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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995 Commission File Number 0-14444
PHOENIX LEASING CAPITAL ASSURANCE FUND
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0032427
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2401 Kerner Boulevard, San Rafael, California 94901-5527
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 485-4500
---------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interest
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of December 31, 1995, 87,714 Units of Limited Partnership interest were
outstanding. No market exists for the Units of Partnership interest and
therefore there exists no aggregate market value at December 31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PHOENIX LEASING CAPITAL ASSURANCE FUND
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 4
Item 4. Submission of Matters to a Vote of Security Holders........... 4
PART II
Item 5. Market for the Registrant's Securities and Related
Security Holder Matters....................................... 4
Item 6. Selected Financial Data....................................... 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 6
Item 8. Financial Statements and Supplementary Data................... 8
Item 9. Disagreements on Accounting and Financial Disclosure Matters.. 20
PART III
Item 10. Directors and Executive Officers of the Registrant............ 20
Item 11. Executive Compensation........................................ 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 21
Item 13. Certain Relationships and Related Transactions................ 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 22
Signatures............................................................. 23
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PART I
Item 1. Business.
General Development of Business.
Phoenix Leasing Capital Assurance Fund, a California limited
partnership (the Partnership), was organized on June 28, 1984. The Partnership
was registered with the Securities and Exchange Commission with an effective
date of December 10, 1985 and shall continue to operate until its termination
date unless dissolved sooner due to the sale of substantially all of the assets
of the Partnership or a vote of the Limited Partners. The Partnership will
terminate on December 31, 1996. The General Partner is Phoenix Leasing
Incorporated, a California corporation. The General Partner or its affiliates
also is or has been a general partner in several other limited partnerships
formed to invest in capital equipment and other assets.
The initial public offering was for 320,000 units of limited
partnership interest at a price of $250 per unit. The Partnership has the option
of increasing the public offering up to a maximum of 400,000 units. The
Partnership sold 103,121 units for a total capitalization of $25,780,250. Of the
proceeds received through the offering, the Partnership has incurred $3,863,889
in organizational and offering expenses. The Partnership concluded its original
public offering on December 9, 1988.
From the initial formation of the Partnership through December 31,
1995, the total investments in equipment leases and financing transactions
(loans), including the Partnership's pro-rata interest in investments made by
joint ventures, approximate $25,065,000. The average initial firm term of
contractual payments from equipment subject to lease was 42.91 months, and the
average initial net monthly payment rate as a percentage of the original
purchase price was 2.44%. The average initial firm term of contractual payments
from loans was 60.20 months.
Narrative Description of Business.
The Partnership's principal objective is to produce cash flow to the
investors on a continuing basis over the life of the Partnership. To achieve
this objective, the Partnership has invested in various types of capital
equipment and other assets to provide leasing or financing of the same to third
parties, including Fortune 1000 companies and their subsidiaries, middle-market
companies, emerging growth companies, cable television operators and others, on
either a long-term or short-term basis. The types of equipment that the
Partnership has invested in includes, but is not limited to, computer
peripherals, terminal systems, small computer systems, communications equipment,
IBM mainframes, IBM-software compatible mainframes, office systems, CAE/CAD/CAM
equipment, telecommunications equipment, cable television equipment, medical
equipment, production and manufacturing equipment and software products.
The Partnership has acquired significant amounts of equipment or assets
and provided financing with the net offering proceeds. The Partnership will not
acquire equipment through the use of debt financing, however, the Partnership
may invest in Leveraged Joint Ventures. The cash flow generated by such
investments in equipment leases or financing transactions have been used to
acquire zero coupon bonds and to provide cash distributions to the Partners.
During the early years of the Partnership, a portion of the
Partnership's cash flow was invested in zero coupon bonds in such amounts and
having such maturity dates to provide an amount for distribution to the Limited
Partners at the termination of the Partnership equal to the amount of their
original investment. The original investment made by limited partners (net of
redemptions) at December 31, 1995 was approximately $22.9 million. At December
31, 1995, the Partnership had investments in zero coupon bonds with a face value
at maturity of $20.8 million.
The Partnership has acquired equipment pursuant to either "Operating"
leases or "Full Payout" leases. The Partnership has also provided financing
secured by assets in the form of notes receivable. Operating leases are
generally short-term leases under which the lessor will receive aggregate rental
payments in an amount that is less than the purchase price of the equipment.
Full Payout leases are generally for a longer term under which the
noncancellable rental payments due during the initial term of the lease are at
least sufficient to recover the purchase price of the equipment. A significant
portion of the net offering proceeds to the Partnership was invested in capital
equipment subject to Operating leases.
The General Partner has concentrated the Partnership's activities in
the equipment leasing and financing industry, an area in which the General
Partner has developed an expertise. The computer equipment leasing industry
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is extremely competitive. The Partnership competes with many well established
companies having substantially greater financial resources. Competitive factors
include pricing, technological innovation and methods of financing (including
use of various short-term and long-term financing plans, as well as the outright
purchase of equipment). Generally, the impact of these factors to the
Partnership would be the realization of increased equipment remarketing and
storage costs, as well as lower residuals received from the sale or remarketing
of such equipment.
Other.
A brief description of the type of assets in which the Partnership has
invested as of December 31, 1995, together with information concerning the uses
of assets is set forth in Item 2.
Item 2. Properties.
The Partnership is engaged in the equipment leasing and financing
industry and as such, does not own or operate any principal plants, mines or
real property. The primary assets held by the Partnership are its investments in
zero coupon bonds. The other remaining assets consist of investments in leases
and loans.
As of December 31, 1995, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $1,543,000.
The equipment and loans have been made to customers located throughout the
United States. The following table summarizes the type of equipment owned or
financed by the Partnership, including its pro rata interest in joint ventures,
at December 31, 1995.
Percentage of
Asset Types Purchase Price(1) Total Assets
-------------------- -------------
(Amounts in Thousands)
Small Computer Systems $1,011 65%
Computer Peripherals 233 15
Telecommunications 139 9
Reproduction 116 8
Financing Related to Cable TV Systems 41 3
Office 3 --
------ ----
TOTAL $1,543 100%
====== ====
(1) These amounts include the Partnership's pro rata interest in an equipment
joint venture of $67,000 and original cost of outstanding loans of $41,000
at December 31, 1995.
Item 3. Legal Proceedings.
The Registrant is not a party to any pending legal proceedings which
would have a material adverse impact on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the year covered by this report.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters.
(a) The Registrant's limited partnership interests are not publicly
traded. There is no market for the Registrant's limited
partnership interests and it is unlikely that any will develop.
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(b) Approximate Number of Equity Security Investments:
Number of Unit Holders
Title of Class as of December 31, 1995
-------------- -----------------------
Limited Partners 2,858
Item 6. Selected Financial Data.
Amounts in Thousands Except for Per Unit Amounts
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total Income $ 1,886 $ 2,054 $ 2,227 $ 2,639 $ 3,184
Net Income 1,749 1,799 1,709 1,071 642
Total Assets 20,244 18,851 18,473 17,529 17,292
Distributions to Partners 119 130 263 802 2,133
Net Income per Limited Partnership 19.77 18.80 17.10 10.22 5.29
Distributions per Limited Partners 1.28 1.30 2.52 7.55 20.02
The above selected financial data should be read in conjunction with
the financial statements and related notes appearing elsewhere in this report.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Phoenix Leasing Capital Assurance Fund (the Partnership) reported net
income of $1,749,000 during the year ended December 31, 1995, as compared to net
income of $1,799,000 and $1,709,000 during the years ended December 31, 1994 and
1993, respectively.
Total revenues decreased during the years ended December 31, 1995 and
1994, when compared to the same periods in the prior year, due primarily to a
decrease in rental income of $137,000 and $317,000 during the years ended
December 31, 1995 and 1994, respectively, as compared to the same periods in the
prior year. These decreases are related to the overall decrease in the amount of
equipment owned by the Partnership at December 31, 1995, as compared to December
31, 1994. At December 31, 1995, the Partnership owned equipment, excluding its
pro rata interest in joint ventures, with an aggregate original cost of $1.4
million, as compared to $2.8 million at December 31, 1994.
The accretion of discount from zero coupon bonds increased by $45,000
and $109,000 during the years ended December 31, 1995 and 1994, respectively, as
compared to the same periods in the prior year. The income related to zero
coupon bonds will continue to increase in the future as the Partnership
continues to accrete these bonds so that the carrying value will equal the face
value at the maturity date. The Partnership sold several of its zero coupon
bonds during 1995, as well as during 1994 and 1993. These bonds were sold in
order to provide sufficient cash for the payment of limited partner redemptions.
Total expenses decreased by $118,000 during the year ended December 31,
1995, as compared to a decrease of $263,000 during 1994, as compared to the same
periods in the prior year. This decrease was primarily due to a decrease in
depreciation expense as a result of the Partnership having liquidated a majority
of its equipment, with the remaining equipment owned being fully depreciated at
December 31, 1994.
Inflation affects the Partnership in relation to the current cost of
equipment placed on lease and the residual values realized when the equipment
comes off-lease and is sold. During the last several years inflation has been
low, thereby having very little impact upon the investments of the Partnership.
Liquidity and Capital Resources
The Partnership has made significant investments in zero coupon bonds.
It is the intention of the Partnership to hold these bonds until maturity or to
the end of the Partnership's term, whichever occurs first. Upon termination of
the Partnership, the Partnership will use the proceeds received upon maturity or
sale of these bonds to make a final distribution to the partners. The
Partnership has, and will continue to sell a portion of these bonds as cash is
needed to pay partner redemptions.
The Partnership reported net cash provided by leasing and financing
activities of $180,000, $380,000 and $939,000 for the years ended December 31,
1995, 1994 and 1993, respectively. The decrease for each year is reflective of
the reduction in rental payments from leases, due to an overall decrease in the
size of the Partnership's equipment portfolio. As the cash generated by leasing
operations continues to decline due to the ongoing liquidation of the equipment
portfolio, future cash generated by leasing operations will continue to decline.
The Partnership paid Limited Partner redemptions of $499,000 during the
year ended December 31, 1995, as compared to redemptions of $1,543,000 and
$419,000 during the same period in 1994 and 1993, respectively. As a result, the
Partnership also reported proceeds from the sale of zero coupon bonds of
$626,000 during the year ended December 31, 1995, as compared to proceeds of
$1,144,000 and $359,000 during the same period in 1994 and 1993, respectively.
The bonds were sold in order to generate sufficient cash to pay redemptions to
limited partners.
As of December 31, 1995, the Partnership owned equipment held for lease
with a purchase price of $737,000 and a net book value of $0 compared to
$1,208,000 and $4,000 at December 31, 1994. The General Partner is actively
engaged, on behalf of the Partnership, in remarketing and selling the
Partnership's off-lease equipment portfolio.
The Limited Partners received cash distributions of $113,000 during the
year ended December 31, 1995, as compared to distributions of $124,000 and
$250,000 during the same periods in 1994 and 1993, respectively. As a result,
the cumulative cash distributions to the Limited Partners is $9,937,000 and
$9,824,000 and $9,700,000 at December 31, 1995, 1994 and 1993, resepectively.
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The General Partner received cash distributions of $6,000, $6,000 and $13,000
during the year ended December 31, 1995, 1994 and 1993, respectively.
The next distribution to partners is expected to be made at the
termination of the Partnership. The amount of the distribution will be dependent
upon the amount of cash available for distribution after the redemption or sale
of all the remaining assets, which primarily consists of zero coupon bonds. The
Partnership will reach the end of its term on December 31, 1996.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's continuing
operational expenses.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHOENIX LEASING CAPITAL ASSURANCE FUND
YEAR ENDED DECEMBER 31, 1995
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REPORT OF INDEPENDENT AUDITORS
The Partners
Phoenix Leasing Capital Assurance Fund
We have audited the financial statements of Phoenix Leasing Capital Assurance
Fund (a California limited partnership) listed in the accompanying index to
financial statements (Item 14(a)). Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and the schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedule 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 and schedule 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, the financial statements listed in the accompanying index to
financial statements (Item 14(a)) present fairly, in all material respects, the
financial position of Phoenix Leasing Capital Assurance Fund at December 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 7 to the accompanying financial statements, in 1994 the
Partnership changed its method of accounting for investments.
ERNST & YOUNG LLP
San Francisco, California
January 19, 1996
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PHOENIX LEASING CAPITAL ASSURANCE FUND
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
December 31,
1995 1994
---- ----
ASSETS
Cash and cash equivalents $ 312 $ 83
Accounts receivable (net of allowance for losses
on accounts receivable of $18 and $49 at
December 31, 1995 and 1994, respectively) 29 53
Notes receivable 23 27
Equipment on operating leases and held for lease
(net of accumulated depreciation of $833 and
$1,854 at December 31, 1995 and 1994, respectively) -- 5
Investment in zero coupon bonds, available for sale 19,824 18,595
Other assets 56 88
------- -------
Total Assets $20,244 $18,851
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 131 $ 176
------- -------
Total Liabilities 131 176
------- -------
Partners' Capital:
General Partner -- --
Limited Partners, 320,000 units authorized,
103,121 units issued and 87,714 and 90,200
units outstanding at December 31, 1995 and
1994, respectively 19,577 18,446
Unrealized gains on zero coupon bonds
(unallocated to partners) 536 229
------- -------
Total Partners' Capital 20,113 18,675
------- -------
Total Liabilities and Partners' Capital $20,244 $18,851
======= =======
The accompanying notes are an integral
part of these statements.
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PHOENIX LEASING CAPITAL ASSURANCE FUND
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
INCOME
Rental income $ 309 $ 446 $ 763
Accretion of discount, zero coupon bonds 1,575 1,530 1,421
Other income 2 78 43
------ ------ ------
Total Income 1,886 2,054 2,227
------ ------ ------
EXPENSES
Depreciation and amortization 5 78 248
Lease related operating expenses 37 56 45
Management fees to General Partner 8 14 43
Provision for losses on receivables 14 17 61
Legal expense 16 23 41
General and administrative expenses 57 67 80
------ ------ ------
Total Expenses 137 255 518
------ ------ ------
NET INCOME $1,749 $1,799 $1,709
====== ====== ======
NET INCOME PER LIMITED PARTNERSHIP UNIT $19.77 $18.80 $17.10
====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 6 $ 6 $ 13
Limited Partners 1,743 1,793 1,696
------ ------ ------
$1,749 $1,799 $1,709
====== ====== ======
The accompanying notes are an integral
part of these statements.
<PAGE>
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PHOENIX LEASING CAPITAL ASSURANCE FUND
STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
<CAPTION>
General
Partner's Limited Partners' Unrealized Total
Amount Units Amount Gains Amount
--------- --------------------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ -- 100,746 $ 17,293 $ -- $ 17,293
Distributions to partners ($2.52 per
limited partnership unit) (13) -- (250) -- (263)
Redemptions of capital -- (2,414) (419) -- (419)
Net income 13 -- 1,696 -- 1,709
-------- ------- -------- -------- --------
Balance, December 31, 1993 -- 98,332 18,320 -- 18,320
Adjustment to beginning balance for
change in accounting method -- -- -- 1,873 1,873
Distributions to partners ($1.30
per limited partnership unit) (6) -- (124) -- (130)
Redemptions of capital -- (8,132) (1,543) -- (1,543)
Change for year in unrealized gain
on available-for-sale securities -- -- -- (1,644) (1,644)
Net income 6 -- 1,793 -- 1,799
-------- ------- -------- -------- --------
Balance, December 31, 1994 -- 90,200 18,446 229 18,675
Distributions to partners ($1.28 per
limited partnership unit) (6) -- (113) -- (119)
Redemptions of capital -- (2,486) (499) -- (499)
Change for the year in unrealized gain
on available-for-sale securities -- -- -- 307 307
Net income 6 -- 1,743 -- 1,749
-------- ------- -------- -------- --------
Balance, December 31, 1995 $ -- 87,714 $ 19,577 $ 536 $ 20,113
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these statements.
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<TABLE>
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PHOENIX LEASING CAPITAL ASSURANCE FUND
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $ 1,749 $ 1,799 $ 1,709
Adjustments to reconcile net income to net
cash provided by operating activities:
Accretion of discount, zero coupon bonds (1,575) (1,530) (1,421)
Depreciation and amortization 5 78 248
Gain on sale of equipment (3) (87) (120)
Equity in earnings from joint ventures, net (14) (2) --
Provision for early termination, financing leases -- -- 5
Provision for losses on accounts receivable 14 17 56
Settlement -- (37) --
Loss (gain) on sale of zero coupon bonds and other
marketable securities 27 (4) (28)
Decrease in accounts receivable 10 69 47
Increase (decrease) in accounts payable and
accrued expenses (45) 23 (83)
Decrease (increase) in other assets 8 -- (2)
------- ------- -------
Net cash provided by operating activities 176 326 411
------- ------- -------
Investing Activities:
Proceeds from sale of zero coupon bonds 626 1,144 359
Investment in zero coupon bonds -- -- (775)
Principal payments, financing leases -- 50 528
Principal payments, notes receivable 4 4 --
Proceeds from sale of equipment 3 106 155
Proceeds from sale of marketable securities -- 4 --
Purchase of equipment -- (37) --
Distributions from joint ventures 38 -- --
------- ------- -------
Net cash provided by investing activities 671 1,271 267
------- ------- -------
Financing Activities:
Redemptions of capital (499) (1,543) (419)
Distributions to partners (119) (130) (263)
------- ------- -------
Net cash used by financing activities (618) (1,673) (682)
------- ------- -------
Increase (decrease) in cash and cash equivalents 229 (76) (4)
Cash and cash equivalents, beginning of period 83 159 163
------- ------- -------
Cash and cash equivalents, end of period $ 312 $ 83 $ 159
======= ======= =======
</TABLE>
The accompanying notes are an integral
part of these statements.
<PAGE>
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PHOENIX LEASING CAPITAL ASSURANCE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1. Organization and Partnership Matters.
Phoenix Leasing Capital Assurance Fund, a California limited
partnership (the "Partnership"), was formed on June 28, 1984, to invest in
capital equipment of various types, to lease such equipment to third parties on
either a long-term or short-term basis and provide financing to emerging growth
companies and cable television system operators. Minimum investment requirements
were met February 21, 1986, at which time the Partnership commenced operations.
The Partnership's termination date is December 31, 1996.
For financial reporting purposes, Partnership income shall be allocated
as follows: (a) first, to the General Partner until the cumulative income so
allocated is equal to the cumulative distributions to the General Partner, (b)
second, one percent, before redemption fees, to the General Partner and 99% to
the Limited Partners until the cumulative income so allocated is equal to any
cumulative Partnership loss and syndication expenses for the current and all
prior accounting periods, and (c) the balance, if any, to the Unit Holders. All
Partnership losses shall be allocated, before redemption fees, one percent to
the General Partner and 99% to the Unit Holders.
The General Partner is entitled to receive five percent of all cash
distributions until the Limited Partners have recovered their initial capital
contributions plus a cumulative return of 12% per annum. Thereafter, the General
Partner will receive 15% of all cash distributions.
In the event the General Partner has a deficit balance in its capital
account at the time of partnership liquidation, it will be required to
contribute the amount of such deficit to the Partnership.
As compensation for management services, the General Partner receives a
fee payable quarterly, subject to certain limitations, in an amount equal to
3.5% of the Partnership's gross revenues for the quarter from which such payment
is being made. Gross revenues for this purpose shall include, but are not
limited to, rental receipts, maintenance fees, proceeds from the sale of
equipment and loan payments.
The General Partner is compensated for services performed in connection
with the analysis of equipment available to the Partnership, the selection of
such equipment and the acquisition thereof, including negotiating and concluding
agreements with equipment manufacturers and obtaining leases for the equipment.
As compensation for such acquisition services, the General Partner receives a
fee equal to four percent, subject to certain limitations, of the purchase price
of equipment acquired by the Partnership or equipment leased by manufacturers or
the lessees, the financing for which is provided by the Partnership, payable
upon such acquisition or financing, as the case may be. Such acquisition fees
are amortized principally on a straight-line basis over the expected useful life
of the assets.
A schedule of compensation paid and distributions made to the General
Partner for the years ended December 31, follows:
1995 1994 1993
---- ---- ----
(Amounts in Thousands)
Management fees $ 8 $ 14 $ 43
Cash distribution 6 6 13
------ ------ -----
$ 14 $ 20 $ 56
====== ====== =====
Note 2. Summary of Significant Accounting Policies.
Leasing Operations. The Partnership's leasing operations consisted of
both financing and operating leases. The financing method of accounting for
leases records as unearned income at the inception of the lease, the excess of
gross rentals receivable and estimated residual value at the end of the lease
term over the cost of equipment leased. Unearned income is credited to income
monthly over the term of the lease on a declining basis to provide an
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approximate level rate of return on the unrecovered cost of the investment.
Initial direct costs of consummating new leases are capitalized and included in
the cost of equipment.
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset at cost and depreciated. The Partnership's
leased equipment is depreciated primarily using an accelerated depreciation
method over the estimated useful life of six years, except for equipment leased
under vendor agreements, which is depreciated on a straight-line basis over the
estimated useful life, ranging up to six years.
The Partnership's policy is to review periodically the expected
economic life of its rental equipment in order to determine the probability of
recovering its undepreciated cost. Such reviews address, among other things,
recent and anticipated technological developments affecting computer equipment
and competitive factors within the computer marketplace. Although remarketing
rental rates are expected to decline in the future with respect to some of the
Partnership's rental equipment, such rentals are expected to exceed projected
expenses, including depreciation. Should subsequent reviews of the equipment
portfolio indicate that rentals plus anticipated sales proceeds will not exceed
expenses in any future period, the Partnership will revise its depreciation
policy and may provide additional depreciation as appropriate. As a result of
such periodic reviews, the Partnership provided additional depreciation expense
of $4,000, $5,000 and $59,000($.04, $.06 and $.60 per limited partnership unit)
for the years ended December 31, 1995, 1994 and 1993, respectively.
Rental income for the year is determined on the basis of rental
payments due for the period under the terms of the lease. Maintenance and
repairs of the leased equipment are charged to expense.
Investments in Joint Venture. Included in other assets on the
accompanying balance sheet are investments in net assets of the equipment joint
venture which reflect the Partnership's equity basis in the venture. Under the
equity method of accounting, the original investment is recorded at cost and is
adjusted periodically to recognize the Partnership's share of earnings, losses,
cash contributions and cash distributions after the date of acquisition.
Notes Receivable. Notes receivable generally are stated at their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.
Impaired Notes Receivable. Generally, notes receivable are classified
as impaired and the accrual of interest on such notes are discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of the contractual
payments, even though the loan may currently be performing. When a note
receivable is classified as impaired, income recognition is discontinued. Any
payments received subsequent to the placement of the note receivable on to
impaired status will generally be applied towards the reduction of the
outstanding note receivable balance, which may include previously accrued
interest as well as principal. Once the principal and accrued interest balance
has been reduced to zero, the remaining payments will be applied to interest
income. Generally, notes receivable are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance for Losses. An allowance for losses is established through
provisions for losses charged against income. Notes receivable deemed to be
uncollectible are charged against the allowance for losses, and subsequent
recoveries, if any, are credited to the allowance.
Reclassification. Certain 1994 and 1993 amounts have been reclassified
to conform to the 1995 presentation.
Cash and Cash Equivalents. Cash and cash equivalents include deposits
at banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days. The Partnership
places its cash deposits in temporary cash investments with credit worthy, high
quality financial institutions. The concentration of such cash deposits and
temporary cash investments is not deemed to create a significant risk to the
Partnership.
Non Cash Investing Activities. During the year ended December 31, 1994,
the Partnership contributed equipment and other investments received through a
settlement to a joint venture. The amount of such contribution was $74,000.
<PAGE>
Page 16 of 24
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Financial Accounting Pronouncements. On January 1, 1994, the
Partnership adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
The Partnership adopted the provisions of the new standard for investments held
as of January 1, 1994. In accordance with the statement, prior periods have not
been restated to reflect the change in accounting principle. In accordance with
SFAS 115, the Partnership's investments in debt and equity securities have been
classified as available-for-sale. Available-for-sale securities are stated at
fair market value, with the unrealized gains and losses reported in a separate
component of partners' capital. The opening balance of partners' capital in 1994
was increased by $1,873,000 to reflect the net unrealized holding gains on
securities classified as available for sale previously carried at amortized
cost.
Credit and Collateral. The Partnership's activities have been
concentrated in the equipment leasing and financing industry. A credit
evaluation is performed by the General Partner for all leases and loans made,
with the collateral requirements determined on a case-by-case basis. The
Partnership's loans are generally secured by the equipment or assets financed
and, in some cases, other collateral of the borrower. In the event of default,
the Partnership has the right to foreclose upon the collateral used to secure
such loans.
Note 3. Accounts Receivable.
Accounts receivable consist of the following at December 31:
1995 1994
---- ----
(Amounts in Thousands)
Lease payments $ 45 $ 85
Reimbursement for property taxes 2 14
Other -- 3
----- -----
47 102
Less: allowance for losses on
accounts receivable (18) (49)
----- -----
Total $ 29 $ 53
===== =====
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1995 1994
---- ----
(Amounts in Thousands)
Notes receivable from a cable television
system operator with interest ranging from
16% to 20% per annum, receivable in
installments over 39 months, collateralized
by a security interest in the cable system
assets. These notes have graduated repayment
schedules followed by balloon payments. $ 23 $ 27
==== ====
The Partnership's notes receivable from a cable television system
operator provide for a monthly payment rate in an amount that is less than the
contractual interest rate. The difference between the payment rate and the
contractual interest rate is added to the principal and therefore deferred until
the maturity date of the note. Upon maturity of the note, the original principal
and deferred interest is due and payable in full. Although the contractual
interest rates may be higher, the amount of interest being recognized on the
Partnership's outstanding notes receivable to a cable television system operator
is being limited to the amount of the payments received, thereby deferring the
recognition of a portion of the deferred interest until the loan is paid off.
At December 31, 1995, the recorded investment in notes that are
considered to be impaired under Statement 114 was $23,000 for which there is no
related allowance. The average recorded investment in impaired loans during the
year ended December 31, 1995 was approximately $25,000.
<PAGE>
Page 17 of 24
Note 5. Equipment on Operating Leases.
Equipment on lease consists primarily of computer peripheral equipment
and computer systems.
The Partnership's operating leases are for initial lease terms of
approximately 12 to 48 months. During the remaining terms of existing operating
leases the Partnership will not recover all of the undepreciated cost and
related expenses of its rental equipment, and therefore must remarket a portion
of its equipment in future years.
The Partnership has agreements with some of the manufacturers of its
equipment, whereby such manufacturers will undertake to remarket off-lease
equipment on a best-efforts basis. This agreement permits the Partnership to
assume the remarketing function directly if certain conditions contained in the
agreement are not met. For their remarketing services, the manufacturers are
paid a percentage of net monthly rentals.
The Partnership has also entered into direct lease arrangements with
lessees consisting of Fortune 1000 companies and other businesses in different
industries located throughout the United States. Generally, it is the
responsibility of the lessee to provide maintenance on leased equipment. The
General Partner administers the equipment portfolio of leases acquired through
the direct leasing program. Administration includes the collection of rents from
the lessees and remarketing of the equipment.
Minimum rentals to be received on noncancellable operating leases for
the years ended December 31 are as follows:
Operating
---------
(Amounts in Thousands)
1996 ......................................... $ 57
1997.......................................... 11
-----
Total $ 68
=====
The net book value of equipment held for lease at December 31, 1995 and
1994 amounted to $0 and $4,000 respectively.
Note 6. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1995 1994
---- ----
(Amounts in Thousands)
Equipment lease operations $ 63 $ 106
Other 68 70
------ -----
Total $ 131 $ 176
====== =====
Note 7. Investment in Zero Coupon Bonds, Available for Sale.
The Partnership's investments in zero coupon bonds have been classified
as available-for-sale in accordance with SFAS 115. Available-for-sale securities
are stated at fair market value with unrealized gains and losses reported in a
separate component of partners' capital. At December 31, 1995, the Partnership
had investments in U.S. Government and U.S. Government Agency zero coupon bonds
with an aggregate original cost of $11,773,000, a face value at maturity of
$20,825,000 and a fair market value of $19,824,000. The Partnership has adjusted
its carrying value on the zero coupon bonds to the market value at December 31,
1995 resulting in a net unrealized gain of $536,000. Cumulative gross unrealized
gains on the zero coupon bonds were $538,000 and cumulative gross unrealized
losses on the zero coupon bonds were $2,000 at December 31, 1995. The
Partnership's zero coupon bonds were purchased at a discount to provide an
approximate effective yield ranging from 5% to 10% with varying maturity dates
throughout 1996, 1997 and 1998. The unaccreted discount as of December 31, 1995
is $1,537,000.
<PAGE>
Page 18 of 24
Note 8. Income Taxes.
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the partners in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the accompanying financial statements.
The net differences between the tax basis and the reported amounts of
the Partnership's assets and liabilities are as follows at December 31:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
1995
- ----
Assets $ 20,244 $ 19,734 $ 510
Liabilities 131 102 29
1994
- ----
Assets $ 18,851 $ 18,670 $ 181
Liabilities 176 176 0
Note 9. Related Entities.
The General Partner serves in the capacity of general partner in other
partnerships, all of which are engaged in the equipment leasing and financing
business.
The General Partner incurs certain expenses, such as data processing,
equipment storage and equipment remarketing costs, for which it is reimbursed by
the Partnership. Equipment remarketing costs are incurred as the General Partner
remarkets certain equipment on behalf of the Partnership. These expenses
incurred by the General Partner are reimbursed at the lower of the actual costs
or an amount equal to 90% of the fair market value for such services. The costs
reimbursed to the General Partner were $17,000, $14,000 and $20,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
In addition, the General Partner receives a management fee and an
acquisition fee (see Note 1).
Note 10. Net Income and Distributions per Limited Partnership Unit.
Net income and distributions per limited partnership unit were based on
the limited partners' share of net income and distributions, and the weighted
average number of units outstanding of 88,136, 95,366 and 99,204 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Note 11. Fair Value of Financial Instruments.
During the year ended December 31, 1995, the Partnership adopted
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair
Value of Financial Instruments," which requires disclosure of the fair value of
financial instruments for which it is practicable to estimate fair value. The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument which it is practicable to estimate that value.
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
<PAGE>
Page 19 of 24
Notes Receivable
The fair value of notes receivable is estimated based on the lesser of the
discounted expected future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings, or the estimated
fair value of the underlying collateral.
Marketable Securities
The fair values of investments in marketable securities are estimated based on
quoted market prices.
The estimated fair values of the Partnership's financial instruments at
December 31, 1995 are as follows:
Carrying
Amount Fair Value
-------- ----------
(Amounts in Thousands)
Assets
Cash and cash equivalents $ 312 $ 312
Marketable securities 19,824 19,824
Notes receivable 23 29
<PAGE>
Page 20 of 24
Item 9. Disagreements on Accounting and Financial Disclosure Matters.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The registrant is a limited partnership and, therefore, has no
executive officers or directors. The general partner of the registrant is
Phoenix Leasing Incorporated, a California corporation. The directors and
executive officers of Phoenix Leasing Incorporated (PLI) are as follows:
GUS CONSTANTIN, age 58, is President, Chief Executive Officer and a
Director of PLI. Mr. Constantin received a B.S. degree in Engineering from the
University of Michigan and a Master's Degree in Management Science from Columbia
University. From 1969 to 1972, he served as Director, Computer and Technical
Equipment of DCL Incorporated (formerly Diebold Computer Leasing Incorporated),
a corporation formerly listed on the American Stock Exchange, and as Vice
President and General Manager of DCL Capital Corporation, a wholly-owned
subsidiary of DCL Incorporated. Mr. Constantin was actively engaged in marketing
manufacturer leasing programs to computer and medical equipment manufacturers
and in directing DCL Incorporated's IBM System/370 marketing activities. Prior
to 1969, Mr. Constantin was employed by IBM as a data processing systems
engineer for four years. Mr. Constantin is an individual general partner in four
active partnerships and is an NASD registered principal. Mr. Constantin is the
founder of PLI and the beneficial owner of all of the common stock of Phoenix
American Incorporated.
PARITOSH K. CHOKSI, age 42, is Senior Vice President, Chief Financial
Officer and Treasurer of PLI. He has been associated with PLI since 1977. Mr.
Choksi oversees the finance, accounting, information services and systems
development departments of the General Partner and its Affiliates and oversees
the structuring, planning and monitoring of the partnerships sponsored by the
General Partner and its Affiliates. Mr. Choksi graduated from the Indian
Institute of Technology, Bombay, India with a degree in Engineering. He holds an
M.B.A. degree from the University of California, Berkeley.
GARY W. MARTINEZ, age 45, is Senior Vice President of PLI. He has been
associated with PLI since 1976. He manages the Asset Management Department,
which is responsible for lease and loan portfolio management. This includes
credit analysis, contract terms, documentation and funding; remittance
application, change processing and maintenance of customer accounts; customer
service, invoicing, collection, settlements and litigation; negotiating lease
renewals, extensions, sales and buyouts; and management information reporting.
From 1973 to 1976, Mr. Martinez was a Loan Officer with Crocker National Bank,
San Francisco. Prior to 1973, he was an Area Manager with Pennsylvania Life
Insurance Company. Mr. Martinez is a graduate of California State University,
Chico.
BRYANT J. TONG, age 41, is Senior Vice President, Financial Operations
of PLI. He has been with PLI since 1982. Mr. Tong is responsible for investor
services and overall company financial operations. He is also responsible for
the technical and administrative operations of the cash management, corporate
accounting, partnership accounting, accounting systems, internal controls and
tax departments, in addition to Securities and Exchange Commission and other
regulatory agency reporting. Prior to his association with PLI, Mr. Tong was
Controller-Partnership Accounting with the Robert A. McNeil Corporation for two
years and was an auditor with Ernst & Whinney (succeeded by Ernst & Young) from
1977 through 1980. Mr. Tong holds a B.S. in Accounting from the University of
California, Berkeley, and is a Certified Public Accountant.
CYNTHIA E. PARKS, age 40, is Vice President, General Counsel, Assistant
Secretary and a Director of PLI. Prior to joining PLI in 1984, she was with GATX
Leasing Corporation, and had previously been Corporate Counsel for Stone
Financial Companies, and an Assistant Vice President of the Bank of America,
Bank Amerilease Group. She has a bachelor's degree from Santa Clara University,
and earned her J.D. from the University of San Francisco School of Law.
HOWARD SOLOVEI, age 34, is Vice President, Finance, Assistant Treasurer
and a Director of PLI. He has been associated with PLI since 1984. Mr. Solovei's
principal activities are in the areas of arranging and managing the company's
banking relationships for its various corporations, partnerships and securitized
asset pools. Mr. Solovei is also involved in corporate financial planning and
<PAGE>
Page 21 of 24
various data processing-related projects. Mr. Solovei graduated with a B.S. in
Business from the University of California at Berkeley in 1984.
Neither the General Partner nor any Executive Officer of the General
Partner has any family relationship with the others.
Phoenix Leasing Incorporated or its affiliates and the executive
officers of the General Partner serve in a similar capacity to the following
affiliated limited partnerships:
Phoenix Leasing American Business Fund, L.P.
Phoenix Leasing Cash Distribution Fund V, L.P.
Phoenix Income Fund, L.P.
Phoenix High Tech/High Yield Fund
Phoenix Leasing Cash Distribution Fund IV
Phoenix Leasing Cash Distribution Fund III
Phoenix Leasing Cash Distribution Fund II
Phoenix Leasing Income Fund VII
Phoenix Leasing Income Fund VI
Phoenix Leasing Growth Fund 1982
Phoenix Leasing Income Fund 1981 and
Phoenix Leasing Income Fund 1977
Item 11. Executive Compensation.
<TABLE>
Set forth is the information relating to all direct remuneration paid
or accrued by the Registrant during the last year to the General Partner.
<CAPTION>
(A) (B) (C) (D)
Cash and cash- Aggregate of
Name of Individual Capacities in equivalent forms contingent forms
or persons in group which served of remuneration of remuneration
- ------------------- ------------- ----------------------------------------------------- ----------------
(C1) (C2)
Securities or property
Salaries, fees, directors' insurance benefits or
fees, commissions, and reimbursement, personal
bonuses benefits
-------------------------- -----------------------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Phoenix Leasing
Incorporated General Partner $12(1) $0 $0
=== == ==
</TABLE>
(1) consists of management fees and redemption fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of any class of voting
securities of the Registrant.
(b) The General Partner of the Registrant owns the equity securities
of the Registrant set forth in the following table:
<PAGE>
Page 22 of 24
<TABLE>
<CAPTION>
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
<S> <C> <C> <C>
General Partner Interest Represents a five percent interest in the Registrant's 100%
profits and distributions, until the Limited Partners have
recovered their capital contributions plus a
cumulative return of 12% per annum, compounded
quarterly, on the unrecovered portion thereof.
Thereafter, the General Partner will receive 15%
interest in the Registrant's profits and distributions.
Limited Partner Interest 72 units .08%
</TABLE>
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No.
(a) 1. Financial Statements:
Balance Sheets as of December 31, 1995 and 1994 10
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 11
Statements of Partners' Capital for the Years
Ended December 31, 1995, 1994 and 1993 12
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 13
Notes to Financial Statements 14-19
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and Reserves 24
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the year ended December 31, 1995.
(c) Exhibits.
27. Financial Data Schedule.
<PAGE>
Page 23 of 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHOENIX LEASING CAPITAL ASSURANCE FUND
(Registrant)
BY: PHOENIX LEASING INCORPORATED,
A CALIFORNIA CORPORATION
GENERAL PARTNER
Date: March 28, 1996 By: /S/ GUS CONSTANTIN
---------------- -------------------------
Gus Constantin, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ GUS CONSTANTIN President, Chief Executive Officer and a March 28, 1996
- ---------------------- Director of Phoenix Leasing Incorporated --------------
(Gus Constantin) General Partner
/S/ PARITOSH K. CHOKSI Chief Financial Officer, March 28, 1996
- ---------------------- Senior Vice President --------------
(Paritosh K. Choksi) and Treasurer of
Phoenix Leasing Incorporated
General Partner
/S/ BRYANT J. TONG Senior Vice President, Financial March 28, 1996
- ---------------------- Operations of --------------
(Bryant J. Tong) (Principal Accounting Officer)
Phoenix Leasing Incorporated
General Partner
/S/ GARY W. MARTINEZ Senior Vice President of March 28, 1996
- ---------------------- Phoenix Leasing Incorporated --------------
(Gary W. Martinez) General Partner
/S/ HOWARD SOLOVEI Vice President, Finance March 28, 1996
- ---------------------- Assistant Treasurer and a --------------
(Howard Solovei) Director of Phoenix Leasing Incorporated
General Partner
/S/ MICHAEL K. ULYATT Partnership Controller March 28, 1996
- ---------------------- Phoenix Leasing Incorporated --------------
(Michael K. Ulyatt) General Partner
<PAGE>
Page 24 of 24
<TABLE>
PHOENIX LEASING CAPITAL ASSURANCE FUND
SCHEDULE II
(Amounts in Thousands)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Classification Balance at Charged to Charged to Deductions Balance at
Beginning of Expense Revenue End of
Period Period
-------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for losses on accounts
receivable $143 $ 56 $ 0 $ 47 $152
Allowance for early termination
of financing leases 57 5 0 62 0
---- ---- ---- ---- ----
Totals $200 $ 61 $ 0 $109 $152
==== ==== ==== ==== ====
Year ended December 31, 1994,
Allowance for losses on accounts
receivable $152 $ 17 $ 0 $120 $ 49
==== ==== ==== ==== ====
Year ended December 31, 1995
Allowance for losses on accounts
receivable $ 49 $ 14 $ 0 $ 45 $ 18
==== ==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 312
<SECURITIES> 19,824
<RECEIVABLES> 70
<ALLOWANCES> 18
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 833
<DEPRECIATION> 833
<TOTAL-ASSETS> 20,244
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,113
<TOTAL-LIABILITY-AND-EQUITY> 20,244
<SALES> 0
<TOTAL-REVENUES> 1,886
<CGS> 0
<TOTAL-COSTS> 137
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,749
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,749
<EPS-PRIMARY> 19.77
<EPS-DILUTED> 0
</TABLE>
