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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30,
------------------------------------
1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
For Quarter Ended September 30, 1995 Commission File
No. 0-14414
American Income 3 Limited
- - -------------------------------------------------------------------------------------------------------------
Partnership
(Exact name of registrant as specified in its charter)
Massachusetts
04-2809323
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA
02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617)
-----
854-5800
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by
Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
</TABLE>
<PAGE>
2
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AMERICAN INCOME 3 LIMITED PARTNERSHIP
FORM 10-Q
INDEX
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Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Net Assets in Liquidation
at September 30, 1995 and December 31, 1994 3
Statement of Changes in Net Assets in Liquidation
for the nine months ended September 30, 1995 and
for the period July 1, 1994 to September 30, 1994 4
Statement of Operations
for the period January 1, 1994 to June 30, 1994 5
Statement of Cash Flows
for the period January 1, 1994 to June 30, 1994 6
Notes to the Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
9-10
PART II. OTHER INFORMATION:
Items 1 - 6 11
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<PAGE>
The accompanying notes are an integral part
6
of these financial statements.
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AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
September 30, 1995 and December 31, 1994
(Unaudited)
September 30, December 31,
ASSETS 1995 1994
- - ------ ------------------- -----------
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Cash and cash equivalents $ 70,023 $ 604,724
Accounts receivable - affiliate -- 5,618
---------------- ---------------
Total assets $ 70,023 $ 610,342
================= ================
LIABILITIES
Accrued liabilities $ 18,373 $ 3,000
Accrued liabilities - affiliate 5,140 5,271
Cash distribution payable to partners -- 204,255
---------------- ---------------
Total liabilities 23,513 212,526
---------------- ---------------
Net assets $ 46,510 $ 397,816
================= ================
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<TABLE>
<CAPTION>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(Unaudited)
For the Nine For the Period
Months Ended July 1, 1994 to
September 30, 1995 September 30, 1994
<S> <C> <C>
Lease revenue --
$
921
Interest income $ 10,663 22,035
Other income -- 15,000
Gain on sale of equipment 467,287
Cash distributions (204,255) (765,956)
Liquidating distribution (100,000) --
Depreciation -- (88,589)
Interest expense - affiliate -- (10,630)
Equipment management fees - affiliate -- (46)
Operating expenses - affiliate (57,714)
-----------------------
(57,470)
Net decrease in net assets in
liquidation during the period (351,306) (417,448)
Net assets in liquidation at
the beginning of the period
397,816 928,202
------- -------
Net assets in liquidation at
the end of the period $ $
======================= =
46,510 510,754
====== =======
Cash distributions declared
per limited partnership unit $
$ 9.37
======================== ====
2.50
====
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<PAGE>
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AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the period January 1, 1994 to June 30, 1994
(Unaudited)
Income:
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Lease revenue $ 144,495
Interest income 6,069
Gain on sale of equipment 71,736
Total income 222,300
Expenses:
Depreciation 288,052
Equipment management fees - affiliate 7,225
Operating expenses - affiliate 77,760
----------------
Total expenses 373,037
Net loss $ (150,737)
================
Net loss
per limited partnership unit $
(1.84)
Cash distributions declared
per limited partnership unit $ 12.50
==================
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<PAGE>
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AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the period January 1, 1994 to June 30, 1994
(Unaudited)
Cash flows from (used in) operating activities:
<S> <C>
Net loss $ (150,737)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation 288,052
Gain on sale of equipment (71,736)
Changes in assets and liabilities Decrease in:
rents receivable 5,833
accounts receivable - affiliate 34,815
Increase (decrease) in:
accrued liabilities 3,250
accrued liabilities - affiliate (2,467)
deferred rental income (30,322)
-----------------
Net cash from operating activities 76,688
Cash flows from investing activities:
Proceeds from equipment sales 1,458,799
Net cash from investing activities 1,458,799
Cash flows used in financing activities:
Distributions paid (1,072,339)
Net cash used in financing activities (1,072,339)
-----------------
Net increase in cash and cash equivalents 463,148
Cash and cash equivalents at beginning of period 106,303
-----------------
Cash and cash equivalents at end of period $ 569,451
=================
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<PAGE>
7
AMERICAN INCOME 3 LIMITED PARTNERSHIP
Notes to the Financial Statements
September 30, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity
with generally accepted accounting principles and the instructions for preparing
Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1994 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1994 Annual Report.
Beginning July 1, 1994, the General Partner initiated the liquidation of
the Partnership in accordance with the Amended and Restated Agreement and
Certificate of Limited Partnership (the "Restated Agreement, as amended").
Accordingly, the financial statements herein for the nine months ended September
30, 1995 and for the period July 1, 1994 to September 30, 1994 have been
prepared on a liquidation basis of accounting.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the Partnership's
net assets in liquidation at September 30, 1995 and December 31, 1994, its
changes in net assets in liquidation for the nine months ended September 30,
1995 and for the period July 1, 1994 to September 30, 1994, and results of its
operations and its cash flows for the period January 1, 1994 to June 30, 1994
have been made and are reflected.
NOTE 2 - CASH
At September 30, 1995, the Partnership had $65,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3 - REVENUE RECOGNITION
All of the Partnership's primary and renewal leases had expired and all
of the associated equipment was sold as of December 31, 1994. No future rents
are due.
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by American
Finance Group ("AFG") on behalf of the Partnership and AFG is reimbursed at its
actual cost for such expenditures. Fees and other costs incurred during the nine
months ended September 30, 1995 and 1994, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<PAGE>
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AMERICAN INCOME 3 LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
8
1995 1994
------------ ---------
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Interest expense - affiliate -- $ 10,630
Equipment management fees -- 7,271
Reimbursable operating expenses
due to third parties $ 42,306 126,230
Administrative charges 15,408 9,000
----------- -------------
Total $ 57,714 $ 153,131
========== ==========
</TABLE>
NOTE 5 - LIQUIDATION PROCEEDINGS
On October 31, 1995, the General Partner as trustee (the "Trustee")
executed a Declaration of Trust establishing a Liquidating Trust (the "Trust")
to satisfy any unforeseen expenses of the Partnership that may arise after the
dissolution date as a result of the Partnership's equipment leasing activities.
Organization of the Trust will have the additional benefit of terminating the
Partnership's income tax reporting obligations after 1995. The General Partner
transferred $100,000, representing a liquidating distribution, into a
non-interest bearing custodian account (the "Account") of the Trust. The
remainder of the Partnership's operating cash, after settlement of all accrued
liabilities, expected to be approximately $46,500 or $0.57 per limited
partnership unit, will be transferred into the Account on or near the
Partnership's dissolution date in the fourth quarter of 1995. Amounts held in
the Trust will be reserved for a period not to exceed seven years (or such
shorter time as counsel for the Partnership advises will be sufficient to assure
that all claims against the Partnership have been presented). To the extent that
the balance of the Account exceeds the ultimate liabilities of the Partnership,
the Trustee will distribute such remaining balance to the beneficiaries of the
Trust Account, which beneficiaries will consist of the General Partner and the
Limited Partners in accordance with their respective percentage ownership
interests in the Partnership as of the dissolution date.
<PAGE>
12
AMERICAN INCOME 3 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
On July 1, 1994, the General Partner initiated the liquidation of the
Partnership. The Partnership was organized in 1986 to acquire and lease a
diversified portfolio of capital equipment to third-party lessees and to
distribute the net proceeds from operating and remarketing activities, after
satisfaction of all expenses and debt service obligations, to the Partners. The
Partnership was capitalized with $20,221,250 of equity from the Limited Partners
and $50,000 of equity from the General Partner and acquired $34,595,921 of
equipment, subject to related indebtedness. All of the Partnership's equipment
was sold by the end of 1994. Dissolution of the Partnership was initiated on
October 31, 1995 through the creation of a Liquidating Trust described in Note 5
to the accompanying financial statements.
Results of Operations
The Statement of Changes in Net Assets in Liquidation is presented for
the nine months ended September 30, 1995 and for the period July 1, 1994 to
September 30, 1994 and reflects the liquidation of assets during the period.
Accordingly, a comparison between current and prior year reporting periods is
not meaningful and is not presented.
For the period ended September 30, 1995, the Partnership recognized
$10,663 of interest income generated from the temporary investment of cash.
Operating expenses paid or accrued consisted principally of administrative
charges, professional service costs, such as audit and legal fees, as well as
printing and distribution expenses. These charges amounted to $57,714 during the
period ended September 30, 1995. The Partnership has accrued for operating
expenses anticipated through its dissolution date.
Liquidity and Capital Resources
The Partnership will have limited cash activities for the remainder of
its existence. Prior to its dissolution, cash transactions are expected to
result from the receipt of interest income on short-term investments and the
payment of operating expenses, discussed above. At September 30, 1995, the
Partnership had $70,023 of cash, substantially all of which was invested in
interest-bearing investments. See Note 2 to the financial statements herein.
On October 31, 1995, the General Partner as trustee (the "Trustee")
executed a Declaration of Trust establishing a Liquidating Trust (the "Trust")
to satisfy any unforeseen expenses of the Partnership that may arise after the
dissolution date as a result of the Partnership's equipment leasing activities.
Organization of the Trust will have the additional benefit of terminating the
Partnership's income tax reporting obligations after 1995. The General Partner
transferred $100,000, representing a liquidating distribution, into a
non-interest bearing custodian account (the "Account") of the Trust. The
remainder of the Partnership's operating cash after settlement of all accrued
liabilities, expected to be approximately $46,500 or $0.57 per limited
partnership unit, will be transferred into the Trust Account on or near the
Partnership's dissolution date in the fourth quarter of 1995. Amounts held in
the Trust Account will be reserved for a period not to exceed seven years (or
such shorter time as counsel for the Partnership advises will be sufficient to
assure that all claims against the Partnership have been presented). To the
extent that the balance of the Trust Account exceeds the ultimate liabilities of
the Partnership, the General Partner will distribute such remaining balance to
the beneficiaries of the Trust Account, which beneficiaries will consist of the
General Partner and the Limited Partners in accordance with their respective
percentage ownership interests in the Partnership as of the dissolution date.
AMERICAN INCOME 3 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
(Continued)
For the nine months ended September 30, 1995, the Partnership declared
total cash distributions payable to partners of $204,255. In accordance with the
Restated Agreement, as amended, the Limited Partners were allocated 99% of these
distributions, or $202,212 and the General Partner was allocated 1%, or $2,043.
Since inception, the Partnership has distributed $21,002,832 to the Limited
Partners and $212,150 to the General Partner. Additionally, the Partnership
transferred $100,000, representing a liquidating distribution, into
the Account of the Trust as described above. The Partnership declared no cash
distribution for the quarter ended September 30, 1995 and expects to make no
further quarterly distributions of cash to its Partners, except as may be
available in the Trust Account (described above) at the date of its liquidation.
Cash distributions paid to the Limited Partners consist of both a return of and
a return on capital. Final yield on investment will be determined at the
Partnership's dissolution date.
<PAGE>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of
Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
99(d) Declaration of Trust to establish a
liquidating trust
Item 6(b). Reports on Form 8-K
Response: None
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacity and on the date indicated.
AMERICAN INCOME 3 LIMITED PARTNERSHIP
By: AFG Leasing Associates, a Massachusetts
general partnership and the General Partner of
the Registrant.
By: AFG Leasing Incorporated, a Massachusetts
corporation and general partner in such general
partnership.
By:
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date:
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacity and on the date indicated.
AMERICAN INCOME 3 LIMITED PARTNERSHIP
By: AFG Leasing Associates, a Massachusetts
general partnership and the General Partner of
the Registrant.
By: AFG Leasing Incorporated, a Massachusetts
corporation and general partner in such general
partnership.
By: /s/ Gary M. Romano
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 70,023
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 70,023
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,023
<CURRENT-LIABILITIES> 23,513
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 70,023
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 57,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
DECLARATION OF TRUST
THIS DECLARATION OF TRUST, made October 31, 1995 (this "Declaration"), by and
among AMERICAN INCOME 3 LIMITED PARTNERSHIP, a Massachusetts limited
partnership, as grantor (the "Grantor" or the "Partnership"), AFG LEASING
ASSOCIATES, a Massachusetts partnership, as trustee (in such capacity, together
with its successors as Trustee hereunder, the "Trustee") and the general and
limited partners of the Grantor as beneficiaries (the "Beneficiaries").
Preliminary Statement
The Partnership is being terminated in accordance with the Amended and Restated
Agreement and Certificate of Limited Partnership of the Partnership dated as of
December 28, 1983, as amended from time to time through the date hereof (as so
amended, the "Partnership Agreement"). Capitalized terms used and not otherwise
defined herein have the respective meanings set forth in the Partnership
Agreement.
In accordance with the Partnership Agreement, the Grantor intends to deposit in
a non-interest bearing custodian account (the "Account") funds (the "Funds") in
an amount sufficient in the judgment of the Trustee, to satisfy any remaining
liabilities of the Partnership (the "Liabilities") and thereafter to distribute
the balance of the Funds in the Account, if any (the "Net Funds"), to the
Beneficiaries.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Establishment of Trust; Name
A trust is hereby established to be known as the American Income 3
Limited Partnership Liquidating Trust (the "Trust").
2. Beneficiaries
The Beneficiaries of the Trust are the general and limited partners of
the Grantor and their respective percentage interests in the Funds and the Net
Funds (the "Respective Interests") are their respective Interests in the
termination distributions of the Partnership, as provided in the Partnership
Agreement.
3. Trust Property
(a) The Grantor hereby assigns, transfers and conveys to the Trustee, in
trust, all right, title and interest of the Grantor in and to the Funds.
(b) The Trustee shall hold the Funds in order to pay for any Liabilities in
accordance with Article VI of the Partnership Agreement and thereafter to
distribute the Net Funds to the Beneficiaries in accordance with their
Respective Interests.
(c) The Trustee shall not otherwise deal with the Funds unless directed by a
majority-in-interest of the Beneficiaries.
<PAGE>
4. Acts of Trustees
(a)Except as expressly provided herein, the Trustee shall have no power to
deal in or with the Funds.
(b) Notwithstanding any provisions contained herein, the Trustee shall never
be required to take any action which will, in its opinion, cause it to incur any
personal liability unless first indemnified to its satisfaction. The Funds will
be available for purposes of indemnification. Any Person dealing with the
Trustee shall be fully protected in accordance with the provisions of Section 7.
5. Termination of Trust
This Trust shall terminate within a reasonable period of time after all
Liabilities of the Partnership have been satisfied in full in the judgment of
the Trustee but in any event no later than December 31, 2002. Upon such
termination, the Trustee shall transfer and convey the balance of the Net Funds
in the Account to the Beneficiaries in proportion to their Respective Interests.
6. Resignation and Succession
(a) The Trustee may resign at any time, and any Trustee may be
removed at any time by the majority-in-interest of the Beneficiaries.
(b) The cessation of service by any Trustee (whether resulting from the
death, incapacity, resignation or removal of such Trustee for any other cause)
shall be evidenced by a certificate thereof signed by the Beneficiaries and the
appointment of a succeeding Trustee shall be evidenced by a certificate signed
by the succeeding Trustee. The Beneficiaries shall have the power to appoint one
or more successor Trustees hereunder.
(c) Upon the appointment or succession of any succeeding Trustee to the
position of Trustee hereunder, title to the Funds and all portions thereof shall
thereupon be vested in said succeeding Trustee without the necessity of any
conveyance or instrument. Each succeeding Trustee shall have all of the rights,
powers, authority, and privileges as if named as the original Trustee hereunder;
and no Trustee, original or succeeding, shall be required to furnish a bond or a
surety on a bond.
7. Compensation; Liability and Authority
(a)No compensation will be paid to any Trustee hereunder.
(b) No Trustee hereunder shall be liable for any error of judgment nor for
any loss arising out of any act or omission in good faith, but shall be
responsible only for his own willful breach of trust. No license of court shall
be requisite to the validity of any transaction entered into by the Trustee.
(c) Every agreement or other instrument executed by the Trustee shall be
conclusive evidence in favor of every person relying thereon or claiming
thereunder that, at the time of the delivery thereof, this Trust was in full
force and effect and that the execution and delivery thereof was duly authorized
hereunder. Any person dealing with the Trustee may always rely, without further
inquiry, on a certificate signed by the Trustee hereof, as to who is the
Trustee, or as to the authority of the Trustee to act, or as to the existence or
non-existence of any fact or facts which constitute conditions precedent to acts
by the Trustee, or which are in any other way germane to the affairs of this
Trust.
8. Amendment
This Declaration may be amended from time to time by an instrument in
writing, signed by all of the then Beneficiaries and by the then Trustee hereof.
<PAGE>
9. Execution
The execution of a counterpart of this Declaration or any other
instrument referred to herein by any one or more of the parties thereto shall be
binding upon the signatories thereto whether or not other parties have executed
the same counterpart, provided each party thereto has executed at least one
counterpart of such instrument.
10. Liquidating Trust
The Grantor, the Trustee and the Beneficiaries intend that this Trust
shall be liquidating trust under the Code and Regulation Section 301.7701-4(d)
thereunder which has been formed with the objective of liquidating the Trust
property. The Grantor, the Trustee and Beneficiaries do not intend that this
Trust shall carry on a profit-making business.
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EXECUTED UNDER SEAL, as of the date first above written.
GRANTOR TRUSTEE
AFG LEASING ASSOCIATES AFG LEASING ASSOCIATES
By: AFG Leasing Incorporated, By: AFG Leasing Incorporated,
a general partner a general partner
By: By:
Geoffrey A. MacDonald Geoffrey A. MacDonald
BENEFICIARIES
Each of those persons listed as General and Limited Partners in Schedule A to the Partnership
</TABLE>
By:
AFG Leasing Incorporated, as general partner of and for AFG Leasing
Associates, for itself and as an attorney-in-fact for each of the
above-named Limited Partners
