UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)
    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2001

    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934

        For the transition period ended  ______________to________________

                        Commission file number 333-35063


                               Baron Capital Trust

        (Exact name of small business issuer as specified in its charter)

                  Delaware                               31-1574856

         (State or other jurisdiction                  (IRS Employer
      of incorporation or organization)              Identification No.)

                    7800 Cooper Road, Cincinnati, Ohio 45242

                    (Address of principal executive offices)

                                 (513) 936-3408
                           (Issuer's telephone number)

Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

Yes  [x]    No [ ]

As of the date of this Report, the Registrant has outstanding  953,131 shares of
beneficial interest ("Common Shares"), its only class of common equity.


<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

          See following pages.



                                        2
<PAGE>

                               BARON CAPITAL TRUST

                      CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      June 30,       December 31,
                                                                        2001             2000
                                                                    ------------     ------------
                                                                    (Unaudited)
                                     ASSETS
<S>                                                                 <C>              <C>
Rental Apartments:
   Land                                                             $  5,643,600     $  5,643,600
   Rental property held for sale                                              --        3,635,000
   Depreciable property                                               26,198,532       26,091,407
                                                                    ------------     ------------
                                                                      31,842,132       35,370,007
   Less accumulated depreciation                                       2,800,238        2,304,148
                                                                    ------------     ------------
                                                                      29,041,894       33,065,859

Cash                                                                     265,839           20,908
Restricted Cash                                                          551,947          359,894
Receivables from Affiliates                                            7,042,881        6,580,099
Other Property and Equipment                                              92,136          105,960
Other Assets                                                             812,431          910,162
                                                                    ------------     ------------
                                                                    $ 37,807,128     $ 41,042,882
                                                                    ============     ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Mortgages payable                                                $ 22,866,367     $ 23,540,172
   Accounts payable and accrued liabilities                            1,322,791        2,129,615
   Notes payable                                                       1,975,027        2,482,498
   Payables to affiliates                                                772,145        2,237,762
   Security deposits                                                     200,475          208,406
                                                                    ------------     ------------
         Total liabilities                                            27,136,805       30,598,453
                                                                    ------------     ------------

Commitments, Contingencies, Subsequent Events and Other Matters               --               --

Shareholders' Equity:
   Common shares of beneficial interest, no par value; 2,500,000
      shares authorized; 940,891 shares issued and outstanding        18,875,273       18,875,273
   Deficit                                                            (7,862,443)      (8,088,337)
   Distributions                                                        (342,507)        (342,507)
                                                                    ------------     ------------
         Total shareholders' equity                                   10,670,323       10,444,429
                                                                    ------------     ------------
                                                                    $ 37,807,128     $ 41,042,882
                                                                    ============     ============
</TABLE>


           See notes to consolidated condensed financial statements.

                                       F-1
<PAGE>

                               BARON CAPITAL TRUST

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                Six Months Ended               Three Months Ended
                                                                    June 30,                        June 30,
                                                          ---------------------------     ---------------------------
Revenues:                                                     2001            2000            2001            2000
                                                          -----------     -----------     -----------     -----------
   Property:                                                                RESTATED                        RESTATED
<S>                                                       <C>             <C>             <C>             <C>
      Rental                                              $ 2,944,995     $ 1,744,759     $ 1,375,513     $ 1,477,091
      Equity in net loss of unconsolidated partnership             --         (78,994)             --         (41,154)
   Interest and other income                                  674,226         368,134         418,867         342,594
                                                          -----------     -----------     -----------     -----------
                                                            3,619,221       2,033,899       1,794,380       1,778,531
                                                          -----------     -----------     -----------     -----------

Real Estate Expenses:
   Depreciation                                               496,091         341,227         196,847         306,264
   Amortization of loan costs                                  39,086          57,981          20,881          52,119
   Interest                                                 1,015,302         555,515         492,610         470,056
   Repairs and maintenance                                    402,739         280,564         237,359         107,251
   Personnel                                                  426,997         265,376         218,790         262,266
   Property taxes                                             263,833         147,818         122,856         127,914
   Property insurance                                          65,555          38,030          35,400          32,670
   Utilities                                                  288,181         144,154         134,722         130,780
   Other                                                      126,510          89,368          99,219         204,076
                                                          -----------     -----------     -----------     -----------
                                                            3,124,294       1,920,033       1,558,684       1,693,396
                                                          -----------     -----------     -----------     -----------

Administrative Expenses:
   Personnel, including officer's compensation                304,528         535,461         149,238         375,843
   Professional services                                       68,945         254,039           2,862          92,919
   Other                                                      245,910         209,623         139,938         245,148
                                                          -----------     -----------     -----------     -----------
                                                              619,383         999,123         292,038         713,910
                                                          -----------     -----------     -----------     -----------

Loss Before Other Expenses and Extraordinary Item            (124,456)       (885,257)        (56,342)       (628,775)
                                                          -----------     -----------     -----------     -----------

Other Expenses:
   Prepayment penalties                                       534,075              --              --              --
   Write-off of loan costs on refinanced loans                148,230              --              --              --
   Loss on sale of investment held for sale                   210,854              --         210,854              --
                                                          -----------     -----------     -----------     -----------
                                                              893,159              --         210,854              --
                                                          -----------     -----------     -----------     -----------

Loss Before Extraordinary Item                             (1,017,615)       (885,257)       (267,196)       (628,775)
                                                          -----------     -----------     -----------     -----------

Extraordinary Item - Extinguishment of Debt:
    Affiliates                                              1,132,009              --       1,132,009              --
    Former Chief Executive Officer                            111,500              --         111,500              --
                                                          -----------     -----------     -----------     -----------
                                                            1,243,509              --       1,243,509              --
                                                          -----------     -----------     -----------     -----------

Net Income (Loss)                                         $   225,894     $  (885,257)    $   976,313     $  (628,775)
                                                          ===========     ===========     ===========     ===========

Income (Loss) Per Share - Basic and Diluted :

     Before Extraordinary Item                                  (1.23)          (1.28)          (0.32)          (0.90)
                                                          ===========     ===========     ===========     ===========

     Extraordinary Item                                          1.51              --            1.49              --
                                                          ===========     ===========     ===========     ===========

     Net Income (Loss)                                           0.28           (1.28)           1.17           (0.90)
                                                          ===========     ===========     ===========     ===========

Weighted Average Number of Common Shares Outstanding          825,017         690,306         833,947         698,947
                                                          ===========     ===========     ===========     ===========
</TABLE>


           See notes to consolidated condensed financial statements.

                                       F-2
<PAGE>

                               BARON CAPITAL TRUST

            CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                         Common Shares of
                                                        Beneficial Interest
                                                     ------------------------
                                                       Shares       Amount         Deficit      Distributions     Total
                                                     ---------    -----------    -----------    -------------  ------------
<S>                                                    <C>        <C>            <C>             <C>           <C>
Balance, December 31, 1999                             675,086    $ 6,616,806    $(4,743,987)    $(342,507)    $  1,530,312
                                                     ---------    -----------    -----------     ---------     ------------

Year Ended December 31, 2000:
   Proceeds from sale of common shares of
      beneficial interest, net of offering costs        26,990        248,308             --            --          248,308
   Common shares issued in connection with
      Exchange Offering                              2,449,492     11,793,159             --            --       11,793,159
   Conversion of Operating Partnership units
      for shares of beneficial interest                113,912             --             --            --               --
   Shares issued as commissions to broker-dealers
      in connection with Exchange Offering             124,903             --             --            --               --
   Credit for estimated fair value of
      services performed by officer                         --        217,000             --            --          217,000
   Net loss                                                 --             --     (3,344,350)           --       (3,344,350)
                                                     ---------    -----------    -----------     ---------     ------------

Balance, December 31, 2000                           3,390,383     18,875,273     (8,088,337)     (342,507)      10,444,429
                                                     ---------    -----------    -----------     ---------     ------------

Net Income (Unaudited)                                      --             --        225,894            --          225,894
                                                     ---------    -----------    -----------     ---------     ------------

Balance, June 30, 2001(Unaudited)                    3,390,383    $18,875,273    $(7,862,443)    $(342,507)    $ 10,670,323
                                                     =========    ===========    ===========     =========     ============
</TABLE>

           See notes to consolidated condensed financial statements.

                                       F-3
<PAGE>

                               BARON CAPITAL TRUST

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  Six Months Ended
                                                                                      June 30,
                                                                             -------------------------
                                                                                 2001           2000
                                                                             -----------     ---------
                                                                                              RESTATED
                                                                                              --------
<S>                                                                          <C>             <C>
Cash Flows from Operating Activities:
   Net income (loss)                                                         $   225,894     $(885,257)
   Adjustments to reconcile net income (loss) to
      net cash used in operating activities:
         Credit for estimated fair value of services performed by officer             --       108,500
         Extinguishment of debt                                               (1,379,254)
         Depreciation                                                            479,684       341,227
         Loss on sale of asset held for investment                               210,854
         Amortization of loan costs                                               39,086        57,981
         Write-off of loan costs on refinanced loans                             148,230            --
         Equity in net loss of unconsolidated partnership                             --        78,994
         Increase in operating assets:
            Other receivables                                                         --        (2,885)
            Other assets                                                         (89,585)      (63,667)
         Increase (decrease) in operating liabilities:
            Accounts payable and accrued liabilities                            (784,018)      148,148
            Security deposits                                                     (7,931)        3,512
                                                                             -----------     ---------
               Net cash used in operating activities                          (1,157,040)     (213,447)
                                                                             -----------     ---------

Cash Flows from Investing Activities:
   Proceeds from the sale of investment held for sale, net                     3,424,146
   Additions to rental apartments                                                (72,195)      (78,205)
   Purchases of other property and equipment                                      (4,700)       (4,979)
   Cash distributions from partnerships                                                          6,082
   Increase in restricted cash                                                  (192,053)      (48,610)
                                                                             -----------     ---------
               Net cash provided by (used in) investing activities             3,155,198      (125,712)
                                                                             -----------     ---------

Cash Flows from Financing Activities:
   Proceeds from mortgage refinancings                                         6,500,000            --
   Proceeds from sale of common shares of beneficial interest                         --       248,308
   Proceeds from notes payable                                                        --        90,000
   Payments on notes payable                                                    (507,471)
   Payments on notes payable, affiliates                                              --       (90,644)
   Payments on mortgages payable                                              (7,173,805)      (99,242)
   Increase (decrease) in loans payable to affiliates, net                      (571,951)      284,335
                                                                             -----------     ---------
               Net cash (used in) provided by financing activities            (1,753,227)      432,757
                                                                             -----------     ---------

Net Increase in Cash                                                             244,931        93,598

Cash, Beginning                                                                   20,908        33,774
                                                                             -----------     ---------

Cash, Ending                                                                 $   265,839     $ 127,372
                                                                             ===========     =========

Supplemental Disclosure of Cash Flow Information:
   Cash paid for mortgage and other interest                                 $ 1,128,241     $ 555,515
                                                                             ===========     =========
</TABLE>

           See notes to consolidated condensed financial statements.

                                       F-4
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                             JUNE 30, 2001 AND 2000

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation

          The  unaudited  consolidated  condensed  balance  sheet as of June 30,
          2001, and the related unaudited  consolidated  condensed statements of
          operations  and cash flows for the six months  ended June 30, 2001 and
          2000  (as  restated),   and  the  unaudited   consolidated   condensed
          statements of  shareholders'  equity for the six months ended June 30,
          2001 have been  prepared by the Trust.  In the opinion of  management,
          all adjustments (which include  reclassifications and normal recurring
          adjustments)  necessary  to  present  fairly the  financial  position,
          results  of  operations  and cash  flows at June 30,  2001 and for the
          period  presented,  have been made.  The results of operations for the
          six months ended June 30, 2001 are not  necessarily  indicative of the
          operating results for the full year.

          As a result of certain  adjustments  in  connection  with the  Trust's
          consolidated  financial  statements  for the year ended  December  31,
          2000,  management  determined to restate its Forms 10-QSB and 10-QSB/A
          for the quarter  ended June 30, 2000 as  previously  filed on December
          22, 2000 and March 1, 2001,  respectively.  The Trust  included in its
          original June 30, 2000  financial  statements a provision for property
          impairment of $8,356,638, which was a result of writing off the excess
          of the  recorded  value of the Exchange  Partnerships  acquired in the
          Exchange  Offering  over the  estimated  current value of the Exchange
          Partnerships.  The provision for property  impairment  was a result of
          calculating  the recorded value at the date of the exchange  (April 1,
          2000) with incomplete information.  As a result, adjustments were made
          to the recorded value based on information not previously available to
          the Trust. Had the Trust been aware of this information at the time of
          filing the June 30, 2000 Forms 10-QSB and 10-QSB/A,  the provision for
          property  impairment  of  $8,356,638  would  not have  been  recorded.
          Instead an adjustment of  $11,005,924  would have been recorded to the
          consolidated balance sheet as an adjustment to the recorded amounts of
          land,  depreciable  property,  advances to  affiliates  and  partners'
          capital to  reflect  the  estimated  fair  value of such  assets.  The
          amounts contained herein reflect those changes.

          Certain information and footnote  disclosures normally included in the
          financial  statements  prepared in accordance with generally  accepted
          accounting  principles have been condensed or omitted. It is suggested
          that these  consolidated  financial  statements be read in conjunction
          with the Trust's  financial  statements and notes thereto  included in
          the Trust's December 31, 2000 10-KSB.

          Organization and Capitalization

          Baron Capital Trust (the "Trust") was organized as a business trust in
          Delaware on July 31, 1997. The Trust and its affiliate,  Baron Capital
          Properties, L.P. (the "Operating Partnership" or the "Partnership"), a
          Delaware  limited  partnership,  have been organized to acquire equity
          interests in residential  apartment  properties  located in the United
          States and to provide or acquire debt  mortgage  loans secured by such
          types of property.


                                       F-5
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Organization and Capitalization (continued)

          The  Managing  Shareholder  of the Trust is Baron  Advisors,  Inc.,  a
          Delaware corporation which manages the operations of the Trust and the
          Operating  Partnership  subject to the  supervisory  authority  of the
          Board of the Trust over the  activities of the Trust and the Operating
          Partnership  and the Board's  prior  approval  authority in respect of
          certain actions of the Trust and the Operating  Partnership  specified
          in the Declaration of Trust of the Trust.

          The Trust's Declaration authorizes it to issue up to 25,000,000 shares
          of beneficial interest,  no par value per share,  consisting of common
          shares and of preferred shares of such classes with such  preferences,
          conversion or other rights, voting powers,  restrictions,  limitations
          as to dividends,  qualifications, or terms or conditions of redemption
          as the Managing Shareholder may create and authorize from time to time
          in accordance with Delaware law and the Declaration.

          The Trust  commenced  operations on February 3, 1998, at which time it
          received its initial capital contribution.

NOTE 2.  LIQUIDITY AND PROFITABILITY CONSIDERATIONS

          During  the  years  ended  December  31,  2000  and  1999,  the  Trust
          experienced  certain cash flow  problems  and has,  from time to time,
          experienced  difficulties  meeting  obligations  as they  became  due.
          However,  as  reflected  in the  accompanying  consolidated  condensed
          financial statements, during the first six months ended June 30, 2001,
          the Trust generated Funds From Operations  (Funds from Operations is a
          measure of  profitability  in the REIT  industry  measuring net income
          less  depreciation,  amortization,  and other  non-operating  expenses
          and/or income) of  approximately  $411,000  versus negative Funds From
          Operations of approximately $417,000 for the six months ended June 30,
          2000.

          During the first quarter of 2001,  management  refinanced three of its
          properties, which generated $1,632,000 of cash to the Trust. This cash
          was used to reduce accounts  payable owed by the Trust,  advance funds
          for a second  round of  refinancings,  and  establish  an  escrow  for
          expected major repairs to its Riverwalk property.

          Management's plans to continue  improving  liquidity and profitability
          encompass the following four strategies:

          o    increase property cash collections through implementation of
               utility billings, rent increases and property enhancements;

          o    refinance selected well performing assets;

          o    dispose of assets which do not generate cash  sufficient to cover
               operating costs or whose geographic  location  creates  excessive
               burden; and

          o    reduce corporate overhead.

          In implementing these strategies, management has adopted the following
          action plans:


                                       F-6
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 2. LIQUIDITY AND PROFITABILITY CONSIDERATIONS (Continued)

          o    In many locations, the market for apartments has started to
               include re-billing of property water costs to tenants. The Trust
               has initiated billing of tenants for their water used at several
               locations and intends to continue implementation of the strategy
               at other properties as the markets permit. The Trust has also
               started a program of enhancing the aesthetics of the properties,
               which is allowing the Trust to increase rents while still
               improving occupancy.

          o    The Trust has identified certain of its properties which are
               performing well and have loans which are small relative to the
               value of the property, given their excellent performance. Three
               properties were refinanced in the first quarter of 2001 (see Note
               6), generating sufficient cash for the Trust to enter into
               negotiations with all of the Exchange Offering professionals owed
               payment for services performed in connection with the offering,
               and still have a small amount in reserve. All three of these
               properties were refinanced at interest rates lower than the
               interest rate on their old loan. The Trust has identified three
               additional properties, which it believes can support higher debt
               levels and provide cash for general corporate purposes.
               Subsequent to June 30, 2001, the Trust refinanced these three
               properties, which resulted in cash proceeds of approximately
               $1,408,000 (see Note 10).

          o    The  Trust  entered  into  a  contract  for  sale  of  one of its
               properties  that,  in the  past,  has  required  substantial  and
               frequent  cash  infusions.  The sale  closed on April  30,  2001.
               Additional   properties   are  being   evaluated   for  potential
               disposition (see Note 5).

          o    During  2000,  the Trust  terminated  the  services of one of its
               executive  officers  and  entered  into an  arrangement  with two
               outside  businesses  to allow  officers  of the Trust to work for
               those  businesses.  The salaries of those officers  needing to be
               funded by the Trust  were  reduced  because  of the  income  they
               received from the outside businesses.

          o    As a result of the  re-financing  of the three  properties in the
               second  quarter  of 2001 as  discussed  above and in Note 10, the
               Partnership had approximately $265,000 in available cash.

          Management  believes  that the  actions  presently  being taken by the
          Trust,   including  the  cash  realized  upon  refinancing  the  three
          additional properties as described above and its cash on hand, provide
          the opportunity for the Trust to improve liquidity and profitability.

NOTE 3. EXCHANGE OFFERING

          On April 7, 2000,  pursuant to a  registration  statement on Form S-4,
          the Operating  Partnership completed the Exchange Offering under which
          it acquired additional interests in residential  apartment properties.
          In the Exchange Offering,  the Operating  Partnership issued 2,449,492
          registered  Operating  Partnership Units in exchange for substantially
          all  outstanding  units  of  limited  partnership  interest  owned  by
          individual  limited  partners  ("Exchange  Limited  Partners")  in  23
          limited partnerships (the "Exchange Partnerships"),  which directly or
          indirectly  owned  equity  and/or debt  interests in one or more of 26
          residential apartment properties located in the southeast and mid-west
          United States.


                                       F-7
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 3. EXCHANGE OFFERING (Continued)

          The acquisition of the Exchange  Partnerships  was accounted for under
          the purchase  method of accounting,  effective as of April 1, 2000 for
          accounting  purposes.  The cost of acquisition  approximated  the fair
          value of the net assets  acquired  (principally  the  appraised  value
          determined  by  management  based on  actual  1998  appraisals  of the
          underlying residential apartment properties less related liabilities),
          which amounted to $11,793,159.  Therefore, no goodwill was recorded in
          this transaction.

          For financial statement  presentation purposes, it is assumed that the
          Units of limited  partnership  interest in the  Operating  Partnership
          issued to Exchange Limited Partners in the Exchange Offering have been
          issued as Common  Shares of the Trust,  since the unit holders  (other
          than the Trust) are  entitled  to  exchange  all or a portion of their
          Units at any time and from  time to time for an  equivalent  number of
          Common Shares,  so long as the exchange would not cause the exchanging
          party to own in excess of 5% of the then  outstanding  Common  Shares,
          subject to the Trust's  right to cash out any unit holder who requests
          an exchange and subject to certain other exceptions.

          The  following  unaudited  pro  forma  summary  presents  consolidated
          financial  information  as  if  the  Exchange  Partnerships  had  been
          acquired  effective  January 1, 2000.  The pro forma  amounts  include
          adjustments  for  depreciation  as a result of the  adjustment to fair
          value of the residential  apartment properties and interest associated
          with  the  related  mortgages.  The pro  forma  information  does  not
          necessarily reflect the actual results that would have occurred nor is
          it  necessarily  indicative  of future  results of  operations  of the
          combined partnerships.

<TABLE>
<CAPTION>
                                                                    Six Months Ended
                                                                        June 30,
                                                               ---------------------------
                                                                   2001            2000
                                                               -----------     -----------
<S>                                                            <C>             <C>
          Total Revenues                                       $ 3,600,000     $ 3,640,000
          Cost and Expenses                                      3,700,000       4,390,000
                                                               -----------     -----------
          Loss before Other Expenses and Extraordinary Item       (100,000)       (750,000)
          Other Expenses                                          (900,000)             --
                                                               -----------     -----------
          Loss Before Extraordinary Item                        (1,000,000)       (750,000)
          Extraordinary Item- Extinguishment of Debt             1,200,000              --
                                                               -----------     -----------
          Net Income (Loss)                                    $   200,000     $  (750,000)
                                                               ===========     ===========

          Income (Loss) Per Share:
          Before Extraordinary Items                           $     (1.23)    $     (1.08)
                                                               ===========     ===========
          Extraordinary Item                                   $      1.51     $     (0.00)
                                                               ===========     ===========
          Net Income (Loss)                                    $      0.28     $     (1.08)
                                                               ===========     ===========

          Weighted Average Number of Shares                        825,017         690,306
                                                               ===========     ===========
</TABLE>


                                       F-8
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

          In July 2001,  the  Securities  and Exchange  Commission  (SEC) issued
          Staff  Accounting  Bulletin  No. 102,  "Selected  Loan Loss  Allowance
          Methodology  and  Documentation  Issues" (SAB 102). SAB 102 summarizes
          certain  of the SEC's  views on the  development,  documentation,  and
          application  of a  systematic  methodology  as required  by  Financial
          Reporting Release No. 28 for determining allowances for loan and lease
          losses in accordance with generally  accepted  accounting  principles.
          SAB 102 is effective as of the issuance  date. The Trust believes that
          it is in compliance with the guidelines set forth in SAB 102.

          In September  2000,  Statement of Financial  Accounting  Standards No.
          140,  Accounting  for Transfers and Servicing of Financial  Assets and
          Extinguishments  of  Liabilities  (SFAS  140)  was  issued.  SFAS  140
          provides   accounting  and  reporting   standards  for  transfers  and
          servicing of financial assets and extinguishments of liabilities. SFAS
          140 is effective for  recognition and  reclassification  of collateral
          and  for  disclosures  relating  to  securitization  transactions  and
          collateral  for fiscal  years  ending  after  December 15, 2000 and is
          effective  for  transfers  and  servicing  of  financial   assets  and
          extinguishments  of  liabilities  occurring  after March 31, 2001. The
          Trust  anticipates  that  the  adoption  of SFAS  140  will not have a
          material effect on its financial position or results of operations.

          In December 1999, the Securities and Exchange  Commission (SEC) issued
          Staff Accounting  Bulletin No. 101,  Revenue  Recognition in Financial
          Statements (SAB 101). SAB 101 summarizes certain of the SEC's views in
          applying   generally   accepted   accounting   principles  to  revenue
          recognition  in financial  statements.  SAB 101 is  effective  for the
          fourth  quarter of fiscal years  beginning  after  December  1999. The
          Trust believes that it is in compliance  with the guidelines set forth
          in SAB 101.

          In June 1999, the Financial Accounting Standards Board issued SFAS No.
          137,  "Accounting for Derivative  Instruments and Hedging Activities -
          Deferral of the  Effective  Date of SFAS No. 133 an  Amendment of SFAS
          No. 133",  which deferred the effective date to all fiscal quarters of
          all fiscal  years  beginning  after June 15, 2000.  Historically,  the
          Trust has not entered into  derivatives  contracts  to hedge  existing
          risks or for speculative  purposes.  Accordingly,  the adoption of the
          new standard on January 1, 2001 had no effect on the Trust's financial
          statements.

NOTE 5. SALE OF PROPERTY

          On December 7, 2000, the Independent Trustees of the Trust accepted an
          offer to sell  Glen Lake  Arms  Apartments  (Glen  Lake),  a  144-unit
          apartment   building   located   in  St.   Petersburg,   Florida   for
          approximately $3,900,000.  The decision to sell Glen Lake was based on
          the property's lack of performance and its continuing need for cash to
          operate.  On April 30, 2001,  the Trust  consummated  the sale of Glen
          Lake resulting in a loss on the sale of $210,854.

          The results of operations of Glen Lake for the four months ended April
          30, 2001 were as follows:

          Rental and other income                               $328,816
          Expenses                                               294,300
                                                                --------
            Excess of Income over Expenses                       $34,516
                                                                ========

                                       F-9
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 6. MORTGAGE REFINANCING

          On February 5, 2001, the Trust refinanced the first mortgages on three
          rental properties.  The new information pertaining to the mortgages is
          as follows:

<TABLE>
<CAPTION>
                                             Interest       Term           Maturity           Monthly
          Property            Mortgage         Rate       (Years)            Date            Payments
          --------           ----------      --------     -------          --------          --------
          <S>                <C>               <C>           <C>       <C>                    <C>
          Pineview           $2,700,000        7.51%         25        February 5, 2011       $19,970
          Heatherwood        $1,900,000        7.51%         30        February 5, 2011       $13,298
          Eagle Lake         $1,900,000        7.51%         25        February 5, 2011       $14,053
</TABLE>

          The Trust  received  approximately  $1,632,000  in  proceeds  from the
          refinancing   of  the  first   mortgages.   In  connection   with  the
          refinancings,   the  Trust  paid  a  one-time  prepayment  penalty  of
          approximately $534,000, which is included under other expenses for the
          six-month period ended June 30, 2001.

NOTE 7. COMMITMENTS AND CONTINGENCIES

          Contract to Purchase Additional Properties

          In September 1998, the Trust entered into an agreement with three real
          estate development companies (Brentwood at Southgate, Ltd., Burlington
          Residential,  Ltd. and The Shoppes at Burlington, Ltd.) to acquire, at
          the Trust's option, two luxury residential apartment properties in the
          development  stage  upon the  completion  of  construction.  The three
          development  companies are  controlled by one of the Trust's  founders
          and former Chief Executive Officer.  One of the residential  apartment
          properties  has been sold to a third party with the  Trust's  consent.
          The remaining residential property is scheduled to have a total of 396
          units,  comprised  of one, two and three  bedroom/one  or two bathroom
          apartments.   Construction   of  the  property  (the  "Burgundy  Hills
          Property"),  located in  Florence,  Kentucky  (part of the  Cincinnati
          metropolitan  area),  is  expected to be  completed  by the end of the
          first quarter of 2004.  The Trust has a right of first  negotiation to
          purchase the property from the development company upon completion and
          a right of first  refusal to purchase  the  property on the same terms
          offered  by a third  party.  The  purchase  price  is  expected  to be
          approximately  $30,000,000.  It is  contemplated  that  a  significant
          portion of that amount would be covered by first  mortgage  financing.
          At the  current  time the Trust does not have  adequate  resources  to
          close on the transaction even if it were interested in doing so and it
          is  uncertain  whether  the Trust  will  have  adequate  resources  to
          complete the transaction upon completion of construction.

          In connection with the  transaction,  the Trust (along with its former
          Chief  Executive  Officer)  agreed  to  co-guarantee  long-term  first
          mortgage  construction  financing  provided  by a bank  to  Burlington
          Residential,  Ltd.  ("Borrower"),  the  owner  of the  Burgundy  Hills
          Property.  As of  August  1,  2001,  approximately  $6,478,000  of the
          construction  loan had  been  drawn  down.  The  interest  rate on the
          construction  loan is the bank's prime rate  (currently  6.75%) or the
          LIBOR rate plus 2%. The Trust also agreed that, if the Borrower failed
          to comply  with the  repayment  and other  obligations  under the loan
          documents,  the bank  would  require  the Trust to buy out the  bank's
          position on the entire amount of the construction loan.


                                      F-10
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 7. COMMITMENTS AND CONTINGENCIES

          Contract to Purchase Additional Properties (continued)

          In September  2000, the Trust received notice from counsel to the bank
          that the Borrower had defaulted on its loan for failure to pay current
          interest due and meet certain equity  requirements and covenants under
          the loan agreement, adverse changes in the financial conditions of the
          Borrower  and the  Trust,  and the  Trust's  failure  to meet  certain
          tangible  net worth tests set forth in the loan  agreements.  The bank
          indicated  that it was  exercising  its right to accelerate  the loan.
          According to the former Chief  Executive  Officer,  the bank agreed to
          forego further action for at least 60 days while the parties attempted
          to reach an arrangement.  The extension  expired in November 2000 and,
          according to the former Chief  Executive  Officer,  is currently being
          extended  on a  month-to-month  basis.  The  Borrower  paid  down  the
          outstanding  accrued  interest and a portion of the  principal  and is
          currently seeking a new long-term  construction  facility with another
          institutional  lender  to  replace  the bank  loan  (and the loan from
          another bank described below).

          In December  2000,  another bank  acquired the first  mortgage  bank's
          position  in the  Burgundy  Hills  first  mortgage  loan.  The loan is
          subject to the same terms and conditions as that of the original first
          mortgage loan. Earlier,  such bank provided  additional  institutional
          financing in the principal  amount of $1,576,000 to the borrower.  The
          loan is secured by a security interest in partnership interests in the
          Borrower.  Due to a default in payment of interest  due,  the bank has
          been assigned rental payments and has taken over day-to-day management
          of the  property.  This  loan is  expected  to be paid  off  with  the
          proposed new first mortgage financing referenced above.

          There can be no assurance  that  refinancing  of the two loans will be
          available or will be available on commercially  reasonable terms, that
          the bank will not seek to enforce  its right to  accelerate  the first
          mortgage loan and begin foreclosure  proceedings  against the Burgundy
          Hills  Property  in  respect  of the first  mortgage  loan or elect to
          require the Trust to buy out its  position  on the entire  outstanding
          amount of the first  mortgage  loan, or that the bank will not seek to
          enforce  its right  under the other  loan to take over  control of the
          Borrower.

          Officers' Compensation

          Prior to  January 1,  2001,  a founder of the Trust and the  Operating
          Partnership had agreed to serve as Chief Executive Officer in exchange
          for  compensation  in the form of Trust  common  shares  or  Operating
          Partnership  units in an amount not to exceed  25,000 shares or units,
          as  applicable,   to  be  determined  by  the  Executive  Compensation
          Committee  based upon his  performance.  As of December 31,  2000,  no
          Trust common shares or Operating  Partnership units of the Partnership
          had been issued to the former Chief Executive Officer as compensation.
          However, in order to reflect all appropriate  administrative  expenses
          of the  Trust,  a  provision  of  $217,000  was made in the  financial
          statements  for the estimated  fair value of the services  rendered by
          the former Chief Executive  Officer for 2000.  Effective  December 31,
          2000,  no  compensation  expense  will be  charged  for  the  services
          provided by the former Chief Executive Officer,  as these services are
          minimal to the Trust's operations.

          On August 28, 2000, the Trust entered into employment  agreements with
          the  President  and Chief  Operating  Officer (COO) and with the Chief
          Financial  Officer (CFO) through December 31, 2001. Under the terms of
          the agreement, the Trust through the Operating Partnership will


                                      F-11
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 7. COMMITMENTS AND CONTINGENCIES

          Officer's Compensation (Continued)

          pay the COO and the CFO $175,000 and $110,000 per annum, respectively.
          In  addition,  the COO and the CFO will  receive  $90,000 and $60,000,
          respectively,  if they are  involuntarily  terminated  for any  reason
          other than gross misconduct.

          Underwriting Agreement

          In  connection  with the Cash  Offering,  which  terminated on May 31,
          2000,   the  Trust  issued  to  Sigma   Financial   Corporation   (the
          "Underwriter"),  warrants to purchase common shares in an amount equal
          to 8.5% of the number of common  shares sold in the offering on a best
          effort basis,  by the  Underwriter  and  participating  broker-dealers
          selected  by the  Underwriter  and  the  Trust.  The  warrants  may be
          exercised at any time and from time to time through May 15, 2003 at an
          exercise  price of $13.00 per warrant  share.  The Trust has  reserved
          59,676  common  shares  under  the  Underwriting  Agreement,  which is
          equivalent  to 8.5% of the  702,076  common  shares  sold in the  Cash
          Offering.

          Pending Litigation

          The  Trust is a party to  various  legal  actions  resulting  from its
          operating  activities.   These  actions  are  routine  litigation  and
          administrative proceedings arising in the ordinary course of business,
          some of which are covered by  liability  insurance,  and none of which
          are  expected to have a material  adverse  effect on the  consolidated
          financial  condition or results of  operations of the Trust taken as a
          whole.

          In early May 2001,  MarCap  Corporation  filed an action in the United
          States  District Court for the Northern  District of Illinois  against
          Wakul,  Inc. (a  telecommunications  company  controlled by the former
          Chief  Executive  Officer of the Trust),  the former  Chief  Executive
          Officer of the Trust,  and  Alexandria  Development,  L.P., a Delaware
          limited  partnership  controlled by the former Chief Executive Officer
          of which the  Operating  Partnership  owns a 40%  limited  partnership
          interest (the "Alexandria Partnership"),  among other parties, seeking
          repayment of approximately  $407,000 of indebtedness (plus unspecified
          interest,    attorney's   fees   and   collection   costs)   under   a
          telecommunication   equipment  leasing   agreement.   Certain  of  the
          equipment  was  installed at the  Alexandria  Apartments  property,  a
          residential apartment property under construction that is owned by the
          Alexandria  Partnership.  The Alexandria Partnership guaranteed Wakul,
          Inc.'s lease payments under the leasing agreement.

NOTE 8. RELATED PARTY TRANSACTIONS

          Trust Management Agreement

          In 1998, the Trust entered into a Trust Management  Agreement with the
          Managing   Shareholder  under  which  the  Managing   Shareholder  was
          obligated  to  provide   management,   administrative  and  investment
          advisory services to the Trust. The services to be rendered  included,
          among other  things,  communicating  with and  reporting to investors,
          administering accounts, providing to the


                                      F-12
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 8. RELATED PARTY TRANSACTIONS

          Trust Management Agreement (Continued)

          Trust of office space,  equipment,  and  facilities and other services
          necessary for the Trust's operation, and representing the Trust in its
          relations  with  custodians,  depositories,   accountants,  attorneys,
          brokers  and  dealers,  corporate  fiduciaries,  insurers,  banks  and
          others, as required. The Managing Shareholder was also responsible for
          determining   which  real  estate   investments  and  non-real  estate
          investments   (including  the  temporary  investment  of  the  Trust's
          available  funds prior to their  commitment to particular  real estate
          investments) the Trust would make and for making divestment decisions,
          subject to the  provisions of the  Declaration.  The Trust  Management
          Agreement had an initial term of one year and was subject to extension
          on a year-to-year  basis on approval of the Board or a majority of the
          stockholders  entitled  to vote on such  matter or a  majority  of the
          Independent Trustees.

          On February  7, 2001,  the  Independent  Trustees of the Trust and the
          Managing  Shareholder  agreed to  terminate  the  agreement  effective
          December  31,  2000.  At  December  31,  2000,  the Trust had  accrued
          approximately  $303,000,  which  represented all unpaid fees earned by
          the Managing  Shareholder  through  December 31, 2000. The $303,000 in
          unpaid  fees as of  December  31, 2000 were paid during the six months
          ended June 30, 2001.

          Loans from Executive Officers

          In connection with the  refinancings  described in Note 6, two current
          executive  officers  of the Trust  each  loaned  $49,250 to the Trust.
          These funds were used for the deposits required to initiate processing
          of the new mortgages.  Since there was no guarantee that the mortgages
          would be granted, and thus no guarantee that the loans would be repaid
          in a timely manner,  the loans called for interest to be paid equal to
          ten  percent  (10%) of the amount of the loans plus  eighteen  percent
          (18%)  per  annum.  Each  of  the  two  executive   officers  received
          approximately $6,800 as interest on his loan.


NOTE 9. EXTINGUISHMENT OF INDEBTEDNESS TO FORMER CHIEF EXECUTIVE OFFICER AND
        AFFILIATES

          In connection with the sale of Glen Lake property described in Note 5,
          the Trust  extinguished  approximately  $1,132,000  of payables due to
          affiliates  and  $111,500 due to the Trust's  former  Chief  Executive
          Officer.  These  liabilities  were owed by Florida Capital Income Fund
          IV, Ltd. (Glen Lake) (one of the Exchange Partnerships) to affiliates,
          which are owned or  controlled  by Gregory  K.  McGrath,  the  Trust's
          former  Chief  Executive  Officer.  These  amounts are  reported as an
          extraordinary   item  in  the  accompanying   consolidated   condensed
          statement of operations.

          The Trust also wrote off  accrued  interest  payable of  approximately
          $113,000 relating to the extinguished  payables due to related parties
          and  approximately  $23,000 of accounts  payable.  These  amounts were
          recorded as  reductions to interest  expense and other  administrative
          expenses  in the  accompanying  consolidated  condensed  statement  of
          operations.


                                      F-13
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 10.  SUBSEQUENT EVENTS

          On July 31, 2001, the Trust  refinanced  the first  mortgages on three
          rental properties.  The information pertaining to the new mortgages is
          as follows:

<TABLE>
<CAPTION>
                                                 Interest       Term         Maturity            Monthly
          Property                Mortgage         Rate        (Years)         Date              Payments
          --------                --------         ----        -------         ----              --------
          <S>                    <C>               <C>           <C>      <C>                     <C>
          Curiosity Creek        $1,960,000        7.26%         30       July 31, 2011           $13,384
          Crystal Court I        $1,595,000        7.26%         30       July 31, 2011           $10,892
          Blossom Corners II     $1,860,000        7.26%         30       July 31, 2011           $12,701
</TABLE>

          The Trust  received  approximately  $1,408,000  in  proceeds  from the
          refinancing   of  the  first   mortgages.   In  connection   with  the
          refinancings,   the  Trust  paid  a  one-time  prepayment  penalty  of
          approximately $293,000.

NOTE 11. NET INCOME (LOSS) PER SHARE

          The Trust  computes  per share data in  accordance  with  Statement of
          Financial  Accounting  Standards  No. 128 (SFAS  128),  "Earnings  Per
          Share".  SFAS 128  requires  dual  presentation  of basic and  diluted
          earnings per share on the face of the income statement.

          Basic net income (loss) per share equals net income (loss)  divided by
          the  weighted  average  shares   outstanding   during  the  year.  The
          computation  of  diluted  net income  (loss)  per share that  includes
          dilutive  common  share  equivalents  in the weighted  average  shares
          outstanding has not been presented, as it is anti-dilutive for the six
          and three months ended June 30, 2001 and 2000.

          The components  used in calculating  basic net income (loss) per share
          are as follows:

<TABLE>
<CAPTION>
                                                                                         Weighted           Net
                                                                       Net Income        Average       Income (Loss)
                                                                         (Loss)          Shares         Per Share
                                                                       ----------        ------         ---------
          <S>                                                          <C>               <C>              <C>
          For the six months ended June 30:
             2001                                                      $ 225,894         825,017          $ 0.28
                                                                       =========         =======          ======
             2000                                                      $(885,257)        690,306          $(1.28)
                                                                       =========         =======          ======
          For the three months ended June 30:
             2001                                                        976,313         833,947          $ 1.17
                                                                       =========         =======          ======
             2000                                                      $(628,775)        698,947          $(0.90)
                                                                       =========         =======          ======
</TABLE>

NOTE 12. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

          In April 2000,  in  connection  with the  completion  of the  Exchange
          Offering, the Operating Partnership acquired indirect equity interests
          in 16 rental  properties  and  subordinated  mortgage  interests in 10
          additional  properties  through the acquisition of  substantially  all
          partnership


                                      F-14
<PAGE>

                               BARON CAPITAL TRUST

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 12. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
         (Continued)

          interests in the Exchange  Partnerships which own land and depreciable
          property,  accrued  interest,  advances,  other assets,  mortgages and
          notes payable, as follows:

          Land and Depreciable Property                            $28,723,196
          Mortgage Notes Receivable, Affiliates                      3,292,677
          Receivables and Accrued Interest, Affiliates               3,262,522
          Other Assets                                                 848,813
                                                                   -----------

          Total Assets                                              36,127,208
                                                                   -----------

          Mortgage Payable                                          19,766,015
          Notes Payable and Accrued Interest                         2,320,586
          Payables and Accrued Interest, Affiliates                  1,435,548
          Accounts Payable                                             644,266
          Security Deposits                                            167,634
                                                                   -----------

          Total Liabilities                                         24,334,049
                                                                   -----------

          Equity                                                   $11,793,159
                                                                   ===========


                                      F-15
<PAGE>

Item 2. Management's Discussion and Analysis or Plan of Operation

          The  following  discussion  should  be read in  conjunction  with  the
          Condensed  Consolidated  Financial  Statements  of Baron Capital Trust
          (the "Registrant" or the "Trust") and the Notes thereto. (See ITEM 1 -
          FINANCIAL STATEMENTS.)

          Forward-looking Statements

          This  Management's  Discussion  and Analysis or Plan of Operation  and
          other  sections  of  this  Report  contain   certain   forward-looking
          statements within the meaning of the Securities  Litigation Reform Act
          of  1995  that  are  based  on  current  expectations,  estimates  and
          projections  about the  Trust's  business,  management's  beliefs  and
          assumptions   made   by   management.   Words   such   as   "expects",
          "anticipates",  "intends", "plans", "believes",  "seeks", "estimates",
          and variations of such words and similar  expressions  are intended to
          identify such  forward-looking  statements.  These  statements are not
          guarantees  of  future   performance   and  involve   certain   risks,
          uncertainties   and   assumptions   that  are  difficult  to  predict.
          Therefore, actual outcomes and results may differ materially from what
          is expressed or forecasted in such  forward-looking  statements due to
          numerous  factors,  including,  but not limited to those  discussed in
          this Management's Discussion and Analysis or Plan of Operation section
          of this Report,  as well as those  discussed  elsewhere in this Report
          and from time to time in the Trust's  other  Securities  and  Exchange
          Commission filings and reports. In addition,  such statements could be
          affected by general domestic and  international  economic  conditions.
          The forward-looking  statements contained in this Report speak only as
          of the date on which they are made,  and the Trust does not  undertake
          any  obligation  to update any  forward-looking  statement  to reflect
          events or circumstances after the date of this Report.

          Results of Operations

          The Trust  commenced  operations in the first half of 1998.  The Trust
          and its  affiliate,  Baron Capital  Properties,  L.P. (the  "Operating
          Partnership"),   a  Delaware   limited   partnership,   constitute  an
          affiliated  real estate  company  which has been  organized to acquire
          equity interests in residential  apartment  properties  located in the
          United States and to provide or acquire mortgage loans secured by such
          types of  property.  The  Operating  Partnership  conducts  all of the
          Trust's  real  estate  operations  and  holds all  direct or  indirect
          property interests acquired.

          The Trust is the sole general  partner of the  Operating  Partnership,
          and,  in such  capacity,  the Trust  controls  the  activities  of the
          Operating  Partnership.  The Trust has  elected  to be taxed as a real
          estate investment trust for federal income tax purposes.

          As described below in this Report, in May 1998, the Trust commenced an
          offering  (the "Cash  Offering")  of up to 2,500,000  common shares of
          beneficial interest ("Common Shares") in the Trust at a purchase price
          of $10.00 per share  (maximum  proceeds of  $25,000,000).  In the Cash
          Offering, which expired on May 31, 2000, the


                                        3
<PAGE>

          Trust sold 702,076  Common Shares for an aggregate  purchase  price of
          $7,020,763.  The  Trust  contributed  the net cash  proceeds  from the
          issuance of Common  Shares in the Cash  Offering  ($5,467,858)  to the
          Operating  Partnership  in exchange for an equivalent  number of units
          ("Units"  or  "Operating  Partnership  Units") of limited  partnership
          interest in the Operating Partnership.

          As of August 1, 2001,  the Trust owned 825,528  Operating  Partnership
          Units, representing approximately 21.6% of the then outstanding Units.
          Such Units are  comprised of the Units  acquired by the Trust with the
          net proceeds of the Cash  Offering and the Units that holders of Units
          have elected to exchange  into Common  Shares in the manner  described
          below in this  section.  Since the Units  owned by the Trust  comprise
          substantially  all of its assets,  the operating  results of the Trust
          are primarily  dependent  upon the operating  results of the Operating
          Partnership.

          Through   the   Operating   Partnership,   the  Trust   has   acquired
          substantially all the beneficial interests in 16 residential apartment
          properties,  including the  Heatherwood I Apartments  (67 studio,  one
          bedroom and two bedroom units  located in Kissimmee,  Florida) in June
          1998;  Crystal  Court II  Apartments  (80 studio,  one bedroom and two
          bedroom  units located in Lakeland,  Florida) in July 1998;  Riverwalk
          Apartments  (50 two bedroom units  located in New Smyrna,  Florida) in
          September  1998;  and 13  properties  acquired as part of the Exchange
          Offering in April 2000 (discussed  below).  In July 1998 the Operating
          Partnership also acquired a minority limited  partnership  interest in
          13 real estate  limited  partnerships  then managed by  affiliates  of
          Gregory K.  McGrath (a founder and former Chief  Executive  Officer of
          the  Trust,  a  founder  and  principal  unitholder  of the  Operating
          Partnership,  and the President, sole shareholder and sole director of
          Baron  Advisors,  Inc.,  a  Delaware  corporation  that  serves as the
          Managing  Shareholder  and a  trustee  of the  Board  of  the  Trust),
          including certain of the Exchange  Partnerships  which participated in
          the  Exchange  Offering  and which are now  managed by the  Trust.  On
          February  7,  2001  the  Independent  Trustees  of the  Trust  and the
          Managing   Shareholder   agreed  to  terminate  the  Trust  Management
          Agreement effective December 31, 2000.

          During 1998 and 1999,  the Operating  Partnership  acquired a total of
          40% of the limited  partnership  interests in Alexandria  Development,
          L.P. (the "Alexandria  Partnership"),  a Delaware limited  partnership
          controlled by Mr. McGrath. The Alexandria  Partnership owns Alexandria
          Apartments, a 168-unit residential apartment property (the "Alexandria
          Property") under construction in Alexandria, Kentucky. As of August 1,
          2001, 112 of the 168 residential  units  (approximately  67%) had been
          completed and were in the rent-up stage.  Of the completed  units,  93
          units have been rented.

          In early May 2001,  MarCap  Corporation  filed an action in the United
          States  District Court for the Northern  District of Illinois  against
          WaKul,  Inc. (a  telecommunications  company  controlled by Gregory K.
          McGrath,  the  former  Chief  Executive  Officer  of the  Trust),  Mr.
          McGrath, and the Alexandria Partnership,  among other parties, seeking
          repayment of approximately  $407,000 of indebtedness (plus unspecified
          interest,    attorney's   fees   and   collection   costs)   under   a
          telecommunication equipment


                                        4
<PAGE>

          leasing  agreement.  Certain of the  equipment  was  installed  at the
          Alexandria  Property.  The Alexandria  Partnership  guaranteed  WaKul,
          Inc.'s lease payments under the leasing agreement.

          Due to  recurring  losses  incurred  by  the  Alexandria  Property,  a
          partners' deficiency and a recent appraisal that valued the Alexandria
          Property at an amount less than the  liabilities  owed,  management of
          the  Trust  determined  to write  off the  Trust's  investment  in the
          Alexandria  Property,  resulting in a charge to  operations in 2000 of
          approximately $355,000.

          In September 1998, the Trust entered into an agreement with three real
          estate development companies (Brentwood at Southgate, Ltd., Burlington
          Residential,  Ltd. and The Shoppes at Burlington, Ltd.) to acquire two
          luxury residential  apartment properties in the development stage upon
          the completion of construction.  The three  development  companies are
          controlled by Mr. McGrath. One of the residential apartment properties
          has been sold to a third party with the Trust's consent. The remaining
          property is scheduled to have a total of 396 units,  comprised of one,
          two and three bedroom/one or two bathroom apartments.  Construction of
          the property (the  "Burgundy  Hills  Property"),  located in Florence,
          Kentucky (part of the Cincinnati metropolitan area), is expected to be
          completed  by the end of the first  quarter  of 2004.  The Trust has a
          right  of  first   negotiation  to  purchase  the  property  from  the
          development  company upon  completion  and a right of first refusal to
          purchase the property on the same terms offered by a third party.  The
          purchase  price is expected  to be  approximately  $30,000,000.  It is
          contemplated  that a  significant  portion  of that  amount  would  be
          covered by first  mortgage  financing.  At the current  time the Trust
          does not have adequate  resources to close on the transaction  even if
          it were  interested in doing so and it is uncertain  whether the Trust
          will  have  adequate   resources  to  complete  the  transaction  upon
          completion of construction.

          In connection with the transaction, the Trust (along with Mr. McGrath,
          its former Chief Executive  Officer) agreed to co-guarantee  long-term
          first mortgage  construction  financing  provided by KeyBank  National
          Association ("KeyBank") to Burlington Residential,  Ltd. ("Borrower"),
          the owner of the  Burgundy  Hills  Property.  As of  August  1,  2001,
          approximately $6,478,000 of the construction loan had been drawn down.
          The interest  rate on the  construction  loan is KeyBank's  prime rate
          (currently  6.75%) or the LIBOR rate plus 2%.  The Trust  also  agreed
          that,  if the Borrower  failed to comply with the  repayment and other
          obligations under the loan documents,  KeyBank would require the Trust
          to  buy  out  the  bank's   position  on  the  entire  amount  of  the
          construction loan.

          In September  2000, the Trust received  notice from counsel to KeyBank
          that the Borrower had defaulted on its loan for failure to pay current
          interest due and meet certain equity  requirements and covenants under
          the loan agreement, adverse changes in the financial conditions of the
          Borrower  and the  Trust,  and the  Trust's  failure  to meet  certain
          tangible  net worth  tests set forth in the loan  agreements.  KeyBank
          indicated  that it was  exercising  its right to accelerate  the loan.
          According to Mr. McGrath,  KeyBank agreed to forego further action for
          at least 60 days while the


                                        5
<PAGE>

          parties  attempted to reach an arrangement.  The extension  expired in
          November  2000 and,  according  to Mr.  McGrath,  is  currently  being
          extended  on a  month-to-month  basis.  The  Borrower  paid  down  the
          outstanding  accrued  interest and a portion of the  principal  and is
          currently seeking a new long-term  construction  facility with another
          institutional  lender  to  replace  the first  mortgage  loan (and the
          BankOne loan described below).

          In December, 2000, BankOne acquired KeyBank's position in the Burgundy
          Hills first  mortgage  loan.  The BankOne  loan is subject to the same
          terms and  conditions as that of the original  KeyBank loan.  Earlier,
          BankOne  had  provided  additional   institutional  financing  in  the
          principal amount of $1,576,000 to the Borrower. The loan is secured by
          a security interest in partnership interests in the Borrower. Due to a
          default in payment of interest due,  BankOne has been assigned  rental
          payments and has taken over  day-to-day  management  of the  property.
          This  loan is  expected  to be paid off with the  proposed  new  first
          mortgage financing referenced above.

          There can be no assurance  that  refinancing  of the two loans will be
          available or will be available on commercially  reasonable terms, that
          BankOne  will not seek to enforce  its right to  accelerate  the first
          mortgage loan and begin foreclosure  proceedings  against the Burgundy
          Hills  Property  in  respect  of the first  mortgage  loan or elect to
          require the Trust to buy out its  position  on the entire  outstanding
          amount of the first  mortgage  loan,  or that BankOne will not seek to
          enforce  its right  under the other  loan to take over  control of the
          Borrower.

          In April 2000,  pursuant to a registration  statement on Form S-4, the
          Operating  Partnership  completed an exchange  offering (the "Exchange
          Offering") under which it acquired additional interests in residential
          apartment  properties.   In  the  Exchange  Offering,   the  Operating
          Partnership issued 2,449,492 registered Operating Partnership Units in
          exchange  for   substantially   all   outstanding   units  of  limited
          partnership  interest owned by individual limited partners  ("Exchange
          Limited   Partners")  in  23  limited   partnerships   (the  "Exchange
          Partnerships"). The Exchange Partnerships directly or indirectly owned
          equity  and/or  debt  interests  in  one  or  more  of 26  residential
          apartment  properties  (the  "Exchange  Properties")  located  in  the
          southeast and mid-west United States.  (See NOTE 3 "Exchange Offering"
          in the  accompanying  notes to the  consolidated  condensed  financial
          statements.)

          Holders of  Operating  Partnership  Units  (other  than the Trust) are
          entitled to  exchange  all or a portion of their Units at any time and
          from time to time for an  equivalent  number  of Common  Shares of the
          Trust, so long as the exchange would not cause the exchanging party to
          own (taking  into  account  certain  ownership  attribution  rules) in
          excess of 5% of the then  outstanding  Common  Shares,  subject to the
          Trust's right to cash out any holder of Units who requests an exchange
          and subject to certain other exceptions.

          Following  the  completion  of the  Exchange  Offering,  the  Exchange
          Partnerships  continued to own the same property  interests they owned
          prior to the offering;  substantially  all of the limited  partnership
          interests in the 23 Exchange Partnerships


                                        6
<PAGE>

          were owned by the  Operating  Partnership;  Mr.  McGrath,  for nominal
          consideration, assigned to an affiliate of the Trust all of the equity
          stock  in 18  of  the  corporate  general  partners  of  the  Exchange
          Partnerships  ("Corporate  General Partners") and granted to the Board
          of the Trust a management  proxy  coupled with an interest to vote the
          shares of the remaining five Corporate General Partners; the Corporate
          General Partner of each of the Exchange  Partnerships  assigned to the
          Operating Partnership all of its economic interest in the partnership;
          and Mr.  McGrath caused each  Corporate  General  Partner to waive its
          right to receive  from its  Exchange  Partnership  any  ongoing  fees,
          effective  upon  completion  of  the  exchange.  As a  result  of  the
          foregoing,  the Operating Partnership (and indirectly the Trust) owned
          substantially all of the economic  interest  represented by the equity
          and debt interests owned by the Exchange  Partnerships  and controlled
          management of such partnerships.

          In April 2001, the Operating  Partnership  sold its equity interest in
          one of the  Exchange  Properties,  Glen Lakes  Apartments,  a 144-unit
          residential  apartment  property located in St.  Petersburg,  Florida.
          Management of the Trust  determined to sell the property  based on its
          lack of  performance  and its need for  substantial  and frequent cash
          infusions. (See Note 5 "Sale of Property" in the accompanying notes to
          the consolidated condensed financial statements.)

          Certain  of the  Exchange  Partnerships  currently  controlled  by the
          Operating  Partnership own direct or indirect  equity  interests in 15
          Exchange  Properties  which consist of an aggregate of 868 residential
          units  (comprised  of studio  and one,  two,  three  and  four-bedroom
          units).  Certain  of  the  Exchange  Partnerships  controlled  by  the
          Operating  Partnership own direct or indirect mortgage interests in 10
          Exchange  Properties,  which  consist of an  aggregate of 813 existing
          residential  units (studio and one and two bedroom) and 168 units (two
          and three bedroom) under  development.  Of the Exchange  Properties in
          which the  Operating  Partnership  continues  to own an  interest,  20
          properties  are located in Florida,  three  properties in Ohio and one
          property each in Georgia and Indiana.

          Consolidated Balance Sheet as of June 30, 2001 Compared to December
          31, 2000

          During the six months  ended June 30,  2001,  total  assets  decreased
          approximately   $3.2  million  to  $37.8  million  while   liabilities
          decreased approximately $3.4 million to $27.1 million. The decrease in
          assets  was  mainly  due to the  sale of the  Glen  Lake  property  as
          described  in  Note  5  of  the   consolidated   condensed   financial
          statements.  The  decrease in  liabilities  was  primarily  due to the
          payoff  of the  first  mortgage  on the  sale of Glen  Lake  and  debt
          extinguishment of approximately $1.5 million as described in Note 9 of
          the consolidated condensed financial statements.

          Shareholders'  equity increased to $10.7 million due to net income for
          the six months ended June 30, 2001 of approximately $226,000.


                                        7
<PAGE>

          Operations for the Six Months Ended June 30, 2001 Compared to Six
          Months Ended June 30, 2000

          Revenues:

          Revenues  increased by  approximately  $1.6 million for the six months
          ended June 30, 2001 to  approximately  $3.6  million  compared to $2.0
          million  for the six months  ended June 30,  2000.  This  increase  in
          attributable  to a full six months of  operations  with the  completed
          Exchange  Offering for the six months ended June 30, 2001  compared to
          only three months of operations for the six months ended June 30, 2000
          as the  Exchange  Offering  was  completed  in April 1,  2000.  Rental
          revenues  decreased  by  approximately  $100,000  for the three months
          ended June 30, 2001  compared to the three  months ended June 30, 2001
          due to the sale of Glen Lake in April, 2001.

          Real Estate Expenses:

          Real estate expenses  increased by approximately  $1.2 million for the
          six months  ended June 30, 2001  compared to the six months ended June
          30,  2000.  This  increase  is  attributable  to a full six  months of
          operations  with the  completed  Exchange  Offering for the six months
          ended June 30, 2001  compared to only three months of  operations  for
          the six  months  ended  June 30,  2000 as the  Exchange  Offering  was
          completed in April 1, 2000.  Total real estate  expenses for the three
          months ended June 30, 2001 compared to the three months ended June 30,
          2000 remain consistent;  however,  there were increases in repairs and
          maintenance  for  repairs  to the  Exchange  Properties  and  interest
          expense  due to the  refinanced  properties  offset  by  decreases  in
          depreciation  mainly  due to the sale of Glen Lake and a  decrease  to
          other expenses.

          Administrative Expenses:

          Administrative   expenses  decreased  by  approximately  $380,000  and
          $420,000   for  the  six  and  three   months  ended  June  30,  2001,
          respectively, compared to the six and three months ended June 30, 2001
          due to the fact  that  effective  December  31,  2000 no  compensation
          expense has been charged for the services provided by the former Chief
          Executive  Officer  as  these  services  are  minimal  to the  Trust's
          operations.  Also,  during 2000, the Trust entered into an arrangement
          with two outside businesses to allow officers of the Trust to work for
          those businesses.  The salaries of those officers needing to be funded
          by the Trust were reduced because of the income they received from the
          outside businesses.

          Other  Expenses:

          Other  Expenses  for the six months  ended June 30,  2001 of  $893,159
          related to the refinancing of three properties  completed in the first
          quarter of 2001 and the loss on the sale of Glen  Lake.  There were no
          Other Expenses in 2000.

          Extraordinary Item- Extinguishment of Debt:

          In connection  with the sale of Glen Lake  property,  the  Partnership
          extinguished  approximately  $1,132,000  of payables due to affiliates
          and $111,500 due to the Partnership's  former Chief Executive Officer.
          These  liabilities  were owed by Florida  Capital Income Fund IV, Ltd.
          (Glen Lake) (one of the Exchange Partnerships) to


                                        8
<PAGE>

          affiliates, which are owned or controlled by Gregory K. McGrath, the
          Trust's former Chief Executive Officer.

          Liquidity and Capital Resources

          Net cash used in  operating  activities  for the six months ended June
          30, 2001 was $1,157,040  compared to $213,447 for the six months ended
          June 30, 2000.  The increase in cash used by operating  activities was
          primarily  due to the  extinguishment  of debt and payoff of  accounts
          payables  offset by charges on the loss of Glen Lake and the write off
          of loan costs at refinancing.

          Net cash  provided by  investing  activities  for the six months ended
          June 30, 2001 was $3,155,198 compared to cash used of $125,712 for the
          six months ended June 30, 2000.  The increase in cash provided for the
          six months ended June 30, 2001 was due  primarily to proceeds from the
          sale of the Glen Lake property.

          Net cash used in  financing  activities  for the six months ended June
          30, 2001 was $1,753,227  compared to cash provided of $432,757 for the
          six months  ended June 30,  2000.  Cash used in  financing  activities
          increased  mainly due to the payoff of the Glen Lake first mortgage as
          well as notes  payable  paid off with the  proceeds  of the Glen  Lake
          sale.

          During  the  years  ended  December  31,  2000  and  1999,  the  Trust
          experienced  certain cash flow  problems  and has,  from time to time,
          experienced  difficulties  meeting  obligations  as they  became  due.
          However,  as  reflected  in the  accompanying  consolidated  condensed
          financial statements, during the first six months ended June 30, 2001,
          the Trust generated Funds From Operations  (Funds from Operations is a
          measure of  profitability  in the REIT  industry  measuring net income
          less  depreciation,  amortization,  and other  non-operating  expenses
          and/or income) of  approximately  $411,000  versus negative Funds From
          Operations of approximately $417,000 for the six months ended June 30,
          2000.

          During the first quarter of 2001,  the Trust  refinanced  three of its
          properties, which generated $1,632,000 of cash to the Trust. This cash
          was used to reduce accounts  payable owed by the Trust,  advance funds
          for a second  round of  refinancings,  and  establish  an  escrow  for
          expected major repairs to its Riverwalk property.

          Management's plans to continue  improving  liquidity and profitability
          encompass the following four strategies:

     o    increase property cash collections through implementation of utility
          billings, rent increases and property enhancements;


     o    refinance selected well performing assets;

     o    dispose  of assets  which do not  generate  cash  sufficient  to cover
          operating costs or whose geographic location creates excessive burden;
          and

     o    reduce corporate overhead.


                                        9
<PAGE>

     In implementing these strategies, management has adopted the following
     action plans:

     o    In many  locations,  the market for  apartments has started to include
          re-billing of property water costs to tenants. The Trust has initiated
          billing of tenants  for their  water  used at  several  locations  and
          intends to continue implementation of the strategy at other properties
          as the  markets  permit.  The  Trust has also  started  a  program  of
          enhancing  the  aesthetics  of the  properties,  which is allowing the
          Trust to increase rents while still improving occupancy.

     o    The Trust has identified certain of its properties which are
          performing well and have loans which are small relative to the value
          of the property, given their excellent performance. Three properties
          were refinanced in the first quarter of 2001 (see Note 6), generating
          sufficient cash for the Trust to enter into negotiations with all of
          the Exchange Offering professionals owed payment for their services in
          connection with the offering, and still have a small amount in
          reserve. All three of these properties were refinanced at interest
          rates lower than the interest rate on their old loan. The Trust has
          identified three additional properties, which it believes can support
          higher debt levels and provide cash for general corporate purposes.
          Subsequent to June 30, 2001, the Trust refinanced these three
          properties, which resulted in cash proceeds of approximately
          $1,408,000 (see Note 10).

     o    The Trust  entered into a contract  for sale of one of its  properties
          that,  in  the  past,  has  required  substantial  and  frequent  cash
          infusions.  The sale closed on April 30, 2001.  Additional  properties
          are being evaluated for potential disposition (see Note 5).

     o    During 2000, the Trust terminated the services of one of its executive
          officers and entered into an arrangement  with two outside  businesses
          to allow  officers  of the  Trust to work for  those  businesses.  The
          salaries  of those  officers  needing  to be funded by the Trust  were
          reduced   because  of  the  income  they  received  from  the  outside
          businesses.

          As a result of the  re-financing of the three properties in the second
          quarter of 2001 as discussed above and in Note 10, the Partnership had
          approximately $265,000 in available cash.

          Management  believes  that the  actions  presently  being taken by the
          Trust,   including  the  cash  realized  upon  refinancing  the  three
          additional properties as described above and its cash on hand, provide
          the opportunity for the Trust to improve liquidity and profitability.

          The completion in April 2000 of the Exchange Offering  described above
          has  completed  the first  effort,  in the opinion of  management,  to
          provide the critical mass  necessary  for  profitable  operations.  As
          described  above,  the Trust has entered into  agreements with certain
          professional  firms  involved in the Exchange  Offering which are owed
          for their services,  and continues to negotiate with other such firms,
          to receive  extended  payment terms and reductions of the amounts due,
          where possible.


                                       10
<PAGE>

          Distributions  will be made by the Trust as cash flow allows, but will
          be  negatively  impacted as the open  accounts  payable  are  reduced.
          Management does not anticipate that the Trust will make  distributions
          to its shareholders for the next several quarters.

          The Trust and the Operating  Partnership  intend to use  securities of
          the Trust and the Operating  Partnership  (including Common Shares and
          Units),  proceeds from future sales of such securities,  and available
          operating  cash flow and  financing  from  other  sources  to  acquire
          interests in additional  residential apartment properties or interests
          in other  partnerships  substantially  all of whose assets  consist of
          residential  apartment property  interests,  and payment of applicable
          fees and expenses.

          The operating results of the Trust and the Operating  Partnership will
          depend primarily upon income from the residential apartment properties
          in which they directly or indirectly  own or acquire an equity or debt
          interest.  Operating  results in respect of equity  interests  will be
          substantially  influenced by the demand for and supply of  residential
          apartment units in their primary market and sub-markets, and operating
          expense  levels.  Operating  results in respect of mortgage  and other
          debt interests will depend upon interest income, including, in certain
          cases,  participation  interest,  whose  payment  will depend upon the
          operating   performance,   sale  or   refinancing  of  the  underlying
          properties.  The  operating  results  of the Trust  and the  Operating
          Partnership will also depend upon the pace and price at which they can
          acquire and improve additional property interests.

          The target  metropolitan  markets and  sub-markets  have  benefited in
          recent periods from demographic  trends (including  population and job
          growth) which  increase the demand for  residential  apartment  units,
          while financing  constraints  (specifically,  reduced  availability of
          development   capital)  have  limited  new   construction   to  levels
          significantly   below   construction    activity   in   prior   years.
          Consequently,  rental  rates  for  residential  apartment  units  have
          increased  at or above the  inflation  rate for the last two years and
          are expected to continue to experience  such increases for the next 18
          months based on market  statistics made available to management of the
          Trust in terms of occupancy rates,  supply,  demographic  factors, job
          growth rates and recent rental  trends.  Expense levels also influence
          operating results,  and rental expenses (other than real estate taxes)
          for  residential  apartment  properties  have  generally  increased at
          approximately  the rate of inflation  for the past three years and are
          expected to increase at the rate of inflation  for the next 18 months.
          Changes  in  interest  rates are not  expected  to  materially  impact
          operations,  because the  majority of the real estate  mortgages  have
          fixed interest rates, as do all of the inter-company loans.

          The Trust believes that known trends,  events or  uncertainties  which
          will or are  reasonably  likely to affect the short-term and long-term
          liquidity  and  current  and  future  prospects  of the  Trust and the
          Operating  Partnership  include the performance of the economy and the
          building  of new  apartment  communities.  Although  the Trust  cannot
          reliably predict the effects of these trends, events and uncertainties
          on the property investments of the Trust and the Operating Partnership
          as a whole, some of


                                       11
<PAGE>

          the reasonably  anticipated effects might include downward pressure on
          rental rates and occupancy levels.

          Generally,  there are no  seasonal  aspects of the  operations  of the
          Trust or the Operating  Partnership  that might have a material effect
          on their financial  conditions or results of operation.  However,  for
          the last 36 months,  one 60-unit student housing property owned by one
          of the Exchange Partnerships involved in the Exchange Offering has had
          an average  occupancy  rate of 55% for nine months of the year and 30%
          for the remaining three months of the year.

          Subject to the  foregoing  discussion,  management  believes  that the
          Trust and the Operating  Partnership have the ability to satisfy their
          cash requirements for the foreseeable future.  However,  management of
          the  Trust  believes  that it will be  necessary  to raise  additional
          capital  during  the next 12 months to make  acquisitions  and to meet
          management's revenue and cash flow goals.

          As part of the Trust's ongoing operations, management is reviewing the
          entire   portfolio  of  properties  to  determine  the  potential  for
          restructuring   or   refinancing   various   first   mortgage   loans.
          Additionally,  properties  whose  recent  performance  has  materially
          negatively  impacted the Trust's operating results are being evaluated
          for possible sale.  Certain of these  properties  have been listed for
          sale. The Trust is also in discussions  with other  apartment  owners,
          and is exploring business combinations that will bring it economies of
          scale  and the  size it needs  for  listing  its  Common  Shares  on a
          recognized  securities  exchange.  Additional size would also give the
          Company  the  operating  margin  necessary  to  support  its  valuable
          management team that is believed necessary for its long-term growth.

          The Trust and the Operating  Partnership  expect no material change in
          the number of employees over the next 12 months.


                                       12
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

          The Trust is a claimant in the Georgia  Pacific class action  lawsuit.
          It is also a  party  to  various  legal  actions  resulting  from  its
          operating  activities.   These  actions  are  routine  litigation  and
          administrative proceedings arising in the ordinary course of business,
          some of which are covered by  liability  insurance,  and none of which
          are  expected to have a material  adverse  effect on the  consolidated
          financial  condition or results of  operations of the Trust taken as a
          whole.

Item 2. Changes in Securities and Use of Proceeds

          Not Applicable.

Item 3. Defaults upon Senior Securities

          In connection with a transaction  described above at "Part I - Item 2.
          Management's  Discussion  and Analysis or Plan of Operations - Results
          of  Operations,"  the Trust  (along  with its former  Chief  Executive
          Officer) agreed to co-guarantee  long-term first mortgage construction
          financing  provided by KeyBank  National  Association  ("KeyBank")  to
          Burlington Residential, Ltd. ("Borrower"),  the owner of a residential
          apartment  property (the "Burgundy Hills Property") under  development
          in  Boone  County,  Kentucky.  As of  August  1,  2001,  approximately
          $6,478,000 of the construction  loan had been drawn down. The Borrower
          is controlled  by Gregory K.  McGrath,  a founder and the former Chief
          Executive  Officer of the Trust. The interest rate on the construction
          loan is KeyBank's prime rate (currently  6.75%) or the LIBOR rate plus
          2%. The Trust also agreed that, if the Borrower  failed to comply with
          the repayment and other obligations under the loan documents,  KeyBank
          would  require the Trust to buy out the bank's  position on the entire
          amount of the construction loan.

          In September  2000, the Trust received  notice from counsel to KeyBank
          that the Borrower had defaulted on its loan for failure to pay current
          interest due and meet certain equity  requirements and covenants under
          the loan agreement, adverse changes in the financial conditions of the
          Borrower  and the  Trust,  and the  Trust's  failure  to meet  certain
          tangible  net worth  tests set forth in the loan  agreements.  KeyBank
          indicated that since the default had not been cured within  applicable
          grace periods under the loan agreement, it was exercising its right to
          accelerate the loan and demanded payment of the outstanding  principal
          balance  of the loan,  together  with all  interest  due  thereon  and
          amounts  owed to  KeyBank  for  charges,  fees  and  expenses,  in the
          aggregate  amount  of  $5,633,135,  and  that it was  relieved  of any
          commitment  to loan  any  additional  funds  to the  Borrower  for the
          existing phase and additional phases of the construction project.

          According to Mr. McGrath, KeyBank agreed to forego further action for
          at least 60 days while the parties attempted to reach an arrangement.
          The extension expired in


                                       13
<PAGE>

          November  2000 and,  according  to Mr.  McGrath,  is  currently  being
          extended  on a  month-to-month  basis.  The  Borrower  paid  down  the
          outstanding  accrued  interest and a portion of the  principal  and is
          currently seeking a new long-term  construction  facility with another
          institutional lender to replace the KeyBank loan (and the BankOne loan
          described below).

          In December 2000,  BankOne  acquired  KeyBank's  position in the first
          mortgage  loan.  The  BankOne  loan is  subject  to the same terms and
          conditions  as that of the original  KeyBank  loan.  Earlier,  BankOne
          provided additional institutional financing in the principal amount of
          $1,576,000 to the Borrower. The loan is secured by a security interest
          in partnership interests in the Borrower.  Due to a default in payment
          of interest  due,  BankOne has been assigned  rental  payments and has
          taken  over  day-to-day  management  of the  property.  This  loan  is
          expected to be paid off with the proposed new first mortgage financing
          referenced above.

          There can be no assurance  that  refinancing  of the two loans will be
          available or will be available on commercially  reasonable terms, that
          BankOne  will not seek to enforce  its right to  accelerate  the first
          mortgage loan and begin foreclosure  proceedings  against the Burgundy
          Hills  Property  in  respect  of the first  mortgage  loan or elect to
          require the Trust to buy out its  position  on the entire  outstanding
          amount of the first  mortgage  loan,  or that BankOne will not seek to
          enforce  its right  under the other  loan to take over  control of the
          Borrower.

Item 4. Submission of Matters to a Vote of Security Holders

          On May 31, 2001, the Trust held its annual meeting of shareholders. At
          the meeting, shareholders voted to elect all five nominees to serve as
          Trustees  on the Board of the Trust and to  ratify  the  selection  of
          Rachlin Cohen & Holtz, Miami,  Florida, as the independent auditors of
          the Trust and the Operating Partnership. Set forth below is the number
          of votes cast for and  against,  as well as the number of  abstentions
          and broker non-votes, as to each such matter.

                                    No. Votes                     Abstained/
          Matter Presented             For        Against      Broker Non-Votes
          ----------------          ---------     -------      ----------------
          Election of Trustees
           James H. Bownas           765,959       2,960           171,972
           Peter M. Dickson          765,959       2,960           171,972
           Joseph M. Jayson          763,284       5,635           171,972
           Jerome S. Rydell          764,949       3,970           171,972
           Baron Advisors, Inc.      763,284       5,635           171,972
          Ratify Auditors            760,844       3,200           176,847


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<PAGE>

Item 5. Other Information

          None

Item 6. Exhibits and Reports on Form 8-K

         (a)


          Exhibit
          Number        Description
          ------        -----------

             3.1        Certificate  of  Business  Trust   Registration  of  the
                        Registrant  (incorporated herein by reference to Exhibit
                        3.1 to the Form  SB-2  Registration  Statement  of Baron
                        Capital  Trust filed with the  Securities  and  Exchange
                        Commission on September 5, 1997).

             3.2        Amended and Restated Declaration of Trust for the
                        Registrant made as of August 11, 1998 (incorporated
                        herein by reference to Exhibit 10.2 to Amendment No. 1
                        to the Form S-4 Registration Statement of Baron Capital
                        Properties, L.P. filed with the Securities and Exchange
                        Commission on September 22, 1998 (Registration No.
                        333-55753)).

             3.3        Form of by-laws of the Registrant  (incorporated  herein
                        by reference  to Exhibit 3.3 to  Amendment  No. 3 to the
                        Form SB-2 Registration  Statement of Baron Capital Trust
                        filed with the Securities and Exchange Commission on May
                        15, 1998).


     (b) The Registrant did not file any Current  Reports on Form 8-K during the
     quarter for which this Report is filed.


                                       15
<PAGE>


     In accordance  with the  requirements  of the Exchange Act, the  Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.


August 14, 2001

                                  BARON CAPITAL TRUST

                                  By:        /s/  Robert L. Astorino
                                           -------------------------------
                                           Robert L. Astorino
                                           President

                                  By:        /s/  Mark L. Wilson
                                           -------------------------------
                                           Mark L. Wilson
                                           Chief Financial Officer


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