<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
For the fiscal year ended December 31, 1997
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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 ___________________________
Commission file number 0-20029
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American Income Fund I-E, a Massachusetts Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3127244
- ------------------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Sixth Floor, Boston, MA 02110
- ------------------------------------------ -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
------------------------------
Securities registered pursuant to Section 12(b) of the Act NONE
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Title of each class Name of each exchange on which registered
- ------------------------------ -------------------------------------------
- ------------------------------ -------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
883,829.31 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.
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1997 (Part I and II)
<PAGE>
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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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 Related Security Holder Matters 6
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 14-16
</TABLE>
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<PAGE>
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
AMERICAN INCOME FUND I-E, a Massachusetts Limited Partnership (the
"Partnership"), was organized as a limited partnership under the
Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on August
29, 1991, 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 December 4, 1991 the Partnership concluded an Interim
Closing and issued 587,079.96 units of limited partnership interest (the
"Units") to 654 investors for a purchase price of $14,569,875. Included in
the 587,079.96 units are 4,284.96 bonus units. On January 31, 1992 the
Partnership concluded its Final Closing. An additional 296,749.35 units
(including 626.35 bonus units) were purchased for an additional purchase
price of $7,403,075 and an additional 735 investors became Limited Partners
of the Partnership. As of January 31, 1992, an aggregate total of 883,829.31
units (including 4,911.31 bonus units) had been purchased for an aggregate
total purchase price of $21,972,950 and an aggregate of 1,089 investors had
become Limited Partners of the Partnership. 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 initial Closing Date of the Offering of Units of the Partnership was
December 4, 1991. Significant operations commenced with the initial purchase
of equipment and the associated lease commitments on December 4, 1991. The
Partnership concluded its Final Closing on January 31, 1992. The acquisition
of the equipment and its associated leases is described in Note 3 to the
financial statements included in Item 14, herein. The Partnership is expected
to terminate no later than December 31, 2002; however, the Partnership is a
Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action
Lawsuit could alter the nature of the Partnership's organization and its
future business operations. See Note 8 to the accompanying financial
statements.
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<PAGE>
The Partnership has no employees; however, it is managed pursuant to a
Management Agreement with EFG or one of its affiliates. 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 5 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 and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
Consequently, the success of the Partnership 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 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 and renewal 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.
Revenue from individual lessees which accounted for 10% or more of lease
revenue during the years ended December 31, 1997, 1996 and 1995 is incorporated
herein by reference to Note 2 to the financial statements in the 1997 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 revenues 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 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. AFG changed its name
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to Equis Financial Group Limited Partnership after the sale was concluded.
Pursuant to terms of the sale agreements, EFG specifically reserved 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.
(d) Financial Information About Foreign and Domestic Operations and Export Sales
Not applicable.
ITEM 2. PROPERTIES.
Incorporated herein by reference to Note 3 to the financial statements in
the 1997 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 8 to the financial statements in
the 1997 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
There 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, 1997, there were 1,010 record holders 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 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
----------- ----------- -----------
<S> <C> <C> <C>
Total 1997 distributions $ 1,177,470 $ 58,873 $ 1,118,597
Total 1996 distributions 2,232,833 111,642 2,121,191
----------- ----------- -----------
Total $ 3,410,303 $ 170,515 $ 3,239,788
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Distributions payable were $235,495 and $313,993 at December 31, 1997 and
1996, 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
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.
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<PAGE>
"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 excess 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 Date. Each Distribution is described in a
statement sent to the Limited Partners.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1997 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of
this report, AFG Leasing 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, 1998 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 49 elected
and
qualified
Gary D. Engle President and Chief Executive
Officer and member of the
Executive Committee of EFG 49
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the General Partner 38
James A. Coyne Executive Vice President of EFG 37
Michael J. Butterfield Vice President, Finance and Treasurer
of EFG and Treasurer of the
General Partner 38
James F. Livesey Vice President, Aircraft and Vessels
of EFG 48
Sandra L. Simonsen Senior Vice President, Information Systems
of EFG 47
Gail D. Ofgant Vice President, Lease Operations of EFG 32
</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.
(e) Business Experience
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Mr. MacDonald, age 49, 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 President of
American Finance Group Securities Corp. and a limited partner in Atlantic
Acquisition Limited Partnership ("AALP") and Old North Capital Limited
Partnership ("ONC"). 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 49, 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 a limited partner in AALP. Mr. Engle is also a limited partner in ONC. In May
1997, Mr. Engle was elected to the Board of Directors of Semele Group, Inc.
("Semele"). 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 38, is Executive Vice President and Chief Operating
Officer of EFG and certain of its affiliates and Clerk of the General Partner.
In November 1997, Mr. Romano was appointed Chief Financial Officer of Semele.
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 37, is Executive Vice President of EFG. Mr. Coyne joined
EFG in 1989, remained until May 1993, and rejoined EFG in November 1994. In
September 1997, Mr. Coyne was appointed Executive Vice President of EFG. Mr.
Coyne is a limited partner in AALP and ONC. In October 1997, Mr. Coyne was
elected President and Chief Operating Officer of Semele. 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 38, 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. Mr. Butterfield was appointed
Treasurer of Semele in November 1997. 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 48, 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 47, 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
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<PAGE>
systems consulting for a subsidiary of American International Group and authored
a software program published by IBM. Ms. Simonsen holds a B.A. degree from
Wilson College.
Ms. Ofgant, age 32, 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.
(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 5 of 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;
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2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all, or substantially all, of
the assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
As of March 1, 1998, the following person or group owns beneficially more
than 5% of the Partnership's 883,829.31 outstanding Units:
<TABLE>
<CAPTION>
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
- -------------------------------- ---------------------------------------- -------------------- -----------
<S> <C> <C> <C>
Units Representing Old North Capital Limited Partnership
Limited Partnership 88 Broad Street 87,118.15 Units 9.86%
Interests Boston, MA 02110
</TABLE>
Messrs. Engle, MacDonald and Coyne have ownership interests in ONC. In
December 1996, EFG purchased a 49% limited partnership interest in ONC. See
Items 10 and 13 of this report.
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,
1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Equipment management fees $ 183,112 $ 154,545 $ 161,615
Administrative charges 63,126 39,739 21,000
Reimbursable operating expenses
due to third parties 135,893 122,586 95,500
----------- ----------- ----------
Total $ 382,131 $ 316,870 $ 278,115
----------- ----------- ----------
----------- ----------- ----------
</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 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
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the Partnership. Reimbursable operating expenses due to third parties represent
costs paid by EFG on behalf of the Partnership which are reimbursed to EFG.
In 1991, the Partnership acquired 900 intermodal cargo containers, at a
cost of $1,840,140, and leased such containers to ICCU Containers, S.p.A.
("ICCU"), an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which
formerly owned a minority interest in AFG Holdings Illinois Limited Partnership,
formerly a partner in AFG. The ability of ICCU to fulfill all of its obligations
under the lease contract deteriorated, in EFG's view, in 1994. As a result, EFG,
on the Partnership's behalf, began negotiations with other parties to either
assume the lease obligations of ICCU or acquire the containers. As a result of
these negotiations, the Partnership transferred 899 containers, having a net
book value of $1,037,983 to a third-party on November 30, 1994. The Partnership
received, as settlement from ICCU and the third party, consideration as follows:
(i) a contractual right to receive comparable containers with an estimated fair
market value of $1,035,318 and (ii) beneficial assignment of an existing EFG
note payable to CLOU which had a principal balance of $370,676 at the date of
the transaction. The note had an effective interest rate of 8% and a quarterly
amortization schedule which matured on December 31, 1996. All amounts due from
EFG pursuant to this note had been received by the Partnership at December 31,
1996 in accordance with the original amortization schedule. A portion of the
consideration received was used to satisfy the Partnership's accounts receivable
balance of $183,161 outstanding from ICCU at November 30, 1994. The remaining
container of the original equipment group was disposed of in 1992 for stipulated
payment as a result of a casualty event.
In April 1995, the Partnership replaced the original containers with
comparable containers and leased such containers to a new lessee pursuant to the
rules for completing a like-kind exchange for income tax reporting purposes. The
carrying value of the new containers, $1,958,034, was reduced by $184,850,
representing the amount of gain deferred on the original containers. The
Partnership obtained approximately $925,000 of long-term financing in connection
with the replacement containers.
All equipment was purchased from EFG, one of its affiliates 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.
During 1997, the Partnership and certain affiliated investment programs
sponsored by EFG exchanged their ownership interests in certain vessels for
aggregate consideration of $11,565,375. The Partnership's share of such
consideration was $2,456,528 consisting of common stock in Semele valued at
$638,615, a note receivable from Semele of $938,718 and cash of $879,195. For
further discussion, see Note 4, "Investment Securities - Affiliate / Note
Receivable - Affiliate to the financial statements included in Item14 herein and
Item 10.
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, 1997, the Partnership was owed $809,443 by EFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1998.
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC"), both Massachusetts limited partnerships formed in
1995 owned and controlled by certain principals of EFG, own 23,472 Units or
2.66% and 87,118.15 Units or 9.86% of the total outstanding units of the
Partnership, respectively. EFG owns a Class D interest in AALP and a 49% limited
partnership interest in ONC, both of which it acquired in December 1996.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
-12-
<PAGE>
(d) Transactions with Promoters
See Item 13(a) above.
-13-
<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, 1997 and 1996.................................*
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995..........*
Statement of Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995..........*
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995..........*
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 1997 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 General Motors Corporation was filed
in the Registrant's Annual Report on Form 10-K for the period
ended December 31, 1991 as Exhibit 28 (b) and is incorporated
herein by reference.
* Incorporated herein by reference to the appropriate portion of the 1997
Annual Report to security holders for the year ended December 31, 1997
(see Part II).
-14-
<PAGE>
Exhibit
Number
---------
99 (b) Lease agreement with Gearbulk Shipowning Ltd (formerly
Kristian Gerhard Jebsen Skipsrederi A/S) was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 as Exhibit 28 (f) and is incorporated herein
by reference.
99 (c) Lease agreement with National Steel Corporation was filed
in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 as Exhibit 28 (h) and is incorporated
herein by reference.
(b) Reports on Form 8-K
None.
-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-E, 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, 1998 Date: March 31, 1998
---------------------------------- -------------------------------
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, 1998 Date: March 31, 1998
---------------------------------- -------------------------------
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<PAGE>
EXHIBIT 13
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Annual Report to the Partners, December 31, 1997
<PAGE>
AMERICAN INCOME FUND I-E,
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 3-8
FINANCIAL STATEMENTS:
Report of Independent Auditors 9
Statement of Financial Position
at December 31, 1997 and 1996 10
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995 11
Statement of Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995 12
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 13
Notes to the Financial Statements 14-24
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 25
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 26
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 27
</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, 1997:
<TABLE>
<CAPTION>
Summary of
Operations 1997 1996 1995 1994 1993
- --------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 5,115,146 $ 5,328,237 $ 5,590,621 $ 7,587,215 $ 6,666,330
Net income $ 1,252,723 $ 1,062,652 $ 261,733 $ 948,185 $ 1,583
Per Unit:
Net income $ 1.35 $ 1.14 $ 0.28 $ 1.02 $ --
Cash distributions $ 1.27 $ 2.40 $ 2.75 $ 2.75 $ 2.75
Financial Position
- ---------------------
Total assets $15,908,093 $18,074,828 $18,755,667 $22,075,839 $27,339,386
Total long-term
obligations $ 4,768,982 $ 6,586,970 $ 5,839,543 $ 6,657,115 $10,438,981
Partners' capital $10,706,355 $10,865,261 $12,035,442 $14,332,162 $15,942,430
</TABLE>
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1997 compared to the year
ended December 31, 1996 and the year ended December 31, 1996
compared to the year ended December 31, 1995
Certain statements in this annual report of American Income Fund I-E, a
Massachusetts Limited Partnership (the "Partnership") that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of important factors that could cause
actual results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
outcome of the Class Action Lawsuit described in Note 8 to the accompanying
financial statements, and the ability of Equis Financial Group Limited
Partnership (formerly American Finance Group), a Massachusetts limited
partnership ("EFG"), to collect all rents due under the attendant lease
agreements and successfully remarket the Partnership's equipment upon the
expiration of such leases.
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. The computer
programs of EFG were designed and written using four digits to define the
applicable year. As a result, EFG does not anticipate system failure or
miscalculations causing disruptions of operations. Based on recent assessments,
EFG determined that minimal modification of software is required so that its
network operating system will function properly with respect to dates in the
year 2000 and thereafter. EFG believes that with these modifications to the
existing operating system, the Year 2000 Issue will not pose significant
operational problems for its computer systems. EFG will utilize internal
resources to upgrade software for Year 2000 modifications and anticipates
completing the Year 2000 project by December 31, 1998, which is prior to any
anticipated impact on its operating system. The total cost of the Year 2000
project is expected to be insignificant and have no effect on the results of
operations of the Partnership.
OVERVIEW
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. 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 value in equipment declines from asset disposals
occurring in the normal course. The Partnership's stated investment objectives
and policies contemplated that the Partnership would wind-up its operations
within approximately seven years of its inception. Presently, the Partnership is
a Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action
Lawsuit could alter the nature of the Partnership's organization and its future
business operations. See Note 8 to the accompanying financial statements.
RESULTS OF OPERATIONS
For the year ended December 31, 1997, the Partnership recognized lease
revenue of $5,115,146 compared to $5,328,237 and $5,590,621 for the years ended
December 31, 1996 and 1995, respectively. The decrease in lease revenue from
1995 to 1997 reflects the effects of primary lease term expirations and the sale
of equipment. Partially offsetting the decrease from 1996 to 1997 was the
receipt in 1997 of prepaid contractual rental obligations of $878,320 associated
with the exchange of the Partnership's interest in a vessel (see discussion
below) and the effects of an aircraft exchange which concluded in March 1996. As
a result of the aircraft exchange, the Partnership replaced its ownership
interest in a Boeing 747-SP aircraft (the "United Aircraft"), having aggregate
quarterly lease revenues of $174,279, with interests in six other aircraft
(three Boeing 737 aircraft leased by Southwest Airlines, Inc., two McDonnell
Douglas MD-82 aircraft leased by Finnair OY and one McDonnell Douglas MD-87
aircraft leased by Reno Air, Inc.), having aggregate quarterly lease revenues of
$266,911. The Southwest Aircraft were exchanged into the Partnership in 1995,
while the Finnair Aircraft and the Reno Aircraft were exchanged into the
Partnership on March 25 and March 26, 1996, respectively (see further
-3-
<PAGE>
discussion below). Accordingly, 1997 was the first year the Partnership
recognized a full year's revenue related to its interest in all six of these
aircraft.
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 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.
Interest income for the year ended December 31, 1997 was $152,995 compared to
$158,602 and $146,206 for the years ended December 31, 1996 and 1995,
respectively. Interest income is typically generated from temporary investment
of rental receipts and equipment sale proceeds in short-term instruments.
Interest income in 1997 included $18,514 earned on a note receivable from Semele
Group, Inc. (formerly Banyan Strategic Land Fund II) ("Semele") (see Note 4 to
the financial statements herein). In 1996, the Partnership earned interest
income of $36,763 on cash held in a special-purpose escrow account in connection
with the aircraft exchange transactions. During 1996 and 1995, the Partnership
also earned interest income of $18,533 and $25,848 respectively, on a note
receivable from EFG resulting from a settlement with ICCU Containers, S.p.A.
(see Note 5 to the financial statements herein). The amount of future interest
income is expected to fluctuate in relation to prevailing interest rates, the
collection of lease revenue and the proceeds from equipment sales.
During the year ended December 31, 1997, the Partnership sold equipment
having a net book value of $535,501 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $359,630
compared to a net gain in 1996 of $177,153 on equipment having a net book value
of $127,837, and a net loss of $109,471 in 1995 on equipment having a net book
value of $364,938.
In 1997, the Partnership exchanged its interest in a vessel with an original
cost and net book value of $5,160,573 and $2,386,249, respectively. In
connection with this exchange, the Partnership realized proceeds of $1,578,208,
which resulted in a net loss, for financial statement purposes, of $808,041. In
addition, as this vessel was disposed of prior to the expiration of the related
lease term, the Partnership received a prepayment of the remaining contracted
rent due under the vessel's lease agreement, as described above.
During August 1997, the Partnership and another EFG-sponsored investment
program exchanged certain locomotives for a proportionate interest in
replacement locomotives. The Partnership's original locomotives had a cost and
net book value of $1,572,197 and $1,047,043, respectively, and had associated
indebtedness of $411,997 at the time of the exchange. The replacement
locomotives were recorded at their fair value of $1,524,829 and the Partnership
assumed associated debt of $1,040,043. The locomotive exchange resulted in the
recognition of a net loss, for financial statement purposes, of $150,260.
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele, a purchase money note of $8,219,500 (the "Note") and
cash of $365,375. Semele is a Delaware corporation organized on April 14, 1987
and has its common stock listed on NASDAQ. At the date of the exchange
transaction, the common stock of Semele had a net book value of approximately
$1.50 per share and closing market value of $1.00 per share. Semele has one
principal real estate asset consisting of an undeveloped 274 acre parcel of land
near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings
-4-
<PAGE>
occurring on May 6, 1997 and May 12, 1997. The Note was repaid with $3,800,000
of cash and delivery of a $4,419,500 note from Semele (the "Semele Note").
As a result of the vessel exchange transaction and its original 67%
beneficial ownership interest in Hato Arrow, one of the three Vessels, the
Partnership received $879,195 in cash, became the beneficial owner of 425,743
shares of Semele common stock (valued at $638,615 ($1.50 per share) at the time
of the exchange transaction) and received a beneficial interest in the Semele
Note of $938,718. The Semele Note bears an annual interest rate of 10% and will
be amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu.
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in the size of the Board to as many as nine members,
provided a majority of the Board shall consist of members independent of Semele,
EFG or any affiliate; and (ii) an amendment extending Semele's life to perpetual
and changing its name from Banyan Strategic Land Fund II. Contemporaneously with
the Consent being obtained, Semele declared a $0.20 per share dividend to be
paid on all shares, including those beneficially owned by the Partnership. A
dividend of $85,149 was paid to the Partnership on November 17, 1997. This
dividend represented a return of equity to the Partnership, which
proportionately reduced the Partnership's investment in Semele.
In September 1995, the Partnership transferred its 27.02% ownership interest
in the United Aircraft, pursuant to the rules for a like-kind exchange for
income tax reporting purposes. The Partnership received aggregate cash
consideration of $2,225,548 including $174,279 for rent accrued through the
transfer date. A portion of the consideration was used to satisfy the balance of
outstanding debt and interest of $339,017. The net cash consideration of
$1,712,252 was deposited into a special-purpose escrow account through a
third-party exchange agent pending the completion of the aircraft exchange. The
Partnership's interest in the Aircraft had a net book value of $2,827,904 at the
date of transfer and resulted in a net loss for financial reporting purposes of
$776,635.
In November 1995, the Partnership partially replaced the United Aircraft with
an 11.74% interest in the Southwest Aircraft, at an aggregate cost of
$1,718,912. To acquire the interests in the Southwest Aircraft, the Partnership
obtained financing of $1,282,711 from a third-party lender and utilized $436,201
of the cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 88.26% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of a 9.71% ownership interest in the
Finnair Aircraft and a 17.43% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $2,718,900 and $2,367,806, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $909,035
and obtained financing of $1,809,865 from a third-party lender. To acquire the
ownership interest in the Reno Aircraft, the Partnership paid $404,693 and
obtained financing of $1,963,113 from a third-party lender. The remaining
ownership interests of 90.29% and 82.57% in the Finnair Aircraft and the Reno
Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by EFG.
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
-5-
<PAGE>
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 revenue 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 may not be indicative of the total
residual value the Partnership achieved from leasing the equipment.
Depreciation and amortization expense was $2,679,339, $3,688,916 and
$3,853,824 for the years ended December 31, 1997, 1996 and 1995, 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 at the date of
primary lease expiration 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 equipment 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.
Interest expense was $355,277 or 6.9% of lease revenue in 1997, compared to
$595,554 or 11.2% of lease revenue in 1996 and $457,049 or 8.2% of lease revenue
in 1995. The decrease in interest expense from 1996 to 1997 reflects the
reduction of the Partnership's indebtedness utilizing rental payments and a
portion of the Partnership's available cash. The increase in interest expense in
1996 compared to 1995 was due primarily to interest incurred in connection with
the leveraging obtained to finance the aircraft exchange transactions, discussed
above. Interest expense in future years is expected to decline in amount and as
a percentage of lease revenue as the principal balance of notes payable is
reduced through the application of rent receipts to outstanding debt.
Management fees were approximately 3.6% of lease revenue during the year
ended December 31, 1997, compared to 2.9% during each of the years ended
December 31, 1996 and 1995. Management fees 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 3.9%, 3.1% and 2.1% of
lease revenue during the years ended December 31, 1997, 1996 and 1995,
respectively. The increase in operating expenses from 1996 to 1997 was primarily
attributable to an increase in administrative charges and professional service
costs. The increase in operating expenses from 1995 to 1996 was due principally
to costs incurred in connection with the aircraft like-kind exchange
transactions, discussed above. 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 $4,412,819, $4,965,954 and $4,690,110 in 1997,
1996 and 1995, respectively. Future renewal, re-lease and equipment sale
activities will cause a decline in the Partnership's lease revenue 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.
-6-
<PAGE>
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 expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. During 1997, the Partnership realized net
cash proceeds of $896,006, compared to $304,990 and $255,467 in 1996 and 1995,
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. During 1996, the
Partnership expended $37,677 in connection with the aircraft like-kind exchange
transactions referred to above. There were no equipment acquisitions in 1997 or
1995.
As a result of the vessel exchange (see Results of Operations), the
Partnership became the beneficial owner of 425,743 shares of Semele common stock
(valued at $638,615 ($1.50 per share) at the time of the exchange transaction).
This investment was reduced by a dividend of $85,149 received in November 1997
representing a return of equity to the Partnership. The Partnership also
received a beneficial interest in the Semele Note of $938,718 in connection with
the exchange.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. As such, the Partnership reduced the carrying value of
its investment in Semele common stock to $0.75 per share (the quoted price of
the Semele stock on NASDAQ at December 31, 1997) resulting in an unrealized loss
of $234,159 which was reported as a separate component of partner's capital.
However, the General Partner believes that the underlying tangible assets of
Semele, particularly the Rancho Malibu property, can be sold or developed on a
tax free basis due to Semele's net operating loss carryforwards and can provide
an attractive economic return to the Partnership.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal are reported as a component of
financing activities. 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 addition, during
1997 the Partnership utilized a portion of its available cash to repay certain
of its debt obligations. In future years, the amount of cash used to repay debt
obligations is scheduled to decline as the principal balance of notes payable is
reduced through the collection and application of rents. The Partnership also
has balloon payment obligations at the expiration of the respective primary
lease terms related to the Finnair Aircraft and the Reno Aircraft of $922,830
and $555,597, respectively.
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, 1997, the Partnership declared total
cash distributions of Distributable Cash From Operations and Distributable Cash
From Sales and Refinancings of $1,177,470. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the Limited Partners
were allocated 95% of these distributions, or $1,118,597 and the General Partner
was allocated 5%, or $58,873. The fourth quarter 1997 cash distribution was paid
on January 13, 1998.
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.
-7-
<PAGE>
The future liquidity of the Partnership will be influenced by the foregoing,
as well as the outcome of the Class Action Lawsuit described in Note 8 to the
accompanying financial statements. The General Partner anticipates that cash
proceeds resulting from the collection of contractual rents and the outcome of
residual activities 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 are anticipated.
-8-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of American Income Fund I-E,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-E, a Massachusetts Limited Partnership as of December 31,
1997 and 1996, 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, 1997. 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-E, a
Massachusetts Limited Partnership at December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, 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 10, 1998
-9-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,530,868 $ 1,838,896
Rents receivable 301,473 864,959
Accounts receivable - affiliate 809,443 239,386
Note receivable - affiliate 938,718 --
Investment securities - affiliate 319,307 --
Equipment at cost, net of accumulated
depreciation of $10,784,619 and $14,050,647
at December 31, 1997 and 1996, respectively 10,008,284 15,131,587
------------- -------------
Total assets $ 15,908,093 $ 18,074,828
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 4,768,982 $ 6,586,970
Accrued interest 31,496 96,123
Accrued liabilities 9,200 23,250
Accrued liabilities - affiliate 50,770 34,223
Deferred rental income 105,795 155,008
Cash distributions payable to partners 235,495 313,993
------------- -------------
Total liabilities 5,201,738 7,209,567
------------- -------------
Partners' capital (deficit):
General Partner (439,033) (431,088)
Limited Partnership Interests
(883,829.31 Units; initial purchase price
of $25 each) 11,145,388 11,296,349
------------- -------------
Total partners' capital 10,706,355 10,865,261
------------- -------------
Total liabilities and partners' capital $ 15,908,093 $ 18,074,828
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-10-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Lease revenue $ 5,115,146 $ 5,328,237 $ 5,590,621
Interest income 134,481 140,049 120,358
Interest income - affiliate 18,514 18,553 25,848
Gain (loss) on sale of
equipment 359,630 177,153 (109,471)
Loss on exchange of equipment (958,301) -- (776,635)
------------ ------------ ------------
Total income 4,669,470 5,663,992 4,850,721
------------ ------------ ------------
Expenses:
Depreciation and amortization 2,679,339 3,688,916 3,853,824
Interest expense 355,277 595,554 457,049
Equipment management fees
- affiliate 183,112 154,545 161,615
Operating expenses - affiliate 199,019 162,325 116,500
------------ ------------ ------------
Total expenses 3,416,747 4,601,340 4,588,988
------------ ------------ ------------
Net income $ 1,252,723 $ 1,062,652 $ 261,733
------------ ------------ ------------
------------ ------------ ------------
Net income
per limited partnership unit $ 1.35 $ 1.14 $ 0.28
------------ ------------ ------------
------------ ------------ ------------
Cash distributions declared
per limited partnership unit $ 1.27 $ 2.40 $ 2.75
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-11-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL for the years
ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Limited Partners
Partner ---------------------------
Amount Units Amount Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $(257,743) 883,829.31 $14,589,905 $14,332,162
Net income - 1995 13,087 -- 248,646 261,733
Cash distributions declared (127,923) -- (2,430,530) (2,558,453)
------------ ------------ ------------ ------------
Balance at December 31, 1995 (372,579) 883,829.31 12,408,021 12,035,442
Net income - 1996 53,133 -- 1,009,519 1,062,652
Cash distributions declared (111,642) -- (2,121,191) (2,232,833)
------------ ------------ ------------ ------------
Balance at December 31, 1996 (431,088) 883,829.31 11,296,349 10,865,261
Net income - 1997 62,636 -- 1,190,087 1,252,723
Unrealized loss on investment
securities (11,708) -- (222,451) (234,159)
Cash distributions declared (58,873) -- (1,118,597) (1,177,470)
------------ ------------ ------------ ------------
Balance at December 31, 1997 $(439,033) 883,829.31 $11,145,388 $10,706,355
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-12-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 1,252,723 $ 1,062,652 $ 261,733
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,679,339 3,688,916 3,853,824
(Gain) loss on sale of equipment (359,630) (177,153) 109,471
Loss on exchange of equipment 958,301 -- 776,635
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 563,486 222,102 (421,469)
Accounts receivable - affiliate (570,057) (108,475) (29,425)
Note receivable - affiliate -- 210,377 160,299
Increase (decrease) in:
Accrued interest (64,627) 28,123 502
Accrued liabilities (14,050) 1,480 6,270
Accrued liabilities - affiliate 16,547 22,348 5,944
Deferred rental income (49,213) 15,584 (33,674)
---------------- ---------------- ----------------
Net cash from operating activities 4,412,819 4,965,954 4,690,110
---------------- ---------------- ----------------
Cash flows from (used in) investing activities:
Dividend received 85,149 -- --
Purchase of equipment -- (37,677) --
Proceeds from equipment sales 896,006 304,990 255,467
---------------- ---------------- ----------------
Net cash from investing activities 981,155 267,313 255,467
---------------- ---------------- ----------------
Cash flows used in financing activities:
Principal payments - notes payable (2,446,034) (3,025,551) (2,686,336)
Distributions paid (1,255,968) (2,558,453) (2,558,453)
---------------- ---------------- ----------------
Net cash used in financing activities (3,702,002) (5,584,004) (5,244,789)
---------------- ---------------- ----------------
Net increase (decrease) in cash and
cash equivalents 1,691,972 (350,737) (299,212)
Cash and cash equivalents at beginning of year 1,838,896 2,189,633 2,488,845
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 3,530,868 $ 1,838,896 $ 2,189,633
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 419,904 $ 567,431 $ 456,547
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
See Note 4 to the financial statements regarding the reduction of the
Partnership's carrying value of its investment securities - affiliate.
Also, see Notes 3 and 5 to the financial statements.
The accompanying notes are an integral part of these
financial statements.
-13-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
December 31, 1997
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
American Income Fund I-E, a Massachusetts Limited Partnership (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on August 29, 1991, 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 December 4, 1991, the
Partnership concluded an Interim Closing and issued 587,079.96 units of limited
partnership interest (the "Units") to 654 investors for a purchase price of
$14,569,875. Included in the 587,079.96 units were 4,284.96 bonus units. On
January 31, 1992, the Partnership concluded its Final Closing. An additional
296,749.35 units (including 626.35 bonus units) were purchased for an additional
purchase price of $7,403,075 and an additional 735 investors became Limited
Partners of the Partnership. As of January 31, 1992, an aggregate total of
883,829.31 units (including 4,911.31 bonus units) had been purchased for an
aggregate total purchase price of $21,972,950 and an aggregate of 1,089
investors had become Limited Partners of the Partnership. 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 (the
"Restated Agreement, as amended").
Significant operations commenced on December 4, 1991 when the Partnership
made its initial equipment acquisition. 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 (see Note 5).
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. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved 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.
-14-
<PAGE>
AMERICAN INCOME FUND I-E,
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 federal agency
discount notes and 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, 1997, the Partnership had $3,427,682 invested in
federal agency discount notes and 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
$6,544,990 are due as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1998 $ 2,000,528
1999 1,515,565
2000 865,017
2001 836,841
2002 836,841
Thereafter 490,198
-----------
Total $ 6,544,990
-----------
-----------
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gearbulk Shipowning Ltd $ 1,148,884 $ 1,077,488 $ 1,076,038
National Steel Corporation $ 729,633 $ 722,342 $ 754,006
General Motors Corporation $ -- $ -- $ 689,623
</TABLE>
During August 1997, the Partnership and another EFG-sponsored investment
program exchanged certain locomotives for a proportionate interest in
replacement locomotives. In aggregate, the Partnership will receive lease
revenues of approximately $1,272,000 over the life of the new lease
(see Note 3).
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 or from
third-party sellers. Equipment cost represents asset base price plus acquisition
fees and was determined in accordance with the Restated
-15-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 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.
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.
Organization costs were amortized using the straight-line method over a
period of five years.
INVESTMENT SECURITIES - AFFILIATE
The Partnership's investment in Semele Group, Inc. is considered to be
available-for-sale and as such is carried at fair value with unrealized gains
and losses reported as a separate component of Partner's Capital (see Note 4).
ACCRUED LIABILITIES - AFFILIATE
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities - Affiliate (see Note 5).
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 7 for allocation of income or
loss for income tax purposes.
-16-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NET INCOME AND CASH DISTRIBUTIONS PER UNIT
Net income and cash distributions per Unit are based on 883,829.31 Units
outstanding during each of the three years in the period ended December 31, 1997
and are computed after allocation of the General Partner's 5% share of net
income and cash distributions.
PROVISION FOR INCOME TAXES
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
This statement establishes standards for reporting comprehensive income and
its components and requires this disclosure be added as a new section in a
financial statement. This statement is effective for fiscal years beginning
after December 31, 1997. The Partnership will adopt the new disclosures
required by SFAS No. 130 in 1998.
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at December 31,
1997. Remaining Lease Term (Months), as used below, represents the number of
months remaining from December 31, 1997 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- ------------------------------------ --------------- ------------------- -----------------------------------
<S> <C> <C> <C>
Aircraft 0-60 $ 8,697,671 NV/TX/WA/Foreign
Materials handling 0-15 3,734,274 DE/IL/MI/NC/NJ/OH/PA/SC SD/TX/WV
Trailers/intermodal containers 66 1,766,036 CA
</TABLE>
-17-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<S> <C> <C> <C>
Construction and mining 0 1,714,267 IL/MI/MN/WV
Locomotives 75 1,522,810 NB
General purpose plant/warehouse 0-15 1,195,438 CA
Tractors and heavy duty trucks 0-6 712,184 CA/IL/OR/WA
Retail store fixtures 15 687,947 FL
Communications 0-21 659,442 FL/NY/VA
Photocopying 0-22 64,862 CA/CT/IL/NJ
Computers and peripherals 0 37,972 FL/NY
-----------------
Total equipment cost 20,792,903
Accumulated depreciation (10,784,619)
-----------------
Equipment, net of accumulated depreciation $ 10,008,284
-----------------
-----------------
</TABLE>
During August 1997, the Partnership and another EFG-sponsored investment
program exchanged certain locomotives for a proportionate interest in certain
other locomotives. The Partnership's original locomotives had a cost and net
book value of $1,572,197 and $1,047,043, respectively, and had associated
indebtedness of $411,997 at the time of the exchange. The replacement
locomotives were recorded at their fair value of $1,524,829 and the Partnership
assumed associated debt of $1,040,043. The exchange resulted in the recognition
of a net loss, for financial statement purposes, of $150,260 (see Note 2).
In September 1995, the Partnership transferred its 27.02% ownership interest
in an aircraft leased to United Air Lines, Inc. (the "United Aircraft"),
pursuant to the rules for a like-kind exchange for income tax reporting
purposes. In November 1995, the Partnership partially replaced the United
Aircraft with an 11.74% interest in three aircraft leased to Southwest Airlines,
Inc. (the "Southwest Aircraft"), at an aggregate cost of $1,718,912. To acquire
the interests in the Southwest Aircraft, the Partnership obtained financing of
$1,282,711 from a third-party lender and utilized $436,201 of the cash
consideration received from the transfer of the United Aircraft. The remaining
ownership interest of 88.26% in the Southwest Aircraft is held by affiliated
equipment leasing programs sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of a 9.71% ownership interest in two
aircraft leased to Finnair OY (the "Finnair Aircraft") and a 17.43% ownership
interest in an aircraft leased to Reno Air, Inc. (the "Reno Aircraft") at a
total cost to the Partnership of $2,718,900 and $2,367,806, respectively. To
acquire the ownership interest in the Finnair Aircraft, the Partnership paid
$909,035 in cash and obtained financing of $1,809,865 from a third-party lender.
To acquire the ownership interest in the Reno Aircraft, the Partnership paid
$404,693 in cash and obtained financing of $1,963,113 from a third-party lender.
The remaining ownership interests of 90.29% and 82.57% in the Finnair Aircraft
and the Reno Aircraft, respectively, are held by affiliated equipment leasing
programs sponsored by EFG.
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, 1997, the Partnership's equipment
portfolio included equipment having a proportionate original cost of
$12,728,768, representing approximately 61% 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
-18-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
approximately $10,631,000 and a net book value of approximately $8,398,000 at
December 31, 1997 (see Note 6).
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 sale or re-lease with a cost and net book value of approximately $2,063,000
and $143,000 respectively. The General Partner is actively seeking the sale or
re-lease of all such equipment. In addition, the summary above also includes
equipment being leased on a month-to-month basis.
NOTE 4 - INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly isssued shares (at $1.50 per share)
of common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land
Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375.
Semele is a Delaware corporation organized on April 14, 1987 and has its common
stock listed on NASDAQ. At the date of the exchange transaction, the common
stock of Semele had a net book value of approximately $1.50 per share and
closing market value of $1.00 per share. Semele has one principal real estate
asset consisting of an undeveloped 274 acre parcel of land near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the exchange transaction and its original 67% beneficial
ownership interest in Hato Arrow, one of the three Vessels, the Partnership
received $879,195 in cash, became the beneficial owner of 425,743 shares of
Semele common stock (valued at $638,615 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$938,718. The Semele Note bears an annual interest rate of 10% and will be
amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu. The Partnership's interest in the vessel had an original cost and
net book value of $5,160,573 and $2,386,249, respectively. The proceeds realized
by the Partnership of $1,578,208 resulted in a net loss, for financial statement
purposes, of $808,041. In addition, as this vessel was disposed of prior to the
expiration of the related lease term, the Partnership received a prepayment of
the remaining contracted rent due under the vessel's lease agreement of
$878,320.
-19-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in the size of the Board to as many as nine members,
provided a majority of the Board shall consist of members independent of Semele,
EFG or any affiliate; and (ii) an amendment extending Semele's life to perpetual
and changing its name from Banyan Strategic Land Fund II. Contemporaneously with
the Consent being obtained, Semele declared a $0.20 per share dividend to be
paid on all shares, including those beneficially owned by the Partnership. A
dividend of $85,149 was paid to the Partnership on November 17, 1997. This
dividend represented a return of equity to the Partnership, which
proportionately reduced the Partnership's investment in Semele. In May 1997,
Gary D. Engle, President and Chief Executive Officer of EFG, was elected to the
Board of Directors of Semele and in October 1997, James A. Coyne, Executive Vice
President of EFG was elected Semele's President and Chief Operating Officer.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. As such, the Partnership reduced the carrying value of
its investment in Semele common stock to $0.75 per share (the quoted price of
the Semele stock on NASDAQ at December 31, 1997) resulting in an unrealized loss
in 1997 of $234,159 which was reported as a separate component of partner's
capital.
NOTE 5 - 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,
1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Equipment management fees $ 183,112 $ 154,545 $ 161,615
Administrative charges 63,126 39,739 21,000
Reimbursable operating
expenses due to third parties 135,893 122,586 95,500
------------ ------------ ------------
Total $ 382,131 $ 316,870 $ 278,115
------------ ------------ ------------
------------ ------------ ------------
</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.
-20-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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.
In 1991, the Partnership acquired 900 intermodal cargo containers, at a
cost of $1,840,140, and leased such containers to ICCU Containers, S.p.A.
("ICCU"), an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which
formerly owned a minority interest in AFG Holdings Illinois Limited Partnership,
formerly a partner in AFG. The ability of ICCU to fulfill all of its obligations
under the lease contract deteriorated, in EFG's view, in 1994. As a result, EFG,
on the Partnership's behalf, began negotiations with other parties to either
assume the lease obligations of ICCU or acquire the containers. As a result of
these negotiations, the Partnership transferred 899 containers, having a net
book value of $1,037,983 to a third-party on November 30, 1994. The Partnership
received, as settlement from ICCU and the third party, consideration as follows:
(i) a contractual right to receive comparable containers with an estimated fair
market value of $1,035,318 and (ii) beneficial assignment of an existing EFG
note payable to CLOU which had a principal balance of $370,676 at the date of
the transaction. The note had an effective interest rate of 8% and a quarterly
amortization schedule which matured on December 31, 1996. All amounts due from
EFG pursuant to this note had been received by the Partnership at December 31,
1996 in accordance with the original amortization schedule. A portion of the
consideration received was used to satisfy the Partnership's accounts receivable
balance of $183,161 outstanding from ICCU at November 30, 1994. The remaining
container of the original equipment group was disposed of in 1992 for stipulated
payment as a result of a casualty event.
In April 1995, the Partnership replaced the original containers with
comparable containers and leased such containers to a new lessee pursuant to the
rules for completing a like-kind exchange for income tax reporting purposes. The
carrying value of the new containers, $1,958,034, was reduced by $184,850,
representing the amount of gain deferred on the original containers. The
Partnership obtained approximately $925,000 of long-term financing in connection
with the replacement containers.
All equipment was acquired from EFG, one of its Affiliates or from
third-party sellers. The Partnership's Purchase Price was determined by the
method described in Note 2.
All rents and proceeds from the sale of equipment are paid by the lessees
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, 1997, the Partnership was owed $809,443 by EFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in January 1998.
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC"), both Massachusetts limited partnerships formed in
1995 owned and controlled by certain principals of EFG, own 23,472 Units or
2.66% and 87,118.15 Units or 9.86% of the total outstanding units of the
Partnership, respectively. EFG owns a Class D interest in AALP and a 49% limited
partnership interest in ONC, both of which it acquired in December 1996.
NOTE 6 - NOTES PAYABLE
Notes payable at December 31, 1997 consisted of installment notes of
$4,768,982 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 6.76% and 8.9%, except for one note which
bears a fluctuating interest rate based on LIBOR (5.72% at December 31, 1997)
plus a margin. All of the installment notes are non-recourse and are
collateralized by the equipment and assignment of the related lease payments.
Generally, the installment notes will be fully amortized by noncancellable
rents. However, the
-21-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Partnership has balloon payment obligations at the expiration of the primary
lease terms related to the Finnair Aircraft and the Reno Aircraft of $922,830
and $555,597, respectively. The carrying amount of notes payable approximates
fair value at December 31, 1997.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1998 $ 1,091,826
1999 1,663,121
2000 412,006
2001 413,481
2002 955,799
Thereafter 232,749
------------
Total $ 4,768,982
------------
------------
</TABLE>
NOTE 7 - 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 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 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, 1997,
the General Partner had a positive tax capital account balance.
The following is a reconciliation between net income reported for financial
statement and federal income tax reporting purposes for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 1,252,723 $ 1,062,652 $ 261,733
Financial statement depreciation
in excess of (less than)
tax depreciation (124,537) 360,011 590,971
Deferred rental income (49,213) 15,584 (33,674)
Other 3,340 (35,287) 1,144,091
------------------ ------------------ ------------------
Net income for federal income tax
reporting purposes $ 1,082,313 $ 1,402,960 $ 1,963,121
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
<S> <C> <C>
Partners' capital $ 10,706,355 $ 10,865,261
Unrealized loss on investment securities 234,159 --
</TABLE>
-22-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<S> <C> <C>
Add back selling commissions and organization and offering costs 2,466,957 2,466,957
Financial statement distributions in excess of tax distributions 11,775 15,700
Cumulative difference between federal income tax
and financial statement income (loss) (2,508,018) (2,337,608)
----------------- ------------------
Partners' capital for federal income tax reporting purposes $ 10,911,228 $ 11,010,310
================= ==================
</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 8 - LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed
a class and derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a number
of its affiliates, including the General Partner, as defendants (collectively,
the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had
filed an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit."
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On March 9, 1998, counsel for the Defendants and the Plaintiffs entered
into a Memorandum of Understanding setting forth the terms pursuant to which a
settlement of the Class Action Lawsuit is intended to be achieved and which,
among other things, is expected to reduce the burdens and expenses attendant to
continuing litigation. The Memorandum of Understanding represents a preliminary
step towards a comprehensive Stipulation of Settlement between the parties that
must be presented to and approved by the Court as a condition precedent to
effecting a settlement. The Memorandum of Understanding (i) prescribes a number
of conditions necessary to achieving a settlement, including providing the
partners (or beneficiaries, as applicable) of the Nominal Defendants with the
opportunity to vote on any settlement and (ii) contemplates various changes
that, if effected, would alter the future operations of the Nominal Defendants.
With respect to the Partnership and 10 affiliated partnerships (hereafter
referred to as the "Exchange Partnerships"), the Memorandum of Understanding
provides for the restructuring of their respective business operations into a
single successor company whose securities would be listed and traded on a
national stock exchange. The partners of the Exchange Partnerships would receive
both common stock in the new company and a cash distribution in exchange for
their existing partnership interests. Such a transaction would, among other
things, allow for the consolidation of the Partnership's operating expenses with
other similarly-organized equipment leasing programs. To the extent that the
parties agree upon a Stipulation of Settlement that is approved by the Court,
the complete terms thereof will be communicated to all of the partners (or
beneficiaries) of the Nominal Defendants to enable them to vote thereon.
There can be no assurance that the parties will agree upon a Stipulation
of Settlement, or that it will be approved by the Court, or that the outcome of
the voting by the partners (or beneficiaries) of the Nominal Defendants,
including the Partnership, will result in a settlement finally being effected or
in the Partnership being included in any such settlement. The General Partner
and its affiliates, in consultation with counsel, concur that
-23-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
there is a reasonable basis to believe that a Stipulation of Settlement will be
agreed upon by the parties and approved by the Court. In the absence of a
Stipulation of Settlement approved by the Court, the Defendants intend to defend
vigorously against the claims asserted in the Class Action Lawsuit. The General
Partner and its affiliates cannot predict with any degree of certainty the
ultimate outcome of such litigation.
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 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
EFG recently filed a motion for Summary Judgment on all claims and
counterclaims. The Court held a hearing on EFG's motion in December 1997 and the
matter remains pending before the Court.
-24-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1997, 1996 and 1995
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, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $ 3,493,529 $ 1,391,622 $ 941,003
Sale proceeds realized upon disposition
of equipment 896,006 304,990 255,467
------------------ ------------------ ------------------
Total cash generated from rents
and equipment sale proceeds 4,389,535 1,696,612 1,196,470
Original acquisition cost of equipment
disposed 3,181,390 1,261,267 989,865
------------------ ------------------ ------------------
Excess of total cash generated to cost
of equipment disposed $ 1,208,145 $ 435,345 $ 206,605
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
-25-
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1997
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income (loss) $ 893,093 $ 359,630 $ 1,252,723
Add:
Depreciation 2,679,339 -- 2,679,339
Management fees 183,112 -- 183,112
Book value of disposed equipment -- 535,501 535,501
Loss on exchanges 958,301 -- 958,301
Proceeds on exchange -- 875 875
Less:
Principal reduction of notes payable (2,446,034) -- (2,446,034)
------------------ ------------------ ------------------
Cash from operations, sales and
refinancings 2,267,811 896,006 3,163,817
Less:
Management fees (183,112) -- (183,112)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 2,084,699 896,006 2,980,705
Other sources and uses of cash:
Cash at beginning of year 1,838,896 -- 1,838,896
Net change in receivables and
accruals (117,914) -- (117,914)
Dividend received 85,149 -- 85,149
Less:
Cash distributions paid (359,962) (896,006) (1,255,968)
------------------- ------------------ ------------------
Cash at end of year $ 3,530,868 $ -- $ 3,530,868
------------------- ------------------ ------------------
------------------- ------------------ ------------------
</TABLE>
-26-
<PAGE>
AMERICAN INCOME FUND I-E,
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, 1997
For the year ended December 31, 1997, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
<TABLE>
<S> <C>
Operating expenses $ 200,966
</TABLE>
-27-
<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-E, a Massachusetts Limited Partnership of our
report dated March 10, 1998, included in the 1997 Annual Report to the
Partners of American Income Fund I-E.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,530,868
<SECURITIES> 319,307
<RECEIVABLES> 2,049,634
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,899,809
<PP&E> 20,792,903
<DEPRECIATION> 10,784,619
<TOTAL-ASSETS> 15,908,093
<CURRENT-LIABILITIES> 432,756
<BONDS> 4,768,982
0
0
<COMMON> 0
<OTHER-SE> 10,706,355
<TOTAL-LIABILITY-AND-EQUITY> 15,908,093
<SALES> 0
<TOTAL-REVENUES> 4,669,470
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,061,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,277
<INCOME-PRETAX> 1,252,723
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,252,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,252,723
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
