AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
                         FORM 10-K--DECEMBER 31, 1994
 
                       NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 4--RELATED PARTY TRANSACTIONS
 
  All operating expenses incurred by the Partnership are paid by AFG on behalf
of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three years in
the period ended December 31, 1994, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
 


                                                        1994     1993     1992
                                                      -------- -------- --------
                                                               
   Equipment management fees........................  $ 92,431 $104,953 $217,961
   Administrative charges...........................    12,000   14,955   12,000
   Reimbursable operating expenses due to third par-
    ties............................................   146,185   92,152  131,794
                                                      -------- -------- --------
       Total........................................  $250,616 $212,060 $361,755
                                                      -------- -------- --------

 
  As provided under the terms of the Management Agreement, AFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, AFG
is compensated by an amount equal to 4.75% of Equipment Base Price paid by the
Partnership. For management services, AFG is compensated by an amount equal to
the lesser of (i) 5% of gross lease rental revenue or (ii) fees which the
General Partner reasonably believes to be competitive for similar services for
similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to AFG for services
connected to the sale of equipment is calculated as the lesser of (i) 3% of
gross sale proceeds or (ii) one-half of reasonable brokerage fees otherwise
payable under arm's length circumstances. Payment of the remarketing fee is
subordinated to Payout and is subject to certain limitations defined in the
Management Agreement.
 
  Administrative charges represent amounts owed to AFG, pursuant to Section
10.4 of the Restated Agreement, as amended, for persons employed by AFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by
AFG on behalf of the Partnership which are reimbursed to AFG.
 
  All equipment was purchased from AFG, one of its affiliates, including other
equipment leasing programs sponsored by AFG, or from third-party sellers. The
Partnership's Purchase Price was determined by the method described in Note 2.
 
  All rents and proceeds from the sale of equipment are paid by the lessees
directly to either AFG or to a lender. AFG temporarily deposits collected
funds in a separate interest-bearing escrow account prior to remittance to the
Partnership. At December 31, 1994, the Partnership was owed $125,811 by AFG
for such funds and the interest thereon. These funds were remitted to the
Partnership in January 1995.