the Masterworks Foundation is in heavy debt and strapped for cash. An investigation by The Royal Gazette revealed Masterworks: Owns no part of the Winslow Homer masterpiece Inland Waterway brought to Bermuda and loaned to the foundation in 1992; Will be forced to leave its headquarters above 41 Front Street when a lease expires in September, losing a favourable $1-a-year rent; and Was in technical breach of the law as of Friday, three years behind in filing with the Registrar General the annual financial statements required from charities.

Masterworks has a mission to repatriate art about Bermuda or by Bermudians.

The collection is said to belong to "the people of Bermuda''.

But there are recent concerns about the security of the collection. "Can they pay their bills? Could the balloon pop?'' asked one knowledgeable member of the local arts community. "You've got to look into that in the interests of the whole community.'' Mr. Tom Butterfield, chairman of the Masterworks board of trustees, admitted the art foundation is in difficult straits but said the collection is in no danger.

"Yes, we're strapped for cash, but we believe so strongly in what we're doing that we go ahead and do it,'' Mr. Butterfield said.

Although Masterworks is widely believed to have purchased, if not fully paid for, a watercolour of a Bermudian scene by renowned American artist Winslow Homer, Mr. Butterfield told The Royal Gazette the foundation owns no part of Inland Waterway.

The painting, which cost about $700,000, was purchased with a 50 percent down payment by a separate foundation, which wishes to remain anonymous, he said.

It is on loan to Masterworks.

Last February, The Royal Gazette quoted Mr. Butterfield as saying Masterworks paid the half down payment.

On Friday, Mr. Butterfield said the newspaper misquoted him last year. "It was the intention that we would work toward (owning the painting), and that is still our intention, should we survive,'' he said.

"We don't own everything,'' he said. "There are a number of works that can disappear out of here tomorrow, but there is enough faith in us that we remain the curators of them.'' Mr. Butterfield confirmed that Masterworks, which also occupies the upper floor of the National Gallery, will soon have to leave its home above The Treasure Chest on Front Street.

"We're out of here the end of August,'' he said, adding a new home has not been found. "We have had some offerings on Front Street, but there were some higher figures attached to them,'' he said.

A Front Street location is desirable because it helps Bermuda's tourism industry, garnered the foundation more than $45,000 in sales from the shop last year, and because it helps draw visitors to the National Gallery, Mr.

Butterfield said.

The photographer, who has run four London Marathons and carried the torch for Masterworks in many other ways since the charity was registered in 1987, said audited financial statements were prepared each year and are open to public view.

It was by an oversight that they were not annually submitted to the Registrar General, as required under the Charities Act 1978, he said.

Because there are more than 200 registered charities and records are presently being transferred to computer, Government never requested the financial statements when they did not arrive and is only now sending Masterworks a letter to request them, Registrar General Mrs. Marlene Christopher said.

Mr. Butterfield readily provided The Royal Gazette a copy of the charity's most recent financial statements, for the year ending March 31, 1992, audited by Kempe and Whittle chartered accountants.

The statements are more than a year old, and Masterworks officials admit the past year has done anything but improve their situation.

In deference to the National Gallery's fundraising efforts, "we've done no fundraising for a year and a half,'' said trustee Mrs. Elise Outerbridge. That has hurt Masterworks financially, she said.

Mrs. Outerbridge said she was appalled by the financial questions. "I can't believe that people are so busy looking at our back pockets,'' she said.

"It's nobody else's business.'' Masterworks 1992 balance sheet showed no cash, a $100,000 bank overdraft, a $120,000 bank loan due this August, and accounts payable of $157,284 -- more than triple the amount that was in that column a year earlier.

An accountant who studied the financial statements for The Royal Gazette said the large jump in accounts payable was almost certainly linked to the art purchases of $167,581 Masterworks made in 1992, suggesting most of the purchases were made on credit.

"There's no immediate problem, but there may be an immediate problem if someone in the $157,000 area is looking for his money -- bear in mind that these accounts are a year old,'' the accountant said.

"A year ago they appeared to be sorely in need of funds.'' Mr. Butterfield agreed Masterworks is buying on credit, as well as receiving loans and gifts, adding the foundation received favourable terms with no interest.

Asked whether any paintings were in danger of being reclaimed for failure to meet payments, he said: "Under New York law, you might be interested to know, when a down payment is made, it becomes the property of the purchaser.'' The vendor can take steps to speed payment, but cannot repossess, as with a car loan, he said.

However, the financial statements reveal Masterworks could lose ownership of the Charles Demuth painting Trees and Houses, Bermuda, if it cannot repay a $120,000 Bermuda bank loan it obtained in August of 1990 to make the purchase.

The loan originally came due on August 30, 1992, but the bank agreed to extend it for one year. Last year's interest of $12,428 was paid by a donor.

If the foundation is unable to pay the loan this August 31, "the donor may be required to assume the loan and could assume title to the painting'', a note to the financial statements says.