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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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17738
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Fiduciary Capital Pension Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 86-0653603
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(State of organization) (I.R.S. Employer
Identification No.)
410 17th Street, Suite 400
Denver, Colorado 80202
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (303) 446-2187
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.
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Fiduciary Capital Pension Partners, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1998
Table of Contents
<TABLE>
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Page
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Part I
Item 1 Business.........................................................................................1
Item 2 Properties.......................................................................................7
Item 3 Legal Proceedings................................................................................7
Item 4 Submission of Matters to a Vote
of Security Holders..........................................................................8
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters..............................................................9
Item 6 Selected Financial Data.........................................................................10
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations...................................................................11
Item 8 Financial Statements and
Supplementary Data..........................................................................F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure........................................................................19
Part III
Item 10 Directors and Executive Officers
of the Registrant ..........................................................................20
Item 11 Executive Compensation..........................................................................23
Item 12 Security Ownership of Certain
Beneficial Owners and Management ...........................................................23
Item 13 Certain Relationships and
Related Transactions .......................................................................24
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 has annually offered to
repurchase from its Limited Partners up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to
repurchase up to an additional 2% of the outstanding Units.
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Repurchases of Units since the adoption of the plan are summarized as follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
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Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
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<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
November 1998 79,806 7.82% 9.43 9.24
</TABLE>
The Fund's investment period ended on December 31, 1995. Although the Fund has
been permitted to make additional investments in existing portfolio companies
since 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. Consequently, the Fund has been in a liquidation mode.
Since the middle of 1997, the Fund has liquidated a significant percentage of
its investments and has distributed approximately $5.03 per Unit to the Limited
Partners, with the cash coming primarily from the liquidation of these
investments. The Fund presently has only four remaining investments in portfolio
companies, which are expected to generate only limited amounts of interest
income for the Fund during 1999 and future years.
As a result of these developments, the Fund is not expected to have sufficient
liquidity to continue to (i) fund quarterly cash distributions, (ii) fund the
annual repurchase offers, and (iii) pay its operating expenses. Accordingly, the
General Partners are presently considering a number of alternative actions
through which the Fund could be liquidated during 1999 or 2000. Once a specific
plan of liquidation is developed, the General Partners will follow the requisite
regulatory procedures required to liquidate the Fund. The procedures are
expected to include requesting Limited Partner approval of the liquidation plan
through a proxy solicitation.
It is currently anticipated that the Fund will not have sufficient liquidity to
fund a repurchase offer during 1999. If the Fund does not have sufficient
liquidity, the General Partners have the authority to forego the repurchase
offer under the terms of the Fund's repurchase policy. In addition, the
termination of the annual repurchase offer is expected to be included in any
plan of liquidation that is submitted to the Limited Partners for their
approval.
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, 1998, the Fund held portfolio investments in three Managed
Companies, with an aggregate cost of approximately $7.8 million and one
investment in a Non-Managed Company with a cost of approximately $1.1 million.
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 1998, the Fund purchased $2,011,050 of LMC Corporation ("LMC") common
stock as an additional follow-on investment. In addition, the outstanding
principal amount of the LMC 12% Senior Subordinated Revolving Notes due October
31, 2000, decreased by $45,360, from $1,632,960 at December 31, 1997 to
$1,587,600 at December 31, 1998. (For a further discussion of LMC, see section
below, "Follow-On Investments in 1998".)
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Also in 1998, the Fund sold all of its Mobile Technology, Inc. ("MTI") stock and
warrants and received final distributions from the escrow accounts that were
established during 1996 in connection with the sale of the Fund's Huntington
Holdings, Inc. ("Huntington") stock. The Fund received $222,016 in proceeds from
these transactions. The Fund also wrote off the entire cost of its equity
investment in AR Accessories Group, Inc. ("ARA") (formerly known as Amity
Leather Products Co.) as a realized loss following ARA's liquidation in
bankruptcy and exchanged its Atlas Environmental, Inc. ("Atlas") subordinated
notes and warrants for WasteMasters, Inc. ("WMI") common stock. (For a further
discussion, see section below, "Disposition of Portfolio Investments in 1998".)
The Fund also stopped accruing interest on its RBM Senior Subordinated Secured
Notes during 1998. (For a further discussion, see section below, "Other
Portfolio Investments".)
Follow-On Investments in 1998
LMC Corporation
The Company LMC has long been a leading U.S. manufacturer of low ground pressure
track vehicles used for construction, infrastructure development and
landscaping. The primary purchasers of these vehicles include private
contractors, ski resorts, utility companies and governmental agencies for use on
construction sites and/or environmentally sensitive locations.
LMC has developed and is selling its most powerful and versatile tracked vehicle
to date, the TrackMaster 75 (TM). Manufactured with significantly improved
efficiency in LMC's newly acquired facility, the TrackMaster 75 (TM) can carry a
2,500 pound payload at a rate of 8 miles per hour while impacting the ground at
less than 2 pounds per square inch.
Manufacturing takes place under one roof at LMC corporate headquarters located
at the LMC Business Park in Brigham City, Utah. This site affords LMC increased
flexibility in its manufacturing processes as well as the potential to sub-lease
space to other firms.
In recent years, LMC has reported significant operating losses and negative
EBITDA. For the fiscal year ended September 30, 1998, LMC reported a net loss of
approximately $4.5 million and negative EBITDA of approximately $3.3 million. As
of September 30, 1998, LMC had total assets of approximately $9 million and
shareholders' equity of approximately $250,000.
LMC is pursuing a multi-year strategy of market repositioning and corporate
restructuring. This strategy focuses on (i) emphasizing the sale of current
products with higher margins, (ii) developing and introducing new products to
expand the company's offerings to niche markets, and (iii) controlling
manufacturing costs by implementing productivity initiatives. LMC's ability to
achieve profitable operations is dependent on its ability to successfully
implement this management strategy and the availability of necessary debt or
equity financing.
History of Investment During June 1994, the Fund invested $2,348,080 in LMC. The
investment consisted of $2,396,000 of 13.00% Senior Subordinated Notes due May
31, 1999 with warrants to acquire common stock.
During February 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's common
stock from approximately 12% to approximately 23%.
During November 1996, the Fund purchased $1,632,960 of LMC's 12% Senior
Subordinated Revolving Notes due October 31, 2000. The outstanding principal
balance of these revolving notes, which fluctuates, totaled $1,587,600 at
December 31, 1998.
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During February and March 1998, the Fund purchased $449,000 of LMC's Senior
Subordinated Revolving Notes due August 20, 1998.
During April 1998, the Fund agreed to again restructure and increase its
aggregate investment in LMC. In the restructuring, $1,360,800 of the Fund's LMC
Senior Subordinated Revolving Notes due October 31, 2000 were converted into
additional LMC common stock. This left LMC with the ability to reborrow the
$1,360,800. Since that time, LMC has periodically made draw downs under the
terms of the Revolving Note agreement to fund working capital requirements and
to retire the $449,000 of LMC Senior Subordinated Revolving Notes due August 20,
1998, as described in the preceding paragraph. As a result of this second
restructuring, the Fund's percentage ownership of LMC's common stock increased
from approximately 23% to approximately 40%.
During August 1998, the Fund purchased an additional 1,300,500 shares of LMC
common stock for $650,250. As a result of this stock purchase, the Fund's
percentage ownership of LMC's common stock increased from approximately 40% to
approximately 41%.
Dispositions of Portfolio Investments in 1998
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. The
balance of the sales proceeds was held in escrow to pay transaction expenses, to
fund contingent purchase price adjustments and as collateral for potential
claims of the buyer with respect to representations made by the selling
shareholders, including the Fund. During 1998, an agreement was reached with the
buyer with regard to purchase price adjustments and other claims and the escrow
accounts were liquidated. The Fund received additional distributions of $16,439,
$67,198, $63,001, and $971 during September 1996, May 1997, June 1998 and August
1998, respectively. The selling shareholders, including the Fund, could be
required under certain of the seller's representations to reimburse the buyer
for certain costs and expenses, even though the escrow account has been
liquidated.
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.
AR Accessories Group, Inc. During 1992, the Fund purchased subordinated notes,
warrants to purchase Class B common stock and Class A common stock in ARA.
During August 1994, ARA prepaid the subordinated notes that the Fund held. The
Fund continued 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 it in addressing
continuing significant declines in the company's sales and profits. The hiring
of the crisis manager was precipitated by ARA's lenders, which notified ARA of
defaults under its credit lines and demanded that ARA repay overadvances that
were made during 1997. The Fund was notified that ARA was considering a number
of options for solving these problems, including a possible bankruptcy filing
and the sale of the company, or certain of its operations.
ARA filed for bankruptcy protection during March 1998. ARA's assets were
liquidated at auction during May 1998, with the proceeds from the sale
satisfying only a portion of ARA's debt. The cost of the Fund's equity
investment in ARA was written off as a realized loss during May 1998.
4
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ARA manufactured men's and ladies' fine personal leather goods and distributed
these products to department stores, mass merchandisers and company-owned Wallet
Works stores. ARA marketed 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. During 1991, the Fund purchased subordinated notes and
various equity securities in MTI and its parent company.
The Fund stopped accruing interest on the MTI notes that it held, effective
October 1, 1992. During 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
this restructuring.
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
was sold. This sale was consummated June 1998, with the Fund receiving $158,043
from the sale of 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.
WasteMasters, Inc. and Atlas Environmental, Inc. During January 1996, the Fund
invested $3,200,601 in Atlas. The investment consisted of $3,265,920 of 13.5%
Senior Subordinated Secured Notes due January 19, 2003, with warrants to acquire
common stock. The warrants had an exercise price of $8.00 per share.
The companies that Atlas acquired during 1996 with the proceeds of the Fund's
subordinated debt investment did not perform as well as expected. As a result,
Atlas defaulted on certain financial covenants in its agreements with its senior
lender and with the Fund. The senior lender, the Bank of New York, reacted to
the covenant defaults by limiting Atlas' availability under its revolving credit
facility and by instructing Atlas not to pay the quarterly interest payments
that were due on the Fund's subordinated debt, beginning in July 1996.
During August 1996, Atlas entered into a letter of intent, under the terms of
which some of the company's businesses would be sold for cash. 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. During January 1997, Atlas filed for Chapter 11 bankruptcy
protection.
As a result of these developments, the Fund stopped accruing interest on the
subordinated notes during April 1996 and wrote the carrying value of its Atlas
investment down during 1996 and 1997 to a nominal amount.
During June 1998, the Fund exchanged its Atlas subordinated notes and warrants
for 821,376 shares of common stock in WMI, an Atlanta, Georgia based waste
management company.
Pursuant to the terms of the exchange agreement, the Fund is prohibited from
selling its WMI common stock for 24 months. In addition, the Fund granted the
entity acquiring the Fund's Atlas securities a call on the Fund's WMI common
stock during the 24 month lock up period and a right to first refusal
thereafter. The call price is $11.25 per share.
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The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 (an average of the closing bid and ask prices) on June
3, 1998 (the date of the exchange). However, due to a number of factors,
including the speculative nature of the WMI stock, the two year lock up period
and the relative size of the Fund's stock position, FCM recorded the WMI stock
at the same nominal value that the Atlas securities had previously been carried
by the Fund.
The Fund recorded a realized loss of $2,125,574 on the exchange, which is equal
to the amount of the loss that the Fund claimed for income tax purposes from the
disposition of the Atlas securities. The balance of the unrealized loss
previously recorded by the Fund with respect to the Atlas securities continues
to be carried by the Fund as an unrealized loss.
The 52-week low for the WMI common stock is $0.16 per share and the current bid
price (March 24, 1999) is $0.31 per share.
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 KEMET
common stock and warrants. 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 has not sold any additional shares since 1995.
The Fund has 23,056 shares of KEMET stock remaining as of December 31, 1998. The
Fund's cost basis in its KEMET stock is approximately $.35 per share. At
December 31, 1998, the stock closed at $11.4375 (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.
R.B.M. Precision Metal Products, Inc. ("RBM") During May 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 had a record year for fiscal 1998, with sales of approximately $30 million
and EBITDA of approximately $2.7 million. However, these sales were achieved
primarily through one contract with Digital Equipment Corporation ("DEC").
During August 1998, RBM notified the Fund that anticipated sales to DEC and
other large customers were expected to decline significantly in the upcoming
year. Of particular concern were sales to DEC, which has been acquired by Compaq
Computer Corp. As a result of the expected decline in sales, RBM began the
process of restructuring its debt, including the subordinated debt held by the
Fund. The Fund received the quarterly interest payment that was due from RBM on
August 24, 1998. The interest payment that was due during November 1998 was
deferred and became part of the restructuring amounts.
During December 1998, RBM and its lenders completed a restructuring under which
a new senior lender, Norwest Business Credit, replaced Bank of America. As part
of this transaction, RBM's equity sponsor contributed additional equity to the
company and the subordinated lenders, including the Fund, agreed to accept
shares of RBM's common stock as payment for the next three quarterly interest
payments beginning with the
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payment that was due during November 1998. As a consequence, the Fund's
ownership of RBM, on a fully-diluted basis, increased from 5.9% to 7.2%,
assuming exercise of its warrants. The restructuring was designed to provide RBM
with a period of time in which to secure additional customers and return to a
more stable financial position under which RBM could meet its interest
obligations to its creditors, including the Fund. As a result of these
developments, the Fund stopped accruing interest on its RBM Senior Subordinated
Secured Notes effective August 25, 1998.
RBM, headquartered in Colorado Springs, Colorado, is a manufacturer of precision
sheet metal enclosures, chassis and assemblies for business machines.
Competition
The Fund's investment period ended on December 31, 1995, and the Fund is engaged
in an orderly liquidation. Each of the Fund's remaining portfolio companies
experience substantial competition in their respective businesses.
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
On December 23, 1997, LMC commenced an action against Paul Wallace, a director
of LMC and the trustee of its discontinued pension plan, in an effort to recover
for a significant underfunding of LMC's discontinued pension plan. On January
27, 1998, LMC Holding Co. ("LMC Holding"), which held approximately 50% of the
issued and outstanding common stock of LMC on that date, commenced an action
against the Fund, FCP and each of Paul Bagley, the Chairman of the Board and
Chief Executive Officer of FCM, W. Duke DeGrassi, the President of FCM, and
Donald R. Jackson, the Senior Vice President, Treasurer, Chief Financial Officer
and Compliance Officer of FCM (collectively, the "Individual Defendants"), in
their capacities as officers of FCM, in the First Judicial District Court in and
for Cache County, State of Utah, entitled LMC Holding Co. v. Fiduciary Capital
Partners, L.P., et al., Civil No. 98-0100077 (the "LMC Action"). LMC Holding is
controlled by Paul Wallace. FCM believes that the LMC Action was commenced in
response to the action previously filed by LMC against Mr. Wallace. The Fund,
FCP and the Individual Defendants entered into a settlement agreement with LMC
Holding, effective April 20, 1998. As part of the settlement, the Fund and FCPP
have been able to increase their percentage ownership of LMC in exchange for the
additional capital contributions. The LMC Action was subsequently dismissed with
prejudice. FCM believes that the additional investment by the Fund and FCPP will
allow LMC to implement a business plan designed to restore it to profitability
within the next few years. LMC continues to pursue its legal action against Mr.
Wallace with respect to the underfunding of its discontinued pension plan.
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<PAGE> 10
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 reserves that have been established.
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, 1998.
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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 has annually offered 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 in Item 1 of
this Report, "Business".
As of March 1, 1999 the number of Limited Partners of record was approximately
2,530.
The Fund made the following distributions to its partners with respect to 1998
and 1997:
<TABLE>
<CAPTION>
Quarter During Total Amount of
Which Distributed Amount of Distribution
Cash was Generated Distribution (1) Per $20 Unit Payment Date
------------------ ---------------- ------------- ------------
<S> <C> <C> <C>
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
1st Quarter 1998 1,139,142 1.13/1.00(2) May 15, 1998
2nd Quarter 1998 1,024,761 1.00 August 14, 1998
3rd Quarter 1998 309,134 .30 November 13, 1998
4th Quarter 1998 284,950 .30 February 12, 1999
</TABLE>
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(1) Includes distributions to the Managing General Partner.
(2) The per Unit distribution amount varied between $1.00 and $1.13
depending upon the closing in which the particular Units were issued.
This disproportionate cash distribution resulted from the Units being
issued on different dates during 1990, and thus being entitled to
differing Preferred Return amounts, as defined in the Fund's
Partnership Agreement. These disproportionate distribution rates
eliminated the remaining Preferred Return amounts, leaving all Units on
an equal basis going forward.
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%).
Cash distributions for 1998 were paid out of net investment income (3.1%),
realized gains on investments (50.8%) and a return of capital (46.1%).
The Fund currently expects the 1999 distributions to continue at a rate of $.30
per Unit per quarter for all Limited Partners, subject to discontinuance
pursuant to a plan of liquidation, if one is approved.
The Fund's investment period ended on December 31, 1995. Although the Fund has
been permitted to make additional investments in existing portfolio companies
since 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. Consequently, the Fund has been in a liquidation mode.
Since the middle of 1997, the Fund has liquidated a significant percentage of
its investments and has distributed approximately $5.03 per Unit to the Limited
Partners, with the cash coming primarily from the liquidation of these
investments. The Fund presently has only four remaining investments in portfolio
companies, which are expected to generate only limited amounts of interest
income for the Fund during 1999 and future years.
9
<PAGE> 12
As a result of these developments, the Fund is not expected to have sufficient
liquidity to continue to (i) fund quarterly cash distributions, (ii) fund the
annual repurchase offers, and (iii) pay its operating expenses. Accordingly, the
General Partners are presently considering a number of alternative actions
through which the Fund could be liquidated during 1999 or 2000. Once a specific
plan of liquidation is developed, the General Partners will follow the requisite
regulatory procedures required to liquidate the Fund. The procedures are
expected to include requesting Limited Partner approval of the liquidation plan
through a proxy solicitation.
It is currently anticipated that the Fund will not have sufficient liquidity to
fund a repurchase offer during 1999. If the Fund does not have sufficient
liquidity, the General Partners have the authority to forego the repurchase
offer under the terms of the Fund's repurchase policy. In addition, the
termination of the annual repurchase offer is expected to be included in any
plan of liquidation that is submitted to the Limited Partners for their
approval.
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
----------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------- ------- ------- -------
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 607 $ 1,370 $ 1,329 $ 2,268 $ 2,335
Net Investment Income 58 831 772 1,726 1,758
Net Realized and Unrealized
(Loss) Gain on Investments (945) (294) (1,143) (2,326) 1,505
Cash Distributions Declared
to Partners 2,758 3,151 1,423 1,542 2,537
Repurchase of Units 753 1,163 1,440 1,959 2,403
Total Assets 9,248 14,352 17,441 20,321 24,694
Net Assets 8,466 12,864 16,640 19,873 23,974
Value of Investments 8,506 13,949 17,105 20,025 23,454
Per Unit of Limited Partnership Interest:
Net Investment Income(1) .05 .75 .64 1.33 1.23
Net Realized and Unrealized
(Loss) Gain on Investments(1) (.82) (.27) (.95) (1.79) 1.06
Cash Distributions Declared
to Partners(2) 2.71 2.90 1.20 1.20 1.80
Net Asset Value 9.19 12.66 15.08 16.61 18.47
</TABLE>
- ---------------
(1) Calculated using the weighted average number of Units outstanding
during the years ended December 31, 1998, 1997, 1996, 1995 and 1994 of
1,010,959, 1,095,362, 1,186,294, 1,285,717 and 1,413,240, respectively.
(2) 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
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following discussion should be read in conjunction with the Fund's audited
Financial Statements and the Notes thereto. This Report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, effects of
competition and the Year 2000 issue on the business of the portfolio companies
and other factors discussed elsewhere in this Report. Readers are urged to
consider statements that include the terms "believes", "expects", "plans",
"anticipates", "intends" or the like to be uncertain and forward-looking. The
Fund undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of anticipated or unanticipated events.
Liquidity and Capital Resources
During 1990, the Fund completed a public offering of its Units. Net offering
proceeds available to the Fund, after deducting commissions and other offering
costs, totaled $26,298,970.
The Fund's Limited Partners adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund has annually offered to
purchase from its Limited Partners, up to 7.5% of its outstanding Units for an
amount equal to the current net asset value per Unit, net of a fee (not to
exceed 2%) to be retained by the Fund to offset expenses incurred in connection
with the repurchase offer. If the number of tendered Units in any year exceeds
7.5% of the outstanding Units, the Fund's General Partners may vote to purchase
up to an additional 2% of the outstanding Units.
Repurchases of Units since the adoption of the plan are summarized as follows:
<TABLE>
<CAPTION>
Units Repurchased Net Asset Value per Unit
----------------------------- ---------------------------
Percentage
Date of of Outstanding Net of the
Repurchase Offer Number Units Gross 2% Fee
----------------- ------ -------------- ----- ----------
<S> <C> <C> <C> <C>
November 1993 61,850 4.15% $18.33 $17.96
November 1994 130,951 9.17% 18.35 17.98
November 1995 100,435 7.74% 19.51 19.12
November 1996 91,683 7.66% 15.71 15.40
November 1997 84,739 7.67% 13.72 13.45
November 1998 79,806 7.82% 9.43 9.24
</TABLE>
The Fund's investment period ended on December 31, 1995. Although the Fund has
been permitted to make additional investments in existing portfolio companies
since 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. Consequently, the Fund has been in a liquidation mode.
Since the middle of 1997, the Fund has liquidated a significant percentage of
its investments and has distributed approximately $5.03 per Unit to the Limited
Partners, with the cash coming primarily from the liquidation of these
investments. The Fund presently has only four remaining investments in portfolio
companies, which are expected to generate only limited amounts of interest
income for the Fund during 1999 and future years.
As a result of these developments, the Fund is not expected to have sufficient
liquidity to continue to (i) fund quarterly cash distributions, (ii) fund the
annual repurchase offers, and (iii) pay its operating expenses. Accordingly, the
General Partners are presently considering a number of alternative actions
through which the Fund could be liquidated during 1999 or 2000. Once a specific
plan of liquidation is developed, the General Partners will follow the requisite
regulatory procedures required to liquidate the Fund. The procedures are
expected to include requesting Limited Partner approval of the liquidation plan
through a proxy solicitation.
It is currently anticipated that the Fund will not have sufficient liquidity to
fund a repurchase offer during 1999. If the Fund does not have sufficient
liquidity, the General Partners have the authority to forego the repurchase
offer under the terms of the Fund's repurchase policy. In addition, the
termination of the annual repurchase offer is expected to be included in any
plan of liquidation that is submitted to the Limited Partners for their
approval.
As of December 31, 1998, the Fund held portfolio investments in three Managed
Companies, with an aggregate cost of approximately $7.8 million, and one
investment in a Non-Managed Company, with a cost of approximately $1.1 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 74.8% of the Fund's net assets. When acquired, these portfolio
investments generally consisted of high-yield subordinated debt, linked with an
equity participation or a comparable participation feature. These securities
were typically issued in private placement transactions and were subject to
certain restrictions on transfer or sale, thereby limiting their
11
<PAGE> 14
liquidity. A number of the portfolio companies have prepaid their subordinated
debt that the Fund held. In addition, three of the portfolio companies have
successfully completed IPOs of their stock. The Fund has sold the stock it held
in these three companies, except for a portion of its KEMET stock.
As of December 31, 1998, the Fund's remaining assets were invested in short-term
commercial paper. These funds are available to fund the annual repurchase offer,
to fund follow-on investments in existing portfolio companies, to pay Fund
expenses and for distribution to the partners.
During 1998, the Fund sold its MTI stock and warrants and received final
distributions 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 $222,016 in proceeds from these transactions.
Accrued interest receivable increased $17,592 from $67,964 at December 31, 1997
to $85,556 at December 31, 1998. This increase resulted primarily from the fact
that the quarterly interest payment that was due on the LMC notes on October 1,
1998 was not received by the Fund until January 1999. The impact of the past due
status of this LMC interest payment was partially offset by the Fund's decision
to stop accruing interest on the RBM notes effective during August 1998.
Other assets decreased $31,692 from $58,926 at December 31, 1997 to $27,234 at
December 31, 1998. This decrease resulted primarily from the collection of a
receivable from LMC for legal fees that the Fund advanced on behalf of LMC
during 1997.
Accounts payable and accrued liabilities increased $46,703 from $424,137 at
December 31, 1997 to $470,840 at December 31, 1998. This increase resulted
primarily from an increase in the litigation related reserve during 1998. This
reserve represents $437,340, or approximately 93%, of the total accounts payable
and accrued liabilities at December 31, 1998.
Distributions payable to partners decreased $745,496, from $1,030,446 at
December 31, 1997 to $284,950 at December 31, 1998. This decrease resulted from
both a decrease in the quarterly distribution rate from $1.00 per Unit for the
fourth quarter of 1997 to $.30 per Unit for the fourth quarter of 1998 and from
a 7.82% decrease in the number of outstanding Units as a result of the
repurchase of Units by the Fund during November 1998.
During 1998, the Fund declared quarterly cash distributions to its partners in
the aggregate amount of $2,757,988, which were paid during the months of May,
August and November 1998 and February 1999. The per Unit distribution rate for
the first quarter of 1998 varied between $1.00 and $1.13 depending upon the
closing in which the particular Units were issued. This disproportionate cash
distribution resulted from the Units being issued on different days during 1990,
and thus being entitled to differing Preferred Return amounts, as defined in the
Fund's Partnership Agreement. The disproportionate rates eliminated the
remaining Preferred Return amounts, leaving all Units on an equal basis going
forward. The per Unit distribution rates were $1.00, $.30 and $.30 for all Units
for the second, third and fourth quarters of 1998, respectively. In the
aggregate, the 1998 distributions were paid out of current net investment income
(3.1%), realized gains on investments (50.8%) and a return of capital (46.1%).
The Fund currently expects 1999 distributions to continue at a rate of $.30 per
Unit per quarter for all Limited Partners, subject to discontinuance pursuant to
a plan of liquidation, if one is approved.
The Fund has accrued approximately $440,000 for certain known potential
liabilities related to a former investment of the Fund. In addition, the Fund
may be exposed to other asserted or unasserted legal claims encountered in the
course of its activities, past and present. Other than those amounts for which
the Fund has specifically accrued, management does not believe the ultimate
resolution of these matters will have a material adverse impact on the operating
results, financial position or cash flows of the Fund.
12
<PAGE> 15
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. The Fund also received dividend
income during 1997 from the ENI Holding Corp. ("ENI") preferred stock, which was
sold during 1997. Major expenses include professional fees, fund administration
fees, investment advisory fees and administrative expenses.
1998 Compared to 1997
The Fund's net investment income was $57,840 for the year ended December 31,
1998 on total investment income of $607,354 as compared to net investment income
of $831,359 on total investment income of $1,370,252 for the prior year. Net
investment income per limited partnership unit decreased from $.75 to $.05 and
the ratio of net investment income to average net assets decreased from 5.55% to
0.54% for the year ended December 31, 1998 in comparison to the prior year.
Net investment income for the year ended December, 31, 1998 decreased primarily
as a result of a decrease in investment income in comparison to the prior year.
Investment income decreased $762,898, or 55.7%, for the year ended December 31,
1998 in comparison to the prior year. This decrease resulted primarily from (i)
the prepayment of the Fund's Elgin National Industries, Inc. ("Elgin")
subordinated debt investment during November 1997, (ii) the disposition of the
ENI preferred stock during November 1997, and (iii) the decision to stop
accruing interest on the Fund's RBM subordinated debt investment effective
during August 1998. The combined negative impact of these items was partially
offset by increases in the amount of interest income earned on temporary
investments and the various LMC debt investments.
Total expenses increased $10,621, or 2.0%, for the year ended December 31, 1998
in comparison to the prior year. This increase resulted primarily from increases
in other expenses and Independent General Partner fees and expenses. These
increases were substantially offset by a decrease in investment advisory fees.
Other expenses increased during 1998 primarily as a result of insurance expense
associated with a new liability insurance policy for the Fund's general partners
that was initially purchased during September 1997.
Independent General Partner fees and expenses increased during 1998 primarily
because one of the Fund's three Independent General Partners resigned during the
fourth quarter of 1996 and was not replaced until the third quarter of 1997.
Investment advisory fees decreased during 1998 primarily as a result of (i) the
repurchase of Units during November 1997 and 1998, (ii) the payment of quarterly
cash distributions during 1998 that exceeded the Limited Partners' Preferred
Return (as defined in the Fund's Partnership Agreement) and (iii) losses
realized by the Fund during the second quarter of 1998 with respect to the MTI,
Atlas and ARA investments. All three of these items decreased the amount of the
Fund's available capital (as defined in the Fund's Partnership Agreement), which
is the base with respect to which the investment advisory fees are calculated.
1997 Compared to 1996
The Fund's net investment income was $831,359 for the year ended December 31,
1997 on total investment income of $1,370,252 as compared to net investment
income of $772,453 on total investment income of $1,329,491 for the prior year.
Net investment income per limited partnership unit increased from $.64 to $.75,
and the ratio of net investment income to average net assets increased from
4.05% to 5.55% for the year ended December 31, 1997 in comparison to the prior
year.
13
<PAGE> 16
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 decided not to pursue this proposal.
Net Realized Gain (Loss) on Investments
The Fund realized net losses of $3,453,919 during the year ended December 31,
1996, net gains of $2,925,017 during the year ended December 31, 1997 and net
losses of $2,497,650 during the year ended December 31, 1998.
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 Corporation,
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 ARA (formerly known as Amity Leather
Products Co.) since 1992. This equity position was acquired in connection with a
subordinated debt investment, which ARA prepaid during 1994.
ARA reported significantly reduced earnings and cash flows from operations
during 1997. During February 1998, ARA hired a crisis manager to assist it in
addressing continuing significant declines in the company's sales
14
<PAGE> 17
and profits. The hiring of this crisis manager was precipitated by ARA's
lenders, which notified ARA of defaults under its credit lines and demanded that
ARA repay overadvances that were made during 1997. The Fund was notified that
ARA was considering a number of options for solving these problems, including a
possible bankruptcy filing and the sale of the company, or certain of its
operations.
ARA filed for bankruptcy protection during March 1998. ARA's assets were
liquidated at auction during May 1998, with the proceeds from the sale
satisfying only a portion of ARA's debt. The $311,989 cost of the Fund's equity
investment in ARA was written off as a realized loss during May 1998.
During June 1998, the Fund received $158,043 from the sale of its MTI common
stock and warrants. The Fund recorded a realized loss of $79,584 from this sale.
The Fund's Huntington stock was sold for cash during February 1996. The Fund's
share of the sales proceeds totaled $1,247,229, of which $1,089,896 was received
during February 1996. The balance of the sales proceeds was held in escrow to
pay various transaction expenses, to fund contingent purchase price adjustments
and as collateral for potential claims of the buyer with respect to
representations made by the selling shareholders, including the Fund. An
agreement was reached with the buyer with regard to purchase price adjustments
and other claims and the escrow accounts were liquidated during 1998. The Fund
received distributions from the escrow accounts of $16,439, $67,198, $63,001 and
$971 during September 1996, May 1997, June 1998 and August 1998, respectively.
The Fund recognized realized gains of $16,439, $67,198 and $63,972 from this
transaction during 1996, 1997 and 1998, respectively. The selling shareholders,
including the Fund, could be required under certain of the seller's
representations to reimburse the buyer for certain costs and expenses, even
though the escrow accounts have been liquidated.
The companies that Atlas acquired during 1996 with the proceeds of the Fund's
subordinated debt investment did not perform as well as expected. As a result,
Atlas defaulted on certain financial covenants in its agreements with its senior
lender and with the Fund. The senior lender, the Bank of New York, reacted to
the covenant defaults by limiting Atlas' availability under its revolving credit
facility and by instructing Atlas not to pay the quarterly interest payments
that were due on the Fund's subordinated debt, beginning in July 1996.
During August 1996, Atlas entered into a letter of intent, under the terms of
which some of the company's businesses would be sold for cash. 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.
As a result of these developments, the Fund stopped accruing interest on its
Atlas investment during April 1996 and recorded writedowns of $979,776 and
$2,243,103 during 1996 and 1997, respectively, in the carrying value of the
investment. The remaining carrying value of the Fund's Atlas investment as of
December 31, 1997 was $2.
On June 3, 1998, the Fund exchanged its Atlas subordinated notes and warrants
for 821,376 shares of common stock of WMI, an Atlanta, Georgia based waste
management company. Pursuant to the terms of the exchange agreement, the Fund is
prohibited from selling its WMI common stock for 24 months. In addition, the
Fund granted the entity acquiring the Fund's Atlas securities a call on the
Fund's WMI common stock during the 24 month lock up period and a right of first
refusal thereafter. The call price is $11.25 per share.
The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 and $0.33 (an average of the closing bid and ask
prices) on June 3, 1998 and December 31, 1998, respectively. Based on these
prices, the Fund's WMI had trading values of $1,761,157 on the date of the
exchange (June 3, 1998) and $326,507 on December 31, 1998. However, due to a
number of factors, including the speculative nature of the WMI stock, the two
year lock up period and the relative size of the Fund's stock position versus
the daily trading volume, FCM has decided to carry the WMI stock at the same
nominal value that the Atlas securities were previously carried by the Fund. The
52-week low for the WMI common stock is $0.16 per share.
15
<PAGE> 18
The Fund recorded a realized loss of $2,125,574 on the exchange, which is equal
to the amount of the loss which the Fund claimed for income tax purposes from
the disposition of the Atlas securities. The $1,097,306 balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.
The Fund incurred approximately $45,000 of realized losses during the year ended
December 31, 1998 as a result of adjustments relating to certain previously held
investments.
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 1996, the Fund had recorded cumulative 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.
During 1997, the Fund recorded $9,765 of unrealized gain and $3,315,700 of
unrealized loss on investments. In addition, the Fund disposed of investments
during 1997 with respect to which the Fund had recorded $86,968 of net
unrealized loss during prior years. Therefore, at December 31, 1997, the Fund
had net unrealized loss on investments of $3,802,269.
The net decrease in unrealized loss on investments during 1998 and the
cumulative net unrealized loss on investments at December 31, 1998, consisted of
the following components:
<TABLE>
<CAPTION>
Net Changes Net Unrealized
in Unrealized Gain (Loss)
Gain (Loss) Recorded as of
Portfolio Investment During 1998 December 31, 1998
-------------------- ----------- -----------------
<S> <C> <C>
Unrealized net loss recorded during
prior years with respect to investments
disposed of during 1998 $3,497,448 $ -
KEMET (181,566) 255,533
LMC - (741,920)
RBM (665,881) (665,881)
WMI (1,097,306) (1,097,306)
---------- -----------
$1,552,695 $(2,249,574)
========== ===========
</TABLE>
16
<PAGE> 19
KEMET completed an IPO of its common stock during 1992. The stock, which trades
on the NASDAQ National Market System, closed at $11.4375 (an average of the
closing bid and ask prices) on December 31, 1998. This price is down from the
closing price of $19.3125 on December 31, 1997. Based on the $11.4375 closing
trading price of the common stock, the 23,056 shares of common stock that the
Fund held at December 31, 1998 had a market value of $263,703.
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 failed to assure that the Plan was
properly funded. 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, whose wholly-owned company currently
owns approximately 9% of LMC's common stock, and expects to prevail in this
litigation, although there can be no assurance that this will be the case.
The Internal Revenue Service ("IRS") performed an audit on the Plan during 1998,
in which it reviewed certain of the years with respect to which the Plan was not
properly funded. At the conclusion of their audit, the IRS notified LMC that it
had determined the underfunding for the years reviewed to be $243,385. The IRS
also imposed a penalty of $12,362, which LMC has paid. LMC is currently in
discussions with the IRS concerning how and when the $243,385 assessment, and
the related interest, must be paid. If LMC is required to make the payments
prior to resolution of the litigation with the current trustee of the Plan, it
will have a negative impact on LMC's working capital availability. In addition,
it is possible that additional assessments could be made in the future for
underfundings of the Plan with respect to earlier years.
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, 1998, the Fund's LMC investment has
been written down in value by $741,920. The Fund and LMC's other stockholders
made additional follow-on investments in LMC during 1996, 1997 and 1998 in order
to provide LMC with working capital required to fund significant continuing
operating losses, develop a new product, finance the downpayment on and move to
a new facility and to purchase capital equipment needed to modernize the
company's production operations.
RBM had a record year for fiscal 1998, with sales of approximately $30 million
and EBITDA of approximately $2.7 million. However, these sales were achieved
primarily through one contract with Digital Equipment Corporation ("DEC").
During August 1998, RBM notified the Fund that anticipated sales to DEC and
other large customers were expected to decline significantly in the upcoming
year. Of particular concern were sales to DEC, which has been acquired by Compaq
Computer Corp. As a result of the expected decline in sales, RBM began the
process of restructuring its debt, including the subordinated debt held by the
Fund. The Fund received the quarterly interest payment that was due from RBM on
August 24, 1998. The interest payment that was due during November 1998 was
deferred and subsequently converted to equity pursuant to the restructuring
described below.
During December 1998, RBM and its lenders completed a restructuring under which
a new senior lender, Norwest Business Credit, replaced Bank of America. As part
of this transaction, RBM's equity sponsor contributed additional equity to the
company and the subordinated lenders, including the Fund, agreed to accept
shares of RBM's common stock as payment for the next three quarterly interest
payments beginning with the payment that was due during November 1998. As a
consequence, the Fund's ownership of RBM, on a fully-diluted basis, increased
from 5.9% to 7.2%, assuming exercise of its warrants. The restructuring was
designed to
17
<PAGE> 20
provide RBM with a period of time in which to secure additional customers and
return to a more stable financial position under which RBM could meet its
interest obligations to its creditors, including the Fund. Cash receipts from
interest income to the Fund are expected to decrease as a result of the
restructuring.
As a result of these developments, the Fund stopped accruing interest on its RBM
subordinated debt effective August 24, 1998. In addition, the Fund recorded
aggregate writedowns of $665,881 relating to RBM during the year ended December
31, 1998.
See "Net Realized Gain (Loss) on Investments" for a discussion of the unrealized
loss on the Fund's WMI stock investment.
FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.
Readiness for Year 2000
FCM has completed a review of the accounting and other information systems that
are currently being utilized by FCM and the Fund with regard to Year 2000
issues. This review involved both actual tests of parts of the information
systems that were conducted by third party consultants and representations
received from various software vendors. FCM believes that all of these systems
are Year 2000 compliant. All of the costs associated with this review were paid
by FCM.
FCM also corresponded with appropriate third parties, such as the Fund's
custodian and transfer agent, concerning whether their information systems are
Year 2000 compliant. These third parties have represented that their information
systems are either currently Year 2000 compliant or that they have identified
the scope of required upgrades or changes to their information systems that are
needed and that they have a plan in place to complete these upgrades on a timely
basis.
As a result of the above discussion review, Year 2000 issues are not expected to
have any material adverse effects on the Fund's results of operations or
financial condition.
Inflation and Changing Prices
Inflation has had no material impact on the operations or financial condition of
the Fund from inception through December 31, 1998. However, inflation and
changing prices, in addition to other factors, may effect the value and the
eventual selling price of the Fund's remaining investments.
18
<PAGE> 21
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, 1998 F-3
Balance Sheets - December 31, 1998 and 1997 F-5
Statements of Operations for each of the years
ended December 31, 1998, 1997 and 1996 F-6
Statements of Cash Flows for each of the years
ended December 31, 1998, 1997 and 1996 F-7
Statements of Changes in Net Assets for each of the
years ended December 31, 1998, 1997 and 1996 F-8
Selected Per Unit Data and Ratios for each of the years
ended December 31, 1998, 1997, 1996, 1995 and 1994 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> 22
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, 1998 and
1997, including the schedule of investments as of December 31, 1998, 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, 1998 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, 1998 and 1997 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, 1998 and
1997, 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, 1998,
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 $6,345,343 at December 31, 1998 (74.9% of net assets) and $5,309,157
at December 31, 1997 (41.3% 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 5, 1999.
F-2
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ------ ---------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 8,170 $ 263,703
----------- ----------- -------
8,170 263,703 3.1%
----------- ----------- -------
$1,587,600 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 (Note 5) 12/29/98 1,587,600 1,587,600
239,600 sh. LMC Corporation, 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,389,210
4,476,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 2,465,449 1,723,529
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
----------- ----------- -------
6,442,260 5,700,340 67.0
----------- ----------- -------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(2) 05/24/95 1,237,587 645,000
9,772.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 73,295 1
12,717 sh. R.B.M. Precision Metal
Products, Inc., Common
Stock* 12/09/98 1 1
----------- ----------- -------
1,310,883 645,002 7.6
----------- ----------- -------
Total Investments in Managed Companies (78.1% of net assets) 7,761,313 6,609,045 77.7
----------- ----------- -------
NON-MANAGED COMPANY:
821,376 sh. WasteMasters, Inc.,
Common Stock(3)* 06/03/98 1,097,307 1
----------- ----------- -------
Total Investment in Non-Managed Company (0.0% of net assets) 1,097,307 1 0.0
----------- ----------- -------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
F-3
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ------ ---------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS:
$1,900,000 Ford Motor Credit Corporation,
5.27% Notes due 1/11/99 12/28/98 1,897,223 1,897,223
----------- ---------- -----
Total Temporary Investments (22.4% of net assets) 1,897,223 1,897,223 22.3
----------- ---------- -----
Total Investments (100.5% of net assets) $10,755,843 $8,506,269 100.0%
=========== ========== =====
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(3) The WasteMasters, Inc. common stock, which trades on the NASDAQ Small
Cap Market System, is subject to a 24 month lock up period, a call
option and a right of first refusal.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
F-4
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Investments (Notes 2, 10, 11 and 12)
Portfolio investments, at fair value:
Managed companies (amortized cost -
$7,761,313 and $9,556,695,
respectively) $ 6,609,045 $ 5,754,426
Non-managed company (amortized cost -
$1,097,307) 1 --
Temporary investments, at amortized cost 1,897,223 8,194,820
------------ ------------
Total investments 8,506,269 13,949,246
Cash and cash equivalents (Note 2) 628,670 276,108
Accrued interest receivable (Note 12) 85,556 67,964
Other assets 27,234 58,926
------------ ------------
Total assets $ 9,247,729 $ 14,352,244
============ ============
LIABILITIES:
Due to affiliates (Notes 6, 7, 8 and 9) $ 25,748 $ 33,796
Accounts payable and accrued liabilities 470,840 424,137
Distributions payable to partners (Note 3) 284,950 1,030,446
------------ ------------
Total liabilities 781,538 1,488,379
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 13)
NET ASSETS (Notes 3 and 4):
Managing General Partner (180,012) (49,360)
Limited Partners (equivalent to $9.19
and $12.66, respectively, per limited
partnership unit based on 940,336
and 1,020,142 units outstanding) (Note 5) 8,646,203 12,913,225
------------ ------------
Total net assets 8,466,191 12,863,865
------------ ------------
Total liabilities and net assets $ 9,247,729 $ 14,352,244
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-5
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 596,296 $ 1,109,776 $ 1,306,178
Dividend -- 241,806 --
Other income 11,058 18,670 23,313
----------- ----------- -----------
Total investment income 607,354 1,370,252 1,329,491
----------- ----------- -----------
Expenses:
Professional fees 141,780 140,520 134,950
Fund administration fees (Note 7) 118,327 118,327 118,327
Investment advisory fees (Note 6) 102,251 120,800 136,714
Administrative expenses (Note 7) 68,895 68,895 68,895
Independent General Partner fees
and expenses (Note 8) 52,076 46,966 47,563
Other expenses 66,185 43,385 50,589
----------- ----------- -----------
Total expenses 549,514 538,893 557,038
----------- ----------- -----------
NET INVESTMENT INCOME 57,840 831,359 772,453
----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments
(Note 10) (2,497,650) 2,925,017 (3,453,919)
Net change in unrealized loss on
investments (Note 11) 1,552,695 (3,218,969) 2,311,373
----------- ----------- -----------
Net loss on investments (944,955) (293,952) (1,142,546)
----------- ----------- -----------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (887,115) $ 537,407 $ (370,093)
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-6
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $ (887,115) $ 537,407 $ (370,093)
Adjustments to reconcile net (decrease) increase
in net assets resulting from operations
to net cash provided by operating activities:
Accreted discount on portfolio investments (11,424) (33,210) (36,025)
Change in assets and liabilities:
Accrued interest receivable (17,592) 27,243 22,254
Other assets 31,692 (52,280) (3,551)
Due to affiliates (8,048) (13,572) (7,126)
Accounts payable and accrued liabilities 2,227 (16,882) 16,827
Net realized loss (gain) on investments 2,497,650 (2,925,017) 3,453,919
Net change in unrealized loss on investments (1,552,695) 3,218,969 (2,311,373)
----------- ----------- -----------
Net cash provided by operating activities 54,695 742,658 764,832
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (2,868,290) (834,624) (4,471,482)
Proceeds from dispositions of portfolio investments 1,124,615 8,848,738 1,106,335
Sale (purchase) of temporary investments, net 6,297,597 (5,097,059) 5,549,573
----------- ----------- -----------
Net cash provided by investing activities 4,553,922 2,917,055 2,184,426
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (3,503,484) (2,455,291) (1,450,381)
Repurchase of limited partnership units (752,571) (1,162,619) (1,440,340)
----------- ----------- -----------
Net cash used in financing activities (4,256,055) (3,617,910) (2,890,721)
----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 352,562 41,803 58,537
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 276,108 234,305 175,768
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 628,670 $ 276,108 $ 234,305
=========== =========== ===========
NONCASH INVESTING AND
FINANCING ACTIVITIES
Investments exchanged for other investments $1,360,801 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-7
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 57,840 $ 831,359 $ 772,453
Net realized (loss) gain on investments (2,497,650) 2,925,017 (3,453,919)
Net change in unrealized loss on
investments 1,552,695 (3,218,969) 2,311,373
------------ ------------ ------------
Net (decrease) increase in net
assets resulting from operations (887,115) 537,407 (370,093)
Repurchase of limited partnership units
(Note 5) (752,571) (1,162,618) (1,440,340)
Distributions to partners from -
Net investment income (85,585) (831,359) (956,739)
Realized gain on investments (1,402,287) (1,608,939) (465,859)
Return of capital (1,270,116) (710,627) --
------------ ------------ ------------
Total decrease in net assets (4,397,674) (3,776,136) (3,233,031)
Net assets:
Beginning of year 12,863,865 16,640,001 19,873,032
------------ ------------ ------------
End of year (including no
undistributed net investment income) $ 8,466,191 $ 12,863,865 $ 16,640,001
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
F-8
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS (1)
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Per Unit Data:
Investment income(1) $ .53 $ 1.24 $ 1.11 $ 1.75 $ 1.63
Expenses(1) (.48) (.49) (.47) (.42) (.40)
------------ ------------ ------------- -------------- ------------
Net investment income(1) .05 .75 .64 1.33 1.23
Net realized (loss) gain on investments(1) (2.17) 2.64 (2.88) 2.92 (1.46)
Net change in unrealized loss on
investments(1) 1.35 (2.91) 1.93 (4.71) 2.52
Effect of unit repurchases on
net asset value .01 -- (.02) (.20) .02
Distributions declared to partners (2.71) (2.90) (1.20) (1.20) (1.80)
------------ ------------ ------------- -------------- ------------
Net (decrease) increase in
net asset value (3.47) (2.42) (1.53) (1.86) .51
Net asset value:
Beginning of period 12.66 15.08 16.61 18.47 17.96
------------ ------------ ------------- -------------- ------------
End of period $ 9.19 $ 12.66 $ 15.08 $ 16.61 $ 18.47
============ ============ ============= ============== ============
Ratios:
Ratio of expenses to average net assets 5.15% 3.60% 2.92% 2.27% 2.27%
Ratio of net investment income to
average net assets 0.54% 5.55% 4.05% 7.22% 6.91%
Number of limited partnership units
at the end of period 940,336 1,020,142 1,104,881 1,196,564 1,296,999
</TABLE>
- ----------
(1) Calculated using the weighted average number of limited partnership
units outstanding during the years ended December 31, 1998, 1997, 1996,
1995 and 1994 of 1,010,959, 1,095,362, 1,186,294, 1,285,717 and
1,413,240, respectively.
The accompanying notes to financial statements are an
integral part of these financial statements.
F-9
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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 number of alternative actions through
which the Fund could be liquidated during 1999 or 2000 are currently being
considered. Once a specific plan of liquidation is developed, the requisite
regulatory procedures required to liquidate the Fund will be followed. These
procedures are expected to include requesting Limited Partner approval of the
liquidation plan through a proxy solicitation.
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.
F-10
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
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 ask prices, as of the valuation date. The
Fund discounts these closing market prices between 5% and 20% to reflect lack of
liquidity if the Fund's securities are subject to legal or contractual trading
restrictions, or to reflect the potential market impact which could result from
the sale of the securities, if the Fund and FCP combined own a material
percentage of the outstanding securities. The amount of the discount varies
based upon the type of restriction, the time remaining on the restriction and
the size of the holding.
Fair value for securities that are not traded in any liquid public markets or
that are privately held are determined pursuant to valuation policies and
procedures which have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). Debt
securities with attached warrants for the purchase of common stock are initially
recorded at a discount from face value equal to the estimated relative value of
the warrants at date of investment. The discount is amortized to income as an
adjustment to yield from the debt securities. Face value less unamortized
discount represents the "amortized cost" of the debt securities.
The cost method is used until significant developments affecting the portfolio
company provide a basis for use of an appraisal valuation. Appraisal valuations
are based upon such factors as the portfolio company's earnings, cash flow and
net worth, the market prices for similar securities of comparable companies and
an assessment of the portfolio company's future financial prospects. In a case
of unsuccessful operations, the 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.
F-11
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Investment Transactions The Fund records portfolio investment transactions on
the date on which it obtains an enforceable right to demand the securities or
payment thereof and records temporary investment transactions on the trade date.
Realized gains and losses on investments are determined on the basis of specific
identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from temporary
investments will be distributed and allocated 99% to the Limited Partners and 1%
to FCM. Net investment income will, in general, be distributed and allocated:
(i) 99% to the Limited Partners and 1% to FCM until the Limited Partners have
received a cumulative non-compounded preferred return of 9% per annum on their
capital contributions to the Fund, then (ii) 70% to the Limited Partners and 30%
to FCM until FCM has received 10% of all current and prior distributions and
allocations, and thereafter, (iii) 90% to the Limited Partners and 10% to FCM.
Proceeds from capital transactions will, in general, be distributed and
allocated: (i) 99% to the Limited Partners and 1% to FCM until the Limited
Partners have received a cumulative, non-compounded preferred return of 9% per
annum on their capital contribution to the Fund from net investment income,
capital transactions, or both, then (ii) 100% to the Limited Partners until they
have received a return of their capital contributions to the Fund, and
thereafter, (iii) 80% to the Limited Partners and 20% to FCM.
Prior to 1998, cash distributions and earnings of the Fund were allocated 99% to
the Limited Partners and 1% to FCM. Pursuant to the terms of the Fund's
Partnership Agreement, the Fund's 1998 loss was allocated approximately 88% to
the Limited Partners and approximately 12% o FCM, and the portion of the 1998
cash distributions that exceeded the partners' cumulative preferred return was
allocated 100% to the Limited Partners.
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 has annually offered 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. If Units in excess
of this amount are tendered, Units are purchased on a pro-rated basis, after
giving priority to Limited Partners owning less than 100 Units.
F-12
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
It is currently anticipated that the Fund will not have sufficient liquidity to
fund a repurchase offer during 1999. If the Fund does not have sufficient
liquidity, the General Partners have the authority to forego the repurchase
offer under the terms of the Fund's repurchase policy. In addition, the
termination of the annual repurchase offer is expected to be included in any
plan of liquidation that is submitted to the Limited Partners for their approval
(Note 1).
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
November 1998 79,806 7.82% 9.43 9.24
</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 fees of
$102,251, $120,800 and $136,714 were incurred by the Fund for 1998, 1997 and
1996, 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 1998, 1997 and 1996. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $68,895 each year during 1998, 1997 and 1996.
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 $52,076, $46,966 and $47,563 were
incurred by the Fund for 1998, 1997 and 1996, respectively.
F-13
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
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 $238,068, $256,851 and
$200,848 during 1998, 1997 and 1996, 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, 1998, the Fund held portfolio investments in three Managed
Companies, with an aggregate cost of approximately $7.8 million, and one
portfolio investment in a Non-Managed Company, with a cost of approximately $1.1
million. During the year ended December 31, 1998, the Fund acquired additional
follow-on investments in LMC Corporation ("LMC") at a net aggregate cost of
approximately $2.0 million.
During 1998, the Fund (i) sold all of its Mobile Technology, Inc. stock and
warrants, (ii) received final distributions from the escrow account that was
established during 1996 in connection with the sale of its Huntington Holdings,
Inc. stock, and (iii) wrote off the cost of its equity investment in AR
Accessories Group, Inc. ("ARA") (formerly known as Amity Leather Products Co.)
as a realized loss following ARA's bankruptcy liquidation. The Fund received
$222,016 in proceeds from these transactions, resulting in aggregate net
realized losses of $327,600.
During June 1998, the Fund exchanged its Atlas Environmental, Inc. ("Atlas")
subordinated notes (which were in default) and warrants for 821,376 shares of
common stock in WasteMasters, Inc. ("WMI"). Pursuant to the terms of the
exchange agreement, the Fund is prohibited from selling its WMI common stock for
24 months. In addition, the Fund granted the entity acquiring the Fund's Atlas
securities a call in the Fund's WMI common stock during the 24 month lock up
period and a right of first refusal thereafter. The call price is $11.25 per
share.
The WMI common stock, which trades on the NASDAQ Small Cap Market System, closed
at $1.78 (an average of the closing bid and ask prices) on the date of the
exchange. However, due to a number of factors, including the speculative nature
of the WMI stock, the two year lock up period and the relative size of the
Fund's stock position versus the daily trading volume, the Fund is carrying the
WMI stock at the same nominal value ($1) that the Atlas securities had
previously been carried by the Fund. The 52-week low for the WMI common stock is
$.28 per share and the price as of December 31, 1998 was $.32.
F-14
<PAGE> 35
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The Fund recorded a realized loss of $2,125,574 on the exchange, which is equal
to the amount of the loss that the Fund expects to claim for income tax purposes
from the disposition of the Atlas securities. The $1,097,306 balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.
The Fund has pledged the common stock it owns in LMC Credit Corp. as collateral
for the corporation's debt. None of the Fund's other portfolio investments are
pledged or otherwise encumbered.
11. UNREALIZED GAIN (LOSS) ON INVESTMENTS
As of December 31, 1997, the Fund had recorded net unrealized loss on
investments of $3,802,269. During 1998, the Fund recorded $1,944,753 of
unrealized loss on investments. In addition, the Fund disposed of investments
during 1998 with respect to which the Fund had recorded $3,497,448 of net
unrealized loss during prior years. Therefore, at December 31, 1998, the Fund
had recorded net unrealized loss on investments of $2,249,574.
12. NON-ACCRUAL STATUS OF INVESTMENTS
In accordance with the Fund's accounting policies, the Fund stopped accruing
interest on the Atlas Senior Subordinated Secured Notes effective April 20, 1996
and the R.B.M. Precision Metal Products, Inc. ("RBM") Senior Subordinated
Secured Notes effective August 25, 1998.
During 1998, the Atlas Senior Subordinated Secured Notes were exchanged for WMI
common stock. Thus, as of December 31, 1998, the Fund's only debt investment on
non-accrual status was the RBM Senior Subordinated Secured Notes.
13. COMMITMENTS AND CONTENGENCIES
LMC Commitment LMC is entitled to draw down a total of $1,632,960 pursuant to
the terms of the Senior Subordinated Revolving Notes held by the Fund. As of
December 31, 1998, LMC had drawn down $1,587,600. The remaining $45,360 was
drawn down during January 1999.
Litigation The Fund has accrued approximately $440,000 for certain known
potential liabilities related to a former investment of the Fund. In addition,
the Fund may be exposed to other asserted or unasserted legal claims encountered
in the course of its activities, past and present. Other than those amounts for
which the Fund has specifically accrued, management does not believe the
ultimate resolution of these matters will have a material adverse impact on the
operating results, financial position or cash flows of the Fund.
F-15
<PAGE> 36
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
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>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net (decrease) increase in net assets resulting
from operations per financial statements $ (887,115) $ 537,407 $ (370,093)
Increase (decrease) resulting from:
Unrealized loss on investments (1,552,695) 3,218,969 (2,311,373)
Realized gains and losses on investments (2,919,771) (73,962) 503,448
Fee income, net of amortization - (47,396) (18,801)
Interest income 133,320 - -
Other (11,221) (19,564) (15,417)
----------- ----------- -----------
Taxable income (loss) per federal
income tax return $(5,237,482) $ 3,615,454 $(2,212,236)
=========== =========== ===========
</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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net assets per financial statements $ 8,466,191 $12,863,865 $16,640,001
Realized gains and losses on investments 437,340 3,357,111 3,431,073
Syndication, organization and
start-up costs, net 2,851,719 2,982,080 3,045,822
Unrealized loss on investments 2,249,574 3,802,271 583,302
Additional stock basis 133,322 - -
Distributions payable 284,950 1,030,446 334,812
Fee income, net of amortization - - 47,396
Accrued expenses 22,800 24,050 25,625
----------- ----------- -----------
Tax bases of net assets $14,445,896 $24,059,823 $24,108,031
=========== =========== ===========
</TABLE>
F-16
<PAGE> 37
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 1998 or 1997.
19
<PAGE> 38
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)
<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
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
</TABLE>
Paul Bagley, age 56, 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 Corporation, a
privately held manufacturer of low ground pressure vehicles, and Hamilton Lane
Private Equity Fund, 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.
20
<PAGE> 39
W. Duke DeGrassi, age 52, is the President and an Investment Committee Member of
FCM. Mr. DeGrassi is also the Chief Investment Officer of Hamilton Lane Advisors
and 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 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
Corporation.
Donald R. Jackson, age 49, 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 Corporation and Consolidated Capital of North America, Inc.
FCM Fiduciary Capital Corporation
<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
Paul Bagley Chief Executive Officer and
Sole Member of the Board
of Directors
W. Duke DeGrassi President
Donald R. Jackson Vice President, Treasurer, Secretary
and Chief Financial and Accounting
Officer
</TABLE>
For information regarding Paul Bagley, W. Duke DeGrassi, and Donald R. Jackson
see the above section concerning the management of FCM.
Mezzanine Capital Corporation
<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
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
Carmine Fusco Vice President, Secretary, Treasurer
and Chief Financial and
Accounting Officer
</TABLE>
21
<PAGE> 40
Gerald F. Goertz, Jr., age 41, 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 49, is a Vice President, Assistant Secretary and
Director of Mezzanine Capital Corporation. Mr. Wattley is a Corporate Vice
President with PaineWebber Incorporated, having joined the firm in 1986. He also
was employed previously by Paine, Webber, Jackson & Curtis from 1979 to 1980.
From 1986 to 1992, Mr. Wattley participated in PaineWebber's Principal
Transactions Group. From 1992, Mr. Wattley has been a member of the Private
Investment Department. He holds a Bachelor of Science degree in engineering from
Columbia University and a Masters in Business Administration from Harvard
University.
Stephen R. Dyer, age 39, 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 Senior 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.
Carmine Fusco, age 30, is a Vice President, Secretary, Treasurer and Chief
Financial and Accounting Officer of Mezzanine Capital Corporation. He also
serves as an Assistant Vice President within the Private Investments Department
of PaineWebber Incorporated. Mr. Fusco was previously employed as a Financial
Valuation Consultant in the Business Valuation Group of Deloitte & Touche, LLP
from January 1997 to August 1998. He was employed as a Commodity Fund Analyst in
the Managed Futures Department of Dean Witter Reynolds Incorporated, from
October 1994 to November 1995. Prior to joining Dean Witter, Mr. Fusco was a
Mutual Fund Accountant with the Bank of New York Company Incorporated. He
received his Bachelor of Science degree in Accounting and Finance in May 1991
from Rider University and a Master of Business Administration from Seton Hall
University in June 1996.
Independent General Partners
A. E. Bruce Fredrikson
E. Bruce Fredrikson, age 61, 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, Eagle Finance Corp. and
Vidikron Technologies Group, Inc.
B. Mark A. Sargent
Mark A. Sargent, age 47, 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.
22
<PAGE> 41
C. Phillip Siegel
Phillip Siegel, age 56, is an independent business consultant. 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 Chairman of its Audit Committee) and Vice Chairman
of Vidikron Technologies Group, Inc.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 furnished to the Fund during 1998
and 1999, 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 1998.
Item 11. Executive Compensation
No compensation was paid by the Fund to the officers and directors of the
General Partners during 1998. 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 1998.
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,
1999. One officer of FCM Fiduciary Capital Management Company
and FCM Fiduciary Capital Corporation owned 100 Units as of
March 1, 1999.
(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.
23
<PAGE> 42
Item 13. Certain Relationships and Related Transactions
The Fund may co-invest in portfolio investments with FCP, under certain terms
and conditions, pursuant to a co-investment order issued by the Securities and
Exchange Commission. The Funds have co-invested in the past and are continuing
to do so. See Item 1 of this Report, "Business", which is incorporated herein by
reference, for a description of these co-investments.
The General Partners and their affiliates have received, or will receive,
certain types of compensation, fees or other distributions in connection with
the operations of the Fund. The fees and compensation were determined in
accordance with the applicable provisions of the Partnership Agreement.
Following is a summary of the amounts paid, or payable, to the General Partners
and their affiliates for 1998.
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 1998, FCM
earned investment advisory fees of $102,251.
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 1998, 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 1998.
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 $52,076
were incurred by the Fund during 1998.
Accountable Expenses FCM and its affiliates are entitled to reimbursement of
direct expenses paid on behalf of the Fund. During 1998, such reimbursements
amounted to $238,068.
Partnership Interest FCM received cash distributions of $21,202 as their
allocable share of distributions for 1998. In addition, $(109,450) of the Fund's
net investment income and net loss on investments for 1998 was allocated to FCM.
24
<PAGE> 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) and (d) The following documents are filed as part of this Report:
1. Financial Statements: See List of Financial Statements
in Item 8.
2. Financial Statement Schedules: None.
(b) The Partnership did not file any reports on Form 8-K during the
fourth quarter of the fiscal year ended December 31, 1998.
(c) Exhibits required to be filed.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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.*
</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
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.2 (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.*
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.
26
<PAGE> 45
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 24, 1999
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
-----------------------------------
<PAGE> 46
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 24, 1999.
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>
<PAGE> 47
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.
<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,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Investment Income $ 57,840 $ 831,359 $ 772,453
Percentage Allocable to Limited Partners 88% 99% 99%
---------- ---------- ----------
Net Investment Income
Allocable to Limited Partners $ 50,899 $ 823,045 $ 764,728
========== ========== ==========
Weighted Average Number of Limited
Partnership Units Outstanding 1,010,959 1,095,362 1,186,294
========== ========== ==========
Net Investment Income
Per Limited Partnership Unit $ .05 $ .75 $ .64
========== ========== ==========
</TABLE>
<PAGE> 1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
--------------------------------
THIRD QUARTER REPORT
1998
<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 the Fund and several of its remaining portfolio investments. We will
highlight the most significant of these developments in this letter. In
addition, we will briefly summarize the results of the 1998 repurchase offer and
the status of your distributions.
INVESTMENT UPDATE
LMC Corporation ("LMC") During early 1998, LMC determined that it needed $6
million to fund the development of its new product (the TrackMaster), finance
the downpayment on and move to a new facility, purchase capital equipment needed
to modernize the company's production operations and to provide working capital.
In order to raise this capital, LMC offered to its three existing shareholders
the right to purchase 12 million additional common shares at a price of $.50 per
share. The Fund was offered 4,022,100 shares and purchased all of such shares
for a total consideration of $2,011,050. As a result of purchasing these
additional shares, the Fund now owns approximately 41% of LMC's common stock.
Fiduciary Capital Partners, L.P., an affiliated Fund ("FCP"), also purchased the
shares it was offered. The two funds now control approximately 91% of LMC's
common stock.
LMC's third shareholder, Paul Wallace, had until November 1, 1998 to exercise
the right to purchase 3,000,000 shares for $1.5 million. He did not exercise
this right and the Fund and FCP are currently deciding whether to exercise the
right they now have to purchase these additional shares. In order to complete
the original capitalization plan, the two funds intend to invest an additional
$1.5 million either through the purchase of the available shares or other
combinations of debt and equity.
In September 1998, LMC purchased a 158,000 square foot office and manufacturing
facility in Brigham City, Utah from Thiokol Chemical for an aggregate purchase
price of $1,760,000. The company is currently in the process of moving its
operations to this facility. (Please see a copy of LMC's announcement regarding
this move that is included along with this Quarterly Report.) LMC's previous
facility, which consisted of eleven separate buildings in Logan, Utah, was
outdated and inefficient. This new facility allows LMC to house its operations
in one building and is expected to significantly reduce manufacturing costs. As
part of the new facility, the company has installed a state
------------------------
ONE
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
of the art paint facility, which is expected to improve product quality and to
generate additional revenues from contract painting for other manufacturers. As
part of the move, LMC acquired other new capital equipment, which is also
expected to create significant operating efficiencies. The monthly costs
associated with buying this building are less than the amounts LMC was
previously expending on lease payments and we expect further economies through
subleasing of excess office and manufacturing space.
During October 1998, Caterpillar Inc. ("Caterpillar") acquired a major stake in
A.S.V., Inc. ("ASV"), the leader in the skid loader market, and has the option
to ultimately take control of ASV for a purchase price based on a valuation in
excess of $200 million. LMC introduced its skid loader, the TrackMaster, earlier
this year. While Caterpillar will be a strong competitor, we believe that its
acquisition of ASV validates LMC's strategy and concept that there is a very
large market for this new product. We believe that LMC has a superior machine
and that LMC will be successful in capturing a significant share of this market.
R.B.M. Precision Metal Products, Inc. ("RBM") Preliminary year end financial
results indicate that RBM had a record year for fiscal 1998, with sales of
approximately $30 million and EBITDA of approximately $3 million. However, these
sales were achieved primarily through one contract with Digital Equipment
Corporation ("DEC"). During August 1998, RBM notified the Fund that anticipated
sales to DEC and other large customers were expected to decline significantly in
the upcoming year. Of particular concern, were sales to DEC, which has been
acquired by Compaq Computer Corp. As a result of the expected decline in sales,
RBM is in the process of restructuring its debt, including the subordinated debt
held by the Fund. The Fund received the quarterly interest payment that was due
from RBM on August 24, 1998. The interest payment that was due during November
1998 was deferred and became part of the restructuring amounts. Cash receipts
from interest income to the Fund are expected to decrease as a result of the
restructuring.
In early December, RBM and its lenders completed a restructuring under which a
new senior lender, Norwest Business Credit, replaced Bank of America. As part of
this transaction, 13I, RBM's equity sponsor, contributed additional equity to
the company and the subordinated lenders, including the Fund, agreed to accept
shares of RBM's common stock as payment for the next three quarterly interest
payments beginning with the payment that was due during November 1998. As a
consequence, the Fund's ownership of RBM, on a fully-diluted basis, increased
from 5.9% to 7.3%, assuming exercise of its warrants. The restructuring was
designed to provide RBM with a period of time in which to secure additional
customers and return to a more stable financial position under which RBM could
------------------------
TWO
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
meet its interest obligations to its creditors, including the Fund. We are
closely monitoring this situation and will keep you informed as developments
occur.
As a result of these developments, the Fund stopped accruing interest on its RBM
subordinated debt effective August 24, 1998. In addition, the Fund recorded
aggregate writedowns of $665,881 relating to RBM for the 1998 year.
Atlas Environmental, Inc. ("Atlas") On June 3, 1998, the Fund exchanged its
Atlas subordinated notes (which were in default) and warrants for 821,376 shares
of common stock in WasteMasters, Inc. ("WMI"), an Atlanta, Georgia based waste
management company.
Pursuant to the terms of the exchange agreement, the Fund is prohibited from
selling its WMI common stock for 24 months. In addition, the Fund granted the
entity acquiring the Fund's Atlas securities a call on the Fund's WMI common
stock during the 24 month lock up period and a right of first refusal
thereafter. The call price is $11.25 per share.
The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 and $.97 (an average of the closing bid and ask
prices) on June 3, 1998 (the date of the exchange) and September 30, 1998,
respectively. However, due to a number of factors, including the speculative
nature of the WMI stock, the two year lock up period and the relative size of
the Fund's stock position, the Fund is carrying the WMI stock at the same
nominal value ($1) that the Atlas securities had previously been carried by the
Fund. The 52 week low for the WMI common stock is $.25 per share and the current
price (December 14, 1998) is $.42.
The Fund recorded a realized loss of $2,125,574 on the exchange, which is equal
to the amount of the loss that the Fund expects to claim for income tax purposes
from the disposition of the Atlas securities. The $1,097,306 balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.
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 LMC, RBM and WMI, are not included.
As reflected in the following graph and the schedules on pages seven and eight
of
------------------------
THREE
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
this Quarterly Report, the Fund invested a total of $41.9 million in
subordinated debt investments and received total realized proceeds of $47.6
million, including interest income, fees and prepayment penalties. In the
aggregate, these debt investments yielded a return on investment of 1.1 to 1 and
an annualized internal rate of return of 7.40%. The Fund also invested $3.1
million in equity securities, from which it realized total proceeds of $10.9
million. In the aggregate, these equity investments yielded a return on
investment of 3.6 to 1 and an internal rate of return of 33.09%. Please note
that prior performance is not necessarily indicative of future results.
[CHART]
We are actively attempting to realize the greatest possible returns from the
Fund's remaining investments.
NET ASSET VALUE
The Fund's net asset value per Unit was $9.76 at September 30, 1998 and $9.43 at
November 13, 1998. The November 13th net asset value was used to establish the
repurchase price for the 1998 repurchase offer. These net asset values compare
to net asset values of $12.66 at December 31, 1997 and $10.40 at June 30, 1998.
The decline in the net asset value from December 31, 1997 to September 30, 1998
resulted primarily from the fact that a significant portion of the cash
distributions for the nine months ended September 30, 1998 represented a return
of capital. In addition, during this nine month period the Fund recorded net
losses (including
------------------------
FOUR
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
both realized and unrealized components) on investments, primarily with respect
to its RBM, AR Accessories Group, Inc. and KEMET Corporation ("KEMET")
investments.
The decrease in the net asset value from September 30, 1998 to November 13, 1998
was primarily the result of the recording of an additional unrealized loss with
respect to the RBM investment.
PERIODIC UNIT REPURCHASE POLICY
The Fund's investors adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund has annually offered to
repurchase from investors, up to 7.5% of its outstanding Units for an amount
equal to the current net asset value per Unit, net of a fee (not to exceed 2%)
to be retained by the Fund to offset expenses incurred in connection with the
repurchase offer. If the number of tendered Units in any year exceeds 7.5% of
the outstanding Units, the Fund's General Partners may vote to repurchase up to
an additional 2% of the outstanding Units. 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 1998 repurchase offer was mailed to investors during October 1998. Investors
tendered 137,315 Units, or approximately 13.46% of the Fund's outstanding Units,
for repurchase. The Fund repurchased 79,806 Units, or approximately 7.82% of the
Fund's outstanding Units, during November 1998 at a net asset value per Unit of
$9.43 ($9.24, net of the 2% fee).
In the letter that accompanied the repurchase offer, we indicated that we
believe that the 1998 repurchase offer will be the Fund's last repurchase offer.
We intend to present a plan of dissolution to the Fund's Independent General
Partners at their January meeting. As part of this plan, the Fund would cease to
be a Registered Investment Company during 1999. We will provide more detail when
a final plan has been approved.
CASH DISTRIBUTIONS AND STATUS OF FUND
The distribution for the third quarter of 1998 was paid on November 13, 1998 in
an amount equal to $.30 per Unit. Cumulative cash distributions paid to
investors since the Fund's inception during 1990 total between $15.11 and $14.79
on a per Unit ($20.00 cost) basis, depending upon the closing in which the
particular Units were issued.
------------------------
FIVE
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
The distribution for the fourth quarter of 1998, which will be paid on February
12, 1999, will also be equal to $.30 per Unit. A significant portion of the 1998
distributions constitute a return of capital.
Distributions are expected to continue at the $.30 per Unit rate during 1999,
subject to discontinuance pursuant to the plan of liquidation, if it is
approved.
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. The follow-on investment in LMC discussed above is expected to be the
last such investment by the Fund. Consequently, the Fund is now in a liquidation
mode. Since the middle of 1997, the Fund has liquidated its investments in
Neodata Corporation, Elgin National Industries, Inc. and Mobile Technology, Inc.
In this same period, the Fund has distributed to investors approximately $4.73
per Unit, with the cash coming in large part from the liquidation of these
investments. At the present time, the Fund has only four remaining investments:
LMC, RBM, KEMET and WMI. LMC is by far the largest of these investments and we
believe that significant values may be realized if the current management plan
is successfully implemented. Our liquidation plan will attempt to preserve these
values for the Fund's investors, probably by making LMC a publicly traded
company.
* * * * * * * *
If you have any questions concerning your investment in the Fund, please call us
at 800-866-7607.
Sincerely,
/s/ Paul Bagley
Paul Bagley, Chairman
FCM Fiduciary Capital Management Company
/s/ W. Duke DeGrassi
W. Duke DeGrassi, President
FCM Fiduciary Capital Management Company
December 14, 1998
------------------------
SIX
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
DEBT INVESTMENTS
REALIZED GAINS AND LOSSES (1)
(UNAUDITED)
<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. 1998 3,117,525 850,225 (2,267,300) N/A
1992
----
Huntington Holdings, Inc. 1994 4,368,034 6,173,665 1,805,631 20.07
AR Accessories Group, Inc. 1994 4,521,533 5,518,907 997,374 11.74
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
1996
----
Atlas Environmental, Inc. 1998 3,166,759 1,208,756 (1,958,003) N/A
------------ ------------ ------------ ----
Totals $41,932,830 $47,580,830 $5,648,000 7.40%
============ ============ ============ ====
</TABLE>
(1) Includes interest income, fees and prepayment penalties. Note that prior
performance is not necessarily indicative of future results.
(2) Includes investment in subsidiaries, if applicable.
------------------------
SEVEN
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
EQUITY INVESTMENTS
REALIZED GAINS AND LOSSES
(UNAUDITED)
<TABLE>
<CAPTION>
INTERNAL
YEAR OF INVESTMENT / YEAR OF GAIN RATE OF
PORTFOLIO COMPANY(2) REPAYMENT COST PROCEEDS (LOSS) RETURN
- -------------------- --------- ----------- ----------- ----------- --------
<S> <C> <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 58,283 3,753,147 3,694,864 112.37
Mobile Technology, Inc. 1992 363,630 -- (363,630) N/A
1992
----
Huntington Holdings, Inc. 1996/1998 85,677 1,220,088 1,134,411 70.09
Neodata Corporation 1997 245,006 255,112 10,106 0.81
AR Accessories Group, Inc. 1998 226,080 -- (226,080) N/A
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
1996
-----
Atlas Environmental, Inc. 1998 33,842 -- (33,842) N/A
----------- ----------- ----------- -----
Totals $3,067,766 $10,947,710 $7,879,944 33.09%
=========== =========== =========== =====
</TABLE>
(1) Note that prior performance is not necessarily indicative of future
results.
(2) Includes investment in subsidiaries, if applicable.
------------------------
EIGHT
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- --------- ---------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
23,056 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $8,170 $259,380
--------- ----------
8,170 259,380 2.5%
--------- ---------- -----
$1,338,120 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 (Note 5) 09/23/98 1,338,120 1,338,120
239,600 sh. LMCCorporation, 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,389,210 2,389,210
4,476,500 sh. LMCCorporation, 02/09/96
Common Stock* through
08/05/98 2,465,449 1,723,529
49.72 sh. LMCCredit Corp.,
Common Stock* 02/09/96 1 1
--------- ----------
6,192,780 5,450,860 52.4
--------- ---------- -----
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(2) 05/24/95 1,239,095 991,276
9,772.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 73,295 1
--------- ----------
1,312,390 991,277 9.5
--------- ---------- -----
Total Investments in Managed
Companies (67.8% of net assets) 7,513,340 6,701,517 64.4
--------- ---------- -----
NON-MANAGED COMPANY:
821,376 sh. WasteMasters, Inc.,
Common Stock(3)* 06/03/98 1,097,307 1
--------- ----------
Total Investment in Non-Managed
Company (0.0% of net assets) 1,097,307 1 0.0
--------- ---------- -----
</TABLE>
The accompanying notes to financial statements
are an integral part of this schedule.
------------------------
NINE
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- --------- ---------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS:
$3,700,000 American Express
Credit Corp., 5.26%
Notes due 10/2/98 09/15/98 3,699,461 3,699,461
Total Temporary Investments
(39.8% of net assets) 3,699,461 3,699,461 35.6
----------- ----------- -----
Total Investments (105.0% of net assets) $12,310,108 $10,400,979 100.0%
=========== =========== =====
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in three equal annual installments of $486,667
commencing on May 24, 2000.
(3) The WasteMasters, Inc. common stock, which trades on the NASDAQ Small Cap
System, is subject to a 24 month lock up period, a call option and a right
of first refusal.
* Non-income producing security.
The accompanying notes to financial statements
are an integral part of this schedule.
------------------------
TEN
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
- ----------------------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$7,513,340 and $9,556,695,
respectively) $6,701,517 $5,754,426
Non-managed company (amortized cost -
$1,097,307) 1 --
Temporary investments, at amortized cost 3,699,461 8,194,820
------------ ------------
Total investments 10,400,979 13,949,246
Cash and cash equivalents 193,653 276,108
Accrued interest receivable 60,926 67,964
Other assets 31,099 58,926
------------ ------------
Total assets $10,686,657 $14,352,244
============ ============
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $35,576 $33,796
Accounts payable and accrued liabilities 458,926 424,137
Distributions payable to partners 309,134 1,030,446
------------ ------------
Total liabilities 803,636 1,488,379
============ ============
COMMITMENTS AND CONTINGENCIES (NOTE 5)
NET ASSETS:
Managing General Partner (72,790) (49,360)
Limited Partners (equivalent to $9.76
and $12.66, respectively, per limited
partnership unit based on 1,020,142
units outstanding) 9,955,811 12,913,225
------------ ------------
Net assets 9,883,021 12,863,865
------------ ------------
Total liabilities and net assets $10,686,657 $14,352,244
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these financial statements.
------------------------
ELEVEN
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- ------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $150,238 $298,669
--------- ---------
Total investment income 150,238 298,669
--------- ---------
Expenses:
Professional fees 22,212 60,746
Investment advisory fees (Note 2) 22,501 32,913
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) 10,725 15,586
Other expenses 20,339 8,856
--------- ---------
Total expenses 122,581 164,905
--------- ---------
NET INVESTMENT INCOME 27,657 133,764
--------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (10,148) 888,114
Net change in unrealized loss
on investments (365,064) (352,780)
--------- ---------
Net (loss) gain on investments (375,212) 535,334
--------- ---------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(347,555) $669,098
========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these financial statements.
------------------------
TWELVE
<PAGE> 14
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- -----------------------------------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $532,023 $860,164
----------- -----------
Total investment income 532,023 860,164
----------- -----------
Expenses:
Professional fees 130,285 125,209
Investment advisory fees (Note 2) 80,981 89,666
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) 41,474 36,586
Other expenses 53,282 24,866
----------- -----------
Total expenses 446,438 416,743
----------- -----------
NET INVESTMENT INCOME 85,585 443,421
----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on investments (2,486,531) 955,312
Net change in unrealized loss
on investments 1,893,140 (1,469,711)
----------- -----------
Net loss on investments (593,391) (514,399)
----------- -----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(507,806) $(70,978)
=========== ===========
</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 CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- -----------------------------------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets
resulting from operations $(507,806) $(70,978)
Adjustments to reconcile net decrease
in net assets resulting from operations to net
cash provided by operating activities:
Accreted discount on portfolio investments (12,932) (27,028)
Change in assets and liabilities:
Accrued interest receivable 7,038 (31,392)
Other assets 27,827 (26,579)
Payable to affiliates 1,780 29,808
Accounts payable and accrued liabilities 1,433 (2,556)
Net realized loss (gain) on investments 2,486,531 (955,312)
Net change in unrealized loss
on investments (1,893,140) 1,469,711
----------- -----------
Net cash provided by operating activities 110,731 385,674
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (2,618,810) (786,996)
Proceeds from dispositions of portfolio investments 1,124,615 1,245,348
Sale of temporary investments, net 4,495,359 197,761
----------- -----------
Net cash provided by investing activities 3,001,164 656,113
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (3,194,350) (1,004,437)
----------- -----------
Net cash used in financing activities (3,194,350) (1,004,437)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (82,455) 37,350
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 276,108 234,305
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $193,653 $271,655
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Investments exchanged for other investments $1,360,801 $--
----------- -----------
</TABLE>
The accompanying notes to financial statements
are an integral part of these financial statements.
------------------------
FOURTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND FOR
THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
- ----------------------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $85,585 $831,359
Net realized (loss) gain on investments (2,486,531) 2,925,017
Net change in unrealized loss on investments 1,893,140 (3,218,969)
------------ ------------
Net (decrease) increase in net assets
resulting from operations (507,806) 537,407
Repurchase of limited partnership units -- (1,162,618)
Distributions to partners from -
Net investment income (85,585) (831,359)
Realized gain on investments (1,402,287) (1,608,939)
Return of capital (985,166) (710,627)
------------ ------------
Total decrease in net assets (2,980,844) (3,776,136)
Net assets:
Beginning of period 12,863,865 16,640,001
------------ ------------
End of period (including no undistributed
net investment income) $9,883,021 $12,863,865
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these financial statements.
------------------------
FIFTEEN
<PAGE> 17
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,
------------------------------ -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $.15 $.27 $.51 $.77
Expenses (.12) (.15) (.43) (.37)
----------- ----------- ----------- -----------
Net investment income .03 .12 .08 .40
Net realized (loss) gain
on investments (.01) .80 (2.41) .86
Net change in unrealized
loss on investments (.36) (.32) 1.84 (1.32)
Distributions declared to partners (.30) (1.30) (2.41) (1.90)
----------- ----------- ----------- -----------
Net decrease in net asset value (.64) (.70) (2.90) (1.96)
Net asset value:
Beginning of period 10.40 13.82 12.66 15.08
----------- ----------- ----------- -----------
End of period $9.76 $13.12 $9.76 $13.12
=========== =========== =========== ===========
RATIOS (ANNUALIZED):
Ratio of expenses to average net assets 4.80% 4.45% 5.31% 3.58%
Ratio of net investment income to
average net assets 1.08% 3.61% 1.02% 3.81%
Number of limited partnership units at
end of period 1,020,142 1,104,881 1,020,142 1,104,881
</TABLE>
The accompanying notes to financial statements
are an integral part of these selected per unit data and ratios.
------------------------
SIXTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
FCM Fiduciary Capital Management Company ("FCM"), the Managing General Partner
of Fiduciary Capital Partners, L.P. (the "Fund"), necessary to fairly present
the financial position of the Fund as of September 30, 1998 and the results of
its operations, changes in net assets and its cash flows for the periods then
ended.
These financial statements should be read in conjunction with the Significant
Accounting Policies and other Notes to Financial Statements included in the
Fund's annual audited financial statements for the year ended December 31, 1997.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$80,981 were paid by the Fund for the nine months ended September 30, 1998.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of .45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $88,745 were
paid by the Fund for the nine months ended September 30, 1998. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $51,671 for the nine months ended September
30, 1998.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Pension Partners,
L. P., an affiliated fund (collectively, the "Funds") an annual fee of $30,000,
payable monthly in arrears, together with all out-of-pocket expenses. Each
Fund's allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the nine months ended
September 30, 1998 totaled $41,474.
------------------------
SEVENTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
5. COMMITMENTS AND CONTINGENCIES
LMC Commitment LMC Corporation (formerly, LMC Operating Corp.) ("LMC") is
entitled to draw down a total of $1,632,960 pursuant to the terms of the Senior
Subordinated Revolving Notes held by the Fund. At September 30, 1998, LMC had
drawn down $1,338,120.
LMC Litigation On December 23, 1997, LMC commenced an action against Paul
Wallace, a director of LMC and the trustee of its discontinued pension plan, in
an effort to recover for a significant underfunding of LMC's discontinued
pension plan. On January 27, 1998, LMC Holding Co. ("LMC Holding"), which held
approximately 50% of the issued and outstanding common stock of LMC on that
date, commenced an action against the Fund, FCP and each of Paul Bagley, the
Chairman of the Board and Chief Executive Officer of FCM, W. Duke DeGrassi, the
President of FCM, and Donald R. Jackson, the Senior Vice President, Treasurer,
Chief Financial Officer and Compliance Officer of FCM (collectively, the
"Individual Defendants"), in their capacities as officers of FCM, in the First
Judicial District Court in and for Cache County, State of Utah, entitled LMC
Holding Co. v. Fiduciary Capital Partners, L.P., et al., Civil No. 98-0100077
(the "LMC Action"). LMC Holding is controlled by Paul Wallace. FCM believes that
the LMC Action was commenced in response to the action previously filed by LMC
against Mr. Wallace. The Fund, FCP and the Individual Defendants entered into a
settlement agreement with LMC Holding, effective April 20, 1998. As part of the
settlement, the Fund and FCP have been able to increase their percentage
ownership of LMC in exchange for the additional capital contributions. The LMC
Action was subsequently dismissed with prejudice. FCM believes that the
additional investment by the Fund and FCP will allow LMC to implement a business
plan designed to restore it to profitability within the next few years. LMC
continues to pursue its legal action against Mr. Wallace with respect to the
underfunding of its discontinued pension plan.
------------------------
EIGHTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Fund's unaudited
Financial Statements and the Notes thereto. This report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, competition and
other factors discussed elsewhere in this report. Readers are urged to consider
statements that include the terms "believes", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward-looking. The Fund undertakes
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Fund held portfolio investments in three Managed
Companies and one Non-Managed Company, with an aggregate cost of approximately
$8.6 million. The value of these portfolio investments, which were made from
net offering proceeds and the reinvestment of proceeds from the sale of other
portfolio investments, represents approximately 67.8% of the Fund's net assets.
When acquired, these portfolio investments generally consisted of high-yield
subordinated debt, linked with an equity participation or a comparable
participation feature in middle market companies. These securities were
typically issued in private placement transactions and were subject to certain
restrictions on transfer or sale, thereby limiting their liquidity.
A number of the portfolio companies have prepaid their subordinated debt that
the Fund held. In addition, three of the portfolio companies have successfully
completed initial public offerings ("IPOs") of their stock. The Fund has sold
the stock it held in these three companies, except for a portion of its KEMET
Corporation ("KEMET") stock.
As of September 30, 1998, the Fund's remaining assets were invested in
short-term commercial paper. These funds are available to fund the annual
repurchase offer, to fund follow-on investments in existing portfolio companies,
to pay Fund expenses and for distribution to the partners.
Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
will annually offer to purchase from its Limited Partners up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the
------------------------
NINETEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
Fund's General Partners may vote to repurchase up to an additional 2% of the
outstanding Units. The 1998 repurchase offer was mailed to the Limited Partners
during October 1998. The actual redemption of tendered Units will occur on
November 20, 1998.
During February 1998, the Fund agreed to purchase $449,000 of LMC's Senior
Subordinated Revolving Notes due August 20, 1998. This investment was funded
during February and March 1998.
During April 1998, the Fund agreed to restructure and increase its aggregate
investment in LMC. In the restructuring, $1,360,800 of the Fund's LMC Senior
Subordinated Revolving Notes due October 31, 2000 were converted into additional
LMC common stock. This left LMC with the ability to reborrow the $1,360,800. As
of September 30, 1998, LMC has drawn down $1,338,120 of the $1,360,800 under the
terms of the Revolving Note agreement to fund working capital requirements and
to retire the $449,000 of LMC Senior Subordinated Revolving Notes due August 20,
1998, as described in the preceding paragraph. As a result of the restructuring,
the Fund's percentage ownership of LMC's common stock increased from
approximately 23% to approximately 40%.
During August 1998, the Fund purchased an additional 1,300,500 shares of LMC
common stock for $650,250. As a result of this stock purchase, the Fund's
percentage ownership of LMC's common stock increased from approximately 40% to
approximately 41%.
During the nine months ended September 30, 1998, the Fund sold all of its Mobile
Technology, Inc. ("MTI") stock and warrants and received two distributions from
the escrow account that was established during 1996 in connection with the sale
of the Fund's Huntington Holdings, Inc. ("Huntington") stock. In total, the Fund
received $222,016 in proceeds from these transactions.
Other assets decreased $27,827 from $58,926 at December 31, 1997 to $31,099 at
September 30, 1998. This decrease resulted primarily from the collection of a
receivable from LMC for legal fees that the Fund advanced on behalf of LMC.
Distributions payable to partners decreased $721,312, from $1,030,446 at
December 31, 1997 to $309,134 at September 30, 1998. This decrease resulted from
a decrease in the quarterly distribution rate from $1.00 per Unit for the fourth
quarter of 1997 to $.30 per Unit for the third quarter of 1998.
During the nine months ended September 30, 1998, the Fund paid cash
distributions pertaining to the fourth quarter of 1997 and the first and second
quarters of 1998, in the amounts of $1,030,446, $1,139,142 and $1,024,761,
respectively. The distribution for the fourth quarter of 1997 and the second
quarter of 1998 was equal to $1.00 per Unit for all Limited Partners. The per
Unit distribution rate for the first quarter of 1998 varied between $1.00 and
$1.13 depending upon the closing in which the particular Units were
------------------------
TWENTY
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
issued. This disproportionate cash distribution resulted from the Units being
issued on different dates during 1990, and thus being entitled to differing
Preferred Return amounts, as defined in the Fund's Partnership Agreement. These
disproportionate distribution rates eliminated the remaining Preferred Return
amounts, leaving all Units on an equal basis going forward.
The distribution for the third quarter of 1998 will be paid on November 13, 1998
at a rate of $.30 per Unit for all Limited Partners. The Fund currently expects
the distribution for the fourth quarter of 1998, which is payable during
February 1999, to also be made at a rate of $.30 per Unit for all Limited
Partners. A significant portion of the 1998 distributions constitute a return of
capital.
The Fund's investment period ended on December 31, 1995. Although the Fund is
permitted to make additional investments in existing portfolio companies after
1995, the Fund is no longer permitted to acquire investments in new portfolio
companies. Consequently, the Fund is now in a liquidation mode. Since the middle
of 1997, the Fund has liquidated its investments in Neodata Corporation, Elgin
National Industries, Inc. and MTI. In this same period, the Fund has distributed
to Limited Partners approximately $4.43 per Unit, with the cash coming in large
part from the liquidation of these investments. At the present time, the Fund
has only four remaining investments: LMC, R.B.M. Precision Metal Products, Inc.
("RBM"), KEMET and WasteMasters, Inc. ("WMI"). By far the Fund's largest
remaining investment is in LMC, of which a large portion consists of that
company's common stock and only a small amount is subordinated debt which
generates current income. KEMET and WMI are publicly-traded companies and the
Fund's investment in these companies consists solely of common stock.
FCM believes it is unlikely that the investments in LMC and RBM will be
liquidated in the next year and therefore the Fund will likely not have
sufficient cash to make regular quarterly distributions throughout 1999.
Considering this situation, FCM recognizes the need to expedite the liquidation
of the Fund and has been investigating a number of alternative measures which
would allow the Fund to be liquidated even before the LMC and RBM investments
can be liquidated. We expect to have a plan formulated within the next few
months and would then distribute a proxy to the Limited Partners which would
describe the plan and solicit Limited Partner approval.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment income was $27,657 for the three months ended
September 30, 1998 as compared to net investment income of $133,764 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.12 to $.03 and the ratio of net investment
income to average net assets decreased from 3.61% to 1.08% for the three months
ended September 30, 1998 as compared to the corresponding period of the prior
year.
------------------------
TWENTY-ONE
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
The Fund's net investment income was $85,585 for the nine months ended
September 30, 1998 as compared to net investment income of $443,421 for the
corresponding period of the prior year. Net investment income per limited
partnership unit decreased from $.40 to $.08 and the ratio of net investment
income to average net assets decreased from 3.81% to 1.02% for the nine months
ended September 30, 1998 as compared to the corresponding period of the prior
year.
Net investment income for both the three and nine month periods ended September
30, 1998 decreased primarily as a result of a decrease in investment income as
compared to the corresponding periods of the prior year.
Investment income decreased $148,431 and $328,141, or 49.7% and 38.1%, for the
three and nine month periods ended September 30, 1998, as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the prepayment of the Fund's Elgin National Industries Inc. subordinated debt
investment during November 1997. The Fund's total investments also decreased as
a result of the Fund's repurchase of 7.67% of its Units during the fourth
quarter of 1997. The negative effect of these items was partially offset by
increases in interest income earned on temporary investments and on the LMC
follow-on investments that were acquired during 1997 and 1998.
Total expenses decreased $42,324, or 25.7%, for the three months ended September
30, 1998, as compared to the corresponding period of the prior year. This
decrease resulted primarily from decreases in professional fees, investment
advisory fees and Independent General Partner fees and expenses. These decreases
were partially offset by an increase in other expenses.
Total expenses increased $29,695, or 7.1%, for the nine months ended September
30, 1998, as compared to the corresponding period of the prior year. This
increase resulted primarily from increases in other expenses, professional fees
and Independent General Partner fees and expenses. The negative effect of these
items was partially offset by a decrease in investment advisory fees.
Professional fees decreased during the three months ended September 30, 1998 as
compared to the corresponding period of the prior year, primarily because of
fees incurred during the prior year in connection with the Fund's analysis of an
abandoned proposal, pursuant to which the Fund's Units would have been exchanged
for shares in a newly-formed Delaware Business Trust. Professional fees
increased slightly for the nine months ended September 30, 1998 as compared to
the corresponding period of the prior year. The decrease discussed above with
respect the three months ended September 30, 1998, was more than offset by legal
fees incurred during the first six months of 1998 in connection with the LMC
litigation.
------------------------
TWENTY-TWO
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
The investment advisory fees decreased during the three and nine month periods
ended September 30, 1998 as compared to the corresponding periods of the prior
year. These decreases resulted primarily from the effect of the repurchase of
Units during the fourth quarter of 1997 and losses realized by the Fund during
the second quarter of 1998 with respect to the MTI, Atlas Environmental, Inc.
("Atlas") and AR Accessories Group, Inc. ("ARA") portfolio investments. Both the
repurchase of the Units and the realization of the losses decreased the amount
of the Fund's available capital (as defined in the Partnership Agreement), which
is the base with respect to which the investment advisory fees are calculated.
Independent General Partner fees and expenses decreased during the three months
ended September 30, 1998 because during the corresponding period of the prior
year the Fund paid fees and expenses to two incoming and one outgoing
Independent General partners during a transition period during which new
Independent General partners were being elected. The fees and expenses increased
during the nine months ended September 30, 1998 because one of the Fund's three
Independent General Partners resigned during the fourth quarter of 1996 and was
not replaced until the third quarter of 1997.
Other expenses increased during the three and nine month periods ended September
30, 1998 as compared to the corresponding periods of the prior year, primarily
as a result of insurance expense associated with a new liability insurance
policy for the Fund's general partners that was initially purchased during
September 1997.
NET REALIZED GAIN (LOSS) ON INVESTMENTS
The Fund owned an equity position in ARA (formerly known as Amity Leather
Products Co.) since 1992. This equity position was acquired in connection with a
subordinated debt investment, which ARA prepaid during 1994.
ARA reported significantly reduced earnings and cash flows from operations
during 1997. During February 1998, ARA hired a crisis manager to assist it in
addressing continuing significant declines in the company's sales and profits.
The hiring of this crisis manager was precipitated by ARA's lenders, who
notified ARA of defaults under its credit lines and demanded that ARA repay
overadvances that were made during 1997. The Fund was notified that ARA was
considering a number of options for solving these problems, including a possible
bankruptcy filing and the sale of the company, or certain of its operations.
ARA filed for bankruptcy protection during March 1998. ARA's assets were
liquidated at auction during May 1998, with the proceeds from the sale
satisfying only a portion of ARA's debt. The $311,989 cost of the Fund's equity
investment in ARA was written off as a realized loss during May 1998.
On June 1, 1998, the Fund received $158,043 from the sale of its MTI common
stock and warrants. This amount represents approximately 95% of the sales
proceeds that the
------------------------
TWENTY-THREE
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
Company expected the sellers to receive from the sale. The remaining 5%, or
approximately $8,000, is being held in escrow pending the resolution of a
dispute over whether the sellers or the buyer should receive the benefit of
warrant exercise proceeds. The Fund recorded a realized loss of $79,584 from
this sale. The Fund will record a reduction of the realized loss if, and when,
it actually receives a distribution of any of the escrowed funds.
The Fund's Huntington stock was sold for cash during February 1996. The Fund's
share of the sales proceeds totaled $1,247,229, of which $1,089,896 was received
during February 1996. The balance of the sales proceeds were held in escrow to
pay various transaction expenses, to fund contingent purchase price adjustments
and as collateral for potential claims of the buyer with respect to
representations made by the selling shareholders, including the Fund. An
agreement was reached with the buyer with regard to purchase price adjustments
and other claims and the escrow accounts have been liquidated. The Fund received
additional distributions of $16,439, $67,198, $63,001 and $971 during
September 1996, May 1997, June 1998 and August 1998, respectively. The Fund
recognized realized gains of $1,020,657, $67,198 and $63,972 from this
transaction during 1996, 1997 and 1998, respectively.
The companies that Atlas acquired during 1996 with the proceeds of the Fund's
subordinated debt investment did not perform as well as expected. As a result,
Atlas defaulted on certain financial covenants in its agreements with its senior
lender and with the Fund. The senior lender, the Bank of New York, reacted to
the covenant defaults by limiting Atlas' availability under its revolving credit
facility and by instructing Atlas not to pay the quarterly interest payments
that were due on the Fund's subordinated debt, beginning in July 1996.
During August 1996, Atlas entered into a letter of intent, under the terms of
which some of the company's businesses would be sold for cash. On November 5,
1996, the purchaser notified Atlas that it wanted to renegotiate the terms of
the transaction, including a reduction in the purchase price. Atlas management
was unable to reach a revised agreement with the purchaser and Atlas remained in
default on its debt. On January 17, 1997, Atlas filed for Chapter 11 bankruptcy
protection.
As a result of these developments, the Fund stopped accruing interest on its
Atlas investment during April 1996 and recorded writedowns of $979,776 and
$2,243,103 during 1996 and 1997, respectively, in the carrying value of the
investment. The remaining carrying value of the Fund's Atlas investment as of
December 31, 1997 was $2.
On June 3, 1998, the Fund exchanged its Atlas subordinated notes and warrants
for 821,376 shares of WMI common sock. WMI is an Atlanta, Georgia based waste
management company that has recently announced an aggressive acquisition
program.
------------------------
TWENTY-FOUR
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
Pursuant to the terms of the exchange agreement, the Fund is prohibited from
selling its WMI common stock for 24 months. In addition, the Fund granted the
entity acquiring the Fund's Atlas securities a call on the Fund's WMI common
stock during the 24 month lock up period and a right of first refusal
thereafter, both of which are priced at $11.25 per share.
The WMI common stock, which trades on the NASDAQ Small Cap Market System
("WAST"), closed at $1.78 and $0.97 (an average of the closing bid and ask
prices) on June 3, 1998 and September 30, 1998, respectively. Based on these
prices, the Fund's WMI had trading values of $1,462,049 on the date of the
exchange (June 3, 1998) and $796,735 on September 30, 1998. However, due to a
number of factors, including the speculative nature of the WMI stock, the two
year lock up period and the relative size of the Fund's stock position, FCM has
decided to carry the WMI stock at the same nominal value that the Atlas
securities were previously carried by the Fund. The 52 week low for the WMI
common stock is $0.25 per share.
The Fund recorded a realized loss of $2,125,574 on the exchange, which is equal
to the amount of the loss which the Fund expects to claim for income tax
purposes from the disposition of the Atlas securities. The balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.
The Fund is continuing to accrue an interest reserve with respect to the
potential Canadian's sales tax at a 12% annualized rate, or $11,119 and $33,356,
respectively, for the three and nine month periods ended September 30, 1998.
These amounts are recorded as realized losses in the Fund's Statements of
Operations.
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an average
of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public markets or
that are privately held are determined pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily
------------------------
TWENTY-FIVE
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
subjective. The Fund also may use, when available, third-party transactions in a
portfolio company's securities as the basis of valuation ("private market
method"). The private market method is used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.
As of December 31, 1997, the Fund had recorded $437,099 of unrealized gain and
$4,239,368 of unrealized loss on investments. Therefore, as of December 31,
1997, the Fund had recorded a total net unrealized loss on investments of
$3,802,269.
The net increase in unrealized loss on investments during the three and nine
month periods ended September 30, 1998 and the cumulative net unrealized loss on
investments as of September 30, 1998 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, 1998 September 30, 1998 September 30, 1998
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Unrealized losses recorded
during prior periods with
respect to investments disposed
of during the period $ -- $ 3,497,448 $ --
KEMET (43,951) (185,889) 251,210
LMC -- -- (741,920)
RBM (321,113) (321,113) (321,113)
WMI -- (1,097,306) (1,097,306)
----------- ----------- -----------
$ (365,064) $ 1,893,140 $(1,909,129)
=========== =========== ===========
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock, which trades
on the NASDAQ National Market System, closed at $11.25 (an average of the
closing bid and ask prices) on September 30, 1998. This price is down from the
closing prices of $13.15625 and $19.3125 on June 30, 1998 and December 31, 1997,
respectively. Based on the $11.25 closing trading price of the common stock, the
23,056 shares of common stock that the Fund held at September 30, 1998 had a
market value of $259,380.
During August 1998, RBM notified the Fund that anticipated sales to certain
large customers were expected to decline significantly in the upcoming year. Of
particular concern, were sales to Digital Equipment Corporation, which has been
acquired by Compaq Computer Corp. As a result of the anticipated decline in
sales, RBM is attempting to restructure its debt, including the subordinated
notes held by the Fund. The Fund received the quarterly interest payment that
was due from RBM on August 24, 1998. As part of the proposed restructuring, RBM
has asked the Fund to defer the quarterly interest payments due in November
1998, February 1999 and May 1999. The Fund is presently working with RBM and its
other lenders to arrive at a satisfactory
------------------------
TWENTY-SIX
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
- --------------------------------------------------------------------------------
restructuring. As a result of these developments, the Fund recorded a $321,113
writedown at September 30, 1998 in the carrying value of its RBM investment.
See "Net Realized Gain (Loss) on Investments" for a discussion of the unrealized
loss on the Fund's WMI stock investment.
FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.
READINESS FOR YEAR 2000
FCM has completed a review of the accounting and other information systems that
are currently being utilized by FCM and the Fund with regard to Year 2000
issues. This review involved both actual tests of parts of the information
systems that were conducted by third party consultants and representations
received from various software vendors. FCM believes that all of these systems
are Year 2000 compliant. All of the costs associated with this review were paid
by FCM.
FCM also corresponded with appropriate third parties, such as the Fund's
custodian and transfer agent, concerning whether their information systems are
Year 2000 compliant. These third parties have represented that their information
systems are either currently Year 2000 compliant or that they have identified
the scope of required upgrades or changes to their information systems that are
needed and that they have a plan in place to complete these upgrades on a timely
basis.
As a result of the above discussed review, Year 2000 issues are not expected to
have any material adverse effects on the Fund's results of operations or
financial condition.
------------------------
TWENTY-SEVEN
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 10,755,843
<INVESTMENTS-AT-VALUE> 8,506,269
<RECEIVABLES> 85,556
<ASSETS-OTHER> 27,234
<OTHER-ITEMS-ASSETS> 628,670
<TOTAL-ASSETS> 9,247,729
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 781,538
<TOTAL-LIABILITIES> 781,538
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 940,336
<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> (2,249,574)
<NET-ASSETS> 8,466,191
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 596,296
<OTHER-INCOME> 11,058
<EXPENSES-NET> 549,514
<NET-INVESTMENT-INCOME> 57,840
<REALIZED-GAINS-CURRENT> (2,497,650)
<APPREC-INCREASE-CURRENT> 1,552,695
<NET-CHANGE-FROM-OPS> (887,115)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 85,585
<DISTRIBUTIONS-OF-GAINS> 1,402,287
<DISTRIBUTIONS-OTHER> 1,270,116
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 79,806
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,397,674)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 102,251
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 549,514
<AVERAGE-NET-ASSETS> 10,665,668
<PER-SHARE-NAV-BEGIN> 12.66
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> (.82)
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 1.37
<RETURNS-OF-CAPITAL> 1.24
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 5.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
