<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, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17738
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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
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(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
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
<PAGE> 2
Fiduciary Capital Pension Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1997
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, 1997 3
Balance Sheets - June 30, 1997 and
December 31, 1996 5
Statements of Operations for the three
months ended June 30, 1997 and 1996 6
Statements of Operations for the six
months ended June 30, 1997 and 1996 7
Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 8
Statements of Changes in Net Assets for
the six months ended June 30, 1997 and
for the year ended December 31, 1996 9
Selected Per Unit Data and Ratios 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 5. Other Information 18
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, 1997
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- -----------------------------------------------------------------------------------------------------------------
<S> <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 8,170 574,959
- -----------------------------------------------------------------------------------------------------------------
8,170 574,959 3.7
- -----------------------------------------------------------------------------------------------------------------
62,606 sh. ar accessories group,
incorporated, Warrants
to Purchase Class B
Common Stock(2)* 07/30/92 85,909 1
22,608 sh. ar accessories group,
incorporated, Class A
Common Stock(2)* 07/30/92 226,080 214,775
- -----------------------------------------------------------------------------------------------------------------
311,989 214,776 1.4
- -----------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,944,773 4,944,773
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 808,943
403.81 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 40,381 523,238
421.6 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 42,156 501,160
- -----------------------------------------------------------------------------------------------------------------
5,614,920 6,778,114 43.2
- -----------------------------------------------------------------------------------------------------------------
$1,276,884 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4)* 11/01/96 1,276,884 1,276,884
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
- -----------------------------------------------------------------------------------------------------------------
4,120,494 3,661,294 23.4
- -----------------------------------------------------------------------------------------------------------------
</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, 1997
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,327 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 187,698 37,567
3,527 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 49,929 8,729
- -----------------------------------------------------------------------------------------------------------------
237,627 46,296 0.3
- -----------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,218,302 1,218,302
9,072.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- -----------------------------------------------------------------------------------------------------------------
1,291,597 1,291,597 8.2
- -----------------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 1/19/03(7) 01/25/96 3,170,895 801,179
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(8)* 01/25/96 33,842 1
- -----------------------------------------------------------------------------------------------------------------
3,204,737 801,180 5.1
- -----------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (87.8% of net assets) 15,068,451 13,368,218 85.3
- -----------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,300,000 Ford Motor Credit
Corporation, 5.24%
Notes due 7/02/97 06/18/97 2,299,666 2,299,666
- -----------------------------------------------------------------------------------------------------------------
Total Temporary Investments ( 15.1% of net assets) 2,299,666 2,299,666 14.7
- -----------------------------------------------------------------------------------------------------------------
Total Investments (102.9% of net assets) $17,368,117 $15,667,884 100.0%
=================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to ar accessories
group, incorporated during 1996.
(3) The notes will amortize in eight equal quarterly installments of $627,991
commencing on November 30, 1999.
(4) The Fund has committed to provide up to $1,632,960 of subordinated debt
financing pursuant to the terms of these notes.
(5) The warrants have exercise prices of $20.00 per share (1,058 shares) and
$35.00 per share (2,469 shares).
(6) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(7) The notes will amortize in five equal annual installments of $653,184
commencing on January 19, 1999. The accrual of interest on the note was
discontinued by the Fund effective April 20, 1996.
(8) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
4
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$15,068,451 and $14,590,345,
respectively) $ 13,368,218 $ 14,007,043
Temporary investments, at amortized cost 2,299,666 3,097,761
--------------- ---------------
Total investments 15,667,884 17,104,804
Cash and cash equivalents 231,995 234,305
Accrued interest receivable 107,618 95,207
Other assets 37,941 6,646
--------------- ---------------
Total assets $ 16,045,438 $ 17,440,962
=============== ===============
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 54,077 $ 47,368
Accounts payable and accrued liabilities 426,248 418,781
Distributions payable to partners 334,812 334,812
--------------- ---------------
Total liabilities 815,137 800,961
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (37,322) (23,225)
Limited Partners (equivalent to $13.82
and $15.08, respectively, per limited
partnership unit based on 1,104,881
units outstanding) 15,267,623 16,663,226
--------------- ---------------
Net assets 15,230,301 16,640,001
--------------- ---------------
Total liabilities and net assets $ 16,045,438 $ 17,440,962
=============== ===============
</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, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 283,290 $ 413,773
-------------- --------------
Total investment income 283,290 413,773
-------------- --------------
Expenses:
Investment advisory fees (Note 2) 37,449 35,644
Professional fees 20,018 29,377
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) 9,374 11,574
Other expenses 9,524 14,346
-------------- --------------
Total expenses 123,171 137,747
-------------- --------------
NET INVESTMENT INCOME 160,119 276,026
-------------- --------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 67,198 --
Net change in unrealized loss
on investments (328,893) (42,950)
-------------- --------------
Net loss on investments (261,695) (42,950)
-------------- --------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (101,576) $ 233,076
============== ==============
</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, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 561,495 $ 814,125
--------------- ---------------
Total investment income 561,495 814,125
--------------- ---------------
Expenses:
Investment advisory fees (Note 2) 56,753 77,184
Professional fees 64,463 68,875
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) 21,000 27,136
Other expenses 16,010 29,331
--------------- ---------------
Total expenses 251,838 296,138
--------------- ---------------
NET INVESTMENT INCOME 309,657 517,987
--------------- ---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 67,198 (3,099,731)
Net change in unrealized (loss) gain
on investments (1,116,931) 3,175,032
--------------- ---------------
Net (loss) gain on investments (1,049,733) 75,301
--------------- ---------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (740,076) $ 593,288
=============== ===============
</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, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets resulting from operations $ (740,076) $ 593,288
Adjustments to reconcile net (decrease) increase in
net assets resulting from operations to net cash
provided by operating activities:
Accreted discount on portfolio investments (17,702) (22,831)
Change in assets and liabilities:
Accrued interest receivable (12,411) (46,518)
Other assets (31,295) 1,598
Payable to affiliates 6,709 (10,568)
Accounts payable and accrued liabilities 7,467 12,895
Net realized (gain) loss on investments (67,198) 3,099,731
Net change on unrealized loss (gain)
on investments 1,116,931 (3,175,032)
--------------- ---------------
Net cash provided by operating activities 262,425 452,563
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (460,404) (3,655,003)
Proceeds from dispositions of portfolio investments 67,198 1,089,896
Sale of temporary investments, net 798,095 2,948,943
--------------- ---------------
Net cash provided by investing activities 404,889 383,836
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (669,624) (725,190)
--------------- ---------------
Net cash used in financing activities (669,624) (725,190)
--------------- ---------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (2,310) 111,209
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 234,305 175,768
--------------- ---------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 231,995 $ 286,977
=============== ===============
</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, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Increase in net assets from operations:
Net investment income $ 309,657 $ 772,453
Net realized gain (loss) on investments 67,198 (3,453,919)
Net change in unrealized (loss) gain
on investments (1,116,931) 2,311,373
--------------- ---------------
Net decrease in net assets
resulting from operations (740,076) (370,093)
Repurchase of limited partnership units -- (1,440,340)
Distributions to partners from -
Net investment income (309,657) (956,739)
Realized gain on investments (67,198) (465,859)
Return of capital (292,769) --
--------------- ---------------
Total decrease in net assets (1,409,700) (3,233,031)
Net assets:
Beginning of period 16,640,001 19,873,032
--------------- ---------------
End of period (including no undistributed
net investment income ) $ 15,230,301 $ 16,640,001
=============== ===============
</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,
----------------------------------- -----------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .25 $ .34 $ .50 $ .67
Expenses (.11) (.11) (.22) (.24)
-------------- -------------- -------------- --------------
Net investment income .14 .23 .28 .43
Net realized gain (loss) on investments .06 -- .06 (2.56)
Net change in unrealized (loss) gain
on investments (.29) (.04) (1.00) 2.62
Distributions declared to partners (.30) (.30) (.60) (.60)
-------------- -------------- -------------- --------------
Net decrease in net asset value (.39) (.11) (1.26) (.11)
Net asset value:
Beginning of period 14.21 16.61 15.08 16.61
-------------- -------------- -------------- --------------
End of period $ 13.82 $ 16.50 $ 13.82 $ 16.50
============== ============== ============== ==============
Ratios (annualized):
Ratio of expenses to average net assets 3.19% 2.78% 3.18% 2.99%
Ratio of net investment income to
average net assets 4.14% 5.57% 3.91% 5.22%
Number of limited partnership units at
end of period 1,104,881 1,196,564 1,104,881 1,196,564
</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 (CONTINUED)
JUNE 30, 1997
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of June 30, 1997 and the results of its operations, changes in
net assets and its cash flows for the periods then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements
included in the Fund's annual audited financial statements for the year ended
December 31, 1996.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$56,753 were paid by the Fund for the six months ended June 30, 1997.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $59,164 were paid by the Fund for the six months ended June 30, 1997. FCM is
also reimbursed, subject to various limitations, for administrative expenses
incurred in providing accounting and investor services to the Fund. The Fund
reimbursed FCM for administrative expenses of $34,448 for the six months ended
June 30, 1997.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and Fiduciary Capital
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, 1997 totaled $21,000.
5. CONTINGENCIES
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Holdings, Inc. ("Canadian's) Chapter 11 bankruptcy case against
Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger. The
complaint sought a declaratory judgment that sales taxes collected by
Canadian's and turned over to Finova were "trust funds" collected by Canadian's
on behalf of various state tax authorities. Through the complaint, the Fund
objected to Finova's secured claim against Canadian's,
11
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(unaudited)
which was guaranteed by Benson Selzer and Joseph Eiger, and sought to recover
the sales tax and certain other amounts for the benefit of Canadian's
bankruptcy estate. As a result of this litigation and the issues involved, the
Fund accrued $370,627 during 1996 for legal costs and possible payments that
may be required to settle the litigation or to fund the payment of Canadian's
outstanding sales tax liabilities. On March 19, 1997, the Bankruptcy Court
denied the Fund's claim. As a result of the Court's decision, the Fund dropped
this litigation, while preserving its rights to pursue litigation against
Finova at a later date.
FCM believes that any potential liability to the Fund resulting from
Canadian's outstanding sales tax liabilities will not have any material adverse
effect on the Fund's financial condition, beyond the reserve that has been
established.
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, 1997, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $15.1 million. The
value of these portfolio investments, which were made from net offering
proceeds and the reinvestment of proceeds from the sale of other portfolio
investments, represents approximately 87.8% 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 are subject to certain
restrictions on transfer or sale, thereby limiting their liquidity. A number of
the portfolio companies have prepaid their subordinated debt that the Fund
held. In addition, three of the portfolio companies have successfully completed
initial public offerings ("IPOs") of their stock. The Fund has sold the stock
it held in these three companies, except for a portion of its KEMET Corporation
("KEMET") stock.
As of June 30, 1997, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
Pursuant to the terms of the Fund's periodic unit repurchase policy
that was adopted by the Fund's Limited Partners during 1993, the Fund annually
offers to purchase from its Limited Partners up to 7.5% of its outstanding
Units for an amount equal to the current net asset value per Unit, net of a fee
(not to exceed 2%) to be retained by the Fund to offset expenses incurred in
connection with the repurchase offer. If the number of tendered Units in any
year exceeds 7.5% of the outstanding Units, the Fund's General Partners may
vote to repurchase up to an additional 2% of the outstanding Units. The 1997
repurchase offer will be mailed to the Limited Partners during October 1997.
The actual redemption of tendered Units will occur on November 20, 1997.
During November 1996, the Fund agreed to provide up to $1,623,960 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $816,480
was advanced at that time. The Fund advanced an additional $460,404 during May
and June 1997. This follow-on investment consists of 12% Senior Subordinated
Revolving Notes due October 31, 2000.
Other assets increased $31,295 from $6,646 at December 31, 1996 to
$37,941 at June 30, 1997. This increase resulted primarily from deferred legal
fees incurred in connection with a proposal pursuant to which the Fund's Units
would be exchanged for shares in a newly-formed Delaware Business Trust that
would operate as a business development company and make investments in the
same manner as the Fund has in the past. The primary reasons for this proposed
exchange would be to provide liquidity to the Fund's investors through the
listing of the shares of the Trust on the American Stock Exchange and
simplified tax reporting.
There is considerable uncertainty as to whether the exchange will
ultimately be proposed and/or approved. There are numerous business, legal and
regulatory issues which are currently being addressed. Once this analysis is
completed, FCM will be in a position to decide whether or not to pursue the
proposal and solicit the required approvals of the Fund's General Partners and
investors.
During the six months ended June 30, 1997, the Fund paid cash
distributions pertaining to the fourth quarter of 1996 and the first quarter of
1997, each in the amount of $334,812. The distribution for the second quarter
of 1997 will be paid on August 14, 1997.
13
<PAGE> 14
These quarterly distributions are equal to $.30 per Unit and represent an
annualized rate equal to 6.0% of contributed capital.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments in
new portfolio companies. This will impact the amount of the Fund's quarterly
distributions for 1997 and subsequent years because all proceeds from
dispositions or maturities of investments will be distributed to investors,
except to the extent the cash is needed to fund the annual repurchase offer or
to fund any follow-on investments that the Fund may make in existing portfolio
companies.
See Note 5 to the financial statements for a discussion of litigation
associated with the Canadian's Chapter 11 bankruptcy case. FCM believes that
any potential liability to the Fund resulting from Canadian's outstanding
sales tax liabilities will not have any material adverse effect on the Fund's
financial condition, beyond the reserve that has been established.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $160,119 for the three months
ended June 30, 1997 as compared to net investment income of $276,026 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.23 to $.14 and the ratio of net investment
income to average net assets decreased from 5.57% to 4.14% for the three months
ended June 30, 1997 as compared to the corresponding period of the prior year.
The Fund's net investment income was $309,657 for the six months ended
June 30, 1997 as compared to net investment income of $517,987 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.43 to $.28 and the ratio of net investment
income to average net assets decreased from 5.22% to 3.91% for the six months
ended June 30, 1997 as compared to the corresponding period of the prior year.
Net investment income for both the three and six month periods ended
June 30, 1997 decreased primarily as a result of a decrease in investment
income. The decreases in net investment income were partially offset by
decreases in total expenses.
Investment income decreased $130,438 and $252,630, or 31.5% and 31.0%,
for the three and six month periods ended June 30, 1997, as compared to the
corresponding periods of the prior year. These decreases resulted primarily
from the Atlas Environmental, Inc. ("Atlas") Chapter 11 bankruptcy filing and
the related decision to discontinue accruing the interest due on the Atlas
notes held by the Fund. The Fund's total investments also decreased as a result
of the Fund's repurchase of 7.66% of its Units during the fourth quarter of
1996.
Total expenses decreased $14,576 and $44,300, or 10.6% and 15.0%, for
the three and six month periods ended June 30, 1997 as compared to the
corresponding periods of the prior year. These decreases resulted primarily
from decreases in Independent General Partner fees and expenses, professional
fees and other expenses. In addition, for the six months ended June 30, 1997
there was a decrease in investment advisory fees.
Independent General Partner fees and expenses declined because one of
the Fund's three Independent General Partners resigned and had not yet been
replaced as of June 30, 1997. Professional fees and other expenses decreased
primarily because of legal fees and
14
<PAGE> 15
expenses incurred during the prior year in connection with the Canadian's
bankruptcy proceedings.
The investment advisory fees paid to FCM decreased primarily as a
result of the direct receipt by FCM of consulting fees from LMC, one of the
Fund's portfolio companies during the first quarter of 1996. Pursuant to the
terms of the Fund's investment advisory agreement with FCM, the investment
advisory fees payable to FCM by the Fund are reduced by the amount of any fees
that FCM receives directly from any of the Fund's portfolio companies.
Net Realized Gain on Investments
The net realized gain for the three and six month periods ended June
30, 1997 resulted from the recognition of additional gain from the sale of the
Fund's investment in Huntington Holdings, Inc. ("Huntington").
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled $1,247,229, of which $1,089,896 was received during February
1996, with the balance held by the buyer in escrow. A portion of the escrowed
funds was used to pay various transaction expenses and the Fund received
additional distributions of $16,439 and $67,198 during September 1996 and May
1997, respectively. The remaining balance will continue to be held in escrow
until February 1998 to be available to fund any contingent purchase price
adjustments and as collateral for potential claims of the buyer with respect to
representations made by the selling shareholders, including the Fund. The Fund
recognized realized gains of $1,020,657 and $67,198 from this transaction
during 1996 and the second quarter of 1997, respectively. Additional gain will
be recognized if, and when, the Fund actually receives a distribution of any of
the remaining escrowed funds.
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and for
which market quotations are available, valuations are set by the closing sales,
or an average of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment is
valued initially based upon its original cost to the Fund ("cost method"). The
cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal valuations
are based upon such factors as the portfolio company's earnings, cash flow and
net worth, the market prices for similar securities of comparable companies and
an assessment of the portfolio company's future financial prospects. In a case
of unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
As of December 31, 1996, the Fund had recorded $1,321,710 of
unrealized gain and $1,905,012 of unrealized loss on investments. Therefore, as
of December 31, 1996, the Fund had recorded a total net unrealized loss on
investments of $583,302.
15
<PAGE> 16
The net increase in unrealized loss on investments during the three
and six month periods ended June 30, 1997 and the cumulative net unrealized
loss on investments as of June 30, 1997, consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
---------------------------------------------------------
During the Three During the Six
Months Ended Months Ended As of
Portfolio Company June 30, 1997 June 30, 1997 June 30, 1997
- -------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Neodata $ -- $ -- $ (278,915)
KEMET 138,336 43,230 566,789
ar accessories -- (703,412) (97,213)
Elgin / ENI 956,552 971,242 1,163,194
LMC -- -- (459,200)
MTI -- (4,210) (191,331)
Atlas (1,423,781) (1,423,781) (2,403,557)
--------------- --------------- ---------------
$ (328,893) $ (1,116,931) $ (1,700,233)
=============== =============== ===============
</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 previously provided for the accrual, rather than current
payment, of interest, the Company's debt has grown to a level which exceeds the
Fund's valuation.
KEMET completed an IPO of its common stock during 1992. The stock,
which trades on the NASDAQ National Market System, closed at $24.9375 (an
average of the closing bid and ask prices) on June 30, 1997. This price is up
from the closing prices of $23.0625 on December 31, 1996 and $18.9375 on March
31, 1997. Based on the $24.9375 closing trading price of the common stock, the
23,056 shares of common stock that the Fund held at June 30, 1997 had a market
value of $574,959.
ar accessories group, incorporated ("AAG") reported significantly
reduced earnings and cash flow from operations for its most recent fiscal year.
In addition, the price earnings ratios of comparable companies in its industry
have declined recently. As a result of these factors, the AAG warrants and
common stock were written down in value by $703,412 at March 31, 1997.
During June 1997, the Fund received a formal written offer from ENI
Holding Corp. ("ENI") management to repay the Fund's subordinated debt, redeem
the Fund's preferred stock and purchase the Fund's Class B common stock and
warrants. The offer was contingent on management's ability to secure adequate
financing on satisfactory terms. As a result of this offer, the Fund wrote the
Class B common stock and warrants up in value at June 30, 1997 by $941,861 to
an amount equal to 80% of the price offered by management. In addition, the ENI
preferred stock is being written up in value quarterly to reflect the amount of
the cumulative 10% preferential dividend that has accrued with respect to the
preferred stock.
LMC experienced significant operating problems after the Fund acquired
its LMC investment during 1994 and the Fund was involved in a restructuring of
its LMC investment during 1995. In the restructuring, the Fund's existing LMC
subordinated debt and warrants were converted into preferred stock and the Fund
purchased $454,400 of new common stock. As a result of LMC's operational
difficulties and the fact that the Fund's investment was converted from debt
securities to equity securities, the Fund wrote its LMC investment down by
$459,200 during 1995.
The MTI common stock was written down in value during 1994 based upon
an independent third party valuation of the company that was obtained by MTI's
management.
16
<PAGE> 17
During August 1996, MTI consummated a financial restructuring pursuant to which
a substantial amount of its corporate debt was converted to equity. In the
restructuring, the existing shareholders, including the Fund, received a
reduced number of shares of common stock, along with warrants to purchase
additional common stock. The Fund's valuation of its MTI investment was
increased by $19,010 following the restructuring based upon an analysis of
MTI's earnings and cash flows. The Fund's valuation was reduced by $4,210 at
March 31, 1997 based upon MTI's reported results for 1996.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As
a result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments on the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the
terms of which some of the company's businesses would be sold for cash. On
November 5, 1996, the purchaser notified Atlas that it wanted to renegotiate
the terms of the transaction, including a reduction in the purchase price.
Atlas management was unable to reach a revised agreement with the purchaser and
Atlas remained in default on its debt. On January 17, 1997, Atlas filed for
Chapter 11 bankruptcy protection. Atlas is currently developing a plan of
reorganization for submission to the bankruptcy court that provides for the
continued operation of its businesses, following a series of strategic asset
acquisitions and dispositions.
As a result of these developments, the Fund stopped accruing interest
on its Atlas investment effective April 20, 1996 and recorded writedowns of
$979,776 and $1,423,781in the carrying value of the investment during the
fourth quarter of 1996 and the second quarter of 1997, respectively.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
17
<PAGE> 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending directly against the
Fund.
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Holdings, Inc. ("Canadian's) Chapter 11 bankruptcy case against
Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger. The
complaint sought a declaratory judgment that sales taxes collected by
Canadian's and turned over to Finova were "trust funds" collected by Canadian's
on behalf of various state tax authorities. Through the complaint, the Fund
objected to Finova's secured claim against Canadian's, which was guaranteed by
Benson Selzer and Joseph Eiger, and sought to recover the sales tax and certain
other amounts for the benefit of Canadian's bankruptcy estate. As a result of
this litigation and the issues involved, the Fund accrued $370,627 during 1996
for legal costs and possible payments that may be required to settle the
litigation or to fund the payment of Canadian's outstanding sales tax
liabilities. On March 19, 1997, the Bankruptcy Court denied the Fund's claim.
As a result of the Court's decision, the Fund dropped this litigation, while
preserving its rights to pursue litigation against Finova at a later date.
As discussed in prior filings, a class action lawsuit was filed during
1994 against PaineWebber and a number of its affiliates concerning the sale of
various limited partnership and other direct investment programs, including the
offering of the Units.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
agreed to settle the case. A definitive settlement was agreed to in July 1996
and in March 1997, the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members. The investors who had
objected to the settlement have recently appealed the District Court's approval
to the Unites States Court of Appeals for the Second Circuit.
Item 5. Other Information
Prior to 1996, the Fund had three Individual General Partners
("IGPs"), Norman J. Peer, Robert H. Arnold and E. Bruce Fredrikson. Mr. Arnold
resigned from his position as an IGP on November 20, 1996. On July 30, 1997,
Messrs. Peer and Fredrikson elected two new IGPs, Mark A. Sargent and Phillip
Siegel. Immediately following the election of the new IGPs, Mr. Peer submitted
his resignation.
Information regarding the two new IGPs is as follows:
Mark A. Sargent, age 46, is the Dean and a Professor of Law at
Villanova University School of Law. From 1989 to 1997, he was a Professor of
Law at the University of Maryland School of Law, and served as Associate Dean
from 1995 to 1997. Mr. Sargent is also currently a member of the editorial
boards for several business law publications, a consultant on corporate and
securities law matters, and an arbitrator for disputes in the securities
industry. Mr. Sargent has a bachelors degree from Wesleyan University, a
masters degree in history from Cornell University and a J.D. degree from
Cornell Law School.
Phillip Siegel, age 54, is a Vice President and Chief Financial
Officer of Health Management Systems, Inc. From 1993 until May 1996, Mr. Siegel
was an independent business consultant. He served as senior executive officer
of Presidential Life Insurance Company from December 1989 until February 1993,
most recently as Senior Vice President. During 1988, Mr. Siegel served as Chief
Operating Officer and Chief Financial
18
<PAGE> 19
Officer of Sherwood Group and Sherwood Securities. From 1972 through 1987, Mr.
Siegel served in various senior executive capacities for the American
subsidiary of Reuters Limited, PLC, including as Vice President for
Acquisitions, as Vice President and General Counsel, and as the senior
financial officer. Mr. Seigel is a director of WestPoint Stevens, Inc. (and a
member of its compensation committee and chairman of its audit committee).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
11.1 Statement of Computation of Net Investment Income Per
Limited Partnership Unit.
19.1 Reports Furnished to Securities Holders.
27.1 Financial Data Schedule.
(b) The Registrant did not file any reports on Form 8-K during the
second quarter of the fiscal year ending December 31, 1997.
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Fiduciary Capital Pension Partners, L.P.
(Registrant)
By: FCM Fiduciary Capital Management Company
Managing General Partner
Date: August 12, 1997 By: /s/ Donald R. Jackson
--------------------------------------------
Donald R. Jackson
Chief Financial Officer
20
<PAGE> 21
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 No. 11.1
Statement of Computation of Net
Investment Income Per Limited
Partnership Unit
<PAGE> 2
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,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Investment Income $ 160,119 $ 276,026 $ 309,657 $ 517,987
Percentage Allocable to Limited Partners 99% 99% 99% 99%
------------ ------------ ------------ ------------
Net Investment Income Allocable
to Limited Partners $ 158,518 $ 273,266 $ 306,560 $ 512,807
============ ============ ============ ============
Weighted Average Number of Limited
Partnership Units Outstanding 1,104,881 1,196,564 1,104,881 1,196,564
============ ============ ============ ============
Net Investment Income Per Limited
Partnership Unit $ .14 $ .23 $ .28 $ .43
============ ============ ============ ============
</TABLE>
<PAGE> 1
Exhibit No. 19.1
Report Furnished to
Securities Holders
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
----------------------------------------
-------------
ANNUAL REPORT
1996
<PAGE> 3
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> 4
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. 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
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands, except per Unit amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 1,329 $ 2,268 $ 2,335 $ 2,587 $ 3,267
Net Investment Income 772 1,726 1,758 1,972 3,046
Net Realized and Unrealized
(Loss) Gain on Investments (1,143) (2,326) 1,505 148 424
Cash Distributions Declared to Partners 1,423 1,542 2,537 2,681 2,709
Cash Utilized to Repurchase Units 1,440 1,959 2,403 1,134 --
Total Assets 17,441 20,321 24,694 26,362 28,106
Net Assets 16,640 19,873 23,974 25,651 27,345
Value of Investments 17,105 20,025 23,454 25,213 27,582
Per Unit of Limited Partnership Interest:(1)
Net Investment Income .64 (2) 1.33 (2) 1.23(2) 1.32(2) 2.03
Net Realized and Unrealized
(Loss) Gain on Investments (.95)(2) (1.79)(2) 1.06(2) .10(2) .28
Cash Distributions Declared to Partners(3) 1.20 1.20 1.80 1.80 1.80
Net Asset Value 15.08 16.61 18.47 17.96 18.35
</TABLE>
- --------------------
(1) Effective October 1, 1993, each $1,000 Unit was redenominated into fifty
$20 Units. All amounts shown for prior years have been restated to give
effect to this redenomination.
(2) Calculated using the weighted average number of Units outstanding during
the years ended December 31, 1996, 1995, 1994 and 1993 of 1,186,294,
1,285,717, 1,413,240 and 1,482,514, respectively.
(3) Distribution amounts are reflected during the year in which the cash for
the distribution was generated. A portion of the actual cash distributions
are paid subsequent to such year.
----------------------------------
ONE
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
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, 1996. Unaudited interim
financial statements for the first quarter of 1997 are also enclosed along with
this Annual Report.
HIGHLIGHTS
o Distributions for 1996 totaled $1.20 per Unit, which represents an
annualized rate equal to 6.0% of contributed capital.
o The Fund's net asset value per Unit was $15.08 at December 31, 1996
and $14.21 at March 31, 1997 as compared to $16.61 at December 31,
1995.
o The Fund redeemed 7.66% of its outstanding Units during November 1996
pursuant to the Fund's annual repurchase offer.
NET ASSET VALUE AND CUMULATIVE DISTRIBUTIONS PER UNIT
[GRAPH]
CASH DISTRIBUTIONS
The Fund paid cash distributions of $.30 per Unit for each quarter of
1996. Each of these quarterly distributions represented an annualized rate
equal to 6.0% of contributed capital. The 1996 cash distributions were paid out
of current and accumulated net investment income (67.3%) and realized gain on
investments (32.7%). The distribution for the first quarter of 1997 was paid on
May 15, 1997 in an amount equal to $.30 per Unit, or an annualized rate equal
to 6.0% of contributed capital. We expect the remaining 1997 distributions to
be made at the same 6.0% rate or greater. A portion of the 1997 distributions
is expected to constitute a return of contributed capital.
PORTFOLIO ACTIVITY
Huntington Holdings
During December 1995, Huntington Holdings, Inc. ("Huntington") entered
into a letter of intent, under the terms of which all Huntington stock would be
sold. 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, with the balance being held by the buyer in escrow. A
portion of the escrowed funds was used to pay various transaction expenses and
the Fund received additional distributions of $16,439 and $67,198 during
September 1996 and May 1997, respectively. The remaining balance will continue
to be held in escrow until February 1998 to be available to fund any contingent
purchase price adjustments, and as collateral for potential claims of the buyer
with respect to representations made by the selling shareholders, including the
Fund. The Fund recognized realized gains of $1,020,657 and $67,198 from this
transaction during 1996 and the second quarter of 1997, respectively.
Additional gain will be recognized if, and when, the Fund receives a
distribution of any of the remaining escrowed funds.
Atlas Environmental
During January 1996, the Fund acquired an investment in Atlas
Environmental, Inc. ("Atlas") at a cost of approximately $3.2 million. Atlas,
headquartered in Plantation, Florida, is a holding company that owns and
manages companies in 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 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 that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As
a result, Atlas defaulted on certain financial covenants in its agreements with
both its senior and subordinated lenders, including the Fund. The senior
lender, the
----------------------------------
TWO
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
Bank of New York, reacted to the covenant defaults by limiting Atlas'
availability under its revolving credit facility and by instructing Atlas not
to pay interest to the Fund and its other subordinated debt holders.
During August 1996, Atlas entered into a letter of intent, under the terms
of which some of the company's businesses would be sold for cash. During
November 1996, the purchaser notified Atlas that it wanted to renegotiate the
terms of the transaction, including a reduction in the purchase price. Atlas
management was unable to reach a revised agreement with the purchaser and Atlas
remained in default on its debt covenants. During January 1997, Atlas filed for
Chapter 11 bankruptcy protection. Atlas is currently developing a plan of
reorganization for submission to the bankruptcy court that provides for the
continued operation of its businesses, following a series of strategic asset
acquisitions and dispositions.
As a result of these developments, the Fund stopped accruing interest on
its Atlas investment and recorded a $979,776 writedown in the carrying value of
the investment.
LMC Operating
During November 1996, the Fund agreed to provide up to $1,632,960 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $816,480
was advanced on that date. It is anticipated that the balance of the commitment
will be funded during 1997. This follow-on investment consists of 12% Senior
Subordinated Revolving Notes due October 31, 2000.
During 1996, we assumed direct management responsibility for LMC. Messrs.
Paul Bagley, Duke DeGrassi and Donald Jackson, officers of FCM, are three of
five Directors on the LMC Board and Mr. DeGrassi is the Chairman and Chief
Executive Officer. The company is making significant progress toward
diversifying its product offering and will begin manufacturing and selling its
new Skid Trak machine in the fall of 1997.
Canadian's
Canadian's Corp. ("Canadian's") was a women's specialty retailer that
filed for Chapter 11 bankruptcy protection during February 1996 and ceased
operations during March 1996. As a result of these developments, it became
evident that the Fund would not recover any of its Canadian's investment.
Accordingly, the Fund recognized a $4,474,576 realized loss on its Canadian's
investment during the first quarter of 1996. This total includes an accrual of
$370,627 for estimated payments that may be required to fund the payment of
Canadian's outstanding sales tax liabilities and costs associated with
litigation related thereto.
ar accessories
ar accessories group, incorporated ("AAG") (formerly, Amity Leather
Products, Co.) reported significantly reduced earnings and cash flow from
operations for its most recent fiscal year. In addition, the price earnings
ratios of comparable companies in its industry have declined recently. As a
result of these developments, the Fund reduced the valuation of its remaining
equity investment in AAG by $113,629 and $703,412 during the fourth quarter of
1996 and the first quarter of 1997, respectively. (AAG prepaid the subordinated
notes that the Fund initially held during 1994.)
NET UNREALIZED GAIN (LOSS) ON PORTFOLIO INVESTMENTS
The cumulative net unrealized gain (loss) on investments held by the Fund
at March 31, 1997 and December 31, 1996, consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
----------------------------------
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
KEMET $ 428,453 $ 523,559
Elgin / ENI 206,642 191,952
AAG (97,213) 606,199
MTI (191,331) (187,121)
Neodata (278,915) (278,915)
LMC (459,200) (459,200)
Atlas (979,776) (979,776)
----------- -----------
$(1,371,340) $ (583,302)
=========== ===========
</TABLE>
PERIODIC UNIT REPURCHASE POLICY
The Fund's investors adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund is required to
annually offer to purchase from investors, up to 7.5% of its outstanding Units
for an amount equal to the current net asset value per Unit, net of a fee (not
to exceed 2%) to be retained by the Fund to offset expenses incurred in
connection with the repurchase offer. If the number of tendered Units in any
year exceeds 7.5% of the outstanding Units, the Fund's General Partners may
vote to repurchase up to an additional 2% of the outstanding Units. During
November 1996, 91,683 Units (7.66% of the outstanding Units) were redeemed at a
net asset value per Unit of $15.71 ($15.40, net of the 2% fee).
----------------------------------
THREE
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
The next scheduled repurchase of Units would occur during the fourth
quarter of 1997 unless the proposed exchange discussed below is approved on a
timely basis. The repurchase offer schedule provides for a mailing to investors
on October 6, 1997. The deadline for tendering Units for repurchase would be
October 31, 1997. The repurchase price would be based on the net asset value
per Unit on November 13, 1997 and payment for tendered Units would be made on
November 20, 1997.
PROPOSED EXCHANGE
The General Partners are considering a plan through which your Units would
be exchanged for shares in a newly-formed Delaware Business Trust that would
operate as a business development company and make investments in the same
manner as the Fund has in the past. The primary reason for this exchange would
be to provide you with liquidity through the listing of the shares of the Trust
on the American Stock Exchange. Additionally, the Trust would facilitate
simplified tax reporting through the use of Form 1099 as opposed to the
Schedule K-1, which you are now receiving from the Fund.
The consummation of the proposed exchange will require the approval of the
Fund's General Partners and investors. In addition, there are numerous legal
and regulatory matters which need to be addressed before we will be in a
position to solicit the necessary approvals. Although there is uncertainty as
to whether a plan will ultimately be proposed and approved, if it were
approved, the annual repurchase offer would be eliminated. In this letter, we
simply wanted to let you know that we are actively managing the Fund and
considering alternatives to enhance your investment. We will keep you informed
as this project moves forward.
THIRD PARTY OFFERS TO PURCHASE UNITS
As recently reported in the press, solicitations by unaffiliated third
parties to purchase up to 4.9% of outstanding limited partnership units have
become increasingly common. While we are not aware of any solicitations to date
concerning the Fund, we thought it appropriate to provide you background
information on this emerging trend. The third parties who make these offers
take the position that the offers are not required to comply with certain rules
and regulations of the Securities and Exchange Commission governing larger
tender offers. The price offered is likely to be substantially below estimated
values per unit and may be well below what may be received on the informal
limited partnership secondary market.
While an investment in the Fund was intended to be a long-term investment,
we are aware that there may be investors wishing to sell their Units. However,
prior to entering into an agreement to sell your Units, you should consider a
number of factors including, among other things, the Fund's annual repurchase
offer, the value of the Units as determined by FCM and independent third
parties, tax implications, whether distributions declared while the transfer is
pending will be paid to the buyer or seller, whether you will be able to
withdraw your Units before they are accepted for payment (if, for example, a
higher price was available), the distribution rate and prices received in
recent secondary sales transactions. For the most current valuation and
secondary sales information, please contact the Fund or your financial advisor.
If you have any questions regarding your investment in the Fund, please
call us at 800-866-7607.
Sincerely,
/s/ Paul Bagley
Paul Bagley, Chairman
FCM Fiduciary Capital Management Company
/s/ W. Duke DeGrassi
W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company
May 18, 1997
----------------------------------
FOUR
<PAGE> 8
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.
ar accessories group, incorporated ("AAG") AAG, 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. AAG 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.
Mobile Technology, Inc. ("MTI") MTI, headquartered in Los Angeles,
California is a provider of magnetic resonance imaging and computed tomography
mobile shared-services.
R.B.M. Precision Metal Products, Inc. ("RBM") RBM, headquartered in
Colorado Springs, Colorado, is a manufacturer of precision sheet metal
enclosures, chassis and assemblies for business machines.
Atlas Environmental, Inc. ("Atlas") Atlas, headquartered in Plantation,
Florida , is a holding company that owns and manages companies in segments of
the environmental services industry.
[VALUE OF 1996 YEAR-END INVESTMENTS BY PORTFOLIO COMPANY GRAPH]
Note: As of December 31, 1996, the Fund also held investments in Neodata,
which were valued at a negligible amount.
----------------------------------
FIVE
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGED COMPANIES:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 8,170 531,729
- ----------------------------------------------------------------------------------------------------------------------------------
8,170 531,729 3.1
- ----------------------------------------------------------------------------------------------------------------------------------
62,606 sh. ar accessories group,
incorporated, Warrants
to Purchase Class B
Common Stock(2)* 07/30/92 85,909 674,584
22,608 sh. ar accessories group,
incorporated, Class A
Common Stock(2)* 07/30/92 226,080 243,604
- ----------------------------------------------------------------------------------------------------------------------------------
311,989 918,188 5.4
- ----------------------------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,934,375 4,934,375
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 779,562
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
- ----------------------------------------------------------------------------------------------------------------------------------
5,604,522 5,796,474 33.9
- ----------------------------------------------------------------------------------------------------------------------------------
$816,480 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4) 11/01/96 816,480 816,480
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
49.72 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- ----------------------------------------------------------------------------------------------------------------------------------
3,660,090 3,200,890 18.7
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
----------------------------------
SIX
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,327 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 187,698 39,894
3,527 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 49,929 10,612
- ----------------------------------------------------------------------------------------------------------------------------------
237,627 50,506 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,210,998 1,210,998
9,072.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 73,295 73,295
- ----------------------------------------------------------------------------------------------------------------------------------
1,284,293 1,284,293 7.5
- ----------------------------------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 1/19/03(7)* 01/25/96 3,170,895 2,224,960
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(7)* 01/25/96 33,842 1
- ----------------------------------------------------------------------------------------------------------------------------------
3,204,737 2,224,961 13.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (84.2% of net assets) 14,590,345 14,007,043 81.9
- ----------------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$3,100,000 John Deere Capital Corp.,
5.215% Notes due 1/06/97 12/18/96 3,097,761 3,097,761
- ----------------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (18.6% of net assets) 3,097,761 3,097,761 18.1
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments (102.8% of net assets) $17,688,106 $17,104,804 100.0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to ar accessories
group, incorporated during 1996.
(3) The notes will amortize in eight equal quarterly installments of $627,991
commencing on November 30, 1999.
(4) The Fund has committed to provide up to $1,632,960 of subordinated debt
financing pursuant to the terms of these notes.
(5) The warrants have exercise prices of $20.00 per share (1,058 shares) and
$35.00 per share (2,469 shares).
(6) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(7) The notes will amortize in five equal annual installments of $653,184
commencing on January 19, 1999. The accrual of interest on the notes was
discontinued by the Fund effective April 20, 1996. (Note 12)
(8) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
----------------------------------
SEVEN
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 AND 1995
1996 1995
------------- -------------
<S> <C> <C>
ASSETS:
Investments (Notes 2, 10, 11, 12 and 13) Portfolio investments, at fair
value:
Managed companies (amortized cost -
$14,590,345 and $14,272,465, respectively) $ 14,007,043 $ 11,377,790
Temporary investments, at amortized cost 3,097,761 8,647,334
------------- -------------
Total investments 17,104,804 20,025,124
Cash and cash equivalents (Note 2) 234,305 175,768
Accrued interest receivable (Note 12) 95,207 117,461
Other assets 6,646 3,095
------------- -------------
Total assets $ 17,440,962 $ 20,321,448
============= =============
LIABILITIES:
Due to affiliates (Notes 6, 7, 8 and 9) $ 47,368 $ 54,494
Accounts payable and accrued liabilities 418,781 31,327
Distributions payable to partners (Note 3) 334,812 362,595
------------- -------------
Total liabilities 800,961 448,416
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
NET ASSETS (NOTES 3 AND 4):
Managing General Partner (23,225) (5,298)
Limited Partners (equivalent to $15.08
and $16.61, respectively, per limited
partnership unit based on 1,104,881
and 1,196,564 units outstanding) (Note 5) 16,663,226 19,878,330
------------- -------------
Net assets 16,640,001 19,873,032
------------- -------------
Total liabilities and net assets $ 17,440,962 $ 20,321,448
============= =============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
----------------------------------
EIGHT
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 1,306,178 $ 2,234,934 $ 2,310,063
Other income 23,313 33,225 25,248
-------------- -------------- --------------
Total investment income 1,329,491 2,268,159 2,335,311
-------------- -------------- --------------
Expenses:
Investment advisory fees (Note 6) 136,714 195,279 232,554
Fund administration fees (Note 7) 118,327 118,327 118,327
Independent General Partner fees
and expenses (Note 8) 47,563 49,283 48,777
Administrative expenses (Note 7) 68,895 68,105 67,980
Professional fees 134,950 61,715 42,613
Amortization -- 8,760 10,500
Other expenses 50,589 40,719 56,425
-------------- -------------- --------------
Total expenses 557,038 542,188 577,176
-------------- -------------- --------------
NET INVESTMENT INCOME 772,453 1,725,971 1,758,135
-------------- -------------- --------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (Note 10) (3,453,919) 3,790,988 (2,089,653)
Net change in unrealized gain (loss)
on investments (Note 11) 2,311,373 (6,116,647) 3,594,544
-------------- -------------- --------------
Net (loss) gain on investments (1,142,546) (2,325,659) 1,504,891
-------------- -------------- --------------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (370,093) $ (599,688) $ 3,263,026
============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
--------------------------
NINE
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (370,093) $ (599,688) $ 3,263,026
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Accreted discount on portfolio investments (36,025) (73,777) (49,282)
Amortization -- 8,760 10,500
Change in assets and liabilities:
Accrued interest receivable 22,254 404,333 (210,442)
Other assets (3,551) 614 3,957
Due to affiliates (7,126) 11,056 9,476
Accounts payable and accrued liabilities 16,827 (2,215) 5,417
Prepaid interest income -- (52,635) 52,635
Net realized loss (gain) on investments 3,453,919 (3,790,988) 2,089,653
Net change in unrealized (gain) loss
on investments (2,311,373) 6,116,647 (3,594,544)
------------ ------------ ------------
Net cash provided by operating activities 764,832 2,022,107 1,580,396
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (4,471,482) (2,753,876) (4,948,269)
Proceeds from dispositions of portfolio investments 1,106,335 8,930,308 10,077,533
Sale (purchase) of temporary investments, net 5,549,573 (4,467,744) (2,347,742)
------------ ------------ ------------
Net cash provided by investing activities 2,184,426 1,708,688 2,781,522
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,450,381) (1,768,635) (2,596,272)
Repurchase of limited partnership units (1,440,340) (1,959,487) (2,402,951)
Deferred repurchase plan costs -- -- 17,975
------------ ------------ ------------
Net cash used in financing activities (2,890,721) (3,728,122) (4,981,248)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 58,537 2,673 (619,330)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 175,768 173,095 792,425
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 234,305 $ 175,768 $ 173,095
============ ============ ============
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.
-------------------------------
TEN
<PAGE> 14
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 772,453 $ 1,725,971 $ 1,758,135
Net realized (loss) gain on investments (3,453,919) 3,790,988 (2,089,653)
Net change in unrealized gain (loss)
on investments 2,311,373 (6,116,647) 3,594,544
------------ ------------ ------------
Net (decrease) increase in net
assets resulting from operations (370,093) (599,688) 3,263,026
Repurchase of limited partnership units (Note 5) (1,440,340) (1,959,487) (2,402,951)
Distributions to partners from -
Net investment income (956,739) (1,541,685) (1,758,135)
Realized gain on investments (465,859) -- (778,614)
------------ ------------ ------------
Total decrease in net assets (3,233,031) (4,100,860) (1,676,674)
Net assets:
Beginning of year 19,873,032 23,973,892 25,650,566
------------ ------------ ------------
End of year (including undistributed net investment
income of $0, $184,286, and $0, respectively) $ 16,640,001 $ 19,873,032 $ 23,973,892
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
----------------------------
ELEVEN
<PAGE> 15
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS(1)
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ 1.11 (2) $ 1.75 (2) $ 1.63 (2) $ 1.73 (2) $ 2.41
Expenses (.47)(2) (.42)(2) (.40)(2) (.41)(2) (.38)
------ ------ ------ ------ ------
Net investment income .64 (2) 1.33 (2) 1.23 (2) 1.32 (2) 2.03
Net realized (loss) gain on investments (2.88)(2) 2.92 (2) (1.46)(2) .60 (2) .03
Net change in unrealized gain (loss)
on investments 1.93 (2) (4.71)(2) 2.52 (2) (.50)(2) .25
Effect of unit repurchases
on net asset value (.02) (.20) .02 (.01) --
Distributions declared to partners (1.20) (1.20) (1.80) (1.80) (1.80)
------ ------ ------ ------ ------
Net (decrease) increase in net asset
value (1.53) (1.86) .51 (.39) .51
Net asset value:
Beginning of year 16.61 18.47 17.96 18.35 17.84
------ ------ ------ ------ ------
End of year $15.08 $16.61 $18.47 $17.96 $18.35
====== ====== ====== ====== ======
RATIOS:
Ratio of expenses to average net assets 2.92% 2.27% 2.27% 2.27% 2.16%
Ratio of net investment income to
average net assets 4.05% 7.22% 6.91% 7.28% 11.33%
Number of limited partnership units
at end of year(1) 1,104,881 1,196,564 1,296,999 1,427,950 1,489,800
</TABLE>
- -----------------
(1) Effective October 1, 1993, each $1,000 limited partnership unit was
redenominated into fifty $20 limited partnership units. All amounts shown
for prior years have been restated to give effect to this redenomination.
(2) Calculated using the weighted average number of limited partnership units
outstanding during the years ended December 31, 1996, 1995, 1994 and 1993
of 1,186,294, 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.
-----------------------------
TWELVE
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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.
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
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Method The Fund maintains its accounting records, prepares
financial statements and files its tax returns using the accrual method of
accounting.
Realized and Unrealized Gain or Loss on Investments Realized gains and
losses are recorded upon disposition of investments and are calculated based
upon the difference between the proceeds and the cost basis determined using
the specific identification method. All other changes in the valuation of
investments, as determined by FCM, are included as changes in the unrealized
appreciation or depreciation of investments in the statements of operations.
Valuation of Investments FCM values the Fund's investments on a weekly
basis utilizing a variety of methods. For securities that are publicly traded
and for which market quotations are available, valuations are set by the
closing sales, or an average of the closing bid and 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 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
----------------------------
THIRTEEN
<PAGE> 17
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
appraisal may be based upon liquidation value. Appraisal valuations are
necessarily subjective. The Fund also may use, when available, third-party
transactions in a portfolio company's securities as the basis of valuation
("private market method"). The private market method is used only with respect
to completed transactions or firm offers made by sophisticated, independent
investors.
Temporary investments with maturities of less than 60 days are stated at
amortized cost, which approximates market value. Under this method, temporary
investments are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until
maturity of the investment.
Cash and Cash Equivalents The Fund considers investments in money market
funds to be cash equivalents.
Interest Receivable on Notes Notes are placed on non-accrual status in the
event of a default (after any applicable grace period expires) or if FCM
determines that there is no reasonable expectation of collecting the interest.
Income Taxes No provision for income taxes has been made in the financial
statements because taxes on Fund income are the responsibility of the
individual partners rather than the Fund.
Investment Transactions The Fund records portfolio investment transactions
on the date on which it obtains an enforceable right to demand the securities
or payment thereof and records temporary investment transactions on the trade
date. Realized gains and losses on investments are determined on the basis of
specific identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from temporary
investments will be distributed and allocated 99% to the Limited Partners and
1% to FCM. Net investment income will, in general, be distributed and
allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative non-compounded preferred return of 9% per
annum on their capital contributions to the Fund, then (ii) 70% to the Limited
Partners and 30% to FCM until FCM has received 10% of all current and prior
distributions and allocations, and thereafter, (iii) 90% to the Limited
Partners and 10% to FCM.
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
November 1996 91,683 7.66% 15.71 15.40
</TABLE>
----------------------------
FOURTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement, net of certain fees received
directly by FCM from the Fund's portfolio companies. Investment advisory fees
of $136,714, $195,279 and $232,554 were incurred by the Fund for 1996, 1995 and
1994, 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 1996, 1995 and 1994. 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 $68,895, $68,105 and $67,980 for
1996, 1995 and 1994, respectively.
8. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and FCP an annual fee of $30,000,
payable monthly in arrears, together with all out-of-pocket expenses. Each
fund's allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses of $47,563, $49,283 and $48,777 were
incurred by the Fund for 1996, 1995 and 1994, 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
$200,848, $154,260 and $144,184 during 1996, 1995 and 1994, 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, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $14.6 million.
During the year ended December 31, 1996, the Fund, acquired a new portfolio
investment in Atlas Environmental Inc. ("Atlas) and acquired two follow-on
investments in LMC Operating Corp. ("LMC") at a total cost of approximately
$4.5 million.
The Fund sold all of its Huntington Holdings, Inc. common stock during
1996 receiving $1,106,335 of sales proceeds. In addition, the Fund wrote off
its entire investment in Canadian's Corp. ("Canadian's"), which filed for
Chapter 11 bankruptcy protection during February 1996 and ceased operations
during March 1996. The Fund also accrued an additional realized loss of
$370,627 for possible legal costs and other payments that may be required in
connection with the Canadian's bankruptcy (see Note 13). In total, the Fund
recorded net realized losses of $3,453,919 during 1996.
The Fund has pledged the common stock and warrants it owns in ar
accessories group, incorporated and LMC Credit Corp. as collateral for the
corporations' 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, 1995, the Fund had recorded net unrealized loss on
investments of $2,894,675. During 1996, the Fund recorded $77,771 of unrealized
gain and $1,115,021 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1996 with respect to which the Fund had
-------------------------------
FIFTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recorded $3,348,623 of net unrealized loss during prior years. Therefore, at
December 31, 1996, the Fund had net unrealized loss on investments of $583,302.
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, (iv) the LMC Senior Subordinated Notes effective December 1,
1995, and (v) the Atlas Senior Subordinated Secured Notes effective April 20,
1996.
During 1996, all of the Canadian's debt was written off as a realized loss
and the LMC Senior Subordinated Notes were converted into preferred stock.
Thus, as of December 31, 1996, the Fund's only debt investment on non-accrual
status was the Atlas Senior Subordinated Secured Notes.
13. COMMITMENTS AND CONTINGENCIES
LMC Commitment On November 1, 1996, the Fund agreed to provide up to
$1,632,960 of additional subordinated debt to LMC, of which $816,480 was
advanced on that date. Thus, the Fund is committed, subject to various
conditions, to funding an additional $816,480.
PaineWebber Incorporated Litigation FCM was named as a defendant in a
class action lawsuit against PaineWebber Incorporated ("PaineWebber") and a
number of its affiliates concerning its sale of 70 different limited
partnerships and other direct investment programs, including the offering of
the Units. Plaintiffs in the lawsuit allege, among other things, that the
defendants violated federal securities laws and committed common law fraud in
the marketing of direct investments.
On May 30, 1995, the United States District Court for the Southern
District of New York entered an order certifying the class and dismissing the
class action against FCM without prejudice. PaineWebber and Mezzanine Capital
Corporation, a minority general partner in FCM and an affiliate of PaineWebber,
remain as defendants.
During January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of
New York to be used to resolve the litigation in accordance with a definitive
settlement agreement and plan of allocation, which the parties subsequently
submitted to the Court for its consideration and approval. The Court approved
the settlement agreement during March 1997.
During February 1996, approximately 150 plaintiffs filed an action in
Sacramento, California Superior Court against PaineWebber and various
affiliated entities (not including FCM) concerning the plaintiffs' purchase of
various limited partnership interests. The complaint alleged, among other
things, that PaineWebber and its related entities committed fraud and
misrepresentations and breached fiduciary duties allegedly owed to the
plaintiffs 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. This
action was settled during March 1997.
Canadian's Litigation On October 3, 1996, the Fund commenced an adversary
proceeding in the Canadian's Chapter 11 bankruptcy case against Finova, Benson
Selzer and Joseph Eiger. The complaint seeks a declaratory judgment that sales
taxes collected by Canadian's and turned over to Finova were "trust funds"
collected by Canadian's on behalf of various state tax authorities. Through the
complaint, the Fund has objected to Finova's secured claim against Canadian's,
which was guaranteed by Benson Selzer and Joseph Eiger, and seeks to recover
the sales tax and certain other amounts for the benefit of Canadian's
bankruptcy estate. As a result of this litigation and the issues involved, the
Fund accrued $429,373 for legal costs and possible payments that may be
required to settle the litigation or to fund the payment of Canadian's
outstanding sales tax liabilities.
FCM believes that neither the PaineWebber or the Canadian's related
litigation will have any material adverse effect on the Fund's financial
condition, beyond the reserve that has been established with respect to the
Canadian's litigation.
------------------------------
SIXTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
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>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net (decrease) increase in net
assets resulting from
operations per financial
statements $ (370,093) $ (599,688) $ 3,263,026
Increase (decrease)
resulting from:
Unrealized (gain) loss
on investments (2,311,373) 6,116,647 (3,594,544)
Realized gains and
losses on investments 503,448 -- 2,927,625
Fee income, net of
amortization (18,801) (64,525) (24,253)
Interest income -- 32,992 (32,992)
Amortization of
organization and
start-up costs -- (10,793) (23,019)
Other (15,417) (38,431) (20,930)
----------- ----------- -----------
Taxable (loss) income per
federal income tax
return $(2,212,236) $ 5,436,202 $ 2,494,913
=========== =========== ===========
</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>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net assets per
financial statements $ 16,640,001 $ 19,873,032 $ 23,973,892
Realized gains and
losses on investments 3,431,073 2,927,625 2,927,625
Syndication, organization
and start-up costs, net 3,045,822 3,112,764 3,214,941
Unrealized loss (gain)
on investments 583,302 2,894,675 (3,221,967)
Distributions payable 334,812 362,595 589,545
Fee income, net of
amortization 47,396 66,197 130,722
Accrued expenses 25,625 18,650 24,518
Prepaid interest income -- -- 52,635
Accrued interest income -- -- (85,627)
------------ ------------ ------------
Tax bases of net assets $ 24,108,031 $ 29,255,538 $ 27,606,284
============ ============ ============
</TABLE>
------------------------------
SEVENTEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
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, 1996
and 1995, including the schedule of investments as of December 31, 1996, 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, 1996 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, 1996 and 1995 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, 1996 and 1995, 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, 1996, 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 $13,475,314 at December 31, 1996 (81.0% of net assets) and
$10,824,445 at December 31, 1995 (54.5% 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 4, 1997.
-------------------------
EIGHTEEN
<PAGE> 22
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 are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
-------------------- ------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ ----------- ------ ----------
<S> <C> <C> <C> <C>
November 1993 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
November 1996 91,683 7.66% 15.71 15.40
</TABLE>
As of December 31, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $14.6 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 84.2% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature.
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, 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 the year ended December 31, 1996, the Fund acquired a new portfolio
investment in Atlas and acquired two follow-on investments in LMC at a total
cost of approximately $4.5 million.
The Fund sold all of its Huntington common stock during 1996, receiving
$1,106,335 of sales proceeds. In addition, the Fund wrote off its entire
Canadian's investment as a realized loss.
Accrued interest receivable decreased $22,254 from $117,461 at December
31, 1995 to $95,207 at December 31, 1996. This decrease resulted primarily from
the placing of the Atlas subordinated debt on non-accrual status effective
April 20, 1996.
Accounts payable and accrued liabilities increased $387,454 from $31,327
at December 31, 1995 to $418,781 at December 31, 1996. This increase resulted
primarily from the accrual of $370,627 for possible legal costs and other
payments that may by required to settle the Canadian's litigation or to fund
the payment of Canadian's outstanding sales tax liabilities.
Distributions payable to partners decreased $27,783, from $362,595 at
December 31, 1995 to $334,812 at December 31, 1996. This 7.66% decrease results
from the corresponding percentage decrease in the number of outstanding Units
as a result of the repurchase of Units by the Fund during November 1996.
During 1996, the Fund declared cash distributions to its partners in the
aggregate amount of $1,422,598. The distributions were paid in four equal (on a
per-Unit basis) quarterly payments during the months of May, August and
November 1996 and February 1997. Each of the distributions was equal to an
annualized rate equal to 6% of contributed capital ($.30 per Unit) and were
paid out of current and accumulated net investment income (67.3%) and realized
gain on investments (32.7%).
The Fund expects 1997 distributions, beginning with the distribution
payable during May 1997, 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. This will impact the amount of the
Fund's quarterly distributions for 1997 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
-----------------------------
NINETEEN
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
fund any follow-on investments that the Fund may make in existing portfolio
companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to a
financial restructuring of LMC. 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. A portion of the Fund's available capital that had been reserved for
the abandoned investments was used to partially fund the Fund's 1996 annual
repurchase offer and the remainder is now reserved to fund the 1997 repurchase
offer or to fund any follow-on investments that the Fund may make in existing
portfolio companies.
See Note 13 to the Fund's financial statements for a discussion of
litigation. 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.
1996 Compared to 1995
The Fund's net investment income was $772,453 for the year ended December
31, 1996 on total investment income of $1,329,491 as compared to net investment
income of $1,725,971 on total investment income of $2,268,159 for the prior
year. Net investment income per limited partnership unit decreased from $1.33
to $.64, and the ratio of net investment income to average net assets decreased
from 7.22% to 4.05% for the year ended December 31, 1996 in comparison to the
prior year.
Net investment income for the year ended December 31, 1996 decreased
primarily as a result of a decrease in investment income. Total expenses also
increased by a small amount.
Investment income decreased $938,668, or 41.4%, for the year ended
December 31, 1996 in comparison to the prior year. This decrease resulted
primarily from the conversion of the Fund's LMC debt securities into
non-dividend paying equity securities, the Canadian's bankruptcy and the
decision by the Fund to stop accruing interest on its subordinated debt
investment in Atlas. Other factors that contributed to the decrease in
investment income include the utilization of a portion of the Fund's cash
reserves to repurchase Units during both November 1995 and 1996 and lower
interest rates on the Fund's temporary investments.
Total expenses increased $14,850, or 2.7%, for the year ended December 31,
1996 in comparison to the prior year. This increase resulted primarily from
increases in professional fees and other expenses. These increases were
partially offset by decreases in investment advisory fees and amortization
expense.
The increases in professional fees and other expenses were primarily the
result of legal fees and other costs incurred in connection with the Canadian's
bankruptcy proceedings and the default by Atlas with respect to the payment of
interest due to the Fund. The investment advisory fees decreased primarily as a
result of the repurchase of Units by the Fund during both November 1995 and
1996 and the realization during February 1996 of the loss on the Fund's
Canadian's investment. Both the repurchase of the 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 cost over a five year period beginning with the inception of the
Fund in 1990. Therefore, these costs became fully amortized during 1995.
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> 24
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.
NET REALIZED GAIN (LOSS) ON INVESTMENTS
The Fund realized net losses of $2,089,653 during the year ended December
31, 1994, gains of $3,790,988 during the year ended December 31, 1995 and net
losses of $3,453,919 during the year ended December 31, 1996.
During 1994, the Fund realized gains, including applicable prepayment
premiums, resulting from the prepayment by Huntington and Amity of subordinated
notes that were held by the Fund and the sale of a portion of the KEMET common
stock that was held by the Fund. The Fund also recognized a substantial
realized loss as a result of MTI's financial restructuring which occurred
during 1994. The realized gains for 1995 consisted of gain, including a
prepayment premium, from the prepayment by Protection One of subordinated notes
that were held by the Fund and gains from the sale of all of the Carr-Gottstein
common stock and KB Alloys notes and a portion of the KEMET common stock that
were held by the Fund.
The net realized losses for 1996 resulted from a gain on sale of the
Fund's Huntington investment and a realized loss on the Fund's Canadian's
investment.
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, with
the balance held in escrow. A portion of the escrowed funds was used to pay
various transaction expenses and $16,439 was received during September 1996.
The remaining balance is still being held in escrow to fund contingent purchase
price adjustments, and as collateral for potential claims of the buyer with
respect to representations made by the selling shareholders, including the
Fund. While the remaining portion of the escrow amount must be maintained until
February 1998, 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
recognized a realized gain of $1,020,657 from this transaction during 1996.
Additional gain will be recognized if, and when, the Fund actually receives a
distribution of any of the remaining escrowed funds.
Canadian's was a women's specialty retailer which filed for Chapter 11
bankruptcy protection during February 1996 and ceased operations during March
1996. 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 1996 because all but
$5 of the loss was recorded as an unrealized loss during 1995.
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Chapter 11 bankruptcy case against Finova, Benson Selzer and Joseph
Eiger. The complaint seeks a
--------------------------------
TWENTY-ONE
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
declaratory judgment that sales taxes collected by Canadian's and turned over
to Finova were "trust funds" collected by Canadian's on behalf of various state
tax authorities. Through the complaint, the Fund has objected to Finova's
secured claim against Canadian's, which was guaranteed by Benson Selzer and
Joseph Eiger, and seeks to recover the sales tax and certain other amounts for
the benefit of Canadian's bankruptcy estate. As a result of this litigation and
the issued involved, the Fund accrued $370,627 for legal costs and possible
payments that may be required to settle the litigation or to fund the payment
of Canadian's outstanding sales tax liabilities. This accrued amount was
recorded as an additional realized loss in the Fund's Statement of Operations.
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which
market quotations are available, valuations are set by the closing sales, or an
average of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public markets
or that are privately held are determined pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable
for such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method will be
used only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
Prior to 1994, the Fund had recorded cumulative 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.
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.
The net decrease in unrealized gain on investments during 1996 and the
cumulative net unrealized loss on investments at December 31, 1996, consisted
of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-------------------------------
As of
Portfolio Investment During 1996 December 31, 1996
- ---------------------------- ----------- -----------------
<S> <C> <C>
Unrealized net loss recorded
during prior years with
respect to investments
disposed of during 1996 $ 3,348,623 $ --
Neodata -- (278,915)
KEMET (21,616) 523,559
AAG (113,629) 606,199
Elgin / ENI 58,761 191,952
LMC -- (459,200)
MTI 19,010 (187,121)
Atlas (979,776) (979,776)
----------- -----------
$ 2,311,373 $ (583,302)
=========== ===========
</TABLE>
The Neodata stock was written down to a negligible amount during 1995. The
Fund has consistently valued this investment based upon a multiple of Neodata's
cash flow. Because Neodata's long-term debt previously provided for the
accrual, rather than current payment, of interest, the company's debt has grown
to a level which exceeds the Fund's valuation.
KEMET completed an IPO of its common stock during 1992. The stock, which
trades on the NASDAQ National Market System, closed at $23.0625 (an average of
the closing bid and ask prices) on December 31, 1996. This price is down
slightly from the closing price of $24.00 on December 31, 1995. Based on the
$23.0625 closing trading price of the common stock, the 23,056 shares of common
stock that the Fund held at December 31, 1996 had a market value of $531,729.
The AAG warrants and common stock were written up in value at March 31,
1996 to bring AAG's valuation more in line with the valuation of comparable
companies in its industry.
The ENI 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.
---------------------------------
TWENTY-TWO
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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's investment was converted from debt
securities to equity securities the Fund wrote its LMC investment down by
$459,200 during 1995. (As discussed above, the Fund made an additional
follow-on investment in LMC during 1996.)
The MTI common stock was written down in value during 1994 based upon an
independent third party valuation of the company that was obtained by MTI's
management. During August 1996, MTI consummated a financial restructuring
pursuant to which a substantial amount of its corporate debt was converted to
equity. In the restructuring, the existing shareholders, including the Fund,
received a reduced number of shares of common stock, along with warrants to
purchase additional common stock. The Fund's valuation of its MTI investment
was increased by $19,010 following the restructuring based upon an analysis of
MTI's earnings and cash flows.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As
a result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments to the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the terms
of which some of company's businesses would be sold for cash. On November 5,
1996, the purchaser notified Atlas that it wanted to renegotiate the terms of
the transaction, including a reduction in the purchase price. Atlas management
was unable to reach a revised agreement with the purchaser and Atlas remained
in default on its debt. On January 17, 1997, Atlas filed for Chapter 11
bankruptcy protection. Atlas is currently developing a plan of reorganization
for submission to the bankruptcy court that provides for the continued
operation of its businesses, following a series of strategic asset acquisitions
and dispositions.
As a result of these developments, the Fund stopped accruing interest on
its Atlas investment effective April 20, 1996 and recorded a $979,776 writedown
in the carrying value of the investment during the fourth quarter of 1996.
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, 1996. 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-THREE
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
FUND INFORMATION
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
410 17th Street, Suite 400
Denver, Colorado 80202
(800) 866-7607
MANAGING GENERAL PARTNER
FCMFiduciary Capital Management Company
AUDITORS
Arthur Andersen LLP
Denver, Colorado
LEGAL COUNSEL
Dorsey & Whitney LLP
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. A copy can
also be obtained from the SEC's EDGAR Database on the World
Wide Web at: http://www.sec.gov/edgarhp.htm.
------------------------------
TWENTY-FOUR
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
------------------------------------------------------
------------------------------
FIRST QUARTER REPORT
1997
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
MARCH 31, 1997 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
150,584.07sh. 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 8,170 436,623
- ----------------------------------------------------------------------------------------------------
8,170 436,623 2.7
- ----------------------------------------------------------------------------------------------------
62,606 sh. ar accessories group,
incorporated, Warrants
to Purchase Class B
Common Stock(2)* 07/30/92 85,909 1
22,608 sh. ar accessories group,
incorporated, Class A
Common Stock(2)* 07/30/92 226,080 214,775
- ----------------------------------------------------------------------------------------------------
311,989 214,776 1.3
- ----------------------------------------------------------------------------------------------------
$5,023,969 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,939,486 4,939,486
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 794,252
403.81sh. 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
- ----------------------------------------------------------------------------------------------------
5,609,633 5,816,275 36.3
- ----------------------------------------------------------------------------------------------------
$816,480 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4) 11/01/96 816,480 816,480
239,600 sh. LMCOperating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,384,408
22.72 sh. LMCOperating Corp.,
Common Stock* 02/09/96 454,399 1
47.92 sh. LMCCredit Corp.,
Common Stock* 02/09/96 1 1
- ----------------------------------------------------------------------------------------------------
3,660,090 3,200,890 20.0
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements
are an integral part of this schedule.
--------------------------------
ONE
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1997 (UNAUDITED)
- ---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,327 sh. Mobile Technology Inc., 07/06/94 &
Common Stock* 12/28/94 187,698 37,567
3,527 sh. Mobile Technology Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 49,929 8,729
- ---------------------------------------------------------------------------------------------
237,627 46,296 0.3
- ---------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,214,583 1,214,583
9,072.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- ---------------------------------------------------------------------------------------------
1,287,878 1,287,878 8.0
- ---------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due
1/19/03(7) 01/25/96 3,170,895 2,224,960
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(7)* 01/25/96 33,842 1
- ---------------------------------------------------------------------------------------------
3,204,737 2,224,961 13.9
- ---------------------------------------------------------------------------------------------
Total Investments in Managed
Companies (84.4% of net assets) 14,599,041 13,227,701 82.5
- ---------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,800,000 Cargill, Inc., 5.03%
Notes due 4/01/97 03/18/97 2,800,000 2,800,000
- ---------------------------------------------------------------------------------------------
Total Temporary Investments (17.9% of
net assets) 2,800,000 2,800,000 17.5
- ---------------------------------------------------------------------------------------------
Total Investments (102.3% of net assets) $17,399,041 $16,027,701 100.0%
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements
are an integral part of this schedule.
----------------------------
TWO
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to ar accessories
group, incorporated during 1996.
(3) The notes will amortize in eight equal quarterly installments of $627,991
commencing on November 30, 1999.
(4) The Fund has committed to provide up to $1,632,960 of subordinated debt
financing pursuant to the terms of these notes.
(5) The warrants have exercise prices of $20.00 per share (1,058 shares) and
$35.00 per share (2,469 shares).
(6) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(7) The notes will amortize in five equal annual installments of $653,184
commencing on January 19, 1999. The accrual of interest on the notes was
discontinued by the Fund effective April 20, 1996.
(8) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements
are an integral part of this schedule.
------------------------------
THREE
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
- -------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$14,599,041 and $14,590,345,
respectively) $ 13,227,701 $ 14,007,043
Temporary investments, at cost 2,800,000 3,097,761
- -------------------------------------------------------------------------
Total investments 16,027,701 17,104,804
Cash and cash equivalents 321,375 234,305
Accrued interest receivable 100,173 95,207
Other assets 1,850 6,646
- -------------------------------------------------------------------------
Total assets $ 16,451,099 $ 17,440,962
- -------------------------------------------------------------------------
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 44,966 $ 47,368
Accounts payable and accrued liabilities 404,632 418,781
Distributions payable to partners 334,812 334,812
- -------------------------------------------------------------------------
Total liabilities 784,410 800,961
- -------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
NET ASSETS:
Managing General Partner (32,958) (23,225)
Limited Partners (equivalent to $14.21
and $15.08, respectively, per limited
partnership unit based on 1,104,881
units outstanding) 15,699,647 16,663,226
- -------------------------------------------------------------------------
Net assets 15,666,689 16,640,001
- -------------------------------------------------------------------------
Total liabilities and net assets $ 16,451,099 $ 17,440,962
- -------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
------------------------------
FOUR
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 278,205 $ 400,352
- -------------------------------------------------------------------------------
Total investment income 278,205 400,352
- -------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 19,304 41,540
Professional fees 44,445 39,498
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) 11,626 15,562
Other expenses 6,486 14,985
- -------------------------------------------------------------------------------
Total expenses 128,667 158,391
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 149,538 241,961
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments -- (3,099,731)
Net change in unrealized (loss) gain
on investments (788,038) 3,217,982
- -------------------------------------------------------------------------------
Net (loss) gain on investments (788,038) 118,251
- -------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (638,500) $ 360,212
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
------------------------------
FIVE
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (638,500) $ 360,212
Adjustments to reconcile net (decrease) increase
in net assets resulting from operations to net
cash provided by operating activities:
Accreted discount on portfolio investments (8,696) (10,834)
Change in assets and liabilities:
Accrued interest receivable (4,966) (48,067)
Other assets 4,796 214
Payable to affiliates (2,402) 4,706
Accounts payable and accrued liabilities (14,149) 31,813
Net realized loss on investments -- 3,099,731
Net change in unrealized loss (gain)
on investments 788,038 (3,217,982)
- -------------------------------------------------------------------------------------
Net cash provided by operating activities 124,121 219,793
- -------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments -- (3,655,003)
Proceeds from dispositions of portfolio investments -- 1,089,896
Sale of temporary investments, net 297,761 2,854,729
- -------------------------------------------------------------------------------------
Net cash provided by investing activities 297,761 289,622
- -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (334,812) (362,595)
- -------------------------------------------------------------------------------------
Net cash used in financing activities (334,812) (362,595)
- -------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 87,070 146,820
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 234,305 175,768
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 321,375 $ 322,588
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
------------------------------
SIX
<PAGE> 35
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND FOR
THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 149,538 $ 772,453
Net realized loss on investments -- (3,453,919)
Net change in unrealized (loss) gain on investments (788,038) 2,311,373
- --------------------------------------------------------------------------------------
Net decrease in net assets resulting
from operations (638,500) (370,093)
Repurchase of limited partnership units -- (1,440,340)
Distributions to partners from -
Net investment income (149,538) (956,739)
Realized gain on investments -- (465,859)
Return of capital (185,274) --
- --------------------------------------------------------------------------------------
Total decrease in net assets (973,312) (3,233,031)
Net assets:
Beginning of period 16,640,001 19,873,032
- --------------------------------------------------------------------------------------
End of period (including no undistributed
net investment income) $ 15,666,689 $ 16,640,001
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
------------------------------
SEVEN
<PAGE> 36
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
PER UNIT DATA:
Investment income $ .25 $ .33
Expenses (.12) (.13)
- -------------------------------------------------------------------------------------------
Net investment income .13 .20
Net realized loss on investments -- (2.56)
Net change in unrealized loss on investments (.70) 2.66
Distributions declared to partners (.30) (.30)
- -------------------------------------------------------------------------------------------
Net increase in net asset value (.87) --
Net asset value:
Beginning of period 15.08 16.61
- -------------------------------------------------------------------------------------------
End of period $ 14.21 $ 16.61
- -------------------------------------------------------------------------------------------
RATIOS (ANNUALIZED):
Ratio of expenses to average net assets 3.19% 3.19%
Ratio of net investment income to average net assets 3.70% 4.87%
Number of limited partnership units at end of period 1,104,881 1,196,564
</TABLE>
The accompanying notes to financial statements are an
intergral part of these selected per unit data and ratios.
------------------------------
EIGHT
<PAGE> 37
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of March 31, 1997 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, 1996.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$19,304 were paid by the Fund for the three months ended March 31, 1997.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $29,582 were paid by the Fund for the three months ended March 31, 1997. FCM
is also reimbursed, subject to various limitations, for administrative expenses
incurred in providing accounting and investor services to the Fund. The Fund
reimbursed FCM for administrative expenses of $17,224 for the three months
ended March 31, 1997.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital 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, 1997 totaled $11,626.
------------------------------
NINE
<PAGE> 38
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CONTINGENCIES
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Holdings, Inc. ("Canadian's) Chapter 11 bankruptcy case against
Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger. The
complaint sought a declaratory judgment that sales taxes collected by
Canadian's and turned over to Finova were "trust funds" collected by Canadian's
on behalf of various state tax authorities. Through the complaint, the Fund
objected to Finova's secured claim against Canadian's, which was guaranteed by
Benson Selzer and Joseph Eiger, and sought to recover the sales tax and certain
other amounts for the benefit of Canadian's bankruptcy estate. As a result of
this litigation and the issues involved, the Fund accrued $370,627 during 1996
for legal costs and possible payments that may be required to settle the
litigation or to fund the payment of Canadian's outstanding sales tax
liabilities. On March 19, 1997, the Bankruptcy Court denied the Fund's claim.
FCM believes that any potential liability to the Fund resulting from
Canadian's outstanding sales tax liabilities will not have any material adverse
effect on the Fund's financial condition, beyond the reserve that has been
established.
------------------------------
TEN
<PAGE> 39
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Fund held portfolio investments in eight Managed
Companies, with an aggregate cost of approximately $14.6 million. The value of
these portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represents approximately 84.4% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and were subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies
have prepaid their subordinated debt that the Fund held. In addition, three of
the portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of March 31, 1997, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
Pursuant to the terms of the Fund's periodic unit repurchase policy that
was adopted by the Fund's Limited Partners during 1993, the Fund annually
offers to purchase from its Limited Partners up to 7.5% of its outstanding
Units for an amount equal to the current net asset value per Unit, net of a fee
(not to exceed 2%) to be retained by the Fund to offset expenses incurred in
connection with the repurchase offer. If the number of tendered Units in any
year exceeds 7.5% of the outstanding Units, the Fund's General Partners may
vote to repurchase up to an additional 2% of the outstanding Units. The 1997
repurchase offer will be mailed to the Limited Partners during October 1997.
The actual redemption of tendered Units will occur on November 20, 1997.
During the three months ended March 31, 1997, the Fund paid a cash
distribution pertaining to the fourth quarter of 1996, in the amount of
$334,812. The distribution for the first quarter of 1997 was paid on May 15,
1997. Both of these quarterly distributions were equal to $.30 per Unit and
represent an annualized rate equal to 6.0% of contributed capital.
The Fund's investment period ended on December 31, 1995. Although the Fund
is permitted to make additional investments in existing portfolio companies
after 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. This will impact the amount of the Fund's quarterly
distributions for 1997 and subsequent years because all proceeds from
dispositions or maturities of investments will be distributed to
------------------------------
ELEVEN
<PAGE> 40
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
investors, except to the extent the cash is needed to fund the annual
repurchase offer or to fund any follow-on investments that the Fund may make in
existing portfolio companies.
See Note 5 to the financial statements for a discussion of litigation
associated with the Canadian's Chapter 11 bankruptcy case. FCM believes that
any potential liability to the Fund resulting from Canadian's outstanding sales
tax liabilities will not have any material adverse effect on the Fund's
financial condition, beyond the reserve that has been established.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment income was $149,538 for the three months ended
March 31, 1997 as compared to net investment income of $241,961 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.20 to $.13 and the ratio of net investment
income to average net assets decreased from 4.87% to 3.70% for the three months
ended March 31, 1997 as compared to the corresponding period of the prior year.
Net investment income for the three months ended March 31, 1997 decreased
primarily as a result of a decrease in investment income. The decrease in net
investment income was partially offset by a decrease in total expenses.
Investment income decreased $122,147, or 30.5%, for the three months ended
March 31, 1997, as compared to the corresponding period of the prior year. This
decrease resulted primarily from the Atlas Environmental, Inc. ("Atlas")
Chapter 11 bankruptcy filing and the related decision to discontinue accruing
the interest due on the Atlas notes held by the Fund. The Fund's total
investments also decreased as a result of the Fund's repurchase of 7.66% of its
Units during the fourth quarter of 1996.
Total expenses decreased $29,724, or 18.8%, for the three months ended
March 31, 1997 as compared to the corresponding period of the prior year. This
decrease resulted primarily from decreases in investment advisory fees,
Independent General Partner fees and expenses and other expenses. These
decreases were partially offset by an increase in professional fees.
The investment advisory fees paid to FCM decreased as a result of (i) the
direct receipt by FCM of consulting fees from LMC Operating Corp. ("LMC"), one
of the Fund's portfolio companies, (ii) the repurchase of Units by the Fund
during the fourth quarter of 1996 and (iii) the realization during February
1996 of the loss on the Fund's Canadian's investment. Pursuant to the terms of
the Fund's investment advisory agreement with FCM, the investment advisory fees
payable to FCM by the Fund are reduced by the amount of any fees that FCM
receives directly from any of the Fund's portfolio companies. Both the
repurchase of Units and the realization of the Canadian's loss
------------------------------
TWELVE
<PAGE> 41
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
decreased the amount of the Fund's available capital (as defined in the
Partnership Agreement), which is the base with respect to which the investment
advisory fees are calculated.
Independent General Partner fees and expenses declined because one of the
Fund's three Independent General Partners resigned during the fourth quarter of
1996 and has not been replaced. Other expenses decreased primarily because of
expenses incurred during the prior year in connection with the Canadian's
bankruptcy proceedings. The increase in professional fees was primarily the
result of legal and consulting fees incurred during the three months ended
March 31, 1997 in connection with the Atlas bankruptcy proceedings.
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, 1996, the Fund had recorded $1,321,710 of unrealized
gain and $1,905,012 of unrealized loss on investments. Therefore, as of
December 31, 1996, the Fund had recorded a total net unrealized loss on
investments of $583,302.
------------------------------
THIRTEEN
<PAGE> 42
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
The net increase in unrealized loss on investments during the three months
ended March 31, 1997 and the cumulative net unrealized loss on investments as
of March 31, 1997, consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
- -----------------------------------------------------
During the Three
Months Ended As of
Portfolio Company March 31, 1997 March 31, 1997
- -----------------------------------------------------
<S> <C> <C>
Neodata $ -- $ (278,915)
KEMET (95,106) 428,453
ar accessories (703,412) (97,213)
Elgin / ENI 14,690 206,642
LMC -- (459,200)
MTI (4,210) (191,331)
Atlas -- (979,776)
- -----------------------------------------------------
$ (788,038) $ (1,371,340)
- -----------------------------------------------------
</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
previously provided for the accrual, rather than current payment, of interest,
the Company's debt has grown to a level which exceeds the Fund's valuation.
KEMET completed an IPO of its common stock during 1992. The stock, which
trades on the NASDAQ National Market System, closed at $18.9375 (an average of
the closing bid and ask prices) on March 31, 1997. This price is down from the
closing price of $23.0625 on December 31, 1996. Based on the $18.9375 closing
trading price of the common stock, the 23,056 shares of common stock that the
Fund held at March 31, 1997 had a market value of $436,623.
ar accessories group, incorporated ("AAG") reported significantly reduced
earnings and cash flow from operations for its most recent fiscal year. In
addition, the price earnings ratios of comparable companies in its industry
have declined recently. As a result of these factors, the AAG warrants and
common stock were written down in value by $703,412 at March 31, 1997.
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
------------------------------
FOURTEEN
<PAGE> 43
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- -------------------------------------------------------------------------------
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's investment was converted from debt securities to equity
securities, the Fund wrote its LMC investment down by $459,200 during 1995.
The MTI common stock was written down in value during 1994 based upon an
independent third party valuation of the company that was obtained by MTI's
management. During August 1996, MTI consummated a financial restructuring
pursuant to which a substantial amount of its corporate debt was converted to
equity. In the restructuring, the existing shareholders, including the Fund,
received a reduced number of shares of common stock, along with warrants to
purchase additional common stock. The Fund's valuation of its MTI investment
was increased by $19,010 following the restructuring based upon an analysis of
MTI's earnings and cash flows. The Fund's valuation was reduced by $4,210 at
March 31, 1997 based upon MTI's reported results for 1996.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As
a result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments on the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the terms
of which some of the company's businesses would be sold for cash. On November
5, 1996, the purchaser notified Atlas that it wanted to renegotiate the terms
of the transaction, including a reduction in the purchase price. Atlas
management was unable to reach a revised agreement with the purchaser and Atlas
remained in default on its debt. On January 17, 1997, Atlas filed for Chapter
11 bankruptcy protection. Atlas is currently developing a plan of
reorganization for submission to the bankruptcy court that provides for the
continued operation of its businesses, following a series of strategic asset
acquisitions and dispositions.
As a result of these developments, the Fund stopped accruing interest on
its Atlas investment affective April 20, 1996 and recorded a $979,776 writedown
in the carrying value of the investment during the fourth quarter of 1996.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
------------------------------
FIFTEEN
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 17,368,117
<INVESTMENTS-AT-VALUE> 15,667,884
<RECEIVABLES> 107,618
<ASSETS-OTHER> 37,941
<OTHER-ITEMS-ASSETS> 231,995
<TOTAL-ASSETS> 16,045,438
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 815,137
<TOTAL-LIABILITIES> 815,137
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,104,881
<SHARES-COMMON-PRIOR> 1,104,881
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,700,233)
<NET-ASSETS> 15,230,301
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 561,495
<OTHER-INCOME> 0
<EXPENSES-NET> 251,838
<NET-INVESTMENT-INCOME> 309,657
<REALIZED-GAINS-CURRENT> 67,198
<APPREC-INCREASE-CURRENT> (1,116,931)
<NET-CHANGE-FROM-OPS> (740,076)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 309,657
<DISTRIBUTIONS-OF-GAINS> 67,198
<DISTRIBUTIONS-OTHER> 292,769
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,409,700)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56,753
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 251,838
<AVERAGE-NET-ASSETS> 15,856,650
<PER-SHARE-NAV-BEGIN> 15.08
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> (.94)
<PER-SHARE-DIVIDEND> .28
<PER-SHARE-DISTRIBUTIONS> .06
<RETURNS-OF-CAPITAL> .26
<PER-SHARE-NAV-END> 13.82
<EXPENSE-RATIO> 3.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
