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, 1999 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 _____ No __X__
The Registrant's revenue for its most recent fiscal year was $1,347,000.
As of December 31, 1999, 169,587 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, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format:
Yes _____ No __X__
Page 1 of 26
<PAGE>
PHOENIX INCOME FUND, L.P.
1999 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 5
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.......................................... 9
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.................................................. 24
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
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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,
1999, 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,
1999, none of the leased assets 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
3
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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.
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, 1999, 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, 1999, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $1,083,000.
The following table summarizes the type of equipment owned or financed by the
Partnership at December 31, 1999.
Percentage of
Asset Types Purchase Price(1) Total Assets
- ---------------------------------------- ----------------- -------------
(Amounts in Thousands)
Capital Equipment Leased to Emerging
Growth Companies $ 369 34%
Financing to Businesses 337 31
Telecommunications 186 17
Miscellaneous 96 9
Computer Peripherals 61 5
Small Computer Systems 29 3
Furniture and Fixtures 5 1
------- ---
TOTAL $1,083 100%
======= ===
(1) These amounts include the original cost of outstanding loans of $47,000
at December 31, 1999.
4
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Item 3. Legal Proceedings.
-----------------
The Registrant is not a party to any pending legal proceedings which
would have a material adverse impact on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the year covered by this report.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
------------------------------------------------------------------
Matters.
--------
(a) The Registrant's limited partnership interests are not publicly
traded. There is no market for the Registrant's limited
partnership interests and it is unlikely that any will develop.
(b) Approximate number of equity security investments:
Number of Unit Holders
Title of Class as of December 31, 1999
---------------------------- -----------------------
Limited Partners 3,641
General Partner 1
5
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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
$1,134,000 and $1,444,000 during the years ended December 31, 1999 and 1998,
respectively. The Partnership reported an overall decrease in total revenues and
expenses for the year ended December 31, 1999. However, the decreases in
revenues exceeded the decreases in expenses, generating a decrease in net income
for the year ended December 31, 1999, compared to the previous year.
Total revenues decreased by $751,000 during 1999, as compared to the
same period in the previous year. The decrease in total revenues is due
primarily to decreases in rental income, earned income from financing leases,
interest income from notes receivable and a decrease in earnings from joint
ventures. However, an increase in gain on sale of securities of $469,000 during
the year ended December 31, 1999, compared to the previous year, caused a
smaller decrease in revenues for this period than there would have been
otherwise. Rental income decreased by $960,000 during 1999 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, 1999, the Partnership owned equipment with an aggregate
original cost of $745,000, as compared to the $7 million of equipment owned at
December 31, 1998.
Earned income from financing leases decreased by $167,000 during the
year ended December 31, 1999, as compared to the same period in 1998. This
decrease is attributable to the decrease in the net investment in financing
leases since December 31, 1998. The Partnership owned financing leases with a
net investment of $0 at December 31, 1999, as compared to $351,000 at December
31, 1998. The net investment in financing leases is amortized to income over the
life of the lease until the net investment is $0 using the interest method
Interest income from notes receivable decreased by $66,000 for the year
ended December 31, 1999, compared to 1998. The decrease in interest income from
notes receivable, for the year ended December 31, 1999, compared to 1998, is
attributable to the decline in net investment in notes receivable. The net
investment in notes receivable was $61,000 at December 31, 1999, compared to
$271,000 at December 31, 1998.
Earnings from joint ventures decreased by $98,000 for the year ended
December 31, 1999, compared to 1998. The decrease was due to one joint venture
experiencing a loss from sale of equipment, as well as another joint venture
experiencing a reduction in rental income.
The Partnership reported a gain on sale of securities of $473,000 for
the year ended December 31, 1999, compared to $4,000 in 1998. The securities
sold for both 1999 and 1998 consisted of common stock received through the
exercise of stock warrants granted to the Partnership as part of financing
agreements with emerging growth companies that are publicly traded. The
Partnership received proceeds of $473,000 and $4,000 from the sale of these
securities during the year ended December 31, 1999 and 1998, respectively. In
addition, at December 31, 1999, the Partnership owns shares of stock and stock
warrants in emerging growth companies that are publicly traded with an
unrealized gain of approximately $9,000. These stock warrants contain certain
restrictions, but are generally exercisable within one year.
Total expenses of the Partnership decreased by $441,000 during the year
ended December 31, 1999, compared to the same period in the previous year. All
expense items decreased, with depreciation expense contributing the largest
decline. Depreciation expense decreased by $192,000 for the year ended December
31, 1999 as compared to the same period in 1998. The decrease in depreciation
expense is primarily due to the decrease in the amount of equipment owned by the
Partnership, as well as, the equipment portfolio having been fully depreciated
during the year ended December 31, 1999.
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
6
<PAGE>
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, 1999 and 1998 of $940,000
and $3,309,000, respectively. The decline in net cash generated from leasing and
financing activities for the years ended December 31, 1999 is attributable to
decreases in rental income from operating leases, principal payments from
financing leases and principal payments from notes receivable, as previously
discussed in the Results of Operations.
The Partnership received distributions from joint ventures of $160,000
and $356,000 for the year ended December 31, 1999 and 1998, respectively. The
decrease in distributions from joint ventures, for the year ended December 31,
1999, is attributable to one joint venture experiencing a decline in cash
available for distributions as a result of a reduction in rental income and
sales proceeds received.
As of December 31, 1999, the Partnership owned equipment being held for
lease with an original cost of $418,000 and a net book value of $0, as compared
to equipment with an original cost of $2,859,000 and a net book value of $31,000
at December 31, 1998. 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 $4,383,000 and $3,361,000 for the
years ended December 31, 1999 and 1998, 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 $4,383,000 and $3,193,000 in cash
distributions for the years ended December 31, 1999 and 1998, respectively. The
cumulative cash distributions to limited partners is $43,274,000 at December 31,
1999 and 1998. The General Partner received cash distributions of $0 and
$168,000 for its share of the cash distribution for the years ended December 31,
1999 and 1998, respectively. The Partnership made its next distribution in
January of 2000.
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.
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 .
Impact of the Year 2000 Issue
The General Partner has appointed ResourcePhoenix.com. (RPC), an
affiliate of the General Partner, to manage its Year 2000 project.
RPC has a Year 2000 project plan in place and a "Y2K Project Team" has
been appointed. The team has identified risks, and has implemented remediation
procedures for its Year 2000 issues. RPC has budgeted for the necessary changes,
built contingency plans, and has progressed along the scheduled timeline.
Installation of all remediation changes to critical software and hardware was
completed on November 5, 1999. As of January 31, 2000 RPC has not encountered
any material year 2000 problems with the hardware and software systems used in
our operations. In addition, none of RPC's critical vendors have reported any
material year 2000 problems nor have they experienced any decline in service
levels from such vendors.
RPC will continue to monitor internal and external issues related to
year 2000.
7
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Costs incurred by the Partnership will be expenses as incurred and are
not currently anticipated to be material to the Partnership's financial position
or results of operations.
The Partnership's customers consist of lessees and borrowers. The
Partnership does not have exposure to any individual customer that would
materially impact the Partnership should the customer experience a significant
Year 2000 problem.
8
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Item 7. FINANCIAL STATEMENTS
--------------------
PHOENIX INCOME FUND, L.P.
-------------------------
YEAR ENDED DECEMBER 31, 1999
----------------------------
9
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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, 1999, and the related
statements of operations and comprehensive income, partners' capital and cash
flows for the years ended December 31, 1999 and 1998. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phoenix Income Fund, L.P. as of
December 31, 1999 and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
January 26, 2000
10
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PHOENIX INCOME FUND, L.P.
BALANCE SHEET
(Amounts in Thousands Except for Unit Amounts)
December 31, 1999
-----------------
ASSETS
Cash and cash equivalents $ 388
Accounts receivable (net of allowance for losses on
accounts receivable of $19) 26
Notes receivable 61
Equipment on operating leases and held for lease
(net of accumulated depreciation of $636) -
Investment in joint ventures 32
Capitalized acquisition fees (net of accumulated
amortization of $3,622) -
Other assets 8
---------
Total Assets $ 515
=========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 70
---------
Total Liabilities 70
---------
Partners' Capital:
General Partner -
Limited Partners, 300,000 units authorized, 175,285
units issued and 169,587 units outstanding 436
Accumulated other comprehensive income 9
---------
Total Partners' Capital 445
---------
Total Liabilities and Partners' Capital $ 515
=========
The accompanying notes are an integral part of these statements.
11
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PHOENIX INCOME FUND, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1999 1998
---- ----
INCOME
Rental income $ 520 $ 1,480
Earned income, financing leases 26 193
Gain on sale of securities 473 4
Equity in earnings from joint ventures 77 175
Interest income, notes receivable 49 115
Other income 202 131
------- -------
Total Income 1,347 2,098
------- -------
EXPENSES
Depreciation 5 197
Amortization of acquisition fees 28 88
Lease related operating expenses 14 44
Management fees to General Partner 57 128
Reimbursed administrative costs to General Partner 67 86
Provision for (recovery of) losses on receivables (33) 10
General and administrative expenses 75 101
------- -------
Total Expenses 213 654
------- -------
NET INCOME 1,134 1,444
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period 467 (7)
Less: reclassification adjustment for
gains included in net income (473) (4)
------- -------
Other comprehensive income (loss) (6) (11)
------- -------
COMPREHENSIVE INCOME $ 1,128 $ 1,433
======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 6.69 $ 7.52
======= =======
ALLOCATION OF NET INCOME:
General Partner $ -- $ 168
Limited Partners 1,134 1,276
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$ 1,134 $ 1,444
======= =======
The accompanying notes are an integral part of these statements.
12
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PHOENIX INCOME FUND, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
<TABLE>
<CAPTION>
Accumulated
General Other
Partner's Limited Partners' Comprehensive Total
Amount Units Amount Income Amount
--------- ------------------ ------------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ -- 169,972 $ 5,604 $ 26 $ 5,630
Redemptions of capital -- (368) (2) -- (2)
Distributions to partners ($18.82 per
limited partnership unit) (168) -- (3,193) -- (3,361)
Other comprehensive income -- -- -- (11) (11)
Net income 168 -- 1,276 -- 1,444
-------- -------- -------- -------- --------
Balance, December 31, 1998 -- 169,604 3,685 15 3,700
Redemptions of capital -- (17) -- -- --
Distributions to partners ($25.85 per
limited partnership unit) -- -- (4,383) -- (4,383)
Other comprehensive income -- -- -- (6) (6)
Net income -- -- 1,134 -- 1,134
-------- -------- -------- -------- --------
Balance, December 31, 1999 $ -- 169,587 $ 436 $ 9 $ 445
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
13
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PHOENIX INCOME FUND, L.P.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1999 1998
---- ----
Operating Activities:
- --------------------
Net income $ 1,134 $ 1,444
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5 197
Amortization of acquisition fees 28 88
Gain on sale of equipment (93) (51)
Gain on sale of securities (473) (4)
Equity in earnings from joint ventures (77) (175)
Provision for early termination, financing
leases 2 19
Recovery of losses on accounts receivable (41) (9)
Provision for losses on notes receivable 6 --
Decrease in accounts receivable 39 192
Decrease in accounts payable and accrued
expenses (143) (295)
Decrease in other assets 24 5
------- -------
Net cash provided by operating activities 411 1,411
------- -------
Investing Activities:
- --------------------
Principal payments, financing leases 325 1,357
Principal payments, notes receivable 204 541
Proceeds from sale of equipment 148 51
Proceeds from sale of securities 473 4
Distributions from joint ventures 160 356
------- -------
Net cash provided by investing activities 1,310 2,309
------- -------
Financing Activities:
- --------------------
Distributions to partners (4,383) (3,361)
Redemptions of capital -- (2)
------- -------
Net cash used in financing activities (4,383) (3,363)
------- -------
Increase (decrease) in cash and cash equivalents (2,662) 357
Cash and cash equivalents, beginning of period 3,050 2,693
------- -------
Cash and cash equivalents, end of period $ 388 $ 3,050
======= =======
The accompanying notes are an integral part of these statements.
14
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PHOENIX INCOME FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 due and distributions made to the General
Partner for the years ended December 31 follows:
1999 1998
---- ----
(Amounts in Thousands)
Management fees $ 57 $ 128
Cash distributions - 168
------ ------
Total $ 57 $ 296
====== ======
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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. As provided 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.
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. No redemptions were
retained by the Partnership during the years ended December 31, 1999 and 1998;
however, during the year ended December 31, 1999 seventeen units were abandoned.
"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.
16
<PAGE>
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
not exceed expenses in any future period, the Partnership will revise its
depreciation policy and provide for additional depreciation as appropriate.
Rental income for the year is determined on a straight-line 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 as other
comprehensive income.
Reclassification. Certain 1998 amounts have been reclassified to
conform to the 1999 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.
Comprehensive Income. As of January 1, 1998, the Partnership adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). This statement establishes standards for the reporting and
display of comprehensive income and its components in the financial statements.
For the Partnership, comprehensive income includes net income reported on the
statement of operations and changes in the fair value of its available-for-sale
investments reported as a component of partners' capital.
Note 3. Accounts Receivable.
-------------------
Accounts receivable consist of the following at December 31:
1999
----
(Amounts in Thousands)
Property and sales taxes $ 26
Lease payments 18
Interest 1
----
45
Less: allowance for losses on accounts receivable (19)
----
Total $ 26
====
17
<PAGE>
Note 4. Notes Receivable.
----------------
Notes receivable consist of the following at December 31:
1999
----
(Amounts in Thousands)
Notes receivable from other businesses with
stated interest ranging from 17% to 25% per
annum, receivable in installments ranging from
37 to 60 months, collateralized by the equipment
financed. $ 61
----
Total $ 61
====
Minimum payments to be received on non-cancelable notes receivable for
the years ended December 31, are as follows:
(Amounts in Thousands)
2000 .............................................. $ 1
2001 .............................................. 14
----
Total minimum payments to be received ............. 15
Impaired notes receivable ......................... 48
Less: unearned interest .......................... (2)
----
Net investment in notes receivable ................ $ 61
====
At December 31, 1999, the recorded investment in notes that are
considered to be impaired was $48,000, net of specific write-downs. The average
recorded investment in impaired loans during the years ended December 31, 1999
and 1998 was approximately $67,000 and $106,000, respectively. The Partnership
recognized $25,000 and $6,000 of interest income on impaired notes receivable
during the years ended December 31, 1999 and 1998, respectively.
The activity in the allowance for losses on notes receivable during the
year ended December 31, is as follows:
1999 1998
---- ----
(Amounts in Thousands)
Beginning balance $ 162 $ 162
Provision for losses 6 --
Write downs (168) --
----- -----
Ending balance $ -- $ 162
===== =====
Note 5. Equipment on Operating 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.
18
<PAGE>
Minimum rentals to be received on noncancellable operating leases for
the years ended December 31 are as follows:
Operating
---------
(Amounts in Thousands)
2000 ................................................. $ 1
2001 ................................................. --
2002 ................................................. --
2003 ................................................. --
--
-----
Totals ............................................... $ 1
=====
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, who
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.
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, 1998 $ 126 $ 0 $ 159 $ 273 $ 12
===== ===== ===== ===== =====
Year Ended
December 31, 1999 $ 12 $ 0 $ 119 $ 99 $ 32
===== ===== ===== ===== =====
19
<PAGE>
The aggregate financial information of the equipment joint venture is
presented as follows:
December 31, 1999
-----------------
(Amounts in Thousands)
Assets $ 177
Liabilities 35
Partners' Capital 142
For the Years Ended December 31,
1999 1998
---- ----
(Amounts in Thousands)
Revenue $ 586 $ 766
Expenses 72 59
Net Income 514 707
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 owned a 25% interest in Phoenix Joint Venture 1994-2, a
financing joint venture. This joint venture was closed during 1999. The
investment was accounted for using the equity method of accounting. The other
partners of the venture were 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 Equity in Investment
at Beginning Earnings at End
Date of Period Contributions (Losses) Distributions of Period
- ---- ------------- ------------- -------- ------------- ---------
(Amounts in Thousands)
Year Ended
December 31, 1998 $ 170 $ 0 $ 16 $ 83 $ 103
===== ===== ===== ===== =====
Year Ended
December 31, 1999 $ 103 $ 0 $ (42) $ 61 $ 0
===== ===== ===== ===== =====
The aggregate financial information of the Financing Joint Venture is
presented as follows:
For the Years Ended December 31,
1999 1998
---- ----
(Amounts in Thousands)
Revenue $ 2 $ 85
Expenses 155 17
Net Income (Loss) (153) 68
The General Partner earned 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
were not 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:
1999
----
(Amounts in Thousands)
Equipment lease operations $ 30
Other 26
General Partner and affiliates 13
Security deposits 1
----
Total $ 70
====
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, 1999:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
Assets $ 515 $ 802 $ (287)
Liabilities 70 49 21
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, which
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 $67,000
and $86,000 for the years ended December 31, 1999 and 1998, respectively. The
equipment storage, remarketing and data processing costs reimbursed to the
General Partner during the years ended December 31, 1999 and 1998 were $15,000
and $42,000, 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 169,587 and 169,677 for the years ended
December 31, 1999 and 1998, respectively. For purposes of allocating income
21
<PAGE>
(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 carrying amounts reported on the balance sheet for cash and cash
equivalents, available-for-sale securities and notes receivable approximate
their fair value.
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 62, 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 49, 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 38, 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.
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. and
Phoenix Leasing Cash Distribution Fund IV
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 1998, all such
required reports were filed on a timely basis.
23
<PAGE>
Certain Legal Proceedings.
On October 28, 1997, a Class Action Complaint (the "Complaint") was
filed against Phoenix Leasing Inc., Phoenix Leasing Associates, II and III L.P.,
Phoenix Securities Inc. and Phoenix American Inc. (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 sought 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.
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Marin Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and re-filed them in a separate lawsuit
making similar allegations (the "Sacramento Action").
Plaintiffs have amended the Marin Action twice. Defendants have not yet
answered the Complaint and may file a demurrer to dismiss the claims. Discovery
has not commenced. The Companies intend to vigorously defend the Complaint.
In February 1999, plaintiffs requested a transfer of the Sacramento
Action to Marin County. The Court granted that request, and the case is
currently in transit. Defendants have not yet responded to the Complaint.
Discovery has not commenced. The Companies intend to vigorously defend the
Complaint.
Item 10. Executive Compensation.
----------------------
Set forth is the information relating to all direct remuneration paid
or accrued by the Registrant during the last year to the General Partner.
<TABLE>
Set forth is the information relating to all direct remuneration paid
or accrued by the Registrant during the last year to the General Partner.
<CAPTION>
(A) (B) (C) (D)
Cash and cash- Aggregate of
Name of Individual Capacities in equivalent forms contingent forms
or persons in group which served of remuneration of remuneration
- ------------------- ------------ ------------------------------------------- -----------------
(C1) (C2)
Securities or property
Salaries, fees, directors' insurance benefits or
fees, commissions, and reimbursement, personal
bonuses benefits
------------------------- -----------------------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Phoenix Leasing
Associates LP General Partner $ 57(1) $ - $ -
====== ===== ====
<FN>
(1) consists of management fees.
</FN>
</TABLE>
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:
24
<PAGE>
(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 Sheet as of December 31, 1999 11
Statements of Operations and Comprehensive Income
for the Years Ended December 31, 1999 and 1998 12
Statements of Partners' Capital for the Years
Ended December 31, 1999 and 1998 13
Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 14
Notes to Financial Statements 15-22
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,
1999.
(c) Exhibits
21. Additional Exhibits
a) Balance Sheets of Phoenix Leasing Associates, Inc. E21 1-5
Balance Sheets of Phoenix Leasing Associates L.P. E21 6-9
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 17, 2000 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 17, 2000
- ------------------------- of Phoenix Leasing Associates, Inc. --------------
(Gus Constantin)
/S/ GARY W. MARTINEZ Senior Vice President and March 17, 2000
- ------------------------- a Director of --------------
(Gary W. Martinez) Phoenix Leasing Associates, Inc.
/S/ HOWARD SOLOVEI Chief Financial Officer, March 17, 2000
- ------------------------- Treasurer and Director of --------------
(Howard Solovei) 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 September
30, 1999 and June 30, 1998. These financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in
all material respects, the financial position of Phoenix Leasing Associates,
Inc. and subsidiary as of September 30, 1999 and June 30, 1998, in conformity
with generally accepted accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
December 28, 1999
Page 1 of 9
<PAGE>
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
1999 1998
---- ----
Cash and cash equivalents $ 3,594 $ 366
Due from Phoenix Leasing Incorporated 2,364,588 1,854,784
Due from Phoenix Income Fund, L.P. 19,451 29,602
----------- -----------
Total Assets $ 2,387,633 $ 1,884,752
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses $ 4,269 $ 730
Deficit investment in Phoenix Income Fund, L.P. 122 7
----------- -----------
Total Liabilities 4,391 737
----------- -----------
Minority Interest in Consolidated Subsidiary 6,214 6,214
----------- -----------
Shareholder's Equity:
Common stock, without par value, 100
shares authorized and outstanding 4,382,225 4,382,225
Retained earnings 2,376,928 1,877,701
Less:
Note receivable from affiliate (4,382,125) (4,382,125)
------------ -----------
Total Shareholder's Equity 2,377,028 1,877,801
----------- -----------
Total Liabilities and Shareholder's Equity $ 2,387,633 $ 1,884,752
=========== ===========
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO THE BALANCE SHEETS
September 30, 1999
Note 1. Organization:
Phoenix Leasing Associates, Inc. (the Company) was formed under the
laws of Nevada on September 13, 1989. PLA is a wholly owned subsidiary of
Phoenix Leasing Incorporated (PLI), a California corporation.
Effective July 1, 1998, the Company and all its subsidiary changed its
fiscal year end from June 30 to September 30.
As of September 30, 1999, the Company 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. The
Company 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 the Company, 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 the Company. Distributions to
the partners are made in accordance with the terms of the partnership agreement.
Note 2. Principles of Consolidation:
The consolidated balance sheets as of September 30, 1999 and June 30,
1998, include the accounts of the Company and its subsidiary, PLALP, over which
the Company 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 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 the Company, as of September 30, 1999 and
June 30, 1998, has issued demand promissory notes to the Company totaling
$4,382,125. There are no restrictions or covenants associated with these notes
which would preclude the Company 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.
3
<PAGE>
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO THE BALANCE SHEETS
September 30, 1999
Note 5. Income Taxes:
During the year ended June 30, 1999, 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
liability of $185,507 as of June 30, 1998 was transferred to PAI in accordance
with a Tax Sharing Agreement between the Company and PAI.
Effective July 1, 1998, the Company and all its subsidiaries adopted
treatment as an "S" Corporation pursuant to the Federal Income Tax Regulations
for tax reporting purposes. Federal and state income tax regulations provide
that taxes on the income or loss of the Company are reportable on the
shareholder's individual return.
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 $19,451 and
$29,602 as of September 30, 1999, and June 30, 1998 respectively, are included
in Due from Phoenix Income Fund, L.P. on the Balance Sheet.
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 $103,643 and $438,140 for the twelve months ended September 30,
1999 and June 30, 1998, respectively, and $64,452 for the three months ended
September 30, 1998.
Note 8. Commitments and Contingencies:
On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III LP., 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 sought declaratory and other relief including accounting,
receivership, imposition of a 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.
4
<PAGE>
PHOENIX LEASING ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO THE BALANCE SHEETS
September 30, 1999
Note 8. Commitments and Contingencies (continued):
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Berger Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and refiled them in a separate lawsuit
making similar allegations (the "Ash Action"). That complaint was subsequently
transferred to Marin County as well.
Plaintiffs have amended the Berger Action twice. Defendants recently
answered the complaint. Discovery has recently commenced. The Companies intend
to vigorously defend the Complaint.
Defendants have filed a demurrer to the Ash Complaint, which plaintiffs
amended three times. Discovery has not yet commenced. The Companies intend to
vigorously defend the complaint.
5
<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 September 30, 1999 and
June 30, 1998. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in
all material respects, the financial position of Phoenix Leasing Associates L.P.
as of September 30, 1999 and June 30, 1998, in conformity with generally
accepted accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
December 28, 1999
6
<PAGE>
PHOENIX LEASING ASSOCIATES L.P.
BALANCE SHEETS
ASSETS
September 30, June 30,
1999 1998
---- ----
Cash and cash equivalents $ 616 $ 298
Due from Phoenix Income Fund, L.P. 19,451 29,602
----------- -----------
Total Assets $ 20,067 $ 29,900
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 2,135 $ 365
Deficit investment in Phoenix Income Fund, L.P. 121 7
Due to General Partner 10,607 22,324
----------- -----------
Total Liabilities 12,863 22,696
----------- -----------
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 $ 20,067 $ 29,900
=========== ===========
The accompanying notes are an integral part of these balance sheets.
7
<PAGE>
PHOENIX LEASING ASSOCIATES L.P.
NOTES TO THE BALANCE SHEETS
September 30, 1999
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 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.
Effective July 1, 1998, the Partnership changed its fiscal year end
from June 30 to September 30.
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 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
$19,451 and $29,602 as of September 30, 1999 and June 30, 1998, respectively are
included in Due from Phoenix Income Fund, L.P. on the balance sheet.
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.
8
<PAGE>
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
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
$103,643 and $438,140 for the twelve months ended September 30, 1999 and June
30, 1998, respectively, and $64,452 for the three months ended September 30,
1998.
Note 7. Commitments and Contingencies:
On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III LP., 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 sought declaratory and other relief including accounting,
receivership, imposition of a 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.
Plaintiffs severed one cause of action from the Complaint, a claim
related to the marketing and sale of CDF V, and transferred it to Marin County
Superior Court (the "Berger Action"). Plaintiffs then dismissed the remaining
claims in Sacramento Superior Court and refiled them in a separate lawsuit
making similar allegations (the"Ash Action"). That complaint was subsequently
transferred to Marin County as well.
Plaintiffs have amended the Berger Action twice. Defendants recently
answered the complaint. Discovery has recently commenced. The Companies intend
to vigorously defend the Complaint.
Defendants have filed a demurrer to the Ash Complaint, which plaintiffs
amended three times. Discovery has not yet commenced. The Companies intend to
vigorously defend the complaint.
9
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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<ALLOWANCES> 19
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<PP&E> 636
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0
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