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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the year ended December 31, 1995
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the transition period from _______________ to ______________
Commission file number 0-19232
Fidelity Leasing Income Fund VII, L.P.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 23-2581971
_________________________________________________________________
(State of Organization) (I.R.S. Employer Identification No.)
Suite 275, 7 E. Skippack Pike, Ambler, Pennsylvania 19002
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(215) 619-2800
_________________________________________________________________
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None Not applicable
Securities registered pursuant to Section 12 (g) of the Act:
Limited Partnership Interests
Title of Class
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
The number of outstanding limited partnership units of the
Registrant at December 31, 1995 is 68,718.
There is no public market for these securities.
The index of Exhibits is located on page 11.
1
PART I
Item 1. BUSINESS
Fidelity Leasing Income Fund VII, L.P. (the "Fund"), a
Delaware limited partnership, was organized in 1989 and acquires
equipment, primarily computer peripheral equipment, including
printers, tape and disk storage devices, data communications
equipment, computer terminals, data processing and office
equipment, which is 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 will not
borrow funds to purchase equipment.
The Fund generally acquires equipment subject to a lease.
Purchases of equipment for lease are typically 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 leasing industry is highly competitive. The
Fund competes with leasing companies, equipment manufacturers and
distributors, and entities similar to the Fund (including similar
programs sponsored by the General Partner), some of which have
greater financial resources than the Fund and more experience in
the equipment leasing business than the General Partner. Other
leasing companies and equipment manufacturers and distributors
may be in a position to offer equipment to prospective lessees on
financial terms which are more favorable than those which the
Fund can offer. They may also be in a position to offer trade-
in-privileges, maintenance contracts and other services which the
Fund may not be able to offer. Equipment manufacturers and
distributors may offer to sell equipment on terms and conditions
(such as liberal financing terms and exchange privileges) which
will afford benefits to the purchaser similar to those obtained
through leases. As a result of the advantages which certain of
its competitors may have, the Fund may find it necessary to lease
its equipment on a less favorable basis than certain of its
competitors.
The computer equipment industry is extremely competitive as
well. Competitive factors include pricing, technological
innovation and methods of financing. Certain manufacturer-
lessors maintain advantages through patent protection, where
applicable, and through product protection by the use of a policy
which combines service and hardware benefits with payment for
such benefits accomplished through a single periodic charge.
2
The dominant factor in the marketplace is International
Business Machines Corporation ("IBM"). Because of IBM's
substantial resources and dominant position, revolutionary
changes with respect to pricing, marketing practices,
technological innovation and the availability of new and
attractive financing plans could occur at almost any time.
Significant action in any of these areas by IBM might materially
adversely affect the General Partner's ability to identify and
purchase appropriate equipment. It is the belief of the General
Partner that IBM will continue to make advances in the computer
equipment industry which may result in revolutionary changes with
respect to small, medium and large computer systems.
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. 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 $ 388,491 1.68%
Disk Storage Systems 10,937,904 47.32
Mini Computer Systems 1,018,518 4.41
Network Communications 1,037,473 4.49
Personal Computers, Terminals
and Display Stations 2,708,081 11.72
Printers 3,004,564 13.00
Tape Storage Systems 1,536,906 6.65
Other 2,483,930 10.75
___________ ______
Totals $23,115,867 100.00%
=========== ======
3
Breakdown of Equipment Usage
By Industrial Classification
Purchase Price Percentage of
Type of Business of Equipment Total Equipment
Computers/Data Processing $ 3,101,799 13.42%
Diversified Financial/
Banking/Insurance 5,382,142 23.28
Manufacturing/Refining 7,440,301 32.19
Retailing/Consumer Goods 6,052,518 26.18
Telephone/Telecommunications 1,139,107 4.93
___________ ______
Totals $23,115,867 100.00%
=========== ======
Average Initial Term of Leases (in months): 38
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
4
PART II
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 2,396
General Partnership Interest 1
Item 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
1995 1994 1993 1992 1991
Total Income $5,636,048 $8,309,679 $9,881,829 $9,655,903 $7,371,115
Net Income (Loss) (17,688) 440,247 383,537 622,020 1,174,754
Distributions to
Partners 3,577,138 4,211,302 5,474,654 4,613,818 4,262,656
Net Income (Loss)
per Equivalent Limited
Partnership Unit (0.50) 9.16 6.08 8.87 16.11
Weighted Average Number
of Equivalent Limited
Partnership Units
Outstanding During
the Year 35,095 43,457 54,121 64,912 70,169
December 31,
1995 1994 1993 1992 1991
Total Assets $11,594,773 $15,723,457 $ 2,906,034 $26,742,013 $30,469,690
Equipment under
Operating Leases
and Equipment
Held for Sale or
Lease (Net) 8,696,769 10,164,497 12,777,429 18,523,597 25,320,063
Net Investment in
Direct Financing
Leases 38,961 47,752 55,776 - -
Limited Partnership
Units 68,718 69,572 71,593 76,026 76,337
Limited Partners 2,396 2,423 2,455 2,581 2,594
5
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fidelity Leasing Income Fund VII, L.P. had revenues of $5,636,048,
$8,309,679 and $9,881,829 for the years ended December 31, 1995, 1994
and 1993, respectively. Rental income from the leasing of computer
equipment accounted for 94%, 91% and 92% of total revenues in 1995,
1994 and 1993, respectively. The decrease in total revenues in 1995 and
1994 is primarily attributable to the decrease in rental income. In
1995, rental income decreased by approximately $3,904,000 because of
equipment that came off lease and was re-leased at lower rental rates
or sold. This decrease, however, was offset by rental income of
approximately $1,612,000 generated from equipment on operating
leases purchased during 1995 as well as rental income earned 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 $2,740,000 due to renewals of leases
at lower rates and lease termination or sales of equipment. However,
this decrease was offset by approximately $1,217,000 of rental income
generated from equipment purchased in 1994 as well as rental income
generated from 1993 equipment purchases for which a full year of rent
was earned in 1994 and only a partial year was earned in 1993.
Additionally, the Fund recognized a net gain on sale of equipment of
$76,124, $447,736 and $534,307 for the years ended December 31, 1995,
1994 and 1993, respectively which also contributed to the decrease in
revenues during these years.
Expenses were $5,653,736, $7,869,432 and $9,498,292 for the twelve
months ended December 31, 1995, 1994 and 1993, respectively.
Depreciation and amortization comprised 75% of total expenses in 1995
and 83% of total expenses in both 1994 and 1993. The decrease in
expenses in 1995 and 1994 was primarily related to a decrease in
depreciation expense because of equipment which came off lease,
terminated or was sold. The decrease in management fee to related
party, resulting from the decrease in rental income in 1995 and 1994,
also contributed to the decrease in overall expenses during these
years. 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
$711,000, $582,000 and $757,000, respectively was charged to write-down
of equipment to net realizable value. 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.
In 1995, general and administrative expenses to related party increased
because of the increase in administrative expenses incurred to the
General Partner which offsets the decrease in overall expenses.
Furthermore, general and administrative expense decreased in 1995 but
increased in 1994 because of the fluctuation in equipment remarketing
expenses incurred for these periods.
6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
The Fund's net income (loss) was ($17,688), $440,247 and $383,537
for the years ended December 31, 1995, 1994 and 1993, respectively.
The earnings (loss) per equivalent limited partnership unit, after
earnings (loss) allocated to the General Partner, were ($0.50), $9.16
and $6.08 based on a weighted average number of equivalent limited
partnership units outstanding of 35,095, 43,457 and 54,121 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The Fund generated funds from operations, of $4,852,588,
$7,077,709 and $8,528,294 for the purpose of determining cash available
for distribution, and distributed 74%, 54% and 60% of these amounts to
partners in 1995, 1994 and 1993, respectively, and 0%, 5% and 4% of
these amounts to partners in January 1996, 1995 and 1994, respectively.
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 Fund continues to purchase computer equipment for lease with
cash available from operations which is not distributed to partners.
During the years ended December 31, 1995, 1994 and 1993, the Fund
purchased $4,514,330, $5,711,158, and $4,357,021 respectively, of
equipment.
Subsequent to December 31, 1995, the Fund purchased $173,000 of
computer peripheral equipment subject to an operating lease.
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. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of
this report commencing on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
7
PART III
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.
8
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 $289,802(1)
========
(1) This amount does not include the General Partner's share of
cash distributions made to all partners.
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 1989, 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 1% of cash distributions
until the Limited Partners have received an amount equal to the
purchase price of their Units plus a 12% 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1995, the Fund was charged
$255,245 of management fees by the General Partner. The General
Partner will continue to receive 5% or 2% of rental payments on
equipment under operating and full pay-out leases, respectively, for
administrative and management services performed on behalf of the Fund.
Full pay-out leases are noncancellable leases for which rental payments
due during the initial term of the leases are at least sufficient to
recover the purchase price of the equipment, including acquisition
fees. This management fee is paid monthly only if and when the Limited
Partners have received distributions for the period from January 1,
1991 through the end of the most recent quarter equal to a return for
such period at a rate of 12% per year on the aggregate amount paid for
their units.
9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
The General Partner also receives 1% of cash distributions until
the Limited Partners have received an amount equal to the purchase
price of their Units plus a 12% cumulative compounded Priority Return.
Thereafter, the General Partner will receive 10% of cash distributions.
During the year ended December 31, 1995, the General Partner received
$35,771 of cash distributions.
The Fund incurred $360,832 of reimbursable costs to the General
Partner for services and materials provided in connection with the
administration of the Fund during 1995.
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
12% cumulative compounded Priority Return. During 1995, the Fund
incurred a sales fee of $34,557 to the General Partner for services
performed in connection with the disposition of equipment in 1995.
10
PART IV
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
F-1.
(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.
11
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 VII, 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)
12
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 31, 1995 and 1994 F-3
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-4
Statements of Partners' Capital for the years
ended December 31, 1995, 1994 and 1993 F-5
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-6
Notes to Financial Statements F-7 - F-12
All schedules have been omitted because the required information is not
applicable or is included in the Financial Statements or Notes thereto.
F-1
Report of Independent Certified Public Accountants
The Partners
Fidelity Leasing Income Fund VII, L.P.
We have audited the accompanying balance sheets of Fidelity Leasing
Income Fund VII, 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 VII, 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
F-2
FIDELITY LEASING INCOME FUND VII, L.P.
BALANCE SHEETS
ASSETS
December 31,
1995 1994
Cash and cash equivalents $ 2,199,456 $ 4,782,344
Investment securities held to maturity 499,740 495,991
Accounts receivable 78,373 93,178
Interest receivable 15,225 29,579
Due from related parties 66,249 109,450
Equipment under operating leases
(net of accumulated depreciation
of $14,445,214 and $15,372,609,
respectively) 8,670,653 9,753,048
Net investment in direct financing
leases 38,961 47,752
Equipment held for sale or lease 26,116 411,449
Organization costs
(net of accumulated amortization
of $10,000 and $9,334, respectively) - 666
___________ ___________
Total assets $11,594,773 $15,723,457
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Lease rents paid in advance $ 47,361 $ 273,939
Accounts payable and
accrued expenses 81,601 248,337
Due to related parties 204,707 177,205
___________ ___________
Total liabilities 333,669 699,481
Partners' capital 11,261,104 15,023,976
___________ ___________
Total liabilities and
partners' capital $11,594,773 $15,723,457
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENTS OF OPERATIONS
For the years ended December 31,
1995 1994 1993
Income:
Rentals $5,273,962 $7,566,419 $9,089,506
Earned income on direct
financing leases 3,902 4,669 2,154
Interest 242,632 279,015 232,878
Gain on sale of equipment, net 76,124 447,736 534,307
Other 39,428 11,840 22,984
__________ __________ __________
5,636,048 8,309,679 9,881,829
__________ __________ __________
Expenses:
Depreciation and amortization 4,234,982 6,502,842 7,921,907
Write-down of equipment to
net realizable value 711,418 582,356 757,157
General and administrative 91,259 140,424 107,342
General and administrative to
related party 360,832 290,813 290,053
Management fee to related party 255,245 352,997 421,833
__________ __________ __________
5,653,736 7,869,432 9,498,292
__________ __________ __________
Net income (loss) $ (17,688) $ 440,247 $ 383,537
========== ========== ==========
Net income (loss) per equivalent
limited partnership unit $ (0.50) $ 9.16 $ 6.08
========== ========== ==========
Weighted average number of
equivalent limited partnership
units outstanding during
the year 35,095 43,457 54,121
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994 and 1993
General Limited Partners
Partner Units Amount Total
_______ ___________________ _____
Balance, January 1, 1993 $ 4,841 76,026 $25,967,164 $25,972,005
Redemptions - (4,433) (1,555,928) (1,555,928)
Cash distributions (54,749) - (5,419,905) (5,474,654)
Net income 54,496 - 329,041 383,537
_______ ______ ___________ ___________
Balance, December 31, 1993 4,588 71,593 19,320,372 19,324,960
Redemptions - (2,021) (529,929) (529,929)
Cash distributions (42,113) - (4,169,189) (4,211,302)
Net income 42,009 - 398,238 440,247
_______ ______ ___________ ___________
Balance, December 31, 1994 4,484 69,572 15,019,492 15,023,976
Redemptions - (854) (168,046) (168,046)
Cash distributions (35,771) - (3,541,367) (3,577,138)
Net income (loss) (177) - (17,511) (17,688)
_______ _______ ___________ ___________
Balance, December 31, 1995 $(31,464) 68,718 $11,292,568 $11,261,104
======= ======= =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ (17,688) $ 440,247 $ 383,537
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,234,982 6,502,842 7,921,907
Write-down of equipment to net
realizable value 711,418 582,356 757,157
Proceeds from direct financing leases,
net of earned income 8,791 8,024 3,136
Gain on sale of equipment, net (76,124) (447,736) (534,307)
(Increase) decrease in accounts receivable 14,805 184,541 (535,397)
(Increase) decrease in due from related parties 43,201 393,667 (503,117)
Increase (decrease) in lease rents paid in
advance (226,578) (477,585) 162,153
Increase (decrease) in accounts payable
and accrued expenses (166,736) (313,885) 444,485
Increase (decrease) in due to related parties 27,502 (90,123) 205,096
Increase (decrease) in other, net 14,353 (6,417) 33,970
__________ __________ __________
4,585,614 6,335,684 9,025,877
__________ __________ __________
Net cash provided by operating activities 4,567,936 6,775,931 9,409,414
__________ __________ __________
Cash flows from investing activities:
Acquisition of equipment (4,514,330) (5,711,158) (4,357,021)
Investment in direct financing leases - - (58,911)
Purchase of investment securities
held to maturity (749,993) (4,428,116) -
Maturity of investment securities
held to maturity 746,244 5,913,802 1,404,990
Proceeds from sale of equipment 1,112,449 1,688,629 1,960,431
__________ __________ __________
Net cash used in investing activities (3,405,630) (2,536,843) (1,050,511)
__________ __________ __________
Cash flows from financing activities:
Distributions (3,577,138) (4,211,302) (5,474,654)
Redemptions of capital (168,046) (529,929) (1,555,928)
__________ __________ __________
Net cash used in financing activities (3,745,184) (4,741,231) (7,030,582)
__________ __________ __________
Increase (decrease) in cash and cash
equivalents (2,582,888) (502,143) 1,328,321
Cash and cash equivalents, beginning of year 4,782,344 5,284,487 3,956,166
__________ __________ __________
Cash and cash equivalents, end of year $2,199,456 $4,782,344 $5,284,487
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Fidelity Leasing Income Fund VII, L.P. (the "Fund") was formed in
November 1989 with Fidelity Leasing Corporation ("FLC") as the General
Partner. FLC is a wholly owned subsidiary of FML Leasehold Inc., a
wholly owned subsidiary of The Fidelity Mutual Life Insurance Company
(in Rehabilitation). The Fund is managed by the General Partner. The
Fund's limited partnership interests are not publicly traded. There is
no market for the Fund's limited partnership interests and it is
unlikely that any will develop. The Fund acquires equipment, primarily
computer equipment, including printers, tape and disk storage devices,
data communications equipment, computer terminals, data processing and
office equipment, which is leased to third parties throughout the
United States on a short-term basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Securities Held to Maturity
The Fund adopted Statement of Financial Accounting Standard (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" on January 1, 1994. This new standard requires investments
in securities to be classified in one of three categories: held to
maturity, trading and available for sale. Debt securities that the
Fund has the positive intent and ability to hold to maturity are
classified as held to maturity and are reported at amortized cost. As
the Fund does not engage in security trading, the balance, if any, of
its debt securities and equity securities are classified as available
for sale. Net unrealized gains and losses for securities available for
sale are required to be recognized as a separate component of partners'
capital and excluded from the determination of net income. The Fund's
investment securities consist of U.S. Government Securities and
certificates of deposit with maturities of less than thirteen months
and cost approximates market. The adoption of this new standard had no
financial statement impact on the Fund. Prior to the adoption of SFAS
No. 115, investment securities were carried at cost which approximates
market.
Concentration of Credit Risk
Financial instruments which potentially subject the Fund to
concentrations of credit risk consist principally of temporary cash
investments. The Fund places its temporary investments in securities
backed by the United States Government, commercial paper with high
credit quality institutions, bank money market funds and time deposits
and certificates of deposit.
Concentrations of credit risk with respect to accounts receivable are
limited due to the dispersion of the Fund's leesees over different
industries and geographies.
Equipment Held for Sale or Lease
Equipment held for sale or lease is carried at its estimated net
realizable value.
F-7
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Organization Costs
Organization costs were amortized over a five year period.
Accounting for Leases
The Fund's leasing operations consist primarily of operating leases
whereby the cost of the leased equipment is recorded as an asset and
depreciated on a straight-line basis over its estimated useful life, up
to six years. Acquisition fees associated with lease placements are
allocated to equipment when purchased and depreciated as part of
equipment cost. Rental income consists primarily of monthly periodic
rentals due under the terms of the leases plus deferred revenue
recognized. Generally, during the remaining terms of existing
operating leases, the Fund will not recover all of the undepreciated
cost and related expenses of its rental equipment and is prepared to
remarket the equipment in future years. Upon sale or other disposition
of assets, the cost and related accumulated depreciation are removed
from the accounts and the resulting gain or loss, if any, is reflected
in income.
The Fund does have direct financing leases, as well. Under the direct
financing method, income (the excess of the aggregate future rentals
and estimated additional amounts recoverable upon expiration of the
lease over the related equipment cost) is recognized over the life of
the lease using the interest method.
Income Taxes
Federal and State income tax regulations provide that taxes on the
income or benefits from losses of the Fund 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.
Statements of Cash Flows
For purposes of the statements of cash flows, the Fund considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
F-8
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Income per Equivalent Limited Partnership Unit
Net income per equivalent limited partnership unit is computed by
dividing net income allocated to limited partners by the weighted
average number of equivalent limited partnership units outstanding
during the year. The weighted average number of equivalent units
outstanding during the year is computed based on the weighted average
monthly limited partners' capital account balances, converted into
equivalent units at $500 per unit.
Significant Fourth Quarter Adjustments
Currently, the Fund's practice is to review the recoverability of its
undepreciated costs of rental equipment semiannually. 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. Based upon this review, the Fund recorded an
adjustment of approximately $435,000, $432,000 and $757,000 or $12.39
$9.94 and $13.99 per equivalent limited partnership unit to write down
its rental equipment in the fourth quarter of 1995, 1994 and 1993,
respectively.
Reclassification
Certain amounts on the 1994 and 1993 financial statements have been
reclassified to conform to the presentation adopted in 1995.
3. ALLOCATION OF PARTNERSHIP INCOME, LOSS AND CASH DISTRIBUTIONS
Cash distributions, if any, are made monthly as follows: 99% to the
Limited Partners and 1% to the General Partner, until the Limited
Partners have received an amount equal to the purchase price of their
Units, plus a 12% compounded Priority Return (an amount equal to 12%
compounded annually on the portion of the purchase price not previously
distributed); thereafter, 90% to the Limited Partners and 10% to the
General Partner.
Net Losses are allocated 99% to the Limited Partners and 1% to the
General Partner. The General Partner is allocated Net Income equal to
its cash distributions, but not less than 1% of Net Income, with the
balance allocated to the Limited Partners.
Net Income (Losses) allocated to the Limited Partners are allocated to
individual limited partners based on the ratio of the daily weighted
average partner's net capital account balance (after deducting related
commission expense) to the total daily weighted average of the Limited
Partners' net capital account balances.
F-9
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. EQUIPMENT LEASED
Equipment on lease consists primarily of computer peripheral equipment
under operating leases. The majority of the equipment was manufactured
by IBM. The lessees have agreements with the manufacturer to provide
maintenance for the leased equipment. The Fund's operating leases are
for initial lease terms of 16 to 60 months.
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. As a result, in 1995, 1994
and 1993 approximately $711,000, $582,000 and $757,000, respectively
was charged to write-down of equipment to net realizable value.
However 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.
During the year ended December 31, 1995, the Fund leased equipment
under the direct financing method in accordance with SFAS
No. 13. This method provides for recognition of income (the excess of
the aggregate future rentals and estimated additional amounts
recoverable upon expiration of the lease over the related equipment
cost) over the life of the lease using the interest method.
The net investment in direct financing leases as of December 31, 1995
is as follows:
Net minimum lease payments to be received $ 45,484
Less unearned income 6,523
Add expected future residuals -
________
$ 38,961
========
The future approximate minimum rentals to be received on non-
cancelable operating and direct financing leases as of December 31 are
as follows:
Direct
Operating Financing
1996 $4,089,000 $13,000
1997 2,465,000 13,000
1998 783,000 13,000
1999 268,000 6,000
Thereafter 112,000 -
__________ _______
$7,717,000 $45,000
========== =======
F-10
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. EQUIPMENT LEASED (Continued)
Subsequent to December 31, 1995, the Fund purchased $173,000 of
equipment subject to operating leases with initial lease terms of 20 to
36 months. The future approximate minimum rentals to be received on
these noncancellable operating leases are $83,000 in 1996, $77,000 in
1997, $64,000 in 1998 and $5,000 in 1999.
5. RELATED PARTY TRANSACTIONS
The General Partner receives 5% or 2% of rental payments on equipment
under operating leases and full pay-out leases, respectively, for
administrative and management services performed on behalf of the Fund.
Full pay-out leases are noncancellable leases for which rental payments
during the initial term are at least sufficient to recover the purchase
price of the equipment, including acquisition fees. This management
fee is paid monthly only if and when the Limited Partners have received
distributions for the period form January 1, 1991 through the end of
the most recent quarter equal to a return for such period at a rate of
12% per year on the aggregate amount paid for their units.
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
12% cumulative compounded Priority Return.
Additionally, the General Partner and its affiliates are reimbursed by
the Fund for certain costs of services and materials used by or for the
Fund except those items covered by the above-mentioned fees. Following
is a summary of fees and costs charged by the General Partner or its
affiliates during the years ended December 31:
1995 1994 1993
Management fee $255,245 $352,997 $421,833
Reimbursable costs 360,832 290,813 290,053
Sales fee 34,557 52,226 60,632
Amounts due from related parties at December 31, 1995 and 1994
represent monies due to the Fund from the General Partner and/or other
affiliated funds for rentals and sales proceeds collected and not yet
remitted the Fund.
Amounts due to related parties at December 31, 1995 and 1994 represent
monies due to the General Partner for the fees and costs mentioned
above, as well as, rentals and sales proceeds collected by the Fund on
behalf of other affiliated funds.
F-11
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. MAJOR CUSTOMERS
For the year ended December 31, 1995, two customers accounted for
approximately 20% and 16% of the Fund's rental income. For the year
ended December 31, 1994, one customer accounted for approximately 11%
of the Fund's rental income. For the year ended December 31, 1993, two
customers accounted for approximately 14% and 13% of the Fund's rental
income.
7. CASH DISTRIBUTIONS
Below is a summary of the cash distributions paid to partners during
the years ended December 31:
For the Quarter Ended 1995 1994 1993
March $1,043,568 $1,071,727 $1,149,009
June 1,035,741 1,047,477 1,753,009
September 1,034,351 1,046,852 1,494,998
December 463,478 1,045,246 1,077,638
__________ __________ __________
$3,577,138 $4,211,302 $5,474,654
========== ========== ==========
F-12