<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17738
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Fiduciary Capital Pension Partners, L.P.
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(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
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (800) 866-7607
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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Fiduciary Capital Pension Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
June 30, 1996 3
Balance Sheets - June 30, 1996 and
December 31, 1995 5
Statements of Operations for the three
months ended June 30, 1996 and 1995 6
Statements of Operations for the six
months ended June 30, 1996 and 1995 7
Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 8
Statements of Changes in Net Assets for
the six months ended June 30, 1996 and
for the year ended December 31, 1995 9
Selected Per Unit Data and Ratios 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
JUNE 30, 1996
(unaudited)
<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 8,170 464,002
- -------------------------------------------------------------------------------------------------------------
8,170 464,002 2.3
- -------------------------------------------------------------------------------------------------------------
62,606 sh. Amity Leather Products Co.,
Warrants to Purchase Class B
Common Stock* 07/30/92 85,909 674,584
22,608 sh. Amity Leather Products Co.,
Class A Common Stock* 07/30/92 226,080 243,604
- -------------------------------------------------------------------------------------------------------------
311,989 918,188 4.6
- -------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(2) 09/24/93 4,924,656 4,924,656
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 750,182
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
- -------------------------------------------------------------------------------------------------------------
5,594,803 5,757,375 29.2
- -------------------------------------------------------------------------------------------------------------
239,600 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,384,408
22.72 sh. LMC Operating Corp.,
Common Stock* 02/09/96 454,399 1
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- -------------------------------------------------------------------------------------------------------------
2,843,610 2,384,410 12.1
- -------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
3
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,204,213 1,204,213
439.694 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- -----------------------------------------------------------------------------------------------------------
1,277,508 1,277,508 6.5
- -----------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 1/19/03(4) 01/25/96 3,174,206 3,174,206
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(5)* 01/25/96 33,842 33,842
- -----------------------------------------------------------------------------------------------------------
3,208,048 3,208,048 16.2
- -----------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (71.1% of net assets) 13,760,672 14,041,029 71.1
- -----------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,850,000 Cargill, Inc.,
5.06% Notes due 7/03/96 06/19/96 2,849,199 2,849,199
$2,850,000 International Business
Machines Corporation,
5.10% Notes due 7/03/96 06/19/96 2,849,192 2,849,192
- -----------------------------------------------------------------------------------------------------------
Total Temporary Investments (28.9% of net assets) 5,698,391 5,698,391 28.9
- -----------------------------------------------------------------------------------------------------------
Total Investments (100.0% of net assets) $19,459,063 $19,739,420 100.0%
===========================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in eight equal quarterly installments of $627,991
commencing on 11/30/99.
(3) The notes will amortize in three equal annual installments of $430,000
commencing on 5/24/00.
(4) The notes will amortize in five equal annual installments of $653,184
commencing on 1/19/99. (Note 5)
(5) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
4
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
ASSETS:
Investments (Note 5):
Portfolio investments, at value:
Managed companies (amortized cost -
$13,760,672 and $14,272,465,
respectively) $14,041,029 $11,377,790
Temporary investments, at amortized cost 5,698,391 8,647,334
----------- -----------
Total investments 19,739,420 20,025,124
Cash and cash equivalents 286,977 175,768
Accrued interest receivable (Note 5) 163,979 117,461
Other assets 1,497 3,095
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Total assets $20,191,873 $20,321,448
=========== ===========
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 43,926 $ 54,494
Accounts payable and accrued liabilities 44,222 31,327
Distributions payable to partners 362,595 362,595
----------- -----------
Total liabilities 450,743 448,416
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CONTINGENCIES (Note 6)
NET ASSETS:
Managing General Partner (6,617) (5,298)
Limited Partners (equivalent to $16.50
and $16.61, respectively, per limited
partnership unit based on 1,196,564
units outstanding) 19,747,747 19,878,330
----------- -----------
Net assets 19,741,130 19,873,032
----------- -----------
Total liabilities and net assets $20,191,873 $20,321,448
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
5
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $413,773 $ 619,678
-------- ----------
Total investment income 413,773 619,678
-------- ----------
Expenses:
Investment advisory fees (Note 2) 35,644 49,756
Professional fees 29,377 13,695
Fund administration fees (Note 3) 29,582 29,582
Administrative expenses (Note 3) 17,224 17,224
Independent General Partner fees
and expenses (Note 4) 11,574 11,964
Other expenses 14,346 10,340
Amortization - 2,625
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Total expenses 137,747 135,186
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NET INVESTMENT INCOME 276,026 484,492
-------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments - 1,720,694
Net change in unrealized (loss) gain
on investments (42,950) (637,675)
-------- ----------
Net (loss) gain on investments (42,950) 1,083,019
-------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $233,076 $1,567,511
======== ==========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 814,125 $1,218,743
----------- ----------
Total investment income 814,125 1,218,743
----------- ----------
Expenses:
Investment advisory fees (Note 2) 77,184 99,513
Professional fees 68,875 28,156
Fund administration fees (Note 3) 59,164 59,164
Administrative expenses (Note 3) 34,448 34,448
Independent General Partner fees
and expenses (Note 4) 27,136 27,988
Other expenses 29,331 16,236
Amortization - 5,250
----------- ----------
Total expenses 296,138 270,755
----------- ----------
NET INVESTMENT INCOME 517,987 947,988
----------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (3,099,731) 1,983,859
Net change in unrealized gain (loss)
on investments 3,175,032 (599,587)
----------- ----------
Net gain on investments 75,301 1,384,272
----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 593,288 $2,332,260
=========== ==========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
7
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 593,288 $2,332,260
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Accreted discount on portfolio investments (22,831) (37,254)
Amortization - 5,250
Change in assets and liabilities:
Accrued interest receivable (46,518) (125,919)
Other assets 1,598 2,135
Payable to affiliates (10,568) 1,107
Accounts payable and accrued liabilities 12,895 (8,346)
Prepaid interest income - (52,635)
Net realized loss (gain) on investments 3,099,731 (1,983,859)
Net change in unrealized (gain) loss
on investments (3,175,032) 599,587
----------- ----------
Net cash provided by operating activities 452,563 732,326
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (3,655,003) (1,382,146)
Proceeds from dispositions of portfolio investments 1,089,896 3,393,724
Sale (purchase) of temporary investments, net 2,948,943 (1,809,057)
----------- ----------
Net cash provided by investing activities 383,836 202,521
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (725,190) (982,575)
----------- ----------
Net cash used in financing activities (725,190) (982,575)
----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 111,209 (47,728)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 175,768 173,095
----------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 286,977 $ 125,367
=========== ==========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
8
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 517,987 $ 1,725,971
Net realized (loss) gain on investments (3,099,731) 3,790,988
Net change in unrealized gain (loss)
on investments 3,175,032 (6,116,647)
------------- -----------
Net increase (decrease) in net
assets resulting from operations 593,288 (599,688)
Repurchase of limited partnership units - (1,959,487)
Distributions to partners from -
Net investment income (702,273) (1,541,685)
Realized gain on investments (22,917) -
------------- -----------
Total decrease in net assets (131,902) (4,100,860)
Net assets:
Beginning of period 19,873,032 23,973,892
------------- -----------
End of period (including undistributed
net investment income of $0
and $184,286, respectively) $ 19,741,130 $19,873,032
============= ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
9
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
1996 1995 1996 1995
------ ------- ------- -------
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .34 $ .47 $ .67 $ .93
Expenses (.11) (.10) (.24) (.21)
------ ------- ------- -------
Net investment income .23 .37 .43 .72
Net realized gain (loss) on investments - 1.31 (2.56) 1.52
Net change in unrealized (loss) gain
on investments (.04) (.49) 2.62 (.46)
Distributions declared to partners (.30) (.30) (.60) (.60)
------ ------- ------- -------
Net (decrease) increase in net asset value (.11) .89 (.11) 1.18
Net asset value:
Beginning of period 16.61 18.76 16.61 18.47
------ ------- ------- -------
End of period $16.50 $ 19.65 $ 16.50 $ 19.65
====== ======= ======= =======
Ratios (annualized):
Ratio of expenses to average net assets 2.78% 2.17% 2.99% 2.20%
Ratio of net investment income to
average net assets 5.57% 7.77% 5.22% 7.70%
Number of limited partnership units at end of period 1,196,564 1,296,999 1,196,564 1,296,999
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
10
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include
all adjustments (consisting solely of normal recurring adjustments) which
are, in the opinion of FCM Fiduciary Capital Management Company ("FCM"),
the Managing General Partner of the Fund, necessary to fairly present the
financial position of the Fund as of June 30, 1996 and the results of its
operations, changes in net assets and its cash flows for the periods then
ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements
included in the Fund's annual audited financial statements for the year
ended December 31, 1995.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM
receives a subordinated monthly fee at the annual rate of 1% of the Fund's
available capital, as defined in the Partnership Agreement. Investment
advisory fees of $77,184 were paid by the Fund for the six months ended
June 30, 1996.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM
receives a monthly fee at the annual rate of .45% of net proceeds available
for investment, as defined in the Partnership Agreement. Fund
administration fees of $59,164 were paid by the Fund for the six months
ended June 30, 1996. FCM is also reimbursed, subject to various
limitations, for administrative expenses incurred in providing accounting
and investor services to the Fund. The Fund reimbursed FCM for
administrative expenses of $34,448 for the six months ended June 30, 1996.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and Fiduciary Capital
Partners, L.P., an affiliated fund, (collectively, the "Funds") an annual
fee of $30,000, payable monthly in arrears, together with all out-of-pocket
expenses. Each Fund's allocation of these fees and expenses is based on
the relative number of outstanding Units. Fees and expenses paid by the
Fund for the six months ended June 30, 1996 totaled $27,136.
5. PROTFOLIO INVESTMENTS
The companies which Atlas Environmental, Inc. ("Atlas") acquired
with the proceeds of the Fund's subordinated debt investment have not
performed as well as expected, and as a consequence, Atlas has defaulted on
certain financial covenants in its agreements with its senior lender and
with the Fund. The senior lender, the Bank of New York, has reacted to the
covenant defaults by limiting Atlas' availability under its revolving
credit facility and by instructing Atlas not to pay the interest on the
Fund's subordinated
11
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(unaudited)
debt that was payable on July 19, 1996 in the amount of $111,450. In
accordance with the intercreditor agreement between the Fund and the Bank
of New York, the bank can block payments to the Fund for up to 180 days.
During August 1996, the company entered into a letter of intent, under the
terms of which some of the company's businesses would be sold for cash.
This sale, if consummated, would provide cash to pay the Fund's interest.
As a result, the Fund accrued the interest due on the subordinated debt as
of June 30, 1996.
6. CONTINGENCIES
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated ("PaineWebber") and a number of
its affiliates concerning the sale of 70 different limited partnerships and
other direct investment programs. During May 1995, the Court entered an
order certifying the class and dismissing the class action against FCM
without prejudice.
During January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action outlining the terms
under which the parties agreed to settle the case. Pursuant to that
memorandum of understanding, PaineWebber irrevocably deposited $125 million
into an escrow fund under the supervision of the United States District
Court for the Southern District of New York to be used to resolve the
litigation. On July 17, 1996, PaineWebber and the class plaintiffs
submitted a definitive settlement agreement, which has been preliminarily
approved by the Court. The agreement provides for the complete resolution
of the class action litigation, including releases in favor of the Fund and
FCM, and the allocation of the $125 million settlement fund among investors
in the various partnerships at issue in the case. As part of the
settlement, PaineWebber also agreed to provide class members with certain
financial guarantees relating to some of the partnerships, including the
Fund. The details of the settlement are described in a notice mailed
directly to class members at the direction of the Court. A final hearing
on the fairness of the proposed settlement has been scheduled for October
25, 1996.
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities (not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $13.8 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 71.1% of the Fund's net assets. When acquired,
these portfolio investments generally consisted of high-yield subordinated
debt, linked with an equity participation or a comparable participation
feature in middle market companies. These securities were typically issued
in private placement transactions and were subject to certain restrictions
on transfer or sale, thereby limiting their liquidity. A number of the
portfolio companies have prepaid their subordinated debt that the Fund
held. In addition, three of the portfolio companies have successfully
completed initial public offerings ("IPOs") of their stock. The Fund has
sold the stock it held in these three companies, except for a portion of
its KEMET Corporation ("KEMET") stock.
As of June 30, 1996, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual
repurchase offer.
During January 1996, the Fund invested $3,200,602 in Atlas
Environmental, Inc. ("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".
The companies which Atlas acquired with the proceeds of the Fund's
subordinated debt investment have not performed as well as expected, and as
a consequence, Atlas has defaulted on certain financial covenants in its
agreements with its senior lender and with the Fund. The senior lender,
the Bank of New York, has reacted to the covenant defaults by limiting
Atlas' availability under its revolving credit facility and by instructing
Atlas not to pay the interest on the Fund's subordinated debt that was
payable on July 19, 1996 in the amount of $111,450. In accordance with the
intercreditor agreement between the Fund and the Bank of New York, the bank
can block payments to the Fund for up to 180 days. During August 1996, the
company entered into a letter of intent, under the terms of which some of
the company's businesses would be sold for cash. This sale, if
consummated, would provide cash to pay the Fund's interest. As a result,
the Fund accrued the interest due on the subordinated debt as of June 30,
1996.
During February 1996, the Fund sold its Huntington Holdings, Inc.
("Huntington") warrants. As discussed below, the Fund received $1,089,896
of proceeds from this transaction. These proceeds have been reserved by
the Managing General Partner to partially fund either the Fund's 1996
repurchase offer or any additional follow-on investments that the Fund may
make in existing portfolio companies.
During June 1994, the Fund invested $2,348,080 in LMC Operating
Corp. ("LMC"). The investment consisted of $2,396,000 of 13.00% Senior
Subordinated Notes due May 31, 1999 with warrants to acquire common stock.
While LMC has experienced significant operating difficulties since
the Fund acquired its LMC investment during 1994, it is now progressing
quite satisfactorily under the guidance of its new management team. The
major accomplishment has been the re-engineering and modernization of the
product line. Initial responses from customers and other industry sources
have been positive. LMC is optimistic about the prospects for sales of its
"utility" models and are hopeful about fleet grooming sales.
13
<PAGE> 14
LMC is also trying to diversify its product line to reduce the
seasonality of its business and increase the utilization of its
manufacturing facility. It is concentrating on vehicles with low ground
pressure in order to utilize the engineering and manufacturing expertise
gained from snow grooming equipment. The projects currently underway are a
joint venture with AEBI, a Swiss company that manufactures grooming
equipment utilized on golf courses and highways, and the internal
development of a tracked utility vehicle designed for use by landscape and
other contractors. Both projects are progressing satisfactorily.
These projects may necessitate additional follow-on investments by
the Fund. We are also exploring other possible acquisitions, including one
which would result in a reverse merger into a small public company and a
public listing for LMC shares. Any such merger or acquisition may also
require additional Fund investment. The Fund currently owns 23% of LMC and
our affiliate, Fiduciary Capital Partners, owns 27%.
Pursuant to the terms of the Fund's periodic unit repurchase
policy that was adopted by the Fund's Limited Partners during 1993, the
Fund will annually offer to purchase from its Limited Partners up to 7.5%
of its outstanding Units for an amount equal to the current net asset value
per Unit, net of a fee (not to exceed 2%) to be retained by the Fund to
offset expenses incurred in connection with the repurchase offer. If the
number of tendered Units in any year exceeds 7.5% of the outstanding Units,
the Fund's General Partners may vote to repurchase up to an additional 2%
of the outstanding Units. The 1996 repurchase offer will be mailed to the
Limited Partners during October 1996. The actual redemption of tendered
Units will occur on November 21, 1996.
Accrued interest receivable increased $46,518 from $117,461 at
December 31, 1995 to $163,979 at June 30, 1996. This increase resulted
primarily from the accrual of interest due on the Atlas notes that were
acquired during January 1996. This increase was partially offset by a
decrease, to zero, in the accrued interest receivable attributable to the
Fund's Canadian's investment.
During the six months ended June 30, 1996, the Fund paid cash
distributions pertaining to the fourth quarter of 1995 and the first
quarter of 1996, each in the amount of $362,595. The distribution for the
second quarter of 1996 will be paid on August 15, 1996. These quarterly
distributions are equal to $.30 per Unit and represent an annualized rate
equal to 6.0% of contributed capital.
The Fund's investment period ended on December 31, 1995. Although
the Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire
investments in new portfolio companies, except to fund commitments made
prior to December 31, 1995. This will impact the amount of the Fund's
quarterly distributions for 1996 and subsequent years because all proceeds
from dispositions or maturities of investments will be distributed to
investors, except to the extent the cash is needed to fund the annual
repurchase offer or to fund any follow-on investments that the Fund may
make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to
the financial restructuring of LMC. As discussed above, one of the
committed investments, Atlas, was acquired during January 1996 and the LMC
financial restructuring was consummated during February 1996. The other
two committed investments have been abandoned. The portion of the Fund's
available capital that was reserved for these abandoned investments is now
reserved to fund either the Fund's 1996 repurchase offer or any additional
follow-on investments that the Fund may make in existing portfolio
companies.
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber and a number of it affiliates concerning the
sale of 70 different limited partnerships and other direct investment
programs. During May 1995, the Court entered an
14
<PAGE> 15
order certifying the class and dismissing the class action against FCM without
prejudice.
During January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action outlining the terms
under which the parties agreed to settle the case. Pursuant to that
memorandum of understanding, PaineWebber irrevocably deposited $125 million
into an escrow fund under the supervision of the United States District
Court for the Southern District of New York to be used to resolve the
litigation. On July 17, 1996, PaineWebber and the class plaintiffs
submitted a definitive settlement agreement, which has been preliminarily
approved by the Court. The agreement provides for the complete resolution
of the class action litigation, including releases in favor of the Fund and
FCM, and the allocation of the $125 million settlement fund among investors
in the various partnerships at issue in the case. As part of the
settlement, PaineWebber also agreed to provide class members with certain
financial guarantees relating to some of the partnerships, including the
Fund. The details of the settlement are described in a notice mailed
directly to class members at the direction of the Court. A final hearing
on the fairness of the proposed settlement has been scheduled for October
25, 1996.
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities (not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $276,026 for the three months
ended June 30, 1996 as compared to net investment income of $484,492 for
the corresponding period of the prior year. Net investment income per
limited partnership unit decreased from $.37 to $.23 and the ratio of net
investment income to average net assets decreased from 7.77% to 5.57% for
the three months ended June 30, 1996 as compared to the corresponding
period of the prior year.
The Fund's net investment income was $517,987 for the six months
ended June 30, 1995 as compared to net investment income of $947,988 for
the corresponding period of the prior year. Net investment income per
limited partnership unit decreased from $.72 to $.43 and the ratio of net
investment income to average net asserts decreased from 7.70% to 5.22% for
the six months ended June 30, 1996 as compared to the corresponding period
of the prior year.
Net investment income for both the three and six month periods
ended June 30, 1996 decreased primarily as a result of decreases in
investment income.
Investment income decreased $205,905 and $404,618, or 33.2% and
33.2%, for the three and six month periods ended June 30, 1996,
respectively, as compared to the corresponding periods of the prior year.
These decreases resulted primarily from the conversion of the Fund's LMC
debt securities into non-dividend paying equity securities and the
Canadian's bankruptcy. (Both of these items are discussed elsewhere in
this Report.) The Fund's total investments also decreased as a result of
the Fund's repurchase of 7.74% of its Units during the fourth quarter of
1995.
Total expenses increased $2,561 and $25,383, or 1.9% snd 9.4%, for
the three and six month periods ended June 30, 1996, respectively, as
compared to the corresponding periods of the prior year. These increases
resulted primarily from increases in professional fees and other expenses.
These increases were primarily the result of legal fees and other costs
incurred in connection with Canadian's bankruptcy proceedings. The
increases in
15
<PAGE> 16
professional fees and other expenses were partially offset by decreases in
investment advisory fees and amortization expense. The investment advisory
fees decreased as a result of the repurchase of Units by the Fund during
the fourth quarter of 1995 and the realization during February 1996 of the
loss on the Fund's Canadian's investment. Both the repurchase of Units and
the realization of the Canadian's loss decreased the amount of the Fund's
available capital (as defined in the Partnership Agreement), which is the
base with respect to which the investment advisory fees are calculated.
The Fund amortized its organization costs over a five year period beginning
with the inception of the Fund in 1990. Therefore, these costs became
fully amortized during 1995.
Net Realized Gain (Loss) on Investments
Canadian's was a women's specialty retailer, which had 53 stores
on the East Coast, including stores in the New York City and Philadelphia
metropolitan areas. As widely reported in the business press, retailers
almost universally experienced extremely disappointing sales during the
1995 holiday season. Women's specialty retailers were especially hard hit.
This situation was exacerbated by severe winter weather which hampered
store operations from Boston to Washington, D.C. As a result, a number of
apparel retailers filed for bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's
filing for Chapter 11 bankruptcy protection on February 21, 1996 and
ceasing all operations during March 1996. As discussed in the Fund's
previous filings, Canadian's had embarked on a significant cost cutting
program during the fall of 1995, which included closing marginal stores and
reducing general and administrative costs. However, these measures were
not sufficient to offset the negative impact of the unusually bad holiday
season.
As a result of these developments, it became evident that the Fund
will not recover any of its Canadian's investment. Accordingly, the Fund
recognized the $4,103,949 loss on its Canadian's investment as a realized
loss during the three months ended March 31, 1996. This loss recognition
did not significantly affect the Fund's total net gain (loss) on
investments for the six months ended June 30, 1996 because all but $5 of
the loss was recorded as an unrealized loss during 1995.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The
sale was consummated during February 1996. The Fund's share of the actual
sales proceeds totaled $1,247,229, 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 Fund recognized a realized gain of $1,004,218 from this
transaction during February 1996. The Fund has not assigned any value to
its $157,333 share of the escrow because it is uncertain how much, if any,
of the escrowed funds will ultimately be received by the Fund. Additional
gain will be recognized if the Fund actually receives a distribution of any
of the escrowed funds.
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis
utilizing a variety
16
<PAGE> 17
of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an
average of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that
are reasonable for such investments at any particular time. Each such
investment is valued initially based upon its original cost to the Fund
("cost method"). The cost method is used until significant developments
affecting the portfolio company provide a basis for use of an appraisal
valuation. Appraisal valuations are based upon such factors as the
portfolio company's earnings, cash flow and net worth, the market prices
for similar securities of comparable companies and an assessment of the
portfolio company's future financial prospects. In a case of unsuccessful
operations, the appraisal may be based upon liquidation value. Appraisal
valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as
the basis of valuation ("private market method"). The private market
method is used only with respect to completed transactions or firm offers
made by sophisticated, independent investors.
As of December 31, 1995, the Fund had recorded $2,153,515 of
unrealized gain and $5,048,190 of unrealized loss on investments.
Therefore, as of December 31, 1995, the Fund had recorded a total net
unrealized loss on investments of $2,894,675.
The net increase in unrealized gain (loss) of investments during
the three and six month periods ended June 30, 1996 and the cumulative net
unrealized gain on investments as of June 30, 1996, consisted of the
following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-------------------------------------------------------
During the Three During the Six
Months Ended Months Ended As of
Portfolio Company June 30, 1996 June 30, 1996 June 30, 1996
- ---------------------------------- ---------------- --------------- -------------
<S> <C> <C> <C>
Unrealized net loss recorded during
prior periods with respect to
investments disposed of during
the period $ - $3,348,623 $ -
Neodata - - (278,915)
KEMET (57,641) (89,343) 455,832
Amity - (113,629) 606,199
Elgin / ENI 14,691 29,381 162,572
LMC - - - (459,200)
MTI II - - (206,131)
----------- ---------- ----------
$ (42,950) $3,175,032 $ 280,357
=========== ========== ==========
</TABLE>
The Neodata Corporation ("Neodata") stock was written down to a
negligible amount during 1995. The Partnership has consistently valued
this investment based upon a multiple of Neodata's cash flow. Because
Neodata's long-term debt presently provides for the accrual, rather than
current payment, of interest, the Company's debt has grown to a level which
exceeds the Partnership's valuation.
KEMET completed an IPO of its common stock during 1992. The
stock, which trades on the NASDAQ National Market System, closed at $20.125
(an average of the closing bid and ask prices) on June 30, 1996. This
price is down from the closing prices of $34.125 on December 31, 1995 and
$22.625 on March 31, 1996. Based on the $20.125 closing trading price of
the common stock, the 23,056 shares of common stock that the Fund held at
June 30, 1996 had a market value of $464,002.
17
<PAGE> 18
The Amity warrants and common stock were written down in value at
March 31, 1996 to bring Amity's valuation more in line with the valuation
of other comparable companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value
quarterly to reflect the amount of the cumulative 10% preferential dividend
that has accrued with respect to the preferred stock.
LMC experienced significant operating problems after the Fund
acquired its LMC investment during 1994 and the Fund was involved in a
restructuring of its LMC investment during 1995. In the restructuring, the
Fund's existing LMC subordinated debt and warrants were converted into
preferred stock and the Fund purchased $454,400 of new common stock. As a
result of LMC's operational difficulties and the fact that the Fund now
owns equity securities rather than debt securities, the Fund wrote its LMC
investment down by $459,200 during 1995.
The MTI II common stock was written down in value during 1994
based upon an independent third party valuation of the company that was
obtained by MTI II's management.
FCM continually monitors both the Fund's portfolio companies and
the markets, and continually evaluates the decision to hold or sell its
traded securities.
18
<PAGE> 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending directly against
the Fund.
As previously reported, FCM, the Managing General Partner of the
Fund, was named as a defendant in a class action lawsuit against
PaineWebber and a number of its affiliates concerning its sale of 70
different limited partnerships and other direct investment programs,
including the offering of the Units. Plaintiffs in the lawsuit allege,
among other things, that the defendants violated federal securities laws
and committed common law fraud in the marketing of direct investments.
On May 30, 1995, the United States District Court for the
Southern District of New York entered an order certifying the class and
dismissing the class action against FCM without prejudice. PaineWebber and
Mezzanine Capital Corporation, a minority general partner in FCM and an
affiliate of PaineWebber, remain as defendants.
During January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action outlining the terms
under which the parties have agreed to settle the case. Pursuant to that
memorandum of understanding, PaineWebber irrevocably deposited $125 million
into an escrow fund under the supervision of the United States District
Court for the Southern District of New York to be used to resolve the
litigation in accordance with a definitive settlement agreement and plan of
allocation that the parties expect to submit to the court for its
consideration and approval within the next several months. Until a
definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits
will be made available to unitholders in the Fund.
During February 1996, approximately 150 plaintiffs filed an action
in Sacramento, California Superior Court against PaineWebber and various
affiliated entities concerning the plaintiffs' purchase of various limited
partnership interests. The complaint alleges, among other things, that
PaineWebber and its related entities committed fraud by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and
failing to state material facts concerning the investments. The complaint
seeks compensatory damages of $15 million, plus punitive damages.
The Fund was not named as a defendant in either lawsuit. However,
pursuant to certain contractual arrangements between FCM and PaineWebber in
connection with the offering of the Units, the Fund may be required to
indemnify PaineWebber and its affiliates for their costs and liability in
connection with any class action claims relating to the Fund. FCM believes
that the Fund's exposure with respect to the indemnity will not have any
material adverse effect on the Fund's financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
----------- -----------
11.1 Statement of Computation of Net
Investment Income Per Limited
Partnership Unit.
19.1 Reports Furnished to Securities
Holders.
19
<PAGE> 20
27.1 Financial Data Schedule.
(b) The Registrant did not file any reports on Form 8-K during
the second quarter of the fiscal year ending December 31, 1996.
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Fiduciary Capital Pension Partners, L.P.
(Registrant)
By: FCM Fiduciary Capital Management Company
Managing General Partner
Date: August 12, 1996 By: /s/ Donald R. Jackson
---------------------------------------
Donald R. Jackson
Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
11.1 Statement of Computation of Net Investment Income Per Limited Partnership Unit.
19.1 Report Furnished to Securities Holders.
27.1 Financial Data Schedule.
</TABLE>
E-1
<PAGE> 1
EXHIBIT 11.1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Net Investment Income $ 276,026 $ 484,492 $ 517,987 $ 947,988
Percentage Allocable to Limited Partners 99% 99% 99% 99%
----------- ----------- ----------- -----------
Net Investment Income Allocable
to Limited Partners $ 273,266 $ 479,647 $ 512,807 $ 938,508
=========== =========== =========== ===========
Weighted Average Number of Limited
Partnership Units Outstanding 1,196,564 1,296,999 1,196,564 1,296,999
=========== =========== =========== ===========
Net Investment Income Per Limited
Partnership Unit $ .23 $ .37 $ .43 $ .72
=========== =========== =========== ===========
</TABLE>
<PAGE> 1
CONTENTS
<TABLE>
<S> <C>
Fund Profile and Financial Highlights One
Message to Investors Two
Profiles of Portfolio Companies Five
Schedule of Investments Six
Balance Sheets Nine
Statements of Operations Ten
Statements of Cash Flows Eleven
Statements of Changes in Net Assets Twelve
Selected Per Unit Data and Ratios Thirteen
Notes to Financial Statements Fourteen
Report of Independent Public Accountants Eighteen
Management's Discussion and Analysis of
Financial Condition and Results of Operations Nineteen
</TABLE>
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
FUND PROFILE
Fiduciary Capital Pension Partners, L.P. (the "Fund") is a Delaware limited
partnership that commenced operations on August 14, 1990. The Fund has elected
to operate as a business development company under the Investment Company Act
of 1940, as amended. The investment objective of the Fund is to provide
current income and capital appreciation by investing primarily in subordinated
debt and related equity securities issued as the mezzanine financing of
privately structured, friendly leveraged buyouts, leveraged acquisitions and
leveraged recapitalizations.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
As of December 31
or Year Ended December 31
1995 1994 1993 1992 1991
------------------------------------------------------------------
(in thousands, except per Unit amounts)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 2,268 $ 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
Cash Utilized to Repurchase 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 periods have been restated to give
effect to this redenomination.
(2) Calculated using the weighted average number of Units outstanding during
the years ended December 31, 1995, 1994 and 1993 of 1,285,717, 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.
------------------------------
ONE
<PAGE> 3
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
Dear Investor:
We are pleased to provide a summary of the recent activities of
Fiduciary Capital Pension Partners, L.P. This Annual Report includes the
Fund's audited financial statements for the year ended December 31, 1995.
Unaudited interim financial statements for the first quarter of 1996 are also
enclosed along with this Annual Report.
HIGHLIGHTS
-- Distributions for 1995 totaled $1.20 per Unit, which
represents an annualized rate equal to 6.0% of contributed
capital.
-- The Fund's net asset value per Unit was $16.61 at both
December 31, 1995 and March 31, 1996 as compared to $18.47 at
December 31, 1994.
-- The Fund redeemed 7.74% of its outstanding Units during
November 1995 pursuant to the Fund's annual repurchase offer.
[NET ASSET VALUE AND CUMULATIVE DISTRIBUTIONS PER UNIT CHART]
CASH DISTRIBUTIONS
The Fund paid cash distributions of $.30 per Unit for each quarter of
1995. Each of these quarterly distributions represented an annualized rate
equal to 6.0% of contributed capital. The 1995 cash distributions were paid
entirely out of current net investment income.
The distribution for the first quarter of 1996 was paid on May 15,
1996 in an amount equal to $.30 per Unit, or an annualized rate equal to 6.0%
of contributed capital. This distribution consisted entirely of current and
accumulated net investment income. We expect the remaining 1996 distributions
to be made at the same 6.0% rate or greater.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments in
new portfolio companies, except to fund commitments made prior to December 31,
1995. This will impact the amount of the Fund's quarterly distributions for
subsequent years because all proceeds from future dispositions or maturities of
investments will be distributed to investors, except to the extent the cash is
needed to fund the annual repurchase offer or to fund any additional follow-on
investments that the Fund may make in existing portfolio companies.
INVESTMENT ACTIVITY
The Fund's subordinated debt investment in Protection One Alarm
Monitoring, Inc. was prepaid during 1995. In addition, the Fund sold its
subordinated debt investment in KB Alloys, Inc., all of its Carr-Gottstein
Foods Co. and Protection One, Inc. common stock and a portion of its KEMET
Corporation common stock during 1995. In the aggregate, the Fund recognized
approximately $3.79 million of net gain, including applicable prepayment
premiums, from these transactions.
During May 1995, the Fund acquired a new portfolio investment in
R.B.M. Precision Metal Products, Inc. ("RBM") at a cost of approximately $1.27
million. RBM, headquartered in Colorado Springs, Colorado, is a manufacturer
of precision sheet metal enclosures, chassis and assemblies for business
machines. Its principal customer is Hewlett Packard. This new investment
consists of $1,290,000 of 13.00% Senior Subordinated Secured Notes due May 24,
2002, with warrants to acquire common stock.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled approximately $1.25 million, of which approximately $1.1
million was received during February 1996. The balance is being held in
escrow to fund various transaction expenses and potential
------------------------------
TWO
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
contingent purchase price adjustments, and as collateral for potential claims
of the buyer with respect to representations made by the selling shareholders,
including the Fund. While the escrow amount must be maintained for a two year
period, certain of the sellers' representations will survive for longer periods
of time, which could result in the Fund being required to reimburse the
purchaser for certain costs and expenses after the escrow is released. The
Fund valued the Huntington warrants at December 31, 1995 at an amount
approximately equal to 75% of the ultimate sales proceeds (not including the
Fund's share of the escrow) due to the inherent uncertainty that existed at
that time as to whether the sale would actually be consummated. The Fund
recognized a realized gain of approximately $1.0 million for this transaction
during February 1996. The Fund has not assigned any value to its share of the
escrow because it is uncertain how much, if any, of the escrowed funds will
ultimately be received by the Fund. Additional gain will be recognized if the
Fund actually receives a distribution of any of the escrowed funds.
During June 1994, the Fund acquired an investment in LMC Operating Corp.
("LMC"). LMC, headquartered in Logan, Utah, is the leading U.S. manufacturer
of light ground pressure vehicles, which are used primarily as snow-groomers.
The investment consisted of $2,396,000 of 13.00% Senior Subordinated Notes due
May 31, 1999, with warrants to acquire common stock.
LMC has experienced significant operating difficulties since the Fund
acquired its LMC investment during 1994. LMC's majority owner has taken a
number of steps to improve LMC's operating and financial performance. These
steps included hiring new senior management and significantly reducing staff.
The majority owner has also contributed a significant amount of additional
capital. However, it is anticipated that it will take some time for the
company to regain its previous market position and return to profitability.
During 1995, the majority owner requested that the Fund participate in a
financial restructuring of LMC. The Fund agreed to the proposed restructuring,
which was consummated during February 1996. As part of the restructuring, the
Fund converted its existing LMC subordinated debt and warrants into preferred
stock and agreed to make a follow-on investment for the purchase of $454,400 of
new common stock. As a result of the restructuring, the Fund increased its
ownership of LMC from approximately 12% to approximately 23%. Due to LMC's
operational difficulties and the fact that the Fund now owns equity securities
rather than debt securities, the Fund wrote its LMC investment down by $459,200
during November 1995.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. One of the committed investments, Atlas Environmental,
Inc. ("Atlas"), was acquired during January 1996. The other two committed
investments have been abandoned. The portion of the Fund's available capital
that had been reserved for these abandoned investments is now reserved to fund
either the Fund's 1996 annual repurchase offer or any additional follow-on
investments that the Fund may make in existing portfolio companies.
The Fund's Atlas investment was aquired at a cost of approximately $3.2
million. Atlas, headquartered in Plantation, Florida, is a holding company
that owns and manages companies in certain segments of the environmental
services industry. The investment consists of $3,265,920 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".
Canadian's was a women's specialty retailer, which had 53 stores on the
East Coast, including stores in the New York City and Philadelphia metropolitan
areas. As widely reported in the business press, retailers almost universally
experienced extremely disappointing sales during the 1995 holiday season.
Women's specialty retailers were especially hard hit. This situation was
exacerbated by severe winter weather which hampered store operations from
Boston to Washington, D.C. As a result, a number of apparel retailers filed
for bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996 and ceasing all
operations during March 1996. As discussed in previous correspondence,
Canadian's had embarked on a significant cost cutting program during the fall
of 1995, which included closing marginal stores and reducing general and
administrative costs. However, these measures were not sufficient to offset
the negative impact of the unusually bad holiday season.
As a result of these developments, it is evident that the Fund will not
recover any of its approximately $4.10 million investment in Canadian's.
Accordingly, the Fund recorded an unrealized loss for this amount during 1995.
The loss became a realized loss during February 1996.
NET UNREALIZED GAIN (LOSS) ON PORTFOLIO INVESTMENTS
The cumulative net unrealized gain (loss) on investments held
------------------------------
THREE
<PAGE> 5
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
by the Fund at March 31, 1996 and December 31, 1995, consisted of the following
components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
------------------------------------
March 31, 1996 December 31, 1995
- ------------------------------------------------------------
<S> <C> <C>
Amity $606,199 $ 719,828
KEMET 513,473 545,175
Elgin / ENI 147,881 133,191
MTI II (206,131) (206,131)
Neodata (278,915) (278,915)
LMC (459,200) (459,200)
Huntington - 755,321
Canadian's - (4,103,944)
- ------------------------------------------------------------
$323,307 $ (2,894,675)
============================================================
</TABLE>
The KEMET equity investment consists of publicly traded common stock
that was valued based upon actual trading prices. The Amity, Elgin/ENI, MTI II
and Neodata valuation adjustments all relate to equity securities held by the
Fund that are not traded in any liquid public markets. These equity securities
were valued by the Managing General Partner pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. The valuations are based upon such factors as
the portfolio company's earnings, cash flow and net worth, the market prices
for similar securities of comparable companies and an assessment of the
portfolio company's future financial prospects. As discussed above, the
unrealized gain (loss) at December 31, 1995 with respect to the Huntington and
Canadian's investments were realized during the three months ended March 31,
1996.
PERIODIC UNIT REPURCHASE POLICY
The Fund's investors adopted a periodic unit repurchase plan during
1993. Pursuant to the terms of the repurchase policy, the Fund will annually
offer to purchase from investors, up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units. During November
1995, 100,435 Units (7.74% of the outstanding Units) were redeemed 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. The repurchase offer will be mailed to
investors on October 7, 1996, and the deadline for tendering Units for
repurchase will be October 31, 1996. The repurchase price will be based on the
net asset value per Unit on November 14, 1996 and payment for tendered Units
will be made on November 21, 1996.
* * *
If you have any questions regarding your investment in the Fund,
please call us at 800-866-7607.
Sincerely,
Paul Bagley, Chairman
FCM Fiduciary Capital Management Company
W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company
May 17, 1996
------------------------------
FOUR
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
PROFILES OF PORTFOLIO COMPANIES
Neodata Corporation ("Neodata") Neodata, headquartered in Louisville,
Colorado, is the largest contract fulfillment company in the world and a leader
in providing fulfillment and marketing services to the magazine publishing
industry.
KEMET Corporation ("KEMET") KEMET, headquartered in Greenville, South
Carolina, is a leading manufacturer and distributor of both solid tantalum and
monolithic ceramic capacitors used as components in circuit boards. The KEMET
stock is listed on the NASDAQ National Market System.
VALUE OF 1995 YEAR-END INVESTMENTS BY PORTFOLIO COMPANY
[PIE CHART]
Note: As of December 31, 1995, the Fund also held investments in Neodata and
Canadian's, which were valued at a negligible amount.
Huntington Holdings, Inc. ("Huntington") Huntington, headquartered in
Huntington, Indiana, is one of the largest manufacturers and marketers of
maintenance and cleaning chemicals in North America. Huntington produces a
wide range of intermediate and final-stage cleansers, sterilants and
disinfectants for use by hospitals, schools, nursing homes and various
industries. Huntington was recently sold to Ecolab, Inc., a New York Stock
Exchange listed company.
Amity Leather Products Co. ("Amity") Amity, headquartered in West
Bend, Wisconsin, manufactures men's and ladies' fine personal leather goods and
distributes these products to department stores, mass merchandisers and
company-owned Wallet Works stores. Amity markets its products under the brand
names of Rolfs, Amity and LaGarde.
Elgin National Industries, Inc. ("Elgin") Elgin, headquartered in
Chicago, Illinois, is a diversified industrial company that is organized into
three distinct segments. The Industrial Products Group manufactures specialty
industrial threaded fasteners. The Manufacturing Group manufactures machinery
and equipment for niches in coal and other mineral processing markets. The
Engineering and Construction Group provides a full range of engineering, design
and construction management services, including serving as a general contractor
under turn-key design and build contracts.
LMC Operating Corp. ("LMC") LMC, headquartered in Logan, Utah, is the
leading U.S. manufacturer of light ground pressure vehicles. These vehicles
are primarily used as snow-groomers and have several alternative uses including
infrastructure development and maintenance in remote locations, right-of-way
clean-up, search and rescue and military troop deployment. Primary purchasers
of the vehicles include ski resorts, utility companies and various governmental
agencies.
MTI Holdings II, Inc. ("MTI II") MTI II's subsidiary, Mobile
Technology, Inc. ("MTI"), is a provider of magnetic resonance imaging ("MRI")
and computed tomography mobile shared-services.
Canadian's Corp. ("Canadian's") Canadian's, headquartered in
Fairfield, New Jersey, is a specialty retailer of moderately priced junior
women's apparel and accessories. Canadian's filed for Chapter 11 bankruptcy
protection on February 21, 1996.
R.B.M. Precision Metal Products, Inc. ("RBM") RBM, headquarterd in
Colorado Springs, Colorado, is a manufacturer of precision sheet metal
enclosures, chassis and assemblies for business machines. Its principal
customer is Hewlett Packard.
------------------------------
FIVE
<PAGE> 7
FIDUCIARY CAPITAL 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,
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 2.7
- ------------------------------------------------------------------------------------------------------------------------
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.
------------------------------
SIX
<PAGE> 8
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)* 12/29/84 277,709 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.
------------------------------
SEVEN
<PAGE> 9
- --------------------------------------------------------------------------------
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.
(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. (Note 12)
(6) The debentures are convertible into Canadian's Holdings, Inc. common
stock. The accrual of interest on the debentures was discontinued by
the Fund effective April 1, 1995. (Note 12)
(7) The notes bear interest equal to the prime rate, plus 5%. The accrual
of interest on the notes was discontinued by the Fund effective
October 1, 1995. (Note 12)
(8) The notes will amortize in three equal annual installments of $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
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments (Notes 2, 10, 11, 12 and 13)
Portfolio investments, at value:
Managed companies (amortized cost -
$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.
------------------------------
NINE
<PAGE> 11
- --------------------------------------------------------------------------------
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.
------------------------------
TEN
<PAGE> 12
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 ACTIVITIES:
Investments exchanged for other investments $ - $ 237,627 $ -
====================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
------------------------------
ELEVEN
<PAGE> 13
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Increase in net assets resulting from operations:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
------------------------------
TWELVE
<PAGE> 14
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 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 periods have been restated to give effect to this redenomination.
(2) Calculated using the weighted average number of limited partnership units
outstanding during the years ended December 31, 1995, 1994 and 1993 of
1,285,717, 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.
------------------------------
THIRTEEN
<PAGE> 15
- --------------------------------------------------------------------------------
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 upon its original cost to the Fund ("cost method").
Debt securities with attached warrants for the purchase of common stock are
initially recorded at a discount from face value equal to the estimated
relative value of the warrants at date of investment. The discount is amortized
to income as an adjustment to yield from the debt securities. Face value less
unamortized discount represents the "amortized cost" of the debt securities.
The cost method is used until significant developments affecting the
portfolio company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings,
cash flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future financial
prospects. In a case of unsuccessful operations, the appraisal may be based
upon liquidation value. Appraisal valuations are necessarily subjective. The
Fund also may use, when available, third-party transactions in a portfolio
company's securities as the basis of valuation ("private market method"). The
private market method is used only with respect to completed transactions or
firm offers made by sophisticated, independent investors.
Temporary investments with maturities of less than 60 days are stated
at amortized cost, which approximates market value. Under this method,
temporary investments are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the investment.
Cash and Cash Equivalents The Fund considers investments
------------------------------
FOURTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
in money market funds to be cash equivalents.
Interest Receivable on Notes Notes are placed on non-accrual status
in the event of a default (after any applicable grace period expires) or if FCM
determines that there is no reasonable expectation of collecting the interest.
Income Taxes No provision for income taxes has been made in the
financial statements because taxes on Fund income are the responsibility of the
individual partners rather than the Fund.
Investment Transactions The Fund records portfolio investment
transactions on the date on which it obtains an enforceable right to demand the
securities or payment thereof and records temporary investment transactions on
the trade date. Realized gains and losses on investments are determined on the
basis of specific identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from
temporary investments will be distributed and allocated 99% to the Limited
Partners and 1% to FCM. Net investment income will, in general, be distributed
and allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative non-compounded preferred return of 9% per
annum on their capital contributions to the Fund, then (ii) 70% to the Limited
Partners and 30% to FCM until FCM has received 10% of all current and prior
distributions and allocations, and thereafter, (iii) 90% to the Limited
Partners and 10% to FCM.
Proceeds from capital transactions will, in general, be distributed
and allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative, non-compounded preferred return of 9% per
annum on their capital contribution to the Fund from net investment income,
capital transactions, or both, then (ii) 100% to the Limited Partners until
they have received a return of their capital contributions to the Fund, and
thereafter, (iii) 80% to the Limited Partners and 20% to FCM.
All cash distributions and earnings since the inception of the Fund
have been allocated 99% to the Limited Partners and 1% to FCM.
4. CAPITAL CONTRIBUTIONS
Upon formation of the Fund, FCM contributed $4,000 for its general
partner interest in the Fund. Units of limited partnership interest ("Units")
were then sold in a public offering. The Fund held three closings between
August 14, 1990 and October 18, 1990, receiving gross offering proceeds of
$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.
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.
------------------------------
FIFTEEN
<PAGE> 17
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and 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.
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 CONTINGENCIES
As of December 31, 1995, the Fund had issued commitments to make new
portfolio investments in Atlas Environmental, Inc. ("Atlas"), Monaco Finance,
Inc. and Advantage Funding Group, Inc. In addition, the Fund had agreed in
principle to a restructuring of its LMC investment, which involves a conversion
of the Fund's existing subordinated debt and warrants into preferred stock and
a follow-on investment in LMC for the purchase of new common stock.
On January 25, 1996, the Fund closed the investment in Atlas, a
managed company, at a cost of $3,200,602. The investment consists of
$3,265,920 of 13.5% Senior Subordinated Secured Notes due January 19, 2003,
with warrants to acquire 338,423
------------------------------
SIXTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
shares of common stock. The warrants have an exercise price of $8.00 per
share. The Atlas common stock is currently traded over the counter on a
limited basis with quotations provided via the OTC Bulletin Board under the
symbol "ATEV".
The proposed Advantage investment was abandoned during January 1996.
The portion of the Fund's available capital that had been reserved for this
investment is now reserved to fund the Fund's 1996 annual repurchase offer.
The Fund may not ultimately fund both of the remaining commitments
since each of the commitments is subject to various contingencies.
FCM had been named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated and a number of its affiliates
concerning 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>
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>
------------------------------
SEVENTEEN
<PAGE> 19
- --------------------------------------------------------------------------------
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.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 6, 1996.
------------------------------
EIGHTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During 1990, the Fund completed a public offering of its Units. Net
offering proceeds available to the Fund, after deducting commissions and other
offering costs, totaled $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 companies, except for a portion of its KEMET
stock.
As of December 31, 1995, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available for investment, for
distribution to the partners or to fund the annual repurchase offer.
During the year ended December 31, 1995, the Fund exercised the
Protection One warrants it held, acquired a new portfolio investment in RBM and
acquired two follow-on investments in Canadian's at a total cost of
approximately $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, Inc. ("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 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
------------------------------
NINETEEN
<PAGE> 21
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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 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.
------------------------------
TWENTY
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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 temporary
investments and non-income producing equity investments and a decrease in the
portion invested in higher-yielding subordinated debt investments. The
negative effect of these items was partially offset by higher interest rates
obtained in recent months on the Fund's temporary investments.
Total expenses decreased $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% 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 subordinat-
------------------------------
TWENTY-ONE
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ed 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.
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 deferred 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.
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.
------------------------------
TWENTY-TWO
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 loss
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.
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.
------------------------------
TWENTY-THREE
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996. As discussed in the
Fund's previous filings, Canadian's had embarked on a significant cost cutting
program during the fall of 1995, which included closing marginal stores and
reducing general and administrative costs. However, these measures were not
sufficient to offset the negative impact of the unusually bad holiday season.
The Fund expects to recover little, if any, of its Canadian's investment. As a
result of these developments, the Fund wrote its Canadian's investment down to
a negligible amount at December 31, 1995.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
INFLATION AND CHANGING PRICES
Inflation has had no material impact on the operations or financial
condition of the Fund from inception through December 31, 1995. However,
inflation and changing prices, in addition to other factors, may effect the
value and the eventual selling price of the Fund's investments.
------------------------------
TWENTY-FOUR
<PAGE> 26
FUND INFORMATION
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
410 17th Street, Suite 400
Denver, Colorado 80202
(800) 866-7607
MANAGING GENERAL PARTNER
FCM Fiduciary Capital Management Company
AUDITORS
Arthur Andersen LLP
Denver, Colorado
LEGAL COUNSEL
Dorsey & Whitney P.L.L.P.
Denver, Colorado
TRANSFER AGENT
SERVICE DATA CORPORATION
OMAHA, NEBRASKA
A copy of the Annual Report
on Form 10-K, as filed with the
Securities and Exchange Commission,
will be furnished without charge to
Limited Partners upon request.
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
MARCH 31, 1996
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
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 8,170 521,643
- -----------------------------------------------------------------------------------------------------------------------------------
8,170 521,643 2.6
- -----------------------------------------------------------------------------------------------------------------------------------
62,606 sh. Amity Leather Products Co.,
Warrants to Purchase Class B
Common Stock* 07/30/92 85,909 674,584
22,608 sh. Amity Leather Products Co.,
Class A Common Stock* 07/30/92 226,080 243,604
- -----------------------------------------------------------------------------------------------------------------------------------
311,989 918,188 4.6
- -----------------------------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(2) 09/24/93 4,920,038 4,920,038
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 735,491
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
- -----------------------------------------------------------------------------------------------------------------------------------
5,590,185 5,738,066 28.9
- -----------------------------------------------------------------------------------------------------------------------------------
239,600 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,384,408
22.72 sh. LMC Operating Corp.,
Common Stock* 02/09/96 454,399 1
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
2,843,610 2,384,410 12.0
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
1
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,201,004 1,201,004
439.694 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- --------------------------------------------------------------------------------------------------------------------------
1,274,299 1,274,299 6.4
- --------------------------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.
13.50% Senior Subordinated
Secured Notes due 01/19/03(4) 01/25/96 3,170,036 3,170,036
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(5)* 01/25/96 33,842 33,842
- --------------------------------------------------------------------------------------------------------------------------
3,203,878 3,203,878 16.1
- --------------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (70.8% of net assets) 13,748,675 14,071,982 70.8
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,900,000 Ford Motor Credit Corporation,
5.13% Notes due 04/10/96 03/27/96 2,896,288 2,896,288
$2,900,000 Anheuser-Busch Companies,
Inc., 5.09% Notes due 04/10/96 03/27/96 2,896,317 2,896,317
- --------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (29.2% of net assets) 5,792,605 5,792,605 29.2
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (100.0% of net assets) $19,541,280 $19,864,587 100.0%
==========================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in eight equal quarterly installments of $627,991
commencing on 11/30/99.
(3) The notes will amortize in three equal annual installments of $430,000
commencing on 5/24/00.
(4) The notes will amortize in five equal annual installments of $640,120
commencing on 1/19/99.
(5) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
2
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$13,748,675 and $14,272,465,
respectively) $14,071,982 $11,377,790
Temporary investments, at amortized cost 5,792,605 8,647,334
----------- -----------
Total investments 19,864,587 20,025,124
Cash and cash equivalents 322,588 175,768
Accrued interest receivable 165,528 117,461
Other assets 2,881 3,095
----------- -----------
Total assets $20,355,584 $20,321,448
=========== ===========
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 59,200 $ 54,494
Accounts payable and accrued liabilities 63,140 31,327
Distributions payable to partners 362,595 362,595
----------- -----------
Total liabilities 484,935 448,416
----------- -----------
CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (5,322) (5,298)
Limited Partners (equivalent to $16.61
and $16.61, respectively, per limited
partnership unit based on 1,196,564
units outstanding) 19,875,971 19,878,330
----------- -----------
Net assets 19,870,649 19,873,032
----------- -----------
Total liabilities and net assets $20,355,584 $20,321,448
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
3
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 400,352 $ 599,065
------------ -----------
Total investment income 400,352 599,065
------------ -----------
Expenses:
Investment advisory fees (Note 2) 41,540 49,757
Professional fees 39,498 14,461
Fund administration fees (Note 3) 29,582 29,582
Administrative expenses (Note 3) 17,224 17,224
Independent general partner fees
and expenses (Note 4) 15,562 16,024
Other expenses 14,985 5,896
Amortization - 2,625
------------ -----------
Total expenses 158,391 135,569
------------ -----------
NET INVESTMENT INCOME 241,961 463,496
------------ -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (3,099,731) 263,165
Net change in unrealized gain (loss)
on investments 3,217,982 38,088
------------ -----------
Net gain on investments 118,251 301,253
------------ -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 360,212 $ 764,749
============ ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
4
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 360,212 $ 764,749
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Accreted discount on portfolio investments (10,834) (16,952)
Amortization - 2,625
Change in assets and liabilities:
Accrued interest receivable (48,067) (87,944)
Other assets 214 841
Payable to affiliates 4,706 (14,225)
Accounts payable and accrued liabilities 31,813 7,559
Prepaid interest income - 2,082
Net realized loss (gain) on investments 3,099,731 (263,165)
Net change in unrealized (gain) loss
on investments (3,217,982) (38,088)
------------ ----------
Net cash provided by operating activities 219,793 357,482
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (3,655,003) (946)
Proceeds from dispositions of portfolio investments 1,089,896 801,785
Sale (purchase) of temporary investments, net 2,854,729 (611,146)
------------ ----------
Net cash provided by investing activities 289,622 189,693
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (362,595) (589,545)
------------ ----------
Net cash used in financing activities (362,595) (589,545)
------------ ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 146,820 (42,370)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 175,768 173,095
------------ ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 322,588 $ 130,725
============ ==========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
5
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Increase in net assets from operations:
Net investment income $ 241,961 $ 1,725,971
Net realized (loss) gain on investments (3,099,731) 3,790,988
Net change in unrealized gain (loss)
on investments 3,217,982 (6,116,647)
------------ -----------
Net increase (decrease) in net
assets resulting from operations 360,212 (599,688)
Repurchase of limited partnership units - (1,959,487)
Distributions to partners from net
investment income (362,595) (1,541,685)
------------ -----------
Total decrease in net assets (2,383) (4,100,860)
Net assets:
Beginning of period 19,873,032 23,973,892
------------ -----------
End of period (includes net undistributed
net investment income of $63,652
and $184,286, respectively) $ 19,870,649 $19,873,032
============ ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Per Unit Data:
Investment income $ .33 $ .46
Expenses (.13) (.10)
-------- ---------
Net investment income .20 .36
Net realized (loss) gain on investments (2.56) .20
Net change in unrealized gain (loss)
on investments 2.66 .03
Distributions declared to partners (.30) (.30)
-------- ---------
Net increase in net asset value - .29
Net asset value:
Beginning of period 16.61 18.47
-------- ---------
End of period $ 16.61 $ 18.76
======== =========
Ratios (annualized):
Ratio of expenses to average net assets 3.19% 2.24%
Ratio of net investment income to
average net assets 4.87% 7.67%
Number of limited partnership units at end of period 1,196,564 1,296,999
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
7
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of March 31, 1996 and the results of its operations, changes in
net assets and its cash flows for the period then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements
included in the Fund's annual audited financial statements for the year ended
December 31, 1995.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$41,540 were paid by the Fund for the three months ended March 31, 1996.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $29,582 were paid by the Fund for the three months ended March 31, 1996.
FCM is also reimbursed, subject to various limitations, for administrative
expenses incurred in providing accounting and investor services to the Fund.
The Fund reimbursed FCM for administrative expenses of $17,224 for the three
months ended March 31, 1996.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and Fiduciary Capital
Partners, L.P., an affiliated fund, (collectively, the "Funds") an annual fee
of $30,000, payable monthly in arrears, together with all out-of-pocket
expenses. Each Fund's allocation of these fees and expenses is based on the
relative number of outstanding Units. Fees and expenses paid by the Fund for
the three months ended March 31, 1996 totaled $15,562.
5. CONTINGENCIES
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber Incorporated ("PaineWebber") and a number of its
affiliates concerning the sale of 70 different limited partnerships and other
direct investment programs. During May 1995, the Court entered an order
certifying the class and dismissing the class action against FCM without
prejudice.
8
<PAGE> 35
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(unaudited)
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is
approved by the court, there can be no assurance what, if any, payment or
non-monetary benefits will be made available to unitholders in the Fund.
A similar, though smaller, suit was filed against PaineWebber and
various affiliated entities (not including FCM) during February 1996 in a
California state court.
FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's financial condition.
9
<PAGE> 36
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $13.7 million. These
portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represent approximately 70.8% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and were subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies
have prepaid their subordinated debt that the Fund held. In addition, three of
the portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of March 31, 1996, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
During February 1996, the Fund sold its Huntington Holdings, Inc.
("Huntington") warrants. As discussed below, the Fund received $1,089,896 of
proceeds from this transaction. These proceeds have been reserved by the
Managing General Partner to partially fund either the Fund's 1996 repurchase
offer or any additional follow-on investments that the Fund may make in
existing portfolio companies.
During January 1996, the Fund invested $3,200,602 in Atlas
Environmental, Inc. ("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".
During June 1994, the Fund invested $2,348,080 in LMC Operating Corp.
("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 has experienced significant operating difficulties since the Fund
acquired its LMC investment during 1994. LMC's majority owner has taken a
number of steps to improve LMC's operating and financial performance. These
steps included hiring new senior management and significantly reducing staff.
The majority owner has also contributed a significant amount of additional
capital. However, it is anticipated that it will take some time for the company
to regain its previous market position and return to profitability.
During 1995, the majority owner requested that the Fund participate in
a financial restructuring of LMC. The Fund agreed to the proposed
restructuring, which was consummated during February 1996. As part of the
restructuring, the Fund converted its existing LMC subordinated debt and
warrants into preferred stock and agreed to make a follow-on investment for the
purchase of $454,400 of new common stock. As a result of the restructuring,
the Fund increased its ownership of LMC from approximately 12% to approximately
23%.
Pursuant to the terms of the Fund's periodic unit repurchase policy
that was adopted by the Fund's Limited Partners during 1993, the Fund will
annually offer to purchase fromits Limited Partners up to 7.5% of its
outstanding Units for an amount equal
10
<PAGE> 37
to the current net asset value per Unit, net of a fee (not to exceed 2%) to be
retained by the Fund to offset expenses incurred in connection with the
repurchase offer. If the number of tendered Units in any year exceeds 7.5% of
the outstanding Units, the Fund's General Partners may vote to repurchase up to
an additional 2% of the outstanding Units. The 1996 repurchase offer will be
mailed to the Limited Partners during October 1996. The actual redemption of
tendered Units will occur on November 21, 1996.
Accrued interest receivable increased $48,067 from $117,461 at
December 31, 1995 to $165,528 at March 31, 1996. This increase resulted
primarily from the accrual of interest due on the Atlas notes that were
acquired during January 1996. This increase was partially offset by a
decrease, to zero, in the accrued interest receivable attributable to the
Fund's Canadian's investment.
During the three months ended March 31, 1996, the Fund paid a cash
distribution pertaining to the fourth quarter of 1995, in the amount of
$362,595. The distribution for the first quarter of 1996 will be paid on May
15, 1996. Both of these quarterly distributions are equal to $.30 per Unit and
represent an annualized rate equal to 6.0% of contributed capital.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments in
new portfolio companies, except to fund commitments made prior to December 31,
1995. This will impact the amount of the Fund's quarterly distributions for
1996 and subsequent years because all proceeds from dispositions or maturities
of investments will be distributed to investors, except to the extent the cash
is needed to fund the annual repurchase offer or to fund any follow-on
investments that the Fund may make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to the
financial restructuring of LMC. As discussed above, one of the committed
investments, Atlas, was acquired during January 1996 and the LMC financial
restructuring was consummated during February 1996. The other two committed
investments have been abandoned. The portion of the Fund's available capital
that had been reserved for these abandoned investments is now reserved to fund
either the Fund's 1996 repurchase offer or any additional follow-on investments
that the Fund may make in existing portfolio companies.
FCM was named as a defendant in a class action lawsuit brought in
March 1995 against PaineWebber and a number of it affiliates concerning the
sale of 70 different limited partnerships and other direct investment programs.
During May 1995, the Court entered an order certifying the class and dismissing
the class action against FCM without prejudice.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is
approved by the court, there can be no assurance what, if any, payment or
non-monetary benefits will be made available to unitholders in the Fund.
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.
11
<PAGE> 38
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $241,691 for the three months
ended March 31, 1996 as compared to net investment income of $463,496 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.36 to $.20 and the ratio of net investment
income to average net assets decreased from 7.67% to 4.87% for the three months
ended March 31, 1996 as compared to the corresponding period of the prior year.
Net investment income for the three months ended March 31, 1996
decreased primarily as a result of a decrease in investment income.
Investment income decreased $198,713, or 33.2%, for the three months
ended March 31, 1996, as compared to the corresponding period of the prior
year. This decrease resulted primarily from the conversion of the Fund's LMC
debt securities into non-dividend paying equity securities and the Canadian's
bankruptcy. (Both of these items are discussed elsewhere in this Report.) The
Fund's total investments also decreased as a result of the Fund's repurchase of
7.74% of its Units during the fourth quarter of 1995.
Total expenses increased $22,822, or 16.8%, for the three months ended
March 31, 1996, as compared to the corresponding period of the prior year.
This increase resulted primarily from increases in professional fees and other
expenses. These increases were primarily the result of legal fees and other
costs incurred in connection with Canadian's bankruptcy proceedings. The
increases in professional fees and other expenses were partially offset by
decreases in investment advisory fees and amortization expense. The investment
advisory fees decreased as a result of the repurchase of Units by the Fund
during the fourth quarter of 1995 and the realization during February 1996 of
the loss on the Fund's Canadian's investment. Both the repurchase of Units
and the realization of the Canadian's loss decreased the amount of the Fund's
available capital (as defined in the Partnership Agreement), which is the base
with respect to which the investment advisory fees are calculated. The Fund
amortized its organization costs over a five year period beginning with the
inception of the Fund in 1990. Therefore, these costs became fully amortized
during 1995.
Net Realized Gain (Loss) on Investments
Canadian's was a women's specialty retailer, which had 53 stores on
the East Coast, including stores in the New York City and Philadelphia
metropolitan areas. As widely reported in the business press, retailers almost
universally experienced extremely disappointing sales during the 1995 holiday
season. Women's specialty retailers were especially hard hit. This situation
was exacerbated by severe winter weather which hampered store operations from
Boston to Washington, D.C. As a result, a number of apparel retailers filed
for bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's filing
for Chapter 11 bankruptcy protection on February 21, 1996 and ceasing all
operations during March 1996. As discussed in the Fund's previous filings,
Canadian's had embarked on a significant cost cutting program during the fall
of 1995, which included closing marginal stores and reducing general and
administrative costs. However, these measures were not sufficient to offset
the negative impact of the unusually bad holiday season.
As a result of these developments, it is now evident that the Fund
will not recover any of its Canadian's investment. Accordingly, the Fund
recognized the $4,103,949 loss on its Canadian's investment as a realized loss
during the three months ended March 31,
12
<PAGE> 39
1996. This loss recognition did not significantly affect the Fund's total net
gain (loss) on investments for the three months ended March 31, 1996 because
all but $5 of the loss was recorded as an unrealized loss during 1995.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled $1,247,229, 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 Fund recognized a realized gain of $1,004,218 from this
transaction during February 1996. The Fund has not assigned any value to its
$157,333 share of the escrow because it is uncertain how much, if any, of the
escrowed funds will ultimately be received by the Fund. Additional gain will
be recognized if the Fund actually receives a distribution of any of the
escrowed funds.
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and
for which market quotations are available, valuations are set by the closing
sales, or an average of the closing bid and ask prices, as of the valuation
date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment
is valued initially based upon its original cost to the Fund ("cost method").
The cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings,
cash flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future financial
prospects. In a case of unsuccessful operations, the appraisal may be based
upon liquidation value. Appraisal valuations are necessarily subjective. The
Fund also may use, when available, third-party transactions in a portfolio
company's securities as the basis of valuation ("private market method"). The
private market method is used only with respect to completed transactions or
firm offers made by sophisticated, independent investors.
As of December 31, 1995, the Fund had recorded $2,153,515 of
unrealized gain and $5,048,190 of unrealized loss on investments. Therefore,
as of December 31, 1995, the Fund had recorded a total net unrealized loss on
investments of $2,894,675.
13
<PAGE> 40
The net increase in unrealized gain (loss) of investments during the
three months ended March 31, 1996 and the cumulative net unrealized gain on
investments as of March 31, 1996, consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-------------------------------
During the Three
Months Ended As of
Portfolio Company March 31, 1996 March 31, 1996
- ---------------------------------- --------------- ---------------
<S> <C> <C>
Unrealized net loss recorded during
prior periods with respect to
investments disposed of during
the period $ 3,348,623 $ -
Neodata - (278,915)
KEMET (31,702) 513,473
Amity (113,629) 606,199
Elgin / ENI 14,690 147,881
LMC - (459,200)
MTI II - (206,131)
------------ ------------
$ 3,217,982 $ 323,307
============ ============
</TABLE>
The Neodata Corporation ("Neodata") stock was written down to a
negligible amount during 1995. The Partnership has consistently valued this
investment based upon a multiple of Neodata's cash flow. Because Neodata's
long-term debt presently provides for the accrual, rather than current payment,
of interest, the Company's debt has grown to a level which exceeds the
Partnership's valuation.
KEMET completed an IPO of its common stock during 1992. The stock,
which trades on the NASDAQ National Market System, closed at $22.625 (an
average of the closing bid and ask prices) on March 31, 1996. This price is
down from the closing price of $34.125 on December 31, 1995. Based on the
$22.625 closing trading price of the common stock, the 23,056 shares of common
stock that the Fund held at March 31, 1996 had a market value of $521,643.
The Amity warrants and common stock were written down in value at
March 31, 1996 to bring Amity's valuation more in line with the valuation of
other comparable companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value
quarterly to reflect the amount of the cumulative 10% preferential dividend
that has accrued with respect to the preferred stock.
As discussed above, LMC has experienced significant operating problems
since the Fund acquired its LMC investment during 1994 and the Fund's LMC
investment was recently restructured. As a result of LMC's operational
difficulties and the fact that the Fund now owns equity securities rather than
debt securities, the Fund wrote its LMC investment down by $459,200 during
1995.
The MTI II common stock was written down in value during 1994 based
upon an independent third party valuation of the company that was obtained by
MTI II's management.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
14
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 19,459,063
<INVESTMENTS-AT-VALUE> 19,739,420
<RECEIVABLES> 163,979
<ASSETS-OTHER> 1,497
<OTHER-ITEMS-ASSETS> 286,977
<TOTAL-ASSETS> 20,191,873
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 450,743
<TOTAL-LIABILITIES> 450,743
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,196,564
<SHARES-COMMON-PRIOR> 1,196,564
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 184,286
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 280,357
<NET-ASSETS> 19,741,130
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 814,125
<OTHER-INCOME> 0
<EXPENSES-NET> 296,138
<NET-INVESTMENT-INCOME> 517,987
<REALIZED-GAINS-CURRENT> (3,099,731)
<APPREC-INCREASE-CURRENT> 3,175,032
<NET-CHANGE-FROM-OPS> 593,288
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 702,273
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 22,917
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (131,902)
<ACCUMULATED-NII-PRIOR> 184,286
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77,184
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 296,138
<AVERAGE-NET-ASSETS> 19,828,270
<PER-SHARE-NAV-BEGIN> 16.61
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> .58
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .02
<PER-SHARE-NAV-END> 16.50
<EXPENSE-RATIO> 2.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
