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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17738
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Fiduciary Capital Pension Partners, L.P
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(Exact name of registrant as specified in its charter)
Delaware 86-0653603
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(State of organization) (I.R.S. Employer
Identification No.)
410 17th Street, Suite 400
Denver, Colorado 80202
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (303) 446-2187
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: Not applicable.
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Fiduciary Capital Pension Partners, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1997
Table of Contents
<TABLE>
<CAPTION>
Page
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Part I
<S> <C> <C>
Item 1 Business................................................................................1
Item 2 Properties..............................................................................6
Item 3 Legal Proceedings.......................................................................6
Item 4 Submission of Matters to a Vote
of Security Holders.................................................................8
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.....................................................9
Item 6 Selected Financial Data................................................................10
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations ....................................................11
Item 8 Financial Statements and
Supplementary Data................................................................F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure...............................................................18
Part III
Item 10 Directors and Executive Officers
of the Registrant .................................................................19
Item 11 Executive Compensation.................................................................22
Item 12 Security Ownership of Certain
Beneficial Owners and Management ..................................................22
Item 13 Certain Relationships and
Related Transactions ..............................................................22
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K ...........................................................25
</TABLE>
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PART I
Item 1. Business
General
Fiduciary Capital Pension Partners, L.P. (the "Fund" or the
"Registrant") is a limited partnership organized under the laws of the State of
Delaware on October 20, 1988. The managing general partner of the Fund is FCM
Fiduciary Capital Management Company, a Delaware general partnership (the
"Managing General Partner" or "FCM"). The independent general partners of the
Fund are E. Bruce Fredrikson, Mark A. Sargent and Phillip Siegel (the
"Independent General Partners"). (The Managing Partner and the Independent
General Partners are collectively referred to herein as the "General Partners.")
The general partners of the Managing General Partner are FCM Fiduciary
Capital Corporation, a Delaware corporation, Mezzanine Capital Corporation, a
Delaware corporation and an affiliate of PaineWebber Incorporated
("PaineWebber"), and Paul Bagley. Paul Bagley owns 100% of the stock of FCM
Fiduciary Capital Corporation.
The Managing General Partner serves as investment adviser ("Investment
Adviser") to the Fund and is responsible for the identification of all
investments made by the Fund and all other investment advisory services
necessary for the operation of the Fund in carrying out its investment
objectives and policies. The Independent General Partners oversee the investment
activities of the Investment Adviser.
The Fund has elected to operate as a business development company under
the Investment Company Act of 1940, as amended. The investment objective of the
Fund is to provide current income and capital appreciation by investing
primarily in subordinated debt and related equity securities issued as the
mezzanine financing of privately structured, friendly leveraged buyouts,
leveraged acquisitions and leveraged recapitalizations. A separate fund,
Fiduciary Capital Partners, L.P., a Delaware limited partnership ("FCP") was
also formed on October 20, 1988 for taxable investors with investment
objectives, policies and restrictions similar to those of the Fund. The Fund and
FCP co-invest in the investments; however, each fund is accounted for
separately.
On January 26, 1990, the Fund and its affiliate, FCP (collectively, the
"Funds"), began a public offering of their units of limited partnership
interests (the "Units"). The Units were registered pursuant to a Registration
Statement on Form N-2 under the Securities Act of 1933, as amended.
The Funds collectively held three closings for the sale of the Units
during the period from August 14, 1990 through October 18, 1990. As a result of
the closings, the Funds sold 65,898 Units representing an aggregate purchase
price of $65,898,000. Of these amounts, 29,796 Units representing an aggregate
purchase price of $29,796,000 and 36,102 Units representing an aggregate
purchase price of $36,102,000 were received by the Fund and FCP, respectively.
A special meeting of the Fund's Limited Partners was held on October 1,
1993. At the meeting, the Limited Partners approved the extension of the Fund's
investment period until December 31, 1995 and the adoption of a fundamental
policy of periodic unit repurchases. In connection with the adoption of the
repurchase policy, each $1,000 Unit was redenominated into fifty $20 Units.
After giving effect to this redenomination, the Fund had 1,489,800 Units
outstanding as of October 1, 1993.
Pursuant to the terms of the repurchase policy, the Fund will annually
offer to repurchase from its Limited Partners up to 7.5% of its outstanding
Units for an amount equal to the current net asset value per Unit, net of a fee
(not to exceed 2%) to be retained by the Fund to offset expenses incurred in
connection with the repurchase offer. If the number of tendered Units in any
year exceeds 7.5% of the outstanding Units, the Fund's General Partners may vote
to repurchase up to an additional 2% of the outstanding Units.
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Repurchases of Units since the adoption of the plan are summarized as
follows:
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Units Repurchased Net Asset Value per Unit
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Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
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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>
Each Fund's participation in the following portfolio investments is in
proportion to the amount of capital that each Fund had available for investment
at the time each investment was acquired. All amounts shown in this report with
respect to investments represent only the Fund's proportionate share of the
amounts involved.
Portfolio Investments
As of December 31, 1997, the Fund held portfolio investments in six
Managed Companies, with an aggregate cost of approximately $9.6 million. As of
December 31, 1997, the Fund had no investments in Non-Managed Companies. Managed
Companies are those to which significant managerial assistance is offered.
The Fund's investment period ended on December 31, 1995. Although the
Fund is permitted to make additional investments in existing portfolio companies
after 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies.
During November 1996, the Fund agreed to provide up to $1,632,960 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $816,480
was advanced at that time. The Fund advanced the remaining $816,480 during 1997.
This follow-on investment consists of 12% Senior Subordinated Revolving Notes
due October 31, 2000.
The Fund's subordinated debt investment in Elgin National Industries,
Inc. ("Elgin") was prepaid during 1997. In addition, the Fund sold all of its
Neodata Corporation ("Neodata") and ENI Holding Corp. ("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 Holdings, Inc. ("Huntington")
stock. The Fund received $8,848,738 in proceeds, including applicable prepayment
premiums from these transactions, resulting in aggregate realized gains of
$2,947,254. As discussed in Item 3 of this Report, "Legal Proceedings", the Fund
also accrued an additional $22,237 during 1997 for legal costs and other
possible payments that may be required in connection with the Canadian's
Holdings, Inc. ("Canadian's Holdings") bankruptcy proceedings.
Follow-On Investments in 1997
LMC Operating Corp. On June 10, 1994, the Fund invested $2,348,080 in
LMC. The investment consisted of $2,396,000 of 13.00% Senior Subordinated Notes
due May 31, 1999 with warrants to acquire common stock.
On February 9, 1996, the Fund participated in a financial restructuring
of its LMC investment. The Fund converted its existing LMC subordinated debt and
warrants into preferred stock and purchased $454,400 of new common stock. As a
result of the restructuring, the Fund increased its ownership of LMC from
approximately 12% to approximately 23%.
On November 1, 1996, the Fund agreed to provide up to $1,632,960 of
additional subordinated
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debt to LMC, of which $816,480 was advanced on that date. The Fund advanced the
remaining $816,480 during 1997. This follow-on investment consists of 12% Senior
Subordinated Revolving Notes due October 31, 2000.
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. This additional
follow-on investment consists of 12% Senior Subordinated Revolving Notes due
August 20, 1998.
LMC, headquartered in Logan, Utah, is the leading U.S. manufacturer of
low ground pressure track vehicles. These vehicles are used for construction,
landscaping, infrastructure development and maintenance in remote locations,
right-of-way cleanup, 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.
Dispositions of Portfolio Investments in 1997
Huntington Holdings, Inc. During 1992, the Fund purchased subordinated
notes and warrants to purchase common stock in Huntington. During February 1994,
Huntington prepaid the subordinated notes that the Fund held.
The Fund continued to hold the warrants to purchase common stock until
1996. During December 1995, Huntington entered into a letter of intent, under
the terms of which all Huntington stock would be sold for cash. The sale was
consummated during February 1996. The Fund's share of the actual sales proceeds
totaled $1,247,229, of which $1,089,896 was received during February 1996, with
the balance held by the buyer in escrow. A portion of the escrowed funds was
used to pay various transaction expenses and the Fund received additional
distributions of $16,439 and $67,198 during September 1996 and May 1997,
respectively. The 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 any contingent purchase price adjustments,
and as collateral for potential claims of the buyer with respect to
representations made by the selling shareholders, including the Fund. 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. Certain of the sellers' representations will survive for periods
of time after the escrow account is released, which could result in the Fund
being required to subsequently reimburse the buyer for certain costs and
expenses.
Huntington, headquartered in Huntington, Indiana, is one of the largest
manufacturers and marketers of maintenance and cleaning chemicals in North
America. Huntington produces a wide range of intermediate and final-stage
cleansers, sterilants and disinfectants for use by hospitals, schools, nursing
homes and various industries.
Neodata Corporation During 1991, the Fund purchased subordinated notes
in Neodata Services, Inc. ("Neodata Services") and warrants to purchase common
stock of Neodata, the parent company of Neodata Services.
During 1992, Neodata raised additional equity via a rights offering to
existing shareholders. The Fund elected to purchase additional common stock in
the rights offering in order to maintain its existing ownership position in
Neodata.
During May 1993, Neodata Services prepaid the subordinated notes that
the Fund held following a successful refinancing of the Company's debt at a
lower interest rate.
During November 1994, Neodata's stockholders approved a
recapitalization of the company. Pursuant to the terms of the recapitalization
plan, the Fund received a combination of 10.00% Class A convertible preferred
stock and new common stock in exchange for its old common stock and warrants.
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During August 1997, Electronic Data Systems Corporation ("EDS") offered
to purchase all of Neodata's stock that it did not already own. Hicks Muse, the
owner of a controlling portion of Neodata's common stock, accepted the offer 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.
Neodata, headquartered in Louisville, Colorado, is the largest contract
fulfillment company in the world and a leader in providing fulfillment and
marketing services to the magazine publishing industry.
Elgin National Industries, Inc. 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.
Elgin, headquartered in Chicago, Illinois, is a diversified industrial
company that is organized into three distinct segments. The Industrial Products
Group manufactures specialty industrial threaded fasteners. The Manufacturing
Group manufactures machinery and equipment for niches in coal and other mineral
processing markets. The Engineering and Construction Group provides a full range
of engineering, design and construction management services, including serving
as a general contractor under turn-key design and build contracts.
Other Portfolio Investments
KEMET Corporation ("KEMET") The Fund acquired various subordinated debt
and equity investments in KEMET and its subsidiary, KEMET Electronics
Corporation ("KEMET Electronics"), during 1991 and 1993.
During October 1992, KEMET completed an initial public offering ("IPO")
of its common stock. The stock trades on the NASDAQ National Market System under
the symbol "KMET". During June 1993, KEMET Electronics prepaid its subordinated
notes which the Fund held following the successful completion of a secondary
stock offering. As of December 31, 1993, the Fund continued to hold the common
stock and warrants of KEMET.
During 1994, the Fund exercised its warrants and sold a portion of the
common stock, realizing total sales proceeds of $1,261,685. During 1995, the
Fund sold additional shares of stock, realizing total additional sales proceeds
of $3,221,392. KEMET also declared a two-for-one stock split during 1995. The
Fund did not sell any additional shares during 1996 or 1997.
The Fund has 23,056 shares of KEMET stock remaining as of December 31,
1997. The Fund's cost basis in its KEMET stock is approximately $.35 per share.
At December 31, 1997, the stock closed at $19.3125 (an average of the closing
bid and ask prices).
KEMET, headquartered in Greenville, South Carolina, is a leading
manufacturer and distributor of both solid tantalum and monolithic ceramic
capacitors used as components in circuit boards.
AR Accessories Group, Inc. ("ARA") During 1992, the Fund purchased
subordinated notes, warrants to purchase Class B common stock and Class A common
stock in Amity Leather Products, Co.
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(Amity Leather Products, Co. changed its name to AR Accessories Group, Inc.
during 1996.) During August 1994, ARA prepaid the subordinated notes that the
Fund held. The Fund continues to hold the Class A common stock and the warrants
to purchase Class B common stock.
During February 1998, ARA hired a crisis manager to assist 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.
ARA manufactures men's and ladies' fine personal leather goods and
distributes these products to department stores, mass merchandisers and
company-owned Wallet Works stores. AAG markets its products under the brand
names of Rolfs, Amity and LaGarde. Headquartered in West Bend, Wisconsin, the
Company was founded in 1915 and was family-controlled prior to a management
buyout in 1992.
Mobile Technology, Inc. ("MTI") During 1991, the Fund purchased
subordinated notes in MTI and various equity securities in MTI's parent company.
The Fund stopped accruing interest on the MTI notes that it held,
effective October 1, 1992. In January 1993, MTI commenced restructuring
negotiations with its various lenders outside of bankruptcy proceedings. These
restructuring negotiations were successfully completed and the restructuring was
consummated during July 1994. Pursuant to the terms of the restructuring, the
Fund and MTI's other subordinated lenders exchanged their subordinated notes for
common stock.
The Fund recognized a realized loss of $3,291,003 during 1994 as a
result of the restructuring. The Fund also recorded an unrealized loss of
$206,131 in the value of the stock as of December 31, 1994.
During August 1996, MTI consummated a second financial restructuring
pursuant to which a substantial amount of its remaining corporate debt was
converted to equity. In this restructuring, the existing shareholders, including
the Fund, received a reduced number of shares of common stock, along with
warrants to purchase additional common stock.
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.
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") On May 24, 1995, the Fund
invested $1,264,200 in RBM. The investment consisted of $1,290,000 of 13.00%
Senior Subordinated Secured Notes due May 24, 2002, with warrants to acquire
common stock.
RBM, headquartered in Colorado Springs, Colorado, is a manufacturer of
precision sheet metal enclosures, chassis and assemblies for business machines.
Atlas Environmental, Inc. ("Atlas") On January 25, 1996, the Fund
invested $3,200,601 in Atlas. The investment consists of $3,265,920 of 13.5%
Senior Subordinated Secured Notes due January 19, 2003, with warrants to acquire
common stock. The warrants have an exercise price of $8.00 per share. The Atlas
common stock is currently traded over the counter on a limited basis with
quotations provided via the OTC Bulletin Board under the symbol "ATEV".
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As a
result, Atlas defaulted on certain financial
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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 the subordinated notes and wrote the carrying value of its Atlas investment
down to a nominal amount.
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 Find 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.
Atlas, headquartered on Plantation, Florida, is a holding company that
owns and manages companies in certain segments of the environmental services
industry.
Competition
During the Fund's investment period, which ended on December 31, 1995,
the Fund competed with other entities having similar investment objectives for
new investments. In addition, because all investments were selected and managed
exclusively by the Investment Adviser on behalf of the Fund, any other entities
that competed with the Investment Adviser for mezzanine investments, therefore,
indirectly competed with the Fund. These competitors included other leveraged
acquisition partnerships, other business development companies, investment
partnerships and corporations, small business investment companies, and large
industrial and financial companies investing directly or through affiliates and
individuals. Some of these competitors have more experience with investments
similar to those sought by the Funds, greater financial resources and more
personnel than the Funds and/or the Investment Adviser. To the extent that there
was more competition for investments, the yield available to mezzanine investors
may have decreased.
Employees
The Fund has no employees. As discussed above, the Managing General
Partner manages the Fund's investments, subject to the supervisory oversight of
the Independent General Partners, and performs services on behalf of the Fund.
The General Partners are entitled to certain fees and reimbursements of certain
out-of-pocket expenses incurred in connection with the performance of these
management services. See Item 10 of this Report, "Directors and Executive
Officers of the Registrant" and Item 13 of this Report, "Certain Relationships
and Related Transactions".
Item 2. Properties
The Fund does not own or lease any physical properties.
Item 3. Legal Proceedings
As previously reported, FCM, the Managing General Partner of the Fund,
was named as a defendant in a class action lawsuit against PaineWebber and a
number of its affiliates concerning its sale
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of 70 different limited partnerships and other direct investment programs,
including the offering of the Units. Plaintiffs in the lawsuit alleged, among
other things, that the defendants violated federal securities laws and committed
common law fraud in the marketing of direct investments.
On May 30, 1995, the United States District Court for the Southern
District of New York entered an order certifying the class and dismissing the
class action against FCM without prejudice. PaineWebber and Mezzanine Capital
Corporation, a minority general partner in FCM and an affiliate of PaineWebber,
remained as defendants.
During January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York (the "Court") to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation, which the parties
subsequently submitted to the Court for its consideration and approval.
On July 17, 1996, a Stipulation of Settlement was preliminarily
approved by the Court and notice was mailed to class members. One objection was
asserted to the proposed settlement. The Court issued a decision approving the
settlement and dismissing the action on March 31, 1997. The sole objector filed
an appeal to the Second Circuit. On July 30, 1997, the Second Circuit affirmed
the judgment approving the settlement and dismissing the action. The Court must
still determine the extent of attorneys fees to be awarded to plaintiffs'
counsel, which will be paid from the settlement fund, so that the remainder of
the monies can be distributed to class members.
During February 1996, approximately 150 plaintiffs filed an action in
Sacramento, California Superior Court against PaineWebber and various affiliated
entities (not including FCM) concerning the plaintiffs' purchase of various
limited partnership interests. The complaint alleged, among other things, that
PaineWebber and its related entities committed fraud and misrepresentations and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. This action was settled
during March 1997.
On October 3, 1996, Fiduciary commenced an adversary proceeding in the
Canadian's Holdings, Inc. and affiliates ("Canadian's") Chapter 11 bankruptcy
cases in the United States Bankruptcy Court for the Southern District of New
York, Case Nos. 96 B 40891 through 40907, against Finova Capital Corporation
("Finova"), Benson Selzer and Joseph Eiger. The Complaint in the proceeding
sought relief on behalf of Canadian's, including, among other things, a
declaratory judgment that sales taxes collected by Canadian's and turned over to
Finova in the amount of approximately $1.85 million during the period January 1,
1995 through February 21, 1996 were "trust funds" collected by Canadian's on
behalf of various state tax authorities.
Through the complaint, the Fund also objected to Finova's secured claim
against Canadian's, which was guaranteed by Messrs. Selzer and Eiger, and sought
to recover the sales taxes and certain other amounts for the benefit of
Canadian's bankruptcy estate based upon various legal theories, including
preferential transfers prohibited by the Bankruptcy Code, unjust enrichment,
lender liability, breach of fiduciary duty, equitable subordination, and the
like.
Pursuant to a directive of the Bankruptcy Court, the Fund filed a
motion seeking permission to prosecute the complaint on behalf of Canadian's,
and to amend its complaint accordingly. Finova, Selzer and Eiger, Canadian's and
the official creditors committee in the bankruptcy case opposed the motion. A
hearing on the motion was held on March 11, 1997, and the Court issued a ruling
on March 19, 1997, which denied the Fund's motion. As a result of the Court's
decision, the Fund dropped this litigation, while preserving its rights to
pursue litigation against Finova at a later date.
As a result of this litigation and the issues involved, the Fund
accrued $370,627 during 1996 for legal costs and other possible payments that
may be required to settle the litigation or to fund the payment
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of Canadian's outstanding sales tax liabilities. 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.
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the
Fund, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1997.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
There is no organized trading market for the purchase and sale of the
Units and certain measures have been adopted and implemented to assure that no
such organized trading market will develop.
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to purchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
---------------------------- ----------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ ----------------- ----- --------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
November 1996 91,683 7.66% 15.71 15.40
November 1997 84,739 7.67% 13.72 13.45
</TABLE>
As of March 1, 1998 the number of Limited Partners of record was
approximately 2,629.
The Fund made the following distributions to its partners with respect
to 1996 and 1997:
<TABLE>
<CAPTION>
Quarter During Total Amount of
Which Distributed Amount of Distribution
Cash was Generated Distribution* Per $20 Unit Payment Date
------------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
1st Quarter 1996 $ 362,595 $ .30 May 15, 1996
2nd Quarter 1996 362,595 .30 August 15, 1996
3rd Quarter 1996 362,595 .30 November 15, 1996
4th Quarter 1996 334,812 .30 February 14, 1997
1st Quarter 1997 334,812 .30 May 15, 1997
2nd Quarter 1997 334,812 .30 August 14, 1997
3rd Quarter 1997 1,450,854 1.30 November 14, 1997
4th Quarter 1997 1,030,447 1.00 February 13, 1998
</TABLE>
*Includes distributions to the Managing General Partner in an amount
equal to 1.0% of the total distribution.
Cash distributions for 1996 were paid out of current and accumulated
net investment income (67.3%) and realized gains on investments (32.7%). Cash
distributions for 1997 were paid out of current net investment income (26.4%),
realized gains on investments (51.1%) and a return of capital (22.5%).
9
<PAGE> 12
The cash 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 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, except to fund
commitments made prior to December 31, 1995. 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.
Item 6. Selected Financial Data
The following selected financial data of the Fund has been derived from
the financial statements for the indicated periods. The information set forth
below should be read in conjunction with the Fund's financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Items 8 and 7, respectively, of this
Report.
<TABLE>
<CAPTION>
As of December 31
or Year Ended December 31
------------------------------------------------------------
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
Repurchase of 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 prior years have been restated
to give effect to this redenomination.
(2) Calculated using the weighted average number of Units outstanding
during the years ended December 31, 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 period in which the cash
for the distribution was generated. A portion of the actual cash
distributions are paid subsequent to such year.
10
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
During 1990, the Fund completed a public offering of its Units. Net
offering proceeds available to the Fund, after deducting commissions and other
offering costs, totaled $26,298,970.
The Fund is prohibited by the terms of its Partnership Agreement from
borrowing funds for operational purposes.
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to purchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to purchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
------------------------------ ------------------------
Percentage Net
Date of of Outstanding 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 compainies, 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.
11
<PAGE> 14
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 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 distribuion 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 "Legal Proceedings" and the Fund's financial statements and notes
thereto included in Items 3 and 8, respectively, of this Report, for a
discussion of litigation. FCM believes that this litigation will be resolved
without any material adverse effect on the Fund's 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
12
<PAGE> 15
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.
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
13
<PAGE> 16
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 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.
14
<PAGE> 17
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.
15
<PAGE> 18
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
16
<PAGE> 19
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. (As discussed in Item 1
of this Report, "Business", 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.
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.
17
<PAGE> 20
Item 8. Financial Statements and Supplementary Data
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
List of Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Schedule of Investments - December 31, 1997 F-3
Balance Sheets - December 31, 1997 and 1996 F-5
Statements of Operations for each of the years
ended December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for each of the years
ended December 31, 1997, 1996 and 1995 F-7
Statements of Changes in Net Assets for each of the
years ended December 31, 1997, 1996 and 1995 F-8
Selected Per Unit Data and Ratios for each of the years
ended December 31, 1997, 1996, 1995, 1994 and 1993 F-9
Notes to Financial Statements F-10
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
(1) the information required is disclosed in the financial statements and notes
thereto; (2) the schedules are not required under the related instructions; or
(3) the schedules are inapplicable.
F-1
<PAGE> 21
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, 1996 and 1995 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per unit data and
ratios referred to above present fairly, in all material respects, the financial
position of Fiduciary Capital Pension Partners, L.P. as of December 31, 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.
F-2
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ------------------------------------------------------------------------------------------------------------------------
<S> <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 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
239,600 sh. LMC Operating 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. LMC Credit 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.
F-3
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
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.
F-4
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
ASSETS:
<S> <C> <C>
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.
F-5
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
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) 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.
F-6
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) 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.
F-7
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
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.
F-8
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS (1)
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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 period 15.08 16.61 18.47 17.96 18.35
--------- --------- --------- --------- ---------
End of period $ 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 the end of period(1) 1,020,142 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.
F-9
<PAGE> 29
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
F-10
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
reflect the potential market impact which could result from the sale of the
securities, if the Fund and FCP combined own a material percentage of the
outstanding securities. The amount of the discount varies based upon the type of
restriction, the time remaining on the restriction and the size of the holding.
Fair value for securities that are not traded in any liquid public
markets or that are privately held are determined pursuant to valuation policies
and procedures which have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). Debt
securities with attached warrants for the purchase of common stock are initially
recorded at a discount from face value equal to the estimated relative value of
the warrants at date of investment. The discount is amortized to income as an
adjustment to yield from the debt securities. Face value less unamortized
discount represents the "amortized cost" of the debt securities.
The cost method is used until significant developments affecting the
portfolio company provide a basis for use of an appraisal valuation. Appraisal
valuations are based upon such factors as the portfolio company's earnings, cash
flow and net worth, the market prices for similar securities of comparable
companies and an assessment of the portfolio company's future financial
prospects. In a case of unsuccessful operations, the appraisal may be based upon
liquidation value. Appraisal valuations are necessarily subjective. The Fund
also may use, when available, third-party transactions in a portfolio company's
securities as the basis of valuation ("private market method"). The private
market method is used only with respect to completed transactions or firm offers
made by sophisticated, independent investors.
Temporary investments with maturities of less than 60 days are stated
at amortized cost, which approximates market value. Under this method, temporary
investments are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until maturity
of the investment.
Cash and Cash Equivalents The Fund considers investments in money
market funds to be cash equivalents.
Interest Receivable on Notes Notes are placed on non-accrual status in
the event of a default (after any applicable grace period expires) or if FCM
determines that there is no reasonable expectation of collecting the interest.
Income Taxes No provision for income taxes has been made in the
financial statements because taxes on Fund income are the responsibility of the
individual partners rather than the Fund.
Investment Transactions The Fund records portfolio investment
transactions on the date on which it obtains an enforceable right to demand the
securities or payment thereof and records temporary investment transactions on
the trade date. Realized gains and losses on investments are determined on the
basis of specific identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from
temporary investments will be distributed and allocated 99% to the Limited
Partners and 1% to FCM. Net investment income will, in general, be distributed
and allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
F-11
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Partners have received a cumulative non-compounded preferred return of 9% per
annum on their capital contributions to the Fund, then (ii) 70% to the Limited
Partners and 30% to FCM until FCM has received 10% of all current and prior
distributions and allocations, and thereafter, (iii) 90% to the Limited Partners
and 10% to FCM.
Proceeds from capital transactions will, in general, be distributed and
allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative, non-compounded preferred return of 9% per
annum on their capital contribution to the Fund from net investment income,
capital transactions, or both, then (ii) 100% to the Limited Partners until they
have received a return of their capital contributions to the Fund, and
thereafter, (iii) 80% to the Limited Partners and 20% to FCM.
All cash distributions and earnings since the inception of the Fund
have been allocated 99% to the Limited Partners and 1% to FCM.
4. CAPITAL CONTRIBUTIONS
Upon formation of the Fund, FCM contributed $4,000 for its general
partner interest in the Fund. Units of limited partnership interest ("Units")
were then sold in a public offering. The Fund held three closings between August
14, 1990 and October 18, 1990, receiving gross offering proceeds of $29,796,000.
Commissions and other offering costs were charged against proceeds resulting in
net capital contributions from Limited Partners of $26,294,970.
5. PERIODIC UNIT REPURCHASE PLAN
The Fund's Limited Partners adopted a periodic unit repurchase plan
during 1993. Pursuant to the terms of the repurchase policy, the Fund will
annually offer to repurchase from its Limited Partners, up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan are summarized as
follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
------------------------------ ------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ ----------------- ----- --------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
November 1996 91,683 7.66% 15.71 15.40
November 1997 84,739 7.67% 13.72 13.45
</TABLE>
6. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement, net of certain fees received
directly by FCM from the Fund's portfolio companies. Investment advisory
F-12
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
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.
F-13
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
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 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 CONTENGENCIES
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,
F-14
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
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.
F-15
<PAGE> 35
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
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>
F-16
<PAGE> 36
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in accountants or disagreements with accountants
with respect to accounting or financial disclosure issues during 1997 or 1996.
18
<PAGE> 37
PART III
Item 10. Directors and Executive Officers of the Registrant
The Fund has no directors or executive officers. The General Partners
of the Fund jointly manage and control the affairs of the Fund and have general
responsibility and authority in all matters affecting its business.
FCM serves as Investment Adviser to the Fund and is responsible for the
identification of all investments made by the Fund and all other investment
advisory services necessary for the operation of the Fund in carrying out its
investment objectives and policies. The Investment Committee of FCM is
responsible for approval of all investment decisions of FCM with respect to the
Fund and consists of seven members. Five of the seven members are appointed by
FCM Fiduciary Capital Corporation ("FCC") and two are appointed by Mezzanine
Capital Corporation ("MCC"). The current members of the Investment Committee are
Paul Bagley, W. Duke DeGrassi and Michael G. Rafferty, appointed by FCC; and
Gerald F. Goertz, Jr. and Clifford B. Wattley, appointed by MCC. Election of two
additional members to the Investment Committee by FCC remains undetermined as of
the date of this Report. The Independent General Partners oversee the investment
activities of the Investment Adviser.
Information concerning the directors and executive officers of the
Managing General Partner (and of its partners) and the Independent General
Partners is as follows:
FCM Fiduciary Capital Management Company
(a Delaware general partnership, the partners of which
are FCM Fiduciary Capital Corporation, Mezzanine
Capital Corporation and Paul Bagley)
Name Positions Held
Paul Bagley Chairman and Chief Executive Officer
W. Duke DeGrassi President
Donald R. Jackson Senior Vice President, Treasurer,
Chief Financial and Accounting
Officer and Compliance Officer
Paul Bagley, age 55, is Chairman, Chief Executive Officer and an
Investment Committee Member of FCM. Mr. Bagley is a founding principal of Stone
Pine Capital, LLC, a group that provides mezzanine capital to fund acquisitions,
buyouts, growth and recapitalization and is also associated with Stone Pine
Asset Management, LLC and Stone Pine Investment Banking, LLC. Mr. Bagley was
Chief Executive Officer of Laidlaw Holdings, Inc., an investment services
company, from January 1995 until November 1996, For more than twenty years prior
to October 1988, Mr. Bagley was engaged in investment banking activities with
Shearson Lehman Hutton Inc. and its predecessor, E.F. Hutton & Company Inc. Mr.
Bagley served in various capacities with Shearson and E.F. Hutton, including
Executive Vice President and Director, Managing Director, Head of Direct
Investment Origination and Manager of Corporate Finance. Mr. Bagley serves as
Chairman of the Board of Directors of Silver Screen Management, Inc. and
International Film Investors, Inc., which manage film portfolios. Mr. Bagley is
also a director of Consolidated Capital of North America, Inc. and Hollis-Eden
Pharmaceuticals, Inc., both publicly held companies, LMC Operating Corp., a
privately held manufacturer of low ground pressure vehicles, and Hamilton Lane
Private Equity Partners, PLC, an Irish Stock Exchange listed investment
partnership. Mr. Bagley graduated from the University of California at Berkeley
in 1965 with a B.Sc. in Business and Economics and from Harvard Business School
in 1968 with an M.B.A. in Finance.
W. Duke DeGrassi, age 51, is the President and an Investment Committee
Member of FCM. Mr. DeGrassi is also an owner of The Stone Pine Companies, a
group of private entities, that provide asset management and investment banking
services to third parties, which are not related to the Funds. From May 1988 to
December 1993, Mr. DeGrassi was a Corporate Vice President with PaineWebber
19
<PAGE> 38
Incorporated. From 1986 and until joining PaineWebber, Mr. DeGrassi was a Vice
President in the Direct Investments Group at Shearson Lehman Hutton Inc. Prior
to that, Mr. DeGrassi spent seventeen years as a financial executive in the
energy business, working both domestically and in foreign operations. Mr.
DeGrassi received a Bachelor of Business Administration in accounting from the
University of Texas at Austin in 1969. Mr. DeGrassi serves as Chairman of the
Board and Chief Executive Officer of LMC Operating Corp.
Donald R. Jackson, age 48, is a Senior Vice President, Treasurer, Chief
Financial and Accounting Officer and Compliance Officer of FCM. Mr. Jackson is
also an owner of The Stone Pine Companies, a group of private entities, that
provide asset management and investment banking services to third parties, which
are not related to the Funds. From January 1990 to June 1994, Mr. Jackson was a
Corporate Vice President with PaineWebber Incorporated, where he was involved in
the financial administration of various publicly and privately offered
investment programs. During 1989, Mr. Jackson was self-employed. Immediately
prior to that he was a First Vice President in the Direct Investments Group with
Shearson Lehman Hutton Inc. From 1972 to 1986, Mr. Jackson was associated with
the accounting firm of Arthur Andersen & Co., serving as a partner from 1981 to
1986. He received a Bachelor of Science degree in accounting in 1971 from the
University of Denver and is a Certified Public Accountant. Mr. Jackson serves as
a director of LMC Operating Corp. and Consolidated Capital of North America,
Inc.
FCM Fiduciary Capital Corporation
Name Positions Held
Paul Bagley Chief Executive Officer and
Sole Member of the Board
of Directors
W. Duke DeGrassi President
Donald R. Jackson Vice President, Treasurer, Assistant Secretary
and Chief Financial and Accounting Officer
For information regarding Paul Bagley, W. Duke DeGrassi and Donald R.
Jackson see the above section concerning the management of FCM Fiduciary Capital
Management Company.
Mezzanine Capital Corporation
Name Positions Held
Gerald F. Goertz, Jr. President and Director
Clifford B. Wattley Vice President, Assistant Secretary
and Director
Stephen R. Dyer Vice President, Assistant Secretary
and Director
Joseph P. Ciavarella Vice President, Secretary, Treasurer
and Chief Financial and
Accounting Officer
Gerald F. Goertz, Jr., age 40, is the President and a Director of
Mezzanine Capital Corporation. Mr. Goertz joined PaineWebber Incorporated in
December 1990 and holds the position of Senior Vice President and Director of
Specialized Investment Services. Prior to joining PaineWebber Incorporated, Mr.
Goertz was associated with CG Realty Advisors and The Freeman Company. He
received his Bachelor of Arts degree in Business Administration in 1979 from
Vanderbilt University and his Juris Doctorate and Masters of Business
Administration from Memphis State University in 1982.
Clifford B. Wattley, age 48, is a Vice President, Assistant Secretary
and Director of Mezzanine Capital Corporation. Mr. Wattley is a Corporate Vice
President with PaineWebber Incorporated, having joined the firm in 1986. He also
was employed previously by Paine, Webber, Jackson & Curtis from 1979 to 1980.
From 1986 to 1992, Mr. Wattley participated in PaineWebber's Principal
Transactions
20
<PAGE> 39
Group. From 1992, Mr. Wattley has been a member of the Private Investment
Department. He holds a Bachelor of Science degree in engineering from Columbia
University and a Masters in Business Administration from Harvard University.
Stephen R. Dyer, age 38 is a Vice President, Assistant Secretary and
Director of Mezzanine Capital Corporation. He joined PaineWebber Incorporated in
June 1988 as a Divisional Vice President and is currently a Corporate Vice
President and Director of Private Investments. Prior to joining PaineWebber
Incorporated, Mr. Dyer had been employed, since June 1987, as an Assistant Vice
President in the Retail National Products Group of L.F. Rothschild & Co.
Incorporated. Prior to joining L.F. Rothschild he was employed, beginning in
January 1985, as an Associate in the Real Estate Department of Thomson McKinnon
Securities Inc. From July 1981 to August 1983, Mr. Dyer was on the audit staff
of the accounting firm of Arthur Young & Company. He received his Bachelor of
Science degree in Accounting in 1981 from Boston College and a Masters of
Business Administration from Indiana University in December 1984. Mr. Dyer is a
Certified Public Accountant.
Joseph P. Ciavarella, age 42, is a Vice President, Secretary, Treasurer
and Chief Financial and Accounting Officer of Mezzanine Capital Corporation. He
joined PaineWebber Incorporated in May 1994. Prior to joining PaineWebber
Incorporated, he was affiliated with Aviation Capital Group in the area of
aircraft finance. Mr. Ciavarella was associated with Integrated Resources, Inc.
from 1983 to 1993 as a corporate financial officer as well as a senior financial
officer in various subsidiaries in the equipment leasing, aircraft finance and
venture capital areas. Mr. Ciavarella has a Bachelor of Business Administration
degree in Accounting from Hofstra University and is a Certified Public
Accountant.
Independent General Partners
A. E. Bruce Fredrikson
E. Bruce Fredrikson, age 60, has been an Independent General Partner
since 1992. Dr. Fredrikson is a Professor of Finance at Syracuse University
School of Management where he has taught since 1966 and has previously served as
Chairman of the Finance Department. Dr. Fredrikson has a bachelor's degree in
economics from Princeton University and a master's degree in business
administration and a Ph.D. in finance from Columbia University. Dr. Fredrikson
serves as a director of Innodata Corporation, Track Data Corporation and Eagle
Finance Corp.
B. Mark A. Sargent
Mark A. Sargent, age 46, is the Dean and a Professor of Law at
Villanova University School of Law. From 1989 to 1997, he was a Professor of Law
at the University of Maryland School of Law, and served as Associate Dean from
1995 to 1997. Mr. Sargent is also currently a member of the editorial boards for
several business law publications, a consultant on corporate and securities law
matters, and an arbitrator for disputes in the securities industry. Mr. Sargent
has a bachelors degree from Wesleyan University, a masters degree in history
from Cornell University and a J.D.
degree from Cornell Law School.
C. Phillip Siegel
Phillip Siegel, age 55, is a General Partner and Chief Financial
Officer of Endeavor Capital Management, LLC. From May 1996 through February
1998, Mr. Siegel was a Vice President and Chief Financial Officer of Health
Management Systems, Inc. From 1993 until May 1996, Mr. Siegel was an independent
business consultant. He served as senior executive officer of Presidential Life
Insurance Company from December 1989 until February 1993, most recently as
Senior Vice President. During 1988, Mr. Siegel served as Chief Operating Officer
and Chief Financial Officer of Sherwood Group and Sherwood Securities. From 1972
through 1987, Mr. Siegel served in various senior executive capacities for the
American subsidiary of Reuters Limited, PLC, including as Vice President for
Acquisitions, as Vice President and General Counsel, and as the senior financial
officer. Mr. Siegel is a director of WestPoint Stevens, Inc. (and a member of
its audit committee).
21
<PAGE> 40
Norman J. Peer resigned as an Independent General Partner during July
1997, when he accepted an appointment as a Superior Court Judge for the State of
New Jersey. Pursuant to New Jersey State law, Mr. Peer was unable to continue to
serve as an Independent General Partner after his term as a judge commenced.
Compliance with Section 16(a) of the Exchange Act
Messrs. Sargent and Siegel became Independent General Partners of the
Fund during 1997. While neither of these individuals owns, or has owned, any
Units of the Fund, the Forms 3 which are required to be filed by such persons
pursuant to the provisions of Section 16(a) of the Securities Exchange Act of
1934 were not filed on a timely basis.
Based solely upon a review of Forms 3 and 4 furnished to the Fund
during 1997 and 1998, and written representations by the persons listed above,
the Fund has not identified any such person that failed to file on a timely
basis the forms required by Section 16(a) of the Exchange Act for fiscal year
1997, other than those discussed in the preceding paragraph.
Item 11. Executive Compensation
No compensation was paid by the Fund to the officers and directors of
the General Partners during 1997. See Item 13 of this Report, "Certain
Relationships and Related Transactions" for a description of the compensation
and fees paid to the General Partners and their affiliates by the Fund during
1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of the date hereof, no person is known by the Fund to be
the beneficial owner of more than 5% of the Units of the Fund.
The Fund has no directors or officers, and none of the General
Partners of the Fund owns any Units.
The name and address of the Managing General Partner is as
follows:
FCM Fiduciary Capital Management Company
410 17th Street, Suite 400
Denver, Colorado 80202
(b) No directors of FCM Fiduciary Capital Corporation, no
directors or officers of Mezzanine Capital Corporation and no
Independent General Partners owned any Units as of March 1,
1998. One officer of FCM Fiduciary Capital Management Company
and FCM Fiduciary Capital Corporation owned 100 Units as of
March 1, 1998.
(c) The Fund knows of no arrangements, the operation of the terms
of which may at a subsequent date result in a change in
control of the Fund.
Item 13. Certain Relationships and Related Transactions
The Fund may co-invest in portfolio investments with FCP, under certain
terms and conditions, pursuant to a co-investment order issued by the Securities
and Exchange Commission. The Funds have co-invested in the past and are
continuing to do so. See Item 1 of this Report, "Business", which is
incorporated herein by reference, for a description of these co-investments.
The General Partners and their affiliates have received, or will
receive, certain types of compensation, fees or other distributions in
connection with the operations of the Fund. The fees and compensation were
determined in accordance with the applicable provisions of the Partnership
Agreement.
22
<PAGE> 41
Following is a summary of the amounts paid, or payable, to the General
Partners and their affiliates for 1997.
Investment Advisory Fees As compensation for its services as investment
adviser, FCM receives a subordinated monthly fee at the annual rate of 1% of the
Fund's available capital, as defined in the Partnership Agreement, net of
certain fees received directly by FCM from the Fund's portfolio companies.
During 1997, FCM earned investment advisory fees of $120,800.
Fund Administration Fees As compensation for its services as fund
administrator, FCM receives a monthly fee at an annual rate of .45% of net
proceeds available for investment, as defined in the Partnership Agreement.
During 1997, FCM earned fund administration fees of $118,327. The Fund also
reimbursed FCM for $68,895 of administrative expenses incurred in providing
accounting and investor services to the Fund during 1997.
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 were incurred by the Fund during 1997.
Accountable Expenses FCM and its affiliates are entitled to
reimbursement of direct expenses paid on behalf of the Fund. During 1997, such
reimbursements amounted to $256,851.
Partnership Interest FCM received cash distributions of $31,509 as
their allocable share of distributions for 1997. In addition, $5,374 of the
Fund's net investment income and net loss on investments for 1997 was allocated
to FCM.
23
<PAGE> 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) and (d) The following documents are filed as part of this Report:
1. Financial Statements: See List of Financial
Statements in Item 8.
2. Financial Statement Schedules: None.
(b) The Partnership filed one report on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 1997. The report
was dated November 5, 1997, and was filed with the Securities
and Exchange Commission on December 12, 1997, to report the
sale of the Fund's ENI investment and the amount and record
date of the Fund's cash distribution for the fourth quarter of
1997.
(c) Exhibits required to be filed.
Exhibit No. Description
3.1 (a) Fourth Amended and Restated Certificate of
Limited Partnership of Fiduciary Capital
Partners, L.P., dated as of January 29,
1990. Filed as Exhibit 3.1(a) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
(b) Second Amended and Restated Agreement of
Limited Partnership of Fiduciary Capital
Partners, L.P., dated as of October 1, 1993.
Filed as Exhibit 3.1(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1993.*
(c) Amendment Number One to the Second Amended
and Restated Agreement of Limited
Partnership of Fiduciary Capital Partners,
L.P., dated as of October 1, 1993. Filed as
Exhibit 3.1(c) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.*
10.1 Investment Advisory Contract, dated as of
October 1, 1993, between Fiduciary Capital
Partners, L.P. and FCM Fiduciary Capital
Management Company. Filed as Exhibit 10.1 to
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.*
10.2 (a) Custody Agreement, dated as of July 19,
1990, between Fiduciary Capital Partners,
L.P. and M&I First National Bank. Filed as
Exhibit 10-C to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1990.*
(b) Amendment to Custody Agreement of Fiduciary
Capital Partners, L.P., dated as of October
13, 1992. Filed as Exhibit 10.2(b) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
(c) Second Amendment to Custody Agreement of
Fiduciary Capital Partners, L.P., dated as
of January 21, 1994. Filed as Exhibit
10.2(c) to the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1993.*
-------------------
* Not filed herewith. In accordance with Rule 12b-32 of the
General Rules and Regulations under the Securities Exchange
Act of 1934, reference is made to the document previously
filed with the Commission which is incorporated herein by
reference.
24
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
10.3 Administrative Services Contract, dated as of August 14, 1990, between Fiduciary
Capital Pension Partners, L.P. and FFCA Fiduciary Capital Management Company.
Filed as Exhibit 10-D to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.*
10.4 Transfer Agent Agreement, dated as of July 1, 1992, by and among Fiduciary Capital
Pension Partners, L.P., FFCA Fiduciary Capital Management Company and Service Data
Corporation. Filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.*
11.1 Statement of Computation of Net Investment Income per Limited Partnership Unit.
20.1 Report Furnished to Securities Holders.
27.1 Financial Data Schedule.
28.1 Portions of the Prospectus of Fiduciary Capital Partners, L.P. and Fiduciary
Capital Pension Partners, L.P., dated January 24, 1990, filed with the Securities
and Exchange Commission pursuant to Rule 424(b), as supplemented by Supplements
dated August 15, 1990, September 18, 1990 and October 11, 1990 filed with the
Securities and Exchange Commission pursuant to Rule 497(b). Filed as Exhibit 28 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.*
</TABLE>
-------------------
* Not filed herewith. In accordance with Rule 12b-32 of the
General Rules and Regulations under the Securities Exchange
Act of 1934, reference is made to the document previously
filed with the Commission which is incorporated herein by
reference.
25
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 20, 1998
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
(Registrant)
By: FCM FIDUCIARY CAPITAL MANAGEMENT COMPANY
its Managing General Partner
By: /s/ W. Duke DeGrassi
------------------------------------------
W. Duke DeGrassi
President
By: /s/ Donald R. Jackson
------------------------------------------
Donald R. Jackson
Senior Vice President, Treasurer and
Chief Financial and Accounting Officer
By: E. BRUCE FREDRIKSON
Independent General Partner
/s/ E. Bruce Fredrikson
------------------------------------------
By: MARK A. SARGENT
Independent General Partner
/s/ Mark A. Sargent
------------------------------------------
By: PHILLIP SIEGEL
Independent General Partner
/s/ Phillip Siegel
------------------------------------------
26
<PAGE> 45
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following person on behalf of
the Registrant and in the capacities indicated on March 20, 1998.
SIGNATURE OF THE SOLE DIRECTOR OF THE MANAGING GENERAL PARTNER
OF FCM FIDUCIARY CAPITAL MANAGEMENT COMPANY (A DELAWARE
GENERAL PARTNERSHIP), MANAGING GENERAL PARTNER OF THE
REGISTRANT.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ Paul Bagley Chief Executive Officer and Sole
- -------------------------------- Director of FCM Fiduciary Capital
Paul Bagley Corporation, managing general partner
of FCM Fiduciary Capital Management
Company
</TABLE>
27
<PAGE> 46
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page
---------- ----------- ----
<S> <C> <C>
3.1 (a) Fourth Amended and Restated Certificate of Limited Partnership of
Fiduciary Capital Pension Partners, L.P., dated as of January 29, 1990.
(Incorporated by Reference.) *
(b) Second Amended and Restated Agreement of Limited Partnership of
Fiduciary Capital Pension Partners, L.P., dated as of October 1, 1993.
(Incorporated by Reference.) *
(c) Amendment Number One to the Second Amended and Restated Agreement of
Limited Partnership of Fiduciary Capital Pension Partners, L.P., dated as
of October 1, 1993. (Incorporated by Reference.) *
10.1 Investment Advisory Contract, dated as of October 1, 1993, between
Fiduciary Capital Pension Partners, L.P. and FCM Fiduciary Capital
Management Company. (Incorporated by Reference.) *
10.2 (a) Custody Agreement, dated as of July 19, 1990, between Fiduciary Capital
Pension Partners, L.P. and M&I First National Bank. (Incorporated by
Reference.) *
(b) Amendment to Custody Agreement of Fiduciary Capital Pension Partners,
L.P., dated as of October 13, 1992. (Incorporated by Reference.)
*
(c) Second Amendment to Custody Agreement of Fiduciary Capital Pension
Partners, L.P., dated as of January 21, 1994. (Incorporated by
Reference.) *
10.3 Administrative Services Contract, dated as of August 14, 1990, between
Fiduciary Capital Pension Partners, L.P. and FFCA Fiduciary Capital
Management Company. (Incorporated by Reference.) *
10.4 Transfer Agent Agreement, dated as of July 1, 1992, by and among
Fiduciary Capital Pension Partners, L.P., FFCA Fiduciary Capital
Management Company and Service Data Corporation. (Incorporated by
Reference.) *
11.1 Statement of Computation of Net Investment Income per Limited
Partnership Unit.
20.1 Report Furnished to Securities Holders.
27.1 Financial Data Schedule.
28.1 Portions of the Prospectus of Fiduciary Capital Pension Partners, L.P.
and Fiduciary Capital Partners, L.P., dated January 24, 1990, filed with
the Securities and Exchange Commission pursuant to Rule 424(b), as
supplemented by Supplements dated August 15, 1990, September 18, 1990
and October 11, 1990 filed with the Securities and Exchange
Commission pursuant to Rule 497(b). (Incorporated by Reference.)
*
</TABLE>
- -------------------
* See Item 14(c) for statement of location of exhibits incorporated by
reference.
E-1
<PAGE> 1
EXHIBIT 11.1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Investment Income $ 831,359 $ 772,453 $1,725,971
Percentage Allocable to Limited Partners 99% 99% 99%
---------- ---------- ----------
Net Investment Income
Allocable to Limited Partners $ 823,045 $ 764,728 $1,708,711
========== ========== ==========
Weighted Average Number of Limited
Partnership Units Outstanding 1,095,362 1,186,294 1,285,717
========== ========== ==========
Net Investment Income
Per Limited Partnership Unit $ .75 $ .64 $ 1.33
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 20.1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
--------------------------------------
THIRD QUARTER REPORT
1997
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
Dear Investor:
In recent months, there have been a number of significant developments with
respect to several of the Fund's portfolio investments. We will highlight the
most significant of these developments in this letter. In addition, we will
briefly summarize the results of the 1997 repurchase offer and the status of
your distributions.
INVESTMENT UPDATE
Neodata Corporation ("Neodata") During August 1997, Electronic Data Systems
Corporation ("EDS") offered to purchase for cash all of Neodata's outstanding
stock that it did not already own. Hicks, Muse, the owner of a majority of the
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.
ENI Holding Corp. ("ENI") During June 1997, the Fund received a written offer
from ENI management to prepay the Fund's subordinated debt, redeem the Fund's
preferred stock and purchase the Fund's Class B common stock and warrants. The
offer was reviewed by all of the subordinated debt holders, including the Fund,
and rejected as inadequate. As a result of this offer, the Fund wrote the Class
B common stock and warrants up in value by approximately $950,000 at June 30,
1997, to an amount equal to 80% of the price offered by management.
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
$7,964,933 of sales proceeds. The sales proceeds included proceeds from (i) the
prepayment of the subordinated debt, along with applicable accrued interest and
prepayment penalties, (ii) the redemption of the Fund's preferred stock, along
with all accumulated dividends,
---------------
ONE
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
and (iii) the purchase of the Fund's Class B common stock and warrants.
During November 1997, 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. As discussed above, approximately one-half of
this gain was recorded as an unrealized gain during the second quarter of 1997.
Atlas Environmental, Inc. ("Atlas") In previous reports, we have discussed the
disappointing performance of this investment. Atlas defaulted on the interest
payments due to the Fund and filed for bankruptcy. Atlas is currently developing
a plan of reorganization for submission to the bankruptcy court that provides
for the continued operation of its businesses, involving a series of strategic
asset acquisitions and dispositions. As a result of these developments, the Fund
stopped accruing interest on its Atlas investment effective April 1996 and has
written the carrying value of its investment down to a minimal amount. Under
certain circumstances, the Fund may consider a follow-on investment to
facilitate Atlas' plan of reorganization.
LMC Operating Corp. ("LMC") LMC has designed and is offering to the market a low
ground pressure rubber-tracked dozer, loader and tool carrier called the Skid
Trak. This machine is a multi-purpose machine to be used where similar machines
bog down or create excessive damage to the environment. The Skid Trak provides
an environment friendly, stable platform with the required traction to traverse
rocky, muddy, snowy or soft terrain with minimal damage to the surface. The Skid
Trak is designed to serve numerous markets, with primary emphasis on
construction, agriculture and landscaping. This product diversification will
enable 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.
LMC is in the process of developing a dealer distribution network in North
America. Pacific Rim opportunities are being pursued with Marubeni
----------------
TWO
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
American Corporation, which currently distributes LMC products in Japan. Two
dealers have been selected and both are test marketing the product in their
respective markets. Full-scale production began in December 1997. Initial target
markets are California, Florida, Texas and Louisiana. Secondary markets will
include the Pacific Northwest, the Carolinas and other Gulf Coast states.
LMC introduced the Skid Trak at trade shows almost a year ago. The response from
these shows has been extremely favorable, as evidenced by strong dealer interest
from some of the best dealers in the target markets. These trade shows have also
resulted in the Skid Trak being selected by Construction Equipment magazine as
its "New Product of the Year". It will be featured on the cover of the December
1997 issue, which should dovetail nicely with the planned first quarter
introduction of this product.
We are confident that this product presents an opportunity for LMC to greatly
improve its sales and return to profitability.
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 AR Accessories, R.B.M. Precision Metal Products, Atlas and LMC,
are not included.
As reflected in the following graph and the schedules on pages eight and nine of
this 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 investments yielded a return on investment of 1.19 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 3.86
to 1 and an annualized internal rate of return of 34.83%.
----------------
THREE
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
[CHART]
We believe that the Fund's performance to date has been reasonably good and we
will be working very hard in the upcoming years to realize the greatest possible
returns from the remaining investments. The Fund has six remaining investments,
which should be liquidated over the next two or three years.
NET ASSET VALUE
The Fund's net asset value per Unit was $13.12 at September 30, 1997 and $13.72
at November 14, 1997. The November 14th net asset value was used to establish
the repurchase price for the 1997 repurchase offer. These net asset values
compare to net asset values of $15.08 at December 31, 1996 and $13.82 at June
30, 1997.
The decline in the net asset value from December 31, 1996 to September 30, 1997
resulted primarily from the increase in the Fund's net unrealized loss that was
recorded during the nine months ended September 30, 1997 and the fact that a
portion of the cash distributions for the nine months ended September 30, 1997
represented a return of capital. The increase in the net unrealized loss was
primarily attributable to writedowns in the carrying values of the Atlas and AR
Accessories investments. These writedowns were partially offset by increases in
the carrying values for other
-----------------
FOUR
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
investments, primarily the ENI and KEMET investments. All gains realized during
the nine months ended September 30, 1997 were distributed to the Fund's
investors.
The increase in the net asset value from September 30, 1997 to November 14, 1997
was primarily attributable to the gain realized with respect to the ENI
investment. This gain was partially offset by a number of items, including an
additional writedown of the carrying value of the LMC investment.
PERIODIC UNIT REPURCHASE POLICY
Pursuant to the terms of the Periodic Unit Repurchase Policy, which was adopted
by the Fund's investors during 1993, the Fund annually offers to repurchase from
investors, up to 7.5% of its outstanding Units for an amount equal to the
current net asset value per Unit, net of a 2% fee retained by the Fund to offset
expenses incurred in connection with the repurchase offer. If more than 7.5% of
the outstanding Units are tendered, then at their discretion, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
If Units in excess of this amount are tendered, Units are purchased on a
pro-rated basis, after giving priority to investors owning less than 100 Units.
The 1997 repurchase offer was mailed to investors during October 1997. Investors
tendered 172,024 Units, or approximately 15.57% of the Fund's outstanding Units,
for repurchase. The Fund repurchased 84,739 Units, or approximately 7.67% of the
Fund's outstanding Units, during November 1997 at a net asset value of $13.72
($13.45, net of the 2% fee).
CASH DISTRIBUTIONS
The distribution for the third quarter of 1997 was paid on November 14, 1997.
This distribution included both the regular $.30 per Unit distribution and a
special distribution of $1.00 per Unit, which consisted of proceeds
----------------
FIVE
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
received from the Neodata sale. On a combined basis, the cash distributions for
the first three quarters of 1997 consisted of current net investment income
(20.9%), realized gain on investments (45.6%) and a return of capital (33.5%).
As a result of the sale of the ENI securities, management has decided to
increase the regular quarterly distribution from $.30 to $1.00 per Unit,
beginning with the fourth quarter 1997 distribution, which will be paid on
February 13, 1998. The bulk of the distribution increase will consist of gain on
sale of investments and a return of invested capital.
IN-KIND DISTRIBUTION
Management is considering the conversion of some portion of the LMC debt the
Fund holds into common shares, and the subsequent distribution of these shares
to the Fund's investors. We are exploring the regulatory and legal aspects of
this, as well as negotiating with the other major shareholder of LMC. Any shares
distributed would be listed on a national stock exchange and would be freely
tradable. At present, there can be no assurance that this will actually occur.
If it does, we would expect the distribution of the shares to occur in
approximately mid-1998.
PROPOSED EXCHANGE
In previous quarters, we discussed a plan to exchange your Units for shares in a
newly formed Delaware Business Trust, with the shares being listed on a national
exchange. This plan has proven not to be viable and has been abandoned. At the
present time, the Fund has remaining investments in six portfolio companies,
only two of which are investments in subordinated debt securities that generate
current income. Even though the Fund's income has declined substantially, it may
take a number of years for these remaining investments to mature. Consequently,
we are reviewing a number of alternatives for efficiently managing the Fund over
the remainder of its life. Many of the alternatives would require changes to the
Fund's structure, which would require the approval of the investors. Once the
--------------
SIX
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
General Partners have determined the best course of action, you will be promptly
advised.
* * * * * * * *
If you have any questions regarding your investment in the Fund, please call us
at 800-866-7607.
Sincerely,
/s/ Paul Bagley
Paul Bagley, Chairman
FCM Fiduciary Capital Management Company
/s/ W. Duke DeGrassi
W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company
December 12, 1997
-----------------
SEVEN
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
DEBT INVESTMENTS
REALIZED GAINS AND LOSSES (1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Internal
Year of Investment / Year of Gain(1) Rate of
Portfolio Company(2) Repayment Cost Proceeds(1) (Loss) Return
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1990
----
Carr-Gottstein Foods Co. 1993 $ 2,426,680 $ 4,125,587 $ 1,698,907 23.56%
Midwest Dental Products
Corporation 1992 4,521,533 6,558,107 2,036,574 22.63
Neodata Corporation 1993 2,215,553 3,200,305 984,752 17.11
1991
----
KEMET Corporation 1993 3,313,477 4,534,392 1,220,915 17.63
Mobile Technology, Inc. 1992 3,117,525 692,212 (2,425,313) N/A
1992
----
Huntington Holdings, Inc. 1994 4,368,034 6,240,863 1,872,829 20.40
1993
----
ENI Holding Corp. 1997 4,881,293 7,822,395 2,941,102 13.91
KB Alloys, Inc. 1995 2,880,217 4,279,396 1,399,179 18.32
KEMET Corporation 1993 1,695,575 1,804,351 108,776 26.41
Protection One, Inc. 1995 834,580 1,133,054 298,474 22.11
1994
----
Canadian's Holdings, Inc. 1996 2,516,176 319,782 (2,196,394) N/A
1995
----
Canadian's Holdings, Inc. 1996 1,473,895 51,908 (1,421,987) N/A
- --------------------------------------------------------------------------------------------
Totals $34,244,538 $40,762,352 $ 6,517,814 9.39%
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Includes interest income, and fees and prepayment penalties, if applicable.
(2) Includes investment in subsidiaries, if applicable.
----------------
EIGHT
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
EQUITY INVESTMENTS
REALIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Internal
Year of Investment / Year of Gain Rate of
Portfolio Company(1) Realization Cost Proceeds (Loss) Return
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1990
----
Carr-Gottstein Foods Co. 1995 $ 738,394 $ 1,197,018 $ 458,624 9.78%
Neodata Corporation 1997 33,912 923,039 889,127 52.07
1991
----
KEMET Corporation 1994 & 1995 49,965 3,753,147 3,703,182 115.43
Mobile Technology, Inc. 1992 363,630 -- (363,630) N/A
1992
----
Huntington Holdings, Inc. 1996 85,677 1,089,889 1,004,212 68.91
Neodata Corporation 1997 245,006 255,112 10,106 0.81
1993
----
ENI Holding Corp. 1997 670,147 2,745,910 2,075,763 34.60
KEMET Corporation 1994 495,554 729,233 233,679 41.10
Protection One, Inc. 1995 82,420 124,163 41,743 21.02
1994
----
Canadian's Holdings, Inc. 1996 34,821 -- (34,821) N/A
- ---------------------------------------------------------------------------------------------------
Totals $ 2,799,526 $10,817,511 $ 8,017,985 34.83%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes investment in subsidiaries, if applicable.
--------------
NINE
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ---------------------------------------------------------------------------------------------
MANAGED COMPANIES:
<S> <C> <C> <C> <C> <C>
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 8,170 $ 703,929
- --------------------------------------------------------------------------------------------
8,170 703,929 4.4%
- --------------------------------------------------------------------------------------------
62,606 sh. AR Accessories Group,
Inc., Warrants to
Purchase Class B
Common Stock(2)* 07/30/92 85,909 1
22,608 sh. AR Accessories Group,
Inc., Class A Common
Stock(2)* 07/30/92 226,080 214,775
- --------------------------------------------------------------------------------------------
311,989 214,776 1.3
- --------------------------------------------------------------------------------------------
$5,023,926 Elgin National Industries, Inc.,
13.00% Senior Subordinated
Notes due 9/01/01(3) 09/24/93 4,950,241 4,950,241
5,876.1 sh. ENI Holding Corp.,
10.00% Preferred Stock
due 12/31/01 09/24/93 587,610 823,633
403.81sh. ENI Holding Corp.,
Class B Common Stock* 09/24/93 40,381 523,238
421.6 sh. ENI Holding Corp.,
Warrants to Purchase Class
B Common Stock* 09/24/93 42,156 501,160
- --------------------------------------------------------------------------------------------
5,620,388 6,798,272 42.5
- --------------------------------------------------------------------------------------------
$1,603,476 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes
due 10/31/00(4) 11/01/96 1,603,476 1,603,476
239,600 sh. LMCOperating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,384,408
22.72 sh. LMCOperating Corp.,
Common Stock* 02/09/96 454,399 1
47.92 sh. LMCCredit Corp.,
Common Stock* 02/09/96 1 1
- --------------------------------------------------------------------------------------------
4,447,086 3,987,886 25.0
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
schedule.
---------------
TEN
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,327 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 187,698 49,199
3,539 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(5)* 12/28/94 49,929 22,920
- ---------------------------------------------------------------------------------------------
237,627 72,119 0.5
- ---------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(6) 05/24/95 1,222,160 1,222,160
9,072.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants
to Purchase Common
Stock* 05/24/95 73,295 73,295
- ---------------------------------------------------------------------------------------------
1,295,455 1,295,455 8.1
- ---------------------------------------------------------------------------------------------
$3,265,920 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due
1/19/03(7) 01/25/96 3,170,895 1
338,423 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(8)* 01/25/96 33,842 1
- ---------------------------------------------------------------------------------------------
3,204,737 2 0.0
- ---------------------------------------------------------------------------------------------
Total Investments in Managed
Companies (90.4% of net assets) 15,125,452 13,072,439 81.8
- ---------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$2,900,000 Ford Motor Credit
Corporation, 5.23%
Notes due 10/01/97 09/16/97 2,900,000 2,900,000
- ---------------------------------------------------------------------------------------------
Total Temporary Investments (20.1% of net assets) 2,900,000 2,900,000 18.2
- ---------------------------------------------------------------------------------------------
Total Investments (110.5% of net assets) $18,025,452 $15,972,439 100.0%
=============================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of this schedule.
------------------
ELEVEN
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) Amity Leather Products Co. changed its corporate name to AR Accessories
Group, Inc. during 1996.
(3) The notes will amortize in eight equal quarterly installments of $627,991
commencing on November 30, 1999.
(4) The Fund has committed to provide up to $1,632,960 of subordinated debt
financing pursuant to the terms of these notes.
(5) The warrants have exercise prices of $19.30 per share (1,062 shares) and
$34.30 per share (2,477 shares).
(6) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(7) The notes will amortize in five equal annual installments of $653,184
commencing on January 19, 1999. The accrual of interest on the note was
discontinued by the Fund effective April 20, 1996.
(8) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an integral part of
this schedule.
------------------
TWELVE
<PAGE> 14
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$15,125,452 and $14,590,345,
respectively) $ 13,072,439 $ 14,007,043
Temporary investments, at amortized cost 2,900,000 3,097,761
- --------------------------------------------------------------------------------
Total investments 15,972,439 17,104,804
Cash and cash equivalents 271,655 234,305
Accrued interest receivable 126,599 95,207
Other assets 33,225 6,646
- --------------------------------------------------------------------------------
Total assets $ 16,403,918 $ 17,440,962
================================================================================
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 77,176 $ 47,368
Accounts payable and accrued liabilities 427,342 418,781
Distributions payable to partners 1,450,854 334,812
- --------------------------------------------------------------------------------
Total liabilities 1,955,372 800,961
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
NET ASSETS:
Managing General Partner (45,139) (23,225)
Limited Partners (equivalent to $13.12
and $15.08, respectively, per limited
partnership unit based on 1,104,881
units outstanding) 14,493,685 16,663,226
- --------------------------------------------------------------------------------
Net assets 14,448,546 16,640,001
- --------------------------------------------------------------------------------
Total liabilities and net assets $ 16,403,918 $ 17,440,962
================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
----------------
THIRTEEN
<PAGE> 15
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 298,669 $ 409,862
- --------------------------------------------------------------------------------
Total investment income $ 298,669 $ 409,862
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 32,913 35,643
Professional fees 60,746 25,883
Fund administration fees (Note 3) 29,581 29,581
Administrative expenses (Note 3) 17,223 17,223
Independent General Partner fees
and expenses (Note 4) 15,586 10,782
Other expenses 8,856 8,963
- --------------------------------------------------------------------------------
Total expenses 164,905 128,075
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 133,764 281,787
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 888,114 (354,188)
Net change in unrealized (loss) gain
on investments (352,780) 38,023
- --------------------------------------------------------------------------------
Net gain (loss) on investments 535,334 (316,165)
- --------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 669,098 $ (34,378)
================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
----------------
FOURTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 860,164 $ 1,223,987
- --------------------------------------------------------------------------------
Total investment income 860,164 1,223,987
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 89,666 112,827
Professional fees 125,209 94,758
Fund administration fees (Note 3) 88,745 88,745
Administrative expenses (Note 3) 51,671 51,671
Independent General Partner fees
and expenses (Note 4) 36,586 37,918
Other expenses 24,866 38,294
- --------------------------------------------------------------------------------
Total expenses 416,743 424,213
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 443,421 799,774
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 955,312 (3,453,919)
Net change in unrealized (loss) gain
on investments (1,469,711) 3,213,055
- --------------------------------------------------------------------------------
Net loss on investments (514,399) (240,864)
- --------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (70,978) $ 558,910
================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
----------------
FIFTEEN
<PAGE> 17
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (70,978) $ 558,910
Adjustments to reconcile net (decrease) increase
in net assets resulting from operations to net
cash provided by operating activities:
Accreted discount on portfolio investments (27,028) (35,256)
Change in assets and liabilities:
Accrued interest receivable (31,392) (160,978)
Other assets (26,579) 759
Payable to affiliates 29,808 (4,759)
Accounts payable and accrued liabilities (2,556) 4,653
Net realized (gain) loss on investments (955,312) 3,453,919
Net change in unrealized loss (gain)
on investments 1,469,711 (3,213,055)
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 385,674 604,193
- ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (786,996) (3,655,003)
Proceeds from dispositions of portfolio investments 1,245,348 1,106,335
Sale of temporary investments, net 197,761 3,153,506
- ------------------------------------------------------------------------------------
Net cash provided by investing activities 656,113 604,838
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,004,437) (1,087,785)
- ------------------------------------------------------------------------------------
Net cash used in financing activities (1,004,437) (1,087,785)
- ------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 37,350 121,246
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 234,305 175,768
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 271,655 $ 297,014
====================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
-------------
SIXTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 443,421 $ 772,453
Net realized gain (loss) on investments 955,312 (3,453,919)
Net change in unrealized (loss) gain on investments (1,469,711) 2,311,373
- ---------------------------------------------------------------------------------------
Net decrease in net assets resulting
from operations (70,978) (370,093)
Repurchase of limited partnership units -- (1,440,340)
Distributions to partners from -
Net investment income (443,421) (956,739)
Realized gain on investments (966,431) (465,859)
Return of capital (710,625) --
- ---------------------------------------------------------------------------------------
Total decrease in net assets (2,191,455) (3,233,031)
Net assets:
Beginning of period 16,640,001 19,873,032
- ---------------------------------------------------------------------------------------
End of period (including no undistributed
net investment income) $ 14,448,546 $ 16,640,001
=======================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
----------------
SEVENTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ .27 $ .34 $ .77 $ 1.01
Expenses (.15) (.11) (.37) (.35)
- ----------------------------------------------------------------------------------------------
Net investment income .12 .23 .40 .66
Net realized gain (loss) on investments .80 (.28) .86 (2.85)
Net change in unrealized (loss) gain
on investments (.32) .03 (1.32) 2.66
Distributions declared to partners (1.30) (.30) (1.90) (.90)
- ----------------------------------------------------------------------------------------------
Net decrease in net asset value (.70) (.32) (1.96) (.43)
Net asset value:
Beginning of period 13.82 16.50 15.08 16.61
- ----------------------------------------------------------------------------------------------
End of period $ 13.12 $ 16.18 $ 13.12 $ 16.18
- ----------------------------------------------------------------------------------------------
RATIOS (ANNUALIZED):
Ratio of expenses to average net assets 4.45% 2.62% 3.58% 2.87%
Ratio of net investment income to
average net assets 3.61% 5.77% 3.81% 5.41%
Number of limited partnership units at
end of period 1,104,881 1,196,564 1,104,881 1,196,564
</TABLE>
The accompanying notes to financial statements are an intergral
part of these selected per unit data and ratios.
--------------
EIGHTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing
General Partner of the Fund, necessary to fairly present the financial position
of the Fund as of September 30, 1996 and the results of its operations, changes
in net assets and its cash flows for the periods then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the Fund's annual audited financial statements for the year ended December
31, 1996.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$89,666 were paid by the Fund for the nine months ended September 30, 1997.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a
monthly fee at the annual rate of .45% of net proceeds available for investment,
as defined in the Partnership Agreement. Fund administration fees of $88,745
were paid by the Fund for the nine months ended September 30, 1997. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $51,671 for the nine months ended September
30, 1997.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Partners, L.P., an
affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable
monthly in arrears, together with all out-of-pocket expenses. Each Fund's
allocation
----------------
NINETEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of these fees and expenses is based on the relative number of outstanding
Units. Fees and expenses paid by the Fund for the nine months ended September
30, 1997 totaled $36,586.
5. CONTINGENCIES
On October 3, 1996, the Fund commenced an adversary proceeding in the
Canadian's Holdings, Inc. ("Canadian's") Chapter 11 bankruptcy case against
Finova Capital Corporation ("Finova"), Benson Selzer and Joseph Eiger. On March
19, 1997, the Bankruptcy Court denied the Fund's claim. As a result of the
Court's decision, the Fund dropped this litigation, while preserving its rights
to pursue litigation against Finova at a later date. Beginning July 1, 1997, the
Fund began accruing additional reserves at a 12% annualized rate, or $11,119 for
the three months ended September 30, 1997.
FCM believes that any potential liability to the Fund resulting from
Canadian's outstanding sales tax liabilities will not have any material adverse
effect on the Fund's financial condition, beyond the reserve that has been
established.
* * * * * * * *
OTHER INFORMATION
LMC has a defined contribution pension plan (the "Plan"), which was closed in
1995. The previous trustees of the Plan 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. In
order to rectify this problem, LMC has made demands on all previous trustees of
the Plan and the previous controlling shareholders that these parties make the
necessary payments to the Plan. While we believe that it is clear that these
other parties are obligated to make the payments, it is possible that LMC may be
required by the Internal Revenue Service ("IRS") to fund the deficiencies before
the amounts can be collected from the responsible parties. The Board of LMC has
authorized manangement to file suit against these parties, including Mr.
Wallace, who currently owns approximately 50% of LMC's common stock, if payment
is not forthcoming on a timely basis. LMC has received notice of an IRS audit.
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 and
possibly slow the introduction of the new Skid Trak.
--------------
TWENTY
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Fund held portfolio investments in seven
Managed Companies, with an aggregate cost of approximately $15.1 million. The
value of these portfolio investments, which were made from net offering proceeds
and the reinvestment of proceeds from the sale of other portfolio investments,
represents approximately 90.4% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and are subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies have
prepaid their subordinated debt that the Fund held. In addition, three of the
portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of September 30, 1997, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund follow-on
investments, for distribution to the partners or to fund the annual repurchase
offer.
Pursuant to the terms of the Fund's periodic unit repurchase policy that
was adopted by the Fund's Limited Partners during 1993, the Fund annually offers
to purchase from its Limited Partners up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units. The 1997 repurchase
offer was mailed to the Limited Partners on October 6, 1997. The actual
redemption of tendered Units will occur on November 21, 1997.
During November 1996, the Fund agreed to provide up to $1,632,960 of
additional subordinated debt to LMC Operating Corp. ("LMC"), of which $816,480
was advanced at that time. The Fund advanced an additional $786,996 during 1997.
This follow-on investment consists of 12% Senior Subordinated Revolving Notes
due October 31, 2000.
----------------
TWENTY-ONE
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
Accrued interest receivable increased $31,392 from $95,207 at December 31,
1996 to $126,599 at September 30, 1997. This increase resulted primarily from
the accrued interest related to the additional LMC subordinated debt, which is
discussed in the preceding paragraph.
Other assets increased $26,579 from $6,646 at December 31, 1996 to $33,225
at September 30, 1997. This increase resulted primarily from an increase in
prepaid insurance associated with a new liability insurance policy for the
Fund's general partners.
Payable to affiliates increased $29,808 from $47,368 at December 31, 1996
to $77,176 at September 30, 1997. This increase resulted primarily from the
$32,500 annual premium that is payable with respect to the new liability
insurance policy for the Fund's general partners.
Distributions payable to partners increased $1,116,042 from $334,812 at
December 31, 1996 to $1,450,854 at September 30, 1997. This increase represents
the special distribution of proceeds from the sale of the Fund's Neodata
Corporation ("Neodata") investment. This special distribution, which is equal to
$1.00 per Unit, will be paid along with the regular quarterly distribution of
$.30 per Unit on November 14, 1997 to investors of record on September 30, 1997.
During the nine months ended September 30, 1997, the Fund paid cash
distributions pertaining to the fourth quarter of 1996 and the first and second
quarters of 1997, each in the amount of $334,812. These quarterly distributions
were equal to $.30 per Unit and represent an annualized rate equal to 6.0% of
contributed capital.
The Fund's investment period ended on December 31, 1995. Although the Fund
is permitted to make additional investments in existing portfolio companies
after 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. This will impact the amount of the Fund's quarterly
distributions for 1997 and subsequent years because all proceeds from
dispositions or maturities of investments will be distributed to investors,
except to the extent the cash is needed to fund the annual repurchase offer or
to fund any follow-on investments that the Fund may make in existing portfolio
companies.
----------------
TWENTY-TWO
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment income was $133,764 for the three months ended
September 30, 1997 as compared to net investment income of $281,787 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.23 to $.12 and the ratio of net investment
income to average net assets decreased from 5.77% to 3.61% for the three months
ended September 30, 1997 as compared to the corresponding period of the prior
year.
The Fund's net investment income was $443,421 for the nine months ended
September 30, 1997 as compared to net investment income of $799,774 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.66 to $.40 and the ratio of net investment
income to average net assets decreased from 5.41% to 3.81% for the nine months
ended September 30, 1997 as compared to the corresponding period of the prior
year.
Net investment income for the three months ended September 30, 1997
decreased both as a result of a decrease in investment income and an increase in
total expenses. Net investment income for the nine months ended September 30,
1997 decreased primarily as a result of a decrease in investment income. The
decrease in investment income for the nine months ended September 30, 1997 was
partially offset by a small decrease in total expenses.
Investment income decreased $111,193 and $363,823, or 27.1% and 29.7%, for
the three and nine month periods ended September 30, 1997 as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the Atlas Environmental, Inc. ("Atlas") Chapter 11 bankruptcy filing and the
related decision to discontinue accruing the interest due on the Atlas notes
held by the Fund. The Fund's total investments also decreased as a result of the
Fund's repurchase of 7.66% of its Units during the fourth quarter of 1996.
Total expenses increased $36,830, or 28.8%, for the three months ended
September 30, 1997 as compared to the corresponding period of the prior year.
This increase resulted primarily from increases in professional fees and
Independent General Partner fees and expenses. These increases were partially
offset by a decrease in investment advisory fees.
Total expenses decreased $7,470, or 1.8%, for the nine months ended
September 30, 1997 as compared to the corresponding period of the prior year.
------------------
TWENTY-THREE
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
This decrease resulted primarily from decreases in investment advisory fees and
other expenses. These decreases were partially offset by an increase in
professional fees.
Professional fees increased during both the three and nine month periods
ended September 30, 1997 because of fees incurred in connection with the Fund's
analysis of a proposal pursuant to which its Units would have been exchanged for
shares in a newly-formed Delaware Business Trust. FCM has decided not to pursue
this proposal at this time.
Independent General Partner fees and expenses increased during the three
months ended September 30, 1997 because the Fund was obligated to pay fees and
expenses to both incoming and outgoing Independent General Partners during the
transistion period during which new Independent General Partners were being
elected.
The investment advisory fees paid to FCM decreased during both the three
and nine month periods ended September 30, 1997, primarily as a result of the
direct receipt by FCM of consulting fees from LMC, one of the Fund's portfolio
companies during the first quarter of 1996 and as a result of the repurchase of
Units during November 1996. Pursuant to the terms of the Fund's investment
advisory agreement with FCM, the investment advisory fees payable to FCM by the
Fund are reduced by the amount of any fees that FCM receives directly from any
of the Fund's portfolio companies. The repurchase of Units decreased the amount
of the Fund's available capital (as defined in the Partnership Agreement) which
is the base with respect to which the investment advisory fees are calculated.
Other expenses decreased during the nine months ended September 30, 1997
primarly as a result of consulting fees and expenses paid during 1996 in
connection with the Canadian's bankruptcy proceedings.
NET REALIZED GAIN ON INVESTMENTS
The net realized gain for the three months ended September 30, 1997
consisted of a gain on sale of the Fund's Neodata investment and a realized loss
on the Fund's Canadian's investment. The net realized gain for the nine months
ended September 30, 1997 also included a gain from the sale of the Fund's
investment in Huntington Holdings, Inc. ("Huntington").
-----------------
TWENTY-FOUR
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
The Fund has owned an equity position in Neodata since 1990, which it
acquired at a cost of $278,917. In addition, the Fund previously owned Neodata
subordinated notes, which were prepaid during May 1993.
During August 1997, Electronic Data Systems Corporation ("EDS") offered to
purchase all of Neodata's stock that it did not already own. Hicks Muse, the
owner of a controlling portion of Neodata's common stock, accepted the offer.
The purchase by EDS closed on September 2, 1997. The Fund received $1,178,150 of
cash proceeds from the sale of its Neodata stock, resulting in a realized gain
of $899,233.
Beginning July 1, 1997, the Fund began accruing additional Canadina's sale
tax related reserves at a 12% annualized rate, or $11,119 for the three months
ended September 30, 1997. This additional accrued amount was recorded as an
additional realized loss in the Fund's Statements of Operations.
During December 1995, Huntington entered into a letter of intent, under the
terms of which all Huntington stock would be sold for cash. The sale was
consummated during February 1996. The Fund's share of the actual sales proceeds
totaled $1,247,229, of which $1,089,896 was received during February 1996, with
the balance held by the buyer in escrow. A portion of the escrowed funds was
used to pay various transaction expenses and the Fund received additional
distributions of $16,439 and $67,198 during September 1996 and May 1997,
respectively. The remaining balance will continue to be held in escrow until
February 1998 to be available to fund any contingent purchase price adjustments
and as collateral for potential claims of the buyer with respect to
representations made by the selling shareholders, including the Fund. The Fund
recognized realized gains of $1,020,657 and $67,198 from this transaction during
1996 and the second quarter of 1997, respectively. Additional gain will be
recognized if, and when, the Fund actually receives a distribution of any of the
remaining escrowed funds.
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an average
of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public markets
or
------------------
TWENTY-FIVE
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
that are privately held are determined pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and are
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
As of December 31, 1996, the Fund had recorded $1,321,710 of unrealized
gain and $1,905,012 of unrealized loss on investments. Therefore, as of December
31, 1996, the Fund had recorded a total net unrealized loss on investments of
$583,302.
The net increase in unrealized loss on investments during the three and
nine month periods ended September 30, 1997 and the cumulative net unrealized
loss on investments as of September 30, 1997, consisted of the following
components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
- --------------------------------------------------------------------------------------------
During the Three During the Nine
Months Ended Months Ended As of
Portfolio Company September 30, 1997 September 30, 1997 September 30, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized net loss recorded
during prior periods with respect
to the investments disposed of
during the period $ 278,915 $ 278,915 $ -
KEMET 128,970 172,200 695,759
ARA - (703,412) (97,213)
Elgin / ENI 14,690 985,932 1,177,884
LMC - - (459,200)
MTI 25,823 21,613 (165,508)
Atlas (801,178) (2,224,959) (3,204,735)
- ----------------------------------------------------------------------------------------------
$ (352,780) $(1,469,711) $ (2,053,013)
==============================================================================================
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock,
---------------------
TWENTY-SIX
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
which trades on the NASDAQ National Market System, closed at $30.53125 (an
average of the closing bid and ask prices) on September 30, 1997. This price is
up from the closing prices of $23.0625 on December 31, 1996 and $24.9375 on June
30, 1997. Based on the $30.53125 closing trading price of the common stock, the
23,056 shares of common stock that the Fund held at September 30, 1997 had a
market value of $703,929.
AR Accessories Group, Inc. ("ARA") reported significantly reduced earnings
and cash flow from operations for its most recent fiscal year. In addition, the
price earnings ratios of comparable companies in its industry have declined
recently. As a result of these factors, the ARA warrants and common stock were
written down in value by $703,412 at March 31, 1997.
During June 1997, the Fund received a written offer from ENI Holding Corp.
("ENI") management to prepay the Fund's subordinated debt, redeem the Fund's
preferred stock and purchase the Fund's Class B common stock and warrants. The
offer, which was contingent on management's ability to secure adequate financing
on satisfactory terms, was reviewed by all of the subordinated debt holders and
rejected as inadequate. As a result of this offer, the Fund wrote the Class B
common stock and warrants up in value at June 30, 1997 by $941,861 to an amount
equal to 80% of the price offered by management. In recent weeks, ENI management
has made an improved offer, which is currently under consideration and
negotiation. In addition, the ENI preferred stock is being written up in value
quarterly to reflect the accrual of the cumulative 10% preferential dividend.
LMC experienced significant operating problems after the Fund acquired its
LMC investment during 1994 and the Fund was involved in a restructuring of its
LMC investment during 1995. In the restructuring, the Fund's existing LMC
subordinated debt and warrants were converted into preferred stock and the Fund
purchased $454,400 of new common stock. As a result of LMC's operational
difficulties and the fact that the Fund's investment was converted from debt
securities to equity securities, the Fund wrote its LMC investment down by
$459,200 during 1995.
The MTI common stock was written down in value during 1994 based upon an
independent third party valuation of the company that was obtained by MTI's
management. During August 1996, MTI consummated a financial restructuring
pursuant to which a substantial amount of its corporate debt was converted to
equity. In the restructuring, the existing shareholders, including the Fund,
received a reduced number of shares of common stock, along with warrants to
----------------------
TWENTY-SEVEN
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
purchase additional common stock. The Fund's valuation of its MTI investment was
reduced by $4,210 at March 31, 1997 and increased by $25,823 at September 30,
1997 based upon an analysis of MTI's reported earnings and cash flows.
The companies that Atlas acquired during 1996 with the proceeds of the
Fund's subordinated debt investment have not performed as well as expected. As a
result, Atlas defaulted on certain financial covenants in its agreements with
its senior lender and with the Fund. The senior lender, the Bank of New York,
reacted to the covenant defaults by limiting Atlas' availability under its
revolving credit facility and by instructing Atlas not to pay the quarterly
interest payments that were due on the Fund's subordinated debt, beginning in
July 1996. In accordance with the intercreditor agreement between the Fund and
the Bank of New York, the bank could block payments on the Fund for up to 180
days.
During August 1996, Atlas entered into a letter of intent, under the terms
of which some of the company's businesses would be sold for cash. On November 5,
1996, the purchaser notified Atlas that it wanted to renegotiate the terms of
the transaction, including a reduction in the purchase price. Atlas management
was unable to reach a revised agreement with the purchaser and Atlas remained in
default on its debt. On January 17, 1997, Atlas filed for Chapter 11 bankruptcy
protection. Atlas is currently developing a plan of reorganization for
submission to the bankruptcy court that provides for the continued operation of
its businesses, including a series of strategic asset acquisitions and
dispositions.
As a result of these developments, the Fund stopped accruing interest on
its Atlas investment effective April 20, 1996 and recorded writedowns of
$979,776, $1,423,781 and $801,178 in the carrying value of the investment during
the fourth quarter of 1996 and the second and third quarters of 1997,
respectively. The remaining carrying value of the Fund's Atlas investment is $2.
FCM continually monitors both the Fund's portfolio companies and the
markets, and continually evaluates the decision to hold or sell its traded
securities.
------------------
TWENTY-EIGHT
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17,751,515
<INVESTMENTS-AT-VALUE> 13,949,246
<RECEIVABLES> 67,964
<ASSETS-OTHER> 58,926
<OTHER-ITEMS-ASSETS> 276,108
<TOTAL-ASSETS> 14,352,244
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,488,379
<TOTAL-LIABILITIES> 1,488,379
<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> 1,338,315
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,802,269)
<NET-ASSETS> 12,863,865
<DIVIDEND-INCOME> 241,806
<INTEREST-INCOME> 1,109,776
<OTHER-INCOME> 18,670
<EXPENSES-NET> 538,893
<NET-INVESTMENT-INCOME> 831,359
<REALIZED-GAINS-CURRENT> 2,925,017
<APPREC-INCREASE-CURRENT> (3,218,969)
<NET-CHANGE-FROM-OPS> 537,407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 831,359
<DISTRIBUTIONS-OF-GAINS> 1,608,939
<DISTRIBUTIONS-OTHER> 710,627
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 84,739
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,776,136)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 120,800
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 538,893
<AVERAGE-NET-ASSETS> 14,969,881
<PER-SHARE-NAV-BEGIN> 15.08
<PER-SHARE-NII> .75
<PER-SHARE-GAIN-APPREC> (.27)
<PER-SHARE-DIVIDEND> .76
<PER-SHARE-DISTRIBUTIONS> 1.47
<RETURNS-OF-CAPITAL> .67
<PER-SHARE-NAV-END> 12.66
<EXPENSE-RATIO> 3.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
