UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the fiscal year ended December 31, 1997 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-B 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-KSB or any amendment to
this Form 10-KSB. ____________
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
--------- ---------
The Registrant's revenue for its most recent fiscal year was $3,033,000.
As of December 31, 1997, 169,972 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, 1997.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format:
Yes No X
--------- ---------
Page 1 of 26
<PAGE>
PHOENIX INCOME FUND, L.P.
1997 FORM 10-KSB 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. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 6
Item 7. Financial Statements and Supplementary Data................ 8
Item 8. Disagreements on Accounting and Financial Disclosure
Matters.................................................... 23
PART III
Item 9. Directors and Executive Officers of the Registrant......... 23
Item 10. Executive Compensation..................................... 24
Item 11. Security Ownership of Certain Beneficial Owners and
Management................................................. 25
Item 12. Certain Relationships and Related Transactions............. 25
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 25
Signatures............................................................... 26
2
<PAGE>
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,
1997, the total investments in equipment leases and financing transactions
(loans), including the Partnership's pro-rata interest in investments made by
joint ventures, approximate $90,886,000. 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 66 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,
1997, approximately 90% 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.
3
<PAGE>
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, 1997, 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 to businesses located throughout the United States.
As of December 31, 1997, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $20,767,000.
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,
1997.
Percentage of
Asset Types Purchase Price(1) Total Assets
- ---------------------------- ----------------- -------------
(Amounts in Thousands)
Capital Equipment Leased to Emerging
Growth Companies $ 7,512 36%
Furniture and Fixtures 3,589 17
Computer Peripherals 3,292 16
Small Computer Systems 2,028 10
Financing of Emerging Growth Companies 1,480 7
Financing to Businesses 1,200 6
Telecommunications 1,035 5
Miscellaneous 631 3
--------- ---
TOTAL $ 20,767 100%
========= ===
(1) These amounts include the Partnership's pro rata interest in equipment
joint ventures of $2,093,000, financing joint ventures of $290,000, cost of
equipment on financing leases of $6,400,000 and original cost of
outstanding loans of $2,390,000 at December 31, 1997.
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.
4
<PAGE>
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, 1997
----------------------------- -----------------------
Limited Partners 3,850
General Partner 1
5
<PAGE>
Item 6. 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
$1,721,000 and $1,652,000 during the years ended December 31, 1997 and 1996,
respectively. The improvement in earnings for 1997 is attributable to a decrease
in depreciation expense that exceeded the decrease in rental income as well as
an increase in gain on sale of equipment.
Total revenues decreased by $899,000 during 1997, 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 $510,000 during 1997, as compared to the same period
in the previous year. The decrease in rental income is attributable to a
decrease in the amount of equipment owned that is classified as operating
leases. At December 31, 1997, the Partnership owned equipment with an aggregate
original cost of $16 million, as compared to the $30.6 million of equipment
owned at December 31, 1996.
Earned income from financing leases decreased by $474,000 during the
year ended December 31, 1997, as compared to the same period in 1996. This is
attributable to the decrease in the net investment in financing leases since
December 31, 1996. The Partnership owned financing leases with a net investment
of $1.8 million at December 31, 1997, as compared to $5 million at December 31,
1996. The net investment in financing leases will continue to decline over the
lease term as payments are received.
The Partnership reported a gain on sale of securities during the year
ended December 31, 1996 of $128,000 which contributed to increasing net income
for that period. No such gain exists during 1997. The gain from securities
recognized in 1996 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 finance agreements with emerging growth companies. In addition, the
Partnership owns shares of stock and stock warrants in emerging growth companies
that are publicly traded with unrealized gains of $26,000 at December 31, 1997
compared to $37,000 at December 31, 1996. These investments in stock and stock
warrants carry certain restrictions, but generally can be exercised within one
year.
Partially offsetting the factors discussed previously which contributed
to decreasing total revenues for the year ended December 31, 1997 is an increase
in gain on sale of equipment. The Partnership reported a gain on sale of
equipment of $321,000 for the year ended December 31, 1997, compared to a gain
on sale of equipment of $64,000 for the year ended December 31, 1996. The gain
on sale of equipment, as well as the increase in sales proceeds received during
1997, is a result of an increase in sales activity of the Partnership's
equipment portfolio. The Partnership sold equipment with an aggregate original
cost of $14.7 million for the year ended December 31, 1997 compared to $8.1
million for the same period in 1996.
Total expenses of the Partnership decreased by $968,000 during the year
ended December 31, 1997, compared to the same period in the previous year.
Depreciation expense decreased by $628,000, compared to the same period 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.
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 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 for the year ended December 31, 1997 and 1996 of $5,040,000
and $7,418,000, respectively. The decline in net cash generated from leasing and
financing activities for the years ended December 31, 1997 is attributable to
decreases in rental income from operating leases and principal payments from
financing leases, as previously discussed in the Results of Operations.
6
<PAGE>
The Partnership received distributions from joint ventures of
$1,012,000 and $389,000 for the year ended December 31, 1997 and 1996,
respectively. The increase in distributions from joint ventures is attributable
to one joint venture having paid its outstanding debt in full in November 1996.
Previously, any excess cash flow generated by this joint venture was being used
to pay off the outstanding debt. The excess cash flow generated by this joint
venture is currently being distributed to the Partnership and the other
venturers.
The Partnership continues to reinvest a portion of the revenues from
the assets owned in new leasing and financing transactions. During the year
ended December 31, 1997, the Partnership invested $68,000 in equipment leases
and $300,000 in investments in notes receivable, compared to $427,000 in
equipment leases and $0 in investments in notes receivable during the same
period in the previous year.
Cash generated in 1997 and 1996 was used to pay cash distributions,
make reinvestments in new leases and pay operational expenses of the
Partnership.
As of December 31, 1997, the Partnership owned equipment being held for
lease with an original cost of $3,617,000 and a net book value of $30,000, as
compared to equipment with an original cost of $3,438,000 and a net book value
of $135,000 at December 31, 1996. 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 $6,718,000 and $6,691,000 for the
years ended December 31, 1997 and 1996, 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 $6,382,000 and $6,356,000 in cash
distributions for the years ended December 31, 1997 and 1996, respectively. The
cumulative cash distributions to limited partners is $35,698,000 and $29,316,000
at December 31, 1997 and 1996, respectively. The General Partner received cash
distributions of $336,000 and $335,000 for its share of the cash distribution
for the years ended December 31, 1997 and 1996, respectively. The Partnership
anticipates making distributions during 1998 at a lower rate than the current
distributions made during 1997.
As provided for by the partnership agreement, the General Partner has
determined to exercise its discretion that no further redemptions in the
Partnership will be permitted after March 31, 1998. During the year ended
December 31, 1997, the number of units that have been redeemed has been
immaterial.
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)
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.
7
<PAGE>
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
PHOENIX INCOME FUND, L.P.
-------------------------
YEAR ENDED DECEMBER 31, 1997
----------------------------
8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Phoenix Income Fund, L.P.:
We have audited the accompanying balance sheet of Phoenix Income Fund, L.P. (a
California limited partnership) as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The statements of operations, partners' capital
and cash flows of Phoenix Leasing Income Fund, L.P. as of December 31, 1996,
were audited by other auditors whose report dated January 20, 1997, expressed an
unqualified opinion on these statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides 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 Income Fund, L.P. as of
December 31, 1997 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
January 23, 1998
9
<PAGE>
PHOENIX INCOME FUND, L.P.
BALANCE SHEET
(Amounts in Thousands Except for Unit Amounts)
December 31, 1997
ASSETS -----------------
Cash and cash equivalents $2,693
Accounts receivable (net of allowance for
losses on accounts receivable of $157) 206
Notes receivable (net of allowance for
losses on notes receivable of $162) 812
Equipment on operating leases and held
for lease (net of accumulated
depreciation of $6,141) 204
Net investment in financing leases
(net of allowance for early terminations
of $80) 1,758
Investment in joint ventures 296
Capitalized acquisition fees (net of
accumulated amortization of $3,508) 114
Other assets 55
------
Total Assets $6,138
======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 508
------
Total Liabilities 508
------
Partners' Capital:
General Partner --
Limited Partners, 300,000 units
authorized, 175,285 units issued
and 169,972 units outstanding 5,604
Unrealized gains on available-for-
sale securitites 26
------
Total Partners' Capital 5,630
------
Total Liabilities and Partners' Capital $6,138
======
The accompanying notes are an integral
part of these statements.
10
<PAGE>
PHOENIX INCOME FUND, L.P.
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1997 1996
---- ----
INCOME
Rental income $ 1,565 $ 2,075
Earned income, financing leases 480 954
Gain on sale of equipment 321 64
Interest income, notes receivable 240 304
Equity in earnings from joint ventures 261 236
Gain on sale of securities - 128
Other income 166 171
------- ---------
Total Income 3,033 3,932
------- ---------
EXPENSES
Depreciation 417 1,045
Amortization of acquisition fees 162 262
Lease related operating expenses 95 131
Management fees to General Partner 216 299
Reimbursed administrative costs to
General Partner 181 278
Provision for losses on receivables 111 128
General and administrative expenses 130 137
------- ---------
Total Expenses 1,312 2,280
------- ---------
NET INCOME $ 1,721 $ 1,652
======= =========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 8.14 $ 7.64
======= =========
ALLOCATION OF NET INCOME:
General Partner $ 337 $ 348
Limited Partners 1,384 1,304
------- ---------
$ 1,721 $ 1,652
======= =========
The accompanying notes are an integral
part of these statements.
11
<PAGE>
PHOENIX INCOME FUND, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
General
Partner's Limited Partners' Unrealized Total
Amount Units Amount Gains Amount
--------- ----------------- ---------- ------
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
Redemptions of capital -- (344) (16) -- (16)
Distributions to partners ($37.51
per limited partnership unit) (336) -- (6,382) -- (6,718)
Change for the year in unrealized
gain on available-for-sale
securities -- -- -- (11) (11)
Net income 337 -- 1,384 -- 1,721
------ ------- ------- ------ --------
Balance, December 31, 1997 $ -- 169,972 $ 5,604 $ 26 $ 5,630
====== ======= ======= ====== ========
The accompanying notes are an integral
part of these statements.
12
<PAGE>
PHOENIX INCOME FUND, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1997 1996
---- ----
Operating Activities:
Net income $ 1,721 $ 1,652
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 417 1,045
Amortization of acquisition fees 162 262
Gain on sale of equipment (321) (64)
Equity in earnings from joint ventures (261) (236)
Gain on sale of securities -- (128)
Provision for early termination, financing
leases 40 113
Provision for (recovery of) losses on notes
receivable -- (14)
Provision for losses on accounts receivable 71 29
Decrease (increase) in accounts receivable (152) 65
Decrease in accounts payable and accrued
expenses (176) (120)
Decrease in other assets 57 67
------- -------
Net cash provided by operating activities 1,558 2,671
------- -------
Investing Activities:
Principal payments, financing leases 2,952 3,987
Principal payments, notes receivable 530 760
Proceeds from sale of equipment 435 340
Distributions from joint ventures 1,012 389
Proceeds from sale of securities -- 128
Purchase of equipment -- (24)
Investment in financing leases (68) (427)
Investment in notes receivable (300) --
Investment in joint ventures -- (35)
Payment of acquisition fees (15) (82)
------- -------
Net cash provided by investing activities 4,546 5,036
------- -------
Financing Activities:
Distributions to partners (6,718) (6,691)
Redemptions of capital (16) (57)
------- -------
Net cash used by financing activities (6,734) (6,748)
------- -------
Increase (decrease) in cash and cash
equivalents (630) 959
Cash and cash equivalents, beginning of
period 3,323 2,364
------- -------
Cash and cash equivalents, end of period $ 2,693 $ 3,323
======= =======
The accompanying notes are an integral
part of these statements.
13
<PAGE>
PHOENIX INCOME FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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:
1997 1996
---- ----
(Amounts in Thousands)
Management fees $ 216 $ 299
Acquisition fees 15 18
Cash distributions 336 335
-------- --------
$ 567 $ 652
======== ========
14
<PAGE>
Redemptions of Limited Partner units will only be made to the extent
permitted by applicable laws and regulations, the Partnership Agreement and if,
in the opinion of the General Partner, it is in the best interest of the
Partnership. In addition, redemptions will not be made if such redemptions would
cause the Partnership to be categorized as a publicly traded partnership for
federal income tax purposes.
The Partnership will acquire such limited partnership units for an
amount equal to 85% of the "accrual basis capital account" relating to the
redeemed units. The Partnership will retain the remaining 15% of the "accrual
basis capital account" relating to the redeemed units. Redemptions retained by
the Partnership were $2,000 and $9,000 during the years ended December 31, 1997
and 1996, respectively. "Accrual basis capital account" is computed in
accordance with the books and records regularly maintained by the Partnership
for financial reporting purposes, utilizing the accrual method of accounting.
Note 2. Summary of Significant Accounting Policies.
Cash and Cash Equivalents. Cash and cash equivalents includes deposits
at banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days.
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.
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.
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. Where reviews of the
equipment portfolio indicate that rentals plus anticipated sales proceeds will
15
<PAGE>
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 $0 and $83,000 ($0 and $.49 per limited partnership
unit) for the years ended December 31, 1997 and 1996, 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.
Portfolio Valuation Methodology. The Partnership uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.
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 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.
Reclassification. Certain 1996 amounts have been reclassified to
conform to the 1997 presentation.
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:
1997
----
(Amounts in Thousands)
Lease payments $ 322
Property taxes 39
Interest 2
--------
363
Less: allowance for losses on accounts receivable (157)
--------
Total $ 206
========
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1997
----
(Amounts in Thousands)
Notes receivable from emerging growth companies
with stated interest ranging from 15% to 19%
per annum, receivable in installments ranging
from 37 to 49 months, collateralized by a
security interest in the equipment financed. $ 326
Notes receivable from other businesses with
stated interest ranging from 15% to 17%
per annum, receivable in installments ranging
from 37 to 72 months, collateralized by the
equipment financed. 648
--------
974
Less: allowance for losses on notes receivable (162)
--------
Total $ 812
========
16
<PAGE>
Minimum payments to be received on non-cancelable notes receivable for
the years ended December 31, are as follows:
(Amounts in Thousands)
1998............................................ $ 643
1999............................................ 205
2000............................................ 135
2001............................................ 5
2002............................................ -
Thereafter...................................... -
-----------
Total minimum payments to be received........... 988
Impaired notes receivable....................... 121
Less: unearned interest........................ (135)
Less: allowance for losses..................... (162)
-----------
Net investment in notes receivable.............. $ 812
===========
At December 31, 1997, the recorded investment in notes that are
considered to be impaired was $121,000. The average recorded investment in
impaired loans during the years ended December 31, 1997 and 1996 was
approximately $94,000 and $117,000, respectively. The Partnership recognized
$13,000 and $65,000 of interest income on impaired notes receivable during the
years ended December 31, 1997 and 1996, respectively.
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
year ended December 31, is as follows:
1997
(Amounts in Thousands)
Beginning balance $ 216
Write downs (54)
--------
Ending balance $ 162
========
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.
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.
17
<PAGE>
The net investment in financing leases consists of the following at
December 31:
1997
----
(Amounts in Thousands)
Minimum lease payments to be received $ 2,086
Less: unearned income (248)
allowance for early termination (80)
--------
Net investment in financing leases $ 1,758
========
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)
1998................................... $ 734 $ 1,309
1999................................... 339 514
2000................................... 149 263
2001................................... 5 -
2002................................... 5 -
--------- ----------
Totals................................. $ 1,232 $ 2,086
========= ==========
The net book value of equipment held for lease at December 31, 1997
amounted to $30,000.
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
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.
18
<PAGE>
An analysis of the Partnership's investment account in the equipment
joint venture is as follows:
Net
Net Investment Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- ------------- ------------- -------- ------------- ---------
(Amounts in Thousands)
Year Ended
December 31, 1996 $ 833 $ 35 $ 197 $ 242 $ 823
======== ======== ====== ======== ========
Year Ended
December 31, 1997 $ 823 $ 0 $ 233 $ 930 $ 126
======== ======== ====== ======== ========
The aggregate financial information of the equipment joint venture is
presented as follows:
December 31, 1997
-----------------
(Amounts in Thousands)
Assets $ 730
Liabilities 156
Partners' Capital 574
For the Years Ended December 31,
1997 1996
---- ----
(Amounts in Thousands)
Revenue $ 1,129 $ 2,025
Expenses 78 1,149
Net Income 1,051 876
As of December 31, 1997, the Partnership's pro rata interest in the
equipment joint venture's net book value of off-lease equipment was $0.
The General Partner earns a management fee of 3.5% of the Partnership's
respective interest in the gross receipts of the Joint Venture. 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 25% interest in Phoenix Joint Venture 1994-2, a
financing joint venture. The investment is accounted for using the equity method
of accounting. The other partners of the venture are entities organized and
managed by the General Partner.
An analysis of the Partnership's investment account in the financing
joint venture is as follows:
Net
Net Investment Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- ------------- ------------- -------- ------------- ---------
(Amounts in Thousands)
Year Ended
December 31, 1996 $ 270 $ 0 $ 39 $ 86 $ 223
======= ====== ===== ====== ======
Year Ended
December 31, 1997 $ 223 $ 0 $ 28 $ 81 $ 170
======= ====== ===== ====== ======
The aggregate financial information of the financing joint venture is
presented as follows:
19
<PAGE>
December 31, 1997
-----------------
(Amounts in Thousands)
Assets $ 803
Liabilities 136
Partners' Capital 667
For the Years Ended December 31,
1997 1996
---- ----
(Amounts in Thousands)
Revenue $ 127 $ 162
Expenses 25 6
Net Income 102 156
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 a 0.67% interest in a foreclosed cable systems
joint venture, Phoenix Grassroots Cable System, LLC, along with other
partnerships managed by the General Partner and its affiliates. This cable
system was sold during 1996 and the joint venture was closed during 1997. 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. This investment is accounted for using the equity method of accounting.
An analysis of the Partnership's net investment in a foreclosed cable
system joint venture is as follows:
Net
Net Investment Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- ------------- ------------- -------- ------------- ---------
(Amounts in Thousands)
Year Ended
December 31, 1996 $ 0 $ 62 $ 0 $ 61 $ 1
===== ==== ==== ==== =====
Year Ended
December 31, 1997 $ 1 $ 0 $ 0 $ 1 $ 0
===== ==== ==== ==== =====
The aggregate financial information of the foreclosed cable system
joint venture is presented as follows:
For the Years Ended December 31,
1997 1996
---- ----
(Amounts in Thousands)
Revenue $ 125 $ 1,717
Expenses 11 1,717
Net Income 114 -
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.
20
<PAGE>
Note 7. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1997
----
(Amounts in Thousands)
Equipment lease operations $ 293
Security deposits 146
General Partner and affiliates 41
Other 28
--------
Total $ 508
========
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, 1997:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
Assets $ 6,138 $ 7,086 $ (948)
Liabilities 508 226 282
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
$181,000 and $278,000 for the years ended December 31, 1997 and 1996,
respectively. The equipment storage, remarketing and data processing costs
reimbursed to the General Partner during the years ended December 31, 1997 and
1996 were $46,000 and $87,000, 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 and distributions per limited partnership unit were based on
the limited partners' share of net income and distributions, and the weighted
average number of units outstanding of 170,156 and 170,766 for the years ended
December 31, 1997 and 1996, 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.
21
<PAGE>
Note 12. Fair Value of Financial Instruments.
The carrying amounts reported on the balance sheet for cash and cash
equivalents, available-for-sale securities and notes receivable approximate the
fair value.
Note 13. Subsequent Events.
In January 1998, cash distributions of $85,000 and $1,606,000 were made
to the General and Limited Partners, respectively.
22
<PAGE>
Item 8. Disagreements on Accounting and Financial Disclosure Matters.
None.
PART III
Item 9. 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 60, 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.
GARY W. MARTINEZ, age 47, 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.
HOWARD SOLOVEI, age 36, is the Chief Financial Officer, Treasurer and a
Director of PLA. He has been associated with PLI since 1984. Mr. Solovei
oversees the Finance Department. He is responsible for the structuring,
planning, and monitoring of the partnerships sponsored by the General Partner
and its affiliates, as well as maintaining the banking relationships. Mr.
Solovei graduated with a B.S. in Business Administration from the University of
California, Berkeley.
CYNTHIA E. PARKS, age 42, is Senior Vice President, General Counsel and
Secretary of PLA. 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.
BRYANT J. TONG, age 43, 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.
23
<PAGE>
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 and
Phoenix Leasing Income Fund VII
Disclosure Pursuant to Section 16, Item 405 of Regulation S-K:
The General Partner (and any corporate general partner of the General
Partner) of the Registrant, and the executive officers of the General Partner
(or any corporate general partner of the General Partner) of the Registrant,
file reports pursuant to Section 16(a) of the Securities Exchange Act of 1934,
as amended. Based solely on the Registrant's review of the copies of such forms
received by the Registrant, the Registrant believes that, during 1997, all such
required reports were filed on a timely basis, except for reports on Form 3
(Initial Statement of Beneficial Ownership of Securities) filed late by Howard
Solovei and Cynthia E. Parks, each an executive officer of the General Partner
(or any corporate general partner of the General Partner) of the Registrant. No
units of limited partnership interest are held by such executive officers.
Certain Legal Proceedings.
On October 28, 1997 a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III L.P., Phoenix
Securities Inc. and Phoenix American Incorporated (the "Companies") in
California Superior Court for the County of Sacramento by eleven individuals on
behalf of investors in Phoenix Leasing Cash Distribution Funds I through V (the
"Partnerships"). The Companies were served with the Complaint on December 9,
1997. The Complaint seeks declaratory and other relief including accounting,
receivership, imposition of constructive trust and judicial dissolution and
winding up of the Partnerships, and damages based on fraud, breach of fiduciary
duty and breach of contract by the Companies as general partners of the
Partnerships. The Companies received an extension of time to answer the
Complaint and formal discovery has not commenced. The Companies intend to
vigorously defend the Complaint.
Item 10. 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
------------------------- -----------------------
<S> <C> <C> <C> <C>
(Amounts in Thousands)
Phoenix Leasing
Associates LP General Partner $ 231(1) $ - $ -
====== ===== ====
<FN>
(1) consists of management and acquisition fees.
</FN>
</TABLE>
24
<PAGE>
PART IV
Item 11. 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:
(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 12. Certain Relationships and Related Transactions.
None.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No.
--------
(a) 1. Financial Statements:
Balance Sheets as of December 31, 1997 10
Statements of Operations for the Years Ended
December 31, 1997 and 1996 11
Statements of Partners' Capital for the Years
Ended December 31, 1997 and 1996 12
Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 13
Notes to Financial Statements 14-22
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,
1997.
(c) Exhibits
21. Additional Exhibits
a) Balance Sheets of Phoenix Leasing
Associates, Inc. E21 1 -4
Balance Sheets of Phoenix Leasing
Associates L.P. E21 5-8
27. Financial Data Schedule
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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 24, 1998 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 24, 1998
- ------------------------- of Phoenix Leasing Associates, Inc. --------------
(Gus Constantin)
/S/ GARY W. MARTINEZ Senior Vice President and March 24, 1998
- ------------------------- a Director of --------------
(Gary W. Martinez) Phoenix Leasing Associates, Inc.
/S/ HOWARD SOLOVEI Chief Financial Officer, March 24, 1998
- ------------------------- Treasurer and a Director of --------------
(Howard Solovei) Phoenix Leasing Associates, Inc.
/S/ BRYANT J. TONG Senior Vice President, March 24, 1998
- ------------------------- Financial Operations of --------------
(Bryant J. Tong) Phoenix Leasing Associates, Inc.
26
Exhibit 21
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, 1997 and
1996. These consolidated balance sheets are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated 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, Inc.
and Subsidiary as of June 30, 1997 and 1996, in conformity with generally
accepted accounting principles.
San Francisco, California ARTHUR ANDERSEN LLP
September 5, 1997
Page 1 of 8
<PAGE>
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1997 1996
----------- ------------
Cash and cash equivalents ......................... $ 186 $ 1,317
Due from PLI ...................................... 1,449,134 1,009,215
Due from PIFLP .................................... 17,565 50,329
Investment in PIFLP ............................... 380 --
----------- -----------
Total Assets ............................. $ 1,467,265 $ 1,060,861
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses .......... $ 4,798 $ 4,400
Deficit investment in PIFLP .................... -- 5,988
----------- -----------
Total Liabilities ........................ 4,798 10,388
----------- -----------
Minority Interest in Consolidated Subsidiary ...... 6,214 6,214
----------- -----------
Shareholder's Equity:
Common Stock, no par value, 100 shares
authorized and outstanding ................... 4,382,225 4,382,225
Retained earnings .............................. 1,456,153 1,044,159
Less:
Notes receivable from affiliate .............. (4,382,125) (4,382,125)
----------- -----------
Total Shareholder's Equity ............... 1,456,253 1,044,259
----------- -----------
Total Liabilities and Shareholder's Equity $ 1,467,265 $ 1,060,861
=========== ===========
The accompanying notes are an integral
part of these balance sheets.
2
<PAGE>
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
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, 1997, 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, 1997 and 1996, 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 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 consolidated
financial statements. Actual results could differ from those estimates.
Note 4. Notes Receivable from Affiliate:
PLI, the sole shareholder in PLA, as of June 30, 1997 and 1996, 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.
Under "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 $171,626 and $256,590 as of June 30, 1997 and
1996, respectively, were transferred to PAI in accordance with a Tax Sharing
Agreement between the Company and PAI.
3
<PAGE>
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 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 $17,565 and $50,329 as of
June 30, 1997 and 1996 are included in Due from PIFLP.
Note 7. Related Parties:
Phoenix Securities, Inc., an affiliate of the Company, received 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 $615,151and $980,163 for the year ended June 30, 1997 and 1996,
respectively.
4
<PAGE>
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, 1997 and 1996. These
financial statements 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 financial statement 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, 1997 and 1996, in conformity with generally accepted accounting
principles.
San Francisco, California ARTHUR ANDERSEN LLP
September 5, 1997
5
<PAGE>
PHOENIX LEASING ASSOCIATES L.P.
BALANCE SHEETS
ASSETS
June 30,
1997 1996
------- -------
Cash and cash equivalents ................................. $ 47 $ 1,182
Investment in PIFLP ....................................... 379 --
Due from PIFLP ............................................ 17,566 50,329
------- -------
Total Assets ..................................... $17,992 $51,511
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses .................. $ 2,399 $ 2,200
Deficit investment in PIFLP ............................ -- 5,987
Due to General Partner ................................. 8,389 36,120
------- -------
Total Liabilities ................................ 10,788 44,307
------- -------
Partners' Capital:
General partner (99 partnership units) ................. 990 990
Limited partner (99 partnership units) ................. 6,214 6,214
------- -------
Total Partners' Capital .......................... 7,204 7,204
------- -------
Total Liabilities and Partners' Capital .......... $17,992 $51,511
======= =======
The accompanying notes are an integral
part of these balance sheets.
6
<PAGE>
PHOENIX LEASING ASSOCIATES L.P.
NOTES TO THE BALANCE SHEETS
JUNE 30, 1997
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 financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ 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
$17,565 and $50,329 as of June 30, 1997 and 1996 respectively, 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, received 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
7
<PAGE>
financing provided to businesses by PIFLP or 100% of the net cash attributable
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
$615,151 and $980,163 for the year ended June 30, 1997 and 1996, respectively.
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<C>
<S>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,693
<SECURITIES> 26
<RECEIVABLES> 1,337
<ALLOWANCES> 319
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,345
<DEPRECIATION> 6,141
<TOTAL-ASSETS> 6,138
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,630
<TOTAL-LIABILITY-AND-EQUITY> 6,138
<SALES> 0
<TOTAL-REVENUES> 3,033
<CGS> 0
<TOTAL-COSTS> 1,312
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 111
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,721
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,721
<EPS-PRIMARY> 8.14
<EPS-DILUTED> 0
</TABLE>
