<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-21390
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AFG Investment Trust B
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(Exact name of registrant as specified in its charter)
Delaware 04-3157230
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad St., Sixth Floor, Boston, MA 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
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Securities registered pursuant to Section 12(b) of the Act NONE
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Title of each class Name of each exchange on which registered
- ------------------------- --------------------------------------------------
- ------------------------- --------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
665,494 Class A Trust Beneficiary Interests
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(Title of class)
1,000,961 Class B Trust Beneficiary Interests
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
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State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1998 (Part I and II)
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AFG Investment Trust B
FORM 10-K
TABLE OF CONTENTS
Page
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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 8
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Trust 9
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 14-15
2
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PART I
Item 1. Business.
(a) General Development of Business
AFG Investment Trust B (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust Act on May 28, 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 known as
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. The Trust issued an aggregate of 665,494
Beneficiary Interests (hereinafter referred to as Class A Interests) at a
subscription price of $25.00 each ($16,637,350 in total) to 803 investors on
September 8, 1992. On July 18, 1997, the Trust issued 1,000,961 Class B
Interests at $5.00 each ($5,004,805 in total), of which (i) 997,373 interests
are held by Equis II Corporation, an affiliate of EFG, and (ii) 3,588 interests
are held by 5 other Class A investors. The Trust repurchased 82,837 Class A
Interests on October 10, 1997 using proceeds from the issuance of Class B
Interests. On December 1, 1997, the Trust repurchased 640 additional Class A
Interests at a cost of $6,080. Accordingly, there are 582,017 Class A Interests
currently outstanding.
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation, and one Special Beneficiary, EFG. The Managing Trustee is
responsible for the general management and business affairs of the Trust. EFG
acts as Advisor to the Trust and provides services in connection with the
acquisition and remarketing of the Trust's assets. AFG ASIT Corporation is a
wholly-owned subsidiary of Equis II Corporation and an affiliate of EFG. Class A
Interests and Class B Interests basically have identical voting rights and,
therefore, Equis II Corporation has control over the Trust on all matters on
which the Beneficiaries may vote. The Managing Trustee and the Special
Beneficiary are not required to make any other capital contributions except as
may be required under the Second Amended and Restated Declaration of Trust, as
amended (the "Trust Agreement").
(b) Financial Information About Industry Segments
Historically, the Trust has been 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 undiscounted, noncancellable rents equal or
exceed the Purchase Price of the leased equipment. Operating leases are those in
which the aggregate undiscounted, noncancellable rental payments are less than
the Purchase Price of the leased equipment. In connection with the Solicitation
Statement and consent of Beneficiaries (see Note 9 to the financial statements
included in Item 14, herein), the prior Trust Agreement was modified to permit
the Trust to invest in assets other than equipment. In the future, the Managing
Trustee anticipates that the Trust will make new investments that have the
potential to enhance the Trust's overall economic performance for the benefit of
all of the Beneficiaries. 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.
3
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The Closing Date of the offering of Class A Beneficiary Interests was
September 8, 1992. Significant operations commenced coincident with the Trust's
initial purchase of equipment and associated lease commitments on September 8,
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.
Pursuant to the Trust Agreement, the Trust is scheduled to be dissolved by
December 31, 2003. The Trust is a Nominal Defendant in a Class Action Lawsuit,
the resolution of which remains pending. See Note 11 to the accompanying
financial statements.
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 expenses.
In addition, the leasing industry is very competitive. The Trust is subject to
considerable competition when equipment is re-leased or sold at the expiration
of primary lease terms. The Trust must 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. In addition,
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.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is
incorporated herein by reference to Note 2 to the financial statements in the
1998 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
The Trust Agreement originally provided for the reinvestment of Cash From
Sales or Refinancings in additional equipment until September 8, 1996, a period
of four years following Closing. In connection with the Solicitation Statement
and consent of Beneficiaries (see Note 9 to the financial statements included in
Item 14 herein), the Trust's reinvestment provisions were reinstated until
December 31, 2001 (see Note 4 to the financial statements included in Item 14
herein). In addition, the Trust is now permitted to invest in assets other than
equipment. 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.
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, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition
4
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Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were established in
December 1994 by Mr. Engle for the sole purpose of acquiring the business of
AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Trust and the Other Investment Programs and to continue managing all assets
owned by the Trust and the Other Investment Programs.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
Item 2. Properties.
Incorporated herein by reference to Note 3 to the financial statements in
the 1998 Annual Report.
Item 3. Legal Proceedings.
Incorporated herein by reference to Note 11 to the financial statements in
the 1998 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
5
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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, 1998, there were 679 record holders (673 Class A Interest
and 6 Class B Interests) in the Trust.
(c) Dividend History and Restrictions
Pursuant to Article VIII of the Trust Agreement, the amount of cash
distributions to be declared and paid to the Beneficiaries is determined on a
monthly basis. Each monthly distribution may vary in amount and the Managing
Trustee may, in its sole discretion, restrict or suspend distributions if it
believes such action to be in the best interests of the Trust. Each distribution
is made 90.75% to the Class A and Class B Beneficiaries, 8.25% to the Special
Beneficiary, and 1% to the Managing Trustee. Currently, there are no
restrictions that materially limit the Trust's ability to make distributions or
that the Trust believes are likely to materially limit future distributions. The
Trust expects to continue to make distributions on a monthly basis.
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.
Distributions, prior to Class B Payout (defined below), are allocated to
the Class A and Class B Beneficiaries as follows: first, 100% to the Class A
Beneficiaries up to $0.41 per Class A Interest; second, 100% to the Class B
Beneficiaries up to $0.164 per Class B Interest, reduced by the Class B
Distribution Reduction Factor (defined later herein); third, 100% to the Class A
Beneficiaries up to an additional $0.215 per Class A Interest; and fourth, until
Class B Payout has been attained, 80% to the Class B Beneficiaries and 20% to
the Class A Beneficiaries. After Class B Payout, all further distributions will
be made to the Class A Beneficiaries and the Class B Beneficiaries in amounts so
that each Class A Beneficiary receives, with respect to each Class A Interest,
an amount equal to 400%, divided by the difference between 100% and the Class B
Distribution Reduction Factor, of the amount so distributed with respect to each
Class B Interest. The Class B Distribution Reduction Factor means the percentage
determined as a fraction, the numerator of which is the aggregate amount of any
cash distributions paid to the Class B Beneficiaries as a return of their
original capital contributions (on a per Class B Subordinated Interest basis),
discounted at 8% per annum (commencing August 1, 1997, the first day of the
month following the Class B Closing) and the denominator of which is $5.00.
Distributions in 1998 and 1997 were as follows:
Managing Special
Total Trustee Beneficiary Beneficiaries
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Total 1998 distributions:
Class A Interests $1,050,516 $ 10,505 $ 86,668 $ 953,343
Class B Interests 2,123,890 6,234 51,426 2,066,230
Total 1997 distributions:
Class A Interests 2,118,339 11,389 93,958 2,012,992
Class B Interests 328,714 3,287 27,119 298,308
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Total $5,621,459 $ 31,415 $ 259,171 $5,330,873
========== ========== ========== ==========
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Distributions payable at December 31, 1998 and 1997 were $218,681 and
$235,577, 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 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 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.
Class A Payout means the first time when the aggregate amount of all
distributions actually made to the Class A Beneficiaries equals $25 per Class A
Interest (minus all uninvested capital contributions returned to the Class A
Beneficiaries) plus a cumulative annual distribution of 10% compounded quarterly
and calculated beginning with the last day of the month of the Trust's initial
Class A Closing.
Class B Payout means the first time when the aggregate amount of all
distributions actually made to the Class B Beneficiaries equals $5 per Class B
Interest plus a cumulative annual return of 8% per annum compounded quarterly
with respect to capital contributions returned to them as a Class B Capital
Distribution and 10% per annum, compounded quarterly, with respect to the
balance of their capital contributions and calculated beginning August 1, 1997,
the first day of the month following the Class B Closing.
Item 6. Selected Financial Data.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1998 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
1998 Annual Report.
7
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Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1998 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
8
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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, 1999 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 successor
and President and a Director is duly
of the Managing Trustee 50 elected
and
Gary D. Engle President and Chief Executive Officer qualified
and a member of the Executive
Committee of EFG and a Director
of the Managing Trustee 50
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the Managing Trustee 39
Michael J. Butterfield Senior Vice President, Finance and Treasurer
of EFG and Treasurer of the
Managing Trustee 39
James A. Coyne Executive Vice President of EFG, Capital
Markets and Senior Vice President of the
Managing Trustee 38
Sandra L. Simonsen Senior Vice President, Information Systems
of EFG 48
Gail D. Ofgant Senior Vice President, Lease Operations
of EFG 33
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Directors or
Executive Officers.
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(e) Business Experience
Mr. MacDonald, age 50, 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 President of
American Finance Group Securities Corp. and a limited partner in Old North
Capital Limited Partnership ("ONC"). Prior to co-founding EFG's predecessors,
Mr. MacDonald held various executive and management positions in the leasing and
pharmaceutical industries. Mr. MacDonald holds a M.B.A. from Boston College and
a B.A. degree from the University of Massachusetts (Amherst).
Mr. Engle, age 50, is President and Chief Executive Officer of EFG and
sole shareholder and Director of its general partner, Equis Corporation and a
member of the Executive Committee of EFG and President of AFG Realty
Corporation. Mr. Engle joined EFG in 1990 as Executive Vice President and
acquired control of EFG and its subsidiaries in December 1994. Mr. Engle is Vice
President and a Director of certain of EFG's subsidiaries and affiliates, a
limited partner in ONC and controls the general partner of ONC. 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 a MBA from Harvard University and a BS
degree from the University of Massachusetts (Amherst).
Mr. Romano, age 39, became Executive Vice President and Chief Operating
Officer of EFG, and Secretary of Equis Corporation in 1996 and is Secretary or
Clerk of several of EFG's subsidiaries and affiliates. Mr. Romano joined EFG in
November 1989, became Vice President and Controller in April 1993 and Chief
Financial Officer in April 1995. Mr. Romano assumed his current position in
April 1996. Prior to joining EFG, Mr. Romano was Assistant Controller for a
privately held real estate development and mortgage origination company that he
joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst & Whinney
(now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr. Romano is
a Certified Public Accountant and holds a B.S. degree from Boston College.
Mr. Coyne, age 38, is Executive Vice President, Capital Markets of EFG and
President, Chief Operating Officer and a member of the Board of Directors of
Semele. Mr. Coyne joined EFG in 1989, remained until May 1993, and rejoined EFG
in November 1994. In September 1997, Mr. Coyne was appointed Executive Vice
President of EFG. Mr. Coyne is a limited partner in ONC. From May 1993 through
November 1994, he was employed by the Raymond Company, a private investment
firm, where he was responsible for financing corporate and real estate
acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a real
estate investment company and an equipment leasing company. Prior to 1985, he
was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He has
a BS in Business Administration from John Carroll University, a Masters Degree
in Accounting from Case Western Reserve University and is a Certified Public
Accountant.
Mr. Butterfield, age 39, is Senior Vice President, Finance and Treasurer
of EFG and certain of its affiliates and is Treasurer of the Managing Trustee
and Semele. Mr. Butterfield joined EFG in June 1992, became Vice President,
Finance and Treasurer of EFG and certain of it's affiliates in April 1996 and in
July 1998, was promoted to Senior Vice President, Finance and Treasurer of EFG
and certain of its affiliates. 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 (UK) 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 CPA requirements in the United States. He
holds a Bachelor of Commerce degree from the University of Otago, Dunedin, New
Zealand.
Ms. Simonsen, age 48, joined EFG in February 1990 and was promoted to
Senior Vice President, Information Systems of EFG in April 1996. Prior to
joining EFG, Ms. Simonsen was Vice President, Information Systems with Investors
Mortgage Insurance Company, which she joined in 1973. Ms. Simonsen provided
systems consulting for a subsidiary of American International Group and authored
a software program published by IBM. Ms. Simonsen holds a BA degree from Wilson
College.
10
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Ms. Ofgant, age 33, is Senior Vice President, Lease Operations of EFG and
certain of its affiliates. Ms. Ofgant joined EFG in July 1989, was promoted to
Manager Lease Operations in April 1994, and became Vice President of Lease
Operations in April 1996. In July 1998, Ms. Ofgant was promoted to Senior Vice
President of Lease Operations. 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 outstanding no
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;
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3. Removal of the Managing Trustee; and
4. Approval or disapproval of the sale of all, or substantially all, of
the assets of the Trust (except in the orderly liquidation of the Trust
upon its termination and dissolution).
As of March 1, 1999, the following person or group owns beneficially more
than 5% of the Trust's outstanding Beneficiary interests:
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
- ---------------------- -------------------- ----------------- -------
Interests Representing Equis II Corporation
Class B Beneficiary 88 Broad Street 997,373 Interests 99.64%
Boston, MA 02110
No person or group is known by the Managing Trustee to own beneficially
more than 5% of the Trust's 582,017 outstanding Class A Interests as of March 1,
1999.
Equis II Corporation is controlled by EFG's President and Chief Executive
Officer, Gary D. Engle (see Item 10 and Item 13 of this report).
The ownership and organization of EFG is described in Item 1 of this
report.
Item 13. Certain Relationships and Related Transactions.
The 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, 1998, 1997 and
1996, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
1998 1997 1996
----------- ----------- -----------
Equipment acquisition fees $ -- $ -- $ 36,673
Offering costs -- 50,048 --
Equipment management fees 128,627 235,030 249,205
Administrative charges 70,524 65,196 42,123
Reimbursable operating expenses
due to third parties 382,866 207,741 98,758
---------- ----------- -----------
Total $ 582,017 $ 558,015 $ 426,759
========== =========== ===========
EFG and its Affiliates were reimbursed for their out-of-pocket offering
costs incurred on behalf of the Trust in an amount equal to 1% of the gross
proceeds of the four trusts which sold Class B Interests, pursuant to the
Registration Statement on Form S-1. The amount of reimbursement made by the
Trust was prorated in proportion to the number of Beneficiary Interests sold in
the Trust.
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 was compensated
by an amount equal to .28% of Asset Base Price paid by the Trust for each asset
acquired for the Trust's initial asset portfolio. For acquisition services
during the initial reinvestment period, which expired on September 8, 1996, EFG
was compensated by an amount equal to 3% of Asset Base Price paid by the Trust.
In connection with the Solicitation Statement and consent of Beneficiaries (see
Note 9 to the financial statements
12
<PAGE>
included in Item 14, herein), the Trust's reinvestment provisions were
reinstated through December 31, 2001. In addition, the Trust is now permitted to
invest in assets other than equipment. Acquisition fees paid to EFG in
connection with such reinvestment assets are equal to 1% of Asset Base Price
paid by the Trust. For management services, EFG is compensated by an amount
equal to (i) 5% of gross operating lease rental revenue and 2% of gross full
payout lease rental revenue received by the Trust with respect assets acquired
on or prior to March 31, 1998. For management services earned in connection with
assets acquired on or after April 1, 1998, EFG is compensated by an amount equal
to 2% of gross lease rental revenue received by the Trust. Both of these fees
are subject to certain limitations defined in the Trust Agreement. For
non-equipment investments other than cash, the Managing Trustee receives an
annualized management fee of 1%. 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) 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 at actual cost.
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, 1998, the Trust was owed $102,537 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 1999.
On July 18, 1997, the Trust issued 1,000,961 Class B Interests at $5.00
per interest, thereby generating $5,004,805 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 3,588 Class B Interests,
generating $17,940 of such aggregate capital contributions, and the Special
Beneficiary, EFG, purchased 997,373 of such Class B Interests, generating
$4,986,865 of such aggregate capital contributions. The Trust incurred offering
costs in the amount of $50,048 in connection with this offering.
Subsequently, EFG transferred its Class B Interests to a special-purpose
company, Equis II Corporation, a Delaware corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. As a result, Equis II Corporation has voting control of the
Trust through its ownership of the majority of the Trust's outstanding voting
interests, as well as its ownership of AFG ASIT Corporation. Equis II
Corporation is controlled by EFG's President and Chief Executive Officer, Gary
D. Engle. Accordingly, control of the Managing Trustee did not change as a
result of the foregoing transactions.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 839 Class A Interests
or less than 1% of the total outstanding Class A Interests of the Trust. The
general partner of ONC is controlled by Gary D. Engle. In addition, the limited
partnership interests of ONC are owned by Semele Group, Inc. ("Semele"). Gary D.
Engle is Chairman and CEO of Semele.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Trust
None.
(d) Transactions with Promoters
See Item 13(a) above.
13
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors...............................*
Statement of Financial Position
at December 31, 1998 and 1997................................*
Statement of Operations
for the years ended December 31, 1998, 1997 and 1996.........*
Statement of Changes in Participants' Capital
for the years ended December 31, 1998, 1997 and 1996.........*
Statement of Cash Flows
for the years ended December 31, 1998, 1997 and 1996.........*
Notes to the Financial Statements............................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as set
forth in Item 601 of Regulation S-K, are not applicable.
Exhibit
Number
------
4 Second Amended and Restated Declaration of Trust.
13 The 1998 Annual Report to security holders, a copy of which is
furnished for the information of the Securities and Exchange
Commission. Such Report, except for those portions thereof
which are incorporated herein by reference, is not deemed
"filed" with the Commission.
23 Consent of Independent Auditors.
99(a) Lease agreement with General Motors Corporation is filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 as Exhibit 99 (a) and is included herein.
* Incorporated herein by reference to the appropriate portion of the 1998
Annual Report to security holders for the year ended December 31, 1998 (see
Part II).
14
<PAGE>
Exhibit
Number
------
99(b) Lease agreement with Alaska Airlines, Inc. 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.
99(c) Lease agreement with Tarmac Mid-Atlantic, Incorporated was
filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 as Exhibit 28 (g) and is
incorporated herein by reference.
99(d) Lease agreement with Montgomery Ward and Company, Inc. was
filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 as Exhibit 99 (d) and is
incorporated herein by reference.
(b) Reports on Form 8-K
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AFG Investment Trust B
By: AFG ASIT Corporation,
a Massachusetts corporation and the
Managing Trustee of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
---------------------------------- -------------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG and a
Managing Trustee Director of the Managing
Trustee (Principal Executive Officer)
Date: March 31, 1999 Date: March 31, 1999
-------------------------------- -----------------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
---------------------------------- -------------------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Senior Vice President,
Operating Officer of EFG and Clerk Finance and Treasurer of EFG
of the Managing Trustee and Treasurer of the Managing Trustee
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1999 Date: March 31, 1999
-------------------------------- -----------------------------------
16
<PAGE>
AFG INVESTMENT TRUST
AFG Investment Trust B
Annual Report to the Participants, December 31, 1998
<PAGE>
AFG Investment Trust B
INDEX TO ANNUAL REPORT TO THE PARTICIPANTS
Page
----
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-8
FINANCIAL STATEMENTS:
Report of Independent Auditors 9
Statement of Financial Position
at December 31, 1998 and 1997 10
Statement of Operations
for the years ended December 31, 1998, 1997 and 1996 11
Statement of Changes in Participants' Capital
for the years ended December 31, 1998, 1997 and 1996 12
Statement of Cash Flows
for the years ended December 31, 1998, 1997 and 1996 13
Notes to the Financial Statements 14-25
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 26
Statement of Cash and Distributable Cash From
Operations, Sales and Refinancings 27
Schedule of Costs Reimbursed to the
Managing Trustee and its Affiliates as
Required by Section 10.4 of the Second
Amended and Restated Declaration of Trust 28
<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1998:
<TABLE>
<CAPTION>
Summary of
Operations 1998 1997 1996 1995 1994
- ------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 2,646,205 $ 5,400,331 $ 5,809,086 $ 6,173,972 $ 5,507,765
Net income $ 993,932 $ 1,174,206 $ 807,840 $ 527,564 $ 1,771,705
Per Beneficiary Interest:
Net income
Class A Interests $ 1.04 $ 1.05 $ 1.10 $ 0.72 $ 2.42
Class B Interests $ 0.23 $ 0.05 $ -- $ -- $ --
Cash distributions
Class A Interests $ 1.64 $ 3.11 $ 1.42 $ 2.00 $ 2.52
Class B Interests $ 2.06 $ 0.30 $ -- $ -- $ --
Financial Position
- -------------------------
Total assets $14,037,315 $17,214,157 $16,631,159 $19,573,350 $22,320,875
Total long-term obligations $ 818,841 $ 2,038,628 $ 4,352,811 $ 7,097,113 $ 8,713,009
Participants' capital $12,635,661 $14,816,135 $11,925,600 $12,157,251 $13,092,674
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1998 compared to the year ended
December 31, 1997 and the year ended December 31, 1997
compared to the year ended December 31, 1996
Certain statements in this annual report of AFG Investment Trust B (the
"Trust") that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are subject to a variety of risks and uncertainties. There are a number of
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statements made herein. These factors
include, but are not limited to, the outcome of the Class Action Lawsuit
described in Note 11 to the accompanying financial statements, the collection
all rents due under the Trust's lease agreements and remarketing of the Trust's
equipment.
Year 2000 Issue
The Year 2000 Issue generally refers to the capacity of computer
programming logic to correctly identify the calendar year. Many companies
utilize computer programs or hardware with date sensitive software or embedded
chips that could interpret dates ending in "00" as the year 1900 rather than the
year 2000. In certain cases, such errors could result in system failures or
miscalculations that disrupt the operations of the affected businesses. The
Trust uses information systems provided by Equis Financial Group Limited
Partnership (formerly American Finance Group) ("EFG") and has no information
systems of its own. EFG has adopted a plan to address the Year 2000 Issue that
consists of four phases: assessment, remediation, testing, and implementation
and has elected to utilize principally internal resources to perform all phases.
EFG completed substantially all of its Year 2000 project by December 31, 1998 at
an aggregate cost of less than $50,000 and at a di minimus cost to the Trust.
Remaining items are expected to be minor and be completed by March 31, 1999. All
costs incurred in connection with EFG's Year 2000 project have been expensed as
incurred.
EFG's primary information software was coded by IBM at the point of
original design to use a four digit field to identify calendar year. All of the
Trust's lease billings, cash receipts and equipment remarketing processes are
performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and have required only minor modifications to function properly with respect to
dates in the year 2000 and thereafter. EFG understands that each of its and the
Trust's significant vendors and third-party servicers are in the process, or
have completed the process, of making their systems Year 2000 compliant.
Substantially all parties queried have indicated that their systems would be
Year 2000 compliant by the end of 1998.
Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Trust's results of operations,
liquidity, or financial position. The Trust's equipment leases were structured
as triple net leases, meaning that the lessees are responsible for, among other
things, (i) maintaining and servicing all equipment during the lease term, (ii)
ensuring that all equipment functions properly and is returned in good
condition, normal wear and tear excepted, and (iii) insuring the assets against
casualty and other events of loss. Non-compliance with lease terms on the part
of a lessee, including failure to address Year 2000 Issues, could result in lost
revenues and impairment of residual values of the Trust's equipment assets under
a worst-case scenario.
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Trust's business operations. However, EFG has no means of ensuring that all
customers, vendors and third-party servicers will conform ultimately to Year
2000 standards. The effect of this risk to the Trust is not determinable.
3
<PAGE>
Overview
As an equipment leasing trust, 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 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
fluctuate. Presently, the Trust is a Nominal Defendant in a Class Action
Lawsuit, the resolution of which remains pending. See Note 11 to the
accompanying financial statements. The Trust's operations commenced in 1992 and
pursuant to the Trust Agreement, the Trust is scheduled to be dissolved by
December 31, 2003.
Results of Operations
For the year ended December 31, 1998, the Trust recognized lease revenue
of $2,646,205 compared to $5,400,331 and $5,809,086 for the years ended December
31, 1997 and 1996, respectively. The decrease in lease revenue from 1996 to 1998
is due to lease term expirations and the sale of equipment. The level of lease
revenue to be recognized by the Trust in the future is expected to be impacted
by the amendment to the Trust Agreement described in Note 9 to the accompanying
financial statements; however, the extent of such impact cannot be determined at
this time.
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.
Interest income for the year ended December 31, 1998 was $387,410 compared
to $264,503 and $106,186 for the years ended December 31, 1997 and 1996,
respectively. Generally, interest income is generated from the temporary
investment of rental receipts and equipment sale proceeds in short-term
instruments. Interest income in 1998 and 1997 includes interest earned on
proceeds resulting from the issuance of Class B Interests (see below). Future
interest income will fluctuate in relation to prevailing interest rates, the
collection of lease revenue and the proceeds from equipment sales.
During 1998, the Trust sold equipment having a net book value of $942,188
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $686,338 compared with a net gain in 1997 of
$76,559 on equipment having a net book value of $272,233.
In February 1996, the Trust concluded the sale of its interest in a Boeing
747-SP to the lessee, United Air Lines, Inc., ("United"). The Trust recognized a
net loss of $560,982 in connection with this transaction, of which $384,782 was
recognized as Write-Down of Equipment in 1995. The remainder of $176,200 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 $1,684,292 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 $389,885 to existing lessees and third
parties. These sales resulted in a net loss, for financial statement purposes,
of $48,394.
4
<PAGE>
The Trust received $199,450 in 1996 from a former 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 a vessel to a third
party. This amount is reflected as Other Income on the accompanying Statement of
Operations for the year ended December 31, 1996.
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 $2,068,161, $3,862,631 and
$4,284,049 for the years ended December 31, 1998, 1997 and 1996, 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.
Interest expense was $75,843 or 2.9% of lease revenue in 1998, $196,589 or
3.6% of lease revenue in 1997 and $408,153 or 7% of lease revenue in 1996. In
the future, interest expense is expected to decline in amount and as a
percentage of lease revenue as the principal balance of notes payable is reduced
through the application of rent receipts to outstanding debt.
Management fees were 4.9%, 4.4% and 4.3% of lease revenue during the years
ended December 31, 1998, 1997 and 1996, 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.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. Operating expenses were $453,390,
$272,937 and $140,881 during the years ended December 31, 1998, 1997 and 1996,
respectively. During 1998, the Trust incurred or accrued approximately $103,000
for certain legal expenses related to the Class Action Lawsuit described in Note
11 to the financial statements. Additionally, operating expenses increased from
1997 to 1998 due to professional service costs incurred in connection with the
Solicitation Statement described in Note 9 to the financial statements. The
increase in operating expenses from 1996 to 1997 was due primarily to costs
incurred in connection with the Solicitation and Registration Statements
described in Note 7 to the accompanying financial statements.
Liquidity and Capital Resources and Discussion of Cash Flows
The Trust by its nature is a limited life entity. 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
5
<PAGE>
generated net cash inflows of $3,304,397, $4,399,596 and $5,645,405 in 1998,
1997 and 1996, respectively. Future renewal, re-lease and equipment sale
activities will cause a 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 also decline as the Trust experiences a higher frequency of
remarketing events.
The Trust's equipment is leased by a number of creditworthy,
investment-grade companies and, to date, the Trust has not experienced any
material collection problems and has not considered it necessary to provide an
allowance for doubtful accounts. Notwithstanding a positive collection history,
there is no assurance that all future contracted rents will be collected or that
the credit quality of the Trust's lessees will be maintained. Collection risk
could increase in the future, particularly as the Trust remarkets its equipment
and enters re-lease agreements with different lessees. The Managing Trustee will
continue to evaluate and monitor the Trust's experience in collecting accounts
receivable to determine whether a future allowance for doubtful accounts may
become appropriate.
Cash expended for asset acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. The Trust expended $1,441,796 to acquire equipment
during the year ended December 31, 1996 pursuant to the reinvestment provisions
of the Trust Agreement. The reinvestment equipment was financed through a
combination of leveraging and the sale proceeds available from the aircraft
transaction discussed above. There were no equipment acquisitions during 1998 or
1997. In 1998 and 1997, the Trust realized equipment sale proceeds of $1,628,526
and $348,792, respectively. In 1996, the Trust realized equipment sale proceeds
of $2,025,783, including $1,684,292 of proceeds from the United Aircraft. 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 in 1996 resulted from leveraging a portion of the Trust's
interest in the Reno Aircraft (see above). 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 years, 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. Notwithstanding the foregoing, the Trust
has a balloon payment obligation of $282,421 at the expiration of the primary
lease term related to its interest in the Reno Aircraft.
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. At December 31, 1998, the Managing Trustee had a positive tax capital
account balance. No such requirement exists with respect to the Special
Beneficiary.
At December 31, 1998, the Trust was due aggregate future minimum lease
payments of $1,759,205 from contractual lease agreements (see Note 2 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $818,841 (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 becomes available for
remarketing, the cash flows of the Trust will become less predictable. In
addition, the Trust will have cash needs 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.
6
<PAGE>
On July 18, 1997, the Trust issued 1,000,961 Class B Interests at $5.00
per interest, thereby generating $5,004,805 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 3,588 Class B Interests,
generating $17,940 of such aggregate capital contributions, and the Special
Beneficiary, EFG, purchased 997,373 Class B Interests, generating $4,986,865 of
such aggregate capital contributions. The Trust incurred offering costs in the
amount of $50,048 and professional service costs of $62,170 in connection with
this offering. Subsequently, EFG transferred its Class B Interests to a
special-purpose company, Equis II Corporation, a Delaware corporation. EFG also
transferred its ownership of AFG ASIT Corporation, the Managing Trustee of the
Trust, to Equis II Corporation. As a result, Equis II Corporation has voting
control of the Trust through its ownership of the majority of the Trust's
outstanding voting interests, as well as its ownership of AFG ASIT Corporation.
Equis II Corporation is controlled by EFG's President and Chief Executive
Officer, Gary D. Engle. Accordingly, control of the Managing Trustee did not
change as a result of the foregoing transactions (see also Note 7 to the
accompanying financial statements).
As described in the Prospectus for the offering of the Class B Interests,
the Managing Trustee used a portion of the net cash proceeds realized from the
offering of the Class B Interests to pay a one-time special cash distribution of
approximately $1.47 per Class A Interest to the Class A Beneficiaries of the
Trust. The Managing Trustee declared and paid this special cash distribution,
aggregating $979,449, to Class A Beneficiaries on August 15, 1997.
On August 7, 1997, the Trust commenced an offer to purchase up to 45% of
the outstanding Class A Beneficiary Interests of the Trust. On October 10, 1997,
the Trust used $785,295 of the net proceeds realized from the issuance of the
Class B Interests to purchase 82,837 of the Class A Interests tendered as a
result of the offer. On July 6, 1998, the Trust used $1,500,539 of such proceeds
to pay a capital distribution to the Class B Beneficiaries. The remaining net
proceeds from the Class B offering of $1,627,304 will be used according to terms
negotiated in connection with settling the Class Action Lawsuit described in
Note 11 (see also Notes 8, 9 and 10 to the accompanying financial statements).
On December 1, 1997, the Trust purchased 640 additional Class A Interests at a
cost of $6,080.
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.
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 Class A Interest (the
rate established and paid from the Trust's inception through September 1995) to
an annualized rate of $1.26 per Class A Interest commencing in October 1995. In
October 1996, the Managing Trustee increased the annualized distribution rate to
$1.64 per Class A Interest and has sustained this distribution rate throughout
1997 and 1998. For the Class B Beneficiaries, the Managing Trustee established
and paid, from the Trust, an annualized distribution of $0.66 per Class B
Interest commencing July 18, 1997. Future distributions with respect to Class B
Interests, will be subordinate to certain distributions with respect to Class A
Interests.
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, 1998, the
Trust declared total cash distributions of $3,174,406. The Beneficiaries were
allocated $3,019,573 ($953,343 for Class A Beneficiaries and $2,066,230 for
Class B Beneficiaries); the Special Beneficiary was allocated $138,094; and the
Managing Trustee was allocated $16,739.
7
<PAGE>
The nature of the Trust's operations and principal cash flows gradually
will shift from rental receipts to equipment sale proceeds as the Trust matures
and change as a result of new investments not consisting of equipment
acquisitions. As this occurs, the Trust's cash flows resulting from equipment
investments may 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 in order to maximize the residual
value of the Trust's equipment and will consider these factors, in addition to
new investment activities and the collection of contractual rents, the
retirement of scheduled indebtedness, and the Trust's future working capital
requirements, in establishing future cash distribution rates.
8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Participants of AFG Investment Trust B:
We have audited the accompanying statements of financial position of AFG
Investment Trust B as of December 31, 1998 and 1997, 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, 1998. 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 B at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, 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 26, 1999
9
<PAGE>
AFG Investment Trust B
STATEMENT OF FINANCIAL POSITION
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,909,535 $ 3,893,242
Restricted cash 1,627,304 3,121,763
Rents receivable 234,774 675,629
Accounts receivable - affiliate 102,537 350,009
Equipment at cost, net of accumulated depreciation
of $10,713,524 and $14,796,020 at December 31, 1998
and 1997, respectively 6,163,165 9,173,514
------------ ------------
Total assets $ 14,037,315 $ 17,214,157
============ ============
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable $ 818,841 $ 2,038,628
Accrued interest 2,596 27,395
Accrued liabilities 133,500 11,550
Accrued liabilities - affiliate 16,028 49,597
Deferred rental income 14,058 35,275
Other liabilities 197,950 --
Cash distributions payable to participants 218,681 235,577
------------ ------------
Total liabilities 1,401,654 2,398,022
------------ ------------
Participants' capital (deficit):
Managing Trustee 3,652 3,535
Special Beneficiary 30,133 29,162
Class A Beneficiary Interests (582,017 Interests;
initial purchase price of $25 each) 10,514,496 10,864,150
Class B Beneficiary Interests (1,000,961 Interests;
initial purchase price of $5 each) 2,878,755 4,710,663
Treasury Interests (83,477 Class A Interests at Cost) (791,375) (791,375)
------------ ------------
Total participants' capital 12,635,661 14,816,135
------------ ------------
Total liabilities and participants' capital $ 14,037,315 $ 17,214,157
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
10
<PAGE>
AFG Investment Trust B
STATEMENT OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Lease revenue $ 2,646,205 $ 5,400,331 $ 5,809,086
Interest income 387,410 264,503 106,186
Other income -- -- 199,450
Gain (loss) on sale of equipment 686,338 76,559 (224,594)
----------- ----------- -----------
Total income 3,719,953 5,741,393 5,890,128
----------- ----------- -----------
Expenses:
Depreciation and amortization 2,068,161 3,862,631 4,284,049
Interest expense 75,843 196,589 408,153
Equipment management fees - affiliate 128,627 235,030 249,205
Operating expenses - affiliate 453,390 272,937 140,881
----------- ----------- -----------
Total expenses 2,726,021 4,567,187 5,082,288
----------- ----------- -----------
Net income $ 993,932 $ 1,174,206 $ 807,840
=========== =========== ===========
Net income
per Class A Beneficiary Interest $ 1.04 $ 1.05 $ 1.10
=========== =========== ===========
per Class B Beneficiary Interest $ 0.23 $ 0.05 $ --
=========== =========== ===========
Cash distributions declared
per Class A Beneficiary Interest $ 1.64 $ 3.11 $ 1.42
=========== =========== ===========
per Class B Beneficiary Interest $ 2.06 $ 0.30 $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements
11
<PAGE>
AFG Investment Trust B
STATEMENT OF CHANGES IN PARTICIPANTS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Managing Special Class A Beneficiaries
Trustee Beneficiary ----------------------------
Amount Amount Interests Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ (28,065) $ (238,783) 665,494 $ 12,424,099
Net income - 1996 8,078 66,647 -- 733,115
Cash distributions declared (10,395) (85,758) -- (943,338)
------------ ------------ ------------ ------------
Balance at December 31, 1996 (30,382) (257,894) 665,494 12,213,876
Class B capital contribution -- -- -- --
Less: Offering costs -- -- -- --
Net income - 1997 48,593 408,133 -- 663,266
Cash distributions declared (14,676) (121,077) -- (2,012,992)
Acquisition of treasury interests, at cost -- -- (83,477) --
------------ ------------ ------------ ------------
Balance at December 31, 1997 3,535 29,162 582,017 10,864,150
Net income - 1998 16,856 139,065 -- 603,689
Cash distributions declared (16,739) (138,094) -- (953,343)
------------ ------------ ------------ ------------
Balance at December 31, 1998 $ 3,652 $ 30,133 582,017 $ 10,514,496
============ ============ ============ ============
<CAPTION>
Class B Beneficiaries
--------------------------- Treasury
Interests Amount Interests Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 -- $ -- $ -- $ 12,157,251
Net income - 1996 -- -- -- 807,840
Cash distributions declared -- -- -- (1,039,491)
------------ ------------ ------------ ------------
Balance at December 31, 1996 -- -- -- 11,925,600
Class B capital contribution 1,000,961 5,004,805 -- 5,004,805
Less: Offering costs -- (50,048) -- (50,048)
Net income - 1997 -- 54,214 -- 1,174,206
Cash distributions declared -- (298,308) -- (2,447,053)
Acquisition of treasury interests, at cost -- -- (791,375) (791,375)
------------ ------------ ------------ ------------
Balance at December 31, 1997 1,000,961 4,710,663 (791,375) 14,816,135
Net income - 1998 -- 234,322 -- 993,932
Cash distributions declared -- (2,066,230) -- (3,174,406)
------------ ------------ ------------ ------------
Balance at December 31, 1998 1,000,961 $ 2,878,755 $ (791,375) $ 12,635,661
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
12
<PAGE>
AFG Investment Trust B
STATEMENT OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 993,932 $ 1,174,206 $ 807,840
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,068,161 3,862,631 4,284,049
(Gain) loss on sale of equipment (686,338) (76,559) 224,594
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 440,855 (336,336) 390,262
Accounts receivable - affiliate 247,472 (195,614) (48,901)
Increase (decrease) in:
Accrued interest (24,799) (9,176) (102,023)
Deferred interest -- -- 14,408
Accrued liabilities 121,950 (11,700) 3,250
Accrued liabilities - affiliate (33,569) 2,419 47,178
Deferred rental income (21,217) (10,275) 24,748
Other liabilities 197,950 -- --
----------- ----------- -----------
Net cash from operating activities 3,304,397 4,399,596 5,645,405
----------- ----------- -----------
Cash flows from (used in) investing activities:
Purchase of equipment -- -- (1,441,796)
Proceeds from equipment sales 1,628,526 348,792 2,025,783
----------- ----------- -----------
Net cash from investing activities 1,628,526 348,792 583,987
----------- ----------- -----------
Cash flows from (used in) financing activities:
Proceeds from capital contributions -- 5,004,805 --
Payment of offering costs -- (50,048) --
Purchase of treasury interests -- (791,375) --
Restricted cash 1,494,459 (3,121,763) --
Proceeds from notes payable -- -- 997,888
Principal payments - notes payable (1,219,787) (2,314,183) (3,742,190)
Distributions paid (3,191,302) (2,411,675) (993,290)
----------- ----------- -----------
Net cash used in financing activities (2,916,630) (3,684,239) (3,737,592)
----------- ----------- -----------
Net increase in cash and cash equivalents 2,016,293 1,064,149 2,491,800
Cash and cash equivalents at beginning of year 3,893,242 2,829,093 337,293
----------- ----------- -----------
Cash and cash equivalents at end of year $ 5,909,535 $ 3,893,242 $ 2,829,093
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 100,642 $ 205,765 $ 495,768
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements
13
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
December 31, 1998
NOTE 1 - ORGANIZATION AND TRUST MATTERS
AFG Investment Trust B (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust Act on May 28, 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 known as
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. The Trust issued an aggregate of 665,494
Beneficiary Interests (hereinafter referred to as Class A Interests) at a
subscription price of $25.00 each ($16,637,350 in total) to 803 investors on
September 8, 1992. On July 18, 1997, the Trust issued 1,000,961 Class B
Interests at $5.00 each ($5,004,805 in total), of which (i) 997,373 interests
are held by Equis II Corporation, an affiliate of EFG, and (ii) 3,588 interests
are held by 5 other Class A investors. The Trust repurchased 82,837 Class A
Interests on October 10, 1997 using proceeds from the issuance of Class B
Interests. On December 1, 1997, the Trust repurchased 640 additional Class A
Interests at a cost of $6,080. Accordingly, there are 582,017 Class A Interests
currently outstanding.
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation, and one Special Beneficiary, EFG. The Managing Trustee is
responsible for the general management and business affairs of the Trust. EFG
acts as Advisor to the Trust and provides services in connection with the
acquisition and remarketing of the Trust's assets. AFG ASIT Corporation is a
wholly-owned subsidiary of Equis II Corporation and an affiliate of EFG. Class A
Interests and Class B Interests basically have identical voting rights and,
therefore, Equis II Corporation has control over the Trust on all matters on
which the Beneficiaries may vote. The Managing Trustee and the Special
Beneficiary are not required to make any other capital contributions except as
may be required under the Second Amended and Restated Declaration of Trust, as
amended (the "Trust Agreement").
Significant operations commenced September 8, 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 is 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, Chief Executive Officer and sole Director. 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.
14
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Trust and the Other Investment Programs and to continue managing all assets
owned by the Trust and the Other Investment Programs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows and Restricted Cash
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 federal agency
discount notes and 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, 1998, the Trust had $7,427,000 invested in federal agency
discount notes and reverse repurchase agreements secured by U.S. Treasury Bills
or interests in U.S. Government securities. Such cash includes $1,627,304 which
is classified as Restricted Cash and represents the net proceeds realized from
the offering of the Class B Interests less ( i ) the portion thereof used to pay
a special distribution to the Class A Beneficiaries and to redeem Class A
Interests (see Notes 7 and 8) and ( ii ) the portion thereof used to pay a
capital distribution to the Class B Beneficiaries (see Note 10). The remainder
is expected to be used according to terms negotiated in conjunction with
settling the Class Action Lawsuit described in Note 11.
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 $1,759,205 are due as follows:
For the year ending December 31, 1999 $ 801,056
2000 637,919
2001 160,750
2002 159,480
----------
Total $1,759,205
==========
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is as
follows:
1998 1997 1996
---------- ---------- ----------
Montgomery Ward and Company, Inc. $ 576,457 $ 576,457 $ --
General Motors Corporation $ 281,204 $ -- $ --
Alaska Airlines, Inc. $ -- $1,001,979 $1,004,770
Tarmac Mid-Atlantic, Incorporated $ -- $ 640,293 $ --
15
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(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 means the actual cost paid by the Trust to
acquire the equipment, including acquisition fees. Where equipment was acquired
from EFG or an Affiliate, Equipment Cost reflects the actual price paid for the
equipment by EFG or the Affiliate plus all actual costs incurred by EFG or the
Affiliate while carrying the equipment, including all liens and encumbrances,
less the amount of all primary term rents earned by EFG or the Affiliate prior
to selling the equipment. Where the seller of the equipment was a third party,
Equipment Cost reflects the seller's invoice price.
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. To the extent that such adjustments were recorded, they 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.
Organization costs were 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 and management fees are reported as
Accrued Liabilities - Affiliate (See Note 4).
16
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
Allocation of Net Income or Loss
Net income is allocated quarterly first, to eliminate any Participant's
negative capital account balance and second, 1% to the Managing Trustee, 8.25%
to the Special Beneficiary and 90.75% collectively to the Class A and Class B
Beneficiaries. The latter is allocated proportionately between the Class A and
Class B Beneficiaries based upon the ratio of cash distributions declared and
allocated to the Class A and Class B Beneficiaries during the period (excluding
$1,500,539 Class B capital distributions paid in 1998). Net losses are allocated
quarterly first, to eliminate any positive capital account balance of the
Managing Trustee, the Special Beneficiary and the Class B Beneficiaries; second,
to eliminate any positive capital account balances of the Class A Beneficiaries;
and third, any remainder to the Managing Trustee. Prior to adoption of the
current Trust Agreement on July 15, 1997 (see Note 7), the Trust allocated net
income or loss to the Participants for financial reporting purposes according to
their respective beneficial interests in the Trust (1% to the Managing Trustee,
8.25% to the Special Beneficiary, and 90.75% to the Class A Beneficiaries).
The allocation of net income or loss pursuant to the Trust Agreement
differs from the foregoing and is based upon government rules and regulations
for federal income tax reporting purposes and assumes, for each income tax
reporting period, the liquidation of all of the Trust's assets and the
subsequent distribution of all available cash to the Participants. For income
tax purposes, the Trust adjusts its allocations of income and loss to the
Participants so as to cause their tax capital account balances at the end of the
reporting period to be equal to the amount that would be distributed to them at
such date in the event of a liquidation and dissolution of the Trust. This
methodology does not consider the costs attendant to liquidation or whether the
Trust intends to have future business operations. If the Trust made similar
assumptions and allocations for financial reporting purposes and the Trust was
liquidated at December 31, 1998 for an amount equal to its net carrying value
for financial reporting purposes, the capital accounts of the Managing Trustee,
Special Beneficiary, Class A Beneficiaries, and Class B Beneficiaries would have
reflected ending balances of $126,357, $1,042,442, $7,131,884, and $4,334,978,
respectively. See Note 6 for additional information concerning the allocation of
net income or loss for income tax reporting purposes.
Net Income and Cash Distributions Per Beneficiary Interest
Net income and cash distributions per Class A Beneficiary Interest are
based on 582,017 and 665,494 Class A Interests outstanding during the years
ended December 31, 1998 and 1996, respectively. Net income and cash
distributions per Class A Interest in 1997 are based on 665,494 Class A
Interests outstanding during the period January 1, 1997 through October 9, 1997,
582,657 Class A Interests outstanding during the period October 10, 1997 through
November 30, 1997 and 582,017 Class A Interests outstanding during the period
December 1, 1997 through December 31, 1997. Net income and cash distributions
per Class B Interest are based on 1,000,961 Class B Interests outstanding during
the year ended December 31, 1998 and the period July 18, 1997 through December
31, 1997. For each of the aforementioned periods, net income and cash
distributions per Beneficiary Interest are 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.
17
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Trust at December 31,
1998. Remaining Lease Term (Months), as used below, represents the number of
months remaining from December 31, 1998 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) At Cost Location
- ------------------------ ---------- ------------ --------------------------------
<S> <C> <C> <C>
Aircraft 0-48 $ 8,018,106 NV/WA
Materials handling 0-21 2,966,792 AR/CA/GA/IA/IL/IN/MI/NC/NY/OH
PA/TX/VA/WV
Communications 0-24 2,908,262 AL/AR/AZ/CA/CO/FL/GA/IA/ID/IL/IN
KS/KY/LA/MD/MI/MN/MO/MT/NC
ND/NE/NH/NM/NV/NY/OH/OK/OR
PA/SC/TN/TX/VA/VT/WA/WI/WV/WY
Computers and peripherals 0-19 2,349,816 FL/LA/MI/NY/OH/PA/SC/TX/WI/WV
Tractors and heavy duty
trucks 0-9 233,794 CO/FL/MI
Construction and mining 24 219,162 NV
Trailers/intermodal
containers 0-26 128,569 OH/VA
Manufacturing 0 41,694 IL
Retail store fixtures 0 10,494 TX
------------
Total equipment cost 16,876,689
Accumulated depreciation (10,713,524)
------------
Equipment, net of accumulated
depreciation $ 6,163,165
============
</TABLE>
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, 1998 the Trust's equipment portfolio included
equipment having a proportionate original cost of $12,248,962, representing
approximately 73% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately $3,943,000
and a net book value of approximately $1,255,000 at December 31, 1998. (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.
18
<PAGE>
AFG Investment Trust B
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, 1998, the cost and net book value of
equipment held for sale or re-lease was approximately $7,948,000 and $4,223,000,
respectively. This equipment includes the Trust's proportionate interest in a
McDonnell Douglas MD-82 aircraft formerly leased to Alaska Airlines, Inc. with a
cost and net book value of $6,778,365 and $4,150,105, respectively (See Note 12
- - Subsequent Event). The Managing Trustee is actively seeking the sale or
re-lease of all equipment not on lease. In addition, the summary above includes
equipment being leased on a month-to-month basis.
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, 1998, 1997 and
1996, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
1998 1997 1996
------------ ------------ ------------
Equipment acquisition fees $ -- $ -- $ 36,673
Offering costs -- 50,048 --
Equipment management fees 128,627 235,030 249,205
Administrative charges 70,524 65,196 42,123
Reimbursable operating expenses
due to third parties 382,866 207,741 98,758
------------ ------------ ------------
Total $ 582,017 $ 558,015 $ 426,759
============ ============ ============
EFG and its Affiliates were reimbursed for their out-of-pocket offering
costs incurred on behalf of the Trust in an amount equal to 1% of the gross
proceeds of the four trusts which sold Class B Interests, pursuant to the
Registration Statement on Form S-1. The amount of reimbursement made by the
Trust was prorated in proportion to the number of Beneficiary Interests sold in
the Trust.
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 was compensated
by an amount equal to .28% of Asset Base Price paid by the Trust for each asset
acquired for the Trust's initial asset portfolio. For acquisition services
during the initial reinvestment period, which expired on September 8, 1996, EFG
was compensated by an amount equal to 3% of Asset Base Price paid by the Trust.
In connection with the Solicitation Statement and consent of Beneficiaries (See
Note 9), the Trust's reinvestment provisions were reinstated through December
31, 2001. In addition, the Trust is now permitted to invest in assets other than
equipment. Acquisition fees paid to EFG in connection with such reinvestment
assets are equal to 1% of Asset Base Price paid by the Trust. For management
services, EFG is compensated by an amount equal to (i) 5% of gross operating
lease rental revenue and 2% of gross full payout lease rental revenue received
by the Trust with respect assets acquired on or prior to March 31, 1998. For
management services earned in connection with assets acquired on or after April
1, 1998, EFG is compensated by an amount equal to 2% of gross lease rental
revenue received by the Trust. Both of these fees are subject to certain
limitations defined in the Trust Agreement. For non-equipment investments other
than cash, the Managing Trustee receives an annualized management fee of 1%.
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
19
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
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) 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 at actual cost.
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, 1998, the Trust was owed $102,537 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 1999.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 839 Class A Interests
or less than 1% of the total outstanding Class A Interests of the Trust. The
general partner of ONC is controlled by Gary D. Engle. In addition, the limited
partnership interests of ONC are owned by Semele Group, Inc. ("Semele"). Gary D.
Engle is Chairman and CEO of Semele.
Refer to Note 7 regarding the purchase of Class B Interests by an
affiliate, Equis II Corporation and the change in ownership of the Managing
Trustee.
NOTE 5 - NOTES PAYABLE
Notes payable at December 31, 1998 consisted of installment notes of
$818,841 payable to banks and institutional lenders. The notes bear interest
rate of 5.69%, except for one note which bears a fluctuating interest rate based
on LIBOR (5.54% at December 31, 1998) plus a margin. All of the installment
notes are non-recourse and are collateralized by the equipment and assignment of
the related lease payments. Generally, the installment notes will be fully
amortized by noncancellable rents. However, the Trust has a balloon payment
obligation of $282,421 at the expiration of the primary lease term related to
its interest in an aircraft leased to Reno Air, Inc. The carrying amount of
notes payable approximates fair value at December 31, 1998.
The annual maturities of the notes payable are as follows:
For the year ending December 31, 1999 $ 168,195
2000 118,459
2001 128,106
2002 121,660
2003 282,421
---------
Total $ 818,841
=========
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.
20
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
For financial statement purposes, the Trust allocates net income quarterly
first, to eliminate any Participant's negative capital account balance and
second, 1% to the Managing Trustee, 8.25% to the Special Beneficiary and 90.75%
collectively to the Class A and Class B Beneficiaries. The latter is allocated
proportionately between the Class A and Class B Beneficiaries based upon the
ratio of cash distributions declared and allocated to the Class A and Class B
Beneficiaries during the period (excluding $1,500,539 Class B capital
distributions paid in 1998). Net losses are allocated quarterly first, to
eliminate any positive capital account balance of the Managing Trustee, the
Special Beneficiary and the Class B Beneficiaries; second, to eliminate any
positive capital account balances of the Class A Beneficiaries; and third, any
remainder 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. For income tax purposes, the Trust allocates
net income or net loss in accordance with the provisions of such agreement.
Pursuant to 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, 1998, 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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 993,932 $ 1,174,206 $ 807,840
Financial statement depreciation in
excess of (less than) tax depreciation 395,240 766,944 (279,916)
Tax gain in excess of book gain (loss) 196,147 185,325 619,935
Deferred rental income (21,217) (10,275) 24,748
Other (13,000) (115,487) 21,123
----------- ----------- -----------
Net income for federal income tax
reporting purposes $ 1,551,102 $ 2,000,713 $ 1,193,730
=========== =========== ===========
</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, 1998 and 1997:
1998 1997
------------ ------------
Participants' capital $ 12,635,661 $ 14,816,135
Add back selling commissions and organization
and offering costs 1,625,692 1,625,692
Financial statement distributions in excess of
tax distributions 28,980 --
Deduct deferred step-down of capital basis (68,201) --
Cumulative difference between federal income tax
and financial statement income (loss) (4,497,725) (5,054,895)
------------ ------------
Participants' capital for federal income tax
reporting purposes $ 9,724,407 $ 11,386,932
============ ============
21
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 7 - ISSUANCE OF CLASS B INTERESTS
On October 26, 1996, the Trust filed a Solicitation Statement with the
United States Securities and Exchange Commission (the "SEC") which subsequently
was sent to the Beneficiaries pursuant to Regulation 14A of Section 14 of the
Securities Exchange Act. The Solicitation Statement sought the consent of the
Beneficiaries to a proposed amendment (the "Amendment") to the Amended and
Restated Declaration of Trust (the "Trust Agreement") which would (i) amend the
provisions of the Trust Agreement governing the redemption of Beneficiary
Interests to permit the Trust to offer to redeem outstanding Beneficiary
Interests at such times, in such amounts, in such manner and at such prices as
the Managing Trustee might 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
might affix. The funds obtained through the issuance of such a security were
intended to be used by the Trust to (a) expand redemption opportunities for
Beneficiaries without using Trust funds which might otherwise be available for
cash distributions; and (b) make a special one-time cash distribution to the
Class A Beneficiaries.
Pursuant to the Trust Agreement, the adoption of the Amendment required
the consent of the Beneficiaries holding more than 50% in the aggregate of the
Class A Interests held by all Class A Beneficiaries. A majority of Class A
Interests, representing 369,960 Interests or 55.6% of all Class A Interests,
voted in favor of the Amendment; 69,792 Interests or 10.5% of all Class A
Interests voted against the Amendment; and 24,444 Interests or 3.7% of all Class
A Interests abstained. Approximately 69.8% of all Class A Interests participated
in the vote. Accordingly, the Amendment was adopted.
On February 12, 1997, the Trust filed a Registration Statement on Form S-1
with the SEC, which became effective June 10, 1997. The Registration Statement
covered the issuance and sale of a new class of beneficiary interests in the
Trust (the "Class B Interests"). The characteristics of the Class B Interests,
associated risk factors and other matters of importance to the Beneficiaries and
purchasers of the Class B Interests were set forth in a Prospectus sent to the
Beneficiaries. On July 17, 1997, the offering closed and on July 18, 1997 the
Trust issued 1,000,961 Class B Interests at $5.00 per interest, thereby
generating $5,004,805 in aggregate Class B capital contributions. Class A
Beneficiaries purchased 3,588 Class B Interests, generating $17,940 of such
aggregate capital contributions, and the Special Beneficiary, EFG, purchased
997,373 Class B Interests, generating $4,986,865 of such aggregate capital
contributions. The Trust incurred offering costs in the amount of $50,048 and
professional service costs of $62,170 in connection with this offering.
Subsequently, EFG transferred its Class B Interests to a special-purpose
company, Equis II Corporation, a Delaware corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. As a result, Equis II Corporation has voting control of the
Trust through its ownership of the majority of all of the Trust's outstanding
voting interests, as well as its ownership of AFG ASIT Corporation. Equis II
Corporation is controlled by EFG's President and Chief Executive Officer, Gary
D. Engle. Accordingly, control of the Managing Trustee did not change as a
result of the foregoing transactions.
As described in the Prospectus for the offering of the Class B Interests,
the Managing Trustee used a portion of the net cash proceeds realized from the
offering of the Class B Interests to pay a one-time special cash distribution of
approximately $1.47 per Class A Interest to the Class A Beneficiaries of the
Trust. The Managing Trustee declared and paid this special cash distribution,
aggregating $979,449, to Class A Beneficiaries on August 15, 1997. See Note 8
regarding the redemption of Class A Interests.
22
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
NOTE 8 - REDEMPTION OF CLASS A INTERESTS
On August 7, 1997, the Trust commenced an offer to purchase up to 45% of
the outstanding Class A Beneficiary Interests of the Trust by filing a Form
13E-4, Issuer Tender Offer Statement, with the SEC and distributing to the Class
A Beneficiaries information (the "Tender Documents") concerning the offer. On
October 10, 1997, the Trust used $785,295 of the net proceeds realized from the
issuance of the Class B Interests to purchase 82,837 of the Class A Interests
tendered as a result of the offer. On December 1, 1997, the Trust purchased 640
additional Class A Interests at a cost of $6,080.
NOTE 9 - SOLICITATION STATEMENT
On May 5, 1998, the Trust filed a definitive Solicitation Statement with
the United States Securities and Exchange Commission in connection with the
solicitation by the Trust of the consent of the Beneficiaries to a proposed
amendment (the "Amendment") to the Second Amended and Restated Declaration of
Trust (the "Trust Agreement"). The Solicitation Statement and Consent of
Beneficiary were mailed to all of the Beneficiaries of the Trust on May 6, 1998.
The Beneficiaries were requested to use the Consent of Beneficiary to vote on
seven proposals and return their votes on or before June 5, 1998. Equis II
Corporation, which has voting control of the Trust, agreed to vote all of its
Class B Interests in the same manner in which the majority of the Class A
Interests were actually voted. Accordingly, the Amendment would be adopted or
rejected based upon the voting results of the majority of Class A Interests that
were actually voted (including 839 Class A Interests owned by affiliates of
EFG), regardless of how few Class A Interests were actually voted.
The results of the voting reflected that a majority of Class A Interests
voted in favor of each of the proposals. Therefore, the Trust Agreement was
amended to (i) broaden the Trust's stated investment policies and objectives and
permit the Trust to invest in assets other than leased equipment; (ii) modify
the Trust's financing provisions to eliminate any cap on the amount of aggregate
Trust indebtedness and permit the Trust to use cross-collateralized and other
recourse debt structures; (iii) extend the Trust's reinvestment period, which
originally expired on September 8, 1996, until December 31, 2001 and (iv) reduce
acquisition fees paid to EFG in connection with reinvestment assets acquired
after the Amendment date from a maximum of 3% to 1% and management fees earned
in connection with such assets from a maximum of 5% to 2%.
In addition, subject to attaining a settlement in the Class Action Lawsuit
described in Note 11 herein, the Trust Agreement will be modified in the
following principal respects: (i) the Trust will pay a Special Cash Distribution
to the Class A Beneficiaries of record as of September 1, 1997, or to their
successors or assigns, totaling $500,709 (or approximately $0.75 per Class A
Beneficiary Interest) using a portion of the Class B capital contributions that
otherwise would be distributed as a Class B Capital Distribution to Equis II
Corporation, the parent company of the Managing Trustee and an affiliate of EFG;
(ii) Equis II Corporation will be required to reduce its prospective Class B
Capital Distributions by $1,126,595 and treat such amount as a long-term equity
investment in the Trust and (iii) certain voting restrictions will be placed
upon the Class B Interests owned by Equis II Corporation.
NOTE 10 - CLASS B CAPITAL DISTRIBUTION
The Managing Trustee and certain of its affiliates were named as
defendants in the Class Action Lawsuit discussed in Note 11 herein. In
connection with this litigation and subject to a settlement being effected, the
Managing Trustee has agreed to adopt certain modifications to the Trust
Agreement as described in the Solicitation Statement referred to in Note 9
herein. One aspect of the proposed settlement would result in using of a portion
of Equis II Corporation's Class B Capital Contribution to the Trust to (i) pay a
second special cash distribution to Class A Beneficiaries totaling $500,709,
approximately $.75 per Class A Interest, and (ii) invest $1,126,595 in the
Trust's long-term business activities. The remainder of the Class B Capital
Contributions (not
23
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
otherwise used to repurchase Class A Interests in the Tender Offer closed on
October 10, 1997 or to pay for offering and related costs associated with the
Class B Interests or to pay the first special cash distribution), $1,500,539 in
total, was returned to Equis II Corporation ($1,489,327) and the other
third-party Class B capital contributors ($11,212) on July 6, 1998.
NOTE 11 - LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed
a class and derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Trust (collectively, the "Nominal Defendants"), against EFG and a number of its
affiliates, including the Managing Trustee, as defendants (collectively, the
"Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed
an earlier derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit."
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth terms pursuant to which a settlement of
the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was based upon and superseded a
Memorandum of Understanding between the parties dated March 9, 1998 which
outlined the terms of a possible settlement. The Stipulation of Settlement was
filed with the Court on July 23, 1998 and was preliminarily approved by the
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order").
Prior to issuing a final order, the Court will hold a fairness hearing that will
be open to all interested parties and permit any party to object to the
settlement. The investors of the Trust and all other plaintiff class members in
the Class Action Lawsuit will receive a Notice of Settlement and other
information pertinent to the settlement of their claims in advance of the
fairness hearing. Since first executing the Stipulation of Settlement, the Court
has scheduled two fairness hearings, the first on December 11, 1998 and the
second on March 19, 1999, each of which was postponed because of delays in
finalizing certain information materials that are subject to regulatory review
prior to being distributed to investors, but none of which involved the Trust's
settlement.
On March 15, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended stipulation of settlement (the "Amended Stipulation") which was
filed with the Court on March 15, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999
(the "March 22 Order"). The Amended Stipulation, among other things, divides the
Class Action Lawsuit into two separate sub-classes that can be settled
individually. This revision is expected to expedite the settlement of the
Trust's claims by the middle of 1999. The second sub-class, which does not
include the Trust, is expected to remain pending for a longer period.
Assuming the proposed settlement is effected according to present terms,
the Trust's share of legal fees and expenses related to the Class Action Lawsuit
is estimated to be approximately $103,000, all of which was accrued
24
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
and expensed by the Trust in 1998. There can be no assurance that settlement of
either sub-class of the Class Action Lawsuit will receive final Court approval
and be effected. However, the Managing Trustee and its affiliates, in
consultation with counsel, concur that there is a reasonable basis to believe
that final settlements of each sub-class will be achieved. In the absence of
final settlements approved by the Court, the Defendants intend to defend
vigorously against the claims asserted in the Class Action Lawsuit. Neither the
Managing Trustee nor its affiliates can predict with any degree of certainty the
cost of continuing litigation to the Trust or the ultimate outcome.
In addition to the foregoing, the Trust is a party to other lawsuits that
have arisen out of the conduct of its business, principally involving disputes
or disagreements with lessees over lease terms and conditions. The following
action had not been finally adjudicated at December 31, 1998:
Action involving National Steel Corporation
EFG, on behalf of the Trust and certain affiliated investment programs
(collectively, the "Plaintiffs"), filed an action in the Commonwealth of
Massachusetts Superior Court, Department of the Trial Court in and for the
County of Suffolk on July 27, 1995, for damages and declaratory relief against a
lessee of the Trust, National Steel Corporation ("National Steel"). The
Complaint seeks reimbursement from National Steel of certain sales and/or use
taxes paid to the State of Illinois in connection with equipment leased by
National Steel from the Plaintiffs and other remedies provided under the Master
Lease Agreement ("MLA"). On August 30, 1995, National Steel filed a Notice of
Removal, which removed the case to United States District Court, District of
Massachusetts. On September 7, 1995, National Steel filed its Answer to the
Plaintiff's Complaint along with Affirmative Defenses and Counterclaims and
sought declaratory relief, alleging breach of contract, implied covenant of good
faith and fair dealing, and specific performance. The Plaintiffs filed an Answer
to National Steel's Counterclaims on September 29, 1995. The parties discussed
settlement with respect to this matter for some time; however, the negotiations
were unsuccessful. The Plaintiffs filed an Amended and Supplemental Complaint
alleging further default under the MLA and filed a motion for Summary Judgment
on all claims and Counterclaims. The Court held a hearing on the Plaintiff's
motion in December 1997 and later entered a decision dismissing certain of
National Steel's Counterclaims, finding in favor of the Plaintiffs on certain
issues and in favor of National Steel on other issues. In March 1999, the
Plaintiffs obtained payment for certain of the disputed items and have resumed
settlement discussions to resolve remaining issues. The Managing Trustee does
not believe that the resolution of the remaining claims will have a material
adverse effect on the Trust's financial position or results of operations.
NOTE 12 - SUBSEQUENT EVENT
In January 1999, the Trust sold its 39.59% interest in a McDonnell Douglas
MD-82 aircraft formerly leased to Alaska Airlines, Inc. The Trust received sale
proceeds of $4,619,262. At December 31, 1998, the net carrying value of this
aircraft to the Trust was $4,150,105.
25
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AFG Investment Trust B
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1998, 1997 and 1996
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, 1998, 1997 and 1996.
1998 1997 1996
---------- ---------- ----------
Rents earned prior to disposal of
equipment, net of interest charges $7,495,292 $1,777,768 $2,609,305
Sale proceeds including assumption of
debt and interest, realized upon
disposition of equipment 1,628,526 348,792 2,025,783
---------- ---------- ----------
Total cash generated from rents
and equipment sale proceeds 9,123,818 2,126,560 4,635,088
Original acquisition cost of equipment
disposed 7,092,845 1,500,126 4,311,864
---------- ---------- ----------
Excess of total cash generated to cost
of equipment disposed $2,030,973 $ 626,434 $ 323,224
========== ========== ==========
26
<PAGE>
AFG Investment Trust B
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1998
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 307,594 $ 686,338 $ 993,932
Add:
Depreciation 2,068,161 -- 2,068,161
Management fees 128,627 -- 128,627
Book value of disposed equipment -- 942,188 942,188
Less:
Principal reduction of notes payable (1,219,787) -- (1,219,787)
----------- ----------- -----------
Cash from operations, sales and
refinancings 1,284,595 1,628,526 2,913,121
Less:
Management fees (128,627) -- (128,627)
----------- ----------- -----------
Distributable cash from operations,
sales and refinancings 1,155,968 1,628,526 2,784,494
Other sources and uses of cash:
Cash at beginning of year 1,962,575 1,930,667 3,893,242
Restricted cash 1,494,459 -- 1,494,459
Net change in receivables and
accruals 928,642 -- 928,642
Less:
Cash distributions paid (3,191,302) -- (3,191,302)
----------- ----------- -----------
Cash at end of year $ 2,350,342 $ 3,559,193 $ 5,909,535
=========== =========== ===========
</TABLE>
27
<PAGE>
AFG Investment Trust B
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING TRUSTEE AND ITS AFFILIATES AS
REQUIRED BY SECTION 10.4 OF THE SECOND AMENDED
AND RESTATED DECLARATION OF TRUST
December 31, 1998
For the year ended December 31, 1998, the Trust reimbursed the Managing
Trustee and its Affiliates for the following costs:
Operating expenses $ 347,808
28
<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 B of our report dated March 26, 1999, included in
the 1998 Annual Report to the Participants of AFG Investment Trust B.
ERNST & YOUNG LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
LEASE SCHEDULE NO. 1
This LEASE SCHEDULE is dated and effective as of the 17th day of March,
1995, and incorporates the terms and conditions of the Master Lease Agreement
dated as of the 7th day of April, 1995, by and between AMERICAN FINANCE GROUP
("Lessor") and GENERAL ELECTRIC COMPANY, GE MOTORS & INDUSTRIAL SYSTEMS
("Lessee").
1. Rent. The Rental Installment Period is a one month period of time. The Basic
Term is thirty-six (36) Rental Installment periods. The Basic Rent is
$26,711.32, with a Lease Rate Factor of .027343. The Daily Rate for a Unit is
the interest carry cost calculated at the prime rate plus one and a half
percent. The Rent Date shall be the first day of each Rental Installment Period.
2. Interim Rent is applicable.
3. Equipment. The attached Schedule A and Schedule B are incorporated herein.
The invoice price of the Equipment is $976,882.00. The total lease cost, which
includes the invoice price and other costs to Lessor, is $976,882.00.
4. Lease Commencement Date: April 1, 1995.
Lease Expiration Date: March 31, 1998.
5. Renewal & Return. Lessee may exercise its renewal option for a term of 12
months at the renewal Lease Rate Factor of .027343.
6. Equipment Location. The Equipment will be located at General Electric
Company, (SEE ATTACHED SCHEDULE B). The Tax Jurisdiction is (SEE ATTACHED
SCHEDULE B).
7. Entire Agreement. BOTH LESSOR AND LESSEE REPRESENT THAT IT HAS READ,
RECEIVED, RETAINED A COPY OF AND UNDERSTANDS THIS LEASE SCHEDULE, AND AGREES TO
BE BOUND BY ITS TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE
SCHEDULE, ALL RIDERS AND SCHEDULES HERETO, AND THE MASTER LEASE AGREEMENT SHALL
CONSTITUTE THE ENTIRE LEASE AND AGREEMENT AND SUPERSEDE ALL PROPOSALS, ORAL OR
WRITTEN, ALL PRIOR NEGOTIATIONS AND ALL OTHER COMUNICATIONS BETWEEN LESSOR AND
LESSEE WITH RESPECT TO ANY UNIT OF EQUIPMENT.
8. Lessee Contract Administrator: Richard E. Wittnebel.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Schedule to
be duly executed on the date set forth below by their authorized
representatives.
LESSOR LESSEE
AMERICAN FINANCE GROUP GENERAL ELECTRIC COMPANY
GE MOTORS & INDUSTRIAL SYSTEMS
By: /s/ Eileen P. Waters By: /s/ J. A. Westpheling
--------------------------------- ---------------------------------
Name: Eileen Waters Name:
------------------------------- -------------------------------
Title: Manager Title:
------------------------------ ------------------------------
Date: 4-25-95 Date:
------------------------------- -------------------------------
<PAGE>
CERTIFICATE OF ACCEPTANCE
The Lessee certifies that the equipment set forth in the attached Schedule and
in the Lease Schedule No. 1 dated and effective as of 17th of March, 1995, which
incorporates the terms and conditions of the Master Lease Agreement dated and
effective as of 7th of April, 1995, by and between Lessee and Lessor, American
Finance Group, are accepted by the Lessee as being delivered, installed and
operational as of March 17, 1995.
LESSEE
GENERAL ELECTRIC COMPANY
GE MOTORS & INDUSTRIAL SYSTEMS
By: /s/ J. A. Westpheling
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
COUNTERPART NO. 2 OF 3 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE
EXTENT IF ANY THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM
COMMERCIAL CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
AMERICAN FINANCE GROUP PAGE 1
Schedule A - Rental Schedule Economics
LESSEE: GENERAL ELECTRIC COMPANY
LESSOR: AMERICAN FINANCE GROUP
RENTAL SCHEDULE: 1
LEASE TERM (months): 36
PRIMARY START DATE: 4/01/1995
LEASE EXPIRATION DATE: 3/31/1998
PAYMENT FREQUENCY: MONTHLY
ADVANCE/ARREARS: ADVANCE
LEASE RATE: .027343000
PER DIEM LEASE RATE: .000911433
PERIODIC RENT: $26,711.32
NUMBER OF PAYMENTS: 36
TOTAL INTERIM RENT: $.00
PAYMENT COMMENCEMENT DATE: 4/01/1995
TOTAL EQUIPMENT COST: $976,882.00
DOCUMENTATION FEE: $4,273.86
-----------
JAW LESSEE INITIALS
- -----------------------------
EDW LESSOR INITIALS
- -----------------------------
<PAGE>
AMERICAN FINANCE GROUP PAGE 1
Schedule B Equipment Description
LESSEE: GENERAL ELECTRIC COMPANY
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Equipment Cost Serial Number Year Manufacturer Model Type
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
396.00 S4809451EP NEC JC 1535VHA (1) MONITOR
396.00 S4901717EP NEC JC 1535VHA (1) MONITOR
396.00 S4901700EP NEC JC 1535VHA (1) MONITOR
396.00 1P08119801 NEC JC 1535VHA (1) MONITOR
1,424.00 MEGAHERTZ XJ2288 (4) FAX MODEM
384.00 IBM 92G7453 (4) ENHANCED KEYBOARD
4,389.00 23GGP48 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHF67 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GMC23 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GNY08 IBM THINKPAD 755CSE (1) COMPUTER
752.00 PCMCIA 3C589-B (4) ETHERNET ADAPTER
1,560.00 MPM H-07G1421 (4) 8MB MEMORY
288.00 MS (4) MOUSE
- --------------
23,548.00 Total for Location GE MOTORS/INSTALLATION & SERVICE EN NORCROSS GA 30092
4,261.00 55606V8 IBM 9545LOG (1) COMPUTER
4,261.00 556D8Y0 IMB 9545LOG (1) COMPUTER
356.00 MEGAHERTZ XJ2288 (1) FAX MODEM
356.00 MEGAHERTZ XJ2288 (1) FAX MODEM
2,991.00 78HCX95 IBM 262090G (1) COMPUTER
2,991.00 78HCX26 IBM 262090G (1) COMPUTER
2,991.00 78HBX81 IBM 262090G (1) COMPUTER
2,991.00 78HCZ27 IBM 262090G (1) COMPUTER
2,991.00 78HCZ00 IBM 262090G (1) COMPUTER
2,991.00 78HCY40 IBM 262090G (1) COMPUTER
2,991.00 78HCX61 IBM 262090G (1) COMPUTER
2,991.00 78HCW51 IBM 262090G (1) COMPUTER
2,991.00 78HCV30 IBM 262090G (1) COMPUTER
2,991.00 78HCT92 IBM 262090G (1) COMPUTER
2,991.00 78HCM20 IBM 262090G (1) COMPUTER
2,991.00 78HCC37 IBM 262090G (1) COMPUTER
2,991.00 78HCX69 IBM 262090G (1) COMPUTER
2,991.00 78HBY71 IBM 262090G (1) COMPUTER
2,991.00 78HBT68 IBM 262090G (1) COMPUTER
2,991.00 78HCZ14 IBM 262090G (1) COMPUTER
2,991.00 78HCY92 IBM 262090G (1) COMPUTER
2,991.00 78HCX72 IBM 262090G (1) COMPUTER
2,991.00 78HCW67 IBM 262090G (1) COMPUTER
2,991.00 78HCV46 IBM 262090G (1) COMPUTER
2,991.00 78HCV12 IBM 262090G (1) COMPUTER
2,991.00 78HCW92 IBM 262090G (1) COMPUTER
2,991.00 78HCC97 IBM 262090G (1) COMPUTER
2,991.00 78HBT48 IBM 262090G (1) COMPUTER
90.00 INTEL PCLA8120 (1) LAN ADAPTER
</TABLE>
<PAGE>
AMERICAN FINANCE GROUP PAGE 2
Schedule B Equipment Description
LESSEE: GENERAL ELECTRIC COMPANY
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Equipment Cost Serial Number Year Manufacturer Model Type
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
75.00 NEC CD-AT160 (1) CD ROM INTERFACE
396.00 4904730EP NEC JC 1535VMA (1) MONITOR
396.00 49047716EP NEC JC 1535VMA (1) MONITOR
396.00 4904575EP NEC JC 1535VMA (1) MONITOR
396.00 49049391EP NEC JC 1535VMA (1) MONITOR
396.00 4901763EP NEC JC 1535VMA (1) MONITOR
396.00 4901752EP NEC JC 1535VMA (1) MONITOR
396.00 4809231EP NEC JC 1535VMA (1) MONITOR
396.00 S4909250EP NEC JC 1535VMA (1) MONITOR
396.00 S4909248EP NEC JC 1535VMA (1) MONITOR
396.00 S4909238EP NEC JC 1535VMA (1) MONITOR
396.00 S4909236EP NEC JC 1535VMA (1) MONITOR
396.00 S4909228EP NEC JC 1535VMA (1) MONITOR
396.00 S4909220EP NEC JC 1535VMA (1) MONITOR
396.00 S4909218EP NEC JC 1535VMA (1) MONITOR
396.00 S4909215EP NEC JC 1535VMA (1) MONITOR
396.00 S4909135EP NEC JC 1535VMA (1) MONITOR
396.00 S4909130EP NEC JC 1535VMA (1) MONITOR
396.00 S4909120EP NEC JC 1535VMA (1) MONITOR
396.00 S4908925EP NEC JC 1535VMA (1) MONITOR
396.00 S4904736EP NEC JC 1535VMA (1) MONITOR
396.00 S4904726EP NEC JC 1535VMA (1) MONITOR
396.00 4904728EP NEC JC 1535VMA (1) MONITOR
396.00 4904580EP NEC JC 1535VMA (1) MONITOR
396.00 4904400EP NEC JC 1535VMA (1) MONITOR
396.00 4904290EP NEC JC 1535VMA (1) MONITOR
396.00 4901755EP NEC JC 1535VMA (1) MONITOR
396.00 4809234EP NEC JC 1535VMA (1) MONITOR
396.00 4809222EP NEC JC 1535VMA (1) MONITOR
396.00 S4909249EP NEC JC 1535VMA (1) MONITOR
396.00 S4909242EP NEC JC 1535VMA (1) MONITOR
396.00 S4909237EP NEC JC 1535VMA (1) MONITOR
396.00 S4909232EP NEC JC 1535VMA (1) MONITOR
396.00 S4909227EP NEC JC 1535VMA (1) MONITOR
396.00 S4909219EP NEC JC 1535VMA (1) MONITOR
396.00 S4909216EP NEC JC 1535VMA (1) MONITOR
396.00 S4909138EP NEC JC 1535VMA (1) MONITOR
396.00 S4909132EP NEC JC 1535VMA (1) MONITOR
396.00 S4909123EP NEC JC 1535VMA (1) MONITOR
396.00 S4908995EP NEC JC 1535VMA (1) MONITOR
396.00 S4908924EP NEC JC 1535VMA (1) MONITOR
396.00 S4904733EP NEC JC 1535VMA (1) MONITOR
396.00 S4904725EP NEC JC 1535VMA (1) MONITOR
396.00 S4904724EP NEC JC 1535VMA (1) MONITOR
396.00 S4904721EP NEC JC 1535VMA (1) MONITOR
</TABLE>
<PAGE>
AMERICAN FINANCE GROUP PAGE 3
Schedule B Equipment Description
LESSEE: GENERAL ELECTRIC COMPANY
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Equipment Cost Serial Number Year Manufacturer Model Type
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
396.00 S4902841EP NEC JC 1535VMA (1) MONITOR
396.00 S4902837EP NEC JC 1535VMA (1) MONITOR
396.00 S4901961EP NEC JC 1535VMA (1) MONITOR
396.00 S4901955EP NEC JC 1535VMA (1) MONITOR
396.00 S4901949EP NEC JC 1535VMA (1) MONITOR
396.00 S4901945EP NEC JC 1535VMA (1) MONITOR
396.00 S4809443EP NEC JC 1535VMA (1) MONITOR
396.00 S4809241EP NEC JC 1535VMA (1) MONITOR
396.00 S4809238EP NEC JC 1535VMA (1) MONITOR
396.00 S4809236EP NEC JC 1535VMA (1) MONITOR
396.00 S4809225EP NEC JC 1535VMA (1) MONITOR
396.00 S4904722EP NEC JC 1535VMA (1) MONITOR
396.00 S4904720EP NEC JC 1535VMA (1) MONITOR
396.00 S4902840EP NEC JC 1535VMA (1) MONITOR
396.00 S4902836EP NEC JC 1535VMA (1) MONITOR
396.00 S4901956EP NEC JC 1535VMA (1) MONITOR
396.00 S4901951EP NEC JC 1535VMA (1) MONITOR
396.00 S4901947EP NEC JC 1535VMA (1) MONITOR
396.00 S4901943EP NEC JC 1535VMA (1) MONITOR
396.00 S4809242EP NEC JC 1535VMA (1) MONITOR
396.00 S4809240EP NEC JC 1535VMA (1) MONITOR
396.00 S4809237EP NEC JC 1535VMA (1) MONITOR
396.00 S4809228EP NEC JC 1535VMA (1) MONITOR
4,261.00 1S9545LOG556D627 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556C0A0 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9X7 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9V0 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9R9 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9N6 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9K4 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9H3 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9G3 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9D1 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9C4 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9B4 IBM 9545LOG (1) COMPUTER
4,261.00 23DLW69 IBM 9545LOG (1) COMPUTER
4,261.00 23DLW37 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556C0C1 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9Z8 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9X6 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9T5 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9W8 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9W0 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9K1 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9G7 IBM 9545LOG (1) COMPUTER
</TABLE>
<PAGE>
AMERICAN FINANCE GROUP PAGE 4
Schedule B Equipment Description
LESSEE: GENERAL ELECTRIC COMPANY
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Equipment Cost Serial Number Year Manufacturer Model Type
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4,261.00 1S9545LOG556B9F5 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9C7 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B9B7 IBM 9545LOG (1) COMPUTER
4,261.00 1S9545LOG556B8Z8 IBM 9545LOG (1) COMPUTER
4,261.00 23DLW57 IBM 9545LOG (1) COMPUTER
4,261.00 23DLW29 IBM 9545LOG (1) COMPUTER
4,261.00 23DLW03 IBM 9545LOG (1) COMPUTER
4,261.00 23DLV77 IBM 9545LOG (1) COMPUTER
4,261.00 23DLT40 IBM 9545LOG (1) COMPUTER
4,261.00 23DLR67 IBM 9545LOG (1) COMPUTER
4,261.00 23DLR45 IBM 9545LOG (1) COMPUTER
4,261.00 23DLR07 IBM 9545LOG (1) COMPUTER
4,261.00 23DLM54 IBM 9545LOG (1) COMPUTER
4,261.00 23DLM82 IBM 9545LOG (1) COMPUTER
4,261.00 23DLL45 IBM 9545LOG (1) COMPUTER
4,261.00 23DLL41 IBM 9545LOG (1) COMPUTER
4,261.00 23DLK53 IBM 9545LOG (1) COMPUTER
4,261.00 23DLH68 IBM 9545LOG (1) COMPUTER
4,261.00 23DLH57 IBM 9545LOG (1) COMPUTER
4,261.00 23DLG94 IBM 9545LOG (1) COMPUTER
4,261.00 23DLG48 IBM 9545LOG (1) COMPUTER
4,261.00 23DLG17 IBM 9545LOG (1) COMPUTER
4,261.00 23DLF93 IBM 9545LOG (1) COMPUTER
4,261.00 23DLF47 IBM 9545LOG (1) COMPUTER
4,261.00 23DLF03 IBM 9545LOG (1) COMPUTER
4,261.00 23DLD91 IBM 9545LOG (1) COMPUTER
4,261.00 23DLD46 IBM 9545LOG (1) COMPUTER
4,261.00 23DLD16 IBM 9545LOG (1) COMPUTER
4,261.00 23DLC81 IBM 9545LOG (1) COMPUTER
4,261.00 23DLC42 IBM 9545LOG (1) COMPUTER
4,261.00 23DLC36 IBM 9545LOG (1) COMPUTER
4,261.00 23DLB31 IBM 9545LOG (1) COMPUTER
4,261.00 23DLA83 IBM 9545LOG (1) COMPUTER
4,261.00 23DLA60 IBM 9545LOG (1) COMPUTER
4,261.00 23DKZ72 IBM 9545LOG (1) COMPUTER
4,261.00 23DKZ63 IBM 9545LOG (1) COMPUTER
4,261.00 23DLV92 IBM 9545LOG (1) COMPUTER
4,261.00 23DLV40 IBM 9545LOG (1) COMPUTER
4,261.00 23DLR73 IBM 9545LOG (1) COMPUTER
4,261.00 23DLR64 IBM 9545LOG (1) COMPUTER
4,261.00 23DLR22 IBM 9545LOG (1) COMPUTER
4,261.00 23DLN94 IBM 9545LOG (1) COMPUTER
4,261.00 23DLN42 IBM 9545LOG (1) COMPUTER
4,261.00 23DLN43 IBM 9545LOG (1) COMPUTER
4,261.00 23DLL44 IBM 9545LOG (1) COMPUTER
</TABLE>
<PAGE>
AMERICAN FINANCE GROUP PAGE 5
Schedule B Equipment Description
LESSEE: GENERAL ELECTRIC COMPANY
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Equipment Cost Serial Number Year Manufacturer Model Type
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4,261.00 23DLK91 IBM 9545LOG (1) COMPUTER
4,261.00 23DLK50 IBM 9545LOG (1) COMPUTER
4,261.00 23DLH60 IBM 9545LOG (1) COMPUTER
4,261.00 23DLH48 IBM 9545LOG (1) COMPUTER
4,261.00 23DLG67 IBM 9545LOG (1) COMPUTER
4,261.00 23DLG19 IBM 9545LOG (1) COMPUTER
4,261.00 23DLG00 IBM 9545LOG (1) COMPUTER
2,492.00 MEGAHERTZ XJ2288 (7) FAX MODEM
5,828.00 IBM CBM8M/CL57SX (31) 8MB UPGRADE
1,296.00 MS 135-395V200 (18) MOUSE
638.00 IBM M92G7204 (1) 16MB MEMORY
374.00 NEC CDR501 (1) CD ROM
5,276.00 23FLW76 IBM 95457BD (1) COMPUTER
1,277.00 IBM KTM-TP750/32 (1) 32MB MEMORY UPGRADE
18,048.00 IBM 3C589B-COMBO (96) ETHERNET ADAPTER
3,528.00 MS 135-395V200 (49) MOUSE
42,411.00 SIGMA DATA QED-TP750-340 (67) 340MB HARD DRIVE
30,919.00 97D9410 IBM QED-TP750-340 (49) THINKPAD DOCK
19,623.00 IBM QED-TP750-340 (31) 340MB HARD DRIVE
27,690.00 MPM M-07G1421 (71) 8MB MEMORY UPGRADE
7,944.00 MPM M-84G5692 (24) 8MB MEMORY UPGRADE
12,090.00 MPM M-07G1421 (31) 8MB MEMORY UPGRADE
4,704.00 IBM 92G7453 (49) ENHANCED KEYBOARD
1,728.00 IBM 92G7453 (18) ENHANCED KEYBOARD
49,840.00 MEGAHERTZ XJ2288/Q20 (140) FAX MODEM
990.00 5253710NS NEC JC1733VMA (1) MONITOR
4,389.00 23GGW07 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHL57 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHP45 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHT00 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKK70 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKL51 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKR48 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKY41 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GLA15 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GLM11 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHZ63 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GG773 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHM27 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHR77 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKG61 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKL16 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKP61 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKW92 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GKZ35 IBM THINKPAD 755CSE (1) COMPUTER
</TABLE>
<PAGE>
AMERICAN FINANCE GROUP PAGE 6
Schedule B Equipment Description
LESSEE: GENERAL ELECTRIC COMPANY
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Equipment Cost Serial Number Year Manufacturer Model Type
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4,389.00 23GLL28 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 236HV60 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 236KP09 IBM THINKPAD 755CSE (1) COMPUTER
4,136.00 PCMCIA 3C589-B (22) ETHERNET ADAPTER
8,580.00 MPM M-07G1421 (22) 8MB MEMORY
- --------------
768,999.00 Total for Locaton GE MOTORS/INSTALLATION & SERVICE EN WOOD DALE IL 60191
396.00 S4809439EP NEC JC 1535VMA (1) MONITOR
396.00 S4809450EP NEC JC 1535VMA (1) MONITOR
396.00 S4809455EP NEC JC 1535VMA (1) MONITOR
396.00 S4902159EP NEC JC 1535VMA (1) MONITOR
396.00 S4908975EP NEC JC 1535VMA (1) MONITOR
396.00 S4908982EP NEC JC 1535VMA (1) MONITOR
396.00 S4908989EP NEC JC 1535VMA (1) MONITOR
396.00 S4908992EP NEC JC 1535VMA (1) MONITOR
396.00 S4809441EP NEC JC 1535VMA (1) MONITOR
396.00 S4809453EP NEC JC 1535VMA (1) MONITOR
396.00 S4902153EP NEC JC 1535VMA (1) MONITOR
396.00 S4902164EP NEC JC 1535VMA (1) MONITOR
396.00 S4908979EP NEC JC 1535VMA (1) MONITOR
396.00 S4908988EP NEC JC 1535VMA (1) MONITOR
396.00 S4908991EP NEC JC 1535VMA (1) MONITOR
396.00 S4908994EP NEC JC 1535VMA (1) MONITOR
2,991.00 78HCG30 IBM 262090G (1) COMPUTER
13,528.00 MEGAHERTZ XJ2288 (38) FAX MODEM
2,956.00 STD578HAZ41 IBM 262090G (1) COMPUTER
2,956.00 STD578HAZ95 IBM 262090G (1) COMPUTER
2,956.00 STD578HBF74 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG10 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG19 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG52 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG64 IBM 262090G (1) COMPUTER
2,956.00 STD578HBH01 IBM 262090G (1) COMPUTER
2,956.00 STD578HBK44 IBM 262090G (1) COMPUTER
2,956.00 STD578HBK89 IBM 262090G (1) COMPUTER
2,956.00 STD578HBM49 IBM 262090G (1) COMPUTER
2,956.00 STD578HBM98 IBM 262090G (1) COMPUTER
2,956.00 STD578HBN34 IBM 262090G (1) COMPUTER
2,956.00 STD578HBW62 IBM 262090G (1) COMPUTER
2,956.00 STD578HCB10 IBM 262090G (1) COMPUTER
2,956.00 STD578HCF03 IBM 262090G (1) COMPUTER
2,956.00 STD578HCX31 IBM 262090G (1) COMPUTER
2,956.00 STD578HAZ45 IBM 262090G (1) COMPUTER
2,956.00 STD578HAZ72 IBM 262090G (1) COMPUTER
</TABLE>
<PAGE>
AMERICAN FINANCE GROUP PAGE 7
Schedule B Equipment Description
LESSEE: GENERAL ELECTRIC COMPANY
RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 1
LESSOR: AMERICAN FINANCE GROUP
<TABLE>
<CAPTION>
Equipment Cost Serial Number Year Manufacturer Model Type
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2,956.00 STD578HBF90 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG17 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG34 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG61 IBM 262090G (1) COMPUTER
2,956.00 STD578HBG74 IBM 262090G (1) COMPUTER
2,956.00 STD578HBH28 IBM 262090G (1) COMPUTER
2,956.00 STD578HBK59 IBM 262090G (1) COMPUTER
2,956.00 STD578HBL88 IBM 262090G (1) COMPUTER
2,956.00 STD578HBM71 IBM 262090G (1) COMPUTER
2,956.00 STD578HBN09 IBM 262090G (1) COMPUTER
2,956.00 STD578HBN39 IBM 262090G (1) COMPUTER
2,956.00 STD578HB473 IBM 262090G (1) COMPUTER
2,956.00 STD578HCD50 IBM 262090G (1) COMPUTER
2,956.00 STD578HCX07 IBM 262090G (1) COMPUTER
6,392.00 IBM 3C5898-COMBO (34) ETHERNET ADAPTER
1,152.00 MS 135-395V200 (16) MOUSE
390.00 IBM M-07G1421 (1) 8MB MEMORY UPGRADE
11,254.00 MPM M-84G5692 (34) 8MB MEMORY UPGRADE
1,536.00 IBM 92G7453 (16) ENHANCED KEYBOARD
4,389.00 23GGN85 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHD24 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GGN96 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GHV12 IBM THINKPAD 755CSE (1) COMPUTER
752.00 PCMCIA 3C589-B (4) ETHERNET ADAPTER
1,560.00 MPM M-07G1421 (4) 8MB MEMORY
5,679.00 IBM 3546001 (9) THINKPAD DOCK
- --------------
166,674.00 Total for Location GE MOTORS/INSTALLATION & SERVICE EN ALBANY NY 12205
396.00 S4901704EP NEC JC 1535VMA (1) MONITOR
396.00 S4901715EP NEC JC 1535VMA (1) MONITOR
396.00 S4901713EP NEC JC 1535VMA (1) MONITOR
1,068.00 MEGAHERTZ XJ2288 (3) FAX MODEM
288.00 IBM 92G7453 (3) ENHANCED KEYBOARD
4,389.00 23GGR15 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GLG02 IBM THINKPAD 755CSE (1) COMPUTER
4,389.00 23GLA65 IBM THINKPAD 755CSE (1) COMPUTER
564.00 PCMCIA 3C589-B (3) ETHERNET ADAPTER
1,170.00 MPM M-07G1421 (3) 8MB MEMORY
216.00 MS (3) MOUSE
- --------------
17,661.00 Total for Location GE MOTORS/INSTALLATION & SERVICE EN SALEM VA 24153
==============
976,882.00 Total Equipment Cost
</TABLE>
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<NAME> AFG INVESTMENT TRUST B
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0
0
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