Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS

All of Registrant's railroad properties are on long-term lease to Norfolk and Southern Railway Company for the fixed, unvarying amount of $915,000 cash rental per year. The lease also requires that additional amounts be accounted for as noncash rent income to be settled or paid at lease termination. Because this noncash income will not be settled until the expiration of the lease, no values have been reported in the accompanying interim financial statements for the balance of the account or the transactions affecting the balance.

With fixed revenue and expenses relatively constant, there is very little fluctuation in operating results between periods. In comparing the third quarter of 2008 with the preceding second quarter of 2008 and the third quarter of 2007, revenues totaled $229,000, $229,000, and $229,000, respectively. Net income and income available for distribution was $212,000, $185,000, and $210,000, respectively.

Since cash revenue is fixed in amount and outlays for general and administrative expenses are relatively modest, inflation has had no material impact on Registrant's reported net income for the past three years. Although recent inflationary trends have been moderate, annual rental income is a fixed amount for the current lease term and any renewal periods, and inflation could affect the real dollar value of the rental income over time. Changes in inflationary trends could also affect the general and administration expenses.