<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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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 (800) 866-7607
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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Fiduciary Capital Pension Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1999
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
June 30, 1999 3
Schedule of Covered Call Options
Written - June 30, 1999 5
Balance Sheets - June 30, 1999 and
December 31, 1998 6
Statements of Operations for the three
months ended June 30, 1999 and 1998 7
Statements of Operations for the six
months ended June 30, 1999 and 1998 8
Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 9
Statements of Changes in Net Assets for
the six months ended June 30, 1999 and
for the year ended December 31, 1998 10
Selected Per Unit Data and Ratios 11
Notes to Financial Statements 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
21,971 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 7,786 $ 503,273
- -------------------------------------------------------------------------------------------------------------------
7,786 503,273 5.9%
- -------------------------------------------------------------------------------------------------------------------
$1,632,960 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 01/13/99 1,632,960 1,632,960
$474,683 LMC Corporation, 12.00%
Senior Subordinated 02/11/99
Revolving Notes through
due 10/1/99 (Note 5) 05/25/99 474,683 474,683
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
- -------------------------------------------------------------------------------------------------------------------
6,962,303 6,220,383 73.0
- -------------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(2) 05/24/95 1,239,701 647,114
12,603.7 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
- -------------------------------------------------------------------------------------------------------------------
1,312,997 647,116 7.6
- -------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (92.4% of net assets) 8,283,086 7,370,772 86.5
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
3
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$1,150,000 General Electric Capital Corp.,
4.96% Notes due 7/13/99 06/29/99 1,148,102 1,148,102
- -------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (14.4% of net assets) 1,148,102 1,148,102 13.5
- -------------------------------------------------------------------------------------------------------------------
Total Investments (106.8% of net assets) $ 10,528,495 $8,518,875 100.0%
===================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The notes will amortize in three equal annual installments of $430,000
commencing on May 24, 2000.
(3) The WasteMasters, Inc. common stock, which trades on the NASDAQ Small Cap
Market System, is subject to a 24 month lock up period, a call option and
a right of first refusal.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
4
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF COVERED CALL OPTIONS WRITTEN
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
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Shares
Subject to Common Stock Expiration Date /
Call Investment Exercise Price Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
18,084 sh. KEMET Corporation July / $17.50 $ 99,459
3,617 sh. KEMET Corporation October / $17.50 22,606
===================================================================================================================
Total (premiums received $20,440) $122,065
===================================================================================================================
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
5
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$8,283,086 and $7,761,313,
respectively) $ 7,370,772 $ 6,609,045
Non-managed company (amortized cost -
$1,097,307) 1 1
Temporary investments, at amortized cost 1,148,102 1,897,223
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Total investments 8,518,875 8,506,269
Cash and cash equivalents 313,671 628,670
Accrued interest receivable 81,023 85,556
Other assets 5,126 27,234
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Total assets $ 8,918,695 $ 9,247,729
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LIABILITIES:
Covered call options written, at value
(premiums received $20,440) $ 122,065 $ --
Payable to affiliates (Notes 2, 3 and 4) 40,436 25,748
Accounts payable and accrued liabilities 496,373 470,840
Distributions payable to partners 284,950 284,950
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Total liabilities 943,824 781,538
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COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (180,012) (180,012)
Limited Partners (equivalent to $8.67
and $9.19, respectively, per limited
partnership unit based on 940,336
units outstanding) 8,154,883 8,646,203
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Net assets 7,974,871 8,466,191
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Total liabilities and net assets $ 8,918,695 $ 9,247,729
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 101,425 $ 177,677
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Total investment income 101,425 177,677
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Expenses:
Fund administration fees (Note 3) 29,582 29,582
Investment advisory fees (Note 2) 20,740 28,092
Professional fees 25,965 31,918
Administrative expenses (Note 3) 17,224 17,224
Independent General Partner fees
and expenses (Note 4) 11,005 12,654
Other expenses 12,102 14,744
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Total expenses 116,618 134,214
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NET INVESTMENT (LOSS) INCOME (15,193) 43,463
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REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (6,222) (2,465,264)
Net change in unrealized loss
on investments 137,608 2,410,718
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Net gain (loss) on investments 131,386 (54,546)
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NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 116,193 $ (11,083)
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
7
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 180,920 $ 381,785
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Total investment income 180,920 381,785
----------- -----------
Expenses:
Fund administration fees (Note 3) 59,164 59,164
Investment advisory fees (Note 2) 41,481 58,480
Professional fees 37,548 108,073
Administrative expenses (Note 3) 34,448 34,448
Independent General Partner fees
and expenses (Note 4) 32,218 30,749
Other expenses 29,588 32,943
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Total expenses 234,447 323,857
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NET INVESTMENT (LOSS) INCOME (53,527) 57,928
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REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (6,222) (2,476,383)
Net change in unrealized loss
on investments 138,329 2,258,204
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Net gain (loss) on investments 132,107 (218,179)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 78,580 $ (160,251)
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
8
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations $ 78,580 $ (160,251)
Adjustments to reconcile net increase (decrease) in
net assets resulting from operations to net cash
(used in) provided by operating activities:
Accreted discount on portfolio investments (2,114) (8,462)
Change in assets and liabilities:
Accrued interest receivable 4,533 3,544
Other assets 22,108 53,390
Payable to affiliates 14,688 20,925
Accounts payable and accrued liabilities (411) (2,418)
Net realized loss on investments 6,222 2,476,383
Net change in unrealized loss on investments (138,329) (2,258,204)
----------- -----------
Net cash (used in) provided by operating activities (14,723) 124,907
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (520,045) (1,639,700)
Proceeds from dispositions of portfolio investments 40,548 670,045
Sale of temporary investments, net 749,121 3,354,234
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Net cash provided by investing activities 269,624 2,384,579
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (569,900) (2,169,589)
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Net cash used in financing activities (569,900) (2,169,589)
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (314,999) 339,897
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 628,670 276,108
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 313,671 $ 616,005
=========== ===========
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.
9
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND FOR THE YEAR ENDED DECEMBER 31, 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Increase in net assets from operations:
Net investment (loss) income $ (53,527) $ 57,840
Net realized loss on investment (6,222) (2,497,650)
Net change in unrealized loss on
investments 138,329 1,552,695
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Net increase (decrease) in net assets
resulting from operations 78,580 (887,115)
Repurchase of limited partnership units -- (752,571)
Distributions to partners from -
Net investment income -- (85,585)
Realized gain on investments -- (1,402,287)
Return of capital (569,900) (1,270,116)
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Total decrease in net assets (491,320) (4,397,674)
Net assets:
Beginning of period 8,466,191 12,863,865
------------ ------------
End of period (including no undistributed
net investment income) $ 7,974,871 $ 8,466,191
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
10
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .11 $ .17 $ .18 $ .37
Expenses (.12) (.13) (.23) (.31)
----------- ------------- ----------- -------------
Net investment (loss) income (.01) .04 (.05) .06
Net realized loss on investments (.01) (2.39) (.01) (2.40)
Net change in unrealized loss on
investments .14 2.34 .14 2.18
Distributions declared to partners (.30) (1.00) (.60) (2.10)
----------- ------------- ----------- -------------
Net decrease in net asset value (.18) (1.01) (.52) (2.26)
Net asset value:
Beginning of period 8.85 11.41 9.19 12.66
----------- ------------- ----------- -------------
End of period $ 8.67 $ 10.40 $ 8.67 $ 10.40
=========== ============= =========== =============
Ratios (annualized):
Ratio of expenses to average net assets 5.79% 4.86% 5.72% 5.56%
Ratio of net investment (loss) income to
average net assets (0.75)% 1.57% (1.31)% 0.99%
Number of limited partnership units at end of period 940,336 1,020,142 940,336 1,020,142
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
11
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
FCM Fiduciary Capital Management Company ("FCM"), the Managing General Partner
of Fiduciary Capital Pension Partners, L.P. (the "Fund"), necessary to fairly
present the financial position of the Fund as of June 30, 1999 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, 1998.
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
$41,481 were paid by the Fund for the six months ended June 30, 1999.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of .45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $59,164 were
paid by the Fund for the six months ended June 30, 1999. FCM is also reimbursed,
subject to various limitations, for administrative expenses incurred in
providing accounting and investor services to the Fund. The Fund reimbursed FCM
for administrative expenses of $34,448 for the six months ended June 30, 1999.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Partners, L.P., an
affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable
monthly in arrears, together with all out-of-pocket expenses. Each Fund's
allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the six months ended
June 30, 1999 totaled $32,218.
12
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
5. COMMITMENTS AND CONTENGENCIES
LMC Commitment LMC Corporation ("LMC") is entitled to draw down a total of
$650,250 pursuant to the terms of the Senior Subordinated Revolving Notes due
October 1, 1999, which are held by the Fund. As of June 30, 1999, LMC had drawn
down $474,683.
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Fund's unaudited
Financial Statements and the Notes thereto. This report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, competition and
other factors discussed elsewhere in this report. Readers are urged to consider
statements that include the terms "believes", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward-looking. The Fund undertakes
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Fund held portfolio investments in three Managed
Companies and one Non-Managed Company, with an aggregate original cost of
approximately $9.4 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 92.1% of the Fund's net
assets.
When acquired, the Fund's portfolio investments generally consisted of
high-yield subordinated debt, linked with an equity participation or a
comparable participation feature in middle market companies. The securities were
typically issued in private placement transactions and were subject to certain
restrictions on transfer or sale, thereby limiting their liquidity. A number of
the portfolio companies have prepaid their subordinated debt that the Fund held.
In addition, three of the portfolio companies have successfully completed
initial public offerings ("IPOs") of their stock. The Fund has sold the stock it
held in these three companies, except for a portion of its KEMET Corporation
("KEMET") stock.
As of June 30, 1999, the Fund's remaining liquid 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.
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 $5.63 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.
Pursuant to the terms of the Fund's periodic unit 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.
14
<PAGE> 15
The Fund previously indicated that it might be unable to fund a repurchase offer
during 1999 due to the lack of sufficient liquidity. However, during July 1999,
the General Partners determined that the Fund will proceed with the 1999
repurchase offer, which will be completed during the fourth quarter of 1999.
The General Partners are presently considering a number of alternative actions
through which the Fund could be liquidated during 1999 or 2000. An overall plan
of liquidation was adopted at a meeting of the General Partners held in January
1999. The General Partners will follow the requisite regulatory procedures
required to liquidate the Fund. These procedures are expected to include
requesting an exemptive order from the Securities and Exchange Commission (the
"SEC"), which will permit the Fund to act as an operating company instead of an
SEC registered investment company. Once this order is obtained, the Fund will
finalize its liquidation plan and prepare a proxy statement setting forth the
details of the plan as well as the changes required in the Fund's Partnership
Agreement. Late in the fourth quarter of 1999 or early in 2000, the Limited
Partners will be requested to approve the implementation of the liquidation plan
and the Partnership Agreement changes. As currently contemplated, Fund investors
would become direct shareholders of LMC as a result of the liquidation plan, if
all approvals are received.
During February 1999, the Fund agreed to purchase $650,250 of LMC's Senior
Subordinated Revolving Notes due October 1, 1999. As of June 30, 1999, $474,683
of this investment had been funded.
During April 1999, the Fund began writing covered call options with respect to
its shares of KEMET stock. During the three months ended June 30, 1999, the Fund
received $24,372 of premiums from the sale of the options and $16,177 from the
exercise of the options for 1,085 shares. At June 30, 1999, 21,701 options were
outstanding at a strike price of $17.50.
Accrued interest receivable decreased $4,533 from $85,556 at December 31, 1998
to $81,023 at June 30, 1999. This decrease resulted primarily from the fact that
the quarterly interest payment that was due on the LMC Corporation ("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 at December 31, 1998 was
partially offset by interest income earned during the three months ended June
30, 1999 on the LMC follow-on investments that were acquired during 1998 and
1999 and by interest accrued on the R.B.M. Precision Metal Products, Inc.
("RBM") subordinated debt investment at June 30, 1999. (See discussion below
concerning interest payments due on the Fund's RBM subordinated debt
investment.)
Other assets decreased $22,108 from $27,234 at December 31, 1998 to $5,126 at
June 30, 1999. This decrease resulted from decreases in both prepaid insurance
and deposits.
During the six months ended June 30, 1999, the Fund paid cash distributions
pertaining to the fourth quarter of 1998 and the first quarter of 1999, each in
the amount of $284,950, or $0.30 per Unit. The distribution for the second
quarter of 1999 will be paid on August 13, 1999 at a rate of $0.30 per Unit. The
Fund's ability to continue to pay quarterly distributions after the second
quarter of 1999 is uncertain at this time. The distribution question will be
addressed on a quarterly basis, and will involve the consideration of a number
of issues. A significant portion of the 1999 distributions is expected to
constitute a return of capital.
15
<PAGE> 16
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment loss was $(15,193) for the three months ended June 30,
1999 as compared to net investment income of $43,463 for the corresponding
period of the prior year. Net investment income (loss) per limited partnership
unit decreased from $0.04 to $(0.01) and the ratio of net investment income
(loss) to average net assets decreased from 1.57% to (0.75)% for the three
months ended June 30, 1999 as compared to the corresponding period of the prior
year.
The Fund's net investment loss was $(53,527) for the six months ended June 30,
1999 as compared to net investment income of $57,928 for the corresponding
period of the prior year. Net investment income (loss) per limited partnership
unit decreased from $0.06 to $(0.05) and the ratio of net investment income
(loss) to average net assets decreased from 0.99% to (1.31)% for the six months
ended June 30, 1999 as compared to the corresponding period of the prior year.
Net investment income (loss) for the three and six month periods ended June 30,
1999 decreased primarily as a result of decreases in investment income as
compared to the corresponding periods of the prior year. The impact of the
decreases in investment income was partially offset by decreases in total
expenses.
Investment income decreased $76,252 and $200,865, or 42.9% and 52.6%, for the
three and six month periods ended June 30, 1999 as compared to the corresponding
periods of the prior year. These decreases resulted primarily from the decision
not to record interest on the Fund's RBM subordinated debt investment during the
period from August 25, 1998 through May 24, 1999 (see discussion below) and a
decrease in the amount of the Fund's temporary investments. The amount of the
Fund's temporary investments decreased because of (i) return of capital
distributions made by the Fund, (ii) purchases of additional LMC follow-on
investments, and (iii) the Fund's repurchase of 7.82% of its Units during the
fourth quarter of 1998. The negative effect of these items was partially offset
by an increase in interest income earned on the LMC follow-on investments that
were acquired during 1998 and 1999.
Total expenses decreased $17,596 and $89,410, or 13.1% and 23.4%, for the three
and six month periods ended June 30, 1999 as compared to the corresponding
periods of the prior year. These decreases resulted primarily from decreases in
professional fees and investment advisory fees.
Professional fees decreased during the three and six month periods ended June
30, 1999 as compared to the corresponding periods of the prior year, primarily
because of fees incurred during the prior year in connection with LMC related
litigation.
The investment advisory fees decreased during the three and six month periods
ended June 30, 1999 as compared to the corresponding periods of the prior year,
primarily as a result of (i) the repurchase of Units during the fourth quarter
of 1998, (ii) the payment of quarterly cash distributions during 1998 that
exceeded the Limited Partners' Preferred Returns (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 Mobile Technology, Inc., Atlas
Environmental, Inc. ("Atlas") and AR Accessories Group, Inc. portfolio
investments. All three of these items 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.
16
<PAGE> 17
Realized Gain (Loss) on Investments
On April 9, 1999, the Fund wrote covered call options (May / $15.00) with
respect to 4,521 shares of its KEMET stock, for which it received $3,932 of
premiums. The options for 1,085 of these shares were exercised on May 21, 1999
and the balance expired unexercised. The Fund recorded aggregate gains of
$19,722 from these transactions.
The Fund incurred approximately $26,000 of realized losses during the three
months ended June 30, 1999 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 is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
As of December 31, 1998, the Fund had recorded $255,533 of unrealized gain and
$2,505,107 of unrealized loss on investments. Therefore, as of December 31,
1998, the Fund had recorded a total net unrealized loss on investments of
$2,249,574.
The decrease in unrealized loss on investments during the three and six month
periods ended June 30, 1999 and the cumulative net unrealized loss on
investments as of June 30, 1999 consisted of the following components:
<TABLE>
<CAPTION>
Net Changes in
Unrealized Gain (Loss)
--------------------------------------- Net Unrealized
During the Three During the Six Gain (Loss)
Months Ended Months Ended Recorded As of
Portfolio Company June 30, 1999 June 30, 1999 June 30, 1999
- ------------------------------------ ---------------- -------------- --------------
<S> <C> <C> <C>
Unrealized gains recorded during
prior periods with respect to
investments disposed of during
the period $ (12,025) $(12,025) $ --
KEMET 149,633 150,354 393,862
LMC -- -- (741,920)
RBM -- -- (665,881)
WMI -- -- (1,097,306)
-------- -------- -----------
$137,608 $138,329 $(2,111,245)
======== ======== ===========
</TABLE>
17
<PAGE> 18
KEMET stock, which trades on the NASDAQ National Market System, closed at
$22.90625 (an average of the closing bid and ask prices) on June 30, 1999. This
price is up significantly from the closing prices of $11.46875 and $11.4375 on
March 31, 1999 and December 31, 1998, respectively. Based on the $22.90625
closing trading price of the common stock, the 21,971 shares of common stock
that the Fund held at June 30, 1999, had a market value of $503,273.
As of June 30, 1999, the Fund had written outstanding covered call options with
respect to 21,701 shares of KEMET stock. These options, for which the Fund
received $20,440 of premiums, had a market value of $122,065 as of June 30,
1999.
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 then 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 made demands on the
current and previous trustees of the Plan and the previous controlling
shareholder that these parties make the necessary payments to the Plan. LMC has
filed suit against the current trustee and the former controlling shareholder,
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 its audit, the IRS notified LMC that it
had determined the underfunding for the years reviewed to be $243,385, plus
interest on that amount. The IRS also imposed excise taxes and interest of
16,283, which LMC has paid. LMC is currently in discussions with the IRS
concerning how and when the $243,385 underfunding, and the related excise taxes
and 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 June 30, 1999, the Fund's LMC investment has been
written down in value by $741,920. The Fund and LMC's other stockholders made
follow-on investments in LMC during 1996, 1997, 1998 and 1999 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
18
<PAGE> 19
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 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
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.
The Fund did not record any interest income as a result of the receipt of the
shares of RBM's common stock in payment of the interest due on its RBM
subordinated debt for the period from August 25, 1998 through May 24, 1999, and
no value was assigned to the stock. The Fund expects to receive the quarterly
interest payment due on August 24, 1999 in cash. As a result, the Fund has
accrued the interest due on the debt from the period from May 25, 1999 through
June 30, 1999 in the accompanying financial statements.
During June 1998, the Fund exchanged its Atlas Environmental, Inc. ("Atlas")
(which was in bankruptcy proceedings) subordinated notes and warrants for
821,376 shares of common stock of WasteMasters, Inc. ("WMI"), an Atlanta,
Georgia based waste management company. Pursuant to the terms of the 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 OTC Market System ("WASTE"), closed at
$1.78 (an average of the closing bid and ask prices) on the date of the exchange
(June 3, 1998). Based on this price, the Fund's WMI had a trading value of
$1,462,049 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, FCM has decided to carry the WMI stock at the same $1 nominal value that
the Atlas securities were previously carried by the Fund. The WMI common stock
has recently traded near its 52-week low of $0.025 per share.
The Fund recorded a realized loss of $2,125,574 on the exchange, which was 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.
FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.
19
<PAGE> 20
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.
20
<PAGE> 21
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
- ----------- -----------
11.1 Statement of Computation of Net Investment Income Per Limited
Partnership Unit.
27.1 Financial Data Schedule.
(b) The Registrant did not file any reports on Form 8-K during the second
quarter of the fiscal year ending December 31, 1999.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Fiduciary Capital Pension Partners, L.P.
(Registrant)
By: FCM Fiduciary Capital Management Company
Managing General Partner
Date: August 9, 1999 By: /s/ Donald R. Jackson
-------------------------------------
Donald R. Jackson
Chief Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
11.1 Statement of Computation of Net Investment
Income Per Limited Partnership Unit.
27.1 Financial Data Schedule.
</TABLE>
E-1
<PAGE> 1
EXHIBIT 11.1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- -------------------------
1999 1998 1999 1998
--------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Net Investment (Loss) Income $ (15,193) $ 43,463 $(53,527) $ 57,928
Percentage Allocable to Limited Partners 98% 99% 93% 99%
--------- ----------- -------- ----------
Net Investment (Loss) Income Allocable
to Limited Partners $ 14,889 $ 43,029 $(49,780) $ 57,349
========= =========== ======== ==========
Weighted Average Number of Limited
Partnership Units Outstanding 940,336 1,020,142 940,336 1,020,142
========= =========== ======== ==========
Net Investment (Loss) Income Per Limited
Partnership Unit $ (.01) $ .04 $ (.05) $ .06
========= =========== ======== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINSS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 10,528,495
<INVESTMENTS-AT-VALUE> 8,518,875
<RECEIVABLES> 81,023
<ASSETS-OTHER> 5,126
<OTHER-ITEMS-ASSETS> 313,671
<TOTAL-ASSETS> 8,918,695
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 943,824
<TOTAL-LIABILITIES> 943,824
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 940,336
<SHARES-COMMON-PRIOR> 940,336
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,111,245)
<NET-ASSETS> 7,974,871
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,920
<OTHER-INCOME> 0
<EXPENSES-NET> 234,447
<NET-INVESTMENT-INCOME> (53,527)
<REALIZED-GAINS-CURRENT> (6,222)
<APPREC-INCREASE-CURRENT> 138,329
<NET-CHANGE-FROM-OPS> 78,580
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (569,900)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (491,320)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234,447
<AVERAGE-NET-ASSETS> 8,194,897
<PER-SHARE-NAV-BEGIN> 9.19
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.60)
<PER-SHARE-NAV-END> 8.67
<EXPENSE-RATIO> 5.72
</TABLE>
