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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 0-19063
PHOENIX INCOME FUND, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0204588
- ------------------------------- ------------------------------------
(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, 170,316 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 INCOME FUND, L.P.
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........... 5
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................... 9
Item 9. Disagreements on Accounting and Financial Disclosure Matters.. 27
PART III
Item 10. Directors and Executive Officers of the Registrant............ 27
Item 11. Executive Compensation........................................ 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions................ 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...................................................... 29
Signatures............................................................... 30
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PART I
Item 1. Business.
General Development of Business.
Phoenix Income Fund, L.P., a California limited partnership (the
"Partnership"), was organized on November 17, 1989. The Partnership was
registered with the Securities and Exchange Commission with an effective date of
January 18, 1991 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, 2006. The General Partner is a California limited partnership,
Phoenix Leasing Associates LP, the general partner of which is Phoenix Leasing
Associates, Inc., a Nevada corporation ("PLA") and a wholly-owned subsidiary of
Phoenix Leasing Incorporated ("PLI"). 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 300,000 units of limited partnership
interest at a price of $250 per unit. The Partnership completed its public
offering on July 28, 1992. The Partnership sold 175,285 units for a total
capitalization of $43,821,250. Of the proceeds received through the offering,
the Partnership has incurred $6,017,000 in organizational and offering expenses.
From the initial formation of the Partnership through December 31, 1996,
the total investments in equipment leases and financing transactions (loans),
including the Partnership's pro-rata interest in investments made by joint
ventures, approximate $90,518,000. The average initial firm term of contractual
payments from equipment subject to lease was 42 months, and the average initial
net monthly payment rate as a percentage of the original purchase price was
2.74%. The average initial firm term of contractual payments from loans was 67
months.
Narrative Description of Business.
The Partnership's principal objective is to produce cash flow to the
investors on a continuing basis over the life of the Partnership. To achieve
this objective, the Partnership will invest in various types of capital
equipment and other assets to provide leasing or financing of the same to third
parties, including Fortune 1000 companies and their subsidiaries, middle-market
companies, emerging growth companies, cable television operators and others, on
either a long-term or short-term basis. The types of equipment that the
Partnership will invest in will include, but is not limited to, computer
peripherals, terminal systems, small computer systems, communications equipment,
IBM mainframes, IBM-software compatible mainframes, office systems, CAE/CAD/CAM
equipment, telecommunications equipment, cable television equipment, medical
equipment, production and manufacturing equipment and software products.
In addition to acquiring equipment for lease to third parties, the
Partnership, either directly or through the investment in joint ventures, has
provided limited financing to certain emerging growth companies, cable
television operators, manufacturers and their lessees with respect to assets
leased directly by such manufacturers to third parties. The Partnership
maintains a security interest in the assets financed and in the receivables due
under any lease or rental agreement relating to such assets. Such security
interests constitute a lien on the equipment and will give the Partnership the
right, upon default, to obtain possession of the assets.
The Partnership has acquired significant amounts of equipment or assets
and has provided financing with the net offering proceeds. In addition, the
Partnership also acquired equipment through the use of debt financing, however,
the ratio of the outstanding debt to net capital contributions less any
investment in Leveraged Joint Ventures at the end of the Partnership's offering
period, and thereafter, will not exceed one to one. The cash flow generated by
such investments in equipment leases or financing transactions has been and will
be used to provide for debt service, to provide cash distributions to the
Partners and the remainder will be reinvested in capital equipment or other
assets.
The Partnership has acquired and intends to acquire and lease equipment
pursuant to either "Operating" leases or "Financing" leases. At December 31,
1996, approximately 93% of the equipment owned by the Partnership was classified
as Financing leases. The Partnership has also provided and intends to provide
financing secured by assets in the form of notes receivable. Operating leases
are generally short-term leases under which the lessor will receive aggregate
rental payments in an amount that is less than the purchase price of the
equipment. Financing leases are generally for a longer term under which the
noncancellable rental payments due during the initial term of the lease are at
least sufficient to recover the purchase price of the equipment. A significant
portion of the net offering proceeds to the Partnership has been invested in
capital equipment subject to Operating leases.
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Operating leases represent a greater risk along with a greater potential
return to the Partnership than do Financing leases. In order to recover its
investment in equipment leased pursuant to an Operating lease, the Partnership
will, upon termination of such lease, either have to obtain a renewal from the
original lessee, find a new lessee or sell the equipment. The terms for
Operating leases are for a shorter duration than Financing leases. Consequently,
the revenues derived from the initial term of Operating leases are generally
greater than those of Full Payout leases. Due to technological, competitive,
market and economic factors, it is anticipated that renewals or remarkets of
leases may be at a lower rental rate than that of the initial lease terms. In
spite of the remarketing risks associated with investments in Operating leases,
the General Partner believes there are profitable opportunities resulting from
such investments.
Competition. The General Partner intends to concentrate the
Partnership's activities in the equipment leasing and financing industry, an
area in which the General Partner has developed an expertise. The computer
equipment leasing industry is extremely competitive. The Partnership competes
with many well established companies having substantially greater financial
resources. Competitive factors include pricing, technological innovation and
methods of financing (including use of various short-term and long-term
financing plans, as well as the outright purchase of equipment). Generally, the
impact of these factors to the Partnership would be the realization of increased
equipment remarketing and storage costs, as well as lower residuals received
from the sale or remarketing of such equipment.
Other.
A brief description of the type of assets in which the Partnership has
invested as of December 31, 1996, together with information concerning the uses
of assets is set forth in Item 2.
Item 2. Properties.
The Partnership is engaged in the equipment leasing and financing
industry and as such, does not own or operate any principal plants, mines or
real property. The primary assets held by the Partnership are its investments in
leases and loans.
As of December 31, 1996, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $37,028,000.
The equipment and loans have been made to customers located throughout the
United States. The following table summarizes the type of equipment owned or
financed by the Partnership, including its pro rata interest in joint ventures,
at December 31, 1996.
Percentage of
Asset Types Purchase Price(1) Total Assets
----------- ----------------- -------------
(Amounts in Thousands)
Computer Peripherals $ 11,531 31%
Capital Equipment Leased to Emerging
Growth Companies 10,390 28
Furniture and Fixtures 5,218 14
Small Computer Systems 4,946 13
Financing of Emerging Growth Companies 1,550 4
Financing to Businesses 1,421 4
Telecommunications 1,341 4
Miscellaneous 631 2
-------- ---
TOTAL $ 37,028 100%
======== ===
(1) These amounts include the Partnership's pro rata interest in equipment joint
ventures of $3,417,000, financing joint ventures of $290,000, cost of
equipment on financing leases of $14,089,000 and original cost of
outstanding loans of $2,681,000 at December 31, 1996.
Item 3. Legal Proceedings.
The Registrant is not a party to any pending legal proceedings which
would have a material adverse impact on its financial position.
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PART II
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.
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 3,854
Item 6. Selected Financial Data.
1996 1995 1994 1993 1992
------- -------- -------- -------- -------
(Amounts in Thousands Except for Per Unit Amounts)
Total Income $ 3,932 $ 5,974 $ 11,664 $ 17,422 $ 14,809
Net Income (Loss) 1,652 1,076 (1,808) 1,562 1,465
Total Assets 11,338 16,712 28,746 48,673 64,601
Long-Term Debt Obligations -- -- 417 7,402 18,718
Distributions to Partners 6,691 6,402 6,307 6,030 4,665
Net Income (Loss) per Limited
Partnership Unit 7.64 2.54 (10.35) 7.24 7.75
Distributions per Limited
Partnership Unit 37.22 35.48 34.65 32.90 28.16
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this report.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Phoenix Income Fund, L.P., (the Partnership) reported net income of
$1,652,000 during the year ended December 31, 1996, as compared to net income of
$1,076,000 during 1995 and a net loss of $1,808,000 during 1994. The improvement
in earnings for both 1996 and 1995 is attributable to a decrease in depreciation
expense that exceeded the decrease in rental income.
Total revenues decreased by $2,042,000 and $5,690,000 during 1996 and
1995, respectively, as compared to the same period in the previous year. The
decrease in total revenues is due primarily to decreases in rental income and
earned income from financing leases. Rental income decreased by $1,622,000 and
$4,444,000 and earned income from financing leases decreased by $444,000 and
$728,000 during 1996 and 1995, respectively, as compared to the same period in
the previous year. The decrease in rental income and earned income from
financing leases is attributable to a decrease in the amount of equipment owned.
At December 31, 1996, the Partnership owned equipment with an aggregate original
cost of $30.6 million, as compared to the $38.3 million of equipment owned at
December 31, 1995 and $49.2 million at December 31, 1994.
Partially offsetting the decline in rental income for the year ended
December 31, 1996, compared to 1995, is a gain on the sale of securities of
$128,000, in which the Partnership received proceeds of $128,000. This gain was
due 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 the emerging growth companies.
The small increase in interest income from notes receivable of $34,000
during 1996, as compared to 1995, is due to the payoff of a defaulted note
receivable to a cable television system operator. The increased interest income
from the payoff of this note is due to the Partnership having suspended the
accrual of interest income on such defaulted notes and the Partnership applying
the payoff first, towards the net carrying value of the note, with the excess
being recognized as interest income.
In contrast, interest income from notes receivable decreased by $577,000
during 1995, as compared to 1994. The decrease in 1995 was attributable to a
decrease in the outstanding notes receivable being held by the Partnership in
1995. In addition, interest income from notes receivable was higher than usual
during 1994 as a result of several payoffs from defaulted cable television
system operators in which the payoff exceeded the net carrying value of their
note.
Total expenses of the Partnership decreased by $2,618,000 and $8,574,000
during 1996 and 1995, respectively, compared to the same period in the previous
year. Depreciation expense constituted the largest decrease in total expenses
during 1996 and 1995. Depreciation expense decreased by $1,993,000 and
$6,306,000 during 1996 and 1995, respectively, as compared to the same periods
in the previous year. The decrease in depreciation expense is primarily due to
the decrease in the amount of equipment owned by the Partnership, as well as, an
increasing portion of the equipment portfolio having been fully depreciated.
The decrease in depreciation expense experienced during the year ended
December 31, 1995, compared to 1994, was also due to a reduction in the amount
of additional depreciation booked during 1995. During 1995, the Partnership
recognized additional depreciation expense of $316,000, compared to $1,315,000
in 1994.
The Partnership incurred interest expense of $137,000 during 1995, as
compared to $711,000 during 1994. The decline in interest expense for the year
ended December 31, 1995, compared to 1994, was due to the decrease in the
outstanding notes payable as the Partnership made its scheduled monthly payments
of principal and interest. At December 31, 1995, the Partnership's outstanding
debt was paid off in full.
Inflation affects the Partnership in relation to the current cost of
equipment placed on lease and the residual values realized when the equipment
comes off-lease and is sold. During the last several years inflation has been
low, thereby having very little impact upon the investments of the Partnership.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from its contractual
obligations with a diversified group of lessees and borrowers for fixed lease
terms at fixed payment amounts. As the initial lease terms of the Partnership's
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short term operating 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 its contractually owed amounts from lessees and
borrowers as well as re-leasing and selling the Partnership's equipment when the
lease terms expire.
The Partnership reported net cash generated by equipment leasing and
financing activities during 1996 of $7,418,000, as compared to $9,358,000 and
$20,908,000 during 1995 and 1994. The decline in net cash generated from leasing
and financing activities for the year ended December 31, 1996 and 1995 as
compared to the same period in the previous year, is attributable to a decrease
in rental income from operating leases and principal payments from financing
leases, as previously discussed in the Results of Operations.
An additional factor contributing to the decline in net cash generated
is the reduction in the amount of proceeds received from the sale of equipment
for the year ended December 31, 1996 and 1995 as compared to the same period in
the previous year. The Partnership sold equipment with an aggregate original
cost of $8,129,000 for the year ended December 31, 1996, compared to $12,294,000
and $29,313,000 for 1995 and 1994, respectively. As a result, the Partnership
received proceeds from the sale of equipment of $340,000 during 1996 as compared
to $1,016,000 and $4,165,000 during 1995 and 1994, respectively.
The Partnership received distributions from joint ventures of $389,000,
$512,000 and $4,844,000 for the year ended December 31, 1996, 1995 and 1994,
respectively. The distribution from joint ventures received for both 1996 and
1995 represent the distribution of excess cash available from the Partnership's
investment in two joint ventures. During 1994, a joint venture received cash
from the issuance of leased backed certificates. These proceeds were then
distributed to the Partnership during 1994.
The Partnership anticipates reinvesting a portion of the revenues from
the assets owned by the Partnership in new leasing and financing transactions
over the life of the Partnership. During 1996, the Partnership invested $427,000
in equipment leases, compared to $1,385,000 and $5,450,000 in equipment leases
and $332,000 and $1,418,000 in investments in notes receivable during 1995 and
1994, respectively.
During 1995, the cash generated was largely used for the repayment of
debt and for the payment of cash distributions to the partners. The
Partnership's outstanding debt was paid off in full in 1995. Cash generated in
1996 was used to pay cash distributions, make reinvestments in new leases and
pay operational expenses of the Partnership.
As of December 31, 1996, the Partnership owned equipment being held for
lease with an original cost of $3,438,000 and a net book value of $135,000, as
compared to equipment with an original cost of $3,295,000 and $7,421,000 and a
net book value of $287,000 and $972,000 at December 31, 1995 and 1994,
respectively. The General Partner is actively engaged, on behalf of the
Partnership, in remarketing and selling the Partnership's off lease equipment.
Until new lessees or buyers of equipment can be found, the equipment will
continue to generate depreciation expense without any corresponding rental
income. The effect of this will be a reduction of the Partnership earnings
during this remarketing period.
The cash distributed to partners was $6,691,000, $6,402,000 and
$6,307,000 during 1996, 1995 and 1994, respectively. In accordance with the
Partnership Agreement, the limited partners are entitled to 95% of the cash
available for distribution and the General Partner is entitled to 5%. As a
result, the limited partners received $6,356,000, $6,082,000 and $5,991,000 in
cash distributions during 1996, 1995 and 1994, respectively. The cumulative cash
distributions to limited partners at December 31, 1996 is $29,315,000, as
compared to $22,959,000 and $16,877,000 at December 31, 1995 and 1994,
respectively. The General Partner received cash distributions of $335,000,
$320,000 and $316,000 for its share of the cash distribution for the years ended
December 31, 1996, 1995 and 1994, respectively. The Partnership anticipates
making distributions during 1997 at approximately the same rate as the current
distributions made during 1996.
The cash to be generated from leasing and financing operations is
anticipated to be sufficient to meet the Partnership's continuing operational
expenses and to provide cash distributions to the Partners.
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)
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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.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHOENIX INCOME FUND, L.P.
YEAR ENDED DECEMBER 31, 1996
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REPORT OF INDEPENDENT AUDITORS
------------------------------
The Partners
Phoenix Income Fund, L.P.
We have audited the financial statements of Phoenix Income Fund, L.P. (a
California limited partnership) listed in the accompanying index to financial
statements (Item 14(a)). Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and the
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements (Item 14(a)) present fairly, in all material respects, the
financial position of Phoenix Income Fund, L.P. at 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. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Francisco, California
January 20, 1997
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PHOENIX INCOME FUND, L.P.
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
December 31,
1996 1995
-------- --------
ASSETS
Cash and cash equivalents $ 3,323 $ 2,364
Accounts receivable (net of allowance for
losses on accounts receivable of $125
and $147 at December 31, 1996 and 1995,
respectively) 125 219
Notes receivable (net of allowance for losses
on notes receivable of $216 and $230 at
December 31, 1996 and 1995) 1,042 1,850
Equipment on operating leases and held for
lease (net of accumulated depreciation of
$12,008 and $15,279 at December 31, 1996 and
1995, respectively) 378 1,407
Net investment in financing leases (net of
allowance for early terminations of $68 and
$436 at December 31, 1996 and 1995, respectively) 5,039 8,980
Investment in joint ventures 1,047 1,103
Capitalized acquisition fees (net of accumulated
amortization of $3,346 and $3,084 at December 31,
1996 and 1995, respectively) 261 505
Other assets 123 284
-------- --------
Total Assets $ 11,338 $ 16,712
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 684 $ 868
-------- --------
Total Liabilities 684 868
-------- --------
Partners' Capital:
General Partner (1) (14)
Limited Partners, 300,000 units authorized,
175,285 units issued and 170,316 and 171,073
units outstanding at December 31, 1996 and
1995, respectively 10,618 15,727
Unrealized gains on available-for-sale securitites 37 131
-------- --------
Total Partners' Capital 10,654 15,844
-------- --------
Total Liabilities and Partners' Capital $ 11,338 $ 16,712
======== ========
The accompanying notes are an integral part of
these statements.
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PHOENIX INCOME FUND, L.P.
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1996 1995 1994
-------- -------- --------
INCOME
Rental income $ 2,139 $ 3,761 $ 8,205
Earned income, financing leases 954 1,398 2,126
Interest income, notes receivable 304 270 847
Equity in earnings from joint ventures 236 311 205
Gain on sale of securities 128 -- --
Other income 171 234 281
-------- -------- --------
Total Income 3,932 5,974 11,664
-------- -------- --------
EXPENSES
Depreciation 1,045 3,038 9,344
Amortization of acquisition fees 262 400 1,200
Lease related operating expenses 131 259 366
Management fees to General Partner 299 419 911
Reimbursed administrative costs to
General Partner 278 322 342
Interest expense -- 137 711
Provision for losses on receivables 128 138 365
General and administrative expenses 137 185 233
-------- -------- --------
Total Expenses 2,280 4,898 13,472
-------- -------- --------
NET INCOME (LOSS) $ 1,652 $ 1,076 $ (1,808)
======== ======== ========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 7.64 $ 2.54 $ (10.35)
======== ======== ========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ 348 $ 640 $ (18)
Limited Partners 1,304 436 (1,790)
-------- -------- --------
$ 1,652 $ 1,076 $ (1,808)
======== ======== ========
The accompanying notes are an integral part of
these statements.
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PHOENIX INCOME FUND, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
General Unrealized
Partner's Limited Partners' Gains Total
Amount Units Amount (Losses) Amount
--------- ------------------ -------- ------
Balance, December 31, 1993 $ 0 173,709 $ 29,520 $ - $ 29,520
Redemptions of capital - (1,640) (251) - (251)
Distributions to partners ($34.65
per limited partnership unit) (316) - (5,991) - (6,307)
Net loss (18) - (1,790) - (1,808)
------- ------- --------- ----- --------
Balance, December 31, 1994 (334) 172,069 21,488 - 21,154
Redemptions of capital - (996) (115) - (115)
Distributions to partners ($35.48
per limited partnership unit) (320) - (6,082) - (6,402)
Change for the year in unrealized
gain on available-for-sale
securities - - - 131 131
Net income 640 - 436 - 1,076
------- ------- -------- ----- --------
Balance, December 31, 1995 (14) 171,073 15,727 131 15,844
Redemptions of capital - (757) (57) - (57)
Distributions to partners ($37.22
per limited partnership unit) (335) - (6,356) - (6,691)
Change for the year in unrealized
gain on available-for-sale
securities - - - (94) (94)
Net income 348 - 1,304 - 1,652
------- ------- -------- ----- --------
Balance, December 31, 1996 $ (1) 170,316 $ 10,618 $ 37 $ 10,654
======= ======= ======== ===== ========
The accompanying notes are an integral part of
these statements.
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PHOENIX INCOME FUND, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1996 1995 1994
-------- -------- --------
Operating Activities:
Net income (loss) $ 1,652 $ 1,076 $ (1,808)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 1,045 3,038 9,344
Amortization of acquisition fees 262 400 1,200
Loss (gain) on sale of equipment (64) 142 127
Equity in earnings from joint ventures (236) (311) (205)
Gain on sale of securities (128) -- --
Provision for early termination,
financing leases 113 138 272
Provision for (recovery of) losses on
notes receivable (14) -- 35
Provision for losses on accounts receivable 29 -- 58
Decrease in accounts receivable 65 133 847
Increase (decrease) in accounts payable
and accrued expenses (120) (791) 292
Decrease in other assets 67 136 208
-------- -------- --------
Net cash provided by operating activities 2,671 3,961 10,370
-------- -------- --------
Investing Activities:
Principal payments, financing leases 3,987 4,839 6,297
Principal payments, notes receivable 760 558 4,241
Proceeds from sale of equipment 340 1,016 4,165
Distributions from joint ventures 389 512 4,844
Proceeds from sale of securities 128 -- --
Purchase of equipment (24) -- --
Investment in financing leases (427) (1,385) (5,450)
Investment in notes receivable -- (332) (1,418)
Investment in joint ventures (35) -- (290)
Payment of acquisition fees (82) (39) (273)
-------- -------- --------
Net cash provided by investing activities 5,036 5,169 12,116
-------- -------- --------
Financing Activities:
Payments of principal, notes payable -- (5,961) (11,855)
Distributions to partners (6,691) (6,402) (6,307)
Redemptions of capital (57) (115) (251)
-------- -------- --------
Net cash used by financing activities (6,748) (12,478) (18,413)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 959 (3,348) 4,073
Cash and cash equivalents, beginning of period 2,364 5,712 1,639
-------- -------- --------
Cash and cash equivalents, end of period $ 3,323 $ 2,364 $ 5,712
======== ======== ========
Supplemental Cash Flow Information:
Cash paid for interest expense $ -- $ 149 $ 699
The accompanying notes are an integral part of
these statements.
<PAGE>
Page 15 of 31
PHOENIX INCOME FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Organization and Partnership Matters.
Phoenix Income Fund, L.P. (the "Partnership") was formed as a California
limited partnership on November 17, 1989. The Partnership's primary business
objectives are to invest in computer, computer-related and other equipment and
assets of various types and to lease or finance such equipment to third parties.
In addition to acquiring equipment for lease to third parties, the Partnership
may also provide financing to cable television operators, emerging growth
companies, and certain manufacturers and their lessees with respect to equipment
leased directly by such manufacturers. The Partnership met minimum investment
requirements on February 21, 1991. The Partnership termination date is December
31, 2006.
The Partnership has also made investments in joint ventures with
affiliated partnerships managed by the General Partner for the purpose of
reducing the risks of financing or acquiring certain capital equipment leased to
third parties (see Note 6).
For financial reporting purposes, as more fully described in the
Partnership Agreement, net income shall be allocated as follows: (a) first, to
Phoenix Leasing Associates LP (the "General Partner") to the extent of
cumulative distributions to the General Partner, (b) second, 1% to the General
Partner to the extent of cumulative syndication expenses and Partnership losses,
and (c) the balance, if any, to the Limited Partners. Losses shall be allocated
1% to the General Partner and 99% to the Limited Partners. Syndication expenses
shall be allocated 1% to the General Partner and 99% to the Limited Partners.
The General Partner is entitled to receive 5% of all cash distributions
until the Limited Partners have recovered their initial capital contributions
plus a cumulative return of 10% per annum, calculated quarterly. Thereafter, the
General Partner will receive 15% of all cash distributions.
In the event the General Partner has a deficit balance in its capital
account at the time of partnership liquidation, it will be required to
contribute the amount of such deficit to the Partnership.
As compensation for management services, the General Partner receives a
fee payable quarterly, in an amount equal to 3.5%, subject to certain
limitations, of the Partnership's gross revenues for the quarter from which such
payment is being made, which revenues shall include, but are not limited to,
rental receipts, maintenance fees, proceeds from the sale of equipment and
interest income.
The General Partner will be compensated for services performed in
connection with the analysis of assets available to the Partnership, the
selection of such assets and the acquisition thereof, including obtaining
lessees for the equipment, negotiating and concluding master lease agreements
with certain lessees. As compensation for such acquisition services, the General
Partner will receive a fee equal to 4%, subject to certain limitations, of (a)
the purchase price of equipment acquired by the Partnership, or equipment leased
to customers by manufacturers, the financing for which is provided by the
Partnership, or (b) financing provided to businesses such as cable operators,
emerging growth companies, or other businesses, payable upon such acquisition or
financing, as the case may be. Acquisition fees are amortized over the life of
the assets principally on a straight-line basis.
A schedule of compensation paid and distributions made to the General
Partner for the years ended December 31 follows:
1996 1995 1994
------ ------- -------
(Amounts in Thousands)
Management fees $ 299 $ 419 $ 911
Acquisition fees 18 67 275
Cash distributions 335 320 316
------ ------- -------
$ 652 $ 806 $ 1,502
====== ======= =======
<PAGE>
Page 16 of 31
Note 2. Summary of Significant Accounting Policies.
Leasing Operations. The Partnership's leasing operations consist of both
financing and operating leases. The financing method of accounting for leases
records as unearned income at the inception of the lease, the excess of 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. Initial direct costs
of consummating new leases are capitalized and included in the cost of
equipment. The Partnership reviews its estimates of residual value at least
annually. If a decline in value has occurred which is other than temporary, a
reduction in the investment is recognized currently.
Under the operating method of accounting for leases, the leased equipment
is recorded as an asset at cost and depreciated. The Partnership's leased
equipment is depreciated primarily using an accelerated depreciation method over
the estimated useful life of six years, except for equipment leased under vendor
agreements, which is depreciated on a straight-line basis over the estimated
useful life, ranging up to six years.
The Partnership's policy is to review periodically the expected economic
life of its rental equipment in order to determine the probability of recovering
its undepreciated cost. Such reviews address, among other things, recent and
anticipated technological developments affecting computer equipment and
competitive factors within the computer marketplace. Although remarketing rental
rates are expected to decline in the future with respect to some of the
Partnership's rental equipment, such rentals are expected to exceed projected
expenses and depreciation. Where reviews of the equipment portfolio indicate
that rentals plus anticipated sales proceeds will not exceed expenses in any
future period, the Partnership will revise its depreciation policy and provide
for additional depreciation as appropriate. As a result of such periodic
reviews, the Partnership provided for additional depreciation expense of
$83,000, $316,000 and $1,315,000 ($.49, $1.84 and $7.60 per limited partnership
unit) for the years ended December 31, 1996, 1995 and 1994, respectively.
Rental income for the year is determined on the basis of rental payments
due for the period under the terms of the lease. Maintenance, repairs and minor
renewals of the leased equipment are charged to expense.
Investment in Joint Ventures. Investments in net assets of the equipment,
financing and 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. The Partnership has
classified its investments in stock warrants as available-for-sale in accordance
with FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Available-for-sale securities are stated at their fair
market value, with unrealized gains and losses reported as a separate component
of partners' capital. The stock warrants held by the Partnership were granted by
certain lessees or borrowers as additional compensation for leasing or financing
equipment. At the date of grant, such warrants were determined to have no fair
market value and were recorded at their historical cost of $0.
Notes Receivable. Notes receivable generally are stated at their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.
Impaired Notes Receivable. Generally, notes receivable are classified as
impaired and the accrual of interest on such notes are discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of the contractual
payments, even though the loan may currently be performing. When a note
receivable is classified as impaired, income recognition is discontinued. Any
payments received subsequent to the placement of the note receivable on to
impaired status will generally be applied towards the reduction of the
outstanding note receivable balance, which may include previously accrued
interest as well as principal. Once the principal and accrued interest balance
has been reduced to zero, the remaining payments will be applied to interest
income. Generally, notes receivable are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance for Losses. An allowance for losses is established through
provisions for losses charged against income. Notes receivable deemed to be
uncollectible are charged against the allowance for losses, and subsequent
recoveries, if any, are credited to the allowance.
<PAGE>
Page 17 of 31
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassification. Certain 1995 and 1994 amounts have been reclassified to
conform to the 1996 presentation.
Cash and Cash Equivalents. Cash and cash equivalents include deposits at
banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days. The Partnership
places its cash deposits in temporary cash investments with credit worthy, high
quality financial institutions. The concentration of such cash deposits and
temporary cash investments is not deemed to create a significant risk to the
Partnership.
Non Cash Investing Activities. During the year ended December 31, 1996,
the Partnership, along with other affiliated partnerships managed by the General
Partner, obtained title to a cable television company that had been pledged as
collateral for a non-performing note. As a result, the Partnership reclassified
$62,000 to Investment in Joint Ventures on the balance sheet.
During the year ended December 31, 1996 and 1995, the Partnership recorded
an unrealized loss on available-for-sale securities which has been included in
Other Assets of $94,000 and a gain of $131,000, respectively.
Credit and Collateral. The Partnership's activities have been concentrated
in the equipment leasing and financing industry. A credit evaluation is
performed by the General Partner for all leases and loans made, with the
collateral requirements determined on a case-by-case basis. The Partnership's
loans are generally secured by the equipment or assets financed and, in some
cases, other collateral of the borrower. In the event of default, the
Partnership has the right to foreclose upon the collateral used to secure such
loans.
Note 3. Accounts receivable.
Accounts receivable consist of the following at December 31:
1996 1995
------ ------
(Amounts in Thousands)
Lease payments $ 183 $ 266
Property taxes 39 70
Interest 12 16
General Partner and affiliates -- 8
Other 16 6
------ ------
250 366
Less: allowance for losses on accounts receivable (125) (147)
------ ------
Total $ 125 $ 219
====== ======
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1996 1995
------ ------
(Amounts in Thousands)
Notes receivable from emerging growth companies
with stated interest ranging from 9% to 19% per
annum, receivable in installments ranging from
36 to 49 months, collateralized by a security
interest in the equipment financed. $ 612 $ 925
Notes receivable from other businesses with
stated interest ranging from 15% to 16% per
annum, receivable in installments ranging from
48 to 72 months, collateralized by the equipment
financed. 646 928
<PAGE>
Page 18 of 31
Notes receivable from cable television system
operators with interest ranging from 14% to 21%
per annum, receivable in installments ranging
from 55 to 67 months, collateralized by a
security interest in the cable system assets.
These notes have a graduated repayment schedule
with a payment of the original principal and
deferred interest due at the end. -- 227
------ ------
1,258 2,080
Less: allowance for losses on notes receivable (216) (230)
------ ------
Total $1,042 $1,850
====== ======
The Partnerships' notes receivable to cable television system operators
provide a pay rate in an amount that is usually less than the contractual
interest rate. The difference between the pay rate and the contractual interest
rate is added to the principal and therefore deferred until the maturity date of
the note. Upon maturity of the note, the original principal and deferred
interest is due and payable in full. Although the contractual interest rates may
be higher, the amount of interest being recognized on the Partnership's
outstanding notes receivable to cable television system operators is being
limited to the amount of the payments received, thereby deferring the
recognition of a portion of the deferred interest until the loan is paid off.
At December 31, 1996, no note was considered to be impaired. The average
recorded investment in impaired loans during the year ended December 31, 1996
was approximately $117,000. The Partnership recognized $65,000 of interest
income on impaired notes receivable during the year ended December 31, 1996.
At December 31, 1995, the recorded investment in notes that are
considered to be impaired was $228,000. Included in this amount is $62,000 of
impaired notes for which the related allowance for losses was $14,000 and
$166,000 of impaired notes for which there was no allowance. The average
recorded investment in impaired loans during the year ended December 31, 1995
was approximately $214,000.
On February 14, 1996, the Partnership foreclosed upon a nonperforming
outstanding note receivable to a cable television operator to whom the
Partnership, along with other affiliated partnerships managed by the General
Partner, had extended credit. The Partnership's net carrying value for this
outstanding note receivable was $62,000, for which the Partnership had an
allowance for losses on notes of $14,000. Because the estimated market value of
the cable system at the foreclosure date exceeded the carrying value, this
allowance of $14,000 was reversed and recognized as income during the year ended
December 31, 1996. This cable television system was subsequently sold on August
30, 1996.
On November 15, 1996, the Partnership received a settlement on its
remaining note receivable from a cable television system operator which was
considered to be impaired. The Partnership received a recovery of $214,000 as a
settlement which was applied first to the $152,000 outstanding note receivable
balance and the balance of $62,000 was recognized as interest income from notes
receivable during the year ended December 31, 1996.
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 $ 230 $ 230
Write downs (14) --
------ ------
Ending balance $ 216 $ 230
====== ======
Note 5. Equipment on Operating Leases and Investment in Financing Leases.
Equipment on lease consists primarily of computer peripheral equipment
and other capital equipment.
The Partnership's operating leases are for initial lease terms of
approximately 24 to 48 months. During the remaining terms of existing operating
leases the Partnership will not recover all of the undepreciated cost and
related expenses of its rental equipment, and therefore must remarket a portion
of its equipment in future years.
<PAGE>
Page 19 of 31
The Partnership has entered into direct lease arrangements with
businesses in different industries, located throughout the United States.
Generally, it is the responsibility of the lessee to provide maintenance on
leased equipment. The General Partner administers the equipment portfolio of
leases acquired through the direct leasing program. Administration includes the
collection of rents from the lessees and remarketing of the equipment.
The net investment in financing leases consists of the following at
December 31:
1996 1995
-------- --------
(Amounts in Thousands)
Minimum lease payments to be received $ 5,903 $ 11,004
Estimated residual value of leased equipment
(unguaranteed) -- 140
Less: unearned income (796) (1,728)
allowance for early termination (68) (436)
-------- --------
Net investment in financing leases $ 5,039 $ 8,980
======== ========
Minimum rentals to be received on noncancellable operating and financing
leases for the years ended December 31 are as follows:
Operating Financing
--------- ---------
(Amounts in Thousands)
1997 ........................................ $ 818 $ 3,378
1998 ........................................ 349 1,682
1999 ........................................ 319 554
2000 ........................................ 144 289
2001 ........................................ -- --
Thereafter .................................. -- --
-------- --------
Totals....................................... $ 1,630 $ 5,903
======== ========
The net book value of equipment held for lease at December 31, 1996 and
1995 amounted to $135,000 and $287,000, respectively.
Note 6. Investment in Joint Ventures.
Equipment Joint Venture
On August 1, 1994, the Partnership entered into an agreement, along with
two other affiliated partnerships, to contribute certain leased assets and notes
receivable (the Assets) to Phoenix Acceptance Limited Liability Company, a
Delaware limited liability company (the "Joint Venture") in exchange for a
22.55% equity interest in the Joint Venture. The interest received in the Joint
Venture was accounted for at the historical cost basis of the Assets
transferred. The Partnership has accounted for its net investment in this Joint
Venture using the equity method of accounting. The Joint Venture was organized
to hold title to the assets and subsequently transfer such assets to a trust for
the purpose of the trust issuing two classes of lease backed certificates to
third parties in exchange for cash proceeds. The transaction between the Joint
Venture and the trust has been accounted for as a financing arrangement. The
Joint Venture retains a residual interest in the assets transferred through the
ownership of a third class of subordinated trust certificates. The lease backed
certificates are recourse only to the assets used to collateralize the
obligation.
The net carrying value of the Assets contributed by the Partnership to
the Joint Venture was approximately $5.6 million and the total carrying value of
all of the assets contributed by all three partnerships approximated $24.7
million. The net proceeds from the issuance of the lease backed certificates are
being distributed back to the partnerships who contributed to the Joint Venture.
On August 5, 1994, the Joint Venture received proceeds from the issuance of the
7.1% Class A lease backed certificates in the principal amount of $18.5 million.
On August 12, 1994, the Joint Venture received proceeds from the issuance of the
8.25% Class B lease backed certificates in the principal amount of $5.3 million.
The lease backed certificates were paid in full in November 1996.
The Manager of the Joint Venture is Phoenix Leasing Incorporated. The
manager is responsible for the daily management of the operations of the Joint
Venture. Phoenix Leasing Incorporated also acts as Servicer and Administrator to
<PAGE>
Page 20 of 31
the trust. As Servicer, Phoenix Leasing Incorporated is responsible for
servicing, managing and administering the Assets, as well as enforcing and
making collections on the Assets.
The equipment joint venture owned by the Partnership, along with its
percentage ownership is as follows:
Percentage
Joint Venture Ownership
------------- ---------
Phoenix Acceptance Limited Liability Company 22.55%
<TABLE>
An analysis of the Partnership's investment account in equipment joint
venture 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 $ 0 $5,653 $ 205 $ 4,844 $ 1,014
====== ====== ===== ======= =======
Year Ended
December 31, 1995 $1,014 $ 0 $ 267 $ 448 $ 833
====== ====== ===== ======= =======
Year Ended
December 31, 1996 $ 833 $ 35 $ 197 $ 242 $ 823
====== ====== ===== ======= =======
</TABLE>
The aggregate financial information of the equipment joint venture as of
December 31 is presented as follows:
BALANCE SHEET
ASSETS
December 31,
1996 1995
------- -------
(Amounts in Thousands)
Cash and cash equivalents $ 490 $ 1,384
Net investment in financing leases 2,930 8,816
Accounts receivable 59 14
Equipment on operating leases 155 347
Other assets 368 1,018
------- -------
Total Assets $ 4,002 $11,579
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 382 $ 761
Lease backed certificates -- 7,150
Partners' capital 3,620 3,668
------- -------
Total Liabilities and Partners' Capital $ 4,002 $11,579
======= =======
<PAGE>
Page 21 of 31
STATEMENT OF OPERATIONS
INCOME
For the Years Ended December 31,
1996 1995 1994
------- ------- -------
(Amounts in Thousands)
Earned income, financing leases $ 855 $ 1,924 $ 1,515
Rental income 536 196 --
Gain on sale of equipment 453 465 26
Other income 181 361 239
------- ------- -------
Total Income 2,025 2,946 1,780
------- ------- -------
EXPENSES
Depreciation 261 104 4
Lease related operating expenses 21 8 3
Management fee to the General Partner 284 283 192
Interest expense 221 924 633
Other expenses 362 442 40
------- ------- -------
Total Expenses 1,149 1,761 872
------- ------- -------
Net Income $ 876 $ 1,185 $ 908
======= ======= =======
As of December 31, 1996 and 1995, the Partnership's pro rata interest in
the equipment joint venture's net book value of off-lease equipment was $1,000
and $6,000, respectively.
The General Partner earns a management fee of 3.5% of the Partnership's
respective interest in the gross receipts of the Joint Venture. A management fee
of $743,000 based on cash distributed to the venturers was paid to the General
Partner in 1994. Such fees have been capitalized and are fully amortized. Cash
proceeds subject to a management fee at the joint venture level are not subject
to management fees at the Partnership level.
Financing Joint Venture
The Partnership owns a limited or general partnership interest in a
financing joint venture. These investments are accounted for using the equity
method of accounting. The other partners of the venture are entities organized
and managed by the General Partner.
The financing joint venture owned by the Partnership, along with its
percentage ownership is as follows:
Percentage
Joint Venture Ownership
------------- ---------
Phoenix Joint Venture 1994-2 25%
<TABLE>
An analysis of the Partnership's investment account in financing joint
venture 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 $ 0 $290 $ 0 $ 0 $ 290
===== ==== ===== ===== =====
Year Ended
December 31, 1995 $ 290 $ 0 $ 44 $ 64 $ 270
===== ==== ===== ===== =====
Year Ended
December 31, 1996 $ 270 $ 0 $ 39 $ 86 $ 223
===== ==== ===== ===== =====
</TABLE>
<PAGE>
Page 22 of 31
The aggregate financial information of the financing joint venture as of
December 31 is presented as follows:
BALANCE SHEET
ASSETS
December 31,
1996 1995
------- -------
(Amounts in Thousands)
Cash and cash equivalents $ 155 $ 271
Accounts receivable 14 11
Notes receivable, net 823 977
Other assets 31 37
------- -------
Total Assets $ 1,023 $ 1,296
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 130 $ 215
Partners' capital 893 1,081
------- -------
Total Liabilities and Partners' Capital $ 1,023 $ 1,296
======= =======
STATEMENT OF OPERATIONS
INCOME
For the Years Ended December 31,
1996 1995 1994
------- ------- -------
(Amounts in Thousands)
Interest income $ 158 $ 187 $ 2
Other income 4 2 --
------- ------- -------
Total Income 162 189 2
------- ------- -------
EXPENSES
Management fees to the General Partner 6 7 --
Other expenses -- 6 1
------- ------- -------
Total Expenses 6 13 1
------- ------- -------
Net Income $ 156 $ 176 $ 1
======= ======= =======
The General Partner earns a management fee of 3.5% of the Partnership's
respective interest in gross payments received for the financing joint venture.
Revenues subject to a management fee at the joint venture level are not subject
to management fees at the Partnership level.
Foreclosed Cable Systems Joint Venture
The Partnership owns an interest in a foreclosed cable systems joint
venture, along with other partnerships managed by the General Partner and its
affiliates. The Partnership foreclosed upon certain assets of a cable television
operator to whom the Partnership, along with other affiliated partnerships
managed by the General Partner, had extended credit. The partnerships' notes
receivables and assets were exchanged for interests (their capital
contribution), on a pro rata basis, in a newly formed joint venture owned by the
partnerships and managed by the General Partner. Title to the cable television
system is held by the joint venture. These investments are accounted for using
the equity method of accounting.
<PAGE>
Page 23 of 31
The joint venture owned by the Partnership, along with its percentage
ownership is as follows:
Weighted
Joint Venture Percentage Interest
------------- -------------------
Phoenix Grassroots Cable System, LLC (1) .67%
(1) Cable system sold during 1996
<TABLE>
An analysis of the Partnership's net investment in a foreclosed cable system
joint venture is as follows:
<CAPTION>
Net Investment Net Investment
at Beginning 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, 1996 $ 0 $62 $ 0 $ 61 $ 1
==== === ==== ==== ====
</TABLE>
The aggregate financial information of the foreclosed cable system joint
venture as of December 31 and for the years then ended is presented as follows:
BALANCE SHEETS
ASSETS
December 31,
1996 1995
------- -------
(Amounts in Thousands)
Cash and cash equivalents $ 115 $ --
------- -------
Total Assets $ 115 $ --
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 26 $ --
Partners' capital 89 --
------- -------
Total Liabilities and Partners' Capital $ 115 $ --
======= =======
STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31,
1996 1995 1994
------- ------- -------
(Amounts in Thousands)
Subscriber revenue $ 1,529 $ -- $ --
Gain on sale of cable system 162 -- --
Other income 26 -- --
------- ------- -------
Total Income 1,717 -- --
------- ------- -------
<PAGE>
Page 24 of 31
EXPENSES
Depreciation and amortization 482 -- --
Program services 480 -- --
General and administrative expense 359 -- --
Management fees to an affiliate of
the General Partner 381 -- --
Provision for losses on accounts
receivable 15 -- --
------- ------- -------
Total Expenses 1,717 -- --
------- ------- -------
Net Income $ -- $ -- $ --
======= ======= =======
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 system joint venture. The foreclosed cable
system joint venture will pay a management fee equal to four and one-half
percent of the System's monthly gross revenues for these services. Revenues
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 $ 47 $ 196
Equipment lease operations 361 395
Security deposits 229 238
Other 47 39
------- -------
Total $ 684 $ 868
======= =======
Note 8. Income Taxes.
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the partners in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the accompanying financial statements.
The net differences between the tax basis and the reported amounts of
the Partnership's assets and liabilities are as follows at December 31:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
1996
- ----
Assets $ 11,338 $ 12,712 $(1,374)
Liabilities 684 354 330
1995
- ----
Assets $ 16,712 $ 20,245 $(3,533)
Liabilities 868 428 440
<PAGE>
Page 25 of 31
Note 9. Related Entities.
The General Partner is a California limited partnership, Phoenix Leasing
Associates LP, the general partner of which is Phoenix Leasing Associates, Inc.,
a Nevada corporation and a wholly-owned subsidiary of Phoenix Leasing
Incorporated. Phoenix Leasing Incorporated is or has been a general partner in
other limited partnerships formed to make investments in capital equipment and
to engage in the leasing and financing business.
Note 10. Reimbursed Costs to the General Partner and Affiliates.
The General Partner and affiliates incur 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 and affiliates 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
$278,000, $322,000 and $342,000 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 $87,000, $262,000 and $346,000, respectively.
In addition, the General Partner receives a management fee and an
acquisition fee (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 170,766, 171,421 and 172,925
for the years ended December 31, 1996, 1995 and 1994, respectively. For 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 net capital contributions.
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 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.
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:
<PAGE>
Page 26 of 31
Carrying
Amount Fair Value
-------- ----------
(Amounts in Thousands)
1996
- ----
Assets
Cash and cash equivalents $ 3,323 $ 3,323
Securities, available-for-sale 37 37
Notes receivable 1,042 1,287
1995
- ----
Assets
Cash and cash equivalents $ 2,364 $ 2,364
Securities, available-for-sale 131 131
Notes receivable 1,850 2,199
Note 13. Subsequent Events.
In January 1997, cash distributions of $85,000 and $1,610,000 were made
to the General and Limited Partners, respectively.
<PAGE>
Page 27 of 31
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
Associates LP, a California limited partnership, the Corporate General Partner
of which is Phoenix Leasing Associates, Inc., a Nevada corporation and a
wholly-owned subsidiary of Phoenix Leasing Incorporated, a California
corporation (PLI). The directors and executive officers of Phoenix Leasing
Associates, Inc. (PLA) are as follows:
GUS CONSTANTIN, age 59, is President and a Director of PLA. 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 PLA. 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
PLA. 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 PLA. 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.
<PAGE>
Page 28 of 31
Neither the General Partner nor any Executive Officer of the General
Partner has any family relationship with the others.
Phoenix Leasing Incorporated or its affiliates and the executive
officers of the General Partner serve in a similar capacity to the following
affiliated limited partnerships:
Phoenix Leasing American Business Fund, L.P.
Phoenix Leasing Cash Distribution Fund V, L.P
Phoenix High Tech/High Yield Fund
Phoenix Leasing Cash Distribution Fund IV
Phoenix Leasing Cash Distribution Fund III
Phoenix Leasing Cash Distribution Fund II
Phoenix Leasing Income Fund VII
Phoenix Leasing Income Fund VI
Phoenix Leasing Growth Fund 1982 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.
(A) (B) (C) (D)
<CAPTION>
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
Associates LP General Partner $317(1) $0 $0
=== = =
</TABLE>
(1) consists of management and acquisition fees.
PART IV
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a)No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of any class of voting
securities of the Registrant.
(b)The General Partner of the Registrant owns the equity securities of
the Registrant set forth in the following table:
<PAGE>
Page 29 of 31
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
-------------- ------------------------- ----------------
General Partner Interest Represents a 5% interest in 100%
the Registrant's profits and
distributions, until the Limited
Partners have recovered their
capital contributions plus a
cumulative return of 12% per
annum, compounded quarterly, on
the unrecovered portion thereof.
Thereafter, the General Partner
will receive 15% interest in the
Registrant's profits and
distributions.
Limited Partner Interest 12 units -
Item 13. Certain Relationships and Related Transactions.
None.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No.
--------
(a) 1. Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 11
Statements of Operations for the Years Ended December
31, 1996, 1995 and 1994 12
Statements of Partners' Capital for the Years Ended
December 31, 1996, 1995 and 1994 13
Statements of Cash Flows for the Years Ended December
31, 1996, 1995 and 1994 14
Notes to Financial Statements 15-26
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and Reserves 31
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
a) Balance Sheets of Phoenix Leasing Associates, LP E21 1-4
Balance Sheets of Phoenix Leasing Associates, Inc. E21 5-8
27. Financial Data Schedule
<PAGE>
Page 30 of 31
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 INCOME FUND, L.P.
a California limited partnership
(Registrant)
By: PHOENIX LEASING ASSOCIATES LP,
a California limited partnership,
General Partner
By: PHOENIX LEASING ASSOCIATES, INC.,
a Nevada 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 and a Director March 25, 1997
- ---------------------- of Phoenix Leasing Associates, Inc. --------------
(Gus Constantin)
/S/ PARITOSH K. CHOKSI Chief Financial Officer, March 25, 1997
- ---------------------- Senior Vice President --------------
(Paritosh K. Choksi) Treasurer and Director of
Phoenix Leasing Associates, Inc.
/S/ BRYANT J. TONG Senior Vice President, March 25, 1997
- ---------------------- Financial Operations of --------------
(Bryant J. Tong) Phoenix Leasing Associates, Inc.
/S/ GARY W. MARTINEZ Senior Vice President and a Director of March 25, 1997
- ---------------------- Phoenix Leasing Associates, Inc. --------------
(Gary W. Martinez)
/S/ MICHAEL K. ULYATT Partnership Controller March 25, 1997
- ---------------------- of Phoenix Leasing Incorporated --------------
(Michael K. Ulyatt) (Parent Company)
<PAGE>
<TABLE>
Page 31 of 31
PHOENIX INCOME FUND, L.P.
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
- ------------------------------ --------------- ---------------- ------------- ------------------ --------------
<C> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for losses on accounts
receivable $ 137 $ 58 $ 0 $ 19 $ 176
Allowance for losses on notes
receivable 195 35 0 0 230
Allowance for early termination,
financing leases 596 272 0 177 691
------ ---- ---- ------ ------
Totals $ 928 $365 $ 0 $ 196 $1,097
====== ==== ==== ====== ======
Year ended December 31, 1995
Allowance for losses on accounts
receivable $ 176 $ 0 $ 0 $ 29 $ 147
Allowance for losses on notes
receivable 230 0 0 0 230
Allowance for early termination,
financing leases 691 138 0 393 436
------ ---- ---- ------ ------
Totals $1,097 $138 $ 0 $ 422 $ 813
====== ==== ==== ====== ======
Year ended December 31, 1996
Allowance for losses on accounts
receivable $ 147 $ 29 $ 0 $ 51 $ 125
Allowance for losses on notes
receivable 230 0 14 0 216
Allowance for early termination,
financing leases 436 113 0 481 68
------ ---- ---- ------ ------
Totals $ 813 $142 $ 14 $ 532 $ 409
====== ==== ==== ====== ======
</TABLE>
Exhibit 21 - Page 1 of 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of
Phoenix Leasing Associates L.P.:
We have audited the accompanying balance sheets of Phoenix Leasing Associates
L.P. (a California limited partnership) as of June 30, 1996 and 1995. These
balance sheets are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these 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 balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Phoenix Leasing Associates L.P. as
of June 30, 1996 and 1995, in conformity with generally accepted accounting
principles.
San Francisco, California ARTHUR ANDERSEN LLP
September 4, 1996
<PAGE>
Exhibit 21 - Page 2 of 8
PHOENIX LEASING ASSOCIATES L.P.
BALANCE SHEETS
ASSET
June 30,
------------------
1996 1995
-------- --------
Cash and cash equivalents $ 1,182 $ 471
Due from PIFLP 50,329 33,897
Due from General Partner -- 251,561
-------- --------
Total Assets $ 51,511 $285,929
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 2,200 $ 2,500
Deficit investment in PIFLP 5,988 276,005
Due to General Partner 36,120 --
-------- --------
Total Liabilities 44,307 278,505
-------- --------
Commitments and Contingencies (Note 4)
Partners' Capital:
General partner (99 partnership units) 990 990
Limited partner (99 partnership units) 6,214 6,434
-------- --------
Total Partners' Capital 7,204 7,424
-------- --------
Total Liabilities and Partners' Capital $ 51,511 $285,929
======== ========
The accompanying notes are an integral part of
these financial statements.
<PAGE>
Exhibit 21 - Page 3 of 8
PHOENIX LEASING ASSOCIATES L.P.
NOTES TO THE BALANCE SHEETS
JUNE 30, 1996
Note 1. Organization and Partnership Matters:
Phoenix Leasing Associates L.P., a California limited partnership (the
Partnership), was formed under the laws of the State of California on October
13, 1989. The Partnership is the general partner of Phoenix Income Fund, L.P.
(PIFLP), a California limited partnership, which was formed on October 1, 1990,
to invest in capital equipment of various types and to lease such equipment to
third parties on either a long-term or short-term basis. The Partnership's
fiscal year ends on June 30 of each year. The general partner of the Partnership
is Phoenix Leasing Associates, Inc. (PLA), a Nevada corporation and wholly owned
subsidiary of Phoenix Leasing Incorporated (PLI), a California corporation. The
limited partner of the Partnership is Lease Management Associates, Inc., a
Nevada corporation controlled by an officer of PLA, who also owns the ultimate
parent of PLA.
The Partnership records its investment in PIFLP under the equity method of
accounting. As general partner, the Partnership has complete authority in, and
responsibility for, the overall management and control of PIFLP, which includes
responsibility for supervising PIFLP's acquisition, leasing, remarketing and
sale of equipment.
Note 2. Income Taxes:
The Partnership is not subject to federal and state income taxes on its
income. Federal and state income tax regulations provide that items of income,
gain, loss and deductions, credits and tax preference items of limited
partnerships are reportable by the individual partners in their respective
income tax returns. Accordingly, no liability for such taxes has been recorded
on the Partnership's balance sheets.
Note 3. Use of Estimates:
The preparation of balance sheets 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 balance sheets. Actual
results could differ from those estimates.
Note 4. Compensation and Fees:
The Partnership receives an acquisition fee equal to four percent of the
purchase price of assets acquired or financed by PIFLP in connection with the
analysis, selection and acquisition or financing of assets, and the continuing
analysis of the overall portfolio of PIFLP's assets, and management fees equal
to three and one half percent of PIFLP's gross revenues in connection with
managing the operations of PIFLP. In addition, the Partnership receives an
interest in PIFLP's profits, losses and distributions. Management fees of
$50,329 and $33,677 as of June 30, 1996 and 1995 and acquisition fees of $220 of
June 30, 1995 are included in Due from PIFLP.
Note 5. Allocation of Profits, Losses and Distributions:
Profits and losses attributable to acquisition fees paid to the Partnership
by PIFLP are allocated to the partners in proportion to their ownership
interests. All other profits and losses are allocated to PLA. Distributions are
made in accordance with the terms of the partnership agreement.
Note 6. Related Parties:
Phoenix Securities, Inc., an affiliate of the Partnership, receives a fee
for wholesaling activities performed in connection with the offering of the
limited partnership units of PIFLP.
PLA has entered into an agreement with PLI whereby PLI will provide
management services to the Partnership in connection with the operations and
administration of PIFLP. In consideration for the services and activities to be
performed by PLI pursuant to this agreement, PLA shall pay PLI fees in an amount
equal to: Three and one half percent of PIFLP's cumulative gross revenues plus
the lesser of four percent of the purchase price of equipment acquired by and
financing provided to businesses by PIFLP or 100% of the net cash attributable
<PAGE>
Exhibit 21 - Page 4 of 8
to the acquisition fee which has been distributed to PLA plus 100% of all other
net cash from operations of the Partnership. Management fees paid to PLI equal
$980,161 and $904,105 for the year ended June 30, 1996 and 1995, respectively.
<PAGE>
Exhibit 21 - Page 5 of 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
Phoenix Leasing Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Phoenix Leasing
Associates, Inc. (a Nevada corporation) and Subsidiary 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
Associates, Inc. and Subsidiary as of June 30, 1996 and 1995, in conformity with
generally accepted accounting principles.
San Francisco, California ARTHUR ANDERSEN LLP
September 4, 1996
<PAGE>
Exhibit 21 - Page 6 of 8
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
--------------------------
1996 1995
----------- -----------
Cash and cash equivalents $ 1,317 $ 757
Due from PLI 1,009,215 875,334
Due from PIFLP 50,329 33,897
----------- -----------
Total Assets $ 1,060,860 $ 909,988
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses $ 4,400 $ 5,000
Deficit investment in PIFLP 5,988 276,005
----------- -----------
Total Liabilities 10,388 281,005
----------- -----------
Minority Interest in Consolidated Subsidiary 6,214 6,434
----------- -----------
Commitments and Contingencies (Note 6)
Shareholder's Equity:
Common Stock, no par value, 100 shares
authorized and outstanding 4,382,225 4,382,225
Retained earnings 1,044,159 622,449
Less:
Notes receivable from affiliate (4,382,125) (4,382,125)
----------- -----------
Total Shareholder's Equity 1,044,259 622,549
----------- -----------
Total Liabilities and Shareholder's Equity $ 1,060,860 $ 909,988
=========== ===========
The accompanying notes are an integral part of
these financial statements.
<PAGE>
Exhibit 21 - Page 7 of 8
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
Note 1. Organization:
Phoenix Leasing Associates, Inc. (PLA) was formed under the laws of Nevada
on September 13, 1989. PLA's fiscal year ends on June 30. PLA is a wholly owned
subsidiary of Phoenix Leasing Incorporated (PLI), a California corporation.
As of June 30, 1996, PLA has a 50% ownership interest in Phoenix Leasing
Associates L.P. (PLALP), a California limited partnership. This ownership
interest is subject to change upon agreement of the partners. PLA is the general
partner of PLALP, which was formed to serve as the general partner in Phoenix
Income Fund, L.P. (PIFLP), a California limited partnership. The limited partner
of PLALP is Lease Management Associates, Inc., a Nevada corporation controlled
by an officer of PLA, who also owns the parent of PLI. Profits and losses
attributable to acquisition fees paid to PLALP by PIFLP are allocated in
proportion to the partners' ownership interests. All other profits and losses of
PLALP are allocated to PLA. Distributions to the partners are made in accordance
with the terms of the partnership agreement. PLA and its 50%-owned subsidiary,
PLALP, are hereinafter referred to as the Company.
Note 2. Principles of Consolidation:
The consolidated financial statements as of June 30, 1996 and 1995, include
the accounts of PLA and its subsidiary, PLALP, over which PLA exerts significant
control and influence. All significant intercompany accounts and transactions
have been eliminated in consolidation. The minority interest represents the
limited partner's interest in PLALP.
The Company records its investments in PIFLP under the equity method of
accounting. As general partner, the Company has complete authority in, and
responsibility for, the overall management and control of PIFLP, which includes
responsibility for supervising PIFLP's acquisition, leasing, remarketing
activities and its sale of equipment.
Note 3. Use of Estimates:
The preparation of consolidated balance sheets 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 consolidated
balance sheets. Actual results could differ from those estimates.
Note 4. Notes Receivable from Affiliate:
PLI, the sole shareholder in PLA, as of June 30, 1996 and 1995, has issued
demand promissory notes to PLA totaling $4,382,125. There are no restrictions or
covenants associated with these notes which would preclude PLA from receiving
the principal or interest amounts under the terms of the notes. The notes bear
interest at a rate equal to the lesser of 10% or the prime rate plus 1%, as
determined by Citibank, N.A., New York, New York. Interest is payable by PLI on
the first business day of each calendar quarter. The principal amounts are due
and payable upon demand by the Company.
Note 5. Income Taxes:
The Company's income or loss for tax reporting purposes is included in the
consolidated and combined tax returns filed by Phoenix American Incorporated
(PAI), an affiliated Nevada corporation. These returns are prepared on the
accrual basis of accounting. In accordance with a Tax Sharing Agreement between
the Company and PAI, PAI has assumed all tax liabilities and benefits arising
from the Company's income or loss.
Effective July 1, 1993, the Company adopted "Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes." The Company
computes taxes as if it was a stand alone company. The resulting tax provisions
of $256,590 and $150,163 as of June 30, 1996 and 1995, respectively, were
transferred to PAI.
Note 6. Compensation and Fees:
The Company receives acquisition fees equal to four percent of the purchase
price of assets acquired or financed by PIFLP in connection with the analysis,
selection and acquisition or financing of assets, and the continuing analysis
<PAGE>
Exhibit 21 - Page 8 of 8
of the overall portfolio of PIFLP's assets, and management fees equal to three
and one half percent of PIFLP gross revenues in connection with managing the
operations of PIFLP. In addition, the Company receives an interest in PIFLP's
profits, losses and distributions. Management fees of $50,329 and $33,677 as of
June 30, 1996 and 1995 and acquisition fees of $220 as of June 30, 1995 are
included in Due from PIFLP.
Note 7. Related Parties:
Phoenix Securities, Inc., an affiliate of the Company, receives a fee for
wholesaling activities performed in connection with the offering of the limited
partnership units of PIFLP.
The Company has entered into an agreement with PLI, whereby PLI will provide
management services to PLALP in connection with the operations and
administration of PIFLP. In consideration for the services and activities to be
performed by PLI pursuant to this agreement, the Company pays PLI fees in an
amount equal to: Three and one half percent of PIFLP's cumulative gross revenues
plus the lesser of four percent of the purchase price of equipment acquired by
and financing provided to businesses by PIFLP or 100% of the net cash
attributable to the acquisition fee which has been distributed to the Company
plus 100% of all other net cash from operations of PLALP. Management fees paid
to PLI equal $980,163 and $904,105 for the year ended June 30, 1996 and 1995,
respectively.
<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> 3,323
<SECURITIES> 0
<RECEIVABLES> 1,508
<ALLOWANCES> 341
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,386
<DEPRECIATION> 12,008
<TOTAL-ASSETS> 11,338
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,654
<TOTAL-LIABILITY-AND-EQUITY> 11,338
<SALES> 0
<TOTAL-REVENUES> 3,932
<CGS> 0
<TOTAL-COSTS> 2,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,652
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,652
<EPS-PRIMARY> 7.64
<EPS-DILUTED> 0
</TABLE>
