AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 2003
REGISTRATION NO. 333-108057
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
_______________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
COMMONWEALTH INCOME & GROWTH FUND V
(Exact name of registrant as specified in governing instruments)
PENNSYLVANIA 7394 65-1189593
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
Oaklands Corporate Center, 470 John Young Way, Suite 300
Exton, PA 19341
(800) 249-3700
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
KIMBERLY A. SPRINGSTEEN, PRESIDENT
Commonwealth Capital Securities Corp.
Oaklands Corporate Center, 470 John Young Way, Suite 300
Exton, PA 19341
(800) 249-3700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Michael B. Pollack, Esq.
Reed Smith LLP
2500 One Liberty Place
Philadelphia, PA 19103
_______________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
_______
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
_________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
_________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to Completion. Prospectus Dated October 8, 2003
COMMONWEALTH
INCOME & GROWTH FUND V
[LOGO]
__________________
1,000,000 Units of Limited Partnership Interests
(57,500 Units - Minimum Requirement)
COMMONWEALTH INCOME & GROWTH FUND V:
o We are a Pennsylvania limited partnership.
o We acquire computer peripheral equipment and other similar capital
equipment, which is leased primarily to U. S. corporations and
institutions.
o We, together with selected securities brokers, will sell the units on a
best efforts basis.
o We will close the offering no later than October 15, 2005.
Minimum Number of Units: 57,500 Offering Size (Minimum): $ 1,150,000
Maximum Number of Units: 1,000,000 (Maximum): $ 20,000,000
Price Per Unit: $ 20.00 Net Proceeds (per unit): $ 18.20
THIS OFFERING INVOLVES SIGNIFICANT RISKS, INCLUDING:
o You will have limited voting rights and participation in
management.
o Our general partner will have conflicts of interest.
o We pay significant fees to our general partner.
o There will be restrictions on the transfer of units.
o There will be no public market for the units.
o Our assets may depreciate in value and have limited residual
value.
o There are material tax risks associated with this offering.
o We will use leverage to acquire equipment.
o A portion of cash distributions will be a return of capital (on
a tax reporting basis).
This investment involves a high degree of risk. You should purchase
these securities only if you can afford a complete loss of your investment. See
"RISK FACTORS", BEGINNING ON PAGE 5.
Price to Public Selling Commissions(1) Proceeds to the partnership(2)
Per Share $ 20 $ 1.60 $ 18.40
Total Minimum $ 1,150,000 $ 92,000 $ 1,058,000
Total Maximum $20,000,000 $ 1,600,000 $ 18,400,000
(1) The price to the public and the selling commissions will be reduced by
volume discounts in the case of a purchase in excess of $250,000 by a single
investor. However, the proceeds to the partnership will not be reduced by such
discounts. See the "Plan of Distribution" section of this prospectus for a
complete description of the amount and terms of such commissions.
(2) Before deducting an organization fee equal to three percent of the limited
partners' capital contributions up to $10,000,000 and two percent of the limited
partners' capital contributions thereafter to be paid by the partnership to the
general partner ($34,500 if 57,500 units are sold and $500,000 if 1,000,000
units are sold), and a dealer manager fee of two percent of capital
contributions, ($23,000 if 57,500 units are sold and $400,000 if 1,000,000 units
are sold), out of which the dealer manager will pay offering and marketing
expenses and due diligence reimbursements. The general partner will pay all
organizational and offering expenses other than underwriting commission.
Commissions will be paid to the dealer manager only after minimum escrow amount
has been reached. The escrow agent will retain proceeds until the minimum escrow
requirement has been met. If the minimum amount has not been reached during
offering period, the proceeds will be promptly returned to investors.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or determined whether this prospectus is
truthful or complete. They have not made, nor will they make, any determination
as to whether anyone should buy these securities. Any representation to the
contrary is a criminal offense. The use of forecasts in this offering is
prohibited. Any representations to the contrary and any predictions, written or
oral, as to the amount or certainty of any present or future cash benefit or tax
consequence which may flow from an investment in this program is not permitted.
COMMONWEALTH CAPITAL SECURITIES CORP.
Oaklands Corporate Center, 470 John Young Way, Suite 300
Exton, Pennsylvania 19341
1-800-249-3700
INVESTOR SUITABILITY STANDARDS
Units are suitable only as a long-term investment for persons of
adequate financial means. Please see the net worth and income tests set forth
below to determine if an investment in units is suitable for you. The
suitability standards imposed by us will also apply to transferees of an
investor's units. The Dealer Manager must make every reasonable effort to
determine that the purchase of Units is a suitable investment for you based on
information you provide to your broker. We and/or the dealer manager will
maintain records for at least six years of the information used to determine
suitability.
Except with respect to qualified plans and Tax Exempt Entities, units
will be sold only to an investor who represents that he has either:
o a net worth (exclusive of home, home furnishings and automobiles) of
at least $45,000 AND an annual gross income of at least $45,000, OR
o a net worth (exclusive of home, home furnishings and automobiles) of
at least $150,000, or that he is purchasing in a fiduciary capacity
for a person who meets such conditions.
If the investor is a qualified plan or an IRA, such investor must
represent:
o that the IRA owner or the participant in the self-directed qualified
plan satisfies the foregoing standards, or
o if other than a self-directed qualified plan, that the qualified
plan satisfies the foregoing suitability standards.
Although the general partner believes that units may represent suitable
investments for individuals, qualified plans, tax exempt entities, and many
different types of entities, due to tax rules of particular application to
certain types of entities, units may not be suitable investments for such
entities. See "United States Federal Income Tax Considerations -- Investment by
Tax Exempt Entities." Prospective investors should consult their tax advisors
with respect to the tax consequences of an investment in units as it may affect
their particular tax situations.
Certain state securities commissions have established suitability
standards or minimum investment amounts for the offer and sale of securities,
which are different than those set forth above. Units will be sold only to
investors in these states who meet the suitability standards set forth below
(net worth in all cases excludes home, home furnishings and automobiles):
California, Iowa, Michigan, Missouri, New Jersey, North Carolina and
Pennsylvania - Net worth of at least $225,000 or current annual income of at
least $60,000 and a net worth of at least $60,000. Missouri, Michigan and
Pennsylvania investors must have a net worth of at least ten times their
investment in CIGF5.
Maine - Net worth of at least $200,000 or current annual income of at
least $50,000 and a net worth of at least $50,000.
Ohio and Nebraska - In no event shall the aggregate purchase price of
units exceed 10% of net worth.
Minnesota - Minimum investment amount for IRAs or qualified plans (but
not Tax Exempt Entities) is $2,000; for individuals the minimum investment
amount is $2,500.
PROSPECTUS SUMMARY
The following is a summary which highlights the material information
contained in this prospectus. It may not include all of the information that is
important to you. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors and the financial statements.
Our Company
Commonwealth Income & Growth Fund V is a Pennsylvania limited
partnership that will own and lease computer peripheral equipment. Our office is
located at Oaklands Corporate Center, 470 John Young Way, Suite 300, Exton,
Pennsylvania 19341. Our phone number is 1-800-249-3700. We refer to Commonwealth
Income & Growth Fund V as "CIGF5" in this prospectus. Our business strategy is
as follows:
o We will use a substantial portion of the proceeds of the offering
to acquire computer peripheral and other similar equipment, which
will be leased to U.S. corporations and other institutions.
o We will make distributions to investors after the general partner
has determined that there is sufficient cash flow from lease
payments to make distributions. Sufficient cash flow will be
available for distributions if income for a distribution period
exceeds both expenses for that period and any existing lease
acquisition commitments for that period.
o We will also use excess cash flow, sale proceeds and the proceeds
of debt financing to purchase additional equipment from time to
time throughout our operational phase. We expect that most of the
equipment will be placed on operating leases (short term leases
under which we will normally receive total rental payments in an
amount less than the purchase price of the equipment).
o At the end of initial operating leases, we will either re-lease
or sell equipment. Substantially all of the equipment will be
manufactured by, or compatible with equipment manufactured by
IBM. See "Risk Factors" and "Investment Objectives" and
"Description of Leases."
o We intend to purchase only equipment which will be leased at the
same time we acquire the equipment.
o We intend to dispose of all our assets approximately 10 years
after the termination of this offering.
General Partner
Our general partner is Commonwealth Income & Growth Fund, Inc., located
at Oaklands Corporate Center, 470 John Young Way, Suite 300, Exton, Pennsylvania
19341 (telephone number is 1-800-249-3700). The general partner is responsible
for managing our affairs on a day-to-day basis. The general partner is also
responsible for identifying and making investments on our behalf. Our general
partner is owned by Commonwealth of Delaware, Inc., which is owned by
Commonwealth Capital Corp., which we may refer to as "Com Cap Corp." Affiliates,
who are individuals or entities considered to be in control of, controlled by,
or under common control with a specified person or entity, of our general
partner have sponsored several prior equipment leasing programs. Kimberly A.
Springsteen and George S. Springsteen, acting through the general partner, make
our investment decisions. See "Conflicts of Interest," "Management" and "Table
II -- Prior Performance Tables."
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Risk Factors
An investment in CIGF5 has many risks. The "Risk Factors" section of
this prospectus contains a detailed discussion of the most important risks.
Please refer to the "Risk Factors" section for a more detailed discussion of the
risks summarized below:
o We pay significant fees to the general partners and affiliates,
which reduce cash available for distributions.
o There is currently no public trading market for the units, and it is
unlikely that one will develop. An investment in units will be
highly illiquid and it may be difficult for you to sell your units
at the time and for the price you desire.
o You will not have the opportunity to participate in management
decisions or evaluate the terms of the investments made by CIGF5.
o The general partner and its affiliates are or will be engaged in
other activities that will result in potential conflicts of interest
with the services that the general partner and affiliates will
provide to us.
o We may purchase computer equipment that may depreciate in value
and/or become obsolete over time.
o We will concentrate on acquiring computer peripheral equipment and
other similar capital equipment and will not diversify the assets in
which we invest beyond those classes of equipment.
o During the life of CIGF5, a portion of the distributions you receive
will be a return of capital, rather than income.
o The loss of certain key personnel upon whom we depend for our
management could adversely affect our success and your investment
return.
Certain of our investments may be financed with non-recourse debt. In connection
with such borrowing, we will likely grant security interests in the financed
property, which would put us at risk of losing that asset if we are unable to
pay that debt.
The Offering
Offering Size (maximum)................. $20,000,000
(minimum)................. $ 1,150,000
Minimum Investments*.................... Individuals - $2,500
IRA, Keogh and other qualified plans - $1,000
Suitability Standards................... Net worth of at least $45,000 and annual gross income
of at least $45,000;
OR
Net worth of at least $150,000
(For this purpose, net worth
excludes home, furnishings and
personal automobiles).
Suitability standards may vary
from state to state. Please See
the "Investor Suitability
Standards" section on page 1.
Unit Price.............................. $20.00
Escrow.................................. Proceeds will be placed in an escrow account until
the minimum amount of $1,150,000 is
reached. No commissions will be paid until the
minimum amount is reached. If the minimum
amount has not been reached during the offering
period, offering proceeds will be promptly
returned to investors.
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Holding Period of Units................. Units cannot be transferred without
consent of the general
partner, which may be withheld
in order to limit the number of
transfers to satisfy certain tax
requirements. Beginning 30
months after the completion of
this offering, the general
partner may, in its discretion,
redeem a limited number of units
upon request. Other transfer
restrictions may apply.
Our General Partner .................... Commonwealth Income & Growth Fund Inc. will
administer our day-to-day operations and select
our computer peripheral equipment investments.
Estimated Proceeds...................... If the maximum number of units are sold:
87.5% - to acquire equipment
12.5% - for commissions, fees and expenses
If the minimum number of units
are sold: 87.0% - to acquire equipment
13.0% - for commissions, fees and expenses
* We may waive the minimum investment amount for investors in
Commonwealth Income & Growth Fund IV ("CIGF4"), a prior program also sponsored
by the general partner, who wish to reinvest their CIGF4 dividends in CIGF5
units. CIGF4 investors who wish to take advantage of this opportunity should
contact their broker or the general partner. The laws of your state may prohibit
an investment in CIGF5 of less than a minimum amount (see "Suitability
Standards") and the general partner has absolute discretion in granting any
waiver of the minimum investment amount.
Estimated Use Of Proceeds
The following table explains the estimated use of proceeds of the
offering of units. Except as otherwise disclosed in this prospectus, we will not
engage in transactions with the general partner or any of its affiliates and all
items of compensation are disclosed in the table below or under the caption
"Compensation of General Partner and Affiliates."
Minimum Proceeds Maximum Proceeds
(57,500 Units) (1,000,000 units)
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Amount Percent Amount Percent
--------------- ------------ -------------- ------------
Gross Offering Proceeds $1,150,000 100.0% $20,000,000 100.0%
Selling Commissions (1) 92,000 8.0% 1,600,000 8.0%
Dealer Manager Fee 23,000 2.0% 400,000 2.0%
Organizational and Offering Expenses (2) 34,500 3.0% 500,000 2.5%
--------------- ------------ -------------- ------------
Total Offering Expenses 149,500 13.0% 2,500,000 12.5%
Net Proceeds to Partnership Available
for Investment 1,000,500 87.0% 17,500,000 87.5%
Equipment Acquisition Fees (3) 39,100 3.4% 680,000 3.4%
Investment in Equipment (4) 961,400 83.6% 16,820,000 84.1%
(1) The amount of the underwriting commissions (which include the selling
commissions and dealer manager fees) will range between four percent and
eight percent of capital contributions based upon the quantity of units
sold to a single investor. Gross proceeds of the offering are calculated as
if all units are sold at $20.00 per unit and do not take into account any
reduction in selling commissions. See "Plan of Distribution" for a
description of commission discounts available for certain large volume
purchases of units and for purchases by certain employees of the general
partner, dealer manager, participating brokers and their affiliates. The
units are being offered to the public through Commonwealth Capital
Securities Corp., which will receive selling commissions of up to eight
percent on all sales of units, and will act as dealer manager for which it
will receive a dealer manager fee of one percent on all sales of units. The
dealer manager is an affiliate of the general partner. Other broker dealers
may be engaged as participating brokers to sell units and re-allowed
selling commissions of up to eight percent with respect to units, which
they sell. In addition, all or a portion of the dealer manager fee may be
re-allowed to certain participating brokers for expenses incurred by them
in selling the units, including reimbursement for bona fide expenses
incurred in connection with due diligence activities. See "Plan of
Distribution" for a more complete description of this fee.
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(2) Consists of estimated legal, accounting and printing expenses; registration
and filing fees; miscellaneous expenses related to the organization and
formation of the partnership; and other costs incurred in connection with
the preparation, printing and distribution of this prospectus and related
sales literature. See "Plan of Distribution." The general partner will be
paid an organizational fee equal to three percent of capital contributions
up to $10,000,000, and two percent of capital contributions in excess of
$10,000,000, and will pay all organizational and offering expenses.
(3) An equipment acquisition fee of four percent of the purchase price of
equipment we purchase will be payable by us to the general partner. These
acquisition fees do not include acquisition fees payable with respect to
the purchase of equipment with the proceeds of leverage or with
undistributed proceeds from the sales of equipment. Certain expenses
associated with the selection and acquisition of equipment for CIGF5 (such
as legal and accounting fees and expenses, travel and communication
expenses, brokerage fees and inspection fees and expenses) will be paid to
third parties out of this four percent fee. The amounts of such expenses
are not ascertainable at this time. The general partner will also be paid a
debt placement fee of one percent of amounts borrowed to the extent
leverage is used to acquire equipment. CIGF5 may not incur any indebtedness
to acquire equipment until the net proceeds of the offering are fully
invested, or committed to investment, in equipment.
(4) Represents CIGF5's expected cash investment from capital contributions in
equipment, excluding acquisition fees. This does not include equipment
acquired with leverage or with undistributed proceeds from the sale of
equipment. Because CIGF5's leases are expected to be on a "triple-net"
basis, it is anticipated that no permanent reserve for maintenance and
repairs will be established from the offering proceeds. However, the
general partner, in its sole discretion, may retain a portion of the
offering proceeds, cash flow or net disposition proceeds available to CIGF5
for maintenance, repairs and for any other currently unanticipated working
capital needs. In addition, the general partner and Com Cap Corp. have
agreed that the general partner or Com Cap Corp. will lend or contribute to
CIGF5 an amount up to 1.01% of the net offering proceeds, if needed, to
meet CIGF5's expenses. the maximum front-end fees (which include fees and
expenses incurred by any person in connection with the organization of
CIGF5 and acquisition of equipment) during the first fiscal year of our
operations will be $663,800 (assuming the maximum number of units are sold
and the maximum amount of leverage is incurred excluding fees earned with
retained proceeds).
Compensating our general partner and its affiliates
Our general partner and its affiliates, including Commonwealth Capital
Securities Corp., will receive substantial fees and compensation from the
offering of units and from our operations regardless of profitability and, in
some cases, prior to any distributions to you. Outlined below are the most
significant items of compensation.
o We will pay Commonwealth Capital Securities Corp., as the dealer manager,
an underwriting commission of up to 10.0% of the capital contributions
received in this offering, but only if a minimum $1,150,000 in units are
sold. A portion of this commission may be re-allowed by the dealer manager
to other participating brokers.
o As compensation for organizing CIGF5, we will pay the general partner an
organizational fee equal to 3% of the first $10,000,000 of capital
contributions and 2% of capital contributions in excess of $10,000,000.
o As compensation for the negotiation of equipment acquisitions and related
leases, we will pay the general partner an equipment acquisition fee of 4%
of the purchase price of each item of equipment purchased.
Other fees will be paid to the general partner or its affiliates in
connection with the reimbursement of expenses (up to $40,000), debt placements
with a term over twelve months (up to 1% of such debt), equipment management (up
to 5% of lease revenues) and equipment liquidation services (up to 3% of sales
price). See "Compensation to the General Partner."
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We May Borrow Funds
We may borrow a portion of the cost of the equipment which we purchase.
Our total amount of indebtedness will be limited to 30% of the total cost of the
equipment in the portfolio, at the time of purchase. We may not borrow to
acquire equipment unless, at the time of any such leveraged acquisition, the net
proceeds of the offering received to date are fully invested, or committed to
investment, in equipment. There are no borrowing limits for any particular item
of equipment. All of our borrowings will be non-recourse to us, which means that
upon any default, a lender may seek payment only by foreclosing on the item of
equipment that is the subject of the loan, and may not recover any of our other
assets. Up to one percent of the amount of such indebtedness may be payable to
the general partner as a debt placement fee.
Distributions Are Expected To Be Made Quarterly
Distributions are expected to be made quarterly. There can be no
assurance, however, as to the exact date on which distributions will begin or
the amount of any distributions. We expect that you will begin receiving
distributions not more than 90 days from the date of our first escrow closing.
If an escrow closing occurs other than at the end of a quarter, you will recive
a pro-rated distribution for the period between the closing and the end of that
quarter. In addition, if you purchase a minimum of 250 units ($5,000), you will
have the option to choose, for a fee, to receive distributions on a monthly
basis. If you elect to receive monthly distributions, they will be paid in
arrears, meaning that you will receive approximately one third of a quarterly
distribution each month after the declaration of a quarterly distribution, and
not in anticipation of a future distribution. In the future, the general
partner, in its sole discretion, may elect to terminate the monthly distribution
option, and pay distributions to you on a quarterly basis. In such event, the
fees charged for monthly distributions will also terminate. See "Distributions
and Allocations."
Distributions May Be Automatically Reinvested in Additional Units During the
Offering Period
You may purchase additional units, if desired, by automatically
reinvesting all or a portion of your cash distributions in units during the
offering period. You may elect to reinvest your distributions by marking section
6 of your subscription agreement accordingly. Your election to reinvest
distributions is entirely voluntary, and you may terminate automatic
reinvestment at any time by notifying us in writing. Your share of CIGF5's
taxable income is still taxable to you, even if you choose to reinvest your
distributions. See "Distributions and Allocations -- Distribution Reinvestment"
Units May Not Be Sold On The Public Market
You cannot sell your units on the public market. The general partner
expects that no market will develop. The units will be transferable only with
the general partner's approval. The general partner intends to permit transfers
and redemptions of units of up to two percent of the total outstanding interests
in Commonwealth Income & Growth Fund V in any one year, subject to certain
exceptions. In deciding whether a transfer will be allowed, the general partner
will consider whether the transfer will have an adverse affect on our federal
tax status as a partnership. See "Transferability of Units."
Units May Be Redeemed
After a 30-month period immediately following the termination of the
offering, we may redeem units that may be tendered each year, up to two percent
of the outstanding units, subject to the general partner's approval. Requests
for redemption are completely voluntary. The purchase price for outstanding
units will be equal to 105% of the amount you paid for the units, net of the
offering fees and expenses attributable to the units, less the amount of cash
distributions you have received relating to such units in excess of the
cumulative return. The offering fees and expenses attributable to the units will
be added back over time for purposes of determining the redemption price. The
redemption price formula will not be calculated at the fair market value of a
unit. See "Transferability of Units"
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Prior Equipment Leasing Programs
Our general partner has previously sponsored four public equipment
leasing programs with structures, management and investment objectives similar
to those of CIGF5. Commonwealth Income & Growth Fund I completed its offering on
May 11, 1995 with $12,634,153 raised from investors. Commonwealth Income &
Growth Fund II completed its offering on May 12, 1997 after raising $9,235,185
from investors. Commonwealth Income & Growth Fund III completed its offering on
July 25, 2000, with $3,085,801 raised from investors. All of the net offering
proceeds of these prior funds were fully utilized for the purchase of computer
peripheral equipment. Commonwealth Income & Growth Fund IV began its offering on
October 19, 2001, and is expected to be fully subscribed for the full offering
amount of $15 Million by September 30, 2003. The net offering proceeds of these
prior funds available for investment in equipment were fully utilized for the
purchase of computer peripheral equipment. See "Prior Offerings By Affiliates"
and "Table II - Prior Performance Tables."
The Partnership Will Terminate
In the ninth year after the completion of this offering, the general
partner intends to begin liquidation of CIGF5 in an orderly fashion, unless it
terminates earlier upon sale of all of the equipment. The term of our existence
may be extended if the general partner believes that it would enable us to
dispose of assets on terms more favorable than those it would otherwise be able
to obtain. CIGF5 will not continue beyond December 31, 2015. See "Partnership
Agreement Summary."
The Cost Of The Equipment Will Be Depreciated
The equipment will be eligible for different methods and periods of
depreciation depending on the type of equipment. See "United States Federal
Income Tax Considerations."
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RISK FACTORS
An investment in our partnership involves various risks, which are
described below. You should consider the following risk factors together with
all of the other information included in this prospectus before making a
decision to invest in our units.
We pay significant fees to the general partner and affiliates, which reduce cash
available for distributions.
The general partner and its affiliates, including Commonwealth Capital
Securities Corp., will receive substantial fees. Some fees will be paid without
regard to the amount of distributions paid or the success or profitability of
CIGF5's operations and investments. For example, an increase in portfolio
turnover or the amount of leverage used to purchase equipment may increase the
fees we pay to the general partner. Such compensation and fees were established
by the general partner and are not based on arm's-length negotiations. See
"Compensation of General Partner and Affiliates."
There will be no public market for the units, and you may be unable to sell or
transfer your units at a time and price of your choosing.
There exists no public market for the units, and the general partner
does not expect a public market for units to develop. The units cannot be
pledged or transferred without the consent of the general partner. The units
should be purchased as a long-term investment only. The general partner intends
to limit the number of transfers to no more than that number permitted by one of
the safe harbors available under the tax laws and regulations to prevent CIGF5
from being taxed as a corporation. Generally, these safe harbors require that
all nonexempt transfers and redemptions of units in any calendar year not exceed
two percent of the outstanding interests in the capital or profits of CIGF5.
The general partner has sole discretion in deciding whether we will
redeem units in the future. Consequently, you may not be able to liquidate your
investment in the event of an emergency. You must be prepared to hold your units
for the life of CIGF5 and may be able to resell your units, if at all, only at a
discount to the offering price, which may be significant. See "Transferability
of Units - Redemption Provision."
CIGF5 will face conflicts of interest arising out of its relationships with the
general partner and its affiliates, which could adversely affect our performance
and your returns. See "Conflicts of Interest."
o The general partner and its affiliates have sponsored other investor
programs, which will be in potential competition with CIGF5, and will
compete for the time and attention of management. The general partner and
its affiliates may also form additional investor programs, which may be
competitive with CIGF5.
o If one or more investor programs and CIGF5 are in a position to acquire the
same equipment, conflicts may arise as to which of the programs acquire the
available items of equipment.
o Com Cap Corp. and the general partner or other affiliates of the general
partner may acquire equipment for CIGF5 under certain circumstances.
Interest will be paid on loans or advances (in the form of deposits with
manufacturers or vendors of equipment or otherwise) from the general partner
or its affiliates from their own funds at a rate equal to that which would
be charged by third party financing institutions on comparable loans for the
same purpose in the same geographic area, but in no event in excess of the
general partner's or affiliate's own cost of funds.
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o Partnership transactions involving the acquisition, lease and/or sale of
equipment will result in compensation to the general partner and its
affiliates. Because the amount and timing of such fees depends, in part, on
the debt structure of equipment acquisitions and the timing of such
transactions, the general partner and its affiliates may be subject to
conflicts of interest to the extent the acquisition, retention, re-lease or
sale of equipment and the terms and conditions thereof may be less
advantageous to CIGF5 and more advantageous to the general partner.
o Since Commonwealth Capital Securities Corp. is an affiliate of the general
partner, CIGF5 will not be subject to an independent investigation of the
type normally performed by an underwriting firm in connection with the
public offering of securities.
o Any agreements and arrangements relating to compensation between CIGF5 and
the general partner or any of its affiliates will not be the result of
arm's-length negotiations and the performance thereof by the general partner
and its affiliates will not be supervised or enforced at arm's-length.
o CIGF5 may enter into joint ownership or joint venture agreements for the
acquisition and leasing of equipment with other persons, including persons
controlled by the general partner. Should any such joint ventures be done,
the general partner may face conflicts of interest as it may control and owe
fiduciary duties to both CIGF5 and, through such affiliates, the affiliated
co-venturer.
During the life of Commonwealth Income & Growth Fund V, a portion of the
distributions you receive will be a return of capital, rather than income.
As equipment values decrease over the term of our existence, a portion
of each distribution may be considered a return of capital, rather than income.
As your capital in the units is reduced over the life of your investment, you
will not receive a lump sum distribution upon liquidation that equals the
purchase price you paid for units, as you might if you purchased a bond. Also,
payments made upon liquidation will be taxable to the extent they are not a
return of capital.
As you receive distributions throughout the life of your investment,
you will not know at the time of the distribution what portion of the
distribution represents a return of capital and what portion represents income.
You will have to wait until you receive your annual Form K-1 statement to
determine the amounts of capital and income received.
The loss of certain key personnel upon whom we depend for our management could
adversely affect our success and your investment return.
Our success, to a large extent, will depend on the quality of our
management, particularly as it relates to equipment acquisition, releasing and
disposition. The general partner is dependent on its key personnel. The loss of
any key personnel could therefore have a detrimental effect on CIGF5's ability
to continue to effectively manage its portfolio, and the expense of replacing
key personnel could reduce cash available for distributions. See "Management,"
and "Investment Objectives and Policies."
You will not be able to participate in management decisions which may affect the
return on your investment.
You will have limited voting rights on matters affecting our business.
CIGF5's management may make decisions which you believe will diminish your
returns, and you will have little opportunity to influence or take part in such
decisions. For any matter submitted to a vote of the limited partners, the
affirmative vote of the holders of at least a majority of the outstanding units
is required for approval. See "Summary of the Partnership Agreement -- Voting
Rights of Limited Partners."
-9-
Computer peripheral equipment we purchase may depreciate in value and/or become
obsolete or lose value as new technology is developed, which can reduce the
value of your units and your ultimate cash return.
Residual value is the amount realized upon the sale or release of
equipment when the original lease has expired. The residual value of our
equipment may decline if technological advancements make it obsolete or change
market preferences. The residual value depends on, among other factors, the
condition of the equipment, the cost of comparable new equipment, the
technological obsolescence of the equipment and supply and demand for the
equipment.
In either of these events, the equipment we purchased may have little
or no residual value. This will result in insufficient assets for us to
distribute cash in a total amount equal to the invested capital of the limited
partners over the term of our existence. Also, such an occurrence may reduce the
value of the units. Although currently we expect CIGF5 to acquire predominantly
new equipment, CIGF5 may purchase used equipment. There is no limitation on the
amount of used equipment which CIGF5 may acquire. The acquisitions of used
equipment may increase the risk that such equipment will become obsolete so that
it will have little or no residual value.
The assets that CIGF5 will acquire will not be diversified by equipment type,
which may adversely affect the performance of CIGF5.
Adverse developments in the market for computer peripheral equipment
will have a more significant adverse consequence to CIGF5 than if it had
acquired a portfolio that included a greater variety of asset classes. The
general partner currently expects that a substantial portion of our equipment
will be compatible with equipment manufactured by IBM. Thus, adverse
developments in the business or prospects of IBM may have a significantly
greater impact on CIGF5 than if equipment compatible with that made by a more
diverse group of manufacturers were acquired.
The size of our offering may prevent geographic, industry or other
diversification of lessees, which may adversely affect the performance of CIGF5.
To the extent that this offering results in the sale of significantly
less than the maximum number of units offered, the ability to diversify our
portfolio across geographic areas, industries and types of lessess will be
reduced, and a default by any lessee would have a more significant adverse
effect than if greater diversification had been achieved.
If we are unable to arrange promptly for the releasing or sale of the equipment
when a lessee defaults or when equipment is returned by a lessee, our revenue
will be reduced.
While the creditworthiness of potential lessees will be reviewed, lease
defaults may. A default may cause us to lose anticipated revenues and limit our
ability to recover our investment in the equipment. The general partner has not
established minimum standards for lessees to which it will lease equipment and
there is no investment restriction prohibiting CIGF5 from doing business with
any lessees.
The default by a lessee under a lease may cause equipment to be
returned to us at a time when the general partner or its agents may be unable to
arrange promptly for the releasing or sale of the equipment.
If any indebtedness is secured by the returned equipment, its return
will hinder our ability to make scheduled debt payments with respect to such
equipment. In such case, the lender may foreclose on and acquire ownership of
the returned equipment. In addition, lessees of equipment encountering financial
difficulties may voluntarily or involuntarily become subject to the provisions
of the Bankruptcy Code which could delay or prevent us from taking the equipment
back upon default. Even if a bankrupt lessee elects to accept and continue its
lease with us, we may be forced to renogotiate such lease at lower rates, which
could cause us to lose anticipated revenues. See "Investment Objectives and
Policies -- Description of Leases."
-10-
The general partner has made a limited contribution to Commonwealth Income &
Growth Fund V, causing you and the other limited partners to collectively bear
substantially greater risk than the general partner.
We have received $1,000 from the general partner as a capital
contribution for its interest in CIGF5. Therefore, contributions by you and
other limited partners and the economic risks borne by you and the other limited
partners, collectively, will be substantially greater, in proportion to the
interests owned and benefits received by you, than the contribution by the
General Partner, in proportion to the interest owned and benefits received by
the General Partner. Approximately 12.5% (assuming the maximum amount of units
are raised) to 13% of the proceeds from the sale of the units will be used to
pay organization and offering fees and expenses to the General Partner.
See "Estimated Use of Proceeds."
CIGF5 was formed on May 19, 2003 and has a limited operating history upon which
you can evaluate your investment in units.
Our operations may not ultimately be successful and we may be unable to
meet our stated investment objectives. Specifically, sufficient cash may
ultimately not be available for distribution to investors. Our general partner
has previously sponsored four public equipment leasing programs with investment
objectives similar to CIGF5, whose financial and operating results are set forth
in Table II. The general partner has also sponsored several privately held
equipment leasing programs. Results for these prior public and private programs
have in some cases been lower than originally anticipated. See "Prior Offerings
by Affiliates" below for a more complete description of these prior programs.
You may be liable for partnership obligations if you take an active part in the
control of the business of the partnership.
In general, limited partners in a partnership are not liable for
partnership obligations unless they take an active part in the control of the
business of the partnership. Our partnership agreement provides certain rights
to the limited partners to remove and replace the general partner, to amend the
partnership agreement, to approve or disapprove the sale or other disposition at
one time of all CIGF5's property, to dissolve CIGF5 and to take certain other
actions. While Pennsylvania law would not impose liability for these activities,
there is uncertainty as to which state's partnership laws may be applicable to
partnerships that are organized under the laws of one state and that own
property and have partners residing in other states. Thus it is conceivable that
the existence or the exercise of these rights under certain circumstances could
possibly cause you to be deemed to be liable as a general partner under the laws
of states other than Pennsylvania. If you were judged to be liable as a general
partner, you would be personally liable for all partnership obligations.
You may be obligated to return distributions from CIGF5 in certain
circumstances.
You will be obligated to return any distributions from CIGF5 to the
extent that, after giving effect to the distribution, all liabilities of the
partnership (other than non-recourse liabilities and liabilities to limited
partners on account of their interests in the partnership) exceed the fair value
of its assets (including, as to assets serving as security for non-recourse
liabilities, that portion of the fair value of our assets which exceeds the
amount of such non-recourse liabilities). See "Partnership Agreement Summary --
Liability of Limited Partners."
The business of leasing and investing in equipment is subject to many risks
which could impact your returns. The risks of investing in equipment include the
following:
o The unavailability of satisfactory equipment may cause a delay in investing
our offering proceeds, or reduce the amount of equipment we acquire, or
both, each of which can diminish our revenues and funds available for
distribution.
-11-
o The increasing rate at which equipment of the type in which CIGF5 intends to
invest becomes obsolete, thereby reducing the residual value of our
portfolio and your units.
o The potential inability of CIGF5 to lease equipment coming off lease or
following a default by the lessee will reduce cash flows and cash available
for distribution.
o Defaults by lessees cause us added expense to collect payment or foreclose
on the equipment, and reduce our cash flows. We also may not be able to
release returned equipment on terms as favorable as the original lease,
causing our revenues to be less than originally anticipated.
Our use of leverage to finance equipment acquisitions could adversely affect our
cash flow.
After the net proceeds of the offering received at the time of a
purchase are fully invested, or committed to investment in equipment, we may
incur debt in an amount of up to 30% of the total cost of the equipment in the
portfolio at the time of purchase. There is no limit on the amount of debt which
may be incurred in connection with the acquisition of any single item of
equipment. If we are unable to make our debt payments as required, a lender
could foreclose on the equipment securing its debt. This could cause us to lose
part or all of our investment which in turn could cause the value of the units
and distributions to you to be reduced. We generally borrow on a non-recourse
basis to limit our exposure on any item of equiptment to the amount of equity
invested in that item.
We intend to invest primarily in equipment subject to operating leases, and
therefore may not recover our investment in the equipment.
Operating leases typically will have terms of 12 to 36 months and
provide that we will receive total payments from the lessee in an amount that is
less than our purchase price of the equipment. In order to recover our purchase
price on termination of an operating lease, we must:
o obtain a satisfactory renewal from the original lessee;
o lease the equipment to a new lessee or other user; or
o sell the equipment for a price which, when combined with previous lease
payments, equals or exceeds the purchase price.
We may not successfully accomplish any of these alternatives and, as a
result, we may not realize anticipated revenues and may fail to recover our
investment in the equipment. Shorter-term operating leases may increase these
risks. See "Investment Objectives and Policies."
We have not yet identified any of our investments in equipment, which prevents
you from evaluating, or having any input into our portfolio of equipment leases.
We have not identified any equipment for acquisition by CIGF5. Until
equipment is identified in supplements to this prospectus or in quarterly and/or
annual investor reports, you will have no information about any equipment to be
purchased by us and you must rely solely upon the judgment and ability of the
general partner with respect to the selection and evaluation of equipment.
Except for the investment objectives and policies described in this
prospectus, you will have no opportunity to evaluate the terms of transactions
or other economic or financial data concerning our investments.
Any delay in acquiring equipment will diminish our returns.
Due to competition with other lessors, we may experience difficulty in
obtaining and leasing appropriate equipment. Our ability to acquire and lease
equipment may also be adversely affected by interest rates, the availability of
capital or increases in corporate liquidity, since prospective lessees may
prefer to raise capital, incur debt or use internally-generated cash to purchase
equipment rather than enter the leasing market.
-12-
Delays in acquiring equipment will delay or reduce the anticipated
benefits to you from the acquisition of units.
Our inability to repay non-recourse debt could cause a loss of our investment in
financed equipment.
Borrowing increases the risks of investment in CIGF5 because, in the
case of non-recourse debt, if debt service payments are not made when due, we
may sustain a loss of our investment in the equipment which secures that debt
and the limited partners may experience adverse tax consequences. Borrowing can
also lead to increased losses or the imposition of restrictions on our ability
to borrow further amounts. See "United States Federal Income Tax Considerations
- -- Allocation of Partnership Income, Gains, Losses, Deductions and Credits."
Money market fluctuations have affected the availability and cost of
loans that may finance the purchase of equipment. The general partner will be
unable to predict the nature of the money market at times when we may seek
financing and any future tightening of credit controls will make obtaining
financing more difficult and more costly. In such event, we may be forced to
purchase equipment using only or mostly the cash proceeds from this offering,
with little or no borrowings. This would make it more difficult for us to
achieve the desired diversification of equipment and would prevent us from
spreading the risk of unproductive investments over a greater number of items of
equipment. In addition, future credit restrictions may adversely affect the
ability for us to sell or refinance equipment and may affect the terms of
equipment sales.
In leasing the equipment to lessees, we may be exposed to liability for damages
resulting from their actions or inaction, independent of contract terms, which
can reduce cash available for distributions.
Lessees' use of the equipment may cause damages to third parties or
their property for which CIGF5, as owner of the equipment, may be held liable,
whether or not CIGF5 caused the damage. Although we will use our best efforts to
minimize the possibility and exposure of such tort liability, CIGF5's assets may
not always be protected against such claims.
The equipment leasing industry is highly competitive, and our inability to
compete effectively in this market will reduce your returns and the value of
your units.
CIGF5's competitors include independent leasing companies, affiliates
of banks and insurance companies and other partnerships. Many of these entities
may have larger equipment inventories, greater financial resources and more
experience in the industry than CIGF5 or the general partner. See "Investment
Objectives and Policies -- Competition."
CIGF5's ability to lease, release or sell its equipment, and therefore returns
to investors, may be affected by actions taken or not taken by, or the business
prospects of, IBM, over which we will have no control.
The general partner currently expects that a substantial portion of
CIGF5's equipment will be manufactured by IBM or will be compatible with
equipment manufactured by IBM, making the success of CIGF5 dependent in part on
the success of IBM.
-13-
Our ability to release or sell the equipment at the end of the lease term, and
therefore returns to investors, could be adversely affected by the actions of
the equipment manufacturer or others hired to perform services on the equipment.
The failure of an equipment manufacturer to honor its product
warranties or to provide necessary parts and servicing, the decline of the
manufacturer's reputation in the industry, the discontinuance of the manufacture
of such equipment or the termination of the manufacturer's business may also
hinder our ability to release or sell the equipment.
We may enter into contracts with manufacturers or others in which such
parties may perform certain services related to equipment, including
refurbishing and storing equipment and performing related services. Our ability
to meet our investment objectives would be partially dependent on the
satisfactory performance of these functions by such parties. See "Investment
Objectives and Policies -- Types of equipment."
TAX RISKS
In view of the complexity of the tax aspects of investing in a
partnership that may invest in many different types of equipment, and
particularly in view of the fact that the tax situation of each investor will
not be the same, you are urged to consult your tax advisor with specific
reference to your own tax situation prior to making an investment in CIGF5.
CIGF5 is not intended to be a "tax shelter" and you should not expect a tax
benefit from substantial tax deductions or losses from CIGF5. The general
partner anticipates, however, that CIGF5 may distribute cash periodically to
you, a portion of which may not be taxable to you upon receipt. Trustees and
other fiduciaries of individual retirement accounts, qualified pension, profit
sharing or stock bonus plans, and other tax exempt entities should be aware that
an investment in units will result in unrelated business taxable income, known
as UBTI. See "United States Federal Income Tax Considerations -- Investment by
Tax Exempt Entities" and "ERISA Considerations" below. Together with your tax
advisor, you should carefully consider all of the tax aspects of an investment
in CIGF5, including, specifically, the risks discussed below.
A ruling from the IRS has not been obtained, and the general partner does not
presently intend to apply for a ruling, with respect to the tax considerations
associated with an investment in units.
Availability of the tax treatment described in this prospectus may be
challenged by the IRS upon audit of the tax return of either CIGF5 or a partner.
It should be noted that the determination of items of partnership income, gain,
loss, deduction and credit will be made at the partnership level rather than in
separate proceedings with the limited partners, and limited partners generally
will be required to report partnership items consistent with CIGF5's tax
returns.
For any year in which CIGF5 has income in excess of deductions, each
limited partner will be required to report his share of such income on his
federal and state tax returns and will be responsible for the payment of taxes
thereon. Such taxes may be greater than cash distributions received by the
limited partner from CIGF5 in one or more taxable years.
The primary tax benefits associated with an investment in units are the
"tax-deferred" distributions (that is, distributions which are not subject to
current taxation), which may be available as a result of cost recovery or
depreciation deductions. The availability of tax-deferred distributions may be
reduced by the alternative minimum tax. The IRS may successfully challenge the
amount or timing of the depreciation deductions claimed by CIGF5, with the
result that the depreciation deductions of CIGF5 may be reduced and partnership
income may be increased (or loss may be decreased) for a taxable year. The tax
considerations associated with an investment in CIGF5 could be affected by a
number of different factors, which are described in detail under the caption
"United States Federal Income Tax Considerations."
-14-
Any adjustment to a tax return of CIGF5 as a result of an audit by the IRS may
result in adjustment to your tax return.
Any such adjustment may result in an examination of other items in your
returns unrelated to the partnership, or an examination of prior years' tax
returns. You could incur substantial legal and accounting costs in contesting
any challenge by the IRS, regardless of the outcome.
The IRS may challenge our partnership status which, if successful, could
significantly reduce cash available for distributions.
Treasury Regulations generally allow newly formed unincorporated
entities (such as CIGF5) to choose whether to be taxed as a partnership or a
corporation for federal income tax purposes. However, Section 7704 of the Code
treats certain partnerships, the interests of which are deemed to be "publicly
traded," as corporations. While the general partner will use its best efforts to
limit the type and number of transfers of units to those which will allow CIGF5
to satisfy at least one of the safe harbors under Treasury Regulation Section
1.7704-1, there is no assurance that CIGF5 will satisfy one of these safe
harbors. Certain transfers of units could occur which would cause CIGF5 to fall
outside these safe harbors.
While the failure to meet a safe harbor will not create a presumption
that a partnership is publicly-traded, no assurance can be given that if the
amount and type of trading in the units were to fall outside the safe harbors,
the IRS would not claim that CIGF5 was a "publicly-traded partnership" taxable
as a corporation. See "Transferability of Units" and "United States Federal
Income Tax Considerations -- Classification as a Partnership."
If the IRS were successful in characterizing CIGF5 as a "publicly
traded" partnership taxable as a corporation, then CIGF5 would be subject to tax
on its net income (without deductions for cash distributions to limited
partners), you would be subject to tax on the distributions irrespective of your
tax basis in your units, and such distributions would be re-characterized as
portfolio income to you.
The IRS may challenge certain partnership allocations, which could cause you to
recognize additional taxable income.
If the allocations of partnership net profits and net losses to the
limited partners made pursuant to the partnership agreement were successfully
challenged by the IRS, you may be required to recognize additional taxable
income without any corresponding increase in distributions of cash from CIGF5.
You may not be able currently to deduct partnership net losses as a
result of limitations on the current utilization of passive activity losses. In
addition, any portfolio income generated by CIGF5 may not be netted against
partnership tax losses. See "United States Federal Income Tax Considerations --
Limitations on Utilization of Partnership Losses -- Passive Activity Losses
Limitations." Finally, in the event that interests in CIGF5 are deemed to be
"publicly traded," otherwise passive income will be treated as portfolio income
which may not be netted against partnership tax losses or other passive losses,
deductions, or credits of the limited partner.
-15-
The IRS may consider CIGF5 to be a secured lender with respect to certain
equipment, which could increase your tax liabilities.
CIGF5 intends to structure each lease transaction so that the lease
will be treated as a lease rather than as a financing arrangement for tax
purposes. If, however, the IRS were successful in challenging the status of a
lease by treating the lessee as the owner of the equipment and CIGF5 as a
secured creditor, among other items, CIGF5 would not be entitled to cost
recovery or depreciation deductions with respect to that item of equipment. The
unavailability of such cost recovery or deductions will cause your tax
liabilities to increase. See "United States Federal Income Tax Considerations --
Ownership of Equipment -- Tax Treatment of Leases."
Your tax liabilities may exceed cash distributions or cash proceeds from the
sale or other disposition of equipment or units.
Because we will incur loans to finance the purchase of some of its
equipment, it is possible that your tax liability for a given year will exceed
your cash distributions for that year because of the need to pay down the
principal on such loans. A sale or other disposition of equipment or of your
interest in CIGF5 may result in a tax liability to you in excess of any cash
proceeds you receive. To the extent your federal tax liabilities exceed cash
proceeds, such excess would be a nondeductible cost to you.
You may incur state tax and foreign tax liabilities.
You may be required to file tax returns and pay state or local taxes,
such as income, franchise or personal property taxes, as a result of an
investment in CIGF5. We do not plan to finance, and our prior programs have not
financed, equipment outside of the United States. When we sell equipment, we may
sell it outside of the United States, and any sale of equipment into a country
other than the United States may subject you to sales or other taxes in such
country. See "United States Federal Income Tax Considerations -- State Taxes",
and "United States Federal Income Tax Considerations -- Foreign Tax
Considerations."
Tax benefits associated with an investment in units could be lost and/or
substantial tax liabilities incurred by reason of changes in the tax laws.
You should be aware of tax legislation currently pending before
Congress and state legislatures and should consult you own tax advisors as to
the effect such legislation would have on your potential investment in units. In
that regard, there are presently pending before Congress at least three
competing proposals which respond to a decision by the World Trade Organization
in 2002 that certain features relating to federal income taxation of export
activities constituted an impermissible trade subsidy. These include H.R. 2896,
H.R. 1769 and S. 1475. If enacted, H.R. 2896 could affect in investment in CIGF5
since it would provide for a more accelerated schedule of depreciation for
federal income tax purposes than that presently provided for under current law.
Furthermore, there is no assurance that changes in the interpretation of
applicable tax laws will not be made by administrative or judicial action which
will adversely affect the tax consequences of an investment in units.
Administrative or judicial changes may or may not be retroactive with
respect to transactions entered into prior to the date on which they occur.
Periodic consultations with a professional advisor may be necessary given the
possibility of such changes.
-16-
Investment in CIGF5 by a tax exempt entity, including a qualified employee
pension or profit sharing trust or an individual retirement account, will result
in the receipt of UBTI.
If a tax exempt entity realizes Unrelated Business Taxable Income, or
UBTI, from all sources in excess of $1,000 per year net of deductions
attributable to such UBTI, it will incur federal income tax liability with
respect to such UBTI. Furthermore, if a tax exempt entity has at least $1,000 of
gross income that is included in the calculation of UBTI for any year, the tax
exempt entity will be obligated to file a tax return for such year. See "United
States Federal Income Tax Considerations -- Investment by Tax Exempt Entities."
Investment in CIGF5 by certain benefit plans may impose additional burdens on
CIGF5.
To avoid classification of a pro rata portion of CIGF5's underlying
assets as "plan assets" of investors which are benefit plans, CIGF5 intends to
restrict the ownership of units by benefit plans to less than 25% of the total
value of outstanding units at all times. See "ERISA Considerations -- Plan
Assets." Neither the general partner nor CIGF5 shall have any liability or
responsibility to any tax exempt limited partner or any other limited partner
for any tax, penalty or other sanction or costs or damages arising as a result
of there being a prohibited transaction or as a result of partnership assets
being deemed plan assets of a tax exempt limited partner under the Code or ERISA
or other applicable law.
MANAGEMENT
The general partner, owned by Commonwealth of Delaware, Inc., which is
owned by Com Cap Corp., was incorporated in Pennsylvania on August 26, 1993. The
general partner currently manages four other public equipment leasing
partnerships. The principal business office of the general partner is at
Oaklands Corporate Center, 470 John Young Way, Suite 300, Exton, Pennsylvania
19341, and its telephone number is 1-800-249-3700. The general partner manages
and controls our affairs and will have sole responsibility for all aspects of
operations. The directors and officers of the general partner and key employees
of Com Cap Corp. are as follows:
Name Title
- ---------------------------------- ---------------------------------------------------------------------------------
George S. Springsteen Chairman of the Board of Directors, CEO and President of the general partner
and Com Cap Corp. and CEO of Commonwealth Capital Securities Corp.
Kimberly A. Springsteen Executive Vice President, Director, Chief Operating Officer and Secretary of
the general partner and Com Cap Corp. and President of Commonwealth Capital
Securities Corp.
Henry J. Abbott Senior Vice President, Director and Portfolio Manager of Com Cap Corp. and
Senior Vice President of Commonwealth Capital Securities Corp.
Katrina Mason Senior Vice President & Broker/Dealer Relations Manager of Commonwealth Capital
Securities Corp.
Salvatore Barila Vice President & Controller of the general partner, Com Cap Corp. and
Commonwealth Capital Securities Corp.
Lynn Franceschina Vice President & Accounting Manager of the general partner, Com Cap Corp. and
Commonwealth Capital Securities Corp.
Mark Hershenson Vice President & Broker Relations Manager of the general partner and
Commonwealth Capital Securities Corp.
Jay Dugan Vice President & IT Manager of the general partner and Com Cap Corp.
Karen Tramontano Assistant Vice President & Marketing Manager of the general partner, Com Cap
Corp. and Commonwealth Capital Securities Corp.
David Borham Assistant Vice President & Investor Relations Manager of the general partner,
Com Cap Corp. and Commonwealth Capital Securities Corp.
Dorothy Ferguson Assistant Vice President & Compliance Officer of the general Partner, Com Cap
Corp. and Commonwealth Capital Securities Corp.
-17-
George S. Springsteen, age 68, is President of both Com Cap Corp. and
the general partner. Mr. Springsteen is also President of the general partners
of several prior programs sponsored by Com Cap Corp. He is also Chairman of the
Board of Directors of Commonwealth Capital Securities Corp. He has been the sole
shareholder and director of Com Cap Corp. since 1978. From 1971 to 1978, Mr.
Springsteen was employed with Granite Computer Corporation. Mr. Springsteen, as
Vice President of Marketing, managed a portfolio of approximately $120,000,000
of IBM computers and peripherals. In 1978, Granite Computer Corporation sold its
equipment portfolio and left the equipment leasing business. Mr. Springsteen
acquired a portion of Granite's portfolio, client base, employees and corporate
offices in Jenkintown, Pennsylvania in 1978, now known as Com Cap Corp. Mr.
Springsteen attended the University of Delaware. Mr. Springsteen holds Series
22, 63 and 39 NASD licenses and is a member of the Equipment Leasing
Association. Mr. Springsteen is the husband of Kimberly A. Springsteen.
Kimberly A. Springsteen, age 44, is Executive Vice President, Chief
Operating Officer and Secretary of Com Cap Corp. and the general partner and
joined Com Cap Corp. in 1997. She is also the President of Commonwealth Capital
Securities Corp. From 1980 to 1997, Ms. Springsteen was employed with Wheat
First Butcher Singer, a broker/dealer headquartered in Richmond, Virginia. While
at Wheat First Butcher Singer, Ms. Springsteen, as Senior Vice President, served
as Marketing Manager for the Direct Investments Department, with over
$450,000,000 of investments under management in real estate, equipment leasing
and energy-related industries. Ms. Springsteen holds Series 7, 63, and 39 NASD
licenses and is a member of the Equipment Leasing Association, a member of the
Financial Planners Association and serves on the Board of Trustees for the
Investment Program Association. Ms. Springsteen is the wife of George S.
Springsteen.
Henry J. Abbott, age 53, is Senior Vice President and Portfolio Manager
of Com Cap Corp. and has been employed by Com Cap Corp. since 1998. Mr. Abbott
is responsible for acquisitions and dispositions and asset review. Mr. Abbott
has been active in the commercial lending industry, working primarily on
asset-backed transactions for more than twenty-seven years. Before joining
Commonwealth, Mr. Abbott was a founding partner of Westwood Capital LLC in New
York. Prior to that, as Senior Vice President for IBJ Schroeder Leasing
Corporation, Mr. Abbott managed a group specializing in the provision of
operating lease financing programs in the high technology sector. Mr. Abbott
brings extensive knowledge and experience in all facets of asset-backed
financing and has successfully managed $1.5 billion of secured transactions. Mr.
Abbott attended St. John's University and is a member of the Equipment Leasing
Association.
Katrina Brown Mason, age 31, is Senior Vice President, Broker/Dealer
Relations, joined Commonwealth in 2002. Ms. Mason is responsible for preliminary
due diligence requests and coordination of sales efforts. She is also
responsible for Broker / Dealer development and our various marketing efforts.
Ms. Mason brings with her nearly a decade of syndication, reporting, marketing
and regulatory experience, from two equipment leasing syndication firms. Prior
to joining Commonwealth, Ms. Mason served as President of ICON Securities from
1997 to 2002, and Regional Marketing Director of Textainer Capital Corporation
from 1994 to 1997, each of which are equipment leasing sponsors. Ms. Mason has
managed all facets of the leasing business from compliance, registrations, due
diligence and product development, to broker/dealer marketing relations. She has
also worked with several national broker/dealer firms in developing strategic
marketing plans to aid broker/dealers in their alternative investment
educational requirements. Ms. Mason holds a Bachelors of Arts from the
University of California at Santa Barbara and an MBA from the University of San
Francisco. She is a member of the Financial Planning Association, the Equipment
Leasing Association and the Investment Program Association.
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Salvatore R. Barila, age 32, is Vice President and Controller of the
general partner and Com Cap Corp. and certain of its subsidiaries where he has
been employed since 2000. Mr. Barila is responsible for overseeing all
accounting functions and coordination of audit activities. From 1992 to 2000,
Mr. Barila was employed as Corporate Accounting Manager of RCG Information
Technology, Inc. Mr. Barila received a BS degree in Accounting from Pace
University in 1992. Mr. Barila is a member of the Equipment Leasing Association.
Lynn Franceschina, age 31 , is Vice President and Accounting Manager of
the general partner and Com Cap Corp. and certain of its subsidiaries where she
has been employed since 2001. Ms. Franceschina is responsible for cash
management and financial reporting and analysis. Ms. Franceschina is a member of
the Equipment Leasing Association. For several years prior to joining
Commonwealth, Ms. Franceschina served as Business Controls manager for Liquent,
located in Fort Washington, PA. At Liquent, she was responsible for managing the
company's entire corporate forecasting process, reviewing quarterly financial
statements and all SEC filings for the company, as well as the complete budget
process for one division.
Jay Dugan, age 55, Vice President and Information Technology Manager,
joined Commonwealth in 2002. Mr. Dugan is responsible for computer network and
information systems for the general partner and its affiliates. Mr. Dugan offers
over 15 years of securities industry experience. Prior to joining Commonwealth,
Mr. Dugan served as a consultant in due diligence and investment banking
activities for a number of firms, and in 1980 founded and ran an NASD member
broker-dealer firm, First Securities USA, Inc.
Mark Hershenson, age 38, Vice President & Manager of Broker Relations,
joined Commonwealth in 2002. Mr. Hershenson is responsible for all custodial
firm relationships, wholesaler scheduling and internal sales communications. He
assists representatives in building broker/client relationships, obtaining
education and necessary training and increasing production goals. Mr. Hershenson
offers over 15 years of experience in the financial, banking, insurance and
brokerage industries. Mr. Hershenson brings a special concentration in financial
planning and compliance and holds his Series 7,63 and 218 (FL). Since 1987, Mr.
Hershenson has successfully managed and trained sales representatives on sales
techniques and building client-broker relationships. Prior to joining
Commonwealth, Mr. Hershenson was part of a financial planning practice at
American United Life from 1999 to 2002. He has written a book for the Florida
insurance commissioner on how to sell insurance products and has successfully
managed and trained over 100 sales representatives at MetLife from 1997 to 1999.
Mr. Hershenson attended Stonehill College, American College and Parkwood
University, obtaining a Bachelor's in Psychology, with a concentration in
Marketing/ Organizational Behaviorism and a Master's degree in Financial
Planning.
Dorothy Ferguson, age 60, Assistant Vice President & Compliance
Officer, is responsible for compliance, registrations and reporting for the
broker/dealer affiliate, as well as the management of the investor records,
certificates and reconciliations. Ms. Ferguson also assists in the due diligence
process with the broker/dealer community. Ms. Ferguson brings over three decades
of experience in the finance and commercial banking arenas to Commonwealth.
Prior to joining Commonwealth in 1995, she worked at SKF USA, Inc., located in
King of Prussia, PA, from 1976 to 1992.
Karen Tramontano, age 51, Assistant Vice President & Marketing Manager,
joined Commonwealth in 2000, bringing with her over a decade of experience of
international marketing and customer relations. Ms. Tramontano is responsible
for generation and distribution of all marketing materials. Prior to joining
Commonwealth, Ms. Tramontano served from 1973 to 1983 as executive liaison to
the President for V&V Noordland, Inc., an international commercial company, and
served as an office manager for a small business in Florida from 1998 to 2000.
Ms. Tramontano coordinates Commonwealth's home office marketing department,
which services our broker dealer community and registered representatives across
the country. Ms. Tramontano attended Suffolk College in New York, with a Major
in Advertising/Promotion.
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David Borham, age 26, Assistant Vice President & Investor Relations
Manager, joined Commonwealth in 2000, bringing with him 2 years of Customer
Service experience. Mr. Borham holds a Series 22 NASD license and is responsible
for the management of investor database maintenance and all investor inquiries
and correspondence. Prior to joining Commonwealth, Mr. Borham served as Customer
Relations Representative in the food service industry for Dilworth Town Inn from
1996 to 2000. Mr. Borham attended Delaware County Community College.
The directors and officers of the general partner are required to spend
only such time on CIGF5's affairs as is necessary for the proper conduct of
CIGF5's business. Under certain circumstances, such directors and officers are
entitled to indemnification from CIGF5.
See "Conflicts of Interest" and "Responsibilities of the General Partner."
RESPONSIBILITIES OF THE GENERAL PARTNER
The general partner is accountable to CIGF5 as a fiduciary and,
consequently, must exercise good faith and integrity in handling partnership
affairs. Certain provisions of the partnership agreement may relieve the general
partner and its affiliates from an aspect of its state common law fiduciary
duties. These duties are specifically limited by the provisions of our limited
partnership agreement, and the limitation is not generally applicable to all
limited partnerships. General partners are held to a duty of good faith in
conducting partnership affairs.
Since the general partner and certain programs it has sponsored will
acquire and lease equipment in the same manner as CIGF5, the general partner may
be deemed to have a conflict of interest with CIGF5. This conflict arises
because the partnership agreement states that, if two or more investor programs
are in a position to acquire the same equipment, the general partner will decide
which program or entity will purchase the equipment. (The general partner
generally affords priority to the program that has had funds available to
purchase equipment for the longest period of time.) If two or more investor
programs are in a position to enter into leases with the same lessee or to sell
equipment to the same purchaser, the general partner will generally give
priority to the equipment which has been available for lease or sale for the
longest period of time. The general partner may also allocate equipment to other
programs based on the cash/borrowing available, the equipment type, the term of
the lease, and the percentage that each lessee represents to the total assets of
the funds or programs. This allocation of equipment may relieve the general
partner and its affiliates from an aspect of their fiduciary duty to CIGF5.
Without modifying the general partner's fiduciary duties, the general
partner might not be able to serve as the general partner for CIGF5 and other
investor programs acquiring and leasing equipment at the same time. This
modification may operate as a detriment to limited partners because there may be
business opportunities that will not be made available to CIGF5.
The partnership agreement provides that the general partner will not be
liable to CIGF5 or to any limited partner for any loss or damage caused by the
general partner's actions or omissions, if made in good faith in connection with
CIGF5. An act or omission giving rise to a loss will be considered made in good
faith if the general partner has determined such course of conduct to be in the
best interest of CIGF5. The partnership agreement also provides that CIGF5 will
indemnify and hold harmless the general partner, its affiliates and its
successors and assigns against any liability, loss or damage incurred by reason
of any act or omission performed or omitted in good faith in connection with the
activities of CIGF5 or in dealing with third parties on behalf of CIGF5
(including reasonable costs and reasonable attorneys' fees).
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If such act or omission constitutes fraud, negligence, or breach of
fiduciary duty, this indemnification will not be available. If such liability,
loss, or damage arose out of any act or omission on the part of the general
partner, the general partner must have acted in the good faith belief that such
course of conduct was in the best interest of CIGF5 in order to be indemnified,
and any such indemnification shall be recoverable only from the assets of CIGF5
and not from the holders of units. A successful claim for indemnification could
deplete the assets of CIGF5.
Based upon the present state of the law, a limited partner may
institute legal action on behalf of himself and all other limited partners (a
class action) to recover damages for a breach by the general partner of its
fiduciary duty, or on behalf of CIGF5 (a partnership derivative action) to
recover damages from third parties. In addition, (i) investors may bring
partnership class actions in federal courts to enforce their rights under the
federal and state securities laws. Investors who have suffered losses in
connection with the purchase or sale of their units may be able to recover such
losses from the general partner where the losses result from a violation by the
general partner of the antifraud provisions of federal or state securities laws.
The fiduciary duty owed by a general partner to its partners is similar
in many respects to the fiduciary duty owed by the directors of a corporation to
its shareholders and is subject to the same rule commonly referred to as the
"business judgment rule." Directors are not liable for mistakes in the good
faith exercise of honest business judgment or for losses incurred in the good
faith performance of their duties when performed with such care as an ordinarily
prudent person would use. Accordingly, the general partner may not be held
liable for mistakes made or losses incurred in the good faith exercise of
reasonable business judgment.
If indemnification provisions purport to include indemnification for
liabilities under the Securities Act of 1933, CIGF5 has been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
contrary to public policy and is therefore unenforceable. CIGF5 will not
indemnify the general partner and its successors and assigns against liabilities
arising under the Securities Act of 1933 unless the indemnified party is
successful in defending such action and such indemnification is specifically
approved by a court of law which has been advised as to the current position of
the Securities and Exchange Commission regarding indemnification for violations
of securities law. CIGF5 will not pay for any insurance covering the liability
of the general partner or its successors or assigns for any act or omission
whether or not indemnification is permitted by the partnership agreement.
INVESTMENT OBJECTIVES AND POLICIES
Principal Investment Policies
We intend to use a substantial portion of the proceeds of this offering,
retained proceeds and debt (not to exceed 30% of the total cost of the equipment
owned by CIGF5) to purchase IBM and IBM-compatible computer peripheral
equipment. We intend to acquire equipment which is leased to U.S. corporations
through operating leases. We retain the flexibility to enter into "full payout
net leases" (in which the non-cancelable rental payments due are at least
sufficient to recover the purchase price of the equipment) and "conditional
sales contracts" but have not and do not anticipate doing so. See "Description
of Leases," below.
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Our principal investment objectives are to:
o provide cash distributions to limited partners through the
acquisition, lease and sale of computer peripheral equipment;
o preserve and protect limited partners' capital;
o use a portion of cash flow and sales proceeds, refinancing or other
sale of equipment to purchase additional equipment; and
o refinance, sell or otherwise dispose of equipment in a manner that
will maximize the proceeds to CIGF5 and subsequent overall return to
investors.
CIGF5 will not originate any leases. We will purchase new leases
(already newly in place) from other leasing companies. The leasing companies we
purchase leases from originate leases in bulk from major corporations and sell
off part of their portfolios, much like a bank selling a mortgage to another
bank, for fees. Commonwealth forms a strategic partnership with other leasing
companies, to assist in maximizing lease performance on the back-end of the
lease. This strategic partnership provides "threshold revenue sharing," which is
negotiated on an individual basis, if certain performance criteria are realized.
The equipment that will be in our portfolio cannot be determined, as
there is no way of anticipating what equipment will be available on reasonable
terms throughout CIGF5's life. The general partner may vary our portfolio and
invest a substantial portion of the net proceeds of this offering in a single
category of computer peripheral and other similar equipment with certain
restrictions. See "Computer Peripheral And Other Equipment Restrictions"
As of the date of this prospectus, CIGF5 has not entered into any
commitments for the acquisition, financing, or leasing to third parties of any
equipment. CIGF5 will attempt to obtain contractual commitments for the purchase
of equipment as soon as practicable. Limited partners will not have any right to
vote on or otherwise approve or disapprove any particular investment to be made
by CIGF5. It is not possible to determine the date when the net offering
proceeds (capital contributions less commissions and other organizational fees
and expenses) will be fully invested in equipment by CIGF5 or the terms of any
purchases of equipment.
If all of the net proceeds of this offering are not invested by CIGF5
in equipment or committed to such investment or otherwise utilized for proper
partnership purposes prior to the expiration of 12 months from the completion of
this offering, the net proceeds not invested or committed will thereupon be
promptly returned, with interest at the rate earned by CIGF5.
Although it is currently anticipated that CIGF5 will acquire new
equipment, CIGF5 may also purchase used equipment. Equipment purchases will be
made through lease brokers who charge CIGF5 a fee over their cost of the
equipment as compensation.
The general partner anticipates that CIGF5's equipment will be leased
under operating leases or that an operating lease will be entered into with a
third party when CIGF5 acquires an item of equipment. See "Description of
Leases" below.
CIGF5 may also engage in sale/leaseback transactions, in which CIGF5
would purchase equipment from companies that would then immediately lease the
equipment from CIGF5.
CIGF5 may enter into arrangements with one or more manufacturers so
CIGF5 can purchase equipment from such manufacturers which has previously been
leased directly by the manufacturer to third parties under vendor leasing
programs. The manufacturers of equipment will provide maintenance, remarketing
and other services for the equipment subject to such agreements.
The general partner can change the investment objectives of CIGF5 if it
determines that such a change is in the best interest of the limited partners
and so long as such a change is consistent with Sections 10.2 and 10.3 of the
partnership agreement. However, the general partner cannot change CIGF5's
primary objective of acquiring, leasing and selling equipment without the
consent of holders of more than fifty percent of the units. The general partner
will notify the limited partners if it makes such a determination to change
CIGF5's investment objectives. For more details on the general partner's rights
and duties, please read our Restated Limited Partnership attached to this
prospectus as Appendix II.
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Computer Peripheral Equipment
Computer peripheral equipment consists of devices used to convey
information into and out of a central processing unit, or mainframe, of a
computer system. Examples are tape drives, disk drives, tape controllers, disk
controllers, printers, terminals and related control units, all of which are
related to the process of storing, retrieving, and processing information by
computer.
CIGF5 acquires primarily IBM manufactured or IBM-compatible equipment.
The general partner believes that dealing in IBM-compatible equipment is
particularly advantageous because of the large IBM customer base, IBM's policy
of supporting IBM users with software and maintenance services and the large
amount of IBM and IBM-compatible equipment in the marketplace.
If, in the general partner's opinion, IBM's competitors begin to offer
these advantages and the general partner determines that non-IBM compatible
equipment is comparable in quality, the general partner may increase its
purchases of computer equipment which is not IBM-compatible if such purchases
are in the best economic interest of CIGF5. See "Risk Factors - CIGF5's ability
to release or sell its equipment may be affected by actions taken or not taken
by, or by the business prospects of IBM."
Computer technology has developed rapidly in recent years and is
expected to continue to do so. Technological advances have permitted reductions
in the cost of computer processing capacity, permitting applications unavailable
a few years ago. Much of the older IBM and IBM-compatible computer peripheral
equipment has not been retired from service, because software is generally
interchangeable between older and newer equipment, and older equipment is
capable of performing many of the same functions as newer equipment. In the
future, the rate or nature of equipment development may cause equipment to
become obsolete more rapidly.
The general partner believes that values of most peripheral equipment
have been affected less dramatically by changes in technology than have the
values of central processing units. An equipment user who upgrades to a more
advanced central processor generally can continue to use his existing peripheral
equipment. Peripheral equipment however is subject to declines in value as new,
improved models are developed and become available. Technological advances and
other factors have at times caused dramatic reduction in the market prices of
certain older models of IBM and IBM-compatible computer peripheral equipment.
Other Equipment Restrictions
The general partner is also authorized to invest in telecommunication
or medical technology equipment.
CIGF5 may not invest in any additional types of equipment unless:
o the total purchase price of all equipment purchased by CIGF5 which
is not computer peripheral, telecommunication or medical technology
equipment represents 25% or less of the total cost of all of the
assets of CIGF5 at that time; and
o the general partner determines that such purchase is in the best
economic interest of CIGF5 at the time of the purchase. There can be
no assurance that any equipment investments can be found which meet
this standard, and there can be no assurance that investments of
this type will be made by CIGF5.
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Diversification
Diversification is desirable to minimize the effects of changes in
specific industries, local economic conditions or similar risks. CIGF5's
diversification will depend in part upon the financing which can be assumed by
CIGF5 or borrowed from third parties on satisfactory terms.
CIGF5's business strategy is to acquire computer peripheral equipment
leases, that are leased to investment grade domestic lessees. Our strategy for
diversification is through equipment type, lessees, lease maturities and
industries of lessees. Our leases are typically 12 to 36 months in length and
are triple-net in structure. Diversification will also depend on the
availability of various types of equipment. Since the needs of potential lessees
are unknown at this time, there can be no assurance given with respect to the
maximum percentages of proceeds which will be invested in any single item or
group of items of equipment or in equipment under lease to a single lessee,
except as explained below and under "Other Equipment Restrictions" above. See
also "Risk Factors - The assets that CIGF5 will acquire will not be diversified
by equipment type, and the size of our offering may prevent diversification of
lessees, both of which may adversely affect the performance of CIGF5." During
the operational stage of CIGF5, we may not at any one point in time lease more
than 25% of the equipment to a single person or affiliated group of persons.
Description of Leases
We will purchase only equipment which will be subject to a lease. The
general partner intends to lease most of the equipment to third parties subject
to operating leases. Operating leases are relatively short-term (12 to 36 month)
leases under which the rental payments during the original term of the lease are
not sufficient to recover the purchase price of the equipment.
The terms of the leases will depend upon a variety of factors,
including:
o the desirability of each type of lease from both an investment and a
tax point of view;
o the relative demand among lessees for operating leases, as opposed
to financing or other types of leases not offered by us;
o the type and use of equipment and its anticipated residual value;
o the business of the lessee and its credit rating;
o the availability and cost of financing;
o regulatory considerations;
o the accounting treatment of the lease sought by the lessee or the
partnership; and
o competitive factors.
Based on current sales prices for equipment and the past experience of
the general partner in disposing of equipment at the end of lease terms, the
general partner believes that CIGF5 will be able to release or dispose of its
equipment leased under operating leases after their initial terms.
We intend to enter into "triple net leases" which typically provide
that the lessee will bear the risk of physical loss of the equipment, pay taxes
relating to the lease or use of the equipment and maintain the equipment. The
lessee will also:
o indemnify CIGF5 against any liability suffered by CIGF5 as the
result of any act or omission of the lessee or its agents;
o maintain casualty insurance in an amount equal to the greater of the
full value of the equipment or a specified amount described in the
lease; and
o maintain liability insurance naming CIGF5 as an additional insured
with a minimum coverage which the general partner believes is
appropriate.
We may also purchase "umbrella" insurance policies to cover excess
liability.
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The general partner has not established standards for lessees to which
it will lease equipment and there is no investment restriction prohibiting CIGF5
from doing business with any lessees. The general partner will perform a credit
analysis (including a review of the financial statements, credit history and
public debt record) of all potential lessees to determine the lessee's ability
to make payments under the lease.
The terms and conditions of our leases will be determined by
negotiation and may impose substantial obligations on CIGF5. If we were to
assume maintenance or service obligations, we would enter into separate
maintenance or service agreements with manufacturers or certified maintenance
organizations to provide such services. Such agreements will generally require
annual or more frequent adjustments of service fees. We do not presently
anticipate entering into any leases which require us to perform maintenance
duties.
Borrowing Policies
We may incur debt in an amount of up to 30% of the total cost of the
equipment in the portfolio at the time of purchase. However, we may not borrow
to acquire equipment unless, at the time of any such borrowing, the net proceeds
of the offering received to date are fully invested, or committed to investment,
in equipment. Debt, for purposes of this prospectus, means debt incurred with
respect to acquiring or investing in equipment, or refinancing non-term debt,
but not debt incurred with respect to refinancing existing partnership term
debt. We will incur only non-recourse debt, which will be secured by equipment
and lease income. This debt will permit us to increase the amount of our
depreciable assets, and should increase both our lease revenues and our federal
income tax deductions above those levels which would be achieved without
borrowing. There is no limit on the amount of debt which may be incurred in
connection with the acquisition of any single item of equipment. Any debt
incurred will be fully amortized over the term of the initial lease for the
equipment securing the debt. The amount borrowed by CIGF5 will depend on a
number of factors, including:
o the types of equipment acquired by CIGF5;
o the creditworthiness of the lessee;
o the availability of suitable financing; and
o prevailing interest rates.
CIGF5 intends to be flexible in the degree of leverage it employs,
within the permissible limit. CIGF5 will purchase some items of equipment
without debt. If CIGF5 purchases an item of equipment without debt and then
suitable financing becomes available, it may then obtain the financing, secure
the financing with the equipment purchased previously and invest any proceeds
from financing in additional items of equipment. CIGF5 will attempt to borrow
funds, to the fullest extent possible, at interest rates fixed at the time of
borrowing.
Any debt incurred by CIGF5 must be non-recourse. Non-recourse debt
means that the lender providing the funds can look for security only to the
equipment pledged as security for the loan, including the proceeds derived from
leasing or selling the equipment. Neither CIGF5 nor any partner (including the
general partner) would be liable for repayment of any non-recourse debt. To the
extent CIGF5 borrows on a non-recourse basis, the limited partners' tax basis in
their units will increase, although there may not be a corresponding increase in
the partners' "At-Risk" amount. See "United States Federal Income Tax
Considerations -- Limitation on Utilization of Partnership Losses."
The general partner and its affiliates may make loans to CIGF5 on a
short-term basis in an amount of 1.01% of net offering proceeds, if necessary.
If the general partner or any of its affiliates does so, the general partner or
affiliate may not charge interest at a rate greater than the interest rate
charged by unrelated lenders on comparable loans. CIGF5 will not pay interest on
a loan at an annual rate greater than three percent over the "prime rate"
published in The Wall Street Journal. All payments of principal and interest on
any financing provided by the general partner or any of its affiliates shall be
due and payable by CIGF5 within 12 months after the date of the loan. See
"Compensation of General Partner and Affiliates."
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If the general partner or any of its affiliates purchases equipment in
its own name and with its own funds in order to facilitate ultimate purchase by
CIGF5, the general partner or any such affiliate will be entitled to receive
interest on the funds. See "Conflicts of Interest -- Acquisitions."
Refinancing Policies
CIGF5 may refinance its debt, subject to borrowing restrictions. The
general partner will take into consideration factors such as the amount of
appreciation in value to be realized, the possible risks of continued ownership
and the anticipated advantages, as compared to selling such equipment.
CIGF5 may retain an item of equipment, through refinancing, to generate
additional funds for reinvestment in additional equipment or for distribution to
the limited partners.
A refinancing will not be taxable to a limited partner unless it
exceeds the tax basis of the limited partner's units (after any increase of the
tax basis as a result of CIGF5's incurring any additional non-recourse debt).
See "United States Federal Income Tax Considerations -- Limitations on
Utilization of Partnership Losses -- Tax Basis."
Liquidation Policies
CIGF5 will begin to dispose of its equipment approximately nine years
after the completion of this offering. The general partner may begin to dispose
of all its equipment at such time as the general partner believes will allow for
an orderly, business-like disposition of all of the equipment prior to the
termination of CIGF5 on December 31, 2015. However, the general partner may, at
any time, decide to dispose of all its equipment and dissolve CIGF5 upon the
approval of limited partners holding a majority in interest of units.
Particular items of equipment may be sold at any time if, in the
judgment of the general partner, it is in the best interest of CIGF5 to do so.
The determination of whether particular items of partnership equipment should be
sold will be made by the general partner after consideration of all relevant
factors (including prevailing economic conditions, lessee demand, the general
partner's views of current and future market conditions, the cash requirements
of CIGF5, potential capital appreciation, cash flow and federal income tax
considerations), with a view toward achieving the principal investment
objectives of CIGF5.
As partial payment for equipment sold, CIGF5 may receive purchase money
obligations secured by liens on such equipment. The General Partner will also
receive an equipment liquidation fee with respect to each item of equipment
sold, in an amount of up to 3% of the sales price of the equipment. See
"Compensation of General Partner and Affiliates -- Equipment Liquidation Fee."
Management of Equipment
Equipment management services for CIGF5's equipment will be provided by
the general partner and its affiliates, consisting of one or more of the
following:
o collection of income from the equipment;
o negotiation and review of leases and sales agreements;
o releasing and leasing-related services;
o payment of operating expenses;
o periodic physical inspections and market surveys;
o servicing indebtedness secured by equipment;
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o general supervision of lessees to assure that they are properly
utilizing and operating equipment; and
o providing related services with respect to equipment, supervising,
monitoring and reviewing services performed by others in respect
to equipment and preparing monthly equipment operating statements
and related reports.
Certain of these services may be provided initially by lease brokers as
part of their agreement to sell the equipment to CIGF5. See "Compensation of
General Partner and Affiliates -- Equipment Management Fee."
Competition
The equipment leasing industry is highly competitive. We will compete
with leasing companies, equipment manufacturers and their affiliated financing
companies and entities similar to CIGF5 (including other programs sponsored by
the general partner), some of which will have greater financial resources and
more experience in the equipment leasing business than the general partner.
Other leasing companies and equipment manufacturers or their affiliated
financing companies may be in a position to offer equipment to prospective
lessees on financial terms which are more favorable than those which CIGF5 can
offer. As a result of these advantages, we may be unable to lease our equipment
on terms as favorable as some of our competitors can offer.
The computer peripheral equipment industry is also extremely
competitive. Competitive factors include pricing, technological innovation and
methods of financing. Manufacturer-lessors could maintain advantages through
policies which combine service and hardware with payment accomplished through a
single monthly charge.
The dominant firm in the computer marketplace is International Business
Machines Corporation. Its subsidiary, IBM Credit Corporation, is the dominant
force in the leasing of IBM equipment. Because of IBM's substantial resources
and dominant position, changes with respect to computer systems, 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 or IBM Credit Corporation might materially adversely
affect our business. See "Risk Factors - CIGF5's ability to lease, release or
sell its equipment may be affected by actions taken or not taken by, or the
business prospects of, IBM."
Preliminary Investments
CIGF5 does not now own, and has made no commitment to purchase, any
equipment. The general partner or its affiliates may purchase equipment prior to
the completion of this offering, which equipment and the related leases, if any,
to which it is subject would be sold and assigned to CIGF5 after it commences
its business operations. No such purchase shall commence until the minimum
offering level has been reached. See "Conflicts of Interest - Acquisitions."
It is not possible to determine the date when the net offering
proceeds, less working capital reserves, if any, will be fully invested in
equipment by CIGF5, or the terms of any purchases of equipment. CIGF5 will
invest the net offering proceeds prior to the acquisition of equipment in
short-term, highly liquid investments where there is appropriate safety of
principal, such as United States Treasury Bills.
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If all of the net proceeds of this offering are not invested by CIGF5
in equipment or committed to such investment or otherwise utilized for proper
partnership purposes prior to the expiration of 12 months from the completion of
this offering, the net proceeds not so invested, committed, or set aside as
working capital reserves will thereupon be promptly returned to the limited
partners with a proportionate share of interest at the rate earned by CIGF5 on
the investment of such proceeds, based upon their respective number of units and
time of purchase. For such purpose, funds will be deemed to be committed to
investment and will not be returned to the limited partners to the extent
written agreements in principle, commitment letters, letter of intent or
understanding, option agreements, or any similar contracts or understandings
exist, whether or not any such investment is ultimately consummated. Funds will
also be deemed to be committed to the extent:
o any funds may have been reserved to make contingent payments in
connection with any equipment already acquired, whether or not any
such payments are ultimately made;
o as a condition of obtaining financing, CIGF5 is required to maintain
funds as a compensating balance; or
o the general partner decides that an addition to the working capital
reserve is necessary in connection with any equipment. In the event
any such uninvested funds are distributed to the limited partners,
such distribution will be treated as a return of capital. See
"United States Federal Income Tax Considerations - Cash
Distributions."
Reserves
Because CIGF5's leases are expected to be on a "triple-net" basis, no
permanent reserve for maintenance and repairs will be established from the
offering proceeds. However, the general partner may retain a portion of the
offering proceeds, cash flow and net disposition proceeds for maintenance,
repairs and working capital. There are no limitations on the amount of offering
proceeds, cash flow and net disposition proceeds that may be retained as
reserves. Since no reserve will be established initially, if available cash flow
of CIGF5 is insufficient to cover CIGF5's operating expenses and liabilities, it
may be necessary for CIGF5 to obtain additional funds by refinancing its
equipment or borrowing. In addition, the General Partner and Com Cap Corp. have
committed to lend or contribute to CIGF5 an amount up to 1.01% of the net
offering proceeds, if needed, to meet CIGF5'S expenses.
General Restrictions
Under the partnership agreement, CIGF5 is not permitted to:
o invest in junior trust deeds unless received in connection with the
sale of an item of equipment in an amount which does not exceed 30%
of value of the assets of CIGF5 on the date of investment;
o invest in or underwrite the securities of other issuers;
o acquire any equipment for units;
o issue senior securities (except that the issuance to lenders of
notes in connection with the financing or refinancing of equipment
or CIGF5's business shall not be senior securities);
o make loans to any person, including the general partner or any of
its affiliates;
o sell or lease any equipment to, lease any equipment from, or enter
into any sale-leaseback transactions with, the general partner or
any of its affiliates; or
o give the general partner or any of its affiliates an exclusive right
or employment to sell CIGF5's equipment.
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However, we may invest in joint venture arrangements with other
equipment programs formed by the general partner or its affiliates, if those
investments or arrangements meet certain conditions, See "Conflicts of Interest
- - Joint Ventures with Affiliates of the General Partner."
The general partner has also agreed to use its best efforts to assure
that CIGF5 shall not be deemed an "investment company" as such term is defined
in the Investment Company Act of 1940.
The general partner and its affiliates may engage in other activities,
whether or not competitive with CIGF5. The partnership agreement also indicates
that neither the general partner nor any of its affiliates may receive any
rebate or "give up" in connection with CIGF5's activities. See "Conflicts of
Interest," "Compensation of General Partner and Affiliates," and "Management."
CIGF5 may invest in general partnerships or joint ventures with persons
other than equipment programs formed by the general partner or its affiliates,
which partnerships or joint ventures own specific equipment, if:
o CIGF5 has or acquires a controlling interest in ventures or
partnerships;
o the non-controlling interest is owned by a non-affiliate; and
o there are no duplicate fees.
COMPENSATION TO THE
GENERAL PARTNER AND AFFILIATES
The following table summarizes the types, estimated amounts and
recipients of compensation to be paid by CIGF5 directly or indirectly to the
general partner and its affiliates in connection with this offering and our
operation. These payments will result from non-arm's-length bargaining. See
"Conflicts of Interest."
Unless disclosed in this prospectus, CIGF5 will not engage in
transactions with the general partner or any of its affiliates. As described
below, the maximum front-end fees (which include fees and expenses incurred by
any person in connection with the organization of CIGF5 and acquisition of
equipment during the initial organization and acquisition phase) that could be
paid during the first fiscal year of operations without deduction of expenses
are $2,539,933 (assuming the maximum number of units are sold and the maximum
amount of leverage is incurred excluding fees earned with retained proceeds).
Fees and expenses set forth in the table below will not be reclassified to avoid
any applicable caps on such fees and expenses.
Estimated Estimated
Amount Assuming Amount Assuming
Minimum of Maximum of
Entity Receiving 57,500 Units 1,000,000 Units
Compensation Type of Compensation Are Sold Are Sold
- ---------------------------------------------------------------------------------------------------------------------
OFFERING AND ORGANIZATION STAGE
Commonwealth Capital Underwriting Commissions. CIGF5 will pay to the dealer $115,000 $2,000,000
Securities Corp. manager an amount of up to ten percent of capital
contributions as underwriting commissions after and only
if the required $1,150,000 minimum subscription amount
is sold. The dealer manager will reallow to
participating broker-dealers out of underwriting
commissions a selling commission of eight percent of the
capital contributions from units sold by such
participating brokers. Some or all of the remaining two
percent (the dealer manager fee) may be reallowed to
participating broker-dealers for due diligence expense
reimbursements. The actual amount of the underwriting
commissions may vary due to the volume discounts
available to investors purchasing certain quantities of
units. See "Plan of Distribution."
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The General Partner Organizational Fee. An organization fee equal to three $34,500 $500,000
percent of the first $10,000,000 of limited partners'
capital contributions and two percent of the limited
partners' capital contribution in excess of $10,000,000,
as compensation for the organization of CIGF5. It is
anticipated that the organizational and offering expenses,
which include legal, accounting and printing expenses,
various registration and filing fees, miscellaneous
expenses related to the organization and formation of
CIGF5, other costs of registration, and costs incurred in
connection with the preparation, printing and distribution
of this prospectus and related sales literature will be
approximately $300,000. The general partner will pay all
organizational and offering expenses, other than
underwriting commissions.
OPERATIONAL AND SALE OR LIQUIDATION STAGES
The General Partner Reimbursement of Expenses. The general partner and its $30,000 $200,000
and its Affiliates affiliates are entitled, under Section 5.2 of the
partnership agreement, to reimbursement by CIGF5 for the
cost of goods, supplies or services obtained and used by
the general partner in connection with the
administration and operation of CIGF5 from third parties
unaffiliated with the general partner. The amounts set
forth on this table are approximations of reimbursable
expenses for the first year of CIGF5's operation and do
not include expenses incurred in the offering of units.
The General Partner Equipment Acquisition Fee. An equipment acquisition fee Not Not
of four percent of the purchase price of each item of determinable at determinable at
equipment purchased as compensation for the negotiation of this time this time
the acquisition of the equipment and the lease. The fee
will be paid upon closing of the offering with respect to
the equipment to be purchased by CIGF5 with the net
proceeds of the offering available for investment in
equipment except for fees on the leveraged portion of the
purchase price which are paid when the equipment is
purchased. If CIGF5 does not purchase equipment with all
the net proceeds of the offering, the general partner will
return a pro rata portion of the fee to CIGF5. If CIGF5
acquires equipment in an amount exceeding the net proceeds
of the offering available for investment in equipment, the
fee will be paid when such equipment is acquired. The
amount of such fees will depend on the total value of
equipment purchased and will be affected by the amount of
leverage used, proceeds from equipment sold, interest
rates and lease rates at the time of acquisition.
The General Partner Debt Placement Fee. As compensation for arranging term Not Not
debt to finance the acquisition of equipment by CIGF5, a determinable at determinable at
fee equal to one percent of such indebtedness; provided, this time this time
however, that such fee shall be reduced to the extent
CIGF5 incurs such fees to third parties unaffiliated with
the general partner or the lender, with respect to such
indebtedness. No such fee will be paid with respect to
borrowings from the general partner or its affiliates.
CIGF5 intends to initially acquire leases on an all cash
basis with the proceeds of this offering, but may borrow
funds after the offering proceeds have been invested.
The amount we borrow, and therefore the amount of the
fee, will depend upon interest rates at the time of a
loan, and the amount of leverage we determine is
appropriate at the time.
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The General Partner Equipment Management Fee. A monthly fee equal to the Not Not
lesser of (i) the fees which would be charged by an determinable determinable
independent third party for similar services for similar at this time at this time
equipment or (ii) five percent of the gross lease
revenues attributable to equipment which is subject to
operating leases.
The General Partner Equipment Liquidation Fee. With respect to each item of Not Not
equipment sold by the general partner, a fee equal to the determinable determinable
lesser of (i) 50% of the competitive equipment sale at this time at this time
commission or (ii) three percent of the sales price of
the equipment. The payment of this fee is subordinated
to the receipt by the limited partners of (i) a return of
their capital contributions and a 10% per annum cumulative
return, compounded daily, on adjusted capital
contributions and (ii) the net disposition proceeds from
such sale in accordance with the partnership agreement.
Such fee will be reduced to the extent any liquidation
or resale fees are paid to unaffiliated parties. The
amount of such fees will depend upon the sale price of
equipment sold. Sale prices will vary depending upon the
type, age and condition of equipment sold.
INTEREST IN THE PARTNERSHIP
The General Partner Partnership Interest. The general partner will have a Not Not
present and continuing one percent carried interest in determinable determinable
CIGF5's items of income, gain, loss, deduction, credit, at this time at this time
and tax preference. The value of this partnership
interest will depend upon the performance of our business
and the value of our assets.
The General Partner Distributions. The general partner will receive a Not Not
promotional interest of one percent of cash determinable determinable
available for distribution until the limited partners at this time at this time
have received distributions of cash available for
distribution equal to their capital contributions plus
the 10% cumulative return and thereafter, the general
partner will receive 10% of cash available for
distribution. The amounts available for distribution
will depend upon the performance of our business and the
amount of future lease revenues.
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CONFLICTS OF INTEREST
CIGF5 will face conflicts of interest arising out of its relationships
with the general partner and its affiliates. Nothing below shall relieve the
general partner and its affiliates from their general fiduciary obligations to
CIGF5 as set forth under "Fiduciary Responsibility." These conflicts include the
following:
Competition for General Partner's Time
The general partner and its affiliates have sponsored other investor
programs, which will be in potential competition with CIGF5. Although these
programs have acquired all of the equipment which they will acquire with the
proceeds of offerings to investors, each program may reinvest undistributed cash
in additional equipment. The general partner and its affiliates may also form
additional investor programs, which may be competitive with CIGF5.
Certain senior executives of the general partner and its affiliates
also serve as officers and directors of the other programs and are required to
apportion their time among these programs. CIGF5 will, therefore, be in
competition with the other programs for the attention and management time of the
general partner and its affiliates. The general partner and its affiliates will
devote the time to our affairs as they, within their sole discretion, exercised
in good faith, determine to be necessary for our benefit and that of the limited
partners. The officers and directors of the general partner are not required to
devote all or substantially all of their time to the affairs of CIGF5. See
"Management."
Competition with Affiliates
If one or more investor programs and CIGF5 are in a position to acquire
the same equipment, conflicts may arise as to which of the programs acquire the
available items of equipment. In addition, in order to promote diversification
of equipment and lessees when two or more investor programs are in a position to
acquire the same equipment, the general partner may acquire equipment in joint
ventures with affiliated investor programs. If one or more investor programs and
CIGF5 are in a position to enter into leases with the same lessee or to sell
equipment to the same purchaser conflicts may arise as to which program shall
lease or sell its equipment.
Acquisitions
Com Cap Corp. and the general partner or other affiliates of the
general partner may acquire equipment for CIGF5 provided that (i) CIGF5 has
insufficient funds at the time the equipment is acquired, (ii) the acquisition
is in the best interest of CIGF5 and (iii) no benefit to the general partner or
its affiliates arises from the acquisition except for compensation paid to Com
Cap Corp., the general partner or such other affiliate as disclosed in this
prospectus. Com Cap Corp., the general partner or their affiliates will not hold
equipment for more than 60 days prior to transfer to CIGF5. If sufficient funds
become available to CIGF5 within such 60 day period, the equipment may be resold
to CIGF5 for a price not in excess of the sum of the cost of the equipment and
any accountable expense relating to the selection and acquisition of equipment,
or "acquisition expenses" payable to third parties which are incurred and
interest on the purchase price from the date of purchase to the date of transfer
to CIGF5. Except as described above, there will be no sales of equipment to or
from any affiliate of Com Cap Corp. CIGF5 may also find it necessary to make
advances to manufacturers or vendors with funds borrowed from the general
partner for acquisitions. CIGF5 will not borrow money from the general partner
or any of its affiliates for a term in excess of twelve months.
Interest will be paid on loans or advances (in the form of deposits
with manufacturers or vendors of equipment or otherwise) from the general
partner or its affiliates from their own funds at a rate equal to that which
would be charged by third party financing institutions on comparable loans for
the same purpose in the same geographic area, but in no event in excess of the
general partner's or affiliate's own cost of funds. If the general partner or
its affiliates borrow money and loan or advance it on a short-term basis to or
on behalf of CIGF5, the general partner or such affiliates shall receive no
greater interest rate and financing charges from CIGF5 than that which unrelated
lenders charge on comparable loans. See "Investment Objectives and Policies."
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Receipt Of Compensation by the General Partner and its Affiliates
Partnership transactions involving the acquisition, lease and/or sale
of equipment will result in compensation to the general partner and its
affiliates. The general partner has absolute discretion with all decisions
related to such transactions. Because the amount and timing of such fees
depends, in part, on the debt structure of equipment acquisitions and the timing
of such transactions, the general partner and its affiliates may be subject to
conflicts of interest to the extent the acquisition, retention or release of
equipment and the terms and conditions thereof may be less advantageous to CIGF5
and more advantageous to the general partner.
Lack of Independent Investigation by Underwriter
Since Commonwealth Capital Securities Corp. is an affiliate of the
general partner, CIGF5 will not be subject to an independent investigation of
the type normally performed by an underwriting firm in connection with the
public offering of securities.
Loans from the General Partner
The general partner and its affiliates may make loans to CIGF5 on a
short-term basis in an amount of 1.01% of net offering proceeds, if necessary.
The payment of interest by us on any such loans may cause a conflict of interest
to the general partner, as such loans would be an additional source of income
for the general partner. However, if the general partner or any of its
affiliates does make such a loan, the general partner or affiliate may not
charge interest at a rate greater than the interest rate charged by unrelated
lenders on comparable loans. CIGF5 will not pay interest on a loan at an annual
rate greater than three percent over the "prime rate" published in The Wall
Street Journal. All payments of principal and interest on any financing provided
by the general partner or any of its affiliates shall be due and payable by
CIGF5 within 12 months after the date of the loan. See "Compensation of General
Partner and Affiliates."
Non-Arms-Length Agreements
Any agreements and arrangements relating to compensation between CIGF5
and the general partner or any of its affiliates will not be the result of
arms-length negotiations and the performance thereof by the general partner and
its affiliates will not be supervised or enforced at arms-length. However, the
general partner believes that such compensation and fees are comparable to those
which would be charged by an unaffiliated entity or entities for similar
services. See "Compensation of General Partner and Affiliates."
Joint Ventures with Affiliates of the General Partner
CIGF5 may enter into joint ownership or joint venture agreements for
the acquisition and leasing of equipment with other persons, including joint
ventures controlled by the general partner. Should any such joint ventures be
done, the general partner may face conflicts of interest as it may control and
owe fiduciary duties to both CIGF5 and, through such affiliates, the affiliated
co-venturer.
CIGF5 may invest in joint venture arrangements with other equipment leasing
programs formed by the general partner or its affiliates if such action is in
the best interest of all programs and if all the following conditions are met:
o all the programs have substantially similar investment objectives;
o there are no duplicate fees;
o the sponsor compensation is substantially similar in each program;
o CIGF5 has a right of first refusal to buy another program's interest in
a joint venture if the other program wishes to sell equipment held in
the joint venture;
o the investment of each program is on substantially the same terms and
conditions; and
o the joint venture is formed either for the purpose of effecting
appropriate diversification for the programs or for the purpose of
relieving the general partner or its affiliates from a commitment
entered into pursuant to Section 9.5.3 of the partnership agreement.
See "Risk Factors - CIGF5 can have conflicts of interest arising out of
its relationships with the general partner and its affiliates."
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For example, because of the differing financial positions of the
co-venturing programs, it may be in the best interest of one program to sell the
jointly-held equipment at a time when it is in the best interest of the other
program to hold such equipment. There is a potential risk of impasse in joint
venture decisions since neither program may control and while one program may
wish to purchase equipment from its co-joint venturer, it may not have
sufficient resources to do so. Nevertheless, such joint ventures are restricted
to circumstances where the co-venturer's investment objectives are similar to
CIGF5's, CIGF5's investment is on substantially the same terms as the
co-venturer and the compensation to be received by the general partner and its
affiliates from each co-venturer is substantially the same.
Organization of General Partner
CIGF5 will do business with the general partner and its affiliates, Com
Cap Corp., Commonwealth Capital Securities Corp., and Commonwealth of Delaware,
Inc. The general partner is owned by Commonwealth of Delaware, Inc., which is
owned by Com Cap Corp. Persons investing in CIGF5 will not have an interest in
these corporations solely as a result of their investment in CIGF5.
PRIOR OFFERINGS BY AFFILIATES
Our general partner has previously sponsored four public equipment
leasing programs, Commonwealth Income & Growth Fund I (Fund I), Commonwealth
Income & Growth Fund II (Fund II), Commonwealth Income & Growth Fund III (Fund
III) and Commonwealth Income & Growth Fund IV (Fund IV), whose securities are
registered under the Securities Act of 1933 and which have investment objectives
substantially identical to CIGF5. Similar to our current offering, the overall
goal of each prior fund has been to return all of an investor's capital, plus a
10% return. Cash distributions were made in the early years of each fund, during
which time one percent of this 10% return on invested funds had been distributed
to the general partner, and the remaining 99% had been distributed to investors.
One or more lump-sum distributions, representing a return of capital, are
expected to be made during each fund's liquidation period when equipment is
sold. At such time, only if the investors have received full return of their
investment plus a 10% return, remaining funds will be distributed 10% to the
general partner and 90% to investors. To date, investors in two of the prior
funds have received their anticipated annual returns of 10% per year. Fund I
investors did not receive 10% for the prior two years, due to an extraordinary
event, as described below. Fund II's distributions were temporarily reduced to
5% (annualized) to preserve capital, but distributions are now increasing
upward. They are currently paying 7.5% (annualized), due to a dispute with two
large leases in the fund, which are in settlement stages.
Further, due to the nature of the equipment financing business and
generally accepted accounting principles, each prior fund has shown a net loss
on its financial statements each year. This net loss is due to the large cash
outlays needed to acquire equipment, and then the immediate depreciation charge
taken with respect to the equipment. The amount of outlay plus depreciation
exceeds lease revenues, and thus a net loss is reflected on the books of the
funds. However, lease revenues are sufficient to make distributions to investors
as anticipated, as well as pay fees to the general partner and invest additional
cash in new equipment. We expect CIGF5 to operate in the same manner, and thus
to show a net loss for accounting purposes, while generating sufficient revenue
to make distributions, pay fees and purchase additional equipment. We expect,
based on the past experience of our general partner, to be able to acquire
income-producing equipment within 90 days of receiving offering proceeds.
Therefore, it is likely that the initial distributions to you will be partially
income, as well as partially a return of capital.
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Fund I terminated its offering of units on May 11, 1995 with
$12,634,153 raised from 713 investors. Eighty-four percent of the total
interests offered in Fund I were sold. On December 8, 1995, Fund I's net
offering proceeds were fully utilized for the purchase of computer peripheral
equipment. All of the equipment was new when acquired. From Fund I's inception
through the end of 1998, investors in Fund I received 100% of their anticipated
returns. These returns were reduced by 50% for years 1999 and 2000 due to
litigation with one significant lessee. This lessee failed to properly return
leased equipment to Fund I at the end of its lease term. Therefore, Fund I was
unable to resell such equipment and reinvest the proceeds in new equipment. Fund
I's general partner expects a positive outcome of the litigation involving such
lessee, but deemed it advisable to reduce distributions during 1999, 2000, 2001
and suspend distributions in 2002 and 2003 due to the reduced cash flow
resulting from the delay in the return of the equipment, and the resulting delay
in reinvestment of funds. The general partner intends to invest (without fees)
the monies received into 2-3 year leases, then begin the liquidation phase
thereafter, to maximize return on overall investment.
Fund II terminated it offering of units on May 12, 1997 with $9,235,185
raised from investors. Sixty-two percent of all interests offered in Fund II
were sold. As of June 30, 1997, Fund II's net offering proceeds were fully
utilized for the purchase of computer peripheral equipment. All of the equipment
was new when acquired. Investors have received an average of 92.50% of
anticipated distributions since inception. The level of anticipated
distributions was less than 100% due to significant litigation with one lessee
that adversely affected Fund II's cash flow. The litigation has since been
resolved in Fund II's favor.
Fund III terminated its offering of units on July 25, 2000 with
$3,085,801 raised from investors. Twenty-one percent of all interests offered in
Fund III were sold. As of July 30, 2000, Fund III's net offering proceeds were
fully utilized for the purchase of computer peripheral equipment. All of the
equipment was new when acquired. Investors in Fund III have received 100% of
anticipated distributions each year since inception
Fund IV is expected to terminate its offering of units on or about
September 30, 2003 with $15,000,000 raised from investors. One hundred percent
of all interests offered in Fund IV are expected to be sold. Fund IV's net
offering proceeds are expected to be fully utilized for the purchase of computer
peripheral equipment by approximately October 15, 2003. All of the equipment to
date was new when acquired. Investors in Fund IV have received 100% of
anticipated distributions since inception. Please refer to Table IV of the prior
performance tables for more specific details on operating results for these
prior programs. Additional updates to the prior performance tables will be filed
by amendment when they become available.
See the prior performance tables attached as "Table II" for further
information concerning these prior public programs.
The information presented in this section of the prospectus concerning
our prior programs, as well as the information and data included in the attached
Appendices and Tables for our prior programs, represents our experience in the
prior programs and is not audited. IF YOU PURCHASE UNITS IN THE PARTNERSHIP, YOU
WILL NOT HAVE ANY OWNERSHIP INTEREST IN ANY OTHER PROGRAM. AS A RESULT OF YOUR
PURCHASE, YOU SHOULD NOT ASSUME THAT YOU WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN OUR PRIOR PROGRAMS.
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The following is a summary of equipment acquired between January 1,
2000 and January 1, 2003 by prior programs which were sponsored by the general
partner:
Summary of Equipment Acquired Between
January 1, 2000 and January 1, 2003(1)
Quantity of Cost of
Lease Schedules Equipment
Program Name Acquired Acquired
----------------------------------------------------- ------------------ ----------------
Commonwealth Income & Growth Fund I 20 $ 977,051
Commonwealth Income & Growth Fund II 39 $3,902,446
Commonwealth Income & Growth Fund III 14 $ 788,399
Commonwealth Income & Growth Fund IV 80 $4,197,431
(1) This table does not include prior programs sponsored by the general partner
and its affiliates that ceased purchasing equipment prior to January 1, 2000.
TRANSFERABILITY OF UNITS
General Limitations
Units cannot be transferred or assigned without the consent of the
general partner, which consent shall not be unreasonably withheld. Our limited
partnership agreement provides that the general partner shall have reasonable
cause to withhold such consent if the transfer is not an exempt transfer as
discussed below. The general partner intends to monitor transfers of units in an
effort to ensure that all transfers will be within certain safe harbors
promulgated by the IRS to furnish guidance regarding publicly traded
partnerships. These safe harbors limit the number of transfers that can occur in
any one year. The general partner intends to cause CIGF5 to comply with the safe
harbor that permits nonexempt transfers and redemptions of units of up to two
percent of the total outstanding interests in CIGF5's capital or profits in any
one year. In deciding whether a proposed transfer can be made, the general
partner will consider whether the transfer will have an adverse affect on
CIGF5's federal tax status as a partnership. The general partner may also
prohibit transfers of fewer than 125 units to a single transferee, or transfers
that leave the transferor with fewer than 125 units, in its discretion.
Redemption Provision
Upon the conclusion of the 30 month period following the termination of
the offering, CIGF5 may, at the sole discretion of the general partner,
repurchase a number of the outstanding units. After such 30 month period, on a
semi-annual basis, the general partner, at its discretion, may establish an
amount for redemption, generally not more than two percent of the outstanding
units per year, subject to the general partner's good faith determination that
such redemptions will not:
o cause CIGF5 to be taxed as a corporation under Section 7704 of the
Code; or
o impair the capital or operations of CIGF5.
CIGF5 may redeem units in excess of the two percent limitation if, in
the good faith judgment of the general partner, the conditions above would
remain satisfied. The redemption price for units will be 105% of the selling
limited partner's "adjusted capital contributions" attributable to the units for
sale, net of the offering fees and expenses attributable to the units for sale.
A limited partner's adjusted capital contributions are his or her initial
capital contributions, reduced by the amount of all distributions received by
that limited partner attributable to the units for sale to the extent those
distributions exceeded any unpaid cumulative return.
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The adjusted capital contribution amount will be further reduced, in
determining the redemption price, by the offering fees and expenses attributable
to the units for sale, which offering fees and expenses will be amortized over
ten years after the termination of the offering. One quarter of these expenses
will be amortized in each thirty-month period following the termination of the
offering. Therefore, for example, one-fourth of the amount such fees and
expenses will be added back to the adjusted capital contribution amount used to
determine the redemption price after the expiration of the first thirty-month
period from the date of the termination of the offering.
All requests for redemption must be made in writing and must be on file
as of the record date for such redemption. The general partner will maintain a
master list of requests for redemption with priority being given to units owned
by estates, followed by IRAs and "qualified plans," which are trusts established
pursuant to the terms of a pension, profit sharing or stock bonus plan,
including Keogh Plans, meeting the requirements of Section 401 of the Internal
Revenue Code. All other requests will be considered in the order received.
Redemption requests made by or on behalf of limited partners who are not
affiliated with the general partner or its affiliates will be given priority
over those made by limited partners who are affiliated with the general partner
or its affiliates. All redemption requests will remain in effect until and
unless canceled, in writing, by the requesting limited partner(s). The general
partner has complete discretion in deciding whether to establish an amount for
redemption based upon the amount of operating revenue available to fund
redemptions. Therefore, there can be no assurance that any units for which
redemption is requested will ever be redeemed.
We will accept redemption requests beginning 30 months following the
termination of the offering. There will be no limitations on the period of time
that a redemption request may be pending prior to its being granted. Limited
partners will not be required to hold their interest in CIGF5 for any specified
period prior to their making a redemption request. Substituted limited partners
may also make redemption requests, and their units will retain their
transferor's adjusted capital contribution amount. The making of a request for a
redemption is completely voluntary. Limited partners will receive notification
concerning the action of CIGF5 on this request. The general partner may withhold
consent to the transfer of units for which redemption has been requested during
the pendency of the request.
In order to make a redemption request, limited partners will be
required to advise the general partner in writing of such request. Upon receipt
of such notification, CIGF5 will provide detailed forms and instructions to
complete the request.
The redemption price is based on a percentage of the selling limited
partner's adjusted capital contributions and is, therefore, arbitrary and not
calculated with reference to the fair market value of a unit. For tax
consequences relating to the redemption of units, see "United States Federal
Income Tax Considerations."
Exempt Transfers
The following seven categories of transfers are exempt transfers for
purposes of calculating the volume limitations imposed by the IRS and will
generally be permitted by the general partner:
o transfers in which the basis of the unit in the hands of the
transferee is determined, in whole or in part, by reference to its
basis in the hands of the transferor (for example, units acquired by
corporations in certain reorganizations, contributions to capital,
gifts of units, units contributed to another partnership, and
non-liquidating as well as liquidating distributions by a parent
partnership to its partners of interests in a sub-partnership);
o transfers at death;
o transfers between members of a family (which include brothers and
sisters, spouses, ancestors, and lineal descendants);
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o transfers resulting from the issuance of units by CIGF5 in exchange
for cash, property, or services;
o transfers resulting from distributions from a retirement plan
qualified under Section 401(a) of the Code or an individual
retirement plan;
o any transfer by a limited partner in one or more transactions during
any 30-day period of units representing in total more than two
percent (2%) of the total outstanding interests in capital or
profits of CIGF5; and
o transfers by one or more partners representing in the aggregate
fifty percent (50%) or more of the total interests in partnership
capital or profits in one transaction or a series of related
transactions.
Additional Restrictions on Transfer
Limited partners who wish to transfer their units to a new beneficial
owner will be required to pay CIGF5 up to $50 for each transfer to cover CIGF5's
cost of processing the transfer application and will take such other actions and
execute such other documents as may be reasonably requested by the general
partner. There will be no charge for re-registration of a certificate in the
event of a marriage, divorce, death, or transfer to a trust so long as the
transfer is not a result of a sale of the units.
In addition, the following restrictions will apply to each transfer:
(i)our general partner may prohibit any acquisition or transfer if it would
cause 25% or more of the outstanding units to be owned by Benefit Plans; and
(ii) no transfer will be permitted unless the transferee obtains such
governmental approvals as may reasonably be required by the general partner,
including without limitation, the written consents of the Pennsylvania
Securities Commissioner and of any other state securities agency or commission
having jurisdiction over the transfer. Further, a limited partner may transfer
or assign part or all of his units if, and only if: (a) the assignor and the
assignee execute, acknowledge and deliver to CIGF5 such instruments of transfer
and assignment and other documents as may be required by the general partner;
(b) either (i) at least 125 units are assigned to each assignee and at least 125
units are retained by the assignor or (ii) the Units being assigned are all the
units of the assignor (except that the general partner, in its discretion, may
waive this requirement for transfers by gift, inheritance or family dissolution
or transfers to affiliates of the assignor).
DISTRIBUTIONS AND ALLOCATIONS
Between the General Partner and the Limited Partners
Cash distributions, if any, will be made quarterly. The first
distribution is expected to be made at the end of the first full quarter after
the minimum offering amount of units are purchased by investors. Thereafter, any
distributions will be made as of December 31, March 31, June 30, and September
30 of each year. Cash distributions will be made after the payment of expenses
of CIGF5, including the payment of fees to the general partner. CIGF5 will make
distributions of CIGF5's cash available for distribution that the general
partner, in its sole and absolute discretion, determines is available for
distribution. Such distributions will be payable quarterly, or monthly by the
election of the limited partners for an annual fee of $25.00. A limited partner
who purchases a minimum of 250 units ($5,000) may elect to receive monthly
distributions, paid in arrears, by written notice to the general partner upon
subscription, or, thereafter, upon at least 30 days' prior written notice to the
general partner, with any such election made following subscription to be
effective as of the beginning of the following calendar quarter. Without an
election, limited partners will receive distributions quarterly. In any quarter,
limited partners may terminate their election to receive distributions monthly
rather than quarterly by written notice to CIGF5, which termination will be
effective as of the beginning of the following calendar quarter. The general
partner, in its sole discretion, will have the option in the future to make
quarterly distributions to all limited partners. In such event, annual fees for
monthly distributions will terminate.
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Distributions of cash available for distribution are expected to
commence no later than the end of the first full calendar quarter following
receipt of the minimum subscription amount. At that time, each limited partner
will receive a distribution of cash available for distribution for the calendar
quarter and each limited partner who has elected to receive distributions
monthly will receive one-third of such amount. The remaining two-thirds of such
amount will be held in an interest-bearing monthly distribution account separate
from other partnership funds, and will be paid, without interest, in
approximately equal installments in each of the next two months to those limited
partners who have chosen to receive distributions monthly. Interest earned, if
any, will be returned to the partnership.
Limited partners who choose the monthly distribution option will be
charged a minimum annual administrative fee of $25.00, designed to cover the
additional postage and handling associated with the more frequent distributions.
The annual administrative fee will be reduced by any interest earned on the
monthly distribution account and will be deducted equally from each monthly
distribution. In the event that the interest earned on the monthly distribution
account exceeds the annual administrative fee, such excess interest will be
available to CIGF5 for partnership purposes. It is anticipated that the fee will
be calculated in January of each year, although the general partner may change
the amount of the fee during the year by written notice to each limited partner
who properly has chosen to receive monthly distributions, with such notice to be
given at least 30 days prior to the beginning of the calendar quarter that
includes the first month to which the new fee will apply.
Distributions will be made 99% to the limited partners and one percent
to the general partner until each limited partner has received an amount equal
to his capital contributions plus the cumulative return. The cumulative return
is an amount equal to a return at a rate of 10% per annum, compounded daily, on
the adjusted capital contribution (defined in the next paragraph), for all
outstanding units, which amount begins accruing when the limited partner is
admitted as a partner in CIGF5. Once the adjusted capital contributions of all
outstanding units have been reduced to zero, cash distributions will be made 90%
to the limited partners and 10% to the general partner. Distributions made in
connection with the liquidation of CIGF5 or a partner's units will be made in
accordance with the partner's positive capital account balance as determined
under the partnership agreement and Treasury Regulations.
The cumulative return is calculated on the limited partners' adjusted
capital contributions for their units. The adjusted capital contributions will
initially be equal to the amount paid by the limited partners for their units.
If distributions at any time exceed the cumulative return, the adjusted capital
contributions will be reduced by the excess, decreasing the base on which the
cumulative return is calculated. For example (without taking into account the
effect of compounding), on a $100 investment, a $12 distribution in year one
would result in a $2 reduction in adjusted capital contribution, leaving a $98
base on which the 10% return would be calculated in year two. The $2 reduction
consists of $2 in distributions in excess of that required to satisfy the
cumulative return requirement for year one.
If the proceeds resulting from the sale of any equipment are reinvested
in equipment, sufficient cash will be distributed to the partners to pay the
additional federal income tax resulting from such sale for a partner in a 35%
federal income tax bracket or, if different, the maximum federal income tax rate
in effect for individuals for that taxable year.
The general partner will be allocated net profits equal to its cash
distributions (but not less than one percent of net profits) and the balance
will be allocated to the limited partners. Net profits arising from transactions
in connection with the termination or liquidation of CIGF5 will be allocated in
the following order:
o first, to each partner in an amount equal to the negative amount, if
any, of his capital account;
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o second, an amount equal to the excess of the proceeds from the
liquidation or termination which would be distributed to the
partners as operating distributions over the total capital accounts
of all the partners (after adjusting those capital accounts to give
effect to allocations of operating profits and as if all other cash
available for distribution has been distributed), to the partners in
proportion to their respective shares of such excess, and
o third, with respect to any remaining net profits, to the partners in
the same proportions as if the distributions were operating
distributions.
Net losses, if any, will generally be allocated 99% to the limited
partners and one percent to the general partner, except to the extent that any
such losses are required to be allocated in a different manner under applicable
federal income tax law.
Net profits and net losses will be computed without taking into
account, in each taxable year of CIGF5, any items of income, gain, loss or
deduction required to be specially allocated pursuant to Section 704(b) of the
Code and the Treasury Regulations promulgated thereunder. No limited partner
will be required to contribute cash to the capital of CIGF5 in order to restore
a closing capital account deficit, and the general partner has only a limited
deficit restoration obligation under the partnership agreement.
Income and Return of Capital
As equipment values decrease over the term of our existence, a portion
of each distribution may be considered a return of capital, rather than income.
Therefore, the dollar amount of each distribution should not be considered as
necessarily being all income to you. As your capital in the units is reduced for
tax purposes over the life of your investment, you will not receive a lump sum
distribution upon liquidation that equals the purchase price you paid for units,
as you might expect if you had purchased a bond. Also, payments made upon
liquidation will be taxable to the extent they are not a return of capital.
As you receive distributions throughout the life of your investment,
you will not know at the time of the distribution what portion of the
distribution represents a return of capital and what portion represents income.
The Form K-1 statement you receive from us each year will specify the amounts of
capital and income you received throughout the prior year.
Distribution Reinvestment
You may elect to have your distributions in CIGF5 reinvested in
additional units during the offering period, rather than receiving your
distributions in cash. To make this election, mark the item in section 6 of the
attached subscription agreement, which reads "You wish Distributions of the
Partnership to be reinvested in additional Units during the Offering Period."
When the offering period is complete, you will receive all subsequent
distributions in cash.
All units purchased for you through distribution reinvestment will be
newly issued units purchased directly from CIGF5. The number of units to be
purchased for you through a reinvestment purchase will depend upon the amount of
the dividends being reinvested. The purchase price of all units purchased
through reinvestment will be $20.00 per unit. All distributions paid on units
acquired through reinvestment will also be reinvested in additional units. The
distributions paid on such units will continue to be reinvested unless you elect
to have them paid in cash by changing your investment option. All units that you
purchase through the reinvestment of distributions are recorded in your name on
our books.
The reinvestment of distributions does not relieve you of any income
tax which may be payable on your share of CIGF5's taxable income. Please see
"United States Federal Income Tax Considerations -- Distribution Reinvestment"
for further information about the taxability of reinvested distributions.
Investors in Commonwealth Income & Growth Fund IV ("CIGF4"), a prior
program also sponsored by the general partner, may reinvest their CIGF4
dividends in CIGF5 units, subject to the discretion of the general partner and
any applicable state law regarding minimum investment amounts (see "Suitability
Standards"). CIGF4 investors who wish to take advantage of this opportunity
should contact their broker or the general partner.
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Allocation of Profits and Losses and Distributions of Cash Among the Limited
Partners
Except during the offering period, and with respect to net profits and
losses, during periods when units are redeemed,, cash available for
distribution, net profits and net losses allocable to the limited partners will
be distributed to them solely with reference to the number of units owned by
each as of the record date for each such distribution. During the offering
period, cash available for distribution, will be distributed to the limited
partners with reference to both (i) the number of units owned by each as of each
record date and (ii) the number of days since the previous record date (or, in
the case of the first record date, the commencement of the offering period) that
the limited partner has owned the units.
During the offering period and in the event units are redeemed other
than on December 31 of a taxable year, net profits and net losses shall be
allocated among the limited partners in proportion to the number of units each
holds from time to time during the year in accordance with Code Section 706,
using such permissible conventions as the general partner may select.
Limited partners will start sharing in net profits, net losses, and
cash distributions on the date following the date the capital contributions are
received. If some limited partners are admitted to CIGF5 after others, those
limited partners admitted later may receive a smaller portion of each item of
CIGF5's net profits and net losses than the limited partners who were admitted
earlier. Nevertheless, those limited partners still will be obligated to make
the same capital contributions to CIGF5 for their interests as the limited
partners who were admitted previously. In addition, where a limited partner
transfers units during a taxable year, the limited partner may be allocated net
profits for a period for which such limited partner will not receive a
corresponding cash distribution.
Net profits and net loss shall be computed for each taxable year or
shorter period with the following adjustments:
o any income of CIGF5 that is exempt from federal income tax and not
otherwise taken into account in computing net profits and net loss
shall be added to such taxable income or shall reduce taxable loss;
o any expenditure of CIGF5 described in Treasury Regulation Section
1.704-1(b)(2)(iv)(I) and not otherwise taken into account in
computing net profits and net loss shall be subtracted from such
income or loss;
o items of income, gain, loss and deduction specially allocated
pursuant to Section 7.3 of the partnership agreement shall not be
included in the computation of net profits and net loss; and
o if equipment is reflected on the books of CIGF5 at a book value that
differs from the adjusted tax basis of the equipment in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv)(d) or (f),
depreciation, amortization and gain or loss with respect to such
equipment shall be determined by reference to such book value in a
manner consistent with Treasury Regulation Section
1.704-1(b)(2)(iv)(g).
The terms "net profits" or "net losses" shall include CIGF5's
distributive share of the profit or loss of any partnership or joint venture in
which it is a partner or joint venturer.
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UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations concerning an investment in CIGF5. In this section, when we refer
to "the Code" we mean the Internal Revenue Code, as amended. This summary is not
exhaustive of all possible tax considerations and is not tax advice. Moreover,
this summary does not deal with all aspects that might be relevant to you, as a
particular prospective limited partner in light of your personal circumstances;
nor does it deal with particular types of limited partners that are subject to
special treatment under the Code, such as insurance companies, financial
institutions and broker-dealers. The Code provisions governing the federal
income tax treatment of limited partnerships are highly technical and complex.
The following discussion is based on current law.
We urge you to consult your tax advisor with specific reference to your
own tax situation prior to making an investment in CIGF5.
Subject to the qualifications and assumptions set forth herein, and
certain representations of the general partner, our counsel, Reed Smith LLP, has
opined that CIGF5 will be classified as a partnership for federal income tax
purposes.
Neither the general partner, CIGF5, nor counsel can guarantee that any
federal income tax advantages described in this summary will be available. An
opinion of counsel represents only such counsel's best legal judgment, and has
no binding effect or official status of any kind, so that no assurance can be
given that the opinions of counsel would be sustained by a court, if contested,
or that legislative or administrative changes or court decisions may not be
forthcoming which would require modifications of the statements and conclusions
expressed herein. Counsel's opinion is not binding on the IRS, and neither we
nor counsel have requested a ruling from the IRS on any of the tax matters
discussed in this prospectus. Except for the opinions specifically addressed
herein, counsel has not opined as to the probable outcome on the merits of any
issue discussed below. Final disallowance of all or any portion of CIGF5's
federal income tax advantages would of course adversely affect an investment in
CIGF5.
Counsel will not prepare or review CIGF5's income tax information
returns, which will be prepared by management and independent accountants for
CIGF5. CIGF5 will make a number of decisions on such tax matters as the
expensing or capitalizing of particular items, the proper period over which
capital costs may be depreciated or amortized and many other similar matters.
Such matters are handled by CIGF5 often with the advice of independent
accountants retained by CIGF5 and are usually not reviewed with counsel.
The following discussion is not intended as a substitute for careful
tax planning by prospective investors. The income tax consequences of an
investment in a partnership such as CIGF5 are often uncertain and complex and
will not be the same for all investors.
Details of significance to a particular taxpayer may not be present, as
it is impractical to set forth in a discussion of acceptable length all aspects
of federal income tax law that may be relevant to an investment in CIGF5. The
discussion below considers the federal income tax considerations associated with
an investment in CIGF5 by individuals who are citizens of the United States or
resident aliens and is not intended to deal with matters which may be relevant
to other investors, such as corporations, partnerships or trusts. The
discussion, however, does describe some, but not all, of the material federal
income tax considerations associated with an investment in CIGF5 by non-resident
alien and foreign corporations and Keogh plans and pension and profit-sharing
plans qualifying under Section 401(a) of the Code (collectively, qualified
plans) and individual retirement accounts described in Section 408 of the Code.
A corporate investor should be aware that the tax consequences of its investment
in CIGF5 will differ in several material respects from those applicable to
individuals.
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Classification as a Partnership
Counsel has opined that CIGF5 will be classified as a partnership, and
not as an association taxable as a corporation, for federal income tax purposes.
This opinion is based upon: (i) existing federal income tax law; (ii) continuing
compliance with the conditions set forth below; and (iii) certain
representations by the general partner set forth below.
Section 301.7701-2 of the Treasury Regulations (known as the
"Check-the-Box" rules) provides that certain unincorporated entities, which have
more than one owner may generally elect to be treated as a partnership or a
corporation for federal income tax purposes. In the absence of a specific
election, any such entities, which are formed under United States law (i.e.,
domestic entities), through default, are treated as partnerships for federal
income tax purposes.
In this case, the general partner has represented that CIGF5 will file
any tax or informational returns, if any (including Department of the
Treasury/Internal Revenue Service Form 8832), which may be required in order for
CIGF5 to be treated as a partnership for federal income tax purposes.
Consequently, subject to the discussion below, CIGF5 will qualify as a
partnership for federal income tax purposes.
Counsel's opinion takes into account Section 7704 of the Code, which
provides, with certain exceptions which are not relevant to this discussion,
that "publicly traded partnerships" are taxable as corporations. Section 7704(b)
of the Code defines the term "publicly traded partnership" to mean any
partnership if: (i) interests in the partnership are traded on an established
securities market, or (ii) interests in the partnership are readily tradable on
a secondary market (or the substantial equivalent thereof). The legislative
history of Code Section 7704 provides that a secondary market for interests in a
partnership or the substantial equivalent thereof exists if investors are
readily able to buy, sell or exchange their partnership interests in a manner
that is comparable, economically, to trading on established securities markets.
A secondary market is generally indicated by the existence of a person
standing ready to make a market in the interests. The substantial equivalent of
a secondary market will be deemed to exist if (i) interests in the partnership
are regularly quoted by any person, such as a broker or dealer, making a market
in the interests; (ii) any person regularly makes available to the public
(including customers and subscribers) bid or offer quotes with respect to
interests in the partnership and stands ready to effect buy or sell transactions
at the quoted prices for itself or on behalf of others; (iii) if the holders of
interests in the partnership have a readily available, regular, and ongoing
opportunity to sell or exchange their interests through a public means of
obtaining or providing information of offers to buy, sell, or exchange
interests, or (iv) buyers and sellers have the opportunity to buy, sell, or
exchange interests in the partnership in a time frame that a market-maker would
provide and prospective buyers have similar opportunities to acquire such
interests. The legislative history of Section 7704 also indicates that a regular
plan of redemptions or repurchases by a partnership may constitute public
trading where holders of interests have readily available, regular, and ongoing
opportunities to dispose of their interests.
The partnership agreement provides that no transfer or assignment of
any unit will be recognized or otherwise given effect (including recognizing any
right of the transferee, such as the right of the transferee to receive directly
or indirectly Partnership distributions or to acquire an interest in the capital
or profits of the Partnership) for any purpose to the extent it is determined by
the general partner to be effectuated through an established securities market
or a secondary market (or the substantial equivalent thereof), within the
meaning of Section 7704 of the Code and the Treasury Regulations applicable with
respect thereto, so as to adversely affect the tax status of the partnership as
a partnership rather than as an association taxable as a corporation." The
general partner will also prohibit any transfer or assignment of units which, in
the general partner's good faith judgment, will cause CIGF5 to fall outside of
the safe harbors of Treasury Regulation Section 1.7704-1(e), discussed below.
See "Risk Factors - There will be no public market for the units, and you may be
unable to sell or transfer your units at a time and price of your choosing."
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Under Treasury Regulation Section 1.7704-1(e), (f), (g), (h) or (j),
certain types of limited, non-public transfers will be disregarded in
determining whether a partnership is publicly traded. The general partner
anticipates permitting seven categories of these Exempt Transfers. See
"Transferability of Units --Exempt Transfers."
In addition to providing for the Exempt Transfers, Treasury Regulation
1.7704-1 states that partnership interests will not be deemed "readily tradable
on a secondary market (or the substantial equivalent thereof)" if any one of
several other safe harbors provided for in such Treasury Regulation is
satisfied. One of these is the "two percent safe harbor." It provides that a
secondary market or its equivalent will not exist if the sum of the interests in
partnership capital or profits attributable to those partnership interests that
are sold, redeemed, or otherwise disposed of during the partnership's taxable
year does not exceed two percent of the total interests in partnership capital
or profits. The seven categories of exempt transfers, among other items, do not
count towards the two percent ceiling. In determining whether CIGF5 satisfies
the two percent safe harbor, redemption of units pursuant to Article 12 of the
partnership agreement will be counted.
The seven categories of exempt transfers listed on pages 35-36 are not
counted toward the two percent safe harbor ceiling because they are considered
to be situations not involving trading on a secondary market, even though they
may permit trading of more than two percent of the partnership's interests. One
of the protected categories of "private transfers" is for "block transfers."
Under Treas. Reg. Section 1.7704-1(e)(2), block transfers are defined as
transfers of 2% or more of the total interests in partnership capital or profits
within a 30 day period by a single transferor or certain related transferors.
There is an additional "private transfer" safe harbor for transfers of
partnership interests representing 50% or more of partnership interests in
capital and profits in one transaction or a series of related transactions.
(But, note that the partnership agreement prohibits a transfer of units if it
would cause a termination of the partnership for tax purposes. See "Federal
Income Tax Considerations - Termination of the Partnership for Tax Purposes.")
Presumably, the IRS created these additional safe harbors because the
transactions involved are transfers of large blocks of partnership interests
that are not consistent with public trading transfers.
While the general partner will use its best efforts to limit the type
and number of transfers of units to those which will allow CIGF5 to remain
within the two percent safe harbor, the general partner does not warrant that
CIGF5 will satisfy this safe harbor during each of its taxable years. It is
conceivable that transfers of units could occur which would cause CIGF5 to fall
outside the safe harbor. In this regard, Treasury Regulation Section
1.7704-1(c)(3) states that failure to meet any of the safe harbors will not
create a presumption that a secondary market or its equivalent exists for
partnership interests. No assurances can be offered, however, that, if the
amount and type of trading in the units were to fall outside the safe harbor,
the IRS would not claim publicly traded partnership status with respect to
CIGF5.
If, for any reason, CIGF5 were treated for federal income tax purposes
as a corporation, CIGF5's income, deductions and credits would be reflected only
on its income tax return rather than being passed through to limited partners,
and CIGF5 would be required to pay income tax at corporate tax rates on any net
income. Any amounts available (after corporate taxes) for distribution to the
limited partners would be treated as dividends to the extent of current or
accumulated earnings and profits. In addition, distributions from CIGF5 would be
classified as portfolio income rather than passive activity income and thus
would not be eligible to be offset by passive activity losses attributable to
CIGF5 or other activities giving rise to passive losses. See "United States
Federal Income Tax Considerations -- Limitations on Utilization of Partnership
Losses -- Passive Activity Losses Limitations."
-44-
Certain Principles of Partnership Taxation
A partnership is not subject to federal income tax, but is required to
file a partnership information tax return each year. Each limited partner will
be required to take into account, in computing the limited partner's income tax
liability, the limited partner's distributive share (as determined by the
partnership agreement and reported on Schedule K-1 to Form 1065) of all items of
net profits, losses, credit and tax preference of CIGF5 for any taxable year of
CIGF5 ending within or with the taxable year of the limited partner without
regard to whether the limited partner has received or will receive any cash
distributions from CIGF5. Thus, a limited partner may be subject to tax if CIGF5
has net income even though no corresponding cash distribution is made. To the
extent a limited partner's tax liability attributable to his investment in CIGF5
exceeds his cash distributions from CIGF5 in any year, such partner will be
required to pay the excess tax liabilities from other sources.
Any cash received by a limited partner from CIGF5 in his capacity as a
partner generally will not cause recognition of taxable income (or tax loss) for
federal income tax purposes. Instead, such distributions generally will reduce
the limited partner's basis in his units (but not below zero). However, cash
distributions (and certain distributions of marketable securities, as defined by
the Code) in excess of a limited partner's adjusted basis in his units will
result in the recognition of taxable income to the extent of any such excess.
Any taxable income recognized upon such distributions will generally be
characterized as capital gain income and will be long-term or short-term
depending upon the limited partner's holding period for his units. With respect
to a partner subject to the " at risk" rules, if the partner's share of
partnership losses or distributions reduces his "at risk" amount to zero,
subsequent distributions of cash or other property to him will cause him
generally to recapture as ordinary income an amount equal to the partnership
losses previously deducted by him to the extent of such distributions. The gain
realized on a non-pro rata distribution to a limited partner may be taxed to the
limited partner as ordinary income to the extent attributable to the limited
partner's share of depreciation recapture, other "unrealized receivables" and
inventory that has substantially appreciated in value. See "Cost Recovery and
Depreciation - Recapture of Cost Recovery Deductions" and "Disposition of Units"
below. No loss will be recognized by a limited partner upon distributions, other
than a loss recognized upon a distribution in liquidation of his partnership
interest.
A limited partner's distributive share of any taxable income generated
by CIGF5 will not be deemed to be "net earnings from self employment."
Accordingly, such income will not be subject to the tax imposed on self-employed
persons by Section 1401 through 1403 of the Code, commonly referred to as
"social security taxes."
Prospective investors who receive social security benefits should be
aware that, although income generated by CIGF5 will not be deemed to be "net
earnings from self employment," such income will be included in a limited
partners' "modified adjusted gross income" under Section 86 of the Code for
purposes of determining whether a limited partner's social security benefits, if
any, are subject to taxation.
Timing of Income Recognition. CIGF5's tax returns will be prepared
using the accrual method of accounting. Under the accrual method, CIGF5 will
recognize as income items such as rentals and interest as and when earned by
CIGF5, whether or not they are received. In certain circumstances, where a lease
provides for varying rental payments, increasing (or decreasing) in the later
years of the lease, known as "step rentals," the Code requires the lessor to
take the rentals into income as if the rent accrued at a constant level rate.
This provision applies to sale-leaseback transactions. An additional consequence
of the application of these provisions of the Code would be a conversion of a
portion of CIGF5's rental income (passive) from such lease to interest income
(portfolio). If step rentals are provided for in a lease, the general partner
anticipates that the lease will fall within one of the exceptions to such
provision and, therefore, CIGF5 should recognize such income as it is earned
under the lease rather than at a constant level rate as otherwise provided by
the Code.
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Allocation of Partnership Income, Gains, Losses, Deductions and Credits
In General. Cash distributions, if any, will be made quarterly, 99% to
the limited partners and one percent to the general partner until each limited
partner has received an amount equal to his capital contribution plus the 10%
cumulative compounded return; thereafter, cash distributions will be made 90% to
the limited partners and 10% to the general partner. Distributions in redemption
of a partner's units pursuant to Article 12 of the partnership agreement (see
"Transferability of Units - Redemption Provision") will be equal to 105% of the
selling partner's adjusted capital contribution at the time of the redemption,
subject to reduction for some or all of the offering fees and expenses
attributable to the units. Distributions made in connection with the liquidation
of CIGF5 or a partner's units will be made in accordance with the partner's
positive capital account balance as determined under the partnership agreement
and Treasury Regulations.
Generally, the general partner will be allocated net profits equal to
its cash distributions (but not less than one percent of net profits) and the
balance will be allocated to the limited partners. Net profits arising from
transactions in connection with the termination or liquidation of CIGF5 will be
allocated in the following order: (i) first, to each partner in an amount equal
to the negative amount, if any, of his capital account; (ii) second, an amount
equal to the excess of the proceeds which would be distributed to the partners
based on the operating distributions to the partners over the aggregate capital
accounts of all the partners, to the partners in proportion to their respective
shares of such excess, and (iii) third, with respect to any remaining net
profits, to the partners in the same proportions as if the distributions were
operating distributions. Net losses, if any, will be allocated 99% to the
limited partners and one percent to the general partner.
The above allocations, however, are subject to several special
allocations designed in part to prevent a partner's capital account
(particularly a limited partner's capital account) from going below zero and to
allow the partner's capital account accurately to reflect the above-described
sharing ratios.
Although a partnership may make a special allocation of certain
partnership items, or overall profit and loss, in a manner disproportionate to
the partners' respective capital contributions, such an allocation will be
recognized for federal income tax purposes only if it has "substantial economic
effect." A special allocation generally will be considered to have such effect
if it actually affects the dollar amount of the partners' share of total
partnership income or loss independently of tax consequences.
Substantial Economic Effect. Under Treasury Regulations, an allocation
will be respected by the IRS only if it meets any one of the following: (i) the
allocation has "substantial economic effect"; (ii) the allocation is in
accordance with the partners' interests in the partnership; or, (iii) the
allocation is deemed to be in accordance with the partners' interests in the
partnership. Any allocation which fails to satisfy at least one of these three
tests will be reallocated in accordance with the partners' interests in the
partnership as defined in the Treasury Regulations.
The Treasury Regulations set forth a two-part analysis to determine
whether an allocation has "substantial economic effect." First, the allocation
must have "economic effect." In other words, the allocation must be consistent
with the underlying economic arrangement of the partners. If there is an
economic benefit or burden that corresponds to the allocation, the partner
receiving such an allocation should benefit from the economic benefit or bear
the economic burden. Normally, economic effect will be present only if the
partners' capital accounts are determined and maintained as required by the
Treasury Regulations.
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Liquidation proceeds must be distributed in accordance with the
partners' positive capital account balances (after certain adjustments).
Additionally, if partners are not required to restore any deficit capital
account balance, no loss or deduction may be allocated to a partner if such
allocation would create a deficit balance in such partner's capital account in
excess of the amount such partner is obligated to restore to the partnership or
is treated as required to restore to the partnership, and the partnership
agreement must contain a "qualified income offset," requiring that if a partner
who unexpectedly receives an adjustment, allocation, or distribution described
in subparagraphs (4), (5) or (6) of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) which creates or increases a deficit in such partner's
capital account, such partner will be allocated items of net profits and gain
(consisting of a pro rata portion of each item of partnership income, including
gross income, and gain for such year) in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible.
Second, the economic effect must be "substantial." Substantiality is
present if there is a reasonable possibility that the allocation will
substantially affect the dollar amounts to be received by a partner independent
of his tax consequences. If a shifting of tax attributes results in little or no
change to the partner's capital accounts, or if the shift is merely transitory,
they will not be recognized. Thus, if the allocation causes a shift in tax
consequences that is disproportionately large in relation to the shift in
economic consequence, there is a presumption that the economic effect of the
allocation is not substantial and such allocation will be disregarded (and the
partnership items will therefore be apportioned according to the partners'
respective interests).
The Treasury Regulations contain several exceptions and qualifications.
For example, if a partnership allocation fails the above "economic effect" test,
it may still be recognized if it meets the "economic effect equivalence" test.
An allocation will be viewed as having economic effect if the agreement among
the partners would in all cases produce the same results as the requirements
outlined above. Further, there are also several exceptions, which come into play
where the partner does not have an absolute obligation to restore a negative
capital account.
Pursuant to the partnership agreement, net profits, net losses and cash
distributions allocated to a partner will be reflected by appropriate
adjustments to the partner's capital account. Furthermore, the partnership
agreement contains provisions, which would in all cases produce distributions of
liquidation proceeds on dissolution on the basis of the relative amounts of the
partners' capital accounts to the extent of the balances of such capital
accounts. The tax allocations, however, are predicated on the assumption that
the management fees payable to the general partner will be treated as deductible
guaranteed payments, rather than as partnership distributions. See "United
States Federal Income Tax Considerations -- Fees and Reimbursements to the
General Partner and Affiliates."
Retroactive Allocations. Under Section 706(d) of the Code, "retroactive
allocations," i.e., allocations of items to partners before they became
partners, are prohibited. Section 706(d) of the Code and the Treasury
Regulations thereunder accomplish this prohibition by providing that if there is
a change in any partner's interest in any taxable year of the partnership, each
partner's distributive share of a partnership's tax items is to be determined by
use of any method prescribed by the Secretary of the Treasury in Treasury
Regulations which take into account the varying interests of the partners in the
partnership during such taxable year. The partnership agreement provides that
income or loss allocable to the limited partners will, to the extent partners
are admitted under the offering during the course of the taxable year other than
on January 1 or are redeemed other than on December 31, be allocated among the
limited partners in proportion to the number of units each holds from time to
time during the course of the year, in accordance with Code Section 706, using
any convention permitted by law selected by the general partner. Thus, if some
limited partners are admitted to CIGF5 after others, those limited partners
admitted later may receive a smaller portion of each item of CIGF5's net profits
and net losses than the limited partners who were admitted earlier.
Nevertheless, those limited partners still will be obligated to make the same
capital contributions to CIGF5 for their interests as the limited partners who
were admitted previously. In addition, where a limited partner transfers units
during a taxable year, the limited partner may be allocated net profits for a
period for which such limited partner will not receive a corresponding cash
distribution.
Conclusion. Based on the Treasury Regulations, the legislative history
and existing case law, counsel has opined that the allocations contained in the
partnership agreement of CIGF5's net profits and net losses should be respected
for federal income tax purposes.
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Limitations on Utilization of Partnership Losses
Tax Basis. A limited partner may not deduct losses in excess of his
"tax basis" in his units, but may carry forward such excess losses to such time,
if ever, as his basis is sufficient to absorb them. A limited partner's tax
basis in his units also determines the tax consequences of his distributions, as
well as the amount of the gain or loss he may realize upon any sale of his
units. "United States Federal Income Tax Considerations -- Disposition of
Units."
Initially, the tax basis of a limited partner's units will be equal to
the amount of cash contributed by the limited partner to CIGF5 or the amount
paid to a transferor limited partner, plus the limited partner's share of
CIGF5's non-recourse liabilities, if any. A limited partner's initial tax basis
will then be (i) increased by his allocable share of any net profits for each
year, contributions made to CIGF5 by the limited partner, and any increase in
his share of non-recourse liabilities, and (ii) reduced by his allocable share
of any net losses, the amount of any distributions made to him during the year,
and any reduction in his share of non-recourse liabilities.
The IRS has ruled that a partner acquiring multiple interests in a
partnership in separate transactions at different prices must maintain an
aggregate adjusted tax basis in a single partnership interest consisting of the
partner's combined interests. Possible adverse tax consequences could result
from the application of this ruling upon a sale of some but not all of a limited
partner's units.
See "United States Federal Income Tax Considerations - Disposition of Units."
Amounts at Risk. The Code limits the deductions that an individual or a
closely held "C" corporation may claim from an activity to the aggregate amount
with respect to which such taxpayer is "at risk" for such activity as of the
close of the taxable year.
Except as otherwise provided below, a limited partner will be
considered to be "at risk" with respect to the amount of money and the adjusted
basis of other property the limited partner contributes to CIGF5. A limited
partner will be at risk with respect to amounts borrowed by CIGF5 only to the
extent that the limited partner is personally liable for their repayment or the
net fair market value of the limited partner's personal assets (other than
units) that secure the indebtedness. A limited partner will not be considered at
risk with respect to any amounts that are protected against loss through
non-recourse financing, guarantees, stop loss agreements or similar
arrangements. Because the limited partners will not be personally liable for
partnership indebtedness, any such indebtedness will not augment the limited
partners' amounts at risk.
A limited partner's amount at risk will be reduced by (i) net losses
which are allowed as a deduction to the limited partner under the at-risk rules
and (ii) cash distributions received by a limited partner with respect to the
limited partner's units, and increased by that limited partner's distributive
share of net profits. Investors should note that net losses that may be
allowable as a deduction under the at-risk rules may be disallowed currently
under the passive activity loss limitations. See "United States Federal Income
Tax Considerations -- Limitations on Utilization of Partnership Losses --
Passive Activity Losses Limitations."
If a limited partner's at risk amount is reduced below zero (due to a
cash distribution to a limited partner), the limited partner must recognize
income to the extent of the deficit at risk amount. Losses of CIGF5 that have
been disallowed as a deduction in any year because of the at-risk rules will be
allowable, subject to other limitations, as a deduction to the limited partner
in subsequent years to the extent that the limited partner's amount at-risk has
been increased.
It is not anticipated that, on an aggregate basis, CIGF5 will incur
losses. However, the Code will allow CIGF5 to aggregate its equipment leasing
activities only with respect to equipment placed in service during the same
taxable year. Therefore, the "at risk" rules will be applied to the net taxable
income or loss resulting from leasing equipment which was placed in service
during the same taxable year. This could result in a partner's deduction for
losses with respect to certain items of equipment being limited by the "at risk"
rules, even though he must recognize income with respect to other items of
equipment.
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Counsel has given its opinion that the sum of the amounts for which a
limited partner will be considered "at-risk," for purposes of Section 465 of the
Code, in any taxable year with respect to equipment placed in service in that
taxable year and in each prior year (treating all equipment placed in service in
the same year as a single activity separate from the activities represented by
equipment placed in service in other years) will be equal to (i) the capital
contributions (as such term is defined in the partnership agreement) of such
limited partner (provided that funds for such capital contributions are not from
borrowed amounts other than amounts: (A) for which the limited partner is
personally liable for repayment, or (B) for which property other than units is
pledged as security for such borrowed amounts, but only to the extent of the
fair market value of such pledged property and provided further that such
capital contributions are invested in the equipment or otherwise expended in
connection with CIGF5's organization or leasing activities (or are subject to
the rights of our creditors for amounts incurred by it with respect to same)),
less: (ii) the sum determined on a cumulative basis of (A) the total net losses
with respect to such equipment which have been allowed as deductions to the
limited partner under the at risk rules and (B) cash distributions received by
the limited partner, plus (iii) the limited partner's distributive share,
determined on a cumulative basis, of total net profits with respect to such
equipment of CIGF5.
Passive Activity Losses Limitations. The Code prohibits an individual,
estate, trust, closely-held "C" corporation, or personal service corporation
from using losses and credits from a business activity in which the taxpayer
does not materially participate, or a rental activity, to offset other income,
including salary and active business income as well as portfolio income (such as
dividends, interest and royalties, whether derived from property held directly
or through a pass-through entity such as a partnership).
Interest income derived by CIGF5 from the interim investment of
offering proceeds or reserves (and any income derived by CIGF5 from leases
treated as loans for federal income tax purposes) will be treated as portfolio
income and, thus, will not be offset for those purposes by partnership
deductions such as depreciation or cost recovery deductions.
Losses from a passive activity that are not allowed currently will be
carried forward indefinitely, and are allowed in subsequent years against
passive activity income or in full upon complete disposition of the taxpayer's
interest in that passive activity to an unrelated party in a fully taxable
transaction.
Losses from CIGF5 and other passive activities may not be used to
offset income from a publicly traded partnership and income from a publicly
traded partnership is treated as investment income. Limited partners, therefore,
will be unable to use losses from CIGF5 to offset passive income from publicly
traded partnerships that are not taxed as corporations and income from CIGF5
cannot be offset by losses from publicly traded partnerships that are not taxed
as corporations.
If a limited partner incurs indebtedness in order to acquire or carry
units, interest paid by the limited partner on the indebtedness will be subject
to the limitations for passive activity losses, except to the extent that the
indebtedness relates to "portfolio income," if any, of CIGF5. Interest expense
of a limited partner attributable to "portfolio income" may be subject to other
limitations on its deductibility. See "United States Federal Income Tax
Considerations -- Interest Deduction Limitations."
Counsel has opined, based on the above discussion and assuming that all
leases entered into by CIGF5 are considered "true leases" for federal income tax
purposes, that the net profits, net losses, and credits derived from CIGF5 with
respect to its leasing activities will be subject to the passive activity rules.
Thus, any income produced by CIGF5 should be income from a passive activity.
However, any partnership income attributable to (i) the investment of
partnership funds in liquid investments prior to the purchase of equipment, (ii)
the investment, in interest-bearing accounts or otherwise, of amounts held by
CIGF5 as working capital, security deposits, or in reserve, or (iii) equipment
with respect to which CIGF5 is determined not to be the owner for federal income
tax purposes will not be passive activity income.
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Hobby Losses. Section 183 of the Code limits deductions attributable to
"activities not engaged in for profit." The phrase "activities not engaged in
for profit" means any activity other than one that constitutes a trade or
business, or one that is engaged in for the production or collection of income
or for the management, conservation or maintenance of property held for the
production of income. The Treasury Regulations provide that the determination of
whether an activity is engaged in for profit is to be made by reference to
objective standards, taking into account all of the facts and circumstances in
each case. The Treasury Regulations also provide that, although a reasonable
expectation of profit is not required, the facts and circumstances must indicate
that the taxpayer entered into the activity, or continued the activity, with the
objective of making a profit.
The Treasury Regulations enumerate a number of nonexclusive factors,
which should be taken into account in determining whether an activity is engaged
in for profit. The IRS has ruled that this test will be applied at the
partnership level.
Based upon these Treasury Regulations and the investment goals of
CIGF5, we intend to manage CIGF5 so that our activities will constitute an
activity engaged in for profit within the meaning of Section 183 of the Code.
However, the test of whether an activity is deemed to be engaged in for profit
is based on the facts and circumstances applicable from time to time including
the motives of the investors, and no assurance can be given that Code Section
183 may not be applied in the future to disallow the deductions.
Cash Distributions
Cash distributions made to a limited partner, other than those in
exchange for, or redemption of, all or part of his units, reduce a limited
partner's adjusted basis in his units and may represent both a return of capital
and income. To the extent distributions of cash (including reductions in a
limited partner's proportionate share of partnership non-recourse liabilities,
if any) reduce a limited partner's adjusted basis in his units to zero, such
distributions will be treated as returns of capital which generally do not
result in any recognition of gain or loss for federal income tax purposes. To
the extent such distributions or reductions in liabilities exceed a limited
partner's adjusted basis in his units immediately prior thereto, such limited
partner will recognize gain to the extent of such excess. Such gain may be
treated as ordinary income to the extent the distribution is deemed to be in
exchange for a share of the limited partner's interest in CIGF5's "substantially
appreciated" inventory and "unrealized receivables" (which includes depreciation
recapture); any excess gain will be treated as capital gain.
The gain that a limited partner will recognize as a result of a
reduction of liabilities in excess of such limited partner's adjusted tax basis
in his units immediately prior thereto will result in a tax liability to the
limited partner without any cash distribution. To the extent a limited partner's
federal tax liabilities exceed cash distributions, such excess in effect would
be a nondeductible cost to such limited partner.
It is possible that your tax liability for a given year will exceed
your cash distributions for that year. For example, we may borrow money to
finance the purchase of some of our equipment. Depending on the amortization
schedule for payment of such loans, it is possible in some years, most likely
the later years of such loans, that the nondeductible payments of principal
which we will have to make will exceed our depreciation deductions. In such
years, our taxable income will be greater than the cash flow produced from our
leasing activities. Depending on how big this difference is, your tax liability
for a year could be greater than your cash distributions for that year.
Similarly, because of such borrowings, your tax liabilities arising from a sale
or other disposition of units or equipment could exceed the cash proceeds
therefrom.
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Distribution Reinvestment
If you elect to have your distributions reinvested in additional units
during the offering period, the amount of such distributions will be includable
in your cost basis of units purchased. Schedule K-1, the information return sent
by CIGF5 to you and the IRS at the end of the year will show the amount of the
distributions paid to you.
If you are considering electing to reinvest your distributions, we urge
you to consult with your own tax advisors regarding the specific tax
consequences (including the federal, state and local tax consequences) that may
result from your election and of potential changes in applicable tax laws.
The income tax consequences for investors in units who do not reside in
the United States may vary from jurisdiction to jurisdiction. If you are a
foreign unitholder whose share of taxable income is subject to United States
income tax withholding at the current statutory rate (or lower treaty rate), the
appropriate amount will be withheld and the balance will be used to purchase
additional shares.
Tax-exempt unitholders, including IRAs, Keogh Plans, 401(k) plans,
charitable remainder trusts, etc. generally will not have to pay any taxes on
their share of partnership income.
Fees and Reimbursements to the General Partner and Affiliates
General. There is no assurance that the IRS will not challenge the
position of CIGF5 with respect to the amount, character, time of deduction or
tax treatment of any of the fees discussed herein or, if challenged, that the
position of CIGF5 would be sustained. In any year such fees are incurred, the
disallowance of the deductibility of such fees would result in a proportionate
increase in the taxable income (or reduction in the loss) of the limited
partners with no associated increase in cash distributions with which to pay any
resulting increase in tax liabilities.
Organizational and Offering Expenses. The general partner will be paid
an organizational fee for its services in organizing CIGF5 and preparing the
offering. The general partner plans to make a reasonable allocation of such fees
between syndication expenses, which must be capitalized, and start-up expenses
which may be amortized over a 60-month period. The range of the fee based on the
minimum and maximum amounts sold will be between $34,500 and $500,000. The
organizational fee is anticipated to be approximately $400,000, all of which we
estimate to be deductible expenses. In addition, we will incur underwriting
commissions of up to 10%. These commissions will be nondeductible syndication
expenses, which must be charged against the capital accounts of limited
partners.
Equipment Acquisition and Debt Placement Fees. The cost of acquisition
fees will be capitalized to the cost of the equipment. Debt placement fees will
be amortized over the term of the borrowings to which they relate.
The Equipment Management Fee. The equipment management fee should be
deductible as an ordinary and necessary business expense under Section 162 of
the Code, to the extent that its amount is commercially reasonable.
Equipment Liquidation Fee. Equipment liquidation fees should be treated
as a cost of sale of the equipment.
Ownership of Equipment
Tax Treatment of Leases. Your depreciation and cost recovery deductions
with respect to any item of partnership equipment depends, in part, on the tax
classification of the rental agreement under which it leased. These deductions
are only available if the rental agreement is a true lease of equipment, meaning
CIGF5 retains ownership of it. Depreciation and cost recovery deductions are not
available if the transaction is classified as a sale, financing or refinancing
arrangement where ownership shifts to a purchaser, the nominal lessee.
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Whether a partnership is the owner of any particular item of equipment,
and whether a lease is a true lease for federal income tax purposes, depends
upon both factual and legal considerations. The IRS has published guidelines on
the tax treatment of leveraged leases. These guidelines do not purport to be
substantive rules of law and are not supposed to be applied in audit contexts,
although they have been in a number of instances.
Whether any lease will meet the relevant requirements to be
characterized as a true lease, and whether CIGF5 will be treated for tax
purposes as the owner of each item of equipment acquired by that partnership,
would depend on the specific facts in each case. Since these facts cannot now be
determined with regard to leases that will be entered into in the future,
counsel can render no opinion on this issue.
Cost Recovery and Depreciation
Cost Recovery Rules. The equipment we plan to acquire and lease for
CIGF5 generally is classified as 5-year equipment, and may be written off for
federal income tax purposes, through cost recovery or depreciation deductions,
over its respective recovery period. The amount deductible in each year
generally may be calculated using the 200 percent declining-balance depreciation
method, switching to the straight-line method at a time that maximizes the
deduction, except that recent legislation provides for a "bonus" depreciation of
50% (or 30% if the taxpayer so elects) of the adjusted basis of certain
qualified property in the taxable year in which it is placed in service.
Property is qualified property for this purpose if, among other things, its
original use began with the taxpayer and it is placed in service before January
1, 2005. A taxpayer may, however, choose to use a straight line method of
depreciation for the entire recovery period. In order to elect out of the
"bonus" depreciation with respect to property in a class, however, the election
must apply to all property in that class placed in service during the taxable
year.
CIGF5 will allocate all or part of the acquisition fees, which are fees
paid to the general partner in connection with the selection and purchase of
equipment, to the cost basis of equipment. We cannot assure you that the IRS
will agree that cost recovery deductions calculated on a cost basis that
includes acquisition fees are properly allowable. The IRS might assert that the
acquisition fees are attributable to items other than the equipment, or are not
subject to cost recovery at all. If the IRS were successful in making that
claim, the cost recovery deductions available to CIGF5 would be reduced
accordingly. Because the determination of this issue depends on the magnitude
and type of services performed for the acquisition fees, which is presently
undeterminable and may vary for each piece of equipment acquired by CIGF5,
counsel is unable to render an opinion about whether our cost recovery
deductions would be upheld if challenged by the IRS.
In some circumstances, a taxpayer will be required to recover the cost
of an asset over longer periods of time than described above. These
circumstances include the use of equipment predominately outside the United
States and the use of equipment by a tax-exempt entity.
Recapture of Cost Recovery Deductions. All of part of the cost
recovery, depreciation or amortization deductions of CIGF5 may be recaptured as
ordinary income upon a subsequent disposition by CIGF5 of its equipment or other
property or, with respect to a partner's share of such deductions, upon the
disposition of the partner's units. See "United States Federal Income Tax
Considerations - Disposition of Units" below. The cost recovery, depreciation or
amortization deductions of CIGF5 will be recaptured to the extent of any gain on
disposition. This recapture amount will be recognized in full as ordinary income
in the year of sale even if CIGF5 has made an installment sale of the equipment.
See "United States Federal Income Tax Considerations - Sale of Equipment."
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If CIGF5 has not made a basis adjustment election under Section 754, a
purchaser of units also may be required to recapture amounts attributable to
cost recovery or depreciation when CIGF5 disposes of equipment subject to
recapture or when the purchaser subsequently sells his units.
Interest Deduction Limitations
The Code restricts the ability of non-corporate taxpayers to deduct
interest on funds borrowed to acquire or carry investment assets. Such taxpayers
may deduct "investment interest" only to the extent of the "net investment
income" of the taxpayer for the taxable year. Any interest disallowed under this
provision in one year may be carried forward indefinitely and claimed at such
time as the taxpayer has sufficient investment income.
Interest expense that is allocable to a passive activity is subject to
the passive loss limitations, and is not subject to the investment interest
limitations. The general partner anticipates that CIGF5 will be deemed a passive
activity with respect to the income, gains, losses, deductions and credits
passed through to the limited partners and, therefore, will not figure in a
limited partner's investment interest limitations calculation.
Because CIGF5 will enter into net leases, any interest expense that
might be paid by CIGF5 might be considered to be investment interest expense
and, as such, would be subject to the limitations described herein. Because the
amount of any limited partner's investment interest that would be subject to
disallowance in any year will depend upon the other investment income and
expenses of that limited partner, the extent, if any, of such disallowance will
depend upon that limited partner's particular tax situation.
Additionally, the IRS might argue that all or some portion of any
interest incurred in connection with the acquisition or maintenance of a unit in
CIGF5 is investment interest. As noted above, however, it is anticipated that
any interest in CIGF5 as a limited partner will be deemed a passive activity
(unless modified by Treasury Regulations or legislation). To the extent the
investment in a unit is treated as a passive activity, any interest incurred in
acquiring or maintaining such an interest would not be subject to Section 163(d)
but instead would be subject to the passive activity limitations.
The Code denies any deduction for interest paid by a taxpayer on
indebtedness incurred or continued for purchasing or carrying tax exempt
obligations. Denied interest may not be deducted in any year. The prescribed
purpose generally will be deemed to exist with respect to indebtedness incurred
to finance a "portfolio investment" including a limited partnership interest.
In the case of a limited partner owning tax exempt obligations, the IRS
may take the position, that with respect to a limited partner who borrows funds
to purchase units, the interest paid by the limited partner on such loan should
be viewed as incurred on loans which enable him to continue carrying his tax
exempt obligations. If this position were upheld, the limited partner would not
be allowed to deduct such interest.
Sale of Equipment
Because of the different individual tax rates for capital gains and
ordinary income, the tax code provides various rules classifying income as
ordinary income or capital gains, and for distinguishing between long-term and
short-term gains and losses. The distinction between ordinary income and capital
gains is relevant for other purposes as well. For example, there are limits on
the amount of capital losses that an individual may offset against ordinary
income.
Upon a sale or other disposition of equipment, CIGF5 will realize gain
or loss equal to the difference between the basis of the equipment at the time
of disposition and the price received for it upon dispositions. Any foreclosure
of a security interest in equipment would be considered a taxable disposition
and CIGF5 would realize gain if the face amount of the debt being discharged
were greater than the tax basis of the equipment, even though CIGF5 would
receive no cash. In the case of a disposition of equipment at a gain, the income
would first be ordinary income to the extent of recapture, as discussed below,
and only the excess, if any, would be capital gain.
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Because the equipment is tangible personal property, upon its
disposition, all of the depreciation and cost recovery deductions taken by CIGF5
will be subject to recapture to the extent of any realized gain. Recapture means
that the depreciation, previously deducted, is reversed by recognizing the
depreciated amounts as ordinary income, in the year of the sale. Recapture
cannot be avoided by holding the equipment for any specified period of time. If
a partnership were to sell property on an installment basis, all depreciation
recapture income is recognized at the time of sale, even though the payments are
received in later taxable years.
Certain gains and losses are grouped together to determine their tax
treatment. The gains on the sale or exchange of some assets including equipment
used in a trade or business and held for more than one year are added to the
gains from some compulsory or involuntary conversions; if these gains exceed the
losses from such sales, exchanges, and conversions, the excess gains will be
taxed as capital gains (subject to a special recapture rule described below). If
the losses exceed the gains, however, the excess losses will be treated as
ordinary losses. Under a special recapture provision, any net gain under this
aggregation rule will be treated as ordinary income rather than capital gains if
the taxpayer has non-recaptured net losses, which are net losses under this
aggregation rule from the five preceding taxable years which have not yet been
offset against net gains in those years.
Disposition of Units
In General. A partner who sells or otherwise disposes of his units,
including redemptions of a limited partner's units pursuant to Article 12 of the
partnership agreement, will realize taxable gain or loss measured by the
difference between the selling or redemption price and the adjusted tax basis of
his units. See "United States Federal Income Tax Considerations -- Limitations
on Utilization of Partnership Losses -- Tax Basis." Gain or loss, in general,
will be taxed as short-term or long-term capital gain or loss, depending on the
period the units have been held (provided the partner is not a dealer in the
units).
However, gain attributable to the partner's share of "substantially
appreciated inventory items" and "unrealized receivables" of CIGF5, as those
terms are defined in the Code, will be taxed as ordinary income. Unrealized
receivables include any cost recovery, depreciation and amortization deductions
of CIGF5 that would have been recaptured upon a hypothetical sale of the
equipment.
The requirement that recapture amounts be recognized in full in the
year of sale even if the sale qualifies as an installment sale, may apply to an
installment sale of units. See "United States Federal Income Tax Considerations
- -- Cost Recovery and Depreciation -- Recapture of Cost Recovery Deductions." In
determining the amount realized upon the sale or exchange of units, a limited
partner must include, among other things, his allocable share of partnership
indebtedness included in his basis in such units. See "United States Federal
Income Tax Considerations -- Limitations on Utilization of Partnership Losses --
Tax Basis." A partner's gain on the sale or exchange of units should be treated
as income from the activity of leasing the equipment. As a result, suspended
losses, if any, from prior years could offset the gain realized on the sale or
exchange of units. See "United States Federal Income Tax Considerations --
Limitation on Utilization of Partnership Losses -- Amounts at Risk -- Passive
Activity Losses Limitations." A partner who sells or otherwise disposes of his
units must also report his share of the taxable income or loss of CIGF5 for the
portion of the taxable year of CIGF5 during which he owned his units.
Gift of Units. Since the tax consequences of any gift or transfer will
depend upon the particular circumstances and upon the individuals or
organizations involved in the transaction, before making any gift of units, a
limited partner should consult his tax advisor as to the consequences of such a
gift and as to the basis of the units in the hands of his successor.
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Death of Partner. If a limited partner dies, the fair market value of
his units at death (or, if elected, at the alternate valuation date) will be
subject to federal estate taxation. Under present law, the death of a limited
partner does not result in a sale or exchange giving rise to a federal income
tax. It is not clear what the tax consequences are if the decedent's
proportionate share of CIGF5's liabilities exceeds the adjusted basis of his
units at death. In this event, some gain may be recognized to the decedent or
his estate upon the distribution of the units to the extent of such excess. The
cost or other basis of the units inherited from the decedent generally is
"stepped up" or "stepped down" to its fair market value for federal income tax
purposes.
Notice of Transfer. The Code requires that a limited partner who
transfers an interest in a partnership, whether by sale, gift or otherwise, must
notify CIGF5 of such transfer within 30 days of the transfer or, if earlier, by
January 15 of the calendar year following the calendar year in which transfer
occurs.
In addition, the Code requires a partnership to file a separate
information return with the partnership's federal information return, for the
tax year in which the transfer occurs whenever there is a transfer of a
partnership interest involving a sale or exchange where there are inventory
items or unrealized receivables as defined by the Code. A limited partner who
fails to inform the partnership of a transfer of the limited partner's units in
accordance with the rules described in this paragraph is liable for a penalty of
$50 per unreported transfer with an annual maximum penalty of $100,000. Each
such return must contain the following: (a) the names, addresses and taxpayer
identification numbers of the transferee and transferor involved in the exchange
and (b) the date of the sale or exchange.
Once notified, the Code requires a partnership to provide the
transferee and the transferor with a copy of the completed information return
reporting transfers, and to include the name, address and telephone number of
the partnership required to make the return.
Termination of the Partnership for Tax Purposes
The Code provides that if 50% or more of the capital and profits
interests in a partnership is sold or exchanged within a single twelve-month
period, the partnership will terminate for tax purposes. The partnership
agreement prohibits the transfer of any unit if such transfer would result in
the termination of CIGF5 for federal income tax purposes. However, involuntary
transfers (such as transfers by death, dissolution, etc.) could possibly result
in termination of CIGF5 for federal income tax purposes.
If CIGF5 should terminate for tax purposes, the terminated partnership
("Old Par") will be treated (i) as having transferred all of its assets subject
to liabilities to a new partnership ("New Par") in exchange for partnership
interests therein, and then (ii) as having distributed such partnership
interests in New Par to the partners of Old Par in liquidation of Old Par.
Gain could be recognized to the extent that (i) the amount of the
reduction, if any, in a limited partner's share of partnership liabilities as a
result of the partnership termination exceeds (ii) such limited partner's
adjusted tax basis of his units.
In addition, upon a partnership termination, the partnership's taxable
year would terminate. If the limited partner's taxable year were other than the
calendar year, the inclusion of more than one year of partnership income in a
single taxable year of the limited partner could result. Because the new
partnership would be treated as a separate entity for federal income tax
purposes, the tax elections of the prior partnership would not generally remain
valid. Thus, new federal income tax elections would generally be required to be
made. In addition, depreciation periods for assets held by the partnership will
restart.
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No Section 754 Election
Due to the burdensome and costly record keeping requirements that a
Section 754 Election entails, it is unlikely that the general partner will
exercise its discretion in favor of making this election to adjust the basis of
partnership property in the case of transfers of units. If the general partner
does not make a Code Section 754 Election, a subsequent limited partner's share
of gain or loss upon the sale of CIGF5 assets will be determined by taking into
account CIGF5's tax basis in the assets and without reference to the cost
associated with acquiring the units. Thus, the absence of a Code Section 754
Election may reduce the marketability of units and the price a purchaser would
be willing to pay.
Investment by Tax Exempt Entities
The income earned by a tax exempt entity, including a qualified
employee pension or profit sharing trust or an individual retirement account, is
generally exempt from taxation. However, gross Unrelated Business Taxable
Income, or UBTI, of a tax exempt entity is subject to tax to the extent that,
when combined with all other gross UBTI of the tax exempt entity for a taxable
year, it exceeds all deductions attributable to the UBTI plus $1,000 during the
taxable year. Such UBTI will be taxable at ordinary income rates and may be
subject to the alternative minimum tax. See "United States Federal Income Tax
Considerations -- Taxes-Alternative Minimum Tax."
The leasing of tangible personal property is treated for purposes of
the Code as an unrelated trade or business. See Revenue Rulings 78-144, 1978-1
C.B. 168, 69-278, 1969-1 C.B. 148, and 60-206, 1960-1 C.B. 201. The IRS has
ruled that a partner's distributive share of income or gain from a partnership
engaged in the leasing of tangible personal property is treated in the same
manner as if such income or gain were realized directly by the partner.
Therefore, a tax exempt entity that invests in CIGF5 will be subject to the tax
on UBTI for any taxable year of the tax exempt entity to the extent CIGF5
generates income from the leasing of the equipment and the total of the tax
exempt entity's share of that income for the taxable year plus its UBTI from all
other sources for the taxable year exceeds the sum of all deductions
attributable to the UBTI plus $1,000.
Although CIGF5's portfolio income (e.g., interest income from the
investment of partnership cash balances) generally will not produce UBTI for a
tax exempt entity that invests in CIGF5, a portion of such tax exempt entity's
portfolio income from CIGF5 will constitute UBTI pursuant to the "debt-financed
property" rules if the tax exempt entity finances its acquisition of units with
debt or to the extent that debt of the partnership is considered to be
attributable to the assets producing such portfolio income.
Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under paragraphs (7), (9), (17), and (20),
respectively, of Code section 501(c) are subject to different UBTI rules, which
generally will require them to characterize all income from CIGF5 as UBTI.
Except to the extent of gain or loss from the sale, exchange, or other
disposition of acquisition indebtedness property and except to the extent the
equipment constitutes inventory or property held primarily for sale to customers
in the ordinary course of a trade or business, gains from the sale or exchange
of the equipment generally will be excludable from the scope of UBTI. However,
any gain on the disposition of equipment that is characterized as ordinary
income as a result of the recapture of cost recovery or depreciation deductions
will constitute UBTI for tax exempt entities.
If the gross income taken into account in computing UBTI exceeds
$1,000, the tax exempt entity is obligated to file a tax return for such year on
IRS Form 990-T. Neither CIGF5 nor the general partner expects to undertake the
preparation or filing of IRS Form 990-T for any tax exempt entity in connection
with an investment by such tax exempt entity in the units. Generally, IRS Form
990-T must be filed with the IRS by May 15 of the year following the year to
which it relates.
Penalties may be imposed by the IRS for failing to file this tax return
when required, and, if tax is due, additional penalties and interest may be
imposed if the tax is not paid.
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Please review "ERISA Considerations" and get advice from a qualified tax advisor
for potential realization of unrelated business taxable income (UBTI).
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Investment by Nonresident Alien Individuals and Foreign Corporations
Nonresident alien individuals and foreign corporations that become
limited partners will, like CIGF5, be deemed to be engaged in the conduct of a
trade business within the United States. Under the Code, nonresident aliens
individuals and foreign corporations, respectively, will be subject to United
States income tax on their allocable shares of any partnership taxable income.
Nonresident alien individuals and closely held foreign corporations
that acquire units will also be subject to the same limitations on the deduction
of partnership losses that apply to domestic limited partners. See "United
States Federal Income Tax Considerations -- Certain Principles of Partnership
Taxation, Limitations on Utilization of Partnership Losses."
Foreign corporations may also be subject to the branch profits tax.
Such tax is equal to 30% of a foreign corporation's earnings and profits
effectively connected with a United States business that are withdrawn (or
deemed withdrawn) from investment in the United States. This tax is payable in
addition to the regular United States corporate tax. In certain circumstances,
the imposition of the branch profits tax may be overridden by the
nondiscrimination provisions of applicable United States tax treaties or subject
to a lower rate of tax.
CIGF5 will be required to withhold from distributions to each foreign
limited partner an amount equal to a percentage of CIGF5's taxable income that
is allocable to the limited partner. The Code provides that the amount of tax to
be withheld is the "applicable percentage" of the taxable income of CIGF5
allocable to foreign limited partners. The applicable percentage is equal to the
highest appropriate tax rate, currently 35% for individual and corporate foreign
limited partners. See "United States Federal Income Tax Considerations --
Taxes." Such withheld amounts will be credited against the limited partners'
federal income tax liabilities for the taxable year in which withheld, and any
excess will be refundable. Foreign limited partners may be entitled to tax
credits for United States taxes in their countries of residence, and should
consult with their local and United States tax advisors with regard to the tax
consequences of an investment in units.
Alternative Minimum Tax
This discussion only addresses the alternative minimum tax as it
applies to non-corporate taxpayers (and to shareholders of an S corporation).
The first step in determining a taxpayer's alternative minimum tax liability, if
any, is calculation of the taxpayer's alternative minimum taxable income.
Alternative minimum taxable income is computed by adjusting the taxpayer's
taxable income in accordance with the rules set forth in Sections 55, 56 and 58
of the Code, and by increasing the resulting amount by the taxpayer's items of
tax preference described in Code Section 57. Alternative minimum taxable income
is then reduced by a specified exemption amount and by the taxpayer's
alternative minimum tax foreign tax credit for the taxable year. The exemption
amounts are $45,000 ($58,000 for 2003 and 2004) for married couples filing joint
returns, $33,750 ($40,250 for 2003 and 2004) for single individuals, and $22,500
($29,000 for 2003 and 2004) for married persons filing separate returns. The
exemption is phased out above certain alternative minimum taxable income levels:
$150,000 for married taxpayers filing joint returns, $112,500 for single
taxpayers, and $75,000 for married taxpayers filing separate returns.
The alternative minimum tax rate is 26% on the amount of the taxpayer's
alternative minimum taxable income, which does not exceed $175,000 (after taking
into account the exemption amount) and 28% on the amount exceeding $175,000. A
taxpayer is only required to pay an alternative minimum tax liability to the
extent that the amount of that liability exceeds the liability, which the
taxpayer would otherwise have for the regular federal income tax.
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One of the adjustments to taxable income established by Code Section 56
relates to the amount of cost recovery deduction claimed on personal property.
To derive a taxpayer's alternative minimum taxable income, the taxpayer's
taxable income must be adjusted by an amount equal to the difference between (i)
the amount of cost recovery deductions claimed by the taxpayer with respect to
personal property and (ii) the amount which would have been allowable over the
asset depreciation range class life of the property using the 150% declining
balance method, converting to straight-line when necessary to maximize the
remaining deductions.
The adjustment results in a basis in the depreciated property for
alternative minimum tax purposes, which may differ from its basis for regular
tax purposes. Thus, upon disposition of the property, the taxpayer will
generally recognize less gain (or a greater loss) for alternative minimum tax
purposes than for regular tax purposes. Items of tax preference include other
items which are not anticipated to be generated by CIGF5, but may apply in the
case of certain limited partners due to their particular facts and circumstances
unrelated to CIGF5.
Partnership Tax Returns and Tax Information
The general partner will file CIGF5's tax returns using the accrual
method of accounting and will adopt the calendar year as CIGF5's taxable year.
See "United States Federal Income Tax Considerations -- Certain Principles of
Partnership Taxation." CIGF5 will provide tax information to the limited
partners within 75 days after the close of each taxable year. If a limited
partner is required to file its tax return on or before March 15, it may be
necessary for the limited partner to obtain an extension to file if the tax
information referred to above is not distributed until the end of the 75-day
period.
Limited partners will be required to file their returns consistent with
the information provided on CIGF5's informational return or notify the IRS of
any inconsistency. A failure to notify the IRS of an inconsistent position
allows the IRS automatically to assess and collect the tax, if any, attributable
to the inconsistent treatment.
IRS Audit of the Partnership
The tax return filed by CIGF5 may be audited by the IRS. Adjustments,
if any, from such audit may result in an audit of the limited partners' own
returns. Any such audit of the limited partners' tax returns could result in
adjustments of non-partnership as well as partnership items of income, gain,
loss, deduction and tax preference.
Audit proceedings are conducted at the partnership level and, if the
IRS initiates an administrative proceeding or makes a "final adjustment" at the
partnership level, it must notify each partner of the beginning and completion
of the partnership administrative proceedings. Notice need not be given,
however, to a partner who has less than a one percent interest in a partnership
which has more than 100 partners, although a group of such partners having at
least a five percent interest in partnership profits in the aggregate may
designate a member of the group to receive notice.
Because CIGF5 will have more than 100 limited partners, the IRS will
not notify individual limited partners of an audit of CIGF5. The general partner
is the "tax matters partner" who will normally have the authority to negotiate
with the IRS with respect to any partnership tax matter; the general partner
will also have the right to initiate judicial proceedings.
A limited partner will thus be unable to control either an audit of
CIGF5 or any subsequent litigation. If, in such event, the general partner does
not go to court, any limited partner entitled to receive notice of the
proceedings may bring an action to challenge any proposed audit findings by the
IRS. A special statute of limitations exists in connection with the IRS's right
to audit matters at the partnership level.
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Tax Shelter Registrations
Tax shelters must be registered with the IRS. Under temporary IRS
regulations, an investment is a tax shelter if a potential investor could
reasonably infer from representation made in connection with the sale of the
investment that the aggregate amount of deductions and 350% of the credits
potentially allowable with respect to the investment will be greater than twice
the amount to be invested for any of the first five years. CIGF5 is a tax
shelter under the IRS definition because the term "amount of deductions" means
gross deductions, and gross income expected to be realized by a partnership is
not counted. A tax shelter is not required to be registered initially, however,
if it is a projected income investment. A projected income investment is any tax
shelter that is not expected to reduce the cumulative tax liability of any
investor in the first five years of the investment. Because there can be no
assurance that unexpected economic or business developments and/or the "bonus"
depreciation which recent legislation has made available for new equipment
placed in service before January 1, 2005 will not cause you to incur tax losses
from CIGF5, with the result that your cumulative tax liability during the first
five years might be reduced, we have registered CIGF5 as a "tax shelter" with
the IRS and CIGF5 has (or will have) a tax shelter registration number. See
"Federal Income Tax Consequences - Cost Recovery and Depreciation." However, if
CIGF5 is a projected income investment, you are not required to include its
registration number on your tax returns.
Even though CIGF5 may be a projected income investment, it will
nonetheless be required to maintain a list identifying each person who sold a
unit and including information required by the IRS regulations. This list must
be made available to the IRS upon its request.
If CIGF5 ceases to be a projected income investment, CIGF5 and its
limited partners will become subject to all remaining requirements applicable to
tax shelters. This means, among other things, that you will be required to
include the partnership's registration number on your tax returns. We are
required to notify you if CIGF5 no longer qualifies as a projected income
investment, and to inform you that you must begin to report CIGF5's registration
number on your tax return if you claim a deduction, credit, or other tax benefit
from CIGF5.
WE ARE REQUIRED BY IRS REGULATIONS TO INCLUDE THE FOLLOWING STATEMENT IN THIS
PROSPECTUS: "ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED
BY THE INTERNAL REVENUE SERVICE."
Interest and Penalties
With certain exceptions, a penalty will be assessed for each month or
fraction thereof (up to a maximum of five months) that a partnership return is
filed either late or incomplete. The monthly penalty is equal to $50 multiplied
by the number of partners in the partnership during the year for which the
return is due.
With certain exceptions, a penalty will be assessed if CIGF5 fails to
furnish to the limited partners a correct Schedule K-1 to the federal income tax
return for CIGF5 on or before the prescribed due date (including any extension
thereof). The penalty is equal to $50 multiplied by the number of partners not
furnished a correct Schedule K-1 on or before the prescribed due date (including
any extension thereof), with a maximum penalty of $100,000 per calendar year.
The Code establishes a penalty equal to 20% (40% in certain gross
valuation misstatements) on underpayment of tax attributable to substantial
valuation over-statements. This penalty applies only if (i) the value or
adjusted basis of any property as claimed on an income tax return exceeds 200%
of the correctly determined amount of its value or adjusted basis and (ii) the
underpayment of tax attributable to the substantial overvaluation exceeds $5,000
($10,000 in the case of a corporation other than an S corporation or personal
holding company). All or any part of the penalty may be waived by the IRS upon
the taxpayer's showing that a reasonable basis existed for the valuation claimed
on the return and that the claim was made in good faith. If CIGF5 were to
overstate the value of equipment, a limited partner might be liable for this
penalty.
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There is a 20% penalty on the amount of an underpayment of tax
attributable to a taxpayer's negligent disregard of applicable rules and
regulations or to the "substantial understatement" of a tax liability. A
substantial understatement is defined as an under-statement for the taxable year
that exceeds the greater of 10% of the required tax or $5,000 ($10,000 for
corporations other than personal holding companies and S corporations). The
penalty can be avoided either by disclosing the questionable item on the return
or by showing that there was "substantial authority" for taking the position on
the return. If a questionable item is related to a tax shelter, the
understatement penalty can only be avoided by showing that the taxpayer
reasonably believed that the treatment of the item was "more likely than not"
the proper treatment. Based upon the representations of the general partner,
counsel believes CIGF5 will not be characterized as a "tax shelter" for these
purposes.
It should also be noted that the general partner will not cause CIGF5
to claim a deduction unless the general partner believes, based upon the advice
of its accountants or counsel, that substantial authority exists to support the
deduction.
All interest payable with respect to a deficiency is compounded daily.
Interest rates are re-determined quarterly and are based on the federal
short-term interest rate (the average rate of interest on Treasury obligations
maturing in less than three years) for the first month of the preceding quarter
plus three percent.
Foreign Tax Considerations
As noted above, CIGF5 may acquire equipment which is operated outside
the United States. As a consequence, limited partners may be required to file
returns and pay taxes in foreign jurisdictions with respect to the foreign
source income of CIGF5. The income taxed by the foreign jurisdiction would in
such a case be calculated according to the tax laws of the foreign jurisdiction,
which may or may not correspond with applicable United States standards.
Limited partners who have foreign tax liabilities as a result of CIGF5
may be entitled to a foreign tax credit or to a deduction for foreign taxes paid
which can be utilized to reduce their United States tax liabilities or taxable
income, respectively. The calculation of the foreign tax credit is quite complex
and no assurance can be given that a credit will be available in the amount of
any foreign tax paid.
In particular, prospective limited partners should be aware that United
States law does not generally allow a foreign tax credit greater than the
taxpayer's United States federal income tax liability with respect to the
foreign source income of the taxpayer calculated separately for certain types of
income including shipping income and passive rental income. In the event CIGF5
earns these types of income, a limited partner must compute separately the
foreign tax credit for each type of income. The foreign source income of a
taxpayer is calculated according to United States rather than the foreign
jurisdiction's tax law. It is possible that a foreign country might impose a tax
in an amount greater than the allowable foreign credit under United States law.
In such a case, limited partners would be subject to a higher effective rate of
taxation than if no foreign tax had been imposed. To the extent that all income
taxes paid to a foreign country on a certain type of income exceed the amount of
foreign tax credit allowable in any year for such type of income, the excess
foreign tax credits generally may be carried back two years or forward five
years to offset United States income taxes on that certain type of foreign
source income in those tax years. If CIGF5 were to suffer an overall foreign
loss in one year and incur foreign taxes in a subsequent year, the amount of
foreign tax credit allowable in that subsequent taxable year could be reduced on
account of the prior foreign loss, regardless of whether the loss resulted in a
United States tax benefit to the limited partners. Each limited partner should
consult his own tax advisor regarding the applicability of foreign taxes to his
own situation.
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Prior to CIGF5 entering into an arrangement which contemplates the use
of equipment outside the United States, the general partner will consult with
its counsel and with special counsel located in the foreign jurisdiction
concerning the possibility of structuring the transaction in a manner which will
enable the limited partners to avoid being required to file income tax returns
in the foreign jurisdiction. The general partner has discretion to cause CIGF5
to enter into any such arrangement.
Partnership Anti-Abuse Rules
Treasury Regulations known as the "Anti-Abuse Rules" have recently been
promulgated which purportedly grant authority to the IRS to re-characterize
certain transactions to the extent that it is determined that the utilization of
partnerships is inconsistent with the intent of the federal partnership tax
rules. Under these Anti-Abuse Rules, the IRS may, under certain circumstances,
(i) recast transactions which attempt to use the partnership form of ownership,
or (ii) otherwise treat the partnership as an aggregation of its partners rather
than a distinct separate entity, as appropriate in order to carry out the
purposes of the partnership tax rules. The Anti-Abuse Rules also provide that
the authority to re-characterize transactions is limited to circumstances under
which the tax characterization by the taxpayer is not, based on all facts and
circumstances, clearly contemplated under the Code or the applicable Treasury
Regulations.
These Anti-Abuse Rules are intended to impact only a small number of
transactions, which improperly utilize partnership tax rules. It is therefore
not anticipated that CIGF5 and/or the transactions contemplated herein will be
affected by the promulgation or administration of these Anti-Abuse Rules. In
light of the broad language incorporated in these Regulations, however, no
assurance can be given that the IRS will not attempt to utilize the Anti-Abuse
Rules to alter, in whole or part, the tax consequences described herein with
regard to an investment in CIGF5.
Future Federal Income Tax Changes
Neither the general partner nor counsel can predict what further
legislation, if any, may be proposed by members of Congress, by the current
administration, or by any subsequent administration, nor can either predict
which proposals, if any, might ultimately be enacted. Neither the general
partner nor counsel can predict what changes may be made to existing Treasury
Regulations, or what revisions may occur in the IRS' ruling policy.
Consequently, no assurance can be given that the income tax consequences of an
investment in CIGF5 will continue to be as described herein. Any changes adopted
into law may have retroactive effect.
State Taxes
In addition to the federal income tax considerations described above,
prospective investors should consider applicable state and local taxes, which
may be imposed by various jurisdictions. A limited partner's distributive share
of the income or loss of CIGF5 generally will be required to be included in
determining the limited partner's reportable income for state or local tax
purposes in the jurisdiction in which the limited partner is a resident.
Moreover, Pennsylvania and a number of other states in which CIGF5 may do
business generally impose state income tax on a nonresident and foreign limited
partner's distributive share of partnership income which is derived from such
states. Pennsylvania and a number of other states have adopted a withholding tax
procedure in order to facilitate the collection of taxes from nonresident and
foreign limited partners on partnership income derived from such states. Any
amounts withheld would be deemed distributed to the nonresident or foreign
limited partner and would, therefore, reduce the amount of cash actually
received by the nonresident or foreign limited partner as a result of such
distribution. Nonresidents may be allowed a credit for the amount so withheld
against income tax imposed by their state of residency.
CIGF5 cannot, at present, estimate the percentage of its future income
that will be from states, which have adopted such withholding tax procedures and
it cannot, therefore, estimate the required withholding tax, if any.
In addition, while CIGF5 intends to apply to the applicable taxing
authority of such states for a waiver (or a partial waiver), if any, of such
withholding requirements, no assurance can be given that such waiver will
ultimately be granted.
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Please be advised that you may be subject to rules determining your state
income tax that are less favorable than federal income tax laws.
YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISORS WITH
SPECIFIC REFERENCE TO YOUR OWN TAX SITUATION.
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ERISA CONSIDERATIONS
The following is a summary of the material non-tax considerations
associated with an investment in CIGF5 by a qualified plan, Keogh Plan or an
IRA. This summary is based on provisions of ERISA and the Code, as amended
through the date of this prospectus, and relevant regulations and opinions
issued by the Department of Labor. No assurance can be given that legislative or
administrative changes or court decisions may not be forthcoming which would
significantly modify the statements expressed herein. Any changes may or may not
apply to transactions entered into prior to the date of their enactment.
Fiduciaries Under ERISA
A fiduciary of a pension, profit sharing or other employee benefit plan
subject to Title I of ERISA should consider whether an investment in the units
is consistent with his fiduciary responsibilities under ERISA. In particular,
the fiduciary requirements under Part 4 of Title I of ERISA require the
discharge of duties solely in the interest of, and for the exclusive purpose of
providing benefits to, the ERISA Plan's participants and beneficiaries. A
fiduciary is required to perform the fiduciary's duties with the skill,
prudence, and diligence of a prudent man acting in like capacity, to diversify
investments so as to minimize the risk of large losses unless it is clearly
prudent not to do so, and to act in accordance with the ERISA Plan's governing
documents, provided that the documents are consistent with ERISA.
Fiduciaries with respect to an ERISA Plan include any persons who have
any power of control, management, or disposition over the funds or other
property of the ERISA Plan. An investment professional who knows or ought to
know that his or her advice will serve as one of the primary bases for the ERISA
Plan's investment decisions may be a fiduciary of the ERISA Plan, as may any
other person with special knowledge or influence with respect to a ERISA Plan's
investment or administrative activities.
While the beneficial "owner" or "account holder" of an IRA is treated
as a fiduciary of the IRA under the Code, tax exempt entities generally are not
subject to ERISA's fiduciary duty rules. Also, if a participant in an ERISA Plan
exercises independent control over the investment of the participant's
individual account in the ERISA Plan (a "self-directed investment" arrangement),
the participant is not deemed to be a fiduciary. Finally, certain qualified
plans of sole proprietors or partnerships in which at all times (before and
after the investment) the only participant(s) is/are the sole proprietor and his
or her spouse or the partners and their spouses, and certain qualified plans of
corporations in which at all times (before and after the investment) the only
participant(s) is/are an individual or/and his or her spouse who own(s) 100% of
the corporation's stock, are generally not subject to ERISA's fiduciary
standards, although they are subject to the Code's prohibited transaction rules
explained below.
A person subject to ERISA's fiduciary rules with respect to an ERISA
Plan should consider those rules in the context of the particular circumstances
of the ERISA Plan before authorizing an investment of a portion of the ERISA
Plan's assets in units.
Fiduciaries of an ERISA Plan that permits a participant to exercise
independent control over the investments of his individual account in accordance
with Section 404(c) of ERISA (a "self-directed investment" arrangement) will not
be liable for any investment loss or for any breach of the prudence or
diversification obligations that results from the participant's exercise of such
control, and the participant is not deemed to be a fiduciary subject to the
general ERISA fiduciary obligations described above merely by virtue of his
exercise of such control.
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The fiduciary of an IRA or a qualified retirement plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees should consider that such an IRA or non-ERISA
Plan may only make investments that are authorized by the appropriate governing
documents and under applicable state law.
Prohibited Transactions Under ERISA and the Code
Any fiduciary of an ERISA Plan or a person making an investment
decision for a non-ERISA Plan or an IRA should consider the prohibited
transactions provisions of Section 4975 of the Code and Section 406 of ERISA
when making their investment decisions. These rules prohibit such plans from
engaging in certain transactions involving "plan assets" with parties that are
"disqualified persons" described in Section 4975(e)(2) of the Code or "parties
in interest" described in Section 3(14) of ERISA, each of which are referred to
as "disqualified persons."
"Prohibited transactions" include, but are not limited to, any direct
or indirect transfer or use of a Benefit Plan's or IRA's assets to or for the
benefit of a disqualified person, any act by a fiduciary that involves the use
of a Benefit Plan's assets in the fiduciary's individual interest or for the
fiduciary's own account, and any receipt by a fiduciary of consideration for his
or her own personal account from any party dealing with a Benefit Plan. Under
ERISA, a disqualified person that engaged in a prohibited transaction will be
made to disgorge any profits made in connection with the transaction and will be
required to compensate any ERISA Plan that was a party to the prohibited
transaction for any losses sustained by the ERISA Plan. Section 4975 of the Code
imposes excise taxes on a disqualified person that engages in a prohibited
transaction with an ERISA Plan or a non-ERISA Plan or an IRA subject to Section
4975 of the Code. If the disqualified person who engages in the transaction is
the individual on behalf of whom the IRA is maintained (or his beneficiary), the
IRA may lose its tax exempt status and the assets will be deemed to be
distributed to such individual in a taxable transaction.
In order to avoid the occurrence of a prohibited transaction under
Section 4975 of the Code and/or Section 406 of ERISA, units may not be purchased
by an ERISA Plan, an IRA, or a non-ERISA plan subject to Section 4975 of the
Code, as to which the general partner or any of its affiliates have investment
discretion with respect to the assets used to purchase the units, or with
respect to which they have regularly given individualized investment advice that
serves as the primary basis for the investment decisions made with respect to
such assets. Additionally, fiduciaries of, and other disqualified persons with
respect to, an ERISA Plan, an IRA, and a non-ERISA Plan subject to Section 4975
of the Code, should be alert to the potential for prohibited transactions to
occur in the context of a particular plan's or IRA's decision to purchase units.
Neither the general partner nor CIGF5 shall have any liability or
responsibility to any benefit plan that is a limited partner or any other
limited partner, including any limited partner that is a tax exempt entity, for
any tax, penalty or other sanction or costs or damages arising as a result of
there being a prohibited transaction or as a result of partnership assets being
deemed plan assets of the limited partner under the Code or ERISA or other
applicable law.
"Plan Assets"
If CIGF5's assets were determined under ERISA or the Code to be "plan
assets" of a limited partner which is a Benefit Plan:
o the prudence standards and other provisions of Part 4 of Title I of
ERISA would be applicable to any transactions involving CIGF5's
assets;
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o persons who exercise any authority or control over CIGF5's assets,
or who provide investment advice to CIGF5, would (for purposes of
the fiduciary responsibility provisions of ERISA) be fiduciaries of
each ERISA Plan that acquires the unit, and transactions involving
CIGF5's assets undertaken at their direction or pursuant to their
advice might violate their fiduciary responsibilities under ERISA,
especially with regard to conflicts of interest,
o a fiduciary exercising his investment discretion over the assets of
an ERISA Plan to cause it to acquire or hold the unit could be
liable under Part 4 of Title I of ERISA for transactions entered
into by CIGF5 that do not conform to ERISA standards of prudence and
fiduciary responsibility, and
o certain transactions that CIGF5 might enter into in the ordinary
course of its business and operations might constitute "prohibited
transactions" under ERISA and the Code.
The Benefit Plan's fiduciaries might, under certain circumstances, be
subject to liability for actions taken by the general partner or its affiliates,
and certain of the transactions described in this prospectus in which CIGF5
might engage, including certain transactions with affiliates, may constitute
prohibited transactions under the Code and ERISA with respect to such Benefit
Plan, even if their acquisition of units did not originally constitute a
prohibited transaction.
Under the Department of Labor regulations governing the determination
of what constitutes the assets of a Benefit Plan in the context of investment
securities such as units, an undivided interest in the underlying assets of a
collective investment entity such as CIGF5 will be treated as "plan assets" of
Benefit Plan investors if (i) the securities are not publicly offered, (ii) 25%
or more by value of any class of equity securities of the entity is owned by
Benefit Plans, (iii) the interests of the Benefit Plan investors are "equity
interests," and (iv) the entity is not an "operating company." In order for
securities to be treated as "publicly offered," they have to be either (a) part
of a class of securities registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 or (b) sold as part of an offering registered
under the Securities Act of 1933, and must also meet certain other requirements,
including a requirement that they be "freely transferable."
Units will be sold as part of an offering registered under the
Securities Act of 1933. However, in counsel's view, CIGF5 is not an "operating
company" and the restrictions on transferability of units (see "Transferability
of Units") prevent the units from being "freely transferable" for purposes of
the DOL's regulations. Consequently, in order to ensure that the assets of CIGF5
will not constitute "plan assets" of limited partners which are Benefit Plans,
the general partner will take such steps as are necessary to ensure that
ownership of units by Benefit Plan investors is at all times less than 25% of
the total value of outstanding units. In calculating this limit, the general
partner shall, as provided in the DOL's regulations, disregard the value of any
units held by a person (other than a Benefit Plan) who has discretionary
authority or control with respect to the assets of CIGF5, or any person who
provides investment advice for a fee (direct or indirect) with respect to the
assets of CIGF5, or any affiliate of any such a person. See "Investor
Suitability Standards." However, neither the general partner nor CIGF5 shall
have any liability or responsibility to any tax exempt entity limited partner or
any other limited partner for any tax, penalty or other sanction or costs or
damages arising as a result of partnership assets being deemed plan assets of a
tax exempt entity limited partner under the Code or ERISA or other applicable
law.
Other ERISA Considerations
In addition to the above considerations in connection with the "plan
assets" issue, a decision to cause a Benefit Plan to acquire units should
involve considerations, among other factors, of whether:
o the investment is in accordance with the documents and instruments
governing the Benefit Plan,
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o the purchase is prudent in light of the diversification of assets
requirement and the potential difficulties that may exist in
liquidating units,
o the investment will provide sufficient cash distributions in light
of the Benefit Plan's required benefit payments or other
distributions,
o the evaluation of the investment has properly taken into account the
potential costs of determining and paying any amounts of federal
income tax that may be owed on UBTI derived from CIGF5,
o in the case of an ERISA Plan, the investment, unless the investment
is made in accordance with a self-directed individual arrangement
under Section 404(c) of ERISA and regulations promulgated there
under, is made solely in the interests of the ERISA Plan's
participants, and
o the fair market value of units will be sufficiently ascertainable,
and with sufficient frequency, to enable the Benefit Plan to value
its assets in accordance with the rules and policies applicable to
the Benefit Plan.
Prospective ERISA Plan investors should note that, with respect to the
diversification of assets requirement, the legislative history of ERISA and a
DOL advisory opinion indicate that the determination of whether the assets of a
ERISA Plan that has invested in an entity such as CIGF5 are sufficiently
diversified may be made by looking through the ERISA Plan's interest in the
entity to the underlying portfolio of assets owned by the entity.
MANAGEMENT'S DISCUSSION OF
CERTAIN FINANCIAL DATA
We have no operating history. The following discussion includes forward
looking statements. Forward looking statements, which are based on certain
assumptions, describe our future plans, strategies and expectations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievement to be materially
different from the results of operations or plan expressed or implied by these
forward looking statements. Accordingly, this information should not be regarded
as representations that the results or condition described in these statements
or objectives and plans will be achieved.
We intend to acquire various types of computer peripheral and similar
equipment, and to lease such equipment predominantly under operating leases.
CIGF5 may also lease equipment under full payment net leases or enter into
conditional sales contracts with respect to equipment. CIGF5 anticipates that it
will use a substantial portion of the proceeds of this offering, excess cash
flow, debt financing and net disposition proceeds received by CIGF5 prior to its
liquidation phase to purchase computer peripheral or other similar capital
equipment manufactured by, or compatible with, equipment manufactured by IBM.
See "Investment Objectives and Policies -- Types of Equipment," "Description of
Leases" and "Risk Factors - CIGF5's ability to lease, re-lease or sell its
equipment may be affected by actions taken or not taken by, or the business or
prospects of, IBM," "Certain of our investments may be financed in part with
non-recourse debt borrowed by CIGF5," " The business of leasing and investing in
equipment is subject to many risks..." and "We have not yet identified any of
our investments in equipment."
CIGF5's operating revenues will initially be generated primarily from
leasing, and otherwise entering into contracts for the use of equipment.
Operating revenues will be utilized to pay partnership expenses and provide cash
distributions to limited partners. See "Investment Objectives and Policies --
Description of Leases." The general partner anticipates that CIGF5 will commence
liquidation of all of its assets beginning in the ninth year of program
operations, subject to the general partner's discretion to extend the
liquidation process if in the general partner's discretion such extension will
enable CIGF5 to dispose of its assets on more favorable terms. In no event will
CIGF5 continue after December 31, 2015. See "Investment Objectives and Policies
- -- Liquidation Policies."
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Because CIGF5's leases will be on a "triple-net" (or equivalent) basis,
it is anticipated that no permanent reserve for maintenance and repairs will be
established from the offering proceeds. However, the general partner is
authorized to establish reserves in the future if and to the extent it deems
necessary for maintenance, repairs and working capital. In addition, the general
partner and Com Cap Corp. have agreed that the general partner or Com Cap Corp.
will lend or contribute to CIGF5 an amount equal to 1.01% of net offering
proceeds, if needed, to meet CIGF5's expenses. If the general partner or any of
its affiliates makes such a short-term loan to CIGF5, the general partner or
affiliate may not charge interest at a rate greater than the interest rate
charged by unrelated lenders on comparable loans for the same purpose in the
same locality. In no event will CIGF5 be required to pay interest on any such
loan at an annual rate greater than three percent over the "prime rate" from
time to time announced by Chase Bank, Philadelphia, Pennsylvania. All payments
of principal and interest on any financing provided by the general partner or
any of its affiliates shall be due and payable by CIGF5 within 12 months after
the date of the loan. See "Compensation of General Partner and Affiliates." If
available cash flow or net disposition proceeds are insufficient to cover
CIGF5's expenses and liabilities, CIGF5 will obtain additional funds by
disposing of or refinancing equipment or by borrowing within its permissible
limits.
PARTNERSHIP AGREEMENT SUMMARY
The rights and obligations of the partners in CIGF5 will be governed by
the partnership agreement, which is attached in its entirety as Appendix II
hereto. The following statements, and other statements in this prospectus
concerning the partnership agreement and related matters, are merely an outline,
in no way modify or amend the partnership agreement and are qualified in all
respects and in each case by the language of the partnership agreement. All
material aspects of the partnership agreement are included in this summary.
The Units
A maximum of 1,000,000 units are authorized for issuance and sale in
the offering. Subscribers who are accepted as limited partners by the general
partner on or before the initial closing will be admitted to CIGF5 as limited
partners on the day of the initial closing. Thereafter, subscribers who are
accepted as limited partners by the general partner will be admitted into CIGF5
as limited partners on or before the last day of the calendar month following
the date such acceptance occurs. Transferees of units will be recognized as
substituted limited partners on or before the first day of the calendar month
following the calendar month in which the general partner receives a completed
transfer application and approves the transferee as a substituted limited
partner. CIGF5's records shall be amended to reflect the substitution of limited
partners at least once in each calendar quarter.
Non-assessability of Units
The units are non-assessable. When a unit has been paid for in full,
the holder of the unit has no obligation to make additional contributions to
CIGF5's capital. However, in accordance with the Pennsylvania Revised Limited
Partnership Act, as amended, a limited partner may be required to return to the
partnership amounts previously distributed to such limited partner for a two
year period after the distribution to the extent that the distribution includes
a return of the partner's contribution to the partnership, but only if the
distribution is made in violation of the partnership agreement or the provisions
of the Pennsylvania Revised Uniform Limited Partnership Act. Also, a limited
partner who participates in the control of the business of the partnership may
be liable to persons who transact business with the partnership reasonably
believing, based upon the conduct of the limited partner, that the limited
partner is a general partner of the partnership.
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Liability of Limited Partners
Limited partners are not personally liable for the obligations of
CIGF5, but their investments are subject to the risks of CIGF5's business and
the claims of its creditors. A limited partner, under certain circumstances, may
be liable to return any distributions from CIGF5 to the extent that, after
giving effect to the distribution, all liabilities of CIGF5 (other than
non-recourse liabilities and liabilities to partners on account of their
interests in CIGF5) exceed the fair value of CIGF5's assets, including assets
serving as security for non-recourse liabilities.
Allocations and Distributions
The provisions of the partnership agreement governing the allocation of
tax items and the apportionment of cash distributions are summarized under the
caption "Allocations and Distributions."
Responsibilities of the General Partner
The general partner has the exclusive responsibility for the management
and control of all aspects of the business of CIGF5. In the course of its
management, the general partner may, in its absolute discretion, cause CIGF5 to
purchase, own, lease, sell and/or make future commitments to purchase, lease
and/or sell the equipment and interests therein when and upon such terms as it
determines to be in the best interests of CIGF5 as it deems necessary for the
efficient operation of CIGF5, except that limited partners holding more than 50%
of the outstanding units held by all limited partners, referred to as a majority
in interest, must approve the sale of substantially all of the assets of CIGF5,
except when such sales occur in the orderly liquidation and winding up of the
business of CIGF5.
A majority in interest of the limited partners may, at any time, remove
the general partner. Upon the removal of the general partner, CIGF5 will be
dissolved and liquidated unless, within 60 days of such removal, a majority in
interest of the limited partners elect a successor general partner to continue
CIGF5.
Records and Reports
The general partner will keep at CIGF5's principal place of business
adequate books of account and records of CIGF5. You will have the right, upon
reasonable notice and within normal working hours, and at your expense, to
inspect and copy true and full information regarding the state of the business
and financial condition of CIGF5, federal, state and local tax returns of CIGF5,
a list of the partners and other information regarding the affairs of CIGF5 as
you may reasonably request. You will also receive an annual account statement
setting forth a current estimated value of your investment in CIGF5. See
"Reports to Limited Partners" for a description of the reports and financial
statements, which the general partner will provide to you during the term
of CIGF5.
Meetings of the Partners
The general partner may call a meeting of the limited partners at any
time, or call for a vote, without a meeting, of the limited partners on matters
on which they are entitled to vote. The general partner is required to call such
a meeting, or for such a vote, on the written request of limited partners
holding 10% or more of the total units held by all limited partners. Any vote of
a limited partner may be made in person or by proxy.
We are not required to hold annual or other regular meetings of the
partners.
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Voting Rights of Limited Partners
Your voting rights are set forth in the partnership agreement. By a
vote of limited partners holding more than one-half of the outstanding units,
the limited partners may vote to:
o approve or disapprove a sale of all or substantially all of the
assets of CIGF5;
o dissolve CIGF5;
o remove or approve the withdrawal of the general partner;
o prior to the removal, withdrawal or dissolution of the general
partner, elect a successor general partner; and
o amend the partnership agreement except that without the consent of
the partner adversely affected, no amendment may be made which:
o converts a limited partner into a general partner;
o modifies the limited liability of a limited partner;
o alters the interest of the general partner or limited partner in
net profits, net losses or distributions from CIGF5 or of the
general partner in its compensation; or
o affects the status of CIGF5 as a partnership for federal income
tax purposes.
Also, without prior consent of limited partners owning at least 66 2/3%
of the units, CIGF5 may not amend the provisions in the partnership agreement
relating to allocations, distributions or fees to the general partner.
With respect to any units owned by the general partner or its
affiliates, the general partner and its affiliates may not vote or consent on
matters submitted to the limited partners regarding removal of the general
partner or any transaction between CIGF5 and the general partner or its
affiliates. In determining the required percentage in interest of units
necessary to approve a matter on which the general partner and its affiliates
may not vote or consent, any units owned by the general partner or its
affiliates shall not be included.
Roll-Ups and Conversions
We will not enter into any roll-up without the approval of the general
partners and the holders of at least 66-2/3% of all outstanding units. A roll-up
is defined in the partnership agreement to mean any transaction involving the
acquisition, merger, conversion, or consolidation, either directly or
indirectly, of CIGF5 and the issuance of securities of a roll-up entity. A
roll-up does not include: a transaction involving securities if the securities
have been listed for at least twelve months on a national securities exchange,
including the NASDAQ Stock Market or a transaction involving the conversion to
corporate, trust or association form of only CIGF5 if, as a consequence of the
transaction, there will be no significant adverse change in the limited
partners' voting rights, the term of existence of CIGF5, compensation of the
general partner or its affiliates, or CIGF5's investment objectives. Limited
partners who do not consent to an approved roll-up shall be given the option of
(i) accepting the securities of the roll-up entity offered in the proposed
roll-up; or (ii) receiving cash in an amount equal to the non-consenting limited
partner's pro rata share of the appraised value of the net assets of CIGF5.
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In the event a roll-up is proposed, an appraisal of the net assets of
CIGF5 shall be performed by a competent independent expert engaged for the
benefit of CIGF5 and the limited partners. Such appraisal shall be made on the
basis of an orderly liquidation of the assets of CIGF5 over a 12-month period as
of a date immediately prior to the announcement of the proposed roll-up. If the
appraisal will be included in a prospectus used to offer the securities of a
roll-up entity, the appraisal shall be filed with the Securities and Exchange
Commission and the states as an exhibit to the registration statement for the
offering. CIGF5 shall not reimburse the sponsor of a proposed roll-up for the
costs of an unsuccessful proxy contest in the event the roll-up is not approved
by the limited partners.
By the vote of a majority in interest of the limited partners CIGF5 is
permitted to engage in a conversion of CIGF5 into another form of business
entity which does not result in a significant adverse change in:
o the voting rights of the limited partners,
o the termination date of CIGF5 (currently, December 31, 2015,
unless terminated earlier in accordance with the partnership
agreement),
o the compensation payable to the general partner or its
affiliates, or
o the ability to meet CIGF5's investment objectives without
materially impairing the rights of the limited partners.
The general partner will make the determination as to whether or not
any such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of CIGF5; the tax consequences (from the standpoint of
the limited partners) of the conversion and of an investment in a limited
partnership as compared to an investment in the type of business entity into
which CIGF5 would be converted; and the performance of the equipment industry in
general, and of the computer peripherals segment of the industry in particular.
In general, the general partner would consider any material limitation on the
voting rights of the limited partners or any substantial increase in the
compensation payable to the general partner or its affiliates to be a
significant adverse change in the listed provisions.
Power of Attorney
Pursuant to the terms of the partnership agreement, each purchaser of a
unit and each transferee of a unit appoints the general partner, acting alone,
as the purchaser's or transferee's attorney-in-fact to make, execute, file,
and/or record:
o documents relating to CIGF5 and its business operations requested
by or appropriate under the laws of any appropriate jurisdiction;
o instruments with respect to any amendment;
o instruments or papers required to continue the business of CIGF5
pursuant to the partnership agreement;
o instruments relating to the admission of any partner to CIGF5;
o a master list in accordance with Section 6112 of the Code (or any
successor provision), relating to CIGF5's tax shelter
registration (see "Income Tax Considerations - Partnership Tax
Returns and Tax Information"); and
o all other instruments deemed necessary or advisable to carry out
the provisions of the partnership agreement.
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The power of attorney is irrevocable, will survive the death,
incompetency, dissolution, disability, incapacity, bankruptcy, or termination of
the granting purchaser or transferee, and will extend to such person's heirs,
successors, and assigns.
The general partner will be designated as the "Tax Matters Partner" who
shall have authority to make certain elections on behalf of CIGF5 and the
limited partners, including extending the statute of limitations for assessment
of tax deficiencies against the limited partners with respect to partnership
items, and to enter into a settlement agreement with the IRS. See "United States
Federal Income Tax Considerations -- Audit of the Partnership."
Partnership Term
The term of CIGF5 will expire on December 31, 2015, though CIGF5 may be
terminated and dissolved earlier after any of the following events:
o The vote or written consent of a majority in interest of the
limited partners;
o The dissolution of CIGF5 by judicial decree;
o The expiration of 60 days following the removal, withdrawal,
involuntary dissolution, or bankruptcy (or, in the case of an
individual, the death or appointment of a conservator for the
person or any of the assets) of the last remaining general
partner of CIGF5, (or a majority in interest of the limited
partners if the terminating event is the removal, bankruptcy, or
involuntary dissolution of the last remaining general partner)
vote to continue CIGF5 and a successor general partner is
elected;
o The determination by the general partner that it is necessary to
commence the liquidation of the equipment in order for the
liquidation of all the equipment to be completed in an orderly
and business like fashion prior to December 31, 2015; or
o The sale of disposition of all CIGF5's equipment.
PLAN OF DISTRIBUTION
General
The units are offered through Commonwealth Capital Securities Corp.,
Inc. as dealer manager. The dealer manager may offer the units through other
broker-dealers who are members of the National Association of Securities
Dealers, Inc. The units are being offered on a "best efforts" basis, which means
that the dealer manager and the other broker-dealers are not obligated to
purchase any units and are only required to use their best efforts to sell units
to investors. The offering of the units is intended to be in compliance with
Rule 2810 of the Rules of Conduct of the National Association of Securities
Dealers, Inc. The maximum underwriting compensation payable under this offering
will not exceed 10% of the gross offering proceeds, plus an additional 0.5% for
any additional bona fide due diligence expenses of the dealer manager or any
selected dealer.
CIGF5 will pay to the dealer manager an aggregate amount of up to eight
percent of capital contributions as underwriting commissions after and only if
the required $1,150,000 minimum subscription amount is sold. The dealer manager
will pay other participating broker-dealers out of underwriting commissions, a
selling commission of up to eight percent of the capital contributions from
units sold by such Participating Brokers. In addition, all or a portion of the
dealer manager fee may be reallowed to certain Participating Brokers for
expenses incurred by them in selling the units, including reimbursement for bona
fide expenses incurred in connection with due diligence activities. The amount
of the selling commissions will be determined based upon the quantity of units
sold to a single investor. The selling commission and purchase price for all
units purchased by an investor will be reduced in accordance with the following
schedule:
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Individual Purchase Price Selling
Transaction Size Per Unit Commission
--------------------------- -------------- -----------
$ 1,000 to $250,000 $20.00 8%
$250,020 to $350,000 $19.80 7%
$350,020 to $500,000 $19.60 6%
$500,020 to $750,000 $19.40 6%
$750,020 to $1,000,000 $19.20 5%
$1,000,020 and over $19.00 4%
The underwriting agreement, under which the dealer manager will offer
the units, which is terminable without penalty by any party on 60 days' notice,
contains cross-indemnity clauses with respect to certain liabilities between the
general partner and the dealer manager, including liabilities under the
Securities Act and liabilities arising out of misleading or untrue statements
attributable to either party in this prospectus or other materials sent to
investors in connection with this offering, and breaches of the underwriting
agreement. The dealer manager and Participating Brokers participating in the
offering may be deemed to be "underwriters" as that term is defined in the
Securities Act.
Offering of Units
The offering of units will commence on the effective date of the
registration statement of which this prospectus is a part. Provided the general
partner does not terminate the offering of units earlier, the offering may
continue until the full 1,000,000 units are sold, or until October 15, 2005. See
"Plan of Distribution -- Escrow Arrangements and Fundings."
The general partner and its affiliates will not be prohibited from
purchasing units, although it is not their present intention to make such
purchases. Any units purchased by the general partner or its affiliates would be
purchased for their own account and for investment and not for resale. No units
purchased by the general partner and its affiliates may be counted for purposes
of obtaining the minimum subscription amount. If the general partner or its
affiliates purchase any units, the voting rights of the general partner with
respect to the units will be as described in the last paragraph of "Summary of
the Partnership Agreement -- Voting Rights of Limited Partners".
Any purchase of units in connection with this offering must be
accompanied by tender of the sum of $20 per unit (subject to the quantity
discounts referred to above), which is the full purchase price of a unit;
provided, however, that the dealer manager or Participating Brokers may waive
the selling commission with respect to the purchase of units by employees of the
dealer manager, Participating Brokers, the general partner and its affiliates,
so long as those employees are purchasing units for their own accounts. If such
fees are so waived, such employees will tender no less than $18.40, for the
purchase of each unit.
- --------------------------------------------------------------------------------
Your subscription must be accepted by the general partner. Once accepted, this
will constitute the investor's agreement to the terms of the agreement and the
authority of the general partner.
- --------------------------------------------------------------------------------
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Escrow Arrangements and Funding
All funds received by the general partner, the dealer manager or the
Participating Broker will be held in the escrow account at J.P.Morgan Trust
Company, until funds equal to the minimum subscription amount have been
received. While held in escrow, subscriptions will be invested in United States
short-term government securities or interest bearing bank accounts, a J.P.Morgan
money market account, or a similar account, for the benefit of the investors.
CIGF5 will not be funded until the minimum subscription amount has been
received. Once the minimum subscription amount has been deposited in the escrow
account, the subscriptions will be released to CIGF5. If the minimum
subscription amount is not reached, the funds will be promptly returned to
investors.
Any interest earned on the subscriptions while in escrow will be
distributed, net of any tax withholding required by law, directly to the
investors promptly following the funding, allocated in accordance with the
amount of subscriptions held for each investor and the length of time such
subscriptions were held.
The offering may be terminated, in the general partner's discretion, at
any time after the minimum subscription amount has been received and accepted by
the general partner on behalf of CIGF5. The general partner also has the
discretion to terminate the offering prior to receiving the minimum subscription
amount. In such event, CIGF5 would be dissolved and subscriptions held in
escrow, together with any interest actually earned thereon net of any tax
withholding required by law would be returned to the subscribers. It is
anticipated that the offering of units will terminate no later than October15,
2005. Subscriptions will be released from the escrow account and returned to the
subscribers together with any interest actually earned thereon, net of any tax
withholding required by law, in the event the minimum subscription amount has
not been received by October 15, 2005.
Subscribers will be admitted to CIGF5 and receive units at one or more
closings. Following receipt of the minimum subscription amount and the initial
closing, limited partners will be admitted not later than 15 days after the
release from the escrow account to CIGF5 of the subscriber's funds. Additional
closings will be held from time to time during the offering period as
subscriptions are accepted by the general partner, but no less often than
monthly. Subsequent subscriptions will be accepted or rejected by the general
partner within 30 days of their receipt. Funds received from rejected
subscriptions will be returned to the subscribers immediately upon rejection of
their subscription. The final closing will be held shortly after the termination
of the offering period or, if earlier, upon the sale of all the units. After the
initial closing, limited partners will be admitted to CIGF5 no later than the
last day of the calendar month following the date their Subscriptions are
accepted by the general partner. Each subscriber to CIGF5 will be paid his share
of interest earned on subscription amounts following the transfer of his
subscription to CIGF5, net of any tax withholding required by law. These
interest payments will be paid by CIGF5.
Subscription for Units
If you satisfy the qualifications described under "Investor Suitability
Standards" and desire to purchase units, you must:
(a) Review the subscription agreement attached as Appendix I to this
prospectus to insure that you are aware of the representations and warranties
you will be deemed to have made by subscribing for units; and
(b) Deliver to the dealer manager a check made payable to "J.P.Morgan
Trust Company, Escrow Agent FBO Commonwealth Income & Growth Fund V," in the
amount of $20.00, or such other amount as set forth in the table above, for each
unit that you are seeking to purchase. Investments must be made in $20.00
increments.
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The dealer manager will not complete a sale of units until at least
five business days after the date you receive a final prospectus and shall send
you a confirmation of your purchase.
Prospective investors that are not natural persons may be required to
deliver evidence of their authority to subscribe for units, or opinions of
counsel as to their authority to subscribe for units and the binding effect of
their subscriptions. Investors who submit subscriptions will not be permitted to
terminate or withdraw their subscriptions without the prior consent of the
general partner. No sales will be made to discretionary accounts without the
prior specific written approval of the transaction by the customer.
The general partner has the right to reject your subscription for any
reason whatsoever, including your failure to satisfy the suitability standards
described under "Investor Suitability Standards."
Subscribers' Representations and Warranties
If you decide to purchase units, you must execute or authorize the
execution of a subscription agreement to be submitted to the general partner. In
the States of Florida, Iowa, Maine, Michigan, Minnesota, Missouri, Nebraska,
North Carolina, Oregon and Tennessee and Texas, you are required to personally
sign the subscription agreement. You will make certain representations and
warranties to the general partner in your subscription agreement or by paying
for your units, including that you:
o have received this prospectus, including the form of partnership
agreement attached hereto as Appendix II;
o meet the applicable requirements as to investor suitability;
o accept and adopt the provisions of the partnership agreement; and
o authorize the general partner, as your attorney-in-fact, to
execute the partnership agreement and such other documents as may
be required to carry out the business of CIGF5.
You are also instructed that you should not rely upon any information
not specifically set forth in this prospectus or any supplements thereto in
making a decision to invest in CIGF5 and the general partner, the dealer manager
and CIGF5 accept no responsibility for information provided to an investor that
is not clearly marked as being prepared and authorized by them for use with the
public. Also, an investment in CIGF5 involves certain risks including the
matters set forth under the captions "Risk Factors," "Conflicts of Interest,"
"Management" and "Income Tax Considerations" in this prospectus.
Special Limit on Ownership of Units by Benefit Plans
To avoid classification of a pro rata portion of CIGF5's underlying
assets as "plan assets" of investors which are benefit plans, CIGF5 intends to
restrict the ownership of units by benefit plans to less than 25% of the total
value of outstanding units at all times. See "ERISA Considerations -- Plan
Assets." Benefits Plans include qualified plans, tax exempt entities and certain
other entities included in the definition of benefit plans in this prospectus.
-73-
Sales Material
Sales material may be used in connection with the offering only when
accompanied or preceded by the delivery of this prospectus. Only sales material
which indicates that it is distributed by the general partner may be distributed
to prospective investors. Material regarding an investment in CIGF5 may include
a question and answer sales booklet, a speech for public seminars, an invitation
to attend public seminars, slide and video presentations, prospecting letters,
mailing cards and tombstone advertisements; all of which would provide
information regarding the general partner and CIGF5. In certain jurisdictions,
such sales material will not be available. Use of any materials will be
conditioned on the provision of such materials to the SEC and the filing with,
and if required, clearance by, other appropriate state regulatory authorities.
Such clearance does not mean, however, that the agency allowing use of the sales
literature has passed on the merits of this offering or the accuracy of the
material contained in such literature. Other than as described herein, CIGF5 has
not authorized the use of sales material.
Although the information contained in such sales material does not
conflict with any of the information contained in this prospectus, such material
does not purport to be complete and should not be considered as part of this
prospectus or the registration statement of which this prospectus is a part, or
as incorporated in this prospectus or the registration statement by reference,
or as forming the basis of the offering. The offering is made only by this
prospectus.
REPORTS TO LIMITED PARTNERS
The general partner will deliver to each limited partner, within 120
days after the end of each year, a balance sheet of CIGF5 dated as of December
31 of such year, together with statements of income, partners' equity, and the
cash flow position of CIGF5 for such year, prepared in accordance with generally
accepted accounting principles and accompanied by an auditor's report from
CIGF5's independent certified public accountants. A reconciliation of the
financial statements with respect to information furnished to you for income tax
purposes will be included in the Notes to Financial Statements of our audited
financial statements included in our annual report on Form 10-K.
The general partner will within such period also furnish (i) a report
of the activities of CIGF5 for the year, which will include for each item of
equipment acquired by CIGF5 which individually represents at least 10% of the
total investment in equipment, (ii) certain information relevant to the value or
utilization of the equipment, (iii) a report on distributions to the limited
partners during the year and their source, (iv) if any equipment is sold during
that year a report of the sale price, purchase price and lease revenues from
such equipment, and (v) a report on any costs incurred by the general partner
and its affiliates in performing administrative services which are reimbursed by
CIGF5 during the year.
Within 60 days after the end of each calendar quarter, the general
partner will also furnish a report of all services rendered and all fees
received by the general partners and its affiliates from CIGF5, an unaudited
balance sheet, a statement of income, a statement of changes in financial
position and a report on the activities of CIGF5. The unaduited balance sheet,
statement of income and statement of changes in financial position, each of
which will be included in our Form 10-Q filed with the Securities and Exchange
Commission, will be prepared on an accrual basis in accordance with accounting
principals generally accepted in the United States.
The general partner, at the time it furnishes you CIGF5's annual
report, it will furnish you, through your participating broker, with an account
statement that sets forth the following:
o an estimated per-unit value of the units;
o the source of the information used to determine such per-unit
values; and
o the method by which the per-unit value was determined.
Until the net proceeds of the offering of units are fully invested, the
general partner will furnish to the limited partners, within 60 days after the
end of each calendar quarter, a report of equipment acquisitions during the
quarter, including the type and manufacturer of each item of equipment, the
purchase price of the equipment, and any other material terms of purchase, a
statement of the total amount of cash expended by CIGF5 to acquire the equipment
(including an itemization of all commissions, fees, and expenses and the name of
each payee), and a statement of the amount of net proceeds in CIGF5 which remain
unexpended or uncommitted at the end of the quarter.
-74-
The general partner will also furnish to all limited partners within 75
days after the end of the year other information regarding CIGF5 necessary for
the preparation of their tax returns.
LEGAL MATTERS
In connection with the units offered hereby Reed Smith LLP,
Philadelphia, Pennsylvania, counsel to the dealer manager, the general partner
and CIGF5, will pass upon legal matters for CIGF5 and the general partner
regarding the valid issuance of the units, and the United States federal income
tax consequences of an investment in the units.
EXPERTS
The balance sheet of CIGF5 included in this prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the period set forth in
their report appearing elsewhere herein and in the registration statement, and
are included in reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.
The consolidated financial statements of Com Cap Corp. as of February
28, 2003 and for the year then ended and the balance sheet of the general
partner as of February 28, 2003, appearing in this prospectus and registration
statement, have been audited by Fishbein & Company, PC, independent auditors, as
set forth in their reports thereon appearing elsewhere herein and in the
registration statement, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We will provide, at no cost, upon the request of an interested
investor, a copy of the most recent annual report on Form 10-K, filed with the
Securities and Exchange Commission for Fund I, Fund II, Fund III and Fund IV.
You can request Form 10-Ks for Fund I, Fund II, Fund III and Fund IV by calling
1-800-249-3700 and asking to speak to an investor relations representative. You
may also make your request in writing to: Chief Reporting Officer, Commonwealth
Capital Securities Corp., Oaklands Corporate Center, 470 John Young Way, Suite
300, Exton, PA 19341.
This prospectus does not contain all the information set forth in the
registration statement and the exhibits relating thereto, which the general
partner has filed with the Securities and Exchange Commission, Washington, D.C.,
under the Securities Act of 1933, as amended, and to which reference is hereby
made.
You may read an copy any materials we file with the SEC at the SEC
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Further
information on the operation of the Public Reference Room is available by
contacting the SEC at 1-800-SEC-0330.
The Commission also maintains a website that contains reports, proxy
statements, registration statements and other information regarding registrants
that file electronically at http://www.sec.gov.
-75-
Appendix 1
$20,000,000 - Maximum
$1,150,000 - Minimum
Commonwealth Income & Growth Fund V
(a Pennsylvania Limited Partnership)
SUBSCRIPTION AGREEMENT,
SIGNATURE PAGE &
POWER OF ATTORNEY
1,000,000 Units - $20.00 per Unit
Minimum Purchase - 125 Units ($2,500)
50 Units ($1,000) for IRAs, Keoghs and Pension Plans
(Minimum purchase may be higher in certain states)
PLEASE CAREFULLY READ this Subscription Agreement and the Terms and Conditions
(on the back of the Signature Page) before completing this document. TO
SUBSCRIBE FOR UNITS, please complete and sign the Signature Page and deliver
the Subscription Agreement to your Financial Consultant.
ALL ITEMS ON THIS AGREEMENT MUST BE COMPLETED IN ORDER FOR YOUR SUBSCRIPTION
TO BE PROCESSED, including any additional information necessary to complete
Item 6(c) of the Section entitled "Terms and Conditions".
Commonwealth Capital Securities Corp.
(800) 249-3700
(877) 654-1500
Please make checks payable to:
J.P.Morgan Trust Company, Escrow Agent,
(Commonwealth Income & Growth Fund V)
Mailing Address:
Commonwealth Capital Securities Corp.
P.O. Box 67
Exton, PA 19341
Subscription Questions:
(800) 249-3700
Fax (610) 647-8858
SUBSCRIPTION AGREEMENT
COMMONWEALTH INCOME & GROWTH FUND V
TERMS AND CONDITIONS
Each person or entity named as a registered owner on the Subscription
Agreement (the "Subscriber") desires to become a limited partner (a "Limited
Partner") of Commonwealth Income & Growth Fund V (the "Partnership") and to
purchase units of a limited partnership interest (the "Units") of the
Partnership in accordance with the terms and conditions of the final
prospectus pursuant to which the Partnership will offer Units to the public
including any amendments and supplements thereto (the "Prospectus"), and of
the Partnership's Restated Agreement of Limited Partnership (the "Partnership
Agreement"), attached as Exhibit 1 to the Prospectus. BY EXECUTING THIS
AGREEMENT, A SUBSCRIBER DOES NOT WAIVE ANY RIGHTS HE MAY HAVE UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 or any State
securities or Blue Sky law. In connection herewith, the Subscriber represents,
warrants, and agrees as follows:
1. Subscription. The Subscriber agrees to purchase the number of Units set
forth in the space provided on the Signature Page of this Subscription
Agreement and delivers herewith the full amount required to purchase such
Units.
2. Acceptance. The Subscriber hereby acknowledges and agrees that the
general partner of the Partnership (the "General Partner") may in its sole and
absolute discretion accept or reject the Subscriber's subscription, in whole
or in part, and that, if rejected, the amount of the Subscriber's subscription
which is rejected will be promptly returned to Subscriber, without interest.
The General Partner may not complete the sale of a Unit to a Subscriber until
at least five business days after the date the Subscriber received the
Prospectus.
3. No Revocation. The Subscriber hereby acknowledges and agrees that he
will not be entitled to revoke or withdraw his subscription, except during the
five business days following the subscriber's receipt of the prospectus.
4. Adoption of Partnership Agreement. The Subscriber hereby accepts,
adopts and agrees to be bound by each and every provision contained in the
Partnership Agreement and agrees to become a Limited Partner thereunder.
5. Power of Attorney. The Subscriber hereby irrevocably makes, constitutes
and appoints the General Partner, with full power of substitution and
ratification, its true and lawful attorney-in-fact for the purposes and in the
manner provided in the Partnership Agreement.
6. Representation and Warranties. The Subscriber (which, for this purpose,
includes any Financial Consultant and Branch Manager executing this
Subscription Agreement on behalf of the Subscriber) represents and warrants to
the Partnership, the General Partner, the affiliates, agents and
representatives of the Partnership or the General Partner, and any broker-
dealer involved in the offering of Units for sale that:
(a) the Subscriber has received the Prospectus;
(b) the Subscriber has received the form of Partnership Agreement;
(c) the Subscriber meets the minimum financial suitability
standards set forth in the Prospectus under "Investor
Suitability Standards," as well as any additional minimum
financial suitability standards required by state securities
authorities which are applicable to the Subscriber.
(d) the Subscriber is subscribing for Units in his own account or
for the account or benefit of a family member or
members or in a fiduciary capacity for the account of another
person; and
(e) the Subscriber has received no representations or warranties
from the Partnership, the General Partner, or any affiliates,
agents or representatives of the Partnership or the General
Partner other than those contained in the Prospectus, except as
follows:
The Partnership reserves the right to assert these representations as a
defense in any subsequent litigation in which one or more of the
representations is in issue; provided, however, that the representations
contained in Paragraph 6(e) shall not be binding on any Subscriber resident in
Arizona, Maine, Minnesota, Missouri, Nebraska, Pennsylvania, Tennessee or
Texas. Subscribers in Alabama, Arizona, Michigan, Missouri, Nebraska, North
Carolina and Texas are required to sign or initial each representation
contained in par. (6) above.
Notice to all Investors:
(a) The purchase of Units for an IRA or Keogh plan does not itself create
the plan.
(b) Section 1446 of the Internal Revenue Code provides that a partnership
must pay a withholding tax to the Internal Revenue Service with respect to a
partner's allocable share of such partnership's effectively connected taxable
income if the partner is a foreign person, and the Partnership Agreement
authorizes the Partnership to withhold any required amounts from distribution
otherwise payable to any foreign person.
COMMONWEALTH INCOME & GROWTH FUND V
SUBSCRIPTION AGREEMENT, SIGNATURE PAGE AND POWER OF ATTORNEY
1. Units Purchased:_______________ x $20.00 Per Unit = $_____________
(Total Capital Contribution)
INITIAL INVESTMENT [ ] ADDITIONAL INVESTMENT (IN THIS FUND)[ ]
DO YOU WISH TO RECEIVE QUARTERLY OR MONTHLY DISTRIBUTIONS? [ ] QUARTERLY
[ ] MONTHLY
ARE YOU AN EMPLOYEE OF A SELECTED AGENT, IS THIS A NAV
PURCHASE? YES [ ] NO [ ]
2. REGISTRATION INFORMATION - INVESTOR'S ACCOUNT
NUMBER:_________________________
(with broker's firm, if applicable)
Legal Account Title:
INVESTORS NAME(S) OR
TRUSTEE(S) OR CUSTODIAN(S)
INVESTOR DATE OF TRUST/IRA
NAME(S) AND/OR IRA NUMBER:
SOCIAL SECURITY NUMBER: CORPORATE/CUSTODIAL
TAX I.D.
(REQUIRED ALSO FOR IRA/QUALIFIED PLAN INVESTORS)
LEGAL RESIDENT/BUSINESS/CUSTODIAL ADDRESS:
CITY/STATE BUSINESS/CUSTODIAL
ZIP + 4 HOME PHONE: PHONE:
ADDITIONAL MAILING ADDRESS - If Different from Above (Or Investor Address if
Custodial Account) - Must Complete to Receive Copies of Statements & Reports.
Street City State Zip + 4
3. PLEASE INDICATE CITIZENSHIP STATUS: (please review "Investor Suitability
Standards" in the Prospectus)
US CITIZEN [ ] RESIDENT ALIEN [ ] NON-RESIDENT ALIEN [ ]
(Attach IRA Form W8)
If Corporation or Partnership: U.S. [ ] or FOREIGN (Attach IRA [ ]
Form W8)
4. TYPE OF REGISTRATION (CHECK ONE):
[ ] INDIVIDUAL [ ] JOINT TENANTS WITH RIGHT OF
SURVIVORSHIP
[ ] IRA [ ] PARTNERSHIP
[ ] OTHER TAX-EXEMPT ENTITY [ ] QUALIFIED PLAN
[ ] CORPORATION [ ] UNIFORM GIFT TO MINORS ACT
STATE OF
[ ] TENANTS IN COMMON [ ] TRUST (SPECIFY)
[ ] COMMUNITY PROPERTY [ ] OTHER (SPECIFY)
[ ] TRANSFER ON DEATH
5. SIGNATURE: I certify that (1) I have received the Prospectus relating to
Commonwealth Income & Growth Fund V as supplemented (the "Prospectus") and the
Limited Partnership Agreement, (2) I agree to the provisions on the reverse
hereof, (3) by executing this Subscription Agreement, I am entering into a
limited partnership agreement and agreeing to invest money, (4) the
information set forth in this Subscription Agreement, Signature Page and Power
of Attorney is true and correct, (5) I meet the minimum financial suitability
standards described in the Prospectus under "Investor Suitability Standards",
and, I declare under penalty of perjury that (6) I have entered my correct
taxpayer identification or social security number on this form and (7) I
verify that I am not subject to withholding either because I have not been
notified that I am subject to backup withholding as result of a failure to
report all interests or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding (if the
undersigned is subject to backup withholding, they shall strike out the
language in clause (7) before signing below), and (8) I acknowledge that this
investment is not liquid. BY EXECUTING THIS SUBSCRIPTION AGREEMENT, I AM NOT
WAIVING ANY RIGHTS I MAY HAVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
X X
SUBSCRIBER'S SIGNATURE DATE
CO- SUBSCRIBER'S SIGNATURE OR DATE
AUTHORIZED/CUSTODIAL REPRESENTATIVE
If Financial Consultant and Branch Manager are executing the signature page,
both must sign below. Authorized custodian signature required for IRA/
custodian accounts. Financial Consultant and Branch Managers may not sign on
behalf of residents of Florida, Iowa, Maine, Michigan, Minnesota, Missouri,
Nebraska, North Carolina, Oregon, and Tennessee.
(NOTE: Not to be executed until Subscriber(s) has (have) acknowledged receipt
of final Prospectus.)
X X
FINANCIAL CONSULTANT'S SIGNATURE DATE
BRANCH MANAGER'S SIGNATURE DATE
- -------------------------------------------------------------------------------
6. SPECIAL PAYMENT INSTRUCTIONS: Payment to other individual or entity as
designated below. Investor must complete this section if they want cash
distributions made to anyone other than the records holder. Investors
requesting direct deposit of distribution checks to another financial
institution or mutual fund please complete below:
Please Check if: -- You wish Distributions of the Partnership to be reinvested
in additional Units during the Offering Period.
-- You wish Distributions to be sent to the Payee and Address
listed below. Please complete the following information.
Payee Name:
For Account Of: Account Number:
Street Address: City/State/Zip+4
Phone Number:
- -------------------------------------------------------------------------------
7. BROKER/DEALER DATA: Completed by selling Financial Consultant (PLEASE ENTER
YOUR OFFICE ADDRESS HERE)
FINANCIAL CONSULTANT(S) NAME ADDRESS
--------------------------------------------------------- --------------------------------------------------------
BROKER/DEALER FIRM NAME CITY/STATE/ZIP + 4
--------------------------------------------------------- --------------------------------------------------------
FINANCIAL CONSULTANT'S PHONE NUMBER FAX NUMBER
--------------------------------------------------------- --------------------------------------------------------
BY SELLING FINANCIAL CONSULTANT: In compliance with Rules 2310 and 2810 of the
NASD's Conduct Rules, I represent that I have reasonable grounds to believe,
based on information from the investor(s) concerning investment objectives,
other investments, financial situation and needs, and any other information
known by me, that investment in the Partnership is suitable for such
investor(s) and that I have informed the investor(s) of the lack of liquidity
and marketability of the investment and confirm that the investor(s)
signatures appears above. (Signatures of both representatives required if
joint account.)
X X
FINANCIAL CONSULTANT'S SIGNATURE DATE
BRANCH MANAGER'S SIGNATURE DATE
THIS SUBSCRIPTION AGREEMENT, SIGNATURE PAGE AND POWER OF ATTORNEY WILL NOT BE AN
EFFECTIVE AGREEMENT UNTIL IT IS ACCEPTED BY THE GENERAL PARTNER OF
COMMONWEALTH INCOME & GROWTH FUND V.
AGREED TO AND ACCEPTED BY:
RESERVATION NUMBER CCSC RECEIPT DATE
FC NUMBER DATE INTO ESCROW
ACCOUNT NUMBER CLOSING NUMBER
(GENERAL PARTNER)
APPENDIX II
COMMONWEALTH INCOME & GROWTH FUND V
RESTATED LIMITED PARTNERSHIP AGREEMENT
August 15, 2003
TABLE OF CONTENTS
Page
INTRODUCTION 1
ARTICLE 1 Definitions 1
ARTICLE 2 Organization 8
2.1. Continuation 8
2.2 Name. 9
2.3 Place of Business. 9
2.4 Registered Office and Registered Agent. 9
2.5 Business. 9
2.6 Term. 9
ARTICLE 3 Capital Contributions and Status of Partners 9
3.1 General Partner. 9
3.2 Limited Partners. 9
3.3 Capital Contribution of Limited Partners 9
3.4 Registration. 10
3.5 Withdrawal of Capital Contributions. 10
3.6 Admission of Limited Partner 10
3.7 Continuation of Limited Partner Status. 10
3.8 Limited Liability of Limited Partners. 10
ARTICLE 4 Partners' Capital 12
4.1 Capital Accounts. 12
4.2 Withdrawal and Return of Capital. 12
4.3 Interest on Capital. 12
ARTICLE 5 Partnership Expenses 12
5.1 Organization Expenses. 12
5.2 Other Expenses. 12
5.3 Excluded Expenses. 13
ARTICLE 6 Compensation of the General Partner 14
6.1 Organizational Fee. 14
6.2 Equipment Management Fee. 14
6.3 Equipment Acquisition Fee. 14
6.4 Equipment Liquidation Fee. 14
6.5 Debt Placement Fee. 14
6.6 Limitations on Fees. 15
i
ARTICLE 7 Allocation of Net Profits, Net Losses and Other Items 15
7.1 Net Profits. 15
7.2 Net Losses. 16
7.3 Required Allocations. 16
7.4 Syndication Expenses. 17
7.5 Recharacterization of Fees. 17
7.6 Recapture. 17
7.7 Allocations Among Limited Partners. 17
7.8 Other Allocations. 18
ARTICLE 8 Distributions 18
8.1 Cash Distributions. 18
8.2 Allocation of Distributions to Limited Partners. 19
8.3 Amounts Withheld. 19
8.4 Return of Offering Proceeds. 19
ARTICLE 9 Rights, Powers, and Duties of General Partner 20
9.1 Rights and Powers. 20
9.2 Reliance on Certificate of General Partner. 22
9.3 Independent Activities. 22
9.4 Duties. 22
9.5 Restrictions on Authority. 23
9.6 General Partner's Net Worth. 26
ARTICLE 10 Rights of Limited Partners 26
10.1 No Limited Partner in Control. 26
10.2 Voting Rights. 26
10.3 Conversions and Roll-Ups. 27
10.4 Meetings. 28
10.5 Certain Amendments. 28
ARTICLE 11 Transfer of Units 29
11.1 Assignment. 29
11.2 Substituted Limited Partners. 29
11.3 Transfer Fee. 30
11.4 General. 30
ARTICLE 12 Redemption 30
ARTICLE 13 General Partner's Interest 31
13.1 Voluntary Withdrawal or Assignment. 31
13.2 Removal. 31
ARTICLE 14 Dissolution, Continuation and Termination 31
14.1 Dissolution 31
ii
14.2 Continuation. 32
14.3 Purchase of Interest of General Partner. 32
14.4 Liquidation. 33
ARTICLE 15 Accounting and Fiscal Matters 34
15.1 Partnership Records. 34
15.2 Accounting; Fiscal Year. 34
15.3 Reports. 34
15.4 Bank Accounts. 36
15.5 Partnership Returns. 36
ARTICLE 16 Power of Attorney 36
16.1 Power of Attorney. 36
ARTICLE 17 Liability and Indemnification of General Partner 37
17.1 Exclusion of Liability for Return of Capital Contributions. 37
17.2 Limitation on Liability of General Partner; Indemnification. 37
ARTICLE 18 Tax Exempt Limited Partners 38
18.1 Tax Exempt Limited Partners. 38
ARTICLE 19 Miscellaneous 38
19.1 Notices. 38
19.2 Parties in Interest. 38
19.3 Section Captions. 39
19.4 Severability. 39
19.5 Right to Rely on General Partner. 39
19.6 Pennsylvania Law. 39
19.7 Exclusive Jurisdiction. 39
19.8 Counterpart Execution. 39
19.9 Gender. 39
19.10 Integrated Agreement. 39
iii
COMMONWEALTH INCOME & GROWTH FUND V
RESTATED LIMITED PARTNERSHIP AGREEMENT
THIS RESTATED LIMITED PARTNERSHIP AGREEMENT, dated as of July __, 2003, is
entered into by and among Commonwealth Income & Growth Fund, Inc., a
Pennsylvania corporation (the "General Partner"), Kimberly A. Springsteen (the
"Initial Limited Partner"), and the persons who on or after the execution of
this Agreement are admitted as limited partners of the Partnership.
INTRODUCTION
On May 19, 2003, the General Partner and the Initial Limited Partner formed
Commonwealth Income & Growth Fund V as a Pennsylvania limited partnership (the
"Partnership") by the filing of a certificate of limited partnership in the
Office of the Department of State of the Commonwealth of Pennsylvania. The
parties desire to effect the withdrawal of the Initial Limited Partner, and the
admission of the purchasers of the Partnership's Units as limited partners of
the Partnership and to restate the agreement of the Partners to read in its
entirety as set forth below. To accomplish this, the parties agree that (i) the
persons whose subscriptions for Units have been accepted by the General Partner
and who are reflected in the records of the Partnership as purchasing Units on
or after the date hereof are admitted as limited partners of the Partnership;
(ii) the Initial Limited Partner withdraws as a limited partner of the
Partnership and is released from all her obligations as such to the Partnership,
and the Partnership shall promptly return the Initial Limited Partner's capital
contribution, effective upon the date of the Initial Closing, as defined below,
and (iii) the agreement of the Partners is hereby restated to read in its
entirety as set forth below.
ARTICLE 1
Definitions
The following terms used in this Agreement shall have the meanings set forth
below.
"Acquisition Expenses" means expenses relating to the prospective selection
and acquisition of or investment in Equipment, whether or not actually acquired,
including, but not limited to, legal fees and expenses, travel and communication
expenses, costs of appraisals, accounting fees and expenses and miscellaneous
expenses.
"Acquisition Fees" means the total of all fees and commissions paid by any
party in connection with the initial purchase of Equipment acquired by the
Partnership. Included in the computation of such fees or commissions shall be
the Equipment Acquisition Fee, any commission, selection fee, construction
supervision fee, financing fee, non-recurring management fee or any fee of a
similar nature, however designated.
"Act" means the Pennsylvania Revised Uniform Limited Partnership Act.
"Adjusted Basis" means the basis, as defined in Section 1011 of the Code,
for determining gain or loss for federal income tax purposes from the sale,
transfer, or other disposition of property.
"Adjusted Capital Contribution" means, with respect to a Limited Partner,
the Capital Contributions of the Limited Partner reduced to not less than zero
by any cash distribution received by the Limited Partner pursuant to Sections
4.2, 8.1 or 8.4, to the extent such distributions exceed any unpaid Cumulative
Return as of the date such distribution was made.
1
"Affiliate" means, when used with reference to a specified Person, (i) any
Person that directly or indirectly through one or more intermediaries controls
or is controlled by or is under common control with the specified Person, (ii)
any Person that is a director or an executive officer of, partner in, or serves
in a similar capacity to, the specified Person, or any Person of which the
specified Person is an executive officer or partner or with respect to which the
specified Person serves in a similar capacity, (iii) any Person owning or
controlling 10% or more of the outstanding voting securities of such specified
Person, or (iv) if such Person is an officer, director or partner, any entity
for which such Person acts in such capacity.
"Agreement" means this Restated Limited Partnership Agreement, as amended
from time to time.
"Average Daily Units" means for any period an amount equal to the sum of the
outstanding Limited Partners' Units as of the close of business on each day in
the period, divided by the number of days in the period.
"Bankrupt" or "Bankruptcy" means, when used with reference to a specified
Person, (a) if such Person (i) files any application or petition in any tribunal
for the appointment of a trustee or receiver, or (ii) commences any proceeding
under any bankruptcy or reorganization statute, or under any provision of the
United States Bankruptcy Code, or under any insolvency law, or under any
dissolution or liquidation law whether now or hereafter in effect, or (b) if any
petition or application of the type described in subsection (a) above is
commenced against such Person and is not dismissed within 60 days of filing, or
an order is entered appointing a trustee or receiver for such Person, or an
order for relief is issued in any bankruptcy.
"Capital Account" means the separate account established for each Partner
pursuant to Section 4.1.
"Capital Contributions" means, in the case of the General Partner, the total
amount of money contributed to the Partnership by the General Partner, and, in
the case of the Limited Partners, the total amount of money contributed to the
Partnership by a Limited Partner for each Unit, or where the context requires,
the total Capital Contributions of all the Partners.
"Carried Interest" means an interest taken in the Partnership, other than
the General Partner's promotional interest, for which full consideration has
neither been paid nor is to be paid.
"Cash Available for Distribution" means Cash Flow plus Net Disposition
Proceeds plus cash funds available for distribution from Partnership reserves,
less such amounts as the General Partner, in accordance with this Agreement,
causes the Partnership to reinvest in Equipment or interests therein, and less
such amounts as the General Partner, in its sole discretion, determines should
be set aside for the restoration or enhancement of Partnership reserves.
"Cash Flow" for any fiscal period means the sum of (i) cash receipts from
operations, including, but not limited to, rents or other revenues arising from
the leasing or operation of the Equipment and interest, if any, earned on funds
on deposit for the Partnership, but not including Net Disposition Proceeds,
minus (ii) all cash expenses and costs incurred and paid in connection with the
ownership, lease, management, use and/or operation of the Equipment, including,
but not limited to, fees for handling and storage; all interest expenses paid
and all repayments of principal regarding borrowed
2
funds; maintenance; repair costs; insurance premiums; accounting and legal fees
and expenses; debt collection expenses; charges, assessments or levies imposed
upon or against the Equipment; ad valorem, gross receipts and other property
taxes levied against the Equipment; and all costs of repurchasing Units in
accordance with this Agreement; but not including depreciation or amortization
of fees or capital expenditures, or provisions for future expenditures,
including, without limitation, Organizational and Offering Expenses.
"Certificate" means the certificate of limited partnership filed by the
Partnership in the Office of the Department of State of the Commonwealth of
Pennsylvania as may be amended from time to time.
"Closing Date" means the date, as designated by the General Partner, as of
which the Units shall cease being offered to the public pursuant to the
Offering, and shall be no later than the second anniversary of the Effective
Date.
"Code" means the Internal Revenue Code of 1986, as amended, and as may be
amended from time to time by future federal tax statutes. Any reference this
Agreement to a particular provision of the Code shall mean, where appropriate,
the corresponding provision of any successor statute.
"Competitive Equipment Sale Commission" means that brokerage fee paid for
services rendered in connection with the purchase or sale of Equipment which is
reasonable, customary, and competitive in light of the size, type, and location
of the Equipment.
"Conditional Sales Contract" means an agreement to sell Equipment to a buyer
in which the seller reserves title to, and retains a security interest in, the
Equipment until the Purchase Price of the Equipment is paid.
"Controlling Person" means any person, whatever his or her title, performing
functions for the General Partner or its Affiliates similar to those of chairman
or member of the Board of Directors or executive management (such as the
president, vice president or senior vice president, corporate secretary or
treasurer), senior management (such as the vice president of an operating
division who reports directly to executive management), or any person holding a
five percent or more equity interest in the General Partner or its Affiliates or
having the power to direct or cause the direction of the General Partner or its
Affiliates, whether through the ownership of voting securities, by contract, or
otherwise.
"Cumulative Return" means the amount equal to a return at a rate of 10% per
annum, compounded daily, on the Adjusted Capital Contribution of a Limited
Partner, which amount shall begin accruing when the Limited Partner is admitted
as a Limited Partner in the Partnership.
"Debt Placement Fee" means the fee payable to the General Partner in
accordance with Section 6.5 of this Agreement.
"Distribution Fee" means for any year until changed by the General Partner
in accordance with the following sentence, an amount not to exceed $25.00. The
General Partner may change the amount of the Distribution Fee only by written
notice to each Limited Partner who properly has elected to receive monthly
distributions at least 30 days prior to the beginning of the calendar quarter
that includes the first month to which the new Distribution Fee will apply. The
Distribution Fee is designed to cover the additional postage and handling
associated with the more frequent monthly distributions; the payment of which
shall be subtracted equally from the distribution check of any Limited Partner
receiving distributions of net cash flow on a monthly basis.
3
"Effective Date" means the date on which the Partnership's registration
statement on Form S-1 with respect to the Units, as filed with the Securities
and Exchange Commission, becomes effective under the Securities Act of 1933, as
amended.
"Equipment" means each item of and all of the computer peripheral and other
similar capital equipment purchased, owned, operated, and/or leased by the
Partnership or in which the Partnership has acquired a direct or indirect
interest, as more fully described in this Agreement, together with all
appliances, parts, instruments, accessories, furnishings, or other equipment
included therein and all substitutions, renewals, or replacements of, and all
additions, improvements, and accessions to, any and all thereof.
"Equipment Acquisition Fee" means the fee payable to the General Partner in
accordance with Section 6.3 of this Agreement.
"Equipment Liquidation Fee" means the fee payable to the General Partner in
accordance with Section 6.4 of this Agreement.
"Equipment Management Fee" means the fee payable to the General Partner in
accordance with Section 6.2 of this Agreement.
"Equipment Management" means personnel and services necessary to the leasing
activities of the Partnership, including but not limited to, leasing and
re-leasing of Equipment, arranging for necessary maintenance and repair of the
Equipment, collecting revenues, paying operating expenses, determining that the
equipment is used in accordance with all operative contractual arrangements and
providing clerical and bookkeeping services necessary to the operation of
Equipment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means the account at Chase Manhattan, Philadelphia,
Pennsylvania where Subscriptions will be held until they aggregate the Minimum
Subscription Amount of $1,150,000.
"Final Closing" means the last time at which subscribers for Units are
admitted as Limited Partners.
"Front-End Fees" means fees and expenses paid by any Person to any Person
during the Partnership's organizational and acquisition phase including all
Organizational and Offering Expenses (including the Organizational Fee,
Acquisition Fees, Acquisition Expenses, Debt Placement Fees, Leasing Fees, and
other similar fees and expenses); provided, however, any costs or expenses
incurred by the General Partner or its Affiliates (not including the
Partnership) which are not reimbursed by the Partnership, shall not be included
as Front-End Fees.
"Full Payout Net Lease" means an initial Net Lease of the Equipment under
which the non-cancelable rental payments due (and which can be calculated at the
commencement of the Net Lease) during the initial noncancellable fixed term (not
including any renewal or extension period) of the lease or other contract for
the use of the Equipment are at least sufficient to recover the Purchase Price
of the Equipment.
4
"Funding Date" means the date on which Capital Contributions are released to
the Partnership from the Escrow Account.
"General Partner" means Commonwealth Income & Growth Fund, Inc. and any
additional, substitute or successor general partner of the Partnership.
"Gross Lease Revenues" means Partnership gross receipts from leasing or
other operation of the Equipment, except that, to the extent the Partnership has
leased the Equipment from an unaffiliated party, it shall mean such receipts
less any lease expense.
"Independent Expert" means a Person with no current material or prior
business or personal relationship with the General Partner who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership and who is qualified to perform such
work.
"Initial Closing" means the first time subscribers for Units are admitted as
Limited Partners.
"Investment in Equipment" means the amount of Capital Contributions actually
paid or allocated to the purchase of or investment in Equipment by the
Partnership including working capital reserves (except that working capital
reserves in excess of three percent of Capital Contributions shall not be
included) and other cash payments such as interest and taxes, but excluding
Front-End Fees.
"IRA" means an Individual Retirement Account as described in Section 408 of
the Code.
"Leasing Fees" means the total of all fees and commissions paid by any party
in connection with the initial lease of Equipment acquired by the Partnership.
"Limited Partner" means a Person who acquires Units and who is admitted to
the Partnership as a limited partner in accordance with the terms of this
Agreement.
"Majority in Interest" means, with respect to the Partnership, Limited
Partners holding more than 50% of the outstanding Units held by all Limited
Partners at the Record Date for any vote or consent of the Limited Partners.
"Minimum Subscription Amount" means an aggregate of $1,150,000 in
subscriptions from Limited Partners.
"Monthly Distribution Account" means an account established by the
Partnership for the benefit of those Limited Partners who elect to receive
monthly distributions of Cash Available for Distribution, into which account the
amounts specified in 8.1.2(b) shall be deposited.
"Net Disposition Proceeds" means the net proceeds realized by the
Partnership from the refinancing, sale or other disposition of Equipment,
including insurance proceeds or lessee indemnity payments arising from the loss
or destruction of Equipment, less such amounts as are used to satisfy
Partnership liabilities.
"Net Lease" means a lease or other contract under which the owner provides
equipment to a lessee or other operator in return for a payment, and the lessee
assumes all obligations and pays for the
5
operation, repair, maintenance, taxes and insuring of the equipment, so that the
non-cancelable rental payments under the lease are absolutely net to the lessor.
"Net Profits" or "Net Losses" shall be computed in accordance with Section
703(a) of the Code (including all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code) for
each taxable year of the Partnership or shorter period prior or subsequent to an
interim closing of the Partnership's books with the following adjustments: (i)
any income of the Partnership that is exempt from federal income tax and not
otherwise taken into account in computing Net Profits and Net Loss pursuant to
this definition shall be added to such taxable income or shall reduce such
taxable loss; (ii) any expenditure of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into
account in computing Net Profits and Net Losses pursuant to this definition
shall be subtracted from such taxable income or loss; (iii) items of income,
gain, loss and deduction specially allocated pursuant to Section 7.3 of this
Agreement shall not be included in the computation of Net Profits or Net Loss;
and if property is reflected on the books of the Partnership at a book value
that differs from the adjusted tax basis of the property in accordance with
Treasury Regulation Section 1.704- 1(b)(2)(iv)(d) or (f), depreciation,
amortization, and gain or loss with respect to such property shall be determined
by reference to such book value in a manner consistent with Treasury Regulation
Section 1.704-1(b)(2)(iv)(g). The terms "Net Profit" or "Net Losses" shall
include the Partnership's distributive share of the profit or loss of any
partnership or joint venture in which it is a partner or joint venturer.
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles, except that if any of
such assets have been depreciated, then the amount of depreciation relative to
any particular asset may be added to the depreciated cost of such asset to
compute total assets. The amount of depreciation may be added only to the extent
that the amount resulting after adding such depreciation does not exceed the
fair market value of such asset.
"Offering" means the initial public offering of the Units in the
Partnership, as described in the Prospectus.
"Offering Period" means the period commencing the Effective Date and ending
the last day of the calendar month in which the Closing Date occurs.
"Operating Lease" means a lease or other contractual arrangement under which
an unaffiliated party agrees to pay the Partnership, directly or indirectly, for
the use of the Equipment, and which is not a Full Payout Net Lease.
"Organizational and Offering Expenses" means the expenses incurred in
connection with the organization of the Partnership and in preparation of the
offering for registration and subsequent offer and distribution of units to the
public, including Underwriting Commissions, listing fees and advertising
expenses except advertising expenses related to the leasing of the Program's
equipment.
"Organizational Fee" means the fee payable to the General Partner in
accordance with Section 6.1 of this Agreement.
"Partners" means any one or more of the General Partner and the Limited
Partners.
6
"Partnership" means Commonwealth Income & Growth Fund V, a Pennsylvania
limited partnership.
"Partnership Interest" means the ownership interest of a Partner in the
Partnership, as represented by his Capital Account, including all rights of such
Partner under this Agreement.
"Person" means an individual, partnership, joint venture, corporation,
trust, estate or other entity.
"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation,
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in Equipment.
"Prospectus" means the Partnership's prospectus contained in the
Registration Statement filed with the Securities and Exchange Commission
("Commission") for the registration of the Units under the Securities Act of
1933, as amended (the "1933 Act"), at effectiveness of such Registration
Statement except that (A) if the Partnership files a post-effective amendment to
the Registration Statement, then the term "Prospectus" shall, from and after the
effectiveness of such post-effective amendment, refer to the amended prospectus
then on file with the Commission and (B) if the Partnership files a form of
prospectus or prospectus supplement pursuant to Rule 424(b) of the regulations
of the Commission under the 1933 Act, then the term "Prospectus" shall refer to
the prospectus as so filed or supplemented from and after the date of such
filing.
"Purchase Price" means, with respect to any Equipment, an amount equal to
the sum of (i) the invoice cost of such Equipment or any other such amount paid
to the seller, (ii) any closing, delivery and installation charges associated
therewith not included in such invoice cost and paid by or on behalf of the
Partnership, (iii) the cost of any capitalized modifications or upgrades
paid by or on behalf of the Partnership in connection with its purchase of the
Equipment, and (iv) the amount of the Equipment Acquisition Fee and any other
Acquisition Fees, but excluding points and prepaid interest.
"Qualified Plan" means a trust established pursuant to the terms of a
pension, profit sharing or stock bonus plan, including Keogh Plans, meeting the
requirements of Section 401 and following of the Code.
"Record Date" means, (a) for purposes of a meeting of, or actions by, the
Limited Partners pursuant to Article 10 of this Agreement, the close of business
on the business day preceding the date on which the written notice referred to
in that Article is given, and (b) for purposes of Article 12 of this Agreement,
the close of business on December 31 and June 30 of each year.
"Retiring General Partner" means a general partner of the Partnership who or
which has been removed or withdrawn as such or is Bankrupt, which has been
involuntarily dissolved, or who has died or had a conservator appointed for the
person or any of the property of such general partner.
"Roll-Up" means a transaction involving the acquisition, merger, conversion,
or consolidation, either directly or indirectly, of the Partnership and the
issuance of securities of a Roll-Up Entity. Such term does not include: (i) a
transaction involving securities if the securities have been listed for at least
twelve months on a national securities exchange or traded through the NASD
Automated Quotation National Market System; or (ii) a transaction involving the
conversion to corporate, trust or association form of only the Partnership if,
as a consequence of the transaction, there will be no significant adverse change
in any of the following: (a) the Limited Partners' voting rights; (b) the term
of existence of the
7
Partnership; (c) compensation of the General Partner or its Affiliates; or (d)
the Partnership's investment objectives.
"Roll-Up Entity" means the partnership, corporation, trust or other entity
that would be created or would survive after the successful completion of a
proposed Roll-Up transaction.
"Participating Broker" means a member of the National Association of
Securities Dealers, Inc. who will be engaged to sell Units.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, a Program or any Person who will manage or
participate in the management of a Program, and any Affiliate of any such
Person. Sponsor does not include a Person whose only relation with the Program
is that of an independent equipment manager and whose only compensation is as
such. Sponsor does not include wholly independent third parties such as
attorneys, accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of Program
interests.
"Substituted Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to the provisions of Section 11.2 of this
Agreement.
"Syndication Expenses" means all expenditures classified as syndication
expenses pursuant to Treasury Regulations Section 1.709-2(b). Syndication
Expenses shall be taken into account under this Agreement at the time they would
be taken into account under the Partnership's method of accounting if they were
deductible expenses.
"Term Debt" means debt of the Partnership with a term in excess of twelve
months, incurred with respect to acquiring or investing in Equipment, or
refinancing non-Term Debt, but not debt incurred with respect to refinancing
existing Partnership Term Debt.
"Terminating Event" means the first to occur of the withdrawal, removal,
retirement, resignation, expulsion, Bankruptcy, involuntary dissolution, death,
insanity or appointment of a conservator for the person or any of the assets of
the last remaining general partner of the Partnership.
"Treasury Regulations" means the income tax regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of successor regulations).
"Underwriting Commissions" mean selling commissions and dealer-manager fees
paid to broker-dealers by the Partnership in connection with the offer and sale
of Units.
"Unit" means a limited partnership interest in the Partnership.
ARTICLE 2
Organization
2.1. Continuation. The Partners hereby continue the Partnership as a limited
partnership under the Act.
8
2.2 Name. The name of the Partnership shall continue to be "Commonwealth
Income & Growth Fund V" or such other name as may be selected by the General
Partner, who shall give notice of any such other name to the Limited Partners.
2.3 Place of Business. The principal place of business of the Partnership
shall be Oaklands Corporate Center, 470 John Young Way, Suite 300, Exton,
Pennsylvania 19341, or at another location selected by the General Partner, who
shall give notice of any such other location to the Limited Partners. The
Partnership may have such additional offices or places of business as the
General Partner may determine.
2.4 Registered Office and Registered Agent. The Partnership's registered
office in the Commonwealth of Pennsylvania and its registered agent at such
other office shall be determined by the General Partner.
2.5 Business. The principal business and purpose of the Partnership is to
purchase, acquire, own, lease, re-lease, maintain, improve, manage, pledge,
finance, convey, assign, dispose and sell Equipment pursuant to such
arrangements as the General Partner in its sole discretion may enter into on
behalf of the Partnership. The purpose and business of the Partnership includes
the realization and distribution of cash from sales or other dispositions of
Equipment. The Partnership is authorized to take any and all actions necessary,
appropriate, advisable, incidental to, convenient for or related to this purpose
or for the protection and benefit of the Partnership, unless expressly
prohibited by this Agreement.
2.6 Term. The Partnership shall exist for a term ending December 31, 2015,
at which time it shall be dissolved, unless previously dissolved in accordance
with this Agreement.
ARTICLE 3
Capital Contributions and Status of Partners
3.1 General Partner. The General Partner has contributed $1,000 to the
capital of the Partnership. Except as provided in this Section and Section
14.4.3, the General Partner shall have no obligation to make any Capital
Contribution or to loan or otherwise provide funds to the Partnership or any
partnership, joint venture or other entity in which the Partnership has an
interest, even if the failure to do so would or could result in a default by the
Partnership, foreclosure upon the properties of the Partnership or any such
partnership, joint venture or other entity, or any other consequence adverse to
the Partnership or any such partnership, joint venture or other entity.
3.2 Limited Partners. Limited Partners shall be those persons whose
subscriptions for Units have been accepted by the General Partner and who are
reflected in the records of the Partnership as purchasing Units from the
Partnership and Substituted Limited Partners where a transfer of Units is made
pursuant to Article 11. The Partnership intends to offer and sell not less than
$1,150,000 nor more than $20,000,000 worth of Units of limited partnership
interests and to admit as Limited Partners the persons who contribute cash to
the capital of the Partnership as the purchase price for the Units.
3.3 Capital Contribution of Limited Partners.
3.3.1 Each Limited Partner shall make a capital contribution of $20.00,
(or the subscription price of $20.00 less the volume discount stated in the
Prospectus), as the purchase price for each Unit which he purchases from the
Partnership. The Capital Contributions of the Limited Partners
9
shall be made in cash. Except as required by the Act, each Unit shall be fully
paid and non-assessable, and no assessments for payments by the Limited Partners
will be made by the General Partner.
3.3.2 Any portion of the net proceeds from sales of the Units which is not
invested or committed for Investment in Equipment or for any Partnership
purposes or reserved for necessary operating expenses within 12 months from the
Final Closing shall be distributed to the Limited Partners by the Partnership as
a return of capital, without reduction for the General Partner's Organizational
Fee or for any Equipment Acquisition Fee which would have been payable to the
General Partner if such proceeds had been invested. Funds will be deemed to have
been committed to investment and will not be returned to the Limited Partners to
the extent written agreements in principle, commitment letters, letters of
intent or understanding or any similar contracts or understandings have, at any
time before the end of such 12-month period, been executed, provided that such
investments are consummated. Should any such investment not be consummated, the
funds attributable thereto shall be distributed to the Limited Partners in a
timely manner.
3.4 Registration. Upon the admission of a person as a Limited Partner or
Substituted Limited Partner, such Person shall be registered on the records of
the Partnership as a Limited Partner, together with his address, the number of
Units he owns, and his transferor's Capital Contribution. Each person registered
as a holder of record of Units shall continue to be the holder of record of such
Units until notification of the transfer of any such Units is given in
accordance with the terms of this Agreement. A holder of record shall be
entitled to all distributions and all allocations of Net Profits and Net Losses
with respect to Units registered in his name and to all other rights of a
Limited Partner until his rights in such Units have been transferred and the
General Partner has been notified as required herein. The Partnership shall not
be affected by any notice or knowledge of transfer of any interest in any Unit,
except as expressly provided in Article 11. The payment to the holder of record
of any distribution with respect to such Units shall discharge the Partnership
of its obligations in respect thereto.
3.5 Withdrawal of Capital Contributions. Except as otherwise provided in
this Agreement, no Partner shall have the right to withdraw or reduce his
Capital Contribution. No Partner shall have the right to bring an action for
partition against the Partnership or to demand or receive property other than
cash in return for his capital contribution. No Limited Partner shall have
priority over any other Limited Partner, either as to the return of his Capital
Contribution or as to Net Profits, Net Losses or distributions.
3.6 Admission of Limited Partner. The Initial Closing shall take place not
later than 15 days after the release from the Escrow Account of the subscribers'
funds to the Partnership. Thereafter, subscribers shall be admitted as Limited
Partners not later than the last day of the calendar month following the date
their subscriptions are accepted by the Partnership. The General Partner shall
determine whether subscriptions received after the Initial Closing will be
accepted or rejected within 30 days of their receipt by the Partnership and, if
a subscription is rejected, the subscription funds will be promptly returned to
the subscriber without interest.
3.7 Continuation of Limited Partner Status. Once admitted as a Limited
Partner, a Person shall, except as otherwise provided in the Agreement, continue
to be a Limited Partner for all purposes of this Agreement and the Certificate
of Limited Partnership, as amended from time to time, until a Substituted
Limited Partner is admitted in place of such person pursuant to the provisions
of Article 11.
3.8 Limited Liability of Limited Partners. No Limited Partner, in his
capacity as such, shall be liable for the debts, liabilities, contracts or any
other obligations of the Partnership or any
10
partnership, joint venture or other entity in which the Partnership has an
interest. No Limited Partner shall be obligated to make any Capital Contribution
or to loan or otherwise provide funds to the Partnership; provided, however, in
accordance with the Act, Limited Partners will be obligated to return any
distribution from the Partnership to the extent that, after giving effect to the
distribution, all liabilities of the Partnership (other than nonrecourse
liabilities and liabilities to Limited Partners on account of their interests in
the Partnership) exceed the fair value of its assets (including, as to assets
serving as security for nonrecourse liabilities, that portion of the fair value
of such assets which exceeds the amount of such nonrecourse liabilities).
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ARTICLE 4
Partners' Capital
4.1 Capital Accounts. A separate Capital Account shall be established and
maintained for each Partner. The Capital Account of each Partner shall be
credited with such Partner's Capital Contribution, plus all Net Profits and
items of income and gain of the Partnership allocated to such Partner pursuant
to Article 7, and shall be debited with the sum of (a) all Net Losses and items
of loss or deduction of the Partnership allocated to such Partner pursuant to
Article 7, and (b) all cash and the fair market value of any property (net of
liabilities of the Partnership assumed by such Partner and the liabilities to
which such property is subject) distributed by the Partnership to such Partner
pursuant to Article 8. The computation of the amount of the Capital Account of a
Partner shall be determined in all events solely in accordance with the rules
set forth in Treasury Regulation Section 1.704-1(b)(2)(iv). Any references in
this Agreement to the Capital Account of a Partner shall be deemed to refer to
such Capital Account as the same may be credited or debited from time to time as
set forth above in this Section 4.1.
4.2 Withdrawal and Return of Capital. No Limited Partner shall withdraw any
of his capital without the consent of the General Partner and Limited Partners
holding a Majority in Interest of the Units, except upon dissolution or
liquidation of the Partnership or as provided in Article 12. Under circumstances
requiring a return of any Capital Contribution or constituting a withdrawal of a
Limited Partner, no Limited Partner shall have the right to receive property
other than cash, except as may be specifically provided in this Agreement.
4.3 Interest on Capital. No interest shall be paid on any Capital
Contribution made to the Partnership.
ARTICLE 5
Partnership Expenses
5.1 Organization Expenses. The General Partner shall bear and pay all
Organizational and Offering Expenses other than Underwriting Commissions.
5.2 Other Expenses. All expenses of the Partnership, other than the expenses
required to be paid by the General Partner pursuant to Section 5.1, shall be
billed (to the extent practicable) directly to and paid by the Partnership.
Subject to Section 5.1, the General Partner and its Affiliates shall be
reimbursed for the actual cost of goods and materials used for or by the
Partnership and obtained from entities unaffiliated with the General Partner.
Subject to (and only in accordance with) the foregoing, the Partnership shall
pay (or reimburse the General Partner and its Affiliates for) the lower of the
actual cost or the amount the Partnership would have to pay independent third
parties for such services in the same geographic area of all expenses related to
the administration and operation of the Partnership, including without
limitation:
5.2.1 all costs of personnel involved in the business of the
Partnership;
5.2.2 all taxes and assessments on Equipment and other taxes applicable
to the Partnership;
5.2.3 legal, appraisal, audit, accounting and other professional fees;
12
5.2.4 printing and other expenses incurred in connection with the
transfer, registration and recording of documents evidencing ownership of Units
or in connection with the business of the Partnership;
5.2.5 fees and expenses paid to independent contractors, mortgage bankers,
equipment brokers, servicers, leasing agents, consultants, equipment lease
brokers, insurance brokers and other agents;
5.2.6 expenses paid to nonaffiliated parties in connection with the
disposition, replacement, alteration, maintenance and repair, leasing, re-
leasing, storage and operation of Equipment (including the costs and expenses
for foreclosures, insurance premiums, equipment lease brokerage and leasing
commissions and of maintenance of Equipment);
5.2.7 subject to Section 9.4.4, expenses in connection with the
acquisition of Equipment other than Equipment acquired through the proceeds of
the offering of the Units;
5.2.8 expenses of revising, amending, converting, modifying or terminating
the Partnership or this Agreement;
5.2.9 the cost of preparation and dissemination of the informational
material and documentation relating to potential sale, leasing, re-leasing,
financing or other disposition of Equipment;
5.2.10 costs incurred in connection with any litigation in which the
Partnership is involved or proceedings conducted by any regulatory agency,
including legal and accounting fees incurred in connection therewith;
5.2.11 costs of any accounting, statistical or bookkeeping equipment
necessary for the maintenance of the books and records of the Partnership;
5.2.12 costs of investor communications and regulatory reports, including
without limitation initiation, review and approval of reports and communications
to Limited Partners or regulatory agencies; expenses in connection with
distributions made by the Partnership to, and communications, bookkeeping and
clerical work necessary in maintaining relations with, Limited Partners,
including the costs of design, production, printing and mailing of reports,
conducting elections in any circumstance requiring a vote of the Limited
Partners, holding meetings with Limited Partners, and preparing and mailing
reports required to be furnished to Limited Partners for tax reporting or other
purposes or reports which the General Partner deems to be in the best interests
of the Partnership;
5.2.13 expenses of professionals employed by the Partnership in connection
with any of the foregoing, including attorneys, accountants, and appraisers; and
5.2.14 such other related administrative expenses as are necessary to the
prudent operation of the Partnership.
5.3 Excluded Expenses. No reimbursement shall be permitted for services for
which the General Partner is entitled to compensation by way of a separate fee.
Excluded from the allowable reimbursement shall be (i) rent or depreciation,
utilities, capital equipment, other administrative items; and (ii) salaries,
fringe benefits, travel expenses and other administrative items incurred or
allocated to any Controlling Person of the General Partner.
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ARTICLE 6
Compensation of the General Partner
6.1 Organizational Fee. For the services and activities of the General
Partner performed and to be performed by the General Partner in connection with
the organization of the Partnership, the General Partner will be paid an
Organizational Fee equal to three percent of the first $10,000,000 of Limited
Partners' Capital Contributions plus two percent of the Limited Partners'
Capital Contributions in excess of $10,000,000. The Organizational Fee will
accrue and be paid as Limited Partners are admitted to the Partnership.
6.2 Equipment Management Fee. For the services and activities performed and
to be performed by the General Partner and its Affiliates in connection with
Equipment Management, the General Partner shall receive a monthly fee equal to
the lesser of (a) the fees which would be charged by an independent third party
in the same geographic market for similar services and equipment or (b) the sum
of (i) two percent of (A) the Gross Lease Revenues attributable to Equipment
subject to Full Payout Net Leases which contain net lease provisions plus, (B)
the purchase price paid on Conditional Sales Contracts as received by the
Partnership and (ii) five percent of the Gross Lease Revenues attributable to
Equipment subject to Operating Leases. The Equipment Management Fee shall accrue
as funds are received by the Partnership and shall be paid to the General
Partner on conclusion of each calendar month, except such Equipment Management
Fee may be accrued as a debt of the Partnership payable, without interest, out
of future available cash if the Partnership does not generate sufficient cash
from operations to pay the Equipment Management Fee currently, or if the General
Partner determines that such action is in the best interest of the Partnership.
Fees or expenses to nonaffiliated parties for such services and activities shall
be paid by the General Partner from its Equipment Management Fee.
6.3 Equipment Acquisition Fee. For the services and activities performed and
to be performed by the General Partner in connection with the acquisition and
lease of Equipment, the General Partner shall receive an Equipment Acquisition
Fee of four percent of the Purchase Price of each item of Equipment purchased.
The Equipment Acquisition Fee will be paid from the net proceeds of the Offering
which are available to be used to purchase Equipment when such proceeds are
received by the Partnership. To the extent that the Partnership acquires
Equipment at an aggregate Purchase Price exceeding the net proceeds of the
Offering available to be used to purchase Equipment, the Equipment Acquisition
fee will be paid with respect to that Equipment as the Equipment is acquired.
6.4 Equipment Liquidation Fee. For the services and activities to be
performed by the General Partner in connection with the disposition of the
Partnership's Equipment (other than by a Conditional Sales Contract), the
General Partner shall receive an Equipment Liquidation Fee equal to the lesser
of (a) 50% of the Competitive Equipment Sale Commission or (b) three percent of
the sales price of such Equipment. The payment of the Equipment Liquidation Fee
shall be made as proceeds of the sale are received and is subordinated to the
receipt by the Limited Partners of a return of their Capital Contributions plus
the Cumulative Return. Such fee will be reduced to the extent any liquidation or
resale fees are paid to unaffiliated parties.
6.5 Debt Placement Fee. For the services rendered or to be rendered by the
General Partner's arrangement of Term Debt to finance the acquisition of
Equipment by the Partnership, the General Partner shall receive a Debt Placement
Fee equal to one percent of such indebtedness. Such fee shall be paid when the
proceeds of the Term Debt are received by the Partnership and shall be reduced
to the extent the Partnership incurs such fees to third parties unaffiliated
with the General Partner or the
14
lender with respect to such indebtedness, and no such fee will be paid with
respect to borrowings from the General Partner or its Affiliates.
6.6 Limitations on Fees. The Partnership shall commit a substantial portion
of Capital Contributions toward Investment in Equipment. The remaining Capital
Contributions may be used to pay Front-End Fees. The Partnership will commit a
percentage of Capital Contributions to Investment in Equipment which is equal to
the greater of (i) 80% of Capital Contributions reduced by .0625% for each one
percent of indebtedness encumbering Equipment or (ii) 75% of Capital
Contributions. To calculate the percent of indebtedness encumbering Equipment,
divide the amount of indebtedness by the Purchase Price (excluding Front-End
Fees) and multiply the quotient by .0625% to determine the percentage to be
deducted from 80%. For example, if the percentage of indebtedness were 30%, the
percentage to be deducted from 80% is 1.875% (30 x .0625) and the percentage to
be committed to Investment in Equipment is 78.125% (80-1.875).
ARTICLE 7
Allocation of Net Profits, Net Losses and Other Items
7.1 Net Profits.
7.1.1 Net Profits for each fiscal year of the Partnership (other than Net
Profits arising from transactions in connection with the termination or
liquidation of the Partnership) shall be allocated as follows:
(a) to the General Partner, the greater of (i) one percent of such Net
Profits or (ii) Net Profits equal to the excess, if any, of (A) all
distributions to the General Partner pursuant to Section 8.1.1 with respect to
such fiscal year and all prior fiscal years over (B) the total Net Profits
allocated to the General Partner pursuant to this Section 7.1.1(a) for all such
prior fiscal years; and
(b) any balance to the Limited Partners.
7.1.2 Net Profits arising from transactions in connection with the
termination or liquidation of the Partnership shall be allocated in the
following order of priority:
(a) Net Profits shall be allocated to each Partner in an amount equal
to the negative amount, if any, of his Capital Account. If the Net Profits
available to be so allocated is less than the sum of all Partners' negative
Capital Accounts, then such Net Profits shall be allocated to the Partners in
proportion to the respective amounts of their negative Capital Accounts.
(b) An amount of Net Profits equal to the excess of (A) the proceeds
from such transaction that would be distributed to the Partners pursuant to
Section 8.1.1 (without regard to Section 8.1.3) over (B) the aggregate Capital
Accounts (as adjusted to reflect the allocation of Net Profit pursuant to
Sections 7.1.1 and 7.1.2(a) and assuming that Cash Available for Distribution
other than such proceeds had already been distributed) of all Partners shall be
allocated among such Partners in proportion to their respective shares of such
excess.
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(c) Any remaining Net Profits shall be allocated in the same
proportions that cash distributions equal to such remaining Net Profits would be
distributed pursuant to Section 8.1 (without regard to Section 8.1.3).
7.2 Net Losses. Net Losses for each fiscal year of the Partnership shall
be allocated 99% to the Limited Partners and one percent to the General
Partner.
7.3 Required Allocations. Notwithstanding Sections 7.1 and 7.2:
7.3.1 Except as otherwise provided in Treasury Regulation Section 1.704-
2(f), notwithstanding any other prevision of this Article 7, if there is a net
decrease in "partnership minimum gain" (as defined in Treasury Regulation
Sections 1.704-2(b)(2) and 1.704-2(d)) during a Partnership taxable year, then
each Partner shall be specially allocated, before any other allocation is made
of Partnership items for such taxable year, items of income and gain for such
taxable year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in partnership minimum gain, determined in
accordance with Treasury Regulation Section 1.704-2(g). The items to be so
allocated shall be determined in accordance with Treasury Regulation Sections
1.704-2(f)(6) and 1.704-2(j)(2). This Section 7.3.1 is intended to comply and
shall be interpreted consistently with the "minimum gain chargeback" requirement
of Treasury Regulation Section 1.704-(2)(f);
7.3.2 No loss or deduction shall be allocated to a Partner if such
allocation would create a deficit balance in such Partner's Capital Account in
excess of the amount such Partner is obligated to restore to the Partnership or
is treated as being obligated to restore to the Partnership under Treasury
Regulations Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) or 1.740-2(i)(5). Any
losses or deductions that cannot be allocated to a Partner because of the
foregoing limitation shall be allocated among the Partners in accordance with
their relative ownership of Units, subject to the limitations of this Section
7.3.2.
7.3.3 Any Partner who unexpectedly receives with respect to the
Partnership: (a) an adjustment pursuant to Treasury Regulation 1.704-
1(b)(2)(iv)(k); (b) an allocation of loss or deduction pursuant to Sections
704(e)(2) or 706(d) of the Code or pursuant to Treasury Regulation Section
1.751- 1(b)(2)(ii); or (c) a distribution in excess of an offsetting increase to
such Partner's Capital Account reasonably expected to occur during (or prior to)
the Partnership taxable year in which such distribution occurs, will be
allocated, as quickly as possible, items of income and gain in an amount and
manner sufficient to eliminate any resulting deficit balance in his Capital
Account in excess of the amount such Partner is obligated to restore to the
Partnership or is treated as being obligated to restore to the Partnership under
Treasury Regulations Sections 1.704-1(b)(2)(ii)(c), 1.704- 2(g)(1) or
1.740-2(i)(5) in accordance with the "qualified income offset" provisions of
Treasury Regulations Section 1.704-1(b)(2)(ii)(d);
7.3.4 Loss, deductions, and expenditures attributable to nonrecourse debt
for which a Partner bears the economic risk of loss shall be determined and
allocated to the Partner who bears such economic risk of loss in accordance with
Treasury Regulation Section 1.704-2, and if there is a decrease in "partner
nonrecourse debt minimum gain" (as defined in Treasury Regulation Section
1.704-2(i)(3)), any Partner with a share of that partner nonrecourse debt
minimum gain shall be allocated items of income and gain in accordance with the
chargeback provisions of Treasury Regulations Section 1.704-2(i)(4);
7.3.5 For purposes of this Section 7.3, a Partner's Capital Account
deficit balance shall be determined by excluding from such Partner's Capital
Account any amount such Partner is
16
obligated to restore to the Partnership or treated as obligated to restore to
the Partnership under Treasury Regulations Sections 1.704-1(b)(2)(ii)(c),
1.704-2(g)(l) or 1.704-2(i)(5), and by adjusting such Partner's Capital Account
balance for items described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) and (6); and
7.3.6 If property is reflected on the books of the Partnership at a book
value that differs from the adjusted tax basis of the property in accordance
with Treasury Regulations Section 1.704- 1(b)(2)(iv)(d) or (f), depreciation,
amortization, and gain or loss as determined for federal income tax purposes
shall be allocated so as to take into account such difference between book value
and adjusted tax basis in accordance with the principles of Code Section 704(c).
The General Partner shall have the authority to elect the method to be used by
the Partnership for allocating items required by Section 704(c) of the Code and
such election shall be binding on the Limited Partners.
7.4 Syndication Expenses. Syndication Expenses attributable to the
Underwriting Commissions paid on the Partnership's sale of any Unit shall be
specially allocated to the Limited Partner who owns the Units, and all other
Syndication Expenses shall be allocated to the Limited Partners who are admitted
to the Partnership from time to time so that, to the extent possible, the
cumulative Syndication Expenses (other than Underwriting Commissions) allocated
with respect to each Unit at any time is the same. If the General Partner
determines that such result is not likely to be achieved through future
allocations of Syndication Expenses, the General Partner may allocate a portion
of Net Profits or Net Losses to achieve the same effect on the Capital Accounts
of the Limited Partners.
7.5 Recharacterization of Fees. Any fees paid to the General Partner or any
of its Affiliates which are disallowed as deductible expenses by the Internal
Revenue Service shall constitute special allocations of gross income to the
General Partner for income tax purposes.
7.6 Recapture. If the Partnership recognizes gain on the sale, exchange or
other disposition of any property, any portion of such gain which is treated as
ordinary income pursuant to Code Section 1245 shall be divided between the
General Partner and the Limited Partners in proportion to the aggregate
deductions for cost recovery and depreciation previously allocated to them and
not yet recaptured and shall be allocated among the Limited Partners in the same
proportions as the gain from such disposition is allocated among them.
7.7 Allocations Among Limited Partners. Except as otherwise provided in this
Agreement, Net Profits and Net Losses allocated to the Limited Partners for any
fiscal year shall generally be divided among them in proportion to their Units
for such fiscal year. In the event that additional Limited Partners are admitted
to the partnership pursuant to Article 3.6 hereof on dates during the taxable
year other than January 1, or units of a Limited Partner are redeemed pursuant
to Article 12 hereof on dates during the taxable year other than December 31,
Net Profits and Net Losses allocated to the Limited Partners for such year shall
be allocated among them in proportion to the number of Units each holds from
time to time during such year in accordance with Code Section 706, using any
convention permitted by law and selected by the General Partner. If an interest
of a Partner in the Partnership is transferred in accordance with Section 11 of
this Agreement, the General Partner, in its sole discretion, may allocate such
items of Net Profits, Net Loss, and credit by closing the books of the
Partnership immediately after the transfer of the interest or by using any other
convention permitted under Code Section 706 and selected by the General Partner.
All such allocations shall be made without regard to the date, amount or
recipient of any distributions which may have been made with respect to such
transferred interest.
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7.8 Other Allocations. Any allocations not otherwise provided for shall be
divided among the Partners in the same proportions as they share Net Profits or
Net Losses, as the case may be, for the period.
ARTICLE 8
Distributions
8.1 Cash Distributions. For purposes of this Article Eight, the following
terms should have the meanings set forth below:
(a) "Limited Partner" means each Limited Partner of the Partnership,
as defined in Article 1, and includes all the Monthly Limited Partners and all
the Quarterly Limited Partners.
(b) "Monthly Limited Partner" means any Limited Partner who makes a
Capital Contribution of $5,000 or more and who, for the quarter in question, has
elected (either (i) by written notice to the General Partner upon subscription
or (ii) thereafter, upon ten days' prior written notice to the General Partner,
effective as of the beginning of the following quarter), to receive monthly
distributions of cash available for distribution.
(c) "Quarterly Limited Partner" means any Limited Partner other than a
Monthly Limited Partner.
8.1.1 Except as otherwise provided in this Section 8.1, Cash Available for
Distribution shall be distributed as follows:
(a) The General Partner, within thirty (30) days following the close
of each fiscal quarter or as soon thereafter as practicable, shall determine in
its sole and absolute discretion, the amount of Cash Available for Distribution.
(b) 99% to the Limited Partners and one percent to the General Partner
(which one percent may be considered a Carried Interest) until (i) each Limited
Partner has received an amount equal to the excess, if any, of (A) the
Cumulative Return from the inception of the Partnership to the date of the
distribution, over (B) the sum of all prior distributions under this Section
8.1.1(b)(i), and (ii) each Limited Partner's Adjusted Capital Contribution has
been reduced to zero; and
(c) thereafter, 90% to the Limited Partners and a promotional interest
of ten percent to the General Partner.
8.1.2 Cash Available for Distribution
(a) Cash Available for Distribution to the Limited Partners on a
quarterly basis shall be allocated between the Monthly Limited Partners, as a
group, and the Quarterly Limited Partners, as a group, in proportion to the
number of Units owned by each such group of Limited Partners.
(b) The portion of Cash Available for Distribution allocable to the
Quarterly Limited Partners shall be distributed to the Quarterly Limited
Partners and one-third (1/3) of the portion allocable to the Monthly Limited
Partners shall be distributed to the Monthly Limited
18
Partners, with all such distributions to be made within thirty (30) days
following the close of each fiscal quarter or as soon thereafter as practicable.
The remaining two-thirds (2/3) of the Cash Available for Distribution to the
Monthly Limited Partners shall be deposited in the Monthly Distribution Account.
One-half (1/2) of the amount so deposited shall be distributed to the Monthly
Limited Partners within seventy (70) days following the close of such
immediately preceding fiscal quarter, or as soon thereafter as practicable, and
the remainder of the Cash Available for Distribution so deposited shall be
distributed within one hundred (100) days following the close of such
immediately preceding fiscal quarter, or as soon thereafter as practicable.
Notwithstanding the foregoing, each distribution pursuant to this Article Eight
that is payable to the Monthly Limited Partners first shall be reduced by an
amount equal to the Distribution Fee, less any interest earned on the Monthly
Distribution Account. For purposes of determining the Adjusted Capital Account
of a Monthly Limited Partner and the Cumulative Return with respect to such
Monthly Limited Partner, the amount distributed to such Monthly Limited Partner
shall be deemed to be the full amount to be distributed to such Partner pursuant
to this Article 8.1.2(b), unreduced by any portion of the Distribution Fee, and
such full amount shall be deemed to have been distributed to such Partner when
the first one-third (1/3) portion thereof is distributed to such Partner
pursuant to the first sentence of this Article 8.1.2(b).
8.1.3 Notwithstanding Section 8.1.1, amounts distributed in connection
with the liquidation of the Partnership or a Partner's interest (within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)) shall be distributed
in accordance with the Partner's positive Capital Account as adjusted for all
operations and transactions preceding such distribution.
8.1.4 Notwithstanding Section 8.1.1, if the proceeds resulting from the
sale of any Equipment are reinvested in Equipment, sufficient cash will be
distributed to the Partners to pay the additional federal income tax resulting
from such sale for a Partner in a 35% federal income tax bracket or, if
different, the maximum federal income tax rate in effect for individuals for
such taxable year.
8.2 Allocation of Distributions to Limited Partners. Distributions to the
Limited Partners with respect to any period other than during the Offering
Period shall be allocated pro rata among the Limited Partners who are Limited
Partners on the Record Date for purposes of such distributions. Distributions to
the Limited Partners during the Offering Period shall be allocated among the
Limited Partners in proportion to their Average Daily Units for the period with
respect to which the distribution is made.
8.3 Amounts Withheld. Any amounts withheld pursuant to Section 9.1.16 shall
be treated as amounts distributed to the Partners for all purposes under this
Agreement. Amounts treated as distributed to a Partner pursuant to this Section
8.3 shall reduce the amounts otherwise distributed to such Partner pursuant to
this Agreement.
8.4 Return of Offering Proceeds. If all of the net proceeds of the Offering
are not invested by the Partnership in Equipment or committed to such investment
or otherwise utilized for proper Partnership purposes prior to the expiration of
12 months from the Closing Date, the net proceeds not so invested, committed, or
set aside as working capital reserves will thereupon be promptly returned, with
a proportionate share of interest at the rate earned by the Partnership on the
investment of such proceeds, to the Limited Partners based upon their respective
numbers of Units and time of purchase, without reduction for the General
Partner's Organizational Fee or for any Equipment Acquisition Fee which would
have been payable to the General Partner if such proceeds had been invested. For
such purpose, funds will be deemed to be committed to investment and will not be
returned to the Limited Partners to
19
the extent written agreements in principle, commitment letters, letters of
intent or understanding, option agreements, or any similar contracts or
understandings exist, whether or not any such investment is ultimately
consummated. Funds will also be deemed to be committed to the extent: (i) any
funds may have been reserved to make contingent payments in connection with any
Equipment already acquired, whether or not any such payments are ultimately
made; (ii) as a condition to obtaining financing the Partnership is required to
maintain funds s a compensating balance; or (iii) the General Partner decides
that an addition to the working capital reserve is necessary in connection with
any Equipment.
ARTICLE 9
Rights, Powers, and Duties of General Partner
9.1 Rights and Powers. Except as otherwise specifically provided in this
Agreement, the General Partner shall exercise complete and exclusive control
over the management of the Partnership business and affairs. In addition to any
other rights and powers which the General Partner may possess under this
Agreement and the Act, the General Partner shall, except to the extent otherwise
provided in this Agreement, have all rights and powers required or appropriate
to its management of the Partnership and the Partnership's business, which byway
of illustration but not by way of limitation, include the following rights and
powers which may be exercised on behalf of, and, subject to Article 5, at the
expense of, the Partnership:
9.1.1 to acquire, purchase, hold, sell, exchange or otherwise transfer
Equipment; to lease Equipment to third parties; to make loans to manufacturers
of Equipment with respect to and secured by Equipment leased directly by the
manufacturer to third parties; and to enter into agreements with others with
respect to such activities, which agreements may contain such provisions as the
General Partner in its sole and absolute discretion shall approve;
9.1.2 to invest Partnership funds in commercial paper, government
securities, certificates of deposit, time deposits, bankers acceptances, money
market certificates or accounts, or other short-term investments (such as money
market funds) which the General Partner deems appropriate;
9.1.3 subject to Section 17.2.3, to purchase liability, casualty and
other insurance which the General Partner deems appropriate for the protection
of the Equipment or for any purpose convenient or beneficial to the Partnership,
provided that the General Partner will not provide insurance services to the
Partnership;
9.1.4 to delegate all or any of its duties under this Agreement, and in
furtherance of any such delegation to appoint, employ or contract with any
persons, which persons may, under the supervision of the General Partner,
administer or assist in the day-to-day operations of the Partnership; act as
consultants, accountants, correspondents, attorneys, brokers, escrow agents or
in any other capacity deemed by the General Partner necessary or desirable; and
perform such other acts or services for the Partnership as the General Partner
in its sole and absolute discretion may approve;
9.1.5 to designate and appoint one or more agents for the Partnership who
shall have authority as may be conferred on them by the General Partner, and who
may perform any of the duties, and exercise any of the powers and authority,
conferred on the General Partner under this Agreement, including, but not
limited to, designation of one or more agents as authorized signatories on any
bank accounts maintained by the Partnership;
20
9.1.6 to act in its own name as nominee for the Partnership and to place
title to Partnership assets in its own name or the names of others as nominees
or trustees for any purpose convenient or beneficial to the Partnership;
9.1.7 to collect all amounts due to the Partnership, and otherwise to
enforce all rights of the Partnership including rights under any lease of its
assets, and to retain counsel and institute suits or proceedings, in the name
and on behalf of the Partnership;
9.1.8 to establish and maintain one or more bank accounts for the
Partnership in such bank or banks as the General Partner may, from time to time,
designate as depositaries of the funds of the Partnership;
9.1.9 to make or revoke any elections permitted under the Code;
9.1.10 to determine the appropriate accounting method or methods to be
used by the Partnership;
9.1.11 to offer and sell Units of the Partnership to the public directly
or through Commonwealth Capital Securities Corp. or any licensed Affiliate of
the General Partner; to employ personnel, agents and dealers for such purpose;
and, in connection therewith, to cause the Partnership to indemnify Commonwealth
Capital Securities Corp. to the extent permitted under federal and state
securities laws;
9.1.12 to admit the purchasers of the Units as Limited Partners of the
Partnership, to amend this Agreement and the Certificate to reflect the addition
or substitution of Limited Partners and the reduction of Capital Accounts on the
return of capital to Partners;
9.1.13 to borrow money for Partnership purposes (other with respect to
Equipment purchased with initial offering proceeds before the net offering
proceeds are fully invested, or committed to investment, in Equipment) and as
security therefor to mortgage, pledge, hypothecate or encumber or otherwise
place liens upon all or part of the Equipment and other property of the
Partnership, to pledge or encumber the assets of the Partnership to secure any
remarketing rights of vendors or suppliers of Equipment;
9.1.14 to prepay in whole or in part, refinance, increase, modify,
consolidate, extend or increase any lien or encumbrance affecting any Equipment;
9.1.15 to require in all Partnership obligations that the General Partner
shall not have any personal liability thereon but that the person or entity
contracting with the Partnership is to look solely to the Partnership and its
assets for satisfaction; provided, however, that the inclusion of such
provisions shall not materially affect the cost of the service or material being
supplied;
9.1.16 to withhold income taxes as required or permitted by any federal,
state or local taxing authority, and otherwise to comply with and take actions
necessary or appropriate as a result of provisions of the Code or any state or
other tax law requiring or permitting withholding;
9.1.17 to deal with, or otherwise engage in business with, any person who
has dealt with or engaged in business with or may in the future deal with or
engage in business with the General Partner or its Affiliates; provided that no
such dealing or engaging in business may involve any
21
arrangement which would circumvent any of the provisions of this Agreement,
including the restrictions against dealing with the General Partner or its
Affiliates;
9.1.18 to commence the dissolution and liquidation of the Partnership in
its eleventh year of existence in order to terminate the Partnership by December
31, 2015; and
9.1.19 to prohibit Qualified Plans from acquiring, individually or in the
aggregate, more than 25% of the Units.
9.2 Reliance on Certificate of General Partner. Any person dealing with the
Partnership or the General Partner may rely on a certificate signed by the
General Partner as authority with respect to (a) the identity of any General
Partner or Limited Partner; (b) the existence or nonexistence of any fact or
facts which constitute a condition precedent to acts by the General Partner or
in any other manner are germane to the affairs of the Partnership; (c) the
persons who are authorized to execute and deliver any instrument or document of
the Partnership; or (d) any act or failure to act by the Partnership or as to
any other matter involving the Partnership or any Partner.
9.3 Independent Activities. The General Partner and its Affiliates and each
Limited Partner may, notwithstanding the existence of this Agreement, engage in
whatever activities they choose, whether competitive with the Partnership or
otherwise, without having or incurring any obligation to offer any interest in
such activities to the Partnership or any party hereto. The General Partner and
its Affiliates shall not be obligated to present to the Partnership any
particular investment opportunity which comes to their attention if the General
Partner, in good faith, determines that such opportunity is not an appropriate
investment for the Partnership at that time or if the opportunity is not
presented to the Partnership because it has been presented to other partnerships
sponsored by the General Partner that may have priority based on criteria
established by the General Partner. Subject to the foregoing, neither this
Agreement nor any activity undertaken pursuant hereto shall prevent the General
Partner or its Affiliates from engaging in any activity, or require the General
Partner or its Affiliates to permit the Partnership or any Limited Partner to
participate therein. The General Partner may organize and participate as a
general partner in partnerships which may engage in activities similar to the
activity engaged in by this Partnership and which may use the name "Commonwealth
Income & Growth Fund" or variations of such name. The General Partner retains
the rights to such name and its variations. The General Partner will give
priority to the Limited Partners when the interests of the Limited Partners
conflict with the interests of the General Partner.
If one or more programs affiliated with the General Partner and the
Partnership are in a position to acquire the same Equipment, the General Partner
will determine which program will purchase the Equipment based upon the
objectives of each and the suitability of the acquisition in light of those
objectives. The General Partner will generally afford priority to the program or
entity that has had funds available to purchase Equipment for the longest period
of time. In addition, in order to promote diversification of Equipment and
lessees, when two or more programs are in a position to acquire the same
Equipment, the General Partner may acquire Equipment in joint ventures with
affiliated investor programs. If one or more investor programs affiliated with
the General Partner and the Partnership are in a position to enter into leases
with the same lessee or to sell Equipment to the same purchaser, the General
Partner will generally afford priority to the Equipment which has been available
for lease or sale for the longest period of time.
9.4 Duties.
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9.4.1 The General Partner shall manage and control the Partnership, its
business and affairs. The General Partner shall devote such time to the business
of the Partnership as in its discretion it determines is necessary for the
efficient carrying on of the business.
9.4.2 The General Partner shall be the tax matters partner of the
Partnership as defined under the Code, and as such tax matters partner, shall be
subject to Section 17.2 of this Agreement.
9.4.3 The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in the General Partner's immediate possession or control. The General Partner
shall not employ, or permit another to employ, such funds or assets in any
manner except for the exclusive benefit of the Partnership. The Limited Partners
may not contract away the fiduciary duty owed to them by the General Partner
under the common law.
9.4.4 The General Partner shall commit toward Investment in Equipment at
least that portion of the Limited Partners' Capital Contributions for their
Units required by Section 6.6 hereof. If the total amount of Front-End Fees must
be reduced in order to enable the Partnership to commit such Capital
Contributions to Investment in Equipment, the General Partner shall, and shall
cause its Affiliates or other persons to, reimburse the Partnership for such
amount of Front-End Fees and any Acquisition Fees, Debt Placement Fees and
Acquisition Expenses paid in connection with the reinvestment of the
Partnership's funds received by them as is necessary to enable the Partnership
to meet such requirement within 30 days after the need for reimbursement arises.
9.4.5 The General Partner shall maintain reserves in such amount and for
such times and purposes as it deems appropriate.
9.5
Restrictions on Authority. Notwithstanding any other provisions of this
Agreement:
9.5.1 The General Partner shall not have the authority to do any act in
contravention of this Agreement or the Act; possess Partnership property, or
assign rights in specific Partnership property, for other than a Partnership
purpose; admit a person as a General Partner or a Limited Partner, except as
provided in this Agreement; knowingly perform any act that would subject any
Limited Partner to liability as a general partner in any jurisdiction; alter the
purpose or character of the Partnership as set forth in Section 2.5; or confess
a judgment against the Partnership.
9.5.2 Except pursuant to Section 10.2, the General Partner shall not sell
all or substantially all of the assets of the Partnership in a single sale,
except in the winding up and liquidation of the business of the Partnership or
in a final liquidating sale of Equipment remaining after the disposition in the
ordinary course of business of substantially all of the Partnership's other
Equipment.
9.5.3 The Partnership shall not purchase or lease Equipment from the
Sponsor or its Affiliates, including Equipment in which the General Partner or
its Affiliates have an interest, except that the General Partner shall be
permitted to make acquisitions of Equipment in its own name (and assume loans in
connection therewith) and hold title thereto on an interim basis (not in excess
of 60 days) for the purpose of facilitating the acquisition of such Equipment or
the borrowing of money or obtaining of financing, or any other purpose related
to the business of the Partnership provided that (a) such acquisitions are in
the best interest of the Partnership; (b) such Equipment is purchased by the
Partnership for a price no greater than the sum of the actual cost of such
Equipment, accountable Acquisition Expenses payable to third parties, interest
on the Purchase Price (at a rate no greater than that charged by unrelated
lenders on comparable loans) from the date of purchase to the date of transfer
to the
23
Partnership and compensation permitted in accordance with Article 6 of this
Agreement; (c) there is no difference in interest terms of the loans secured by
the Equipment at the time acquired by the General Partner and the time acquired
by the Partnership; and (d) no benefit arises out of such acquisitions to the
General Partner except for the compensation permitted under this Agreement.
During interim purchases by the General Partner, all profits and losses shall
accrue to the Partnership.
9.5.4 The Partnership shall not invest in junior trust deeds unless
received in connection with the sale of an item of Equipment in an aggregate
amount which does not exceed 30% of value of the assets of the Partnership on
the date of the investment.
9.5.5 The Partnership shall not sell or lease Equipment to the General
Partner or its Affiliates.
9.5.6 The Partnership shall not make loans to any Person, including
without limitation, the General Partner or its Affiliates (except to the extent
a Conditional Sales Contract constitutes a loan).
9.5.7 The Partnership shall not acquire Equipment from an Equipment
Program in which the General Partner or its Affiliates have an interest.
9.5.8 The Partnership shall not acquire Equipment in exchange for Units.
9.5.9 The Partnership shall not give the General Partner or its Affiliates
an exclusive right to sell or exclusive employment to sell Equipment for the
Partnership.
9.5.10 The Partnership shall not pay, directly or indirectly, a commission
or fee (except as specifically described under this Agreement) to the General
Partner or its Affiliates in connection with the reinvestment or distribution of
Cash Available for Distribution or of the proceeds of the resale, exchange, or
refinancing of the Partnership's Equipment.
9.5.11 No rebates or give-ups may be received by the General Partner or
its Affiliates, nor may the General Partner or its Affiliates participate in any
reciprocal business arrangements which would circumvent any of the provisions of
this Agreement, including the restrictions against dealing with the General
Partner or its Affiliates.
9.5.12 The General Partner and its Affiliates shall not directly or
indirectly pay or award any commissions or other compensation to any person
engaged by a potential Limited Partner for investment advice as an inducement to
such adviser to advise the purchase of Units. This Section 9.5.12, however,
shall not prohibit the payment of Underwriting Commissions to the Dealer Manager
or other properly licensed person for selling Units.
9.5.13 The funds of the Partnership shall not be commingled with the funds
of any other Person. This prohibition shall not apply to investments meeting the
requirements of Section 9.5.14.
9.5.14 Except to the extent that a permitted investment in the entities
referred to in this Section 9.5.14 constitutes "securities" within the meaning
of the Securities Act of 1933, as amended, the Partnership will not invest in
securities, including equipment limited partnerships, general partnerships or
joint ventures, except that (a) the Partnership may invest in general
partnerships or joint ventures with persons other than equipment Programs formed
by the General Partner or its Affiliates, which partnerships or joint ventures
own specific equipment; provided that (i) the Partnership has or acquires a
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controlling interest in such ventures or partnerships; (ii) the non- controlling
interest is owned by a non-Affiliate, and (iii) there are no duplicate fees; and
(b) the Partnership may invest in joint venture arrangements with other
equipment Programs formed by the General Partner or its Affiliates if such
action is in the best interests of all Programs and if all the following
conditions are met: (i) all the Programs have substantially identical investment
objectives; (ii) there are no duplicate fees; (iii) the sponsor compensation is
substantially identical in each Program; (iv) the Partnership has a right of
first refusal to buy another Program's interest in a joint venture if the other
Program wishes to sell equipment held in the joint venture; (v) the investment
of each Program is on substantially the same terms and conditions; and (vi) the
joint venture is formed either for the purpose of effecting appropriate
diversification for the Programs or for the purpose of relieving the General
Partner or its Affiliates from a commitment entered into pursuant to Section
9.5.3.
9.5.15 Neither the General Partner nor its Affiliates shall lend money to
the Partnership if interest rates and other financing charges and fees in
connection with such loan are in excess of the lesser of their cost of funds or
the amount which would be charged by unrelated lending institutions on
comparable loans for the same purpose or if such loan contains any prepayment
charge or prepayment penalty. Neither the General Partner nor its Affiliates
shall provide financing for the Partnership unless such financing has a term of
not more than 12 months or carries an interest rate in excess of three percent
over the prime rate of Chase Bank, Philadelphia, PA.
9.5.16 Other than as specifically described in Section 5.2 and Article 6
of this Agreement and the section "Compensation of the General Partner" in the
Prospectus at the time it was declared effective by the Securities and Exchange
Commission, the General Partner shall not enter into any agreement, contract or
arrangement on behalf of the Partnership providing for compensation to the
General Partner or its Affiliates for performing services for, or selling or
leasing goods or materials to, the Partnership.
9.5.17 All services or goods for which the General Partner or its
Affiliates are to receive compensation (other than pursuant to this Agreement)
shall be embodied in a written contract which precisely describes the subject
matter thereof and all compensation to be paid, which contract may only be
modified by a vote of a Majority in Interest of the Limited Partners and which
contract shall contain a clause allowing termination by either party without
penalty on 60 days' prior written notice.
9.5.18 In connection with the borrowing of money, recourse for the payment
of which is limited solely to property of the Partnership and which shall be
amortized fully over the initial lease term, no lender shall be granted or
acquire, at any time as a result of making such a loan, any direct or indirect
interest in the profits, capital or property of the Partnership other than as a
secured creditor.
9.5.19 Partnership funds shall not be invested in any financial
institution or entity affiliated with the General Partner and shall not be used
in a compensating balance arrangement for the benefit of any entity other than
the Partnership.
9.5.20 Without the consent of the General Partner and a Majority in
Interest of the Limited Partners, the Partnership shall not convert to another
form of business entity if the conversion results in a significant adverse
change in (a) the voting rights of the Limited Partners, (b) the termination
date of the Partnership, (c) the compensation payable to the General Partner or
its Affiliates or (d) the ability to meet the Partnership's objectives without
materially impairing the rights of Limited Partners.
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9.5.21 The Partnership shall not make distributions in kind except upon
dissolution and liquidation, and then only to a liquidating trust which has been
established for the purpose of the liquidation of the assets of the Partnership
and the distribution of cash in accordance with this Agreement.
9.5.22 The Partnership shall not incur debt in excess of 30% of the
expected aggregate cost of the Equipment to be owned or subject to a Conditional
Sales Contract, and the Partnership may not incur indebtedness on Equipment
unless, at the time of any such leveraged acquisition, the net proceeds of the
Offering received to date are fully invested, or committed to investment, in
equipment..
9.5.23 The Partnership shall not purchase Equipment unless such Equipment
is subject to a lease or a Conditional Sales Contract or for which a lease or a
Conditional Sales Contract will be entered into when the Partnership acquires
the Equipment.
9.5.24 The Partnership's leases and other contracts will each contain a
statement that the Partnership has been organized as a limited partnership under
the Act.
9.5.25 Without the consent of the General Partner and a Majority in
Interest of the Limited Partners, the Partnership will not change its principal
purpose of acquiring, leasing and selling Equipment.
9.5.26 The Partnership shall not issue equity securities senior to the
Units.
9.6 General Partner's Net Worth. The General Partner agrees, represents and
warrants that it will at all times have a net worth in an amount (i) sufficient
in the opinion of counsel to the Partnership to enable the Partnership either to
avoid having the corporate characteristic of limited liability for federal
income tax purposes or to avoid being treated as an association taxable as a
corporation for federal income tax purposes, and (ii) at least five percent of
the gross amount of all direct participation programs sold by the General
Partner within the prior 12 months plus five percent of the amount of the
Capital Contribution to the Partnership, up to $1,000,000.
ARTICLE 10
Rights of Limited Partners
10.1 No Limited Partner in Control. No Limited Partner, as such, shall
participate in the management or control of the Partnership's business, nor
shall any Limited Partner, as such, have the power to act for or bind the
General Partner or the Partnership.
10.2 Voting Rights. The Limited Partners by a vote of a Majority in Interest
of the Limited Partners may, without the necessity for concurrence by the
General Partner (a) approve or disapprove a sale of all or substantially all of
the assets of the Partnership, except as otherwise permitted or required under
Section 14.1 or 14.4 of this Agreement; (b) dissolve the Partnership; (c)
subject to Section 10.5, amend this Agreement except that amendment of Articles
6, 7 and 8 shall require the affirmative vote of Limited Partners owning at
least 66-2/3% of the Units owned by all Limited Partners; (d) remove or approve
the withdrawal of the General Partner; or (e) prior to the effective date of a
removal, withdrawal or dissolution of the General Partner, elect an additional,
replacement or successor General Partner to be admitted prior to such effective
date. With respect to any Units owned by the General Partner or its Affiliates,
the General Partner and its Affiliates may not vote or consent on matters
submitted to the Limited Partners regarding removal of the General Partner or
any transaction between the Partnership
26
and the General Partner or its Affiliates. In determining the required
percentage in interest of Units necessary to approve a matter on which the
General Partner and its Affiliates may not vote or consent, any Units owned by
the General Partner or its Affiliates shall not be included.
10.3 Conversions and Roll-Ups.
10.3.1 Consent Required. Without the approval of the General Partner and
the holders of at least 66-2/3% of all outstanding Units, the Partnership shall
not enter into any Roll-Up. Limited Partners who do not consent to an approved
Roll-Up shall be given the option of (i) accepting the securities of the Roll-Up
Entity offered in the proposed Roll-Up; or (ii) receiving cash in an amount
equal to the non-consenting Limited Partner's pro rata share of the appraised
value of the net assets of the Partnership. The Partnership shall not reimburse
the sponsor of a proposed Roll-Up for the costs of an unsuccessful proxy contest
in the event that the Roll-Up is not approved by the Limited Partners as
required by the first sentence of this Section 10.3.1.
10.3.2 Appraisal. The "appraised value of the net assets of the
Partnership" as used in Section 10.3.1 shall be established by means of an
appraisal of the net assets of the Partnership by a competent Independent
Expert, engaged for the benefit of the Partnership and the Limited Partners,
with no current material or prior business or personal relationship with the
General Partner or its Affiliates. Such Independent Expert must be engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership, and must be qualified to perform
such work. The appraisal shall be based on an evaluation of all relevant
information and shall indicate the value of the Partnership's assets, assuming
an orderly liquidation of such assets over a twelve-month period, as of a date
immediately prior to the date of the proposed Roll-Up. A summary of the
independent appraisal, including all material assumptions underlying the
appraisal, shall be included in a report to the Limited Partners in connection
with a proposed Roll-Up and shall be appraised on a consistent basis. If the
appraisal will be included in a prospectus used to offer the securities of a
Roll-Up Entity, the appraisal shall be filed with the Securities and Exchange
Commission and the states as an exhibit to the registration statement for the
offering and accordingly, in that event, the issuer would be subject to
liability for violations of Section 11 of the Securities Act of 1933 and
comparable provisions under state laws for any material misrepresentations or
material omissions in the appraisal.
10.3.3 Prohibited Roll-Ups. The Partnership shall not participate in any
proposed Roll-Up: (a) which would result in the Limited Partner's having voting
rights and rights to hold meetings which are less than those rights provided for
under Section 10.2; (b) which includes provisions which would operate to
materially impede or frustrate the accumulation of shares by any purchaser of
the securities of the Roll-Up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-Up Entity); (c) which would limit the
ability of a Limited Partner to exercise the voting rights of its securities of
the Roll-Up Entity on the basis of the number of Units held by that Limited
Partner, and (d) in which the Limited Partners' rights of access to the records
of the Roll-Up Entity will be less than those rights provided for under Section
15.1 hereof.
10.3.4 With the consent of a Majority in Interest of the Limited Partners,
the Partnership is permitted to convert into another form of business entity
which does not result in a significant adverse change in (a) the voting rights
of the Limited Partners, (b) the termination date of the Partnership (currently,
December 31, 2015, unless terminated earlier in accordance with this Agreement),
(c) the compensation payable to the General Partner or its Affiliates (provided
however that any increase in the compensation payable to the General Partner and
its Affiliates requires the approval of 66-2/3% of all outstanding Units), or
(d) the ability to meet the Partnership's investment objectives without
27
materially impairing the rights of the Limited Partners. The General Partner
will make the determination as to whether or not any such conversion will result
in a significant adverse change in any of the provisions listed in Section
10.3.1 based on various factors relevant at the time of the proposed conversion,
including an analysis of the historic and projected operations of the
Partnership; the tax consequences (from the standpoint of the Limited Partners)
of the conversion and of an investment in a limited partnership as compared to
an investment in the type of business entity into which the Partnership would be
converted; and the performance of the equipment industry in general, and of the
computer peripherals segment of the industry in particular. In general, the
General Partner would consider any material limitation on the voting rights of
the Limited Partners or any substantial increase in the compensation payable to
the General Partner or its Affiliates to be a significant adverse change in the
listed provisions.
10.4 Meetings.
10.4.1 Meetings of the Limited Partners to vote upon any matters as to
which the Limited Partners are authorized to take action under this Agreement,
as the same may be amended from time to time, may be called at any time by the
General Partner or by one or more Limited Partners holding more than 10% of the
then outstanding Units, by delivering written notice, either in person or by
registered mail stating the purpose of the meeting, to the General Partner.
Promptly, but in any event within 10 days following receipt of such request, the
General Partner shall cause a written notice, either in person or by certified
mail, to be delivered to the Limited Partners entitled to vote at such meeting.
The meeting will be held at the time and place specified in the request, or if
none, at a time and place convenient to the Limited Partners, such meeting to be
held not less than 15 days nor more than 60 days after the mailing of the notice
of the meeting. Included with the notice of a meeting shall be a detailed
statement of the action proposed, including a verbatim statement of the wording
of any resolution proposed for adoption by the Limited Partners and of any
proposed amendment to this Agreement. All expenses of the meeting and
notification shall be borne by the Partnership.
10.4.2 A Limited Partner shall be entitled to vote (a) at a meeting, in
person or by a proxy in writing or by a signed writing directing the manner in
which he desires that his vote be cast, which writing must be received by the
General Partner prior to such meeting, or (b) without a meeting, by a signed
writing directing the manner in which he desires that his vote be cast, which
writing must be received by the General Partner prior to the date on which the
votes of Limited Partners are to be counted. Only the votes of persons who were
Limited Partners on the record date, whether at a meeting or otherwise, shall be
counted.
10.5 Certain Amendments.
10.5.1 In addition to any amendments otherwise authorized herein, this
Agreement may be amended from time to time by the General Partner, without the
consent of any of the Limited Partners (a) to add to the representations, duties
or obligations of the General Partner or surrender any right or power granted to
the General Partner herein, for the benefit of the Limited Partners; (b) to cure
any ambiguity or inconsistency, to correct or supplement any provision that may
be inconsistent with any other provisions hereof, or to make any other provision
with respect to matters under this Agreement not inconsistent with the intent of
this Agreement; (c) to delete or add any provisions required to be so deleted or
added by, or to meet the requirements of, applicable law (including the Code,
ERISA and the regulations thereunder); and (d) to delete or add any provisions
required to be so deleted or added by the staff of the Securities and Exchange
Commission or by state securities commissioner or similar official,
28
which addition or deletion is deemed by such person, commissioner or official to
be for the benefit or protection of the Limited Partners.
10.5.2 Notwithstanding anything to the contrary contained in this
Agreement, this Agreement may not be amended without the consent of each Limited
Partner to be affected adversely by an amendment that (a) converts a Limited
Partner into a General Partner; (b) modifies the limited liability of a Limited
Partner; (c) alters the interest of the General Partner or Limited Partners in
Net Profits, Net Losses, or distributions from the Partnership; or (d) adversely
affects the status of the Partnership as a partnership for federal income tax
purposes.
10.5.3 Each Limited Partner shall be notified of any amendment to this
Agreement within 30 days of the effective date of the amendment by means of
first class mail, postage prepaid, to the address of the Limited Partner on the
books of the Partnership.
ARTICLE 11
Transfer of Units
11.1 Assignment.
11.1.1 No Limited Partner may transfer or assign his Units or any interest
therein except as permitted in this Article 11. Any act in violation of this
Article 11 shall be null and void and shall not be recognized by the
Partnership.
11.1.2 Without in any way limiting the restrictions on transfer and
assignment set forth in Article 11.4, with the prior written consent of the
General Partner, a Limited Partner may transfer or assign part or all of his
Units if, and only if: (a) the assignor and the assignee execute, acknowledge
and deliver to the Partnership such instruments of transfer and assignment and
other documents as may be required by the General Partner; (b) either (i) at
least 125 Units are assigned to one assignee and at least 125 Units are retained
by the assignor or (ii) the Units being assigned are all the Units of the
assignor (except that the General Partner, in its discretion, may waive this
requirement for transfers by gift, inheritance or family dissolution or
transfers to Affiliates of the assignor); (c) the assignee agrees in writing not
to assign such Units other than in accordance with this Article 11; (d) such
assignment complies with any applicable state and federal securities laws; (e)
assignor obtains an opinion of counsel that such assignment will not result in
the termination of the Partnership for federal income tax purposes and will not
result in the Partnership being classified as a publicly traded partnership or
an association taxable as a corporation for federal income tax purposes.
11.1.3 Without in any way limiting the restrictions on transfer and
assignment set forth in Article 11.4, an assignee, if he does not become a
Substituted Limited Partner pursuant to Section 11.2, shall have no rights of a
Limited Partner as a result of the assignment, but shall only be entitled to
receive the distributions under Article 8 and Sections 3.3.2 and 14.4 to which
the assignor would otherwise be entitled.
11.2 Substituted Limited Partners. Without in any way limiting the
restrictions on transfer and assignment set forth in Article 11.4, no assignee
of Units shall have the right to become a Substituted Limited Partner in place
of his assignor unless all of the following conditions are first satisfied: (a)
the written instrument of assignment (or another writing) sets forth the
intention of the assignor that the assignee succeed to the assignor's interest
as a Substituted Limited Partner in his place; (b) the assignor and assignee
execute, acknowledge and deliver such instruments as the General Partner may
deem
29
necessary or desirable to effect such substitution, including the written
acceptance and adoption by the assignee of this Agreement; and (c) the written
consent of the General Partner to such substitution is obtained, the granting of
which shall not be unreasonably withheld. The Partnership's records shall be
amended to reflect the substitution of Limited Partners at least once in each
calendar quarter.
11.3 Transfer Fee. On any assignment of Units, any substitution of an
assignee as a Limited Partner or any redemption of Units, the Partnership may
charge a transfer fee to cover reasonable out-of-pocket expenses in connection
with the substitution.
11.4 General. No transfer or assignment or redemption of any Units shall be
made if it would result in the Partnership being treated as an association
taxable as a corporation for tax purposes or as a publicly traded partnership.
In addition, no transfer or assignment of any Unit will be recognized or
otherwise given effect (including recognizing any right of the transferee, such
as the right of the transferee to receive directly or indirectly Partnership
distributions or to acquire an interest in the capital or profits of the
Partnership) for any purpose to the extent that it is determined by the General
Partner to be effectuated through an established securities market or a
secondary market (or the substantial equivalent thereof) within the meaning of
Section 7704 of the Code and the applicable Treasury Regulations thereunder so
as to adversely affect the tax status of the Partnership as a partnership rather
than as an association taxable as a corporation. The General Partner, in its
sole discretion, may impose any restrictions on transfers or assignments of
Units as it deems appropriate to give effect to the preceding two sentences
including prohibitions of any transfers or assignments of Units which fall
outside the safe harbors described in Section 1.7704-1 of the Treasury
Regulations. A Limited Partner must obtain the consent of the General Partner to
any transfer or assignment, and any transfer or assignment made without such
consent will not be recognized or given effect (including recognizing any right
of the transferee, such as the right of the transferee to receive directly or
indirectly Partnership distributions or to acquire an interest in the capital or
profits of the Partnership), which consent shall not be unreasonably withheld.
For these purposes, the good faith belief of the General Partner that such
transfer or assignment is not described in Treasury Regulation Sections
1.7704-1(e)(1)(i) - (vi) or 1.7704-1(e)(1)(ix) shall constitute reasonable cause
to withhold such consent. In connection therewith, the General Partner shall be
permitted to amend this Agreement without the consent of the Limited Partners.
Assignments and substitutions shall be effective on the first day of the month
following the month in which there has been full compliance with the
requirements of this Article 11. For the purposes of this Article 11, a pledge
of Units shall be deemed to be an assignment of such Units.
ARTICLE 12
Redemption
Upon the conclusion of the 30-month period following the termination of the
Offering, the Partnership may, at the sole discretion of the General Partner,
repurchase a number of the then outstanding Units. On a semi-annual basis, the
General Partner will establish an amount for redemption, generally not to exceed
two percent of the outstanding Units per year, subject to the General Partner's
sole discretion and its good faith determination that such redemptions will not
(a) cause the Partnership to be taxed as a corporation under Section 7704 of the
Code or (b) impair the capital or operations of the Partnership. At the sole
discretion of the General Partner, the Partnership may redeem Units in excess of
the two percent limitation. The redemption price for Units will be 105% of the
selling Limited Partner's Adjusted Capital Contributions attributable to the
Units for sale, net of the offering fees and expenses attributable to the Units
for sale. Such offering fees and expenses will be amortized over ten years after
the termination of the Offering. One quarter of these expenses will be amortized
in each 30-month period following the termination of the Offering. Following the
determination of the annual redemption
30
amount, redemptions will occur on a semi-annual basis and all requests for
redemption, which must be made in writing, must be on file as of the Record Date
established for purposes of determining eligibility for such redemption. The
General Partner will maintain a master list of requests for redemption with
priority being given to Units owned by estates, followed by IRAs and Qualified
Plans. All other Limited Partners will be treated on a first come, first served
basis. Redemption requests made by or on behalf of Limited Partners who are not
affiliated with the General Partner or its affiliates will be given priority
over those made by Limited Partners who are affiliated with the General Partner
or its Affiliates. All redemption requests will remain in effect until and
unless canceled, in writing, by the requesting Limited Partner(s). The making of
a request for redemption by a Limited Partner is completely voluntary.
ARTICLE 13
General Partner's Interest
13.1 Voluntary Withdrawal or Assignment. The General Partner shall not
voluntarily withdraw, retire or resign as general partner of the Partnership, or
assign, transfer or otherwise dispose of all or any part of its general
partnership interest unless:
13.1.1 the Limited Partners consent by a Majority in Interest;
13.1.2 in the case of withdrawal, retirement or resignation, it gives at
least 60 days' notice thereof and if there would be no remaining General
Partner, nominates a successor General Partner satisfactory to a Majority in
Interest of the Limited Partners, who becomes a General Partner prior to such
withdrawal, retirement or resignation; and
13.1.3 the Partnership receives an opinion of its counsel to the effect
that such withdrawal, retirement, resignation, assignment, transfer or other
disposition would not subject the Partnership to federal income taxation as an
association taxable as a corporation and would not cause a termination of the
Partnership for federal income tax purposes.
13.2 Removal. Subject to Section 14.3, after the Final Closing the General
Partner may be removed, and shall cease to be General Partner of the
Partnership, on the vote of the Majority in Interest of the Limited Partners.
ARTICLE 14
Dissolution, Continuation and Termination
14.1 Dissolution. The Partnership shall be dissolved on the occurrence of
any of the following events:
14.1.1 The vote or written consent of a Majority in Interest of the
Limited Partners determines that the Partnership should be dissolved;
14.1.2 The dissolution of the Partnership by judicial decree;
14.1.3 The expiration of 60 days following a Terminating Event, unless a
Majority in Interest of the Limited Partners, elect to continue the Partnership
in accordance with Section 14.2.2 and elect a successor general partner; or
31
14.1.4 The determination by the General Partner that it is necessary to
commence the liquidation of the Equipment in order for the liquidation of all
the Equipment to be completed in an orderly and business-like fashion prior to
December 31, 2011.
14.2 Continuation.
14.2.1 On the occurrence of the removal, withdrawal, retirement,
resignation, expulsion, involuntary dissolution, or Bankruptcy (or, in the case
of an individual, the death, insanity or appointment of a conservator for the
person or any of his assets) of one or more, but less than all, of the General
Partners, then the remaining General Partners shall have the right to, and
shall, continue the business of the Partnership.
14.2.2 On the occurrence of a Terminating Event, the last remaining
General Partner shall promptly send written notice of such event to all the
Limited Partners, who (subject to Sections 14.2.3 and 14.3) (a) may elect, by a
vote of the Majority in Interest within 60 days thereafter, to reconstitute the
Partnership and continue its business in accordance with this Agreement by
selecting one or more new General Partners who agree in writing to be bound by
this Agreement, and all Limited Partners, as such, shall be bound by such
action, or (b) may continue the business of the Partnership pursuant to Section
8571 of the Act.
14.2.3 The rights to continue the business of the Partnership provided in
this Section 14.2 shall be subject to receipt by the Partnership of an opinion
of counsel to the Partnership that such continuation would not result in the
Partnership's being classified for federal income tax purposes as an association
taxable as a corporation and would not result in the termination of the
Partnership for federal income tax purposes.
14.3 Purchase of Interest of General Partner. On any continuation of the
business of the Partnership under Section 14.2.1 or Section 14.2.2, or any
removal of the General Partner under Section 13.2, the following shall apply:
14.3.1 The General Partner who withdraws (voluntary termination) or is
removed (involuntary termination) shall be paid the then present fair market
value of its interest, determined in the manner described in this Section 14.3.
If the termination is voluntary pursuant to Section 13.1, the terminated General
Partner shall receive a non-interest bearing unsecured promissory note payable,
if at all, from distributions the terminated General Partner would have received
under this Agreement if it had not voluntarily terminated. If the termination is
involuntary pursuant to Section 13.2, such amount shall be paid in no less than
five equal annual installments, the first of which shall be paid one year from
the date of such termination. The unpaid portion of such amount shall bear
simple interest at the rate of 10% per annum from the date of such termination,
such interest to accrue and be paid annually in addition to each such annual
installment. In any event, the method of payment must protect the solvency and
liquidity of the Partnership.
14.3.2 The fair market value of a terminated General Partner's Partnership
interest shall be determined by agreement between the terminated General Partner
and the Partnership, which agreement shall require a vote of the Majority in
Interest of the Limited Partners. If the terminated General Partner and the
Partnership cannot agree on the fair market value of such partnership interest
within 45 days of the continuation, the fair market value thereof shall be
determined by arbitration in accordance with the then current rules of the
American Arbitration Association. The expense of arbitration shall be borne
equally by the terminated General Partner and the Partnership.
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14.4 Liquidation.
14.4.1 On any dissolution of the Partnership, absent any continuation
under Section 14.2, the General Partner, or a court-appointed liquidator if
there is no General Partner, shall take full account of the Partnership's assets
and liabilities. The assets shall be liquidated as promptly as is consistent
with obtaining the fair market value thereof, and the proceeds therefrom, to the
extent sufficient therefor, shall be applied in the following order: (a) to the
payment of all debts and liabilities of the Partnership to creditors; (b) to the
establishment, for such period as the liquidator deems reasonably necessary, of
such reserves as the liquidator deems reasonably necessary to provide for
contingent and unforeseen liabilities or obligations of the Partnership; and (c)
to the Partners in accordance with Section 8.1.3, such distributions to the
Partners to be made no later than the later of (i) the end of the taxable year
during which shall liquidation occurs or (ii) 90 days after the date of such
liquidation.
14.4.2 The debts and liabilities of the Partnership shall not include
liabilities or obligations of the Partnership to Partners for distributions or
on account of their contributions or in respect to profits (or other
compensation by way of income) or capital.
14.4.3 Notwithstanding anything to the contrary that may be expressed or
implied in this Agreement, upon the dissolution or termination of the
Partnership, the General Partner, in all events by the end of the Partnership's
taxable year in which the General Partner's interest is liquidated or, if later,
within 90 days of the date of such liquidation, will contribute to the
Partnership an amount of cash equal to the lesser of (a) the deficit balance of
the General Partner's Capital Account or (b) the excess of 1.01% of the total
Capital Contributions of the Limited Partners over the capital previously
contributed by the General Partner and such cash shall be distributed to the
Limited Partners in the ratio of the then credit balances in their Capital
Accounts.
14.4.4 Any capital contribution by the General Partner pursuant to Section
14.4.3 and any liquidating distribution pursuant to Section 14.4.1 shall be made
no later than the later of (a) the end of the taxable year during which such
liquidation occurs or (b) 90 days after the date of such liquidation.
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ARTICLE 15
Accounting and Fiscal Matters
15.1 Partnership Records. The records of the Partnership shall be maintained
at the principal office of the Partnership. Every Limited Partner or his duly
authorized representative shall at any reasonable time have access to the
records of the Partnership and may inspect and copy any of them. An alphabetical
list of the names, addresses, and business telephone numbers of the Limited
Partners of the Partnership along with the number of Units held by each of them
(the "Limited Partner List") shall be maintained as a part of the books and
records of the Partnership and shall be available for inspection by any Limited
Partner or its designated agent at the home office of the Partnership upon the
request of the Limited Partner. The Limited Partner List shall be updated at
least quarterly to reflect changes in the information contained therein. A copy
of the Limited Partner List shall be mailed to any Limited Partner requesting
the Limited Partner List within ten days of the request. The copy of the Limited
Partner List shall be printed in alphabetical order, on white paper, and in a
readily readable type size (in no event smaller than 10-point type). A
reasonable charge for copy work may be charged by the Partnership. The purposes
for which a Limited Partner may request a copy of the Limited Partner List
include, without limitation, matters relating to Limited Partners' voting rights
under the Partnership Agreement, and the exercise of the Limited Partners'
rights under federal proxy laws. If the General Partner neglects or refuses to
exhibit, produce, or mail a copy of the Limited Partner List as requested, the
General Partner shall be liable to any Limited Partner requesting the list for
the costs, including attorneys' fees, incurred by that Limited Partner for
compelling the production of the Limited Partner List, and for actual damages
suffered by any Limited Partner by reason of such refusal or neglect. It shall
be a defense that the actual purpose and reason for the requests for inspection
or for a copy of the Limited Partner List is to secure such list of Limited
Partners or other information for the purpose of selling such list or copies
thereof, or of using the same for a commercial purpose other than in the
interest of the applicant as a Limited Partner relative to the affairs of the
Partnership. The General Partner may require the Limited Partner requesting the
Limited Partner List to represent that the list is not requested for a
commercial purpose unrelated to the Limited Partner's interest in the
Partnership. The remedies provided hereunder to the Limited Partners requesting
copies of the Limited Partner List are in addition to, and shall not in any way
limit, other remedies available to the Limited Partners under federal law, or
the laws of any state.
15.2 Accounting; Fiscal Year. The Partnership's books and records shall be
kept on the accrual method of accounting. The fiscal year of the Partnership
shall be the calendar year.
15.3 Reports.
15.3.1 The General Partner will deliver to each Limited Partner, within
120 days after the end of each year, a balance sheet of the Partnership dated as
of December 31 of such year, together with statements of income, Partners'
equity, and the changes in financial position of the Partnership for such year,
prepared in accordance with generally accepted accounting principles and
accompanied by an auditor's report containing an opinion of the Partnership's
independent certified public accountants, as well as an unaudited Cash Flow
statement containing a breakdown of distributions to Limited Partners for the
year, separately identifying distributions from (a) Cash Flow from operations
during the year, (b) Cash Flow from operations during a prior period which had
been held as reserves, (c) proceeds from disposition of Equipment and
investments and (d) reserves from gross proceeds of the Offering originally
obtained from the Limited Partners. The General Partner will within such period
also furnish a report of the activities of the Partnership for the year, which
will include (a) for each item of Equipment acquired by the Partnership which
individually represents at least 10% of the total investment in Equipment, a
status report as part of the annual report, (which status report shall indicate:
(i) condition of Equipment,
34
(ii) how Equipment is being utilized as of the end of year (leased, operated,
held for lease, repair, or sale), (iii) remaining term of leases, (iv) projected
use of Equipment for next year (renew lease, lease, retire, or sell), and (v)
such other information relevant to the value or utilization of the equipment as
the General Partner deems appropriate including the method used or basis for
valuation), (b) a report on distributions to the Limited Partners during the
year and their source, (c) a report on any costs incurred by the General Partner
and its Affiliates in performing administrative services which are reimbursed by
the Partnership during the year which will be verified by independent public
accountants in accordance with generally accepted accounting principles (the
cost of such verification to be so reimbursable only to the extent that such
reimbursement, when added to the reimbursement for services, does not exceed the
competitive rate for such services, excluding the cost of the verification) and
(d) for each item of Equipment sold by the Partnership in such year, such
Equipment's original purchase price, sale price and aggregate lease revenues.
The annual report will contain a breakdown of the costs reimbursed to the
sponsor. Within the scope of the annual audit of the General Partner's financial
statements, the independent certified public accountants must issue a special
report on the allocation of such costs to the Partnership in accordance with
this Partnership Agreement. The special report shall at a minimum provide: (i) a
review of the time records of individual employees, the costs of whose services
were reimbursed; and (ii) a review of the specific nature of the work performed
by each such employee. The special report shall be in accordance with the
American Institute of Certified Public Accountants United States auditing
standards relating to special reports. The additional costs of such special
report will be itemized by said accountants on a program-by-program basis and
may be reimbursed to the General Partner by the Partnership in accordance with
this subparagraph only to the extent that such reimbursement, when added to the
cost for administrative services rendered does not exceed the competitive rate
for such services as determined in this subsection. Within 60 days after the end
of each calendar quarter, the General Partner will also furnish a report of all
services rendered and all fees received by the General Partner and its
Affiliates from the Partnership, an unaudited balance sheet, a statement of
income, a statement of changes in financial position and a report on the
activities of the Partnership, as well as an unaudited Cash Flow statement.
15.3.2 Until the net proceeds of the Offering are fully invested, the
General Partner will furnish to the Limited Partners, within 60 days after the
end of each calendar quarter, a report of Equipment acquisitions during the
quarter, including the type and manufacturer of each item of Equipment, the
purchase price of the Equipment, and any other material terms of purchase, a
statement of the total amount of cash expended by the Partnership to acquire the
Equipment (including an itemization of all commissions, fees, and expenses and
the name of each payee), and a statement of the amount of net proceeds of the
Offering which remain unexpended or uncommitted at the end of the quarter.
15.3.3 The General Partner will also furnish to all Limited Partners
within 75 days after the end of the year other information regarding the
Partnership to aid them in the preparation of their tax returns.
15.3.4 Within 120 days after the end of the first full fiscal year for
which Form 10-K under the Securities Exchange Act of 1934 is filed with the
Securities and Exchange Commission, the General Partner shall send the financial
statements required by Form 10-K to the Limited Partners.
15.3.5 Until the net proceeds from sales of the Units have been fully
invested or otherwise used for Partnership purposes or been set aside as
reserves or been returned to the Limited Partners under Section 3.3.2, the
reports under Sections 15.3.1 and 15.3.3 shall include a report of
35
material equipment acquisitions made during the periods covered by such reports
which have not previously been reported.
15.3.6 The information required to be provided in the various reports
pursuant to this Section 15.3 may be sent earlier than or separately from any of
the other information required pursuant to this Section 15.3, and the
information required to be contained in any of the reports pursuant to this
Section 15.3 may be contained in more than one report.
15.3.7 If the Securities and Exchange Commission or the North American
Securities Administrators Association, Inc. promulgates rules which allow a
reduction in reporting requirements, the Partnership may cease preparing and
filing certain of the aforementioned reports in compliance with such rules if
the General Partner determines such action to be in the best interests of the
Partnership.
15.3.8 On request of the official or agency administering the securities
law of a state in which the Partnership has sold Units, the General Partner
shall submit to such official or agency any report or statement required to be
distributed to Limited Partners pursuant to this Section 15.3.
15.4 Bank Accounts. The bank accounts of the Partnership shall be maintained
in such banking institutions as the General Partner may determine, and
withdrawals shall be made only in the regular course of Partnership business on
such signatures as the General Partner may determine.
15.5 Partnership Returns. For each tax year, the General Partner shall,
within the time prescribed by law (including extensions), file on behalf of the
Partnership the annual information return required for federal, state and local
income tax purposes.
ARTICLE 16
Power of Attorney
16.1 Power of Attorney.
16.1.1 Pursuant to the terms of this Agreement, each purchaser of a Unit
and each transferee of a Unit appoints the General Partner, acting alone, as the
purchaser's or transferee's attorney-in-fact to make, execute, file, and/or
record (a) documents relating to the Partnership and its business operations
requested by or appropriate under the laws of any appropriate jurisdiction; (b)
instruments with respect to any amendment of this Agreement or the Certificate;
(c) instruments or papers required to continue the business of the Partnership
pursuant to this Agreement; (d) instruments relating to the admission of any
Partner to the Partnership; (e) a master list in accordance with Section 6112 of
the Code (or any successor provision), relating to the Partnership's tax shelter
registration; and (f) all other instruments deemed necessary or advisable to
carry out the Partnership's business or the provisions of this Agreement. The
power of attorney is irrevocable, will survive the death, incompetency,
dissolution, disability, incapacity, bankruptcy, or termination of the granting
purchaser or transferee, and will extend to such person's heirs, successors, and
assigns. Each Limited Partner authorizes such attorney-in-fact to take any
further action which such attorney-in-fact shall consider necessary or advisable
in connection with any of the foregoing, hereby giving such attorney-in-fact
power and authority to do and perform each and every act or thing whatsoever
requisite or advisable to be done in and about the foregoing as fully as such
Limited Partner might or could if personally present, hereby ratifying and
confirming all that such attorney-in-fact shall lawfully do or cause to be done
by virtue hereof.
36
16.1.2 The power of attorney granted in this Section 16.1, (a) is a special
power of attorney coupled with an interest and is irrevocable; (b) may be
exercised by the attorney-in-fact by listing all of the Limited Partners
executing any document with the signature of the attorney-in-fact acting as
attorney-in-fact for all of them; and (c) shall survive the delivery of an
assignment by a Limited Partner of the whole or a portion of his interest in the
Partnership, except that where the assignee is admitted as a substituted Limited
Partner, the power of attorney shall survive the delivery of such assignment for
the sole purpose of enabling such attorney-in-fact to execute, acknowledge and
file any document necessary to effect such substitution.
ARTICLE 17
Liability and Indemnification of General Partner
17.1 Exclusion of Liability for Return of Capital Contributions. Subject to
the General Partner's compliance with the standards set forth in Section 17.2.1,
the General Partner shall not be personally liable for the return of any of the
Capital Contributions of the Limited Partners, it being expressly understood
that any such return shall be made solely from Partnership assets.
17.2 Limitation on Liability of General Partner; Indemnification.
17.2.1 The General Partner and its Affiliates who were acting on behalf
of or performing services for the Partnership and acting within the scope of the
General Partner's authority as set forth in this Agreement (an "Indemnitee")
shall have no liability to the Partnership or to any Partner for any loss
suffered by the Partnership which arises out of any action or inaction of any
Indemnitee if the General Partner, in good faith, determined that such course of
conduct was reasonable and in the best interest of the Partnership and such
course of conduct did not constitute negligence or misconduct of the General
Partner or its Affiliates. The Indemnitees shall be indemnified by the
Partnership against any losses, judgments, liabilities and expenses sustained by
them in connection with the Partnership, provided that the same were not the
result of negligence or misconduct on the part of the Indemnitee, and provided
further that for such indemnification to be made, the General Partner must have
made a good faith determination that the course of conduct involved was
reasonable and in the best interest of the Partnership. Such indemnification or
agreement to hold harmless is recoverable only out of the assets of the
Partnership and not from the Limited Partners.
17.2.2 Notwithstanding anything to the contrary stated in Section 17.2.1,
the Indemnitee and any person acting as a broker-dealer shall not be indemnified
for any losses, liabilities or expenses arising from or out of an alleged
violation of federal or state securities laws unless (a) there has been a
successful adjudication on the merits of each count involving alleged securities
laws violations as to the particular Indemnitee and the court approved the
indemnification of litigation costs, or (b) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee and the court approved the indemnification of litigation
costs or (c) a court of competent jurisdiction approves a settlement of the
claims against a particular Indemnitee and finds that indemnification of the
settlement and related costs should be made. In any claim for indemnification
for federal or state securities law violations, the party seeking
indemnification shall place before the court the position of the Securities and
Exchange Commission, the Massachusetts Securities Division, the Pennsylvania
Securities Commission, the Texas Securities Board and other applicable state
securities commissions with respect to the issue of indemnification for
securities law violations.
17.2.3 The Partnership shall not incur the cost of that portion of any
insurance which insures the Indemnitee for any liability as to which the
Indemnitee is prohibited from being indemnified
37
under this Section 17.2; however, nothing contained in this Agreement shall
preclude the Partnership from purchasing and paying for such types of insurance,
including extended coverage liability and casualty and workers' compensation, as
would be customary for any person owning comparable assets and engaged in a
similar business, or from naming the Indemnitee as additional insured parties
thereunder, provided that such addition does not add to the premiums payable by
the Partnership.
17.2.4 The provision of advances from Partnership funds to the Indemnitee
for legal expenses and other costs incurred as a result of any legal action
initiated against the General Partner by a Limited Partner of the Partnership is
prohibited. The provision of advances from Partnership funds to the Indemnitee
for legal expenses and other costs incurred as a result of a legal action is
permissible if the following three conditions are satisfied: (a) the legal
action relates to the performance of duties or services by the Indemnitee on
behalf of the Partnership; and (b) the legal action is initiated by a third
party who is not a Limited Partner of the Partnership; and (c) the Indemnitee
undertakes to repay the advanced funds to the Partnership with interest at the
rate of 10% per year in cases in which they would not be entitled to
indemnification under Section 17.2.1 and such undertaking is secured by a full
recourse note from the recipient of the advance.
ARTICLE 18
Tax Exempt Limited Partners
18.1 Tax Exempt Limited Partners. If any individual retirement accounts,
pension, profit sharing or other tax-qualified retirement plans or other
entities exempt from federal income taxation under the Code (collectively, "Tax
Exempt Limited Partners") become Limited Partners of the Partnership, neither
the General Partner nor the Partnership shall have any liability or
responsibility to any Tax Exempt Limited Partner or any other Limited Partner
for any tax, penalty or other sanction or costs or damages arising as a result
of there being a prohibited transaction or as a result of Partnership assets
being deemed plan assets of a Tax Exempt Limited Partner under the Code or ERISA
or other applicable law.
ARTICLE 19
Miscellaneous
19.1 Notices. Any notice, payment, demand, offer or communication required
or permitted to be given by any provision of this Agreement shall be deemed to
have been delivered and given for all purposes (a) if delivered personally to
the party or to an officer of the party to whom it is directed or (b) whether or
not it is actually received, if sent by registered or certified or regular mail,
postage and charges prepaid, addressed as follows: if to the General Partner, at
its business address set forth in Section 2.3 or to such other address as the
General Partner may specify by written notice to the Limited Partners; and if to
a Limited Partner, at such Limited Partner's address set forth on his
Subscription Agreement or to such other address as such Limited Partner may
specify by written notice to the General Partner; and if to the Partnership, at
the address set forth in Section 2.3 or to such other address as the Partnership
may specify by written notice to the Partners. Any such notice shall be deemed
to be given as of the date so delivered personally, or as of the date on which
the same was deposited in a regular receptacle for the deposit of the United
States mail, addressed and sent as aforesaid.
19.2 Parties in Interest. Subject to Article 11, this Agreement shall bind
and benefit the successors and assigns of the respective parties hereto.
38
19.3 Section Captions. Section and other captions in this Agreement are for
reference purposes only and are not intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provision hereof.
19.4 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason,
such illegality or invalidity shall not affect the validity of the remainder of
this Agreement.
19.5 Right to Rely on General Partner. No person dealing with the General
Partner shall be required to determine its authority to make any commitment or
undertaking on behalf of the Partnership, or to determine any fact or
circumstance bearing upon the existence of its authority. In addition, no
purchaser of Partnership property shall be required to determine the sole and
exclusive authority of the General Partner to sign and deliver on behalf of the
Partnership any instrument of transfer, or to see to the application or
distribution of revenues or proceeds paid or credited in connection therewith,
unless such purchasers have received written notice from the Partnership
affecting the same.
19.6 Pennsylvania Law. This Agreement is made under, and shall be construed
and enforced in accordance with, the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed solely therein, without giving
effect to principles of conflicts of laws.
19.7 Exclusive Jurisdiction. Any disputes arising out of or related to this
Agreement shall be subject to the exclusive jurisdiction of the Court of Common
Pleas of Pennsylvania in the County of Delaware or the Federal District Court
for the Eastern District of Pennsylvania.
19.8 Counterpart Execution. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All counterparts shall be construed together and shall constitute one
Agreement.
19.9 Gender. Whenever necessary or appropriate in order to construe this
Agreement, the masculine gender shall include the feminine or neuter and vice
versa, and the singular shall include the plural and the plural, the singular.
19.10 Integrated Agreement. This Agreement constitutes the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof, and there are no agreements, understandings, restrictions,
representations or warranties among the parties other than those set forth
herein.
IN WITNESS WHEREOF, the parties have executed, or have caused their duly
authorized officer to execute, this Agreement on the date first written above.
GENERAL PARTNER:
COMMONWEALTH INCOME & GROWTH FUND, INC.
By: /s/ George S. Springsteen
----------------------------------------
George S. Springsteen, President
INITIAL LIMITED PARTNER:
/s/ KIMBERLY A. SPRINGSTEEN
----------------------------
KIMBERLY A. SPRINGSTEEN
39
TABLE I
SELECTED FINANCIAL DATA
INDEX TO FINANCIAL STATEMENTS
Commonwealth Income & Growth Fund V:
Financial Statements, August 8, 2003
Independent Auditor's Report............................................ F-2
Balance Sheet at August 8, 2003......................................... F-3
Notes to Balance Sheet.................................................. F-4
Commonwealth Income & Growth Fund, Inc.:
Financial Statements, February 28, 2003
Independent Auditors's Report........................................... F-5
Balance Sheet at February 28, 2003...................................... F-6
Notes to Balance Sheet.................................................. F-7
Commonwealth Capital Corp. and Subsidiaries:
Consolidated Financial Statements, February 28, 2003
Independent Auditor's Report............................................ F-8
Consolidated Balance Sheets at February 28, 2003 and February 28, 2002.. F-9
Consolidated Statements of Operations and Retained Earnings for the
years ended February 28, 2003 and February 28, 2002................ F-10
Consolidated Statements of Cash Flows for the years ended
February 28, 2003 and February 28, 2002............................ F-11
Notes to Consolidated Financial Statements.............................. F-12
Consolidated Financial Statements, July 31, 2003 (unaudited)
Consolidated Balance Sheet at July 31, 2003 (unaudited)................. F-19
Consolidated Statements of Operations and Retained Earnings
For the Period ended July 31, 2003 (unaudited)..................... F-20
F-1
Independent Auditors' Report
To the General Partner
Commonwealth Income & Growth Fund V
Exton, Pennsylvania
We have audited the accompanying balance sheet of Commonwealth Income & Growth
Fund V as of August 8, 2003. This balance sheet is the responsibility of the
Fund's management. Our responsibility is to express an opinion on this balance
sheet based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Commonwealth Income & Growth Fund V
at August 8, 2003, in conformity with accounting principles generally accepted
in the United States.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
August 11, 2003
F-2
Commonwealth Income & Growth Fund V
Balance Sheet
- --------------------------------------------------------------------------------
August 8, 2003
- --------------------------------------------------------------------------------
Assets
Cash $ 1,000
- --------------------------------------------------------------------------------
Partner's Capital
General partner $ 1,000
- --------------------------------------------------------------------------------
See accompanying notes to balance sheet.
F-3
Commonwealth Income & Growth Fund V
Notes to Balance Sheet
- --------------------------------------------------------------------------------
1. The Partnership Commonwealth Income & Growth Fund V (the
"Partnership") is a limited partnership,
which was organized in May 2003 in the
Commonwealth of Pennsylvania. The Partnership
has not yet commenced operations. The
Partnership was organized to acquire, own,
lease and sell income-producing equipment.
The General Partner's initial contribution
consists of a $1,000 cash contribution from
Commonwealth Income & Growth Fund, Inc., a
wholly owned subsidiary of Commonwealth of
Delaware, Inc., which in turn is a wholly
owned subsidiary of Commonwealth Capital
Corp. The General Partner may, in its sole
discretion, purchase units of limited
partnership interest (the "Units").
The Partnership plans to offer for sale,
through a public offering from 57,500 to
1,000,000 Units at a cash purchase price of
$20 per Unit.
2. Related Party The Partnership will pay for organizational
Transactions and offering expenses in connection with the
issuance and distribution of Units. The
General Partner, Commonwealth Capital
Securities Corp., also a wholly owned
subsidiary of Commonwealth of Delaware, Inc.,
and their respective affiliates will receive
substantial fees and compensation in
connection with the offering of Units and
management of the Partnership's assets.
F-4
[LOGO OMITTED] Elkins Park Square -- Suite 200
Fishbein&Company, P.C. 8080 Old York Road
Certified Public Accountants Elkins Park, PA 19027-1455
215-635-3100
Fax: 215-635-5788
INDEPENDENT AUDITOR'S REPORT
----------------------------
Stockholder
Commonwealth Income & Growth Fund, Inc.
We have audited the accompanying balance sheet of COMMONWEALTH INCOME & GROWTH
FUND, INC. (An indirect wholly-owned subsidiary of Commonwealth Capital Corp.)
as of February 28, 2003. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the balance sheet
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Commonwealth Income & Growth Fund,
Inc. as of February 28, 2003, in conformity with accounting principles generally
accepted in the United States of America.
/S/ Fishbein&Company, P.C.
Elkins Park, Pennsylvania
June 17, 2003
F-5
Page 2
COMMONWEALTH INCOME & GROWTH FUND, INC.
(An Indirect Wholly-Owned Subsidiary of
Commonwealth Capital Corp.)
Balance Sheet February 28, 2003
================================================================================
ASSETS
------
Cash $ 20,611
Due from income funds 338,816
Investment in Partnerships 4,000
-----------
$ 363,427
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES
Due to parent $ 362,327
-----------
STOCKHOLDER'S EQUITY
Common stock - No par value
Authorized 1,000 shares
Issued and outstanding 100 shares 1,000
Additional paid-in capital 1,000,100
-----------
1,001,100
Less note receivable (1,000,000)
-----------
1,100
-----------
$ 363,427
===========
See notes to balance sheet.
F-6
Page 3
COMMONWEALTH INCOME & GROWTH FUND, INC.
(An Indirect Wholly-Owned Subsidiary of
Commonwealth Capital Corp.)
Notes to Balance Sheet February 28, 2003
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Business
Commonwealth Income & Growth Fund, Inc. (the Company) is a
wholly-owned subsidiary of Commonwealth of Delaware, Inc., which is a
wholly-owned subsidiary of Commonwealth Capital Corp. (CCC). The
Company, through its wholly-owned subsidiaries, primarily leases
various types of computer peripheral equipment and related equipment
to U.S. corporations and institutions. The Company is the sole General
Partner of Commonwealth Income & Growth Fund I, Commonwealth Income &
Growth Fund II, Commonwealth Income & Growth Fund III, and
Commonwealth Income & Growth Fund IV, all Pennsylvania limited
partnerships (the "Partnerships").
CCC has provided additional capital by means of a noninterest-bearing
demand note in the amount of $1,000,000, so that the Company will at
all times have a net worth (which includes the net equity of the
Company and the demand note receivable from CCC) of at least
$1,000,000. The note receivable is reflected on the accompanying
balance sheet as a reduction of the Company's equity and the
collectibility is dependent upon the profitability of the
Partnerships.
The Company's operations are included in the consolidated federal
income tax return of CCC.
b. Use of Estimates
The preparation of the balance sheet in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Actual results could differ from
those estimates.
2. INVESTMENT IN PARTNERSHIPS
The Company contributed $4,000 in cash to the Partnerships for its general
partner interests. The Company may, at its sole discretion, purchase a
limited partnership interest in the Partnerships ("Units") for an
additional capital contribution of $20 per Unit with a minimum investment
of 125 units.
The Company accounts for its 1% interests in the Partnerships by the equity
method. If the Company is obligated to fund any liabilities in excess of
assets, the Company would reduce its investment in Partnerships and
increase Due to Partnerships. No such excess was incurred for the years
ended February 28, 2003 and 2002. Financial information of the Partnerships
as of December 31, 2002 and 2001 is as follows:
December 31,
---------------------------------
2002 2001
----------- -----------
Total Assets $ 8,109,000 $7,395,000
Nonrecourse debt 2,479,000 3,225,000
Other liabilities 876,000 487,000
Partners' capital 4,754,000 3,683,000
Net income (loss) (1,234,000) 323,000
3. RELATED PARTY TRANSACTIONS
The Company and its affiliates receive substantial fees and compensation in
connection with the offering of Units and the management of the
Partnerships' assets. The Company pays expenses to CCC equal to the fees
collected from the Partnerships.
See notes to balance sheet.
F-7
[LOGO OMITTED]
Fishbein&Company, P.C. Elkins Park Square -- Suite 200
Certified Public Accountants 8080 Old York
Road Elkins Park, PA 19027-1455
215-635-3100
Fax: 215-635-5788
INDEPENDENT AUDITOR'S REPORT
----------------------------
Stockholder
Commonwealth Capital Corp.
We have audited the accompanying consolidated balance sheets of COMMONWEALTH
CAPITAL CORP. AND SUBSIDIARIES as of February 28, 2003 and 2002, and the related
consolidated statements of operations and retained earnings and cash flows for
the years then ended. 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial position of Commonwealth
Capital Corp. and Subsidiaries as of February 28, 2003 and 2002, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
Fishbein&Company, P.C.
Elkins Park, Pennsylvania
June 17, 2003
F-8
Page 2
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
================================================================================
ASSETS
------
February 28,
------------------------------
2003 2002
---------- ----------
Cash and cash equivalents $ 95,090 $ 22,037
Receivables from Income Funds 594,989 597,543
Other receivables 39,634 41,619
Minimum lease payments receivable - Net of
unearned interest income of $480,006 - 2003
and $655,944 - 2002 2,945,000 3,410,000
Investment in Income Funds 11,000 11,541
Office furniture and equipment - Net of
accumulated depreciation of $135,968 - 2003
and $122,604 - 2002 39,975 22,276
Deferred offering costs 150,489 46,363
Other assets 10,021 12,513
---------- ----------
$3,886,198 $4,163,892
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES
Accounts payable and accrued expenses $ 197,484 $ 170,970
Due to Income Funds 485,852 390,763
Nonrecourse obligations 2,945,000 3,410,000
---------- ----------
3,628,336 3,971,733
---------- ----------
STOCKHOLDER'S EQUITY
Common stock - Par value $1
Authorized 1,000 shares
Issued and outstanding 10 shares 10 10
Retained earnings 257,852 192,149
---------- ----------
257,862 192,159
---------- ----------
$3,886,198 $4,163,892
========== ==========
See notes to consolidated financial statements.
F-9
Page 3
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
================================================================================
Year Ended February 28,
----------------------------
2003 2002
---------- ----------
INCOME
Fee income from Income Funds $1,439,220 $ 769,004
Commission income 433,168
Interest income on minimum lease
payments receivable 175,939 199,570
Equity in income of Income Funds 854 17,293
Interest and miscellaneous 108,007 118,281
---------- ----------
2,157,188 1,104,148
---------- ----------
EXPENSES
Personnel 1,186,321 597,026
General and administrative 338,642 314,176
Selling 377,219 53,397
Interest expense on nonrecourse obligations 175,939 199,570
Depreciation 13,364 7,197
---------- ----------
2,091,485 1,171,366
---------- ----------
NET INCOME (LOSS) 65,703 (67,218)
RETAINED EARNINGS - BEGINNING 192,149 259,367
---------- ----------
RETAINED EARNINGS - ENDING $ 257,852 $ 192,149
========== ==========
See notes to consolidated financial statements.
F-10
Page 4
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
================================================================================
Year Ended February 28,
-----------------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 65,703 $ (67,218)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Equity in income funds (11,736) (17,293)
Depreciation 13,364 7,197
Gain on sale of computer equipment (7,000)
Changes in operating assets and liabilities:
Receivables from income funds 2,554 (279,966)
Other receivable 1,985 18,804
Deferred offering costs (104,126) (46,363)
Other assets 2,492 (6,386)
Accounts payable and accrued expenses 26,514 (114,820)
Due to income funds 95,089 390,763
--------- ---------
Net cash provided by (used in) operating
activities 91,839 (122,282)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (31,063) (25,442)
Net proceeds from sale of computer equipment 7,000
Distributions from Income Funds 12,277 17,418
--------- ---------
Net cash used in investing activities (18,786) (1,024)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES - None - -
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 73,053 (123,306)
CASH AND CASH EQUIVALENTS - BEGINNING 22,037 145,343
--------- ---------
CASH AND CASH EQUIVALENTS - ENDING $ 95,090 $ 22,037
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ - $ -
Income taxes - -
See notes to consolidated financial statements.
F-11
Page 5
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements February 28, 2003
================================================================================
1. NATURE OF BUSINESS
Commonwealth Capital Corp., through its wholly-owned subsidiary, Commonwealth of
Delaware, Inc. (CDI), primarily leases various types of computer peripheral
equipment and related equipment to U.S. corporations and institutions. Certain
wholly-owned subsidiaries of CDI were formed for the purpose of functioning as
general partners/managing trustees which own a 1% interest in limited
partnership/trusts (the "Income Funds") which were organized to acquire, own and
act as lessor with respect to certain computer equipment. CDI's subsidiaries
include Commonwealth Capital Fund VII, Inc., Commonwealth Capital Private Fund,
II, Inc., Commonwealth Capital Trustee VIII, Inc., Commonwealth Capital Trustee
IX, Inc., Commonwealth Capital Trustee X, Inc., Commonwealth Capital Private
Fund III Inc., Commonwealth Income & Growth Fund, Inc., Commonwealth Capital
Private Fund IV, Inc., Commonwealth Capital Private Fund V, Inc., and
Commonwealth Capital Private Fund VI, Inc. (collectively the "General Partner
Subsidiaries"), Commonwealth Capital Securities Corp., Garden State Facilities
Funding, Inc. (GSFF), and Commonwealth Capital Delaware Trustee, Inc.
Certain limited partnerships/trusts have been liquidated during the years ended
February 28, 2003 (one entity) and 2002 (two entities).
The Company is dependent on the compensation it receives from the Income Funds.
This compensation may be reduced due to the financial performance of each Income
Fund. There are certain Income Funds that have deferred the payment of fees to
the Company, because distributions to the limited partners were reduced because
of the Income Funds' financial performance. If the financial performance of the
Income Funds deteriorates and the distributions to the limited partners are
reduced, there is no assurance that the Company would be able to continue to
collect fees for services provided. No fees were waived or forgiven for the
years ended February 28, 2003 and 2002.
Commission income is earned by Commonwealth Capital Securities Corp., which
sells units of its affiliated partnerships through broker-dealer firms to their
respective customers throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company, CDI, and CDI's subsidiaries (the Company)
(see Note 1). All significant intercompany transactions and balances
have been eliminated. The balance sheets are presented on an
unclassified basis in accordance with leasing industry practice.
F-12
Page 6
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements February 28, 2003
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. 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.
c. Cash and Cash Equivalents
The Company maintains its cash balances in several financial
institutions. The balances in each institution are insured (up to
$100,000) by the Federal Deposit Insurance Corporation or the
Securities Investor Protection Corporation. At times, the balances may
exceed federally insured limits. The Company has not experienced any
losses in such accounts, and believes it is not exposed to any
significant credit risk on cash.
The Company considers all highly-liquid investments purchased with a
maturity of three months or less to be cash equivalents. At February
28, 2003 and 2002, cash equivalents consist of a money market fund
which invests in U.S. Treasury obligations.
d. Investment in Income Funds
The Company accounts for its 1% interests in the Income Funds by the
equity method. In 2003, an Income Fund had liabilities in excess of
its assets. As the Company is obligated to fund any liabilities in
excess of assets, the Company has reduced its investment in Income
Funds and increased Due to Income to Funds for $10,882 which was the
amount incurred during the year ended February 28, 2003. No such
excess was incurred for the year ended February 28, 2002. Financial
information of the Income Funds as of December 31, 2002 and 2001 is as
follows:
December 31,
-----------------------------------
2002 2001
------------ ------------
Total assets $ 12,218,000 $ 12,348,000
Nonrecourse debt 3,956,000 5,366,000
Other liabilities 1,685,000 1,123,000
Partners' capital 6,576,000 5,859,000
Net income (loss) (1,271,000) 1,239,380
The Company has guaranteed the performance of certain nonmonetary
obligations of the General Partner Subsidiaries to the respective
Income Funds, primarily the responsibility for management of the
Income Funds. In addition, the Company is responsible for certain
capital funding requirements of the General Partner Subsidiaries which
it satisfies through noninterest-bearing demand notes. Such notes
total approximately $2,811,000 and $3,171,000 at February 28, 2003 and
2002, and have been eliminated in consolidation.
F-13
Page 7
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements February 28, 2003
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Investment in Income Funds
Fee income earned by the Company from the Income Funds consists of:
(1) equipment acquisition fees (3% -4% as defined of the purchase
price of all equipment purchased by the Income Funds), (2) debt
placement fees (1% of the cost of equipment financed by the Income
Funds), (3) sales fees (3% of the gross proceeds of equipment sold by
the Income Funds), and (4) equipment management fees (3% - 5% as
defined of the gross operating lease revenues of the Income Funds).
Ongoing acquisition fees and equipment management fees may be
increased as an indirect result of company loans.
Approximately 91% and 75% of fee income for the years ended February
28, 2003 and 2002, respectively, was from three Income Funds.
e. Office Furniture and Equipment
Office furniture and equipment are stated at cost. Depreciation is
provided using the declining balance method over the estimated useful
lives of the assets (ranging from 5 to 7 years).
f. Deferred Offering Costs
Deferred offering costs represent amounts incurred by the Company for
the organization of a related "Income Fund." These costs are being
recovered from the Income Fund through fees as cash proceeds are
raised through the sale of Limited Partnership Units during the
offering period or, if necessary, the future operations of the Income
Fund. Deferred offering costs at February 28, 2003 and 2002 relate to
an Income Fund whose offering period expires in June, 2003.
g. Revenue Recognition
The Company recognizes fees as earned in accordance with the various
Limited Partnership and Trust Agreements. The Company recognizes
commission income and brokerage fee expense on an accrual basis based
on the trade date of the underlying customer transactions. Interest
income on minimum lease payments receivable is recognized as earned.
h. Income Taxes
Deferred income taxes are provided as necessary for temporary
differences between the financial and tax bases of investment in
Income Funds and office furniture and equipment. The tax basis of
investment in Income Funds differs from financial reporting due to
temporary differences associated with ownership of general partnership
interests in the various Income Funds. Also, for income tax reporting,
the cost of property and equipment is being recovered using the
methods and lives prescribed by the Internal Revenue Code.
F-14
Page 8
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements February 28, 2003
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Income Taxes (Continued)
Deferred income tax assets are also recognized for net operating
losses that are available to offset future income taxes. A valuation
allowance is provided as necessary to reduce the deferred income tax
assets to the amount that is more likely than not to be realized.
i. Reclassiflications
Prior year balances have been reclassified to conform to current year
classifications.
3. LEASE COMMITMENTS
GSFF acted as lessor in a series of lease purchase transactions
whereby the underlying assets were funded by investors through
certificates of participation in the lease payments. All of GSFF's
rights as lessor were assigned to a third-party agent which
administers the collection of rentals paid by the lessee. The
obligations under the certificates are nonrecourse to GSFF.
Accordingly, any reduction in the minimum lease payments receivable
for uncollectible accounts would result in an equal reduction of the
nonrecourse obligations. Amounts outstanding at February 28, 2003 and
2002 under these leases and certificates of participation are
$2,945,000 and $3,410,000, respectively, and are reflected as minimum
lease payments receivable and nonrecourse obligations in the
accompanying balance sheets. The certificates mature at various dates
through 2011. The Company recognized interest income and interest
expense in connection with these leases of approximately $175,900 and
$199,750 for the years ended February 28, 2003 and 2002, respectively.
Future minimum lease payments to be received as of February 28, 2003,
are as follows:
Year Ending February 28,
------------------------
2004 $ 635,928
2005 634,384
2006 635,924
2007 1,518,770
2008 -
----------
3,425,006
Less amount representing interest 480,006
----------
$2,945,000
==========
F-15
Page 9
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements February 28, 2003
================================================================================
3. LEASE COMMITMENTS (Continued)
The Company leases an automobile, certain office equipment and office space
under noncancelable operating leases expiring in various dates through
2006. Rent expense under all operating leases was approximately $126,000
and $110,000 for the years ended February 28, 2003 and 2002, respectively.
Future minimum lease payments under noncancelable operating leases as of
February 28, 2003 are as follows:
Year Ending February 28,
------------------------
2004 $ 94,785
2005 94,003
2006 81,557
2007 -
2008 -
---------
$ 270,345
=========
4. PROFIT SHARING PLAN
The Company has a profit sharing plan which covers substantially all of its
employees. Contributions to the plan may be made at the discretion of
management. No contributions to the plan were made or accrued for the years
ended February 28, 2003 and 2002.
5. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return.
Income taxes for the year ended February 28, 2003 include tax benefits of
approximately $4,000 from the use of net operating loss carryforwards.
The Company has net operating loss carryforwards of approximately $598,000
available to reduce future federal income taxes. If not used, the
carryforwards will expire as follows:
Year Ending February 28,
------------------------
2019 $ 70,000
2020 452,000
2022 76,000
---------
$ 598,000
=========
F-16
Page 10
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements February 28, 2003
================================================================================
5. INCOME TAXES (Continued)
The Company also has net operating loss carryforwards of approximately
$5,234,000 available to reduce future Pennsylvania state income taxes. If
not used, the carryforwards will expire as follows:
Year Ending February 28,
2006 $ 8,000
2007 636,000
2008 895,000
2009 814,000
2010 949,000
2011 615,000
2012 707,000
2013 610,000
-----------
$ 5,234,000
===========
Deferred income taxes result primarily from temporary differences in the
recognition of certain expenses for financial and income tax reporting
purposes.
The components of the Company's net deferred tax asset (liability)
consisted of the following as of:
February 28,
------------------------
2003 2002
--------- ---------
Deferred tax assets:
Net operating loss carryforwards $ 549,000 $ 559,000
Less valuation allowance (445,000) (473,700)
--------- ---------
Deferred tax assets, net 104,000 85,300
--------- ---------
Deferred tax liabilities:
Investment in Income Funds (95,000) (85,000)
Office furniture and equipment (9,000) (300)
--------- ---------
Deferred tax liability, net (104,000) (85,300)
--------- ---------
Net deferred tax assets (liabilities) $ - $ -
========= =========
The valuation allowance was increased (decreased) by ($28,700) and $10,400,
respectively, for the years ended February 28, 2003 and 2002.
F-17
Page 11
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements February 28, 2003
================================================================================
5. INCOME TAXES (Continued)
Provision (benefit) for income taxes:
February 28,
-----------------------
2003 2002
------ -------
Current
Federal $ - $ -
State - -
------ -------
- -
------ -------
Deferred
Federal - -
State - -
------ -------
$ - $ -
====== =======
The reconciliation of the provision for income taxes at the federal
statuory tax rate to the provision for income taxes is as follows:
February 28,
-----------------------
2003 2002
------ -------
Federal statutory tax rate 34% 34%
State income taxes, net of federal impact 6 6
Nondeductible expenses 4 (7)
Expiring ITC's and state NOL's - (18)
Change in valuation allowance (44) (15)
------ ------
Effective rate - % - %
====== ======
6. SUPPLEMENTAL CASH FLOW INFORMATION
Other noncash activities associated with lease transactions:
Year Ended February 28,
----------------------------
2003 2002
--------- ---------
Reduction of minimum lease receivable
and repayment of nonrecourse obligation
associated with direct payment made by
lessee to bank $ 465,000 $ 720,000
========= =========
Other noncash activities associated with
investment in income funds
Increase (decrease) in due to income funds $ 10,882 $ (61,255)
========= =========
F-18
Commonwealth Capital Corp. and Subsidiaries
Consolidated Balance Sheets
For the period ended July 31, 2003
(unaudited)
ASSETS
Cash and cash equivalents $ 323,058
Receivables from Income Funds 697,503
Other receivables 42,034
Minimum lease payments receivable 2,945,000
Investment in Income funds 11,000
Office furniture and equipment - net of accum 39,516
depreciation
Deferred offering costs 76,302
Other assets 10,653
-------------------
$ 4,145,066
===================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Payables to Income Funds $ 642,262
Accounts payable and accrued expenses 100,029
Nonrecurse obligations 2,945,000
-------------------
3,687,291
-------------------
STOCKHOLDER'S EQUITY
Common stock - Par value $1
Authorized 1,000 shares
Issued and oustanding 10 shares 10
Retained earnings 457,765
-------------------
457,775
-------------------
$ 4,145,066
===================
F-19
Commonwealth Capital Corp. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
For the period ended July 31, 2003
(unaudited)
INCOME
Fee income from Income Funds $ 868,369
Commissions income 659,917
Interest income on minimum lease
payments receivable 79,501
Equity in income of Income Funds 7,293
Interest and miscellaneous 10,195
---------------
1,625,275
---------------
EXPENSES
Personnel 540,926
General and administrative 204,325
Selling 596,155
Interest expense on nonrecourse obligations 79,501
Depreciation and Amortization 4,455
---------------
1,425,362
---------------
NET INCOME 199,913
RETAINED EARNINGS - BEGINNING 257,852
---------------
RETAINED EARNINGS - ENDING $ 457,765
===============
F-20
TABLE II
PRIOR PERFORMANCE TABLES
COMMONWEALTH CAPITAL CORP.
EXPERIENCE IN RAISING AND INVESTING FUNDS
As of July 31, 2003
(Table 1)
COMMONWEALTH COMMONWEALTH COMMONWEALTH
COMMONWEALTH INCOME & INCOME & GROWTH INCOME & GROWTH INCOME & GROWTH
GROWTH FUND IV FUND III FUND II FUND I
(Still in offering stage)
Offering Information:
Amount offered (maximum) $ 15,000,000 $ 15,000,000 $ 15,000,000 $ 15,000,000
Dollar Amount Sold 12,782,765 3,023,569 9,235,185 12,623,682
(1) Dealer/Manager Expenses 1,150,449 272,121 831,167 1,136,131
(2) Offering/Organizational Expenses 383,483 90,707 277,056 378,710
Net Proceeds Available 11,248,833 2,660,741 8,126,962 11,108,841
Total Equipment Purchases:
Equipment purchased with cash 3,938,906 2,830,067 2,844,139 14,455,357
Equipment financed 816,003 1,902,272 8,694,163 13,195,684
Rent paid to original lessor in lieu of cash - 70,360 56,706 344,326
Obligation incurred in connection to
leased equipment - - 502,721 1,421,857
4,754,909 4,802,699 12,097,729 29,417,224
% of Equipment financed as of
July 31, 2003 17.2% 39.6% 71.9% 44.9%
Initial Acquisition Fees (%) (3) 3.4% 3.4% 3.4% 3.4%
Date Offering Commenced 10/19/2001 01/27/98 05/12/95 12/17/93
Date Offering Completed N/A 07/27/00 05/12/97 05/11/95
Average Initial Term of Leases (in months) 30 33 33 32
Months from closing to invest 90% N/A 2 N/A 5
(1) Dealer/Manager expenses include commissions to brokers, due diligence and
out-of-pocket expenses.
(2) Offering/Organizational expenses consist of legal fees, blue sky filings,
accounting fees, printing charges for prospectus books and the guarantee
fee.
(3) Fees were paid to the General Partner/Management Trustee at fund closing.
Prior performance is not indicative of future performance
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
The following table sets forth certain information concerning all the
compensation earned by the General Partner and its Affiliates four public
equipment leasing programs sponsored by the General Partner and Affiliates which
closed in the most recent three years. Amounts are from two sources: (1)
proceeds from the offering and (2) gross revenues. Amounts for operations are
cumulative.
COMMONWEALTH CAPITAL CORP.
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
As of July 31, 2003
(TABLE II)
COMMONWEALTH COMMONWEALTH COMMONWEALTH
COMMONWEALTH INCOME & INCOME & GROWTH INCOME & GROWTH INCOME & GROWTH
GROWTH FUND IV FUND III FUND II FUND I
Date offering commenced 10/19/2001 07/25/97 05/12/95 12/17/93
Dollar amount raised $ 12,782,765 $ 3,023,569 $ 9,235,185 $ 12,623,682
Amount paid from the proceeds of offering,
reinvestment and/or debt:
Initial Acquisition Fee 434,614 102,801 310,694 426,473
Organizational Fee 383,483 31,747 114,469 140,869
Cash generated (used) from operations
before deducting payments to the General
Partner and Affiliates (149,625) 1,612,696 4,524,364 10,512,897
Amount paid to the General Partner and
Affiliates from operations: -
Equipment Management Fee 42,487 219,895 948,936 1,283,316
Acquisition Fee 190,197 191,425 443,700 675,880
Finance Fee 32,640 19,196 83,401 117,566
Dollar amount of equipment sales and
refinancing before deducting payments to
the General Partner and Affiliates 103,610 275,888 1,936,130 3,031,571
Amount paid to the General Partner and
Affiliates from equipment sales and
refinancing 3,108 8,277 58,084 90,946
Prior performance is not indicative of future performance.
COMMONWEALTH INCOME & GROWTH FUND I
OPERATING RESULTS OF PRIOR PROGRAMS
(Table III)
For the Years Ended December 31, 1999, 2000, 2001, 2002
and For the Period Ended June 30, 2003
1999 2000 2001 2002 2003
Computation of Net Income (Loss)
Months of Operations 12 12 12 12 6 **
Gross Revenues $ 3,005,189 $ 1,797,061 $ 954,340 $ 442,734 $ 180,682
Less: Operating Expenses 261,038 192,622 221,147 290,736 131,459
Equipment Management Fee 149,675 89,517 38,232 20,289 8,589
Depreciation and Amortization 2,808,781 1,475,744 413,480 304,452 134,766
Interest expense 105,223 22,242 11,121 39,803 14,152
Uncollectible accounts receivable 50,000 103,818 99,831 24,565 -
Loss on sale of computer equipment 108,640 118,397 - - -
Net Income (Loss) - GAAP Basis (478,168) (205,279) 170,529 (237,111) (108,284)
Federal Taxable Income (310,551) 293,334 28,423 N/A N/A
Cash Distributions - GAAP Basis (959,043) (1,031,324) (315,490) - -
Computation of Cash Flows Net Income (Loss)
Net (Loss) (478,168) (205,279) 170,529 (237,111) (108,284)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,808,801 1,475,744 413,480 304,452 134,766
Loss (gain) on sale of equipment 108,640 118,397 (185,549) (17,628) (8,907)
Other Non-Cash Activities Included in the
Determination of Net Income (Loss)* (1,706,647) (649,145) (111,180) (273,464) (134,255)
Net Change in Operating Assets and Liabilities 19,188 (226,314) (30,522) 221,488 108,920
Net Cash Provided by (Used in) Operating
Activities 751,814 513,403 256,758 (2,263) (7,760)
Capital Expenditures (160,935) - (199,304) (25,000) (5,000)
Net proceeds from sale of equipment 590,355 365,210 229,719 23,816 18,374
Accounts Payable - CCC - - - - -
Payment of Equipment Payable - - - - -
Equipment Acquisition Fees Paid to the General
Partner (6,468) - (29,737) (9,145) (200)
Net Cash Provided by (Used in) Investing
Activities 422,952 365,210 678 (10,329) 13,174
Partners' Contributions - - - - -
Offering Costs - - - - -
Advance to Commonwealth Capital Corp. - - - - -
Proceeds from short-term note payable - - - 13,984 -
Distributions to Partners (959,043) (1,031,324) (315,490) - -
Debt placement fee - - (5,441) (2,036) -
Net Cash (Used in) Financing Activities (959,043) (1,031,324) (320,931) 11,948 -
Net Increase (Decrease) in Cash 215,723 (152,711) (63,495) (644) 5,414
Cash at Beginning of Year 1,565 217,288 64,577 1,082 438
Cash at End of Year 217,288 64,577 1,082 438 5,852
Investment Data Per $ 1,000 Investment
Net Income (Loss) - GAAP Basis (38) (16) 14 (19) (9)
Federal Taxable Income to Investors (25) 23 2 (33) N/A
Cash Distributions to Investors - GAAP Basis (76) (82) (25) - -
Return of Capital to Investors - GAAP Basis 76 82 25 - -
* The significant component of Other Non-Cash Activities Included in the
Determination of Net Income was direct payments by lessees to banks, which
occurs when equipment is financed. The increase over the periods presented
was caused primarily by the acquisition of more financed equipment.
** Results through June 30 ,2003
Prior Performance is not indicative of future performance
COMMONWEALTH INCOME & GROWTH FUND II
OPERATING RESULTS OF PRIOR PROGRAMS
(Table III)
For the Years Ended December 31, 1999, 2000, 2001, 2002
and For the Period Ended June 30, 2003
1999 2000 2001 2002 2003
Computation of Net Income (Loss)
Months of Operations 12 12 12 12 6**
Gross Revenues $ 4,624,903 $ 4,117,170 $ 3,319,026 $ 2,714,461 $ 1,271,652
Less: Operating Expenses 232,565 241,150 360,293 571,038 337,604
Equipment Management Fee 229,900 221,768 151,046 135,579 47,593
Depreciation and Amortization 4,235,207 3,679,550 2,270,229 1,703,838 532,921
Interest expense 298,121 160,897 105,496 156,380 54,377
Uncollectible accounts receivable - 45,000 9,200 398,868 -
Loss on sale of computer equipment 8,447 138,014 - - -
Net Income (Loss) - GAAP Basis (72,769) (369,209) 422,762 (251,242) 299,157
Federal Taxable Income 443,920 (196,957) (536,884) (537,280) N/A
Cash Distributions - GAAP Basis (891,690) (923,546) (685,429) (519,480) (288,601)
Computation of Cash Flows Net Income (Loss)
Net (Loss) (379,337) (369,209) 422,762 (251,242) 299,157
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used in) Operating
Activities:
Depreciation and Amortization 4,235,207 3,679,550 2,270,229 1,703,838 532,921
Loss / (gain) on sale of equipment 8,447 138,014 (295,135) (828) (318,319)
Other Non-Cash Activities Included in the
Determination of Net Income (Loss)* (2,626,791) (2,381,576) (1,252,115) (1,149,810) (536,047)
Net Change in Operating Assets and Liabilities (156,165) (209,975) 3,241 178,356 (619)
Net Cash Provided by Operating Activities 1,081,396 856,804 1,148,982 480,314 (22,907)
Capital Expenditures (254,787) (98,453) (677,233) (97,107) (15,000)
Net proceeds from sale of equipment 50,106 431,394 408,634 134,335 382,317
Equipment Acquisition Fees Paid to the General
Partner (57,407) (33,588) (105,760) (24,029) (600)
Net Cash Provided by (Used in) Investing
Activities (262,088) 299,353 (374,359) 13,199 366,717
Partners' Contributions - - (10,577) (4,164) -
Offering Costs - - - - -
Accounts Receivable - CCC - - (315,404) 8,000 81,287
Distributions to Partners (891,690) (923,546) (692,269) (519,480) (288,601)
Debt placement fee (11,503) (7,215) (19,667) (5,036) -
Proceeds from refinancing notes payable - - - 46,103
Net Cash (Used in) Financing Activities (903,193) (930,761) (1,037,917) (474,577) (207,314)
Net Increase (Decrease) in Cash (83,885) 225,396 (263,294) 18,936 136,496
Cash at Beginning of Year 136,208 52,323 277,719 14,425 33,361
Cash at End of Year 52,323 277,719 14,425 33,361 169,857
Investment Data Per $ 1,000 Investment
Net Income (Loss) - GAAP Basis (8) (3) 46 (27) 33
Federal Taxable Income to Investors 48 (21) (58) (58) N/A
Cash Distributions to Investors - GAAP Basis (97) (100) (74) (56) (31)
Return of Capital to Investors - GAAP Basis 97 100 74 56 31
* The significant component of Other Non-Cash Activities Included in the
Determination of Net Income was direct payments by lessees to banks, which
occurs when equipment is financed. The increase over the periods presented
was caused primarily by the acquisition of more financed equipment.
** Results through June 30, 2003
Prior Performance is not indicative of future performance
COMMONWEALTH INCOME & GROWTH FUND III
OPERATING RESULTS OF PRIOR PROGRAMS
(Table III)
For the Years Ended December 31, 1999, 2000, 2001, 2002
and For the Period Ended June 30, 2003
1999 2000 2001 2002 2003
Computation of Net Income (Loss)
Months of Operations 12 12 12 12 6 **
Gross Revenues $ 953,958 $ 1,262,989 $ 1,110,481 $ 789,063 $ 250,327
Less: Operating Expenses 275,066 223,838 233,577 265,918 113,519
Equipment Management Fee 46,893 63,345 55,126 39,218 12,349
Depreciation and Amortization 885,463 970,882 992,477 723,513 226,183
Interest expense 55,270 64,205 44,900 22,247 7,514
Uncollectible accounts receivable - - - 30,011 -
Loss on sale of computer equipment - 120,596 55,028 - -
Net (Loss) - GAAP Basis (308,734) (179,877) (270,627) (291,844) (109,238)
- -
Federal Taxable Income 20,307 (41,168) (108,877) (514,206) N/A
Cash Distributions - GAAP Basis (227,995) (302,898) (317,497) (317,498) (158,749)
Computation of Cash Flows Net (Loss) - -
Net (loss) (308,734) (179,877) (270,627) (291,844) (109,238)
Adjustments to Reconcile Net (Loss) to Net
Cash Provided by Operating Activities: - -
Depreciation and Amortization 885,463 970,882 992,477 723,513 226,183
Loss (gain) on sale of equipment - 120,596 55,028 (4,343) (3,317)
Other Non-Cash Activities Included in the
Determination of Net (Loss)* (318,386) (497,722) (591,179) (310,970) (93,446)
Net Change in Operating Assets and Liabilities (49,097) (81,303) 210,497 66,659 112,330
Net Cash Provided by Operating Activities 209,246 332,526 396,196 183,015 132,512
Capital Expenditures (730,316) (408,770) (170,943) (64,989) -
Net proceeds from sale of equipment - 57,864 686 208,484 37,936
Equipment Acquisition Fees Paid to the General
Partner (66,279) (28,531) (12,672) (11,416) -
Net Cash Provided by (Used in) Investing
Activities (796,595) (379,437) (182,929) 132,079 37,936
Partners' Contributions 515,849 364,878 - - -
Offering Costs paid to affiliate (46,426) (32,829) - - -
Offering Costs paid to the General Partner (10,060) (7,115) - - -
Distributions to Partners (227,995) (302,898) (317,497) (317,498) (158,749)
Proceeds from note payable - - - - -
Debt placement fee (12,386) (3,211) (1,395) (2,204) -
Net Cash Provided by (Used in) Financing
Activities 218,982 18,815 (318,892) (319,702) (158,749)
Net Increase (Decrease) in Cash (368,367) (28,096) (105,625) (4,608) 11,699
Cash at Beginning of Year 507,193 138,826 110,730 5,105 497
Cash at End of Year 138,826 110,730 5,105 497 12,196
Investment Data Per $ 1,000 Investment
Net Loss - GAAP Basis (130) (63) (90) (97) (36)
Federal Taxable Income to Investors 9 (14) (36) (170) N/A
Cash Distributions to Investors - GAAP Basis (96) (105) (105) (105) (53)
Return of Capital to Investors - GAAP Basis 96 105 105 105 53
* The significant component of Other Non-Cash Activities Included in the
Determination of Net Income was direct payments by lessees to banks, which
occurs when equipment is financed. The increase over the periods presented
was caused primarily by the acquisition of more financed equipment.
** Results through June 30, 2003
Prior Performance is not indicative of future performance
COMMONWEALTH INCOME & GROWTH FUND IV
OPERATING RESULTS OF PRIOR PROGRAMS
(Table III)
From Program Inception* through
the Period Ended June 30, 2003
2002 2003
Computation of Net Income (Loss)
Months of Operations 6 * 6 ***
Gross Revenues $ 150,534 $ 590,021
Less: Operating Expenses 443,358 665,345
Organizational costs 38,079 65,509
Equipment Management Fee 7,111 29,175
Depreciation and Amortization 110,021 411,349
Interest expense - 21,649
Uncollectible accounts receivable - -
Loss on sale of computer equipment 5,886 -
Net (Loss) - GAAP Basis (453,921) (603,006)
Federal Taxable Income (977,925) N/A
Cash Distributions - GAAP Basis (87,417) (286,179)
Computation of Cash Flows Net (Loss)
Net (loss) (453,921) (603,006)
Adjustments to Reconcile Net (Loss) to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 110,021 411,349
Loss (gain) on sale of equipment 5,886 -
Other Non-Cash Activities Included in the
Determination of Net Loss** - (157,008)
Net Change in Operating Assets and Liabilities (50,954) 545,521
Net Cash Provided by Operating Activities (388,968) 196,856
Capital Expenditures (2,224,765) (1,705,068)
Net proceeds from sale of equipment 100,502 -
Prepaid Equipment Acquisition Fees Paid to the
General Partner (33,905) (147,982)
Equipment Acquisition Fees Paid to the General
Partner (88,991) (100,843)
Net Cash (Used in) Investing Activities (2,247,159) (1,953,893)
Partners' Contributions 3,626,554 6,285,591
Offering Costs paid to affiliate - -
Offering Costs paid to the General Partner (393,230) (687,667)
Distributions to Partners (87,417) (286,179)
Accounts Receivable - CCC - (156,029)
Proceeds from note payable - -
Debt placement fee - (8,160)
Net Cash Provided by Financing Activities 3,145,907 5,147,556
Net Increase in Cash 509,780 3,390,519
Cash at Beginning of Year 1,000 510,780
Cash at End of Year 510,780 3,901,299
Investment Data Per $ 1,000 Investment
Net Loss - GAAP Basis (188) (97)
Federal Taxable Income to Investors (406) N/A
Cash Distributions to Investors - GAAP Basis (36) (46)
Return of Capital to Investors - GAAP Basis 36 46
* Commencement Date is 07/08/02
** The significant component of Other Non-Cash Activities Included in the
Determination of Net Income was direct payments by lessees to banks, which
occurs when equipment is financed. The increase over the periods presented
was caused primarily by the acquisition of more financed equipment.
*** Results through June 30, 2003
Prior Performance is not indicative of future performance
CIGF 1
January 1, 2001 - June 30, 2003
Year Year
Equipment of of
Manufacturer Equipment Type Description Acquisition Disposal
- ------------------------------------------------------------------------------------------------------------------------------------
IBM (1) 3900 - DW1, (1) 3900 - DW2 Printer 1997 2001
IBM 3900 - DW1 printers Printer 1995 2001
SIEMENS (3) 2240 - 004 Printer 1995 2001
STK 9490 - M32 Tape Drive 1996 2001
SGI disk drive w/ controller, server, workstation Workstation 1997 2001
STK Tape Libraries, Redwd, Timberline Tape Drive 1996 2001
IBM 3590 Tape Drive 1998 2001
SUN Sun 6000 server Server 1998 2001
IBM (2) 3745 - 31A, 3746 - 900 Comm Controller 1996 2002
IBM 3590 Tape Drive 1998 2002
SGI disk drive w/ controller, server, workstation Workstation 1997 2002
SUN Enterprise 3500 server Server 1998 2002
IBM (3) 3490 - A20, (1) 3490 - B40 Tape Drive 1994 2002
SIEMENS (3) 2240 - 004 Printer 1995 2003
CIS ROUTERS CISCO ROUTERS 1999 2003
SOP SYSTEM PRINTER 2001 2003
Original Net Net GAAP Federal
Acquisition Book Proceeds Net Taxable
Manufacturer Cost Value Received Gain / (Loss) Net Gain / (Loss)
- ------------------------------------------------------------------------------------------------------
IBM 460,490 - 27,160 27,160 (29,072)
IBM 123,614 - 6,548 6,548 6,547
SIEMENS 459,592 - 20,370 20,370 20,370
STK 703,968 - 17,182 17,182 (4,714)
SGI 466,956 9,825 26,057 16,232 (36,247)
STK 748,419 - 16,005 16,005 (60,034)
IBM 299,832 - 80,093 80,093 7,559
SUN 274,774 34,347 37,200 2,853 (29,273)
IBM 184,383 - 1,067 1,067 644
IBM - - 1,392 1,392 1,392
SGI 200,000 - 6,530 6,530 (2,874)
SUN 49,505 6,188 3,240 (2,948) (3,130)
IBM 379,682 - 11,685 11,685 11,685
SIEMENS - - 6,000 6,000 N/A
CIS 38,184 4,773 13,595 8,822 N/A
9,794 4,693 2,800 (1,893) N/A
4,399,193 59,826 276,923 217,097 (117,147)
CIGF 2
January 1, 2001 - June 30, 2003
Year
Equipment of
Manufacturer Equipment Type Description Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
STK (3) 9490 - M34 Drive Timberline 1996
SGI (1) Onyx Infinite Reality DS Server 1996
HP (20) HP C180 Workstation 1997
STK (4) 4490 - M30 UPGR, (2) 4490 - M34 UPGR, (6) 9490 - M34 Drive Timberline 1995
IBM (8) 9032-003 Escon Director 1997
STK (9) 9490 - M34 Drive Timberline 1997
SGI Workstations Workstation 1997
IBM (32) 3130-02D printers Printer 1997
SUN Sun E6000 server & upgrade Server 1997
IBM (1) 3900 DW1 / DW2 Printer 1997
DELL (4) workstations Workstation 2000
SUN (3) Sun 450 servers Server 1998
STK (2) 9490 - M34 Drive Timerline 1998
IBM 3590 Tape Drive 1998
STK 9490 - M34 Drive Timerline 1997
DELL (2) workstations Workstation 2000
IBM (1) 3490 A20 w/ (4) 3312, (2) 3490 - B40 Drive 1996
CISCO Cisco Routers Routers 1999
IBM 3590 Tape Drive 1998
SGI Workstations Workstation 1997
SUN Enterprise 4500 server Server 1998
SUN Sun 6000 server Server 1998
CISCO 3640 4-slot modular router Routers 2000
IBM (2) 3745 - 31A, (2) 3746 - 900 Controller 1997
FORE (1) ASX 1000 Comm. Switch 1999
HP (20) HP C180 WORKSTATIONS WORKSTATION 1997
HP (1) SERVER (1) WORKSTATION SERVER WORKSTATION 2000
STK 9730-001 TAPE LIBRARY 1999
(1) ROLLO 67 PAPER ROLL SYSTEM 2000
CISCO (5) CATALYST 5500 ROUTERS 1999
LEXMARK 20T2040-OPTRA T612N-20PPM PRINTER 2000
SOP SYSTEM PRINTER 2001
IBM 4 ESCON DIRECTORS - 9032 ESCON DIRECTOR 1998
IBM 5 ESCON DIRECTORS - 9032 ESCON DIRECTOR 1998
IBM (75%): (8) 3900 - OW1 PRINTER 1997
Year Original Net Net GAAP Federal
of Acquisition Book Proceeds Net Taxable
Manufacturer Disposal Cost Value Received Gain / (Loss) Net Gain / (Loss)
- ----------------------------------------------------------------------------------------------------------------
STK 2000 405,628 25,352 39,000 11,698 (71,928)
SGI 2000 263,498 27,448 8,500 (19,203) (76,249)
HP 2000 351,736 79,775 3,385 (76,491) (152,184)
STK 2000 490,110 - 60,500 57,985 (561)
IBM 2000 831,382 225,349 177,196 (53,468) (199,716)
STK 2000 1,268,909 211,485 161,000 (58,535) (345,144)
SGI 2001 462,332 9,500 26,057 16,557 (70,108)
IBM 2001 559,566 34,843 12,969 (21,874) (118,010)
SUN 2001 461,207 9,609 3,880 (5,729) (92,051)
IBM 2001 477,466 - 101,850 101,850 2,538
DELL 2001 4,965 621 505 (115) (3,947)
SUN 2001 244,584 30,573 10,864 (19,709) (90,883)
STK 2001 194,272 24,284 7,065 (17,219) (73,750)
IBM 2001 886,374 - 216,549 216,549 (210,530)
STK 2001 - - 14,550 14,550 14,550
DELL 2001 5,427 4,070 1,355 (2,716) (3,161)
IBM 2002 178,673 - 17,019 17,019 17,019
CISCO 2002 456,358 80,642 67,900 (12,742) (206,685)
IBM 2002 - - 4,662 4,662 4,662
SGI 2002 200,000 - 6,530 6,530 (3,870)
SUN 2002 120,701 15,087 7,896 (7,192) (17,446)
SUN 2002 418,332 10,625 4,190 (6,435) (93,059)
CISCO 2002 23,717 15,811 4,572 (11,239) (12,379)
IBM 2002 178,454 - 9,700 9,700 420
FORE 2002 - - (3,949) (3,949) (3,369)
HP 2002 10,878 - 2,120 2,120 2,056
HP 2002 3,265 1,633 325 (1,308) (1,983)
STK 2002 19,449 5,267 6,435 1,168 (2,991)
2003 19,416 8,090 3,300 (4,790) N/A
CISCO 2003 62,538 7,817 17,351 9,534 N/A
LEXMARK 2003 157,500 39,375 55,000 15,625 N/A
2003 18,189 8,715 5,200 (3,515) N/A
IBM 2003 1,044,784 - 340,000 340,000 N/A
IBM 2003 1,175,992 - 320,000 320,000 N/A
IBM 2003 1,542,482 - - - N/A
--------------------------------------------------------------------------------
8,926,921 306,561 1,276,885 970,324 (962,977)
--------------------------------------------------------------------------------
CIGF 3
January 1, 2001 - June 30, 2003
Year Year
Equipment of of
Manufacturer Equipment Type Description Acquisition Disposal
- -----------------------------------------------------------------------------------------------------------------------------------
STK (5) STK 9490 - M34 Timberline Drive 1998 2000
SUN 30 Ultra30 servers Server 1998 2001
SUN (12) Sun workstations Workstation 1998 2002
SUN 30 Ultra30 servers Server 1998 2002
IBM Escon directors Directors 1999 2002
SUN (1) Sun 4000 server Server 1998 2002
COMPAQ (2) P3550 Server 1999 2002
FORE (1) ASX 1000 Comm. Switch 1998 2002
FORE (1) ASX 1000 Comm. Switch 1998 2002
FORE (1) ASX 1000 Comm. Switch 1998 2002
COMPAQ (1) P3 (1)3200 SMART ARRAY (1) V500 SERVERS 1999 2003
CIS (5) Catalyst 5500 ROUTERS 1999 2003
COMPAQ (2) 100745-003 (2) 295636 SERVERS 2000 2003
Original Net Net GAAP Federal
Acquisition Book Proceeds Net Taxable
Manufacturer Cost Value Received Gain / (Loss) Net Gain /(Loss)
- -------------------------------------------------------------------------------------------------
STK 407,908 178,461 59,564 (120,596) (196,669)
SUN 445,714 55,714 686 (55,028) (184,421)
SUN 139,596 2,908 861 (2,047) (28,172)
SUN - - 3,116 3,116 3,116
IBM 641,428 180,375 184,300 3,925 (129,387)
SUN 131,470 - 4,123 4,123 (23,223)
COMPAQ 18,755 5,861 3,414 (2,447) (8,278)
FORE 15,229 4,759 3,949 (810) (2,582)
FORE 741 232 181 (51) (137)
FORE 35,580 10,005 9,315 (690) (4,106)
COMPAQ 16,739 11,762 2,100 (9,662) N/A
CIS 133,956 114,820 41,641 (73,179) N/A
COMPAQ 45,521 35,014 800 (34,214) N/A
----------------------------------------------------------------------------
2,032,637 599,911 314,049 (287,561) (573,859)
----------------------------------------------------------------------------
CIGF 4
January 1, 2001 - June 30, 2003
Year Year
Equipment of of
Manufacturer Equipment Type Description Acquisition Disposal
- -----------------------------------------------------------------------------------------------------------------------------------
ALLTEL COMMUNICATIONS COMMUNICATIONS 2002 2002
DELL (6) OPTIPLEX GX 240, (2) DELL MINITOWER & POWEREDGE WORKSTATIONS 2002 2002
PANISONIC 50ppn CIS Scanner COMMUNOCATIONS 2002 2002
Original Net Net GAAP Federal
Acquisition Book Proceeds Net Taxable
Manufacturer Cost Value Received Gain /(Loss) Net Gain /(Loss)
- --------------------------------------------------------------------------------------------------
ALLTEL 54,092 49,584 48,003 1,581 (9,692)
DELL 36,506 34,224 33,373 851 (5,594)
PANISONIC 23,561 22,579 22,234 345 (2,936)
-
--------------------------------------------------------------------------
114,159 106,387 103,610 2,777 (18,222)
--------------------------------------------------------------------------
CIGF I
Equipment Acquistions from January 1, 2001 to July 1, 2003
Equipment Year of
Manufacturer Equipment Type Description Acquisition Cash Rent in Lieu Debt Assumed
COMPAQ SERVER SERVER 2001 3,128 - 53,190
HP VISUALIZE WORKSTATION 2001 2,277 - 15,427
IBM 3 IBM4320-001 INFOPRINT PRINTER 2001 35,570 - -
IBM 3 IBM4320-001 INFOPRINT PRINTER 2001 7,398 1,565 49,411
CISCO ROUTERS -6 ROUTER 2001 22,976 -
COMPAQ SOP SYSTEM PRINTER 2001 9,794 - -
IBM 1 MODEL #7017-S85 P680 R6000 SERVER 2001 4,961 - -
SUN 10 SUN, 280R SPARCILI SERVER 2001 7,428 - 46,186
23 SUN BLADE 750, SPARC II
DELL WORKSTATIONS 2001 10,347 - 65,340
LEXMARK 2 PPM/MCR PRINTER 2001 47,478 - -
3 ENCRYPTION UPGR
1 PL4630 MICO.
1 615 IMAGE SEALER
DELL WORKSTATIONS 2001 7,845 - 58,837
SUN SERVER SERVER 2001 37,064 - 246,003
IBM 3 IBM4320-001 INFOPRINT PRINTER 2001 1,476 - 9,723
COMPAQ SERVER SERVER 2002 6,948 - 147,155
DELL WORKSTATION WORKSTATION 2002 2,738 - 13,052
DELL WORKSTATION WORKSTATION 2002 3,064 - 26,767
INTEL WORKSTATION WORKSTATION 2002 1,650 - 12,699
DELL WORKSTATION WORKSTATION 2002 600 - 3,953
COMPAQ SERVER SERVER 2002 10,000 - -
INTEL WORKSTATION WORKSTATION 2003 5,000 - -
Obligation Total
Manufacturer Incurred Equipment Cost
COMPAQ - 56,318
HP - 17,704
IBM - 35,570
IBM - 58,375
CISCO - 22,976
COMPAQ - 9,794
IBM - 4,961
SUN - 53,614
DELL - 75,687
LEXMARK - 47,478
DELL - 66,682
SUN - 283,067
IBM - 11,199
COMPAQ - 154,103
DELL - 15,790
DELL - 29,831
INTEL - 14,349
DELL - 4,553
COMPAQ - 10,000
INTEL - 5,000
CIGF II
Equipment Acquistions from January 1, 2001 to July 1, 2003
Equipment Year of
Manufacturer Equipment Type Description Acquisition Cash Rent in Lieu
DELL Workstations Workstation 2001 69,523 -
NCR 46 LAN ROUTERS ROUTERS 2001 49,106 -
IBM 15 4320-001INFOPRINT 20PPM PRINTER 2001 9,860 -
DELL Workstations Workstation 2001 18,189 -
IBM 15 4320-001INFOPRINT 20PPM PRINTER 2001 41,996 -
XEROX 1 8830 PRINTER PLOTTER PRINTER 2001 27,391 -
HP 1 DESIGN JET HARD DRIVE HARD DRIVE
DELL Workstations Workstation 2001 150,255 -
SUN 10 SUN, 280R SPARCILI SERVER 2001 78,528 -
23 SUN BLADE 750, SPARC II
DELL Workstations Workstation 2001 62,080 -
CISCO 1 24-PORT T-1 ACCESS SERVER SERVER 2001 15,479 -
DELL Workstations Workstation 2001 1,982 -
SUN SERVER SERVER 2001 109,466 -
IBM 15 4320-001INFOPRINT 20PPM PRINTER 2001 43,379 -
DELL WORKSTATIONS WORKSTATION 2002 2,515 -
NCR ROUTERS ROUTERS 2002 12,414 -
NCR ROUTERS ROUTERS 2002 13,977 -
SUN 4 F3800-447 W4PCU/4GB SERVER 2002 23,433 -
4 CPU MEM BD
DELL 1 DELL LATITUDE WORKSTATION 2002 5,368 -
30 EQUIS CLONE
DELL DELL LATITUDE C150 1.06GHZ, CELERON WORKSTATION 2002 1,007 -
DELL DELL 14 LATITUDE C610 P3/GHZ, CELERON WORKSTATION 2002 7,214 -
DELL 2 P3/1.3GHZ POWER EDGE 2250 SERVER 2002 2,090 -
NEC NEC MULTISYNC 15MI DISPLAY MONITORS MONITORS 2002 3,555 -
COMPAQ COMPAQ PROLIANT ML350R SERVER 2002 3,579 -
COMPAQ COMPAQ ARMADA E500 P3/650 2002 1,081 -
DELL Workstations Workstation 2002 875 -
SUN 6 SUN BLADE 2000 MODEL90 SERVER 2002 20,000 -
INTEL WORKSTATION WORKSTATION 2003 15,000 -
Obligation Total
Manufacturer Debt Assumed Incurred Equipment Cost
DELL - - 69,523
NCR - - 49,106
IBM 55,631 - 65,491
DELL - - 18,189
IBM - - 41,996
XEROX - - 27,391
HP
DELL - - 150,255
SUN 488,248 - 566,776
DELL 392,016 - 454,096
CISCO - - 15,479
DELL - - 1,982
SUN 726,560 - 836,026
IBM 304,226 - 347,605
DELL 21,971 - 24,486
NCR 61,658 - 74,072
NCR 106,790 - 120,767
SUN 111,883 - 135,315
DELL 42,587 - 47,955
DELL 9,153 - 10,160
DELL 58,282 - 65,496
DELL 16,946 - 19,036
NEC 28,596 - 32,151
COMPAQ 33,117 - 36,696
COMPAQ 5,011 - 6,093
DELL 7,627 - 8,502
SUN - - 20,000
INTEL - - 15,000
CIGF III
Equipment Acquistions from January 1, 2001 to July 1, 2003
Equipment Year of
Manufacturer Equipment Type Description Acquisition Cash Rent in Lieu
TCE 009 CISCO 46 ROUTERS ROUTERS 2001 134,394 -
GEM 156 SUN 69 SUN ULTRA 5MDI WORKSTATION 2001 19,760 -
TCE 016 XEROX 1 8830 PRINTER PLOTTER PRINTER 2001 20,384 -
AOL 33 SUN SUN SERVER SERVERS 2001 2,902 -
TAC 001 COMPAQ COMPAQ PROLIANT DL380R P3/1.13GHZ WORKSTATION 2002 446 -
TRI 001 DELL 2500 P3/900 WORKSTATION 2002 1,366 -
VEC 038 DELL OPTIPLEX GX240 P4/1.8GHZ WORKSTATION 2002 6,670 -
VEC 039 DELL OPTIPLEX GX240 P4/1.8GHZ WORKSTATION 2002 1,395 -
VEC 040 DELL OPTIPLEX GX240 P4/1.8GHZ WORKSTATION 2002 2,492 -
VEC 044 DELL OPTIPLEX GX240 P4/1.8GHZ WORKSTATION 2002 3,449 -
AOL 21 SUN 4 F3800-447 W4PCU/4GB SERVER 2002 19,172 -
GEM 375 SUN SUN BLADE 2000 MODEL 90 SERVER 2002 30,000 -
Obligation Total
Manufacturer Debt Assumed Incurred Equipment Cost
TCE 009 CISCO - - 134,394
GEM 156 SUN 120,201 - 139,961
TCE 016 XEROX - - 20,384
AOL 33 SUN 19,261 - 22,163
TAC 001 COMPAQ 3,891 - 4,337
TRI 001 DELL 9,728 - 11,094
VEC 038 DELL OPTIPLEX 53,934 - 60,604
VEC 039 DELL OPTIPLEX 11,503 - 12,899
VEC 040 DELL OPTIPLEX 20,716 - 23,207
VEC 044 DELL OPTIPLEX 29,101 - 32,549
AOL 21 SUN 91,541 - 110,713
GEM 375 SUN - - 30,000
CIGF IV
Equipment Acquistions from January 1, 2002 to July 1, 2003
Equipment Year of
Manufacturer Equipment Type Description Acquisition
VEC 045 DELL SERVER SERVER 2002
VEC 046 DELL SERVER SERVER 2002
PFS 001 ALLTELL COMMUNICATIONS COMMUNICATIONS 2002
ANT 035 NOKIA VPN - 1 APPLIANCE/50 ROUTER 2002
ANT 043 NOKIA NOKIA REMOTE LINK ROUTER 2002
ANT 060 MITEL (1) SX200EL COMMUNICATIONS 2002
ANT 064 HP (1) J5600 SERVER 2002
ANT 066 INFOCUS 280 DLP TERMINAL 2002
ANT 067 NOKIA (1) VPN - 1 MODULE 50 ROUTER 2002
ANT 068 NOKIA (1) REMOTE LINK 50 ROUTER 2002
ANT 072 APPLE (1) POWERSTOR L200 AUTOLD LV 8SLT IDSLT 200 WORKSTATION 2002
ANT 073 PROXIMA LASER JET PRINTER 2002
ANT 074 NOKIA IP 120 BASE SYSTEM TAPE DRIVE 2002
ANT 076 PAKARD BELL XSERIES 232/20/40 GB TAPE WORKSTATION / SERVER 2002
ANT 079 CISCO CON-OS C 295 WORKSTATIONS / ROUTERS 2002
ANT 081 DELL 1700 GX400 MINITOWER WORKSTATIONS 2002
GEM 532 CISCO ROUTER ROUTER 2002
VEC 047 DELL (15) OPTIPLEX 220-9766 SERVER 2002
VEC 048 DELL (22) OPTIPLEX GX240 SERVER 2002
VEC 049 DELL (15) DELL OPTIPLEX 221-0697 SERVER 2002
VEC 050 DELL (20) DELL OPTIPLEX 221-0697 SERVER 2002
OHR 001 CISCO CON-OS C 295 ROUTER 2002
GEM 533 NOKIA (2) NOKIA IP710 IP TELEPHONE BASE COMMUNICATIONS 2002
VEC 051 DELL (5) DELL OPTIPLEX 220-0386 SERVER 2002
VEC 052 DELL (25) DELL OPTIPLEX 220-9764 SERVER 2002
VEC 053 DELL (5) DELL OPTIPLEX 220-9764 SERVER 2002
PFS 004 NOKIA BBCAST AUTO SCAN COMMUNICATIONS 2002
CHY 005 VISARA COMMUNICATION CONTROLLERS PRINTERS 2002
OHR 004 COMPAQ / CISCO SERVERS / ROUTERS 2002
JSC 039 COMPAQ (27) WORKSTATIONS WORKSTATIONS 2002
PFS 006 DELL (8)l 220-9750 Optiplex GX26OD P4 WORKSTATIONS 2003
CBC 001 FUJITSU / IBM (6) E Series P4, (6) P2100, (6) Series P3 WORKSTATIONS 2003
Win XP Pro, (6)
DPT 021 DELL (15) 221-0709 Dimension, (15) E772 WORKSTATIONS 2003
EMC 011 IBM / DELL / HP/ CO (2) Q232 SERVER, DESKJET 960CXI, EVO SERVERS / PRINTERS 2003
HP / COMPAQ N400C P3/850, D500, S720, (4) 7415 / COMMUNICATIONS
EMC 013 COMPAQ / HP EVO N400C, D500, S720 WORKSTATIONS / PRINTERS 2003
EMC 014 COMPAQ / HP PRINTERS, EVO N180 WORKSTATIONS / PRINTERS 2003
EMC 016 COMPAQ / HP / DELL (25) MULISYNC DISPLAY, PRINTERS, EVO N180 PRINTERS / PRINTERS / DISPLAYS 2003
EMC 017 DELL / CISCO / HP / IDSL ROUTER, LATITUDE C400, C640, WORKSTATIONS / 2003
X200, EVO N1000V PRINTERS
HHC 003 TOSHIBA / HP TECRA 8100, VECTRA VL400DT WORKSTATIONS 2003
HHC 006 HP / DELL (9) E PC 42 P4, LATTITUDE C610 WORKSTATIONS / SERVERS 2003
HHC 009 TOSHIBA SATELITE 1730XCDS WORKSTATIONS 2003
MDI 001 IBM 8669-2RX, 3542-2RU SERVERS / TAPE 2003
MDI 002 IBM (3) XSERVER 30, (3) THINKPAD WORKSTATIONS / SERVERS 2003
MDI 003 IBM NETVISTA A30P, (3) THINKPAD, PSC 2210 PRINTER WORKSTATIONS / COMMUNICATIONS 2003
MYC 002 DELL (3) POWEREDGE 1650 (2) 2650 SERVERS 2003
PAR 019 EXABYTE 110L PLUS ULTIUM 100 TAPE 2003
PAR 021 POLYCOM SONY EVI DO30, VS 4000 COMMUNICATIONS 2003
PAR 022 POLYCOM VIEWSTATION FX COMMUNICATIONS 2003
PFH 009 MICROSYSTEM (7) CLONE P4, SERVER, DISPLAY WORKSTATIONS 2003
VEC 019 CLONE (20) MT P3 WORKSTATIONS 2003
VEC 025 DELL (22) OPTIPLEX GX150 WORKSTATIONS 2003
VEC 027 DELL (10) OPTIPLEX GX150 WORKSTATIONS 2003
VEC 028 DELL (15) OPTIPLEX GX150 WORKSTATIONS 2003
VEC 033 DELL (15) OPTIPLEX GX150 WORKSTATIONS 2003
VEC 041 DELL (10) OPTIPLEX GX240 WORKSTATIONS 2003
WTR 001 CISCO (4) FIREWALL FIREWALL 2003
BCI 009 DELL (3) LATTITUDE C600 WORKSTATIONS 2003
CTC 002 HP COLOR LASERJET 4600 WORKSTATIONS / PRINTERS 2003
DPT 024 COMPAQ WIN2K, (3) DISPLAY, P2/266 SERVERS / COMMUNICATIONS 2003
DPT 028 DELL (4) 4550 PF WORKSTATIONS 2003
EMC 015 KONICA 7415, 7165 DIGITAL COPIERS DIGITAL PRINT PRESS 2003
EMC 018 DELL (5) 221-0441 C640 WORKSTATIONS / PRINTERS 2003
EMC 019 DELL (5) 221-0441 C640 WORKSTATIONS 2003
GPC 005 COMPAQ (2) Galaxy-1752-B-JOD 55JBOD STORAGE SYSTEM 2003
PBO 001 COMPAQ Int 35/70 DTL7000 Wide SCSI tape Drive SERVERS 2003
RTN 003 COMPAQ Int 35/70 DTL7000 Wide SCSI tape Drive SERVERS 2003
TGG 001 COMPAQ Int 35/70 DTL7000 Wide SCSI tape Drive SERVERS 2003
VEC 054 DELL (8) 220-9764 Optiplex GX26OT 17' Displays WORKSTATIONS 2003
VEC 055 DELL (5) 221-0073 Perrecision 340/P4 WORKSTATIONS 2003
VEC 056 DELL (4) 221-1592 Precision 340MT WORKSTATIONS 2003
VEC 057 ASI CLONE (10) P416-12 WORKSTATIONS 2003
WTR 002 SONY (2) Vaio C1 WORKSTATIONS 2003
XTS 001 DELL (8) 221-1592 Precision 340MT WORKSTATIONS 2003
OHR 007 COMPAQ WORKSTATIONS WORKSTATIONS 2003
PFS 010 CANON / HP Smartups 1500VA, SUPERSTACK 4400 WORKSTATIONS 2003
Kellog CANON / HP Smartups 1500VA, SUPERSTACK 4400 WORKSTATIONS 2003
GEM 603 NETAPP (27)Fiber Channel Storage WORKSTATIONS 2003
TCE 019 WORKSTATIONS WORKSTATIONS 2003
HTZ 005 HP (52) Serial Copper PIC Servernet II, (10 SERVERS 2003
S86000 PROCESSOR
Obligation Total
Manufacturer Cash Rent in Lieu Debt Assumed Incurred Equipment Cost
VEC 045 DELL 56,089 - - - 56,089
VEC 046 DELL 36,756 - - - 36,756
PFS 001 ALLTELL 45,803 - - - 45,803
ANT 035 NOKIA 7,047 - - - 7,047
ANT 043 NOKIA 8,112 - - - 8,112
ANT 060 MITEL 9,410 - - - 9,410
ANT 064 HP 10,779 - - - 10,779
ANT 066 INFOCUS 11,165 - - - 11,165
ANT 067 NOKIA 15,532 - - - 15,532
ANT 068 NOKIA 10,253 - - - 10,253
ANT 072 APPLE 18,636 - - - 18,636
ANT 073 PROXIMA 21,166 - - - 21,166
ANT 074 NOKIA 7,156 - - - 7,156
ANT 076 PAKARD BELL 25,068 - - - 25,068
ANT 079 CISCO 14,673 - - - 14,673
ANT 081 DELL 15,527 - - - 15,527
GEM 532 CISCO 43,277 - - - 43,277
VEC 047 DELL 25,054 - - - 25,054
VEC 048 DELL 33,465 - - - 33,465
VEC 049 DELL 14,520 - - - 14,520
VEC 050 DELL 18,584 - - - 18,584
OHR 001 CISCO 254,820 - - - 254,820
GEM 533 NOKIA 81,388 - - - 81,388
VEC 051 DELL 13,080 - - - 13,080
VEC 052 DELL 23,741 - - - 23,741
VEC 053 DELL 5,773 - - - 5,773
PFS 004 NOKIA 5,100 - - - 5,100
CHY 005 VISARA 831,622 - - - 831,622
OHR 004 COMPAQ / CISCO 254,554 - - - 254,554
JSC 039 COMPAQ 183,385 - - - 183,385
PFS 006 DELL 88,451 - - - 88,451
CBC 001 FUJITSU / IBM 4,500 - 45,199 - 49,699
DPT 021 DELL 1,710 - 15,996 - 17,706
EMC 011 IBM / DELL / HP/ CO 5,160 - 37,356 - 42,516
HP / COMPAQ
EMC 013 COMPAQ / HP 2,975 - 24,091 - 27,066
EMC 014 COMPAQ / HP 1,180 - 10,017 - 11,197
EMC 016 COMPAQ / HP / DELL 4,270 - 39,765 - 44,035
EMC 017 DELL / CISCO / HP / 5,340 - 55,005 - 60,345
HHC 003 TOSHIBA / HP 1,335 - 9,130 - 10,465
HHC 006 HP / DELL 2,800 - 23,864 - 26,664
HHC 009 TOSHIBA 135 - 1,247 - 1,382
MDI 001 IBM 8,225 - 62,131 - 70,356
MDI 002 IBM 1,775 - 15,970 - 17,745
MDI 003 IBM 1,330 - 14,040 - 15,370
MYC 002 DELL 1,235 - 11,151 - 12,386
PAR 019 EXABYTE 1,000 - 10,379 - 11,379
PAR 021 POLYCOM 1,060 - 10,956 - 12,016
PAR 022 POLYCOM 1,765 - 18,388 - 20,153
PFH 009 MICROSYSTEM 995 - 10,571 - 11,566
VEC 019 CLONE 1,330 - 7,217 - 8,547
VEC 025 DELL 1,660 - 9,973 - 11,633
VEC 027 DELL 850 - 5,302 - 6,152
VEC 028 DELL 1,375 - 9,266 - 10,641
VEC 033 DELL 1,220 - 8,666 - 9,886
VEC 041 DELL 815 - 6,496 - 7,311
WTR 001 CISCO 1,260 - 11,750 - 13,010
BCI 009 DELL 650 - 3,875 - 4,525
CTC 002 HP 550 - 5,127 - 5,677
DPT 024 COMPAQ 1,100 - 26,783 - 27,883
DPT 028 DELL 800 - 7,532 - 8,332
EMC 015 KONICA 2,400 - 19,607 - 22,007
EMC 018 DELL 2,600 - 24,065 - 26,665
EMC 019 DELL 1,100 - 10,191 - 11,291
GPC 005 COMPAQ 5,200 - 48,074 - 53,274
PBO 001 COMPAQ 1,000 - 13,535 - 14,535
RTN 003 COMPAQ 2,200 - 102,161 - 104,361
TGG 001 COMPAQ 1,300 - 13,393 - 14,693
VEC 054 DELL 650 - 4,711 - 5,361
VEC 055 DELL 800 - 5,798 - 6,598
VEC 056 DELL 750 - 5,129 - 5,879
VEC 057 ASI CLONE 1,100 - 8,979 - 10,079
WTR 002 SONY 700 - 6,645 - 7,345
XTS 001 DELL 22,734 - - - 22,734
OHR 007 COMPAQ 109,753 - - - 109,753
PFS 010 CANON / HP 89,470 - - - 89,470
Kellog CANON / HP 80,206 - - - 80,206
GEM 603 NETAPP 26,520 - - - 26,520
TCE 019 434,247 - - - 434,247
HTZ 005 HP 779,810 - - - 779,810
3,815,674 - 816,004 - 4,631,678
ANY SUPPLEMENTS AND/OR STICKERS WHICH UPDATE
THIS PROSPECTUS ARE CONTAINED ON THE INSIDE BACK COVER.
- --------------------------------------------------------------------------------
SUPPLEMENT FOR ALABAMA AND TEXAS INVESTORS
Although this partnership uses the word "Growth" in its title, the
assets to be acquired by the partnership will not appreciate in value and will
in fact lose value rapidly after acquisition. By using the term "Growth," the
sponsor of this partnership means that the sponsor will purchase additional
equipment with money that otherwise could be distributed to investors as a
return on their investment.
PENNSYLVANIA INVESTORS
Because the minimum closing amount is less than $1,500,000, you are cautioned to
carefully evaluate the program's ability to fully accomplish its stated
objectives and to inquire as to the current dollar volume of program
subscriptions.
Please be advised that any information represented that is not contained in this
prospectus has not been authorized by CIGF5, the general partner or the dealer
manager. If any material change in the prospectus occurs, this prospectus will
be appropriately amended or supplemented. The use of forecasts in this offering
is also prohibited and not permitted.
===============================================================================================================================
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. You should carefully review and consider this
information before making your investment decision. Neither the delivery of this COMMONWEALTH INCOME
prospectus nor any sale made hereunder shall under any circumstances create an & GROWTH FUND V
implication that there has been no change in the affairs of the partnership
since the date hereof. However, if any material change occurs while this
prospectus is required by law to be delivered, this prospectus will be amended
or supplemented accordingly.
Table of Contents
Page
Number
--------
Investor Suitability Standards.................... 1
Prospectus Summary................................ 2
Risk Factors...................................... 8
Management....................................... 17
Responsibilities of the General Partner.......... 20
Investment Objectives and Policies............... 21
Compensation To the General
Partner and Affiliates....................... 29
Conflicts Of Interest............................ 32
Prior Offerings By Affiliates.................... 34
Transferability of Units......................... 36 [LOGO OMITTED]
Distributions and Allocations.................... 38
United States Federal Income Commonwealth
Tax Considerations........................... 42 Capital Securities Corp.
ERISA Considerations............................. 62 Oaklands Corporate Center
Management's Discussion of Certain 470 John Young Way, Suite 300
Financial Data............................... 65 Exton, Pennsylvania 19341
Partnership Agreement Summary.....................66 1-800-249-3700
Plan of Distribution............................. 70
Reports to Limited Partners...................... 74
Legal Matters.................................... 75
Experts.......................................... 75
Where You Can Find
Additional Information...................... 75
Subscription Agreement....................Appendix I
Partnership Agreement....................Appendix II
Selected Financial Data......................Table I
Prior Performance Tables....................Table II
Supplements........................Inside Back Cover
===============================================================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission Registration Fee $ 1,618.00
National Association of Securities Dealers, Inc. Filing Fee $ 2,000.00
Blue Sky fees and expenses $ 17,500.00
Printing Costs $ 25,000.00
Accounting Costs $ 10,000.00
Legal fees and expenses $ 40,000.00
Miscellaneous $ 173,500.00(1)
Total $269,618.00
__________
Except for the SEC Registration Fee and the NASD Filing Fee, the
amounts listed above are estimates.
(1). Miscellaneous expenses include sales incentives and due diligence
reimbursements.
Item 14. Indemnification of Directors and Officers.
The Registrant's Agreement of Limited Partnership contains certain
indemnification provisions for the benefit of the General Partner and its
officers, directors and employees. Reference is made to "Responsibilities of the
General Partner" and "Summary of the Partnership Agreement" in the Prospectus
included in this Registration Statement for a summary of such provisions and to
the Restated Limited Partnership Agreement which is filed as an exhibit to this
Registration Statement.
Item 15. Recent Sales of Unregistered Securities.
On or about May 19, 2003, the Registrant sold a limited partnership
interest to Kimberly A. Springsteen, the initial limited partner of the
Partnership, for $500.00 paid in cash. The Registrant determined the issuance of
such interest to be exempt from registration under the Securities Act of 1933,
as amended, by virtue of the provisions of Section 4(2) thereof exempting
transactions by an issuer not involving any public offering.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
1.1* Form of Dealer Manager Agreement
3.1* Certificate of Limited Partnership
3.2* Restated Limited Partnership Agreement (incorporated herein
by reference to Appendix I to the Prospectus)
5.1 Opinion of Reed Smith LLP as to legality of the Units
8.1 Form of Opinion of Reed Smith LLP as to tax matters
10.1* Form of Participating Broker Agreement
10.2 Form of Escrow Agreement
23.1 Consent of Fishbein & Company
23.2 Consent of BDO Seidman, LLP
23.3 Consent of Reed Smith LLP (included in Exhibit 5.1 and 8.1)
24.1* Power of Attorney
* Previously filed.
(b) Financial Statements Included in the Prospectus
Commonwealth Income & Growth Fund V
Report of Independent Auditors
Balance Sheet at August 8, 2003
Notes to Balance Sheet
Commonwealth Income & Growth Fund, Inc.
Report of Independent Auditors
Balance Sheet at February 28, 2003
Notes to Balance Sheets
Commonwealth Capital Corp.
Report of Independent Auditors
Consolidated Balance Sheets at February 28, 2003 and
February 28, 2002
Consolidated Statements of Income and Retained Earnings
for the Years ended February 28, 2003 and
February 28, 2002
Consolidated Statements of Cash Flows for the Years
ended February 28, 2003 and February 28, 2002
Notes to Consolidated Financial Statements
All Schedules have been omitted as the required information is
presented in the balance sheet or related notes.
II-2
Item 17. Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That all such post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in effect at the time
such post-effective amendments are filed.
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(5) To provide to the Limited Partners the financial statements
required by Form 10-K for the first full year of operations of the partnership.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Exton,
Commonwealth of Pennsylvania, on October 8, 2003.
COMMONWEALTH INCOME & GROWTH FUND V
a Pennsylvania Limited Partnership
By: COMMONWEALTH INCOME & GROWTH
FUND, INC., General Partner
By: /s/ George S. Springsteen
--------------------------------
George S. Springsteen, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ----------- ----- ----
/s/ George S. Springsteen Chairman of the Board and October 8, 2003
- --------------------------------- President of Commonwealth
George S. Springsteen Income & Growth Fund, Inc.
(Principal Executive Officer)
/s/ Kimberly A. Springsteen Executive Vice President, October 8, 2003
- --------------------------------- Chief Operating Officer and
Kimberly A. Springsteen Secretary of Commonwealth
Income & Growth Fund, Inc.
* Assistant Vice President and October 8, 2003
- --------------------------------- Controller of Commonwealth
Salvatore R. Barila Income & Growth Fund, Inc.
(Chief Financial Officer)
* Vice President of October 8, 2003
- --------------------------------- Commonwealth Income
Henry J. Abbott & Growth Fund, Inc.
* By her signature set forth below, the undersigned, pursuant to duly authorized
powers of attorney filed with the Securities and Exchange Commission, has signed
this Pre-Effective Amendment No. 1 to the Registration Statement on behalf of
the persons indicated.
By: /s/ Kimberly A. Springsteen
---------------------------
Kimberly A. Springsteen
Attorney-in-Fact
Exhibit Index
1.1* Form of Dealer Manager Agreement
3.1* Certificate of Limited Partnership
3.2* Restated Limited Partnership Agreement (incorporated herein
by reference to Appendix I to the Prospectus)
5.1 Opinion of Reed Smith LLP as to legality of the Units
8.1 Form of Opinion of Reed Smith LLP as to tax matters
10.1* Form of Participating Broker Agreement
10.2 Form of Escrow Agreement
23.1 Consent of Fishbein & Company
23.2 Consent of BDO Seidman, LLP
23.3 Consent of Reed Smith LLP (included in Exhibit 5.1 and 8.1)
24.1* Power of Attorney
* Previously filed.