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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 0-16511
American Income Partners III-A Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2962676
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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
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Securities registered pursuant to Section 12(g) of the Act:
1,009,014 Units Representing Limited Partnership Interest
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(Title of Class)
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(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 PARTNERS III-A 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 PARTNERS III-A LIMITED PARTNERSHIP (the Partnership) was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the Uniform Act) on April 16, 1987, 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 Managing General Partner (AFG Leasing Incorporated) and $100 from
the Initial Limited Partner (AFG Assignor Corporation). On June 29, 1987,
the Partnership issued 1,009,014 units, representing assignments of limited
partnership interests (the Units) to 2,007 investors. Unitholders and
Limited Partners (other than the Initial Limited Partner) are collectively
referred to as Recognized Owners. The 1,009,014 Units include 54 bonus
units. On December 31, 1996, the General Partners of the Partnership caused
the Partnership's Amended and Restated Agreement and Certificate of Limited
Partnership (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.
The Partnership originally had five General Partners: AFG Leasing
Incorporated, a Massachusetts corporation and wholly owned subsidiary of
American Finance Group (AFG), a Massachusetts general partnership, which
subsequently became Equis Financial Group Limited Partnership (collectively
referred to herein as AFG), Kestutis J. Makaitis, Daniel J. Roggemann,
Martin F. Laughlin and Geoffrey A. MacDonald (collectively, the General
Partners). Messrs. Makaitis, Roggemann, and Laughlin subsequently elected
to withdraw as Individual General Partners. In connection with the
Partnership's wind-up and dissolution, the General Partner interest of AFG
Leasing Incorporated was merged with and into AFG Leasing IV Incorporated
effective October 17, 1996. Accordingly, AFG Leasing IV Incorporated became
the Managing General Partner of the Partnership commencing October 17,
1996. 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 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;
2. Preserve and protect invested capital; and.
3. 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 June 29,
1987. The initial purchase of equipment and the associated lease
commitments occurred on June 29, 1987. 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 Managing 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 RECOGNIZED
TOTAL PARTNERS OWNERS
Total 1996 distributions $ 3,182,466 $ 31,825 $ 3,150,641
Total 1995 distributions 1,019,205 10,192 1,009,013
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Total $ 4,201,671 $ 42,017 $ 4,159,654
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Distributions payable at December 31, 1995 were $191,099. 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 Managing General Partner, and increased
by any portion of such reserves deemed by the Managing 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 Managing 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 Managing 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 Managing General Partner, and (b) the proceeds from the sale of an
interest in equipment pursuant to any agreement governing a joint venture
which the Managing 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 Partners, 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 Managing General Partner and (ii) increased
by any portion of such reserves deemed by the Managing 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
Recognized Owners and 1% to the General Partners until Payout and 85% to
the Recognized Owners and 15% to the General Partners after Payout.
Payout is defined as the first time when the aggregate amount of all
distributions to the Recognized Owners of Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings equals the
aggregate amount of the Recognized Owners' original capital contributions
plus a cumulative annual return of 10% (compounded quarterly 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 Recognized Owners
exceed the amount required to satisfy the cumulative annual return of 10%
(compounded quarterly) on the Recognized Owners' 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
$26,700,996 to the Recognized Owners and $269,707 to the General Partners
since inception. Substantially all of the distributions to the Recognized
Owners 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 Managing General Partner
of the Partnership. Under the Restated Agreement, as amended, the Managing
General Partner was responsible for the operation of the Partnership's
properties and the Recognized Owners 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 Managing General Partner of the Partnership
as of March 15, 1997 were as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF THE
MANAGING 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 successor is
and President and a Director of duly elected
the Managing 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 37
Chief Operating Officer of Equis
and Clerk of the Managing
General Partner
Michael J. Butterfield Vice President, Finance and 37
Treasurer of Equis and Treasurer
of the Managing General Partner
James F. Livesey Vice President, Aircraft and 47
Vessels of Equis
Sandra L. Simonsen Senior Vice President, 46
Information Systems of Equis
Gail D. Ofgant Vice President, Lease Operations 31
of Equis
(c) Identification of Certain Significant Persons
None.
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(d) Family Relationship
No family relationship exists among any of the foregoing Partners,
Directors or Executive Officers.
(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 Managing 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
Managing 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 37, is Executive Vice President and Chief Operating Officer
of Equis and certain of its affiliates and Clerk of the Managing 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 Managing 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.
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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.
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 Managing General Partner or its Affiliates. The
Partnership did not pay any options, warrants or rights to the officers or
employees of the Managing 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 10.4 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.
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(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partners
or the Managing General Partner or its Affiliates which would have resulted
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 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 Reorganized Owners had
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partners; 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 Managing 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 $ 43,094 $ 45,766 $ 78,807
Administrative charges 29,806 21,000 12,000
Reimbursable operating expenses
due to third parties 134,083 87,376 130,296
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Total $ 206,983 $ 154,142 $ 221,103
========= ========= =========
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 Managing General Partner
reasonably believed to be competitive for similar services for similar
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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.
Administrative charges represent amounts owed to AFG, pursuant to Section
10.4 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 Recognized Owners of the Partnership tendered
100,815 units or 9.99% of the total outstanding units of the Partnership to
AALP. In September 1996, AALP sold these units to Equis for $311,457.
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.
On September 30, 1996, the Partnership and each of the Other Affected
Partnerships executed individual purchase and sale agreements with RSL
Finance Limited Partnership II (the Buyer) for all of the Sale Assets,
except for one McDonnell Douglas MD-82 aircraft leased to Northwest
Airlines, Inc.
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(the NWA Aircraft), hereafter the Sale Assets, as Revised. The NWA
Aircraft, in which the Partnership owned a proportionate interest of 14.3%,
was purchased by the lessee pursuant to a separate negotiation. The
Partnership realized $880,062 of net sale proceeds for the Sale Assets, as
Revised and $1,864,484 for the NWA Aircraft. The latter included early
termination rental payments of $232,346 from the lessee. At the date of
sale, the Sale Assets, as Revised and the NWA Aircraft had net book values
of $719,752 and $1,673,071, respectively. In aggregate, the Partnership and
the Other Affected Partnerships realized, prior to transaction costs,
$32,997,000 for all of the Sale Assets, as Revised and $13,200,000 for the
NWA Aircraft. Net proceeds from the NWA Aircraft were allocated to the
owners of the NWA Aircraft according to their respective percentage
ownership interests. Net proceeds from the Sale Assets, as Revised were
allocated to the Partnership and to each of the Other Affected Partnerships
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.
The Buyer is a limited partnership established to acquire the Sale Assets,
as Revised, and has no direct affiliation with the Partnership, the Other
Affected Partnerships, the General Partners 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 Managing General Partner entered into a Cross
Partnership Agreement (the Agreement) with the general partners of certain
of the Other Affected Partnerships participating in the sales transactions
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 sales transactions will
directly reduce that partnership's reserve balance, whereas costs
pertaining to the sales transactions 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 $307,800. 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.
33-11160).
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, 1992 as Exhibit 28(b) and is incorporated
herein by reference.
99(b) Lease agreement with ING Aviation Lease, was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 99(b) 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 sales.
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 Partners III-A Limited Partnership of our report dated March
7, 1997, included in the 1996 Annual Report to the Partners of American Income
Partners III-A 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 PARTNERS III-A LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and the
Managing 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
Managing 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 and Treasurer of Equis and Treasurer
Clerk of the Managing General Partner of the Managing 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 Recognized Owners. A report will be
furnished to the Recognized Owners subsequent to the date hereof.
No proxy statement has been or will be sent to the Recognized Owners.
19
<PAGE>
AMERICAN INCOME PARTNERS III
American Income Partners III-A Limited Partnership
Annual Report to the Partners, December 31, 1996
<PAGE>
AMERICAN INCOME PARTNERS III-A 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 Managing General Partner
and its Affiliates as Required by Section 10.4 of the Amended
and Restated Agreement and Certificate of Limited Partnership 25
<PAGE>
AMERICAN INCOME PARTNERS III-A 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 $ 861,875 $ 915,325 $ 1,576,139 $ 2,031,903 $ 4,039,951
Net income (loss) $ (1,188) $ (376,288) $ 682,540 $ 194,656 $(1,016,535)
Per Unit:
Net income (loss) $ -- $ (0.37) $ 0.67 $ 0.19 $ (1.00)
Cash distributions $ 3.12 $ 1.00 $ 2.00 $ 2.00 $ 1.50
FINANCIAL POSITION
Total assets -- $ 3,803,973 $ 5,703,303 $ 7,468,387 $ 9,875,321
Total long-term obligations -- $ 8,904 $ 245,685 $ 560,198 $ 1,186,537
Partners' capital -- $ 3,491,454 $ 4,886,947 $ 6,242,819 $ 8,086,575
</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 Partners III-A Limited Partnership (the Partnership) was
established in 1987 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
$25,225,350 from its Recognized Owners and $1,000 from its Managing General
Partner. Following its inception, the Partnership acquired a diversified pool of
capital equipment at an aggregate cost of $43,299,764, 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 77% 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 $26,970,703. In accordance with the Partnership's Amended
and Restated Agreement and Certificate of Limited Partnership, the Partnership's
Recognized Owners were paid 99% of such cash distributions, or $26,700,996
($26.46 per unit) and the General Partners were paid 1% of such distributions,
or $269,707. At December 31, 1996, the Partnership had a contingency reserve
balance of $307,800. 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 $304,722,
representing $0.30 per unit, to the Recognized Owners and 1%, or $3,078, to the
General Partners.
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 NWA Aircraft, in which the Partnership owned a proportionate
interest of 14.3%, was purchased by the lessee pursuant to a separate
negotiation. The Partnership realized $880,062 of net sale proceeds for the Sale
Assets, as Revised and $1,864,484 for the NWA Aircraft. The latter included
early termination rental payments of $232,346 from the lessee. At the date of
sale, the Sale Assets, as Revised and the NWA Aircraft had net book values of
$719,752 and $1,673,071, respectively. In aggregate, the Partnership and the
Other Affected Partnerships realized, prior to transaction costs, $32,997,000
for all of the Sale Assets, as Revised and $13,200,000 for the NWA Aircraft. Net
proceeds from the NWA Aircraft were allocated to the owners of the NWA Aircraft
according to their respective percentage ownership interests. Net proceeds from
the Sale Assets, as Revised were allocated to the Partnership and to each of the
Other Affected Partnerships 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 $119,377
in connection with both sale transactions. In addition, the Partnership
recognized a net gain of $48,029 during the nine months ended September 30, 1996
from the sale of other equipment which had a net book value of $5,168 for
financial reporting purposes at the date of sale.
For the year ended December 31, 1996, the Partnership recognized lease revenue
of $861,875. 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 Managing General Partner entered into a Cross
Partnership Agreement (the Agreement) with the general partners of certain of
the Other Affected Partnerships participating in the sales transactions
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 sales transactions will directly
reduce that partnership's reserve balance, whereas costs pertaining to the sales
transactions 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
4
<PAGE>
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 $307,800. 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.
In connection with the wind-up effort, AFG Leasing Incorporated, the Managing
General Partner of the Partnership, was merged with and into AFG Leasing IV
Incorporated effective October 17, 1996. Accordingly, AFG Leasing IV
Incorporated became the Managing General Partner of the Partnership commencing
October 17, 1996. AFG Leasing IV Incorporated was established in 1987 and is
also the general partner or 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 Managing 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 Partners III-A Limited Partnership:
We have audited the accompanying statements of financial position of American
Income Partners III-A 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 Managing General Partner
of American Income Partners III-A 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 Partners III-A
Limited Partnership at December 31, 1995, the results of its operations and its
cash flows for each of the two years in the period 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 PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995
ASSETS
ASSETS:
Cash and cash equivalents $ 530,418
Rents receivable, net of allowance for doubtful
accounts of $97,000 13,711
Accounts receivable--affiliate 3,717
Equipment at cost, net of accumulated depreciation
of $7,354,059 3,256,127
-----------
Total assets $ 3,803,973
===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Notes payable $ 8,904
Accrued interest 27
Accrued liabilities 42,500
Accrued liabilities--affiliate 19,181
Deferred rental income 50,808
Cash distributions payable to partners 191,099
-----------
Total liabilities 312,519
-----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (186,830)
Limited Partnership Interests (1,009,014 Units, initial
purchase price of $25 each) 3,678,284
-----------
Total partners' capital 3,491,454
-----------
Total liabilities and partners' capital $ 3,803,973
===========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE PERIOD OCTOBER 1, 1996 TO DECEMBER 31, 1996
INTEREST INCOME $ 8,111
OPERATING EXPENSES--AFFILIATE (19,381)
LIQUIDATING DISTRIBUTION (307,800)
---------
NET DECREASE IN NET ASSETS IN LIQUIDATION DURING THE PERIOD (319,070)
NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD 319,070
---------
NET ASSETS IN LIQUIDATION, END OF PERIOD $ --
=========
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AMERICAN INCOME PARTNERS III-A 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 FOR THE YEARS ENDED
TO SEPTEMBER 30, DECEMBER 31,
1996 1995 1994
INCOME:
Lease revenue $ 861,875 $ 915,325 $1,576,139
Interest income 26,644 27,917 44,218
Gain on sale of equipment 167,406 170,679 269,648
---------- ---------- ----------
Total income 1,055,925 1,113,921 1,890,005
---------- ---------- ----------
EXPENSES:
Depreciation 358,136 599,372 976,507
Write-down of equipment 500,000 734,600 --
Interest expense 105 2,095 9,855
Equipment management fees--affiliate 43,094 45,766 78,807
Operating expenses--affiliate 144,508 108,376 142,296
---------- ---------- ----------
Total expenses 1,045,843 1,490,209 1,207,465
---------- ---------- ----------
NET INCOME (LOSS) $ 10,082 $ (376,288) $ 682,540
========== ========== ==========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 0.01 $ (0.37) $ 0.67
========== ========== ==========
CASH DISTRIBUTIONS DECLARED PER
LIMITED PARTNERSHIP UNIT $ 3.12 $ 1.00 $ 2.00
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
AMERICAN INCOME PARTNERS III-A 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 RECOGNIZED OWNERS
AMOUNT UNITS AMOUNT TOTAL
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ (159,316) 1,009,014 $ 6,402,135 $ 6,242,819
Net income--1994 6,825 -- 675,715 682,540
Cash distributions declared (20,384) -- (2,018,028) (2,038,412)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 (172,875) 1,009,014 5,059,822 4,886,947
Net loss--1995 (3,763) -- (372,525) (376,288)
Cash distributions declared (10,192) -- (1,009,013) (1,019,205)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 (186,830) 1,009,014 3,678,284 3,491,454
Net income for the period January 1, 1996
to September 30, 1996 101 -- 9,981 10,082
Cash distributions declared (31,825) -- (3,150,641) (3,182,466)
------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1996 $ (218,554) 1,009,014 $ 537,624 $ 319,070
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
AMERICAN INCOME PARTNERS III-A 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 FOR THE YEARS ENDED
TO SEPTEMBER 30, DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 10,082 $ (376,288) $ 682,540
Adjustments to reconcile net income (loss) to cash from
operating activities-
Depreciation 358,136 599,372 976,507
Write-down of equipment 500,000 734,600 --
Gain on sale of equipment (167,406) (170,679) (269,648)
Decrease in allowance for doubtful accounts (97,000) (43,000) (45,000)
Changes in assets and liabilities-
Decrease (increase) in-
Rents receivable 110,711 177,159 135,776
Accounts receivable--affiliate (320,489) 142,187 (40,821)
Increase (decrease) in-
Accounts payable 79,387 -- --
Accrued interest (27) (5,600) (17,914)
Accrued liabilities 17,272 27,000 (48,500)
Accrued liabilities--affiliate 1,505 16,405 (9,886)
Deferred rental income (50,808) 13,643 (18,399)
------------ ------------ ------------
Net cash from operating activities 441,363 1,114,799 1,344,655
------------ ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of equipment -- -- (16,420)
Proceeds from equipment sales 53,197 170,679 357,916
------------ ------------ ------------
Net cash from investing activities 53,197 170,679 341,496
------------ ------------ ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments--notes payable (8,904) (236,781) (314,513)
Distributions paid (573,297) (1,337,709) (2,038,412)
------------ ------------ ------------
Net cash used in financing activities (582,201) (1,574,490) (2,352,925)
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (87,641) (289,012) (666,774)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 530,418 819,430 1,486,204
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 442,777 $ 530,418 $ 819,430
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 132 $ 7,695 $ 27,769
============ ============ ============
</TABLE>
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 $880,062, which were deposited into an escrow account and transferred to
the Partnership on October 3, 1996.
As discussed in Notes 1 and 4, the Partnership entered into an additional
sale transaction to dispose of its interest in an aircraft leased to
Northwest Airlines, Inc. This transaction was settled on September 30,
1996. The net sales proceeds of $1,632,138 were deposited into an escrow
account and transferred to the Partnership on October 3, 1996.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
AMERICAN INCOME PARTNERS III-A 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 April
16, 1987, 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 Managing General Partner (AFG
Leasing Incorporated) and $100 from the Initial Limited Partner (AFG
Assignor Corporation). On June 29, 1987, the Partnership issued 1,009,014
units, representing assignments of limited partnership interests (the
Units) to 2,007 investors. Unitholders and Limited Partners (other than the
Initial Limited Partner) are collectively referred to as Recognized Owners.
The 1,009,014 Units include 54 bonus units. On December 31, 1996, the
General Partners of the Partnership caused the Partnership's Amended and
Restated Agreement and Certificate of Limited Partnership (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.
The Partnership originally had five General Partners: AFG Leasing
Incorporated, a Massachusetts corporation and wholly owned subsidiary of
American Finance Group (AFG), a Massachusetts general partnership, which
subsequently became Equis Financial Group Limited Partnership (collectively
referred to herein as AFG), Kestutis J. Makaitis, Daniel J. Roggemann,
Martin F. Laughlin and Geoffrey A. MacDonald (collectively the General
Partners). Messrs. Makaitis, Roggemann, and Laughlin subsequently elected
to withdraw as Individual General Partners. In connection with the
Partnership's wind-up and dissolution, the General Partner interest of AFG
Leasing Incorporated was merged with and into AFG Leasing IV Incorporated
effective October 17, 1996. Accordingly, AFG Leasing IV Incorporated became
the Managing General Partner of the Partnership commencing October 17,
1996. 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 managing general partner of certain affiliated
partnerships sponsored by AFG.
Significant operations commenced June 29, 1987 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 Recognized Owners and 1% to
the General Partners.
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 Managing General Partner believed to be competitive for similar
services. (Also see Note 4.)
12
<PAGE>
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) ORGANIZATION AND PARTNERSHIP MATTERS (Continued)
Organization (Continued)
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 PARTNERS III-A 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,
excluding its interest in an aircraft, for $880,062. 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) and certain of which entered
into a collective purchase and sale agreement with Northwest Airlines, Inc.
(NWA), to sell all or a portion of their equipment assets (the Sale
Assets). Certain of these partnerships, including the Partnership, sold
their collective interest in a McDonnell Douglas MD-82 aircraft (NWA
Aircraft) to NWA. The net consideration for this aircraft was allocated
first to remaining lease rental obligations and second to sale proceeds.
The Partnership's proportionate share of this consideration was $1,864,484,
including $1,632,138 representing net sale proceeds. (See Note 4.)
On October 15, 1996, the Partnership paid a cash distribution of $2,800,268
of which $2,772,265 was paid to the Limited Partners and $28,003 was paid
to the Managing General Partner. As discussed in Note 4, the Partnership
had a contingency reserve of $307,800 at December 31, 1996.
The Managing General Partner approved a plan of liquidation on September
30, 1996 and commenced liquidation on October 1, 1996. On December 31,
1996, the Managing 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.
14
<PAGE>
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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. $ 483,487 $ 360,285 $ 441,827
ING Aviation Lease $ 146,837 $ 176,874 --
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 Managing 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 Managing
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 PARTNERS III-A 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
Recognized Owners and 1% to the General Partners). 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 were based on 1,009,014
Units outstanding during each of the three years in the period ended
December 31, 1996 and computed after allocation of the General Partners' 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.
16
<PAGE>
AMERICAN INCOME PARTNERS III-A 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.
The Partnership recorded a write-down of the carrying value of its interest
in an L1011-50 aircraft representing an impairment, during the years ended
December 31, 1996 and 1995. The resulting charges, $500,000 ($0.49 per
limited partnership unit) in 1996, and $734,600 ($0.72 per limited
partnership unit) in 1995 were based on a comparison of the estimated net
realizable value and corresponding carrying value for the Partnership's
interest in the aircraft.
(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 $ 43,094 $ 45,766 $ 78,807
Administrative charges 29,806 21,000 12,000
Reimbursable operating expenses
due to third parties 134,083 87,376 130,296
--------- --------- ---------
Total $ 206,983 $ 154,142 $ 221,103
========= ========= =========
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 Managing 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 PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
Administrative charges represent amounts owed to AFG, pursuant to Section
10.4 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 Recognized Owners of the Partnership tendered
100,815 units or 9.99% of the total outstanding units of the Partnership to
AALP. In September 1996, AALP sold these units to Equis for $311,457.
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
18
<PAGE>
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
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., hereafter the Sale Assets, as
Revised. The NWA Aircraft, in which the Partnership owned a proportionate
interest of 14.3%, was purchased by the lessee pursuant to a separate
negotiation. The Partnership realized $880,062 of net sale proceeds for the
Sale Assets, as Revised and $1,864,484 for the NWA Aircraft. The latter
included early termination rental payments of $232,346 from the lessee. At
the date of sale, the Sale Assets, as Revised and the NWA Aircraft had net
book values of $719,752 and $1,673,071, respectively. In aggregate, the
Partnership and the Other Affected Partnerships realized, prior to
transaction costs, $32,997,000 for all of the Sale Assets, as Revised and
$13,200,000 for the NWA Aircraft. Net proceeds from the NWA Aircraft were
allocated to the owners of the NWA Aircraft according to their respective
percentage ownership interests. Net proceeds from the Sale Assets, as
Revised were allocated to the Partnership and to each of the Other Affected
Partnerships 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.
The Buyer is a limited partnership established to acquire the Sale Assets,
as Revised, and has no direct affiliation with the Partnership, the Other
Affected Partnerships, the General Partners 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 Managing General Partner entered into a Cross
Partnership Agreement (the Agreement) with the general partners of certain
of the Other Affected Partnerships participating in the sales transactions
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 sales transactions will
directly reduce that partnership's reserve balance, whereas costs
pertaining to the sales transactions 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
19
<PAGE>
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
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
$307,800. 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.
In connection with the wind-up effort, AFG Leasing Incorporated, the
Managing General Partner of the Partnership, was merged with and into AFG
Leasing IV Incorporated effective October 17, 1996. Accordingly, AFG
Leasing IV Incorporated became the Managing General Partner of the
Partnership commencing October 17, 1996. AFG Leasing IV Incorporated was
established in 1987 and is also the general partner or managing general
partner of certain other 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 Recognized Owners and 1% to the General Partners).
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 purposes, the Partnership allocated
net income or loss in accordance with such agreement.
20
<PAGE>
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) INCOME TAXES (Continued)
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:
1996 1995 1994
Net income (loss) $ (1,188) $ (376,288) $ 682,540
Financial statement depreciation
in excess of tax depreciation 198,767 270,656 395,126
Write-down of equipment 500,000 734,600 --
Prepaid rental income (50,808) 13,643 (18,399)
Other 1,102,917 (20,500) (7,446)
---------- ---------- ----------
Net income for federal income tax
reporting purposes $1,749,688 $ 622,111 $1,051,821
========== ========== ==========
The principal component of Other consists of the difference between the tax
gain on equipment disposals and the financial statement gain on disposals.
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 $ 3,491,454
Add back selling commissions and
organization and offering costs 1,063,602
Financial statement distributions in
excess of tax distributions 1,911
Cumulative difference between federal
income tax and financial statement
income (loss) (1,913,099)
------------
Partners' capital for federal income tax
reporting purposes $ 2,643,868
===========
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 PARTNERS III-A 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 in 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 $ 11,858,818 $ 3,305,414 $ 2,914,616
Sale proceeds realized upon disposition of
equipment 2,565,397 170,679 357,916
------------ ------------ ------------
Total cash generated from rents and equipment
sale proceeds 14,424,215 3,476,093 3,272,532
Original acquisition cost of equipment disposed 10,610,186 3,226,022 2,881,579
------------ ------------ ------------
Excess of total cash generated to cost of
equipment disposed $ 3,814,029 $ 250,071 $ 390,953
============ ============ ============
</TABLE>
23
<PAGE>
AMERICAN INCOME PARTNERS III-A 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) $ (168,594) $ 167,406 $ (1,188)
ADD BACK:
Depreciation 358,136 -- 358,136
Write-down of equipment 500,000 -- 500,000
Decrease in allowance for doubtful accounts (97,000) -- (97,000)
Management fees 43,094 -- 43,094
Book value of disposed equipment -- 2,397,991 2,397,991
LESS:
Principal reduction of notes payable (8,904) -- (8,904)
------------ ------------ ------------
Cash from operations, sales and refinancings 626,732 2,565,397 3,192,129
LESS:
Management fees (43,094) -- (43,094)
------------ ------------ ------------
Distributable cash from operations,
sales and refinancings 583,638 2,565,397 3,149,035
OTHER SOURCES AND USES OF CASH:
Cash, beginning of year 530,418 -- 530,418
Net change in receivables and accruals 1,912 -- 1,912
LESS:
Cash distributions paid (808,168) (2,565,397) (3,373,565)
Liquidating distribution (307,800) -- (307,800)
------------ ------------ ------------
CASH, END OF YEAR $ -- $ -- $ --
============ ============ ============
</TABLE>
24
<PAGE>
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE MANAGING GENERAL PARTNER
AND ITS AFFILIATES AS REQUIRED BY SECTION 10.4 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 Managing
General Partner and its Affiliates for the following costs:
Operating expenses $168,405
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> 861,875
<TOTAL-REVENUES> 1,064,036
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,065,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> (1,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,188)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
