<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
REGISTRATION NO. 333-35557
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
POST EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELECOMMUNICATIONS INCOME FUND XI, L.P.
(Exact name of registrant as specified in its certificate)
<TABLE>
<CAPTION>
AN IOWA LIMITED PARTNERSHIP 7394
<S> <C>
(State or other (Primary Standard
jurisdiction of Industrial
incorporation or Classification)
organization)
</TABLE>
39-1904041
(I.R.S. Employer Identification No.)
100 SECOND STREET, SE
CEDAR RAPIDS, IOWA 52401
(319) 365-2506
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
THOMAS J. BERTHEL
PRESIDENT OF THE GENERAL PARTNER
100 SECOND STREET, SE
CEDAR RAPIDS, IOWA 52401
(319) 365-2506
(Address, including zip code, and telephone number,
including area code, of agent for service)
MICHAEL K. DENNEY, ESQ.
BRADLEY & RILEY, P. C.
100 FIRST STREET, SW
CEDAR RAPIDS, IOWA 52404
(319) 363-0101
(Recipient of Copies of Service)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
CROSS REFERENCE SHEET
BETWEEN ITEMS OF
FORM S-1 AND REGISTRATION STATEMENT
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover........................................ Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings To Fixed Charges.......................... Summary of the Offering and the Partnership; Risk
Factors
4. Use of Proceeds...................................... Estimated Use of Proceeds
5. Determination of Offering Price...................... Summary of the Limited Partnership Agreement
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Cover Page; Investor Suitability Standards; Plan of
Distribution; Summary of Promotional and Sales
Material
9. Description of Securities to be Registered........... Summary of the Offering and the Partnership; Summary
of the Limited Partnership Agreement
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Cover Page; Cash Distributions and Redemptions;
Compensation of the General Partner; Conflicts of
Interest; Prior
Experience of the General Partner and Affiliates;
Investment Objectives and Policies; Equipment
Acquisitions; Capitalization; Management's
Discussion and Analysis of Financial Condition;
Financial Statements of the Partnership and the
General Partner
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Fiduciary Responsibility of the General Partner
</TABLE>
<PAGE>
THIS PROSPECTUS SUPPLEMENT IS DISTRIBUTED ONLY WITH THE PROSPECTUS DATED
DECEMBER 23, 1998 AND MUST BE READ IN CONJUNCTION THEREWITH.
SUPPLEMENT NO. 1 TO PROSPECTUS
DATED DECEMBER 23, 1997
$25,000,000
TELECOMMUNICATIONS INCOME FUND XI, L.P.
AN IOWA LIMITED PARTNERSHIP
100 Second Street S.E.
Cedar Rapids, Iowa 52401
(319) 265-2506
This Supplement updates and revises the Prospectus dated December 23, 1998
(the "Prospectus"), of Telecommunications Income Fund XI, L.P. (the
"Partnership"), and forms a part of, and must be accompanied or preceded by, the
Prospectus. All cross-references used herein, except where otherwise indicated,
are to the Prospectus, and capitalized terms used herein have the same
definitions as those set forth in the Prospectus.
This page is not the cover page of the Prospectus. For complete information
concerning the Offering, including the risks of investing, all investors should
review the cover page and remainder of the Prospectus dated December 23, 1998.
The Prospectus describes the substantial risks of the Offering, including the
following:
- Limited Partners must rely solely on the General Partner.
- There are conflicts of interest between the Partnership and the General
Partner.
- Program Assets to be acquired by the Partnership are unspecified.
- The Partnership has no operating history.
- The General Partner is entitled to substantial fees which will be received
regardless of whether Limited Partners receive a return of their
investment.
- It is not certain that investors will ever receive their own money back or
that cash distributions will ever be made. Cash distributions may include
a return of capital.
- Lessees may default on leases or become bankrupt.
- Use of leverage to purchase Program Assets will increase the Partnership's
need for cash flow to meet debt service requirements.
- There are significant restrictions on the transferability of Units, and it
is not anticipated that an active market will ever develop for Units.
- Limited Partners' federal tax liability may exceed their cash
distributions for a given year.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY, NOR HAS THE COMMISSION OR ANY OTHER AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS SUPPLEMENT IS AUGUST , 1998
<PAGE>
THIS SUPPLEMENT HAS THE FOLLOWING MAJOR COMPONENTS:
I. Introduction. A brief introduction regarding the offering and the
distribution of shares and the purpose of this Supplement;
II. Investments. Information on the status of investments in Program Assets
through June 30, 1998;
III. Additional Information. A description of additional information regarding
the Partnership, the General Partner and the Offering;
IV. Financial Statements; and
V. Tabular Information Concerning Prior Transactions.
I. INTRODUCTION
The purpose of this Supplement is to update the Prospectus dated December
23, 1997 (the "Prospectus"). This Supplement discloses certain events that have
occurred and changes to the Offering since the date of the Prospectus. This
Supplement must be read in conjunction with the Prospectus. A Prospectus must
accompany this Supplement, and the two documents should be read together. The
Prospectus contains a detailed description of an investment in the Partnership,
including information relating to management of the Partnership, the
Partnership's objectives, and certain risks of investment in the Partnership, as
set forth above.
The Prospectus is amended in all material respects in which it differs from
or conflicts with this Supplement. Except as expressly set forth in this
Supplement, all defined terms used herein have the same meanings as are ascribed
to such defined terms in the Prospectus.
The purpose of this Supplement is to:
(a) Report the status of the Offering;
(b) Provide information on the status of investments of Partnership assets
through June 30, 1998;
(c) Provide certain additional information regarding the Partnership, the
General Partner and the Offering;
(d) Provide current financial statements of the Partnership and the General
Partner.
(e) Update the Tabular Information Concerning Prior Transactions, Exhibit C
to the Prospectus.
On February 18, 1998, the General Partner determined that sales of Units
exceeding the minimum offering amount of $1,200,000 had been achieved. On that
same date, First National Bank Iowa, the Escrow Agent for the Offering, released
to the Partnership $1,278,000 from the escrow fund holding the funds of
investors who had subscribed prior to that date. Of the amount released,
$1,118,250 was immediately available for investment.
As of June 30, 1998, the Partnership had received subscriptions for 3,518
Units in a total amount of $3,518,000.
2
<PAGE>
II. INVESTMENTS
As of June 30, 1998, the Partnership had entered into forty-nine (49) leases
having a total Equipment Cost of $3,438,226. Specific information regarding
these Portfolio Assets is set forth below:
<TABLE>
<CAPTION>
PURCHASE MONTHLY SOURCE OF EQUIPMENT
LESSEE EQUIPMENT PRICE TERM PAYMENT FUNDS COST
<S> <C> <C> <C> <C> <C> <C>
SHEFFIELD SYSTEMS PAY PHONES 100,000 48 2,561 E 105,000
SHEFFIELD SYSTEMS PAY PHONES 150,000 48 3,842 E 157,500
ALLTEC PAY PHONES 200,000 36 6,836 E 210,000
PIC, INC. PAY PHONES 9,800 12 882 E 10,290
ATN COMMUNICATIONS PAY PHONES 20,000 24 965 E 21,000
HOUSING WORKS TELEPHONE SYSTEM 47,715 36 1,613 E 50,101
SHEFFIELD SYSTEMS PAY PHONES 130,000 48 3,329 E 136,500
PROTECT AMERICA INC. CALL PROCESSING SYSTEM 28,185 36 918 E 29,594
KAM KEE TRADING CO MISC 3,641 48 99 E 3,823
ROCCO, ANTHONY M. PAY PHONES 12,000 36 383 E 12,600
LARUSSA REAL EST. MINI ATM'S 9,180 60 205 E 9,605
PEMM, LLC MINI ATM'S 8,995 36 285 E 9,445
KW PRODUCTS, INC MFG. EQUIPMENT 38,000 48 1,017 E 39,900
GALAXY LONG DIST. TRADE SHOW DISPLAY UNITS 7,384 25 347 E 7,729
ROBINSON, CHARLES A. MINI ATM'S 8,071 36 275 E 8,447
760 FOOD CORP MINI ATM'S 10,000 48 270 E 10,500
918 MEAT & PRODUCE MINI ATM'S 9,841 48 270 E 10,333
AMER. OVERSEAS TRD TRADE SHOW DISPLAY UNITS 5,728 13 477 E 5,992
CAMILE PRODUCTS TRADE SHOW DISPLAY UNITS 15,524 63 5,549 E 16,300
ATI INC. PAY PHONES 334,400 49 9,138 E 351,120
KW PRODUCTS MFG. EQUIPMENT 42,000 48 1,124 E 44,100
PINNACLE TECHNOLOGY TRADE SHOW DISPLAY UNITS 5,567 13 464 E 5,845
ACCUFACTS PRE-EMPLOY. TRADE SHOW DISPLAY UNITS 10,383 29 433 E 10,902
DIRECTLINK INC. TRADE SHOW DISPLAY UNITS 2,886 13 241 E 3,030
PROTECT AMERICA INC. CALL PROCESSING EQUIP 27,315 36 889 E 28,681
ROCCO, ANTHONY M. PAY PHONES 6,499 36 210 E 6,824
TRIPP, DARROL MINI ATM'S 7,920 60 179 E 8,316
ROBERTS, BENJAMIN MINI ATM'S 9,395 60 210 E 9,865
<CAPTION>
COMMISSION
LESSEE PAID PAID TO
<S> <C> <C>
SHEFFIELD SYSTEMS 5,000 GP
SHEFFIELD SYSTEMS 7,500 GP
ALLTEC 10,000 GP
PIC, INC. 490 GP
ATN COMMUNICATIONS 1,000 GP
HOUSING WORKS 2,386 GP
SHEFFIELD SYSTEMS 6,500 GP
PROTECT AMERICA INC. 1,409 GP
KAM KEE TRADING CO 182 GP
ROCCO, ANTHONY M. 600 GP
LARUSSA REAL EST. 425 GP
PEMM, LLC 450 GP
KW PRODUCTS, INC 1,900 GP
GALAXY LONG DIST. 345 GP
ROBINSON, CHARLES A. 376 GP
760 FOOD CORP 500 GP
918 MEAT & PRODUCE 492 GP
AMER. OVERSEAS TRD 264 GP
CAMILE PRODUCTS 776 GP
ATI INC. 16,720 GP
KW PRODUCTS 2,100 GP
PINNACLE TECHNOLOGY 278 GP
ACCUFACTS PRE-EMPLOY. 519 GP
DIRECTLINK INC. 144 GP
PROTECT AMERICA INC. 1,366 GP
ROCCO, ANTHONY M. 325 GP
TRIPP, DARROL 396 GP
ROBERTS, BENJAMIN 470 GP
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PURCHASE MONTHLY SOURCE OF EQUIPMENT
LESSEE EQUIPMENT PRICE TERM PAYMENT FUNDS COST
<S> <C> <C> <C> <C> <C> <C>
COMMUNICATION CONNECT. VENDING MACHINE 9,624 36 324 E 10,105
ATM NETWORK SERVICES MINI ATM'S 250,000 63 5,549 E 262,500
WARD, TIMOTHY P. PAY PHONES 45,000 60 1,059 E 47,250
A.A.A. PAYPHONE, INC. PAY PHONES 32,380 48 895 E 34,000
THE GUFFEY GROUP INC. MINI ATM'S 6,995 60 157 E 7,345
ATM NETWORK SERVICES MINI ATM'S 190,000 63 4,217 E 199,500
ATM NETWORK SERVICES MINI ATM'S 500,000 63 11,098 E 525,000
HASBROUCK HOUSE, INC. TELEPHONE SYSTEM 19,146 60 423 E 20,049
MONTELL ENTERPRISES MISCELLANEOUS 12,500 48 340 E 13,125
LITTLE LADY FOODS, INC. PACKAGING EQUIPMENT 104,144 36 3,530 E 109,351
HURLEY/BINSON'S MEDICAL MEDICAL EQUIPMENT 52,981 36 1,781 E 55,630
ALCAZAR HOMES LTD. PAY PHONES 75,000 36 2,674 E 78,750
PROTECT AMERICA INC. COMPUTER EQUIPMENT 38,950 36 1,260 E 40,897
PROTECT AMERICA INC. COMPUTER EQUIPMENT 38,950 36 1,260 E 40,897
ATM NETWORK SERVICES MINI ATM'S 574,550 63 12,758 E + C 603,050
CRESCENT PARK DISTRIBUTION CLEANING EQUIPMENT 15,529 18 733 C 16,305
SPARKS, LINDA & KENT PAY PHONES 7,106 36 228 C 7,461
STRICKLAND, DAN PAY PHONES 20,000 24 885 C 21,000
KW PRODUCTS PACKAGING EQUIPMENT 7,498 36 252 C 7,873
DICKERSON & ASSOCIATES TRADE SHOW DISPLAY UNITS 6,062 18 379 C 6,365
FIESTA NUT CORPORATION TRADE SHOW DISPLAY UNITS 8,030 13 669 C 8,431
TOTALS 3,274,874 3,438,226
----------- ------------
----------- ------------
<CAPTION>
COMMISSION
LESSEE PAID PAID TO
<S> <C> <C>
COMMUNICATION CONNECT. 481 GP
ATM NETWORK SERVICES 12,500 GP
WARD, TIMOTHY P. 2,250 GP
A.A.A. PAYPHONE, INC. 1,620 GP
THE GUFFEY GROUP INC. 350 GP
ATM NETWORK SERVICES 9,500 GP
ATM NETWORK SERVICES 25,000 GP
HASBROUCK HOUSE, INC. 903 GP
MONTELL ENTERPRISES 625 GP
LITTLE LADY FOODS, INC. 5,207 GP
HURLEY/BINSON'S MEDICAL 2,649 GP
ALCAZAR HOMES LTD. 3,750 GP
PROTECT AMERICA INC. 1,947 GP
PROTECT AMERICA INC. 1,947 GP
ATM NETWORK SERVICES 28,500 GP
CRESCENT PARK DISTRIBUTION 776 GP
SPARKS, LINDA & KENT 355 GP
STRICKLAND, DAN 1,000 GP
KW PRODUCTS 375 GP
DICKERSON & ASSOCIATES 303 GP
FIESTA NUT CORPORATION 401 GP
TOTALS 163,352
-------------
-------------
</TABLE>
E=Partnership Equity
C=Cash Reinvested
GP=General Partner
4
<PAGE>
III. ADDITIONAL INFORMATION
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership for the six months
ended June 30, 1998 have been derived from, and should be read in conjunction
with, the Financial Statements included elsewhere in this Supplement:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 30, 1997 JUNE 30, 1998
------------------- -----------------
<S> <C> <C>
INCOME............................................... $ 77 $ 115,543
NET INCOME (LOSS).................................... (408) 10,830
TOTAL ASSETS......................................... 10,593 3,127,915
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Partnership commenced leasing operations in February of 1998. This
discussion covers leasing operations from the inception of the Partnership
through the second quarter of 1998.
For the period, the Partnership generated $79,480 of lease and interest
income from its investment in direct financing leases and notes. During the same
period, the Partnership acquired $3,438,226 (Equipment Cost) of equipment. The
Partnership's lease and interest income will continue to increase as Partnership
Units are sold and the proceeds invested in direct financing leases and notes.
The gain on lease terminations of $17,764 during the period was generated
from an early termination by a lessee. The Partnership received $418,485 in cash
from the early termination. This amount will be reinvested in direct financing
leases and notes.
Management fees are paid to the General Partner and represent 2% of the
gross rental payments received. Management fees for the period amounted to
$2,874. As the lease portfolio continues to increase, management fees will
increase accordingly during the Operational Phase of the Partnership.
Administrative services of $35,000 represent fees paid to the General
Partner for the operation of the Partnership as defined in the Partnership
Agreement. These fees are reviewed annually by independent auditors.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
PERIOD AUGUST 26,
1997 (INCEPTION) TO SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
--------------------- -----------------
<S> <C> <C>
MAJOR CASH SOURCES:
Proceeds from issuance of units........................ -0- $ 3,518,000
Proceeds from sales of direct financing leases......... -0- 418,485
Repayments of direct financing leases.................. -0- 65,457
MAJOR CASH USES:
Payments for syndication costs......................... -0- 439,750
Purchase of equipment.................................. -0- 3,438,226
Distributions paid to partners......................... -0- 74,150
</TABLE>
The demand for equipment leases is strong and as Partnership Units are sold,
the Partnership's available cash will be used to acquire equipment for
investment in direct financing leases and notes.
5
<PAGE>
At June 30, 1998, adequate cash is being generated to make projected
distributions and allow for reinvestment of a portion of the cash to fund
additional leases and notes.
The present value of the portfolio at June 30, 1998 discounted at 9.6% was
$3,045,812.
As of June 30, 1998, automated teller machines ("ATMs") accounted for 9.6%
of all equipment owned by the Partnership. As of June 30, 1998, 12% of all
equipment owned by the Partnership (as determined by equipment cost) was leased
to a single lessee, Sheffield Systems, and 10% of all equipment owned by the
Partnership (as determined by equipment cost) was leased to ATI, Inc.
The Partnership's primary sources of cash will continue to be proceeds from
the sale of Units, investment income, lease income and proceeds from sale of
Equipment. Its primary uses of cash have been and will continue to be the
acquisition of Program Assets, payment of expenses involved in the sale of
Units, organization of the Partnership, management of Program Assets, and
administration of the Partnership, and the payment of Distributions.
The Partnership Agreement requires that no more than 18.5% of the proceeds
from the sale of Units be applied to Organizational and Offering Expenses and
that such expenses, together with Acquisition Fees and Acquisition Expenses, not
exceed 20% of the proceeds from the sale of Units. As set forth under the
caption "Estimated Use of Proceeds" of the Prospectus, the General Partner
anticipates that 18.5% of such proceeds will be applied to cover organization
and offering expenses if only the minimum proceeds are obtained. To the extent
organization and offering expenses actually incurred exceed 18.5% of proceeds,
they are to be borne by the General Partner.
INFORMATION CONCERNING THE LIQUIDITY AND CAPITAL RESOURCES OF THE GENERAL
PARTNER
The information in the following section relates to the financial condition
of the General Partner, not to the financial condition of the Partnership. For
information concerning developments regarding the financial condition of the
Partnership since the date of the Prospectus, see ADDITIONAL INFORMATION, above.
In addition to acting as sponsor and general partner of programs like the
Partnership, the General Partner originates lease and note financing for third
parties for its own account. The General Partner has relied primarily on bank
debt financing to originate these leases and notes receivable in the past.
At June 30, 1998, the Company had a $10 million revolving line-of-credit
with Firstar Bank Milwaukee, N.A. ("Firstar") with an expiration date of April
30, 1998, which had been extended by agreement of Firstar and the General
Partner to June 30, 1998. This agreement has expired and will not be renewed by
Firstar. Management of the General Partner is currently attempting to establish
a new line of credit with another lender. The General Partner is currently
engaged in efforts to sell a portion of its portfolio to repay the remaining
line of credit debt of approximately $4.2 million as of July 24, 1998. The
General Partner does not expect to incur any loss on the portfolio assets it may
sell. Presently the General Partner and Firstar have agreed that all payments
pursuant to leases or notes pledged by the General Partner to secure repayment
to Firstar of indebtedness outstanding pursuant to the line of credit, and all
proceeds of sales of these leases and notes, will be paid directly to Firstar
for application to amounts due pursuant to the line of credit. By letter dated
August 6, 1998, Firstar notified the General Partner that it would stand by, and
permit this arrangement to continue without penalty through September 8, 1998.
Firstar has indicated, however, that after September 8, 1998, while Firstar will
continue to stand by, any amount outstanding pursuant to the line of credit will
bear interest at a default rate, which is 2% higher than the rate presently
applicable to the line of credit. Firstar has also advised the General Partner
that it will stand by only through September 30, 1998. If the General Partner
has not repaid Firstar in full as of September 30, 1998, there can be no
assurance that Firstar will not exercise its available remedies under the
line-of-credit agreement.
6
<PAGE>
To continue initiating financing transactions for its own account, the
General Partner must locate a lender to extend to the General Partner a line of
credit on acceptable terms, or obtain alternative financing through the sale of
leases from its portfolio, or an additional debt or equity investment from its
parent company. There can be no assurance that the General Partner will succeed
in obtaining a line of credit on acceptable terms. The ability of the General
Partner to obtain a line of credit will depend upon a variety of factors,
including its creditworthiness, interest rate increases and the ability of the
General Partner to improve its operations in 1998. Likewise, alternative
financing may not be available to the Partnership, depending upon a variety of
factors, including without limitation the possibility that purchasers of leases
cannot be found, and the willingness and ability of the General Partner's parent
company to provide additional financing. If the General Partner is unable to
obtain adequate financing to continue initiating financing transactions for its
own account, its operating results will be materially adversely affected.
The General Partner's current business plan is dependent upon the success of
the Offering. Through July 24, 1998, approximately $3,692,000 has been raised
out of a maximum offering amount of $25,000,000. No assurance can be provided
that such offering will be completed as planned. If the Offering is successful,
the Partnership will have substantial assets available with which to originate
leases and finance contracts. This will result in payment to the General Partner
of acquisition fees and management fees. However, the Offering could be
terminated due to several factors, including lack of investor interest. If this
occurs, the General Partner will not have available significant additional
capital with which to originate leases for the Partnership. If the General
Partner does not have available significant additional capital with which to
originate leases for the Partnership, it will not realize significant revenue
from management fees and acquisition fees. The General Partner's long term
success is therefore highly dependent upon a successful offering of the
Partnership's Units.
FEES TO THE GENERAL PARTNER
The General Partner will receive substantial fees in connection with the
operation of the Partnership, regardless of whether investors receive a return
of their investment. These fees include an Acquisition Fee of equipment acquired
and financing placed; Management Fees of 2% of payments received by the
Partnership on account of its leasing and financing activities; Re-Leasing Fees
equal to 2% of gross rental payments received from the re-lease of Equipment,
Expense Reimbursements equal to the lesser of actual expenses incurred, or the
amount the Partnership would be required to pay to an unaffiliated third party
for similar services. In addition, after Limited Partners have received a return
of 100% of their original investment in the Partnership, plus a 9.6% annual
return on their investment, and no less than an 8.0% annual, cumulative return,
compounded daily, distribution based on their Adjusted Capital Contributions,
the General Partner is also entitled to be paid 20% of any remaining Liquidating
Distributions. For a complete listing of the fees to be paid by Investors in
connection with the Offering and the Partnership, please see the summary on page
23 of the Prospectus.
TREATMENT OF DISTRIBUTIONS
The percentage amount discussed on page 74 of the Prospectus is a
contractual term, not a projected rate of return. The percentage amount relates
solely to the point at which distributions will be counted as return of capital
for the purpose of determining when Limited Partners have received the return to
which they are entitled before the General Partner is entitled to begin to share
in any profits of the Partnership. The percentage rate on page 74 does not
suggest any rate of return that a Limited Partner should expect, or will
receive.
RELATIONSHIP WITH INTELLICALL, INC.
Thomas J. Berthel, the president of the General Partner, is a director and
shareholder of Intellicall, Inc. ("Intellicall"), which manufactures pay phone
equipment. Please see page 29 of the Prospectus. Mr. Berthel has undertaken that
he will not, in his capacity as a director of Intellicall, vote on any matters
7
<PAGE>
relating to dealings between Intellicall and the Partnership. In addition, the
Partnership will not purchase any equipment from Intellicall for the purpose of
lease, or otherwise, unless the terms of such purchase have been negotiated by a
third party lessee for the use of which the Partnership is acquiring the
equipment.
ESTABLISHMENT OF RESERVES AGAINST LOSSES IN PRIOR PROGRAMS OPERATED BY THE
GENERAL PARTNER.
Two other programs managed by the General Partner, Telecommunications Income
Fund IX, L.P. ("TIF IX") and Telecommunications Income Fund X, L.P. ("TIF X"),
have experienced defaults on leases and notes with North American Communications
Group, Inc. ("NAC"). NAC had total obligations to TIF IX as of December 31, 1997
in the net amount of $1,596,739, and total obligations to TIF X as of that date
in the net amount of $3,140,959. On February 20, 1998, TIF IX and TIF X filed a
lawsuit to foreclose on the collateral granted by NAC in connection with the
notes and the equipment held by NAC pursuant to the leases. On March 5, 1998,
the General Partner decided to reserve the full value carried on the financial
statements of TIF IX and TIF X, with respect to leases and notes with NAC, as of
December 31, 1997. Leases and notes with NAC constitute 12% and 15% of the
portfolios of TIF IX and TIF X, respectively. In the event the loss reserve
amounts are not recovered through litigation, the overall performance of TIF IX
and TIF X will be materially negatively affected.
8
<PAGE>
IV. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
Balance Sheets (Unaudited) as of December 31, 1997 and June 30, 1998... 10
Statements of Operations (Unaudited) for the three month periods ended
June 30, 1997 and June 30, 1998...................................... 11
Statements of Operations (Unaudited) for the sixth month periods ended
June 30, 1997 and June 30, 1998...................................... 12
Statement of Operations (Unaudited) for the period August 26, 1997
(Inception) to December 31, 1997..................................... 13
Statement of Changes in Partners' Equity (Unaudited) for the sixth
month period ended June 30, 1998..................................... 14
Statement of Cash Flows (Unaudited) for the sixth month period ended
June 30, 1998........................................................ 15
Notes to Financial Statements (Unaudited) dated June 30, 1998.......... 16
BERTHEL FISHER & COMPANY LEASING, INC.
Independent Auditors' Report........................................... 19
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1997........... 20
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................................. 21
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the years ended December 31, 1995, 1996 and 1997................. 22
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................................. 23
Notes to Consolidated Financial Statements............................. 25
Balance Sheet (Unaudited) as of June 30, 1998.......................... 42
Statement of Operations and Comprehensive Income (Loss) (Unaudited) for
the three month periods ended June 30, 1997 and June 30, 1998........ 43
Statement of Operations and Comprehensive Income (Loss) (Unaudited) for
the six month periods ended June 30, 1997 and June 30, 1998.......... 44
Statement of Cash Flows (Unaudited) for the six month periods ended
June 30, 1998 and June 30, 1997...................................... 45
Notes to Financial Statements (Unaudited) dated June 30, 1998.......... 46
</TABLE>
The following financial statements are provided in addition to the financial
statements found on pages 85 through 110 of the Prospectus.
9
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 31, 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents..................................................... $ 193,524 $ 10,593
Net investment in direct financing leases and notes receivable (Note B)....... 2,977,610 -0-
Allowance for possible losses................................................. (51,573) -0-
------------- -------
Notes receivable and direct financing leases, net............................. 2,926,037 10,593
Other assets.................................................................. 8,354 -0-
------------- -------
TOTAL ASSETS.................................................................... $ 3,127,915 $ 10,593
------------- -------
------------- -------
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Payable to affiliates......................................................... $ 38,834 $ -0-
Distributions payable to partners............................................. 26,779 -0-
Accrued expenses and other liabilities........................................ 16,575 -0-
Lease security deposits....................................................... 50,815 -0-
------------- -------
TOTAL LIABILITIES............................................................... 133,003 -0-
------------- -------
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding.............................. 9,196 9,593
Limited partners, 3,518 units at June 30, 1998 and 1 unit at December 31, 1997
issued and outstanding...................................................... 2,985,716 1,000
------------- -------
TOTAL PARTNERS' EQUITY.......................................................... 2,994,912 10,593
------------- -------
TOTAL LIABILITIES AND PARTNERS' EQUITY.......................................... $ 3,127,915 $ 10,593
------------- -------
------------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- ---------------
<S> <C> <C>
INCOME:
Lease and interest income......................................................... $ 60,077 $ -0-
Gain on lease terminations........................................................ 17,764 -0-
Other............................................................................. 15,708 -0-
------------- ---
Total income........................................................................ 93,549 -0-
------------- ---
EXPENSES:
Management fees................................................................... 2,541 -0-
Administrative services........................................................... 21,000 -0-
Provision for possible losses..................................................... 33,487 -0-
Other............................................................................. 10,112 -0-
------------- ---
Total expenses...................................................................... 67,140 -0-
------------- ---
Net income.......................................................................... $ 26,409 $ -0-
------------- ---
------------- ---
Net income per partnership unit..................................................... $ 8.07 $ -0-
------------- ---
------------- ---
Weighted average partnership units outstanding...................................... 3,273 -0-
</TABLE>
SEE ACCOMPANYING NOTES.
11
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- ---------------
<S> <C> <C>
INCOME:
Lease and interest income......................................................... $ 79,480 $ -0-
Gain on lease terminations........................................................ 17,764 -0-
Other............................................................................. 18,299 -0-
------------- ---
Total income........................................................................ 115,543 -0-
------------- ---
EXPENSES:
Management fees................................................................... 2,874 -0-
Administrative services........................................................... 35,000 -0-
Provision for possible losses..................................................... 51,573 -0-
Other............................................................................. 15,266 -0-
------------- ---
Total expenses...................................................................... 104,713 -0-
------------- ---
Net income.......................................................................... $ 10,830 $ -0-
------------- ---
------------- ---
Net income per partnership unit..................................................... $ 4.37 $ -0-
------------- ---
------------- ---
Weighted average partnership units outstanding...................................... 2,480 -0-
</TABLE>
SEE ACCOMPANYING NOTES.
12
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF OPERATIONS
(UNAUDITED) FOR THE PERIOD
AUGUST 26, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
REVENUES
Other Income....................................................................... $ 77
---------
TOTAL REVENUES....................................................................... $ 77
TOTAL COST OF REVENUES............................................................... $ 0
---------
GROSS PROFIT......................................................................... $ 77
---------
EXPENSES
Miscellaneous Other Expenses....................................................... $ 485
TOTAL OTHER EXPENSES................................................................. $ 485
---------
NET LOSS............................................................................. $ (408)
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
13
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL
PARTNER LIMITED PARTNERS TOTAL
----------- ----------------------- PARTNERS'
(10 UNITS) UNITS AMOUNT EQUITY
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997...................................... $ 9,593 1 $ 1,000 $ 10,593
Proceeds from sale of limited partnership interests............... -0- 2,731 2,731,000 2,731,000
Syndication costs incurred........................................ -0- -- (341,375) (341,375)
Withdrawal of initial limited partner............................. -0- (1) (1,000) (1,000)
Net loss for 1st Quarter 1998..................................... (57) -- (15,522) (15,579)
Distributions..................................................... (197) -- (28,668) (28,865)
----------- --------- ------------ ------------
Balance at March 31, 1998......................................... 9,339 2,731 $ 2,345,435 $ 2,354,774
Proceeds from sale of limited partnership interests............... -0- 787 787,000 787,000
Syndication costs incurred........................................ -0- -- (98,375) (98,375)
Net income for 2nd Quarter 1998................................... 97 -- 26,312 26,409
Distributions..................................................... (240) -- (74,656) (74,896)
----------- --------- ------------ ------------
Balance at June 30, 1998.......................................... $ 9,196 3,518 $ 2,985,716 $ 2,994,912
----------- --------- ------------ ------------
----------- --------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
-----------------
<S> <C>
OPERATING ACTIVITIES
Net income..................................................................................... $ 10,830
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on lease terminations................................................................... (17,764)
Provision for possible losses................................................................ 51,573
Changes in operating assets and liabilities:
Other assets................................................................................. (8,354)
Due to affiliates............................................................................ 38,834
Accrued expenses and other liabilities....................................................... 16,575
-----------------
Net cash provided by operating activities...................................................... 91,694
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct financing leases..................... (2,685,820)
Issuance of notes receivable................................................................. (752,410)
Repayments of direct financing leases........................................................ 57,067
Proceeds from sales of direct financing leases............................................... 418,485
Net lease security deposits collected........................................................ 50,815
-----------------
Net cash used in investing activities........................................................ (2,911,863)
FINANCING ACTIVITIES
Proceeds from sale of partnership interests.................................................. 3,518,000
Syndication costs incurred................................................................... (439,750)
Distributions and withdrawal paid to partners................................................ (75,150)
-----------------
Net cash provided by financing activities.................................................... 3,003,100
Net increase in cash and cash equivalents...................................................... 182,931
Cash and cash equivalents at beginning of period............................................... 10,593
-----------------
Cash and cash equivalents at end of period..................................................... $ 193,524
-----------------
-----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Distributions payable to partners at June 30, 1998........................................... $ 26,779
</TABLE>
SEE ACCOMPANYING NOTES
15
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
NOTE B--NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
Components of the net investment in direct financing leases and notes
receivable are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Lease payments receivable...................................................... $ 2,730,355
Note payments receivable....................................................... 874,147
Unamortized initial direct costs............................................... 2,677
Estimated residual values of leased equipment.................................. 180,116
Unearned lease income.......................................................... (809,685)
-------------
Net investment in direct financing leases and notes receivable................. $ 2,977,610
-------------
-------------
</TABLE>
NOTE C--NET INCOME PER PARTNERSHIP UNIT
Net income per Partnership Unit is based on the weighted average number of
units outstanding (including both general and limited partners) which were 2,480
for the period from January 1, 1998 to June 30, 1998.
16
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
INDEPENDENT AUDITORS' REPORT
17
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... 19
Consolidated Financial Statements:
Consolidated Balance Sheets................................................................................ 20
Consolidated Statements of Operations...................................................................... 21
Consolidated Statements of Changes in Stockholders' Equity (Deficit)....................................... 22
Consolidated Statements of Cash Flows...................................................................... 23
Notes to Consolidated Financial Statements................................................................. 25
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Berthel Fisher & Company Leasing, Inc.
We have audited the accompanying consolidated balance sheets of Berthel
Fisher & Company Leasing, Inc. (a majority-owned subsidiary of Berthel Fisher &
Company) and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company'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. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Berthel Fisher & Company
Leasing, Inc. and subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Cedar Rapids, Iowa
March 5, 1998
19
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS (Note 5):
Cash and cash equivalents.......................................................... $ -- $ 342,726
Notes receivable (Note 2).......................................................... 6,836,307 6,530,354
Net investment in direct financing leases (Note 2)................................. 7,725,276 9,850,360
Allowance for possible loan and lease losses (Note 3).............................. (435,292) (412,916)
------------ ------------
Notes receivable and direct financing leases, net.................................. 14,126,291 15,967,798
Equipment under operating leases, less accumulated depreciation of $31,136 in 1997
and $50,517 in 1996.............................................................. 117,978 277,964
Due from affiliates................................................................ 61,932 30,930
Receivable from parent under tax allocation agreement.............................. 425,000 --
Investments in:
Limited partnerships (Notes 4 and 12)............................................ 174,826 153,771
Not readily marketable securities, at cost....................................... 30,100 250,477
Available-for-sale security, at fair value....................................... 51,817 --
Furniture and equipment, less accumulated depreciation of $167,548 in 1997 and
$120,200 in 1996................................................................. 190,760 222,853
Deferred income taxes (Note 6)..................................................... 388,362 515,911
Deferred costs, less accumulated amortization of $335,469 in 1997 and $158,924 in
1996 (Note 11)................................................................... 520,935 635,194
Other assets....................................................................... 319,963 331,702
------------ ------------
TOTAL................................................................................ $ 16,407,964 $ 18,729,326
------------ ------------
------------ ------------
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Line-of-credit agreement (Note 5).................................................. $ 6,761,493 $ 9,276,031
Demand note payable to parent...................................................... 230,000 --
Outstanding checks in excess of bank balance....................................... 126,982 --
Trade accounts payable............................................................. 29,619 158,227
Due to affiliates.................................................................. 99,427 102,038
Accrued expenses................................................................... 197,438 228,014
Lease security deposits............................................................ 358,243 374,876
Notes payable (Note 5)............................................................. 1,529,930 2,310,805
Subordinated debentures (Note 5)................................................... 725,000 725,000
Subordinated notes payable (Note 5)................................................ 2,996,564 2,995,522
Subordinated debenture payable to parent (Note 5).................................. 2,000,000 2,000,000
------------ ------------
Total liabilities.............................................................. 15,054,696 18,170,513
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK (Note 7).............................. 730,929 722,905
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A preferred stock, no par value--authorized 125,000 shares, issued and
outstanding 125,000 and 30,341 shares at December 31, 1997 and 1996,
respectively, (Note 8) ($1,750,000 and $424,774 liquidation value, convertible
into 109,375 and 26,548 shares of Class A common stock at December 31, 1997 and
1996, respectively).............................................................. 1,621,422 422,835
Class A common stock, no par value--authorized 1,000,000 shares, issued and
outstanding 403,900 and 400,000 shares at December 31, 1997 and 1996,
respectively..................................................................... 63,400 1,000
Common stock warrants (Note 9)..................................................... 237,660 66,684
Accumulated deficit................................................................ (1,192,484) (654,611)
Unrealized loss on available-for-sale security, net of tax effect.................. (107,659) --
------------ ------------
Total stockholders' equity (deficit)........................................... 622,339 (164,092)
------------ ------------
TOTAL................................................................................ $ 16,407,964 $ 18,729,326
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Income from direct financing leases................................... $ 1,049,329 $ 1,376,154 $ 946,271
Interest income....................................................... 838,265 1,060,118 655,986
Management and lease acquisition fees from affiliates (Note 4)........ 772,768 849,266 1,156,632
Income from monitoring contracts...................................... -- -- 66,978
Gain on early termination of leases................................... 54,554 147,300 79,874
Gain on disposal of investments....................................... -- -- 65,585
Other................................................................. 141,375 139,114 201,650
------------ ------------ ------------
Total revenues...................................................... 2,856,291 3,571,952 3,172,976
------------ ------------ ------------
EXPENSES:
Employee compensation and benefits.................................... 398,635 854,802 710,863
Management fees to affiliates (Note 11)............................... 287,146 561,134 682,419
Expenses of monitoring contracts...................................... -- -- 82,712
Other general and administrative expenses (Note 11)................... 684,315 1,062,298 879,233
Interest expense (Note 5)............................................. 1,743,345 1,791,120 1,227,530
Provision for possible loan and lease losses (Note 3)................. 415,052 592,874 175,139
------------ ------------ ------------
Total expenses...................................................... 3,528,493 4,862,228 3,757,896
------------ ------------ ------------
LOSS BEFORE INCOME TAXES................................................ (672,202) (1,290,276) (584,920)
INCOME TAXES (Note 6)................................................... (236,451) (453,720) (191,200)
------------ ------------ ------------
NET LOSS................................................................ (435,751) (836,556) (393,720)
LESS DIVIDENDS ON SERIES A PREFERRED STOCK.............................. (94,098) -- --
------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO CLASS A COMMON STOCK........................... $ (529,849) $ (836,556) $ (393,720)
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.............................. 403,900 400,000 400,000
------------ ------------ ------------
------------ ------------ ------------
LOSS PER COMMON SHARE:
Basic................................................................. $ (1.31) $ (2.09) $ (.98)
Diluted............................................................... (1.31) (2.09) (.98)
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
RETAINED LOSS ON TOTAL
SERIES A CLASS A COMMON EARNINGS AVAILABLE- STOCKHOLDERS'
PREFERRED COMMON STOCK (ACCUMULATED FOR-SALE EQUITY
STOCK STOCK WARRANTS DEFICIT) SECURITY (DEFICIT)
----------- ----------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994................. $ 1,000 $ 543,985 $ 544,985
Net loss................................... -- (393,720) (393,720)
Amortization of Class B stock issuance
costs.................................... -- (8,023) (8,023)
Gain on redemption of Class B stock (Note
7)....................................... -- 27,270 27,270
Gain on redemption of redeemable preferred
stock of subsidiary
(Note 1)................................. -- 20,457 20,457
----------- ------------ ------------
BALANCE AT DECEMBER 31, 1995................. 1,000 189,969 190,969
Net loss................................... -- (836,556) (836,556)
Amortization of Class B stock issuance
costs.................................... -- (8,024) (8,024)
Issuance of Series A preferred stock and
warrants, net of issuance costs of
$1,939................................... $ 422,835 -- $ 60,682 -- 483,517
Subscription for Series A preferred stock
and warrants............................. 12,726 -- 1,818 -- 14,544
Subscription receivable.................... (12,726) -- (1,818) -- (14,544)
Issuance of common stock warrants.......... -- -- 6,002 -- 6,002
----------- ----------- --------- ------------ ------------
BALANCE AT DECEMBER 31, 1996................. 422,835 1,000 66,684 (654,611) (164,092)
Net loss................................... -- -- -- (435,751) (435,751)
Amortization of Class B stock issuance
costs.................................... -- -- -- (8,024) (8,024)
Issuance of Series A preferred stock and
warrants, net of issuance costs of
$144,981 (including $14,544 of cash
received on subscriptions receivable).... 1,198,587 -- 170,976 -- 1,369,563
Issuance of Class A common stock........... -- 62,400 -- -- 62,400
Change in unrealized loss on available-
for-sale security, net of tax effect..... -- -- -- -- $ (107,659) (107,659)
Dividends on Series A preferred stock...... -- -- -- (94,098) -- (94,098)
----------- ----------- --------- ------------ ---------- ------------
BALANCE AT DECEMBER 31, 1997................. $ 1,621,422 $ 63,400 $ 237,660 $(1,192,484) $ (107,659) $ 622,339
----------- ----------- --------- ------------ ---------- ------------
----------- ----------- --------- ------------ ---------- ------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................................... $ (435,751) $ (836,556) $ (393,720)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Gain on early termination of leases............................ (54,554) (147,300) (79,874)
Gain on disposal of investments................................ -- -- (65,585)
Loss on abandonment of leasehold improvements.................. -- -- 20,672
Amortization of investment in monitoring contracts............. -- -- 57,090
Depreciation of furniture and equipment........................ 83,192 106,970 35,723
Amortization of deferred costs................................. 176,659 102,273 93,131
Amortization of deferred revenue............................... -- -- (15,785)
Other amortization............................................. 30,440 36,006 36,312
Provision for possible loan and lease losses................... 415,052 592,874 175,139
Deferred income taxes.......................................... 188,549 (457,871) (211,200)
Changes in operating assets and liabilities:
Due from affiliates.......................................... (31,002) 58,914 46,864
Receivable from parent under tax allocation agreement........ (425,000) -- 43,460
Other assets................................................. 11,739 79,389 (242,089)
Outstanding checks in excess of bank balance................. 126,982 -- --
Trade accounts payable, excluding equipment purchase costs
accrued.................................................... (128,608) (70,558) 180,336
Due to affiliates............................................ (2,611) 25,540 (3,988)
Accrued expenses............................................. (30,576) (17,877) 16,485
------------- ------------- -------------
Net cash from operating activities......................... (75,489) (528,196) (307,029)
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of equipment for direct financing leases............... (2,327,220) (11,687,165) (6,532,872)
Repayments of direct financing leases............................ 2,944,913 2,102,819 2,455,454
Proceeds from sale or early termination of direct financing
leases and notes receivable.................................... 1,299,597 9,439,276 2,954,920
Issuance of notes receivable..................................... (1,609,538) (3,746,893) (5,543,306)
Repayments of notes receivable................................... 1,303,585 1,899,901 1,380,182
Investments in limited partnerships.............................. (10,000) -- (418,381)
Repayment (issuance) of loans to limited partnerships............ (43,775) 308,165 --
Distributions from limited partnerships.......................... 2,280 2,280 16,636
Proceeds from sale of monitoring contracts....................... -- -- 478,652
Net lease security deposits collected............................ (16,633) 244,916 7,882
Purchases of furniture and equipment............................. (21,540) (123,200) (134,560)
------------- ------------- -------------
Net cash from investing activities......................... 1,521,669 (1,559,901) (5,335,393)
------------- ------------- -------------
(Continued)
</TABLE>
23
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Financing costs incurred......................................... (500,365) (87,123)
Proceeds from line-of-credit agreement........................... 8,223,772 18,323,060 16,928,589
Repayments of line-of-credit agreement........................... (10,738,310) (17,622,529) (10,263,089)
Proceeds from issuance of subordinated notes payable and related
warrants....................................................... -- 3,001,524 --
Proceeds from issuance of other borrowings....................... 650,884 1,365,413 2,317,241
Repayments of other borrowings................................... (1,200,717) (2,290,129) (3,057,300)
Redemption of redeemable preferred stock of subsidiary........... -- -- (129,543)
Redemption of Class B stock...................................... -- -- (172,730)
Proceeds from issuance of Series A preferred stock and
warrants....................................................... 1,484,544 -- --
Issuance costs for Series A preferred stock and warrants......... (114,981) -- --
Cash dividends paid on Class B stock............................. -- -- (114,600)
Cash dividends paid on Series A preferred stock.................. (94,098) -- --
------------- ------------- -------------
Net cash from financing activities......................... (1,788,906) 2,276,974 5,421,445
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... (342,726) 188,877 (220,977)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..................... 342,726 153,849 374,826
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................... $ -- $ 342,726 $ 153,849
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for--Interest.......................... $ 1,588,809 $ 1,656,418 $ 1,082,229
Noncash investing and financing activities:
Parent note receivable offset against subordinated note payable
to parent.................................................... -- -- 415,000
Gain on redemption of redeemable preferred stock of subsidiary
recorded directly to retained earnings....................... -- -- 20,457
Gain on redemption of Class B stock recorded directly to
retained earnings............................................ -- -- 27,270
Equipment reclassified from direct financing leases to
operating leases............................................. -- 328,481 --
Conversion of a note payable to preferred stock................ -- 264,980 --
Contribution of a not readily marketable security for preferred
stock........................................................ -- 220,477 --
Increase (decrease) in trade accounts payable attributed to
equipment purchase costs..................................... -- (300,000) 300,000
Amortization of Class B stock issuance costs................... 8,024 8,024 8,023
Reclassification of security as available-for-sale............. 220,476 -- --
Change in unrealized loss on available-for-sale security, net
of tax effect................................................ 107,659 -- --
Deferred tax benefit of change in unrealized loss on
available-for-sale security.................................. 61,000 -- --
Issuance of common stock in connection with underwriting of
subordinated notes payable offering.......................... 62,400 -- --
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS--Berthel Fisher & Company Leasing,
Inc. (the "Company") is a majority-owned subsidiary of Berthel Fisher & Company.
The Company finances, through direct financing leases or notes receivables,
telecommunications, agricultural, and general equipment throughout the United
States. The financing agreements with individual customers can be large in
relation to the portfolio as a whole and certain agreements exceed 10% of the
Company's direct financing lease and note receivable portfolio (see Note 2). The
leases may be sold to other entities or retained by the Company for its own
portfolio.
During 1993, the Company formed a wholly-owned subsidiary, Security Finance
Corporation. Security Finance Corporation was established to provide financing
services to the home security industry. During 1995, as discussed below, all
assets and liabilities of Security Finance Corporation were assumed by the
Company and the subsidiary was dissolved. During 1994, the Company formed a
wholly-owned subsidiary, Communications Finance Corporation. All of the assets
and liabilities of Communications Finance Corporation have been assumed by the
Company. The Company intends to keep Communications Finance Corporation as a
shell for use in future financing transactions.
BASIS OF PRESENTATION--The accompanying financial statements have been
prepared on the basis that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
The Company's line of credit agreement is due on April 30, 1998. Also,
during the years ended December 31, 1995, 1996 and 1997, the Company incurred
net losses of $393,720, $836,556 and $435,751, respectively. The Company's
continuation as a going concern is dependent upon its ability to extend its line
of credit or obtain refinancing as may be required and ultimately to attain
profitable operations. Management is negotiating an extension of the Company's
line of credit agreement with its existing lender. Management believes it will
be able to reach a line of credit agreement on terms at least comparable to its
existing line of credit with a lender prior to April 30, 1998. Management
anticipates that upon renewal or refinancing of its line of credit that existing
capital resources, cash flows from operations, and financing from the Company's
parent, will be adequate to satisfy the Company's minimum capital requirements
for the next twelve months.
Management's plans for future profitability anticipate the need for the
sponsorship of another public limited partnership, Telecommunications Income
Fund XI, for which the Company will generate fee income. The best-efforts public
offering is in process and through March 5, 1998 approximately $1,437,000 has
been raised out of a maximum offering amount of $25,000,000. No assurance can be
provided that such offering will be completed as planned.
DISSOLUTION OF SUBSIDIARY--On April 21, 1995, Security Finance Corporation
sold its alarm monitoring contracts (the "Contracts") to Monitronics
International, Inc. ("Monitronics") and recognized a gain on the sale of
$65,585. This sale terminated the former agreement between Security Finance
Corporation and Monitronics and released each other from liability for
performance thereunder. Furthermore, Security Finance Corporation fully
relinquished the monitoring responsibilities and maintenance and servicing
responsibilities to Monitronics.
25
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Contracts served as collateral for Security Finance Corporation's
collateral trust bonds which were redeemed on May 19, 1995.
On July 1, 1995, Security Finance Corporation transferred its remaining
assets and liabilities to the Company, and the Company subsequently dissolved
Security Finance Corporation. In conjunction with the dissolution, the Company
redeemed the convertible preferred stock of Security Finance Corporation and
recognized a gain of $20,457 directly to retained earnings.
CONSOLIDATION--The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those
estimated. Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
possible loan and lease losses and the estimated unguaranteed residual values of
the Company's leased equipment.
Most of the Company's leases and finance contracts are with customers that
are in the entrepreneurial stage and, therefore, are highly leveraged and
require lease or other financing in place of or to supplement financing from
banks. Although the Company attempts to mitigate its credit risk through the use
of a variety of commercial credit reporting agencies when processing the
applications of its customers, failure of the Company's customers to make
scheduled payments under their equipment leases and finance contracts could have
a material near-term impact on the allowance for possible lease and loan losses.
Realization of residual values depends on many factors, several of which are
not within the Company's control, including general market conditions at the
time of the original lease contract's expiration, whether there has been unusual
wear and tear on, or use of, the equipment, the cost of comparable new
equipment, the extent, if any, to which the equipment has become technologically
or economically obsolete during the contract term and the effects of any
additional or amended government regulations. These factors, among others, could
have a material near-term impact on the estimated unguaranteed residual values.
CERTAIN RISK CONCENTRATIONS--The Company's direct financing leases and notes
receivables are concentrated in the telecommunications industry, primarily pay
telephones, representing approximately 43% and 42% of the Company's direct
finance lease and notes receivable portfolio at December 31, 1997 and 1996,
respectively. The Company has also significantly expanded its financing of
automated teller machines which represents approximately 21% and 22% of the
Company's direct finance lease and notes receivable portfolio at December 31,
1997 and 1996, respectively.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
NOTES RECEIVABLE--Notes receivable are carried at the principal balance
outstanding. Interest income on notes receivable is accrued based on principal
amounts outstanding.
26
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INVESTMENT IN DIRECT FINANCING LEASES--The Company's primary activity
consists of leasing telecommunications and other types of equipment, under
direct financing leases, generally over a period of three to five years. At the
time of closing a direct financing lease, the Company records the gross lease
contract receivable, an estimated unguaranteed residual value and unearned lease
income. The unearned lease income represents the excess of the gross lease
receivable plus the estimated unguaranteed residual value over the carrying
value of the equipment leased. In addition, the Company capitalizes all initial
direct costs associated with originating the direct financing lease. The
unearned income and initial direct costs are amortized to income over the lease
term so as to produce a constant periodic rate of return on the net investment
in the lease. Lessees are responsible for all taxes, insurance and maintenance
costs.
The realization of the estimated unguaranteed residual value of leased
equipment depends on the value of the leased equipment at the end of the lease
term and is not a part of the contractual agreement with the lessee.
Unguaranteed residual values are based on estimates of amounts historically
realized by the Company for similar equipment and are periodically reviewed by
management for possible impairment.
Certain of the Company's leases are accounted for as operating leases for
income tax purposes.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES--The Company performs credit
evaluations prior to approval of a lease or finance contract. As with all direct
financing leases, the Company continues to own the equipment under lease. The
Company will generally obtain a security interest in future revenues generated
from each site in which the equipment is physically located and in the equipment
under a finance contract. Subsequently, the creditworthiness of the customer and
the value of the underlying assets are monitored on an ongoing basis. The
Company maintains an allowance for possible loan and lease losses which could
arise should customers become unable to discharge their obligations under the
agreements. The allowance for possible loan and lease losses is maintained at a
level deemed appropriate by management to provide for known and inherent risks
in the portfolio. The allowance is based upon a continuing review of past loan
and lease loss experience, current economic conditions, delinquent loans and
leases, an estimate of potential loss exposure on significant customers in
adverse situations, and the underlying asset value. The consideration of such
future potential losses also includes an evaluation for other than temporary
declines in value of the underlying assets. Leases and notes receivable which
are deemed uncollectible are charged off and deducted from the allowance. The
provision for possible loan and lease losses and recoveries are added to the
allowance.
EQUIPMENT UNDER OPERATING LEASES--Equipment leased under operating leases is
stated at cost less accumulated depreciation. The equipment is depreciated using
the straight-line method over the estimated useful lives of the assets (five
years) to the estimated residual value of the equipment at the end of the lease
term. Estimated residual values are based on estimates of amounts historically
realized by the Company for similar equipment and are periodically reviewed by
management for possible impairment.
INVESTMENTS--The Company accounts for its general partnership interests in
Telecommunications Income Fund IX, L.P. ("TIF IX") and Telecommunications Income
Fund X, L.P. ("TIF X") under the equity method of accounting. Under the equity
method of accounting, the Company initially records its investment at cost and
subsequently adjusts the carrying value of its investments for its pro rata
share of earnings or losses.
27
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company also owns equity interests in entities over which it does not
have the ability to exert significant influence over the operations of such
entities; therefore, such investments are accounted for at cost.
Should these investments experience a decline in value that is other than
temporary, the Company will recognize a loss in its consolidated statements of
operations to reflect such a decline. As these investments are not readily
marketable, no market value can be readily determined.
The Company also has an investment in a marketable equity security
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of related tax effects. At December 31, 1997, the
security had a cost of $220,476 and an estimated fair value of $51,817,
resulting in an unrealized loss of $168,659. Fair value is determined using
published market prices.
FURNITURE AND EQUIPMENT--Furniture and equipment are stated at cost less
accumulated depreciation. For financial reporting purposes, depreciation is
computed by the straight-line method over the estimated useful lives of the
assets (generally five to ten years). The Company uses accelerated methods in
computing depreciation for income tax purposes.
DEFERRED INCOME TAXES--The provision for deferred income taxes is based on
an asset and liability approach. Deferred tax assets or liabilities are computed
based on the difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate. Deferred income tax
expense or credit is based on the changes in the asset or liability from period
to period including the effect of enacted tax rate changes.
DEFERRED COSTS--Deferred costs consist of financing costs incurred in
connection with the issuance of long-term debt. Deferred financing costs are
being amortized over the life of the related obligation, which ranges from three
to eight years.
STOCK ISSUANCE COSTS--The costs incurred in connection with the issuance of
redeemable Class B nonvoting convertible stock have been deducted from the
proceeds. Such amounts are being amortized by a charge to retained earnings over
a period of ten years, at which time the carrying value of stock will be equal
to its cash redemption value (see Note 7).
STOCK-BASED COMPENSATION--The Company measures stock based compensation
costs for employees as the excess of the fair value of the parent's common stock
at date of grant over the amount the employee must pay for the stock related to
Berthel Fisher & Company's stock option plans. The pro forma net loss and loss
per share amounts assuming the fair value method was adopted are immaterial and,
therefore, are not disclosed.
SALE OF DIRECT FINANCE LEASES--The Company at times sells future direct
financing lease payments, on a limited recourse basis, to lenders in return for
a cash payment. In the case of default by the lessee, the lender has a first
lien on the underlying leased equipment. In the event the sale or re-lease
proceeds from the underlying equipment do not satisfy the remaining lessee's
obligation to the lender, the Company is responsible for a predetermined amount
of that obligation. When the sale of direct finance leases occurs, proceeds from
the sale, less the net book value of direct finance leases sold and an estimated
loss allowance, are recorded as a component of gain on early termination of
leases.
28
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE--During 1997 the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic net loss per
common share is based on the weighted average number of shares of Class A common
stock outstanding during the year. Diluted net loss per common share is the same
as basic net loss per share due to the antidilutive effect on net loss per share
of any assumed conversion of convertible securities. The adoption of this
statement had no impact on the Company's reported loss per share amounts.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company is in the process of determining its preferred format. The adoption
of SFAS No. 130 will have no impact on the Company's results of operations,
financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. Financial statement disclosures for prior periods are
required to be restated. The Company is in the process of evaluating the
disclosure requirements. The adoption of SFAS No. 131 will have no impact on the
Company's consolidated results of operations, financial position or cash flows.
2. NOTES RECEIVABLE AND DIRECT FINANCING LEASES
Notes receivable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Notes receivable, collateralized primarily by
telephone equipment and related site agreements,
13.9% to 16.5%, maturing through December 2000..... $6,836,307 $6,530,354
--------- ---------
--------- ---------
</TABLE>
The Company's net investment in direct financing leases consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Minimum lease payments receivable.................. $8,502,371 $11,526,828
Estimated unguaranteed residual values............. 981,806 954,502
Unamortized initial direct costs................... 177,817 236,910
Unearned income.................................... (1,936,718) (2,867,880)
---------- ----------
Net investment in direct financing leases.......... $7,725,276 $9,850,360
---------- ----------
---------- ----------
</TABLE>
29
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. NOTES RECEIVABLE AND DIRECT FINANCING LEASES (CONTINUED)
The balance of direct financing leases sold with recourse that remain
uncollected at December 31, 1997 and 1996 was $3,209,258 and $4,269,468,
respectively.
At December 31, 1997, future minimum lease payments to be received under the
direct financing leases and the estimated unguaranteed residuals to be realized
at the expiration of the direct financing leases are as follows:
<TABLE>
<CAPTION>
ESTIMATED
MINIMUM UNGUARANTEED
LEASE PAYMENTS RESIDUAL
RECEIVABLE VALUES
-------------- --------------
<S> <C> <C>
Year ending December 31:
1998....................................................... $ 3,235,551 $ 277,262
1999....................................................... 2,386,533 75,852
2000....................................................... 1,910,619 181,104
2001....................................................... 861,899 376,380
2002....................................................... 105,032 71,208
Thereafter................................................. 2,737 --
-------------- --------------
Total...................................................... $ 8,502,371 $ 981,806
-------------- --------------
-------------- --------------
</TABLE>
The Company and certain affiliates purchase a substantial portion of
telecommunications equipment for lease from Intellicall, Inc., a publicly-held
company. The Company's parent is an investor in a limited partnership which owns
approximately 7% of the outstanding common stock of Intellicall, Inc. In
addition, a principal stockholder of the Company's parent is also an investor in
this limited partnership.
Additionally, the Company provides financing to certain companies for which
the parent or its affiliates have an ownership interest in, provide financing
to, or provide investment advisory services for such companies. The Company's
net investment in direct financing leases and notes receivable with these
companies approximated $1,355,860 and $1,253,000 at December 31, 1997 and 1996,
respectively.
One customer accounted for 10% or more of the amount of income from direct
financing leases during one or more of the years presented, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Customer A................................................. --% 2% 10%
</TABLE>
30
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The changes in the allowance for possible loan and lease losses are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year................ $ 412,916 $ 291,605 $ 169,260
Provision................................. 415,052 592,874 175,139
Charge-offs............................... (392,676) (471,563) (52,794)
--------- --------- ---------
Balance at end of year...................... $ 435,292 $ 412,916 $ 291,605
--------- --------- ---------
--------- --------- ---------
</TABLE>
The allowance for loan and lease losses consisted of specific allowances for
leases of $158,477 and $100,000 at December 31, 1997 and 1996, respectively, and
a general unallocated allowance of $276,815, $312,916, and $291,605 at December
31, 1997, 1996 and 1995, respectively.
On October 10, 1995, a lessee of the Company, Value-Added Communications
("VAC"), filed a petition under Chapter 11 of the Bankruptcy Act. At the time
VAC's petition for bankruptcy was filed, VAC had several leases with the
Company. At December 31, 1995, VAC's leases had a net investment balance of
$927,731, which represented approximately 6.2% of the Company's total net
investment in leases and financing contracts. As a result of the Company's
collateralized position with respect to its VAC leases and because the leases
had been guaranteed by a strong guarantor, the Company was able to negotiate a
settlement with VAC that resulted in the equipment being re-leased to MCI
Telecommunications Corporation at no loss to the Company.
On May 6, 1996, a lessee of the Company, United Tele-Systems of Virginia,
Inc. ("UTS") filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. This bankruptcy petition was dismissed on May 22, 1996 and, in
connection therewith, the Company exercised its right to manage the assets
leased to UTS. The net investment in the leases at the time the assets were
repossessed was approximately $432,000. The Company, two affiliated partnerships
for which the Company acts as General Partner, and UTS were named in a lawsuit,
filed by another creditor of UTS. The creditor was claiming $360,000 in
compensatory damages and $350,000 in punitive damages. Based on offers to
purchase the pay telephone equipment and an expected settlement offer related to
the lawsuit, the Company expected to incur a loss upon the sale or re-lease of
this equipment. Management charged $324,000 to the provision for possible loan
and lease losses for the expected loss in 1996 and reclassified its net
investment in the equipment, net of the specific allowance, to equipment under
operating leases pending the equipment's ultimate sale or re-lease. The
equipment was sold during 1997 with no further loss to the Company and the
lawsuit was settled pending the outcome of an audit which is in process.
Management believes any loss as a result of the audit is adequately covered by
the Company's general allowance.
On October 31, 1996, a lessee of the Company, Soil Recovery Services, Inc.
("SRS"), had an involuntary Petition for Relief under Chapter 7 of the U.S.
Bankruptcy Code filed against it. This was converted to a voluntary Chapter 11
on November 25, 1996. At the time the first petition was filed, SRS had various
leases with the Company that had a net investment totaling $256,500 and
represented 1.4% of the Company's total net investment in leases and finance
contracts. A specific allowance for losses of $100,000 was established through a
charge to the provision for possible loan and lease losses in 1996 based on
estimates of the fair value of the equipment under lease. The Company has
obtained the right to
31
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES (CONTINUED)
repossess the equipment and is in the process of selling the equipment.
Management believes the specific allowance is adequate to cover any loss on
sale.
During the fourth quarter of 1996, management of the Company provided a
specific allowance for a lease with a certain customer for which the Company had
not been receiving lease payments. Management is actively working with such
customer to arrange for a sale of the assets under lease. A charge of $50,000
was recorded to the provision for possible loan and lease losses representing
management's best estimate of the loss on the expected sale of the equipment.
Also, due to the uncertainty as to the timing and amount of future payments from
such customer and as to the sale of the assets under lease, the Company
reclassified its net investment in the lease at December 31, 1996 of $144,972,
net of the specific allowance, to equipment leased under operating leases. The
Company is in the process of selling the equipment and expects no further loss
on sale. The carrying value at December 31, 1997 was $113,978.
In March, 1997, the Company foreclosed on a lease with a customer. The net
investment in this lease was $545,189. The Company entered into a management
agreement with a pay phone operator to manage the equipment with the intent to
purchase. The equipment was subsequently sold to such entity for approximately
$150,000 less than the carrying value of the lease. The Company attempted to
collect the deficiency balance from the guarantor under the original lease.
However, since no payments have been received, the Company charged $150,000 to
the provision for possible loan and lease losses and wrote off the balance at
December 31, 1997.
During 1997, a lessee of the Company filed for bankruptcy. Due to the
uncertainty over a possible prior lien on the equipment under lease and the
proceeds which may result from sale of the equipment, the Company charged
$150,000 to the provision for possible loan and lease losses and wrote off the
lease balance of $150,000 at December 31, 1997.
4. INVESTMENTS IN LIMITED PARTNERSHIPS
The Company is the general partner of Telecommunications Income Fund IX,
L.P. ("TIF IX"). TIF IX is a limited partnership which raised approximately $17
million through a best-efforts public offering of its limited partnership units.
At December 31, 1997 and 1996, the Company's investment in TIF IX consisted of
its allocated general partnership interest, unreimbursed costs incurred by the
Company in connection with the public offering and temporary loans made to the
partnership. Pursuant to the partnership agreement, TIF IX reimbursed the
Company for offering and promotional expenses incurred up to 4% of the capital
raised. The unreimbursed costs are being amortized on a straight-line basis over
a 55-month period which approximates the period of anticipated future revenues
from TIF IX. As of December 31, 1997 and 1996, the unamortized balance of these
unreimbursed costs aggregated $0 and $33,482, respectively.
The Company is the general partner of Telecommunications Income Fund X, L.P.
("TIF X"). TIF X is a limited partnership which raised approximately $22.6
million through a best-efforts public offering of its limited partnership units.
At December 31, 1997 and 1996, the Company's investment in TIF X consisted of
its allocated general partnership interest and temporary loans made to the
partnership. Pursuant to the partnership agreement, TIF X reimbursed the Company
for offering and promotional expenses incurred up to 4% of the capital raised.
During the year ended December 31, 1996, the Company received $13,604 for
reimbursement for the remaining unreimbursed amount of such expenses.
32
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The Company has also incurred $24,511 of offering related costs related to
Telecommunications Income Fund XI for which a best affords public offering is in
process. The Company will be reimbursed for offering costs incurred up to 4% of
the capital raised.
Combined summarized financial information for TIF IX and TIF X is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Assets:
Net investment in direct financing leases and notes
receivable....................................... $ 27,564,000 $ 33,330,000
Other assets....................................... 2,876,000 3,573,000
------------- -------------
Total assets....................................... $ 30,440,000 $ 36,903,000
------------- -------------
------------- -------------
Liabilities and partners' equity
Liabilities:
Notes payable, guaranteed by the Company (Note
12).............................................. $ 5,989,000 $ 5,900,000
Other liabilities.................................. 1,640,000 1,485,000
------------- -------------
Total liabilities.................................. 7,629,000 7,385,000
------------- -------------
Partners' equity:
General partner.................................... 21,000 22,000
Limited partners................................... 22,837,000 29,559,000
Other.............................................. (47,000) (63,000)
------------- -------------
Total partners' equity............................. 22,811,000 29,518,000
------------- -------------
Total liabilities and partners' equity............. $ 30,440,000 $ 36,903,000
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Income from direct financing leases.... $ 4,776,000 $ 6,070,000 $ 6,585,000
Other revenue.......................... 894,000 924,000 200,000
Provision for possible losses.......... (5,429,000) (1,671,000) (923,000)
Impairment loss on equipment........... (319,000) (971,000) --
Expenses............................... (2,040,000) (3,148,000) (2,661,000)
------------- ------------- -------------
Net income (loss)...................... $ (2,118,000) $ 1,204,000 $ 3,201,000
------------- ------------- -------------
Income (loss) allowable to the
Company.............................. $ (972) $ 680 $ 1,657
------------- ------------- -------------
------------- ------------- -------------
Net income (loss) per partnership unit:
TIF IX................................. $ (3.25) $ 14.83 $ 24.26
TIF X.................................. $ (21.11) $ 2.17 $ 17.15
</TABLE>
The Company receives a management fee equal to 5% of the amount of gross
rental payments received by TIF IX and TIF X. During the years ended December
31, 1997, 1996 and 1995, gross fees
33
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
aggregated $604,768, $702,266 and $864,838, respectively. In addition, the
Company is reimbursed for certain other costs under administrative services
agreements. Amounts received by the Company pursuant to these agreements
amounted to $168,000, $147,000 and $168,107 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Company receives 4% of all leases acquired by TIF IX and TIF X during
the initial funding period, which the Company reports as an acquisition fee.
Amounts reported by the Company as acquisition fees were $123,687 for the year
ended December 31, 1995. The initial funding period ended during 1995.
5. CREDIT ARRANGEMENTS
The Company obtains a portion of its financing under a line-of-credit
agreement with a bank. The amount available to borrow under the line-of-credit
is limited to 75% of its qualified accounts, as defined in the agreement
(primarily leases and notes receivable), but, in no case, can exceed $10
million. The line-of-credit bears interest at prime plus 1.76% and 1.7% at
December 31, 1997 and 1996, respectively, and is collateralized by substantially
all of the Company's assets. The line-of-credit agreement is guaranteed by the
Company's parent and a major stockholder of the Company's parent. The agreement
is also cancelable by the lender after giving a 90-day notice. The agreement
expires on April 30, 1998. If the line of credit is renewed with the existing
lender, the agreement requires the Company to refinance approximately $363,000
of existing subordinated debt maturing in 1998. Such debt refinanced would have
to be on the same terms as they presently exist but with new maturity dates of
not less than two years. The Company intends to offer to the subordinated debt
holders the opportunity to renew the debt for an additional two year term at the
same interest rate. The interest rate on amounts outstanding at December 31,
1997 and 1996 under the line-of-credit agreement was 10.26% and 9.95%,
respectively.
The loan agreement contains various restrictive covenants which, among
others, restrict dividend payments except to Class B shareholders and Series A
preferred shareholders and requires the Company to maintain certain financial
ratios including a total liabilities to tangible net worth ratio of not greater
than 2.5, a minimum stockholders' equity (including redeemable stock) of
$1,702,000 and an interest coverage ratio of 1.2. As of December 31, 1997 the
Company was in violation of its minimum stockholders' equity and interest
coverage ratio. The Company has obtained waivers for such covenants from the
lender for 1997.
There can be no assurance that the Company will not continue to be in
violation of one or more of these covenants. Continued adverse operating results
could cause continued noncompliance with these covenants, in which event the
bank could immediately accelerate the maturity of the entire outstanding balance
under the line of credit or deny or restrict the Company's access to funds under
the line of credit. Also, certain other debt obligations of the Company contain
standard cross-default provisions. Noncompliance with these covenants could
result in the immediate acceleration of the maturity of such other debt.
34
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. CREDIT ARRANGEMENTS (CONTINUED)
Notes payable consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Collateral trust bonds issued by Berthel Fisher &
Company Leasing, Inc., 9% to 12%, due through
1997............................................... $ -- $ 20,017
Installment loan agreements with banks, 7.75% to 11%,
maturing through 2000 with subjective acceleration
clauses, collateralized by net investment in
certain direct financing leases, certain agreements
are also guaranteed by the Company's parent........ 1,517,398 2,273,632
Capital lease obligations, 5.37%, due through 2000... 12,532 17,156
------------- -------------
Notes payable........................................ $ 1,529,930 $ 2,310,805
------------- -------------
------------- -------------
</TABLE>
Subordinated debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Uncollateralized subordinated debentures, 11% to 12%,
maturing through 1998.............................. $ 725,000 $ 725,000
Uncollateralized subordinated notes payable, 9.5% to
10%, maturing in 2001 and 2004, net of discount.... 2,996,564 2,995,522
Uncollateralized subordinated debenture payable to
parent, floating interest rate, maturing in 2005... 2,000,000 2,000,000
------------- -------------
Total subordinated debt.............................. $ 5,721,564 $ 5,720,522
------------- -------------
------------- -------------
</TABLE>
35
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. CREDIT ARRANGEMENTS (CONTINUED)
Interest expense summarized by category is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Line-of-credit agreement................. $ 794,776 $ 953,912 $ 392,946
Demand note payable to parent............ 1,410 -- --
Uncollateralized subordinated note
payable to parent...................... -- 31,802 24,792
Collateral trust bonds issued by Berther
Fisher & Company Leasing, Inc.......... 458 11,729 55,032
Collateral trust bonds issued by Security
Finance Corporation.................... -- -- 32,349
Installment loan agreements with banks... 167,676 254,731 281,055
Capital lease obligations................ 1,582 1,532 227
Uncollateralized subordinated
debentures............................. 125,143 125,374 140,735
Uncollateralized subordinated debenture
to parent.............................. 227,521 228,277 298,420
Uncollateralized subordinated notes
payable................................ 404,589 183,016 --
Other.................................... 20,190 747 1,974
------------- ------------- -------------
$ 1,743,345 $ 1,791,120 $ 1,227,530
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The collateral trust bonds issued by Berthel Fisher & Company Leasing, Inc.
are collateralized by certain equipment leases and are redeemable by the bond
holder at any time after one year from the date of issuance subject to certain
limitations as defined in the agreements, including a maximum redemption in any
one year of 5% of the total principal balance outstanding.
The subordinated note payable and debenture to parent bear interest at prime
plus 3% (11.5% at December 31, 1997, 1996 and 1995), adjusted semi-annually,
with a minimum interest rate of 6% and a maximum rate of 12%. In October 1995,
the Company and its parent restructured $2,000,000 of the subordinated note
payable to the Company's parent into a subordinated debenture. Under the
restructured debenture, the maturity date was extended to December 31, 2005; the
debenture was contractually subordinated to the subordinated notes payable and
to collateralized debt; and the Company's parent was issued warrants for the
purchase of 118,875 shares of common stock of the Company at $16.82 per share,
exercisable through October 5, 2000. No value was attributed to the warrant by
the Company since the warrant's exercise price was equal to the estimated fair
value of the Company's common stock at date of issuance.
36
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. CREDIT ARRANGEMENTS (CONTINUED)
The annual maturities of notes payable and subordinated debt at December 31,
1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.......................................................... $ 1,296,251
1999.......................................................... 435,534
2000.......................................................... 392,618
2001.......................................................... 2,157,565
2002.......................................................... 12,962
Thereafter.................................................... 2,956,564
-------------
Total......................................................... $ 7,251,494
-------------
-------------
</TABLE>
6. INCOME TAXES
The results of the Company's operations are included in the consolidated tax
returns of Berthel Fisher & Company. In certain states, the Company files
separate income tax returns. The entities included in the consolidated returns
have adopted the policy of allocating income tax expense or benefit based upon
the pro rata contribution of taxable operating income or losses. Generally, this
allocation results in profitable companies recognizing a tax provision as if the
individual company filed a separate return and loss companies recognizing
benefits to the extent their losses contribute to reduce consolidated taxes.
Deferred income taxes have been established by each member of the consolidated
group based upon the temporary differences within the entity. Based on the
parent's consolidated net deferred tax liability position, management believes
it is more likely than not that the Company's deferred income tax asset will be
recoverable.
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current..................................... $(425,000) $ 4,151 $ 20,000
Deferred.................................... 188,549 (457,871) (211,200)
--------- --------- ---------
Income taxes................................ $(236,451) $(453,720) $(191,200)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effective tax rate on loss before income taxes is different from the
prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax at federal statutory rates
(34%)..................................... $(228,548) $(438,700) $(198,900)
Tax effect increase (decrease) of:
State income taxes, net of federal
effect.................................. (13,900) (25,800) 2,600
Other items............................... 5,997 10,780 5,100
--------- --------- ---------
Income taxes................................ $(236,451) $(453,720) $(191,200)
--------- --------- ---------
--------- --------- ---------
</TABLE>
37
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Company's net
deferred income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Gross deferred income tax liabilities:
Direct financing leases............................ $(824,000) $(500,000)
Unamortized costs associated with limited
partnerships..................................... -- (25,000)
--------- ---------
Total................................................ (824,000) (525,000)
--------- ---------
Gross deferred income tax assets:
Alternative minimum tax carryforward............... 84,000 84,000
Allowance for possible loan and lease losses....... 169,000 149,000
Net operating loss carryforward.................... 885,000 800,000
Other.............................................. 13,362 7,911
Unrealized loss on available-for-sale security..... 61,000 --
--------- ---------
Total................................................ 1,212,362 1,040,911
--------- ---------
Net deferred income tax asset........................ $ 388,362 $ 515,911
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, the Company's net operating loss carryforward
aggregates $2,300,000 and expires in 2010.
7. REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK
The Company's Class B nonvoting convertible stock carries a 12%
noncumulative dividend limited to 25% of the Company's income before taxes each
year, up to a maximum of $1.20 per share. The Class B nonvoting convertible
stock is convertible on a one-for-one basis up to a maximum of 20% of the Class
A common stock of the Company after conversion. The stock is redeemable at $10
per share for a 30-day period after the tenth anniversary of the issuance date
(April, 1990 to September, 1991) at the option of the holder. Shares which are
not redeemed during that time are automatically converted to Class A common
stock on a one-for-one basis. The following summarizes the amounts pertaining to
the Class B nonvoting convertible stock:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Redeemable Class B nonvoting convertible stock (no par
value--authorized 100,000 shares, issued and
outstanding 75,500 shares), at redemption or
liquidation value..................................... $ 755,000 $ 755,000
Unamortized stock issuance costs........................ (24,071) (32,095)
--------- ---------
Class B nonvoting convertible stock..................... $ 730,929 $ 722,905
--------- ---------
--------- ---------
</TABLE>
38
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
7. REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK (CONTINUED)
During the year ended December 31, 1995, the Company allowed redemptions
aggregating $200,000 outside the standard terms of the stock agreement. The 1995
redemption resulted in a gain of $27,270 which has been recorded directly to
retained earnings.
8. PREFERRED STOCK
Each share of the Series A preferred stock is entitled to cumulative annual
dividends of 8% payable, if as and when declared by the Board of Directors,
quarterly. Unpaid dividends will accumulate and be payable prior to the payment
of dividends on the Company's Class A common stock. The preferred stock is
redeemable at any time at the option of the Company, on not less than 30 days
written notice to registered holders. The redemption price shall be $14.70 per
share if redeemed during 1997, $14.56 per share if redeemed during 1998, $14.42
per share if redeemed during 1999, $14.28 per share if redeemed during 2000,
$14.14 per share if redeemed during 2001, and $14.00 per share if redeemed
thereafter, plus, in each case, accumulated unpaid dividends. Unless previously
redeemed by the Company, the holders of the preferred stock are entitled at any
time to convert each share into .875 shares of Class A common stock. The
preferred stock is not entitled to vote on any matter except where the Iowa
Corporation Act requires voting as a class, in which case each share of stock
shall be entitled to one vote per share on those matters where the preferred
stock is voting as a class. The preferred stock is entitled to a preference on
liquidation equal to $14.00 per share, plus accumulated unpaid dividends.
The Company issued $424,774 of preferred stock and $60,682 of warrants to
its parent at December 31, 1996 in exchange for the conversion of the
subordinated note payable to parent of $264,980 and the contribution of
restricted stock of a public company with an estimated fair value of $220,476.
9. COMMON STOCK WARRANTS
The Company's common stock warrant activity is summarized as follows:
<TABLE>
<CAPTION>
EXPIRATION EXERCISE NUMBER
DATE PRICE OUTSTANDING
----------- ----------- -----------
<S> <C> <C> <C>
Issued to the parent in 1995 in connection with the
subordinated note payable restructuring................ 2000 16.82 118,875
Issued in 1996 in connection with the subordinated notes
payable offering....................................... 2001-2004 16.00 33,011
Issued in 1996 in connection with the preferred
stock/warrant offering:
A Warrant.............................................. 1998 12.00 30,341
B Warrant.............................................. 1999 14.00 30,341
-----------
Balance at December 31, 1996............................. 212,568
Issued in 1997 in connection with the preferred
stock/warrant offering:
A Warrant.............................................. 1998 12.00 94,659
B Warrant.............................................. 1999 14.00 94,659
-----------
Balance at December 31, 1997............................. 401,886
-----------
-----------
</TABLE>
39
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
10. PROFIT SHARING PLAN
The Company participates in a qualified profit sharing plan under Internal
Revenue Code Section 401(a), including a qualified cash or deferred arrangement
under Section 401(k), sponsored by Berthel Fisher & Company Financial Services,
Inc. Under the terms of the plan, each participant may elect to defer
compensation from 2% to 15%. A matching contribution equal to 50% of the
deferred compensation of all eligible participants will be made by the employer
up to 4% of each participant's total compensation. The employee contributions to
the plan are fully vested and employer contributions vest over five years. The
Company's contribution for the years ended December 31, 1997, 1996 and 1995
aggregated $6,356, $14,927 and $11,217, respectively.
11. MANAGEMENT AND SERVICES AGREEMENTS
The Company pays, under an unwritten agreement with the Company's parent,
50% of the management fees it receives from TIF IX and TIF X (see Note 4) to the
Company's parent. The Company's parent agreed to suspend indefinitely such
payment beginning March 1, 1997 due to the Company's operating losses. Such
management fees paid to the Company's parent were $47,146, $351,134 and $432,419
during 1997, 1996 and 1995, respectively.
In addition, the Company also has an unwritten, month-to-month agreement
with its parent in which the Company's parent provides management services at a
yearly rate of $240,000, $210,000 and $250,000 during 1997, 1996 and 1995,
respectively. In addition, during 1993, the Company paid its parent $50,000 to
provide consulting services relating to TIF X for such items as lease
documentation, lease approvals, debt structuring and portfolio liquidation. This
payment is being amortized to expense over five years, the estimated life of the
operating phase of TIF X.
The Company, from time to time, will engage the services of Berthel Fisher &
Company Financial Services, Inc., a broker-dealer majority owned by the
Company's parent. In addition, the Company reimburses Berthel Fisher & Company
Financial Services, Inc. for operating expenses incurred on its behalf,
including certain expenses related to the administrative services agreements
discussed in Note 4. The Company also enters into other arrangements with the
parent or its affiliates. Following are the amounts paid or received by the
Company to Berthel Fisher & Company or its affiliates related to these
arrangements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Issuance costs paid (and capitalized) in
connection with the subordinated notes
payable offering............................. $ -- $ 223,070 $ --
Offering expenses incurred in connection with
the Series A preferred stock and warrant
offering..................................... 108,621 -- --
Interest income................................ 16,965 -- --
Commissions paid on various other
transactions................................. -- -- 3,935
TIF IX and TIF X administrative services
expense reimbursements....................... -- -- 46,444
Operating expense reimbursements............... 45,300 50,173 77,063
Office rent.................................... 58,368 -- 28,240
</TABLE>
40
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
12. COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for all debts of TIF IX and X as the
general partner.
The Company also has guaranteed amounts outstanding under a line-of-credit
agreement with a bank of TIF IX. The line-of-credit agreement allows TIF IX to
borrow the lesser of $2 million, or 32% of its qualified accounts, as defined in
the agreement. The balance outstanding under this line-of-credit was $50,557 and
$1,060,490 at December 31, 1997 and 1996, respectively. The agreement matures on
April 30, 1998, is cancelable by the lender after giving a 90-day notice and is
collateralized by substantially all assets of TIF IX. The note is also
guaranteed by the Company's parent and a principal stockholder of the Company's
parent.
The Company also has guaranteed amounts outstanding under a line-of-credit
agreement with a bank of TIF X. The line-of-credit agreement allows TIF X to
borrow the lesser of $6 million, or 40% of its qualified accounts, as defined in
the agreement. The balance outstanding under this line-of-credit was $5,354,801
at December 31, 1997 and $2,607,911 at December 31, 1996. The agreement matures
on April 30, 1998, is cancelable by the lender after giving a 90-day notice and
is collateralized by substantially all assets of TIF X. The note is also
guaranteed by the Company's parent and a principal stockholder of the Company's
parent.
The Company also has guaranteed amounts outstanding under installment loan
agreements of TIF IX and TIF X totaling $583,233 and $2,231,510 at December 31,
1997 and 1996, respectively. The agreements are collateralized by certain direct
financing leases and a second interest in all assets of TIF IX and TIF X.
In December 1995 the Company entered into a lease agreement for office
space. The lease term began January 1, 1996 and expires December 30, 2000. Rent
is $58,368 per year under the agreement.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts disclosed below are based on estimates prepared by
the Company based on valuation methods appropriate in the circumstances.
Generally accepted accounting principles do not require disclosure for lease
contracts. The carrying amount for financial instruments included among cash and
cash equivalents, due from affiliates, line-of-credit agreement, and other
short-term payables approximates their fair value because of the short maturity
of those instruments or the variable interest rate feature of the instruments.
Also, the Company's available-for-sale security is reported at market value. The
estimated fair value of other significant financial instruments are based
principally on discounted future cash flows at rates commensurate with the
credit, interest rate and prepayment risk involved.
The estimated fair values of the Company's other significant financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Notes receivable.............. $ 6,986,307 $ 7,054,104 $ 6,530,354 $ 6,489,812
Notes payable................. 1,529,930 1,523,359 2,310,805 2,284,873
Subordinated debt............. 5,721,564 5,721,564 5,720,522 5,945,762
</TABLE>
* * * * *
41
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents.................................................... $ 592,314
Notes receivable............................................................. 4,272,129
Net investment in direct financing leases (Note 3)........................... 7,136,512
Allowance for possible loan and lease losses (Note 4)........................ (168,235)
-------------
Notes receivable and direct financing leases, net............................ 11,240,406
Equipment under operating lease, less accumulated depreciation of $46,705.... 138,410
Due from affiliates.......................................................... 55,327
Receivable from Parent under tax allocation agreement........................ 453,733
Investments in:
Limited partnerships....................................................... 111,340
Not readily marketable securities, at cost................................. 264,184
Available for sale security, at fair value................................. 190,505
Furniture and equipment, less accumulated depreciation of $192,650........... 174,849
Deferred income taxes........................................................ 388,362
Deferred costs, less accumulated amortization of $423,741.................... 432,605
Other assets................................................................. 418,171
-------------
TOTAL.......................................................................... $ 14,460,206
-------------
-------------
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
LIABILITIES:
Line of credit agreement (Note 5)............................................ $ 4,580,942
Demand note payable to Parent................................................ 1,063,000
Trade accounts payable....................................................... 54,504
Due to affiliates............................................................ 96,419
Accrued expenses............................................................. 214,984
Lease security deposits...................................................... 306,351
Notes payable (Note 5)....................................................... 1,258,231
Subordinated notes payable (Note 5).......................................... 2,997,084
Subordinated debenture payable to parent (Note 5)............................ 2,000,000
-------------
Total Liabilities.......................................................... 12,571,515
-------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK (NOTE 7)........................ 724,941
-------------
STOCKHOLDERS' EQUITY:
Series A preferred stock, no par value-authorized 125,000 shares, issued and
outstanding 125,000 shares (Note 8) ($1,750,000 liquidation value,
convertible into 109,375 shares of Class A common stock)................... 1,621,422
Class A common stock, no par value-authorized 1,000,000 shares, issued and
outstanding 452,529 shares................................................. 754,474
Common stock warrants........................................................ 121,831
Accumulated deficit.......................................................... (1,334,616)
Accumulated other comprehensive income....................................... 639
-------------
Total stockholders' equity................................................. 1,163,750
-------------
TOTAL.......................................................................... $ 14,460,206
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES.
42
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDING
JUNE 30
--------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUE:
Income from direct financing leases................................... $ 271,517 $ 293,882
Management fees from affiliates....................................... 229,058 187,283
Interest income....................................................... 159,330 191,006
Gain on early terminations............................................ 217,149 1,913
Other revenues........................................................ 30,469 4,474
--------- ---------
Total revenues........................................................ 907,523 678,558
--------- ---------
EXPENSES:
Employment compensation and benefits.................................. 100,143 93,612
Management fees to affiliates......................................... 62,500 62,500
Interest expense...................................................... 324,150 400,977
Provision for possible loan and lease losses.......................... 243,393 12,166
Other expenses........................................................ 222,362 209,545
--------- ---------
Total expenses........................................................ 952,548 778,800
--------- ---------
Loss before income taxes................................................ (45,025) (100,242)
Income tax credit....................................................... (10,423) (31,383)
--------- ---------
Net loss................................................................ (34,602) (68,859)
Comprehensive income (loss): (Note 9)
Unrealized gain on available for sale security, net of tax............ 62,699 -0-
--------- ---------
Comprehensive income (loss)............................................. $ 28,097 $ (68,859)
--------- ---------
--------- ---------
LOSS PER COMMON SHARE CALCULATION:
Net loss.............................................................. $ (34,602) $ (68,859)
Dividends on convertible preferred stock (Note 8)..................... (34,904) (18,519)
--------- ---------
Net loss attributable to Class A stock................................ $ (69,506) $ (87,378)
--------- ---------
--------- ---------
Basic................................................................. $ (.17) $ (.22)
Fully Diluted......................................................... $ (.17) $ (.22)
Weighted average common shares outstanding.............................. 419,932 400,000
</TABLE>
SEE ACCOMPANYING NOTES
43
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDING
JUNE 30
--------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUE:
Income from direct financing leases................................ $ 512,222 $ 595,480
Management fees from affiliates.................................... 458,779 396,847
Interest income.................................................... 364,616 406,966
Gain on early terminations......................................... 227,828 14,675
Other revenues..................................................... 51,827 24,964
--------- ---------
Total revenues..................................................... 1,615,272 1,438,932
--------- ---------
EXPENSES:
Employment compensation and benefits............................... 193,288 206,913
Management fees to affiliates...................................... 125,000 162,146
Interest expense................................................... 686,822 810,497
Provision for possible loan and lease losses....................... 255,048 24,712
Other expenses..................................................... 451,796 423,068
--------- ---------
Total expenses..................................................... 1,711,954 1,627,336
--------- ---------
Loss before income taxes............................................. (96,682) (188,404)
Income tax credit.................................................... (27,986) (64,061)
--------- ---------
Net loss............................................................. (68,696) (124,343)
Comprehensive income (loss): (Note 9)
Unrealized gain on available for sale security, net of tax......... 108,298 -0-
--------- ---------
Comprehensive income (loss).......................................... $ 39,602 $(124,343)
--------- ---------
--------- ---------
LOSS PER COMMON SHARE CALCULATION:
Net loss........................................................... $ (68,698) $(124,343)
Dividends on convertible preferred stock (Note 9).................. (69,425) (29,525)
--------- ---------
Net loss attributable to Class A stock $(138,123) $(153,868)
--------- ---------
--------- ---------
Basic.............................................................. $ (.34) $ (.38)
Fully Diluted...................................................... $ (.34) $ (.38)
Weighted average common shares outstanding........................... 411,960 400,000
</TABLE>
SEE ACCOMPANYING NOTES
44
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDING
JUNE 30
------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss.................................................................... $ (68,696) $ (124,343)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Gain on early termination of leases and notes............................. (227,828) (14,675)
Depreciation of furniture and equipment................................... 40,670 38,231
Amortization of deferred costs............................................ 88,272 77,318
Provision for possible loan and lease losses.............................. 255,049 24,712
Changes in operating assets and liabilities:
Due from affiliates..................................................... 6,605 (5,387)
Recoverable from parent under tax allocation agreement.................. (28,733) (65,388)
Other assets............................................................ (98,210) (906)
Trade accounts payable excluding equipment purchase costs accrued....... 24,885 (81,733)
Due to affiliates....................................................... (3,008) (35,204)
Accrued expenses........................................................ (38,244) (40,926)
----------- -----------
Net cash from operating activities.......................................... (49,238) (228,301)
INVESTING ACTIVITIES
Purchases of equipment for direct financing leases.......................... (876,481) (1,486,725)
Repayments of direct financing leases....................................... 773,819 1,640,556
Proceeds from sale or early termination of direct financing leases.......... 304,723 97,790
Issuance of notes receivable................................................ -0- (75,000)
Repayments of notes receivable.............................................. 553,854 789,133
Proceeds from early termination of notes receivable......................... 1,942,404 287,467
Distributions from limited partnerships..................................... -0- 66,166
Net lease security deposits repaid.......................................... (51,892) 18,049
Purchases of furniture and equipment........................................ (9,191) (14,289)
----------- -----------
Net cash from investing activities.......................................... 2,637,236 1,323,147
FINANCING ACTIVITIES
Proceeds from exercise of stock warrants.................................... 583,548 -0-
Net repayments of line of credit............................................ (2,180,551) (1,578,936)
Net repayments of notes payable............................................. (271,699) (502,112)
Net proceeds from issuance of Series A preferred stock and warrants......... -0- 717,188
----------- -----------
Net cash from financing activities.......................................... (1,868,702) (1,363,860)
----------- -----------
Net increase (decrease) in cash and cash equivalents........................ 719,296 (269,014)
Cash and cash equivalents at beginning of period............................ (126,982) 342,726
----------- -----------
Cash and cash equivalents at end of period.................................. $ 592,314 $ 73,712
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................................. $ 380,826 $ 805,610
Income taxes.............................................................. -0- -0-
Noncash investing and financing activities:
Amortization of Class B nonvoting convertible stock issuance costs........ -0- 4,014
Equipment reclassified from direct financing leases to operating leases... -0- 526,395
Decrease in trade accounts payable attributed to equipment purchase
costs................................................................... -0- 37,858
Note receivable converted to investment in not readily marketable
security................................................................ 25,400 715,000
</TABLE>
SEE ACCOMPANYING NOTES.
45
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. These financial statements should be read in conjunction with
the Company's annual report on Form 10-KSB filed with the Securities and
Exchange Commission for the year ended December 31, 1997.
2. ORGANIZATION
Berthel Fisher & Company Leasing, Inc. (the "Company") is a wholly-owned
subsidiary of Berthel Fisher & Company, (the "Parent"). During the year ended
December 31, 1994, the Company formed a wholly-owned subsidiary, Communications
Finance Corporation. All of the assets and liabilities of Communications Finance
Corporation have been assumed by the Company. The Company intends to keep
Communications Finance Corporation as a shell for use in future financing
transactions.
The Company is the general partner in three limited partnerships,
Telecommunications Income Fund IX, L.P. ("TIFIX"), Telecommunications Income
Fund X, L.P. ("TIFX"), and Telecommunications Income Fund XI, L.P. ("TIFXI")
collectively referred to as the "TIFS". The Company accounts for its general
partnership interests in the TIFS under the equity method of accounting.
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in direct financing leases at June 30, 1998
consists of:
<TABLE>
<S> <C>
Minimum lease payments receivable............................... $7,611,055
Estimated unguaranteed residual values.......................... 577,088
Unamortorized initial direct costs.............................. 120,154
Unearned income................................................. (1,171,785)
----------
$7,136,512
----------
----------
</TABLE>
4. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The change in the allowance for possible loan and lease losses for the six
months ended June 30, 1998 is as follows:
<TABLE>
<S> <C>
Balance at beginning of year..................................... $ 435,292
Provision........................................................ 218,750
Charge offs...................................................... (517,956)
Recovery......................................................... 32,149
---------
$ 168,235
---------
---------
</TABLE>
46
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES (CONTINUED)
The allowance for loan and lease losses, excluding specific reserves,
expressed as a percent of the total portfolio is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1997
- ----------------- --------------------- -----------------
<S> <C> <C>
1.5% 1.9% 2.1%
</TABLE>
5. CREDIT ARRANGEMENTS
The Company had a note payable consisting of a line-of-credit agreement with
Firstar Bank which expired June 30, 1998 and will not be renewed with the
current lender. Management is currently working to establish a new line of
credit with another financial institution. In the absence of a line of credit
agreement with Firstar Bank, all payments received by the Company pertaining to
leases and notes that are collateralized by Firstar are required to go towards
reducing the loan balance with Firstar under the expired agreement.
Notes payable at June 30, 1998 consists of:
<TABLE>
<S> <C>
Installment loan agreements with banks, 7.75% to 11%, maturing
through 2000 with subjective acceleration clauses,
collateralized by net investment in certain direct financing
leases, certain agreements are also guaranteed by the
Company's Parent.............................................. $ 1,248,202
Capital lease obligations, 5.37%, due through 2000.............. 10,029
-----------
Notes payable................................................. $ 1,258,231
-----------
-----------
</TABLE>
Subordinated debt consists of the following:
<TABLE>
<S> <C>
Uncollateralized subordinated debenture payable to Parent,
floating interest rate, maturing in 2005...................... $ 2,000,000
Uncollateralized subordinated notes payable, 9.5% to 10%,
maturing in 2001 and 2004..................................... 2,997,084
-----------
Total subordinated debt......................................... $ 4,997,084
-----------
-----------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for all debts of TIF IX, X and XI as the
general partner.
The Company also had guaranteed amounts outstanding under a line-of-credit
agreement with a bank of TIFIX. The amounts borrowed under this agreement were
paid off April 30, 1998. The agreement will not be renewed.
The Company also has guaranteed amounts outstanding under a line-of-credit
agreement with a bank of TIFX. The line-of-credit agreement allowed TIFX to
borrow the lesser of $6 million or 40% of its qualified accounts, as defined in
the agreement. The balance outstanding under this line-of-credit was $1,906,398
at June 30, 1998. The agreement expired June 30, 1998. The note is also
guaranteed by the Company's Parent and a principal stockholder of the Company's
Parent. The Company is currently
47
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
working with the existing lender to renew the line of credit agreement. As of
July 31, 1998, the agreement had not been renewed.
The Company has also guaranteed amounts outstanding under installment loan
agreements of TIFX totaling $153,691 at June 30, 1998. The agreements are
collateralized by certain direct financing leases and a second interest in all
assets of TIFX.
7. CLASS B NONVOTING CONVERTIBLE STOCK
The Company's Class B nonvoting convertible stock carries a 12%
noncumulative dividend limited to 25% of the Company's income before taxes each
year, up to a maximum of $1.20 per share. The Class B nonvoting convertible is
convertible on a one-for-one basis up to a maximum of 20% of the Class A common
stock of the Company after conversion. The stock is redeemable at $10 per share
for a 30-day period after the tenth anniversary of the issuance date (April,
1990 to September, 1991) at the option of the holder. Shares which are not
redeemed during that time are automatically converted to Class A common stock on
a one-for-one basis.
The following summarizes the amounts pertaining to the Class B nonvoting
convertible stock as set forth in the balance sheets at June 30, 1998:
<TABLE>
<S> <C>
Class B nonvoting convertible stock (no par value-authorized
100,000 shares, issued and outstanding 74,500 shares) at
redemption or liquidation value................................. $ 745,000
Unamortorized stock issuance costs................................ (20,059)
---------
$ 724,941
---------
---------
</TABLE>
8. PREFERRED STOCK
Each share of the Series A preferred stock is entitled to cumulative annual
dividends of 8% payable, if as and when declared by the Board of Directors,
quarterly. Unpaid dividends will accumulate and be payable prior to the payment
of dividends on the Company's Class A common stock. The preferred stock is
redeemable at any time at the option of the Company, on not less than 30 days
written notice to registered holders. The redemption price shall be $14.70 per
share if redeemed during 1997, $14.56 per share if redeemed during 1998, $14.42
per share if redeemed during 1999, $14.28 per share if redeemed during 2000,
$14.14 per share if redeemed during 2001, and $14.00 per share if redeemed
thereafter, plus, in each case, accumulated unpaid dividends. Unless previously
redeemed by the Company, the holders of the preferred stock are entitled at any
time to convert each share into .875 shares of Class A common stock. The
preferred stock is not entitled to vote on any matter except where the Iowa
Corporation Act requires voting as a class, in which case each share of stock
shall be entitled to one vote per share on those matters where the preferred
stock is voting as a class. The preferred stock is entitled to a preference on
liquidation equal to $14.00 per share, plus accumulated dividends.
48
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. PREFERRED STOCK (CONTINUED)
The Company issued, in connection with the Series A preferred stock
offering, common stock warrants as follows:
<TABLE>
<CAPTION>
EXPIRATION EXERCISE NUMBER
DATE PRICE OUTSTANDING
---------- ----------- -----------
<S> <C> <C> <C>
A Warrants................................................ 04/30/98 $ 12.00 125,000
B Warrants................................................ 1999 $ 14.00 125,000
</TABLE>
During the second quarter of 1998, 48,629 warrants were exercised at $12.00
per share. The Company's Parent exercised 31,250 of these warrants and was
issued $375,000 of common stock.
9. COMPREHENSIVE INCOME (LOSS)
In December, 1996, the Company's Parent transferred 81,282 shares of a
customers restricted common stock to the Company as part of a debt conversion
with it's Parent. Beginning in November 1997, the stock was marked to fair value
since the restriction period had elapsed, and is being accounted for as being
available for sale. The stock is marked to market with unrealized gains or
losses recorded as a separate component of equity.
49
<PAGE>
V. TABULAR INFORMATION CONCERNING PRIOR TRANSACTIONS
- --------------------------------------------------------------------------------
EXHIBIT C
TELECOMMUNICATIONS INCOME FUND XI, L.P.
TABULAR INFORMATION
CONCERNING PRIOR TRANSACTIONS
- --------------------------------------------------------------------------------
The following Tables present unaudited information in connection with eight
private programs ("Private Programs") organized by affiliates of the General
Partner and two Public Programs for which the General Partner serves as the
general partner. Mr. Thomas J. Berthel served as a general partner of each of
the Private Programs, together with corporate general partners which were
subsidiaries of Berthel Fisher & Company, Inc. The General Partner is a
subsidiary of Berthel Fisher & Company.
The General Partner purchased equipment placed in four of the Private
Programs (Telecommunications Limited Partnership No. 2, Telecommunications
Limited Partnership No. 5, Telecommunications Limited Partnership No. 7 and
Telecommunications Limited Partnership No. 8) and the Public Programs. The
General Partner is managing the lease portfolios of both of Public Programs. All
of the Private Programs have been closed and liquidated.
One of the Private Programs (Telecommunications Limited Partnership No. 1)
was designed to fund a start-up company through both an operating loan and
equipment leasing. Equipment leases in that program represented approximately
16% of its business. All of the other Private Programs had equipment leasing as
their primary business. The Public Programs have equipment leasing as their
primary business. The Public Programs' lease portfolios and all of the Private
Programs' lease portfolios consist predominately of telecommunications
equipment.
THE INFORMATION SET FORTH IN THE FOLLOWING TABLES IS INCLUDED HEREIN SOLELY
TO INFORM INVESTORS OF THE PRIOR AND NOT FUTURE PERFORMANCE OF PROGRAMS
PREVIOUSLY SPONSORED BY THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER AND SHOULD NOT BE CONSIDERED AS INDICATIVE OF POSSIBLE CAPITALIZATION OR
OPERATIONS OF THE PARTNERSHIP. LIMITED PARTNERS WILL HAVE NO INTEREST IN THE
PROGRAMS DESCRIBED ON THE FOLLOWING TABLES UNLESS THEY ARE ALSO INVESTORS IN
THOSE PROGRAMS.
The Tables are provided solely to enable prospective investors to evaluate
the experience of the General Partner and its affiliates.
50
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
PRIVATE REG. D OFFERINGS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Dollar amount offered.................. $ 2,000,000 $ 2,000,000 $ 280,000 $ 390,000 $ 1,000,000
Dollar amount raised................... $ 1,363,500(1) $ 1,383,700(1) $ 282,828(1) $ 393,939(1) $ 1,010,000(1)
Less offering expenses:
Selling commissions and discounts
retained by affiliates............. 9.0% 9.0% 9.0% 9.0% 9.0%
Organizational expenses.............. 9.4% 11.5% 10.2% 9.6% 8.3%
Other................................ 14.8%(2) 0.0% 0.0% 0.0% 0.8%
Reserves............................... 0.0% 0.0% 0.0% 0.0% 0.0%
----------- ----------- ---------- ---------- -----------
Percent available for investment....... 66.8% 79.5% 80.8% 81.4% 82.7%
Acquisition Costs:
Acquisition fees..................... 0.0% 0.0% 4.3% 4.5% 3.5%
Other................................ 0.0% 0.0% 0.0% 0.0% 0.0%
----------- ----------- ---------- ---------- -----------
Total acquisition costs................ 0.0% 0.0% 4.3% 4.5% 3.5%
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------
Percent leveraged (financing divided by
total equipment cost)(3)............. 32.2% 46.6% 59.9% 45.3% 37.6%
Date offering began.................... 07-01-86 02-01-87 02-24-88 04-18-88 11-28-88
Length of offering..................... 6 months 11 months 0 months 0 months 3 months
Months to invest 90% of amount
available for investment............. 16 months 21 months 7 months 1 month 9 months
</TABLE>
- --------------------------
(1) Includes 1% general partner purchase of units.
(2) Operating loan to lessee.
(3) Percentage calculated based on total financing (highest outstanding balance)
to total equipment purchased.
(4) Public Program
(5) Includes $10,000 general partner purchase of partnership interest.
51
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
PRIVATE REG. D OFFERINGS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6 TLP #7 TLP #8 TIF IX(4) TIF X(4)
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dollar amount offered............... $ 475,000 $ 1,000,000 $ 2,000,000 $ 25,000,000 $ 25,000,000
Dollar amount raised................ $ 479,750(1) $ 1,010,000(5) $ 1,217,050(1) $ 17,001,750(5) $ 22,617,500(5)
Less offering expenses:
Selling commissions and discounts
retained by affiliates.......... 8.0% 9.0% 9.0% 10.0% 10.0%
Organizational expenses........... 8.3% 9.4% 9.4% 4.0% 4.0%
Other............................. 0.0% 0.0% 0.0% 0.0% 0.0%
Reserves............................ 0.0% 0.0% 0.0% 1.0% 1.0%
---------- ----------- ----------- ------------ ------------
Percent available for investment.... 83.7% 81.6% 81.6% 85.0% 85.0%
Acquisition Costs:
Acquisition fees.................. 0.0% 1.6% 2.0% 4.0% 4.0%
Other............................. 0.0% 0.0% 0.0% 0.0% 0.0%
---------- ----------- ----------- ------------ ------------
Total acquisition costs............. 0.0% 1.6% 2.0% 4.0% 4.0%
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
Percent leveraged (financing divided
by total equipment cost)(3)....... 49.7% 31.3% 34.2% 18.2% 15.6%
Date offering began................. 05-31-89 08-16-89 02-28-90 10-30-91 08-27-93
Length of offering.................. 1 month 6 months 11 months 19 months 16 months
Months to invest 90% of amount
available for investment.......... 1 month 7 months 11 months 17 months 16 months
</TABLE>
- ------------------------------
(1) Includes 1% general partner purchase of units.
(2) Operating loan to lessee.
(3) Percentage calculated based on total financing (highest outstanding balance)
to total equipment purchased.
(4) Public Program
(5) Includes $10,000 general partner purchase of partnership interest.
52
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
THROUGH JUNE 30, 1998
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Date offering commenced............................ 07-01-86 02-01-87 02-24-88 04-18-88 11-28-88
Dollar amount raised............................... $ 1,363,000 $ 1,383,700 $ 282,828 $ 393,939 $ 1,010,000
Amount paid to sponsor from proceeds of offering:
Underwriting fees and commissions................ $ 216,000 $ 219,200 $ 44,800 $ 62,400 $ 160,000
Lease acquisition fee............................ $ 0 $ 0 $ 23,720 $ 23,695 $ 47,904
Dollar amount of cash generated from
operations before deducting payments
to sponsor....................................... $ 1,997,279 $ 1,994,576 $ 561,256 $ 663,620 $ 1,505,111
Amount paid to sponsor from operations:
Partnership management fees...................... $ 25,779 $ 121,042 $ 24,858 $ 50,249 $ 60,000
Other............................................ $ 0 $ 0 $ 0 $ 0 $ 0
Dollar amount of property sales and financing
before deducting payments to sponsor:
Cash............................................. $ 125,000 $ 474,976 $ 182,675 $ 106,066 $ 512,501
Notes............................................ $ 0 $ 530,617 $ 0 $ 0 $ 21,037
Amount paid to sponsor from property sales and
refinancing:
Incentive fees................................... $ 0 $ 0 $ 0 $ 0 $ 0
Other............................................ $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
53
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
THROUGH JUNE 30, 1998
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6 TLP #7 TLP #8 TIF IX TIF X
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Date offering commenced........................ 05-31-89 08-16-89 02-28-90 10-30-91 08-27-93
Dollar amount raised........................... $ 479,750 $ 1,010,000 $ 1,217,050 $ 17,001,750 $ 22,617,500
Amount paid to sponsor from proceeds of
offering:
Underwriting fees and commissions............ $ 68,875 $ 160,000 $ 192,800 $ 1,700,175 $ 2,261,750
Lease acquisition fee........................ $ 0 $ 21,587 $ 35,664 $ 799,345 $ 1,157,901
Dollar amount of cash generated from
operations before deducting payments
to sponsor................................... $ 1,042,077 $ 1,591,989 $ 1,937,192 $ 11,825,813 $ 9,238,558
Amount paid to sponsor from operations:
Partnership management fees.................. $ 20,250 $ 13,500 $ 47,760 $ 1,935,558 $ 1,526,553
Other........................................ $ 0 $ 0 $ 0 $ 506,981 $ 414,443
Dollar amount of property sales and financing
before deducting payments to sponsor:
Cash......................................... $ 13,162 $ 215,883 $ 184,392 $ 15,926,019 $ 12,319,424
Notes........................................ $ 0 $ 83,451 $ 318,178 $ 5,901,016 $ 5,742,236
Amount paid to sponsor from property sales and
refinancing:
Incentive fees............................... $ 0 $ 0 $ 0 $ 0 $ 0
Other........................................ $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
54
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1(1)(2)
-----------------------------------------------
08-26-86 TO
12-31-86 1987 1988 1989
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Revenues................................................ $ 14,775 $ 253,699 $ 344,833 $ 314,644
Profit (loss) on sale of equipment(3)......................... $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses...................................... $ 662 $ 5,669 $ 33,079 $ 18,855
Interest Expense.......................................... $ 0 $ 26,287 $ 33,982 $ 26,400
Depreciation.............................................. $ 49,708 $ 173,474 $ 198,441 $ 199,339
Write-offs of Syndication Costs and A/R................... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Net Income--Tax Basis(4)...................................... $ (35,595) $ 48,269 $ 79,331 $ 70,500
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Cash generated from operations(4)............................. $ 14,113 $ 221,743 $ 277,772 $ 269,389
Cash generated from sales..................................... $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing............................... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated from operations, sales
and refinancing............................................. $ 14,113 $ 221,743 $ 277,772 $ 269,389
Less: Cash distributions to investors
from operating cash flow................................ $ 1,372 $ 141,875 $ 192,828 $ 241,372
from sales and refinancing.............................. $ 0 $ 0 $ 0 $ 0
from other.............................................. $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash
distributions............................................... $ 12,741 $ 79,868 $ 84,944 $ 28,017
Less: Special items--principal reduction...................... $ 0 $ 43,984 $ 80,761 $ 88,066
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash
distributions and special items(5).......................... $ 12,741 $ 35,884 $ 4,183 $ (60,049)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations.................... $ (26) $ 36 $ 59 $ 52
Capital gain (loss)....................................... $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales..................................................... $ 0 $ 0 $ 0 $ 0
Refinancing............................................... $ 0 $ 0 $ 0 $ 0
Operations................................................ $ 1 $ 105 $ 143 $ 179
Other..................................................... $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) In addition to equipment leases, TLP1 invested in operating loans to a
lessee.
(2) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(3) Telecommunications Limited Partnership No. 1 invested its assets in
equipment which was leased to one lessee and in an operating loan to that
lessee. Due to financial difficulties experienced by the lessee, full lease
payments and interest payments were not made during the term of the lease
and operating loan. In 1990, following a recapitalization of the lessee, the
lease was restructured to provide for smaller lease payments and an extended
term. As a result of the foregoing, and as shown on Table III, Exhibit C,
there was a reduction of Gross Income and Net Income from 1990 through 1993.
The equipment was sold in 1994, resulting in an early payoff of the
restructured lease.
(4) "Net Income(loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(5) Deficiencies were funded with a combination of cash generated in prior years
and cash reserves maintained by TLP1.
55
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1(1)(2)
-----------------------------------------------------------
01-01-94 TO
1990 1991 1992 1993 10-31-94
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues................................... $ 189,792 $ 148,210 $ 82,047 $ 102,000 $ 760,138
Profit (loss) on sale of equipment(3)............ $ 41,754 $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses......................... $ 18,881 $ 24,252 $ 2,489 $ 2,170 $ 3,003
Interest Expense............................. $ 13,796 $ 3,334 $ 0 $ 0 $ 0
Depreciation................................. $ 194,648 $ 67,537 $ 62,433 $ 41,553 $ 204,396
Write-offs of Syndication Costs and A/R...... $ 0 $ 0 $ 0 $ 0 $ 559,152
---------- ---------- ---------- ---------- -----------
Net Income--Tax Basis(4)......................... $ 4,221 $ 53,087 $ 17,125 $ 58,277 $ (6,413)
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Cash generated from operations(4)................ $ 157,115 $ 120,624 $ 79,558 $ 99,830 $ 757,135
Cash generated from sales........................ $ 125,000 $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing.................. $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- -----------
Cash generated from operations, sales
and refinancing................................ $ 282,115 $ 120,624 $ 79,558 $ 99,830 $ 757,135
Less: Cash distributions to investors
from operating cash flow................... $ 59,970 $ 59,999 $ 102,000 $ 102,000 $ 751,378
from sales and refinancing................. $ 0 $ 0 $ 0 $ 0 $ 0
from other................................. $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after cash
distributions.................................. $ 222,145 $ 60,625 $ (22,442) $ (2,170) $ 5,757
Less: Special items--principal reduction......... $ 92,290 $ 97,621 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after cash
distributions and special items(5)............. $ 129,885 $ (36,996) $ 22,442 $ (2,170) $ 5,757
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations....... $ 3 $ 39 $ 13 $ 43 $ (5)
Capital gain (loss).......................... $ 31 $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales........................................ $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing.................................. $ 0 $ 44 $ 76 $ 76 $ 557
Operations................................... $ 44 $ 0 $ 0 $ 0 $ 0
Other........................................ $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) In addition to equipment leases, TLP1 invested in operating loans to a
lessee.
(2) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(3) Telecommunications Limited Partnership No. 1 invested its assets in
equipment which was leased to one lessee and in an operating loan to that
lessee. Due to financial difficulties experienced by the lessee, full lease
payments and interest payments were not made during the term of the lease
and operating loan. In 1990, following a recapitalization of the lessee, the
lease was restructured to provide for smaller lease payments and an extended
term. As a result of the foregoing, and as shown on Table III, Exhibit C,
there was a reduction of Gross Income and Net Income from 1990 through 1993.
The equipment was sold in 1994, resulting in an early payoff of the
restructured lease.
(4) "Net Income(loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(5) Deficiencies were funded with a combination of cash generated in prior years
and cash reserves maintained by TLP1.
56
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #2(1)
-----------------------------------------------
05-19-87
TO 12-31-87 1988 1989 1990
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Revenues.......................................... $ 85,224 $ 476,365 $ 575,247 $ 567,619
Profit (loss) on sale of equipment(2)................... $ 0 $ 0 $ 0 $ (88,490)
Less: Operating Expenses................................ $ 17,826 $ 75,354 $ 31,644 $ 28,138
Interest Expense.................................... $ 493 $ 47,407 $ 76,990 $ 57,855
Depreciation........................................ $ 18,666 $ 137,070 $ 183,158 $ 175,057
Write-offs of Syndication Costs and A/R............. $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Net Income--Tax Basis................................... $ 48,239 $ 216,534 $ 283,455 $ 218,079
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Cash generated from operations(3)....................... $ 66,905 $ 353,604 $ 466,613 $ 481,626
Cash generated from sales............................... $ 0 $ 0 $ 0 $ 436,476
Cash generated from refinancing......................... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated from operations, sales and refinancing... $ 66,905 $ 353,604 $ 466,613 $ 918,102
Less: Cash distributions to investors
from operating cash flow.......................... $ 22,063 $ 255,547 $ 306,000 $ 300,000
from sales and refinancing........................ $ 0 $ 0 $ 0 $ 0
from other........................................ $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash distributions.... $ 44,842 $ 98,057 $ 160,613 $ 618,102
Less: Special items--principal reduction................ $ 0 $ 84,946 $ 187,310 $ 201,331
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash distributions and
special items(4)...................................... $ 44,842 $ 13,111 $ (26,697) $ 416,771
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations.............. $ 35 $ 158 $ 207 $ 159
Capital gain (loss)................................. $ 0 $ 0 $ 0 $ (65)
Cash distributions to Investors
Source (on cash basis)
Sales............................................... $ 0 $ 0 $ 0 $ 0
Refinancing......................................... $ 0 $ 0 $ 0 $ 0
Operations.......................................... $ 16 $ 187 $ 223 $ 219
Other............................................... $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP2 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP2, the
sale resulted in a tax loss, even though TLP2 realized a positive receipt of
cash. The losses of $88,490 in 1990 and $207,695 in 1992 reflects such tax
losses.
(3) "Net Income (loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior years
and cash reserves maintained by TLP2.
57
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #2(1)
------------------------------------------------
01-01-94
1991 1992 1993 TO 09-30-94
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Gross Revenues...................................... $ 396,975 $ 302,760 $ 23,703 $ 16,706
Profit (loss) on sale of equipment(2)............... $ 0 $ (207,695) $ (29,631) $ (57,011)
Less: Operating Expenses............................ $ 21,911 $ 19,125 $ 18,472 $ 4,774
Interest Expense................................ $ 37,031 $ 12,581 $ 422 $ 0
Depreciation.................................... $ 122,542 $ 95,802 $ 22,447 $ 3,142
Write-offs of Syndication Costs and A/R......... $ 0 $ 0 $ 0 $ 288,669
---------- ----------- ---------- -----------
Net Income--Tax Basis............................... $ 215,491 $ (32,443) $ (47,269) $ 336,890
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Cash generated from operations(3)................... $ 338,033 $ 271,054 $ 4,809 $ 11,932
Cash generated from sales........................... $ 0 $ 341,657 $ 258,789 $ 188,960
Cash generated from refinancing..................... $ 0 $ 0 $ 0 $ 0
---------- ----------- ---------- -----------
Cash generated from operations, sales and
refinancing....................................... $ 338,033 $ 612,711 $ 263,598 $ 200,892
Less: Cash distributions to investors
from operating cash flow...................... $ 300,000 $ 275,000 $ 6,211 $ 35,040
from sales and refinancing.................... $ 0 $ 0 $ 37,098 $ 0
from other.................................... $ 0 $ 0 $ 221,691 $ 188,960
---------- ----------- ---------- -----------
Cash generated (deficiency) after cash
distributions..................................... $ 38,033 $ 337,711 $ (1,402) $ (23,108)
Less: Special items--principal reduction............ $ 219,808 $ 185,168 $ 29,787 $ 0
---------- ----------- ---------- -----------
Cash generated (deficiency) after cash distributions
and special items(4).............................. $ 181,785 $ 152,543 $ (31,189) $ (23,108)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations.......... $ 157 $ (24) $ (35) $ (246)
Capital gain (loss)............................. $ 0 $ (152) $ (22) $ (42)
Cash distributions to Investors
Source (on cash basis)
Sales........................................... $ 0 $ 0 $ 27 $ 0
Refinancing..................................... $ 0 $ 0 $ 0 $ 0
Operations...................................... $ 219 $ 201 $ 5 $ 26
Other........................................... $ 0 $ 0 $ 162 $ 138
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP2 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP2, the
sale resulted in a tax loss, even though TLP2 realized a positive receipt of
cash. The losses of $88,490 in 1990 and $207,695 in 1992 reflects such tax
losses.
(3) "Net Income (loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior years
and cash reserves maintained by TLP2.
58
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #3(1)
------------------------------------------------------------
03-08-88 01-01-92
TO 12-31-88 1989 1990 1991 TO 10-20-92
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues..................... $ 122,598 $ 177,125 $ 170,258 $ 159,847 $ 72,700
Profit (loss) on sale of
equipment(2)..................... $ 0 $ 0 $ 0 $ 0 $ (151,475)
Less: Operating Expenses........... $ 7,288 $ 14,415 $ 9,177 $ 4,916 $ 7,049
Interest Expense.............. $ 19,789 $ 31,176 $ 24,397 $ 16,772 $ 6,293
Depreciation.................. $ 22,302 $ 55,151 $ 55,151 $ 55,151 $ 29,607
Write-offs of Syndication
Costs and
A/R........................... $ 0 $ 0 $ 0 $ 0 $ 53,740
----------- ---------- ---------- ---------- -----------
Net Income--Tax Basis.............. $ 73,219 $ 76,383 $ 81,533 $ 83,008 $ (175,464)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
Cash generated from
operations(3).................... $ 95,521 $ 131,534 $ 136,684 $ 138,159 $ 59,358
Cash generated from sales.......... $ 0 $ 0 $ 0 $ 0 $ 182,675
Cash generated from refinancing.... $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- -----------
Cash generated from operations,
sales and refinancing............ $ 95,521 $ 131,534 $ 136,684 $ 138,159 $ 242,033
Less: Cash distributions to
investors
from operating cash flow..... $ 40,007 $ 76,501 $ 78,000 $ 78,000 $ 102,306
from sales and refinancing... $ 0 $ 0 $ 0 $ 0 $ 46,294
from other................... $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after
cash distributions............... $ 55,514 $ 55,033 $ 58,684 $ 60,159 $ 93,433
Less: Special items--principal
reduction........................ $ 29,351 $ 56,764 $ 63,538 $ 71,124 $ 109,842
----------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after
cash distributions and special
items(4)......................... $ 26,163 $ (1,731) $ (4,854) $ (10,965) $ (16,409)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
Tax and distribution data per
$1,000 invested:
Federal income tax results:
Ordinary income (loss) from
operations................... $ 261 $ 273 $ 291 $ 296 $ (627)
Capital gain (loss)............ $ 0 $ 0 $ 0 $ 0 $ (541)
Cash distributions to Investors
Source (on cash basis)
Sales.......................... $ 0 $ 0 $ 0 $ 0 $ 165
Refinancing.................... $ 0 $ 0 $ 0 $ 0 $ 0
Operations..................... $ 143 $ 273 $ 279 $ 279 $ 365
Other.......................... $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP3 generally depreciated equipment on a straight line basis over ten
years. As a result, when leases ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP3, the
sale resulted in a tax loss, even though TLP3 realized a positive receipt of
cash. The loss of $151,475 in 1992 reflects such a tax loss.
(3) "Net Income (loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior years
and cash reserves maintained by TLP3.
59
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #4(1)
------------------------------------------------------------
05-03-88 01-01-92
TO 12-31-88 1989 1990 1991 TO 10-20-92
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues....................................... $ 136,484 $ 185,494 $ 175,939 $ 170,488 $ 133,888
Profit (loss) on sale of equipment(2)................ $ 0 $ 0 $ 0 $ 0 $ (205,695)
Less: Operating Expenses............................. $ 7,461 $ 16,465 $ 18,236 $ 12,414 $ 13,636
Interest Expense................................ $ 19,377 $ 20,534 $ 15,787 $ 10,562 $ 4,201
Depreciation.................................... $ 17,336 $ 52,655 $ 52,655 $ 52,655 $ 39,491
Write-offs of Syndication Costs and A/R......... $ 0 $ 0 $ 0 $ 0 $ 72,734
----------- ---------- ---------- ---------- -----------
Net Income--Tax Basis................................ $ 92,310 $ 95,840 $ 89,261 $ 94,857 $ (201,869)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
Cash generated from operations(3).................... $ 109,646 $ 148,495 $ 141,916 $ 147,512 $ 166,051
Cash generated from sales............................ $ 0 $ 0 $ 0 $ 0 $ 106,066
Cash generated from refinancing...................... $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- -----------
Cash generated from operations, sales and
refinancing........................................ $ 109,646 $ 148,495 $ 141,916 $ 147,512 $ 222,117
Less: Cash distributions to investors
from operating cash flow....................... $ 44,700 $ 108,001 $ 108,001 $ 108,001 $ 116,042
from sales and refinancing..................... $ 0 $ 0 $ 0 $ 0 $ 79,196
from other..................................... $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after cash
distributions...................................... $ 64,946 $ 40,494 $ 33,916 $ 39,511 $ 26,879
Less: Special items--principal reduction............. $ 25,347 $ 41,610 $ 46,270 $ 51,463 $ 73,857
----------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after cash distributions
and special items(4)............................... $ 39,599 $ (1,116) $ (12,354) $ (11,952) $ (46,978)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations........... $ 237 $ 246 $ 229 $ 243 $ (518)
Capital gain (loss).............................. $ 0 $ 0 $ 0 $ 0 $ (527)
Cash distributions to Investors
Source (on cash basis)
Sales............................................ $ 0 $ 0 $ 0 $ 0 $ 203
Refinancing...................................... $ 0 $ 0 $ 0 $ 0 $ 0
Operations....................................... $ 115 $ 277 $ 277 $ 277 $ 298
Other............................................ $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP4 generally depreciated equipment on a straight line basis over ten
years. As a result, when leases ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP4, the
sale resulted in a tax loss, even though TLP4 realized a positive receipt of
cash. The loss of $205,695 in 1992 reflects such a tax loss.
(3) "Net Income(loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior years
and cash reserves maintained by TLP4.
60
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #5(1)
-----------------------------------------------
12-01-88
TO 12-31-88 1989 1990 1991
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Revenues....................................... $ 16,091 $ 325,420 $ 417,548 $ 414,909
Profit (loss) on sale of equipment(2)................ $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses............................. $ 2,058 $ 16,746 $ 17,409 $ 17,992
Interest Expense................................. $ 0 $ 39,583 $ 54,947 $ 42,628
Depreciation..................................... $ 1,846 $ 79,258 $ 136,791 $ 137,466
Write-offs of Syndication Costs and A/R.......... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Net Income--Tax Basis................................ $ 12,187 $ 189,563 $ 208,401 $ 216,823
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Cash generated from operations(3).................... $ 14,033 $ 268,821 $ 345,192 $ 354,289
Cash generated from sales............................ $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing...................... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated from operations, sales and
refinancing........................................ $ 14,033 $ 268,821 $ 345,192 $ 354,289
Less: Cash distributions to investors
from operating cash flow....................... $ 0 $ 129,389 $ 239,998 $ 260,649
from sales and refinancing..................... $ 0 $ 0 $ 0 $ 0
from other..................................... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash
distributions...................................... $ 14,033 $ 139,432 $ 105,194 $ 93,640
Less: Special items--principal reduction............. $ 0 $ 35,557 $ 95,928 $ 110,527
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash distributions
and special items(4)............................... $ 14,033 $ 103,875 $ 9,266 $ (16,887)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations........... $ 12 $ 190 $ 208 $ 217
Capital gain (loss).............................. $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales............................................ $ 0 $ 0 $ 0 $ 0
Refinancing...................................... $ 0 $ 0 $ 0 $ 0
Operations....................................... $ 0 $ 129 $ 240 $ 261
Other............................................ $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP5 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP5, the
sale resulted in a tax loss, even though TLP5 realized a positive receipt of
cash. The loss of $69,483 in 1992 reflects such a tax loss.
(3) "Net Income(loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with cash generated in prior years.
61
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #5(1)
-----------------------------------
1992 1993 1994
---------- ---------- -----------
<S> <C> <C> <C>
Gross Revenues..................................................... $ 341,810 $ 224,659 $ 35,597
Profit (loss) on sale of equipment(2).............................. $ (69,483) $ (114,028) $ 224,899
Less: Operating Expenses........................................... $ 17,289 $ 18,317 $ 7,757
Interest Expense............................................... $ 26,381 $ 8,525 $ 1,021
Depreciation................................................... $ 80,994 $ 71,170 $ 35,575
Write-offs of Syndication Costs and A/R........................ $ 0 $ 37,399 $ 173,420
---------- ---------- -----------
Net Income--Tax Basis.............................................. $ 147,663 $ (24,780) $ (407,075)
---------- ---------- -----------
---------- ---------- -----------
Cash generated from operations(3).................................. $ 298,140 $ 197,817 $ 26,819
Cash generated from sales.......................................... $ 378,397 $ 300,597 $ 60,024
Cash generated from refinancing.................................... $ 0 $ 0 $ 0
---------- ---------- -----------
Cash generated from operations, sales and refinancing.............. $ 676,537 $ 498,414 $ 86,843
Less: Cash distributions to investors
from operating cash flow..................................... $ 260,000 $ 325,000 $ 26,819
from sales and refinancing................................... $ 0 $ 0 $ 60,024
from other................................................... $ 0 $ 164,552 $ 51,383
---------- ---------- -----------
Cash generated (deficiency) after cash distributions............... $ 416,537 $ 8,862 $ (51,383)
Less: Special items--principal reduction........................... $ 150,675 $ 123,785 $ 0
---------- ---------- -----------
Cash generated (deficiency) after cash distributions and special
items(4).......................................................... $ 265,862 $ (114,923) $ (51,383)
---------- ---------- -----------
---------- ---------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations......................... $ 148 $ (25) $ (407)
Capital gain (loss)............................................ $ (69) $ (114) $ (225)
Cash distributions to Investors
Source (on cash basis)
Sales.......................................................... $ 0 $ 0 $ 60
Refinancing.................................................... $ 0 $ 0 $ 0
Operations..................................................... $ 260 $ 325 $ 27
Other.......................................................... $ 0 $ 165 $ 51
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP5 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP5, the
sale resulted in a tax loss, even though TLP5 realized a positive receipt of
cash. The loss of $69,483 in 1992 reflects such a tax loss.
(3) "Net Income(loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with cash generated in prior years.
62
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6(1)
-----------------------------------------------
07-14-89 TO
12-31-89 1990 1991 1992
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Revenues....................................... $ 115,881 $ 192,346 $ 194,487 $ 197,229
Profit (loss) on sale of equipment................... $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses............................. $ 5,718 $ 8,525 $ 6,879 $ 7,689
Interest Expense................................ $ 26,854 $ 45,881 $ 40,457 $ 36,568
Depreciation.................................... $ 36,003 $ 79,208 $ 79,856 $ 80,504
Write-offs of Syndication Costs and A/R......... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Net Income--Tax Basis................................ $ 47,306 $ 58,732 $ 67,295 $ 72,468
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Cash generated from operations(2).................... $ 83,309 $ 137,940 $ 147,151 $ 152,972
Cash generated from sales............................ $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing...................... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated from operations, sales and
refinancing........................................ $ 83,309 $ 137,940 $ 147,151 $ 152,972
Less: Cash distributions to investors
from operating cash flow....................... $ 13,769 $ 99,999 $ 99,999 $ 100,000
from sales and refinancing..................... $ 0 $ 0 $ 0 $ 0
from other..................................... $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash
distributions...................................... $ 69,540 $ 37,941 $ 47,152 $ 52,972
Less: Special items--principal reduction............. $ 19,722 $ 40,059 $ 45,471 $ 49,353
----------- ---------- ---------- ----------
Cash generated (deficiency) after cash distributions
and special items(3)............................... $ 49,818 $ (2,118) $ 1,681 $ 3,619
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations........... $ 100 $ 124 $ 142 $ 153
Capital gain (loss).............................. $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales............................................ $ 0 $ 0 $ 0 $ 0
Refinancing...................................... $ 0 $ 0 $ 0 $ 0
Operations....................................... $ 29 $ 211 $ 211 $ 211
Other............................................ $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) "Net Income(loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(3) Deficiencies were funded with cash generated in prior years.
63
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6(1)
-----------------------------------------------
1993 1994 1995 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Gross Revenues....................................... $ 188,894 $ 193,470 $ 162,239 $ 63,215
Profit (loss) on sale of equipment................... $ 0 $ 0 $ (6,052) $(174,675)
Less: Operating Expenses............................. $ 9,269 $ 8,820 $ 7,537 $ 5,234
Interest Expense................................ $ 27,117 $ 16,988 $ 10,916 $ 1,232
Depreciation.................................... $ 80,504 $ 81,600 $ 76,128 $ 48,950
Write-offs of Syndication Costs and A/R......... $ 0 $ 0 $ 0 $ 77,320
---------- ---------- ---------- -----------
Net Income--Tax Basis................................ $ 72,004 $ 86,062 $ 61,606 $(244,196)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Cash generated from operations(2).................... $ 152,508 $ 167,662 $ 143,786 $ 56,749
Cash generated from sales............................ $ 0 $ 0 $ 1,301 $ 11,861
Cash generated from refinancing...................... $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- -----------
Cash generated from operations, sales
and refinancing..................................... $ 152,508 $ 167,662 $ 145,087 $ 68,610
Less: Cash distributions to investors
from operating cash flow....................... $ 100,000 $ 100,000 $ 125,000 $ 61,860
from sales and refinancing..................... $ 0 $ 0 $ 0 $ 0
from other..................................... $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- -----------
Cash generated (deficiency) after cash
distributions....................................... $ 52,508 $ 67,662 $ 20,087 $ 6,750
Less: Special items--principal reduction............. $ 58,784 $ 69,354 $ 75,049 $ 42,208
---------- ---------- ---------- -----------
Cash generated (deficiency) after cash distributions
and special items(3)................................ $ (6,276) $ (1,692) $ (54,962) $ (35,458)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations........... $ 152 $ 181 $ 130 $ (514)
Capital gain (loss).............................. $ 0 $ 0 $ (13) $ (368)
Cash distributions to Investors
Source (on cash basis)
Sales............................................ $ 0 $ 0 $ 0 $ 0
Refinancing...................................... $ 0 $ 0 $ 0 $ 0
Operations....................................... $ 211 $ 211 $ 263 $ 130
Other............................................ $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) "Net Income(loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(3) Deficiencies were funded with cash generated in prior years.
64
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #7(1)
-------------------------------------------------------------------------
08-30-89 01-01-94
TO 12-31-89 1990 1991 1992 1993 TO 09-30-94
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues..................... $ 58,574 $ 403,825 $ 446,673 $ 398,353 $ 314,143 $ 140,640
Profit (loss) on sale of
equipment(2)..................... $ 0 $ 0 $ 0 $ (92,261) $ (177,823) $ (342,437)
Less: Operating Expenses........... $ 2,599 $ 9,569 $ 9,433 $ 12,504 $ 8,906 $ 8,926
Interest Expense.............. $ 4,290 $ 42,520 $ 33,830 $ 21,054 $ 13,400 $ 3,188
Depreciation.................. $ 26,137 $ 104,289 $ 133,646 $ 130,053 $ 103,876 $ 50,736
Write-offs of Syndication
Costs and A/R................ $ 0 $ 0 $ 0 $ 0 $ 0 $ 184,655
----------- ---------- ---------- ---------- ----------- -----------
Net Income--Tax Basis.............. $ 25,548 $ 247,447 $ 269,764 $ 142,481 $ 10,138 $ (449,302)
----------- ---------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ---------- ----------- -----------
Cash generated from
operations(3).................... $ 51,685 $ 351,736 $ 403,410 $ 364,795 $ 291,837 $ 128,526
Cash generated from sales.......... $ 0 $ 0 $ 0 $ 6,000 $ 48,103 $ 190,715
Cash generated from refinancing.... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- ----------- -----------
Cash generated from operations,
sales and refinancing............ $ 51,685 $ 351,736 $ 403,410 $ 370,795 $ 339,940 $ 319,241
Less: Cash distributions to
investors
from operating cash flow..... $ 1,660 $ 177,484 $ 227,998 $ 228,000 $ 228,000 $ 128,002
from sales and refinancing... $ 0 $ 0 $ 0 $ 0 $ 0 $ 266,901
from other................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- ----------- -----------
Cash generated (deficiency) after
cash distributions............... $ 50,025 $ 174,252 $ 175,412 $ 142,795 $ 111,940 $ (75,662)
Less: Special items--principal
reduction........................ $ 5,013 $ 81,572 $ 106,206 $ 84,743 $ 68,319 $ 69,147
----------- ---------- ---------- ---------- ----------- -----------
Cash generated (deficiency) after
cash distributions and special
items............................ $ 45,012 $ 92,680 $ 69,206 $ 58,052 $ 43,621 $ (144,809)
----------- ---------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ---------- ----------- -----------
Tax and distribution data per
$1,000 invested:
Federal income tax results:
Ordinary income (loss) from
operations................... $ 26 $ 247 $ 270 $ 142 $ 10 $ (449)
Capital gain (loss)............ $ 0 $ 0 $ 0 $ (92) $ (178) $ (342)
Cash distributions to Investors
Source (on cash basis)
Sales.......................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 267
Refinancing.................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Operations..................... $ 2 $ 177 $ 228 $ 228 $ 228 $ 128
Other.......................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP7 generally depreciated equipment on a straight line basis over ten
years, even though the equipment was leased pursuant to a lease having a
three to five year term. As a result, when a lease ended and the equipment
was sold for residual value, in many cases the sale resulted in a tax loss
because the sale price was less than the adjusted basis of the equipment.
The loss of $92,261 in 1992 reflects such a tax loss that resulted from the
sale of equipment that TLP7 took possession of in 1991 following the early
termination of a lease.
(3) "Net Income (loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
65
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #8(1)
--------------------------------------------------------------
04-09-90 01-01-94
TO 12-31-90 1991 1992 1993 TO 09-30-94
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues..................... $ 282,731 $ 821,754 $ 475,321 $ 418,859 $ 177,850
Profit (loss) on sale of
equipment(2)..................... $ 0 $ 0 $ (351,774) $ (154,322) $ (372,256)
Less: Operating Expenses........... $ 21,826 $ 26,531 $ 27,054 $ 16,772 $ 10,196
Interest Expense.............. $ 28,958 $ 56,699 $ 39,109 $ 12,178 $ 0
Depreciation.................. $ 78,386 $ 175,511 $ 108,398 $ 196,959 $ 52,029
Write-offs of Syndication
Costs and A/R................ $ 0 $ 0 $ 0 $ 0 $ 231,437
----------- ---------- ----------- ----------- -----------
Net Income--Tax Basis.............. $ 153,561 $ 563,013 $ (51,014) $ 38,628 $ (488,068)
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Cash generated from
operations(3).................... $ 231,947 $ 738,524 $ 409,158 $ 389,909 $ 167,654
Cash generated from sales.......... $ 0 $ 0 $ 24,000 $ 7,400 $ 137,194
Cash generated from refinancing.... $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ----------- ----------- -----------
Cash generated from operations,
sales and refinancing............ $ 231,947 $ 738,524 $ 433,158 $ 397,309 $ 304,848
Less: Cash distributions to
investors
from operating cash flow..... $ 53,053 $ 256,000 $ 256,000 $ 256,000 $ 474,722
from sales and refinancing... $ 0 $ 0 $ 0 $ 0 $ 137,194
from other................... $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ----------- ----------- -----------
Cash generated (deficiency) after
cash distributions............... $ 178,894 $ 482,524 $ 177,158 $ 141,309 $ (307,068)
Less: Special items--principal
reduction........................ $ 61,507 $ 103,803 $ 203,565 $ 138,901 $ 138,901
----------- ---------- ----------- ----------- -----------
Cash generated (deficiency) after
cash distributions and special
items(4)......................... $ 117,387 $ 378,721 $ (26,407) $ 2,408 $ (445,969)
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Tax and distribution data per
$1,000 invested:
Federal income tax results:
Ordinary income (loss) from
operations................... $ 127 $ 467 $ (42) $ 32 $ (405)
Capital gain (loss)............ $ 0 $ 0 $ (292) $ (128) $ (309)
Cash distributions to Investors
Source (on cash basis)
Sales.......................... $ 0 $ 0 $ 0 $ 0 $ 114
Refinancing.................... $ 0 $ 0 $ 0 $ 0 $ 0
Operations..................... $ 44 $ 212 $ 212 $ 212 $ 394
Other.......................... $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP8 generally depreciated equipment on a straight line basis over ten
years, even though the equipment was leased pursuant to a lease having a
three to five year term. As a result, when a lease ended and the equipment
was sold for residual value, in many cases the sale resulted in a tax loss
because the sale price was less than the adjusted basis of the equipment.
The loss of $351,774 in 1992 reflects such a tax loss that resulted from the
sale of equipment that TLP8 took possession of in 1991 following the early
termination of a lease.
(3) "Net Income (loss)--Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with cash generated in prior years.
66
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF IX(1)(2)
--------------------------------------------------
11-30-91
TO 12-31-91 1992 1993 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Revenues.................................. $ 27,892 $ 1,068,671 $ 2,759,468 $ 2,958,118
Profit (loss) on sale of equipment.............. $ 0 $ 0 $ 94,003 $ 38,445
Less: Operating Expenses........................ $ 13,375 $ 254,794 $ 495,491 $ 578,979
Interest Expense............................ $ 482 $ 110,245 $ 239,437 $ 363,881
Provision for possible lease losses......... $ 0 $ 0 $ 0 $ 270,000
Depreciation................................ $ 0 $ 0 $ 0 $ 0
Impairment loss on Equipment................ $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Net Income--GAAP Basis.......................... $ 14,035 $ 703,632 $ 2,118,543 $ 1,783,703
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash generated from operations.................. $ 86,725 $ 1,969,307 $ 2,291,515 $ 1,435,986
Proceeds from termination of direct financing
leases........................................ $ 0 $ 0 $ 2,291,412 $ 379,489
Cash generated from refinancing................. $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Cash generated from operations, sales and
refinancing................................... $ 86,725 $ 1,969,307 $ 4,582,927 $ 1,815,475
Less: Cash distributions to investors
from operating cash flow.................. $ 14,550 $ 710,834 $ 1,839,447 $ 2,040,210
from sales and refinancing................ $ 0 $ 0 $ 0 $ 0
from other................................ $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions................................. $ 72,175 $ 1,258,473 $ 2,743,480 $ (224,735)
Less: Special items--principal reduction.. $ 0 $ 133,588 $ 0 $ 1,121,243
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions and special items............... $ 72,175 $ 1,124,885 $ 2,743,480 $(1,345,978)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income Tax Reporting Basis
Net income for income tax reporting
purposes.................................... $ 40,414 $ (238,776) $ 679,003 $ 1,515,757
Gain (loss) on sales of equipment............. $ 0 $ 567 $ 85,044 $ (34,565)
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations...... $ 33 $ (22) $ 40 $ 89
Gain (loss) on sale of Equipment............ $ 0 $ 0 $ 5 $ (2)
Cash distributions to Investors
Source (on GAAP basis)
Sales....................................... $ 0 $ 0 $ 0 $ 0
Refinancing................................. $ 0 $ 0 $ 0 $ 0
Operations.................................. $ 12 $ 65 $ 108 $ 120
Other....................................... $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------------
(1) This is a public program whose books are kept on a GAAP basis.
(2) The amount (in percentage terms) remaining invested in program equipment at
the end of September, 1997 is 100.00%.
(3) Tax information not available at this time.
67
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF IX(1)(2)
--------------------------------------------------
JUNE 30,
1995 1996 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Revenues................................... $ 2,933,329 $ 2,875,262 $ 2,118,987 $ 647,437
Profit (loss) on sale of equipment............... $ 23,355 $ 413,880 $ 505,834 $ 174,811
Less: Operating Expenses......................... $ 630,062 $ 574,268 $ 503,786 $ 253,613
Interest Expense............................. $ 432,197 $ 492,210 $ 163,677 $ 22,220
Provision for possible lease losses.......... $ 94,156 $ 577,931 $ 1,801,233 $ 64,710
Depreciation................................. $ 150,540 $ 286,526 $ 262,751 $ 152,509
Impairment loss on Equipment................. $ 0 $ 350,000 $ 113,847 $ 0
----------- ----------- ----------- -----------
Net Income--GAAP Basis........................... $ 1,649,729 $ 1,008,207 $ 220,095 $ 329,196
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash generated from operations................... $ 1,830,610 $ 1,803,251 $ 1,548,777 $ 546,985
Proceeds from termination of direct financing
leases.......................................... $ 416,768 $ 6,874,524 $ 4,303,734 $ 2,178,294
Cash generated from refinancing.................. $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Cash generated from operations, sales and
refinancing..................................... $ 2,247,378 $ 8,677,775 $ 5,852,511 $ 2,725,279
Less: Cash distributions to investors
from operating cash flow................... $ 2,040,208 $ 2,065,823 $ 2,061,174 $ 546,985
from sales and refinancing................. $ 0 $ 0 $ 0 $ 1,022,371
from other................................. $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions................................... $ 207,170 $ 6,611,952 $ 3,791,337 $ 1,155,923
Less: Special items--principal reduction... $ 0 $ 3,437,296 $ 1,855,082 $ 0
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions and special items................. $ 207,170 $ 3,174,656 $ 1,936,255 $ 1,155,923
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income Tax Reporting Basis
Net income for income tax reporting purposes... $ 1,267,314 $ 2,687,332 $ 1,520,193 (3)
Gain (loss) on sales of equipment.............. $ (635,945) $(3,475,641) $ 796,932 (3)
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations....... $ 75 $ 158 90 (3)
Gain (loss) on sale of Equipment............. $ (37) $ (205) 47 (3)
Cash distributions to Investors
Source (on GAAP basis)
Sales........................................ $ 0 $ 0 $ 0 $ 60
Refinancing.................................. $ 0 $ 0 $ 0 $ 0
Operations................................... $ 120 $ 122 $ 122 $ 32
Other........................................ $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------------
(1) This is a public program whose books are kept on a GAAP basis.
(2) The amount (in percentage terms) remaining invested in program equipment at
the end of September, 1997 is 100.00%.
(3) Tax information not available at this time.
68
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF X(1)(2)
-------------------------------------
08-27-93
TO 12-31-93 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues..................................................... $ 136,896 $ 2,240,714 $ 3,751,290
Profit (loss) on sale of equipment................................. $ 0 $ 20,306 $ 77,143
Less: Operating Expenses........................................... $ 51,378 $ 388,920 $ 605,211
Interest Expense.............................................. $ 0 $ 216,665 $ 672,512
Provision for possible lease losses........................... $ 0 $ 360,000 $ 828,911
Depreciation.................................................. $ 0 $ 0 $ 170,646
Impairment loss on Equipment.................................. $ 0 $ 0 $ 0
----------- ----------- -----------
Net Income--GAAP Basis............................................. $ 85,518 $ 1,295,435 $ 1,551,153
----------- ----------- -----------
----------- ----------- -----------
Cash generated from operations..................................... $ 158,914 $ 1,643,652 $ 2,566,020
Proceeds from termination of direct financing leases............... $ 0 $ 201,125 $ 837,182
Cash generated from refinancing.................................... $ 0 $ 0 $ 0
----------- ----------- -----------
Cash generated from operations, sales and refinancing.............. $ 158,914 $ 1,844,777 $ 3,403,202
Less: Cash distributions to investors
from operating cash flow..................................... $ 104,880 $ 1,416,600 $ 2,427,345
from sales and refinancing................................... $ 0 $ 0 $ 0
from other................................................... $ 0 $ 0 $ 0
----------- ----------- -----------
Cash generated (deficiency) after cash distributions............... $ 54,034 $ 288,786 $ 960,510
Less: Special items--principal reduction..................... $ 0 $ 0 $ 0
----------- ----------- -----------
Cash generated (deficiency) after cash distributions and special
items............................................................ $ 54,034 $ 288,786 $ 960,510
----------- ----------- -----------
----------- ----------- -----------
Income Tax Reporting Basis
Net income for income tax reporting purposes..................... $ 6,473 $ (624,998) $ (949,880)
Gain (loss) on sales of equipment................................ $ 0 $ 42,853 $ 142,416
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations......................... $ 1 $ (28) $ (42)
Gain (loss) on sale of Equipment............................... $ 0 $ 2 $ 6
Cash distributions to Investors
Source (on GAAP basis)
Sales.......................................................... $ 0 $ 0 $ 0
Refinancing.................................................... $ 0 $ 0 $ 0
Operations..................................................... $ 17 $ 69 $ 108
Other.......................................................... $ 0 $ 0 $ 0
</TABLE>
- --------------------------
(1) This is a public program whose books are kept on a GAAP basis.
(2) The amount (in percentage terms) remaining invested in program equipment at
the end of September, 1997 is 100.00%.
(3) Tax information not available at this time.
69
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF X(1)(2)
-------------------------------------
1996 1997 6-30-98
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues.................................................. $ 3,444,271 $ 2,960,183 $ 1,191,916
Profit (loss) on sale of equipment.............................. $ 260,706 $ 85,520 $ 450,997
Less: Operating Expenses........................................ $ 709,592 $ 651,244 $ 346,837
Interest Expense........................................... $ 692,863 $ 407,538 $ 225,316
Provision for possible lease losses........................ $ 1,092,551 $ 3,628,090 $ 19,003
Depreciation............................................... $ 392,774 $ 51,031 $ 48,734
Impairment loss on Equipment............................... $ 621,000 $ 205,693 $ 0
----------- ----------- -----------
Net Income--GAAP Basis.......................................... $ 196,197 $(1,897,893) $ 1,003,023
----------- ----------- -----------
----------- ----------- -----------
Cash generated from operations.................................. $ 1,938,010 $ 1,595,449 $ 521,753
Proceeds from termination of direct financing leases............ $ 5,297,671 $ 1,479,121 $ 448,786
Cash generated from refinancing................................. $ 0 $ 0 $ 0
----------- ----------- -----------
Cash generated from operations, sales and refinancing........... $ 7,235,681 $ 3,074,570 $ 5,009,614
Less: Cash distributions to investors
from operating cash flow.................................. $ 2,456,178 $ 2,545,969 $ 521,753
from sales and refinancing................................ $ 0 $ 0 $ 691,371
from other................................................ $ 0 $ 0 $ 0
----------- ----------- -----------
Cash generated (deficiency) after cash distributions............ $ 4,793,261 $ 528,601 $ 3,796,490
Less: Special items--principal reduction.................. $ 3,811,544 $ 0 $ 3,877,945
----------- ----------- -----------
Cash generated (deficiency) after cash distributions and special
items.......................................................... $ 981,717 $ 528,601 $ 81,455
----------- ----------- -----------
----------- ----------- -----------
Income Tax Reporting Basis
Net income for income tax reporting purposes.................. $(1,135,380) $ 331,231 (3)
Gain (loss) on sales of equipment............................. $(1,284,298) $ (630,207) (3)
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations...................... $ (50) $ 15 (3)
Gain (loss) on sale of Equipment............................ $ (57) $ (28) (3)
Cash distributions to Investors
Source (on GAAP basis)
Sales....................................................... $ 0 $ 0 $ 31
Refinancing................................................. $ 0 $ 0 $ 0
Operations.................................................. $ 108 $ 113 $ 23
Other....................................................... $ 0 $ 0 $ 0
</TABLE>
- --------------------------
(1) This is a public program whose books are kept on a GAAP basis.
(2) The amount (in percentage terms) remaining invested in program equipment at
the end of September, 1997 is 100.00%.
(3) Tax information not available at this time.
70
<PAGE>
TABLE IV
RESULTS OF COMPLETED PROGRAMS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
PROGRAM NAME TLP #1 TLP #2 TLP #3 TLP #4
- ----------------------------------------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Dollar Amount Raised(1).............................. $ 1,363,500 $ 1,383,700 $ 282,828 $ 393,939
Date of Closing of Offering.......................... 12/31/86 12/31/87 03/04/88 05/03/88
Date of First Sale of Equipment...................... 10/01/90 10/01/90 03/01/92 10/01/92
Date of Final Sale of Equipment...................... 10/01/90 09/01/93 08/01/92 10/01/92
Tax and Distribution Data per $1,000
Federal Income Tax Results:
Ordinary income (loss)
--from operations.............................. $ 214 $ 692 $ 1,036 $ 964
--from recapture............................... $ 0 $ 0 $ 0 $ 0
Capital Gain (loss).............................. $ 31 $ (279) $ (541) $ (527)
Deferred Gain
Capital........................................ $ 0 $ 0 $ 0 $ 0
Ordinary....................................... $ 0 $ 0 $ 0 $ 0
Cash Distributions to Investors
Source (on GAAP basis)
--Investment Income............................ $ 224 $ 422 $ 504 $ 446
--Return of Capital............................ $ 1,000 $ 1,000 $ 1,000 $ 1,000
Source (on cash basis)
--Sales........................................ $ 0 $ 27 $ 165 $ 203
--Refinancing.................................. $ 0 $ 0 $ 0 $ 0
--Operations................................... $ 1,224 $ 1,095 $ 1,339 $ 1,243
--Other........................................ $ 0 $ 300 $ 0 $ 0
Receivable on Net Purchase Money Financing
</TABLE>
- --------------------------
(1) Includes general partner purchase of 1% of amount raised from investors.
71
<PAGE>
TABLE IV
RESULTS OF COMPLETED PROGRAMS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
PROGRAM NAME TLP #5 TLP #6 TLP #7 TLP #8
- ---------------------------------------------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Dollar Amount Raised(1)............................. $ 1,010,000 $ 479,750 $ 1,010,000 $ 1,217,050
Date of Closing of Offering......................... 02/28/89 07/14/89 02/21/90 02/07/91
Date of First Sale of Equipment..................... 10/01/92 12/01/96 09/01/92 01/01/93
Date of Final Sale of Equipment..................... 03/01/94 12/01/96 09/01/93 11/01/93
Tax and Distribution Data per $1,000
Federal Income Tax Results:
Ordinary income (loss)
--from operations............................. $ 751 $ 846 $ 859 $ 908
--from recapture.............................. $ 0 $ 0 $ 0 $ 0
Capital Gain (loss)............................. $ 31 $ (279) $ (541) $ (527)
Deferred Gain
Capital....................................... $ 0 $ 0 $ 0 $ 0
Ordinary...................................... $ 0 $ 0 $ 0 $ 0
Cash Distributions to Investors
Source (on GAAP basis)
--Investment Income........................... $ 224 $ 422 $ 504 $ 446
--Return of Capital........................... $ 1,000 $ 1,000 $ 1,000 $ 1,000
Source (on cash basis)
--Sales....................................... $ 0 $ 27 $ 165 $ 203
--Refinancing................................. $ 0 $ 0 $ 0 $ 0
--Operations.................................. $ 1,224 $ 1,095 $ 1,339 $ 1,243
--Other....................................... $ 0 $ 300 $ 0 $ 0
Receivable on Net Purchase Money Financing
</TABLE>
- --------------------------
(1) Includes general partner purchase of 1% of amount raised from investors.
72
<PAGE>
TABLE V
SALES OR DISPOSITION OF EQUIPMENT BY PUBLIC PROGRAM SINCE 01/01/94
<TABLE>
<CAPTION>
NET NOTES/
NET CASH NONCASH
NET PROCEEDS FROM PROCEEDS FROM
INVESTMENT TERMINATION OF TERMINATION OF
IN DIRECT DIRECT DIRECT
DATE YEAR OF FINANCING FINANCING FINANCING
PARTNERSHIP DESCRIPTION ACQUIRED DISPOSITION LEASES LEASES LEASES
- ----------- -------------------------------- ----------- ------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
TIF IX Telecommunication Equipment Various 1994 $ 341,044 $ 379,489 $ 0
TIF IX Telecommunication Equipment Various 1995 $ 393,413 $ 416,768 $ 0
TIF IX Telecommunication Equipment Various 1996 $ 12,361,660 $ 6,874,524 $ 5,901,016
TIF X Telecommunication Equipment Various 1994 $ 180,819 $ 201,125 $ 0
TIF X Telecommunication Equipment Various 1995 $ 760,039 $ 837,182 $ 0
TIF X Telecommunication Equipment Various 1996 $ 10,779,201 $ 5,297,671 $ 5,742,236
TIF IX Telecommunication Equipment Various 1997 $ 3,802,900 $ 4,303,734 $ 0
TIF x Telecommunication Equipment Various 1997 $ 1,393,601 $ 1,479,121 $ 0
<CAPTION>
NET PROCEEDS FROM
TERMINATION OF FEDERAL
DIRECT FINANCING GAAP GAIN/ TAXABLE
PARTNERSHIP LEASES (LOSS) GAIN/(LOSS)
- ----------- ----------------- ----------- --------------
<S> <C> <C> <C>
TIF IX $ 379,486 $ 38,445 $ (34,565)
TIF IX $ 416,768 $ 23,355 $ (635,945)
TIF IX $ 12,775,540 $ 413,880 $ (3,475,641)
TIF X $ 201,125 $ 20,306 $ 42,853
TIF X $ 837,182 $ 77,143 $ 142,416
TIF X $ 11,039,907 $ 260,706 $ (1,284,298)
TIF IX $ 4,303,734 $ 505,834 $ 796,932
TIF x $ 1,479,121 $ 85,520 $ (630,207)
</TABLE>
73
<PAGE>
THE DATE OF THIS PROSPECTUS IS DECEMBER 23, 1997
$25,000,000
TELECOMMUNICATIONS INCOME FUND XI, L.P.
AN IOWA LIMITED PARTNERSHIP
$1,000 Per Unit
A Minimum of 1,200 Units ($1,200,000) of
Limited Partnership Interest
Minimum Investment: 2 Units ($2,000)
Telecommunications Income Fund XI, L.P., is a newly organized Iowa
limited partnership (the "Partnership"). The General Partner of the
Partnership is Berthel Fisher & Company Leasing, Inc., an Iowa corporation
(the "General Partner"). The Partnership hereby offers a minimum of
$1,200,000 and a maximum of $25,000,000 in units of limited partnership
interest in the Partnership ("Units") for sale to prospective investors in
the Partnership ("Limited Partners") by means of this Prospectus.
The Partnership intends to use the Net Proceeds of this offering to
acquire Equipment to be leased to unaffiliated third parties and to acquire
other Program Assets. The Partnership intends that a major percentage of the
Equipment acquired by the Partnership will be telecommunication equipment.
See "Investment Objectives and Policies." The Partnership has been formed
primarily for income-oriented investment purposes. Most of its income is
expected to be "passive activity income". THERE CAN BE NO ASSURANCE THAT ANY
OF THE PARTNERSHIP'S OBJECTIVES WILL BE ACHIEVED OR THAT ANY SPECIFIC LEVEL
OF CASH DISTRIBUTIONS CAN OR WILL BE ATTAINED. See "Risk Factors,"
"Investment Objectives and Policies" and "Tax Consequences."
THESE ARE SPECULATIVE SECURITIES. THIS OFFERING INVOLVES CERTAIN MATERIAL
RISKS. See "RISK FACTORS." The most significant risk factors to be
considered by an investor are:
- Limited Partners must rely solely on the General Partner. There are
conflicts of interest between the Partnership and the General Partner.
- Program Assets to be acquired by the Partnership are unspecified.
- The Partnership has no operating history.
- The General Partner is entitled to substantial fees which will be
received regardless of whether Limited Partners receive a return of
their investment.
- It is not certain that investors will ever receive their own money back
or that cash distributions will ever be made. Cash distributions may
include a return of capital.
- Lessees may default on leases or become bankrupt.
- Use of leverage to purchase Program Assets will increase the
Partnership's need for cash flow to meet debt service requirements.
- There are significant restrictions on the transferability of Units, and
it is not anticipated that an active market will ever develop for Units.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Price to Selling Proceeds to
Units Public Commissions(1) Partnership(2)
------- ----------- ----------- -----------
Per Unit............... --- $1,000 $90 $910
Total Minimum(3)....... 1,200 $1,200,000 $108,000 $1,092,000
Total Maximum(4)....... 25,000 $25,000,000 $2,250,000 $22,750,000
- -------------------------------------------------------------------------------
(See Notes to the Table on following page)
(Cover continued on next page)
THE DATE OF THIS PROSPECTUS IS DECEMBER 23, 1997.
<PAGE>
If all of the Selected Selling Agent Fees are paid to the Managing Sales
Agent, then Front End Fees paid to the General Partner and affiliates of the
General Partner will be: (a) 13.1% of Gross Proceeds assuming no borrowing
($157,429 if the Minimum is sold and $3,279,762 if the Maximum is sold; and
(b) 10.7% of Gross Proceeds and borrowings assuming maximum borrowing
($180,058 if the Minimum is sold and $3,751,191 if the Maximum is sold.
After paying all fees and expenses and establishing reserves, if the Minimum
of Units is sold and the maximum is borrowed, it is estimated that $965,942
of Net Proceeds will be invested in Program Assets, and if the Maximum of
Units is sold and the maximum is borrowed, it is estimated that $20,123,809
of Net Proceeds will be invested in Program Assets. AFTER DEDUCTION OF ALL
FRONT END FEES, ESTABLISHING A RESERVE AND ASSUMING THE PARTNERSHIP BORROWS
THE MAXIMUM (40.0% OF GROSS PROCEEDS), 80.5% OF THE LIMITED PARTNERS'
INVESTMENT WILL BE AVAILABLE AS NET PROCEEDS FOR INVESTMENT BY THE
PARTNERSHIP.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS
TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR
CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY
FLOW FROM AN INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.
(1) The Units in the Partnership are being offered through Berthel Fisher &
Company Financial Services, Inc. ("Financial Services"), an affiliate of
the General Partner, as Managing Sales Agent. Financial Services will in
turn engage other broker-dealers who are members of the National
Association of Securities Dealers, Inc. as Selected Sales Agents to offer
to sell the Units. The Managing Sales Agent will receive a Fee of 9.0%
of Gross Proceeds of the Offering, payable by the Partnership. Out of
such amount, the Managing Sales Agent will pay a fee to Selected Sales
Agents of 6.0% of the Gross Proceeds from Units sold by the Selected
Sales Agents (6.5% to Selected Sales Agents who sell more than $1,000,000
of Units). See "Compensation of the General Partner and Affiliates" and
"Plan of Distribution."
(2) Does not take into account Organizational and Offering Expenses payable
by the Partnership. See "Estimated Use of Proceeds."
(3) The minimum does not include Units purchased by the General Partner or
Affiliates.
(4) The maximum includes Units purchased by the General Partner or Affiliates.
The Partnership is not a mutual fund or any other type of investment
company within the meaning of the Investment Company Act of 1940 and is not
subject to regulation thereunder.
Until the minimum Gross Proceeds of $1,200,000 have been raised, payments
made by subscribers will be held by an Escrow Agent. See "Payment for Units"
under "Plan of Distribution."
THE PARTNERSHIP WILL UTILIZE THIS PROSPECTUS TO MAKE OFFERS AND
SOLICITATIONS ONLY IN STATES IN WHICH THE PARTNERSHIP HAS MADE APPROPRIATE
FILINGS OR OTHERWISE COMPLIED WITH STATE LAW. THE USE OF FORECASTS IN
CONNECTION WITH THIS OFFERING IS PROHIBITED. ANY REPRESENTATION TO THE
CONTRARY AND ANY PREDICTION, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM
AN INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.
INVESTORS ARE REQUIRED TO REPRESENT THAT THEY MEET THE OFFERING'S
SUITABILITY STANDARDS AND THAT THEY ARE PURCHASING FOR INVESTMENT AND NOT FOR
RESALE.
PROSPECTIVE INVESTORS ARE ENCOURAGED TO READ CAREFULLY THE ENTIRE
PROSPECTUS, WHICH CONTAINS A COMPLETE COPY OF THE FORM OF PARTNERSHIP
AGREEMENT, AND WHICH IS ACCOMPANIED BY ANY CURRENT SUPPLEMENT.
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<PAGE>
[LOGO]
BERTHEL FISHER & COMPANY LEASING, INC. INVITES YOU TO JOIN US
AS AN INVESTOR IN THE EXPANDING MARKET FOR EQUIPMENT LEASING.
TELECOMMUNICATIONS INCOME FUND XI (TIF XI) IS THE ELEVENTH
LIMITED PARTNERSHIP WE'VE OFFERED SINCE 1986.
- -------------------------------------------------------------------------------
INVESTING IN THE PARTNERSHIP
- - TIF XI will invest primarily in telecommunications equipment for lease.
- - TIF XI will also invest in general equipment for emerging growth markets.
- - Leases will be full payout.
LEASING IS BIG BUSINESS
Leasing is one of the largest equipment financing options in the United
States.
Lease benefits are as follows:
- 100% financing
- Cash conservation
- Tax advantages
- Inflation hedge
- Cash flow improvements
TELECOMMUNICATIONS LEASING MARKET
- - The expanding telecommunications industry is an established market for
equipment leasing.
- - Lease rates for telecommunications equipment are competitive and
affordable for the expanding industry.
- - Deregulation of the telephone industry has allowed private companies to
enter the pay telephone and call processing business.
- Private companies acquire equipment via full payout leases.
- Each lease request is evaluated upon the private company's
creditworthiness.
- Pay telephone and call processing equipment generate income that repays
the lease.
- Revenues are generally collected by independent billing companies and in
many cases are paid direct to the Lessor.
GENERAL LEASING MARKET
- - The General Partner has identified special markets for general equipment
leasing.
- - Growth markets are emerging businesses with limited access to capital.
- - Examples of general equipment required by companies identified as growth
markets:
- Automated Teller Machines (ATM)
- Cash Dispensing Machines
- Durable home medical equipment
- Manufacturing equipment
- Retail point of sales systems
- - The General Partner anticipates that equipment other than telecommunications
equipment will make up a small portion of the portfolios.
FULL PAYOUT LEASES
- - Full payout leases are a conservative approach to equipment leasing.
- - Full payout leases return the original cost of the equipment plus a return
on invested funds.
- - At lease end the partnership owns the equipment and can sell or release the
equipment.
- - Leases are noncancellable for the entire term of the lease.
[GRAPHIC DESCRIBING PROCESS BY WHICH INVESTORS MAKE CAPITAL CONTRIBUTIONS AND
RECEIVE DISTRIBUTIONS, THE PARTNERSHIP MAKES INVESTMENTS IN LEASED EQUIPMENT
AND COLLECTS LEASE REVENUE, AND THE GENERAL PARTNER MANAGES THE FUND AND
ORIGINATES LEASES. PHOTOGRAPHS OF CROWD OF PEDESTRIANS, THE OFFICE OF THE
GENERAL PARTNER, THE LOGO OF THE PARTNERSHIP, AND THREE ITEMS OF TYPICAL
LEASE EQUIPMENT]
<PAGE>
[LOGO]
THE TIF XI ADVANTAGES
- -------------------------------------------------------------------------------
[GRAPHIC OF STAR WITH THE FOLLOWING FIVE ITEMS OF TEXT AT THE POINTS]
SUBORDINATED MANAGEMENT FEE
Investors will receive a return before the General Partner receives its
management fee.
MONTHLY DISTRIBUTIONS
Cash payments are expected to be paid monthly to investors, but distributions
are at the discretion of the General Partner, and there is no assurance that
they will be made. Distributions may include a return of capital.
FULL PAYOUT LEASES
Leases pay back the full cost of equipment plus a return on invested funds.
80/20 PROFIT SPLIT
After the Investors receive their original investment plus a 9.6% annual
return, calculated during the Operating Phase, 80% of the profits will be
returned to investors, and 20% to the General Partner.
TAX-DEFERRED INCOME
A portion of the income on certain leases will be tax-deferred through
equipment depreciation.
OFFERING SUMMARY
- -------------------------------------------------------------------------------
TYPE OF OFFERING:
Publicly registered Leasing Income Fund.
OFFERING SIZE:
Minimum - $1,200,000
Maximum - $25,000,000
UNIT SIZE:
$1,000
MINIMUM PURCHASE
$2,000
GENERAL PARTNER:
Berthel Fisher & Company Leasing, Inc.
PRIOR PROGRAMS:
Eight private placements and two publicly registered programs.
ALLOCATION OF CASH FLOW:
The Partnership Agreement provides that after distributions to the Limited
Partners equal their original investment plus a 9.6% return, calculated
during the Operating Phase, subsequent profits at liquidation will be split
80/20, with Limited Partners receiving 80% and the General Partner 20%.
CASH DISTRIBUTIONS:
Distributions during the Operating Phase will be paid monthly. Distributions
are at the discretion of the General Partner and there is no assurance that
they will be made. Distributions may include a return of capital.
LENGTH OF INVESTMENT:
The Liquidation Phase will begin 3.5 to 5 years after closing of offering.
PARTNERSHIP OBJECTIVES:
- - Preserve capital
- - Maximize current income
- - Reinvest all available cash in new leases.
- - Maximize residual values.
PARTNERSHIP BORROWING:
Maximum leverage of 40%.
TYPES OF LEASED EQUIPMENT:
- - Telecommunications systems
- - Call Processing systems
- - Pay telephones
- - PBX systems
- - ATM systems
- - Miscellaneous income-producing general equipment
TAX DEFERRAL:
Tax on distributions may be deferred through the use of accelerated
depreciation.
PASSIVE INCOME:
TIF XI is a passive income generator.
INVESTOR REPORTING:
- - Welcome letter and certificate confirming participation in TIF XI
- - Quarterly reports
- - Annual reports audited by an independent public accounting firm
- - Tax information (schedule K-1)
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY OF THE OFFERING AND THE PARTNERSHIP............................... 7
Risk Factors.......................................................... 7
Estimated Use of Proceeds............................................. 8
Compensation of The General Partner And Affiliates.................... 9
Conflicts of Interest................................................. 9
Tax Consequences...................................................... 10
Tax Status of the Partnership.................................... 10
Publicly Traded Partnerships..................................... 10
Passive Activity Income Tax Rules................................ 10
Management............................................................ 10
Prior Experience of The General Partner And Affiliates................ 10
Investment Objectives And Policies.................................... 11
Equipment Acquisitions................................................ 12
Cash Distributions And Redemption..................................... 12
Operating Distributions.......................................... 12
Distributions on Liquidation and Winding Up...................... 12
Redemptions...................................................... 13
RISK FACTORS.............................................................. 13
Risks of Equipment Ownership And Leasing.............................. 13
Partnership And Business Risks........................................ 15
Federal Income Tax Risks.............................................. 17
INVESTOR SUITABILITY STANDARDS............................................ 19
ESTIMATED USE OF PROCEEDS................................................. 21
COMPENSATION OF THE GENERAL PARTNER AND AFFILIATES........................ 22
CONFLICTS OF INTEREST..................................................... 27
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER........................... 31
TAX MATTERS............................................................... 32
Brief Summary of Material Tax Consequences of Investment.............. 32
Tax Consequences...................................................... 33
EMPLOYEE BENEFIT PLANS.................................................... 50
MANAGEMENT................................................................ 52
The Partnership....................................................... 53
The General Partner and Its Affiliates................................ 53
Executive Officers of the General Partner............................. 54
Directors of the General Partner...................................... 55
Operation of the General Partner...................................... 56
PRIOR EXPERIENCE OF THE GENERAL PARTNER AND AFFILIATES.................... 56
General............................................................... 56
Differences Between the Partnership and Other Public and Private
Programs............................................................. 58
Information Regarding Private Programs................................ 58
INVESTMENT OBJECTIVES AND POLICIES........................................ 59
General............................................................... 59
Types of Equipment to be Acquired..................................... 60
Telecommunications Industry in General................................ 61
Telecommunications Equipment Market Factors........................... 61
Telecommunications Equipment Residual Values.......................... 62
Acquisition Policies and Procedures................................... 62
Temporary Investments; Return of Uninvested Net Proceeds.............. 64
Leases................................................................ 64
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<PAGE>
Financing............................................................. 66
Working Capital Reserves.............................................. 68
Sales of Lease Receivables and Residual Values........................ 68
Sale of Equipment..................................................... 69
Demand for Equipment.................................................. 69
EQUIPMENT ACQUISITIONS.................................................... 70
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT.............................. 70
Partnership Capital................................................... 71
Partnership Allocations............................................... 71
Voting Rights of Limited Partners..................................... 71
Liability of Partners to Third Parties................................ 72
Exculpation and Indemnification of the General Partner................ 72
Withdrawal or Removal of the General Partner.......................... 73
Dissolution and Liquidation........................................... 73
Amendment............................................................. 74
Appointment of the General Partner as Attorney-in-Fact................ 74
Principal Office of the Partnership................................... 74
Applicable Law........................................................ 74
Transferability of Units.............................................. 74
Roll-up Protection.................................................... 76
CASH DISTRIBUTIONS AND REDEMPTIONS........................................ 76
Cash Distributions.................................................... 76
Redemption of Units................................................... 79
Liquidation Policies.................................................. 80
REPORTS TO LIMITED PARTNERS............................................... 81
MAINTENANCE OF RECORDS.................................................... 82
CAPITALIZATION............................................................ 83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION............... 83
Liquidity and Capital Resources....................................... 83
Operations............................................................ 84
PLAN OF DISTRIBUTION...................................................... 85
Introduction.......................................................... 85
Broker-Dealers and the Selling Agreements............................. 85
The Offering of Units................................................. 86
Admission of Limited Partners......................................... 86
Cancellation of Offering.............................................. 87
Subscription for Units................................................ 87
Payment for Units..................................................... 88
SUMMARY OF PROMOTIONAL AND SALES MATERIAL................................. 88
EXPERTS................................................................... 89
LEGAL MATTERS............................................................. 89
ADDITIONAL INFORMATION.................................................... 90
FINANCIAL STATEMENTS OF THE PARTNERSHIP AND THE GENERAL PARTNER........... 91
GLOSSARY.................................................................. 114
EXHIBIT "A" - AGREEMENT OF LIMITED PARTNERSHIP............................ A-1
EXHIBIT "B" - SUBSCRIPTION AGREEMENT...................................... B-1
EXHIBIT "C" - TABULAR INFORMATION CONCERNING PRIOR TRANSACTIONS........... C-1
EXHIBIT "D" - NOTICE TO CALIFORNIA INVESTORS.............................. D-1
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<PAGE>
- -------------------------------------------------------------------------------
SUMMARY OF THE OFFERING AND THE PARTNERSHIP
- -------------------------------------------------------------------------------
The Partnership is an equipment leasing program. The principal office of
the Partnership is located at 100 Second Street, SE, Cedar Rapids, Iowa
52401. The Partnership's phone number is (319) 365-2506. The principal
investment objective of the Partnership is to obtain the maximum available
economic return from its Investment in Program Assets. The Partnership
intends to purchase Equipment and lease it to unaffiliated third parties,
with a view toward generating Cash Flow during its Operating Phase, making
Operating Distributions, reinvesting undistributed Cash Flow from operations
in additional Equipment for lease, and maximizing the residual values of
Equipment upon sale.
The following is a summary of the pertinent facts and highlights from the
material contained in this Prospectus. The following summary is qualified in
its entirety by the more detailed information contained elsewhere in this
Prospectus.
I. RISK FACTORS
The purchase of Units involves risks. Prospective investors should
carefully review the section entitled "Risk Factors" before purchasing Units.
The material risks of an investment in the Partnership are summarized as
follows:
- INVESTORS CANNOT TAKE PART IN MANAGEMENT OF THE PARTNERSHIP AND MUST RELY
SOLELY ON THE GENERAL PARTNER. Limited Partners cannot take an active
role in management and must rely solely upon the General Partner for
management of the Partnership.
- EQUIPMENT TO BE PURCHASED WITH NET PROCEEDS AND THE LESSEES OF SUCH
EQUIPMENT ARE UNSPECIFIED AND CANNOT BE ASSESSED BY INVESTORS. No
Equipment has been identified by the Partnership for purchase, and no
lessees have been identified. Accordingly, investors are unable to assess
for themselves the exact nature of Equipment that will be purchased by
the Partnership or the quality of lessees.
- THE PARTNERSHIP HAS NO OPERATING HISTORY. The Partnership is newly
formed and has no operating history. However, the officers and directors
of the General Partner also serve or have served as general partners,
officers or directors of affiliates of the General Partner which are
currently operating or have operated leasing businesses. See "Prior
Experience of the General Partner and Affiliates" and Exhibit C -
"Tabular Information Concerning Prior Transactions."
- GENERAL PARTNER ENTITLED TO FEES. The General Partner is entitled to
substantial fees which it will receive regardless of whether Limited
Partners receive a return of their investment.
- LIMITED PARTNERS MAY NOT RECEIVE A RETURN. It is not certain either that
Limited Partners will ever receive their own money back or that they will
receive a return on their investment. Cash Distributions made during the
Operating Phase may include a return of the Limited Partners' own money.
- LESSEES MAY DEFAULT OR BECOME BANKRUPT. Lessees may default on the
obligations under a lease or become bankrupt. If the Partnership cannot
re-lease or sell the Equipment, the Partnership will experience a loss of
anticipated revenues. Such defaults or bankruptcies will result in a
reduction of distributions to Limited Partners.
-7-
<PAGE>
- THERE MAY BE INSUFFICIENT REVENUE TO MEET DEBT SERVICE WHEN LEVERAGE IS
USED. The use of leverage increases the risk of an investment in the
Partnership because it requires the Partnership to meet debt repayment
requirements even though the lease of Equipment purchased with the debt
may fail or produce insufficient revenue to meet the debt service
obligations. The General Partner intends to borrow the maximum of 40.0%
of the Gross Proceeds ($10,000,000 if the Maximum of $25,000,000 of Units
is sold).
- NO PUBLIC MARKET FOR UNITS. There is no public market for the Units, and
it is not likely that a market will develop. The Units are subject to
restrictions on transfer and can only be transferred in conformity with
the Partnership Agreement and in compliance with applicable law.
- THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR TAX PURPOSES MAY BE
CHALLENGED. The availability of any tax benefits of investing in the
Partnership is dependent upon the classification of the Partnership as a
partnership, and not as an association taxable as a corporation. The IRS
may challenge the Partnership's classification as a partnership.
- ADVERSE TAX CONSEQUENCES WILL RESULT IF PARTNERSHIP IS TREATED AS
"PUBLICLY TRADED". The treatment of the Partnership by the IRS as a
publicly traded partnership will have significant adverse effects on
investors.
- EQUIPMENT MAY RAPIDLY DECLINE IN VALUE. Equipment purchased by the
Partnership may rapidly decline in value, thereby impairing the General
Partner's ability to obtain Residual Value.
- PARTNERSHIP MAY PURCHASE EQUIPMENT FROM A MANUFACTURER IN WHICH AFFILIATE
OWNS AN INTEREST. An Affiliate of the General Partner owns approximately
6.2% of Intellicall, Inc., one of several manufacturers from which the
Partnership will acquire Equipment. The General Partner has a conflict
of interest that could result in the General Partner making credit and
leasing decisions to benefit that manufacturer.
- EMERGING GROWTH COMPANIES MAY BE WEAK LESSEES. The Partnership may enter
into leases with emerging growth companies. These leases involve a
higher degree of risk than leases with established companies.
II. ESTIMATED USE OF PROCEEDS
If the minimum number of Units is sold and the maximum (40.0% of Gross
Proceeds) is borrowed, it is estimated that 19.5% of the Gross Proceeds will
be used to pay fees and expenses and for reserves, and 80.5% will be used to
acquire Program Assets. If the maximum number of Units is sold and the
maximum (40.0% of Gross Proceeds) is borrowed, it is estimated that 19.5% of
the Gross Proceeds will be used to pay fees and expenses and for reserves,
and 80.5% will be used to acquire Program Assets. See Table I of Exhibit C -
Tabular Information Concerning Prior Transactions, for information regarding
the Managing Sales Agent's history of not raising the maximum offering size
for transactions greater than $1,000,000. See "Estimated Use of Proceeds."
The Partnership will pay Front End Fees (fees and expenses incurred by
the Partnership in connection with the organization of the Partnership, the
offering and sale of Units and the acquisition of Program Assets) in an
amount no greater than $199,429 (16.6% of Gross Proceeds) assuming no
indebtedness, and no greater than $222,058 (18.5% of Gross Proceeds) assuming
indebtedness equal to 40% of Gross Proceeds and assuming only $1,200,000 of
Units are sold. Front End Fees will be
-8-
<PAGE>
no greater than $4,154,762 (16.6% of Gross Proceeds) assuming $25,000,000 of
Units are sold and assuming no indebtedness, and will be no greater than
$4,626,191 (18.5% of Gross Proceeds) assuming $25,000,000 of Units are sold
and assuming indebtedness equal to 40% of Gross Proceeds. The General
Partner will promptly pay all Front End Fees that are in excess of the
maximum percentage limits set forth in this paragraph.
III. COMPENSATION OF THE GENERAL PARTNER AND AFFILIATES
The General Partner and Affiliates will receive various types of
compensation in connection with the offering and operation of the
Partnership. See "Compensation of the General Partner and Affiliates."
- The Managing Sales Agent, an affiliate of the General Partner, will
receive a fee equal to 9.0% of the Gross Proceeds ($108,000 if the
minimum is sold and $2,250,000 if the maximum is sold).
- The General Partner will receive fees for acquisition services equal to
5.0% of the cost of Equipment and financing provided by the Partnership.
- The General Partner will provide re-leasing services to the Partnership
at a price not to exceed 2% of rental payments received on account of
such re-leasing activities.
- Until the General Partner elects to begin the liquidation of the
Partnership assets, the General Partner will receive (i) a fee for
services in connection with managing the operations of the Partnership
equal to 2.0% of the aggregate amount of Gross Rental Payments, loan
payments and other payments received by the Partnership on account of its
leasing and financing activities, (ii) reimbursement of expenses, and
(iii) interest on loans, if any, made to the Partnership. Payments to
the General Partner for managing the operations of the Partnership will
cease accruing upon the election of the General Partner to liquidate the
Partnership (the close of the Operating Phase).
- The General Partner has an interest in the profits and losses of the
Partnership to the extent it owns Units.
- When Limited Partners have received a return of their Capital
Contribution, plus a return of 9.6% per annum during the Operating Phase
(the period that ends when the General Partner elects to begin the
liquidation of the Partnership's assets), and no less than an 8.0%
annual, cumulative, compounded daily, distribution based on their
Adjusted Capital Accounts, the General Partner will receive 20.0% of all
remaining amounts distributed.
IV. CONFLICTS OF INTEREST
There are numerous conflicts of interest between the Partnership and the
General Partner and its Affiliates. These conflicts arise primarily because
the General Partner has established all of the terms relating to investment
in the Units, the General Partner will control the Partnership, the General
Partner also conducts its own leasing activities, and the General Partner and
its Affiliates will receive various forms of compensation from the
Partnership. See "Conflicts of Interest."
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<PAGE>
V. TAX CONSEQUENCES
There are numerous tax consequences relating to an investment in Units
that are fully described in "Tax Consequences" and that should be reviewed in
full. The most significant tax consequences are highlighted below:
A. TAX STATUS OF THE PARTNERSHIP
The General Partner has not requested a private letter ruling from the
IRS that the Partnership will for federal income tax purposes be classified
as a partnership rather than as an association taxable as a corporation. The
Partnership has received an opinion from its tax counsel as to its tax status
as a partnership, but such opinion is not binding upon the IRS. If the
Partnership were taxed as a corporation, the after-tax return to a Limited
Partner from an investment in the Partnership would likely be reduced. See
"Federal Income Tax Risks" under "Risk Factors" and "Tax Consequences."
B. PUBLICLY TRADED PARTNERSHIPS
If the Partnership is a "publicly traded partnership," it will be treated
as a corporation for tax purposes and would be subject to other adverse tax
treatment. Based upon representation of the General Partner that it intends
to limit transfers, tax counsel has opined that the Partnership will not be
treated as "publicly traded." See "Federal Income Tax Risks" under "Risk
Factors" and "Tax Consequences."
C. PASSIVE ACTIVITY INCOME TAX RULES
An investment in the Partnership will be considered to be an investment
in a "passive activity." Losses from passive activities do not reduce an
individual Limited Partner's federal taxable income from salaries, active
businesses in which he materially participates, or portfolio items such as
stocks or interest-bearing securities. Income from a passive activity may be
offset by losses from other passive activities.
Due to the complexity of the passive activity rules and other tax law
rules promulgated by Congress, prospective investors are urged to consult
their own tax advisors as to the particular income tax consequences to them
of the purchase, ownership, and disposition of Units. See "Federal Income
Tax Risks" under "Risk Factors" and "Tax Consequences."
VI. MANAGEMENT
The General Partner of the Partnership is Berthel Fisher & Company
Leasing, Inc., Cedar Rapids, Iowa. The General Partner will manage and
control all of the affairs of the Partnership, and will make all investment
decisions with respect to the Partnership's acquisition, leasing and sale or
other disposition of Equipment and other Program Assets. The General Partner
has four executive officers, one of whom is a full time employee, and a board
of directors consisting of five persons, including three of the four
executive officers.
VII. PRIOR EXPERIENCE OF THE GENERAL PARTNER AND AFFILIATES
The General Partner has operated a leasing business since 1988. The
General Partner has served as general partner of Telecommunications Income
Fund IX, L.P. ("TIF IX"), a publicly held equipment leasing limited
partnership that began operations on October 31, 1991, and Telecommunications
Income Fund X, L.P. ("TIF X"), a publicly held equipment leasing limited
partnership that began operations on September 29, 1993. The General Partner
has duties in
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<PAGE>
connection with the operation of TIF IX and TIF X that are similar to its
duties under the Partnership Agreement of the Partnership.
Affiliates of the General Partner previously operated eight Private
Programs, all of which were primarily involved in the leasing of
telecommunications equipment. Operations in all of the Private Programs have
been completed. The general partners' duties in connection with the
operations of the Private Programs were generally similar to the General
Partner's duties under the Partnership Agreement of the Partnership. See
"Conflicts of Interest," "Prior Experience of the General Partner and
Affiliates," "Management" and "Exhibit C - Tabular Information Concerning
Prior Transactions."
VIII. INVESTMENT OBJECTIVES AND POLICIES
The principal investment objective of the Partnership is to obtain the
maximum available economic return from its Investment in Program Assets. To
achieve this objective, the Partnership plans to (i) purchase Equipment for
lease to unaffiliated third parties, (ii) purchase Equipment that is subject
to existing leases, in which case the Partnership will also acquire the
lessor's interest in the lease, and (iii) sell or re-lease Equipment as
leases expire. To facilitate leasing arrangements, the Partnership may enter
into lease commitments with various third parties so that appropriate and
adequate security filings can be completed and to enable lessees to plan for
equipment installation. These commitments may involve the taking by the
Partnership of security interests in property other than the Equipment. The
Partnership will collect commitment fees in connection with the giving of
lease commitments. In some circumstances, the Partnership will enter into
financing arrangements which will involve making secured loans to or other
debt arrangements with unaffiliated third parties. These financings will be
completed only if such financings are advantageous to the Partnership, and
will include cases where lease transactions with those third parties would
result in unfavorable tax treatment. Such loans will generally be securitized
with a first security interest in equipment.
The Partnership's activities will be undertaken with a view toward (i)
generating Cash Flow from operations, with the intent to make monthly
distributions during the Operating Phase (the period that ends when the
General Partner elects to begin the liquidation of the Partnership assets);
(ii) increasing the Partnership's assets by reinvesting in additional Program
Assets (during the Operating Phase) any undistributed Cash Flow from
operations; (iii) obtaining the residual values of Equipment upon sale; (iv)
obtaining values from sales of the Partnership's lease portfolios upon
entering the Liquidating Phase (the period during which the General Partner
will liquidate the Partnership assets); and (v) providing cash distributions
to the Partners during the Liquidating Phase. See "Risk Factors,"
"Investment Objectives and Policies" and "Tax Consequences."
The Partnership will acquire primarily telecommunications equipment, but
the Partnership will also acquire other types of equipment that meets the
investment objectives of the Partnership. Telecommunications equipment
acquired by the Partnership will generally be call processing systems for use
in hotels, hospitals, detention centers and other facilities, pay telephone
equipment and related equipment. See "Types of Equipment to be Acquired"
under "Investment Objectives and Policies" and "Acquisition Policies and
Procedures" under "Investment Objectives and Policies." Equipment the
Partnership acquires will generally be leased to third parties under Full
Payout Leases or will be subject to Full Payout Leases at the time the
Equipment is acquired. A Full Payout Lease is a lease under which the
non-cancelable rental payments due during the initial term of the lease are
sufficient to cover the Purchase Price of Equipment.
The General Partner may sell the Partnership's Equipment at any time.
However, the General Partner anticipates that it will hold Equipment for a
period of approximately three to five years, depending upon the type of
Equipment and the Partnership's stage of operations. Once the General
Partner elects to go into the Liquidating Phase, the General Partner intends
to liquidate the Partnership's
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assets as soon as practicable. See "Sale of Equipment" under "Investment
Objectives and Policies" and "Sales of Lease Receivables and Residual Values"
under "Investment Objectives and Policies."
IX. EQUIPMENT ACQUISITIONS
The General Partner may acquire Equipment in its own name and hold title
thereto on a temporary basis for the purpose of facilitating the acquisition
of such Equipment for the Partnership. See "Acquisition Policies and
Procedures" under "Investment Objectives and Policies." The General Partner
shall be paid an Acquisition Fee for Equipment purchased by the Partnership,
including Equipment purchased from the General Partner, and for financings
placed by the Partnership. See "Compensation of the General Partner and
Affiliates." If, at the time Limited Partners are first admitted to the
Partnership, the General Partner owns Equipment that meets the standards
imposed by the General Partner for acquisition by the Partnership, the
General Partner will transfer to the Partnership any Equipment approved by
the Partnership.
X. CASH DISTRIBUTIONS AND REDEMPTION
A. OPERATING DISTRIBUTIONS
The Partnership intends to make monthly distributions to Partners
("Operating Distributions") during the Operating Phase (the period which ends
when the General Partner elects to begin the liquidation of Partnership
assets) to the extent cash is available for such purpose. See "Cash
Distributions and Redemptions." Partners will receive Operating
Distributions after the General Partner has first received reimbursement for
expenses incurred for administrative services, but before the General Partner
receives a Management Fee. The payment of Operating Distributions will be
made only during the Operating Phase. See "Cash Distributions and
Redemptions" for a fuller explanation of Operating Distributions to be made
by the Partnership.
The General Partner anticipates that distributions will begin within 60
days following the end of the first full calendar quarter after the date that
Limited Partners are first admitted to the Partnership. There is no
assurance that distributions will commence at that time. Distributions may
vary in amount and may be suspended at any time by the General Partner if the
Partnership, in the judgment of the General Partner, is receiving
insufficient returns on its Lease Portfolio.
B. DISTRIBUTIONS ON LIQUIDATION AND WINDING UP
Beginning no later than the fifth anniversary of the date on which the
offering of Units terminates, the Partnership will cease reinvesting in
Equipment and other Program Assets and will not enter into additional leases.
The General Partner will then proceed diligently to wind up the
Partnership's affairs and to convert all of the Partnership's assets into
cash, which will be distributed as described in "Cash Distributions and
Redemptions."
Amounts remaining available to be distributed among the Partners after
satisfying all Partnership liabilities and obligations and/or providing
reserves for future or contingent Partnership liabilities (and if during the
Operating Phase, after utilizing Cash Flow for Investment in Program Assets
to the extent determined by the General Partner) will be distributed as set
forth in "Cash Distribution and Redemptions."
Once the liquidation of Partnership assets has begun, when the General
Partner believes that all but approximately 20.0% of the Partnership assets
have been distributed, it will cause an audit of the Partnership's books and
records to be made. The General Partner will distribute the remaining
Partnership assets in accordance with the terms of the Partnership Agreement
only after the completion
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of such audit. The Partnership must dissolve no later than December 31,
2012. See "Summary of the Limited Partnership Agreement - Dissolution and
Liquidation."
C. REDEMPTIONS
The General Partner is permitted, in its sole discretion, and on a very
limited basis, to redeem Units. Units may not be redeemed until after
December 31, 1999. The General Partner will not redeem Units if such
redemptions would not be in the best interest of the Partnership or if, in
the opinion of counsel to the Partnership, such redemptions could result in
the Partnership being characterized as a "publicly traded" partnership for
Federal income tax purposes. See "Redemption of Units" under "Cash
Distributions and Redemptions." No assurance may be given that the Limited
Partners will be able to participate in the redemption program.
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RISK FACTORS
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An investment in Units involves various risks. Prospective investors,
therefore, should consider the following factors, in addition to others
discussed in this Prospectus, before making a decision to purchase Units:
A. RISKS OF EQUIPMENT OWNERSHIP AND LEASING
1. LESSEES MAY DEFAULT OR BECOME BANKRUPT. Default by a lessee or
bankruptcy of a lessee may result in Equipment being returned to the
Partnership at a time when the General Partner may be unable to arrange for
the re-leasing or sale of such Equipment. This will result in the loss of
anticipated revenues from the leasing of such Equipment and the inability to
recover the Partnership's investment in such Equipment. In addition, a
default by or bankruptcy of a lessee may result in loss of revenue from the
leasing of such Equipment and the incurring of litigation costs to the
Partnership which may not be recovered from the lessee. Such a default or
bankruptcy may result in reduced distributions to Limited Partners.
2. THERE MAY BE INSUFFICIENT REVENUE TO MEET DEBT SERVICE WHEN LEVERAGE
IS USED. The use of borrowed funds as anticipated by the Partnership will
cause the risk of loss to the Limited Partners to be greater because fixed
payment obligations must be met regardless of the amount of revenues. If
debt service payments are not paid when due and the lender forecloses on the
debt, the Partnership may sustain the loss of its equity investment in the
Equipment used to secure the debt. A foreclosure by a lender may also result
in adverse tax consequences to the Limited Partners. The General Partner
intends to borrow the maximum of 40.0% of Gross Proceeds ($10,000,000 if the
Maximum of $25,000,000 of Units is sold).
If and to the extent the Partnership utilizes borrowings, the interest
rates paid by it may be higher than interest rates paid by established
equipment leasing companies with established credit ratings. As a result,
the Partnership may be required to charge its lessees higher monthly rentals
than would be charged by a lessor with a lower cost of borrowing. The
Partnership has not entered into any agreements to obtain such financing, and
it is not presently possible to ascertain the availability or terms of such
financing.
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If a portion of the Partnership's debt is cross-collateralized (i.e.,
secured by a lien upon Equipment other than that acquired directly with the
proceeds of the debt), upon default by a lessee the lender may be in a
position to accelerate the debt secured by the cross-collateralized Equipment.
3. EQUIPMENT MAY RAPIDLY DECLINE IN VALUE AND THE GENERAL PARTNER MAY
BE UNABLE TO OBTAIN SIGNIFICANT RESIDUAL VALUE FOR THE PARTNERSHIP EQUIPMENT.
The Equipment purchased by the Partnership may rapidly decline in value.
There can be no assurance that the Partnership will be able to obtain
residual values sufficient to return Capital Contributions to Limited
Partners. The residual values ultimately realized will depend, among other
factors, upon (a) the standards observed by lessees in maintaining the
Equipment; (b) the General Partner's ability to effectively remarket the
Equipment; (c) the cost of comparable new Equipment; (d) technological
obsolescence of the Equipment; (e) the demand for used Equipment; (f) general
economic and business conditions, as well as such conditions and changes
within the telecommunications industry affecting leases which might reduce
the demand for leased equipment generally; and (g) competition. Most of
these factors are beyond the control of the General Partner.
4. CHANGES IN TECHNOLOGY MAY RESULT IN OBSOLESCENCE OF EQUIPMENT. The
success of the Partnership may depend, among other factors, upon
technological changes and the ability of the General Partner to upgrade the
Equipment to avoid obsolescence. The inability due to technological
obsolescence to renew leases or enter into new leases or to sell Equipment
after the expiration of the initial term of a lease may result in the loss of
anticipated revenues, the reduction of residual values, and the inability to
recover the Partnership's Investment in Program Assets.
5. ECONOMIC AND BUSINESS FACTORS BEYOND THE CONTROL OF THE GENERAL
PARTNER INCREASE THE RISK OF THE LEASING BUSINESS. The equipment leasing
business is subject to many economic and business factors that are beyond the
control of the General Partner. In addition to risks discussed specifically
below, such factors include: (a) economic and business conditions generally
and within the telecommunications industry, including but not limited to,
inflation, recession, fluctuation of interest rates and availability of
financing; (b) increases in operating expenses; (c) changes in tax laws or
accounting rules or in other laws or governmental regulations relating to
matters affecting the ownership, leasing, use or operation of Equipment; and
(d) the viability of equipment manufacturers and lessees. Any one or more of
the risks may cause cost increases relating to the leasing of Equipment which
cannot be offset by increased leasing revenues.
6. REDUCED REVENUES MAY RESULT FROM POSSIBLE LACK OF DEMAND FOR
EQUIPMENT. Insufficient demand for equipment leasing may not permit the
Partnership to keep all of its Equipment fully leased at rental rates which,
after payment of operating expenses and debt service on Partnership
borrowing, will provide, together with any anticipated sale proceeds or
residual value, an acceptable rate of return on the Partnership's investment
in such Equipment.
7. INABILITY TO RENEGOTIATE EXPIRED LEASES. Because the configuration
of Equipment may be user-specific, the Partnership may be at a disadvantage
when negotiating with lessees for the extension of leases or the purchase of
Equipment by lessees at the expiration of leases.
8. POOR MARKET CONDITIONS AT TIME OF LIQUIDATION MAY DELAY OR IMPAIR
SATISFACTORY LIQUIDATION. At the beginning of liquidation of the
Partnership's assets, it is contemplated that the Partnership will have a
substantial portion of its assets (including a portion of the returns earned
on prior leases) invested in Equipment and subject to the interest of
borrowers, and, therefore, at risk. A weak market for Equipment, lease
financing or lease portfolio sales at that time may have an adverse affect on
the Limited Partner's overall return on investment, and may delay or impair
the ability of the Partnership to return the Limited Partners' original
investment and to pay a return on that investment.
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<PAGE>
9. THE PARTNERSHIP MUST COMPETE WITH OTHER LEASING COMPANIES AND WITH
OTHER FINANCING INSTITUTIONS. The equipment leasing industry is highly
competitive, offering users alternatives to the purchase of nearly every type
of equipment. The Partnership will be in competition with equipment
manufacturers, equipment distributors, equipment managers, leasing companies,
financial institutions and other parties engaged in leasing, managing,
marketing, remarketing or financing equipment. Many of these competitors have
significantly greater financial resources than the Partnership and may have
greater experience than the General Partner.
B. PARTNERSHIP AND BUSINESS RISKS
1. INVESTORS CANNOT TAKE PART IN MANAGEMENT OF THE PARTNERSHIP AND MUST
RELY SOLELY ON THE GENERAL PARTNER. All decisions with respect to the
management of the Partnership and its assets, including major decisions
involving the acquisition, leasing, re-leasing and sale of Equipment will be
made exclusively by the General Partner. Limited Partners will have no right
or power to take part in the management of the Partnership. Accordingly, no
person should purchase Units unless such person is willing to entrust all
aspects of the management of the Partnership to the General Partner, and has
evaluated the General Partner's capabilities to perform such functions. See
"Management" and "Summary of the Limited Partnership Agreement." In
addition, the General Partner will have numerous conflicts of interest in
managing the business of the Partnership. See "Conflicts of Interest." If
the General Partner becomes unable to manage the affairs of the Partnership
for any reason unrelated to the Partnership, including adverse changes in the
General Partner's business or condition, dissolution of the Partnership could
result at a time when such dissolution would be adverse to the interests of
the Limited Partners.
2. LESSEES OF EQUIPMENT ARE UNSPECIFIED AND CANNOT BE ASSESSED BY
INVESTORS. No Equipment has been identified for acquisition or acquired by
the Partnership. There can be no assurance when, or if, funds available for
the acquisition of Equipment will be fully invested in Equipment. Purchasers
of Units will not have an opportunity prior to making their investment to
evaluate for themselves Equipment to be acquired by the Partnership, the
seller of such Equipment, the actual leasing arrangements for such Equipment,
the creditworthiness of the lessees of such Equipment or any related risks.
No assurance can be given that the General Partner will be able to obtain
leases which will achieve the investment objectives of the Partnership.
3. THE PARTNERSHIP HAS NO OPERATING HISTORY. The Partnership is
newly-formed and has no operating history. Purchasers of Units cannot
investigate the business of the Partnership and must rely (a) upon the
representations in this prospectus as to the business the Partnership expects
to conduct, and (b) upon the experience of the General Partner. See "Prior
Experience of the General Partner and Affiliates."
4. FRONT END FEES AND EXPENSE REIMBURSEMENT. A significant portion
(18.5%, see "Estimated Use of Proceeds") of Investors' capital contributions
will be paid to the General Partner, the Managing Sales Agent and others as
Front End Fees regardless of whether Limited Partners will receive a return
of their investment. As a result, fewer funds will be available to the
Partnership for the acquisition of Equipment. Further, during the Operating
Phase, the General Partner will receive reimbursement for its expenses, thus
making less cash available for working capital, distributions to Limited
Partners and investment in additional Equipment.
5. LIMITED PARTNERS MAY NOT RECEIVE A RETURN. There is no assurance
the Limited Partners will receive a return on their investment or that they
will receive their original investment back from the Partnership. Cash
Distributions made during the Operating Phase may include a return of the
Limited Partners' own money.
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<PAGE>
6. NO PUBLIC MARKET FOR UNITS. There is not now any market for Units,
and it is not anticipated that an active market will ever develop.
Accordingly, Limited Partners will not be able to liquidate their investments
in the event of an emergency or otherwise, and Units may not be readily
accepted as collateral for a loan. A Partnership Unit may be transferred
only after certain requirements are satisfied, and transferees may become
Limited Partners only with the consent of the General Partner, which consent
may be granted or withheld at the sole discretion of the General Partner.
Although the Partnership may agree to redeem Units under certain limited
circumstances by repurchasing them from Limited Partners, there is no
requirement that it do so. See "Cash Distributions and Redemptions."
7. LACK OF DIVERSIFICATION. The Partnership intends to invest
primarily in telecommunications equipment. Accordingly, there may not be
diversity in the type of Equipment owned by the Partnership. The sale of
only the minimum number of Units will result in limited or no
diversification. In addition, the ability of the Partnership to acquire
Equipment at an attractive cost, the availability of Equipment for purchase
and the amount of capital at the disposal of the Partnership will affect the
amount of diversity of Equipment acquired by the Partnership. The
profitability of the Partnership may, therefore, be affected by the lack of
diversification of Equipment and lessees.
8. THERE MAY BE LIMITED DIVERSIFICATION OF LESSEES. If the Partnership
sells only 1,200 Units ($1,200,000), its ability to diversify its investments
in Equipment and its lessees (and, therefore, its ability to achieve
spreading of risks) may thus be limited. Even if the Partnership sells more
than 1,200 Units, the amount of its available funds may permit investment in
only a limited amount of equipment. See "Acquisition Policies and
Procedures" under "Investment Objectives and Policies." Furthermore, since
there is no limitation on the amount which the Partnership may invest in any
one equipment transaction, it would be possible for the Partnership to invest
all of its available funds in a single transaction.
9. COST OF INSTALLATION AND REMOVAL OF TELECOMMUNICATIONS EQUIPMENT MAY
LIMIT PARTNERSHIP'S REMEDIES ON DEFAULT OF LESSEE. Since telecommunications
equipment purchased by the Partnership will be installed at a specific
lessee-user's facility, the cost of both installation and removal of such
leased equipment may be significant relative to the cost and leasing revenues
of such Equipment. Such installation costs make it more difficult to
exercise the Partnership's remedy of repossession in the case of a default by
a lessee, particularly in light of the expense of exercising such remedy in
relation to the value of used telecommunications equipment.
10. FINANCING MAY NOT BE AVAILABLE TO THE PARTNERSHIP, THEREBY LIMITING
THE AMOUNT OF EQUIPMENT THE PARTNERSHIP CAN ACQUIRE. The money market
conditions that exist at the time the Partnership will be seeking to obtain
financing of Equipment could make financing difficult or costly to obtain.
The Partnership may be forced to finance the purchase of Equipment using only
the cash proceeds from this offering, with little or no borrowings. This
would make it more difficult for the Partnership to achieve the
diversification of lessees which it is seeking, would impair its ability to
spread the risk of unproductive investments over numerous items of Equipment,
and would decrease interest and depreciation deductions available to
Partners. Limited availability of financing may also adversely affect the
ability of the Partnership to sell Partnership Equipment when a sale is
determined to be in the Partnership's best interests and may affect the terms
of such sale.
11. GOVERNMENT REGULATION OF EQUIPMENT MAY NEGATIVELY AFFECT BUSINESS OF
THE PARTNERSHIP. The use, maintenance and ownership of the type of
telecommunication equipment the Partnership will acquire is subject to
regulation by federal, state and local authorities, which may impose
restrictions and financial burdens on the Partnership's ownership and
operation of Equipment and, accordingly, affect the profitability of the
Partnership. Changes in government regulations or industry standards or
deregulation may also affect the ownership, operation and sale of, and demand
for, Equipment.
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12. CONFLICTS OF INTEREST BETWEEN RELATED PARTIES. There are conflicts
of interest between the Partnership, the General Partner, and various
affiliates of the General Partner. The Partnership has and will enter into
contractual relationships with the General Partner and affiliates of the
General Partner involving the payment of compensation and commissions. The
Partnership will compete with the General Partner and its affiliates in the
business of equipment leasing and for management time and services. These
conflicts may affect the success of the Partnership. See "Conflicts of
Interest."
13. EMERGING GROWTH COMPANIES MAY BE WEAK LESSEES. The Partnership may
enter into leases with lessees that are emerging growth companies that have
not had substantial operating histories. Emerging growth companies may be
particularly susceptible to fluctuations in the general business environment,
which may impact their ability to operate their businesses and make their
lease payments. Leases with emerging growth companies, therefore, may
involve greater risk to the Partnership than leases with more established
lessees.
14. LIMITED PARTNERS MAY HAVE AN OBLIGATION TO REPAY CERTAIN
DISTRIBUTIONS. In general, under the Iowa Limited Partnership Act (the "Iowa
Act"), Limited Partners are liable to the Partnership for a period of one
year following the return of any part of their original funds invested in the
Partnership (their "Capital Contributions") and may be required to repay to
the Partnership, with interest, any such return made to them within the prior
year if the Partnership does not have other assets sufficient to satisfy the
claims of creditors who extended credit to the Partnership or whose claims
arose prior to such return. In addition, if a Limited Partner receives a
return of his Capital Contribution in violation of the Partnership Agreement
or of the Iowa Act, such Limited Partner may be liable for up to six years
for the amount of the Capital Contribution wrongfully returned.
15. RISKS OF JOINT VENTURES WITH OTHER ENTITIES. Some of the
Partnership's Equipment may be owned by joint ventures between the
Partnership and the seller of the Equipment or another third party, such as a
leasing company or user of the Equipment. An investment in a joint venture
which owns Equipment, instead of investing directly in the Equipment itself,
may under certain circumstances involve risks not otherwise present,
including, for example, the possibility that the co-venturer might become
bankrupt, that the co-venturer may have economic or business interests or
goals which become inconsistent with those of the Partnership, the
possibility of an impasse if no co-venturer has controlling interest, that
while one joint venturer may buy equipment from the other joint venturer in
the event of a sale, it may not have the resources to do so, or that the
co-venturer may be in a position to take action contrary to the Partnership's
instructions or policies.
16. RISK OF GENERAL PARTNER'S CREDIT. The General Partner's credit
agreement for its own operating line requires the Company to maintain minimum
stockholders' equity and to maintain an interest coverage ratio of 1.1 at
year end. The General Partner was in violation of these covenants at
December 31, 1996. The General Partner's bank amended the credit agreement
to reduce the stockholders' equity requirement. The bank waived the interest
coverage ratio at December 31, 1996. Although the General Partner is now in
compliance with the covenants set forth in its credit agreement, there can be
no assurance that the General Partner will not in the future be in violation
of one or more of these covenants. Adverse operating results of the General
Partner could cause continued non-compliance with these covenants, in which
event the General Partner's bank could immediately accelerate the maturity of
the entire outstanding balance under the credit agreement or deny or restrict
the General Partner's access to funds under the credit agreement, thus
materially and adversely affecting the General Partner's financial condition
and continuing business operations.
C. FEDERAL INCOME TAX RISKS
1. THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR TAX PURPOSES MAY
BE CHALLENGED. The availability of any tax benefits of investing in the
Partnership and the after-tax yield of an
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investment in the Partnership depends upon its classification as a
partnership for federal income tax purposes, rather than as an association
taxable as a corporation. The General Partner of the Partnership has not
requested, and does not intend to request, a ruling from the Internal Revenue
Service that it will be classified as a partnership for federal income tax
purposes. In the absence of such a ruling, there can be no assurance that
the Partnership will not constitute an association taxable as a corporation.
The Partnership will rely upon the opinion of Bradley & Riley, P.C., its
counsel ("Counsel"), as to its partnership tax status. Unlike a tax ruling,
an opinion of counsel only represents such counsel's best legal judgment, and
has no binding effect or official status of any kind, and no assurance can be
given that the conclusions reached in said opinion would be sustained by a
court if contested. See "Partnership Tax Status" under "Tax Consequences."
2. ADVERSE TAX CONSEQUENCES WILL RESULT IF PARTNERSHIP IS TREATED AS
"PUBLICLY TRADED". The Revenue Act of 1987 contains numerous provisions that
have an adverse impact on any "publicly traded" partnerships, including the
taxation of certain "publicly traded" partnerships as corporations. The
treatment of the Partnership by the IRS as a publicly traded partnership will
have significant adverse effects on investments. See "Tax Consequences --
'Publicly Traded' Partnerships."
3. LIMITED PARTNERS' TAX LIABILITY MAY EXCEED DISTRIBUTIONS TO LIMITED
PARTNERS. The Partnership intends to make Operating Distributions on a
monthly basis. See "Cash Distributions and Redemptions." Each Limited
Partner will be liable for the payment of income taxes on such Limited
Partner's distributive share of the Partnership's Net Income. This is true
regardless of the amount of distributions to the Limited Partner for that
taxable year. See generally "Tax Consequences," "Partnership Allocations"
under "Summary of the Limited Partnership Agreement," and Article XII of the
Partnership Agreement attached as Exhibit A.
4. CHALLENGES TO STATUS OF THE PARTNERSHIP AS OWNER OF EQUIPMENT AND TO
STATUS OF LEASES. The availability of certain tax benefits of investing in
the Partnership depends upon the treatment of the Partnership as the owner of
the Equipment and the treatment of leases as true leases for federal income
tax purposes. No opinion of Counsel has been given concerning this matter,
and no assurance can be given that the Internal Revenue Service may not
challenge successfully the status of any particular lease as a true lease,
asserting that purchase of the Equipment by the Partnership and the lease of
the Equipment to the lessee merely constitute steps in a secured financing
transaction. In such event, the Partnership would not be entitled to claim
certain deductions, including depreciation deductions. For a further
discussion of this risk, see "Characterization of Partnership's Leases as
Leases for Federal Income Tax Purposes" under "Tax Consequences."
5. IRS CHALLENGE TO TAX DEDUCTIONS WOULD DIMINISH TAX BENEFITS. The
return from investment in the Partnership and, indirectly, in Equipment,
would be diminished if various tax benefits were disallowed. There can be no
assurance that the Internal Revenue Service would not challenge (a) the
Partnership's inclusion of the Acquisition Fee in the basis of the Equipment,
(b) the manner in which Organization and Offering Expenses are deducted or
amortized, (c) the current deduction of fees paid to the General Partner out
of Operating Distributions, or (d) the period over which depreciation
deductions may be claimed by the Partnership.
6. EMPLOYEE BENEFIT PLANS AND OTHER TAX EXEMPT ENTITIES THAT INVEST IN
THE PARTNERSHIP MAY BE TAXED ON UNRELATED BUSINESS INCOME. Employee benefit
plans (as defined in "Employee Benefit Plans") and other tax exempt entities
are taxable on all "unrelated business income" in excess of $1,000 during any
fiscal year. Most of each Qualified Plan's distributive share of the
Partnership's Net Income will constitute "unrelated business income." See
"Investment by Employee Benefit Plans" under "Tax Consequences." Therefore,
an Employee Benefit Plan that purchases Units will likely be required to
report a portion of its pro rata share of the Partnership's Net Income as
"unrelated business income."
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7. LIMITED PARTNERS MAY BE SUBJECT TO CERTAIN TAXES. The investment in
the Partnership or the Partnership's acquisition, ownership, leasing,
operation or sale of Equipment may affect a Partner's liability for the
"alternative minimum tax." Additionally, as a result of the Partnership's
ownership or operation of Equipment, Limited Partners may now or in the
future be subject to state or local income taxes in jurisdictions in which
they are residents and also in jurisdictions in which they are non-residents.
See "Alternative Minimum Tax -- Non-Corporate Taxpayers" under "Tax
Consequences;" "Alternative Minimum Tax -- Corporate Taxpayers" under "Tax
Consequences;" and "State Income Tax Consequences" under "Tax Consequences."
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INVESTOR SUITABILITY STANDARDS
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Investors (including assignees) are subject to certain suitability
standards established by the Partnership. To verify that an investor
satisfies such standards, the General Partner will rely upon the
representations made by such investor. The General Partner requires each
broker-dealer selling Units on behalf of the General Partner to make every
reasonable effort to assure that those persons being offered or sold Units
are suitable and appropriate in light of such person's age, educational
level, knowledge of investment, investment objectives and other pertinent
factors.
1. SUBSTANTIAL MEANS AND NET WORTH. An investment in Units is a
long-term investment suitable only for investors who have no need for
liquidity in this investment and who have adequate means of providing for
their current needs and contingencies. Units generally will be sold to an
investor only if the investor represents in writing in the Subscription
Agreement (Exhibit B to this Prospectus) that the investor either: (i) has a
net worth (exclusive of home, home furnishings and automobiles) of at least
$45,000 and expects to have, for the current taxable year, gross income from
all sources in excess of $45,000; or (ii) has a net worth (exclusive of home,
home furnishings and automobiles) of at least $150,000. Investors residing in
certain states are subject to additional suitability standards set forth
below and in the Subscription Agreement. The Partnership requires each
investor to make the representation referred to above as part of its effort
to assure that each investor meets the minimum standards. The Partnership
would assert the representation as evidence that it used reasonable effort to
ensure compliance with the requirements of North American Securities
Administrators Association, Inc. and as evidence that the investor making
such representation met the minimum standards.
2. ABILITY AND WILLINGNESS TO ASSUME RISKS. The determination of
whether a purchase of Units is suitable for a particular investor will depend
upon, among other things, the investment objectives and policies of the
investor and the willingness and financial ability of each investor to assume
such risks as the lack of a market for the Units and the resulting long-term
nature of such an investment.
3. ABILITY TO HOLD UNITS FOR AN EXTENDED PERIOD OF TIME. An investment
in Units is suitable only for an investor who has adequate financial means to
make such investment on a long-term basis and who is prepared to bear the
economic risks of investment in Units for a lengthy and indefinite period of
time. Limited Partners will not have the right to withdraw or receive any
return of their Capital Contributions (as defined in this Prospectus - see
"Glossary") except under limited circumstances. Neither the General Partner
nor the Partnership is required to redeem Units or to repurchase Units from
any Limited Partner. See "Cash Distributions and Redemptions" and "Return of
Uninvested Net Proceeds" under "Investment Objectives and Policies." There
are restrictions on the transferability and resale of Units imposed by the
laws of certain states, by federal income tax laws and
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by limitations imposed by the General Partner in order to avoid adverse
consequences under federal income tax laws. The General Partner will
discourage, and intends to prevent, the creation of an active market for
Units. Accordingly, a Limited Partner may not be able to liquidate his
investment in the event of an emergency or for any other reason. See
"Transferability of Units" under "Summary of the Limited Partnership
Agreement" and "No Public Market for Units" under "Risk Factors."
4. EMPLOYEE BENEFIT PLANS. In the case of an investor who is a trustee
of an employee benefit plan, the net worth standards and the annual gross
income standards are applicable to the trust forming part of such plan or to
the employer sponsoring such plan. In the case of an investor who is
investing as a trustee or custodian of an Individual Retirement Account
("IRA"), the net worth standards and the annual gross income standards are
applicable to the individual for whose benefit the IRA has been established
or, in the case of a spousal IRA, the employed spouse of the individual for
whose benefit the IRA has been established. Because employee benefit plans
and IRAs are fiduciary accounts, the financial suitability standards must be
satisfied by the beneficiaries of such accounts, except where the donors of
funds for investment are the fiduciaries of the accounts.
5. MINIMUM INVESTMENT. The Minimum number of Units an investor may
purchase is 2 Units ($2,000).
6. ADDITIONAL REQUIREMENTS.
a. Investors who reside in foreign countries (whether U.S.
citizens or non-resident aliens) will not be admitted to the
Partnership.
b. Regulatory authorities in the states shown below have
established suitability standards that are stricter or different than
those set forth above. Investors in any of these states will be
required to satisfy the standards described below in addition to the
standards established by the Partnership. The laws of certain states
may provide that a Limited Partner may transfer Units only to persons
who meet similar suitability standards. The Partnership may require
assurance that such standards are met.
c. Because of the limited transferability and the relative lack of
liquidity of Units, and because the Limited Partners would be subject
to adverse tax results if the Partnership were treated as publicly
traded, the Partnership requires all investors to represent that the
purchase of Units is for investment purposes and not for resale. The
Partnership will rely upon this representation as evidence that the
Partnership is not publicly traded and as evidence that the investor
purchased Units as an investment, with no intention to resell the Units.
IT SHOULD NOT BE ASSUMED BY REASON OF THE LISTING OF A PARTICULAR STATE
BELOW THAT THE PARTNERSHIP IS AUTHORIZED TO SELL UNITS IN THAT STATE.
CALIFORNIA
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
In the case of sales to California trusts or other California fiduciary
accounts, including IRA accounts and employee benefit plans, the
Partnership's suitability standards must be met by
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<PAGE>
the beneficiary of the fiduciary account; except where the donor of funds to
such account is the fiduciary of the account, in which case the standard may
be met by the fiduciary.
NEBRASKA
The minimum investment of initial and subsequent investors in the
Partnership shall be 5 Units ($5,000) except that the minimum investment of
an IRA/Keogh Plan shall be 2 Units ($2,000).
TEXAS
Each Texas investor must have a net worth (or joint net worth with his or
her spouse) (exclusive of home, home furnishings and automobiles) of at least
ten times the amount of his investment. In addition, each Texas investor
must have a net worth (exclusive of home, home furnishings and
automobiles)(or joint net worth with his or her spouse) of $45,000 and
current taxable annual income of $45,000 or a net worth of $150,000
(exclusive of home, home furnishings and automobiles).
THE SUITABILITY STANDARDS DISCUSSED ABOVE REPRESENT MINIMUM SUITABILITY
STANDARDS FOR PROSPECTIVE INVESTORS. EACH PROSPECTIVE INVESTOR SHOULD
DETERMINE WHETHER AN INVESTMENT IN UNITS IS APPROPRIATE IN SUCH INVESTOR'S
PARTICULAR CIRCUMSTANCES.
THE GENERAL PARTNER HAS THE UNCONDITIONAL RIGHT TO REJECT ANY SUBSCRIPTION.
- -------------------------------------------------------------------------------
ESTIMATED USE OF PROCEEDS
- -------------------------------------------------------------------------------
The following table sets forth the General Partner's best estimate of the
use of proceeds from the sale of the minimum Units ($1,200,000) and the
maximum Units ($25,000,000) offered hereby. The dollar amounts in the table
are estimates only. Because the dollar amounts cannot be precisely calculated
at the present time, actual use of the proceeds may vary from the estimates
shown. As shown below, it is projected that 80.5% of the Gross Proceeds will
be used to acquire Program Assets, assuming 40.0% leverage. See Footnote 3
to the following table.
<TABLE>
<CAPTION>
Estimated Use of Gross Offering Proceeds
----------------------------------------------
Minimum Offering Maximum Offering
--------------------- -----------------------
Amount Percent(1) Amount Percent(1)
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Gross Proceeds........................... $1,200,000 100.0% $25,000,000 100.0%
Expenses: Managing Sales Agent Fee and
Selected Selling Agents Commissions.... ($108,000) (9.0%) ($2,250,000) (9.0%)
Total Organization and Offering Expenses(2)
(other than 9.0% Managing Sales Agent
Fee and Selected Selling Agents
Commissions)........................... ($42,000) (3.5%) ($875,000) (3.5%)
Acquisition Fees Attributable to
Offering Proceeds and borrowings(3).... ($72,058) (6.0%) ($1,501,191) (6.0%)
---------- --------- ----------- ----------
Public Offering Expense.................. ($222,058) (18.5%) ($4,626,191) (18.5%)
Working Capital Reserves(4).............. ($12,000) (1.0%) ($250,000) (1.0%)
Net Proceeds Available for
Investment in Program Assets........... $965,942 80.5% $20,123,809 80.5%
- -------------------- ---------- --------- ----------- ----------
</TABLE>
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<PAGE>
(1) All percentages shown in the table above are percentages of Gross
Offering Proceeds.
(2) The different amounts of expenses at the minimum and maximum levels
reflect that certain expenses incurred by the General Partner will
not be paid by the Partnership if only the minimum offering is sold.
See "Plan of Distribution" and "Organizational and Offering Phase"
under "Compensation of the General Partner and Affiliates.
(3) Acquisition Fees represent 5.0% of the gross amount of Investment in
Program Assets, including the portion of Program Assets acquired with
borrowed funds. The Acquisition Fees included in the table above are
computed on the gross amounts of Investment in Program Assets that could
be purchased using 40.0% leverage. For purposes of this table, bank
borrowings are assumed to be equal to 40.0% of the Gross Proceeds of the
Offering less an estimated 1.0% loan origination fee. See "Acquisition
Phase" under "Compensation of the General Partner and Affiliates.
(4) The General Partner will maintain adequate working capital reserves
estimated to be 1.0% of the Gross Proceeds. See "Working Capital
Reserves" under "Investment Objectives and Policies.
The investment criteria that the General Partner will employ will remain
the same regardless of the number of Units sold. If the Partnership is
unable to obtain debt financing, only Net Proceeds Available for Program
Assets will be used to purchase Program Assets.
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COMPENSATION OF THE GENERAL PARTNER AND AFFILIATES
- -------------------------------------------------------------------------------
This section describes the types and estimated maximum amounts of
compensation and distributions to be paid by the Partnership to the General
Partner and its Affiliates. Such compensation will not constitute all of the
expenses to be paid by the Partnership. No services will be provided by the
General Partner or its Affiliates to the Partnership for which the
Partnership will compensate the General Partner or its Affiliates other than
those listed in this table.
Compensation and distributions to be paid to the General Partner and its
Affiliates were not determined by, and do not reflect, arm's-length
negotiations. Other than as set forth below, the Partnership Agreement
prohibits the payment to the General Partner or its Affiliates of any fees or
compensation in connection with the formation of the Partnership, the
offering and sale of Units, the operations of the Partnership and the
acquisition, leasing, management, re-leasing and sale of Equipment and
Equipment subject to leases. Where there are ceilings on certain categories
of fees or expenses, any fees which are in excess of the ceilings may not be
recovered by reclassifying them under a different category.
The following table shows in an abbreviated format the estimated amounts
and types of compensation and distribution to be paid to the General Partner
and its Affiliates:
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<PAGE>
<TABLE>
<CAPTION>
Amount if Amount if
Entity Minimum Maximum
Receiving Type of Percent of Number of Number of
Compensation Compensation Gross Proceeds Units Sold Units Sold
- ------------ ------------ -------------- ---------- ----------
<S> <C> <C> <C> <C>
(1) Managing Sales Agent Fee
and Selected Selling Agents
Commissions 9.0% $108,000 $2,250,000
(2) Accountable Organization
Expenses of the Offering 3.5% $42,000 $875,000
(3) Acquisition Fee 4.1% $49,429(4)(6) $1,029,762(4)(6)
6.0% $72,058(5)(6) $1,501,191(5)(6)
(3) Management Fee --- (7) (7)
(3) Re-Leasing Fee --- (8) (8)
(3) General Partner Expense
Reimbursement --- (9) (9)
(3) Partnership Interest --- (10) (10)
(3) Interest on Loans --- (11) (11)
</TABLE>
- ------------
(1) Berthel Fisher & Company Financial Services, Inc., the Managing Sales
Agent.
(2) Vendors and other providers of services.
(3) Berthel Fisher & Company Leasing, Inc., the General Partner.
(4) Five percent (5.0%) of the purchase price of Program Assets, if Program
Assets are acquired with proceeds only, using no borrowings.
(5) Five percent (5.0%) of the purchase price of Program Assets if Program
Assets are purchased with proceeds and maximum borrowings of 40.0% of
Gross Proceeds.
(6) It is not possible to estimate Acquisition Fees that will be paid in
connection with reinvestment activities.
(7) Two percent (2.0%) of Gross Rental Payments and loan and other payments
received on account of financing activities. Not determinable at this
time.
(8) Subject to certain limitations, the General Partner will be paid a fee
of 2.0% of gross rental payments derived from the re-lease of Equipment.
Not determinable at this time. See "Operating and Liquidating Phase"
under "Compensation of the General Partner and Affiliates."
(9) The lesser of actual expenses or the amount the Partnership would be
required to pay to non-affiliated persons for comparable services in the
same geographical area. Not determinable at this time.
(10) General Partner will receive its share of distributions to Partners to
the extent of its capital contribution. After all Limited Partners have
received return of their original investments plus a return of 9.6% of
Adjusted Capital Contributions per annum during the Operating Phase, and
no less than an 8.0% annual, cumulative, compounded daily, distribution
based on their adjusted Capital Contribution, the General Partner will
receive 20.0% of all remaining Liquidation Distributions. Not
determinable at this time.
-23-
<PAGE>
(11) The General Partner will receive interest on any loans, if any, made by
the General Partner to the Partnership. Not determinable at this time.
The following Table sets forth in narrative fashion the types and
estimated amounts of compensation and distributions to be paid to the General
Partner and its Affiliates:
Entity Receiving Compensation Type and Amount of Compensation
- ----------------------------- -------------------------------
ORGANIZATION AND OFFERING PHASE
Berthel Fisher & Company
Financial Services, Inc. ("Financial
Services" or the "Managing Sales
Agent") . . . . . . . . . . . . . . Managing Sales Agent Fee and
Broker-Dealer Commissions. Financial
Services, as Managing Sales Agent, will
receive a fee of 9.0% of Gross Proceeds.
The Managing Sales Agent will, in turn,
pay the Selected Sales Agent Fee of 6.0%
of Gross Proceeds (6.5% to Selected
Sales Agents who sell more than
$1,000,000 of Units). It is anticipated
that Units will be sold primarily by
Selected Sales Agents. However, if all
Units were sold by the Managing Sales
Agent, it would receive $108,000 if the
minimum 1,200 Units were sold and
$2,250,000 if the maximum 25,000 Units
were sold. Financial Services may
contract with or employ certain
registered brokers or dealers who will
receive certain compensation for
wholesaling activities performed in
connection with the offering of the
Units through broker-dealers. The
amount of such compensation will be paid
by Financial Services from the Managing
Sales Agent Fee, and when added to sales
commissions payable to broker-dealers,
will not exceed 9.0% of the gross
offering proceeds.
Financial Services ("Managing
Sales Agent") . . . . . . . . . . . Reimbursement of Expenses. The
Partnership will pay accountable
expenses in connection with the Offering
(up to 3.5% of Gross Proceeds).
ACQUISITION PHASE
General Partner . . . . . . . . . . Acquisition Fee. The General Partner
will be compensated for services
performed in connection with the
analysis of assets available to the
Partnership, the selection of such
assets and the acquisition thereof,
including obtaining lessees for the
Equipment, and negotiating and
concluding lease agreements, and also
for services performed in connection
with the placement of financings by the
Partnership. As compensation for such
services, the General Partner will
receive a fee equal to 5.0% of the
purchase price of Equipment acquired by
the Partnership, or Equipment leased to
customers by manufacturers, the
financing for which is provided by the
Partnership and of
-24-
<PAGE>
the amount of financings placed by the
Partnership. This compensation will not
be paid until the Equipment is acquired
or the financings completed. If only Net
Proceeds available for the acquisition
of Equipment and financings is utilized,
the Acquisition Fee will be
approximately $49,429 if the Minimum
Units are sold and $1,029,762 if the
Maximum Units are sold. If the maximum
amount of loan proceeds (40.0% of the
Gross Proceeds of the Offering) is
utilized together with the Net Proceeds,
the Acquisition Fee will be
approximately $72,058 if the Minimum
Units are sold and $1,501,191 if the
Maximum Units are sold.(1)
OPERATING AND LIQUIDATING PHASE
General Partner . . . . . . . . . . Management Fee. As compensation for
managing the operations of the
Partnership, the General Partner will
receive a fee equal to 2.0% of the Gross
Rental Payments, loan payments and other
payments received by the Partnership on
account of its leasing and financing
activities. This fee will not be paid on
a current basis if the Partnership has
not paid the Limited Partners Operating
Distributions equal to 9.6% of Adjusted
Capital Contributions for the year. In
such case, the fee will be accrued as a
debt of the Partnership payable out of
future revenues.
General Partner . . . . . . . . . . General Partner's Expense Reimbursement.
To the extent funds are available, the
General Partner will be reimbursed for
expenses of the Partnership and for
administrative services necessary for
the prudent operation of the
Partnership. The amount of such
reimbursement will be the General
Partner's cost or the amount the
Partnership would be required to pay to
nonaffiliated persons for comparable
services rendered in the same
geographical area.(2)
General Partner . . . . . . . . . . Partnership Interest. The General
Partner will have a present and
continuing interest in each item of
income, gain, loss, deduction, credit,
tax preference, and distributions of
Cash Available for Distribution based
upon the General Partner's capital
contribution of $10,000 (the equivalent
of 10 Units). After satisfaction of
Partnership liabilities and after the
Limited Partners have received a return
of 100.0% of their original investment
in the Partnership (their Adjusted
Capital Contributions) plus a 9.6%
annual return on their Adjusted Capital
Contributions during the Operating Phase
and no less than an 8.0% annual,
cumulative, compounded daily,
distribution based on their Adjusted
Capital Contributions, the General
Partner is entitled to receive 20.0% of
any remaining Liquidating Distributions
of the Partnership. The amount of such
interest is not determinable at this
time.
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<PAGE>
General Partner . . . . . . . . . . Re-leasing Services. As compensation for
providing re-leasing services to the
Partnership, the General Partner will
receive a fee equal to the lesser of the
competitive rate for comparable services
for similar equipment or 2.0% of the
gross rental payments derived from the
re-lease of such equipment after the
time that the re-lease has been
consummated as a result of the efforts
of the General Partner. The General
Partner will not be paid for re-leasing
services where Equipment is re-leased to
a previous lessee of such Equipment or
to an affiliate of such previous lessee.
The General Partner has and will
maintain adequate staff to render such
re-leasing services and will render
substantial re-leasing service in
connection with each re-lease of
Equipment. Such payment for services
shall be paid as each rental payment is
made over the term of the lease. This
fee will not be paid on a current basis
if the Partnership has not paid the
Limited Partners Operating Distributions
equal to 9.6% of Adjusted Capital
Contributions for the year. In such
case, the fee will be accrued as a debt
of the Partnership payable out of future
revenues.
General Partner . . . . . . . . . . Interest on Loans to the Partnership. If
the General Partner makes loans to the
Partnership in accordance with the
Partnership Agreement to enable it to
repair, recondition or reconfigure, and
in certain circumstances, acquire
Equipment, the General Partner may be
paid interest on such loans at an
interest rate which does not exceed the
rate which would be charged by
unaffiliated lending institutions on
comparable loans for the same purpose.
No points or prepayment penalties will
be charged to the Partnership with
respect to any such loans. Loans to the
General Partner or Affiliates from the
Partnership are prohibited. The amount
of interest payable to the General
Partner is not determinable at this time.
- -----------------------------
(1) The Acquisition Fee will be the total of all commissions and fees which, to
the knowledge of the General Partner, will be paid by all parties to all
parties in connection with the initial purchase of Equipment or placement
of financings by the Partnership. The Acquisition Fee will not be paid
until the Equipment is purchased by the Partnership (or by the General
Partner as nominee) or until the completion of financings. Included in the
computation of such fees or commissions will be any commission, selection
fee, nonrecurring management fee, or any fee of a similar nature, however
designated. See "Cash Distributions and Redemptions" and "Conflicts of
Interest."
(2) Monthly reimbursement to the General Partner for administrative services to
the Partnership (at the lesser of the cost or the amount the Partnership
would be required to pay to non-affiliated persons for comparable
administrative services in the same geographic area), including but not
limited to salaries paid to employees of the General Partner working on
Partnership business, record keeping, mailings to Limited Partners and an
allocable portion of computer time and expense. Reimbursement for costs of
goods and materials will be only for goods and materials obtained from
-26-
<PAGE>
independent third parties. The reimbursement will be for expenses which
are necessary for the prudent operation of the Partnership, and will not be
for time expended by Controlling Persons of the General Partner or its
Affiliates. In addition, any general or administrative overhead incurred
by the General Partner in connection with the administration of the
Partnership which is not directly attributable to the rendering of services
authorized by applicable state law shall not be charged to the Partnership.
Such general or administrative overhead includes, but is not limited to,
salaries, travel expenses and other items generally falling under the
category of overhead. No payment will be made for services for which the
General Partner or any of its Affiliates are entitled to compensation by
way of a separate fee. The costs reimbursed to the General Partner and its
Affiliates will be the subject of a Special Report. See "Cash
Distributions and Redemptions."
- -------------------------------------------------------------------------------
CONFLICTS OF INTEREST
- -------------------------------------------------------------------------------
The Partnership is subject to various conflicts of interest arising out of
its relationship with the General Partner and its Affiliates. However, the
General Partner is accountable to the Limited Partners and the Partnership as a
fiduciary and, therefore, must exercise good faith and integrity with respect to
Partnership affairs. See "Fiduciary Responsibility of the General Partner."
Such conflicts of interest include, but are not limited to, the following:
1. PREDETERMINED CONDITIONS. Substantially all of the terms of an
investment in Units have been determined by the General Partner prior to the
admission of the Limited Partners into the Partnership and are not the result of
arm's-length negotiations. Such terms include the (i) types of Equipment to be
acquired by the Partnership; (ii) general terms of acquisition of Equipment;
(iii) amount of contributions to the capital of the Partnership by the General
Partner and Limited Partners; (iv) allocation of Partnership profits, losses and
distributions; and (v) compensation to be paid by the Partnership to the General
Partner and its Affiliates. The General Partner has no procedures to resolve
this conflict.
2. EFFECT OF LEVERAGE ON COMPENSATION ARRANGEMENTS. The General Partner
will attempt to finance the purchase price of all Equipment of the Partnership
with Partnership borrowings equal to 40.0% of the Gross Proceeds of the
Offering. Because Acquisition Fees are based upon the purchase price of
Equipment acquired by the Partnership and the amount of financings placed by the
Partnership, it is in the best interest of the General Partner to employ the
maximum amount of debt, even though the increased risks of such debt financing
might not be in the best interests of the Limited Partners. To resolve this
conflict the General Partner will utilize debt financing that has terms that are
reasonable and commensurate with the best interests of the Partnership. If such
financing is not available when financing is sought, leverage will not be used
or will be deferred until such financing is available. The General Partner has
adopted no other procedures to resolve this conflict.
3. TRANSACTIONS WITH THE PARTNERSHIP. The General Partner will perform
various services for the Partnership in connection with the acquisition,
leasing, management, re-leasing and sale of Equipment, and will receive, in
consideration therefor, various forms of compensation. The selection of the
General Partner to perform the services was not a disinterested decision, and
the terms and conditions for the performance of such services and the amount and
terms of such compensation were not determined in arm's-length negotiations.
There are no specific procedures to resolve this conflict.
-27-
<PAGE>
During the offering of the Units, the General Partner may acquire certain
Equipment on behalf of the Partnership which will be transferred to the
Partnership after the Closing Date of the offering. To resolve this conflict,
the Partnership will acquire Equipment from the General Partner only at the
General Partner's cost plus carrying charges, and the Partnership will not
acquire Equipment from the General Partner or its Affiliates, other than
Equipment purchased by the General Partner on a temporary (i.e., generally not
in excess of six months) basis for the Partnership.
The Partnership Agreement imposes various constraints on the General
Partner in its dealings with the Partnership. These constraints include
restrictions which prohibit the General Partner from (i) entering into contracts
with the Partnership which bind the Partnership after expulsion of the General
Partner, (ii) receiving a give-up or rebate from the Partnership, (iii) entering
into leases or sales agreements with the Partnership except as specifically
provided herein (see "Equipment Acquisitions"), (iv) participating in any
reciprocal business arrangement which would circumvent guidelines adopted by
NASAA, or (v) using the funds or assets of the Partnership in any manner except
for the exclusive benefit of the Partnership. See Section 16.3 of Exhibit A,
Agreement of Limited Partnership. Moreover, the General Partner will be subject
to a fiduciary duty to the Partnership in its performance of services and in
evaluating the capabilities, services and compensation of other persons
rendering services to the Partnership. See "Equipment Acquisitions" and
"Fiduciary Responsibility of the General Partner."
Under certain limited circumstances, the Partnership may sell assets to the
General Partner to effect a liquidation of the Partnership. Such a transaction
is governed by and subject to the limitations set forth in Section 16.8 of the
Partnership Agreement, and will be consummated in the absence of a secondary
market for Program Assets at the end of the term of the Partnership. The
purchase price of such assets will be the greater of two independent appraisals
of the fair market value of the assets, and the sale must be approved by sixty
percent (60%) of the votes entitled to be cast by the Limited Partners.
4. COMPENSATION PAYABLE TO THE GENERAL PARTNER. The fees payable by the
Partnership to the General Partner have been determined unilaterally by the
General Partner and are not the result of arm's-length negotiations. Because
the General Partner is entitled to receive certain compensation from the
Partnership in connection with the acquisition and management of Equipment and
financings, the interests of the General Partner may at times be inconsistent
with the interests of the Limited Partners. See "Compensation of the General
Partner and Affiliates." For example, it may be in the General Partner's
interest to reinvest available cash in higher-yield (and possibly higher risk)
leases, rather than making early distributions to Limited Partners because the
General Partner has a 20.0% interest in the Liquidating Distributions of the
Partnership. Further, it may be in the General Partner's interest to declare
the commencement of the Liquidating Phase prior to the expiration of five years
for the purpose of reducing the payment of Operating Distributions to the
Limited Partners and decreasing the aggregate amounts that must be paid to
Limited Partners prior to payment of the General Partner's 20.0% interest in
Liquidating Distributions. In such circumstances, the interest of the General
Partner in continuing the Partnership and receiving annual management fees may
conflict with the interests of the Limited Partners in maximizing their
investment returns. Other than the fiduciary duty of the General Partner, there
are no procedures to resolve this conflict.
5. COMPETITION WITH THE GENERAL PARTNER AND AFFILIATES. The General
Partner is engaged directly for its own account in the business of acquiring and
leasing equipment. The General Partner serves as the general partner of
Telecommunications Income Fund IX, L. P. ("TIF IX") and Telecommunications
Income Fund X, L.P. ("TIF X"), publicly owned limited partnerships that are
engaged in the equipment leasing business. All of the net proceeds of TIF IX
and TIF X have been invested in partnership assets.
-28-
<PAGE>
The General Partner may acquire, lease, finance and sell equipment, and
interests therein for TIF IX, TIF X, for its own account and for unaffiliated
third parties. The General Partner or other Affiliates may operate as general
partners for entities, such as TIF IX or TIF X that are not yet formed. See
"Prior Experience of the General Partner and Affiliates."
The General Partner or its Affiliates may in the future form and sponsor
public and private equipment leasing programs ("Future Programs"), some of which
may have investment objectives that are the same as, or similar to, those of the
Partnership's and which may be in a position to acquire the same equipment at
the same time as the Partnership. In seeking to acquire, lease, re-lease and
sell its Equipment, the Partnership may be in competition with TIF IX, TIF X and
Future Programs.
The Partnership Agreement does not prohibit the General Partner and its
Affiliates from competing with the Partnership for equipment acquisition,
financing, refinancing, leasing and re-leasing opportunities on its or their
behalf. The General Partner is not obligated to present to the Partnership
particular equipment acquisition, financing, leasing and re-leasing
opportunities that come to its attention, even if such opportunities are of a
character that might be suitable for the Partnership.
If the General Partner, TIF IX, TIF X, the Partnership or any Future
Programs advised, managed or controlled by the General Partner have, at the same
time, available for sale or re-lease, equipment (whether or not subject to
existing leases) of a particular type, and the supply of equipment of the type
exceeds the demand, the General Partner will try to arrange for the sale or
re-lease of items of equipment to be made in the order in which the underlying
lease terms expired and the items of equipment became available for sale or
re-sale, or, if the leases expire simultaneously, the order in which the leases
took effect.
The following guidelines will be utilized by the General Partner to resolve
conflicts regarding the acquisition of Equipment when the General Partner and/or
two or more partnerships (including the Partnership), entities, or transactions
affiliated with or managed by the General Partner have funds available to
acquire and lease the same types of equipment. In such situations, the General
Partner will analyze the equipment already purchased by, and the investment
objectives of, each party involved, and will determine which party will purchase
the equipment or provide the financing based upon such factors, among others, as
(i) the amount of cash available to each party for such acquisition and the
length of time such funds have been available, (ii) the current and long-term
liabilities of each party, (iii) the effect of such acquisition on the
diversification of each party's equipment portfolio, (iv) the estimated income
tax consequences to the investors in each party from such acquisition and their
respective needs, and (v) the cash distribution objectives of each party. If
after analyzing the foregoing and any other appropriate factors, the General
Partner determines that such acquisition would be equally suitable for more than
one party, then the General Partner shall purchase such equipment for the
parties on the basis of rotation with the order of priority determined by the
date each such party was formed. In any event, the General Partner is
accountable to the Partnership as a fiduciary and consequently is under a
fiduciary duty to exercise good faith and integrity in conducting the
Partnership's affairs, and to conduct such affairs in a manner consistent with
the best interest of the Partnership. See "Fiduciary Responsibility of the
General Partner."
The General Partner anticipates that, from the date of this Prospectus
through the end of the period in which the Partnership has funds available for
investment, it may organize one or more Future Programs that will acquire
Equipment for lease to unaffiliated third parties or acquire Equipment subject
to existing leases. In addition, the General Partner anticipates that it and
its Affiliates will enter into agreements to acquire and sell equipment for
their own accounts or for unaffiliated third parties during this period. In
this regard, the General Partner may, for its own account, enter into agreements
to act as an independent equipment manager with respect to lease portfolios
owned by certain unaffiliated limited partnerships and other entities and the
General Partner will receive compensation for such
-29-
<PAGE>
services. The Partnership may, from time to time during the Operating Phase,
acquire all or a portion of such lease portfolios in accordance with the
procedures established by the General Partner, generally, for acquiring
existing lease portfolios. See "Acquisition Policies and Procedures" under
"Investment Objectives and Policies." Except as specifically set forth
above, there are no procedures for resolving the conflicts described in this
section.
6. COMPETITION FOR MANAGEMENT TIME AND SERVICES. The Partnership will
not have separate management, but will rely instead on the General Partner for
the management and administration of the Partnership and its assets. The
General Partner believes that it has or can attract sufficient personnel to
discharge all of its responsibilities to the Partnership. The General Partner
may have conflicts of interest in allocating management time, services or
functions between the Partnership and other entities, including, but not limited
to the General Partner's own business, and other existing and future programs
for which the General Partner may provide services. The officers and directors
of the General Partner will devote such time and will direct their employees to
devote such time to the affairs of the Partnership as the General Partner, in
its sole discretion, determines to be necessary for the conduct of the business
of the Partnership. However, the General Partner has not adopted any procedures
to resolve the conflict described in this Section.
7. OTHER RELATIONSHIPS WITH MANUFACTURERS, LESSEES, LENDERS AND MANAGERS.
The General Partner may have ongoing relationships with manufacturers, lessees,
lessors or managers of Equipment and with brokers, lenders and others. Such
relationships could influence the General Partner to take actions, or forebear
from taking actions, which an independent general partner might not take or
forebear from taking. An affiliate of the General Partner owns a 6.2% interest
in and the President of the General Partner serves as a director of Intellicall,
Inc., a manufacturer of telecommunications equipment. Accordingly, the General
Partner has a conflict of interest that may result in the General Partner making
credit and leasing decisions to benefit Intellicall, Inc. The General Partner
has not adopted any procedures to resolve the conflict described in this
Section.
8. DETERMINATION OF RESERVES. The amount of distributions from the
Partnership is subject, among other matters, to the discretion of the General
Partner in establishing and maintaining the appropriate level of operating and
working capital reserves for the Partnership. Since the amount of working
capital reserves (estimated to be 1.0% of the Gross Proceeds) will affect the
potential liability of the General Partner to Partnership creditors, the General
Partner may be considered to have a conflict of interest in determining the
allocations to the Partnership's Reserve Account. The General Partner has not
adopted any procedures to resolve the conflict described in this Section.
9. HONORING REDEMPTION REQUESTS. If the General Partner redeems any
Units it intends to use Cash Available for Distribution. A conflict could arise
if sufficient funds exist only to either (i) redeem Units for which redemption
requests have been received and approved or (ii) take its Management Fee in a
given year. The General Partner has not adopted any procedures to resolve the
conflict described in this Section.
10. LACK OF SEPARATE REPRESENTATION. The Partnership, the Initial Limited
Partner and the General Partner are not represented by separate counsel. The
attorneys who perform services for the Partnership will also perform services
for the General Partner, certain of the General Partner's Affiliates, and other
partnerships or ventures that the General Partner or its Affiliates have and may
sponsor. In order to resolve any dispute regarding representation, should a
dispute arise between the Partnership and the General Partner, the General
Partner anticipates it will retain separate attorneys and other experts to
represent the Partnership in such matter.
11. EXCLUSIVE AGREEMENTS. There are no exclusive agreements between the
General Partner and the Partnership, and such agreements are prohibited.
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12. DISTRIBUTION OF UNITS; MANAGING SALES AGENT. Berthel Fisher & Company
Financial Services, Inc., the Managing Sales Agent, is an Affiliate of the
General Partner. Because of the Managing Sales Agent's affiliation with the
General Partner, the review and investigation by such firm of the Partnership
and of the information provided in this Prospectus will not have the benefit of
a review and investigation by an independent securities firm in the capacity of
a Managing Sales Agent. No procedures have been followed to address this
conflict.
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FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
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The General Partner is accountable to the Partnership as a fiduciary and,
consequently, must exercise good faith and integrity in conducting the
Partnership's affairs. Some courts have held that a limited partner may
institute legal action on behalf of itself or all other similarly situated
limited partners (a class action) or on behalf of a partnership (a partnership
derivative action) to recover damages from a general partner or from third
parties. Certain cases decided by the federal courts also may be construed to
support the right of a limited partner to bring such actions under SEC Rule
10b-5 for the recovery of damages (including losses incurred in connection with
the purchase or sale of a partnership interest) resulting from a breach by a
general partner of its fiduciary duty. Also, where an employee benefit plan has
acquired Units, case law applying the fiduciary duty concepts of ERISA to an
insurance company in connection with a general account insurance contract could
be viewed to apply equally to the General Partner. This is a developing and
changing area of the law. Therefore, Limited Partners who have questions
concerning the fiduciary duties of the General Partner should consult their own
counsel as to the status of the law at such time.
The General Partner has fiduciary responsibility for the safekeeping and
use of all funds and assets of the Partnership, whether or not in its immediate
possession or control, and will not employ, or permit another to employ, such
funds or assets in any manner except for the exclusive benefit of the
Partnership.
The General Partner and its Affiliates performing services for the
Partnership may not be liable to the Partnership or the Limited Partners for
errors in judgment or other acts or omissions which do not amount to fraud,
negligence, breach of fiduciary duty or misconduct. However, in an action by
Limited Partners against the General Partner for breach of fiduciary duty,
courts have held that the General Partner must prove its innocence by clear and
convincing proof that it acted in good faith, with honesty and with full and
fair disclosure of relevant information. If an action for breach of fiduciary
duty was filed against the General Partner, the General Partner would claim as a
defense that its conduct was fair and reasonable, and that there was, in fact,
no breach of fiduciary duty. In certain situations, the General Partner would
claim as a defense that the Limited Partner claiming breach of fiduciary duty
delayed too long in filing a lawsuit. This defense is based upon statutory
provisions limiting the time during which a lawsuit may be filed and upon
certain common law rights that prevent the bringing of old claims.
The Partnership Agreement provides that the General Partner or its
Affiliates performing services for the Partnership will be indemnified by the
Partnership for any liabilities incurred by them arising from acts performed, or
omitted to be performed, by them in connection with the activities of the
Partnership or in dealing with third parties on behalf of the Partnership in
good faith, except for acts or omissions which constitute fraud, negligence,
breach of fiduciary duty or misconduct. See "Summary of the Limited Partnership
Agreement -- Exculpation and Indemnification of the General Partner."
Therefore,
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the Limited Partners may have a more limited right of action against
the General Partner and its Affiliates than they would have absent such
provisions in the Partnership Agreement. Further, a successful claim for
indemnification could deplete the Partnership's assets and reduce the level of
distributions made to the Limited Partners. However, if the General Partner
were considered to be an ERISA fiduciary with respect to the assets of the
Partnership, any exculpation or indemnification provision which relieves the
General Partner from liability for breach of its fiduciary duty would be void
and of no effect. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE REGISTRANT, THE REGISTRANT HAS BEEN INFORMED THAT IN THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR LIABILITIES
ARISING UNDER THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC POLICY AND,
THEREFORE, IS UNENFORCEABLE.
The General Partner or any of its Affiliates, and any person acting as a
broker-dealer, will not be indemnified against any liability, loss or damage
incurred by reason of any act performed or omitted to be performed by them in
good faith in connection with the activities of the Partnership or in dealing
with third parties on behalf of the Partnership, involving allegations that
federal or state securities laws were violated, unless such lawsuits alleging
such claims are successfully defended and a court approves indemnification of
litigation costs, or unless such lawsuits are dismissed with prejudice on the
merits or unless such lawsuits are settled and a court approves the settlement
and indemnification. The General Partner will apprise the court of the position
of the SEC with respect to indemnification before seeking court approval for
indemnification, whether such claims are litigated, dismissed or settled.
The Partnership Agreement provides that the Partnership will not incur the
cost of that portion of any insurance that insures any party against any
liability the indemnification for which is prohibited by the Partnership
Agreement.
Notwithstanding the fiduciary relationship, the General Partner has broad
discretionary powers to manage the affairs of the Partnership under the terms of
the Partnership Agreement. Generally, actions taken by the General Partner are
not subject to vote or review by the Limited Partners, except to the limited
extent provided in the Partnership Agreement. See "Summary of the Limited
Partnership Agreement."
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TAX MATTERS
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A. BRIEF SUMMARY OF MATERIAL TAX CONSEQUENCES OF INVESTMENT
The following is a brief summary of some of the major tax consequences
discussed in more detail in this section of this Confidential Memorandum. An
Investor should not rely solely on this brief summary of the tax consequences of
an investment in the Partnership but should review the entire section entitled
"Tax Consequences" and consult with the Investor's own tax advisers and counsel
before making an investment decision.
No ruling has been filed with the Internal Revenue Service (the "IRS")
requesting that the Partnership be classified as a partnership for tax
purposes. The Partnership is relying upon the opinion of Bradley & Riley,
P.C. ("Counsel"), 100 First Street, S.W., Cedar Rapids, Iowa, that the
Partnership will be classified as a partnership for tax purposes. If the IRS
determines that the entity is not a partnership for tax purposes, an Investor
would experience a substantial reduction in yield.
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If the IRS determines that the Partnership is a "publicly traded
partnership", the Partnership will be treated like a corporation for tax
purposes with the result that the yield to the Investor on his or her investment
will be substantially reduced. Based on representations by the General Partner
and applicable IRS Regulations, Counsel has rendered an opinion that it is more
likely than not that the Partnership will not be treated as a publicly traded
partnership.
Based on the current published Regulations and Rulings by the IRS, it is
the opinion of Counsel that an investment by a Limited Partner in the
Partnership will be considered a passive activity. The result is that if an
individual, trust, estate, personal service corporation or closely held
corporation suffers a loss from an investment in the Partnership, such loss
would only be deducted against passive income.
Investment by employee benefit plans, including individual retirement
accounts or other tax-exempt entities, in the Partnership may result in
additional reporting requirements and may result in the tax exempt entity paying
tax on the income earned from its investment in the Partnership.
B. TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
for persons considering an investment in the Partnership. This summary is based
upon the Internal Revenue Code (the "Code"), rules and regulations promulgated
thereunder and existing interpretations thereof, which regulations and
interpretations are subject to change at any time. The following summary
discusses the material aspects of the federal income tax consequences that could
affect an investment in the Partnership. No assurance can be provided that any
deductions or other federal income tax advantages that are herein described or
that a prospective Investor in the Partnership may consider available will in
fact be allowed by the IRS.
The tax opinion rendered by Counsel is based upon the facts described in
this Confidential Memorandum and upon the facts as they have been represented
by the General Partner to Counsel or determined by Counsel as of the date of
the opinion. Any alteration of the facts may adversely affect the opinion
rendered. Furthermore, the opinion is based upon existing law and applicable
current and proposed Treasury Regulations, current published administrative
positions of the IRS contained in Revenue Rulings and Revenue Procedures, and
judicial decisions, all of which are subject to change either prospectively
or retroactively. Subject to the foregoing and to certain conditions set
forth herein, Counsel is rendering its opinion that a substantial majority of
the material tax benefits contemplated by the investment in the Partnership,
in the aggregate, more likely than not will be realized.
1. PARTNERSHIP TAX STATUS. The ability of an Investor to realize tax
benefits from investing in a limited partnership depends upon its classification
as a partnership for federal income tax purposes, rather than as an association
taxable as a corporation.
The Partnership is relying upon the opinion of Counsel as to its
partnership tax status. Unlike a tax ruling, an opinion of Counsel represents
only such Counsel's best legal judgment, and has no binding effect or official
status of any kind, and no assurance can be given that the conclusions reached
in said opinion would be sustained by a court if contested.
On December 18, 1996 the IRS issued final regulations under Regulation
Section 301.7701. The regulations allow an entity to elect to be taxed as a
corporation or as a partnership for tax purposes. Under Regulation Section
301.7701-2(c), a business entity with two or more members that is not
classified as a corporation under certain sections of Regulation Section
301.7701-2(b) (for example, an entity organized as a corporation under
Federal or State statutes or a publicly traded partnership under Section 7704
of the Code) will be classified as a partnership. Regulation Section
301.7701-3 provides that an entity can
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file an election, if it wishes to select a classification different from the
default classification. If the entity has two or more members and it is not
classified as a corporation under Section 301.7701-2(b), its default
classification is a partnership. Therefore, the effect of the regulation is
that the entity should, for tax purposes, be treated as a partnership for tax
purposes provided it is not a publicly-traded partnership under the Internal
Revenue Code. See "Publicly Traded Partnerships."
It is the opinion of Counsel that, pursuant to existing law and Treasury
Regulations (specifically Sections 301.7701-2 and 301.7701-3) and provided the
Partnership is organized and operated in accordance with the provisions of the
Agreement of Limited Partnership, the Partnership will be treated as a
partnership, as defined in Sections 7701(a)(2) and 761(a) of the Code, for
federal income tax purposes and will not be taxable as a corporation provided
that the Partnership is not classified as a publicly-traded partnership under
Section 7704 of the Code.
If the Partnership were classified as an association taxable as a
corporation for any reason, including being treated as a publicly traded
partnership, it would be subject to federal income tax on its taxable income at
regular corporate tax rates. The Limited Partners would not be entitled to take
into account their distributive Share of the Partnership's deductions or losses,
if any, and would be subject to tax on their Share of the Partnership's income
to the extent distributed either as dividends from current or accumulated
earnings and profits or, if in excess of the tax basis of their interests, as
capital gain. Classification of the Partnership as an association taxable as a
corporation would result in a substantial reduction in yield and after-tax cash
flow, if any, to a Limited Partner.
2. "PUBLICLY TRADED" PARTNERSHIPS. Although it is the opinion of counsel
the Partnership will be classified as a partnership for federal income tax
purposes under Section 7701 of the Code, the provisions of Section 7704 of the
Code provide rules establishing the circumstances in which a partnership will be
classified as a "publicly traded" partnership ("PTP") and nonetheless treated as
a corporation for federal income tax purposes. There are two (2) sections of
the Code that affect the taxation of PTPs. Section 7704 of the Code contains
provisions that will, if applicable, tax certain "publicly traded" partnerships
as corporations. Section 469(k) of the Code provides that net income from a PTP
will not be considered passive income that can offset passive losses from other
activities. Income from a PTP is treated like portfolio income that cannot be
used to offset losses from passive activities. Each partner who holds an
interest in a PTP must treat any loss from the partnership separately from any
income or loss from other PTPs. Suspended losses from a PTP may be offset only
against future income of that PTP unless and until there has been a complete
disposition of that PTP.
Section 7704(b) and Section 469(k) of the Code define the term "publicly
traded partnership" to mean any partnership if (1) interests in such partnership
are traded on an established securities market, or (2) interests in such
partnership are readily tradable on a secondary market (or the substantial
equivalent thereof).
Under Treasury Regulation section 1.7704-1, an established securities
market means a national securities exchange registered under Section 6 of the
Securities Exchange Act of 1934, national securities exchange exempt under
Section 6 of the Securities Exchange Act of 1934 because of limited volume, a
foreign exchange regulated under requirements analogous to those applicable to
the Securities Exchange Act of 1934, a regional or local exchange or an
interdealer quotation system that regularly disseminates firm buy and sell
quotations by independent brokers. A secondary market (or the substantial
equivalent of a secondary market) will be deemed to exist if, taking into
account all of the facts and circumstances, the partners are readily able to
buy, sell, or exchange their partnership interests in a manner that is
comparable, economically, to trading on an established securities market.
Interests in a partnership are readily tradable on a secondary market or the
substantial equivalent thereof if (i) the interests are regularly quoted by any
person, such as a broker or dealer, making a market in the interests; (ii) any
person regularly makes available to the public bid or offer quotes with
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respect to interest in the partnership and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf of others; (iii)
the holder of an interest in a partnership has a readily available, regular
and ongoing opportunity to sell or exchange such interest through a public
means of obtaining or providing information of offers to buy, sell or
exchange interests; or (iv) prospective buyers and sellers otherwise have the
opportunity to buy, sell or exchange interests in a time frame and with the
regularity and continuity that is comparable to that described in (i), (ii),
or (iii).
Treasury Regulation section 1.7704-1(e), (f), and (g) list certain types of
limited transfers ("Exempt Transfers") that will be disregarded in determining
whether a partnership is publicly traded. In addition to providing for these
Exempt Transfers, the Regulations state that partnership interests will not be
deemed "readily tradable on a secondary market" (or the substantial equivalent
thereof) if the "two percent safe harbor" provided for under Section 1.7704-1(j)
is satisfied. The two percent safe harbor provides that a secondary market or
its equivalent will not exist if the sum of the percentage interests in
partnership capital or profits transferred (including purchases by the limited
partnership of its own interests) during the partnership's taxable year does not
exceed 2.0% of the total interests in partnership capital or profits. Exempt
Transfers do not count towards the 2.0% ceiling. The total interest in
partnership capital or profits are determined by reference to all outstanding
interests in the partnership unless the General Partners or any person related
to the General Partners own, in the aggregate, more than ten percent (10%) of
the outstanding interests in partnership capital or profits at any one time
during the taxable year, in which event the total interests in partnership
capital or profits are determined without reference to the interests owned by
such persons.
Exempt transfers are (1) private transfers as defined in the regulations;
(2) transfers pursuant to redemptions and repurchase agreements meeting
certain requirements as specified in the regulations; and (3) transfers
pursuant to the qualified matching service as defined under Treasury
Regulation section 1.7704-1(a). The qualified matching service exclusion
will not apply if the sum of the percentage interests in the partnership
capital and profits transferred during the taxable year of the partnership
exceeds 10% of the total interests in the partnership. The regulations
contain certain other conditions to prevent a qualified matching service from
operating on a secondary market or the substantial equivalent thereof. The
Partnership intends that should any trading of interests in the Partnership
occur through a qualified matching service that the Partnership will monitor
Unit trading to attempt to comply with the qualified matching service
provision, and further, the Partnership will apply limitations on the
percentage of Units that can be validly traded under a qualified matching
service.
The General Partner has represented to Counsel that (i) the Partnership
will not list Units for trading or otherwise encourage or condone the
establishment of a market for Units, (ii) the General Partner does not expect
Units to be readily tradeable on a secondary market, based upon its experience
with other limited partnerships, and (iii) the General Partner will not consent
to the assignment, redemption or other disposition of Units if, in the opinion
of Counsel to the Partnership, the sum of the percentage interests in
Partnership capital or profits assigned, redeemed or otherwise disposed of
during a Partnership taxable year after such assignment, redemption or other
disposition exceeds 2.0% of the total interest in Partnership capital or
profits, excluding Exempt Transfers. Based upon these representations, it is
the opinion of Counsel that the Partnership will not be treated as "publicly
traded partnership."
While the General Partner will use its best efforts to limit the type and
number of transfers of Units to those that will allow the Partnership to remain
within the 2.0% safe harbor, the General Partner cannot guarantee that the
Partnership will satisfy this safe harbor during each of its taxable years. It
is conceivable that transfers of Units could occur that would cause the
Partnership to fall outside the safe harbor. No assurances can be offered that
if the amount and type of trading in the Units were to fall outside the safe
harbor, the IRS would not maintain that the Partnership should be treated as a
PTP.
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Section 7704(c) of the Code provides that an entity that would otherwise be
treated as a PTP under Section 7704(a) will not be treated as a PTP if more than
90% of the entity's gross income consists of qualifying income. Qualifying
income is defined under Section 7704(d) as including interest, dividends, gains
from the sale or disposition of a capital asset (or property described in
Section 1231(b)) held for the production of income described in subparagraphs of
Paragraph 1 of Section 7704(d). However, Section 7704(c)(3) provides that the
exception for a publicly traded entity having more than 90% of its gross income
as qualifying income does not apply to any partnership that would be a
"regulated investment company" described in Section 851(a) of the Code if such
partnership were a domestic corporation.
Because the Partnership will be engaged in the leasing of personal property
which is not one of the types of qualifying income described under Section
7704(d) of the Code, the exception under Section 7704(c) of the Code would not
appear available to the Partnership.
Based upon the undertaking of the General Partner to prohibit any transfer
of Units that would cause the Partnership to fall outside the 2.0% safe harbor
provided in the Regulations, Counsel is of the opinion that the Partnership will
not be a "publicly traded partnership" within the meaning of Section 7704, and,
consequently, Section 7704 will not alter the Partnership's treatment as a
partnership, rather than as an association taxable as a corporation, for federal
income tax purposes.
3. GENERAL PRINCIPLES OF PARTNERSHIP TAXATION. A limited partnership is
required to file a Partnership information tax return each year (Form 1065).
The limited partnership as a legal separate entity does not pay income taxes on
its income for federal income tax purposes. Each Limited Partner will report on
that Partner's income tax return their distributive share (as determined under
the Partnership Agreement) of all terms of the Partnership's income, gain, loss,
deduction, credit and tax preferences, whether or not cash is distributed to the
Partner. The amount of any loss currently deductible by a Limited Partner will
be limited to the Partner's adjusted basis for the Partner's Units in the
Partnership and the amount that the Partner is treated as having "at-risk" under
applicable tax rules. See "At-Risk Rules." A Limited Partner may be subject to
tax if the Partnership has income or gain even though a cash distribution is not
made by the Limited Partnership.
As a general rule, the adjusted tax basis for a Limited Partner in Units in
the Partnership will be the Partner's Capital Contribution increased by the
share of Partnership Net Income and gain and other items described in Section
705(a)(1) of the Code and reduced (but not below zero) by the Partner's share of
Partnership distributions of money and other property, expenses, losses, and
other items described in Section 705(a)(2) and (3) of the Code. A Limited
Partner would also be entitled to increase basis by the Partnership's
qualifying nonrecourse liabilities (nonrecourse liabilities would be Partnership
liabilities for which no Partner or person related to a Partner bears the income
risk of such liabilities). However, it is not anticipated that the Partnership
will incur qualifying nonrecourse liabilities and thus Limited Partners should
assume their basis in the Partnership will not be increased by any Partnership
liabilities. Other liabilities (recourse) incurred by the Partnership will not
increase a Limited Partner's basis in the Partnership but will generally
increase the General Partner's basis.
Distributions of money by the Partnership to a Limited Partner will
constitute a return of capital (and not taxable income) to the Limited
Partner to the extent of the Limited Partner's adjusted tax basis in the
Units. The term "money" includes marketable securities, with marketable
securities to be taken into account at fair market value. Marketable
securities is broadly defined under Section 731(c) of the Code and includes
common trust funds, a regulated investment company, a financial instrument
that is readily convertible into money or marketable securities and other
investments in entities that hold marketable securities. A return of capital
will reduce a Limited Partner's adjusted tax basis for the Units in the
Partnership. If a Limited Partner's adjusted tax basis for Units in the
Partnership should be
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reduced to zero, the Partner's share of any cash distributions for any year
will generally be taxable to the Partner as though it were a gain on the sale
or exchange of property.
Nonliquidating distribution of property other than money to a Limited
Partner will reduce the Limited Partner's interest in the basis of the limited
partnership by an amount equal to the limited partnership's basis in such
property provided, however, that the adjusted basis cannot be reduced below
zero. A Limited Partner's tax basis in property distributed will be equal to
the reduction in the Limited Partner's basis in the limited partnership. A
reduction in a Limited Partner's share of indebtedness attributable to Units
held by the limited partnership will be treated as a distribution of money.
Expenses and losses of the Partnership will, subject to the Limited Partner
satisfying the "at-risk" rules, be deductible by a Limited Partner only to the
extent of the adjusted tax basis of the Limited Partner in the Units. Any loss
unavailable as a current deduction because of insufficient tax basis is allowed
as a deduction at the end of the first succeeding taxable year that the Limited
Partner's tax basis exceeds zero. Further, any losses will most likely be
considered a passive loss and deductible only to the extent of the Limited
Partner's passive income, if any. See "At-Risk Rules" under "Tax Consequences"
and "Limitation on Deductibility of Losses from Passive Activities" under "Tax
Consequences." Further, deductions or losses incurred by the Limited
Partnership and passed through to the Limited Partners are subject to rules
limiting the deduction of such as miscellaneous itemized deductions. See
"Investment Expense" under "Tax Consequences."
4. INCOME AND DISTRIBUTIONS. The Partnership intends to make Operating
Distributions on a monthly basis but only to the extent the Present Value of the
Partnership's Lease Portfolio exceeds the amount of the Net Proceeds of the
offering (less any Liquidating Distributions or distributions of capital to the
Limited Partners). See "Cash Distributions and Redemptions." If distributions
to a Limited Partner for a taxable year are less than the amount of the taxes
payable by such Limited Partner on such Limited Partner's distributive share of
the Partnership's Net Income for that taxable year, the Limited Partner will
still be responsible for the payment of income taxes on such Limited Partner's
distributive share of the Partnership's Net Income. See generally "General
Principles of Partnership Taxation" under "Tax Consequences."
5. AT-RISK RULES. Section 465 of the Code provides that activities
engaged in as a trade or business or for the production of income are subject to
the at-risk rules of Section 465 of the Code. Under Section 465 of the Code, a
Limited Partner's (other than corporations that are not closely held (i.e.,
closely held corporations are defined as corporations in which five or fewer
shareholders own directly or indirectly more than 50% of the stock other than
certain leasing companies)) deduction for that Partner's share of Partnership
expenses or losses for a tax year is limited to the amount "at risk" with
respect to the activity as of the close of such year. Except as discussed
below, a Limited Partner is considered to be at risk on the sum of (i) amounts
of money contributed to the Partnership, (ii) the adjusted basis of other
property contributed to the Limited Partnership, (iii) income generated by the
Partnership, and (iv) amounts borrowed by the Limited Partner or the Limited
Partnership where the Limited Partner is personally liable for repayment.
Borrowings by the Partnership, whether recourse or nonrecourse, will not
increase a Partner's amount of risk. A Limited Partner will be considered to be
at risk on borrowings for the purchase of a Partnership Unit only if and to the
extent the Limited Partner is personally liable for repayment or the borrowings
are fully secured by the Limited Partner's personal assets (other than the
Limited Partner's unit in the Partnership) and subject to the limitation that
the borrowings are not borrowed from a person with an interest in the
Partnership or a person related to such a person.
A Limited Partner's amount at risk will be reduced by losses allowed as
deductions and cash distributions made by the Partnership. Distributions to a
Limited Partner will generally reduce the
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amount considered at risk. The "at-risk" rules provide that the amount of any
distribution received by a Limited Partner or any other reduction in the
Limited Partner's amount at risk, after the amount of risk is reduced to
zero, will be treated as ordinary income but only to the extent of losses
previously claimed. Thus, if the Partnership makes a distribution to a
Limited Partner that exceeds the Limited Partner's adjusted basis in the
Units in the Partnership, the Limited Partner will have ordinary income.
If in a year a Limited Partner has a loss from the Partnership, the effect
of Section 465(a) of the Code is to permit deduction of such loss up to the
aggregate amount the Limited Partner has at risk on the last day of the taxable
year. If the amount at risk exceeds the loss, the amount deemed at risk in
subsequent years is reduced under Section 465(b)(5) by the amount of losses
claimed in previous years and increased by additional at-risk amounts
contributed. If the amount of loss exceeds the at-risk amount, the excess loss
is held in a suspense account and treated as a deduction in the first succeeding
taxable year that the taxpayer is at risk. The carryover loss is then added to
the deductions allowable for such year but is limited at the end of such year by
the amount then at risk. Under proposed Section 1.465-2(b) of the Regulations
there is no limitation on the number of years to which such deductions may be
carried.
In addition to the "at-risk" rules discussed above, Section 704(d) provides
that a Limited Partner's distributive share of loss is allowed as a deduction
only to the extent of the adjusted basis of the Limited Partner at the end of
the year in which the loss is incurred. If a Limited Partner's distributive
Share of loss items exceeds the Limited Partner's basis, as adjusted for Capital
Contributions, distributions, the Limited Partner's Share of any income items
and changes in the Limited Partner's Share of liabilities, then only a portion
of each loss item is allowed, based upon the portion that each bears to the
total of all loss items. Excess losses that are not currently allowed may be
carried forward indefinitely until such Limited Partner has sufficient basis to
permit the deduction.
6. LIMITATION ON DEDUCTIBILITY OF LOSSES FROM PASSIVE ACTIVITIES.
Section 469 of the Code limits the deductibility of losses from "passive
activities" which are incurred by individuals and certain estates and trusts,
personal service corporations or closely held corporations. There is no
limitation on the deductibility of losses from "passive activities" for
corporations taxed under Subchapter C that are not personal service corporations
or closely held corporations.
The passive loss rules under Section 469 generally do not allow individuals
to use losses and credits from "passive activities" to offset income from
nonpassive activities, including wages, salaries, active business income and
portfolio income such as interest, dividends, royalties or gains from
disposition of assets producing "portfolio income" or held for investment.
Passive activities include investments in entities such as limited
partnerships, business trusts, partnerships and S corporations if the entity is
engaged in the active conduct of a trade or business and the investor does not
materially participate in the operation or activities of the entity. The
general rule is that passive losses or credits may only offset income from other
passive activities unless the investor disposes of his or her entire investment
in the activity at which time the investor may deduct any suspended passive
activity losses against nonpassive income.
Passive activity by definition under the Code includes any rental activity,
except for certain taxpayers engaging in the rental of real estate. A rental
activity means any activity where payments are principally for the use of
tangible property. Because the activity of the Limited Partnership will be the
leasing of tangible personal property, the activity should be considered a
passive activity under Section 469 of the Code. Accordingly, the Limited
Partnership's net income or net loss from the rental activity would be
considered income or loss from a passive activity. Losses attributable to the
Limited Partners may generally be deducted only against income or gains
attributable to other passive activities.
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Any interest income earned by the Partnership on escrow accounts or other
money market accounts will be portfolio income allocable to the Limited Partners
based on the provisions of the Partnership Agreement. Any dividends on stocks
acquired by the Partnership would be considered portfolio income as well as the
gains on the sale of those stocks. In addition, to the extent certain of the
leases may not be characterized as true leases for federal tax purposes, as
discussed in "Characterization of Partnership's Leases as Leases for Federal
Income Tax Purposes," a portion of the payments received from such leases may be
considered interest income which would be treated as portfolio income allocable
to the Limited Partners. To the extent such income is treated as portfolio
income, such income will not be offset by passive losses from the Partnership's
passive activities.
The Partnership will be required to allocate expenses, overhead expenses
(including management fees and acquisition fees) and interest expense between
its passive activities and its portfolio income activities. Any Net Losses of
the Partnership allocable to a Limited Partner arising from rental activities
will be passive losses. These passive losses will be currently deductible only
to the extent of a Limited Partner's passive income from other passive
activities. All "passive losses" which are not currently deductible by the
Limited Partner may be carried over to succeeding taxable years and may be
applied against passive income. Passive losses which are not deducted and thus
carried over to a future year may as a general rule be deducted by the Limited
Partner on disposition of the interest in the Partnership. Portfolio income
will not offset losses from a passive activity.
Gain or loss realized by a Limited Partner on disposition of his or her
interest in the Limited Partnership will be treated as passive income or loss.
Upon a fully taxable disposition of a Limited Partner's entire interest in the
Limited Partnership to an unrelated party, the Limited Partner may deduct any
loss incurred on the disposition, any suspended loss from the Limited
Partnership from prior years and current year loss.
7. ALLOCATION OF PARTNERSHIP NET INCOME OR NET LOSS. In general, the
allocation of overall taxable income or loss of the Partnership among the
Partners, as well as any item of income, gain, loss or deduction will be
controlled by the Partnership Agreement, unless the allocation is found not to
have "substantial economic effect" under Section 704(b)(2) of the Code.
An allocation will generally be found to have substantial economic effect
if it is consistent with the underlying economic arrangement among the Partners
and reflects the manner in which the economic benefits and burdens are shared by
the Partners. If an allocation does not have substantial economic effect, a
Partner's share will be determined in accordance with his or her interest in the
Limited Partnership, taking into account all the facts and circumstances. In
such event, (i) the taxable income allocable to the Limited Partners might be
increased and any losses and credits allocable to them might be decreased, and
(ii) the Limited Partner's shares of nonrecourse Limited Partnership
liabilities, if any, includable in the adjusted tax basis of their Units might
be reduced.
The IRS has promulgated and amended Section 704(b) Regulations on numerous
occasions relating to the determination of a Partner's distributive share of
Partnership income, gains, losses, deductions and credits. The Regulations, in
general, provide that Partnership allocations do not have "economic effect"
unless the following provisions are included in the Partnership Agreement:
(1) partner's capital accounts must be maintained in accordance with the
Regulations; (2) upon liquidation of the Partnership, liquidating distributions
must be made in accordance with positive capital account balances; and (3) a
partner is required to contribute capital to the Partnership equal to any
deficit capital account balance following liquidation of the partner's interest
in the Partnership. The Partnership Agreement does not include the third
provision. The Regulations provide an alternate test for economic effect if the
Partnership Agreement contains a "qualified income offset." The Partnership
Agreement attempts to comply with this alternate test as well as the other
applicable requirements of the Regulations. The Partnership Agreement provides
that those Partners who have or would have, as
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a result of an allocation of losses, deficit capital accounts in excess of
their Units in the Limited Partnership shall be allocated income as rapidly
as possible so as to reduce such deficit Capital Account balances to zero.
The result could be an acceleration in the income allocated to Limited
Partners. To the extent allocations fail to qualify for the alternate test
for economic effect, the allocations in the Partnership Agreement will be
governed by the Partner's interests in the Limited Partnership, taking into
account all the facts and circumstances.
The Regulations provide that where capital accounts are maintained in
accordance with the rules of the Regulations and liquidating distributions are
to be made in accordance with positive capital account balances, the partner's
interests in the partnership each year generally will be determined by comparing
the manner in which distributions (and contributions) would be made if all
partnership property were sold at book value and the partnership were liquidated
immediately prior to the taxable year, with the manner in which distributions
and contributions would be made if the sale of partnership property at book
value and liquidation occurred at the end of the taxable year. Allocations made
under this rule generally would be similar to those provided in the Partnership
Agreement, although there is no assurance the IRS would not be successful in
reallocating Limited Partnership income or loss in a different manner with the
result that the share of income of Limited Partners might be increased or their
share of losses decreased.
It is the opinion of Counsel that the allocation of Net Income or Net Loss,
among the Partners as set forth in the Partnership Agreement more likely than
not will be recognized under the regulations under Section 704(b) of the Code
because the allocation has substantial economic effect or will be considered to
be in accordance with the Partner's interests in the Partnership under the
Regulations. The regulations under Section 704(b) of the Code provide that the
allocation established under the Partnership will be accepted for tax purposes
if certain standards set forth in the regulations for such distribution are
satisfied. If the IRS were to contend successfully that such allocations have
no substantial economic effect, then the Partnership's Net Income or Net Loss
will be allocated among the Partners on the basis of each Partner's interest in
the Partnership, determined by taking into account all facts and circumstances.
8. ALLOCATIONS AMONG LIMITED PARTNERS. Section 706(d) of the Code
prohibits retroactive allocations of profits, losses and other items of a
partnership among its partners. Generally, a partner's share of such items must
be determined by taking into account his or her varying interest in the
partnership during any taxable period, and a partner may not be allocated a
share of partnership items that are attributable to any period during which he
or she was not a partner. Accordingly, each Limited Partner's share of
allocation of profits, losses and other separable reportable items of the
Partnership will depend on his or her interest in the Partnership and when he or
she became a Limited Partner.
9. CHARACTERIZATION OF PARTNERSHIP'S LEASES AS LEASES FOR FEDERAL INCOME
TAX PURPOSES. The availability to Limited Partners of the tax benefits
associated with the Partnership's ownership of the Equipment, particularly
depreciation, depends upon the Partnership being treated as the owner of the
Equipment for tax purposes and upon the classification of the Partnership's
leases ("Lease" or "Leases") as true leases for tax purposes. To be treated
as the owner of leased Equipment for tax purposes, the Partnership must possess
the benefits and burdens of ownership of the property and be considered the
equitable owner of the property for tax purposes. If the Partnership's
transaction with the other party on the Equipment is held to be a mere financing
arrangement and/or a purchase, the Partnership would not be deemed the owner of
the Equipment for tax purposes and thus not entitled to the tax benefits of
ownership.
The determination of who is the equitable owner is based on many factors.
The characterization of transactions as leases, conditional sales or financings
has been addressed in a number of court decisions. However, the courts have not
identified one factor as being determinative
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of whether the lessor or lessee of the property is to be treated as the
owner. Judicial decisions and IRS pronouncements have made it clear that the
characterization of leases for tax purposes is a question which must be
decided on the basis of weighting of many factors.
Counsel is of the opinion that the Limited Partnership should be treated as
the equitable owner of the Equipment other than Equipment subject to financings
(i.e., leases intended for security). Counsel's opinion is based on the current
status of the tax law and, in part, on the following representations of the
General Partner with respect to such properties; (i) legal title to, and
possession of the properties will be transferred to the Limited Partnership;
(ii) the Limited Partnership's purchase price of a property will not exceed its
fair market value; (iii) leases for properties will be in the form of leases;
(iv) the Limited Partnership will treat such leases as leases for federal income
tax purposes; (v) the rents to be paid pursuant to such leases will be
commercially reasonably; (vi) the exercise price for any purchase option for any
property or portion thereof will not be less than the fair market value or the
anticipated fair market value on the option exercise date, and no offset to the
exercise price of any purchase option will be allowed for any lease payments;
and (vii) each property should have a useful life beyond the term of its lease
and a significant value at the termination of its lease. However, as discussed
herein, the characterization of a transaction as a lease or some other type of
ownership is based on many factors that the IRS and the courts may review and
conclude result in the conclusion that the transaction is not a lease for tax
purposes.
Should a lease be characterized as a sale, financing or refinancing
transaction for federal income tax purposes, a portion of the income of the
Partnership in respect of such lease would be ordinary gain or interest income,
without any offset for depreciation deductions. This characterization would
generally result in increased amounts of taxable income in the initial years of
such lease because of the loss of depreciation deductions. Further, the income
or losses from the leases may be treated as portfolio income or losses under the
passive loss rules.
The law governing the characterization of transactions as leases is
complicated and is in a state of change. Furthermore, for federal income tax
purposes, lease characterization is made on a property-by-property basis based
on an analysis of many factors, including lease payments, the lease purchase
option and the fair market value of the property at the time the opinion is
exercised. Accordingly, there can be no assurance that the status of the
Partnership as the owner of the property under the lease for tax purposes will
not be challenged successfully by the IRS.
10. DEPRECIATION DEDUCTIONS ON EQUIPMENT. Under Section 168 of the
Code, the Partnership may claim an annual deduction (called "depreciation")
on property that the Partnership was required to capitalize because the
property had a useful life of more than one year. Under the current
depreciation rules, the system or method of computing the annual depreciation
deduction is called the Modified Accelerated Cost Recovery System ("MACRS").
MACRS authorizes an annual depreciation deduction for the exhaustion, wear
and tear and obsolescence of property used in a trade or business or held for
the production of income. Under MACRS, eligible personal property ("recovery
property") may be depreciated over recovery periods of between 3 and 20
years. A 200.0% declining balance method of depreciation can be used, or, if
the taxpayer elects, the straight-line method of depreciation may be elected.
The 200.0% declining balance method may be used for 3, 5, 7 and 10-year
class property, switching to the straight-line method at that time to
maximize the depreciation allowance. The useful lives of the items of
Equipment that the Partnership intends to purchase and lease will generally
be either five or seven years but may be longer.
The Partnership intends to elect to use the MACRS depreciation method of
depreciation and not the straight-line depreciation method.
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Under the provisions of the Code, personal property placed in service or
disposed of during a taxable year is treated as placed in service or disposed of
at the midpoint of such year. The Partnership's first taxable year of
operations may be less than 12 months. In this case, the Partnership's
depreciation deductions for its first year of operations would be reduced to
reflect the number of months of Partnership operations.
Section 168(g) of the Code provides that any tangible property which is
used during the taxable year predominantly outside the United States must be
depreciated by using the straight line method over the property's class life or
12 years if the property has no class life. While it is not likely, the
Partnership may lease Equipment for use outside the United States by foreign
lessees.
Section 168(g) of the Code provides that, in the case of a lease of
tangible property (other than real property) to the extent such property is
financed by obligations exempt from tax under Section 103 of the Code or
property leased to a tax-exempt entity, depreciation deductions under MACRS are
not available, and depreciation must be computed on a straight-line basis over
the property's class life (as used prior to the adoption of MACRS) or 125.0% of
the lease term, if longer. Special rules are provided, however, for "qualified
technological equipment." If a lease of "qualified technological equipment" to
a tax-exempt entity has a term of five years or less, the recovery period is
five (5) years. "Qualified technological equipment" includes "any computer or
computer peripheral equipment," "high-technology telephone station equipment
installed on the customer's premises," and "high-technology medical equipment."
Equipment may be leased to private tax-exempt entities in which case the
depreciation shall be under the alternative depreciation system of Section
168(g). Such Equipment may, however, qualify as "qualified technological
equipment" and be subject to leases of five years or less. In this case, such
Equipment will qualify for depreciation under MACRS.
If during any taxable year, the aggregate basis of property placed in
service by a Limited Partner, directly and indirectly through the Partnership,
during the last three months of such taxable year exceed 40.0% of the aggregate
basis of property placed in service during such taxable year by the Limited
Partner, the mid-quarter convention will be applicable to all property placed in
service during such taxable year by the Limited Partner. The mid-quarter
convention treats all property placed in service during any quarter of a taxable
year (or disposed of during any quarter of a taxable year) as placed in service
(or disposed of) on the midpoint of such quarter.
11. DEDUCTION OF MANAGEMENT AND OTHER FEES TO THE GENERAL PARTNER. The
Partnership will pay fees to the General Partner and others related to the
General Partner for acquiring Equipment, management, administrative and
organizational services performed for the Partnership. Some of these fees and
costs will be payable out of the proceeds of the offering and may be substantial
in amount. The IRS may challenge some or all of the deductions for fees payable
to the General Partner or related parties, or any other party, and may challenge
such deductions based upon the payment being excessive, based upon a
recharacterization of the payment, or based upon the payment being to a Partner
in its capacity as a Partner rather than in some other capacity. Because such
recharacterization depends on various facts and circumstances which may be
viewed subjectively, counsel can give no assurance that the IRS may not
recharacterize certain fees in whole or in part. If the IRS were to
recharacterize such fees, it could result in all or a portion of such fees
having to be amortized over some longer period or being treated as a
nondeductible capital expenditure.
Start-up costs of creating or investigating the creation of an active trade
or business cannot be currently deducted. However, start-up costs may be
capitalized and amortized under Section 195 of the Code if they would have been
deductible if incurred in connection with the operation of an existing business
in the same field. Start-up costs are amortizable over a period of no less than
60 months
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beginning in the month in which the business begins if an amortization
election is made for the year in which the business begins. The Limited
Partnership intends to amortize its start-up costs, if any, over a 60-month
period.
The Limited Partnership's purchase price of Equipment will be capitalized
and recovered through cost recovery deductions. In addition, acquisition fees
paid in connection with the Limited Partnership's portfolio of assets will be
either capitalized as a cost of the Equipment and recovered through cost
recovery deductions to the extent allowable or capitalized and amortized in the
discretion of the General Partner. Acquisition fees payable to obtain financing
by the Limited Partnership will be amortized over the term of such financing.
The Partnership may accrue and deduct the Management Fee in a year prior to
its payment. The IRS may contend that the Management Fee should not be deducted
until paid if the liability or amount thereof cannot be determined with
reasonable accuracy. The IRS may challenge the Management Fee as being
excessive or based upon the payment being to a Partner in its capacity as a
Partner rather than for services rendered. No assurance can be given that the
IRS will not be successful in this contention.
12. ORGANIZATION AND SYNDICATION COSTS. Legal, accounting and other
similar types of start-up expenses have been incurred in the organization of the
Partnership and in the promotion and sale of the Units. Organization expenses
are costs which are incident to the creation of the Partnership, such as legal
and accounting fees for services incident to the organization of the Partnership
and filing fees. Syndication expenses are those connected with the issuing and
marketing of Units, including fees paid as commissions to brokers selling the
Units and legal, accounting and printing costs with respect to the offering,
including the preparation of the offering memorandum. Organization expenses
will be capitalized and amortized over a 60-month period. Syndication expenses
must be capitalized (become a nondeductible capital expenditure) and are not
subject to amortization. The Partnership will be reimbursing the General
Partner for certain organization expenses (those incident to the creation of the
Partnership). Based on a review of the nature of these expenses and consistent
with the discussion hereinbefore stated, it is the opinion of Counsel that such
expenses (organization expenses versus syndication expenses which are
nondeductible capital expenditures) more likely than not will be treated as
organization expenses for income tax purposes and, as such, will be capitalized
and amortized over a five year period. There can be no assurances that the IRS
will not contend that some of the organizational costs will not be deemed to be
syndication costs, thereby rendering such costs nonamortizable.
13. SALE OR OTHER DISPOSITION OF EQUIPMENT. If the Equipment is acquired
and held by the Partnership for more than one year and is not acquired and held
for sale in the ordinary course of a trade or business of the Partnership, any
profit or loss which may be realized by the Partnership on the sale of Equipment
will be treated as "Section 1231" gain or loss under the Code (except to the
extent of depreciation recapture as described below). Section 1231 gain or loss
from the Partnership would be combined with any other Section 1231 gain or loss
incurred by a Limited Partner in that year. Generally, if a taxpayer has a net
Section 1231 gain, it will be treated as a capital gain, and if he has a net
Section 1231 loss, it will be treated as an ordinary loss. However, a
taxpayer's Section 1231 gain is treated as ordinary income to the extent of
"nonrecaptured net Section 1231 losses," if any. Nonrecaptured net Section 1231
losses are defined as the aggregate net Section 1231 losses reported by a
taxpayer as ordinary losses in the five most recent prior years, less the
portion of such losses already taken into account in converting Section 1231
capital gain into ordinary income.
Gain recognized (amount realized over the adjusted basis in the property)
on the disposition of depreciable personal property like the Equipment or, with
respect to a Partner's share of such deduction, upon disposition of the
Partner's Units is generally subject to "recapture" and taxed as
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ordinary income (instead of capital gain) under Section 1245 of the Code to
the extent of the depreciation deductions taken with respect to such
property. Also amounts treated as subject to the depreciation recapture
rules (to the extent of realized gain) must be recognized in the year of
disposition, even if the taxpayer has sold the property on an installment
sale basis and may not receive cash for the purchase price of the equipment
in the year of sale.
The use of the installment method has been repealed for sellers of personal
property when a seller regularly sells or otherwise disposes of such property on
an installment basis. If the Partnership is determined by the IRS to be engaged
in the regular disposition of personal property, the seller will be required to
report the full gain in the year of sale even though all the actual cash payable
on the sale has not been received. This characterization is possible during the
Liquidating Phase of the Partnership.
14. SECTION 754. Because of the additional administrative
responsibilities caused by allowing an adjustment in basis, the Partnership does
not intend to file an election under Section 754 of the Code to adjust the basis
of the Partnership's Equipment in the case of a transfer (including death of any
Limited Partner) of a Unit or Units, although the General Partner reserves the
right to do so.
15. SALE OR OTHER DISPOSITION OF UNITS. Although no public market for the
Units exists nor is none expected to develop, a Partner who sells his or her
Units will generally realize short-term or long-term capital taxable gain or
loss measured by the difference between the selling price and the adjusted tax
basis of his or her Units. Gain or loss realized on the sale or redemption of
Units by a Limited Partner who is not a "dealer" in securities and who has held
such Units for more than eighteen months, generally will be long-term capital
gain or loss, as the case may be. Under recently passed tax legislation, the
maximum tax rate applicable to long term capital gain is 20.0% for individuals
(a 10% rate applies to gains for taxpayers in the 15% tax bracket). However,
the proceeds of a sale or redemption will be taxed at ordinary income rates to
the extent of the portion of potential depreciation recapture, substantially
appreciated inventory, and unrealized receivables attributable to the Unit.
The amount of gain recognized by a Partner in the sale or other disposition
of his or her Units, or the tax attributable to such gain, may exceed the cash,
if any, available from the sale or disposition. Any excess tax liability will
have to be paid by the Partner from sources other than the Limited Partnership.
Any Partner selling or exchanging a Unit must notify the Partnership of the
transfer. Any Partner who fails to notify the Limited Partnership will be
subject to penalties. The Limited Partnership will be required to file annual
reports with the IRS describing all such transfers. Once the Partnership has
been so notified, it must report to the IRS, and to the transferor and
transferee of such Unit, certain information relating to the transfer which the
IRS may prescribe by regulations.
A Partner who transfers his or her Units during a taxable year must include
in his or her personal return his or her share of taxable income or loss of the
Limited Partnership for the portion of the taxable year of the Limited
Partnership during which he or she owned the transferred Units.
Under Section 708(b)(1)(B) of the Code, the Partnership would be considered
terminated if, within a 12-month period, there is a sale or exchange of 50.0% or
more of the total interest in Partnership capital and profits. While this is
not expected to occur, if such a termination was to occur, there could be a loss
of certain tax benefits.
16. METHOD OF ACCOUNTING AND TAXABLE YEAR. The Partnership, as required
under the Code, will utilize the accrual method of accounting and its taxable
year will be the calendar year. In general, under the accrual method of
accounting, income is includable for the year in which it is earned and
expenditures are deductible for the year in which the liability for the
expenditure arises. There are,
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however, a number of exceptions to these rules that may affect the timing of
income or deductions of the Limited Partnership. Further, the Internal
Revenue Service has broad discretion under Section 446(b) of the Code to
determine that a taxpayer's method of accounting does not "clearly reflect
income" and to require the taxpayer to use a different accounting method.
17. FOREIGN TAX CREDIT. The Partnership may be subject to foreign taxes
if the Partnership leases Equipment to foreign lessees. Foreign taxes paid by
the Partnership and allocable to a Limited Partner may be creditable against a
Limited Partner's federal income tax liability.
18. INVESTMENT INTEREST. Section 163(d) of the Code limits the
deductibility of interest on Partnerships borrowed to acquire or carry
investment assets ("Investment Interest"). Interest incurred by a taxpayer is
generally deductible only to the extent of net investment income. However,
interest incurred to carry a "passive investment" is treated as a passive
activity expense and not as investment interest.
Most of the interest, if any, incurred by a Limited Partner to acquire or
carry his Partnership Units will be treated as passive activity expense and not
as investment interest. As a passive activity expense, such interest is
deductible only to the extent of the Limited Partner's passive income from the
Partnership or other passive activities.
19. INVESTMENT EXPENSES. As a general rule, investment expenses and
other miscellaneous itemized deductions of an individual are deductible only
to the extent that such expenses exceed 2.0% of the individual's adjusted
gross income. Investment expenses may be subject to further reduction as an
itemized deduction if an individual's income exceeds certain levels. While
most of the expenses and deductions realized from the Partnership should not
be subject to this limitation since they are attributable to property held
for the production of rent, the Partnership's organization and syndication
expenses could be considered investment expenses that are not attributable to
the production of rent. Depending upon a Limited Partner's individual
circumstances (this total miscellaneous deduction must exceed 2.0% of his
Adjusted Gross Income), a Limited Partner's allocable share of such expenses
could be nondeductible. In any case, such expenses would only provide a
current tax benefit to a Limited Partner who itemizes his deductions.
20. INTEREST RELATING TO TAX EXEMPT INCOME. Section 265(a)(2) of the Code
disallows any deduction for interest on indebtedness of a taxpayer or a related
person incurred to purchase or for the purpose of continuing to carry a tax
exempt investment. The IRS announced in Rev. Proc. 72-18 that the prescribed
purpose will be deemed to exist with respect to indebtedness incurred to finance
a "portfolio investment." The Rev. Proc also provides that, while a
partnership's purpose in incurring indebtedness will be attributed to its
general partner, a limited partnership interest will be regarded as a "portfolio
investment." Thus, in the case of a Limited Partner owning tax exempt
obligations, it is possible that the IRS might take the position that his
allocable portion of any Partnership interest expense, or any interest expense
incurred by him to purchase or carry a Unit or Units, should be viewed as
incurred by him to continue carrying tax exempt obligations, and that such
Limited Partner should not be allowed to deduct all or a portion of such
interest. It is not known whether Rev. Proc. 72-18, if applicable, would be
upheld as valid by the courts.
21. ALTERNATIVE MINIMUM TAX. In addition to the regular income tax, the
Code imposes an alternative minimum tax ("AMT") on both corporate and
noncorporate taxpayers. Each Partner must take into account his or her share of
the Limited Partnership's items in computing his or her AMT. The AMT for
noncorporate taxpayers is equal to the excess (if any) of (i) 26.0% of the first
$175,000 (or $87,500 in the case of married taxpayers filing separately) of the
"alternative minimum taxable income" that exceeds an "exemption amount" ($33,750
for an individual and $45,000 for a joint return) and 28% of any additional
alternative minimum taxable income over (ii) the tax computed under the usual
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method (less certain tax credits). The "exemption amount" is reduced by 25
cents for each $1 by which alternative minimum taxable income exceeds $150,000
for a joint return, $112,500 for a single individual and $75,000 for estates,
trusts and married persons filing separately.
"Alternative minimum taxable income" is the taxpayer's taxable income
computed with certain adjustments and increased by the amount of items of tax
preference. For property placed in service on or prior to December 31, 1998,
for alternative minimum tax purposes, depreciation is computed under the
alternative system of Code Section 168(g), except that depreciation is computed
using the 150.0% declining balance method. The recovery period under Section
168(g) is the property's class life, which generally will be longer than the
MACRS recovery period. For property placed in service after December 31, 1998,
the alternative minimum tax depreciation will be computed using the same lives
as used for regular tax purposes but with the 150% declining balance method of
depreciation.
Most miscellaneous itemized deductions are not deductible or are limited in
determining alternative minimum taxable income. Losses from nonparticipatory
business activities are not deductible. While Investment Interest is deductible
only to the extent of net investment income. Net investment income is computed
without regard to income and expenses from nonparticipatory business activities,
such as the Partnership.
All tax credits, other than foreign tax credits, do not reduce an
individual's alternative minimum tax. Noncorporate Limited Partners with large
investment or other tax credit carryforwards could lose the full benefit of such
credits if the alternative minimum tax exceeds his "regular tax" as reduced by
the credits.
Minimum tax paid in one year may be carried forward (but not back)
indefinitely as a credit against regular tax liability. The credit may not be
used, however, to offset any future minimum tax liability. The credit is the
amount of the taxpayer's adjusted net minimum tax imposed for all prior taxable
years beginning after 1986, over the amount allowable as a credit for all such
prior taxable years. The adjusted net minimum tax is the taxpayer's minimum tax
reduced by the amount that would have been the taxpayer's minimum tax had only
certain preferences been taken into account.
A noncorporate Limited Partner's liability for the alternative minimum tax
is a complex determination and depends on his overall tax situation. For a
noncorporate Limited Partner with substantial tax preferences, the alternative
minimum tax could reduce the after-tax economic benefits of an investment in the
Partnership.
The corporate alternative minimum tax is equal to the excess (if any) of
(i) 20.0% of the amount by which the "alternative minimum taxable income"
exceeds $40,000, over (ii) the tax computed under the usual method (less certain
tax credits). The $40,000 "exemption amount" is reduced by 25 cents for each $1
by which alternative minimum taxable income exceeds $150,000. The corporate
alternative minimum tax will not apply to small business corporations for tax
years beginning after 1997. A corporation is considered a small business
corporation if it has average gross receipts of no greater than $5.0 million for
three consecutive years, beginning with the taxable year beginning after
December 31, 1994.
The "alternative minimum taxable income" is the corporation's taxable
income computed with certain adjustments and increased by the amount of items of
tax preference. For property placed in service prior to December 31, 1998 for
which an election is made to depreciate under the 200.0% declining balance
method, the amount allowed as a deduction in computing alternative minimum
taxable income is the depreciation computed under the 150.0% declining balance
method over the class life of such property or 12 years for property with no
class life. Either of these periods may be longer than the property's regular
tax recovery period. For property placed in service after December 31, 1998,
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the 150% declining balance method shall be applicable but the class life shall
be the same class life as used for regular depreciation purposes.
Minimum tax paid in one year may be carried forward (but not back)
indefinitely as a credit against regular tax liability. The credit may not be
used, however, to offset any future minimum tax liability.
A corporate Limited Partner's liability for the alternative minimum tax is
a complex determination and depends on its overall tax situation. For a
corporate Limited Partner with substantial tax preferences, the alternative
minimum tax could materially reduce the after-tax economic benefits of an
investment in the Partnership.
22. PROFIT MOTIVE. Under Section 183 of the Code, if the Partnership
lacks a profit or income motive (other than tax purposes) in acquiring and
leasing the Equipment, substantially all of a Limited Partner's losses, if any,
attributable to an investment in the Partnership for any year would be
disallowed as a deduction. There is a presumption under Section 183 of the Code
that an activity is engaged in for profit if the gross income from the activity
exceeds deductions attributable to the activity in three or more of the five
consecutive taxable years ending with the current taxable year. There is no
certainty that the Partnership will have income sufficient to entitle it to the
benefit of this presumption. Accordingly, the Partnership (and perhaps each
Partner) may have to demonstrate that the Partnership's activities are engaged
in for profit. There is no specific standards applicable in determining whether
the Partnership has the requested profit objective. The General Partner has
represented that the Partnership will be operated for purposes of providing an
economic profit to the Limited Partners without regard to any tax benefits of an
investment in the Partnership. Based on such representations and the
anticipated business activities of the Partnership, counsel is of the opinion
that it is more likely than not that the Partnership will be able to satisfy the
profit motive requirements.
23. TAX PROCEDURES AND PENALTIES. Based on current provisions of the
Code, the tax treatment of items of the Partnership's income and loss will be
determined at the Partnership level and not at the individual level of each
Limited Partner. The tax return of the Partnership may be subject to audit,
which audit would be conducted at the Partnership level. Adjustments resulting
from an audit of the Partnership may result in an audit of an individual Limited
Partner's personal returns and could result in adjustments not only to the
Partnership items but also adjustments to nonpartnership items. A Limited
Partner would be liable for any interest on tax deficiencies resulting from an
adjustment to the Partnership's tax return. Interest relating to certain items
(such as certain deficiencies relating to valuation overstatements, the at-risk
rules, and certain accounting methods or other matters) accrues at 120.0% of the
statutory rate. Interest due on tax deficiencies is nondeductible. SEE Tax
Legislation for recent developments on audit adjustment.
A penalty will be assessed for each month a fraction thereof (up to a
maximum of five months) that a Partnership return is filed late or incomplete.
The monthly penalty is $50 per partner in the Partnership. Section 6662 of the
Code imposes a civil penalty of 20.0% of any portion of an underpayment of tax
which is attributable to (1) negligence or disregard of rules or regulations,
(2) a substantial understatement of income tax, (3) a substantial valuation
overstatement, (4) a substantial overstatement of pension liabilities, and (5) a
substantial estate or gift tax valuation understatement and valuation
misstatements in connection with Section 482 transactions. Interest from the
tax return filing date will accrue on this penalty where it is applied. In
particular, a substantial understatement of income tax will exist if the amount
of the understatement exceeds the greater of 10.0% of the correct amount of tax
or $5,000 ($10,000 in the case of most corporations). The penalty will not
apply to a substantial understatement with respect to an item if (i) substantial
authority supported the taxpayer's treatment of such item, (ii) the relevant
facts concerning the treatment of the item were adequately disclosed on the
taxpayer's return, or (iii) the IRS waives the penalty where there was
reasonable cause
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for the understatement, and the taxpayer acted in good faith. However, in
the case of any item attributable to a "tax shelter," exception (i) above
will be available only if, in addition to meeting the requirements of that
exception, the taxpayer reasonably believed that his treatment was more
likely than not the proper treatment, and exception (ii) is not available at
all. The definition of "tax shelter" for this purpose includes a plan or
arrangement the principal purpose of which is the avoidance or evasion of
federal income tax. The General Partner does not expect the Partnership will
be considered a "tax shelter."
24. INVESTMENT BY EMPLOYEE BENEFIT PLANS AND OTHER TAX EXEMPT ENTITIES.
Each otherwise tax-exempt Limited Partner (i.e., Employee Benefit Plan) is
subject to tax on its unrelated business income, and must file a tax return
reporting such income. To the extent a tax-exempt Limited Partner is
allocated unrelated business income from the Partnership, it generally will
be subject to the same provisions as taxable Limited Partners with respect to
reporting and paying tax (including estimated tax) on such income. If the
tax-exempt Limited Partner is a trust (such as a profit-sharing trust, plan
for a self-employed individual or IRA), the tax rates would be the rates
applicable to trusts (including alternative minimum tax). If the tax-exempt
Limited Partner is not a trust, it would be subject to corporate tax rates
(including alternative minimum tax).
"Unrelated business income" is the gross income derived by an exempt
organization from any unrelated trade or business regularly carried on by it
or by a partnership of which it is a member. Specific deductions which are
directly connected with the carrying on of such trade or business, computed
with modifications, are allowed. Since the Partnership carries on a trade or
business, a tax-exempt Limited Partner will be considered to be regularly
carrying on the trade or business of the Partnership and any income produced
by the Partnership will be unrelated business income to the tax-exempt
Limited Partners to which it is allocated, unless such income is specifically
exempted from such classification.
The Partnership will be engaged in leasing tangible personal property.
Income from leasing personal property is not specifically exempted from being
characterized as "unrelated business income." Thus, each tax-exempt Limited
Partner's distributive share of Partnership Net Income from the Partnership
Leases will constitute "unrelated business income." A portion of any
additional gain on the disposition of the Equipment may be "unrelated
business income" if such Equipment were disposed of within the 12 months
prior to the repayment of any loan or financing incurred to finance the
repair or reconditioning of such Equipment. The General Partner anticipates
that most of the Partnership's Net Income allocable to a tax-exempt Limited
Partner will be "unrelated business income."
Each tax-exempt Limited Partner is allowed, in the aggregate, a $1,000
annual exemption from tax on its unrelated business income.
The receipt of unrelated business income by a tax-exempt entity generally
has no effect on that entity's tax-exempt status or on the exemption from tax
of its other income. However, for certain types of tax-exempt entities, the
receipt of any unrelated business income may have extremely adverse
consequences. For example, for charitable remainder trusts (defined under
Code Section 664), the receipt of any such taxable income during a taxable
year will result in the taxation of all of the trust's income from all
sources for such year. Accordingly, for these and other reasons, each
prospective tax-exempt Limited Partner is urged to consult its own advisor
regarding the possible repercussions of an investment in the Partnership.
Tax-exempt Limited Partners may also generally be subject to state and
local taxation on their unrelated business income. Tax-exempt Limited
Partners should consult with their own tax advisors concerning the
applicability and impact of state and local tax laws.
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25. PARTNERSHIP REGISTRATION AS A TAX SHELTER WITH THE INTERNAL REVENUE
SERVICE. Persons responsible for organizing certain defined investments (the
General Partner) are required to register their promotions with the IRS,
whether or not considered "abusive," if considered a "tax shelter" under IRS
guidelines. The registration procedures require a tax shelter promoter to
report the existence of the tax shelter offering to the IRS at the same time
that it is first offered for sale, to disclose various tax and financial
information about the offering and to maintain lists of investors.
Registration as a tax shelter may increase the likelihood of an IRS audit.
REGISTRATION DOES NOT INDICATE THAT THIS INVESTMENT OR THE CLAIMED TAX
BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS.
Temporary regulations under Section 6111 of the Code define a "tax
shelter" for tax shelter registration purposes as an investment (1) with
respect to which a person could reasonably infer that the tax shelter ratio
for any investor may be greater than two to one as of the close of any of the
first five (5) years ending after the date on which the investment is offered
for sale and (2) that is either (a) required to be registered under a federal
or state law regarding securities, (b) sold pursuant to an exemption from
registration requiring the filing of a notice with a federal or state agency
regulating the offering or sale of securities or, (c) a "substantial
investment," defined as an investment whose aggregate amount offered for sale
to investors exceeds $250,000 and that five (5) or more investors are
expected. Based upon these regulations, the Partnership will register as a
tax shelter.
The Partnership has applied for and will provide to each investor the tax
shelter registration number issued to the Partnership by the IRS.
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE
IF YOU CLAIM ANY DEDUCTION, LOSS, OR OTHER TAX BENEFIT OR REPORT ANY INCOME
BY REASON OF YOUR INVESTMENT IN THE PARTNERSHIP.
You must report the registration number (as well as the taxpayer
identification number of the Partnership) on Form 8271.
FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE
DEDUCTION, LOSS, OR OTHER TAX BENEFIT OR REPORT ANY INCOME.
Any Limited Partner who, without reasonable cause, fails to include the
tax shelter registration number on his return will be subject to a $250
penalty. In addition, a Limited Partner who sells or otherwise transfers an
interest in the Partnership must furnish the buyer or transferee of such
interest with a written statement containing the tax shelter registration
number and including prominent legends in bold and conspicuous type stating
(i) that the registration number must be included on any return on which the
transferee claims any deduction, or other tax benefit arising from an
investment in the tax shelter and (ii) that the issuance of the registration
number does not indicate that the IRS has reviewed, examined or approved the
investment or the claimed tax benefits. Failure to furnish the tax shelter
registration number to a transferee may result in a penalty of $100 for each
such failure. Further, a Limited Partner who transfers an interest in the
Partnership must notify the Partnership of such transfer, generally prior to
the transaction. The notification is required to include (i) the names and
addresses of the transferor and the transferee, (ii) the taxpayer
identification number of the transferor and, if known, of the transferee, and
(iii) the date of the sale or exchange.
26. TAX LEGISLATION. It is impossible to predict with any degree of
certainty what new tax proposals may be forthcoming, whether any such
proposals are likely to have an effect upon the income tax treatment
presently associated with an investment in the Partnership, or what the
effective date might be of any legislation that may be derived from such
proposals. Potential investors are urged
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to consider ongoing developments in this uncertain area and to consult their
own tax advisors in assessing the risks of investment in the Partnership.
27 STATE INCOME TAX CONSEQUENCES. In addition to the federal income
tax consequences described above, prospective Limited Partners should
consider potential state and local tax consequences of an investment in the
Equipment. The Partnership itself may be subject to state income taxes in
states in which the Partnership owns Equipment or is engaged in business.
Moreover, a Limited Partner's share of Net Income or Net Loss attributable to
his investment in the Equipment generally will be required to be included in
determining his reportable income for state or local tax purposes in the
jurisdiction in which he is a resident. In addition, certain other states in
which the Equipment is leased may impose a tax on nonresident Limited
Partners determined with reference to their pro rata shares of income derived
from such state. To the extent that a nonresident Limited Partner pays tax
to a state by virtue of Equipment owned within that state, he may be entitled
to a deduction or credit against tax owed to his state of residence with
respect to the same income. In sum, a Limited Partner may be subject to
income, estate or inheritance tax, or both, and may be required to file tax
returns in states and localities where Equipment is leased, as well as in the
state or locality of his residence. It is possible that some states or
localities where the leased property will be located will require that the
Partnership withhold state or local taxes on the income allocated (or
distributions made) to Limited Partners. The Partnership is authorized to
withhold from amounts otherwise distributed to Limited Partners such amounts
as the General Partner determines is necessary or appropriate to satisfy the
Partnership's state or local tax obligations.
Congress has recently passed and the President has signed the Taxpayer
Relief Act of 1997 (TRA of 1997). The new tax legislation contains many new
provisions that affect an investment in the Partnership, including the
provisions described in tax materials on the new capital gains tax provisions
and revisions in the alternative minimum tax computation. The TRA of 1997
allows a large partnership (partnerships that had 100 or more partners in the
preceding year) to elect special simplified tax reporting rules in
determining the treatment of a large number of distribution items from the
partnership level. Also, under the TRA of 1997, partnership adjustments for
electing large partnerships resulting from an audit generally will take
effect and flow through to the partners for the year in which the adjustment
takes place rather than going back to any prior year. The Partnership, in
lieu of flowing through the adjustment to the Partners, may elect to pay an
imputed underpayment on the net adjustment at the highest tax rate for the
taxable years under audit. The Partnership is responsible for interest and
penalties that result from a partnership adjustment and any payment made by
the Partnership is nondeductible. These provisions are effective for tax
years beginning after December 31, 1997. Because the new partnership
provisions have only been enacted and no regulations have been issued, the
Partnership has not determined whether the election should be made by the
Partnership.
Limited Partners should consult their own tax advisors as to the state
and local tax consequences of an investment in the Partnership. No opinion
has been or will be rendered by Tax Counsel on matters of state or local tax
law.
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EMPLOYEE BENEFIT PLANS
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Qualified retirement plans, pension, profit-sharing and stock bonus plans
(including Keogh plans) and individual retirement accounts (collectively,
"Retirement Plans") are generally exempt from federal income taxation.
However, if these Retirement Plans have "unrelated business taxable income"
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(determined in accordance with Sections 511-514 of the Code) that exceeds
$1,000 during any taxable year, the amount in excess of $1,000 for a year is
taxable. A Retirement Plan that invests in the Partnership will constitute
an unrelated trade or business for the retirement plan. Because the
Partnership's business will primarily consist of leasing personal property,
each investment by a Retirement Plan in the Partnership will cause the
Retirement Plan to have unrelated business taxable income, which will include
(1) the Plan's share of the Partnership's taxable income from rents under the
Equipment leases; and (2) the gain, if any, on disposition of the Equipment,
but only to the extent the Equipment is "debt-financed" during the 12 month
period preceding its sale or is deemed to be held primarily for sale to
customers in the ordinary course of business. See "Sale or Other Disposition
of Equipment" under "Tax Consequences." In calculating its unrelated
business taxable income, however, a Retirement Plan may also take into
account its share of the Partnership's deductions, including depreciation,
applicable to leased Equipment.
Fiduciaries of Retirement Plans must also consider whether underlying
assets of the Partnership will be deemed to be assets of any Retirement Plan
which invests in the Partnership ("plan assets"). If the assets of the
Partnership were to be classified as "plan assets," the General Partner would
become a fiduciary to any investing Retirement Plan and, among other things,
would be subject to all of the conditions, restrictions and prohibitions set
forth in Part IV, Subtitle B, Title I, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Code.
Under ERISA, when a Retirement Plan invests in securities (within the
meaning of ERISA Section 3(20)) of a corporation or partnership, the
Retirement Plan's assets will generally include only the securities it
acquires and does not solely by reason of such investment, include the
underlying assets of the corporation or partnership. On November 13, 1986,
the Department of Labor promulgated a regulation at 29 C.F.R. 2510.3-101 (the
"Regulation") which stated the above rule and set out several categories of
exceptions to the rule, i.e., categories of entities, or interests therein,
with respect to which certain Retirement Plan investments would create "plan
assets." The General Partner believes that the Regulation's exceptions do
not apply to the Partnership and that, consequently, the general rule applies
so that, when a Retirement Plan purchases one or more Units in the
Partnership, the Retirement Plan's assets will not include the assets of the
Partnership.
The Regulation provides that, where a Retirement Plan invests in a
security that is a "publicly offered security," the underlying assets of the
issuer will not be deemed to be "plan assets" of the investing Retirement
Plan solely on account of the Retirement Plan's investment. The Regulation
provides generally that a security will be deemed to be a "publicly offered
security" if it is (1) part of a class of securities that is widely held; (2)
freely transferable; and (3) either (a) part of a class of securities
registered under the Securities Exchange Act of 1934, or (b) sold to a
Retirement Plan as part of a public offering registered under the Securities
Act of 1933 and part of a class of securities registered under the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year of the
issuer in which the public offering occurred.
Based on the information from the representations of the General Partner
discussed below, it is the opinion of Counsel to the Partnership that the
Partnership's Units should constitute "publicly offered securities." First,
the General Partner has represented that it is highly likely that
substantially more than 100 independent investors will purchase and hold
Units in the Partnership, and the Regulation states that, when 100 or more
investors independent of the issuer and of one another purchase a class of
securities, the class will be deemed to be widely held. Second, the General
Partner has represented that the Partnership's offering of Units is or will
be registered under the Securities Act of 1933, and that the General Partner
intends to register the Units in the Partnership under the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year of the
Partnership in which its offering of Units terminates. Third, although
whether a security is freely transferable is a factual determination, the
limitations on the assignment of Units and substitution of Limited Partners
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contained in Article XIII of the Partnership Agreement, with the possible
exception discussed below, fall within the scope of certain restrictions
enumerated in the Regulation that ordinarily will not affect a determination
that securities are freely transferable when the minimum investment is
$10,000 or less. Section 13.1.4 of the Partnership Agreement contains a
provision (the "PTP Restriction") that prohibits the assignment or other
transfer of Units without the General Partner's written consent if the
General Partner determines in good faith that (1) such transfer might result
in a change in the status of the Partnership to a publicly traded partnership
within the meaning of Section 7704 of the Code, as currently or hereafter
interpreted by the Internal Revenue Service in rulings, regulations or other
publications, or by the courts, and (2) such status would have a material
adverse impact on the Limited Partners or their assignees. In order to
prevent the Partnership from being classified as a publicly traded
partnership, the General Partner has represented that it intends to prohibit
transfers of Units to the extent necessary to comply with the safe harbors
contained in IRS Notice 88-75, under which certain levels of trading are
permissible. See "'Publicly Traded' Partnerships" under "Tax Consequences."
Section (b)(4)(iii) of the Regulation permits restrictions that prohibit any
transfer or assignment that would result in a reclassification of the entity
for federal income tax purposes. In Advisory Opinion 89-14A dated August 2,
1989, the Department of Labor expressed its opinion that a restriction
against transfer of partnership interests that is drafted to avoid
reclassification of a partnership as a publicly traded partnership would
qualify as the type of restriction contemplated by that Section of the
Regulation. Therefore, the PTP Restriction should not, absent unusual
circumstances, affect the Units being freely transferable within the meaning
of the Regulation.
Notwithstanding the above, because of ERISA a Retirement Plan fiduciary
deciding whether to invest in the Partnership, in addition to other factors,
should consider (1) whether the investment satisfies the diversification
requirements of ERISA Section 404(a)(1)(C); (2) whether the investment is
prudent (considering the compensation structure of the Partnership, that the
Partnership's Equipment investments have not been selected as of the date of
this Prospectus, and that there may never be a market in which the Retirement
Plan can sell or otherwise dispose of Units); (3) whether the investment is
made solely in the interest of the Retirement Plan's participants; (4)
whether the investment complies with the Retirement Plan's needs for
liquidity; and (5) whether the investment would constitute a transaction
prohibited under ERISA Section 406 and Section 4975 of the Code.
Because of possible violation of prohibited transaction rules under ERISA
and the Code, the fiduciaries of a Retirement Plan should never purchase
Units with assets of a Retirement Plan if the General Partner, the Managing
Sales Agent, any Selected Sales Agents or any of their Affiliates perform or
have any such investment powers with respect to those assets, unless an
exemption from the prohibited transaction rules applies with respect to such
purchase.
ERISA and, in some cases, the Code require that the assets of a
Retirement Plan be valued at their fair market value as of the close of each
Plan year. It may not be possible to value the Units adequately from year to
year, since there may not be a market for them and appreciation or
depreciation of Partnership Equipment may not be independently shown in the
value of the Units until the Partnership sells or otherwise disposes of the
Equipment.
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MANAGEMENT
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THE PARTNERSHIP
The Partnership is an Iowa limited partnership formed on August 26, 1997.
THE GENERAL PARTNER AND ITS AFFILIATES
The General Partner of the Partnership is Berthel Fisher & Company
Leasing, Inc., an Iowa corporation that has been in operation since 1988.
Its business and executive offices are located at 100 Second Street, SE,
Cedar Rapids, Iowa 52401, telephone (319) 365-2506. More than 99% of the
voting stock of the General Partner is owned by Berthel Fisher & Company
("Berthel Fisher"). Berthel Fisher, a financial services holding company, was
formed in 1985 as an Iowa corporation to hold the stock of Berthel Fisher &
Company Financial Services, Inc. ("Financial Services"), a broker-dealer
registered with the National Association of Securities Dealers, Inc.
Financial Services, an affiliate of the General Partner, will act as the
Managing Sales Agent for this Offering.
The General Partner was formed as a subsidiary of Berthel Fisher in 1988
to engage in the business of acquiring, financing, leasing and selling
equipment, primarily in the telecommunications and pay telephone industry.
Other operations of the General Partner include lease brokerage activities
and lease financing services. Since 1988, the General Partner has expanded
its leasing activities to other types of equipment. The General Partner also
serves as general partner for Telecommunications Income Fund IX, L. P. ("TIF
IX") and Telecommunications Income Fund X, L.P. ("TIF X"), and it has been
active in the leasing business for its own account. The General Partner
provided and negotiated leases sold to eight other partnerships ("Private
Programs"), the general partners of which were subsidiary corporations of
Berthel Fisher. All of the Private Programs have completed operations and
distributed their assets. See "Financial Statements of the Partnership and
the General Partner."
Since its inception, over $147,000,000 of lease and finance transactions
have been originated by the General Partner for its own portfolio and for the
portfolios of its Affiliates. Financial Services, as managing dealer, has
sold and placed approximately $46,689,250 of participation in equipment
leasing programs to both individual and institutional investors through two
publicly offered limited partnerships and eight Private Programs. The
General Partner and/or its Affiliates are currently managing the equipment
and leases placed in the two publicly offered limited partnerships and its
own portfolio of leases. See "Information Regarding Certain Private Programs"
under "Prior Experience of the General Partner and Affiliates." Please refer
to "Exhibit C -- Tabular Information Concerning Prior Transactions."
The General Partner will have day-to-day operating responsibility for the
Partnership and will make all decisions regarding acquisition, financing,
refinancing, leasing and sale of Equipment and other Program Assets. The day
to day affairs of the General Partner are handled by Nancy Lowenberg, Vice
President and Chief Operating Officer of the General Partner, with active
involvement of the Board of Directors. Each Director has been elected by the
General Partner's parent company, Berthel Fisher. The current members of the
Board of Directors are Thomas J. Berthel, Ronald O. Brendengen, Nancy
Lowenberg, Emmett J. Scherrman, Von Elbert and James W. Noyce. Berthel
Fisher provides certain management services to Leasing. Members of the
General Partner's Board of Directors have had experience in various phases of
acquiring, financing, leasing and selling equipment, and in managing and
advising investment programs with objectives similar to those of the
Partnership.
Under the Partnership Agreement, the Limited Partners owning a majority
of the outstanding Units have the right to admit a successor general partner
upon the withdrawal, resignation, removal, bankruptcy, dissolution or
liquidation of the General Partner. See "Summary of the Limited Partnership
Agreement."
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The services and functions to be performed by the General Partner for the
Partnership include locating, evaluating and negotiating the terms of
Equipment leases and financings; negotiating and servicing Partnership debt
obligations; invoicing and collecting lease revenues from lessees; inspecting
the Equipment; maintaining liaison with and general supervision of lessees;
administration of leases to assure that Equipment is being properly operated
and maintained; supervising maintenance to be performed by third parties;
monitoring performance by the Partnership and by lessees of their obligations
under Equipment leases; maintaining liaison and communication with the
Limited Partners and providing them with reports as described under "Reports
to Limited Partners"; and all administrative functions associated with the
operations of the Partnership. The General Partner will also arrange for and
oversee the marketing of Units through the Managing Sales Agent and the
Selected Sales Agents. The General Partner will be reimbursed by the
Partnership for organizational and offering expenses. In addition, the
Partnership will reimburse the General Partner for certain out-of-pocket
costs and expenses. See "Compensation of the General Partner and Affiliates."
EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The officers and directors of the General Partner are:
Thomas J. Berthel (age 45) -- Mr. Berthel is the President and a director
of the General Partner. He served as President from 1988 to 1993, and was
re-elected as President in 1996. He has been a director since 1988. Mr.
Berthel also serves as the President and a Director of Berthel Fisher &
Company, a financial services holding company formed in 1985 as an Iowa
corporation to hold the stock of Berthel Fisher & Company Financial Services,
Inc. ("Financial Services"), the Managing Sales Agent. He has held both of
those positions since 1985. Mr. Berthel served as President of Financial
Services until June, 1993. He presently serves as Chief Executive Officer and
as a Director of Financial Services and Leasing. Mr. Berthel is also
President and a Director of Berthel Fisher & Company Management Corp. (a real
estate holding company), T. J. Berthel Enterprises, Inc. (general partner of
a limited partnership that invests in securities) and Berthel Fisher &
Company Planning Inc. ("Planning") (a registered investment advisor).
Planning is the trust advisor of Berthel Growth & Income Trust I, a business
development organized under the Investment Company Act of 1940. In November,
1995, Mr. Berthel was elected a director of Intellicall, Inc., a publicly
traded company.
Mr. Berthel holds a bachelor's degree from St. Ambrose College in
Davenport, Iowa (1974). He also holds a Master's degree in Business
Administration from the University of Iowa in Iowa City, Iowa (1993). From
1974 to 1982, Mr. Berthel was President and majority shareholder of Insurance
Planning Services Corporation in Maquoketa, Iowa, which was engaged in the
operation of a securities and insurance business. Mr. Berthel holds a
Financial and Operation Principal license issued by the National Association
of Securities Dealers, Inc. He is also a Certified Life Underwriter.
Nancy Lowenberg (age 38) -- Ms. Lowenberg is Vice President and Chief
Operating Officer of the General Partner, a position she has held since
January 2, 1997. From 1982 to December 1996, Ms. Lowenberg was employed by
Firstar Bank Iowa, N.A., in Cedar Rapids, since 1986 as Vice President
Commercial Loans for Iowa. As Vice President Commercial Loans, she served as
relationship manager of 62 accounts with approximately $70,000,000 of
committed credit, with responsibility for annual review and maintenance of
existing accounts and business development. Ms. Lowenberg received her
Bachelor of Science Agricultural Business with a minor in Finance in 1981
from Iowa State University, Ames, Iowa.
Ronald O. Brendengen (age 43) -- Mr. Brendengen is the Treasurer, Chief
Financial Officer and a Director (1988 to present) of the General Partner.
He was elected to his current offices in October, 1996. He has previously
served as Secretary (1994-March, 1995), Treasurer (1988-August, 1995) and
Chief Financial Officer (1994-August, 1995) of the General Partner. He
served as Controller
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(1985-1993), Treasurer (1987-present), Chief Financial Officer, Secretary and
a Director (1987-present) of Berthel Fisher & Company, the parent company of
the General Partner. Mr. Brendengen serves as the Treasurer, Chief Financial
Officer and a Director of Berthel Fisher & Company Planning, Inc. He also
serves in various offices and as a Director of each subsidiary of Berthel
Fisher & Company. Mr. Brendengen holds a certified public accounting
certificate and worked in public accounting during 1984 and 1985. Mr.
Brendengen attended the University of Iowa before receiving a bachelor's
degree in Accounting and Business Administration with a minor in Economics
from Mt. Mercy College, Cedar Rapids, Iowa, in 1978.
Leslie D. Smith (age 49) is the Secretary (March, 1995-present) of the
General Partner. Mr. Smith serves as the Secretary and a Director of Berthel
Fisher & Company Planning, Inc., the trust advisor of Berthel Growth & Income
Trust I. In 1994 Mr. Smith was named General Counsel of Berthel Fisher &
Company, parent company of the General Partner. Mr. Smith was awarded his
B.A. in Economics in 1976 from Iowa Wesleyan College, Mount Pleasant, Iowa,
and his J.D. in 1980 from the University of Dayton School of Law, Dayton,
Ohio. Mr. Smith was employed as an Associate Attorney and as a Senior
Attorney for Life Investors Inc., Cedar Rapids, Iowa, from 1981 through 1985.
At Life Investors Inc., Mr. Smith was responsible for managing mortgage and
real estate transactions. From 1985 to 1990 Mr. Smith was General Counsel
for LeaseAmerica Corporation, Cedar Rapids, Iowa. In that capacity, Mr.
Smith performed all duties generally associated with the position of General
Counsel. From 1990 to 1992, Mr. Smith was Operations Counsel for General
Electric Capital Corporation, and was responsible for managing the legal
department of a GECC division located in Cedar Rapids, Iowa. From 1993 to
1994, Mr. Smith was employed as Associate General Counsel for Gateway 2000,
Inc., in North Sioux City, South Dakota.
DIRECTORS OF THE GENERAL PARTNER
The Directors of the General Partner are elected annually. Thomas J.
Berthel, Nancy Lowenberg and Ronald O. Brendengen, who are executive officers
of the General Partner, also serve as directors of the General Partner.
Biographical information with respect to each of them is set forth above.
The remaining directors of the General Partner are listed below, together
with certain pertinent information concerning each of them.
Emmett J. Scherrman (age 65) was elected a Director of the General
Partner in August, 1995. Mr. Scherrman graduated in 1953 from Loras Collage
with a B.A. in accounting, and attended the U.S. Army Finance School, Fr.
Benjamin Harrison, from 1953 to 1955. Mr. Scherrman served as President
(1977 to 1987) and Chairman of the Board and Chief Executive Officer (1987 to
1990) of LeaseAmerica Corporation, Cedar Rapids, Iowa. Since his retirement
from LeaseAmerica Corporation in 1990, Mr. Scherrman has served as a
consultant to Brenton Bank and Trust Company, Cedar Rapids, Iowa, from 1992
to present. Mr. Scherrman currently serves as a Director of Brenton Bank
and Trust Company; Treasurer and Director of Oak Hill Engineering, Inc;
Chairman, Board of Trustees, Mount Mercy College; and Treasurer and Member of
the Board of Trustees, Mercy Medical Center.
Von Elbert (age 58) was elected Director of the General Partner in
October, 1996. He has served as a Director of Berthel Fisher & Company, the
parent of the General Partner, since May, 1991. From 1978 to 1988, Mr.
Elbert was the President of TLS, Co., a data processing company. From 1988
to 1996, Mr. Elbert served as the Vice President, Treasurer and Chief
Financial Officer of Galt Sand Company, a manufacturer of wearing apparel.
Mr Elbert also serves as a director of Hawkeye Bank of Cedar Rapids. Mr.
Elbert received his BBA degree from the University of Iowa in 1962.
James W. Noyce (age 42) was elected Director of the General Partner in
September, 1997. Mr. Noyce has been employed by FBL Financial Group, Inc.
since 1985. He presently serves as Chief Financial Officer of FBL Financial
Group, Inc. (and its affiliates, including Farm Bureau Life Insurance
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Company), a position he has held since December, 1995. Prior to December,
1995, he served FBL Financial Group, Inc. in various capacities, including,
from 1991 to December, 1995, as Vice President and Controller. Mr. Noyce
graduated in 1978 with a Bachelor of Science and Business Administration
(BSBA) in Actuarial Science and Accounting from Drake University College of
Business.
OPERATION OF THE GENERAL PARTNER
As of July 31, 1997, the General Partner employed seven persons. The
General Partner receives management and consulting services from its Officers
and Directors and from employees of Berthel Fisher & Company, the General
Partner's parent. In addition, the General Partner receives accounting,
secretarial and clerical support from Financial Services in consideration of
payment of a pro rata portion of the salaries of those employees who provide
services directly to the General Partner. The General Partner will hire
additional employees as the need arises. During the fiscal years ended
December 31, 1995, and December 31, 1996, the revenue from no one customer of
the General Partner accounted for greater than 10.0% of total revenue.
The General Partner is the lessee with respect to office space that it
vacated in early 1997. The General Partner will continue to be responsible
for payment of rent on this space of approximately $4,500 per month until
December 31, 2000. Although the General Partner is seeking to sub-lease the
space to a third party, it has been unsuccessful to date. The General
Partner's offices are now located in Cedar Rapids, Iowa, in premises
containing approximately 700 square feet. The premises are leased by the
General Partner from an Affiliate, which has agreed to permit the General
Partner to use the space until it has found a sub-lessee for the space it
previously occupied. After the General Partner sub-leases the previous
space, the Affiliate will begin charging rental of not more than $2,000 per
month.
As of the date of this prospectus, the General Partner is not engaged in
litigation other than litigation in the normal course of its business.
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PRIOR EXPERIENCE OF THE GENERAL PARTNER AND AFFILIATES
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GENERAL
The General Partner currently serves as the general partner of two public
programs, Telecommunications Income Fund IX, L. P. ("TIF IX") and
Telecommunications Income Fund X, L.P. ("TIF X"). Affiliates of the General
Partner have served as general partners of Telecommunications Limited
Partnerships No. 1-No. 8 (the "Private Programs"). All of the Private
Programs are now terminated. The General Partner and all of its affiliates
who served as general partners of the Private Programs are all subsidiaries
of Berthel Fisher & Company ("Berthel Fisher"). The General Partner and the
affiliates who served as general partners of the Private Programs are
referred to collectively as the "Leasing Affiliates."
The Leasing Affiliates are (or were, in the case of the terminated
Private Programs) engaged primarily in the business of acquiring and leasing
capital assets, primarily telecommunications equipment. The General Partner
has been in operation since 1988. The Leasing Affiliates have been engaged
in business beginning at various dates since 1986. Berthel Fisher has two
other subsidiaries that are engaged in the business of securities brokerage
and real estate ownership and management.
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Another subsidiary is registered with the Securities and Exchange Commission
as an investment advisor and with the Commodities Futures Trading Association
as a commodity trader and now serves as the investment advisor to Berthel
Growth & Income Trust I, a publicly held business development company. All
of the subsidiaries of Berthel Fisher are Iowa corporations.
Substantially all of the current business of TIF IX and TIF X is
conducted, and substantially all of the other Leasing Affiliates' business
was conducted, on a full payout lease basis, in which the non-cancelable
rental payments due during the initial term of the lease are sufficient to
recover the Purchase Price of Equipment. Many of the lease contracts of TIF
IX and TIF X have fair market value purchase options that grant the
underlying lessees the right to purchase the equipment at the end of the
lease contracts.
Mr. Thomas J. Berthel also served as a general partner of each of the
Private Programs. The General Partner did not act as the general partner for
any of the Private Programs. The General Partner did, however, earn
management fees and/or sales commissions from certain of the Private Programs.
The Private Programs raised a total of $7,070,000 of equity from 447
investors and purchased equipment costing $9,514,000. TIF IX raised a total
of $17,001,750 of equity from 1,211 investors and has purchased equipment
costing $47,778,000. TIF X raised a total of $22,617,500 of equity from
1,639 investors and has purchased equipment costing $41,376,000.
The following table sets forth information regarding the eight Private
Programs and the two publicly offered programs organized by the Leasing
Affiliates to date.
Original
Equipment Date Date
Name of Transaction Cost Started Terminated
- ------------------- --------- ------- ----------
Telecommunications Limited
Partnership No. 1 . . . . . $1,249,000 12/31/86 10/31/94
Telecommunications Limited
Partnership No. 2 . . . . . 1,856,000 12/31/87 09/30/94
Telecommunications Limited
Partnership No. 3 . . . . . 552,000 03/04/88 09/04/92
Telecommunications Limited
Partnership No. 4 . . . . . 527,000 05/03/88 10/20/92
Telecommunications Limited
Partnership No. 5 . . . . . 1,372,000 02/28/89 12/31/94
Telecommunications Limited
Partnership No. 6 . . . . . 805,000 07/14/89 12/31/94
Telecommunications Limited
Partnership No. 7 . . . . . 1,325,000 02/21/90 09/30/94
Telecommunications Limited
Partnership No. 8 . . . . . 1,828,000 02/07/91 09/30/94
Telecommunications Income
Fund IX, L.P. . . . . . . . 16,554,266 10/30/91
Telecommunications Income
Fund X, L.P. . . . . . . . 26,316,015 08/27/93
All of the Private Programs are terminated. TIF IX and TIF X are
currently in operation and have fully utilized all investor funds to acquire
equipment. Information as to cash distributions to investors
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made by the Private Programs, TIF IX and TIF X and certain additional
information concerning the Private Programs, TIF IX and TIF X may be found in
"Exhibit 'C' - Tabular Information Concerning Prior Transactions." As noted
in Table III of Exhibit C, certain of the Private Programs show deficiencies
at year end after cash distributions and special items. These deficiencies
were funded with prior year's cash flow or from reserves, as noted in
footnotes to Table III of Exhibit C. Persons who invest in Units in the
Partnership will not have any ownership interest in any of the Private
Programs, TIF IX or TIF X as a result of such investment.
DIFFERENCES BETWEEN THE PARTNERSHIP AND OTHER PUBLIC AND PRIVATE PROGRAMS
In each of the Private Programs, cash flow in excess of working capital
reserves was distributed to investors instead of being reinvested in
Equipment. This differs significantly from the Partnership's plan for
distribution. See "Plan of Distribution." In other respects, except as
stated in this section and in "Information Regarding Certain Private
Programs" under "Prior Experience of the General Partner and Affiliates," the
investment objectives of the Private Programs are not significantly different
from the investment objectives of the Partnership. The investment objectives
of TIF IX and TIF X are very similar to those of the Partnership. See
"Investment Objectives and Policies."
Like the Partnership, the Private Programs, TIF IX and TIF X invested
primarily in equipment that was leased pursuant to Full Payout Leases.
Unlike the Partnership, however, the Private Programs provide for
distributions to investors to include a return of principal and interest, as
if the investment had been amortized over the life of the Private Program.
The intention of the Partnership is not to return capital during the
Operating Phase.
INFORMATION REGARDING PRIVATE PROGRAMS
The Private Programs used straight line depreciation with asset lives of
seven to ten years. Most of the Private Programs were intended to be
liquidated after approximately five years, which is a shorter period than the
period selected for depreciation of assets. Since the Private Programs
utilized Full Payout Leases, at the expiration of leases the Private Programs
had recovered through rentals the cost of equipment that had been subject to
a lease. Upon the sale of equipment at the end of a lease, the Private
Programs received a nominal price, usually less than ten percent (10.0%) of
the cost of the equipment. Since depreciation in the Private Programs was
taken over a longer period (7 to 10 years) than the life of the lease (3 to 5
years), the residual value of the equipment at the expiration of a lease was
generally less than the adjusted basis of the equipment. Accordingly, upon
the sale of equipment at the end of a lease, the Private Programs experienced
a loss for tax purposes. These losses were generally ordinary losses, not
capital losses. Utilization by the Private Programs of straight line
depreciation over seven to ten years resulted in increasing the taxable
operating results of the Private Programs, which resulted in increasing the
limited partners' tax liability during the years of operation. Generally, in
the year of termination and liquidation of a Private Program, the operating
results generated passive tax losses to be used by a limited partner to
offset passive income, and to the extent such losses exceeded passive income,
to offset (to the extent of a limited partner's basis) other income of the
limited partner.
THE UNAUDITED INFORMATION PRESENTED IN THIS SECTION AND IN THE TABLES
INCLUDED AS EXHIBIT C REPRESENTS THE HISTORICAL EXPERIENCE OF THE PRIVATE
PROGRAMS. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY THE INVESTORS
IN ANY PRIVATE PROGRAM.
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INVESTMENT OBJECTIVES AND POLICIES
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GENERAL
The Partnership intends to use the Net Proceeds from the sale of Units
primarily to purchase Equipment for lease to creditworthy third parties. The
Partnership will not operate the Equipment. The Partnership will acquire a
variety of types of capital equipment, but it will emphasize the acquisition
of telecommunications equipment. Telecommunications equipment acquired by
the Partnership may consist primarily of pay telephones, call processing
systems and related equipment
The principal investment objective of the Partnership is to obtain the
maximum available economic return from its Investment in Program Assets.
Except when the General Partner acquires Equipment in its own name for the
benefit of the Partnership, the Partnership will not acquire Equipment from
or lease Equipment to Affiliates. Accordingly, the Partnership intends to
purchase Equipment, to lease such Equipment to unaffiliated third parties and
to sell (or re-lease) such Equipment, all with a view toward:
a. generating Cash Flow during its Operating Phase, in order to make
distributions to Limited Partners of ongoing Operating Distributions (See
"Cash Distributions and Redemptions"), which, to the extent available, will
be made on a monthly basis;
b. during the Operating Phase, reinvesting undistributed Cash Flow
from operations in additional Equipment for lease to increase the amount of
Partnership assets; and
c. maximizing the residual values of Equipment upon sale and
providing cash distributions to the Partners from sales as Liquidating
Distributions.
The General Partner shall commit a percentage of Capital Contributions to
Investment in Program Assets which is equal to the greater of (a) 80.0% of
the Capital Contributions reduced by .0623% for each 1.0% of indebtedness
encumbering Program Assets; or (b) 75.0% of Capital Contributions. The
percent of indebtedness encumbering Program Assets is calculated by dividing
the amount of indebtedness by the Purchase Price of Equipment, excluding the
Front-End Fees. The resulting quotient is then multiplied by .0625% to
determine the percentage to be deducted from 80.0%.
To facilitate leasing arrangements, the Partnership may enter into lease
commitments with third parties prior to entering into actual leases so that
appropriate and adequate security filings can be completed and to enable such
third parties to plan for equipment installation. These commitments may
involve the taking by the Partnership of security interests in property other
than the Equipment. The Partnership may collect commitment fees in
connection with the giving of lease commitments. Lease commitments will
operate in much the same way as loan commitments, with the Partnership
committing to a third party to lease equipment having certain maximum values.
In addition to acquiring Equipment to be leased, the Partnership will
also acquire Equipment subject to existing leases, in which case the
Partnership will acquire title to the Equipment and the lessor's interest in
the lease. In limited circumstances, the Partnership will enter into
financing arrangements which will involve making secured loans to or other
debt arrangements with unaffiliated third parties. These financings will be
completed only if such financings are advantageous to the Partnership and
will include cases where lease transactions with those third parties would
result in
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unfavorable tax treatment. Such loans will generally be securitized with
a first security interest in equipment. Both the number and size of such
financings will be limited.
Leases entered into by the Partnership contain provisions requiring
lessees to remove Equipment and ship it to the Partnership at the end of the
lease. Accordingly, the Equipment generally has more value to the Lessee than
to others in the secondary market. Residual values of Equipment will be
maximized by endeavoring to sell the Equipment to the Lessee at the highest
possible price. If a Lessee does not purchase the Equipment, the Partnership
generally will sell the Equipment on the secondary market to buyers who
customarily acquire used Equipment.
The General Partner does not have the power to amend the investment
objectives of the Partnership without the vote of the Limited Partners.
The Partnership does not intend to acquire Equipment in transactions
which would enable Limited Partners to defer from taxation income from
sources other than the Partnership.
THERE CAN BE NO ASSURANCE THAT ANY SPECIFIC LEVEL OF CASH DISTRIBUTIONS
OR ANY OTHER OF THE INVESTMENT OBJECTIVES OF THE PARTNERSHIP CAN OR WILL BE
ATTAINED.
TYPES OF EQUIPMENT TO BE ACQUIRED
1. TELECOMMUNICATIONS EQUIPMENT. The Partnership intends to utilize a
significant portion of available funds to acquire telecommunications
Equipment from a variety of manufacturers. Similar Equipment will be
purchased from third parties in sale and lease-back arrangements.
Telecommunications Equipment acquired by the Partnership will consist
primarily of advanced technology pay telephones and call processing systems
used in such facilities as hotels, hospitals, colleges and universities, and
correctional institutions.
The pay telephones to be acquired by the Partnership have the built-in
capability to perform electronic functions associated with placing a pay
telephone call, using advanced microprocessor technology located within the
telephone housing. Both the pay telephones and the call processing systems
that the Partnership will acquire utilize systems designed to provide private
pay telephone operators with access to certain non-coin pay telephone
revenues, which constitute the majority of pay telephone revenues. These
systems are also utilized in call processing systems to allow hotels and
other owners to participate in revenues from users' calls that are billed to
calling cards or credit cards.
2. OTHER CAPITAL EQUIPMENT. Although the Partnership will concentrate
its equipment acquisitions in telecommunications equipment it will also
acquire other types of equipment that meet the investment objectives of the
Partnership. Such equipment may include, without limitation, medical
equipment, office equipment and computers. The Partnership will only obtain
Equipment that the General Partner has experience in leasing. The General
Partner anticipates that Equipment other than telecommunications Equipment
will make up less than a majority of the Partnership's lease portfolio.
Generally, the General Partner will acquire Equipment other than
telecommunications Equipment only if lease opportunities for
telecommunications Equipment which meet the Partnership's criteria are not
available or if the General Partner believes that a particular leasing
opportunity for other capital Equipment will enhance the Partnership's lease
portfolio.
There can be no assurance as to the ultimate composition of the
Partnership's actual portfolio, as there is no way of anticipating what types
of leasing opportunities will be available on reasonable terms at the times
the Partnership is ready to invest its funds. The General Partner may, in
accordance with its best business judgment, vary the Partnership's lease
portfolio. The Partnership may acquire
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both new and used Equipment. The Partnership intends to expend a greater
portion of its funds on new Equipment, although no assurance can be given
that such an objective will be achieved.
3. SECURED TRANSACTIONS; VENDOR LEASING PROGRAMS. Although the General
Partner does not anticipate that it will occur frequently, from time to time
the General Partner may find it to be more advantageous to the Partnership to
enter into a secured sales transaction rather than a lease. In such cases
the Partnership will purchase Equipment for resale to a third party on a
secured basis. Further, the Partnership may participate in a manufacturer's
vendor leasing program, pursuant to which the Partnership would provide
financing with respect to Equipment leased directly by the manufacturer to
third parties.
TELECOMMUNICATIONS INDUSTRY IN GENERAL
The General Partner intends to lease a significant portion of the
Partnership's assets to businesses involved in the private pay telephone
industry. This industry was spurred in 1984 by the decision of the Federal
Communications Commission to authorize the private ownership of pay
telephones and the regulation of private pay telephones by states. State
regulation permits private pay telephones to be placed in public areas and
commercial establishments such as hotels, airports, stores, shopping centers
and service stations. The owners of private pay telephones collect all
monies deposited in the telephones, pay line charges and are responsible for
installation, maintenance and repair.
The General Partner also intends to place a significant portion of the
Partnership's assets in call processing systems that will be installed in
hotels and similar businesses. The use of call processing systems permits
hotels and other similar facilities to own telephone equipment and
participate in credit card and calling card revenues. Such systems give the
owner control over all forms of call rating and provides consolidated
reporting on call activity. The call processing systems that the Partnership
will acquire utilize built-in operator systems designed to allow hotels and
other owners to participate in revenues from users' calls billed to calling
cards or credit cards.
TELECOMMUNICATIONS EQUIPMENT MARKET FACTORS
The General Partner anticipates that most of the Partnership's leasing
activity for telecommunications Equipment will consist of leasing new
Equipment to first users and remarketing such Equipment to such users after
the term of the initial lease.
Because a specific configuration of pay telephone equipment or call
processing equipment may to some extent be most useful to the initial user
and the cost of remarketing such Equipment as used Equipment may be
substantial, the Partnership will endeavor to renegotiate the terms of any
expiring lease. The Partnership's leases will generally provide for the
lessee to bear the expense of removal of Equipment at the end of the lease
term and the expense of shipment of the Equipment to the Partnership. In
addition to these costs, lessees analyzing the cost of replacing Equipment
would normally consider the cost of purchasing new equipment and the cost of
installing new equipment. Accordingly, the General Partner expects lessees
to desire to renegotiate leases because to do so will generally be in the
best interest of the lessee. This is particularly true since the
telecommunications equipment to be leased by the Partnership can be upgraded
to take advantage of most technological advances. The General Partner
believes that leases can be renegotiated on terms that are generally
favorable to the Partnership. If leases cannot be renegotiated, the General
Partner will remarket the used Equipment through conventional means and by
utilizing its contacts with others in the industry.
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TELECOMMUNICATIONS EQUIPMENT RESIDUAL VALUES
The market value of pay telephones and call processing systems at the end
of a lease term (their "residual value") will depend upon many factors,
including the rate of Equipment obsolescence, technological advances,
regulatory and telecommunications industry standards, general business
conditions and intervening inflation or deflation.
Telecommunications technology and the integration of computer components
into and with telecommunications equipment has developed rapidly in recent
years and is expected to continue to do so. Technological advances and the
introduction of foreign-manufactured telephone equipment have resulted in
reductions in the cost of telecommunications equipment, and such reductions
may continue. See "The General Partner May Be Unable to Obtain Significant
Residual Value for the Partnership Equipment" under "Risk Factors" and
"Changes in Technology May Result in Obsolescence of Equipment" under "Risk
Factors."
Prospective lessees of telecommunications Equipment choose specific
Equipment based primarily on its price relative to its performance and their
particular requirements. The introduction of improved models, the broadening
of user applications and the need for greater flexibility of usage and
capacity have resulted in upgrading of Equipment. The General Partner cannot
predict whether or not a secondary market will develop for pay telephones and
call processing systems.
Physical deterioration has not been a significant factor affecting the
value of used pay telephones or call processing systems. However, a
significant factor which may affect the residual value of Equipment owned by
the Partnership is the condition of the Equipment at the time of re-lease or
sale, which depends in part upon the proper maintenance of the Equipment
while in service. The General Partner will endeavor to lease Equipment owned
by the Partnership to lessees that will maintain it in such a manner that the
condition of the Equipment at the end of the lease will be comparable to
Equipment of comparable usage in the industry.
It is impossible to predict the extent to which developments during the
next ten years in the technology and pricing of telecommunications equipment
will cause erosion in the value of existing models of such Equipment.
ACQUISITION POLICIES AND PROCEDURES
The Partnership will generally invest only in Equipment that lessees have
committed to lease from the Partnership, or that is subject to existing
leases to third parties. Consequently, in most cases the selection of
Equipment will be determined by the requirements of the potential lessee.
See "Leases" below.
There is no limitation on the amount which the Partnership may invest in
any one Equipment transaction. Consequently, it would be possible for the
Partnership to invest all of its available funds in a single transaction.
The General Partner, however, does not intend for the Partnership to do so.
Because there can be no assurance as to the number of Units to be sold in the
Partnership, or the availability of lease opportunities to the Partnership,
the General Partner cannot predict what diversity of leases will ultimately
be obtained by the Partnership. Moreover, during the Operating Phase the
General Partner intends to reinvest most undistributed Partnership Cash Flow
in additional Equipment.
In order to reduce the effect of changes in the business conditions of
specific lessees, the Partnership will seek to diversify its lease portfolio
by leasing to a variety of lessees in various locations throughout the United
States and, to a limited degree, to lessees who may have Equipment located
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outside the United States. The Partnership's ability to achieve such
diversification will be dependent, in part, on the number of Units sold.
Used Equipment purchased by the Partnership will likely be acquired from
current users (which may be the proposed lessees) at a price that will not
exceed the fair market value of such Equipment. New Equipment purchased by
the Partnership will likely be acquired from manufacturers, authorized
dealers, or the proposed lessees, either by contracting with them directly or
by purchasing rights under previously existing purchase agreements.
The Partnership will acquire Equipment with varying degrees of warranty
protection. Used Equipment may no longer have warranty protection by the
time it is acquired by the Partnership. New Equipment normally will carry
the standard warranties offered by the manufacturer.
When necessary, the General Partner intends to arrange through the
manufacturers or through various service organizations to provide for the
installation, maintenance, modification and removal of Equipment.
The General Partner may purchase Equipment on behalf of the Partnership
in its own name for the purpose of facilitating the acquisition and ownership
of such Equipment by the Partnership. The General Partner may hold title to
such Equipment on a temporary basis, which will generally be six months or
less. Equipment acquired from the General Partner is subject to the following
restrictions:
a. The price payable by the Partnership to the General Partner for
Equipment may not exceed the sum of the price originally paid by the
General Partner and the amount of all out-of-pocket costs incurred by the
General Partner (including interest paid on any funds borrowed to finance
the acquisition of such Equipment) in connection with the acquisition and
ownership of the Equipment;
b. The General Partner will not receive any benefit from the sale of
Equipment to the Partnership other than the amounts set forth in paragraph
(a) above; and
c. The transaction must be in the best interests of the Partnership.
Any Equipment purchased by the General Partner on behalf of the
Partnership shall be acquired in the manner and subject to the restrictions
described in the preceding paragraphs. Except for the Acquisition Fee
described in "Compensation of the General Partner and Affiliates," no
commission of any kind will be paid to the General Partner or its Affiliates
in connection with the acquisition of such Equipment.
Although the General Partner does not now anticipate doing so, the
General Partner may invest in a joint venture between the Partnership and the
seller of Equipment or another third party. The joint venture would own and
lease the Equipment. Before entering into such a transaction, the General
Partner will consider various factors, including, without limitation:
a. The economic stability of the co-venturer, and the possibility
that the co-venturer would become bankrupt or experience other financial
difficulties;
b. The possibility that the co-venturer may have economic or
business interests or goals inconsistent with those of the Partnership;
c. The possibility of an impasse if no co-venturer has controlling
interest;
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d. Whether or not the Partnership has controlling interest, and if
not, what safeguards exist to limit the risk of loss to the Partnership.
In addition, the General Partner will consider all of the factors normally
considered when making a decision regarding leases.
TEMPORARY INVESTMENTS; RETURN OF UNINVESTED NET PROCEEDS
All Net Proceeds from the sale of Units in the Partnership will be
temporarily invested in (and undistributed Cash Flow may be invested in)
United States government securities (including, but not limited to,
short-term Treasury Bills and Treasury Notes), securities issued or
guaranteed by United States government agencies, certificates of deposit and
time or demand deposits in state or national banks, money market funds,
securities issued or guaranteed by states or municipalities, bank repurchase
agreements, bankers' acceptances, savings and loan association deposits,
commercial paper, secured equipment lease lines of credit, and other
investments with appropriately scheduled maturities or other similar types of
investments which will be held by the Partnership for a period generally not
exceeding one year from the date of purchase and will be available for the
general use of the Partnership. See "Estimated Use of Proceeds." The
foregoing notwithstanding, the Partnership does not intend to pursue a policy
which would make it subject to the Investment Company Act of 1940, and the
Partnership's temporary investments as described above will be limited
accordingly. Although the Net Proceeds from the sale of Units may be used
for any Partnership purpose, Net Proceeds will not be used to pay operating
expenses of the Partnership unless all available revenues from the operation
of the Partnership have first been applied to pay such expenses.
Any Net Proceeds (except for necessary operating capital) not invested or
committed for Investment in Program Assets within two years after the
Effective Date will be returned, without interest, to the Limited Partners in
proportion to their respective Capital Contributions. Any such funds will
include a return of the proportionate share of the Organization and Offering
Expenses and of any Selling Commissions paid to Affiliates of the General
Partner. Interest earned on such funds will be retained for the benefit of
the Partnership, not for the benefit of the General Partner. The following
categories of Net Proceeds will be deemed to be "invested or committed for
investment": (i) funds previously expended or set aside as reserves in
connection with the acquisition of Equipment or for other Partnership
purposes, and (ii) funds to be disbursed in the future under the provisions
of agreements relating to the acquisition of Equipment or other Partnership
matters.
LEASES
1. GENERAL INFORMATION. The specific provisions of the leases to be
entered into by the Partnership will depend upon a variety of factors,
including (i) the type and intended use of the Equipment covered by the
lease, (ii) the business, operations and creditworthiness of the lessee,
(iii) regulatory considerations, (iv) the tax consequences of given lease
provisions, and (v) the accounting treatment of the lease sought by the
lessee.
While the General Partner anticipates that most Equipment acquired by the
Partnership will be leased to lessees located in the United States, the
Partnership may enter into leases for Equipment located in a foreign country.
The leases the Partnership will generally acquire or enter into will be
leases with terms between 36 and 60 months, with noncancellable rental
payments due during the initial term of the lease sufficient to recover the
Purchase Price of the subject Equipment ("Full Payout Leases"). Generally,
the Equipment purchased for lease will be leased pursuant to or subject to
leases which are Full Payout Leases. The General Partner expects the Full
Payout Leases to produce Gross Rental Payments
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sufficient to recover any overhead and financing costs associated with the
acquisition of Equipment and to provide the Partnership with a return on its
investment.
The return to the Partnership under a given lease will depend upon
several factors, such as the amount of the rental and other payments required
to be made by the lessee under the lease, the expenses required to be borne
by the lessee under the lease and the value of the leased Equipment (for
re-lease or sale) at the expiration of the lease term.
The General Partner anticipates that its leases generally will provide
that the lessee will: (i) pay rent and other payments without deduction or
offset of any kind, (ii) bear the risk of loss of the leased Equipment, (iii)
pay sales, property, use or similar taxes relating to the lease or use of the
Equipment, (iv) indemnify the Partnership against any liability resulting
from any act or omission of the lessee or its agents, (v) maintain the
Equipment in good working condition during the term of the lease, and (vi)
not assign or sublease the Equipment without the prior written consent of the
General Partner. Most leases will grant to the lessee an option to purchase
the leased equipment at the end of the term at fair market value.
The General Partner anticipates that the Partnership's leases will
generally require lessees to maintain (i) casualty insurance in an amount
equal to the market value of the leased Equipment or a specified amount set
forth in the lease (which at times may be less than the market value of the
Equipment), and (ii) liability insurance (naming the Partnership as an
additional insured) in an amount consistent with industry standards.
Following the expiration of a lease entered into by the Partnership, the
Partnership may modify, extend or renew the lease with the existing lessee,
lease the Equipment to a new lessee, or sell the Equipment.
The terms and conditions of each lease will be determined by negotiation
and may impose substantial obligations upon the Partnership. Although the
Partnership will normally require the lessee to install the Equipment,
installation expenses will generally be included in the cost of Equipment.
Furthermore, the obligation to install Equipment may in some cases be assumed
by the Partnership. In such cases, the Partnership will enter into separate
agreements with manufacturers or independent organizations to provide
installation services, and the cost of installation will be considered by the
Partnership when determining the lease rate. All leases will require lessees
to maintain the Equipment.
2. LEASE AND LESSEE REVIEW PROCEDURES. The General Partner has
established standards and procedures for the review of potential lessees.
Following a thorough review, a credit decision will be made by the General
Partner. If the decision is positive, the General Partner will prepare lease
documents to be forwarded to the applicant. The Partnership will generally
make direct payment for the leased Equipment to the manufacturer or vendor.
The Partnership may obtain personal guarantees or other forms of credit
enhancements.
3. PORTFOLIO ACQUISITIONS. Although it is unlikely, the Partnership
may acquire existing lease portfolios for investment. Before acquiring a
lease portfolio the General Partner will conduct a thorough financial and
documentary review.
The General Partner may require personal and/or corporate guarantees from
the vendor of the portfolio. Occasionally, as additional collateral, the
General Partner may require that the leases and underlying Equipment be
purchased with full recourse to the vendor of the lease portfolio. The
General Partner may also require credit enhancements which could include,
among other items, certificates of deposit, letters of credit, mortgages on
real estate or liens on other property.
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FINANCING
The Partnership expects to incur debt to finance the purchase of a
substantial portion of its Equipment, and, in so doing, expects to be able to
acquire Equipment having values substantially in excess of the Limited
Partners' investment. Such leveraging will permit the Partnership to
increase the aggregate amount of its depreciable assets, and, as a result,
should increase both its lease revenues and its federal income tax deductions
above what they would be without such leveraging. However, such tax
deductions may be subject to "at risk" and other limitations described under
"Tax Consequences."
The General Partner presently anticipates that aggregate borrowings of
the Partnership will be approximately 40.0% of the Gross Proceeds of the
Offering. The aggregate amount of the Partnership's outstanding debt will not
exceed, at any time, 40.0% of the Gross Proceeds of the Offering. If 40.0%
of Gross Proceeds is borrowed, borrowings will equal approximately 49.1% of
Net Proceeds. This amount of borrowings will enhance the Partnership's
ability to make Operating Distributions, provided that (i) the funds can be
borrowed on reasonable terms, and (ii) equipment can be leased on terms
sufficiently favorable to permit a reasonable profit to be made after
servicing the debt. However, this amount of borrowing may negatively impact
the Partnership's ability to make Operating Distributions if lessees default
on leases and the Partnership is unable to re-lease the Equipment in a timely
manner on favorable terms. See "Insufficient Revenue to Meet Debt Service
When Leverage is Used" under "Risk Factors."
Although there is no limit on the amount of debt that may be incurred in
connection with the acquisition of any single item of Equipment the
Partnership intends to limit the amount of such debt to the extent necessary
to maintain its status as owner of such Equipment for federal income tax
purposes. The amount borrowed by the Partnership will depend in part upon
the type of lease, the lease term, the type of Equipment, the credit of the
lessee, the availability of financing, prevailing interest rates, and
acquisition costs incurred by the Partnership. The Partnership intends to be
flexible in the degree of leverage it employs and anticipates that it will
employ less leverage at times when prevailing interest rates are relatively
high and more leverage at times when prevailing interest rates are relatively
low. To the extent that such a strategy is successful, it would serve to
maximize the return to the Partners. There can be no assurance that credit
will at all times be available to the Partnership in the amount desired or on
terms considered reasonable by the General Partner.
The Partnership may purchase Equipment without incurring any debt. If
the Partnership purchases an item of Equipment without leverage and
thereafter suitable financing becomes available, it may finance such
Equipment at any time. The Partnership intends to take such action to the
extent practicable and, through the fifth anniversary of the Partnership's
Closing Date, to invest up to 100.0% of the proceeds from such financings in
additional items of Equipment.
To the extent practicable, the Partnership will borrow funds at interest
rates fixed at the time of borrowing. However, the Partnership is likely to
borrow substantial funds at rates which vary with the "prime" or "base" rate,
particularly when borrowing on an interim basis or when interest rates are
trending downward. Since base rentals under most leases will be fixed during
the terms of such leases, a rise in the "prime" or "base" rate would increase
borrowing costs and reduce the amount of the Partnership's income and cash
available for distribution.
The General Partner anticipates that the interest rates on any loans
keyed to the "prime" or "base" rate will range from one-half of 1.0% to 3.0%
over the "prime" or "base" rate, depending on a number of factors, including
the creditworthiness of the lessee, whether the debt is recourse or
non-recourse, the terms of the lease and the amount borrowed as a percentage
of the Purchase Price of the subject Equipment.
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The General Partner anticipates that borrowings by the Partnership will
generally be secured by the grant of a security interest in Equipment and in
rental income.
Financing for the Partnership will generally be obtained on a recourse
basis. Recourse debt means, in the context of the business to be conducted
by the Partnership, that the lender can look to the general credit and all of
the assets of the Partnership (including all Equipment to the extent not
subject to a prior encumbrance) and the assets of the General Partner, but
may not look for repayment to any Limited Partner's assets other than his
interest in the Partnership. To the extent recourse debt is incurred, no
increase in the Limited Partners' tax basis would be achieved, because
liability for recourse debt is attributable only to the General Partner.
Although the exact terms and conditions of Partnership borrowings cannot
be predicted, the General Partner anticipates that the due date of such loan
would be accelerated upon default by the lessee with respect to the lease
securing a lease-specific loan obligation or upon default by the Partnership
with respect to the related indebtedness. In the event of acceleration, the
lender would be in a position to foreclose upon the Equipment securing the
loan unless the Partnership repaid the entire unpaid balance, which the
Partnership is unlikely to be able to do unless it could promptly (i) cure
the lease default with other revenues or reserve funds, (ii) obtain
possession of and re-lease the related Equipment and refinance the
accelerated obligation, or (iii) obtain interim financing until such re-lease
and refinancing could be arranged. Foreclosure by a lender or premature sale
of Equipment may result in financial loss to the Partnership and adverse tax
consequences to its Limited Partners, including recapture of all depreciation
deductions previously claimed. If any portion of Partnership debt is
cross-collateralized, the lender may, in the event of default, be in a
position to accelerate the debt secured by all the cross-collateralized
Equipment. See "Insufficient Revenue to Meet Debt Service When Leverage is
Used" under "Risk Factors" for a discussion of this and other risks of
Partnership borrowings.
Loan agreements may require that the Partnership maintain certain
reserves or compensating balances and may impose other obligations upon the
Partnership. Moreover, because a significant proportion of the Partnership's
revenues from the leasing and sale of Equipment will be reserved for
repayment of debt, the use of financing may reduce the cash otherwise
available for Partnership distributions until the debt has been repaid, and
may reduce total cash flow over a substantial portion of the Partnership's
operating life.
To obtain funds for working capital purposes, the Partnership may
establish a line of credit with a bank or other lender or borrow on a
temporary basis from the General Partner or its Affiliates.
Although not required to do so, the General Partner and any of its
Affiliates may make loans to the Partnership on a short-term basis in order
to facilitate Equipment acquisitions. If the General Partner or one of its
Affiliates borrows money for the specific purpose of making a short-term loan
to the Partnership, the General Partner or the Affiliate may not charge
interest to the Partnership in excess of its own interest cost on such
borrowing. If the General Partner or an Affiliate makes a short-term loan to
the Partnership without making a specific borrowing for the purpose, the
General Partner or the Affiliate may not charge interest at a rate greater
than the interest rate charged by unrelated lenders on a comparable loan for
the same purpose in the same geographic area, without reference to the
General Partner's or any Affiliate's financial abilities or guarantees. In
no event will the Partnership be required to pay interest on any such loan at
an annual rate more than 3.0% over the base rate on corporate loans posted by
at least 75% of the nation's 30 largest banks, published as the prime rate in
the Wall Street Journal.
All payments of principal and interest on any financing provided by the
General Partner or any of its Affiliates shall be due and payable within 12
months after the date of the loan.
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Neither the General Partner nor any Affiliate may receive points or other
financial charges or fees in any amount in respect of any loans to the
Partnership, although the General Partner's compensation (specifically,
Acquisition Fees and Management Fee) may be increased as an indirect result
of such loans being used to acquire additional Equipment.
If the General Partner or any of its Affiliates purchases Equipment in
its own name and with its own funds in order to facilitate ultimate purchase
by the Partnership, the purchaser will be entitled to receive interest on the
funds expended for such purpose on behalf of the Partnership. Interest on
any such temporary purchases will not be in excess of the interest rates
charged (without reference to the General Partner's or such Affiliate's
financial abilities or guarantees) by unrelated lenders on a comparable loan
for the same purpose in the same geographic area and will not exceed the
General Partner's or Affiliates cost of funds.
Any borrowings from the General Partner or its Affiliates incurred for
Partnership organization and offering expenses will be non-interest bearing
and will be repaid out of offering proceeds (but not in excess of amounts
permitted as described in this Prospectus) if the Partnership's minimum
offering of Units is successfully completed.
The Partnership may at any time borrow funds to acquire Equipment or to
repair, recondition or reconfigure the Equipment, if the General Partner, in
its sole discretion, deems such repair, reconditioning or reconfiguration
necessary or desirable to enable the Partnership to re-lease or sell such
Equipment. The General Partner and its Affiliates are prohibited from
borrowing from the Partnership.
WORKING CAPITAL RESERVES
The General Partner anticipates that the Partnership will establish and
maintain minimum working capital reserves for the Partnership in the amount
of 1.0% of Gross Proceeds, or at a higher level if the General Partner deems
appropriate. Such working capital reserves will be augmented from revenues
derived from Partnership operations. Funds allocated to such reserves will
be available for operating and maintenance expenses, capital expenditures,
repairs, replacements, contingencies, lessee defaults and other costs and
expenditures relating to Equipment.
SALES OF LEASE RECEIVABLES AND RESIDUAL VALUES
From time to time, the General Partner may receive offers from persons
desiring to purchase the future rental income under certain of the leases in
the Partnership's Lease Portfolio ("lease receivables"). If the General
Partner decides to accept such an offer on behalf of the Partnership, the
Partnership will sell the lease receivables to unaffiliated third parties
that may include institutional investors. The sale price of the lease
receivable will be determined on the basis of the aggregate present value of
all rent payments to become due under the subject leases discounted at a
discount rate as negotiated by the parties. The proceeds from such sales
will generally be reinvested in Equipment if the transaction occurs during
the Operating Phase, but the General Partner may decide, in its sole
discretion, to distribute all or a portion of such proceeds to the Limited
Partners as Liquidating Distributions; provided, however, that in such case
sufficient cash will be distributed to the Limited Partners to pay state and
federal income tax, if any, created by such sale..
The General Partner may also sell the residual values of the Equipment or
a portion thereof to unaffiliated third parties. The General Partner will
determine the residual values of the Equipment, which will be discounted to
its present value at the time of sale. The entire sales proceeds (less the
expenses incurred by the General Partner relating to such sale) will be
invested in additional Equipment or the General Partner may decide, in its
sole discretion, to distribute all or a portion of such sales proceeds to the
Limited Partners as Liquidating Distributions; provided, however, that
sufficient cash
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will be distributed to the Limited Partners to pay state and federal income
tax, if any, created by such sale.
SALE OF EQUIPMENT
The General Partner will have the authority to sell, exchange or
otherwise dispose of Equipment on behalf of the Partnership. In considering
whether to hold or sell particular Equipment, the General Partner will
evaluate, among other things (i) the current and potential Partnership
earnings from the Equipment, (ii) conditions in the market for lease and sale
of the Equipment and the future outlook for such market, and (iii) the tax
consequences of selling rather than continuing to lease the Equipment. See
"Reduced Revenues May Result From Possible Lack of Demand for Equipment"
under "Risk Factors" and "Telecommunications Equipment Residual Values" above.
In general, the General Partner anticipates that the Partnership will
hold Equipment for approximately three and one-half to five years from the
date of acquisition. However, unforeseen circumstances might cause the
General Partner to elect to sell certain Equipment at an earlier or later
time. Subject to prevailing market conditions and other factors, the General
Partner will have complete discretion in determining the time, terms and
conditions of the sale of Equipment by the Partnership in the ordinary course
of business, including in connection with the Partnership's liquidation. See
"Competition with the General Partner and Affiliates" and "Transactions with
the Partnership" under "Conflicts of Interest." Payment of resale fees on
liquidation of Equipment is prohibited.
If any income results from the sale of Equipment, the General Partner
will make a diligent effort to generate cash for distribution so that Limited
Partners are able to pay state and federal income tax on their share of
income resulting from such sale (assuming a combined federal and state income
tax rate for Limited Partners of 40.0% in 1997 and the years thereafter).
The General Partner anticipates that most sales of Equipment will be for
cash, although it may determine that it is in the best interests of the
Partnership to make an installment sale or to provide other purchase-money
financing. The terms of such purchase-money financing will require payment
in full in no more than twelve months. The proceeds of any sale or other
disposition of Equipment (including any disposition resulting from the total
or partial destruction of Equipment) will first be used or set aside by the
General Partner to pay all expenses related to the disposition, including
leasing commissions. The remaining proceeds may be used or set aside for
such other Partnership purposes as the General Partner deems appropriate.
The Partnership may invest available Partnership cash in additional Equipment
at any time during the Partnership's Operating Phase (up to five years from
the Closing Date). Partnership receipts from operations will be distributed
as described under "Cash Distributions and Redemptions."
DEMAND FOR EQUIPMENT
The economic return from an investment in the Partnership will depend in
large part upon the future demand for Equipment acquired by the Partnership.
This future demand will affect the future lease rates for Equipment, the
availability of financing and the prices at which the Partnership will
ultimately be able to sell Equipment.
The demand for Equipment in general, and used Equipment in particular,
may be affected by a number of factors, including such factors as general
business conditions, conditions in the credit markets, market conditions
which may reduce or increase the supply of new Equipment, technological
developments, improvements by manufacturers, and legislative and regulatory
changes affecting the costs and benefits of owning or operating Equipment.
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EQUIPMENT ACQUISITIONS
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Before and during the offering of the Units, the General Partner, on behalf
of the Partnership, may acquire and lease Equipment or enter into agreements to
acquire and lease Equipment.
After the Initial Admission Date, the General Partner will transfer to
the Partnership such acquired Equipment, if any, and all of its rights and
obligations under all leases concerning such acquired Equipment. The
consideration for such transfer shall be the payment by the Partnership to
the General Partner of an amount equal to the General Partner's cost of the
Equipment plus carrying charges. The General Partner will receive and hold
for the benefit of the Partnership all lease payments made on Equipment
leases during the period from the acquisition of the acquired Equipment until
its transfer to the Partnership. Any lease payments made to the General
Partner during the holding period on such acquired Equipment ultimately
transferred to the Partnership will be offset by the General Partner's cost
plus carrying charges, and then remitted to the Partnership. Equipment
acquired by the General Partner for transfer to the Partnership will
generally not be held by the General Partner for more than six months.
For convenience in the acquisition of Equipment, during the offering of
the Units and during the organization phase the General Partner may continue
to acquire and lease Equipment for the benefit of the Partnership. Such
Equipment will be transferred to the Partnership on the same terms as set
forth in the preceding paragraph.
The Partnership shall not acquire equipment from a limited or general
partnership, joint venture, unincorporated association or similar
organization in which the General Partner has an interest, other than the
General Partner. The Partnership may not acquire Equipment in exchange for
Units.
See "Investment Objectives and Policies," "Conflicts of Interest" and
"Fiduciary Responsibility of the General Partner" for a discussion of some
concerns relating to the Partnership's purchase of Equipment.
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SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
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The rights and obligations of the Partners in the Partnership will be
governed by a limited partnership agreement ("Partnership Agreement") in the
form attached to this Prospectus as Exhibit A.
Certain provisions of the Partnership Agreement have been described
elsewhere in this Prospectus. With regard to compensation to be paid to the
General Partner, see "Compensation of the General Partner and Affiliates;"
with regard to various transactions and relationships between the Partnership
and the General Partner, see "Conflicts of Interest;" with regard to the
management of the Partnership, see "Management;" with regard to reports to be
furnished to Limited Partners, see "Reports to Limited Partners;" and with
regard to distributions of cash to the Partners and the rules governing
redemption of Units by the Partnership, see "Cash Distributions and
Redemptions."
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The Limited Partners do not have a right to receive appraisal or
dissenters' rights.
The following briefly summarizes certain provisions of the Partnership
Agreement which are not described elsewhere in this Prospectus. All
statements made below and elsewhere in this Prospectus relating to the
Partnership Agreement do not purport to be complete and are qualified in
their entirety by reference to the form of Partnership Agreement attached to
this Prospectus as Exhibit A.
PARTNERSHIP CAPITAL
Capital Contributions by Partners to the Partnership will consist of:
(i) the $10,000 contributed by the General Partner, which will be treated as
if the General Partner had purchased 10 Units; and (ii) the sums to be
contributed by the Limited Partners for their Units in the Partnership
($1,000 per Unit). Except for interest earned on a Limited Partner's
subscription monies held in escrow which will be paid to the Limited Partner
at the time of the first distribution to the Limited Partner), no Limited
Partner will be entitled to interest on his Capital Contribution or on his
Capital Account. Except as described under "Return of Uninvested Net
Proceeds" under "Investment Objectives and Policies" and "Cash Distributions
and Redemptions," no Limited Partner will have the right to withdraw or to
receive any return of his Capital Contribution, and no Limited Partner is
entitled to receive property other than cash in return for a Capital
Contribution. The price of $1,000 per Unit was arbitrarily set by the
General Partner.
PARTNERSHIP ALLOCATIONS
1. GENERAL. Payments of Operating Distributions and allocations of Net
Income and Net Loss will be governed by the provisions of Articles XI and XII
of the Partnership Agreement. These provisions are complex and should be
reviewed with care by prospective investors.
2. ALLOCATION OF NET LOSS AND NET INCOME. Any Partnership Net Loss at
the end of a taxable year will be allocated to the Partners to the extent of
their positive Capital Accounts. Any additional Partnership Net Loss will be
allocated to the General Partner. Any Partnership Net Income will first be
allocated to Partners with negative Capital Accounts in proportion to, and to
the extent of, such negative Capital Accounts. Except as provided below, any
Partnership Net Income will then be allocated to the Partners. During the
Liquidating Phase of the Partnership, Net Income earned that results in
Partnership assets to be distributed 80.0% to the Limited Partners and 20.0%
to the General Partner will be allocated 80.0% to the Limited Partners and
20.0% to the General Partner.
Net Income or Net Loss allocated to the Limited Partners (and to the
General Partner to the extent of its $10,000 contribution (10 Units)) will be
apportioned among them based on the number of Units held and on the number of
days within the fiscal year that they were Limited Partners.
VOTING RIGHTS OF LIMITED PARTNERS
The Limited Partners will not be able to participate in the management or
control of the Partnership. However, Limited Partners holding a majority of
the outstanding Units of the Partnership, without the necessity of
concurrence by the General Partner, may vote to (i) amend the Partnership
Agreement, (ii) remove the General Partner and elect a successor, (iii)
dissolve the Partnership, and (iv) approve or disapprove any proposal by the
General Partner to sell all or substantially all of the assets of the
Partnership outside the ordinary course of the Partnership's business. A
sale of substantially all of the Partnership's assets will be considered to
be a sale of "all or substantially all of the assets of the Partnership
outside the ordinary course of the Partnership's business" if the Equipment
being sold is being sold other than as part of the orderly liquidation and
winding up of the Partnership,
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but this definition does not include a sale of lease receivables or residual
values unless the sale at issue constitutes all or substantially all of the
Partnership's assets.
Any amendment to the Partnership Agreement that modifies the compensation
or distributions to which the General Partner is entitled, or which increases
the duties of the General Partner, requires the consent of the General
Partner. In addition, no amendment may be made to the Partnership Agreement
which alters the rights of a Terminated Partner to receive fees and payments,
or adversely affects the status of the Partnership as a partnership for
federal tax purposes.
Without the concurrence of Partners holding a majority of the outstanding
Units, the General Partner may not (i) amend the Partnership Agreement,
except for those amendments that do not affect the rights of the Limited
Partners, (ii) withdraw as General Partner, (iii) appoint a new general
partner, (iv) sell all or substantially all of the assets of the Partnership
outside the ordinary course of the Partnership's business, (v) dissolve the
Partnership other than in accordance with the provisions of the Partnership
Agreement, or (vi) transfer the General Partner's interest in the Partnership
except as provided in the Partnership Agreement.
The Partnership Agreement provides that Limited Partners owning 10.0% of
the Units may call a meeting to propose a vote on matters on which the
Limited Partners may vote. A majority of the votes entitled to be cast will
be required to pass any such proposal.
Limited Partners and their designated representatives will be permitted
access to all records of the Partners at the principal place of business of
the Partnership upon reasonable notice and during reasonable business hours,
and will have the right to make copies thereof at their own expense. Upon
written request, without restriction, a Limited Partner may, in person or by
mail, obtain a list of the names and addresses of all of the Limited Partners
of the Partnership for any purpose.
LIABILITY OF PARTNERS TO THIRD PARTIES
The General Partner will be liable for all general obligations of the
Partnership to the extent not paid by the Partnership. However, the General
Partner may provide in any Partnership contract that the General Partner will
have no individual liability for Partnership obligations (i.e., that such
obligations are to be "non-recourse" obligations).
The Partnership Agreement provides that, except as provided by law, no
Limited Partner will be personally liable for the obligations of the
Partnership beyond the amount committed by such Limited Partner to the
capital of the Partnership. However, there is a risk that the Limited
Partners may become personally liable for certain Partnership obligations if
they act so as to take part in the control of the Partnership business.
Moreover, if the Partnership is unable to meet its obligations, the Limited
Partners might be obligated to return, with interest, certain cash
distributions previously received by them. See "Limited Partners May Have an
Obligation to Repay Certain Distributions" under "Risk Factors."
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner or its
Affiliates performing services on behalf of the Partnership will not be
liable to the Partnership or the Limited Partners for any act performed or
omitted to be performed by them in connection with the activities of the
Partnership or in dealing with third parties on behalf of the Partnership if
the General Partner, in good faith, determined that such course of conduct
was in the best interest of the Partnership, and such act or omission does
not constitute fraud, negligence, breach of fiduciary duty or misconduct.
The Partnership Agreement provides that the General Partner, or its
Affiliates performing services on behalf of the Partnership will be
indemnified by the Partnership for any liabilities incurred by them arising
from acts performed or
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omitted to be performed by them that were determined in good faith by the
General Partner to have been in the best interest of the Partnership in
connection with the activities of the Partnership or in dealing with third
parties on behalf of the Partnership. The indemnification shall include
attorneys' fees (which may be paid as incurred subject to certain restrictions)
and any amounts expended in the investigation or settlement of any claims,
except for claims with respect to acts or omissions which constitute fraud,
negligence, breach of fiduciary duty or misconduct.
The General Partner or any of its Affiliates and any person acting as a
broker-dealer who performs services on behalf of the Partnership, or in
connection with its business, will not be indemnified against any liability,
loss or damage incurred by them in connection with any claim or settlement
alleging federal or state securities law violations, unless such lawsuits
alleging such claims are successfully defended and a court approves
indemnification of litigation costs, or unless such lawsuits are dismissed with
prejudice on the merits, or unless such lawsuits are settled and a court
approves the settlement and the indemnification. The General Partner will
apprise the court of the positions of the SEC and State Administrators with
respect to indemnification before seeking court approval for indemnification,
whether such claims are litigated, dismissed or settled.
Advances of attorneys' fees and costs will not be permitted for
indemnification suits unless the action relates to the performance of duties or
services by the General Partner or its Affiliates on behalf of the Partnership,
or in connection with the Partnership's business, the claim against which
indemnification is sought is not made by a Limited Partner and the indemnified
party undertakes to repay within 90 days the advanced funds to the Partnership
in cases in which they would not be entitled to indemnification. Advances of
attorneys' fees will not be permitted for an indemnification suit unless, prior
to receiving such advances, the General Partner obtains an opinion of
independent legal counsel that indemnification will be appropriate. If it is
later determined that indemnification was not appropriate, the General Partner
must repay any advances received by it, with interest.
The Partnership Agreement provides that the Partnership will not incur the
cost of that portion of any insurance which insures any party against any
liability, the indemnification of which is prohibited by the Partnership
Agreement.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
Article XVII of the Partnership Agreement grants Limited Partners the right
to remove the General Partner and elect a successor General Partner, provided
the successor General Partner is admitted to the Partnership effective
immediately prior to the effective date of the removal of the General Partner.
Such action may be taken without concurrence by the General Partner as long as
approval is obtained from Limited Partners owning a majority of the outstanding
Units. Also, Limited Partners owning a majority of the outstanding Units may
admit a successor general partner upon the resignation or withdrawal of the
General Partner.
DISSOLUTION AND LIQUIDATION
The Partnership will be dissolved on December 31, 2012, or earlier upon the
occurrence of any of the following events: (i) the vote by Limited Partners
holding a majority of the Units then outstanding in favor of any proposal to
dissolve the Partnership in accordance with the Partnership Agreement; (ii) the
withdrawal, bankruptcy, or dissolution and liquidation or other cessation to
exist as a legal entity of the General Partner (unless any successor General
Partner elected in accordance with the provisions of the Partnership Agreement
elects to continue the business of the Partnership); (iii) the final
distribution of all Liquidating Distributions among the Limited Partners
pursuant to the Partnership Agreement; or (iv) the other sale or disposition of
all or substantially all of the assets of the Partnership without the subsequent
use of disposition proceeds for Investment in Program Assets.
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Upon the dissolution of the Partnership, the General Partner will liquidate
the Partnership's assets and distribute the proceeds thereof in accordance with
the provisions of the Partnership Agreement.
AMENDMENT
Subject to the voting rights granted to the Limited Partners in paragraph
17.2 of the Partnership Agreement, and the restrictions on the General Partner's
voting rights in Paragraph 16.3.20 of the Partnership Agreement, the General
Partner may amend the Partnership Agreement without the consent or vote of any
of the Limited Partners (i) to reflect the addition or substitution of Limited
Partners or the reduction of the Capital Accounts upon the return of capital to
Partners, (ii) to add to the representations, duties or obligations of the
General Partner or its Affiliates, or surrender any right or power granted to
the General Partner or its Affiliates therein, for the benefit of the Limited
Partners, (iii) to cure any ambiguity, correct or supplement any provision
therein, or add any other provisions with respect to matters or questions
arising under the Partnership Agreement which will not be inconsistent with the
provisions of the Partnership Agreement, (iv) to delete or add any provision
from or to the Partnership Agreement requested to be so deleted or added by the
staff of the SEC or by a state regulatory agency, the deletion or addition of
which provision is deemed by such staff or regulatory agency to be for the
benefit or protection of the Limited Partners, (v) to modify any provision of
the Partnership Agreement, if, in the opinion of counsel to the Partnership and
the General Partner, such modification is necessary to cause the allocations
contained in Article XII of the Partnership Agreement to have "substantial
economic effect" in accordance with any regulations relating to Section 704 of
the Code or any other statutory provision or regulation relating to such
allocations, and (vi) to modify any provision of the Partnership Agreement, if,
in the opinion of counsel to the Partnership and General Partner, such
modification is necessary to cause the Partnership not to be characterized as a
"publicly traded" partnership for federal income tax purposes. The General
Partner may not under Paragraph 16.1.12 of the Partnership Agreement amend the
Partnership Agreement to modify voting rights of the Limited Partners.
APPOINTMENT OF THE GENERAL PARTNER AS ATTORNEY-IN-FACT
Each purchaser of Units will irrevocably constitute and appoint the General
Partner his true and lawful attorney-in-fact, with power and authority to act in
his name and on his behalf to execute, acknowledge and file such instruments as
the General Partner determines to be necessary or appropriate to implement the
provisions of the Partnership Agreement.
PRINCIPAL OFFICE OF THE PARTNERSHIP
The principal business office of the Partnership is located at 100 Second
Street, SE, Cedar Rapids, Iowa 52401, (319) 365-2506, unless changed by the
General Partner. The business of the Partnership also may be conducted at such
additional places as the General Partner may determine.
APPLICABLE LAW
The Partnership Agreement will be construed and enforced in accordance with
the laws of the State of Iowa.
TRANSFERABILITY OF UNITS
Limited Partners will have the right to assign one or more Units by a duly
executed written instrument of assignment in a form satisfactory to the General
Partner in accordance with the provisions of the Partnership Agreement. See, in
particular, Article XIII of the Partnership Agreement.
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As a result of adverse tax consequences that would result if the
Partnership were characterized as "publicly traded" (see "Tax Consequences"),
the General Partner will not allow transfers of Units if, in the opinion of
Counsel to the Partnership, such transfer would result in the Partnership being
characterized as a "publicly traded" partnership for federal income tax
purposes.
In addition, the General Partner will not allow transfers of Units if, in
the opinion of Counsel to the Partnership, such transfer would result in the
assets of the Partnership being considered by law to be assets of employee
benefit plans investing in Units and therefore subjecting those assets to the
fiduciary standards of ERISA. Further, as a general rule, the General Partner
will not permit transfers except in infrequent and compelling situations as
determined in its sole and absolute discretion, and only if following such
transfer at least 75.0% of the outstanding Units are held by persons who are not
either Employee Benefit Plans or IRAs.
In those circumstances where the General Partner allows a transfer, an
Assignee will be entitled to receive distributions from the Partnership
attributable to the Units acquired by reason of an assignment from and after the
effective date of the assignment of such Units to him. Moreover, the
Partnership and the General Partner will be entitled to treat the assignor of
such Units as the absolute owner thereof in all respects and will incur no
liability for allocations of income, loss or distributions, or transmittal of
reports and notices required to be given to Limited Partners or their assignees
hereunder, which are made in good faith to such assignor, until such time as the
written instrument of assignment has been received by the Partnership and the
effective date of the assignment of Units has passed. Unless the General
Partner, the assignor and the Assignee otherwise agree, the effective date of an
assignment of Units will be the later of the first day of the month next
succeeding the date on which the Partnership obtains the instrument of
assignment that complies with the requirements of the Partnership Agreement,
provided the other conditions to such assignment becoming effective are
satisfied.
Any assignment of Units must be in compliance with all applicable rules of
governmental authorities, including the registration and suitability provisions
of applicable state securities laws. Any assignment of Units in contravention
of any of the provisions of the Partnership Agreement will be void and
ineffectual and will not bind or be recognized by the Partnership.
An Assignee of Units may become a Substitute Limited Partner in the place
of the assignor upon compliance with the requirements of Article XIV of the
Partnership Agreement. Any Substitute Limited Partner must agree to be bound by
the provisions of the Partnership Agreement. The General Partner will cause the
Partnership Agreement to be amended to reflect the substitution of Limited
Partners at least once each calendar quarter.
All costs and expenses incurred by the Partnership in connection with an
assignment of Units, including a transfer fee to the General Partner, are
required to be paid by the assigning Limited Partner provided that such transfer
fee will not exceed the lesser of $150 or the actual, necessary and reasonable
expenses of such transfer.
The General Partner may buy and sell Units in the Partnership for its own
account, provided that any Units purchased by the General Partner will not be
purchased with a view toward resale and will not be counted in determining
whether the Partnership has raised the minimum Gross Proceeds of $1,200,000.
There is no maximum number of Units the General Partner may purchase. Except
as provided in Paragraph 18.5 of the Partnership Agreement, which limits the
voting rights of the General Partner as to Units owned by the General
Partner, the General Partner will, with respect to any Units owned by it,
enjoy all of the rights and be subject to all of the obligations and duties
of a Limited Partner. See "Cash Distributions and Redemptions -- Redemption
of Units." Neither the General Partner nor the Partnership may be required
to purchase or redeem Units.
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ROLL-UP PROTECTION
The Partnership (and the General Partner) has no intent to engage in any
transaction involving the acquisition, merger, conversion into a corporation or
other form of business organization or consolidation, either directly or
indirectly, of the Partnership with any other entity ("Roll-Up"). The
Partnership Agreement sets forth certain restrictions in regard to a Roll-Up.
Initially, the Partnership Agreement requires that an appraisal of all
Partnership assets shall be obtained from an Independent Expert in connection
with a proposed Roll-Up. Additionally, the Partnership Agreement provides
certain rights to Limited Partners who vote "no" in connection with a proposed
Roll-Up that provides such Limited Partners the choice of: (i) accepting the
securities of the Roll-Up Entity offered in the proposed Roll-Up; or (ii) one of
the following: (a) remaining as Limited Partners in the Partnership and
preserving their interests therein on the same terms and conditions as existed
previously (If a significant number of Limited Partners elect to accept the
securities of the Roll-Up Entity, the effect on investors who elect to remain as
Limited Partners may be a substantial dilution of their claim to assets and
their voting rights.); or (b) receiving cash in an amount equal to such Limited
Partners' pro-rata share of the appraised value of the net assets of the
Partnership. The Partnership Agreement also restricts the ability of the
Partnership to engage in a Roll-Up that would adversely affect the democracy
rights and voting rights of the Limited Partners or that would materially
frustrate the accumulation of shares by any purchaser of the securities of a
Roll-Up Entity. The Partnership Agreement also restricts the ability of the
Partnership to participate in a proposed Roll-Up in which the Limited Partners'
rights of access to records would be less than currently provided under the
Partnership Agreement, or that would require the Partnership to bear the costs
of a proposed Roll-Up that is not approved by the Limited Partners.
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CASH DISTRIBUTIONS AND REDEMPTIONS
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CASH DISTRIBUTIONS
1. ALLOCATION OF DISTRIBUTIONS, PROFITS AND LOSSES. A Partner's share of
profits, losses and Operating Distributions to Partners (distributions of up to
9.6% annually made during the Operating Phase) will be based upon the amount of
each Partner's Capital Contribution (the cash contributed to the Partnership)
and each Limited Partner's Admission Date (the date a Limited Partner is
admitted to the Partnership). Separate Capital Accounts (accounts for record
and income tax purposes) will be kept for each Partner. Accordingly, Limited
Partners who invest the same amount in the Partnership but make such investments
on different dates will be allocated different shares of Partnership profits and
losses and receive different amounts of cash distributions.
2. OPERATING DISTRIBUTIONS. To the extent there is Cash Flow (generally,
cash provided from operations less cash used to pay expenses and debt payments,
to establish reserves or to pay for capital improvements and replacements), the
Partnership intends to make Operating Distributions during the Operating Phase
(the period beginning with the date the Partnership's registration statement is
effective with the SEC and ending with the date the Partnership commences
liquidation). Operating Distributions will be made monthly during the Operating
Phase and, to the extent made, will be in the following order of priority:
a. GENERAL PARTNER'S EXPENSE REIMBURSEMENT. The General Partner
shall be reimbursed on a monthly basis for the administrative services it
provides to the Partnership.
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The expenses reimbursed shall be the lesser of the General Partner's cost
or the amount the Partnership would be required to pay for comparable
administrative services provided in the same geographic area by persons
who are not Affiliates of the General Partner. The expenses reimbursement
shall include, but not be limited to, salaries paid to employees of the
General Partner working on Partnership business, recordkeeping, mailings
to Limited Partners and an allocable portion of computer time and expense,
telephone and supplies. Reimbursement for costs of goods and materials
will be only for goods and materials obtained from independent third
parties. The reimbursement will be for expenses which are necessary for
the prudent operation of the Partnership. There is no dollar limitation
on the amount of expenses that may be reimbursed to the General Partner.
There will be no reimbursement for time expended by Controlling Persons
of the General Partner or its Affiliates. The costs reimbursed to the
General Partner and its Affiliates will be the subject of a "Special
Report" prepared by independent certified public accountants;
b. OPERATING DISTRIBUTION. To the extent there is additional Cash
Flow, Partners will receive Operating Distributions to Partners during the
Operating Phase only. Such distributions will be up to 9.6% annually
(payable in monthly distributions of up to .8% to each Partner), calculated
on the Partner's Adjusted Capital Contribution (a Partner's Capital
Contribution, reduced by all payments to the Partner that qualify as a
Liquidating Distribution or return of capital); and
c. MANAGEMENT FEE. Of the Gross Rental Payments, loan payments and
other payments received by the Partnership each year on account of its
leasing and financing activities, 2.0% will be paid to the General Partner
as a Management Fee (the management fee paid to the General Partner, see
"Compensation of the General Partner and Affiliates"). The fee will be
payable on a monthly basis, subject to reduction in certain circumstances,
as described below. The fee will not be paid on a current basis (but will
accrue and accumulate) if the Partnership has not (i) made Operating
Distributions to the Limited Partners equal to 9.6% annually of their
Adjusted Capital Contributions for the portion of the year to the date of
the proposed payment, and (ii) paid the General Partner's expenses (amounts
paid to cover the General Partner's expenses, see "Cash Distributions and
Redemption") for the year.
Proposed General Partner Expense Reimbursements for the next fiscal year
and for the previous public programs sponsored by the General Partner are set
forth below:
TIF IX TIF X TIF XI
------ ----- ------
1991 $ 4,200 --- ---
1992 $ 53,724 --- ---
1993 $ 72,368 $ 27,624 ---
1994 $ 74,988 $ 92,919 ---
1995 $ 82,307 $ 85,800 ---
1996 $ 74,775 $ 73,500 ---
1997 $ 45,822(1) $ 45,822(1) ---
1998 --- --- $ 84,000(2)
- ----------------
(1) Through June 30, 1997.
(2) Proposed for 1998.
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The Partnership has not acquired any Equipment or leases as of the date
of this Prospectus. Accordingly, no assurance may be given that the Limited
Partners will realize the returns discussed above.
Direct Partnership administrative expenses will be paid directly by the
Partnership. Expenses incurred by the General Partner that are properly
allocable to the Partnership and direct expenses advanced by the General
Partner on behalf of the Partnership will be reimbursed by the Partnership to
the General Partner.
The payment of Operating Distributions will be made monthly and only
during the Operating Phase. It is possible, but not likely that
distributions during the Operating Phase will be treated as a return of the
Partners' original investment. Generally, a return of the Partners' original
investment will occur only during the Liquidation Phase. To the extent funds
are not distributed to the Partners during the Operating Phase, the
Partnership will reinvest funds received by it in additional Equipment for
lease, which is expected to increase the Partnership's portfolio of assets.
Reinvestment of proceeds resulting from the sale or refinancing of Equipment
may take place only if sufficient cash will be distributed to pay state and
federal income tax (assuming Partners are in a 40.0% tax bracket) created
by the sale or refinancing of such Equipment. There can be no assurance,
however, that Limited Partners will receive the return of their full
investment at the time all Equipment is sold and the Partnership is
terminated. See "Conflicts of Interest."
The Partnership will not make distributions in kind to any Partner.
If the Partnership sells lease receivables to an unaffiliated third
party, the purchasing party may request or require that the Partnership
continue to manage those leases and Equipment as a condition to the sale,
and such party will pay fees to the Partnership for such management. See
"Sale of Lease Receivables and Residual Values" under "Investment Objectives
and Policies." Fees paid to the Partnership by such party shall be the
property of the Partnership. However, if the General Partner continues to
provide the Partnership with services with respect to the Equipment
underlying such lease receivables sold, the General Partner will continue to
receive from the Partnership its Management Fee as a percentage of the Gross
Rental Payments on such lease receivables sold. Notwithstanding the
foregoing, the General Partner will not receive a Management Fee on an annual
basis in an amount greater than the amount the General Partner is entitled to
receive as a percentage of Gross Rental Payments on the Equipment leases
under the terms of the Partnership Agreement.
All Partnership Cash Available for Distribution not distributed as
Operating Distributions will be reinvested in Program Assets unless the
General Partner decides to make an earlier distribution of Partnership Cash
Flow (which, if made to Limited Partners, would then be treated as
Liquidating Distributions if such distribution were in excess of the
9.6% return discussed above). Payment by the Partnership of
commissions on any such distribution is prohibited.
3. DISTRIBUTIONS ON LIQUIDATION AND WINDING UP. The Partnership will
cease reinvesting in Program Assets and will not enter into additional leases
during the Liquidating Phase. The Liquidating Phase shall begin at any time
after three and one-half years following the Closing Date (or earlier if the
General Partner determines it to be in the Partnership's best interest), but no
later than the fifth anniversary of the Closing Date of the offering. During
the Liquidating Phase, the Partnership will proceed with all due and deliberate
speed and care to wind up the Partnership's affairs and to convert all of the
Partnership's assets into cash. Operating Distributions will not be paid during
the Liquidating Phase.
During the Liquidating Phase, amounts available to be distributed among
the Partners after satisfaction of all Partnership liabilities and
obligations and/or the provision of reserves for future or
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contingent Partnership liabilities will be distributed in order of priority as
follows (and, with respect to items "Third" and "Sixth", will
constitute "Liquidating Distributions"):
First, payment of the General Partner's expense reimbursement;
Second, payment to the Partners, to the extent necessary to pay to the
Partners during the term of their investment in the Partnership,
Operating Distributions of 8.0% annually (on a cumulative, compounded
daily basis) on their Adjusted Capital Contributions. The computation of
each Partner's 8.0% annual cumulative return is illustrated by the
following example: On a Partner's $2,500 investment, a $250 distribution
in year one would result in a $50 reduction in the Partner's Adjusted
Capital Contribution, leaving an Adjusted Capital Contribution of $2,450
upon which the 8.0% return would be calculated in year two. The $50
reduction consists of $50 in distributions in excess of that required to
satisfy the 8.0% cumulative return requirement. A $250 distribution in
year two would result in a $54 reduction in the Partner's Adjusted
Capital Contribution, leaving an Adjusted Capital Contribution of $2,396
upon which the 8.0% return would be calculated in year three;
Third, payment to the Partners of 100.0% of their Adjusted Capital
Contributions to the Partnership;
Fourth, payment to the Partners to the extent they have not received,
during the term of their investment in the Partnership, distributions
totaling 9.6% annually (calculated only through the end of the Operating
Phase), non-compounded, on their Adjusted Capital Contributions (as
calculated from time to time);
Fifth, payment to the General Partner of any unpaid arrearages in its
Management Fee subject to reduction in certain circumstances as described
herein; and
Sixth, payment of any remaining amounts will be made 80.0% to the
Limited Partners and 20.0% to the General Partner; provided, however, the
General Partner will not receive its share of these remaining amounts
until such time as the Limited Partners have received Operating
Distributions and Liquidating Distributions equal to their Capital
Contributions plus 9.6% annually (calculated only through the end of the
Operating Phase) non-compounded, on their Adjusted Capital Contributions.
For a more complete description of the cash payments which may be made to
the Limited Partners, see Article XI of the Partnership Agreement.
REDEMPTION OF UNITS
At anytime after December 31, 1999, a Limited Partner or his successor
has the right to make a written request to the Partnership for redemption
of all or any portion of the Limited Partner's Units. However, a Limited
Partner must request the redemption of all of his Units if he will retain
fewer than two Units. The redemption will only be made to the extent
permitted by applicable laws and regulations and if, in the opinion of the
General Partner it is in the best interest of the Partnership. The General
Partner will redeem Units (if at all) only in extenuating circumstances.
The Partnership Agreement prohibits the General Partner from redeeming
over the life of the Partnership more than 5.0% of the total Units
initially issued, or in any given year more than 1.0% of the total Units
initially issued. The General Partner will not allow redemptions of
Partnership Units if, in the opinion of counsel to the Partnership, such
redemptions could result in the Partnership being characterized as a
"publicly traded" partnership. See "Publicly Traded Partnerships"
under "Tax Consequences."
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The General Partner will, in its sole discretion, decide whether a
redemption is in the best interest of the Partnership and whether the
circumstances surrounding the redemption are extenuating. The General
Partner is not required to provide any reason for the denial of a redemption
request. To the extent the General Partner determines to honor any requests,
the General Partner will honor acceptable requests for redemptions in the
order received by the General Partner per quarter. Any requests denied may
be resubmitted in a later quarter. Only in extenuating circumstances will a
later request be honored over an earlier one received in a quarter. The
General Partner must accept or deny a written request for redemption of Units
within a reasonable time after receipt of the request. If such request is
accepted by the General Partner, the General Partner will provide written
notice of its acceptance of the request for redemption. Such notice will
state the redemption price determined by the General Partner.
The redemption price per Unit will equal the Redemption Value of
Investor's Units tendered by the Limited Partners as determined under the
Partnership Agreement as of the last day of the fiscal quarter prior to the
quarter during which the redemption request is received. The Redemption
Value of Investor's Units means the investor's Capital Account valued by
the General Partner as of the last day of the fiscal quarter prior to
the quarter during which the redemption request is received. Upon
receipt of such notice, the Limited Partner must immediately tender the
Units and the Partnership will pay the redemption price for the tendered
Units within 60 days after the end of the quarter in which the
redemption request was received by the Partnership, provided that a
Limited Partner may withdraw its request for redemption of its Units
within 30 days of its receipt of written notice of the General Partner's
acceptance of its request for redemption.
The General Partner intends to use excess Cash Flow as the source of
funds for any redemptions. The Partnership will not maintain reserves
for the redemption of Units. Therefore, the ability of the Partnership at
any time to redeem Units will depend upon, among other things, the
availability of excess Cash Available for Distribution, the number of
Limited Partners requesting redemption, the potential dilution of the
remaining Limited Partners, and the potential adverse tax consequences
to the Partnership. See "Conflicts of Interest." Accordingly, no
assurance may be given that the Limited Partners will be able
to participate in the redemption program.
Upon any redemption or repurchase by the Partnership, the tendered Units
will be canceled and will no longer be deemed to represent interests in
the Partnership, and the interests of the Limited Partners (including the
person whose Units were redeemed) will thereupon be adjusted accordingly.
Neither the General Partner nor any of its Affiliates may participate in
this redemption program.
Gain or loss realized on the redemption of Units by a Limited Partner who
is not a "dealer" in securities and who has held such Units for more than
one year, generally will be long-term capital gain or loss, as the case
may be, under present tax laws. However, the proceeds of a sale or
redemption will be taxed at ordinary income rates to the extent of the
portion of potential depreciation recapture, substantially appreciated
inventory and unrealized receivables attributable to the Unit.
LIQUIDATION POLICIES
Subject to prevailing market conditions and other factors, the General
Partner intends to cause the Partnership to begin to dispose of all of its
Program Assets no sooner than three and one-half years and no later than five
years after the Closing Date. During the Operating Phase, the General
Partner may sell the residual values of the Equipment or a portion
thereof. Upon such sale, the General Partner may reinvest the sales
proceeds therefrom (less the expenses incurred by the General Partner
relating to such sale) in additional Program Assets or, in its sole
discretion, distribute all or a portion of such sales proceeds to the
Limited Partners as Operating Distributions; provided, however, that in
either case, sufficient cash is distributed to the Limited Partners to pay
state and federal income tax, if any,
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created by such sale of the Equipment. See "Sales of Lease Receivables and
Residual Values" under "Investment Objectives and Policies." Program
Assets may be sold at any time if sold in the ordinary course of business,
or, if not in the ordinary course of business, if in the judgment of the
General Partner and of the holders of a majority of the outstanding Units, it
is in the best interests of the Partnership to do so. However, the General
Partner may at any time cause the Partnership to dispose of all or
substantially all of its Program Assets in connection with the winding up
and liquidation of the Partnership. The determination of whether particular
Program Assets should be sold or otherwise disposed of will be made after
consideration of relevant factors (including, but not limited to, prevailing
general economic conditions, lessee demand, the General Partner's views of
current and future market conditions, the cash requirements of the
Partnership, potential capital appreciation, cash flow, and federal income
tax considerations) with a view toward achieving the principal investment
objectives of the Partnership.
As partial payment for Equipment sold, the Partnership may receive
purchase money obligations secured by liens on such Equipment. Except in the
case of sales in the ordinary course of business, no purchase money
arrangement shall have a term in excess of twelve months. The amount of such
obligations will not constitute funds available for distribution to Partners
until and to the extent the obligations are converted into cash, sold or
disposed of in some other manner. See also "Tax Consequences" for a
discussion of the tax treatment of any such purchase money obligations.
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REPORTS TO LIMITED PARTNERS
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The General Partner will mail to each Limited Partner the following reports
pertaining to Partnership operation during each fiscal year:
a QUARTERLY REPORT. A report of Equipment acquisitions made during
each quarter shall be sent to all Limited Partners within sixty (60) days
following the end of each quarter, until the proceeds of the offering are
fully invested or returned to the Limited Partners. Such reports shall
include, by way of illustration and not limitation, a statement of the
actual purchase price of Equipment, including terms of the purchase, a
statement of the total amount of cash expended by the Partnership to
acquire such items of Equipment (including and itemizing all commissions,
fees, expenses and the name of each payee), and a statement of the amount
of proceeds in the Partnership which remain unexpended or uncommitted.
b TAX INFORMATION. Within 75 days after the end of each fiscal
year, all financial information regarding the Partnership necessary for use
by the Limited Partners in preparing their federal income tax returns; and
c ANNUAL REPORT. Within one hundred twenty (120) days after the
end of each fiscal year, an annual report containing: (i) a balance sheet
as of the end of the fiscal year and statements of income, partners'
equity, and a cash flow statement, for the year then ended, all of which
shall be prepared in accordance with generally accepted accounting
principles and accompanied by a report of independent auditor, and (ii) a
breakdown of distributions to Limited Partners for the period covered
thereby separately identifying distributions from: (1) cash flow from
operations during the period (2) cash flow from operations during a prior
period which had been held as reserves, (3) proceeds from disposition of
Program Assets, and (4) reserves from the gross proceeds of the offering
originally obtained from the Limited Partners.
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For each piece of equipment acquired by the Partnership that
individually represents at least ten percent (10.0%) of the Partnership's
total Investment in Program Assets, the General Partner shall include a
status report as part of the annual report, which status report shall
indicate: (i) condition of the Equipment, (ii) how the Equipment is being
utilized as of the end of year (leased, operated, held for lease, repair or
sale), (iii) remaining term of leases, (iv) projected use of the Equipment
for next year (renew lease, lease, retire, or sell), and (v) such other
information relevant to the value or utilization of the Equipment as the
General Partner deems appropriate. The status report shall describe the
method used or basis for valuation.
Financial information contained in all reports to Limited Partners will be
prepared on an accrual basis of accounting in accordance with generally accepted
accounting principles and will include, where applicable, a reconciliation to
the information furnished to Limited Partners for federal income tax purposes.
The audited financial statements contained in the annual report will be
accompanied by a report of the firm of independent public accountants selected
by the General Partner.
Each annual and quarterly report will also contain a special report on
Equipment acquisitions made during the period covered by the report, including
(1) a description of each item of Equipment purchased, (2) a description of any
lease arrangements made with respect thereto and of each lessee, (3) the actual
purchase price and terms, (4) the amount of cash expended from Capital
Contributions to acquire each item of Equipment, and (5) the amount of Capital
Contributions which then remains unexpended, if any, stated in terms of both
dollar amount and percentage of the total amount of Capital Contributions
derived from the sale of the Partnership's Units. Similar reports will be
included for any additional Equipment acquired through reinvestment of
Partnership cash.
The General Partner will retain copies of all reports distributed to
Limited Partners. The Limited Partners will be permitted to examine all records
of the Partnership at the General Partner's offices upon reasonable notice
during reasonable business hours, and may make copies of such records at their
own expense.
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MAINTENANCE OF RECORDS
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The General Partner will maintain a record of any information it obtains
that indicates a Limited Partner meets the suitability standards employed in
connection with the offer and sale of Units and a representation of the Limited
Partner that he is purchasing for his own account. Such information will be
obtained from Limited Partners through the use of the Subscription Agreement
signed by each Limited Partner, which sets forth the prescribed suitability
standards in full and in which the Limited Partner represents that he meets such
suitability standards and is purchasing for his own account. However,
Subscription Agreements will not be the exclusive method of determining investor
suitability. Where the General Partner, the Managing Sales Agent or any
Selected Sales Agent has reason to believe that a Subscription Agreement does
not assure investor suitability, other methods of determining such suitability
will be employed.
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CAPITALIZATION
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The capitalization of the Partnership as of the date of this Prospectus
and as adjusted to give effect to the sale of the minimum and maximum number
of Units available for sale is as follows:
As Adjusted As Adjusted
As of Date of for 1,200 for 25,000
Prospectus Units Sold Units Sold
------------- ----------- -----------
Long-Term Indebtedness:
Equipment Debt ---- (1) (1)
General Partner's Capital
Contribution . . . . . . $10,000 $10,000 $10,000
Limited Partners' Capital
Contributions
($1,000 per Unit)(2)(3). $1,000 $1,200,000 $25,000,000
- ---------------------
(1) In addition to the Capital Contributions of the Partners, the Partnership
intends to obtain additional funds for Investment in Program Assets through
incurring substantial secured indebtedness in connection with the
acquisition of Equipment. The principal amount of such indebtedness cannot
now be determined, but is limited to 40.0% of the Gross Proceeds of the
Offering. See "Investment Objectives and Policies."
(2) The amounts given are at $1,000 per Unit and before deduction of Front End
Fees.
(3) The amounts given include one Unit ($1,000) which has been purchased by the
Partnership's Initial Limited Partner in connection with the Partnership's
organization.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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The following discussion and analysis provides information the General
Partner believes is relevant to an assessment and understanding of the
Partnership's operations and financial condition. This discussion should be
read in conjunction with the financial statement and related notes of the
Partnership appearing elsewhere in this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
As reflected under "Capitalization," the Partnership currently has limited
funds, since the capital anticipated to be raised by the Partnership through its
public offering of Units was not available on the date of this Prospectus. The
Partnership plans to raise funds from investors by means of this offering of
Units. Upon the sale of the minimum number of Units offered hereby (1,200
Units), the Partnership will invest the funds from the sale of such Units, as
well as funds raised from sales of additional Units, together with proceeds of
bank loans, in Program Assets. The application of funds toward the acquisition
of Program Assets will result in a decrease in cash. The effect of the decrease
in the Partnership's cash will, in the General Partner's view, be offset by the
income expected to be produced
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by Program Assets, including the leasing of Equipment and the anticipated
residual value of Equipment upon sale. The General Partner anticipates that
Partnership revenue sufficient to pay operating expenses and provide cash
distributions to Limited Partners will be derived from the lease payments
paid to the Partnership by Equipment lessees. There is no assurance the
Partnership will actually realize rental income or the residual value of
Equipment upon sale. In addition to borrowing to finance the acquisition of
Equipment, the Partnership may borrow funds for the purpose of repairing,
reconditioning and reconfiguring Equipment.
The General Partner plans to borrow an amount equal to up to 40.0% of the
Gross Proceeds of the Offering to finance Program Assets acquisition. The use
of borrowed funds will increase the capital resources available to the
Partnership and the amount of Program Assets the Partnership can acquire. The
General Partner anticipates borrowing funds at an interest rate lower than the
effective yield on leases. The use of borrowed funds to acquire Program Assets
will result in interest charges, which the General Partner believes will be
offset by the income expected to be produced by leasing the Equipment.
The Partnership does not have a commitment from a lender, and it is likely
that some Equipment will be acquired prior to obtaining loans. Although it is
likely that borrowed funds will be available to the Partnership, it is possible
that the interest rates available to the Partnership will not be attractive. In
that case, the Partnership may be precluded from borrowing funds or it may be
required to borrow at higher than anticipated rates. In either case, the result
will be a negative effect on the Partnership's cashflow, profitability, and
distributions.
The Partnership intends to establish initial working capital reserves of no
less than 1.0% of the Gross Proceeds, an amount which the General Partner
anticipates to be sufficient to satisfy general liquidity requirements to cover
operating costs of Equipment and the maintenance and refurbishment of
Equipment. See "Estimated Use of Proceeds." Thereafter, the General Partner
intends to maintain working capital reserves at a level it deems appropriate
(but not below 1.0% of Gross Proceeds) from revenues derived from Partnership
operations. See "Financing" under "Investment Objectives and Policies."
As of the date of this Prospectus, the Partnership has not acquired any
Equipment and has not made any commitments to acquire Equipment. As a result,
the Partnership has no commitment for capital expenditures except the expenses
of this offering. The Partnership's capital needs are expected to undergo major
changes during its initial two years of operations as a result of the completion
of its public offering of Units and the acquisition of Equipment. Thereafter,
except for reinvestment of cash in additional Program Assets, the Partnership's
capital needs and resources are expected to be relatively stable over the
Partnership's operating period.
For financial information with respect to the Partnership and the General
Partner, see "Financial Statements of the Partnership and the General Partner."
OPERATIONS
The Partnership has not yet commenced operations in accordance with the
investment objectives and policies described herein. See "Investment Objectives
and Policies." During the period of ownership of Equipment, the Partnership's
operations will consist principally of the ownership and leasing of Equipment.
After acquiring Equipment, the most significant events which will have an impact
on the Partnership's revenues will be those associated with the changes in
demand for the types of Equipment acquired by the Partnership and other economic
risks associated with the ownership and operation of Equipment. These risks
include decreases in the interest rates charged to potential lessees
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for the acquisition of capital equipment, which may decrease the availability
of leasing opportunities. For a more detailed description of such
uncertainties, see "Risk Factors."
- ------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
- ------------------------------------------------------------------------------
INTRODUCTION
Subject to the conditions set forth in this Prospectus, the Partnership is
offering an aggregate of up to 25,000 Units of limited partnership interest. A
minimum of 1,200 Units ($1,200,000) in the Partnership is being offered, with a
maximum of 25,000 Units ($25,000,000). Units are offered at a price of $1,000
per Unit. The minimum investment by a Limited Partner is two Units ($2,000).
Additional Units may be purchased in increments of $1,000. The General Partner
will not accept any subscription for a fractional interest in a Unit. The
General Partner may terminate the offering at any time for any reason.
BROKER-DEALERS AND THE SELLING AGREEMENTS
Units are being offered for sale by certain broker-dealers (the Managing
Sales Agent and Selected Sales Agents), all of whom are members of the NASD.
The broker-dealers are not obligated to purchase any Units, but are required
only to do their best to offer and sell Units on behalf of the Partnership.
There is no assurance that any of the Units will be sold. The offering will be
managed by the Managing Sales Agent (Berthel Fisher & Company Financial
Services, Inc.), an Affiliate of the General Partner. If the Partnership's
minimum offering is successfully completed, the Partnership will pay to the
Managing Sales Agent a Selling Commission of 9.0% of the total Units sold. The
Managing Sales Agent will in turn pay Selling Commissions to each Selected Sales
Agent of 6.0% of the Units sold through them (6.5% to Selected Sales Agents who
sell more than $1,000,000). The Partnership will pay accountable Organization
and Offering Expenses not to exceed 3.5% of Gross Proceeds.
The Managing Sales Agent may reallow from its Selling Commission to certain
Selected Sales Agents reimbursements for certain expenses incurred in their
selling efforts.
The total amount of all items of compensation from whatever source payable
to underwriters, broker/dealers, or affiliates thereof, which are deemed to be
in connection with or related to the distribution of the offering shall not
exceed 10.0% of the Gross Proceeds. Mr. Berthel, the President of the parent
company of both the General Partner and the Managing Sales Agent (an Affiliate
of the General Partner), and certain employees of the Managing Sales Agent, will
participate in the activities related to the distribution of the Offering, and
will be paid from the Managing Sales Agent's sales commissions.
The Managing Sales Agent may offer desk-top gift items not exceeding $50 in
value as a sales incentive to registered representatives who sell a certain
number of Units. The Managing Sales Agent intends to comply with the provisions
of Rule 2810(b)(4)(E) of the Conduct Rules of the NASD with respect to any
incentive sales and bonus programs.
The Selling Agreement provides that the General Partner and the Partnership
shall indemnify the participating broker/dealers against any losses, claims,
damages or liabilities arising out of (i) any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus, any supplemental
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literature or any blue sky application; or (ii) the omission or alleged omission
to state in the Prospectus or in any supplemental literature or in any blue sky
application a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Selling Agreement further provides that the
participating broker-dealers shall indemnify the General Partner and the
Partnership to the extent provided above and in addition, for the failure of the
participating broker-dealers to comply with the provisions of the Selling
Agreement which relate to the manner in which the Units are sold by such
participating broker-dealers.
Notwithstanding the foregoing, the Selling Agreement provides that the
participating broker-dealers will not be indemnified by the Partnership against
any liability, loss or damage incurred by them in connection with any claim or
settlement alleging federal or state securities law violations, unless such
lawsuits alleging such claims are successfully defended and a court approves
indemnification of litigation costs, or unless such lawsuits are dismissed with
prejudice on the merits, or unless such lawsuits are settled and a court
approves the settlement and the indemnification. The General Partner will
apprise the court of the positions of the SEC with respect to indemnification
before seeking court approval for indemnification, whether such claims are
litigated, dismissed or settled. Furthermore, the Selling Agreement provides
that the General Partner and Partnership shall not be required to indemnify the
participating broker/dealer, and the participating broker/dealer shall not be
required to indemnify the General Partner and the Partnership to the extent such
loss, claim, damage or liability arises out of or is based upon an alleged
untrue statement or alleged omission based upon written information furnished by
one party to another party.
THE OFFERING OF UNITS
The offering of Units in the Partnership will commence as soon as
practicable after the Effective Date, and will terminate on the Closing Date
(unless terminated earlier at the election of the General Partner or upon the
sale of all Units available for sale). The Closing Date is initially designated
to be one year from the Effective Date. However, if the Minimum Offering is
achieved and the General Partner renews registration with the SEC and with the
various state agencies, the offering period may be extended for up to an
additional year.
ADMISSION OF LIMITED PARTNERS
If, at any time within one year after the date of this Prospectus,
acceptable subscriptions for at least 1,200 Units have been received on behalf
of the Partnership, the General Partner may (but is not required to) arrange for
the Partnership to commence admitting subscribers as Limited Partners of the
Partnership, as of the Initial Admission Date. The General Partner anticipates
that the Initial Admission Date will not be later than one year after the
Effective Date of this Prospectus, assuming at least 1,200 Units have been sold
by that date. After the Initial Admission Date, subscribers will be admitted to
the Partnership on a daily basis until the Closing Date. Each day that the
General Partner admits subscribers after the Initial Admission Date will be an
Admission Date. To be admitted to the Partnership, an investor's completed
Subscription Agreement, together with subscription funds, must be received by
the General Partner and approved by the General Partner.
Prior to the Initial Admission Date an investor will receive interest on
his subscription from the date his subscription funds clear until the date he is
admitted as a Limited Partner at the rate earned on the funds held by the Escrow
Agent. Such interest will be payable by the Partnership at the time the first
monthly distribution is made to such newly admitted Limited Partner.
Subscription funds will be paid directly to the Partnership after the Initial
Admission Date. An investor will be allocated distributions, if any, and income
or loss from the Partnership, as of the date of such investor's admission into
the Partnership. Investors will not be admitted into the Partnership unless and
until the Minimum Offering is achieved and there is a release of funds in the
escrow account to the Partnership.
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Any proceeds of the offering not invested or committed for investment within
two years from the Effective Date (except for necessary operating capital)
will be distributed pro rata to the Limited Partners as return of Capital
Contributions. Any such returned proceeds will include a return of the
proportionate share of the Organization and Offering Expenses, and of any
Selling Commissions paid to Affiliates of the General Partner.
CANCELLATION OF OFFERING
The offering of Units in the Partnership will be canceled automatically if
acceptable subscriptions for at least 1,200 Units are not received on behalf of
the Partnership within one year after the Effective Date. In addition, the
General Partner may, in its discretion, cancel the offering of Units at any time
prior to the Initial Admission Date, even if subscriptions for 1,200 or more
Units have already been received on behalf of the Partnership, and may cancel
the offering as to any then unsold Units at any time after the Initial Admission
Date.
If the offering of Units in the Partnership is canceled, no remaining
unsold Units in the Partnership will be sold, and all subscription payments
received from subscribers who have not been admitted as Limited Partners will be
promptly returned to them. See "Payment for Units" below.
SUBSCRIPTION FOR UNITS
Each prospective investor who meets the qualifications described under
"Investor Suitability Standards" must deliver to the Managing Sales Agent a
completed, dated and executed copy of the Subscription Agreement included with
this Prospectus, and a check made out as set forth in the Subscription Agreement
in the amount of $1,000 for each Unit to be purchased. Until the Minimum number
of Units has been sold, Subscribers' checks will be transmitted by the Managing
Sales Agent directly to the Escrow Agent within the time constraints provided
for in the Managing Sales Agent Agreement and the Selected Sales Agent
Agreement. Thereafter, checks will be delivered by the Managing Sales Agent
directly to the General Partner.
Prospective investors that are not natural persons may be required to
deliver evidence of their authority to subscribe for Units or opinions of
counsel as to their authority to subscribe for Units and the binding effect of
their subscriptions. Investors who submit subscriptions will not be permitted
to terminate or withdraw their subscriptions without the prior consent of the
General Partner.
Additional execution copies of the Subscription Agreement are available
from the Managing Sales Agent.
The General Partner has the right to reject an investor's subscription for
any reason whatsoever, including but not limited to the investor's failure to
satisfy the suitability standards described under "Investor Suitability
Standards." If a prospective investor's subscription is rejected by the General
Partner, the General Partner generally will notify him of that fact within 30
days after receiving his subscription. Any subscription not so rejected will be
accepted, subject to the right of the General Partner in its discretion to
cancel or terminate the offering of Units at any time. Amounts paid by an
investor whose subscription is rejected will be returned promptly to him without
any interest thereon.
Each Limited Partner will be entitled, with respect to each Unit sold to
him by the Partnership, to the same distributive share of income and loss and
cash distributions as all other Limited Partners admitted on the same Admission
Date as such Limited Partner, without regard to the date on which he subscribed
for the purchase of Units or the date on which his subscription payment was
received. Investors who purchase Units earlier will generally receive a greater
allocation of income, loss and
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distributions for the year in which they invest than persons who purchase
Units later in such year. See "Partnership Allocations" under "Summary of
the Partnership Agreement."
The General Partner and its Affiliates may purchase Units. However, such
Units will not be included for purposes of determining whether the Minimum
Offering has been reached. Any purchase of Units by the General Partner and its
Affiliates will be for investment purposes only and such purchases will not be
made with a view toward resale.
PAYMENT FOR UNITS
By executing and delivering a Subscription Agreement, each investor who
subscribes for the purchase of Units will agree to make a Capital Contribution
of $1,000 for each Unit subscribed for. At the time the Subscription Agreement
is executed and delivered, such investor must deliver with the Subscription
Agreement a check in the full amount of the required payment for the Units for
which such investor is subscribing.
Until the minimum Gross Proceeds of $1,200,000 have been raised, payments
made by subscribers will be deposited directly into an interest-bearing escrow
account with _______________ Bank, (the "Escrow Agent"). If the offering is
terminated before the Closing Date or if the minimum number of Units is not
sold, subscription payments received from subscribers will be promptly returned
to them, together with any interest earned thereon. Once submitted,
subscriptions may not be terminated or withdrawn by subscribers without the
prior written consent of the General Partner, which will be granted or withheld
in its sole discretion.
Prior to use as provided in this Prospectus, the Net Proceeds of the
offering will be temporarily invested in (and undistributed Cash Flow may be
invested in) United States government securities (including, but not limited to,
short-term Treasury Bills and Treasury Notes), securities issued or guaranteed
by United States government agencies, certificates of deposit and time or demand
deposits in state or national banks, money market funds, securities issued or
guaranteed by states or municipalities, bank repurchase agreements, bankers'
acceptances, savings and loan association deposits, deposits with members of the
Federal Home Loan Bank System or the Federal Savings and Loan Insurance
Corporation, commercial paper, secured equipment, lease lines of credit, or
other similar types of investments which will be held by the Partnership
generally not exceeding one year from the date of purchase, and other
investments with appropriately scheduled maturities. The foregoing
notwithstanding, the Partnership does not intend to pursue a policy which would
make it subject to the Investment Company Act of 1940, and the Partnership's
investments prior to the use of Net Proceeds as described above will be limited
accordingly.
- ------------------------------------------------------------------------------
SUMMARY OF PROMOTIONAL AND SALES MATERIAL
- ------------------------------------------------------------------------------
In addition to and apart from this Prospectus, the Partnership will utilize
certain supplemental sales material in connection with its offering of Units
except in states that do not permit the use of such supplemental materials.
This material will include an investor brochure describing Telecommunications
Income Fund XI, L.P. and certain features of this Offering. The General
Partner, Managing Sales Agent and Selected Sales Agents will also respond to
questions from prospective investors. A question-and-answer booklet, a speech
for public seminars, an invitation to attend public seminars, letters to
prospective investors, mailing cards, public advertisements and audio-visual
materials may
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be used by the General Partner, Managing Sales Agent and Selected Sales
Agents. Other materials relating to the offering may be made available by
the Partnership to the Managing Sales Agent and Selected Sales Agents for
their internal use.
The offering of Units is made only by means of this Prospectus. Except as
described in the preceding paragraph, the Partnership has not authorized the use
of any other supplemental materials in connection with this Offering. Although
the information contained in the sales material to be used in connection with
this Offering does not conflict with any of the information contained in this
Prospectus, such materials do not purport to be complete, and should not be
considered as part of this Prospectus or the Registration Statement of which
this Prospectus is a part, or as incorporated in this Prospectus or said
Registration Statement by reference, or as forming the basis of the Offering of
the Units which are offered hereby.
- ------------------------------------------------------------------------------
EXPERTS
- ------------------------------------------------------------------------------
The balance sheet of Telecommunications Income Fund XI, L.P. at August 27,
1997, appearing in this Prospectus and Registration Statement has been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and is
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The balance sheet of Berthel Fisher & Company Leasing, Inc., the General
Partner, at December 31, 1996, appearing in this Prospectus and Registration
Statement has been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and is included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
- ------------------------------------------------------------------------------
LEGAL MATTERS
- ------------------------------------------------------------------------------
The legality of the Units offered hereby will be passed upon for the
Partnership by Bradley & Riley, P.C., 100 First Street, SW, Cedar Rapids, Iowa,
counsel for the Partnership, the General Partner and the Managing Sales Agent.
Bradley & Riley, P.C. has acted and will act as general counsel to the
Partnership and the General Partner and its Affiliates in connection with other
matters. See "Conflicts of Interest."
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ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits relating thereto that the Partnership
has filed with the SEC in Washington, D.C., under the Securities Act, and to
which reference is hereby made. Certain parts of the Registration Statement and
Exhibits are omitted from this Prospectus in accordance with the rules and
regulations of the SEC. Copies of the Registration Statement and Exhibits
relating thereto may be obtained, upon payment of the fee prescribed by the SEC,
or may be examined without charge at the offices of the SEC.
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- ------------------------------------------------------------------------------
TELECOMMUNICATIONS INCOME FUND XI, L.P.
FINANCIAL STATEMENTS OF THE
PARTNERSHIP AND THE GENERAL PARTNER
- ------------------------------------------------------------------------------
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INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PAGE
TELECOMMUNICATIONS INCOME FUND XI, L.P.:
Independent Auditors' Report 93
Balance Sheet as of August 27, 1997 94
Notes to Balance Sheet 95
BERTHEL FISHER & COMPANY LEASING, INC. (GENERAL PARTNER):
Independent Auditors' Report 96
Balance Sheet as of December 31, 1996 97
Notes to Balance Sheet 98
Balance Sheet as of August 31, 1997 (unaudited) 112
Notes to Balance Sheet (unaudited) 113
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INDEPENDENT AUDITORS' REPORT
The Partners
Telecommunications Income Fund XI, L.P.
We have audited the accompanying balance sheet of Telecommunications Income Fund
XI, L.P. (an Iowa limited partnership) as of August 27, 1997. This balance
sheet is the responsibility of the Partnership's management. Our responsibility
is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Telecommunications Income Fund XI,
L.P. at August 27, 1997, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
September 4, 1997
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
(AN IOWA LIMITED PARTNERSHIP)
BALANCE SHEET
AUGUST 27,1997
- -------------------------------------------------------------------------------
ASSETS - Cash $11,000
-------
-------
COMMITMENTS (Note 2)
PARTNERS' EQUITY (Note 3):
Partners' equity - 25,010 units authorized
General Partner - 10 units issued and outstanding $10,000
Initial limited partner - 1 unit issued and outstanding 1,000
-------
$11,000
-------
-------
See notes to balance sheet.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
(AN IOWA LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEET
AUGUST 27, 1997
- -------------------------------------------------------------------------------
1. ORGANIZATION AND PROPOSED OPERATIONS
Telecommunications Income Fund XI, L.P. (the "Partnership") was formed on
August 26, 1997 under the Iowa Limited Partnership Act. The General
Partner of the Partnership is Berthel Fisher & Company Leasing, Inc. (the
"General Partner"), an Iowa corporation. The Partnership intends to offer
for sale a minimum of 1,200 and a maximum of 25,000 units of limited
partnership interest ("Units") at a price per unit of $1,000.
Upon completion of the offering described above, the Partnership intends to
acquire primarily telecommunications equipment for lease to unaffiliated
third parties. No later than five years after the closing date of the
offering (or earlier if the General Partner determines it to be in the
Partnership's best interest), the Partnership will cease reinvestment in
equipment and leases and will begin the orderly liquidation of Partnership
assets. The Partnership must dissolve on December 31, 2012, or earlier
upon the occurrence of certain events.
As of August 27, 1997, the Partnership had no operations. Partners' equity
consists of initial capital contributions made by the General Partner and
the initial limited partner.
2. COMMITMENTS
The accompanying balance sheet does not include legal, accounting and other
organizational and offering costs which will become liabilities of the
Partnership when at least the minimum number of Units are sold. Such
amounts are limited to 3.5% of the gross offering proceeds under the
partnership agreement with the General Partner.
3. AGREEMENT OF LIMITED PARTNERSHIP
The Partnership was formed pursuant to an Agreement of Limited Partnership
dated as of August 26, 1997 (the "Agreement"). The Agreement outlines
capital contributions to be made by the partners and the allocation of cash
distributions, net income and net loss to the partners. Capital
contributions by the partners to the Partnership will consist of the
$10,000 contributed by the General Partner and the amounts contributed by
limited partners for the purchase of their Units ($1,000 per unit).
4. RELATED PARTY TRANSACTIONS
It is anticipated that the Partnership will enter into certain agreements
and transactions with related parties, primarily the General Partner and
its affiliates, including, but not limited to, sales commissions, offering
expenses, equipment acquisition fees, management fees, and operating
expense reimbursements.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Berthel Fisher & Company Leasing, Inc.
We have audited the accompanying consolidated balance sheet of Berthel Fisher &
Company Leasing, Inc. (a wholly-owned subsidiary of Berthel Fisher & Company,
Inc.) as of December 31, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Berthel Fisher & Company Leasing,
Inc. at December 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 18, 1997
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BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C>
ASSETS (Note 5):
Cash and cash equivalents $ 342,726
Notes receivable (Note 2) 6,530,354
Net investment in direct financing leases (Note 2) 9,850,360
Allowance for possible loan and lease losses (Note 3) (412,916)
--------------
Notes receivable and direct financing leases, net 15,967,798
Equipment under operating leases, less accumulated
depreciation of $50,517 277,964
Due from affiliates 30,930
Investments in:
Limited partnerships (Notes 4 and 12) 153,771
Not readily marketable securities, at cost 250,477
Furniture and equipment, less accumulated depreciation of $120,200 222,853
Deferred income taxes (Note 6) 515,911
Deferred costs, less accumulated amortization of $158,924 (Notes 5 and 11) 635,194
Other assets 331,702
--------------
TOTAL $ 18,729,326
--------------
--------------
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDER'S EQUITY (DEFICIT)
LIABILITIES:
Line-of-credit agreement (Note 5) $ 9,276,031
Trade accounts payable 158,227
Due to affiliates 102,038
Accrued expenses 228,014
Lease security deposits 374,876
Notes payable (Note 5) 2,310,805
Subordinated debentures (Note 5) 725,000
Subordinated notes payable (Note 5) 2,995,522
Subordinated debenture payable to parent (Note 5) 2,000,000
--------------
Total liabilities 18,170,513
--------------
COMMITMENTS AND CONTINGENCIES (Note 12)
REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK (Note 7) 722,905
--------------
STOCKHOLDER'S EQUITY (DEFICIT):
Series A preferred stock, no par value - authorized
shares, issued and outstanding 30,341 shares (Note 8) ($424,774
liquidation value, convertible into 26,548 shares of Class A
common stock) 422,835
Class A common stock, no par value-authorized 1,000,000
shares, issued and outstanding 400,000 shares 1,000
Common stock warrants (Note 9) 66,694
Accumulated deficit (654,611)
--------------
Total stockholder's equity (deficit) (164,092)
--------------
TOTAL $18,729,326
--------------
--------------
</TABLE>
See notes to consolidated balance sheet.
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BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS - Berthel Fisher & Company Leasing,
Inc. (the "Company") is a wholly-owned subsidiary of Berthel Fisher &
Company, Inc. The Company finances, through direct financing leases or
notes receivables, telecommunications, agricultural, and general equipment
throughout the United States. The financing agreements with individual
customers can be large in relation to the portfolio as a whole and certain
agreements exceed 10% of the Company's direct financing lease and note
receivable portfolio (see Note 2). The leases may be sold to other
entities or retained by the Company for its own portfolio.
During 1994, the Company formed a wholly-owned subsidiary, Communications
Finance Corporation. All of the assets and liabilities of Communications
Finance Corporation have been assumed by the Company. The Company intends
to keep Communications Finance Corporation as a shell for use in future
financing transactions.
BASIS OF PRESENTATION - The accompanying balance sheet has been prepared on
the basis that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The balance sheet does not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
During the years ended December 31, 1995 and 1996, the Company incurred net
losses of $393,720 and $836,556, respectively. Also, the Company's line of
credit agreement is cancelable upon 90 day notice from the lender. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain refinancing as may be required, and ultimately to attain profitable
operations. The Company anticipates that existing capital resources, cash
flows from operations, and financing from the Company's parent, will be
adequate to satisfy the Company's minimum capital requirements for the next
twelve months.
The Company's plans and forecasts for future growth and profitability,
however, anticipate the need for additional capital through a preferred
equity financing and the sponsorship of another public limited partnership
from which the Company will generate fee income. See Note 14 as to the
Company's current preferred stock offering. No assurance can be provided
that such offerings will be completed as planned.
CONSOLIDATION - The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
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USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Actual results could differ significantly
from those estimated. Material estimates that are particularly susceptible
to significant change in the near-term relate to the determination of the
allowance for possible loan and lease losses and the estimated unguaranteed
residual values of the Company's leased equipment.
Most of the Company's leases and finance contracts are with customers that
are in the entrepreneurial stage and, therefore, are highly leveraged and
require lease or other financing in place of or to supplement financing
from banks. Although the Company attempts to mitigate its credit risk
through the use of a variety of commercial credit reporting agencies when
processing the applications of its customers, failure of the Company's
customers to make scheduled payments under their equipment leases and
finance contracts could have a material near-term impact on the allowance
for possible lease and loan losses.
Realization of residual values depends on many factors, several of which
are not within the Company's control, including general market conditions
at the time of the original lease contract's expiration, whether there has
been unusual wear and tear on, or use of, the equipment, the cost of
comparable new equipment, the extent, if any, to which the equipment has
become technologically or economically obsolete during the contract term
and the effects of any additional or amended government regulations. These
factors, among others, could have a material near-term impact on the
estimated unguaranteed residual values.
CERTAIN RISK CONCENTRATIONS - The Company's direct financing leases and
notes receivables are concentrated in the telecommunications industry,
primarily pay telephones, representing approximately 42% of the Company's
direct finance lease and notes receivable portfolio at December 31, 1996.
During 1996, the Company also significantly expanded its financing in the
ATM industry which represents approximately 22% of the Company's direct
finance lease and notes receivable portfolio at December 31, 1996.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
NOTES RECEIVABLE - Notes receivable are carried at the principal balance
outstanding. Interest income on notes receivable is accrued based on
principal amounts outstanding.
NET INVESTMENT IN DIRECT FINANCING LEASES - The Company's primary activity
consists of leasing telecommunications and other types of equipment, under
direct financing leases, generally over a period of three to five years.
At the time of closing a direct financing lease, the Company records the
gross lease contract receivable, an estimated unguaranteed residual value
and unearned lease income. The unearned lease income represents the excess
of the gross lease receivable plus the estimated unguaranteed residual
value over the carrying value of the equipment leased. In addition, the
Company capitalizes all initial direct costs associated with originating
the direct financing lease. The unearned income and initial direct costs
are amortized to income over the lease term so as to produce a constant
periodic rate of return on the net investment in the lease. Lessees are
responsible for all taxes, insurance and maintenance costs.
-99-
<PAGE>
The realization of the estimated unguaranteed residual value of leased
equipment depends on the value of the leased equipment at the end of the
lease term and is not a part of the contractual agreement with the lessee.
Estimated unguaranteed residual values are based on estimates of amounts
historically realized by the Company for similar equipment and are
periodically reviewed by management for possible impairment.
Certain of the Company's leases are accounted for as operating leases for
income tax purposes.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES - The Company performs credit
evaluations prior to approval of a lease or finance contract. As with all
direct financing leases, the Company continues to own the equipment under
lease. The Company will generally obtain a security interest in future
revenues generated from each site in which the equipment is physically
located and in the equipment under a finance contract. Subsequently, the
creditworthiness of the customer and the value of the underlying assets are
monitored on an ongoing basis. The Company maintains an allowance for
possible loan and lease losses which could arise should customers become
unable to discharge their obligations under the agreements. The allowance
for possible loan and lease losses is maintained at a level deemed
appropriate by management to provide for known and inherent risks in the
portfolio. The allowance is based upon a continuing review of past loan
and lease loss experience, current economic conditions, and the underlying
asset value. The consideration of such future potential losses also
includes an evaluation for other than temporary declines in value of the
underlying leased assets. Leases and notes receivable which are deemed
uncollectible are charged off and deducted from the allowance. The
provision for possible loan and lease losses and recoveries are added to
the allowance.
EQUIPMENT UNDER OPERATING LEASES - Equipment leased under operating leases
is stated at cost less accumulated depreciation. The equipment is
depreciated using the straight-line method over the estimated useful lives
of the assets (five years) to the estimated residual value of the equipment
at the end of the lease term. Estimated residual values are based on
estimates of amounts historically realized by the Company for similar
equipment and are periodically reviewed by management for possible
impairment.
INVESTMENTS - The Company accounts for its general partnership interests in
Telecommuni-cations Income Fund IX, L.P. ("TIF IX") and Telecommunications
Income Fund X, L.P. ("TIF X") under the equity method of accounting. Under
the equity method of accounting, the Company initially records its
investment at cost and subsequently adjusts the carrying value of its
investments for its pro rata share of earnings or losses.
The Company also owns equity interests in two entities over which it does
not have the ability to exert significant influence over the operations of
such entities; therefore, such investments are accounted for at cost.
Should these investments experience a decline in value that is other than
temporary, the Company will recognize a loss in its consolidated statements
of operations to reflect such a decline. As these investments are not
readily marketable, no market value can be readily determined.
-100-
<PAGE>
FURNITURE AND EQUIPMENT - Furniture and equipment are stated at cost less
accumulated depreciation. For financial reporting purposes, depreciation
is computed by the straight-line method over the estimated useful lives of
the assets (generally five to ten years). The Company uses accelerated
methods in computing depreciation for income tax purposes.
DEFERRED INCOME TAXES - The provision for deferred income taxes is based on
an asset and liability approach. Deferred tax assets or liabilities are
computed based on the difference between the financial statement and income
tax bases of assets and liabilities using the enacted marginal tax rate.
Deferred income tax expense or credit is based on the changes in the asset
or liability from period to period including the effect of enacted tax rate
changes.
DEFERRED COSTS - Deferred costs consist of organization costs incurred with
the formation of Security Finance Corporation and financing costs incurred
in connection with the issuance of subordinated debentures and notes
payable and certain other long-term debt. Deferred organization costs were
amortized over a five-year period. Deferred financing costs are being
amortized over the life of the related obligation, which ranges from three
to eight years.
STOCK ISSUANCE COSTS - The costs incurred in connection with the issuance
of redeemable Class B nonvoting convertible stock have been deducted from
the proceeds. Such amounts are being amortized by a charge to retained
earnings over a period of ten years, at which time the carrying value of
stock will be equal to its cash redemption value (see Note 7).
SALE OF DIRECT FINANCE LEASES - The Company at times sells future direct
financing lease payments, on a limited recourse basis, to lenders in return
for a cash payment. In the case of default by the lessee, the lender has a
first lien on the underlying leased equipment. In the event the sale or
re-lease proceeds from the underlying equipment do not satisfy the
remaining lessee's obligation to the lender, the Company is responsible for
a predetermined amount of that obligation. When the sale of direct finance
leases occurs, proceeds from the sale, less the net book value of direct
finance leases sold and an estimated loss allowance, are recorded as a
component of gain on early termination of leases.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS - In 1996 the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" related to Berthel Fisher & Company, Inc.'s
stock option plans. This standard establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The Company adopted the disclosure option under this standard
and continues to recognize stock-based compensation to employees under the
intrinsic value method. The adoption of this standard did not impact
results of operations, financial position or cash flows.
The Company will adopt SFAS No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" for transfers and
servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996. SFAS No. 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings based on whether control has been transferred.
The adoption of this standard is not expected to have a material impact on
results of operations, financial position, or cash flows.
-101-
<PAGE>
2. NOTES RECEIVABLE AND DIRECT FINANCING LEASES
Notes receivable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
Notes receivable, collateralized primarily by telephone
equipment and related site agreements, 13.9% to 16.5%,
maturing through December 2000 $6,530,354
----------
----------
</TABLE>
The Company's net investment in direct financing leases consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
Minimum lease payments receivable $ 11,526,828
Estimated unguaranteed residual values 954,502
Unamortized initial direct costs 236,910
Unearned income (2,867,880)
------------
Net investment in direct financing leases $ 9,850,360
------------
------------
</TABLE>
The balance of direct financing leases sold with recourse that remain
uncollected at December 31, 1996 was $4,269,468.
At December 31, 1996, future minimum lease payments to be received under
the direct financing leases and the estimated unguaranteed residuals to
be realized at the expiration of the direct financing leases are as
follows:
<TABLE>
<CAPTION>
MINIMUM ESTIMATED
LEASE PAYMENTS UNGUARANTEED
RECEIVABLE RESIDUAL VALUES
<S> <C> <C>
Year ending December 31:
1997 $ 3,887,957 $ 36,354
1998 2,702,486 240,887
1999 2,150,673 76,055
2000 1,828,501 167,010
2001 957,211 434,196
----------- ----------
$11,526,828 $ 954,502
----------- ----------
----------- ----------
</TABLE>
The Company and certain affiliates purchase a substantial portion of
telecommunications equipment for lease from Intellicall, Inc., a
publicly-held company. The Company's parent is an investor in a limited
partnership which owns approximately 7% of the outstanding common stock
of Intellicall, Inc. In addition, a principal stockholder of the
Company's parent is also an investor in this limited partnership.
-102-
<PAGE>
The Company leases equipment to certain companies for which Berthel Fisher
& Company Financial Services, Inc., an affiliate, provides financing and
investment advisory services or for which the Company or its affiliates
have an ownership interest. The Company also leases equipment to certain
companies in which certain directors own a controlling interest. The
Company's net investment in direct financing leases with these companies
approximated $1,253,000 at December 31, 1996.
3. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The allowance for loan and lease losses consisted of a specific allowance
for a lease of $100,000 at December 31, 1996 and a general unallocated
allowance of $312,916 at December 31, 1996.
On May 6, 1996, a lessee of the Company, United Tele-Systems of Virginia,
Inc. ("UTS") filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. This bankruptcy petition was dismissed on May 22, 1996
and, in connection therewith, the Company exercised its right to manage the
assets leased to UTS. The net investment in the leases at the time the
assets were repossessed was approximately $432,000. This equipment is
currently being operated for the Company under a short-term management
agreement. The Company, TIF IX, TIF X and UTS have also been named in a
lawsuit, filed by another creditor of UTS. The creditor is claiming
$360,000 in compensatory damages and $350,000 in punitive damages.
Management believes the lawsuit is without merit and intends to vigorously
defend it. Based on offers to purchase the pay telephone equipment and an
expected settlement offer related to the lawsuit to avoid protracted
litigation costs, the Company expects to incur a loss upon the sale or
re-lease of this equipment. Management has charged $324,000 to the
provision for possible loan and lease losses for the expected loss. Due
to the uncertainty of the fair market value of the equipment and the
outcome of the litigation, there can be no assurances that the
ultimate loss will not exceed $324,000. The Company's net investment
in the equipment, net of the specific allowance, has been reclassified
to equipment under operating leases pending its ultimate sale or re-lease
under a direct finance lease.
On October 31, 1996, a lessee of the Company, Soil Recovery Services, Inc.
("SRS"), had an involuntary Petition for Relief under Chapter 7 of the U.S.
Bankruptcy Code filed against it. This was converted to a voluntary
Chapter 11 on November 25, 1996. At the time the first petition was filed,
SRS had various leases with the Company that had a net investment totaling
$256,500 and represented 1.4% of the Company's total net investment in
leases and finance contracts. A specific allowance for losses of $100,000
has been established through a charge to the provision for possible loan
and lease losses based on estimates of the fair value of the equipment
under lease.
During the fourth quarter of 1996, management of the Company provided a
specific allowance for a lease with a certain customer for which the
Company had not been receiving lease payments. Management is actively
working with such customer to arrange for a sale of the assets under lease.
A charge of $50,000 was recorded to the provision for possible loan and
lease losses representing management's best estimate of the loss on the
expected sale of the equipment. Also, due to the uncertainty as to the
timing and amount of future payments from such customer and as to the sale
of the assets under lease, the Company reclassified its net investment in
the lease at December 31, 1996 of $144,972, net of the specific allowance,
to equipment leased under operating leases.
-103-
<PAGE>
4. INVESTMENTS IN LIMITED PARTNERSHIPS
The Company is the general partner of Telecommunications Income Fund IX,
L.P. ("TIF IX"). TIF IX is a limited partnership which raised
approximately $17 million through a best-efforts public offering of its
limited partnership units. At December 31, 1996, the Company's investment
in TIF IX consisted of its allocated general partnership interest,
unreimbursed costs incurred by the Company in connection with the public
offering and temporary loans made to the partnership. Pursuant to the
partnership agreement, TIF IX reimbursed the Company for offering and
promotional expenses incurred up to 4% of the capital raised. The
unreimbursed costs are being amortized on a straight-line basis over a
55-month period which approximates the period of anticipated future revenues
from TIF IX. As of December 31, 1996, the unamortized balance of these
unreimbursed costs aggregated $33,482.
The Company is the general partner of Telecommunications Income Fund X,
L.P. ("TIF X"). TIF X is a limited partnership which raised approximately
$22.6 million through a best-efforts public offering of its limited
partnership units. At December 31, 1996, the Company's investment in TIF X
consisted of its allocated general partnership interest, unreimbursed costs
incurred by the Company in connection with the public offering and
temporary loans made to the partnership. Pursuant to the partnership
agreement, TIF X will reimburse the Company for offering and promotional
expenses incurred up to 4% of the capital raised. As of December 31, 1996,
there were no unreimbursed costs.
Combined summarized financial information for TIF IX and TIF X is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
Assets:
Net investment in direct financing leases $33,330,000
Other assets 3,573,000
-----------
Total assets $36,903,000
-----------
-----------
Liabilities and partners' equity
Liabilities:
Notes payable, guaranteed by the Company (Note 12) $5,900,000
Other liabilities 1,485,000
-----------
Total liabilities 7,385,000
-----------
Partners' equity:
General partner 22,000
Limited partners 29,559,000
Other equity (63,000)
-----------
Total partners' equity 29,518,000
-----------
Total liabilities and partners' equity $36,903,000
-----------
-----------
</TABLE>
-104-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
<S> <C>
Income from direct financing leases $6,070,000
Other revenue 924,000
Provision for possible losses (1,671,000)
Impairment loss on equipment (971,000)
Expenses (3,148,000)
-----------
Net income $1,204,000
-----------
-----------
Income allowable to the Company $ 680
-----------
-----------
Net income per partnership unit:
TIF IX $ 14.83
TIF X $ 2.17
</TABLE>
The Company receives a management fee equal to 5% of the amount of gross
rental payments received by TIF IX and TIF X. During the year ended
December 31, 1996, gross fees aggregated $702,266. The Company, in turn,
pays 50% of these fees to its parent. In addition, the Company is
reimbursed for certain other costs under administrative services
agreements. Amounts received by the Company pursuant to these agreements
amounted to $147,000, for the year ended December 31, 1996.
TIF IX leases equipment to certain companies for which Berthel Fisher &
Company Financial Services, Inc., an affiliate of the Company, provides
financing and investment advisory services. TIF IX's net investment in
direct financing leases with these companies approximated $447,000 at
December 31, 1996.
TIF X leases equipment to certain companies for which Berthel Fisher &
Company Financial Services, Inc., an affiliate of the Company, provides
financing and investment advisory services. TIF X's net investment in
direct financing leases with these companies approximated $2,815,000 at
December 31, 1996.
5. CREDIT ARRANGEMENTS
The Company obtains a portion of its financing under a line-of-credit
agreement with a bank. The amount available to borrow under the
line-of-credit is limited to 75% of its qualified accounts, as defined
in the agreement (primarily leases and notes receivable), but, in no case,
can exceed $11 million. The line-of-credit bears interest at prime plus
1.7% and is collateralized by substantially all of the Company's assets.
The line-of-credit agreement is guaranteed by the Company's parent and a
major stockholder of the Company's parent. The agreement expires on
November 30, 1997 and management expects, based on discussions with the
lender, to renew the agreement. The agreement is also cancellable by the
lender after giving a 90-day notice. The average interest rate on amounts
outstanding at December 31, 1996 under the line-of-credit agreement was
9.95%.
-105-
<PAGE>
The loan agreement contains various restrictive covenants which, among
others, restrict dividend payments except to Class B shareholders and
Series A preferred shareholders and requires the Company to maintain
certain financial ratios including a total liabilities to tangible net
worth ratio of not greater than 3.0, a minimum tangible net worth of
$650,000 and an interest coverage ratio of 1.1. As of December 31, 1996
the Company was in violation of its minimum tangible net worth and interest
coverage ratio. The Company has obtained amendments to such covenants from
the lender for 1996 which permits compliance. The covenants for 1997 are a
leverage ratio of not greater than 2.5, a minimum stockholders' equity
(including redeemable stock) of $490,000 plus the net proceeds of any
equity offering and an interest coverage ratio of 1.2. As discussed in
Note 14, the Company plans to sell up to $2 million of preferred stock in
1997 through an exempt offering. The Company also has plans to sponsor
another limited partnership in 1997 which is expected to generate fee
income to the Company. As such, the Company expects to be in compliance
with the covenants throughout 1997. The Company does not anticipate any
problems with the sale of these securities in 1997, however, an alternative
plan is in place should any problems occur with respect to the sale of
these securities. The alternative plan is to reduce the management fees
paid to the parent to maintain compliance with the Company's covenants.
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
Collateral trust bonds issued by Berthel Fisher & Company
Leasing, Inc., 9% to 12%, due through 1997 $20,017
Installment loan agreements with banks, 7.75 % to 11%,
maturing through 2000 with subjective acceleration clauses,
collateralized by net investment in certain direct financing
leases, certain agreements are also guaranteed by the
Company's parent 2,273,632
Capital lease obligations, 5.37%, due through 2000 17,156
----------
Notes payable $2,310,805
----------
----------
</TABLE>
Subordinated debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
Uncollateralized subordinated debenture payable to
parent, floating interest rate, maturing in 2005 $2,000,000
Uncollateralized subordinated notes payable, 9.5% to 10%,
maturing in 2001 and 2004 2,995,522
Uncollateralized subordinated debentures, 11% to 12%,
maturing through 1998 725,000
----------
Total subordinated debt $5,720,522
----------
----------
</TABLE>
-106-
<PAGE>
The collateral trust bonds issued by Berthel Fisher & Company Leasing, Inc.
are collateralized by certain equipment leases and are redeemable by the
bond holder at any time after one year from the date of issuance subject to
certain limitations as defined in the agreements, including a maximum
redemption in any one year of 5% of the total principal balance
outstanding.
The subordinated note payable and debenture to parent bear interest at
prime plus 3% (11.5% at December 31, 1996), adjusted semi-annually, with a
minimum interest rate of 6% and a maximum rate of 12%. In October 1995,
the Company and its parent restructured $2,000,000 of the subordinated note
payable to the Company's parent into a subordinated debenture. Under the
restructured debenture, the maturity date was extended to December 31,
2005; the debenture was contractually subordinated to the subordinated
notes payable and to collateralized debt; and the Company's parent was
issued warrants for the purchase of 118,875 shares of common stock of the
Company at $16.82 per share, exercisable through October 5, 2000. No value
was attributed to the warrant by the Company since the warrant's exercise
price was equal to the estimated fair value of the Company's common stock
at date of issuance.
The annual maturities of notes payable and subordinated debt at
December 31, 1996 are as follows:
Year ending December 31:
1997 $1,089,509
1998 1,206,943
1999 338,019
2000 330,088
2001 2,111,246
Thereafter 2,955,522
----------
Total $8,031,327
----------
----------
6. INCOME TAXES
The results of the Company's operations are included in the consolidated
tax returns of Berthel Fisher & Company, Inc. The entities included in the
consolidated returns have adopted the policy of allocating income tax
expense or benefit based upon the pro rata contribution of taxable
operating income or losses. Generally, this allocation results in
profitable companies recognizing a tax provision as if the individual
company filed a separate return and loss companies recognizing benefits to
the extent their losses contribute to reduce consolidated taxes. Deferred
income taxes have been established by each member of the consolidated group
based upon the temporary differences within the entity. In certain states,
the Company files separate income tax returns. Based on the parent's
consolidated tax position, management believes it is more likely than not
that the Company's deferred income tax asset will be recoverable.
-107-
<PAGE>
The tax effect of temporary differences giving rise to the Company's net
deferred income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
Gross deferred income tax liabilities:
Direct financing leases $ (500,000)
Unamortized costs associated with limited partnerships (25,000)
Furniture and equipment 0
---------
Total (525,000)
---------
---------
Gross deferred income tax assets:
Alternative minimum tax carryforward 84,000
Allowance for possible loan and lease losses 149,000
Net operating loss carryforward 800,000
Other 7,911
---------
Total 1,040,911
---------
Net deferred income tax asset $ 515,911
---------
---------
</TABLE>
At December 31, 1996, the Company's net operating loss carryforward
aggregates $2,250,000 and expires in 2010.
7. REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK
The Company's Class B nonvoting convertible stock carries a 12%
noncumulative dividend limited to 25% of the Company's income before taxes
each year, up to a maximum of $1.20 per share. The Class B nonvoting
convertible stock is convertible on a one-for-one basis up to a maximum of
20% of the Class A common stock of the Company after conversion. The stock
is redeemable at $10 per share for a 30-day period after the tenth
anniversary of the issuance date (April, 1990 to September, 1991) at the
option of the holder. Shares which are not redeemed during that time are
automatically converted to Class A common stock on a one-for-one basis.
The following summarizes the amounts pertaining to the Class B nonvoting
convertible stock:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
Redeemable Class B nonvoting convertible stock (no par
value-authorized 100,000 shares, issued and outstanding 75,500
shares), at redemption or liquidation value $755,000
Unamortized stock issuance costs (32,095)
--------
Class B nonvoting convertible stock $722,905
--------
--------
</TABLE>
-108-
<PAGE>
8. PREFERRED STOCK
Each share of the Series A preferred stock is entitled to cumulative annual
dividends of 8% payable, if as and when declared by the Board of Directors,
quarterly. Unpaid dividends will accumulate and be payable prior to the
payment of dividends on the Company's Class A common stock. The preferred
stock is redeemable at any time at the option of the Company, on not less
than 30 days written notice to registered holders. The redemption price
shall be $14.70 per share if redeemed during 1997, $14.56 per share if
redeemed during 1998, $14.42 per share if redeemed during 1999, $14.28 per
share if redeemed during 2000, $14.14 per share if redeemed during 2001,
and $14.00 per share if redeemed thereafter, plus, in each case,
accumulated unpaid dividends. Unless previously redeemed by the Company,
the holders of the preferred stock are entitled at any time to convert each
share into .875 shares of Class A common stock. The preferred stock is not
entitled to vote on any matter except where the Iowa Corporation Act
requires voting as a class, in which case each share of stock shall be
entitled to one vote per share on those matters where the preferred stock
is voting as a class. The preferred stock is entitled to a preference on
liquidation equal to $14.00 per share, plus accumulated unpaid dividends.
9. COMMON STOCK WARRANTS
The Company's common stock warrant activity is summarized as follows:
<TABLE>
<CAPTION>
EXPIRATION EXERCISE NUMBER
DATE PRICE OUTSTANDING
<S> <C> <C> <C>
Issued to the parent in 1995 in connection
with the subordinated note payable
restructuring 2000 $16.82 118,875
Issued in 1996 in connection with the
subordinated notes payable offering 2001-2004 16.00 33,011
Issued in 1996 in connection with the preferred
stock/warrant offering:
A Warrant 1998 12.00 30,341
B Warrant 1999 14.00 30,341
-------
Balance at December 31, 1996 212,568
-------
-------
</TABLE>
10. PROFIT SHARING PLAN
The Company participates in a qualified profit sharing plan under Internal
Revenue Code Section 401(a), including a qualified cash or deferred
arrangement under Section 401(k), sponsored by Berthel Fisher & Company
Financial Services, Inc. Under the terms of the plan, each participant may
elect to defer compensation from 2% to 15%. A matching contribution equal
to 50% of the deferred compensation of all eligible participants will be
made by the employer up to 4% of each participant's total compensation.
The employee contributions to the plan are fully vested and employer
contributions vest over five years. The Company's contribution for the
year ended December 31, 1996, aggregated $14,927.
-109-
<PAGE>
11. MANAGEMENT AND SERVICES AGREEMENTS
In addition to the agreements described in Note 4, the Company also has an
unwritten, month-to-month agreement with its parent in which the Company's
parent provides management services at a monthly rate of $17,500 during
1996. In addition, during 1993, the Company paid its parent $50,000 to
provide consulting services relating to TIF X for such items as lease
documentation, lease approvals, debt structuring and portfolio liquidation.
This payment is being amortized to expense over five years, the estimated
life of the operating phase of TIF X.
The Company, from time to time, will engage the services of Berthel Fisher
& Company Financial Services, Inc., a broker-dealer wholly owned by the
Company's parent. In addition, the Company reimburses Berthel Fisher &
Company Financial Services, Inc. for operating expenses incurred on its
behalf, including certain expenses related to the administrative services
agreements discussed in Note 4. The Company also enters into other
arrangements with the parent or its affiliates. Following are the amounts
paid by the Company to Berthel Fisher & Company or its affiliates related
to these arrangements:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
<S> <C>
Issuance costs paid (and capitalized) in connection with
subordinated notes payable offering $223,070
Operating expense reimbursements 50,173
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for all debts of TIF IX and X as the
general partner.
The Company also has guaranteed amounts outstanding under a
line-of-credit agreement with a bank of TIF IX. The line-of-credit
agreement allows TIF IX to borrow the lesser of $6.25 million, or 32% of
its qualified accounts, as defined in the agreement. The balance
outstanding under this line-of-credit was $1,060,490 at December 31,
1996. The agreement matures on November 30, 1997, is cancellable by the
lender after giving a 90-day notice and is collateralized by
substantially all assets of TIF IX. The note is also guaranteed by the
Company's parent and a principal stockholder of the Company's parent.
The Company also has guaranteed amounts outstanding under a line-of-credit
agreement with a bank of TIF X. The line-of-credit agreement allows TIF X
to borrow the lesser of $7.25 million, or 32% (40% as of November 1996) of
its qualified accounts, as defined in the agreement. The balance
outstanding under this line-of-credit was $2,607,911 at December 31, 1996.
The agreement matures on November 30, 1997, is cancellable by the lender
after giving a 90-day notice and is collateralized by substantially all
assets of TIF X. The note is also guaranteed by the Company's parent and a
principal stockholder of the Company's parent.
The Company also has guaranteed amounts outstanding under installment loan
agreements of TIF IX and TIF X totaling $2,231,510 at December 31, 1996.
The agreements are collateralized by certain direct financing leases and a
second interest in all assets of TIF IX and TIF X.
-110-
<PAGE>
In December 1995 the Company entered into a lease agreement for office
space. The lease term began January 1, 1996 and expires December 30, 2000.
Rent is $58,368 per year under the agreement.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts disclosed below are based on estimates prepared by
the Company based on valuation methods appropriate in the circumstances.
Generally accepted accounting principles do not require disclosure for
lease contracts. The carrying amount for financial instruments included
among cash and cash equivalents, due from affiliates, line-of-credit
agreement, and other short-term payables approximates their fair value
because of the short maturity of those instruments or the variable interest
rate feature of the instruments. The estimated fair value of other
significant financial instruments are based principally on discounted
future cash flows at rates commensurate with the credit, interest rate and
prepayment risk involved.
The estimated fair values of the Company's other significant financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
---------------------------
CARRYING FAIR
AMOUNT VALUE
<S> <C> <C>
Notes receivable $6,530,354 $6,489,812
Notes payable 2,310,805 2,284,873
Subordinated debt 5,720,522 5,945,762
</TABLE>
14. CURRENT OFFERING
The Company has a private placement best efforts offering in process at
December 31, 1996 for the issuance of $2 million of Class A preferred stock
and warrants. The Company issued $424,774 of preferred stock and $60,682
of warrants to its parent at December 31, 1996 in exchange for the
conversion of the subordinated note payable to parent of $264,980 and the
contribution of restricted stock of a public company with an estimated fair
value of $220,477. There can be no assurance that the Company will
complete the sale of these securities.
* * * * *
-111-
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
BALANCE SHEET (UNAUDITED)
AUGUST 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 104,693
Notes receivable 4,522,766
Net investment in direct financing leases 8,537,986
Allowance for possible loan and lease losses (378,874)
-----------
Notes receivable and direct financing leases, net 12,681,878
Equipment under operating lease 710,617
Due from affiliates 37,669
Investments in:
Limited partnerships 79,254
Not readily marketable securities, at cost 975,482
Furniture and equipment 216,092
Deferred income taxes 598,523
Deferred costs 532,104
Other assets 401,294
-----------
TOTAL $16,337,606
-----------
-----------
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDER'S EQUITY
LIABILITIES:
Line of credit agreement $ 6,459,548
Trade accounts payable 25,579
Due to affiliates 73,787
Accrued expenses 225,215
Dividends payable 17,770
Lease security deposits 391,959
Notes payable 1,714,690
Subordinated debentures 725,000
Subordinated notes payable 2,996,216
Subordinated debenture payable to parent 2,000,000
-----------
Total Liabilities 14,629,764
-----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK 728,254
-----------
STOCKHOLDER'S EQUITY (DEFICIT):
Series A preferred stock, no par value, 125,000
shares authorized, issued and outstanding
($1,750,000 liquidation value, convertible
into 109,375 shares of Class A common stock) 1,587,624
Class A common stock, no par value-authorized
1,000,000 shares, issued and outstanding
400,000 shares 1,000
Common stock warrants 256,002
Retained earnings (accumulated deficit) (865,038)
-----------
Total stockholder's equity 979,588
-----------
TOTAL $16,337,606
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTE.
-112-
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTE TO FINANCIAL STATEMENT
(UNAUDITED)
1 BASIS OF PRESENTATION
The accompanying unaudited condensed balance sheet has been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 and Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information,
refer to the financial statements and footnotes thereto as of December 31, 1996.
-113-
<PAGE>
- -------------------------------------------------------------------------------
GLOSSARY
- -------------------------------------------------------------------------------
As used in this Prospectus, the following definitions of terms are
applicable:
"Acquisition Expenses" means expenses including, but not limited to, legal
fees and expenses, travel and communication expenses, costs of appraisals,
accounting fees and expenses, and miscellaneous expenses relating to selection
and acquisition of Program Assets, whether or not the Program Assets are
acquired.
"Acquisition Fee" means the total of all fees and commissions paid by any
party in connection with the initial purchase or manufacture of Equipment
acquired by or financings placed by the Partnership. Included in the
computation of such fees or commissions shall be any commission, selection fee,
construction supervision fee, financing fee, non-recurring management fee, or
any fee of a similar nature, however designated. See Paragraph 9.2.4 of the
Partnership Agreement.
"Adjusted Capital Contribution" of a Limited Partner as of any date means
the Capital Contribution of the Limited Partner, less the total amount of all
payments made as Liquidating Distribution or as a return of capital to the
Limited Partner and to prior holders of such Limited Partner's Units prior to or
on such date pursuant to Paragraphs 11.4.3 or 11.5 of the Partnership Agreement.
"Admission Date" means any date on which subscribers for Units offered
pursuant to this Prospectus are admitted to the Partnership as Limited Partners.
"Affiliate" means (i) any person directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 10.0% or more of the outstanding voting securities of such
other person, (iii) any officer, director or partner of such person, and (iv) if
such other person is an officer, director or partner, any company for which such
person acts in such capacity.
"Assignee" means a person who is shown in the Partnership's records as
having acquired a beneficial interest in one or more Units by assignment from a
Limited Partner.
"Book Value of the Partnership" means the book value of the Partnership's
assets less liabilities, as computed for federal income tax purposes.
"Capital Account" means the account established and maintained for each
Partner in accordance with federal income tax accounting principles, including
specifically Section 704 of the Code and the regulations thereunder.
"Capital Contribution" means with respect to the General Partner, the
$10,000 contributed by it to the capital of the Partnership. With respect to
each Limited Partner, Capital Contribution means the cash contributed to the
capital of the Partnership by such Limited Partner for the Units sold or issued
to him by the Partnership, which amount will be attributed to, and will be
considered to be a Capital Contribution of any subsequent Assignee of such
Units.
"Cash Available for Distribution" means Cash Flow plus cash funds available
for distribution from Partnership reserves, less amounts set aside for
restoration or creation of reserves as determined by the General Partner in its
sole discretion.
-114-
<PAGE>
"Cash Flow" means all cash funds provided from operations, without
deduction for depreciation, but after deducting cash funds used to pay all
expenses and debt payments or pay for capital improvements and replacements
(other than cash funds withdrawn from reserves).
"Closing Date" means the date upon which the offering of Units terminates,
which is intended to be no later than one year after the Effective Date;
provided that if the Minimum Offering has been achieved and registration is
renewed with the applicable federal and state agencies, the General Partner may
extend the offering period and postpone the Closing Date for up to an additional
year (i.e., two years) from the Effective Date.
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Controlling Person" means any officer, director, executive manager, senior
manager or equity holder of 5.0% or more of the General Partner or its
Affiliates, or any person having the power to direct or cause direction of the
General Partner or its Affiliates, whether through the ownership of voting
securities, by contract, or otherwise.
"Effective Date" means the date on which the offering is declared effective
by the SEC.
"Equipment" includes all types of equipment and other personal property
that may be purchased directly or indirectly by the Partnership, as generally
described in the Prospectus under the caption "Investment Objectives and
Policies," and includes property which is rehabilitated or reconfigured for
re-lease or sale.
"Escrow Agent" means ___________________, ____________, ____, or any
banking institution that serves as escrow agent for the Capital Contributions
prior to the Partnership achieving the Minimum Offering.
"Front End Fees" means the fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phase
including Organization and Offering Expenses, Acquisition Fees, Acquisition
Expenses, and any other similar fees, however designated. Front End Fees shall
not include any Acquisition Fees or Acquisition Expenses paid by a manufacturer
of Equipment to any of its employees unless such employees are Affiliates of the
General Partner.
"Full Payout Lease" means, with respect to Equipment, a lease under which
the non-cancelable rental payments due during the initial term of the lease
(excluding any option periods) are sufficient to recover the Purchase Price of
Equipment.
"General Partner" means Berthel Fisher & Company Leasing, Inc., an Iowa
corporation, or any additional or successor general partner of the Partnership.
"Gross Proceeds" means the aggregate amount of the original Capital
Contributions of all Limited Partners.
"Gross Rental Payments" received by the Partnership means the aggregate
amount of gross lease payments received by the Partnership, including receipts
classified as contract receivable payments in accordance with generally accepted
accounting principles.
"Independent Expert" means a Person with no current material or prior
business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering
-115-
<PAGE>
opinions regarding the value of assets of the type held by the Partnership,
and who is qualified to perform such work.
"Initial Admission Date" means the date on which subscribers for the
minimum (1,200 Units) have been first admitted to the Partnership as Limited
Partners.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits, including fees, to which such Partner may be entitled under
the terms of the Partnership Agreement together with the obligations of such
Partner to comply with the terms of this Partnership Agreement.
"Investment in Program Assets" means the amount of Capital Contributions
actually paid or allocated to the purchase, manufacture or renovation of
Equipment or other Program Assets acquired by the Partnership, including the
purchase of Equipment, working capital reserves allocable thereto (except that
working capital reserves in excess of 3.0% shall not be included), and other
cash payments such as interest and taxes but excluding Front End Fees.
"IRS" means the Internal Revenue Service.
"Lease Portfolio" includes all Partnership cash and cash equivalents, all
Equipment and leases thereof, all financing transactions, and all other
Partnership assets and securities.
"Limited Partner" refers to any person who is admitted to the Partnership
as a Limited Partner or a Substitute Limited Partner.
"Liquidating Distributions" means distributions to the Partners which, with
respect to any year, are in excess of the Operating Distributions for such year,
and distributions pursuant to Section 11.4 of the Partnership Agreement.
"Liquidating Phase" of the Partnership means the period beginning no later
than the fifth anniversary of the Closing Date, or such earlier time as the
General Partner determines is in the best interests of the Limited Partners, and
continuing until the assets of the Partnership are liquidated, the liabilities
of the Partnership are satisfied and the distribution of the Liquidating
Distributions to the Partners is completed.
"Management Fee" means the fee paid to the General Partner for managing the
operations of the Partnership.
"Minimum Offering" consists of subscriptions for 1,200 Units accepted by
the General Partner, and payment received by the Escrow Agent of $1,200,000 for
such Units.
"NASAA" means the North American Securities Administrators Association,
Inc.
"NASD" means the National Association of Securities Dealers, Inc.
"Net Disposition Proceeds" means the proceeds realized by the Partnership
from the sale, refinancing or other disposition of Program Assets, including
insurance proceeds or lessee indemnity payments arising from the loss or
destruction of Equipment, less all Partnership liabilities.
"Net Income" or "Net Loss" means the net income or net loss of the
Partnership, as determined for federal income tax purposes under the accrual
method of accounting.
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<PAGE>
"Net Proceeds" means the total of Gross Proceeds reduced by Organization
and Offering Expenses, Selling Commissions and Acquisition Fees payable by the
Partnership.
"1986 Tax Act" means the Tax Reform Act of 1986.
"1987 Tax Act" means the Revenue Act of 1987.
"Operating Distributions" means those distributions during the Operating
Phase described under the caption "Cash Distributions and Redemptions."
"Operating Distributions to Partners" consists of that component of
Operating Distributions equal to an annual distribution of up to 9.6% (payable
in monthly distributions of up to approximately .8% to each Partner) calculated
on each Partner's Adjusted Capital Contribution based upon the number of months
that such Partner was admitted to the Partnership.
"Operating Phase" of the Partnership means the period beginning on the
Effective Date and ending upon the commencement of the Liquidating Phase.
"Organization and Offering Expenses" means expenses incurred in connection
with formation of the Partnership and preparing the Partnership for registration
and subsequently offering and distributing it to the public, including sales
commissions paid to brokers or dealers in connection with the distribution of
Interests and all advertising expenses except advertising expenses related to
the leasing of Equipment. See Paragraph 9.2.3 of the Partnership Agreement.
"Partners" refers collectively to the General Partner and the Limited
Partners. Reference to a "Partner" refers to any one of the Partners.
"Partnership" refers to the limited partnership governed by the Partnership
Agreement.
"Partnership Agreement" means the Agreement of Limited Partnership of
Telecommunications Income Fund XI, L.P., as it may be amended from time to
time.
"Person" means any natural person, partnership, corporation, association or
other legal entity.
"Present Value of the Partnership's Lease Portfolio" includes all
Partnership noncancellable lease payments receivable on all existing Partnership
leases (considered without regard to any renewals or extensions thereof)
discounted to their present value at an interest rate of 8.0% plus all
Partnership cash and the fair market value of all other Partnership securities
or assets. The Present Value of the Partnership's Lease Portfolio will be
determined annually by an independent accounting firm.
"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in equipment. The Partnership is a Program.
"Program Interest" means the limited partnership unit or other indicia of
ownership in a Program.
"Program Assets" means Equipment and other tangible and intangible assets,
including, without limitation, secured loans and other financings, furniture,
fixtures and leasehold improvements, directly or indirectly acquired, owned,
leased, sold or financed by the Program.
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<PAGE>
"Prospectus" means the final prospectus in the Registration Statement filed
with the SEC on Form S-1, as amended, with respect to the Units offered for
sale, as such Prospectus may be supplemented from time to time.
"Purchase Price of Equipment" means the price paid upon the purchase or
sale of a particular item of Equipment, including the amount of Acquisition Fees
and all liens and mortgages on the Equipment, but excluding points and prepaid
interest.
"Redemption Value of Investor's Units" means the investor's Capital Account
valued by the General Partner as of the last day of the fiscal quarter prior to
the quarter during which a redemption request is received.
"Roll Up" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Partnership
and the issuance of securities of a Roll-Up Entity. Such term does not include:
(a) a transaction involving securities of a Program that have been
for at least twelve months listed on a national securities exchange or
traded through the National Association of Securities Dealers Automated
Quotation National Market System; or
(b) a transaction involving the conversion to corporate, trust or
association form of only the Partnership if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(1) Limited Partners' voting rights;
(2) the term of existence of the Partnership;
(3) Sponsor compensation; or
(4) The Partnership's investment objectives.
"Roll-Up Entity" means the partnership, corporation, trust, or other entity
that would be created or would survive after the successful completion of a
proposed Roll-Up transaction.
"SEC" mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Commission" means any commission paid by the Partnership to the
Managing Sales Agent and Selected Sales Agents for their services in marketing
Units as described in "Compensation of the General Partner and Affiliates."
"Special Report" means that report required by the NASAA Equipment Leasing
Guidelines, Section V.G.1.(c), as in effect on the date hereof, which is an
annual report by independent certified public accountants of the breakdown and
allocation of the costs reimbursed to the General Partner or its Affiliates.
Such report shall at a minimum provide a review of the time records of
individual employees, the costs of whose services were reimbursed, and a review
of the specific nature of the work performed by each such employee. The
information required by such report may be contained in the annual report sent
to Limited Partners by the Partnership.
"Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any person who will manage or
participate in the management of the Partnership and any Affiliate of any such
person. Sponsor does not include a person whose only relation with the Program
is that of an independent equipment manager and whose only compensation is as
such.
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<PAGE>
Sponsor does not include wholly independent third parties such as
attorneys, accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of Program
interests.
"Substitute Limited Partner" means any person who complies with the
requirements of the Partnership Agreement to become a Substitute Limited Partner
of the Partnership and is admitted to the Partnership as a Limited Partner.
"Terminated Partner" means a General Partner who withdraws, is removed,
becomes bankrupt, is dissolved and liquidated or otherwise ceases to exist.
"Unit" means a Limited Partner's interest attributable to each Capital
Contribution of $1,000 to the Partnership.
-119-
<PAGE>
EXHIBIT A
- ------------------------------------------------------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
TELECOMMUNICATIONS INCOME FUND XI, L.P.
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX TO PARTNERSHIP AGREEMENT
ARTICLE PAGE
- ------- ----
I DEFINED TERMS................................................... A-1
II NAME OF PARTNERSHIP............................................. A-6
III TERM OF PARTNERSHIP............................................. A-6
IV BUSINESS AND PURPOSES........................................... A-6
V PRINCIPAL PLACE OF BUSINESS..................................... A-7
VI NAMES AND ADDRESSES OF PARTNERS................................. A-7
VII CAPITAL CONTRIBUTIONS........................................... A-8
VIII STATUS OF LIMITED PARTNERS...................................... A-9
IX COMPENSATION TO THE GENERAL PARTNER AND
SELLING COMMISSIONS TO THE BROKER-DEALERS....................... A-10
X PARTNERSHIP EXPENSES............................................ A-12
XI DISTRIBUTIONS................................................... A-13
XII ALLOCATIONS OF INCOME OR LOSS................................... A-16
XIII ASSIGNMENT OF PARTNERSHIP UNITS................................. A-17
XIV SUBSTITUTE LIMITED PARTNERS..................................... A-18
XV BOOKS, RECORDS, ACCOUNTING AND REPORTS.......................... A-19
XVI RIGHTS, AUTHORITY AND POWERS OF THE GENERAL PARTNER............. A-21
A-i
<PAGE>
XVII RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS........ A-31
XVIII WITHDRAWAL, REMOVAL, BANKRUPTCY OR DISSOLUTION AND LIQUIDATION OF
GENERAL PARTNER AND TRANSFER OF GENERAL PARTNER'S INTERESTS..... A-33
XIX REDEMPTION OF PARTNERSHIP UNITS................................. A-34
XX CERTAIN TRANSACTIONS............................................ A-35
XXI DISSOLUTION AND TERMINATION OF THE PARTNERSHIP.................. A-35
XXII SPECIAL POWER OF ATTORNEY....................................... A-36
XXIII EXCULPATION AND INDEMNIFICATION................................. A-37
XXIV MISCELLANEOUS................................................... A-38
A-ii
<PAGE>
THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") dated August 26, 1997,
by and among BERTHEL FISHER & COMPANY LEASING, INC., an Iowa corporation, as
General Partner ("General Partner"), THOMAS J. BERTHEL, an individual, as the
initial limited partner ("Initial Limited Partner") and the Limited Partners
admitted to the Partnership pursuant to Articles VII and XIV, to establish and
form a partnership (the "Partnership") under the Iowa Limited Partnership Act.
The parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
As used herein, the following terms will have the following meanings:
"Acquisition Expenses" means expenses including, but not limited to,
legal fees and expenses, travel and communication expenses, costs of
appraisals, accounting fees and expenses, and miscellaneous expenses relating
to selection and acquisition of Program Assets, whether or not the Program
Assets are acquired.
"Acquisition Fee" means the total of all fees and commissions paid by any
party in connection with the initial purchase or manufacture of Equipment
acquired by or financings placed by the Partnership. Included in the
computation of such fees or commissions shall be any commission, selection
fee, construction supervision fee, financing fee, non-recurring management
fee, or any fee of a similar nature, however designated. See Section 9.2.4
hereof.
"Adjusted Capital Contribution" of a Partner as of any date means the
Capital Contribution of the Partner, less the total amount of all payments
made as Liquidating Distribution or as a return of capital to the Partner and
to prior holders of such Partner's partnership interest prior to or on such
date pursuant to Sections 11.4.3 or 11.5 hereof.
"Admission Date" means any date on which subscribers for Units offered
pursuant to this Prospectus are admitted to the Partnership as Limited
Partners.
"Affiliate" means (i) any person directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 10.0% or more of the outstanding voting securities of
such other person, (iii) any officer, director or partner of such person, and
(iv) if such other person is an officer, director or partner, any company for
which such person acts in such capacity.
"Assignee" means a person who is shown in the Partnership's records as
having acquired a beneficial interest in one or more Units by assignment from
a Limited Partner.
"Book Value of the Partnership" means the book value of the Partnership's
assets less liabilities, as computed for federal income tax purposes.
"Capital Account" means the account established and maintained for each
Partner in accordance with federal income tax accounting principles,
including specifically Section 704 of the Code and the regulations
thereunder.
"Capital Contribution" means with respect to the General Partner, the
$10,000 contributed by it to the capital of the Partnership. With respect to
each Limited Partner, Capital Contribution means the cash contributed to the
capital of the Partnership by such Limited Partner for the Units sold or
A-1
<PAGE>
issued to him by the Partnership, which amount will be attributed to, and
will be considered to be a Capital Contribution of any subsequent Assignee of
such Units.
"Cash Available for Distribution" means Cash Flow plus cash funds
available for distribution from Partnership reserves, less amounts set aside
for restoration or creation of reserves as determined by the General Partner
in its sole discretion.
"Cash Flow" means all cash funds provided from operations, without
deduction for depreciation, but after deducting cash funds used to pay all
expenses and debt payments or pay for capital improvements and replacements
(other than cash funds withdrawn from reserves).
"Closing Date" means the date upon which the offering of Units
terminates, which is intended to be no later than one year after the
Effective Date; provided that if the Minimum Offering has been achieved and
registration is renewed with the applicable federal and state agencies, the
General Partner may extend the offering period and postpone the Closing Date
for up to an additional year (i.e., two years) from the Effective Date.
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Controlling Person" means any officer, director, executive manager,
senior manager or equity holder of 5.0% or more of the General Partner or its
Affiliates, or any person having the power to direct or cause direction of
the General Partner or its Affiliates, whether through the ownership of
voting securities, by contract, or otherwise.
"Effective Date" means the date on which the offering is declared
effective by the SEC.
"Equipment" includes all types of equipment and other personal property
that may be purchased directly or indirectly by the Partnership, as generally
described in the Prospectus under the caption "Investment Objectives and
Policies," and includes property which is rehabilitated or reconfigured for
re-lease or sale.
"Escrow Agent" means the banking institution that serves as escrow agent
for the Capital Contributions prior to the Partnership achieving the Minimum
Offering.
"Front End Fees" means the fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition
phase including Organization and Offering Expenses, Acquisition Fees,
Acquisition Expenses, and any other similar fees, however designated. Front
End Fees shall not include any Acquisition Fees or Acquisition Expenses paid
by a manufacturer of Equipment to any of its employees unless such employees
are Affiliates of the General Partner.
"Full Payout Lease" means, with respect to Equipment, a lease under which
the non-cancelable rental payments due during the initial term of the lease
(excluding any option periods) are sufficient to recover the Purchase Price
of Equipment.
"General Partner" means Berthel Fisher & Company Leasing, Inc., an Iowa
corporation, or any additional or successor general partner of the
Partnership.
"Gross Proceeds" means the aggregate amount of the original Capital
Contributions of all Limited Partners.
A-2
<PAGE>
"Gross Rental Payments" received by the Partnership means the aggregate
amount of gross lease payments received by the Partnership, including
receipts classified as contract receivable payments in accordance with
generally accepted accounting principles.
"Independent Expert" means a Person with no current material or prior
business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value
of assets of the type held by the Partnership, and who is qualified to
perform such work.
"Initial Admission Date" means the date on which subscribers for the
minimum (1,200 Units) have been first admitted to the Partnership as Limited
Partners.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to
any and all benefits, including fees, to which such Partner may be entitled
under the terms of this Partnership Agreement together with the obligations
of such Partner to comply with the terms of this Partnership Agreement.
"Investment in Program Assets" means the amount of Capital Contributions
actually paid or allocated to the purchase, manufacture or renovation of
Equipment or other Program Assets acquired by the Partnership, including the
purchase of Equipment, working capital reserves allocable thereto (except
that working capital reserves in excess of 3.0% shall not be included), and
other cash payments such as interest and taxes but excluding Front End Fees.
"IRS" means the Internal Revenue Service.
"Lease Portfolio" includes all Partnership cash and cash equivalents, all
Equipment and leases thereof, all financing transactions, and all other
Partnership assets and securities.
"Limited Partner" refers to any person who is admitted to the Partnership
as a Limited Partner or a Substitute Limited Partner.
"Liquidating Distributions" means distributions to the Partners which,
with respect to any year, are in excess of the Operating Distributions for
such year, and distributions pursuant to Section 11.4 hereof.
"Liquidating Phase" of the Partnership means the period beginning no
later than the fifth anniversary of the Closing Date, or such earlier time as
the General Partner determines is in the best interests of the Limited
Partners, and continuing until the assets of the Partnership are liquidated,
the liabilities of the Partnership are satisfied and the distribution of the
Liquidating Distributions to the Partners is completed.
"Management Fee" means the fee paid to the General Partner for managing
the operations of the Partnership.
"Minimum Offering" consists of subscriptions for 1,200 Units accepted by
the General Partner, and payment received by the Escrow Agent of $1,200,000
for such Units.
"NASAA" means the North American Securities Administrators Association,
Inc.
"NASD" means the National Association of Securities Dealers, Inc.
A-3
<PAGE>
"Net Disposition Proceeds" means the proceeds realized by the Partnership
from the sale, refinancing or other disposition of Program Assets, including
insurance proceeds or lessee indemnity payments arising from the loss or
destruction of Equipment, less all Partnership liabilities.
"Net Income" or "Net Loss" means the net income or net loss of the
Partnership, as determined for federal income tax purposes under the accrual
method of accounting.
"Net Proceeds" means the total of Gross Proceeds reduced by Organization
and Offering Expenses, Selling Commissions and Acquisition Fees payable by
the Partnership.
"Operating Distributions" means those distributions during the Operating
Phase described under the caption "Cash Distributions and Redemptions."
"Operating Phase" of the Partnership means the period beginning on the
Effective Date and ending upon the commencement of the Liquidating Phase.
"Operating Distributions to Partners" consists of that component of
Operating Distributions equal to an annual distribution of up to 9.6%
(payable in monthly distributions of up to approximately .8% to each Partner)
calculated on each Partner's Adjusted Capital Contribution based upon the
number of months that such Partner was admitted to the Partnership.
"Organization and Offering Expenses" means expenses incurred in
connection with formation of the Partnership and preparing the Partnership
for registration and subsequently offering and distributing it to the public,
including sales commissions paid to brokers or dealers in connection with the
distribution of Interests and all advertising expenses except advertising
expenses related to the leasing of Equipment. See Section 9.2.3 hereof.
"Partners" refers collectively to the General Partner and the Limited
Partners. Reference to a "Partner" refers to any one of the Partners.
"Partnership" refers to the limited partnership governed by this
Partnership Agreement.
"Partnership Agreement" means this Agreement of Limited Partnership of
Telecommunications Income Fund XI, L.P., as it may be amended or amended and
restated from time to time.
"Person" means any natural person, partnership, corporation, association
or other legal entity.
"Present Value of the Partnership's Lease Portfolio" includes all
Partnership noncancellable lease payments receivable on all existing
Partnership leases (considered without regard to any renewals or extensions
thereof) discounted to their present value at an interest rate of 8.0% plus
all Partnership cash and the fair market value of all other Partnership
securities or assets. The Present Value of the Partnership's Lease Portfolio
will be determined annually by an independent accounting firm.
"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation
formed and operated for the primary purpose of investment in and the
operation of or gain from an interest in equipment. The Partnership is a
Program.
"Program Assets" means Equipment and other tangible and intangible
assets, including, without limitation, secured loans and other financings,
furniture, fixtures and leasehold improvements, directly or indirectly
acquired, owned, leased, sold or financed by the Program.
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"Program Interest" means the limited partnership unit or other indicia of
ownership in a Program.
"Prospectus" means the final prospectus in the Registration Statement
filed with the SEC on Form S-1, as amended, with respect to the Units offered
for sale, as such Prospectus may be supplemented from time to time.
"Purchase Price of Equipment" means the price paid upon the purchase or
sale of a particular item of Equipment, including the amount of Acquisition
Fees and all liens and mortgages on the Equipment, but excluding points and
prepaid interest.
"Redemption Value of Investor's Units" means the investor's Capital
Account valued by the General Partner as of the last day of the fiscal
quarter prior to the quarter during which a redemption request is received.
"Roll-Up" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Partnership
and the issuance of securities of a Roll-Up Entity. Such term does not
include:
(a) a transaction involving securities of a Program that have been
for at least twelve months listed on a national securities exchange or
traded through the National Association of Securities Dealers Automated
Quotation National Market System; or
(b) a transaction involving the conversion to corporate, trust or
association form of only the Partnership if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(1) Limited Partners' voting rights;
(2) the term of existence of the Partnership;
(3) Sponsor compensation; or
(4) The Partnership's investment objectives.
"Roll-Up Entity" means the partnership, corporation, trust, or other
entity that would be created or would survive after the successful completion
of a proposed Roll-Up transaction.
"SEC" mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Commission" means any commission paid by the Partnership to the
Managing Sales Agent and Selected Sales Agents for their services in
marketing Units as described in "Compensation of the General Partner and
Affiliates."
"Special Report" means that report required by the NASAA Equipment
Leasing Guidelines, Section V.G.1.(c), as in effect on the date hereof, which
is an annual report by independent certified public accountants of the
breakdown and allocation of the costs reimbursed to the General Partner or
its Affiliates. Such report shall at a minimum provide a review of the time
records of individual employees, the costs of whose services were reimbursed,
and a review of the specific nature of the work performed by each such
employee. The information required by such report may be contained in the
annual report sent to Limited Partners by the Partnership.
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"Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any person who will manage
or participate in the management of the Partnership and any Affiliate of any
such person. Sponsor does not include a person whose only relation with the
Program is that of an independent equipment manager and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only
compensation is for professional services rendered in connection with the
offering of Program interests.
"Substitute Limited Partner" means any person who complies with the
requirements of the Partnership Agreement to become a Substitute Limited
Partner of the Partnership and is admitted to the Partnership as a Limited
Partner.
"Terminated Partner" means a General Partner who withdraws, is removed,
becomes bankrupt, is dissolved and liquidated or otherwise ceases to exist.
"Unit" means a Limited Partner's interest attributable to each Capital
Contribution of $1,000 to the Partnership.
ARTICLE II
NAME OF PARTNERSHIP
The name of the Partnership is TELECOMMUNICATIONS INCOME FUND XI, L.P.
The General Partner may, in its sole discretion, change the name of the
Partnership and, in the event of any such change, the General Partner will
notify the Limited Partners in writing within thirty (30) days after any such
change. In addition, the General Partner may adopt such trade or fictitious
names as it may deem appropriate.
ARTICLE III
TERM OF PARTNERSHIP
The Partnership commences at the time of the filing of the Certificate of
Limited Partnership in the office of the Secretary of State of the State of
Iowa, and will continue until December 31, 2012, unless sooner dissolved and
terminated as provided herein.
ARTICLE IV
BUSINESS AND PURPOSES
4.1 BUSINESS ACTIVITY. The primary purpose of the Partnership is to
acquire, own, operate, manage, lease, sell, convey, assign, exchange and
dispose of Equipment or interests therein, either in its own name, or in the
name or names of one or more nominees of the Partnership. The Partnership
may enter into financing arrangements which will involve making secured loans
to or other debt arrangements with unaffiliated third parties. These
financings will be completed only if such financings are advantageous to the
Partnership, and will include cases where lease transactions with those third
parties would result in unfavorable tax treatment. Such loans will generally
be securitized with a first security interest in equipment. In addition, the
Partnership may engage in any other business or do any and all acts and
things necessary, incidental or convenient to carry on the Partnership
purposes and business as specified in this section. Notwithstanding the
foregoing, the Partnership shall only acquire that type of Equipment that the
General Partner is experienced in acquiring and leasing. For purposes
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of this Partnership Agreement, any Equipment acquired and held by one or more
nominees for the benefit of the Partnership will be deemed to have been
acquired by and to be owned by the Partnership itself. The Partnership shall
not acquire equipment from a limited or general partnership, joint venture,
unincorporated association or similar organization in which the General
Partner has an interest, other than the General Partner. The Partnership may
not acquire Equipment in exchange for Units. The Partnership may not invest
as a limited partner in other leasing programs, as defined by guidelines
promulgated by NASAA.
4.2 OPERATING PHASE OF THE PARTNERSHIP. During the Operating Phase of
the Partnership, the Partnership will make payments pursuant to the terms of
Article XI hereof. During the Operating Phase, any portion of the
Partnership's cash or cash equivalents the General Partner believes are in
excess of amounts required for working capital or other reserves necessary
for the operation of the Partnership will either, in the discretion of the
General Partner, be distributed as Operating Distributions, reinvested in
Equipment, or distributed as Liquidating Distributions (provided there is no
cumulative deficiency in Operating Distributions).
4.3 WINDING-UP OF PARTNERSHIP BUSINESS. Beginning no later than the
fifth anniversary of the Closing Date, the Partnership will cease to reinvest
in Equipment and the General Partner will begin the orderly liquidation of
all Partnership assets. The Liquidation Phase shall begin at an earlier date
if the General Partner determines that it is in the best interest of the
Partnership to cease reinvesting all of the Partnership assets in Equipment.
The General Partner may, if it determines that it is in the best interests of
the Limited Partners, not reinvest a portion of the Partnership assets in
Equipment at a time prior to the fifth anniversary of the Closing Date,
without commencing the Liquidating Phase.
4.4 LIQUIDATION AND DISTRIBUTION OF PARTNERSHIP PROCEEDS. During the
Liquidating Phase of the Partnership, the General Partner will: (i)
liquidate the assets of the Partnership for cash, (ii) satisfy all
Partnership liabilities, (iii) set aside sufficient reserves to provide for
future or contingent Partnership liabilities, and (iv) make quarterly
distributions of the Partnership's remaining Cash Available for Distribution
to all Partners according to the terms of Article XI hereof.
ARTICLE V
PRINCIPAL PLACE OF BUSINESS
The principal place of business of the Partnership is located at 100
Second Street, SE, Cedar Rapids, Iowa 52401. The General Partner may from
time to time change the principal place of business of the Partnership, and
in the event of any such change, it will notify the Limited Partners in
writing within thirty (30) days after such change. The General Partner may
also establish such additional places of business for the Partnership as it
may deem appropriate. The name and address of the registered agent for the
Partnership is Thomas J. Berthel, 100 Second Street, SE, Cedar Rapids, Iowa
52401.
ARTICLE VI
NAMES AND ADDRESSES OF PARTNERS
6.1 GENERAL PARTNER. The General Partner of the Partnership is Berthel
Fisher & Company Leasing, Inc., an Iowa corporation, the address of which is 100
Second Street, S.E., Cedar Rapids, Iowa 52401.
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6.2 LIMITED PARTNERS. The names, addresses and Capital Contributions of
the Limited Partners are set forth on Exhibit I attached hereto, which
exhibit will be maintained at the principal place of business of the
Partnership.
ARTICLE VII
CAPITAL CONTRIBUTIONS
7.1 GENERAL PARTNER. Berthel Fisher & Company Leasing, Inc., as the
General Partner, has contributed Ten Thousand Dollars ($10,000.00) in cash to
the capital of the Partnership and has received an Interest as General
Partner, which is the equivalent of ten (10) Units and which has the same
rights and entitlements as if the General Partner owned 10 Units. The
General Partner may contribute additional amounts to the Partnership to
purchase Units. In addition, the General Partner will be entitled to receive
an interest in the Partnership and its cash distributions and Net Income and
Net Loss according to the provisions of Articles XI and XII. With respect to
the ownership of Units, the General Partner or any Affiliate will have the
same rights and entitlements as all other Limited Partners.
7.2 LIMITED PARTNER AT FORMATION. Thomas J. Berthel, as Initial Limited
Partner, has acquired an initial Unit in return for $1,000. Upon the
admission of Limited Partners pursuant to Section 7.4, the Partnership shall
return those funds to the Initial Limited Partner and shall reacquire his
Unit, and the Initial Limited Partner shall cease to be a Limited Partner in
the Partnership.
7.3 LIMITED PARTNERS. Except as otherwise provided in this Partnership
Agreement, the Partnership intends to sell and issue to Limited Partners not
less than 1,200 Units nor more than 25,000 Units and to admit as Limited
Partners the persons who contribute cash to the capital of the Partnership
for such Units.
7.3.1 Each person who acquires Units will be eligible to become a
Limited Partner in the Partnership at such time as he has (i) purchased two
or more Units, (ii) contributed the sum of $1,000 in cash for each Unit
purchased, (iii) executed and filed with the Partnership a Subscription
Agreement in the form attached to the Prospectus as Exhibit B, which sets
forth an intention to become a Limited Partner and requests admission to
the Partnership in that capacity, together with such other instruments as
the General Partner may deem necessary or desirable to effect such
admission, including the written acceptance and adoption by such person of
the provisions of this Partnership Agreement, and the execution and
delivery to the General Partner of a special power of attorney, the form,
style and content of which are more fully described herein, and
(iv) obtained the consent of the General Partner to such initial admission,
the granting or denial of which will be within the absolute discretion of
the General Partner.
7.3.2 Until Units in an aggregate amount of $1,200,000 have been
sold to Limited Partners other than the General Partner and the Initial
Limited Partner, which shall occur prior to the expiration of one year
following the effective date of the offering, all funds received from
subscribers for Units will be received by the Partnership in trust and will
be deposited in an interest bearing escrow account of the Escrow Agent, or
any other banking institution designated by the General Partner as escrow
holder for such funds. Upon receipt of a minimum of $1,200,000 from
subscribers for Units together with subscription agreements acceptable to
the General Partner, the funds (including the interest, if any, earned on
such funds) will be released from the escrow account to the Partnership on
such date as the General Partner shall determine, and the Partnership will
admit such purchasers into the Partnership as Limited Partners on the
Initial Admission Date.
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7.3.3 After the Initial Admission Date, the General Partner will
admit Limited Partners on a daily basis. Subject to Section 7.3, a Limited
Partner will be deemed admitted into the Partnership on a particular date
only if as of that date his subscription funds are received and the General
Partner has accepted the subscription agreement. The General Partner will
generally accept or reject applications to become Limited Partners which
are made in accordance with the provisions of Section 7.3 no later than
thirty (30) days after the receipt of such applications. Subscription
amounts of rejected applicants will be returned to such applicants
immediately upon rejection. The General Partner will amend this
Partnership Agreement or certificate as and to the extent required by Iowa
law to reflect the admission of a person as a Limited Partner.
Notwithstanding the foregoing, however, a Limited Partner will be deemed to
have been admitted to the Partnership on a different date if the General
Partner determines that such arrangement is required or advisable under
applicable law, including applicable tax law and regulations.
7.3.4 Only after the Minimum Offering is achieved can the
Partnership receive subscription amounts directly and apply such funds to
the purposes of the Partnership. Any proceeds of the offering available
for investment in Program Assets that have not been invested or committed
to investment in Program Assets within 24 months after the Effective Date
will be distributed by the Partnership pro rata to the Limited Partners as
a return of capital.
7.3.5 No Partner will be entitled to interest on his Capital
Contribution or on his Capital Account. Except as expressly provided
herein, no Partner will have the right to withdraw or to receive any return
of his Capital Contribution, and no Partner will have the right to receive
property other than cash in return of his Capital Contribution.
7.4 CAPITAL ACCOUNTS. A Capital Account will be established and
maintained for each Partner in accordance with federal income tax accounting
principles and specifically the provisions of Section 704 of the Code and the
regulations thereunder. The Capital Account of each Partner (i) will be
credited with (a) the amount of cash contributed by such Partner to the
Partnership and (b) such Partner's distributive share of Partnership Net
Income (including income exempt from tax) and (ii) will be debited with (a)
the amount of cash and the fair market value of property distributed to such
Partner (net of liabilities assumed by such Partner and liabilities to which
such distributed property is subject), (b) such Partner's distributive share
of expenditures of the Partnership described in Code Section 705(a)(2)(B)
(which share will be determined in accordance with such Partner's interest in
the Partnership), and (c) such Partner's distributive share of Partnership
Net Loss. The transferee of all or a portion of a Partner's Units will
succeed to that portion of the Partner's Capital Account which is allocable
to the portion of the Units transferred.
ARTICLE VIII
STATUS OF LIMITED PARTNERS
Pursuant to the Iowa Limited Partnership Act no Limited Partner shall be
bound by, or be personally liable for, the expenses, liabilities or
obligations of the Partnership except as provided by law, unless the Limited
Partner, in addition to the exercise of the Limited Partner's rights and
powers as a Limited Partner, participates in the control of the business.
Each Unit will be fully paid and, except as provided by law, nonassessable.
However, Limited Partners understand and agree that they may be required
under the Iowa Limited Partnership Act (the "Iowa Act") to repay to the
Partnership, with interest, any return of their Capital Contributions
previously made by the Partnership to the extent necessary to discharge the
Partnership's liabilities to creditors who extended credit to the Partnership
during the period the contribution was held by the Partnership. In addition,
if a Limited Partner receives
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a return of his Capital Contribution in violation of this Partnership
Agreement or of the Iowa Act, such Limited Partner may be liable for up to
six (6) years for the amount of the Capital Contribution wrongfully returned.
ARTICLE IX
COMPENSATION TO THE GENERAL PARTNER AND
SELLING COMMISSIONS TO THE BROKER-DEALERS
9.1 The General Partner and its Affiliates and the selling
broker-dealers will receive compensation from the Partnership only as
specified by this Partnership Agreement. For a description of the General
Partner's interest in allocations of Net Income and Net Loss, and Partnership
distributions, see Articles X, XI and XII hereof. The General Partner and
its Affiliates will not be compensated for any services other than those
described in this Partnership Agreement.
9.2 OFFERING AND ACQUISITION PHASE.
9.2.1 LIMITATION ON FRONT-END FEES. The Front-End Fees of the
offering will not exceed eighteen and one-half percent (18.5%) of Gross
Proceeds. The General Partner will commit a percentage of Capital
Contributions to Investment in Program Assets which is equal to the greater
of (a) 80.0% of the Capital Contributions reduced by .0623% for each 1.0%
of indebtedness encumbering Program Assets; or (b) 75.0% of Capital
Contributions. The percent of indebtedness encumbering Program Assets is
calculated by dividing the amount of indebtedness by the Purchase Price of
Equipment, excluding the Front-End Fees. The resulting quotient is then
multiplied by .0625% to determine the percentage to be deducted from 80.0%.
The General Partner will bear all Organization and Offering Expenses,
Selling Commissions, Equipment Acquisition Fees and Acquisition Expenses
which in the aggregate are in excess of eighteen and one-half percent
(18.5%) of Gross Proceeds.
9.2.2 SELLING COMMISSIONS. The Managing Sales Agent shall be
Berthel Fisher & Company Financial Services, Inc., an affiliate of the
General Partner. The Partnership will pay a Managing Sales Agent Fee to
the Managing Sales Agent equal to 9.0% of the Gross Proceeds. From such
amount, the Managing Sales Agent will pay commissions to Selected Sales
Agents of 6.0% of the selling price of the Units sold through them,
provided that for all Selected Sales Agents who sell more than $1,000,000
of Units, the commission rate shall be 6.5% of the selling price of the
Units sold through them.
9.2.3 ORGANIZATION AND OFFERING EXPENSES. The Partnership will
pay a maximum of three and one-half percent (3.5%) of Gross Proceeds of the
offering for actual expenses incurred by the General Partner in connection
with the formation of the Partnership, and in qualifying Units under
applicable federal and state law and any other expenses actually incurred
and directly related to the qualification, registration, advertising,
offering and sale of Units. Such expenses include (i) fees and expenses
paid by the Partnership to any counsel or accountants, (ii) registration
fees, filing fees and taxes, (iii) the costs of printing, amending,
supplementing and distributing the Prospectus and Registration Statement,
(iv) the costs of producing, qualifying, printing and distributing
advertising and sales materials used in connection with the issuance of
Units, (v) the costs of "due diligence" activities (including meetings and
seminars), and (vi) accounting and legal fees incurred in connection with
any of the foregoing, but does not include Acquisition Fees. The total of
Organization and Offering Expenses plus the nine percent (9.0%) Selling
Commission will not exceed twelve and one-half
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percent (12.5%) of the Gross Proceeds. The twelve and one-half
percent (12.5%) limitation is without recourse to, or reimbursement
by, the Partnership.
9.2.4 ACQUISITION FEE. The General Partner will receive an
Acquisition Fee for reimbursement of its Acquisition Expenses and for
rendering of its services in connection with the research, evaluation and
negotiation of available acquisition and financing opportunities. The
Acquisition Fee shall be in an amount equal to five percent (5%) of the
cost of Equipment purchased by the Partnership, all or a portion of which
will be payable when the Equipment is purchased by the Partnership (or the
General Partner as nominee) and five percent (5%) of the amount of
financings placed by the Partnership, payable upon the closing of a
financing transaction. The total Acquisition Fee including all fees and
commissions paid by all parties to all parties in connection with the
initial acquisition or manufacturer of Equipment will not exceed the lesser
of five percent (5%) of the cost of Equipment purchased by the Partnership
and financings placed by the Partnership, or an amount which is competitive
with that charged for Affiliates of the General Partner. Included in such
fee will be any leasing commission, selection fee, construction supervision
fee, financing fee, remarketing fee, nonrecurring management fee, or any
fee of a similar nature, however designated, and Acquisition Expenses.
9.3 OPERATING AND LIQUIDATING PHASES.
9.3.1 GENERAL PARTNER DISTRIBUTIONS. During the Operating Phase
and Liquidating Phase of the Partnership, the General Partner is entitled
to receive, to the extent available, (i) the General Partner's Expense
Allowance, (ii) the Management Fee, (iii) twenty percent (20%) of certain
Liquidating Distributions, as provided in Articles XI and XII hereof,
(iv) its distributions as owner of the General Partner interest (equivalent
to 10 Units), and (v) the Re-Leasing fee described in Section 9.3.2.
9.3.2 RE-LEASING FEE. As compensation for providing re-leasing
services to the Partnership, the General Partner will receive a fee equal
to the lesser of the competitive rate for comparable services for similar
equipment or 2.0% of the gross rental payments derived from the re-lease of
such equipment after the time that the re-lease has been consummated as a
result of the efforts of the General Partner. The General Partner will not
be paid for re-leasing services where Equipment is re-leased to a previous
lessee of such Equipment or to an affiliate of such previous lessee. The
General Partner has and will maintain adequate staff to render such
re-leasing services and will render substantial re-leasing services in
connection with each re-lease of Equipment. Payment for re-leasing
services shall be paid as each rental payment is made over the term of the
re-lease. This fee will not be paid on a current basis if the Partnership
has not paid the Limited Partners Operating Distributions equal to 9.6% of
Adjusted Capital Contributions for the year. In such case, the fee will be
accrued as a debt of the Partnership payable out of future revenues.
9.4 INTEREST. The General Partner may make loans to the Partnership and
will be entitled to receive repayment of such loans and to receive interest
on loans made to the Partnership, subject to the provisions of Section
16.1.20.
9.5 WITHDRAWAL OF GENERAL PARTNER. Should the General Partner withdraw,
be removed, become bankrupt or dissolve and liquidate or otherwise cease to
exist as provided in Article XVIII, any portion of any fee or commission
payable to the General Partner pursuant to the provisions of this Article IX,
which is then accrued and due, but not yet paid, will be paid by the
Partnership to the General Partner in accordance with Section 18.2.
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ARTICLE X
PARTNERSHIP EXPENSES
10.1 The Partnership will not reimburse the General Partner or its
Affiliates, except for (i) Organization and Offering Expenses reimbursed
pursuant to Section 9.2.3; (ii) loans made pursuant to Section 9.4; (iii) the
actual cost to the General Partner or its Affiliates of goods and materials
used for or by the Partnership and obtained from persons who are not
Affiliates of the General Partner; (iv) expenses incurred by the General
Partner or its Affiliates related to the purchase, operations, financing and
acquisition of Equipment incurred prior to the time that the Partnership has
funds available to pay such expenses directly; and (v) administrative
services provided by the General Partner or any of its Affiliates, such as
legal, accounting, computer, transfer agent, mailings to Limited Partners and
other similar services. However, reimbursement for administrative expenses
will be at the lesser of cost or the competitive rate that is charged by
persons who are not Affiliates of the General Partner for comparable
administrative services in the same geographic area.
The reimbursement for administrative expenses will be for administrative
expenses that are necessary for the prudent operation of the Partnership, and
will not be for time expended by Controlling Persons of the General Partner
or its Affiliates, or for salaries, fringe benefits, travel expenses, and
other administrative items incurred or allocated to any Controlling Person of
a Sponsor. No general or administrative overhead incurred by the General
Partner in connection with the administration of the Partnership will be
charged to the Partnership. Such general or administrative overhead
includes, but is not limited to, salaries, rent, travel expenses, utilities,
capital expenditures and other items generally falling under the category of
overhead. No payment will be made for services to which the General Partner
or its Affiliates are entitled by way of a separate fee.
10.2 Subject to Section 10.1, the Partnership shall pay all expenses of
the Partnership, which expenses shall be billed directly to the Partnership
from unrelated third parties and not from the General Partner and may
include, but are not limited to: (i) all costs (excluding rent,
depreciation, utilities, capital equipment and other overhead items) of
personnel employed full or part-time by the Partnership and involved in the
business of the Partnership, and such personnel may include employees of the
General Partner or its Affiliates (other than Controlling Persons); (ii) all
costs of borrowed money, taxes and assessments on Equipment and other taxes
applicable to the Partnership; (iii) legal, audit, accounting, data
processing, programming, brokerage and other fees; (iv) printing, engraving
and other expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration and recording of documents evidencing
ownership of an interest in the Partnership or in connection with the
business of the Partnership; (v) fees and expenses paid to independent
contractors, bankers, brokers and servicers, consultants and other Equipment
management personnel, insurance brokers and other agents; (vi) expenses in
connection with the disposition, replacement, alteration, repair,
refurbishment, leasing, re-leasing, financing, refinancing and operation of
Equipment (including the costs and expenses of insurance premiums and of
maintenance of such Equipment); (vii) expenses of organizing, revising,
amending, converting, modifying or terminating the Partnership; (viii)
expenses in connection with distributions made by the Partnership to, and
communications, bookkeeping and clerical work necessary in maintaining
relations with its Limited Partners, including the costs of printing and
mailing to such persons any evidence of ownership of Units and reports of
meetings of the Limited Partners, and of preparation of proxy statements and
solicitations of proxies in connection therewith; (ix) expenses in connection
with preparing and mailing reports required to be furnished to Limited
Partners for investor, tax reporting or other purposes, and reports which the
General Partner deems to be in the best interests of the Partnership to
furnish to the Limited Partners; (x) any accounting, computer (including, but
not limited to, terminals, controllers, leased lines, and CPUs), statistical,
data processing, programming or bookkeeping costs necessary for the
maintenance of the books and records
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of the Partnership (including an allocable portion of the General Partner's
costs of acquiring and owning computer equipment primarily used in connection
with the operations and reporting activities of the Partnership and any other
investment entities sponsored or administered by the General Partner of any
of its Affiliates), and (xi) the cost of preparation and dissemination of the
informational material and documentation relating to the potential lease,
re-lease, sale, financing or other disposition of Equipment.
ARTICLE XI
DISTRIBUTIONS
11.1 OPERATING DISTRIBUTIONS. Subject to the further provisions of this
Article XI, the Partnership will make certain distributions to Partners to
the extent it has Cash Flow after reinvesting Cash Flow in additional
Equipment to the extent determined by the General Partner to be in the
Limited Partners' best interests, which distributions will be made during the
Operating Phase, in order of priority as follows:
11.1.1 GENERAL PARTNER'S EXPENSE ALLOWANCE. The General Partner
shall be reimbursed in accordance with Section 10.1 hereof for the
administrative services it provides to the Partnership. The costs
reimbursed to the General Partner and its Affiliates under the General
Partner's Expense Allowance will be the subject of a Special Report.
11.1.2 OPERATING DISTRIBUTION TO PARTNERS. To the extent there is
additional Cash Flow, an Operating Distribution of up to nine and
six-tenths percent (9.6%) annually (payable in monthly distributions of up
to approximately eight tenths percent (.8%) to each Partner with respect
to the Units and with respect to the general partner Interest) during the
Operating Phase, said distributions calculated on each Partner's Adjusted
Capital Contribution, as adjusted from time to time, and based on the
number of days that each Partner is a Partner. Operating Distributions
will not continue during the Liquidating Phase.
11.1.3 MANAGEMENT FEE. A Management Fee payable to the General
Partner equal to two percent (2%) per year of the Gross Rental Payments
received by the Partnership and loan payments and other payments received
on account of financing activities of the Partnership, subject to reduction
as described below. This fee will not be paid on a current basis (but will
accrue and accumulate) if the Partnership has not paid the Limited Partners
an annual nine and six-tenths percent (9.6%) Operating Distribution and the
General Partner's Expense Allowance for the year. The Management Fee will
not, however, at any time exceed an amount equal to the sum of (i) two
percent (2%) per year of the Gross Rental Payments received by the
Partnership and loan payments and other payments received on account of
financing activities of the Partnership reduced to the extent that a two
percent (2%) rate is not competitive with fees customarily charged by
others rendering similar services as an ongoing public activity in the same
geographic location and for similar types of equipment, plus (ii) an amount
equal to five percent (5%) of all distributions from Cash Available for
Distribution (other than Net Disposition Proceeds) and one percent (1%) of
distributions made from net Disposition Proceeds.
11.1.4 LIMITATION ON BORROWING. The General Partner shall not
borrow for the purpose of making Operating Distribution, except to the
extent necessary to make distributions to pay taxes, as provided in Section
11.4.2.
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11.2 LIMITATION ON OPERATING DISTRIBUTIONS. The payment of Operating
Distributions during the Operating Phase will be made monthly, within ten (10)
days after the end of each month of distribution.
11.3 PAYMENT OF OPERATING DISTRIBUTIONS.
11.3.1 Payments of Operating Distributions may be suspended if, at
any time, in the determination of the General Partner, the Partnership is
receiving nominal amounts of yield on Equipment and leases.
11.3.2 There is no assurance that the Cash Flow will be at a level
sufficient to make payments of Operating Distributions. Any portion of the
Partnership's Cash Flow not paid out in the form of Operating Distributions
will be reinvested or distributed as contemplated by Article IV hereof.
11.3.3 Operating Distributions that are made to Limited Partners
will be apportioned among them based on the number of Units held.
11.3.4 The Partnership will not make distributions in kind to any
party.
11.4 LIQUIDATING DISTRIBUTIONS.
11.4.1 During the Liquidating Phase of the Partnership, the General
Partner will proceed with the orderly liquidation of all Partnership
assets. Out of the amounts received by the Partnership pursuant to such
liquidation, the General Partner will satisfy all liabilities of the
Partnership and will set aside reserves to provide for future or contingent
Partnership liabilities. No Operating Distributions will be made during
the Liquidating Phase. The amounts remaining after such payments and
reserves will be distributed in accordance with Sections 11.4.2 and 11.4.3
hereof. During the Liquidating Phase, Liquidating Distributions will be
made quarterly to all Partners to the extent available, and will be paid
within five (5) days after the end of each such quarter.
11.4.2 During the Operating Phase, the General Partner may sell a
portion of the Equipment, including lease receivables, the residual value
of the Equipment, and other assets, and reinvest the proceeds in additional
Equipment, or in the General Partner's sole discretion, distribute the
proceeds (less amounts to pay expenses or set aside for other Partnership
purposes as determined by the General Partner) to the Limited Partners as
Liquidating Distributions in the manner described in Section 11.4.3.
Reinvestment of proceeds resulting from the sale or refinancing of
Equipment may take place only if sufficient cash will be distributed to pay
state and federal income tax, if any, (assuming Limited Partners are in a
40% [combined state and federal] tax bracket) created by the sale or
refinancing of such Equipment.
11.4.3 The Liquidating Distributions of the Partnership will be
paid in order of priority as follows:
11.4.3.1 First, payment of the General Partner's Expense
Allowance;
11.4.3.2 Second, payment to the Partners to the extent they have
not received, during the term of their investment in the Partnership,
distributions totaling
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eight percent (8%) (on a cumulative compounded daily basis) on their
Adjusted Capital Contributions;
11.4.3.3 Third, payment to the Partners of one hundred percent
(100%) of their Adjusted Capital Contributions to the Partnership;
11.4.3.4 Fourth, payment to the Partners to the extent they have
not received, during the term of their investment in the Partnership,
distributions totaling nine and six-tenths percent (9.6%) annually
(calculated only through the end of the Operating Phase),
non-compounded, on their Adjusted Capital Contributions (as calculated
from time to time).
11.4.3.5 Fifth, payment to the General Partner of any unpaid
arrearages in its Management Fee, subject to the limitations set forth
in Section 11.1.3; and
11.4.3.6 Sixth, payment of any remaining amounts will be paid
eighty percent (80%) to the Limited Partners and twenty percent (20%)
to the General Partner; provided, however, the General Partner will
not receive its share of these remaining amounts until such time as
the Limited Partners have received Operating Distributions and
Liquidating Distributions equal to their Capital Contributions plus a
cumulative return of eight percent (8%) annually, compounded daily, on
their Adjusted Capital Contributions (as calculated from time to
time).
11.4.4 Any payments of Liquidating Distributions to the Limited
Partners pursuant to Section 11.4.3.6 hereof will be allocated among them
on the basis of the positive Capital Account balance of each Limited
Partner or, if zero, on the basis of the number of Units held.
11.4.5 When all of the assets of the Partners have been liquidated
and, in the determination of the General Partner the Partnership's
remaining assets constitute approximately twenty percent (20%) of the
aggregate Liquidating Distributions, the General Partner will cause an
audit of the Partnership to be made by an independent firm of certified
public accountants, the cost of which audit will be borne by the
Partnership. The General Partner will distribute the remaining Liquidating
Distributions after completion of the audit and in reliance thereon,
pursuant to the terms of Section 11.4.3.
11.5 RETURN OF UNINVESTED NET PROCEEDS. Any Net Proceeds not invested or
committed for Investment in Program Assets or leases within two (2) years
after the Effective Date will be returned (without interest) to the Limited
Partners in proportion to their respective number of Units owned. Any such
funds returned will include, in addition, a return of a proportionate share
of Organization and Offering Expenses and Selling Commissions. Interest
earned on such funds will be retained for the benefit of the Partnership.
The following categories of Net Proceeds will be deemed to be "invested
or committed for investment" in Equipment: (i) funds previously expended in
connection with the acquisition of Equipment or for other Partnership
purposes, (ii) funds to be disbursed in the future under the provisions of
agreements relating to the acquisition of Equipment or other Partnership
matters, and (iii) funds reserved or set aside as a condition to obtaining
financing such as compensating balances, special reserves, and funds subject
to escrow or similar arrangements. Any Net Proceeds which are so "invested
or committed for investment" in Equipment two (2) years after the Effective
Date but which are not thereafter utilized by the Partnership also will be
returned (without interest) to the Limited
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Partners, in accordance with this Section 11.5. The amount of each Limited
Partner's Adjusted Capital Contribution will be reduced by its share of any
such distributions.
11.6 RESTRICTIONS ON DISTRIBUTIONS. The Partnership may be restricted
from making payments to Partners under the terms of notes, mortgages or other
types of debt obligations it may issue, incur or assume in conjunction with
borrowed funds. Any payments also may be restricted or suspended in
circumstances where the General Partner determines, in its absolute
discretion, that such action is in the best interests of the Partnership.
Commissions on distributions are prohibited. Resale fees on liquidation of
Equipment are prohibited.
11.7 DISTRIBUTIONS SUBJECT TO PARTNERSHIP EXPENSES. All payments to
Partners are subject to the payment of Partnership expenses, as set forth in
Section 10.2, and to the maintenance of reasonable reserves for alteration,
improvement, or repair of Equipment and for other Partnership purposes.
ARTICLE XII
ALLOCATIONS OF INCOME OR LOSS
12.1 ALLOCATIONS OF NET INCOME AND NET LOSS AMONG LIMITED PARTNERS.
12.1.1 That portion of Net Income and Net Loss of the Partnership
allocated to Limited Partners and to the General Partner with respect to
its General Partner Interest (equivalent to 10 Units) for any fiscal year
will be apportioned among them based on the number of Units (equivalent
Units in the case of the General Partner) held and on the number of days
within the fiscal year that they were Partners beginning with the day on
which they were admitted as Partners, subject to the condition that the
Partnership net income shall first be allocated to Partners with negative
capital account balances.
12.1.2 For purposes of the allocations referred to in this Section
12.1 and distributions referred to in Section 11.3.3, a Limited Partner is
deemed to have been admitted as a Limited Partner as follows: if a Limited
Partner, on the day on which he was admitted to the Partnership under
Section 7.3, or if an Assignee, on the date on which the assignment of
Units to him is effective. If a Limited Partner becomes an assignor of
Units in accordance with the provisions of Article XIII, or if his Units
are repurchased by the Partnership in accordance with the provisions of
Article XIX, he will be deemed to have ceased being a Limited Partner with
respect to the Units assigned or repurchased on the day preceding the
effective date of the assignment or repurchase.
12.2 ALLOCATIONS OF NET INCOME AND NET LOSS. Any Partnership Net Loss at
the end of a taxable year will be allocated to the Limited Partners to the
extent of their positive Capital Accounts. Any additional Partnership Net
Loss would be allocated to the General Partner. Partnership Net Income will
initially be allocated to Partners with negative Capital Accounts in
proportion to and to the extent of such negative Capital Accounts so as to
reduce such deficit capital account balances to zero as quickly as possible.
Except as provided below, any Partnership Net Income will then be allocated
to the Limited Partners. During the Liquidating Phase of the Partnership,
Net Income earned from the sale of the Partnership's assets shall be
allocated to each Partner in proportion to such Partner's share of
Liquidating Distributions pursuant to Section 11.4 hereof. For purposes of
these allocations, the General Partner will be characterized as a Limited
Partner to the extent of its General Partner Interest, which is equivalent to
10 Units.
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12.3 CONSENT TO ALLOCATION BY LIMITED PARTNERS. The methods set forth
above by which payments to Limited Partners and allocations of Net Income and
Net Loss are made and apportioned are hereby expressly consented to by each
Limited Partner as an express condition to becoming a Limited Partner.
ARTICLE XIII
ASSIGNMENT OF PARTNERSHIP UNITS
13.1 Subject to Sections 13.1.4 and 13.1.5 below, a Limited Partner may
assign the whole or any part of his Units in the Partnership. A Limited
Partner other than the Initial Limited Partner may make an assignment only in
whole Units or, if simultaneously assigning the whole of his interest in the
Partnership, in whole and partial Units. Such assignment shall confer upon
the Assignee the right to become a Limited Partner in the following manner
and subject to the following conditions and the provisions of Article XIV
hereof:
13.1.1 An instrument of assignment executed by both the assignor
and the Assignee of the Units satisfactory in form to the General Partner
shall be delivered to the General Partner;
13.1.2 The assignor or Assignee shall have paid a transfer fee, as
requested by the General Partner, not in excess of the lesser of One
Hundred Fifty Dollars ($150.00) or the Partnership's actual, necessary and
reasonable expenses to cover all reasonable fees and filing costs in
connection with such transfer;
13.1.3 No assignment shall be effective until the last day of the
month in which the General Partner actually receives the instrument of
assignment complying with the requirements of Section 13.1.1 above;
13.1.4 No assignment shall be effective if such assignment might,
in the opinion of counsel to the Partnership or the General Partner, result
in (i) the termination of the Partnership for purposes of the then
applicable provisions of the Code, or (ii) the characterization of the
Partnership as publicly traded for federal income tax purposes, or (iii)
the assets of the Partnership being considered by law to be assets of
employee benefit plans investing in Units and therefore subjecting those
assets to the fiduciary standard of the Employee Retirement Income Security
Act of 1974 (provided, however, that until such time as there is clear
authority on these issues, the General Partner will not permit a transfer
of Units except in infrequent and compelling circumstances, as determined
in its sole and absolute discretion, and only if immediately following such
transfer at least seventy-five percent (75%) of the outstanding Units are
held by persons who are not either employee benefit plans or Individual
Retirement Accounts);
13.1.5 No assignment shall be effective if the assignment would, to
the knowledge of the General Partner, violate the provisions of any
applicable federal or state securities laws; and
13.1.6 No assignment to a minor or incompetent shall be effective
in any respect.
13.2 An Assignee of Units will be entitled to receive all payments to
Limited Partners of whatever character attributable to the Units assigned
from and after the effective date of the assignment of such Units to him;
however, anything herein to the contrary notwithstanding, the Partnership and
the General Partner will be entitled to treat the assignor of such Units as
the absolute
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owner thereof in all respects and will incur no liability for allocations of
Net Income or Net Loss or distributions, or transmittal of reports and
notices required to be given to Limited Partners hereunder, which are made in
good faith to such assignor, until such time as the written instrument of
assignment has been received by the Partnership and recorded on its books and
the effective date of the assignment has passed. Unless otherwise agreed by
the General Partner, Assignee and assignor, any Assignee of Units shall, for
the purposes of Articles XI and XII, be recognized as an Assignee and the
assignment will be effective as of the first day of the month next succeeding
the month in which the General Partner actually receives the instrument of
assignment that complied with the requirements of Section 13.1.1, subject to
and conditioned upon satisfaction of the other provisions of Section 13.1.
13.3 Any attempted or purported assignment of Units in contravention of
any of the provisions of this Article XIII will be void and ineffectual and
will not bind or be recognized by the Partnership.
ARTICLE XIV
SUBSTITUTE LIMITED PARTNERS
14.1 No Assignee will have the right to become a Substitute Limited
Partner in place of his assignor unless the assignment is effective in
accordance with Article XIII hereof and all of the following conditions will
first have been satisfied:
14.1.1 A duly executed and acknowledged written instrument sets
forth the intention of the assignor that the Assignee succeed to the
assignor's interest in the assigned Units as a Substitute Limited Partner
in his place, and gives the Assignee the right to succeed to the assignor's
interest in the assigned Units as a Substitute Limited Partner, all in
accordance with the provisions of this Article;
14.1.2 The assignor and Assignee will have executed and
acknowledged such other instruments as the General Partner may deem
necessary or desirable to effect such substitution, including a written
acceptance and adoption by the Assignee of the provisions of this
Agreement, as amended, and a special power of attorney, the form and
content of which are described in Article XXII of this Partnership
Agreement; and
14.1.3 A reasonable transfer fee to be determined by the General
Partner, which will not exceed the lesser of One Hundred Fifty Dollars
($150.00) or the actual, necessary and reasonable expenses of said
substitution, will be paid to the Partnership plus an additional amount to
cover all reasonable costs and expenses connected with such substitution.
14.2 By executing or adopting this Agreement, each Limited Partner hereby
consents to the admission of Substitute Limited Partners by the Partnership
and to any Assignee of his Units becoming a Substitute Limited Partner.
14.3 The General Partner shall cause the Partnership's records to be
amended at least once each calendar quarter to effect the substitution of
Substituted Limited Partners, but notwithstanding the dates of such amendment
all substitutions will be given effect in accordance with the provisions of
Article XIII and Section 14.1 hereof.
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ARTICLE XV
BOOKS, RECORDS, ACCOUNTING AND REPORTS
15.1 The fiscal year of the Partnership will end on December 31 of each
year.
15.2 The General Partner will keep, or cause to be kept, full and accurate
records of all transactions of the Partnership.
15.3 Access by Limited Partners to records and Partnership information
shall be governed by the following:
15.3.1 Any Limited Partner and any designated representative
thereof shall be permitted access to all records of the Partnership at all
reasonable times, and may inspect and copy any of them. A reasonable
charge for copy work may be charged by the Partnership.
15.3.2 An alphabetical list of the names, addresses, and business
telephone numbers of the Limited Partners of the Partnership along with the
number of Units held by each of them (the "Limited Partner List") shall be
maintained as a part of the books and records of the Partnership and shall
be available for inspection by any Limited Partner or its designated agent
at the home office of the Partnership upon the request of the Limited
Partner.
15.3.3 The Limited Partner List shall be updated at least quarterly
to reflect changes in the information contained therein.
15.3.4 A copy of the Limited Partner List shall be mailed to any
Limited Partner requesting the Limited Partner List within ten days of the
request. The copy of the Limited Partner List shall be printed in
alphabetical order, on white paper, and in a readily readable type size (in
no event smaller than 10-point type). A reasonable charge for copy work
may be charged by the Partnership.
15.3.5 The purposes for which a Limited Partner may request a copy
of the Limited Partner List include, without limitation, matters relating
to Limited Partners' voting rights under this Partnership Agreement, and
the exercise of Limited Partners' rights under federal proxy laws.
15.3.6 If the Sponsor of the Partnership neglects or refuses to
exhibit, produce, or mail a copy of the Limited Partner List as requested,
the Sponsor shall be liable to any Limited Partner requesting the list for
the costs, including attorneys' fees, incurred by that Limited Partner for
compelling the production of the Limited Partner List, and for actual
damages suffered by any Limited Partner by reason of such refusal or
neglect. It shall be a defense that the actual purpose and reason for the
requests for inspection or for a copy of the Limited Partner List is to
secure such list of Limited Partners or other information for the purpose
of selling such list or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as a Limited
Partner relative to the affairs of the Partnership. The Sponsor may
require the Limited Partner requesting the Limited Partner List to
represent that the list is not requested for a commercial purpose unrelated
to the Limited Partner's interest in the Partnership. The remedies
provided hereunder to Limited Partners requesting copies of the Limited
Partner List are in addition to, and shall not in any way limit, other
remedies available to Limited Partners under federal law or the laws of any
state.
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15.4 The General Partner will cause to be prepared and will distribute to
the Limited Partners, within sixty (60) days after the end of each fiscal
quarter, a report containing (i) the unaudited financial information included
in the Partnership's report on Form 10-Q for such quarter (if such report is
required to be filed with the Securities and Exchange Commission on behalf of
the Partnership for such quarter, and if such report is not required to be
filed, information similar to that which would be included in the Form 10-Q),
(ii) the Present Value of the Partnership's Lease Portfolio as of the end of
such quarter, (iii) the information contained in any report on Form 8-K filed
with the Securities and Exchange Commission on behalf of the Partnership
during such quarter with respect to the proposed acquisition of any Equipment
by the Partnership, (iv) a description of any Equipment acquired by the
Partnership during such quarter; (v) a statement setting forth the amount of
the fees received by the General Partner from the Partnership during such
quarter and identifying the services to which such fees relate; and (vi) in
the appropriate quarterly report, notification that the General Partner has
commenced the Liquidation Phase of the Partnership.
15.5 The General Partner will cause to be compiled and will distribute to
the Limited Partners, within seventy-five (75) days after the end of each
fiscal year, all financial information regarding the Partnership that is
necessary for the preparation of the Limited Partners' federal income tax
returns.
15.6 The General Partner will cause to be prepared and will distribute to
the Limited Partners the following:
15.6.1 a report of equipment acquisitions made during each quarter
shall be sent to all Limited Partners within sixty (60) days following the
end of each quarter, until the proceeds of the offering are fully invested
or, if not invested, returned to the Limited Partners. Such reports shall
include, by way of illustration and not limitation, a statement of the
actual purchase price of equipment, including terms of the purchase, a
statement of the total amount of cash expended by the Partnership to
acquire such items of Equipment (including and itemizing all commissions,
fees, expenses and the name of each payee), and a statement of the amount
of proceeds in the Partnership which remain unexpended or uncommitted; and
15.6.2 within one hundred twenty (120) days after the end of each
fiscal year, an annual report containing: (i) a balance sheet as of the end
of the fiscal year and statements of income, partners' equity, and a cash
flow statement, for the year then ended, all of which shall be prepared in
accordance with generally accepted accounting principles and accompanied by
a report of independent auditor, and (ii) a breakdown of distributions to
Limited Partners for the period covered thereby separately identifying
distributions from: (1) cash flow from operations during the period (2)
cash flow from operations during a prior period which had been held as
reserves, (3) proceeds from disposition of Equipment and investments, and
(4) reserves from the gross proceeds of the offering originally obtained
from the Limited Partners.
For each piece of equipment acquired by the Partnership individually
representing at least ten percent (10%) of the Partnership's total
Investment in Program Assets, the General Partner shall include a status
report as part of the annual report, which status report shall indicate:
(i) condition of Equipment, (ii) how Equipment is being utilized as of the
end of year (leased, operated, held for lease, repair or sale),
(iii) remaining term of leases, (iv) projected use of Equipment for next
year (renew lease, lease, retire, or sell), and (v) such other information
relevant to the value or utilization of the Equipment as the General
Partner deems appropriate. The status report shall describe the method
used or basis for valuation.
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15.6.3 Within sixty (60) days after the end of the first six (6)
months of each fiscal year, a report, prepared on the same accounting basis
to be utilized in the annual reports, containing:
a. a condensed balance sheet, which may be unaudited;
b. a condensed statement of income for the period then ended,
which may be unaudited;
c. a cash flow statement for the period then ended, which may
be unaudited; and
d. other pertinent material regarding the Partnership and its
activities during the period covered by the report.
15.6.4 If any Sponsor receives fees for services, it shall, within
sixty (60) days of the end of each quarter wherein such fees were received,
send to each Limited Partner a detailed statement setting forth the
services rendered, or to be rended by such Sponsor and the amount of the
fees received. This requirement may not be circumvented by lump-sum
payments to management companies or other entities who then disburse the
funds.
15.7 The General Partner will cause to be prepared federal and state
income tax returns for the Partnership and will further cause such returns to
be timely filed with the appropriate authorities.
15.8 The General Partner will cause to be prepared and timely filed with
appropriate federal and state regulatory and administrative authorities, all
reports required to be filed with such authorities under applicable laws,
rules and regulations. Any Limited Partner will be provided with a copy of
such report upon request and without expense to him.
15.9 The General Partner will bear the expenses of preparation and
distribution of the reports described in this Article XV, other than the
costs of any audit of the Partnership's records or any other expenses which
are to be borne by the Partnership pursuant to Section 10.2. Any expenses
borne by the General Partner hereunder will be included in the reimbursement
to the General Partner out of, and to the extent of, the General Partner's
Expense Allowance, as provided in Section 11.1.1.
15.10 The General Partner will maintain a record of the information
obtained to indicate that each Limited Partner meets the suitability
standards employed in connection with the offer and sale of its Units and a
representation of each Limited Partner that he is purchasing for his own
account, or in lieu of such representation, information indicating that each
Limited Partner for whose account the purchase is made meets such suitability
standards. Such information will be obtained from each Limited Partner
through the use of the Subscription Agreement signed by each Limited Partner
which sets forth the prescribed suitability standards in full and in which he
represents that he meets such suitability standards and is purchasing for his
own account.
ARTICLE XVI
RIGHTS, AUTHORITY AND POWERS OF THE GENERAL PARTNER
16.1 Subject to Sections 16.2 and 16.3, the General Partner will have all
rights, authority and powers as provided under the Iowa Act and as otherwise
provided by law, and those required or
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appropriate to the management of the Partnership business which, by way of
illustration but not by way of limitation, will include the right, authority
and power:
16.1.1 To cause the Partnership to (a) acquire, operate, lease,
develop, improve, maintain, hold, exchange, trade, sell or otherwise
dispose of Equipment (including interests therein, appurtenances thereof
and personal or mixed property connected therewith) either in the name of
the Partnership or in the name or names of one or more nominees or trustees
for the benefit of the Partnership, upon such terms and for such
consideration (including cash, securities and other property); and (b)
enter into financing arrangements which will involve making secured loans
to or other debt arrangements with unaffiliated third parties in cases
where such financings are advantageous to the Partnership, are an
attractive alternative to leases, and the General Partner, in its sole
discretion, deems such financing to be in the best interests of the
Partnership;
16.1.2 To cause the Partnership to borrow money up to Ten Million
Dollars ($10,000,000.00) in the aggregate at any one time outstanding for
the purpose of rehabilitating or reconfiguring Equipment for sale or
re-lease, and acquiring Equipment, and if security is required therefor,
to mortgage any Partnership assets or subject any such assets to any other
security device, to obtain replacements of any mortgage or other security
device, and to prepay, in whole or in part, refinance, increase, modify,
consolidate or extend any borrowings or any mortgage or other security
device, all at such times as the General Partner, in its sole discretion,
deems to be in the best interests of the Partnership;
16.1.3 To place record title to, or the right to use, Partnership
assets in the name or names of one or more nominees or trustees for any
purpose convenient or beneficial to the Partnership;
16.1.4 To acquire and enter into any contract of insurance the
General Partner deems necessary or appropriate for the protection of the
Partnership and the General Partner, for the conservation of Partnership
assets or for any purpose convenient or beneficial to the Partnership,
provided the Partnership will not incur the portion of the cost of any
liability insurance policies covering the General Partner or any of its
Affiliates attributable to insuring the General Partner or any of its
Affiliates against liabilities as to which the General Partner and its
Affiliates are not entitled to be indemnified by the Partnership;
16.1.5 To cause the Partnership to employ, at the expense of the
Partnership, employees, agents, independent contractors, brokers,
attorneys, accountants and other persons, including the General Partner,
Affiliates and employees thereof, to perform such services specified in
this Agreement and for such compensation as the General Partner will
determine in accordance with this Agreement, and to dismiss such persons
from employment;
16.1.6 To prepare or cause to be prepared reports, statements and
other relevant information for distribution to Limited Partners;
16.1.7 To open accounts and deposit and maintain funds in the name
of the Partnership in banks or savings and loan associations not affiliated
with the General Partner or its Affiliates; provided, however, the
Partnership's funds will not be commingled with the funds of any other
persons, except as permitted by this Agreement;
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16.1.8 To cause the Partnership to make or revoke any of the
elections provided under the Code;
16.1.9 To select the Partnership's accounting year;
16.1.10 To determine the appropriate accounting method or methods to
be used by the Partnership;
16.1.11 To cause the Partnership to offer and sell Units to the
public through selected broker-dealers and to employ personnel, agents and
dealers for such purpose;
16.1.12 Notwithstanding anything herein to the contrary, and subject
to the rights granted to the Limited Partners under Section 17.2 herein, to
amend this Agreement: (i) to reflect the addition or substitution of
Limited Partners or the reduction of the Capital Accounts under the refund
of capital to Partners, (ii) to add to the representations, duties or
obligations of the General Partner, or surrender any right or power granted
to the General Partner, herein, for the benefit of the Limited Partners,
(iii) to cure any ambiguity, to correct or supplement any provision herein
that may be inconsistent with any other provision herein, or to add any
other provisions with respect to matters or questions arising under this
Agreement that will not be inconsistent with the provisions of this
Agreement, (iv) to delete or add any provision from or to this Agreement
requested to be so deleted or added by the staff of the Securities and
Exchange Commission or by a state regulatory agency, the deletion or
addition of which provision is deemed by such staff or such regulatory
agency to be for the benefit or protection of the Limited Partners, (v) to
modify any provision of this Agreement, if, in the opinion of counsel to
the Partnership and the General Partner, such modification is necessary to
cause the Partnership not to be characterized as a "publicly traded"
partnership for federal income tax purposes, and (vi) to modify any
provision of this Agreement, if, in the opinion of counsel to the
Partnership and the General Partner, such modification is necessary to
cause the allocations contained in Article XII to have substantial economic
effect in accordance with the final regulations relating to Section 704 of
the Code or any other statutory provision or regulation relating to such
allocations; provided, however, that no amendment will be made pursuant to
this section to amend the voting rights of the Limited Partners;
16.1.13 To require in any or all Partnership contracts that the
General Partner will not have any personal liability thereon and that the
person or entity contracting with the Partnership is to look solely to the
Partnership or its assets for satisfaction, and to require the satisfaction
of contracts on which the General Partner has personal liability prior to
contracts on which it has no such personal liability;
16.1.14 To execute, acknowledge and deliver any and all instruments
on behalf of the Partnership or otherwise, that it deems necessary or
appropriate to effectuate the rights, authority and power of the General
Partner, and take all such action in connection therewith as it in its
discretion deems necessary or appropriate;
16.1.15 To cause the Partnership to reinvest or make a commitment to
reinvest all or any portion of the Partnership assets in Equipment at any
time up to the fifth anniversary from the Closing Date, and to temporarily
invest the Net Proceeds of the Offering (and undistributed Cash Flow) in
United States government securities (including, but not limited to,
short-term Treasury Bills and Treasury Notes), securities issued or
guaranteed by states or municipalities, bank repurchase agreements, money
market accounts, bankers' acceptances, savings and loan
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association deposits, deposits with members of The Federal Home Loan
Bank System or The Federal Savings and Loan Insurance Corporation,
commercial paper, secured equipment lease lines of credit, and other
investments with appropriate scheduled maturities or similar
investments which will be held by the Partnership generally not exceeding
one (1) year from the date of purchase. The foregoing notwithstanding,
the Partnership does not intend to pursue a policy which would make it
subject to the Investment Company Act of 1940, and the Partnership's
external investment prior to the use of Net Proceeds as described above
will be limited accordingly;
16.1.16 To purchase Equipment in its own name or in the name of a
nominee, a trust or otherwise (and assume loans in connection therewith)
or to enter into agreements to purchase or to obtain an option or right of
first refusal to purchase Equipment from persons other than the General
Partner and its Affiliates and, in any case, to temporarily hold title to
such Equipment, for the purpose of facilitating the acquisition of such
Equipment by the Partnership, the borrowing of money or the obtaining of
financing by the Partnership, or for any other purpose related to the
business of the Partnership, provided that (i) the price payable by the
Partnership to the General partner for any Equipment may not exceed the
cost to the General Partner ("cost" for this purpose shall mean the
reasonable, necessary and actual expenses incurred by the General Partner
or its Affiliates, as determined in accordance with generally accepted
accounting principles, in holding title to Equipment on a temporary basis)
provided, however, that all revenues from such Equipment will be received
by the Partnership; (ii) the General Partner will not receive any benefit
from such sale other than as set forth in subsection (i) of this Section
16.1.16; (iii) such transaction is in the best interest of the Partnership;
(iv) there will be no difference in interest terms of any loans secured by
the Equipment at the time acquired by the General partner and at the time
acquired by the Partnership; and (v) any Equipment purchased by the General
Partner on behalf of the Partnership with the intent to transfer such
Equipment to the Partnership will generally not be held for more than six
(6) months;
16.1.17 To prepare, file and publish any and all instruments or
documents necessary to enable the Partnership to transact business or
otherwise to exist, operate and be recognized as a limited partnership in
jurisdictions outside Iowa;
16.1.18 To cause the Partnership to endeavor to maintain Equipment
owned by it and, upon the liquidation of Partnership assets, maintain a
cash reserve from revenues for normal repairs, replacements and any other
contingencies in any amount which the General Partner deems reasonable;
16.1.19 To cause the Partnership to enter into joint ventures with
entities that are not Affiliates of or formed by the Sponsor for the
acquisition, ownership and leasing of Equipment, provided that (i) the
Partnership and such co-venturers have substantially identical investment
objectives; (ii) there are no duplicate fees; (iii) the sponsor
compensation from the Partnership is substantially identical to the sponsor
compensation from such co-venturers; (iv) the investment of the Partnership
and such co-venturers is on substantially the same terms and conditions;
(v) the agreement or other instrument establishing such venture will not
authorize the Partnership to do anything, in its capacity as investor,
partner, member, shareholder or co-venturer in such venture, that the
Partnership could not do directly because of the policies set forth in this
Agreement; (vi) the agreement or other instrument establishing such venture
gives the Partnership a right of first refusal to buy out the interest of
the other participant in the venture if such other participant seeks to
have the joint venture sell its interest; and (vii) the
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joint venture is formed either for the purpose of effecting appropriate
diversification of the Partnership's investments or for the purpose of
effecting a transaction described in Section 16.1.16, except that
investments in limited partnership interests of another program shall be
prohibited; however, nothing herein shall preclude the investment in
general partnerships or ventures that own and operate specific equipment,
provided the Partnership acquires a controlling interest in such other
ventures or general partnerships and the noncontrolling interest is owned
by a nonaffiliate. In such event, duplicate fees shall not be permitted;
16.1.20 To make loans to the Partnership in an aggregate amount not
to exceed (including other Partnership borrowings) Five Hundred Thousand
Dollars ($500,000) at any time. Any interest charged to the Partnership on
such loans will be the lower of (i) the rate which would be charged to the
Partnership by unrelated lending institutions, or (ii) the cost of funds to
the General Partner. No points or prepayment penalty would be charged to
the Partnership with respect to any such loan;
16.1.21 To elect in writing, subject to approval of the Limited
Partners holding a majority of the then outstanding Units, to have the
Partnership governed by laws made effective subsequent to the date the
Partnership was formed, and, upon such election, to supplement or amend
this Agreement or any other instrument or document filed by the
Partnership, including any certificates of limited partnership, and to take
such other actions as it may deem necessary or desirable in connection
therewith;
16.1.22 To commence the orderly liquidation of all or a portion of
the assets of the Partnership, beginning on the fifth anniversary of the
Closing Date or such earlier date as the General Partner may select, and to
distribute among the Partners and other according to the terms of this
Agreement amounts received as a result thereof; and
16.1.23 To continue to manage any of the Partnership's leases that
relate to lease receivables sold to unaffiliated third parties; provided,
however, the General Partner will: (i) manage any such leases for only a
portion of the fee that any third party purchaser would pay to the
Partnership, (ii) receive no more than two percent (2%) in Management Fees
relating to such transactions, (iii) only enter into an agreement with a
third party purchaser to continue to manage the leases in order to
facilitate the Partnership's ability to sell the receivables, and (iv)
enter into such an arrangements only if doing so would benefit the
Partnership.
16.1.24 The General Partner may perform services for the
Partnership, if necessary, other than those specifically provided for
herein.
a. At a minimum, such self-dealing arrangements must meet the
following criteria:
(i) The compensation, price or fee charged for
providing such services must be comparable and
competitive with the compensation, price or fee
of any other Person who is rendering comparable
services or selling or leasing comparable goods
and materials that could reasonably be made
available to the Partnership, and
(ii) The fees and other terms of the contract shall be
fully disclosed, and
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(iii) The General Partner must be independently engaged
in the business of providing such services to
other than Affiliates and at least 75% of the
Person's gross revenue from providing such
services must be derived from other than the
General Partner.
b. Further, the General Partner may not provide such goods and
services to the Partnership unless all of the following
conditions are also satisfied:
(i) The goods or services are necessary to the prudent
operation of the Partnership,
(ii) The goods or services must be provided at a price
which does not exceed the lesser of the actual cost
of such goods and services to the General Partner
or ninety percent (90%) of the compensation, price
or fee charged by unaffiliated persons in the same
geographic location,
(iii) The goods or services for which the General
Partner is to receive compensation shall be
embodied in a written contract, fully disclosed in
the Prospectus, which precisely describes the
goods or services to be provided and all
compensation to be paid. Such contract may only
be modified in any material respect by the vote of
a majority in interest of limited partners and
shall be terminable without penalty on sixty (60)
days' notice, and
(iv) The Sponsor must be previously engaged in the
business of rendering such services, or providing
such goods, independently of the program and as an
ordinary and ongoing business.
For purposes of the foregoing subsections b(i) through b(iv), the
actual cost of services means the pro rata cost of personnel,
including an allocation of overhead directly attributable to such
personnel, based on the amount of time the personnel spent on such
services or other method of allocation acceptable to the Partnership's
certified public accountant. The actual cost of goods includes the
price of goods and materials paid to unaffiliated persons, and direct
costs incurred by the General Partner in the transaction, including an
allocation of overhead directly attributable to the transaction.
Actual cost shall exclude (i) salaries, fringe benefits, travel
expenses, and other administrative items incurred or allocated to any
controlling person of the General Partner, and (ii) rent or
depreciation, utilities, capital equipment, and other administrative
items generally falling under the category of overhead, to the extent
the items set forth in (i) and (ii) are not directly attributable to
the rendering of such services.
16.1.25 To call a meeting of the Partners for any lawful purpose.
16.1.26 At the termination of the Partnership, to establish a
liquidating trust on such terms as the General Partner deems necessary and
prudent for the purpose of holding and distributing
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assets of the Partnership for which there is no ready market at the
termination of the Partnership or for the purpose of facilitating the
liquidation and distribution of Partnership assets.
16.2 The General Partner will, except as otherwise provided in this
Agreement, have all the rights and powers and will be subject to all the
restrictions and liabilities of a general partner under the limited partnership
law of the State of Iowa. In addition, the General Partner will be the "tax
matters partner" of the Partnership as that term is defined in Section
6231(a)(7) of the Code.
16.3 The General Partner or Affiliates will not have the authority to:
16.3.1 Except as otherwise provided in this Partnership Agreement,
enter into contracts with the Partnership other than equipment leases in
the ordinary course of the Partnership's business which would bind the
Partnership after the expulsion of the General Partner, or continue the
business with Partnership assets after the occurrence of such event;
16.3.2 Alter the primary purpose of the Partnership as set forth in
Article IV;
16.3.3 Receive a rebate or give up or participate in any reciprocal
business arrangements which would enable them to do so;
16.3.4 Except as provided in Sections 16.1.16 and 16.1.19 and
otherwise herein, permit the Partnership to enter into any joint venture,
partnership or other form of indirect ownership of Equipment;
16.3.5 Purchase or lease Equipment from the Partnership, or lease
or sell Equipment to the Partnership, except as provided in Section 16.1.16
and 16.8;
16.3.6 Cause the Partnership to exchange Units for Equipment;
16.3.7 Make loans to the Partnership, except as provided in Section
16.1.20; provided, however, that the term of any loan by the General
Partner in accordance with Section 16.1.20 shall not exceed twelve (12)
months;
16.3.8 Do any act in contravention of this Partnership Agreement or
which would make it impossible to carry on the ordinary business of the
Partnership;
16.3.9 Possess any Equipment owned by the Partnership or assign the
rights of the Partnership in specific Equipment for other than a
Partnership purpose;
16.3.10 Admit a person as a General Partner except with the consent
of the Limited Partners as provided for in this Agreement:
16.3.11 Perform any act (other than an act required by this
Agreement or any act performed in good faith reliance upon counsel's
opinion) which would, at the time such act occurs, subject any Limited
Partner to liability as a general partner in any jurisdiction;
16.3.12 Unless the General Partner otherwise determines it to be in
the best interest of the Partnership and it is in connection with the
orderly liquidation of the Partnership's assets use Partnership assets
after the fifth anniversary of the Closing Date to acquire additional
Equipment, or reinvest Partnership assets in additional Equipment;
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16.3.13 Commingle, or cause the Partnership to commingle,
Partnership funds with those of any other person or entity;
16.3.14 Employ the funds or assets of the Partnership in any manner
except for the exclusive benefit of the Partnership;
16.3.15 Except as otherwise provided herein, cause the Partnership
to enter into any transactions with the General Partner or its Affiliates
or any other partnership in which the General Partner has any interest,
involving the sale or lease of any Equipment to or by the Partnership, the
rendering of services to or by the Partnership, or the lending of any
monies or other property to or by the Partnership;
16.3.16 Directly or indirectly pay or award any finder's fees,
commissions or other compensation to any person engaged by a potential
investor for investment advice as an inducement to such advisor to advise
the purchaser regarding the purchase of Units; provided, however, that the
General Partner will not be prohibited from paying Selling Commissions or
other normal commissions payable to registered broker-dealers (including
Berthel Fisher & Company Financial Services, Inc.) or other properly
licensed persons for selling Units;
16.3.17 Cause the Partnership to incur indebtedness, the principal
amount of which exceeds forty percent (40%) of Gross Proceeds;
16.3.18 Borrow from the Partnership;
16.3.19 Enter into any exclusive agreements with the Partnership;
16.3.20 Without the concurrence of Limited Partners holding a
majority of the outstanding Units:
16.3.20.1 Amend this Partnership Agreement (except for those
amendments which do not alter the rights of the Limited Partners and
except as permitted pursuant to Section 16.1.12);
16.3.20.2 Withdraw as General Partner;
16.3.20.3 Appoint an additional general partner;
16.3.20.4 Sell all or substantially all of the assets of the
Partners, except as provided in Section 16.1.22 hereof;
16.3.20.5 Dissolve the Partnership, except in accordance with
Sections 21.1.4 or 21.1.5 in the ordinary course of the Partnership's
business; or
16.3.20.6 Transfer the General Partner's Interest, except as
provided in Section 21.4.
16.3.21 Except as specifically provided herein, cause the
Partnership to pay a commission or fee in connection with the reinvestment
or distribution of Cash Available for Distribution or of the proceeds of the
resale, exchange or refinancing of Equipment.
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16.3.22 Acquire, for its own account, Equipment suitable for
acquisition by the Partnership or by the General Partner on behalf of
the Partnership until the Net Proceeds have been fully invested in
Equipment.
16.3.23 Without the amendment of this Partnership Agreement and
the subsequent concurrence of Limited Partners holding a majority of the
outstanding Units, merge the Partnership with or engage in any
combination with any other partnership or entity.
16.3.24 Operate the Partnership in such a manner as to have the
Partnership classified as an "investment company" for purposes of the
Investment Company Act of 1940.
16.4 Although nothing herein will require the General Partner to devote
full time to the Partnership, the General Partner hereby agrees to use its best
efforts in connection with the purposes of the Partnership and to devote to such
purposes such of its time and activity during normal business days and hours as
it, in its discretion, will deem necessary for the management of the affairs of
the Partnership. The General Partner agrees that it will not offer for sale
interests in partnerships to be formed in the future until the interests in this
Partnership have been sold, unless such future partnership has objectives
different than those of this Partnership. In addition, the General Partner will
have the fiduciary responsibility for the safekeeping and use of all funds and
assets of the Partnership, whether or not in its immediate possession or
control, and it will not employ, or permit another to employ such funds or
assets in any manner except for the exclusive benefit to the Partnership.
Furthermore, the General Partner may not contract away its fiduciary duty owed
to the Partnership under the common law. In the event of a conflict between the
interests of the Limited Partners and the General Partner, the General Partner
will be obligated by its fiduciary duty to give priority to the interests of the
Limited Partners.
16.5 Within ninety (90) days after the Limited Partners have voted to expel
the General Partner under Article XVIII, the General Partner will have prepared,
at an expense equally borne by the General Partner and the Partnership,
financial statements (balance sheet and statements of income or loss, partners'
equity and cash flows) prepared in accordance with generally accepted accounting
principles and accompanied by a report thereon containing an opinion of an
independent certified public accounting firm of recognized standing, and will
cause such statement to be mailed to the Limited Partners as soon as possible
after receipt thereof.
16.6 The General Partner will have no personal liability for the repayment
of the Capital Contribution of any Limited Partner.
16.7
16.7.1 In connection with a proposed Roll-Up, an appraisal of all
Partnership assets shall be obtained from a competent Independent Expert.
If the appraisal will be included in a Prospectus used to offer the
securities of a Roll-Up Entity, the appraisal shall be filed with the SEC
and the states as an Exhibit to the Registration Statement for the
offering. Accordingly, an issuer using the appraisal shall be subject to
liability for violation of Section 11 of the Securities Act of 1933 and
comparable provisions under state laws for any material misrepresentations
or material omissions in the appraisal. Partnership assets shall be
appraised on a consistent basis. The appraisal shall be based on an
evaluation of all relevant information, and shall indicate the value of the
Partnership's assets as of a date immediately prior to the announcement of
the proposed Roll-Up transaction. The appraisal shall assume an orderly
liquidation of Partnership assets over a twelve month period. The terms of
the engagement of
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the Independent Expert shall clearly state that the engagement is for the
benefit of the Partnership and its Limited Partners. A summary of the
independent appraisal, indicating all material assumptions underlying the
appraisal, shall be included in a report to the Limited Partners in
connection with a proposed Roll-Up.
16.7.2 In connection with a proposed Roll-Up, the Person
sponsoring the Roll-Up shall offer to Limited Partners who vote "no" on the
proposal the choice of:
a. accepting the securities of the Roll-Up
Entity offered in the proposed Roll-Up; or
b. one of the following:
(i) remaining as Limited Partners in the
Partnership, and preserving their interests
therein on the same terms and conditions as
existed previously; or
(ii) receiving cash in an amount equal to the
Limited Partners' pro-rata share of the appraised
value of the net assets of the Partnership.
16.7.3 The Partnership shall not participate in any proposed
Roll-Up which would result in Limited Partners having democracy rights in
the Roll-Up Entity which are less than those provided for under Sections
VI.A. and VI.B. of the Equipment Program Guidelines adopted by NASAA. If
the Roll-Up Entity is a corporation, the voting rights of Limited Partners
shall correspond to the voting rights provided for in said Guidelines to the
greatest extent possible.
16.7.4 The Partnership shall not participate in any proposed
Roll-Up that includes provisions that would operate to materially impede
or frustrate the accumulation of shares by any purchaser of the
securities of the Roll-Up Entity (except to the minimum extent necessary
to preserve the tax status of the Roll-Up Entity). The Partnership shall
not participate in any proposed Roll-Up Entity which would limit the
ability of a Limited Partner to exercise the voting rights of its
securities of the Roll-Up Entity on the basis of the number of Program
Interests held by that Limited Partner.
16.7.5 The Partnership shall not participate in any proposed
Roll-Up in which Limited Partners' rights of access to the records of the
Roll-Up Entity will be less than those provided for under Section VI.D.
of said Guidelines.
16.7.6 The Partnership shall not participate in any proposed
Roll-Up in which any of the costs of the transaction would be borne by
the Partnership if the Roll-Up is not approved by the Limited Partners.
16.8 In the absence of a secondary market for Program Assets at the end of
the term of the Partnership, the Partnership may sell assets to the General
Partner or any Affiliate of the General Partner for cash on a one-time basis
only, to effect a liquidation of the Partnership's assets if all of the
following have been met:
16.8.1 The Partnership has obtained two independent appraisals of
the fair market value of the assets to be sold to the General Partner;
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16.8.2 The sale price of the assets is at the greater of the two
appraisals;
16.8.3 Such sale to the General Partner is in the best interests of
the Limited Partners;
16.8.4 The General Partner or its Affiliates do not sell such
assets to another limited partnership sponsored by the General Partner or
its Affiliates; and
16.8.5 The Limited Partners approve the sale by a vote of at least
sixty percent (60%) of the votes entitled to be cast.
ARTICLE XVII
RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS
17.1 Limited Partners will not interfere in any manner with the control,
conduct or operation of the Partnership and will have no right or authority to
act for or bind the Partnership. The Limited Partners will not take part, in
any manner, in the conduct or operation of the Partnership. The Limited
Partners shall have the right to at least fifteen (15) days notice prior to the
casting of any vote or prior to any meeting referred to herein.
17.2 Limited Partners owning a majority of the outstanding Units may,
subject to and in accordance with the provisions of this Article XVII, without
concurrence by the General Partner, vote to:
17.2.1 Amend this Partnership Agreement;
17.2.2 Dissolve the Partnership;
17.2.3 Remove the General Partner (and elect a successor general
partner, provided that the successor general partner is admitted to the
Partnership effective immediately prior to the removal of the General
Partner becoming effective);
17.2.4 Approve or disapprove the sale of all or substantially all
of the assets of the Partnership outside the ordinary course of the
Partnership's business; and
17.2.5 Admit a successor general partner in the event of the
resignation or withdrawal of the General Partner, provided that the
successor is admitted to the Partnership effective immediately prior to the
resignation or withdrawal of the General Partner becoming effective.
17.3 If the General Partner desires to withdraw from the Partnership, it
must furnish notice of its intent to do so and solicit the consent by majority
vote of the Limited Partners at least ninety (90) days prior to the effective
date of such withdrawal. The General Partner will be deemed to have withdrawn
from the Partnership upon the assignment for the benefit of creditors or
adjudication of bankruptcy of the General Partner or appointment of a receiver
for seizure by a judgment creditor of the General Partner's interest in the
Partnership. Prior to the effective date of such withdrawal, or within ninety
(90) days after any such other deemed withdrawal, the Limited Partners will
elect a replacement general partner or may elect to discontinue the business of
the Partnership by a vote of Limited Partners holding at least a majority of the
Units then outstanding. Notwithstanding anything contained herein to the
contrary, a withdrawal pursuant to this Section 17.3 will not constitute a
breach
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of this Partnership Agreement (except in the event that no successor General
Partner has been elected or approved by the Limited Partners) and the
Partnership may not recover damages from the withdrawing General Partner, and it
may not offset damages against the amount otherwise distributable to the
withdrawing General Partner.
17.4 Except as otherwise provided herein, no Limited Partner will have the
right or power to (i) withdraw or reduce his Capital Contribution, except as
otherwise provided by law, (ii) bring an action for partition against the
Partnership or any other Partner, (iii) cause the dissolution and termination of
the Partnership by court decree or otherwise, or (iv) demand or receive property
other than cash in return for his Capital Contribution. Except as provided in
Article XIX (a) no Limited Partner will have priority over any other Limited
Partner either as to the return of Capital Contributions or as to allocations of
Net Income, Net Loss or any other payments to Limited Partners, and (b) other
than upon the dissolution and termination of the Partnership as provided in this
Partnership Agreement, there has been no time agreed upon when the Capital
Contribution of each Limited Partner may be refunded.
17.5 This Agreement may not be amended without the consent of the Partners
to be adversely affected by an amendment that:
17.5.1 Converts a Limited Partner into a general partner;
17.5.2 Modifies the limited liability of a Limited Partner;
17.5.3 Alters the interest of the General Partner (except an
amendment which alters the interest of the General Partner by way of
effectuating Sections 17.2.2 through 17.2.5) or the Limited Partners in Net
Income, Net Loss or Distributions, or other fees from the Partnership;
17.5.4 Alters the General Partner's rights, powers or increases the
General Partner's duties (except an amendment which alters the rights,
powers or duties of the General Partner by way of effectuating Sections
17.2.2 through 17.2.5) or alters the rights of a Terminated Partner to
receive fees and payments in accordance with Section 18.2; or
17.5.5 Adversely affects the status of the Partnership as a
partnership for federal income tax purposes.
17.6 Upon the written request of a Limited Partner, the General Partner
will furnish such Limited Partner or his representative by mail or in person, at
such Limited Partner's expense, a list containing the names and addresses of and
Units held of record by all Limited Partners.
17.7 The Limited Partners owning ten percent (10%) of the Units may call a
meeting to propose for vote any matters on which the Limited Partners may vote.
A majority of the votes entitled to be cast will be required to pass any such
proposal, except as otherwise required below. Upon receipt of a written
request, either in person or by registered mail, stating the purpose(s) of the
meeting, the General Partner shall provide all Limited Partners within ten (10)
days after receipt of said request, written notice (either in person or by
certified mail) of a meeting and the purpose(s) of such meeting to be held on a
date not less than fifteen (15) nor more than sixty (60) days after distribution
of such notice, at the time and place specified in the request, or if none, at a
time and place convenient to Limited Partners.
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17.8 Any contract between the Partnership and the General Partner or
Affiliates will be subject to termination by majority vote or consent of the
Limited Partners following sixty (60) days prior notice thereof to the Limited
Partners.
ARTICLE XVIII
WITHDRAWAL, REMOVAL, BANKRUPTCY OR DISSOLUTION
AND LIQUIDATION OF GENERAL PARTNER AND
TRANSFER OF GENERAL PARTNER'S INTERESTS
18.1 Upon the withdrawal, removal, bankruptcy or dissolution and
liquidation or other cessation to exist of the General Partner, the Interests
of the Terminated Partner will be purchased by the Partnership for a purchase
price determined according to the provisions of Section 18.2.
18.2 A Terminated Partner will be entitled to receive from the Partnership
the then present fair market value of its Interests to be acquired pursuant to
Section 18.1. Fair market value and payment terms will be determined by
agreement between the Terminated Partner and the Partnership, or, if they cannot
agree, by arbitration in accordance with the then current rules of the American
Arbitration Association: the Terminated Partner will choose one arbitrator, the
Partnership will choose an arbitrator, and the two arbitrators so chosen will
choose a third arbitrator. The decision of a majority of such arbitrators shall
be final and binding and may be enforced by legal proceedings. The Terminated
Partner and the Partnership shall each compensate the arbitrator appointed by
it, and the compensation of the third arbitrator shall be borne equally by such
parties. Where termination is voluntary, payment will be made by a non-interest
bearing, unsecured promissory note, with principal payable, if at all, from
distributions which the Terminated Partner otherwise would have received under
this Partnership Agreement had the General Partner not terminated. Where
termination is involuntary, payment will be made by a note coming due in not
less than five (5) years (with equal installments each year), bearing interest
at an annual rate equal to one hundred ten percent (110%) of the applicable
federal rate from time to time as defined in Code Section 1274 on the unpaid
principal amount of the promissory note.
18.3 Should a successor general partner be elected under Sections 17.2.3 or
17.2.5, such successor general partner ("Acquiring Partner") may purchase from
the Partnership, within sixty (60) days of its election, any portion of the
Interests the Partnership purchased from the Terminated Partner pursuant to
Section 18.2. For such Interests, the Acquiring Partner will pay the amount
determined pursuant to Section 18.2 to be the fair market value of such
Interests. Payments may be made as agreed by the Acquiring Partner and the
Limited Partners.
18.4 Subject to the rights of the Limited Partners provided at Section
16.3.20.6, any entity or person to which the entire interest of the General
Partner in the Partnership is assigned will be substituted, by the filing of
appropriate amendments to this Partnership Agreement and the Partnership's
certificate of limited partnership, as a successor general partner of the
Partnership.
18.5 Notwithstanding the provisions of Section 17.2, with respect to any
Units owned by the General Partner, the General Partner may not vote or consent
on matters submitted to the Limited Partners regarding the removal of the
General Partner or regarding any transaction between the Partnership and the
General Partner. In determining the requisite percentage in interest of Units
necessary to approve a matter on which the General Partner may not vote or
consent, any Units owned by the General Partner shall not be included.
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ARTICLE XIX
REDEMPTION OF PARTNERSHIP UNITS
19.1 At any time after December 31, 1999, a Limited Partner may request
that the Partnership redeem all or any number of whole Units (provided, however,
that a Limited Partner must request the Partnership to redeem all of his Units
if he will retain fewer than two (2) Units) by submitting a written request to
the General Partner. At the sole discretion of the General Partner, to the
extent permitted by applicable laws and regulations, only in extenuating
circumstances and if, in the opinion of the General Partner, it is in the best
interest of the Partnership, the Partnership will redeem Units from a Limited
Partner who so requests. The General Partner will not maintain reserves for
redemption.
The General Partner will not permit a Unit to be redeemed under any
circumstances if, in the opinion of counsel to the Partnership, such redemption
might result in either of the following: (i) the Partnership being
characterized as "publicly traded" for federal income tax purposes; or (ii) the
assets of the Partnership being considered by law to be assets of employee
benefit plans investing in Units and therefore subjecting those assets to the
fiduciary standards of the Employee Retirement Income Security Act of 1974.
Until such time as there is clear authority on this issue, the General Partner
will only allow redemptions of Units if immediately following such redemption at
least seventy-five percent (75%) of the outstanding Units are held by persons
who are not either employee benefit plans or Individual Retirement Accounts.
19.2 The General Partner will honor the acceptable requests for redemption
by postmark on a first-come, first-served per quarter basis. Any requests
denied may be resubmitted in a later quarter. Within a reasonable time, the
General Partner will accept or deny a written request for the redemption of
Units. The General Partner will, in its sole discretion, decide whether a
redemption is in the best interest of the Partnership and will not be required
to provide any reason for the denial of a redemption request.
19.3 The redemption price for redeemed Units will be determined by the
General Partner as of the last day of the fiscal quarter preceding the quarter
during which such request was received. The redemption price per Unit will
equal the Book Value of Investor's Unit; however, in no event will the
redemption price exceed the then-current fair market value per Unit as
determined in good faith by the General Partner.
19.4 The Limited Partner will tender the redeemed Units upon the acceptance
of the redemption request by the General Partner and the Partnership will pay
the redemption price for the tendered Units within sixty (60) days after the end
of the fiscal quarter during which the request was received, provided that a
Limited Partner may withdraw its request for redemption of its Units within
thirty (30) days of its receipt of written notice of the General Partner's
acceptance of its request for redemption, which notice will state the redemption
price determined by the General Partner.
19.5 Upon the redemption or repurchase of any Units by the Partnership, the
tendered Units will be canceled and will no longer be deemed to represent an
interest in the Partnership.
19.6 The General Partner will cause this Partnership Agreement to be
amended from time to time to reflect the change in the interests of the Limited
Partners (including the person whose Units were redeemed or repurchased) in the
Net Income, Net Loss and distributions of the Partnership.
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19.7 The General Partner may not request the Partnership to redeem or
repurchase any Units owned by it.
19.8 The General Partner may not redeem over the life of the Partnership
more than five percent (5%) of the Units issued by the Partnership, nor more
than one percent (1%) in any given year. No reserves will be maintained for the
redemption of Units.
ARTICLE XX
CERTAIN TRANSACTIONS
The General Partner, each Limited Partner, each shareholder, officer,
director, employee or other Affiliate thereof, and each person owning a legal or
beneficial interest therein, may engage in or possess an interest in any other
business or venture of every nature and description, independently or with
others, including, but not limited to, the ownership, financing, leasing,
operation, management and brokerage of equipment.
ARTICLE XXI
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
21.1 The Partnership will be dissolved and terminated upon the earliest to
occur of the following:
21.1.1 The resignation, removal, or withdrawal of the last
remaining general partner, if no successor general partner is elected
pursuant to Sections 17.2.3 or 17.2.5;
21.1.2 A vote of the Limited Partners holding a majority of the
Units then outstanding in favor of any proposal by the General Partner for
the dissolution and termination of the Partnership;
21.1.3 The expiration of the term of the Partnership;
21.1.4 The final distribution of all Partnership liquidation
proceeds among the Partners pursuant to Article XI hereof after the orderly
liquidation of the assets of the Partnership during the Liquidation Phase
of the Partnership or otherwise; or
21.1.5 The other sale or disposition of all Equipment and other
assets of the Partnership without the subsequent reinvestment of available
Partnership cash in Equipment.
21.2 Upon the dissolution of the Partnership for any reason, the General
Partner will take full account of the Partnership assets and liabilities, will
wind up the Partnership business and liquidate the assets as promptly as is
consistent with obtaining the fair value thereof, and will apply and distribute
the proceeds therefrom in the following order:
21.2.1 To the payment of creditors of the Partnership, but
excluding secured creditors whose obligations will be assumed or otherwise
transferred on the liquidation of Partnership assets;
21.2.2 To the repayment of any outstanding loans made by the
General Partner to the Partnership;
A-35
<PAGE>
21.2.3 To the General Partner and Limited Partners pursuant to the
provisions of Article XI.
21.3 Subject to Section 21.4, until the dissolution and cancellation of the
Partnership, the General Partner will not, without the consent of the majority
of outstanding Units, retire or withdraw from the Partnership or take any
voluntary steps to dissolve and liquidate itself.
21.4 Nothing in this Agreement will be deemed to prevent the merger,
consolidation or reorganization of the General Partner into or with any other
corporation, or the transfer of all the capital stock of the General Partner to
another corporation, or the assumption of the rights and duties of the General
Partner by another corporation in connection with any such transaction in the
case where the resulting successor General Partner consists of substantially the
same senior management as the General Partner and there is no material reduction
in the net worth of the successor General Partner.
21.5 Nothing in this Agreement will be deemed to prevent the establishment
of a liquidating trust to hold and distribute assets of the Partnership for
which there is no ready market at the termination of the Partnership or to
facilitate the liquidation and distribution of Partnership assets.
ARTICLE XXII
SPECIAL POWER OF ATTORNEY
22.1 By executing this Agreement, or the Subscription Agreement for Units
provided with the Prospectus as Exhibit B, each Limited Partner grants to the
General Partner a special power of attorney irrevocably making, constituting and
appointing the General Partner with full power of substitution, as the true and
lawful attorney-in-fact for such Limited Partner, with power and authority to
act in his name and on his behalf to make, execute, deliver, acknowledge, swear
to, file and/or record all documents the General Partner may deem necessary or
desirable to carry out the provisions of this Agreement, which will include, by
way of illustration but not limitation, the following:
22.1.1 Any separate certificates of limited partnership, as well as
any amendments to the Agreement or such certificates which, under the laws
of the State of Iowa or the laws of any other state, are required to be
made or filed or which the General Partner deems to be advisable to make or
file;
22.1.2 Any other instrument or document required to be executed or
filed by the Partnership under the laws of any state or by any other
governmental authority; and
22.1.3 Any instrument or document required to effect the
continuation of the Partnership, the admission of a Limited Partner or
Substitute Limited Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
reflect any reductions in the amounts of contributions of Partners.
22.2 The special power of attorney being granted hereby by each Limited
Partner:
22.2.1 Is a special power of attorney coupled with an interest, is
irrevocable and will survive the death, legal incapacity, insolvency or
dissolution of the granting Limited Partner;
22.2.2 May be exercised by the General Partner (i) acting for each
Limited Partner individually by a signature of one of the officers of the
General Partner acting on the General
A-36
<PAGE>
Partner's behalf, (ii) listing all of the Limited Partners executing any
instrument and having one of the General Partner's officers sign such
instrument on the General Partner's behalf in the General Partner's
capacity as attorney-in-fact for such Limited Partners, or (iii) utilizing
any other method authorized by law; and
22.2.3 Will survive an assignment by a Limited Partner of any or
all of his Units except that, where an Assignee of all of the Units owned
by a Limited Partner has been approved by the General Partner for admission
to the Partnership as a Substitute Limited Partner, the special power of
attorney will survive such assignment for the sole purpose of enabling the
General Partner to execute, acknowledge and file any instrument or document
necessary to effect such substitution.
ARTICLE XXIII
EXCULPATION AND INDEMNIFICATION
23.1 The General Partner or any of its Affiliates will not be liable to the
Partnership or to the Limited Partners for any loss or damage incurred by reason
of any act performed or omitted to be performed by them in connection with the
activities of the Partnership or in dealing with third parties on behalf of the
Partnership, if the General Partner, in good faith, determined that such course
of conduct was in the best interest of the Partnership, the General Partner was
acting on behalf of or performing services for the Partnership, and such act or
omission does not constitute fraud, negligence, breach of fiduciary duty or
misconduct. Subject to Sections 23.2 and 23.3 hereof, the Partnership, and any
receiver or trustee appointed to administer the business or assets of the
Partnership, will indemnify and pay all judgments and claims against the General
Partner and any of its Affiliates, and save the same harmless from any
liability, loss or damage incurred by them or by the Partnership by reason of
any act performed or omitted to be performed by them that was determined in good
faith by the General Partner to have been in the best interest of the
Partnership in connection with the activities of the Partnership or in dealing
with third parties on behalf of the Partnership, including costs and attorneys'
fees (which attorneys' fees may be paid as incurred pursuant to Section 23.3
below) and any amounts expended in the investigation or settlement of any claims
of liability, loss or damage, provided that such act or omission does not
constitute fraud, negligence, breach of fiduciary duty or misconduct. Any
indemnification or agreement to hold harmless provided for herein is recoverable
only out of the assets of the Partnership and not from Limited Partners.
23.2 Notwithstanding the foregoing Section 23.1, the General Partner and
any of its Affiliates, and any person acting as a broker-dealer, engaged in the
performance of services on behalf of the Partnership or in connection with its
business, will not be indemnified against any liability, loss or damage imposed
by judgment, and costs associated therewith, including attorneys' fees, arising
from or out of a violation of state or federal securities laws or rules. The
General Partner and such Affiliates will be indemnified for settlements and
related expenses of lawsuits alleging securities law violations, and for
expenses incurred in successfully defending such lawsuits, or if such lawsuits
are dismissed with prejudice on the merits, provided that a court either:
23.2.1 approves the settlement and finds that indemnification of
the settlement and related costs should be made, or
23.2.2 approves indemnification of litigation costs if a successful
defense is made.
Any amounts payable to the General Partner or its Affiliates pursuant to
the foregoing are recoverable only out of the assets of the Partnership and not
from the Limited Partners.
A-37
<PAGE>
23.3 Advances of Partnership Funds for Indemnification Expenses. Every
application for registration of Units shall contain an undertaking that the
parties seeking indemnification will apprise the court of the positions of the
Securities and Exchange Commission and State Administrators with respect to
indemnification of securities laws violations, before seeking approval for
indemnification.
23.3.1 Advances of Partnership funds to the General Partner or its
Affiliates for legal expenses and other costs incurred as a result of legal
action initiated against the General Partner or its Affiliates by a Limited
Partner are prohibited.
23.3.2 Advances of Partnership funds to the General Partner or its
Affiliates for legal expenses and other costs incurred as a result of legal
action initiated against the General Partner or its Affiliates by anyone
other than a Limited Partner will be made if:
23.3.2.1 the legal action relates to the performance of duties
or services by the General Partner or its Affiliates on behalf of, or
in connection with, the Partnership's business;
23.3.2.2 the legal action is initiated by a third party who is
not a Limited Partner;
23.3.2.3 the General Partner or its Affiliates undertake to
repay within ninety (90) days the advanced funds with interest to the
Partnership in cases in which they would not be entitled to
indemnification; and
23.3.2.4 the General Partner has, prior to receiving such
advances, obtained an opinion of independent legal counsel that
indemnification will be appropriate, and if it is later determined
that indemnification was not appropriate, the General Partner must
repay any advances received by it, with interest.
23.4 The Partnership will not pay for any insurance covering liability of
the General Partner and its Affiliates for actions or omissions for which
indemnification is not permitted hereunder; provided, however, that nothing
contained herein will preclude the Partnership from purchasing and paying for
such types of insurance, including extended coverage liability and casualty and
workers' compensation, as would be customary for any person owning comparable
assets and engaged in a similar business, or from naming the General Partner and
its Affiliates as additional insured parties thereunder, provided that such
addition does not add to the premiums payable by the Partnership. Nothing
contained herein will constitute a waiver by any Limited Partner of any right
which he may have against any party under federal or state securities laws.
ARTICLE XXIV
MISCELLANEOUS
24.1 This Agreement may be executed in several counterparts and all so
executed will constitute one (1) Partnership Agreement, binding on all of the
parties hereto, notwithstanding that all of the parties are not signatory to the
same counterpart.
24.2 Except as otherwise provided herein, the terms and provisions of this
Agreement will be binding upon and will inure to the benefit of the successors
and permitted assigns of the respective parties.
A-38
<PAGE>
24.3 If any sentence or section of this Partnership Agreement is declared
by a court of competent jurisdiction to be void, such sentence or section will
be deemed severed from the remainder of this Partnership Agreement and the
balance of this Partnership Agreement will remain in effect.
24.4 All notices under this Partnership Agreement will be in writing and,
unless otherwise provided herein, will be given to the persons entitled thereto,
by personal service or by mail, posted to the address maintained by the
Partnership for such persons or at such other addresses as such persons may
specify in writing in accordance with the terms of this Agreement.
24.5 Section titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions in
no way define, limit, extend or describe the scope of this Partnership Agreement
or the intent of any provision hereof.
24.6 Whenever required by the contest hereof, the singular will include the
plural, and vice-versa; the masculine gender will include the feminine and
neuter genders; the neuter gender will include the masculine and feminine
genders; and the word "person" will include a corporation, partnership, firm or
other form of association.
24.7 Notwithstanding the place where this Agreement may be executed by any
of the parties hereto, the parties expressly agree that all the terms and
provisions hereof will be construed under the laws of the State of Iowa and that
the limited partnership law of the State of Iowa will govern the partnership
aspects of this Partnership Agreement.
GENERAL PARTNER:
BERTHEL FISHER & COMPANY LEASING, INC.
By
-------------------------------------
THOMAS J. BERTHEL, Chief
Executive Officer
INITIAL LIMITED PARTNER:
----------------------------------------
THOMAS J. BERTHEL
LIMITED PARTNERS:
"The Parties Listed on Exhibit I"
By: BERTHEL FISHER & COMPANY LEASING,
INC., as Attorney-in-Fact for
said parties
By
-------------------------------------
THOMAS J. BERTHEL, Chief
Executive Officer
A-39
<PAGE>
EXHIBIT I
TELECOMMUNICATIONS INCOME FUND XI, L.P.
PARTNERS
---------
Total
Capital Number of
Name and Address Contribution Units
- ---------------- ------------ ----------
Berthel Fisher & Company
Leasing, Inc., General
Partner $10,000 General Partner
interest equivalent
to 10 Units
Limited Partners:
Thomas J. Berthel (Initial
Limited Partner) $ 1,000 1
<PAGE>
EXHIBIT B
TELECOMMUNICATIONS INCOME FUND XI, L.P. SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
SUBSCRIBER HEREBY SUBSCRIBES for the number of Units of limited partnership
interest specified below, and hereby tenders the amount set forth below ($1,000
per Unit) as full payment for the Units, and hereby agrees, subject to the
General Partner's acceptance of this subscription, to become a Limited Partner
in the Partnership and to make a Capital Contribution thereto in an amount equal
to the amount tendered. Subscriber agrees that Subscriber may not revoke,
cancel, terminate or withdraw this subscription or this Subscription Agreement
without the prior written consent of the General Partner, and acknowledges that
the General Partner may reject this subscription for any reason whatsoever.
Number of Amount Enclosed Check here to indicate if Subscriber has
Units ($1,000 per Unit) previously subscribed in THIS Partnership
- ---------- ---------------- -----------------------------------------
$ / / NO / /YES
- ---------- ---------------
- --------------------------------------------------------------------------------
1. INVESTOR DATA - (Please print or type):
(1) Name (Mr./Mrs./Ms.)_________________________________________________________
Social Security or Tax ID #_________________________________________________
(2) Name (Mr./Mrs./Ms.)_________________________________________________________
Social Security or Tax ID #_________________________________________________
Residence Address:
--------------------------------------------------------------
Street (Please do not use a P.O. Box)
- --------------------------------------------------------------------------------
City & State Zip Code
- --------------------------------------------------------------------------------
Home Phone Business Phone
- --------------------------------------------------------------------------------
Mailing Address
- --------------------------------------------------------------------------------
City & State Zip Code Phone
- --------------------------------------------------------------------------------
2. OWNERSHIP - CHECK ONE:
/ / Individual / / Trust
/ / Joint Tenant with right of Survivorship / / Custodian, Uniform
Gifts to Minors Act
/ / Community Property / / IRA
/ / Tenants in Common / / Keogh Plan
/ / Corporation / / Pension or Profit
/ / General Partnership / / Other(explain) ________
/ / Limited Partnership ________________________
- --------------------------------------------------------------------------------
3. TAX MATTERS. Under penalties of perjury, I certify that (i) the number
shown on this form is my correct taxpayer identification number, and (ii) that I
am not subject to backup withholding because (A) I have not been notified that I
am subject to backup withholding as a result of a failure to report all interest
or dividends or (B) the Internal Revenue Service has notified me that I am no
longer subject to backup withholding. Under penalties of perjury, I certify
that I am not a non-resident alien individual, a foreign partnership, a foreign
corporation, or a foreign estate or trust, that would be a foreign person within
the meaning of Sections 1441, 1446 and 7701 of the Internal Revenue Code of
1986, as amended, and that I will notify the Partnership before a change in my
foreign status.
- --------------------------------------------------------------------------------
4. DISTRIBUTIONS - Complete this to direct distribution checks (IF TO A
RETIREMENT ACCOUNT, DISTRIBUTIONS MUST GO TO CUSTODIAN OR TRUSTEE UNLESS
OTHER AUTHORIZATION IS ATTACHED HERETO):
- --------------------------------------------------------------------------------
(a) Name Address
- --------------------------------------------------------------------------------
(b) City & State Zip Code
- --------------------------------------------------------------------------------
(c) Account No. (for distributions to a designated account)
- --------------------------------------------------------------------------------
5. REPRESENTATIONS AND WARRANTIES: (a) If Subscriber is a resident of, or is
present at the time of the sale in, one of the states below, Subscriber hereby
represents and warrants the following (please initial if applicable):
_______ Subscriber is a CALIFORNIA investor and understands that IT IS
UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. If the Subscriber is a
California investor and the Units subscribed for are to be purchased on
behalf of a fiduciary account, Subscriber represents that the Partnership
suitability standards are satisfied by the beneficiary of the account; except
where the donor of the funds for investment is the fiduciary of the account,
the fiduciary may satisfy the standards. Subscriber has received a copy of
Exhibit D to the Prospectus, which is California Rule 260.141.11.
_______ Subscriber is a TEXAS investor and meets the suitability standards on
the reverse side.
_______ (b) Subscriber hereby represents and warrants that Investor has
received a copy of the current Prospectus for Telecommunications Income Fund XI,
L.P. and the Partnership Agreement and understands that the Units being acquired
will be governed by the terms of such Prospectus and Partnership Agreement, and
hereby adopts and agrees to be bound by each and every provision of the
Partnership Agreement. The information set forth on the signature page hereof
is true and accurate and Subscriber has proper authority to execute this
Subscription Agreement and make this investment.
_______ (c) Subscriber hereby represents and warrants that this purchase is
made for the Subscriber's own account and not with a view toward distribution.
_______ (d) Subscriber warrants that Subscriber understands there are
restrictions on the transferability of Units, that it is not anticipated that an
active market will ever develop for Units, and that it may be impossible for
Subscriber to liquidate Subscriber's investment in the Partnership, even in the
event of an emergency. Any transfer of Units must comply with the requirements
of the Partnership Agreement and with any additional requirements imposed by law
or by any governmental authorities.
- --------------------------------------------------------------------------------
6. SIGNATURES: Signature must be identical to subscriber name. SUBSCRIBERS
MUST SIGN THE SUBSCRIPTION AGREEMENT. SECURITIES REPRESENTATIVES AND INVESTMENT
ADVISORS MAY NOT SIGN ON BEHALF OF SUBSCRIBERS.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS UNDER FEDERAL SECURITIES LAWS OR THE SECURITIES LAWS OF ANY STATE. BY
COMPLETING AND EXECUTING THIS PAGE, THE INVESTOR(S) HEREBY (I) ACKNOWLEDGES THAT
THE INVESTOR(S) HAVE READ AND UNDERSTAND THE MATERIAL ON THE REVERSE SIDE, AND
AGREES TO ALL PROVISIONS SET FORTH ON THIS PAGE AND ON THE REVERSE SIDE.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Print Name
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Print Name
(FIDUCIARY SIGNATURE LINE BELOW APPLIES ONLY TO CUSTODIANS, TRUSTS, IRAS, KEOGH
(HR 10) PENSION OR PROFIT SHARING PLANS. FIDUCIARY REPRESENTS THAT THE
BENEFICIARY MEETS THE SUITABILITY STANDARDS.)
- --------------------------------------------------------------------------------
Fiduciary Signature on Behalf of Beneficiary Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BROKER-DEALER DATA--TO BE COMPLETED AND SIGNED BY REGISTERED REPRESENTATIVE
I hereby represent that I, the Registered Representative:
(1) have reasonable grounds to believe, on the basis of information obtained
from the Investor concerning the Investor's educational level, knowledge of
investment, investment objectives, other investments, financial situation, needs
and any other information known by me that
(a) the Investor is or will be in a financial position appropriate to
enable him to realize to a significant extent the benefits described in the
Prospectus,
(b) the Investor has a fair market net worth sufficient to sustain the
risks inherent in this program, including loss of investment and lack of
liquidity, and
(c) this program is suitable for the Investor;
(2) will maintain on file documents disclosing the basis upon which the
determination of suitability was reached; and
(3) have, prior to execution of the written Subscription Agreement, informed
the Investor of all pertinent facts relating to the liquidity and marketability
of the Units during the term of the investment.
- --------------------------------------------------------------------------------
Registered Representative's Signature Date
- --------------------------------------------------------------------------------
Print Name of Registered Representative (Not Principal of Firm)
- --------------------------------------------------------------------------------
Broker-Dealer Firm Name Firm Phone No.
- --------------------------------------------------------------------------------
Branch Office Name
- --------------------------------------------------------------------------------
Street Address (Branch Office)
- --------------------------------------------------------------------------------
City & State Zip Code
- --------------------------------------------------------------------------------
FOR USE OF GENERAL PARTNER OF TELECOMMUNICATIONS INCOME FUND XI, L.P.
Number of Units: Amount: $
---------------------------- ---------------------
Investor #: Investor State:
--------------------------------- --------------
Acceptance Date: Date of Transfer:
---------------------------- -------------
- --------------------------------------------------------------------------------
WHITE - FUND XI COPY - CANARY - BROKER COPY - PINK - CUSTOMER COPY -
GOLD - ESCROW AGENT
B-1
<PAGE> SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
TO THE GENERAL PARTNER OF TELECOMMUNICATIONS INCOME FUND XI, L.P.:
THE INVESTOR SIGNATORY HERETO ("SUBSCRIBER") REPRESENTS, WARRANTS,
ACKNOWLEDGES AND AGREES AS FOLLOWS:
1. Subscriber hereby represents and warrants that Subscriber: (a) either
(i) has a net worth (exclusive of home, home furnishings and automobiles) of at
least $45,000, and expects to have, for the current tax year, gross income from
all sources in excess of $45,000, or (ii) has a net worth (exclusive of home,
home furnishings and automobiles) of at least $150,000; (b) is of majority age;
and (c) is a U.S. resident. Subscriber also represents that: if Subscriber is a
TEXAS investor, a net worth (or joint net worth with the investor's spouse)
(exclusive of home, home furnishings and automobiles) of at least ten times the
amount of the investment, and either (a) a net worth (or joint net worth with
the investor's spouse) (exclusive of home, home furnishings and automobiles) of
at least $45,000 and current taxable annual income of $45,000, or (b) has a net
worth (exclusive of home, home furnishings and automobiles) of at least
$150,000.
2. Subscriber hereby irrevocably makes, constitutes and appoints Berthel
Fisher & Company Leasing, Inc. (the General Partner of the Partnership), with
full power of substitution, as Subscriber's true and lawful attorney-in-fact,
for Subscriber and in Subscriber's name, place and stead, to make, execute,
sign, acknowledge, swear to, deliver, record and/or file: the Partnership
Agreement, in substantially the form attached to the Prospectus as Exhibit A,
and any and all amendments thereto; any and all amendments to the Certificate of
Limited Partnership for the Partnership; and any other documents or instruments
that the General Partner may consider necessary or desirable to carry out fully
the purposes of the Partnership as set forth in the provisions of the
Partnership Agreement. The power of attorney hereby granted shall be deemed to
be coupled with an interest; shall be irrevocable and shall survive the death,
incapacity, insolvency or dissolution of Subscriber or any assignment by
Subscriber of any or all of Subscriber's Units; and may be exercised by the
General Partner (i) acting for Subscriber individually by the signature of one
of the officers of the General Partner acting on the General Partner's behalf,
or (ii) by listing all of the subscribers for Units executing any instrument and
having one of the General Partner's officers sign such instrument on the General
Partner's behalf in the General Partner's capacity as attorney-in-fact for such
subscribers, or (iii) by any other method authorized by law.
3. Subscriber hereby acknowledges that the Escrow Agent's sole role in
the offering described in the Prospectus is that of escrow agent, and that the
Escrow Agent has not reviewed the Prospectus and makes no representations
whatsoever as to the nature of such offering or the compliance of such offering
with any applicable state or federal laws, rules or regulations. Subscriber
understands that the Escrow Agent will make all computations regarding the
amount of interest (if any) that will be paid to such Subscriber with respect to
his subscription payment.
The capitalized terms used have the meanings assigned to them in the
Prospectus unless the context otherwise requires.
B-2
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT C
TELECOMMUNICATIONS INCOME FUND XI, L.P.
TABULAR INFORMATION
CONCERNING PRIOR TRANSACTIONS
- --------------------------------------------------------------------------------
The following Tables present unaudited information in connection with eight
private programs ("Private Programs") organized by affiliates of the General
Partner and two Public Programs for which the General Partner serves as the
general partner. Mr. Thomas J. Berthel served as a general partner of each of
the Private Programs, together with corporate general partners which were
subsidiaries of Berthel Fisher & Company, Inc. The General Partner is a
subsidiary of Berthel Fisher & Company.
The General Partner purchased equipment placed in four of the Private
Programs (Telecommunications Limited Partnership No. 2, Telecommunications
Limited Partnership No. 5, Telecommunications Limited Partnership No. 7 and
Telecommunications Limited Partnership No. 8) and the Public Programs. The
General Partner is managing the lease portfolios of both of Public Programs.
All of the Private Programs have been closed and liquidated.
One of the Private Programs (Telecommunications Limited Partnership No. 1)
was designed to fund a start-up company through both an operating loan and
equipment leasing. Equipment leases in that program represented approximately
16% of its business. All of the other Private Programs had equipment leasing as
their primary business. The Public Programs have equipment leasing as their
primary business. The Public Programs' lease portfolios and all of the Private
Programs' lease portfolios consist predominately of telecommunications
equipment.
THE INFORMATION SET FORTH IN THE FOLLOWING TABLES IS INCLUDED HEREIN SOLELY
TO INFORM INVESTORS OF THE PRIOR AND NOT FUTURE PERFORMANCE OF PROGRAMS
PREVIOUSLY SPONSORED BY THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER AND SHOULD NOT BE CONSIDERED AS INDICATIVE OF POSSIBLE CAPITALIZATION OR
OPERATIONS OF THE PARTNERSHIP. LIMITED PARTNERS WILL HAVE NO INTEREST IN THE
PROGRAMS DESCRIBED ON THE FOLLOWING TABLES UNLESS THEY ARE ALSO INVESTORS IN
THOSE PROGRAMS.
The Tables are provided solely to enable prospective investors to evaluate
the experience of the General Partner and its affiliates.
C-1
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
PRIVATE REG. D OFFERINGS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Dollar amount offered. . . . . . . . . $ 2,000,000 $ 2,000,000 $ 280,000 $ 390,000 $ 1,000,000
Dollar amount raised . . . . . . . . . $ 1,363,500(1) $ 1,383,700(1) $ 282,828(1) $ 393,939(1) $ 1,010,000(1)
Less offering expenses:
Selling commissions and discounts
retained by affiliates. . . . . . . 9.0% 9.0% 9.0% 9.0% 9.0%
Organizational expenses. . . . . . . 9.4% 11.5% 10.2% 9.6% 8.3%
Other. . . . . . . . . . . . . . . . 14.8%(2) 0.0% 0.0% 0.0% 0.8%
Reserves . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
-------- -------- -------- -------- --------
Percent available for investment . . . 66.8% 79.5% 80.8% 81.4% 82.7%
Acquisition Costs:
Acquisition fees . . . . . . . . . . 0.0% 0.0% 4.3% 4.5% 3.5%
Other. . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
-------- -------- -------- -------- --------
Total acquisition costs. . . . . . . . 0.0% 0.0% 4.3% 4.5% 3.5%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Percent leveraged (financing divided
by total equipment cost)(3). . . . . 32.2% 46.6% 59.9% 45.3% 37.6%
Date offering began. . . . . . . . . . 07-01-86 02-01-87 02-24-88 04-18-88 11-28-88
Length of offering . . . . . . . . . . 6 months 11 months 0 months 0 months 3 months
Months to invest 90% of amount
available for investment . . . . . . 16 months 21 months 7 months 1 month 9 months
</TABLE>
- ------------------------
(1) Includes 1% general partner purchase of units.
(2) Operating loan to lessee.
(3) Percentage calculated based on total financing (highest outstanding
balance) to total equipment purchased.
C-2
<PAGE>
TABLE I (CONTINUED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
PRIVATE REG. D OFFERINGS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6 TLP #7 TLP #8 TIF IX(4) TIF X(4)
------ ------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
Dollar amount offered. . . . . . . . . $ 475,000 $ 1,000,000 $ 2,000,000 $ 25,000,000 $ 25,000,000
Dollar amount raised . . . . . . . . . $ 479,750(1) $ 1,010,000(5) $ 1,217,050(1) $ 17,001,750(5) $ 22,617,500(5)
Less offering expenses:
Selling commissions and discounts
retained by affiliates. . . . . . . 8.0% 9.0% 9.0% 10.0% 10.0%
Organizational expenses. . . . . . . 8.3% 9.4% 9.4% 4.0% 4.0%
Other. . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
Reserves . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 1.0% 1.0%
-------- -------- -------- -------- --------
Percent available for investment . . . 83.7% 81.6% 81.6% 85.0% 85.0%
-------- -------- -------- -------- --------
Acquisition Costs:
Acquisition fees . . . . . . . . . . 0.0% 1.6% 2.0% 4.0% 4.0%
Other. . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
-------- -------- -------- -------- --------
Total acquisition costs. . . . . . . . 0.0% 1.6% 2.0% 4.0% 4.0%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Percent leveraged (financing divided
by total equipment cost)(3). . . . . 49.7% 31.3% 34.2% 18.2% 15.6%
Date offering began. . . . . . . . . . 05-31-89 08-16-89 02-28-90 10-30-91 08-27-93
Length of offering . . . . . . . . . . 1 month 6 months 11 months 19 months 16 months
Months to invest 90% of amount
available for investment . . . . . . 1 month 7 months 11 months 17 months 16 months
</TABLE>
- ----------------------
(1) Includes 1% general partner purchase of partnership interest.
(2) Operating loan to lessee.
(3) Percentage calculated based on total financing (highest outstanding
balance) to total equipment purchased.
(4) Public Program
(5) Includes $10,000 general partner purchase of partnership interest.
C-3
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
THROUGH JUNE 30, 1997
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Date offering commenced. . . . . . . . 07-01-86 02-01-87 02-24-88 04-18-88 11-28-88
Dollar amount raised . . . . . . . . . $ 1,363,000 $ 1,383,700 $ 282,828 $ 393,939 $ 1,010,000
Amount paid to sponsor from
proceeds of offering:
Underwriting fees and
commissions. . . . . . . . . . . $ 216,000 $ 219,200 $ 44,800 $ 62,400 $ 160,000
Lease acquisition fee. . . . . . . $ 0 $ 0 $ 23,720 $ 23,695 $ 47,904
Dollar amount of cash generated
from operations before deducting
payments to sponsor. . . . . . . . . $ 1,997,279 $ 1,994,576 $ 561,256 $ 663,620 $ 1,505,111
Amount paid to sponsor from
operations:
Partnership management fees. . . . $ 25,779 $ 121,042 $ 24,858 $ 50,249 $ 60,000
Other. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Dollar amount of property sales
and financing before deducting
payments to sponsor:
Cash . . . . . . . . . . . . . . . $ 125,000 $ 474,976 $ 182,675 $ 106,066 $ 512,501
Notes. . . . . . . . . . . . . . . $ 0 $ 530,617 $ 0 $ 0 $ 21,037
Amount paid to sponsor from
property sales and refinancing:
Incentive fees . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Other. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
C-4
<PAGE>
TABLE II (CONTINUED)
COMPENSATION TO SPONSOR
THROUGH JUNE 30, 1997
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6 TLP #7 TLP #8 TIF IX TIF X
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Date offering commenced. . . . . . . . 05-31-89 08-16-89 02-28-90 10-30-91 08-27-93
Dollar amount raised . . . . . . . . . $ 479,750 $ 1,010,000 $ 1,217,050 $17,001,750 $22,617,500
Amount paid to sponsor from
proceeds of offering:
Underwriting fees and
commissions. . . . . . . . . . . $ 68,875 $ 160,000 $ 192,800 $ 1,700,175 $ 2,261,750
Lease acquisition fee. . . . . . . $ 0 $ 21,587 $ 35,664 $ 799,345 $ 1,157,901
Dollar amount of cash generated. . . .
from operations before deducting
payments to sponsor. . . . . . . . . $ 1,042,077 $ 1,591,989 $ 1,937,192 $11,364,530 $ 8,870,792
Amount paid to sponsor from
operations:
Partnership management fees. . . . $ 20,250 $ 13,500 $ 47,760 $ 1,754,798 $ 1,232,205
Other. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 418,204 $ 325,665
Dollar amount of property sales
and financing before deducting
payments to sponsor:
Cash . . . . . . . . . . . . . . . $ 13,162 $ 215,883 $ 184,392 $ 9,722,364 $ 6,335,978
Notes. . . . . . . . . . . . . . . $ 0 $ 83,451 $ 318,178 $ 5,901,016 $ 5,742,236
Amount paid to sponsor from
property sales and refinancing:
Incentive fees . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Other. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
C-5
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1(1)(2)
--------------------------------------------------------------------------------------
08-26-86
to 12-31-86 1987 1988 1989 1990
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . $ 14,775 $ 253,699 $ 344,833 $ 314,644 $ 189,792
Profit (loss) on sale of equipment(3). $ 0 $ 0 $ 0 $ 0 $ 41,754
Less: Operating Expenses . . . . . . . $ 662 $ 5,669 $ 33,079 $ 18,855 $ 18,881
Interest Expense . . . . . . . . . $ 0 $ 26,287 $ 33,982 $ 26,400 $ 13,796
Depreciation . . . . . . . . . . . $ 49,708 $ 173,474 $ 198,441 $ 199,339 $ 194,648
Write-offs of Syndication
Costs and A/R . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ----------- ----------- ----------
Net Income - Tax Basis(4). . . . . . . $ (35,595) $ 48,269 $ 79,331 $ 70,500 $ 4,221
----------- ---------- ----------- ----------- ----------
----------- ---------- ----------- ----------- ----------
Cash generated from operations(4). . . $ 14,113 $ 221,743 $ 277,772 $ 269,389 $ 157,115
Cash generated from sales. . . . . . . $ 0 $ 0 $ 0 $ 0 $ 125,000
Cash generated from refinancing. . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ----------- ----------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . $ 14,113 $ 221,743 $ 277,772 $ 269,389 $ 282,115
Less: Cash distributions to investors
from operating cash flow . . . . . $ 1,372 $ 141,875 $ 192,828 $ 241,372 $ 59,970
from sales and refinancing . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ----------- ----------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . $ 12,741 $ 79,868 $ 84,944 $ 28,017 $ 222,145
Less: Special items - principal
reduction. . . . . . . . . . . . . . $ 0 $ 43,984 $ 80,761 $ 88,066 $ 92,290
----------- ---------- ----------- ----------- ----------
Cash generated (deficiency) after
cash distributions and special
items(5) . . . . . . . . . . . . . . $ 12,741 $ 35,884 $ 4,183 $ (60,049) $ 129,885
----------- ---------- ----------- ----------- ----------
----------- ---------- ----------- ----------- ----------
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . $ (26) $ 36 $ 59 $ 52 $ 3
Capital gain (loss) . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 31
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . $ 1 $ 105 $ 143 $ 179 $ 44
Other. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
C-6
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1(1)(2)
----------------------------------------------------------------------
01-01-94
1991 1992 1993 to 10-31-94
------------ ---- ---- ------------
<S> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . $ 148,210 $ 82,047 $ 102,000 $ 760,138
Profit (loss) on sale of equipment(3). $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses . . . . . . . $ 24,252 $ 2,489 $ 2,170 $ 3,003
Interest Expense . . . . . . . . . $ 3,334 $ 0 $ 0 $ 0
Depreciation . . . . . . . . . . . $ 67,537 $ 62,433 $ 41,553 $ 204,396
Write-offs of Syndication
Costs and A/R . . . . . . . . . . $ 0 $ 0 $ 0 $ 559,152
----------- ----------- ----------- -----------
Net Income - Tax Basis . . . . . . . . $ 53,087 $ 17,125 $ 58,277 $ (6,413)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash generated from operations(4). . . $ 120,624 $ 79,558 $ 99,830 $ 757,135
Cash generated from sales. . . . . . . $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing. . . . $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Cash generated from operations,
sales and refinancing. . . . . . . . $ 120,624 $ 79,558 $ 99,830 $ 757,135
Less: Cash distributions to investors
from operating cash flow . . . . . $ 59,999 $ 102,000 $ 102,000 $ 751,378
from sales and refinancing . . . . $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . $ 60,625 $ (22,442) $ (2,170) $ 5,757
Less: Special items - principal
reduction. . . . . . . . . . . . . . $ 97,621 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
Cash generated (deficiency) after
cash distributions and special
items(5) . . . . . . . . . . . . . . $ (36,996) $ 22,442 $ (2,170) $ 5,757
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ 39 $ 13 $ 43 $ (5)
Capital gain (loss) . . . . . . . $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . $ 44 $ 76 $ 76 $ 557
Operations . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Other. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
</TABLE>
C-7
<PAGE>
(1) In addition to equipment leases, TLP1 invested in operating loans to a
lessee.
(2) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(3) Telecommunications Limited Partnership No. 1 invested its assets in
equipment which was leased to one lessee and in an operating loan to that
lessee. Due to financial difficulties experienced by the lessee, full
lease payments and interest payments were not made during the term of the
lease and operating loan. In 1990, following a recapitalization of the
lessee, the lease was restructured to provide for smaller lease payments
and an extended term. As a result of the foregoing, and as shown on Table
III, Exhibit C, there was a reduction of Gross Income and Net Income from
1990 through 1993. The equipment was sold in 1994, resulting in an early
payoff of the restructured lease.
(4) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss (if
any) on sale of equipment or less gain (if any) on sale of equipment.
(5) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP1.
C-8
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #2(1)
-----------------------------------------------------------------------------------
05-19-87
to 12-31-87 1988 1989 1990 1991
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . $ 85,224 $ 476,365 $ 575,247 $ 567,619 $ 396,975
Profit (loss) on sale of equipment(2). $ 0 $ 0 $ 0 $ (88,490) $ 0
Less: Operating Expenses . . . . . . . $ 17,826 $ 75,354 $ 31,644 $ 28,138 $ 21,911
Interest Expense . . . . . . . . . $ 493 $ 47,407 $ 76,990 $ 57,855 $ 37,031
Depreciation . . . . . . . . . . . $ 18,666 $ 137,070 $ 183,158 $ 175,057 $ 122,542
Write-offs of Syndication
Costs and A/R . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ------------ ------------ -----------
Net Income - Tax Basis . . . . . . . . $ 48,239 $ 216,534 $ 283,455 $ 218,079 $ 215,491
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
Cash generated from operations(3). . . $ 66,905 $ 353,604 $ 466,613 $ 481,626 $ 338,033
Cash generated from sales. . . . . . . $ 0 $ 0 $ 0 $ 436,476 $ 0
Cash generated from refinancing. . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ------------ ----------- -----------
Cash generated from operations,
sales and refinancing. . . . . . . . $ 66,905 $ 353,604 $ 466,613 $ 918,102 $ 338,033
Less: Cash distributions to investors
from operating cash flow . . . . . $ 22,063 $ 255,547 $ 306,000 $ 300,000 $ 300,000
from sales and refinancing . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . $ 44,842 $ 98,057 $ 160,613 $ 618,102 $ 38,033
Less: Special items - principal
reduction. . . . . . . . . . . . . . $ 0 $ 84,946 $ 187,310 $ 201,331 $ 219,808
----------- ----------- ------------ ----------- -----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . $ 44,842 $ 13,111 $ (26,697) $ 416,771 $ 181,785
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . $ 35 $ 158 $ 207 $ 159 $ 157
Capital gain (loss). . . . . . . . $ 0 $ 0 $ 0 $ (65) $ 0
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . $ 16 $ 187 $ 223 $ 219 $ 219
Other. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
C-9
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #2(1)
---------------------------------------------------
01-01-94
1992 1993 to 09-30-94
---- ---- -----------
<S> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . $ 302,760 $ 23,703 $ 16,706
Profit (loss) on sale of equipment(2). $ (207,695) $ (29,631) $ (57,011)
Less: Operating Expenses . . . . . . . $ 19,125 $ 18,472 $ 4,774
Interest Expense . . . . . . . . . $ 12,581 $ 422 $ 0
Depreciation . . . . . . . . . . . $ 95,802 $ 22,447 $ 3,142
Write-offs of Syndication
Costs and A/R . . . . . . . . . . $ 0 $ 0 $ 288,669
----------- ---------- ------------
Net Income - Tax Basis . . . . . . . . $ (32,443) $ (47,269) $ 336,890
----------- ---------- ------------
----------- ---------- ------------
Cash generated from operations(3). . . $ 271,054 $ 4,809 $ 11,932
Cash generated from sales. . . . . . . $ 341,657 $ 258,789 $ 188,960
Cash generated from refinancing. . . . $ 0 $ 0 $ 0
----------- ---------- ------------
Cash generated from operations,
sales and refinancing. . . . . . . . $ 612,711 $ 263,598 $ 200,892
Less: Cash distributions to investors
from operating cash flow . . . . . $ 275,000 $ 6,211 $ 35,040
from sales and refinancing . . . . $ 0 $ 37,098 $ 0
from other . . . . . . . . . . . . $ 0 $ 221,691 $ 188,960
----------- ---------- ------------
Cash generated (deficiency) after
cash distributions . . . . . . . . . $ 337,711 $ (1,402) $ (23,108)
Less: Special items - principal
reduction. . . . . . . . . . . . . . $ 185,168 $ 29,787 $ 0
----------- ---------- ------------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . $ 152,543 $ (31,189) $ (23,108)
----------- ---------- ------------
----------- ---------- ------------
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ (24) $ (35) $ (246)
Capital gain (loss). . . . . . . . . $ (152) $ (22) $ (42)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . $ 0 $ 27 $ 0
Refinancing. . . . . . . . . . . . $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . $ 201 $ 5 $ 26
Other. . . . . . . . . . . . . . . $ 0 $ 162 $ 138
</TABLE>
C-10
<PAGE>
- ---------------
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP2 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP2, the
sale resulted in a tax loss, even though TLP2 realized a positive receipt
of cash. The losses of $88,490 in 1990 and $207,695 in 1992 reflects such
tax losses.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP2.
C-11
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #3(1)
-----------------------------------------------------------------
03-08-88 01-01-92
to 12-31-88 1989 1990 1991 to 10-20-92
----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . . . . $ 122,598 $ 177,125 $ 170,258 $ 159,847 $ 72,700
Profit (loss) on sale of equipment(2). . . . . . $ 0 $ 0 $ 0 $ 0 $(151,475)
Less: Operating Expenses . . . . . . . . . . . . $ 7,288 $ 14,415 $ 9,177 $ 4,916 $ 7,049
Interest Expense . . . . . . . . . . . . . $ 19,789 $ 31,176 $ 24,397 $ 16,772 $ 6,293
Depreciation . . . . . . . . . . . . . . . $ 22,302 $ 55,151 $ 55,151 $ 55,151 $ 29,607
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 53,740
--------- ---------- --------- --------- ---------
Net Income - Tax Basis . . . . . . . . . . . . . $ 73,219 $ 76,383 $ 81,533 $ 83,008 $(175,464)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash generated from operations(3). . . . . . . . $ 95,521 $ 131,534 $ 136,684 $ 138,159 $ 59,358
Cash generated from sales. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 182,675
Cash generated from refinancing. . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Cash generated from operations,
sales and refinancing. . . . . . . . . . . . . $ 95,521 $ 131,534 $ 136,684 $ 138,159 $ 242,033
Less: Cash distributions to investors
from operating cash flow . . . . . . . . . $ 40,007 $ 76,501 $ 78,000 $ 78,000 $ 102,306
from sales and refinancing . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 46,294
from other . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . . . . $ 55,514 $ 55,033 $ 58,684 $ 60,159 $ 93,433
Less: Special items - principal reduction . . . $ 29,351 $ 56,764 $ 63,538 $ 71,124 $ 109,842
--------- ---------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . . . . $ 26,163 $ (1,731) $ (4,854) $ (10,965) $ (16,409)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . . . $ 261 $ 273 $ 291 $ 296 $ (627)
Capital gain (loss). . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ (541)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 165
Refinancing. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . . . . $ 143 $ 273 $ 279 $ 279 $ 365
Other. . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ---------------------
C-12
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax
basis. This table includes the presentation of income tax basis
information.
(2) TLP3 generally depreciated equipment on a straight line basis over ten
years. As a result, when leases ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP3,
the sale resulted in a tax loss, even though TLP3 realized a positive
receipt of cash. The loss of $151,475 in 1992 reflects such a tax loss.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus
loss (if any) on sale of equipment or less gain (if any) on sale of
equipment.
(4) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP3.
C-13
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #4(1)
------------------------------------------------------------------------
05-03-88 01-01-92
to 12-31-88 1989 1990 1991 to 10-20-92
----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . . . $ 136,484 $ 185,494 $ 175,939 $ 170,488 $ 133,888
Profit (loss) on sale of equipment(2). . . . . $ 0 $ 0 $ 0 $ 0 $ (205,695)
Less: Operating Expenses . . . . . . . . . . . $ 7,461 $ 16,465 $ 18,236 $ 12,414 $ 13,636
Interest Expense . . . . . . . . . . . . $ 19,377 $ 20,534 $ 15,787 $ 10,562 $ 4,201
Depreciation . . . . . . . . . . . . . . $ 17,336 $ 52,655 $ 52,655 $ 52,655 $ 39,491
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 72,734
----------- ---------- ---------- ---------- -----------
Net Income - Tax Basis . . . . . . . . . . . . $ 92,310 $ 95,840 $ 89,261 $ 94,857 $ (201,869)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
Cash generated from operations(3). . . . . . . $ 109,646 $ 148,495 $ 141,916 $ 147,512 $ 166,051
Cash generated from sales. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 106,066
Cash generated from refinancing. . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- -----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . . . $ 109,646 $ 148,495 $ 141,916 $ 147,512 $ 222,117
Less: Cash distributions to investors
from operating cash flow . . . . . . . . $ 44,700 $ 108,001 $ 108,001 $ 108,001 $ 116,042
from sales and refinancing . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 79,196
from other . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . . . $ 64,946 $ 40,494 $ 33,916 $ 39,511 $ 26,879
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . . . $ 25,347 $ 41,610 $ 46,270 $ 51,463 $ 73,857
----------- ---------- ---------- ---------- -----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . . . $ 39,599 $ (1,116) $ (12,354) $ (11,952) $ (46,978)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from
operations . . . . . . . . . . . . . $ 237 $ 246 $ 229 $ 243 $ (518)
Capital gain (loss). . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ (527)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 203
Refinancing. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . . . $ 115 $ 277 $ 277 $ 277 $ 298
Other. . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------------------
C-14
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax
basis. This table includes the presentation of income tax basis
information.
(2) TLP4 generally depreciated equipment on a straight line basis over ten
years. As a result, when leases ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP4,
the sale resulted in a tax loss, even though TLP4 realized a positive
receipt of cash. The loss of $205,695 in 1992 reflects such a tax loss.
(3) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP4.
C-15
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #5(1)
---------------------------------------------------------------
12-01-88
to 12-31-88 1989 1990 1991 1992
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues. . . . . . . . . . . . . . . . . . . . . $ 16,091 $ 325,420 $ 417,548 $ 414,909 $ 341,810
Profit (loss) on sale of equipment(2) . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ (69,483)
Less: Operating Expenses. . . . . . . . . . . . . . . . $ 2,058 $ 16,746 $ 17,409 $ 17,992 $ 17,289
Interest Expense. . . . . . . . . . . . . . . . . $ 0 $ 39,583 $ 54,947 $ 42,628 $ 26,381
Depreciation. . . . . . . . . . . . . . . . . . . $ 1,846 $ 79,258 $ 136,791 $ 137,466 $ 80,994
Write-offs of Syndication Costs and A/R. . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Net Income - Tax Basis. . . . . . . . . . . . . . . . . $ 12,187 $ 189,563 $ 208,401 $ 216,823 $ 147,663
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash generated from operations(3) . . . . . . . . . . . $ 14,033 $ 268,821 $ 345,192 $ 354,289 $ 298,140
Cash generated from sales . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 378,397
Cash generated from refinancing . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Cash generated from operations,
sales and refinancing . . . . . . . . . . . . . . . . $ 14,033 $ 268,821 $ 345,192 $ 354,289 $ 676,537
Less: Cash distributions to investors
from operating cash flow . . . . . . . . . . . . $ 0 $ 129,389 $ 239,998 $ 260,649 $ 260,000
from sales and refinancing . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . . . . . . . $ 14,033 $ 139,432 $ 105,194 $ 93,640 $ 416,537
Less: Special items - principal reduction. . . . . . . $ 0 $ 35,557 $ 95,928 $ 110,527 $ 150,675
--------- --------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions and special items(4) . . . . . . . $ 14,033 $ 103,875 $ 9,266 $ (16,887) $ 265,862
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations . . . . . $ 12 $ 190 $ 208 $ 217 $ 148
Capital gain (loss). . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ (69)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . . . . . . . $ 0 $ 129 $ 240 $ 261 $ 260
Other. . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ------------
C-16
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #5(1)
---------------------------------------------------------------
1993 1994
---- ----
<S> <C> <C>
Gross Revenues . . . . . . . . . . . . . . . . . . . $ 224,659 $ 35,597
Profit (loss) on sale of equipment(2) . . . . . . . . $(114,028) $ 224,899
Less: Operating Expenses. . . . . . . . . . . . . . . $ 18,317 $ 7,757
Interest Expense. . . . . . . . . . . . . . . . $ 8,525 $ 1,021
Depreciation. . . . . . . . . . . . . . . . . . $ 71,170 $ 35,575
Write-offs of Syndication Costs and A/R . . . . $ 37,399 $ 173,420
--------- ---------
Net Income - Tax Basis . . . . . . . . . . . . . . . $ (24,780) $(407,075)
--------- ---------
--------- ---------
Cash generated from operations(3) . . . . . . . . . . $ 197,817 $ 26,819
Cash generated from sales . . . . . . . . . . . . . . $ 300,597 $ 60,024
Cash generated from refinancing . . . . . . . . . . . $ 0 $ 0
--------- ---------
Cash generated from operations,
sales and refinancing . . . . . . . . . . . . . . . $ 498,414 $ 86,843
Less: Cash distributions to investors
from operating cash flow. . . . . . . . . . . . $ 325,000 $ 26,819
from sales and refinancing. . . . . . . . . . . $ 0 $ 60,024
from other. . . . . . . . . . . . . . . . . . . $ 164,552 $ 51,383
--------- ---------
Cash generated (deficiency) after
cash distributions. . . . . . . . . . . . . . . . . $ 8,862 $ (51,383)
Less: Special items - principal reduction. . . . . . $ 123,785 $ 0
--------- ---------
Cash generated (deficiency) after
cash distributions and special
items(4). . . . . . . . . . . . . . . . . . . . . . $(114,923) $ (51,383)
--------- ---------
--------- ---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations. . . . $ (25) $ (407)
Capital gain (loss) . . . . . . . . . . . . . $ (114) $ (225)
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . . . . . $ 0 $ 60
Refinancing . . . . . . . . . . . . . . . . . $ 0 $ 0
Operations. . . . . . . . . . . . . . . . . . $ 325 $ 27
Other . . . . . . . . . . . . . . . . . . . . $ 165 $ 51
</TABLE>
- ------------
C-17
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP5 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP5, the
sale resulted in a tax loss, even though TLP5 realized a positive receipt
of cash. The loss of $69,483 in 1992 reflects such a tax loss.
(3) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with cash generated in prior years.
C-18
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6(1)
--------------------------------------------------------------
07-14-89
to 12-31-89 1990 1991 1992 1993
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . . . . . . . $ 115,881 $ 192,346 $ 194,487 $ 197,229 $ 188,894
Profit (loss) on sale of equipment . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses . . . . . . . . . . . . . . . $ 5,718 $ 8,525 $ 6,879 $ 7,689 $ 9,269
Interest Expense . . . . . . . . . . . . . . . . $ 26,854 $ 45,881 $ 40,457 $ 36,568 $ 27,117
Depreciation . . . . . . . . . . . . . . . . . . $ 36,003 $ 79,208 $ 79,856 $ 80,504 $ 80,504
Write-offs of Syndication Costs and A/R. . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Net Income - Tax Basis . . . . . . . . . . . . . . . . $ 47,306 $ 58,732 $ 67,295 $ 72,468 $ 72,004
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash generated from operations(2). . . . . . . . . . . $ 83,309 $ 137,940 $ 147,151 $ 152,972 $ 152,508
Cash generated from sales . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Cash generated from operations,
sales and refinancing . . . . . . . . . . . . . . . $ 83,309 $ 137,940 $ 147,151 $ 152,972 $ 152,508
Less: Cash distributions to investors
from operating cash flow. . . . . . . . . . . . $ 13,769 $ 99,999 $ 99,999 $ 100,000 $ 100,000
from sales and refinancing. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other. . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
Cash generated (deficiency) after cash distributions . $ 69,540 $ 37,941 $ 47,152 $ 52,972 $ 52,508
Less: Special items - principal reduction . . . . . . $ 19,722 $ 40,059 $ 45,471 $ 49,353 $ 58,784
--------- --------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions and special items(3). . . . . . . $ 49,818 $ (2,118) $ 1,681 $ 3,619 $ (6,276)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations . . . . $ 100 $ 124 $ 142 $ 153 $ 152
Capital gain (loss). . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . . . . . . $ 29 $ 211 $ 211 $ 211 $ 211
Other. . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ----------
C-19
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6(1)
-----------------------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . . . . . . . $ 193,470 $ 162,239 $ 63,215
Profit (loss) on sale of equipment . . . . . . . . . . $ 0 $ (6,052) $(174,675)
Less: Operating Expenses . . . . . . . . . . . . . . . $ 8,820 $ 7,537 $ 5,234
Interest Expense . . . . . . . . . . . . . . . . $ 16,988 $ 10,916 $ 1,232
Depreciation . . . . . . . . . . . . . . . . . . $ 81,600 $ 76,128 $ 48,950
Write-offs of Syndication Costs and A/R . . . . $ 0 $ 0 $ 77,320
--------- --------- ---------
Net Income - Tax Basis . . . . . . . . . . . . . . . . $ 86,062 $ 61,606 $(244,196)
--------- --------- ---------
--------- --------- ---------
Cash generated from operations(2) . . . . . . . . . . $ 167,662 $ 143,786 $ 56,749
Cash generated from sales . . . . . . . . . . . . . . $ 0 $ 1,301 $ 11,861
Cash generated from refinancing . . . . . . . . . . . $ 0 $ 0 $ 0
--------- --------- ---------
Cash generated from operations,
sales and refinancing . . . . . . . . . . . . . . . $ 167,662 $ 145,087 $ 68,610
Less: Cash distributions to investors
from operating cash flow . . . . . . . . . . . . $ 100,000 $ 125,000 $ 61,860
from sales and refinancing . . . . . . . . . . . $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0
--------- --------- ---------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . . . . . . . $ 67,662 $ 20,087 $ 6,750
Less: Special items - principal reduction . . . . . . $ 69,354 $ 75,049 $ 42,208
--------- --------- ---------
Cash generated (deficiency) after
cash distributions and special items(3) . . . . . . $ (1,692) $ (54,962) $ (35,458)
--------- --------- ---------
--------- --------- ---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss) from operations . . . . . $ 181 $ 130 $ (514)
Capital gain (loss). . . . . . . . . . . . . . . $ 0 $ (13) $ (368)
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0
Refinancing . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0
Operations. . . . . . . . . . . . . . . . . . . . $ 211 $ 263 $ 130
Other . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0
</TABLE>
- -----------
C-20
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(3) Deficiencies were funded with cash generated in prior years.
C-21
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #7(1)
-------------------------------------------------------------------------
08-30-89
to 12-31-89 1990 1991 1992 1993
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . . . . . . . $ 58,574 $ 403,825 $ 446,673 $ 398,353 $ 314,143
Profit (loss) on sale of equipment(2). . . . . . . . . $ 0 $ 0 $ 0 $ (92,261) $ (177,823)
Less: Operating Expenses. . . . . . . . . . . . . . . $ 2,599 $ 9,569 $ 9,433 $ 12,504 $ 8,906
Interest Expense. . . . . . . . . . . . . . . . $ 4,290 $ 42,520 $ 33,830 $ 21,054 $ 13,400
Depreciation. . . . . . . . . . . . . . . . . . $ 26,137 $ 104,289 $ 133,646 $ 130,053 $ 103,876
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ----------- ---------- ---------- ----------
Net Income - Tax Basis . . . . . . . . . . . . . . . . $ 25,548 $ 247,447 $ 269,764 $ 142,481 $ 10,138
--------- ----------- ---------- ---------- -----------
--------- ----------- ---------- ---------- -----------
Cash generated from operations(3). . . . . . . . . . . $ 51,685 $ 351,736 $ 403,410 $ 364,795 $ 291,837
Cash generated from sales. . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 6,000 $ 48,103
Cash generated from refinancing. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ----------- ---------- ---------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . . . . . . . $ 51,685 $ 351,736 $ 403,410 $ 370,795 $ 339,940
Less: Cash distributions to investors
from operating cash flow. . . . . . . . . . . . $ 1,660 $ 177,484 $ 227,998 $ 228,000 $ 228,000
from sales and refinancing. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other. . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ----------- ---------- ---------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . . . . . . . $ 50,025 $ 174,252 $ 175,412 $ 142,795 $ 111,940
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . . . . . . . $ 5,013 $ 81,572 $ 106,206 $ 84,743 $ 68,319
--------- ----------- ---------- ---------- ----------
Cash generated (deficiency) after
cash distributions and special
items. . . . . . . . . . . . . . . . . . . . . . . . $ 45,012 $ 92,680 $ 69,206 $ 58,052 $ 43,621
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . . . . . . $ 26 $ 247 $ 270 $ 142 $ 10
Capital gain (loss). . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ (92) $ (178)
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations. . . . . . . . . . . . . . . . . . . $ 2 $ 177 $ 228 $ 228 $ 228
Other . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ----------
C-22
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
TLP #7(1)
------------------------------
01-01-94
to 09-30-94
-----------
Gross Revenues . . . . . . . . . . . . . $ 140,640
Profit (loss) on sale of equipment(2). . $ (342,437)
Less: Operating Expenses. . . . . . . . $ 8,926
Interest Expense. . . . . . . . . $ 3,188
Depreciation. . . . . . . . . . . $ 50,736
Write-offs of Syndication
Costs and A/R. . . . . . . . . . $ 184,655
-----------
Net Income - Tax Basis . . . . . . . . . $ (449,302)
-----------
-----------
Cash generated from operations(3). . . . $ 128,526
Cash generated from sales. . . . . . . . $ 190,715
Cash generated from refinancing. . . . . $ 0
-----------
Cash generated from operations,
sales and refinancing. . . . . . . . . $ 319,241
Less: Cash distributions to investors
from operating cash flow. . . . . $ 128,002
from sales and refinancing. . . . $ 266,901
from other. . . . . . . . . . . . $ 0
-----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . $ (75,662)
Less: Special items - principal
reduction. . . . . . . . . . . . . . . $ 69,147
-----------
Cash generated (deficiency) after
cash distributions and special
items. . . . . . . . . . . . . . . . . $ (144,809)
-----------
-----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . $ (449)
Capital gain (loss). . . . . . . $ (342)
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . $ 267
Refinancing . . . . . . . . . . . $ 0
Operations. . . . . . . . . . . . $ 128
Other . . . . . . . . . . . . . . $ 0
- ----------
C-23
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax
basis. This table includes the presentation of income tax basis
information.
(2) TLP7 generally depreciated equipment on a straight line basis over ten
years, even though the equipment was leased pursuant to a lease having a
three to five year term. As a result, when a lease ended and the
equipment was sold for residual value, in many cases the sale resulted in
a tax loss because the sale price was less than the adjusted basis of the
equipment. The loss of $92,261 in 1992 reflects such a tax loss that
resulted from the sale of equipment that TLP7 took possession of in 1991
following the early termination of a lease.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
C-24
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #8(1)
-----------------------------------------------------------------------
04-09-90 01-01-94
to 12-31-90 1991 1992 1993 to 09-30-94
----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . . . . . . . $ 282,731 $ 821,754 $ 475,321 $ 418,859 $ 177,850
Profit (loss) on sale of equipment(2). . . . . . . . . $ 0 $ 0 $ (351,774) $ (154,322) $ (372,256)
Less: Operating Expenses. . . . . . . . . . . . . . . $ 21,826 $ 26,531 $ 27,054 $ 16,772 $ 10,196
Interest Expense. . . . . . . . . . . . . . . . $ 28,958 $ 56,699 $ 39,109 $ 12,178 $ 0
Depreciation. . . . . . . . . . . . . . . . . . $ 78,386 $ 175,511 $ 108,398 $ 196,959 $ 52,029
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 231,437
---------- ---------- ---------- ---------- ----------
Net Income - Tax Basis . . . . . . . . . . . . . . . . $ 153,561 $ 563,013 $ (51,014) $ 38,628 $ (488,068)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash generated from operations(3). . . . . . . . . . . $ 231,947 $ 738,524 $ 409,158 $ 389,909 $ 167,654
Cash generated from sales. . . . . . . . . . . . . . . $ 0 $ 0 $ 24,000 $ 7,400 $ 137,194
Cash generated from refinancing. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . . . . . . . $ 231,947 $ 738,524 $ 433,158 $ 397,309 $ 304,848
Less: Cash distributions to investors
from operating cash flow. . . . . . . . . . . . $ 53,053 $ 256,000 $ 256,000 $ 256,000 $ 474,722
from sales and refinancing. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 137,194
from other. . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . . . . . . . $ 178,894 $ 482,524 $ 177,158 $ 141,309 $ (307,068)
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . . . . . . . $ 61,507 $ 103,803 $ 203,565 $ 138,901 $ 138,901
---------- ---------- ---------- ---------- ----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . . . . . . . $ 117,387 $ 378,721 $ (26,407) $ 2,408 $ (445,969)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . . . . . . $ 127 $ 467 $ (42) $ 32 $ (405)
Capital gain (loss). . . . . . . . . . . . . . $ 0 $ 0 $ (292) $ (128) $ (309)
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 114
Refinancing . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations. . . . . . . . . . . . . . . . . . . $ 44 $ 212 $ 212 $ 212 $ 394
Other . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- -----------
C-25
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP8 generally depreciated equipment on a straight line basis over ten
years, even though the equipment was leased pursuant to a lease having a
three to five year term. As a result, when a lease ended and the equipment
was sold for residual value, in many cases the sale resulted in a tax loss
because the sale price was less than the adjusted basis of the equipment.
The loss of $351,774 in 1992 reflects such a tax loss that resulted from
the sale of equipment that TLP8 took possession of in 1991 following the
early termination of a lease.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with cash generated in prior years.
C-26
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF IX(1)(2)
-------------------------------------------------------------
11-30-91
to
12-31-91 1992 1993 1994 1995
-------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . $27,892 $1,068,671 $2,759,468 $ 2,958,118 $2,933,329
Profit (loss) on sale of equipment . . $ 0 $ 0 $ 94,003 $ 38,445 $ 23,355
Less: Operating Expenses . . . . . . . $13,375 $ 254,794 $ 495,491 $ 578,979 $ 630,062
Interest Expense . . . . . . . . $ 482 $ 110,245 $ 239,437 $ 363,881 $ 432,197
Provision for possible lease
losses . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 270,000 $ 94,156
Depreciation . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 150,540
Impairment loss on Equipment . . $ 0 $ 0 $ 0 $ 0 $ 0
------- ---------- ---------- ----------- ----------
Net Income - GAAP Basis. . . . . . . . $14,035 $ 703,632 $2,118,543 $ 1,783,703 $1,649,729
------- ---------- ---------- ----------- ----------
------- ---------- ---------- ----------- ----------
Cash generated from operations . . . . $86,725 $1,969,307 $2,291,515 $ 1,435,986 $1,830,610
Proceeds from termination of direct
financing leases . . . . . . . . . . $ 0 $ 0 $2,291,412 $ 379,489 $ 416,768
Cash generated from refinancing. . . . $ 0 $ 0 $ 0 $ 0 $ 0
------- ---------- ---------- ----------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . $86,725 $1,969,307 $4,582,927 $ 1,815,475 $2,247,378
Less: Cash distributions to
investors from
operating cash flow. . . . . . . $14,550 $ 710,834 $1,839,447 $ 2,040,210 $2,040,208
from sales and refinancing . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
------- ---------- ---------- ----------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . $72,175 $1,258,473 $2,743,480 $ (224,735) $ 207,170
Less: Special items - principal
reduction. . . . . . . . . . $ 0 $ 133,588 $ 0 $ 1,121,243 $ 0
------- ---------- ---------- ----------- ----------
Cash generated (deficiency) after
cash distributions and special
items . . . . . . . . . . . . . . . $72,175 $1,124,885 $2,743,480 $(1,345,978) $ 207,170
------- ---------- ---------- ----------- ----------
------- ---------- ---------- ----------- ----------
Income Tax Reporting Basis
Net income for income tax
reporting purposes . . . . . . $40,414 $ (238,776) $ 679,003 $ 1,515,757 $1,267,314
Gain (loss) on sales of
equipment. . . . . . . . . . . $ 0 $ 567 $ 85,044 $ (34,565) $ (635,945)
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . $ 33 $ (22) $ 40 $ 89 $ 75
Gain (loss) on sale of
Equipment . . . . . . . . . . $ 0 $ 0 $ 5 $ (2) $ (37)
Cash distributions to Investors
Source (on GAAP basis)
Sales . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations. . . . . . . . . . $ 12 $ 65 $ 108 $ 120 $ 120
Other . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
- ----------------------
</TABLE>
C-27
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF IX(1)(2)
-----------------------------------------------------------
1996
-----------
<S> <C>
Gross Revenues . . . . . . . . . . . . $ 2,875,262
Profit (loss) on sale of equipment . . $ 413,880
Less: Operating Expenses . . . . . . . $ 574,268
Interest Expense . . . . . . . . $ 492,210
Provision for possible lease
losses. . . . . . . . . . . . . $ 577,931
Depreciation . . . . . . . . . . $ 286,526
Impairment loss on
Equipment . . . . . . . . . . . $ 350,000
-----------
Net Income - GAAP Basis. . . . . . . . $ 1,008,207
-----------
-----------
Cash generated from operations . . . . $ 1,803,251
Proceeds from termination of direct
financing leases . . . . . . . . . . $ 6,874,524
Cash generated from refinancing. . . . $ 0
-----------
Cash generated from operations,
sales and refinancing . . . . . . . $ 8,677,775
Less: Cash distributions to
investors from operating
cash flow . . . . . . . . . . . $ 2,065,823
from sales and refinancing . . . $ 0
from other . . . . . . . . . . . $ 0
-----------
cash distributions . . . . . . . $ 6,611,952
Less: Special items - principal
reduction. . . . . . . . $ 3,437,296
-----------
Cash generated (deficiency) after
cash distributions and special
items . . . . . . . . . . . . . . . $ 3,174,656
-----------
-----------
Income Tax Reporting Basis
Net income for income tax
reporting purposes . . . . . . $ 2,687,332
Gain (loss) on sales of
equipment. . . . . . . . . . . $(3,475,641)
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . $ 158
Gain (loss) on sale of
Equipment. . . . . . . . . . . $ (205)
Cash distributions to Investors
Source (on GAAP basis)
Sales . . . . . . . . . . . . . $ 0
Refinancing . . . . . . . . . . $ 0
Operations . . . . . . . . . . . $ 122
Other . . . . . . . . . . . . . $ 0
- ----------------------
</TABLE>
C-28
<PAGE>
(1) This is a public program whose books are kept on a GAAP basis.
(2) The amount (in percentage terms) remaining invested in program equipment at
the end of June, 1997 is 100.00%.
C-29
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF X(1)(2)
-------------------------------------------------------
08-27-93
to 12-31-93 1994 1995 1996
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . $136,896 $2,240,714 $3,751,290 $ 3,444,271
Profit (loss) on sale of equipment . . $ 0 $ 20,306 $ 77,143 $ 260,706
Less: Operating Expenses . . . . . . . $ 51,378 $ 388,920 $ 605,211 $ 709,592
Interest Expense . . . . . . . . $ 0 $ 216,665 $ 672,512 $ 692,863
Provision for possible lease
losses . . . . . . . . . . . . $ 0 $ 360,000 $ 828,911 $ 1,092,551
Depreciation . . . . . . . . . . $ 0 $ 0 $ 170,646 $ 392,774
Impairment loss on
Equipment. . . . . . . . . . . $ 0 $ 0 $ 0 $ 621,000
-------- ---------- ---------- -----------
Net Income - GAAP Basis. . . . . . . . $ 85,518 $1,295,435 $1,551,153 $ 196,197
-------- ---------- ---------- -----------
-------- ---------- ---------- -----------
Cash generated from operations . . . . $158,914 $1,643,652 $2,566,020 $ 1,938,010
Proceeds from termination of direct
financing leases . . . . . . . . . . $ 0 $ 201,125 $ 837,182 $ 5,297,671
Cash generated from refinancing. . . . $ 0 $ 0 $ 0 $ 0
-------- ---------- ---------- -----------
Cash generated from operations,
sales and refinancing. . . . . . . . $158,914 $1,844,777 $3,403,202 $ 7,235,681
Less: Cash distributions to investors
from operating cash flow . . . . $104,880 $1,416,600 $2,427,345 $ 2,456,178
from sales and refinancing . . . $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
-------- ---------- ---------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . $ 54,034 $ 288,786 $ 960,510 $ 4,793,261
Less: Special items - principal
reduction . . . . . . . . $ 0 $ 0 $ 0 $ 3,811,544
-------- ---------- ---------- -----------
Cash generated (deficiency) after
cash distributions and special
items . . . . . . . . . . . . . . . $ 54,034 $ 288,786 $ 960,510 $ 981,717
-------- ---------- ---------- -----------
-------- ---------- ---------- -----------
Income Tax Reporting Basis
Net income for income tax
reporting purposes . . . . . . $ 6,473 $ (624,998) $ (949,880) $(1,135,380)
Gain (loss) on sales of
equipment. . . . . . . . . . . $ 0 $ 42,853 $ 142,416 $(1,284,298)
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . $ 1 $ (28) $ (42) $ (50)
Gain (loss) on sale of
Equipment. . . . . . . . . . . $ 0 $ 2 $ 6 $ (57)
Cash distributions to Investors
Source (on GAAP basis)
Sales . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . $ 17 $ 69 $ 108 $ 108
Other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
- ---------------------
</TABLE>
C-30
<PAGE>
(1) This is a public program whose books are kept on a GAAP basis.
(2) The amount (in percentage terms) remaining invested in program equipment at
the end of June, 1997 is 100.00%.
C-31
<PAGE>
TABLE IV
RESULTS OF COMPLETED PROGRAMS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
PROGRAM NAME TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
<S> <C> <C> <C> <C> <C>
Dollar Amount Raised(1) $ 1,363,500 $ 1,383,700 $ 282,828 $ 393,939 $ 1,010,000
Date of Closing of Offering 12/31/86 12/31/87 03/04/88 05/03/88 02/28/89
Date of First Sale of Equipment 10/01/90 10/01/90 03/01/92 10/01/92 10/01/92
Date of Final Sale of Equipment 10/01/90 09/01/93 08/01/92 10/01/92 03/01/94
Tax and Distribution Data per $1,000
Federal Income Tax Results:
Ordinary income (loss)
--from operations $ 214 $ 692 $ 1,036 $ 964 $ 751
--from recapture $ 0 $ 0 $ 0 $ 0 $ 0
Capital Gain (loss) $ 31 $ (279) $ (541) $ (527) $ (408)
Deferred Gain
Capital $ 0 $ 0 $ 0 $ 0 $ 0
Ordinary $ 0 $ 0 $ 0 $ 0 $ 0
Cash Distributions to Investors
Source (on GAAP basis)
--Investment Income $ 224 $ 422 $ 504 $ 446 $ 518
--Return of Capital $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Source (on cash basis)
--Sales $ 0 $ 27 $ 165 $ 203 $ 60
--Refinancing $ 0 $ 0 $ 0 $ 0 $ 0
--Operations $ 1,224 $ 1,095 $ 1,339 $ 1,243 $ 1,242
--Other $ 0 $ 300 $ 0 $ 0 $ 216
Receivable on Net Purchase Money
Financing
</TABLE>
- -----------------------
(1) Includes general partner purchase of 1% of amount raised from investors.
C-32
<PAGE>
TABLE IV (CONTINUED)
RESULTS OF COMPLETED PROGRAMS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
PROGRAM NAME TLP #6 TLP #7 TLP #8
------ ------ ------
Dollar Amount Raised(1) . . . . . . . $ 479,750 $ 1,010,000 $1,217,050
Date of Closing of Offering . . . . . 07/14/89 02/21/90 02/07/91
Date of First Sale of Equipment . . . 12/01/96 09/01/92 01/01/93
Date of Final Sale of Equipment . . . 12/01/96 09/01/93 11/01/93
Tax and Distribution Data per $1,000
Federal Income Tax Results:
Ordinary income (loss)
--from operations. . . . . . . . $ 846 $ 859 $ 908
--from recapture . . . . . . . . $ 0 $ 0 $ 0
Capital Gain (loss). . . . . . . . $ (380) $ (613) $ (729)
Deferred Gain
Capital . . . . . . . . . . . . . $ 0 $ 0 $ 0
Ordinary. . . . . . . . . . . . . $ 0 $ 0 $ 0
Cash Distributions to Investors
Source (on GAAP basis)
--Investment Income . . . . . . . $ 475 $ 258 $ 189
--Return of Capital . . . . . . . $ 1,000 $ 1,000 $ 1,000
Source (on cash basis)
--Sales . . . . . . . . . . . . . $ 0 $ 267 $ 114
--Refinancing . . . . . . . . . . $ 0 $ 0 $ 0
--Operations. . . . . . . . . . . $ 1,475 $ 991 $ 1,075
--Other . . . . . . . . . . . . . $ 0 $ 0 $ 0
Receivable on Net Purchase Money
Financing
- --------------------
(1) Includes general partner purchase of 1% of amount raised from investors.
C-33
<PAGE>
TABLE V
SALES OR DISPOSITION OF EQUIPMENT BY PUBLIC PROGRAM SINCE 01/01/94
<TABLE>
<CAPTION>
Net
Net Net Cash Notes/Noncash
Investment proceeds from Proceeds from
in Direct Termination of Termination of
Date Year of Financing Direct Financing direct financing
Partnership Description Acquired Disposition Leases Leases leases
<S> <C> <C> <C> <C> <C> <C>
TIF IX Telecommunication Equipment Various 1994 $ 341,044 $ 379,489 $ 0
TIF IX Telecommunication Equipment Various 1995 $ 393,413 $ 416,768 $ 0
TIF IX Telecommunication Equipment Various 1996 $12,361,660 $ 6,874,524 $ 5,901,016
TIF X Telecommunication Equipment Various 1994 $ 180,819 $ 201,125 $ 0
TIF X Telecommunication Equipment Various 1995 $ 760,039 $ 837,182 $ 0
TIF X Telecommunication Equipment Various 1996 $10,779,201 $ 5,297,671 $ 5,742,236
<CAPTION>
Net Proceeds
from termination
of direct financing GAAP Federal Taxable
Partnership Description leases Gain/(Loss) Gain/(Loss)
<S> <C> <C> <C> <C>
TIF IX Telecommunication Equipment $ 379,486 $ 38,445 $ (34,565)
TIF IX Telecommunication Equipment $ 416,768 $ 23,355 $ (635,945)
TIF IX Telecommunication Equipment $ 12,775,540 $ 413,880 $ (3,475,641)
TIF X Telecommunication Equipment $ 201,125 $ 20,306 $ 42,853
TIF X Telecommunication Equipment $ 837,182 $ 77,143 $ 142,416
TIF X Telecommunication Equipment $ 11,039,907 $ 260,706 $ (1,284,298)
</TABLE>
C-34
<PAGE>
NOTICE TO CALIFORNIA INVESTORS EXHIBIT D
Section 260.141.11. RESTRICTION ON TRANSFER
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at the time the certificate evidencing the security is delivered to the
issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-dealer,
nor actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113, or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, provided that no order under Section 25140 or subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to each
purchaser a copy of this rule, and (iii) advises the Commissioner of the name of
each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (1) of
Section 25102; provided that any such transfer is on the condition that any
certificate evidencing the security issued to such transferee shall contain the
legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
D-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained in this Prospectus and, if
given or made such information or representations must not be relied upon.
Neither the delivery of this Prospectus nor any sale made hereunder will, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to its date. However, if any material change in the
information stated herein does occur during the period when the Prospect is
required to be delivered, it will be supplemented or amended accordingly.
------------------------------------------------
------------------------------------------------
Until ninety days after the Effective Date of this Prospectus, all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
This Prospectus does not constitute an offer or solicitation by anyone in
any state in which said offer or solicitation is not authorized or in which the
person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$1,200,000
TELECOMMUNICATIONS
INCOME FUND XI, L.P.
AN IOWA LIMITED PARTNERSHIP
------------------------------------------------
$1,000 PER UNIT
------------------------------------------------
A MINIMUM OF 1,200 UNITS ($1,200,000)
OF LIMITED PARTNERSHIP INTEREST
------------------------------------------------
MINIMUM INVESTMENT:
2 UNITS ($2,000)
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
100 Second Street, S.E.
Cedar Rapids, Iowa 52401
(319) 365-2506
(800) 356-5234
Fax (319) 365-4538
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI
PAST PERFORMANCE
PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
- --------------------------------------------------------------------------------
Cash Distributions to Limited Partners of Prior Programs
Sponsored by Berthel Fisher & Company Leasing, Inc. and Affiliates
as of June 30, 1997
<TABLE>
<CAPTION>
DISTRIBUTION AS
PROGRAM OFFERING LENGTH OF TOTAL PAID A % OF ORIGINAL PROGRAM
PROGRAM SIZE CLOSING PROGRAM TO DATE INVESTMENT CLOSED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 1,363,500 12/31/86 8 YEARS $ 1,652,794 121.22% 10/31/94
2 $ 1,383,700 12/31/87 7 YEARS $ 1,947,611 140.75% 9/30/94
3 $ 282,828 3/4/88 4 1/2 YEARS $ 421,109 148.89% 9/42/92
4 $ 393,939 5/3/88 4 1/2 YEARS $ 563,940 143.15% 10/19/92
5 $ 1,010,000 2/28/89 6 YEARS $ 1,353,262 133.99% 12/31/94
6 $ 479,750 7/14/89 7 1/2 YEARS $ 700,627 146.04% 12/31/96
7 $ 1,010,000 2/21/90 4 1/2 YEARS $ 1,258,045 124.56% 9/30/94
8 $ 1,217,050 2/7/91 3 1/2 YEARS $ 1,432,969 117.74% 9/30/94
9 $17,001,750 4/30/93 OPEN (1) $ 9,690,392 57.00% OPEN
10 $22,617,500 12/31/94 OPEN (1) $ 7,878,145 34.83% OPEN
</TABLE>
(1) DESIGNED FOR A 5 YEAR TERM FROM CLOSING OF OFFERING.
THERE CAN BE NO ASSURANCE THAT ANY SPECIFIC LEVEL OF CASH DISTRIBUTIONS OR
ANY OF THE INVESTMENT OBJECTIVES OF THE PARTNERSHIP CAN OR WILL BE ATTAINED.
ANYONE INTERESTED IN TELECOMMUNICATIONS INCOME FUND XI SHOULD CAREFULLY
REVIEW THE PROSPECTUS.
<PAGE>
[PHOTO OF OFFICES OF BERTHEL FISHER & COMPANY]
BERTHEL FISHER & COMPANY
FOUNDED IN 1985 AS A DIVERSIFED FINANCIAL SERVICES HOLDING COMPANY,
BERTHEL FISHER & COMPANY, INC. OPERATES A NUMBER OF SUBSIDIARIES, INCLUDING:
- - BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC.
- - BERTHEL FISHER & COMPANY LEASING, INC.
- - BERTHEL FISHER & COMPANY PLANNING, INC.
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
100 SECOND STREET SE
CEDAR RAPIDS, IOWA 52401
(319) 365-2506
(800) 356-5234 (TOLL FREE)
(319) 365-4538 (FAX)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable by the Registrant (other than broker-dealer
commissions) in connection with the offering herein described are as follows:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
---------- ----------
<S> <C> <C>
Securities and Exchange Commission Registration Fee....................................... $ 7,575 $ 7,575
National Association of Securities Dealers Registration Fee............................... 3,000 3,000
Legal Fees and Expenses................................................................... 100,000 100,000
Accountants' Fees and Expenses............................................................ 25,000 25,000
Fees and Expenses Relating to Blue Sky Qualifications (including legal fees).............. 50,000 50,000
Printing.................................................................................. 45,000 45,000
Miscellaneous............................................................................. 0 0
Seminars.................................................................................. 75,000 75,000
Advertising and Sales..................................................................... 85,000 85,000
Literature................................................................................ 25,000 25,000
---------- ----------
Total Estimated Expenses.................................................................. $ 415,575 $ 415,575
---------- ----------
---------- ----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Partnership Agreement provides that the General Partner or its
Affiliates performing services on behalf of the Partnership will not be liable
to the Partnership or the Limited Partners for any act performed or omitted to
be performed by them in connection with the activities of the Partnership or in
dealing with third parties on behalf of the Partnership, if the General Partner,
in good faith, determined that such course of conduct was in the best interest
in the Partnership, and such act or omission does not constitute fraud,
negligence, breach of fiduciary duty or misconduct. The Partnership Agreement
provides that the General Partner or its Affiliates performing services on
behalf of the Partnership will be indemnified by the Partnership for any
liabilities incurred by them arising from acts performed or omitted to be
performed by them that were determined in good faith by the General Partner to
have been in the best interest of the Partnership in connection with the
activities of the Partnership or in dealing with third parties on behalf of the
Partnership, including attorney's fees (which may be paid as incurred subject to
certain restrictions) and any amounts expended in the investigation or
settlement of any claims, except for claims with respect to acts or omissions
which constitute fraud, negligence, breach of fiduciary duty or misconduct.
The General Partner or any of its Affiliates performing services on behalf
of the Partnership, or in connection with its business, will not be indemnified
against any liability, loss or damage incurred by reason of any act performed or
omitted to be performed by them in good faith in connection with the activities
of the Partnership or in dealing with third parties on behalf of the
Partnership, involving allegations that federal or state securities laws were
violated, unless such lawsuits alleging such claims are successfully defended or
a court approves indemnification of litigation costs (provided that the Court is
apprised of the position of the SEC), unless such lawsuits are dismissed with
prejudice on the merits or unless such lawsuits are settled and a court approves
the settlement and the indemnification.
The Partnership Agreement provides that the Partnership will not incur the
cost of that portion of any insurance which insures any party against any
liability the indemnification of which is prohibited by the Partnership
Agreement.
II-1
<PAGE>
Advances of attorney's fees and costs will not be permitted for
indemnification suits unless the action relates to the performance of duties or
services by the General Partner or its Affiliates on behalf of the Partnership,
or in connection with the Partnership's business, the claim against which
indemnification is sought is not made by a Limited Partner and the indemnified
party undertakes to repay within 90 days the advanced funds to the Partnership
in cases in which they would not be entitled to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Thomas J. Berthel has purchased one Unit for $1,000 in order to become an
Initial Limited Partner and permit the filing of a Certificate of Limited
Partnership. The General Partner has purchased 10 Units for $10,000. These sales
were made pursuant to the exemption contained in Section 4(2) of the Securities
Act of 1933, as a transaction not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<C> <S>
*1.1 Managing Sales Agent Agreement
*1.2 Form of Selected Sales Agent Agreement
*3.1 Amended and Restated Agreement of Limited Partnership (included as Exhibit A
to the Prospectus)
*3.2 Certificate of Limited Partnership
*4.1 Form of Certificate Representing Limited Partnership Interests in the
Registrant
*5.1 Opinion of Bradley & Riley, P.C., Counsel to Registrant, as to the legality
of the securities being registered
*8.1 Opinion of Bradley & Riley, P.C., Counsel to Registrant, as to tax matters
*10.1 Escrow Agreement
*10.2 Amended Contract between the General Partner and the Partnership
23.1 Consent of Deloitte & Touche, LLP
*23.2 Consent of Bradley & Riley, P.C. included in its opinions filed as Exhibits
5.1 and 8.1
*24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) To include
any Prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and (iii) to include any material information with
respect to the plan of
II-2
<PAGE>
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(b) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) To provide to the Managing Sales Agent at the closing specified in
the Managing Sales Agent Agreement certificates in such denominations and
registered in such names as required by the Managing Sales Agent and
Soliciting Sales Agents to permit prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cedar Rapids, and State
of Iowa on this 21st day of August, 1998.
<TABLE>
<S> <C> <C>
TELECOMMUNICATIONS INCOME
FUND XI, L.P., AN IOWA LIMITED PARTNERSHIP
By: BERTHEL FISHER & COMPANY LEASING, INC.
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ THOMAS J. BERTHEL
-----------------------------------
Thomas J. Berthel
CHIEF EXECUTIVE OFFICER
By: /s/ RONALD O. BRENDENGEN
-----------------------------------
Ronald O. Brendengen
CHIEF FINANCIAL OFFICER
By: /s/ DANIEL P. WEGMANN
-----------------------------------
Daniel P. Wegmann
CHIEF ACCOUNTING OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1993, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 21st day of August, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS J. BERTHEL Director, Chief Executive
- ------------------------------ Officer and President of
Thomas J. Berthel the General Partner
/s/ NANCY LOWENBERG Director, Executive Vice
- ------------------------------ President and Chief
Nancy Lowenberg Operating Officer
/s/ RONALD O. BRENDENGEN Director, Treasurer and
- ------------------------------ Chief Financial Officer
Ronald O. Brendengen of the General Partner
/s/ DANIEL P. WEGMANN
- ------------------------------ Chief Accounting Officer
Daniel P. Wegmann
/s/ LESLIE D. SMITH
- ------------------------------ Secretary of the General
Leslie D. Smith Partner
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ VON ELBERT
- ------------------------------ Director of the General
Von Elbert Partner
/s/ EMMETT J. SCHERRMAN
- ------------------------------ Director of the General
Emmett J. Scherrman Partner
/s/ JAMES W. NOYCE
- ------------------------------ Director of the General
James W. Noyce Partner
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
EXHIBIT NO. NAME NUMBER
- ------------- --------------------------------------------------------------------------------------- -----------------
<C> <S> <C>
23.1 Consent of Deloitte & Touche, LLP
27 Financial Data Schedule
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-35557 of Telecommunications Income Fund XI, L.P. of our
reports dated September 4, 1997 related to Telecommunications Income Fund XI,
L.P. and March 5, 1998 related to Berthel Fisher & Company Leasing, Inc.
(General Partner), appearing in the Prospectus which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Cedar Rapids, Iowa
August 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS (UNAUDITED) OF TELECOMMUNICATIONS INCOME FUND XI, L.P.
FOR THE PERIOD AUGUST 26, 1997 (INCEPTION) TO DECEMBER 31, 1997, AND THE
SIX MONTH PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> AUG-26-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 10,593 193,524
<SECURITIES> 0 0
<RECEIVABLES> 0 2,977,610
<ALLOWANCES> 0 (51,573)
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,593 3,119,561
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 10,593 3,127,915
<CURRENT-LIABILITIES> 0 133,003
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 10,593 2,994,912
<TOTAL-LIABILITY-AND-EQUITY> 10,593 3,127,915
<SALES> 0 0
<TOTAL-REVENUES> 77 115,543
<CGS> 0 0
<TOTAL-COSTS> 0 37,874
<OTHER-EXPENSES> 485 15,266
<LOSS-PROVISION> 0 51,573
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (408) 10,830
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (408) 10,830
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (408) 10,830
<EPS-PRIMARY> (40.80) 4.37
<EPS-DILUTED> (40.80) 4.37
</TABLE>
