UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 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 N. Washington St., Fifth Floor, Boston, MA 02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
Securities registered pursuant to Section 12(b) of the Act NONE
-------------
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
80,885 Units Representing Limited Partnership Interest
(Title of class)
(Title of class)
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 XX No
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. Not applicable. Securities are nonvoting for
this purpose. Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1995 (Part I and II)
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AMERICAN INCOME 3 LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
<S> <C>
Page
PART I
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Partnership 8
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12-14
</TABLE>
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
AMERICAN INCOME 3 LIMITED PARTNERSHIP (the "Partnership") was organized
as a limited partnership under the Massachusetts Uniform Limited Partnership Act
(the "Uniform Act") on December 30, 1983 for the purpose of acquiring and
leasing to third parties a diversified portfolio of capital equipment. Partners'
capital initially consisted of contributions of $1,000 from the General Partner
(AFG Leasing Associates) and $99 from the Initial Limited Partner. The sole
General Partner of the Partnership is wholly-owned by American Finance Group
("AFG" or the "Manager") a Massachusetts partnership. On December 17, 1985, the
Partnership issued 80,885 limited partnership units (the "Units") to 1,663
investors, including four Units purchased by the Initial Limited Partner. The
General Partner contributed $50,000 in consideration of its general partner
interest.
(b) Financial Information About Industry Segments
The Partnership was engaged in only one industry segment: the business
of acquiring capital equipment and leasing the equipment to creditworthy lessees
on a full payout or operating lease basis. (Full payout leases are those in
which aggregate noncancellable rents equal or exceed the Purchase Price of the
leased equipment. Operating leases are those in which the aggregate
noncancellable rental payments are less than the Purchase Price of the leased
equipment.) Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of
capital equipment subject to various full payout and operating leases and to
lease the equipment to third parties as income-producing investments. More
specifically, the Partnership's primary investment objectives were to acquire
and lease equipment which would:
1. Generate quarterly cash distributions; and
2. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain
federal income tax benefits.
The Closing Date of the Offering of Units of the Partnership was
December 17, 1985. The initial purchase of equipment and the associated lease
commitments occurred on December 17, 1985. The Partnership completed the
disposition of its equipment portfolio in 1994 and dissolution of the
Partnership occurred on December 29, 1995.
The Partnership had no employees; however, it entered into a Management
Agreement with the Manager coincident with the commencement of operations. The
Manager's role, among other things, was to (i) evaluate, select, negotiate, and
consummate the acquisition of equipment, (ii) manage the leasing, re-leasing,
financing, and refinancing of equipment, and (iii) arrange the resale of
equipment. The Manager was compensated for such services as described in the
Partnership's Amended and Restated Agreement and Certificate of Limited
Partnership (the "Restated Agreement, as amended"), Item 13, herein and in Note
4 to the financial statements, included in Item 14, herein.
The Partnership's investment in equipment was subject to various risks,
including physical deterioration, technological obsolescence and defaults by
lessees. A principal business risk of owning and leasing equipment is the
possibility that aggregate lease revenue and equipment sale proceeds will be
insufficient to provide an acceptable rate of return on invested capital after
payment of all debt service costs and operating expenses. Consequently, the
success of the Partnership was largely dependent upon the ability of the General
Partner and its Affiliates to forecast technological advances, the ability of
the lessees to fulfill their lease obligations and the quality and marketability
of the equipment at the time of sale.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1995, 1994 and 1993 is
incorporated herein by reference to Note 2 to the financial statements in the
1995 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's management,
principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of
AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings
Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts
effected this event by acquiring all of the equity interests of AFG's two
partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and
AFG Corporation. Holdings Massachusetts incurred significant indebtedness to
finance this acquisition, a significant portion of which was scheduled to mature
in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and member of the Executive Committee of AFG. As a
result of this transaction, GDE Acquisitions Limited Partnership acquired all of
the assets, rights and obligations of AFG from the Senior Lender and assumed
control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG
and member of its Executive Committee.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Not applicable.
Item 2. Properties.
None.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Partnership
is a party or which involve any of its equipment or leases.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder
Matters.
(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1995, there were no recordholders of Units in the
Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the
Partnership's Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings was determined and distributed to the Partners quarterly.
<TABLE>
<CAPTION>
Distributions in 1995 and 1994 were as follows:
<S> <C> <C> <C>
General Limited
Total Partner Partners
Total 1995 distributions $ 204,255 $ 2,043 $ 202,212
Total 1994 distributions 1,991,486 19,915 1,971,571
------------- ------------- -------------
Total $ 2,195,741 $ 21,958 $ 2,173,783
============ ============== ============
</TABLE>
Distributions payable at December 31, 1994 were $204,255.
There were no distributions payable at December 31, 1995.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, and (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
governing a joint venture which the General Partner determines will be invested
in additional equipment or interests in equipment and which ultimately are so
reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after
Payout, any accrued and unpaid Subordinated Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) any reserves for working capital and
contingent liabilities funded from such cash to the extent deemed reasonable by
the General Partner and (ii) increased by any portion of such reserves deemed by
the General Partner not to be required for Partnership operations. In the event
the Partnership accepts a note in connection with any sale or refinancing
transaction, all payments subsequently received in cash by the Partnership with
respect to such note shall be included in Cash From Sales or Refinancings,
regardless of the treatment of such payments by the Partnership for tax or
accounting purposes. If the Partnership receives purchase money obligations in
payment for equipment sold, which are secured by liens on such equipment, the
amount of such obligations shall not be included in Cash From Sales or
Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings of the Partnership shall be made
99% to the Limited Partners and 1% to the General Partner before Payout and 85%
to the Limited Partners and 15% to the General Partner after Payout.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Limited Partners' original capital contributions plus a cumulative annual return
of 12% (compounded daily and calculated beginning with the last day of the month
of the Partnership's Closing Date) on their aggregate unreturned capital
contributions. For purposes of this definition, capital contributions shall be
deemed to have been returned only to the extent that distributions of cash to
the Limited Partners exceed the amount required to satisfy the cumulative annual
return of 12% (compounded daily) on the Limited Partners' aggregate unreturned
capital contributions, such calculation to be based on the aggregate unreturned
capital contributions outstanding on the first day of each fiscal quarter. The
Partnership did not achieve Payout.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") were distributed within 60 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing Date. The Partnership has distributed
$21,002,832 to the Limited Partners and $212,150 to the General Partner since
inception. Substantially all of the distributions to the Limited Partners
represent a return of capital.
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 has the additional benefit of terminating the
Partnership's income tax reporting obligations after 1995. The General Partner
transferred $100,000 on September 29, 1995, representing a liquidating
distribution, into a non-interest bearing custodian account (the "Account") of
the Trust. The remainder of the Partnership's operating cash of $65,590 was
transferred into the Trust Account on December 29, 1995. The transferred amount
included $27,723 of accrued expenses which were paid in 1996. 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.
Item 6. Selected Financial Data.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1995 Annual Report.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1995 Annual Report.
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1995 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of
this report, AFG Leasing Associates is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties and the
Limited Partners have no right to participate in the control of such operations.
The names, titles and ages of the Directors and Executive Officers of the
corporate General Partner of the General Partner as of March 15, 1996 were as
follows:
<TABLE>
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DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATE
GENERAL PARTNER OF THE GENERAL PARTNER (See Item 13)
<S> <C> <C> <C>
Name Title Age Term
Geoffrey A. MacDonald Chief Executive Officer, Until a
Chairman, and a member of the successor
Executive Committee of AFG and is duly
President and a Director of elected
the corporate General Partner 47 and
qualified
Gary D. Engle President and Chief Operating
Officer and a member of the
Executive Committee of AFG 47
Gary M. Romano Vice President and Controller
of AFG and Clerk of the corporate
General Partner 36
James F. Livesey Vice President, Aircraft and Vessels 46
of AFG
Sandra L. Simonsen Vice President, Information Systems 45
of AFG
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners,
Directors or Executive Officers.
(e) Business Experience
Mr. MacDonald, age 47, is a co-founder, Chief Executive Officer, Chairman and a member of the Executive Committee
of AFG and President and a Director of the corporate General Partner. Mr. MacDonald served as a co-founder, Director and
Senior Vice President of AFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is Vice President of American
Finance Group Securities Corp. and a limited partner in Atlantic Acquisition Limited Partnership ("AALP"). Prior to
co-founding AFG's predecessor, Mr. MacDonald held various executive and management positions in the leasing and
pharmaceutical industries. Mr. MacDonald holds an M.B.A. from Boston College and a B.A. degree from the University of
Massachusetts (Amherst).
Mr. Engle, age 47, is President, Chief Operating Officer, and member of the Executive Committee of AFG and
President of AFG Realty Corporation. Mr. Engle is Vice President and a Director of certain of AFG's affiliates. On
December 16, 1994, Mr. Engle acquired control of AFG, the General Partner and each of AFG's subsidiaries. Mr. Engle
controls the general partner of AALP and is also a limited partner in AALP. From 1987 to 1990, Mr. Engle was a principal
and co-founder of Cobb Partners Development, Inc., a real estate and mortgage banking company. From 1980 to 1987, Mr.
Engle was Senior Vice President and Chief Financial Officer of Arvida Disney Company, a large scale community development
company owned by Walt Disney Company. Prior to 1980, Mr. Engle served in various management consulting and institutional
brokerage capacities. Mr. Engle has an M.B.A. from Harvard University and a B.S. degree from the University of
Massachusetts (Amherst).
Mr. Romano, age 36, is Vice President and Controller of AFG and certain of its affiliates and Clerk of the
corporate General Partner. Mr. Romano joined AFG in November 1989 and was appointed Vice President and Controller in
April 1993. Prior to joining AFG, Mr. Romano was Assistant Controller for a privately-held real estate company which he
joined in 1987. Mr. Romano held audit staff and manager positions at Ernst & Whinney from 1982 to 1986. Mr. Romano is a
C.P.A. and holds a B.S. degree from Boston College.
Mr. Livesey, age 46, is Vice President, Aircraft and Vessels, of AFG. Mr. Livesey joined AFG in October, 1989,
and was promoted to Vice President in January, 1992. Prior to joining AFG, Mr. Livesey held sales and marketing
positions with two privately-held equipment leasing firms. Mr. Livesey holds an M.B.A. from Boston College and B.A.
degree from Stonehill College.
Ms. Simonsen, age 45, joined AFG in February 1990 and was promoted to Vice President, Information Systems in April
1992. Prior to joining AFG, Ms. Simonsen was Vice President, Information Systems with Investors Mortgage Insurance
Company which she joined in 1973. Ms. Simonsen provided systems consulting for a subsidiary of American International
Group and authored a software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson College.
</TABLE>
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
Item 11. Executive Compensation.
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the General Partner or its Affiliates. There is no plan
at the present time to make any officers or employees of the General Partner or
its Affiliates employees of the Partnership. The Partnership has not paid and
does not propose to pay any options, warrants or rights to the officers or
employees of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to section 9.4 of the Restated Agreement, as amended, the Partnership
incurred a monthly charge for personnel costs of the Manager for persons engaged
in providing administrative services to the Partnership. A description of the
remuneration paid by the Partnership to the Manager for such services is
included in Item 13, herein and in Note 4 to the financial statements included
in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with any partners of
the General Partner or its Affiliates which results or may result from their
resignation, retirement or any other termination.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
By virtue of its organization as a limited partnership, the Partnership
has no outstanding securities possessing traditional voting rights. However, as
provided in Section 11.2(a) of the Restated Agreement, as amended (subject to
Sections 11.2(b) and 11.3), a majority interest of the Limited Partners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all, or substantially all
of the assets of the Partnership (except in the orderly
liquidation of the Partnership upon its termination and
dissolution).
The ownership and organization of AFG is described in Item 1 of this
report.
Item 13. Certain Relationships and Related Transactions.
The General Partner of the Partnership is AFG Leasing Associates, an
Affiliate of AFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by AFG on
behalf of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three years in
the period ended December 31, 1995, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
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Equipment management fees -- $ 8,561 $ 20,256
Interest expense - affiliate -- 10,630 --
Administrative charges $ 15,408 12,000 14,955
Reimbursable operating expenses
due to third parties 50,996 90,222 63,494
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Total $ 66,404 $ 121,413 $ 98,705
============== ============= =============
</TABLE>
As provided under the terms of the Management Agreement, AFG was
compensated for its services to the Partnership. Such services included all
aspects of acquisition and management of equipment. For acquisition services,
AFG was compensated by an amount equal to 4.75% of Equipment Base Price paid by
the Partnership. For management services, AFG was compensated by an amount equal
to the lesser of (i) 5% of gross lease rental revenue or (ii) fees which the
General Partner reasonably believed to be competitive for similar equipment.
Both of these fees were subject to certain limitations defined in the Management
Agreement. As Payout was not achieved, AFG received no compensation for services
connected to the sale of equipment, under its subordinated remarketing
agreement.
Interest expense - affiliate represents interest incurred on legal costs
in connection with a state sales tax dispute involving certain equipment owned
by the Partnership and other affiliated investment programs sponsored by AFG.
Legal costs incurred by AFG to resolve this matter and the interest thereon was
allocated to the Partnership and other affected investment programs.
Administrative charges represent amounts owed to AFG, pursuant to Section 9.4 of
the Restated Agreement as amended, for persons employed by AFG who are engaged
in providing administrative services to the Partnership. Reimbursable operating
expenses due to third parties represent costs paid by AFG on behalf of the
Partnership which are reimbursed to AFG.
All equipment was acquired from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
The Partnership's Purchase Price was determined by the method described in Note
2, to the financial statements, included in Item 14, herein.
All rents and proceeds from the sale of equipment were paid directly to
either AFG or to a lender. AFG temporarily deposited collected funds in a
separate interest bearing escrow account prior to remittance to the Partnership.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
<PAGE>
<TABLE>
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors...................................................................*
Statement of Net Assets in Liquidation
at December 31, 1994.............................................................................*
Statement of Changes in Net Assets in Liquidation
for the year ended December 31, 1995
and for the period July 1, 1994 to December 31, 1994.............................................*
Statement of Operations
for the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993.........................................................*
Statement of Changes in Partners' Capital
for the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993.........................................................*
Statement of Cash Flows
for the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993.........................................................*
Notes to the Financial Statements................................................................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K,
as set forth in Item 601 of Regulation S-K, are not
applicable.
Exhibit
Number
4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to
the Prospectus which is included in Registration Statement on Form S-1 (No. 2-89903).
13 The 1995 Annual Report to security holders, a copy of
which is furnished for the information of the
Securities and Exchange Commission. Such Report, except
for those portions thereof which are incorporated
herein by reference, is not deemed "filed" with the
Commission.
* Incorporated herein by reference to the appropriate portion of the 1995 Annual Report to security holders for the
year ended December 31, 1995. (See Part II)
<PAGE>
Exhibit
Number
23 Consent of Independent Auditors.
99 (a) Lease agreement with Taughannock Aviation Corp. was
filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989 as Exhibit 28 (c)
and is incorporated herein by reference.
99 (b) Lease agreement with Helijet Airways, Inc. was
filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991 as Exhibit 28 (d)
and is incorporated herein by reference.
(b) Reports on Form 8-K
None.
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American Income 3 Limited Partnership of our report dated March 12,
1996, included in the 1995 Annual Report to Partners of American Income 3
Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report has been sent to the Limited Partners. A report will be
furnished to the Limited Partners subsequent to the date hereof.
No proxy statement has been or will be sent to the Limited Partners.
<PAGE>
<TABLE>
<S><C> <C>
-15-
SIGNATURES
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/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
------------------------------------------ ------------------
Geoffrey A. MacDonald Gary D. Engle
Chief Executive Officer, President and Chief Operating
Chairman, and a member of the Officer and member of the
Executive Committee of AFG and Executive Committee of AFG
President and a Director of the (Principal Financial Officer)
corporate General Partner
(Principal Executive Officer)
Date: Date:
By: /s/ Gary M. Romano
Gary M. Romano
Vice President and Controller
of AFG and Clerk of the corporate General
Partner
(Principal Accounting Officer)
Date:
</TABLE>
<TABLE>
<CAPTION>
-1-
AMERICAN INCOME 3 LIMITED PARTNERSHIP
ANNUAL REPORT TO THE PARTNERS
<S> <C>
Page
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-4
FINANCIAL STATEMENTS:
Report of Independent Auditors 5
Statement of Net Assets in Liquidation
at December 31, 1994 6
Statement of Changes in Net Assets in Liquidation
for the year ended December 31, 1995
and for the period July 1, 1994 to December 31, 1994 7
Statement of Operations
for the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993 8
Statement of Changes in Partners' Capital
for the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993 9
Statement of Cash Flows
for the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993 10
Notes to the Financial Statements 11-16
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 17
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 18
Schedule of Costs Reimbursed to the
General Partner and its Affiliates as
Required by Section 9.4 of the Amended
and Restated Agreement and Certificate of
Limited Partnership 19
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1995:
<TABLE>
<S> <C> <C> <C> <C> <C>
Summary of
Operations 1995 1994 1993 1992 1991
- --------------------------- ------------- ------------- ------------- ------------- ---------
Lease revenue -- $ 171,215 $ 405,120 $ 830,280 $ 1,697,964
Net income (loss) -- $ 289,088 $ (817,168) $ 240,559 $ (1,000,957)
Per Unit:
Net income (loss) -- $ 3.54 $ (10.00) $ 2.94 $ (12.25)
Cash distributions $ 2.50 $ 24.37 $ 12.50 $ 20.07 $ 25.30
Financial
Position
Total assets -- $ 610,342 $ 2,464,254 $ 4,300,877 $ 5,975,692
Total long-term
obligations -- -- -- -- $ 5,756
Partners' capital -- $ 397,816 $ 2,100,214 $ 3,938,658 $ 5,338,267
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1995 compared to the year ended December
31, 1994 and the year ended December 31, 1994
compared to the year ended December 31, 1993
Overview
On July 1, 1994, the General Partner initiated the liquidation of
American Income 3 Limited Partnership ("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 occurred on December 29, 1995.
Results of Operations
The Statement of Changes in Net Assets in Liquidation is presented for
the year ended December 31, 1995 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 year ended December 31, 1995, the Partnership recognized $10,710
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 $66,404 during the year
ended December 31, 1995.
Liquidity and Capital Resources
Prior to its dissolution on December 29, 1995, cash transactions
resulted from the receipt of interest income on short-term investments and the
payment of operating expenses, discussed above.
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 has the additional benefit of terminating the
Partnership's income tax reporting obligations after 1995. The General Partner
transferred $100,000 on September 29, 1995, representing a liquidating
distribution, into a non-interest bearing custodian account (the "Account") of
the Trust. The remainder of the Partnership's operating cash of $65,590 was
transferred into the Trust Account on December 29, 1995. The transferred amount
included $27,723 of accrued expenses which were paid in 1996. 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.
For the year ended December 31, 1995, the Partnership declared total
cash distributions payable to partners of $204,255. In accordance with the
Amended and Restated Agreement and Certificate of Limited Partnership (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 $137,867, representing a liquidating distribution, into
the Account of the Trust as described above. The Partnership declared no cash
distribution for the quarters ended September 30, 1995 and December 31, 1995 and
will make no further quarterly distributions of cash to its Partners, except as
may be available in the Trust Account (described above) after all liabilities of
the Partnership have been paid. Cash distributions paid to the Limited Partners
consist of both a return of and a return on capital.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income 3 Limited Partnership:
We have audited the accompanying statement of changes in net assets in
liquidation of American Income 3 Limited Partnership for the year ended December
31, 1995, the statement of net assets in liquidation as of December 31, 1994 and
the related statement of changes in net assets in liquidation for the period
from July 1, 1994 to December 31, 1994. In addition, we have audited the
statements of operations, changes in partners' capital, and cash flows for the
period from January 1, 1994 to June 30, 1994 and for the year ended December 31,
1993. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Partners of
American Income 3 Limited Partnership approved a plan of liquidation on June 30,
1994, and the Partnership commenced liquidation shortly thereafter. As a result,
the Partnership has changed its basis of accounting for periods subsequent to
June 30, 1994 from the going-concern basis to a liquidation basis. The
liquidation was completed and the Partnership was dissolved on December 31,
1995.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the statement of changes in net assets in
liquidation of American Income 3 Limited Partnership for the year ended December
31, 1995, the statement of net assets in liquidation as of December 31, 1994,
the statement of changes in net assets in liquidation for the period from July
1, 1994 to December 31, 1994, and the results of its operations and its cash
flows for the period from January 1, 1994 to June 30, 1994 and for the year
ended December 31, 1993. In conformity with generally accepted accounting
principles on the basis described in the preceding paragraph.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Partners is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
<PAGE>
The accompanying notes are an integral part of
these financial statements.
<TABLE>
<CAPTION>
-10-
AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
December 31, 1994
<S> <C>
ASSETS
Cash and cash equivalents $ 604,724
Accounts receivable - affiliate 5,618
-------------
Total assets $ 610,342
=============
LIABILITIES
Accrued liabilities $ 3,000
Accrued liabilities - affiliate 5,271
Cash distributions payable to partners 204,255
-------------
Total liabilities 212,526
NET ASSETS $ 397,816
=============
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
<S> <C> <C>
For the Year For the Period
Ended July 1, 1994 to
December 31, 1995 December 31, 1994
----------------------------------------------------------------------------------- --------------------
Lease revenue -- $ 26,720
Interest income $ 10,710 28,835
Other income -- 15,000
Gain on sale of equipment -- 494,287
---------------------- ----------------------
10,710 564,842
Cash distributions 204,255 970,211
Liquidating distribution 137,867 ` --
Depreciation -- 88,589
Interest expense - affiliate -- 10,630
Equipment management fees - affiliate -- 1,336
Operating expenses - affiliate 66,404 24,462
---------------------- ----------------------
Net decrease in net assets in
liquidation during the period (397,816) (530,386)
Net assets in liquidation at
the beginning of the period 397,816 928,202
---------------------- ----------------------
Net assets in liquidation at
the end of the period -- $
================================ =
397,816
Cash distributions declared per
limited partnership unit $ 2.50
==============================
$ 11.87
============================
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the period January 1, 1994 to June 30, 1994 and
for the year ended December 31, 1993
<S> <C> <C>
1994 1993
---------------------------------------------------------- ------------------- --------------------------
Income:
Lease revenue $ 144,495 $ 405,120
Interest income 6,069 6,504
Gain on sale of equipment 71,736 30,166
------------- -------------
Total income 222,300 441,790
------------- -------------
Expenses:
Depreciation 288,052 965,253
Write-down of equipment -- 195,000
Interest expense -- --
Equipment management fees - affiliate 7,225 20,256
Operating expenses - affiliate 77,760 78,449
------------- -------------
Total expenses 373,037 1,258,958
------------- -------------
Net loss $ (150,737) $ (817,168)
============= =============
Net loss
per limited partnership unit $ (1.84) $ (10.00)
================ ===============
Cash distributions declared
per limited partnership unit $ 12.50 $ 12.50
=============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL for the period
January 1, 1994 to June 30, 1994 and
for the year ended December 31, 1993
<S> <C> <C> <C> <C>
General
Partner Limited Partners
Amount Units Amount Total
Balance at December 31, 1992 (88,709) 80,885 4,027,367 3,938,658
Net loss - 1993 (8,172) -- (808,996) (817,168)
Cash distributions declared (10,212) -- (1,011,064) (1,021,276)
-------------- -------------- ------------- -------------
Balance at December 31, 1993 (107,093) 80,885 2,207,307 2,100,214
Net loss for the period
January 1, 1994 to
June 30, 1994 (1,507) -- (149,230) (150,737)
Cash distributions declared (10,213) -- (1,011,062) (1,021,275)
-------------- -------------- ------------- -------------
Balance at June 30, 1994 $ (118,813) 80,885 $ 1,047,015 $ 928,202
============= ============== ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the period January 1, 1994 to June 30, 1994 and
for the year ended December 31, 1993
<S> <C> <C>
1994 1993
------------------------------------------------------------------------------------------ -------------
Cash flows from operating activities:
Net loss $ (150,737) $ (817,168)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation 288,052 965,253
Write-down of equipment -- 195,000
Gain on sale of equipment (71,736) (30,166)
Changes in assets and liabilities Decrease (increase) in:
rents receivable 5,833 4,177
accounts receivable - affiliate 34,815 12,359
Increase (decrease) in:
accrued liabilities 3,250 4,245
accrued liabilities - affiliate (2,467) (4,752)
deferred rental income (30,322) 2,328
------------- -------------
Net cash from operating activities 76,688 331,276
------------- -------------
Cash flows from investing activities:
Proceeds from equipment sales 1,458,799 30,166
------------- -------------
Net cash from investing activities 1,458,799 30,166
------------- -------------
Cash flows used in financing activities:
Principal payments - notes payable -- --
Distributions paid (1,072,339) (1,021,276)
------------- -------------
Net cash used in financing activities (1,072,339) (1,021,276)
------------- -------------
Net increase (decrease) in cash and
cash equivalents 463,148 (659,834)
Cash and cash equivalents at beginning of period 106,303 766,137
------------- -------------
Cash and cash equivalents at end of period $ 569,451 $ 106,303
============= =============
</TABLE>
<PAGE>
-19-
AMERICAN INCOME 3 LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
AMERICAN INCOME 3 LIMITED PARTNERSHIP (the "Partnership") was organized
as a limited partnership under the Massachusetts Uniform Limited Partnership Act
on December 30, 1983, for the purpose of acquiring and leasing to third parties
a diversified portfolio of capital equipment. Partners' capital initially
consisted of contributions of $1,000 from the General Partner (AFG Leasing
Associates), and $99 from the Initial Limited Partner. The sole General Partner
of the Partnership is wholly-owned by American Finance Group ("AFG"), a
Massachusetts partnership. On December 17, 1985, the Partnership issued 80,885
limited partnership Units (the "Units") to 1,663 investors, including four Units
purchased by the Initial Limited Partner. The General Partner contributed
$50,000 in consideration of its general partner interest.
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's management,
principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of
AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings
Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts
effected this event by acquiring all of the equity interests of AFG's two
partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and
AFG Corporation. Holdings Massachusetts incurred significant indebtedness to
finance this acquisition, a significant portion of which was scheduled to mature
in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and member of the Executive Committee of AFG. As a
result of this transaction, GDE Acquisitions Limited Partnership acquired all of
the assets, rights and obligations of AFG from the Senior Lender and assumed
control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG
and member of its Executive Committee.
Significant operations commenced December 17, 1985 when the Partnership
made its initial equipment purchase. Pursuant to the Restated Agreement, as
amended, Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings were allocated 99% to the Limited Partners and 1% to the General
Partner.
Under the terms of a Management Agreement between the Partnership and
AFG, management services were provided by AFG to the Partnership at fees which
the General Partner believed to be competitive for similar services. (Also see
Note 4.)
Basis of Presentation
Beginning July 1, 1994, the General Partner initiated the liquidation of
the Partnership in accordance with the Restated Agreement, as amended.
Accordingly, the Partnership changed its basis of accounting from a
going-concern basis to a liquidation basis. The notes to the financial
statements incorporate the six month operating period ended June 30, 1994, the
six month liquidation period ended December 31, 1994 and the liquidation period
ended December 31, 1995. For purposes of these notes, both reporting periods in
1994 have been aggregated.
<PAGE>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows
The Partnership considered liquid investment instruments purchased with
a maturity of three months or less to be cash equivalents. From time to time,
the Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passed to the Partnership. The
securities underlying the agreements were book entry securities.
Revenue Recognition
Rents were payable to the Partnership monthly, quarterly or
semi-annually and no significant amounts were calculated on factors other than
the passage of time. The leases were accounted for as operating leases and were
noncancellable. Rents received prior to their due dates were deferred. 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.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during each of the years ending December 31, 1994 and 1993 is as
follows:
<TABLE>
<S> <C> <C>
1994 1993
----------------------------------------------------------------------------- --------------------------
Taughannock Aviation Corp. $ 71,293 $ 265,200
Helijet Airways, Inc. -- $ 119,212
</TABLE>
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
All equipment was acquired from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
Equipment cost represented asset base price plus acquisition fees and was
determined in accordance with the Restated Agreement, as amended, and certain
regulatory guidelines. Asset base price was affected by the relationship of the
seller to the Partnership as summarized herein. Where the seller of the
equipment was AFG or an affiliate, asset base price was the lower of (i) the
actual price paid for the equipment by AFG or the affiliate plus all actual
costs accrued by AFG or the affiliate while carrying the equipment less the
amount of all rents earned by AFG or the affiliate prior to selling the
equipment or (ii) fair market value as determined by the General Partner in its
best judgment, including all liens and encumbrances on the equipment and other
actual expenses. Where the seller of the equipment was a third party who did not
manufacture the equipment, asset base price was the lower of (i) the price
invoiced by the third party or (ii) fair market value as determined by the
General Partner. Where the seller of the equipment was a third party who also
manufactured the equipment, asset base price was the manufacturer's invoice
price, which price was considered to be representative of fair market value.
Depreciation
The Partnership's depreciation policy was intended to allocate the cost
of equipment over the period during which it produced economic benefit. The
principal period of economic benefit was considered to correspond to each
asset's primary lease term, which term generally represented the period of
greatest revenue potential for each asset. Accordingly, to the extent that an
asset was held on primary lease term, the Partnership depreciated the difference
between (i) the cost of the asset and (ii) the estimated residual value of the
asset on a straight-line basis over such term. For purposes of this policy,
estimated residual values represented estimates of equipment values at the date
of primary lease expiration. To the extent that an asset was held beyond its
primary lease term, the Partnership continued to depreciate the remaining net
book value of the asset on a straight-line basis over the asset's remaining
economic life.
Accrued Liabilities - Affiliate
Unpaid operating expenses paid by AFG on behalf of the Partnership are
reported as Accrued Liabilities Affiliate. (See Note 4.)
Allocation of Profits and Losses
For financial statement purposes, net income or loss is allocated to
each Partner according to their respective ownership percentages (99% to the
Limited Partners and 1% to the General Partner). See Note 5 concerning
allocation of income or loss for income tax purposes.
Net Income (Loss) and Cash Distributions Per Unit
Net Income (loss) and cash distributions per Unit are based on 80,885
Units outstanding during each of the three years in the period ended December
31, 1995 after allocation of the General Partner's 1% share of net income (loss)
and cash distributions.
Provision for Income Taxes
No provision or benefit from income taxes is included in the
accompanying financial statements. The Partners are responsible for reporting
their proportionate shares of the Partnership's taxable income or loss and other
tax attributes on their tax returns.
Reclassification
Certain reclassifications have been made to the prior year financial
statements to conform to the 1994 presentation.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 does not affect
the Partnership.
NOTE 3 - EQUIPMENT
At December 31, 1994, the Partnership had disposed of its entire
equipment portfolio.
As equipment was sold to third parties, or otherwise disposed of, the
Partnership recognized a gain or loss equal to the differences between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition.
The Partnership recorded a write-down of an aircraft carrying value,
representing an impairment, during the year ended December 31, 1993. The
resulting charge, $195,000 ($2.39 per limited partnership unit) in 1993 was
based on a comparison of the estimated net realizable value and the
corresponding carrying value for the aircraft.
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by AFG on
behalf of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three years in
the period ended December 31, 1995, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
------------- ------------- ---------
Equipment management fees -- $ 8,561 $ 20,256
Interest expense - affiliate -- 10,630 --
Administrative charges $ 15,408 12,000 14,955
Reimbursable operating expenses
due to third parties 50,996 90,222 63,494
------------- ------------- -------------
Total $ 66,404 $ 121,413 $ 98,705
============== ============= =============
</TABLE>
As provided under the terms of the Management Agreement, AFG was
compensated for its services to the Partnership. Such services included all
aspects of acquisition and management of equipment. For acquisition services,
AFG was compensated by an amount equal to 4.75% of Equipment Base Price paid by
the Partnership. For management services, AFG was compensated by an amount equal
to the lesser of (i) 5% of gross lease rental revenue or (ii) fees which the
General Partner reasonably believed to be competitive for similar services for
similar equipment. Both of these fees were subject to certain limitations
defined in the Management Agreement. As Payout was not achieved, AFG received no
compensation for services connected to the sale of equipment, under its
subordinated remarketing agreement.
Interest expense - affiliate represents interest incurred on legal costs
in connection with a state sales tax dispute involving certain equipment owned
by the Partnership and other affiliated investment programs sponsored by AFG.
Legal costs incurred by AFG to resolve this matter and the interest thereon was
allocated to the Partnership and other affected investment programs.
Administrative charges represent amounts owed to AFG, pursuant to Section 9.4 of
the Restated Agreement, as amended, for persons employed by AFG who are engaged
in providing administrative services to the Partnership. Reimbursable operating
expenses due to third parties represent costs paid by AFG on behalf of the
Partnership which are reimbursed to AFG.
All equipment was acquired from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
The Partnership's Purchase Price was determined by the method described in Note
2.
All rents and proceeds from the sale of equipment were paid directly to
either AFG or to a lender. AFG temporarily deposited collected funds in a
separate interest bearing escrow account prior to remittance to the Partnership.
NOTE 5 - INCOME TAXES
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income
or loss to each class of partner according to their respective ownership
percentages (99% to the Limited Partners and 1% to the General Partner). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement.
The following is a reconciliation between net assets in liquidation
reported on the financial statements and partners' capital for federal income
tax reporting purposes at December 31, 1995 and 1994:
<TABLE>
<S> <C> <C>
1995 1994
----------------------------------------------------------------------------- --------------------------
Net assets in liquidation -- $ 397,816
Add back selling commissions and
organization and offering costs $ 2,601,875 2,601,875
Financial statement distributions
in excess of tax distributions -- 2,043
Distributions made to liquidating trust 137,867 --
Tax basis of Partnership Interests in
excess of net assets of the Partnership 1,005,878 1,005,878
------------- -------------
Partners' capital for federal income
tax reporting purposes $ 3,745,620 $ 4,007,612
============ ============
</TABLE>
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 has the additional benefit of terminating the
Partnership's income tax reporting obligations after 1995. The General Partner
transferred $100,000 on September 29, 1995, representing a liquidating
distribution, into a non-interest bearing custodian account (the "Account") of
the Trust. The remainder of the Partnership's operating cash of $65,590 was
transferred into the Trust Account on December 29, 1995. The transferred amount
included $27,723 of accrued expenses which were paid in 1996. 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.
NOTE 6 - SUBSEQUENT EVENT
On January 1, 1995, AFG entered into a series of agreements with PLM
International, Inc., a Delaware corporation headquartered in San Francisco,
California ("PLM"), whereby PLM would: (i) purchase, in a multi-step
transaction, certain of AFG's assets and (ii) provide accounting, asset
management and investor services to AFG and certain of AFG's affiliates,
including the Partnership and all other equipment leasing programs managed by
AFG (the "Investment Programs").
On January 3, 1996, AFG and PLM executed an amendment to the 1995
agreements whereby PLM purchased: (i) AFG's lease origination business and
associated contracts, (ii) the rights to the name "American Finance Group" and
associated logo, and (iii) certain furniture, fixtures and computer software.
PLM hired AFG's marketing force and certain other support personnel effective
January 1, 1996 in connection with the transaction and relinquished its
responsibilities under the 1995 agreements to provide accounting, asset
management and investor services to AFG, its affiliates and the Investment
Programs after December 31, 1995. Accordingly, AFG and its affiliates retain
ownership and control and all authority and rights with respect to each of the
general partners or managing trustees of the Investment Programs; and AFG, as
Manager, will continue to provide accounting, asset management and investor
services to the Partnership.
Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain
of its affiliates agreed not to compete with the lease origination business sold
to PLM for a period of five years. AFG reserved the right to satisfy all
equipment needs of the Partnership and all other Investment Programs and
reserved certain other rights not material to the Partnership. AFG also agreed
to change its name, except where it is used in connection with the Investment
Programs. AFG's management considers the amendment to the 1995 agreements to be
in the best interest of AFG and the Partnership.
<PAGE>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1995, 1994 and 1993
The Partnership classified all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment was sold, rented
on a month-to-month basis or re-leased for a defined period under a new or
extended lease agreement. The proceeds generated from selling or re-leasing the
equipment, in addition to any month-to-month revenue, represented the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in each of the years ended December 31, 1994 and 1993.
There were no equipment sales during the year ended December 31, 1995.
<TABLE>
<S> <C> <C>
1994 1993
----------------------------------------------------------------- ------------ --------- -----------------
Rents earned prior to disposal of equipment,
net of interest charges $ 6,939,403 $ 381,869
Sale proceeds realized upon disposition
of equipment 2,439,328 30,166
------------- -------------
Total cash generated from rents and
equipment sale proceeds 9,378,731 412,035
Original acquisition cost of
equipment disposed 8,467,614 273,831
------------- -------------
Excess of total cash generated to cost
of equipment disposed $ 911,117 $ 138,204
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1995
<S> <C> <C> <C>
Sales and
Operations Refinancings Total
Net income (loss) $ (602,071) $ 546,377 $ (55,694)
Other sources and uses of cash:
Cash at beginning of year 604,724 -- 604,724
Net change in receivables
and accruals (2,653) -- (2,653)
Less:
Cash distributions paid -- (408,510) (408,510)
Liquidating distribution -- (137,867) (137,867)
---------------- --------------- ---------------
Cash at end of year $ -- $ -- $ --
===================== ===================== ===============
</TABLE>
<PAGE>
AMERICAN INCOME 3 LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1995
For the year ended December 31, 1995, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
Operating expenses $ 71,424
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 10,710
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 66,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (55,694)
<INCOME-TAX> 0
<INCOME-CONTINUING> (55,694)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,694)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
