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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, 1996
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 0-15320
American Income 4 Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2917030
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Fifth Floor, Boston, MA 02114
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(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:
80,000 Units Representing Limited Partnership Interest
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(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 |X| 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, 1996 (Part I and II)
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AMERICAN INCOME 4 LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND
RELATED SECURITY HOLDER MATTERS 6
ITEM 6. SELECTED FINANCIAL DATA 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP 9
ITEM 11. EXECUTIVE COMPENSATION 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 15-16
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
AMERICAN INCOME 4 LIMITED PARTNERSHIP (the Partnership) was organized as
a limited partnership under the Massachusetts Uniform Limited Partnership
Act (the Uniform Act) on February 25, 1986, for the purpose of acquiring
and leasing to third parties a diversified portfolio of capital
equipment. On April 30, 1986, the Partnership issued 80,000 limited
partnership units (the Units) to 2,035 Limited Partners, including four
Units purchased by its Initial Limited Partner, Geoffrey A. MacDonald. In
accordance with the Amended and Restated Agreement and Certificate of
Limited Partnership (the Restated Agreement, as amended), American
Finance Group (AFG), a Massachusetts general partnership, which
subsequently became Equis Financial Group Limited Partnership
(collectively referred to herein as AFG), purchased 2,000 Units,
representing 2.5% ($500,000) of total capital contributions received by
the Partnership at its inception. In 1995, AFG tendered all of its Units
to Atlantic Acquisition Limited Partnership (See Item 13 herein.). On
December 31, 1996, the General Partner of the Partnership caused the
Restated Agreement, as amended to be canceled by filing a Certificate of
Cancellation with the Massachusetts Secretary under the Uniform Act.
Accordingly, the Partnership was dissolved on December 31, 1996.
Partners' capital initially consisted of contributions of $1,000 from the
General Partner (AFG Leasing Associates II, a Massachusetts general
partnership) and $1,000 from the Initial Limited Partner. The General
Partner originally had the following five general partners: AFG Leasing
Incorporated, a Massachusetts corporation and wholly-owned subsidiary of
AFG, Kestutis J. Makaitis, Daniel J. Roggemann, Martin F. Laughlin, and
Geoffrey A. MacDonald. Messrs. Makaitis, Roggemann, and Laughlin each
subsequently elected to withdraw as Individual General Partners. In
connection with the Partnership's wind-up and dissolution, the General
Partner interests of AFG Leasing Associates II, including the Individual
General Partner interest owned by Geoffrey A. MacDonald, were transferred
to AFG Leasing IV Incorporated, resulting in AFG Leasing IV Incorporated
and AFG Leasing Incorporated becoming the two general partners of AFG
Leasing Associates II. AFG Leasing Incorporated thereupon was merged with
and into AFG Leasing IV Incorporated. Accordingly, effective October 17,
1996, AFG Leasing IV Incorporated became the sole General Partner of the
Partnership. AFG Leasing IV Incorporated is a Massachusetts corporation
established in 1987 and a wholly owned subsidiary of AFG and is also the
general partner or the managing general partner of certain affiliated
partnerships sponsored by AFG.
(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 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.
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(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 had the additional objective of providing certain federal
income tax benefits.
The Closing Date of the Offering of Units of the Partnership was April
30, 1986. The initial purchase of equipment and the associated lease
commitments occurred on April 30, 1986. The Partnership completed the
disposition of its entire equipment portfolio on September 30, 1996 and
the dissolution of the Partnership occurred on December 31, 1996.
The Partnership had no employees; however, it entered into a Management
Agreement with AFG (the Manager). 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 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 revenues 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, 1996, 1995 and 1994 is
incorporated herein by reference to Note 2 to the financial statements in
the 1996 Annual Report. Refer to Item 14(a)(3) for lease agreements filed
with the Securities and Exchange Commission.
Equis Financial Group Limited Partnership (Equis) is a Massachusetts
partnership formerly known as American Finance Group (AFG). AFG was
established in 1988 as a Massachusetts general partnership and succeeded
American Finance Group, Inc., a Massachusetts corporation organized in
1980. Equis and its subsidiaries (collectively, the Company) are engaged
in various aspects of the equipment leasing business, including Equis'
role as Equipment Manager or Advisor to the Partnership and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored
by AFG (the Other Investment Programs). The Company arranges to broker or
originate equipment leases, acts as remarketing agent and asset manager,
and provides leasing support services, such as billing, collecting and
asset tracking.
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The general partner of Equis, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by
Gary D. Engle, its President and Chief Executive Officer. Equis
Corporation also owns a controlling 1% general partner interest in Equis'
99% limited partner, GDE Acquisition Limited Partnership (GDE LP). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for
the sole purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating
primarily to the business of originating new leases, and the name
"American Finance Group," and its acronym to a third party (the Buyer).
AFG changed its name to Equis Financial Group Limited Partnership after
the sale was concluded. Pursuant to terms of the sale agreements, Equis
agreed not to compete with the Buyer's lease origination business for a
period of five years; however, Equis is permitted to originate certain
equipment leases, principally those involving noninvestment grade lessees
and ocean-going vessels, which are not in competition with the Buyer. In
addition, the sale agreements specifically reserved to Equis the rights
to continue using the name American Finance Group and its acronym in
connection with the Partnership and the Other Investment Programs and to
continue managing all assets owned by the Partnership and the Other
Investment Programs, including the right to satisfy all required
equipment acquisitions utilizing either brokers or the Buyer. Geoffrey A.
MacDonald, Chairman of Equis Corporation and Gary D. Engle agreed not to
compete with the sold business on terms and conditions similar to those
for the Company.
(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.
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PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
There was no public market for the resale of the Units.
(b) Approximate Number of Security Holders
At December 31, 1996, 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 were determined and distributed to the
Partners quarterly.
Distributions in 1996 and 1995 were as follows:
GENERAL LIMITED
TOTAL PARTNER PARTNERS
Total 1996 distributions $2,969,697 $ 29,697 $2,940,000
Total 1995 distributions 1,010,101 10,101 1,000,000
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Total $3,979,798 $ 39,798 $3,940,000
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Distributions payable were $252,525 at December 31, 1995. There were no
distributions payable at December 31, 1996.
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
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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 10% (compounded daily and calculated
beginning with 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 10%
(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
$23,156,807 to the Limited Partners and $233,907 to the General Partner
since inception. Substantially all of the distributions to the Limited
Partners represent a return of capital.
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ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled Selected Financial Data
in the 1996 Annual Report.
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 1996 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and supplementary
data included in the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
(a-b) Identification of Directors and Executive Officers
The Partnership has had no Directors or Officers. As indicated in Item 1
of this report, AFG Leasing IV Incorporated was the sole General Partner
of the Partnership. Under the Restated Agreement, as amended, the General
Partner was responsible for the operation of the Partnership's properties
and the Limited Partners have had no right to participate in the control
of such operations. The names, titles and ages of the Directors and
Executive Officers of the General Partner of the Partnership as of March
15, 1997 were as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF THE
GENERAL PARTNER OF THE PARTNERSHIP (SEE ITEM 13)
NAME TITLE AGE TERM
Geoffrey A. MacDonald Chairman, and a member of the 48 Until a
Executive Committee of Equis and successor is
President and a Director of the duly elected
General Partner and qualified
Gary D. Engle President and Chief Executive 48
Officer and a member of the
Executive Committee of Equis
Gary M. Romano Executive Vice President and Chief 37
Operating Officer of Equis and Clerk
of the General Partner
Michael J. Butterfield Vice President, Finance and 37
Treasurer of Equis and Treasurer of
the General Partner
James F. Livesey Vice President, Aircraft and Vessels 47
of Equis
Sandra L. Simonsen Senior Vice President, Information 46
Systems of Equis
Gail D. Ofgant Vice President, Lease Operations of 31
Equis
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners,
Directors or Executive Officers.
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(e) Business Experience
Mr. MacDonald, age 48, is a co-founder of Equis' predecessor, AFG,
Chairman and a member of the Executive Committee of Equis and President
and a Director of the 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 48, is President and Chief Executive Officer and a member
of the Executive Committee of Equis and President of AFG Realty
Corporation. Mr. Engle is Vice President and a Director of certain of
Equis' affiliates. On December 16, 1994 Mr. Engle acquired control of
AFG, the General Partner and each of AFG's subsidiaries. From 1987 to
1990, Mr. Engle was a principal and co-founder of Cobb Partners
Development, Inc., a real estate and mortgage banking company. Mr. Engle
controls the general partner of AALP and is also a limited partner in
AALP. 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 37, is Executive Vice President and Chief Operating
Officer of Equis and certain of its affiliates and Clerk of the General
Partner. Mr. Romano joined AFG in November 1989 and was appointed
Executive Vice President and Chief Operating Officer in April 1996. 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. Butterfield, age 37, is Vice President, Finance and Treasurer of
Equis and Treasurer of the General Partner. Mr. Butterfield joined AFG in
June 1992 and was appointed Vice President, Finance and Treasurer in
April 1996. Prior to joining AFG, Mr. Butterfield was an Audit Manager
with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield was
employed in public accounting and industry positions in New Zealand and
London (U.K.) prior to coming to the United States in 1987. Mr.
Butterfield attained his Associate Chartered Accountant (A.C.A.)
professional qualification in New Zealand and has completed his C.P.A.
requirements in the United States. He holds a Bachelor of Commerce degree
from the University of Otago, Dunedin, New Zealand.
Mr. Livesey, age 47, is Vice President, Aircraft and Vessels, of Equis.
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 46, joined AFG in February 1990 and was promoted to
Senior Vice President, Information Systems of Equis in April 1996. 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.
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Ms. Ofgant, age 31, is Vice President, Lease Operations of Equis and
certain of its affiliates. Ms. Ofgant joined AFG in June 1989, and was
promoted to Manager, Lease Operations in April 1994. In April 1996, Ms.
Ofgant was appointed Vice President, Lease Operations. Prior to joining
AFG, Ms. Ofgant was employed by Security Pacific National Trust Company.
Ms. Ofgant holds a B.S. degree in Finance from Providence College.
(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
The Partnership had no employees. However, under the terms of the
Restated Agreement, as amended, the Partnership was 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.
The Partnership did not 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 had 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 would have resulted from their
resignation, retirement or any other termination.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
By virtue of its organization as a limited partnership, the Partnership had
outstanding no 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 had
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 IV Incorporated, an
affiliate of AFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership were paid by AFG on
behalf of the Partnership and AFG was 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, 1996, which were paid or accrued
by the Partnership to AFG or its Affiliates, are as follows:
1996 1995 1994
Equipment management fees $ 33,956 $ 63,074 $ 75,787
Interest expense--affiliate -- -- 2,955
Administrative charges 28,436 21,000 12,000
Reimbursable operating expenses
due to third parties 180,519 71,616 63,837
-------- -------- --------
Total $242,911 $155,690 $154,579
======== ======== ========
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, management and sale 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 revenues earned by the Partnership 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.
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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 were 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 were 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
were reimbursed to AFG.
All equipment was purchased 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.
On August 18, 1995, Atlantic Acquisition Limited Partnership (AALP), a
newly formed Massachusetts limited partnership owned and controlled by
certain principals of AFG, commenced a voluntary cash Tender Offer (the
Offer) for up to approximately 45% of the outstanding units of limited
partner interest in this Partnership and 20 affiliated partnerships
sponsored and managed by AFG. The Offer was subsequently amended and
supplemented in order to provide additional disclosure to unitholders;
increase the offer price; reduce the number of units sought to
approximately 35% of the outstanding units; and extend the expiration
date of the Offer to October 20, 1995. Following commencement of the
Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected
programs, and various other affiliates and related parties. One action, a
class action brought in the United States District Court for the District
of Massachusetts (the Court) on behalf of the unitholders (limited
partners), sought to enjoin the Offer and obtain unspecified monetary
damages. A settlement of this litigation was approved by the Court on
November 15, 1995. The Plaintiffs filed an appeal in this matter. On
November 26, 1996, the United States Court of Appeals for the First
Circuit handed down a decision affirming the Court's approval of the
settlement. A second class action, brought in the Superior Court of the
Commonwealth of Massachusetts (the Superior Court) seeking to enjoin the
Offer, obtain unspecified monetary damages, and intervene in the first
class action, was dismissed by the Superior Court. The limited partners
of the Partnership tendered 11,235 units or 14.04% of the total
outstanding units of the Partnership to AALP. In September 1996, AALP
sold these units to Equis for $454,085.
On September 30, 1996, the Partnership sold all of its remaining
equipment assets. The remarketing effort, described in Notes 1 and 4 to
the financial statements, was undertaken jointly by 15 individual
equipment leasing programs, consisting of the Partnership and 14
affiliated partnerships (Other Affected Partnerships). Thirteen of the
programs, including the Partnership, sold all of their equipment assets
(the Liquidated Programs); and two programs sold only their proportionate
ownership interests in certain assets owned jointly with one or more of
the Liquidated Programs (collectively, the Sale Assets). Substantially
all of the Partnership's equipment assets of material value represented
partial ownership interests whereby the Partnership owned less than a
100% interest in the equipment it sold. The remaining interests in such
assets were owned by one or more of the Other Affected Partnerships.
Ultimately, the Sale Assets were sold for an aggregate adjusted sale
price of approximately $32,997,000, of which the Partnership's
proportionate share, net of associated costs, was determined to be
$2,849,891. The Partnership's proportionate share in this transaction was
net of certain third-party advisory fees incurred in connection with the
equipment sale.
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<PAGE>
RSL Finance Limited Partnership II (the Buyer) is a limited partnership
established to acquire the Sale Assets and has no direct affiliation with
the Partnership, the Other Affected Partnerships, the General Partner or
AFG. The sole general partner of the Buyer is RSL Holdings, Inc. (RSL).
An affiliate of RSL purchased a significant limited partnership interest
in a direct-participation equipment leasing program co-sponsored by AFG
in 1992. AFG acquired this interest in 1993 for cash and assumption of
indebtedness. There have been no other business dealings between the
Buyer and AFG and their affiliates.
On October 10, 1996, the General Partner entered into a Cross Partnership
Agreement (the Agreement) with the general partners of certain of the
Other Affected Partnerships participating in the sale transaction
described above. Pursuant to the Agreement, the Partnership and each of
the other partnerships agreed to set aside a contingency reserve for
future liabilities. The Agreement provides that obligations of any
individual partnership which are not associated with the sale transaction
will directly reduce that partnership's reserve balance, whereas costs
pertaining to the sale transaction will be allocated against the reserve
balances of the Partnership and each of the other partnerships on a
proportionate basis. If the reserve balance of the Partnership is
depleted to zero, the reserve balances contributed by the other
partnerships will be debited on a proportionate basis to cover the
deficit. If the reserve balances of any one of the other partnerships is
depleted to zero, the reserve balance of the Partnership and any other
partnerships having a positive reserve balance shall be debited on a
proportionate basis to cover the deficit. Upon termination of the
Agreement, any remaining monies will be distributed to the partners of
those partnerships with positive reserve balances. At December 31, 1996,
the Partnership had a contingency reserve balance of $285,284. To the
extent that this contingency reserve is not necessary to satisfy any
unforeseen liabilities of the Partnership, it will be remitted to the
Partners.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
14
<PAGE>
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 Financial Position at December 31, 1995 *
Statement of Changes in Net Assets in Liquidation for the
Period October 1, 1996 to December 31, 1996 *
Statement of Operations for the Period January 1, 1996 to
September 30, 1996 and for the Years Ended
December 31, 1995 and 1994 *
Statement of Changes in Partners' Capital for the Period
January 1, 1996 to September 30, 1996 and for the Years
Ended December 31, 1995 and 1994 *
Statement of Cash Flows for the Period January 1, 1996 to
September 30, 1996 and for the Years Ended
December 31, 1995 and 1994 *
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.
* Incorporated herein by reference to the appropriate portion of
the 1996 Annual Report to security holders for the year ended
December 31, 1996. (See Part II).
15
<PAGE>
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.
33-1190).
13 The 1996 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.
23 Consent of Independent Auditors.
99(a) Lease agreement with Northwest Airlines, Inc., was filed in
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988 as Exhibit 28(b) and is
incorporated herein by reference.
99(b) Lease agreement with United Technologies Corporation, was
filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989 as Exhibit 28 (d) and is
incorporated herein by reference.
99(c) Lease agreement with Comair, Inc., was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 as Exhibit 28 (e) and is incorporated
herein by reference.
(b) Reports on Form 8-K
Report on Form 8-K was filed on October 3, 1996 describing the
remarketing process and terms of sale.
16
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Income 4 Limited Partnership of our report dated March 7, 1997,
included in the 1996 Annual Report to the Partners of American Income 4 Limited
Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 7, 1997
17
<PAGE>
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 4 LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
------------------------------- ------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman, and a member of the President and Chief Executive
Executive Committee of Equis and Officer and a member of the
President and a Director of the Executive Committee of Equis
General Partner (Principal Executive Officer)
Date: March 28, 1997 Date: March 28, 1997
------------------------------ --------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
------------------------------- ------------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Vice President, Finance and
Chief Operating Officer of Equis Treasurer of Equis and Treasurer
and Clerk of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 28, 1997 Date: March 28, 1997
------------------------------ --------------------------
18
<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.
19
<PAGE>
AMERICAN INCOME PARTNERS II
American Income 4 Limited Partnership
Annual Report to the Partners, December 31, 1996
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
PAGE
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-5
FINANCIAL STATEMENTS:
Report of Independent Auditors 6
Statement of Financial Position at December 31, 1995 7
Statement of Changes in Net Assets in Liquidation for the Period October
1, 1996 to December 31, 1996 8
Statement of Operations for the Period January 1, 1996 to September 30,
1996 and for the Years Ended December 31, 1995 and 1994 9
Statement of Changes in Partners' Capital for the Period January 1, 1996
to September 30, 1996 and for the Years Ended December 31, 1995 and 1994 10
Statement of Cash Flows for the Period January 1, 1996 to September 30,
1996 and for the Years Ended December 31, 1995 and 1994 11
Notes to the Financial Statements 12-21
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash Generated to Cost of
Equipment Disposed 23
Statement of Cash and Distributable Cash from Operations, Sales and
Refinancings 24
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 25
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
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. The discussion of the 1996 results, presented below, incorporates
the nine month operating period ended September 30, 1996 and the three month
liquidation period ended December 31, 1996.
For each of the five years in the period ended December 31, 1996:
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Lease revenue $679,115 $1,261,470 $1,515,733 $1,596,955 $2,148,417
Net income (loss) $(14,605) $ 374,033 $ 535,514 $ 562,270 $1,104,799
Per Unit:
Net income (loss) $ (0.18) $ 4.63 $ 6.63 $ 6.96 $ 13.67
Cash distributions $ 36.75 $ 12.50 $ 21.87 $ 25.63 $ 28.75
FINANCIAL POSITION
Total assets -- $3,853,989 $4,572,815 $6,569,058 $7,818,755
Total long-term obligations -- $ 91,441 $ 301,183 $ 784,607 $ 583,395
Partners' capital -- $3,269,586 $3,905,654 $5,137,816 $6,646,253
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31, 1995
COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Results of Operations and Liquidity and Capital Resources
American Income 4 Limited Partnership (the Partnership) was established in 1986
as a direct-participation equipment leasing program. The Partnership's principal
purpose was (i) to acquire and lease a diversified portfolio of capital
equipment to third-party lessees and (ii) to distribute the net cash flow
realized from the Partnership's business operations to its Partners. The
Partnership was capitalized with equity contributions of $20,000,000 from its
Limited Partners and $1,000 from its General Partner. Following its inception,
the Partnership acquired a diversified pool of capital equipment at an aggregate
cost of $33,975,673, a significant portion of which was financed by third-party
banks or other institutional lenders. On September 30, 1996, the Partnership
sold substantially all of its assets and thereafter wound up its operations. The
Partnership was dissolved on December 31, 1996.
Organized as a limited-life entity, the Partnership was anticipated to be
dissolved within approximately seven years of its formation. A significant
portion of the Partnership's equipment assets, representing 67% of its original
equipment portfolio, was sold in the ordinary course of business prior to
September 30, 1996. On September 30, 1996, the remainder of the Partnership's
equipment portfolio was sold to RSL Finance Limited Partnership II (the Buyer).
Accordingly, the financial statements accompanying this discussion were prepared
using the liquidation basis of accounting for the period October 1, 1996 through
December 31, 1996. The Statement of Changes in Net Assets in Liquidation
reflects the liquidation of assets during that period.
A comparison of current and prior years' financial results is not presented
because it is not considered meaningful due the dissolution of the Partnership
and the liquidation of its assets.
Prior to its dissolution, the Partnership's principal sources of revenue
consisted of rental income from equipment leases and sales proceeds generated
from the disposition of its equipment assets. Rental income was used first to
extinguish indebtedness and second to pay the Partnership's management fees and
operating expenses. Net cash flow from all sources, after satisfaction of debt
service, management fees and operating expenses, was used to pay cash
distributions to the Partners. Over its lifetime, the Partnership paid aggregate
cash distributions of $23,390,714. In accordance with the Partnership's Amended
and Restated Agreement and Certificate of Limited Partnership, the Partnership's
Limited Partners were paid 99% of such cash distributions, or $23,156,807
($289.46 per limited partnership unit) and the General Partner was paid 1% of
such distributions, or $233,907. At December 31, 1996, the Partnership had a
contingency reserve balance of $285,284. These funds will be used to satisfy any
expenses of the Partnership which may arise after its dissolution date. To the
extent that these funds are not utilized for such purposes, they will be paid to
the Partners according to their respective allocation percentages, 99%, or
$282,431, representing $3.53 per limited partnership unit, to the Limited
Partners and 1%, or $2,853 to the General Partner.
3
<PAGE>
During the second quarter of 1996, the Partnership engaged an investment adviser
to solicit potential buyers for the Partnership's remaining equipment assets and
associated lease contracts. The remarketing effort was undertaken jointly by 15
individual equipment leasing programs, consisting of the Partnership and 14
affiliated partnerships (the Other Affected Partnerships). Thirteen of the
programs, including the Partnership, sold all of their equipment assets (the
Liquidated Programs); and two programs sold only their proportionate ownership
interests in certain assets owned jointly with one or more of the Liquidated
Programs (collectively, the Sale Assets). Substantially all of the Partnership's
equipment assets of material value represented partial ownership interests
whereby the Partnership owned less than a 100% interest in the equipment it
sold. The remaining interests in such assets were owned by one or more of the
Other Affected Partnerships.
On September 30, 1996, the Partnership and each of the Other Affected
Partnerships executed individual purchase and sale agreements with the Buyer for
all of the Sale Assets, except for one McDonnell Douglas MD-82 aircraft leased
to Northwest Airlines, Inc. (the NWA Aircraft), hereafter the Sales Assets, as
Revised. The Partnership, which had no interest in the NWA Aircraft, sold all of
its remaining equipment, having a net book value of $2,822,421, to the Buyer for
$2,849,891. In aggregate, the Partnership and the Other Affected Partnerships
realized $32,997,000, prior to transaction costs, for all of the Sale Assets, as
Revised. The amounts allocated to the Partnership and to each of the Other
Affected Partnerships were determined based upon an apportionment of the sales
price among all equipment comprising the Sale Assets, as Revised according to
each asset's estimated re-sale value, as determined by an independent appraiser.
For financial reporting purposes, the Partnership recognized a net gain of
$27,470 in connection with this sale. In addition, the Partnership recognized a
net gain of $25,401 during the nine months ended September 30, 1996 from the
sale of other equipment, all of which had been fully depreciated for financial
reporting purposes at the date of sale.
For the year ended December 31, 1996, the Partnership recognized lease revenue
of $679,115. In addition, the Partnership earned interest income from temporary
cash investments. Operating expenses consisted principally of administrative
charges, professional service costs, such as legal and accounting fees, as well
as printing, distribution, and remarketing expenses, including equipment storage
and repairs and maintenance costs. Operating costs for 1996 include all
identified costs anticipated to be incurred in connection with the Partnership's
wind-up and dissolution.
On October 10, 1996, the General Partner entered into a Cross Partnership
Agreement (the Agreement) with the general partners of certain of the Other
Affected Partnerships participating in the sale transaction described above.
Pursuant to the Agreement, the Partnership and each of the other partnerships
agreed to set aside a contingency reserve for future liabilities. The Agreement
provides that obligations of any individual partnership which are not associated
with the sale transaction will directly reduce that partnership's reserve
balance, whereas costs pertaining to the sale transaction will be allocated
against the reserve balances of the Partnership and each of the other
partnerships on a proportionate basis. If the reserve balance of the Partnership
is depleted to zero, the reserve balances contributed by the other partnerships
will be debited on a proportionate basis to cover the deficit. If the reserve
balances of any one of the other partnerships is depleted to zero, the reserve
balance of the Partnership and any other partnerships having a positive reserve
balance shall be debited on a proportionate basis to cover the deficit. Upon
termination of the Agreement, any remaining monies will be distributed to the
partners of those partnerships with positive reserve balances. At December 31,
1996, the Partnership had a contingency reserve balance of $285,284. To the
extent that this contingency reserve is not necessary to satisfy any unforeseen
liabilities of the Partnership, it will be remitted to the Partners.
4
<PAGE>
In connection with the wind-up effort, certain general partner interests in AFG
Leasing Associates II, a Massachusetts general partnership, and the original
General Partner of the Partnership, including the individual general partner
interest owned by Geoffrey A. MacDonald, were transferred to AFG Leasing IV
Incorporated, resulting in AFG Leasing IV Incorporated and AFG Leasing
Incorporated becoming the two general partners of AFG Leasing Associates II. AFG
Leasing Incorporated thereupon was merged with and into AFG Leasing IV
Incorporated. Accordingly, effective October 17, 1996, AFG Leasing IV
Incorporated became the sole General Partner of the Partnership. AFG Leasing IV
Incorporated was established in 1987 and is also the general partner or the
managing general partner of certain affiliated partnerships sponsored by AFG.
The dissolution of the Partnership was recorded at the Office of the Secretary
of State of the Commonwealth of Massachusetts on December 31, 1996. The
Partnership's business operations were concluded on that date. Immediately
following the filing of the Partnership's 1996 Form 10-K, the General Partner of
the Partnership will file Form 15, Certification and Notice of Termination of
Registration under Section 12(g) of the Securities Exchange Act of 1934 or
Suspension of Duty to File Reports Under Sections 13 and 15(d) of the Securities
Exchange Act of 1934, with the United States Securities and Exchange Commission.
5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income 4 Limited Partnership:
We have audited the accompanying statement of financial position of American
Income 4 Limited Partnership as of December 31, 1995, and the related statements
of operations, changes in partners' capital and cash flows for each of the two
years ended December 31, 1995 and for the period from January 1, 1996 to
September 30, 1996. In addition, we have audited the statement of changes in net
assets in liquidation for the period from October 1, 1996 to December 31, 1996.
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 General Partner of
American Income 4 Limited Partnership approved a plan of liquidation on
September 30, 1996, and the Partnership commenced liquidation shortly
thereafter. As a result, the Partnership has changed its basis of accounting for
periods subsequent to September 30, 1996 from the going-concern basis to a
liquidation basis. The liquidation was completed and the Partnership was
dissolved on December 31, 1996.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Income 4 Limited
Partnership as of December 31, 1995, the results of its operations and its cash
flows for each of the two years ended December 31, 1995, and for the period from
January 1, 1996 to September 30, 1996, and the changes in its net assets in
liquidation for the period from October 1, 1996 to December 31, 1996, in
conformity with generally accepted accounting principles applied on the bases
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 7, 1997
6
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995
ASSETS
ASSETS:
Cash and cash equivalents $ 338,294
Rents receivable, net of allowance for doubtful accounts of $32,500 24,584
Accounts receivable--affiliate 148,983
Equipment at cost, net of accumulated depreciation of $8,090,953 3,342,128
------------
Total assets $ 3,853,989
============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Notes payable $ 91,441
Accrued interest 1,132
Accrued liabilities 20,000
Accrued liabilities--affiliate 10,156
Deferred rental income 209,149
Cash distributions payable to partners 252,525
------------
Total liabilities 584,403
------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (142,967)
Limited Partnership Interests
(80,000 Units; initial purchase price of $250 each) 3,412,553
------------
Total partners' capital 3,269,586
------------
Total liabilities and partners' capital $ 3,853,989
============
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE PERIOD OCTOBER 1, 1996 TO DECEMBER 31, 1996
INTEREST INCOME $ 6,552
OPERATING EXPENSES--AFFILIATE (49,716)
LIQUIDATING DISTRIBUTION (285,284)
---------
NET DECREASE IN NET ASSETS IN LIQUIDATION DURING THE PERIOD (328,448)
NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD 328,448
---------
NET ASSETS IN LIQUIDATION, END OF PERIOD $ --
=========
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1996 TO SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
FOR THE PERIOD
JANUARY 1, 1996 TO FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995 1994
INCOME:
Lease revenue $ 679,115 $1,261,470 $1,515,733
Interest income 10,291 17,335 25,277
Gain on sale of equipment 52,871 96,134 26,585
---------- ---------- ----------
Total income 742,277 1,374,939 1,567,595
---------- ---------- ----------
EXPENSES:
Depreciation 519,707 833,250 839,239
Interest expense 816 11,966 38,263
Interest expense--affiliate -- -- 2,955
Equipment management fees--affiliate 33,956 63,074 75,787
Operating expenses--affiliate 159,239 92,616 75,837
---------- ---------- ----------
Total expenses 713,718 1,000,906 1,032,081
---------- ---------- ----------
NET INCOME $ 28,559 $ 374,033 $ 535,514
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 0.35 $ 4.63 $ 6.63
========== ========== ==========
CASH DISTRIBUTIONS DECLARED PER
LIMITED PARTNERSHIP UNIT $ 36.75 $ 12.50 $ 21.87
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD JANUARY 1, 1996 TO SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL
PARTNER LIMITED PARTNERS
AMOUNT UNITS AMOUNT TOTAL
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ (124,284) 80,000 $ 5,262,100 $ 5,137,816
Net income--1994 5,355 -- 530,159 535,514
Cash distributions declared (17,677) -- (1,749,999) (1,767,676)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (136,606) 80,000 4,042,260 3,905,654
Net income--1995 3,740 -- 370,293 374,033
Cash distributions declared (10,101) -- (1,000,000) (1,010,101)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 (142,967) 80,000 3,412,553 3,269,586
Net income for the period January 1, 1996
to September 30, 1996 286 -- 28,273 28,559
Cash distributions declared (29,697) -- (2,940,000) (2,969,697)
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1996 $ (172,378) 80,000 $ 500,826 $ 328,448
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996 TO SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1996 TO FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995 1994
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 28,559 $ 374,033 $ 535,514
Adjustments to reconcile net income to net cash from
operating activities-
Depreciation 519,707 833,250 839,239
Gain on sale of equipment (52,871) (96,134) (26,585)
Decrease in allowance for doubtful accounts (32,500) -- --
Changes in assets and liabilities-
Decrease (increase) in-
Rents receivable 57,084 (21,325) 33,006
Due from Buyer (5,774) -- --
Accounts receivable--affiliate 97,492 (53,837) 49,723
Increase (decrease) in-
Accrued interest (1,132) 46 (21,437)
Accrued liabilities 57,914 6,500 (2,750)
Accrued liabilities--affiliate 133 5,229 (6,473)
Deferred rental income (209,149) 115,209 2,528
----------- ----------- -----------
Cash from operating activities 459,463 1,162,971 1,402,765
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from equipment sales 25,401 96,134 177,532
----------- ----------- -----------
Cash from investing activities 25,401 96,134 177,532
----------- ----------- -----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments--notes payable (91,441) (209,742) (483,424)
Distributions paid (353,533) (1,010,101) (2,020,201)
----------- ----------- -----------
Cash used in financing activities (444,974) (1,219,843) (2,503,625)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
39,890 39,262 (923,328)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 338,294 299,032 1,222,360
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 378,184 $ 338,294 $ 299,032
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,948 $ 11,920 $ 62,655
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: As discussed in Notes 1
and 4, the Partnership entered into a sale transaction to dispose of its
equipment portfolio. This transaction was closed on September 30, 1996. The
Partnership received net sales proceeds of $2,849,891 that were deposited into
an escrow account and transferred to the Partnership on October 3, 1996.
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND PARTNERSHIP MATTERS
Organization
The Partnership was organized as a limited partnership under the
Massachusetts Uniform Limited Partnership Act (the Uniform Act) on
February 25, 1986, for the purpose of acquiring and leasing to third
parties a diversified portfolio of capital equipment. On April 30, 1986,
the Partnership issued 80,000 limited partnership units (the Units) to
2,035 Limited Partners, including four Units purchased by its Initial
Limited Partner, Geoffrey A. MacDonald. In accordance with the Amended
and Restated Agreement and Certificate of Limited Partnership (the
Restated Agreement, as amended), American Finance Group (AFG), a
Massachusetts general partnership, which subsequently became Equis
Financial Group Limited Partnership (collectively referred to herein as
AFG), purchased 2,000 Units, representing 2.5% ($500,000) of total
capital contributions received by the Partnership at its inception. In
1995, AFG tendered all of its Units to Atlantic Acquisition Limited
Partnership (See Note 4 herein). On December 31, 1996, the General
Partner of the Partnership caused the Restated Agreement, as amended to
be canceled by filing a Certificate of Cancellation with the
Massachusetts Secretary under the Uniform Act. Accordingly, the
Partnership was dissolved on December 31, 1996.
Partners' capital initially consisted of contributions of $1,000 from the
General Partner (AFG Leasing Associates II, a Massachusetts general
partnership) and $1,000 from the Initial Limited Partner. The General
Partner originally had the following five general partners: AFG Leasing
Incorporated, a Massachusetts corporation and wholly-owned subsidiary of
AFG, Kestutis J. Makaitis, Daniel J. Roggemann, Martin F. Laughlin, and
Geoffrey A. MacDonald. Messrs. Makaitis, Roggemann, and Laughlin each
subsequently elected to withdraw as Individual General Partners. In
connection with the Partnership's wind-up and dissolution, the General
Partner interests of AFG Leasing Associates II, including the Individual
General Partner interest owned by Geoffrey A. MacDonald, were transferred
to AFG Leasing IV Incorporated, resulting in AFG Leasing IV Incorporated
and AFG Leasing Incorporated becoming the two general partners of AFG
Leasing Associates II. AFG Leasing Incorporated thereupon was merged with
and into AFG Leasing IV Incorporated. Accordingly, effective October 17,
1996, AFG Leasing IV Incorporated became the sole General Partner of the
Partnership. AFG Leasing IV Incorporated is a Massachusetts corporation
established in 1987 and a wholly owned subsidiary of AFG and is also the
general partner or the managing general partner of certain affiliated
partnerships sponsored by AFG.
Significant operations commenced April 30, 1986 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.
12
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) ORGANIZATION AND PARTNERSHIP MATTERS (Continued)
Organization (Continued)
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.)
Equis Financial Group Limited Partnership (Equis) is a Massachusetts
partnership formerly known as American Finance Group (AFG). AFG was
established in 1988 as a Massachusetts general partnership and succeeded
American Finance Group, Inc., a Massachusetts corporation organized in
1980. Equis and its subsidiaries (collectively, the Company) are engaged
in various aspects of the equipment leasing business, including Equis'
role as Equipment Manager or Advisor to the Partnership and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored
by AFG (the Other Investment Programs). The Company arranges to broker or
originate equipment leases, acts as remarketing agent and asset manager,
and provides leasing support services, such as billing, collecting and
asset tracking.
The general partner of Equis, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by
Gary D. Engle, its President and Chief Executive Officer. Equis
Corporation also owns a controlling 1% general partner interest in Equis'
99% limited partner, GDE Acquisition Limited Partnership (GDE LP). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for
the sole purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating
primarily to the business of originating new leases, and the name
"American Finance Group," and its acronym to a third party (the Buyer).
AFG changed its name to Equis Financial Group Limited Partnership after
the sale was concluded. Pursuant to terms of the sale agreements, Equis
agreed not to compete with the Buyer's lease origination business for a
period of five years; however, Equis is permitted to originate certain
equipment leases, principally those involving noninvestment grade lessees
and ocean-going vessels, which are not in competition with the Buyer. In
addition, the sale agreements specifically reserved to Equis the rights
to continue using the name American Finance Group and its acronym in
connection with the Partnership and the Other Investment Programs and to
continue managing all assets owned by the Partnership and the Other
Investment Programs, including the right to satisfy all required
equipment acquisitions utilizing either brokers or the Buyer. Geoffrey A.
MacDonald, Chairman of Equis Corporation and Gary D. Engle agreed not to
compete with the sold business on terms and conditions similar to those
for the Company.
13
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) ORGANIZATION AND PARTNERSHIP MATTERS (Continued)
Basis of Presentation
On September 30, 1996, the Partnership sold all of its equipment assets
for $2,849,891. The entire remarketing effort was undertaken jointly by
15 individual equipment leasing programs, consisting of the Partnership
and 14 affiliated partnerships, each of which individually executed
separate purchase and sale agreements with RSL Finance Limited
Partnership II (the Buyer) for all or a portion of their equipment
assets. (See Note 4.)
On October 15, 1996, the Partnership paid a cash distribution of
$2,868,689 of which $2,840,002 was paid to the Limited Partners and
$28,687 was paid to the General Partner. As discussed in Note 4, the
Partnership had a contingency reserve of $285,284 at December 31, 1996.
The General Partner approved a plan of liquidation on September 30, 1996
and commenced liquidation on October 1, 1996. On December 31, 1996, the
General Partner dissolved the Partnership in accordance with the Restated
Agreement, as amended.
The financial statements presented have been prepared on a going-concern
basis through September 30, 1996. Due to the dissolution of the
Partnership requiring liquidation and distribution of its net assets, the
Partnership changed its basis of accounting from going-concern to
liquidation basis effective October 1, 1996. Liquidation basis requires
that statements be prepared based on anticipated liquidating values of
assets and liabilities.
(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 invested 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. The Partnership's entire equipment portfolio was sold on
September 30, 1996. No future rents are due.
14
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during each of the past three years is as follows:
1996 1995 1994
Northwest Airlines, Inc. $442,742 $856,727 $995,880
United Technologies Corporation $112,859 $179,293 $220,787
Comair, Inc. $107,594 $160,200 $160,200
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, and 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.
15
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 were
reported as Accrued Liabilities--Affiliate (see Note 4).
Allocation of Profits and Losses
For financial statement purposes, net income or loss was 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 and Cash Distributions Per Unit
Net income and cash distributions per Unit were based on 80,000 Units
outstanding during each of the three years in the period ended December
31, 1996 and computed after allocation of the General Partner's 1% share
of net income 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.
16
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) EQUIPMENT
At September 30, 1996, the Partnership 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 difference between the
net book value of the equipment at the time of sale or disposition and
the proceeds realized upon sale or disposition.
(4) RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership were paid by AFG on
behalf of the Partnership, and AFG was 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, 1996, which were paid or accrued
by the Partnership to AFG or its Affiliates, are as follows:
1996 1995 1994
Equipment management fees $ 33,956 $ 63,074 $ 75,787
Interest expense--affiliate -- -- 2,955
Administrative charges 28,436 21,000 12,000
Reimbursable operating expenses
due to third parties 180,519 71,616 63,837
-------- -------- --------
Total $242,911 $155,690 $154,579
======== ======== ========
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, management and sale 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 revenues earned by the Partnership 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.
17
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
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 were 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
were reimbursed to AFG.
All equipment was purchased 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.
On August 18, 1995, Atlantic Acquisition Limited Partnership (AALP), a
newly formed Massachusetts limited partnership owned and controlled by
certain principals of AFG, commenced a voluntary cash Tender Offer (the
Offer) for up to approximately 45% of the outstanding units of limited
partner interest in this Partnership and 20 affiliated partnerships
sponsored and managed by AFG. The Offer was subsequently amended and
supplemented in order to provide additional disclosure to unitholders;
increase the offer price; reduce the number of units sought to
approximately 35% of the outstanding units; and extend the expiration
date of the Offer to October 20, 1995. Following commencement of the
Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected
programs, and various other affiliates and related parties. One action, a
class action brought in the United States District Court for the District
of Massachusetts (the Court) on behalf of the unitholders (limited
partners), sought to enjoin the Offer and obtain unspecified monetary
damages. A settlement of this litigation was approved by the Court on
November 15, 1995. The Plaintiffs filed an appeal in this matter. On
November 26, 1996, the United States Court of Appeals for the First
Circuit handed down a decision affirming the Court's approval of the
settlement. A second class action, brought in the Superior Court of the
Commonwealth of Massachusetts (the Superior Court) seeking to enjoin the
Offer, obtain unspecified monetary damages, and intervene in the first
class action, was dismissed by the Superior Court. The limited partners
of the Partnership tendered 11,235 units or 14.04% of the total
outstanding units of the Partnership to AALP. In September 1996, AALP
sold these units to Equis for $454,085.
18
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
The remarketing effort described in Note 1 was undertaken jointly by 15
individual equipment leasing programs, consisting of the Partnership and
14 affiliated partnerships (Other Affected Partnerships). Thirteen of the
programs, including the Partnership, sold all of their equipment assets
(the Liquidated Programs); and two programs sold only their proportionate
ownership interests in certain assets owned jointly with one or more of
the Liquidated Programs. Substantially all of the Partnership's equipment
assets of material value represented partial ownership interests whereby
the Partnership owned less than a 100% interest in the equipment it sold.
The remaining interests in such assets were owned by one or more of the
Other Affected Partnerships. Ultimately, the Sale Assets were sold for an
aggregate adjusted sale price of approximately $32,997,000, of which the
Partnership's proportionate share was determined to be $2,849,891. The
Partnership's proportionate share in this transaction was net of certain
third-party advisory fees incurred in connection with the equipment sale.
The Buyer is a limited partnership established to acquire the Sale Assets
and has no direct affiliation with the Partnership, the Other Affected
Partnerships, the General Partner or AFG. The sole general partner of the
Buyer of the Partnership's equipment is RSL Holdings, Inc. (RSL). An
affiliate of RSL purchased a significant limited partnership interest in
a direct-participation equipment leasing program co-sponsored by AFG in
1992. AFG acquired this interest in 1993 for cash and assumption of
indebtedness. There have been no other business dealings between the
Buyer and AFG and their affiliates.
On October 10, 1996, the General Partner entered into a Cross Partnership
Agreement (the Agreement) with the general partners of certain of the
Other Affected Partnerships participating in the sale transaction
described above. Pursuant to the Agreement, the Partnership and each of
the other partnerships agreed to set aside a contingency reserve for
future liabilities. The Agreement provides that obligations of any
individual partnership which are not associated with the sale transaction
will directly reduce that partnership's reserve balance, whereas costs
pertaining to the sale transaction will be allocated against the reserve
balances of the Partnership and each of the other partnerships on a
proportionate basis. If the reserve balance of the Partnership is
depleted to zero, the reserve balances contributed by the other
partnerships will be debited on a proportionate basis to cover the
deficit. If the reserve balances of any one of the other partnerships is
depleted to zero, the reserve balance of the Partnership and any other
partnerships having a positive reserve balance shall be debited on a
proportionate basis to cover the deficit. Upon termination of the
Agreement, any remaining monies will be distributed to the partners of
those partnerships with positive reserve balances. At December 31, 1996,
the Partnership had a contingency reserve balance of $285,284. To the
extent that this contingency reserve is not necessary to satisfy any
unforeseen liabilities of the Partnership, it will be remitted to the
Partners.
19
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
In connection with the wind-up effort, certain general partner interests
in AFG Leasing Associates II, a Massachusetts general partnership, and
the original General Partner of the Partnership, including the individual
general partner interest owned by Geoffrey A. MacDonald, were transferred
to AFG Leasing IV Incorporated, resulting in AFG Leasing IV Incorporated
and AFG Leasing Incorporated becoming the two general partners of AFG
Leasing Associates II. AFG Leasing Incorporated thereupon was merged with
and into AFG Leasing IV Incorporated. Accordingly, effective October 17,
1996, AFG Leasing IV Incorporated became the sole General Partner of the
Partnership. AFG Leasing IV Incorporated was established in 1987 and is
also the general partner or the managing general partner of certain
affiliated partnerships sponsored by AFG.
(5) INCOME TAXES
The Partnership was not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes was recorded in the accounts
of the Partnership.
For financial statement purposes, the Partnership allocated 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 differed 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 reporting purposes, the
Partnership allocated net income or net loss in accordance with such
agreement.
The following is a reconciliation between net income (loss) reported for
financial statement and federal income tax reporting purposes for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net income (loss) $ (14,605) $ 374,033 $ 535,514
Financial statement depreciation in excess of
tax depreciation 519,707 833,250 839,239
Prepaid rental income (209,149) 115,209 2,528
Other 2,667,113 -- 148,699
----------- ----------- -----------
Net income for federal income tax reporting
purposes $ 2,963,066 $ 1,322,492 $ 1,525,980
=========== =========== ===========
</TABLE>
The principal component of Other consists of the difference between the
tax gain on equipment disposals and the financial statement gain on
disposals.
20
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) INCOME TAXES (Continued)
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the
year ended December 31, 1995. A reconciliation for the year ended
December 31, 1996 has not been presented, as partners' capital for
financial statement and federal income tax reporting purposes is zero.
Partners' capital $ 3,269,586
Add back selling commissions and organization and
offering costs 2,334,435
Financial statement distributions in excess of tax
distributions 2,525
Cumulative difference between federal income tax and
financial statement income (loss) (3,378,029)
--------------
Partners' capital for federal income tax reporting
purposes $ 2,228,517
==============
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement
income (loss) represent timing differences.
21
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
22
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH
GENERATED TO COST OF EQUIPMENT DISPOSED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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 revenues, 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 during the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Rents earned prior to disposal of equipment,
net of interest charges $ 13,129,341 $ 683,464 $ 768,770
Sale proceeds realized upon disposition of equipment 2,875,292 96,134 177,532
--------------- ------------ ------------
Total cash generated from rents and equipment sale
proceeds 16,004,633 779,598 946,302
Original acquisition cost of equipment disposed 11,433,081 468,292 563,989
--------------- ------------ ------------
Excess of total cash generated to cost of
equipment disposed $ 4,571,552 $ 311,306 $ 382,313
=============== ============ ============
</TABLE>
23
<PAGE>
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH
FROM OPERATIONS, SALES AND REFINANCINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SALES AND
OPERATIONS REFINANCINGS TOTAL
<S> <C> <C> <C>
NET INCOME (LOSS) $ (67,476) $ 52,871 $ (14,605)
ADD BACK:
Depreciation 519,707 -- 519,707
Decrease in allowance for doubtful accounts (32,500) -- (32,500)
Management fees 33,956 -- 33,956
Book value of disposed equipment -- 2,822,421 2,822,421
LESS:
Principal reduction of notes payable (91,441) -- (91,441)
----------- ----------- -----------
Cash from operations, sales and refinancings 362,246 2,875,292 3,237,538
LESS:
Management fees (33,956) -- (33,956)
----------- ----------- -----------
Distributable cash from operations,
sales and refinancings 328,290 2,875,292 3,203,582
OTHER SOURCES AND USES OF CASH:
Cash, beginning of year 338,294 -- 338,294
Net change in receivables and accruals (34,370) -- (34,370)
LESS:
Cash distributions paid (346,930) (2,875,292) (3,222,222)
Liquidating distribution (285,284) -- (285,284)
----------- ----------- -----------
CASH, END OF YEAR $ -- $ -- $ --
=========== =========== ===========
</TABLE>
24
<PAGE>
AMERICAN INCOME 4 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, 1996
For the year ended December 31, 1996, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
Operating expenses $ 202,620
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<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
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 679,115
<TOTAL-REVENUES> 748,829
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 762,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 816
<INCOME-PRETAX> (14,605)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,605)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
