<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
<TABLE>
<CAPTION>
<S> <C>
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
--------------------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from-----------------------------to--------------------------------
Commission file number 0-21396
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AFG Investment Trust A
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3145953
- ---------------------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer incorporation
or organization) Identification No.)
98 N. Washington St., Fifth Floor, Boston, MA 02114
- --------------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
------------------------------------------
Securities registered pursuant to Section 12(b) of the Act NONE
-----------------------------------
Title of each class Name of each exchange on which registered
- ----------------------------------------- ----------------------------------------------
- ----------------------------------------- ----------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
549,218 Trust Beneficiary Interests
- ---------------------------------------------------------------------------------------------
(Title of class)
- ---------------------------------------------------------------------------------------------
(Title of class)
</TABLE>
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
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1996 (Part I and II)
<PAGE>
AFG INVESTMENT TRUST A
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 5
PART II
Item 5 Market for the Trust'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 Trust 8
Item 11 Executive Compensation 10
Item 12 Security Ownership of Certain Beneficial Owners and Management 10
Item 13 Certain Relationships and Related Transactions 11
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-15
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
- ----------------
(a) General Development of Business
AFG Investment Trust A, (the "Trust") was organized as a Delaware
business trust in accordance with the Delaware Business Trust Act on February
26, 1992 for the purpose of acquiring and leasing to third parties a
diversified portfolio of capital equipment. Participants' capital initially
consisted of contributions of $1,000 from the Managing Trustee, AFG ASIT
Corporation, $1,000 from the Special Beneficiary, Equis Financial Group
Limited Partnership (formerly American Finance Group), a Massachusetts
limited partnership ("EFG" or the "Advisor"), and $100 from the Initial
Beneficiary, AFG Assignor Corporation, a wholly-owned affiliate of EFG. On
May 29, 1992 the Trust issued 549,218 Beneficiary Interests to 645 investors.
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation and affiliate of EFG, and one Special Beneficiary, EFG. The
Managing Trustee and the Special Beneficiary are not required to make any
other capital contributions except as may be required under the Amended and
Restated Declaration of Trust (the "Trust Agreement").
(b) Financial Information About Industry Segments
The Trust 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 Trust 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 Trust's primary investment objectives are to acquire and lease equipment
which will:
1. Generate monthly cash distributions;
2. Preserve and protect Trust capital; and
3. Maximize residual value for ultimate sale
The Trust has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the offering of Beneficiary Interests of the Trust
was May 29, 1992. Significant operations commenced coincident with the
Trust's initial purchase of equipment and associated lease commitments on May
29, 1992. The acquisition of the equipment and its associated leases is
described in detail in Note 3 to the financial statements included in Item
14, herein. The Trust is expected to terminate by December 31 of the eleventh
year following its Closing Date, or December 31, 2003.
The Trust has no employees; however, it entered into an Advisory Agreement
with EFG. EFG'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 Advisor is compensated for such services as described
in the Trust Agreement, Item 13 herein, and in Note 4 to the financial
statements included in Item 14, herein.
The Trust'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
3
<PAGE>
expenses. Consequently, the success of the Trust is largely dependent upon
the ability of the Managing Trustee 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
substantially all funds available for acquisitions have been invested in
equipment, subject to noncancellable lease agreements, the Trust will encounter
considerable competition when equipment is re-leased or sold at the expiration
of primary lease terms. The Trust will compete with lease programs offered
directly by manufacturers and other equipment leasing companies, including
business trusts and limited partnerships organized and managed similarly to the
Trust 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 Trust. Many competitors have greater financial resources and more
experience than the Trust, the Managing Trustee and the Advisor.
The Trust Agreement provided for the reinvestment of Cash From Sales or
Refinancings in additional equipment until May 1996, a period of four years
following Closing. Upon the expiration of each primary lease term, the Managing
Trustee will determine whether to sell or re-lease the Trust's equipment,
depending on the economic advantages of each alternative. Over time, the Trust
will begin to liquidate its portfolio of equipment.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 is
incorporated herein by reference to Note 2 to the financial statements in the
1996 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
Default by a lessee under a lease agreement may cause equipment to be
returned to the Trust at a time when the Managing Trustee or the Advisor is
unable to arrange the sale or re-lease of such equipment. This could result in
the loss of a portion of potential lease revenues and weaken the Trust's ability
to repay related indebtedness.
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 Trust and several
other Direct-Participation equipment leasing programs sponsored or co-sponsored
by EFG (the "Other Investment Programs"). The Company arranges to broker or
originate equipment leases, acts as remarketing agent and asset manager, and
provides leasing support services, such as billing, collecting, and asset
tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also owns
a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym to a third party (the "Buyer"). AFG changed its name to
Equis Financial Group Limited Partnership after the sale was concluded. Pursuant
to terms of the sale agreements, EFG agreed not to compete with the Buyer's
lease origination business for a period of five years; however, EFG is permitted
to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG the rights to continue using the name American Finance Group and
its acronym in connection with the Trust and the Other Investment Programs and
to continue managing all assets owned by the Trust and the Other Investment
Programs, including the right to satisfy all required equipment acquisitions
utilizing either brokers or the Buyer. Geoffrey A. MacDonald, Chairman of Equis
Corporation and Gary D. Engle agreed not to compete with the sold business on
terms and conditions similar to those for the Company.
4
<PAGE>
(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 1996 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
- -------------------------
Incorporated herein by reference to Note 7 to the financial statements in
the 1996 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -----------------------------------------------------------
Incorporated herein by reference to Note 8 to the financial statements in
the 1996 Annual Report.
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE TRUST'S SECURITIES AND RELATED SECURITY HOLDER MATTERS.
- -----------------------------------------------------------------------------
(a) Market Information
There is no public market for the resale of the Interests and it is not
anticipated that a public market for resale of the Interests will develop.
(b) Approximate Number of Security Holders
At December 31, 1996, there were 636 Beneficiaries in the Trust.
(c) Dividend History and Restrictions
Pursuant to Article VIII of the Trust Agreement, the Trust's
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings (each as defined below) are determined and distributed to the
Trust's Participants monthly. Each monthly distribution may vary in amount.
Currently, there are no restrictions that materially limit the Trust's
ability to distribute Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings or that the Trust believes are likely to
materially limit the future distribution of Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings. The Trust
expects to continue to distribute Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings on a monthly basis.
Distributions in 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
MANAGING SPECIAL
TOTAL TRUSTEE BENEFICIARY BENEFICIARIES
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Total 1996 distributions $ 857,869 $ 8,579 $ 70,774 $ 778,516
Total 1995 distributions 1,207,372 12,074 99,608 1,095,690
------------ ----------- ----------- -------------
$ 2,065,241 $ 20,653 $ 170,382 $ 1,874,206
------------ ----------- ----------- -------------
------------ ----------- ----------- -------------
</TABLE>
Distributions payable were $165,220 and $127,092 at December 31, 1996 and
1995, respectively.
"Distributable Cash From Operations" means the net cash provided by the
Trust's normal operations after general expenses and current liabilities of
the Trust are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the Managing Trustee, and increased by any portion of such
reserves deemed by the Managing Trustee not to be required for Trust
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 reinvested in additional equipment in
accordance with Sections 4.2(b)(v) and 4.2(b)(vi) of the Trust Agreement, or (b)
the proceeds from the sale of an interest in a joint venture which are
reinvested in additional equipment, (ii) any accrued and unpaid Equipment
Management Fee and Acquisition Fees and Acquisition Expenses paid with respect
to additional equipment acquired through
6
<PAGE>
reinvestment of Cash From Sales or Refinancings in accordance with Section
4.2(b)(v) of the Trust Agreement and (iii) after Payout, any accrued and unpaid
Subordinated Resale Fees.
"Cash From Sales or Refinancings" means cash received by the Trust from sale
or refinancing transactions, as reduced by (i)(a) all debts and liabilities of
the Trust 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 Managing Trustee, but not
including any Subordinated Resale Fees whether or not then due and payable) and
(b) general expenses and current liabilities of the Trust and (c) any reserves
for working capital and contingent liabilities funded from such cash to the
extent deemed reasonable by the Managing Trustee and (ii) increased by any
portion of such reserves deemed by the Managing Trustee not to be required for
Trust operations. In the event the Trust accepts a note in connection with any
sale or refinancing transaction, all payments subsequently received in cash by
the Trust with respect to such note shall be included in Cash From Sales or
Refinancings, regardless of the treatment of such payments by the Trust for tax
or accounting purposes. If the Trust 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 Trust shall be made 90.75% to the
Beneficiaries, 8.25% to the Special Beneficiary and 1% to the Managing Trustee.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Beneficiaries of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Beneficiaries' original capital contributions plus a cumulative annual
distribution of 10% (compounded quarterly and calculated beginning with the last
day of the month of the Trust'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 Beneficiaries exceed the amount required to satisfy the cumulative
annual distribution of 10% (compounded quarterly) on the Beneficiaries'
aggregate unreturned capital contributions, such calculation to be based on the
aggregate unreturned capital contributions outstanding on the first day of each
month.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") must be distributed within 45 days after the
completion of each calendar month. Each Distribution is described in a statement
sent to the Beneficiaries.
ITEM 6. SELECTED FINANCIAL DATA.
- -------------------------------
Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
- -------------------------------------------------------------------------------
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ---------------------------------------------------
Incorporated herein by reference to the financial statements and
supplementary data included in the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- -----------------------------------------------------------------------
None.
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE TRUST.
- ------------------------------------------------------
(a-b) Identification of Directors and Executive Officers
THE TRUST HAS NO DIRECTORS OR OFFICERS. As indicated in Item 1 of this
report, AFG ASIT Corporation is the Managing Trustee of the Trust. Under the
Trust Agreement, the Managing Trustee is solely responsible for the operation
of the Trust's properties and the Beneficiaries have no right to participate
in the control of such operations. The names, titles and ages of the
Directors and Executive Officers of the Managing Trustee as of March 15, 1997
are as follows:
DIRECTORS AND EXECUTIVE OFFICERS
OF THE MANAGING TRUSTEE (See Item 13)
- -------------------------------------
<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 and successor
President and a Director of the is duly
Managing Trustee 48 elected
and
Gary D. Engle President and Chief Executive qualified
Officer and member of the
Executive Committee of EFG and a
Director of the Managing Trustee 48
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and Clerk
of the Managing Trustee 37
Michael J. Butterfield Vice President, Finance and
Treasurer of EFG and Treasurer of
the Managing Trustee 37
James A. Coyne Senior Vice President of EFG and
Vice President of the Managing
Trustee 36
James F. Livesey Vice President, Aircraft and
Vessels of EFG 47
Sandra L. Simonsen Senior Vice President, Information
Systems of EFG 46
Gail D. Ofgant Vice President, Lease Operations
of EFG 31
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Directors or
Executive Officers.
8
<PAGE>
(e) Business Experience
Mr. MacDonald, age 48, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the Managing
Trustee. Mr. MacDonald was also a co-founder, Director and Senior Vice
President of EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald
is Vice President of American Finance Group Securities Corp. and a limited
partner in Atlantic Acquisition Limited Partnership ("AALP"). Prior to
co-founding EFG's predecessors, Mr. MacDonald held various executive and
management positions in the leasing and pharmaceutical industries. Mr.
MacDonald holds an M.B.A. from Boston College and a B.A. degree from the
University of Massachusetts (Amherst).
Mr. Engle, age 48, is President and Chief Executive Officer and a member of
the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle is Vice President and a Director of certain of EFG's affiliates and a
Director of the Managing Trustee. On December 16, 1994, Mr. Engle acquired
control of the Managing Trustee, EFG and each of EFG's subsidiaries. Mr. Engle
controls the general partner of AALP and is also a limited partner in AALP. From
1987 to 1990, Mr. Engle was a principal and co-founder of Cobb Partners
Development, Inc., a real estate and mortgage banking company. From 1980 to
1987, Mr. Engle was Senior Vice President and Chief Financial Officer of Arvida
Disney Company, a large scale community development company owned by Walt Disney
Company. Prior to 1980, Mr. Engle served in various management consulting and
institutional brokerage capacities. Mr. Engle has an M.B.A. from Harvard
University and a B.S. degree from the University of Massachusetts (Amherst).
Mr. Romano, age 37, is Executive Vice President and Chief Operating Officer
of EFG and certain of its affiliates and Clerk of the Managing Trustee. 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. Butterfield, age 37, joined EFG in June 1992 and was appointed Vice
President, Finance and Treasurer of EFG and certain affiliates in April 1996,
and is Treasurer of the Managing Trustee. 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. Coyne, age 36, is Senior Vice President of EFG. Mr. Coyne joined EFG
in 1989, remained until May 1993, and rejoined EFG in November 1994. From May
1993 through November 1994, he was with the Raymond Company, a private
investment firm, where he was responsible for financing corporate and real
estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a
real estate investment company and an equipment leasing company. Prior to
1985 he was with the accounting firm of Ernst & Whinney (now Ernst & Young
LLP). He has a BS in Business Administration from John Carroll University, a
Masters Degree in Accounting from Case Western Reserve University and is a
Certified Public Accountant.
Mr. Livesey, age 47, is Vice President, Aircraft and Vessels. 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 leasing firms. Mr. Livesey holds an M.B.A. from Boston College
and B.A. degree from Stonehill College.
Ms. Simonsen, age 46, joined EFG in February 1990. She became Senior Vice
President, Information Systems in April 1996. Prior to joining EFG, Ms.
Simonsen was Vice President, Information Systems withInvestors Mortgage
Insurance Company which she joined in 1973. Ms. Simonsen provided systems
consulting for a subsidiary of American International Group and authored a
software program published by IBM. Ms. Simonsen holds a B.A. degree from
Wilson College.
9
<PAGE>
Ms. Ofgant, age 31, joined EFG in July 1989, and is currently Vice
President, Lease Operations. Ms. Ofgant held the position of Manager, Lease
Operations at EFG through March, 1996. Prior to joining EFG, Ms. Ofgant was
employed by Security Pacific National Trust Company. Ms. Ofgant holds a BS
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 Trust has no employees. However, under the terms of the Trust
Agreement, the Trust is obligated to pay all costs of personnel employed full or
part-time by the Trust, including officers or employees of the Managing Trustee
or its Affiliates. There is no plan at the present time to make any officers or
employees of the Managing Trustee or its Affiliates employees of the Trust. The
Trust has not paid and does not propose to pay any options, warrants or rights
to the officers or employees of the Managing Trustee or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Trust has no employees, as discussed in Item 11(a), pursuant
to section 10.4(c) of the Trust Agreement, the Trust incurs a monthly charge
for personnel costs of EFG for persons engaged in providing administrative
services to the Trust. A description of the remuneration paid by the Trust to
the Managing Trustee and its Affiliates for such services is included in Item
13 of this report and in Note 4 to the financial statements included in Item
14 herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the Managing Trustee
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 trust, the Trust has no outstanding
securities possessing traditional voting rights. However, as provided in
Section 11.2(a) of the Trust Agreement (subject to Section 11.2(b)), a
majority interest of the Beneficiaries have voting rights with respect to:
1. Amendment of the Trust Agreement;
2. Termination of the Trust;
3. Removal of the Managing Trustee; and
10
<PAGE>
4. Approval or disapproval of the sale of all or substantially all the
assets of the Trust (except in the orderly liquidation of the Trust upon its
termination and dissolution).
No person or group is known by the Managing Trustee to own beneficially
more than 5% of the Trust's 549,218 outstanding Interests as of March 1, 1997.
The ownership and organization of EFG is described in Item 1 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------------------------------------------------------
The Managing Trustee of the Trust is AFG ASIT Corporation, an affiliate of
EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Trust are paid by EFG on behalf of
the Trust and EFG is reimbursed at its actual cost for such expenditures. Fees
and other costs incurred during the years ended December 31, 1996, 1995 and
1994, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Equipment acquisition fees $ 36,673 $ 47,131 $ 104,825
Equipment management fees 186,001 201,373 175,122
Administrative charges 40,533 21,000 12,000
Reimbursable operating expenses
due to third parties 97,206 90,979 52,908
Interest on notes payable--affiliate -- -- 991
---------- ---------- ----------
Total $ 360,413 $ 360,483 $ 345,846
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As provided under the terms of the Trust Agreement, EFG is compensated
for its services to the Trust. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG
is compensated by an amount equal to .28% of Asset Base Price paid by the
Trust. 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 Trust or (ii) fees which the
Managing Trustee reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Trust Agreement. Compensation to EFG for services connected to
the remarketing 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
Trust Agreement.
Administrative charges represent amounts owed to the EFG, pursuant to
Section 10.4(c) of the Trust Agreement, for persons employed by EFG who are
engaged in providing administrative services to the Trust. Reimbursable
operating expenses due to third parties represent costs paid by EFG on behalf
of the Trust which are reimbursed to EFG.
All equipment was purchased from EFG or directly from external vendors. The
Trust's Purchase Price is determined by the method described in Note 2 to the
Trust's financial statements included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Trust. At
December 31, 1996, the Trust was owed $55,849 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 1997.
11
<PAGE>
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Trust
None.
(d) Transactions with Promoters
See Item 13(a) above.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- ------------------------------------------------------------------------
(a) Documents filed as part of this report:
<TABLE>
<CAPTION>
<S> <C>
(1) Financial Statements:
Report of Independent Auditors............................................................*
Statement of Financial Position
at December 31, 1996 and 1995.............................................................*
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994......................................*
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994......................................*
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994......................................*
Notes to the Financial Statements.........................................................*
</TABLE>
(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.
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT
NUMBER
- -----------
4 Amended and Restated Declaration of Trust included as Exhibit A to the Prospectus which is included in
Registration Statement on Form S-1 (No. 33-42946).
13 The 1996 Annual Report to security holders, a copy of which is furnished for the information of the
Securities and Exchange Commission. Such Report, except for those portions thereof which are incorporated
herein by reference, is not deemed "filed" with the Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with 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 (a) and is incorporated herein by
reference.
</TABLE>
- ------------------------
* Incorporated herein by reference to the appropriate portion of the 1996
Annual Report to security holders for the year ended December 31, 1996.
(See Part II)
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT
NUMBER
- -----------
99 (b) Lease agreement with Comair, Incorporated was filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 as Exhibit 28 (c) 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 (e) and is incorporated herein by reference.
</TABLE>
(b) Reports on Form 8-K
None.
14
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of AFG Investment Trust A of our report dated March 14, 1997, included in
the 1996 Annual Report to the Participants of AFG Investment Trust A.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity
and on the date indicated.
AFG INVESTMENT TRUST A
By: AFG ASIT Corporation,
a Massachusetts corporation and the
Managing Trustee of the Registrant.
<TABLE>
<S> <C>
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 and a
Managing Trustee Director of the Managing Trustee
(Principal Executive Officer)
Date: March 31, 1997 Date: March 31, 1997
------------------------------ ------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
------------------------------- --------------------------
Gary M. Romano Michael J.Butterfield
Executive Vice President and Chief Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the Managing Trustee of the Managing Trustee
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1997 Date: March 31, 1997
----------------------------- -------------------------
</TABLE>
16
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report has been sent to the Beneficiaries. A report will be
furnished to the Beneficiaries subsequent to the date hereof.
No proxy statement has been or will be sent to the Beneficiaries.
17
<PAGE>
Ex. 13
AFG INVESTMENT TRUST
AFG INVESTMENT TRUST A
Annual Report to the Participants, December 31, 1996
<PAGE>
AFG INVESTMENT TRUST A
INDEX TO ANNUAL REPORT TO THE PARTICIPANTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1996 and 1995 9
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994 10
Statement of Changes in Participants' Capital
for the years ended December 31, 1996, 1995 and 1994 11
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 12
Notes to the Financial Statements 13-21
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 22
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 23
Schedule of Costs Reimbursed to the Managing Trustee
and its Affiliates as Required by Section 10.4
of the Amended and Restated Declaration of Trust 24
</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 the years ended December 31, 1996, 1995, 1994 and 1993 and for the
period May 29, 1992 (commencement of operations) to December 31, 1992:
<TABLE>
<CAPTION>
SUMMARY OF
OPERATIONS 1996 1995 1994 1993 1992
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 4,820,860 $ 5,276,233 $ 4,731,141 $ 4,678,922 $ 1,651,017
Net income $ 476,102 $ 488,063 $ 1,350,553 $ 701,454 $ 174,073
Per Beneficiary Interest:
Net income $ 0.79 $ 0.81 $ 2.23 $ 1.16 $ 0.29
Cash distributions $ 1.42 $ 2.00 $ 2.52 $ 2.52 $ 1.47
Financial Position
- ------------------
Total assets $ 14,175,369 $ 16,603,124 $ 18,742,285 $ 20,926,719 $ 22,010,410
Total long-term obligations $ 4,249,311 $ 6,323,893 $ 7,543,509 $ 9,625,987 $ 9,473,902
Participants' capital $ 9,618,214 $ 9,999,981 $ 10,719,290 $ 10,893,838 $ 11,717,485
</TABLE>
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to the year ended
December 31, 1995 and the year ended December 31, 1995
compared to the year ended December 31, 1994
OVERVIEW
- --------
As an equipment leasing trust, AFG Investment Trust A ("the Trust") was
organized to acquire a diversified portfolio of capital equipment subject to
lease agreements with third parties. The Trust was designed to progress
through three principal phases: acquisitions, operations, and liquidation.
During the operations phase, a period of approximately six years, all
equipment in the Trust's portfolio will progress through various stages.
Initially, all equipment will generate rental revenues under primary term
lease agreements. During the life of the Trust, these agreements will expire
on an intermittent basis and equipment held pursuant to the related leases
will be renewed, re-leased or sold, depending on prevailing market conditions
and the assessment of such conditions by Equis Financial Group Limited
Partnership (formerly American Finance Group), a Massachusetts limited
partnership ("EFG") to obtain the most advantageous economic benefit. Over
time, a greater portion of the Trust's original equipment portfolio will
become available for remarketing and cash generated from operations and from
sales or refinancings will begin to fluctuate. Ultimately, all equipment will
be sold and the Trust will be dissolved. The Trust's operations commenced in
1992.
RESULTS OF OPERATIONS
- ---------------------
For the year ended December 31, 1996, the Trust recognized lease revenue
of $4,820,860, compared to $5,276,233 and $4,731,141 for the years ended
December 31, 1995 and 1994, respectively. The decrease in lease revenue from
1995 to 1996 is due primarily to the Trust's sale of its interest in a Boeing
747-SP aircraft leased to United Air Lines, Inc. (the "United Aircraft") in
February 1996, as discussed below. The increase in lease revenue from 1994 to
1995 was due to the acquisition of additional equipment during 1994 and 1995,
including the effects of reinvestment. The Trust also earns interest income
from temporary investments of rental receipts and equipment sales proceeds in
short-term instruments.
The Trust's equipment portfolio includes certain assets in which the
Trust holds a proportionate ownership interest. In such cases, the remaining
interests are owned by EFG or an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Trust 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 Trust 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.
On February 5, 1996, the Trust concluded the sale of its interest in the
United Aircraft to the lessee, United Air Lines, Inc., ("United"). The Trust
recognized a net loss of $458,638 in connection with this transaction, of
which $311,621 was recognized as Write-Down of Equipment in 1995. The
remainder of $147,017 was recognized as a loss on sale of equipment on the
accompanying financial statements for the year ended December 31, 1996. In
addition to lease rents, the Trust received net sale proceeds of $1,392,779
from United for the aircraft. A portion of such sale proceeds was reinvested
in other equipment in March 1996 through the acquisition of an 8.86%
ownership interest in an aircraft (the "Reno Aircraft") at an aggregate cost
of $1,239,741. To acquire its interest in the Reno Aircraft, the Trust
obtained long-term financing of $997,888 from a third-party lender and
utilized cash proceeds of $241,853 from the sale of the United Aircraft.
During the year ended December 31, 1996, the Trust sold other equipment
having a net book value of $31,554, to existing lessees and third parties.
These sales resulted in a net loss, for financial statement purposes, of
$6,406.
During 1995, the Trust sold equipment having a net book value of
$2,019,625 to existing lessees and third parties. These sales resulted in a
net loss, for financial statement purposes, of $260,567. The equipment sales
included the Trust's interest in a vessel with an original cost and net book
value of $1,948,190 and $1,449,673,
-3-
<PAGE>
respectively, which the Trust sold to an existing lessee in June, 1995. In
connection with this sale, the Trust realized sale proceeds of $1,285,318 and
the purchaser assumed related debt and interest of $96,913 and $625,
respectively, which resulted in a net loss, for financial statement purposes,
of $66,817. This equipment was sold prior to the expiration of the related
lease term. The majority of the Trust's sales proceeds related to this
transaction were reinvested in other equipment in 1995 with the balance
reinvested in 1996. The Trust received $71,850 in 1996 from the lessee
related to a residual sharing agreement between the lessee and the Trust. In
connection with this agreement, the Trust was entitled to a portion of the
sale proceeds realized by the lessee upon its ultimate disposition of the
vessel to a third party. This amount is reflected as Other Income on the
accompanying Statement of Operations.
During 1994, the Trust sold equipment having a net book value of
$2,868,712 to existing lessees and third parties. These sales resulted in a
net gain, for financial statement purposes, of $409,572. The equipment sales
included certain railroad equipment with an original cost and net book value
of $3,221,564 and $2,723,919, respectively, which the Trust sold to a third
party in March 1994. In connection with this sale, the Trust realized sales
proceeds of $895,361 and the purchaser assumed related debt of $2,290,023,
which resulted in a net gain, for financial statement purposes, of $461,465.
This equipment was sold prior to the expiration of the related lease term.
The sale proceeds were fully reinvested in other equipment in 1994.
It cannot be determined whether future sales of equipment will result in
a net gain or a net loss to the Trust, as such transactions will be dependent
upon the condition and type of equipment being sold and its marketability at
the time of sale. In addition, the amount of gain or loss reported for
financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological
advances, and many other events can converge to enhance or detract from asset
values at any given time. EFG attempts to monitor these changes in order to
identify opportunities which may be advantageous to the Trust 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 Trust classifies such residual rental payments as lease revenue.
Consequently, the amount of gain or loss reported in the financial statements
is not necessarily indicative of the total residual value the Trust achieved
from leasing the equipment.
Depreciation and amortization expense was $3,628,279, $3,414,318 and
$3,084,402 for the years ended December 31, 1996, 1995 and 1994,
respectively. For financial reporting purposes, to the extent that an asset
is held on primary lease term, the Trust 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 Trust continues to depreciate the remaining net book
value of the asset on a straight-line basis over the asset's remaining
economic life. The increase in depreciation expense from 1994 to 1996
reflects the acquisition of equipment during 1994, 1995 and 1996.
Interest expense was $396,793 or 8.2% of lease revenue in 1996, $534,365
or 10.1% of lease revenue in 1995 and $532,191 or 11.2% of lease revenue in
1994. Interest expense in future periods will continue 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
indebtedness.
Management fees were 3.9%, 3.8% and 3.7% of lease revenue during the
years ended December 31, 1996, 1995 and 1994, respectively. 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.
-4-
<PAGE>
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as
printing, distribution and remarketing expenses. Collectively, operating
expenses represented 2.9%, 2.1% and 1.4% of lease revenue during the years
ended December 31, 1996, 1995 and 1994, respectively. The increase in
operating expenses from 1994 to 1996 was due primarily to an increase in
professional service costs and expenses incurred in connection with the sale
of the Trust's interest in the vessel and aircraft described 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 trust. Other fluctuations typically occur in relation
to the volume and timing of remarketing activities.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
- ------------------------------------------------------------
The Trust 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 Trust's principal operating activities derive from asset
rental transactions. Accordingly, the Trust'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 $4,295,178, $4,296,416, and
$3,984,457 for the years ended December 31, 1996, 1995 and 1994,
respectively. Future renewal, re-lease and equipment sale activities will
cause a gradual decline in the Trust's primary-term 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 decline as the Trust experiences a higher frequency of
remarketing events.
Ultimately, the Trust 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 asset acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. At December 31, 1995, the Trust had
completed its initial equipment acquisition and leveraging processes. The
Trust expended $1,441,796, $3,051,827 and $5,978,665 to acquire equipment
during the years ended December 31, 1996, 1995 and 1994, respectively,
including new equipment acquired pursuant to the reinvestment provisions of
the Trust's Prospectus of approximately $1,400,000 during each of the years
ended December 31, 1996 and 1995 and $3,300,000 during the year ended
December 31, 1994. The reinvested equipment was financed through a
combination of leveraging and sale proceeds available from the aircraft,
vessel and rail transactions, discussed above. During 1996, the Trust
realized equipment sale proceeds of $1,417,927, including $1,392,779 of
proceeds from the United Aircraft. In 1995, the Trust received sale proceeds
of $1,661,520, including $1,285,318 of proceeds from the vessel transaction
and; in 1994, the Trust received sale proceeds of $988,261, including
$895,361 of proceeds from the rail transaction. Future inflows of cash from
asset disposals will vary in timing and amount and will be influenced by many
factors including, but not limited to, the frequency and timing of lease
expirations, the type of equipment being sold, its condition and age, and
future market conditions.
The Trust obtained long-term financing in connection with certain
equipment leases. The origination of such indebtedness and the subsequent
repayments of principal are reported as components of financing activities.
Cash inflows of $997,888, $1,747,173 and $2,933,632 in 1996, 1995 and 1994,
respectively, resulted from leveraging a portion of the Trust's equipment
portfolio with third-party lenders. EFG also provided interim financing for
the Trust of $1,744,327 during 1994, until third-party financing was
finalized. Each note payable is recourse only to the specific equipment
financed and to the minimum rental payments contracted to be received during
the debt amortization period (which period generally coincides with the lease
rental term). As rental payments are collected, a portion or all of the
rental payment is used to repay the associated indebtedness. In future
periods, the amount of cash used to repay debt obligations will decline as
the principal balance of notes payable is reduced through the collection and
application of rents. However, the Trust has a balloon payment obligation of
$282,421 at the expiration of the primary lease term related to the Reno
Aircraft.
-5-
<PAGE>
Cash distributions to the Managing Trustee, the Special Beneficiary and
the Beneficiaries are declared and generally paid within 45 days following
the end of each calendar month. The payment of such distributions is
presented as a component of financing activities. For the year ended December
31, 1996, the Trust declared total cash distributions of Distributable Cash
From Operations and Distributable Cash From Sales and Refinancings of
$857,869. In accordance with the Trust Agreement, the Beneficiaries were
allocated 90.75% of these distributions, or $778,516; the Special Beneficiary
was allocated 8.25%, or $70,774; and the Managing Trustee was allocated 1%,
or $8,579.
For financial reporting purposes, the Managing Trustee and the Special
Beneficiary each has accumulated a capital deficit at December 31, 1996. This
is the result of aggregate cash distributions to these Participants being in
excess of their aggregate capital contributions ($1,000 each) and their
respective allocations of financial statement net income or loss. (See Note 2
to the financial statements - Allocation of Profits and Losses.) Ultimately,
the existence of a capital deficit for the Managing Trustee or the Special
Beneficiary for financial reporting purposes is not indicative of any further
capital obligations to the Trust by either the Managing Trustee or the
Special Beneficiary. However, for income tax purposes, the Trust Agreement
requires that income be allocated first to those Participants having negative
tax capital account balances so as to eliminate any such balances. In
accordance with the Trust Agreement, upon the dissolution of the Trust, the
Managing Trustee will be required to contribute to the Trust an amount equal
to any negative balance which may exist in the Managing Trustee's tax capital
account. No such requirement exists with respect to the Special Beneficiary.
At December 31, 1996, the Managing Trustee has a positive tax capital account
balance. (See Note 6 to the financial statements.)
At December 31, 1996, the Trust had aggregate future minimum lease
payments of $6,506,434 from contractual lease agreements (see Note 2 to the
financial statements), of which $4,249,311 will be used to amortize the
principal balance of notes payable (see Note 5 to the financial statements).
Additional cash inflows will be realized from future remarketing activities,
such as lease renewals and equipment sales, the timing and extent of which
cannot be predicted with certainty. This is because the timing and extent of
equipment sales is often dependent upon the needs and interests of the
existing lessees. Some lessees may choose to renew their lease contracts,
while others may elect to return the equipment. In the latter instances, the
equipment could be re-leased to another lessee or sold to a third party.
Accordingly, as the Trust matures and a greater level of its equipment assets
become available for remarketing, the cash flows of the Trust will become
less predictable. In addition, the Trust will have cash outflows to satisfy
interest on indebtedness and to pay management fees and operating expenses.
Ultimately, the Trust is expected to meet its future disbursement obligations
and to distribute any excess of cash inflows over cash outflows to the
Participants in accordance with the Trust Agreement. However, several
factors, including month-to-month lease extensions, lessee defaults,
equipment casualty events, and early lease terminations could alter the
Trust's anticipated cash flows as described herein and in the accompanying
financial statements and result in fluctuations to the Trust's periodic cash
distribution payments.
Cash distributions paid to the Participants 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 Trust 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 Trust's equipment portfolio.
It is the intention of the Managing Trustee to maintain a cash
distribution level that is consistent with the operating cash flows of the
Trust and to optimize the long-term value of the Trust. A distribution level
that is higher than the Trust's operating cash flows could compromise the
Trust's working capital position, as well as its ability to refurbish or
upgrade equipment in response to lessee requirements or other market
circumstances and, during its reinvestment period, to purchase replacement
equipment as original equipment is remarketed. Accordingly, in order to
better align monthly cash distributions with the Trust's operating cash
flows, the Managing Trustee reduced the level of monthly cash distributions
from an annualized rate of $2.52 per Beneficiary Interest (the rate
established and paid from the Trust's inception through September 1995) to an
annualized rate of $1.26 per Beneficiary Interest commencing in October 1995.
In October 1996, the Managing Trustee increased the
-6-
<PAGE>
annualized distribution rate to $1.64 per Beneficiary Interest and expects
that the Trust will be able to sustain this distribution rate throughout
1997. However, the nature of the Trust's principal cash flows gradually will
shift from rental receipts to equipment sale proceeds as the Trust matures.
As this occurs, the Trust's cash flows will become more volatile in that
certain of the Trust's equipment leases will be renewed and certain of its
assets will be sold. In some cases, the Trust may be required to expend funds
to refurbish or otherwise improve the equipment being remarketed in order to
make it more desirable to a potential lessee or purchaser. The Trust's
Advisor, EFG, and the Managing Trustee will attempt to monitor and manage
these events to maximize the residual value of the Trust's equipment and will
consider these factors, in addition to the collection of contractual rents,
the retirement of scheduled indebtedness and the Trust's future working
capital and equipment requirements, in establishing future cash distribution
rates. Ultimately, the Participants should expect that cash distribution
rates will fluctuate over the long term as a result of future remarketing
activities.
-7-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Participants of AFG Investment Trust A:
We have audited the accompanying statements of financial position of AFG
Investment Trust A as of December 31, 1996 and 1995, and the related
statements of operations, changes in participants' capital, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Trust'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 AFG Investment
Trust A at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Participants is
presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
-8-
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF FINANCIAL POSITION
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,832,248 $ 455,262
Rents receivable 623,237 642,680
Accounts receivable--affiliate 55,849 83,314
Equipment at cost, net of accumulated
depreciation of $11,280,817 and $8,310,244
at December 31, 1996 and 1995, respectively 11,663,702 15,420,535
Organization costs, net of accumulated
amortization of $4,667 and $3,667
at December 31, 1996 and 1995, respectively 333 1,333
------------- -------------
Total assets $ 14,175,369 $ 16,603,124
------------- -------------
------------- -------------
LIABILITIES AND PARTICIPANTS' CAPITAL
- -------------------------------------
Notes payable $ 4,249,311 $ 6,323,893
Accrued interest 62,360 83,426
Accrued liabilities 23,250 24,135
Accrued liabilities--affiliate 38,293 4,744
Deferred rental income 18,721 39,853
Cash distributions payable to participants 165,220 127,092
------------- -------------
Total liabilities 4,557,155 6,603,143
------------- -------------
Participants' capital (deficit):
Managing Trustee (27,148) (23,330)
Special Beneficiary (231,225) (199,729)
Beneficiary Interests (549,218 Interests; initial
purchase price of $25 each) 9,876,587 10,223,040
------------- -------------
Total participants' capital 9,618,214 9,999,981
------------- -------------
Total liabilities and participants' capital $ 14,175,369 $ 16,603,124
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-9-
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Lease revenue $ 4,820,860 $ 5,276,233 $ 4,731,141
Interest income 85,627 46,053 66,463
Other income 71,850 -- --
Gain (loss) on sale of equipment (153,423) (260,567) 409,572
------------ ------------ ------------
Total income 4,824,914 5,061,719 5,207,176
------------ ------------ ------------
Expenses:
Depreciation and amortization 3,628,279 3,414,318 3,084,402
Write-down of equipment -- 311,621 --
Interest expense 396,793 534,365 531,200
Interest expense--affiliate -- -- 991
Equipment management fees--affiliate 186,001 201,373 175,122
Operating expenses--affiliate 137,739 111,979 64,908
------------ ------------ ------------
Total expenses 4,348,812 4,573,656 3,856,623
------------ ------------ ------------
Net income $ 476,102 $ 488,063 $ 1,350,553
------------ ------------ ------------
------------ ------------ ------------
Net income
per Beneficiary Interest $ 0.79 $ 0.81 $ 2.23
------------ ------------ ------------
------------ ------------ ------------
Cash distributions
declared per Beneficiary Interest $ 1.42 $ 2.00 $ 2.52
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-10-
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF CHANGES IN PARTICIPANTS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
MANAGING SPECIAL BENEFICIARIES
TRUSTEE BENEFICIARY ------------------------
AMOUNT AMOUNT INTERESTS AMOUNT TOTAL
---------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 $ (14,391) $ (125,986) 549,218 $ 11,034,215 $ 10,893,838
Net income--1994 13,505 111,421 -- 1,225,627 1,350,553
Cash distributions
declared (15,251) (125,821) -- (1,384,029) (1,525,101)
---------- ----------- --------- ------------- -------------
Balance at
December 31, 1994 (16,137) (140,386) 549,218 10,875,813 10,719,290
Net income--1995 4,881 40,265 -- 442,917 488,063
Cash distributions
declared (12,074) (99,608) -- (1,095,690) (1,207,372)
---------- ----------- --------- ------------- -------------
Balance at
December 31, 1995 (23,330) (199,729) 549,218 10,223,040 9,999,981
Net income--1996 4,761 39,278 -- 432,063 476,102
Cash distributions
declared (8,579) (70,774) -- (778,516) (857,869)
---------- ----------- --------- ------------- -------------
Balance at
December 31, 1996 $ (27,148) $ (231,225) 549,218 $ 9,876,587 $ 9,618,214
---------- ----------- --------- ------------- -------------
---------- ----------- --------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-11-
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 476,102 $ 488,063 $ 1,350,553
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 3,628,279 3,414,318 3,084,402
Write-down of equipment -- 311,621 --
(Gain) loss on sale of equipment 153,423 260,567 (409,572)
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 19,443 (65,740) (202,020)
Accounts receivable--affiliate 27,465 (40,045) 88,502
Increase (decrease) in:
Accrued interest (21,066) 11,749 (20,217)
Accrued liabilities (885) 8,635 --
Accrued liabilities--affiliate 33,549 (68,009) 72,753
Deferred rental income (21,132) (24,743) 20,056
----------- ----------- ------------
Net cash from operating activities 4,295,178 4,296,416 3,984,457
----------- ----------- ------------
Cash flows from (used in) investing activities
Purchase of equipment (1,441,796) (3,051,827) (5,978,665)
Proceeds from equipment sales 1,417,927 1,661,520 988,261
----------- ----------- ------------
Net cash used in investing activities (23,869) (1,390,307) (4,990,404)
----------- ----------- ------------
Cash flows from (used in) financing activities:
Proceeds from notes payable 997,888 1,747,173 2,933,632
Proceeds from notes payable--affiliate -- -- 1,744,327
Principal payments--notes payable (3,072,470) (2,869,876) (2,726,087)
Principal payments--notes payable--affiliate -- -- (1,744,327)
Distributions paid (819,741) (1,334,615) (1,525,101)
----------- ----------- ------------
Net cash used in financing activities (2,894,323) (2,457,318) (1,317,556)
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents 1,376,986 448,791 (2,323,503)
Cash and cash equivalents at beginning of year 455,262 6,471 2,329,974
----------- ----------- ------------
----------- ----------- ------------
Cash and cash equivalents at end of year $ 1,832,248 $ 455,262 $ 6,471
----------- ----------- ------------
----------- ----------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 417,859 $ 522,616 $ 551,417
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1995, the Trust sold equipment to a third party which assumed related
debt and interest of $96,913 and $625, respectively.
During 1994, the Trust sold equipment to a third party which assumed related
debt of $2,290,023.
The accompanying notes are an integral part of
these financial statements.
-12-
<PAGE>
AFG INVESTMENT TRUST A
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1-ORGANIZATION AND TRUST MATTERS
- -------------------------------------
The Trust was organized as a Delaware business trust in accordance with
the Delaware Business Trust Act on February 26, 1992 for the purpose of
acquiring and leasing to third parties a diversified portfolio of capital
equipment. Participants' capital initially consisted of contributions of
$1,000 from the Managing Trustee, AFG ASIT Corporation, $1,000 from the
Special Beneficiary, Equis Financial Group Limited Partnership (formerly
American Finance Group), a Massachusetts limited partnership ("EFG"), and
$100 from the Initial Beneficiary, AFG Assignor Corporation, a wholly-owned
affiliate of EFG. The Trust issued 549,218 Beneficiary Interests to 645
investors on May 29, 1992. The Trust's Managing Trustee, AFG ASIT
Corporation, a Massachusetts corporation and an Affiliate of EFG, is
responsible for the general management and business affairs of the Trust. EFG
is the sole Special Beneficiary of the Trust and also acts as Advisor to the
Trust. As Advisor, EFG provides services in connection with the acquisition
and remarketing of the Trust's assets. The Managing Trustee and the Special
Beneficiary are not required to make any other capital contributions except
as may be required under the Amended and Restated Declaration of Trust (the
"Trust Agreement").
Significant operations commenced May 29, 1992 when the Trust made its
initial equipment purchase. Pursuant to the Trust Agreement, each
distribution of Distributable Cash From Operations and Distributable Cash
From Sales or Refinancings of the Trust shall be made 90.75% to the
Beneficiaries, 8.25% to the Special Beneficiary and 1% to the Managing
Trustee.
Under the terms of the Advisory Agreement between the Trust and EFG,
management services are provided by EFG to the Trust at fees which the
Managing Trustee believes to be competitive for similar services. (Also see
Note 4.)
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Trust and several
other Direct-Participation equipment leasing programs sponsored or
co-sponsored by EFG (the "Other Investment Programs"). The Company arranges
to broker or originate equipment leases, acts as remarketing agent and asset
manager, and provides leasing support services, such as billing, collecting,
and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by
Gary D. Engle, its President and Chief Executive Officer. Equis Corporation
also owns a controlling 1% general partner interest in EFG's 99% limited
partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis Corporation
and GDE LP were established in December 1994 by Mr. Engle for the sole
purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating
primarily to the business of originating new leases, and the name "American
Finance Group," and its acronym to a third party (the "Buyer"). AFG changed
its name to Equis Financial Group Limited Partnership after the sale was
concluded. Pursuant to terms of the sale agreements, EFG agreed not to
compete with the Buyer's lease origination business for a period of five
years; however, EFG is permitted to originate certain equipment leases,
principally those involving non-investment grade lessees and ocean-going
vessels, which are not in competition with the Buyer. In addition, the sale
agreements specifically reserved to EFG the rights to continue using the name
American Finance Group and its acronym in connection with the Trust and the
Other Investment Programs and to continue managing all assets owned by the
Trust and the Other Investment Programs, including the right to satisfy all
required equipment acquisitions utilizing either brokers or the Buyer.
Geoffrey A. MacDonald, Chairman of Equis
-13-
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
Corporation and Gary D. Engle agreed not to compete with the sold business on
terms and conditions similar to those for the Company.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------
STATEMENT OF CASH FLOWS
- -----------------------
The Trust considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time,
the Trust invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Trust. The
securities underlying the agreements are book entry securities. At December
31, 1996, the Trust had $1,730,000 invested in reverse repurchase agreements
secured by U.S. Treasury Bills or interests in U.S. Government Securities.
REVENUE RECOGNITION
- -------------------
Rents are payable to the Trust 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. In certain instances,
the Trust may enter primary-term, renewal or re-lease agreements which expire
beyond the Trust's anticipated dissolution date. This circumstance is not
expected to prevent the orderly wind-up of the Trust's business activities as
the Managing Trustee and the Advisor would seek to sell the then-remaining
equipment assets either to the lessee or to a third party, taking into
consideration the amount of future non-cancelable rental payments associated
with the attendant lease agreements. Future minimum rents of $6,506,434 are
due as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ending December 31, 1997 $3,984,674
1998 1,643,662
1999 309,665
2000 215,262
2001 175,766
Thereafter 177,405
---------
Total $6,506,434
---------
---------
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Comair, Incorporated $ 645,627 $ 645,627 $ 645,627
Gearbulk Shipowning Ltd (Formerly Kristian
Gerhard Jebsen Skipsrederi A/S) $ 530,881 $ 528,515 $ 529,984
National Steel Corporation -- -- $ 506,482
</TABLE>
During March 1996, the Trust acquired an 8.86% proportionate ownership
interest in an MD-87 jet aircraft leased by Reno Air, Inc. (the "Reno
Aircraft")--See Note 3 herein. The Trust will receive approximately $159,000
of rental revenue in each of the years in the period ending December 31,
2002. Rents from the Reno Aircraft, as provided for in the lease agreement,
are adjusted monthly for changes of the London Inter-Bank Offered Rate
("LIBOR"). Future rents from the Reno Aircraft included above reflect the
most recent LIBOR effected rental payment.
-14-
<PAGE>
AFG Investment Trust A
Notes to the Financial Statments
(Continued)
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 Trust Agreement
and certain regulatory guidelines. Asset Base Price is affected by the
relationship of the seller to the Trust 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 primary term rents earned by EFG or the
Affiliate prior to selling the equipment or (ii) fair market value as
determined by the Managing Trustee in its best judgment, including all liens
and encumbrances on the equipment and other actual expenses. Where the seller
of the equipment was a third party who did not manufacture the equipment,
Asset Base Price was the lower of (i) the price invoiced by the third party
or (ii) fair market value as determined by the Managing Trustee. Where the
seller of the equipment was a third party who also manufactured the
equipment, Asset Base Price was the manufacturer's invoice price, net of any
manufacturer rebates or incentives, which price was considered to be
representative of fair market value.
DEPRECIATION AND AMORTIZATION
- -----------------------------
The Trust'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 Trust 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 Trust 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 Managing Trustee evaluates
the net carrying value of equipment to determine whether it exceeds estimated
net realizable value. For purposes of this comparison, "net carrying value"
represents, at a given date, the net book value (equipment cost less
accumulated depreciation for financial reporting purposes) of the Trust's
equipment and "net realizable value" represents, at the same date, the
aggregate undiscounted cash flows resulting from future contracted lease
payments plus the estimated residual value of the Trust's equipment. The
Managing Trustee evaluates significant equipment assets, such as aircraft and
vessels, individually. All other assets are evaluated collectively by
equipment type unless the Managing Trustee learns of specific circumstances,
such as a lessee default, technological obsolescence, or other market
developments, which could affect the net realizable value of particular
assets. Adjustments to reduce the net carrying value of equipment are
recorded in those instances where estimated net realizable value is
considered to be less than net carrying value. Such adjustments are reflected
separately on the accompanying Statement of Operations as Write-Down of
Equipment.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological
advances, and many other events can converge to enhance or detract from asset
values at any given time. EFG attempts to monitor these changes in order to
identify opportunities which may be advantageous to the Trust and which will
maximize total cash returns for each asset.
-15-
<PAGE>
AFG INVESTMENT TRUST A
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Organization costs are amortized using the straight-line method over a
period of five years.
ACCRUED LIABILITIES--AFFILIATE
- ------------------------------
Unpaid fees and operating expenses paid by EFG on behalf of the Trust and
accrued but unpaid administrative charges are reported as Accrued
Liabilities--Affiliate. (See Note 4.)
ALLOCATION OF PROFITS AND LOSSES
- --------------------------------
For financial statement purposes, net income or loss is allocated to each
Participant according to their respective ownership percentages (90.75% to
the Beneficiaries, 8.25% to the Special Beneficiary and 1% to the Managing
Trustee). See Note 6 concerning allocation of income or loss for income tax
purposes.
NET INCOME AND CASH DISTRIBUTIONS PER BENEFICIARY INTEREST
- ----------------------------------------------------------
Net income and cash distributions per Beneficiary Interest are based on
549,218 Beneficiary Interests outstanding during each of the three years in
the period ended December 31, 1996 and computed after allocation of the
Managing Trustee's and Special Beneficiary's shares 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 Participants are responsible for reporting their
proportionate shares of the Trust's taxable income or loss and other tax
attributes on their tax returns.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Trust adopted Statement 121 in the first
quarter of 1996. The adoption of Statement 121 did not have a material effect
on the financial statements of the Trust.
NOTE 3--EQUIPMENT
- -----------------
The following is a summary of equipment owned by the Trust at December
31, 1996. Remaining Lease Term (Months), as used below, represents the number
of months remaining from December 31, 1996 under contracted lease terms and
is presented as a range when more than one lease agreement is contained in
the stated equipment category. In the opinion of EFG, the acquisition cost of
the equipment did not exceed its fair market value.
-16-
<PAGE>
AFG INVESTMENT TRUST A
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
REMAINING
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST LOCATION
- -------------------------------------- ------------- ------------ --------------------------------------------
<S> <C> <C> <C>
Aircraft 12-74 $ 6,814,662 IL/OH/WA
Materials handling 1-46 3,723,929 AR/CA/GA/IL/KS/MI/MO/NY/OH/PA SC/TX/VA/WV
Retail store fixtures 3-27 2,992,236 FL/GA/OK/TX
Vessels 14 2,399,580 NY/Foreign
Computers and peripherals 1-21 2,226,777 AK/AL/AZ/HI/IL/IN/KS/KY/LA/MI
MN/NM/NY/OH/PA/VA/TX/WI
Construction and mining 1-73 1,945,484 IL/MI/MN/PA
Communications 24 1,802,423 AL/AR/AZ/CA/CO/FL/GA/IA/ID/IL/IN
KS/KY/LA/MD/MI/MN/MO/MT/NC
Research and test 9 459,282 MI
Manufacturing.. 18 442,590 NJ
Energy systems. 12 108,975 IL
Photocopying... 1-10 28,581 GA/IL
------------- ------------ --------------------------------------------
Total equipment cost 22,944,519
Accumulated depreciation (11,280,817)
-------------
Equipment, net of accumulated depreciation $ 11,663,702
------------
------------
</TABLE>
On September 29, 1995, the Trust entered into an agreement with United
Air Lines, Inc. ("United") to transfer the Trust's proportionate ownership
interest in a Boeing 747-SP aircraft (the "United Aircraft"), to United for
cash consideration of $1,609,894, including unpaid rents through the date of
sale, which event concluded in February 1996. In March 1996, the Trust
acquired an 8.86% ownership interest in a replacement aircraft (the "Reno
Aircraft"), pursuant to the reinvestment provisions of the Trust's
prospectus, at a cost of $1,239,741. To acquire its interest in the Reno
Aircraft, the Trust obtained leveraging of $997,888 from a third-party lender
and utilized cash proceeds of $241,853 from the sale of the United Aircraft.
In certain cases, the cost of the Trust's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or
an affiliated equipment leasing program sponsored by EFG. The Trust 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 Trust to further diversify its equipment portfolio by
participating in the ownership of selected assets, thereby reducing the
general levels of risk which could result from a concentration in any single
equipment type, industry or lessee. At December 31, 1996, the Trust's
equipment portfolio included equipment having a proportionate original cost
of $8,721,813, representing approximately 38% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of
equipment includes leveraged equipment having an original cost of
approximately $16,268,000 and a net book value of approximately $8,878,000 at
December 31, 1996. (See Note 5.)
Generally, the costs associated with maintaining, insuring and operating
the Trust's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Trust.
-17-
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
As equipment is sold to third parties, or otherwise disposed of, the
Trust will recognize 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 will be 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. At December 31,
1996, the Trust held equipment for sale or re-lease with an original cost and
net book value of approximately $22,000 and $6,000, respectively. The
Managing Trustee is actively seeking the sale or re-lease of this equipment.
NOTE 4-RELATED PARTY TRANSACTIONS
- ---------------------------------
All operating expenses incurred by the Trust are paid by EFG on behalf of
the Trust and EFG is reimbursed at its actual cost for such expenditures.
Fees and other costs incurred during the years ended December 31, 1996, 1995
and 1994 which were paid or accrued by the Trust to EFG or its Affiliates,
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Equipment acquisition fees $ 36,673 $ 47,131 $ 104,825
Equipment management fees 186,001 201,373 175,122
Administrative charges 40,533 21,000 12,000
Reimbursable operating
expenses due to third parties 97,206 90,979 52,908
Interest on notes payable--affiliate. -- -- 991
---------- ---------- ----------
Total $ 360,413 $ 360,483 $ 345,846
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As provided under the terms of the Trust Agreement, EFG is compensated
for its services to the Trust. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG
is compensated by an amount equal to .28% of Equipment Base Price paid by the
Trust. For acquisition services resulting from Reinvestment, EFG is
compensated by an amount equal to 3% of Equipment Base Price paid by the
Trust. 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 Trust or (ii) fees which the
Managing Trustee reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Trust Agreement. Compensation to EFG for services connected to
the remarketing 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
Trust Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) the Trust Agreement, for persons employed by EFG who are engaged in
providing administrative services to the Trust. Reimbursable operating
expenses due to third parties represent costs paid by EFG on behalf of the
Trust which are reimbursed to EFG.
All equipment was purchased from EFG, one of its Affiliates or from
third-party sellers. The Trust's Purchase Price is determined by the method
described in Note 2, Equipment on Lease.
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 Trust. At
December 31, 1996, the Trust was owed $55,849 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 1997.
-18
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
NOTE 5--NOTES PAYABLE
- ---------------------
Notes payable at December 31, 1996 consisted of installment notes of
$4,249,311 payable to banks and institutional lenders. The notes bear
interest rates ranging between 5.7% and 9.17%, except for one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.5% at
December 31, 1996). 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 Trust has a balloon payment obligation of $282,421 at the
expiration of the primary lease term related to the Reno Aircraft. The
carrying amount of notes payable approximates fair value at December 31, 1996.
THE ANNUAL MATURITIES OF THE NOTES PAYABLE ARE AS FOLLOWS:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1997 $2,362,745
1998 1,083,581
1999 171,548
2000 118,459
2001 128,106
Thereafter 384,872
---------
Total $4,249,311
---------
---------
</TABLE>
The weighted average interest rate on short-term borrowings from EFG for
the purchase of equipment was 9.25% during the year ended December 31, 1994.
NOTE 6--INCOME TAXES
- --------------------
The Trust is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts
of the Trust.
For financial statement purposes, the Trust allocates net income or loss
to each class of participant according to their respective ownership
percentages (90.75% to the Beneficiaries, 8.25% to the Special Beneficiary
and 1% to the Managing Trustee). This convention differs from the income or
loss allocation requirements for income tax and Dissolution Event purposes as
delineated in the Trust Agreement. Pursuant to the Trust Agreement, for
income tax purposes, the Trust allocates net income, to the extent available,
pro-rata to any Participant with a negative capital account balance so as to
eliminate any such balance. In accordance with the Trust Agreement, upon
dissolution of the Trust, the Managing Trustee will be required to contribute
to the Trust an amount equal to any negative balance which may exist in the
Managing Trustee's tax capital account. At December 31, 1996, the Managing
Trustee 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, 1996, 1995 and 1994:
-19-
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ------------
<S> <C> <C> <C>
Net income $476,102 $ 488,063 $ 1,350,553
Financial statement depreciation in
excess of (less than) tax depreciation 68,453 (523,542) (1,636,691)
Tax gain in excess of book gain (loss) 446,154 443,827 796,434
Prepaid rental income (21,132) (24,743) 20,056
Other 15,399 4,135 --
------------ ---------- ------------
Net income for federal income tax
reporting purposes $984,976 $ 387,740 $ 530,352
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The following is a reconciliation between participants' capital reported
for financial statement and federal income tax reporting purposes for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Participants' capital $ 9,618,214 $ 9,999,981
Add back selling commissions and organization
and offering costs 1,299,393 1,299,393
Financial statement distributions in excess of
tax distributions 15,283 11,756
Cumulative difference between federal income tax
and financial statement income (4,783,320) (5,292,194)
------------ ------------
Participants' capital for federal income tax reporting purposes $ 6,149,570 $ 6,018,936
------------ ------------
------------ ------------
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement
income represent timing differences.
NOTE 7--LEGAL PROCEEDINGS
- -------------------------
On July 27, 1995, EFG, on behalf of the Trust 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 Trust,
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
-20-
<PAGE>
and the matter remains pending before the Court. The Trust has not
experienced any material losses as a result of this action.
NOTE 8--SOLICITATION STATEMENT
- ------------------------------
On October 26, 1996, the Managing Trustee, on behalf of the Trust, filed
a Solicitation Statement with the Securities and Exchange Commission which
was subsequently sent to the Beneficiaries pursuant to Regulation 14A of
Section 14 of the Securities Exchange Act. The Solicitation Statement sought
to solicit the consent of the Beneficiaries to a proposed amendment ("the
Amendment") to the Trust Agreement.
The Amendment would (i) amend the provisions of the Trust Agreement
governing the redemption of Interests to permit the Trust to offer to redeem
outstanding interests at such times, in such amounts, in such manner and at
such prices as the Managing Trustee may determine from time to time, in
accordance with applicable law; and (ii) add a provision to the Trust
Agreement that would permit the Trust to issue, at the discretion of the
Managing Trustee and without further consent or approval of the
Beneficiaries, an additional class of security with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties as the Managing Trustee may fix. Such a security, if it
were to be offered and sold, would provide the Trust with the funds to (a)
implement more expansive Interest redemption opportunities for Beneficiaries
without using Trust funds which may otherwise be available for current cash
distributions; and (b) make a special one-time distribution to the
Beneficiaries.
Pursuant to the Trust Agreement, the adoption of the Amendment required
the consent of the Beneficiaries holding more than fifty percent in the
aggregate of the Interests held by all Beneficiaries. A majority of
Beneficiary Interests, representing 286,868 or 52.2% of all Beneficiary
Interests, voted in favor of the Amendment; 49,019 or 8.9% of all Beneficiary
Interests voted against the Amendment; and 16,104 or 2.9% of all Beneficiary
Interests abstained. Approximately 64% of all Beneficiary Interests
participated in the vote. Accordingly, the Amendment was adopted.
NOTE 9--SUBSEQUENT EVENT
- ------------------------
On February 12, 1997, the Trust filed a Registration Statement on Form
S-1 with the United States Securities and Exchange Commission which covers,
among other things, the creation and sale of a new class of beneficiary
interest in the Trust (the "Class B Interests"). A portion of the proceeds
from the offering of the Class B Interests would be used to make a one-time
special cash distribution to existing Beneficiaries (the "Class A
Beneficiaries") of the Trust and to enable the Trust to redeem a portion of
the existing Beneficiary Interests (the "Class A Interests"). The
characteristics of the Class B Interests, associated risk factors, and other
matters of importance to the Beneficiaries and prospective purchasers of the
Class B Interests are contained in the Registration Statement. Presently, the
Registration Statement is undergoing regulatory review and has not been
declared effective.
-21-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AFG INVESTMENT TRUST A
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1996, 1995 and 1994
The Trust 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 revenues, 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 Trust for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $ 925,719 $ 2,767,006 $ 541,850
Sale proceeds, including assumption of
debt and interest, realized upon
disposition of equipment 1,417,927 1,759,058 3,278,284
------------ ------------ ----------
Total cash generated from rents
and equipment sale proceeds 2,343,646 4,526,064 3,820,134
Original acquisition cost of equipment
disposed 2,228,056 4,065,355 3,460,533
------------ ------------ ----------
Excess of total cash generated to cost
of equipment disposed $ 115,590 $ 460,709 $ 359,601
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
-22-
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1996
<TABLE>
<CAPTION>
SALES AND
OPERATIONS REFINANCINGS TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
Net income (loss) $ 629,525 $ (153,423) $ 476,102
Add:
Depreciation and amortization 3,628,279 -- 3,628,279
Management fees 186,001 -- 186,001
Book value of disposed equipment -- 1,571,350 1,571,350
Less:
Principal reduction of notes payable (3,072,470) -- (3,072,470)
----------- ------------ -----------
Cash from operations, sales and
refinancings 1,371,335 1,417,927 2,789,262
Less:
Management fees (186,001) -- (186,001)
----------- ------------ -----------
Distributable cash from operations,
sales and refinancings 1,185,334 1,417,927 2,603,261
Other sources and uses of cash:
Cash at beginning of year 216,386 238,876 455,262
Proceeds from notes payable 997,888 -- 997,888
Purchase of equipment (997,888) (443,908) (1,441,796)
Net change in receivables and
accruals 37,374 -- 37,374
Less:
Cash distributions paid (819,741) -- (819,741)
----------- ------------ -----------
Cash at end of year $ 619,353 $ 1,212,895 $ 1,832,248
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
-23-
<PAGE>
AFG INVESTMENT TRUST A
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING TRUSTEE AND ITS AFFILIATES AS
REQUIRED BY SECTION 10.4 OF THE AMENDED AND
RESTATED DECLARATION OF TRUST
December 31, 1996
For the year ended December 31, 1996, the Trust reimbursed the Managing
Trustee and its Affiliates for the following costs:
<TABLE>
<S> <C>
Operating expenses $ 122,915
</TABLE>
-24-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,832,248
<SECURITIES> 0
<RECEIVABLES> 679,086
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,511,667
<PP&E> 22,944,519
<DEPRECIATION> 11,280,817
<TOTAL-ASSETS> 14,175,369
<CURRENT-LIABILITIES> 307,844
<BONDS> 4,249,311
0
0
<COMMON> 0
<OTHER-SE> 9,618,214
<TOTAL-LIABILITY-AND-EQUITY> 14,175,369
<SALES> 4,820,860
<TOTAL-REVENUES> 4,824,914
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,952,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 396,793
<INCOME-PRETAX> 476,102
<INCOME-TAX> 0
<INCOME-CONTINUING> 476,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 476,102
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
