<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17738
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Fiduciary Capital Pension Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 86-0653603
----------------------- ------------------
(State of organization) (I.R.S. Employer
Identification No.)
410 17th Street
Suite 400
Denver, Colorado 80202
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (800) 866-7607
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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<PAGE> 2
Fiduciary Capital Pension Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1997
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
September 30, 1997 3
Balance Sheets - September 30, 1997 and
December 31, 1996 5
Statements of Operations for the three months
ended September 30, 1997 and 1996 6
Statements of Operations for the nine months
ended September 30, 1997 and 1996 7
Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 8
Statements of Changes in Net Assets for
the nine months ended September 30, 1997
and for the year ended December 31, 1996 9
Selected Per Unit Data and Ratios 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 8,170 $ 703,929
- -----------------------------------------------------------------------------------------------------------------------------
8,170 703,929 4.4%
- -----------------------------------------------------------------------------------------------------------------------------
62,606 sh. AR Accessories Group,
Inc., Warrants to
Purchase Class B
Common Stock(2)* 07/30/92 85,909 1
22,608 sh. AR Accessories Group,
Inc., Class A Common
Stock(2)* 07/30/92 226,080 214,775
- -----------------------------------------------------------------------------------------------------------------------------
311,989 214,776 1.3
- -----------------------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,950,241 4,950,241
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 823,633
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
- -----------------------------------------------------------------------------------------------------------------------------
5,620,388 6,798,272 42.5
- -----------------------------------------------------------------------------------------------------------------------------
$1,603,476 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4)* 11/01/96 1,603,476 1,603,476
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
- -----------------------------------------------------------------------------------------------------------------------------
4,447,086 3,987,886 25.0
- -----------------------------------------------------------------------------------------------------------------------------
</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)
SEPTEMBER 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 49,199
3,539 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 49,929 22,920
- -----------------------------------------------------------------------------------------------------------------------------
237,627 72,119 0.5
- -----------------------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,222,160 1,222,160
9,072.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- -----------------------------------------------------------------------------------------------------------------------------
1,295,455 1,295,455 8.1
- -----------------------------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 1/19/03(7) 01/25/96 3,170,895 1
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(8)* 01/25/96 33,842 1
- -----------------------------------------------------------------------------------------------------------------------------
3,204,737 2 0.0
- -----------------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (90.4% of net assets) 15,125,452 13,072,439 81.8
- -----------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,900,000 Ford Motor Credit
Corporation, 5.23%
Notes due 10/01/97 09/16/97 2,900,000 2,900,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments ( 20.1% of net assets) 2,900,000 2,900,000 18.2
- -----------------------------------------------------------------------------------------------------------------------------
Total Investments (110.5% of net assets) $18,025,452 $15,972,439 100.0%
=============================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to AR Accessories
Group, Inc. during 1996.
(3) The notes will amortize in eight equal quarterly installments of $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 $19.30 per share (1,062 shares) and
$34.30 per share (2,477 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
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$15,125,452 and $14,590,345,
respectively) $13,072,439 $14,007,043
Temporary investments, at amortized cost 2,900,000 3,097,761
----------- -----------
Total investments 15,972,439 17,104,804
Cash and cash equivalents 271,655 234,305
Accrued interest receivable 126,599 95,207
Other assets 33,225 6,646
----------- -----------
Total assets $16,403,918 $17,440,962
=========== ===========
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 77,176 $ 47,368
Accounts payable and accrued liabilities 427,342 418,781
Distributions payable to partners 1,450,854 334,812
----------- -----------
Total liabilities 1,955,372 800,961
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (45,139) (23,225)
Limited Partners (equivalent to $13.12
and $15.08, respectively, per limited
partnership unit based on 1,104,881
units outstanding) 14,493,685 16,663,226
----------- -----------
Net assets 14,448,546 16,640,001
----------- -----------
Total liabilities and net assets $16,403,918 $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 SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 298,669 $ 409,862
--------- ---------
Total investment income 298,669 409,862
--------- ---------
Expenses:
Investment advisory fees (Note 2) 32,913 35,643
Professional fees 60,746 25,883
Fund administration fees (Note 3) 29,581 29,581
Administrative expenses (Note 3) 17,223 17,223
Independent General Partner fees
and expenses (Note 4) 15,586 10,782
Other expenses 8,856 8,963
--------- ---------
Total expenses 164,905 128,075
--------- ---------
NET INVESTMENT INCOME 133,764 281,787
--------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 888,114 (354,188)
Net change in unrealized (loss) gain
on investments (352,780) 38,023
--------- ---------
Net gain (loss)on investments 535,334 (316,165)
--------- ---------
NET (DECREASE) INCREASE IN NET ASSET
RESULTING FROM OPERATIONS $ 669,098 $ (34,378)
========= =========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 860,164 $ 1,223,987
----------- -----------
Total investment income 860,164 1,223,987
----------- -----------
Expenses:
Investment advisory fees (Note 2) 89,666 112,827
Professional fees 125,209 94,758
Fund administration fees (Note 3) 88,745 88,745
Administrative expenses (Note 3) 51,671 51,671
Independent General Partner fees
and expenses (Note 4) 36,586 37,918
Other expenses 24,866 38,294
----------- -----------
Total expenses 416,743 424,213
----------- -----------
NET INVESTMENT INCOME 443,421 799,774
----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 955,312 (3,453,919)
Net change in unrealized (loss) gain
on investments (1,469,711) 3,213,055
----------- -----------
Net loss on investments (514,399) (240,864)
----------- -----------
NET (DECREASE) INCREASE IN NET ASSET
RESULTING FROM OPERATIONS $ (70,978) $ 558,910
=========== ===========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets resulting from operations $ (70,978) $ 558,910
Adjustments to reconcile net (decrease) increase in
net assets resulting from operations to net cash
provided by operating activities:
Accreted discount on portfolio investments (27,028) (35,256)
Change in assets and liabilities:
Accrued interest receivable (31,392) (160,978)
Other assets (26,579) 759
Payable to affiliates 29,808 (4,759)
Accounts payable and accrued liabilities (2,556) 4,653
Net realized (gain) loss on investments (955,312) 3,453,919
Net change on unrealized loss (gain)
on investments 1,469,711 (3,213,055)
----------- -----------
Net cash provided by operating activities 385,674 604,193
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (786,996) (3,655,003)
Proceeds from dispositions of portfolio investments 1,245,348 1,106,335
Sale of temporary investments, net 197,761 3,153,506
----------- -----------
Net cash provided by investing activities 656,113 604,838
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,004,437) (1,087,785)
----------- -----------
Net cash used in financing activities (1,004,437) (1,087,785)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 37,350 121,246
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 234,305 175,768
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 271,655 $ 297,014
=========== ===========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Increase in net assets from operations:
Net investment income $ 443,421 $ 772,453
Net realized gain (loss) on investments 955,312 (3,453,919)
Net change in unrealized (loss) gain
on investments (1,469,711) 2,311,373
------------ ------------
Net decrease in net assets
resulting from operations (70,978) (370,093)
Repurchase of limited partnership units -- (1,440,340)
Distributions to partners from -
Net investment income (443,421) (956,739)
Realized gain on investments (966,431) (465,859)
Return of capital (710,625) --
------------ ------------
Total decrease in net assets (2,191,455) (3,233,031)
Net assets:
Beginning of period 16,640,001 19,873,032
------------ ------------
End of period (including no undistributed
net investment income ) $ 14,448,546 $ 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .27 $ .34 $ .77 $ 1.01
Expenses (.15) (.11) (.37) (.35)
---------- ---------- ---------- ----------
Net investment income .12 .23 .40 .66
Net realized gain (loss) on investments .80 (.28) .86 (2.85)
Net change in unrealized (loss) gain
on investments (.32) .03 (1.32) 2.66
Distributions declared to partners (1.30) (.30) (1.90) (.90)
---------- ---------- ---------- ----------
Net decrease in net asset value (.70) (.32) (1.96) (.43)
Net asset value:
Beginning of period 13.82 16.50 15.08 16.61
---------- ---------- ---------- ----------
End of period $ 13.12 $ 16.18 $ 13.12 $ 16.18
========== ========== ========== ==========
Ratios (annualized):
Ratio of expenses to average net assets 4.45% 2.62% 3.58% 2.87%
Ratio of net investment income to
average net assets 3.61% 5.77% 3.81% 5.41%
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)
SEPTEMBER 30, 1997
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of September 30, 1996 and the results of its operations, changes
in net assets and its cash flows for the periods then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the Fund's annual audited financial statements for the year ended December
31, 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
$89,666 were paid by the Fund for the nine months ended September 30, 1997.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for investment,
as defined in the Partnership Agreement. Fund administration fees of $88,745
were paid by the Fund for the nine months ended September 30, 1997. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $51,671 for the nine months ended September
30, 1997.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Partners, L.P., an
affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable
monthly in arrears, together with all out-of-pocket expenses. Each Fund's
allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the nine months ended
September 30, 1997 totaled $36,586.
5. CONTINGENCIES
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Holdings, Inc. ("Canadian's") Chapter 11 bankruptcy case against
Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger. On March
19, 1997, the Bankruptcy Court denied the Fund's claim. As a result of the
Court's decision, the Fund dropped this litigation, while preserving its rights
to pursue litigation against Finova at a later date. Beginning July 1, 1997, the
Fund began accruing additional reserves at a 12% annualized rate, or $11,119 for
the three months ended September 30, 1997.
11
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(unaudited)
FCM believes that any potential liability to the Fund resulting from
Canadian's outstanding sales tax liabilities will not have any material adverse
effect on the Fund's financial condition, beyond the reserve that has been
established.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Fund held portfolio investments in seven
Managed Companies, with an aggregate cost of approximately $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 90.4% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and are subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies have
prepaid their subordinated debt that the Fund held. In addition, three of the
portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of September 30, 1997, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
Pursuant to the terms of the Fund's periodic unit repurchase policy that
was adopted by the Fund's Limited Partners during 1993, the Fund annually offers
to purchase from its Limited Partners up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of rendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units. The 1997 repurchase
offer was mailed to the Limited Partners on October 6, 1997. The actual
redemption of tendered Units will occur on November 21, 1997.
During November 1996, the Fund agreed to provide up to $1,632,960 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $816,480
was advanced at that time. The Fund advanced an additional $786,996 during 1997.
This follow-on investment consists of 12% Senior Subordinated Revolving Notes
due October 31, 2000.
Accrued interest receivable increased $31,392 from $95,207 at December 31,
1996 to $126,599 at September 30, 1997. This increase resulted primarily from
the accrued interest related to the additional LMC subordinated debt, which is
discussed in the preceding paragraph.
Other assets increased $26,579 from $6,646 at December 31, 1996 to $33,225
at September 30, 1997. This increase resulted primarily from an increase in
prepaid insurance associated with a new liability insurance policy for the
Fund's general partners.
Payable to affiliates increased $29,808 from $47,368 at December 31, 1996
to $77,176 at September 30, 1997. This increase resulted primarily from the
$32,500 annual premium that is payable with respect to the new liability
insurance policy for the Fund's general partners.
Distributions payable to partners increased $1,116,042 from $334,812 at
December 31, 1996 to $1,450,854 at September 30, 1997. This increase represents
the special distribution of proceeds from the sale of the Fund's Neodata
Corporation ("Neodata") investment. This special distribution, which is equal to
$1.00 per Unit, will be paid along with the regular quarterly distribution of
$.30 per Unit on November 14, 1997 to investors of record on September 30, 1997.
13
<PAGE> 14
During the nine months ended September 30, 1997, the Fund paid cash
distributions pertaining to the fourth quarter of 1996 and the first and second
quarters of 1997, each in the amount of $334,812. These quarterly distributions
were equal to $.30 per Unit and represent an annualized rate equal to 6.0% of
contributed capital.
The Fund's investment period ended on December 31, 1995. Although the Fund
is permitted to make additional investments in existing portfolio companies
after 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. This will impact the amount of the Fund's quarterly
distributions for 1997 and subsequent years because all proceeds from
dispositions or maturities of investments will be distributed to investors,
except to the extent the cash is needed to fund the annual repurchase offer or
to fund any follow-on investments that the Fund may make in existing portfolio
companies.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $133,764 for the three months ended
September 30, 1997 as compared to net investment income of $281,787 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.23 to $.12 and the ratio of net investment
income to average net assets decreased from 5.77% to 3.61% for the three months
ended September 30, 1997 as compared to the corresponding period of the prior
year.
The Fund's net investment income was $443,421 for the nine months ended
September 30, 1997 as compared to net investment income of $799,774 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.66 to $.40 and the ratio of net investment
income to average net assets decreased from 5.41% to 3.81% for the nine months
ended September 30, 1997 as compared to the corresponding period of the prior
year.
Net investment income for the three months ended September 30, 1997
decreased both as a result of a decrease in investment income and an increase in
total expenses. Net investment income for the nine months ended September 30,
1997 decreased primarily as a result of a decrease in investment income. The
decrease in investment income for the nine months ended September 30, 1997 was
partially offset by a small decrease in total expenses.
Investment income decreased $111,193 and $363,823, or 27.1% and 29.7%, for
the three and nine month periods ended September 30, 1997 as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the Atlas Environmental, Inc. ("Atlas") Chapter 11 bankruptcy filing and the
related decision to discontinue accruing the interest due on the Atlas notes
held by the Fund. The Fund's total investments also decreased as a result of the
Fund's repurchase of 7.66% of its Units during the fourth quarter of 1996.
Total expenses increased $36,830, or 28.8%, for the three months ended
September 30, 1997 as compared to the corresponding period of the prior year.
This increase resulted primarily from increases in professional fees and
Independent General Partner fees and expenses. These increases were partially
offset by a decrease in investment advisory fees.
Total expenses decreased $7,470, or 1.8%, for the nine months ended
September 30, 1997 as compared to the corresponding period of the prior year.
This decrease resulted primarily from decreases in investment advisory fees and
other expenses. These decreases were partially offset by an increase in
professional fees.
14
<PAGE> 15
Professional fees increased during both the three and nine month periods
ended September 30, 1997 because of fees incurred in connection with the Fund's
analysis of a proposal pursuant to which its Units would have been exchanged for
shares in a newly-formed Delaware Business Trust. FCM has decided not to pursue
this proposal at this time.
Independent General Partner fees and expenses increased during the three
months ended September 30, 1997 because the Fund was obligated to pay fees and
expenses to both incoming and outgoing Independent General Partners during the
transistion period during which new Independent General Partners were being
elected.
The investment advisory fees paid to FCM decreased during both the three
and nine month periods ended September 30, 1997, primarily as a result of the
direct receipt by FCM of consulting fees from LMC, one of the Fund's portfolio
companies during the first quarter of 1996 and as a result of the repurchase of
Units during November 1996. Pursuant to the terms of the Fund's investment
advisory agreement with FCM, the investment advisory fees payable to FCM by the
Fund are reduced by the amount of any fees that FCM receives directly from any
of the Fund's portfolio companies. The repurchase of Units decreased the amount
of the Fund's available capital (as defined in the Partnership Agreement) which
is the base with respect to which the investment advisory fees are calculated.
Other expenses decreased during the nine months ended September 30, 1997
primarly as a result of consulting fees and expenses paid during 1996 in
connection with the Canadian's bankruptcy proceedings.
Net Realized Gain on Investments
The net realized gain for the three months ended September 30, 1997
consisted of a gain on sale of the Fund's Neodata investment and a realized loss
on the Fund's Canadian's investment. The net realized gain for the nine months
ended September 30, 1997 also included a gain from the sale of the Fund's
investment in Huntington Holdings, Inc. ("Huntington").
The Fund has owned an equity position in Neodata since 1990, which it
acquired at a cost of $278,917. In addition, the Fund previously owned Neodata
subordinated notes, which were prepaid during May 1993.
During August 1997, Electronic Data Systems Corporation ("EDS") offered to
purchase all of Neodata's stock that it did not already own. Hicks Muse, the
owner of a controlling portion of Neodata's common stock, accepted the offer.
The purchase by EDS closed on September 2, 1997. The Fund received $1,178,150 of
cash proceeds from the sale of its Neodata stock, resulting in a realized gain
of $899,233.
Beginning July 1, 1997, the Fund began accruing additional Canadina's sale
tax related reserves at a 12% annualized rate, or $11,119 for the three months
ended September 30, 1997. This additional accrued amount was recorded as an
additional realized loss in the Fund's Statements of Operations.
During December 1995, Huntington entered into a letter of intent, under the
terms of which all Huntington stock would be sold for cash. The sale was
consummated during February 1996. The Fund's share of the actual sales proceeds
totaled $1,247,229, 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
15
<PAGE> 16
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 are
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
As of December 31, 1996, the Fund had recorded $1,321,710 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.
The net increase in unrealized loss on investments during the three and
nine month periods ended September 30, 1997 and the cumulative net unrealized
loss on investments as of September 30, 1997, consisted of the following
components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-------------------------------
During the Three During the Nine
Months Ended Months Ended As of
Portfolio Company September 30, 1997 September 30, 1997 September 30, 1997
- ------------------------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C>
Unrealized net loss recorded during
prior periods with respect the
investments disposed of during
the period $ 278,915 $ 278,915 $ --
KEMET 128,970 172,200 695,759
ARA -- (703,412) (97,213)
Elgin / ENI 14,690 985,932 1,177,884
LMC -- -- (459,200)
MTI 25,823 21,613 (165,508)
Atlas (801,178) (2,224,959) (3,204,735)
----------- ----------- -----------
$ (352,780) $(1,469,711) $(2,053,013)
=========== =========== ===========
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock, which
trades on the NASDAQ National Market System, closed at $30.53125 (an average of
the closing bid and ask prices) on September 30, 1997. This price is up from the
closing prices of $23.0625 on December 31, 1996 and $24.9375 on June 30, 1997.
Based on the
16
<PAGE> 17
$30.53125 closing trading price of the common stock, the 23,056 shares of common
stock that the Fund held at September 30, 1997 had a market value of $703,929.
AR Accessories Group, Inc. ("ARA") reported significantly reduced earnings
and cash flow from operations for its most recent fiscal year. In addition, the
price earnings ratios of comparable companies in its industry have declined
recently. As a result of these factors, the ARA warrants and common stock were
written down in value by $703,412 at March 31, 1997.
During June 1997, the Fund received a written offer from ENI Holding Corp.
("ENI") management to prepay the Fund's subordinated debt, redeem the Fund's
preferred stock and purchase the Fund's Class B common stock and warrants. The
offer, which was contingent on management's ability to secure adequate financing
on satisfactory terms, was reviewed by all of the subordinated debt holders and
rejected as inadequate. As a result of this offer, the Fund wrote the Class B
common stock and warrants up in value at June 30, 1997 by $941,861 to an amount
equal to 80% of the price offered by management. In recent weeks, ENI management
has made an improved offer, which is currently under consideration and
negotiation. In addition, the ENI preferred stock is being written up in value
quarterly to reflect the accrual of the cumulative 10% preferential dividend.
LMC experienced significant operating problems after the Fund acquired its
LMC investment during 1994 and the Fund was involved in a restructuring of its
LMC investment during 1995. In the restructuring, the Fund's existing LMC
subordinated debt and warrants were converted into preferred stock and the Fund
purchased $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
reduced by $4,210 at March 31, 1997 and increased by $25,823 at September 30,
1997 based upon an analysis of MTI's reported earnings and cash flows.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As a
result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments on the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the terms
of which some of the company's businesses would be sold for cash. On November 5,
1996, the purchaser notified Atlas that it wanted to renegotiate the terms of
the transaction, including a reduction in the purchase price. Atlas management
was unable to reach a revised agreement with the purchaser and Atlas remained in
default on its debt. On January 17, 1997, Atlas filed for Chapter 11 bankruptcy
protection. Atlas is currently developing a plan of reorganization for
submission to the bankruptcy court that provides for the continued operation of
its businesses, including a series of strategic asset acquisitions and
dispositions.
17
<PAGE> 18
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, $1,423,781and $801,178 in the carrying value of the investment during
the fourth quarter of 1996 and the second and third quarters of 1997,
respectively. The remaining carrying value of the Fund's Atlas investment is $2.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
18
<PAGE> 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending directly against the Fund.
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. Beginning July 1, 1997 the
Fund began accruing additional reserves at a 12% annualized rate or $11,119 for
the three months ended September 30, 1997.
As discussed in prior filings, a class action lawsuit was filed during 1994
against PaineWebber and a number of its affiliates concerning the sale of
various limited partnership and other direct investment programs, including the
offering of the Units.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties
agreed to settle the case. A definitive settlement was agreed to in July 1996
and in March 1997, the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members. The investors who had
objected to the settlement have recently appealed the District Court's approval
to the Unites States Court of Appeals for the Second Circuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
11.1 Statement of Computation of Net
Investment Income Per Limited Partnership Unit.
19.1 Reports Furnished to Securities Holders.
27.1 Financial Data Schedule.
(b) The Registrant filed one report on Form 8-K during the third quarter of
the fiscal year ending December 31, 1997. The report was dated
September 2, 1997, and was filed with the Securities and Exchange
Commission on September 18, 1997, to report the sale of the Fund's
Neodata stock and the amount and record date of the Fund's cash
distribution for the third quarter of 1997.
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Fiduciary Capital Pension Partners, L.P.
(Registrant)
By: FCM Fiduciary Capital Management Company
Managing General Partner
Date: November 4, 1997 By: /s/ Donald R. Jackson
------------------------------
Donald R. Jackson
Chief Financial Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <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 Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Investment Income $ 133,764 $ 281,787 $ 443,421 $ 799,774
Percentage Allocable to Limited Partners 99% 99% 99% 99%
---------- ---------- ---------- ----------
Net Investment Income Allocable
to Limited Partners $ 132,426 $ 278,969 $ 438,987 $ 791,776
========== ========== ========== ==========
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 $ .12 $ .23 $ .40 $ .66
========== ========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit No. 19.1
Report Furnished to
Securities Holders
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SECOND QUARTER REPORT
1997
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MESSAGE TO INVESTORS
Dear Investor:
The Fund's net asset value per Unit was $13.82 at June 30, 1997. The Fund held
portfolio investments in eight companies, which represented approximately 87.8%
of the Fund's net assets. The Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments in existing companies, to pay Fund expenses, for distribution to the
partners or to fund the annual repurchase offer.
INVESTMENT UPDATE
ENI Holding Corp. ("ENI") During June 1997, the Fund received a written offer
from ENI management to prepay the Fund's subordinated debt, redeem the Fund's
preferred stock and purchase the Fund's Class B common stock and warrants. The
offer, which was contingent on management's ability to secure adequate financing
on satisfactory terms, was reviewed by all of the subordinated debt holders and
rejected as inadequate. As a result of this offer, the Fund wrote the Class B
common stock and warrants up in value at June 30, 1997 by $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 accrual of the
cumulative 10% preferential dividend.
In recent weeks, ENI management has made an improved offer, which is currently
under consideration and negotiation. If this revised offer is ultimately
accepted, the transaction is scheduled to be consummated prior to December 31,
1997. However, it could be delayed substantially.
LMC Operating Corp. ("LMC") During October 1996, FCM renegotiated the management
structure of LMC with the other major owner and FCM representatives now
constitute the majority of LMC Board members. Mr. DeGrassi is Chairman and CEO
of LMC and is actively involved in the day-to-day management of the company.
Since FCM has taken control of the company, LMC has clearly defined its
strategic direction and limited its
ONE
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
line of products, has implemented significant cost reductions, including a
headcount reduction of approximately 33%, and has proceeded with the development
of a very promising new product, the Skid Trak.
Although LMC will report a loss for the fiscal year ending September 30, 1997,
for the first time in many years, the company has generated a positive gross
margin and is expecting to be cash flow positive in the upcoming fiscal year.
LMC is best known for its ski area groomers and utility vehicles, which it began
manufacturing in 1961. It designs and builds each machine in Logan, Utah,
selling to customers worldwide. LMC's experience with these low ground-pressure,
tracked vehicles and the need to diversify the product line led the company to
develop the new Skid Trak.
The Skid Trak is an all season utility vehicle with extremely low ground
pressure which makes it suitable for a variety of industries and businesses,
including sod farms, grain elevators, orchards, vineyards, nurseries, golf
courses, landscaping, marsh maintenance and a wide variety of tasks undertaken
by general contractors. The Skid Trak is a loader, dozer and tool carrier, that
resembles a small front-end loader, but does not create the same degree of
surface damage.
LMC has been testing the Skid Trak prototype for a number of months and recently
began a limited production run. Full-scale production will begin by the end of
1997 and the company expects to sell as many as 60 of these machines in its next
fiscal year. LMC's engineering department has incorporated a number of product
improvements and innovations into the Skid Trak, which we believe will make it a
very competitive product.
Atlas Environmental, Inc. ("Atlas") In previous reports, we have discussed the
disappointing performance of this investment. Atlas has defaulted on the
interest payments due to the Fund and has filed for bankruptcy. Atlas is
currently developing a plan of reorganization for submission to the bankruptcy
court that provides for the continued operation of its businesses, including a
series of strategic asset acquisitions and dispositions. As a result of these
developments, the Fund stopped accruing interest
TWO
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
on its Atlas investment effective April 20, 1996 and recorded writedowns of
$979,776 and $1,423,781 in the carrying value of its investment during the
fourth quarter of 1996 and the second quarter of 1997, respectively. The
remaining carrying value of the Fund's Atlas investment is $801,180. Under
certain circumstances, the Fund may consider a follow-on investment to
facilitate the asset acquisitions necessary to implement the reorganization
plan.
Neodata Corporation ("Neodata") During August 1997, Electronic Data Systems
Corporation ("EDS") offered to purchase for cash all of Neodata's outstanding
stock that it did not already own. Hicks, Muse, the owner of a controlling
portion of Neodata's common stock, accepted the offer. The purchase by EDS
closed on September 2, 1997, and the Fund received $1,178,150 of cash proceeds
from the sale of its Neodata stock. The Fund had originally invested $278,917 in
its Neodata stock.
CASH DISTRIBUTIONS
The distribution for the second quarter of 1997 was paid on August 14, 1997 in
an amount equal to $.30 per Unit, or an annualized rate equal to 6.0% of
contributed capital. On a combined basis, the cash distributions for the first
and second quarters of 1997 consisted of current net investment income (46.3%),
realized gain on investments (10.0%) and a return of capital (43.7%).
In light of the Neodata sale, the distribution for the third quarter of 1997
will include both the regular $.30 per Unit distribution and a special
distribution of $1.00 per Unit. The record date for this distribution will be
September 30, 1997, and the distribution will be paid on November 14, 1997. All
investors will receive this distribution if they are record holders as of
September 30, 1997. This will not be affected by the 1997 Periodic Repurchase
(see below).
If the proposed ENI transaction (see above) is consummated, management expects
to increase the regular quarterly distribution from $.30 to $.45 per Unit,
beginning in 1998. There may also be another special distribution.
THREE
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
The bulk of the distribution increase will be derived from return of capital and
gains on sale of investments.
IN-KIND DISTRIBUTION
Management is considering the conversion of some portion of the LMC debt the
Fund holds into common shares, and the subsequent distribution of these shares
to the Fund's investors. We are exploring the regulatory and legal aspects of
this transaction, as well as negotiating with the other major shareholder of LMC
regarding this possible conversion. Any shares distributed would be listed on a
national stock exchange and would be freely tradable. Although no assurance can
be given that the conversion will take place, if it does, we would expect the
distribution of the shares to occur before the end of the second quarter of
1998.
PERIODIC UNIT REPURCHASE POLICY
The Fund's investors adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund is required to annually
offer to purchase from investors, up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units. If Units in excess
of this amount are tendered, Units are purchased on a pro-rated basis, after
giving priority to investors owning less than 100 Units.
The next opportunity to have the Fund repurchase your Units will occur during
the fourth quarter of 1997. The repurchase offer will be mailed to investors on
October 6, 1997, and the deadline for tendering Units for repurchase will be
October 31, 1997. The repurchase price will be based on the net asset value per
Unit on November 14, 1997, and payment for tendered Units will be made on
November 21, 1997. Separate advance notices of each of these dates will be
mailed.
FOUR
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
PROPOSED EXCHANGE
In the Fund's 1996 Annual Report, we discussed a plan that was being considered
pursuant to which your Units would be exchanged for shares in a newly-formed
Delaware Business Trust that would operate as a business development company and
make investments in the same manner as the Fund has in the past. The primary
reasons for this proposed exchange would be to grow the Fund, to provide
liquidity for your investment through the listing of the shares of the Trust on
the American Stock Exchange and to simplify tax reporting for the Fund's
investors.
There is considerable uncertainty as to whether the exchange will ultimately be
proposed and/or approved. There are numerous business, legal and regulatory
issues which are currently being analyzed. Once this analysis is completed, we
will be in a position to decide whether or not to pursue the proposal and
solicit the required approvals of the Fund's Independent General Partners and
investors.
In the Fund's 1996 Annual Report, we also discussed the fact that the 1997
repurchase offer would be eliminated if the exchange described above was
approved on a timely basis. However, it is now evident that the exchange will
not be submitted for approval as soon as previously anticipated. As a result,
the 1997 repurchase offer will occur as scheduled.
INDEPENDENT GENERAL PARTNERS
Since November 1996, the Fund has had two Independent General Partners ("IGPs"),
Norman J. Peer and E. Bruce Fredrikson. During July 1997, Mr. Peer was appointed
a Superior Court Judge for the State of New Jersey. Pursuant to New Jersey State
law, Mr. Peer was unable to continue to serve as an IGP after his term as a
judge commenced.
During July 1997, Messrs. Peer and Fredrikson interviewed a number of candidates
and elected two new IGPs, Mark A. Sargent and Phillip Siegel. Immediately
following the election of the new IGPs, Mr. Peer submitted his resignation. Mr.
Sargent is the Dean and a Professor of Law at the
FIVE
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
Villanova University School of Law. Mr. Siegel is a Vice President and Chief
Financial Officer of Health Management Systems, Inc.
We have enjoyed working with Mr. Peer for the last eight years, during which he
has served as an IGP and provided invaluable counsel and judgment. We are sorry
to lose him, but we are confident that he will provide the people of New Jersey
with outstanding service in this very important position. We are looking forward
to working with Messrs. Sargent and Siegel in the future and believe that we are
extremely fortunate to be able to attract two such highly qualified individuals.
* * * * * * * *
If you have any questions regarding your investment in the Fund, please call us
at 800-866-7607.
Sincerely,
Paul Bagley, Chairman
FCM Fiduciary Capital Management Company
W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company
September 8, 1997
SIX
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
JUNE 30, 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 8,170 574,959
- -----------------------------------------------------------------------------------------------
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
403.81sh. 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.
SEVEN
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 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 1,218,302 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(7)* 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>
The accompanying notes to financial statements are an integral
part of this schedule.
EIGHT
<PAGE> 11
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 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.
NINE
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
- ---------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------
<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.
TEN
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
- -----------------------------------------------------------------------
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.
ELEVEN
<PAGE> 14
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
- ---------------------------------------------------------------------------------
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.
TWELVE
<PAGE> 15
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------------
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 in 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.
THIRTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 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 $ 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.
FOURTEEN
<PAGE> 17
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ .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 intergral part of these selected per
unit data and ratios.
FIFTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of June 30, 1997 and the results of its operations, changes in
net assets and its cash flows for the periods then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the FundOs 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 FundOs 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 allo-
SIXTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
cation 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 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.
SEVENTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENTOS 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 21, 1997.
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 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.
EIGHTEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
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. These quarterly distributions are equal to $.30 per
Unit and represent an annualized rate equal to 6.0% of contributed capital.
The Fund's investment period ended on December 31, 1995. Although the Fund
is permitted to make additional investments in existing portfolio companies
after 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. This will impact the amount of the Fund's quarterly
distributions for 1997 and subsequent years because all proceeds from
dispositions or maturities of investments will be distributed to investors,
except to the extent the cash is needed to fund the annual repurchase offer or
to fund any follow-on investments that the Fund may make in existing portfolio
companies.
See Note 5 to the financial statements for a discussion of litigation
associated with the Canadian's Chapter 11 bankruptcy case. FCM believes that any
potential liability to the Fund resulting from Canadian's outstanding sales tax
liabilities will not have any material adverse effect on the Fund's financial
condition, beyond the reserve that has been established.
NINETEEN
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
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 $130,483 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
FundOs 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
FundOs three Independent General Partners resigned and had not yet been replaced
as of June 30, 1997. Professional fees and other expenses decreased pri-
TWENTY
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
marily because of legal fees and expenses incurred during the prior year in
connection with the Canadian's bankruptcy proceedings.
The investment advisory fees paid to FCM decreased primarily as a result of
the direct receipt by FCM of consulting fees from LMC, one of the Fund's
portfolio companies during the first quarter of 1996. Pursuant to the terms of
the Fund's investment advisory agreement with FCM, the investment advisory fees
payable to FCM by the Fund are reduced by the amount of any fees that FCM
receives directly from any of the Fund's portfolio companies.
NET REALIZED GAIN ON INVESTMENTS
The net realized gain for the three and six month periods ended June 30,
1997 resulted from the recognition of additional gain from the sale of the
Fund's investment in Huntington Holdings, Inc. ("Huntington").
During December 1995, Huntington entered into a letter of intent, under the
terms of which all Huntington stock would be sold for cash. The sale was
consummated during February 1996. The Fund's share of the actual sales proceeds
totaled $1,247,229, 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
TWENTY-ONE
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
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.
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
TWENTY-TWO
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
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. 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,
TWENTY-THREE
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
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 $1,423,781 in the carrying value of the investment during the
fourth quarter of 1996 and the second quarter of 1997, respectively.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
TWENTY-FOUR
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 18,025,452
<INVESTMENTS-AT-VALUE> 15,972,439
<RECEIVABLES> 126,599
<ASSETS-OTHER> 33,225
<OTHER-ITEMS-ASSETS> 271,655
<TOTAL-ASSETS> 16,403,918
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,955,372
<TOTAL-LIABILITIES> 1,955,372
<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> (2,053,013)
<NET-ASSETS> 14,448,546
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 860,164
<OTHER-INCOME> 0
<EXPENSES-NET> 416,743
<NET-INVESTMENT-INCOME> 443,421
<REALIZED-GAINS-CURRENT> 955,312
<APPREC-INCREASE-CURRENT> (1,469,711)
<NET-CHANGE-FROM-OPS> (70,978)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 443,421
<DISTRIBUTIONS-OF-GAINS> 966,431
<DISTRIBUTIONS-OTHER> 710,625
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,191,455)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 89,666
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 416,743
<AVERAGE-NET-ASSETS> 15,504,624
<PER-SHARE-NAV-BEGIN> 15.08
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> (.46)
<PER-SHARE-DIVIDEND> .40
<PER-SHARE-DISTRIBUTIONS> .86
<RETURNS-OF-CAPITAL> .64
<PER-SHARE-NAV-END> 13.12
<EXPENSE-RATIO> 3.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
