amity markets its products under the brand
names of Rolfs, Amity and LaGarde. Headquartered in West Bend, Wisconsin, the
Company was founded in 1915 and was family-controlled prior to a management
buyout in 1992.
Elgin National Industries, Inc. ("Elgin") During 1993, the Fund
invested $5,694,073 in Elgin
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and its parent company, ENI Holding Corp. ("ENI"). The investment consisted of
(a) $5,023,926 of Elgin's 13.00% Senior Subordinated Notes due September 1, 2001
with warrants to purchase common stock in ENI and (b) $587,610 of ENI 10.00%
preferred stock and (c) $40,381 of ENI common stock.
The Fund continues to hold its entire investment in Elgin and ENI. As
of December 31, 1995, the Fund had recorded $133,191 of unrealized appreciation
in the ENI preferred stock.
Elgin, headquartered in Chicago, Illinois, is a diversified industrial
company that is organized into three distinct segments. The Industrial Products
Group manufactures specialty industrial threaded fasteners. The Manufacturing
Group manufactures machinery and equipment for niches in coal and other mineral
processing markets. The Engineering and Construction Group provides a full range
of engineering, design and construction management services, including serving
as a general contractor under turn-key design and build contracts.
Mobile Technology, Inc. ("MTI") During 1991, the Fund purchased
subordinated notes in MTI and various equity securities in MTI's parent company,
MTI Holdings, Inc.
The Fund stopped accruing interest on the MTI notes that it held,
effective October 1, 1992. During the fall of 1992, MTI notified its lenders
that it would probably be unable to meet its debt amortization and interest
obligations during 1993. In January 1993, MTI confirmed its inability to pay and
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 in a new holding company,
MTI Holdings II, Inc. ("MTI II"), which now owns 100% of MTI. The Fund also
received a minimal number of additional shares of MTI II common stock on
December 28, 1994 in connection with the liquidation of MTI Holdings, Inc., the
original holding company.
The Fund recognized a realized loss of $3,291,003 during 1994 as a
result of the restructuring. The Fund also recorded an unrealized loss of
$206,131 in the value of the MTI II stock as of December 31, 1994.
MTI is a provider of magnetic resonance imaging and computed tomography
mobile shared-services.
Competition
The Fund competes with other entities having similar investment
objectives. In addition, because all investments are selected and managed
exclusively by the Investment Adviser on behalf of the Fund, any other entities
that compete with the Investment Adviser for mezzanine investments, therefore,
indirectly compete with the Fund. These competitors include other leveraged
acquisition partnerships, other business development companies, investment
partnerships and corporations, small business investment companies, and large
industrial and financial companies investing directly or through affiliates and
individuals. Some of these competitors have more experience with investments
similar to those sought by the Funds, greater financial resources and more
personnel than the Funds and/or the Investment Adviser. To the extent that there
is more competition for investments, the yield available to mezzanine investors
may decrease.
Employees
The Fund has no employees. As discussed above, the Managing General
Partner manages the Fund's investments, subject to the supervision 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".
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Item 2. Properties
The Fund does not own or lease any physical properties.
Item 3. Legal Proceedings
There are no material legal proceedings pending directly against the
Fund.
As previously reported, FCM, the Managing General Partner of the Fund,
had been named as a defendant in a class action lawsuit against PaineWebber
Incorporated ("PaineWebber") and a number of its affiliates concerning its sale
of 70 different limited partnerships and other direct investment programs,
including the offering of the Units. Plaintiffs in the lawsuit allege, among
other things, that the defendants violated federal securities laws and committed
common law fraud in the marketing of direct investments.
On May 30, 1995, the United States District Court for the Southern
District of New York entered an order certifying the class and dismissing the
class action against FCM without prejudice. PaineWebber and Mezzanine Capital
Corporation, a minority general partner in FCM and an affiliate of PaineWebber,
remain as defendants.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation that the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to unitholders in the Fund.
During February 1996, approximately 150 plaintiffs filed an action in
Sacramento, California Superior Court against PaineWebber Incorporated and
various affiliated entities concerning the plaintiffs' purchase of various
limited partnership interests. The complaint alleges, among other things, that
PaineWebber and its related entities committed fraud by selling or promoting
limited partnership investments that were unsuitable for the plaintiffs and by
overstating the benefits, understating the risks and failing to state material
facts concerning the investments. The complaint seeks compensatory damages of
$15 million plus punitive damages.
The Fund was not named as a defendant in either lawsuit. However,
pursuant to certain contractual arrangements between FCM and PaineWebber in
connection with the offering of the Units, the Fund may be required to indemnify
PaineWebber and its affiliates for their costs and liability inconnection with
any class action claims relating to the Fund. FCM believes that the Fund's
exposure with respect to the indemnity will not have any material adverse effect
on the Fund's financial condition.
Item 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, 1995.
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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 will
annually offer to purchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan can be summarized
as follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
------------------------------------ -------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------- ----------------- ------ -------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
</TABLE>
As of March 1, 1996 the number of Limited Partners of record was
approximately 2,900.
The Fund made the following distributions to its partners with respect
to 1994 and 1995:
<TABLE>
<CAPTION>
Quarter During Total Amount of
Which Distributed Amount of Distribution
Cash was Generated Distribution* Per $20 Unit Payment Date
------------------ -------------- -------------- ------------
<S> <C> <C> <C>
1st Quarter 1994 $649,068 $.45 May 13, 1994
2nd Quarter 1994 649,068 .45 August 12, 1994
3rd Quarter 1994 649,068 .45 November 11, 1994
4th Quarter 1994 589,545 .45 February 14, 1995
1st Quarter 1995 393,030 .30 May 12, 1995
2nd Quarter 1995 393,030 .30 August 14, 1995
3rd Quarter 1995 393,030 .30 November 14, 1995
4th Quarter 1995 362,595 .30 February 14, 1996
</TABLE>
* Includes distributions to the Managing General Partner in an amount
equal to 1.0% of the total distribution.
Cash distributions for 1994 were paid out of current net investment
income (69.3%) and gains from capital transactions (30.7%). Cash distributions
for 1995 were paid entirely out of current net investment income.
The Fund expects 1996 distributions, beginning with the distribution
payable during May 1996, to be made at a 6% distribution rate ($.30 per Unit per
quarter) or greater. The Fund's investment period
9
<PAGE> 12
ended on December 31, 1995. Although the Fund is permitted to make additional
investments in existing portfolio companies after 1995, the Fund is no longer
permitted to acquire investments in new portfolio companies, except to fund
commitments made prior to December 31, 1995. This will impact the amount of the
Fund's quarterly distributions for 1996 and subsequent years because all
proceeds from future dispositions or maturities of investments will be
distributed to investors, except to the extent the cash is needed to fund the
annual repurchase offer or to fund any follow-on investments that the Fund may
make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to a
financial restructuring of LMC, which involves a conversion of the Fund's
existing subordinated debt and warrants into preferred stock and a follow-on
investment in LMC for the purchase of new common stock.
As discussed above in Item 1 of this Report, "Business", one of the
committed investments was acquired during January 1996, and a second investment
is still pending (subject to various contingencies). In addition, the follow-on
investment in LMC was made during February 1996. The third committed investment
was abandoned. The portion of the Fund's available capital that had been
reserved for the abandoned investment is now reserved to fund the Fund's 1996
annual repurchase offer.
Item 6. Selected Financial Data
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
------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 2,268 $ 2,335 $ 2,587 $ 3,627 $ 3,159
Net Investment Income 1,726 1,758 1,972 3,046 2,607
Net Realized and Unrealized
(Loss) Gain on Investments (2,326) 1,505 148 424 -
Cash Distributions Declared
to Partners 1,542 2,537 2,681 2,709 2,370
Repurchase of Units 1,959 2,403 1,134 -
Total Assets 20,321 24,694 26,362 28,106 27,315
Net Assets 19,873 23,974 25,651 27,345 26,584
Value of Investments 20,025 23,454 25,213 27,582 26,342
Per Unit of Limited Partnership Interest:(1)
Net Investment Income 1.33(2) 1.23(2) 1.32(2) 2.03 1.73
Net Realized and Unrealized
(Loss) Gain on Investments (1.79)(2) 1.06(2) .10(2) .28 -
Cash Distributions Declared
to Partners(3) 1.20 1.80 1.80 1.80 1.57
Net Asset Value 16.61 18.47 17.96 18.35 17.84
</TABLE>
- ---------------
(1) Effective October 1, 1993, each $1,000 Unit was redenominated into
fifty $20 Units. All amounts shown for prior years have been restated
to give effect to this redenomination.
(2) Calculated using the weighted average number of Units outstanding
during the years ended December 31, 1995, 1994 and 1993 of 1,285,717,
1,413,240 and 1,482,514, respectively.
(3) Distribution amounts are reflected during the period in which the cash
for the distribution was generated. A portion of the actual cash
distributions are paid subsequent to such period.
10
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
During 1990, the Fund completed a public offering of its Units. Net
offering proceeds available to the Fund, after deducting commissions and other
offering costs, totaled $26,298,970.
The Fund is prohibited by the terms of its Partnership Agreement from
borrowing funds for operational purposes.
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to purchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to purchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan can be summarized
as follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
------------------------------------ -------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------- ----------------- ------ ----------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
</TABLE>
As of December 31, 1995, the Fund held portfolio investments in nine
Managed Companies, with an aggregate cost of approximately $14.3 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 57.3% of the Fund's net assets. When acquired, these portfolio
investments generally consisted of high-yield subordinated debt, linked with an
equity participation or a comparable participation feature. These securities
were typically issued in private placement transactions and were subject to
certain restrictions on transfer or sale, thereby limiting their liquidity. A
number of the portfolio companies have prepaid their subordinated debt that the
Fund held. In addition, three of the portfolio companies have successfully
completed IPOs of their stock. The Fund has sold the stock it held in these
three compainies, except for a portion of its KEMET stock.
As of December 31, 1995, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available for investment, for
distribution to the partners or to fund the annual repurchase offer.
During the year ended December 31, 1995, the Fund exercised the
Protection One warrants it held, acquired a new portfolio investments in RBM and
acquired two follow-on investments in Canadian's at a total cost of
approximately $2.7 million.
The Fund's subordinated debt investment in Protection One Alarm was
prepaid during 1995. In addition, the Fund sold its subordinated debt investment
in KB Alloys, all of its Carr-Gottstein and Protection One common stock and a
portion of its KEMET common stock during 1995. In the aggregate, the Fund
received approximately $8.4 million in proceeds, including applicable prepayment
premiums, from these transactions.
Accrued interest receivable decreased $404,333 from $521,794 at
December 31, 1994 to $117,461 at December 31, 1995. This decrease resulted
primarily from the sale of the Fund's subordinated debt investment in KB Alloys
during 1995 and the placing of the LMC subordinated debt on
11
<PAGE> 14
non-accrual status effective December 1, 1995. Under the terms of KB Alloys
notes, a portion of the interest could be deferred at KB Alloys' option. As of
December 31, 1994, KB Alloys had elected to defer payment of $381,825 of
interest, which was included in the accrued interest receivable amount at
December 31, 1994. As discussed below, the Fund stopped accruing interest on the
LMC subordinated debt as a result of a commitment made by the Fund during
November 1995 to exchange its LMC debt investment for LMC preferred stock as
part of a financial restructuring of LMC.
Other assets decreased $541,826, from $544,921 at December 31, 1994 to
$3,095 at December 31, 1995. The balance at December 31, 1994 included a
$532,452 receivable from the sale of KEMET common stock during December 1994.
This amount was received by the Fund during January 1995. This decrease also
resulted from a small decrease in prepaid expenses and the amortization of
deferred organization expenses.
Prepaid interest income decreased from $52,635 at December 31, 1994 to
zero at December 31, 1995. This prepaid interest income was related to the
Canadian's 13.50% Subordinated Notes, which required interest to be paid
quarterly, in advance, to the Fund. Effective June 1, 1995, the notes were
amended to provide for the interest to be paid monthly, in advance, on the first
day of each month. The Fund placed these notes on non-accrual status effective
December 1, 1995.
Distributions payable to partners decreased $226,950, from $589,545 at
December 31, 1994 to $362,595 at December 31, 1995. This decrease resulted
primarily from a decrease in the quarterly distribution rate from $.45 per Unit
to $.30 per Unit. The decrease also reflects a decrease in the number of
outstanding Units as a result of the repurchase of Units by the Fund during
November 1995.
For 1995, the Fund declared cash distributions to its partners in the
aggregate amount of $1,541,685. The distributions were paid in four equal (on a
per-Unit basis) quarterly payments during the months of May, August and November
1995 and February 1996. Each of the distributions was equal to an annualized
rate equal to 6% of contributed capital ($.30 per Unit) and were paid entirely
out of current net investment income.
The Fund expects 1996 distributions, beginning with the distribution
payable during May 1996, to be made at a 6% distribution rate ($.30 per Unit per
quarter) or greater. The Fund's investment period ended on December 31, 1995.
Although the Fund is permitted to make additional investments in existing
portfolio companies after 1995, the Fund is no longer permitted to acquire
investments in new portfolio companies, except to fund commitments made prior to
December 31, 1995. This will impact the amount of the Fund's quarterly
distributions for 1996 and subsequent years because all proceeds from future
dispositions or maturities of investments will be distributed to investors,
except to the extent the cash is needed to fund the annual repurchase offer or
to fund any follow-on investments that the Fund may make in existing portfolio
companies.
As of December 31, 1995, the Fund had issued commitments to make three
new portfolio investments. In addition, the Fund had agreed in principle to a
financial restructuring of LMC, which involves a conversion of the Fund's
existing subordinated debt and warrants into preferred stock and a follow-on
investment in LMC for the purchase of new common stock.
As discussed above in Item 1 of this Report, "Business", one of the
committed investments was acquired during January 1996, and a second investment
is still pending (subject to various contingencies). In addition, the follow-on
investment in LMC was made during February 1996. The third committed investment
was abandoned. The portion of the Fund's available capital that had been
reserved for the abandoned investment is now reserved to fund the Fund's 1996
annual repurchase offer.
FCM had been named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated and a number of it affiliates
concerning the sale of 70 different limited partnerships and other direct
investment programs. During May 1995, the Court entered an order certifying the
class and dismissing the class action against FCM without prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that
12
<PAGE> 15
memorandum of understanding, PaineWebber irrevocably deposited $125 million into
an escrow fund under the supervision of the United States District Court for the
Southern District of New York to be used to resolve the litigation in accordance
with a definitive settlement agreement and plan of allocation which the parties
expect to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to unitholders in the Fund.
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities ( not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any material
adverse effect on the Fund's financial condition.
Results of Operations
Investment Income and Expenses
The Fund's investment income consists primarily of interest income
earned from the various debt investments which have been acquired by the Fund.
Major expenses include the investment advisory fee, fund administration fee,
professional fees and administrative expenses.
1995 Compared to 1994
The Fund's net investment income was $1,725,971 for the year ended
December 31, 1995 on total investment income of $2,268,159 as compared to net
investment income of $1,758,135 on total investment income of $2,335,311 for the
prior year. Net investment income per limited partnership unit increased from
$1.23 to $1.33, and the ratio of net investment income to average net assets
increased from 6.91% to 7.22% for the year ended December 31, 1995 in comparison
to the prior year.
Although total net investment income decreased from 1994 to 1995, net
investment income per limited partnership unit increased. This occurred because
of a decrease in the weighted average number of limited partnership units
outstanding, which resulted from the repurchase of Units by the Fund during both
November 1994 and 1995.
Net investment income for the year ended December 31, 1995 decreased
primarily as a result of a decrease in investment income. The negative effect of
the decrease in investment income was partially offset by a decrease in total
expenses.
Investment income decreased $67,152, or 2.9%, for the year ended
December 31, 1995 in comparison to the prior year. This decrease resulted
primarily from the $190,369 loss on the sale of the receivable for deferred
interest due from KB Alloys, which was recorded as a reduction of interest
income. In addition, there was a decrease from 1994 to 1995 in the amount of the
Fund's average net assets and the Fund stopped accruing interest on its
subordinated debt investments in Canadian's and LMC (see discussion below). The
negative effect of these three items was partially offset by higher interest
rates on both the Fund's temporary and subordinated debt investments.
The Fund had average net assets of approximately $23.9 million during
the year ended December 31, 1995 as compared to approximately $25.4 million
during the prior year. This 5.9% decrease in average net assets occurred
primarily as a result of the Fund's repurchase of its Units during both November
1994 and 1995. The negative effect of the repurchase of Units was partially
offset by net gains achieved with respect to the Fund's investments (primarily
the KEMET common stock).
Total expenses decreased $34,988, or 6.1%, for the year ended December
31, 1995 in comparison to the prior year. This percentage decrease was greater
than the 5.9% decline in the Fund's average net assets from 1994 to 1995. This
decrease resulted primarily from decreases in investment advisory fees and other
expenses. The investment advisory fees decreased as a result of the repurchase
13
<PAGE> 16
of Units during November 1994 and 1995 and the realization during July 1994 of
the loss on the Fund's MTI investment. Both the repurchase of Units and the
realization of the MTI loss decreased the amount of the Fund's available capital
(as defined in the Partnership Agreement) which is the base with respect to
which the investment advisory fees are calculated. Other expenses decreased
primarily as a result of a decrease in consulting fees. These decreases were
partially offset by an increase in professional fees.
1994 Compared to 1993
The Fund's net investment income was $1,758,135 for the year ended
December 31, 1994 on total investment income of $2,335,311 as compared to net
investment income of $1,971,612 on total investment income of $2,587,285 for the
prior year. Net investment income per limited partnership unit decreased from
$1.32 to $1.23, and the ratio of net investment income to average net assets
decreased from 7.28% to 6.91% for the year ended December 31, 1994, in
comparison to the prior year.
Net investment income for the year ended December 31, 1994 decreased
primarily as a result of a decrease in investment income.
Investment income decreased $251,974, or 9.74%, for the year ended
December 31, 1994 in comparison to the prior year. This decrease resulted
primarily from a decrease of approximately 6.0% in the Fund's average net
assets. The decrease in average net assets was primarily a result of the
repurchase of Units by the Fund during both November 1993 and 1994. In addition,
there was an increase from 1993 to 1994 in the relative portion of the Fund's
total net assets that were invested in lower-yielding temporaryinvestments and
non-income producing equity investments and a decrease in the portion invested
in higher-yielding subordinated debt investments. The negative effect of these
items was partially offset by higher interest rates obtained in recent months on
the Fund's temporary investments.
Total expenses decreased $38,497, or 6.3%, for the year ended December
31, 1994 in comparison to the prior year. This aggregate decrease was slightly
greater than the 6.0% percentage decline in the Fund's average net assets from
1993 to 1994. The decrease resulted primarily from decreases in investment
advisory fees, professional fees and other expenses. The investment advisory
fees decreased as a result of the repurchase of Units during November 1993 and
1994 and the realization during July 1994 of the loss on the Fund's MTI
investment (see above discussion). Both the repurchase of Units and the
realization of the MTI loss decreased the amount of the Fund's available capital
(as defined in the Partnership Agreement), which is the base with respect to
which the investment advisory fees are calculated. The decrease in professional
fees and other expenses resulted primarily from legal fees and other costs
incurred during 1993 in connection with the preparation of the proxy and consent
solicitation.
Net Realized Gain (Loss) on Investments
The Fund realized gains of $899,531 during the year ended December 31,
1993, net losses of $2,089,653 during the year ended December 31, 1994 and gains
of $3,790,988 during the year ended December 31, 1995.
The realized gains for 1993 consisted of gains, including applicable
prepayment premiums, resulting from the prepayment by Neodata, KEMET Electronics
and Carr-Gottstein of subordinated notes which were held by the Fund. During
1994, the Fund realized gains, including applicable prepayment premiums,
resulting from the prepayment by Huntington and Amity of subordinated notes that
were held by the Fund and the sale of a portion of the KEMET common stock that
was held by the Fund. The Fund also recognized a substantial realized loss as a
result of MTI's financial restructuring which occurred during 1994.
The realized gains for 1995 resulted from the following transactions:
On February 28, 1995, the Fund sold 8,705 shares of KEMET common stock.
The Fund received $269,333 of sales proceeds, resulting in a realized gain of
$263,165.
14
<PAGE> 17
During April and May 1995, the Fund sold an additional 37,080 shares of
KEMET common stock. The Fund received $1,629,089 of sales proceeds, resulting in
realized gains of $1,602,802.
On May 17, 1995, Protection One prepaid its $917,000 of 12.00% Senior
Subordinated Notes that were carried by the Fund at an amortized cost of
$844,958. The Fund received $962,850 of proceeds, including a prepayment
premium, resulting in a realized gain of $117,892.
On July 25, 1995, the Fund sold 7,913 shares of KEMET common stock. The
Fund received $533,921 of sales proceeds, resulting in a realized gain of
$528,313.
On October 13, 1995, Carr-Gottstein announced that it was offering to
purchase approximately 49% of its outstanding shares at a purchase price of
$11.00 per share. The day before the offer, the stock was trading at $6.125 per
share. The Fund tendered all of its 147,678 shares, of which 73,674 shares were
repurchased by the company for a total amount of $810,414. The Fund sold its
remaining shares in the open market shortly after the tender offer was
completed. The Fund received $386,604 for the remaining 74,004 shares. In total,
the Fund realized a gain of $458,624 from the disposition of its Carr-Gottstein
stock.
On November 6, 1995, the Fund sold 22,604 shares of KEMET common stock.
The Fund received $789,049 of sales proceeds resulting in a realized gain of
$781,040.
During November 1995, the Fund sold all of its Protection One common
stock. The Fund received $124,136 of sales proceeds resulting in a realized gain
of $39,152.
On December 4, 1995, the Fund sold the $2,938,997 of KB Alloys Senior
Subordinated Term Notes it held to an unrelated institutional investor at a
price of $3,302,956. KB Alloys was paying current interest on these notes at a
rate of 13% per annum and, in addition the Fund was accruing a deferred interest
component at a rate of 8% per annum. At the date of the sale, the notes had an
amortized cost of $2,892,463 and accrued deferred interest totaled $600,862.
Thus, the sales price was $190,369 less than the sum of the amortized cost of
the notes and the accrued deferral interest. The $190,369 was recorded as an
adjustment to interest income.
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis utilizing
a variety of methods. For securities that are publicly traded and for which
market quotations are available, valuations are set by the closing sales, or an
average of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not fully traded in any liquid
public markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment is
valued initially based upon its original cost to the Fund ("cost method"). The
cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal valuations
are based upon such factors as the portfolio company's earnings, cash flow and
net worth, the market prices for similar securities of comparable companies and
an assessment of the portfolio company's future financial prospects. In a case
of unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method will be
used only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
Prior to 1992, the Fund had recorded cumulative net unrealized gain on
investments of $378,571. During 1993, the Fund recorded $452,824 of unrealized
gain and $662,221 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1993 with respect to which the Fund had recorded
$541,751 of unrealized gain during prior years. Therefore, at December 31, 1993,
the Fund had net unrealized loss on investments of $372,576.
15
<PAGE> 18
During 1994, the Fund recorded $1,721,305 of unrealized gain and
$1,052,484 of unrealized loss on investments. In addition, the Fund disposed of
investments during 1994 with respect to which the Fund had recorded $2,925,723
of net unrealized loss during prior years. Therefore, at December 31, 1994, the
Fund had net unrealized gain on investments of $3,221,968.
The net decrease in unrealized gain on investments during 1995 and the
cumulative net unrealized loss on investments at December 31, 1995, consisted of
the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
---------------------------------------------
As of
Portfolio Investment During 1995 December 31, 1995
------------------------ ----------- -----------------
<S> <C> <C>
Unrealized net gain recorded during
prior years with respect to investments
disposed of during 1995 $(1,927,280) $ -
Neodata (268,396) (278,915)
KEMET 231,643 545,175
Huntington 279,139 755,321
Amity 72,307 719,828
Elgin / ENI 59,084 133,191
LMC (459,200) (459,200)
MTI - (206,131)
Canadian's (4,103,944) (4,103,944)
----------- ------------
$(6,116,647) $(2,894,675)
=========== ===========
</TABLE>
The Neodata stock was written down to a negligible amount at March 31,
1995. The Fund has consistently valued this investment based upon a multiple of
Neodata's cash flow. Because Neodata's long-term debt presently provides for the
accrual, rather than current payment, of interest, the Company's debt has grown
to a level which now exceeds the Fund's valuation.
KEMET completed an IPO of its common stock on October 21, 1992. KEMET
also declared a two-for-one stock split effective September 20, 1995. The stock,
which trades on the NASDAQ National Market System, closed at $24.00 (an average
of the closing bid and ask prices) on December 31, 1995. This price is up from
the closing price (as restated for the two-for-one stock split) of $14.6875 on
December 31, 1994. Based on the $24.00 closing trading price of the common
stock, the 23,056 shares of common stock that the Fund held at December 31, 1995
had a market value of $553,345.
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 $1,247,229, of which $1,089,896 was received during February 1996. The
balance is being held in escrow to fund various transaction expenses and
potential contingent purchase price adjustments, and as collateral for potential
claims of the buyer with respect to representations made by the selling
shareholders, including the Fund. While the escrow amount must be maintained for
a two year period, certain of the sellers' representations will survive for
longer periods of time, which could result in the Fund being required to
reimburse the purchaser for certain costs and expenses after the escrow is
released. The Fund valued the Huntington warrants at December 31, 1995 at an
amount approximately equal to 75% of the ultimate sales proceeds (not including
the Fund's share of the escrow) due to the inherent uncertainty that existed at
that time as to whether the sale would actually be consummated.
The Amity warrants and common stock were written up in value during
1995 to bring Amity's valuation more in line with the valuation of comparable
companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value
quarterly to reflect the amount of the cumulative 10% preferential dividend that
is accruing with respect to the preferred stock.
The MTI II common stock was written down in value at December 31, 1994
based upon an independent third party valuation of the company which was
obtained by MTI's management.
16
<PAGE> 19
LMC has experienced significant operating difficulties since the Fund
acquired its LMC investment during 1994. LMC's majority owner has taken a number
of steps to improve LMC's operating and financial performance. These steps
included hiring new senior management and significantly reducing staff. The
majority owner has also contributed a significant amount of additional capital.
However, it is anticipated that it will take some time for the company to regain
its previous market position and return to profitability.
During 1995, the majority owner requested that the Fund convert its
subordinated debt and warrants to preferred stock and make a follow-on
investment of $454,546 in order to help fund new product development. The Fund
agreed to the proposed restructuring, which was consummated during February
1996. As a result of the restructuring, the Fund increased its ownership
percentage from approximately 12% to approximately 23%. Due to LMC's operational
difficulties and the fact that the Fund will now own equity securities rather
than debt securities, the Fund wrote its LMC investment down by $459,200 during
November 1995.
Canadian's is a women's specialty retailer, which had 53 stores on the
East Coast, including stores in the New York City and Philadelphia metropolitan
areas. As widely reported in the business press, retailers almost universally
experienced extremely disappointing sales during the 1995 holiday season.
Women's specialty retailers were especially hard hit. This situation was
exacerbated by severe winter weather which hampered store operations from Boston
to Washington, D.C. As a result, a number of apparel retailers have filed for
bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996. As discussed in the
Fund's previous filings, Canadian's had embarked on a significant cost cutting
program during the fall of 1995, which included closing marginal stores and
reducing general and administrative costs. However, these measures were not
sufficient to offset the negative impact of the unusually bad holiday season.
The Fund expects to recover little, if any, of its Canadian's investment. As a
result of these developments, the Fund wrote its Canadian's investment down to a
negligible amount at December 31, 1995.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
Inflation and Changing Prices
Inflation has had no material impact on the operations or financial
condition of the Fund from inception through December 31, 1995. However,
inflation and changing prices, in addition to other factors, may effect the
value and the eventual selling price of the Fund's investments.
17
<PAGE> 20
Item 8. Financial Statements and Supplementary Data
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
List of Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Schedule of Investments - December 31, 1995 F-3
Balance Sheets - December 31, 1995 and 1994 F-6
Statements of Operations for each of the years
ended December 31, 1995, 1994 and 1993 F-7
Statements of Cash Flows for each of the years
ended December 31, 1995, 1994 and 1993 F-8
Statements of Changes in Net Assets for each of the
years ended December 31, 1995, 1994 and 1993 F-9
Selected Per Unit Data and Ratios for each of the years
ended December 31, 1995, 1994, 1993, 1992 and 1991 F-10
Notes to Financial Statements F-11
</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> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Fiduciary Capital Pension Partners, L.P.:
We have audited the accompanying balance sheets of Fiduciary Capital
Pension Partners, L.P. (a Delaware limited partnership) as of December 31, 1995
and 1994, including the schedule of investments as of December 31, 1995, and the
related statements of operations, cash flows and changes in net assets for each
of the three years in the period ended December 31, 1995 and the selected per
unit data and ratios for the five years then ended. These financial statements
and per unit data and ratios are the responsibility of the partnership's
managing general partner. Our responsibility is to express an opinion on these
financial statements and per unit data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per unit data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 and 1994 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per unit data and
ratios referred to above present fairly, in all material respects, the financial
position of Fiduciary Capital Pension Partners, L.P. as of December 31, 1995 and
1994, and the results of its operations, its cash flows and the changes in its
net assets for each of the three years in the period ended December 31, 1995,
and the selected per unit data and ratios for the five years then ended, in
conformity with generally accepted accounting principles.
As discussed in Note 2, the financial statements include investment
securities valued at $10,824,445 at December 31, 1995 (54.5% of net assets) and
$16,158,734 at December 31, 1994 (67.4% 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 6, 1996.
F-2
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
150,584.07 sh. Neodata Corporation,
10.00% Class A Convertible 12/27/90 &
Preferred Stock - Series 2* 09/30/92 $ 278,916 $ 1
8,754.89 sh. Neodata Corporation, 12/27/90 &
Common Stock* 09/30/92 1 1
- ---------------------------------------------------------------------------------------------------------------
278,917 2 0.0
- ---------------------------------------------------------------------------------------------------------------
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 8,170 553,345
- ---------------------------------------------------------------------------------------------------------------
8,170 553,345 2.8
- ---------------------------------------------------------------------------------------------------------------
295.6 sh. Huntington Holdings, Inc.,
Warrants to Purchase
Common Stock(2)* 01/31/92 85,678 840,999
- ---------------------------------------------------------------------------------------------------------------
85,678 840,999 4.2
- ---------------------------------------------------------------------------------------------------------------
62,606 sh. Amity Leather Products Co.,
Warrants to Purchase Class B
Common Stock* 07/30/92 85,909 758,067
22,608 sh. Amity Leather Products Co.,
Class A Common Stock* 07/30/92 226,080 273,750
- ---------------------------------------------------------------------------------------------------------------
311,989 1,031,817 5.2
- ---------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,915,573 4,915,573
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 720,801
403.81 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 40,381 40,381
421.6 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 42,156 42,156
- ---------------------------------------------------------------------------------------------------------------
5,585,720 5,718,911 28.6
- ---------------------------------------------------------------------------------------------------------------
$2,396,000 LMC Operating Corp.,
13.00% Senior Secured
Subordinated Term Notes
due 5/31/99(4)* 06/10/94 2,281,389 1,930,008
16.054 sh. LMC Operating Corp.,
Warrants to Purchase
Common Stock* 06/10/94 107,820 1
15.973 sh. LMC Credit Corp.,
Warrants to Purchase
Common Stock* 06/10/94 1 1
- ---------------------------------------------------------------------------------------------------------------
2,389,210 1,930,010 9.6
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
F-3
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
34,996 sh. MTI Holdings II, Inc. 07/06/94 &
Common Stock* 12/28/94 237,627 31,496
- ---------------------------------------------------------------------------------------------------------------
237,627 31,496 0.2
- ---------------------------------------------------------------------------------------------------------------
$2,392,000 Canadian's Corp.,
13.50% Subordinated 09/09/94 &
Notes due 9/01/02(5)* 12/29/94 2,301,590 1
$291,000 Canadian's Holdings, Inc.,
12.00% Exchangeable
Redeemable Debentures 09/09/94 &
due 8/31/04(6)* 12/29/94 277,709 1
$130,000 Canadian's Corp.,
Promissory Notes
due 01/31/97(7)* 05/08/95 120,663 1
1,175,183 sh. Canadian's Holdings, Inc.,
Common Stock* 09/22/95 34,821 1
$1,369,166 Canadian's Corp.,
Collateralized Loan
Guarantee earning
interest at 13.75%
due 08/31/04 09/22/95 1,369,166 1
- ---------------------------------------------------------------------------------------------------------------
4,103,949 5 0.0
- ---------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(8) 05/24/95 1,197,910 1,197,910
439.694 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- ---------------------------------------------------------------------------------------------------------------
1,271,205 1,271,205 6.3
- ---------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (57.3% of net assets) 14,272,465 11,377,790 56.8
- ---------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$4,325,000 Ford Motor Credit Corporation,
5.563% Notes due 01/03/96 12/19/95 4,323,667 4,323,667
$4,325,000 General Electric Capital Corp.,
5.563% Notes due 01/03/96 12/19/95 4,323,667 4,323,667
- ---------------------------------------------------------------------------------------------------------------
Total Temporary Investments (43.5% of net assets) 8,647,334 8,647,334 43.2
- ---------------------------------------------------------------------------------------------------------------
Total Investments (100.8% of net assets) $22,919,799 $20,025,124 100.0%
===============================================================================================================
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
F-4
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Pursuant to the terms of the Fund's agreement with Huntington Holdings,
Inc., under certain circumstances the number of shares issuable upon
exercise of the warrants held by the Fund will increase periodically.
The most recent such increase occurred on August 1, 1995 when the Fund
received the right to an additional 27.7 shares. (Note 15)
(3) The notes will amortize in eight equal quarterly installments of
$627,991 commencing on 11/30/99.
(4) The notes will amortize as follows: $30,017 on 9/01/97, $30,992 on
12/01/97, $32,000 on 3/01/98, $33,040 on 6/01/98, $34,114 on 9/01/98,
$35,222 on 12/01/98, $36,367 on 3/01/99 and $2,164,248 on 5/31/99. The
accrual of interest on the notes was discontinued by the Fund effective
December 1, 1995. In addition, the Fund has agreed to restructure its
LMC investment. The restructuring will involve a conversion of the
Fund's existing subordinated debt and warrants into preferred stock and
a follow-on investment in LMC for the purchase of new common stock.
(Notes 12 and 13)
(5) The notes will amortize in twelve equal quarterly installments of
$199,333 commencing on 12/01/99. The notes also bear contingent
additional interest to be computed under a specified formula. The
accrual of interest on the notes was discontinued by the Fund effective
December 1, 1995. (Notes 12 and 15)
(6) The debentures are convertible into Canadian's Holdings, Inc. common
stock. The accrual of interest on the debentures was discontinued by
the Fund effective April 1, 1995. (Notes 12 and 15)
(7) The notes bear interest equal to the prime rate, plus 5%. The accrual
of interest on the notes was discontinued by the Fund effective October
1, 1995. (Notes 12 and 15)
(8) The notes will amortize in three equal annual installments of $430,000
commencing on 5/24/00.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
F-5
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Investments (Notes 2, 10, 11, 12, 13 and 15)
Portfolio investments, at value:
Managed companies (amortized cost -
$14,272,465 and $16,052,631,
respectively) $11,377,790 $19,274,598
Temporary investments, at amortized cost 8,647,334 4,179,590
----------- -----------
Total investments 20,025,124 23,454,188
Cash and cash equivalents (Note 2) 175,768 173,095
Accrued interest receivable (Note 12) 117,461 521,794
Other assets, including receivables from
sale of investments 3,095 544,921
----------- -----------
Total assets $20,321,448 $24,693,998
=========== ===========
LIABILITIES:
Due to affiliates (Notes 6, 7, 8 and 9) $ 54,494 $ 44,384
Accounts payable and accrued liabilities 31,327 33,542
Prepaid interest income - 52,635
Distributions payable to partners (Note 3) 362,595 589,545
----------- -----------
Total liabilities 448,416 720,106
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13)
NET ASSETS (Notes 3 and 4):
Managing General Partner (5,298) 16,116
Limited Partners (equivalent to $16.61
and $18.47, respectively, per limited
partnership unit based on 1,196,564
and 1,296,999 units outstanding) (Note 5) 19,878,330 23,957,776
----------- -----------
Net assets 19,873,032 23,973,892
----------- -----------
Total liabilities and net assets $20,321,448 $24,693,998
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-6
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 2,234,934 $ 2,310,063 $2,587,285
Other income 33,225 25,248 -
----------- ----------- ----------
Total investment income 2,268,159 2,335,311 2,587,285
----------- ----------- ----------
Expenses:
Investment advisory fees (Note 6) 195,279 232,554 261,646
Fund administration fees (Note 7) 118,327 118,327 118,327
Independent General Partner fees
and expenses (Note 8) 49,283 48,777 46,083
Administrative expenses (Note 7) 68,105 67,980 67,631
Professional fees 61,715 42,613 51,660
Amortization 8,760 10,500 10,500
Other expenses 40,719 56,425 59,826
----------- ----------- ----------
Total expenses 542,188 577,176 615,673
----------- ----------- ----------
NET INVESTMENT INCOME 1,725,971 1,758,135 1,971,612
----------- ----------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments
(Note 10) 3,790,988 (2,089,653) 899,531
Net change in unrealized (loss) gain
on investments (Note 11) (6,116,647) 3,594,544 (751,148)
----------- ----------- ----------
Net (loss) gain on investments (2,325,659) 1,504,891 148,383
----------- ----------- ----------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (599,688) $ 3,263,026 $2,119,995
=========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-7
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (599,688) $ 3,263,026 $ 2,119,995
Adjustments to reconcile net increase
in net assets resulting from operations
to net cash provided by operating activities:
Accreted discount on portfolio investments (73,777) (49,282) (28,443)
Amortization 8,760 10,500 10,500
Change in assets and liabilities:
Accrued interest receivable 404,333 (210,442) (89,731)
Other assets 614 3,957 (2,487)
Due to affiliates 11,056 9,476 (23,533)
Accounts payable and accrued liabilities (2,215) 5,417 1,700
Prepaid interest income (52,635) 52,635 -
Net realized (gain) loss on investments (3,790,988) 2,089,653 (899,531)
Net change in unrealized loss (gain) on investments 6,116,647 (3,594,544) 751,148
----------- ----------- ------------
Net cash provided by operating activities 2,022,107 1,580,396 1,839,618
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (2,753,876) (4,948,269) (11,538,976)
Proceeds from dispositions of portfolio investments 8,930,308 10,077,533 10,610,110
(Purchase) sale of temporary investments, net (4,467,744) (2,347,742) 3,474,375
----------- ----------- ------------
Net cash provided by investing activities 1,708,688 2,781,522 2,545,509
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,768,635) (2,596,272) (2,708,728)
Repurchase of limited partnership units (1,959,487) (2,402,951) (1,133,710)
Deferred repurchase plan costs - 17,975 (17,975)
----------- ----------- ------------
Net cash used in financing activities (3,728,122) (4,981,248) (3,860,413)
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,673 (619,330) 524,714
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 173,095 792,425 267,711
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 175,768 $ 173,095 $ 792,425
=========== =========== ============
NONCASH INVESTING AND
FINANCING ACTIVITES:
Investments exchanged for other investments $ - $ 237,627 $ -
========== =========== ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-8
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 1,725,971 $ 1,758,135 $ 1,971,612
Net realized gain (loss) on investments 3,790,988 (2,089,653) 899,531
Net change in unrealized (loss) gain
on investments (6,116,647) 3,594,544 (751,148)
----------- ----------- -----------
Net (decrease) increase in net
assets resulting from operations (599,688) 3,263,026 2,119,995
Repurchase of limited partnership units
(Note 5) (1,959,487) (2,402,951) (1,133,710)
Distributions to partners from -
Net investment income (1,541,685) (1,758,135) (2,593,751)
Realized gain on investments - (778,614) (86,863)
------------ ----------- -----------
Total decrease in net assets (4,100,860) (1,676,674) (1,694,329)
Net assets:
Beginning of year 23,973,892 25,650,566 27,344,895
---------- ----------- -----------
End of year (including
undistributed net investment
income of $184,286, $0, and
$0, respectively) $19,873,032 $23,973,892 $25,650,566
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-9
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS (1)
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Unit Data:
Investment income $ 1.75 (2) $ 1.63 (2) $ 1.73 (2) $ 2.41 $ 2.10
Expenses (.42)(2) (.40)(2) (.41)(2) (.38) (.37)
------ ------ ------ ------ ------
Net investment income 1.33 (2) 1.23 (2) 1.32 (2) 2.03 1.73
Net realized gain (loss) on investments 2.92 (2) (1.46)(2) .60 (2) .03 -
Net change in unrealized (loss) gain
on investments (4.71)(2) 2.52 (2) (.50)(2) .25 -
Effect of unit repurchases
on net asset value (.20) .02 (.01) - -
Distributions declared to partners (1.20) (1.80) (1.80) (1.80) (1.57)
------ ----- ------ ------ ------
Net (decrease) increase in
net asset value (1.86) .51 (.39) .51 .16
Net asset value:
Beginning of period 18.47 17.96 18.35 17.84 17.68
------ ------ ------ ------ ------
End of period $16.61 $18.47 $17.96 $18.35 $17.84
====== ====== ====== ====== ======
Ratios:
Ratio of expenses to average net assets 2.27% 2.27% 2.27% 2.16% 2.06%
Ratio of net investment income to
average net assets 7.22% 6.91% 7.28% 11.33% 9.71%
Number of limited partnership units
at the end of period(1) 1,196,564 1,296,999 1,427,950 1,489,800 1,489,800
</TABLE>
- --------------------
(1) Effective October 1, 1993, each $1,000 limited partnership unit was
redenominated into fifty $20 limited partnership units. All amounts
shown for prior years have been restated to give effect to this
redenomination.
(2) Calculated using the weighted average number of limited partnership
units outstanding during the years ended December 31, 1995, 1994 and
1993 of 1,285,717, 1,413,240 and 1,482,514, respectively.
The accompanying notes to financial statements are an integral part
of these selected per unit data and ratios.
F-10
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND PURPOSE
Fiduciary Capital Pension Partners, L.P. (the "Fund"), a Delaware
limited partnership, was formed on October 20, 1988 to operate as a business
development company under the Investment Company Act of 1940. The Fund's
operations commenced on August 14, 1990.
FCM Fiduciary Capital Management Company ("FCM"), the Managing General
Partner of, and the investment adviser to, the Fund, is responsible, subject to
the supervision of the Independent General Partners, for overseeing and
monitoring the Fund's investments.
The investment objective of the Fund is to provide current income and
capital appreciation by investing primarily in subordinated debt and related
equity securities issued as the mezzanine financing of privately structured,
friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations. These investments are referred to herein as "portfolio
investments". Managed companies are those to which significant managerial
assistance is offered.
As set forth in the Partnership Agreement, the Fund's investment period
ended on December 31, 1995. Although the Fund is permitted to make additional
investments in existing portfolio companies, the Fund is no longer permitted to
acquire investments in new portfolio companies except to fund commitments made
prior to December 31, 1995. (See Note 13.)
A separate fund, Fiduciary Capital Partners, L.P. ("FCP"), was also
formed on October 20, 1988 for taxable investors with investment objectives,
policies and restrictions similar to those of the Fund. While the Fund and FCP
have co-invested in each of the portfolio investments, each fund is accounted
for separately. Each fund's participation in the portfolio investments is in
proportion to the amount of capital that each fund had available for investment
at the time each investment was acquired. Certain expenses are allocated between
the funds based on the amount of each fund's total capital. The accompanying
financial statements include only the activities of the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
Accounting Method The Fund maintains its accounting records, prepares
financial statements and files its tax returns using the accrual method of
accounting.
Valuation of Investments FCM values the Fund's investments on a weekly
basis utilizing a variety of methods. For securities that are publicly traded
and for which market quotations are available, valuations are set by the closing
sales, or an average of the closing bid and asked prices, as of the valuation
date. The Fund discounts these closing market prices between 5% and 20% to
reflect lack of liquidity, if the Fund's securities are subject to legal or
contractual trading restrictions, or to reflect the potential market impact
which could result from the sale of the securities, if the Fund and FCP 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
F-11
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
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.
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.
F-12
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
Proceeds from capital transactions will, in general, be distributed and
allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative, non-compounded preferred return of 9% per
annum on their capital contribution to the Fund from net investment income,
capital transactions, or both, then (ii) 100% to the Limited Partners until they
have received a return of their capital contributions to the Fund, and
thereafter, (iii) 80% to the Limited Partners and 20% to FCM.
All cash distributions and earnings since the inception of the Fund
have been allocated 99% to the Limited Partners and 1% to FCM.
4. CAPITAL CONTRIBUTIONS
Upon formation of the Fund, FCM contributed $4,000 for its general
partner interest in the Fund. Units of limited partnership interest ("Units")
were then sold in a public offering. The Fund held three closings between August
14, 1990 and October 18, 1990, receiving gross offering proceeds of $29,796,000.
Commissions and other offering costs were charged against proceeds resulting in
net capital contributions from Limited Partners of $26,294,970.
5. PERIODIC UNIT REPURCHASE PLAN
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to repurchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan can be summarized
as follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
------------------------------------ -------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------- -------------- ------ ----------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
</TABLE>
6. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$195,279, $232,554 and $261,646 were incurred by the Fund for 1995, 1994 and
1993, respectively.
F-13
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
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 $118,327
were incurred each year by the Fund during 1995, 1994 and 1993. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $68,105, $67,980 and $67,631 for 1995, 1994
and 1993, respectively.
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 FCP 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 $49,283, $48,777 and $46,083
were incurred by the Fund for 1995, 1994 and 1993, respectively.
9. OTHER RELATED PARTY TRANSACTIONS
FCM and its affiliates are entitled to reimbursement of certain direct
expenses paid on behalf of the Fund. Such reimbursable expenses amounted to
$154,260, $144,184 and $215,685 during 1995, 1994 and 1993, respectively.
10. PORTFOLIO INVESTMENTS
The Fund's portfolio investments consist primarily of high-yield
private placement securities issued as the mezzanine financing of privately
structured, friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations, and are generally linked with an equity participation. The
risk of loss upon default by an issuer is greater than with investment grade
securities because high-yield securities are generally unsecured and are usually
subordinated to other creditors of the issuer. Also, these issuers usually have
higher levels of indebtedness and are more sensitive to adverse economic
conditions than investment grade issuers. Most of these securities are subject
to resale restrictions and generally there is no quoted market for such
securities.
Although the Fund cannot eliminate the risks associated with its
investments in these high-yield securities, it has established risk management
procedures. The Fund subjects each prospective investment to rigorous analysis,
and makes only those investments that are recommended by FCM and that meet the
Fund's investment guidelines or that have otherwise been approved by the
Independent General Partners. The Fund also has procedures in place to
continually monitor its portfolio companies.
As of December 31, 1995, the Fund held portfolio investments in nine
Managed Companies, with an aggregate cost of approximately $14.3 million. During
the year ended December 31, 1995, the Fund exercised the Protection One, Inc.
warrants it held, acquired a new portfolio investment in R.B.M. Precision Metal
Products, Inc. and acquired two follow-on investments in Canadian's Corp.
("Canadian's") at a total cost of approximately $2.7 million.
F-14
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
The Fund's subordinated debt investment in Protection One, Inc. was
prepaid during 1995. In addition, the Fund sold all of its Carr-Gottstein Foods
Co. and Protection One, Inc. common stock and a portion of its KEMET Corporation
common stock during 1995. The Fund received $8,397,859 in proceeds, including
applicable prepayment premiums, resulting in aggregate realized gains of
$3,790,988.
The Fund has pledged the common stock and warrants it owns in Amity
Leather Products Co. ("Amity") as collateral for Amity's corporate debt. None of
the Fund's other portfolio investments have been pledged or otherwise
encumbered.
11. UNREALIZED GAIN (LOSS) ON INVESTMENTS
As of December 31, 1994, the Fund had recorded net unrealized gain on
investments of $3,221,972. During 1995, the Fund recorded $642,173 of unrealized
gain and $4,831,540 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1995 with respect to which the Fund had recorded
$1,927,280 of net unrealized gain during prior years. Therefore, at December 31,
1995, the Fund had net unrealized loss on investments of $2,894,675.
12. NON-ACCRUAL STATUS OF INVESTMENTS
In accordance with the Fund's accounting policies, the Fund stopped
accruing interest on (i) the Canadian's Holdings, Inc. Exchangeable Redeemable
Debentures effective April 1, 1995, (ii) the Canadian's Promissory Notes
effective October 1, 1995, (iii) the Canadian's Subordinated Notes effective
December 1, 1995 and (iv) the LMC Operating Corp. ("LMC") Senior Subordinated
Notes effective December 1, 1995.
13. COMMITMENTS AND CONTENGENCIES
As of December 31, 1995, the Fund had issued commitments to make new
portfolio investments in Atlas Environmental, Inc. ("Atlas"), Monaco Finance,
Inc. ("Monaco") and Advantage Funding Group, Inc. ("Advantage"). In addition,
the Fund had agreed in principle to a restructuring of its LMC investment, which
involves a conversion of the Fund's existing subordinated debt and warrants into
preferred stock and a follow-on investment in LMC for the purchase of new common
stock.
On January 25, 1996, the Fund closed the investment in Atlas, a
non-managed company, at a cost of $3,200,602. The investment consists of
$3,265,920 of 13.5% Senior Subordinated Secured Notes due January 19, 2003, with
warrants to acquire 338,423 shares of common stock. The warrants have an
exercise price of $8.00 per share. The Atlas common stock is currently traded
over the counter on a limited basis with quotations provided via the OTC
Bulletin Board under the symbol "ATEV".
The proposed Advantage investment was abandoned during January 1996.
The portion of the Fund's available capital that had been reserved for this
investment is now reserved to fund the Fund's 1996 annual repurchase offer.
The Fund may not ultimately fund both of the remaining commitments
since each of the commitments is subject to various contingencies.
F-15
<PAGE> 35
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
FCM had been named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated and a number of its affiliates
concerning its sales of 70 different limited partnerships and other direct
investment programs. During May 1995, the Court entered an order certifying the
class and dismissing the class action against FCM without prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to unitholders in the Fund.
FCM believes that this litigation will be resolved without any material
adverse effect on the Fund's financial condition.
14. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net increase in net assets
resulting from operations in the accompanying financial statements to the
taxable income reported for federal income tax purposes:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net (decrease) increase in net assets resulting
from operations per financial statements $ (599,688) $ 3,263,026 $2,119,995
Increase (decrease) resulting from:
Unrealized loss (gain) on investments 6,116,647 (3,594,544) 751,148
Interest income 32,992 (32,992) -
Fee income, net of amortization (64,525) (24,253) 154,975
Amortization of organization and
start-up costs (10,793) (23,019) (23,019)
Losses on investments not yet recognized
for income tax purposes - 2,927,625 -
Other (38,431) (20,930) (1,300)
---------- ----------- ----------
Taxable income per federal
income tax return $5,436,202 $ 2,494,913 $3,001,799
========== =========== ==========
</TABLE>
F-16
<PAGE> 36
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
The following is a reconciliation of the amount of the Fund's net assets
as shown in the accompanying financial statements and the tax bases of the
Fund's net assets:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net assets per financial statements $19,873,032 $23,973,892 $25,650,566
Syndication, organization and
start-up costs, net 3,112,764 3,214,941 3,214,756
Losses on investments not yet recognized -
for income tax purposes 2,927,625 2,927,625
Unrealized loss (gain ) on investments 2,894,675 (3,221,967) 372,577
Distributions payable 362,595 589,545 -
Fee income, net of amortization 66,197 130,722 154,975
Accrued expenses 18,650 24,518 20,200
Prepaid interest income - 52,635 -
Accrued interest income - (85,627)
----------- ----------- -----------
Tax bases of net assets $29,255,538 $27,606,284 $29,413,074
=========== =========== ===========
</TABLE>
F-17
<PAGE> 37
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 1995 or 1994.
18
<PAGE> 38
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
Charles R. Gwirtsman Senior Vice President
Donald R. Jackson Senior Vice President, Treasurer
Chief Financial and Accounting
Officer and Compliance Officer
</TABLE>
Paul Bagley, age 53, is Chairman, Chief Executive Officer and an
Investment Committee Member of FCM Fiduciary Capital Management Company. For
more than twenty years prior to October 1988, Mr. Bagley was engaged in
investment banking activities with Shearson Lehman Hutton Inc. ("Shearson") and
its predecessor, E.F. Hutton & Company Inc. ("E.F. Hutton"). During such time,
he 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 a
director and member of the Executive Committee of America First Financial and
Chairman of the Board of Directors of Silver Screen Management, Inc. Mr. Bagley
also serves as a Director of EurekaBank, whose parent, America First Financial
Fund is NASDAQ listed. As of January 19, 1995, Mr. Bagley became the President
and Chief Executive Officer of Laidlaw Holdings, Inc. and is the managing
partner of an investment partnership which controls substantial ownership of
Laidlaw Holdings, Inc. Mr. Bagley also serves as President of American National
Security, the managing general partner of Security Income Trust L.P.
W. Duke DeGrassi, age 49, is the President and an Investment Committee
Member of FCM Fiduciary Capital Management Company. 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.
19
<PAGE> 39
Charles R. Gwirtsman, age 42, is a Senior Vice President of FCM
Fiduciary Capital Management Company. From May 1988 to December 1993, Mr.
Gwirtsman was a Corporate Vice President with PaineWebber Incorporated. Prior to
joining PaineWebber Incorporated, Mr. Gwirtsman had been an Associate, since
1986, in the Direct Investments Group with Shearson Lehman Hutton Inc. Prior to
joining Shearson, Mr. Gwirtsman was employed as a Financial Analyst at the
United Bank of Denver, National Association during 1986. From 1980 to 1984, he
served as a Senior Consultant for Admins, Inc., a computer software firm in
Cambridge, Massachusetts, engaging in the design and implementation of large
financial data processing systems. Mr. Gwirtsman received his Bachelor of Arts
degree from Columbia University in 1975 and a Masters of Business Administration
from the University of Denver in 1986.
Donald R. Jackson, age 46, is a Senior Vice President, Treasurer,
Assistant Secretary, Chief Financial and Accounting Officer and Compliance
Officer of FCM Fiduciary Capital Management Company. 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.
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
Charles R. Gwirtsman Senior Vice President and Secretary
Donald R. Jackson Vice President, Treasurer, Assistant
Secretary and Chief Financial
and Accounting Officer
</TABLE>
For information regarding Paul Bagley, W. Duke DeGrassi, Charles R.
Gwirtsman and Donald R. Jackson see the above section concerning the management
of FCM Fiduciary Capital Management Company.
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
Joseph P. Ciavarella Vice President, Secretary, Treasurer
and Chief Financial and
Accounting Officer
</TABLE>
Gerald F. Goertz, Jr., age 38, 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
Private Investments. 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.
20
<PAGE> 40
Clifford B. Wattley, age 46, 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 36, 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 Corporate Vice
President. 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.
Joseph P. Ciavarella, age 40, is a Vice President, Secretary, Treasurer
and Chief Financial and Accounting Officer of Mezzanine Capital Corporation. He
joined PaineWebber Incorporated in May 1994. Prior to joining PaineWebber
Incorporated, he was affiliated with Aviation Capital Group in the area of
aircraft finance. Mr. Ciavarella was associated with Intergrated Resources, Inc.
from 1983 to 1993 as a corporate officer as well as a senior officer in various
subsidiaries in the equipment leasing aircraft finance and venture capital
areas. Mr. Ciavarella has a Bachelor of Business Administration degree in
Accounting from Hofstra University and is a Certified Public Accountant.
Independent General Partners
A. Norman J. Peer
Norman J. Peer, age 59, has been an Independent General Partner since
1990. Mr. Peer is a partner in the Woodbridge, New Jersey law firm of Wilentz,
Goldman & Spitzer. Prior to 1988, he was a partner of the New York law firm of
Satterlee, Stephens, Burke & Burke. Mr. Peer also served two years of active
duty with the U.S. Navy as an Assistant Guided Missile Officer (1958-1960) and
served in the U.S. Navy Reserve (1960-1970) reaching the rank of Lieutenant
Commander. He is a director of Hudson Club, Inc., (restaurant and retail
development). Mr. Peer served as the Municipal Court Judge in Atlantic
Highlands, NJ from 1972 until 1988. Mr. Peer has a B.A. degree from Villanova
University and a J.D. degree from Fordham University School of Law.
B. Robert H. Arnold
Robert H. Arnold, age 51, has been an Independent General Partner since
1992. Mr. Arnold is President of R.H. Arnold & Co., Inc., a New York-based
investment banking firm he founded in 1989. R.H. Arnold & Co. specializes in
providing financial advisory services on corporate mergers, acquisitions,
divestitures and restructurings and in assisting emerging and medium-sized
companies in the private placement of equity and debt securities. Prior to
forming R.H. Arnold & Co., Mr. Arnold was Executive Vice President of Cambrian
Capital Corporation, an investment banking firm he co-founded in 1987. Before
establishing Cambrian Capital, Mr.Arnold was associated with Merrill Lynch & Co.
During his tenure at Merrill Lynch, Mr. Arnold held positions in its Capital
Markets Group, in both the investment banking and the institutional sales areas,
and at the senior corporate level, including Treasurer of Merrill Lynch & Co.
Mr. Arnold received his B.S., M.S. and Ph.D. degrees from Northwestern
University with majors in finance and accounting.
21
<PAGE> 41
C. E. Bruce Fredrikson
E. Bruce Fredrikson, age 57, 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 and Global Market Information,
Inc., both of which are NASDAQ listed.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 furnished to the Fund
during 1995 and 1996, 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
1995.
Item 11. Executive Compensation
No compensation was paid by the Fund to the officers and directors of
the General Partners during 1995. 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
1995.
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,
1996. One officer of FCM Fiduciary Capital Management Company
and FCM Fiduciary Capital Corporation owned 100 Units as of
March 1, 1996.
(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.
Item 13. Certain Relationships and Related Transactions
The Fund may co-invest in portfolio investments with FCP, 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", which is
incorporated herein by reference, 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 1995.
22
<PAGE> 42
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. During 1995,
FCM earned investment advisory fees of $195,279.
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 1995, FCM earned fund administration fees of $118,327. The Fund also
reimbursed FCM for $68,105 of administrative expenses incurred in providing
accounting and investor services to the Fund during 1995.
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 FCP 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 $49,283 were incurred by the Fund during 1995.
Accountable Expenses FCM and its affiliates are entitled to
reimbursement of certain direct expenses paid on behalf of the Fund. During
1995, such reimbursable expenses amounted to $154,260.
Partnership Interest FCM received cash distributions of $15,417 as
their allocable share of distributions for 1995. In addition, ($5,997) of the
Fund's net investment income and net loss on investments for 1995 was allocated
to FCM.
23
<PAGE> 43
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, 1995.
(c) Exhibits required to be filed.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1(a) Fourth Amended and Restated Certificate of
Limited Partnership of Fiduciary Capital
Pension 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
Pension 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 Pension
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
Pension 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 Pension
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 Pension 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 Pension 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.
24
<PAGE> 44
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.3 Administrative Services Contract, dated as of
August 14, 1990, between Fiduciary Capital
Pension 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 Pension
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 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>
-------------------
* 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.
25
<PAGE> 45
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 25, 1996
FIDUCIARY CAPITAL PENSION 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: NORMAN J. PEER
Independent General Partner
/s/ Norman J. Peer
--------------------------------------
By: ROBERT H. ARNOLD
Independent General Partner
/s/ Robert H. Arnold
--------------------------------------
By: E. BRUCE FREDRIKSON
Independent General Partner
/s/ E. Bruce Fredrikson
--------------------------------------
26
<PAGE> 46
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 25, 1996.
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.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Paul Bagley Chief Executive Officer and Sole
- ---------------------------- Director of FCM Fiduciary Capital
Paul Bagley Corporation, a corporate general partner
of FCM Fiduciary Capital Management
Company
</TABLE>
27
<PAGE> 47
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
3.1(a) Fourth Amended and Restated Certificate of Limited
Partnership of Fiduciary Capital Pension Partners,
L.P., dated as of January 29, 1990. (Incorporated by
Reference.) *
(b) Second Amended and Restated Agreement of Limited
Partnership of Fiduciary Capital Pension Partners,
L.P., dated as of October 1, 1993. (Incorporated by
Reference.) *
(c) Amendment Number One to the Second Amended and
Restated Agreement of Limited Partnership of
Fiduciary Capital Pension Partners, L.P., dated as of
October 1, 1993. (Incorporated by Reference.) *
10.1 Investment Advisory Contract, dated as of October 1,
1993, between Fiduciary Capital Pension Partners,
L.P. and FCM Fiduciary Capital Management Company.
(Incorporated by Reference.) *
10.2(a) Custody Agreement, dated as of July 19, 1990, between
Fiduciary Capital Pension Partners, L.P. and M&I
First National Bank. (Incorporated by Reference.) *
(b) Amendment to Custody Agreement of Fiduciary Capital
Pension Partners, L.P., dated as of October 13, 1992.
(Incorporated by Reference.) *
(c) Second Amendment to Custody Agreement of Fiduciary
Capital Pension Partners, L.P., dated as of January
21, 1994. (Incorporated by Reference.) *
10.3 Administrative Services Contract, dated as of August
14, 1990, between Fiduciary Capital Pension Partners,
L.P. and FFCA Fiduciary Capital Management Company.
(Incorporated by Reference.) *
10.4 Transfer Agent Agreement, dated as of July 1, 1992,
by and among Fiduciary Capital Pension Partners,
L.P., FFCA Fiduciary Capital Management Company and
Service Data Corporation. (Incorporated by
Reference.) *
11.1 Statement of Computation of Net Investment Income per
Limited Partnership Unit.
20.1 Report Furnished to Securities Holders.
27 Financial Data Schedule.
28.1 Portions of the Prospectus of Fiduciary Capital
Pension Partners, L.P. and Fiduciary Capital
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). (Incorporated by
Reference.) *
</TABLE>
-------------------
* See Item 14(c) for statement of location of exhibits incorporated by
reference.
E-1
<PAGE> 1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Investment Income $1,725,971 $1,758,135 $1,971,612
Percentage Allocable to Limited Partners 99% 99% 99%
---------- ---------- ----------
Net Investment Income
Allocable to Limited Partners $1,708,711 $1,740,554 $1,951,896
========== ========== ==========
Weighted Average Number of Limited
Partnership Units Outstanding(1) 1,285,717 1,413,240 1,482,514
========== ========== ==========
Net Investment Income
Per Limited Partnership Unit $ 1.33 $ 1.23 $ 1.32
========== ========== ==========
</TABLE>
- --------------------
(1) Effective October 1, 1993, each $1,000 limited partnership unit was
redenominated into fifty $20 limited partnership units. All amounts
shown for 1993 have been restated to give effect to this
redenomination.
<PAGE> 1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
------------------------------------
THIRD QUARTER REPORT
1995
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MESSAGE TO INVESTORS
Dear Investor:
The Fund's net asset value per Unit was $19.91 at September 30, 1995 and
$19.51 at November 14, 1995. The November 14th net asset value was used to
establish the repurchase price for the 1995 repurchase offer. These net asset
values compare to net asset values of $18.47 at December 31, 1994 and $19.91 at
June 30, 1995.
The increase in the net asset value from December 31, 1994 to September 30,
1995 resulted primarily from gains attributable to the Fund's investments in
KEMET Corporation ("KEMET") and Protection One, Inc. ("Protection One"). The
decline in the net asset value between September 30, 1995 and November 14, 1995
resulted primarily from writedowns of the Canadian's Corp. ("Canadian's") and
LMC Operating Corp. ("LMC") investments.
CASH DISTRIBUTIONS
The Fund made its cash distribution for the third quarter of 1995 on
November 13, 1995. This distribution of $.30 per Unit, was equal to an
annualized rate of 6% of contributed capital and consisted entirely of net
investment income earned during the third quarter. We expect the distribution
for the fourth quarter of 1995 to be made on February 14, 1996 at the same 6%
annualized rate.
The Fund's investment period will end on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio companies
after 1995, it will no longer be permitted to acquire investments in new
portfolio companies. This will impact the amount of the Fund's quarterly
distributions for 1996 and subsequent years because all proceeds from
dispositions or maturities of investments after December 31, 1995 will be
distributed to investors, except to the extent the cash is needed to fund the
annual repurchase offer or to fund any follow-on investments that the Fund may
make in existing portfolio companies.
PERIODIC UNIT REPURCHASE POLICY
The Fund's investors adopted a periodic unit repurchase plan during October
1993. Pursuant to the terms of the repurchase policy, the Fund will annually
offer to purchase from investors, up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be
--------------------
ONE
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
retained by the Fund to offset expenses incurred in connection with the
repurchase offer. If the number of tendered Units in any year exceeds 7.5% of
the outstanding Units, the Fund's General Partners may vote to repurchase up to
an additional 2% of the outstanding Units.
The 1995 repurchase offer was mailed to investors during October 1995.
Investors tendered 245,447 Units, or approximately 18.92% of the Fund's
outstanding Units, for repurchase. The Fund was unable to repurchase all
tendered Units since the total Units tendered exceeded the maximum number of
Units that can be repurchased under the terms of the repurchase plan. The Fund
actually repurchased 100,435 Units, or approximately 7.74% of the Fund's
outstanding Units, during November 1995 at a net asset value per Unit of $19.51
($19.12, net of the 2% fee).
The next opportunity to have the Fund repurchase your Units will occur
during the fourth quarter of 1996.
INVESTMENT UPDATE
KEMET Corporation The Fund continues to periodically sell shares of KEMET
common stock. During July 1995, the Fund sold 7,913 shares at an average net
sales price of approximately $67.47. Following a two-for-one stock split, an
additional 22,604 shares were sold during November 1995 at an average net sales
price of approximately $34.91. The Fund has 23,056 shares of KEMET stock
remaining as of December 4, 1995. The Fund's cost basis in its KEMET stock is
approximately $.35 per share.
Carr-Gottstein Foods Co. ("Carr-Gottstein") On October 13, 1995,
Carr-Gottstein announced that it was offering to purchase up to 7,500,000
(approximately 49%) of its outstanding shares at a purchase price of $11.00 per
share. The day before the offer, the stock was trading at $6.125 per share.
Within one year after Carr-Gottstein went public in July 1993 at $14.50 per
share, the stock had declined to a price of $5.50 per share, and has traded in a
range of $5.50 to $8.00 since. The Fund tendered all of its 147,678 shares, of
which 73,674 shares were repurchased by the Company for a total amount of
$810,414.
In order to fund the stock repurchase, Carr-Gottstein incurred significant
additional debt. This additional debt substantially reduced the Company's
tangible net worth and the additional interest expense will have a material
negative impact on the Company's future earnings. With these factors in mind, we
sold the
--------------------
TWO
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
remainder of the Fund's shares in the open market shortly after the tender was
completed. The Fund received a total of $386,604 for the remaining 74,004
shares.
In total, the Fund realized a gain of $458,624 from the disposition of its
Carr-Gottstein stock.
Protection One, Inc. During November 1995, the Fund sold all of its
Protection One common stock. The Fund received $124,173 of sales proceeds,
resulting in a realized gain of $39,189.
KB Alloys, Inc. ("KB Alloys") On December 4, 1995, the Fund sold its
$2,938,997 of KB Alloys Senior Subordinated Term Notes to an unrelated
institutional investor at a price of $3,302,956. KB Alloys was paying current
interest on these notes at a rate of 13% per annum and, in addition, the Fund
was accruing a deferred interest component at a rate of 8% per annum. The
accrued deferred interest totaled $600,862 at the date of the sale. The sales
price was less than the sum of the amortized cost of the notes and the total
accrued interest, resulting in a book loss of $190,369.
KB Alloys is not required to pay any of the deferred interest until mid-1998
and it was deemed prudent to receive cash now, as opposed to waiting for three
years. The decision to sell was influenced by the fact that KB Alloys recently
incurred a significant amount of additional debt in connection with the
acquisition of a major competitor. This new debt is senior to the subordinated
debt that the Fund sold. Consequently, KB Alloys is now a much different entity,
with a different capital structure, from the one in which the Fund invested in
1993.
Canadian's Corp. The Fund made its initial investment in Canadian's during
September 1994 as part of a financing used to settle Canadian's liabilities and
allow the company to emerge from bankruptcy. Two follow-on investments were made
in December 1994 and May 1995; the first to finance the company's acquisition of
additional stores and the second to fund working capital shortages at the
company. Unfortunately, the retail market, and particularly women's specialty
retailing, has suffered a prolonged and worsening downturn that has continued
throughout 1995. By August 1995, the company was facing a serious working
capital shortage and requested that the Fund and its other investors make an
additional investment in the company. The company's major equity owner and the
Fund agreed to provide the requested funding.
--------------------
THREE
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
This new $1,369,166 debt investment brings the Fund's total Canadian's
investment to approximately $4.1 million. This new debt investment is senior to
all of Canadian's other debt except for its revolving credit facility. In
consideration for the new financing, the Fund's ownership of the company
increased from approximately 7% to approximately 20%.
Officers of FCM are providing Canadian's with managerial assistance in
identifying areas where the company can save money and reduce costs. Closing of
unprofitable stores and staff reductions are underway. Although there can be no
assurances of success, the company is also working with an underwriter with the
hope of raising equity capital during the first quarter of 1996. With a lower
cost structure and possibly additional capital, Canadian's is hopeful that its
market strategy will be successful if the overall retail environment improves.
Considering the above, the Fund wrote the Canadians' convertible debentures
and common stock down in value by $313,852 to a negligible amount during the
third quarter of 1995. The debentures were in default and, due to the fact that
other debenture holders did not participate in the latest financing, were
significantly diluted in connection with the most recent financing.
Due to the ongoing difficulties at the company, the Fund wrote its
subordinated debt investments down by $378,300 during November 1995. The Fund's
amortized cost of these debt investments is $2,420,165.
LMC Operating Corp. Over the past year the majority owner of LMC has taken a
number of steps designed to improve its operating and financial performance.
These steps included hiring new senior management and significantly reducing
staff. The majority owner also contributed a significant amount of additional
capital. These steps became necessary largely due to the deterioration in the
company's performance and the quality of its products under the previous owner.
As in many such cases, it took one to two years for the negative effects of the
previous ownership to fully manifest themselves in the performance of the
company's personnel and the quality of its products. While the current owner
believes the company has turned around, it is going to take some time for the
company to regain its market position and return to profitability. The prospects
for a recovery are made even more difficult by the actions of one of LMC's major
competitors, which has begun to undercut other manufacturers' prices inan
attempt to increase its market share.
--------------------
FOUR
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
The owner has requested that the Fund convert its subordinated debt to
preferred stock and contribute an additional $454,546 in order to fund new
product development. The owner will contribute a like amount. The Fund has
agreed to the restructuring and in exchange will own approximately 23% of LMC,
as opposed to its previous ownership interest of approximately 12%. Due to LMC's
difficulties and the fact that the Fund will now own equity securities rather
than debt securities, the Fund wrote its LMC investment down by $479,200 during
November 1995.
* * * * * * * * * *
The cash proceeds attributable to the gains realized during 1995 from the
disposition of the Fund's investments in KEMET, Protection One, Carr-Gottstein
and KB Alloys were, or will be, used to fund a portion of the cost of the Units
repurchased in the 1995 repurchase offer and the cost of the Canadian's and LMC
follow-on investments.
We are currently reviewing several attractive investment opportunities to
which we expect to commit funds prior to December 31, 1995.
If you have any questions regarding 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 4, 1995
-------------------------
FIVE
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
147,678 sh. Carr-Gottstein Foods Co.,
Class B Common Stock(1)* 10/23/90 $ 738,394 $ 841,765
- -------------------------------------------------------------------------------------------------------
738,394 841,765 3.3%
- -------------------------------------------------------------------------------------------------------
150,584.1 sh. Neodata Corporation,
10.00% Class A Convertible 12/27/90 &
Preferred Stock - Series 2* 09/30/92 278,916 2
8,754.89 sh. Neodata Corporation, 12/27/90 &
Common Stock* 09/30/92 1 1
- -------------------------------------------------------------------------------------------------------
278,917 3 0.0
- -------------------------------------------------------------------------------------------------------
45,660 sh. KEMET Corporation,
Common Stock(2)* 07/11/91 16,180 1,558,148
- -------------------------------------------------------------------------------------------------------
16,180 1,558,148 6.1
- -------------------------------------------------------------------------------------------------------
295.6 sh. Huntington Holdings, Inc.,
Warrants to Purchase
Common Stock(3)* 01/31/92 85,678 669,145
- -------------------------------------------------------------------------------------------------------
85,678 669,145 2.6
- -------------------------------------------------------------------------------------------------------
62,606 sh. Amity Leather Products Co.,
Warrants to Purchase Class B
Common Stock* 07/30/92 85,909 758,067
22,608 sh. Amity Leather Products Co.,
Class A Common Stock* 07/30/92 226,080 273,750
- -------------------------------------------------------------------------------------------------------
311,989 1,031,817 4.1
- -------------------------------------------------------------------------------------------------------
$2,938,997 KB Alloys, Inc.,
20.00% Senior Subordinated
Term Notes due 6/30/01(4) 05/28/93 2,891,274 2,891,274
- -------------------------------------------------------------------------------------------------------
2,891,274 2,891,274 11.4
- -------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(5) 09/24/93 4,911,257 4,911,257
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 706,111
403.81 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 40,381 40,381
421.6 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 42,156 42,156
- -------------------------------------------------------------------------------------------------------
5,581,404 5,699,905 22.4
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
schedule.
------------------
SIX
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER, 1995 (UNAUDITED)
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15,405 sh. Protection One Inc.,
Common Stock (6)* 11/30/93 84,984 139,608
- ----------------------------------------------------------------------------------------------------
84,984 139,608 0.6
- ----------------------------------------------------------------------------------------------------
$2,396,000 LCM Operating Corp.,
13.00% Senior Secured
Subordinated Term Notes
due 5/31/99(7) 06/10/94 2,276,286 2,276,286
16.054 sh. LMCOperating Corp.,
Warrants to Purchase
Common Stock* 06/10/94 107,820 107,820
15.973 sh. LMCCredit Corp.,
Warrants to Purchase
Common Stock* 06/10/94 1 1
- ----------------------------------------------------------------------------------------------------
2,384,107 2,384,107 9.4
- ----------------------------------------------------------------------------------------------------
$2,392,000 Canadian's Corp.,
13.50% Subordinated 09/09/94 &
Notes due 9/01/02(8) 12/29/94 2,299,502 2,299,502
$291,000 Canadian's Holdings, Inc.,
12.00% Exchangeable
Redeemable Debentures 09/09/94 &
due 8/31/04(9) 12/29/84 279,034 1
$130,000 Canadian's Corp.,
Promissory Notes
due 1/31/97(10) 05/08/95 120,663 120,663
1,175,183sh. Canadian's Holdings, Inc.
Common Stock* 09/22/95 34,821 2
$1,369,166 Canadina's Corp.,
Collateralized Loan
Guarantee earning
interest at 13.75%
due 08/31/04 09/22/95 1,369,166 1,369,166
- ----------------------------------------------------------------------------------------------------
4,103,186 3,789,334 14.9
- ----------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(11) 05/24/95 1,193,894 1,193,894
439.694 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 73,295 73,295
- ----------------------------------------------------------------------------------------------------
1,267,189 1,267,189 5.0
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
schedule.
--------------------------
SEVEN
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
34,996 sh. MTIHoldings II, Inc., 07/06/94 &
Common Stock* 12/28/94 237,627 31,496
- ----------------------------------------------------------------------------------------------------
237,627 31,496 0.1
- ----------------------------------------------------------------------------------------------------
Total Investments in Managed
Companies (78.5% of net assets) 17,980,929 20,303,791 79.9
- ----------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,300,000 Ford Motor Credit
Corporation, 5.562%
Notes due 10/3/95 09/26/95 2,299,300 2,299,300
$2,800,000 Household Finance Corp.,
5.558% Notes
due 10/10/95 09/26/95 2,796,171 2,796,171
- ----------------------------------------------------------------------------------------------------
Total Temporary Investments
(19.7% of net assets) 5,095,471 5,095,471 20.1
- ----------------------------------------------------------------------------------------------------
Total Investments (98.2% of net assets) $23,076,400 $25,399,262 100.0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
1) The Carr-Gottstein Foods Company common stock trades on the New York Stock
Exchange. The Fund and Fiduciary Capital Partners, L.P. ("FCP") combined own
a material percentage of the outstanding shares. To reflect the resultant
lack of liquidity, the Fund valued the shares at a 5% discount to the public
market price. (Note 7)
(2) The KEMET Corporation common stock trades on the NASDAQ National Market
System. (Note 7)
(3) Pursuant to the terms of the Fund's agreement with Huntington Holdings,
Inc., under certain circumstances the number of shares issuable upon
exercise of the warrants held by the Fund will increase periodically. The
most recent increase occurred on August 1, 1995 when the Fund received the
right to an additional 27.7 shares.
(4) The notes will amortize in eight equal quarterly installments of $367,375
commencing on 6/30/99. The current payment of 7.0% of the interest may be
deferred at the borrower's option. During any period in which the payment of
interest is deferred, the interest rate on the notes increases from 20.00%
to 21.00%.
(5) The notes will amortize in eight equal quarterly installments of $627,991
commencing on 11/30/99.
(6) The Protection One, Inc. common stock trades on the NASDAQ National Market
System. (Note 7)
(7) The notes will amortize as follows: $30,017 on 9/01/97, $30,992 on 12/01/97,
$32,000 on 3/01/98, $33,040 on 6/01/98, $34,114 on 9/01/98, $35,222 on
12/01/98, $36,367 on 3/01/99 and $2,164,248 on 5/31/99.
(8) The notes will amortize in twelve equal quarterly installments of $199,333
commencing on 12/01/99. The notes also bear contingent additional interest
to be computed under a specified formula.
(9) The debentures are convertible into 22,065 shares of Canadian's Holdings,
Inc. common stock. The accrual of interest on the debentures was
discontinued by the Fund effective April 1, 1995. (Note 6)
(10) The notes bear interest equal to the prime rate, plus 5%.
(11) The notes will amortize in three equal annual installments of $430,000
commencing on 5/24/00.
* Non-income producing security.
The accompanying notes to financial statements are an integral part of this
schedule.
------------------------
EIGHT
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments (Notes 6 and 7)
Portfolio investments, at value:
Managed companies (amortized cost -
$17,980,929 and $16,052,631,
respectively) $20,303,791 $19,274,598
Temporary investments, at amortized cost 5,095,471 4,179,590
- ----------------------------------------------------------------------------------------------------
Total investments 25,399,262 23,454,188
Cash and cash equivalents 224,120 173,095
Accrued interest receivable (Note 6) 698,043 521,794
Other assets, including receivables from
sale of investments 4,988 544,921
- ----------------------------------------------------------------------------------------------------
Total assets $26,326,413 $24,693,998
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 49,237 $ 44,384
Accounts payable and accrued liabilities 27,634 33,542
Prepaid interest income - 52,635
Distributions payable to partners 393,030 589,545
- ----------------------------------------------------------------------------------------------------
Total liabilities 469,901 720,106
- ----------------------------------------------------------------------------------------------------
CONTINGENCIES (NOTE 5)
NET ASSETS:
Managing General Partner 34,942 16,116
Limited Partners (equivalent to $19.91
and $18.47, respectively, per limited
partnership unit based on 1,296,999
units outstanding) 25,821,570 23,957,776
- ----------------------------------------------------------------------------------------------------
Net assets 25,856,512 23,973,892
- ----------------------------------------------------------------------------------------------------
Total liabilities and net assets $26,326,413 $24,693,998
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
----------------------
NINE
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $634,928 $ 579,759 $1,853,671 $1,709,461
- ---------------------------------------------------------------------------------------
Total investment income 634,928 579,759 1,853,671 1,709,461
- ---------------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 49,757 55,222 149,270 180,783
Fund administration fees (Note 3) 29,581 29,582 88,745 88,746
Independent General Partner fees
and expenses (Note 4) 10,577 10,656 38,565 38,223
Administrative expenses (Note 3) 17,223 17,190 51,671 51,570
Professional fees 14,792 11,292 42,948 32,608
Amortization 2,625 2,625 7,875 7,875
Other expenses 9,713 16,180 25,949 41,420
- ---------------------------------------------------------------------------------------
Total expenses 134,268 142,747 405,023 441,225
- ---------------------------------------------------------------------------------------
NET INVESTMENT INCOME 500,660 437,012 1,448,648 1,268,236
- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss)
on investments 528,313 (3,105,997) 2,512,172 (2,609,534)
Net (decrease) increase in
unrealized appreciation of
investments (299,523) 3,723,523 (899,110) 3,665,100
- ---------------------------------------------------------------------------------------
Net gain on investments 228,790 617,526 1,613,062 1,055,566
- ---------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $729,450 $1,054,538 $3,061,710 $2,323,802
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
----------------------
TEN
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
- ---------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $3,061,710 $2,323,802
Adjustments to reconcile net increase
in net assets resulting from operations
to net cash provided by operating activities:
Accreted discount on portfolio investments (58,394) (27,559)
Amortization 7,875 7,875
Change in assets and liabilities:
Accrued interest receivable (176,249) (174,185)
Other assets (394) 6,561
Payable to affiliates 5,799 29,957
Accounts payable and accrued liabilities (5,908) 3,266
Prepaid interest income (52,635) 37,149
Net realized (gain) loss on investments (2,512,172) 2,609,534
Net decrease
(increase) in unrealized
appreciation of investments 899,110 (3,665,100)
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 1,168,742 1,151,300
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (2,753,876) (4,146,079)
Proceeds from dispositions of portfolio investments 3,927,645 9,886,369
(Purchase) sale of temporary investments, net (915,881) (5,477,093)
- ---------------------------------------------------------------------------------------
Net cash provided by investing activities 257,888 263,197
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,375,605) (1,947,204)
- ---------------------------------------------------------------------------------------
Net cash used in financing activities (1,375,605) (1,947,204)
- ---------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 51,025 (532,707)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 173,095 792,425
- ---------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 224,120 $ 259,718
- ---------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Investments exchanged for other investments $ - $ 237,375
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
----------------------
ELEVEN
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR
THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED)
- ---------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $1,448,648 $ 1,758,135
Net realized gain (loss) on investments 2,512,172 (2,089,653)
Net (decrease) increase in unrealized
appreciation of investments (899,110) 3,594,544
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,061,710 3,263,026
Repurchase of limited partnership units - (2,402,951)
Distributions to partners from -
Net investment income (1,179,090) (1,758,135)
Realized gain on investments - (778,614)
- ---------------------------------------------------------------------------------------
Total increase (decrease) in net assets 1,882,620 (1,676,674)
Net assets:
Beginning of period 23,973,892 25,650,566
- ---------------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $269,558
and $0, respectively) $25,856,512 $3,973,892
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
---------------------
TWELVE
<PAGE> 14
FIDUCIARY CAPITAL PENSION 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,
- --------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ .48 $ .40 $ 1.42 $ 1.19
Expenses (.10) (.10) (.31) (.31)
- --------------------------------------------------------------------------------------------------------------
Net investment income .38 .30 1.11 .88
Net realized gain (loss) on investments .41 (2.15) 1.92 (1.81)
Net (decrease) increase in unrealized
appreciation of investments (.23) 2.58 (.69) 2.54
Distributions declared to partners (.30) (.45) (.90) (1.35)
- --------------------------------------------------------------------------------------------------------------
Net increase in net asset value .26 .28 1.44 .26
Net asset value:
Beginning of period 19.65 17.94 18.47 17.96
- --------------------------------------------------------------------------------------------------------------
End of period $ 19.91 $ 18.22 $ 19.91 $ 18.22
- --------------------------------------------------------------------------------------------------------------
RATIOS (ANNUALIZED):
Ratio of expenses to average net assets 2.09% 2.21% 2.17% 2.28%
Ratio of net investment income to
average net assets 7.80% 6.77% 7.75% 6.55%
Number of limited partnership units at
end of period 1,296,999 1,427,950 1,296,999 1,427,950
</TABLE>
The accompanying notes to financial statements are an integral part
of these selected per unit data and ratios.
-----------------
THIRTEEN
<PAGE> 15
NUMBER
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of the Managing General Partner, necessary to fairly present the
financial position of the Fund as of September 30, 1995 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, 1994.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM Fiduciary
Capital Management Company ("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 $149,270 were paid by the Fund for the
nine months ended September 30, 1995.
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 $88,745
were paid by the Fund for the nine months ended September 30, 1995. 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 $51,671 for the nine months ended September
30, 1995.
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 Partners, L.P., an
affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable
monthly in arrears, together with all out-of-pocket expenses. Each Fund's
allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the nine months ended
September 30, 1995 totaled $38,565.
-----------------
FOURTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CONTINGENCIES
FCM, the Managing General Partner of the Fund, had been named as a defendant
in a class action lawsuit brought in March 1995 against PaineWebber Incorporated
and a number of its affiliates. During May 1995, the Court entered an order
certifying the class and dismissing the class action against FCM without
prejudice. FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
6. NON-ACCRUAL STATUS OF INVESTMENTS
In accordance with the Fund's accounting policies, the Fund stopped accruing
interest on the Canadian's Holdings, Inc. Exchangeable Redeemable Debentures
effective April 1, 1995.
7. SUBSEQUENT EVENTS
On October 13, 1995, Carr-Gottstein Foods Co. ("Carr-Gottstein") announced
an offer to purchase up to 7,500,000 shares (approximately 49%) of its
outstanding common stock at a purchase price of $11.00 per share. The offer,
which is subject to various contingencies, will expire on November 15, 1995. If
more than 7,500,000 shares are tendered, the tendered shares will generally be
purchased on a pro rata basis. The Fund has tendered all of its shares. However,
it is likely that the number of shares actually purchased will be pro rated.
On November 6, 1995, the Fund sold 22,604 shares of KEMET Corporation common
stock. The Fund received $789,049 of sales proceeds, resulting in a realized
gain of $781,040.
During November 1995, the Fund sold all of its Protection One, Inc. common
stock. The Fund received $124,173 of sales proceeds, resulting in a realized
gain of $39,189.
-----------------
FIFTEEN
<PAGE> 17
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, the Fund held portfolio investments in twelve
Managed Companies, with an aggregate cost of approximately $18.0 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 78.5% 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 continues to hold all of the equity components
of its original investments, except for a substantial portion of its KEMET
Corporation ("KEMET") stock and its Protection One, Inc. ("Protection One")
stock.
As of September 30, 1995, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available for investment, for
distribution to the partners or to fund the annual repurchase offer.
The Fund sold a portion of its KEMET common stock during the nine months
ended September 30, 1995. In addition, the Fund's subordinated debt investment
in Protection One was prepaid during the nine months ended September 30, 1995.
In the aggregate, the Fund received $3,395,193 of proceeds, including applicable
prepayment premiums, from these transactions.
On November 6, 1995, the Fund received $789,049 of sales proceeds from the
sale of 22,604 shares of KEMET common stock.
During November 1995, the Fund received $124,173 of sales proceeds from the
sale of all of its Protection One common stock.
A portion of the proceeds representing gains from these transactions were
used by the Fund to fund a portion of the cost of the follow-on investments in
Canadian's Corp. ("Canadian's"), which were acquired on December 29, 1994, May
8, 1995 and September 22, 1995 (see following discussion). The remaining portion
of the gains from these transactions have been reserved by the Managing General
Partner to partially fund either the 1995 repurchase offer or any additional
follow-on investments that the Fund may make in existing portfolio companies
during 1995.
----------------
SIXTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
On October 13, 1995, Carr-Gottstein announced an offer to purchase up to
7,500,000 shares (approximately 49%) of its outstanding common stock at a
purchase price of $11.00 per share. The offer, which is subject to various
contingencies, will expire on November 15, 1995. If more than 7,500,000 shares
are tendered, the tendered shares will generally be purchased on a pro rata
basis. The Fund has tendered all of its shares. However, it is likely that the
number of shares actually purchased will be pro rated.
The Fund made its initial investment in Canadian's during September 1994 as
part of a financing used to settle Canadian's liabilities and allow the company
to emerge from bankruptcy. A follow-on investment was made during December 1994
in order to finance the acquisition of store leases and certain fixed assets of
The Ormonds Shops ("Ormonds"). The company expected to be able to fund certain
costs relating to conversion of the Ormonds stores to the Canadian's format out
of operating cash flow. Unfortunately, the retail market, and particularly
women's specialty retailing, has suffered a prolonged and worsening downturn
which has continued throughout 1995. As a consequence, the company has not
generated sufficient cash flow to fund its operations, let alone fund the
capital expenditures relating to the Ormonds acquisition.
During May 1995, the Fund made a follow-on investment in Canadian's at a
cost of $117,000. The investment consisted of $130,000 of floating rate
Promissory Notes, with warrants to acquire common stock. The Fund and certain of
Canadian's equity investors provided a loan to the company in order to finance
unanticipated cash shortfalls arising from operations which were below
expectations. By August 1995, the company was facing a significant working
capital shortage and requested the Funds and its other investors to make an
additional investment in the company.
The company's major equity owners and the Funds agreed to provide the
requested funding. The Funds insisted that the new investment rank senior to
previous loans made to the company by all parties other than the company's
revolving line of credit lender. In order to accomplish this level of seniority,
the new financing was structured as a collateralized guarantee that would
support an overadvance under the company's revolving line of credit. This new
investment of $1,369,166 carries an interest rate of 13.75% and is due on August
31, 2004. In consideration of the new financing, the Funds and the other parties
which participated now own approximately 92.5% of Canadian's Holdings, Inc.
("Canadian's Holdings") common stock, which in turn owns 96.5% of the company's
common stock. All holders of the company's warrants, including the Fund,
surrendered their warrants in exchange for common stock of Canadian's Holdings.
The Fund's ownership of the company has increased from approximately 7% to
approximately 20%.
The Canadian's Holdings Exchangeable Redeemable Debentures are secured by
preferred stock issued by the company and the company has elected not to pay
dividends on the preferred stock. Therefore, Canadian's Holdings is unable to
pay interest on the debentures and is in default. The holders of these
debentures, other than the Funds (which hold a portion of the debentures), were
unable to participate in the latest financing. As a result, holders of the
debentures were diluted to an ownership percentage of approxi-
------------------
SEVENTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
mately 3.1%. This dilution reduced the Fund's interest in Canadian's Holdings
that is held through the debentures to less than 1%.
Officers of FCM are providing the company with managerial assistance in
order to identify areas where the company can save money and reduce costs. Under
consideration are steps such as closing unprofitable or marginally profitable
stores and staff reductions. The company is also considering various proposals
designed to raise additional equity capital. With a lower cost structure and
possibly additional capital, the company is hopeful that its market strategy
will be successful if the overall environment improves.
One May 24, 1995, the Fund acquired a new portfolio investment in R.B.M.
Precision Metal Products, Inc. ("RBM") at a cost of approximately $1.26 million.
The investment consists of $1,290,000 of 13.00% Senior Subordinated Secured
Notes due May 24, 2002, with warrants to acquire common stock.
The Fund anticipates being able to reinvest all available funds, including
the principal amount of any future prepayments received, in additional portfolio
investments. The Partnership Agreement provides that the Fund's investment
period will end on December 31, 1995. Although the Fund is permitted to make
additional investments in existing portfolio companies after 1995, the Fund will
no longer be permitted to acquire investments in new portfolio companies.
Pursuant to the terms of the Fund's periodic unit repurchase policy that was
adopted by the Fund's Limited Partners during 1993, the Fund will annually offer
to purchase from its Limited Partners up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units. The 1995 repurchase
offer was mailed to the Limited Partners on October 6, 1995. Limited Partners
tendered 245,447 Units for repurchase. The Fund anticipates repurchasing
approximately 40% of the tendered Units, or approximately 100,435 Units, at the
Fund's net asset value per Unit as of November 14, 1995. The actual redemption
of tendered Units will occur on November 21, 1995.
Accrued interest receivable increased $176,249 from $521,794 at December 31,
1994 to $698,043 at September 30, 1995. This increase resulted primarily from a
$178,299 increase in the deferred portion of the interest receivable from KB
Alloys, Inc. ("KB Alloys") with respect to the Fund's investment in $2,938,997
principal amount of 20.00% Senior Subordinated Term Notes due June 30, 2001. KB
Alloys is required to pay 13.00% interest currently, while the remaining 7.00%
of the interest may be deferred at KB Alloys' option. During any period in which
the payment of interest is deferred, the interest rate on the notes increases
from 20.00% to 21.00%. To date, KB Alloys has elected to defer payment of the
interest. At September 30, 1995, the cumulative amount of deferred interest
totaled $560,124. The Fund's agreement with KB Alloys requires KB Alloys to
----------------
EIGHTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
pay all accumulated deferred interest in excess of $452,153 no later than August
28, 1998, and the amount of deferred interest cannot exceed $452,153 at any time
thereafter. The amount of accrued interest receivable with respect to other
portfolio investments decreased slightly during the nine months ended September
30, 1995.
Other assets decreased $539,933, from $544,921 at December 31, 1994 to
$4,988 at September 30, 1995. The balance at December 31, 1994 included a
$532,452 receivable from the sale of KEMET common stock during December 1994.
This amount was received by the Fund during January 1995.
Prepaid interest income decreased from $52,635 at December 31, 1994 to zero
at September 30, 1995. This prepaid interest income was related to the
Canadian's 13.50% Subordinated Notes, which required interest to be paid
quarterly, in advance, to the Fund. Effective June 1, 1995, the notes were
amended to provide for the interest to be paid monthly, in advance, on the first
day of each month.
Distributions payable to partners decreased $196,515, from $589,545 at
December 31, 1994 to $393,030 at September 30, 1995. This decrease corresponds
to the percentage decrease in the quarterly distribution rate from $.45 per Unit
to $.30 per Unit (as discussed in the following paragraphs).
During the nine months ended September 30, 1995, the Fund paid cash
distributions pertaining to the fourth quarter of 1994 and the first and second
quarters of 1995, in the amounts of $589,545, $393,030 and $393,030,
respectively. These quarterly distributions were equal to $.45, $.30 and $.30
per Unit, respectively, and represented annualized rates equal to 9.0%, 6.0% and
6.0%, respectively, of contributed capital.
As discussed in previous reports, the quarterly distributions for 1995 are
being paid at a reduced rate. The distribution for the third quarter of 1995
will be paid on November 14, 1995 in an amount equal to $.30 per Unit, or an
annualized rate equal to 6.0% of contributed capital. This distribution consists
entirely of net investment income earned during the three months ended September
30, 1995.
It is expected that the distribution for the fourth quarter 1995 will also
be made at the same 6.0% rate. In the past, the Fund realized gains from its
investments that provided additional sources of cash for distributions. Although
there can be no assurances, the Fund may realize gains during the fourth quarter
of 1995 that could in turn result in a higher distribution rate for the quarter.
Gains can also be utilized to fund the annual repurchase offer or to fund any
follow-on investments that the Fund may make in existing portfolio companies.
The Fund's investment period will end on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio companies
after 1995, the Fund will no longer be permitted to acquire investments in new
portfolio companies.This will impact the amount of the Fund's quarterly
distributions for 1996 and subsequent
--------------
NINETEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
years because all proceeds from dispositions or maturities of investments after
December 31, 1995 will be distributed to investors, except to the extent the
cash is needed to fund the annual repurchase offer or to fund any follow-on
investments that the Fund may make in existing portfolio companies.
FCM, the Managing General Partner of the Fund, had been named as a defendant
in a class action lawsuit brought in March 1995 against PaineWebber Incorporated
and a number of its affiliates. During May 1995, the Court entered an order
certifying the class and dismissing the class action against FCM without
prejudice. FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment income was $500,660 for the three months ended
September 30, 1995 as compared to net investment income of $437,012 for the
corresponding period of the prior year. Net investment income per limited
partnership unit increased from $.30 to $.38 and the ratio of net investment
income to average net assets increased from 6.77% to 7.80% for the three months
ended September 30, 1995 as compared to the corresponding period of the prior
year.
The Fund's net investment income was $1,448,648 for the nine months ended
September 30, 1995 as compared to net investment income of $1,268,236 for the
corresponding period of the prior year. Net investment income per limited
partnership unit increased from $.88 to $1.11 and the ratio of net investment
income to average net assets increased from 6.55% to 7.75% for the nine months
ended September 30, 1995 as compared to the corresponding period of the prior
year.
Net investment income for both the three and nine month periods ended
September 30, 1995 increased as a result of slight increases in investment
income and slight decreases in total expenses.
Investment income increased $55,169 and $144,210, or 9.5% and 8.4%, for the
three and nine month periods ended September 30, 1995, respectively, as compared
to the corresponding periods of the prior year. These increases were primarily
the result of higher interest rates on both the Fund's temporary investments and
the Fund's higher-yielding subordinated debt investments. The positive effect of
the higher interest rates was partially offset by a decrease in the amount of
the Fund's average net assets.
The Fund had average net assets of approximately $24.9 million during the
nine months ended September 30, 1995 as compared to approximately $25.8 million
during the corresponding period of the prior year. This 3.5% decrease in average
net assets occurred primarily as a result of the Fund's repurchase of 9.17% of
its Units during the fourth quar-
---------------
TWENTY
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
ter of 1994. The negative effect of the repurchase of Units was partially offset
by gains achieved with respect to the Fund's investments (primarily the KEMET
common stock).
Total expenses decreased $8,479 and $36,202, or 5.9% and 8.2%, for the three
and nine month periods ended September 30, 1995, respectively, as compared to
the corresponding periods of the prior year. These decreases resulted primarily
from decreases in investment advisory fees and other expenses. The investment
advisory fees decreased as a result of the repurchase of Units by the Fund
during the fourth quarter of 1994 and the realization during July 1994 of the
loss on the Fund's Mobile Technology, Inc. ("MTI") investment. Both the
repurchase of Units and the realization of the MTI loss decreased the amount of
the Fund's available capital (as defined in the Partnership Agreement), which is
the base with respect to which the investment advisory fees are calculated.
Other expenses decreased primarily as a result of a decrease in consulting fees.
These decreases were partially offset by an increase in professional fees.
NET REALIZED GAIN ON INVESTMENTS
On February 28, 1995, the Fund sold 8,705 shares of KEMET common stock. The
Fund received $269,333 of sales proceeds, resulting in a realized gain of
$263,165.
During April and May 1995, the Fund sold an additional 37,080 shares of
KEMET common stock. The Fund received $1,629,089 of sales proceeds, resulting in
realized gain of $1,602,802.
On May 17, 1995, Protection One prepaid its $917,000 of 12.00% Senior
Subordinated Notes that were carried by the Fund at an amortized cost of
$844,958. The Fund received $962,850 of proceeds, including a prepayment
premium, resulting in a realized gain of $117,892.
On July 25, 1995, the Fund sold 7,913 shares of KEMET common stock. The Fund
received $533,921 of sales proceeds, resulting in a realized gain of $528,313.
NET UNREALIZED APPRECIATION OF 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
-----------------
TWENTY-ONE
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
such investment is valued initially based upon its original cost to the Fund
("cost method"). The cost method is used until significant developments
affecting the portfolio company provide a basis for use of an appraisal
valuation. Appraisal valuations are based upon such factors as the portfolio
company's earnings, cash flow and net worth, the market prices for similar
securities of comparable companies and an assessment of the portfolio company's
future financial prospects. In a case of unsuccessful operations, the appraisal
may be based upon liquidation value. Appraisal valuations are necessarily
subjective. The Fund also may use, when available, third-party transactions in a
portfolio company's securities as the basis of valuation ("private market
method"). The private market method is used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.
As of December 31, 1994, the Fund had recorded $3,629,064 of unrealized
appreciation and $(407,097) of unrealized depreciation of investments.
Therefore, as of December 31, 1994, the Fund had recorded a total net unrealized
appreciation of investments of $3,221,967.
The net increase in unrealized appreciation of investments during the three
and nine month periods ended September 30, 1995 and the cumulative net
unrealized appreciation of investments as of September 30, 1995, consisted of
the following components:
<TABLE>
<CAPTION>
Unrealized Appreciation (Depreciation) Recorded
- -----------------------------------------------------------------------------------------------
During the Three During the Nine
Months Ended Months Ended As of
Portfolio Company September 30 , 1995 September 30, 1995 September 30, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized net appreciation
recorded in prior periods
for investments disposed
of during the period $(410,814) $(1,460,453) $ -
Carr-Gottstein (52,610) (70,147) 103,371
Neodata - (268,395) (278,914)
KEMET 356,719 921,050 1,541,968
Huntington 62,696 107,285 583,467
Amity - 72,307 719,828
Elgin / ENI 14,690 44,394 118,501
Proctection One 43,648 68,701 54,624
MTI - - (206,131)
Canadian's Holdings (313,852) (313,852) (313,852)
- -----------------------------------------------------------------------------------------------
$(299,523) $ (899,110) $2,322,862
===============================================================================================
</TABLE>
Carr-Gottstein completed an IPO of its common stock on July 1, 1993. The
stock, which trades on the New York Stock Exchange, closed at $6.00 on September
30, 1995. This price compares to closing prices of $6.50 on December 31, 1994
and $6.375 on June 30, 1995. Based on the $6.00 closing trading price of the
common stock, the Fund's 147,678
------------------
TWENTY-TWO
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
shares of common stock would have a market value of $886,068. However, the
Fund's valuation guidelines require the stock to be valued at a 5% discount to
the public market price to reflect the potential market impact that could result
from the sale of the material number of shares owned by the Funds.
The Neodata Corporation ("Neodata") stock was written down at March 31,
1995. The Partnership has consistently valued this investment based upon a
multiple of Neodata's cash flow. Because Neodata's long-term debt presently
provides for the accrual, rather than current payment, of interest, the
Company's debt has grown to a level which now exceeds the Partnership's
valuation.
KEMET completed an IPO of its common stock on October 21, 1992. KEMET
declared a two-for-one stock split effective September 20, 1995. The stock,
which trades on the NASDAQ National Market System, closed at $34.125 (an average
of the closing bid and ask prices) on September 30, 1995. This price is up from
the closing prices (as restated for the two-for-one stock split) of $14.6875 on
December 31, 1994 and $26.3125 on June 30, 1995. Based on the $34.125 closing
trading price of the common stock, the 45,660 shares of common stock that the
Fund held at September 30, 1995 had a market value of $1,558,148.
During June 1995, the Fund received an unsolicited offer from a third party
to purchase the Huntington Holdings, Inc. ("Huntington") warrants which are held
by the Fund. Although the Fund decided not to sell the warrants, the warrants
were written up in value at June 30, 1995 based upon the offer price. During
August 1995, the Fund received the right to an additional 27.7 shares of
Huntington stock, in accordance with the terms of the Fund's warrant agreement
with Huntington. The warrants were written up in value at September 30, 1995 in
consideration of the receipt of these additional warrants.
The Amity warrants and common stock were written up in value at March 31,
1995 to bring Amity's valuation more in line with the valuation of other
comparable companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value quarterly
to reflect the amount of the cumulative 10% preferential dividend that has
accrued with respect to the preferred stock.
Protection One completed an IPO of its common stock on September 29, 1994.
The stock, which trades on the NASDAQ National Market System, closed at $9.0625
(an average of the closing bid and ask prices) on September 30, 1995. This price
compares to closing prices of $4.875 on December 31, 1994 and $6.0625 on June
30, 1995. Based on the $9.0625 closing trading price of the common stock, the
Fund's 15,405 shares of common stock had a market value of $139,608 at September
30, 1995.
The current status of Canadian's operations and the Fund's investments in
Canadian's and Canadian's Holdings are discussed above. As a result of the
uncertainties currently
---------------------
TWENTY-THREE
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
surrounding the retail industry in general, and Canadian's in particular, the
Fund wrote the Canadian's Holdings debentures and common stock down in value to
a negligible amount during the third quarter of 1995. The debentures, which in
essence represent ownership of Canadian's preferred stock, are in default and
were significantly diluted in connection with the most recent financing.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
---------------------
TWENTY-FOUR
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 22,919,799
<INVESTMENTS-AT-VALUE> 20,025,124
<RECEIVABLES> 117,461
<ASSETS-OTHER> 3,095
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<DISTRIBUTIONS-OF-INCOME> 1,541,685
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