UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission File No. 33-18859
Wellesley Lease Income Limited Partnership IV
(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-2985041
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One Financial Center, 21st Floor, Boston, MA 02111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 482-8000
---------------------
Securities registered pursuant to Section 12(b) of the Act
None
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Securities registered pursuant to Section 12(g) of the Act
Units of Limited Partnership Interests
----------------------
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
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 26, 1997: Not applicable, since securities are
non-voting.
Documents incorporated by reference: None.
Exhibit Index on Page: 39
Page 1 of 40
<PAGE>
Corporate organization as discussed in Part I, Item 1 Business is as follows:
TLP Holding LLC ("Holding") controls TLP Leasing Programs, Inc. ("TLP"), TLP
Management Services, Inc. ("TLPMS"), and TLP Securities, Inc. TLP controls TLP
Columbia Management Corp. ("TCMC") which serves as General Partner to the
Columbia Lease Income Funds. Torchmark Corporation ("Torchmark") controls
TMK/United, Inc. which controls Waddell and Reed Financial Services, Inc.
("Waddell and Reed").
Through various dealer-manager arrangements, TLP, TLPMS, and Waddell and Reed
serve as corporate general partners to the Wellesley Leasing Partnership
("Wellesley General Partner") and the Hanover Leasing Partnership. The Wellesley
General Partner is the general partner for the Wellesley Lease Income Limited
Partnerships. Hanover Leasing Partnership serves as the General Partner for
Hanover Lease Income Limited Partnership with BOT Financial Corporation serving
as agent.
<PAGE>
Part I
Item 1. Business.
Wellesley Lease Income Limited Partnership IV (the "Partnership") is a limited
partnership organized under the provisions of the Massachusetts Uniform Limited
Partnership Act on November 9, 1987. As of December 31, 1996, the Partnership
consisted of a General Partner and 1,685 Limited Partners owning 27,226 Units of
Limited Partnership Interests of $500 each (the "Units"), except that employees
of the Corporate General Partners of the General Partner and employees and
securities representatives of its affiliates purchased 148 Units for a net price
of $460 per Unit, and the Partnership incurred no obligation to pay any sales
commissions with respect to such sales. The Units were sold commencing March 3,
1988, pursuant to a Registration Statement on Form S-1 under the Securities Act
of 1933. As set forth more fully at Item 10. Directors and Executive Officers of
the Partnership. of this Report, the General Partner is Wellesley Leasing
Partnership, and the General Partner has three Corporate General Partners (the
"Corporate General Partners"): TLP Leasing Programs, Inc. ("TLP") and TLP
Management Services Corporation ("TLPMS"), formerly CIS Management Services
Corporation ("CISMS"), both Massachusetts corporations and Waddell & Reed
Financial Services, Inc. ("Waddell & Reed", formerly TUP Services, Inc.,
"TUPS"), a Missouri corporation.
The Partnership was organized to engage in the business of acquiring
income-producing computer peripheral equipment for investment purposes,
principally International Business Machines, Incorporated ("IBM") equipment. The
Partnership's principal objectives are as follows:
1. To acquire and lease equipment, primarily through operating leases, to
generate income during its entire useful life;
2. To provide quarterly distributions of cash to the Limited Partners from
leasing revenues and from the proceeds of sales or other disposition of
Partnership equipment; and
3. To reinvest a portion of lease revenues and a substantial portion of
cash from sales and refinancings in additional equipment during the
first seven years of the Partnership's operations.
The Partnership was formed primarily for investment purposes and not as a "tax
shelter".
The Partnership shall terminate on December 31, 2012, unless sooner dissolved or
terminated as provided in Section 11 of the Amended Agreement of Limited
Partnership.
The Partnership has had a total of five closings. The closings occurred on May
18, 1988, July 11, 1988, September 16, 1988, October 31, 1988, and December 1,
1988 with 9,104, 5,545, 5,657, 3,640 and 3,280 units, respectively. Equipment
purchased through December 31, 1996 is $33,688,384. At the end of 1996, there
are 157 leases in place with 140 lessees. The acquisition of these leases and
equipment is described more fully in Item 2. Properties. of this report and
notes 3 and 4 to the financial statements included in Item 8. Financial
Statements and Supplementary Data.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP and
TLPMS from CMI Holding Co. and CMI Corporation, respectively. Under the new
ownership, TLP and TLPMS will continue to operate in the same manner of business
as described below.
<PAGE>
Under the Partnership Agreement, the General Partner, Wellesley Leasing
Partnership, is solely responsible for the operation of the Partnership and its
equipment. As discussed above, the General Partner has three Corporate General
Partners: TLP, TLPMS and Waddell & Reed. TLP was formed in December 1982 and is
a wholly-owned subsidiary of TLP Holding LLC ("Holding"). TLPMS was formed in
May 1985 as CISMS, and is a wholly-owned subsidiary of Holding and an affiliate
of TLP. Holding is primarily engaged in management services and equipment
leasing. Waddell & Reed (formerly TUPS) was formed in May 1986 and is an
affiliate of Waddell & Reed, Inc., which was one of the Soliciting Brokers for
this offering. Both Waddell & Reed and Waddell & Reed, Inc. are wholly-owned
subsidiaries of TMK/United Inc., which itself is an indirect 85% owned
subsidiary of Torchmark Corporation ("Torchmark").
The General Partnership Agreement between TLP and TLPMS (the "General
Partnership Agreement"), provides that TLPMS will propose to the Partnership
equipment acquisitions, leasing, financing and re-financing transactions and
sale transactions, for approval by the Executive Committee, and will oversee the
operation, management and use of the Partnership's equipment, and that TLP will
oversee the marketing of the Units and all administrative functions of the
Partnership and, together with Waddell & Reed, will supply substantially all of
the General Partner's capital resources. All of the Partnership's equipment to
date has been acquired, and all dispositions of Partnership equipment have been
made, through TLPMS, using the personnel and resources of Holding and several
outside equipment lease brokers the General Partner believes would be most
advantageous for the Partnership.
The Partnership's investment policy provides for the acquisition of diversified
types of computer equipment and the leasing of such equipment to others on a
short-term basis under operating leases. The Partnership generally purchases
equipment for which a lease exists, or is entered into at the time of the
Partnership's acquisition of the equipment. This equipment is recorded and
depreciated at the Partnership cost (purchase price plus the acquisition fee).
If at any time the General Partner deems the equipment to be obsolete or related
maintenance and storage costs to be in excess of its fair market value, the
equipment is scrapped or sold at the current fair market value, which ever is
most advantageous for the Partnership.
Pursuant to its leasing policies, the General Partner performs a credit analysis
of potential lessees to determine their creditworthiness. The General Partner
leases all of its equipment to third parties by means of operating leases with
fixed base lease rates. Rents are payable monthly or quarterly. Operating leases
generally do not have terms greater than five years in duration and the
aggregate noncancelable rental payments during the term of the lease (on a net
present value basis), are not sufficient to permit the lessor to recover the
purchase price of the equipment.
At the termination of the lease, the General Partner arranges for the equipment
to be re-leased (either to the same lessee or a new lessee) if it determines
that re-leasing is in the Partnership's best interests. Generally, equipment is
re-leased at least once and possibly several times during the Partnership's
life, unless it is determined that the equipment is not marketable and therefore
may be sold. The General Partner provides, or arranges for the installation,
removal, maintenance and modification of the Partnership's equipment. Also, the
General Partner will purchase and maintain, or cause to be purchased and
maintained, appropriate insurance coverage to protect the interests of the
Partnership.
<PAGE>
At December 31, 1996, the Partnership owned various computer equipment with an
original cost basis of $5,084,339. Listed below is a breakdown of the various
types of computer equipment owned:
Computer peripherals $ 2,237,109
Processors & upgrades 1,372,772
Telecommunications 152,530
Other 1,321,928
---------------
$ 5,084,339
===============
Of the leases in place at December 31, 1996, the average lease term is 35 months
and the average monthly lease rate as a percentage of original equipment cost is
3.04%.
The Partnership's investments in computer peripheral equipment are and will
continue to be subject to various risk factors. The principal business risk
associated with ownership of the equipment is the inability to keep it fully
leased at rentals which, after payment of operating expenses and debt service on
Partnership borrowings, provide, together with any anticipated sales proceeds or
salvage value, an acceptable rate of return. Other risk factors include:
1. Technological and economic equipment obsolescence, physical
deterioration, malfunction, and risks attendant upon defaults by
lessees and credit losses.
2. Residual Values of Equipment. The Partnership's return on its
investment in equipment will depend in part upon the continuing value
of such equipment which in turn, depends upon, among other things: (1)
the quality of the equipment; (2) the condition of the equipment; (3)
the timing of the equipment's acquisition; (4) the cost of comparable
new equipment; (5) the technological obsolescence of the equipment; (6)
the General Partner's ability to forecast technological changes which
may reduce the value of the equipment; and (7) market factors.
3. Competition from Full Payout Lessors. In connection with operating
leases, the Partnership will encounter considerable competition from
those offering full payout leases, which are written for a longer term
and a lower rate than the Partnership's operating leases.
4. Competition from Manufacturers. Leases offered by the Partnership will
compete with operating leases and full payout leases offered by
equipment manufacturers in their own lease programs. In addition to
attractive financial terms, manufacturers may also provide certain
ancillary services which the Partnership cannot offer directly, such as
maintenance service (including possible equipment substitution rights),
warranty services and trade-in privileges.
5. Other Competition. There are numerous other potential investors,
including limited partnerships organized and managed similarly to the
Partnership, seeking to purchase equipment subject to either operating
leases or full payout leases, many of which will have greater financial
resources than the Partnership and more experience than the General
Partner. The Partnership will compete in the computer leasing
marketplace with many non-manufacturing firms, including other
equipment dealers, brokers and leasing companies, as well as with
financial institutions.
<PAGE>
6. Changes in Marketing Policies. IBM's current marketing policy of
offering accrual discounts (i.e., applying lease payments as a credit
toward the purchase of equipment) and volume discounts enables certain
customers to obtain IBM equipment at a cost lower than its fair market
value. In the case of accrual discounts, lessees of IBM equipment who
have earned a purchase credit toward that equipment can purchase the
equipment from IBM and arrange a cost-effective sale and leaseback
arrangement with TLP or the Partnership. The sale price to the
Partnership will typically be less than the fair market value of the
equipment. The Partnership may be able to participate in volume
discounts through purchases arranged by lessees of TLP. The
Partnership's lower equipment costs in turn should enable the
Partnership to offer lower lease rates to customers and help offset the
risk of early obsolescence. If IBM were to eliminate these policies,
raise its prices, lower its lease rates, or become more active as a
lessor, the Partnership might find it more difficult to compete
successfully as a lessor of IBM equipment.
7. Defaults by Lessees. Default by a lessee may cause equipment to be
returned to the Partnership at a time when the General Partner may be
unable to promptly arrange for its re-leasing (at the rental rate
previously received or otherwise) or sale (with or without a loss),
thus resulting in the loss of anticipated revenues and the inability to
recover the Partnership's investment and repay related debt. Any
related debt may be secured by the returned equipment and, in some
cases, by the Partnership's other equipment. If the debt is not paid in
a timely manner, the lender may foreclose and assume ownership of all
equipment securing the debt, resulting in economic loss and adverse tax
consequences to the Partnership's partners. Two lessees, American
Freightways, Incorporated and Halliburton Company, lease equipment in
excess of 10% of total rental income for the year ended December 31,
1996. The related rental payments comprise 13.92% and 12.21%,
respectively, of total rental income for the year ended December 31,
1996. American Freightways, Incorporated and Halliburton Company lease
equipment comprising 14.87% and 10.53%, respectively, of the total
equipment portfolio at December 31, 1996.
8. Changes in Technology. The General Partner intends to offer lease rates
to the Partnership's lessees which take into account the risk of
technological advances which may reduce the value of such equipment
owned by the Partnership. However, the introduction of an entirely new
technology could lead to a radical reduction in the fair market value
of certain equipment and make such equipment difficult to re-lease.
The Partnership considers itself to be engaged in only one industry segment, the
business of investing primarily in IBM computer peripheral equipment and leasing
the equipment to major national corporations on an operating lease basis, and
therefore, industry segment information has not been provided.
<PAGE>
Item 2. Properties.
At December 31, 1996, the Partnership owned computer equipment with a
depreciated cost basis of $1,250,203, subject to 157 existing leases with 140
different lessees, and equipment held in inventory, awaiting re-lease or sale,
with a depreciated cost basis of $26,469. All purchases of computer equipment
are subject to a 3% acquisition fee paid to the General Partner.
<PAGE>
Item 3. Legal Proceedings:
There are no material pending legal proceedings that the Partnership is a party
or of which any of its equipment or leases is the subject.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from
CMI Holding Co. and all the common stock of TLP Management Services Corporation
("TLPMS", formerly CIS Management Services Corporation "CISMS") from CMI
Corporation. Under the new ownership, it is expected that TLP and TLPMS will
continue to operate in the same manner of business as each has in the past.
On January 13, 1989 (the "Petition Date"), Continental Information Systems
Corporation ("Continental"), CIS Corporation ("CIS"), CMI Holding Co. ("CMI
Holding"), CMI Corporation ("CMI") and certain of its affiliates (collectively,
the "Debtors"), voluntarily petitioned for relief under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"), and thereafter continued in the
management and operation of their businesses and property as Debtors In
Possession until October 25, 1989, when the United States Bankruptcy Court (the
"Court") confirmed the appointment of James P. Hassett as Chapter 11 trustee
(the "Trustee") of the Debtors. CMI Holding is the former parent of TLP and CMI
is the former parent of TLPMS. TLP and TLPMS, neither of which filed under
Chapter 11, are the two Corporate General Partners of Wellesley Leasing
Partnership, the General Partner of the Partnership. Both before and after the
Petition Date, CIS and CMI have acted as agents for the Partnership in selling,
leasing and remarketing Partnership equipment. CMI Holding became a wholly-owned
subsidiary of CIS pursuant to a Court ordered settlement on July 20, 1993.
As of the Petition Date, there were a number of unsettled transactions between
CIS and CMI and the Partnership and other affiliated partnerships (the
Partnership and such other partnerships are herein collectively referred to as
the "Partnerships"), including outstanding accounts receivable and accounts
payable between each of the Partnerships and CIS and CMI and their affiliates,
sales of equipment and related leases from CIS and CMI to each of the
Partnerships for which not all documentation had been completed as of the
Petition Date, and sales of equipment and related leases from which CIS had
failed to remove prior third-party liens. In addition, accounts receivable and
accounts payable continued to accrue and be paid between each of the
Partnerships and CIS and CMI and their affiliates subsequent to the Petition
Date.
On February 28, 1992, the Court granted an order implementing a settlement of
the outstanding issues between each of the Partnerships and the Debtors. The
settlement occurred on March 13, 1992. In the order the Court approved a set-off
on a partnership-by-partnership basis of pre-petition amounts owed by each
affected Debtor to each Partnership to the extent of pre-petition amounts owed
by that Partnership to that Debtor. As a result of the set-off, the Partnership
had a net unsecured pre-petition claim of $37,470 against CMI as of December 31,
1993 which had been fully reserved.
On November 29, 1994, the Court confirmed the Trustee's proposed Joint Plan of
Reorganization ("the Plan") dated October 4, 1994, and the Debtors emerged from
Chapter 11 bankruptcy protection on December 21, 1994. In accordance with the
Plan projections, 100% of each CMI claim would be paid in full, of which 75%
would be cash and 25% would be common stock of the reorganized Continental
Information Systems Corporation ("CISC"), based on a per share price of $4.29.
<PAGE>
On December 27, 1994, the Partnership received the first distribution from the
Trustee (now Trustee of the Liquidating Estate of CIS Corporation, et al) with
respect to the net unsecured pre-petition claim described above. The
distribution consisted of cash proceeds of $22,808 and 1,844 shares of common
stock in CISC. During the second quarter of 1995, the stock of CISC began
trading, thereby providing an objective valuation method for establishing the
cost basis of $2.50 per share, which approximated fair value at June 30, 1995. A
charge off was made in 1995 in relation to the difference between the Trustee's
original prescribed value of the CISC stock at $4.29 per share and the cost
basis established by the Partnership. On July 20, 1995, the Partnership received
the second and final distribution from the Trustee, consisting of cash proceeds
of $5,294 and 341 shares of CISC. Following the Trustee's second distribution
and the charge off made during the year, the Partnership's net unsecured
pre-petition claim was settled and there are no other outstanding receivable
balances.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
Part II
Item 5. Market for the Partnership's Securities and Related Security Holder
Matters.
(a) Market Information
The Partnership's outstanding securities consist of Limited Partnership
Interests in Units of $500 each. As of December 31, 1996, 27,226 Units had been
sold to the public at a price of $500 per Unit (except for 148 Units which were
sold for a net price of $460 per Unit to employees of the Corporate General
Partners of the General Partner and employees and securities representatives of
its affiliates).
There is no public market for the Units, and it is not anticipated that such a
public market will develop.
(b) Approximate Number of Security Holders
<TABLE>
<CAPTION>
Number of Unit Number of Units
holders on Record as of
Title of Class as of 12/31/96 12/31/96
-------------- --------
<S> <C> <C>
Units of
Limited
Partnership
Interests 1,685 27,226
</TABLE>
(c) Dividend History and Restrictions
During the fiscal period ended December 31, 1988, the Partnership had five
closings with 27,226 Units. Pursuant to Section 8 of the Limited Partnership
Agreement, the Partnership's "Distributable Cash From Operations" for each year
will be determined and then distributed to the Partners. Upon reaching the end
of its reinvestment period (the seventh anniversary of the Partnership's final
closing date), the Partnership will also distribute to the Partners
"Distributable Cash From Sales or Refinancings", if any. The Partnership
distributed $442,423, $1,157,104 and $1,633,561 to the Limited Partners and
$23,285, $60,899 and $85,976 to the General Partners in 1996, 1995 and 1994,
respectively. The cumulative cash distributions to the Limited Partners through
December 31, 1996 are $11,640,935 as compared with the contributed Limited
Partners' net capital of $12,148,459.
"Cash From Operations" and "Cash From Sales or Refinancing" means the net cash
provided by the Partnership's normal operations or as a result of any sales,
refinancings or other dispositions of equipment, respectively, after the general
expenses and current liabilities of the Partnership (other than the equipment
management fee) are paid, as reduced by any reserves for working capital and
contingent liabilities to the extent deemed reasonable by the General Partner,
and as increased by any portion of such reserves then deemed by the General
Partner not to be required for Partnership operations. "Distributable Cash From
Operations" and "Distributable Cash From Sales or Refinancings" means Cash From
Operations or Cash From Sales or Refinancings, respectively, reduced by amounts
which the General Partner determines shall be reinvested (through the seventh
anniversary of the Partnership's final closing date) in additional Equipment and
by payments of all accrued but unpaid equipment management fees.
For rendering services in connection with the normal operations of the
Partnership, the Partnership will pay to the General Partner a Partnership
management fee equal to 7% of the monthly rental billings collected.
Each distribution of Distributable Cash From Operations of the Partnership shall
be allocated 95% to the Limited Partners and 5% to the General Partner. Any
Distributable Cash From Sales or Refinancings from gains and losses shall be
allocated 99% to the Limited Partners and 1% to the General Partner until
"Payout" has occurred. "Payout" means the time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
of Distributable Cash From Sales or Refinancings equals the aggregate amount of
the Limited Partners' original invested capital plus a cumulative 10% annual
return (compounded daily) on their aggregate unreturned invested capital
(calculated from the beginning of the first full fiscal quarter following the
Partnership's closing date). Including the distribution for the fourth quarter
of 1996 made February 28, 1997, cumulative distributions to date are $425.88 per
unit. This cumulative distribution per unit amount represents 15.74% of
"Payout". After Payout has occurred, any Distributable Cash From Sales or
Refinancings will be distributed 15% (plus an additional 1% for each 1% by which
the total of all Limited Partners' original Capital Contributions actually paid
or allocated to the Partnership's investment in equipment exceeds the greater of
(i) 80% of the gross proceeds of the Partnership's offering of Units, reduced by
0.0625% for each 1% of leverage encumbering Partnership equipment, or (ii) 75%
of the gross proceeds of such offering) to the General Partner, and the
remainder to the Limited Partners. It is not anticipated that Payout will occur
as of the liquidation of this Partnership.
Distributable Cash, if any, will be distributed within 60 days after the
completion of each of the first three fiscal quarters of each Partnership fiscal
year, and within 120 days after the completion of each fiscal year, beginning
after the first full fiscal quarter following the Partnership's closing date.
Each such distribution will be described in a statement sent to the Limited
Partners.
<PAGE>
Item 6. Selected Financial Data.
The following table sets forth selected financial information regarding the
Partnership's financial position and operating results. This information should
be read in conjunction with the financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included in Items 8. and 7., respectively of this report.
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994 1993 1992
------------------------------------------------------------------------------------------
Operating Data
<S> <C> <C> <C> <C> <C>
Rental Income $ 1,617,165 $ 1,697,214 $ 2,759,929 $ 3,997,157 $ 4,692,969
Interest Income 6,844 23,035 30,708 34,787 54,809
Net Income (Loss) 463,920 (347,598) (614,313) 203,727 774,516
Net Income (Loss) Per Limited
Partnership Unit 12.12 (12.64) (24.02) 4.33 18.16
Balance Sheet Data
Cash and Cash Equivalents $ 36,022 $ 336,360 $ 843,110 $ 959,487 $ 1,363,767
Computer Equipment at Cost 5,084,339 7,388,216 8,169,287 13,518,961 17,078,290
Total Assets 1,385,036 2,239,549 3,064,038 5,366,699 7,672,897
Long-term Debt 591,174 960,503 668,195 648,751 1,172,460
Distributions to Partners 465,708 1,218,003 1,719,537 1,719,536 1,719,533
Distributions Per Limited
Partnership Unit 16.25 42.50 60.00 60.00 60.00
Partners' Equity 591,832 592,951 2,159,371 4,493,221 6,009,030
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The Partnership had five closings as of December 31, 1988. These closings
occurred on May 18, 1988, July 11, 1988, September 16, 1988, October 31, 1988
and December 1, 1988. Total subscriptions received from these closings were
$4,548,920, $2,771,260, $2,828,500, $1,818,600 and $1,639,800, respectively,
representing 27,226 Units of Limited Partnership Interest. Included in these
amounts were proceeds from the sale of 148 Units at a price net of sales
commissions for employees of an affiliate of the General Partner, who were
allowed to purchase units at a net price of $460 per unit.
Results of Operations
The following discussion relates to Partnership's operations for the year ended
December 31, 1996, in comparison to the years ended December 31, 1995 and 1994.
The Partnership realized net income of $463,920 and a net loss of $347,598 and
$614,313 for the years ended December 31, 1996, 1995 and 1994, respectively.
Rental income decreased $80,049 or 5% and $1,062,715 or 39% in 1996 and 1995,
respectively. The decrease in rental income each year is primarily due to lower
rental rates obtained on equipment lease extensions and remarketings after the
initial lease term expires and a net reduction in the overall size of the
equipment portfolio. Other income of $31,147 in 1995 represents the net
settlement proceeds relating to a dispute between the Partnership and Gemini
Equities, Incorporated ("Gemini") with regard to ownership rights of equipment.
The Partnership had the rights to purchase equipment at a bargain purchase
option at the expiration of a lease with a French corporation that commenced in
1989. However, during the lease term the equipment owner was sold to Gemini.
Upon lease expiration in 1992, Gemini denied the Partnership's request to
purchase the equipment. In response, the Partnership pursued the title rights to
the equipment, resolving the dispute in a settlement of cash proceeds during the
current year. Interest income decreased $16,191 and $7,673 in 1996 and 1995,
respectively, as result of lower average short-term investment balances held
during each year. The recovery of net unsecured pre-petition claim of $10,757
and $22,808 for the years ended December 31, 1995 and 1994, respectively, was
the result of the receipt of the Trustee's distributions on the fully reserved
net unsecured pre-petition receivable, in the original amount of $37,470 (for
further discussion refer to note 9 to the financial statements). The 1995
recovery relates to the receipt of the second and final Trustee's distribution
comprised of cash and stock, along with the second quarter of 1995 establishment
of the carrying value of the stock received in the December 27, 1994
distribution. Accordingly, the 1994 recovery amount represents the cash portion
of the Trustee's first distribution. The $26,370 and $6,188 net gain on sale of
equipment in 1996 and 1995, respectively, can be attributed to the overall
increase in the sales of equipment carrying low net book values. In comparison,
1994 reflected a $582,152 net loss on sale of equipment due to a number of large
equipment sales carrying high net book values.
Total costs and expenses decreased $929,120 or 44% and $729,667 or 26% in 1996
and 1995, respectively, compared to prior periods. The decrease in costs and
expenses each year is primarily the result of lower depreciation expense, which
accounted for a decrease of $1,012,253 and $652,660 for the years ended December
31, 1996 and 1995, respectively. The decrease in depreciation expense each year
is due to a large portion of the equipment portfolio becoming fully depreciated
and a reduction in the overall equipment portfolio. Included in depreciation
expense in 1996, 1995 and 1994 is a reversal of a provision for $275,000, and a
provision for $700,541 and $500,000, respectively, to properly reflect the
equipment portfolio's net realizable value for each year. Interest expense
increased $31,091 and $8,908 in 1996 and 1995, respectively, due to the payoff
and continued paydown on the installment notes payable - affiliates and
long-term debt. Such debt was used to finance equipment lease transactions.
Management fees increased $12,257 or 11% due to the increased collection of
delinquent rents receivable in 1996. General and administrative expenses
increased 17% and 6% for the years ended December 31, 1996 and 1995,
respectively. A major factor contributing to the increase each year is that
salaries and expenses of the partnership accounting and reporting personnel, of
the General Partner, which are reimbursable by the various partnerships under
management are being allocated over a diminishing number of partnerships. The
provision for doubtful accounts increased $16,523 in the current year due to an
increase in potential uncollectible rents receivable, versus the prior year in
which the provision for doubtful accounts decreased $26,706 due to successful
collection efforts on delinquent accounts. The net loss on sale of marketable
securities in 1996 reflects the sale of stock that had been received from the
Trustee.
The Partnership recorded a net income (loss) per Limited Partnership Unit of
$12.12, $(12.64) and $(24.02) for the years ended December 31, 1996, 1995 and
1994, respectively. The allocation for the year ended December 31, 1994 includes
a cost recovery allocation of profit and loss among the General and Limited
Partners which results in an allocation of net loss to the Limited Partners.
This cost recovery allocation is required to maintain capital accounts
consistent with the distribution provisions of the Partnership Agreement. In
certain periods, the cost recovery of profit and loss may result in an
allocation of net loss to the Limited Partners in instances when the
Partnership's operations were profitable for the period.
Liquidity and Capital Resources
For the year ended December 31, 1996, rental revenue generated from operating
leases was the primary source of funds for the Partnership. As equipment leases
terminate, the General Partner determines if the equipment will be extended to
the same lessee, remarketed to another lessee, or if it is less remarketable,
sold. This decision is made upon analyzing which option would derive the most
favorable results.
Rental income will continue to decrease due to two factors. The first factor is
the rate obtained when the original leases expire and are remarketed at a lower
rate. Typically the remarketed rates are lower due to the decrease in useful
life of the equipment. Secondly, the increasing change of technology in the
computer industry usually decreases the demand for older equipment, thus
increasing the possibility of obsolescence. Both of these factors together will
cause remarketed rates to be lower than original rates and will cause certain
leases to terminate upon expiration. This decrease however, should not affect
the Partnership's ability to meet its future cash requirements, including
long-term debt obligations. To the extent that future cash flows should be
insufficient to meet the Partnership's operating expenses and liabilities,
additional funds could be obtained through the sale of equipment, or a reduction
in the rate of cash distributions. Future rental revenues amount to $1,750,992
and are to be received over the next five years (for further discussion, refer
to note 4 to the financial statements).
The Partnership's investing activities for the year resulted in equipment
purchases of $506,622 and equipment sales with a depreciated cost basis of
$52,789, generating $165,568 in proceeds. Included in equipment sales is a
$86,049 loss which was charged against the reserve, initially set up in a prior
period to account for estimated losses on the ultimate disposition of equipment.
The Partnership will not purchase equipment in the future as the Partnership has
reached the end of its reinvestment period.
The Partnership's financing activities resulted in proceeds from borrowing on
long-term debt of $189,942. The Partnership activities also included a paydown
on long-term debt during 1996 of $559,271. The Partnership will payoff its
remaining long-term debt of $591,174 by 1998. Total debt assumed by the
Partnership from inception is $14,270,105, for a total leverage of 42%. The
Partnership's financing activities in 1996 also resulted in the short-term
borrowing of notes payable-affiliate in the amount of $223,600 to finance
equipment purchases. These notes were paid off during the year.
Cash distributions paid in the first quarter of 1997 are currently at an annual
level of 2% per Limited Partnership Unit, or $10.00 per Limited Partnership
Unit. During 1996, the Partnership distributed a total of $16.25 per Limited
Partnership Unit, of which $12.12 per Unit represents income and $4.13 per Unit
represents a return of capital. For the quarter ended December 31, 1996, the
Partnership declared a cash distribution of $71,647, of which $3,582 was
distributed to the General Partner and $68,065 was distributed to the Limited
Partners. The distribution subsequently occurred on February 28, 1997. The
Partnership expects to continue paying distributions at or near this level in
the future. The effects of inflation have not been significant to the
Partnership and are not expected to have any material impact in future periods.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Partners of Wellesley Lease Income Limited Partnership IV:
We have audited the accompanying balance sheets of Wellesley Lease Income
Limited Partnership IV (a Massachusetts Limited Partnership) as of December 31,
1996 and 1995, and the related statements of operations, partners' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1996. In connection with our audits of the financial statements, we
have also audited the accompanying financial statement schedule II for each of
the years in the three-year period ended December 31, 1996. These financial
statements and this financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and this financial statement 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 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 referred to above present fairly, in
all material respects, the financial position of Wellesley Lease Income Limited
Partnership IV as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. 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.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 21, 1997
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets
1996 1995
---------------- ----------------
<S> <C> <C>
Investment property, at cost (notes 3 and 4):
Computer equipment $ 5,084,339 $ 7,388,216
Less accumulated depreciation 3,807,667 5,674,559
---------------- ----------------
Investment property, net 1,276,672 1,713,657
Cash and cash equivalents 36,022 336,360
Rents receivable, net (note 2) 64,103 125,765
Account receivable - affiliates 1,214 43,054
Sales receivable, net (note 2) 6,425 16,069
Marketable securities (notes 2 and 8) 600 4,644
---------------- ----------------
Total assets $ 1,385,036 $ 2,239,549
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 7) $ 437,438 $ 491,254
Accounts payable and accrued expenses - affiliates (note 5) 28,097 420,457
Accounts payable and accrued expenses 144,138 237,953
Unearned rental revenue 29,795 27,685
Long-term debt, less current portion (note 7) 153,736 469,249
---------------- ----------------
Total liabilities 793,204 1,646,598
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 610,700 476,748
Cumulative cash distributions (611,699) (588,414)
Unrealized losses on marketable securities (note 8) (1) (8)
---------------- ----------------
- (110,674)
---------------- ----------------
Limited Partners (27,226 units):
Capital contribution, net of offering costs 12,148,459 12,148,459
Cumulative net income (loss) 84,457 (245,511)
Cumulative cash distributions (11,640,935) (11,198,512)
Unrealized losses on marketable securities (note 8) (149) (811)
---------------- ----------------
591,832 703,625
---------------- ----------------
Total partners' equity 591,832 592,951
---------------- ----------------
Total liabilities and partners' equity $ 1,385,036 $ 2,239,549
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenue:
Rental income $ 1,617,165 $ 1,697,214 $ 2,759,929
Other income - 31,147 -
Interest income 6,844 23,035 30,708
Recovery of net unsecured pre-petition
claim (note 9) - 10,757 22,808
Net gain (loss) on sale of equipment 26,730 6,188 (582,152)
--------------- -------------- ---------------
Total revenue 1,650,739 1,768,341 2,231,293
--------------- -------------- ---------------
Costs and expenses:
Depreciation 804,769 1,817,022 2,469,682
Interest 82,349 51,258 42,350
Related party expenses (note 5):
Management fees 123,488 111,231 178,265
General and administrative 152,198 129,883 122,058
Provision for doubtful accounts 23,068 6,545 33,251
Net loss on sale of marketable securities 947 - -
--------------- -------------- ---------------
Total costs and expenses 1,186,819 2,115,939 2,845,606
--------------- -------------- ---------------
Net income (loss) $ 463,920 $ (347,598) $ (614,313)
=============== ============== ===============
Net income (loss) per
Limited Partnership Unit $ 12.12 $ (12.64) $ (24.02)
=============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Partners' Equity (Deficit)
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------------- ---------------- ------------------
<S> <C> <C> <C>
Equity at
December 31, 1993 $ - $ 4,493,221 $ 4,493,221
Net income (loss) 39,685 (653,998) (614,313)
Cash distributions (85,976) (1,633,561) (1,719,537)
----------------- ---------------- ------------------
Equity (deficit) at
December 31, 1994 (46,291) 2,205,662 2,159,371
Net loss (3,476) (344,122) (347,598)
Cash distributions (60,899) (1,157,104) (1,218,003)
Unrealized loss on marketable
securities (note 8) (8) (811) (819)
----------------- ---------------- ------------------
Equity (deficit) at
December 31, 1995 (110,674) 703,625 592,951
Net income 133,952 329,968 463,920
Cash distributions (23,285) (442,423) (465,708)
Reduction of unrealized loss on
marketable securities (note 8) 7 662 669
----------------- ---------------- ------------------
Equity at
December 31, 1996 $ - $ 591,832 $ 591,832
================= ================ ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 463,920 $ (347,598) $ (614,313)
--------------- ---------------- ----------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 804,769 1,817,022 2,469,682
Provision for doubtful accounts 23,068 6,545 33,251
Net (gain) loss on sale of equipment (26,730) (6,188) 582,152
Net loss on sale of marketable securities 947 - -
Net decrease (increase) in current assets 90,078 (30,042) (87,070)
Net (decrease) increase in current liabilities (484,065) 449,623 11,745
--------------- ---------------- ----------------
Total adjustments 408,067 2,236,960 3,009,760
--------------- ---------------- ----------------
Net cash provided by operating activities 871,987 1,889,362 2,395,447
--------------- ---------------- ----------------
Cash flows from investing activities:
Purchase of investment property (506,622) (1,747,497) (1,571,470)
Proceeds from sale of investment property 165,568 277,080 759,739
Proceeds from sale of marketable securities 3,766 - -
--------------- ---------------- ----------------
Net cash used in investing activities (337,288) (1,470,417) (811,731)
--------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from borrowings under notes payable 223,600 - -
Principal payments on notes payable (223,600) - -
Proceeds from borrowings under long-term debt 189,942 645,188 685,709
Principal payments on long-term debt (559,271) (352,880) (666,265)
Cash distributions to partners (465,708) (1,218,003) (1,719,537)
--------------- ---------------- ----------------
Net cash used in financing activities (835,037) (925,695) (1,700,093)
--------------- ---------------- ----------------
Net decrease in cash and cash equivalents (300,338) (506,750) (116,377)
Cash and cash equivalents at beginning of year 336,360 843,110 959,487
--------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 36,022 $ 336,360 $ 843,110
=============== ================ ================
Supplemental cash flow information:
Interest paid during the year $ 73,371 $ 51,258 $ 45,231
=============== ================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(1) Organization and Partnership Matters
The Partnership was organized under the Massachusetts Uniform Limited
Partnership Act on November 9, 1987. In exchange for a capital contribution of
$1,000, the Partnership has issued all of its General Partner interests to
Wellesley Leasing Partnership, a Massachusetts General Partnership.
The Amended Agreement of Limited Partnership authorizes the issuance of up to
150,000 Limited Partnership units at a gross price per unit of $500, and up to
50 additional units to affiliates.
The Partnership has entered into a Sales Agent Agreement with TLP Securities
Corporation ("TLP Securities"), an affiliate of the General Partner, which acted
as a Dealer/Manager for the offering of Limited Partnership Interests. On March
3, 1988, pursuant to the Dealer/Manager agreement, the Partnership began the
marketing and sale of the units. The Partnership has had a total of five
closings. The closings occurred on May 18, 1988, with 9,104 units, July 11,
1988, with 5,545 units, September 16, 1988, with 5,657 units, October 31, 1988,
with 3,640 units and December 31, 1988, with 3,280 units.
Pursuant to the terms of the Amended Agreement of Limited Partnership,
Distributable Cash From Operations and Profits for federal income tax and
financial reporting purposes from normal operations of the Partnership shall be
allocated 95% to the Limited Partners and 5% to the General Partner. Further,
gains on sales of equipment occurring after the reinvestment period end shall be
allocated first to eliminate negative capital accounts, if any, and second 99%
to the Limited Partners and 1% to the General Partner until "Payout". "Payout"
means the time when the aggregate amount of all distributions to the Limited
Partners of Distributable Cash From Operations and of Distributable Cash From
Sales or Refinancings equals the aggregate amount of the Limited Partners'
original invested capital plus a cumulative 10% annual return (compounded daily)
on their aggregate unreturned invested capital (calculated from the beginning of
the first full fiscal quarter following the Partnership's closing date). Losses
for federal income tax and financial reporting purposes from normal operations
and any Distributable Cash From Sales or Refinancings from gains and losses
shall be allocated 99% to the Limited Partners and 1% to the General Partner
until Payout has occurred, and 85% to the Limited Partners and 15% to the
General Partner thereafter. In addition, special cost recovery allocations may
be required to reflect the differing initial capital contributions of the
General Partner and the Limited Partners. The Partnership's books and records
are in accordance with the terms of the Amended Agreement of Limited
Partnership. Including the distribution for the fourth quarter of 1996 made
February 28, 1997, cumulative distributions to date is $425.88 per unit. This
cumulative distribution per Unit amount represents 15.74% of Payout. It is not
anticipated that Payout will occur as of the liquidation of this Partnership.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(2) Summary of Significant Accounting Policies
General
The Partnership's records are maintained on the accrual basis of accounting so
that revenues are recognized as earned and expenses are recognized as incurred.
Assets and liabilities are those of the Partnership and do not include any
assets and liabilities of the individual partners. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Depreciation on investment property purchased prior to January 1, 1993 is
provided using a straight-line basis, generally over a five year period. For
equipment purchased on or after January 1, 1993, depreciation is provided using
a straight-line basis, over a four year period. The Partnership's policy is to
periodically review the estimated fair market value of its equipment to assess
the recoverability of its undepreciated cost. In accordance with this policy,
the Partnership records a charge to depreciation expense in instances when the
net book value of equipment exceeds its net realizable value. Included in
depreciation expense in 1996, 1995 and 1994 is a reversal of a provision for
$275,000 and a provision for $700,541 and $500,000, respectively, to properly
reflect the equipment portfolio's net realizable value. Routine maintenance and
repairs are expensed as incurred. Major betterments and enhancements are
capitalized and depreciated in accordance with the Partnership's depreciation
policy.
Cash and Cash Equivalents
The Partnership considers cash and short-term investments with original
maturities of three months or less to be cash and cash equivalents.
Allowance for Doubtful Accounts
The financial statements include allowances for estimated losses on receivable
balances. The allowances for doubtful accounts are based on past write off
experience and an evaluation of potential uncollectible accounts within the
current receivable balances. Receivable balances which are determined to be
uncollectible are charged against the allowance and subsequent recoveries, if
any, are credited to the allowance. At December 31, 1996 and 1995, the allowance
for doubtful accounts included in rents receivable was $51,763 and $34,889,
respectively, and $11,100 and $4,906 in sales receivable, respectively.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Marketable Securities
The marketable securities are stated at fair value at the balance sheet date and
consist of 300 shares of common stock in Continental Information Systems
Corporation ("CISC") received by the Partnership in the distributions made
December 27, 1994 and July 20, 1995 by the Trustee of the Liquidating Estate of
CIS Corporation, et al, ("the Trustee"), with respect to the outstanding net
unsecured pre-petition claim. During the second quarter of 1995, the stock began
trading, thereby providing an objective valuation measure for establishing the
cost basis. Unrealized gains and losses are recorded directly in partners'
equity except those losses that are deemed to be other than temporary, which
would be reflected in income (see note 8).
Income Taxes
No provision for federal income taxes has been made as the liability for such
taxes is that of the Partners rather than that of the Partnership. Taxable
income (loss), as reported on Schedule K-1, Form 1065 "Partner's Share of
Income, Credits, Deductions, etc.", was $136,436, $(381,970) and $(480,112) in
1996, 1995 and 1994, respectively (see note 6).
(3) Investment Property
At December 31, 1996, the Partnership owned computer equipment with a
depreciated cost basis of $1,250,203, subject to existing leases and equipment
with a depreciated cost basis of $26,469 in inventory, awaiting re-lease or
sale. All purchases of computer equipment are subject to a 3% acquisition fee
paid to the General Partner.
(4) Leases
Description of leasing arrangements:
Operations consist primarily of leasing computer equipment. All equipment leases
are classified as operating leases and expire over the next five years.
Minimum lease payments scheduled to be received in the future under existing
noncancelable operating leases are as follows:
1997 $ 1,074,612
1998 478,040
1999 114,137
2000 58,718
2001 25,485
---------------
$ 1,750,992
===============
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
The following schedule provides an analysis of the cost of capital equipment by
major classes as of December 31, 1996:
Computer peripherals $ 2,237,109
Processors & upgrades 1,372,772
Telecommunications 152,530
Other 1,321,928
---------------
$ 5,084,339
===============
Two lessees, American Freightways, Incorporated and Halliburton Company, lease
equipment in excess of 10% of total rental income for the year ended December
31, 1996. The related rental payments comprise 13.92% and 12.21%, respectively,
of total rental income for the year ended December 31, 1996. American
Freightways, Incorporated and Halliburton Company lease equipment comprising
14.87% and 10.53%, respectively, of the total equipment portfolio at December
31, 1996.
(5) Related Party Transactions
Fees, commissions and other expenses paid or accrued by the Partnership to the
General Partner or affiliates of the General Partner for the years ended
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Equipment acquisition fees $ 14,756 $ 50,898 $ 45,732
Management fees 123,488 111,231 178,265
Reimbursable expenses paid 149,711 119,878 105,601
------------ ------------ ------------
$ 287,955 $ 282,007 $ 329,598
============ ============ ============
</TABLE>
Under the terms of the Partnership Agreement, the General Partner is entitled to
an equipment acquisition fee of 3% of the purchase price paid by the Partnership
for the equipment. The General Partner is also entitled to a management fee
equal to 7% of the monthly rental billings collected. Also, the Partnership
reimburses the General Partner and its affiliates for certain expenses incurred
by them in connection with the operation of the Partnership.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(6) Reconciliation of Financial Statement Net Income (Loss) to Taxable Income
(Loss) to Partners
A reconciliation of financial statement net income (loss) to taxable income
(loss) to partners is as follows for the years ended December 31, 1996, 1995 and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per financial statements $ 463,920 $ (347,598) $ (614,313)
Provision for doubtful accounts expense for financial
statement purposes in excess of (less than) provision
for doubtful accounts expense for tax purposes 23,068 (8,118) 10,444
Depreciation expense for financial statement purposes
(less than) in excess of depreciation expense for
tax purposes (249,510) 500,855 500,000
Net gain on sale of equipment for financial statement
purposes in excess of net gain on sale of equipment
for tax purposes (101,042) (527,109) (376,243)
-------------- ------------- -------------
Taxable income (loss) to partners $ 136,436 $ (381,970) $ (480,112)
============== ============= =============
</TABLE>
Losses for federal tax purposes from normal operations are allocated 99% to the
Limited Partners and 1% to the General Partner. Profits for federal tax purposes
from normal operations are allocated 95% to the Limited Partners and 5% to the
General Partner. In addition, special cost recovery allocations may be required
to reflect the differing initial capital contribution of the General Partner and
the Limited Partners.
(7) Long-term Debt
Long-term debt at December 31, 1996 consists of two loans totaling $3,830 from
Randolph Computer Company each with an interest rate of 6.00%, one loan for
$101,792 from Pioneer Bank and Trust Company with an interest rate of 8.15%, two
loans totaling $292,588 from Pullman Capital Corporation with an interest rate
of 8.00% and three loans totaling $192,964 from Liberty Bank, each bearing
interest at a rate of 8.25%. The total outstanding debt balance is
collateralized by equipment with a net book value of $892,376 and assignment of
the related leases.
Maturities of long-term debt are as follows:
1997 $ 437,438
1998 153,736
--------------
$ 591,174
==============
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(8) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires investments
in debt and equity securities other than those accounted for under the equity
method to be carried at fair value or amortized cost for debt securities
expected to be held to maturity, the Partnership has classified its investments
in equity securities as available for sale. Accordingly, the net unrealized
gains and losses computed in marking these securities to market are reported as
a component of partners' equity. At December 31, 1996 the difference between the
fair value and the cost basis of these securities is an unrealized loss of $150.
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at December 31,
1996 and 1995, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ---------------------
Cost Fair Cost Fair
Basis Value Basis Value
<S> <C> <C> <C> <C>
Investment in Continental Information
Systems Corporation Stock $ 750 $ 600 $ 5,463 $ 4,644
====== ====== ======= =======
</TABLE>
As was discussed in note 2, Marketable Securities, the Partnership received
stock in CISC as part of the December 27, 1994 and July 20, 1995 distributions
from the Trustee, with respect to the outstanding net unsecured pre-petition
claim. The receivables comprising the net unsecured pre-petition claim had been
fully reserved during prior years; thus, during the second quarter of 1995 when
the stock began actively trading, the carrying amount for the stock was
established to be $2.50 per share which approximated fair value at June 30,
1995.
(9) Bankruptcy of Continental Information Systems Corporation (former parent of
General Partner)
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from
CMI Holding Co. and all the common stock of TLP Management Services Corporation
("TLPMS", formerly CIS Management Services Corporation "CISMS") from CMI
Corporation. Under the new ownership, it is expected that TLP and TLPMS will
continue to operate in the same manner of business as each has in the past.
On January 13, 1989 (the "Petition Date"), Continental Information Systems
Corporation ("Continental"), CIS Corporation ("CIS"), CMI Holding Co. ("CMI
Holding"), CMI Corporation ("CMI") and certain of its affiliates (collectively,
the "Debtors"), voluntarily petitioned for relief under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"), and thereafter continued in the
management and operation of their businesses and property as Debtors In
Possession until October 25, 1989, when the United States Bankruptcy Court (the
"Court") confirmed the appointment of James P. Hassett as Chapter 11 trustee
(the "Trustee") of the Debtors. CMI Holding is the former parent of TLP and CMI
is the former parent of TLPMS. TLP and TLPMS, neither of which filed under
Chapter 11, are the two Corporate General Partners of Wellesley Leasing
Partnership, the General Partner of the Partnership. Both before and after the
Petition Date, CIS and CMI have acted as agents for the Partnership in selling,
leasing and remarketing Partnership equipment. CMI Holding became a wholly-owned
subsidiary of CIS pursuant to a Court ordered settlement on July 20, 1993.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
As of the Petition Date, there were a number of unsettled transactions between
CIS and CMI and the Partnership and other affiliated partnerships (the
Partnership and such other partnerships are herein collectively referred to as
the "Partnerships"), including outstanding accounts receivable and accounts
payable between each of the Partnerships and CIS and CMI and their affiliates,
sales of equipment and related leases from CIS and CMI to each of the
Partnerships for which not all documentation had been completed as of the
Petition Date, and sales of equipment and related leases from which CIS had
failed to remove prior third-party liens. In addition, accounts receivable and
accounts payable continued to accrue and be paid between each of the
Partnerships and CIS and CMI and their affiliates subsequent to the Petition
Date.
On February 28, 1992, the Court granted an order implementing a settlement of
the outstanding issues between each of the Partnerships and the Debtors. The
settlement occurred on March 13, 1992. In the order the Court approved a set-off
on a partnership-by-partnership basis of pre-petition amounts owed by each
affected Debtor to each Partnership to the extent of pre-petition amounts owed
by that Partnership to that Debtor. As a result of the set-off, the Partnership
had a net unsecured pre-petition claim of $37,470 against CMI as of December 31,
1993 which had been fully reserved.
On November 29, 1994, the Court confirmed the Trustee's proposed Joint Plan of
Reorganization ("the Plan") dated October 4, 1994, and the Debtors emerged from
Chapter 11 bankruptcy protection on December 21, 1994. In accordance with the
Plan projections, 100% of each CMI claim would be paid in full, of which 75%
would be cash and 25% would be common stock of the reorganized Continental
Information Systems Corporation ("CISC"), based on a per share price of $4.29.
On December 27, 1994, the Partnership received the first distribution from the
Trustee (now Trustee of the Liquidating Estate of CIS Corporation, et al) with
respect to the net unsecured pre-petition claim described above. The
distribution consisted of cash proceeds of $22,808 and 1,844 shares of common
stock in CISC. During the second quarter of 1995, the stock of CISC began
trading, thereby providing an objective valuation method for establishing the
cost basis of $2.50 per share, which approximated fair value at June 30, 1995. A
charge off was made in 1995 in relation to the difference between the Trustee's
original prescribed value of the CISC stock at $4.29 per share and the cost
basis established by the Partnership. On July 20, 1995, the Partnership received
the second and final distribution from the Trustee, consisting of cash proceeds
of $5,294 and 341 shares of CISC. Following the Trustee's second distribution
and the charge off made during the year, the Partnership's net unsecured
pre-petition claim was settled and there are no other outstanding receivable
balances.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Schedule II - Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Additions charged
Balance at to (recoveries Balance
beginning credited from) at end
Classification of year costs and expenses Charge-offs of year
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Year ended
December 31, 1994 $ 37,470 $ 10,443 $ - $ 47,913
================ ================ ================ =================
Year ended
December 31, 1995 $ 47,913 $ (4,212) $ 3,906 $ 39,795
================ ================ ================ =================
Year ended
December 31, 1996 $ 39,795 $ 23,068 $ - $ 62,863
================ ================ ================ =================
</TABLE>
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
December 31, 1996
Lessee
American Freightways, Incorporated
Bassin Distributors, Incorporated
Carr Separation, Incorporated
Chrysler Corporation
Cincinnati Gas & Electric Company
Coulter Corporation
Cybersmith, Incorporated
Dave's Custom Caps
Delphi Internet, Incorporated
FAX International, Incorporated
Halliburton Company
H.J. Meyers Company, Incorporated
Hughes Aircraft Company, Incorporated
Internet Access Company, Incorporated
J. Walter Thompson Company
ON Technology Corporation
Sero Company, Incorporated
Sports & Recreation, Incorporated
Equipment Description Acquisition Price
Computer peripherals $ 2,237,109
Processors & upgrades 1,372,772
Telecommunications 152,530
Other 1,321,928
----------------
$ 5,084,339
================
<PAGE>
Exhibit 11 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Computation of Net Income (Loss) per Limited Partnership Unit
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ 463,920 $ (347,598) $ (614,313)
Gain on sale (26,730) (8,470) (237,777)
Loss on sale - 2,282 819,929
Special cost recovery allocation (819) - (46,291)
-------------- ---------------- ----------------
Available income (loss) from operations 436,371 (353,786) (78,452)
-------------- ---------------- ----------------
Allocations to General Partner:
Income (loss) from operations 21,859 (3,538) (785)
Gain on sale 112,101 85 2,378
Loss on sale - (23) (8,199)
Special cost recovery allocation (8) - 46,291
-------------- ---------------- ----------------
Income (loss) allocated to General Partner 133,952 (3,476) 39,685
-------------- ---------------- ----------------
Income (loss) allocated to Limited Partners $ 329,968 $ (344,122) $ (653,998)
============== ================ ================
Number of Limited Partnership Units 27,226 27,226 27,226
Net income (loss) per Limited Partnership Unit $ 12.12 $ (12.64) $ (24.02)
============== ================ ================
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Statement Disclosures.
None.
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Partnership.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1. of this
report, the General Partner of the Partnership is Wellesley Leasing Partnership.
Under the Partnership Agreement, the General Partner is solely responsible for
the operation of the Partnership's properties, and the Limited Partners have no
right to participate in the control of such operations. The General Partner has
three Corporate General Partners: TLP and TLPMS, both Massachusetts corporations
and Waddell & Reed, a Missouri corporation. The names and ages of the Directors
and Executive Officers of the Corporate General Partners are as follows:
<TABLE>
<CAPTION>
TLP and TLPMS
Name Title Age
<S> <C> <C>
Nicholas C. Bogard Director 51
Arthur P. Beecher Director and President 59
Nancy E. Malone Vice President, Lease Financing 38
Irene V. King Vice President, Satellite Operations 50
Joseph P. Colonna Vice President, Marketing 37
James S. Felman Clerk 32
Waddell & Reed
Name Title Age
Keith A. Tucker President, Chief Executive Officer 52
and Director
Robert L. Hechler Vice President, Chief Operations Officer, 60
Treasurer and Director
Henry J. Herrmann Vice President, Chief Investment Officer 55
and Director
Robert J. Williams, Jr. Vice President and National Sales Manager 53
Sharon K. Pappas Vice President, Secretary 38
and General Counsel
</TABLE>
(c) Identification of certain significant persons
See Item 10. (a-b)
(d) Family relationship
No family relationship exists between any of the foregoing Directors or
Officers.
(e) Business experience
<PAGE>
Nicholas C. Bogard is Director of TLP and TLPMS. Mr. Bogard served as President
and Director of TLP from 1982 - 1992, and served as Director of CS First Boston
from 1992 - 1994. He has been working as an independent consultant since 1994.
Mr. Bogard holds a B.A. from Princeton University and an M.B.A. from Harvard
University.
Arthur P. Beecher is President and Director of TLP and TLPMS. Prior to joining
TLP, he was an officer of CSA Financial Corp. of Boston, Massachusetts, most
recently as Vice President, Finance and Administration since 1975. Mr. Beecher
holds a B.S. from Boston University and is a Certified Public Accountant.
Nancy E. Malone is Vice President, Lease Financing of TLP and TLPMS. Prior to
joining TLP, she was Manager, Lease Financing for 11 years at CSA Financial
Corp. of Boston, Massachusetts. Ms. Malone holds a B.A. from The College of the
Holy Cross.
Irene V. King is Vice President, Satellite Operations for TLP and TLPMS. Prior
to joining TLP in April 1994, she was Director of Public Income Funds at CSA
Financial Corp. of Boston, Massachusetts and was previously Vice President of
Finance at First Alliance Corp. of Wellesley, Massachusetts. Ms. King holds a
B.A. from Barat College of the Sacred Heart, Lake Forest, Illinois.
James S. Felman is Clerk of TLP and TLPMS. Prior to joining TLP, he was in
private practice and was previously employed as a Tax Consultant with Price
Waterhouse in Miami, Florida and New York, New York. Mr. Felman received his
J.D. from S.U.N.Y. at Buffalo Law School, holds a B.S. in Economics and Business
Management from Cornell University, and is a licensed attorney in New York and
Florida.
Joseph P. Colonna is Vice President, Marketing of TLP and TLPMS. Prior to
joining TLP, he was Associate Counsel at CSA Financial Corp. of Boston,
Massachusetts in charge of Domestic and International Leasing Transactions. He
received his B.A. from Rutgers University, J.D. from Suffolk University Law
School and M.S.L. from Vermont Law School.
Keith A. Tucker is President, Chief Executive Officer and Director of Waddell &
Reed; Chairman of the Board of Directors of WRIMCO, Waddell & Reed, Inc.,
Waddell & Reed Services Company, Waddell & Reed Asset Management Company and
Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; and President of each of the funds in the United, Waddell
& Reed and TMK/United mutual fund groups. He is also Director of Southwestern
Life Corporation. Prior to joining Torchmark Corporation in 1991, Mr. Tucker was
with Trivest, Inc. and Trivest Securities Corporation in Miami, Florida since
1987, most recently as the Senior Vice President and President, respectively.
Prior to Trivest, Inc., he was Director of Atlantis Group, Inc., a diversified
company. Mr. Tucker holds a B.B.A. and a J. D. both from the University of
Texas.
Robert L. Hechler is Vice President, Chief Operations Officer, Director and
Treasurer of Waddell & Reed; Executive Vice President, Principal Financial
Officer, Director and Treasurer of WRIMCO; President, Chief Executive Officer,
Principal Financial Officer, Director and Treasurer of Waddell & Reed, Inc.;
Director and Treasurer of Waddell & Reed Services Company; Vice President,
Treasurer and Director of Torchmark Distributors, Inc.; and Vice President and
Principal Financial Officer of each of the funds in the United, Waddell & Reed
and TMK/United mutual fund groups. He has been employed by Waddell & Reed and
its affiliates since 1977. Mr. Hechler holds a B.S. from the University of
Illinois and an M.B.A. from the University of Chicago.
<PAGE>
Henry J. Herrmann is Vice President, Chief Investment Officer and Director of
Waddell & Reed; Director of Waddell & Reed, Inc.; President, Chief Executive
Officer, Chief Investment Officer and Director of WRIMCO and Waddell & Reed
Asset Management Company; Senior Vice President and Chief Investment Officer of
United Investors Management Company; and Vice President of each of the funds in
the United, Waddell & Reed and TMK/United mutual fund groups. He has been
employed by Waddell & Reed and its affiliates since 1971. Mr. Herrmann holds a
B.S. from New York University.
Robert J. Williams, Jr. is Vice President and National Sales Manager of Waddell
& Reed and Executive Vice President and National Sales Manager of Waddell &
Reed, Inc. He has been employed by Waddell & Reed, Inc. since July 1996. He was
employed with Charles Schwab & Company from November 1991 to July 1995. From
August 1984 to October 1991, he was employed by American Express Financial
Advisors or its affiliates. Mr. Williams holds a B.S. from the University of
Utah and an M.B.A. from California State-Humbolt.
Sharon K. Pappas is Vice President, Secretary and General Counsel of Waddell &
Reed; Senior Vice President, Secretary and General Counsel of WRIMCO and Waddell
& Reed, Inc.; Director, Senior Vice President, Secretary and General Counsel of
Waddell & Reed Services Company; Director, Secretary and General Counsel of
Waddell & Reed Asset Management Company; Vice President, Secretary and General
Counsel of Torchmark Distributors, Inc.; formerly, Assistant General Counsel of
WRIMCO, Waddell & Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell &
Reed Asset Management Company and Waddell & Reed Services Company. She is Vice
President, Secretary and General Counsel of each of the funds in the United,
Waddell & Reed and TMK/United mutual fund groups. Prior to joining Waddell &
Reed and its affiliates in 1989, Ms. Pappas was employed with Stinson, Mag &
Fizzell in Kansas City, Missouri. Ms. Pappas holds a B.S. from Kansas State
University and a J.D. from the University of Kansas.
(f) Involvement in certain legal proceedings
The Partnership is not aware of any legal proceedings against any Director or
Executive Officer of the Corporate General Partners which may be important for
the evaluation of any such person's ability and integrity.
<PAGE>
Item 11. Management Remuneration and Transactions.
(a), (b), (c), (d), and (e): The Officers and Directors of the Corporate General
Partners receive no current or proposed direct remuneration in such capacities,
pursuant to any standard arrangements or otherwise, from the Partnership. In
addition, the Partnership has not paid and does not propose to pay any options,
warrants or rights to the Officers and Directors of the Corporate General
Partners. There exists no remuneration plan or arrangement with any Officer or
Director of the Corporate General Partners resulting from the resignation,
retirement or any other termination. See note 5 to the financial statements
included in Item 8. of this report for a description of the remuneration paid by
the Partnership to the General Partner and its affiliates during 1996, 1995 and
1994.
<PAGE>
Item 12. Security Ownership of Certain Owners and Management.
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided for in Section 13.2 of the Amended Agreement of Limited Partnership
(subject to Section 13.3), a majority interest of the Limited Partners have
voting rights with respect to:
1. Amendment of the Limited Partnership Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of substantially all the assets of the
Partnership.
No person or group is known by the General Partner to own beneficially more than
5% of the Partnership's 27,226 outstanding Limited Partnership Units as of
December 31, 1996.
By virtue of its organization as a limited partnership, the Partnership has no
Officers or Directors. See also note 1 to the financial statements included in
Item 8. and Item 10. of this report.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
(a), (b), and (c): The General Partner of the Partnership is Wellesley Leasing
Partnership, a Massachusetts general partnership which in turn has three
Corporate General Partners: TLP and TLPMS, both Massachusetts corporations and
Waddell & Reed, a Missouri corporation. The Corporate General Partners'
Directors and Executive Officers are identified in Item 10. of this report. The
Partnership was not involved in any transaction involving any of these Directors
or Officers or any member of the immediate family of these individuals, nor did
any of these persons provide services to the Partnership for which they received
direct or indirect remuneration. Similarly, there exists no business
relationship between the Partnership and any of the Directors or Officers of the
Corporate General Partners, nor were any of the individuals indebted to the
Partnership.
The General Partner is responsible for acquiring, financing, leasing and selling
equipment for the Partnership. TLPMS proposes for the Partnership equipment
acquisitions, leasing transactions, financing and refinancing transactions, and
sale transactions, for approval by the Executive Committee and oversees the
operation, management and use of each Partnership's equipment. TLP oversaw the
marketing of the Units and oversees all administrative functions of the
Partnership and, together with Waddell & Reed, provides substantially all of the
General Partner's capital resources. In consideration of such services and
capital commitments, TLP receives 30%, Waddell & Reed receives 10% and TLPMS
receives 60% of all compensation received by the General Partner in connection
with the formation and operation of the Partnership (including equipment
management fees, acquisition fees, subordinated remarketing fees and the General
Partner's share of Distributable Cash From Sales or Refinancings), except for
Acquisition Fees, as to which TLP receives 15%, Waddell & Reed receives 10% and
TLPMS receives 75%. The General Partner also was reimbursed in an amount equal
to 3% of the gross proceeds of the Partnership's offerings for organizational
and offering expenses; all such expenses in excess of that amount were borne by
TLP. See note 5 to the financial statements included in Item 8 of this report
for a description of payments made by the Partnership to the General Partner.
For information regarding the settlements between the Partnership and the
Liquidating Estate of CIS Corporation, et al, arising out of the emergence from
bankruptcy of CIS and CMI, see Item 3. Legal Proceedings.
<PAGE>
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K: None.
<S> <C>
(a) 1. Financial Statements Page No.
Independent Auditors' Report 17
Balance Sheets at December 31, 1996 and 1995 18
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 19
Statements of Partners' Equity (Deficit) for
the Years Ended December 31, 1996, 1995 and 1994 20
Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 21
Notes to Financial Statements 22 - 28
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves 29
All other financial statement schedules are omitted because they are
not applicable, the data is not significant, or the required
information is shown elsewhere in this report.
Computer Equipment Portfolio (Unaudited) 30
3. Exhibit Index
11 Statement regarding computation of net income (loss) per Limited
Partnership Unit 31
(b) Report on Form 8-K
N/A
</TABLE>
<PAGE>
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.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: March 27, 1997
By: Arthur P. Beecher,
President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000825851
<NAME> WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV FDS 12/31/96
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 36,022
<SECURITIES> 600
<RECEIVABLES> 134,605
<ALLOWANCES> 62,863
<INVENTORY> 0
<CURRENT-ASSETS> 108,364
<PP&E> 5,084,339
<DEPRECIATION> 3,807,667
<TOTAL-ASSETS> 1,385,036
<CURRENT-LIABILITIES> 202,030
<BONDS> 591,174
12,149,459
0
<COMMON> 0
<OTHER-SE> (11,557,627)
<TOTAL-LIABILITY-AND-EQUITY> 1,385,036
<SALES> 1,617,165
<TOTAL-REVENUES> 1,650,739
<CGS> 0
<TOTAL-COSTS> 123,488
<OTHER-EXPENSES> 957,914
<LOSS-PROVISION> 23,068
<INTEREST-EXPENSE> 82,349
<INCOME-PRETAX> 463,920
<INCOME-TAX> 0
<INCOME-CONTINUING> 463,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463,920
<EPS-PRIMARY> 12.12
<EPS-DILUTED> 0
</TABLE>
