<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
MARK ONE
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934 [FEE REQUIRED]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996 Commission File Number 0-18581
----------------- -------
RENAISSANCE CAPITAL PARTNERS, LTD.
(Exact name of registrant as specified in its charter)
TEXAS 75-2296301
(State of incorporation or organization) (I.R.S. Employer Identification No.)
SUITE 210, LB 59,
8080 NORTH CENTRAL EXPRESSWAY,
DALLAS, TEXAS 75206
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code(214) 891-8294
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Limited Partnership Interests
Subscription Units of $100,000
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) No ( )
Indicate by check mark if disclosure by delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K. ( )
State the aggregate market value of the voting stock held by non
affiliates of the registrant.
As of December 31, 1996, there were 128.86 Units of Limited Partnership
Interest outstanding. A Unit is an initial offering Subscription of
$100,000. There is no market in the Units. Based on Unit values as
reflected in the Registrant s Financial Statements, the aggregate value of
the Partnership Interests held by non-affiliates as of December 31, 1996 is
$11,708,791. Aggregate value of the Partnership Interests held by affiliates
as of December 31, 1996 is $481,791.
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PART I
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ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Renaissance Capital Partners, Ltd. (sometimes referred to as the
"Registrant or the Partnership") is a Texas limited partnership, (organized
as of July 31, 1989 with commencement of full operations on July 1, 1990),
that has elected to operate as a business development company (sometimes
referred to herein as a "Business Development Company" or a "BDC") under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Partnership
raised net proceeds of approximately $12,100,000 in a private placement
offering of Limited Partnership Units pursuant to Regulation D of the
Securities Act of 1933, as amended, (the "Securities Act") and concurrently
filed a registration statement regarding such units pursuant to Section 12g
of the Exchange Act of 1934, as amended (the "Exchange Act"). Upon closing
of the offering, the Partnership commenced operations as a Business
Development Company.
The investment objective of the Partnership is to provide investors with
current income and long-term capital appreciation by investing primarily in
private placement convertible debt securities (the "Debentures") of small and
medium size public companies ("Portfolio Companies"). The Partnership's
stated goal is to achieve a 10% annual current return to the holders of
limited partnership interests (the "Interests"); provided, however, that such
current return will be increased or decreased from time to time, dependent
upon the actual operating results of the Partnership.
Renaissance Capital Group, Inc. ("Renaissance Group"), a Texas
corporation, serves as the managing general partner (the "Managing General
Partner") and as investment adviser to the Partnership. In these capacities,
Renaissance Group is primarily responsible for the selection, evaluation,
structure, and administration of the Partnership's investment portfolio.
Renaissance Group is a registered investment adviser under the Investment
Adviser Act of 1940, as amended (the "Advisers Act") and the Texas Securities
Act. However, these activities are subject to the supervision of two
Independent General Partners of the Partnership who provide guidance with
respect to the operations of the Partnership (the "Independent General
Partners") (see "Item 10. Directors and Executive Officers the Registrant").
Generally, investments will be made in companies that have their common
stock registered for public trading under the Exchange Act, or that have made
arrangements, satisfactory to the Partnership, for commencement of such
registration in conjunction with the financing. The terms of the documents
evidencing the Partnership's investment ("Portfolio Investments") in
companies ("Portfolio Companies") generally provide that the Partnership will
have the right to convert its Debentures into or otherwise acquire common
stock in exchange for its Debentures. With one exception to date, each
financing has been, and it is generally contemplated will continue to be, a
direct placement with the Portfolio Company.
Accordingly, while such common stock of a Portfolio Company may be
publicly traded, the common stock to be acquired by the Partnership is
generally unregistered. Therefore, such securities are restricted from
distribution or sale to the public except in compliance with certain holding
periods and exemptions under the Securities Act or after registration
pursuant to the Securities Act.
During 1996 the Partnership was solely engaged in carrying forward its
plan of business operations. Since 1990, the Partnership has no new
Portfolio Company investments.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership has no industry segments. The Registrant does not
contemplate specializing in any particular industry but instead diversifies
its investments in a variety of industries.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Registrant, as a Business Development Company under the 1940 Act, is
engaged primarily in investments in convertible debentures of small and
medium sized public companies.
Under the provisions of the 1940 Act, a Business Development Company
must invest at least 70% of its funds in "eligible portfolio investments,"
such being generally defined, as direct placements to qualifying companies
and temporary investments in "cash items" pending other investments.
However, under and pursuant to the provisions of the 1940 Act, a Business
Development Company may invest up to 30% of its funds in "Other Investments"
that is, investments that do not qualify as "eligible portfolio investments,"
such exception allowing, up to the specified maximum amount, for example,
open market purchases or participation in public offerings.
Pending investment in convertible debenture securities of eligible
portfolio companies or other investments as provided under the 1940 Act, the
Registrant's funds are invested in "Temporary Investments" consisting
primarily of money market funds which qualify as cash or cash equivalents.
At December 31, 1996 the Registrant s investment assets were classified
by amount as follows:
Classification Cost Percentage
-------------- ---- of Investments
--------------
Eligible Portfolio Companies $7,557,301* 84.34%
Other Portfolio Companies 1,402,941 15.66%
* Including investment in "Sunrise Media LLC" of $1,757,133.
INVESTMENT OBJECTIVES
The investment objective of the Partnership is to provide its Limited
Partners with both current income and long-term capital appreciation.
The Partnership seeks to provide current cash returns to investors
through a priority distribution on each Limited Partner's Initial Capital
Subscription of current investment interest income (as defined in the
Partnership's Restated Agreement of Limited Partnership) (the "Partnership
Agreement") while providing opportunities for capital gains appreciation
through appreciation in values of convertible debenture securities
The Partnership Agreement provides for a quarterly distribution to the
Limited Partners, to be made within 30 days of the end of each quarter. The
initial distribution was at the rate of 2.5% of the Limited Partner's Initial
Capital Subscription. Thereafter, at the discretion of the Managing General
Partner, the distribution may be increased or decreased from time to time.
Distributions may be made from capital. Distributions are not required if,
after the proposed distribution, the assets would not be sufficient to pay
the debts and obligations of the Partnership. As the result of decreasing
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cash resources in 1995 and 1996, the distributions to the limited partners
were discontinued. As the Partnership s investments are liquidated, or other
cash resources obtained, the Partnership expects to reinstate such payments
in whole or in part based upon the cash resources.
Optionally, in addition to the quarterly distributions, the Managing
General Partner may make distributions of realized gains or of securities
that have appreciated in value.
GENERAL INVESTMENT POLICIES
As a general matter, the Partnership has considered, and it is
contemplated will continue to consider, the following factors in deciding
whether to make or to continue holding any investment :
(i) Publicly-held Company - each Portfolio Company should be a
company whose common stock is registered for public trading under the
Exchange Act or that has made arrangements, satisfactory to the Partnership,
for such registration so that such company meets this criteria at the time
the Partnership acquires common stock upon conversion of the Debentures;
(ii) Earnings History - the Partnership prefers the existence of a
history of profitable operations or, alternatively, a reasonable expectation
that with the contemplated use of the proceeds, the Portfolio Company's
future operations will be conducted at a level of profitability and cash flow
to satisfactorily service the Partnership's Debentures. Generally, debt
repayment under the Debentures will be geared to the anticipated earnings
ability of the Portfolio Company as contrasted to a proposed refinancing or
sale of assets. Notwithstanding the foregoing, because of the diversity of
investments to be considered, the Managing General Partner has not
established fixed financial ratios (such as an earnings coverage, debt to
worth, or current assets to current liabilities ratios) as investment
criteria;
(iii) Management - The Partnership will seek companies with
competent senior managers and ideally, a vested interest in the equity growth
of the company;
(iv) Nature of the business and industry - the Partnership will
seek companies that have a recognized market for their products or services
in a stable or growing industry;
(v) Management Involvement - the Partnership will seek companies
that are willing to permit the Partnership to take a substantial equity
position in the company and have representation on its board of directors.
Generally, each Portfolio Company will be required to accept either a
Partnership nominee or an advisory director to its board of directors;
(vi) Lack of Investment Concentration - Portfolio Investments must
generally be diversified as to both company and industry. As a general
principle, no more than a range of 8% to 12% of the Portfolio Investments
will be invested in any one Portfolio Company.
The Registrant's nominees to the boards of directors of Portfolio
Companies will generally be selected from among the officers of the Managing
General Partner. When, in the discretion of the Managing General Partner, a
suitable nominee is not available from among its officers, the Managing
General Partner will select, as alternate nominees, outside consultants who
have had prior experience as an independent outside director of a public
company.
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REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940
The 1940 Act was enacted to regulate investment companies. In 1980, the
1940 Act was amended by the adoption of the Small Business Investment
Incentive Act. The purpose of the amendments was to remove regulatory
burdens on professionally managed investment companies engaged in providing
capital to smaller companies. The Small Business Investment Incentive Act
established a new type of investment company specifically identified as a
Business Development Company as a way to encourage financial institutions and
other major investors to provide a new source of capital for small developing
businesses.
BUSINESS DEVELOPMENT COMPANY
A BDC basically:
(1) is a closed-end management company making 70% of its
investments only in certain companies (identified as "Eligible
Portfolio Companies"), and in "cash items" pending other
investments. Under the regulations established by the SEC under
the 1940 Act only certain companies may qualify as "Eligible
Portfolio Companies." These qualifications are:
(A) it must be organized under the laws of a state or states,
(B) it may not be an investment company (except for a wholly
owned Small Business Investment Company), and
(C) it must generally fall into one of three following
categories:
(1) companies that do not have a class of securities
registered on a national securities exchange or are
listed on the Federal Reserve OTC margin list,
(2) companies that are actively controlled by the BDC
either alone or as part of a group (for this
purpose, control is presumed to exist if the BDC or
group in which the BDC is a member owns 25% or more
of the voting securities), or
(3) it meets such other criteria as established by the
SEC.
(2) must be prepared to provide "Significant Managerial Assistance"
to such Portfolio Companies. Significant Managerial Assistance
means, as to the Partnership:
(A) any arrangement whereby the Partnership, through its officers,
employees, or General Partners, seeks to provide significant guidance
concerning management, operations, objectives or policies of the
Portfolio Company, or
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(B) the exercise of a controlling influence over the Portfolio
Company.
Therefore, the General Partners believe that "Eligible Portfolio
Companies" are, generally, those companies that, while being publicly held,
may not have or do not have a broad based market for their securities, or the
securities that they wish to offer are restricted from public trading until
registered.
Further, the regulations generally provide that the securities must be
obtained in direct transactions with the Portfolio Company and as such are
generally restricted from transferability in the public markets.
Further, while the 1940 Act allows a BDC to "control" a Portfolio
Company, it will not be the general policy of the Partnership to acquire a
controlling position in its Portfolio Companies. The Partnership will only
provide managerial assistance, and will seek to limit its "control" position
by requiring only that a designee of the Partnership be elected to the board
of directors of the Portfolio Company, or be selected an advisory director.
While these will be the Partnership's general policies, the application of
these policies will of necessity vary with each investment situation.
1940 ACT REQUIREMENTS
The BDC election exempts the Partnership from some provisions of the
1940 Act. However, except for those specific provisions, the Partnership
will continue to be subject to all provisions of the 1940 Act not exempted,
including the following:
(1) restrictions on the Partnership from changing the nature of
business so as to cease to be, or to withdraw its election as,
a BDC without the majority vote of the Interests;
(2) restrictions against certain transactions between the
Partnership and affiliated persons;
(3) restrictions on issuance of senior securities, such not being
prohibited by the 1940 Act but being restricted as a percentage
of capital;
(4) compliance with accounting rules and conditions as established
by the SEC, including annual audits by independent accountants;
(5) compliance with fiduciary obligations imposed under the 1940
Act;
(6) requirement that the Limited Partners ratify the selection of
the Partnership's independent public accountants and the
approval of the investment advisory or similar contracts and
amendments thereto; and
(7) restrictions on purchases of Interests by the Partnership.
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NON-QUALIFYING BDC INVESTMENTS
Further, under the 1940 Act, the Partnership may only acquire qualifying
and certain assets necessary for its operations (such as office furniture,
equipment and facilities) if, at the time of any proposed acquisition, less
than 70% of the value of the Partnership assets consists of qualifying
assets. Qualifying assets include, inter alia, financings for Eligible
Portfolio Companies; "follow-on" financing to Portfolio Companies in which
the BDC is a principal security holder; cash items; U.S. governmental
securities; and high-quality, short-term debt securities.
INVESTMENT ADVISERS ACT OF 1940 AND INVESTMENT ADVISERS AGREEMENT
The Managing General Partner is the investment adviser to the Registrant
pursuant to the Investment Advisory Agreement, as amended on March 7, 1994
and ratified by a majority of the holders of Units on April 22, 1994 (the
"Investment Advisory Agreement") and is registered as an investment adviser
under the Advisers Act, subject to the reporting and other requirements
thereof. The Advisers Act also provides restrictions on the activities of
registered advisers to protect its clients from manipulative or deceptive
practices. While the Advisers Act generally restricts performance
compensation, the Advisers Act was amended to allow an investment adviser to
a BDC to receive performance compensation of up to 20% on realized capital
gains computed net of all realized capital losses and unrealized capital
depreciation.
The Investment Advisory Agreement provides that the Managing General
Partner is entitled to receive an annual management fee of 2% of the
Partnership's assets, provided, however that to the extent any portion of
such fee is based on an increase in Net Asset Value attributable to non-
realized appreciation of securities or other assets that exceed capital
contributions, such portion of the fee shall be deferred and not earned or
payable until such time as appreciation or any portion thereof is in fact
realized and then such deferred fees shall be earned and paid in proportion
to the gains in fact realized, In addition, the Managing General Partner is
entitled to receive an incentive fee ("Incentive Fee") in an amount equal to
20% of the Partnership's realized capital gains computed net of all realized
capital losses and unrealized depreciation and after the Limited Partners
have received a sum equal to a ten percent (10%) annual return on their
Initial Capital Contributions (as defined in the Restated Partnership
Agreement to mean Limited Partner capital contributions reduced by brokerage
commissions and fees incurred by the Partnership on behalf of such Limited
Partner or Partners). The Managing General Partner is entitled to receive a
fee equal to one-half of one percent (0.5%) of the initial limited
partnership contributions and is entitled to receive quarterly fees
thereafter equal to 0.5% of Net Assets, as defined in the Partnership
Agreement. For the years ended December 31, 1996, 1995, 1994 and 1993, the
Managing General Partner elected to calculate the quarterly fee solely based
on Total Assets, the fee would have been approximately $234,000 greater than
the cumulative fee charged.
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Investment advisory agreements are further subject to the 1940 Act,
which requires that the agreement, in addition to having been approved by the
majority of the outstanding voting securities, shall precisely describe all
compensation to be paid; shall be approved annually by a majority vote of
either the Independent General Partners or of the Interests; may be
terminated without penalty on not more than 60 days' notice by a vote of a
majority of the Interests; and shall terminate automatically in the event of
assignment. The Managing General Partner has agreed that the Partnership
Agreement and the Investment Advisory Agreement shall constitute the
Partnership's advisory agreements and shall at all times be construed so as
to comply with the Advisers Act and the 1940 Act.
PARTNERSHIP TERM
The Partnership Agreement provides for an eight (8) year term from the
final closing of the initial offering subject to the right of the Managing
General Partner with the concurrence of at least one Independent General
Partner to extend the term for up to three (3) additional one-year periods.
The initial term is until June 30, 1998.
PARTNERSHIP INVESTMENTS
As of December 31, 1996, the Partnership held six active (6) Portfolio
Investments in Companies, five of which meet the criteria of investments in
Eligible Portfolio Companies and one which did not.
BIOPHARMACEUTICS, INC. (BPH) (ASE)
Biopharmaceutics is a manufacturer and distributor of generic drugs and
other pharmaceutical products.
On September 12, 1991, the Partnership invested $300,000 in a 12.5%
convertible debenture issued by Biopharmaceutics, Inc. ("Biopharmaceutics")
of Bellport, New York as the first disbursement under a $1,000,000 loan
agreement pursuant to which the Partnership had the option to invest an
additional $700,000 subject to certain conditions. On January 31, 1992, the
second disbursement of $350,000 was completed and the final disbursement of
$350,000 was completed on June 15, 1992.
Interest is payable quarterly. The debentures are non-callable for
three years and provide for quarterly principal installments commencing on
October 1, 1994, which installments will amortize approximately one/half of
the principal with the balance due at maturity on October 1, 1998.
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At the option of the Partnership the Debenture is convertible at any
time into Biopharmaceutics common stock at the lesser of $0.25 per share or
80% of the bid price per share averaged over the twenty trading days
immediately prior to the date of exercising the right to convert. The
Partnership has the right to demand stock registration and certain piggyback
stock registration rights, and after April 1, 1994, is entitled to at least
one such registration at Biopharmaceutic's expense.
Pursuant to a letter agreement dated December 22, 1994, the Partnership
waived defaults by Biopharmaceutics under the loan agreement through April 1,
1995, and agreed to convert a portion of its Debentures ($120,000) into
common stock (480,000 shares). The Agreement also provided for the roll up
of interest due on or before December 31, 1995, in the amount of $130,982
into a 10% term note.
As a result of Biopharmaceutics being delisted from the American Stock
Exchange, the transactions outlined in this letter agreement were never
consummated. Accordingly, no note was received for accrued interest, nor was
any portion of the debentures converted into common stock of the Company
during 1995.
In accordance with a "Debenture Conversion" agreement effective December
15, 1996, the Partnership. converted $300,000 of its convertible debentures
into 1,200,000 shares of Biopharmaceutics, Inc.'s common stock, and the
remaining $700,000 of convertible debentures were reissued into seven
$100,000 re-issued convertible debentures maturing on October 1, 1998. These
re-issued debentures contain substantially the same features and provisions
as the original debentures, except for sinking fund requirements.
In addition, the agreement provided for issuance of new convertible
debentures to evidence accrued, unpaid interest on the original debentures as
of September 30, 1996, in the amount of $402,941. These new debentures were
issued as of September 30, 1996 and, with the exception of being convertible
at the lesser of $0.27 per share or 80% of the bid price per share averaged
over the twenty days prior to the date of exercising the right to convert,
contain the same terms and conditions of the re-issued debentures.
In February 1997, the Partnership sold 235,000 shares of
Biopharmaceutics, Inc. common stock for $128,167, resulting in a gain of
$69,417.
Russell Cleveland, the Chairman, President, director and principal
shareholder of the Managing General Partner, has been elected to the Board of
Directors of Biopharmaceutics as the Partnership s Director Designee.
This investment is not classified as an Eligible Portfolio Investment
because the Biopharmaceutics' common stock was listed on the American Stock
Exchange.
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GLOBAL ENVIRONMENTAL CORP. (GLEN)
Global is engaged in the design, manufacture and installation of bulk
material handling and air pollution control systems. In addition, it
produces utility truck bodies, airline louvers and associated equipment at
its Danzer-Morrison division.
On April 25, 1991, the Partnership invested $1,250,000 in a 12.5%
convertible debenture issued by Global Environmental Corp. ("Global") of
Plumsteadville, Pennsylvania. On December 31, 1992, a $350,000 follow-on
investment in a like convertible debenture was made.
During 1994, the Partnership purchased 1,000 shares of Series A
Cumulative Convertible Preferred Stock for $100,000.
On December 31, 1994, the Partnership exchanged with Global its
convertible debentures #1 issued by Global in the principal amount of
$1,250,000 and its convertible debentures #2 issued by Global in the
principal amount of $350,000 for the aggregate of 16,000 shares of the Series
B Preferred Stock ($100 per share). The Series B Preferred Stock ranks parri
passu in dividend and liquidation rights with Global's issued and outstanding
Series A Preferred Stock. The holders of the Series B Convertible Preferred
Stock are entitled to receive cumulative annual dividends in the amount of
$10 per share which shall be payable quarterly. The holders of the Series B
Preferred Stock are entitled to vote the number of votes equal to the number
of shares of common stock into which such shares of Series B Preferred Stock
could be converted into pursuant to the conversion feature. The holders of
the Preferred stock have the right to elect the majority of the board of
directors of Global if certain defaults occur under the preferred stock
purchase agreement or if more than one-third of the Series B Preferred Stock
remains outstanding after October 31, 1999. The holders of the Series B
Preferred Stock shall have the right to convert their stock into Global's
common stock initially at $0.50 per share. The $0.50 conversion price shall
be reduced downwards if Global fails to register the underlying common stock
of the Series A and Series B Preferred Stock. The holders of the Series B
Preferred Stock have certain anti-dilution rights.
In addition, the Partnership agreed to exchange the accrued but unpaid
interest on convertible debentures #1 and #2 through September 30, 1994
totaling $211,635 for a 10% term note in the like amount. The term note is
due December 31, 1997, at which time any remaining principal and interest
thereon shall be payable in full. Global may prepay the principal amount of
the note, in whole or in part, without penalty or prepayment premium.
Effective May 22, 1996, the Global Environmental Corp. sold the stock
and assets of Rage, Inc., a wholly owned subsidiary, engaged in the design
and construction of material handling systems to Global's former President
and CEO in consideration of certain liabilities and for common stock in
Global.
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In September 1996, the Partnership purchased 200,000 shares of Global's
common stock for $0.25 per share and an additional investor purchased
1,000,000 shares for $250,000. Effective October 31, 1996, as part of the
Global's plan or recapitalization, the Partnership agreed to convert its
Series "A" Preferred Stock into 400,000 shares of common stock, its Series
"B" Preferred Stock into 6,400,000 shares of common stock, and the $211,635
note into 846,542 shares of common stock of Global. In addition, the accrued
unpaid interest on the note together with accumulated, unpaid dividends on
both preferred stocks were capitalized by issuance of 1,597,252 shares of
common stock of the Company to the Partnership. These shares were all issued
at a conversion price of $0.25 per share.
Russell Cleveland, the Chairman, President, director and principal
shareholder of the Managing General Partner, has been elected to the board of
directors of Global as the Partnership s Director Designee.
INTERNATIONAL MOVIE GROUP, INC. (IMV)
On April 2, 1991, the Partnership invested $1,500,000 in a 12%
convertible debenture issued by International Movie Group, Inc. ("IMG") as
part of a private placement of $10 million. IMG is engaged in the
distribution of motion pictures, primarily outside the United States and
Canada.
In June 1994, IMG submitted to the bondholders a recapitalization plan
in which the bondholders would convert to common stock under a formula in
which the bondholders would own approximately 80% of the common stock. For
the bondholders to convert, IMG would also have to raise $10 million in new
equity. 85% of the bondholders agreed to this plan and gave IMG until
January 1995 to complete the transaction. During this period, no interest
was paid on the convertible debt.
On January 30, 1995, IMG notified the bondholders that $6.5 million had
been deposited in the escrow account but IMG was lacking the remaining $3.5
million.
IMG was unable to raise the remaining $3.5 million of required equity.
Accordingly the transaction was not completed and the escrow funds returned.
On July 3, 1996, an involuntary petition of bankruptcy was filed on the
Company. In October 1996, the U.S. Trustee of the Central District of
California, U.S. Department of Justice, notified the Partnership that IMG had
filed a petition under Chapter 11 of the Bankruptcy Code and the first
creditor's conference was held October 11, 1996. The Company is presently
being reorganized and it is anticipated the plan will be completed in mid-
1997. It is anticipated the Bondholders, of which the Partnership is a
member, will retain the significant equity position in the reorganized
Company.
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Russell Cleveland, the Chairman, President, Director and principal
stockholder of the Managing General Partner, has been elected Chairman of the
Creditor's Committee.
IMG does have a substantial film library and other assets but the amount
that could be realized are not known at this time. If the bondholders
converted their convertible debentures to equity, the net worth of IMG would
be about $15 million or approximately $.50 per share. The Independent
General Partners and Managing General Partner, after reviewing the status of
the Company, established a 50% reserve and decreased the investment to
$750,000. This reserve may be increased or decreased depending upon the
final reorganization plan.
MAXSERV, INC. (MXSV)
MaxServ provides technical information and data-base services for Sears
Roebuck & Co. electronic and white-goods appliance repairmen.
On May 23, 1991, the Partnership invested $500,000 in a 12.5%
convertible debenture issued by MaxServ, Inc. ("MaxServ") of Austin, Texas as
the first disbursement of a $1,000,000 loan agreement pursuant to which the
Portfolio Company has the option to draw an additional $500,000 subject to
certain conditions. On October 1 and on November 13, 1992, additional
disbursements of $150,000 each were made in a like convertible debentures and
the balance of the standby commitment was then terminated by agreement.
In early March 1994, MaxServ demanded, pursuant to the terms of the
convertible debentures, that the Partnership convert its debentures to common
stock. On March 31, 1994, the Partnership converted the entire principal
amount of its debentures in the face amount of $800,000 into common stock at
seventy-five cents ($0. 75) per share (1,066,667 shares). Immediately upon
conversion, the Partnership sold 74,000 shares at $5.00 per share. On July
15, 1994, the Partnership sold an additional 400,000 shares in a private
transaction for $4.50 per share. In 1995, the Partnership sold 10,000
shares of stock for $31,247 resulting in a gain of $23,747 and in 1996, the
Partnership sold 186,667 shares for $735,667 resulting in a gain of $598,747.
Subsequent to December 31, 1996, an additional 100,000 shares were sold for
$704,556, posting a gain of $629,556.
Sears Roebuck & Co., the majority owner of the Company, issued a tender
offer for the Company's stock at $7.75 per share. The Partnership tendered
its remaining stock, the proceeds of which, by agreement, will be paid in
March, 1997.
Russell Cleveland, the Chairman, President, director and principal
shareholder of the Managing General Partner, resigned from the Board of
Directors of MaxServ on July 15, 1994, and the Partnership no longer has a
Director Designee.
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MICROLYTICS, INC. (formerly SelecTronics, Inc.) (MYCX)
SelecTronics is engaged in the manufacture and development of hand-held
linguistic devices and through its wholly owned subsidiary.
On December 28, 1990, the Partnership invested $1,250,000 in a 12.5%
convertible debenture issued by SelecTronics, Inc. ("SelecTronics") of
Pittsford, New York.
The Debenture was convertible into SelecTronics common stock at $.40 per
share. The Partnership had the right to demand stock registration and
certain piggyback stock registration rights, and after March 31, 1994, is
entitled to at least one such registration at SelecTronic s expense.
At December 31, 1993, SelecTronics was in default on its interest
payment obligations and also was not in compliance with certain loan
covenants in regards to maintenance of financial condition. However, during
1994, the Company substantially reduced its operating losses and negotiated
the sale of its linguistic software products lines (spell-checkers,
thesaurus, and foreign language translators) for cash, which actions enabled
it to negotiate a substantial reduction in its secured bank debt obligation
in return for a partial cash repayment, notes and stock warrants. In
connection with these transactions, the Partnership agreed to exchange its
debentures, including accrued interest thereon of $439,762, for a 6%
Convertible Preferred stock, convertible into common stock at $0.10 per
share, retaining the stock registration rights.
On September 8, 1994, the Partnership purchased 2,047,734 shares of
common stock from an investor for $133,108 or $0.065 per share.
The sales of the linguistic product lines represented a substantial
change in the nature of business of the Company. Following the sale, the
Company's principal product line consists of computer telephone directory
systems which are being marketed under the trade name "MicroPages". While
the Company has been engaged in the development of this product line for more
than one year, this is substantially a new business enterprise and marketing
efforts have just recently been initiated.
In that regard, in June of 1995, the Company received a capital infusion
of $2.5 million from an affiliate of an investment banking firm, in exchange
for the issuance of 31,250,000 shares of common stock. Effective December
18, 1995, the Company instituted a name change to Microlytics, Inc. (OTC:
MYCX) which the Company believes is more in tune with the change in the
nature of its business. On November 27, 1996, the Company filed a petition
for Bankruptcy with the United States Bankruptcy Court Northern District of
New York. No proof of claim par date has been set. However, it is
anticipated there will be no recovery on this investment and accordingly the
loss has been recognized at December 31, 1996.
<PAGE> 14
UNICO, INC. (UICO)
UNICO, through its wholly owned subsidiary, United Coupon Corporation,
is engaged in franchising and production of direct mail advertising
On December 31, 1991, the Partnership invested $1,250,000 in a 12.5%
convertible debenture issued by UNICO, Inc. ("UNICO") of Oklahoma City,
Oklahoma.
Interest is payable quarterly. The debentures are non-callable for
three years, and provide for quarterly principal installments commencing on
April 1, 1995, which installments will amortize approximately one/half of the
principal with the balance due at maturity on January 1, 1999. The Debenture
is convertible into UNICO common stock at $.90 per share. The Partnership
has the right to demand stock registration and certain piggyback stock
registration rights, and after April 1, 1995, is entitled to one such
registration at UNICO s expense. In 1995, the Partnership made follow-on
investments in the form of 10% convertible notes totaling $136,750. These
notes are due October 1, 1997 and are convertible into common stock of the
Company at a conversion price of $0.25 per share. In January 1996,
additional funds were advanced, bringing total advances under these notes to
$150,000.
In accordance with a Loan Conversion Agreement dated July 12, 1996, as
amended July 30, 1996, UNICO, Inc. and the Partnership agreed to convert the
December 31, 1991 convertible debentures ($1,250,000 principal amount) and
accrued interest there on of $170,871, and the notes receivable ($150,000
principal amount) along with accrued interest there on of $18,349, into
1,589,220 shares of the Company's Series C Preferred Stock. Each share of
the Series C Preferred Stock is convertible into four shares of UNICO's
common stock, which effectively lowered the conversion rate of the Company's
debt held by the Partnership from $0.90 per share to $0.25 per share. The
Series C Preferred Stock is preferred in liquidation, not dividends. It has
anti-dilution provisions and is automatically converted at the issuance of a
registration statement for UNICO's stock or August 1, 1998. The stock
carries piggy-back registration provisions.
In August 1996, the Partnership advanced $50,000 to UNICO. This advance
is evidenced by a 9.25% secured subordinated note due December 15, 1998. The
note is subordinated to UNICO's senior bank lender.
On January 22, 1997, $100,000 was advanced under a similar note due
January 22, 1999, and on February 14, 1997, an additional $100,000 was
advanced under the same terms and conditions, bringing total advances secured
by promissory notes to $250,000.
Russell Cleveland, the Chairman, President, director and principal
shareholder of the Managing General Partner, has been elected to the Board of
Directors of UNICO as the Partnership s Director Designee.
<PAGE> 15
SUNRISE MEDIA LLC, formerly CEL Communications, Inc. (CELC)
CEL is the owner of a library of historic film footage covering
significant people and events of the 20th Century and is engaged in utilizing
and leasing such footage for television production and educational purposes.
Its most significant assets is a production titled "Video Encyclopedia of the
20th Century" ("VETC"), which is an indexed compilation of significant events
of the past years.
On June 14, 1991, the Partnership invested $1,250,000 in a 12.5%
convertible debenture issued by CEL Communications, Inc. ("CEL") of New York,
New York. On January 16, 1992, a $250,000 follow-on investment in a like
convertible debenture was made. On May 17, 1993, an additional $325,000
follow-on investment in a like convertible debenture was made. These
investments are secured by a lien against substantially all of the assets of
the Company. On August 18, 1994, CEL filed a petition in the United State
Bankruptcy Court, Southern District of New York, for reorganization pursuant
to Chapter 11.
In connection with this action, the Partnership has provided $245,000 in
1994, $240,000 in 1995 and $140,000 in 1996 for an aggregate of $625,000 in
post-petition financing to the Company.
Interest is payable quarterly. The debentures are non-callable for
three years, and provide for quarterly principal installments commencing on
July 1, 1994 which installments will amortize approximately one/half of the
principal with the balance due at maturity on July 1, 1998. At the option of
the Partnership, the Debenture is convertible at any time into CEL common
stock at $1.00 per share. The Partnership has the right to demand stock
registration and certain piggyback stock registration rights, and after July
1, 1994, is entitled to one such registration at CEL s expense.
In prior years, CEL experienced significant operating losses and cash
flow problems related to its television production activities. In 1994, the
Company obtained short term working capital loans from individual investors,
which it intended to repay from other long term financing. However because
of the losses and because of production copyright litigation regarding a
number of production activities and regarding the use of the VETC for video
reproduction, the Company was not able to restructure its obligations.
During 1994, Mr. Peter Collins was appointed as the new Chairman, President
and Chief Executive Officer of the Company. Thereafter, it was determined to
cease television programming and to limit production to contracted work.
Further, a determination was made by the Company, with the agreement of the
Partnership, that a Chapter 11 reorganization was a favorable venue in which
to resolve these matters. Following this action, the Company has begun
negotiations with its litigant adversaries seeking to resolve the disputes
and to develop a plan of reorganization. An agreement has been structured and
approved by the court.
<PAGE> 16
During the first three quarters of 1996, the Partnership advanced
$140,000 to CEL Communications, Inc. for administrative and legal costs
incurred in its Bankruptcy. During this period, the Company unsuccessfully
sought additional capital and financing in order to effect its plan of
reorganization. In order to protect its investment, the Partnership
requested and obtained a "Lift Stay Order" from the court and proceeded to
foreclose on the assets of CEL Communications, Inc.
At the public auction held on November 15, 1996, the Partnership
purchased all the assets of CEL Communications, Inc. and transferred the
assets, including the library of historic footage, and the "Video
Encyclopedia of the 20th Century", to Sunrise Media LLC (Sunrise) which is
wholly owned by the Partnership. As of December 31, 1996, the Partnership
has advanced $34,983 to Sunrise Media LLC to temporarily fund its operations
and pay costs of foreclosing on CEL Communications, Inc.'s assets.
COMPETITION FOR INVESTMENTS
The Registrant has completed 10 investments, of which 6 are currently
outstanding. The Registrant does not contemplate a further active investment
acquisition program.
PERSONNEL
The Partnership has no direct employees but instead has contracted with
the Managing General Partner pursuant to the Partnership Agreement and the
Investment Advisory Agreement to provide all management and operation
activities. The Managing General Partner currently employs twelve persons
who are engaged in performing the duties and functions required by the
Partnership. Because of the diversity of skills required, the Partnership
cannot afford to employ all these persons solely for its own needs, and
therefore, these employees are not engaged solely in activities of the
Partnership.
The Investment Advisor currently serves as general partner and manager
to Renaissance Capital Partners II, Ltd. ("Renaissance II") and as the
Investment Advisor to Renaissance Capital Growth & Income Fund III, Inc.
("Renaissance III") and Renaissance U.S. Growth & Income Trust PLC
("RUSGIT"). Renaissance II, a BDC with investment objectives similar to
those of the Partnership, has raised $42,874,000 in capital through a
registered offering for sale of limited partnership interests. Renaissance
II is not actively seeking additional investments. Renaissance III is also a
BDC operating as a Registered Investment Company with investment objectives
similar to those of the Partnership and completed an offering in 1994, that
raised approximately 39,352,000. As of December 31, 1996, Renaissance III
had completed ten investments totaling approximately $25,709,000 and is
actively seeking additional investment opportunities. RUSGIT is a public
limited company registered in England and Wales, listed on the London Stock
Exchange, which invests in privately placed convertible debentures issued by
companies similar to the investments of the Partnership. RUSGIT will invest
<PAGE> 17
primarily on a pari-passu basis with Renaissance II. In 1996, RUSGIT raised
a net investment of approximately $30,789,000, and invested in four
investments totaling $9,000,000. In addition, Renaissance Capital Group,
Inc. is the parent of RenCap Securities, Inc., a registered Broker/Dealer.
Renaissance Capital Group, Inc. and its subsidiary may, from time to time,
provide investment advisory services, management consulting services and
investment banking services to other clients.
No accurate data or estimate is available as to the percentage of time,
individually or as a group, that will be devoted to the affairs of the
Partnership. Initially, and while the Partnership funds were in the process
of being invested, a majority of the staff time of Renaissance Group was
employed in functions and activities of the Partnership. Thereafter, the
officers and employees have and will devote such time as is required, in
their sole discretion, for the conduct of business, including the provision
of management services to Portfolio Companies. To the extent that such staff
time is devoted to other activities, their activities may be in conflict with
the requirements of the Partnership.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
The Partnership does not contemplate making a substantial portion of its
investments in foreign operations.
ITEM 2. PROPERTIES.
The Partnership's business activities are conducted from the offices of
the Managing General Partner, which offices are currently leased until
December 31, 1997, in a multi-story general office building in Dallas, Texas.
The use of such office facilities, including office furniture, phone
services, computer equipment, and files are provided by the Managing General
Partner at its expense pursuant to the Investment Advisory Agreement.
ITEM 3. LEGAL PRPCEEDINGS.
On November 9, 1995, John Pembroke commenced an action against
Renaissance Capital Group, Inc. seeking collection of a judgment awarded to
him by default in a suit against AFN, Inc. in the amount of $2,441,320 plus
interest and attorney's fees to seek payment of sums claimed due under an
employment contract with AFN, Inc. The stated basis for the claim was that
Renaissance Capital Group, Inc. became the "alter ego" of AFN, Inc. and is
therefore liable under the employment contract. Renaissance Capital Group,
Inc. has denied liability and seeks dismissal of the action on summary
judgment. The Partnership may be bound by agreement to indemnify Renaissance
Capital Group, Inc. from any costs of litigation and any judgments in favor
of Mr. Pembroke.
<PAGE> 18
On July 15, 1996, the Partnership commenced an action against Mr.
Pembroke seeking damages for its losses on the investment of AFN, Inc. The
basis for claim is alleged misrepresentations made by Mr. Pembroke regarding
the financial condition of AFN, Inc. at the time of the Partnership's
investment. Mr. Pembroke has denied the claim and on July 26, 1996, Mr.
Pembroke filed a counter claim against the Partnership based on the same
claims and demands alleged in the suit against Renaissance Capital Group,
Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.
Part II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES.
TRADING
There is no trading in the Interests and no established market exists.
Interests are restricted from transfer except in the event of death or by
action of law or except with the prior approval of the Managing General
Partner.
NUMBER OF HOLDERS
As of December 31, 1996, there were 191 beneficial holders of Interests;
one holder of a Managing General Partner Interest; and two holders of
Independent General Partners Interest.
DIVIDEND POLICY
The Partnership Agreement provided for an initial distribution to be
made to the Limited Partners in an amount equal to 2.5% of their Initial
Capital Subscription within 30 days after the end of the first quarter
following closing of the offering, and thereafter, within 30 days of the end
of each subsequent quarter, such distributions to be made at the discretion
of the General Partners. It is the intention of the General Partners to
generally distribute investment income net of expenses on a quarterly basis.
Further, distributions of capital gains will be considered as realized
or in the case of common stocks with appreciated value obtained upon
conversion of debt securities, considered for distribution in kind. The
determination of whether to make a distribution of realized capital gains or
securities in kind shall be made at the discretion of the General Partners,
subject to compliance with the Securities Act and the 1940 Act.
The Independent General Partners receive no allocation of income and are
not paid any distributions.
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA.
As of and for the years ended December 31, 1996, 1995, 1994, 1993, 1992:
[CAPTION]
<TABLE>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Income (Loss) including
realized gains $(1,096,878) $ 63,379 $1,223,786 $ 974,862 $ 1,414,282
Net unrealized appreciation
(depreciation) on investments 3,991,617 (2,746,554) (5,405,855) 1,242,405 4,907,337
Net income (loss) 2,264,744 (3,111,266) (4,997,513) 1,795,362 5,812,384
Net income (loss) per limited
partnership unit 17,399 (23,903) (35,859) 13,793 44,655
Total assets 13,076,280 10,595,667 13,449,030 19,560,581 18,907,096
Distributions to limited
partners 0 75,000 1,500,000 973,160 1,280,000
Distributions per limited
partnership unit 0 582 11,641 7,552 9,933
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The purpose of the Partnership is to provide growth capital to small and
medium size public companies whose ability to service debt is sufficient to
provide a quarterly return to the Limited Partners and whose growth potential
is sufficient to provide opportunity for above average capital appreciation.
SOURCES OF OPERATION INCOME
Generally, the major source of operating income for the Partnership is
investment income, either in the form of interest on debt securities or
dividends on stock. Investments are generally made in Portfolio Companies
that do not pay dividends on their common stock. The Partnership has
generally structured investments to obtain an interest return competitive
with current long-term financing rates available from other sources.
Further, the Partnership may, in some cases, receive placement fees,
draw-down fees and similar types of income. It might also receive management
fee income, although it may not generally require such for sitting on the
board of directors of Portfolio Company.
Generally, management fees received by the Managing General Partner (or
its personnel) for services to a Portfolio Company will be paid to the
account of the Partnership. The exception to this rule would apply to
payments to the Managing General Partner or affiliate or designee thereof for
unusual services performed for the Portfolio Company, which are unrelated to
and not required by the Portfolio Investment in such Portfolio Company and
that are beyond the Partnership's contemplated management assistance to
Portfolio Companies (i.e., beyond providing for director designees and
limited consultation services in connection therewith). These payments would
be made to the Managing General Partner or such other person only with the
approval of the Independent General Partners based, in part, on the
determination that payments for such services are no greater than fees for
comparable services charged by unaffiliated third parties, and subject to
limitations and requirements imposed by the 1940 Act.
<PAGE> 20
While it will be the general principle that the Managing General Partner
and its officers and directors occupy a fiduciary relationship to the
Partnership and shall not receive outside compensation or advantage in
conflict with that relationship, neither the Managing General Partner nor its
officers and directors are prohibited from receiving other income from non-
conflicting sources.
The Managing General Partner has formed other investment partnerships to
make similar portfolio investments and may, in the future form additional
similar investment funds. Specifically, in 1991, Renaissance Group formed
Renaissance II and raised approximately $42,874,000 which resulted in
investment funds, after expenses of the offering, of approximately
$39,065,000. Renaissance II has completed 13 investments in the aggregate
cost amount of approximately $32,229,000. In the spring of 1994, Renaissance
Group formed Renaissance III which is also a BDC with investment objectives
similar to those of the Partnership and completed an offering in 1994 that
raised approximately $39,352,000, available for investment, As of December
31, 1996, Renaissance Capital Growth & Income Fund III, Inc. has made ten
investments, aggregating $25,709,000 and is actively seeking additional
investment opportunities. In the spring of 1996, Renaissance Capital Group,
Inc. formed Renaissance U.S. Growth and Income Trust PLC ("RUSGIT") a public
limited company registered in England and Wales, listed on the London Stock
Exchange, which invests in privately placed convertible debentures issued by
companies similar to the investments of the Partnership. RUSGIT will invest
primarily on a pari-passu with Renaissance III. In 1996, RUSGIT raised a net
investment of approximately $30,789,000, and as of December 31, 1996, had
four investments totaling $9,000,000.
The determination regarding the existence of a conflict of interest
between these affiliated investment funds and the Partnership, and the
resolution of any such conflict, shall vest in the discretion of the General
Partners, subject to the requirements and restrictions of the 1940 Act.
QUARTERLY PAYMENTS TO LIMITED PARTNERS
It is intended that cash payments from operations be made to all Limited
Partners each quarter to provide them a cash return. Generally, this cash
distribution will be made from net profits and investment income. However,
in the event that net profits are not adequate from time to time, the
quarterly distributions may be made from capital, so long as capital is
sufficient to assure repayment of all obligations of the Partnership and such
capital distributions are permitted by applicable partnership law and the
1940 Act.
Such distributions are currently permitted under the Revised Texas
Limited Partnership Act and under the 1940 Act, provided that, under the
Revised Texas Limited Partnership Act, distributions cannot be made if
Partnership assets are not sufficient to pay Partnership obligations and
Limited Partners may be liable for the repayment of distributions if any are
received in contravention of this restriction.
Further, quarterly distributions may be increased or decreased from time
to time to reflect increases or decreases in current rates of investment
income. The intention is to provide each Limited Partner a current return
compatible with present economic conditions.
The accounting records are maintained on a calendar quarter basis with
the fiscal year ending on December 31. Accordingly, quarterly distributions
will be made to Limited Partners of record as of the end of each quarter and
mailed to each Limited Partner's address of record within 30 days of the end
of the quarter. The lack of liquidity in the Partnership, as discussed
<PAGE> 21
below, prevented further distributions in the last three quarters of 1995 and
all of 1996.
To the extent that officers of the Managing General Partner are holders
of Partnership interests they will be the recipient of such distributions.
OPTIONAL DISTRIBUTIONS OF OPERATING PROFITS AND CAPITAL GAINS
In addition to the quarterly distributions, it is intended that, as the
Partnership achieves operating profits and net capital gains or realizes
increased portfolio values such as through stock distributions or exchanges,
such increased values, profits and gains will be available for distribution
to the Partners in cash or assets.
So long as the Limited Partners have received distributions sufficient
to provide them a cumulative simple annual return of at least ten percent
(10%) on their Capital Contributions in the Units (the "10% Performance
Base"), the Managing General Partner also will become eligible for capital
gains performance distributions. The Managing General Partner's performance
distribution on net capital gains ("Performance Distributions") will be
twenty percent (20%), once the Partnership's distributions to the Limited
Partners exceed the 10% Performance Base.
No Performance Distributions shall be paid to the Managing General
Partner unless the Partnership has increased in value and such increase in
value has been realized and is paid out to the Limited Partners or is
distributed to the Limited Partners. Further, no Performance Distributions
shall be paid to the Managing General Partner unless adequate provision has
been made for any unrealized depreciation with respect to the Portfolio
Investments and adequate reserves are established for payment of all
obligations of the Partnership. Moreover, no Performance Distributions shall
be paid to the Managing General Partner to the extent that, making such
distributions would result in the Managing General Partner's receiving
cumulative Performance Distributions in excess of twenty percent (20%) of the
cumulative net capital gains realized by the Partnership (net of realized
capital losses and unrealized net capital depreciation) in accordance with
the 1940 Act.
The Performance Distributions cannot be adjusted without the consent of
all of the Limited Partners, except if required by order of a regulatory
agency.
LIQUIDITY AND CAPITAL RESOURCES
In 1990, the Partnership raised initial capital in a private placement
offering and after administrative and offering expenses, brokers' commissions
and management fees had a net available capital for investments of
$12,114,964.
Pending selection of investments in Portfolio Investments, the
Partnership's available capital was invested in U.S. government obligations.
Thereafter in 1990 and 1991 investments were made in ten separate Portfolio
Companies with investment funds being obtained from reduction of the
temporary investments. During the year 1990, the Partnership invested in two
<PAGE> 22
Portfolio Investments aggregating $2,750,000. During 1991, the Partnership
made eight Portfolio Investments aggregating $7,856,000.
During the year ended December 31, 1992, the Partnership sold one
investment having a cost of $306,000 for a net consideration of $427,480,
realizing a gain of $121,480; and received repayment in full of one
investment loan in the face amount of $1,500,000. In addition in 1992, the
Partnership funded follow-on investments to existing Portfolio Investments
amounting to $1,600,000.
During the year ended December 31, 1993, the Partnership made no sales
of investments nor did it obtain any investment reductions. In addition, in
1993, the Partnership funded follow-on investments to existing Portfolio
Investments amounting to $325,000.
During the year ended December 31, 1994, the Partnership converted its
investment in MaxServ to common stock and subsequently sold 474,000 shares of
MaxServ having a cost of $355,500 for a net consideration of $2,169,997
realizing a gain of $1,814,497. Also during 1994 the Partnership wrote off
its investment in AFN and realized a loss of $1,500,000. In addition in
1994, the Partnership funded follow-on investments to existing Portfolio
Investments amounting to $345,000.
For the year ended December 31, 1995, the Partnership sold 10,000 shares
of MaxServ common stock for net proceeds of $31,247 realizing a gain of
$23,747. In addition, the Partnership made follow-on investments to existing
Portfolio investments amounting to $376,750. For the year ended December 31,
1996, the Partnership sold an additional 182,667 shares of MaxServ, Inc.
common stock for net proceeds of $735,747 realizing a gain of $598,747. Also
during 1996, the Partnership wrote off its investment in Microlytics, Inc.
and a portion of its investment in CEL Communications, Inc. A loss of
$1,698,761 was recorded on Microlytics, Inc. and a $700,000 loss was realized
on the investment in CEL Communications, Inc. upon the foreclosure and
creation of Sunrise Media LLC. In addition, the Partnership made follow on
investments on existing portfolio investments of $253,249 and advanced
$34,983 to Sunrise Media LLC.
No cash distributions we made to Limited Partners in 1996, while cash
used by operations were $396,615.
Cash distributions to Limited Partners amounted to $175,000, $1,600,000,
$1,093,160, $1,210,000 and $674,465 in 1995, 1994, 1993, 1992 and 1991
respectively, while cash provided by (used in) operating activities amounted
to $192,073, $(108,379), $363,226, $901,668 and $586,605 in 1995, 1994, 1993,
1992 and 1991, respectively.
The Partnership's other sources of available capital for investment will
be interest income and transactional fees charged by the Partnership with
respect to the Portfolio Investments, and director fees paid by Portfolio
Companies to the Partnership's director designees (although it is likely that
most of the Portfolio Companies will not pay director fees). Other sources
of available capital include gains from capital transactions.
As discussed above, generally the Portfolio Investments will have an
initial fixed term of seven years, with payments of interest only for an
initial term of three to five years. Further, Portfolio Investments will be
individually negotiated, non-registered for public trading, and will be
subject to legal and contractual investment restrictions. Accordingly,
Portfolio Investments will generally be considered non-liquid, and it is not
<PAGE> 23
contemplated that any capital gains from liquidation will be realized in the
near future. During 1994, one investment in the face amount of $800,000 was
converted into common stock having no fixed dividend provisions and two (2)
investments having a face amount of $1,720,000 were exchanged for preferred
stock, which preferred stock does have a dividend requirement but is subject
to earnings of the respective Portfolio Companies. As a result of these
conversions and exchanges, the Partnership's interest income has shown a
marked decline. In 1995, the Partnership provided an allowance for
uncollectible interest of $803,000 which is reflected in the sharp decline
when compared 1994 interest income. In 1996, interest income increased as a
result of Biopharmaceuticals, Inc. issuing a new debenture for payment of
interest much of which was reserved in prior years. The increase in dividend
income is represented by the issuance of common stock from Global
Environmental Corp. for the accumulated dividends due on its preferred stock.
Another possible source of available capital is debt. However, the
Registrant does not presently intend to make leveraged investments.
Therefore, a lack of liquidity will generally only affect the ability to make
new investments and make distributions to Limited Partners.
In 1996, the lack of liquidity resulted in accounts payable to the
Managing General Partner increasing to $834,071. This increase was
represented by administrative and legal expenses paid by the Managing Partner
on behalf of the Partnership and the management fee waived by the Managing
General Partners.
Another source of available capital is additional equity resulting from
an additional offering of Interests. The Registrant has no present plans to
offer additional Interests.
The Partnership's ability to improve liquidity and make regular
distributions will depend upon the Partnership's success in realizing a
return of investment cost and the realization of capital gain from sale of
equity securities resulting from debt conversion to equity.
Because of the decrease in income and the additional follow-on
investments in portfolio companies, the Partnership's liquidity has been
substantially impaired. Accordingly, the Partnership has reduced its rate of
distributions and has deferred payment of management fees owed to the
Managing General Partner. Until such time as liquidity is improved from
either sale of investments or loan repayments, it is anticipated that
distributions to Limited Partners will be reduced or even curtailed.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
During 1996, the Partnership made follow on investments to existing
Portfolio investments in the aggregate amount of $253,249 and, with the
exception of the sale of MaxServ shares and the write-off of Microlytics,
Inc., essentially maintained its existing Portfolio Investments when
considering the investment in Sunrise Media LLC. Interest income increased
to $341,446, primarily as a result Biopharmaceuticals, Inc. issuing a new
debenture in payment of its interest. The increase in dividend income to
$352,690 resulted from the issuance of common stock of Global Environmental
Corp. as payment of the past accumulated unpaid dividends on Global's
preferred stock, prior to conversion.
<PAGE> 24
The estimated fair value of the Portfolio Investments, as determined by
the Managing General Partner, indicates a new unrealized appreciation on
investments of $3,991,617 in 1996. Because of the inherent uncertainty of
valuations, the estimated Fair Value as determined by the Managing General
Partner and approved by the Independent General Partners, may vary
significantly from the values that would have been used had a ready market
for the securities existed, and the differences could be material. (See Item
1 - "Business - Narrative Description of the Business" and Item 13 - "Certain
Relationships and Related Transactions - Valuation of Investments").
General and administrative expense increased in 1996 to $408,654
primarily as a result of increased outside legal costs and related contract
services and travel. The Managing General Partner incurred approximately
$402,949 of administrative expenses in 1996, for the Partnership and was
reimbursed approximately $238,707. This coupled with unpaid fees resulted in
the payables to the Managing General Partner increasing to $834,071. Without
further liquidation of assets, the Partnership will continue to require
advances from the Managing General Partner.
Management fees to the Managing General Partner decreased to $193,491,
the result of the decision of the Managing General Partner to defer any
portion of the management fee attributable to unrealized appreciation until
such time as such appreciation is realized.
No distributions were declared or made to the Limited or General
Partners.
1995 COMPARED TO 1994
During 1995, the Partnership made follow-on investments to existing
Portfolio investments (in the aggregate amount of $376,750) and, essentially
maintained its existing Portfolio Investments. Interest income in 1995
decreased to $33,023 as a result of the reserves for and non-accrual of
interest on investments in CEL Communications, Inc., International Movie
Group and Biopharmaceutics, Inc. In addition, interest income was reduced by
the charge back of $130,982 of Biopharmaceutics interest as a result of the
inability to consummate the roll up of interest and in the exchange, as more
fully discussed under the heading "Partnership Investments".
The estimated fair value of the Portfolio Investments, as determined by
the Managing General Partner, indicated a net unrealized depreciation on
investments of $2,746,554 in 1995. Because of the inherent uncertainty of
valuations, the estimated Fair Value as determined by the Managing General
Partner and approved by the Independent General Partners, may vary
significantly from the values that would have been used had a ready market
for the securities existed, and the differences could be material. (See Item
1 - "Business-Narrative Description of the Business" and Item 13 - "Certain
Relationships and Related Transactions - Valuation of Investments").
General and administrative expense decreased in 1995, to $184,922
primarily as a result of less legal and travel expense. There was no expense
reimbursement, including general and administrative expenses, to the Managing
General Partner in 1995, resulting in an increase in payables to the Managing
General Partner of $432,903. Without further liquidation of assets, the
Partnership will continue to require advancements from the General Partner.
Management fees to the Managing General Partner decreased to $243,169,
the result of the decision by the Managing General Partner to defer any
portion of the management fees attributable to unrealized appreciation until
such time as such appreciation is in fact realized.
<PAGE> 25
Distributions declared to the limited Partners decreased in 1995 to
$75,000. No distributions were made to the General Partners.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For the Index to Financial Statements, see "Index to Financial
Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
General Partners
Management of the Partnership is the responsibility of the General
Partners. In order to meet the requirements of the 1940 Act, the General
Partners are divided into two classes:
(1) a Managing General Partner, and
(2) two or more Independent General Partners.
MANAGING GENERAL PARTNER-RENAISSANCE CAPITAL GROUP, INC.
The Managing General Partner is Renaissance Group. Russell
Cleveland, the principal shareholder of Renaissance Group, has, through it
and its predecessor, for the past 17 years, been engaged in the business of
investment management for a series of limited partnership investment funds.
These partnerships generally acquired equity positions through open-market
stock purchases in small and medium sized companies after having conducted
independent investment research of the prospective portfolio acquisition.
Occasionally, these partnerships sought a director designee position on the
board of directors of the Portfolio Companies. Generally, there was not a
plan to acquire a controlling ownership or a principal management role in the
Portfolio Companies.
THE PRINCIPALS AND MANAGEMENT OF RENAISSANCE GROUP ARE:
Russell Cleveland, age 58, is the President, principal founder and
the majority shareholder of Renaissance Group. He is a Chartered Financial
Analyst who has, for over 26 years, specialized in investing in smaller
capitalization companies. Mr. Cleveland also currently serves as a director
of Greiner Engineering, Inc., a consulting engineering firm, which company
was a former portfolio investment of a prior Renaissance Group investment
partnership. Mr. Cleveland serves as the Investment Company director
designee for the following companies associated with Renaissance Group:
Biopharmaceutics, Inc., Global Environmental, Inc., International Movie
Group, Inc., and UNICO, Inc.. He has served as President of the Dallas
Association of Investment Analysts. Mr. Cleveland is a graduate of the
Wharton School of Business.
<PAGE> 26
Vance M. Arnold, age 53, the Executive Vice President of Renaissance
Group, is a Chartered Financial Analyst with extensive experience investing
in emerging growth companies over the last 28 years. He has been associated
with three bank trust investment departments in Dallas and Houston with
involvement in both analysis and portfolio management. For five years he
conducted original research on emerging growth companies leading to
investment recommendations for major southwestern regional brokerage firm.
He also managed a substantial emerging growth mutual fund for six years and
private accounts for two investment counseling firms. Mr. Arnold holds a
B.B.A. from the University of Texas at Austin and an M.B.A. from East Texas
State University.
Elroy G. Roelke, age 66, was the Senior Vice President, General
Counsel retired December 31, 1996. He is a shareholder in Renaissance Group
since January, 1989. Mr. Roelke serves as the Investment Company director
designee for the following companies associated with Renaissance Group:
Tricom Corporation, and Biodynamics International, Inc. He is the principal
shareholder and Chairman of the Knollwood Mercantile Company, a family owned
retail convenience store and liquor store business. Mr. Roelke is a graduate
of Valparaiso University with degrees in business and law and is admitted to
the practice of law in the states of Texas and Minnesota.
Barbe Butschek, age 42, Senior Vice President, Secretary, Treasurer,
has been associated with Renaissance Group and its predecessor companies
since 1977. She has been responsible for office management, accounting
management and records management of the series of investor limited
partnerships, including preparation and maintenance of investor tax and
information reports. Ms. Butschek has responsibility for investor records
and information with respect to the Partnership. Ms. Butschek is Secretary
of RenCap Securities.
DUTIES OF THE MANAGING GENERAL PARTNER
The Managing General Partner is charged with the responsibility and
authority to handle all daily activities of the Partnership, including
commitments for and management of long-term Portfolio Investments, of short-
term investments, and, in general, daily operations.
INDEPENDENT GENERAL PARTNERS
Under the provisions of the 1940 Act creating BDCs, a majority of the
general partners of a partnership (or directors of a corporation) that desire
to qualify as a BDC must be "disinterested" or "non-affiliated" general
partners (or directors in the case of a corporation). By definition, the
Managing General Partner as well as any officer or director or other
affiliated person of the Managing General Partner, any investment advisor,
any accountant for the Partnership, and any legal advisor is considered an
"interested" party. Therefore, the majority of the general partners must be
individuals who are not involved in the daily activities of the business.
The Independent General Partners provide overall guidance and
supervision with respect to the operations of the Partnership and perform
various duties imposed on the directors of business development companies
<PAGE> 27
under the 1940 Act. The Independent General Partners supervise the Managing
General Partner and serve as advisors, providing counseling services to the
Partnership in regularly scheduled meetings and study sessions.
BACKGROUND AND EXPERIENCE OF THE INDEPENDENT GENERAL PARTNERS
Mr. Ernest C. Hill, age 57, has a broad background in convertible
securities analysis with major NYSE brokerage and institutional investors.
His specialty is computer-aided investment analysis and administrative
procedures. Mr. Hill was awarded a Ford Fellowship to Stanford School of
Business where he received an MBA in Investment and Finance with honors.
Prior experience includes service as Assistant Professor of Finance, Southern
Methodist University, and Associate Director of the Southwestern Graduate
School of Banking.
Mr. Don M. Patterson, age 53, has experience both as a corporate
executive officer and as a professional corporate advisor. Professionally
qualified as a CPA and an attorney, Mr. Patterson has, for more than five
years, been primarily self-employed as a financial consultant to smaller
public companies. From 1988 to 1991, he served as Senior Vice President and
Chief Financial Officer of Securities Services Insurance Company, a specialty
insurance carrier. From 1986 to 1988, he served as Vice President-Financial
and Administration for Computer Support Corp. Mr. Patterson holds a
BSBA/Accounting degree from the University of Tulsa and a JD degree from the
University of Tulsa College of Law. Mr. Patterson also currently serves as a
director of OTF Securities, Inc. and of Comp-U-Check, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
During 1996, the following compensation was paid or accrued to General
Partners of the Partnership:
Name Capacity Paid Accrued
---- -------- Compensation Compensation *
------------ ------------
Renaissance Group Managing General Partner
and Investment Adviser
Management Fees 0 $193,491
Expense Reimbursement $238,707 164,242
Ernest C. Hill Independent General
Partner $24,000 0
Don M. Patterson Independent General $24,000 0
Partner
* These amounts were earned, but unpaid as of December 31, 1996.
QUARTERLY COMPENSATION PAYMENTS TO INDEPENDENT GENERAL PARTNERS
In return for their contribution of services to the Partnership, the
Independent General Partners are paid a regular quarterly cash payment from
the Partnership in the amount of $6,000 per quarter payable quarterly in
advance.
<PAGE> 28
The Independent General Partners will be entitled to full reimbursement
of all reasonable expenses relative to their services on behalf of the
Partnership. There were no expenses incurred during the five year period
ended December 1996.
QUARTERLY COMPENSATION PAYMENT TO MANAGING GENERAL PARTNER
The Managing General Partner is paid a management fee of 0.5% per
quarter of assets under management as compensation for operating the
Partnership for the years ended December 31, 1996, 1995 and 1994, the
Managing General Partner elected to calculate the quarterly fee based on the
lower of contributed capital Net Asset Value. If the Managing General
Partner had calculated quarterly fees based on Net Assets during this three
year period, the fees would have been approximately $928,380. The difference
of approximately $234,000 may be collected by the Managing General Partner in
future periods if realized capital gains are recognized to provide for this
payment. The aggregate management fee for each of the three years was
$193,491 in 1996, $243,169 in 1995 and $257,720 in 1994. The fees earned in
1996 and 1995 were unpaid at December 31, 1996. The fees for 1994 were paid
when earned.
In addition, the Partnership is to pay any direct costs such as fees of
any legal, accounting or other professional advisors, and any travel, phone
and other allocated expenses incurred on behalf of the Partnership, or will
reimburse the Managing General Partner for any such payment for the account
of the Partnership.
As the result of decreasing cash resources beginning in 1995, the
distributions to the Limited Partners were discontinued. As the
Partnership's investments are liquidated, or other cash resources obtained,
the Partnership expects to reinstate such payments in whole or in part based
upon the cash resources.
The quarterly management fee cannot be increased without an affirmative
vote of a majority of Limited Partnership Interests.
COMPENSATION PURSUANT TO PLANS
The Partnership does not have any employee benefit plans.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
At December 31, 1996, neither the Managing General Partner nor the
Independent General Partners own any Interests. The following table sets
forth information concerning the number of Units (a Unit equals $100,000 of
Interests) of the Partnership beneficially owned at December 31, 1996, by (i)
the persons who, to the knowledge of the Partnership, beneficially owned more
than 5% of the outstanding Units, (ii) each director or executive officer of
the Managing General Partner and (iii) the directors and executive officers
of the Managing General Partner as a group:
<PAGE> 29
Name and Address Number of Percent of
of Beneficial Owner Shares Owned Class
------------------- ------------ ----------
HEB Investment
and Retirement Plan Trust
P.O. Box 839999
San Antonio, Texas 78212 12.75 9.89
Russell Cleveland
8080 North Central Expressway, Suite 210
Dallas, Texas 75206 4.00 3.10
Elroy G. Roelke
8080 North Central Expressway, Suite 210
Dallas, Texas 75206 0.50 0.20
Barbe Butschek
8080 North Central Expressway, Suite 210
Dallas, Texas 75206 0.25 0.20
All directors and executive
officers of the Managing General
Partner as a group (3 persons) 4.75 3.70
To the knowledge of the Managing General Partner, no other person
beneficially owned 5% or more of the outstanding Units.
SECURITIES OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT BY THE
MANAGING GENERAL PARTNER
The following table sets forth information concerning the number of
shares of common stock (the "Common Stock") of the Managing General Partner
beneficially owned at December 31, 1996, by (i) the persons who, to the
knowledge of the Partnership, beneficially owned more than 5% of the
outstanding shares of Common Stock, (ii) each director or executive officer
of the Managing General Partner and (iii) the directors and executive
officers of the Managing General Partner as a group:
Amount
Name and Address Beneficially Percent of
of Beneficial Owner Owned Class
------------------- ------------ ----------
Russell Cleveland
8080 North Central Expressway, Suite 210
Dallas, Texas 75206 720,000 66.67
Barbe Butschek
8080 North Central Expressway, Suite 210
Dallas, Texas 75206 180,000 16.67
<PAGE> 30
Elroy G. Roelke
8080 North Central Expressway, Suite 210
Dallas, Texas 75206 180,000 16.67
All directors and
executive officers of the
Managing General Partner
as a group (3 persons) 1,080,000 100.00
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT AND OTHERS.
Transactions, including operational responsibility, duties and
compensation, are governed by the Restated Partnership Agreement and the
Investment Advisory Agreement. See also "Item 10. Directors and Executive
Officers of Registrant -- Managing General Partner - Renaissance Capital
Group, Inc." While the full wording of the agreement is controlling, these
agreements provide for the following:
VALUATION OF INVESTMENTS
The Partnership Agreement and the original offering documents specify
that the securities held by the Partnership are to be valued as follows:
On a quarterly basis, the Managing General Partner will prepare a
valuation of the assets of the Partnership including Temporary Investments,
Eligible Portfolio Investments, and Other Portfolio Investments, subject to
the approval of the Independent General Partners. Valuations of portfolio
securities will be done in accordance with generally accepted accounting
principles and the financial reporting policies of the Securities and
Exchange Commission. The applicable methods prescribed by such principles
are described below.
As a general principle, the current "fair value" of an investment being
valued by the Managing General Partner would be the amount which the
Partnership might reasonably expect to receive for it upon its current sale.
There is a range of values that are reasonable for such investments at any
particular time.
Generally, pursuant to procedures established by the Independent General
Partners, the fair value of each such investment will be initially based
primarily upon its original cost to the Partnership. Cost will be the
primary factor used to determine fair value until significant developments
affecting the Portfolio Company (such as results of operations or changes in
general market conditions) provide a basis for use in an appraisal valuation.
<PAGE> 31
Portfolio Investments for which market quotations are readily available
and which are freely transferable will be valued as follows: (i) securities
traded on a securities exchange or the NASDAQ will be valued at the closing
price on the last trading day prior to the date of valuation and (ii)
securities traded in the over-the-counter market (pink sheets) will be valued
at the average of the closing bid and asked prices for the last trading day
prior to the date of valuation.
Securities for which market quotations are readily available but are
restricted from free trading in the public securities markets (such as Rule
144 stock) will be valued by discounting the closing price or the closing bid
and asked prices, as the case may be, for the last trading day prior to the
date of valuation to reflect the illiquidity caused by such restrictions, but
taking into consideration the existence, or lack thereof, of any contractual
right to have the securities registered and freed from such trading
restrictions.
For this purpose, an investment that is convertible into a security for
which market quotations are readily available or otherwise contains the right
to acquire such a security will be deemed to be an Investment for which
market quotations are readily available.
Convertible preferred stock convertible into common stock for which
market quotations are readily available but are restricted from free trading
in the public securities markets (such as Rule 144 stock) will be valued by
discounting the closing price or the closing bid and asked prices, as the
case may be, for the last trading day prior to the date of valuation to
reflect the illiquidity caused by such restrictions, but taking into
consideration the existence, or lack thereof, of any contractual right to
have the securities registered and freed from such trading restrictions.
Convertible preferred stock convertible into common stock for which no market
exists will be determined on the basis of appraisal procedures established in
good faith by the Independent General Partners.
Debt securities with maturities of 60 days or less remaining will be
valued under the amortized cost method. The amount to be amortized will be
the value on the 61st day if the security was obtained with more than 60 days
remaining to maturity. Securities with maturities of more than 60 days
remaining will be valued at the most recent bid price or yield equivalent as
obtained from dealers that make markets in such securities. Certificates of
deposit purchased by the Partnership generally will be valued at their face
value, plus interest accrued to the date of valuation.
The fair value of investments for which no market exists will be
determined on the basis of appraisal procedures established in good faith by
the Independent General Partners. Appraisal valuations will be based upon
such factors as the Portfolio Company's earnings and net worth, the market
prices for similar securities of comparable companies and an assessment of
the company's future financial prospects. In the case of unsuccessful
operations, the appraisal may be based upon liquidation value. Appraisal
valuations are necessarily subjective.
<PAGE> 32
The Partnership may also use, when available, third-party transactions
in a Portfolio Company's securities as the basis of valuation (the "private
market method"). The private market method will be used only with respect to
completed transactions or firm offers made by sophisticated, independent
investors. Securities with legal, contractual or practical restrictions on
transfer may be valued at a discount from their value determined by the
foregoing methods to reflect such restrictions.
The Independent General Partners will review the valuation policies from
time to time to determine their appropriateness. The Independent General
Partners may also hire independent firms to review the Managing General
Partner's methodology of valuation or to conduct a valuation, which shall be
binding and conclusive.
PAYMENTS TO OFFICERS OF THE MANAGING GENERAL PARTNER
Certain officers of the Managing General Partner will perform
professional services for the Registrant and be compensated therefor. In
that regard, Mr. Roelke, who served as Senior Vice President, General Counsel
and Director for the Managing General Partner and as General Counsel of the
Partnership until his retirement on December 31, 1996, has been primarily
responsible for SEC filings, and for legal matters related to the formation
and operation of the Partnership, including the preparation of investment
documents and review of legal matters relating to the Partnership's
investment program.
Included in general and administrative expenses of the Partnership for
1996 was an aggregate of approximately $12,395 payable to the Managing
General Partner as reimbursement for legal services provided to the
Partnership by Elroy G. Roelke, as General Counsel for the Partnership. In
1994 and 1995, in addition to charges by Elroy G. Roelke, the Partnership
incurred similar charges from Mr. Thomas J. Spackman, Jr., who was Associate
General Counsel until his resignation on September 15, 1995, when he entered
private practice. Charges of this nature included in 1995 were $66,781 and
charges included in 1994 were $78,492.
In addition, under certain circumstances, officers of the Managing
General Partner may receive compensation directly from the Portfolio
Companies for the provision of services for such Portfolio Companies. All
such compensation is subject to the prior approval of the Independent General
Partners and to compliance with the requirements of the 1940 Act. During the
years 1994 through 1996, while in some circumstances services were provided,
no officers requested such compensation.
<PAGE> 33
AFFILIATED INVESTMENT COMPANIES
The Managing General Partner plans to form other investment partnerships
to make investments in similar portfolio companies. Specifically,
Renaissance Group has formed Renaissance II, a limited partnership, which has
raised approximately $39,065,000 available for the purpose of making
primarily convertible debenture investments in small to medium size
companies. In addition, Renaissance Group formed Renaissance III, a BDC
operating as a Registered Investment Company with investment objectives
similar to those of the Partnership. Renaissance III completed an offering
in 1994 that raised approximately $39,352,000 for investment and is actively
seeking additional investment opportunities. In the Spring of 1996, the
Managing General Partner formed Renaissance U.S. Growth & Income Trust PLC
("RUSGIT"), a public limited company registered in England and Wales, listed
on the London Stock Exchange, which invests in privately placed convertible
debentures issued by companies similar to the investments of the Partnership.
RUSGIT will invest primarily on a pari-passu with Renaissance III. In a1996,
RUSGIT raised a net investment of approximately $30,789,000.
The determination of whether a conflict of interest does, or does not,
exist between any party and the Registrant in the future, and the methods of
the resolution of any such conflict, shall vest in the discretion of the
Independent General Partners, subject to the requirements and restrictions of
the 1940 Act.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
DOCUMENTS FILED AS PART OF THIS FORM 10-K
Financial Statements: The financial statements filed as part of this
report are listed in "Index to Financial Statements" on page F-1 hereof.
FINANCIAL SCHEDULES
None are presented as none are applicable.
REPORTS ON FORM 8-K
The Registrant did not file a report on Form 8-K during the fourth
quarter of 1996.
<PAGE> 34
EXHIBITS
3.1 Renaissance Capital Partners, Ltd. Restated Articles of Limited
Partnership dated as of March 31, 1990 (1)
10.1 Investment Advisory Agreement, as of May 30,1990, as amended and
restated on March 19, 1991 and March 7, 1994 (1)(2)
(1) Incorporated by reference to the Registrant s Form 10-K for the
year ended December 31, 1990 filed with the Securities and Exchange
Commission.
(2) Incorporated by reference from the Registrant's 1996 Proxy filed
with Securities and Exchange Commission on or around March 17,
1997.
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1997
Renaissance Capital Partners, Ltd.
(Registrant)
By: Renaissance Capital Group, Inc.
Managing General Partner
By: /s/ Russell Cleveland
----------------------------
Russell Cleveland, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated Signatures.
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
--------- ------------------------ ----
<S> <C> <C>
/s/ Russell Cleveland
- -----------------------
Russell Cleveland Chairman, President and Director March 28, 1997
of the Managing General Partner of
the Registrant (Principal Executive
Officer and Principal Operating
Officer
/s/ Barbe Butschek
- -----------------------
Barbe Butschek Senior Vice President, Secretary March 28, 1997
and Treasurer and Chief Financial
Officer
/s/ Ernest C. Hill
- -----------------------
Ernest C. Hill Independent General Partner March 28, 1997
/s/ Don M. Patterson
- -----------------------
Don M. Patterson Independent General Partner March 28, 1997
</TABLE>
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Statements of Assets, Liabilities and Partners' Equity F-3
December 31, 1996 and 1995
Statements of Investments - F-4 through F7
December 31, 1996 and 1995
Statements of Operations - F-8
Years ended December 31, 1996, 1995 and 1994
Statements of Partners Equity - F-9
Years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows - F-10 through F-11
Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements F-12 through F-17
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
The Partners
Renaissance Capital Partners, Ltd.:
We have audited the accompanying statements of assets, liabilities and
partners' equity of Renaissance Capital Partners, Ltd., including the
statements of investments, as of December 31, 1996 and 1995, and the related
statements of operations, partners' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements 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 verification of investments owned as of December 31,
1996 and 1995, by examination of securities held in safekeeping for the
Partnership. 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 referred to above present fairly, in
all material respects, the financial position of Renaissance Capital
Partners, Ltd. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1997
<PAGE> 38
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Assets, Liabilities
and Partners' Equity
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 56,723 2,823
Investment in Sunrise Media LLC (note 4) 1,757,133 -
Investments at fair value, cost of
$7,203,109 in 1996 and $10,235,147
in 1995 (note 4) 11,224,234 10,264,655
Interest receivable 37,125 328,189
Other assets 1,065
---------- ----------
$13,076,280 10,595,667
========== ==========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Liabilities:
Accounts payable $ 51,627 -
Accounts payable - affiliate
(notes 3 and 6) 834,071 669,829
---------- ---------
885,698 669,829
========== =========
Partners' equity (notes 5 and 6):
General partner 48,638 25,991
Limited partners
(128.86 units outstanding) 12,141,944 9,899,847
---------- ---------
Total partners' equity 12,190,582 9,925,838
---------- ---------
Commitments and contingencies (notes 3 and 4) $
13,076,280 10,595,667
========== ==========
Limited partners' equity per limited
partnership unit $ 94,226 76,826
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 39
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Investments
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996
------------------------------------------
Eligible Portfolio
Investments - Convertible Debentures Interest Due Fair
and Note Receivable rate date Cost Value
Valued at fair value as determined by the ---- ---- ---- -----
General Partners (note 4):
<S> <C> <C> <C> <C>
International Movie Group, Inc. -
independent film distributor 1
Convertible debenture 12.0% 3/3/98 $ 1,500,000 750,000
UNICO, Inc. - cooperative direct
mail advertising:
Note receivable 9.25 12/15/98 50,000 50,000
--------- -------
1,550,000 800,000
Other Portfolio
Investments - Convertible
Debentures
----------
Valued at fair value as determined by the
General Partners (note 4):
Biopharmaceutics, Inc. -
pharmaceuticals:
Convertible debentures 12.5 10/1/98 1,102,941 1,967,416
1,102,941 1,967,416
--------- ---------
</TABLE>
(Continued)
<PAGE> 40
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Investments, Continued
[CAPTION]
<TABLE>
1996
---------------------------------------
Eligible Portfolio Investments - Fair
Common and Preferred Stock Shares Cost Value
-------------------------- ------ ---- -------
<S> <C> <C> <C>
Valued at fair value as determined by the
General Partners (note 4):
Global Environmental Corp. -
air pollution control equipment:
Common 9,443,795 $ 2,360,948 3,556,348
MaxServ, Inc. - technical information
databases:
Common 400,000 300,000 2,747,250
UNICO, Inc. - cooperative direct mail
advertising:
Series C convertible preferred 1,589,220 1,589,220 1,589,220
--------- ---------
4,250,168 7,892,818
--------- ---------
Other Portfolio
Investments - Common Stock
Valued at fair value as determined by the
General Partners (note 4):
Biopharmaceutics, Inc. -
pharmaceuticals:
Common 1,200,000 300,000 564,000
--------- ----------
300,000 564,000
--------- ----------
$ 7,203,109 11,224,234
========= ==========
</TABLE>
1 - Interest payments under the terms of the convertible debentures are
delinquent as of December 31, 1996.
(Continued)
<PAGE> 41
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Investments, Continued
[CAPTION]
<TABLE>
1995
-------------------------------------------
Eligible Portfolio Investments -
Convertible Debentures Interest Due Fair
and Notes Receivable rate date Cost Value
-------------------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Valued at fair value as determined by the
General Partners (note 4):
CEL Communications, Inc. -
library of historic films (1):
Convertible debenture 12.5% 7/1/98 $ 1,825,000 1,165,850
Notes receivable 10.0 on demand 485,000 485,000
Global Environmental Corp. -
air pollution control equipment:
Note receivable 10.0 3/31/97 211,635 211,635
International Movie Group, Inc. -
independent film distributor (1):
Convertible debenture 12.0 3/3/198 1,500,000 750,000
UNICO, Inc. - cooperative direct
mail advertising:
Convertible debenture 12.5 1/1/99 1,250,000 1,250,000
Convertible debenture 10.0 10/1/97 136,750 136,750
--------- ---------
5,408,385 3,999,235
Other Portfolio
Investments - Convertible Debentures
------------------------------------
Valued at fair value as determined by the
General Partners (note 4):
Biopharmaceutics, Inc. -
pharmaceuticals (1):
Convertible debentures 12.5 10/1/98 1,000,000 1,000,000
--------- ---------
1,000,000 1,000,000
--------- ---------
</TABLE>
(Continued)
<PAGE> 42
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Investments, Continued
[CAPTION]
<TABLE>
1995
------------------------------------------
Eligible Portfolio
Investments - Common Fair
and Preferred Stock Shares Cost Value
------------------- ------ ---- -----
<S> <C> <C> <C>
Valued at fair value as determined by the
General Partners (note 4):
Global Environmental Corp. -
air pollution control equipment:
Cumulative convertible senior
preferred 1,000 $ 100,000 91,059
Series B convertible preferred 16,000 1,600,000 1,456,941
MaxServ, Inc. - technical information
databases:
Common 582,667 437,000 1,730,520
Microlytics, Inc. - software developer:
Common 2,047,815 133,108 230,994
Preferred 15,566,540 1,556,654 1,755,906
--------- ----------
3,826,762 5,265,420
--------- ----------
$10,235,147 10,264,655
========== ==========
</TABLE>
1 - Interest payments under the terms of the convertible debentures or notes
receivable are delinquent as of December 31, 1995.
See accompanying notes to financial statements.
<PAGE> 43
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
[CAPTION]
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Interest $ 341,446 33,023 899,716
Dividends 352,790 6,609 9,573
---------- --------- ---------
694,136 39,632 909,289
---------- --------- ---------
Expenses (note 3):
General and administrative 408,654 184,922 227,724
Management fees 193,491 243,169 257,720
---------- --------- ---------
602,145 428,091 485,444
---------- --------- ---------
Operating income (loss) 91,991 (388,459) 423,845
---------- --------- ---------
Investment income (loss) (note 4):
Loss from investment in Sunrise Media LLC (27,850) - -
Net unrealized appreciation
(depreciation) on investments 3,991,617 (2,746,554) (5,405,855)
Net realized loss gain on investments (1,791,014) 23,747 314,497
---------- --------- ---------
Investment income (loss) $2,264,744 (3,111,266) (4,667,513)
See accompanying notes to financial statements.
</TABLE>
<PAGE> 44
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Partners' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance, December 31, 1993 $ 103,779 19,175,838 19,279,617
Net loss (46,675) (4,620,838) (4,667,513)
Distributions (note 5) - (1,500,000) (1,500,000)
------- --------- ---------
Balance, December 31, 1994 57,104 13,055,000 13,112,104
Net loss (31,113) (3,080,153) (3,111,266)
Distributions (note 5) (75,000) (75,000)
------ --------- ---------
Balance, December 31, 1995 25,991 9,899,847 9,925,838
Net income 22,647 2,242,097 2,264,744
-------- --------- ---------
Balance, December 31, 1996 $ 48,638 12,141,944 12,190,582
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 45
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,264,744 (3,111,266) (4,667,513)
Adjustments to reconcile net income (loss) to net
cash provided by (used in)
operating activities:
Amortization of organization costs - 5,250 10,500
Net unrealized (appreciation)
depreciation on investments (3,991,617) 2,746,554 5,405,855
Loss from investment in Sunrise Media LLC 27,850 - -
Net realized (gain) loss on investments 1,791,014 (23,747) (314,497)
(Increase) decrease in interest receivable (700,410) 142,379 (698,686)
Increase in other assets (1,065) - -
Increase in accounts payable 51,627 - -
Increase in accounts payable - affiliate 164,242 432,903 155,962
--------- ---------- ---------
Net cash (used in) provided by
operating activities (393,615) 192,073 (108,379)
--------- --------- ---------
Cash flows from investing activities:
Contribution to investment in Sunrise
Media LLC (34,983) - -
Proceeds from sale of investments 735,747 31,247 2,169,997
Purchase of investments (253,249) (376,750) (345,000)
-------- -------- ---------
Net cash provided by (used in)
investing activities 447,515 (345,503) 1,824,997
-------- -------- ---------
Cash flows from financing activities:
Distributions to limited partners - (175,000) (1,600,000)
--------- -------- ----------
Net cash used in financing
activities - (175,000) (1,600,000)
--------- -------- ----------
Net increase (decrease) in cash and cash
equivalents 53,900 (328,430) 116,618
Cash and cash equivalents at the beginning
of the year 2,823 331,253 214,635
-------- --------- --------
Cash and cash equivalents at the end of
the year $ 56,723 2,823 331,253
======= ======== =======
</TABLE>
(Continued)
<PAGE> 46
RENAISSANCE CAPITAL PARTNERS, LTD.
Statements of Cash Flows, Continued
Noncash investing and financing transactions:
During 1996, $991,474 of interest receivable was capitalized as
investments in preferred and common stock.
During 1996, $1,750,000 of investments was reclassed to investment in
Sunrise Media LLC as the Partnership foreclosed on the assets of CEL
Communications, Inc. (see note 4).
During 1995, $130,982 of notes receivable was reclassed to interest
receivable.
During 1994, $782,379 of interest receivable was capitalized as notes
receivable.
The fourth quarter partnership distributions of $100,000 were accrued
as of December 31, 1994.
See accompanying notes to financial statements.
<PAGE>
<PAGE> 47
RENAISSANCE CAPITAL PARTNERS, LTD.
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(1) Organization and Business Purpose
---------------------------------
Renaissance Capital Partners, Ltd. (the "Partnership"), a Texas limited
partnership, was formed in 1989. The Partnership offered to sell units of
limited partners' interest ("Units") in the Partnership. Net contributions
of $12,114,964 from sale of Units had been received upon final closing of the
Partnership on June 14, 1991. The Partnership was formed for the purpose of
obtaining investment income and gains through providing long-term growth
capital, principally in the form of loans convertible into common stock, to
smaller publicly held companies. The Partnership has elected to be treated
as a business development company under the Investment Company Act of 1940
("1940 Act"), as amended. The Partnership will terminate upon liquidation of
all of its investments, but no later than June 14, 1999, subject to the right
of the Managing General Partner with the concurrence of at least one of the
two independent general partners (the "Independent General Partners") to
extend the term for up to three additional one-year periods if they determine
that such extension is in the best interest of the Partnership.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) Valuation of Investments
------------------------
Portfolio investments are stated at quoted market or fair value as
determined by the Managing General Partner and approved by the Independent
General Partners (note 4). Securities held by the Partnership are primarily
unregistered and their value does not necessarily represent the amounts that
may be realized from their immediate sale or disposition.
(b) Statements of Cash Flows
------------------------
The Partnership considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
(c) Net Income (Loss) per Limited Partnership Unit
Net income (loss) per limited partnership unit is based on the weighted
average number of limited partnership Units outstanding during the year
(128.86 units).
<PAGE> 48
(d) Federal Income Taxes
In accordance with Federal income tax regulations, no income taxes are
levied on a partnership, but rather on the individual partners. Consequently,
no Federal income taxes have been reflected in the accompanying financial
statements.
(2) Summary of Significant Accounting Policies, Continued
(e) Management Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. The preparation of the accompanying
financial statements requires estimates and assumptions made by management of
the Partnership that affect the reported amounts of assets and liabilities as
of the date of the statements of assets, liabilities and partners' equity and
income and expenses for the years. Actual results could differ significantly
from those estimates.
(f) Financial Instruments
In accordance with the reporting requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," the Partnership calculates the fair value of its financial
instruments and includes this additional information in the notes to the
financial statements when the fair value is different than the carrying value
of those financial instruments. When the fair value reasonably approximates
the carrying value, no additional disclosure is made.
(3) Management and Organization Fees
Renaissance Capital Group, Inc. (the "Managing General Partner"), serves
as the investment adviser for the Partnership. The Managing General Partner
is registered as an investment adviser under the Investment Advisers Act of
1940. Pursuant to an Investment Advisory Agreement, the Managing General
Partner performs certain services, including certain management, investment
advisory and administrative services necessary for the operation of the
Partnership. In addition, under this agreement, the Managing General Partner
is reimbursed by the Partnership for certain administrative expenses. A
summary of fees and reimbursements paid by the Partnership under the
Investment Advisory Agreement, the Partnership Agreement and the original
offering document are as follows:
The Managing General Partner received a fee equal to one-half of one
percent (0.5%) of the initial limited partnership contributions at the
initial closing date of the Partnership and is entitled to receive quarterly
fees thereafter equal to 0.5% of Total Assets, as defined in the Partnership
Agreement. For the years ended December 31, 1996, 1995 and 1994, the
Partnership incurred $193,491, $243,169 and $257,720, respectively, for such
management fees. For the years ended December 31, 1996, 1995 and 1994, the
Managing General Partner elected to calculate the quarterly fee based on the
<PAGE> 49
lesser of contributed capital or Net Assets. If the Managing General Partner
had elected to calculate the quarterly fee solely based on Total Assets, the
fee would have been approximately $234,000 greater than the cumulative fee
charged.
(3) Management and Organization Fees, Continued
During 1996, 1995, and 1994, the Managing General Partner incurred
approximately $403,000, $131,000 and $162,000, respectively, of
administrative expenses on behalf of the Partnership. Such amounts are
included in general and administrative expenses in the accompanying
statements of operations. The Partnership reimbursed approximately $239,000,
$0 and $162,000 to the Managing General Partner during 1996, 1995, and 1994,
respectively. Accordingly, the unreimbursed amounts included in accounts
payable - affiliate in the accompanying statements of assets, liabilities and
partners' equity as of December 31, 1996 and 1995 were approximately $254,000
and $131,000, respectively.
Each of the Independent General Partners receives a quarterly fee of
$6,000 and reimbursement of expenses incurred on behalf of the Partnership.
Such amounts are included in general and administrative expenses in the
accompanying statements of operations.
(4) Investments
The Partnership invests in convertible debentures and other securities
of companies that qualify as Eligible Portfolio Companies as defined in
Section 2(a)(46) of the 1940 Act or in securities that otherwise qualify for
investment as permitted in Section 55(a)(1) through (5) of the 1940 Act.
Under the provisions of the 1940 Act, as a business development company, at
least 70% of the Partnership's funds must be invested in Eligible Portfolio
Companies. Investments of the Partnership are carried in the statements of
assets, liabilities and partners' equity as of December 31, 1996 and 1995 at
quoted market or fair value, as determined in good faith by the Managing
General Partner and approved by the Independent General Partners.
The debentures held by the Partnership are convertible, at any time,
into the common stock of the borrower at a set conversion price. The common
stock acquired upon exercise of the conversion feature is generally
unregistered and is thinly to moderately traded, but is not otherwise
restricted. The Partnership generally may register and sell such securities
at anytime with the Partnership paying the costs of registration. Interest
is generally payable quarterly and all debentures have sinking fund
provisions beginning three to four years from issue date. The debentures
generally have call options, usually commencing three years subsequent to
issuance, at prices specified in the debenture agreements. The Partnership
Agreement and the original offering document specify
that securities held by the Partnership shall be valued as follows:
The Managing General Partner will, on a quarterly basis, prepare a
valuation of the Partnership assets, including the investment portfolio and
any other investments.
<PAGE> 50
For securities that are publicly traded and for which quotations are
available, the Partnership will value the investments based on the closing
sale as of the last day of the fiscal quarter, or in the event of an interim
valuation, as of the date of the valuation. If no sale is reported on such
date, the securities will be valued at the average of the closing bid and
asked prices.
Initially the investments will be primarily in nonpublicly-traded
convertible debentures, and in other instances the Partnership will hold
restricted securities. Therefore, market quotations will not always be
available for investment valuation. In such cases, the securities will be
valued by the Managing General Partner at fair value pursuant to the
following standards:
Generally, debt securities will be valued at their face value.
However, if the debt is impaired, an appropriate valuation reserve will be
established or the investment discounted to estimated realizable value. For
securities that are in a class of publicly traded securities that are
restricted from free trading (such as Rule 144 securities), valuation will be
established by appropriately discounting the closing sales or bid price to
reflect the illiquidity caused by such restriction.
Conversely, if the underlying stock has appreciated in value and the
conversion feature justifies a premium value, such premium will of necessity
be recognized. Further, if the known market value of a stock holding
indicates that an appreciated value may be realized on sale of a restricted
stock, such investment may be valued at such appreciated value regardless of
the fact that certain open-market sale restrictions apply.
The Managing General Partner, subject to the approval and supervision of
the Independent General Partners, will be responsible for determining fair
value. In the event that the Independent General Partners do not agree with
the valuations established by the Managing General Partner, they may retain
independent firms to review the Managing General Partner's methodology of
valuation or to conduct a valuation, and such appraisal shall be binding on
the Partnership.
(4) Investments, Continued
As of December 31, 1996 and 1995, the Partnership held Eligible
Portfolio Investments with a market or fair value, as determined in good
faith by the Managing General Partner and approved by the Independent General
Partners, of $8,692,818 and $9,264,655, respectively. Such values were
determined using the methodology noted above. The valuation methods,
approved by the Independent General Partners, specifically include the
following:
* Original cost
* Quoted market value
* The quoted market value of the underlying class of common stock that
the convertible debt or preferred stock may be converted into, less
estimated costs to sell and register the common stock
* Original cost less a valuation reserve for collectibility concerns
<PAGE> 51
In addition to the Eligible Portfolio Companies, the Partnership has
invested in other investments that do not meet the Eligible Portfolio Company
provisions of the 1940 Act. The investment in Biopharmaceutics, Inc. as of
December 31, 1996 is $1,967,416 in convertible debentures and $564,000 for
1,200,000 shares of common stock. The convertible debentures have been
valued by the General Partners at the underlying quoted market value of the
class of common stock that the convertible debt could have been converted
into less estimated costs to register and sell the common stock. The common
stock has been valued by the General Partners at quoted market value less
estimated costs to sell the common stock. As of December 31, 1995 the
convertible debentures were valued by the General Partners at original cost
of $1,000,000. Biopharmaceutics, Inc. is not considered an Eligible Portfolio
Company due to the fact that Biopharmaceutics, Inc. common stock was traded
on a national exchange when the Partnership investment was originally made.
The financial statements include unregistered securities of publicly-
held companies valued at $11,224,234 (86% of total assets) and $10,264,655
(97% of total assets) as of December 31, 1996 and 1995, respectively, whose
values have been estimated by the Managing General Partner and approved by
the Independent General Partners in the absence of readily ascertainable
market values. Because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have
been used had a ready market for the securities existed, and the differences
could be material.
During 1996, the Partnership wrote off its entire investment in CEL
Communications, Inc. (CEL). The Partnership foreclosed on assets of CEL
valued at $1,750,000 which are included in the Investment in Sunrise Media
LLC in the accompanying financial statements. The Partnership realized a
loss of $700,000 as a result of the write-off of CEL. In 1996, the
Partnership incurred a loss of $27,850 from their Investment in Sunrise Media
LLC which is included in the accompanying statements of operations.
As of December 31, 1996 and 1995, the net unrealized appreciation
associated with investments held by the Partnership was $4,021,125 and
$29,508, respectively.
(5) Partners' Equity
Pursuant to the terms of the Partnership Agreement, all items of income,
gain, loss and deduction of the Partnership, other than any Capital
Transaction, as defined in the Partnership Agreement, are allocated 1% to the
Managing General Partner and 99% to the Limited Partners, except prior to the
initial closing date when all items were allocated 99% to the Managing
General Partner and 1% to the Initial Limited Partner.
All items of net gain of the Partnership resulting from a Capital
Transaction, defined in the Partnership Agreement as a sale or disposition of
any portfolio investment (defined under the 1940 Act), are allocated such
that first the Limited Partners receive a cumulative simple annual return of
10% on their gross capital contributions and any remaining capital gains (net
of capital losses and unrealized depreciation) are allocated 20% to the
Managing General Partner and 80% to the Limited Partners. All items of net
capital loss resulting from Capital Transactions are allocated 1% to the
Managing General Partner and 99% to the Limited Partners. As of December 31,
1996 and 1995, the net unrealized appreciation was allocated 99% to the
Limited Partners. If investments in convertible debentures and other
investments had been disposed of at their fair values, as determined by the
Managing General Partner and approved by the Independent General Partners,
<PAGE> 52
the additional allocation to the Managing General Partner would have been
approximately $20,000 as of December 31, 1994, under the terms of the
Partnership Agreement and Investment Advisory Agreement. There would have
been no additional allocation available under these terms as of December 31,
1996 and 1995.
Distributions to the Limited Partners are made at the discretion of the
Managing General Partner, in accordance with the Partnership Agreement. As a
result of decreasing cash resources in 1996 and 1995, the distributions to
the limited partners were discontinued. In addition, the Partnership has not
paid management fees or reimbursed the Managing General Partner for all
expenses incurred on its behalf for 1995 and 1996 (see note 3). As the
Partnership's investments are liquidated or other cash resources are
obtained, the Partnership expects to reinstate such payments in whole or in
part based upon Capital Transactions and the cash resources available.
(6) Other Related Party Transactions
Certain officers of the Managing General Partner purchased limited
partnership interests in the Partnership. Distributions to these officers as
a group for the years ended December 31, 1995 and 1994 were $2,863 and
$61,588, respectively. There were no distributions in 1996.
During 1995, the Managing General Partner advanced $59,000 to the
Partnership. This amount is included in accounts payable - affiliate in the
accompanying statements of assets, liabilities and partners' equity.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1999 SEP-30-1996
<INVESTMENTS-AT-COST> 8,960,242 10,555,617
<INVESTMENTS-AT-VALUE> 12,981,367 9,763,567
<RECEIVABLES> 37,125 256,151
<ASSETS-OTHER> 57,788 111,423
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 13,076,280 10,131,141
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 885,698 823,713
<TOTAL-LIABILITIES> 885,698 823,713
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 12,040,868 12,040,868
<SHARES-COMMON-STOCK> 128 128
<SHARES-COMMON-PRIOR> 128 128
<ACCUMULATED-NII-CURRENT> 91,991 0
<OVERDISTRIBUTION-NII> 2,171,429 2,485,498
<ACCUMULATED-NET-GAINS> (1,480,621) 544,108
<OVERDISTRIBUTION-GAINS> 311,352 0
<ACCUM-APPREC-OR-DEPREC> 4,021,125 (792,050)
<NET-ASSETS> 12,190,582 9,307,428
<DIVIDEND-INCOME> 352,690 0
<INTEREST-INCOME> 341,446 108,467
<OTHER-INCOME> 0 0
<EXPENSES-NET> 602,145 422,538
<NET-INVESTMENT-INCOME> 91,991 (314,071)
<REALIZED-GAINS-CURRENT> (1,818,865) 517,217
<APPREC-INCREASE-CURRENT> 3,991,618 (821,556)
<NET-CHANGE-FROM-OPS> 2,264,744 (618,410)
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 2,264,744 (618,410)
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 26,892 26,892
<OVERDISTRIB-NII-PRIOR> 2,171,430 1,918,674
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 193,491 130,836
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 602,145 422,538
<AVERAGE-NET-ASSETS> 11,058,210 9,616,633
<PER-SHARE-NAV-BEGIN> 76,826 76,826
<PER-SHARE-NII> 706 (2,413)
<PER-SHARE-GAIN-APPREC> 16,693 (2,338)
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 94,225 72,075
<EXPENSE-RATIO> .054 .044
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
