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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, 1996 Commission File Number 0-17989
PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0166383
- -------------------------------- ------------------------------------
(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, 1996, 7,526 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, 1996.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
1996 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.................................................. 5
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.... 22
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 22
Item 11. Executive Compensation.......................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 23
Item 13. Certain Relationships and Related Transactions.................. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 24
Signatures................................................................. 25
<PAGE>
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PART I
Item 1. Business.
General Development of Business.
Phoenix High Tech/High Yield Fund, a California limited partnership (the
"Partnership"), was organized on July 26, 1988. The Partnership was registered
with the Securities and Exchange Commission with an effective date of November
10, 1988 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, 1999. 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 25,000 units of limited partnership
interest at a price of $1,000 per unit. The Partnership had the option of
increasing the public offering up to a maximum of 50,000 units. The Partnership
sold 7,526 units for a total capitalization of $7,526,000. Of the proceeds
received through the offering, the Partnership has incurred $967,837 in
organizational and offering expenses. The initial public offering was completed
on November 10, 1990.
From the initial formation of the Partnership through December 31, 1996,
the total investments in equipment leases and financing transactions (loans)
approximate $7,394,000. The average initial firm term of contractual payments
from equipment subject to lease was 45.20 months, and the average initial net
monthly payment rate as a percentage of the original purchase price was 2.92%.
The average initial firm term of contractual payments from loans was 61.96
months. These leases and loans have been concentrated primarily in the
manufacturing and telecommunications industries.
Summary of Business Activities.
The Partnership has engaged in diverse activities in which the General
Partner has had considerable experience. These areas include leasing and
financing activities for venture capital-backed emerging growth companies,
financing and leasing activities for cable television system operators and
related businesses, and other general leasing and financing activities. Set
forth below is a summary of these activities.
Emerging Growth Company Activities (Venture Financing). One of the major
purposes of the Partnership is to lease and finance various types of capital
equipment, primarily to emerging growth companies. The types of equipment in
which the Partnership has invested include various types of high technology
equipment such as semiconductor production and test equipment, general
electronic production equipment, computer terminals, data processing systems,
computer communications equipment and medical equipment, as well as office,
manufacturing and other types of capital equipment. The Partnership has also
entered into arrangements to provide secured financings, including financings of
accounts receivable and inventories, to emerging growth companies.
The emerging growth companies with which the Partnership has entered
into leases or financing transactions are located throughout the United States
and its possessions and are engaged in a variety of businesses for the provision
of products or services. Such companies are in the start-up or early phases of
operation with, in most cases, at least one round of venture capital debt or
equity financing having been concluded prior to the Partnership's investment.
Cable Television System Leasing and Financing (Cable Financing). The
other major purpose of the Partnership is to make secured loans to operators of
cable television systems for the acquisition, refinancing, construction, upgrade
and extension of such systems in the United States, its possessions and its
military bases. In addition, the Partnership has acquired cable television and
related equipment and leases such equipment to third parties.
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Loans to cable system operators are secured by a senior or
subordinated lien on the assets of the cable television system, its franchise,
contracts and related assets, including its subscriber list. Various types of
cable television and related equipment acquired by the Partnership and leased or
financed to third parties throughout the United States, its possessions and
military bases will be leased or financed on a long-term basis.
Several of the cable television system operators the Partnership
provided financing to have experienced financial difficulties. These
difficulties are believed to have been caused by several factors. Some of these
factors are: a significant reduction in the availability of debt from banks and
other financial institutions to finance the acquisition and operations,
uncertainties related to future government regulation in the cable television
industry and the economic recession in the United States. These factors have
resulted in a significant decline in the demand for the acquisition of cable
systems and have further caused an overall decrease in the value of many cable
television systems. As a result of the above, many of the Partnership's notes
receivable from cable television system operators have gone into default. The
result is that the Partnership has not received scheduled payments, has had to
grant loan extensions, has experienced an increase in legal and collection costs
and in some cases, has had to foreclose on the cable television system. The
impact of this has been a decrease in the overall return on the Partnership's
investments in such notes.
The Partnership has obtained an ownership interest in several cable
system joint ventures that it obtained through foreclosure. These cable systems
currently generate a positive monthly cash flow and provided cash distributions
to the Partnership during 1996 and 1995. The cable systems are managed and
operated by an affiliate of the General Partner.
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
leases and loans.
As of December 31, 1996, the Partnership owns equipment with an
aggregate original cost of $758,000. The equipment has been leased to customers
located throughout the United States. The following table summarizes the type of
equipment owned or financed by the Partnership.
Percentage of
Asset Types Purchase Price(1) Total Assets
----------- ----------------- -------------
(Amounts in Thousands)
Capital Equipment Leased to Emerging
Growth Companies $ 758 100%
------ ---
TOTAL $ 758 100%
====== ===
(1) These amounts include cost of equipment on financing leases of $668,000 at
December 31, 1996.
Item 3. Legal Proceedings.
The Partnership 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.
<PAGE>
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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.
(b)Approximate number of equity security investments:
Number of Unit Holders
Title of Class as of December 31, 1996
---------------------------------- -----------------------
Limited Partners 374
Item 6. Selected Financial Data.
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Amounts in Thousands Except for Per Unit Amounts)
Total Income $ 225 $ 209 $ 343 $ 770 $ 775
Net Income (Loss) 279 (558) 163 243 91
Total Assets 1,844 2,017 3,271 4,440 5,090
Distributions to Partners 283 816 1,362 779 780
Net Income (Loss) per Limited
Partnership Unit 35.28 (73.40) 19.89 31.20 11.07
Distributions per Limited
Partnership Unit 37.27 107.28 179.21 102.53 102.60
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this report.
<PAGE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Phoenix High Tech/High Yield Fund (the Partnership) reported net income
of $279,000 during the year ended December 31, 1996, as compared to a net loss
of $558,000 during 1995 and net income of $163,000 during 1994. The increase in
net income during 1996, compared to 1995, is attributable to a reduction in the
provision for losses on receivables of $753,000. In contrast, the increase in
provision for losses on receivables of $572,000 was the major factor
contributing to the net loss experienced in 1995, as compared to 1994.
Total revenues increased by $16,000 during the year ended December 31,
1996, as compared to 1995 but decreased by $134,000 during 1995, compared to
1994. The increase in total revenues in 1996, compared to 1995 is mainly
attributable to a gain on sale of securities of $43,000. The gain on securities
is attributable to the exercise and sale of stock warrants held by the
Partnership. The Partnership has been granted stock warrants as part of its
lease or financing agreements with certain emerging growth companies.
An additional factor contributing to the increase in total revenues for
the year ended December 31, 1996, compared to 1995, is the increase in rental
income of $21,000. The increase in rental income during 1996 is due to a lease
that was placed onto month-to-month renewal. This lease had reached the end of
its original term on April 1, 1996 and was on month-to-month renewal until
December 1, 1996 at which point the lessee purchased the equipment.
Partially offsetting the gain on sale of securities and the increase in
rental income for the year ended December 31, 1996, compared to 1995, are the
declines in earned income from financing leases and interest income from notes
receivable. The decrease in earned income from financing leases for 1996, as
well as 1995, compared to the respective prior year, is a result of a decline in
the net investment in financing leases. The net investment in financing leases
at December 31, 1996 is $99,000 compared to $311,000 at December 31, 1995 and
$541,000 at December 31, 1994.
Interest income from notes receivable for the year ended December 31,
1995 was higher than usual as a result of the payoffs of two notes receivable
from cable television system operators that had been classified as impaired. The
Partnership had suspended the accrual of interest income on these notes. Upon
the payoff, the proceeds were first applied to the outstanding principal and
accrued interest, with the excess recognized as interest income. On one of these
notes, the Partnership received a settlement payoff in excess of the net
carrying value, thereby recognizing interest income for the excess.
Total expenses decreased by $821,000 during 1996, but increased by
$587,000 during 1995 as compared to the same periods in the previous year. The
Partnership received total settlement proceeds of $672,000 on its remaining
impaired note receivable during 1996, which resulted in a recovery of $190,000
of the provision for losses on notes receivable. In contrast, the increase in
the provision for losses on receivables during 1995, as compared to 1994, was
deemed necessary pursuant to the review of the Partnership's remaining note
receivable to a cable television system operator.
Another factor contributing to the decrease in total expenses during
1996 was a decrease in legal expenses due to the payoff of the partnership's
remaining note receivable that was impaired.
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 inflations have been
low, thereby having very little impact upon the Partnership.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from its contractual
obligations with lessees and borrowers to receive rental payments and payments
of principal and interest. As the initial lease terms of the leases expire, the
Partnership will re-lease or sell the equipment. The future liquidity of the
Partnership will depend upon the General Partner's success in collecting
scheduled contractual payments from its lessees and borrowers. Additionally, the
Partnership has investments in foreclosed cable systems joint ventures from
which it receives cash distributions of the excess cash generated by operations.
The Partnership will also receive a share of the cash when the cable television
system is sold.
<PAGE>
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The cash generated by leasing and financing activities was $985,000 for
the year ended December 31, 1996, as compared to $699,000 for the year ended
December 31, 1995 and $641,000 for the year ended December 31, 1994. The
increase in cash generated by leasing and financing activities during the past
two years is a result of payoffs of impaired notes receivable.
During the year ended December 31, 1996, the Partnership received cash
distributions of $87,000 from foreclosed cable system joint ventures compared to
$11,000 during 1995 and $23,000 during 1994. This increase in distributions for
the year ended December 31, 1996, compared to 1995, is attributable to the
distribution of sale proceeds from the sale of a cable television system owned
by one of the Partnership's foreclosed cable system joint ventures.
The Partnership received proceeds from the sale of securities of $43,000
for the year ended December 31, 1996 as a result of the exercise and sale of
stock warrants, as previously discussed.
As of December 31, 1996 and 1995, the Partnership owned equipment being
held for lease with an original cost of $89,000 and a net book value of $0,
compared to an original cost of $244,000 and a net book value of $4,000 at
December 31, 1994. The General Partner is actively engaged, on behalf of the
Partnership, in remarketing and selling the Partnership's equipment as it
becomes available.
The cash distributed to partners was $283,000, $816,000 and $1,362,000
during the year ended December 31, 1996, 1995 and 1994, respectively. In
accordance with the Partnership Agreement, the Limited Partners are entitled to
99% of the cash available for distribution and the General Partner is entitled
to 1%. As a result, the Limited Partners received $280,000, $808,000 and
$1,349,000 in distributions during 1996, 1995 and 1994, respectively. The
cumulative cash distributions to limited partners are $5,837,000, $5,557,000 and
$4,749,000 at December 31, 1996, 1995 and 1994, respectively. The General
Partner received $3,000, $8,000 and $13,000 for its share of the cash
distributions during 1996, 1995 and 1994, respectively.
The Partnership made its quarterly distribution to partners on April 15,
1996 at the same rate as the January 15, 1996 distribution, but at a rate lower
than the distributions made during the same period in 1995. The distribution on
April 15, 1996 was the last scheduled quarterly distribution made by the
Partnership. The Partnership has switched to an annual distribution method with
the first annual distribution being made on January 15, 1997. As a result of a
settlement payment received on an impaired note during the quarter ended
September 30, 1996, the Partnership included these proceeds in the January 15,
1997 distribution to partners. The Partnership's ability to distribute cash to
partners is dependent upon the Partnership receiving its contractual payments
from notes receivable and financing leases. If the cash generated by Partnership
operations decrease below expectations, the distributions to partners will be
adjusted accordingly.
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.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results could differ from those anticipated by some of the statements
made above. Limited Partners are cautioned that such forward-looking statements
involve risks and uncertainties including without limitation the following: (i)
the Partnership's plans are subject to change at any time at the discretion of
the General Partner of the Partnership, (ii) future technological developments
in the industry in which the Partnership operates, (iii) competitive pressure on
pricing or services, (iv) substantial customer defaults or cancellations, (v)
changes in business conditions and the general economy, (vi) changes in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets.
<PAGE>
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
YEAR ENDED DECEMBER 31, 1996
<PAGE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Phoenix High Tech/High Yield Fund,
a California Limited Partnership:
We have audited the accompanying balance sheets of Phoenix High Tech/High Yield
Fund, a California Limited Partnership, as of December 31, 1996 and 1995, and
the related statements of operations, partners' capital and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and 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 Phoenix High Tech/High Yield
Fund, a California Limited Partnership, as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14,
subsection (a) 2, is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
San Francisco, California, ARTHUR ANDERSEN LLP
January 17, 1997
<PAGE>
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PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
December 31,
1996 1995
------ ------
ASSETS
Cash and cash equivalents $1,499 $ 655
Accounts receivable 44 18
Notes receivable (net of allowance
for losses on notes receivable of
$0 and $706 at December 31, 1996
and 1995, respectively) -- 581
Securities, available-for-sale -- 149
Equipment on operating leases and held
for lease (net of accumulated depreciation
of $56 at December 31, 1996 and 1995) -- --
Net investment in financing leases 99 311
Investment in joint ventures 197 266
Capitalized acquisition fees (net of
accumulated amortization of $292 and
$260 at December 31, 1996 and 1995,
respectively) 4 36
Other assets 1 1
------ ------
Total Assets $1,844 $2,017
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 24 $ 44
------ ------
Total Liabilities 24 44
------ ------
Partners' Capital:
General Partner (3) (14)
Limited Partners, 25,000 units authorized,
7,526 units issued and outstanding at
December 31, 1996 and 1995 1,823 1,838
Unrealized gains on available-for-sale
securities
-- 149
------ ------
Total Partners' Capital 1,820 1,973
------ ------
Total Liabilities and Partners' Capital $1,844 $2,017
====== ======
The accompanying notes are an integral part of
these statements.
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PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1996 1995 1994
------- ------- -------
INCOME
Rental income $ 33 $ 12 $ 17
Earned income, financing leases 36 75 118
Gain on sale of equipment 12 4 38
Interest income, notes receivable 34 85 53
Equity in earnings from joint ventures 18 2 10
Gain on sale of securities 43 -- 64
Other income 49 31 43
------- ------- -------
Total Income 225 209 343
------- ------- -------
EXPENSES
Depreciation and amortization 32 50 69
Lease related operating expenses -- -- 7
Management fees to General Partner 40 30 22
Reimbursed administrative costs to
General Partner 13 17 23
Provision for (recovery of) losses
on receivables (190) 563 (9)
Legal expense 29 81 33
General and administrative expenses 22 26 35
------- ------- -------
Total Expenses (54) 767 180
------- ------- -------
NET INCOME (LOSS) $ 279 $ (558) $ 163
======= ======= =======
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 35.28 $(73.40) $ 19.89
======= ======= =======
ALLOCATION OF NET INCOME (LOSS):
General Partner $ 14 $ (6) $ 13
Limited Partners 265 (552) 150
------- ------- -------
$ 279 $ (558) $ 163
======= ======= =======
The accompanying notes are an integral part of
these statements.
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<TABLE>
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PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
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, 1993 $-- 7,526 $4,397 $ -- $4,397
Distributions to partners ($179.21
per limited partnership unit) (13) -- (1,349) -- (1,362)
Net income 13 -- 150 -- 163
----- ----- ------ ------ ------
Balance, December 31, 1994 -- 7,526 3,198 -- 3,198
Distributions to partners ($107.28
per limited partnership unit) (8) -- (808) -- (816)
Unrealized gains on available-for-
sale securities -- -- -- 149 149
Net loss (6) -- (552) -- (558)
----- ----- ------ ------ ------
Balance, December 31, 1995 (14) 7,526 1,838 149 1,973
Distributions to partners ($37.27
per limited partnership unit) (3) -- (280) -- (283)
Change in unrealized gains on avail-
able-for-sale securities -- -- -- (149) (149)
Net income 14 -- 265 -- 279
----- ----- ------ ------ ------
Balance, December 31, 1996 $ (3) 7,526 $1,823 $ -- $1,820
===== ===== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of
these statements.
<PAGE>
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PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
Operating Activities:
Net income (loss) $ 279 $ (558) $ 163
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 32 50 69
Gain on sale of equipment (12) (4) (38)
Equity in earnings from joint ventures (18) (2) (10)
Provision for (recovery of) losses on
notes receivable (190) 558 22
Provision for (recovery of) losses on
accounts receivable -- 5 (31)
Gain on sale of securities (43) -- (64)
Decrease (increase) in accounts receivable (26) (2) 15
Increase (decrease) in accounts payable
and accrued expenses (20) (29) 30
Decrease in other assets -- 2 --
------ ------ ------
Net cash provided by operating activities 2 20 156
------ ------ ------
Investing Activities:
Principal payments, financing leases 212 227 298
Principal payments, notes receivable 771 452 187
Proceeds from sale of equipment 12 6 50
Proceeds from sale of securities 43 -- 64
Distributions from joint ventures 87 11 23
------ ------ ------
Net cash provided by investing activities 1,125 696 622
------ ------ ------
Financing Activities:
Distributions to partners (283) (816) (1,362)
------ ------ ------
Net cash used by financing activities (283) (816) (1,362)
------ ------ ------
Increase (decrease) in cash and cash equivalents 844 (100) (584)
Cash and cash equivalents, beginning of period 655 755 1,339
------ ------ ------
Cash and cash equivalents, end of period $1,499 $ 655 $ 755
====== ====== ======
The accompanying notes are an integral part of
these statements.
<PAGE>
Page 14 of 26
PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Organization and Partnership Matters.
Phoenix High Tech/High Yield Fund (the "Partnership"), was formed as a
California limited partnership on July 26, 1988. The initial Limited Partner
capital contribution of $1,000 was made by Phoenix Leasing Incorporated (the
"General Partner"). The Partnership's primary business objectives are: (1)
leasing and financing various types of capital equipment, primarily to and for
emerging growth companies and, in some cases, making secured loans to such
companies; (2) making secured loans to operators of cable television systems for
acquisition, refinancing, construction, upgrade and extension of cable
television systems; and (3) engaging in other types of leasing and financing
arrangements, including entering into equipment purchase and remarketing
agreements with various manufacturers of equipment and software available for
leasing or licensing by the Partnership.
The Partnership has also made investments in joint ventures with
affiliated partnerships managed by the General Partner for the purpose of
spreading the risks of financing or acquiring certain capital equipment leased
to third parties (see Note 6).
For financial reporting purposes, Partnership income is allocated as
follows: First, to the General Partner until the cumulative income so allocated
is equal to the cumulative distributions to the General Partner. Second, 1% 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, and the balance, if any, to the Limited Partners. All Partnership
losses are allocated 1% to the General Partner and 99% to the Limited Partners.
Syndication expenses are specially allocated one percent to the General Partner
and 99% to the Limited Partners.
Distributions. The General Partner intends to make quarterly
distributions throughout the life of the Partnership. Additionally, in order to
provide funds for Partnership investments, while still providing cash
distributions for Limited Partners to pay any resulting tax liability from the
Partnership, the General Partner anticipates that for investors admitted as
Limited Partners in 1989, the distributions made in 1990 through 1992, and for
investors admitted in 1990, the distributions made in 1991 through 1993 were in
an amount at least equal to approximately 40% of the taxable income of the
Partnership allocated to such Limited Partner for the prior year (that is, the
estimated tax liability attributed to an investment in the Partnership), or 4%
of such Limited Partner's original capital contribution, prorated for any
partial year, whichever was greater. The General Partner is entitled to receive
1% of all distributions until the Limited Partners have recovered their initial
capital contributions plus a return of 16% per annum, compounded annually, on
their unrecovered capital contributions (the "Priority Return"). Thereafter,
cash available for distribution will be distributed 20% to the General Partner
and 80% to the Limited Partners.
Bonus Distribution. Pursuant to the Partnership Agreement, upon the 15th
of the calendar month following the earlier of (1) the Partnership raising
$10,000,000, or (2) the date 12 months from the date of release of funds from
the impound account, the Partnership made a bonus distribution to the Limited
Partners who have purchased units prior to that time. The bonus distribution was
calculated at 12% per annum (prorated for any partial year) of each Limited
Partner's capital account. In October of 1990, the General Partner made a
$571,000 capital contribution to the Partnership in an amount equal to the bonus
distribution and has acquired 571 units as a Limited Partner in return for such
contribution. Distributions pursuant to the bonus distribution will count
towards the Priority Return.
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 services performed in connection with the analysis
of equipment available to the Partnership and analysis of financing
transactions, the General Partner receives an acquisition and loan placement fee
equal to 4% of (a) the purchase price of equipment acquired by the Partnership,
(b) financing provided to businesses such as emerging growth companies or cable
television system operators, or (c) the purchase price of equipment leased by
manufacturers, the financing for which is provided by the Partnership, in each
case payable upon such acquisition or loan transaction, as the case may be. In
addition, as compensation for management services, the General Partner receives
a management fee payable quarterly equal to 3.5% of the Partnership's gross
<PAGE>
Page 15 of 26
revenues. Such revenues include loan payments, rental receipts, proceeds from
the sale of equipment and other income (other than interest income from
short-term, temporary investments). Acquisition fees are amortized over the
average expected life of the assets, principally on a straight-line basis.
Schedule of compensation paid and distributions made to the General
Partner for the years ended December 31,
1996 1995 1994
---- ---- ----
(Amounts in Thousands)
Management fees $ 40 $ 30 $ 22
Cash distributions 3 8 13
---- ----- ----
$ 43 $ 38 $ 35
==== ===== ====
Note 2. Summary of Significant Accounting Policies.
Leasing Operations. The Partnership's leasing operations consist of
financing and operating leases. The financing method of accounting for leases
records as unearned income at the inception of the lease, the excess of net
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 approximate level
rate of return on the unrecovered cost of the investment. Direct costs of
consummating new leases are capitalized and included in the cost.
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset at cost and depreciated on a straight-line
basis over the estimated useful life, ranging up to seven 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 high technology equipment and
competitive factors within the high technology 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. When subsequent reviews of the equipment
portfolio indicate that rentals plus anticipated sales proceeds will not exceed
expenses in any future period, the Partnership revises its depreciation policy
as appropriate.
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.
Portfolio Valuation Methodology. The Partnership uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.
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.
Investment in Joint Ventures. Investments in net assets of the foreclosed
cable systems joint ventures reflect the Partnership's equity basis in the
ventures. 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.
Investment in Available-for-Sale Securities. The Partnership has
investments in stock warrants in public companies that have been determined to
be available for sale. Available-for-sale securities are stated at their fair
market value, with the unrealized gains and losses reported in a separate
component of partners' capital.
Non-Cash Investing Activity. On September 20, 1995, the Partnership
foreclosed upon a nonperforming outstanding note receivable to a cable
television system operator to whom the Partnership, along with other affiliated
partnerships managed by the General Partner, had extended credit. The
partnerships' notes receivable were exchanged for interests (their capital
contribution), on a pro rata basis, in a newly formed joint venture owned by the
<PAGE>
Page 16 of 26
partnerships and managed by the General Partner. The amount of the outstanding
note receivable that was contributed to the joint venture was $94,000.
Financial Accounting Pronouncements. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity would estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. Statement No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. At January 1, 1996, the adoption
of Statement No. 121 did not materially impact the Partnership's financial
position or results of operations.
Reclassification. Certain 1995 and 1994 amounts have been reclassified
to conform to the 1996 presentation.
Cash and Cash Equivalents. This includes deposits at banks, investments in
money market funds and other highly liquid short-term investments with original
maturities of less than 90 days.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note 3. Accounts Receivable.
Accounts receivable consist of the following at December 31:
1996 1995
------ ------
(Amounts in Thousands)
Lease payments $ 5 $ 14
General Partner and Affiliates 36 3
Property and sales taxes 3 1
------ ------
Total $ 44 $ 18
====== ======
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1996 1995
------ ------
(Amounts in Thousands)
Notes receivable from cable television system
operators with interest ranging from 14% to 18%
per annum, receivable in installments ranging
from 59 to 96 months, collateralized by a
security interest in the cable system assets
These notes have a graduated repayment schedule
followed by a balloon payment $ -- $1,287
Less: allowance for losses on notes receivable -- (706)
------ ------
Total $ -- $ 581
====== ======
The Partnership's notes receivable from cable television system
operators provided for a monthly payment rate in an amount that was less than
the contractual interest rate. The difference between the payment rate and the
contractual interest rate was 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 was due and payable in full. Although the
contractual interest rates may be higher, due to a high degree of uncertainty
relating to the collection of the entire amount of the contractually owed
<PAGE>
Page 17 of 26
interest, the Partnership limited the amount of interest being recognized on its
performing notes receivable to the amount of the payments received, thereby
deferring the recognition of a portion of the deferred interest until such time
as management believes it will be realized.
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. 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.
At December 31, 1996 and 1995, the recorded investment in notes that are
considered to be impaired were $0 and $1,287,000, respectively, for which the
related allowance for losses were $0 and $706,000, respectively. The average
recorded investment in impaired loans during the year ended December 31, 1996
and 1995 were approximately $619,000 and $1,564,000, respectively. The
Partnership recognized interest income on impaired notes receivable during the
year ended December 31, 1996 and 1995 totaling $34,000 and $85,000,
respectively.
During the year ended December 31, 1996, the Partnership received a
settlement on its one remaining note receivable from a cable television system
operator which was considered to be impaired. The Partnership received a partial
recovery of $672,000 as a settlement which was applied towards the $1,188,000
outstanding note receivable balance. The remaining balance of $516,000 was
written-off through its related allowance for loan losses provided for in a
previous year. Upon receipt of the settlement of this note receivable, the
Partnership reduced the allowance for loan losses by $190,000 during the year
ended December 31, 1996. This reduction in the allowance for loan losses was
recognized as income during the period.
During the year ended December 31, 1995, the Partnership received a
settlement on one of its notes receivable from a cable television system
operator which was considered to be impaired. The Partnership received a partial
recovery of $40,000 as a settlement which was applied towards the $58,000
outstanding note receivable balance. The remaining balance of $18,000 was
written-off through its related allowance for loan losses. The related allowance
for loan losses for this note receivable was provided for in a previous year in
an amount equal to the carrying value of the note. Upon receipt of the
settlement of this note receivable, the Partnership reduced the allowance for
loan losses by $37,000 during the year ended December 31, 1995. This reduction
in the allowance for loan losses was recognized as a negative provision for loan
losses during the period.
The Partnership received a settlement from another impaired note
receivable and foreclosed upon the assets of another note receivable from a
cable television system operator during the year ended December 31, 1995.
The activity in the allowance for losses on notes receivable during the
years ended December 31, is as follows:
1996 1995
------ ------
(Amounts in Thousands)
Beginning balance $ 706 $ 202
Provision for (recovery of) losses (190) 558
Write downs (516) (54)
------ ------
Ending balance $ -- $ 706
====== ======
Note 5. Equipment on Operating Leases and Investment in Financing Leases.
Equipment on lease consists of capital equipment leased to emerging
growth companies subject to operating and financing leases. The Partnership's
equipment on operating leases is fully depreciated.
The Partnership has also entered into direct lease arrangements with
certain lessees concentrated in the following industries: 6% communications, 3%
retail and 91% manufacturing. 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.
<PAGE>
Page 18 of 26
The net investment in financing leases consists of the following at
December 31:
1996 1995
------ ------
(Amounts in Thousands)
Minimum lease payments to be received $ 104 $ 352
Less: unearned income (5) (41)
------ ------
Net investment in financing leases $ 99 $ 311
====== ======
Minimum rentals to be received on noncancelable financing and operating
leases for the years ended December 31 are as follows:
Financing Operating
--------- ---------
(Amounts in Thousands)
1997..................................... $104 $-
1998 and thereafter...................... - -
---- --
Total $104 $-
==== ==
All equipment was held for lease at December 31, 1996. The net book
value of equipment held for lease at December 31, 1996 and 1995 amounted to $0.
Note 6. Investment in Joint Ventures.
Foreclosed Cable Systems Joint Ventures
The Partnership owns an interest in foreclosed cable systems joint
ventures, along with other partnerships managed by the General Partner and its
affiliates. The Partnership foreclosed upon nonperforming outstanding notes
receivable to cable television operators to whom the Partnership, along with
other affiliated partnerships managed by the General Partner, had extended
credit. The partnerships' notes receivables were exchanged for interests (their
capital contribution), on a pro rata basis, in newly formed joint ventures owned
by the partnerships and managed by the General Partner. Title to the cable
television systems is held by the joint ventures. These investments are
accounted for using the equity method of accounting.
The joint ventures owned by the Partnership, along with their percentage
ownership is as follows:
Percentage
Joint Venture Ownership
------------- ---------
Phoenix Black Rock Cable J.V.(1) 2.45%
Phoenix Pacific Northwest J.V. 19.82
Phoenix Independence Cable, LLC 17.75
(1)cable system sold and joint venture closed during 1996.
<TABLE>
An analysis of the Partnership's net investment in foreclosed cable systems joint ventures
is as follows:
<CAPTION>
Net Investment Net Investment
at Beginning Equity in Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- -------------- ------------- --------- ------------- --------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994 $ 194 $- $ 10 $ 23 $ 181
====== ==== ====== ====== ======
Year Ended
December 31, 1995 $ 181 $ 94 $ 2 $ 11 $ 266
====== ==== ====== ====== ======
<PAGE>
Page 19 of 26
Year Ended
December 31, 1996 $ 266 $- $ 18 $ 87 $ 197
====== ==== ====== ====== ======
</TABLE>
The aggregate combined financial information of the foreclosed cable
systems joint ventures as of December 31 and for the years then ended is
presented as follows:
COMBINED BALANCE SHEETS
ASSETS
December 31,
1996 1995
------ ------
(Amounts in Thousands)
Cash and cash equivalents $ 51 $ 337
Accounts receivable 32 60
Property, plant and equipment 1,128 2,628
Other 4 3
------ ------
Total Assets $1,215 $3,028
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 172 $ 187
Partners' capital 1,043 2,841
------ ------
Total Liabilities and Partners' Capital $1,215 $3,028
====== ======
COMBINED STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
(Amounts in Thousands)
Subscriber revenue $ 483 $1,003 $ 916
Gain on sale of cable system 1,185 -- --
Other income 14 10 5
------ ------ ------
Total Income 1,682 1,013 921
------ ------ ------
EXPENSES
Depreciation and amortization 139 233 212
Program services 168 288 230
Management fee to an affiliate
of the General Partner 140 45 40
General and administrative expenses 201 314 229
Provision for losses on accounts
receivable 4 10 12
------ ------ ------
Total Expenses 652 890 723
------ ------ ------
Net Income $1,030 $ 123 $ 198
====== ====== ======
Phoenix Cable Management Inc. (PCMI), an affiliate of the General
Partner, provides day to day management services in connection with the
operation of the foreclosed cable systems joint ventures. The foreclosed cable
systems joint ventures will pay a management fee equal to four and one-half
percent of the System's monthly gross revenue for these services. Revenues
<PAGE>
Page 20 of 26
subject to a management fee at the joint venture level will not be subject to
management fees at the Partnership level.
Note 7. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1996 1995
------ ------
(Amounts in Thousands)
General Partner and affiliates $ 3 $ 4
Security deposits 6 12
Equipment lease operations 1 14
Other 14 14
------ ------
Total $ 24 $ 44
====== ======
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 of the Partnership.
The net difference 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)
1996
- ----
Assets $ 1,844 $ 1,754 $ 90
Liabilities 24 (11) 35
1995
- ----
Assets $ 2,017 $ 2,542 $ (525)
Liabilitites 44 30 14
Note 9. Related Entities.
The General Partner and its affiliates also are, or have been a general
partner in other limited partnerships, most of which are generally engaged in
the equipment leasing business, but some of which provide financing to emerging
growth companies and operators of cable television systems.
Note 10. Reimbursed Costs to the General Partner.
The General Partner incurs certain administrative costs, such as data
processing, investor and lessee communications, lease administration,
accounting, equipment storage and equipment remarketing, for which it is
reimbursed by the Partnership. These expenses incurred by the General Partner
are to be reimbursed at the lower of the actual costs or an amount equal to 90%
of the fair market value for such services.
The reimbursed administrative costs to the General Partner were $13,000,
$17,000 and $23,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The equipment storage, remarketing and data processing costs
reimbursed to the General Partner during the years ended December 31, 1996, 1995
and 1994 were $0, $0 and $2,000, respectively.
<PAGE>
Page 21 of 26
In addition, the General Partner receives a management fee and an
acquisition fee for services rendered in connection with equipment acquisitions
(see Note 1).
Note 11. Net Income (Loss) and Distributions per Limited Partnership Unit.
Net income (loss) and distributions per limited partnership unit were
based on the Limited Partners' share of net income (loss) and distributions, and
the weighted average number of units outstanding of 7,526 for the years ended
December 31, 1996, 1995 and 1994. For the purposes of allocating income (loss)
and distributions to each individual Limited Partner, the Partnership allocates
net income (loss) and distributions based upon each respective Limited Partner's
ending capital account balance.
Note 12. Fair Value of Financial Instruments.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for 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.
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. Please refer to footnote 4 for a
description of the Partnership's accounting policies on notes receivable which
contribute to the difference between the carrying amount and the fair value.
Securities, Available-for-Sale
The fair values of investments in available-for-sale securities are estimated
based on quoted market prices.
The estimated fair values of the Partnership's financial instruments are
as follows at December 31:
Carrying
Amount Fair Value
-------- ----------
(Amounts in Thousands)
1996
- ----
Assets
Cash and cash equivalents $ 1,499 $ 1,499
1995
- ----
Assets
Cash and cash equivalents $ 655 $ 655
Securities, available-for-sale 149 149
Notes receivable 581 672
Note 13. Subsequent Events.
In January 1997, cash distributions of $12,000 and $1,157,000 were made
to the General and Limited Partners, respectively.
<PAGE>
Page 22 of 26
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 59, 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 43, is Senior Vice President, Chief Financial
Officer, Treasurer and a Director 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 46, is Senior Vice President and a Director 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 42, 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 41, is Vice President, General Counsel and
Assistant Secretary 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.
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.
<PAGE>
Page 23 of 26
Phoenix Leasing Cash Distribution Fund V, L.P.
Phoenix Income Fund, L.P.
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 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 $40(1) $0 $0
== = =
</TABLE>
(1) consists of management fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a)As of December 31, 1996, the following investors had a beneficial
ownership of more than 5% of the outstanding Limited Partnership
units:
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
Limited Partner Independent Life & Accident 1,000 units 13.29%
Insurance Company
One Independent Drive
Jacksonville, FL 32276
<PAGE>
Page 24 of 26
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
Limited Partner Phoenix Leasing Incorporated 576.7 units 7.66%
2401 Kerner Boulevard
San Rafael, CA 94901
(b)The General Partner of the Registrant owns the equity securities of
the Registrant set forth in the following table:
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
-------------- ------------------------- ----------------
General Partner Interest Represents a 1% interest in the 100%
Registrant's profits and
distributions, until the Limited
Partners have recovered their
capital contributions plus a
cumulative return of 16% per annum,
compounded quarterly, on the
unrecovered portion thereof.
Thereafter, the General Partner
will receive 20% interest in the
Registrant's profits and
distributions.
Limited Partner Interest 576.7 units 7.66%
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:
Report of Independent Public Accountants 9
Balance Sheets as of December 31, 1996 and 1995 10
Statement of Operations for the Years Ended December
31, 1996, 1995 and 1994 11
Statements of Partners' Capital for the Years Ended
December 31, 1996, 1995 and 1994 12
Statements of Cash Flows for the Years Ended December
31, 1996, 1995 and 1994 13
Notes to Financial Statements 14-21
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Account
and Reserves 26
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 quarter ended December 31,
1996.
(c) Exhibits:
21. Additional Exhibits:
Balance Sheets of Phoenix Leasing Incorporated E21 1-12
27. Financial Data Schedule.
<PAGE>
Page 25 of 26
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 HIGH TECH/HIGH YIELD FUND
(Registrant)
BY: PHOENIX LEASING INCORPORATED,
A CALIFORNIA CORPORATION
GENERAL PARTNER
Date: March 25, 1997 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 25, 1997
- --------------------- Director of Phoenix Leasing Incorporated --------------
(Gus Constantin) General Partner
/S/PARITOSH K. CHOKSI Chief Financial Officer, March 25, 1997
- --------------------- Senior Vice President, --------------
(Paritosh K. Choksi) Treasurer and a Director of
Phoenix Leasing Incorporated
General Partner
/S/BRYANT J. TONG Senior Vice President, March 25, 1997
- --------------------- Financial Operations of --------------
(Bryant J. Tong) (Principal Accounting Officer)
Phoenix Leasing Incorporated
General Partner
/S/GARY W. MARTINEZ Senior Vice President and a Director of March 25, 1997
- --------------------- Phoenix Leasing Incorporated --------------
(Gary W. Martinez) General Partner
/S/MICHAEL K. ULYATT Partnership Controller March 25, 1997
- --------------------- of Phoenix Leasing Incorporated --------------
(Michael K. Ulyatt) General Partner
<PAGE>
<TABLE>
Page 26 of 26
PHOENIX HIGH TECH/HIGH YIELD FUND,
A CALIFORNIA LIMITED PARTNERSHIP
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, 1994
Allowance for losses on accounts
receivable $ 47 $ 0 $ 31 $ 15 $ 1
Allowance for losses on notes
receivable 180 22 0 0 202
----- ---- ----- ----- ----
Totals $ 227 $ 22 $ 31 $ 15 $203
===== ==== ===== ===== ====
Year ended December 31, 1995
Allowance for losses on accounts
receivable $ 1 $ 5 $ 0 $ 6 $ 0
Allowance for losses on notes
receivable 202 558 0 54 706
----- ---- ----- ----- ----
Totals $ 203 $563 $ 0 $ 60 $706
===== ==== ===== ===== ====
Year ended December 31, 1996
Allowance for losses on notes
receivable $ 706 $ 0 $ 190 $ 516 $ 0
----- ---- ----- ----- ----
Totals $ 706 $ 0 $ 190 $ 516 $ 0
===== ==== ===== ===== ====
</TABLE>
Exhibit 21 - Page 1 of 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
Phoenix Leasing Incorporated:
We have audited the accompanying consolidated balance sheets of Phoenix
Leasing Incorporated (a California corporation) and Subsidiaries as of June 30,
1996 and 1995. These consolidated balance sheets are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated balance sheets 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 consolidated balance sheets are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated balance sheets. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
balance sheet presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheets referred to above
present fairly, in all material respects, the financial position of Phoenix
Leasing Incorporated and Subsidiaries as of June 30, 1996 and 1995, in
conformity with generally accepted accounting principles.
San Francisco, California, ARTHUR ANDERSON LLP
September 4, 1996
<PAGE>
Exhibit 21 - Page 2 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1996 1995
----------- -----------
Cash and cash equivalents $ 3,767,098 $ 4,100,325
Investments in marketable securities 1,287,323 7,298,771
Trade accounts receivable, net of allowance
for doubtful accounts of $31,246 and $237,458
at June 30, 1996 and 1995, respectively 989,030 913,437
Receivables from Phoenix Leasing Partnerships and
other affiliates 3,955,935 3,975,262
Notes receivable from related party 8,767,694 5,574,452
Equipment inventory 2,240,448 --
Equipment subject to lease 17,792,847 17,044,686
Investments in Phoenix Leasing Partnerships 1,773,887 1,577,419
Property and equipment, net of accumulated
depreciation of $11,398,438 and $10,457,763
at June 30, 1996 and 1995, respectively 6,933,608 7,669,302
Other assets 3,011,229 2,366,983
----------- -----------
TOTAL ASSETS $50,519,099 $50,520,637
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Short-term lines of credit $ 1,750,000 $ --
Warehouse lines of credit 16,930,044 17,644,012
Payables to affiliates 2,155,626 5,832,765
Accounts payable and accrued expenses 3,205,932 2,829,490
Deferred revenue 328,676 1,059,736
Long-term debt 620,899 229,390
Deficit in investments in Phoenix
Leasing Partnerships 761,214 1,164,445
----------- -----------
TOTAL LIABILITIES 25,752,391 28,759,838
----------- -----------
Minority Interests in Consolidated Subsidiaries 27,615 37,639
----------- -----------
Commitments and Contingencies (Note 14)
SHAREHOLDER'S EQUITY:
Common stock, without par value, 30,000,000
shares authorized, 5,433,600 issued and
outstanding at June 30, 1996 and 1995,
respectively 20,369 20,369
Additional capital 11,466,920 5,508,800
Retained earnings 13,251,804 16,193,991
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 24,739,093 21,723,160
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $50,519,099 $50,520,637
=========== ===========
<PAGE>
Exhibit 21 - Page 3 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 1. Summary of Significant Accounting Policies:
a. Organization - Phoenix Leasing Incorporated and subsidiaries (the
Company), a wholly owned subsidiary of Phoenix American Incorporated (PAI), is
engaged in the organization and management of partnerships which specialize in
the purchase and lease of primarily high-technology and data processing
equipment. The partnerships purchase equipment directly from equipment vendors
for lease to financial, commercial and industrial businesses and governmental
agencies. The partnerships also finance transactions in the areas of
microcomputers and emerging growth companies. The Company has also engaged in
similar leasing activities for its own account. The Company also provides
ongoing equipment maintenance services for end-users of high-technology data
processing equipment and graphic plotters.
b. Principles of Consolidation - The consolidated financial statements
include the accounts of Phoenix Leasing Incorporated and its wholly or
majority-owned subsidiaries and subsidiaries over which the Company exerts
control. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Except as otherwise explained below, minority interests in the net
assets and net income or loss of majority-owned subsidiaries are allocated on
the basis of the proportionate ownership interests of the minority owners.
Four of the consolidated subsidiaries are California limited
partnerships (the Partnerships) which are general partners of four of the
Phoenix Leasing Partnerships. As of June 30, 1996, the Company held a 50%
general partner ownership interest in two of the Partnerships and a 62.5%
interest in one and a 70% interest in the fourth. Under the terms of the
partnership agreements, profits and losses attributable to acquisition fees paid
to the Partnerships from Phoenix Leasing Partnerships are allocated to the
limited partner (the minority owner in the Partnerships) in proportion to the
limited partner's ownership interest. All remaining profits and losses are
allocated to the Company. Distributions to the partners are made in accordance
with the terms of the partnership agreement. The limited partner of each of the
Partnerships is Lease Management Associates, Inc., a Nevada corporation
controlled by an officer of the Company, who is the owner of PAI.
c. Management, Acquisition and Incentive Fee Income - As of June 30,
1996, the Company is the corporate general partner in 13 actively operating
limited partnerships and manager of 9 actively operating joint ventures, all of
which own and lease equipment. Eight of the partnership agreements provide for
payment of management fees based on partnership revenues and acquisition fees
when the partnerships' assets are acquired. Five of the limited partnership
agreements provide for payment of management fees and liquidation fees (see
discussion later in this footnote). Most of the joint venture agreements provide
for payment of management fees based on joint venture revenues.
These partnerships and the joint ventures are collectively referred to
as the "Phoenix Leasing Partnerships."
d. Investments - Investments in Phoenix Leasing Partnerships reflect the
Company's equity basis in the Phoenix Leasing Partnerships. Under the equity
method of accounting the original investment is recorded at cost and is adjusted
periodically to recognize the Company's share of earnings, losses and
distributions after the date of acquisition. The Company has adopted the equity
method of accounting on the basis of its control and significant influence over
the Phoenix Leasing Partnerships.
<PAGE>
Exhibit 21 - Page 4 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 1. Summary of Significant Accounting Policies (continued):
e. Liquidation Fee Income - The Company earns liquidation fees not to
exceed 15% of the net contributed capital from seven of the partnerships in
consideration for the services and activities performed in connection with the
disposition of the partnerships' assets. Management of the Company concluded
that the total liquidation fees to be earned over the life of these partnerships
may not be fully realizable. Accordingly, the Company recognizes liquidation fee
income when the fees are paid by the partnerships. The Company received and
recognized $1,062,046 and $3,221,000 in liquidation fees from these partnerships
during the years ended June 30, 1996 and 1995, respectively.
In three other partnerships, cash distributions received in excess of
the allocated cumulative net profits represent a liquidation fee which cannot
exceed, in the aggregate, 7.792% of the net contributed capital.
f. Lease Accounting - The Company's leasing operations consist of both
financing and operating leases. The finance method of accounting for leases
records as unearned income, at the inception of the lease, the excess of net
rentals receivable and estimated residual value over the cost of the leased
equipment. Unearned income is amortized monthly over the term of the lease on a
declining basis to provide an approximate level rate of return on the
unrecovered cost of the investment. Initial direct costs of originating new
leases are capitalized and amortized over the initial lease term.
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset, at cost, and is depreciated on a
straight-line basis over its estimated useful life, ranging up to six years.
Rental income represents the rental payments due during the period under the
terms of the lease.
The Company is the lessor in leveraged lease agreements under which
computer equipment having an estimated useful life of 5 years was leased for
periods from 4-5 years. The Company is the equity participant and equipment
owner. A portion of the purchase price was furnished by third-party financing in
the form of long-term debt that provides no recourse to the Company and is
secured by a first lien on the financed equipment.
g. Property and Equipment - Property and equipment which the Company
holds for its own use are recorded at cost and depreciated on a straight-line
basis over estimated useful lives ranging up to 45 years.
h. Income Taxes - The Company is included in consolidated and combined
tax returns filed by PAI.
i. Deferred Revenue - Deferred revenue is the result of selling
maintenance contracts which provide service over a specific period of time.
Deferred revenue is amortized on a straight-line basis over the service period
not to exceed 5 years.
j. Investments in Marketable Securities - Investments in marketable
securities, are stated at cost and consist primarily of United States government
obligations. Interest is recognized when earned.
k. 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 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.
<PAGE>
Exhibit 21 - Page 5 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 1. Summary of significant Accounting Policies (continued):
l. Reclassification - Certain 1995 balances have been reclassified to
conform to the 1996 presentation.
Note 2. Receivables from Phoenix Leasing Partnerships and Other Affiliates:
Receivables from Phoenix Leasing Partnerships and other affiliates
consist of the following for the years ended June 30:
1996 1995
---------- ----------
Management fees $ 416,149 $ 330,158
Acquisition fees 74,099 102,994
Other receivables from Phoenix
Leasing Partnerships 3,458,687 3,535,110
Other receivables from corporate affiliates 7,000 7,000
---------- ----------
$3,955,935 $3,975,262
========== ==========
Note 3. Investments in Phoenix Leasing Partnerships:
The Company records its investments in Phoenix Leasing Partnerships
under the equity method of accounting. The ownership interest percentages vary,
ranging from .5% up to 25%. As general partner, the Company has complete
authority in, and responsibility for, the overall management and control of each
partnership, which includes responsibility for supervising partnership
acquisition, leasing, remarking and sale of equipment. Distributions of cash
from the partnerships are made at the discretion of the general partner;
historically, a significant portion of the partnerships' earnings has been
distributed annually.
A shareholder of PAI and officers of the Company also have general and
limited partner interests in several of the partnerships.
The activity in the investments in Phoenix Leasing Partnerships for the
years ended June 30 are as follows:
1996 1995
----------- -----------
Balance, beginning of year $ 412,974 $(1,120,980)
Additional investments 830,085 688,615
Equity in earnings 2,093,488 2,412,056
Cash distributions (2,323,874) (1,566,717)
----------- -----------
Balance, end of year $ 1,012,673 $ 412,974
=========== ===========
The Company's total investments in Phoenix Leasing Partnerships are
comprised of investments in certain partnerships which are subject to
fluctuations due to partnerships' performances and timing of cash distributions.
At times the investment in those partnerships will be a deficit.
Certain of the partnership agreements require the Company to restore any
deficit in its capital account to zero at the dissolution of the partnership.
This deficit is a result of cash distributions received and losses allocated to
the Company. The Company has determined that in certain partnerships it will be
<PAGE>
Exhibit 21 - Page 6 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 3. Investments in Phoenix Leasing Partnerships (continued):
unlikely that the deficit investment will reverse and as a result during the
year ended June 30, 1993 the Company elected to make capital contributions prior
to partnership dissolution totaling $2,028,733. As of April 1, 1992, the Company
elected to forgo any future cash distributions from, and will not record its
share of future earnings generated from the operations of, one of these
partnerships. The Company has deferred any future cash distributions from two
other partnerships. The Company believes that it would be likely that any future
cash distributions received from these partnerships would have to be paid back
at the dissolution of the partnerships. The Company will continue to record fee
income earned from the management of, and acquisition of equipment for these
partnerships.
The aggregate positive investment and aggregate deficit investment
balances are presented separately on the balance sheets as of June 30, 1996 and
1995.
The partnerships own and lease equipment. All debt of the partnerships is
secured by the equipment and is without recourse to the general partners. The
unaudited financial statements of the partnerships reflect the following
combined, summarized financial information as of June 30, 1996 and for the
twelve months then ended:
Assets $ 182,995,000
Liabilities 29,989,000
Partners' Capital 153,006,000
Revenue 46,353,000
Net Income 18,826,000
Note 4. Equipment Subject to Lease:
Equipment subject to lease includes the Company's investments in leveraged
leases, investments in financing leases, operating leases and notes receivable.
Equipment subject to lease consists of the following at June 30:
1996 1995
----------- -----------
Equipment on lease, net of
accumulated depreciation
of $258,102 $ 92,008 $ --
Leverage leases 1,589,772 1,696,703
Equipment held for resale 305,840 --
Investment in financing leases 12,036,604 13,284,177
Operating leases 207,793 --
Notes receivable 3,560,830 2,063,806
----------- -----------
$17,792,847 $17,044,686
=========== ===========
Leverage Leases:
The Company's net investment in leveraged leases is composed of the
following elements at June 30:
<PAGE>
Exhibit 21 - Page 7 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 4. Equipment Subject to Lease (continued):
1996 1995
----------- -----------
Rental receivable (net of principal
and interest on the nonrecourse debt) $ -- $ --
Estimated residual value of leased assets 2,498,233 2,759,783
Less: Unearned and deferred income (908,461) (1,063,080)
----------- -----------
Investment in leveraged leases 1,589,772 1,696,703
Less: Deferred taxes arising from
leveraged leases (2,651,124) (2,960,190)
----------- -----------
Net investment in leveraged leases $(1,061,352) $(1,263,487)
=========== ===========
Investment in Financing Leases:
The Company has entered into direct lease arrangements with companies
engaged in the development of technologies and other growth industry businesses
operating in different industries located throughout the United States.
Generally, it is the responsibility of the lessee to provide maintenance on
leased equipment.
The Company's net investment in financing leases consists of the following
at June 30:
1996 1995
----------- -----------
Minimum lease payments to be received $16,089,868 $17,731,628
Less: unearned income (4,053,263) (4,447,451)
----------- -----------
Net investment in financing leases $12,036,605 $13,284,177
=========== ===========
Minimum rentals to be received on noncancellable financing leases for the
years ended June 30, are as follows:
1997 $ 4,161,068
1998 4,171,699
1999 4,248,885
2000 2,367,834
2001 1,080,674
Thereafter 59,708
------------
Total $ 16,089,868
============
Notes Receivable:
Notes receivable for the years ended June 30, are as follows:
1996 1995
----------- -----------
Notes receivable from emerging growth
and other companies with stated interest
ranging from 10% to 22.6% per annum
receivable in installments ranging from
36 to 85 months collateralized by the
equipment financed $ 3,560,830 $ 2,063,806
=========== ===========
<PAGE>
Exhibit 21 - Page 8 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 5. Sale of Leased Assets and Notes Receivable:
The Company acquires leased or financed equipment with the intent to
subsequently sell those assets to a trust which issues lease backed
certificates. As of June 30, 1996, the Company has acquired $15,805,227 is such
leased or financed equipment which is included in equipment subject to lease.
The Company uses proceeds from its two warehouse lines of credit to purchase or
finance this equipment. During the holding period the Company recognizes the
revenues generated from these leases or notes and the interest expense related
to the drawdowns from the warehouse lines of credit.
On November 29, 1995, the Company entered into an agreement to sell
certain assets and notes receivables with a net carrying value of $27,337,402 to
a trust for the purpose of the trust issuing lease backed certificates in
exchange for cash proceeds. The Company recognized a gain on this transaction of
$459,632. The leased backed certificates are recourse only to the assets used to
collateralize the obligation. Under the terms of the agreement, the Company will
continue to acquire and sell additional assets to the trust over the twelve
month period beginning November 30, 1995 and ending November 28, 1996. During
the period November 30, 1995 through June 30, 1996, the Company sold additional
assets to the trust for $4,807,746. These assets had a net carrying value of
$4,225,596, resulting in a gain of $582,150.
Note 6. Property and Equipment:
Major classes of property and equipment at June 30 are as follows:
1996 1995
----------- -----------
Land $ 1,077,830 $ 1,077,830
Buildings 7,352,608 7,345,648
Office furniture, fixtures
and equipment 8,573,547 8,259,319
Other 843,450 766,975
----------- -----------
17,847,435 17,449,772
Less accumulated depreciation
and amortization (11,398,438) (10,457,763)
Inventory held for resale 484,611 677,293
----------- -----------
Net Property and Equipment $ 6,933,608 $ 7,669,302
=========== ===========
PAI owns its headquarters building in San Rafael, California. The Company
paid $7,749,476 to purchase the land and construct the building. The cost of
construction was paid for with a combination of $2,749,476 in cash from the
Company's operations and a $5,000,000 advance from PAI. The $5,000,000 advance
is included as a reduction in receivable from Phoenix Leasing Partnerships and
other affiliates. PAI has pledged the market value of the building as security
for a $5,000,000 Industrial Revenue Bond ("IDB") which PAI has with the City of
San Rafael, California. The principal of the IDB is payable in a lump sum
payment on October 1, 2004. The Company paid $248,325 and $206,798 in interest
payments related to the IDB during the year ended June 30, 1996 and 1995,
respectively.
As of June 30, 1996, a portion of the Company's headquarters has been
leased to third parties. The remaining lease term is for less than one year and
the minimum lease payments receivable are as follows:
1997 $ 370,093
==========
<PAGE>
Exhibit 21 - Page 9 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 7. Investments in Marketable Securities:
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 - Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115). The Company adopted this statement on
July 1, 1994. This pronouncement prescribes specific accounting treatment for
investments based on their classification as either held-to-maturity securities
(HTM), available-for-sale securities (AFS) or trading securities, as defined in
the statement.
As of June 30, 1996, all securities held by the Company are classified as
AFS and are reported at their amortized cost of $1,287,323, which approximates
fair value. This value includes Class C Equipment Investment Trust Certificates
(Class C Shares) valued at $1,248,843 and equities valued at $38,479. As of June
30, 1995, all securities are classified as HTM and are reported at amortized
cost of $7,298,771, which approximated fair value. Gross unrealized gains and
gross unrealized losses on such securities as of June 30, 1996 and 1995 were
immaterial.
As of June 30, 1996, none of the securities held by the Company had
specified contractual maturities. Contractual maturities of securities held as
of June 30, 1995, are as follows:
1995
----
Held-To-Maturity Securities
Due in one year or less $ 4,202,115
Due after one through five years 3,096,656
-----------
Total $ 7,298,771
===========
During fiscal year 1996, the Company sold $3,000,000 in face value of U.S.
Treasury Notes, which were classified as HTM as of June 30, 1995. As a result of
the sale, the Company changed the classification of all of its U.S. Treasury
Notes from HTM to AFS in accordance with SFAS No. 115. The sale resulted in an
immaterial gain, and proceeds were used for general corporate purposes.
Note 8. Fair Value of Financial Instruments:
Marketable Securities
The carrying amounts of marketable securities reported in the balance
sheets approximate their fair values.
Leases, Notes Receivable, and Debt
The fair values of the Company's leases, notes receivable, and debt are
estimated based on the market prices of similar instruments or on the current
market interest rates for instruments with similar terms, maturities, and risks.
The estimated fair values of the Company's leases, notes receivable, and debt
approximate the carrying amounts reported in the balance sheets.
Note 9. Short-Term and Warehouse Lines of Credit:
To provide interim financing for equipment and working capital needs, the
Company executes lines of credit which consist of short-term notes with banks
with interest rates equal to the prime rate or the banks' index rate. All lines
of credit are renewable annually at the banks' option.
<PAGE>
Exhibit 21 - Page 10 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 9. Short-Term and Warehouse Lines of Credit (continued):
As of June 30, 1996, the Company, through PAI, had access to one
short-term line of credit totaling $2.5 million. of which $750,000 was available
for borrowing at June 30, 1996. Draw downs under this credit line are secured by
the Company's receivable from Phoenix Leasing Partnerships.
In addition, the Company has two secured short-term warehouse lines of
credit totaling $37.5 million, which are used to provide interim financing for
the acquisition of equipment and the financing of notes receivable. As of June
30, 1996, $16.9 million of these lines have been drawn down. The draw downs
under these lines are collateralized by investments in financing leases and
notes receivable included in equipment subject to lease. The interest rate is
tied to the IBOR (Eurodollar) rate. The initial commitment period for these
lines of credit is 18 months and may be extended to 36 months at the discretion
of the bank. Principal payments are based on the lesser of the aggregate
payments received by the Company on its leases and notes receivable or the
aggregate principal and interest amount outstanding on the payment date of the
credit line.
In connection with the Company's lines of credit, various financial ratios
and other covenants must be maintained. The Company has guaranteed its right,
title and interest in certain of its assets and the future receipts from these
assets in order to secure payment and performance of these credit lines.
Additional information relating to the Company's short-term bank lines
follows:
1996 1995
------------ ------------
Balance at June 30 $ 18,680,044 $ 17,644,012
Maximum amount outstanding 32,111,837 17,644,012
Average amount outstanding 13,828,284 2,522,340
Weighted average interest rate
during the period 7.56% 7.9%
Note 10. Long-Term Debt:
Long-term debt consists of the following at June 30:
1996 1995
---------- ----------
Mortgage payable at varying interest
rates with an initial rate of 8.75% secured
by a first deed of trust on real property
with a cost of $250,000. Note is amortized
over 83 months with monthly payments of $559
with a final payments of $122,151. $ 154,238 $ 160,944
Note payable to a bank, collateralized
by the assets of Phoenix Leasing Liquidation
Corporation, a subsidiary of the Company,
with a variable rate of interest tied to the
bank's prime rate payable in 30 consecutive
monthly installments. 466,661 -
<PAGE>
Exhibit 21 - Page 11 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 10. Long-Term Debt (continued):
Note payable at 9.75% secured by computer
equipment with a cost of $668,994. Note is
amortized over 46 months with monthly
payments of $16,887 - 68,446
---------- ----------
Total long-term debt $ 620,899 $ 229,390
========== ==========
The aggregate long-term debt maturities for the fiscal years ended June
30, are as follows:
1997 $ 440,034
1998 40,039
1999 6,706
2000 6,706
2001 5,588
2002 and thereafter 121,826
----------
Total $ 620,899
==========
Note 11. Profit Sharing Plan:
The Company has a profit sharing plan covering substantially all
employees who meet certain age and service requirements. Contributions to the
plan by the Company are made at the discretion of the board of directors. The
profit sharing expense was $600,000 for the years ended June 30, 1996 and 1995,
respectively.
Note 12. Leased Facilities:
The Company leases office and warehouse space in various parts of the
country and had annual rental expense of approximately $417,000 and $402,000 for
the years ended June 30, 1996 and 1995, respectively.
Note 13. Transactions with Related Parties:
The Company provides an interest bearing line of credit totaling
$8,000,000 to PAI's controlling shareholder which is secured by common stock of
Phoenix Precision Graphics, Inc. (an unaffiliated Nevada corporation). As of
June 30, 1996 and 1995, $6,646,209 and $4,837,814 of this line of credit has
been drawn down and is included in notes receivable from related party. As of
June 30, 1996 and 1995, Phoenix Precision Graphics is in a start-up mode and has
cumulative losses of $9,120,711 and $5,959,708, respectively.
The Company provides an interest bearing line of credit to PAI's
controlling shareholder, which is secured by common stock of Phoenix Fiberlink
Inc. (an unaffiliated Nevada Corporation). As of June 30, 1996 and 1995,
$2,121,484 and $736,638 of this line of credit has been drawn down and is
included in notes receivable from related party.
The Company earned a management fee from an affiliate of $556,453 and
$678,947 for the years ended June 30, 1996 and 1995, respectively. This
management fee is included in Portfolio management fees.
The Company paid an affiliate an asset management fee of $305,770 and
$1,026,714 for the years ended June 30, 1996 and 1995, respectively. These asset
management fees are included in equipment lease operations, maintenance,
remarking and administrative fees.
<PAGE>
Exhibit 21 - Page 12 of 12
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 14. Commitments and Contingencies:
The Company has entered into agreements which contain specific purchase
commitments. The Company may satisfy these commitments by purchasing equipment
for its own account or by assigning equipment purchases to its affiliated
partnerships. At June 30, 1996 the Company anticipates being able to satisfy its
future obligations under the agreements and intends to assign most of the
purchases under the agreements to its affiliated partnerships.
The Company enters into commitments to purchase and sell high-technology
equipment on behalf of a corporate affiliate. The Company is reimbursed for
these services.
The Company is party to legal actions which arise as part of the normal
course of its business. The Company believes, after consultation with counsel,
that it has meritorious defenses in these actions, and that the liability, if
any, will not have a material adverse effect on the financial position of the
Company.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,499
<SECURITIES> 0
<RECEIVABLES> 44
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 56
<DEPRECIATION> 56
<TOTAL-ASSETS> 1,844
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,820
<TOTAL-LIABILITY-AND-EQUITY> 1,844
<SALES> 0
<TOTAL-REVENUES> 225
<CGS> 0
<TOTAL-COSTS> (54)
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 35.28
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</TABLE>
