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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [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, 1995 Commission File No. 0- 38593
RENAISSANCE CAPITAL PARTNERS II, LTD.
(Exact name of registrant as specified in its charter)
TEXAS 75-2407159
(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 $1,000
(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 or any amendment to this Form 10-K.( )
State the aggregate market value of the voting stock held by non
affiliates of the registrant.
As of December 31, 1995 there were 43,434.01 Units of Limited
Partnership Interest outstanding. A Unit is an initial offering Subscription
of $1,000. 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, 1995 is
$29,630,665. Aggregate value of the Partnership Interests held by affiliates
as of December 31, 1995 is $42,299.
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Part I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Renaissance Capital Partners II, Ltd. (sometimes referred to as the
Registrant or the Partnership ) is a Texas limited partnership, (organized
as of January 14, 1991 with commencement of operations on January 6, 1992),
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 ). On January 23,
1991 the Partnership filed a registration statement on Form N-2 for the sale
of up to 50,000 Limited Partnership Units at an offering price of $1,000 per
Unit. The Partnership continued the offering until March 31, 1992 at which
time the offering was closed.
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
Advisers 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 of Registrant ).
Generally, investments will be made in companies that have their common
stock registered for public trading under the Securities Exchange Act of
1934, as amended (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 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. 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 the 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 of 1933, as amended (the
Securities Act ), or after registration pursuant to the Securities Act.
On January 6, 1992 the minimum offering requirements had been met and
the first closing of the sale of Units occurred in the amount of $2,808,000.
Following the initial closing, the Partnership commenced carrying forward its
plan of business operations. The Partnership directs its investment efforts
to small and medium sized Portfolio Companies.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership has no concentrated industry segments. The Partnership
does not contemplate specializing in any particular industry but instead has
diversified its investments to a variety of industries.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Partnership, 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
Partnership s funds were invested in Temporary Investments consisting
primarily of money market funds.
At December 31, 1995 the Partnership s investment assets were classified
by amount as follows:
Classification Percentage
Cost of Investments
----- --------------
Eligible Portfolio Companies $28,968,505 100 %
Other Portfolio Companies none 0 %
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 Capital
Contribution 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.
Distributions will be made in such amounts as shall at the determination of
the Managing General Partner, reflect the current earnings of the
Partnership. 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.
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As a result of decreasing cash resources in 1995, the distributions to
the Limited Partners were discontinued. 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 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 varied as to both company and industry. As a general
principle, approximately ten percent (10%) (a range of 8% to 12%)
of the Portfolio Investments will be invested in any one Portfolio
Company. However, a larger percentage of the initial capital may
be invested in any one company so long as the General Partners have
reason to believe that sufficient funds will be available to
subsequently obtain a spreading of investment funds.
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The Partnership'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.
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 amendment 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
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guidance concerning management, operations, objectives or
policies of the Portfolio Company, or
(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 Units 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, not
less than 70% of the value of the Partnership assets consists of qualifying
assets. Qualifying assets include, inter alia, 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
Partnership 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
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 a quarterly fee thereafter equal to
0.5% of Net Assets, as defined in the Partnership Agreement. For the years
ended December 31, 1995, 1994 and 1993 the Managing General Partner elected
to calculate the quarterly fees based on the lesser of contributed capital or
Net Assets. Had the Managing Partner elected to calculate the quarterly fee
solely based on Total Assets, the fee would have been approximately $219,000
greater than the cumulative fee charged.
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 Interests, shall precisely describe all
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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.
The Restated Partnership Agreement was approved by the Limited Partners
upon becoming parties to the Restated Partnership Agreement by execution of
the Partnership Agreement. The Investment Advisory Agreement, which
incorporates the material investment advisory terms of the Partnership, was
approved by the General Partners of the Partnership and ratified by the
Limited Partners at the annual meeting of the Limited Partners held April 30,
1993.
PARTNERSHIP TERM
The Partnership Agreement provides for a term of eight (8) years from
the final closing of the initial offering which was March 31, 1993 subject
however 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 two (2)
additional one-year periods.
PARTNERSHIP INVESTMENTS
As of December 31, 1995 the Partnership has made nine (9) investments in
Portfolio Companies.
AMERISHOP, INC.
On July 10, 1992 the Partnership invested $750,000 in a 12.5%
convertible debenture issued by AmeriShop, Inc. ( AmeriShop ) of Grand
Rapids, Michigan as the first disbursement under a $1,500,000 loan agreement
pursuant to which the Partnership had the option to invest an additional
$750,000 subject to certain conditions. During 1993, the Partnership
advanced additional money in the form of convertible debentures and as of
December 31, 1995, holds $2,000,000 in convertible debentures from AmeriShop.
On January 21, 1994, the Partnership advanced AmeriShop $250,000, which note
was subsequently rolled into a note in the face amount of $410,000. On March
21, 1994, June 7, 1994, and August 17, 1994 the Partnership provided 12.5%
short term promissory note financing in the amount of $225,000, $300,000 and
$300,000 respectively. These advances, along with $193,448 in unpaid past
due interest, were rolled over into a single 12.5% short term promissory note
in the amount of $1,428,448 due on or before July 1, 1995.
During 1995, the Partnership made additional investments of $125,000 and
$75,000 in the form of 10% notes due March 31, 1996, bring the aggregate
promissory note balance to $1,628,448.
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As of December 31, 1995 AmeriShop had an outstanding interest balance of
$585,242, all of which was fully reserved. The Company is not in compliance
with loan covenants, nor is it in compliance with principal and interest
payment requirements. The partnership has waived default by the Company
until July 1, 1996. The Company has apparently emerged from the
developmental stage and it is anticipated the Partnership will restructure
much of its debt as an equity investment in 1996.
AmeriShop provides incentive merchandising and membership buying
programs.
Interest is payable monthly. The debentures are non-callable for three
years, provide for monthly principal installments commencing on July 1, 1995
which installments will amortize approximately one/half of the principal with
the balance due at maturity on July 1, 1999. At the option of the
Partnership, the debentures are convertible at any time into AmeriShop common
stock at $0.56 per share. The Partnership has the right to demand stock
registration and certain piggyback stock registration rights, and after April
10, 1995, at least one such registration at AmeriShop s expense.
James Kenney, formerly an officer of the Managing General Partner was
elected to the board of directors of AmeriShop as a Partnership Director
Designee. While Mr. Kenney now serves as a consultant to the Partnership
from time to time, the Partnership does not now have a Director Designee on
AmeriShop s board of directors.
BIODYNAMICS INTERNATIONAL, INC.
On March 29, 1993 the Partnership invested $2,500,000 in a 11%
convertible debenture issued by Biodynamics International, Inc.
( Biodynamics ). On November 11, 1994 The Partnership invested an additional
$1,250,000 and exchanged the convertible debenture holdings along with
accrued interest of $115,274 for 351,388 shares of the Biodynamic s 9% Series
B Convertible Preferred Stock. Effective November 30, 1995 the Partnership
exchanged the 351,388 shares of Series B 9% Convertible Preferred Stock
along with the accumulated dividends due there in the amount of $299,552 for
32,665 shares of Series C 9% Convertible Preferred Stock, stated value
$127.50 per share. This Series C Preferred Stock is convertible into the
Company s common stock at a rate of $0.85 per share or into 4,899,750 shares
of common stock. This transaction lowered the conversion price per share of
common stock from $1.10 to $0.85.
In addition to the above stock conversion, under a Senior B Loan
Agreement, the Partnership advanced DM271,358 ($189,131) mezzanine financing
in the form of a 10% convertible term note with principal and interest due
December 31, 1999. The Partnership is committed to make an additional follow
on investment of Series B loans of DM271,358, the amount in US dollars will
be determined at the date of the investment, but is anticipated to be
approximately $189,100. These loans are convertible into Series C
Preferred Stock at a stated rate of DM1.435 per US $1.00.
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Biodynamics processes, manufactures and distributes worldwide, specialty
surgical products for neuro, orthopedic, cardiovascular, reconstructive and
general surgical applications. Its major business is the processing of
tissue using the Tutoplast process, a patented method of sterilizing and
preserving skin and bone tissue for wound-care treatment. The Company is
establishing a tissue processing facility in connection with the University
of Florida Tissue Bank.
Subsequent to year end, Charles Dragone resigned as Chief Executive
Officer of the Company and Karl Meister was appointed President and CEO.
The Partnership has the right to demand stock registration and certain
piggyback stock registration rights, and after October 9, 1995 at least one
such registration at Biodynamic s expense.
Elroy G. Roelke, the Senior Vice President, General Counsel Director and
Shareholder of the Managing General Partner, has been elected to the Board of
Directors of Biodynamics, International, Inc. as the Partnership s Director
Designee.
CODED COMMUNICATIONS, INC.
On October 9, 1992 the Partnership invested $2,500,000 in a 12%
convertible debenture issued by Coded Communications, Inc. ( Coded ) of
Carlsbad, California as the first disbursement under a $3,500,000 loan
agreement pursuant to which the Partnership had the option to invest an
additional $1,000,000 subject to certain conditions. This additional
investment of $1,000,000 was made on July 21, 1993 and then a further follow-
on investment of $500,000 was made on September 24, 1993. Additionally, a
$100 an option premium was capitalized during 1993. On October 28, 1994 the
Partnership made a $750,000 Bridge Loan, secured by accounts receivable as
well as by substantially all of the assets of Coded. This loan was due on
January 1, 1995.
Coded is a manufacturer of digital transmission systems for mobilefleet
operations.
Interest is payable monthly. The debenture is non-callable for three
years and provides for monthly principal installments commencing on October
1, 1995 which installments will amortize approximately one/half of the
principal with the balance due at maturity on October 1, 1999. At the option
of the Partnership, the Debenture is convertible at any time into Coded
common stock at $1.50 per share.
In connection with a program to down-size operations, the Partnership
advanced an additional $250,000 on April 18, 1995 and extended payment of the
prior bridge loans to April 17, 1996. In connection with this financing, the
Partnership received warrants for 2,000,000 shares at $0.50 per share and a
reduction of the conversion price of the debentures from $1.50 to $0.50 per
share. No cost has been allocated to the Warrants. At December 31, 1995 the
Company was in arrears in interest payments of $662,371 against which a
reserve of $271,370 was recorded. The Company is not in compliance with the
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financial covenants of the loan agreements.
As part of restructuring plan in March, 1995 the Company began the
process of completing a non-judicial reorganization with the help of the San
Diego Credit Association. Under the plan, unsecured creditors of the Company
would be termed out over a multi year period and would be paid approximately
$0.50 on the dollar.
The Partnership has the right to demand stock registration and certain
piggyback stock registration rights, and after October 9, 1995 at least one
such registration at Company s expense.
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James Kenney, formerly an officer of the Managing General Partner was
initially elected to the Board of Directors of Coded as a Partnership
Director Designee. While Mr. Kenney now serves as a consultant to the
Partnership from time to time, the Partnership does not now have a Director
Designee to the Company Board of Directors.
U.S. FAX/COMPUTER AUTOMATION, INC., ACTION FAX, INC. AND PROTECH, INC.
On February 10, 1992 the Partnership invested $1,750,000 in a 12.5%
convertible debenture issued by Computer Automation, Inc. ( Computer
Automation ) of Richardson, Texas. On July 20, 1992 a $1,000,000 follow on
disbursement was made and the loans were restructured in a new convertible
debenture. Subsequently, in September, October and November, interim loan
financing aggregating $650,000 was provided for a total financing of
$3,400,000 as of December 12, 1992.
Computer Automation was seeking to develop a facsimile ( fax )
management system to provide lower cost fax management for multinational
companies. Additionally, it provided a maintenance and repair business for
it s installed base of process control computers.
Prior to 1993, the Company also manufactured a line of automatic test
equipment for circuit board manufactures. This product line was discontinued
during the year and was sold to Protech, Inc. of San Antonio, Texas .
During 1993, the Partnership advanced $775,000 of additional
convertible debentures to Computer Automation. Subsequently, the Partnership
restructured its position with Computer Automation. As a result, $3,500,000
of the debentures were converted into 4,000,000 shares of common stock with
an assigned cost of $1,250,000; 40,000 shares of convertible preferred stock
convertible into 4,000,000 shares of common stock with an assigned cost of
$1,250,000; 3,36,123 shares of common stock of a company affiliated with
Computer Automation, Protech, Inc., with an assigned cost of $850,000; a
secured convertible note from Protech, Inc. with an assigned cost of
$150,000, and 356,000 common stock warrants of Protech, Inc. with no cost
assigned. Additionally, $250,000 of accrued interest due to the Partnership
at December 31, 1992 was forgiven.
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As of December 31, 1994, shares and receivables from Computer Automation
have been partially reserved and have a fair value of $584,500. In 1993,
Protech, Inc. filed for liquidation pursuant to Chapter 11 of the Bankruptcy
Code and as of December 31, 1994 all shares and receivables have been fully
reserved.
Effective as of January 21, 1994 Computer Automation entered into an
agreement with Fax Access Xchange, Inc. ( FAX Inc. ) pursuant to which its
operating subsidiaries along with certain operations of FAX, Inc. would be
merged to form Action Fax International, Inc., ( Action Fax ) a new company
organized to provide an array of fax services, fax management services and
fax switching systems. Subsequently, the Board of Directors of Computer
Automation approved the dissolution of the Company. In connection with this
re-organization, the Partnership received approximately 675,000 Action Fax
shares now in payment of the principal and interest of the short term notes.
In 1995, prior to the exchange with U.S. Fax, the Partnership advanced
under four separate term notes an additional $350,000 to ActionFax. In May,
1995, as part of a recapitalization of the ActionFax investment, the
Partnership exchanged all of its ActionFax Notes and its 675,000 shares of
ActionFax International for 3,547,972 shares in U.S. Fax, Inc with a cost of
$1,625,000. U.S. Fax is a non-reporting public company which anticipates
raising additional capital to execute its business plan.
On October 6, 1995 the Partnership advanced U.S. Fax $100,000 under a
secured loan agreement providing for interest at 12% per annum payable in
monthly installments beginning November 1, 1995. As of December 31, 1995
interest was accrued and unpaid in the amount of $2,921.
The Partnership does not have a Director Designee on the Board of U.S.
Fax.
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
On December 29, 1992 the Partnership invested $2,500,000 in a 11%
convertible debenture issued by Consolidated Health Care Associates,
Inc.( CHCA ) of Franklin, Massachusetts. Further, on December 30, 1993, the
Partnership provided an additional $500,000 in convertible debentures and
$500,000 in a 11% promissory note.
CHCA operates physical therapy rehabilitation centers.
On June 30, 1994 as part of an overall restructuring of the investment,
the Partnership converted its $3,000,000 in convertible debentures, $500,000
term note, and accrued interest of approximately $195,984 for 5,000,000
shares of common stock and 1,195,984 shares of Series A Preferred Stock
convertible into 1,594,232 shares of CHCA common stock ($0.75 per share).
The Series A Preferred stock pays a 6% dividend payable quarterly, has a
mandatory conversion feature in the event that CHCH raises at least
$1,500,000 in cash equity at a price greater to or equal to $0.75 per share
and the conversion price is subject to certain anti-dilution rights. As part
of this overall restructuring, the CHCA entered into an agreement to
<PAGE>
<PAGE> 13
repurchase or to arrange for the placement of a substantial block of stock as
part of a contract settlement with the CHCA former chairman and CEO. The
Partnership loaned the CHCA $100,000 and agreed to disburse an additional
$400,000, such financing in the aggregate amount of $500,000 to be
consolidated into the issuance of the Series B Convertible Preferred Stock
with a conversion price of $0.33 per share. This final disbursement was made
on October 24, 1994 at which time the Partnership received 500,000 share of
Series B Preferred Stock. The Series B Preferred stock has a 6% coupon
payable quarterly, has a mandatory conversion feature in the event that CHCH
raises at least $1,500,000 in cash equity at a price greater to or equal to
$0.75 per share and the conversion price is subject to certain anti-dilution
rights. The Partnership did not receive dividend payments from CHCA during
the year ended December 31, 1994 or 1995.
During 1995 the Company raised additional capital from another investor
which triggered the anti-dilution protection found in the Convertible
Preferred Stock. The Partnership chose to partially waive those rights for
the transaction and in consideration received a reduction in the conversion
price of the Series A Preferred Stock from $0.75 to $0.57 per share and with
respect to the Series B Preferred Stock a reduction from $0.33 to $0.25 per
share.
James Kenney, formerly an officer of the Managing General Partner,
was elected to the Board of Directors of CHCA as the Partnership s Director.
While Mr. Kenney now serves as a consultant to the Partnership from time to
time, the Partnership does not now have a Director Designee to the Company
Board of Directors.
INDUSTRIAL HOLDINGS, INC.
On October 8, 1992 the Partnership invested $2,500,000 in a 12%
convertible debenture issued by Industrial Holdings, Inc. ( IHI ) of Houston,
Texas.
IHI is engaged in the manufacture and distribution of industrial
supplies.
Interest is payable monthly. The debenture is non-callable for three
years and provides for monthly principal installments commencing on October
1, 1995 which installments will amortize approximately one/half of the
principal with the balance due at maturity on October 1, 1999. At the option
of the Partnership, the Debenture is convertible at any time into IHI common
stock at $3.26 per share. The Partnership has the right to demand stock
registration and certain piggyback stock registration rights, and after
October 8, 1995, at least one such registration at the Company s expense.
On February 14, 1996 the Partnership entered into an agreement with the
Company whereby the Company would make a principal payment of $600,000 on its
debentures no later than March 31, 1996. In addition, the Partnership agreed
not to convert any additional debentures to common stock for the balance of
1996. As consideration for waiving the pre-payment penalty, the Partnership
received warrants for 50,000 shares of the Company s common stock at $4.00
per share.
<PAGE>
<PAGE> 14
James Kenney, formerly an officer of the Managing General Partner was
elected to the Board of Directors of IHI as the Partnership s Director
Designee. While Mr. Kenney now serves as a consultant to the Partnership
from time to time, the Partnership does not now have a Director Designee to
the Company Board of Directors.
PRISM GROUP, INC.
On November 11, 1992 the Partnership invested $2,500,000 in a 12%
convertible debenture issued by Prism Group, Inc. ( Prism ) of Woodinville,
WA. On June 1, 1994, the Partnership invested $1,000,000 in a 12% convertible
debenture.
Prism is engaged in the computer disk duplication business.
Interest is payable monthly. The debentures are non-callable for three
years and provide for monthly principal installments commencing on January 1,
1995, which installments will amortize approximately one/half of the
principal with the balance due at maturity on January 1, 2000. At the option
of the Partnership, the $2,500,000 12% convertible debenture is convertible
at any time into Prism common stock at $3.00 per share. The $1,000,000 12%
convertible debenture is convertible at $1.50 per share. The Partnership has
the right to demand stock registration and certain piggyback stock
registration rights, and after November 30, 1995 at least one such
registration at the Company s expense.
During 1995, the Company restructured its secured lending base. As part
of this restructuring, on June 30, 1995 the Partnership converted its
Convertible Debenture position into 2,500,000 shares of common stock with a
cost basis of $0.50 per share, 12,500 shares of Series A Convertible
Preferred Stock , par value of $100, with a conversion rate of $0.50 and a
new secured Convertible Debenture in the face amount of $1,288,516, that
yields 12% and is also convertible into common stock at $0.50 per share.
Both the debentures and preferred stock have anti-dilution provisions. In
addition to using the face of its existing convertible debentures, the
Partnership capitalized $288,516 of accrued but unpaid interest into the new
debenture. Accrued and unpaid interest on the new debenture at December 31,
1995 was $13,132.
James Kenney, formerly an officer of the Managing General Partner was
elected to the Board of Directors of Prism as the Partnership s Director
Designee. While Mr. Kenney now serves as a consultant to the Partnership from
time to time, the Partnership does not now have a Director Designee to the
Company Board of Directors.
SCIENTIFIC SOFTWARE/INTERCOMP, INC.
On October 30, 1992 the Partnership invested $2,500,000 in a 11%
convertible debenture. Series #A, issued by Scientific Software/Intercomp,
Inc.( SSI ) of Denver, Colorado Further, on September 30, 1993 the
Partnership provided an additional $1,000,000 in a 11% convertible
debentures, designated as Series #B.
<PAGE>
<PAGE> 15
On June 27, 1994, the Partnership converted $1,750,000 of its $2,500,000
in a 11% convertible debenture Series #A at a conversion price of $2.67.
This conversion netted the Partnership 653,846 shares of common stock, which
the Partnership simultaneously sold as part of a larger secondary offering
completed by SSI at $4.50 per share net to the Partnership. As part of this
transaction, the conversion price of the remaining $1,750,000 in convertible
debentures was changed to $2.39. Interest shall continue to accrue on the
remaining debentures.
SSI provides data processing software for the petroleum industry.
Interest is payable monthly. The remaining principal on the Series #A
debentures is non-callable for three years and provides for monthly principal
installments commencing on October 1, 1995, which installments will amortize
approximately one/half of the principal with the balance due at maturity on
October 1, 1999. At the option of the Partnership, the debenture is
convertible at any time into SSI common stock at $2.39 per share. The
Partnership has the right to demand stock registration and certain piggyback
stock registration rights, and after October 30, 1995 at least one such
registration at the SSI s expense. Except for the maturity date of October
1, 2000 the Series #B debentures are on terms equal to the initial
debentures.
At December 31, 1995, the Partnership was owed $65,235 of accrued
interest.
Russell Cleveland, the President and director of the Managing General
Partner, has been designated as the Partnership s Director Designee and
serves as an Advisory Director of the Company.
APPOINT TECHNOLOGIES, INC. (formerly Standard Logic, Inc.)
On September 4, 1992 the Partnership invested $1,250,000 in a 12%
convertible debenture issued by Appoint Technologies, Inc. (formerly Standard
Logic, Inc. and herein referred to as ATI ) of Anaheim, California as the
first disbursement under a $3,000,000 loan agreement pursuant to which the
Partnership had a standby commitment to invest an additional $750,000 subject
to certain conditions and a follow-on option to invest a further $1,000,000.
Subsequently, on December 6, 1992, January 21, 1993 and February 11, 1993
disbursements respectively of $250,000, $500,000 and $550,000 respectively,
were made as portions of the follow-on option.
ATI is engaged in the manufacturing of wire wrap assemblies and related
material on a custom basis. In addition, it entered into an agreement to
acquire Appoint, Inc. of Paso Robles, California on a stock acquisition
basis. Appoint, Inc. is a manufacturer of computer data entry devices. This
acquisition was completed on April 15, 1993 and a disbursement of $450,000
was made as the final portion of the initial commitment.
Subsequently, on June 1, June 30, June 30, August 10, and September 27,
1993 further debenture investments of $1,100,000, $150,000, $250,000,
$150,000 and $350,000, respectively were made under the convertible debenture
Loan Agreement as amended.
At December 31, 1993 ATI was in default on payment of accrued interest
and was not in compliance with certain loan covenants. By agreement with the
Company, the Partnership foreclosed on certain collateral relating to its
Appoint subsidiary and sold such collateral to the management of the
subsidiary in consideration of 2,000,000 shares of ATI stock and 4,558,875
shares of preferred stock which in convertible into common stock at $0.20 per
share. This resulted in $3,625 reduction of the principal obligation due to
the Partnership from ATI.
<PAGE>
<PAGE> 16
On August 10, 1994 a term loan of $150,000 was made secured by a lien on
certain receivables. Subsequently, the Company determined to seek a
reorganization pursuant to Chapter 11 of the Bankruptcy Code.
On September 30, 1995 the Partnership realized a loss on its investment
in Appoint Technologies, Inc. and it related investment in ATI. Both of
these investments were fully reserved in 1994. The Partnership has received
$169,769 of Appoint foreclosed assets. As of December 31, 1995 the
Partnership had recovered cash to reduce this balance to $130,791.
James Kenney, formerly an officer of the Managing General Partner was
initially elected to the Board of Directors of ATI as a Partnership Director
Designee. While Mr. Kenney now serves as a consultant to the Partnership
from time to time, the Partnership does not now have a Director Designee to
the Company Board of Directors.
TRICOM CORP.
On November 11, 1992 the Partnership invested $1,000,000 in a 12%
convertible debenture issued by Tricom Corp. ( Tricom ) of Santa Monica,
California. as the first disbursement under a $2,000,000 loan agreement
pursuant to which the Partnership has the follow-on option to invest a
further $1,000,000. An initial follow on disbursement of $500,000 was made
on March 26, 1993. Subsequently, on June 27, 1994 and December 30, 1994
further disbursements of $200,000 and $50,000, respectively were completed.
Tricom is engaged in LAN construction, telephone line construction
auditing, and the provision of coin box services for the pay telephone
industry.
Interest is payable monthly. The debentures are non-callable for three
years and provide for monthly principal installments commencing on November
1, 1995 which installments will amortize approximately one/half of the
principal with the balance due at maturity on November 1, 1999. At the
option of the Partnership, the debenture is convertible at any time into
Tricom common stock at $0.50 per share. The Partnership has the right to
demand stock registration and certain piggyback stock registration rights,
and after November 11, 1995, at least one such registration at the Company s
expense.
During 1995, additional funds were advanced in the amounts of $54,000,
$30,000 and $150,000. In connection with the loan of $150,000 in December,
1995, the Partnership received 100,002 warrants to purchase the Company s
common stock at $1.50 per share and will be reduced to $1.00 per share should
the Company not complete an IPO by November 15, 1996.
At December 31, 1995, the Company was in arrears on interest $403,264
against which a reserve of $244,056 was recorded. In addition, the Company
was not in compliance with the financial covenants of the loan agreements.
The Partnership has agreed to waive all interest on the Debentures from
January 1, 1995, to December 31, 1996, subject to completion of a successful
public offering of the Company s common stock by November 15, 1996.
James Kenney, formerly an officer of the Managing General Partner was
initially elected to the Board of Directors of ATI as a Partnership Director
Designee. Elroy G. Roelke, the Vice President, General Counsel and a
Director of the Managing General Partner was also elected to the Board of
Directors of Tricom as a Partnership Director Designee. Subsequently, Mr.
Roelke resigned from the Tricom Board of Directors. Further, while Mr.
Kenney now serves as a consultant to the Partnership from time to time, the
<PAGE>
<PAGE> 17
Partnership does not now have a Director Designee to the Company Board of
Directors.
COMPETITION FOR INVESTMENTS
The Partnership has significant competition for investment proposals.
Competitive sources for growth capital for the industry include insurance
companies, banks, equipment leasing firms, investment bankers and private
investors. Many of these sources have substantially greater financial
resources than is contemplated will be available to the Partnership.
Therefore, the Partnership will have to compete for investment
opportunities based on its ability to respond to the needs of the prospective
borrower and its willingness to provide management assistance.
In some instances, the Partnership s requirements as to provision of
management assistance will cause it to be non-competitive.
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 nine persons who
are engaged in performing the duties and functions required by the
Partnership. At the present time, a substantial portion of the Managing
General Partner's staff time is devoted to activities of the Partnership.
However, 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.
Renaissance Group currently serves as general partner and investment
advisor to Renaissance Capital Partners, Ltd. ( Renaissance I ) and as the
investment adviser to Renaissance Capital Growth & Income Fund III, Inc.
( Renaissance III ). Renaissance I is a BDC with investment objectives
similar to those of the Partnership. Renaissance III is also a BDC but
operates as a Registered Investment Company and also has investment
objectives similar to those of the Partnership. Renaissance III completed an
offering in 1994 that raised approximately $39,352,000 available for
investments. As of December 31, 1995 Renaissance III has completed five
investments and is actively seeking additional investment opportunities. In
addition, Renaissance Group is the parent of RenCap Securities, Inc., a
registered Broker/Dealer. Renaissance Group 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 are in the process
of being invested, a majority of the staff time of the Managing General
Partner is 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.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
The Partnership does not contemplate making a substantial portion of its
investments in foreign operations.
<PAGE>
<PAGE> 18
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 PROCEEDINGS
There are no legal proceedings currently pending with regard to the
Partnership.
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 1995.
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, 1995 there were approximately 1,800 beneficial
holders of Limited Partners Interest; 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 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, with the amount of the distributions to
be determined at the discretion of the General Partners. It is generally the
intention of the General Partners to distribute investment income net of
expenses on a quarterly basis. Further, distributions of capital gains will
be made as realized.
As the result of decreasing cash resources in 1995, the distributions to
the limited partners were discontinued. 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 the cash resources.
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<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
For the years ended December 31, 1995, 1994, 1993, 1992 and 1991 and the
period from January 14, 1991 (inception) through December 31, 1991:
<TABLE>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross income (loss)
(including realized losses) $(3,349,764) $4,721,515 $3,200,659 $2,028,177 $ -
Net unrealized appreciation
(depreciation)
on investments 1,443,065 (12,650,369) 10,132,217 705,102 -
Net income (loss) (2,825,200) (13,814,448) 12,309,013 2,353,425 (6,300)
Income (loss) per limited
partnership unit (64) (314) 313 152 (6)
Total assets 29,892,591 33,772,316 50,911,023 24,518,720 3,700
Distributions to partners 600,000 3,100,000 2,506,708 1,200,000 -
Distributions per limited
partnership unit 14 71 64 78 -
</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 OPERATING INCOME
Generally, the major source of operating income for the Partnership is
investment income, either in the form of interest on debentures or dividends
on stock. However, the majority of income is derived from interest and
capital gains. The Partnership will generally structure 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 doe not generally require such for services on the
board of a 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
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<PAGE> 20
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.
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 funds to make
investments in similar Portfolio Companies and may, in the future, form
additional similar investment funds. Specifically, Renaissance Group, formed
Renaissance I, a limited partnership, and raised net capital contributions of
approximately $12,100,000 in a private placement offering for the purpose of
making primarily convertible debenture investments in small and medium size
public companies. Renaissance I is currently fully invested. The Managing
General Partner has also formed Renaissance III. Renaissance III is also a
BDC with investment objectives similar to those of the Partnership. In the
event that further investments are considered by Renaissance I or Renaissance
III, or any other affiliated fund, the determination of whether a conflict of
interest does, or does not, exist between any party and the Partnership, and
the methods of 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.
REGULAR QUARTERLY PAYMENTS TO PARTNERS -- PRIORITY DISTRIBUTIONS
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 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
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 will be to provide each Limited Partner a current
return compatible with then present economic conditions.
As the result of decreasing cash resources in 1995, the distributions to
the Limited Partners were discontinued. 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 the cash resources.
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<PAGE> 21
The accounting records will be 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.
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 regular 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
Through 1992 the Partnership raised gross initial capital of
approximately $24,876,000 in the offering and after administrative and
offering expenses, brokers' commissions and management fees had a net
available capital for investments of approximately $22,596,000.
In 1993 the Partnership raised additional gross capital of approximately
$17,998,000 for an aggregate of $42,874,000 in the offering and after
administrative and offering expenses, brokers' commissions and management
fees had a net available capital for investments of approximately
$39,075,000.
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<PAGE> 22
Pending selection of investments in Portfolio Investments, the
Partnership's available capital was invested in U.S. government obligations.
During the year 1992 the Partnership invested in nine Portfolio Investments
with cost aggregating $19,400,000. Cash Distributions to Limited Partners
amounted to $697,016 in 1992 while cash provided by operating activities in
1992 amounted to $1,758,515.
During the year 1993 the Partnership invested in two additional
Portfolio Investments and made follow-on investments to existing Portfolio
Companies with cost aggregating $12,055,100. Cash Distributions to Limited
Partners amounted to $2,309,692 in 1993 while cash provided by operating
activities in 1993 amounted to $1,743,370.
During the year 1994 the Partnership made no additional Portfolio
Investments but made follow-on investments to existing Portfolio Companies
with cost aggregating $5,978,281. Cash Distributions to Limited Partners
amounted to $3,500,000 in 1994, while cash provided by operating activities
in 1993 amounted to $1,023,535.
During the year 1995 the Partnership made no additional portfolio
investments but made follow-on investments to existing portfolio companies of
$1,073,132. Cash Distributions to Limited Partners amounted to $899,862 in
1995, while operations for the year resulted in a cash deficit of $465,256.
Without the liquidation of Partnership investments, it may become
necessary for the Managing General Partner to make cash advances to meet
future partnership obligations.
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 potential
sources of available capital include gains from capital transactions.
However, 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, the
Portfolio Investment will generally be considered non-liquid, and it is not
contemplated that such gains will be realized in the near future.
Additionally, when investments are converted into common stock,
generally no dividends are paid. Further, when exchanged or converted into
preferred stock, while usually a preferred dividend payment will be provided
in the security, yet the ability of the Portfolio Company to meet such
requirement is subject to availability of current earnings or earned surplus
for dividend payments. As the result of decreasing cash resources in 1995,
the distributions to the limited partners were discontinued. 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 the cash resources.
Another possible source of available capital is debt; however, the
Partnership 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.
RESULTS OF OPERATIONS
<PAGE>
<PAGE> 23
1994 COMPARED TO 1995
During 1995 the Partnership made no additional portfolio investments but
made follow-on investments to existing portfolio companies of $1,073,132. As
a result of these follow-on and prior investments, the Partnership s income
for 1995 totaled $1,646,611 consisting of four components: interest income
aggregating $1,172,775, dividends of $449,816 and fee income and other of
$24,020. As a result of the conversion of debentures to equity investments,
and the necessity to reserve accrued interest, interest income is declining.
A continuation of dividend income will be dependent of the performance of
portfolio companies and the availability of earnings to distribute to the
Partnership. In addition, the estimated value of portfolio investments, as
determined by the Managing General Partner, indicated an increase of
$1,443,065 in fair value during 1995. The Partnership realized a loss of
$4,996,375 on the charge-off of its investment in Appoint Technologies, Inc.
during the year. Because of the inherent uncertainty of valuations, the
Estimated Fair Value as determined by the Managing General Partner 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 - Partnership
Portfolio Investments and Item -13- Certain Relationships and Related
Transactions - Valuation of Investments ).
The Partnership incurred obligations in 1995 for the quarterly
management fees to the Partnership s investment advisor, the Managing General
Partner of $562,063 and the Independent General Partners of $65,710. In
addition , the Partnership reimbursed the Managing General Partner $290,728
for expenses in accordance with the Investment Advisory Agreement.
Distributions were declared to the Limited Partners in the amount of
$600,000 in 1995, while no distributions were made to the General Partner.
1993 COMPARED TO 1994
During 1994 the Partnership made no additional Portfolio Investments but
made follow-on disbursements to existing Portfolio Companies of the aggregate
cost of $5,978,281 As a result of the new and prior investments in
convertible debenture loans, the Partnership s 1994 income totaled $2,340,894
consisting of four components: interest income in the aggregate amount of
$2,329,300, fee income of $96,953, dividend income of $240,424 and loss on
sale of short-term investments of $325,783. In addition, the estimated
value of Portfolio Investments, as determined by the Managing General
Partner, indicated a decrease of $12,650,369 in fair value during 1994. The
Partnership had $2,293,679 in net realized losses for 1994. Because of the
inherent uncertainty of valuations, the estimated Fair Value as determined by
the Managing General Partner 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 -- Partnership Portfolio Investments and Item 13
- - Certain Relationships and Related Transactions -- Valuation of
Investments ).
The Partnership incurred obligations in 1994 for the quarterly
management fees to the Partnership's investment adviser, the Managing General
Partner, of $857,478 and the Independent General Partners of $65,710. In
addition, the Partnership reimbursed the Managing General Partner $108,489
for expenses incurred in accordance with the Investment Advisory Agreement.
<PAGE>
<PAGE> 24
Distributions were declared to the Limited Partners in the amount of
$3,100,000. No distributions were made to the General Partners in 1994.
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 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 16 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 57, is the President, principal founder and the
majority shareholder of Renaissance Group. He is a Chartered Financial
<PAGE>
<PAGE> 25
Analyst who has, for over 25 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.
Vance M. Arnold, age 51, the Executive Vice President of Renaissance
Capital Group is a Chartered Financial Analyst with extensive experience
investing in emerging growth companies over the last 26 years. He has been
associated with three bank trust investment departments in Dallas and
conducted original research on emerging growth companies leading to
investment recommendations for a major southwestern regional brokerage firm.
He also managed a substantial emerging growth mutual fund for six years along
with private accounts for two investing consulting 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 65, is the Senior Vice President, General Counsel and
shareholder in Renaissance Group since January, 1989. Mr. Roelke serves as
the Investment Company director designee for the following companies
associated with Renaissance Group: Microlytics, Inc., Tricom Corporation, Cel
Communications, Inc. 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 41, is Senior Vice President and a shareholder of
Renaissance Group and 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
<PAGE>
<PAGE> 26
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 adviser,
any accountant for the Partnership, and any legal adviser 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
under the 1940 Act. The Independent General Partners supervise the Managing
General Partner and serve as advisers, 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 56, 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. Thomas W. Pauken, age 52, has experience both as a corporate executive
officer and as the head of an independent federal agency. Professionally
qualified as an attorney, he currently is the President of TWP, Inc. From
1985 to 1991, Mr. Pauken was Vice President and Corporate Counsel of Garvon,
Inc. From 1981 to 1985, Mr. Pauken served on President Reagan s transition
team as a White House staff assistant. Later, he was appointed by President
Reagan to the office of Director of ACTION, an independent federal agency
that encourages volunteerism. He also served as a White House staff
assistant and as Associate Director of the White House Fellowship program
from 1970 to 1971. Mr. Pauken served from 1986 to 1991 as Director of 50-Off
Stores, Inc. He holds a BA in Political Science from Georgetown University
and a JD degree from Southern Methodist University School of Law.
Item 11. EXECUTIVE COMPENSATION
During 1994 the following payments were made to General Partners of the
Partnership.
CASH COMPENSATION
<TABLE>
<CAPTION>
Name Capacity Compensation
---- -------- -----------
<S> <C> <C> <C>
Renaissance Group Managing General
Partner and Investment Adviser
Management fees $562,063
Expense reimbursement $290,728
<PAGE>
<PAGE> 27
Ernest C. Hill Independent $32,855
General Partner
Thomas W. Pauken Independent $32,855
General Partner
</TABLE>
QUARTERLY COMPENSATION PAYMENTS TO INDEPENDENT GENERAL PARTNERS
In return for their services to the Partnership, the Independent General
Partners are paid a regular quarterly cash payment from the Partnership in
the amount of $0.24 cents per Unit for the first 25,000 Units ($6,000) and
$0.12 per Unit for all Units in excess of 25,000, such fees being payable at
the end of the quarter. The Independent General Partners will be entitled to
full reimbursement of all reasonable expenses relative to their services on
behalf of the Partnership. During the year, payments of $65,710 were made to
each of the Independent General Partners. There were no expenses incurred
during 1994.
QUARTERLY COMPENSATION PAYMENT TO MANAGING GENERAL PARTNER
The Managing General Partner received the following compensation
payments from the Partnership:
OPERATIONAL MANAGEMENT FEES
The Managing General Partner will be paid a management fee of 0.5% per
quarter of assets under management as compensation for its fee for operating
the Partnership. In addition, the Partnership will 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.
The quarterly management fee cannot be increased without the affirmative
vote of a majority of the Limited Partnership Interests. Further, the
Managing General Partners has agreed that it will reduce its fees, if and to
the extent necessary on a yearly basis, to seek to limit the total annual
expense of the Partnership to an amount not greater than 2.75% of assets.
The Partnership incurred, during the years ended December 31, 1995, 1994
and 1993; $562,063, $857,478, and $772,441, respectively, for management
fees. For the years ended December 31, 1995 and 1994 and for the last three
quarters of 1993, the Managing General Partner elected to calculate the
quarterly fee based upon the lesser of contributed capital or Net Assets. If
the Managing General Partner had elected to calculate the quarterly fee
solely based on Net Assets, the fee would have been approximately $153,000
greater than the cumulative fee charged.
COMPENSATION PURSUANT TO PLANS
The Partnership does not have any employee benefit plans.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
LIMITED PARTNERS UNITS
<PAGE>
<PAGE> 28
At December 31, 1995 neither the Managing General Partner nor the
Independent General Partners own any Interests. The following table sets
forth information concerning the number of Limited Partnership Units (an
Initial Limited Partnership Unit equals $1,000 of Interest) of the
Partnership beneficially owned at December 31, 1994 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:
Amount
Name and Address Beneficially Percent
of Beneficial Owner Owned of Class
HEB Investment
and Retirement Plan Trust
P.O. Box 839999
San Antonio, Texas 78212 3,000 7.15%
Russell Cleveland
8080 North Central Expressway, Suite 210
Dallas, Texas 75206 125 0.23%
All directors and executive
officers of the Managing General
Partner as a group (1 person) 125 0.23%
<PAGE>
<PAGE> 29
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, 1995 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:
<TABLE>
<CAPTION>
Number of
Name and Address Shares Percent of Participation
of Beneficial Owner Owned Class Interest *
----- ----- ---------
<S> <C> <C> <C>
Russell L. Cleveland
8080 North Central Expressway Suite 210
Dallas, Texas 75206 720,000 66.66% 57.16%
Elroy G. Roelke
8080 North Central Expressway Suite 210
Dallas, Texas 75206 180,000 16.67% 14.28%
James Kenney
8080 North Central Expressway Suite 210
Dallas, Texas 75206 0 0.0%* 14.28%
Barbe Butschek
8080 North Central Expressway Suite 210
Dallas, Texas 75206 180,000 16.67% 14.28%
All directors and
executive officers of the
Managing General Partner
as a group (3 persons) 1,080,000 100.00% 100.00%
</TABLE>
* Mr. Kenney a former officer and director of the Managing General Partner
owns no stock in the Managing General Partner but has a 14.3% interest in the
Managing General Partner s Performance Distribution.
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
<PAGE>
<PAGE> 30
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 Partner. Valuations of portfolio
securities will be done in accordance with generally accepted accounting
principles and the financial reporting policies of the SEC. 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.
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
<PAGE>
<PAGE> 31
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.
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 and approve 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 Partnership and be compensated therefor. In
that regard, Mr. Roelke, who serves as Vice President, Director and General
Counsel for the Managing General Partner and as General Counsel of the
Partnership, and Mr. Thomas Spackman, Jr., who serves as Associate General
Counsel for the Managing General Partner and as Associate General Counsel of
the Partnership, along with their staff, have been primarily responsible for
SEC filings, and for related legal matters related to the formation and
operation of the Partnership, including the preparation of investment
documents and review of legal matter relating to the Partnership s investment
program.
Further, Mr. Roelke and Mr. Spackman will be primarily responsible for
legal matters relative to the investment activities of the Partnership,
including the preparation, negotiation and closing of investment commitments
and for providing assistance in legal matters relative to the administration,
collection and sale or distribution of the investments. In connection with
<PAGE>
<PAGE> 32
investment closings, the Partnership will seek to obtain reimbursement of
closing costs incurred, including legal costs from the Portfolio Company.
Expenses incurred for legal matters that relate to the administration,
collection, sale or distribution of the investments of the Partnership will
be charged to the Partnership, provided that in those circumstances where
appropriate, the Partnership will also seek to recover such costs from the
Portfolio Company. Expenses incurred for legal matters that relate to
administration of the Partnership will be charged to the Partnership.
Included in general and administrative expenses of the Partnership was
an aggregate of approximately $94,849.89 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 and for Thomas
Spackman, Jr., as Associate General Counsel. None of this amount was billed
from Partnership to Portfolio Companies for legal services. Mr. Spackman
resigned in September, 1995 to go into private practice, however, he
continues to perform services as an independent contractor for the
Partnership. Included in general and administrative expense of the
Partnership was an aggregate of approximately $138,364 in 1994 and $109,650
in 1993 paid to the Managing General Partner as reimbursement for similar
legal services.
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
year ended December 31, 1994 while in some circumstances services were
provided, no officer requested compensation.
AFFILIATED INVESTMENT COMPANIES
The Managing General Partner has formed, and plans to form other,
investment partnerships to make investments in similar Portfolio Companies.
Specifically, Renaissance Group formed Renaissance Capital Partners, Ltd.,
( Renaissance I ) a Texas limited partnership, and raised approximately
$12,100,000 in a private offering for the purpose of making primarily
convertible debenture investments in small and medium size public companies.
During 1994 the Managing General Partner formed Renaissance Capital
Growth & Income Fund III, Inc. a closed end investment company with
investment objectives comparable to the Partnership s and filed a
registration statement and raised approximately $39,352,000 for the purpose
of making convertible securities investment n small to medium size public
companies.
The determination of whether a conflict of interest does, or does not,
exist between any party and the Partnership 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.
<PAGE>
<PAGE> 33
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 1995.
EXHIBITS
3.1 Renaissance Capital Partners II, Ltd. Amended and Restated Agreement
and Articles of Limited Partnership dated as of September 30, 1991. (1)
10.1 Investment Advisory Agreement as of May 30, 1990, as amended and
restated on September 30, 1991 and March 7, 1994. (1) (2)
(1) Incorporated by reference from Form N-2 as filed with the Securities
and Exchange Commission on October 21, 1991 (Registration
No. 33-38593).
(2) Incorporated by reference from the Registrant s 1995 Proxy filed with
Securities and Exchange Commission April 5, 1996.
<PAGE>
<PAGE> 34
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 ____, 1996
Renaissance Capital Partners II, 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.
Title Date
/s/ Russell Cleveland ----- ----
- ----------------------------
Russell Cleveland Chairman, President and March 29, 1996
Director of the Managing
General Partner of the
Registrant (Principal
Executive Officer and
Principal Operating Officer)
/s/ Elroy G. Roelke
- ----------------------------
Elroy G. Roelke Senior Vice President, March 29, 1996
General Counsel and
Director of the Managing
General Partner of the
Registrant
/s/ Barbe Butschek
- ----------------------------
Barbe Butschek Senior Vice President, March 29, 1996
Secretary and Treasurer
of the Registrant of
the Managing General Partner
of the Registrant
/s/ Ernest C. Hill
- -----------------------------
Ernest C. Hill Independent General March 29, 1996
Partner of the Registrant
/s/ Thomas W. Pauken
- -----------------------------
Thomas W. Pauken Independent General March 29, 1996
Partner of the Registrant
<PAGE>
<PAGE> 35
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors Report F-2
Statements of Assets, Liabilities and Partners Equity F-3
December 31, 1995 and 1994
Portfolio of Investments- F-4 through
F7
December 31, 1995 and 1994
Statements of Operations - F-8
Years ended December 31, 1995 and 1994
Statements of Partners Equity - F-9
Years ended December 31, 1995 and 1994
Statements of Cash Flows - F-10
Years ended December 31, 1995 and 1994
Notes to Financial Statements F-11 through
F-16
<PAGE>
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
The Partners
Renaissance Capital Partners II, Ltd.:
We have audited the accompanying statements of assets, liabilities and
partners' equity of Renaissance Capital Partners II, Ltd., including the
statements of investments, as of December 31, 1995 and 1994, and the related
statements of operations, partners' equity and cash flows for each of the
years in the three-year period ended December 31, 1995. 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,
1995 and 1994, 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
II, Ltd. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 9, 1996
<PAGE>
<PAGE> 37
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statements of Assets, Liabilities
and Partners' Equity
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ --------- -----------
<S> <C> <C>
Cash and cash equivalents $ 467,916 2,873,621
Investments at fair value, cost of $28,968,505 in 1995
and $32,228,681 in 1994 (note 4) 28,598,520 30,415,631
Interest receivable 695,365 483,064
Other assets 130,790 --
---------- ----------
$ 29,892,591 33,772,316
========== ==========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Accounts payable to Managing General Partner (note 3) $ 219,489 362,487
Distributions payable to limited partners 138 300,000
---------- ----------
219,627 662,487
---------- ----------
Partners' equity (note 5):
General partner (26,009) 2,243
Limited partners (43,434.01 and 43,449.01 units
outstanding in 1995 and 1994, respectively) 29,698,973 33,107,586
---------- ----------
Total partners' equity 29,672,964 33,109,829
---------- ----------
Commitments and contingencies (notes 3 and 4)
---------- ----------
$ 29,892,591 33,772,316
========== ==========
Limited partners' equity per limited partnership unit $ 684 762
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 38
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statement of Investments
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995
----------------------------------------------------
Eligible Portfolio Investments-
Convertible Debentures and Notes Interest Due Fair
Receivable rate date Cost Value
---------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Valued at fair value as determined by
the General Partners (note 4):
AmeriShop, Inc.-premium incentive
fulfillment company:1
Convertible debenture 12.5% 7/1/99 $2,000,000 2,000,000
Note receivable varies 7/1/96 1,628,448 1,128,448
Coded Communications, Inc.-
digital data transmission
equipment manufacturers:1
Convertible debenture 12 10/1/99 4,000,100 2,500,100
Note receivable varies 4/17/96 1,000,000
Industrial Holdings, Inc.-
holding company for light
manufacturing companies:
Convertible debenture 12 10/1/99 2,475,000 2,943,808
Prism Group, Inc.-duplication
and packaging of software:1
Convertible debenture 12 1/1/100 1,288,516 1,288,516
Protech, Inc.-telecommunications:
Convertible debenture 10 9/30/99 67,500 67,500
Biodynamics International, Inc.-
specialty surgical products:1
Note receivable 10 12/31/99 189,131 189,131
U.S.Fax, Inc. - digital data
transmission equipment
manufacturer:
Note receivable 12 1/1/96 100,000 100,000
Scientific Software/Intercomp,
Inc.-software and pipeline
monitoring:1
Convertible debentures:
Series #A 11 10/1/99 750,000 884,937
Series #B 11 10/1/100 1,000,000 1,179,916
Tricom Corp.-
telecommunications network
construction:1
Convertible debenture 12 11/1/99 1,500,000 1,500,000
Notes receivable 12.5 varies 484,000 484,000
---------- ----------
16,482,695 15,266,356
---------- ----------
(Continued)
</TABLE>
<PAGE>
<PAGE> 39
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statements of Investments, Continued
<TABLE>
<CAPTION>
1995
---------------------------------------------------
Eligible Portfolio Investments-
Common and Preferred Stock
--------------------------
Fair
Shares Cost Value
------ ---- -----
<S> <C> <C> <C>
Valued at fair value as determined by
the General Partners (note 4):
Prism Group, Inc.-duplication and
packaging software:
Common stock 2,500,000 $ 1,250,000 709,375
Preferred stock 12,500 1,250,000 709,375
Biodynamics International, Inc.-
specialty surgical products:1
Preferred stock 32,665 4,164,826 3,116,492
Consolidated Health Care
Associates, Inc.-physical therapy
rehabilitation centers:1
Common stock 5,000,000 2,500,000 1,271,875
Preferred stock 1,695,984 1,695,984 1,695,984
U.S.Fax, Inc.-digital data
transmission equipment
manufacturer:
Common stock 3,547,972 1,625,000 5,829,063
--------- ---------
12,485,810 13,332,164
---------- ----------
$ 28,968,505 28,598,520
========== ==========
</TABLE>
1 - Interest or dividend payments under the terms of the convertible
debenture, note receivable or preferred stock are delinquent as of
December 31, 1995.
(Continued)
<PAGE>
<PAGE> 40
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statements of Investments, Continued
<TABLE>
<CAPTION>
1994
---------------------------------------------------
Eligible Portfolio Investments-
Convertible Debentures and Notes Interest Due Fair
Receivable rate date Cost Value
---------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Valued at fair value as determined by
the General Partners (note 4):
Action Fax International, Inc.-digital
data transmission equipment
manufacturer:1
Note receivable 12.5% 3/31/94 $ 600,000 $ 514,000
AmeriShop, Inc.-premium incentive
fulfillment company:
Convertible debenture 12.5 7/1/99 2,000,000 3,288,661
Note receivable 12.5 7/1/95 1,428,448 1,235,000
Appoint Technologies, Inc.-input
devices for personal computers:1
Note receivable 12.0 10/1/99 150,000 --
Coded Communications, Inc.-
digital data transmission
equipment manufacturers:1
Convertible debenture 12.0 10/1/99 4,000,100 2,500,100
Note receivable 12.0 1/1/95 750,000 750,000
Computer Automation, Inc.-
telecommunications networks:1
Convertible debentures 12.5 varies 675,000 584,500
Industrial Holdings, Inc.-
holding company for light
manufacturing companies:
Convertible debenture 12.0 10/1/99 2,500,000 2,459,739
Prism Group, Inc.-duplication
and packaging of software:1
Convertible debenture #1 12.0 1/1/00 2,500,000 2,500,000
Convertible debenture #2 12.0 1/1/00 1,000,000 1,000,000
Protech, Inc.-telecommunications:
Convertible debenture 10.0 9/30/99 67,500 -
</TABLE>
(Continued)
<PAGE> 41
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statements of Investments, Continued
<TABLE>
<CAPTION>
1994
---------------------------------------------------
Eligible Portfolio Investments-
Convertible Debentures and Notes Interest Due Fair
Receivable, Continued rate date Cost Value
--------------------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Valued at fair value as determined by
the General Partners (note 4):
Scientific Software/Intercomp,
Inc.-software and pipeline
monitoring:
Convertible debentures:
Series #A 11.0% 10/1/99 $ 750,000 1,843,619
Series #B 11.0 10/1/00 1,000,000 2,605,649
Tricom Corp.-
telecommunications network
construction:1
Convertible debenture 12.0 11/1/99 1,500,000 1,500,000
Notes receivable 12.5 varies 250,000 250,000
---------- ----------
19,171,048 21,031,268
---------- ----------
Eligible Portfolio Investments-
Common and Preferred Stock Shares
-------------------------- ------
Valued at fair value as determined by
the General Partners (note 4):
Appoint Technologies, Inc.-input
devices for personal computers:
Common stock 2,000,000 437,500 -
Preferred stock 4,558,875 4,558,875 -
Biodynamics International, Inc.-
specialty surgical products:1
Preferred stock 351,388 3,865,274 2,658,730
Consolidated Health Care
Associates, Inc.-physical therapy
rehabilitation centers:
Common stock 5,000,000 2,500,000 4,650,000
Preferred stock 1,695,984 1,695,984 2,075,633
---------- ----------
13,057,633 9,384,363
---------- ----------
$ 32,228,681 $ 30,415,631
========== ==========
</TABLE>
1-Interest or dividend payments under the terms of the convertible
debenture, notes
receivable or preferred stock are delinquent as of December 31, 1994.
See accompanying notes to financial statements.
<PAGE>
<PAGE> 42
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Interest $ 1,172,772 2,329,300 2,664,299
Dividend income 449,816 240,424 336,363
Loss on short term investments
(note 2) - (325,783) (70,528)
Commitment, closing and management
fees 24,000 96,953 270,525
Other 20 - -
--------- --------- ---------
1,646,611 2,340,894 3,200,659
--------- --------- ---------
Expenses (note 3):
General and administrative 356,438 353,816 251,422
Management fees 562,063 857,478 772,441
--------- --------- ---------
918,501 1,211,294 1,023,863
--------- --------- ---------
Operating income 728,110 1,129,600 2,176,796
--------- --------- ---------
Investment income (loss):
Net unrealized appreciation
(depreciation) on investments
(note 4) 1,443,065 (12,650,369) 10,132,217
Net realized loss on investments (4,996,375) (2,293,679) -
--------- ---------- ----------
Investment income (loss) (3,553,310) (14,944,048) 10,132,217
--------- ---------- ----------
Net income (loss) $ (2,825,200) (13,814,448) 12,309,013
========= ========== ==========
Limited Partners' share of net
income (loss)($(64.40),$(314.76)
and $312.63 per unit for 1995,
1994 and 1993, respectively) $ (2,796,948) (13,676,304) 12,185,923
General Partner's share of net
income (loss) (28,252) (138,144) 123,090
---------- ---------- ----------
Net income (loss) $ (2,825,200) (13,814,448) 12,309,013
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 43
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statements of Partners' Equity
<TABLE>
<CAPTIONS>
General Limited
Partner Partners Total
------- -------- -------
<S> <C> <C> <C>
Balance, December 31, 1992 $ 17,297 23,726,094 23,743,391
Proceeds from issuance of 18,307.85
limited partnership units, net of
syndication fees and brokers'
commissions of $1,519,619 (note 3) - 16,478,581 16,478,581
Net income 123,090 12,185,923 12,309,013
Distributions (note 5) - (2,506,708) (2,506,708)
------- ---------- ----------
Balance, December 31, 1993 140,387 49,883,890 50,024,277
Net loss (138,144) (13,676,304) (13,814,448)
Distributions (note 5) - (3,100,000) (3,100,000)
------- ---------- ----------
Balance, December 31, 1994 2,243 33,107,586 33,109,829
Redemption of 15 limited partnership units - (11,665) (11,665)
Net loss (28,252) (2,796,948) (2,825,200)
Distributions (note 5) - (600,000) (600,000)
------- ---------- ----------
Balance, December 31, 1995 $ (26,009) 29,698,973 29,672,964
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 44
RENAISSANCE CAPITAL PARTNERS II, LTD.
Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,825,200) (13,814,448) 12,309,013
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Net unrealized (appreciation)
depreciation on investments (1,443,065) 12,650,369 (10,132,217)
Net realized loss on investments 4,996,375 2,293,679 -
Increase in interest receivable (1,050,368) (281,806) (347,827)
Increase (decrease) in accounts payable
to Managing General Partner (142,988) 175,741 (85,599)
--------- ---------- ----------
Net provided by (used in) operating activities (465,256) 1,023,535 1,743,370
--------- ---------- ----------
Cash flows from investing activities:
Purchase of investments (1,073,132) (5,978,281) (12,055,100)
Investments in short term investments, net - 7,821,007 (7,821,007)
Proceeds from sale of investments 19,210 3,024,743 -
Repayment of principal on investments 25,000 165,000 30,000
--------- --------- ----------
Net cash provided by (used in investing activities (1,028,922) 5,032,469 (19,846,107)
--------- --------- ----------
Cash flows from financing activities:
Net proceeds from issuance of limited
partnership units - - 16,478,581
Redemption of limited partnership units (11,665) - -
Subscriptions receivable, net - - 1,059,136
Distributions to limited partners (899,862) (3,500,000) (2,309,692)
--------- --------- ----------
Net cash provided by (used in (financing activities (911,527) (3,500,000) 15,228,025
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents (2,405,705) 2,556,004 (2,874,712)
Cash and cash equivalents at beginning of the year 2,873,621 317,617 3,192,329
--------- --------- ---------
Cash and cash equivalents at end of year $ 467,916 2,873,621 317,617
========= ========= =========
</TABLE>
The fourth quarter parntership distributions of $138, $300,000 and $700,000
were accrued as of December 31, 1995, 1994 and 1993, respectively.
During 1995 and 1994, $838,067 and $308,722 of interest receivable was
capitalized to notes receivable, respectively.
During 1995 certain investments were exchanged for other assets totaling
$130,790.
See accompanying notes to financial statements.
<PAGE> 45
RENAISSANCE CAPITAL PARTNERS II, LTD.
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) Organization and Business Purpose
Renaissance Capital Partners II, Ltd. (the "Partnership"), a
Texas limited partnership, was formed in 1991. The Partnership offered to
sell units of limited partners' interest ("Units") in the Partnership. Net
contributions of $39,064,847 from sale of Units had been received upon
final closing of the Partnership on March 31, 1993. The Partnership seeks
to achieve current income and capital appreciation potential by investing
primarily in private placement convertible debt investments of small and
medium size companies which are in need of capital and which the Managing
General Partner believes offer the opportunity for growth. 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 March 31, 2001, 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
two 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). Most securities held by the Partnership are
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. The weighted average limited partnership Units outstanding were
43,434.01, 43,449.01 and 38,979.01 during 1995, 1994 and 1993,
respectively.
(d) Federal Income Taxes
No provision has been made for Federal income taxes as the liability
for such taxes is that of the partners rather than the Partnership.
(e) Short Term Investments
<PAGE>
<PAGE> 46
Short term investments represent money market and mutual fund
investments of excess cash. Such investments were valued at quoted market
value. Realized and unrealized gains (losses) on such investments are
recorded as loss on short term investments in the accompanying statements
of operations and amounted to ($325,783) in realized losses in 1994 and
$17,094 gain and ($87,622) loss, respectively, during 1993.
(f) Commitment, Closing and Management Fees
Commitment, closing and management fees represent amounts charged to
Eligible Portfolio Companies for commitments to fund additional amounts
under convertible debenture agreements, closing of convertible debenture
agreements and management services provided by the Managing General Partner
to Eligible Portfolio Companies. Such fees are recognized as income based
on the terms of the underlying convertible debenture agreements and
management agreements.
(g) 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 period. Actual results
could differ significantly from those estimates.
(h) 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 and the original
offering document are as follows:
In connection with the offering of the Units, the Partnership paid
the Managing General Partner and an affiliate of the Managing General
Partner approximately $730,000 in 1993. Such fees were for performance of
organizational, offering and marketing services by the Managing General
Partner and an affiliate.
<PAGE>
<PAGE> 47
The Managing General Partner received a fee equal to one-half of one
percent (0.5%) of the Net Assets after the initial closing date of the
Partnership and is entitled to receive quarterly fees thereafter equal to
0.5% of Net Assets, as defined in the Partnership Agreement. The
Partnership incurred, during the years ended December 31, 1995, 1994 and
1993, $562,063, $857,478 and $772,441, respectively, for such management
fees. For the years ended December 31, 1995 and 1994 and for the last
three quarters of 1993, the Managing General Partner elected to calculate
the quarterly fee based on the lesser of contributed capital or Net Assets.
If the Managing General Partner had elected to calculate the quarterly fee
solely based on Net Assets, the fee would have been approximately $153,000
greater than the cumulative fee charged.
The Managing General Partner was reimbursed by the Partnership for
administrative expenses incurred by the Managing General Partner on behalf
of the Partnership. Such reimbursements were $290,728, $108,489 and
$185,378 for the years ended December 31, 1995, 1994 and 1993,
respectively, and are included in general and administrative expenses in
the accompanying statements of operations.
Each of the Independent General Partners receives a quarterly fee of
$.24 per unit for the first 25,000 units and $.12 per unit for all units in
excess of 25,000 and reimbursement of expenses incurred on behalf of the
Partnership. Such amounts totaled $65,710, $65,710 and $65,710 in 1995,
1994 and 1993, respectively, and 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 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, 1995 and 1994, at
quoted market or fair value, as determined in good faith <PAGE> 12
by the Managing General Partner and approved by the Independent General
Partners.
The debentures and preferred stock held by the Partnership are
convertible, at any time, into the common stock of the issuer 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 any time with the Partnership paying
the costs of registration. Interest is generally payable monthly, 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:
<PAGE>
<PAGE> 48
The Managing General Partner will, on a quarterly basis, prepare a
valuation of the Partnership assets, including the investment portfolio and
any other investments.
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 estimated fair value pursuant to
the following standards:
Generally, convertible 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.
As of December 31, 1995 and 1994, 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 $28,598,520 and $30,415,631, 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>
<PAGE> 49
The financial statements include unregistered securities of
publicly-held companies valued at $28,598,520 (96% of total assets) and
$30,415,631 (90% of total assets) as of December 31, 1995 and 1994,
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.
As of December 31, 1995 and 1994, the net unrealized depreciation
associated with investments held by the Partnership was $369,985 and
$1,813,050, respectively.
As of December 31, 1995, the Partnership had, under certain
conditions, commitments to fund approximately $189,000 under convertible
debenture agreements.
(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, 1995 ,1994 and 1993, the net
unrealized appreciation or depreciation was allocated 99% to the Limited
Partners. If the investments in convertible debentures had been disposed
of at their estimated fair values, as determined by the Managing General
Partner and approved by the Independent General Partners, the additional
allocation to the Managing General Partner would have been approximately
$1,300,000 as of December 31, 1993, under the terms of the Partnership
Agreement and Investment Advisory Agreement. There would be no additional
allocation available under these terms as of December 31, 1995 and 1994.
<PAGE>
<PAGE> 50
(5) Partners' Equity, Continued
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 1995, the distributions to the
limited partners were discontinued. 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 the cash resources
available. In addition, the Managing General Partner has the discretion to
discontinue payment of the management fees or expense reimbursements if
cash resources are further limited.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<INVESTMENTS-AT-COST> 10,235,147 9,996,879 0
<INVESTMENTS-AT-VALUE> 10,264,655 12,772,941 0
<RECEIVABLES> 328,189 339,586 0
<ASSETS-OTHER> 0 5,250 0
<OTHER-ITEMS-ASSETS> 2,823 331,253 0
<TOTAL-ASSETS> 10,595,667 13,449,030 0
<PAYABLE-FOR-SECURITIES> 0 0 0
<SENIOR-LONG-TERM-DEBT> 0 0 0
<OTHER-ITEMS-LIABILITIES> 669,829 336,926 0
<TOTAL-LIABILITIES> 669,829 336,926 0
<SENIOR-EQUITY> 0 0 0
<PAID-IN-CAPITAL-COMMON> 0 0 0
<SHARES-COMMON-STOCK> 0 0 0
<SHARES-COMMON-PRIOR> 0 0 0
<ACCUMULATED-NII-CURRENT> 0 0 0
<OVERDISTRIBUTION-NII> 0 0 0
<ACCUMULATED-NET-GAINS> 0 0 0
<OVERDISTRIBUTION-GAINS> 0 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0 0
<NET-ASSETS> 9,925,838 13,112,104 0
<DIVIDEND-INCOME> 0 0 0
<INTEREST-INCOME> 33,023 899,716 961,900
<OTHER-INCOME> 6,609 9,573 12,962
<EXPENSES-NET> 428,091 485,444 421,905
<NET-INVESTMENT-INCOME> (2,722,807) (5,091,358) 1,242,405
<REALIZED-GAINS-CURRENT> 23,747 314,497 0
<APPREC-INCREASE-CURRENT> (2,746,554) (5,405,855) 1,242,405
<NET-CHANGE-FROM-OPS> (3,111,266) (4,667,513) 1,795,362
<EQUALIZATION> 0 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0 0
<DISTRIBUTIONS-OTHER> 0 0 0
<NUMBER-OF-SHARES-SOLD> 0 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0 0
<SHARES-REINVESTED> 0 0 0
<NET-CHANGE-IN-ASSETS> 0 0 0
<ACCUMULATED-NII-PRIOR> 0 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0 0
<OVERDISTRIB-NII-PRIOR> 0 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0 0
<GROSS-ADVISORY-FEES> 243,169 257,720 257,720
<INTEREST-EXPENSE> 0 0 0
<GROSS-EXPENSE> 0 0 0
<AVERAGE-NET-ASSETS> 0 0 0
<PER-SHARE-NAV-BEGIN> 101,312 0 0
<PER-SHARE-NII> 0 0 0
<PER-SHARE-GAIN-APPREC> 0 0 0
<PER-SHARE-DIVIDEND> 0 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0 0
<RETURNS-OF-CAPITAL> 0 0 0
<PER-SHARE-NAV-END> 76,826 101,312 0
<EXPENSE-RATIO> 0 0 0
<AVG-DEBT-OUTSTANDING> 0 0 0
<AVG-DEBT-PER-SHARE> 0 0 0
</TABLE>
