<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17738
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Fiduciary Capital Pension Partners, L.P.
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(Exact name of registrant as specified in its charter)
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<S> <C>
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)
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Registrant's telephone number, including area code (877) 511-6465
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
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Fiduciary Capital Pension Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1998
Table of Contents
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
June 30, 1998 3
Balance Sheets - June 30, 1998 and
December 31, 1997 5
Statements of Operations for the three
months ended June 30, 1998 and 1997 6
Statements of Operations for the six
months ended June 30, 1998 and 1997 7
Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 8
Statements of Changes in Net Assets for
the six months ended June 30, 1998 and
for the year ended December 31, 1997 9
Selected Per Unit Data and Ratios 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Part II. OTHER INFORMATION
Item 1.Legal Proceedings 19
Item 6.Exhibits and Reports on Form 8-K 19
</TABLE>
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(unaudited)
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<CAPTION>
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Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
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<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 8,170 $ 303,331
- -----------------------------------------------------------------------------------------------------------------
8,170 303,331 2.7%
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$1,462,860 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 (Note 5) 06/22/98 1,462,860 1,462,860
239,600 sh. LMC Corporation, 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,389,210
3,176,000 sh. LMC Operating Corp., 02/09/96 &
Common Stock* 05/05/98 1,815,199 1,073,279
49.72 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- -----------------------------------------------------------------------------------------------------------------
5,667,270 4,925,350 43.3
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(2) 05/24/95 1,234,625 1,234,625
9,772.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 73,295 73,295
- -----------------------------------------------------------------------------------------------------------------
1,307,920 1,307,920 11.5
- -----------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (62.0% of net assets) 6,983,360 6,536,601 57.5
- -----------------------------------------------------------------------------------------------------------------
NON-MANAGED COMPANY:
821,376 sh. WasteMasters, Inc.,
Common Stock(3)* 06/03/98 1,097,307 1
- -----------------------------------------------------------------------------------------------------------------
Total Investment in Non-Managed Company (0.0% of net assets) 1,097,307 1 0.0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
3
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FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
(unaudited)
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Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
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<S> <C> <C> <C> <C>
TEMPORARY INVESTMENTS:
$2,425,000 General Motors Accept. Corp.,
5.39% Notes due 7/14/98 06/30/98 2,420,289 2,420,289
$2,425,000 General Electric Capital Corp.,
5.38% Notes due 7/14/98 06/30/98 2,420,297 2,420,297
- ----------------------------------------------------------------------------------------------------------------
Total Temporary Investments (45.9% of net assets) 4,840,586 4,840,586 42.5
- ----------------------------------------------------------------------------------------------------------------
Total Investments (107.9% of net assets) $12,921,253 $11,377,188 100.0%
================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(3) The WasteMasters, Inc. common stock, which trades on the NASDAQ Small
Cap Market System, is subject to a 24 month lock up period, a call option
and a right of first refusal.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
4
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FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(unaudited)
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1998 1997
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ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$6,983,360 and $9,556,695,
respectively) $ 6,536,601 $ 5,754,426
Non-managed company (amortized cost -
$1,097,307) 1 --
Temporary investments, at amortized cost 4,840,586 8,194,820
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Total investments 11,377,188 13,949,246
Cash and cash equivalents 616,005 276,108
Accrued interest receivable 64,420 67,964
Other assets 5,536 58,926
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Total assets $ 12,063,149 $ 14,352,244
============ ============
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 54,721 $ 33,796
Accounts payable and accrued liabilities 443,957 424,137
Distributions payable to partners 1,024,761 1,030,446
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Total liabilities 1,523,439 1,488,379
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COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (66,223) (49,360)
Limited Partners (equivalent to $10.40
and $12.66, respectively, per limited
partnership unit based on 1,020,142
units outstanding) 10,605,933 12,913,225
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Net assets 10,539,710 12,863,865
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Total liabilities and net assets $ 12,063,149 $ 14,352,244
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
5
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
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1998 1997
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INVESTMENT INCOME:
Income:
Interest $ 177,677 $ 283,290
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Total investment income 177,677 283,290
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Expenses:
Professional fees 31,918 20,018
Investment advisory fees (Note 2) 28,092 37,449
Fund administration fees (Note 3) 29,582 29,582
Administrative expenses (Note 3) 17,224 17,224
Independent General Partner fees
and expenses (Note 4) 12,654 9,374
Other expenses 14,744 9,524
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Total expenses 134,214 123,171
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NET INVESTMENT INCOME 43,463 160,119
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REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (2,465,264) 67,198
Net change in unrealized loss
on investments 2,410,718 (328,893)
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Net loss on investments (54,546) (261,695)
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NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (11,083) $ (101,576)
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
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<CAPTION>
1998 1997
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INVESTMENT INCOME:
Income:
Interest $ 381,785 $ 561,495
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Total investment income 381,785 561,495
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Expenses:
Professional fees 108,073 64,463
Investment advisory fees (Note 2) 58,480 56,753
Fund administration fees (Note 3) 59,164 59,164
Administrative expenses (Note 3) 34,448 34,448
Independent General Partner fees
and expenses (Note 4) 30,749 21,000
Other expenses 32,943 16,010
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Total expenses 323,857 251,838
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NET INVESTMENT INCOME 57,928 309,657
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REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (2,476,383) 67,198
Net change in unrealized loss
on investments 2,258,204 (1,116,931)
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Net loss on investments (218,179) (1,049,733)
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NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (160,251) $ (740,076)
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</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
7
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ (160,251) $ (740,076)
Adjustments to reconcile net decrease in net assets
resulting from operations to net cash provided by
operating activities:
Accreted discount on portfolio investments (8,462) (17,702)
Change in assets and liabilities:
Accrued interest receivable 3,544 (12,411)
Other assets 53,390 (31,295)
Payable to affiliates 20,925 6,709
Accounts payable and accrued liabilities (2,418) 7,467
Net realized loss (gain) on investments 2,476,383 (67,198)
Net change in unrealized loss
on investments (2,258,204) 1,116,931
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Net cash provided by operating activities 124,907 262,425
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (1,639,700) (460,404)
Proceeds from dispositions of portfolio investments 670,045 67,198
Sale of temporary investments, net 3,354,234 798,095
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Net cash provided by investing activities 2,384,579 404,889
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (2,169,589) (669,624)
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Net cash used in financing activities (2,169,589) (669,624)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 339,897 (2,310)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 276,108 234,305
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 616,005 $ 231,995
=========== ===========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investments exchanged for other investments $ 1,360,801 $ --
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
8
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
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1998 1997
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Increase in net assets resulting from operations:
Net investment income $ 57,928 $ 831,359
Net realized (loss) gain on investments (2,476,383) 2,925,017
Net change in unrealized loss
on investments 2,258,204 (3,218,969)
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Net (decrease) increase in net assets
resulting from operations (160,251) 537,407
Repurchase of limited partnership units -- (1,162,618)
Distributions to partners from -
Net investment income (57,928) (831,359)
Realized gain on investments (1,401,316) (1,608,939)
Return of capital (704,660) (710,627)
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Total decrease in net assets (2,324,155) (3,776,136)
Net assets:
Beginning of period 12,863,865 16,640,001
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End of period (including no undistributed
net investment income) $ 10,539,710 $ 12,863,865
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
9
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FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
(unaudited)
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For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
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Per Unit Data:
Investment income $ .17 $ .25 $ .37 $ .50
Expenses (.13) (.11) (.31) (.22)
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Net investment income .04 .14 .06 .28
Net realized (loss) gain on investments (2.39) .06 (2.40) .06
Net change in unrealized loss on
investments 2.34 (.29) 2.18 (1.00)
Distributions declared to partners (1.00) (.30) (2.10) (.60)
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Net decrease in net asset value (1.01) (.39) (2.26) (1.26)
Net asset value:
Beginning of period 11.41 14.21 12.66 15.08
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End of period $ 10.40 $ 13.82 $ 10.40 $ 13.82
============= ============= ============= =============
Ratios (annualized):
Ratio of expenses to average net assets 4.86% 3.19% 5.56% 3.18%
Ratio of net investment income to
average net assets 1.57% 4.14% 0.99% 3.91%
Number of limited partnership units at end of period 1,020,142 1,104,881 1,020,142 1,104,881
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
10
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FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(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 Fiduciary Capital Pension Partners, L.P. (the "Fund"), necessary to fairly
present the financial position of the Fund as of June 30, 1998 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, 1997.
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
$58,480 were paid by the Fund for the six months ended June 30, 1998.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of .45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $59,164 were
paid by the Fund for the six months ended June 30, 1998. FCM is also reimbursed,
subject to various limitations, for administrative expenses incurred in
providing accounting and investor services to the Fund. The Fund reimbursed FCM
for administrative expenses of $34,448 for the six months ended June 30, 1998.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Partners, L.P., an
affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable
monthly in arrears, together with all out-of-pocket expenses. Each Fund's
allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the six months ended
June 30, 1998 totaled $30,749.
5. COMMITMENTS AND CONTINGENCIES
LMC Commitments LMC Corporation (formerly, LMC Operating Corp.) ("LMC") is
entitled to draw down a total of $1,632,960 pursuant to the terms of the Senior
Subordinated Revolving Notes held by the Fund. At June 30, 1998, LMC had only
drawn down $1,462,860. The remaining $170,100 was drawn down on July 14, 1998.
11
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(unaudited)
On August 4, 1998, the Fund purchased an additional 1,300,500 shares of LMC
common stock for $650,250.
LMC Litigation On January 27, 1998, LMC Holding Co. ("LMC Holding"), which held
approximately 50% of the issued and outstanding common stock of LMC on that
date, commenced an action against the Fund, FCP and each of Paul Bagley, the
Chairman of the Board and Chief Executive Officer of FCM, W. Duke DeGrassi, the
President of FCM, and Donald R. Jackson, the Senior Vice President, Treasurer,
Chief Financial Officer and Compliance Officer of FCM (collectively, the
"Individual Defendants"), in their capacities as officers of FCM, in the First
Judicial District Court in and for Cache County, State of Utah, entitled LMC
Holding Co. v. Fiduciary Capital Partners, L.P., et al., Civil No. 98-0100077
(the "LMC Action"). LMC Holding is controlled by Paul Wallace, a director of LMC
and the trustee of its discontinued pension plan. FCM believes that the LMC
Action was commenced in response to an action filed by LMC against Mr. Wallace
to recover for a significant underfunding of LMC's discontinued pension plan.
The Fund, FCP and the Individual Defendants entered into a settlement agreement
with LMC Holding, effective April 20, 1998. As part of the settlement, the Fund
and FCP have been able to increase their percentage ownership of LMC in exchange
for additional capital contributions. The LMC Action was subsequently dismissed
with prejudice. FCM believes that the additional investment by the Fund and FCP
will allow LMC to implement a business plan designed to restore it to
profitability within the next few years. LMC continues to pursue its legal
action against Mr. Wallace with respect to the underfunding of its discontinued
pension plan.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the Fund's unaudited
Financial Statements and the Notes thereto. This report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, competition and
other factors discussed elsewhere in this report. Readers are urged to consider
statements that include the terms "believes", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward-looking. The Fund undertakes
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Fund held portfolio investments in three Managed
Companies and one Non-Managed Company, with an aggregate cost of approximately
$8.1 million. The value of these portfolio investments, which were made from net
offering proceeds and the reinvestment of proceeds from the sale of other
portfolio investments, represents approximately 57.5% of the Fund's net assets.
When acquired, these portfolio investments generally consisted of high-yield
subordinated debt, linked with an equity participation or a comparable
participation feature in middle market companies. These securities were
typically issued in private placement transactions and were subject to certain
restrictions on transfer or sale, thereby limiting their liquidity. A number of
the portfolio companies have prepaid their subordinated debt that the Fund held.
In addition, three of the portfolio companies have successfully completed
initial public offerings ("IPOs") of their stock. The Fund has sold the stock it
held in these three companies, except for a portion of its KEMET Corporation
("KEMET") stock.
As of June 30, 1998, the Fund's remaining assets were invested in short-term
commercial paper. These funds are available to fund follow-on investments, for
distribution to the partners or to fund the annual repurchase offer.
Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
will annually offer to purchase from its Limited Partners up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
The 1998 repurchase offer will be mailed to the Limited Partners during October
1998. The actual redemption of tendered Units will occur on November 20, 1998.
During February 1998, the Fund agreed to purchase $449,000 of LMC's Senior
Subordinated Revolving Notes due August 20, 1998. This investment was funded
during February and March 1998.
During April 1998, the Fund agreed to restructure and increase its aggregate
investment in LMC. In the restructuring, $1,360,800 of the Fund's LMC Senior
Subordinated Revolving Notes due October 31, 2000 were converted into additional
LMC common stock. LMC was allowed to again draw down the $1,360,800 under the
terms of the Revolving Note agreement to fund working capital requirements and
to retire the $449,000 of LMC Senior Subordinated Revolving Notes due August 20,
1998, as described in the preceding paragraph. As a result of the restructuring,
the Fund's percentage ownership of LMC's common stock increased from
approximately 23% to approximately 40%.
13
<PAGE> 14
During August 1998, the Fund purchased an additional 1,300,500 shares of LMC
common stock for $650,250. As a result of this stock purchase, the Fund's
percentage ownership of LMC's common stock increased from approximately 40% to
approximately 41%.
During June 1998, the Fund sold all of its Mobile Technology, Inc. ("MTI") stock
and warrants and received a distribution from the escrow account that was
established during 1996 in connection with the sale of the Fund's Huntington
Holdings, Inc. ("Huntington") stock. In total, the Fund received $221,045 in
proceeds from these two transactions.
Other assets decreased $53,390 from $58,926 at December 31, 1997 to $5,536 at
June 30, 1998. This decrease resulted primarily from the collection of a
receivable from LMC for legal fees that the Fund advanced on behalf of LMC and a
decrease in prepaid insurance.
During the six months ended June 30, 1998, the Fund paid cash distributions
pertaining to the fourth quarter of 1997 and the first quarter of 1998, in the
amounts of $1,030,446 and $1,139,142, respectively. The distribution for the
fourth quarter of 1997 was equal to $1.00 per Unit for all Limited Partners. The
per Unit distribution rate for the first quarter of 1998 varied between $1.00
and $1.13 depending upon the closing in which the particular Units were issued.
This disproportionate cash distribution resulted from the Units being issued on
different dates during 1990, and thus being entitled to differing Preferred
Return amounts, as defined in the Fund's Partnership Agreement. These
disproportionate distribution rates eliminated the remaining Preferred Return
amounts, leaving all Units on an equal basis going forward.
The distribution for the second quarter of 1998 will be paid on August 14, 1998
at a rate of $1.00 per Unit for all Limited Partners. The Fund currently expects
the distribution for the third and fourth quarters of 1998, which are payable
during November 1998 and February 1999, to be made at a reduced rate of $.30 per
Unit for all Limited Partners. A significant portion of the distributions made
in 1998 will constitute a return of capital.
The Fund's investment period ended on December 31, 1995. Although the Fund is
permitted to make additional investments in existing portfolio companies after
1995, the Fund is no longer permitted to acquire investments in new portfolio
companies. This impacts the amount of the Fund's quarterly distributions because
all proceeds from dispositions or maturities of investments are distributed to
investors, except to the extent the cash is needed to fund the annual repurchase
offer or to fund any follow-on investments in existing portfolio companies. The
increase in the quarterly distribution rate during 1997 and 1998 represents a
distribution of the proceeds from dispositions or maturities of investments
during 1997 and 1998.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $43,463 for the three months ended June 30,
1998 as compared to net investment income of $160,119 for the corresponding
period of the prior year. Net investment income per limited partnership unit
decreased from $.14 to $.04 and the ratio of net investment income to average
net assets decreased from 4.14% to 1.57% for the three months ended June 30,
1998 as compared to the corresponding period of the prior year.
The Fund's net investment income was $57,928 for the six months ended June 30,
1998 as compared to net investment income of $309,657 for the corresponding
period of the prior year. Net investment income per limited partnership unit
decreased from $.28 to $.06 and
14
<PAGE> 15
the ratio of net investment income to average net assets decreased from 3.91% to
0.99% for the six months ended June 30, 1998 as compared to the corresponding
period of the prior year.
Net investment income for both the three and six month periods ended June 30,
1998 decreased as a result of both a decrease in investment income and an
increase in total expenses.
Investment income decreased $105,613 and $179,710, or 37.3% and 32.0%, for the
three and six month periods ended June 30, 1998, as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the prepayment of the Fund's Elgin National Industries Inc. subordinated debt
investment during November 1997. The Fund's total investments also decreased as
a result of the Fund's repurchase of 7.51% of its Units during the fourth
quarter of 1997. The negative effect of these items was partially offset by
increases in interest income earned on temporary investments and on the LMC
follow-on investments that were acquired during 1997 and 1998.
Total expenses increased $11,043 and $72,019, or 9.0% and 28.6%, for the three
and six month periods ended June 30, 1998 as compared to the corresponding
periods of the prior year. These increases resulted primarily from increases in
professional fees, Independent General Partner fees and expenses and other
expenses.
Independent General Partner fees and expenses increased because one of the
Fund's three Independent General Partners resigned during the fourth quarter of
1996 and was not replaced until July 1997. The increase in professional fees was
primarily the result of legal fees incurred during 1998 in connection with the
LMC litigation. Other expenses increased primarily as a result of insurance
expense associated with a new liability insurance policy for the Fund's general
partners that was initially purchased during September 1997.
The investment advisory fees paid to FCM increased during the first quarter of
1998 as compared to the corresponding period of the prior year as a result of
the direct receipt by FCM of consulting fees from LMC during the first quarter
of 1997. Pursuant to the terms of the Fund's investment advisory agreement with
FCM, the investment advisory fees payable to FCM by the Fund are reduced by the
amount of any fees that FCM receives directly from any of the Fund's portfolio
companies. The effect of the decrease (to zero) in the amount of LMC consulting
fees received by FCM during 1998 was partially offset by the effect of the
repurchase of Units by the Fund during the fourth quarter of 1997 and the
realization of additional losses with respect to the Fund's investment in
Canadian's Holdings, Inc. and its subsidiary ("Canadian's"). 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 investment advisory fees decreased $9,357, or 25.0%, during the second
quarter as compared to the corresponding period of the prior year. The
comparative reversal from the first quarter resulted primarily from (i) the fact
that FCM received no consulting fees from LMC during the second quarter of 1997,
and (ii) the losses realized by the Fund during the second quarter of 1998 with
respect to the MTI, Atlas Environmental, Inc. ("Atlas") and AR Accessories
Group, Inc. ("ARA") portfolio investments. As noted above, realized losses
decrease 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.
Net Realized Gain (Loss) on Investments
The Fund owned an equity position in ARA (formerly known as Amity Leather
Products Co.) since 1992. This equity position was acquired in connection with a
subordinated debt investment, which ARA prepaid during 1994.
15
<PAGE> 16
ARA reported significantly reduced earnings and cash flows from operations
during 1997. During February 1998, ARA hired a crisis manager to assist it in
addressing continuing significant declines in the company's sales and profits.
The hiring of this crisis manager was precipitated by ARA's lenders, who
notified ARA of defaults under its credit lines and demanded that ARA repay
overadvances that were made during 1997. The Fund was notified that ARA was
considering a number of options for solving these problems, including a possible
bankruptcy filing and the sale of the company, or certain of its operations.
ARA filed for bankruptcy protection during March 1998. ARA's assets were
liquidated at auction during May 1998, with the proceeds from the sale
satisfying only a portion of ARA's debt. The $311,989 cost of the Fund's equity
investment in ARA was written off as a realized loss during May 1998.
On June 1, 1998, the Fund received $158,043 from the sale of its MTI common
stock and warrants. This amount represents approximately 95% of the sales
proceeds that the company expected the sellers to receive from the sale. The
remaining 5%, or approximately $8,000, is being held in escrow pending the
resolution of a dispute over whether the sellers or the buyer should receive the
benefit of warrant exercise proceeds. The Fund recorded a realized loss of
$79,584 from this sale. The Fund will record a reduction of the realized loss
if, and when, it actually receives a distribution of any of the escrowed funds.
The Fund's Huntington stock was sold for cash during February 1996. The Fund's
share of the sales proceeds totaled $1,247,229, of which $1,089,896 was received
during February 1996. The balance of the sales proceeds were held in escrow to
pay various transaction expenses, 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. An
agreement was recently reached with the buyer with regard to purchase price
adjustments and other claims. The Fund received additional distributions of
$16,439, $67,198 and $63,001 during September 1996, May 1997 and June 1998,
respectively. The Fund's share of the remaining escrow balance is approximately
$1,000. The Fund recognized realized gains of $1,020,657, $67,198 and $63,001
from this transaction during 1996, 1997 and 1998, respectively.
The companies that Atlas acquired during 1996 with the proceeds of the Fund's
subordinated debt investment did not perform 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.
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.
As a result of these developments, the Fund stopped accruing interest on its
Atlas investment during April 1996 and recorded writedowns of $979,776 and
$2,243,103 during 1996 and 1997, respectively, in the carrying value of the
investment. The remaining carrying value of the Fund's Atlas investment as of
December 31, 1997 was $2.
On June 3, 1998, the Fund exchanged its Atlas subordinated notes and warrants
for 821,376 shares of WasteMasters, Inc. ("WMI") common sock. WMI is an Atlanta,
Georgia based waste management company that has recently announced an aggressive
acquisition program.
16
<PAGE> 17
Pursuant to the terms of the exchange agreement, the Fund is prohibited from
selling its WMI common stock for 24 months. In addition, the Fund granted the
entity acquiring the Fund's Atlas securities a call on the Fund's WMI common
stock during the 24 month lock up period and a right of first refusal
thereafter, both of which are priced at $11.25 per share.
The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST") closed at $1.78 and $2.01 (an average of the closing bid and ask
prices) on June 3, 1998 and June 30, 1998, respectively. Based on these prices,
the Fund's WMI had trading values of $1,462,049 on the date of the exchange
(June 3, 1998) and $1,650,966 on June 30, 1998. However, due to a number of
factors, including the speculative nature of the WMI stock, the two year lock up
period and the relative size of the Fund's stock position, FCM decided to carry
the WMI stock at the same nominal value that the Atlas securities had previously
been carried by the Fund. The 52 week low for the WMI common stock is $0.25 per
share and the current price (August 12, 1998) is $1.125.
The Fund recorded a realized loss of $2,125,574 on the exchange, which is equal
to the amount of the loss which the Fund expects to claim for income tax
purposes from the disposition of the Atlas securities. The balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.
The Fund is continuing to accrue an interest reserve with respect to the
potential Canadian's sales tax at a 12% annualized rate, or $11,119 and $22,238,
respectively for the three and six month periods ended June 30, 1998. These
amounts are recorded as realized losses in the Fund's Statements of Operations.
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an average
of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public markets or
that are privately held are determined pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
As of December 31, 1997, the Fund had recorded $437,099 of unrealized gain and
$4,239,368 of unrealized loss on investments. Therefore, as of December 31,
1997, the Fund had recorded a total net unrealized loss on investments of
$3,802,269.
17
<PAGE> 18
The net increase in unrealized loss on investments during the three and six
month periods ended June 30, 1998 and the cumulative net unrealized loss on
investments as of June 30, 1998 consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-----------------------------------------------------
During the Three During the Six
Months Ended Months Ended As of
Portfolio Company June 30, 1998 June 30, 1998 June 30, 1998
- ------------------------------------ ---------------- --------------- -------------
<S> <C> <C> <C>
Unrealized losses recorded during
prior periods with respect to
investments disposed of during
the period $ 3,630,508 $ 3,497,448 $ --
KEMET (122,484) (141,938) 295,161
LMC -- -- (741,920)
WMI (1,097,306) (1,097,306) (1,097,306)
----------- ----------- -----------
$ 2,410,718 $ 2,258,204 $(1,544,065)
=========== =========== ===========
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock, which trades
on the NASDAQ National Market System, closed at $13.15625 (an average of the
closing bid and ask prices) on June 30, 1998. This price is down from the
closing prices of $18.46875 and $19.3125 on March 31, 1998 and December 31,
1997, respectively. Based on the $13.15625 closing trading price of the common
stock, the 23,056 shares of common stock that the Fund held at June 30, 1998 had
a market value of $303,331.
See "Net Realized Gain (Loss) on Investments" for a discussion of the unrealized
loss on the Fund's WMI stock investment.
FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.
18
<PAGE> 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On January 27, 1998, LMC Holding Co. ("LMC Holding"), which held approximately
50% of the issued and outstanding common stock of LMC on that date, commenced an
action against the Fund, FCP and each of Paul Bagley, the Chairman of the Board
and Chief Executive Officer of FCM, W. Duke DeGrassi, the President of FCM, and
Donald R. Jackson, the Senior Vice President, Treasurer, Chief Financial Officer
and Compliance Officer of FCM (collectively, the "Individual Defendants"), in
their capacities as officers of FCM, in the First Judicial District Court in and
for Cache County, State of Utah, entitled LMC Holding Co. v. Fiduciary Capital
Partners, L.P., et al., Civil No. 98-0100077 (the "LMC Action"). LMC Holding is
controlled by Paul Wallace, a director of LMC and the trustee of its
discontinued pension plan. FCM believes that the LMC Action was commenced in
response to an action filed by LMC against Mr. Wallace to recover for a
significant underfunding of LMC's discontinued pension plan. The Fund, FCP and
the Individual Defendants entered into a settlement agreement with LMC Holding,
effective April 20, 1998. As part of the settlement, the Fund and FCP have been
able to increase their percentage ownership of LMC in exchange for additional
capital contributions. The LMC Action was subsequently dismissed with prejudice.
FCM believes that the additional investment by the Fund and FCP will allow LMC
to implement a business plan designed to restore it to profitability within the
next few years. LMC continues to pursue its legal action against Mr.
Wallace with respect to the underfunding of its discontinued pension plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
11.1 Statement of Computation of Net Investment Income Per Limited
Partnership Unit.
19.1 Reports Furnished to Securities Holders.
27.1 Financial Data Schedule.
(b) The Registrant did not file any reports on Form 8-K during the second
quarter of the fiscal year ending December 31, 1998.
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Fiduciary Capital Pension Partners, L.P.
(Registrant)
By: FCM Fiduciary Capital Management Company
Managing General Partner
Date: August 13, 1998 By: /s/ Donald R. Jackson
---------------------
Donald R. Jackson
Chief Financial Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
11.1 Statement of Computation of Net Investment
Income Per Limited Partnership Unit.
19.1 Reports Furnished to Securities Holders.
27.1 Financial Data Schedule.
</TABLE>
E-1
<PAGE> 1
Exhibit No. 11.1
----------------
Statement of Computation of Net
Investment Income Per Limited
Partnership Unit
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Investment Income $ 43,463 $ 160,119 $ 57,928 $ 309,657
Percentage Allocable to Limited Partners 99% 99% 99% 99%
---------- ---------- ---------- ----------
Net Investment Income Allocable
to Limited Partners $ 43,029 $ 158,518 $ 57,349 $ 306,560
========== ========== ========== ==========
Weighted Average Number of Limited
Partnership Units Outstanding 1,020,142 1,104,881 1,020,142 1,104,881
========== ========== ========== ==========
Net Investment Income Per Limited
Partnership Unit $ .04 $ .14 $ .06 $ .28
========== ========== ========== ==========
</TABLE>
<PAGE> 1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
----------------------------------------------------------
---------------------
ANNUAL REPORT
1997
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
Fund Profile and Financial Highlights One
Message to Investors Two
Schedule of Realized Gains and Losses Five
Profiles of Portfolio Companies Six
Schedule of Investments Seven
Balance Sheets Nine
Statements of Operations Ten
Statements of Cash Flows Eleven
Statements of Changes in Net Assets Twelve
Selected Per Unit Data and Ratios Thirteen
Notes to Financial Statements Fourteen
Report of Independent Public Accountants Nineteen
Management's Discussion and Analysis of Financial
Condition and Results of Operations Twenty
</TABLE>
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
FUND PROFILE
Fiduciary Capital Pension Partners, L.P. (the
"Fund") is a Delaware limited partnership that commenced
operations on August 14, 1990. The Fund has elected to
operate as a business development company under the
Investment Company Act of 1940. The investment objective of
the Fund is to provide current income and capital
appreciation by investing primarily in subordinated debt
and related equity securities issued as the mezzanine
financing of privately structured, friendly leveraged
buyouts, leveraged acquisitions and leveraged
recapitalizations.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
As of December 31
or Year Ended December 31
1997 1996 1995 1994 1993
----------------------------------------------------------------
(in thousands, except per Unit amounts)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 1,370 $ 1,329 $ 2,268 $ 2,335 $ 2,587
Net Investment Income 831 772 1,726 1,758 1,972
Net Realized and Unrealized
(Loss) Gain on Investments (294) (1,143) (2,326) 1,505 148
Cash Distributions Declared to Partners 3,151 1,423 1,542 2,537 2,681
Cash Utilized to Repurchase Units 1,163 1,440 1,959 2,403 1,134
Total Assets 14,352 17,441 20,321 24,694 26,362
Net Assets 12,864 16,640 19,873 23,974 25,651
Value of Investments 13,949 17,105 20,025 23,454 25,213
Per Unit of Limited Partnership Interest:(1)
Net Investment Income(2) .75 .64 1.33 1.23 1.32
Net Realized and Unrealized
(Loss) Gain on Investments(2) (.27) (.95) (1.79) 1.06 .10
Cash Distributions Declared to Partners(3) 2.90 1.20 1.20 1.80 1.80
Net Asset Value 12.66 15.08 16.61 18.47 17.96
</TABLE>
- ----------------
(1) Effective October 1, 1993, each $1,000 Unit was redenominated into fifty
$20 Units. All amounts shown for 1993 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, 1997, 1996, 1995, 1994 and 1993 of
1,095,362, 1,186,294, 1,285,717, 1,413,240 and 1,482,514, respectively.
(3) Distribution amounts are reflected during the year in which the cash for
the distribution was generated. A portion of the actual cash
distributions are paid subsequent to such year.
ONE
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MESSAGE TO INVESTORS
Dear Investor:
We are pleased to provide a summary of the recent activities of Fiduciary
Capital Pension Partners, L.P. This Annual Report includes the Fund's audited
financial statements for the year ended December 31, 1997. Unaudited interim
financial statements for the first quarter of 1998 are also enclosed along with
this Annual Report.
HIGHLIGHTS
o Distributions for 1997 totaled $2.90 per Unit, which represents an
amount equal to 14.5% of contributed capital.
o The Fund's net asset value per Unit was $12.66 at December 31,
1997 and $11.41 at March 31, 1998 as compared to $15.08 at
December 31, 1996.
o The Fund redeemed 7.67% of its outstanding Units during November
1997 pursuant to its annual repurchase offer.
CUMULATIVE DISTRIBUTIONS AND NET ASSET VALUE PER UNIT
[GRAPH]
CASH DISTRIBUTIONS
During 1997, the Fund declared quarterly cash distributions to investors
of $.30, $.30, $1.30 and $1.00 per Unit. The 1997 cash distributions were paid
out of current net investment income (26.4%), realized gain on investments
(51.1%) and a return of capital (22.5%).
The cash distribution for the first quarter of 1998 was paid on May 15,
1998. The per Unit distribution rate varied between $1.00 and $1.13 depending
upon the closing in which the particular Units were issued. This
disproportionate cash distribution resulted from the Units being issued on
different dates during 1990, and thus being entitled to differing Preferred
Return amounts, as defined in the Fund's Partnership Agreement. These
disproportionate distribution rates eliminated the remaining Preferred Return
amounts, leaving all Units on an equal basis going forward.
The Fund currently expects the distribution for the second quarter of
1998, which is payable during August 1998, to be made at a rate of $1.00 per
Unit for all investors and that the remaining 1998 distributions will likely be
reduced to a rate of $.30 per Unit per quarter. A portion of the 1998
distributions will constitute a return of capital.
The increase in the quarterly distribution rates during 1997 and 1998
represents a distribution of the proceeds from the dispositions or maturities of
investments during 1997.
PORTFOLIO ACTIVITY
ENI Holding
During August 1997, the Fund accepted an offer from ENI Holding Corp.
("ENI") management to purchase the securities comprising the Fund's investment
in ENI and its subsidiaries. The sale closed on November 5, 1997, with the Fund
receiving $7,964,933 of sales proceeds. The sales proceeds included proceeds
from (i) the prepayment of the subordinate debt, along with applicable accrued
interest and prepayment penalties, (ii) the redemption of the Fund's preferred
stock, along with all accumulated dividends, and (iii) the purchase of the
Fund's Class B common stock and warrants.
The Fund recorded a realized gain of approximately $2.1 million from the
sale of the common stock and warrants and a realized gain of approximately $0.1
million from the prepayment of the subordinated debt. The Fund had previously
accrued the interest on the subordinated debt and the dividends on the preferred
stock.
Neodata
During August 1997, Electronic Data Systems Corporation ("EDS") offered
to purchase all of Neodata Corporation's ("Neodata's") outstanding stock that it
did not already own. Hicks Muse, the owner of a majority of the Neodata common
stock, accepted the offer and the purchase by EDS closed on September 2, 1997.
The Fund received $1,178,150 of cash proceeds from the sale of its Neodata
stock, resulting in a realized gain of approximately $900,000.
TWO
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MESSAGE TO INVESTORS (CONTINUED)
Atlas Environmental
In previous reports, we discussed the disappointing performance of this
investment. Atlas defaulted on the interest payments due to the Fund and
subsequently filed for bankruptcy. Atlas has filed a plan of reorganization with
the bankruptcy court in an effort to restructure and emerge from bankruptcy. The
plan anticipates that many of the interested parties, including the Fund, will
contribute additional capital to the company. While the Fund is generally
supportive of the plan, there are a number of significant business issues that
must be addressed before the Fund will agree to the plan or agree to make a
follow-on investment in Atlas. The Fund is also considering the possibility of
disposing of its Atlas investment, which has been written down to a nominal
amount ($2).
AR Accessories
AR Accessories Group, Inc. ("ARA") reported significantly reduced
earnings and cash flows from operations during 1997. During February 1998, ARA
hired a crisis manager to assist it in addressing continuing significant
declines in the company's sales and profits. The hiring of the crisis manager
was precipitated by ARA's lenders, which notified ARA of defaults under its
credit lines and demanded that ARA repay overadvances that were made during
1997. The Fund was notified at that time that ARA was considering a number of
options for dealing with its problems, including a possible bankruptcy filing
and the sale of the company, or certain of its operations.
On March 13, 1998, ARA filed for bankruptcy protection. ARA's assets are
being liquidated and it is anticipated that the sales proceeds will be less than
ARA's total outstanding debt.
The Fund's subordinated debt investment in ARA was prepaid in a prior
year. The Fund's only remaining investment in ARA is a common equity position
that was acquired in connection with the Fund's original subordinated debt
investment. Since it is anticipated that the proceeds that will be realized from
the liquidation of ARA's assets will be insufficient to satisfy all of ARA's
debt, the Fund wrote the carrying value of its remaining equity investment down
to a nominal amount ($2) at March 31, 1998.
LMC Corporation
LMC Corporation ("LMC") recently introduced a low ground pressure
rubber-tracked dozer, loader and tool carrier called the Trackmaster (formerly,
called the Skid Trak) as a new product. The Trackmaster is a multi-purpose
machine to be used where similar machines bog down or create excessive damage to
the environment. The Trackmaster provides an environmental friendly, stable
platform with the required traction to traverse rocky, muddy, snowy or soft
terrain with minimal damage to the surface. The Trackmaster is designed to serve
numerous markets, with primary emphasis on construction, agriculture and
landscaping. This new product enables LMC to reduce its dependence on seasonal
markets related to snow grooming, while taking advantage of its years of
experience in the design and manufacture of low ground pressure, tracked
vehicles.
During February and March 1998, the Fund acquired $449,000 of LMC's
Senior Subordinated Revolving Notes due August 20, 1998 ("August 1998 Notes").
During April 1998, the Fund agreed to restructure and further increase its
aggregate investment in LMC. In the restructuring, $1,360,800 of the Fund's LMC
Senior Subordinated Revolving Notes due October 31, 2000 ("October 2000 Notes")
were converted into additional LMC common stock. LMC will be allowed to again
draw down the $1,360,800 under the October 2000 Note agreement to fund working
capital requirements associated with the introduction of the Trackmaster and to
retire the August 1998 Notes held by the Fund. As a result of this
restructuring, the Fund's percentage ownership of LMC's common stock will
increase from approximately 23% to approximately 40%.
Mobile Technology
The Fund owns less than 0.5% of Mobile Technology, Inc.'s ("MTI's")
common equity. The Fund expected to receive approximately $166,000 from the sale
of the company during March 1998. However, at the closing a dispute arose
revolving primarily around whether the sellers or the buyer should receive the
benefit of warrant exercise proceeds, involves approximately 5% of the
anticipated sales proceeds. As a result of these developments, the MTI
investment was written up in value at March 31, 1998 to a carrying value of
$141,985. The Fund expects this sale to be finalized during the second quarter
of 1998.
INVESTMENT PERFORMANCE
The following analysis reflects only the Fund's investments that have
gone full cycle, i.e., the investments that have been sold and with respect to
which the Fund has recorded a realized gain or loss. Thus, investments that the
Fund still owns, such as R.B.M. Precision Metal Products, ARA, Atlas and LMC,
are not included.
As reflected in the following graph and the schedules on page five of
this Annual Report, the Fund invested a total of $34.2 million in subordinated
debt investments and received total proceeds of $40.8 million, including
interest income, and fees and prepayment penalties, if applicable. In the
aggregate, these debt
THREE
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MESSAGE TO INVESTORS (CONTINUED)
investments yielded a return on investment of 1.2 to 1 and an annualized
internal rate of return of 9.39%. The Fund also invested $2.8 million in equity
securities, from which it received total proceeds of $10.8 million. In the
aggregate, these equity investments yielded a return on investment of 3.9 to 1
and an annualized internal rate of return of 34.83%.
[GRAPH]
We believe that the Fund's performance to date has been reasonably good
and we are actively attempting to realize the greatest possible returns from the
remaining investments. The Fund has six remaining investments, which we
anticipate will be liquidated over the next two to three years.
NET UNREALIZED GAIN (LOSS) ON PORTFOLIO INVESTMENTS
The cumulative net unrealized gain (loss) on investments held by the Fund
at March 31, 1998 and December 31, 1997, consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
March 31, 1998 December 31, 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
KEMET $ 417,645 $ 437,099
ARA (311,987) (97,213)
LMC (741,920) (741,920)
MTI (95,642) (177,356)
Atlas (3,222,879) (3,222,879)
- -------------------------------------------------------------------------
$(3,954,783) $(3,802,269)
=========================================================================
</TABLE>
PERIODIC UNIT REPURCHASE POLICY
The Fund's investors adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund will annually offer 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 fee (not to exceed 2%)
to be retained by the Fund to offset expenses incurred in connection with the
repurchase offer. If the number of tendered Units in any year exceeds 7.5% of
the outstanding Units, the Fund's General Partners may vote to repurchase up to
an additional 2% of the outstanding Units. During November 1997, 84,739 Units
(7.67% if the outstanding Units) were redeemed at a net asset value per Unit of
$13.72 ($13.45, net of the 2% fee).
The next scheduled repurchase of Units will occur during the fourth
quarter of 1998. The repurchase offer schedule provides for a mailing to
investors on October 5, 1998. The deadline for tendering Units for repurchase
will be October 30, 1998. The repurchase price will be based on the net asset
value per Unit on November 13, 1998 and payment for tendered Units will be made
on November 20, 1998.
* * * * * * * * * *
If you have any questions concerning your investment in the Fund, please
call us at 800-866-7607.
Sincerely,
/s/ Paul Bagley
Paul Bagley, Chairman
FCM Fiduciary Capital Management Company
/s/ W. Duke DeGrassi
W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company
May 15, 1998
FOUR
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
DEBT INVESTMENTS REALIZED GAINS AND LOSSES(1)
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Internal
Year of Year of Gain(1) Rate of
Portfolio Company(2) Investment Repayment Cost Proceeds(1) (Loss) Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carr-Gottstein Foods Co. 1990 1993 $ 2,426,680 $ 4,125,587 $ 1,698,907 23.56%
Midwest Dental Products
Corporation 1990 1992 4,521,533 6,558,107 2,036,574 22.63
Neodata Corporation 1990 1993 2,215,553 3,200,305 984,752 17.11
KEMET Corporation 1991 1993 3,313,477 4,534,392 1,220,915 17.63
Mobile Technology, Inc. 1991 1992 3,117,525 692,212 (2,425,313) N/A
Huntington Holdings, Inc. 1992 1994 4,368,034 6,240,863 1,872,829 20.40
ENI Holding Corp. 1993 1997 4,881,293 7,822,395 2,941,102 13.91
KB Alloys, Inc. 1993 1995 2,880,217 4,279,396 1,399,179 18.32
KEMET Corporation 1993(3) 1993 1,695,575 1,804,351 108,776 26.41
Protection One, Inc. 1993 1995 834,580 1,133,054 298,474 22.11
Canadian's Holdings, Inc. 1994 1996 2,516,176 319,782 (2,196,394) N/A
Canadian's Holdings, Inc. 1995(3) 1996 1,473,895 51,908 (1,421,987) N/A
- -------------------------------------------------------------------------------------------------------------------------
Totals $34,244,538 $40,762,352 $ 6,517,814 9.39%
=========================================================================================================================
</TABLE>
EQUITY INVESTMENTS REALIZED GAINS AND LOSSES
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Internal
Year of Year of Gain Rate of
Portfolio Company(2) Investment Repayment Cost Proceeds (Loss) Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carr-Gottstein Foods Co. 1990 1995 $ 738,394 $ 1,197,018 $ 458,624 9.78%
Neodata Corporation 1990 1997 33,912 923,039 889,127 52.07
KEMET Corporation 1991 1994 & 1995 49,965 3,753,147 3,703,182 115.43
Mobile Technology, Inc. 1991 1992 363,630 -- (363,630) N/A
Huntington Holdings, Inc. 1992 1996 85,677 1,089,889 1,004,212 68.91
Neodata Corporation 1992(3) 1997 245,006 255,112 10,106 0.81
ENI Holding Corp. 1993 1997 670,147 2,745,910 2,075,763 34.60
KEMET Corporation 1993(3) 1994 495,554 729,233 233,679 41.10
Protection One, Inc. 1993 1995 82,420 124,163 41,743 21.02
Canadian's Holdings, Inc. 1994 1996 34,821 -- (34,821) N/A
- ------------------------------------------------------------------------------------------------------------------------
Totals $2,799,526 $10,817,511 $8,017,985 34.83%
========================================================================================================================
</TABLE>
(1) Includes interest income, and fees and prepayment penalties, if
applicable.
(2) Includes investment in subsidiaries, if applicable.
(3) Represents a follow-on investment in an existing portfolio company.
FIVE
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
PROFILES OF PORTFOLIO COMPANIES
VALUE OF 1997 YEAR-END INVESTMENTS BY PORTFOLIO COMPANY
[GRAPH]
KEMET Corporation ("KEMET") KEMET, headquartered in Greenville, South
Carolina, is a leading manufacturer and distributor of both solid tantalum and
monolithic ceramic capacitors used as components in circuit boards. The KEMET
stock is listed on the NASDAQ National Market System.
AR Accessories Group, Inc. ("ARA") ARA, headquartered in West Bend,
Wisconsin, manufactures men's and ladies' fine personal leather goods and
distributes these products to department stores, mass merchandisers and
company-owned Wallet Works stores. AAG markets its products under the brand
names of Rolfs, Amity and LaGarde.
LMC Corporation ("LMC") LMC, headquartered in Logan, Utah, is the leading
U.S. manufacturer of light ground pressure vehicles. These vehicles are used for
construction, landscaping, infrastructure development and maintenance in remote
locations, right-of-way clean-up, search and rescue, military troop deployment
and snow grooming. Primary purchasers of the vehicles include construction and
landscaping contractors, ski resorts, utility companies and various governmental
agencies.
Mobile Technology, Inc. ("MTI") MTI, headquartered in Los Angeles,
California, is a provider of magnetic resonance imaging and computed tomography
mobile shared-services.
R.B.M. Precision Metal Products, Inc. ("RBM") RBM, headquartered in
Colorado Springs, Colorado, is a manufacturer of precision sheet metal
enclosures, chassis and assemblies for business machines.
Atlas Environmental, Inc. ("Atlas") Atlas, headquartered in Plantation,
Florida, is a holding company that owns and manages companies in segments of the
environmental services industry.
SIX
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 8,170 $ 445,269
- ---------------------------------------------------------------------------------------------------------------------------
8,170 445,269 3.2%
- ---------------------------------------------------------------------------------------------------------------------------
62,606 sh. AR Accessories Group,
Inc., Warrants to
Purchase Class B
Common Stock(2)* 07/30/92 85,909 1
22,608 sh. AR Accessories Group
Inc., Class A Common
Stock(2)* 07/30/92 226,080 214,775
- ---------------------------------------------------------------------------------------------------------------------------
311,989 214,776 1.6
- ---------------------------------------------------------------------------------------------------------------------------
$1,632,960 LMCOperating Corp.,
12.00% Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 11/04/97 1,632,960 1,632,960
239,600 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,101,688
22.72 sh. LMCOperating Corp.,
Common Stock* 02/09/96 454,399 1
49.72 sh. LMCCredit Corp.,
Common Stock* 02/09/96 1 1
- ---------------------------------------------------------------------------------------------------------------------------
4,476,570 3,734,650 26.8
- ---------------------------------------------------------------------------------------------------------------------------
1,327 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 187,698 45,460
3,539 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(3)* 12/28/94 49,929 14,811
- ---------------------------------------------------------------------------------------------------------------------------
237,627 60,271 0.4
- ---------------------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(4) 05/24/95 1,226,163 1,226,163
9,772.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 73,295 73,295
- ---------------------------------------------------------------------------------------------------------------------------
1,299,458 1,299,458 9.3
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral
part of this schedule.
SEVEN
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 1/19/03(5)* 01/25/96 3,189,039 1
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(6)* 01/25/96 33,842 1
- -----------------------------------------------------------------------------------------------------------------------------
3,222,881 2 0.0
- -----------------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (44.7% of net assets) 9,556,695 5,754,426 41.3
- -----------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$4,100,000 Ford Motor Credit Corporation,
5.72% Notes due 1/5/98 12/18/97 4,097,403 4,097,403
$4,100,000 General Electric Capital Corp.,
5.69% Notes due 1/5/98 12/18/97 4,097,417 4,097,417
- -----------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (63.7% of net assets) 8,194,820 8,194,820 58.7
- -----------------------------------------------------------------------------------------------------------------------------
Total Investments (108.4% of net assets) $17,751,515 $13,949,246 100.0%
=============================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to AR Accessories
Group, Inc, during 1996.
(3) The warrants have exercise prices of $19.30 per share (1,062 shares) and
$34.30 per share (2,477 shares).
(4) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(5) 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)
(6) 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.
EIGHT
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 AND 1996
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments (Notes 2, 10, 11, 12 and 13)
Portfolio investments, at fair value:
Managed companies (amortized cost -
$9,556,695 and $14,590,345, respectively) $ 5,754,426 $14,007,043
Temporary investments, at amortized cost 8,194,820 3,097,761
- ---------------------------------------------------------------------------------------------------
Total investments 13,949,246 17,104,804
Cash and cash equivalents (Note 2) 276,108 234,305
Accrued interest receivable (Note 12) 67,964 95,207
Other assets 58,926 6,646
- ---------------------------------------------------------------------------------------------------
Total assets $14,352,244 $17,440,962
===================================================================================================
LIABILITIES:
Due to affiliates (Notes 6, 7, 8 and 9) $ 33,796 $ 47,368
Accounts payable and accrued liabilities 424,137 418,781
Distributions payable to partners (Note 3) 1,030,446 334,812
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,488,379 800,961
- ---------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
NET ASSETS (NOTES 3 AND 4):
Managing General Partner (49,360) (23,225)
Limited Partners (equivalent to $12.66
and $15.08, respectively, per limited
partnership unit based on 1,020,142
and 1,104,881 units outstanding) (Note 5) 12,913,225 16,663,226
- ---------------------------------------------------------------------------------------------------
Net assets 12,863,865 16,640,001
- ---------------------------------------------------------------------------------------------------
Total liabilities and net assets $14,352,244 $17,440,962
===================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
NINE
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 1,109,776 $ 1,306,178 $ 2,234,934
Dividend 241,806 -- --
Other income 18,670 23,313 33,225
- -------------------------------------------------------------------------------------------------------
Total investment income 1,370,252 1,329,491 2,268,159
- -------------------------------------------------------------------------------------------------------
Expenses:
Professional fees 140,520 134,950 61,715
Investment advisory fees (Note 6) 120,800 136,714 195,279
Fund administration fees (Note 7) 118,327 118,327 118,327
Administrative expenses (Note 7) 68,895 68,895 68,105
Independent General Partner fees
and expenses (Note 8) 46,966 47,563 49,283
Amortization -- -- 8,760
Other expenses 43,385 50,589 40,719
- -------------------------------------------------------------------------------------------------------
Total expenses 538,893 557,038 542,188
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 831,359 772,453 1,725,971
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (Note 10) 2,925,017 (3,453,919) 3,790,988
Net change in unrealized (loss) gain
on investments (Note 11) (3,218,969) 2,311,373 (6,116,647)
- -------------------------------------------------------------------------------------------------------
Net loss on investments (293,952) (1,142,546) (2,325,659)
- -------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ 537,407 $ (370,093) $ (599,688)
=======================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
TEN
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) increase in net assets
resulting from operations $ 537,407 $ (370,093) $ (599,688)
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Accreted discount on portfolio investments (33,210) (36,025) (73,777)
Amortization -- -- 8,760
Change in assets and liabilities:
Accrued interest receivable 27,243 22,254 404,333
Other assets (52,280) (3,551) 614
Due to affiliates (13,572) (7,126) 11,056
Accounts payable and accrued liabilities (16,882) 16,827 (2,215)
Prepaid interest income -- -- (52,635)
Net realized (gain) loss on investments (2,925,017) 3,453,919 (3,790,988)
Net change in unrealized loss (gain)
on investments 3,218,969 (2,311,373) 6,116,647
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 742,658 764,832 2,022,107
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (834,624) (4,471,482) (2,753,876)
Proceeds from dispositions of portfolio investments 8,848,738 1,106,335 8,930,308
(Purchase) sale of temporary investments, net (5,097,059) 5,549,573 (4,467,744)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,917,055 2,184,426 1,708,688
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (2,455,291) (1,450,381) (1,768,635)
Repurchase of limited partnership units (1,162,619) (1,440,340) (1,959,487)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,617,910) (2,890,721) (3,728,122)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 41,803 58,537 2,673
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 234,305 175,768 173,095
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 276,108 $ 234,305 $ 175,768
=================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
ELEVEN
<PAGE> 14
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 831,359 $ 772,453 $ 1,725,971
Net realized gain (loss) on investments 2,925,017 (3,453,919) 3,790,988
Net change in unrealized (loss) gain
on investments (3,218,969) 2,311,373 (6,116,647)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 537,407 (370,093) (599,688)
Repurchase of limited partnership units (Note 5) (1,162,618) (1,440,340) (1,959,487)
Distributions to partners from -
Net investment income (831,359) (956,739) (1,541,685)
Realized gain on investments (1,608,939) (465,859) --
Return of capital (710,627) -- --
- -----------------------------------------------------------------------------------------------------------------
Total decrease in net assets (3,776,136) (3,233,031) (4,100,860)
Net assets:
Beginning of year 16,640,001 19,873,032 23,973,892
- -----------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $0, $0 and $184,286, respectively) $ 12,863,865 $ 16,640,001 $ 19,873,032
=================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
TWELVE
<PAGE> 15
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS(1)
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA:
Investment income (2) $ 1.24 $ 1.11 $ 1.75 $ 1.63 $ 1.73
Expenses (2) (.49) (.47) (.42) (.40) (.41)
- --------------------------------------------------------------------------------------------------------------------
Net investment income(2) .75 .64 1.33 1.23 1.32
Net realized gain (loss) on investments(2) 2.64 (2.88) 2.92 (1.46) .60
Net change in unrealized (loss) gain
on investments(2) (2.91) 1.93 (4.71) 2.52 (.50)
Effect of unit repurchases
on net asset value -- (.02) (.20) .02 (.01)
Distributions declared to partners (2.90) (1.20) (1.20) (1.80) (1.80)
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net asset value (2.42) (1.53) (1.86) .51 (.39)
Net asset value:
Beginning of year 15.08 16.61 18.47 17.96 18.35
- --------------------------------------------------------------------------------------------------------------------
End of year $ 12.66 $ 15.08 $ 16.61 $ 18.47 $ 17.96
====================================================================================================================
RATIOS:
Ratio of expenses to average net assets 3.60% 2.92% 2.27% 2.27% 2.27%
Ratio of net investment income to
average net assets 5.55% 4.05% 7.22% 6.91% 7.28%
Number of limited partnership units
at end of year(1) 1,202,142 1,104,881 1,196,564 1,296,999 1,427,950
</TABLE>
- ----------
(1) Effective October 1, 1993, each $1,000 limited partnership unit was
redenominated into fifty $20 limited partnership units. All amounts shown
for 1993 have been restated to give effect to this redenomination.
(2) Calculated using the weighted average number of limited partnership units
outstanding during the years ended December 31, 1997, 1996, 1995, 1994
and 1993 of 1,095,362, 1,186,294, 1,285,717, 1,413,240 and 1,482,514,
respectively.
The accompanying notes to financial statements are an integral
part of these selected per unit data and ratios.
THIRTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 Fund's Statements of
Operations.
Valuation of Investments FCM values the Fund's investments on a weekly
basis utilizing a variety of methods. For securities that are publicly traded
and for which market quotations are available, valuations are set by the closing
sales, or an average of the closing bid and asked prices, as of the valuation
date. The Fund discounts these closing market prices between 5% and 20% to
reflect lack of liquidity, if the Fund's securities are subject to legal or
contractual trading restrictions, or to reflect the potential market impact
which could result from the sale of the securities, if the Fund and FCP combined
own a material percentage of the outstanding securities. The amount of the
discount varies based upon the type of restriction, the time remaining on the
restriction and the size of the holding.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation policies
and procedures which have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). Debt
securities with attached warrants for the purchase of common stock are initially
recorded at a discount from face value equal to the estimated relative value of
the warrants at date of investment. The discount is amortized to income as an
adjustment to yield from the debt securities. Face value less unamortized
discount represents the "amortized cost" of the debt securities.
The cost method is used until significant developments affecting the
portfolio company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings, cash
flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future
FOURTEEN
<PAGE> 17
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
financial prospects. In a case of unsuccessful operations, the appraisal may be
based upon liquidation value. Appraisal valuations are necessarily subjective.
The Fund also may use, when available, third-party transactions in a portfolio
company's securities as the basis of valuation ("private market method"). The
private market method is used only with respect to completed transactions or
firm offers made by sophisticated, independent investors.
Temporary investments with maturities of less than 60 days are stated at
amortized cost, which approximates market value. Under this method, temporary
investments are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until maturity
of the investment.
Cash and Cash Equivalents The Fund considers investments in money market
funds to be cash equivalents.
Interest Receivable on Notes Notes are placed on non-accrual status in
the event of a default (after any applicable grace period expires) or if FCM
determines that there is no reasonable expectation of collecting the interest.
Income Taxes No provision for income taxes has been made in the financial
statements because taxes on Fund income are the responsibility of the individual
partners rather than the Fund.
Investment Transactions The Fund records portfolio investment
transactions on the date on which it obtains an enforceable right to demand the
securities or payment thereof and records temporary investment transactions on
the trade date. Realized gains and losses on investments are determined on the
basis of specific identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from temporary
investments will be distributed and allocated 99% to the Limited Partners and 1%
to FCM. Net investment income will, in general, be distributed and allocated:
(i) 99% to the Limited Partners and 1% to FCM until the Limited Partners have
received a cumulative non-compounded preferred return of 9% per annum on their
capital contributions to the Fund, then (ii) 70% to the Limited Partners and 30%
to FCM until FCM has received 10% of all current and prior distributions and
allocations, and thereafter, (iii) 90% to the Limited Partners and 10% to FCM.
Proceeds from capital transactions will, in general, be distributed and
allocated: (i) 99% to the Limited Partner and 1% to FCM until the Limited
Partners have receive 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
November 1997 84,739 7.67% 13.72 13.45
</TABLE>
FIFTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives
a subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement, net of certain fees received
directly by FCM from the Fund's portfolio companies. Investment advisory fees of
$120,800, $136,714 and $195,279 were incurred by the Fund for 1997, 1996 and
1995, 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 1997, 1996 and 1995. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $68,895, $68,895 and $68,105 for 1997, 1996
and 1995, 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 $46,966, $47,563 and $49,283
were incurred by the Fund for 1997, 1996 and 1995, respectively.
9. OTHER RELATED PARTY TRANSACTIONS
FCM and its affiliates are entitled to reimbursement of direct expenses
paid on behalf of the Fund. Such reimbursements amounted to $256,851, $200,848
and $154,260 during 1997, 1996 and 1995, 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, 1997, the Fund held portfolio investments in six
Managed Companies, with an aggregate cost of approximately $9.6 million. During
the year ended December 31, 1997, the Fund acquired a follow-on investment in
LMC Operating Corp. ("LMC") at a cost of approximately $0.8 million.
The Fund's subordinated debt investment in Elgin National Industries,
Inc. was prepaid during 1997. In addition, the Fund sold all of its Neodata
Corporation and ENI Holding Corp. stock and received a distribution from the
escrow account that was established during 1996 in connection with the sale of
the Fund's Huntington Holdings, Inc. stock. The Fund received $8,848,738 in
proceeds, including applicable prepayment premiums, resulting in aggregate
realized gains of $2,947,255.
During 1997, the Fund accrued $22,238 of additional reserves for possible
legal costs and other payments that may be required in connection with the
Canadian's Holdings, Inc. ("Canadian's") bankruptcy proceedings (see Note 13).
This amount was recorded as an additional realized loss in the Fund's Statement
of Operations.
The Fund has pledged the common stock and warrants it owns in AR
Accessories Group, Inc. 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, 1996, the Fund had recorded net unrealized loss on
investments of $583,302. During 1997, the Fund recorded $9,765 of unrealized
gain and $3,315,695 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1997 with respect to which the Fund had
SIXTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recorded $86,963 of net unrealized loss during prior years. Therefore, at
December 31, 1997, the Fund had net unrealized loss on investments of
$3,802,269.
12. NON-ACCRUAL STATUS OF INVESTMENTS
In accordance with the Fund's accounting policies, the Fund stopped
accruing interest on (i) the Canadian's Holdings, Inc. Exchangeable Redeemable
Debentures effective April 1, 1995, (ii) the Canadian's Promissory Notes
effective October 1, 1995, (iii) the Canadian's Subordinated Notes effective
December 1, 1995, (iv) the LMC Senior Subordinated Notes effective December 1,
1995, and (v) the Atlas Environmental, Inc. ("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, 1997, the Fund's only debt investment on non-accrual
status was the Atlas Senior Subordinated Secured Notes.
13. COMMITMENTS AND CONTINGENCIES
LMC Commitment On February 18, 1998, the Fund agreed to provide up to
$449,000 of additional subordinated debt to LMC, of which $314,300 was advanced
on that date. The remaining $134,700 was advanced during March 1998.
Canadian's Litigation On October 3, 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 sought a
declaratory judgment that sales taxes collected by Canadian's and turned over to
Finova were "trust funds" collected by Canadian's on behalf of various state tax
authorities. Through the complaint, the Fund objected to Finova's secured claim
against Canadian's, which was guaranteed by Benson Selzer and Joseph Eiger, and
sought to recover the sales tax and certain other amounts for the benefit of
Canadian's bankruptcy estate. As a result of this litigation and the issues
involved, the Fund accrued $370,627 during 1996 for legal costs and possible
payments that may be required to settle the litigation or to fund the payment of
Canadian's outstanding sales tax liabilities.
On March 19, 1997, the Bankruptcy Court denied the Fund's claim. As a result of
the Court's decision, the Fund dropped this litigation, while preserving its
rights to pursue litigation against Finova at a later date. Beginning July 1,
1997, the Fund began accruing additional reserves at a 12% annualized rate or
$22,237 for the six months ended December 31, 1997.
LMC Litigation On January 27, 1998, LMC Holding Co. ("LMC Holding"),
which holds 49.75% of the issued and outstanding common stock of LMC, commenced
an action against the Fund, FCP and each of Paul Bagley, the Chairman of the
Board and Chief Executive Officer of FCM, W. Duke DeGrassi, the President of
FCM, and Donald R. Jackson, the Senior Vice President, Treasurer, Chief
Financial Officer and Compliance Officer of FCM (collectively, the "Individual
Defendants"), in their capacities as officers of FCM, in the First Judicial
District Court in and for Cache County, State of Utah, entitled LMC Holding Co.
v. Fiduciary Capital Partners, L.P., et al., Civil No. 98-0100077 (the "LMC
Action"). In the LMC Action, LMC Holding has asserted claims against the Fund
alleging breach of a shareholders' agreement among the Fund, FCP and LMC Holding
relating to the management of LMC, against the Fund and the Individual
Defendants alleging breach of fiduciary duties and ultra vires actions taken on
behalf of LMC, and against the Individual Defendants alleging civil
conspiracy/aiding and abetting and unjust enrichment. LMC Holding is seeking
various forms of injunctive relief and monetary damages in an unspecified
amount, including punitive damages and the return of all management fees paid by
LMC to the Fund since November 19, 1997. Discovery in the LMC Action has
commenced, and the Fund intends to contest LMC Holding's claims vigorously.
The Fund expects to prevail in the LMC Action, although there can be no
assurance that this will be the case.
LMC Holding is controlled by Paul Wallace, a director of LMC and the
trustee of its pension plan. FCM believes that the LMC Action was commenced in
response to an action filed by LMC against Mr. Wallace to recover for a
significant underfunding of LMC's pension plan.
FCM believes that none of the above discussed litigation will have any
material adverse effect on the business, financial condition and results of
operations of the Fund, taken as a whole, beyond the reserve that has been
established with respect to the Canadian's litigation.
SEVENTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
14. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net increase in net assets
resulting from operations in the accompanying financial statements to the
taxable income reported for federal income tax purposes:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net increase (decrease) in net
assets resulting from
operations per financial
statements $ 537,407 $ (370,093) $ (599,688)
Increase (decrease)
resulting from:
Unrealized loss (gain)
on investments 3,218,969 (2,311,373) 6,116,647
Realized gains and
losses on investments (73,962) 503,448 --
Fee income, net of
amortization (47,396) (18,801) (64,525)
Interest income -- -- 32,992
Amortization of
organization and
start-up costs -- -- (10,793)
Other (19,564) (15,417) (38,431)
- ---------------------------------------------------------------------------------------------
Taxable income (loss) per
federal income tax
return $ 3,615,454 $ (2,212,236) $ 5,436,202
=============================================================================================
</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>
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets per
financial statements $ 12,863,865 $ 16,640,001 $ 19,873,032
Realized gains and
losses on investments 3,357,111 3,431,073 2,927,625
Syndication, organization
and start-up costs, net 2,982,080 3,045,822 3,112,764
Unrealized loss
on investments 3,802,271 583,302 2,894,675
Distributions payable 1,030,446 334,812 362,595
Fee income, net of
amortization -- 47,396 66,197
Accrued expenses 24,050 25,625 18,650
- -------------------------------------------------------------------------------------------
Tax bases of net assets $ 24,059,823 $ 24,108,031 $ 29,255,538
===========================================================================================
</TABLE>
EIGHTEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Fiduciary Capital Pension Partners, L.P.:
We have audited the accompanying balance sheets of Fiduciary Capital
Pension Partners, L.P. (a Delaware limited partnership) as of December 31, 1997
and 1996, including the schedule of investments as of December 31, 1997, 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, 1997 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, 1997 and 1996 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, 1997 and
1996, 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, 1997,
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 $5,309,157 at December 31, 1997 (41.3% of net assets) and
$13,475,314 at December 31, 1996 (81.0% 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, 1998.
NINETEEN
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Fund's
audited Financial Statements and the Notes thereto. This report contains, in
addition to historical information, forward-looking statements that include
risks and other uncertainties. The Fund's actual results may differ materially
from those anticipated in these forward-looking statements. While the Fund can
not always predict what factors would cause actual results to differ materially
from those indicated by the forward-looking statements, factors that might cause
such a difference include general economic and business conditions, competition
and other factors discussed elsewhere in this report. Readers are urged to
consider statements that include the terms "believes", "expects", "plans",
"anticipates", "intends" or the like to be uncertain and forward-looking. The
Fund undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of anticipated or unanticipated events.
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
November 1997 84,739 7.67% 13.72 13.45
</TABLE>
As of December 31, 1997, the Fund held portfolio investments in six
Managed Companies, with an aggregate cost of approximately $9.6 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 44.7% 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, 1997, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
The Fund's subordinated debt investment in Elgin was prepaid during 1997.
In addition, the Fund sold all of its Neodata and ENI stock and received a
distribution from the escrow account that was established during 1996 in
connection with the sale of the Fund's Huntington stock. In total, the Fund
received $8,848,738 in proceeds, including applicable prepayment premiums, from
these transactions.
During November 1996, the Fund agreed to provide up to $1,632,960 of
subordinated debt to LMC, of which $816,480 was advanced at that time. The Fund
advanced the remaining $816,480 during 1997.
During February 1998, the Fund agreed to provide up to $449,000 of
additional subordinated debt to LMC, of which $314,300 was advanced at that
time. The remaining $134,700 was advanced during March 1998.
Accrued interest receivable decreased $27,243 from $95,207 at December
31, 1996 to $67,964 at December 31, 1997. This decrease resulted primarily from
the sale of the Fund's subordinated debt investment in ENI during 1997. The
impact of the ENI sale was partially offset by the accrued interest related to
the additional LMC subordinated debt advanced during 1997, which is discussed
above.
Other assets increased $52,280 from $6,646 at December 31, 1996 to
$58,926 at December 31, 1997. This increase resulted primarily from an increase
in prepaid insurance associated with a
TWENTY
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
new liability insurance policy for the Fund's general partners and a receivable
from LMC for legal fees that the Fund advanced on behalf of LMC.
Distributions payable to partners increased $695,634, from $334,812 at
December 31, 1996 to $1,030,446 at December 31, 1997, resulting from a
distribution rate increase from $.30 per Unit for the fourth quarter of 1996 to
$1.00 per Unit for the fourth quarter of 1997. The effect of this increase in
the quarterly distribution rate was partially offset by a 7.67% decrease in the
number of outstanding Units as a result of the repurchase of Units by the Fund
during November 1997.
During 1997, the Fund declared cash distributions to its partners in the
aggregate amount of $3,150,925. The distributions were paid in four quarterly
payments of $.30, $.30, $1.30 and $1.00 per Unit during the months of May,
August and November 1997 and February 1998. In the aggregate, the distributions
were paid out of current net investment income (26.4%), realized gains on
investments (51.1%) and a return of capital (22.5%).
The Fund currently expects the remaining 1998 distributions, beginning
with the distribution payable during August 1998, to be made at a rate of $1.00
per Unit per quarter for all Limited Partners. 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 1998 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. The increase in the quarterly distribution
rate during 1997 and 1998 represents a distribution of the Neodata, Elgin and
ENI sales proceeds.
See Note 13 to the Fund's financial statements for a discussion of
litigation. FCM believes that this litigation will be resolved without any
material adverse effect on the Fund's business, financial condition or results
of operations, taken as a whole, beyond the reserve that has been established
with respect to the Canadian's litigation.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's investment income consists primarily of interest income earned
from the various debt investments held by the Fund and dividend income from the
ENI preferred stock that was sold during 1997. Major expenses include
professional fees, investment advisory fees, fund administration fees and
administrative expenses.
1997 Compared to 1996
The Fund's net investment income was $831,359 for the year ended December
31, 1997 on total investment income of $1,370,252 as compared to net investment
income of $772,453 on total investment income of $1,329,491 for the prior year.
Net investment income per limited partnership unit increased from $.64 to $.75,
and the ratio of net investment income to average net assets increased from
4.05% to 5.55% for the year ended December 31, 1997 in comparison to the prior
year.
Net investment income for the year ended December 31, 1997 increased 7.6%
as a result of a small increase in investment income and a small decrease in
total expenses. Net investment income per limited partnership unit increased
17.2%. The percentage increase in net investment income per limited partnership
unit exceeded the percentage increase in net investment income 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 1996 and 1997.
Investment income increased $40,761, or 3.1%, for the year ended December
31, 1997 in comparison to the prior year. This increase resulted primarily from
the receipt of the accumulated preferred stock dividends that were paid on the
ENI preferred stock at the time of its disposition. The positive impact of the
ENI dividend income was significantly offset by a decrease in interest income. A
number of factors contributed to the decline in interest income, including (i)
the decision to stop accruing interest in the Fund's Atlas subordinated debt
investment effective April 1996, (ii) the prepayment of the Fund's Elgin
subordinated debt investment during November 1997, and (iii) reduced amounts of
temporary investments as a result of the Fund utilizing a portion of its cash
reserves to fund the LMC follow-on investment and to repurchase Units during
both November 1996 and 1997. The negative effect of these items was partially
offset by the increase in interest income earned on the LMC follow-on
investment.
Total expenses decreased $18,145, or 3.3%, for the year ended December
31, 1997 in comparison to the prior year. This decrease resulted primarily from
decreases in investment advisory fees and other expenses. These decreases were
partially offset by an increase in professional fees.
TWENTY-ONE
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The investment advisory fees paid to FCM decreased during 1997, primarily
as a result of the direct receipt by FCM of consulting fees from LMC, one of the
Fund's portfolio companies during the first quarter of 1997 and as a result of
the repurchase of Units during November 1996 and 1997. Pursuant to the terms of
the Fund's investment advisory agreement with FCM, the investment advisory fees
payable to FCM by the Fund are reduced by the amount of any fees that FCM
receives directly from any of the Fund's portfolio companies. The repurchase of
Units decreased the amount of the Fund's available capital (as defined in the
Partnership Agreement) which is the base with respect to which the investment
advisory fees are calculated.
Other expenses decreased during 1997 primarily as a result of consulting
fees and expenses paid during 1996 in connection with the Canadian's bankruptcy
proceedings.
Professional fees increased during 1997 primarily because of fees
incurred in connection with the Fund's analysis of a proposal pursuant to which
its Units would have been exchanged for shares in a newly formed Delaware
Business Trust. FCM has decided not to pursue this proposal at this time.
1996 Compared to 1995
The Fund's net investment income was $772,453 for the year ended December
31, 1996 on total investment income of $1,329,491 as compared to net investment
income of $1,725,971 on total investment income of $2,268,159 for the prior
year. Net investment income per limited partnership unit decreased from $1.33 to
$.64, and the ratio of net investment income to average net assets decreased
from 7.22% to 4.05% for the year ended December 31, 1996 in comparison to the
prior year.
Net investment income for the year ended December 31, 1996 decreased
primarily as a result of a decrease in investment income. Total expenses also
increased by a small amount.
Investment income decreased $938,668, or 41.4%, for the year ended
December 31, 1996 in comparison to the prior year. This decrease resulted
primarily from the conversion of the Fund's LMC debt securities into
non-dividend paying equity securities, the Canadian's bankruptcy and the
decision by the Fund to stop accruing interest on its subordinated debt
investment in Atlas. Other factors that contributed to the decrease in
investment income include the utilization of a portion of the Fund's cash
reserves to repurchase Units during both November 1995 and 1996 and lower
interest rates on the Fund's temporary investments.
Total expenses increased $14,850, or 2.7%, for the year ended December
31, 1996 in comparison to the prior year. This increase resulted primarily from
increases in professional fees and other expenses. These increases were
partially offset by decreases in investment advisory fees and amortization
expense.
The increases in professional fees and other expenses were primarily the
result of legal fees and other costs incurred in connection with the Canadian's
bankruptcy proceedings and the default by Atlas with respect to the payment of
interest due to the Fund. The investment advisory fees decreased primarily as a
result of the repurchase of Units by the Fund during both November 1995 and 1996
and the realization during February 1996 of the loss on the Fund's Canadian's
investment. Both the repurchase of the Units and the realization of the
Canadian's loss decreased the amount of the Fund's available capital (as defined
in the Partnership Agreement), which is the base with respect to which the
investment advisory fees are calculated. The Fund amortized its organization
cost over a five year period beginning with the inception of the Fund in 1990.
Therefore, these costs became fully amortized during 1995.
NET REALIZED GAIN (LOSS) ON INVESTMENTS
The Fund realized gains of $3,790,988 during the year ended December 31,
1995, net losses of $3,453,919 during the year ended December 31, 1996 and net
gains of $2,925,017 during the year ended December 31, 1997.
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. During 1996, the Fund realized a gain from the sale of the Fund's
Huntington investment and realized a loss on the Fund's Canadian's investment.
The net realized gain for 1997 resulted from gains on the Fund's Neodata,
Elgin, ENI and Huntington investments, including a prepayment premium, and an
additional realized loss on the Fund's Canadian's investment.
The Fund owned an equity position in Neodata since 1990, which it
acquired at a cost of $278,917. In addition, the Fund previously owned Neodata
subordinated notes, which were prepaid during May 1993.
During August 1997, Electronic Data Systems Corporation ("EDS") offered
to purchase all of Neodata's stock that it did not
TWENTY-TWO
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
already own. Hicks Muse, the owner of a controlling portion of Neodata's common
stock, accepted the offer. The purchase by EDS closed on September 2, 1997. The
Fund received $1,178,150 of cash proceeds from the sale of its Neodata stock,
resulting in a realized gain of $899,233.
During 1993, the Fund invested $5,651,917 in Elgin and its parent
company, 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.
During June 1997, the Fund received a written offer from ENI management
to prepay the Fund's subordinated debt, redeem the Fund's preferred stock and
purchase the Fund's Class B common stock and warrants. The offer was reviewed by
all of the subordinated debt holders, including the Fund, and rejected as
inadequate.
During August 1997, ENI management made an improved offer, which was
revised and accepted by all of the subordinated debt holders, following a series
of negotiations. The sale closed on November 5, 1997, with the Fund receiving
$7,603,390 of sales proceeds, along with $361,543 of accrued interest and
accumulated preferred stock dividends, resulting in a realized gain of
$1,980,823.
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 being held by the buyer in escrow. A portion of the escrowed funds
was used to pay various transaction expenses and the Fund received additional
distributions of $16,439 and $67,198 during September 1996 and May 1997,
respectively. The Fund's share of the remaining escrow balance is approximately
$70,000. The remaining balance of the escrow was required to be held until
February 1998 to be available 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. During February 1998, the
purchaser notified the sellers, including the Fund, of claims against the escrow
account that totaled approximately 31% of the balance remaining in the escrow
account. The sellers intend to object to these claims and the balance of the
escrow account will not be released until these claims are resolved. The Fund
recognized realized gains of $1,020,657 and $67,198 from this transaction during
1996 and 1997, respectively. Additional gain will be recognized if, and when,
the Fund actually receives a distribution of any of the remaining escrowed
funds.
Beginning July 1, 1997, the Fund began accruing additional Canadian's
sales tax related reserves at a 12% annualized rate, or $22,237 for the six
months ended December 31, 1997. This additional accrued amount was recorded as
an additional realized loss in the Fund's 1997 Statement of Operations.
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an average
of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation policies
and procedures that have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method will be
used only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
Prior to 1995, the Fund had recorded cumulative net unrealized gain on
investments of $3,221,972. During 1995, the Fund recorded $642,173 of unrealized
gain and $4,831,540 of unrealized loss on investments. In addition, the Fund
disposed of investments during 1995 with respect to which the Fund had recorded
$1,927,280 of net unrealized gain during prior years. Therefore, at December 31,
1995, the Fund had net unrealized loss on investments of $2,894,675.
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.
TWENTY-THREE
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The net increase in unrealized loss on investments during 1997 and the
cumulative net unrealized loss on investments at December 31, 1997, consisted of
the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
--------------------------------------
As of
Portfolio Investment During 1997 December 31, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Unrealized net loss recorded
during prior years with
respect to investments
disposed of during 1997 $ 86,966 $ --
KEMET (86,465) 437,099
ARA (703,412) (97,213)
LMC (282,720) (741,920)
MTI 9,765 (177,356)
Atlas (2,243,103) (3,222,879)
- ------------------------------------------------------------------------------
$ (3,218,969) $ (3,802,269)
==============================================================================
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock, which
trades on the NASDAQ National Market System, closed at $19.3125 (an average of
the closing bid and ask prices) on December 31, 1997. This price is down
slightly from the closing price of $23.0625 on December 31, 1996. Based on the
$19.3125 closing trading price of the common stock, the 23,056 shares of common
stock that the Fund held at December 31, 1997 had a market value of $445,269.
The ARA warrants and common stock were written up in value at March 31,
1996 to bring ARA's valuation at that time more in line with the valuations of
comparable companies in its industry. However, ARA reported significantly
reduced earnings and cash flows from operations for its most recent fiscal year.
In addition, the price earnings ratios of comparable companies in its industry
have declined recently. As a result of these factors, the ARA warrants and
common stock were written down in value by $703,412 during 1997. On a net
cumulative basis, as of December 31, 1997, the Fund's ARA investment has been
written down in value by $97,213.
During February 1998, ARA hired a crisis manager to assist it in
addressing significant declines in the company's sales and profits, which have
occurred in recent years. The hiring of the crisis manager was precipitated by
ARA's lenders, who have notified ARA of defaults under its credit lines and have
demanded that ARA repay overadvances that were made during 1997.
The Fund has been notified that ARA is considering a number of options
for solving these problems, including a possible bankruptcy filing and the sale
of the company, or certain of its operations.
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.
LMC has a defined contribution plan (the "Plan"), which was closed during
1995. The current and previous trustees of the Plan have failed to assure that
the Plan was properly funded, in an amount equal to approximately $600,000.
Including penalties and interest, this amount could now total as much as
$1,800,000. The Internal Revenue Service ("IRS") has notified LMC that an audit
of the Plan will be conducted in early 1998. In order to rectify this problem,
LMC has made demands on the current and previous trustees of the Plan and the
previous controlling shareholders that these parties make the necessary payments
to the Plan. LMC has filed suit against the current trustee, who's wholly-owned
company currently owns approximately 50% of LMC's common stock, and expects to
prevail in this litigation, although there can be no assurance that this will be
the case. Regardless, the IRS may insist that LMC fund the Plan prior to
resolution of the litigation. If the IRS requires LMC to fund the underpayments
and the related penalties and interest, it will put pressure on LMC's working
capital availability.
As a result of this matter and its potential impact on LMC, the Fund
recorded an additional $282,720 write down in the value of its LMC investment
during 1997. On a cumulative basis, as of December 31, 1997, the Fund's LMC
investment has been written down in value by $741,920. (The Fund made additional
follow-on investments in LMC during 1996, 1997 and 1998.)
The MTI common stock was written down in value by $206,131 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 and $9,765 during 1996 and 1997,
respectively, based upon an analysis of MTI's earnings and cash flows. On a net
cumulative basis, as of December 31, 1997, the Fund's MTI investment has been
written down in value by $177,356, to a carrying value of $60,271.
TWENTY-FOUR
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During January 1998, MTI entered into an agreement pursuant to which the
company will be sold. If this proposed sale, which is scheduled to close during
March 1998, is consummated at the expected price, the Fund will receive
approximately $140,000 for its MTI common stock and warrants.
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.
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. During
November 1996, the purchaser notified Atlas that it wanted to renegotiate the
terms of the transaction, including a reduction in the purchase price. Atlas
management was unable to reach a revised agreement with the purchaser and Atlas
remained in default on its debt. On January 17, 1997, Atlas filed for Chapter 11
bankruptcy protection.
Atlas has filed a plan of reorganization with the bankruptcy court in an
effort to restructure and emerge from bankruptcy. The plan anticipates that many
of the interested parties, including the Fund, will contribute additional
capital to the company. While the Fund is generally supportive of the plan,
there are a number of significant business issues which must be addressed before
the Fund will agree to the plan or agree to make a follow-on investment in
Atlas.
As a result of these developments, the Fund stopped accruing interest on
its Atlas investment effective April 20, 1996 and recorded writedowns of
$979,776 and $2,243,103 during 1996 and 1997, respectively, in the carrying
value of the investment. The remaining carrying value of the Fund's Atlas
investment as of December 31, 1997 is $2.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
INFLATION AND CHANGING PRICES
Inflation has had no material impact on the operations or financial
condition of the Fund from inception through December 31, 1997. However,
inflation and changing prices, in addition to other factors, may effect the
value and the eventual selling price of the Fund's investments.
TWENTY-FIVE
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
FUND INFORMATION
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
410 17th Street, Suite 400
Denver, Colorado 80202
(800) 866-7607
MANAGING GENERAL PARTNER
FCM Fiduciary Capital Management Company
AUDITORS
Arthur Andersen LLP
Denver, Colorado
LEGAL COUNSEL
Dorsey & Whitney LLP
Denver, Colorado
TRANSFER AGENT
Service Data Corporation
Omaha, Nebraska
A copy of the Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, will be furnished without charge to Limited Partners upon
request. A copy can also be obtained from the SEC's EDGAR Database on the World
Wide Web at: http://www.sec.gov/edgarhp.htm.
TWENTY-SIX
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
-------------------------------------------------------------------
----------------------------
FIRST QUARTER REPORT
1998
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 8,170 $ 425,815
- -----------------------------------------------------------------------------------------------------------------
8,170 425,815 3.3%
- -----------------------------------------------------------------------------------------------------------------
62,606 sh. AR Accessories Group,
Inc., Warrants
to Purchase Class B
Common Stock* 07/30/92 85,909 1
22,608 sh. AR Accessories Group,
Inc., Class A Common
Stock* 07/30/92 226,080 1
- -----------------------------------------------------------------------------------------------------------------
311,989 2 0.0
- -----------------------------------------------------------------------------------------------------------------
$1,632,960 LMC Operating Corp.,
12.00% Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 11/04/97 1,632,960 1,632,960
$449,000 LMCOperating Corp.,
12.00% Senior Subordinated
Revolving Notes 02/18/98 &
due 8/20/98 03/18/98 449,000 449,000
239,600 sh. LMCOperating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,101,688
22.72 sh LMC Operating Corp.,
Common Stock* 02/09/96 454,399 1
49.72 sh. LMCCredit Corp.,
Common Stock* 02/09/96 1 1
- -----------------------------------------------------------------------------------------------------------------
4,925,570 4,183,650 32.6
- -----------------------------------------------------------------------------------------------------------------
1,327 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 187,698 67,480
3,539 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(2)* 12/28/94 49,929 74,505
- -----------------------------------------------------------------------------------------------------------------
237,627 141,985 1.1
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part
of this schedule.
ONE
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,230,316 1,230,316
9,772.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common Stock* 05/24/95 73,295 73,295
- -------------------------------------------------------------------------------------------------------------------
1,303,611 1,303,611 10.2
- -------------------------------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due
1/19/03(4) 01/25/96 3,189,039 1
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(5)* 01/25/96 33,842 1
- -------------------------------------------------------------------------------------------------------------------
3,222,881 2 0.0
- -------------------------------------------------------------------------------------------------------------------
Total Investments in Managed
Companies (52.3% of net assets) 10,009,848 6,055,065 47.2
- -------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$3,400,000 Ford Motor Credit
Corporation, 5.32%
Notes due 4/14/98 03/31/98 3,393,480 3,393,480
$3,400,000 American Express
Credit Corp., 5.35%
Notes due 4/14/98 03/31/98 3,393,444 3,393,444
- -------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (58.6% of net assets) 6,786,924 6,786,924 52.8
Total Investments (110.9% of net assets) $16,796,772 $12,841,989 100.0%
===================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of this schedule.
TWO
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The warrants have exercise prices of $19.30 per share (1,062 shares) and
$34.30 per share (2,477 shares).
(3) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(4) 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.
(5) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an integral part
of this schedule.
THREE
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
- ------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$10,009,848 and $9,556,695,
respectively) $ 6,055,065 $ 5,754,426
Temporary investments, at amortized cost 6,786,924 8,194,820
- ------------------------------------------------------------------------------------------------
Total investments 12,841,989 13,949,246
Cash and cash equivalents 276,002 276,108
Accrued interest receivable 71,642 67,964
Other assets 52,613 58,926
- ------------------------------------------------------------------------------------------------
Total assets $13,242,246 $ 14,352,244
================================================================================================
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 63,953 $ 33,796
Accounts payable and accrued liabilities 463,596 424,137
Distributions payable to partners 1,139,142 1,030,446
- ------------------------------------------------------------------------------------------------
Total liabilities 1,666,691 1,488,379
- ------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
NET ASSETS:
Managing General Partner (61,493) (49,360)
Limited Partners (equivalent to $11.41
and $12.66, respectively, per limited
partnership unit based on 1,020,142
units outstanding) 11,637,048 12,913,225
- ------------------------------------------------------------------------------------------------
Net assets 11,575,555 12,863,865
- ------------------------------------------------------------------------------------------------
Total liabilities and net assets $ 13,242,246 $ 14,352,244
================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
FOUR
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- ---------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 204,108 $ 278,205
- ---------------------------------------------------------------------------------------------
Total investment income 204,108 278,205
- ---------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 30,388 19,304
Professional fees 76,155 44,445
Fund administration fees (Note 3) 29,582 29,582
Administrative expenses (Note 3) 17,224 17,224
Independent General Partner fees
and expenses (Note 4) 18,095 11,626
Other expenses 18,199 6,486
- ---------------------------------------------------------------------------------------------
Total expenses 189,643 128,667
- ---------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 14,465 149,538
- ---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on investments (11,119) --
Net change in unrealized loss
on investments (152,514) (788,038)
- ---------------------------------------------------------------------------------------------
Net loss on investments (163,633) (788,038)
- ---------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(149,168) $(638,500)
=============================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of
these financial statements.
FIVE
<PAGE> 35
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- -----------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ (149,168) $(638,500)
Adjustments to reconcile net decrease in net assets
resulting from operations to net cash provided by
operating activities:
Accreted discount on portfolio investments (4,153) (8,696)
Change in assets and liabilities:
Accrued interest receivable (3,678) (4,966)
Other assets 6,313 4,796
Payable to affiliates 30,157 (2,402)
Accounts payable and accrued liabilities 28,340 (14,149)
Net realized loss on investments 11,119 --
Net change in unrealized loss
on investments 152,514 788,038
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 71,444 124,121
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (449,000) -
Sale of temporary investments, net 1,407,896 297,761
- ----------------------------------------------------------------------------------------------
Net cash provided by investing activities 958,896 297,761
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,030,446) (334,812)
- ----------------------------------------------------------------------------------------------
Net cash used in financing activities (1,030,446) (334,812)
- ----------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (106) 87,070
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 276,108 234,305
- ----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 276,002 $321,375
==============================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
SIX
<PAGE> 36
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR
THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
- ----------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 14,465 $ 831,359
Net realized (loss) gain on investments (11,119) 2,925,017
Net change in unrealized loss on investments (152,514) (3,218,969)
- ----------------------------------------------------------------------------------------------
Net (decrease) increase in net assets resulting
from operations (149,168) 537,407
Repurchase of limited partnership units -- (1,162,618)
Distributions to partners from -
Net investment income (14,465) (831,359)
Realized gain on investments (1,124,677) (1,608,939)
Return of capital -- (710,627)
- ----------------------------------------------------------------------------------------------
Total decrease in net assets (1,288,310) (3,776,136)
Net assets:
Beginning of period 12,863,865 16,640,001
- ----------------------------------------------------------------------------------------------
End of period (including no undistributed
net investment income) $11,575,555 $12,863,865
==============================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
SEVEN
<PAGE> 37
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
PER UNIT DATA:
Investment income $ .20 $ .25
Expenses (.19) (.12)
- -------------------------------------------------------------------------------------------
Net investment income .01 .13
Net realized loss on investments (.01) --
Net change in unrealized (loss) gain on investments (.15) (.70)
Distributions declared to partners (1.10) (.30)
- -------------------------------------------------------------------------------------------
Net decrease in net asset value (1.25) (.87)
Net asset value:
Beginning of period 12.66 15.08
- -------------------------------------------------------------------------------------------
End of period $11.41 $14.21
===========================================================================================
RATIOS (ANNUALIZED):
Ratio of expenses to average net assets 6.21% 3.19%
Ratio of net investment income to
average net assets 0.47% 3.70%
Number of limited partnership units at end of period 1,020,142 1,104,881
</TABLE>
The accompanying notes to financial statements are an integral
part of these selected per unit data and ratios.
EIGHT
<PAGE> 38
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 (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 Fiduciary Capital Pension Partners, L.P. ( the "Fund"), necessary to fairly
present the financial position of the Fund as of March 31, 1998 and the results
of its operations, changes in net assets and its cash flows for the period then
ended.
These financial statements should be read in conjunction with the Significant
Accounting Policies and other Notes to Financial Statements included in the
Fund's annual audited financial statements for the year ended December 31, 1997.
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
$30,388 were paid by the Fund for the three months ended March 31, 1998.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of .45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $29,582 were
paid by the Fund for the three months ended March 31, 1998. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $17,224 for the three months ended March 31,
1998.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Partners, L.P., an
affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable
monthly in arrears, together with all out-of-pocket expenses. Each Fund's
allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the three months ended
March 31, 1998 totaled $18,095.
NINE
<PAGE> 39
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
LMC Commitment During April 1998, the Fund agreed to restructure and increase
its aggregate investment in LMC Operating Corp. ("LMC"). In the restructuring,
$1,360,800 of the Fund's LMC Senior Subordinated Revolving Notes due October 31,
2000 will be converted into additional LMC common stock. LMC will then be
allowed to again draw down the $1,360,800 under the terms of the Revolving Note
agreement to fund working capital requirements and to retire the $449,000 of LMC
Senior Subordinated Revolving Notes due August 20, 1998, which were recently
purchased by the Fund. As a result of the restructuring, the Fund's percentage
ownership of LMC's common stock will increase from approximately 23% to
approximately 40%.
LMC Litigation On January 27, 1998, LMC Holding Co. ("LMC Holding"), which holds
49.75% of the issued and outstanding common stock of LMC, commenced an action
against the Fund, FCP and each of Paul Bagley, the Chairman of the Board and
Chief Executive Officer of FCM, W. Duke DeGrassi, the President of FCM, and
Donald R. Jackson, the Senior Vice President, Treasurer, Chief Financial Officer
and Compliance Officer of FCM (collectively, the "Individual Defendants"), in
their capacities as officers of FCM, in the First Judicial District Court in and
for Cache County, State of Utah, entitled LMC Holding Co. v. Fiduciary Capital
Partners, L.P., et al., Civil No. 98-0100077 (the "LMC Action"). LMC Holding is
controlled by Paul Wallace, a director of LMC and the trustee of its
discontinued pension plan. FCM believes that the LMC Action was commenced in
response to an action filed by LMC against Mr. Wallace to recover for a
significant underfunding of LMC's discontinued pension plan. The Fund, FCP and
the Individual Defendants entered into a settlement agreement with LMC Holding,
effective April 20, 1998. The terms of the settlement call for the Board of LMC
to be increased to six members with the Fund and FCP selecting three directors
and LMC Holding selecting three, until such time as LMC becomes a reporting
company under the Securities Exchange Act of 1934, as amended. As part of the
settlement, the Fund and FCP have been able to increase their percentage
ownership of LMC pursuant to the restructuring described above. FCM believes
that the additional investment by the Fund and FCP will be very beneficial to
LMC and allow it to implement a business plan designed to restore LMC to
profitability within the next few years. LMC continues to pursue its legal
action against Mr. Wallace with respect to the underfunding of its discontinued
pension plan.
TEN
<PAGE> 40
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Fund's unaudited
Financial Statements and the Notes thereto. This report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, competition and
other factors discussed elsewhere in this report. Readers are urged to consider
statements that include the terms "believes", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward-looking. The Fund undertakes
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Fund held portfolio investments in six Managed
Companies, with an aggregate cost of approximately $10.0 million. The value of
these portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represents approximately 52.3% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and were subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies have
prepaid their subordinated debt that the Fund held. In addition, three of the
portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of March 31, 1998, the Fund's remaining assets were invested in short-term
commercial paper. These funds are available to fund follow-on investments, for
distribution to the partners or to fund the annual repurchase offer.
Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
will annually offer to purchase from its Limited Partners up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
The 1998 repurchase offer will be mailed to the Limited Partners during October
ELEVEN
<PAGE> 41
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
1998. The actual redemption of tendered Units will occur on November 20, 1998.
During February 1998, the Fund agreed to purchase $449,000 of LMC's Senior
Subordinated Revolving Notes due August 20, 1998. This investment was funded
during February and March 1998.
During April 1998, the Fund agreed to restructure and increase its aggregate
investment in LMC. In the restructuring, $1,360,800 of the Fund's LMC Senior
Subordinated Revolving Notes due October 31, 2000 will be converted into
additional LMC common stock. LMC will then be allowed to again draw down the
$1,360,800 under the terms of the Revolving Note agreement to fund working
capital requirements and to retire the $449,000 of LMC Senior Subordinated
Revolving Notes due August 20, 1998, which were recently purchased by the Fund.
As a result of the restructuring, the Fund's percentage ownership of LMC's
common stock will increase from approximately 23% to approximately 40%.
During the three months ended March 31, 1998, the Fund paid a cash distribution
pertaining to the fourth quarter of 1997, in the amount of $1,030,446, or $1.00
per Unit. The distribution for the first quarter of 1998 will be paid on May 15,
1998. The per Unit distribution rate will vary between $1.00 and $1.13 depending
upon the closing in which the particular Units were issued. This
disproportionate cash distribution results from the Units being issued on
different dates during 1990, and thus being entitled to differing Preferred
Return amounts, as defined in the Fund's Partnership Agreement. These
disproportionate distribution rates will eliminate the remaining Preferred
Return amounts, leaving all Units on an equal basis going forward.
The Fund currently expects the distribution for the second quarter of 1998,
which is payable during August 1998, to be made at a rate of $1.00 per Unit for
all Limited Partners and that the remaining 1998 distributions will likely be
reduced to a rate of $.30 per Unit per quarter.
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 impacts the amount of the Fund's quarterly distributions because
all proceeds from dispositions or maturities of investments are distributed to
investors, except to the extent the cash is needed to fund the annual repurchase
offer or to fund any follow-on investments in existing portfolio companies. The
increase in the quarterly distribution rate during 1997 and 1998 represents a
distribution of the proceeds from dispositions or maturities of investments
during 1997.
TWELVE
<PAGE> 42
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment income was $14,465 for the three months ended March
31, 1998 as compared to net investment income of $149,538 for the corresponding
period of the prior year. Net investment income per limited partnership unit
decreased from $.13 to $.01 and the ratio of net investment income to average
net assets decreased from 3.70% to 0.47% for the three months ended March 31,
1998 as compared to the corresponding period of the prior year.
Net investment income for the three months ended March 31, 1998 decreased as a
result of both a decrease in investment income and an increase in total
expenses.
Investment income decreased $74,097, or 26.6%, for the three months ended March
31, 1998, as compared to the corresponding period of the prior year. This
decrease resulted primarily from the prepayment of the Fund's Elgin National
Industries Inc. subordinated debt investment during November 1997. The Fund's
total investments also decreased as a result of the Fund's repurchase of 7.67%
of its Units during the fourth quarter of 1997. The negative effect of these
items was partially offset by increases in interest income earned on temporary
investments and on the LMC follow-on investments that were acquired during 1997
and 1998.
Total expenses increased $60,976, or 47.4%, for the three months ended March 31,
1998 as compared to the corresponding period of the prior year. This increase
resulted primarily from increases in investment advisory fees, professional
fees, Independent General Partner fees and expenses and other expenses.
The investment advisory fees paid to FCM increased as a result of the direct
receipt by FCM of consulting fees from LMC during the first quarter of 1997.
Pursuant to the terms of the Fund's investment advisory agreement with FCM, the
investment advisory fees payable to FCM by the Fund are reduced by the amount of
any fees that FCM receives directly from any of the Fund's portfolio companies.
The effect of the decrease (to zero) in the amount of LMC consulting fees
received by FCM was partially offset by the effect of the repurchase of Units by
the Fund during the fourth quarter of 1997 and the realization of additional
losses with respect to the Fund's investment in Canadian's Holdings, Inc. and
its subsidiary ("Canadian's"). 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.
Independent General Partner fees and expenses increased because one of the
Fund's three Independent General Partners resigned during the fourth quarter of
1996 and was not replaced until July 1997. The increase in professional fees was
primarily the result of legal fees incurred during the three months ended March
31, 1998 in connection with the
THIRTEEN
<PAGE> 43
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
LMC litigation. Other expenses increased primarily as a result of insurance
expense associated with a new liability insurance policy for the Fund's general
partners that was initially purchased during September 1997.
NET REALIZED LOSS ON INVESTMENTS
Beginning July 1, 1997, the Fund began accruing additional Canadian's sales tax
related reserves at a 12% annualized rate, or $11,119 for the three months ended
March 31, 1998. This additional accrued amount was recorded as an additional
realized loss in the Fund's Statement of Operations.
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an average
of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public markets or
that are privately held are determined pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
As of December 31, 1997, the Fund had recorded $437,099 of unrealized gain and
$4,239,368 of unrealized loss on investments. Therefore, as of December 31,
1997, the Fund had recorded a total net unrealized loss on investments of
$3,802,269.
FOURTEEN
<PAGE> 44
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
The net increase in unrealized loss on investments during the three months ended
March 31, 1998 and the cumulative net unrealized loss on investments as of March
31, 1998 consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
- --------------------------------------------------------------------------------
During the Three
Months Ended As of
Portfolio Company March 31, 1998 March 31, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMET $ (19,454) $ 417,645
ARA (214,774) (311,987)
LMC -- (741,920)
MTI 81,714 (95,642)
Atlas -- (3,222,879)
- ------------------------------------------------------------------------------
$(152,514) $(3,954,783)
==============================================================================
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock, which trades
on the NASDAQ National Market System, closed at $18.46875 (an average of the
closing bid and ask prices) on March 31, 1998. This price is down slightly from
the closing price of $19.3125 on December 31, 1997. Based on the $18.46875
closing trading price of the common stock, the 23,056 shares of common stock
that the Fund held at March 31, 1998 had a market value of $425,816.
AR Accessories Group, Inc. ("ARA") reported significantly reduced earnings and
cash flows from operations during 1997. In addition, the price earnings ratios
of comparable companies in its industry declined. As a result of these factors,
the ARA warrants and common stock were written down in value during 1997 to a
carrying value of $214,776.
During February 1998, ARA hired a crisis manager to assist it in addressing
continuing significant declines in the company's sales and profits. The hiring
of the crisis manager was precipitated by ARA's lenders, who notified ARA of
defaults under its credit lines and demanded that ARA repay overadvances that
were made during 1997. The Fund was notified that ARA was considering a number
of options for solving these problems, including a possible bankruptcy filing
and the sale of the company, or certain of its operations.
On March 13, 1998, ARA filed for Chapter 11 bankruptcy protection. It is
currently anticipated that ARA's assets will be sold at auction during May 1998
and that the proceeds will be less than ARA's total outstanding debt.
The Fund's subordinated debt investment in ARA was prepaid in a prior year. The
Fund's only remaining investment in ARA is a common equity position that was
acquired in connection with the Fund's original subordinated debt investment.
Since it is anticipated that all of the proceeds that will be realized from the
liquidation of ARA `s assets will likely
FIFTEEN
<PAGE> 45
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
satisfy only a portion of ARA's debt, the Fund has written the carrying value of
its remaining ARA equity investment down to a nominal amount ($2) as of March
31, 1998.
On a net cumulative basis, as of December 31, 1997, the Fund's investment in
Mobile Technology, Inc. ("MTI") had been written down in value by $177,356, to a
carrying value of $60,271.
MTI was sold on March 12, 1998. The Fund, which owned less that 0.5% of MTI's
common equity, expected to receive approximately $166,000 from the sale.
However, at the closing a dispute arose over the calculation of the sales price.
The dispute, which revolves primarily around whether the sellers or the buyer
should receive the benefit of warrant exercise proceeds, involves approximately
5% of the anticipated sales proceeds. As a result of these developments, the
MTI investment was written up in value by $81,714 at March 31, 1998, to a
carrying value of $141,985.
FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.
SIXTEEN
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 12,921,253
<INVESTMENTS-AT-VALUE> 11,377,188
<RECEIVABLES> 64,420
<ASSETS-OTHER> 5,536
<OTHER-ITEMS-ASSETS> 616,005
<TOTAL-ASSETS> 12,063,149
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,523,439
<TOTAL-LIABILITIES> 1,523,439
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,020,142
<SHARES-COMMON-PRIOR> 1,020,142
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,544,065)
<NET-ASSETS> 10,539,710
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 381,758
<OTHER-INCOME> 0
<EXPENSES-NET> 323,857
<NET-INVESTMENT-INCOME> 57,928
<REALIZED-GAINS-CURRENT> (2,476,383)
<APPREC-INCREASE-CURRENT> 2,258,204
<NET-CHANGE-FROM-OPS> (160,251)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 57,928
<DISTRIBUTIONS-OF-GAINS> 1,401,316
<DISTRIBUTIONS-OTHER> 704,660
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,324,155)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,338,315
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,480
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 323,857
<AVERAGE-NET-ASSETS> 11,659,710
<PER-SHARE-NAV-BEGIN> 12.66
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> (.22)
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> 1.36
<RETURNS-OF-CAPITAL> .68
<PER-SHARE-NAV-END> 10.40
<EXPENSE-RATIO> 5.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
