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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from___________________to____________________________
Commission file number 0-17738
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Fiduciary Capital Pension Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 86-0653603
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(State of organization) (I.R.S. Employer
Identification No.)
410 17th Street, Suite 400
Denver, Colorado 80202
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (303) 446-2187
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: Not applicable.
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Fiduciary Capital Pension Partners, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I
Item 1 Business............................................................1
Item 2 Properties..........................................................7
Item 3 Legal Proceedings...................................................7
Item 4 Submission of Matters to a Vote
of Security Holders.............................................8
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.................................9
Item 6 Selected Financial Data............................................10
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations......................................11
Item 8 Financial Statements and
Supplementary Data............................................F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure...........................................17
Part III
Item 10 Directors and Executive Officers
of the Registrant .............................................18
Item 11 Executive Compensation.............................................20
Item 12 Security Ownership of Certain
Beneficial Owners and Management ..............................20
Item 13 Certain Relationships and
Related Transactions ..........................................21
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K .......................................22
</TABLE>
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PART I
Item 1. Business
General
Fiduciary Capital Pension Partners, L.P. (the "Fund" or the
"Registrant") is a limited partnership organized under the laws of the State of
Delaware on October 20, 1988. The managing general partner of the Fund is FCM
Fiduciary Capital Management Company, a Delaware general partnership (the
"Managing General Partner" or "FCM"). The independent general partners of the
Fund are Norman J. Peer and E. Bruce Fredrikson (the "Independent General
Partners"). (The Managing Partner and the Independent General Partners are
collectively referred to herein as the "General Partners.")
The general partners of the Managing General Partner are FCM Fiduciary
Capital Corporation, a Delaware corporation, Mezzanine Capital Corporation, a
Delaware corporation and an affiliate of PaineWebber Incorporated, and Paul
Bagley. Paul Bagley owns 100% of the stock of FCM Fiduciary Capital Corporation.
The Managing General Partner serves as investment adviser ("Investment
Adviser") to the Fund and is responsible for the identification of all
investments made by the Fund and all other investment advisory services
necessary for the operation of the Fund in carrying out its investment
objectives and policies. The Independent General Partners oversee the
investment activities of the Investment Adviser.
The Fund has elected to operate as a business development company
under the Investment Company Act of 1940, as amended. The investment objective
of the Fund is to provide current income and capital appreciation by investing
primarily in subordinated debt and related equity securities issued as the
mezzanine financing of privately structured, friendly leveraged buyouts,
leveraged acquisitions and leveraged recapitalizations. A separate fund,
Fiduciary Capital Partners, L.P., a Delaware limited partnership ("FCP") was
also formed on October 20, 1988 for taxable investors with investment
objectives, policies and restrictions similar to those of the Fund. The Fund
and FCP co-invest in the investments; however, each fund is accounted for
separately.
On January 26, 1990, the Fund and its affiliate, FCP (collectively,
the "Funds"), began a public offering of their units of limited partnership
interests (the "Units"). The Units were registered pursuant to a Registration
Statement on Form N-2 under the Securities Act of 1933, as amended.
The Funds collectively held three closings for the sale of the Units
during the period from August 14, 1990 through October 18, 1990. As a result of
the closings, the Funds sold 65,898 Units representing an aggregate purchase
price of $65,898,000. Of these amounts, 29,796 Units representing an aggregate
purchase price of $29,796,000 and 36,102 Units representing an aggregate
purchase price of $36,102,000 were received by the Fund and FCP, respectively.
A special meeting of the Fund's Limited Partners was held on October
1, 1993. At the meeting, the Limited Partners approved the extension of the
Fund's investment period until December 31, 1995 and the adoption of a
fundamental policy of periodic unit repurchases. In connection with the
adoption of the repurchase policy, each $1,000 Unit was redenominated into
fifty $20 Units. After giving effect to this redenomination, the Fund had
1,489,800 Units outstanding as of October 1, 1993.
Pursuant to the terms of the repurchase policy, the Fund will annually
offer to repurchase from its Limited Partners up to 7.5% of its outstanding
Units for an amount equal to the current net asset value per Unit, net of a fee
(not to exceed 2%) to be retained by the Fund to offset expenses incurred in
connection with the repurchase offer. If the number of tendered Units in any
year exceeds 7.5% of the outstanding Units, the Fund's General Partners may
vote to repurchase up to an additional 2% of the outstanding Units.
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Repurchases of Units since the adoption of the plan are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
----------------------------- -------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ --------------- ------ --------
<S> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
November 1996 91,683 7.66% 15.71 15.40
</TABLE>
Each Fund's participation in the following portfolio investments is in
proportion to the amount of capital that each Fund had available for investment
at the time each investment was acquired. All amounts shown in this report with
respect to investments represent only the Fund's proportionate share of the
amounts involved.
Portfolio Investments
As of December 31, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $14.6 million. As of
December 31, 1996, the Fund had no investments in Non-Managed Companies.
Managed Companies are those to which significant managerial assistance is
offered.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments in
new portfolio companies, except to fund commitments made prior to December 31,
1995.
As of December 31, 1995, the Fund had committed to make new portfolio
investments in Atlas Environmental, Inc. ("Atlas"), Monaco Finance, Inc.
("Monaco") and Advantage Funding Group, Inc. ("Advantage"). In addition, the
Fund had agreed in principle to a financial restructuring of its LMC
Operating Corp. ("LMC") investment, which involved a conversion of the
Fund's existing subordinated debt and warrants into preferred stock and a
follow-on investment in LMC for the purchase of new common stock.
As discussed below, the Atlas and LMC investments were acquired by the
Fund during January and February 1996, respectively. The proposed Monaco and
Advantage investments were abandoned during 1996. A portion of the Fund's
available capital that had been reserved for these abandoned investments was
used to partially fund the Fund's 1996 annual repurchase offer and the
remainder is now reserved to fund the 1997 repurchase offer or to fund any
follow-on investments that the Fund may make in existing portfolio companies.
During the year ended December 31, 1996, the Fund also acquired a
second follow-on investment in LMC. In total, the three investments funded
during 1996 cost approximately $4.5 million.
The Fund sold all of its Huntington Holdings, Inc. ("Huntington")
common stock during 1996, receiving $1,106,335 of sales proceeds. In addition,
the Fund wrote off its entire investment in Canadian's Corp. ("Canadian's"),
which filed for Chapter 11 bankruptcy protection during February 1996 and
ceased operations during March 1996. As discussed below, the Fund also accrued
$370,627 for legal costs and other possible payments in connection with
Canadian's related litigation.
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New Portfolio Investments in 1996
Atlas Environmental, Inc. On January 25, 1996, the Fund invested
$3,200,602 in Atlas. The investment consists of $3,265,920 of 13.5% Senior
Subordinated Secured Notes due January 19, 2003, with warrants to acquire
common stock. The warrants have an exercise price of $8.00 per share. The Atlas
common stock is currently traded over the counter on a limited basis with
quotations provided via the OTC Bulletin Board under the symbol "ATEV".
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As
a result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments to the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the
terms of which some of 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.
Atlas, headquartered on Plantation Florida, is a holding company that
owns and manages companies in certain segments of the environmental services
industry.
Follow-On Investments in 1996
LMC Operating Corp. On June 10, 1994, the Fund invested $2,348,080 in
LMC. The investment consisted of $2,396,000 of 13.00% Senior Subordinated Notes
due May 31, 1999 with warrants to acquire common stock.
On February 9, 1996, the Fund participated in a financial
restructuring of its LMC investment. The Fund converted its existing LMC
subordinated debt and warrants into preferred stock and purchased $454,400 of
new common stock. As a result of the restructuring, the Fund increased its
ownership of LMC from approximately 12% to approximately 23%.
On November 1, 1996, the Fund agreed to provide up to $1,632,960 of
additional subordinated debt to LMC, of which $816,480 was advanced on that
date. This follow-on investment consists of 12% Senior Subordinated Revolving
Notes due October 31, 2000.
LMC, headquartered in Logan, Utah, is the leading U.S. manufacturer of
light track vehicles. These vehicles are primarily used as snow-groomers and
have several alternative uses including infrastructure development and
maintenance in remote locations, right-of-way cleanup, search and rescue and
military troop deployment. Primary purchasers of the vehicles include ski
resorts, utility companies and various governmental agencies.
Dispositions of Portfolio Investments in 1996
Huntington Holdings, Inc. During 1992, the Fund purchased subordinated
notes and warrants to purchase common stock in Huntington. During February
1994, Huntington prepaid the subordinated notes that the Fund held.
The Fund continued to hold the warrants to purchase common stock until
1996. During December 1995, Huntington entered into a letter of intent, under
the terms of which all Huntington stock
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would be sold for cash. The sale was consummated during February 1996. The
Fund's share of the actual sales proceeds totaled $1,247,229, of which
$1,089,896 was received during February 1996, with the balance held in escrow.
A portion of the escrowed funds was used to pay various transaction expenses
and $16,439 was received during September 1996. The balance is still being held
in escrow to fund potential contingent purchase price adjustments, and as
collateral for potential claims of the buyer with respect to representations
made by the selling shareholders, including the Fund. While the remaining
portion of the escrow amount must be maintained until February 1998, certain of
the sellers' representations will survive for longer periods of time, which
could result in the Fund being required to reimburse the purchaser for certain
costs and expenses after the escrow is released.
Huntington, headquartered in Huntington, Indiana, is one of the
largest manufacturers and marketers of maintenance and cleaning chemicals in
North America. Huntington produces a wide range of intermediate and final-stage
cleansers, sterilants and disinfectants for use by hospitals, schools, nursing
homes and various industries.
Canadian's Corp. During September 1994, the Fund invested $1,798,000
in Canadian's and its parent company, Canadian's Holdings, Inc. ("Canadian's
Holdings"). The investment consisted of (a) $1,624,000 of Canadian's 13.50%
Subordinated Notes with warrants to acquire common stock and (b) $232,000 of
Canadian's Holdings 12.00% Exchangeable Redeemable Debentures that were
convertible into Canadian's common stock.
During December 1994, the Fund made a follow-on investment of $802,190
in Canadian's and Canadian's Holdings. The investment consisted of (a) $768,000
of Canadian's 13.50% Subordinated Notes with warrants to acquire common stock
and (b) $59,000 of Canadian's Holdings 12.00% Exchangeable Redeemable
Debentures that were convertible into Canadian's common stock.
During May 1995, the Fund made a second follow-on investment of
$117,000 in Canadian's. The investment consisted of $130,000 of floating rate
Promissory Notes, with warrants to purchase common stock.
During September 1995, the Fund made a third follow-on investment of
$1,369,166 in Canadian's. This investment consisted of a Collateralized Loan
Guarantee earning interest at 13.75% and stock in Canadian's Holdings. In
addition, the Fund received stock in Canadian's Holdings for all of the
existing warrants previously held by the Fund. This debt investment was senior
to all of Canadian's other debt, except for its revolving credit facility.
Canadian's filed for Chapter 11 bankruptcy protection during February
1996 and ceased operations during March 1996. As a result of these
developments, the Fund wrote off its entire Canadian's investment as a realized
loss during the three months ended March 31, 1996.
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Chapter 11 bankruptcy case against Finova, Benson Selzer and Joseph
Eiger. The complaint seeks a declaratory judgment that sales taxes collected by
Canadian's and turned over to Finova were "trust funds" collected by Canadian's
on behalf of various state tax authorities. Through the complaint, the Fund has
objected to Finova's secured claim against Canadian's, which was guaranteed by
Benson Selzer and Joseph Eiger, and seeks to recover the sales tax and certain
other amounts for the benefit of Canadian's bankruptcy estate. As a result of
this litigation and the issues involved, the Fund accrued $370,627 for legal
costs and possible payments that may be required to settle the litigation or to
fund the payment of Canadian's outstanding sales tax liabilities.
Canadian's, headquartered in Fairfield, New Jersey, was a specialty
retailer of moderately priced junior women's apparel and acc
Other Portfolio Investments
Neodata Services, Inc. ("Neodata Services") During 1991, the Fund
purchased subordinated notes in Neodata Services and warrants to purchase
common stock of Neodata Corporation ("Neodata"), the parent company of Neodata
Services.
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<PAGE> 7
During 1992, Neodata raised additional equity via a rights offering to
existing shareholders. The Fund elected to purchase additional common stock in
the rights offering in order to maintain its existing ownership position in
Neodata.
During May 1993, Neodata Services prepaid the subordinated notes that
the Fund held following a successful refinancing of the Company's debt at a
lower interest rate.
During November 1994, Neodata's stockholders approved a
recapitalization of the company. Pursuant to the terms of the recapitalization
plan, the Fund received a combination of 10.00% Class A convertible preferred
stock and new common stock in exchange for its old common stock and warrants.
The Neodata stock was written down in value to a negligible amount
during 1995. The Fund has consistently valued this investment based upon a
multiple of Neodata's cash flow. Because Neodata's long-term debt previously
provided for the accrual, rather than current payment, of interest, the
Company's debt has grown to a level which exceeds the Fund's valuation.
Neodata, headquartered in Louisville, Colorado, is the largest
contract fulfillment company in the world and a leader in providing fulfillment
and marketing services to the magazine publishing industry.
KEMET Corporation ("KEMET") The Fund acquired various subordinated
debt and equity investments in KEMET and its subsidiary, KEMET Electronics
Corporation ("KEMET Electronics"), during 1991 and 1993.
During October 1992, KEMET completed an initial public offering
("IPO") of its common stock. The stock trades on the NASDAQ National Market
System under the symbol "KMET". During June 1993, KEMET Electronics prepaid its
subordinated notes which the Fund held following the successful completion of a
secondary stock offering. As of December 31, 1993, the Fund continued to hold
the common stock and warrants of KEMET.
During 1994, the Fund exercised its warrants and sold a portion of the
common stock, realizing total sales proceeds of $1,261,685. During 1995, the
Fund sold additional shares of stock, realizing total additional sales proceeds
of $3,221,392. KEMET also declared a two-for-one stock split during 1995. The
Fund did not sell any additional shares during 1996.
The Fund has 23,056 shares of KEMET stock remaining as of December 31,
1996. The Fund's cost basis in its KEMET stock is approximately $.35 per share.
At December 31, 1996, the stock closed at $23.0625 (an average of the closing
bid and ask prices).
KEMET, headquartered in Greenville, South Carolina, is a leading
manufacturer and distributor of both solid tantalum and monolithic ceramic
capacitors used as components in circuit boards.
ar accessories group, incorporated ("AAG") During 1992, the Fund
purchased subordinated notes, warrants to purchase Class B common stock and
Class A common stock in Amity Leather Products, Co., which changed its name to
ar accessories group, incorporated during 1996. During August 1994, AAG prepaid
the subordinated notes that the Fund held.
The Fund continues to hold the Class A common stock and the warrants
to purchase Class B common stock. As of December 31, 1996, the Fund had
recorded $606,199 of net unrealized appreciation in the value of its remaining
AAG investment.
AAG manufactures men's and ladies' fine personal leather goods and
distributes these products to department stores, mass merchandisers and
company-owned Wallet Works stores. AAG markets its products under the brand
names of Rolfs, Amity and LaGarde. Headquartered in West Bend, Wisconsin, the
Company was founded in 1915 and was family-controlled prior to a management
buyout in 1992.
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Elgin National Industries, Inc. ("Elgin") During 1993, the Fund
invested $5,694,073 in Elgin and its parent company, ENI Holding Corp.
("ENI"). The investment consisted of (a) $5,023,926 of Elgin's 13.00% Senior
Subordinated Notes due September 1, 2001 with warrants to purchase common
stock in ENI and (b) $587,610 of ENI 10.00% preferred stock and (c) $40,381 of
ENI common stock.
The Fund continues to hold its entire investment in Elgin and ENI. As
of December 31, 1996, the Fund had recorded $191,952 of unrealized appreciation
in the ENI preferred stock.
Elgin, headquartered in Chicago, Illinois, is a diversified industrial
company that is organized into three distinct segments. The Industrial Products
Group manufactures specialty industrial threaded fasteners. The Manufacturing
Group manufactures machinery and equipment for niches in coal and other mineral
processing markets. The Engineering and Construction Group provides a full
range of engineering, design and construction management services, including
serving as a general contractor under turn-key design and build contracts.
Mobile Technology, Inc. ("MTI") During 1991, the Fund purchased
subordinated notes in MTI and various equity securities in MTI's parent
company, MTI Holdings, Inc.
The Fund stopped accruing interest on the MTI notes that it held,
effective October 1, 1992. In January 1993, MTI commenced restructuring
negotiations with its various lenders outside of bankruptcy proceedings. These
restructuring negotiations were successfully completed and the restructuring
was consummated during July 1994. Pursuant to the terms of the restructuring,
the Fund and MTI's other subordinated lenders exchanged their subordinated
notes for common stock in a new holding company, MTI Holdings II, Inc. ("MTI
II"), which owned 100% of MTI. The Fund also received a minimal number of
additional shares of MTI II common stock on December 28, 1994 in connection
with the liquidation of MTI Holdings, Inc., the original holding company.
The Fund recognized a realized loss of $3,291,003 during 1994 as a
result of the restructuring. The Fund also recorded an unrealized loss of
$206,131 in the value of the MTI II stock as of December 31, 1994.
During August 1996, MTI consummated a second financial restructuring
pursuant to which a substantial amount of its remaining corporate debt was
converted to equity. In this restructuring, the existing shareholders,
including the Fund, received a reduced number of shares of common stock, along
with warrants to purchase additional common stock. 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.
As a result of this latest restructuring, the Fund's equity position
is now directly in MTI.
MTI, headquartered in Los Angeles, California, is a provider of
magnetic resonance imaging and computed tomography mobile shared-services.
R.B.M. Precision Metal Products, Inc. On May 24, 1995, the Fund
invested $1,264,200 in RBM. The investment consisted of $1,290,000 of 13.00%
Senior Subordinated Secured Notes due May 24, 2002, with warrants to acquire
common stock.
RBM, headquartered in Colorado Springs, Colorado, is a manufacturer of
precision sheet metal enclosures, chassis and assemblies for business machines.
Competition
The Fund competes with other entities having similar investment
objectives. In addition, because all investments are selected and managed
exclusively by the Investment Adviser on behalf of the Fund, any other entities
that compete with the Investment Adviser for mezzanine investments, therefore,
indirectly compete with the Fund. These competitors include other leveraged
acquisition partnerships, other business development companies, investment
partnerships and corporations, small business
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investment companies, and large industrial and financial companies investing
directly or through affiliates and individuals. Some of these competitors have
more experience with investments similar to those sought by the Funds, greater
financial resources and more personnel than the Funds and/or the Investment
Adviser. To the extent that there is more competition for investments, the
yield available to mezzanine investors may decrease.
Employees
The Fund has no employees. As discussed above, the Managing General
Partner manages the Fund's investments, subject to the supervisory oversight of
the Independent General Partners, and performs services on behalf of the Fund.
The General Partners are entitled to certain fees and reimbursements of certain
out-of-pocket expenses incurred in connection with the performance of these
management services. See Item 10 of this Report, "Directors and Executive
Officers of the Registrant" and Item 13 of this Report, "Certain Relationships
and Related Transactions".
Item 2. Properties
The Fund does not own or lease any physical properties.
Item 3. Legal Proceedings
There are no material legal proceedings pending directly against the
Fund.
As previously reported, FCM, the Managing General Partner of the Fund,
was named as a defendant in a class action lawsuit against PaineWebber and a
number of its affiliates concerning its sale of 70 different limited
partnerships and other direct investment programs, including the offering of
the Units. Plaintiffs in the lawsuit allege, among other things, that the
defendants violated federal securities laws and committed common law fraud in
the marketing of direct investments.
On May 30, 1995, the United States District Court for the Southern
District of New York entered an order certifying the class and dismissing the
class action against FCM without prejudice. PaineWebber and Mezzanine Capital
Corporation, a minority general partner in FCM and an affiliate of PaineWebber,
remain as defendants.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York (the "Court") to be used to resolve the litigation in
accordance with a definitive settlement agreement and plan of allocation, which
the parties subsequently submitted to the Court for its consideration and
approval. The Court approved the settlement agreement during March 1997.
During February 1996, approximately 150 plaintiffs filed an action in
Sacramento, California Superior Court against PaineWebber and various
affiliated entities (not including FCM) concerning the plaintiffs' purchase of
various limited partnership interests. The complaint alleged, among other
things, that PaineWebber and its related entities committed fraud and
misrepresentations and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. This
action was settled during March 1997.
On October 3, 1996, Fiduciary commenced an adversary proceeding in the
Chapter 11 bankruptcy cases of Canadian's Holdings, Inc. and affiliates
("Canadian's") in the United States Bankruptcy Court for the Southern District
of New York, Case Nos. 96 B 40891 through 40907, against Finova Capital
Corporation ("Finova"), Benson Selzer and Joseph Eiger. The Complaint in the
proceeding seeks relief on behalf of Canadian's, including, among other things,
a declaratory judgment that sales taxes collected
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<PAGE> 10
by Canadian's and turned over to Finova in the amount of approximately $1.85
million during the period January 1, 1995 through February 21, 1996 were "trust
funds" collected by Canadian's on behalf of various state tax authorities.
Through the complaint, Fiduciary also has objected to Finova's secured
claim against Canadian's, which was guaranteed by Messrs. Selzer and Eiger, and
seeks to recover the sales taxes and certain other amounts for the benefit of
Canadian's bankruptcy estate based upon various legal theories, including
preferential transfers prohibited by the Bankruptcy Code, unjust enrichment,
lender liability, breach of fiduciary duty, equitable subordination, and the
like.
Pursuant to a directive of the Bankruptcy Court, Fiduciary filed a
motion seeking permission to prosecute the complaint on behalf of Canadian's,
and to amend its complaint accordingly. Finova, Selzer and Eiger, Canadian's
and the official creditors committee in the bankruptcy case have opposed the
motion. A hearing on the motion was held on March 11, 1997. The Court issued a
ruling on March 19, 1997, which denied Fiduciary's motion.
FCM believes that neither the PaineWebber or the Canadian's litigation
will have any material adverse effect on the Fund's financial condition, beyond
the reserve that has been established with respect to the Canadian's
litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the
Fund, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1996.
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<PAGE> 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
There is no organized trading market for the purchase and sale of the
Units and certain measures have been adopted and implemented to assure that no
such organized trading market will develop.
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to purchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding
Units.
Repurchases of Units since the adoption of the plan are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
---------------------------- ------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ -------------- ----- --------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
November 1996 91,683 7.66% 15.71 15.40
</TABLE>
As of March 1, 1997 the number of Limited Partners of record was
approximately 2,725.
The Fund made the following distributions to its partners with respect
to 1995 and 1996:
<TABLE>
<CAPTION>
Quarter During Total Amount of
Which Distributed Amount of Distribution
Cash was Generated Distribution* Per $20 Unit Payment Date
------------------ -------------- -------------- ------------
<S> <C> <C>
1st Quarter 1995 $393,030 $.30 May 12, 1995
2nd Quarter 1995 393,030 .30 August 14, 1995
3rd Quarter 1995 393,030 .30 November 14, 1995
4th Quarter 1995 362,595 .30 February 14, 1996
1st Quarter 1996 362,595 .30 May 15, 1996
2nd Quarter 1996 362,595 .30 August 15, 1996
3rd Quarter 1996 362,595 .30 November 15, 1996
4th Quarter 1996 334,812 .30 February 14, 1997
</TABLE>
* Includes distributions to the Managing General Partner in an amount
equal to 1.0% of the total distribution.
Cash distributions for 1995 were paid entirely out of current net
investment income. Cash distributions for 1996 were paid out of current and
accumulated net investment income (67.3%) and gains from capital transactions
(32.7%).
The Fund expects 1997 distributions, beginning with the distribution
payable during May 1997,
9
<PAGE> 12
to be made at a 6% distribution rate ($.30 per Unit per quarter) or greater.
The Fund's investment period ended on December 31, 1995. Although the Fund is
permitted to make additional investments in existing portfolio companies after
1995, the Fund is no longer permitted to acquire investments in new portfolio
companies, except to fund commitments made prior to December 31, 1995. This
will impact the amount of the Fund's quarterly distributions for 1997 and
subsequent years because all proceeds from future dispositions or maturities of
investments will be distributed to investors, except to the extent the cash is
needed to fund the annual repurchase offer or to fund any follow-on investments
that the Fund may make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to a
financial restructuring of LMC. As discussed above in Item 1 of this Report,
"Business", one of the committed investments, Atlas, was acquired during
January 1996, and the LMC financial restructuring was consummated during
February 1996. The other two committed investments have been abandoned. A
portion of the Fund's available capital that had been reserved for these
abandoned investments was used to partially fund the Fund's 1996 annual
repurchase offer and the remainder is now reserved to fund the 1997 annual
repurchase offer or to fund any follow-on investments that the Fund may make in
existing portfolio companies.
Item 6. Selected Financial Data
The following selected financial data of the Fund has been derived
from the financial statements for the indicated periods. The information set
forth below should be read in conjunction with the Fund's financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Items 8 and 7, respectively,
of this Report.
<TABLE>
<CAPTION>
As of December 31
or Year Ended December 31
----------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------- ------- -------
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Total Investment Income $1,329 $2,268 $ 2,335 $ 2,587 $ 3,627
Net Investment Income 772 1,726 1,758 1,972 3,046
Net Realized and Unrealized
(Loss) Gain on Investments (1,143) (2,326) 1,505 148 424
Cash Distributions Declared
to Partners 1,423 1,542 2,537 2,681 2,709
Repurchase of Units 1,440 1,959 2,403 1,134 -
Total Assets 17,441 20,321 24,694 26,362 28,106
Net Assets 16,640 19,873 23,974 25,651 27,345
Value of Investments 17,105 20,025 23,454 25,213 27,582
Per Unit of Limited Partnership Interest:(1)
Net Investment Income .64(2) 1.33(2) 1.23(2) 1.32(2) 2.03
Net Realized and Unrealized
(Loss) Gain on Investments (.95)(2) (1.79)(2) 1.06(2) .10(2) .28
Cash Distributions Declared
to Partners(3) 1.20 1.20 1.80 1.80 1.80
Net Asset Value 15.08 16.61 18.47 17.96 18.35
</TABLE>
- ---------------
(1) Effective October 1, 1993, each $1,000 Unit was redenominated into
fifty $20 Units. All amounts shown for prior years have been restated
to give effect to this redenomination.
(2) Calculated using the weighted average number of Units outstanding
during the years ended December 31, 1996, 1995, 1994 and 1993 of
1,186,294, 1,285,717, 1,413,240 and 1,482,514, respectively.
(3) Distribution amounts are reflected during the period in which the cash
for the distribution was generated. A portion of the actual cash
distributions are paid subsequent to such period.
10
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
During 1990, the Fund completed a public offering of its Units. Net
offering proceeds available to the Fund, after deducting commissions and other
offering costs, totaled $26,298,970.
The Fund is prohibited by the terms of its Partnership Agreement from
borrowing funds for operational purposes.
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to purchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to purchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
------------------------------ --------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ -------------- ----- ---------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
November 1996 91,683 7.66% 15.71 15.40
</TABLE>
As of December 31, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $14.6 million. These
portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represent approximately 84.2% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature.
These securities were typically issued in private placement transactions and
were subject to certain restrictions on transfer or sale, thereby limiting
their liquidity. A number of the portfolio companies have prepaid their
subordinated debt that the Fund held. In addition, three of the portfolio
companies have successfully completed IPOs of their stock. The Fund has sold
the stock it held in these three companies, except for a portion of its KEMET
stock.
As of December 31, 1996, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
During the year ended December 31, 1996, the Fund acquired a new
portfolio investment in Atlas and acquired two follow-on investments in LMC at
a total cost of approximately $4.5 million.
The Fund sold all of its Huntington common stock during 1996,
receiving $1,106,335 of sales proceeds. In addition, the Fund wrote off its
entire Canadian's investment as a realized loss.
Accrued interest receivable decreased $22,254 from $117,461 at
December 31, 1995 to $95,207 at December 31, 1996. This decrease resulted
primarily from the placing of the Atlas subordinated debt on non-accrual status
effective April 20, 1996.
Accounts payable and accrued liabilities increased $387,454 from
$31,327 at December 31, 1995 to $418,781 at December 31, 1996. This increase
resulted primarily from the accrual of $370,627 for
11
<PAGE> 14
possible legal costs and other payments that may by required to settle the
Canadian's litigation or to fund the payment of Canadian's outstanding sales
tax liabilities.
Distributions payable to partners decreased $27,783, from $362,595 at
December 31, 1995 to $334,812 at December 31, 1996. This 7.66% decrease results
from the corresponding percentage decrease in the number of outstanding Units
as a result of the repurchase of Units by the Fund during November 1996.
During 1996, the Fund declared cash distributions to its partners in
the aggregate amount of $1,422,598. The distributions were paid in four equal
(on a per-Unit basis) quarterly payments during the months of May, August and
November 1996 and February 1997. Each of the distributions was equal to an
annualized rate equal to 6% of contributed capital ($.30 per Unit) and were
paid out of current and accumulated net investment income (67.3%) and realized
gain on investments (32.7%).
The Fund expects 1997 distributions, beginning with the distribution
payable during May 1997, to be made at a 6% distribution rate ($.30 per Unit
per quarter) or greater. The Fund's investment period ended on December 31,
1995. Although the Fund is permitted to make additional investments in existing
portfolio companies after 1995, the Fund is no longer permitted to acquire
investments in new portfolio companies. This will impact the amount of the
Fund's quarterly distributions for 1997 and subsequent years because all
proceeds from future dispositions or maturities of investments will be
distributed to investors, except to the extent the cash is needed to fund the
annual repurchase offer or to fund any follow-on investments that the Fund may
make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to a
financial restructuring of LMC. As discussed above in Item 1 of this Report,
"Business", one of the committed investments, Atlas, was acquired during
January 1996, and the LMC financial restructuring was consummated during
February 1996. The other two committed investments have been abandoned. A
portion of the Fund's available capital that had been reserved for the
abandoned investments was used to partially fund the Fund's 1996 annual
repurchase offer and the remainder is now reserved to fund the 1997 repurchase
offer or to fund any follow-on investments that the Fund may make in existing
portfolio companies.
See "Legal Proceedings" and the Fund's financial statements and notes
thereto included in Items 3 and 8, respectively, of this Report, for a
discussion of litigation. FCM believes that this litigation will be resolved
without any material adverse effect on the Fund's financial condition.
Results of Operations
Investment Income and Expenses
The Fund's investment income consists primarily of interest income
earned from the various debt investments which have been acquired by the Fund.
Major expenses include the investment advisory fee, fund administration fee,
professional fees and administrative expenses.
1996 Compared to 1995
The Fund's net investment income was $772,453 for the year ended
December 31, 1996 on total investment income of $1,329,491 as compared to net
investment income of $1,725,971 on total investment income of $2,268,159 for
the prior year. Net investment income per limited partnership unit decreased
from $1.33 to $.64, and the ratio of net investment income to average net
assets decreased from 7.22% to 4.05% for the year ended December 31, 1996 in
comparison to the prior year.
Net investment income for the year ended December 31, 1996 decreased
primarily as a result of a decrease in investment income. Total expenses also
increased by a small amount.
Investment income decreased $938,668, or 41.4%, for the year ended
December 31, 1996 in comparison to the prior year. This decrease resulted
primarily from the conversion of the Fund's LMC
12
<PAGE> 15
debt securities into non-dividend paying equity securities, the Canadian's
bankruptcy and the decision by the Fund to stop accruing interest on its
subordinated debt investment in Atlas. Other factors that contributed to the
decrease in investment income include the utilization of a portion of the
Fund's cash reserves to repurchase Units during both November 1995 and 1996 and
lower interest rates on the Fund's temporary investments.
Total expenses increased $14,850, or 2.7%, for the year ended December
31, 1996 in comparison to the prior year. This increase resulted primarily from
increases in professional fees and other expenses. These increases were
partially offset by decreases in investment advisory fees and amortization
expense.
The increases in professional fees and other expenses were primarily
the result of legal fees and other costs incurred in connection with the
Canadian's bankruptcy proceedings and the default by Atlas with respect to the
payment of interest due to the Fund. The investment advisory fees decreased
primarily as a result of the repurchase of Units by the Fund during both
November 1995 and 1996 and the realization during February 1996 of the loss on
the Fund's Canadian's investment. Both the repurchase of the Units and the
realization of the Canadian's loss decreased the amount of the Fund's available
capital (as defined in the Partnership Agreement), which is the base with
respect to which the investment advisory fees are calculated. The Fund
amortized its organization cost over a five year period beginning with the
inception of the Fund in 1990. Therefore, these costs became fully amortized
during 1995.
1995 Compared to 1994
The Fund's net investment income was $1,725,971 for the year ended
December 31, 1995 on total investment income of $2,268,159 as compared to net
investment income of $1,758,135 on total investment income of $2,335,311 for
the prior year. Net investment income per limited partnership unit increased
from $1.23 to $1.33, and the ratio of net investment income to average net
assets increased from 6.91% to 7.22% for the year ended December 31, 1995 in
comparison to the prior year.
Although total net investment income decreased from 1994 to 1995, net
investment income per limited partnership unit increased. This occurred because
of a decrease in the weighted average number of limited partnership units
outstanding, which resulted from the repurchase of Units by the Fund during
both November 1994 and 1995.
Net investment income for the year ended December 31, 1995 decreased
primarily as a result of a decrease in investment income. The negative effect
of the decrease in investment income was partially offset by a decrease in
total expenses.
Investment income decreased $67,152, or 2.9%, for the year ended
December 31, 1995 in comparison to the prior year. This decrease resulted
primarily from the $190,369 loss on the sale of the receivable for deferred
interest due from KB Alloys, which was recorded as a reduction of interest
income. In addition, there was a decrease from 1994 to 1995 in the amount of
the Fund's average net assets and the Fund stopped accruing interest on its
subordinated debt investments in Canadian's and LMC (see discussion below). The
negative effect of these three items was partially offset by higher interest
rates on both the Fund's temporary and subordinated debt investments.
The Fund had average net assets of approximately $23.9 million during
the year ended December 31, 1995 as compared to approximately $25.4 million
during the prior year. This 5.9% decrease in average net assets occurred
primarily as a result of the Fund's repurchase of its Units during both
November 1994 and 1995. The negative effect of the repurchase of Units was
partially offset by net gains achieved with respect to the Fund's investments
(primarily the KEMET common stock).
Total expenses decreased $34,988, or 6.1%, for the year ended December
31, 1995 in comparison to the prior year. This percentage decrease was greater
than the 5.9% decline in the Fund's average net assets from 1994 to 1995. This
decrease resulted primarily from decreases in investment advisory fees and
other expenses. The investment advisory fees decreased as a result of the
repurchase
13
<PAGE> 16
of Units during November 1994 and 1995 and the realization during July 1994 of
the loss on the Fund's MTI investment. Both the repurchase of Units and the
realization of the MTI loss decreased the amount of the Fund's available
capital (as defined in the Partnership Agreement) which is the base with
respect to which the investment advisory fees are calculated. Other expenses
decreased primarily as a result of a decrease in consulting fees. These
decreases were partially offset by an increase in professional fees.
Net Realized Gain (Loss) on Investments
The Fund realized net losses of $2,089,653 during the year ended
December 31, 1994, gains of $3,790,988 during the year ended December 31, 1995
and net losses of $3,453,919 during the year ended December 31, 1996.
During 1994, the Fund realized gains, including applicable prepayment
premiums, resulting from the prepayment by Huntington and Amity of subordinated
notes that were held by the Fund and the sale of a portion of the KEMET common
stock that was held by the Fund. The Fund also recognized a substantial
realized loss as a result of MTI's financial restructuring which occurred
during 1994. The realized gains for 1995 consisted of gain, including a
prepayment premium, from the prepayment by Protection One of subordinated notes
that were held by the Fund and gains from the sale of all of the Carr-Gottstein
common stock and KB Alloys notes and a portion of the KEMET common stock that
were held by the Fund.
The net realized losses for 1996 resulted from a gain on sale of the
Fund's Huntington investment and a realized loss on the Fund's Canadian's
investment.
During December 1995, Huntington entered into a letter of intent,
under the terms of which all Huntington stock would be sold for cash. The sale
was consummated during February 1996. The Fund's share of the actual sales
proceeds totaled $1,247,229, of which $1,089,896 was received during February
1996, with the balance held in escrow. A portion of the escrowed funds was used
to pay various transaction expenses and $16,439 was received during September
1996. The remaining balance is still being held in escrow to fund contingent
purchase price adjustments, and as collateral for potential claims of the buyer
with respect to representations made by the selling shareholders, including the
Fund. While the remaining portion of the escrow amount must be maintained until
February 1998, certain of the sellers' representations will survive for longer
periods of time, which could result in the Fund being required to reimburse the
purchaser for certain costs and expenses after the escrow is released. The Fund
recognized a realized gain of $1,020,657 from this transaction during 1996.
Additional gain will be recognized if, and when, the Fund actually receives a
distribution of any of the remaining escrowed funds.
Canadian's was a women's specialty retailer which filed for Chapter 11
bankruptcy protection during February 1996 and ceased operations during March
1996. As a result of these developments, it became evident that the Fund will
not recover any of its Canadian's investment. Accordingly, the Fund recognized
the $4,103,949 loss on its Canadian's investment as a realized loss during the
three months ended March 31, 1996. This loss recognition did not significantly
affect the Fund's total net gain (loss) on investments for 1996 because all but
$5 of the loss was recorded as an unrealized loss during 1995.
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Chapter 11 bankruptcy case against Finova, Benson Selzer and Joseph
Eiger. The complaint seeks a declaratory judgment that sales taxes collected by
Canadian's and turned over to Finova were "trust funds" collected by Canadian's
on behalf of various state tax authorities. Through the complaint, the Fund has
objected to Finova's secured claim against Canadian's, which was guaranteed by
Benson Selzer and Joseph Eiger, and seeks to recover the sales tax and certain
other amounts for the benefit of Canadian's bankruptcy estate. As a result of
this litigation and the issued involved, the Fund accrued $370,627 for legal
costs and possible payments that may be required to settle the litigation or to
fund the payment of Canadian's outstanding sales tax liabilities. This accrued
amount was recorded as an additional realized loss in the Fund's Statement of
Operations.
14
<PAGE> 17
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and for
which market quotations are available, valuations are set by the closing sales,
or an average of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment is
valued initially based upon its original cost to the Fund ("cost method"). The
cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal valuations
are based upon such factors as the portfolio company's earnings, cash flow and
net worth, the market prices for similar securities of comparable companies and
an assessment of the portfolio company's future financial prospects. In a case
of unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method will be
used only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
Prior to 1994, the Fund had recorded cumulative net unrealized loss on
investments of $372,576. During 1994, the Fund recorded $1,721,305 of
unrealized gain and $1,052,484 of unrealized loss on investments. In addition,
the Fund disposed of investments during 1994 with respect to which the Fund had
recorded $2,925,723 of net unrealized loss during prior years. Therefore, at
December 31, 1994, the Fund had net unrealized gain on investments of
$3,221,968.
During 1995, the Fund recorded $642,173 of unrealized gain and
$4,831,540 of unrealized loss on investments. In addition, the Fund disposed of
investments during 1995 with respect to which the Fund had recorded $1,927,280
of net unrealized gain during prior years. Therefore, at December 31, 1995, the
Fund had net unrealized loss on investments of $2,894,675.
The net decrease in unrealized gain on investments during 1996 and the
cumulative net unrealized loss on investments at December 31, 1996, consisted
of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
--------------------------------------
As of
Portfolio Investment During 1996 December 31, 1996
- ----------------------------- ----------- -----------------
<S> <C> <C>
Unrealized net loss recorded during
prior years with respect to investments
disposed of during 1996 $3,348,623 $ -
Neodata - (278,915)
KEMET (21,616) 523,559
AAG (113,629) 606,199
Elgin / ENI 58,761 191,952
LMC - (459,200)
MTI 19,010 (187,121)
Atlas (979,776) (979,776)
---------- -------
$2,311,373 $(583,302)
========== =======
</TABLE>
The Neodata stock was written down to a negligible amount during 1995.
The Fund has consistently valued this investment based upon a multiple of
Neodata's cash flow. Because Neodata's long-term debt previously provided for
the accrual, rather than current payment, of interest, the company's debt has
grown to a level which exceeds the Fund's valuation.
KEMET completed an IPO of its common stock during 1992. The stock,
which trades on the NASDAQ National Market System, closed at $23.0625 (an
average of the closing bid and ask prices) on
15
<PAGE> 18
December 31, 1996. This price is down slightly from the closing price of $24.00
on December 31, 1995. Based on the $23.0625 closing trading price of the common
stock, the 23,056 shares of common stock that the Fund held at December 31,
1996 had a market value of $531,729.
The AAG warrants and common stock were written up in value at March
31, 1996 to bring AAG's valuation more in line with the valuation of comparable
companies in its industry.
The ENI preferred stock is being written up in value quarterly to
reflect the amount of the cumulative 10% preferential dividend that is accruing
with respect to the preferred stock.
LMC experienced significant operating problems after the Fund acquired
its LMC investment during 1994 and the Fund was involved in a restructuring of
its LMC investment during 1995. In the restructuring, the Fund's existing LMC
subordinated debt and warrants were converted into preferred stock and the Fund
purchased $454,400 of new common stock. As a result of LMC's operational
difficulties and the fact that the Fund's investment was converted from debt
securities to equity securities the Fund wrote its LMC investment down by
$459,200 during 1995. (As discussed in Item 1 of this Report, "Business", the
Fund made an additional follow-on investment in LMC during 1996.)
The MTI common stock was written down in value during 1994 based upon
an independent third party valuation of the company that was obtained by MTI's
management. During August 1996, MTI consummated a financial restructuring
pursuant to which a substantial amount of its corporate debt was converted to
equity. In the restructuring, the existing shareholders, including the Fund,
received a reduced number of shares of common stock, along with warrants to
purchase additional common stock. The Fund's valuation of its MTI investment
was increased by $19,010 following the restructuring based upon an analysis of
MTI's earnings and cash flows.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As
a result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments to the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the
terms of which some of company's businesses would be sold for cash. On November
5, 1996, the purchaser notified Atlas that it wanted to renegotiate the terms
of the transaction, including a reduction in the purchase price. Atlas
management was unable to reach a revised agreement with the purchaser and Atlas
remained in default on its debt. On January 17, 1997, Atlas filed for Chapter
11 bankruptcy protection. Atlas is currently developing a plan of
reorganization for submission to the bankruptcy court that provides for the
continued operation of its businesses, following a series of strategic asset
acquisitions and dispositions.
As a result of these developments, the Fund stopped accruing interest
on its Atlas investment effective April 20, 1996 and recorded a $979,776
writedown in the carrying value of the investment during the fourth quarter of
1996.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
Inflation and Changing Prices
Inflation has had no material impact on the operations or financial
condition of the Fund from inception through December 31, 1996. However,
inflation and changing prices, in addition to other factors, may effect the
value and the eventual selling price of the Fund's investments.
16
<PAGE> 19
Item 8. Financial Statements and Supplementary Data
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
List of Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Schedule of Investments - December 31, 1996 F-3
Balance Sheets - December 31, 1996 and 1995 F-5
Statements of Operations for each of the years
ended December 31, 1996, 1995 and 1994 F-6
Statements of Cash Flows for each of the years
ended December 31, 1996, 1995 and 1994 F-7
Statements of Changes in Net Assets for each of the
years ended December 31, 1996, 1995 and 1994 F-8
Selected Per Unit Data and Ratios for each of the years
ended December 31, 1996, 1995, 1994, 1993 and 1992 F-9
Notes to Financial Statements F-10
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
(1) the information required is disclosed in the financial statements and notes
thereto; (2) the schedules are not required under the related instructions; or
(3) the schedules are inapplicable.
F-1
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Fiduciary Capital Pension Partners, L.P.:
We have audited the accompanying balance sheets of Fiduciary Capital
Pension Partners, L.P. (a Delaware limited partnership) as of December 31, 1996
and 1995, including the schedule of investments as of December 31, 1996, and
the related statements of operations, cash flows and changes in net assets for
each of the three years in the period ended December 31, 1996 and the selected
per unit data and ratios for the five years then ended. These financial
statements and per unit data and ratios are the responsibility of the
partnership's managing general partner. Our responsibility is to express an
opinion on these financial statements and per unit data and ratios based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per unit data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 and 1995 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per unit data
and ratios referred to above present fairly, in all material respects, the
financial position of Fiduciary Capital Pension Partners, L.P. as of December
31, 1996 and 1995, and the results of its operations, its cash flows and the
changes in its net assets for each of the three years in the period ended
December 31, 1996, and the selected per unit data and ratios for the five years
then ended, in conformity with generally accepted accounting principles.
As discussed in Note 2, the financial statements include investment
securities valued at $13,475,314 at December 31, 1996 (81.0% of net assets) and
$10,824,445 at December 31, 1995 (54.5% of net assets) whose values have been
estimated by the managing general partner in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, the managing general partner's estimate of values may differ
significantly from the values that would have been used had a ready market
existed for the securities and the differences could be material.
/s/ Arthur Andersen LLP
Denver, Colorado
February 4, 1997.
F-2
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total % of Total
Shares Investment Date Cost Value Investments
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
150,584.07 sh. Neodata Corporation,
10.00% Class A Convertible 12/27/90 &
Preferred Stock - Series 2* 09/30/92 $ 278,916 $ 1
8,754.89 sh. Neodata Corporation, 12/27/90 &
Common Stock* 09/30/92 1 1
- -----------------------------------------------------------------------------------------------------------------
278,917 2 0.0%
- -----------------------------------------------------------------------------------------------------------------
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 8,170 531,729
- -----------------------------------------------------------------------------------------------------------------
8,170 531,729 3.1
- -----------------------------------------------------------------------------------------------------------------
62,606 sh. ar accessories group,
incorporated, Warrants
to Purchase Class B
Common Stock(2)* 07/30/92 85,909 674,584
22,608 sh. ar accessories group,
incorporated, Class A
Common Stock(2)* 07/30/92 226,080 243,604
- -----------------------------------------------------------------------------------------------------------------
311,989 918,188 5.4
- -----------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,934,375 4,934,375
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 779,562
403.81 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 40,381 40,381
421.6 sh. ENI Holding Corp.,
Warrants to Purchase Class B
Common Stock* 09/24/93 42,156 42,156
- -----------------------------------------------------------------------------------------------------------------
5,604,522 5,796,474 33.9
- -----------------------------------------------------------------------------------------------------------------
$816,480 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4)* 11/01/96 816,480 816,480
239,600 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,384,408
22.72 sh. LMC Operating Corp.,
Common Stock* 02/09/96 454,399 1
49.72 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- -----------------------------------------------------------------------------------------------------------------
3,660,090 3,200,890 18.7
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
F-3
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,327 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 187,698 39,894
3,527 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 49,929 10,612
- ----------------------------------------------------------------------------------------------------------------
237,627 50,506 0.3
- ----------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,210,998 1,210,998
9,072.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 73,295 73,295
- ----------------------------------------------------------------------------------------------------------------
1,284,293 1,284,293 7.5
- ----------------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 01/19/03(6)* 01/25/96 3,170,895 2,224,960
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(7)* 01/25/96 33,842 1
- ----------------------------------------------------------------------------------------------------------------
3,204,737 2,224,961 13.0
- ----------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (84.2% of net assets) 14,590,345 14,007,043 81.9
- ----------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$3,100,000 John Deere Capital Corp.,
5.215% Notes due 01/06/97 12/18/96 3,097,761 3,097,761
- ----------------------------------------------------------------------------------------------------------------
Total Temporary Investments (18.6% of net assets) 3,097,761 3,097,761 18.1
- ----------------------------------------------------------------------------------------------------------------
Total Investments (102.8% of net assets) $17,688,106 $17,104,804 100.0%
================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to ar accessories
group, incorporated during 1996.
(3) The notes will amortize in eight equal quarterly installments of $627,991
commencing on November 30, 1999.
(4) The Fund has committed to provide up to $1,623,960 of subordinated debt
financing pursuant to the terms of these notes.
(5) The warrants have exercise prices of $20.00 per share (1,058 shares) and
$35.00 per share (2,469 shares).
(6) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(7) The notes will amortize in five equal annual installments of $653,184
commencing on January 19, 1999. The accrual of interest on the notes was
discontinued by the Fund effective April 20, 1996. (Note 12)
(8) The Atlas Environmental, Inc. common stock trades over the counter on
a limited basis with quotations provided via the OTC Bulletin Board.
The warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
F-4
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS:
Investments (Notes 2, 10, 11, 12 and 13)
Portfolio investments, at fair
value:
Managed companies (amortized cost -
$14,590,345 and $14,272,465,
respectively) $14,007,043 $11,377,790
Temporary investments, at amortized cost 3,097,761 8,647,334
----------- -----------
Total investments 17,104,804 20,025,124
Cash and cash equivalents (Note 2) 234,305 175,768
Accrued interest receivable (Note 12) 95,207 117,461
Other assets 6,646 3,095
----------- -----------
Total assets $17,440,962 $20,321,448
=========== ===========
LIABILITIES:
Due to affiliates (Notes 6, 7, 8 and 9) $ 47,368 $ 54,494
Accounts payable and accrued liabilities 418,781 31,327
Distributions payable to partners (Note 3) 334,812 362,595
----------- -----------
Total liabilities 800,961 448,416
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13)
NET ASSETS (Notes 3 and 4):
Managing General Partner (23,225) (5,298)
Limited Partners (equivalent to $15.08
and $16.61, respectively, per limited
partnership unit based on 1,104,881
and 1,196,564 units outstanding) (Note 5) 16,663,226 19,878,330
----------- -----------
Net assets 16,640,001 19,873,032
----------- -----------
Total liabilities and net assets $17,440,962 $20,321,448
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-5
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 1,306,178 $ 2,234,934 $ 2,310,063
Other income 23,313 33,225 25,248
----------- ----------- -----------
Total investment income 1,329,491 2,268,159 2,335,311
----------- ----------- -----------
Expenses:
Investment advisory fees (Note 6) 136,714 195,279 232,554
Fund administration fees (Note 7) 118,327 118,327 118,327
Independent General Partner fees
and expenses (Note 8) 47,563 49,283 48,777
Administrative expenses (Note 7) 68,895 68,105 67,980
Professional fees 134,950 61,715 42,613
Amortization -- 8,760 10,500
Other expenses 50,589 40,719 56,425
----------- ----------- -----------
Total expenses 557,038 542,188 577,176
----------- ----------- -----------
NET INVESTMENT INCOME 772,453 1,725,971 1,758,135
----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments
(Note 10) (3,453,919) 3,790,988 (2,089,653)
Net change in unrealized gain (loss)
on investments (Note 11) 2,311,373 (6,116,647) 3,594,544
----------- ----------- -----------
Net (loss) gain on investments (1,142,546) (2,325,659) 1,504,891
----------- ----------- -----------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (370,093) $ (599,688) $ 3,263,026
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-6
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (370,093) $ (599,688) $ 3,263,026
Adjustments to reconcile net increase
in net assets resulting from operations
to net cash provided by operating activities:
Accreted discount on portfolio investments (36,025) (73,777) (49,282)
Amortization - 8,760 10,500
Change in assets and liabilities:
Accrued interest receivable 22,254 404,333 (210,442)
Other assets (3,551) 614 3,957
Due to affiliates (7,126) 11,056 9,476
Accounts payable and accrued liabilities 16,827 (2,215) 5,417
Prepaid interest income - (52,635) 52,635
Net realized loss (gain) on investments 3,453,919 (3,790,988) 2,089,653
Net change in unrealized (gain) loss on investments (2,311,373) 6,116,647 (3,594,544)
----------- ----------- -----------
Net cash provided by operating activities 764,832 2,022,107 1,580,396
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (4,471,482) (2,753,876) (4,948,269)
Proceeds from dispositions of portfolio investments 1,106,335 8,930,308 10,077,533
Sale (purchase) of temporary investments, net 5,549,573 (4,467,744) (2,347,742)
----------- ----------- -----------
Net cash provided by investing activities 2,184,426 1,708,688 2,781,522
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,450,381) (1,768,635) (2,596,272)
Repurchase of limited partnership units (1,440,340) (1,959,487) (2,402,951)
Deferred repurchase plan costs - - 17,975
----------- ----------- -----------
Net cash used in financing activities (2,890,721) (3,728,122) (4,981,248)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 58,537 2,673 (619,330)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 175,768 173,095 792,425
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 234,305 $ 175,768 $ 173,095
=========== =========== ===========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investments exchanged for other investments $ - $ - $ 237,627
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-7
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 772,453 $ 1,725,971 $ 1,758,135
Net realized (loss) gain on investments (3,453,919) 3,790,988 (2,089,653)
Net change in unrealized gain (loss)
on investments 2,311,373 (6,116,647) 3,594,544
----------- ----------- -----------
Net (decrease) increase in net
assets resulting from operations (370,093) (599,688) 3,263,026
Repurchase of limited partnership units
(Note 5) (1,440,340) (1,959,487) (2,402,951)
Distributions to partners from -
Net investment income (956,739) (1,541,685) (1,758,135)
Realized gain on investments (465,859) - (778,614)
----------- ----------- -----------
Total decrease in net assets (3,233,031) (4,100,860) (1,676,674)
Net assets:
Beginning of year 19,873,032 23,973,892 25,650,566
----------- ----------- -----------
End of year (including
undistributed net investment
income of $0, $184,286, and
$0, respectively) $16,640,001 $19,873,032 $23,973,892
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-8
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS (1)
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Unit Data:
Investment income $ 1.11 (2) $ 1.75 (2) $ 1.63 (2) $ 1.73 (2) $ 2.41
Expenses (.47)(2) (.42)(2) (.40)(2) (.41)(2) (.38)
--------- --------- --------- --------- ---------
Net investment income .64 (2) 1.33 (2) 1.23 (2) 1.32 (2) 2.03
Net realized gain (loss) on investments (2.88)(2) 2.92 (2) (1.46)(2) .60 (2) .03
Net change in unrealized (loss) gain
on investments 1.93 (2) (4.71)(2) 2.52 (2) (.50)(2) .25
Effect of unit repurchases
on net asset value (.02) (.20) .02 (.01) -
Distributions declared to partners (1.20) (1.20) (1.80) (1.80) (1.80)
--------- --------- --------- --------- ---------
Net (decrease) increase in
net asset value (1.53) (1.86) .51 (.39) .51
Net asset value:
Beginning of period 16.61 18.47 17.96 18.35 17.84
--------- --------- --------- --------- ---------
End of period $ 15.08 $ 16.61 $ 18.47 17.96 18.35
========= ========= ========= ========= =========
Ratios:
Ratio of expenses to average net assets 2.92% 2.27% 2.27% 2.27% 2.16%
Ratio of net investment income to
average net assets 4.05% 7.22% 6.91% 7.28% 11.33%
Number of limited partnership units
at the end of period(1) 1,104,881 1,196,564 1,296,999 1,427,950 1,489,800
</TABLE>
- -------------------
(1) Effective October 1, 1993, each $1,000 limited partnership unit was
redenominated into fifty $20 limited partnership units. All amounts
shown for prior years have been restated to give effect to this
redenomination.
(2) Calculated using the weighted average number of limited partnership
units outstanding during the years ended December 31, 1996, 1995, 1994
and 1993 of 1,186,294, 1,285,717, 1,413,240 and 1,482,514,
respectively.
The accompanying notes to financial statements are an
integral part of these financial statements.
F-9
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND PURPOSE
Fiduciary Capital Pension Partners, L.P. (the "Fund"), a Delaware
limited partnership, was formed on October 20, 1988 to operate as a business
development company under the Investment Company Act of 1940. The Fund's
operations commenced on August 14, 1990.
FCM Fiduciary Capital Management Company ("FCM"), the Managing General
Partner of, and the investment adviser to, the Fund, is responsible, subject to
the supervision of the Independent General Partners, for overseeing and
monitoring the Fund's investments.
The investment objective of the Fund is to provide current income and
capital appreciation by investing primarily in subordinated debt and related
equity securities issued as the mezzanine financing of privately structured,
friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations. These investments are referred to herein as "portfolio
investments". Managed companies are those to which significant managerial
assistance is offered.
As set forth in the Partnership Agreement, the Fund's investment
period ended on December 31, 1995. Although the Fund is permitted to make
additional investments in existing portfolio companies, the Fund is no longer
permitted to acquire investments in new portfolio companies.
A separate fund, Fiduciary Capital Partners, L.P. ("FCP"), was also
formed on October 20, 1988 for taxable investors with investment objectives,
policies and restrictions similar to those of the Fund. While the Fund and FCP
have co-invested in each of the portfolio investments, each fund is accounted
for separately. Each fund's participation in the portfolio investments is in
proportion to the amount of capital that each fund had available for investment
at the time each investment was acquired. Certain expenses are allocated between
the funds based on the amount of each fund's total capital. The accompanying
financial statements include only the activities of the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Method The Fund maintains its accounting records, prepares
financial statements and files its tax returns using the accrual method of
accounting.
Realized and Unrealized Gain or Loss on Investments Realized gains and
losses are recorded upon disposition of investments and are calculated based
upon the difference between the proceeds and the cost basis determined using the
specific identification method. All other changes in the valuation of
investments, as determined by FCM, are included as changes in the unrealized
appreciation or depreciation of investments in the statements of operations.
Valuation of Investments FCM values the Fund's investments on a weekly
basis utilizing a variety of methods. For securities that are publicly traded
and for which market quotations are available, valuations are set by the closing
sales, or an average of the closing bid and asked prices, as of the valuation
date. The Fund discounts these closing market prices between 5% and 20% to
reflect lack of liquidity, if the Fund's securities are subject to legal or
contractual trading restrictions, or to
F-10
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
reflect the potential market impact which could result from the sale of the
securities, if the Fund and FCP combined own a material percentage of the
outstanding securities. The amount of the discount varies based upon the type
of restriction, the time remaining on the restriction and the size of the
holding.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures which have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that are
reasonable for such investments at any particular time. Each such investment is
valued initially based upon its original cost to the Fund ("cost method"). Debt
securities with attached warrants for the purchase of common stock are
initially recorded at a discount from face value equal to the estimated
relative value of the warrants at date of investment. The discount is amortized
to income as an adjustment to yield from the debt securities. Face value less
unamortized discount represents the "amortized cost" of the debt securities.
The cost method is used until significant developments affecting the
portfolio company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings,
cash flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future financial
prospects. In a case of unsuccessful operations, the appraisal may be based
upon liquidation value. Appraisal valuations are necessarily subjective. The
Fund also may use, when available, third-party transactions in a portfolio
company's securities as the basis of valuation ("private market method"). The
private market method is used only with respect to completed transactions or
firm offers made by sophisticated, independent investors.
Temporary investments with maturities of less than 60 days are stated
at amortized cost, which approximates market value. Under this method,
temporary investments are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the investment.
Cash and Cash Equivalents The Fund considers investments in money
market funds to be cash equivalents.
Interest Receivable on Notes Notes are placed on non-accrual status in
the event of a default (after any applicable grace period expires) or if FCM
determines that there is no reasonable expectation of collecting the interest.
Income Taxes No provision for income taxes has been made in the
financial statements because taxes on Fund income are the responsibility of the
individual partners rather than the Fund.
Investment Transactions The Fund records portfolio investment
transactions on the date on which it obtains an enforceable right to demand the
securities or payment thereof and records temporary investment transactions on
the trade date. Realized gains and losses on investments are determined on the
basis of specific identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from
temporary investments will be distributed and allocated 99% to the Limited
Partners and 1% to FCM. Net investment income will, in general, be distributed
and allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
F-11
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
Partners have received a cumulative non-compounded preferred return of 9% per
annum on their capital contributions to the Fund, then (ii) 70% to the Limited
Partners and 30% to FCM until FCM has received 10% of all current and prior
distributions and allocations, and thereafter, (iii) 90% to the Limited
Partners and 10% to FCM.
Proceeds from capital transactions will, in general, be distributed
and allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative, non-compounded preferred return of 9% per
annum on their capital contribution to the Fund from net investment income,
capital transactions, or both, then (ii) 100% to the Limited Partners until
they have received a return of their capital contributions to the Fund, and
thereafter, (iii) 80% to the Limited Partners and 20% to FCM.
All cash distributions and earnings since the inception of the
Fund have been allocated 99% to the Limited Partners and 1% to FCM.
4. CAPITAL CONTRIBUTIONS
Upon formation of the Fund, FCM contributed $4,000 for its general
partner interest in the Fund. Units of limited partnership interest ("Units")
were then sold in a public offering. The Fund held three closings between
August 14, 1990 and October 18, 1990, receiving gross offering proceeds of
$29,796,000. Commissions and other offering costs were charged against proceeds
resulting in net capital contributions from Limited Partners of $26,294,970.
5. PERIODIC UNIT REPURCHASE PLAN
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to repurchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding
Units.
Repurchases of Units since the adoption of the plan are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
--------------------------------- ------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ --------------- ----- ----------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
November 1996 91,683 7.66% 15.71 15.40
</TABLE>
6. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement, net of certain fees received
directly by FCM from the Fund's portfolio companies. Investment advisory
F-12
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
fees of $136,714, $195,279 and $232,554 were incurred by the Fund for 1996,
1995 and 1994, respectively.
7. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $118,327 were incurred each year by the Fund during 1996, 1995 and 1994. FCM
is also reimbursed, subject to various limitations, for administrative expenses
incurred in providing accounting and investor services to the Fund. The Fund
reimbursed FCM for administrative expenses of $68,895, $68,105 and $67,980 for
1996, 1995 and 1994, respectively.
8. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the
Independent General Partners receives from the Fund and FCP an annual fee of
$30,000, payable monthly in arrears, together with all out-of-pocket expenses.
Each fund's allocation of these fees and expenses is based on the relative
number of outstanding Units. Fees and expenses of $47,563, $49,283 and $48,777
were incurred by the Fund for 1996, 1995 and 1994, respectively.
9. OTHER RELATED PARTY TRANSACTIONS
FCM and its affiliates are entitled to reimbursement of certain direct
expenses paid on behalf of the Fund. Such reimbursable expenses amounted to
$200,848, $154,260 and $144,184 during 1996, 1995 and 1994, respectively.
10. PORTFOLIO INVESTMENTS
The Fund's portfolio investments consist primarily of high-yield
private placement securities issued as the mezzanine financing of privately
structured, friendly leveraged buyouts, leveraged acquisitions and leveraged
recapitalizations, and are generally linked with an equity participation. The
risk of loss upon default by an issuer is greater than with investment grade
securities because high-yield securities are generally unsecured and are
usually subordinated to other creditors of the issuer. Also, these issuers
usually have higher levels of indebtedness and are more sensitive to adverse
economic conditions than investment grade issuers. Most of these securities are
subject to resale restrictions and generally there is no quoted market for such
securities.
Although the Fund cannot eliminate the risks associated with its
investments in these high-yield securities, it has established risk management
procedures. The Fund subjects each prospective investment to rigorous analysis,
and makes only those investments that are recommended by FCM and that meet the
Fund's investment guidelines or that have otherwise been approved by the
Independent General Partners. The Fund also has procedures in place to
continually monitor its portfolio companies.
As of December 31, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $14.6 million.
During the year ended December 31, 1996, the Fund, acquired a new portfolio
investment in Atlas Environmental Inc. ("Atlas) and acquired two follow-on
investments in LMC Operating ("LMC") at a total cost of approximately $4.5
million.
F-13
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
The Fund sold all of its Huntington Holdings, Inc. common stock during
1996 receiving $1,106,335 of sales proceeds. In addition, the Fund wrote off
its entire investment in Canadian's Corp. ("Canadian's"), which filed for
Chapter 11 bankruptcy protection during February 1996 and ceased operations
during March 1996. The Fund also accrued an additional realized loss of
$370,627 for possible legal costs and other payments that may be required in
connection with the Canadian's bankruptcy (see Note 13). In total, the Fund
recorded net realized losses of $3,453,919 during 1996.
The Fund has pledged the common stock and warrants it owns in ar
accessories group, incorporated and LMC Credit Corp. as collateral for the
corporations' debt. None of the Fund's other portfolio investments have been
pledged or otherwise encumbered.
11. UNREALIZED GAIN (LOSS) ON INVESTMENTS
As of December 31, 1995, the Fund had recorded net unrealized loss on
investments of $2,894,675. During 1996, the Fund recorded $77,771 of unrealized
gain and $1,115,021 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1996 with respect to which the Fund had recorded
$3,348,623 of net unrealized loss during prior years. Therefore, at December
31, 1996, the Fund had net unrealized loss on investments of $583,302.
12. NON-ACCRUAL STATUS OF INVESTMENTS
In accordance with the Fund's accounting policies, the Fund stopped
accruing interest on (i) the Canadian's Holdings, Inc. Exchangeable Redeemable
Debentures effective April 1, 1995, (ii) the Canadian's Promissory Notes
effective October 1, 1995, (iii) the Canadian's Subordinated Notes effective
December 1, 1995, (iv) the LMC Operating Corp. ("LMC") Senior Subordinated
Notes effective December 1, 1995, and (v) the Atlas Senior Subordinated Secured
Notes effective April 20, 1996.
During 1996, all of the Canadian's debt was written off as a realized
loss and the LMC Senior Subordinated Notes were converted into preferred stock.
Thus, as of December 31, 1996, the Fund's only debt investment on non-accrual
status was the Atlas Senior Subordinated Secured Notes.
13. COMMITMENTS AND CONTENGENCIES
LMC Commitment On November 1, 1996, the Fund agreed to provide up to
$1,632,960 of additional subordinated debt to LMC, of which $816,480 was
advanced on that date. Thus, the Fund is committed, subject to various
conditions, to funding an additional $816,480.
PaineWebber Incorporated Litigation FCM was named as a defendant in a
class action lawsuit against PaineWebber Incorporated ("PaineWebber") and a
number of its affiliates concerning its sale of 70 different limited
partnerships and other direct investment programs, including the offering of
the Units. Plaintiffs in the lawsuit allege, among other things, that the
defendants violated federal securities laws and committed common law fraud in
the marketing of direct investments.
On May 30, 1995, the United States District Court for the Southern
District of New York entered an order certifying the class and dismissing the
class action against FCM without prejudice. PaineWebber and Mezzanine Capital
Corporation, a minority general partner in FCM and an affiliate of PaineWebber,
remain as defendants.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that
F-14
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
memorandum of understanding, PaineWebber irrevocably deposited $125 million
into an escrow fund under the supervision of the United States District Court
for the Southern District of New York to be used to resolve the litigation in
accordance with a definitive settlement agreement and plan of allocation, which
the parties subsequently submitted to the Court for its consideration and
approval. The Court approved the settlement agreement during March 1997.
During February 1996, approximately 150 plaintiffs filed an action in
Sacramento, California Superior Court against PaineWebber and various
affiliated entities (not including FCM) concerning the plaintiffs' purchase of
various limited partnership interests. The complaint alleged, among other
things, that PaineWebber and its related entities committed fraud and
misrepresentations and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. This
action was settled during March 1997.
Canadian's Litigation On October 3, 1996, the Fund commenced an
adversary proceeding in the Canadian's Chapter 11 bankruptcy case against
Finova, Benson Selzer and Joseph Eiger. The complaint seeks a declaratory
judgment that sales taxes collected by Canadian's and turned over to Finova
were "trust funds" collected by Canadian's on behalf of various state tax
authorities. Through the complaint, the Fund has objected to Finova's secured
claim against Canadian's, which was guaranteed by Benson Selzer and Joseph
Eiger, and seeks to recover the sales tax and certain other amounts for the
benefit of Canadian's bankruptcy estate. As a result of this litigation and the
issues involved, the Fund accrued $429,373 for legal costs and possible
payments that may be required to settle the litigation or to fund the payment
of Canadian's outstanding sales tax liabilities.
FCM believes that neither the PaineWebber or the Canadian's related
litigation will have any material adverse effect on the Fund's financial
condition, beyond the reserve that has been established with respect to the
Canadian's litigation.
F-15
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
14. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net increase in net assets
resulting from operations in the accompanying financial statements to the
taxable income reported for federal income tax purposes:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C>
Net (decrease) increase in net assets resulting
from operations per financial statements $ (370,093) $ (599,688) $ 3,263,026
Increase (decrease) resulting from:
Unrealized (gain) loss on investments (2,311,373) 6,116,647 (3,594,544)
Realized gains and losses on investments 503,448 - 2,927,625
Fee income, net of amortization (18,801) (64,525) (24,253)
Interest income - 32,992 (32,992)
Amortization of organization and
start-up costs - (10,793) (23,019)
Other (15,417) (38,431) (20,930)
----------- ---------- -----------
Taxable (loss) income per federal
income tax return $(2,212,236) $5,436,202 $ 2,494,913
=========== ========== ===========
</TABLE>
The following is a reconciliation of the amount of the Fund's net
assets as shown in the accompanying financial statements and the tax bases of
the Fund's net assets:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net assets per financial statements $16,640,001 $19,873,032 $23,973,892
Realized gains and losses on investments 3,431,073 2,927,625 2,927,625
Syndication, organization and
start-up costs, net 3,045,822 3,112,764 3,214,941
Unrealized loss (gain ) on investments 583,302 2,894,675 (3,221,967)
Distributions payable 334,812 362,595 589,545
Fee income, net of amortization 47,396 66,197 130,722
Accrued expenses 25,625 18,650 24,518
Prepaid interest income - - 52,635
Accrued interest income - - (85,627)
----------- ----------- -----------
-
Tax bases of net assets $24,108,031 $29,255,538 $27,606,284
=========== =========== ===========
</TABLE>
F-16
<PAGE> 35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
There were no changes in accountants or disagreements with accountants
with respect to accounting or financial disclosure issues during 1996 or 1995.
17
<PAGE> 36
PART III
Item 10. Directors and Executive Officers of the Registrant
The Fund has no directors or executive officers. The General Partners
of the Fund jointly manage and control the affairs of the Fund and have general
responsibility and authority in all matters affecting its business.
FCM serves as Investment Adviser to the Fund and is responsible for
the identification of all investments made by the Fund and all other investment
advisory services necessary for the operation of the Fund in carrying out its
investment objectives and policies. The Investment Committee of FCM is
responsible for approval of all investment decisions of FCM with respect to the
Fund and consists of seven members. Five of the seven members are appointed by
FCM Fiduciary Capital Corporation ("FCC") and two are appointed by Mezzanine
Capital Corporation ("MCC"). The current members of the Investment Committee
are Paul Bagley, W. Duke DeGrassi and Michael G. Rafferty, appointed by FCC;
and Gerald F. Goertz, Jr. and Clifford B. Wattley, appointed by MCC. Election
of two additional members to the Investment Committee by FCC remains
undetermined as of the date of this Report. The Independent General Partners
oversee the investment activities of the Investment Adviser.
Information concerning the directors and executive officers of the
Managing General Partner (and of its partners) and the Independent General
Partners is as follows:
FCM Fiduciary Capital Management Company
(a Delaware general partnership, the partners of which
are FCM Fiduciary Capital Corporation, Mezzanine
Capital Corporation and Paul Bagley)
Name Positions Held
---- --------------
Paul Bagley Chairman and Chief Executive Officer
W. Duke DeGrassi President
Donald R. Jackson Senior Vice President, Treasurer,
Chief Financial and Accounting
Officer and Compliance Officer
Paul Bagley, age 54, is Chairman, Chief Executive Officer and an
Investment Committee Member of FCM Fiduciary Capital Management Company.
For more than twenty years prior to October 1988, Mr. Bagley was engaged in
investment banking activities with Shearson Lehman Hutton Inc. and its
predecessor, E.F. Hutton & Company Inc. Mr. Bagley graduated from the
University of California at Berkeley in 1965 with a B.S. in Business and
Economics and from Harvard Business School in 1968 with an M.B.A. in
Finance. Mr. Bagley has served on the boards of a number of public and
private companies. Currently he is on the boards of America First
Financial Fund, Fiduciary Capital, EurekaBank, Hollis-Eden Pharmaceuticals,
Lithium Technology, Consolidated Capital, LMC Operating Corp. and Pacific
Consumer Funding.
W. Duke DeGrassi, age 50, is the President and an Investment
Committee Member of FCM Fiduciary Capital Management Company. From May
1988 to December 1993, Mr. DeGrassi was a Corporate Vice President with
PaineWebber Incorporated. From 1986 and until joining PaineWebber, Mr.
DeGrassi was a Vice President in the Direct Investments Group at Shearson
Lehman Hutton Inc. Prior to that, Mr. DeGrassi spent seventeen years as a
financial executive in the energy business, working both domestically and
in foreign operations. Mr. DeGrassi received a Bachelor of Business
Administration in accounting from the University of Texas at Austin in 1969.
18
<PAGE> 37
Donald R. Jackson, age 47, is a Senior Vice President, Treasurer,
Chief Financial and Accounting Officer and Compliance Officer of FCM Fiduciary
Capital Management Company. From January 1990 to June 1994, Mr. Jackson was a
Corporate Vice President with PaineWebber Incorporated, where he was involved
in the financial administration of various publicly and privately offered
investment programs. During 1989, Mr. Jackson was self-employed. Immediately
prior to that he was a First Vice President in the Direct Investments Group
with Shearson Lehman Hutton Inc. From 1972 to 1986, Mr. Jackson was associated
with the accounting firm of Arthur Andersen & Co., serving as a partner from
1981 to 1986. He received a Bachelor of Science degree in accounting in 1971
from the University of Denver and is a Certified Public Accountant. Mr. Jackson
serves as a director of LMC Operating Corp. and Consolidated Capital of North
America, Inc.
FCM Fiduciary Capital Corporation
---------------------------------
Name Positions Held
---- --------------
Paul Bagley Chief Executive Officer and
Sole Member of the Board
of Directors
W. Duke DeGrassi President
Donald R. Jackson Vice President, Treasurer, Assistant Secretary
and Chief Financial and Accounting Officer
For information regarding Paul Bagley, W. Duke DeGrassi and Donald R.
Jackson see the above section concerning the managment of FCM Fiduciary Capital
Management Company.
Mezzanine Capital Corporation
-----------------------------
Name Positions Held
---- --------------
Gerald F. Goertz, Jr. President and Director
Clifford B. Wattley Vice President, Assistant Secretary
and Director
Stephen R. Dyer Vice President, Assistant Secretary
and Director
Joseph P. Ciavarella Vice President, Secretary, Treasurer
and Chief Financial and
Accounting Officer
Gerald F. Goertz, Jr., age 39, is the President and a Director of
Mezzanine Capital Corporation. Mr. Goertz joined PaineWebber Incorporated in
December 1990 and holds the position of Senior Vice President and Director of
Specialized Investment Services. Prior to joining PaineWebber Incorporated, Mr.
Goertz was associated with CG Realty Advisors and The Freeman Company. He
received his Bachelor of Arts degree in Business Administration in 1979 from
Vanderbilt University and his Juris Doctorate and Masters of Business
Administration from Memphis State University in 1982.
Clifford B. Wattley, age 47, is a Vice President, Assistant Secretary
and Director of Mezzanine Capital Corporation. Mr. Wattley is a Corporate Vice
President with PaineWebber Incorporated, having joined the firm in 1986. He
also was employed previously by Paine, Webber, Jackson & Curtis from 1979 to
1980. From 1986 to 1992, Mr. Wattley participated in PaineWebber's Principal
Transactions Group. From 1992, Mr. Wattley has been a member of the Private
Investment Department. He holds a Bachelor of Science degree in engineering
from Columbia University and a Masters in Business Administration from Harvard
University.
Stephen R. Dyer, age 37, is a Vice President, Assistant
Secretary and Director of Mezzanine Capital Corporation. He joined
PaineWebber Incorporated in June 1988 as a Divisional Vice President and
is currently a Corporate Vice President and Director of Private Investments.
Prior to joining PaineWebber Incorporated, Mr. Dyer had been employed, since
June 1987, as an Assistant Vice President in the Retail National Products Group
of L.F. Rothschild & Co. Incorporated. Prior to joining
19
<PAGE> 38
L.F. Rothschild he was employed, beginning in January 1985, as an
Associate in the Real Estate Department of Thomson McKinnon Securities Inc.
From July 1981 to August 1983, Mr. Dyer was on the audit staff of the
accounting firm of Arthur Young & Company. He received his Bachelor of
Science degree in Accounting in 1981 from Boston College and a Masters of
Business Administration from Indiana University in December 1984. Mr. Dyer is
a Certified Public Accountant.
Joseph P. Ciavarella, age 41, is a Vice President, Secretary,
Treasurer and Chief Financial and Accounting Officer of Mezzanine Capital
Corporation. He joined PaineWebber Incorporated in May 1994. Prior to joining
PaineWebber Incorporated, he was affiliated with Aviation Capital Group
in the area of aircraft finance. Mr. Ciavarella was associated with
Integrated Resources, Inc. from 1983 to 1993 as a corporate financial
officer as well as a senior financial officer in various subsidiaries in
the equipment leasing aircraft finance and venture capital areas. Mr.
Ciavarella has a Bachelor of Business Administration degree in Accounting
from Hofstra University and is a Certified Public Accountant.
Independent General Partners
A. Norman J. Peer
Norman J. Peer, age 60, has been an Independent General Partner
since 1990. Mr. Peer is a partner in the Woodbridge, New Jersey law firm of
Wilentz, Goldman & Spitzer. Prior to 1988, he was a partner of the New York
law firm of Satterlee, Stephens, Burke & Burke. Mr. Peer also served two
years of active duty with the U.S. Navy as an Assistant Guided Missile
Officer (1958-1960) and served in the U.S. Navy Reserve (1960-1970)
reaching the rank of Lieutenant Commander. He is a director of Hudson Club,
Inc., (restaurant and retail development). Mr. Peer served as the Municipal
Court Judge in Atlantic Highlands, NJ from 1972 until 1988. Mr. Peer has a
B.A. degree from Villanova University and a J.D. degree from Fordham
University School of Law.
B. E. Bruce Fredrikson
E. Bruce Fredrikson, age 59, has been an Independent General
Partner since 1992. Dr. Fredrikson is a Professor of Finance at Syracuse
University School of Management where he has taught since 1966 and has
previously served as Chairman of the Finance Department. Dr. Fredrikson has
a bachelor's degree in economics from Princeton University and a master's
degree in business administration and a Ph.D. in finance from Columbia
University. Dr. Fredrikson serves as a director of Innodata Corporation, Track
Data Corporation and Eagle Finance Corp., all of which are NASDAQ listed.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 furnished to the Fund
during 1996 and 1997, and written representations by the persons listed above,
the Fund has not identified any such person that failed to file on a timely
basis the forms required by Section 16(a) of the Exchange Act for fiscal year
1996.
Item 11. Executive Compensation
No compensation was paid by the Fund to the officers and directors of
the General Partners during 1996. See Item 13 of this Report, "Certain
Relationships and Related Transactions" for a description of the compensation
and fees paid to the General Partners and their affiliates by the Fund during
1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of the date hereof, no person is known by the Fund to be
the beneficial owner of more than 5% of the Units of the
Fund. The Fund has no directors or officers, and none of the
General Partners of the Fund owns any Units.
20
<PAGE> 39
The name and address of the Managing General Partner is as
follows:
FCM Fiduciary Capital Management Company
410 17th Street, Suite 400
Denver, Colorado 80202
(b) No directors of FCM Fiduciary Capital Corporation, no
directors or officers of Mezzanine Capital Corporation and no
Independent General Partners owned any Units as of March 1,
1997. One officer of FCM Fiduciary Capital Management Company
and FCM Fiduciary Capital Corporation owned 100 Units as of
March 1, 1997.
(c) The Fund knows of no arrangements, the operation of the terms
of which may at a subsequent date result in a change in
control of the Fund.
Item 13. Certain Relationships and Related Transactions
The Fund may co-invest in portfolio investments with FCP, under
certain terms and conditions, pursuant to a co-investment order issued by the
Securities and Exchange Commission. The Funds have co-invested in the past and
are continuing to do so. See Item 1 of this Report, "Business", which is
incorporated herein by reference, for a description of these co-investments.
The General Partners and their affiliates have received, or will
receive, certain types of compensation, fees or other distributions in
connection with the operations of the Fund. The fees and compensation were
determined in accordance with the applicable provisions of the Partnership
Agreement.
Following is a summary of the amounts paid, or payable, to the General
Partners and their affiliates for 1996.
Investment Advisory Fees As compensation for its services as
investment adviser, FCM receives a subordinated monthly fee at the annual rate
of 1% of the Fund's available capital, as defined in the Partnership Agreement,
net of certain fees received directly by FCM from the Fund's portfolio
companies. During 1996, FCM earned investment advisory fees of $136,714.
Fund Administration Fees As compensation for its services as fund
administrator, FCM receives a monthly fee at an annual rate of .45% of net
proceeds available for investment, as defined in the Partnership Agreement.
During 1996, FCM earned fund administration fees of $118,327. The Fund also
reimbursed FCM for $68,895 of administrative expenses incurred in providing
accounting and investor services to the Fund during 1996.
Independent General Partner Fees and Expenses As compensation for
services rendered to the Fund, each of the Independent General Partners
receives from the Fund and FCP an annual fee of $30,000, payable monthly in
arrears, together with all out-of-pocket expenses. Each fund's allocation of
these fees and expenses is based on the relative number of outstanding Units.
Fees and expenses of $47,563 were incurred by the Fund during 1996.
Accountable Expenses FCM and its affiliates are entitled to
reimbursement of certain direct expenses paid on behalf of the Fund. During
1996, such reimbursable expenses amounted to $200,848.
Partnership Interest FCM received cash distributions of $14,226 as
their allocable share of distributions for 1996. In addition, ($3,701) of the
Fund's net investment income and net loss on investments for 1996 was allocated
to FCM.
21
<PAGE> 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) and (d) The following documents are filed as part of this Report:
1. Financial Statements: See List of Financial
Statements in Item 8.
2. Financial Statement Schedules: None.
(b) The Partnership did not file any reports on Form 8-K during
the fourth quarter of the fiscal year ended December 31,
1996.
(c) Exhibits required to be filed.
Exhibit No. Description
3.1 (a) Fourth Amended and Restated Certificate of
Limited Partnership of Fiduciary Capital
Pension Partners, L.P., dated as of
January 29, 1990. Filed as Exhibit 3.1(a)
to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.*
(b) Second Amended and Restated Agreement of
Limited Partnership of Fiduciary Capital
Pension Partners, L.P., dated as of
October 1, 1993. Filed as Exhibit 3.1(b)
to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.*
(c) Amendment Number One to the Second Amended
and Restated Agreement of Limited
Partnership of Fiduciary Capital Pension
Partners, L.P., dated as of October 1,
1993. Filed as Exhibit 3.1(c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.*
10.1 Investment Advisory Contract, dated as of
October 1, 1993, between Fiduciary
Capital Pension Partners, L.P. and FCM
Fiduciary Capital Management Company. Filed
as Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.*
10.2 (a) Custody Agreement, dated as of
July 19, 1990, between Fiduciary Capital
Pension Partners, L.P. and M&I First
National Bank. Filed as Exhibit 10-C to
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990.*
(b) Amendment to Custody Agreement of Fiduciary
Capital Pension Partners, L.P., dated as of
October 13, 1992. Filed as Exhibit 10.2(b)
to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.*
(c) Second Amendment to Custody Agreement of
Fiduciary Capital Pension Partners, L.P.,
dated as of January 21, 1994. Filed as
Exhibit 10.2(c) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.*
-------------------
* Not filed herewith. In accordance with Rule 12b-32 of the
General Rules and Regulations under the Securities Exchange
Act of 1934, reference is made to the document previously
filed with the Commission which is incorporated herein by
reference.
22
<PAGE> 41
Exhibit No. Description
10.3 Administrative Services Contract, dated
as of August 14, 1990, between Fiduciary
Capital Pension Partners, L.P. and FFCA
Fiduciary Capital Management Company.
Filed as Exhibit 10-D to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1990.*
10.4 Transfer Agent Agreement, dated as of July
1, 1992, by and among Fiduciary Capital
Pension Partners, L.P., FFCA Fiduciary
Capital Management Company and Service Data
Corporation. Filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
11.1 Statement of Computation of Net Investment
Income per Limited Partnership Unit.
20.1 Report Furnished to Securities Holders.
27.1 Financial Data Schedule.
28.1 Portions of the Prospectus of Fiduciary
Capital Partners, L.P. and Fiduciary
Capital Pension Partners, L.P., dated
January 24, 1990, filed with the Securities
and Exchange Commission pursuant to Rule
424(b), as supplemented by Supplements
dated August 15, 1990, September 18,
1990 and October 11, 1990 filed with the
Securities and Exchange Commission pursuant
to Rule 497(b). Filed as Exhibit 28 to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990.*
-------------------
* Not filed herewith. In accordance with Rule 12b-32 of the
General Rules and Regulations under the Securities Exchange
Act of 1934, reference is made to the document previously
filed with the Commission which is incorporated herein by
reference.
23
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 21, 1997
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
(Registrant)
By: FCM FIDUCIARY CAPITAL MANAGEMENT COMPANY
its Managing General Partner
By: /s/ W. Duke DeGrassi
----------------------------------
W. Duke DeGrassi
President
By: /s/ Donald R. Jackson
----------------------------------
Donald R. Jackson
Senior Vice President, Treasurer and
Chief Financial and Accounting Officer
By: NORMAN J. PEER
Independent General Partner
/s/ Norman J. Peer
----------------------------------
By: E. BRUCE FREDRIKSON
Independent General Partner
/s/ E. Bruce Fredrikson
----------------------------------
24
<PAGE> 43
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following person on behalf
of the Registrant and in the capacities indicated on March 21, 1997.
SIGNATURE OF THE SOLE DIRECTOR OF THE MANAGING GENERAL
PARTNER OF FCM FIDUCIARY CAPITAL MANAGEMENT COMPANY (A
DELAWARE GENERAL PARTNERSHIP), MANAGING GENERAL PARTNER OF
THE REGISTRANT.
Signature Title
- --------- -----
/s/ Paul Bagley Chief Executive Officer and Sole
- -------------------------- Director of FCM Fiduciary Capital
Paul Bagley Corporation, managing general partner
of FCM Fiduciary Capital Management
Company
25
<PAGE> 44
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
3.1(a) Fourth Amended and Restated Certificate of
Limited Partnership of Fiduciary Capital Pension
Partners, L.P., dated as of January 29, 1990.
(Incorporated by Reference.) *
(b) Second Amended and Restated Agreement of
Limited Partnership of Fiduciary Capital Pension
Partners, L.P., dated as of October 1, 1993.
(Incorporated by Reference.) *
(c) Amendment Number One to the Second Amended and
Restated Agreement of Limited Partnership of
Fiduciary Capital Pension Partners, L.P., dated as
of October 1, 1993. (Incorporated by Reference.) *
10.1 Investment Advisory Contract, dated as of October
1, 1993, between Fiduciary Capital Pension
Partners, L.P. and FCM Fiduciary Capital
Management Company. (Incorporated by Reference.) *
10.2(a) Custody Agreement, dated as of July 19, 1990,
between Fiduciary Capital Pension Partners, L.P.
and M&I First National Bank. (Incorporated by
Reference.) *
(b) Amendment to Custody Agreement of Fiduciary Capital
Pension Partners, L.P., dated as of October 13,
1992. (Incorporated by Reference.) *
(c) Second Amendment to Custody Agreement of
Fiduciary Capital Pension Partners, L.P., dated
as of January 21, 1994. (Incorporated by
Reference.) *
10.3 Administrative Services Contract, dated as of
August 14, 1990, between Fiduciary Capital Pension
Partners, L.P. and FFCA Fiduciary Capital
Management Company. (Incorporated by Reference.) *
10.4 Transfer Agent Agreement, dated as of July 1,
1992, by and among Fiduciary Capital Pension
Partners, L.P., FFCA Fiduciary Capital
Management Company and Service Data Corporation.
(Incorporated by Reference.) *
11.1 Statement of Computation of Net Investment
Income per Limited Partnership Unit.
20.1 Report Furnished to Securities Holders.
27.1 Financial Data Schedule.
28.1 Portions of the Prospectus of Fiduciary Capital
Pension Partners, L.P. and Fiduciary Capital
Partners, L.P., dated January 24, 1990, filed with
the Securities and Exchange Commission pursuant
to Rule 424(b), as supplemented by Supplements
dated August 15, 1990, September 18, 1990 and
October 11, 1990 filed with the Securities
and Exchange Commission pursuant to Rule 497(b).
(Incorporated by Reference.) *
</TABLE>
- -------------------
* See Item 14(c) for statement of location of exhibits incorporated
by reference.
E-1
<PAGE> 1
EXHIBIT 11.1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net Investment Income $ 772,453 $1,725,971 $1,758,135
Percentage Allocable to Limited Partners 99% 99% 99%
---------- ---------- ----------
Net Investment Income
Allocable to Limited Partners $ 764,728 $1,708,711 $1,740,554
========== ========== ==========
Weighted Average Number of Limited
Partnership Units Outstanding 1,186,294 1,285,717 1,413,240
========== ========== ==========
Net Investment Income
Per Limited Partnership Unit .64 $ 1.33 $ 1.23
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 20.1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------
----------------------------------------
THIRD QUARTER REPORT
1996
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
Dear Investor:
A number of matters have required a significant amount of management time
and effort over the last several months. While the majority of our investments
continue to perform satisfactorily, three of them require special mention in
this letter. In addition, we will briefly summarize the repurchase offer and
the status of your distributions.
FOLLOW-ON INVESTMENT
LMC Operating Corp. ("LMC") The Fund has committed to provide up to
$1,632,960 of additional subordinated debt to LMC, of which $816,480 was
advanced on November 1, 1996. This follow-on investment will allow LMC to move
forward with two strategic undertakings that are expected to be very
beneficial. The first use of the funds is to finance the acquisition of a
public company through a reverse merger. Once this transaction is finalized in
early 1997, LMC, which will be the surviving entity, will be a public company.
By virtue of its being public, LMC should have increased credibility in the
marketplace. The second use of the funds is to implement a strategy of product
diversification. The company will use the funds to finalize the development
and market introduction of a new vehicle that will be utilized in a wide
variety of industries. This product will expand LMC's markets beyond seasonal
snow-related businesses and is expected to significantly increase the company's
revenues over the next few years.
INVESTMENT REVALUATIONS
Canadian's Holdings, Inc. ("Canadian's") During October 1996, the Fund
commenced an adversary proceeding in the Canadian's Chapter 11 bankruptcy case
against Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger.
The complaint seeks a declaratory judgment that sales taxes collected by
Canadian's and turned over to Finova were "trust funds" collected by Canadian's
on behalf of various state tax authorities. Through the complaint, the Fund
has objected to Finova's secured claim against Canadian's, which was guaranteed
by Benson Selzer and Joseph
--------------------
ONE
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
Eiger, and seeks to recover the sales tax and certain other amounts for the
benefit of Canadian's bankruptcy estate. As a result of this litigation and
the issues involved, the Fund accrued $370,627 for legal costs and possible
payments that may be required to settle the litigation or to fund the payment
of Canadian's outstanding sales tax liabilities.
Atlas Environmental, Inc. ("Atlas") The companies that Atlas acquired
with the proceeds of the Fund's subordinated debt investment have not performed
as well as expected. Atlas has defaulted on certain financial covenants in its
agreements with its senior lender and with the Fund. The senior lender, the
Bank of New York, has reacted to the covenant defaults by limiting Atlas'
availability under its revolving credit facility and by instructing Atlas not
to pay the quarterly interest payments that were due on the Fund's subordinated
debt during July and October 1996. In accordance with the intercreditor
agreement between the Fund and the Bank of New York, the bank can block
payments to the Fund for up to 180 days.
During August 1996, Atlas entered into a letter of intent, under the terms
of which some of the company's businesses would be sold for cash. This sale,
if consummated, would provide cash to pay the Fund's interest. As a result,
the Fund accrued the interest due on the subordinated debt as of September 30,
1996.
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 has advised the Fund that they do not expect to be
able to reach agreement with the purchaser and therefore Atlas will remain in
default on its debt. Atlas is now determining and evaluating its options and
is involved in negotiations with its lenders and potential purchasers. As a
result of these developments, the Fund will probably not collect the accrued
interest that is due on its subordinated debt investment in the near term and
the value of the Fund's Atlas investment has become impaired. In recognition
of this, during November 1996 the Fund reversed the accrual of interest due on
the Atlas investment, which totaled $202,079 as of September 30, 1996, and
recorded a $489,888 writedown in the carrying value of its Atlas investment.
--------------------
TWO
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NET ASSET VALUE
The Fund's net asset value per Unit was $16.18 at September 30, 1996 and
$15.71 at November 14, 1996. The November 14th net asset value was used to
establish the repurchase price for the 1996 repurchase offer. These net asset
values compare to net asset values of $16.61 at December 31, 1995 and $16.50 at
June 30, 1996.
The decline in the net asset value from December 31, 1995 to September 30,
1995 resulted primarily from the accrual for legal costs and possible payments
relating to the Canadian's litigation. The decline in net asset value between
September 30, 1996 and November 14, 1996 resulted primarily from a writedown of
the Atlas investment and the reversal of accrued interest relating to the Atlas
investment.
PERIODIC UNIT REPURCHASE POLICY
Pursuant to the terms of the Periodic Unit Repurchase Policy which was
adopted by the Fund's investors during 1993, the Fund annually offers to
repurchase from investors, up to 7.5% of its outstanding Units for an amount
equal to the current net asset value per Unit, net of a 2% fee retained by the
Fund to offset expenses incurred in connection with the repurchase offer. If
more than 7.5% of the Units are tendered, then at its discretion, the Fund can
elect to repurchase up to an additional 2% of the Units.
The 1996 repurchase offer was mailed to investors during October 1996.
Investors tendered 275,641 Units, or approximately 23.04% of the Fund's
outstanding Units, for repurchase. The Fund repurchased 91,683 Units, or
approximately 7.66% of the Fund's outstanding Units, during November 1996 at a
net asset value per Unit of $15.71 ($15.40, net of the 2% fee).
The next opportunity to have the Fund repurchase your Units will occur
during the fourth quarter of 1997.
--------------------
THREE
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
CASH DISTRIBUTIONS
The Fund made the cash distribution for the third quarter of 1996 on
November 15, 1996. This distribution of $.30 per Unit, was equal to an
annualized rate of 6% of contributed capital. This distribution consisted of
both current and accumulated net investment income and realized gain on
investments. We expect the distribution for the fourth quarter of 1996 to be
made on February 14, 1997 at the same 6% annualized rate.
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 subsequent years because all proceeds from future
dispositions or maturities of investments will be distributed to investors,
except to the extent cash is needed to fund the annual repurchase offer or to
fund any additional follow-on investments that the Fund may make in existing
portfolio companies.
* * * * * * * * * * *
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
November 21, 1996
--------------------
FOUR
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
150,584.07 sh. Neodata Corporation,
10.00% Class A Convertible 12/27/90 &
Preferred Stock - Series 2* 09/30/92 $ 278,916 $ 1
8,754.89 sh. Neodata Corporation, 12/27/90 &
Common Stock* 09/30/92 1 1
- --------------------------------------------------------------------------------------------------------------
278,917 2 0.0%
- --------------------------------------------------------------------------------------------------------------
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 8,170 468,325
- --------------------------------------------------------------------------------------------------------------
8,170 468,325 2.4
- --------------------------------------------------------------------------------------------------------------
62,606 sh. ac accessories group,
incorporated, Warrants
to Purchase Class B
Common Stock(2)* 07/30/92 85,909 674,584
22,608 sh. ac accessories group,
incorporated, Class A
Common Stock(2)* 07/30/92 226,080 243,604
- --------------------------------------------------------------------------------------------------------------
311,989 918,188 4.7
- --------------------------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,929,433 4,929,433
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 764,872
403.81 sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 40,381 40,381
421.6 sh. ENI Holding Corp.,
Warrants to Purchase
Class B Common Stock* 09/24/93 42,156 42,156
- --------------------------------------------------------------------------------------------------------------
5,599,580 5,776,842 29.5
- --------------------------------------------------------------------------------------------------------------
239,600 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,384,408
22.72 sh. LMC Operating Corp.,
Common Stock* 02/09/96 454,399 1
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- --------------------------------------------------------------------------------------------------------------
2,843,610 2,384,410 12.2
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
schedule.
--------------------
FIVE
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,328 sh. MTI Holdings II, Inc.,
Common Stock* 07/06/94 & 187,698 39,894
3,527 sh. MTI Holdings II, Inc., 12/28/94
Warrants to Purchase 07/06/94 & 49,929 10,612
Common Stock(4)* 12/28/94
- --------------------------------------------------------------------------------------------------------------
237,627 50,506 0.2
- --------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(5) 05/24/95 1,207,543 1,207,543
9,072.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- --------------------------------------------------------------------------------------------------------------
1,280,838 1,280,838 6.5
- --------------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due
1/19/03(6) 01/25/96 3,178,524 3,178,524
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(7)* 01/25/96 33,842 33,842
- --------------------------------------------------------------------------------------------------------------
3,212,366 3,212,366 16.4
- --------------------------------------------------------------------------------------------------------------
Total Investments in Managed
Companies (72.8% of net assets) 13,773,097 14,091,477 71.9
- --------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,750,000 Cargill, Inc.,
5.04% Notes due 10/09/96 09/25/96 2,746,926 2,746,926
$2,750,000 General Electric
Capital Corporation,
5.08% Notes due 10/09/96 09/25/96 2,746,902 2,746,902
Total Temporary Investments (28.4% of net assets) 5,493,828 5,493,828 28.1
- --------------------------------------------------------------------------------------------------------------
Total Investments (101.2% of net assets) $19,266,925 $19,585,305 100.0%
==============================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to ar accessories
group, incorporated during 1996.
(3) The notes will amortize in eight equal quarterly installments of $627,991
commencing on 11/30/99.
(4) The warrants have exercise prices of $20.00 per share (1,058 shares) and
$35.00 per share (2,469 shares).
(5) The notes will amortize in three equal annual installments of $430,000
commencing on 5/24/00.
(6) The notes will amortized in five equal annual installments of $653,184
commencing on 1/19/99. (Note 5)
(7) 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.
--------------------
SIX
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments (Note 5):
Portfolio investments, at value:
Managed companies (amortized cost -
$13,773,097 and $14,272,465,
respectively) $14,091,477 $11,377,790
Temporary investments, at amortized cost 5,493,828 8,647,334
- -------------------------------------------------------------------------------
Total investments 19,585,305 20,025,124
Cash and cash equivalents 297,014 175,768
Accrued interest receivable (Note 5) 278,439 117,461
Other assets 2,336 3,095
- -------------------------------------------------------------------------------
Total assets $20,163,094 $20,321,448
===============================================================================
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 49,735 $ 54,494
Accounts payable and accrued liabilities 406,607 31,327
Distributions payable to partners 362,595 362,595
- -------------------------------------------------------------------------------
Total liabilities 818,937 448,416
- -------------------------------------------------------------------------------
CONTINGENCIES (NOTES 5 AND 6)
NET ASSETS:
Managing General Partner (10,587) (5,298)
Limited Partners (equivalent to $16.18
and $16.61, respectively, per limited
partnership unit based on 1,196,564
units outstanding) 19,354,744 19,878,330
- -------------------------------------------------------------------------------
Net assets 19,344,157 19,873,032
- -------------------------------------------------------------------------------
Total liabilities and net assets $20,163,094 $20,321,448
===============================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
--------------------
SEVEN
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $409,862 $634,928 $1,223,987 $1,853,671
- ----------------------------------------------------------------------------------------------
Total investment income 409,862 634,928 1,223,987 $1,853,671
- ----------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 35,643 49,757 112,827 149,270
Professional fees 25,883 14,792 94,758 42,948
Fund administration fees (Note 3) 29,581 29,581 88,745 88,745
Administrative expenses (Note 3) 17,223 17,223 51,671 51,671
Independent General Partner fees
and expenses (Note 4) 10,782 10,577 37,918 38,565
Other expenses 8,963 9,713 38,294 25,949
Amortization - 2,625 - 7,875
- ----------------------------------------------------------------------------------------------
Total expenses 128,075 134,268 424,213 405,023
- ----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 281,787 500,660 799,774 1,448,648
- ----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on
investments, including
accrual for potential
litigation settlement (Note 5) (354,188) 528,313 (3,453,919) 2,512,172
Net change in unrealized gain
(loss) on investments 38,023 (299,523) 3,213,055 (899,110)
- ----------------------------------------------------------------------------------------------
Net (loss) gain on investments (316,165) 228,790 (240,864) 1,613,062
- ----------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $(34,378) $729,450 $558,910 $3,061,710
==============================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
--------------------
EIGHT
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 558,910 $3,061,710
Adjustments to reconcile net increase
in net assets resulting from operations
to net cash provided by operating activities:
Accreted discount on portfolio investments (35,256) (58,394)
Amortization - 7,875
Change in assets and liabilities:
Accrued interest receivable (160,978) (176,249)
Other assets 759 (394)
Payable to affiliates (4,759) 5,799
Accounts payable and accrued liabilities 4,653 (5,908)
Prepaid interest income - (52,635)
Net realized loss (gain) on investments,
including accrual for potential
litigation settlement 3,453,919 (2,512,172)
Net change in unrealized (gain) loss
on investments (3,213,055) 899,110
- -------------------------------------------------------------------------------
Net cash provided by operating activities 604,193 1,168,742
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (3,655,003) (2,753,876)
Proceeds from dispositions of portfolio investments 1,106,335 3,927,645
Sale (purchase) of temporary investments, net 3,153,506 (915,881)
- -------------------------------------------------------------------------------
Net cash provided by investing activities 604,838 257,888
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,087,785) (1,375,605)
- -------------------------------------------------------------------------------
Net cash used in financing activities (1,087,785) (1,375,605)
- -------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 121,246 51,025
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 175,768 173,095
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 297,014 $ 224,120
===============================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
--------------------
NINE
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 799,774 $ 1,725,971
Net realized (loss) gain on investments,
including accrual for potential
litigation settlement (3,453,919) 3,790,988
Net change in unrealized gain (loss) on investments 3,213,055 (6,116,647)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 558,910 (599,688)
Repurchase of limited partnership units - (1,959,487)
Distributions to partners from-
Net investment income (984,060) (1,541,685)
Realized gain on investments (103,725) -
- -------------------------------------------------------------------------------
Total decrease in net assets (528,875) (4,100,860)
Net assets:
Beginning of period 19,873,032 23,973,892
- -------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $0
and $184,286, respectively) $19,344,157 $19,873,032
===============================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
--------------------
TEN
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ .34 $ .48 $1.01 $1.42
Expenses (.11) (.10) (.35) (.31)
- ---------------------------------------------------------------------------------------------
Net investment income .23 .38 .66 1.11
Net realized gain (loss) on investments,
including accrual for potential
litigation settlement (.28) .41 (2.85) 1.92
Net change in unrealized (loss) gain
on investments .03 (.23) 2.66 (.69)
Distributions declared to partners (.30) (.30) (.90) (.90)
- ---------------------------------------------------------------------------------------------
Net (decrease) increase in net asset value (.32) .26 (.43) 1.44
Net asset value:
Beginning of period 16.50 19.65 16.61 18.47
- ---------------------------------------------------------------------------------------------
End of period $16.18 $19.91 $16.18 $19.91
=============================================================================================
RATIOS (ANNUALIZED):
Ratio of expenses to average net assets 2.62% 2.09% 2.87% 2.17%
Ratio of net investment income to
average net assets 5.77% 7.80% 5.41% 7.75%
Number of limited partnership units at
end of period 1,196,564 1,296,999 1,196,564 1,296,999
</TABLE>
The accompanying notes to financial statements are an integral
part of these selected per unit data and ratios.
--------------------
ELEVEN
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of 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, 1995.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$112,827 were paid by the Fund for the nine months ended September 30, 1996.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for
investment, as defined in the Partnership Agreement. Fund administration fees
of $88,745 were paid by the Fund for the nine months ended September 30, 1996.
FCM is also reimbursed, subject to various limitations, for administrative
expenses incurred in providing accounting and investor services to the Fund.
The Fund reimbursed FCM for administrative expenses of $51,671 for the nine
months ended September 30, 1996.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Partners, L.P.,
an affiliated fund, (collectively, the "Funds") an annual fee of $30,000,
payable monthly in arrears, together with all out-of-pocket expenses. Each
Fund's allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the nine months
ended September 30, 1996 totaled $37,918.
--------------------
TWELVE
<PAGE> 14
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PORTFOLIO INVESTMENTS
Canadian's Holdings, Inc. 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 seeks a declaratory judgment that sales taxes
collected by Canadian's and turned over to Finova were "trust funds" collected
by Canadian's on behalf of various state tax authorities. Through the
complaint, the Fund has objected to Finova's secured claim against Canadian's,
which was guaranteed by Benson Selzer and Joseph Eiger, and seeks to recover
the sales tax and certain other amounts for the benefit of Canadian's
bankruptcy estate.
As a result of this litigation and the issues involved, the Fund accrued
$370,627 for legal costs and possible payments that may be required to settle
the litigation or to fund the payment of Canadian's outstanding sales tax
liabilities. This accrued amount was recorded as a realized loss in the Fund's
Statements of Operations.
Atlas Environmental, Inc. The companies which Atlas Environmental, Inc.
("Atlas") acquired with the proceeds of the Fund's subordinated debt investment
have not performed as well as expected, and as a consequence, Atlas has
defaulted on certain financial covenants in its agreements with its senior
lender and with the Fund. The senior lender, the Bank of New York, has reacted
to the covenant defaults by limiting Atlas' availability under its revolving
credit facility and by instructing Atlas not to pay the $111,450 quarterly
interest payments that were due on the Fund's subordinated debt during July and
October 1996. In accordance with the intercreditor agreement between the Fund
and the Bank of New York, the bank can block payments to the Fund for up to 180
days. During August 1996, the company entered into a letter of intent, under
the terms of which some of the company's businesses would be sold for cash.
This sale, if consummated, would provide cash to pay the Fund's interest. As a
result, the Fund accrued the interest due on the subordinated debt as of
September 30, 1996.
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 has advised the Fund that they do not expect to be
able to reach agreement with the purchaser and therefore Atlas will remain in
default. Meetings with the Bank of New York have been scheduled for the week
of November 11, 1996 and will include Atlas management and representatives of
Fiduciary Capital. As a result of these developments, it has now become
unlikely that the Fund will collect the accrued interest due on its
subordinated debt investment in the near term. The accrued interest totaled
$202,079 as of September 30, 1996 and the Fund reversed the accrual of this
interest on November 5, 1996.
--------------------
THIRTEEN
<PAGE> 15
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LMC Operating Corp. The Fund has committed to provide up to $1,632,960 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $816,480
was advanced on November 1, 1996.
6. CONTINGENCIES
FCM was named as a defendant in a class action lawsuit brought in March
1995 against PaineWebber Incorporated ("PaineWebber") and a number of its
affiliates concerning the sale of 70 different limited partnerships and other
direct investment programs. During May 1995, the Court entered an order
certifying the class and dismissing the class action against FCM without
prejudice.
During January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of
New York to be used to resolve the litigation. On July 17, 1996, PaineWebber
and the class plaintiffs submitted a definitive settlement agreement, which has
been preliminarily approved by the Court. The agreement provides for the
complete resolution of the class action litigation, including releases in favor
of the Fund and FCM, and the allocation of the $125 million settlement fund
among investors in the various partnerships at issue in the case. As part of
the settlement, PaineWebber also agreed to provide class members with certain
financial guarantees relating to some of the partnerships, including the Fund.
The details of the settlement were described in a notice mailed directly to
class members at the direction of the Court. A final hearing on the proposed
settlement is scheduled to continue during November 1996.
A similar, though smaller, suit was filed against PaineWebber and various
affiliated entities (not including FCM) during February 1996 in a California
state court.
FCM believes that this litigation will be resolved without any material
adverse effect on the Fund's financial condition.
--------------------
FOURTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Fund held portfolio investments in eight
Managed Companies, with an aggregate cost of approximately $13.8 million.
These portfolio investments, which were made from net offering proceeds and
the reinvestment of proceeds from the sale of other portfolio investments,
represent approximately 72.8% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and were subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies
have prepaid their subordinated debt that the Fund held. In addition, three
of the portfolio companies have successfully completed initial public
offerings ("IPOs") of their stock. The Fund has sold the stock it held in
these three companies, except for a portion of its KEMET Corporation ("KEMET")
stock.
As of September 30, 1996, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
During January 1996, the Fund invested $3,200,602 in Atlas. The
investment consists of $3,265,920 of 13.5% Senior Subordinated Secured Notes
due January 19, 2003, with warrants to acquire 338,423 shares of common stock.
The warrants have an exercise price of $8.00 per share. The Atlas common
stock is currently traded over the counter on a limited basis with quotations
provided via the OTC Bulletin Board under the symbol "ATEV".
See Note 5 to the financial statements for a discussion of significant
recent developments concerning this investment, including the fact that Atlas
is in default on its interest payments to the Fund. As a result of these
developments, this subordinated debt investment was placed on non-accrual
status on November 5, 1996.
During February 1996, the Fund sold its Huntington Holdings, Inc.
("Huntington") warrants. As discussed below, the Fund has received $1,106,335
of proceeds from this transaction. These proceeds have been reserved by the
Managing General Partner to partially fund either the Fund's 1996 repurchase
offer or any additional follow-on investments that the Fund may make in
existing portfolio companies.
During June 1994, the Fund invested $2,348,080 in LMC. The investment
consisted of $2,396,000 of 13.00% Senior Subordinated Notes due May 31, 1999
with warrants to acquire common stock.
--------------------
FIFTEEN
<PAGE> 17
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
During 1995, LMC's majority owner requested that the Fund participate in
a financial restructuring of LMC. The Fund agreed to the proposed
restructuring, which was consummated during February 1996. As part of the
restructuring, the Fund converted its existing LMC subordinated debt and
warrants into preferred stock and made a follow-on investment for the purchase
of $454,400 of new common stock.
While LMC has experienced significant operating difficulties since the
Fund acquired its LMC investment during 1994, it appears to be progressing
satisfactorily under the guidance of its new management team. The major
accomplishment has been the re-engineering and modernization of the product
line. Initial responses from customers and other industry sources have been
positive. LMC is optimistic about the prospects for sales of its "utility"
models and is hopeful about fleet grooming sales.
LMC is attempting to diversify its product line to reduce the seasonality
of its business and increase the utilization of its manufacturing facility.
It is concentrating on vehicles with low ground pressure in order to utilize
the engineering and manufacturing expertise gained from snow grooming
equipment. The major project currently underway is the internal development
of a tracked utility vehicle designed for use by landscape and other
contractors.
This project and other product developments necessitated an additional
follow-on investment by the Fund. LMC is exploring other possible
acquisitions, including one which would result in a reverse merger into a
small public company and a public listing for LMC shares. Any such merger or
acquisition will also require additional Fund investment. The Fund has
committed to provide up to $1,632,960 of additional subordinated debt to LMC,
of which $816,480 was advanced on November 1, 1996. The Fund currently owns
23% of LMC and our affiliate, Fiduciary Capital Partners, owns 27%.
Pursuant to the terms of the Fund's periodic unit repurchase policy that
was adopted by the Fund's Limited Partners during 1993, the Fund 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
1996 repurchase offer was mailed to the Limited Partners on October 7, 1996.
Limited Partners tendered 275,741 Units for repurchase. The Fund anticipates
repurchasing approximately 7.64% of the tendered Units, or approximately
91,395 Units, at the Fund's net asset value per Unit as of November 14, 1996.
The actual redemption of tendered Units will occur on November 21, 1996.
Accrued interest receivable increased $160,978 from $117,461 at December
31, 1995 to $278,439 at September 30, 1996. This increase resulted primarily
from the accrual of interest due on the Atlas notes that were acquired during
January 1996. (See discussion above regarding delinquent status of the
interest payments due from Atlas and the rever
--------------------
SIXTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
sal of this accrual subsequent to September 30, 1996.) This increase was
partially offset by a decrease, to zero, in the accrued interest receivable
attributable to the Fund's Canadian's investment.
Accounts payable and accrued liabilities increased $375,280 from $31,327
at December 31, 1995 to $406,607 at September 30, 1996. This increase
resulted primarily from the accrual of $370,627 for possible legal costs and
other payments that may be required to settle the Canadian's litigation or to
fund the payment of Canadian's outstanding sales tax liabilities. (See
further discussion below.)
During the nine months ended September 30, 1996, the Fund paid cash
distributions pertaining to the fourth quarter of 1995 and the first and
second quarters of 1996, each in the amount of $362,595. The distribution for
the third quarter of 1996 will be paid on November 15, 1996. These quarterly
distributions are equal to $.30 per Unit and represent an annualized rate
equal to 6.0% of contributed capital.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio
companies after 1995, the Fund is no longer permitted to acquire investments
in new portfolio companies, except to fund commitments made prior to December
31, 1995. This will impact the amount of the Fund's quarterly distributions
for 1996 and subsequent years because all proceeds from dispositions or
maturities of investments will be distributed to investors, except to the
extent the cash is needed to fund the annual repurchase offer or to fund any
follow-on investments that the Fund may make in existing portfolio companies.
As of December 31, 1995, the Fund had committed to make three new
portfolio investments. In addition, the Fund had agreed in principle to the
financial restructuring of LMC. As discussed above, one of the committed
investments, Atlas, was acquired during January 1996 and the LMC financial
restructuring was consummated during February 1996. The other two committed
investments have been abandoned. The portion of the Fund's available capital
that was reserved for these abandoned investments is now reserved to fund
either the Fund's 1996 repurchase offer or any additional follow-on
investments that the Fund may make in existing portfolio companies.
See Note 6 to the financial statements for a discussion of litigation
involving PaineWebber and a number of its affiliates concerning the sale of
limited partnerships and other direct investment programs.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment income was $281,787 for the three months ended
September 30, 1996 as compared to net investment income of $500,660 for the
corresponding period of the prior year. Net investment income per limited
partnership unit
--------------------
SEVENTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
decreased from $.38 to $.23 and the ratio of net investment income to average
net assets decreased from 7.80% to 5.77% for the three months ended September
30, 1996 as compared to the corresponding period of the prior year.
The Fund's net investment income was $799,774 for the nine months ended
September 30, 1996 as compared to net investment income of $1,448,648 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $1.11 to $.66 and the ratio of net investment
income to average net assets decreased from 7.75% to 5.41% for the nine months
ended September 30, 1996 as compared to the corresponding period of the prior
year.
Net investment income for both the three and nine month periods ended
September 30, 1996 decreased primarily as a result of decreases in investment
income.
Investment income decreased $225,066 and $629,684, or 35.4% and 34.0%,
for the three and nine month periods ended September 30, 1996, respectively,
as compared to the corresponding periods of the prior year. These decreases
resulted primarily from the conversion of the Fund's LMC debt securities into
non-dividend paying equity securities and the Canadian's bankruptcy. (Both of
these items are discussed elsewhere in this Report.) The Fund's total
investments also decreased as a result of the Fund's repurchase of 7.74% of
its Units during the fourth quarter of 1995.
Total expenses decreased $6,193, or 4.6%, for the three months ended
September 30, 1996 as compared to the corresponding period of the prior year.
This decrease resulted primarily from decreases in investment advisory fees
and amortization expense. These decreases were partially offset by an
increase in professional fees.
Total expenses increased $19,190, or 4.7%, for the nine months ended
September 30, 1996 as compared to the corresponding period of the prior year.
This increase resulted primarily from increases in professional fees and
other expenses. These increases were partially offset by decreases in
investment advisory fees and amortization expense.
For both the three and nine month periods ended September 30, 1996, the
increases in professional fees and other expenses were primarily the result of
legal fees and other costs incurred in connection with Canadian's bankruptcy
proceedings. The investment advisory fees decreased as a result of the
repurchase of Units by the Fund during the fourth quarter of 1995 and the
realization during February 1996 of the loss on the Fund's Canadian's
investment. Both the repurchase of Units and the realization of the
Canadian's loss decreased the amount of the Fund's available capital (as
defined in the Partnership Agreement), which is the base with respect to which
the investment advisory fees are calculated. The Fund amortized its
organization costs over a five year period beginning with the inception of the
Fund in 1990. Therefore, these costs became fully amortized during 1995.
--------------------
EIGHTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON INVESTMENTS
Canadian's was a women's specialty retailer, which had 53 stores on the
East Coast, including stores in the New York City and Philadelphia
metropolitan areas. As widely reported in the business press, retailers
almost universally experienced extremely disappointing sales during the 1995
holiday season. Women's specialty retailers were especially hard hit. This
situation was exacerbated by severe winter weather which hampered store
operations from Boston to Washington, D.C. As a result, a number of apparel
retailers filed for bankruptcy.
Canadian's did not escape the retailing downturn and experienced
significant operating problems. These problems culminated in Canadian's
filing for Chapter 11 bankruptcy protection on February 21, 1996 and ceasing
all operations during March 1996. As discussed in the Fund's previous
filings, Canadian's had embarked on a significant cost cutting program during
the fall of 1995, which included closing marginal stores and reducing general
and administrative costs. However, these measures were not sufficient to
offset the negative impact of the unusually bad holiday season.
As a result of these developments, it became evident that the Fund will
not recover any of its Canadian's investment. Accordingly, the Fund
recognized the $4,103,949 loss on its Canadian's investment as a realized loss
during the three months ended March 31, 1996. This loss recognition did not
significantly affect the Fund's total net gain (loss) on investments for the
nine months ended September 30, 1996 because all but $5 of the loss was
recorded as an unrealized loss during 1995.
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Chapter 11 bankruptcy case against Finova, Benson Selzer and
Joseph Eiger. The complaint seeks a declaratory judgment that sales taxes
collected by Canadian's and turned over to Finova were "trust funds" collected
by Canadian's on behalf of various state tax authorities. Through the
complaint, the Fund has objected to Finova's secured claim against Canadian's,
which was guaranteed by Benson Selzer and Joseph Eiger, and seeks to recover
the sales tax and certain other amounts for the benefit of Canadian's
bankruptcy estate.
As a result of this litigation and the issues involved, the Fund accrued
$370,627 for legal costs and possible payments that may be required to settle
the litigation or to fund the payment of Canadian's outstanding sales tax
liabilities. This accrued amount was recorded as a 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 and $16,439 was received during September 1996. A portion of the escrowed
funds were used to pay various transaction
--------------------
NINETEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
expenses. The balance is still being held in escrow to fund potential
contingent purchase price adjustments, and as collateral for potential claims
of the buyer with respect to representations made by the selling shareholders,
including the Fund. While the remaining portion of the escrow amount must be
maintained for a two year period, certain of the sellers' representations will
survive for longer periods of time, which could result in the Fund being
required to reimburse the purchaser for certain costs and expenses after the
escrow is released.
The Fund recognized a realized gain of $1,004,218 from this transaction
when it was consummated during February 1996. The Fund did not assign any
value to its $157,333 share of the escrow at that time because it was
uncertain how much, if any, of the escrowed funds would ultimately be received
by the Fund. During September 1996, the Fund received a distribution of
$16,439 of the escrowed funds and recognized a corresponding amount of
additional realized gain. Additional gain will be recognized if the Fund
actually receives a distribution of any of the remaining escrowed funds.
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which
market quotations are available, valuations are set by the closing sales, or
an average of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation
policies and procedures that have been approved by the Independent General
Partners and subject to their supervision. There is a range of values that
are reasonable for such investments at any particular time. Each such
investment is valued initially based upon its original cost to the Fund ("cost
method"). The cost method is used until significant developments affecting
the portfolio company provide a basis for use of an appraisal valuation.
Appraisal valuations are based upon such factors as the portfolio company's
earnings, cash flow and net worth, the market prices for similar securities of
comparable companies and an assessment of the portfolio company's future
financial prospects. In a case of unsuccessful operations, the appraisal may
be based upon liquidation value. Appraisal valuations are necessarily
subjective. The Fund also may use, when available, third-party transactions
in a portfolio company's securities as the basis of valuation ("private market
method"). The private market method is used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.
As of December 31, 1995, the Fund had recorded $2,153,515 of unrealized
gain and $5,048,190 of unrealized loss on investments. Therefore, as of
December 31, 1995, the Fund had recorded a total net unrealized loss on
investments of $2,894,675.
--------------------
TWENTY
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
The net increase in unrealized gain (loss) of investments during the
three and nine month periods ended September 30, 1996 and the cumulative
net unrealized gain on investments as of September 30, 1996, 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, 1996 September 30, 1996 September 30, 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized net loss recorded
during prior periods with
respect to investments
disposed of during the period $ - $3,348,623 $ -
Neodata - - (278,915)
KEMET 4,323 (85,020) 460,155
AAG - (113,629) 606,199
Elgin / ENI 14,690 44,071 177,262
LMC - - (459,200)
MTI II 19,010 19,010 (187,121)
- -----------------------------------------------------------------------------------------------------
$38,023 $3,213,055 $318,380
=====================================================================================================
</TABLE>
The Neodata Corporation ("Neodata") stock was written down to a
negligible amount during 1995. The Partnership has consistently valued this
investment based upon a multiple of Neodata's cash flow. Because Neodata's
long-term debt presently provides for the accrual, rather than current
payment, of interest, the Company's debt has grown to a level which exceeds
the Partnership's valuation.
KEMET completed an IPO of its common stock during 1992. The stock, which
trades on the NASDAQ National Market System, closed at $20.3125 (an average of
the closing bid and ask prices) on September 30, 1996. This price is down
from the closing price of $34.125 on December 31, 1995 and up slightly from
the closing price of $20.125 on June 30, 1996. Based on the $20.3125 closing
trading price of the common stock, the 23,056 shares of common stock that the
Fund held at September 30, 1996 had a market value of $468,325.
Amity Leather Products Co. recently changed its corporate name to ar
accessories group, incorporated ("AAG"). The AAG warrants and common stock
were written down in value at March 31, 1996 to bring AAG's valuation more in
line with the valuation of other comparable companies in its industry.
The ENI Holding Corp. preferred stock is being written up in value
quarterly to reflect the amount of the cumulative 10% preferential dividend
that has accrued with respect to the preferred stock.
--------------------
TWENTY-ONE
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
LMC experienced significant operating problems after the Fund acquired
its LMC investment during 1994 and the Fund was involved in a restructuring of
its LMC investment during 1995. In the restructuring, the Fund's existing LMC
subordinated debt and warrants were converted into preferred stock and the
Fund purchased $454,400 of new common stock. As a result of LMC's operational
difficulties and the fact that the Fund now owns equity securities rather than
debt securities, the Fund wrote its LMC investment down by $459,200 during
1995.
The MTI II investment was written down in value during 1994 based upon an
independent third party valuation of the company that was obtained by MTI II's
management. During August 1996, MTI II 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 investment in MTI II was written
up in value at September 30, 1996 by $19,010 based upon an analysis of MTI
II's earnings and cash flows.
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-TWO
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 17,688,106
<INVESTMENTS-AT-VALUE> 17,104,804
<RECEIVABLES> 95,207
<ASSETS-OTHER> 6,646
<OTHER-ITEMS-ASSETS> 234,305
<TOTAL-ASSETS> 17,440,962
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 800,961
<TOTAL-LIABILITIES> 800,961
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,104,881
<SHARES-COMMON-PRIOR> 1,196,564
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (583,302)
<NET-ASSETS> 16,640,001
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,306,178
<OTHER-INCOME> 23,313
<EXPENSES-NET> 557,038
<NET-INVESTMENT-INCOME> 772,453
<REALIZED-GAINS-CURRENT> (3,453,919)
<APPREC-INCREASE-CURRENT> 2,311,373
<NET-CHANGE-FROM-OPS> (370,093)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 956,739
<DISTRIBUTIONS-OF-GAINS> 465,859
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 91,683
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,233,031)
<ACCUMULATED-NII-PRIOR> 184,286
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 136,714
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 557,038
<AVERAGE-NET-ASSETS> 23,913,828
<PER-SHARE-NAV-BEGIN> 16.61
<PER-SHARE-NII> .64
<PER-SHARE-GAIN-APPREC> (.97)
<PER-SHARE-DIVIDEND> .81
<PER-SHARE-DISTRIBUTIONS> .39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.08
<EXPENSE-RATIO> 2.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
