Item 1. BUSINESS
Fidelity Leasing Income Fund III, L.P. (the "Fund"), a Delaware limited partnership, was organized in 1985 and acquired equipment, primarily computer peripheral equipment, including printers, tape and disk storage devices, data communications equipment, computer terminals, data processing and office equipment, which was leased to third parties on a short-term basis. The Fund's principal objective is to generate leasing revenues for distribution. The Fund manages the equipment, releasing or disposing of equipment as it comes off lease in order to achieve its principal objective. The Fund does not borrow funds to purchase equipment.
The Fund closed on April 30, 1987 and raised $34,985,398 of proceeds through the sale of limited partnership units. Equipment of approximately $42,586,000 was purchased through December 31, 1995 with these proceeds raised, and also with cash distributions which were reinvested by partners and cash from operations which was not distributed to partners. As of December 31, 1995, the Fund has equipment on lease and equipment held for sale or lease with an approximate total net book value of $324,000. The General Partner intends to liquidate the remaining equipment by December 31, 1996.
The Fund generally acquired equipment subject to a lease. Purchases of equipment for lease were made through equipment leasing brokers, under a sale-leaseback arrangement directly from lessees owning equipment, from the manufacturer either pursuant to a purchase agreement relating to significant quantities of equipment or on an ad hoc basis to meet the needs of a particular lessee.
The equipment acquired was generally leased under "operating" leases. Operating leases provided the Fund as lessor, aggregate rental payments in an amount that is less than the purchase price of the equipment. Operating leases represent a greater risk but with the potential for increased returns, depending on the realization of renewal and remarketing results, as compared to full payout leases. Full payout leases are generally for longer initial terms whereby the noncancellable rental payments due during the initial term of the lease are at least sufficient to recover the purchase price of the equipment. Due to technological, competitive, market and economic factors, the Fund experienced renewals and remarketing of leases at lower rental rates and residual values than was forecasted at the inception of the leases.
The Fund's ability to attain its investment objectives was subject to the factors discussed above. The Fund competed in the equipment leasing industry with leasing companies, equipment manufacturers and distributors, and entities similar to the Fund (including similar programs sponsored by the General Partner), some of which had greater financial resources than the Fund and more experience in the equipment leasing business than the General Partner. This competition may have been in the position to offer equipment to lessees on financial terms more favorable than those which the Fund could offer. The offer of maintenance contracts, trade-in-privileges and other services which the Fund could not provide may have resulted in the Fund leasing its equipment on a less favorable basis than its competitors.
In addition, competitive factors in the computer equipment industry, including pricing, technological innovation and methods of financing, could have adversely affected the Fund in its ability to obtain new leases and renewals or to sell equipment for its anticipated net realizable values.
A brief description of the types of equipment in which the Fund has invested as of December 31, 1995 together with information concerning the users of such equipment is contained in Item 2, following.
The Fund does not have any employees. All persons who work on the Fund are employees of the General Partner.
Item 2.
Item 2. PROPERTIES
The following schedules detail the type and aggregate purchase price of the various types of equipment acquired and leased by the Fund as of December 31, 1995, along with the percentage of total equipment represented by each type of equipment, a breakdown of equipment usage by industrial classification and the average initial term of leases:
Purchase Price Percentage of Type of Equipment Acquired of Equipment Total Equipment
Communication Controllers $ 2,662,644 43.29% Disk Storage Systems 867,962 14.11 Network Communications 619,568 10.07 Personal Computers, Terminals and Work Stations 200,737 3.26 Printers 1,350,386 21.95 Tape Storage Systems 438,035 7.12 Other 12,514 0.20 ___________ ______
Totals $ 6,151,846 100.00% =========== ======
Breakdown of Equipment Usage By Industrial Classification
Purchase Price Percentage of Type of Business of Equipment Total Equipment
Computers/Data Processing $ 1,327,647 21.58% Diversified Financial/Banking/ Insurance 915,912 14.89 Manufacturing/Refining 1,856,787 30.18 Publishing/Printing 563,309 9.16 Retailing/Consumer Goods 937,092 15.23 Telephone/Telecommunications 546,907 8.89 Utilities 4,192 0.07 __________ ______
Totals $ 6,151,846 100.00% ========== ======
Average Initial Term of Leases (in months): 39
All of the above equipment is currently leased under operating leases.
Item 3.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
(a) The Fund's limited partnership units are not publicly traded. There is no market for the Fund's limited partnership units and it is unlikely that any will develop.
(b) Number of Equity Security Holders:
Number of Partners Title of Class as of December 31, 1995
Limited Partnership Interests 2,098
General Partnership Interest 1
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Fund had revenues of $2,043,528, $3,819,594 and $4,494,595 for the years ended December 31, 1995, 1994 and 1993, respectively. The decrease in revenues between 1995, 1994 and 1993 is primarily caused by the decrease in rental income generated from equipment on operating leases. Rental income from the leasing of computer peripheral equipment accounted for 87%, 94% and 92% of total income in 1995, 1994 and 1993, respectively. In 1995, rental income decreased by approximately $1,850,000 because of equipment which came off lease and was re-leased at lower rental rates or sold. This decrease, however, was offset by rental income of approximately $53,000 generated from 1994 equipment purchases for which a full year of rental income was earned in 1995 and only a partial year was earned in 1994. In 1994, rental income decreased by approximately $733,000 because of equipment which came off lease and was re-leased at lower rental rates or sold. This decrease, however, was offset by rental income of $166,000 generated from 1994 equipment purchases and rents realized on 1993 equipment purchases for which only a partial year was earned in 1993 but a full year was earned in 1994. In addition, the Fund recognized a net gain on sale of equipment of $215,441, $190,212 and $243,108 for the years ended December 31, 1995, 1994 and 1993, respectively which affected the decrease in total revenues for these years. Furthermore, interest income decreased in 1995 and 1994 due to a decrease in cash available for investment and, in 1994, the decline in interest rates also accounts for the decline in interest income. The decrease in interest income contributed to the decrease in total revenues for these years, as well.
Expenses were $1,118,000, $3,125,716 and $3,769,508 for the years ended December 31, 1995, 1994 and 1993, respectively. Depreciation expense comprised 63% of total expenses in 1995, 80% of total expenses in 1994 and 78% of total expenses in 1993. The decrease in expenses between these years is primarily attributable to the decrease in depreciation expense because of equipment which came off lease and was terminated or sold. Currently, the Fund's practice is to review the recoverability of its undepreciated costs of rental equipment quarterly. The Fund's policy, as part of this review, is to analyze such factors as releasing of equipment, technological developments and information provided in third party publications. In 1995, 1994 and 1993, approximately $141,000, $148,000 and $359,000, respectively, was charged to write-down of equipment to net realizable value which also accounts for the decrease in total expenses in 1995 and 1994. In accordance with Generally Accepted Accounting Principles, the Fund writes down its rental equipment to its estimated net realizable value when the amounts are reasonably estimated and only recognizes gains upon actual sale of its rental equipment. The General Partner believes, after analyzing the current equipment portfolio, that there are impending gains to be recognized upon the sale of certain of its equipment in future years. Additionally, the decline in management fees, resulting from the decrease in rental income contributed to the decrease in total expenses in 1995 and 1994.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
The Fund's net income was $925,528, $693,878 and $725,087 for the years ended December 31, 1995, 1994 and 1993, respectively. The earnings per equivalent limited partnership unit, after earnings allocated to the General Partner, were $87.50, $43.18 and $27.52 for the years ended December 31, 1995, 1994 and 1993, respectively. The weighted average number of equivalent limited partnership units outstanding were 10,161, 15,240 and 24,357 for 1995, 1994 and 1993, respectively.
The Fund generated funds from operations, for the purpose of determining cash available for distribution, of $1,556,199, $3,164,239 and $3,763,637 and declared distributions of $1,892,377, $3,573,922 and $5,470,813 to partners for 1995, 1994 and 1993, respectively. The distributions for 1995, 1994 and 1993 include $336,178, $409,683 and $1,707,176, respectively, of sales proceeds and cash available from previous years which was not distributed. For financial statement purposes, the Fund records cash distributions to partners on a cash basis in the period in which they are paid. During the fourth quarter of 1995, the General Partner revised its policy regarding cash distributions so that the distributions more accurately reflect the net income of the Fund over the most recent twelve months.
Analysis of Financial Condition
The General Partner has commenced the dissolution process for the Fund with the intent of fully liquidating the Fund by the end of 1996. Therefore, as leases expire, the General Partner will seek to sell the equipment at its market value or extend the equipment for lease terms consistent with the plan of liquidation. The Fund purchased $1,984, $181,144 and $828,475 of equipment during the years ended December 31, 1995, 1994 and 1993 respectively.
The cash position of the Fund is reviewed daily and cash is invested on a short-term basis.
The Fund's cash from operations is expected to continue to be adequate to cover all operating expenses and contingencies during the next fiscal year.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this report commencing on page.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Effective September 1, 1995, The Fidelity Mutual Life Insurance Company (in Rehabilitation) sold Fidelity Leasing Corporation (FLC), the General Partner of the Fund, to Resource Leasing, Inc., a wholly owned subsidiary of Resource America, Inc. The Directors and Executive Officers of FLC are:
FREDDIE M. KOTEK, age 39, Chairman of the Board of Directors, President, and Chief Executive Officer of FLC since September 1995 and Senior Vice President of Resource America, Inc. since 1995. President of Resource Leasing, Inc. since September 1995. Executive Vice President of Resource Properties, Inc. (a wholly owned subsidiary of Resource America, Inc.) since 1993. Senior Vice President and Chief Financial Officer of Paine Webber Properties from 1990 to 1991.
MICHAEL L. STAINES, age 46, Director and Secretary of FLC since September 1995 and Senior Vice President and Secretary of Resource America, Inc. since 1989.
SCOTT F. SCHAEFFER, age 33, Director of FLC since September 1995 and Senior Vice President of Resource America, Inc. since 1995. Vice President-Real Estate of Resource America, Inc. and President of Resource Properties, Inc. (a wholly owned subsidiary of Resource America, Inc.) since 1992. Vice President of the Dover Group, Ltd. (a real estate investment company) from 1985 to 1992.
MARK A. MAYPER, age 42, Senior Vice President of FLC overseeing the lease syndication business since 1987.
Others:
STEPHEN P. CASO, age 40, Vice President and Counsel of FLC since 1992.
MARIANNE T. SCHUSTER, age 37, Vice President and Controller of FLC since 1984.
KRISTIN L. CHRISTMAN, age 28, Portfolio Manager of FLC since December 1995 and Equipment Brokerage Manager since 1993.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth information relating to the aggregate compensation earned by the General Partner of the Fund during the year ended December 31, 1995:
Name of Individual or Capacities in Number in Group Which Served Compensation
Fidelity Leasing Corporation General Partner $106,214(1) ========
(1) This amount does not include the General Partner's share of cash distributions made to all partners.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) As of December 31, 1995, there was no person or group known to the Fund that owned more than 5% of the Fund's outstanding securities either beneficially or of record.
(b) In 1985, the General Partner contributed $1,000 to the capital of the Fund but it does not own any of the Fund's outstanding securities. No individual director or officer of Fidelity Leasing Corporation nor such directors or officers as a group, owns more than one percent of the Fund's outstanding securities. The General Partner owns a general partnership interest which entitles it to receive 5% of cash distributions until the Limited Partners have received an amount equal to the purchase price of their Units plus a 10% compounded Priority Return; thereafter 10%. The General Partner will also share in net income equal to the greater of its cash distributions or 1% of net income or to the extent there are losses, 1% of such losses.
(c) There are no arrangements known to the Fund that would, at any subsequent date, result in a change in control of the Fund.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1995, the Fund was charged $106,214 of management fees by the General Partner. The General Partner will continue to receive 6% of rental payments on equipment under operating leases for administrative and management services performed on behalf of the Fund.
The General Partner may also receive up to 3% of the proceeds from the sale of the Fund's equipment for services and activities to be performed in connection with the disposition of equipment. The payment of this sales fee is deferred until the Limited Partners have received cash distributions equal to the purchase price of their units plus a 10% cumulative compounded Priority Return. Based on current estimates, it is not expected that the Fund will be required to pay the General Partner a sales fee.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
The General Partner also receives 5% of cash distributions until the Limited Partners have received an amount equal to the purchase price of their Units plus a 10% compounded Priority Return. Thereafter, the General Partner will receive 10% of cash distributions. During the year ended December 31, 1995, the General Partner received $31,706 of cash distributions.
The Fund incurred $32,766 of reimbursable costs to the General Partner for services and materials provided in connection with the administration of the Fund during 1995.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2). The response to this portion of Item 14 is submitted as a separate section of this report commencing on page .
(a) (3) and (c) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit Numbers Description Page Number
3(a) & (4) Amended and Restated Agreement * of Limited Partnership
(9) not applicable
(10) not applicable
(11) not applicable
(12) not applicable
(13) not applicable
(18) not applicable
(19) not applicable
(22) not applicable
(23) not applicable
(24) not applicable
(25) not applicable
(28) not applicable
* Incorporated by reference.
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.
FIDELITY LEASING INCOME FUND III, L.P. A Delaware limited partnership
By: FIDELITY LEASING CORPORATION
Freddie M. Kotek, Chairman By: ___________________________ Freddie M. Kotek, Chairman and President
Dated March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons, on behalf of the Registrant and in the capacities and on the date indicated:
Signature Title Date
Freddie M. Kotek ___________________________ Chairman of the Board of Directors 3-26-96 Freddie M. Kotek and President of Fidelity Leasing Corporation (Principal Executive Officer)
Michael L. Staines ___________________________ Director of Fidelity Leasing 3-26-96 Michael L. Staines Corporation
Marianne T. Schuster ____________________________ Vice President and Controller 3-26-96 Marianne T. Schuster of Fidelity Leasing Corporation (Principal Financial Officer)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
Report of Independent Certified Public Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements -
All schedules have been omitted because the required information is not applicable or is included in the Financial Statements or Notes thereto.
Report of Independent Certified Public Accountants
The Partners Fidelity Leasing Income Fund III, L.P.
We have audited the accompanying balance sheets of Fidelity Leasing Income Fund III, L. P. as of December 31, 1995 and 1994, and the related statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Fund'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 Fidelity Leasing Income Fund III, L.P. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
Grant Thornton, LLP Philadelphia, Pennsylvania February 2, 1996
FIDELITY LEASING INCOME FUND III, L.P.
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
FIDELITY LEASING INCOME FUND III, L.P.
The accompanying notes are an integral part of these financial statements.
FIDELITY LEASING INCOME FUND III, L.P.
The accompanying notes are an integral part of these financial statements.
FIDELITY LEASING INCOME FUND III, L.P.
In addition, the General Partner declared a cash distribution of $250,000 in February 1996 for the three months ended December 31, 1995, to all admitted partners as of December 31, 1995.