<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 333-9371
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
38-3304095
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(IRS Employer Identification Number)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
--------------------------------------------
(Address of principal executive offices, including zip code)
(734) 994-5505
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court: Not applicable
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Not applicable
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
ITEM NO. PAGE
-------- ----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet, June 30, 2000 and December 31, 1999 3
Statement of Operations for the three and six months
ended June 30, 2000 and 1999 4
Statement of Changes in Partners' Capital for the six months
ended June 30, 2000 5
Statement of Cash Flows for the six months
ended June 30, 2000 and 1999 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-10
PART II OTHER INFORMATION
Other Information 11-12
SIGNATURES 13
</TABLE>
2
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
JUNE 30, DECEMBER 31,
2000 1999
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,351,213 $ 701,725
Restricted cash 48,567 214,035
Investment in property under leases:
Operating leases, net 25,011,222 25,199,728
Financing leases, net 6,183,349 7,419,695
Accounts receivable 14,732 32,647
Unbilled rent, net 561,484 389,496
Due from related parties 28,833 40,477
Deferred financing costs, net 505,915 535,675
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Total assets $ 33,705,315 $ 34,533,478
============= =============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Notes payable $ 9,651,000 $ 9,651,000
Accounts payable and accrued expenses 91,251 128,274
Due to related parties 41,340 53,113
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Total liabilities 9,783,591 9,832,387
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Partners' capital:
Limited partners' capital accounts 23,936,249 24,717,802
General partner's capital accounts (14,525) (16,711)
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Total partners' capital 23,921,724 24,701,091
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Total liabilities & partners' capital $ 33,705,315 $ 34,533,478
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Rental income $ 731,541 $ 643,151 $1,451,713 $1,249,011
Finance income 153,806 210,587 306,293 411,402
---------- ---------- ---------- ----------
Total operating revenue 885,347 853,738 1,758,006 1,660,413
Operating costs and expenses:
Interest expense 214,067 214,520 428,134 359,760
Depreciation 93,986 75,432 188,505 148,043
General and administrative 18,149 43,322 44,729 62,998
---------- ---------- ---------- ----------
Total operating costs and expenses 326,202 333,274 661,368 570,801
---------- ---------- ---------- ----------
Income from operations 559,145 520,464 1,096,638 1,089,612
Other income (expense):
Interest and other income 50 21,900 50 25,708
Gain on sale of equipment -- -- 42,433 --
---------- ---------- ---------- ----------
Total other income (expense) 50 21,900 42,483 25,708
---------- ---------- ---------- ----------
Net income 559,195 542,364 1,139,121 1,115,320
Net income allocable to general partner 5,592 5,424 11,391 11,153
---------- ---------- ---------- ----------
Net income allocable to limited partners $ 553,603 $ 536,940 $1,127,730 $1,104,167
========== ========== ========== ==========
Net income per limited partnership unit $ 18.59 $ 17.90 $ 37.81 $ 36.81
========== ========== ========== ==========
Weighted average number of limited partnership
units outstanding 29,773 29,997 29,828 29,999
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Limited Limited General Total
Partners' Partners' Partner's Partners'
Units Accounts Accounts Capital
<S> <C> <C> <C> <C>
Balance, December 31, 1999 29,883 $ 24,717,802 $ (16,711) $ 24,701,091
Distributions - ($60.79 per unit) - (1,810,001) (9,205) (1,819,206)
Repurchase of limited partnership units (110) (99,282) (99,282)
Net income - 1,127,730 11,391 1,139,121
------------ ------------ ------------ ------------
Balance, June 30, 2000 29,773 $ 23,936,249 $ (14,525) $ 23,921,724
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,139,121 $ 1,115,320
Adjustments to net income:
Depreciation 188,505 148,043
Amortization of debt issuance costs 29,760 29,454
Gain on sale of equipment (42,433) -
Increase in unbilled rent (171,988) (103,833)
Decrease in accounts receivable 17,915 70,350
(Decrease) increase in accounts payable and accrued expenses (37,023) 106,954
Decrease in due from related parties 11,644 160,294
Decrease in due to related parties (11,773) (41,894)
Decrease in restricted cash 165,468 842,271
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Net cash provided by operating activities 1,289,196 2,326,959
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Cash flows from investing activities:
Purchase and construction advances for properties
subject to operating leases - (3,807,428)
Proceeds from sale of equipment 611,121 -
Purchase of equipment and real estate subject to financing leases - (1,131,619)
Principal collections on financing leases 667,659 599,612
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Net cash used in investing activities 1,278,780 (4,339,435)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable - 3,276,000
Debt issuance costs - (195,857)
Repurchase of limited partnership units (99,282) (2,571)
Distributions to limited partners (1,810,001) (1,632,499)
Distributions to general partner (9,205) (35,791)
----------- -----------
Net cash provided by financing activities (1,918,488) 1,409,282
----------- -----------
Net (decrease) in cash and cash equivalents 649,488 (603,194)
Cash and cash equivalents, beginning of period 701,725 1,902,158
----------- -----------
Cash and cash equivalents, end of period $ 1,351,213 $ 1,298,964
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Partners L.P. IV (the "Partnership"), a
Delaware limited partnership, was formed on July 23, 1996 for the
purpose of acquiring income-producing commercial real properties and
equipment leased on a "triple net" or "double net" basis, primarily to
operators of national and regional chain and nationally franchised fast
food and family style restaurants, as well as other national and
regional retail chains. The general partners of the Partnership upon
formation of the Partnership were Captec Franchise Capital Corporation
IV (the "Corporation"), a wholly owned subsidiary of Captec Financial
Group, Inc. ("Captec"), and Patrick L. Beach, an individual,
hereinafter collectively referred to as the Sponsor. Patrick L. Beach
is also the Chairman of the Board of Directors, President and Chief
Executive Officer of the Corporation and Captec. In August, 1998 the
general partnership interest of the Partnership was acquired by Captec
Net Lease Realty, Inc., an affiliate of Captec, for $2,912,000.
The Partnership commenced a public offering of limited partnership
interest units on December 23, 1996. A maximum of 30,000 units, priced
at $1,000 per unit, were offered on a "best efforts, part or none"
basis. The Partnership broke impound on March 5, 1997, and the
Partnership immediately commenced operations. The Partnership completed
the sale of all 30,000 units in 1998. During 1999 the Partnership
repurchased a total of 117 units for $105,399, or 90% of the investor's
capital account. An additional 110 units were repurchased on April 1,
2000 for $99,282, or 100% of the investor's original investment less
50% of cumulative dividends paid to date. The repurchase of the units
was completed pursuant to the terms of the Repurchase Plan set forth in
the Partnership's Prospectus. At June 30, 2000, the Partnership had
29,773 units issued and outstanding.
Allocation of profits, losses and cash distributions from operations
and cash distributions from sale or refinancing are made pursuant to
the terms of the Partnership Agreement. Profits and losses from
operations are allocated among the limited partners based upon the
number of units owned.
The balance sheet of the Partnership as of June 30, 2000 and the
statements of operations and cash flows for the period ending June 30,
2000 and 1999 have not been audited. In the opinion of the Management,
these unaudited financial statements contain all adjustments necessary
to present fairly the financial position and results of operations and
cash flows of the Partnership for the periods then ended. Results of
operations for the interim periods are not necessarily indicative of
results for the full year. These unaudited financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Partnership's annual report on Form 10-K for the year
ended December 31, 1999 filed with the United States Securities and
Exchange Commission on March 30, 2000.
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of June 30, 2000 is comprised
of the following:
<TABLE>
<S> <C>
Land $ 10,635,450
Building and improvements 15,033,423
------------
25,668,873
Less accumulated depreciation (657,651)
------------
Total $ 25,011,222
============
</TABLE>
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of June 30, 2000 is comprised
of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $ 8,190,189
Estimated residual value 232,697
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Gross investment in financing leases 8,422,886
Less unearned income (2,021,560)
Less direct origination costs (217,977)
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Net investment in financing leases $ 6,183,349
=============
</TABLE>
4. NOTES PAYABLE:
In November, 1998, the Partnership entered into a $6.375 million term
note, the proceeds of which were used to acquire additional properties.
The note has a 10-year term, is collaterized by certain properties
subject to operating leases, and bears an interest rate of 8.13% per
annum.
In March, 1999, the Partnership entered into an additional $3.3 million
term note. The note also has a 10-year term, is collaterized by certain
properties subject to operating leases, and bears an interest rate of
8.5% per annum.
Debt issuance costs of approximately $595,500 in aggregate were
incurred in connection with the issuance of the notes, and are being
amortized using the straight-line method over the 10-year term.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
When used in this discussion, the words, "intends", "anticipates", "expects",
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Such risks and
uncertainties include the following: (i) a tenant may default in making rent
payments, (ii) a fire or other casualty may interrupt the cash flow stream from
a property, (iii) the properties may not be able to be leased at the assumed
rental rates, (iv) unexpected expenses may be incurred in the ownership of the
properties, and (v) properties may not be able to be sold at the presently
anticipated prices and times.
As a result of these and other factors, the Partnership may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition and
operating results. These forward-looking statements speak only as of the date
hereof. The Partnership undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000. During the three months ended June 30, 2000
total operating revenue increased 4% to $885,000 as compared to $854,000 for the
three months ended June 30, 1999. Rental revenue from operating leases for the
three months ended June 30, 2000 increased 14% to $732,000 as compared to
$643,000 for the three months ended June 30, 1999 primarily from the benefit of
a full period of rental revenue from properties acquired and leased in
preceeding periods. Earned income from financing leases for the three months
ended June 30, 2000 decreased 27% to $154,000 as compared to $211,000 for the
three months ended June 30, 1999 due to the sale of one equipment lease and the
amortization of principal balances.
Operating expenses were approximately $326,000 for the three months ended June
30, 2000 as compared to $333,000 for the three months ended June 30, 1999. Total
operating expenses for the three months ended June 30, 2000 is comprised of
$94,000 of depreciation expense, $18,000 of general and administrative expenses,
and $214,000 of interest expense. The decrease in operating expenses for the
three months ended June 30, 2000 as compared to the three months ended June 30,
1999 is primarily due to cost savings achieved in general and administrative
expenses offset by an increase in depreciation expense for new property
acquisitions.
Other income for the three months ended June 30, 2000 decreased to $50 as
compared to $21,900 for the three months ended June 30, 1999 as a result of
holdback funds released from third party lender no longer earning interest.
As a result of the foregoing, the Partnership's net income increased 3% to
$559,000 for the three months ended June 30, 2000 as compared to $542,000 for
the three months ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000. During the six months ended June 30, 2000 total
operating revenue increased 6% to $1,758,000 as compared to $1,660,000 for the
six months ended June 30, 1999. Rental revenue from operating leases for the
three months ended June 30, 2000 increased 16% to $1,452,000 as compared to
$1,249,000 for the six months ended June 30, 1999 primarily from the benefit of
a full period of rental revenue from properties acquired and leased in
preceeding periods. Earned income from financing leases for the six months ended
June 30, 2000 decreased 26% to $306,000 as compared to
9
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
$411,000 for the six months ended June 30, 1999 due to the sale of one equipment
lease and the amortization of principal balances.
Operating expenses were approximately $661,000 for the six months ended June 30,
2000 as compared to $571,000 for the six months ended June 30, 1999. Total
operating expenses for the six months ended June 30, 2000 is comprised of
$188,000 of depreciation expense, $45,000 of general and administrative
expenses, and $428,000 of interest expense. The increase in operating expenses
for the six months ended June 30, 2000 as compared to the six months ended June
30, 1999 is primarily due to additional interest expense related to the note
payable issued in March 1999, and increased depreciation expense for new
property acquisitions.
Other income for the six months ended June 30, 2000 increased to $42,000 as
compared to $26,000 for the six months ended June 30, 1999 as a result of a gain
on the sale of one equipment lease.
As a result of the foregoing, the Partnership's net income increased 2% to
$1,139,000 for the six months ended June 30, 2000 as compared to $1,115,000 for
the six months ended June 30, 1999.
DISTRIBUTIONS. The Partnership announced second quarter distributions of
$900,000, of which $784,166 was distributed to its Limited Partners on July 14,
2000 and the remaining $115,834 will be distributed to those limited partners
who elected to receive distributions on a monthly basis.
LIQUIDITY AND CAPITAL COMMITMENTS
The Partnership commenced the offering of up to 30,000 limited partnership units
registered under the Securities Act of 1933, as amended, by means of a
Registration Statement which was declared effective by the Securities and
Exchange Commission on December 23, 1996. The Offering reached final funding in
December, 1998 with subscriptions for the entire offering of 30,000 units. Net
proceeds after offering expenses were approximately $26.1 million.
In December, 1998 the Partnership entered into a $6.375 million term note. The
Partnership entered into an additional $3.276 million term note in June, 1999.
Proceeds from the notes were used to acquire additional properties. The notes
have a 10-year term, are collaterized by certain properties subject to operating
leases, and bear interest at rates ranging from 8.13 to 8.5% per annum. Debt
issuance costs of approximately $595,500 in aggregate incurred in connection
with the issuance of the notes are being amortized into interest expense over
the life of the notes using the straight-line method.
At June 30, 2000 the Partnership had a portfolio of 20 properties located in 10
states, with a cost of $26.8 million, and 23 equipment leases with an original
investment of $7.7 million. As of June 30, 2000 the Partnership's investments
were allocated approximately 78% to properties and 22% to equipment.
The Partnership expects to require limited amounts of liquid assets since the
properties and equipment leases require the lessees to pay all taxes and
assessments, maintenance and repair items (except, with respect to double net
properties, costs associated with maintenance and repair of the exterior walls
and roof of the property) and insurance premiums, including casualty insurance.
The general partners expect that the cash flow to be generated by the
Partnership's properties and equipment will be adequate to pay operating
expenses and provide distributions to Limited Partners.
10
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
11
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein or incorporated by
reference:
Number Exhibit
4 Agreement of Limited Partnership of Registrant. (Incorporated
by reference from Exhibit B of the final Prospectus dated
December 23, 1996, as supplemented and filed with the
Securities and Exchange Commission, SEC File No. 333-9371)
4.1 Amended Agreement of Limited Partnership of Registrant.
(Incorporated by reference to the corresponding exhibit in the
Registrant's Form 10-K for the year ended December 31, 1998)
10.1 Promissory Note dated December 17, 1998 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrant's Form 10-K for the
year ended December 31, 1998)
10.2 Promissory Note dated June 30, 1999 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrant's Form 10-Q for the
quarter ended June 30, 1999)
27 Financial Data Schedule
99.1 Pages 35-42 of the final Prospectus dated December 23, 1997 as
supplemented. (Incorporated by reference from the final
Prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) promulgated under the Securities Act
of 1933, as amended. SEC File No. 333-9371)
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended June 30, 2000.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. IV
By: /s/ W. Ross Martin
--------------------------------------------
W. Ross Martin
Executive Vice President,
Chief Financial Officer
Date: August 14, 2000
13
<PAGE> 14
Exhibit Index
Number Exhibit
4 Agreement of Limited Partnership of Registrant. (Incorporated
by reference from Exhibit B of the final Prospectus dated
December 23, 1996, as supplemented and filed with the
Securities and Exchange Commission, SEC File No. 333-9371)
4.1 Amended Agreement of Limited Partnership of Registrant.
(Incorporated by reference to the corresponding exhibit in the
Registrant's Form 10-K for the year ended December 31, 1998)
10.1 Promissory Note dated December 17, 1998 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrant's Form 10-K for the
year ended December 31, 1998)
10.2 Promissory Note dated June 30, 1999 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrant's Form 10-Q for the
quarter ended June 30, 1999)
27 Financial Data Schedule
99.1 Pages 35-42 of the final Prospectus dated December 23, 1997 as
supplemented. (Incorporated by reference from the final
Prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) promulgated under the Securities Act
of 1933, as amended. SEC File No. 333-9371)
