10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedSeptember 30, 2002 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . -------- Commission File No. 0-25648 AFG INVESTMENT TRUST D ---------------------- (Exact name of registrant as specified in its charter) Delaware 04-3157233 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1050 Waltham Street, Suite 310, Lexington, MA 02421 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 676-0009 ------------------- (Former name, former address and former fiscal year, if changed since last report.) 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 X No ----- AFG INVESTMENT TRUST D FORM 10-Q INDEX

AFG INVESTMENT TRUST D STATEMENTS OF FINANCIAL POSITION SEPTEMBER 30, 2002 AND DECEMBER 31, 2001 (UNAUDITED)

The accompanying notes are an integral part of these financial statements. AFG INVESTMENT TRUST D STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

The accompanying notes are an integral part of these financial statements. AFG INVESTMENT TRUST D STATEMENTS OF CHANGES IN PARTICIPANTS' CAPITAL FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

The accompanying notes are an integral part of these financial statements. AFG INVESTMENT TRUST D STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

The accompanying notes are an integral part of these financial statements. AFG INVESTMENT TRUST D NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION ----------------------------------- The financial statements presented herein are prepared in conformity with generally accepted accounting principles and the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and are unaudited. As such, these financial statements do not include all information and footnote disclosures required under generally accepted accounting principles for complete financial statements and, accordingly, the accompanying financial statements should be read in conjunction with the footnotes presented in the 2001 Annual Report (Form 10-K/A) of AFG Investment Trust D (the "Trust"). Except as disclosed herein, there has been no material change to the information presented in the footnotes to the 2001 Annual Report included in Form 10-K/A. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary to present fairly the financial position at September 30, 2002 and December 31, 2001, results of operations for the three and nine month periods ended September 30, 2002 and 2001 and the statement of changes in participants' capital and statements of cash flows for the nine months ended September 30, 2002 have been made and are reflected. Certain amounts previously reported have been reclassified to conform to the September 30, 2002 financial statement presentation. These reclassifications did not have any effect on total assets, total liabilities, participants' capital, or net income (loss). The table below details the allocation of income (loss) in each of the quarters for the nine months ended September 30, 2002:

NOTE 2 - 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 being earned 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, which is December 31, 2006. This circumstance is not expected to prevent the orderly wind-up of the Trust's business activities as AFG ASIT Corporation, the managing trustee of the Trust ("Managing Trustee") and the Trust's 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 noncancellable rental payments associated with the attendant lease agreements. Future minimum rents of $7,166,596 are due as follows:

In June 2002, the Trust entered into a lease with Cygnus Air, S.A. for the lease of its McDonnell Douglas DC-8-73 aircraft, effective as of July 2002, at a monthly lease amount of $120,000 through January 2005. NOTE 3 - EQUIPMENT --------------------- The following is a summary of equipment owned by the Trust at September 30, 2002. Remaining Lease Term (Months), as used below, represents the number of months remaining from September 30, 2002 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.

Equipment with an approximate original cost of $31,428,000 is proportionately owned with other affiliated entities. In April 2002, the Trust executed an agreement with an existing lessee, Emery Worldwide ("Emery"), to early terminate the lease of a McDonnell Douglas DC-8-73 aircraft that had been scheduled to expire in July 2002. Subsequent to the termination of the lease, the aircraft was re-leased to Cygnus Air, S.A. ("Cygnus") for term of thirty months beginning July 2002. The Trust incurred $773,000 of repairs and maintenance during the three months ended September 30, 2002 to service the McDonnell Douglas DC-8-73 aircraft re-leased to Cygnus. As of September 30, 2002, the Trust's ownership interest in aircraft and related lease payment streams are used to secure the term loans with third-party lenders. The preceding summary of equipment includes leveraged equipment having an original cost of approximately $45,014,000 and a net book value of approximately $21,249,000 at September 30, 2002. The summary above includes equipment held for sale or re-lease with an original cost of approximately $9,325,000 and a net book value of approximately $2,063,000. 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. The Trust accounts for impairment of long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which was issued in August 2001. SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the assets may not be recoverable from undiscounted future cash flows. During the nine months ended September 30, 2002, the Trust recorded a write-down of equipment, representing an impairment to the carrying value of the Trust's interest in a McDonnell Douglas MD-87 aircraft. The resulting charge of $483,648 was based on a comparison of estimated fair value and carrying value of the Trust's interest in the aircraft. The estimate of the fair value was based on a current offer to purchase the aircraft and the assessment by the Trust's management of prevailing market conditions for similar aircraft. Aircraft condition, age, passenger capacity, distance capability, fuel efficiency, and other factors influence market demand and market values for passenger jet aircraft. The events of September 11, 2001, along with a recession in the United States have continued to adversely affect the market demand for both new and used commercial aircraft. NOTE 4 - INTEREST IN EFG/KETTLE DEVELOPMENT LLC ------------------------------------------------------ On March 1, 1999, the Trust and an affiliated trust (collectively, the "Buyers") formed EFG/Kettle Development LLC, a Delaware limited liability company, for the purpose of acquiring a 49.9% indirect ownership interest (the "Interest") in a real estate development in Kelowna, British Columbia in Canada called Kettle Valley. EFG/Kettle Development LLC, upon receiving the Buyers' contributions for their membership interests, purchased the Interest from a special purpose company ("SPC") whose subsidiaries own a 99.9% limited partnership interest in Kettle Valley Development Limited Partnership ("KVD LP"). The SPC and its subsidiaries were established by the seller, in part, for income tax purposes and have no business interests other than the development of Kettle Valley. KVD LP is a Canadian Partnership that owns the property, consisting of approximately 280 acres of land. The project is zoned for 1,120 residential units in addition to commercial space. To date, 123 residential units have been constructed and sold. The seller is an unaffiliated third-party company and has retained the remaining 50.1% ownership interest in the SPC. A newly organized Canadian affiliate of EFG replaced the original general partner of KVD LP on March 1, 1999. The Trust's ownership share in EFG/Kettle Development LLC is 49.396% and had a cost of $4,365,372, including a 1% acquisition fee of $43,222 paid to Equis Financial Group L.P., ("EFG"). This acquisition was funded with cash of $3,064,700 and a non-recourse note for $1,300,672, which was repaid as of December 31, 2001. The Trust's cost basis in this joint venture was approximately $642,000 greater than its equity interest in the underlying net assets at December 31, 1999. Through December 31, 2001, this difference was amortized using a period of 10 years. The amount amortized had been included in amortization expense as an offset to EFG/Kettle Development LLC and was $48,150 during the nine months ended September 30, 2001. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS. No. 142"), the discontinuance of goodwill amortization was effective as of January 1, 2002. The Trust accounts for its interest in Kettle Valley using the equity method of accounting. Under the equity method of accounting, the Trust's interest is (i) increased (decreased) to reflect the Trust's share of income (loss) of the joint venture and (ii) decreased to reflect any distributions the Trust received from the joint venture. The Trust's interest was decreased by $39,074 and $132,024, respectively, during the three and nine month periods ended September 30, 2002 and decreased by $13,134 and $509,537, respectively, during the same periods in 2001, reflecting the Trust's share of income/loss from Kettle Valley. In addition, the seller of the Trust's interest in Kettle Valley purchased a residual sharing interest in a Boeing 767-300 aircraft owned by the Buyers and leased to Scandinavian Airlines System ("SAS"). The seller paid $3,013,206 to the Buyers ($1,488,403, or 49.396% to the Trust) for the residual interest, which is subordinate to certain preferred payments to be made to the Buyers in connection with the aircraft. Payment of the residual interest is due only to the extent that the Trust receives net residual proceeds from the aircraft. The residual interest is non-recourse to the Buyers and is included in Other Liabilities on the accompanying Statements of Financial Position at both September 30, 2002 and December 31, 2001. The table below provides comparative summarized income statement data for KVD LP. KVD LP has a January 31 fiscal year end. The Trust has a December 31 fiscal year end. The operating results of KVD LP shown below have been conformed to the three and nine months ended September 30, 2002 and 2001.

EFG/Kettle Development LLC owns a 49.9% interest in a company (the "Company") which, through two wholly-owned subsidiaries, owns a 99.9% interest in KVD LP. For the nine months ended September 30, 2002, in addition to its share of the loss of KVD LP, the Trust's net loss from EFG/Kettle Development includes a loss of $41,818 reflecting the Trust's share of the operating results of one of the Company's wholly-owned subsidiaries. NOTE 5 - INTEREST IN EFG KIRKWOOD LLC -------------------------------------------- On May 1, 1999, the Trust and three affiliated trusts (collectively the "Trusts") and an affiliated corporation, Semele Group Inc. ("Semele"), formed a joint venture, EFG Kirkwood LLC ("EFG Kirkwood"), for the purpose of acquiring preferred and common stock interests in Kirkwood Associates Inc. ("KAI"). The Trusts collectively own 100% of the Class A membership interests in EFG Kirkwood and Semele owns 100% of the Class B membership interests in EFG Kirkwood. The Class A interest holders are entitled to certain preferred returns prior to distribution payments to the Class B interest holder. The Trusts' interests in EFG Kirkwood constitute 50% of the voting securities of that entity under the operating agreement for the LLC, which gives equal voting rights to Class A and Class B membership interests. The Managing Trustee is the manager of EFG Kirkwood. On April 30, 2000, KAI's ownership interests in certain assets and substantially all of its liabilities were transferred to Mountain Resort Holdings LLC ("Mountain Resort"). On May 1, 2000, EFG Kirkwood exchanged its interest in KAI's common and preferred stock for corresponding pro-rata membership interests in Mountain Resort. EFG Kirkwood holds approximately 38% of the membership interests in Mountain Resort. Mountain Resort, through four wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski resort located in northern California, a public utility that services the local community, and land that is held for residential and commercial development. The Trust holds 30% of EFG Kirkwood's Class A membership interests. On May 1, 2000, EFG Kirkwood acquired 50% of the membership interests in Mountain Springs Resorts LLC ("Mountain Springs"). Mountain Springs, through a wholly owned subsidiary, owns 80% of the common membership interests and 100% of the Class B Preferred membership interests in an entity that owns the Purgatory Ski Resort ("Purgatory") in Durango, Colorado. The Trust's ownership interest in EFG Kirkwood had an original cost of $2,995,615; including a 1% acquisition fee of $29,660 paid to EFG. The Trust's ownership interest in EFG Kirkwood is accounted for on the equity method and the Trust recorded a loss of $600,249 and $34,052 for the three and nine months ended September 30, 2002, respectively, compared to a loss of $580,954 and income of $159,475, respectively, for the same periods in 2001, representing its pro-rata share of the net income (loss) of EFG Kirkwood. The operating results of EFG Kirkwood for the nine months ended September 30, 2002 included additional equity income of $106,700 related to the difference between the purchase price and the fair value of EFG Kirkwood's investment in Mountain Resort. The table below provides comparative summarized income statement data for Mountain Resort and the Purgatory Ski Resort for the three and nine months ended September 30, 2002 and 2001. The operating companies have different fiscal year end dates than the Trust. Therefore, the operating results shown below have been conformed to the three and nine months ended September 30, 2002 and 2001.

NOTE 6 -INTEREST IN MILPI HOLDINGS, LLC --------------------------------------------- In December 2000, the Trusts formed MILPI Holdings, LLC ("MILPI"), which formed MILPI Acquisition Corp. ("MILPI Acquisition), a wholly owned subsidiary of MILPI. The Trusts collectively paid $1.2 million for their membership interest in MILPI and MILPI purchased the shares of MILPI Acquisition for an aggregate purchase price of $1.2 million at December 31, 2000 ($432,000 for the Trust). MILPI Acquisition entered into a definitive agreement (the "Agreement") with PLM International, Inc., ("PLM"), an equipment leasing and asset management company, for the purpose of acquiring up to 100% of the outstanding common stock of PLM, for an approximate purchase price of up to $27 million. In connection with the acquisition, on December 29, 2000, MILPI Acquisition commenced a tender offer to purchase any and all of PLM's outstanding common stock. Pursuant to the cash tender offer, MILPI Acquisition acquired approximately 83% of PLM's outstanding common stock in February 2001 for a total purchase price of approximately $21.8 million. The Trust's 36% membership interest in MILPI, prior to its additional acquisition in February 2002 described below, had a cost of $7,987,757, including associated fees and capitalized costs. Under the terms of the Agreement, with the approval of the holders of 50.1% of the outstanding common stock of PLM, MILPI Acquisition would merge into PLM, with PLM being the surviving entity. The merger was completed when MILPI obtained approval of the merger from PLM's shareholders pursuant to a special shareholders' meeting on February 6, 2002. On February 7, 2002, the Trust and AFG Investment Trust C ("Trust C") collectively provided approximately $4.4 million to acquire the remaining 17% of PLM's outstanding common stock, of which $1,983,321 (including acquisition fees of $19,636 discussed below) was contributed by the Trust. The funds were obtained from existing resources and internally generated funds and by means of a 364 day, unsecured loan from PLM evidenced by a promissory note in the principal amount of $589,105 that bears interest at LIBOR plus 200 basis points. Subsequent to the merger, the Trust's ownership interest increased from 36% to 37.5%. Effective February 2002, the Trust has a 37.50% membership interest in MILPI having an original cost of $9,971,078. The cost of the Trust's interest in MILPI reflects MILPI's cost of acquiring the common stock of PLM, including the amount paid for the shares tendered of $9,802,945, capitalized transaction costs of $70,104 and a 1% acquisition fee paid to a wholly-owned subsidiary of Semele of $98,029. The Trust capitalized these transaction costs, of which $29,871 was amortized during the nine months ended September 30, 2001. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") was effective for the Trust as of January 1, 2002 and requires the discontinuance of goodwill amortization as of January 1, 2002. SFAS No. 142 also requires the Trust to complete a transitional goodwill impairment test within six months from January 1, 2002, the date of adoption. The Trust completed the goodwill impairment analysis during the quarter ended September 30, 2002. There was no impact on the Trust's financial statements as a result of this analysis. Equis II Corporation has voting control of the Trusts and owns the Managing Trustee of the Trusts. Semele owns Equis II Corporation. Mr. Engle and Mr. Coyne, who are directors and officers of the Trust, respectively, are also officers and directors of, and own significant stock in Semele. In addition, Mr. Engle and Mr. Coyne are officers and directors of MILPI. The Trust's ownership interest in MILPI is accounted for on the equity method and the Trust recorded income of $38,891 and $565,237, respectively, during the three and nine months ended September 30, 2002, compared to income of $502,154 and $618,686, respectively, for the same periods in 2001, which represented its pro-rata share of the net income of MILPI. On March 12, 2002, PLM declared and paid a cash dividend to MILPI of approximately $2.7 million. MILPI then declared and paid a cash dividend of approximately $2.7 million, of which the Trust's share was $1,000,092. The table below provides summarized income statement data for MILPI for the three and nine months ended September 30, 2002 and 2001. As discussed above, approximately 83% of PLM's common stock was acquired in February 2001 with the remaining interest acquired in February 2002.

NOTE 7 - INTEREST IN C & D IT LLC ------------------------------------------ In March 2002, the Trust and AFG Investment Trust C ("Trust C") formed C & D IT LLC, a Delaware limited liability company, as a 50%/50% owned joint venture that is co-managed by each of the Trust and Trust C (the "C & D Joint Venture") to which each Trust contributed $1 million. The C & D Joint Venture was formed for the purpose of making a conditional contribution of $2.0 million to BMLF/BSLF II Rancho Malibu Limited Partnership ("Rancho Malibu Limited Partnership") in exchange for 25% of the interests in Rancho Malibu Limited Partnership (the "C & D Joint Venture Contribution"). The C & D Joint Venture was admitted to Rancho Malibu Limited Partnership as a co-managing general partner pursuant to the terms of an amendment to Rancho Malibu Limited Partnership Agreement. The other partners in Rancho Malibu Limited Partnership are Semele and its wholly-owned subsidiary, Rancho Malibu Corp., the other co-managing general partner. Rancho Malibu Limited Partnership owns the 274-acre parcel of land near Malibu, California and is developing it as a single-family luxury residential subdivision. The conditional C & D Joint Venture Contribution was made to assure participation in the future development of the parcel. It was made subject to the future solicitation of the consent of the beneficiaries of each of the Trust and Trust C. The C & D Joint Venture Contribution is conditioned upon the consummation of a transaction pursuant to which Semele and Rancho Malibu Corp. will contribute all of the partnership interests that they hold in Rancho Malibu Limited Partnership along with 100% of the membership interests Semele holds in RM Financing LLC to RMLP, Inc., a newly formed subsidiary of PLM, in exchange for $5.5 million in cash, a $2.5 million promissory note and 182 shares of common stock of RMLP, Inc., approximately 21% interest in RMLP Inc. (The sole asset of RM Financing LLC is a Note dated December 31, 1990 (the "Note"). The Note was held by Semele's predecessor when it took a deed in lieu of foreclosure on the property from the original owner. The unpaid balance of the Note is $14,250,000 plus accrued interest as of September 30, 2002. The C & D Joint Venture possesses the right to withdraw the C & D Joint Venture Contribution from Rancho Malibu Limited Partnership if the transactions have not taken place within ninety days of the receipt by Rancho Malibu Limited Partnership of notice from the C & D Joint Venture that the requisite consents of the beneficiaries of the Trust and Trust C have been received. This right of the C & D Joint Venture is secured by a pledge of 50% of the capital stock of Rancho Malibu Corp. and 50% of the interests in Rancho Malibu Limited Partnership held by Semele and Rancho Malibu Corp. NOTE 8 - RELATED PARTY TRANSACTIONS ---------------------------------------- Various operating expenses incurred by the Trust are paid by Equis Financial Group, LP ("EFG") on behalf of the Trust and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the nine month periods ended September 30, 2002 and 2001, which were paid or accrued by the Trust to EFG or its affiliates, are as follows:

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 September 30, 2002, the Trust was owed $102,274 by EFG for such funds and the interest thereon. These funds were remitted to the Trust in October 2002. Notes payable - affiliate at September 30, 2002 consisted of a 364 day, unsecured loan from PLM evidenced by a promissory note in the principal amount of $589,105, which was entered into in the first quarter of 2002. The note bears interest at LIBOR plus 200 basis points. The Trust incurred interest expense related to this note of $6,597 and $16,347, respectively, during the three and nine months ended September 30, 2002. NOTE 9 - NOTES PAYABLE -------------------------- Notes payable at September 30, 2002 consisted of installment notes of $23,621,566 payable to banks and institutional lenders. One of the notes has a fixed rate of 9.176% and the other two notes bear fluctuating interest rates based on LIBOR plus a margin. All of the installment notes are non-recourse and are collateralized by certain of the Trust's equipment and assignment of the related lease payments. These notes will be partially amortized by the remaining contracted lease payments. However, the Trust has balloon payment obligations of $15,806,720 and $3,128,690, respectively, at the expiration of the lease terms related to its interest in an aircraft leased to SAS in December 2003 and an aircraft leased to Cygnus Air, S.A. in January 2005. In June 2002, the Trust executed an amendment to the debt agreement securing the aircraft leased by Cygnus Air, S.A. In July, August and September, 2002, additional amounts of $1,223,831, $181,785 and $134,622 respectively were funded on the debt to finance the Trust's costs for a breakage fee on the refinancing and costs incurred to re-lease the aircraft to Cygnus Air, S.A. The amended debt requires monthly payments of $120,000 with a $3,128,690 balloon payment due at maturity, which was extended to January 9, 2005. The annual maturities of the installment notes payable are as follows:

In conjunction with the refinancing, the Trust was required to pay approximately $485,000 for a breakage fee the amended debt and other lender-related legal costs, which was expensed by the Trust in June 2002. These costs were funded as an additional draw on the debt in July 2002. In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections. As permitted by the pronouncement, the Trust has elected early adoption of SFAS No. 145 as of April 11, 2002, and, accordingly, the loss on extinguishment of long-term debt in June 2002 has been reported in operating expenses in the Trust's June 30, 2002 Statement of Operations. NOTE 10 - CONTINGENCIES -------------------------- The Investment Company Act of 1940 (the "Act") places restrictions on the capital structure and business activities of companies registered thereunder. The Trust has active business operations in the financial services industry, primarily equipment leasing, and in the real estate industry through its interests in EFG Kirkwood, C & D IT LLC and Kettle Valley. The Trust does not intend to engage in investment activities in a manner or to an extent that would require the Trust to register as an investment company under the Act. However, it is possible that the Trust may unintentionally engage in an activity or activities that may be construed to fall within the scope of the Act. The Managing Trustee is engaged in discussions with the staff of the Securities and Exchange Commission regarding whether or not the Trust may be an inadvertent investment company by virtue of its recent acquisition activities. The Managing Trustee has consulted counsel and believes that the Trust is not an investment company. If the Trust were determined to be an investment company, its business would be adversely affected. The Act, among other things, prohibits an unregistered investment company from offering securities for sale or engaging in any business or interstate commerce. If necessary, the Trust intends to avoid being deemed an investment company by disposing of or acquiring certain assets that it might not otherwise dispose of or acquire. NOTE 11 - OPERATING SEGMENTS -------------------------------- The Trust has two principal operating segments: 1) Equipment Leasing and 2) Real Estate Ownership, Development & Management. The Equipment Leasing segment includes the management of the Trust's equipment portfolio and the Trust's interest in MILPI Holdings, LLC ("MILPI"), which owns 100% of PLM International, Inc., ("PLM") an equipment leasing and asset management company. From February 2001 to February 6, 2002, MILPI, through a wholly owned subsidiary, owned approximately 83% of PLM. Effective February 7, 2002, MILPI Acquisition was merged into PLM and MILPI owns 100% of PLM. The Real Estate segment includes the ownership, management and development of commercial properties, recreational properties, condominiums, interval ownership units, townhomes, single family homes and land sales included in the Trust's ownership interests in EFG Kirkwood, LLC, C & D IT LLC, and EFG/Kettle Development, LLC. The Trust's reportable segments offer different products or services and are managed separately because each requires different operating strategies and management expertise. There are no material intersegment sales or transfers. Segment information for the three and nine months ended September 30, 2002 and 2001 is summarized below.

(1) Includes equipment leasing revenue of $1,268,801 and $3,788,652, respectively, for the three and nine months ended September 30, 2002, compared to $1,391,391 and $4,129,068, respectively, for the same periods in 2001. Three and Nine Months Ended September 30, 2002 Compared to the Three and Nine -------------------------------------------------------------------------------- Months Ended September 30, 2001: ------------------------------------ Results of Operations ----------------------- Equipment Leasing ------------------ For the three and nine month periods ended September 30, 2002, the Trust recognized lease revenue of $1,268,801 and $3,788,652, respectively, compared to $1,391,391 and $4,129,068, respectively, for the same periods in 2001. The decrease in lease revenue from 2001 to 2002 resulted primarily from a $74,424 early lease termination fee received during the nine months ended September 30, 2001 (a similar fee was not earned in 2002), approximately $92,000 related to lease term expirations and approximately $174,000 decrease in lease revenues resulting from the sale of equipment. 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 an affiliated equipment leasing program sponsored by Equis Financial Group Limited Partnership ("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 three and nine month periods ended September 30, 2002 was $3,091 and $12,151, respectively, compared to $26,898 and $141,191, respectively, for the same periods in 2001. Interest income is typically generated from the temporary investment of rental receipts and equipment sales proceeds in short-term instruments and decreased for the three and nine months ended September 30, 2002 in comparison to the same periods in 2001 due to a decrease in cash balances in 2002. During the three and nine months ended September 30, 2002, the Trust sold fully depreciated equipment and equipment having a net book value of $1,987, respectively to existing lessees and third parties. These sales resulted in a gain of $23,350 and $374,738, respectively. During the three and nine months ended September 30, 2001, the Trust sold equipment having a net book value of $970 and $110,038, respectively to existing lessees and third parties. These sales resulted in a net loss and gain of $13,868 and $406,879, respectively. On March 8, 2000, the Trust and three affiliated trusts entered into a guarantee agreement whereby the trusts, jointly and severally, guaranteed the payment obligations under a master lease agreement between Echelon Commercial LLC, as lessee, and several third party entities, as lessor. During the year ended December 31, 2001, the requirements of the guarantee agreement were met, the Trust received payment for all outstanding amounts due thereunder and the Trust has no further obligations under the guarantee agreement. During the nine months ended September 30, 2001, the Trust recognized income of $112,590 related to the guarantee fee. The guarantee fee is reflected as Other Income on the accompanying Statement of Operations. Depreciation expense was $1,176,059 and $3,560,364, respectively, for the three and nine months ended September 30, 2002 and $1,262,838 and $3,853,255, respectively, for the same periods of 2001. During the three months ended June 30, 2002, the Trust also recorded a write-down of equipment, representing an impairment to the carrying value of the Trust's interest in a McDonnell Douglas MD-87 aircraft. The resulting charge of $483,648 was based on a comparison of estimated fair value and carrying value of the Trust's interest in the aircraft. The estimate of the fair value was based on a current offer to purchase the aircraft and the assessment by the management of the Trusts of prevailing market conditions for similar aircraft. Aircraft condition, age, passenger capacity, distance capability, fuel efficiency, and other factors influence market demand and market values for passenger jet aircraft. The events of September 11, 2001, along with a recession in the United States have continued to adversely affect the market demand for both new and used commercial aircraft. The Trust recorded amortization expense in connection with deferred financing costs of $85,144 and $140,506, respectively, during the three and nine months ended September 30, 2002, compared to $26,265 and $78,791, respectively, for the same periods in 2001. Interest expense on third party debt was $479,615 and $1,585,913, respectively for the three and nine months ended September 30, 2002 compared to $349,950 and $1,583,496, respectively, for the same periods in 2001. During the three and nine months ended September 30, 2002, the Trust also incurred $6,597 and $16,347, respectively, of interest expense on a note payable to PLM, executed in conjunction with the purchase of the remaining 17% of PLM in February 2002. Management fees related to equipment leasing were $82,149 and $256,199, respectively, for the three and nine months ended September 30, 2002 compared to $21,731 and $156,917, respectively, for same periods in 2001. Management fees related to equipment are based on 5% of gross lease revenue generated by operating leases and 2% of gross lease revenue generated by full payout leases, subject to certain limitations. Management fees related to the Trust's interest in MILPI are based on 1% of the cost of such interest. Management fees related to equipment leasing increased in 2002 due to an increase in the carrying value of the Trust's interest in MILPI. Operating expenses were $1,225,159 and $2,091,493, respectively, for the three and nine months ended September 30, 2002, compared to $277,569 and $1,040,671, for the same periods in 2001. The increase in operating expenses is primarily the result of approximately $773,000 of repairs and maintenance fees incurred to service the McDonnell Douglas DC-8-73 aircraft which was re-leased to Cygnus in July 2002 and approximately $485,000 of noncapitalizable costs incurred in conjunction with the amendment on the debt agreement for the respective aircraft. The repairs and maintenance fees were partially financed through debt proceeds associated with the Cygnus lease and certain other receipts from Emery. In 2001, operating expenses included approximately $195,000 and $157,000, respectively, for ongoing legal matters. Operating expenses in the nine months ended September 30, 2001 also included approximately $268,000 for remarketing costs related to the re-lease of aircraft leased to Scandinavian Airlines ("SAS") and Aerovias de Mexico, S.A. de C.V. and also included approximately $121,000 of costs reimbursed to EFG as a result of the successful acquisition of the PLM common stock by MILPI Acquisition. In conjunction with the acquisition of the PLM common stock, EFG became entitled to recover certain out of pocket expenses which had previously incurred. Other operating expenses consist primarily of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. During the three and nine months ended September 30, 2002, the Trust recorded income of $38,891 and $565,237, respectively, during the three and nine months ended September 30, 2002, compared to income of $502,154 and $618,686, respectively, for the same periods in 2001, representing the Trust's share of net income of MILPI recorded under the equity method of accounting. See below for a discussion of the operating results of MILPI during the respective periods. The Trust's income from MILPI results from MILPI's ownership of PLM common stock acquired in February 2001 and February 2002 (see discussion below). PLM is an equipment leasing and asset management company. The Trust recorded $13,471 and $29,871, respectively, of amortization expense for the three and nine months ended September 30, 2001, which related to the goodwill recorded at the time of the acquisition of the PLM common stock by MILPI Acquisition. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), was effective for the Trust as of January 1, 2002 and requires the discontinuance of goodwill amortization as of January 1, 2002. SFAS No. 142 also requires the Trust to complete a transitional goodwill impairment test within six months from January 1, 2002, the date of adoption. The Trust completed the goodwill impairment analysis during the quarter ended September 30, 2002. There was no impact on the Trust's financial statements as a result of this analysis. MILPI Operating Results ------------------------- During the three and nine months ended September 30, 2002, MILPI recognized revenues of approximately $978,000 and $4,357,000, respectively, compared to revenues of approximately $3,600,000 and $9,213,000, respectively, for the same periods in 2001. Revenues for the three and nine months ended September 30, 2002 are comprised primarily of management fees of approximately $881,000 and $3,619,000, respectively. Revenues for the three and nine months ended September 30, 2001 are comprised primarily of management fees of approximately $3,222,000 and $6,394,000, respectively. The decrease in management fees of MILPI from 2002 to 2001 is due to the disposition of equipment managed by MILPI. Acquisition and lease negotiation fees decreased in 2002 by $2,031,000 due to less equipment being placed in PLM managed programs. During the three and nine months ended September 30, 2002, MILPI incurred total costs and expenses of approximately $588,000 and $1,956,000, respectively, compared to $1,442,000 and $4,752,000, respectively, for the same periods in 2001. Operating expenses for the three months ended September 30, 2002 are comprised of general and administrative expenses of approximately $587,000 and depreciation and amortization expense of approximately $1,000. For the nine months ended September 30, 2002, operating expenses are comprised of general and administrative expenses of approximately $1,856,000 and depreciation and amortization expense of approximately $100,000. Operating expenses for the three months ended September 30, 2001 are comprised of general and administrative expenses of approximately $1,337,000 and depreciation and amortization expense of approximately $105,000. For the nine months ended September 30, 2001, operating expenses are comprised primarily of general and administrative expenses of approximately $4,223,000 and depreciation and amortization expense of approximately $519,000. The $2,367,000 decrease in general and administrative expenses in the nine months ended September 30, 2002 compared to the same period of 2001 is primarily due to the relocation and consolidation of the corporate service functions of MILPI during May 2001. The $419,000 decrease in depreciation and amortization expense during the nine months ended September 30, 2002 compared to 2001 is the result of the sale of equipment owned by MILPI during the second half of 2001. During the three and nine months ended September 30, 2002, MILPI incurred income tax expense of approximately $286,000 and $936,000, respectively, compared to approximately $882,000 and $1,304,000 for the same periods in 2001. Real Estate ------------ Management fees for non-equipment assets were $20,723 and $61,551, respectively, for the three and nine months ended September 30, 2002 compared to $40,483 and $112,166, respectively, for the same periods in 2001. Management fees for non-equipment assets, excluding cash, are 1% of such assets under management. Management fees decreased for the three and nine months ended September 30, 2002 compared to the same period in 2001 due to the decrease in the carrying value of the assets. Interest expense on a note payable related to the Trust's acquisition of its interest in Kettle Valley was $3,229 and $16,752, respectively, for the three and nine months ended September 30, 2001. This note was repaid as of December 31, 2001. The Trust has an approximately 49% ownership interest in Kettle Valley (see discussion of Kettle Valley's operating results below). For the three and nine months ended September 30, 2002, the Trust recorded net losses of $39,074 and $132,024, respectively, compared to net losses of $13,134 and $509,537, respectively, for the same periods of 2001, from its ownership interest in Kettle Valley. This income and loss represent the Trust's share of the net income (loss) of Kettle Valley recorded under the equity method of accounting. In addition, the Trust recorded amortization expense of $16,050 and $48,150, respectively, during the three and nine months ended September 30, 2001, in connection with its interest in Kettle Valley. The Trust owns 30% of the Class A membership interests of EFG Kirkwood, a joint venture between the Trust, certain affiliated trusts, and an affiliated corporation, Semele Group Inc. ("Semele"). AFG ASIT Corporation, the Managing Trustee of the Trust and a subsidiary of Semele, also is the manager of EFG Kirkwood. EFG Kirkwood owns membership interests in: Mountain Resort Holdings LLC ("Mountain Resort") and Mountain Springs Resort LLC ("Mountain Springs"). Mountain Resort, through four wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski resort located in northern California, a public utility that services the local community, and land that is held for residential and commercial development. Mountain Springs, through a wholly owned subsidiary, owns a controlling interest in DSC/Purgatory LLC ("Purgatory") in Durango, Colorado. For the three and nine months ended September 30, 2002, the Trust recorded a loss of $600,249 and $34,052 for the three and nine months ended September 30, 2002, respectively, compared to a loss of $580,954 and income of $159,475, respectively, for the same periods in 2001, from its ownership interest in EFG Kirkwood. This income and loss represents the Trust's share of the net income (loss) of EFG Kirkwood recorded under the equity method of accounting. Due to the seasonal nature of EFG Kirkwood's operations, the financial results of the three months and nine months ended September 30, 2002 and 2001 are not indicative of future periods. The three months ended March 31 of each year include the periods of peak income activity for the resorts. See below for a discussion of the operating results of the resorts. Mountain Resort Operating Results ------------------------------------ Mountain Resort's primary operating asset is Kirkwood Mountain Resort, a ski and mountain recreation resort with more than 2,000 acres of terrain, located approximately 32 miles south of Lake Tahoe. The resort receives approximately 70% of its revenues from winter ski operations, primarily ski, lodging, retail and food and beverage services with the remainder of the revenues generated from summer outdoor activities, including mountain biking, hiking and other activities. Other operations include a real estate development division, which has developed and is managing a 40-unit condominium residential and commercial building, an electric and gas utility company, which operates as a regulated utility company and provides electric and gas services to the Kirkwood community, and a real estate brokerage company. During the three and nine months ended September 30, 2002, Mountain Resort recorded total revenues of approximately $2,082,000 and $22,558,000, respectively, compared to revenues of approximately $1,844,000 and $22,412,000 for the same periods in 2001. The increase in total revenues from 2001 to 2002 for the three and nine month periods ended September 30, 2002 compared to 2001 of approximately $239,000 and $145,000, respectively, is the result of an increase in ski-related revenues offset by a decrease in residential-related and other operations revenues. Ski-related revenues increased approximately $2,509,000 in the nine months ended September 30, 2002 compared to the same period of 2001. The increase in ski-related revenues resulted from improved weather conditions during the winter season, which attracted more skiers. Residential-related and other operations revenues decreased approximately $2,364,000 for the nine months ended 2002 as compared to 2001. The decrease in residential-related and other operations revenues was primarily attributable to a reduction in the number of condominium sales during 2002 compared to 2001. During the three and nine months ended September 30, 2002, Mountain Resort recorded total expenses of approximately $4,583,000 and $21,147,000 respectively, compared to expenses of approximately $4,395,000 and $21,794,000, respectively for the same periods of 2001. The decrease in total expenses of $647,000 for the nine months ended September 30, 2002 compared to the same periods in 2001 is the result of a decrease in residential-related and other non-operating expenses largely offset by an increase in ski-related expenses. Ski-related expenses increased approximately $1,751,000 as a result of the increase in ski-related revenues, as discussed above. Residential-related and other operations expenses decreased approximately $2,398,000 primarily as a result of a decrease in cost of sales from condominium units sold in the nine months ended September 30, 2002 as compared to the same period in 2001, as also discussed above. Mountain Springs Operating Results ------------------------------------- Mountain Springs, through a wholly owned subsidiary, owns a controlling interest in DSC/Purgatory LLC ("Purgatory") in Durango, Colorado. Purgatory is a ski and mountain recreation resort covering 2,500 acres, situated on 40 miles of terrain with 75 ski trails located near Durango, Colorado. Purgatory receives the majority of its revenues from winter ski operations, primarily ski, lodging, retail and food and beverage services, with the remainder of revenues generated from summer outdoor activities, such as alpine sliding and mountain biking. During the three and nine months ended September 30, 2002, Purgatory recorded total revenues of approximately $1,166,000 and $11,048,000, respectively, compared to revenues of approximately $868,000 and $12,015,000 for the same periods of 2001. Revenues increased by $298,000 for the three months ended September 30, 2002 as compared to the same period in 2001 due to additional summer programs offered at the resort. Revenue decreased by $967,000 for the nine months ended September 30, 2002 as compared to the same period in 2001 due to unfavorable weather conditions during the winter season, which attracted fewer skiers. Total expenses were approximately $3,271,000 and $12,556,000 for the three and nine months ended September 30, 2002, respectively, compared to expenses of approximately $2,966,000 and $11,542,000 for the same periods in 2001. The increase in total expenses for the three and nine months ended September 30, 2002 compared to the same periods in 2001 of approximately $305,000 and $1,014,000 is primarily the result of costs incurred related to increased airline subsidies. Kettle Valley Operating Results ---------------------------------- Kettle Valley is a real estate development company located in Kelowna, British Columbia, Canada. The project, which is being developed by Kettle Valley Development Limited Partnership ("KVD LP"), consists of approximately 280 acres of land that is zoned for 1,120 residential units in addition to commercial space. To date, 123 residential units have been constructed and sold. During the three and nine months ended September 30, 2002, KVD LP recorded revenues of approximately $1,004,000 and $2,291,000, respectively, compared to $766,000 and $1,952,000, respectively, for the same periods in 2001. The increase in revenues is the result of an increase in the number of lot sales. KVD LP incurred total expenses of approximately $1,163,000 and $2,662,000 during the three and nine months ended September 30, 2002, respectively, compared to expenses of approximately $798,000 and $2,747,000, respectively, for the same periods in 2001. The decrease in expenses in the nine months ended September 30, 2002 is the result of an increase in real estate cost of sales resulting from an increase in the number of lot sales, as discussed above, offset by an impairment in the land carrying value of approximately $500,000 recorded in the nine months ended September 30, 2001. There was no impairment recorded in the three and nine months ended September 30, 2002. Kettle Valley owns a 49.9% interest in a company (the "Company") which, through two wholly-owned subsidiaries, owns a 99.9% interest in KVD LP. For the nine months ended September 30, 2002, in addition to its share of the loss of KVD LP, the Trust's net loss from Kettle Valley includes a loss of $83,636 reflecting the Trust's share of the operating results of one of the Company's wholly-owned subsidiaries. Liquidity and Capital Resources and Discussion of Cash Flows -------------------------------------------------------------------- The Trust by its nature is a limited life entity. 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 used cash of $258,180 during the nine months ended September 30, 2002. The events of September 11, 2001, along with a recession in the United States, have continued to adversely affect the market demand for both new and used commercial aircraft and weakened the financial position of most airlines. No direct damage occurred to any of the Trust's assets as a result of these events. Management of the Trust expects that the resulting decline in air travel will suppress market prices for used aircraft in the short-term and could inhibit the viability of some airlines. At September 30, 2002, the Trust considers all rents owed from aircraft lessees to be collectible. The Trust is monitoring developments in the airline industry and will continue to evaluate potential implications to the Trust's financial position and future liquidity. At lease inception, the Trust's equipment was 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 leases will be maintained. The credit quality of an individual lease may deteriorate after the lease is entered into. 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. At September 30, 2002, the Trust was due aggregate future minimum lease payments of $7,166,596 from contractual lease agreements, a portion of which will be used to amortize the principal balance of notes payable of $23,621,566. 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, the cash flows of the Trust will become less predictable as the Trust remarkets its equipment. Cash expended for asset acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. In December 2000, the Trust and three affiliated trusts (the "Trusts") formed MILPI, which formed MILPI Acquisition, a wholly owned subsidiary of MILPI. The Trusts collectively paid $1.2 million for their membership interest in MILPI and MILPI purchased the shares of MILPI Acquisition for an aggregate purchase price of $1.2 million at December 31, 2000 ($432,000 for the Trust). MILPI Acquisition entered into a definitive agreement (the "Agreement") with PLM, an equipment leasing and asset management company, for the purpose of acquiring up to 100% of the outstanding common stock of PLM, for an approximate purchase price of up to $27 million. In connection with the acquisition, on December 29, 2000, MILPI Acquisition commenced a tender offer to purchase any and all of PLM's outstanding common stock. Pursuant to the cash tender offer, MILPI Acquisition acquired approximately 83% of PLM's outstanding common stock in February 2001 for a total purchase price of approximately $21.8 million. The Trust's 36% membership interest in MILPI, prior to its additional acquisition in February 2002 described below, had a cost of $7,987,757, including associated fees and capitalized costs. Under the terms of the Agreement, with the approval of the holders of 50.1% of the outstanding common stock of PLM, MILPI Acquisition would merge into PLM, with PLM being the surviving entity. The merger was completed when MILPI obtained approval of the merger from PLM's shareholders pursuant to a special shareholders' meeting on February 6, 2002. On February 7, 2002, the Trust and AFG Investment Trust C ("Trust C") provided approximately $4.4 million to acquire the remaining 17% of PLM's outstanding common stock, of which $1,983,321 (including acquisition fees of $19,636 discussed below) was contributed by the Trust. The funds were obtained from existing resources and internally generated funds and by means of a 364 day, unsecured loan from PLM evidenced by a promissory note in the principal amount of $589,105 that bears interest at LIBOR plus 200 basis points. Subsequent to the merger, the Trust's ownership interest increased from 36% to 37.5%. Effective February 2002, the Trust has a 37.50% membership interest in MILPI having an original cost of $9,971,078. The cost of the Trust's interest in MILPI reflects MILPI's cost of acquiring the common stock of PLM, including the amount paid for the shares tendered of $9,802,945, capitalized transaction costs of $70,104 and a 1% acquisition fee paid to a wholly-owned subsidiary of Semele of $98,029. On March 12, 2002, PLM declared and paid a cash dividend to MILPI of approximately $2.7 million. MILPI then declared and paid a cash dividend of approximately $2.7 million, of which the Trust's share was $1,000,092. In March 2002, the Trust and Trust C formed C & D IT LLC, a Delaware limited liability company, as a 50%/50% owned joint venture that is co-managed by each of the Trust and Trust C (the "C & D Joint Venture") to which each Trust contributed $1 million. The C & D Joint Venture was formed for the purpose of making a conditional contribution of $2.0 million to BMLF/BSLF II Rancho Malibu Limited Partnership ("Rancho Malibu Limited Partnership") in exchange for 25% of the interests in Rancho Malibu Limited Partnership (the "C & D Joint Venture Contribution"). The C & D Joint Venture was admitted to Rancho Malibu Limited Partnership as a co-managing general partner pursuant to the terms of an amendment to Rancho Malibu Limited Partnership Agreement. The other partners in Rancho Malibu Limited Partnership are Semele and its wholly-owned subsidiary, Rancho Malibu Corp., the other co-managing general partner. Rancho Malibu Limited Partnership owns the 274-acre parcel of land near Malibu, California and is developing it as a single-family luxury residential subdivision. The conditional C & D Joint Venture Contribution was made to assure participation in the future development of the parcel. It was made subject to the future solicitation of the consent of the beneficiaries of each of the Trust and Trust C. The C & D Joint Venture Contribution is conditioned upon the consummation of a transaction pursuant to which Semele and Rancho Malibu Corp. will contribute all of the partnership interests that they hold in Rancho Malibu Limited Partnership along with 100% of the membership interests Semele holds in RM Financing LLC to RMLP, Inc., a newly formed subsidiary of PLM, in exchange for $5.5 million in cash, a $2.5 million promissory note and 182 shares of common stock of RMLP, Inc. (The sole asset of RM Financing LLC is a Note dated December 31, 1990 (the "Note"). The Note was held by Semele's predecessor when it took a deed in lieu of foreclosure on the property from the original owner. The unpaid balance of the Note is $14,250,000 plus accrued interest as of September 30, 2002. The C & D Joint Venture possesses the right to withdraw the C & D Joint Venture Contribution from Rancho Malibu Limited Partnership if the transactions have not taken place within ninety days of the receipt by Rancho Malibu Limited Partnership of notice from the C & D Joint Venture that the requisite consents of the beneficiaries of the Trust and Trust C have been received. This right of the C & D Joint Venture is secured by a pledge of 50% of the capital stock of Rancho Malibu Corp. and 50% of the interests in Rancho Malibu Limited Partnership held by Semele and Rancho Malibu Corp. During the nine months ended September 30, 2002, the Trust realized net cash proceeds from equipment disposals of $376,725. Future inflows of cash from equipment 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 and Trust C formed EFG/Kettle Development LLC for the purpose of acquiring a 49.9% indirect ownership interest in a real estate development in Kelowna, British Columbia in Canada called Kettle Valley. The Trust also has an ownership interest in EFG Kirkwood. EFG Kirkwood is a joint venture among the Trust, certain affiliated Trusts and Semele and is managed by AFG ASIT Corporation. EFG Kirkwood is a member in two joint ventures, Mountain Resort and Mountain Springs. Mountain Resort, through four wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski resort located in northern California, a public utility that services the local community, and land that is held for residential and commercial development. Mountain Springs, through a wholly owned subsidiary, owns a controlling interest in the Purgatory Ski resort in Durango, Colorado. The Trust obtained financing in connection with certain equipment leases and a portion of its interest in MILPI. The origination of such indebtedness and the subsequent repayments of principal are reported as components of financing activities. At September 30, 2002, the Trust had third party debt obligations outstanding totaling $23,621,566. These notes will be partially amortized by the remaining contracted lease payments. However, the Trust has balloon payment obligations of $15,806,720 and $3,128,690, respectively, at the expiration of the lease terms related to its interest in aircraft leased to Scandinavian Airlines System in December 2003 and an aircraft leased to Cygnus Air, S.A. in January 2005. Repayment of the balloon debt obligations will be dependent upon the negotiations of future lease contracts or future sale of these assets. In February 2002, the Trust received debt proceeds of $589,105 from PLM in connection with the acquisition of the balance of the PLM common stock discussed above. In April 2002, the Trust executed an agreement with the existing lessee, Emery, to early terminate the lease of a McDonnell Douglas DC-8-73 aircraft that had been scheduled to expire in July 2002. Subsequent to the termination of the lease, the aircraft was re-leased to Cygnus for a term of thirty months beginning July 2002. In conjunction with the new lease, the Trust amended its debt agreement collateralized by the aircraft and assigned the Cygnus lease payments to the lender. The Trust received additional debt proceeds of approximately $1,540,238. The Trust used these debt proceeds and a portion of certain other receipts from Emery to perform repairs and maintenance on the aircraft. No cash distributions have been declared or paid since January 2000. In any given year, it is possible that Beneficiaries will be allocated taxable income in excess of distributed cash. This discrepancy between tax obligations and cash distributions may or may not continue in the future, and cash may or may not be available for distribution to the Beneficiaries adequate to cover any tax obligation. The Trust Agreement requires that sufficient distributions be made to enable the Beneficiaries to pay any state and federal income taxes arising from any sale or refinancing transactions, subject to certain limitations. Cash distributions when paid to the Participants generally 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, the residual value realized for each asset at its disposal date, and the performance of the Trust's non-equipment assets. Future market conditions, technological changes, the ability of EFG to manage and remarket the equipment, and many other events and circumstances, could enhance or detract from individual yields and the collective performance of the Trust's equipment portfolio. The ability of the Managing Trustee and its affiliates to develop and profitably manage its non-equipment assets and the return from its interest MILPI will impact the Trust's overall performance. 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, 2001, the Managing Trustee had a negative tax capital account balance of $77,152. No such requirement exists with respect to the Special Beneficiary. Outlook for the Future ------------------------- Several other factors may affect the Trust's operating performance during the remainder of 2002 and through the dissolution date including: changes in the markets for the Trust's equipment, changes in the regulatory environment in which that equipment operates, and changes in the real estate markets in which the Trust's has ownership interests. The events of September 11, 2001, along with a recession in the United States, have continued to adversely affect the market demand for both new and used commercial aircraft and weakened the financial position of several airlines. Management of the Trust believes that there is a significant oversupply of commercial aircraft available and that this oversupply will continue for some time. In addition, management expects that the resulting decline in air travel will suppress market prices for used aircraft and could inhibit the viability of some airlines. The Trust is monitoring developments in the airline industry and will continue to evaluate potential implications to the Trust's financial position and future liquidity. The Trust's involvement in real estate development also introduces financial risks, including the potential need to joint venture and/or borrow funds to develop the real estate projects. While the Trust presently does not foresee any unusual risks in this regard, it is possible that factors beyond the control of the Trust, its affiliates and joint venture partners, such as a tightening credit environment, could limit or reduce its ability to secure adequate credit facilities at a time when they might be needed in the future. The risks generally associated with real estate include, without limitation, the existence of senior financing or other liens on the properties, general or local economic conditions, property values, the sale of properties, interest rates, real estate taxes, other operating expenses, the supply and demand for properties involved, zoning and environmental laws and regulations, and other governmental rules. The Trust's interests in ski resorts are subject to a number of risks, including weather-related risks. The ski resort business is seasonal in nature and insufficient snow during the winter season can adversely affect the profitability of a given resort. Many operators of ski resorts have greater resources and experience in the industry than the Trust, its affiliates and its joint venture partners. The events of September 11, 2001 have also continued to adversely affect the travel industry, which has decreased the number of visitors to the ski resorts. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including the condition and type of equipment being sold and its marketability at the time of sale. 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 ultimate economic return from the sale of the Trust's real estate interests is dependent upon may factors, include, without limitation, the general or local economic conditions, property values, the sale of properties, interest rates, real estate taxes, other operating expenses, the supply and demand for properties involved, zoning and environmental laws and regulations, and other governmental rules. The Trust's Advisor, EFG, and the Managing Trustee will continue to monitor and manage these events in order to maximize the residual value of the Trust's equipment and the return from the Trust's real estate interests, and will consider these factors, in addition to the collection of contractual rents, the retirement of scheduled indebtedness, and the Trust's future working capital requirements, in establishing the amount and timing of future cash distributions. In the future, the nature of the Trust's operations and principal cash flows will shift from rental receipts to equipment and non-equipment sale proceeds as the Trust remarkets its equipment. As this occurs, the Trust's cash flows may become more volatile. Item 3. Quantitative and Qualitative Disclosures about Market Risk -------------------------------------------------------------------------- The Trust's financial statements include financial instruments that are exposed to interest rate risks. Approximately 77% of the Trust's lease revenues earned during the nine months ended September 30, 2002 were from lessees located outside of the United States. All of the Trust's leases require payment in United States (US) currency. If the lessees' currency devalues against the US dollar, the lessees could potentially encounter difficulty in making the US dollar denominated lease payments. Item 4. Controls and Procedures ----------------------------------- Based on their evaluation as of a date within 90 days of the filing of this Form 10-Q, the Trust's Principal Executive Officer and Chief Financial Officer have concluded that the Trust's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Trust files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in the Trust's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation. AFG INVESTMENT TRUST D FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6(a). Exhibits . Response: Exhibit 99.1 Certification Pursuant to 18 U.S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2 Certification Pursuant to 18 U.S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99 (k) Lease agreement with Cygnus Air, S.A. Item 6(b). Reports on Form 8-K Response: None SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AFG Investment Trust D By: AFG ASIT Corporation, a Massachusetts corporation and the Managing Trustee of the Registrant. By: ls/ Richard K Brock ---------------------- Richard K Brock Chief Financial Officer and Treasurer of AFG ASIT Corp., the Managing Trustee of the Trust (Duly Authorized Officer and Principal Financial and Accounting Officer) Date: November 19, 2002 CERTIFICATION: I, Gary D. Engle, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AFG Investment Trust D; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): d) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Gary D. Engle -------------------- Gary D. Engle President of AFG ASIT Corporation, the Managing Trustee of the Trust (Principal Executive Officer) November 19, 2002 ------ CERTIFICATION: I, Richard K Brock, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AFG Investment Trust D; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: f) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; g) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and h) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): i) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and j) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Richard K Brock ---------------------- Richard K Brock Chief Financial Officer and Treasurer of AFG ASIT Corp. (Duly Authorized Officer and Principal Financial and Accounting Officer) November 19, 2002 Exhibit Index 99.1 Certificate of Chief Executive Officer pursuant to Section 906 of Sarbanes - Oxley Act 99.2 Certificate of Chief Financial Officer pursuant to Section 906 of Sarbanes - Oxley Act

AFG INVESTMENT TRUST D 10-Q