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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 0-17532
American Income Partners III-D Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-6579994
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Fifth Floor, Boston, MA 02114
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
Securities registered pursuant to Section 12(b) of the Act None
Title of each class Name of each exchange on which registered
______________________________ ______________________________________________
______________________________ ______________________________________________
Securities registered pursuant to Section 12(g) of the Act:
519,926 Units Representing Limited Partnership Interest
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(Title of Class)
________________________________________________________________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. Not applicable Securities are nonvoting for this purpose. Refer
to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders
for the year ended December 31, 1996 (Part I and II)
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AMERICAN INCOME PARTNERS III-D 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 16-17
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PART I
ITEM 1. BUSINESS.
(a) General Development of Business
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP (the Partnership) was
organized as a limited partnership under the Massachusetts Uniform
Limited Partnership Act (the Uniform Act) on December 30, 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 April 15, 1988, the Partnership issued 519,926 units,
representing assignments of limited partnership interests (the Units) to
1,129 investors. Unitholders and Limited Partners (other than the Initial
Limited Partner) are collectively referred to as Recognized Owners. The
519,926 Units include 76 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 April
15, 1988. The initial purchase of equipment and the associated lease
commitments occurred on April 19, 1988. 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 $1,744,901 $ 17,449 $1,727,452
Total 1995 distributions 590,825 5,908 584,917
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Total $2,335,726 $ 23,357 $2,312,369
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Distributions payable were $98,470 at December 31, 1995. There were no
distributions payable at December 31, 1996.
Distributable Cash From Operations means the net cash provided by the
Partnership's normal operations after general expenses and current
liabilities of the Partnership are paid, reduced by any reserves for
working capital and contingent liabilities to be funded from such cash,
to the extent deemed reasonable by the 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 quarter
following the Partnership's Closing Date. The Partnership has distributed
$14,457,141 to the Recognized Owners and $146,032 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
GENERAL PARTNER OF THE PARTNERSHIP (SEE ITEM 13)
NAME TITLE AGE TERM
Geoffrey A. MacDonald Chairman, and a member of the 48 Until a
Executive Committee of Equis and successor is
President and a Director of the duly elected
General Partner and qualified
Gary D. Engle President and Chief Executive 48
Officer and a member of the
Executive Committee of Equis
Gary M. Romano Executive Vice President and Chief 37
Operating Officer of Equis and
Clerk of the General Partner
Michael J. Butterfield Vice President, Finance and 37
Treasurer of Equis and Treasurer
of the General Partner
James F. Livesey Vice President, Aircraft and 47
Vessels of Equis
Sandra L. Simonsen Senior Vice President, Information 46
Systems of Equis
Gail D. Ofgant Vice President, Lease Operations of 31
Equis
(c) Identification of Certain Significant Persons
None.
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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, 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 Recognized 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 $ 20,877 $ 32,101 $ 52,235
Interest expense--affiliate -- -- 8,315
Administrative charges 29,985 17,904 12,000
Reimbursable operating expenses
due to third parties 88,389 74,232 96,386
-------- -------- --------
Total $139,251 $124,237 $168,936
======== ======== ========
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
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paid by the Partnership. For management services, AFG was compensated by
an amount equal to the lesser of (i) 5% of gross lease rental revenue or
(ii) fees which the 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.
Interest expense--affiliate represents interest incurred on legal costs
in connection with a state sales tax dispute involving certain equipment
owned by the Partnership and other affiliated investment programs
sponsored by AFG. Legal costs incurred by AFG to resolve this matter and
the interest thereon was allocated to the Partnership and other affected
investment programs. Administrative charges represent amounts owed to
AFG, pursuant to Section 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 37,924 units or 7.29% of the total
outstanding units of the Partnership to AALP. In September 1996, AALP
sold these units to Equis for $127,989.
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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. (the NWA Aircraft), hereafter the Sale Assets, as Revised.
The NWA Aircraft, in which the Partnership owned a proportionate interest
of 6.2%, was purchased by the lessee pursuant to a separate negotiation.
The Partnership realized $470,647 of net sale proceeds for the Sale
Assets, as Revised and $813,087 for the NWA Aircraft. The latter included
early termination rental payments of $101,324 from the lessee. At the
date of sale, the Sale Assets, as Revised and the NWA Aircraft had net
book values of $262,011 and $751,575, 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
14
<PAGE>
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 $160,868. 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.
15
<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).
16
<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 Marsh Supermarkets, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991 as Exhibit 28(c) and is incorporated herein by reference.
99(b) Lease agreement with Northwest Airlines, Inc., was filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991 as Exhibit 28(d) and is incorporated herein by reference.
99(c) 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(d) and is incorporated herein by reference.
99(d) Lease agreement with Equicor, Inc. was filed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 as Exhibit 28(e)
and is incorporated herein by reference.
(b) Reports on Form 8-K
Report on Form 8-K was filed on October 3, 1996 describing the
remarketing process and terms of sales.
17
<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-D Limited Partnership of our report dated March
7, 1997, included in the 1996 Annual Report to the Partners of American Income
Partners III-D Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 7, 1997
18
<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-D LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and
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
------------------------------ --------------------------
19
<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.
20
<PAGE>
AMERICAN INCOME PARTNERS III
American Income Partners III-D Limited Partnership
Annual Report to the Partners, December 31, 1996
<PAGE>
AMERICAN INCOME PARTNERS III-D 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-D 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 $ 417,549 $ 642,023 $1,044,707 $1,407,741 $2,042,586
Net income $ 162,174 $ 191,193 $ 311,740 $ 113,721 $ 318,165
Per Unit:
Net income $ 0.31 $ 0.36 $ 0.59 $ 0.22 $ 0.61
Cash distributions $ 3.32 $ 1.13 $ 1.25 $ 2.50 $ 3.75
FINANCIAL POSITION
Total assets -- $1,945,479 $2,604,830 $3,519,154 $4,998,526
Total long-term obligations -- $ 51,649 $ 271,796 $ 619,355 $ 745,527
Partners' capital -- $1,743,595 $2,143,227 $2,487,959 $3,687,182
</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-D Limited Partnership (the Partnership) was
established in 1988 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
$12,998,150 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 $20,603,805, 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 80% 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 $14,603,173. 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 $14,457,141
($27.81 per unit) and the General Partners were paid 1% of such distributions,
or $146,032. At December 31, 1996, the Partnership had a contingency reserve
balance of $160,868. 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 $159,259,
representing $0.31 per unit, to the Recognized Owners and 1%, or $1,609, 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 6.2%, was purchased by the lessee pursuant to a separate
negotiation. The Partnership realized $470,647 of net sale proceeds for the Sale
Assets, as Revised and $813,087 for the NWA Aircraft. The latter included early
termination rental payments of $101,324 from the lessee. At the date of sale,
the Sale Assets, as Revised and the NWA Aircraft had net book values of $262,011
and $751,575, 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 $168,824
in connection with both sale transactions. In addition, the Partnership
recognized a net gain of $117,505 during the nine months ended September 30,
1996 from the sale of other equipment, all of which had been fully depreciated
for financial reporting purposes at the date of sale.
For the year ended December 31, 1996, the Partnership recognized lease revenue
of $417,549. 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 $160,868. 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-D Limited Partnership:
We have audited the accompanying statement of financial position of American
Income Partners III-D 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-D 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-D
Limited Partnership as of December 31, 1995, the results of its operations and
its cash flows for each of the two years ended December 31, 1995, and for the
period from January 1, 1996 to September 30, 1996, and the changes in its net
assets in liquidation for the period from October 1, 1996 to December 31, 1996,
in conformity with generally accepted accounting principles applied on the bases
described in the preceding paragraph.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Additional Financial Information
identified in the Index to Annual Report to the Partners is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 7, 1997
6
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995
ASSETS
ASSETS:
Cash and cash equivalents $ 450,165
Rents receivable, net of allowance
for doubtful accounts of $17,000 18,442
Accounts receivable--affiliate 37,479
Equipment at cost, net of accumulated
depreciation of $5,332,783 1,439,393
-----------
Total assets $ 1,945,479
===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Notes payable $ 51,649
Accrued interest 153
Accrued liabilities 20,000
Accrued liabilities--affiliate 24,668
Deferred rental income 6,944
Cash distributions payable to partners 98,470
-----------
Total liabilities 201,884
-----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (96,358)
Limited Partnership Interests
(519,926 Units, initial
purchase price of $25 each) 1,839,953
-----------
Total partners' capital 1,743,595
-----------
Total liabilities and partners' capital $ 1,945,479
===========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE PERIOD OCTOBER 1, 1996 TO DECEMBER 31, 1996
INTEREST INCOME $ 4,025
OPERATING EXPENSES--AFFILIATE (17,703)
LIQUIDATING DISTRIBUTION (160,868)
---------
NET DECREASE IN NET ASSETS IN LIQUIDATION DURING THE PERIOD (174,546)
NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD 174,546
---------
NET ASSETS IN LIQUIDATION, END OF PERIOD $ --
=========
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1996 TO SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
FOR THE PERIOD
JANUARY 1,
1996 TO FOR THE YEARS
SEPTEMBER 30, ENDED DECEMBER 31,
1996 1995 1994
INCOME:
Lease revenue $ 417,549 $ 642,023 $1,044,707
Interest income 19,906 25,252 18,510
Gain on sale of equipment 286,329 209,004 39,316
---------- ---------- ----------
Total income 723,784 876,279 1,102,533
---------- ---------- ----------
EXPENSES:
Depreciation 125,807 249,541 593,080
Write-down of equipment 300,000 302,300 --
Interest expense 577 9,008 28,777
Interest expense--affiliate -- -- 8,315
Equipment management fees--affiliate 20,877 32,101 52,235
Operating expenses--affiliate 100,671 92,136 108,386
---------- ---------- ----------
Total expenses 547,932 685,086 790,793
---------- ---------- ----------
NET INCOME $ 175,852 $ 191,193 $ 311,740
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 0.34 $ 0.36 $ 0.59
========== ========== ==========
CASH DISTRIBUTIONS DECLARED PER
LIMITED PARTNERSHIP UNIT $ 3.32 $ 1.13 $ 1.25
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
AMERICAN INCOME PARTNERS III-D 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
PARTNERS RECOGNIZED OWNERS
AMOUNT UNITS AMOUNT TOTAL
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ (88,914) 519,926 $ 2,576,873 $ 2,487,959
Net income--1994 3,117 -- 308,623 311,740
Cash distributions declared (6,565) -- (649,907) (656,472)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (92,362) 519,926 2,235,589 2,143,227
Net income--1995 1,912 -- 189,281 191,193
Cash distributions declared (5,908) -- (584,917) (590,825)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 (96,358) 519,926 1,839,953 1,743,595
Net income for the period
January 1, 1996 to
September 30, 1996 1,759 -- 174,093 175,852
Cash distributions declared (17,449) -- (1,727,452) (1,744,901)
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1996 $ (112,048) 519,926 $ 286,594 $ 174,546
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996 TO SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1,
1996 TO FOR THE YEARS
SEPTEMBER 30, ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 175,852 $ 191,193 $ 311,740
Adjustments to reconcile net
income to cash from operating activities-
Depreciation 125,807 249,541 593,080
Write-down of equipment 300,000 302,300 --
Gain on sale of equipment (286,329) (209,004) (39,316)
Decrease in allowance for doubtful accounts (17,000) -- --
Changes in assets and liabilities-
Decrease (increase) in-
Rents receivable 35,442 82,028 54,346
Accounts receivable--affiliate (99,671) (1,679) (35,800)
Increase (decrease) in-
Accrued interest (153) (4,714) (7,403)
Accrued liabilities 26,272 4,500 (17,500)
Accrued liabilities--affiliate (15,268) 21,111 (17,071)
Deferred rental income (6,944) 5,179 (15,942)
----------- ----------- -----------
Net cash from operating activities 238,008 640,455 826,134
----------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of equipment -- -- (7,160)
Proceeds from equipment sales 117,505 209,131 90,818
----------- ----------- -----------
Net cash from investing activities 117,505 209,131 83,658
----------- ----------- -----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments--notes payable (51,649) (220,147) (347,559)
Distributions paid (295,410) (656,473) (820,589)
----------- ----------- -----------
Net cash used in financing activities (347,059) (876,620) (1,168,148)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,454 (27,034) (258,356)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 450,165 477,199 735,555
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 458,619 $ 450,165 $ 477,199
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 730 $ 13,722 $ 44,495
=========== =========== ===========
</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
$470,647, that 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 $711,763 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-D 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
December 30, 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 April 15, 1988, the Partnership
issued 519,926 units, representing assignments of limited partnership
interests (the Units) to 1,129 investors. Unitholders and Limited
Partners (other than the Initial Limited Partner) are collectively
referred to as Recognized Owners. The 519,926 Units include 76 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 April 19, 1988 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-D 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-D 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 $470,647. 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 $813,087, including $711,763 representing net sale
proceeds. (See Note 4.)
On October 15, 1996, the Partnership paid a cash distribution of
$1,547,961 of which $1,532,481 was paid to the Limited Partners and
$15,480 was paid to the Managing General Partner. As discussed in Note 4,
the Partnership had a contingency reserve of $160,868 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 ultimate 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-D 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
Marsh Supermarkets, Inc. $ 45,429 $157,254 $207,512
Northwest Airlines, Inc. $210,877 $157,136 $192,677
ING Aviation Lease $ 64,035 $ 77,133 --
Equicor, Inc. -- -- $133,423
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-D 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.
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 and Cash Distributions Per Unit
Net income and cash distributions per Unit were based on 519,926 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 and cash distributions.
Accrued Liabilities--Affiliate
Unpaid operating expenses paid by AFG on behalf of the Partnership were
reported as Accrued Liabilities Affiliate (see Note 4).
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-D 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, $300,000
($0.57 per limited partnership unit) in 1996, and $302,300 ($0.58 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 $ 20,877 $ 32,101 $ 52,235
Interest expense--affiliate -- -- 8,315
Administrative charges 29,985 17,904 12,000
Reimbursable operating expenses
due to third parties 88,389 74,232 96,386
-------- -------- --------
Total $139,251 $124,237 $168,936
======== ======== ========
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 revenue 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-D LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
Interest expense--affiliate represents interest incurred on legal costs
in connection with a state sales tax dispute involving certain equipment
owned by the Partnership and other affiliated investment programs
sponsored by AFG. Legal costs incurred by AFG to resolve this matter and
the interest thereon was allocated to the Partnership and other affected
investment programs. Administrative charges represent amounts owed to
AFG, pursuant to Section 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 37,924 units or 7.29% of the total
outstanding units of the Partnership to AALP. In September 1996, AALP
sold these units to Equis for $127,989.
18
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
The remarketing effort described in Note 1 was undertaken jointly by 15
individual equipment leasing programs, consisting of the Partnership and
14 affiliated partnerships (Other Affected Partnerships). Thirteen of the
programs, including the Partnership, sold all of their equipment assets
(the Liquidated Programs); and two programs sold only their proportionate
ownership interests in certain assets owned jointly with one or more of
the Liquidated Programs. Substantially all of the Partnership's equipment
assets of material value represented partial ownership interests whereby
the Partnership owned less than a 100% interest in the equipment it sold.
The remaining interests in such assets were owned by one or more of the
Other Affected Partnerships.
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 6.2%, was purchased by the lessee pursuant to a
separate negotiation. The Partnership realized $470,647 of net sale
proceeds for the Sale Assets, as Revised and $813,087 for the NWA
Aircraft. The latter included early termination rental payments of
$101,324 from the lessee. At the date of sale, the Sale Assets, as
Revised and the NWA Aircraft had net book values of $262,011 and
$751,575, 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.
19
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
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 $160,868. 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.
(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-D LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) INCOME TAXES (Continued)
The following is a reconciliation between net income 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 $ 162,174 $ 191,193 $ 311,740
Financial statement
depreciation in excess of
(less than) tax depreciation 60,792 (37,022) 219,281
Write-down of equipment 300,000 302,300 --
Prepaid rental income (6,944) 5,179 (15,942)
Other 423,656 127 31,502
--------- --------- ---------
Net income for federal
income tax reporting purposes $ 939,678 $ 461,777 $ 546,581
========= ========= =========
The principal component of Other consists of the difference between the
tax gain on equipment disposals and the financial statement gain on
equipment 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 $ 1,743,595
Add back selling commissions and organization
and offering costs 1,517,719
Financial statement distributions in excess
of tax distributions 985
Cumulative difference between federal income
tax and financial statement income (loss)
(820,407)
-----------
Partners' capital for federal income tax
reporting purposes $ 2,441,892
===========
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
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH
GENERATED TO COST OF EQUIPMENT DISPOSED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The Partnership classified all rents from leasing equipment as lease revenue.
Upon expiration of the primary lease terms, equipment was sold, rented on a
month-to-month basis or re-leased for a defined period under a new or extended
lease agreement. The proceeds generated from selling or re-leasing the
equipment, in addition to any month-to-month revenues, represented the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment dispositions
occurring during the years ended December 31, 1996, 1995 and 1994.
1996 1995 1994
Rents earned prior to disposal
of equipment, net of
interest charges $7,989,394 $ 885,284 $ 929,133
Sale proceeds realized upon
disposition of equipment 1,299,915 209,131 90,818
---------- ---------- ----------
Total cash generated from
rents and equipment sale proceeds 9,289,309 1,094,415 1,019,951
Original acquisition cost
of equipment disposed 6,772,176 890,126 792,558
---------- ---------- ----------
Excess of total cash generated
to cost of equipment disposed $2,517,133 $ 204,289 $ 227,393
========== ========== ==========
23
<PAGE>
AMERICAN INCOME PARTNERS III-D 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) $ (124,155) $ 286,329 $ 162,174
ADD BACK:
Depreciation 125,807 -- 125,807
Write-down of equipment 300,000 -- 300,000
Decrease in allowance for doubtful accounts (17,000) -- (17,000)
Management fees 20,877 -- 20,877
Book value of disposed equipment -- 1,013,586 1,013,586
LESS:
Principal reduction of notes payable (51,649) -- (51,649)
----------- ----------- -----------
Cash from operations, sales and refinancings 253,880 1,299,915 1,553,795
LESS:
Management fees (20,877) -- (20,877)
----------- ----------- -----------
Distributable cash from operations,
sales and refinancings 233,003 1,299,915 1,532,918
OTHER SOURCES AND USES OF CASH:
Cash, beginning of year 450,165 -- 450,165
Net change in receivables and accruals 21,156 -- 21,156
LESS:
Cash distributions paid (543,456) (1,299,915) (1,843,371)
Liquidating distributions (160,868) -- (160,868)
----------- ----------- -----------
CASH, END OF YEAR $ -- $ -- $ --
=========== =========== ===========
</TABLE>
24
<PAGE>
AMERICAN INCOME PARTNERS III-D 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 $ 138,385
<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> 417,549
<TOTAL-REVENUES> 727,809
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 565,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 577
<INCOME-PRETAX> 162,174
<INCOME-TAX> 0
<INCOME-CONTINUING> 162,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162,174
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
