<PAGE> 1
EXHIBIT 19.1
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
---------------------
SECOND QUARTER REPORT
2000
<PAGE> 2
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
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MESSAGE TO INVESTORS
Dear Investor:
As of June 30, 2000, the Fund's net asset value per Unit was $0.84 and the Fund
held portfolio investments in four companies.
PORTFOLIO UPDATE
R.B.M. Precision Metal Products, Inc. ("RBM") RBM experienced financial
difficulties during its fiscal year ended October 31, 1999 due to the loss of
several major contracts. RBM appears to have stabilized its financial situation
and its management expects the company to achieve a positive EBITDA for its
fiscal year ending October 31, 2000. RBM remains current with its interest
payments to the Fund. However, on August 24, 2000, RBM notified the Fund that
the company failed to meet two of the financial covenants included in the Fund's
subordinated loan agreement with RBM for the nine months ended July 31, 2000.
Management of the Fund agreed to a waiver with respect to these defaults, in
part, because RBM represented to the Fund that, based on booked orders, they
expect all financial covenants to be met for their fiscal year ending October
31, 2000. The Fund executed the waiver with respect to the covenants for the
nine months ended July 31, 2000 without waiving or effecting its rights for any
other period.
Originally, the Fund's RBM debt was scheduled to be repaid over the three years
ending May 2002. However, the Fund and RBM's other creditors entered into an
Intercreditor and Subordination Agreement in connection with a restructuring of
RBM's senior debt in late 1998. The Agreement prohibits principal payments on
RBM's subordinated debt prior to October 31, 2000 and restricts payments
thereafter, based on a number of financial formulas contained in the Agreement.
Therefore, both the amount and timing of the principal payments to be received
by the Fund are dependent upon RBM's future operating results, including
specifically the EBITDA levels achieved.
LMC Corporation ("LMC") As discussed in detail in previous correspondence and
elsewhere in this report, LMC is in Chapter 11 bankruptcy proceedings. The
bankruptcy case is progressing and LMC continues to attempt to sell its
business. The Fund and Fiduciary Capital Pension Partners, L.P., an affiliated
fund, have a second lien position with respect to most of LMC's assets. As a
result, the Fund is attempting to realize a partial recovery with respect to the
LMC debt held by the Fund. The amount, if any, as well as the timing and form of
this recovery is entirely dependent upon the amount and form of the proceeds LMC
derives from the sale or restructuring of its business. These proceeds could
include stock of a purchaser.
Niigata Engineering Co., Ltd. ("Niigata") The Fund holds non-interest-bearing
receivables, which were purchased from LMC at a discount. The initial payment
was
----------
ONE
<PAGE> 3
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
due from Niigata on May 21, 2000. Niigata initially refused to make the payment,
due to various outstanding claims they have asserted against LMC (which disputes
the validity of these claims). Niigata ultimately made the full amount of the
payment to the Fund on June 30, 2000. The next scheduled payment is due from
Niigata on November 21, 2000.
WasteMasters, Inc. ("WasteMasters") During June 1998, the Fund exchanged its
Atlas Environmental, Inc. (which was in bankruptcy proceedings) securities for
shares of WasteMasters common stock. The Fund acquired its WasteMasters stock,
which trades on the OTC Bulletin Board System, from Nikko Trading of America
Corporation ("Nikko"). The stock was subject to a 24-month lock-up period
through May 2000. Upon expiration of the lock-up period, the Fund requested that
WasteMasters issue the Fund a new stock certificate without the restrictive
legend that existed on the Fund's original certificate, so that the stock could
be sold. WasteMasters and Nikko have been in litigation with each other and,
during March 2000, the court involved with this litigation authorized the
cancellation of all WasteMasters stock that had been issued to Nikko, including
the shares that Nikko had previously transferred to the Fund. At this time, the
Fund is uncertain as to how, or when, these issues regarding the ownership and
transferability of its WasteMasters stock will be resolved. The Fund has
retained counsel and WasteMasters' attorneys are considering our request to be
treated as a bona fide stockholder. Others are in the same position as the Fund
and have requested similar treatment. WasteMasters' attorneys have indicated
that it may take 90 days to make a determination as to the Fund's position as a
stockholder. There can be no assurance that a conclusion favorable to the Fund
will be achieved, or that a determination will be made within the indicated time
frame.
PERIODIC UNIT REPURCHASE POLICY
Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
has annually offered to purchase from Investors, up to 7.5% of its outstanding
Units for an amount equal to the current net asset value per Unit, net of a 2%
fee, which is 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 repurchased on a prorated basis, after
giving priority to Investors owning less than 100 Units.
The 2000 Repurchase Offer will occur during the fourth quarter of 2000. The
Repurchase Offer schedule provides for a mailing to Investors on October 5, 2000
and the deadline for tendering Units for repurchase will be October 31, 2000.
The repurchase price will be based on the net asset value per Unit on November
14, 2000 and payment for tendered Units will be made on November 21, 2000.
----------
TWO
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
CASH DISTRIBUTIONS
The Fund discontinued the payment of its quarterly cash distributions during the
first quarter of 2000. It is unlikely that the Fund will be able to pay
quarterly distributions during the remainder of 2000 and beyond. Distributions
will be addressed on a quarterly basis by the General Partners and will involve
the consideration of a number of issues.
LIQUIDATION PLANS
During 1999, the General Partners considered a number of possible plans that
would have permitted the Fund to be liquidated by the end of 2000. However, it
was determined that none of these plans was feasible. As a result, it is
currently expected that the Fund will remain in existence until the remaining
debt investments mature, are sold or are prepaid by the respective portfolio
companies, and the remaining equity investments are sold or otherwise
liquidated.
* * * * * * * * * *
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
August 29, 2000
----------
THREE
<PAGE> 5
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
--------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
$1,632,960 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00(1) 01/13/99 $1,632,960 $ 226,800
$14,096 LMC Corporation, 12.00% 02/07/00
Promissory Notes through
due 8/7/00(2) 04/11/00 14,096 14,096
71,961 sh. LMC Corporation,
Class B Preferred Stock* 08/09/99 719,610 1
239,600 sh. LMC Corporation,
Class C Preferred Stock* 06/10/94 2,389,210 1
4,476,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 2,465,449 1
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
---------- ---------- ----
7,221,326 240,900 24.1%
---------- ---------- ----
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,260,520 667,933
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
---------- ---------- ----
1,333,816 667,935 66.7
---------- ---------- ----
Total Investments in Managed
Companies (161.7% of net assets) 8,555,142 908,835 90.8
---------- ---------- ----
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
----------
FOUR
<PAGE> 6
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (Continued)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
--------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NON-MANAGED COMPANIES:
$104,262 Niigata Engineering 12/01/99
Co., Ltd., through
Receivables(4) 01/03/00 92,138 92,138
---------- ---------- -----
92,138 92,138 9.2
---------- ---------- -----
821,376 sh. WasteMasters, Inc.,
Common Stock(5)* 06/03/98 1,097,307 1
---------- ---------- -----
1,097,307 1 0.0
---------- ---------- -----
Total Investments in
Non-Managed Companies
(16.4% of net assets) 1,189,445 92,139 9.2
---------- ---------- -----
Total Investments (178.1% of net assets) $9,744,587 $1,000,974 100.0%
========== ========== =====
</TABLE>
(1) The accrual of interest on the notes was discontinued by the Fund
effective July 1, 1999.
(2) The Fund has not accrued any interest income on these notes.
(3) The terms of the notes provide for three equal annual principal
payments of $430,000 commencing on May 24, 2000. However, the Fund is a
party to an Intercreditor and Subordination Agreement with R.B.M.
Precision Metal Products, Inc.'s ("RBM's") other creditors, which
prohibits principal payments on the notes prior to October 31, 2000 and
restricts payments thereafter, based on a number of financial formulas
contained in the Agreement.
(4) These are non-interest-bearing receivables, which were purchased from
LMC Corporation ("LMC") at a discount. Payments are due on November 21,
2000, May 21, 2001 and November 21, 2001 each in the amount of $25,361
and on May 21, 2002 in the amount of $28,179.
(5) See Note 5 regarding significant issues concerning the ownership and
transferability of this stock.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
----------
FIVE
<PAGE> 7
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$8,555,142 and $8,530,780,
respectively) $ 908,835 $ 884,473
Non-managed companies (amortized cost -
$1,189,445 and $1,139,911, respectively) 92,139 42,605
Temporary investments, at amortized cost -- 374,820
----------- -----------
Total investments 1,000,974 1,301,898
Cash and cash equivalents 92,061 130,566
Accrued interest receivable 18,057 19,126
Other assets 5,317 20,834
----------- -----------
Total assets $ 1,116,409 $ 1,472,424
=========== ===========
LIABILITIES:
Payable to affiliates $ 65,364 $ 28,161
Accounts payable and accrued liabilities 489,021 493,269
Distributions payable to partners -- 263,575
----------- -----------
Total liabilities 554,385 785,005
----------- -----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS:
Managing General Partner (166,208) (166,208)
Limited Partners (equivalent to $0.84
and $0.98, respectively, per limited
partnership unit based on 869,796
units outstanding) 728,232 853,627
----------- -----------
Net assets 562,024 687,419
----------- -----------
Total liabilities and net assets $ 1,116,409 $ 1,472,424
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
SIX
<PAGE> 8
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 51,451 $ 101,425
--------- ---------
Total investment income 51,451 101,425
--------- ---------
Expenses:
Fund administration fees 29,582 29,582
Investment advisory fees 19,185 20,740
Administrative expenses 17,224 17,224
Professional fees 3,285 25,965
Independent General Partner fees
and expenses 11,214 11,005
Other expenses 33,721 12,102
--------- ---------
Total expenses 114,211 116,618
--------- ---------
NET INVESTMENT LOSS (62,760) (15,193)
--------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments -- (6,222)
Net change in unrealized
loss on investments -- 137,608
--------- ---------
Net gain on investments -- 131,386
--------- ---------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (62,760) $ 116,193
========= =========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
SEVEN
<PAGE> 9
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 104,866 $ 180,920
--------- ---------
Total investment income 104,866 180,920
--------- ---------
Expenses:
Fund administration fees 59,164 59,164
Investment advisory fees 38,370 41,481
Administrative expenses 34,448 34,448
Professional fees 22,246 37,548
Independent General Partner fees
and expenses 21,701 32,218
Other expenses 54,332 29,588
--------- ---------
Total expenses 230,261 234,447
--------- ---------
NET INVESTMENT LOSS (125,395) (53,527)
--------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments -- (6,222)
Net change in unrealized
loss on investments -- 138,329
--------- ---------
Net gain on investments -- 132,107
--------- ---------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(125,395) $ 78,580
========= =========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
EIGHT
<PAGE> 10
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $(125,395) $ 78,580
Adjustments to reconcile net (decrease) increase in
net assets resulting from operations to net cash
used in operating activities:
Accreted discount on portfolio investments (16,225) (2,114)
Change in assets and liabilities:
Accrued interest receivable 1,069 4,533
Other assets 15,517 22,108
Payable to affiliates 37,203 14,688
Accounts payable and accrued liabilities (4,248) (411)
Net realized loss on investments -- 6,222
Net change in unrealized loss on investments -- (138,329)
--------- ---------
Net cash used in operating activities (92,079) (14,723)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (94,602) (520,045)
Proceeds from dispositions of portfolio investments 36,931 40,548
Sale of temporary investments, net 374,820 749,121
--------- ---------
Net cash provided by investing activities 317,149 269,624
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (263,575) (569,900)
--------- ---------
Net cash used in financing activities (263,575) (569,900)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (38,505) (314,999)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 130,566 628,670
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 92,061 $ 313,671
========= =========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
NINE
<PAGE> 11
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND FOR
THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Decrease in net assets resulting from operations:
Net investment loss $ (125,395) $ (279,357)
Net realized gain on investments -- 410,023
Net change in unrealized loss on investments -- (6,494,039)
----------- -----------
Net decrease in net assets resulting from operations (125,395) (6,363,373)
Repurchase of limited partnership units -- (296,973)
Return of capital distributions -- (1,118,426)
----------- -----------
Total decrease in net assets (125,395) (7,778,772)
Net assets:
Beginning of period 687,419 8,466,191
----------- -----------
End of period (including no undistributed
net investment income) $ 562,024 $ 687,419
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
TEN
<PAGE> 12
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER UNIT DATA:
Investment income $ .06 $ .11 $ .12 $ .18
Expenses (.13) (.12) (.26) (.23)
----------- ----------- ----------- -----------
Net investment loss (.07) (.01) (.14) (.05)
Net realized loss on investments -- (.01) -- (.01)
Net change in unrealized loss
on investments -- .14 -- .14
Distributions declared to partners -- (.30) -- (.60)
----------- ----------- ----------- -----------
Net decrease in net asset value (.07) (.18) (.14) (.52)
Net asset value:
Beginning of period 0.91 8.85 0.98 9.19
----------- ----------- ----------- -----------
End of period $ 0.84 $ 8.67 $ 0.84 $ 8.67
=========== =========== =========== ===========
RATIOS (ANNUALIZED):
Ratio of expenses to average
net assets 76.60% 5.79% 73.71% 5.72%
Ratio of net investment loss
to average net assets (42.09)% (0.75)% (40.14)% (1.31)%
Number of limited partnership
units at end of period 869,796 940,336 869,796 940,336
</TABLE>
The accompanying notes to financial statements are an integral part
of these selected per unit data and ratios.
----------
ELEVEN
<PAGE> 13
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (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, 2000 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, 1999.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM is entitled to
receive, subject to certain limitations, 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 $38,370 are payable to FCM for the six
months ended June 30, 2000. The payment of these fees has been deferred pursuant
to the applicable subordination provisions until the Limited Partners receive
distributions equal to a cumulative non-compounded 6% return on their adjusted
capital contributions, as defined in the Partnership Agreement.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of 0.45% 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, 2000. 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, 2000.
----------
TWELVE
<PAGE> 14
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2000 totaled $21,701.
5. COMMITMENTS AND CONTINGENCIES
LMC Corporation During February 2000, the Fund agreed to advance up to $38,498
to LMC. $14,096 of these advances was structured as the purchase of promissory
notes, and additional advances totaling $16,692 were expensed by the Fund.
Remaining amounts to be advanced, as of June 30, 2000, total $7,710.
WasteMasters, Inc. ("WasteMasters") The Fund acquired its WasteMasters stock,
which trades on the OTC Bulletin Board System, from Nikko Trading of America
Corporation ("Nikko") on June 3, 1998. The stock was subject to a 24-month
lock-up period through May 2000. Upon expiration of the lock-up period, the Fund
requested that WasteMasters issue the Fund a new stock certificate without the
restrictive legend that existed on the Fund's original certificate, so that the
stock could be sold. To date, WasteMasters has refused to comply with this
request. WasteMasters and Nikko have been in litigation with each other. During
March 2000, the court involved with this litigation authorized the cancellation
of certain WasteMasters stock that had been issued to Nikko, including the
shares that Nikko had previously transferred to the Fund. At this time, the Fund
is uncertain as to how, or when, these issues regarding the ownership and
transferability of its WasteMasters stock will be resolved.
----------
THIRTEEN
<PAGE> 15
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 June 30, 2000, the Fund held portfolio investments in two Managed
Companies and two Non-Managed Companies, with an aggregate original cost of
approximately $9.7 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 178.1% of the Fund's
net assets.
As of June 30, 2000, the Fund's remaining liquid assets were invested in money
market funds. 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
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.
If Units in excess of this amount are tendered, Units are purchased on a pro
rata basis after giving priority to Limited Partners owning less than 100 Units.
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.
----------
FOURTEEN
<PAGE> 16
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
During 1999, the General Partners considered a number of possible plans that
would have permitted the Fund to be liquidated by the end of 2000. However, it
was determined that none of these plans was feasible. As a result, it is
currently expected that the Fund will remain in existence until the remaining
debt investments either mature, are sold or are prepaid by the respective
portfolio companies, and the remaining equity investments are sold or otherwise
liquidated.
During December 1999, the Fund purchased $53,540 of Niigata Engineering Co.,
Ltd. ("Niigata") receivables from LMC at a cost of $42,284. An additional
$76,083 of Niigata receivables were purchased during January 2000 at a cost of
$68,935. These various receivables were payable on specified dates between May
21, 2000 and May 21, 2002.
The initial payment, in the amount of $25,361, was due from Niigata on May 21,
2000. Niigata initially refused to make the payment, due to various outstanding
claims they have made against LMC, which is in bankruptcy proceedings. LMC
disputes the validity of these claims. Niigata ultimately made the full amount
of the payment to the Fund on June 30, 2000.
During February 2000, the Fund agreed to advance up to $38,498 to LMC in order
to provide operating capital to LMC (see following discussion regarding LMC).
$14,096 of these advances was structured as the purchase of promissory notes,
and additional advances totaling $16,692 were expensed by the Fund. Remaining
amounts to be advanced, as of June 30, 2000, total $7,710.
Payables to affiliates increased $37,203 from $28,161 at December 31, 1999 to
$65,364 at June 30, 2000. This increase resulted primarily from the deferral of
the payment of FCM's subordinated investment advisory fees for the six months
ended June 30, 2000. The payment of these fees will be deferred pursuant to the
applicable subordination provisions until the Limited Partners receive
distributions equal to a cumulative non-compounded 6% return on their adjusted
capital contributions, as defined in the Partnership Agreement.
Distributions payable to partners decreased from $263,575 at December 31, 1999
to zero at June 30, 2000. This decrease resulted from a decrease in the per Unit
distribution rate from $0.30 for the three months ended December 31, 1999 to
zero for the three months ended June 30, 2000. It is unlikely that the Fund will
be able to pay quarterly distributions during the remainder of 2000 and beyond.
Distributions will be addressed on a quarterly basis by the General Partners and
will involve the consideration of a number of issues.
----------
FIFTEEN
<PAGE> 17
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment loss was $62,760 for the three months ended June 30,
2000 as compared to a net investment loss of $15,193 for the corresponding
period of the prior year. Net investment loss per limited partnership unit
increased from $0.01 to $0.07 and the ratio of net investment loss to average
net assets increased from 0.75% to 42.09% for the three months ended June 30,
2000 as compared to the corresponding period of the prior year.
The Fund's net investment loss was $125,395 for the six months ended June 30,
2000 as compared to a net investment loss of $53,527 for the corresponding
period of the prior year. Net investment loss per limited partnership unit
increased from $0.05 to $0.14 and the ratio of net investment loss to average
net assets increased from 1.31% to 40.14% for the six months ended June 30, 2000
as compared to the corresponding period of the prior year.
The net investment losses for both the three and six month periods ended June
30, 2000 increased primarily as a result of a 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 small decreases in total
expenses.
Investment income decreased $49,974 and $76,054, or 49.3% and 42.0%, for the
three and six month periods ended June 30, 2000, as compared to the
corresponding periods of the prior year. These decreases resulted primarily from
the decision to stop accruing interest on the Fund's LMC debt investments
effective during July 1999 and a decrease in the amount of the Fund's temporary
and money market investments. The amount of the Fund's temporary and money
market investments decreased because of (i) cash distributions made by the Fund
during 1999 that constituted a return of capital, (ii) purchases of additional
LMC follow-on investments (including the Niigata receivables), and (iii) the
Fund's repurchase of 7.50% of its Units during the fourth quarter of 1999. The
negative effect of these items was partially offset by interest income earned on
the Niigata receivables and an increase in the interest income earned on the RBM
Precision Metal Products, Inc. ("RBM") subordinated debt investments. As
discussed below, the Fund did not record any interest income on the RBM notes
during the period from August 25, 1998 through May 24, 1999.
Total expenses decreased $2,407 and $4,186, or 2.1% and 1.8%, for the three and
six month periods ended June 30, 2000, as compared to the corresponding periods
of the prior year. These decreases resulted primarily from decreases in
professional fees and Independent General Partner fees and expenses and, to a
lesser extent, investment advisory fees. These decreases were partially offset
by increases in other expenses incurred in connection with the Fund's LMC
investments.
----------
SIXTEEN
<PAGE> 18
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NET UNREALIZED 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, 1999, the Fund had recorded $8,743,613 of unrealized loss on
investments. There were no changes to these unrealized losses on investments
during the six months ended June 30, 2000. The cumulative net unrealized loss on
investments as of June 30, 2000 consisted of the following components:
<TABLE>
<CAPTION>
Net Changes in
Unrealized Gain (Loss) Net Unrealized
During the Six Gain (Loss)
Months Ended Recorded as of
Portfolio Company June 30, 2000 June 30, 2000
----------------- ---------------------- --------------
<S> <C> <C>
LMC $ -- $(6,980,426)
RBM -- (665,881)
WMI -- (1,097,306)
----------- -----------
$ -- $(8,743,613)
=========== ===========
</TABLE>
LMC experienced significant cash flow shortfalls in December 1999 and January
2000. These cash flow shortfalls, combined with significant reductions in the
cash available under the Company's revolving line of credit with CIT
Corporation, forced a cessation of production of equipment and severely
curtailed LMC's ability to fulfill orders for spare parts.
----------
SEVENTEEN
<PAGE> 19
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
LMC has held discussions with several potential purchasers of its business, in
whole or in part. While no meaningful purchase offers have been received to
date, LMC has consummated a consignment joint venture arrangement with respect
to its spare parts business. The majority of LMC's employees have been released.
In an effort to preserve value and facilitate the possible sale of LMC's
business, the Fund agreed to advance up to $38,498 to LMC. $14,096 of these
advances was structured as the purchase of promissory notes, and additional
advances totaling $16,692 were expensed by the Fund. Remaining amounts to be
advanced, as of June 30, 2000, total $7,710.
LMC received a notice of default, dated April 6, 2000, from CIT Corporation with
respect to its revolving line of credit. On April 28, 2000, LMC filed for
Chapter 11 bankruptcy protection.
The Fund wrote its LMC investment down by $459,200 and $282,720 during 1995 and
1997, respectively. As a result of the above-described developments, the Fund
created additional reserves of $6,238,506 against the carrying values of the
Fund's LMC investment during 1999. Thus, the Fund's total LMC investment
currently has a net carrying value of $240,900, versus its cost of $7,221,326.
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 was 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, Wells Fargo Business Credit, replaced Bank of America. As
part of this transaction, RBM's principle shareholder, 13i Capital Corporation
("13i"), 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.
----------
EIGHTEEN
<PAGE> 20
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
As a result of these developments, the Fund recorded aggregate writedowns of
$665,881 relating to RBM during the year ended December 31, 1998.
RBM resumed paying the quarterly interest payments in cash, commencing with the
quarterly interest payment due on August 24, 1999. The Fund placed a $1
aggregate valuation on the RBM common stock that was received in payments of the
interest with respect to the nine-month period beginning August 25, 1998 and
ending May 24, 1999.
For its fiscal year ended October 31, 1999, RBM's revenues were $11.6 million
versus a budget of $12.0 million. For the year, RBM's loss was $1.3 million
(pretax) versus a budgeted loss of $1.9 million.
RBM projects sales of approximately $17 million for its fiscal year ended
October 31, 2000, with a positive EBITDA. Sales and cash flows for the quarter
ended January 31, 2000 were slightly below budget.
RBM remains current with its interest payments and is currently in compliance
with all of its senior and subordinated loan covenants. Originally, the Fund's
note was scheduled to be repaid over the three years ending May 2002. However,
RBM did not make the principal payment scheduled for May 2000 on the Fund's
note, because it is not permitted to do so under the terms of an Intercreditor
and Subordination Agreement ("Intercreditor Agreement"), between the Fund and
RBM's other creditors. This Intercreditor Agreement was a stipulated
pre-condition to RBM's debt restructuring, which occurred in late 1998.
13i's CEO has taken over as CEO of RBM. He has hired a number of new
professionals and appears to have stabilized the company. If this continues, the
Fund could possibly receive a partial principal payment in the second quarter of
2001, since the Intercreditor Agreement permits such payments, limited to 85% of
RBM's EBITDA. There is no assurance that any payments will be permitted and any
such payments are entirely dependent upon RBM's continued improved performance.
The Fund continues to urge a sale of the Company or a refinancing of the Fund's
debt, but has been unable to obtain the agreement of 13i.
During June 1998, the Fund exchanged its Atlas (which was in bankruptcy
proceedings) subordinated notes and warrants for 821,376 shares of common stock
of WasteMasters, a waste management company. The Fund acquired its WasteMasters
stock, which trades on the OTC Bulletin Board System ("WAST"), from Nikko
Trading of America Corporation ("Nikko"). The stock was subject to a 24-month
lock-up period through May 2000. Upon expiration of the lock-up period, the Fund
requested that WasteMasters issue the Fund a new stock certificate without the
restrictive legend that existed on the Fund's original certificate, so that the
stock could be sold. To date, WasteMasters has refused to comply with this
request. WasteMasters and Nikko have been in litigation with each other. During
March 2000, the court involved with this litigation authorized the cancellation
of certain WasteMasters stock that had been issued to Nikko, including
----------
NINETEEN
<PAGE> 21
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
the shares that Nikko had previously transferred to the Fund. At this time, the
Fund is uncertain as to how, or when, these issues regarding the ownership and
transferability of its WasteMasters stock will be resolved.
The WasteMasters common stock 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 WasteMasters common stock 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 WasteMasters stock, the two year lock up period and the relative
size of the Fund's stock position versus the daily trading volume, FCM decided
to carry the WasteMasters stock at the same $1 nominal value that the Atlas
securities were previously 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 $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 52-week low for the WasteMasters common stock is $0.02 per share and the
current bid price (July 26, 2000) is $0.25 per share.
----------
TWENTY
<PAGE> 22
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
--------------------
FIRST QUARTER REPORT
2000
<PAGE> 23
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
--------- ---------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
$1,632,960 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00(1) 01/13/99 $1,632,960 $226,800
$20,533 LMC Corporation, 12.00%
Promissory Notes 02/07/00
due 8/7/00(2) through
03/22/00 20,533 20,533
71,961 sh. LMC Corporation,
Class B Preferred Stock* 08/09/99 719,610 1
239,600 sh. LMC Corporation,
Class C Preferred Stock* 06/10/94 2,389,210 1
4,476,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 2,465,449 1
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
---------- -------- -----
7,227,763 247,337 24.1%
---------- -------- -----
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,255,830 663,243
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
---------- -------- -----
1,329,126 663,245 64.7
---------- -------- -----
Total Investments in Managed
Companies (145.7% of net assets) 8,556,889 910,582 88.8
---------- -------- -----
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
----------
ONE
<PAGE> 24
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
--------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NON-MANAGED COMPANIES:
$129,623 Niigata Engineering 12/01/99
Co., Ltd. through
Receivables(4) 01/03/00 114,606 114,606
---------- ---------- -----
114,606 114,606 11.2
---------- ---------- -----
821,376 sh. WasteMasters, Inc.,
Common Stock(5)* 06/03/98 1,097,307 1
---------- ---------- -----
1,097,307 1 0.0
---------- ---------- -----
Total Investment in
Non-Managed Companies
(18.4% of net assets) 1,211,913 114,607 11.2
---------- ---------- -----
Total Investments (164.1% of net assets) $9,768,802 $1,025,189 100.0%
========== ========== =====
</TABLE>
(1) The accrual of interest on the notes was discontinued by the Fund
effective July 1, 1999.
(2) The Fund has committed to provide up to $38,498 of financing pursuant
to the terms of these notes. The Fund has not accrued any interest
income on these notes.
(3) The terms of the notes provide for three equal annual principal
payments of $430,000 commencing on May 24, 2000. However, the Fund is a
party to an Intercreditor and Subordination Agreement with R.B.M.
Precision Metal Products, Inc.'s ("RBM's") other creditors, which
prohibits principal payments on the notes prior to October 31, 2000 and
restricts payments thereafter, based on a number of financial formulas
contained in the Agreement.
(4) These are non-interest bearing receivables, which were purchased from
LMC Corporation ("LMC") at a discount. Payments are due on May 21,
2000, November 21, 2000, May 21, 2001 and November 21, 2001 each in the
amount of $25,361 and on May 21, 2002 in the amount of $28,179.
(5) The WasteMasters, Inc. common stock, which trades on the OTC Bulletin
Board System, is subject to a 24-month lock up period through May 2000,
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.
----------
TWO
<PAGE> 25
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$8,556,889 and $8,530,780,
respectively) $ 910,582 $ 884,473
Non-managed companies (amortized cost -
$1,211,913 and $1,139,911, respectively) 114,607 42,605
Temporary investments, at amortized cost -- 374,820
----------- -----------
Total investments 1,025,189 1,301,898
Cash and cash equivalents 103,682 130,566
Accrued interest receivable 17,300 19,126
Other assets 13,075 20,834
----------- -----------
Total assets $ 1,159,246 $ 1,472,424
=========== ===========
LIABILITIES:
Payable to affiliates $ 47,832 $ 28,161
Accounts payable and accrued liabilities 486,630 493,269
Distributions payable to partners -- 263,575
----------- -----------
Total liabilities 534,462 785,005
----------- -----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS:
Managing General Partner (166,208) (166,208)
Limited Partners (equivalent to $0.91
and $0.98, respectively, per limited
partnership unit based on 869,796
units outstanding) 790,992 853,627
----------- -----------
Net assets 624,784 687,419
----------- -----------
Total liabilities and net assets $ 1,159,246 $ 1,472,424
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
THREE
<PAGE> 26
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 53,415 $ 79,495
--------- ---------
Total investment income 53,415 79,495
--------- ---------
Expenses:
Fund administration fees 29,582 29,582
Investment advisory fees 19,185 20,741
Professional fees 18,961 11,583
Administrative expenses 17,224 17,224
Independent General Partner fees
and expenses 10,487 21,213
Other expenses 20,611 17,486
--------- ---------
Total expenses 116,050 117,829
--------- ---------
NET INVESTMENT LOSS (62,635) (38,334)
NET CHANGE IN UNREALIZED
LOSS ON INVESTMENTS -- 721
--------- ---------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (62,635) $ (37,613)
========= =========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
FOUR
<PAGE> 27
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting
from operations $ (62,635) $ (37,613)
Adjustments to reconcile net decrease in net assets
resulting from operations to net cash (used in)
provided by operating activities:
Accreted discount on portfolio investments (8,642) --
Change in assets and liabilities:
Accrued interest receivable 1,826 29,622
Other assets 7,759 14,638
Payable to affiliates 19,671 8,449
Accounts payable and accrued liabilities (6,639) (2,142)
Net change in unrealized loss on investments -- (721)
--------- ---------
Net cash (used in) provided by operating activities (48,660) 12,233
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (89,469) (392,160)
Sale of temporary investments, net 374,820 447,964
--------- ---------
Net cash provided by investing activities 285,351 55,804
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (263,575) (284,950)
--------- ---------
Net cash used in financing activities (263,575) (284,950)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (26,884) (216,913)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 130,566 628,670
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 103,682 $ 411,757
========= =========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
FIVE
<PAGE> 28
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND FOR
THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Decrease in net assets from operations:
Net investment loss $ (62,635) $ (279,357)
Net realized gain on investments -- 410,023
Net change in unrealized loss on investments -- (6,494,039)
----------- -----------
Net decrease in net assets resulting from
operations (62,635) (6,363,373)
Repurchase of limited partnership units -- (296,973)
Return of capital distributions -- (1,118,426)
----------- -----------
Total decrease in net assets (62,635) (7,778,772)
Net assets:
Beginning of period 687,419 8,466,191
----------- -----------
End of period (including no undistributed
net investment income) $ 624,784 $ 687,419
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
----------
SIX
<PAGE> 29
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
PER UNIT DATA:
Investment income $ .06 $ .09
Expenses (.13) (.13)
----------- -----------
Net investment loss (.07) (.04)
Distributions declared to partners -- (.30)
----------- -----------
Net decrease in net asset value (.07) (.34)
Net asset value:
Beginning of period .98 9.19
----------- -----------
End of period $ .91 $ 8.85
=========== ===========
RATIOS (ANNUALIZED):
Ratio of expenses to average
net assets 70.75% 5.68%
Ratio of net investment loss to average net assets (38.19)% (1.85)%
Number of limited partnership
units at end of period 869,796 940,336
</TABLE>
The accompanying notes to financial statements are an integral part
of these selected per unit data and ratios.
----------
SEVEN
<PAGE> 30
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
FCM Fiduciary Capital Management Company ("FCM"), the Managing General Partner
of Fiduciary Capital Pension Partners, L.P. (the "Fund"), necessary to fairly
present the financial position of the Fund as of March 31, 2000 and the results
of its operations, changes in net assets and its cash flows for the period then
ended.
These financial statements should be read in conjunction with the Significant
Accounting Policies and other Notes to Financial Statements included in the
Fund's annual audited financial statements for the year ended December 31, 1999.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM is entitled to
receive, subject to certain limitations, 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 $19,185 are payable to FCM for the three
months ended March 31, 2000. The payment of these fees has been deferred
pursuant to the applicable subordination provisions until the Limited Partners
receive distributions equal to a cumulative non-compounded 6% return on their
adjusted capital contributions, as defined in the Partnership Agreement.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of 0.45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $29,582 were
paid by the Fund for the three months ended March 31, 2000. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $17,224 for the three months ended March 31,
2000.
----------
EIGHT
<PAGE> 31
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Partners, L.P., an
affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable
monthly in arrears, together with all out-of-pocket expenses. Each Fund's
allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the three months ended
March 31, 2000 totaled $10,487.
5. COMMITMENTS AND CONTINGENCIES
During February 2000, the Fund agreed to purchase up to $38,498 of LMC
Corporation's Promissory Notes due August 7, 2000. $20,533 of this investment
was funded during February and March 2000.
----------
NINE
<PAGE> 32
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Fund's unaudited
Financial Statements and the Notes thereto. This report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, competition and
other factors discussed elsewhere in this report. Readers are urged to consider
statements that include the terms "believes", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward-looking. The Fund undertakes
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Fund held portfolio investments in two Managed
Companies and two Non-Managed Companies, with an aggregate original cost of
approximately $9.8 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 164.1% of the Fund's
net assets.
As of March 31, 2000, the Fund's remaining liquid assets were invested in money
market funds. 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
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.
If Units in excess of this amount are tendered, Units are purchased on a pro
rata basis after giving priority to Limited Partners owning less than 100 Units.
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
----------
TEN
<PAGE> 33
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
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 $6.23 per Unit to the Limited
Partners, with the cash coming primarily from the liquidation of these
investments.
During 1999, the General Partners considered a number of possible plans that
would have permitted the Fund to be liquidated by the end of 2000. However, it
was determined that none of these plans was feasible. As a result, it is
currently expected that the Fund will remain in existence until the remaining
debt investments either mature or are prepaid by the respective portfolio
companies, and the remaining equity investments are sold or otherwise
liquidated.
During December 1999, the Fund purchased $53,540 of Niigata Engineering Co.,
Ltd. ("Niigata") receivables from LMC at a cost of $42,284. An additional
$76,083 of Niigata receivables were purchased during January 2000 at a cost of
$68,935. These various receivables are payable on specified dates between May
21, 2000 and May 21, 2002.
During February 2000, the Fund agreed to purchase up to $38,498 of LMC's
Promissory Notes due August 7, 2000. $20,533 of this investment was funded
during February and March 2000.
Distributions payable to partners decreased from $263,575 at December 31, 1999
to zero at March 31, 2000. This decrease resulted from a decrease in the per
Unit distribution rate from $0.30 for the three months ended December 31, 1999
to zero for the three months ended March 31, 2000. It is unlikely that the Fund
will be able to pay quarterly distributions during the remainder of 2000 and
beyond. Distributions will be addressed on a quarterly basis by the General
Partners and will involve the consideration of a number of issues.
Payables to affiliates increased $19,671 from $28,161 at December 31, 1999 to
$47,832 at March 31, 2000. Substantially all of this increase resulted from the
deferral of the payment of FCM's subordinated investment advisory fee for the
three months ended March 31, 2000. The payment of these fees will be deferred
pursuant to the applicable subordination provisions until the Limited Partners
receive distributions equal to a cumulative non-compounded 6% return on their
adjusted capital contributions, as defined in the Partnership Agreement.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Fund's net investment loss was $62,635 for the three months ended March 31,
2000 as compared to a net investment loss of $38,334 for the corresponding
period of the prior
----------
ELEVEN
<PAGE> 34
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
year. Net investment loss per limited partnership unit increased from $0.04 to
$0.07 and the ratio of net investment loss to average net assets increased from
1.85% to 38.19% for the three months ended March 31, 2000 as compared to the
corresponding period of the prior year.
The net investment loss for the three months ended March 31, 2000 decreased
primarily as a result of a decrease in investment income as compared to the
corresponding period of the prior year. The impact of the decrease in investment
income was partially offset by a small decrease in total expenses.
Investment income decreased $26,080, or 32.8%, for the three months ended March
31, 2000, as compared to the corresponding period of the prior year. This
decrease resulted primarily from the decision to stop accruing interest on the
Fund's LMC debt investments effective during July 1999 and a decrease in the
amount of the Fund's temporary and money market investments. The amount of the
Fund's temporary and money market investments decreased because of (i) cash
distributions made by the Fund during 1999 that constituted a return of capital,
(ii) purchases of additional LMC follow-on investments, and (iii) the Fund's
repurchase of 7.50% of its Units during the fourth quarter of 1999. The negative
effect of these items was partially offset by interest income earned on the RBM
Precision Metal Products, Inc. ("RBM") subordinated debt investments. As
discussed below, the Fund did not record any interest income on the RBM notes
during the period from August 25, 1998 through May 24, 1999.
Total expenses decreased $1,779, or 1.5%, for the three months ended March 31,
2000, as compared to the corresponding period of the prior year. This decrease
resulted primarily from decreases in Independent General Partner fees and
expenses and, to a lesser extent, investment advisory fees. These decreases were
partially offset by increases in professional fees and other expenses incurred
in connection with the Fund's LMC 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
----------
TWELVE
<PAGE> 35
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
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, 1999, the Fund had recorded $8,743,613 of unrealized loss on
investments. There were no changes to these unrealized losses on investments
during the three months ended March 31, 2000. The cumulative net unrealized loss
on investments as of March 31, 2000 consisted of the following components:
<TABLE>
<CAPTION>
Net Changes in
Unrealized Gain (Loss) Net Unrealized
During the Three Gain (Loss)
Months Ended Recorded as of
Portfolio Company March 31, 2000 March 31, 2000
----------------- ---------------------- --------------
<S> <C> <C>
LMC $ -- $(6,980,426)
RBM -- (665,881)
WMI -- (1,097,306)
----------- -----------
$ -- $(8,743,613)
=========== ===========
</TABLE>
LMC experienced significant cash flow shortfalls in December 1999 and January
2000. These cash flow shortfalls, combined with significant reductions in the
cash available under the Company's revolving line of credit with CIT
Corporation, forced a cessation of production of equipment and severely
curtailed LMC's ability to fulfill orders for spare parts.
LMC has held discussions with several potential purchasers of its business, in
whole or in part. While no meaningful purchase offers have been received to
date, LMC has consummated a consignment joint venture arrangement with respect
to its spare parts business. The majority of LMC's employees have been released.
In an effort to preserve value and facilitate the possible sale of LMC's
business, the Fund's General Partners approved the purchase of up to $38,498 of
LMC's Promissory Notes due August 7, 2000. $20,533 of this investment was funded
during February and March 2000.
LMC received a notice of default, dated April 6, 2000, from CIT Corporation with
respect to its revolving line of credit. On April 28, 2000, LMC filed for
Chapter 11 bankruptcy protection.
----------
THIRTEEN
<PAGE> 36
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
The Fund wrote its LMC investment down by $459,200 and $282,720 during 1995 and
1997, respectively. As a result of the above-described developments, the Fund
created additional reserves of $6,238,506 against the carrying values of the
Fund's LMC investment during 1999. Thus, as of March 31, 2000, the Fund's total
LMC investment had a net carrying value of $247,337, versus its cost of
$7,227,763.
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 was 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, Wells Fargo Business Credit, replaced Bank of America. As
part of this transaction, RBM's principle shareholder, 13i Capital Corporation
("13i"), 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.
RBM resumed paying the quarterly interest payments in cash, commencing with the
quarterly interest payment due on August 24, 1999. The Fund placed a $1
aggregate valuation on the RBM common stock that was received in payments of the
interest with respect to the nine-month period beginning August 25, 1998 and
ending May 24, 1999.
For its fiscal year ended October 31, 1999, RBM's revenues were $11.6 million
versus a budget of $12.0 million. For the year, RBM's loss was $1.3 million
(pretax) versus a budgeted loss of $1.9 million.
----------
FOURTEEN
<PAGE> 37
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
RBM projects sales of approximately $17 million for its fiscal year ended
October 31, 2000, with a positive EBITDA. Sales and cash flows for the quarter
ended January 31, 2000 were slightly below budget.
RBM remains current with its interest payments and is currently in compliance
with all of its senior and subordinated loan covenants. Originally, our debt was
scheduled to be repaid over the three years ending May 2002. However, RBM will
not make the principal payment scheduled for May 2000 on the Fund's note,
because it is not permitted to do so under the terms of an Intercreditor and
Subordination Agreement ("Intercreditor Agreement"), between the Fund and RBM's
other creditors. This Intercreditor Agreement was a stipulated pre-condition to
RBM's debt restructuring, which occurred in late 1998.
13i's CEO has taken over as CEO of RBM. He has hired a number of new
professionals and appears to have stabilized the company. If this continues, the
Fund could possibly receive a partial principal payment in the second quarter of
2001, since the Intercreditor Agreement permits such payments, limited to 85% of
RBM's EBITDA. There is no assurance that any payments will be permitted and any
such payments are entirely dependent upon RBM's continued improved performance.
The Fund continues to urge a sale of the Company or a refinancing of the Fund's
debt, but has been unable to obtain the agreement of 13i.
During June 1998, the Fund exchanged its Atlas (which was in bankruptcy
proceedings) subordinated notes and warrants for 821,376 shares of common stock
of WMI, a 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 Bulletin Board System ("WAST"),
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 common stock
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 decided to carry the WMI stock at the same $1
nominal value that the Atlas securities were previously 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 $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.
----------
FIFTEEN
<PAGE> 38
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
The 52-week low for the WMI common stock is $0.02 per share and the current bid
price (April 28, 2000) is $0.195 per share.
READINESS FOR YEAR 2000
During 1999, FCM 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. As a result of this
review, FCM believed that all of these systems were 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 were
Year 2000 compliant. These third parties represented that their information
systems were also Year 2000 compliant.
As a result of the above discussed review, Year 2000 issues were not expected to
have any material adverse effects on the Fund's results of operations or
financial condition. As of April 30, 2000, the Fund has incurred no Year 2000
related issues.
----------
SIXTEEN
<PAGE> 39
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
----------
ANNUAL REPORT
1999
<PAGE> 40
--------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
Fund Profile and Financial Highlights One
Message to Investors Two
Profiles of Portfolio Companies Five
Schedule of Investments Six
Balance Sheets Eight
Statements of Operations Nine
Statements of Cash Flows Ten
Statements of Changes in Net Assets Eleven
Selected Per Unit Data and Ratios Twelve
Notes to Financial Statements Thirteen
Report of Independent Public Accountants Seventeen
Management's Discussion and Analysis of Financial
Condition and Results of Operations Eighteen
</TABLE>
<PAGE> 41
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
FUND PROFILE
Fiduciary Capital Pension Partners, L.P. (the "Fund") is a Delaware limited
partnership that commenced operations on August 14, 1990. The Fund elected to
operate as a business development company under the Investment Company Act of
1940. The investment objective of the Fund was 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.
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 a significant portion of the related
proceeds to its partners.
During the last year, the General Partners considered a number of possible plans
that would have permitted the Fund to be liquidated by the end of 2000. However,
it was determined that none of these plans was feasible. As a result, it is
currently expected that the Fund will remain in existence until the remaining
debt investments either mature, are sold or are prepaid by the respective
portfolio companies, and the remaining equity investments are sold or otherwise
liquidated.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
As of December 31
or Year Ended December 31
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Total Investment Income $ 316 $ 607 $ 1,370 $ 1,329 $ 2,268
Net Investment (Loss) Income (279) 58 831 772 1,726
Net Realized and Unrealized
(Loss) Gain on Investments (6,084) (945) (294) (1,143) (2,326)
Cash Distributions Declared to Partners 1,118 2,758 3,151 1,423 1,542
Cash Utilized to Repurchase Units 297 753 1,163 1,440 1,959
Total Assets 1,472 9,248 14,352 17,441 20,321
Net Assets 687 8,466 12,864 16,640 19,873
Value of Investments 1,302 8,506 13,949 17,105 20,025
Per Unit of Limited Partnership Interest:
Net Investment (Loss) Income(1) (.30) .05 .75 .64 1.33
Net Realized and Unrealized
(Loss) Gain on Investments(1) (6.52) (.82) (.27) (.95) 1.79
Cash Distributions Declared to Partners(2) 1.20 2.71 2.90 1.20 1.20
Net Asset Value .98 9.19 12.66 15.08 16.61
</TABLE>
----------
(1) Calculated using the weighted average number of Units outstanding during
the years ended December 31, 1999, 1998, 1997, 1996 and 1995 of 932,412,
1,010,959, 1,095,362 1,186,294 and 1,285,717, respectively.
(2) Distribution amounts are reflected during the year in which the cash for
the distribution was generated. A portion of the actual cash distributions
are paid subsequent to such year.
----------
ONE
<PAGE> 42
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MESSAGE TO INVESTORS
Dear Investor:
This Annual Report includes a discussion of recent developments with respect to
the Fund and its remaining portfolio investments and the Fund's audited
financial statements for the year ended December 31, 1999. Unaudited interim
financial statements for the first quarter of 2000 are also enclosed along with
this Annual Report.
HIGHLIGHTS
o Distributions for 1999 totaled $1.20 per Unit. Cumulative
distributions paid to Investors since the Fund's inception during 1990 now total
between $16.61 and $16.29 on a per Unit ($20.00 cost) basis, depending upon the
closing in which the particular Units were issued.
o The Fund's net asset value per Unit was $0.98 at December 31, 1999
and $0.91 at March 31, 2000 as compared to $9.19 at December 31, 1998. This
substantial decrease in the net asset value resulted primarily from a
significant write-down in the value of the Fund's investment in LMC Corporation.
o The Fund redeemed 7.50% of its outstanding Units during November 1999
pursuant to its annual repurchase offer.
CUMULATIVE DISTRIBUTIONS AND NET ASSET VALUE PER UNIT
[CHART]
CASH DISTRIBUTIONS
During 1999, the Fund declared quarterly cash distributions of $0.30 per Unit to
Investors. All of the 1999 distributions represented a return of capital.
The 1999 distributions and the 1999 repurchase offer utilized a substantial
portion of the Fund's remaining cash. As a result, the Fund did not pay a
distribution in the first quarter of 2000 and it is unlikely that the Fund will
be able to pay quarterly distributions during the remainder of 2000 and beyond.
Distributions will be addressed on a quarterly basis by the General Partners and
will involve the consideration of a number of issues.
PERIODIC UNIT REPURCHASE POLICY
Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
has annually offered to purchase from Investors, up to 7.5% of its outstanding
Units for an amount equal to the current net asset value per Unit, net of a 2%
fee, which is 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 repurchased on a prorated basis, after
giving priority to Investors owning less than 100 Units.
During November 1999, 70,540 Units (7.50% of the outstanding Units) were
redeemed at a net asset value per Unit of $4.21 ($4.13, net of the 2% fee).
The next scheduled repurchase of Units will occur during the fourth quarter of
2000.
POSSIBLE LIQUIDATION PLANS
During 1999, the General Partners considered a number of possible plans that
would have permitted the Fund to be liquidated by the end of 2000. However, it
was determined that none of these plans was feasible. As a result, it is
currently expected that the Fund will remain in existence until the remaining
debt investments either mature, are sold or are prepaid by the respective
portfolio companies, and the remaining equity investments are sold or otherwise
liquidated.
PORTFOLIO UPDATE
R.B.M. Precision Metal Products, Inc. ("RBM") RBM set records with regard to
both sales and earnings for its fiscal October 31,1998 year. However, RBM lost
some major contracts during 1998 and as a result experienced financial
difficulties during its fiscal 1999 year. The Fund and RBM's other subordinated
lenders agreed to accept stock in payment of interest that was due with respect
to the period beginning August 25, 1998 through May 24, 1999. As a result of
these developments, the Fund recorded
----------
TWO
<PAGE> 43
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
aggregate writedowns of $665,881 in the value of its RBM investment during the
year ended December 31, 1998.
RBM appears to have stabilized its financial situation and its management
expects the company to achieve a positive EBITDA for its fiscal year ending
October 31, 2000. RBM remains current with its interest payments to the Fund and
is currently in compliance with all of its senior and subordinated loan
covenants.
Originally, the Fund's RBM debt was scheduled to be repaid over the three years
ending May 2002. However, the Fund and RBM's other creditors entered into an
Intercreditor and Subordination Agreement ("Agreement") in connection with a
restructuring of RBM's senior debt in late 1998. The Agreement prohibits
principal payments on RBM's subordinated debt prior to October 31, 2000 and
restricts payments thereafter, based on a number of financial formulas contained
in the Agreement. Therefore, the amount and timing of any principal payments to
be received by the Fund are dependent upon RBM's future operating results.
LMC Corporation ("LMC") In recent years, LMC reoriented its business away from
fleet snow grooming to the production of light construction vehicles. LMC
experienced significant cash flow shortfalls during December 1999 and January
2000. These cash flow shortfalls, combined with significant reductions in the
cash available under the company's revolving line of credit with CIT
Corporation, forced a cessation of production of equipment and severely
curtailed LMC's ability to fulfill orders for spare parts.
LMC has since held discussions with several potential purchasers of its
business, in whole or in part. While no meaningful purchase offers have been
received to date, LMC has consummated a consignment joint venture arrangement
with respect to its spare parts business. Almost all of LMC's employees have
been released.
LMC received a notice of default, dated April 6, 2000, from CIT Corporation with
respect to its revolving line of credit. On April 28, 2000, LMC filed for
Chapter 11 bankruptcy protection. The bankruptcy case is progressing and the
company continues to attempt to sell its business.
As a result of the above-described developments, the Fund created additional
reserves of $6,238,506 against the carrying values of the Fund's LMC investment.
Thus, as of March 31, 2000, the Fund's total LMC investment had a net carrying
value of $247,337, versus its cost of $7,227,763. The Fund and Fiduciary Capital
Partners, L.P., an affiliated fund, have a second lien position behind CIT
Corporation, with respect to most of LMC's assets. As a result, the Fund expects
a partial recovery with respect to the LMC debt held by the Fund. The amount, if
any, as well as the timing and form of this recovery is entirely dependent upon
the amount and form of the proceeds LMC derives from the sale of its assets. It
is possible that a portion of these proceeds could be in the form of stock of
the purchaser.
WasteMasters, Inc. ("WasteMasters") The Fund's shares of WasteMasters (OTC-BB
symbol "WAST") were obtained in 1998 through the exchange of the Fund's 13%
Senior Subordinated Notes, dated as of January 19, 1996, of Atlas Environmental,
Inc. for such shares. The exchange was made with Nikko Trading of America
Corporation ("Nikko").
The exchange agreement contained restrictions upon sale or transfer of the
Fund's WasteMasters shares that expired on June 3, 2000. When the Fund attempted
to dispose of some of these shares, we were advised that WasteMasters and its
transfer agent were taking the position that approximately 67,000,000
WasteMasters shares that had been issued to Nikko, including those shares Nikko
had transferred to the Fund, were not validly issued and had been cancelled
because the Consent Judgment pursuant to which the shares had been issued to
Nikko in 1998 was vacated by a United States District Court on March 14, 2000.
The Court had determined that the original Consent Judgment had been obtained
through collusion between the parties that were then controlled by the same
persons.
In subsequent correspondence, WasteMasters has stated that, "the Company's board
of directors has decided to recognize as valid part or all of any shares issued
pursuant to the Consent Judgment to the extent the shares are held by a bona
fide purchaser without notice of the underlying fraud or a business or family
connection to the persons found to have defrauded the Court."
Counsel to the Fund is attempting to document the Fund's position as a bona fide
purchaser without notice of the fraud on the Court, and without any business
connection to Nikko or its controlling shareholders. We do not know how long
this process will take, how many, if any, WasteMasters shares we will recover,
nor what the stock price will be when a resolution of this matter finally
occurs.
We are actively attempting to realize the greatest possible returns from the
Fund's remaining investments.
----------
THREE
<PAGE> 44
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MESSAGE TO INVESTORS (CONTINUED)
UNREALIZED LOSS ON PORTFOLIO INVESTMENTS
The cumulative unrealized loss on investments held by the Fund at both March 31,
2000 and December 31, 1999 consisted of the following components:
<TABLE>
<CAPTION>
Portfolio Company Unrealized Loss
----------------- ---------------
<S> <C>
LMC $6,980,426
WasteMasters 1,097,306
RBM 665,881
----------
$8,743,613
==========
</TABLE>
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
June 19, 2000
----------
FOUR
<PAGE> 45
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
PROFILES OF PORTFOLIO COMPANIES
VALUE OF 1999 YEAR-END INVESTMENTS BY PORTFOLIO COMPANY
<TABLE>
<S> <C>
LMC 17.4%
RBM 50.5%
Niigata 3.3%
Temporary Investments 28.8%
</TABLE>
LMC Corporation ("LMC") LMC, headquartered in Brigham City, Utah, is a
manufacturer of low ground pressure track vehicles used for construction,
landscaping and infrastructure development. Primary purchasers of these vehicles
include private contractors, ski resorts, utility companies and various
governmental agencies for use on construction sites and/or environmentally
sensitive locations.
R.B.M. Precision Metal Products, Inc. ("RBM") RBM, headquartered in Colorado
Springs, Colorado, is a manufacturer of precision sheet metal enclosures,
chassis and assemblies for business machines.
Niigata Engineering Co., Ltd. ("Niigata") Niigata, headquartered in Tokyo,
Japan, is an industrial conglomerate.
WasteMasters, Inc. ("WasteMasters") WasteMasters, headquartered in El Reno,
Oklahoma, is a waste management company. The WasteMasters stock is traded on the
OTC Bulletin Board System.
----------
FIVE
<PAGE> 46
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
--------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
$1,632,960 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00(1) 01/13/99 $1,632,960 $ 226,800
71,961 sh. LMC Corporation,
Class B Preferred Stock* 08/09/99 719,610 1
239,600 sh. LMC Corporation,
Class C Preferred Stock* 06/10/94 2,389,210 1
4,476,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 2,465,449 1
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
---------- ---------- ----
7,207,230 226,804 17.4%
---------- ---------- ----
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(2) 05/24/95 1,250,254 657,667
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
---------- ---------- ----
1,323,550 657,669 50.5
---------- ---------- ----
Total Investments in Managed Companies (128.7% of net assets) 8,530,780 884,473 67.9
---------- ---------- ----
NON-MANAGED COMPANIES:
$53,540 Niigata Engineering 12/01/99
Co., Ltd., through
Receivables(3) 12/10/99 42,604 42,604
---------- ---------- ----
42,604 42,604 3.3
---------- ---------- ----
821,376 sh. WasteMasters, Inc.,
Common Stock(4)* 06/03/98 1,097,307 1
---------- ---------- ----
1,097,307 1 0.0
---------- ---------- ----
Total Investments in Non-Managed Companies (6.2% of net assets) 1,139,911 42,605 3.3
---------- ---------- ----
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
----------
SIX
<PAGE> 47
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ INVESTMENT AMORTIZED % OF TOTAL
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
--------- ---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS:
$375,000 Ford Motor Credit Corporation,
5.77% Notes due 1/04/00 12/14/99 374,820 374,820
----------- ---------- -----
Total Temporary Investments (54.5% of net assets) 374,820 374,820 28.8
----------- ---------- -----
Total Investments (189.4% of net assets) $10,045,511 $1,301,898 100.0%
=========== ========== =====
</TABLE>
(1) The accrual of interest on the notes was discontinued by the Fund
effective July 1, 1999.
(2) The terms of the notes provide for three equal annual principal
payments of $430,000 commencing on May 24, 2000. However, the Fund is a
party to an Intercreditor and Subordination Agreement with R.B.M.
Precision Metal Products, Inc.'s ("RBM's") other creditors, which
prohibits principal payments on the notes prior to October 31, 2000 and
restricts payments thereafter, based on a number of financial formulas
contained in the Agreement.
(3) These are non-interest bearing receivables, which were purchased from
LMC Corporation ("LMC") at a discount. Payments are due November 21,
2001 and May 21, 2002 in the amounts of $25,361 and $28,179,
respectively.
(4) The WasteMasters, Inc. common stock, which trades on the OTC Bulletin
Board 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.
----------
SEVEN
<PAGE> 48
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS:
Investments
Portfolio investments, at fair value:
Managed companies (amortized cost -
$8,530,780 and $7,761,313, respectively) $ 884,473 $ 6,609,045
Non-managed companies (amortized cost -
$1,139,911 and $1,097,307, respectively) 42,605 1
Temporary investments, at amortized cost 374,820 1,897,223
----------- -----------
Total investments 1,301,898 8,506,269
Cash and cash equivalents 130,566 628,670
Accrued interest receivable 19,126 85,556
Other assets 20,834 27,234
----------- -----------
Total assets $ 1,472,424 $ 9,247,729
=========== ===========
LIABILITIES:
Due to affiliates $ 28,161 $ 25,748
Accounts payable and accrued liabilities 493,269 470,840
Distributions payable to partners 263,575 284,950
----------- -----------
Total liabilities 785,005 781,538
----------- -----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS:
Managing General Partner (166,208) (180,012)
Limited Partners (equivalent to $0.98
and $9.19, respectively, per limited
partnership unit based on 869,796
and 940,336 units outstanding) 853,627 8,646,203
----------- -----------
Total net assets 687,419 8,466,191
----------- -----------
Total liabilities and net assets $ 1,472,424 $ 9,247,729
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
----------
EIGHT
<PAGE> 49
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 314,326 $ 596,296 $ 1,109,776
Dividend -- -- 241,806
Other income 1,412 11,058 18,670
----------- ----------- -----------
Total investment income 315,738 607,354 1,370,252
----------- ----------- -----------
Expenses:
Professional fees 210,116 141,780 140,520
Fund administration fees 118,327 118,327 118,327
Investment advisory fees 82,162 102,251 120,800
Administrative expenses 68,895 68,895 68,895
Independent General Partner fees and expenses 53,861 52,076 46,966
Other expenses 61,734 66,185 43,385
----------- ----------- -----------
Total expenses 595,095 549,514 538,893
----------- ----------- -----------
NET INVESTMENT (LOSS) INCOME (279,357) 57,840 831,359
----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 410,023 (2,497,650) 2,925,017
Net change in unrealized loss on investments (6,494,039) 1,552,695 (3,218,969)
----------- ----------- -----------
Net loss on investments (6,084,016) (944,955) (293,952)
----------- ----------- -----------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $(6,363,373) $ (887,115) $ 537,407
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
----------
NINE
<PAGE> 50
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets
resulting from operations $(6,363,373) $ (887,115) $ 537,407
Adjustments to reconcile net (decrease) increase
in net assets resulting from operations to
net cash (used in) provided by operating activities:
Accreted discount on portfolio investments (12,987) (11,424) (33,210)
Interest income received in stock (69,360) -- --
Change in assets and liabilities:
Accrued interest receivable 66,430 (17,592) 27,243
Other assets 6,400 31,692 (52,280)
Due to affiliates 2,413 (8,048) (13,572)
Accounts payable and accrued liabilities 16,798 2,227 (16,882)
Net realized (gain) loss on investments (410,023) 2,497,650 (2,925,017)
Net change in unrealized loss on investments 6,494,039 (1,552,695) 3,218,969
----------- ----------- -----------
Net cash (used in) provided by operating activities (269,663) 54,695 742,658
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (737,894) (2,868,290) (834,624)
Proceeds from dispositions of portfolio investments 423,824 1,124,615 8,848,738
Sale (purchase) of temporary investments, net 1,522,403 6,297,597 (5,097,059)
----------- ----------- -----------
Net cash provided by investing activities 1,208,333 4,553,922 2,917,055
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,139,801) (3,503,484) (2,455,291)
Repurchase of limited partnership units (296,973) (752,571) (1,162,619)
----------- ----------- -----------
Net cash used in financing activities (1,436,774) (4,256,055) (3,617,910)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (498,104) 352,562 41,803
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 628,670 276,108 234,305
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 130,566 $ 628,670 $ 276,108
=========== =========== ===========
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.
----------
TEN
<PAGE> 51
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
(Decrease) increase in net assets resulting from operations:
Net investment (loss) income $ (279,357) $ 57,840 $ 831,359
Net realized gain (loss) on investments 410,023 (2,497,650) 2,925,017
Net change in unrealized loss on investments (6,494,039) 1,552,695 (3,218,969)
------------ ------------ ------------
Net (decrease) increase in net assets
resulting from operations (6,363,373) (887,115) 537,407
Repurchase of limited partnership units (296,973) (752,571) (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 (1,118,426) (1,270,116) (710,627)
------------ ------------ ------------
Total decrease in net assets (7,778,772) (4,397,674) (3,776,136)
Net assets:
Beginning of year 8,466,191 12,863,865 16,640,001
------------ ------------ ------------
End of year (including no undistributed net
investment income) $ 687,419 $ 8,466,191 $ 12,863,865
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
----------
ELEVEN
<PAGE> 52
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA:
Investment income(1) $ .34 $ .53 $ 1.24 $ 1.11 $ 1.75
Expenses(1) (.64) (.48) (.49) (.47) (.42)
------------- ------------- ------------- ------------- -------------
Net investment (loss) income(1) (.30) .05 .75 .64 1.33
Net realized gain (loss) on investments(1) .44 (2.17) 2.64 (2.88) 2.92
Net change in unrealized loss
on investments(1) (6.96) 1.35 (2.91) 1.93 (4.71)
Effect of unit repurchases on
net asset value (.19) .01 -- (.02) (.20)
Distributions declared to partners (1.20) (2.71) (2.90) (1.20) (1.20)
------------- ------------- ------------- ------------- -------------
Net decrease in net asset value (8.21) (3.47) (2.42) (1.53) (1.86)
Net asset value:
Beginning of year 9.19 12.66 15.08 16.61 18.47
------------- ------------- ------------- ------------- -------------
End of year $ 0.98 $ 9.19 $ 12.66 $ 15.08 $ 16.61
============= ============= ============= ============= =============
RATIOS:
Ratio of expenses to average net assets 9.87% 5.15% 3.60% 2.92% 2.27%
Ratio of net investment (loss) income to
average net assets (4.63)% 0.54% 5.55% 4.05% 7.22%
Number of limited partnership units
at end of year 869,796 940,336 1,020,142 1,104,881 1,196,564
</TABLE>
----------
(1) Calculated using the weighted average number of limited partnership
units outstanding during the years ended December 31, 1999, 1998, 1997,
1996 and 1995 of 932,412, 1,010,959, 1,095,362, 1,186,294 and
1,285,717, respectively.
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
----------
TWELVE
<PAGE> 53
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 was 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 discussed
below, the Fund is now in a liquidation mode.
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 by the end of 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.
A separate fund, Fiduciary Capital Partners, L.P. ("FCP"), was also formed on
October 20, 1988 for taxable investors with investment objectives, policies and
restrictions similar to those of the Fund. While the Fund and FCP have
co-invested in each of the portfolio investments, each fund is accounted for
separately. Each fund's participation in the portfolio investments is in
proportion to the amount of capital that each fund had available for investment
at the time each investment was acquired. Certain expenses are allocated between
the funds based on the amount of each fund's total capital. The accompanying
financial statements include only the activities of the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Method The Fund maintains its accounting records, prepares financial
statements and files its tax returns using the accrual method of accounting.
Realized and Unrealized Gain or Loss on Investments Realized gains and losses
are recorded upon disposition of investments and are calculated based upon the
difference between the proceeds and the cost basis determined using the specific
identification method. All other changes in the valuation of investments, as
determined by FCM, are included as changes in the unrealized appreciation or
depreciation of investments in the Fund's Statements of Operations.
Valuation of Investments FCM values the Fund's investments on a weekly basis
utilizing a variety of methods. For securities that are publicly traded and for
which market quotations are available, valuations are set by the closing sales,
or an average of the closing bid and 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
----------
THIRTEEN
<PAGE> 54
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
portfolio company's earnings, cash flow and net worth, the market prices for
similar securities of comparable companies and an assessment of the portfolio
company's future financial prospects. In a case of unsuccessful operations, the
appraisal may be based upon liquidation value. Appraisal valuations are
necessarily subjective. The Fund also may use, when available, third-party
transactions in a portfolio company's securities as the basis of valuation
("private market method"). The private market method is used only with respect
to completed transactions or firm offers made by sophisticated, independent
investors.
Temporary investments with maturities of less than 60 days are stated at
amortized cost, which approximates market value. Under this method, temporary
investments are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until maturity
of the investment.
Cash and Cash Equivalents The Fund considers investments in money market funds
to be cash equivalents.
Interest Receivable on Notes Notes are placed on non-accrual status in the event
of a default (after any applicable grace period expires) or if FCM determines
that there is no reasonable expectation of collecting the interest.
Income Taxes No provision for income taxes has been made in the financial
statements because taxes on Fund income are the responsibility of the individual
partners rather than the Fund.
Investment Transactions The Fund records portfolio investment transactions on
the date on which it obtains an enforceable right to demand the securities or
payment thereof and records temporary investment transactions on the trade date.
Realized gains and losses on investments are determined on the basis of specific
identification for both accounting and tax purposes.
3. ALLOCATIONS OF PROFITS, LOSSES AND CASH DISTRIBUTIONS
Pursuant to the Partnership Agreement, all income derived from temporary
investments will be distributed and allocated 99% to the Limited Partners and 1%
to FCM. Net investment income will, in general, be distributed and allocated:
(i) 99% to the Limited Partners and 1% to FCM until the Limited 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. Approximately 100% of the Fund's 1999
loss was allocated to the Limited Partners, and 1999 distributions were
allocated 99% to the Limited Partners and 1% to FCM.
4. CAPITAL CONTRIBUTIONS
Upon formation of the Fund, FCM contributed $4,000 for its general partner
interest in the Fund. Units of limited partnership interest ("Units") were then
sold in a public offering. The Fund held three closings between August 14, 1990
and October 18, 1990, receiving gross offering proceeds of $29,796,000.
Commissions and other offering costs were charged against proceeds resulting in
net capital contributions from Limited Partners of $26,294,970.
5. PERIODIC UNIT REPURCHASE PLAN
The Fund's Limited Partners adopted a periodic unit repurchase plan during 1993.
Pursuant to the terms of the repurchase policy, the Fund 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.
----------
FOURTEEN
<PAGE> 55
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
November 1999 70,540 7.50% 4.21 4.13
</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
$82,162, $102,251 and $120,800 were incurred by the Fund for 1999, 1998 and
1997, respectively.
7. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of 0.45% 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 1999, 1998 and 1997. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $68,895 each year during 1999, 1998 and 1997.
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 $53,861, $52,076 and $46,966 were
incurred by the Fund for 1999, 1998 and 1997, respectively.
9. OTHER RELATED PARTY TRANSACTIONS
FCM and its affiliates are entitled to reimbursement of direct expenses paid on
behalf of the Fund. Such reimbursements amounted to $260,320, $238,068 and
$256,851 during 1999, 1998 and 1997, 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 subjected each prospective investment to rigorous analysis, and made only
those investments that were recommended by FCM and that met the Fund's
investment guidelines or that were otherwise approved by the Independent General
Partners. The Fund also has procedures in place to continually monitor its
portfolio companies.
As of December 31, 1999, the Fund held portfolio investments in two Managed
Companies, with an aggregate cost of approximately $8.5 million, and two
Non-Managed Companies, with an aggregate cost of approximately $1.1 million.
During the year ended December 31, 1999, the Fund acquired additional follow-on
investments in LMC at an aggregate cost of approximately $0.7 million, including
the Niigata receivables that were purchased from LMC.
During 1999, the Fund liquidated its remaining KEMET Corporation common stock
investment. The Fund received $423,824 of sales proceeds, resulting in aggregate
net realized gains of $415,653.
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, 1998, the Fund had recorded net unrealized loss on
investments of $2,249,574. During 1999, the Fund recorded $6,238,506 of
additional unrealized loss on investments. In addition, the Fund disposed of
investments during 1999 with respect to which the Fund had recorded $255,533 of
net unrealized gain during prior years. Therefore, at December 31, 1999, the
Fund had recorded net unrealized loss on investments of $8,743,613.
----------
FIFTEEN
<PAGE> 56
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. NON-ACCRUAL STATUS OF INVESTMENTS
In accordance with the Fund's accounting policies, the Fund stopped accruing
interest on the LMC Senior Subordinated Revolving Notes effective July 1, 1999.
In addition, the Fund did not record interest income with respect to the R.B.M.
Precision Metal Products, Inc. ("RBM") Senior Subordinated Secured Notes during
the period from August 25, 1998 through May 24, 1999. The Fund received RBM
common stock in payment of the interest with respect to this nine month period
and the stock was valued at $1 by the Fund.
13. COMMITMENTS AND CONTINGENCIES
Litigation The Fund has accrued approximately $443,000 for certain known
potential liabilities related to former investments 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.
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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net (decrease) increase
in net assets resulting
from operations per
financial statements $(6,363,373) $ (887,115) $ 537,407
Increase (decrease)
resulting from:
Unrealized loss
on investments 6,494,038 (1,552,695) 3,218,969
Realized gains and
losses on
investments 5,631 (2,919,771) (73,962)
Fee income, net of
amortization -- -- (47,396)
Interest income 7,690 133,320 --
Other 11,606 (11,221) (19,564)
----------- ----------- -----------
Taxable income (loss) per
federal income tax
return $ 155,592 $(5,237,482) $ 3,615,454
=========== =========== ===========
</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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net assets per
financial statements $ 687,419 $ 8,466,191 $12,863,865
Unrealized loss on
investments 8,743,612 2,249,574 3,802,271
Syndication, organization
and start-up costs, net 2,517,779 2,851,719 2,982,080
Realized gains and losses
on investments 442,971 437,340 3,357,111
Distributions payable 263,575 284,950 1,030,446
Additional stock and
note basis 141,012 133,322 --
Accrued expenses 34,524 22,800 24,050
----------- ----------- -----------
Tax bases of net assets $12,830,892 $14,445,896 $24,059,823
=========== =========== ===========
</TABLE>
----------
SIXTEEN
<PAGE> 57
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Fiduciary Capital 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, 1999 and
1998, including the schedule of investments as of December 31, 1999, 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, 1999 and the selected per
unit data and ratios for each of the five years in the period 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998 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, 1999 and
1998, 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, 1999,
and the selected per unit data and ratios for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 2, the financial statements include investment securities
valued at $927,078 at December 31, 1999 (134.9% of net assets) and $6,345,343 at
December 31, 1998 (74.9% 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 3, 2000.
----------
SEVENTEEN
<PAGE> 58
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Fund's audited
Financial Statements and the Notes thereto. This Report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, 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. If Units in excess of this
amount are tendered, Units are purchased on a pro rata basis, after giving
priority to Limited Partners owning less than 100 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
November 1999 70,540 7.50% 4.21 4.13
</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 $6.23 per Unit to the Limited
Partners, with the cash coming primarily from the liquidation of these
investments.
During the last year, the General Partners considered a number of possible plans
that would have permitted the Fund to be liquidated by the end of 2000. However,
it was determined that none of these plans were feasible. As a result, it is
currently expected that the Fund will remain in existence until the remaining
debt investments either mature or are prepaid by the respective portfolio
companies, and the remaining equity investments are sold or otherwise
liquidated.
As of December 31, 1999, the Fund held portfolio investments in two Managed
Companies, with an aggregate cost of approximately $8.5 million, and two
Non-Managed Companies, with an aggregate 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 134.9% of the Fund's net assets. When acquired, these portfolio
investments generally consisted of high-yield subordinated debt, linked with an
equity participation or a comparable participation feature. These securities
were typically issued in private placement transactions and were subject to
certain restrictions on transfer or sale, thereby limiting their liquidity. As
of December 31, 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.
During 1999, the Fund liquidated its remaining KEMET Corporation ("KEMET")
stock, with the Fund receiving $423,824 of sales proceeds.
Accrued interest receivable decreased $66,430 from $85,556 at December 31, 1998
to $19,126 at December 31, 1999. The $85,556 receivable at December 31, 1998
consisted primarily of interest due on the LMC notes and the $19,126 receivable
at December 31, 1999 consisted primarily of interest due on the RBM notes. Both
receivable amounts also included a small receivable for interest earned on money
market investments. The Funds had placed the RBM notes on non-accrual status at
December 31, 1998. During 1999, the Fund again began accruing interest on the
RBM notes, but placed the LMC notes on
----------
EIGHTEEN
<PAGE> 59
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
non-accrual status. (See discussions below concerning the Fund's LMC and RBM
investments.)
Accounts payable and accrued liabilities increased $22,429 from $470,840 at
December 31, 1998 to $493,269 at December 31, 1999. This increase resulted
primarily from increases in accrued legal fees and the Fund's litigation related
reserves during 1999. These litigation related reserves represent $442,971, or
approximately 90%, of the total accounts payable and accrued liabilities at
December 31, 1999.
Distributions payable to partners decreased $21,375, from $284,950 at December
31, 1998 to $263,575 at December 31, 1999. This decrease resulted from a 7.50%
decrease in the number of outstanding Units as a result of the repurchase of
Units by the Fund during November 1999.
During 1999, the Fund declared quarterly cash distributions to its partners in
the aggregate amount of $1,118,426, which were paid during the months of May,
August and November 1999 and February 2000. The per Unit distribution rates were
$.30 per Unit per quarter. All of these 1999 distributions represented a return
of capital.
The 1999 distributions and the 1999 repurchase offer utilized a substantial
portion of the Fund's remaining cash. As a result, it is unlikely that the Fund
will be able to continue to pay quarterly distributions during 2000 and beyond.
The distribution question will be addressed on a quarterly basis by the General
Partners, and will involve the consideration of a number of issues.
The Fund has accrued approximately $443,000 for certain known potential
liabilities related to two former investments 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 impact on the operating
results, financial position or cash flows of the Fund.
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. Major expenses include
professional fees, fund administration fees, investment advisory fees and
administrative expenses.
1999 Compared to 1998
The Fund's net investment loss was $279,357 for the year ended December 31, 1999
on total investment income of $315,738 as compared to net investment income of
$57,840 on total investment income of $607,354 for the prior year. Net
investment income (loss) per limited partnership unit decreased from $0.05 to
$(0.30) and the ratio of net investment income (loss) to average net assets
decreased from 0.54% to (4.63)% for the year ended December 31, 1999 in
comparison to the prior year.
Net investment income (loss) for the year ended December 31, 1999 decreased
primarily as a result of a decrease in investment income in comparison to the
prior year. Total expenses also increased, though by a much smaller amount.
Investment income decreased $291,616, or 48.0%, for the year ended December 31,
1999 in comparison to the prior year. This decrease resulted primarily from a
decrease in the amount of the Fund's temporary investments and the decisions not
to record interest on the Fund's LMC notes during the period from July 1, 1999
through December 31, 1999 and the Fund's RBM notes during the period from August
25, 1998 through May 24, 1999 (see discussions below). The amount of the Fund's
temporary investments decreased because of (i) return of capital distributions
by the Fund, (ii) the Fund's repurchase of Units during the fourth quarters of
1998 and 1999, (iii) purchases of additional follow-on investments, and (iv) the
incurrence of net investment losses by the Fund.
Total expenses increased $45,581 or 8.3%, for the year ended December 31, 1999
in comparison to the prior year. This increase resulted primarily from an
increase in professional fees. This increase was partially offset by a decrease
in investment advisory fees, and to a lesser extent, other expenses.
Professional fees increased primarily as a result of increases in legal fees
incurred in connection with litigation related to LMC's defined contribution
pension plan (as discussed below).
Investment advisory fees decreased primarily as a result of (i) the repurchase
of Units during the fourth quarters of 1998 and 1999, (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 Mobile Technology, Inc. ("MTI"), Atlas Environmental, Inc. ("Atlas") and AR
Accessories Group, Inc. ("ARA") 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.
----------
NINETEEN
<PAGE> 60
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $0.75 to $0.05 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.
NET REALIZED GAIN (LOSS) ON INVESTMENTS
The Fund realized net gains of $410,023 during the year ended December 31, 1999,
net losses of $2,497,650 during the year ended December 31, 1998 and net gains
of $2,925,017 during the year ended December 31, 1997.
The net realized gains for 1997 resulted from gains on the Fund's Neodata
Corporation, Elgin National Industries, Inc., ENI Holding Corp. and Huntington
Holdings, Inc. ("Huntington") investments, including a prepayment premium, and
an additional realized loss on the Fund's Canadian's investment. The net
realized losses for 1998 resulted from losses on the Fund's ARA, MTI and Atlas
investments and an additional realized gain on the Fund's Huntington investment.
During 1999, the Fund liquidated its remaining KEMET common stock investment,
The Fund received $423,824 of sales proceeds, resulting in aggregate net
realized gains of $415,653.
The Fund incurred approximately $6,000 of realized losses during the year ended
December 31, 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
----------
TWENTY
<PAGE> 61
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 1997, the Fund had recorded cumulative 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
$86,966 of net unrealized loss during prior years. Therefore, at December 31,
1997, the Fund had 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 net unrealized loss on investments
of $2,249,574.
The net increase in unrealized loss on investments during 1999 and the
cumulative net unrealized loss on investments at December 31, 1999, consisted of
the following components:
<TABLE>
<CAPTION>
Net Changes Net Unrealized
in Unrealized Gain (Loss)
Gain (Loss) Recorded as of
Portfolio Investment During 1999 December 31, 1999
-------------------- -------------- -----------------
<S> <C> <C>
Unrealized gains recorded
during prior years with
respect to investments
disposed of during 1999 $ (255,533) $ --
LMC (6,238,506) (6,980,426)
RBM -- (665,881)
WMI -- (1,097,306)
----------- -----------
$(6,494,039) $(8,743,613)
=========== ===========
</TABLE>
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
filed suit against Mr. Wallace, the former controlling shareholder of LMC and
the current Plan trustee.
All matters relative to the Plan, including the attendant litigation, were
settled during 1999. Mr. Wallace contributed $750,000 to pay the assessed
underfunding. He received Class A preferred stock in return for this
contribution. LMC gave Mr. Wallace a full release from all claims relative to
this matter and has received letters from both the Internal Revenue Service and
the Department of Labor indicating that they have "accepted" LMC's actions to
date. While this does not mean that future action is precluded, LMC's management
believes it to be unlikely.
Simultaneously with the above settlement, the Fund converted its revolving notes
that were due October 1, 1999, plus all accrued interest due from LMC, into
Class B preferred stock. Effective July 1, 1999, the Fund also discontinued
accruing interest on the LMC Senior Subordinated Revolving Notes due October 31,
2000, which it still holds.
LMC experienced significant cash flow shortfalls in December 1999 and January
2000. These cash flow shortfalls, combined with significant reductions in the
cash available under the Company's revolving line of credit with CIT Corporation
("CIT"), forced a cessation of production of equipment and severely curtailed
LMC's ability to fulfill orders for spare parts. LMC received a notice of
default, dated April 6, 2000, from CIT.
LMC has initiated discussions with several potential purchasers of its business,
in whole or in part. To date, no meaningful offers have been received. LMC is
also exploring a consignment joint venture for its spare parts business. The
majority of LMC's employees, including Clyde Noorda, the President, have been
released.
The LMC Board of Directors has authorized management to file for bankruptcy
protection when, and if, it determines that it is in the best interests of the
company to do so. In an effort to preserve value and facilitate the possible
sale of the business, the Fund's General Partners approved an additional loan of
up to $38,498, subsequent to December 31, 1999. As of March 31, 2000, LMC has
drawn down $20,533 of this amount. When these funds are exhausted, LMC will
probably have no alternative to a bankruptcy filing.
The Fund previously wrote its LMC investment down by $459,200 and $282,720
during 1995 and 1997, respectively. As a result of the above-described
developments, the Fund created additional reserves of $6,238,506 against the
carrying values of the Fund's LMC investment during 1999. Thus, as of December
31, 1999, the Fund's total LMC investment had a net carrying value of $226,804,
versus its cost of $7,207,230.
----------
TWENTY-ONE
<PAGE> 62
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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, Wells Fargo Business Credit, replaced Bank of America. As
part of this transaction, RBM's principle shareholder, 13i Capital Corporation
("13i"), 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.
RBM resumed paying the quarterly interest payments in cash, commencing with the
quarterly interest payment due on August 24, 1999. The Fund placed a $1
aggregate valuation on the RBM common stock that was received in payments of the
interest with respect to the nine-month period beginning August 25, 1998 and
ending May 24, 1999.
For its fiscal year ended October 31, 1999, RBM's revenue were $11.6 million
versus a budget of $12.0 million. For the year, RBM's loss was $1.3 million
(pretax) versus a budgeted loss of $1.9 million.
RBM projects sales of approximately $17 million for its fiscal year ended
October 31, 2000, with a positive EBITDA. Sales and cash flows for the quarter
ended January 31, 2000 were slightly below budget.
RBM remains current with its interest payments and is currently in compliance
with all of its senior and subordinated loan covenants. However, it will not
make the principal payment scheduled for May 2000 on the Fund's note, because it
is not permitted to do so under the terms of an Intercreditor and Subordination
Agreement ("Intercreditor Agreement"), between the Fund and RBM's other
creditors. This Intercreditor Agreement was a stipulated pre-condition to RBM's
debt restructuring, which occurred in late 1998.
13i's CEO has taken over as CEO of RBM. He has brought in a number of new
professionals and seems to have stabilized the company. If this continues, the
Fund could possibly receive a partial principal payment in the second quarter of
2001, since the Intercreditor Agreement permits such payments, limited to 85% of
RBM's EBITDA. Originally, our debt was scheduled to be repaid over the three
years ending May 2002. It now appears that it will take considerably longer than
this. There is no assurance that any payments will be permitted and any such
payments are entirely dependent upon RBM's continued improved performance. The
Fund continues to urge a sale or refinancing of the company, but has been unable
to obtain the agreement of 13i.
During June 1998, the Fund exchanged its Atlas (which was in bankruptcy
proceedings) subordinated notes and warrants for 821,376 shares of common stock
of WasteMasters, an Atlanta, Georgia based waste management company. Pursuant to
the terms of the agreement, the Fund is prohibited from selling its WasteMasters
common stock for 24 months. In addition, the Fund granted the entity acquiring
the Fund's Atlas securities a call on the Fund's WasteMasters 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 WasteMaasters common stock, which trades on the OTC Bulletin Board System
("WAST"), 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
WasteMasters common stock 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 decided to carry the
WasteMasters stock at the same $1 nominal value that the Atlas securities were
previously carried by the Fund.
----------
TWENTY-TWO
<PAGE> 63
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 52-week low for the WasteMasters common stock is $0.02 per share and the
current bid price (March 31, 2000) is $0.30 per share.
READINESS FOR YEAR 2000
During 1999, FCM 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. As a result of this
review, FCM believed that all of these systems were 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 were
Year 2000 compliant. These third parties represented that their information
systems were also Year 2000 compliant.
As a result of the above discussed review, Year 2000 issues were not expected to
have any material adverse effects on the Fund's results of operations or
financial condition. As of March 31, 2000, the Fund has incurred no Year 2000
related issues.
INFLATION AND CHANGING PRICES
Inflation has had no material impact on the operations or financial condition of
the Fund from inception through December 31, 1999. 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.
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TWENTY-THREE
<PAGE> 64
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
--------------------------------------------------------------------------------
FUND INFORMATION
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
1530 16th Street, Suite 200
Denver, Colorado 80202
(800) 866-7607
MANAGING GENERAL PARTNER
FCM Fiduciary Capital Management Company
AUDITORS
Arthur Andersen LLP
Denver, Colorado
LEGAL COUNSEL
Lyle B. Stewart
Denver, Colorado
TRANSFER AGENT
GEMISYS Corporation
Englewood, Colorado
A copy of the Annual Report
on Form 10-K, as filed with the
Securities and Exchange Commission,
will be furnished without charge to
Limited Partners upon request. A copy
can also be obtained from the SEC's
EDGAR Database on the World Wide
Web at: http://www.sec.gov/edgarhp.htm.
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TWENTY-FOUR
