<PAGE>
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
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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
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Commission file number 33-35148-02
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American Income Fund I-B , a Massachusetts Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3106525
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 N. Washington St., 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
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Securities registered pursuant to Section 12(b) of the Act NONE
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Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
286,711 Units Representing Limited Partnership Interest
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
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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)
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
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 6
Related Security Holder Matters
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Partnership 8
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-15
</TABLE>
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<PAGE>
PART I
Item 1. Business.
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(a) General Development of Business
AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership, (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on December 31, 1990 for the
purpose of acquiring and leasing to third parties a diversified portfolio of
capital equipment. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On March 1, 1991, the
Partnership issued 286,711 units of limited partnership interest (the "Units")
to 453 investors. The Partnership has one General Partner, AFG Leasing VI
Incorporated, a Massachusetts corporation formed in 1990 and an affiliate of
Equis Financial Group Limited Partnership (formerly American Finance Group), a
Massachusetts limited partnership ("EFG" or the "Manager"). The General Partner
is not required to make any other capital contributions except as may be
required under the Uniform Act and Section 6.1(b) of the Amended and Restated
Agreement and Certificate of Limited Partnership (the "Restated Agreement, as
amended").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full payout or operating lease basis. Full payout leases are those in which
aggregate noncancellable rents equal or exceed the Purchase Price of the leased
equipment. Operating leases are those in which the aggregate noncancellable
rental payments are less than the Purchase Price of the leased equipment.
Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Partnership's primary investment objectives are to acquire and lease
equipment which will:
1. Generate quarterly cash distributions;
2. Preserve and protect Partnership capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the offering of Units of the Partnership was March 1,
1991. Significant operations commenced coincident with the Partnership's initial
purchase of equipment and the associated lease commitments on March 1, 1991. The
acquisition of the equipment and its associated leases is described in detail in
Note 3 to the financial statements included in Item 14, herein. The Partnership
will terminate no later than December 31, 2002; however, the General Partner is
evaluating winding-up the business of the Partnership in 1997 or 1998.
The Partnership has no employees; however, it entered into a Management
Agreement with the Manager. The Manager's role, among other things, is 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 is 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 is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning
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and leasing equipment is the possibility that aggregate lease revenue and
equipment sale proceeds will be insufficient to provide an acceptable rate of
return on invested capital after payment of all debt service costs and operating
expenses. Consequently, the success of the Partnership is largely dependent upon
the ability of the General Partner and its Affiliates to forecast technological
advances, the ability of the lessees to fulfill their lease obligations and the
quality and marketability of the equipment at the time of sale.
In addition, the leasing industry is very competitive. Although all funds
available for acquisitions have been invested in equipment, subject to
noncancellable lease agreements, the Partnership will encounter considerable
competition when equipment is re-leased or sold at the expiration of primary
lease terms. The Partnership will compete with lease programs offered directly
by manufacturers and other equipment leasing companies, including limited
partnerships and trusts organized and managed similarly to the Partnership, and
including other EFG-sponsored partnerships and trusts, which may seek to re-
lease or sell equipment within their own portfolios to the same customers as the
Partnership. Many competitors have greater financial resources and more
experience than the Partnership, the General Partner and the Manager.
Generally, the Partnership is prohibited from reinvesting the proceeds
generated by refinancing or selling equipment. Accordingly, it is anticipated
that the Partnership will begin to liquidate its portfolio of equipment at the
expiration of the initial lease terms and to distribute the net liquidation
proceeds. As an alternative to sale, the Partnership may enter re-lease
agreements when considered advantageous by the General Partner and the Manager.
In accordance with the Partnership's stated investment objective and policies,
the General Partner is evaluating winding-up the Partnership's operations,
including the liquidation of its entire portfolio.
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.
Default by a lessee under a lease may cause equipment to be returned to the
Partnership at a time when the General Partner or the Manager is unable to
arrange for the re-lease or sale of such equipment. This could result in the
loss of a material portion of anticipated revenue and significantly weaken the
Partnership's ability to repay related debt.
EFG is a Massachusetts limited 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. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Partnership and
several other Direct-Participation equipment leasing programs sponsored or co-
sponsored by EFG (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 EFG, 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 EFG's 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, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG 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
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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.
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Incorporated herein by reference to Note 3 to the financial statements in
the 1996 Annual Report.
Item 3. Legal Proceedings.
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Incorporated herein by reference to Note 7 to the financial statements in
the 1996 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
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<PAGE>
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder
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Matters.
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(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1996, there were 435 Limited Partners 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 are determined and distributed to the Partners quarterly.
Each quarter's distribution may vary in amount. Distributions may be made to
the General Partner prior to the end of the fiscal quarter; however, the amount
of such distribution reflects only amounts to which the General Partner is
entitled at the time such distribution is made. Currently, there are no
restrictions that materially limit the Partnership's ability to distribute
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings or that the Partnership believes are likely to materially limit the
future distribution of Distributable Cash From Operations and Distributable Cash
From Sales or Refinancings. The Partnership expects to continue to distribute
all Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings on a quarterly basis.
Distributions in 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
----------- -------- -----------
<S> <C> <C> <C>
Total 1996 distributions $ 414,979 $20,749 $ 394,230
Total 1995 distributions 679,052 33,953 645,099
---------- ------- ----------
Total $1,094,031 $54,702 $1,039,329
========== ======= ==========
</TABLE>
Distributions payable were $75,451 and $113,176 at December 31, 1996 and
1995, respectively.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
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governing a joint venture which the General Partner determines will be invested
in additional equipment or interests in equipment and which ultimately are so
reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after
Payout, any accrued and unpaid Subordinated Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) general expenses and current liabilities of
the Partnership (other than any portion of the Equipment Management Fee which is
required to be accrued and the Subordinated Remarketing Fee) and (c) any
reserves for working capital and contingent liabilities funded from such cash to
the extent deemed reasonable by the General Partner and (ii) increased by any
portion of such reserves deemed by the General Partner not to be required for
Partnership operations. In the event the Partnership accepts a note in
connection with any sale or refinancing transaction, all payments subsequently
received in cash by the Partnership with respect to such note shall be included
in Cash From Sales or Refinancings, regardless of the treatment of such payments
by the Partnership for tax or accounting purposes. If the Partnership receives
purchase money obligations in payment for equipment sold, which are secured by
liens on such equipment, the amount of such obligations shall not be included in
Cash From Sales or Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings of the Partnership shall be made 95% to the
Limited Partners and 5% to the General Partner.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Limited Partners' original capital contributions plus a cumulative annual
distribution of 11% (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 Limited Partners exceed the amount required to
satisfy the cumulative annual distribution of 11% (compounded quarterly) on the
Limited Partners' aggregate unreturned capital contributions, such calculation
to be based on the aggregate unreturned capital contributions outstanding on the
first day of each fiscal quarter.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") are distributed within 30 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing. Each Distribution is described in a
statement sent to the Limited Partners.
Item 6. Selected Financial Data.
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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
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of Operations.
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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.
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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
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Financial Disclosure.
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None.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership.
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(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of
this report, AFG Leasing VI Incorporated is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties and the
Limited Partners have no right to participate in the control of such operations.
The names, titles and ages of the Directors and Executive Officers of the
General Partner as of March 15, 1997 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (See Item 13)
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<TABLE>
<CAPTION>
Name Title Age Term
- --------------------------- ------------------------------------ ------- --------------
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the General Partner 48 elected
and
qualified
Gary D. Engle President and Chief Executive
Officer and member of the
Executive Committee of EFG 48
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the General Partner 37
James A. Coyne Senior Vice President of EFG 36
Michael J. Butterfield Vice President, Finance and
Treasurer of EFG and Treasurer
of the General Partner 37
James F. Livesey Vice President, Aircraft and Vessels 47
of EFG
Sandra L. Simonsen Senior Vice President, Information 46
Systems of EFG
Gail D. Ofgant Vice President, Lease Operations of 31
EFG
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners, Directors
or Executive Officers.
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<PAGE>
(e) Business Experience
Mr. MacDonald, age 48, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General Partner.
Mr. MacDonald was also a co-founder, Director and Senior Vice President of EFG'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 EFG's
predecessors, Mr. MacDonald held various executive and management positions in
the leasing and pharmaceutical industries. Mr. MacDonald holds an M.B.A. from
Boston College and a B.A. degree from the University of Massachusetts (Amherst).
Mr. Engle, age 48, is President and Chief Executive Officer and a member of
the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle is Vice President and a Director of certain of EFG's affiliates. On
December 16, 1994, Mr. Engle acquired control of EFG, the General Partner and
each of EFG'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 EFG and certain of its affiliates and Clerk of the General Partner. Mr.
Romano joined EFG in November 1989 and was appointed Executive Vice President
and Chief Operating Officer in April 1996. Prior to joining EFG, 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 (now
Ernst & Young LLP) from 1982 to 1986. Mr. Romano is a C.P.A. and holds a B.S.
degree from Boston College.
Mr. Coyne, age 36, is Senior Vice President of EFG. Mr. Coyne joined
EFG in 1989, remained until May 1993, and rejoined EFG in November 1994. From
May 1993 through November 1994, he was with the Raymond Company, a private
investment firm, where he was responsible for financing corporate and real
estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a
real estate investment company and an equipment leasing company. Prior to 1985
he was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He
has a BS in Business Administration from John Carroll University, a Masters
Degree in Accounting from Case Western Reserve University and is a Certified
Public Accountant.
Mr. Butterfield, age 37, joined EFG in June 1992 and became Vice President,
Finance and Treasurer of EFG and certain of its affiliates in April 1996 and is
Treasurer of the General Partner. Prior to joining EFG, 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 EFG. Mr.
Livesey joined EFG in October, 1989, and was promoted to Vice President in
January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing
positions with two privately-held equipment leasing firms. Mr. Livesey holds an
M.B.A. from Boston College and B.A. degree from Stonehill College.
Ms. Simonsen, age 46, joined EFG in February 1990 and was promoted to Senior
Vice President, Information Systems of EFG in April 1996. Prior to joining EFG,
Ms. Simonsen was Vice President, Information Systems with Investors Mortgage
Insurance Company which she joined in 1973. Ms. Simonsen provided systems
consulting for a subsidiary of American International Group and authored a
software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson
College.
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<PAGE>
Ms. Ofgant, age 31, is Vice President, Lease Operations of EFG and certain
of its affiliates. Ms. Ofgant joined EFG 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 EFG, 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.
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(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the General Partner or its Affiliates. There is no
plan at the present time to make any officers or employees of the General
Partner or its Affiliates employees of the Partnership. The Partnership has not
paid and does not propose to pay any options, warrants or rights to the officers
or employees of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to Section 9.4(c) of the Restated Agreement, as amended, the
Partnership incurs a monthly charge for personnel costs of the Manager for
persons engaged in providing administrative services to the Partnership.
A description of the remuneration paid by the Partnership to the Manager for
such services is included in Item 13, herein and in Note 4 to the financial
statements included in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner or
its Affiliates which results or may result from their resignation, retirement or
any other termination.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided in Section 10.2(a) of the Restated Agreement, as amended (subject to
Sections 10.2(b) and 10.3), a majority interest of the Limited Partners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
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<PAGE>
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all or substantially all the
assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
No person or group is known by the General Partner to own beneficially more
than 5% of the Partnership's 286,711 outstanding Units as of March 1, 1997.
The ownership and organization of EFG is described in Item 1 of this report.
Item 13. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The General Partner of the Partnership is AFG Leasing VI Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $ 34,740 $ 59,401 $114,433
Administrative charges 31,872 14,172 12,000
Reimbursable operating expenses
due to third parties 46,947 53,192 32,230
-------- -------- --------
Total $113,559 $126,765 $158,663
======== ======== ========
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross
full payout lease rental revenue received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG.
All equipment was purchased from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers. The
Partnership's Purchase Price is 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 are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the
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Partnership. At December 31, 1996, the Partnership was owed $38,647 by EFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in January 1997.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"),
a newly formed Massachusetts limited partnership owned and controlled by certain
principals of EFG, 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 EFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action
brought in the United States District Court for the District of Massachusetts
(the "Court") on behalf of the unitholders (limited partners), sought to enjoin
the Offer and obtain unspecified monetary damages. A settlement of this
litigation was approved by the Court on November 15, 1995. The Plaintiffs filed
an appeal in this matter. On November 26, 1996, the United States Court of
Appeals for the First Circuit handed down a decision affirming the Court's
approval of the settlement. A second class action, brought in the Superior
Court of the Commonwealth of Massachusetts (the "Superior Court") seeking to
enjoin the Offer, obtain unspecified monetary damages, and intervene in the
first class action, was dismissed by the Superior Court. The limited partners of
the Partnership tendered approximately 11,442 units or 3.99% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
were not adversely affected by these proceedings or settlements. On December 1,
1996, EFG purchased a Class D interest, representing a 49% economic interest in
AALP.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
-12-
<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, 1996 and 1995............................... *
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994........ *
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994........ *
Statement of Cash Flows
for the years ended December 31, 1996, 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.
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. 33-35148).
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 Horizon Air Industries, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 as Exhibit 28 (a) and is incorporated herein by
reference.
* 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)
-13-
<PAGE>
Exhibit
Number
----------
99 (b) Lease agreement with Fred Meyer, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 as Exhibit 28 (b) and is incorporated herein
by reference.
99 (c) Lease agreement with Cyclops Industries, 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 (d) Lease agreement with General Motors Corporation 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.
(b) Reports on Form 8-K
None.
-14-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-
K) of American Income Fund I-B, a Massachusetts Limited Partnership of our
report dated March 14, 1997, included in the 1996 Annual Report to Partners of
American Income Fund I-B.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
-15-
<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 FUND I-B, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
- --------------------------------- ---------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG
General Partner (Principal Executive Officer)
Date: March 31, 1997 Date: March 31, 1997
---------------------------- --------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
- --------------------------------- ---------------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1997 Date: March 31, 1997
---------------------------- --------------------------
-16-
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report has been sent to the Limited Partners. A report will be
furnished to the Limited Partners subsequent to the date hereof.
No proxy statement has been or will be sent to the Limited Partners.
-17-
<PAGE>
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Annual Report to the Partners, December 31, 1996
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-6
FINANCIAL STATEMENTS:
Report of Independent Auditors 7
Statement of Financial Position
at December 31, 1996 and 1995 8
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994 9
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994 10
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 11
Notes to the Financial Statements 12-20
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 21
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 22
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 9.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 23
</TABLE>
-1-
<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1996:
<TABLE>
<CAPTION>
Summary of
Operations 1996 1995 1994 1993 1992
- ----------------------------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 779,404 $1,645,094 $2,323,015 $2,288,065 $2,417,713
Net income (loss) $ 609,579 $ (16,951) $ 262,463 $ (344,029) $ 366,359
Per Unit:
Net income (loss) $ 2.02 $ (0.06) $ 0.87 $ (1.14) $ 1.21
Cash distributions $ 1.38 $ 2.25 $ 3.00 $ 3.00 $ 3.00
Financial Position
- -----------------------------
Total assets $3,576,563 $3,746,642 $4,648,253 $6,405,398 $8,848,236
Total long-term
obligations $ 726,096 $1,022,276 $1,056,876 $2,201,531 $3,262,041
Partners' capital $2,701,770 $2,507,170 $3,203,173 $3,846,113 $5,095,545
</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
Overview
- --------
American Income Fund I-B, a Massachusetts Limited Partnership (the
"Partnership") was organized in 1990 as a direct-participation equipment leasing
program to acquire a diversified portfolio of capital equipment subject to lease
agreements with third parties. The Partnership's stated investment objectives
and policies contemplated that the Partnership would wind-up its operations
within approximately seven years of its inception. The value of the
Partnership's equipment portfolio decreases over time due to depreciation
resulting from age and usage of the equipment, as well as technological changes
and other market factors. In addition, the Partnership does not replace
equipment as it is sold; therefore, its aggregate investment in equipment
declines from asset disposals occurring in the normal course. As a result of
the Partnership's age and a declining equipment portfolio, the General Partner
is evaluating a variety of transactions that will reduce the Partnership's
prospective costs to operate as a publicly registered limited partnership and,
therefore, enhance overall cash distributions to the limited partners. Such a
transaction may involve the sale of the Partnership's remaining equipment or a
transaction that would allow for the consolidation of the Partnership's expenses
with other similarly-organized equipment leasing programs. In order to increase
the marketability of the Partnership's remaining equipment, the General Partner
expects to use the Partnership's available cash and future cash flow to retire
indebtedness. This will negatively effect short-term cash distributions.
Results of Operations
- ---------------------
For the year ended December 31, 1996, the Partnership recognized lease revenue
of $779,404, compared to $1,645,094 and $2,323,015 for the years ended December
31, 1995 and 1994, respectively. The decrease in lease revenue from 1994 to
1996 was expected and resulted principally from primary lease term expirations
and the sale of equipment. The Partnership also earns interest income from
temporary investments of rental receipts and equipment sales proceeds in short-
term instruments.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by Equis Financial Group Limited Partnership (formerly American
Finance Group), a Massachusetts limited partnership ("EFG"). Proportionate
equipment ownership enables the Partnership to further diversify its equipment
portfolio by participating in the ownership of selected assets, thereby reducing
the general levels of risk which could result from a concentration in any single
equipment type, industry or lessee. The Partnership and each affiliate
individually report, in proportion to their respective ownership interests,
their respective shares of assets, liabilities, revenues, and expenses
associated with the equipment.
In 1996, the Partnership sold equipment having a net book value of $99,407 to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $563,113 compared to a net gain in 1995 of
$431,228 on equipment having a net book value of $158,265, and a net loss in
1994 of $20,751 on equipment having a net book value of $51,551.
During July 1996, the Partnership transferred its ownership interest in
certain trailers previously leased to The Atchison Topeka and Santa Fe Railroad
("ATSF"), to a third party for cash consideration of $85,957. The trailers had
a net book value of $32,494 at the time of transfer, resulting in a net gain of
$53,463 (See Note 3 to the financial statements). In September 1996, the
Partnership replaced certain of these trailers with comparable trailers and
leased such to a new lessee. The transaction was accounted for as a like-kind
exchange for income tax reporting purposes. The net carrying value of the new
trailers, $385,063, was net of $41,241, representing the proportionate amount of
gain, for financial statement purposes, deferred on the original trailers. The
Partnership
-3-
<PAGE>
funded this transaction with $66,307 of the cash consideration and long-term
financing of $359,997. The unused consideration of $19,650 was recognized as
proceeds from equipment sales and the remainder of the net gain on sale of
$12,222 was recognized as Gain on Sale of Equipment on the Statement of
Operations during 1996.
Additionally, during 1995, the Partnership transferred its ownership interest
in certain trailers, to a third party for cash consideration of $35,500. The
trailers previously leased to ATSF, had an aggregate net book value of $19,391
resulting in a net gain of $16,109. The transaction was structured as a like-
kind exchange for income tax reporting purposes. The Partnership replaced these
trailers with comparable trailers and leased such equipment to a new lessee.
The net carrying value of the new trailers, $137,146, was net of $16,109,
representing the amount of gain for financial statement purposes deferred on the
original trailers. The Partnership funded this transaction with the $35,500 of
cash consideration and long-term financing of $117,755.
It cannot be determined whether future sales of equipment will result in a net
gain or a net loss to the Partnership, as such transactions will be dependent
upon the condition and type of equipment being sold and its marketability at the
time of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenues generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership
classifies such residual rental payments as lease revenue. Consequently, the
amount of gain or loss reported in the financial statements is not necessarily
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation and amortization expense was $642,750, $1,386,180 and $1,737,658
for the years ended December 31, 1996, 1995 and 1994, respectively. For
financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates 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
represent estimates of equipment values at the date of primary lease expiration.
To the extent that an asset is held beyond its primary lease term, the
Partnership continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life.
The Partnership recorded a write-down of the carrying value of its interests
in two aircraft, representing an impairment, during the year ended December 31,
1995. The resulting charge, $500,000 ($1.66 per limited partnership unit) in
1995 was based on a comparison of the estimated net realizable value and
corresponding carrying value for the Partnership's interests in the aircraft.
Net realizable value was estimated based on (i) third-party appraisals of the
Partnership's aircraft and (ii) EFG's assessment of prevailing market conditions
for similar aircraft. In recent years, market values for used commercial jet
aircraft have deteriorated. Consistent price competition and other pressures
within the airline industry have inhibited sustained profitability for many
carriers. Most major airlines have had to re-evaluate their specific aircraft,
and particularly used aircraft, because cost-benefit and market considerations
may differ significantly between the major airlines. Aircraft condition, age,
passenger capacity, distance capability, fuel efficiency, and other factors also
influence market demand and market values for passenger jet aircraft.
Interest expense was $71,964 or 9.2% of lease revenue in 1996, $123,439 of
7.5% of lease revenue in 1995 and $150,370 or 6.5% of lease revenue in 1994.
Interest expense increased as a percentage of lease revenue due to leveragings
obtained in 1995 and 1996. Interest expense in future years will decline in
amount and as a percentage of lease revenue as the principal balance of notes
payable is reduced through the application of rent
-4-
<PAGE>
receipts to outstanding debt. In addition, the General Partner expects to use a
portion of the Partnership's available cash and future cash flow to retire
indebtedness (see Overview).
Management fees were approximately 4.5%, 3.6% and 4.9% of lease during the
years ended December 31, 1996, 1995 and 1994, respectively. The increase in
management fees as a percentage of lease revenue during 1996 and 1994 as
compared to 1995 resulted from reclassifications of certain leases between
operating and full-payout. Management fees and are based on 5% of gross lease
revenue generated by operating leases and 2% of gross lease revenue generated by
full payout leases.
Operating expenses consist principally of administrative charges, professional
service costs, such as audit and legal fees, as well as printing, distribution
and remarketing expenses. In certain cases, equipment storage or repairs and
maintenance costs may be incurred in connection with equipment being remarketed.
Collectively, operating expenses represented 10.1%, 4.1% and 1.9% of lease
revenue during the years ended December 31, 1996, 1995, and 1994, respectively.
The increase in operating expenses from 1995 to 1996 was due primarily to an
increase in administrative charges. The increase in operating expenses from
1994 to 1995 was due primarily to an increase in professional service costs.
The amount of future operating expenses cannot be predicted with certainty;
however, such expenses are usually higher during the acquisition and liquidation
phases of a partnership. Other fluctuations typically occur in relation to the
volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was established
for specific purposes described in the preceding "Overview". As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These
cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $1,526,591, $958,185 and $1,957,297 in
1996, 1995 and 1994, respectively. Future renewal, re-lease and equipment sale
activities will cause a gradual decline in the Partnership's lease revenues and
corresponding sources of operating cash. Overall, expenses associated with
rental activities, such as management fees, and net cash flow from operating
activities will also decline as the Partnership experiences a higher frequency
of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This will
occur principally through sale transactions whereby each asset will be sold to
the existing lessee or to a third-party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During 1996, the
Partnership realized $682,170 in equipment sale proceeds compared to $589,493
and $30,800 in 1995 and 1994, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
The Partnership obtained long-term financing in connection with certain
equipment leases. The origination of such indebtedness and the subsequent
repayments of principal are reported as components of financing activities.
Cash inflows of $737,116 during the year ended December 31, 1995 resulted from
leveraging a portion of the Partnership's equipment portfolio with third-party
lenders. Each note payable is recourse only to the specific equipment financed
and to the minimum rental payments contracted to be received during the debt
amortization period (which period generally coincides with the lease rental
term). As rental payments are collected, a portion or all of the rental payment
is used to repay the associated indebtedness. In future periods, the amount of
cash used to repay debt obligations is scheduled to decline as the principal
balance of notes payable is reduced through the
-5-
<PAGE>
collection and application of rents. However, in future years, the amount of
cash used to repay debt obligations may fluctuate due to the use of the
Partnership's available cash and future cash flow to retire indebtedness (see
Overview). In September 1996, the Partnership obtained additional long-term
financing in connection with the like-kind exchange transaction involving
certain trailers (see Results of Operations).
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the year ended December 31, 1996, the Partnership declared
total cash distributions of Distributable Cash From Operations and Distributable
Cash From Sales and Refinancings of $414,979. In accordance with the Amended
and Restated Agreement and Certificate of Limited Partnership, the Limited
Partners were allocated 95% of these distributions, or $394,230 and the General
Partner was allocated 5%, or $20,749. The fourth quarter 1996 cash distribution
was paid on January 13,1997.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. Cash distributions do not represent and are
not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities. Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
-6-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of American Income Fund I-B,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-B, a Massachusetts Limited Partnership as of December 31,
1996 and 1995, and the related statements of operations, changes in partners'
capital, and cash flows for each of the three years in the period ended 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Income Fund I-B, a
Massachusetts Limited Partnership at December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
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 14, 1997
-7-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $1,938,967 $ 839,087
Rents receivable 1,509 332,823
Accounts receivable - affiliate 38,647 587,704
Equipment at cost, net of accumulated
depreciation of $3,460,675 and
$6,097,419 at December 31, 1996
and 1995, respectively 1,597,440 1,986,861
Organization costs, net of accumulated
amortization of $5,000 and $4,833 at
December 31, 1996 and 1995,
respectively -- 167
---------- ----------
Total assets $3,576,563 $3,746,642
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 726,096 $1,022,276
Accrued interest 3,883 28,320
Accrued liabilities 22,750 68,610
Accrued liabilities - affiliate 20,448 7,090
Deferred rental income 26,165 --
Cash distributions payable to partners 75,451 113,176
---------- ----------
Total liabilities 874,793 1,239,472
---------- ----------
Partners' capital (deficit):
General Partner (182,282) (192,012)
Limited Partnership Interests
(286,711 Units; initial purchase
price of $25 each) 2,884,052 2,699,182
---------- ----------
Total partners' capital 2,701,770 2,507,170
---------- ----------
Total liabilities and partners'
capital $3,576,563 $3,746,642
========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-8-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ------------ ------------
Income:
<S> <C> <C> <C>
Lease revenue $ 779,404 $1,645,094 $2,323,015
Interest income 83,113 43,111 6,890
Gain (loss) on sale of equipment 575,335 431,228 (20,751)
---------- ---------- ----------
Total income 1,437,852 2,119,433 2,309,154
---------- ---------- ----------
Expenses:
Depreciation and amortization 642,750 1,386,180 1,737,658
Write-down of equipment -- 500,000 --
Interest expense 71,964 123,439 150,370
Equipment management fees
- affiliate 34,740 59,401 114,433
Operating expenses - affiliate 78,819 67,364 44,230
---------- ---------- ----------
Total expenses 828,273 2,136,384 2,046,691
---------- ---------- ----------
Net income (loss) $ 609,579 $ (16,951) $ 262,463
========== ========== ==========
Net income (loss)
per limited partnership unit $ 2.02 $(0.06) $ 0.87
========== ========== ==========
Cash distributions declared
per limited partnership unit $ 1.38 $2.25 $ 3.00
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-9-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited Partners
Partner ---------------------
Amount Units Amount Total
----------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $(125,064) 286,711 $3,971,177 $3,846,113
Net income - 1994 13,123 -- 249,340 262,463
Cash distributions declared (45,270) -- (860,133) (905,403)
--------- ------- ---------- ----------
Balance at December 31, 1994 (157,211) 286,711 3,360,384 3,203,173
Net loss - 1995 (848) -- (16,103) (16,951)
Cash distributions declared (33,953) -- (645,099) (679,052)
--------- ------- ---------- ----------
Balance at December 31, 1995 (192,012) 286,711 2,699,182 2,507,170
Net income - 1996 30,479 -- 579,100 609,579
Cash distributions declared (20,749) -- (394,230) (414,979)
--------- ------- ---------- ----------
Balance at December 31, 1996 $(182,282) 286,711 $2,884,052 $2,701,770
========= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-10-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from (used in) operating
activities:
Net income (loss) $ 609,579 $ (16,951) $ 262,463
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization 642,750 1,386,180 1,737,658
Write-down of equipment -- 500,000 --
(Gain) loss on sale of equipment (575,335) (431,228) 20,751
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 331,314 105,551 (85,716)
Accounts receivable - affiliate 549,057 (527,535) (8,309)
Increase (decrease) in:
Accrued interest (24,437) (22,644) (27,536)
Accrued liabilities (45,860) 13,118 13,118
Accrued liabilities - affiliate 13,358 (23,042) 26,735
Deferred rental income 26,165 (25,264) 18,133
----------- ---------- -----------
Net cash from operating
activities 1,526,591 958,185 1,957,297
----------- ---------- -----------
Cash flows from investing activities
Proceeds from equipment sales 682,170 589,493 30,800
----------- ---------- -----------
Net cash from investing
activities 682,170 589,493 30,800
----------- ---------- -----------
Cash flows from (used in) financing
activities:
Proceeds - notes payable -- 737,116 --
Principal payments - notes payable (656,177) (889,469) (1,144,655)
Distributions paid (452,704) (792,228) (905,403)
----------- ---------- -----------
Net cash used in financing
activities (1,108,881) (944,581) (2,050,058
----------- ---------- -----------
Net increase (decrease) in cash and
cash equivalents 1,099,880 603,097 (61,961)
Cash and cash equivalents at beginning
of year 839,087 235,990 297,951
----------- ---------- -----------
Cash and cash equivalents at end of year $ 1,938,967 $ 839,087 $ 235,990
=========== ========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest $ 96,401 $ 146,083 $ 177,906
=========== ========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
See Note 3 to the financial statements.
The accompanying notes are an integral part of
these financial statements.
-11-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
December 31, 1996
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
- ---------------------------------------------
The Partnership was organized as a limited partnership under the
Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on December
31, 1990, for the purpose of acquiring and leasing to third parties a
diversified portfolio of capital equipment. Partners' capital initially
consisted of contributions of $1,000 from the General Partner (AFG Leasing VI
Incorporated) and $100 from the Initial Limited Partner (AFG Assignor
Corporation). On March 1, 1991, the Partnership issued 286,711 units of limited
partnership interest (the "Units") to 453 investors. The Partnership's General
Partner, AFG Leasing VI Incorporated, is a Massachusetts corporation formed in
1990 and an affiliate of Equis Financial Group Limited Partnership (formerly
American Finance Group), a Massachusetts limited partnership ("EFG"). The
General Partner is not required to make any other capital contributions except
as may be required under the Uniform Act and Section 6.1(b) of the Amended and
Restated Agreement and Certificate of Limited Partnership ("Restated Agreement,
as amended").
Significant operations commenced March 1, 1991 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 will be allocated 95% to the Limited Partners and 5% to the General
Partner.
Under the terms of a Management Agreement between the Partnership and EFG,
management services are provided by EFG to the Partnership at fees which the
General Partner believes to be competitive for similar services. (Also see Note
4.)
EFG is a Massachusetts limited 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. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Partnership and
several other Direct-Participation equipment leasing programs sponsored or co-
sponsored by EFG (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 EFG, 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 EFG's 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, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG 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.
-12-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement of Cash Flows
- -----------------------
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities. At December 31,
1996, the Partnership had $1,815,000 invested in reverse repurchase agreements
secured by U.S. Treasury Bills or interests in U.S. Government securities.
Revenue Recognition
- -------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually and
no significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$1,021,183 are due as follows:
<TABLE>
<CAPTION>
<S> <C>
For the year ending December 31, 1997 $ 506,477
1998 176,915
1999 129,156
2000 112,906
2001 74,445
Thereafter 21,284
----------
Total $1,021,183
==========
</TABLE>
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 as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Horizon Air Industries, Inc. $278,206 $278,208 $393,598
General Motors Corporation $175,380 $181,185 --
Fred Meyer, Inc. $149,291 $358,298 $409,076
Cyclops Industries, Inc. -- $301,202 $278,033
</TABLE>
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
All equipment was acquired from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers.
Equipment cost represents asset base price plus acquisition fees and was
determined in accordance with the Restated Agreement, as amended, and certain
regulatory guidelines. Asset base price is affected by the relationship of the
seller to the Partnership as summarized herein. Where the
-13-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
seller of the equipment was EFG or an affiliate, asset base price was the lower
of (i) the actual price paid for the equipment by EFG or the affiliate plus all
actual costs accrued by EFG or the affiliate while carrying the equipment less
the amount of all rents earned by EFG or the affiliate prior to selling the
equipment or (ii) fair market value as determined by the General Partner in its
best judgment, including all liens and encumbrances on the equipment and other
actual expenses. Where the seller of the equipment was a third party who did not
manufacture the equipment, asset base price was the lower of (i) the price
invoiced by the third party or (ii) fair market value as determined by the
General Partner. Where the seller of the equipment was a third party who also
manufactured the equipment, asset base price was the manufacturer's invoice
price, which price was considered to be representative of fair market value.
Depreciation and Amortization
- -----------------------------
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates 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 represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
Such adjustments are reflected separately on the accompanying Statement of
Operations as Write-Down of Equipment.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
Organization costs are amortized using the straight-line method over a
period of five years.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid operating expenses and fees paid by EFG on behalf of the Partnership
and accrued but unpaid administrative charges are reported as Accrued
Liabilities - Affiliate. (See Note 4.)
Allocation of Profits and Losses
- --------------------------------
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the Limited
Partners and 5% to the General Partner). See Note 6 for allocation of income or
loss for income tax purposes.
Net Income (Loss) and Cash Distributions Per Unit
- -------------------------------------------------
Net income (loss) and cash distributions per Unit are based on 286,711 Units
outstanding during each of the three years in the period ended December 31, 1996
and computed after allocation of the General Partner's 5% share of net income
(loss) and cash distributions.
-14-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 did not have a material effect on the financial statements of the
Partnership.
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at December
31, 1996. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Lease Term Equipment
Equipment Type (Months) at Cost Location
- --------------------------- ---------- -------------- -----------------------
<S> <C> <C> <C>
Aircraft 38 $ 2,641,262 OR
Materials handling 4-60 789,333 CA/GA/KY/MI/NV/TN/TX/UT
Trailers/intermodel
containers 60-84 620,259 GA/IL/MI/OK
Research and test 24-60 532,779 CA/CO/NJ
Construction and mining 48-60 371,529 IL
Communications 22-52 102,953 CO/FL/ID/OH/WA
-----------
Total equipment cost 5,058,115
Accumulated depreciation (3,460,675)
-----------
Equipment, net of accumulated
depreciation $ 1,597,440
===========
</TABLE>
During 1996, the Partnership transferred its ownership interest in certain
trailers previously leased to The Atchison Topeka and Santa Fe Railroad ("ATSF")
to a third party for cash consideration of $85,957. The trailers had a net book
value of $32,494 at the time of transfer, resulting in a net gain of $53,463.
The Partnership replaced certain of these trailers with comparable trailers and
leased such to a new lessee. The transaction was accounted for as a like-kind
exchange for income tax reporting purposes. The net carrying value of the new
trailers, $385,063, was net of $41,241, representing the proportionate amount of
gain, for financial statement purposes, deferred on the original trailers. The
Partnership funded this transaction with $66,307 of the cash consideration and
long-term financing of $359,997. The unused consideration of $19,650 was
recognized as proceeds from equipment sales and the remainder of the net gain on
sale of $12,222 was recognized as Gain on Sale of Equipment on the Statement of
Operations during 1996.
-15-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
During 1995, the Partnership transferred its ownership interest in certain
trailers, to a third party for cash consideration of $35,500. The trailers
previously leased to ATSF, had an aggregate net book value of $19,391 resulting
in a net gain of $16,109. The transaction was structured as a like-kind
exchange for income tax reporting purposes. The Partnership replaced these
trailers with comparable trailers and leased such equipment to a new lessee.
The net carrying value of the new trailers, $137,146, was net of $16,109,
representing the amount of gain, for financial statement purposes, deferred on
the original trailers. The Partnership funded this transaction with the $35,500
of cash consideration and long-term financing of $117,755.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or
an affiliated equipment leasing program sponsored by EFG. The Partnership and
each affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Partnership to further diversify its equipment portfolio by
participating in the ownership of selected assets, thereby reducing the general
levels of risk which could result from a concentration in any single equipment
type, industry or lessee. At December 31, 1996, the Partnership's equipment
portfolio included equipment having a proportionate original cost of $2,792,790,
representing approximately 55% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately $3,163,000
and a net book value of approximately $1,512,000 at December 31, 1996. (See
Note 5.)
Generally, the costs associated with maintaining, insuring and operating the
Partnership's equipment are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes 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 ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, EFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the primary lease terms. The summary above includes equipment
held for re-lease or sale with a cost and net book value of approximately
$369,000 and $7,000, respectively, at December 31, 1996. The General Partner is
actively seeking the sale or re-lease of all equipment not on lease.
The Partnership recorded a write-down of the carrying value of its interests
in two aircraft, representing an impairment, during the year ended December 31,
1995. The resulting charge, $500,000 ($1.66 per limited partnership unit) in
1995 was based on a comparison of the estimated net realizable value and
corresponding carrying value for the Partnership's interest in the aircraft.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
-16-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $ 34,740 $ 59,401 $114,433
Administrative charges 31,872 14,172 12,000
Reimbursable operating
expenses due to third parties 46,947 53,192 32,230
-------- -------- --------
Total $113,559 $126,765 $158,663
======== ======== ========
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenues and 2% of gross
full payout lease rental revenues received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG.
All equipment was purchased from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers. The
Partnership's Purchase Price is determined by the method described in Note 2.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1996, the Partnership was owed $38,647 by EFG for such funds and
the interest thereon.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of EFG, 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 EFG.
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
-17-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Offer, obtain unspecified monetary damages, and intervene in the first class
action, was dismissed by the Superior Court. The limited partners of the
Partnership tendered approximately 11,442 units or 3.99% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
were not adversely affected by these proceedings or settlements. On December 1,
1996, EFG purchased a Class D interest, representing a 49% economic interest in
AALP.
NOTE 5 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 1996 consisted of installment notes of
$726,096 payable to banks and institutional lenders. All of the installment
notes are non-recourse, with interest rates ranging between 7.04% and 10.12% and
are collateralized by the equipment and assignment of the related lease
payments. The installment notes will be fully amortized by noncancellable
rents. The carrying value of notes payable approximates fair value at December
31, 1996.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1997 338,203
1998 106,025
1999 91,104
2000 99,967
2001 70,303
Thereafter 20,494
--------
Total $726,096
========
</TABLE>
NOTE 6 - INCOME TAXES
- ---------------------
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income or
loss to each class of partner according to their respective ownership
percentages (95% to the Limited Partners and 5% to the General Partner). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partner will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partner's tax
capital account. At December 31, 1996, the General Partner had a positive tax
capital account balance.
The following is a reconciliation between net income or loss reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996, 1995 and 1994:
-18-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Net income (loss) $609,579 $ (16,951) $262,463
Financial statement depreciation
in excess of tax depreciation 61,886 591,644 585,776
Write-down equipment -- 500,000 --
Prepaid rental income 26,165 (25,264) 18,133
Other 123,033 (272,800) 26,026
-------- --------- --------
Net income for federal income tax
reporting purposes $820,663 $ 776,629 $892,398
======== ========= ========
</TABLE>
The principal component of "Other" consists of the difference between the
tax gain on equipment disposals and the financial statement gain (loss) on
disposals.
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Partners' capital $2,701,770 $ 2,507,170
Add back selling commissions and
organization and offering costs 801,375 801,375
Financial statement distributions in
excess of tax distributions 3,773 5,659
Cumulative difference between
federal income tax and financial statement
income (loss) (846,668) (1,057,752)
---------- -----------
Partners' capital for federal income
tax reporting purposes $2,660,250 $ 2,256,452
========== ===========
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored
investment programs, filed an action in the Commonwealth of Massachusetts
Superior Court Department of the Trial Court in and for the County of Suffolk,
for damages and declaratory relief against a lessee of the Partnership, National
Steel Corporation ("National Steel"), under a certain Master Lease Agreement
("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by
National Steel of certain sales and/or use taxes paid to the State of Illinois
and other remedies provided by the MLA. On August 30, 1995, National Steel
filed a Notice of Removal which removed the case to the United States District
Court, District of Massachusetts. On
-19-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
September 7, 1995, National Steel filed its Answer to EFG's Complaint along with
Affirmative Defenses and Counterclaims, seeking declaratory relief and alleging
breach of contract, implied covenant of good faith and fair dealing and specific
performance. EFG filed its Answer to these counterclaims on September 29, 1995.
Though the parties have been discussing settlement with respect to this matter
for some time, to date, the negotiations have been unsuccessful. Notwithstanding
these discussions, EFG recently filed an Amended and Supplemental Complaint
alleging further default under the MLA and the matter remains pending before the
Court. The Partnership has not experienced any material losses as a result of
this action.
In July 1993, Fred Meyer, Inc. (the "Plaintiff"), in anticipation of a
declaration of lease default by EFG, filed a complaint against EFG (the
"Defendant") in the Circuit Court of the State of Oregon as a result of a
dispute which arose between the Plaintiff and the Defendant concerning holdover
rents due to the Partnership with respect to certain equipment and the fair
market value of such equipment leased by the Partnership to the Plaintiff. The
Defendant filed an answer to the Plaintiff's complaint and asserted a
counterclaim seeking monetary damages. A Settlement Agreement executed on June
22, 1994, including dismissal of this case, requires the Plaintiff to purchase
all equipment it leases pursuant to unexpired rental schedules upon the
respective expiration dates of each schedule. During 1996, the Partnership sold
all of the affected equipment having a cost and net book value of $1,740,599 and
$93,931, respectively, and recognized a net gain of $477,391 for financial
statement purposes. This settlement did not have an adverse effect on the
financial position of the Partnership.
-20-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts 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 classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- --------
<S> <C> <C> <C>
Rents earned prior to disposal of $3,329,290 $1,597,784 $ 96,844
equipment, net of interest charges
Sale proceeds realized upon disposition
of equipment 682,170 589,493 30,800
---------- ---------- --------
Total cash generated from rents
and equipment sale proceeds 4,011,460 2,187,277 127,644
Original acquisition cost of equipment
disposed 3,411,228 2,023,401 108,523
---------- ---------- --------
Excess of total cash generated to cost
of equipment disposed $ 600,232 $ 163,876 $ 19,121
========== ========== ========
</TABLE>
-21-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts 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 $ 34,244 $ 575,335 $ 609,579
Add:
Depreciation and amortization 642,750 -- 642,750
Management fees 34,740 -- 34,740
Book value of disposed
equipment -- 106,835 106,835
Less:
Principal reduction of notes
payable (656,177) -- (656,177)
---------- --------- ----------
Cash from operations, sales
and refinancings 55,557 682,170 737,727
Less:
Management fees (34,740) -- (34,740)
---------- --------- ----------
Distributable cash from
operations, sales and
refinancings 20,817 682,170 702,987
Other sources and uses of cash:
Cash at beginning of year 839,087 -- 839,087
Net change in receivables and
accruals 849,597 -- 849,597
Less:
Cash distributions paid -- (452,704) (452,704)
---------- --------- ----------
Cash at end of year $1,709,501 $ 229,466 $1,938,967
========== ========= ==========
</TABLE>
-22-
<PAGE>
AMERICAN INCOME FUND I-B,
a Massachusetts Limited Partnership
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1996
For the year ended December 31, 1996, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
Operating expenses $64,473
-23-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,938,967
<SECURITIES> 0
<RECEIVABLES> 40,156
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,979,123
<PP&E> 5,058,115
<DEPRECIATION> 3,460,675
<TOTAL-ASSETS> 3,576,563
<CURRENT-LIABILITIES> 148,697
<BONDS> 726,096
0
0
<COMMON> 0
<OTHER-SE> 2,701,770
<TOTAL-LIABILITY-AND-EQUITY> 3,576,563
<SALES> 779,404
<TOTAL-REVENUES> 1,437,852
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 756,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,964
<INCOME-PRETAX> 609,579
<INCOME-TAX> 0
<INCOME-CONTINUING> 609,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 609,579
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
