Trump Atlantic City Funding Iii 10-Q 2003 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
	OR
o	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.: 333-00643

TRUMP ATLANTIC CITY ASSOCIATES
(Exact Name of Registrant as specified in its charter)

New Jersey	22-3213714
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

TRUMP ATLANTIC CITY FUNDING, INC.
(Exact Name of Registrant as specified in its charter)

Delaware	22-3418939
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

TRUMP ATLANTIC CITY FUNDING II, INC.
(Exact Name of Registrant as specified in its charter)

Delaware	22-3550202
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including Area Code, of  Registrant’s Principal Executive Offices)

TRUMP ATLANTIC CITY FUNDING III, INC.
(Exact Name of Registrant as specified in its charter)

Delaware	22-3550203
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

     Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yesx Noo

     Indicate by check mark whether any of the Registrants is an accelerated filer (as defined in Exchange Rule 12b-2). Yeso Nox

     As of August 14, 2003, there were 100 shares of Trump Atlantic City Funding, Inc.’s Common Stock outstanding.
     As of August 14, 2003, there were 100 shares of Trump Atlantic City Funding II, Inc.’s Common Stock outstanding.
     As of August 14, 2003, there were 100 shares of Trump Atlantic City Funding III, Inc.’s Common Stock outstanding.

     Each of Trump Atlantic City Associates, Trump Atlantic City Funding, Inc., Trump Atlantic City Funding II, Inc. and Trump Atlantic City Funding III, Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES

INDEX TO FORM 10-Q

	Page No.
PART I — FINANCIAL INFORMATION
ITEM 1 — Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003 (unaudited)	1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2003 (unaudited)	2
Condensed Consolidated Statement of Capital/(Deficit) for the Six Months Ended June 30, 2003 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2003 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	5-8
ITEM 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-18
ITEM 3 — Quantitative and Qualitative Disclosures About Market Risk	18
ITEM 4 — Controls and Procedures	18
PART II — OTHER INFORMATION
ITEM 1 — Legal Proceedings	19
ITEM 2 — Changes in Securities and Use of Proceeds	19
ITEM 3 — Defaults Upon Senior Securities	19
ITEM 4 — Submission of Matters to a Vote of Security Holders	19
ITEM 5 — Other Information	19
ITEM 6 — Exhibits and Reports on Form 8-K	19
SIGNATURES	20
EXHIBIT INDEX	21

i

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	December 31, 2002			June 30, 2003
				(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	79,007		$	70,149
Receivables, net		24,632			26,822
Inventories		8,740			8,203
Other current assets		7,512			12,028
Total current assets		119,891			117,202
PROPERTY AND EQUIPMENT, NET		1,268,125			1,264,858
DEFERRED LOAN COSTS, NET		10,675			8,767
OTHER ASSETS		39,436			40,437
Total assets	$	1,438,127		$	1,431,264
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt	$	12,199		$	16,060
Accounts payable and accrued expenses		90,401			99,385
Accrued interest payable		24,375			24,375
Due to affiliates, net		9,104			7,953
Total current liabilities		136,079			147,773
LONG-TERM DEBT, net of current maturities		1,316,284			1,319,596
OTHER LONG-TERM LIABILITIES		13,829			13,737
Total liabilities		1,466,192			1,481,106
CAPITAL/(DEFICIT):
Partners’ capital		224,841			223,948
Accumulated deficit		(252,906	)		(273,790	)
Total capital/(deficit)		(28,065	)		(49,842	)
Total liabilities and capital/(deficit)	$	1,438,127		$	1,431,264

See accompanying notes.

1

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2003
(unaudited)
(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2003			2002			2003
REVENUES:
Gaming	$	216,836		$	218,565		$	428,262		$	417,228
Rooms		15,447			14,849			29,162			27,922
Food and beverage		23,321			23,545			45,733			44,583
Other		6,564			5,937			13,400			11,516
Gross revenues		262,168			262,896			516,557			501,249
Less-Promotional allowances		54,388			56,196			108,055			106,048
Net revenues		207,780			206,700			408,502			395,201
COSTS AND EXPENSES:
Gaming		96,456			96,530			192,588			190,419
Rooms		6,876			6,411			13,057			12,417
Food and beverage		8,111			8,289			15,593			15,504
General and administrative		41,713			44,904			82,627			87,604
Depreciation and amortization		13,678			15,626			26,803			31,073
Debt renegotiation costs		—			300			1,570			300
		166,834			172,060			332,238			337,317
Income from operations		40,946			34,640			76,264			57,884
NON-OPERATING INCOME AND (EXPENSE):
Interest and other non-operating income		310			218			558			434
Interest expense		(38,232	)		(38,751	)		(76,451	)		(77,393	)
Non-operating expense, net		(37,922	)		(38,533	)		(75,893	)		(76,959	)
Income (Loss) before income tax provision		3,024			(3,893	)		371			(19,075	)
Income tax provision		—			(950	)		—			(1,809	)
NET INCOME (LOSS)	$	3,024		$	(4,843	)	$	371		$	(20,884	)

See accompanying notes.

2

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL/(DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(unaudited)
(in thousands)

	Partners’ Capital			Accumulated Deficit			Total Capital/(Deficit)
Balance, December 31, 2002	$	224,841		$	(252,906	)	$	(28,065	)
Partnership distribution		(893	)		—			(893	)
Net loss		—			(20,884	)		(20,884	)
Balance, June 30, 2003	$	223,948		$	(273,790	)	$	(49,842	)

See accompanying notes.

3

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
(unaudited)
(in thousands)

	Six Months Ended June 30,
	2002			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	371		$	(20,884	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities —
Non-cash charges ––
Depreciation and amortization		26,803			31,073
Accretion of discounts on indebtedness		248			221
Provisions for losses on receivables		3,086			2,781
Amortization of deferred loan offering costs		2,141			1,908
Valuation allowance of CRDA investments		2,246			2,543
Increase in receivables		(1,600	)		(4,971	)
Decrease in inventories		148			537
Increase in amounts due from affiliates		(5,875	)		(1,151	)
Increase  in other current assets		(3,753	)		(4,612	)
Decrease in other assets		205			29
Increase in accounts payable, accrued expenses and other liabilities		5,094			8,897
Net cash provided by operating activities		29,114			16,371
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(7,382	)		(11,877	)
Purchase of CRDA investments, net		(5,200	)		(4,255	)
Net cash used in investing activities		(12,582	)		(16,132	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt		(4,827	)		(8,204	)
Distributions to parent company		—			(893	)
Net cash used in financing activities		(4,827	)		(9,097	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		11,705			(8,858	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		70,909			79,007
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	82,614		$	70,149
CASH INTEREST PAID	$	74,062		$	75,265
Supplemental Disclosure of noncash activities:
Purchase of property and equipment under capitalized lease obligations	$	7,227		$	15,156
Partnership Distribution	$	101,341		$	—

See accompanying notes.

4

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1) Organization and Operations

        The accompanying condensed consolidated financial statements include those of Trump Atlantic City Associates, a New Jersey general partnership (“Trump AC” or the “Company”), and its subsidiaries: (i) Trump Plaza Associates, a New Jersey general partnership (“Plaza Associates”) which owns and operates the Trump Plaza Hotel and Casino located in Atlantic City, New Jersey (“Trump Plaza”), (ii) Trump Taj Mahal Associates, a New Jersey general partnership (“Taj Associates”) which owns and operates the Trump Taj Mahal Casino Resort located in Atlantic City, New Jersey (the “Taj Mahal”), (iii) Trump Atlantic City Funding, Inc.  (“Trump AC Funding”), (iv) Trump Atlantic City Funding II, Inc. (“Trump AC Funding II”), (v) Trump Atlantic City Funding III, Inc. (“Trump AC Funding III”), (vi) Trump Atlantic City Corporation (“TACC”), and (vii) Trump Administration, a separate division of Taj Associates (“Trump Administration”).  Trump AC’s sole sources of liquidity are distributions in respect of its interests in Plaza Associates and Taj Associates.  Trump AC is 100% beneficially owned by Trump Hotels & Casino Resorts Holdings, L.P., a Delaware limited partnership (“THCR Holdings”) of which Trump Hotels & Casino Resorts, Inc., a Delaware corporation (“THCR”), is the sole general partner.  Trump AC, Trump AC Funding, Trump AC Funding II and Trump AC Funding III have no independent operations and, therefore, their ability to service debt is dependent upon the successful operations of Plaza Associates and Taj Associates.  There are no restrictions on the ability of Plaza Associates and Taj Associates, the primary guarantors (the “Subsidiary Guarantors”) of the 11¼% First Mortgage Notes due 2006 issued by (i) Trump AC and Trump AC Funding, (ii) Trump AC and Trump AC Funding II and (iii) Trump AC and Trump AC Funding III (collectively, the “Trump AC Mortgage Notes”) to distribute funds to Trump AC in respect of the guaranteed debt.

        The separate financial statements of the Subsidiary Guarantors have not been included because (i) the Subsidiary Guarantors constitute all of Trump AC’s direct and indirect subsidiaries; (ii) the Subsidiary Guarantors have fully and unconditionally guaranteed the Trump AC Mortgage Notes on a joint and several basis; (iii) the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of Trump AC on a consolidated basis; and (iv) the separate financial and other disclosures concerning the Subsidiary Guarantors are not deemed by management to be material.  The assets and operations of the nonguarantor subsidiaries are not significant.

        Trump AC has no operations, except for its ownership of Plaza Associates and Taj Associates.  A substantial portion of Trump AC’s revenues are derived from its gaming operations. Competition in the Atlantic City casino market is intense and management believes that this competition will continue as more casinos are opened and new entrants into the gaming industry become operational.

        Repayment of the Trump AC Mortgage Notes is due in 2006.  As shown in the accompanying Condensed Consolidated Statements of Cash Flows, the Partnership has consistently generated sufficient cash for debt service and operating requirements.  Management believes that, based upon its cash flow projections for 2003, Trump AC will have sufficient cash flows to meet their debt service and operating expense requirements throughout 2003.

        All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

        The accompanying condensed consolidated financial statements have been prepared without audit.  In the opinion of management, all adjustments, consisting of only normal recurring adjustments necessary to present fairly the financial position, the results of operations and cash flows for the periods presented, have been made.

        The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted.

        These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Registrants’ Annual Report on Form 10-K for the year ended December 31, 2002 filed with the SEC and available on the SEC’s website, www.sec.gov.

5

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

        The casino industry in Atlantic City is seasonal in nature; therefore, results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the operating results for a full year.

        Reclassifications

        During September 2002, the Company reclassified certain costs (primarily bus coin) from gaming expenses to promotional allowances to be consistent with prevailing industry practice.  The amounts of $5,220,000 and $10,015,000 for the three and  six months ended June 30, 2002, respectively,  has been reclassified to conform to the current year presentation.

        Certain other reclassifications and disclosures have been made to prior year financial statements for them to be in conformity with the current year presentation.

(2) Other Assets

        Plaza Associates is appealing a real estate tax assessment by the City of Atlantic City.  At December 31, 2002 and June 30, 2003 other assets include $8,014,000 which Plaza Associates believes will be recoverable on the settlement of the appeal.

(3) Combined Financial Information—Trump AC Funding, Trump AC Funding II and Trump AC Funding III

        Combined financial information relating to Trump AC Funding, Trump AC Funding II and Trump AC Funding III is as follows:

	December 31, 2002		June 30, 2003
			(unaudited)
Total Assets (including First Mortgage Notes receivable of $1,298,747,000 at December 31, 2002 and $1,298,967,000 at June 30, 2003 and related interest receivable)	$	1,323,122,000	$	1,323,342,000
Total Liabilities and Capital (including First Mortgage Notes payable of $1,298,747,000 at December 31, 2002 and $1,298,967,000 at June 30, 2003 and related interest payable)	$	1,323,122,000	$	1,323,342,000

	Six Months Ended June 30,
	2002		2003
Interest Income	$	73,125,000	$	73,125,000
Interest Expense		73,125,000		73,125,000
Net Income	$	—	$	—

(4) Recent Accounting Pronouncements

        In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This standard addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  The standard  is effective for fiscal years beginning after June 15, 2002.  The effect of adoption was not material to the Company’s financial results.

6

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

        In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34” (“FIN No. 45”).  The interpretation requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that obligation.  This interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with separately identified consideration and guarantees issued without separately identified consideration.  For the company, the initial recognition, measurement provision and disclosure requirements of FIN No. 45 are applicable to guarantees issued or modified after December 31, 2002.  The effect of adoption was not material to the Company’s financial results.

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”).  This interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient subordinated financial support from other parties.  FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.  For existing variable interest entities, the consolidated requirement is effective for interim or annual financial statements beginning after June 15, 2003.  The Company is evaluating whether it has any variable interest entities, which will be subject to consolidation pursuant to FIN No. 46.

(5) Debt Renegotiation Costs

        Debt renegotiation costs represent expenditures incurred with attempts to refinance or modify the terms of the Trump AC Mortgage Notes which were approximately $1,300,000,000 aggregate principal amount as of June 30, 2003.  Trump AC has incurred approximately $1,570,000 and $300,000 in Debt Renegotiation Costs in the six months ended June 30, 2002 and 2003, respectively.  Trump AC has since terminated such efforts.  Accordingly, the debt renegotiation  costs have been expensed in the accompanying statements of operations.  Trump AC may renew its efforts to refinance or modify the Trump AC Mortgage Notes at a later date if and when capital market conditions are favorable.

(6) Partnership Distribution

        Pursuant to the indentures governing the Trump AC Mortgage Notes, Trump AC is permitted to reimburse THCR for its operating and interest expenses.  These reimbursements are subject to limitations set forth in such indentures, including an annual limitation of $10,000,000 in operating expense reimbursements and a life-time limitation of $50,000,000 in interest expense reimbursements.  During the quarter ended June 30, 2002, Trump AC declared a partnership distribution to THCR of $101,341,000, consisting of $50,000,000 of prior years interest reimbursements and $51,341,000 of prior years operating expense reimbursements.  Previously these amounts were presented as Advances to Affiliates on the balance sheet.  During the six months ended June 30, 2003, Trump AC declared cash  partnership distributions to THCR of $893,000 consisting of operating expense reimbursements.

(7) State of New Jersey Income Taxes

        On July 3, 2002, the State of New Jersey passed the New Jersey Business Tax Reform Act (the “Act”).  This Act, among other things, requires the suspension of the use of New Jersey net operating loss carryforwards for two years and imposes a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on either gross receipts or gross profits, as defined.  The Act is retroactive to January 1, 2002.  In accordance with the Act, Trump AC has recorded a provision for current income tax expense of $950,000 and $1,809,000 for the three and six months ended June 30, 2003.  There was no comparable expense in the six months ended June 30, 2002 since this change was recorded beginning in the period in which the tax law was passed (third quarter 2002) pursuant to the accounting literature in Financial Accounting Standards Board Statement Number 109, “Accounting for Income Taxes”.

7

TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(8) Subsequent Events

        On July 1, 2003, the New Jersey legislature passed a law that increases the taxation of New Jersey casinos.  The new law imposes a 4.25% tax on complimentaries (i.e., free rooms, food, beverages and entertainment given to patrons).  Complimentary rooms are deemed to initially be valued at $67 per room.  Other complimentaries are valued at retail value or cost.  In addition to the tax on complimentaries, a 7.5% tax is imposed on each casino’s 2002 adjusted net income, defined as net income plus management fees, subject to a minimum tax of at least $350,000 per casino.  Finally, the revised law imposes an additional $3.00 fee per day on each occupied hotel room, increases the parking fee from $2.00 to $3.00 per car per day and eliminates the casino’s ability to retain $0.50 to offset administrative costs.

8

Item 2— MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This report includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934.  All statements other than statements of historical facts included in this report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. Important factors that could cause actual results to differ materially from our expectations include business, competition, regulatory and other uncertainties and contingencies discussed in this report that are difficult or impossible to predict and which are beyond our control.  All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this document.  These forward-looking statements speak only as of the date of this report. We do not intend to update these statements unless the securities laws require us to do so.

        In this section, the words “Company,” “we,” “our,” “ours,” and “us” refer to Trump Atlantic City Associates (“Trump AC”) and its wholly-owned subsidiaries, unless otherwise noted.  Through its wholly-owned subsidiaries, Trump AC owns and operates the Trump Plaza Hotel and Casino (“Trump Plaza”) and the Trump Taj Mahal Casino Resort (the “Taj Mahal” and together with Trump Plaza, the “Trump AC Properties”).  Terms not defined in this section shall have the meanings ascribed to them elsewhere in this Quarterly Report on Form 10-Q.

General

        Our business is subject to a variety of risks and uncertainties, some of which are discussed below.

        The Company Has Substantial Indebtedness.

        The Company’s indebtedness consists primarily of the Trump AC Mortgage Notes.  At June 30, 2003, the outstanding principal balance of the Trump AC Mortgage Notes was approximately $1.3 billion.  Interest expense as a percentage of net revenues was 18.7% and 19.6% for the six months ended June 30, 2002 and 2003, respectively.

        The Atlantic City market is very competitive and is anticipated to become more competitive in the future, especially following  the opening of the Borgata by a joint venture of MGM Mirage and Boyd Gaming in Atlantic City’s marina district in July 2003.  Capital expenditures, such as room refurbishments, amenity upgrades and new gaming equipment, are necessary from time to time to preserve the competitiveness of the Trump AC Properties.  Management believes that the Company must provide for capital expenditures to compete effectively.  See “Financial Condition - Liquidity and Capital Resources.”

        The ability of Trump AC and its subsidiaries to pay interest on the Trump AC Mortgage Notes depends primarily on the ability of Trump Plaza and the Taj Mahal to generate sufficient amounts of cash from operations.  Management believes that, based upon its current cash flow forecasts for 2003, Trump AC will have sufficient cash flows to meet its debt service and operating expense requirements throughout 2003.  The future operating performance of Trump Plaza and the Taj Mahal is subject to general economic conditions, industry conditions, including competition and regulatory matters, and numerous other factors, many of which are unforeseeable or are beyond the control of management.  There can be no assurance that the future operating performance of Trump Plaza and the Taj Mahal will be sufficient to generate the cash flows required to meet the debt service obligations of Trump Plaza, Taj Mahal or Trump AC.  Also, the ability of the Company to pay the principal amount of the Trump AC Mortgage Notes at maturity (whether scheduled or by acceleration thereof) is primarily dependent upon its ability to obtain refinancing.  There is also no assurance that the general state of the economy, the status of the capital markets generally, or the receptiveness of the capital markets to the gaming industry in general or to the Company in particular will be conducive to refinancing debt at any given time or on more favorable terms.

9

        We Do Not Know How the Borgata will Affect Us in the Long Term.

        In July 2003, the Borgata Casino Hotel and Spa, a joint development of Boyd Gaming and MGM Mirage, opened in Atlantic City’s marina district. The Borgata has approximately 2,000 rooms and suites, an approximate 135,000 square-foot casino, restaurants, retail shops, a spa and pool and entertainment venues.  Since its recent opening, the Borgata has adversely affected the results of the Trump AC Properties, compared to the same period in the prior year.  This effect may be temporary and attributable to the desire of gaming patrons to visit a new casino. It is too early to determine, however, whether or not the Borgata will adversely affect the Trump AC Properties and the Company in the long term.  While we believe that the opening of the Borgata will attract additional visitors to Atlantic City, it is possible that the Borgata could have an adverse effect on the long-term business and operations of the Trump AC Properties. See “Financial Condition – Liquidity and Capital Resources.”

        Taxation of the gaming industry, already significant, may increase in the future which would reduce our profitability.

        The casino industry represents a significant source of tax revenues to the various jurisdictions in which casinos operate. We, as well as other gaming companies, are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes. New Jersey taxes annual gaming revenues at the rate of 8.0% and levies an annual investment alternative tax of 2.5% on annual gaming revenue. This 2.5% obligation, however, can be satisfied by purchasing certain bonds or making certain investments in the amount of 1.25% of annual gaming revenues. In July 2002, the State of New Jersey passed the New Jersey Business Tax Reform Act, which, among other things, requires the suspension of the use of net operating loss carry forwards for two years and imposes a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on either gross receipts or gross profits, as defined.

        On July 1, 2003, the New Jersey legislature passed a law that increases the taxation of New Jersey casinos.  The new law imposes a 4.25% tax on complimentaries (i.e., free rooms, food, beverages and entertainment given to patrons).  Complimentary rooms are deemed to initially be valued at $67 per room.  Other complimentaries are valued at retail value or cost.  In addition to the tax on complimentaries, a 7.5% tax is imposed on each casino’s 2002 adjusted net income, defined as net income plus management fees, subject to a minimum tax of at least $350,000 per casino.  Finally, the revised law imposes an additional $3.00 fee per day on each occupied hotel room, increases the parking fee from $2.00 to $3.00 per car per day and eliminates the casino’s ability to retain $0.50 to offset administrative costs.  Although the recent tax changes reduce our overall profitability, we do not believe the recent tax increases will affect our ability to pay debt service on the Trump AC Mortgage Notes.

        Our Business is Subject to a Variety of Other Risks and Uncertainties

        Our financial condition and results of operations could be affected by other events and uncertainties that are beyond our control, such as (i) capital market conditions which could affect our ability to raise capital for refinancing debt or pursuing other alternatives, (ii) future acts of terrorism and their impact on capital markets, the economy, consumer behavior and operating expenses, including insurance premiums, (iii) competition from existing and potential new competitors in Atlantic City and other markets, which is likely to increase over the next five years, (iv) regulatory changes, and (v) adverse or unfavorable weather conditions.

Critical Accounting Policies

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management periodically evaluates the Company’s policies and the estimates and assumptions related to such policies. Trump Taj Mahal and Trump Plaza operate in a highly regulated industry and are subject to regulations that describe and regulate operating and internal control procedures.  The Company believes its most critical accounting policies and significant estimates are described below.

10

        Revenue Recognition and Allowance for Doubtful Accounts

        The majority of the Company’s revenue is from gaming activities, and the majority of such revenue is derived from cash, which by nature does not involve estimations. The Company extends credit to certain qualified patrons on a discretionary basis.  Credit play as a percentage of total dollars wagered on table games has historically been approximately 20%.  Trump Taj Mahal and Trump Plaza establishes credit limits based upon the particular patron’s creditworthiness, as determined by an examination of various factors including a credit check of the patron, a verification of the patron’s personal checking account balance, and a verification of the patron’s credit limits and indebtedness at other casinos in the United States, as well as many island casinos.  The Company provides an allowance for doubtful accounts for a portion of those customers whose checks have been unable to be deposited due to non-sufficient funds.  This allowance is based on a specific review of customer accounts as well as a review of the history of write-offs of returned markers.  Management believes that the reserve recorded is reasonable; however, these estimates could change in the near term based on the actual collection experience with each returned marker.

        Long-lived Assets

        Management has determined that the Company’s policy associated with its long-lived assets and the related estimates is critical to the preparation of the consolidated financial statements. The Company has a significant investment in long-lived property and equipment. Management estimates that the undiscounted future cash flows expected to result from the use of these assets exceed the current carrying value of these assets. Any adverse change to the estimate of these undiscounted cash flows could necessitate an impairment charge that would adversely affect operating results. Management estimates the useful lives for the Company’s assets based on historical experience and the estimates of assets’ commercial lives.  Should the actual useful life of a class of assets differ from the estimated useful life, an impairment charge would be recorded. Management reviews useful lives and obsolescence and assesses commercial viability of the Company’s assets periodically.

        Self- Insurance Reserves

        Self-insurance reserves represent the estimated amounts of uninsured claims related to employee health medical costs, workman’s compensation, and personal injury claims that have occurred in the normal course of business.  These reserves are established by management based upon specific review of open claims, with consideration of incurred but not reported claims as of the balance sheet date.  The costs of the ultimate disposition of these claims may differ from these reserve estimates.

Recent Accounting Pronouncements

        In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This standard addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  The standard  is effective for fiscal years beginning after June 15, 2002.  The effect of adoption was not material to the Company’s financial results.

        In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34” (“FIN No. 45”).  The interpretation requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that obligation.  This interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with separately identified consideration and guarantees issued without separately identified consideration.  For the company, the initial recognition, measurement provision and disclosure requirements of FIN No. 45 are applicable to guarantees issued or modified after December 31, 2002.  The effect of adoption was not material to the Company’s financial results.

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”).  This interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient subordinated financial support from other parties.  FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.  For existing variable interest entities, the consolidated requirement is effective for interim or annual financial statements beginning after June15, 2003.  The Company is evaluating whether it has any variable interest entities, which will be subject to consolidation pursuant to FIN No. 46.

11

Financial Condition -

Liquidity and Capital Resources

        Cash flows from operating activities of Trump Plaza and the Taj Mahal are the Company’s primary source of liquidity.  To a lesser extent, the Company has relied on capital lease financing for its capital resource needs.  The Company’s ability to borrow funds for its liquidity needs is severely restricted by covenants in the indentures governing the Trump AC Mortgage Notes and by its already high levels of indebtedness.  Sources of the Company’s short-term and long-term liquidity include casino gaming revenues and room, food and beverage sales.  Although we expect the Company to have sufficient liquidity from the operating activities of Trump Plaza and the Taj Mahal to meet its short-term obligations, there can be no assurances in this regard.  A variety of factors, including a decrease or change in the demand for our services, could have a material adverse effect on our liquidity and our ability to service our debt obligations including the Trump AC Mortgage Notes.

        Trump Plaza and the Taj Mahal also compete with other Atlantic City casino/hotels based on the quality of customer service, the array of games offered, the attractiveness of a casino/hotel and the extent and quality of the facilities and amenities.  Because of the high levels of  interest expense related to the Trump AC Mortgage Notes, the Company’s capital expenditures in recent years at Trump Plaza and the Taj Mahal have been limited and have prevented the Company from pursuing various capital expansion plans, such as the addition of more hotel rooms. 

        In July 2003, the Borgata, a casino hotel built through a joint venture of MGM Mirage and Boyd Gaming, opened in Atlantic City’s marina district.  The long term impact of the Borgata on Atlantic City’s casinos and, in particular, the Trump AC Properties, cannot be ascertained at this time. See “General; We Do Not Know How the Borgata Will Affect Us in the Long Term.”

        Capital expenditures at the Trump AC Properties for the six months ended June 30, 2002 and 2003 are as follows:

TRUMP ATLANTIC CITY ASSOCIATES
CONSOLIDATING CAPITAL EXPENDITURES
(IN THOUSANDS)

	TAJ ASSOCIATES		PLAZA ASSOCIATES		TOTAL TRUMP AC
FOR THE SIX MONTHS ENDED JUNE 30, 2002
Purchase of Property & Equipment	$	5,045	$	2,337	$	7,382
Capital Lease Additions (a)		5,131		2,096		7,227
Total Capital Expenditures	$	10,176	$	4,433	$	14,609
FOR THE SIX MONTHS ENDED JUNE 30, 2003
Purchase of Property & Equipment	$	9,877	$	2,000	$	11,877
Capital Lease Additions (a)		10,609		4,547		15,156
Total Capital Expenditures	$	20,486	$	6,547	$	27,033

 (a)     Capital lease additions were principally slot machines.

        Pursuant to the indentures governing the Trump AC Mortgage Notes, Trump AC is permitted to reimburse THCR for its operating and interest expenses.  These reimbursements are subject to limitations set forth in such indentures, including an annual limitation of $10,000,000 in operating expense reimbursements and a life-time limitation of $50,000,000 in interest expense reimbursements.  During the quarter ended June 30, 2002, Trump AC declared a partnership distribution to THCR of $101,341,000, consisting of $50,000,000 of prior years interest reimbursements and $51,341,000 of prior years operating expense reimbursements.  Previously these amounts were presented as Advances to Affiliates on the balance sheet.  During the six months ended June 30, 2003, Trump AC declared cash  partnership distributions to THCR of $893,000 consisting of operating expense reimbursements.

12

        On July 3, 2002, the State of New Jersey passed the New Jersey Business Tax Reform Act (the “Act”).  This Act, among other things, requires the suspension of the use of the New Jersey net operating loss carryforwards for two years and imposes a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on either gross receipts or gross profits, as defined.  The Act is retroactive to January 1, 2002.  In accordance with the Act, Trump AC has recorded a provision for current income tax expense of $950,000 and $1,809,000 for the three and six months ended June 30, 2003. There was no comparable expense in the six months ended June 30, 2002 since this change was recorded beginning in the period in which the tax law was passed (third quarter 2002) pursuant to the accounting literature in Financial Accounting Standards Board Statement Number 109, “Accounting for Income Taxes”.

        On July 1, 2003, the New Jersey legislature passed a law that increases the taxation of New Jersey casinos.  The new law imposes a 4.25% tax on complimentaries (i.e., free rooms, food, beverages and entertainment given to patrons).  Complimentary rooms are deemed to initially be valued at $67 per room.  Other complimentaries are valued at retail value or cost.  In addition to the tax on complimentaries, a 7.5% tax is imposed on each casino’s 2002 adjusted net income, defined as net income plus management fees, subject to a minimum tax of at least $350,000 per casino.  Finally, the revised law imposes an additional $3.00 fee per day on each occupied hotel room, increases the parking fee from $2.00 to $3.00 per car per day and eliminates the casino’s ability to retain $0.50 to offset administrative costs.  Although the recent tax changes reduce our overall profitability, we do not believe the recent tax increases will affect our ability to pay debt service on the Trump AC Mortgage Notes.

        Summary of the Company’s Public Indebtedness

        Trump AC Mortgage Notes.  Trump AC’s debt primarily consists of: (i) $1.2 billion principal amount of 11-¼% First Mortgage Notes due May 1, 2006 of Trump AC and Trump AC Funding; (ii) $75.0 million principal amount of 11-¼% First Mortgage Notes due May 1, 2006 of Trump AC and Trump AC Funding II; and (iii) $25.0 million principal amount of 11-¼% First Mortgage Notes due May 1, 2006 of Trump AC and Trump AC Funding III (collectively, the “Trump AC Mortgage Notes”).

        Interest on the Trump AC Mortgage Notes is payable on May 1st and November 1st of each year.  The Trump AC Mortgage Notes are redeemable in whole or in part, at any time upon not less than 30 but not more than 60 days notice. If redeemed at any time during the twelve-month period prior to May 1, 2004, the redemption price is 101.875% of the outstanding principal amount, plus accrued interest.  If any of the Trump AC Mortgage Notes are redeemed on or after May 1, 2004, the redemption price is 100.0% of the outstanding principal amount of the Trump AC Mortgage Notes redeemed, plus accrued interest.

        The Trump AC Mortgage Notes are secured on a senior basis by substantially all of the real and personal property owned or leased by Plaza Associates and Taj Associates. The liens securing the Trump AC Mortgage Notes are subordinate to liens securing approximately $1.2 million of senior indebtedness. The obligations evidenced by the Trump AC Mortgage Notes are jointly and severally guaranteed by Taj Associates, Plaza Associates and Trump AC and all future subsidiaries of Trump AC (other than Trump AC Funding).

        The ability of Trump AC and its subsidiaries to pay interest on and principal of approximately $1.3 billion on the Trump AC Mortgage Notes depends primarily on the ability of Trump Plaza and the Taj Mahal to generate cash from operations sufficient for such purposes. In the case of principal payments at maturity, the ability to refinance such indebtedness is also important. The future operating performance of Trump Plaza and the Taj Mahal is subject to general economic conditions, industry conditions, including competition and regulatory matters, and numerous other factors, many of which are unforeseeable or are beyond the control of Trump Plaza and the Taj Mahal. There can be no assurance that the future operating performance of Trump Plaza and the Taj Mahal will be sufficient to generate the cash flows required to meet the debt service obligations of Trump Plaza, the Taj Mahal or Trump AC. The ability of Trump Plaza, the Taj Mahal and Trump AC to pay the principal amount of their public debt at maturity (whether scheduled or by acceleration thereof) is primarily dependent upon their ability to obtain refinancing. There is also no assurance that the general state of the economy, the status of the capital markets generally, or the receptiveness of the capital markets to the gaming industry or to the Company will be conducive to refinancing debt at any given time.

        The indentures governing the public indebtedness of Trump AC restrict such entities’ ability to make distributions to THCR Holdings.

        In addition, the ability of Plaza Associates and Taj Associates (through Trump AC) to make payments, dividends or distributions to THCR Holdings may be restricted by the New Jersey Casino Control Commission (“CCC”).

13

        “Events of Default.”  Pursuant to each of the indentures governing the public indebtedness of the Company (collectively, the “Indentures”), if an “Event of Default” occurs and is continuing, the trustee or the holders of 25.0% of the aggregate principal amount of the respective debt issue then outstanding, by notice in writing to the respective issuer or issuers, may, and the trustee at the request of such holders shall, declare all principal and accrued interest of such debt issue to be immediately due and payable. An “Event of Default” under each of the Indentures includes, but is not limited to, the occurrence of one or more of the following events: (i) a default in an installment payment of any interest (including any defaulted interest) on a respective debt issue when due and payable and which continues for 30 days; (ii) any Indebtedness (as defined) of the respective issuers or any of their Subsidiaries (as defined) for borrowed money having an outstanding principal amount of $20.0 million in the aggregate becoming by declaration or otherwise, due and payable prior to its stated maturity; (iii) one or more judgments, orders or decrees for the payment of money in excess of $10.0 million, either individually or in the aggregate, being rendered against the respective issuers or any of their Subsidiaries (as defined) or any of their respective properties and not discharged, and either an enforcement proceeding shall have been consummated by any creditor upon such judgment, order or decree or there shall be a period of 60 days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (iv) an entry by a court having competent jurisdiction in the premises of a decree or order for relief in an involuntary case or proceeding under any applicable bankruptcy law or a decree or order adjudging the respective issuers or any of their Significant Subsidiaries (as defined) bankrupt or insolvent or seeking reorganization, arrangement, adjustment or composition of or in respect of the issuers or any of their Significant Subsidiaries (as defined) under any applicable federal or state law; and (v) the issuers or any of their Significant Subsidiaries (as defined) commencing a voluntary case or proceeding under any applicable bankruptcy law or any other case or proceeding to be adjudicated bankrupt or insolvent or the issuers or any of their Significant Subsidiaries (as defined) filing a petition, answer or consent seeking reorganization or relief under any applicable federal or state law.

Results of Operations: Operating Revenues and Expenses

        The financial information presented below reflects the results of operations of Plaza Associates and Taj Associates.  Because Trump AC has no business operations other than its interests in Plaza Associates and Taj Associates, its results of operations are not discussed below. 

        Comparison of Three-Month Periods Ended June 30, 2002 and 2003.  The following tables include selected data of Plaza Associates and Taj Associates for the three months ended June 30, 2002 and 2003.

	Three Months Ended June 30,
	2002 Plaza Associates			2003 Plaza Associates			2002 Taj Associates			2003 Taj Associates			2002 Total Trump AC *			2003 Total Trump AC *
	(in thousands)
Revenues:
Gaming	$	84,383		$	84,432		$	132,453		$	134,133		$	216,836		$	218,565
Other		17,755			17,533			27,577			26,798			45,332			44,331
Gross revenues		102,138			101,965			160,030			160,931			262,168			262,896
Less: promotional allowances		22,847			23,208			31,541			32,988			54,388			56,196
Net revenues		79,291			78,757			128,489			127,943			207,780			206,700
Costs and expenses:
Gaming		39,415			37,659			57,041			58,871			96,456			96,530
Other		5,471			5,630			9,516			9,070			14,987			14,700
General and administrative		15,525			17,283			26,162			27,579			41,713			44,904
Depreciation and amortization		4,182			4,633			9,496			10,993			13,678			15,626
Debt renegotiation costs		—			—			—			—			—			300
Total costs and expenses		64,593			65,205			102,215			106,513			166,834			172,060
Income from operations		14,698			13,552			26,274			21,430			40,946			34,640
Interest and other non-operating income		98			96			77			34			310			218
Interest expense		(13,115	)		(14,208	)		(24,095	)		(24,543	)		(38,232	)		(38,751	)
Total non-operating expense, net		(13,017	)		(14,112	)		(24,018	)		(24,509	)		(37,922	)		(38,533	)
Income (loss) before income tax provision		1,681			(560	)		2,256			(3,079	)		3,024			(3,893	)
Income tax provision		—			(367	)		—			(583	)		—			(950	)
Net income (loss)	$	1,681		$	(927	)	$	2,256		$	(3,662	)	$	3,024		$	(4,843	)

* Intercompany eliminations and expenses of Trump Administration, Trump AC, Trump AC Funding, Trump AC Funding II and Trump AC Funding III are not separately shown.

14

	Three Months Ended June 30,
	2002 Plaza Associates				2003 Plaza Associates			2002 Taj Associates				2003 Taj Associates			2002 Total Trump AC				2003 Total Trump AC
	(dollars in thousands)
Table Game Revenues	$	24,333		$		24,498			$	35,161		$	38,353		$	59,494		$		62,851
Incr (Decr) over Prior Period				$		165						$	3,192					$		3,357
Table Game Drop	$	146,944		$		141,275			$	217,835		$	227,850		$	364,779		$		369,125
Incr (Decr) over Prior Period				$		(5,669	)					$	10,015					$		4,346
Table Win Percentage		16.6	%			17.3	%			16.1	%		16.8	%		16.3	%			17.0	%
Incr (Decr) over Prior Period						0.7	pts						0.7	pts						0.7	pts
Number of Table Games		88				89				139			127			227				216
Incr (Decr) over Prior Period						1							(12	)						(11	)
Slot Revenues	$	60,050		$		59,934			$	91,887		$	90,116		$	151,937		$		150,050
Incr (Decr) over Prior Period				$		(116	)					$	(1,771	)				$		(1,887	)
Slot Handle	$	738,220		$		746,112			$	1,156,659		$	1,129,566		$	1,894,879		$		1,875,678
Incr (Decr) over Prior Period				$		7,892						$	(27,093	)				$		(19,201	)
Slot Win Percentage		8.1	%			8.0	%			7.9	%		8.0	%		8.0	%			8.0	%
Incr (Decr) over Prior Period						(0.1	)pts						0.1	pts						––	pts
Number of Slot Machines		2,908				2,950				4,847			4,597			7,755				7,547
Incr (Decr) over Prior Period						42							(250	)						(208	)
Poker Revenues		––				––			$	4,890		$	5,188		$	4,890		$		5,188
Incr (Decr) over Prior Period						––						$	298					$		298
Number of Poker Tables		––				––				67			66			67				66
Incr (Decr) over Prior Period						––							(1	)						(1	)
Other Gaming Revenues		––				––			$	515		$	476		$	515		$		476
Incr (Decr) over Prior Period						––						$	(39	)				$		(39	)
Total Gaming Revenues	$	84,383		$		84,432			$	132,453		$	134,133		$	216,836		$		218,565
Incr (Decr) over Prior Period				$		49						$	1,680					$		1,729
Number of Guest Rooms		904				904				1,250			1,250			2,154				2,154
Occupancy Rate		94.0	%			95.6	%			95.3	%		94.6	%		94.8	%			95.0	%
Average Daily Rate (Room Revenue)	$	84.07		$		80.65			$	82.50		$	79.01		$	83.15		$		79.70

        Gaming revenues are the primary source of Trump AC’s revenues. The year over year increase in gaming revenues was primarily due to increased table game revenues at the Taj Mahal.

        Table game revenues increased by approximately $3,357,000, or 5.6%, from the comparable period in 2002 due primarily to a increase in the table game win percentage at both the Taj Mahal and Trump Plaza.  Overall Trump AC’s table win percentage increased to 17.0% from 16.3% in the comparable period in 2002.  Table game revenues represent the amount retained by Trump AC from amounts wagered at table games.  The table win percentage tends to be fairly constant over the long term, but may vary significantly in the short term, due to large wagers by “high rollers”.  The Atlantic City industry table win percentages were 15.8% and 16.3% for the quarters ended June 30, 2002 and 2003, respectively.

        Slot revenues decreased by approximately $1,887,000, or 1.2%, from the comparable period in 2002 primarily as a result of the decreased slot handle at the Taj Mahal attributable to April 2003 unseasonable winter weather in the Atlantic City market as well as adverse economic conditions and the war in Iraq.

        Promotional Allowances increased by approximately $1,808,000, or 3.3%, from the comparable period in 2002 primarily as a result of increases in coin and complimentary hotel services.

        General and Administrative costs and expenses increased by approximately $3,191,000, or 7.6%, from the comparable period in 2002.  Expense increases at both the Taj Mahal and Trump Plaza were primarily related to increased real estate taxes, insurance and utility expenses.  Additionally both the Taj Mahal and Trump Plaza recorded a donation of casino reinvestment obligations.

15

        Trump AC was seeking to refinance or modify the terms of the Trump AC Mortgage Notes which were approximately $1,300,000,000 aggregate principal amount as of June 30, 2003.  In connection with such efforts, Trump AC has incurred approximately $300,000 in debt renegotiation costs in the three months ended June 30, 2003.  Trump AC has since terminated such efforts but intends to revisit the capital markets at a later time if and when more favorable market conditions exist.

        In accordance with the New Jersey Business Tax Reform Act, Trump AC has recorded a provision for current income tax expense of $950,000 for the three months ended June 30, 2003.  There was no comparable expense in the three months ended June 30, 2002 since this change was recorded beginning in the period in which the tax law was passed (third quarter 2002) pursuant to the accounting literature in Financial Accounting Standards Board Statement Number 109, “Accounting for Income Taxes.”

        Comparison of Six-Month Periods Ended June 30, 2002 and 2003.  The following table includes selected data of Plaza Associates and Taj Associates for the six months ended June 30, 2002 and 2003.

	Six Months Ended June 30,
	2002 Plaza Associates			2003 Plaza Associates			2002 Taj Associates			2003 Taj Associates			2002 Total Trump AC *			2003 Total Trump AC *
	(in thousands)
Revenues:
Gaming	$	165,884		$	159,863		$	262,378		$	257,365		$	428,262		$	417,228
Other		34,377			33,146			53,918			50,875			88,295			84,021
Gross Revenues		200,261			193,009			316,296			308,240			516,557			501,249
Less: promotional allowances		45,106			44,286			62,949			61,762			108,055			106,048
Net revenues		155,155			148,723			253,347			246,478			408,502			395,201
Costs and expenses:
Gaming		77,434			74,390			115,154			116,029			192,588			190,419
Other		10,669			10,424			17,981			17,497			28,650			27,921
General and administrative		31,214			33,350			51,373			54,192			82,627			87,604
Depreciation and amortization		8,501			9,721			18,302			21,352			26,803			31,073
Debt renegotiation costs		—			—			—			—			1,570			300
Total costs and expenses		127,818			127,885			202,810			209,070			332,238			337,317
Income from operations		27,337			20,838			50,537			37,408			76,264			57,884
Interest and other non-operating income		169			175			156			87			558			434
Interest expense		(24,946	)		(28,297	)		(47,412	)		(49,096	)		(76,451	)		(77,393	)
Total non-operating expense		(24,777	)		(28,122	)		(47,256	)		(49,009	)		(75,893	)		(76,959	)
Income (loss) before income tax provision		2,560			(7,284	)		3,281			(11,601	)		371			(19,075	)
Income tax provision		—			(692	)		—			(1,117	)		—			(1,809	)
Net income (Loss)	$	2,560		$	(7,976	)	$	3,281		$	(12,718	)	$	371		$	(20,884	)

* Intercompany eliminations and expenses of Trump Administration, Trump AC, Trump AC Funding, Trump AC Funding II and Trump AC Funding III are not separately shown.

16

	Six Months Ended June 30,
	2002 Plaza Associates			2003 Plaza Associates			2002 Taj Associates			2003 Taj Associates				2002 Total Trump AC				2003 Total Trump AC
	(dollars in thousands)
Table Game Revenues	$	49,993		$	47,110		$	74,517		$	78,240		$		124,510		$		125,350
Incr (Decr) over Prior Period				$	(2,883	)				$	3,723						$		840
Table Game Drop	$	290,010		$	285,199		$	443,547		$	451,560		$		733,557		$		736,759
Incr (Decr) over Prior Period				$	(4,811	)				$	8,013						$		3,202
Table Win Percentage		17.2	%		16.5	%		16.8	%		17.3	%			17.0	%			17.0	%
Incr (Decr) over Prior Period					(0.7	)pts					0.5	pts							––	pts
Number of Table Games		88			90			139			127				227				217
Incr (Decr) over Prior Period					2						(12	)							(10	)
Slot Revenues	$	115,891		$	112,753		$	176,933		$	168,343		$		292,824		$		281,096
Incr (Decr) over Prior Period				$	(3,138	)				$	(8,590	)					$		(11,728	)
Slot Handle	$	1,441,163		$	1,422,101		$	2,257,381		$	2,105,574		$		3,698,544		$		3,527,675
Incr (Decr) over Prior Period				$	(19,062	)				$	(151,807	)					$		(170,869	)
Slot Win Percentage		8.0	%		7.9	%		7.8	%		8.0	%			7.9	%			8.0	%
Incr (Decr) over Prior Period					(0.1	)pts					0.2	pts							0.1	pts
Number of Slot Machines		2,877			2,956			4,852			4,719				7,729				7,675
Incr (Decr) over Prior Period					79						(133	)							(54	)
Poker Revenues		—			—		$	9,881		$	9,841		$		9,881		$		9,841
Incr (Decr) over Prior Period					—					$	(40	)					$		(40	)
Number of Poker Tables		—			—			67			66				67				66
Incr (Decr) over Prior Period					—						(1	)							(1	)
Other Gaming Revenues		—			—		$	1,047		$	941		$		1,047		$		941
Incr (Decr) over Prior Period										$	(106	)					$		(106	)
Total Gaming Revenues	$	165,884		$	159,863		$	262,378		$	257,365		$		428,262		$		417,228
Incr (Decr) over Prior Period				$	(6,021	)				$	(5,013	)					$		(11,034	)
Number of Guest Rooms		904			904			1,250			1,250				2,154				2,154
Occupancy Rate		92.8	%		91.7	%		94.8	%		93.5	%			94.0	%			92.8	%
Average Daily Rate (Room Revenue)	$	81.00		$	78.34		$	78.58		$	76.40		$		79.61		$		77.21

        Gaming revenues are the primary source of Trump AC’s revenues.  The year over year decrease in gaming revenues was primarily due to a decrease in slot activity.

        Table game revenues increased by approximately $840,000, or .7%, from the comparable period in 2002 due primarily to a increase in table game drop at the Taj Mahal.  Overall Trump AC’s table win percentage at 17.0% remained constant with the comparable period in 2002.  Table game revenues represent the amount retained by Trump AC from amounts wagered at table games.  The table win percentage tends to be fairly constant over the long term, but may vary significantly in the short term, due to large wagers by “high rollers”.  The Atlantic City industry table win percentages were 16.0% and 16.4% for the six months ended June 30, 2002 and 2003, respectively.

        Slot revenues decreased by approximately $11,728,000, or 4.0%, from the comparable period in 2002 primarily as a result of severe winter weather conditions in the Atlantic City market as well as adverse economic conditions and the war in Iraq.

        Promotional Allowances decreased by approximately $2,007,000, or 1.9%, from the comparable period in 2002 primarily as a result of decreases in coin and complimentary hotel services associated with decreased gaming revenues.

        Gaming costs and expenses decreased by approximately $2,169,000, or 1.1%, from the comparable period in 2002 primarily due to decreases in bad debts and slot machine rental fees at Trump Plaza offset by an increase in bad debts at the Taj Mahal. 

        General and Administrative costs and expenses increased by approximately $4,977,000, or 6.0%, from the comparable period in 2002.  Expense increases at both the Taj Mahal and Trump Plaza were primarily related to increased real estate taxes, insurance and utility expenses.  Additionally both the Taj Mahal and Trump Plaza recorded a donation of casino reinvestment obligations.

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        Trump AC was seeking to refinance or modify the terms of the Trump AC Mortgage Notes which were approximately $1,300,000,000 aggregate principal amount as of June 30, 2003.  In connection with such efforts, Trump AC has incurred approximately $1,570,000 and $300,000 in debt renegotiation costs in the six months ended June 30, 2002 and 2003, respectively.  Trump AC has since terminated such efforts but intends to revisit the capital markets at a later time if and when more favorable market conditions exist.

        In accordance with the New Jersey Business Tax Reform Act, Trump AC has recorded a provision for current income tax expense of $1,809,000 for the six months ended June 30, 2003.  There was no comparable expense in the six months ended June 30, 2002 since this change was recorded beginning in the period in which the tax law was passed (third quarter 2002) pursuant to the accounting literature in Financial Accounting Standards Board Statement Number 109, “Accounting for Income Taxes.”

Seasonality

        Cash flows from the Trump Plaza and the Taj Mahal operating activities are seasonal in nature, with spring and summer traditionally being peak seasons and autumn and winter being non-peak seasons.  Consequently, the Company’s operating results during the two quarters ending in March and December are not historically as profitable as the two quarters ending in June and September. Any excess cash flow achieved from operations during peak seasons is used to subsidize non-peak seasons. Performance in non-peak seasons is usually dependent on favorable weather and a long-weekend holiday calendar. In the event that the Trump Plaza and the Taj Mahal are unable to generate excess cash flows in one or more peak seasons, they may not be able to subsidize non-peak seasons, if necessary.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Management has reviewed the disclosure requirements for Item 3 and, based upon the Registrants’ current capital structure, scope of operations and financial statement structure, management believes that such disclosure is not warranted at this time. Since conditions may change, the Registrants will periodically review their compliance with this disclosure requirement to the extent applicable.

ITEM 4—CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the principal executive officer and principal financial officer of each of the Registrants have concluded that their disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Registrants in reports that they file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b)

Changes in Internal Controls. There were no specific changes in the Registrants’ internal controls over financial reporting during the fiscal quarter covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Registrants’ internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

        General.  From time to time, Trump AC, its partners, certain members of its former executive committee, and certain of its employees are involved in various legal proceedings.  In general, Trump AC has agreed to indemnify such persons against any and all losses, claims, damages, expenses (including reasonable costs, disbursements and counsel fees) and liabilities (including amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties) incurred by them in said legal proceedings.

ITEM 2 — CHANGES IN SECURITIES AND USE OF PROCEEDS

        Not Applicable.

ITEM 3 — DEFAULTS UPON SENIOR SECURITIES

        Not Applicable.

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not Applicable.

ITEM 5 — OTHER INFORMATION

        On June 25, 2003, the New Jersey Casino Control Commission renewed each of Taj Associates’ and Plaza Associates’ casino license to operate the Taj Mahal and Trump Plaza, respectively, through June 25, 2007.

ITEM 6 — EXHIBITS AND REPORTS ON FORM 8-K

a.	Exhibits:
31.1	Certification of the Chief Executive Officer of the Registrants Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as Amended.
31.2	Certification of the Chief Financial Officer of the Registrants Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as Amended.
32.1	Certification of the Chief Executive Officer of the Registrants Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer of the Registrants Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b.	Current Reports on Form 8-K:

        The Registrants filed a Current Report on Form 8-K with the SEC on April 30, 2003 regarding its earnings press release for the first quarter ended March 31, 2003.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		TRUMP ATLANTIC CITY ASSOCIATES
		(Registrant)
	By:	TRUMP ATLANTIC CITY HOLDING, INC., its Managing General Partner
Date:   August 14, 2003	By:	/s/ FRANCIS X. MCCARTHY, JR.
		Francis X. McCarthy, Jr. Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)
		TRUMP ATLANTIC CITY FUNDING, INC.
		(Registrant)
Date:   August 14, 2003	By:	/s/ FRANCIS X. MCCARTHY, JR.
		Francis X. McCarthy, Jr. Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)
		TRUMP ATLANTIC CITY FUNDING II, INC.
		(Registrant)
Date:   August 14, 2003	By:	/s/ FRANCIS X. MCCARTHY, JR.
		Francis X. McCarthy, Jr. Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)
		TRUMP ATLANTIC CITY FUNDING III, INC.
		(Registrant)
Date:   August 14, 2003	By:	/s/ FRANCIS X. MCCARTHY, JR.
		Francis X. McCarthy, Jr. Chief Financial Officer (Duly Authorized Officer and Principal Financial and  Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of the Chief Executive Officer of the Registrants Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as Amended.
31.2	Certification of the Chief Financial Officer of the Registrants Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as Amended.
32.1	Certification of the Chief Executive Officer of the Registrants Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer of the Registrants Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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