EXECUTION COPY




                             AFG CREDIT CORPORATION,
                                   Transferor,

                          AMERICAN FINANCE GROUP, INC.,
                                    Servicer,

                       FIRST UNION CAPITAL MARKETS CORP.,
                                   Deal Agent

                                       and

                             BANKERS TRUST COMPANY,
                         Trustee and Collateral Trustee

                   on behalf of the Series 1997-1 Noteholders



                      SERIES 1997-1 SUPPLEMENTAL INDENTURE

                          Dated as of October 14, 1997

                                       to

             POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST

                            Dated as of July 1, 1995




                                  $125,000,000

                                AFG MASTER TRUST

                                  Series 1997-1

===============================================================================



<PAGE>


                                TABLE OF CONTENTS

                                                           Page


Section 1. Designation.       1

Section 2. Definitions.       1

Section 3. The Notes.         6

Section 4. [Reserved].        6

Section 5. [Reserved]         7

Section 6. Delivery.          7

Section 7. Procedure for Increasing the Principal Amount............7

Section 8. Procedure for Decreasing the Principal Amount............8

Section 9. [Reserved].        8

Section 10. [Reserved].       8

Section 11. Interest.         8

Section 12. Indemnification by Transferor...........................8

Section 13. Article IV of Agreement.................................9

Section 14.  Article V of the Agreement.............................12

Section 15. Accelerated Payment Events; Series 1997-1 Pay Out Events..14

Section 16. Funding Costs.    15

Section 17. Conditions Precedent to Effectiveness of Supplement.......18

Section 18 Representation and Warranties of the Transferor and the Servicer..20

Section 19. Covenants of the Transferor......................................22

Section 20. Covenants of the Servicer........................................22

Section 21. Covenants of the Trustee.........................................23

Section 22. Obligations Unaffected...........................................23

Section 23. [Reserved].       23

Section 24. Payments.         23

Section 25.  Costs and Expenses..............................................23

Section 26.  Amendments.      24

Section 27. Successors and Assigns...........................................25

Section 28. [Reserved].       25

Section 29. Repurchase by Servicer...........................................25

Section 30. Repurchase by Transferor.........................................26

Section 31. Permitted Successor Servicer.....................................26

Section 32. Option to Repurchase.............................................26

Section 33. Final Distribution...............................................26

Section 34. [Reserved].       26

Section 35. Ratification of Agreement........................................27

Section 36. Counterparts.     27

Section 37. GOVERNING LAW.    27

Section 38. The Trustee.      27

Section 39. Instructions in Writing..........................................27


EXHIBITS

Exhibit A:........         Form of Note
Exhibit B:........         [Reserved]
Exhibit C:........         Form of Monthly Noteholder's Statement
Exhibit D:........         Form of Purchaser's Certification
Exhibit E:........         Form of Seller's Certification
Exhibit F:........         Form of Commitment Transfer Supplement

SCHEDULES

Schedule 1........         Schedule of Purchasers' Commitments


<PAGE>




         SERIES  1997-1  SUPPLEMENTAL  INDENTURE,  dated as of October  14, 1997
(this  "Supplement") among AFG CREDIT CORPORATION,  a Delaware  corporation,  as
Transferor,  AMERICAN FINANCE GROUP, INC., a Delaware corporation,  as Servicer,
FIRST UNION CAPITAL  MARKETS  CORP., a North  Carolina  corporation  and BANKERS
TRUST COMPANY,  as Trustee (in such  capacity,  the "Trustee") and as Collateral
Trustee (in such capacity,  the "Collateral Trustee") under the AFG Master Trust
Pooling and Servicing  Agreement and Indenture of Trust dated as of July 1, 1995
among the Transferor,  the Servicer,  and the Trustee and Collateral Trustee (as
amended, supplemented or otherwise modified from time to time, the "Agreement").

         Section 6.12 of the Agreement  provides,  among other things,  that the
Transferor  and the  Trustee  may at any time and from time to time enter into a
supplement to the Agreement for the purpose of  authorizing  the delivery by the
Transferor to the Trustee for execution and authentication of one or more Series
of Notes.

         Pursuant to this  Supplement,  the Transferor shall create a new Series
of Notes and shall specify the principal terms thereof.

         Section 1.        Designation.

         There is hereby created a Series of Notes to be issued  pursuant to the
Agreement and this  Supplement to be known as the "Series 1997-1 Notes".  Series
1997-1  shall be a Variable  Funding  Series.  The Series  1997-1 Notes shall be
issued in definitive form.

         Section 2.        Definitions.

         In the event that any term or provision contained herein shall conflict
with or be inconsistent with any provision contained in the Agreement, the terms
and  provisions  of this  Supplement  shall  govern.  All  Article,  Section  or
subsection references herein shall mean Articles, Sections or subsections of the
Agreement,  as amended or supplemented by this  Supplement,  except as otherwise
provided  herein.  All capitalized  terms not otherwise  defined herein are used
herein as defined in the Agreement.  Each  capitalized term defined herein shall
relate only to the Series  1997-1  Notes and no other  Series of Notes issued by
the Trust.

Accelerated Funding  Requirement:  Shall mean, on any Distribution Date after an
Accelerated  Payment Event has  occurred,  the  Principal  Amount,  after giving
effect to the application of any amounts  allocated  under the Target  Repayment
Amount.

Accelerated  Payment Date:  Shall mean the date on which an Accelerated  Payment
Event is deemed to occur pursuant to Section 15(a) of this Supplement.

Accelerated  Payment Event: Shall have the meaning set forth in Section 15(a) of
this Supplement.

Adjusted Principal Amount: Shall mean, on any date of determination,  the excess
of the Principal Amount over the
Distribution Account Balance at the end of such date of determination.

Aggregate  Commitment  Amount:  Shall  mean,  as of  any  date,  the  sum of the
Commitments of all Purchasers on such date.

Amortization Period: The period from but excluding the last day of the Revolving
Period through the day on which the Principal Amount of the Series 1997-1 Notes,
all accrued Series 1997-1 Note Interest and all other amounts owed to the Series
1997-1 Noteholders are indefeasably paid in full.

Average  Principal  Amount:  Shall mean for any period the sum of the  Principal
Amounts on each day of such period divided by the number of days in such period.

Change in Law:  Shall have the meaning specified Section 16(c) hereof.

Closing  Date:  Shall  mean the  date on which  the  Principal  Amount  is first
increased to above zero.

Commitment:  Shall mean, as to any  Purchaser,  its  obligation to maintain and,
subject to the  conditions  set forth in Section 7 hereof and the Note  Purchase
Agreement,  increase its Principal  Amount, in an aggregate amount not to exceed
at any one time outstanding the amount set forth in the Note Purchase Agreement;
collectively, as to all such Purchasers, the "Commitments".

Commitment  Percentage:  Shall mean, as to any Purchaser and as of any date, the
percentage equivalent of a fraction,  the numerator of which is such Purchaser's
Commitment  as set  forth  on  Schedule  1 and the  denominator  of which is the
Aggregate Commitment Amount as of such date.

Deal Agent:  First Union Capital  Markets  Corp.,  in its capacity as deal agent
under the Note Purchase Agreement.

Decrease:  Shall have the meaning assigned in Section 8 hereof.

Distribution Account:  Shall have the meaning specified in Section 4.2B.

Distribution  Account  Balance:  Shall mean, on any date of  determination,  the
amount on deposit in the Distribution Account on such date (excluding investment
income for the Monthly  Period which  includes  such date of  determination  and
amounts designated to pay Series 1997-1 Note Interest).

Effective Date:  Shall have the meaning specified in Section 17 hereof.

Facility Amount:  $125,000,000.

Facility Fee:  Has the meaning given to such term in the Fee Letter.

Fee Letter: The fee letter agreement between the Transferor,  the Servicer,  the
Deal Agent and First  Union,  as liquidity  agent,  dated  October 14, 1997,  as
amended, modified or supplemented from time to time.

First Union:  First Union National Bank, with its principal office in Charlotte,
North Carolina, and its successors and assigns.

Increase:  Shall have the meaning assigned in Section 7(a) hereof.

Increase Amount:  Shall have the meaning assigned in Section 7(a) hereof.

Increase Date:  Shall have the meaning assigned in Section 7(a) hereof.

Increased  Costs:  Shall mean any amounts  owing to the  Purchasers  pursuant to
Section 16(b) hereof.

Initial Principal Amount:  Shall mean $72,133,000.

Monthly  Sale  Date:  Shall  mean (i) each  Distribution  Date and (ii) the last
Business Day of each month.

Noteholder:  Shall mean the holder of record of any Series 1997-1 Note.

Notes:  Shall mean the Series 1997-1 Notes issued pursuant to this Supplement.

Note Purchase  Agreement:  Shall mean the Note Purchase  Agreement,  dated as of
August __, 1997, among the Transferor,  the Servicer,  VFCC,  certain  investors
named therein,  First Union,  as liquidity  agent and the Deal Agent, as amended
from time to time and relating to the Series 1997-1 Notes.

Notes:  Shall have the meaning assigned in the preamble.

Optional Series 1997-1 Pay Down Amount:  Shall mean on a Distribution  Date, the
amount designated by the Servicer and available pursuant to Section 4.3(g)(i) in
respect of such Distribution Date.

Paired Series:  Shall mean any series of Notes that is paired with Series 1997-1
in the related Supplement.

Pay Out Commencement Date: Shall mean the date on which a Trust Pay Out Event is
deemed to occur  pursuant to Section 9.1 of the Agreement or a Series 1997-1 Pay
Out Event is deemed to occur pursuant to this Supplement.

Principal Amount:  Shall mean, with respect to the Series 1997-1 Notes and as of
any date,  an amount  equal to (a) the  Initial  Principal  Amount  plus (b) all
Increase Amounts pursuant to Section 7 minus (c) the amount of any distributions
made  pursuant  to  Section 8 and all  distributions  made in  reduction  of the
Principal Amount pursuant to Section 5.lA prior to such date of determination.

Program Agreements:  Shall have the meaning specified in Section 17(a) hereof.

Program Fee:  Has the meaning given to such term in the Fee Letter.

Purchaser:  Shall mean each purchaser of the Series 1997-1 Notes.

Rating  Agencies:   Shall  mean,   collectively,   each  nationally   recognized
statistical  rating  agency  which,  at the  request  of the  Transferor  or the
Servicer,  has  assigned a rating to one or more  classes  of the Series  1997-1
Notes;  provided that so long as no such agency is currently rating a particular
Class of Series 1997-1,  the requirement to satisfy the Rating Agency  Condition
with  respect to such Class  shall be deemed to be a  requirement  to obtain the
consent of the Required Purchasers of such Class.

Record Date:  Shall mean,  with respect to any  Distribution  Date, the close of
business on the last Business Day of the preceding month.

Register:  Shall mean a register  maintained by the Deal Agent for recording (i)
transfers of interests in the Series 1997-1 Notes,  and (ii) the date, type, and
amount of each  Increase or Decrease made  pursuant to this  Supplement  and the
date and amount of each payment or prepayment of principal thereof.

Required  Purchasers:  Shall  mean,  on  any  day,  Purchasers  having,  in  the
aggregate, Voting Percentages of at least 66-2/3%.

Revolving Noteholders'  Interest:  Shall have the meaning specified in Section 3
hereof.

Revolving  Period:  Shall mean the period from and including the Closing Date to
and including the earliest of (i) the latest Distribution Date that falls within
364 days after the Closing Date,  (ii) the Pay Out  Commencement  Date and (iii)
the Accelerated Payment Date.

Scheduled Series 1997-1 Termination Date: Shall mean the Distribution Date which
occurs 12 months after the last  Scheduled  Payment under any Included  Lease in
the Amortizing Pool related to Series 1997-1.

Series  Accounts:  Shall mean the  Distribution  Account  with respect to Series
1997-1.

Series  Available  Amount:  Shall  mean  on any  Distribution  Date  the  amount
allocable to Series 1997-1 in accordance  with Section 4.3(e) or (f) and Section
4.3(g) or (h) of the Agreement, as the case may be.

Series  Asset  Base:  Shall  mean,  on any  date of  determination,  the  Series
Percentage of the Asset Base on such date.

Series Percentage:  Shall mean, on any date of determination:

         (a) prior to a Pay Out Event,  the percentage  equivalent of a fraction
the numerator of which shall be the Adjusted  Principal  Amount on the preceding
Business  Day and the  denominator  of  which  shall be the  Aggregate  Adjusted
Principal Amount on such day;

         (b) after a Pay Out Event, the percentage  equivalent of a fraction the
numerator of which shall be the Adjusted  Principal  Amount as of the end of the
day on the last day of the Revolving  Period and the  denominator of which shall
be the Aggregate Adjusted Principal Amount on such day.

Series 1997-1:  Shall mean the Series of the AFG Master Trust represented by the
Series 1997-1 Notes.

Series 1997-1 Note Interest:  Shall have the meaning specified in Section 4.4A
(a)(i).

Series 1997-1 Pay Out Event:  Shall have the meaning prescribed in Section 15(b)
of this Supplement.

Series  Termination  Date:  Shall mean the earlier to occur of (i) the day after
the  Distribution  Date on which the Series  1997-1 Notes are repaid in full, or
(ii) the Scheduled Series 1997-1 Termination Date.

Target Repayment Percentage:  Shall mean 100%.

Taxes:  Shall have the meaning specified in Section 16(d) hereof.

Unpaid Series 1997-1 Note Interest:  Shall have the meaning specified in Section
11(a) hereof.

VFCC:  Variable Funding Capital  Corporation,  a Delaware  corporation,  and its
successors and assigns.

VFCC's Cost of Funds:  Shall have the  meaning  specified  in the Note  Purchase
Agreement.

Voting  Percentage:  Shall  mean  with  respect  to any  Purchaser,  during  the
Revolving Period, the percentage equivalent of a fraction the numerator of which
equals such  Purchaser's  Commitment  and the  denominator  of which  equals the
Aggregate  Commitment  Amount and  thereafter,  the  percentage  equivalent of a
fraction the numerator of which equals such Purchaser's Principal Amount and the
denominator of which equals the Principal Amount.

Working Day: Shall mean any Business Day on which dealings in foreign currencies
and exchanges between banks may be carried on in London, England.

         Section 3.        The Notes.

         (a) The Series 1997-1 Notes shall represent indebtedness secured by the
Trust Assets and an  obligation to pay the  Noteholders'  Note Interest and Note
Principal out of the Trust Assets, consisting of the right of the Noteholders to
receive  (i) the  applicable  share of  Collections  and (ii) all other funds on
deposit in the Collection  Account allocable to the holders of the Series 1997-1
Notes and (iii) all funds on deposit in the Distribution Account (the "Revolving
Noteholders'  Interest").  The Transferor Interest and any other Series of Notes
outstanding  shall  represent  the interest in the remainder of the Trust Assets
not allocated pursuant hereto to the Revolving Noteholders' Interest.

         (b) The Series 1997-1 Notes shall be issued,  substantially in the form
of Exhibit A, and shall,  upon issue,  be executed by the Trust and delivered to
the Trustee for  authentication  and  redelivery as provided in Section 6 hereof
and Section 6.3 of the Agreement.

         (c) The Series 1997-1 Notes have not been  registered  under the United
States  Securities Act of 1933, as amended (the "Securities  Act"). By accepting
its Note,  each Purchaser  shall be deemed to acknowledge  that it is purchasing
the Notes for investment purposes and is not acquiring the Notes with a view to,
or for offer or sale in connection  with, any  distribution  in violation of the
Securities Act.

         (d) The  Purchaser of the Series  1997-1 Notes is authorized to endorse
on the schedules  annexed  thereto and made a part thereof or on a  continuation
thereof which shall be attached  thereto and made a part thereof the date, type,
and amount of each Increase or Decrease made pursuant to this Supplement and the
date and amount of each payment or prepayment of principal thereof.

         (e) The Deal Agent shall maintain the Register and a subaccount therein
for each  Noteholder,  in which shall be recorded the date,  type, and amount of
each  Increase or Decrease  made  pursuant to this  Supplement  and the date and
amount of each payment or prepayment of principal thereof.

         (f) The entries made in the Register and the endorsements  made by each
Noteholder  on the  schedules  attached  to each Series  1997-1 Note  maintained
pursuant to subsection 3(c) hereof shall, to the extent  permitted by applicable
law, be prima facie evidence of the (A) existence and amounts of the obligations
of the Trust  therein  recorded;  provided,  however,  that the  failure  of any
Noteholder or the Deal Agent to maintain the Register or any such  schedule,  or
any error therein, shall not in any manner affect the obligation of the Trust to
repay (with  applicable  interest)  the  Commitments  made to such Trust by such
Noteholder in accordance with the terms of this Supplement.
         Section 4.        [Reserved].

         Section 5.        [Reserved]

         Section 6.        Delivery.

         (a) On the Closing Date,  the Trust shall execute and the Trustee shall
duly authenticate Series 1997-1 Notes in an aggregate  denomination equal to the
Initial Principal Amount.

         (b)  The  Trustee   shall   deliver  the  Series   1997-1   Notes  when
authenticated in accordance with Section 6.2 of the Agreement.

         Section 7.        Procedure for Increasing the Principal Amount.

         (a) Subject to subsection 7(b) hereof,  on any Monthly Sale Date during
the Revolving  Period,  the Principal Amount may be increased by increasing each
Purchaser's  pro rata share of the Principal  Amount (an  "Increase"),  up to an
amount  not  exceeding  each  Purchaser's  Commitment  upon the  request  of the
Servicer,  on  behalf  of the  Trust,  (each  date on which an  increase  in the
Principal  Amount  occurs  hereunder  being herein  referred to as the "Increase
Date");  provided that the Servicer shall have given the Deal Agent  irrevocable
written notice  (effective upon receipt) of such request as provided in the Note
Purchase  Agreement.  Such notice  shall state the Increase  Date,  the proposed
amount of such Increase (the "Increase  Amount"),  and otherwise  conform to the
requirements of the Note Purchase Agreement.

         (b) The  Purchasers  shall be obligated to make an Increase only on the
terms set forth in the Note Purchase  Agreement and the Purchasers  shall not be
obligated to increase their  respective  Principal  Amounts on any Increase Date
hereunder if:

                  (i)      the related Increase Amount is less than $250,000;

                  (ii) after giving effect to the Increase, the Principal Amount
         of any Purchaser would exceed its Commitment (determined as of the date
         the notice of such Increase is given);

                  (iii) a Pay Out Event or an event  which,  with the passage of
         time or the giving of notice,  or both,  would be a Pay Out Event,  has
         occurred;

                  (iv) an Accelerated Payment Event, or an event which, with the
         passage  of time or the  giving  of  notice,  would  be an  Accelerated
         Payment Event, has occurred and is continuing; and

                  (v)  the  representations  and  warranties  set  forth  in the
         Agreement,  this  Supplement and the Asset  Purchase  Agreement are not
         true and correct in all material respects on the Increase Date.

         Section 8.        Procedure for Decreasing the Principal Amount.

         On any one or more Monthly Sale Dates during the Revolving Period, upon
request of the Servicer on behalf of the Trust,  the Aggregate  Principal Amount
may be  reduced (a  "Decrease")  by (A)(i) a deposit  by the  Transferor  to the
Distribution  Account of the amount of such  reduction or (ii) the allocation to
the Distribution  Account of any amounts available pursuant to Section 4.3(g) of
the Agreement or (iii) any  combination of (i) and (ii). The Servicer shall give
the Deal Agent written notice  (effective upon receipt) prior to 12:00 Noon (New
York City time) three  Business  Days prior to the date of any Decrease  stating
the amount of such  Decrease;  provided that each such  Decrease  shall be in an
amount equal to or greater than $250,000.

         Section 9.        [Reserved].

         Section 10.       [Reserved].

         Section 11.       Interest.

         (a) Interest shall accrue in respect of each day in each Accrual Period
for the Series  1997-1 Notes at a rate equal to VFCC's Cost of Funds  applicable
to such day.  Interest  accrued  during each Accrual Period on the Series 1997-1
Notes shall be payable on the Distribution  Date immediately  following the last
day of such Accrual  Period.  If any interest  that accrues on the Series 1997-1
Notes during an Accrual Period is not paid on the related  Distribution  Date in
accordance with the preceding  sentence  ("Unpaid Series 1997-1 Note Interest"),
such Unpaid  Series  1997-1 Note  Interest  shall be payable on the  immediately
following  Distribution  Date, plus interest thereon for the additional  Accrual
Period calculated at VFCC's Cost of Funds.

         (b)  Calculations  of per annum  rates and fees under  this  Supplement
shall be made on the basis of a  360-day  year for  actual  days  elapsed.  Each
determination  of VFCC's  Cost of Funds  hereunder  and under the Note  Purchase
Agreement  by the Deal Agent shall be  conclusive  and binding  upon each of the
parties hereto in the absence of manifest error.  Any change in interest payable
hereunder resulting from a change in any of the interest rates upon which VFCC's
Cost of Funds is based shall  become  effective as of the opening of business on
the day on which such change is announced.

         Section 12.       Indemnification by Transferor.

         The  Transferor  hereby  agrees  to  pay,  and to  indemnify  and  hold
harmless, the Deal Agent, each Purchaser, the Trustee and the Collateral Trustee
and each  officer,  director,  employee  and agent  thereof from (a) all claims,
disputes,  damages,  penalties  and losses  arising  from the  entering  into or
management of Leases or the acquisition,  management or operation of the related
Equipment (including any product  warranty-related  claims, but excluding losses
arising out of a lessee's  failure to make timely lease payments or other credit
losses) or the  transactions  contemplated  by this  Supplement  or the  subject
matter  thereof,  (b) any taxes  which may at any time be asserted in respect of
this transaction or the subject matter thereof  (including,  without limitation,
any sales, gross receipts, general corporation,  personal property, privilege or
license  taxes,  but not including  taxes imposed upon the Deal Agent,  any such
Purchaser,  the Trustee or the  Collateral  Trustee  with  respect to its income
arising out of this transaction and imposed in any  jurisdiction) and (c) costs,
expenses and  reasonable  counsel fees in  defending  against the same,  whether
arising by reason of the acts to be performed by the  Transferor or the Servicer
hereunder or imposed  against the Deal Agent,  any Purchaser,  the Trustee,  the
Collateral Trustee or any officer,  director,  employee or agent thereof, or the
Transferor,  the property involved or otherwise  (regardless of whether the Deal
Agent, the Trustee, any Purchaser, or any officer,  employee or director thereof
is a party thereto);  provided, however, that the Transferor shall not be liable
to or indemnify or hold harmless the Deal Agent, each Purchaser,  the Trustee or
the Collateral Trustee and each officer,  director and employee or agent thereof
as to any claims, disputes,  damages, penalties and losses suffered or sustained
by reason of gross  negligence  or  willful  misconduct  on the part of the Deal
Agent, each Purchaser,  the Trustee or the Collateral  Trustee,  as the case may
be, or any of their respective officers, directors, employees or agents.

         Section 13.       Article IV of Agreement.

         Sections 4.1 through 4.5,  inclusive,  of the  Agreement  shall read in
their  entirety as provided in the  Agreement and Sections 4.2B and Section 4.4A
shall read in their entirety as provided in this Series 1997-1 Supplement to the
Agreement.  The  remainder  of  Article  IV of the  Agreement  shall read in its
entirety as follows and shall be applicable only to the Series 1997-1 Notes:


                                   ARTICLE IV

                            RIGHTS OF NOTEHOLDERS AND
                    ALLOCATION AND APPLICATION OF COLLECTIONS

         Section 4.2B      The Series 1997-1 Distribution Account.

         The Servicer,  for the benefit of the Series 1997-1 Noteholders,  shall
cause to be established and maintained in the name of the Collateral Trustee, on
behalf of the  Trust,  with an office or  branch of a  Qualified  Institution  a
segregated  demand deposit account  maintained in the corporate trust department
of such Qualified  Institution,  and held in trust by such Qualified Institution
(the "Distribution  Account") bearing a designation  clearly indicating that the
funds  deposited  therein are held in trust for the benefit of the Series 1997-1
Noteholders.  The  Paying  Agent  shall  have the  revocable  authority  to make
withdrawals from the Distribution Account.  Funds on deposit in the Distribution
Account shall at all times be invested by the Collateral Trustee, at the written
direction of the Servicer, in Permitted Investments.  Any such investments shall
mature and such funds shall be available  for  withdrawal  on the Transfer  Date
preceding  the  Distribution  Date on which  such  funds  are to be  distributed
hereunder;  provided,  however, that any Permitted Investment in short-term U.S.
treasury  securities may mature one day after such Transfer Date and may be sold
on such Transfer Date.

         Section 4.4A      Allocations.

         (a) Allocations During the Revolving Period. On each Determination Date
during the Revolving Period,  the Servicer shall instruct the Collateral Trustee
to deposit,  and on the succeeding  Distribution  Date, the Collateral  Trustee,
acting in accordance with such  instructions,  shall deposit to the Distribution
Account,  the amounts required to be deposited pursuant to this Section in order
to make the following  payments from the Series Available Amount for the related
Distribution  Date (in each case, such deposit or payment to be made only to the
extent funds remain available therefor after all prior payments and deposits for
such Distribution Date have been made), in the following order of priority:

                  (i)  allocate to the  Distribution  Account for the benefit of
         the  Noteholders an amount equal to interest  accrued in respect of the
         Series  1997-1 Notes in  accordance  with the  provisions of Section 11
         hereof ("Series 1997-1 Note Interest") for the Accrual Period ending on
         such Distribution Date,  together with any such amounts that accrued in
         respect of prior Accrual Periods for which no allocation was previously
         made,  plus  interest on any such amounts  calculated at VFCC's Cost of
         Funds;

                  (ii) pay to the Deal Agent,  the  Facility Fee and the Program
         Fee for the  preceding  Accrual  Period,  together  with any amounts in
         respect of such fees that were due in respect of prior Accrual  Periods
         that remain unpaid;

                  (iii) allocate to the Distribution  Account for the benefit of
         the  Noteholders an amount equal to the Optional Series 1997-1 Pay Down
         Amount for such Distribution Date;

                  (iv) pay to each Hedging  Counterparty  any Hedge  Termination
         Payments;

                  (v)  allocate to the  Distribution  Account for the benefit of
         the  Noteholders an amount equal to any amounts then due and payable in
         respect  of  Increased  Costs in respect  of the  Series  1997-1  Notes
         accrued during the Accrual Period ending on such Distribution Date;

                  (vi) pay to the  appropriate  parties  an amount  equal to any
         amounts  then due and  payable in  respect  of other fees and  expenses
         owing thereto in respect of Series 1997-1; and

                  (vii) allocate any remaining  Series  Available  Amount to the
Excess Funding Account.

         (b) Allocations During the Amortization Period and Prior to the Pay Out
Commencement Date or Accelerated Payment Date. On each Determination Date during
the  Amortization  Period  and  prior  to the Pay Out  Commencement  Date or the
Accelerated  Payment Date,  the Servicer  shall instruct the Trustee to deposit,
and on the succeeding  Distribution  Date the Trustee acting in accordance  with
such  instructions  shall  deposit  to the  Distribution  Account,  the  amounts
required to be deposited pursuant to this Section in order to make the following
payments from the Series Available Amount for the related  Distribution Date (in
each case,  such  deposit or payment to be made only to the extent  funds remain
available  therefor after all prior payments and deposits for such  Distribution
Date have been made), in the following order of priority:

                  (i)  allocate to the  Distribution  Account for the benefit of
         the  Noteholders  an amount  equal to  accrued in respect of the Series
         1997-1 Notes for the Accrual Period ending on such  Distribution  Date,
         together with any such amounts that accrued in respect of prior Accrual
         Periods for which no allocation was previously  made,  plus interest on
         any such amounts calculated at VFCC's Cost of Funds;

                  (ii) pay to the Deal Agent,  the  Facility Fee and the Program
         Fee for the  preceding  Accrual  Period,  together  with any amounts in
         respect of such fees that were due in respect of prior Accrual  Periods
         that remain unpaid;

                  (iii) allocate to the Distribution  Account for the benefit of
         the  Noteholders  an  amount  equal  to the  Percentage  of the  Target
         Repayment Amount for Series 1997-1 for such Distribution Date, together
         with any such  amounts  that were due on prior  Distribution  Dates for
         which no deposit was previously made;

                  (iv) pay to each Hedging  Counterparty  any Hedge  Termination
         Payments;

                  (v)  allocate to the  Distribution  Account for the benefit of
         the  Noteholders an amount equal to any amounts then due and payable in
         respect  of  Increased  Costs in respect  of the  Series  1997-1  Notes
         accrued during the Accrual Period ending on such Distribution Date;

                  (vi) pay to the  appropriate  parties  an amount  equal to any
         amounts  then due and  payable in  respect  of other fees and  expenses
         owing thereto in respect of Series 1997-1; and

                  (vii) allocate any remaining  Series  Available  Amount to the
Excess Funding Account.

         (c) Allocations After Pay Out Commencement Date or Accelerated  Payment
Date. On each  Determination  Date occurring after the Pay Out Commencement Date
or the  Accelerated  Payment Date,  the Servicer  shall  instruct the Trustee to
deposit,  and  on  the  succeeding  Distribution  Date  the  Trustee  acting  in
accordance with such instructions shall deposit to the Distribution Account, the
amounts  required to be deposited  pursuant to this Section in order to make the
following payments from the Series Available Amount for the related Distribution
Date (in each case,  such deposit or payment to be made only to the extent funds
remain  available  therefor  after  all prior  payments  and  deposits  for such
Distribution Date have been made), in the following order of priority:

                  (i)  allocate to the  Distribution  Account for the benefit of
         the Noteholders an amount equal to Series 1997-1 Note Interest  accrued
         in respect of the Series 1997-1 Notes for the Accrual  Period ending on
         such Distribution Date,  together with any such amounts that accrued in
         respect of prior Accrual Periods for which no allocation was previously
         made,  plus  interest on any such amounts  calculated at VFCC's Cost of
         Funds;

                  (ii) pay to the Deal Agent,  the  Facility Fee and the Program
         Fee for the  preceding  Accrual  Period,  together  with any amounts in
         respect of such fees that were due in respect of prior Accrual  Periods
         that remain unpaid;

                  (iii) allocate to the Distribution  Account for the benefit of
         the  Noteholders an amount equal to the remaining  Aggregate  Principal
         Amount;

                  (iv) pay to each Hedging  Counterparty  any Hedge  Termination
         Payments;

                  (v)  allocate to the  Distribution  Account for the benefit of
         the  Noteholders an amount equal to any amounts then due and payable in
         respect  of  Increased  Costs in respect  of the  Series  1997-1  Notes
         accrued during the Accrual Period ending on such Distribution Date;

                  (vi) pay to the  appropriate  parties  an amount  equal to any
         amounts  then due and  payable in  respect  of other fees and  expenses
         owing thereto in respect of Series 1997-1; and

                  (vii) allocate any remaining  Series  Available  Amount to the
Excess Funding Account.

         Section 14.       Article V of the Agreement.

         Article V of the  Agreement  shall read in its  entirety as follows and
shall be applicable only to the Series 1997-1 Notes:

                                    ARTICLE V

                          DISTRIBUTIONS AND REPORTS TO
                                   NOTEHOLDERS

         Section 5.lA      Distributions.

                  On each Distribution  Date, the Paying Agent shall distribute,
in immediately  available  funds,  to the Deal Agent,  at the account  specified
pursuant  to the  Note  Purchase  Agreement  on  behalf  of the  Purchasers  (in
accordance  with  the  certificate  delivered  by the  Servicer  to the  Trustee
pursuant to Section 5.2A(a) of amounts on deposit in the Distribution Account as
are payable with respect to the Series 1997-1 Notes  pursuant to Section 4.4A on
such Distribution Date.

         Section 5.2A       Noteholders' Statements.

         (a) Monthly  Noteholders,  Statement.  On or before  each  Distribution
Date, the Paying Agent shall forward to the Deal Agent a statement substantially
in the form of Exhibit C to this  Supplement  prepared by the  Servicer  setting
forth  among  other  things  the  following  information  with  respect  to such
Distribution  Date (which,  in the case of subclauses  (i), (ii),  (iii) and (v)
shall be stated on an aggregate basis and on the basis of an original  principal
amount of $1,000 per Series 1997-1 Note):

                  (i)      the total amount distributed;

                  (ii)  the  amount  of  such  distribution  allocable  to  Note
         Principal;

                  (iii) the  amount  of such  distribution  allocable  to Series
1997-1 Note Interest;

                  (iv) the Aggregate Commitment Amount, the Principal Amount and
         the Average Principal Amount; and

                  (v) the Adjusted  Principal Amount, the Series Asset Base, the
         Aggregate  Adjusted  Principal  Amount,  the Asset Base, the Discounted
         Lease  Balances of Included  Leases that were  classified as Delinquent
         Leases  during  each  of  the  three  preceding  Monthly  Periods,  the
         Aggregate Pool Balance on the last day of the three  preceding  Monthly
         Periods and the  Discounted  Lease  Balances  of  Included  Leases that
         became  Defaulted  Leases  during each of the three  preceding  Monthly
         Periods.

         (b) Annual Noteholders' Tax Statement.  On or before January 31 of each
calendar  year,  beginning  with  calendar  year 1998,  the Paying  Agent  shall
distribute on behalf of the  Transferor,  to the Deal Agent for delivery to each
Person who at any time during the  preceding  calendar  year was a Series 1997-1
Noteholder, a statement prepared by the Servicer and delivered to the Trustee on
or before January 31 of each calendar year containing the  information  required
to be contained in the regular monthly report to Series 1997-1  Noteholders,  as
set forth in subclauses  (i),  (ii),  (iii) and (iv) above,  aggregated for such
calendar year or the applicable  portion  thereof during which such Person was a
Series  1997-1  Noteholder,  together  with  such  other  customary  information
(consistent  with  the  treatment  of the  Series  1997-1  Notes as debt) as the
Servicer deems necessary or desirable to enable the Series 1997-1 Noteholders to
prepare  their tax returns  consistent  with the  treatment of the Series 1997-1
Notes as debt  instruments.  Such  obligations  of the Transferor and the Paying
Agent shall be deemed to have been  satisfied  to the extent that  substantially
comparable  information  shall  be  provided  by  the  Trustee  pursuant  to any
requirements  of the Internal  Revenue Code of 1986,  as amended (the "Code") as
from time to time in effect.

         (c) Monthly  Statement.  With respect to each Distribution Date and the
related Monthly  Period,  the Servicer shall provide to the Deal Agent a copy of
the Monthly Statement.

         Section 15.       Accelerated Payment Events; Series 1997-1 Pay Out 
                           Events.

         (a)  Accelerated  Payment  Events.  If any one of the following  events
shall occur with respect to the Series 1997-1 Notes:

                  (i)  for  any two (2)  consecutive  Distribution  Dates  after
         giving effect to all transactions and  distributions to occur hereunder
         on such dates, the Adjusted Principal Amount on such dates shall exceed
         the Series Asset Base on such date; or

                  (ii)  for any two (2)  consecutive  Distribution  Dates  after
         giving effect to all transactions and  distributions to occur hereunder
         on such dates,  the Aggregate  Adjusted  Principal Amount on such dates
         shall exceed the Asset Base on such date; or

                  (iii) on any  Distribution  Date  after  giving  effect to all
         transactions  and  distributions  to occur  hereunder on such date, the
         aggregate Discounted Lease Balances shall be less than $20,000,000; or

                  (iv)  for any two (2)  consecutive  Distribution  Dates  after
         giving effect to all transactions and  distributions to occur hereunder
         on such dates, the average of the Discounted Lease Balances of Included
         Leases that were  classified  as  Delinquent  Leases on the last day of
         each of the three  preceding  Monthly Periods exceeds 5% of the average
         Aggregate Pool Balance on the last day of such three preceding  Monthly
         Periods; or

                  (v)  for  any two (2)  consecutive  Distribution  Dates  after
         giving effect to all transactions and  distributions to occur hereunder
         on such dates,  the Discounted  Lease Balances of Included  Leases that
         became  Defaulted  Leases during the three  preceding  Monthly  Periods
         exceeds 4% of the  average  Aggregate  Pool  Balance on the last day of
         such three preceding Monthly Periods; or

                  (vi) for any two (2) consecutive  Distribution  Dates,  Series
         1997-1  Note  Interest  shall not have been  paid with  respect  to the
         Series 1997-1 Notes; or

                  (vii) an Accelerated  Payment Event, as defined in the related
         Supplement, has occurred with respect to any other Series;

then, and in any such event after the applicable  grace period set forth in such
subparagraphs,  an accelerated  payment event (an  "Accelerated  Payment Event")
shall occur as of the date of such notice.

         (b) Series 1997-1 Pay Out Events.  If the  following  event shall occur
with respect to the Series 1997-1 Notes:

                  (i) for any six (6)  Distribution  Dates,  Series  1997-1 Note
         Interest  shall not have been paid with  respect to the  Series  1997-1
         Notes;

then, and in any such event after the applicable  grace period set forth in such
subparagraphs, an event of default (a "Series 1997-1 Pay Out Event") shall occur
as of the date of such notice.

         Section 16.       Funding Costs.

         (a) Breakage.  The Transferor agrees to indemnify each Purchaser and to
hold each Purchaser  harmless from any loss or expense  arising from interest or
fees payable by such Purchaser to lenders of funds obtained by it to purchase or
maintain that portion of its  Commitment  hereunder with respect to which VFCC's
Cost of Funds is  determined by reference to the CP Rate (as defined in the Note
Purchase  Agreement)  or  the  LIBOR  Rate  (as  defined  in the  Note  Purchase
Agreement) as a consequence of (i) default by the Transferor in the  performance
of its  obligations  hereunder or under the Agreement,  (ii) the occurrence of a
Servicer  Default  or an event  which  would,  with the  giving of notice or the
passage of time, constitute a Servicer Default,  (iii) default by the Transferor
in effecting an increase in the Aggregate  Principal  Amount on an Increase Date
after  having  given  notice of such  Increase,  or (iv) any  prepayment  of the
Principal  Amount prior to the termination of the applicable  Tranche Period.  A
certificate  as to any  additional  amounts  payable  pursuant to the  foregoing
sentence  submitted by any Purchaser to the Servicer  shall show the  additional
amounts  payable in reasonable  detail and shall be conclusive  absent  manifest
error.

         (b) Increased Costs. If any law, treaty or governmental regulation,  or
any change therein or in the interpretation or application thereof or compliance
by any Purchaser with any request or directive  (whether or not having the force
of law) from any  central  bank or  United  States  government  (or any state or
political subdivision thereof) or any entity exercising executive,  legislative,
regulatory or administrative functions of or pertaining to such government:

                  (i) does or shall subject any Purchaser to any tax of any kind
         whatsoever  with  respect  to  this  Supplement  or  such   Purchaser's
         Commitment  hereunder,  or change the basis of  taxation of payments to
         any  Purchaser  in respect of such  Purchaser's  portion of the amounts
         payable hereunder (except for changes in the rate of tax on the overall
         net income of such Purchaser imposed in the United States of America;

                  (ii)  does or shall  impose,  modify  or hold  applicable  any
         reserve,  special  deposit,  compulsory  loan or  similar  requirements
         against assets held by, or deposits or other  liabilities in or for the
         account of,  advances or loans by, or other credit  extended by, or any
         other  acquisition  of funds by, any office of any Purchaser  except as
         provided in clause (iii) below; or

                  (iii)  does or shall  impose,  modify or hold  applicable  any
         reserves  against  "Eurocurrency   liabilities"   (including,   without
         limitation, basic, supplemental,  marginal or emergency reserves) under
         Regulation D of the Board of Governors  of The Federal  Reserve  System
         (or so  long  as such  Purchaser  may be  required  by  such  Board  of
         Governors or by any other  Governmental  Authority in the United States
         having   jurisdiction   with  respect  thereto  to  maintain   reserves
         (including,  without  limitation,  basic,  supplemental,   marginal  or
         emergency reserves) with respect to eurocurrency  funding) in excess of
         the amount thereof on the Closing Date; or

                  (iv)  does  or  shall  impose  on  any   Purchaser  any  other
         condition;

and the result of any of the foregoing is to increase the cost to such Purchaser
of purchasing or  maintaining  its portion of the  Purchasers'  Commitment by an
amount which such Purchaser  deems to be material or to reduce the amount of any
payment by an amount which such  Purchaser  deems to be material,  then,  in any
such case, such Purchaser  shall notify the Deal Agent,  who will in turn notify
the Servicer and the  Transferor,  of such Increased  Costs and the event giving
rise to such Increased Costs.

         (c) Changes in Capital  Requirements.  In the event that any  Purchaser
shall have determined that any Requirement of Law regarding  capital adequacy or
interpretation  or application  thereof or compliance by such Purchaser with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any  Governmental  Authority (a "Change in Law") does or shall have
the  effect  of  reducing  the  rate  of  return  on  such  Purchaser's  or such
corporation's  capital as a consequence of its obligations  hereunder to a level
below that which such Purchaser or such corporation  could have achieved but for
such change or compliance  (taking into  consideration  such Purchaser's or such
corporation's  policies with respect to capital adequacy) by an amount deemed by
such Purchaser to be material,  then from time to time, after submission by such
Purchaser to the Transferor (with a copy to the Deal Agent) of a written request
therefor,  the Transferor shall indemnify such Purchaser such additional  amount
or amounts as will compensate such for such reduction.

         (d)      Taxes on Payments

                  (i) All payments made under this Supplement shall be made free
         and clear of, and without  reduction  for or on account of, any present
         or future taxes, levies, imposts,  duties, charges, fees, deductions or
         withholdings,  now or hereafter imposed, levied, collected, withheld or
         assessed by any Governmental  Authority,  excluding, in the case of the
         Deal Agent and each  Purchaser,  income and franchise  taxes imposed on
         the Deal Agent or such Purchaser  (other than such income and franchise
         taxes  imposed by a  jurisdiction  other  than the  United  States or a
         subdivision  thereof  solely by reason of the location of the Equipment
         in such  jurisdiction)  (such non-excluded taxes being called "Taxes").
         If any Taxes are  required to be withheld  from any amounts  payable to
         the Deal Agent or any  Purchaser  hereunder,  the amounts so payable to
         the Deal  Agent or such  Purchaser  shall be  increased  to the  extent
         necessary to yield to the Deal Agent or such  Purchaser  (after payment
         of all Taxes) interest or any such other amounts  payable  hereunder at
         the rates or in the amounts specified in this Supplement.  Whenever any
         Taxes  are  payable  by  the   Transferor,   as  promptly  as  possible
         thereafter,  the  Transferor  shall  send to the Deal Agent for its own
         account  or for the  account of such  Purchaser,  as the case may be, a
         certified copy of an original official receipt showing payment thereof.
         If the  Transferor  fails  to  remit to the  Deal  Agent  the  required
         receipts or other required documentary  evidence,  the Transferor shall
         indemnify the Deal Agent and the Purchasers for any incremental  taxes,
         interest or penalties  that may become payable by the Deal Agent or any
         Purchaser as a result of any such failure.

                  (ii) Each Purchaser  agrees that prior to the Closing Date (or
         if such Purchaser is not an Initial Purchaser,  prior to or at the time
         such Purchaser becomes a "Purchaser"  hereunder) it will deliver to the
         Transferor  and the Deal Agent (A) either  (1) a  statement  that it is
         incorporated  under the laws of the United States of America or a state
         thereof or, (2) if its not so  incorporated,  two duly completed copies
         of  United  States  Internal  Revenue  Service  Form  1001  or  4224 or
         successor  applicable form, as the case may be, certifying in each case
         that  such  Purchaser  is  entitled  to  receive  payments  under  this
         Supplement  in  respect of its  interest  in the  Series  1997-1  Notes
         purchased  hereunder,  without  deduction or  withholding of any United
         States  federal income taxes and (B) an Internal  Revenue  Service Form
         W-8 or W-9 or  successor  applicable  form,  as the  case  may  be,  to
         establish an exemption from United States backup  withholding tax. Each
         such Purchaser  which delivers to the Transferor and the Deal Agent any
         such  Form  1001 or 4224  and  Form W-8 or W-9  further  undertakes  to
         deliver to the Transferor and the Deal Agent two further copies of Form
         1001 or 4224 and Form W-8 or W-9, or  successor  applicable  forms,  or
         other  manner of  certification,  as the case may be, on or before  the
         date  that any such  form  expires  or  becomes  obsolete  or after the
         occurrence  of any event  requiring  a change in the most  recent  form
         previously  delivered  by it to the  Transferor  and the Deal Agent and
         such  extensions or renewals  thereof as may reasonably be requested by
         the Transferor, certifying in the case of a Form 1001 or 4224 that such
         Purchaser is entitled to receive payments under this Agreement  without
         deduction or  withholding  of any United States  federal  income taxes,
         unless in any such case an event (including,  without  limitation,  any
         change in treaty,  law or regulation) has occurred prior to the date on
         which any such delivery  would  otherwise be required which renders all
         such forms inapplicable or which would prevent such Purchaser from duly
         completing  and  delivering  any such form with  respect to it and such
         Purchaser  advises the  Transferor  that it is not capable of receiving
         payments  without any deduction or withholding of United States federal
         income  tax,  and in the  case of a Form  W-8 or W-9,  establishing  an
         exemption from United States backup withholding tax.

                  (iii) The  agreements  in this Section 16(d) shall survive the
         termination of this  Supplement and the payment of all amounts  payable
         hereunder.

                  (iv) No increased  amount on account of Taxes shall be payable
         pursuant  to this  Section  16(d) to any  Purchaser  to the extent such
         Taxes would not have been  payable if such  Purchaser  had  furnished a
         form (properly and accurately completed in all material respects) which
         it was otherwise  required to furnish in accordance with clause (ii) of
         this Section 16(d).

                  (v) Each Purchaser shall furnish the Deal Agent,  and the Deal
         Agent shall  furnish the  Transferor  (to the extent  received from the
         Purchasers),  with  information  necessary to enable the  Transferor to
         comply with United  States  federal  income tax  information  reporting
         requirements  regarding  payments  of interest  received by  Purchasers
         under this Supplement.

         (e) Notwithstanding  anything to the contrary set forth in this Section
16, the payment to the Purchasers for any amounts payable under this Section 16,
including  Increased Costs,  shall be limited to amounts  available  pursuant to
Section 4.4A and the  Purchasers  shall have no other  recourse to the assets of
the Transferor, the Servicer, the Trust, the Trustee or the Collateral Trustee.

         Section 17.       Conditions Precedent to Effectiveness of Supplement.

         This  Supplement  will  become  effective  on the date (the  "Effective
Date") on which the following conditions precedent have been satisfied:

         (a) Documents.  The Deal Agent shall have received an original executed
copy for each  Purchaser,  each  executed and  delivered  in form and  substance
satisfactory  to  the  Deal  Agent,  of (i)  the  Agreement  executed  by a duly
authorized  officer of each of the Transferor,  the Servicer and the Trustee and
(ii)  this  Supplement  executed  by a duly  authorized  officer  of each of the
Transferor, the Servicer, the Trustee and the Purchasers. Each of the Agreement,
the Asset Purchase  Agreement,  the Note Purchase  Agreement and this Supplement
(collectively, the "Program Agreements") shall be in full force and effect.

         (b) Corporate  Proceedings  of the  Transferor  and Servicer.  The Deal
Agent shall have received,  with a counterpart for each Purchaser, a copy of the
resolutions in form and substance reasonably  satisfactory to the Deal Agent, of
the Board of Directors of each of the Transferor and of the Servicer authorizing
the  execution,  delivery  and  performance  of each of the Program  Agreements,
certified by the  Secretary or an Assistant  Secretary of the  Transferor or the
Servicer,  as the case may be, as of the date hereof,  which  certificate  shall
state that the resolutions  thereby  certified have not been amended,  modified,
revoked  or  rescinded  as of  the  date  of  such  certificate.  All  corporate
proceedings  and other legal  matters  incident to the  authorization,  form and
validity  of this  Agreement,  the  Series  1997-1  Notes and the other  Program
Agreements  and all other  legal  matters  relating to such  agreements  and the
transactions contemplated hereby and thereby shall be reasonably satisfactory in
all material respects to counsel for the Deal Agent.

         (c) Corporate  Documents.  The Deal Agent shall have  received,  with a
counterpart for each  Purchaser,  true and complete copies of the certificate of
incorporation and by-laws of the Transferor and of the Servicer, certified as of
the date hereof as true, complete and correct copies thereof by the Secretary or
an Assistant Secretary of the Transferor or the Servicer, as the case may be.

         (d) Good  Standing  Certificates.  The Deal Agent shall have  received,
with a counterpart  for each  Purchaser,  copies of  certificates  dated as of a
recent date from the Secretary of State or other  appropriate  authority of such
jurisdiction, evidencing the good standing of the Transferor and the Servicer in
each State where the ownership, lease or operation of property or the conduct of
business  requires  it to qualify  as a foreign  corporation,  except  where the
failure to so qualify would not have a material  adverse effect on the business,
operations,  properties,  condition (financial or otherwise) or prospects of the
Transferor or the Servicer, as the case may be.
         (e)  Consents,  Licenses,  Approvals,  Etc.  The Deal Agent  shall have
received,  with a counterpart  for each Purchaser,  certificates  dated the date
hereof of the President,  Vice  Chairman,  Chief  Financial  Officer or any Vice
President of the Transferor and of the Servicer  either (i) attaching  copies of
all material  consents,  licenses and approvals  required in connection with the
execution,  delivery and  performance by the Transferor or the Servicer,  as the
case may be, of this Supplement and the validity and enforceability  against the
Transferor  and the  Servicer of this  Supplement  and the  Agreement,  and such
consents,  licenses  and  approvals  shall be in full  force and  effect or (ii)
stating that no such consents licenses or approvals are so required.

         (f) Filings,  Registrations and Recordings.  Any documents  (including,
without limitation,  financing  statements) required to be filed in order (i) to
perfect  the sale of the  Original  Leases  and the  related  Equipment  by each
Originator to the Transferor  pursuant to the Asset Purchase  Agreement and (ii)
to create,  in favor of the Trustee on behalf of the Trust,  a  perfected  first
priority  interest in the Trust Assets under the Agreement with respect to which
an interest may be perfected by a filing under the UCC and which shall,  in each
case, have been properly filed in each office in each jurisdiction listed in the
Agreement or the Asset Purchase Agreement,  as the case may be, and such filings
are the only ones  required in order to perfect the sale of the Original  Leases
and the related  Equipment to the Transferor under the Asset Purchase  Agreement
and the transfer of such assets to the Trust,  under the Agreement,  as the case
may be, in the jurisdictions  listed therein. The Deal Agent shall have received
evidence  reasonably  satisfactory  to it of each such filing,  registration  or
recordation and  satisfactory  evidence of the payment of any necessary fee, tax
or expense relating thereto.

         (g) Lien Searches.  The Deal Agent shall have received the results of a
recent  search  by a Person  satisfactory  to the Deal  Agent,  of UCC and other
filings with respect to the  Transferor,  each Originator and such other parties
as it deems necessary.

         (h)  Legal  Opinions.  The  Deal  Agent  shall  have  received,  with a
counterpart for each Purchaser,  (i) a legal opinion of internal  counsel to the
Transferor and the Servicer,  dated the date hereof,  addressing other customary
matters in form and substance  satisfactory to the Deal Agent;  and (ii) a legal
opinion of , counsel to the Trustee, dated the date hereof in form and substance
satisfactory  to the Deal Agent.  Each such legal opinion shall be addressed the
Deal Agent, as agent for the Purchasers under the Note Purchase  Agreement;  and
the opinion  referred to in  subclause  (i) above shall also be addressed to the
Trustee, in its capacity as trustee hereunder and under the Agreement.

         (i)  Certificates.  The Deal Agent shall have received  certificates of
each of the Transferor  and the Servicer,  dated the Closing Date, of any two of
the  Chairman  of the  Board,  the  President,  any Vice  President,  the  chief
financial  officer and the Treasurer of the  Transferor or the Servicer,  as the
case  may  be,  stating  that  (i) the  representations  and  warranties  of the
Transferor  or the  Servicer,  as the  case  may be,  contained  in the  Program
Agreements,  are  true  and  correct  on and as of the  Closing  Date,  (ii) the
Transferor or the Servicer, as the case may be, has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied  hereunder
and under such agreements at or prior to the Closing Date,  (iii) the absence of
any Pay Out Event on the Closing Date or the occurrence of any event that,  with
the  passage of time,  could be a Pay Out Event and (iv)  since  June 30,  1997,
there has been no  material  adverse  change in the  financial  position  of the
Transferor or the Servicer,  as the case may be, or the Trust or any change,  or
any development  including a prospective  change,  in or affecting the condition
(financial or otherwise),  results of  operations.  business or prospects of the
Transferor or the Servicer, as the case may be, or the Trust except as described
therein.  Any  officer  making  such  certification  may  rely  upon  his or her
knowledge as to the proceedings pending or threatened.

         (j) Series  Accounts.  The Deal  Agent  shall  have  received  evidence
satisfactory to it that the Series Accounts shall have been established.

         (k) Fees and Expenses.  All fees and expenses to be paid on the Closing
Date shall have been  received by the  appropriate  Persons,  provided  that the
Servicer shall have received an invoice  setting forth such fees and expenses in
reasonable detail.

         (n)  Cancellation of Series 1995-1 Notes.  All amounts due with respect
to the Series  1995-1 Notes shall have been paid in full and such Series  1995-1
Notes,  Classes  A and B,  shall  have been  canceled  by the  Trustee  and such
cancellation has been confirmed in writing to the Deal Agent.

                        Section  18   Representation   and   Warranties  of  the
Transferor and the Servicer.

         The Transferor and Servicer severally represent and warrant as follows:

                  (i) Each of the representations and warranties included in the
         Program  Agreements shall be true and correct in all material  respects
         as of the Closing Date.

                  (ii) Each of  Transferor  and the  Servicer  has the power and
         authority to execute and deliver this Supplement, the Agreement and the
         Series  1997-1  Notes  and  to  perform  their  respective  obligations
         hereunder and thereunder, and all corporate action required to be taken
         for the due and proper  authorization,  execution  and delivery of this
         Supplement,   the  Agreement  and  the  Series  1997-1  Notes  and  the
         consummation of the transactions  contemplated by this Supplement,  the
         Agreement and the Series 1997-1 Notes have been duly and validly taken.

                  (iii) The Supplement  constitutes the legal, valid and binding
         obligations  of  the  Servicer  and  the  Transferor,   enforceable  in
         accordance  with  its  terms  against  each  of  them,  except  as such
         enforceability  may be limited by Debtor Relief Laws and except as such
         enforceability  may be limited by general principles of equity (whether
         considered in a proceeding at law or in equity).

                  (iv) When  authenticated by the Trustee in accordance with the
         Agreement and delivered and paid for pursuant to this  Supplement,  the
         Series  1997-1  Notes will be duly issued and  entitled to the benefits
         afforded by the Agreement and the Supplement.

         (v) The execution,  delivery and performance of this Supplement and the
         consummation  by the  Transferor  and the Servicer of the  transactions
         contemplated  hereby shall not conflict  with,  result in any breach of
         any of the terms and  provisions  of or  constitute  (with our  without
         notice  or  lapse  of  time)  a  default  under,   the  certificate  of
         incorporation  or by-laws of the  Transferor  or the  Servicer,  or any
         indenture, agreement or other instrument to which the Transferor or the
         Servicer is a party or by which it is bound,  or violate and law or, to
         either the  Transferor's or Servicer's  knowledge,  any order,  rule or
         regulation  applicable  to such party of any court or of any federal or
         state  regulatory  body,  administrative  agency or other  governmental
         instrumentality  having  jurisdiction  over  such  party  or any of its
         properties;  and no permit, consent,  approval of, or declaration to or
         filing with, any governmental  authority is required in connection with
         the  execution,  delivery and  performance  of this  Supplement  or the
         consummation of the transactions contemplated hereby.

                  (vi)  Neither  the  Transferor  nor  the  Servicer  (i)  is in
         violation of its certificate of  incorporation  or by-laws,  (ii) is in
         default, in any material respect, and no event has occurred which, with
         notice or lapse of time or both,  would  constitute such a default,  in
         the due  performance  or observance of any term,  covenant or condition
         contained in any indenture, agreement, mortgage, deed of trust or other
         instrument  to which the  Transferor  or the  Servicer is a party or by
         which the  Transferor  or the  Servicer is bound or to which any of the
         Transferor's  or the Servicer's  property or assets is subject or (iii)
         is in violation in any respect of any law,  order,  rule or  regulation
         applicable to the Transferor or the Servicer or any of the Transferor's
         or the  servicer's  property  of any court or of any  federal  or state
         regulatory   body,   administrative   agency   or  other   governmental
         instrumentality  having  jurisdiction  over it or any of its  property,
         except any violation or default that would not have a material  adverse
         effect  on  the  condition   (financial  or   otherwise),   results  of
         operations, business or prospects of the Transferor or the Servicer.

                  (vii) Neither the Trust nor the  Transferor is an  "investment
         company" or under the "control" of an "investment  company"  within the
         meaning  thereof as defined in the  Investment  Company Act of 1940, as
         amended.

                  (vii) Any taxes, fees and other  governmental  charges imposed
         upon the  Transferor  or the  Servicer or on the assets of the Trust in
         connection with the execution,  delivery and issuance by the Transferor
         or the Servicer of this Supplement,  the Agreement,  the Asset Purchase
         Agreement  and the Series 1997-1 Notes and which are due at or prior to
         the Closing Date have been or will have been paid by the  Transferor at
         or prior to the Closing Date.

                  (ix) Each of the  Transferor  and the Servicer  possesses  all
         material licenses, certificates,  authorizations and permits issued by,
         and has made all declarations and filings with, the appropriate  state,
         federal or foreign regulatory agencies or bodies which are necessary or
         desirable for the ownership of its respective properties or the conduct
         of its  respective  businesses,  except where the failure to possess or
         make the  same  would  not  have,  singularly  or in the  aggregate,  a
         material  adverse  effect on its condition  (financial  or  otherwise),
         results of operations, business or prospects.

         Section 19.       Covenants of the Transferor.

         The Transferor hereby agrees that:

                           (i) it shall observe each and every of its respective
                  covenants  (both  affirmative  and negative)  contained in the
                  Agreement and this Supplement in all material respects;

                           (ii) it shall  not  amend,  supplement  or  otherwise
                  modify or terminate the Agreement, unless in strict compliance
                  with the terms thereof; and

                           (iii) it shall not change in any material respect its
                  current  policies,  practices  or  guidelines  relating to the
                  extension of credit to Lessees or the terms or  provisions  of
                  the Leases so as to  adversely  effect the general  quality of
                  the Included  Leases without the prior written  consent of the
                  Required Purchasers.

         Section 20.       Covenants of the Servicer.

         The Servicer hereby agrees that:

                  (i) it shall  observe  each and every of its  covenants  (both
         affirmative   and  negative)   contained  in  the  Agreement  and  this
         Supplement in all material respects;

                  (ii) it shall not amend,  supplement  or  otherwise  modify or
         terminate the Agreement or this Supplement, unless in strict compliance
         with the terms thereof;

                  (iii) it shall  give  prior  notice  to the Deal  Agent of the
         delegation  of  any  of  its  servicing,  collection,   enforcement  or
         administrative duties with respect to the Accounts and the Receivables;

                  (iv) it shall not change in any  material  respect its current
         policies,  practices or guidelines  relating to the extension of credit
         to Lessees or the terms or  provisions of the Leases so as to adversely
         effect the general  quality of the  Included  Leases  without the prior
         written consent of the Required Purchasers;

                  (v) it shall  provide to the Deal Agent,  simultaneously  with
         delivery to the Trustee,  all  reports,  certificates,  statements  and
         other documents required to be delivered to the Trustee pursuant to the
         Agreement;

                  (vi) it shall provide at any time and from time to time to the
         Deal Agent  access to  documentation  regarding  the  Included  Leases,
         including the Lease Files,  such access being  afforded  without charge
         but only (a) upon reasonable request, (b) during normal business hours,
         (c)  subject to the  Servicer's  normal  security  and  confidentiality
         procedures and (iv) at offices designated by the Servicer;

                  (vii)  it  shall  provide  notice  to the  Deal  Agent  of the
         appointment  of a Successor  Servicer  pursuant to Section  10.2 of the
         Agreement or Section 31 of this Supplement; and

                  (viii) to the extent,  if any,  that the rating  provided with
         respect to the Series  1997-1 Notes by a Rating  Agency is  conditioned
         upon the  furnishing  of  documents  or the  taking of  actions  by the
         Servicer, to furnish such documents and take any such other actions.

         Section 21.       Covenants of the Trustee.

         The Trustee  hereby  agrees that it shall  provide at any time and from
time to time to the Deal Agent access to  documentation  regarding  the Included
Leases,  such access being afforded  without charge but only (a) upon reasonable
request,  (b) during normal business hours, (c) subject to the Servicer's normal
security and  confidentiality  procedures  and (d) at offices  designated by the
Custodian or the Trustee.

         Section 22.       Obligations Unaffected.

         The  obligations  of the Transferor and the Servicer to the Deal Agent,
the Trustee and the Purchasers  under this  Supplement  shall not be affected by
reason of any  invalidity,  illegality  or  irregularity  of any of the Included
Leases or the related Equipment or any sale of any of the Included Leases or the
related Equipment.

         Section 23.       [Reserved].

         Section 24.       Payments.

         Each payment to be made hereunder shall be made on the required payment
date in lawful money of the United States and in  immediately  available  funds,
for the account of the Purchasers at the office of the Deal Agent set forth from
time to time in the Note Purchase Agreement.

         Section 25.        Costs and Expenses.

         The Transferor  agrees to pay all  out-of-pocket  costs and expenses of
the  Trustee,  the  Deal  Agent,  First  Union  and  VFCC  (including,   without
limitation,  in all of the following cases, reasonable fees and disbursements of
counsel to such  parties) in  connection  with (a) the  preparation,  execution,
delivery, administration, waiver, amendment and modification of this Supplement,
the  Agreement  and the Series  1997-1  Notes,  and (b) the  enforcement  by the
Purchasers of the obligations and liabilities of the Transferor and the Servicer
under the Agreement, this Supplement or any related document.

         Section 26.       Amendments.

         (a)  Notwithstanding  the  provisions of Section 13.1 of the Agreement,
this Supplement may be modified,  amended, waived, supplemented or terminated in
writing by the Transferor, the Servicer, the Trustee, the Collateral Trustee and
the Required Purchasers; provided that no such amendment or waiver shall, unless
signed by all  Purchasers,  (i)  reduce in any manner the amount of or delay the
timing of distributions  for the account of any Purchaser under any provision of
this  Supplement,  (ii)  subject  any  Purchaser  to any  additional  obligation
(including,  without  limitation,  any change in the determination of any amount
payable by any Purchaser),  (iii) change the Aggregate  Commitment Amount or the
number  of  Purchasers  which  shall  be  required  for any  action  under  this
subsection  or any  other  provision  of  this  Supplement  or (iv)  change  the
definition of or the manner of calculating  the Required  Purchasers,  Principal
Amount,  Aggregate  Principal  Amount,  Average  Principal  Amount or the Series
Percentage.

         (b) This  Supplement  may be amended from time to time by the Servicer,
the Transferor,  the Trustee and the Collateral Trustee,  without the consent of
the Required  Purchasers,  (i) to cure any ambiguity,  to revise any Exhibits or
Schedules,  to correct or supplement any provisions herein or thereon or (ii) to
add any other  provisions with respect to matters or questions raised under this
Supplement  which  shall  not  be  inconsistent  with  the  provisions  of  this
Supplement;  provided,  however,  that such action shall not, as evidenced by an
Opinion of Counsel,  adversely  affect in any material  respect the interests of
any of the Noteholders.

         (c) Any amendment hereof can be effected without the Deal Agent being a
party thereto.

         (d) With respect to any  amendments  to, or consents or waivers  sought
under,  the Pooling and Servicing  Agreement and Indenture of Trust,  unless the
Required  Purchasers shall approve such amendment,  consent,  or waiver,  as the
case may be, then 100% of the  Principal  Amount of Series 1997-1 will be deemed
to have voted in the negative with respect to such amendment, consent or waiver,
as the case may be. With respect to any such amendments, consents or waivers, if
the Required Purchasers shall approve such amendment, consent, or waiver, as the
case may be, then 100% of the  Principal  Amount of Series 1997-1 will be deemed
to have voted in the  affirmative  with  respect to such  amendment,  consent or
waiver, as the case may be.

          (e)  Notwithstanding  anything in this Section 26 to the contrary,  no
amendment  may be made to this  Supplement  without  satisfaction  of the Rating
Agency Condition.

         Section 27.       Successors and Assigns.

         (a) This  Supplement  shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns,  except that the
Transferor  may not assign or transfer any of its rights  under this  Supplement
without the prior written consent of the Purchasers.

         (b) The Transferor and the Servicer each  authorizes  each Purchaser to
disclose to any Participant or Acquiring  Purchaser  (each, a "Transferee")  and
any prospective Transferee any and all financial information in such Purchaser's
possession concerning the Transferor or the Servicer which has been delivered to
such Purchaser by the Transferor or the Servicer  pursuant to this Supplement or
which has been  delivered to such Purchaser by or on behalf of the Transferor in
connection  with such  Purchaser's  credit  evaluation  of the  Transferor,  the
Servicer,  the Trust  and the Trust  Assets  prior to  becoming  a party to this
Supplement;  provided,  however,  if  any  such  information  is  subject  to  a
confidentiality  agreement  between such  Purchaser  and the  Transferor  or the
Servicer, the Transferee or prospective Transferee shall have agreed to be bound
by the terms and conditions of such confidentiality agreement.

         (c) If, pursuant to this subsection, any interest in this Supplement or
any Series 1997-1 Note is transferred to any Transferee which is organized under
the laws of any jurisdiction  other than the United States or any State thereof,
the transferor  Purchaser  shall cause such  Transferee,  concurrently  with the
effectiveness  of such transfer,  (i) to represent to the  transferor  Purchaser
(for the benefit of the transferor Purchaser, the Deal Agent, the Transferor and
the Servicer)  that under  applicable law and treaties no taxes will be required
to be withheld by the Deal Agent, the Transferor, the Servicer or the transferor
Purchaser with respect to any payments to be made to such  Transferee in respect
of such Series 1997-1 Note, (ii) to furnish to the transferor Purchaser (and, in
the case of any  Acquiring  Purchaser not  registered in the Register,  the Deal
Agent and the Transferor) either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein such Transferee  claims  entitlement
to complete exemption from U.S. federal withholding tax on all interest payments
hereunder) and (iii) to agree (for the benefit of the transferor Purchaser,  the
Deal Agent, the Transferor and the Servicer) to provide the transferor Purchaser
(and, in the case of any Acquiring Purchaser not registered in the Register, the
Deal Agent,  the  Transferor and the servicer) a new Form 4224 or Form 1001 upon
the expiration or obsolescence  of any previously  delivered form and comparable
statements  in  accordance   with  applicable  U.S.  laws  and  regulations  and
amendments  duly executed and completed by such  Transferee,  and to comply from
time to time with all applicable U.S. laws and  regulations  with regard to such
withholding tax exemption.

         Section 28.       [Reserved].

         Section 29.       Repurchase by Servicer.

         Upon any repurchase of the Series 1997-1 Notes by the Servicer pursuant
to Section 10.1 of the  Agreement,  the  Servicer  shall pay, in addition to the
amounts set forth in Section  10.1 of the  Agreement  and any accrued and unpaid
Increased  Costs and all other accrued and repaid costs,  expenses or fees owing
to any Person hereunder, under any Series 1997-1 Note or under the Note Purchase
Agreement.

         Section 30.       Repurchase by Transferor.

         Upon any  repurchase  of the  Series  1997-1  Notes  by the  Transferor
pursuant  to  Section  2.6 or  Section  12.2(a),  as the  case  may  be,  of the
Agreement,  the  Transferor  shall pay,  in addition to the amounts set forth in
Section 2.6 or Section  12.2(a),  as the case may be, of the  Agreement  and any
accrued  and unpaid  costs  under  Section 16 hereof and all other  accrued  and
repaid costs,  expenses or fees owing to any Person hereunder,  under any Series
1997-1 Note or under the Note Purchase Agreement.

         Section 31.       Permitted Successor Servicer.

         With respect to Series 1997-1, any financial institution which does not
qualify as a permitted  Successor  Servicer  under Section 10.2 of the Agreement
shall  qualify as a permitted  Successor  Servicer  if approved by the  Required
Purchasers.

         Section 32.       Option to Repurchase.

         Subject to the  conditions  set forth in Section 12.2 of the Agreement,
the Transferor may, but shall not be obligated to, on any  Distribution  Date on
or after the  Distribution  Date on which the Principal  Amount is reduced to an
amount less than or equal to 10% of the  highest  Principal  Amount  outstanding
during the Revolving  Period  repurchase the Series 1997-1 Notes;  provided that
such option shall not be exercisable  upon the happening of an Insolvency  Event
with  respect  to the  Servicer  or the  Transferor.  The  deposit  required  in
connection with any such repurchase shall be equal to (a) the Principal  Amount,
plus (b) the accrued and unpaid  interest on the Series 1997-1 Notes through and
including the day preceding the day on which such  repurchase  occurs which will
be  transferred to the  Distribution  Account and plus (c) all other accrued and
repaid costs,  expenses or fees owing to any Person hereunder,  under any Series
1997-1 Note or under the Note Purchase Agreement.

         Section 33.       Final Distribution.

         Written notice of any  termination,  specifying the  Distribution  Date
upon which the Series 1997-1 Noteholders may surrender their Series 1997-1 Notes
for payment of the final  distribution  and  cancellation  shall be given by the
Trustee,  at the written  request of the  Servicer,  not later than the 60th day
immediately preceding the Distribution Date on which final payment of the Series
1997-1 Notes shall be made.

         Section 34.       [Reserved].

         Section 35.       Ratification of Agreement.

         As  supplemented by this  Supplement,  the Agreement is in all respects
ratified and confirmed and the Agreement as so  supplemented  by this Supplement
shall be read, taken and construed as one and the same instrument.

         Section 36.       Counterparts.

         This Supplement may be executed in any number of counterparts,  each of
which  so  executed  shall  be  deemed  to be  an  original,  but  all  of  such
counterparts shall together constitute but one and the same instrument.

         Section 37.       GOVERNING LAW.

         THIS  SUPPLEMENT  SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF  CALIFORNIA  AND THE  OBLIGATIONS,  RIGHTS AND  REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS,  PROVIDED,  HOWEVER,
THAT THE  OBLIGATIONS,  RIGHTS AND  REMEDIES OF THE  TRUSTEE AND THE  COLLATERAL
TRUSTEE  SHALL BE  DETERMINED  IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW
YORK.

         Section 38.       The Trustee.

         The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency  of this  Supplement or for or in respect
of the recitals  contained herein,  all of which recitals are made solely by the
Transferor.

         Section 39.       Instructions in Writing.

         All instructions  given by the Servicer to the Trustee pursuant to this
Supplement shall be in writing,  and may be included in a certificate  delivered
pursuant to Section 3.4(b) of the Agreement.
                  [remainder of page intentionally left blank]


<PAGE>



         IN  WITNESS  WHEREOF,  the  parties  have  caused  this  Series  1997-1
Supplement  to be duly executed by their  respective  officers as of the day and
year first above written.


                                     AFG CREDIT CORPORATION,
                                     as Transferor


                                     By:
                                     Title:


                                     AMERICAN FINANCE GROUP, INC.,
                                     as Servicer


                                     By:
                                     Title:


                                     BANKERS TRUST COMPANY,
                                     as Trustee


                                     By:
                                     Title:


                                     BANKERS TRUST COMPANY,
                                     as Collateral Trustee

                                     By:
                                     Title:


                                     FIRST UNION CAPITAL MARKETS CORP.,
                                     as Deal Agent

                                     By:
                                     Title:



<PAGE>



                                    EXHIBIT A
                                       to
                      SERIES 1997-1 SUPPLEMENTAL INDENTURE

                           FORM OF SERIES 1997-1 NOTE


$                                                    [New York, New York]
                                                     October ____, 1997

THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE UNITED  STATES  SECURITIES  ACT OF
1933,  AS AMENDED . NEITHER  THIS NOTE NOR ANY PORTION  HEREOF MAY BE OFFERED OR
SOLD  EXCEPT  IN  COMPLIANCE  WITH THE  REGISTRATION  PROVISIONS  OF SUCH ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.

THIS NOTE IS NOT PERMITTED TO BE TRANSFERRED,  ASSIGNED,  EXCHANGED OR OTHERWISE
PLEDGED  OR  CONVEYED  EXCEPT  IN  COMPLIANCE  WITH THE  TERMS OF THE  INDENTURE
REFERRED TO HEREIN.

                                AFG MASTER TRUST
                               SERIES 1997-1 NOTE

         FOR  VALUE  RECEIVED,  the  undersigned,  the  AFG  Master  Trust  (the
"Trust"),  hereby  promises to pay on the Scheduled  Series  1997-1  Termination
Date,  to the order of at the office of [ ] located  at [ ], in lawful  money of
the United States of America and in immediately  available  funds, the aggregate
unpaid principal amount of this Note.

         The  undersigned  further  agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time at the applicable
rate per annum as specified in the Indenture  (as defined  below) until any such
amount  shall  become  due and  payable  (whether  at the  stated  maturity,  by
acceleration  or  otherwise),  and thereafter on such overdue amount at the rate
per annum set forth in the Indenture until paid in full.

         This  evidences  that  (the  "Noteholder")  is the  holder of this Note
secured by the assets of the Trust,  which  include a  portfolio  of leases (the
"Leases"),  the related Equipment,  all monies due or to become due with respect
thereto,  and the other  assets and  interest  constituting  the Trust Assets as
defined in the AFG Master Trust Pooling and Servicing Agreement and Indenture of
Trust,  dated  as of  July  1,  1995,  as  supplemented  by  the  Series  1997-1
Supplemental  Indenture thereto (collectively,  the "Indenture"),  by and among,
American Finance Group, Inc. ("AFG"), AFG Credit Corporation,  and Bankers Trust
Company, as trustee and as collateral trustee.

         THIS  NOTE IS AN  OBLIGATION  OF THE TRUST  AND DOES NOT  REPRESENT  AN
OBLIGATION  OF, OR AN INTEREST IN, AFG, THE TRUSTEE OR THE  COLLATERAL  TRUSTEE.
NONE OF THIS NOTE, THE LEASES,  THE RELATED  EQUIPMENT OR THE OTHER TRUST ASSETS
IS INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THIS NOTE
IS LIMITED IN RIGHT OF PAYMENT  SOLELY TO  CERTAIN  COLLECTIONS  RESPECTING  THE
LEASES AND TO THE OTHER TRUST ASSETS,  ALL AS MORE SPECIFICALLY SET FORTH IN THE
INDENTURE WITHOUT RECOURSE TO ANY OTHER ASSETS OR TO ANY OTHER PARTY, INCLUDING,
WITHOUT LIMITATION, AFG CREDIT CORPORATION.

         AFG Credit  Corporation  has  structured  the  Indenture and the Series
1997-1 Notes with the intention  that the Series 1997-1 Notes will qualify under
applicable  tax law as  indebtedness,  and  each  Series  1997-1  Noteholder  by
acceptance  of its  Series  1997-1  Note  agrees  to treat and to take no action
inconsistent  with the  treatment  of the Series  1997-1  Notes for  purposes of
federal,  state and local income or franchise taxes and any other tax imposed on
or measured by income, as indebtedness.

         To the extent not defined  herein,  capitalized  terms used herein have
the meanings  assigned in the Indenture,  which more specifically sets forth the
rights  of the  Noteholders.  This Note is issued  under and is  subject  to the
terms,  provisions  and  conditions  of the  Indenture,  and the terms set forth
herein are qualified thereby.  The Noteholder by virtue of its acceptance hereof
assents to and is bound by the Indenture, as amended from time to time.

         This Note is one of a series of Notes entitled "AFG Master Trust Series
1997-1 Notes" (the "Series 1997-1 Notes") which  represents the right to receive
interest  payments  and a return of  principal  as  described  herein and in the
Indenture,  including the right to receive the  Collections and other amounts at
the times and in the amounts  specified in the  Indenture to be deposited in the
Series  Accounts  maintained for the benefit of such Notes or paid to the Series
1997-1 Noteholders.

         Series  1997-1  Note  Interest  will  be  distributed  monthly  on  the
fifteenth Business Day of each calendar month, or if such fifteenth day is not a
Business Day, the next succeeding  Business Day (a "Distribution  Date"). In the
case of the  first  interest  payment,  interest  will  accrue  from the date of
issuance and in the case of subsequent  interest payments,  interest will accrue
from the preceding  Distribution  Date in each case to but excluding the date of
payment thereof (an "Accrual  Period").  On each  Distribution  Date, the Paying
Agent  shall pay to the  Noteholder  of record  its pro rata share of the amount
deposited into the Distribution Account pursuant to the Indenture on the related
Transfer  Date. On each  Distribution  Date  occurring  during the  Amortization
Period,  the Paying Agent shall pay to the  Noteholder its pro rata share of the
Percentage  of  the  Target   Repayment   Amount  for  Series  1997-1  for  such
Distribution Date.

         The Deal Agent is  authorized to endorse on Schedule I attached to this
Note all increases and decreases in the principal  amount of this Note,  and all
payments made on account of the principal  amount  thereof,  which  endorsements
shall,  in the absence of manifest  error,  be conclusive as to the  outstanding
balance hereunder; provided, however, that the failure to make any such notation
shall not limit or otherwise affect the obligations of the undersigned under the
Indenture or this Note.

         No recourse may be taken,  directly or indirectly,  with respect to the
obligations  of the  Transferor,  the  Trustee  or  the  Collateral  Trustee  in
connection  herewith,  against: (i) the Trustee or the Collateral Trustee in its
individual capacity;  (ii) any owner of a beneficial interest in the Transferor;
or (iii) any partner, owner, beneficiary,  agent, officer, director, employee or
agent of the Trustee or the Collateral  Trustee in their individual  capacities,
any  holder of a  beneficial  interest  in the  Transferor,  the  Trustee or the
Collateral  Trustee  or of  any  successor  or  assign  of  the  Trustee  or the
Collateral Trustee in their individual capacities (or any of their successors or
assigns),  except  as any  such  Person  may have  expressly  agreed  (it  being
understood that the Trustee and the Collateral  Trustee have no such obligations
in their  individual  capacities)  and except  that any such  partner,  owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid  consideration for stock,  unpaid capital  contribution or failure to
pay any installment or call owing to such entity.

         Subject to the limitations set forth herein,  the transfer of this Note
shall be registered in the Register upon surrender of this Note for registration
of  transfer  at any  office  or agency  maintained  by the  Transfer  Agent and
Registrar accompanied by a written instrument of transfer in a form satisfactory
to the  Trustee  and the  Transfer  Agent and  Registrar  duly  executed  by the
Noteholder  or such  Noteholder's  attorney  duly  authorized  in  writing,  and
thereupon  one or more new Notes of  authorized  denominations  and for the same
aggregate  principal  amount  will be issued  to the  designated  transferee  or
transferees.

         The Trustee, the Paying Agent and the Transfer Agent and Registrar, and
any  agent of any of them,  may  treat  the  Person  in whose  name this Note is
registered  as the owner hereof for all purposes,  and neither the Trustee,  the
Paying  Agent,  the Transfer  Agent and  Registrar  nor any agent of any of them
shall be  affected  by notice to the  contrary  except in certain  circumstances
described in the Indenture.

         The rights  evidenced  by this Note  created by the  Indenture  and the
Trust shall  terminate on the earlier of (i) the day, if any,  designated by AFG
Credit Corporation after the Distribution Date following the date on which funds
shall have been  deposited in the  Distribution  Account  sufficient  to pay the
aggregate Principal Amount plus Series 1997-1 Note Interest accrued through such
Distribution  Date in full and (ii) the day on which final payment is made under
the Notes,  but in no event later than the Scheduled  Series 1997-1  Termination
Date.

         Upon the occurrence of any one or more of the Pay Out Events  specified
in the Indenture all amounts then remaining unpaid on this Note shall become, or
may be declared to be, immediately due and payable all as provided therein.

         THIS NOTE  SHALL BE  GOVERNED  BY, AND  CONSTRUED  AND  INTERPRETED  IN
ACCORDANCE  WITH,  THE LAWS OF THE  STATE OF  CALIFORNIA,  AND THE  OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES  HEREUNDER  SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE OBLIGATIONS,  RIGHTS AND REMEDIES OF
THE TRUSTEE SHALL BE DETERMINED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW
YORK.

         Unless the note of  authentication  hereon has been  executed  by or on
behalf of the  Trustee,  by manual or facsimile  signature of a duly  authorized
signatory,  this Note shall not be entitled to any benefit under the  Indenture,
or be valid for any purpose.

         IN WITNESS WHEREOF,  the Trustee on behalf of the Trust has caused this
Note to be duly executed.

                               AFG MASTER TRUST

                      By:      BANKERS TRUST COMPANY,
                               not in its individual capacity but solely as
                               Trustee on behalf of the Trust

                      By:
                      Title:



<PAGE>



                     Trustee's Certificate of Authentication

         This  is one of the  Series  1997-1  Notes  referred  to in the  within
mentioned Indenture.

                                         BANKERS TRUST COMPANY,
                                         as Trustee


                                         By:



<PAGE>


Date of Increase        Principal Amount     Principal Amount
Decrease, or              of Increase          of Decrease
Prepayment


Principal Amount            Outstanding Principal
of Repayment                         Amount