AFG INVESTMENT TRUST
AFG Investment Trust C
Annual Report to the Participants, December 31, 2000
Dear Investor:
We are pleased to provide the Annual Report for AFG Investment Trust C, which
contains important information concerning the recent operating results and
current financial position of your investment program. Please refer to the index
on the following page for a listing of information contained in this report.
If you have any questions about your investment program or, if you would like a
copy of Form 10-K for this program, please contact our Investor Services
Representatives at 1-800-247-3863.
Very truly yours,
/s/ GEOFFREY A. MACDONALD
Geoffrey A. MacDonald
Chairman and Co-founder
AFG Investment Trust C
INDEX TO ANNUAL REPORT TO THE PARTICIPANTS
Page
----
SELECTED FINANCIAL DATA.................................................. 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................... 3-9
FINANCIAL STATEMENTS:
Report of Independent Auditors........................................... 10
Statement of Financial Position
at December 31, 2000 and 1999............................................ 11
Statement of Operations
for the years ended December 31, 2000, 1999 and 1998..................... 12
Statement of Changes in Participants' Capital
for the years ended December 31, 2000, 1999 and 1998..................... 13
Statement of Cash Flows
for the years ended December 31, 2000, 1999 and 1998..................... 14
Notes to the Financial Statements........................................ 15-26
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed.................................. 30
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings.................................. 31
Schedule of Costs Reimbursed to the Managing Trustee
and its Affiliates as Required by Section 10.4 of the
Second Amended and Restated Declaration of Trust......................... 32
Schedule of Reimburseable Operating Expenses Due to Third Parties........ 33
Schedule of Equipment.................................................... 34-35
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the financial
statements.
For each of the five years in the period ended December 31, 2000:
Summary of
Operations 2000 1999 1998 1997 1996
- --------------------------- -------------- -------------- -------------- -------------- --------------
Lease revenue........................ $ 7,733,941 $ 10,286,635 $ 15,201,411 $ 16,912,628 $ 27,695,097
Net income........................... $ 2,760,130 $ 5,802,601 $ 4,999,220 $ 877,213 $ 85,636
Per Beneficiary Interest:
Net income (loss)
Class A Interests............ $ 0.94 $ 1.13 $ 1.17 $ 0.49 $ 0.04
Class B Interests............ $ 0.22 $ 0.75 $ 0.39 $ (0.12) $ --
Cash distributions
Class A Interests............ $ -- $ 4.56 $ 1.64 $ 3.11 $ 1.39
Class B Interests............ $ -- $ 3.66 $ 2.10 $ 0.30 $ --
Financial Position
Total assets......................... $ 52,351,550 $ 71,090,942 $ 72,908,929 $ 82,036,778 $ 55,127,347
Total long-term obligations.......... $ 26,220,794 $ 32,573,152 $ 35,072,883 $ 39,928,173 $ 19,084,751
Participants' capital................ $ 23,898,674 $ 21,158,711 $ 36,360,494 $ 41,159,172 $ 35,053,486
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 2000 compared to the year
ended December 31, 1999 and the year ended December 31, 1999
compared to the year ended December 31, 1998
Certain statements in this annual report of AFG Investment Trust C (the
"Trust") that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are subject to a variety of risks and uncertainties. There are a number of
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statements made herein. These factors
include, but are not limited to, the collection of the Trust's contracted rents,
the realization of residual proceeds for the Trust's equipment, the performance
of the Trust's non-equipment assets, and future economic conditions.
Overview
- --------
The Trust was organized in 1992 for the purpose of acquiring and leasing to
third parties a diversified portfolio of capital equipment. In 1998, the Trust
Agreement was modified to permit the Trust to invest in assets other than
equipment. During 2000 and 1999, the Trust made certain non-equipment
investments. Pursuant to the Trust Agreement, the Trust is scheduled to be
dissolved by December 31, 2004.
The Investment Company Act of 1940 (the "Act") places restrictions on the
capital structure and busniness 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 LLC ("EFG Kirkwood") and EFG/Kettle Development LLC
("Kettle Velley"). 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. If the Trust was determined to be an
investment company, its business would be adversely affected. 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. 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.
Segment Reporting
- -----------------
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 lease portfolio. 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 through its ownership interest in
real estate.
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 years ended December 31, 2000, 1999 and 1998 is
summarized below. The accounting policies of the segments are the same as those
described in Note 2 of the accompanying financial statements. See Note 2 of the
accompanying financial statements for individual lessees which accounted for
more than 10% of the Trust's revenues during the years ended December 31, 2000,
1999 and 1998.
3
Years ended December 31,
------------------------------------------------------
2000 1999 1998
------------------ ---------------- ----------------
Total Income:
Equipment Leasing........................ $10,785,068 $15,453,298 $19,153,506
Real Estate.............................. -- -- --
------------------ ---------------- ----------------
Total................................. $10,785,068 $15,453,298 $19,153,506
Operating Expenses, Management
Fees and Other Expenses:
Equipment Leasing........................ $ 944,491 $ 1,106,068 $ 1,453,218
Real Estate.............................. 361,727 250,214 --
------------------ ---------------- ----------------
Total................................. $ 1,306,218 $ 1,356,282 $ 1,453,218
Interest Expense:
Equipment Leasing......................... $ 2,404,830 $ 2,412,127 $ 3,098,019
Real Estate............................... 58,433 66,623 --
------------------ ---------------- ----------------
Total.................................. $ 2,463,263 $ 2,478,750 $ 3,098,019
Depreciation and Amortization Expense:
Equipment Leasing......................... $ 4,189,657 $ 5,815,665 $ 9,603,049
Real Estate............................... 65,800 -- --
------------------ ---------------- ----------------
Total.................................. $ 4,255,457 $ 5,815,665 $ 9,603,049
Net Income................................... $ 2,760,130 $ 5,802,601 $ 4,999,220
Results of Operations
- ---------------------
Equipment Leasing
- -----------------
For the year ended December 31, 2000, the Trust recognized lease revenue of
$7,733,941 compared to $10,286,635 and $15,201,411 for the years ended December
31, 1999 and 1998, respectively. The decrease in lease revenue is due to lease
term expirations and the sale of equipment. The level of lease revenue to be
recognized by the Trust in the future may be impacted by future reinvestment;
however, the extent of such impact cannot be determined at this time. Future
lease term expirations and equipment sales will result in a reduction in lease
revenue recognized.
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 Equis Financial Group Limited Partnership, a Massachusetts limited
partnership ("EFG") or an affiliated equipment leasing program sponsored by EFG.
Proportionate equipment ownership enables the Trust to further diversify its
equipment portfolio by participating in the ownership of selected assets,
thereby reducing the general levels of risk, which could result from a
concentration in any single equipment type, industry or lessee. The Trust and
each affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment.
Interest income for the year ended December 31, 2000 was $666,975 compared to
$1,217,855 and $1,096,363 for the years ended December 31, 1999 and 1998,
respectively. Generally, interest income is generated from the temporary
investment of rental receipts and equipment sale proceeds in short-term
instruments. Future interest income will fluctuate as a result of changing
interest rates, the collection of lease revenue and the proceeds from equipment
sales, among other factors. In addition, the Trust distributed $15,200,000 in
January 2000 that resulted in a reduction of cash available for investment. See
Note 13 - Subsequent Event, to the accompanying financial statements regarding
reinvestment in 2001.
On March 8, 2000, the Trust and three affiliated trusts entered into a
guaranty agreement whereby the trusts, jointly and severally, guaranteed the
payment obligations under a master lease agreement between Echelon Commercial
LLC, as lessee, and Heller Affordable Housing of Florida, Inc., and two other
entities, as lessor ("Heller"), (See Note 10 to the accompanying financial
statements.) In consideration for its guarantee, the Trust will receive an
annualized fee equal to 4% of the average guarantee amount outstanding during
each quarterly
4
period. Accrued but unpaid fees will accrue and compound interest quarterly at
an annualized interest rate of 7.5% until paid. During the year ended December
31, 2000, the Trust received an upfront cash fee of $175,400 and recognized a
total of $301,400 in income related to this guaranty fee. The guaranty fee is
reflected as Other Income on the accompanying Statement of Operations for the
year ended December 31, 2000.
The Trust received $261,116 in 1999 as a breakage fee from a third-party
seller in connection with a transaction for new investments that was canceled by
the seller in the first quarter of 1999. This amount is reflected as Other
Income on the accompanying Statement of Operations for the year ended December
31, 1999.
During the three years ended December 31, 2000, the Trust sold equipment
having a net book value of $1,412,158, $5,163,109 and $2,355,043, respectively,
to existing lessees and third parties, which resulted in net gains, for
financial statement purposes, of $2,012,657, $3,687,692 and $2,855,732,
respectively.
It cannot be determined whether future sales of equipment will result in a
net gain or net loss to the Trust, as such transactions will be dependent upon
the condition and type of equipment being sold and its marketability at the time
of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities, which may be advantageous to the Trust, and to maximize total
cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Trust classifies such
residual rental payments as lease revenue. Consequently, the amount of gain or
loss reported in the financial statements is not necessarily indicative of the
total residual value the Trust achieved from leasing the equipment.
During the year ended December 31, 2000, the Trust sold investment securities
having a book value of $420,513, resulting in a gain, for financial reporting
purposes of $70,095.
Depreciation expense was $4,189,657, $5,815,665, and $9,603,049 for the years
ended December 31, 2000, 1999 and 1998, respectively. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the Trust
depreciates the difference between (i) the cost of the asset and (ii) the
estimated residual value of the asset on a straight-line basis over such term.
For purposes of this policy, estimated residual values represent estimates of
equipment values at the date of primary lease expiration. To the extent that an
asset is held beyond its primary lease term, the Trust continues to depreciate
the remaining net book value of the asset on a straight-line basis over the
asset's remaining economic life.
Interest expense on equipment related debt was $2,404,830, $2,412,127, and
$3,098,019 for the years ended December 31, 2000, 1999, and 1998, respectively.
Interest expense will decrease in the future as the principal balance of notes
payable is reduced through the application of rent receipts to outstanding debt.
Management fees related to equipment leasing were $350,618, $460,805 and
$659,939 during the years ended December 31, 2000, 1999 and 1998, respectively.
Management fees are based on 5% of gross lease revenue generated by operating
leases and 2% of gross lease revenue generated by full payout leases, subject to
certain limitations (see Note 6 to the accompanying financial statements).
Operating expenses were $543,363, $843,263, and $793,279 for the years ended
December 31, 2000, 1999 and 1998, respectively. Operating expenses consist
principally of administrative charges, professional service costs, such as
audit, insurance and legal fees, as well as printing, distribution and
remarketing expenses. Operating expenses in 1998 include approximately $280,000
of legal fees related to the Class Action Lawsuit described in Note 9 to the
accompanying financial statements. The amount of future operating expenses
cannot be predicted with certainty; however, such expenses are usually higher
during the acquisition and liquidation phases of a trust. Other fluctuations
typically occur in relation to the volume and timing of remarketing activities.
In addition, the Trust wrote-down other investments of $50,510 during the year
ended December 31, 2000.
5
Real Estate
- -----------
Management fees for non-equipment investments were $80,460 and $52,214 for
the years ended December 31, 2000 and 1999, respectively. There were no
non-equipment management fees earned by the Trust in the year ended December 31,
1998. The management fees on non-equipment assets, excluding cash, were based on
1% of such assets under management.
For the year ended December 31, 1999, operating expenses included legal fees
of $198,000 related to the Trust's ownership interests in Kettle Valley and EFG
Kirkwood.
Interest expense on a note payable related to the Trust's acquisition of its
interest in Kettle Valley was $58,433 and $66,623 for the years ended December
31, 2000 and 1999, respectively. There was no real estate related debt
outstanding for the year ended December 31, 1998. Interest expense will decrease
in the future as payments reduce the outstanding principal balance of the note.
For the year ended December 31, 2000, the Trust recorded amortization expense
of $65,800 in connection with its ownership interest in Kettle Valley. See Note
4 to the accompanying financial statements.
For the year ended December 31, 2000, the Trust recorded a loss of $190,201
resulting from its interest in EFG Kirkwood and a loss of $91,066 from its
interest in Kettle Valley. These losses represent the Trust's share of the
losses of EFG Kirkwood and Kettle Valley recorded under the equity method of
accounting. See Notes 4 and 5 to the accompanying financial statements.
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 have been derived from asset rental transactions.
Accordingly, the Trust's principal source of cash from operations is provided by
the collection of periodic rents. These cash inflows are used to satisfy debt
service obligations associated with leveraged leases, and to pay management fees
and operating costs. Operating activities generated net cash inflows of
$5,546,026, $6,918,949 and $13,029,542 for the years ended December 31, 2000,
1999 and 1998, respectively. Future renewal, re-lease and equipment sale
activities will continue to cause a decline in the Trust's primary-term lease
revenue and corresponding sources of operating cash. Expenses associated with
rental activities, such as management fees, will also decline as the Trust
experiences a higher frequency of remarketing events. The amount of future
interest income is expected to fluctuate as a result of changing interest rates
and the level of cash available for investment, among other factors.
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 lease 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.
Cash expended for asset acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. The Trust expended $1,287,350 in 2000 and $2,706,800 in
1999 to acquire its ownership interest in EFG Kirkwood. (See Note 5 to the
accompanying financial statements.) During 1999, the Trust expended $3,139,648
to acquire its ownership interest in Kettle Valley. In connection with the
acquisition of its ownership interest in Kettle Valley, the Trust was paid
$1,524,803 for a residual interest in an aircraft (see Note 4 to the
accompanying financial statements). In 2000, the Trust expended $288,892 to
acquire certain other investments and $408,000 for an ownership interest in a
limited liability company formed to facilitate an asset acquisition which
occurred in February 2001. In 1999, the Trust purchased $412,529 of investment
securities. The Trust may acquire additional assets prior to the expiration of
its reinvestment period in December 2002.
During 2000, 1999 and 1998, the Trust realized net cash proceeds from
equipment disposals of $3,424,815, $8,850,801, and $5,210,775, respectively.
Sales proceeds in 2000 include $2,717,790 related to the Trust's 66%
6
interest in certain rail equipment, which was sold in July 2000. Sales proceeds
in 1999 included $4,997,297 related to the Trust's interest in a McDonnell
Douglas MD-82 aircraft, which was sold in January 1999. The Trust also realized
proceeds from the disposition of investment securities of $490,608, during the
year ended December 31, 2000. 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.
At December 31, 2000, the Trust was due aggregate future minimum lease
payments of $15,502,529 from contractual lease agreements (see Note 2 to the
accompanying financial statements), a portion of which will be used to amortize
the principal balance of notes payable of $26,220,794 (see Notes 3 and 7 to the
financial statements herein). Additional cash inflows will be realized from
future remarketing activities, such as lease renewals and equipment sales, the
timing and extent of which cannot be predicted with certainty. This is because
the timing and extent of equipment sales is often dependent upon the needs and
interests of the existing lessees. Some lessees may choose to renew their lease
contracts, while others may elect to return the equipment. In the latter
instances, the equipment could be re-leased to another lessee or sold to a third
party. Accordingly, as the Trust matures and a greater level of its equipment
assets becomes available for remarketing, the cash flows of the Trust will
become less predictable.
The Trust has a 50.6% ownership interest in EFG/Kettle Development LLC
("Kettle Valley"). Kettle Valley is a joint venture among the Trust and an
affiliated trust, formed for the purpose of acquiring a 49.9% indirect ownership
interest in a real estate development in Kelowna, British Columbia in Canada.
The real estate development consists of approximately 280 acres of land under
development. The project is zoned for 1,000 residential units in addition to
commercial space. To date, 95 residential units have been constructed and 4 are
under construction, all of which have been sold. An unaffiliated third party has
retained the remaining 50.1% indirect ownership interest in the development. AFG
ASIT Corporation manages Kettle Valley and the development is managed by a
Canadian affiliate of EFG.
The Trust has an ownership interest in EFG Kirkwood LLC ("EFG Kirkwood"). EFG
Kirkwood is a joint venture among the Trust, certain affiliated Trusts and
Semele Group Inc. ("Semele") and is managed by AFG ASIT Corporation. EFG
Kirkwood is a member in two joint ventures, Mountain Resort Holdings LLC
("Mountain Resort") and Mountain Springs Resort LLC ("Mountain Springs"). See
Note 5 to the financial statements.
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 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 involvement in real estate development also introduces financials
risks, including the potential need to borrow funds to develop the real estate
projects. While the Trust's management 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. Alternatively, the
Trust could establish joint ventures with other parties to share participation
in its development projects.
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 effect 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.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, investment
securities classified as available-for-sale are required to be carried at fair
value. During the year ended December 31, 1999, the Trust recorded an unrealized
gain on available-for-sale securities of $20,167. This gain was recorded as a
component of comprehensive income included in the
7
Statement of Changes in Participant's Capital. These available-for-sale
securities were sold in 2000 resulting in a realized gain of $70,095.
The Trust obtained long-term financing in connection with certain equipment
leases. The origination of such indebtedness and the subsequent repayments of
principal are reported as components of financing activities. During 1999, the
Trust leveraged $1,332,481 of its ownership interest in Kettle Valley that is
being amortized over 34 months (see Note 4 to the financial statements).
Generally, each note payable is recourse only to the specific equipment financed
and to the minimum rental payments contracted to be received during the debt
amortization period (which period generally coincides with the lease rental
term). The amount of cash used to repay debt obligations may fluctuate in the
future due to the financing of assets, which may be acquired. In addition, the
Trust has balloon payment obligations of $16,193,280 and $282,421 at the
expiration of the lease terms related to an aircraft leased to Scandinavian
Airlines System ("SAS") and an aircraft leased to Reno Air, Inc., respectively.
In December 2000, the Managing Trustee negotiated with the lender of the SAS
debt, which matured in December 2000, and extended the term of the debt
consistent with the term of the SAS lease extension. (See Notes 2, 3 and 7 to
the accompanying financial statements.) Additional proceeds of $25,302 were
received in connection with the extension of the term of the SAS debt.
On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00 per
interest, thereby generating $15,123,700 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 5,520 Class B Interests,
generating $27,600 of such aggregate capital contributions, and EFG, as Special
Beneficiary, purchased 3,019,220 Class B Interests, generating $15,096,100 of
such aggregate capital contributions. The Trust incurred offering costs in the
amount of $151,237 and professional service costs of $153,842 in connection with
the offering. Subsequently, EFG transferred its Class B Interests to a
special-purpose company, Equis II Corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. In December 1999, an affiliate of the Trust, Semele, purchased
85% of the common stock of Equis II Corporation, subject to certain voting
restrictions with respect to the Class B Interests of the Trust owned by Equis
II Corporation. In May 2000, Semele acquired the remaining 15% of the common
stock of Equis II Corporation and, in November 2000, the voting restrictions
with respect to the Class B Interests were terminated. As a result, Semele has
voting control over the Trust. The former majority stockholders of Equis II
Corporation, Gary D. Engle and James A. Coyne, are both members of the Board of
Directors of, and collectively own a majority of the stock in, Semele. Mr. Engle
is Semele's Chairman and Chief Executive Officer and Mr. Coyne is Semele's
President and Chief Operating Officer.
The proceeds from the Class B offering were intended to be used principally
to repurchase a portion of the Trust's Class A Beneficiary Interests and to pay
a one-time special cash distribution of $2,960,865 ($1.47 per Class A Interest)
to the Trust's Class A Beneficiaries. That distribution was paid on August 15,
1997. The remainder of the offering proceeds was classified as restricted cash
pending its use for the repurchase of Class A Interests or its return to the
Class B Interest holders. On August 7, 1997, the Trust commenced an offer to
purchase up to 45% of the outstanding Class A Beneficiary Interests of the
Trust. On October 10, 1997, the Trust used $2,291,567 of the net proceeds
realized from the issuance of the Class B Interests to purchase 218,661 of the
Class A Interests tendered as a result of the offer. On April 28, 1998, the
Trust purchased 5,200 additional Class A Interests at a cost of $46,800. On July
6, 1998, the Trust used $4,646,862 of the Class B offering proceeds to pay a
capital distribution to the Class B Beneficiaries. In July 1999, in connection
with the settlement of the Class Action Lawsuit described in Note 9 to the
accompanying financial statements, the Trust distributed $1,513,639, including
legal fees of $81,360 paid to Plaintiffs' counsel, as a special cash
distribution ($0.80 per unit, net of legal fees). In addition, Equis II
Corporation agreed to commit $3,405,688 of the Class B Capital Contributions
(the remaining balance of the restricted cash) to the Trust for the Trust's
investment purposes.
The Managing Trustee has evaluated and pursued a number of potential new
investments, several of which the Managing Trustee concluded had market returns
that it believed were less than adequate given the potential risks. Most
transactions have involved the equipment leasing, business finance and real
estate development industries. Although the Managing Trustee intends to continue
to evaluate additional new investments, it anticipates that the Trust will be
able to fund these new investments with cash on hand or other sources, such as
the proceeds from future asset sales or refinancings and new indebtedness. As a
result, the Trust declared a special cash distribution totaling $15,200,000,
which was paid in January 2000.
After the special distribution in January 2000, the Trust adopted a new
distribution policy and suspended the payment of regular monthly cash
distributions. Looking forward, the Managing Trustee presently does not expect
to reinstate cash distributions until expiration of the Trust's reinvestment
period in December 2002; however, the
8
Managing Trustee periodically will review and consider other one-time
distributions. In addition to maintaining sale proceeds for reinvestment, the
Managing Trustee expects that the Trust will retain cash from operations to pay
down debt and for the continued maintenance of the Trust's assets. See Note 13
to the accompanying financial statements for details concerning the acquisition
of assets in February 2001. The Managing Trustee believes that this change in
policy is in the best interests of the Trust over the long term.
Historically, cash distributions to the Managing Trustee, the Special
Beneficiary and the Beneficiaries had been declared and generally paid within 45
days following the end of each calendar month. The payment of such distributions
is presented as a component of financing activities on the accompanying
Statement of Changes of Cash Flows. No cash distributions were declared for the
year ended December 31, 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 paid to the Participants consist of both a return of and a
return on capital. Cash distributions do not represent and are not indicative of
yield on investment. Actual yield on investment cannot be determined with any
certainty until conclusion of the Trust and will be dependent upon the
collection of all future contracted rents, the generation of renewal and/or
re-lease rents, 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 real estate assets will impact the Trust's overall
performance.
In the future, the nature of the Trust's operations and principal cash flows
will continue to shift from rental receipts to equipment sale proceeds. As this
occurs, the Trust's cash flows resulting from equipment investments may become
more volatile in that certain of the Trust's equipment leases will be renewed
and certain of its assets will be sold. In some cases, the Trust may be required
to expend funds to refurbish or otherwise improve the equipment being remarketed
in order to make it more desirable to a potential lessee or purchaser. The
Trust's Advisor, EFG, and the Managing Trustee will attempt to monitor and
manage these events in order to maximize the residual value of the Trust's
equipment and will consider these factors, in addition to new investment
activities, 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 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, 2000, the Managing Trustee had a negative tax capital
account balance of $165,559. No such requirement exists with respect to the
Special Beneficiary.
9
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Participants of AFG Investment Trust C:
We have audited the accompanying statements of financial position of AFG
Investment Trust C as of December 31, 2000 and 1999, and the related statements
of operations, changes in participants' capital, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AFG Investment Trust C at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Additional Financial Information
identified in the Index to Annual Report to the Participants is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
Tampa, Florida
March 30, 2001
10
AFG Investment Trust C
STATEMENT OF FINANCIAL POSITION
December 31, 2000 and 1999
2000 1999
----------------- -----------------
ASSETS
Cash and cash equivalents.................................................. $ 8,848,816 $ 22,923,967
Investment securities...................................................... -- 434,176
Rents receivable........................................................... 257,399 214,690
Accounts receivable - affiliate............................................ 424,853 940,527
Guarantee fee receivable................................................... 126,000 --
Interest receivable........................................................ 8,930 14,722
Loan receivable - Kettle Valley............................................ 77,059 77,059
Interest in Kettle Valley.................................................. 4,315,263 4,472,129
Interest in EFG Kirkwood................................................... 3,803,949 2,706,800
Investments - other........................................................ 238,382 --
Other assets............................................................... 886,793 340,951
Equipment at cost, net of accumulated depreciation
of $20,018,229 and $22,674,903 at December 31, 2000
1999, respectively...................................................... 33,364,106 38,965,921
----------------- -----------------
Total assets..................................................... $ 52,351,550 $ 71,090,942
================= =================
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable.............................................................. $ 26,220,794 $ 32,573,152
Accrued interest........................................................... 344,871 171,784
Accrued liabilities........................................................ 284,691 96,804
Accrued liabilities - affiliate............................................ 47,835 48,503
Deferred rental income..................................................... 29,882 317,185
Other liabilities.......................................................... 1,524,803 1,524,803
Cash distributions payable to participants................................. -- 15,200,000
----------------- -----------------
Total liabilities................................................ 28,452,876 49,932,231
----------------- -----------------
Participants' capital (deficit):
Managing Trustee........................................................ 23,386 (20,275)
Special Beneficiary..................................................... 192,938 (167,270)
Class A Beneficiary Interests (1,787,153 Interests;
initial purchase price of $25 each)................................... 25,570,027 23,898,406
Class B Beneficiary Interests (3,024,740 Interests;
initial purchase price of $5 each).................................... 450,690 (213,783)
Treasury Interests (223,861 Class A Interests at Cost).................. (2,338,367) (2,338,367)
----------------- -----------------
Total participants' capital...................................... 23,898,674 21,158,711
----------------- -----------------
Total liabilities and participants' capital...................... $ 52,351,550 $ 71,090,942
================= =================
The accompanying notes are an integral part of these financial statements
11
AFG Investment Trust C
STATEMENT OF OPERATIONS
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------------ ------------------ ------------------
Income:
Lease revenue............................... $ 7,733,941 $ 10,286,635 $ 15,201,411
Interest income............................. 666,975 1,217,855 1,096,363
Other income................................ 301,400 261,116 --
Gain on sale of equipment................... 2,012,657 3,687,692 2,855,732
Gain on sale of investment securities....... 70,095 -- --
------------------ ------------------ ------------------
Total income............................ 10,785,068 15,453,298 19,153,506
------------------ ------------------ ------------------
Expenses:
Depreciation and amortization............... 4,255,457 5,815,665 9,603,049
Interest expense............................ 2,463,263 2,478,750 3,098,019
Management fees - affiliates................ 431,078 513,019 659,939
Operating expenses - affiliate.............. 543,363 843,263 793,279
Loss from interest in EFG Kirkwood.......... 190,201 -- --
Loss from interest in Kettle Valley......... 91,066 -- --
Write-down of other investment.............. 50,510 -- --
------------------ ------------------ ------------------
Total expenses.......................... 8,024,938 9,650,697 14,154,286
------------------ ------------------ ------------------
Net income....................................... $ 2,760,130 $ 5,802,601 $ 4,999,220
================== ================== ==================
Net income
per Class A Beneficiary Interest............ $ 0.94 $ 1.13 $ 1.17
================== ================== ==================
per Class B Beneficiary Interest............ $ 0.22 $ 0.75 $ 0.39
================== ================== ==================
Cash distributions declared
per Class A Beneficiary Interest............ $ -- $ 4.56 $ 1.64
================== ================== ==================
per Class B Beneficiary Interest............ $ -- $ 3.66 $ 2.10
================== ================== ==================
The accompanying notes are an integral part of these financial statements
12
AFG Investment Trust C
STATEMENT OF CHANGES IN PARTICIPANTS' CAPITAL
For the years ended December 31, 2000, 1999 and 1998
Managing Special Class A Beneficiaries
Trustee Beneficiary ------------------------------
Amount Amount Interests Amount
------------ ------------ ------------ ------------
Balance at December 31, 1997 ............... $ (123,674) $ (1,000,794) 1,792,353 $ 30,858,790
Net income - 1998 ........................ 187,347 1,526,103 -- 2,092,865
Cash distributions declared .............. (51,042) (421,100) -- (2,929,485)
Acquisition of treasury interests, at cost -- -- (5,200) --
------------ ------------ ------------ ------------
Balance at December 31, 1998 ............... 12,631 104,209 1,787,153 30,022,170
Net income - 1999 ........................ 162,815 1,343,220 -- 2,015,010
Unrealized gain on investment
securities ............................ 202 1,663 -- 14,919
------------ ------------ ------------ ------------
Comprehensive income ....................... 163,017 1,344,883 -- 2,029,929
------------ ------------
Cash distributions declared ................ (195,923) (1,616,362) -- (8,153,693)
------------ ------------ ------------ ------------
Balance at December 31, 1999 ............... (20,275) (167,270) 1,787,153 23,898,406
Less: Reclassification adjustment for
unrealized gain on investment securities.. (202) (1,663) -- (14,919)
Net income - 2000 .......................... 43,863 361,871 -- 1,686,540
------------ ------------ ------------ ------------
Comprehensive Income........................ 43,661 360,208 -- 1,671,621
------------ ------------ ------------ ------------
Balance at December 31, 2000................ $ 23,386 $ 192,938 1,787,153 $ 25,570,027
============ ============ ============ ============
Class B Beneficiaries
----------------------------- Treasury
Interests Amount Interests Total
------------ ------------ ------------ ------------
Balance at December 31, 1997 ............... 3,024,740 $ 13,716,417 (2,291,567) $ 41,159,172
Net income - 1998 ........................ -- 1,192,905 -- 4,999,220
Cash distributions declared .............. -- (6,349,471) -- (9,751,098)
Acquisition of treasury interests, at cost -- -- (46,800) (46,800)
------------ ------------ ------------ ------------
Balance at December 31, 1998 ............... 3,024,740 8,559,851 (2,338,367) 36,360,494
Net income - 1999 ........................ -- 2,281,556 -- 5,802,601
Unrealized gain on investment
securities ............................ -- 3,383 -- 20,167
------------ ------------ ------------ ------------
Comprehensive income ....................... -- 2,284,939 -- 5,822,768
------------ ------------ ------------ ------------
Cash distributions declared ................ -- (11,058,573) -- (21,024,551)
------------ ------------ ------------ ------------
Balance at December 31, 1999 ............... 3,024,740 (213,783) (2,338,367) 21,158,711
Less: Reclassification adjustment for
unrealized gain on investment securities.. -- (3,383) -- (20,167)
Net income - 2000 .......................... -- 667,856 -- 2,760,130
------------ ------------ ------------ ------------
Comprehensive Income........................ -- 664,473 -- 2,739,963
------------ ------------ ------------ ------------
Balance at December 31, 2000................ 3,024,740 $ 450,690 (2,338,367) $ 23,898,674
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
13
AFG Investment Trust C
STATEMENT OF CASH FLOWS
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---------------- ----------------- ----------------
Cash flows provided by (used in) operating activities:
Net income............................................... $ 2,760,130 $ 5,802,601 $ 4,999,220
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization....................... 4,255,457 5,815,665 9,603,049
Accretion of bond discount.......................... (6,504) (1,480) --
Gain on sale of equipment........................... (2,012,657) (3,687,692) (2,855,732)
Gain on sale of investment securities............... (70,095) -- --
Loss from interest in Kettle Valley................. 91,066 -- --
Loss from interest in EFG Kirkwood.................. 190,201 -- --
Write-down of other investment...................... 50,510 -- --
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable................................ (42,709) 126,421 478,625
Accounts receivable - affiliate................. 515,674 (261,854) 225,753
Guarantee fee receivable........................ (126,000) -- --
Interest receivable............................. 5,792 (14,722) --
Loan receivable - Kettle Valley................. -- (77,059) --
Other assets.................................... (137,842) (340,951) --
Increase (decrease) in:
Accrued interest................................ 173,087 (57,331) (11,319)
Accrued liabilities............................. 187,887 (214,696) 299,950
Accrued liabilities - affiliate................. (668) (5,699) (64,501)
Deferred rental income.......................... (287,303) (164,254) 354,497
---------------- ----------------- ----------------
Net cash provided by operating activities........ 5,546,026 6,918,949 13,029,542
---------------- ---------------- ----------------
Cash flows provided by (used in) investing activities:
Interest in Kettle Valley........................... -- (3,139,648) --
Interest in EFG Kirkwood............................ (1,287,350) (2,706,800) --
Investments - other................................. (288,892) -- --
Other assets........................................ (408,000) -- --
Purchase of investment securities................... -- (412,529) --
Proceeds from sale of investment securities......... 490,608 -- --
Other liabilities................................... -- 1,524,803 --
Proceeds from equipment sales....................... 3,424,815 8,850,801 5,210,775
---------------- ---------------- ----------------
Net cash provided by investing activities....... 1,931,181 4,116,627 5,210,775
---------------- ---------------- ----------------
Cash flows provided by (used in) financing activities:
Purchase of treasury interests...................... -- -- (46,800)
Restricted cash..................................... -- 4,919,327 4,646,862
Proceeds from notes payable......................... 25,302 -- --
Principal payments - notes payable.................. (6,377,660) (3,832,212) (4,855,290)
Distributions paid.................................. (15,200,000) (6,223,847) (9,803,606)
---------------- ---------------- ----------------
Net cash used in financing activities........... (21,552,358) (5,136,732) (10,058,834)
---------------- ---------------- ----------------
Net (decrease) increase in cash and cash equivalents..... (14,075,151) 5,898,844 8,181,483
Cash and cash equivalents at beginning of year........... 22,923,967 17,025,123 8,843,640
---------------- ---------------- ----------------
Cash and cash equivalents at end of year................. $ 8,848,816 $ 22,923,967 $ 17,025,123
================ ================ ================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.............. $ 2,290,176 $ 2,536,081 $ 3,109,338
================ ================ ================
Supplemental disclosure of non-cash activity:
See Note 4 to the financial statements.
The accompanying notes are an integral part of these financial statements
14
AFG Investment Trust C
Notes to the Financial Statements
December 31, 2000
NOTE 1 - ORGANIZATION AND TRUST MATTERS
- ---------------------------------------
AFG Investment Trust C (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust Act (the "Act") on August
31, 1992 for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Participants' (collectively, the Managing
Trustee, Special Beneficiary, Class A Beneficiaries and Class B Beneficiaries)
capital initially consisted of contributions of $1,000 from the Managing
Trustee, AFG ASIT Corporation, $1,000 from the Special Beneficiary, Equis
Financial Group Limited Partnership (formerly known as American Finance Group),
a Massachusetts limited partnership ("EFG" or the "Advisor"), and $100 from the
Initial Beneficiary, AFG Assignor Corporation, a wholly-owned affiliate of EFG.
The Trust issued an aggregate of 2,011,014 Beneficiary Interests (hereinafter
referred to as Class A Interests) at a subscription price of $25.00 each
($50,275,350 in total) to 2,477 investors through 9 serial closings commencing
December 15, 1992 and ending September 2, 1993. On July 18, 1997, the Trust
issued 3,024,740 Class B Interests at $5.00 each ($15,123,700 in total), of
which (i) 3,019,220 interests are held by Equis II Corporation, an affiliate of
EFG, and (ii) 5,520 interests are held by 10 other Class A investors. The Trust
repurchased 218,661 Class A Interests on October 10, 1997 using proceeds from
the issuance of Class B Interests. On April 28, 1998, the Trust repurchased
5,200 additional Class A Interests. Accordingly, there are 1,787,153 Class A
Interests currently outstanding. The Class A and Class B Interest holders are
collectively referred to as the "Beneficiaries".
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation, and one Special Beneficiary, Semele Group Inc. ("Semele"). Semele
purchased the Special Beneficiary Interests from EFG during the fourth quarter
of 1999. EFG continues to act as Advisor to the Trust and provides services in
connection with the acquisition and remarketing of the Trust's assets. The
Managing Trustee is responsible for the general management and business affairs
of the Trust. AFG ASIT Corporation is a wholly owned subsidiary of Equis II
Corporation and an affiliate of EFG. Equis II Corporation, which is also the
owner of 3,019,220 Class B interests, is a wholly owned subsidiary of Semele.
Except with respect to interested transactions, Class A Interests and Class B
Interests have identical voting rights and, therefore, Equis II Corporation
generally has control over the Trust on all matters on which the Beneficiaries
may vote. With respect to interested transactions, holders of Class B Interests
which are the Managing Trustee or any of its affiliates must vote their
interests as a majority of the Class A Interests have been voted. Equis II
Corporation is a wholly owned subsidiary of Semele. The Managing Trustee and the
Special Beneficiary are not required to make any other capital contributions
except as may be required under the Second Amended and Restated Declaration of
Trust, as amended (the "Trust Agreement").
Significant operations commenced coincident with the Trusts initial purchase
of equipment and the associated lease commitments on December 15, 1992. Pursuant
to the Trust Agreement, each distribution of Distributable Cash From Operations
and Distributable Cash From Sales or Refinancings of the Trust is made 90.75% to
the Beneficiaries, 8.25% to the Special Beneficiary and 1% to the Managing
Trustee.
Under the terms of a Management Agreement between the Trust and EFG,
management services are provided by EFG to the Trust for fees, which the
Managing Trustee believes to be competitive for similar services. In addition,
the Managing Trustee receives a fee for services provided related to the Trust's
non-equipment investments other than cash. (See Note 6.)
EFG is a Massachusetts limited partnership formerly known as American Finance
Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Trust and several other
direct-participation equipment leasing programs sponsored or co-sponsored by AFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for the
sole purpose of acquiring the business of AFG.
15
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
In January 1996, the Company sold certain assets of AFG relating primarily to
the business of originating new leases, and the name "American Finance Group,"
and its acronym, to a third party. AFG changed its name to Equis Financial Group
Limited Partnership after the sale was concluded. Pursuant to terms of the sale
agreements, EFG specifically reserved the rights to continue using the name
American Finance Group and its acronym in connection with the Trust and the
Other Investment Programs and to continue managing all assets owned by the Trust
and the Other Investment Programs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Cash Equivalents and Investment Securities
- ------------------------------------------
The Trust considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. From time to time, the
Trust invests excess cash with large institutional banks in federal agency
discount notes and repurchase agreements with overnight maturities. Under the
terms of the agreements, title to the underlying agreements are book entry
securities. At December 31, 2000, the Trust had $7,003,708 invested in federal
agency discount notes, repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities, or other highly liquid overnight
investments.
Investment securities consisted of equity securities and debt securities that
were classified as available-for-sale. Available-for-sale securities were
carried at fair value, with unrealized gains and losses reported as a separate
component of participants' capital. The amortized cost of debt securities was
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion were included in interest income on the
accompanying Statement of Operations.
Revenue Recognition
- -------------------
Effective January 1, 2000, the Trust adopted the provisions of Securities
Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB No. 101"). SAB No. 101 provides guidance for the
recognition, presentation and disclosure of revenue in financial statements. The
adoption of SAB No. 101 had no impact on the Trust's financial statements.
Rents are payable to the Trust monthly, quarterly or semi-annually and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. In certain instances, the Trust
may enter primary-term, renewal or re-lease agreements, which expire beyond the
Trust's anticipated dissolution, date. This circumstance is not expected to
prevent the orderly wind-up of the Trust's business activities as the Managing
Trustee and the Advisor would seek to sell the then remaining equipment assets
either to the lessee or to a third party, taking into consideration the amount
of future noncancellable rental payments associated with the attendant lease
agreements. Future minimum rents of $15,502,529 are due as follows:
For the year ending December 31, 2001....... $ 5,889,969
2002....... 5,321,509
2003....... 4,144,242
2004....... 146,809
------------
Total...... $ 15,502,529
============
During 2000, the Trust and an affiliated trust owning an interest in a Boeing
767-300 aircraft entered into a lease extension agreement with Scandinavian
Airlines System. The lease extension, effective upon the expiration of the
existing lease term on December 29, 2000 extended the lease for an additional
two years and eleven months, commencing December 30, 2000 and terminating
November 29, 2003. Under the terms of this agreement, the Trust will receive
aggregated rents of $9,741,270 over the term of this extension.
16
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Revenue from major individual lessees, which accounted for 10% or more of
lease revenue during the years ended December 31, 2000, 1999 and 1998 is as
follows:
2000 1999 1998
------------ ------------ ------------
Scandinavian Airlines System............. $ 3,620,348 $ 3,630,432 $ 4,153,770
Hyundai Electronics America, Inc. ....... $ 1,146,949 $ 1,146,949 $ --
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
All equipment was acquired from EFG, one of its Affiliates or from
third-party sellers. Equipment Cost means the actual cost paid by the Trust to
acquire the equipment, including acquisition fees. Where equipment was acquired
from EFG or an Affiliate, Equipment Cost reflects the actual price paid for the
equipment by EFG or the Affiliate plus all actual costs incurred by EFG or the
Affiliate while carrying the equipment, including all liens and encumbrances,
less the amount of all primary term rents earned by EFG or the Affiliate prior
to selling the equipment. Where the seller of the equipment was a third party,
Equipment Cost reflects the seller's invoice price.
Depreciation and Amortization
- -----------------------------
The Trust's depreciation policy is intended to allocate the cost of equipment
over the period during which it produces economic benefit. The principal period
of economic benefit is considered to correspond to each asset's primary lease
term, which term generally represents the period of greatest revenue potential
for each asset. Accordingly, to the extent that an asset is held on primary
lease term, the Trust depreciates the difference between (i) the cost of the
asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease expiration.
To the extent that an asset is held beyond its primary lease term, the Trust
continues to depreciate the remaining net book value of the asset on a
straight-line basis over the asset's remaining economic life. Periodically, the
Managing Trustee evaluates the net carrying value of equipment to determine
whether it exceeds estimated net realizable value. For purposes of this
comparison, "net carrying value" represents, at a given date, the net book value
(equipment cost less accumulated depreciation for financial reporting purposes)
of the Trust's equipment and "net realizable value" represents, at the same
date, the aggregate undiscounted cash flows resulting from future contracted
lease payments plus the estimated residual value of the Trust's equipment. The
Managing Trustee evaluates significant equipment assets, such as aircraft,
individually. All other assets are evaluated collectively by equipment type
unless the Managing Trustee learns of specific circumstances, such as a lessee
default, technological obsolescence, or other market developments, which could
affect the net realizable value of particular assets. Adjustments to reduce the
net carrying value of equipment are recorded in those instances where estimated
net realizable value is considered to be less than net carrying value.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time.
17
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Impairment of Long-Lived Assets
- -------------------------------
The carrying value of long-lived assets, including equipment, will be
reviewed for impairment whenever events or changes in circumstances indicate
that the recorded value cannot be recovered from undiscounted future cash flows.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid fees and operating expenses paid by EFG on behalf of the Trust and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities - Affiliate (see Note 6).
Contingencies
- -------------
The Trust's policy is to recognize a liability for goods and services during
the period when the goods or services are received. To the extent that the Trust
has a contingent liability, meaning generally a liability the payment of which
is subject to the outcome of a future event, the Trust recognizes a liability in
accordance with Statement of Financial Accounting Standards No. 5 "Accounting
for Contingencies" ("SFAS No. 5"). SFAS No. 5 requires the recognition of
contingent liabilities when the amount of liability can be reasonably estimated
and the liability is probable.
Allocation of Net Income or Loss
- --------------------------------
Net income is allocated quarterly first, to eliminate any Participant's
negative capital account balance and second, 1% to the Managing Trustee, 8.25%
to the Special Beneficiary and 90.75% collectively to the Class A and Class B
Beneficiaries. The latter is allocated proportionately between the Class A and
Class B Beneficiaries based upon the ratio of cash distributions declared and
allocated to the Class A and Class B Beneficiaries during the period (excluding
$1,432,279 Class A special cash distributions paid in 1999 and $4,646,862 Class
B capital distributions paid in 1998). Net losses are allocated quarterly first,
to eliminate any positive capital account balance of the Managing Trustee, the
Special Beneficiary and the Class B Beneficiaries; second, to eliminate any
positive capital account balances of the Class A Beneficiaries; and third, any
remainder to the Managing Trustee.
The allocation of net income or loss pursuant to the Trust Agreement for
income tax purposes differs from the foregoing and is based upon government
rules and regulations for federal income tax reporting purposes and assumes, for
each income tax reporting period, the liquidation of all of the Trust's assets
and the subsequent distribution of all available cash to the Participants. For
income tax purposes, the Trust adjusts its allocations of income and loss to the
Participants so as to cause their tax capital account balances at the end of the
reporting period to be equal to the amount that would be distributed to them at
such that in the event of a liquidation and dissolution of the Trust. This
methodology does not consider the costs attendant to liquidation or whether the
Trust intends to have future business operations.
Accumulated Other Comprehensive Income
- --------------------------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", effective in 1998, requires the disclosure of comprehensive income
(loss) to reflect changes in participants' capital that result from transactions
and economic events from non-owner sources. Accumulated other comprehensive
income (loss) for the years ended December 31, 2000 and 1999 represents the
Trust's unrealized gains (losses) on investment securities:
2000 1999
---------- ---------
Beginning Balance................................. $ 20,167 $ --
Adjustments related to unrealized gain
on investment securities.......................... (20,167) 20,167
---------- ---------
Ending Balance.................................... $ -- $ 20,167
========== =========
18
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Net Income and Cash Distributions Per Beneficiary Interest
- ----------------------------------------------------------
Net income and cash distributions per Class A Interest in 2000 and 1999 are
based on 1,787,153 Class A Interests outstanding. Net income and cash
distributions per Class A Interest in 1998 are based on 1,792,353 Class A
Interests outstanding during the period January 1, 1998 through April 27, 1998
and 1,787,153 Class A Interests outstanding during the period April 28, 1998
through December 31, 1998. Net income and cash distributions per Class B
Beneficiary Interest are based on 3,024,740 Class B Interests outstanding during
the years ended December 31, 2000, 1999 and 1998. For each of the aforementioned
periods, net income and cash distributions per Beneficiary Interest are computed
after allocation of the Managing Trustee's and Special Beneficiary's shares of
net income and cash distributions.
Provision for Income Taxes
- --------------------------
No provision or benefit from income taxes is included in the accompanying
financial statements. The Participants are responsible for reporting their
proportionate shares of the Trust's taxable income or loss and other tax
attributes on their separate tax returns.
19
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Trust at December 31,
2000. Remaining Lease Term (Months), as used below, represents the number of
months remaining from December 31, 2000 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- ------------------------------------------------------ --------------- ----------------- --------------------------
Aircraft.............................................. 24-36 $ 32,134,911 NV/Foreign
Manufacturing......................................... 0-32 9,053,648 CA/MI
Locomotives........................................... 39 4,574,489 NE
Materials handling.................................... 0-26 4,344,532 AR/FL/GA/IL/IN/KY/MA/
MI/OH/OR/PA/SC/WI/
WV/Foreign
Computer and peripherals.............................. 0-11 1,746,321 FL/IN/MI/OH/VA/WI
Construction and mining............................... 0-12 1,304,734 NV/Foreign
Research and test..................................... 0 220,896 CA/FL/IL/MI/OH/PA
Photocopying.......................................... 0 2,804 CT
-----------------
Total equipment cost............................... 53,382,335
Accumulated depreciation........................... 20,018,229
-----------------
Equipment, net of accumulated depreciation......... $ 33,364,106
=================
In certain cases, the cost of the Trust's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or an
affiliated equipment leasing program sponsored by EFG. The Trust and each
affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Trust to further diversify its equipment portfolio by participating
in the ownership of selected assets, thereby reducing the general levels of
risk, which could result from a concentration in any single equipment type,
industry or lessee. At December 31, 2000, the Trust's equipment portfolio
included equipment having a proportionate original cost of $38,561,420,
representing approximately 72% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately
$45,363,000 and a net book value of approximately $33,086,000 at December 31,
2000 (see Note 7).
Generally, the costs associated with maintaining, insuring and operating the
Trust's equipment are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Trust.
As equipment is sold to third parties, or otherwise disposed of, the Trust
recognizes a gain or loss equal to the difference between the net book value of
the equipment at the time of sale or disposition and the proceeds realized upon
sale or disposition. The ultimate realization of estimated residual value in the
equipment will be dependent upon, among other things, EFG's ability to maximize
proceeds from selling or re-leasing the equipment upon the expiration of the
primary lease terms. The summary above includes fully depreciated equipment held
for sale or re-lease with an original cost of approximately $1,886,000 and a net
book value of approximately $14,400 at December 31, 2000. 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.
20
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
NOTE 4 - INTEREST IN KETTLE VALLEY
- ----------------------------------
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, 95 residential units
have been constructed and 4 are under construction, all of which have been 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 50.604% and had
a cost of $4,472,129, including a 1% acquisition fee of $44,729 paid to EFG. The
acquisition was funded with cash of $3,139,648 and a non-recourse note for
$1,332,481. The note bears interest at an annualized rate of 7.5% and will be
fully amortized over 34 months commencing April 1, 1999. The note is secured by
the Trust's interest in EFG/Kettle Development LLC. The Trust's cost basis in
this joint venture was approximately $658,000 greater than its equity interest
in the underlying net assets at December 31, 1999. This difference is being
amortized over a period of 10 years beginning January 1, 2000. The amount
amortized is included as an offset to Interest in Kettle Valley and was $65,800
for the year ended December 31, 2000.
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 $91,066 during the
year ended December 31, 2000, reflecting its share of loss from Kettle Valley.
In addition, the seller purchased a residual sharing interest in a Boeing
767-300 owned by the Buyers and leased to Scandinavian Airlines System ("SAS").
The seller paid $3,013,206 to the Buyers ($1,524,803, or 50.604% 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
reflected as Other Liabilities on the accompanying Statement of Financial
Position at December 31, 2000.
NOTE 5 - INTEREST IN EFG KIRKWOOD
- ---------------------------------
On May 1, 1999, the Trust and three affiliated trusts (collectively the
"Trusts") and 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 purchased Class A membership interests in
EFG Kirkwood and Semele purchased Class B membership interests in EFG Kirkwood.
Generally, the Class A interest holders are entitled to certain preferred
returns prior to distribution payments to the Class B interest holder. The
Trusts collectively own 100% of the Class A membership interests in EFG Kirkwood
and Semele owns 100% of the Class B membership interests. 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 37.9%
of the membership interests in Mountain Resort. Mountain Resort, through four
wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski
resort
21
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
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 a 37.2% membership interest in EFG Kirkwood and correspondingly
holds 40% of EFG Kirkwood's Class A voting rights.
Subsequent to making its ownership interest in Mountain Resort, 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 stock and 100% of the Class B Preferred stock in an entity
that owns the Purgatory Ski resort in Durango, Colorado.
The Trust's ownership interest in EFG Kirkwood had an original cost of
$3,994,150; including a 1% acquisition fee of $39,546 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 $190,201 for the year ended December 31, 2000
representing its pro-rata share of the losses of EFG Kirkwood.
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Trust are paid by EFG on behalf of the
Trust and EFG is reimbursed at its actual cost for such expenditures. Fees and
other costs, both expensed and capitalized, during the years ended December 31,
2000, 1999 and 1998, which were paid or accrued by the Trust to EFG or its
Affiliates, are as follows:
2000 1999 1998
------------ ------------ ------------
Acquisition fees................ $ 15,484 $ 75,281 $ --
Management fees................. 431,078 513,019 659,939
Administrative charges.......... 197,789 192,348 90,744
Reimbursable operating expenses
due to third parties......... 345,574 650,915 702,535
------------ ------------ ------------
Total....... $ 989,925 $ 1,431,563 $ 1,453,218
============ ============ ============
As provided under the terms of the Trust Agreement, EFG is compensated for
its services to the Trust. Such services include all aspects of acquisition,
management and sale of equipment. For acquisition services, EFG was compensated
by an amount equal to .28% of Asset Base Price paid by the Trust for each asset
acquired for the Trust's initial asset portfolio. For acquisition services
during the initial reinvestment period, which expired on September 2, 1997, EFG
was compensated by an amount equal to 3% of Asset Base Price paid by the Trust.
In connection with a Solicitation Statement and consent of Beneficiaries in
1998, the Trust's reinvestment provisions were reinstated through December 31,
2002 and the Trust was permitted to invest in assets other than equipment.
Acquisition fees paid to EFG in connection with such equipment reinvestment
assets are equal to 1% of Asset Base Price paid by the Trust. For management
services, EFG is compensated by an amount equal to (i) 5% of gross operating
lease rental revenue and 2% of gross full payout lease rental revenue received
by the Trust with respect to equipment acquired on or prior to March 31, 1998.
For management services earned in connection with equipment acquired on or after
April 1, 1998, EFG is compensated by an amount equal to 2% of gross lease rental
revenue received by the Trust. For non-equipment investments other than cash,
the Managing Trustee receives an annualized management fee of 1% of such assets
under management. Compensation to EFG for services connected to the remarketing
of equipment is calculated as the lesser of (i) 3% of gross sale proceeds or
(ii) one-half of reasonable brokerage fees otherwise payable under arm's length
circumstances. Payment of the remarketing fee is subordinated to Payout and this
fee and the other fees described above are subject to certain limitations
defined in the Trust Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) of the Trust Agreement, for persons employed by EFG who are engaged in
providing administrative services to the Trust. Reimbursable operating expenses
due to third parties represent costs paid by EFG on behalf of the Trust which
are reimbursed to EFG at actual cost.
22
All equipment was purchased from EFG, one of its Affiliates or directly from
third-party sellers. The Trust's Purchase Price is determined by the method
described in Note 2, Equipment on Lease.
All rents and proceeds from the sale of equipment are paid by the lessee
directly to either EFG or to a lender. EFG temporarily deposits collected funds
in a separate interest-bearing escrow account prior to remittance to the Trust.
At December 31, 2000, the Trust was owed $424,853 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 2001.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 9,210 Class A Interests
or less than 1% of the total outstanding Class A Interests of the Trust. The
general partner of ONC is controlled by Gary D. Engle. In addition, the limited
partnership interests of ONC are owned by Semele. Gary D. Engle is Chairman and
Chief Executive Officer of Semele.
NOTE 7 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 2000 consisted of installment notes of
$26,220,794 payable to banks and institutional lenders. The notes bear interest
rates ranging between 6.76% and 9.176%, except for two notes, which bear
fluctuating interest rates. All of the installment notes are non-recourse and
are collateralized by the equipment and assignment of the related lease
payments, except for one note in the amount of $474,925, which is collateralized
by the Trust's ownership interest in EFG/Kettle Development LLC (see Note 4).
Generally, the equipment-related installment notes will be fully amortized by
noncancellable rents. However, the Trust has balloon payment obligations of
$16,193,280, and $282,421 at the expiration of lease terms related to an
aircraft leased to Scandinavian Airlines System, and its interest in an aircraft
leased to Reno Air, Inc., respectively.
The annual maturities of notes payable are as follows:
For the year ending December 31, 2001 $ 3,874,532
2002..... 3,214,979
2003..... 18,986,914
2004..... 144,369
-----------
Total..... $26,220,794
===========
Management believes that the carrying amount of the note payable approximates
fair value at December 31, 2000 based on its experience and understanding of the
market for instruments with similar terms.
NOTE 8 - INCOME TAXES
- ---------------------
The Trust is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Trust.
For financial statement purposes, the Trust allocates net income quarterly
first, to eliminate any Participant's negative capital account balance and
second, 1% to the Managing Trustee, 8.25% to the Special Beneficiary and 90.75%
collectively to the Class A and Class B Beneficiaries. The latter is allocated
proportionately between the Class A and Class B Beneficiaries based upon the
ratio of cash distributions declared and allocated to the Class A and Class B
Beneficiaries during the period (excluding $1,432,279 Class A special cash
distributions paid in 1999 and $4,646,862 Class B capital distributions paid in
1998). Net losses are allocated quarterly first, to eliminate any positive
capital account balance of the Managing Trustee, the Special Beneficiary and the
Class B Beneficiaries; second, to eliminate any positive capital account
balances of the Class A Beneficiaries; and third, any remainder to the Managing
Trustee. This convention differs from the income or loss allocation requirements
for income tax and Dissolution Event purposes as delineated in the Trust
Agreement. For income tax purposes, the Trust allocates
23
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
net income or net loss in accordance with the provisions of such agreement.
Pursuant to the Trust Agreement, upon dissolution of the Trust, the Managing
Trustee will be required to contribute to the Trust an amount equal to any
negative balance, which may exist in the Managing Trustee's tax capital account.
At December 31, 2000, the Managing Trustee had a negative tax capital account
balance of $165,559.
The following is a reconciliation between net income reported for financial
statement and federal income tax reporting purposes for the years ended December
31, 2000, 1999 and 1998:
2000 1999 1998
------------------ ------------------ ------------------
Net income....................................... $ 2,760,130 $ 5,802,601 $ 4,999,220
Financial statement depreciation
less than tax depreciation.................. (2,343,210) (3,482,896) (5,652,952)
Tax gain (loss) in excess of
book gain (loss) on sale.................... (765,343) (23,049) 139,615
Deferred rental income........................ (287,303) (164,254) 354,497
Other......................................... 163,292 62,400 (46,700)
------------------ ------------------ ------------------
Net (loss) income for federal income tax
reporting purposes........................... $ (472,434) $ 2,194,802 $ (206,320)
=================== ================== ==================
The following is a reconciliation between participants' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 2000 and 1999:
2000 1999
------------------- ------------------
Participants' capital.................................................... $ 23,898,674 $ 21,158,711
Unrealized gain on investment securities............................ -- (20,167)
Add back selling commissions and organization
and offering costs................................................ 4,922,397 4,922,397
Financial statement distributions in excess of
tax distributions................................................. -- 15,464,445
Deduct deferred step-down of capital basis.......................... (689,869) (689,869)
Cumulative difference between federal income tax
and financial statement income (loss)............................. (20,700,307) (17,467,743)
------------------- ------------------
Participants' capital for federal income tax reporting purposes.......... $ 7,430,895 $ 23,367,774
================== ==================
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 9 - LEGAL PROCEEDINGS
- --------------------------
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a
class and derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Trust (collectively, the "Nominal Defendants"), against EFG and a number of its
affiliates, including the Managing Trustee, as defendants (collectively, the
"Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed
an earlier derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit." The Class Action Lawsuit was divided into two sub-classes on
March 22, 1999.
24
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
On May 26, 1999, the Court issued its Order and Final Judgment approving
settlement of the Class Action Lawsuit with respect to claims asserted by the
Plaintiffs on behalf of the sub-class that includes the Trust. Claims involving
the second sub-class, not including the Trust, remain pending. As a result of
the settlement, the Trust declared a special cash distribution of $1,513,639,
including legal fees for Plaintiffs' counsel of $81,360, that was paid in July
1999 ($0.80 per unit, net of legal fees). In addition, the parent company of the
Managing Trustee, Equis II Corporation, agreed to commit $3,405,688 of its Class
B Capital Contributions (paid in connection with its purchase of Class B
Interests in July 1997) to the Trust for the Trust's investment purposes. In the
absence of this commitment, Equis II Corporation would have been entitled to
receive a Class B Capital Distribution for this amount pursuant to the Trust
Agreement, as amended. The Trust's share of legal fees and expenses related to
the Class Action Lawsuit, including the fees for Plaintiff's counsel referenced
above, was estimated to be approximately $280,000, all of which was expensed by
the Trust in 1998.
NOTE 10 - GUARANTY AGREEMENT
- ----------------------------
On March 8, 2000, the Trust and three affiliated trusts (collectively, the
"Trusts") entered into a guaranty agreement whereby the Trusts, jointly and
severally, have guaranteed the payment obligations under a master lease
agreement between Echelon Commercial LLC, a newly-formed Delaware company that
is controlled by Gary D. Engle, President and Chief Executive Officer of EFG, as
lessee, and Heller Affordable Housing of Florida, Inc., and two other entities,
as lessor ("Heller"). The lease payments of Echelon Commercial LLC to Heller are
supported by lease payments to Echelon Commercial LLC from various sub-lessees
who are parties to commercial and residential lease agreements under the master
lease agreement. The guarantee of lease payments by the Trusts was capped at a
maximum of $34,500,000, excluding expenses that could result in the event that
Echelon Commercial LLC experiences a default under the terms of the master lease
agreement.
As a result of principal reductions on the average guarantee amount, an
amended and restated agreement was entered into in December 2000, that reduced
the guaranteed amount among the Trusts. At December 31, 2000, the Trust is
responsible for 35.08% of the current guaranteed amount of $7,000,000, or
$2,455,600. In consideration for its guarantee, the Trust will receive an
annualized fee equal to 4% of the average guarantee amount outstanding during
each quarterly period. Accrued but unpaid fees will accrue and compound interest
quarterly at an annualized interest rate of 7.5% until paid. The Trust will
receive minimum aggregate fees for its guarantee of not less than $350,800,
excluding interest. During the year ended December 31, 2000, the Trust received
an upfront cash fee of $175,400 and recognized a total of $301,400 in income
related to this guaranty fee. The guaranty fee is reflected as Other Income on
the accompanying Statement of Operations for the year ended December 31, 2000.
NOTE 11 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
- -----------------------------------------------------
The following is a summary of the quarterly results of operations for the
years ended December 31, 2000 and 1999:
Three Months Ended
------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, Total
--------- -------- ------------- ------------ -----
2000
----
Lease revenue................. $2,145,097 $2,035,590 $1,768,284 $1,784,970 $ 7,733,941
Net income.................... $ 826,289 $ 341,865 $1,477,663 $ 114,313 $ 2,760,130
Net income per
Beneficiary Interest:
Class A Interests........ $ 0.17 $ 0.14 $ 0.59 $ 0.03 $ 0.94
Class B Interests........ $ 0.10 $ 0.02 $ 0.09 $ 0.01 $ 0.22
- ----------------------------------------------------------------------------------------------------------------------------------
25
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
1999
Lease revenue................. $2,852,619 $2,765,585 $2,504,766 $2,163,665 $10,286,635
Net income.................... $ 836,664 $1,130,515 $1,366,006 $2,469,416 $ 5,802,601
Net income per
Beneficiary Interest:
Class A Interests........ $ 0.29 $ 0.37 $ 0.47 $ -- $ 1.13
Class B Interests........ $ 0.08 $ 0.11 $ 0.13 $ 0.43 $ 0.75
Net income for the three months ended September 30, 2000 includes a gain on
the sale of equipment, for financial statement purposes, of $1,409,938.
Net income for the three months ended December 31, 1999 includes a gain on
sale of equipment, for financial statement purposes, of $1,716,922.
NOTE 12 - SEGMENT REPORTING
- ---------------------------
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 lease portfolio. 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 through its ownership interests in
real estate.
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 years ended December 31, 2000, 1999 and 1998 is
summarized below. The accounting policies of the segments are the same as those
described in Note 2 of the accompanying financial statements. See Note 2 of the
accompanying financial statements for individual lessees which accounted for
more than 10% of the Trust's revenues during the years ended December 31, 2000,
1999 and 1998.
26
Years ended December 31,
------------------------------------------------------
2000 1999 1998
------------------ ---------------- ----------------
Total Income:
Equipment Leasing........................ $10,785,068 $15,453,298 $19,153,506
Real Estate.............................. -- -- --
------------------ ---------------- ----------------
Total................................. $10,785,068 $15,453,298 $19,153,506
Operating Expenses, Management
Fees and Other Expenses:
Equipment Leasing........................ $ 944,491 $ 1,106,068 $ 1,453,218
Real Estate.............................. 361,727 250,214 --
------------------ ---------------- ----------------
Total................................. $ 1,306,218 $ 1,356,282 $ 1,453,218
Interest Expense:
Equipment Leasing......................... $ 2,404,830 $ 2,412,127 $ 3,098,019
Real Estate............................... 58,433 66,623 --
------------------ ---------------- ----------------
Total.................................. $ 2,463,263 $ 2,478,750 $ 3,098,019
Depreciation and Amortization Expense:
Equipment Leasing......................... $ 4,189,657 $ 5,815,665 $ 9,603,049
Real Estate............................... 65,800 -- --
------------------ ---------------- ----------------
Total.................................. $ 4,255,457 $ 5,815,665 $ 9,603,049
Net Income................................... $ 2,760,130 $ 5,802,601 $ 4,999,220
Capital Expenditures:
Equipment Leasing....................... $ 646,382 $ -- $ --
Real Estate............................. 1,287,350 5,846,448 --
------------------ ---------------- ----------------
$ 1,933,732 $ 5,846,448 $ --
================== ================ ================
Assets:
Equipment Leasing.............. $44,232,338 $63,912,013 $72,908,929
Real Estate.................... 8,119,212 7,178,929 --
------------------ ---------------- ----------------
$52,351,550 $71,090,942 $72,908,929
Results of Operations
- ---------------------
Equipment Leasing
- -----------------
For the year ended December 31, 2000, the Trust recognized lease revenue of
$7,733,941 compared to $10,286,635 and $15,201,411 for the years ended December
31, 1999 and 1998, respectively. The decrease in lease revenue is due to lease
term expirations and the sale of equipment. The level of lease revenue to be
recognized by the Trust in the future may be impacted by future reinvestment;
however, the extent of such impact cannot be determined at this time. Future
lease term expirations and equipment sales will result in a reduction in lease
revenue recognized.
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 Equis Financial Group Limited Partnership, a Massachusetts limited
partnership ("EFG") or an affiliated equipment leasing program sponsored by EFG.
Proportionate equipment ownership enables the Trust to further diversify its
equipment portfolio by participating in the ownership of selected assets,
thereby reducing the general levels of risk, which could result from a
concentration in any single equipment type, industry or lessee. The Trust and
each affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment.
Interest income for the year ended December 31, 2000 was $666,975 compared to
$1,217,855 and $1,096,363 for the years ended December 31, 1999 and 1998,
respectively. Generally, interest income is generated from the temporary
investment of rental receipts and equipment sale proceeds in short-term
instruments. Future interest income will fluctuate as a result of changing
interest rates, the collection of lease revenue and the proceeds from equipment
sales, among other factors. In addition, the Trust distributed $15,200,000 in
January 2000 that resulted in a reduction of cash available for investment. See
Note 13 - Subsequent Event, to the accompanying financial statements regarding
reinvestment in 2001.
On March 8, 2000, the Trust and three affiliated trusts entered into a
guaranty agreement whereby the trusts, jointly and severally, guaranteed the
payment obligations under a master lease agreement between Echelon Commercial
LLC, as lessee, and Heller Affordable Housing of Florida, Inc., and two other
entities, as lessor ("Heller"), (See Note 10 to the accompanying financial
statements.) In consideration for its guarantee, the Trust will receive an
annualized fee equal to 4% of the average guarantee amount outstanding during
each quarterly
27
period. Accrued but unpaid fees will accrue and compound interest quarterly at
an annualized interest rate of 7.5% until paid. During the year ended December
31, 2000, the Trust received an upfront cash fee of $175,400 and recognized a
total of $301,400 in income related to this guaranty fee. The guaranty fee is
reflected as Other Income on the accompanying Statement of Operations for the
year ended December 31, 2000.
The Trust received $261,116 in 1999 as a breakage fee from a third-party
seller in connection with a transaction for new investments that was canceled by
the seller in the first quarter of 1999. This amount is reflected as Other
Income on the accompanying Statement of Operations for the year ended December
31, 1999.
During the three years ended December 31, 2000, the Trust sold equipment
having a net book value of $1,412,158, $5,163,109 and $2,355,043, respectively,
to existing lessees and third parties, which resulted in net gains, for
financial statement purposes, of $2,012,657, $3,687,692 and $2,855,732,
respectively.
It cannot be determined whether future sales of equipment will result in a
net gain or net loss to the Trust, as such transactions will be dependent upon
the condition and type of equipment being sold and its marketability at the time
of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities, which may be advantageous to the Trust, and to maximize total
cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Trust classifies such
residual rental payments as lease revenue. Consequently, the amount of gain or
loss reported in the financial statements is not necessarily indicative of the
total residual value the Trust achieved from leasing the equipment.
During the year ended December 31, 2000, the Trust sold investment securities
having a book value of $420,513, resulting in a gain, for financial reporting
purposes of $70,095.
Depreciation expense was $4,189,657, $5,815,665, and $9,603,049 for the years
ended December 31, 2000, 1999 and 1998, respectively. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the Trust
depreciates the difference between (i) the cost of the asset and (ii) the
estimated residual value of the asset on a straight-line basis over such term.
For purposes of this policy, estimated residual values represent estimates of
equipment values at the date of primary lease expiration. To the extent that an
asset is held beyond its primary lease term, the Trust continues to depreciate
the remaining net book value of the asset on a straight-line basis over the
asset's remaining economic life.
Interest expense on equipment related debt was $2,404,830, $2,412,127, and
$3,098,019 for the years ended December 31, 2000, 1999, and 1998, respectively.
Interest expense will decrease in the future as the principal balance of notes
payable is reduced through the application of rent receipts to outstanding debt.
Management fees related to equipment leasing were $350,618, $460,805 and
$659,939 during the years ended December 31, 2000, 1999 and 1998, respectively.
Management fees are based on 5% of gross lease revenue generated by operating
leases and 2% of gross lease revenue generated by full payout leases, subject to
certain limitations (see Note 6 to the accompanying financial statements).
Operating expenses were $543,363, $645,263, and $793,279 for the years ended
December 31, 2000, 1999 and 1998, respectively. Operating expenses consist
principally of administrative charges, professional service costs, such as
audit, insurance and legal fees, as well as printing, distribution and
remarketing expenses. Operating expenses in 1998 include approximately $280,000
of legal fees related to the Class Action Lawsuit described in Note 9 to the
accompanying financial statements. The amount of future operating expenses
cannot be predicted with certainty; however, such expenses are usually higher
during the acquisition and liquidation phases of a trust. Other fluctuations
typically occur in relation to the volume and timing of remarketing activities.
In addition, the Trust wrote-down other investments of $50,510 during the year
ended December 31, 2000.
28
Real Estate
- -----------
Management fees for non-equipment investments were $80,460 and $52,214 for
the years ended December 31, 2000 and 1999, respectively. There were no
non-equipment management fees earned by the Trust in the year ended December 31,
1998. The management fees on non-equipment assets, excluding cash, were based on
1% of such assets under management.
For the year ended December 31, 1999, operating expenses included legal fees
of $198,000 related to the Trust's ownership interests in Kettle Valley and EFG
Kirkwood.
Interest expense on a note payable related to the Trust's acquisition of its
interest in Kettle Valley was $58,433 and $66,623 for the years ended December
31, 2000 and 1999, respectively. There was no real estate related debt
outstanding for the year ended December 31, 1998. Interest expense will decrease
in the future as payments reduce the outstanding principal balance of the note.
For the year ended December 31, 2000, the Trust recorded amortization expense
of $65,800 in connection with its ownership interest in Kettle Valley. See Note
4 to the accompanying financial statements.
For the year ended December 31, 2000, the Trust recorded a loss of $190,201
resulting from its interest in EFG Kirkwood and a loss of $91,066 from its
interest in Kettle Valley. These losses represent the Trust's share of the
losses of EFG Kirkwood and Kettle Valley recorded under the equity method of
accounting. See Notes 4 and 5 to the accompanying financial statements.
For both the years ended December 31, 2000 and 1999, the Trust's real estate
assets are composed of ownership interests in Kettle Valley and EFG Kirkwood.
NOTE 13 - SUBSEQUENT EVENT
- --------------------------
In December 2000, the Trust and three affiliated Trusts (collectively, 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 interests in MILPI and MILPI
purchased the common stock of MILPI Acquisition for an aggregate purchase price
of $1.2 million. 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 83% of the PLM
common stock in February 2001 for a total purchase price of approximately $21.7
million. Under the terms of the Agreement, with the approval of the holders of
50.1% of the outstanding common stock of PLM, MILPI Acquisition will merge into
PLM, with PLM being the surviving entity. PLM filed a proxy statement with the
Securities and Exchange Commission ("SEC") on February 9, 2001 for a special
meeting of its shareholders to vote on the merger proposal. Because MILPI
Acquisition owns 83% of the PLM common stock, its vote alone would be sufficient
to assure the approval of the merger proposal at the special meeting and MILPI
has agreed to vote all of its shares in favor of the merger proposal. Once the
merger is approved, the Trusts would then jointly own 100% of the outstanding
common stock of PLM through their 100% of the oustanding common stock of PLM
through their 100% interest in MILPI. However, completion of the SEC staff's
review of the proxy statement for approval of the merger is dependent in part on
the satisfactory resolution of the Trust's discussions with the staff regarding
its possible status as an inadvertent investment company. If the merger is
approved, the Trusts may be required to provide an additional $4.7 million to
acquire the remaining 17% of PLM's outstanding common stock.
The Trust has a 34% membership interest in MILPI and its share of the
aggregate membership interests in MILPI at December 31, 2000 was $408,000. 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 are
officers and directors of MILPI Acquisition.
29
ADDITIONAL FINANCIAL INFORMATION
30
AFG Investment Trust C
Schedule of excess (Deficiency) of Total Cash generated to Cost
Of Equipment Disposed
For the years ended December 31, 2000, 1999 and 1998
The Trust classifies all rents from leasing equipment as lease revenue. Upon
expiration of the primary lease terms, equipment may be sold, rented on a
month-to-month basis or re-leased for a defined period under a new or extended
lease agreement. The proceeds generated from selling or re-leasing the
equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition, may not reflect the aggregate residual proceeds
realized by the Trust for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 2000, 1999 and 1998.
2000 1999 1998
------------------ ------------------ ------------------
Rents earned prior to disposal of
equipment, net of interest charges................ $ 7,830,529 $ 30,130,592 $ 20,592,192
Sale proceeds realized upon
disposition of equipment........................ 3,424,815 8,850,801 5,210,775
------------------ ------------------ ------------------
Total cash generated from rents
and equipment sale proceeds....................... 11,255,344 38,981,393 25,802,967
Original acquisition cost of equipment
disposed.......................................... 8,258,489 30,545,847 20,351,725
------------------ ------------------ ------------------
Excess of total cash generated to cost
of equipment disposed............................. $ 2,996,855 $ 8,435,546 $ 5,451,242
================== ================== ==================
31
AFG Investment Trust C
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
For the year ended December 31, 2000
Sales and
Operations Refinancings Total
------------------- ------------------ -------------------
Net income............................................. $ 747,473 $ 2,012,657 $ 2,760,130
Add:
Depreciation and amortization..................... 4,255,457 -- 4,255,457
Accretion of bond discount........................ (6,504) -- (6,504)
Management fees................................... 431,078 -- 431,078
Book value of disposed equipment.................. -- 1,412,158 1,412,158
Loss from interest in Kettle Valley............... 91,066 -- 91,066
Loss from interest in EFG Kirkwood................ 190,201 -- 190,201
Write-down of investments - other................. 50,510 -- 50,510
Gain on sale of investment securities.............. (70,095) -- (70,095)
Less:
Principal reduction of notes payable.............. (6,377,660) -- (6,377,660)
------------------- ------------------ -------------------
Cash from operations, sales
and refinancings.................................. (688,474) 3,424,815 2,736,341
Less:
Management fees................................... (431,078) -- (431,078)
------------------- ------------------ -------------------
Distributable cash from operations,
sales and refinancings............................ (1,119,552) 3,424,815 2,305,263
Other sources and uses of cash:
Cash and cash equivalents
at beginning of year....................... 4,089,293 18,834,674 22,923,967
Investments - other............................... -- (288,892) (288,892)
Interest in EFG Kirkwood.......................... -- (1,287,350) (1,287,350)
Proceeds from sale of investment
securities.................................. 490,608 -- 490,608
Proceeds from notes payable..................... -- 25,302 25,302
Other assets.................................... -- (408,000) (408,000)
Net change in receivables and
accruals..................................... 287,918 -- 287,918
Less:
Cash distributions paid........................... -- (15,200,000) (15,200,000)
------------------ ------------------- -------------------
Cash and cash equivalents at end of year............... $ 3,748,267 $ 5,100,549 $ 8,848,816
================== ================== ==================
32
AFG Investment Trust C
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING TRUSTEE AND ITS AFFILIATES AS
REQUIRED BY SECTION 10.4 OF THE SECOND AMENDED
AND RESTATED DECLARATION OF TRUST
For the Year Ended December 31, 2000
For the year ended December 31, 2000, the Trust reimbursed the Managing
Trustee and its Affiliates for the following costs:
Operating expenses $ 406,654
33
AFG Investment Trust C
SCHEDULE OF REIMBURSEABLE OPERATING EXPENSES DUE TO THIRD PARTIES
For the Year Ended December 31, 2000
Operating expenses due to third parties for the year ended December 31, 2000
consisted of the following:
Legal......................................................... $ 147,160
Accounting and Tax............................................ 89,988
Investor Services............................................. 36,676
Office........................................................ 20,468
Insurance..................................................... 19,196
Selling & Remarketing......................................... 9,711
Travel & Entertainment........................................ 8,131
Bank Charges.................................................. 4,245
Printing & Document Services.................................. 3,969
Equipment Maintenance......................................... 3,539
Other......................................................... 2,491
-------------
Total................... $ 345,574
=============
34
AFG Investment Trust C
SCHEDULE OF EQUIPMENT
As of December 31, 2000
LEASE
EXPIRATION NET BOOK
LESSEE RENTAL SCHEDULE DATE COST VALUE DEBT
- ------------------------------------ ----------------- ------------ ------------- -------------- -------------
Advanced Micro Devices, Inc. 006-RN2 $ 1,274,733 $ -- $ --
A.O. Smith Corporation A-17RN1 49,452 -- --
Chrysler Corporation A-1 15,325 777 --
Chrysler Corporation A-1B 4,530 432 --
Chrysler Corporation A-1C 1,457 139 --
Chrysler Corporation A-3 522,115 27,335 --
Chrysler Corporation A-3B 62,186 6,302 --
Chrysler Corporation A-3C 29,132 2,780 --
Chrysler Corporation B-2 332,337 17,400 --
Chrysler Corporation B-2B 113,950 11,545 --
Chrysler Corporation E-11 01/31/02 196,487 85,422 38,211
Chrysler Corporation G-2 02/28/02 858,310 309,889 178,140
Warehouse -- 1,610,872 -- --
Ford Motor Company B300609-2RN2 173,483 -- --
Ford Motor Company 106970 12,493 -- --
Ford Motor Company 142403-2RN2 73,632 -- --
GE Aircraft Engines 3RN3 11/30/01 51,390 -- --
General Electric Company 4 1,339 -- --
General Electric Company 5 335 -- --
General Motors Corporation H-6 75,771 7,777 --
GATX Logistics, Inc. E-1 148,148 -- --
General Motors Corporation C-1 124,214 -- --
General Motors Corporation C-2 28,782 -- --
General Motors Corporation C-4 815,215 -- --
General Motors Corporation C-5 1,317,467 -- --
General Motors Corporation B-16RN1 46,957 -- --
Getchell Gold Corporation A-10 219,162 27,319 --
Hyundai Electronics America, Inc. 1AO 08/31/03 6,513,220 2,894,764 2,748,632
Owens-Corning Fiberglass Corp. A-35 16,507 1,970 --
Owens-Corning Fiberglass Corp. A-38 453 -- --
Tenneco Packaging B-75RN1 30,500 -- --
Tenneco Packaging B-76RN1 16,887 -- --
35
LEASE
EXPIRATION NET BOOK
LESSEE RENTAL SCHEDULE DATE COST VALUE DEBT
- ------------------------------------ ----------------- ------------ ------------- -------------- -------------
Tenneco Packaging B-77 $ 47,991 $ -- $ --
Tenneco Packaging B-81 13,089 -- --
Reno Air, Inc. N753RA 01/14/03 1,239,741 959,036 553,729
Scandinavian Airlines System LN-RCGRN1 12/29/03 30,895,170 25,493,681 20,454,311
Southern New England Telephone A-13 2,804 -- --
Tarmac Mid-Atlantic, Inc. A-4 61,151 -- --
Tarmac Florida, Inc. A-2 65,683 -- --
Temple-Inland Forest Product Group A-1RN1 21,485 5,632 --
Union Pacific Railroad Company 11011991 03/31/04 4,574,486 2,988,328 1,700,593
USX Corporation A-4 503 -- --
Walker Manufacturing Company A-15 250,539 -- --
Walker Manufacturing Company A-16 50,551 -- --
Western Bulk Carriers A-2 493,702 125,038 37,400
Western Bulk Carriers A-3 12/31/01 591,861 230,168 34,853
Western Bulk Carriers A-4 02/28/03 336,738 168,372 --
------------- -------------- -------------
Total $ 53,382,335 $ 33,364,106 $ 25,745,869
============= ============== =============
36