SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1994

Commission File Number 1-9948

AMERICAN REALTY TRUST, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)

Georgia 54-0697989
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

10670 North Central Expressway, Suite 300, Dallas, Texas 75231
-------------------------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)

(214) 692-4700
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
------------------------------ -------------------------

Common Stock, $.01 par value New York Stock Exchange
Share Purchase Rights New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

As of March 17, 1995, the Registrant had 2,929,164 shares of Common Stock
outstanding. Of the total shares outstanding 1,094,482 were held by other than
those who may be deemed to be affiliates, for an aggregate value of $14,365,000
based on the closing price on the New York Stock Exchange on March 17, 1995.
The basis of this calculation does not constitute a determination by the
Registrant that all of such persons or entities are affiliates of the
Registrant as defined in Rule 405 of the Securities Act of 1933, as amended.

Documents Incorporated by Reference:
NONE

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INDEX TO
ANNUAL REPORT ON FORM 10-K

Page
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PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 29

PART II
-------

Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Item 8. Consolidated Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

PART III
--------

Item 10. Directors, Executive Officers and Advisor of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 103

PART IV
-------

Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

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PART I

ITEM 1. BUSINESS

American Realty Trust, Inc. (the "Company" or the "Registrant"), a Georgia
corporation, is the successor to a District of Columbia business trust
organized pursuant to a declaration of trust dated July 14, 1961. The business
trust merged into the Company on June 24, 1988. The Company elected to be
treated as a Real Estate Investment Trust ("REIT") under Sections 856 through
860 of the Internal Revenue Code, of 1986, as amended (the "Code") during the
period June 1, 1987 through December 31, 1990. The Company allowed its REIT
tax status to lapse in 1991.

Business Plan and Investment Policy

The Company's primary business and only industry segment is investing in equity
interests in real estate (including equity securities of real estate-related
entities), leases, joint venture development projects and partnerships and
financing real estate and real estate activities through investments in
mortgage loans, including first, wraparound and junior mortgage loans.
Information regarding the real estate and mortgage notes receivable portfolios
of the Company is set forth in ITEM 2. "PROPERTIES" and in Schedules III and IV
to the Consolidated Financial Statements included at ITEM 8. "CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

The Company's business is not seasonal. The Company has determined to pursue a
balanced investment policy, seeking both current income and capital
appreciation. The Company's plan of operation is to continue, to the extent
its liquidity permits, to make equity investments in lower risk real estate
such as apartment complexes and residential development projects or equity
securities of real estate-related entities and to continue to service and hold
for investment its mortgage notes. The Company will also continue to seek
selected dispositions of certain of its assets where the prices obtainable for
such assets justify their disposition. With respect to properties acquired
through foreclosure, the Company intends to enhance the value of such
properties through renovations and, if possible, to finance such properties
with first mortgages or to sell such properties to third parties retaining an
equity participation as additional consideration for providing purchase money
financing, where possible. The Company also intends to pursue its rights
vigorously with respect to mortgage notes receivable that are in default.

The Company's Board of Directors has broad authority under the Company's
governing documents and applicable law to make all types of real estate
investments, including mortgage note and equity investments, as well as
investments in the securities of other entities, whether or not such entities
are engaged in real estate-related activities.

The Company's Board of Directors may devote available assets to particular
investments or types of investments, without restriction on the amount or
percentage of the Company's assets that may be so devoted to a single
investment or to any particular type of investment, and without limit on the
percentage of securities of any one issuer that the Company may acquire. The
Company's investment objectives and policies

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ITEM 1. BUSINESS (Continued)

Business Plan and Investment Policy (Continued)

may be changed at any time by the Company's Board of Directors without the
approval of the Company's stockholders. By allowing its REIT tax status to
lapse in 1991, the Company relieved itself of investment and operational
restrictions imposed on REITS under the Code.

The specific composition of the Company's real estate and mortgage notes
receivable portfolios from time to time will depend largely on the judgment of
the Company's management as to changing investment opportunities and the level
of risk associated with specific investments or types of investments. The
Company's management intends to continue to maintain real estate and mortgage
notes receivable portfolios diversified by location and type of property.

In addition to its equity investments in real estate and mortgage notes, the
Company has also invested in private and open market purchases of the equity
securities of Continental Mortgage and Equity Trust ("CMET"), Income
Opportunity Realty Trust ("IORT") and Transcontinental Realty Investors, Inc.
("TCI") and units of limited partner interest in National Realty, L.P.
("NRLP"). See ITEM 2. "PROPERTIES - Investments in Real Estate Investment
Trusts and Real Estate Partnerships."

Management of the Company

Although the Company's Board of Directors is directly responsible for managing
the affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by Basic Capital
Management, Inc. ("BCM" or the "Advisor"), a contractual advisor under the
supervision of the Company's Board of Directors. The duties of the Advisor
include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources for the Company. The Advisor also
serves as a consultant in connection with the Company's business plan and
investment policy decisions made by the Company's Board of Directors.

BCM is a company owned by a trust for the benefit of the children of Gene E.
Phillips, the Chairman of the Board and a Director of the Company until
November 16, 1992. Ryan T. Phillips, the son of Mr. Phillips and a Director of
the Company, is also a director of BCM and a trustee of the trust for the
benefit of the children of Mr. Phillips which owns BCM. Mr. Phillips served as
a director of BCM until December 22, 1989 and as Chief Executive Officer of BCM
until September 1, 1992. Mr. Phillips serves as a representative of the trust
for the benefit of his children that owns BCM and, in such capacity, has
substantial contact with the management of BCM and input with respect to BCM's
performance of advisory services to the Company. As of March 17, 1995, BCM
owned 1,200,051 shares of the Company's Common Stock, approximately 41% of the
shares then outstanding. BCM is more fully described in ITEM 10. "DIRECTORS,
EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT - The Advisor." BCM has
provided advisory services to the Company since February 6, 1989. BCM also
serves as advisor to CMET, IORT and TCI. The officers of the Company are also
officers of CMET, IORT and

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ITEM 1. BUSINESS (Continued)

Management of the Company (Continued)

TCI. Oscar W. Cashwell, a Director of the Company serves as President of BCM,
CMET, IORT and TCI and as President and a director of Syntek Asset Management,
Inc. ("SAMI"), the managing general partner of Syntek Asset Management, L.P.
("SAMLP"), the general partner of NRLP and National Operating, L.P. ("NOLP"),
the operating partnership of NRLP. Mr. Phillips is also a general partner of
SAMLP and serves as a director and Chief Executive Officer of SAMI. SAMI is a
company owned by BCM. BCM performs certain administrative functions for NRLP
and NOLP on a cost reimbursement basis.

Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services. Carmel, Ltd. subcontracts
with other entities for the provision of the property-level management services
to the Company at various rates. The general partner of Carmel, Ltd. is BCM.
The limited partners of Carmel, Ltd. are (i) Syntek West, Inc. ("SWI"), of
which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a
trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management of the Company's shopping center and
the Denver Mart to Carmel Realty, Inc. ("Carmel Realty") which is a company
owned by SWI. Carmel Realty is entitled to receive property and construction
management fees and leasing commissions in accordance with the terms of its
property-level management agreement with Carmel, Ltd.

Affiliates of the Advisor are also entitled to receive real estate brokerage
commissions in accordance with the terms of the Advisory Agreement as discussed
in ITEM 10. "DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT - The
Advisor."

The Company has no employees. Employees of the Advisor render services to the
Company.

Competition

The real estate business is highly competitive and the Company competes with
numerous entities engaged in real estate activities (including certain entities
described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Related
Party Transactions"), some of which may have greater financial resources than
those of the Company. The Company's management believes that success against
such competition is dependent upon the geographic location of the property, the
performance of property managers in areas such as marketing, collections and
the ability to control operating expenses, the amount of new construction in
the area and the maintenance and appearance of the property. Additional
competitive factors with respect to commercial properties are the ease of
access to the property, the adequacy of related facilities, such as parking,
and sensitivity to market conditions in setting rent levels. With respect to
apartments, competition is also based upon the design and mix of the units and
the ability to provide a community atmosphere for the tenants. With respect to
the hotels, competition is also based upon market served, i.e., transient,
commercial or group users. The

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ITEM 1. BUSINESS (Continued)

Competition (Continued)

Company's management believes that general economic circumstances and trends
and the development of new or renovated properties in the vicinity of each of
the Company's properties are also competitive factors.

To the extent that the Company seeks to sell any of its properties, the sales
prices for such properties may be affected by competition from other real
estate entities also attempting to sell their properties and governmental
agencies and financial institutions, whose assets are located in areas in which
the Company's properties are located and are seeking to liquidate foreclosed
properties.

As described above and in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Related Party Transactions," the officers of the Company and Mr.
Cashwell, a Director of the Company, also serve as officers of certain other
entities, each of which is also advised by BCM, and each of which has business
objectives similar to the Company's. Mr. Cashwell, the Company's officers and
Advisor owe fiduciary duties to such other entities as well as to the Company
under applicable law. In determining to which entity a particular investment
opportunity will be allocated, the officers, directors or trustees and Advisor
consider the respective investment objectives of each such entity and the
appropriateness of a particular investment in light of each such entity's
existing real estate and mortgage notes receivable portfolios. To the extent
that any particular investment opportunity is appropriate to more than one of
such entities, such investment opportunity will be allocated to the entity
which has had uninvested funds for the longest period of time or, if
appropriate, the investment may be shared among all or some of such entities.

In addition, also as described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Certain Business Relationships," the Company also competes with
other entities which are affiliates of the Advisor and which may have
investment objectives similar to the Company's and that may compete with the
Company in purchasing, selling, leasing and financing real estate and real
estate- related investments. In resolving any potential conflicts of interest
which may arise, the Advisor has informed the Company that it intends to
continue to exercise its best judgment as to what is fair and reasonable under
the circumstances in accordance with applicable law.

Certain Factors Associated with Real Estate and Related Investments

The Company is subject to all the risks incident to ownership and financing of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These risks include, but are not
limited to, changes in general or local economic conditions, changes in
interest rates and availability of permanent mortgage financing which may
render the acquisition, sale or refinancing of a property difficult or
unattractive and which may make debt service burdensome; changes in real estate
and zoning laws, increases in real estate taxes, federal or local economic or
rent controls, floods, earth-

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ITEM 1. BUSINESS (Continued)

Certain Factors Associated with Real Estate and Related Investments
(Continued)

quakes and other acts of God and other factors beyond the control of the
Company's management or Advisor. The illiquidity of real estate investments
generally may impair the ability of the Company to respond promptly to changing
circumstances. The Company's management believes that such risks are partially
mitigated by the diversification by geographic region and property type of the
Company's real estate and mortgage notes receivable portfolios. However, to
the extent new property acquisitions and mortgage lending are concentrated in
any particular region the advantages of geographic diversification may be
mitigated.

Virtually all of the Company's mortgage notes receivable, real estate, equity
security holdings in CMET, IORT, TCI, NRLP and its trading portfolio are held
subject to secured indebtedness. Such borrowings increase the Company's risk
of loss because they represent a prior claim on the Company's assets and
require fixed payments regardless of profitability. If the Company defaults on
such secured indebtedness, the lender may foreclose on the Company's assets
securing such indebtedness, and the Company could lose its investment in the
pledged assets.

ITEM 2. PROPERTIES

The Company's principal offices are located at 10670 North Central Expressway,
Suite 300, Dallas, Texas 75231. In the opinion of the Company's management,
the Company's offices are suitable and adequate for its present operations.

Details of the Company's real estate and mortgage notes receivable portfolios
at December 31, 1994, are set forth in Schedules III and IV, respectively, to
the Consolidated Financial Statements included at ITEM 8. "CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." The discussions set forth below
under the headings "Real Estate" and "Mortgage Loans" provide certain summary
information concerning the Company's real estate and mortgage notes receivable
portfolios.

At December 31, 1994, the mortgage notes receivable secured by the Continental
Hotel and Casino and by the Las Vegas Plaza Shopping Center, both of which are
in Las Vegas, Nevada, net of applicable premiums, discounts, interest and
deferred gains, accounted for 13% and 12%, respectively, of the Company's total
assets. No other single asset of the Company accounted for 10% or more of its
total assets. At December 31, 1994, 35% of the Company's assets consisted of
real estate, 33% consisted of notes and interest receivable and 29% consisted
of investments in the equity securities of CMET, IORT and TCI and NRLP. The
remaining 3% of the Company's assets were invested in cash, cash equivalents,
marketable equity securities and other assets. It should be noted, however,
that the percentage of the Company's assets invested in any one category is
subject to change and no assurance can be given that the composition of the
Company's assets in the future will approximate the percentages listed above.

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ITEM 2. PROPERTIES (Continued)

At December 31, 1994, the Company's real estate was located in the Midwest and
Mountain regions of the continental United States, as shown more specifically
in the table under "Real Estate" below. The Company also holds mortgage notes
receivable secured by real estate located in various geographic regions of the
continental United States, with a concentration in the Mountain region, as
shown more specifically in the table under "Mortgage Loans" below.

Geographic Regions

The Company has divided the continental United States into the following six
geographic regions.

Northeast region comprised of the states of Connecticut, Delaware,
Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island and Vermont, and the District of Columbia.
The Company has no properties in this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia.
The Company has no properties in this region.

Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. The Company has no
properties in this region.

Midwest region comprised of the states of Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North
Dakota, Ohio, South Dakota, West Virginia and Wisconsin. The Company
has 3 commercial properties and 1 hotel in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. The Company has 1 apartment complex, 1
commercial property and 1 hotel in this region.

Pacific region comprised of the states of California, Oregon and
Washington. The Company has no properties in this region.

Real Estate

At December 31, 1994, approximately two-thirds of the Company's assets were
invested in real estate and real estate entities. The Company has invested in
real estate located throughout the continental United States, either on a
leveraged or nonleveraged basis. The Company's real estate portfolio consists
of properties held for investment, investments in partnerships, properties held
for sale (primarily obtained through foreclosure) and investments in equity
securities of CMET, IORT, TCI and NRLP.

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ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

Types of Real Estate Investments. The Company's real estate consists of an
apartment complex, commercial properties (consisting of an office building,
shopping center and a merchandise mart) and two hotels. In selecting new real
estate investments, the location, age and type of property, gross rentals,
lease terms, financial and business standing of tenants, operating expenses,
fixed charges, land values and physical condition are among the factors
considered. The Company may acquire properties subject to or assume existing
debt and may mortgage, pledge or otherwise obtain financing for its properties.
The Company's Board of Directors may alter the types of and criteria for
selecting new real estate investments and for obtaining financing without a
vote of the Company's stockholders.

At December 31, 1994, the Company had completed significant capital
improvements to the Kansas City Holiday Inn, a hotel in Kansas City, Missouri.
The Company is considering a major expansion of the Denver Mart, a merchandise
mart, and the renovation of the Inn at the Mart, a hotel, both in Denver,
Colorado, if financing can be obtained.

In the opinion of the Company's management, the properties owned by the Company
are adequately covered by insurance.

The following table sets forth the percentages, by property type and geographic
region, of the Company's owned real estate (excluding land parcels described
below) at December 31, 1994.

Commercial
Region Apartments Properties Hotels
--------- ---------- ---------- ----------

Midwest . . . . . . . . . . . . . . . -% 11% 56%
Mountain . . . . . . . . . . . . . . 100 89 44
--- --- ---
100% 100% 100%

The foregoing table is based solely on the number of apartment units,
commercial square footage and hotel rooms owned by the Company, and does not
reflect the value of the Company's investment in each region. Excluded from
the above table are two residential subdivisions in Texas with a total of 33
developed residential lots, 3.5 acres of undeveloped land in downtown Atlanta,
Georgia, 1.84 acres of undeveloped land in Maricopa County, Arizona, a 2.75
acre former hotel site in Lihue, Hawaii and four additional parcels of land
totaling approximately 455 acres. See Schedule III to the Consolidated
Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" for a more detailed description of the Company's real
estate portfolio.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

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ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

A summary of the activity in the Company's owned real estate portfolio during
1994 is as follows:

Owned properties in real estate portfolio at
January 1, 1994 . . . . . . . . . . . . . . . . . . . . . . . . 20*
Property acquired through purchase . . . . . . . . . . . . . . . . . . 1
Properties sold . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
---
Owned properties in real estate portfolio at
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 16*

-----------------------------------

* Includes two residential subdivisions with a total of 74 developed
residential lots at January 1, 1994 and 33 developed residential lots
at December 31, 1994.

Properties Held for Investment. Set forth below are the Company's properties
held for investment and the monthly rental rate for apartments, the average
annual rental rate for commercial properties and average daily room rate for
hotels and occupancy at December 31, 1994 and 1993 for apartments and
commercial properties and average occupancy during 1994 and 1993 for hotels:

Rent Per
Units/ Square Foot
Square Footage or Room Occupancy
Property Location Rooms 1994 1993 1994 1993
-------------------- --------------------- -------------- ------- ------- ------ ------

Office Building
---------------
Rosedale Towers Minneapolis, Minnesota 84,798 Sq.Ft. $ 14.46 $ 14.00 94% 92%

Shopping Center
---------------
Park Plaza Manitowoc, Wisconsin 105,507 Sq.Ft. 5.65 5.65 93% 86%

Merchandise Mart
----------------
Denver Mart Denver, Colorado 509,008 Sq.Ft. 14.18 * 97% *

Hotels
------
Inn at the Mart Denver, Colorado 156 Rooms 42.38 * 42% *
Kansas City Holiday
Inn Kansas City, Missouri 196 Rooms 52.47 48.76 75% 70%

--------------------

* Property was acquired in 1994

Occupancy presented above and through this ITEM 2. is without reference to
whether leases in effect are at, below or above market rates.

In May 1993, the Company obtained a $1.8 million mortgage secured by the
Rosedale Towers, a 84,798 square foot office building in Minneapolis,
Minnesota, which was previously unencumbered. The Company pledged as
additional collateral for the loan 141,176 newly issued shares of its Common
Stock. The loan matured April 30, 1994. Effective May 1, 1994, the lender
extended the loan's maturity date to May 1, 1997, increased the principal
balance to $2.5 million and reduced the interest rate to the three-month London
Interbank Offered Rate ("LIBOR") plus .75% fixed

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ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

at the beginning of each quarter currently 13.75% per annum. The loan
extension requires monthly interest only payments, with the principal balance
and accrued but unpaid interest due at maturity. In conjunction with the
principal balance increase and maturity extension, the Company pledged as
additional collateral an additional 240,000 newly issued shares of its Common
Stock. The Company received net cash of $526,000 as a result of the
increase in the principal balance, after the payment of various closing costs.
The Company paid a 1% loan refinancing fee of $25,000 to BCM based on the $2.5
million refinancing.

In March 1994, the Company acquired for $26,000 in cash, all of the capital
stock of the corporate general partner of Merchandise Mart Associates, Ltd.
("Mart, Ltd."). Concurrently, the Company also acquired all of the capital
stock of Garden Capital Merchandise Mart, Inc. ("GCMMI") for $1,000 and the
assumption of $271,000 in debt including $125,000 payable to the Company. The
GCMMI stock was purchased from individuals who also own the corporate general
partner of a limited partnership in which NOLP is a 99.3% limited partner. (See
"Investments in Real Estate Investment Trusts and Real Estate Partnerships,"
below.) The assets of GCMMI included a wraparound mortgage note receivable
with a principal balance of $33.4 million secured by the Denver Mart, a 509,008
square foot merchandise mart in Denver, Colorado, title to the Inn at the Mart,
a 156 room hotel adjacent to the Denver Mart and parcels of land contiguous to
the Denver Mart. In May 1992, the Company had acquired title to land in
Denver, Colorado subject to a ground lease to Mart, Ltd. as lessee, for the
operation of the Denver Mart and a 2.9% limited partner interest in Mart, Ltd.

Both the ground lease and the wraparound mortgage note receivable were in
default at their respective dates of acquisition and have remained so. The
Company is funding operating deficits and is entitled to receive all cash flow,
if any, from the Denver Mart. Effective April 1, 1994, the Company recorded
the acquisition of the Denver Mart and the assumption of underlying debt of
$6.1 million. The Company acquired the wraparound mortgage and the general
partner of Mart, Ltd. with the intent of acquiring the Denver Mart, hence its
classification as held for investment.

Properties held for sale. As of December 31, 1994, the Company reclassified
from "Real estate held for investment" to "Real estate held for sale" the
Boulevard Villas Apartments, a 303 unit apartment complex in Las Vegas, Nevada,
the sale of which was completed in March 1995. At December 31, 1994, the
Company also owned two residential subdivisions in Texas with a total of 33
developed lots, as discussed below, and 3.5 acres of undeveloped land in
downtown Atlanta, Georgia, 1.84 acres of undeveloped land in Maricopa County,
Arizona, a 2.75 acre former hotel site in Hawaii, four additional parcels of
land totaling approximately 455 acres and an office building in St. Louis,
Missouri, all of which

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ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

are held for sale. See Schedule III to the Consolidated Financial Statements
included at ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

In March 1994, the Company sold a restaurant site in Los Angeles, California,
that was held for sale, for $190,000. The Company received $90,000 in cash and
provided purchase money financing of $100,000. The Company recognized a gain
of $18,000 on the sale. The Company paid a real estate sales commission of
$5,700 to Carmel Realty based upon the $190,000 sales price of the property.

As of June 30, 1994, the Company reclassified its three apartment complexes in
Mississippi and its apartment complex in San Antonio, Texas from "Real estate
held for investment" to "Real estate held for sale", the Company having
received an offer from a potential buyer to acquire the four properties. As a
result of such offer, the Company began actively marketing the properties for
sale. The combined carrying value of the four properties was $8.8 million at
September 30, 1994.

In November 1994, the Company sold its three Mississippi apartment complexes,
Watersedge III Apartments, the Edgewater Garden Apartments, the Chateau Bayou
Apartments and its Mediterrean Villa Apartments in San Antonio, Texas, to a
newly formed limited partnership in exchange for a 27% limited partner interest
in the partnership, $3.2 million in net cash, a $100,000 certificate of
deposit, and second and third liens totaling $1.3 million secured by the
Mediterranean Villa Apartments. The Company recorded a deferred gain of $5.6
million on the sale, which is offset against the Company's investment in the
partnership in the accompanying December 31, 1994, Consolidated Balance Sheet.
The Company has deferred any gain related to the property sales due to the
Company having a continuing ownership interest in the properties, through its
27% limited partner interest in the owning partnership and the Company also
having the option to reacquire the properties and unwind the partnership under
certain circumstances. The Company's option to repurchase the properties and
unwind the partnership may be exercised at anytime after September 15, 1995,
but prior to September 2, 1997. However, if at anytime during the option
period, the net equity of the properties (fair market value less unpaid
principal and accrued but unpaid interest then owing on the mortgages secured
by the properties) falls to below $7.5 million, the partnership shall have the
right to request in writing that the Company exercise its purchase option
within 90 days of the Company's receipt of such request. If the Company fails
to exercise the option within such 90 day period, the option terminates. The
Company paid a real estate sales commission of $497,000 to Carmel Realty based
on a $16.6 million sales price of the properties.

12
13
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

Company's loan was paid in full. The Company received net cash of $3.4 million
after the payoff of $5.9 million in existing mortgage debt. The Company will
recognize a gain of approximately $1.0 million on the sale. The Company paid
a real estate brokerage commission of $288,000 to Carmel Realty based on the
$9.6 million sales price of the property.

In 1991, the Company purchased all of the capital stock of a corporation which
owned 181 developed residential lots in Fort Worth, Texas. Through December
31, 1993, 143 of the residential lots had been sold. During 1994, 26
additional lots were sold for an aggregate gain of $46,800. At December 31,
1994, 29 lots remained to be sold.

Also in 1991, the Company purchased all of the capital stock of a company which
owns a 60% interest in a joint venture, which in turn owned 113 partially
developed residential lots in Denton, Texas. Through December 31, 1993, 84 of
the residential lots had been sold. During 1994, 25 additional lots were sold
for an aggregate gain of $213,000. At December 31, 1994, 4 lots remained to be
sold.

Mortgage Loans

In addition to real estate, a substantial portion of the Company's assets have
been and are expected to continue to be invested in mortgage notes receivable,
principally those secured by income-producing real estate. The Company's
mortgage notes receivable consist of first, wraparound, and junior mortgage
loans.

Types of Mortgage Activity. In addition to originating its own mortgage loans,
the Company has acquired existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. BCM, in its capacity as a mortgage servicer,
services the Company's mortgage notes receivable.

Types of Properties Subject to Mortgages. The types of properties securing the
Company's mortgage notes receivable portfolio at December 31, 1994 consisted of
office buildings, apartment complexes, shopping centers, single-family
residences, hotels and developed land. The Company's Board of Directors may
alter the types of properties subject to mortgages in which the Company invests
without a vote of the Company's stockholders.

At December 31, 1994, the obligors on $10.9 million or 22% of the Company's
mortgage notes receivable portfolio were affiliates of the Company. Also at
that date, $2.2 million or 4% of the Company's mortgage notes receivable
portfolio was in default.

The following table sets forth the percentages (based on the outstanding
mortgage note balance at December 31, 1994), by both property type and
geographic region, of the properties that serve as collateral for the Company's
mortgage notes receivable at December 31, 1994. See Schedule

13
14
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

IV to the Consolidated Financial Statements included at ITEM 8. "CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" for additional details of the
Company's mortgage notes receivable portfolio.

Commercial
Region Apartments Properties Total
---------- ----------- ---------- ---------

Mountain . . . . . . . . . . . -% 77.7% 77.7%
Southeast . . . . . . . . . . . - 12.9 12.9
Midwest . . . . . . . . . . . . 6.8 - 6.8
Northeast . . . . . . . . . . . 2.6 - 2.6
--- ---- -----
9.4% 90.6% 100.0%

A summary of the activity in the Company's mortgage notes receivable portfolio
during 1994 is as follows:

Loans in mortgage notes receivable portfolio at
January 1, 1994 . . . . . . . . . . . . . . . . 14*
Loans originated . . . . . . . . . . . . . . . . 3
Loan paid in full . . . . . . . . . . . . . . . (1)
Loan foreclosed . . . . . . . . . . . . . . . . (1)
Loan settlement . . . . . . . . . . . . . . . . (1)
---
Loans in mortgage notes receivable portfolio at
December 31, 1994 . . . . . . . . . . . . . . . 14*

----------------------------

* Includes a mortgage note receivable collateralized by two condominium
mortgage loans.

During 1994, the Company collected $3.8 million in interest and $2.4 million in
principal on its mortgage notes receivable. The Company plans, for the
foreseeable future, to hold, to the extent its liquidity permits, rather than
to sell in the secondary market, the mortgage notes in its portfolio.

First Mortgage Loans. The Company may invest in first mortgage loans, with
either short-, medium- or long-term maturities. First mortgage loans generally
provide for level periodic payments of principal and interest sufficient to
substantially repay the loan prior to maturity, but may involve interest-only
payments or moderate or negative amortization of principal and a "balloon"
principal payment at maturity. With respect to first mortgage loans, it is the
Company's general policy to require that the borrower provide a mortgagee's
title policy or an acceptable legal opinion of title as to the validity and the
priority of the mortgage lien over all other obligations, except liens arising
from unpaid property taxes and other exceptions normally allowed by first
mortgage lenders in the relevant area. The Company may grant to other lenders
participations in first mortgage loans originated by the Company.

The following discussion briefly describes the events that affected previously
funded first mortgage loans during 1994.

14
15
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. Assets
transferred by the Company pursuant to the asset sales agreement included a
retail shopping center in Lubbock, Texas, with a carrying value of $2.0 million
prior to transfer, a $1.5 million senior participation in a second lien
mortgage note secured by the Las Vegas Plaza, a retail shopping center in Las
Vegas, Nevada, with a carrying value of $18.8 million prior to transfer, a
$315,000 participation in a first mortgage note secured by unimproved land in
Virginia Station, Virginia and a $799,000 participation in a second lien
mortgage note secured by the Country Club Apartments, an apartment complex in
Flagstaff, Arizona. In return, the Company received a $1.9 million
participation in a first mortgage note secured by a hotel site in Lihue,
Hawaii, a $1.0 million first mortgage note secured by land in Maricopa County,
Arizona, a $118,000 first mortgage note secured by a single-family residence in
Silver Creek, Colorado and $1.5 million in cash. The asset sales agreement
contained put and guaranty provisions whereby, at any time, either party could
demand that the seller reacquire any asset sold pursuant to the terms of the
asset sales agreement for the consideration originally received. In March
1992, the Company received payment in full on the $118,000 note secured by the
single-family residence in Silver Creek, Colorado.

In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions of the asset sales agreement, of its desire to
divest itself of all assets received. The Receiver refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
In September 1992, the court approved the Receiver's Petition for an Order of
Liquidation for the insurance company.

In March 1992, the Company recorded a provision for loss of $496,000 to reduce
the note receivable secured by land in Maricopa County, Arizona to its then
estimated fair value. The Company foreclosed on the land securing the note in
June 1992. In December 1992, the Company recorded an additional provision for
loss on such land of $349,000, to reduce the carrying value of the land to its
then estimated fair value. In September 1992, the Company recorded the
insubstance foreclosure of the hotel site in Lihue, Hawaii, which secured a
$1.9 million first mortgage participation received by the Company. In March
1995, the Company collected in full the second lien mortgage note secured by
the Country Club Apartments, but did not remit such amount to the insurance
company.

The Company has reached a settlement with the Receiver for the insurance
company which was approved by the court on February 15, 1995. Under the terms
of the settlement, the insurance company is to return to the Company all of the
assets which it received from the Company, except for the participation in the
first mortgage note secured by unimproved land in Virginia Station, Virginia.
In exchange, the Company is to return to

15
16
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

the insurance company $1.0 million in cash and all assets, which it received
from the insurance company, other than the note secured by the residence in
Colorado which the Company collected. The asset transfers and the Company's
cash payment are anticipated to occur in the second quarter of 1995. The
settlement requires the Company to pay interest on the cash portion of the
settlement from March 17, 1995 until the asset transfers are completed.
Interest is payable monthly in advance. The Company expects to incur no loss
on the settlement in excess of amounts previously provided.

The borrower on a $1.7 million first mortgage note receivable secured by land
in Osceola, Florida has failed to make the required payments subsequent to
August 10, 1993, including the payment of principal and interest due at the
note's maturity on November 1, 1993. The Company instituted foreclosure
proceedings and was awarded a summary judgment in January 1994. During 1994,
the borrower paid the Company a total of $235,000 in nonrefundable fees to
delay foreclosure of the property. In February and March 1995, the borrower
paid the Company a total of $35,000 to delay the foreclosure until April 24,
1995. The note had a principal balance of $1.6 million at December 31, 1994.
The Company does not expect to incur any loss upon foreclosure of the
collateral property as its estimated fair value exceeds the carrying value of
the note.

In June 1994, the Company and the borrower on a $1.9 million first mortgage
note receivable, which had matured on December 31, 1992 and was secured by a
vacant former hotel in Shaker Heights, Ohio, entered into an agreement of
settlement and release. The Company accepted $1.0 million in cash and the right
to participate in the future appreciation of the property, if any, in full
settlement of its note. The Company incurred no loss in excess of the amounts
previously provided.

The Company did not receive the payment due on October 1, 1991 on the first
mortgage note receivable, secured by the 386 Ocean Parkway Co-op. In February
1994, the Company agreed to reinstate and modify its note in exchange for the
pledge to the Company, as additional collateral, of 21 shares in the co-op
equating to 21 unsold apartment units. The reinstated note reduced the
principal balance from $900,000 to $750,000, waived all defaults on the note
and extended the maturity date of the note to September 15, 1999. In June
1994, the Company sold its mortgage note receivable and the 21 unsold
apartment units for $450,000 in cash. The Company incurred no loss on the sale
in excess of the amounts previously provided.

As discussed in "Real Estate" above, as partial consideration for the sale of a
restaurant site in Los Angeles, California, the Company provided $100,000 of
purchase money financing. The note bears interest at 8% per annum and requires
monthly interest only payments until May 1, 1997, at which time the principal
balance shall have been paid down to no more than $50,000. Interest only
payments are to continue until maturity on April 1, 1999, at which time all
unpaid principal and accrued interest shall be due.

16
17
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

Wraparound Mortgage Loans. The Company may invest in wraparound mortgage
notes, sometimes called all-inclusive notes, made on real estate subject to
prior mortgage indebtedness. A wraparound mortgage note is a mortgage note
having an original principal amount equal to the outstanding balance under the
prior existing mortgage debt plus the amount actually advanced under the
wraparound mortgage note.

Wraparound mortgage notes may provide for full, partial or no amortization of
principal. The Company's policy is to make wraparound mortgages in amounts and
on properties as to which it would otherwise make a first mortgage loan. The
following discussion briefly describes events that affected previously funded
wraparound mortgage loans during 1994.

In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino property at foreclosure subject to first and
second lien mortgages totaling $10.0 million and a disputed third lien
mortgage. In June 1992, the Company sold the hotel and casino to the third
lienholder for a $22 million wraparound mortgage note receivable, a $500,000
unsecured note receivable, and $100,000 in cash. The $22 million note bears
interest at 11%, originally was to mature June 19, 1995, and required monthly
interest payments of $175,000 through December 1993, $250,000 through June 1,
1995 and a "balloon" payment at maturity. The $500,000 note was paid off on
July 30, 1993. The Company recorded a deferred gain of $4.3 million in
connection with the sale of the hotel and casino resulting from the disputed
third lien mortgage being subordinated to the Company's wraparound mortgage
note receivable. Payments of interest and principal on the Company's
wraparound note receivable are made directly by the borrower to the holder of
the first and second lien mortgages and are applied against interest and
principal thereon. In October 1993, the borrower ceased making the monthly
payments required by the Company's wraparound mortgage note receivable to the
holder of the first and second lien mortgages. In April 1994, the Company, the
borrower and the underlying lienholder agreed to modify and extend both the
Company's wraparound note receivable and the underlying liens. The Company's
modified wraparound mortgage note receivable continues to accrue interest at
11% per annum with any unpaid interest being added monthly to the principal
balance and required payments of $150,000 per month through January 1, 1995,
at which time the monthly payments increased to $175,000 until the note's new
maturity date of July 1, 1995, when the unpaid principal balance together with
any accrued but unpaid interest is due. The borrower is making payments in
accordance with the terms of the modified note. The Company's wraparound
mortgage note receivable had a principal balance of $22.7 million at December
31, 1994, including compounded interest.

In conjunction with the modification of the Company's wraparound mortgage note
receivable, the underlying lienholder agreed to forebear exercising its rights
under the first and second liens on the condition

17
18
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

that the Company remit to it the greater of either $150,000 or all sums
received by the Company, after May 1, 1994, on the Company's wraparound
mortgage note receivable and that the Company make a principal reduction
payment of $225,000 upon execution of the forbearance agreement, which was made
on June 29, 1994. The Company is in compliance with the terms of the
forbearance agreement.

Junior Mortgage Loans. The Company may invest in junior mortgage notes. Such
notes are secured by mortgages that are subordinate to one or more prior liens
either on the fee or a leasehold interest in real estate. Recourse on such
notes ordinarily includes the real estate which secures the note, other
collateral and personal guarantees of the borrower.

The following discussion briefly describes the junior mortgage notes funded in
1994 and the events that affected previously funded junior mortgage notes,
during 1994.

As discussed in "Real Estate" above, in November 1994, the Company sold to a
newly formed partnership, in which the Company has a 27% limited partner
interest, its apartment complex in San Antonio, Texas, along with its three
apartment complexes in Biloxi, Mississippi. In conjunction with the sale, the
Company received second and third lien mortgages totaling $1.3 million secured
by the apartment complex in San Antonio, Texas. Both notes require interest
only payments at 6% per annum, with principal and any accrued but unpaid
interest due at maturity, September 1, 2004.

At December 31, 1994, the Company held a mortgage note receivable which it had
acquired in 1989, secured by a third lien mortgage secured by a commercial
property in South Carolina and personal guaranties of several individuals. In
May 1992, a settlement was entered into between the Company and the guarantors.
In accordance with the terms of the settlement, the borrower made a principal
reduction payment of $127,812, and monthly interest payments on the note at a
rate of 10% per annum. The note matured May 11, 1993. Effective May 11, 1993,
the note was again modified to bear interest at 18% per annum, have a maturity
date of October 1, 1993, and provide for monthly principal payments of $200,000
July 1, 1993 through October 1, 1993. The Company received none of the
payments required by this second modification. Effective September 1, 1993,
the note was modified a third time. The guarantors paid $100,000, $68,000 of
which was applied to reduce the note's principal balance and the remainder to
bring interest on the note current. The third modification extended the note's
maturity date to September 1, 1995, required monthly interest payments at 12%
per annum beginning October 1, 1993 and a $25,000 principal reduction payment
every ninety days beginning December 1, 1993. The borrower has failed to make
the required payments of principal and interest since December 1, 1994. The
Company has accelerated the note and is in the process of instituting
foreclosure proceedings as well as actions against the guarantors of the note.
The principal balance of the note was $422,000 at December 31, 1994. The
Company expects to incur no loss on the note in excess of the amounts
previously provided.

18
19
ITEM 2. PROPERTIES (Continued)

Other Loans

In April 1990, SAMLP made a $1.4 million unsecured loan to Equity Health and
Finance Corporation ("Equity Health"), an entity affiliated with BCM, the
Company's advisor. The Company owns a 76.8% limited partner interest in SAMLP
which it consolidates for financial statement purposes. In June 1991, Equity
Health merged into BCM and BCM assumed the note. The loan matured on May 9,
1994 and its outstanding balance of $497,000, including accrued but unpaid
interest, was paid in full.

In May 1990, the Company guaranteed up to $3.0 million of a $14.0 million loan
secured by a hotel in California. In return for such guarantee, the borrower
was required to pay an annual fee to the Company of $45,000 of which only the
fee due in 1990 was paid. Because it located the financing for the hotel and a
party to guarantee the loan, an entity beneficially owned by Mr. Phillips was
granted a profits participation by the borrower and was to receive certain
other consideration. The guarantee was to continue in effect until all of the
guaranteed obligations had been paid, performed, satisfied and discharged. In
April 1991, the Company advanced $357,000 on a note secured by the hotel,
pursuant to the guarantee and an additional $101,000 was advanced in June 1991,
also on a note secured by the hotel.

In January 1992, the Company received notice that the lender had declared an
event of default on the $14.0 million loan and in June 1993 the lender
foreclosed on the hotel securing the loan. In May 1994, the Company and the
lender entered into a settlement agreement relating to the Company's
performance under its guarantee. Pursuant to the settlement agreement the
Company is to pay a total of $850,000 to the lender, $750,000 of which was paid
in 1994, with the remaining $100,000 to be paid on or before March 31, 1995.
The Company had written off its two notes receivable secured by the foreclosed
hotel as uncollectible as of December 31, 1993. The Company did not incur a
loss with respect to either the guarantee settlement or the notes receivable in
excess of the amounts previously provided.

Investments in Real Estate Investment Trusts and Real Estate
Partnerships

The Company's investment in real estate entities includes (i) equity securities
of three publicly traded REITs (collectively the "Trusts"), CMET, IORT and
TCI, (ii) units of limited partner interest of NRLP, (iii) a general partner
interest in NRLP and NOLP, through its 76.8% limited partner interest in SAMLP,
the general partner of NRLP and NOLP, and (iv) interests in real estate joint
venture partnerships. Mr. Phillips, Chairman of the Board and a Director of
the Company until November 16, 1992, serves as a director and Chief Executive
Officer of SAMI, a company owned by BCM, which serves as SAMLP's managing
general partner. Mr. Phillips is also a general partner of SAMLP. BCM serves
as advisor to the Trusts, and performs certain administrative and management
functions for NRLP and NOLP on behalf of SAMLP.

Since acquiring its initial investments in the equity securities of the Trusts
and NRLP in 1989, the Company has made additional investments in the

19
20
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

equity securities of these entities through private and open market purchases.
The Company's cost with respect to shares of the Trusts at December 31, 1994
totaled $22.1 million, and its cost with respect to units of limited partner
interest in NRLP totaled $25.9 million. The aggregate carrying value (cost
plus or minus equity in income or losses and less distributions received) of
such equity securities of the Trusts and NRLP at December 31, 1994 was $35.2
million and the aggregate market value of such equity securities was $59.5
million. The aggregate investee book value of the equity securities of the
Trusts and the Company's share of NRLP's revaluation equity based upon the
December 31, 1994 financial statements of each such entity was $55.0 million
and $144.9 million, respectively. See ITEM 13. "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."

In 1990, the Company's Board of Directors authorized and in May 1993 reaffirmed
the expenditure by the Company of up to an aggregate of $17.0 million to
acquire, in open market purchases, additional units of NRLP and shares of the
Trusts. In March 1995, the Company's Board of Directors increased such
authorization to $25.0 million. As of March 17, 1995, the Company had expended
$12.8 million to acquire additional units of NRLP and an aggregate of $7.0
million to acquire additional shares of the Trusts, in open market purchases,
in accordance with these authorizations. The Company expects to make
additional investments in the equity securities of the Trusts and NRLP.

At December 31, 1994, SAMLP, the general partner of NRLP and NOLP, owned 17,650
shares of TCI. The Company owns a 76.8% limited partnership interest in SAMLP
which the Company consolidates for financial statement purposes.

The purchases of the equity securities of the Trusts and NRLP were made for the
purpose of investment and were based principally on the opinion of the
Company's management that the equity securities of each were and are currently
undervalued. The determination by the Company to purchase additional equity
securities of the Trusts and NRLP is made on an entity-by-entity basis and
depends on the market price of each entity's equity securities relative to the
value of its assets, the availability of sufficient funds and the judgment of
the Company's management regarding the relative attractiveness of alternative
investment opportunities.

Because the Company may be considered to have the ability to exercise
significant influence over the operating and investing policies of these
entities, the Company accounts for its investment in the Trusts, NRLP, and the
joint venture partnerships using the equity method of accounting.
Substantially all of the equity securities of the Trusts and NRLP owned by the
Company are pledged as collateral for borrowings.

Pertinent information regarding the Company's investment in the equity
securities of the Trusts and NRLP, entities which are accounted for

20
21
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

under the equity method at December 31, 1994, is summarized below (dollars in
thousands):

Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1994 December 31, 1994 December 31, 1994 December 31, 1994
--------- --------------------- ----------------- ------------------ ------------------

NRLP . . . . . . . . . . . . 48.1% $13,727 $ * $ 31,623
CMET . . . . . . . . . . . . 33.9 11,389 26,723 14,850
IORT . . . . . . . . . . . . 21.0 2,285 5,378 3,267
TCI . . . . . . . . . . . . . 24.6 7,833 22,909 9,782
------- ----------
$35,234 $ 59,522
======= ==========

____________________

* At December 31, 1994, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $144.9
million. Revaluation equity is defined as the difference between the
appraised value of the partnership's real estate, adjusted to reflect
the partnership's estimate of disposition costs, and the amount of the
mortgage notes payable and accrued interest encumbering such property
as reported in NRLP's Annual Report on Form 10-K for the year ended
December 31, 1994.

Each of the Trusts and NRLP own a considerable amount of real estate, much of
which, particularly in the case of NRLP, has been held for many years. Because
of depreciation, these entities may earn substantial amounts in periods in
which they sell real estate and will probably incur losses in periods in which
they do not. The Company's reported income or loss attributable to these
entities will differ materially from its cash flow attributable to them.

The Company does not have a controlling equity interest in any of the investees
set forth in the table above and therefore it cannot, acting by itself,
determine either the individual investments or the overall investment policies
of such investees. However, due to the Company's equity investments in, and
the existence of common officers with, each of the Trusts, and that the Trusts
have the same advisor as the Company and that Mr. Cashwell, a Director of the
Company, is also the President of the Trusts and BCM, the Company's advisor,
and the President and a director of SAMI, a Company owned by BCM, that is the
managing general partner of SAMLP, the Company may be considered to
have the ability to exercise significant influence over the operating and
investing policies of these entities. As more fully discussed in "NRLP" below,
SAMLP has agreed to resign as general partner of NRLP and NOLP upon the
election and qualification of a successor general partner. The Company
accounts for its investment in these entities using the equity method. Under
the equity method, the Company

21
22
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

recognizes its proportionate share of the income or loss from the operations of
these entities currently, rather than when realized through dividends or on
sale. The carrying value of these entities, set forth in the table above, is
the original cost of each such investment adjusted for the Company's
proportionate share of each entity's income or loss and distributions received.

The following is a summary description of each of NRLP and the Trusts, based
upon information publicly reported by such entities.

NRLP. NRLP is a publicly traded master limited partnership which was formed
under the Delaware Uniform Limited Partnership Act on January 29, 1987. It
commenced operations on September 18, 1987 when, through NOLP, it acquired all
of the assets, and assumed all of the liabilities, of 35 public and private
limited partnerships sponsored by or otherwise related to Southmark Corporation
("Southmark"). NRLP is the sole limited partner of NOLP and owns 99% of the
beneficial interest in NOLP. NRLP and NOLP operate as an economic unit and,
unless the context otherwise requires, all references herein to the Partnership
shall constitute references to NRLP and NOLP as a unit. The general partner
and owner of 1% of the beneficial interest in each of NRLP and NOLP is SAMLP, a
Delaware limited partnership. SAMI, a company owned by BCM, is the managing
general partner of SAMLP. In November 1992, NOLP transferred 52 apartment
complexes and a wraparound mortgage note receivable to Garden Capital, L.P.
("GCLP"), a Delaware limited partnership in which NOLP owns a 99.3% limited
partner interest. Concurrent with such transfer, GCLP refinanced all of the
mortgage debt associated with the transferred properties and the wraparound
mortgage note under a new first mortgage in the amount of $223 million.

The Company is a limited partner in SAMLP, holding a 76.8% limited partner
interest therein, which the Company consolidates for financial statement
purposes. Southmark owns a 19.2% limited partner interest in SAMLP. Mr.
Phillips and SAMI are the general partners of SAMLP.

SAMI, as the managing general partner of SAMLP, has discretion in determining
methods of obtaining funds for the Partnership's operations, and the
acquisition and disposition of its assets. The Partnership's governing
documents place no limitation on the amount of leverage that the Partnership
may incur either in the aggregate or with respect to any particular property or
other investment. At December 31, 1994, the aggregate loan-to-value ratio of
the Partnership's real estate portfolio was 47.9% computed on the basis of the
ratio of total property-related debt to aggregate appraised values.

As of December 31, 1994, NRLP owned 84 properties located in 22 states. These
properties consisted of 68 apartment complexes comprising 17,294 units, seven
office buildings with an aggregate of 495,594 square feet and nine shopping
centers with an aggregate of 1.1 million square feet.

22
23
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

For the year ended December 31, 1994, the Partnership reported net income of
$5.0 million compared to $1.3 million for the year ended December 31, 1993.
The Partnership's loss from operations of $3.2 million in 1994 was a 59%
improvement when compared to its $7.8 million loss from operations in 1993.
The improvement is due in part to an average 4.4% increase in rental rates at
the Partnership's apartment complexes. The Partnership's net income in 1994
was attributable to an $8.3 million gain from the sale of two of its apartment
complexes in Michigan. The Partnership's net income in 1993 was attributable
to a $9.0 million extraordinary gain from its acquisition at a discount of
certain of its mortgage debt. At December 31, 1994, the Partnership had total
assets of $290.1 million which consisted of $241.6 million in real estate held
for investment or sale, $11.5 million in notes and interest receivable, net of
allowance for estimated losses, $33.3 million in other assets and $3.7 million
in cash and cash equivalents.

In the fourth quarter of 1993, the Partnership resumed distributions to
unitholders at the initial rate of $0.20 per unit. The Company received
aggregate distributions from the Partnership of $170,000 in 1993. In 1994, the
Partnership paid distributions of $1.30 per unit, the Company receiving a total
of $1.4 million.

The Partnership, SAMLP, Mr. Phillips and William S. Friedman, a general partner
of SAMLP until March 4, 1994, were among the defendants in a class action
lawsuit arising out of the transactions discussed above whereby the Partnership
was formed. An agreement settling such lawsuit as to the defendants, the
Partnership, SAMLP and Messrs. Phillips and Friedman (the "Moorman Settlement
Agreement"), became effective on July 5, 1990. The Moorman Settlement
Agreement provides for, among other things, the appointment of an oversight
committee for NRLP; the establishment of specified annually increasing targets
for a five-year period relating to the price of NRLP units; a limitation and
deferral or waiver of NRLP's reimbursement to SAMLP of certain future salary
costs; and a deferral or waiver of certain future compensation to SAMLP; the
required distribution to unitholders of all of the Partnership's cash from
operations in excess of certain renovation costs unless the NRLP oversight
committee approves alternative uses for such cash from operations; and the
issuance of unit purchase warrants to members of the plaintiff class; the
contribution by certain co-defendants of cash and notes payable to the
Partnership aggregating $5.5 million including $2.5 million contributed by
SAMLP on behalf of itself and pursuant to the indemnification provisions of
SAMLP's agreement of limited partnership, $500,000 of which was paid in 1990,
with the remainder being paid over a four-year period. The final annual
installment of principal and interest of $631,000 was paid by SAMLP in May
1994. The Partnership also agreed to pay certain settlement costs, including
plaintiffs' attorneys' fees in the amount of $3.4 million. The settlement plan
remains in effect for five years from May 9, 1990, or until the withdrawal of
SAMLP as general partner of NRLP and NOLP.

23
24
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

The Moorman Settlement Agreement provides for the resignation and replacement
of SAMLP as general partner if the price targets are not met for two
consecutive anniversary dates. The Partnership did not meet the unit price
targets for the first and second anniversary dates. On July 8, 1992,
SAMLP notified the NRLP Oversight Committee of the failure to meet the unit
price targets for two successive years and that it expects to resign as general
partner of NRLP and NOLP.

The withdrawal of SAMLP as general partner would require the Partnership to
purchase SAMLP's general partner interest (the "Redeemable General Partner
Interest") at its then fair value, and to pay certain fees and other
compensation as provided in the partnership agreement. SAMI, the managing
general partner of SAMLP, has calculated the fair value of such Redeemable
General Partner Interest to be $33.0 million at December 31, 1994, before
reduction for the principal balance ($4.2 million at December 31, 1994) and
accrued interest ($4.3 million at December 31, 1994) on the note receivable
from SAMLP for its original capital contribution to the Partnership. There can
be no assurance that such amount at the time of any such withdrawal will not be
substantially higher or lower. The NRLP oversight committee previously has
informed the Partnership that it calculated the amount of such Redeemable
General Partner Interest to be less than the amount calculated by SAMI. Any
dispute pertaining to the amount of the Redeemable General Partner Interest
upon the withdrawal of SAMLP as general partner of NRLP and NOLP, will be
resolved by the Judge appointed pursuant to the Moorman Settlement Agreement to
supervise its implementation (the "Supervisory Judge").

In January 1995, SAMLP, the Partnership and the NRLP oversight committee
executed an Implementation Agreement which provides for the nomination of a
successor general partner and for the resolution of all related matters under
the Moorman Settlement Agreement. The Implementation Agreement is subject to
receipt of a notice from the proposed successor general partner nominee that it
consents to stand for election as the successor general partner.

The Implementation Agreement shall be submitted to the Supervising Judge for
tentative approval and approval of the notice to be sent to the original class
members. Upon final approval by the Supervising Judge, the proposal to elect
the successor general partner will be submitted to the unitholders of the
Partnership for a vote. In addition, the unitholders will vote upon amendments
to the Partnership's partnership agreement which relate to the proposed
compensation of the successor general partner and other related matters.

Upon approval by the unitholders, SAMLP shall resign as General Partner and the
successor general partner shall take office. If the required approvals are
obtained, it is anticipated that the successor general partner may be elected
and take office during the third or fourth quarter of 1995.

The Implementation Agreement provides that SAMLP, and its affiliates owning
units in the Partnership, shall not vote to remove the successor

24
25
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

general partner, except for removal with cause, for a period of thirty months
from the date the successor general partner takes office. In addition, the
Supervising Judge shall make a determination of any amounts which the
Partnership may owe to SAMLP upon SAMLP's withdrawal as General Partner and any
amounts which SAMLP or its affiliates may owe to the Partnership. Any amounts
which the Partnership may be determined to owe to SAMLP may be paid by the
Partnership over a period of time to be determined by the parties on terms
which shall not hinder the Partnership's ability to meet its other financial
obligations.

Upon the election and taking office of the successor general partner, the
Moorman settlement plan and the NRLP oversight committee shall be terminated.
If the successor general partner nominee does not stand for election or is not
elected, the existing Moorman Settlement Agreement shall remain in full force
and effect and all of the provisions of the Implementation Agreement shall be
voided. The Partnership's purchase of the Redeemable General Partner Interest
could have an adverse effect on the Partnership's financial condition and on
the Company's investment in the Partnership ($13.7 million at December 31,
1994).

CMET. CMET is a California business trust organized in 1980 which commenced
operations on December 3, 1980. CMET's primary business is investing in real
estate through direct equity investments, and partnerships and financing real
estate and real estate- related activities through investments in mortgage
notes, including first, wraparound and junior mortgage notes. CMET holds
equity investments in apartment complexes and commercial properties (office
buildings, industrial facilities and shopping centers) throughout the
continental United States. CMET's apartment complexes and commercial
properties are concentrated in the Southeast, Southwest and Midwest regions of
the continental United States. CMET also holds mortgage notes receivable
secured by real estate located in the Southeast, Southwest and Midwest region
of the continental United States, with a concentration in the Southeast and
Midwest regions. CMET has determined that it will not consider future mortgage
lending, except in connection with purchase money financing offered to
facilitate the sale of its assets.

For the year ended December 31, 1994, CMET reported a net loss of $833,000 as
compared with net income of $615,000 for the year ended December 31, 1993.
CMET's net loss for 1994 includes a provision for loss of $1.4 million as
compared to $221,000 in 1993 and a gain on sale of real estate of $1.7 million
in 1994 as compared to $365,000 in 1993. Cash flow from property operations
(rentals collected less payments for property operating expenses) improved to
$10.7 million in 1994 compared to $8.4 million in 1993. At December 31, 1994,
CMET had total assets of $182.8 million which consisted of $7.1 million in
mortgage notes and interest receivable (net of allowance for estimated losses),
$124.7 million in real estate held for investment, $19.5 million in real estate
held for sale, $24.0 million in investments in partnerships and other assets
and $7.5 million in cash and cash equivalents.

25
26
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

In March 1993, CMET resumed the payment of regular quarterly distributions at
the initial rate of $0.10 per share. The rate was increased to $0.15 per share
for the September 1993 quarterly distribution. The Company received
distributions from CMET totaling $428,000 in 1993. In 1994, CMET paid
distributions of $0.60 per share, the Company receiving a total of $587,000.

As of March 17, 1995, CMET owned 204,522 shares of the Company's Common Stock,
approximately 7% of the shares then outstanding.

IORT. IORT is a California business trust organized in 1984 which commenced
operations on April 10, 1985. IORT is scheduled, unless and until IORT's
shareholders decide on a contrary course of action, to begin liquidation of its
assets prior to October 24, 1996. IORT's Declaration of Trust calls for the
distribution to shareholders of (i) the net cash proceeds from sale or
refinancing of equity investments, and (ii) the net cash proceeds from the
satisfaction of mortgage notes receivable received after October 24, 1996.
However, IORT's board of trustees has discretionary authority to hold any
investment past October 24, 1996, should circumstances so dictate. IORT holds
equity investments in apartment complexes and office buildings in the Pacific,
Southwest, Southeast and Midwest regions of the continental United States.
IORT also holds one mortgage note receivable.

For the year ended December 31, 1994, IORT reported a net loss of $287,000 as
compared with a net income of $875,000 for the year ended December 31, 1993.
IORT's 1993 net income is attributable to an extraordinary gain of $806,000
due to its early payoff of mortgage debt. Cash flow from property operations
however, improved to $3.7 million in 1994 from $3.0 million in 1993. At
December 31, 1994, IORT had total assets of $49.0 million which consisted of
$41.0 million in real estate held for sale, $2.0 million in notes and interest
receivable, $5.8 million in investments in partnerships and other assets and
$232,000 in cash and cash equivalents.

IORT resumed the payment of regular quarterly distributions in March 1993, at
an initial rate of $0.10 per share. The rate was increased to $0.15 per share
for the September 1993 quarterly distribution. The Company received
distributions from IORT totaling $72,000 in 1993. In 1994, IORT paid total
distributions of $0.60 per share, the Company receiving a total of $88,000.

TCI. TCI is a Nevada corporation which was originally organized in 1984 as a
California business trust, and commenced operations on January 31, 1984. TCI
has investment policies similar to those of CMET. TCI holds equity investments
in apartment complexes and commercial properties (office buildings, industrial
facilities and shopping centers) throughout the continental United States with
a concentration in the Northeast, Southeast and Southwest regions. TCI also
holds mortgage notes receivable secured by real estate located Northeast,
Midwest, Southeast and Southwest regions, with a concentration in the Northeast

26
27
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

and Southeast regions. Like CMET, TCI has also determined that it will not
consider future mortgage lending, except in conjunction with purchase money
financing offered to facilitate the sale of its assets.

For the year ended December 31, 1994, TCI reported a net loss of $3.4 million
as compared with a net loss of $8.6 million for the year ended December 31,
1993. The decrease in TCI's 1994 net loss is attributable to gains from the
sale of real estate and partnership interests totaling $4.7 million compared to
$24,000 in 1993 and an extraordinary gain of $1.2 million in 1994 compared to
an extraordinary gain of $1.6 million in 1993. Cash flow from property
operations decreased slightly to $8.6 million in 1994 as compared to $8.7
million in 1993. At December 31, 1994, TCI had total assets of $248.0 million,
which consisted of $11.3 million in notes and interest receivable (net of
allowance for estimated losses), $213.4 million in real estate held for
investment, $8.3 million in real estate held for sale, $14.4 million in
investments in real estate entities and other assets and $563,000 in cash and
cash equivalents. At December 31, 1994, TCI owned 170,750 of IORT's shares of
beneficial interest, approximately 22% of the shares then outstanding.

TCI's dividend policy provides for an annual determination of dividends, after
TCI's year end. The minimum amount of dividends will be determined by the
amount, if any, required to maintain TCI's status as a REIT for federal tax
purposes. The Company received no dividends from TCI in 1993 nor 1994 and does
not expect to receive any dividends in 1995.

SAMLP. Prior to February 25, 1992, the Company owned a 96% limited partner
interest in SAMLP, the general partner of and holder of a 1% beneficial
interest in each of NRLP and NOLP. In accordance with the settlement of the
Southmark adversary proceedings as described in ITEM 3. "LEGAL PROCEEDINGS -
Settlement of Southmark Adversary Proceedings," on February 25, 1992 the
Company assigned to Southmark a 19.2% limited partner interest in SAMLP. The
Company had an option, which expired on December 27, 1994, to reacquire
Southmark's 19.2% limited partner interest in SAMLP for $2.4 million, less any
distributions received by Southmark.

The Company consolidates SAMLP for financial statement purposes and accordingly
SAMLP's accounts and operations are included in the accompanying Consolidated
Financial Statements. See ITEM 8. "CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA." As a limited partner, the Company has no role in the
management of the business affairs of SAMLP. Rather, Mr. Phillips, as a
general partner of SAMLP, and SAMI, the managing general partner of SAMLP, have
full and complete authority to manage SAMLP.

River Trails II. In January 1992, the Company entered into a partnership
agreement with an entity affiliated with Donald C. Carter, until December 1994,
an owner of in excess of 14% of the Company's

27
28
ITEM 2. PROPERTIES (Continued)

Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)

Common Stock. The Partnership acquired 287 developed residential lots adjacent
to the Company's other residential lots in Fort Worth, Texas. The partnership
agreement designates the Company as managing general partner. The partnership
agreement also provides each of the partners with a guaranteed 10% return on
their respective investments. In 1993, 18 lots were sold. In 1994, an
additional 42 lots were sold. At December 31, 1994, 227 lots remained to be
sold.

ITEM 3. LEGAL PROCEEDINGS

Settlement of Southmark Adversary Proceedings

During 1990 and 1991, several adversary proceedings were initiated against the
Company and others by Southmark and its affiliates. On December 27, 1991, an
agreement to settle all claims in connection with the Southmark adversary
proceedings was executed by Southmark and the Company. The settlement covered
all claims between Southmark and its affiliates and Messrs. Phillips and
Friedman, SWI, NRLP, the Trusts, the Company and their affiliates. Pursuant to
the settlement agreement, Southmark received $13.2 million from the various
settling defendants. The final installment of $1.3 million was paid in July
1994.

The Company paid Southmark a total of $1.4 million of which $435,000 was paid
in July of 1994. In addition, on February 25, 1992, the Company assigned
Southmark a 19.2% limited partner interest in SAMLP, the general partner of
NRLP and NOLP. The Company had an option, which expired on December 27, 1994,
to reacquire Southmark's 19.2% interest in SAMLP for $2.4 million, less any
distributions received by Southmark. The Company received from Southmark,
Southmark's interest in Novus Nevada, Inc., land subject to a ground lease in
Denver, Colorado, land in Forest Park, Georgia, a mortgage note secured by land
in Tabonia, Utah and a participation in a mortgage note secured by a retail
property in Forest Park, Georgia. The assets that the Company received had an
aggregate value at least equal to the consideration the Company paid to
Southmark.

To secure the settlement payment obligations to Southmark, the Company issued
390,000 new shares of its Common Stock to ATN Equity Partnership ("ATN") which
pledged such shares to Southmark along with securities of TCI and NRLP. The
Company canceled its collateral shares as they were released from the pledge to
Southmark and returned to it by ATN. ATN was formed solely to hold title to
the securities issued by each partner and to pledge such securities to
Southmark. The Company had also pledged to Southmark its remaining limited
partner interest in SAMLP.

In addition to the pledge of securities and the Company's SAMLP limited partner
interest securing the payment to Southmark, Messrs. Phillips and Friedman, the
Company and SWI each executed and delivered separate, final, nonappealable
judgments in favor of Southmark, each in the amount of $25 million. In July
1994, upon satisfaction of the settlement obligations, the judgments were
returned to the defendants and cancelled.

28
29
ITEM 3. LEGAL PROCEEDINGS (Continued)

Settlement of Southmark Adversary Proceedings (Continued)

On February 25, 1992, the Company entered into an agreement with Messrs.
Phillips and Friedman, SWI and the Trusts relating to their settlement of
litigation with Southmark. Pursuant to the agreement, TCI obtained the right
to acquire four apartment complexes, five mortgage notes, two commercial
properties and four parcels of developed land from Southmark and its
affiliates.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of stockholders on December 19, 1994, at
which meeting the Company's stockholders elected the following individuals as
Class III Directors of the Company:

Shares Voting
------------------------------
Withheld
Director For Authority
-------- --- ---------

Dale A. Crenwelge . . . . . . . . . . . . . . . . . 2,403,543 24,173
Ryan T. Phillips . . . . . . . . . . . . . . . . . 2,401,438 26,278

The Directors whose terms did not expire in 1994 and therefore did not stand
for reelection were Oscar W. Cashwell, Class I Director, and Al Gonzalez and G.
Wayne Watts, Class II Directors.

___________________________________

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's Common Stock is traded on the New York Stock Exchange using the
symbol "ARB". The following table sets forth the high and low sales prices as
reported in the consolidated reporting system of the New York Stock Exchange.

QUARTER ENDED HIGH LOW
------------------------------------- -------- -------

March 31, 1995 . . . . . . . . . . . . . . $13 3/4 $13
(through March 17, 1995)

March 31, 1994 . . . . . . . . . . . . . . 13 1/4 12 1/2
June 30, 1994 . . . . . . . . . . . . . . . 12 1/8 12 1/8
September 30, 1994 . . . . . . . . . . . . 11 7/8 11 1/8
December 31, 1994 . . . . . . . . . . . . . 13 1/8 11 3/8

March 31, 1993 . . . . . . . . . . . . . . 8 5/8 6
June 30, 1993 . . . . . . . . . . . . . . . 9 5/8 8 1/8
September 30, 1993 . . . . . . . . . . . . 12 3/4 8 7/8
December 31, 1993 . . . . . . . . . . . . . 15 5/8 11 1/4

As of March 17, 1995, the closing market price of the Company's Common Stock on
the New York Stock Exchange was $13.13 per share.

29
30
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS (Continued)

As of March 17, 1995, the Company's Common Stock was held by 2,915 stockholders
of record.

On December 6, 1988, the Company's Board of Directors authorized the repurchase
of up to $5.0 million of the Company's Common Stock. As of March 17, 1995, no
shares had been repurchased pursuant to such authorization. See ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources."

The Company's dividend policy provides for an annual determination of dividend
distributions, after the Company's year end. No dividends were declared or
paid in 1994. The Company last paid dividends in 1990.

In April 1990, the Company's Board of Directors adopted a Preferred Share
Purchase Rights Plan (the "Rights Plan") and approved the distribution to
stockholders of a dividend of one share purchase right (the "Rights") for each
then outstanding share of the Company's Common Stock. Each Right will entitle
stockholders to purchase one one- hundredth of a share of a new series of
preferred stock at an exercise price of $25.00.

The Rights will generally be exercisable only if a person or group (the
"Adverse Group") increases its then current ownership in the Company by more
than 25% or commences a tender offer for 25% or more of the Company's Common
Stock. If any person or entity actually increases its current ownership in the
Company by more than 25% or if the Board of Directors of the Company determines
that any 10% stockholder is adversely affecting the business of the Company,
holders of the Rights, other than the Adverse Group, will be entitled to buy,
at the exercise price, Common Stock of the Company with a market value of twice
the exercise price. Similarly, if the Company is acquired in a merger or other
business combination, each Right will entitle its holder to purchase, at the
Right's exercise price, the number of shares of the surviving company having a
market value of twice the Right's exercise price. In connection with the
one-for-three reverse share split effected in December 1990, the Rights were
proportionately adjusted so that each post-split share certificate represents
three Rights, each of which permit the holder thereof to purchase one
one-hundredth of a preferred share for $25.00 under such circumstances. The
Rights expire in 2000 and may be redeemed at the Company's option for $.01 per
Right under certain circumstances.

On March 5, 1991, the Company's Board of Directors approved an amendment to the
Rights Plan. The amendment excludes the Company, the Company's subsidiaries,
and the Advisor or its officers and directors from the class of persons who may
cause the Rights to become exercisable by increasing their ownership of the
Company's Common Stock.

30
31
ITEM 6. SELECTED FINANCIAL DATA

For the Years Ended December 31,
------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- --------- ----------- -----------
(dollars in thousands, except per share)

EARNINGS DATA
Revenue . . . . . . . . . . . $ 20,541 $ 9,413 $ 8,093 $ 12,609 $ 15,327

Expense . . . . . . . . . . . 26,490 18,128 18,243 24,387 32,689
------------ ------------- ----------- ----------- -----------

(Loss) before gain on sale
of real estate and
extraordinary gain . . . . . (5,949) (8,715) (10,150) (11,778) (17,362)
Gain on sale of real
estate . . . . . . . . . . . 3,200 481 566 1,271 983
Extraordinary gain . . . . . 323 3,807 - 7,628 -
------------ ------------- ----------- ----------- -----------
Net (loss) . . . . . . . . . (2,426) (4,427) (9,584) (2,879) (16,379)

Redeemable Common Stock,
accretion of discount . . . - (129) (258) - -
------------ ------------- ----------- ----------- -----------
(Loss) applicable to
Common shares . . . . . . . $ (2,426) $ (4,556) $ (9,842) $ (2,879) $ (16,379)
============ ============= =========== =========== ===========

PER SHARE DATA
(Loss) before gain on sale
of real estate and
extraordinary gain . . . . . $ (1.95) $ (2.88) $ (4.18) $ (5.56) $ (8.20)
Gain on sale of real
estate . . . . . . . . . . . 1.05 .16 .23 .60 .47
Extraordinary gain . . . . . .11 1 .26 - 3.60 -
------------ ------------- ----------- ----------- -----------
Net (loss) . . . . . . . . . (.79) (1.46) (3.95) (1.36) (7.73)

Redeemable Common Stock,
accretion of discount . . . - ( .04) (.11) - -
------------ ------------- ----------- ----------- -----------
(Loss) applicable to
Common shares . . . . . . . $ (.79) $ (1.50) $ (4.06) $ (1.36) $ (7.73)
============ ============= =========== =========== ===========

Dividends per share . . . . . $ - $ - $ - $ - $ .60

Weighted average shares
outstanding . . . . . . . . 3,052,219 3,025,275 2,453,292 2,117,699 2,118,160

December 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- --------- ---------- ---------
(dollars in thousands, except per share)

BALANCE SHEET DATA
Notes and interest
receivable. . . . . . . . . . $ 49,693 $ 51,769 $ 72,808 $ 68,507 $ 78,026
Real estate . . . . . . . . . . 51,698 52,437 45,317 52,654 62,680
Total assets . . . . . . . . . 137,362 139,861 151,010 153,131 179,957
Notes and interest
payable . . . . . . . . . . . 45,695 53,693 63,698 65,074 93,973
Stockholders' equity . . . . . 55,894 56,120 60,476 70,221 73,112

Book value per share . . . . . $ 19.08 $ 22.23 $ 23.76 $ 33.16 $ 34.51

31
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Introduction

American Realty Trust, Inc. (the "Company") was organized in 1961 to provide
investors with a professionally managed, diversified portfolio of real estate
and mortgage loan investments selected to provide opportunities for capital
appreciation as well as current income.

Liquidity and Capital Resources

General. Cash and cash equivalents at December 31, 1994 aggregated $193,000,
compared with $843,000 at December 31, 1993. Although the Company anticipates
that during 1995 it will generate excess cash from operations, as discussed
below, such excess cash is not expected to be sufficient to discharge all of
the Company's debt obligations as they mature. The Company will therefore
again rely on externally generated funds, including borrowings against its
investments in various real estate entities, mortgage notes receivable, the
sale or refinancing of properties and, to the extent available and necessary,
borrowings from its advisor to meet its debt service obligations, pay taxes,
interest and other non-property related expenses.

Notes payable totaling $13.6 million are scheduled to mature during 1995. Of
the notes payable that mature in 1995, $5.3 million is secured by the
Continental Hotel and Casino's $22.7 million wraparound mortgage note
receivable the due date of which coincides with that of the note payable. An
additional $5.7 million due in 1995 is secured by the Denver Mart. The Company
has reached a tentative agreement with a lender to extend the notes maturity
date and increase the principal balance to provide for the expansion of the
Denver Mart as well as for renovation of the Inn at the Mart. Excluded from
1995 maturities is a note payable which matured December 18, 1994, with a
balance of $9.3 million at December 31, 1994. In March 1995, the notes
maturity date was extended to December 18, 1997. The extension terms for this
note payable are discussed in more detail under "Loans Payable," below. Also
excluded from 1995 maturities is the $2.9 million loan secured by the Kansas
City Holiday Inn. In March 1995, the Company exercised its option to extend
the loan's maturity date from March 1995 to March 1997. All other terms of the
loan remained unchanged. The Company intends to either payoff, extend the
maturity dates or obtain alternate financing for the remainder of its debt
obligations that mature in 1995. There can be no assurance, however, that
these efforts to obtain alternate financing or debt extensions will be
successful.

In May 1994, the Company extended and increased the principal balance on the
mortgage secured by the Rosedale Towers Office Building, which provided net
cash to the Company of $526,000, as discussed in more detail under Loans
Payable, below.

In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to a private investor for $1.9 million in cash. From March 1993 to March 1995,
the purchaser could have required the Company to repurchase 360,000 of such
shares at $6.11 per share, a total of $2.2

32
33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

million. In December 1994, the investor relinquished his right to put to the
Company the 360,000 shares. See NOTE 9. "REDEEMABLE COMMON STOCK."

The Company expects an increase in cash flow from property operations in 1995.
Such increase is expected to be derived from operations of the Denver Mart and
the Inn at the Mart both obtained in the second quarter of 1994. The Company
is also expecting continued lot sales at its two unencumbered Texas residential
subdivisions generating additional cash flow.

In November 1994, the Company sold its three Biloxi, Mississippi, apartment
complexes and its San Antonio, Texas apartment complex with the acquiring
partnership assuming mortgage debt of $10.1 million. The Company realized net
cash of $3.2 million from the sales.

In March 1995, the Company completed the sale of the Boulevard Villas
Apartments in Las Vegas, Nevada, which property had been acquired through
foreclosure in 1993. The Company received net cash of $3.4 million after the
payoff of the $5.9 million in existing mortgage debt. See NOTE 4. "REAL
ESTATE." Also in March 1995, the Company collected a second lien mortgage note
receivable with a principal balance of $860,000 in full. See NOTE 3. "NOTES
AND INTEREST RECEIVABLE."

The Company expects that funds from existing cash resources, collections on
mortgage notes receivable, sales or refinancing of real estate and/or mortgage
notes receivable, and borrowings against its investments in marketable equity
securities, mortgage notes receivable, and to the extent available borrowings,
if required, from the Company's advisor, which totaled $1.5 million at December
31, 1994, will be sufficient to meet the cash requirements associated with the
Company's current and anticipated level of operations, maturing debt
obligations and existing commitments in the foreseeable future. To the extent
that the Company's liquidity permits, the Company may make investments in real
estate, continue making additional investments in real estate entities and
marketable equity securities, and fund or acquire mortgage notes.

Notes Receivable. Scheduled principal maturities of $32.0 million are due in
1995 of which $1.9 million is due on nonperforming notes receivable. At
December 31, 1994, notes receivable with scheduled 1994 maturities of $1.9
million were in default. The majority of the Company's mortgage notes
receivable are due over the next one to ten years and provide for "balloon"
principal payments. It may be necessary for the Company to consider extending
certain notes if the borrowers do not have the resources to repay the loans,
are unable to sell the property securing such loans, or are unable to refinance
the debt owed.

33
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

first and second lien mortgages totaling $10.0 million and a disputed third
lien mortgage. In June 1992, the Company sold the hotel and casino to the
third lienholder for a $22 million wraparound mortgage note receivable, a
$500,000 unsecured note receivable which was paid off on July 30, 1993, and
$100,000 in cash. Payments of interest and principal on the Company's
wraparound note receivable are made directly by the borrower to the holder of
the first and second lien mortgages and are applied against interest and
principal thereon. In 1993, the borrower ceased making the monthly payments
required by the Company's wraparound mortgage note receivable, the Company and
the underlying lienholder accelerated their notes, and in April 1994, the
Company, the borrower and the underlying lienholder agreed to modify and extend
both the Company's wrap note and the underlying liens. The modified wraparound
note receivable continues to accrue at 11% per annum and required monthly
payments of $150,000 through January 1995, increasing to $175,000 per month to
the note's new maturity date of July 1,1995. In conjunction with the
modification of the Company's wraparound mortgage note receivable, the
underlying lienholder agreed to forebear exercising its rights under its first
and second liens on the condition that the Company remit to it the greater of
either $150,000 or all sums received by the Company, after May 1, 1994. The
Company made a principal payment of $225,000 upon execution of the forbearance
agreement. Both notes are performing under their modified terms. The Company's
wraparound mortgage note receivable had a principal balance of $22.7 million at
December 31, 1994, including compounded interest and the underlying liens
totaled $5.3 million at December 31, 1994.

In November 1994, the Company sold three Mississippi apartment complexes,
Watersedge III Apartments, the Edgewater Garden Apartments and the Chateau Bayou
Apartments, and the Mediterranean Villa Apartments in San Antonio, Texas, to a
newly formed limited partnership in exchange for a 27% interest in the
partnership, $3.2 million in net cash, a $100,000 certificate of deposit and
second and third liens totaling $1.3 million secured by the Mediterranean Villa
Apartments.

In April 1990, Syntek Asset Management, L.P. ("SAMLP") made a $1.4 million
unsecured loan to Equity Health and Finance Corporation ("Equity Health"), an
entity affiliated with Basic Capital Management, Inc. ("BCM"), the Company's
advisor. In June 1991, Equity Health merged into BCM, and BCM assumed the
note. The note matured on May 9, 1994, and its principal balance of $399,000
and accrued interest of $98,000 were paid in full.

In June 1994, the Company and the borrower on a $1.9 million first mortgage
note receivable, which had matured on December 31, 1992 and was secured by a
vacant former hotel in Shaker Heights, Ohio, entered into an agreement of
settlement and release. The Company accepted $1.0 million in cash and the
right to participate in the future appreciation of the property, if any, in
full satisfaction of its note receivable.

Also in June 1994, the Company sold its $900,000 first mortgage note

34
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

receivable secured by the 386 Ocean Parkway Co-op and 21 shares in the co-op
equating to 21 unsold apartment units for $450,000 in cash. See NOTE 3. "NOTES
AND INTEREST RECEIVABLE."

The Company anticipates a continued improvement in the operations of the
properties securing its mortgage notes receivable in certain regions of the
continental United States. In spite of this perceived improvement in the real
estate market in general, the Company can give no assurance that it will not
continue to experience deterioration in cash flow from notes receivable due to
new problem loans.

Loans Payable. The Company has margin arrangements with various brokerage
firms which provide for borrowings up to 50% of the market value of marketable
equity securities. The borrowings under such margin arrangements are secured
by such equity securities and bear interest rates ranging from 6.125% to
10.25%. Margin borrowings were $26.4 million (approximately 44.5% of market
value) at December 31, 1994, an increase of $10.3 million from December 31,
1993.

In March 1995, the Company modified and extended a loan from a financial
institution with a principal balance of $9.3 million at December 31, 1994 and
collateralized by a note receivable with principal balance of $17.1 million at
such date. The loan had matured December 18, 1994. The modified loan required
a $500,000 principal paydown, bears interest at the lender's prime rate plus
2%, requires monthly payments of interest and monthly principal payments of
$80,000, with the unpaid principal balance due at maturity on December 18,
1997. See NOTE 8. "NOTES AND INTEREST PAYABLE."

In March 1995, the Company exercised its option to extend the maturity date of
the loan secured by the Kansas City Holiday Inn from March 1995 to March 1997.
All other terms of the loan remain unchanged.

In May 1994, the Company modified, extended and increased the first mortgage
secured by Rosedale Towers, an office building in Minneapolis, Minnesota. The
mortgage principal balance was increased to $2.5 million, with the Company
realizing net financing proceeds of $526,000. The new loan bears interest at
the three-month LIBOR rate plus 3/4%, fixed at the beginning of each quarter
and requires monthly interest only payments, with the principal balance and
accrued but unpaid interest due at maturity on May 1, 1997. See NOTE 8. "NOTES
AND INTEREST PAYABLE."

Equity Investments. During the fourth quarter of 1988, the Company began
purchasing shares of various real estate investment trusts, at the time having
the same advisor as the Company, and units of limited partner interest in
National Realty, L.P. ("NRLP"). It is anticipated that additional equity
securities of NRLP and three of the trusts, Continental Mortgage and Equity
Trust ("CMET"), Income Opportunity Realty Trust ("IORT") and Transcontinental
Realty Investors, Inc. ("TCI"), will be acquired in the future through
open-market and negotiated transactions to the extent the Company's liquidity
permits.

35
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

Equity securities of CMET, IORT, TCI and NRLP held by the Company may be deemed
to be "restricted securities" under Rule 144 of the Securities Act of 1933
("Securities Act"). Accordingly, the Company may be unable to sell such
equity securities other than in a registered public offering or pursuant to an
exemption under the Securities Act for a period of two years after they are
acquired. Such restrictions may reduce the Company's ability to realize the
full fair market value of such investments if the Company attempted to dispose
of such securities in a short period of time.

The Company's cash flow from these investments is dependent on the ability of
each of the entities to make distributions. TCI's distribution policy provides
for an annual determination of distributions after year end, and then only to
the extent of its taxable income, if any. The Company received no
distributions from TCI in 1994. In March 1993, CMET and IORT resumed the
payment of regular quarterly distributions and in December 1993 NRLP also
resumed regular distributions. In 1994, the Company received aggregate
distributions from CMET and IORT of $675,000 and $1.4 million from NRLP and
anticipates receiving $860,000 from CMET and IORT and $1.6 million from NRLP in
1995.

On a quarterly basis, the Company's management reviews the carrying value of
the Company's mortgage loans, properties held for investment and properties
held for sale. Generally accepted accounting principles require that the
carrying value of an investment held for sale cannot exceed the lower of its
cost or its estimated net realizable value. In those instances in which
estimates of net realizable value of the Company's properties or loans are less
than the carrying value thereof at the time of evaluation, a provision for loss
is recorded by a charge against operations. The estimate of net realizable
value of the mortgage loans is based on management's review and evaluation of
the collateral properties securing such notes. The review generally includes
selective property inspections, a review of the property's current rents
compared to market rents, a review of the property's expenses, a review of the
maintenance requirements, discussions with the manager of the property and a
review of the surrounding area.

Results of Operations

1994 Compared to 1993. The Company reported a net loss of $2.4 million in 1994
as compared to a net loss of $4.4 million in 1993. The primary factors
contributing to the decrease in the Company's net loss are discussed in the
following paragraphs.

Net rental income (rental income less property operating expenses) increased
from $2.6 million in 1993 to $5.0 million in 1994. This increase is primarily
attributable to increases of $486,000 and $444,000 from Boulevard Villas
Apartments and the Kansas City Holiday Inn, respectively, both acquired in
1993, an increase of $1.1 million due to the acquisition of the Denver Mart and
Inn at the Mart, both of which were acquired in March 1994, and an increase in
the Company's other

36
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

commercial properties of $503,000 as a result of improved occupancy and rents.
These increases are offset by a decrease of $253,000 due to the sale of the
Culver City Shopping Center in August 1993. Net rental income is expected to
increase again in 1995 from a full year of operations of the Denver Mart and
the Inn at the Mart.

Interest income decreased from $5.0 million in 1993 to $4.0 million in 1994.
Of the decrease, $335,000 is attributable to the August 1993 Collecting Bank
settlement, $257,000 to the Continental Hotel and Casino note being
nonperforming prior to June 1994, $248,000 due to the nonperforming Osceola
land note receivable and $118,000 due to the Boulevard Villas note receivable
foreclosure in July 1993. Interest income in 1995 is expected to approximate
that of 1994.

Equity in losses of investees decreased from a loss of $4.0 million in 1993 to
a loss of $2.5 million in 1994. The decrease in equity losses is primarily
attributable to a $4.6 million reduction in NRLP's loss from operations. At
December 31, 1994, the Company owned approximately 48% of the then outstanding
units of limited partner interest in NRLP.

Interest expense increased from $6.5 million in 1993 to $7.9 million in 1994.
This increase is attributable to a $563,000 increase in interest from property
acquisitions and refinancings, an $879,000 increase in interest on margin
borrowings, and $319,000 due to an increase in the interest rate on the Las
Vegas Plaza underlying lien. These increases were offset in part by a $314,000
reduction from the August 1993 sale of the Culver City Shopping Center, $383,000
attributable to the 1993 Collecting Bank Settlement and $219,000 due to payoffs
of notes and principal reductions in 1993 and 1994.

Advisory and mortgage servicing fees in 1994 and 1993 were comparable at $1.3
million.

General and administrative expenses increased from $1.8 million in 1993 to $2.6
million in 1994. The increase is primarily attributable to a $259,000 increase
in consulting fees relating to the Continental Hotel and Casino and Las Vegas
Plaza wraparound notes receivable, a $258,000 increase in legal fees and a
$146,000 increase in advisor cost reimbursements.

Depreciation and amortization expense increased from $1.1 million in 1993 to
$1.6 million in 1994. The increase is attributable to the Denver Mart and Inn
at the Mart, properties the Company acquired in March 1994 and full year's
depreciation on the properties the Company acquired in March and July 1993.

The Company recorded no provision for losses in 1994 compared to $2.3 million
in 1993. The 1993 provision for losses is comprised of a $2.0 million reserve
against the carrying value of undeveloped land in downtown Atlanta, Georgia and
a $300,000 reduction in the estimated fair value of the collateral securing a
mortgage note receivable.

37
38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Gains on sale of real estate increased from $481,000 in 1993 to $3.2 million in
1994. This increase is primarily attributable to the Company's equity share
($895,000) of TCI's third quarter $2.2 million gain on the sale of an apartment
complex and the Company's equity share ($1.9 million) of NRLP's fourth quarter
gain on the sale of two apartment complexes.

The Company reported $3.8 million extraordinary gain in 1993 compared to a
$323,000 extraordinary gain in 1994. In 1993, $3.4 million of the
extraordinary gain represents the Company's equity share of NRLP's
extraordinary gain of $9.0 million from the acquisition at a discount of its
mortgage debt and $443,000 is due to a lender's forgiveness of a portion of a
first mortgage, upon the Company's early payoff of a second lien mortgage
secured by the same property. In 1994, $273,000 of the extraordinary gain is
the Company's equity share of TCI's settlement of litigation with a lender and
the remaining $50,000 is due to a lender's forgiveness of a portion of a first
mortgage, from the Company's early payoff of the second lien mortgage secured
by the same property.

1993 Compared to 1992. The Company reported a net loss of $4.4 million in 1993
as compared to a net loss of $9.6 million in 1992. The primary factors
contributing to the decrease in Company's net loss are discussed in the
following paragraphs.

Net rental income (rental income less property operating expenses) increased
from $1.4 million in 1992 to $2.6 million in 1993. This increase was
attributable to an increase of $388,000 from improved occupancy and rents at
the Company's commercial properties and $271,000 and $296,000 from the 1993
acquisitions of Boulevard Villas Apartments and Kansas City Holiday Inn.
Offsetting these increases were an additional $124,000 of property taxes and
hazard insurance premiums incurred in 1993 on land owned by the Company.

Interest income decreased from $5.7 million in 1992 to $5.0 million in 1993.
This decrease is primarily due to a $639,000 decrease from the settlement of a
note receivable and related note payable. Decreases of $262,000 due to
mortgage notes receivable foreclosed or restructured in 1992 or 1993, $192,000
due to nonperforming, nonaccruing loans, and $339,000 due to principal payoffs
and paydowns, and/or sales of notes receivable during 1992 or 1993 were offset
in part by a $277,000 increase in interest income from the 1992 mid-year sale
of the Continental Hotel and Casino.

Equity in losses of investees increased from a loss of $3.4 million in 1992 to
a loss of $4.0 million in 1993. This increase in equity losses is primarily
attributable to the Company's increased share ownership in each of TCI and NRLP
during 1993, increasing the Company's proportionate share of loss from
operations of each such entity.

38
39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Interest expense decreased from $7.2 million in 1992 to $6.5 million in 1993.
This decrease is attributable to payoffs of notes and principal reductions in
1992 and 1993 reducing interest expense by $2.0 million and a decrease of
$449,000 due to the settlement of a note payable and related note receivable in
August 1993. These decreases were offset in part by new loans obtained in 1992
and 1993 increasing interest expense by $1.6 million and increased margin
borrowings in 1993 increasing interest expense by $119,000.

Advisory and mortgage servicing fees in 1992 and 1993 were comparable at $1.3
million.

General and administrative expenses decreased from $2.3 million in 1992 to $1.8
million in 1993. The decrease is primarily attributable to legal costs
incurred in 1992 in connection with the Continental Hotel and Casino bankruptcy
and Southmark litigation. See NOTE 17. "COMMITMENTS AND CONTINGENCIES."

Provision for losses decreased from $3.7 million in 1992 to $2.3 million in
1993. The 1993 provision for losses is comprised of a $2.0 million reserve
against the carrying value of undeveloped land in downtown Atlanta, Georgia and
a $300,000 reduction in the estimated fair value of the collateral securing a
mortgage note receivable. The 1992 provision for losses is comprised of a
$800,000 reduction in the estimated fair value of the collateral securing a
mortgage note receivable subsequently foreclosed, $404,000 to reserve against
the carrying value of a mortgage note receivable subsequently sold, $1.3
million to reserve against the carrying value of first mortgage note and
$771,000 related to the Company's agreement to sell its National Income Realty
Trust ("NIRT") shares.

Gains on sales of real estate decreased from $566,000 in 1992 to $481,000 in
1993. The decrease is due to the $85,000 loss recorded on the sale of the Fox
City Shopping Center and a $10,000 loss recorded on the sale of a condominium
unit. The gains from the sale of residential lots in 1992 and 1993 were
comparable.

The Company recognized an income tax benefit of $921,000 in 1992 from the
reversal of tax expense previously recognized on installment sales.

The Company recognized a $3.8 million extraordinary gain in 1993 as compared to
no extraordinary gain in 1992. $3.4 million of the extraordinary gain
represents the Company's equity share of NRLP's extraordinary gain of $9.0
million from the acquisition at a discount of its mortgage debt and $443,000
from a lender's forgiveness of a portion of a first mortgage upon the Company's
early payoff of a second lien mortgage secured by the same property.

39
40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Contingencies

In January 1995, NRLP, Syntek Asset Management, L.P. ("SAMLP") and the NRLP
oversight committee executed an Implementation Agreement which provides for the
nomination of a successor general partner to succeed SAMLP as general partner
of NRLP and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP and for the resolution of all related matters under the 1990 settlement of
a class action lawsuit. The Implementation Agreement is subject to receipt of
a notice from the proposed successor general partner nominee that it consents
to stand for election as the successor general partner.

The Implementation Agreement shall be submitted to the Judge appointed pursuant
to the class action settlement (the "Supervising Judge") for tentative approval
and approval of the notice to be sent to the original class members. Upon
final approval by the Supervising Judge, the proposal to elect the successor
general partner will be submitted to the NRLP unitholders for a vote. In
addition, the unitholders will vote upon amendments to NRLP's partnership
agreement which relate to the proposed compensation of the successor general
partner and other related matters.

Upon approval by the unitholders, SAMLP shall resign as general partner and the
successor general partner shall take office. If the required approvals are
obtained, it is anticipated that the successor general partner may be elected
and take office during the third or fourth quarter of 1995.

The Implementation Agreement provides that SAMLP, and its affiliates owning
units in NRLP, shall not vote to remove the successor general partner, except
for removal with cause, for a period of thirty months from the date the
successor general partner takes office. In addition, the Supervising Judge
shall make a determination of any amounts which NRLP may owe to SAMLP upon
SAMLP's withdrawal as general partner and any amounts which SAMLP or its
affiliates may owe to NRLP. Any amounts which NRLP may be determined to owe to
SAMLP may be paid over a period of time to be determined by the parties on
terms which shall not hinder NRLP's ability to meet its other financial
obligations.

Upon the election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated. If the
successor general partner nominee does not stand for election or is not
elected, the existing class action settlement shall remain in full force and
effect and all of the provisions of the Implementation Agreement shall be
voided. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

Environmental Matters

Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or

40
41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Environmental Matters (Continued)

remediation costs, as well as certain other potential costs relating to
hazardous or toxic substances (including governmental fines and injuries to
persons and property) where property-level managers have arranged for the
removal, disposal or treatment of hazardous or toxic substances. In addition,
certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from the Company
for personal injury associated with such materials.

The Company's management is not aware of any environmental liability relating
to the above matters that would have a material adverse effect on the Company's
business, assets or results of operations.

Inflation

The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of properties and, correspondingly, the
ultimate gains to be realized by the Company from property sales. Moreover,
the Company frequently lends at fixed rates while it borrows at floating rates.
In periods of falling interest rates, this could result in the Company's
mortgage loan portfolio yielding above-market rates while the cost of borrowing
decreases.

Recent Accounting Pronouncements

In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 114 - "Accounting by Creditors
for Impairment of a Loan", which amends SFAS No. 5 - "Accounting for
Contingencies" and SFAS No. 15 - "Accounting by Debtors and Creditors for
Troubled Debt Restructurings." The statement requires that notes receivable
be considered impaired when "based on current information and events, it is
probable that a creditor will be unable to collect all amounts due, both
principal and interest, according to the contractual terms of the loan
agreement". Impairment is to be measured either on the present value of
expected future cash flows discounted at the note's effective interest rate or
if the note is collateral dependent, on the fair value of the collateral. In
October 1994, the FASB issued SFAS No. 118 - "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure" which amends SFAS No.
114. SFAS No. 118 eliminates the income recognition provisions of SFAS No.
114, substituting disclosure of the creditor's policy of income recognition on
impaired notes. SFAS No. 114 and SFAS No. 118 are both effective for fiscal
years beginning after December 15, 1994. The Company's management has not
fully evaluated the effects of implementing these statements, but expects that
they will not affect the Company's interest income recognition policy but may
require the classification of otherwise performing loans as impaired.

41
42
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
------

Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . 43

Consolidated Balance Sheets -
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Consolidated Statements of Operations -
Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Consolidated Statements of Cash Flows -
Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Schedule III - Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . 81

Schedule IV - Mortgage Loans on Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

All other schedules are omitted because they are not required, are not
applicable or the information required is included in the Consolidated
Financial Statements or the notes thereto.

42
43

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors of
American Realty Trust, Inc.

We have audited the accompanying consolidated balance sheets of American Realty
Trust, Inc. and Subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. We have also
audited the schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedules. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedules.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Realty Trust, Inc. and Subsidiaries as of December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.

Also, in our opinion, the schedules referred to above present fairly, in all
material respects, the information set forth therein.

BDO SEIDMAN

Dallas, Texas
March 28, 1995

43
44
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

December 31,
----------------------------------
1994 1993
------------- -------------
(dollars in thousands)

Assets
------

Notes and interest receivable
Performing (including $6,127 in 1994 and
$5,527 in 1993 from affiliate) . . . . . . . . . . . . . . . $ 47,378 $ 28,547
Nonperforming, nonaccruing . . . . . . . . . . . . . . . . . 2,315 23,222
------------- -------------
49,693 51,769
Real estate held for sale, (net of accumulated
depreciation of $5,423 in 1994 and $5,320
in 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . 23,748 21,426

Less - allowance for estimated losses . . . . . . . . . . . . . (8,201) (9,913)
------------- -------------
65,240 63,282
Real estate held for investment (net of accumu-
lated depreciation of $1,396 in 1994 and $1,424
in 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . 27,950 31,011

Marketable equity securities, at market value . . . . . . . . . 1,309 -
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . 193 843
Investments in real estate entities . . . . . . . . . . . . . . 38,844 40,005
Other assets (including $477 in 1993 due from
affiliate) . . . . . . . . . . . . . . . . . . . . . . . . . 3,826 4,720
------------- -------------
$ 137,362 $ 139,861
============= =============

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable (including $9,732 in
1994 and $10,495 in 1993 due to affiliates) . . . . . . . . . $ 45,695 $ 53,693
Margin borrowings . . . . . . . . . . . . . . . . . . . . . . . 26,391 16,147
Accounts payable and other liabilities
(including $1,505 in 1994 and $3,637 in 1993
due to affiliate) . . . . . . . . . . . . . . . . . . . . . . 8,921 10,552
------------- -------------
81,007 80,392

Minority interest . . . . . . . . . . . . . . . . . . . . . . . 461 1,149

Redeemable Common Stock; issued and outstanding
360,000 shares . . . . . . . . . . . . . . . . . . . . . . . - 2,200

Commitments and contingencies

Stockholders' equity
Common stock, $.01 par value authorized
16,667,000 shares; issued and outstanding
2,929,164 shares in 1994 and 2,525,164 shares
in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 25
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 66,749 64,553
Accumulated (deficit) . . . . . . . . . . . . . . . . . . . . . (10,884) (8,458)
------------- -------------
55,894 56,120
------------- -------------
$ 137,362 $ 139,861
============= =============

The accompanying notes are an integral part of these Consolidated
Financial Statements.

44
45
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,
----------------------------------------------------
1994 1993 1992
------------- ------------- --------------
(dollars in thousands, except per share)

Income
Rentals . . . . . . . . . . . . . . . . . . . . . $ 18,013 $ 7,885 $ 4,848
Interest (including $366 in 1994, $48 in
1993 and $277 in 1992 from affiliates) . . . . 3,959 4,984 5,728
Equity in (losses) of investees . . . . . . . . . (2,529) (4,014) (3,388)
Other . . . . . . . . . . . . . . . . . . . . . . 1,098 558 905
------------- ------------- --------------

20,541 9,413 8,093

Expenses
Property operations (including $70 in
1994, $45 in 1993 and $49 in 1992 to
affiliates) . . . . . . . . . . . . . . . . . 13,013 5,273 3,460
Interest (including $589 in 1994, $1,029
in 1993 and $699 in 1992 to affiliates) . . . 7,875 6,497 7,227
Advisory and servicing fees to affiliate . . . . 1,242 1,257 1,340
General and administrative (including
$434 in 1994, $288 in 1993 and $299
in 1992 to affiliate) . . . . . . . . . . . . 2,562 1,819 2,325
Depreciation and amortization . . . . . . . . . . 1,620 1,130 1,259
Provision for losses . . . . . . . . . . . . . . - 2,300 3,757
Minority interest . . . . . . . . . . . . . . . . 169 (159) (204)
------------- ------------- --------------

26,481 18,117 19,164
------------- ------------- --------------

(Loss) from operations . . . . . . . . . . . . . . (5,940) (8,704) (11,071)
Income tax benefit (expense) . . . . . . . . . . . (9) (11) 921
------------- ------------- --------------

(Loss) before gain on sale of real estate
and extraordinary gain . . . . . . . . . . . . . (5,949) (8,715) (10,150)

Gain on sale of real estate . . . . . . . . . . . . 3,200 481 566
Extraordinary gain . . . . . . . . . . . . . . . . 323 3,807 -
------------- ------------- --------------

Net (loss) . . . . . . . . . . . . . . . . . . . . (2,426) (4,427) (9,584)

Redeemable Common Stock,
accretion of discount . . . . . . . . . . . . . . - (129) (258)
------------- ------------- --------------

Net (loss) applicable to Common shares . . . . . . $ (2,426) $ (4,556) $ (9,842)
============= ============= ==============

The accompanying notes are an integral part of these Consolidated
Financial Statements.

45
46
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

Years Ended December 31,
--------------------------------------------------------
1994 1993 1992
----------------- ----------------- --------------

Earnings per share
(Loss) before gain on sale of real estate
and extraordinary gain . . . . . . . . . . . . $ (1.95) $ (2.88) (4.18)

Gain on sale of real estate . . . . . . . . . . . 1.05 .16 .23
Extraordinary gain . . . . . . . . . . . . . . . .11 1.26 -
----------------- ----------------- --------------

Net (loss) . . . . . . . . . . . . . . . . . . . (.79) (1.46) (3.95)

Redeemable Common Stock,
accretion of discount . . . . . . . . . . . . . - (.04) (.11)
----------------- ----------------- --------------

Net (loss) applicable to Common
shares . . . . . . . . . . . . . . . . . . . . $ (.79) $ (1.50) $ (4.06)
================= ================= ==============

Weighted average Common shares used in
computing earnings per share . . . . . . . . . 3,052,219 3,025,275 2,453,292
================= ================= ==============

The accompanying notes are an integral part of these Consolidated
Financial Statements.

46
47
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Accumu-
Common Stock lated
------------------------- Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
-------- ------------ ------------ ------------ --------------
(dollars in thousands)

Balance,
January 1, 1992 . . . 2,117,437 $ 21 $ 64,260 $ 5,940 $ 70,221

Common Stock issued . . 427,359 4 93 - 97

Accretion of discount
on redeemable
Common Stock . . . . . - - - (258) (258)

Fractional shares
reacquired . . . . . . (15) - - - -

Net (loss) . . . . . . - - - (9,584) (9,584)
--------- ------------ ------------ ------------ --------------
Balance,
December 31, 1992 . . 2,544,781 25 64,353 (3,902) 60,476

Common Stock issued . . 174,509 2 198 - 200

Fractional shares
reacquired . . . . . . (126) - - - -

Accretion of discount
on redeemable
Common Stock . . . . . - - - (129) (129)

Common Stock retired . (195,000) (2) 2 - -

Net (loss) . . . . . . - - - (4,427) (4,427)
--------- ------------ ------------ ------------ --------------
Balance,
December 31, 1993 . . 2,524,164 25 64,553 (8,458) 56,120

Reclassification of
Redeemable Common
Stock . . . . . . . . 360,000 4 2,196 - 2,200

Common Stock issued . . 240,000 2 (2) - -

Common Stock retired . (195,000) (2) 2 - -

Net (loss) . . . . . . - - - (2,426) (2,426)
--------- ------------ ------------ ------------ --------------
Balance,
December 31, 1994 . . 2,929,164 $ 29 $ 66,749 $ (10,884) $ 55,894
--------- ------------ ------------ ------------ --------------

The accompanying notes are an integral part of these Consolidated
Financial Statements.

47
48
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31,
----------------------------------------------------
1994 1993 1992
------------- ------------- --------------
(dollars in thousands)

Cash Flows From Operating Activities
Rentals collected . . . . . . . . . . . . . . . $ 17,130 $ 8,317 $ 4,565
Interest collected (including $277 in
1992 from affiliates) . . . . . . . . . . . . . 3,829 4,584 4,412
Distributions from equity investees'
operating activities . . . . . . . . . . . . . 1,642 676 -
Interest paid (including $213 in 1994,
$275 in 1993 and $309 in 1992 to
affiliate) . . . . . . . . . . . . . . . . . . (4,286) (4,689) (6,573)
Payments for property operations
(including $70 in 1994, $45 in 1993
and $49 in 1992 to affiliate) . . . . . . . . . (13,162) (6,122) (3,519)
Advisory fee paid to affiliate . . . . . . . . . (1,242) (1,295) (1,447)
General and administrative expenses paid
(including $434 in 1994, $288 in 1993
and $299 in 1992 to affiliate) . . . . . . . . (2,384) (1,517) (2,298)
Litigation settlement . . . . . . . . . . . . . (750) - -
Other . . . . . . . . . . . . . . . . . . . . . 235 91 -
------------- ------------- --------------

Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . 1,012 45 (4,860)

Cash Flows From Investing Activities
Collections on notes receivable (including
$112 in 1992 from affiliates) . . . . . . . . . 2,757 1,481 3,951
Proceeds from sale of notes receivable . . . . . - - 496
Purchase of marketable equity securities . . . . (16,518) - -
Proceeds from sale of marketable
equity securities . . . . . . . . . . . . . . . 15,123 2,202 1,002
Deposit on acquisition of mortgage note
receivable . . . . . . . . . . . . . . . . . . - (300) (1,000)
Notes receivable funded . . . . . . . . . . . . (700) (609) (261)
Proceeds from sale of real estate . . . . . . . 4,058 2,305 2,434
Distributions from equity investees'
investing activities . . . . . . . . . . . . . 514 - -
Acquisition of and improvements to real
estate . . . . . . . . . . . . . . . . . . . . (2,168) (2,013) (1,397)
Investment in real estate entities . . . . . . . (6,884) (3,976) (4,003)
------------- ------------- --------------

Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . (3,818) (910) 1,222

The accompanying notes are an integral part of these Consolidated
Financial Statements.

48
49
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

For The Years Ended December 31,
----------------------------------------------------
1994 1993 1992
------------- ------------- --------------
(dollars in thousands)

Cash Flows From Financing Activities
Proceeds from notes payable . . . . . . . . . . $ 710 $ 15,677 $ 16,755
Margin borrowings, net . . . . . . . . . . . . . 8,598 6,466 1,680
Proceeds from issuance of Common Stock
and redeemable Common Stock . . . . . . . . . . - 200 1,909
Payments on notes payable (including
$1,320 in 1994, $384 in 1993 and $5,420
in 1992 to affiliate) . . . . . . . . . . . . . (5,151) (17,350) (18,966)
Southmark settlement payments . . . . . . . . . (435) (950) (914)
Net collections (advances) to/from
affiliates . . . . . . . . . . . . . . . . . . (1,566) (2,845) 3,239
------------- ------------- --------------
Net cash provided by financing
activities . . . . . . . . . . . . . . . . . . 2,156 1,198 3,703
------------- ------------- --------------

Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . (650) 333 65
Cash and cash equivalents, beginning of year . . 843 510 445
------------- ------------- --------------

Cash and cash equivalents, end of year . . . . . $ 193 $ 843 $ 510
============= ============= ==============

Reconciliation of net (loss) to net
cash provided by (used in) operating
activities
Net (loss) . . . . . . . . . . . . . . . . . . . $ (2,426) $ (4,427) $ (9,584)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating
activities
Extraordinary gain . . . . . . . . . . . . . . (323) (3,807) -
Gain on sale of real estate . . . . . . . . . . (3,200) (481) (566)
Depreciation and amortization . . . . . . . . . 1,620 1,130 1,259
Provision for losses . . . . . . . . . . . . . - 2,300 3,757
Equity in losses of investees . . . . . . . . . 2,529 4,014 3,388
Distributions from equity investees'
operating activities . . . . . . . . . . . . . 1,642 676 -
Decrease in accrued interest receivable . . . . (18) (1,588) (1,081)
(Increase) decrease in other assets . . . . . . 228 422 (1,726)
Increase (decrease) in accrued interest
payable . . . . . . . . . . . . . . . . . . . 575 1,954 (988)
Increase (decrease) in accounts payable
and other liabilities . . . . . . . . . . . . 150 (148) 706
(Decrease) in deferred taxes . . . . . . . . . - - (939)
Other . . . . . . . . . . . . . . . . . . . . . 235 - -
------------- ------------- --------------
Net cash provided by (used in)
operating activities . . . . . . . . . . . . . $ 1,012 $ 45 $ (5,774)
============= ============= ==============

The accompanying notes are an integral part of these Consolidated
Financial Statements.

49
50
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

For The Years Ended December 31,
-------------------------------------------------
1994 1993 1992
---------- ---------- ----------
(dollars in thousands)

Schedule of noncash investing activities

Settlement agreement with Southmark
Corporation
Carrying value of assets received . . . . . . . $ - $ - $ 5,134
Carrying value of payables assumed . . . . . . - - (2,335)
Carrying value of interest in Syntek
Asset Management, L.P. transferred . . . . . . - - (2,549)
Carrying value of note receivable from
Novus Nevada, Inc. canceled. . . . . . . . . . - - (250)

Acquisition of real estate financed by debt . . . 6,800 5,400 10,555

Real estate sales financed by purchase
money mortgages . . . . . . . . . . . . . . . . 1,400 - 18,142

Carrying value of real estate acquired
through foreclosure in satisfaction of
notes receivable with carrying values of
$8,443 in 1993 and $6,779 in 1992 . . . . . . . - 7,115 6,732

Carrying value of real estate securities
acquired through assumption of debt with a
carrying value of $6,080 in 1994 and
$2,137 in 1992 . . . . . . . . . . . . . . . . . 9,810 - 1,135

Sale of real estate subject to debt . . . . . . . (5,534) -

Settlement of term loan obligation in
exchange for a note receivable
participation with a carrying value of
$9,895 . . . . . . . . . . . . . . . . . . . . . - (9,863) -

Carrying value of real estate obtained in
satisfaction of a receivable with a
carrying value of $125 . . . . . . . . . . . . . 125

The accompanying notes are an integral part of these Consolidated
Financial Statements.

50
51
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of American Realty Trust,
Inc. and consolidated entities (the "Company") have been prepared in conformity
with generally accepted accounting principles, the most significant of which
are described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." These,
along with the remainder of the Notes to Consolidated Financial Statements, are
an integral part of the Consolidated Financial Statements. The data presented
in the Notes to Consolidated Financial Statements are as of December 31 of each
year and for the year then ended, unless otherwise indicated. Dollar amounts
in tables are in thousands, except per share amounts.

Certain balances for 1992 and 1993 have been reclassified to conform to the
1994 presentation.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and company business. American Realty Trust, Inc. ("ART") is a
Georgia corporation that primarily invests in real estate and real
estate-related entities and purchases and originates mortgage loans.

Basis of consolidation. The Consolidated Financial Statements include the
accounts of ART, and all majority-owned subsidiaries and partnerships. All
significant intercompany transactions and balances have been eliminated.

Interest recognition on notes receivable. It is the Company's policy to cease
recognizing interest income on notes receivable that have been delinquent for
60 days or more. In addition, accrued but unpaid interest income is only
recognized to the extent that the realizable value of underlying collateral
exceeds the carrying value of the receivable.

Allowance for estimated losses. Valuation allowances are provided for
estimated losses on notes receivable and properties held for sale to the extent
that the investment in the notes or properties exceeds the Company's estimate
of net realizable value of the property or the collateral securing such note,
or fair value of the collateral if foreclosure is probable. In estimating net
realizable value, consideration is given to the current estimated collateral or
property value adjusted for costs to complete or improve, hold and dispose.
The cost of funds, one of the criteria used in the calculation of estimated net
realizable value (approximately 7.5% and 4.8% as of December 31, 1994 and 1993,
respectively), is based on the average cost of all capital. The provision for
losses is based on estimates, and actual losses may vary from current
estimates. Such estimates are reviewed periodically, and any additional
provision determined to be necessary is charged against earnings in the period
in which it becomes reasonably estimable.

Foreclosed real estate held for sale. Foreclosed real estate is initially
recorded at new cost, defined as the lower of original cost or

51
52
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

fair value minus estimated costs of sale. After foreclosure, the excess of new
cost, if any, over fair value minus estimated costs of sale is recognized in a
valuation allowance. Subsequent changes in fair value either increase or
decrease such valuation allowance. See "Allowance for estimated losses" above.
Properties held for sale are depreciated in accordance with the Company's
established depreciation policies. See "Real estate and depreciation" below.

Annually, all foreclosed properties held for sale are reviewed by the Company's
management and a determination is made if the held for sale classification
remains appropriate. The following are among the factors considered in
determining that a change in classification to held for investment is
appropriate: (i) the property has been held for at least one year; (ii)
Company management has no intent to dispose of the property within the next
twelve months; (iii) property improvements have been funded, and (iv) the
Company's financial resources are such that the property can be held long-term.
The subsequent classification of property previously held for sale to held for
investment does not result in a restatement of previously reported revenues,
expenses or net (loss).

Investment in real estate entities. Because the Company may be considered to
have the ability to exercise significant influence over the operating and
investment policies of certain of its investees, the Company accounts for such
investments by the equity method. Under the equity method, the Company's
initial investment, recorded at cost, is increased by the Company's
proportionate share of the investee's operating income and any additional
investment and decreased by the Company's proportionate share of the investee's
operating losses and distributions received.

Real estate and depreciation. Real estate is carried at the lower of cost or
estimated net realizable value, except that foreclosed properties held for
sale, which are recorded at the lower of original cost or fair value minus
estimated costs of sale. Depreciation is provided by the straight-line method
over the estimated useful lives of the assets, which range from 10 to 40 years.

Present value premiums/discounts. The Company provides for present value
premiums and discounts on notes receivable or payable that have interest rates
that differ substantially from prevailing market rates and amortizes such
premiums and discounts by the interest method over the lives of the related
notes. The factors considered in determining a market rate for notes
receivable include the borrower's credit standing, nature of the collateral and
payment terms of the note.

Revenue recognition on the sale of real estate. Sales of real estate are
recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No.
66"). Until the requirements of SFAS No. 66 for full

52
53
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

profit recognition have been met, transactions are accounted for using either
the deposit, the installment, the cost recovery or the financing method,
whichever is appropriate.

Loan fees. In connection with lending activities, the Company periodically
receives origination, commitment and extension fees. These fees are recognized
in accordance with Statement of Financial Accounting Standards No. 91
"Accounting for Non-refundable Fees and Costs Associated with Originating or
Acquiring Loans."

Fair value of financial instruments. The Company used the following
assumptions in estimating the fair value of its notes receivable, marketable
equity securities and notes payable. For performing notes receivable, the fair
value was estimated by discounting future cash flows using current interest
rates for similar loans. For nonperforming notes receivable the estimated fair
value of the Company's interest in the collateral property was used. For
marketable equity securities fair value was based on the year end closing
market price of each security. The estimated fair values presented do not
purport to present amounts to be ultimately realized by the Company. The
amounts ultimately realized may vary significantly from the estimated fair
values presented. For notes payable the fair value was estimated using
current rates for mortgages with similar terms and maturities.

Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,
the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Earnings per share. Loss per share is computed based upon the weighted average
number of shares of Common Stock and redeemable Common Stock outstanding during
each year.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

In July 1989, the Company acquired Southmark Corporation's ("Southmark") 96%
limited partner interest in SAMLP, the general partner of National Realty, L.P.
("NRLP") and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP. Gene E. Phillips, a Director and Chairman of the Board of the Company
until November 16, 1992, is a general partner, and until March 4, 1994, William
S. Friedman, a Director and President of the Company until December 31, 1992,
was also general partner of SAMLP. In February 1992, in accordance with the
provisions of the settlement of the Southmark adversary proceedings, the
Company assigned to Southmark a 19.2% limited partner interest in SAMLP. See
NOTE 17. "COMMITMENTS AND CONTINGENCIES - Settlement of Southmark Adversary
Proceedings."

NRLP, SAMLP and Messrs. Phillips and Friedman were among the defendants in a
class action lawsuit arising from the formation of NRLP. An agree-

53
54
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)

ment settling such lawsuit for the above mentioned defendants became effective
on July 5, 1990. The settlement agreement provides for, among other things,
the appointment of an NRLP oversight committee; the establishment of specified
annually increasing targets for five years relating to the price of NRLP's
units of limited partner interest; a limitation and deferral or waiver of
NRLP's reimbursement to SAMLP of certain future salary costs; a deferral or
waiver of certain future compensation to SAMLP; the required distribution to
unitholders of all of NRLP's cash from operations in excess of certain
renovation costs unless the NRLP oversight committee approves alternative uses
for such cash from operations; the issuance of unit purchase warrants to
members of the plaintiff class; and the contribution by the then individual
general partners of $2.5 million to NRLP over a four-year period. In
accordance with the indemnification provisions of SAMLP's agreement of limited
partnership, SAMLP agreed to indemnify Messrs. Phillips and Friedman, the
individual general partners, at the time, of SAMLP, for the $2.5 million
payment to NRLP. The final annual installment of principal and interest in the
amount of $631,000 was paid by SAMLP in May 1994.

The Settlement Agreement provides for the resignation and replacement of SAMLP
as general partner if the unit price targets are not met for two consecutive
anniversary dates. NRLP did not meet the unit price targets for the first and
second anniversary dates. On July 8, 1992, SAMLP notified the NRLP oversight
committee of the failure of NRLP to meet the unit price targets for two
successive years and that it expects to resign as general partner of NRLP and
NOLP.

The withdrawal of SAMLP as general partner would require NRLP to purchase
SAMLP's general partner interest (the "Redeemable General Partner Interest") at
its then fair value, and to pay certain fees and other compensation as provided
in the partnership agreement. Syntek Asset Management, Inc. ("SAMI"), the
managing general partner of SAMLP, has calculated the fair value of such
Redeemable General Partner Interest to be $33.0 million at December 31, 1994,
before reduction for the principal balance ($4.2 million at December 31, 1994)
and accrued interest ($4.3 million at December 31, 1994) on the note receivable
from SAMLP for its original capital contribution to NRLP. There can be no
assurance that such amount at the time of any such withdrawal will not be
substantially higher or lower. The NRLP oversight committee previously has
informed NRLP that it calculated the amount of such Redeemable General Partner
Interest, to be less than the amount calculated by SAMI. Any dispute
pertaining to the amount of the Redeemable General Partner Interest upon the
withdrawal of SAMLP as general partner of NRLP and NOLP, will be resolved by
the Judge appointed pursuant to the class action settlement to supervise its
implementation (the "Supervising Judge"). NRLP's purchase of the Redeemable
General Partner Interest could have an adverse effect on the Company's
investment in limited partner units of NRLP ($13.7 million at December 31,
1994).

54
55
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)

In January 1995, NRLP, SAMLP and the NRLP oversight committee executed an
Implementation Agreement which provides for the nomination of a successor
general partner and for the resolution of all related matters under the class
action settlement. The Implementation Agreement is subject to receipt of a
notice from the proposed successor general partner nominee that it consents to
stand for election as the successor general partner.

The Implementation Agreement shall be submitted to the Supervising Judge for
tentative approval and approval of the notice to be sent to the original class
members. Upon final approval by the Supervising Judge, the proposal to elect
the successor general partner will be submitted to the NRLP unitholders for a
vote. In addition, the unitholders will vote upon amendments to NRLP's
partnership agreement which relate to the proposed compensation of the
successor general partner and other related matters.

Upon the election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated. If the
successor general partner nominee does not stand for election or is not
elected, the existing settlement shall remain in full force and effect and all
of the provisions of the Implementation Agreement shall be voided.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

55
56
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. NOTES AND INTEREST RECEIVABLE

1994 1993
--------------------------------- ------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------------- ------------ ------------ ------------

Notes Receivable
Performing (including $10,930
in 1994 and $5,527 in 1993
from affiliates) . . . . . . . $ 54,032 $ 51,844 $ 27,532 $ 28,756
Nonperforming, nonaccruing . . . 2,325 2,206 26,724 27,262
-------------- ------------ ------------ ------------
$ 56,357 54,050 $ 54,256 56,018
============== ============

Interest receivable . . . . . . . 286 268
Unamortized premiums/
(discounts) . . . . . . . . . . (26) 100
Deferred gains . . . . . . . . . (4,617) (4,617)
------------ ------------
$ 49,693 $ 51,769
============ ============

The Company does not recognize interest income on nonperforming notes
receivable. Notes receivable are considered to be nonperforming when they
become 60 days or more delinquent. For the years 1994, 1993 and 1992
unrecognized interest income on such nonperforming notes receivable totaled
$2.0 million, $3.1 million and $943,000, respectively.

Notes receivable at December 31, 1994, mature from 1995 to 2014 with interest
rates ranging from 6.8% to 14.0% and the weighted average rate of 8.9%. A
small percentage of these notes receivable carry a variable interest rate.
Notes receivable include notes generated from property sales which have
interest rates adjusted at the time of sale to yield rates ranging from 6% to
14%. Notes receivable are generally nonrecourse and are generally
collateralized by real estate. Scheduled principal maturities of $32.0 million
are due in 1995 of which $1.9 million is due on nonperforming notes receivable.

Nonrecourse participations totaling $2.6 million at both December 31, 1994 and
1993, have been deducted from notes receivable.

In September 1989, the Company entered into a participation agreement in the
amount of $20.0 million in a pool of various assets with the Collecting Bank,
National Association, a bank in liquidation ("Collecting Bank"). On the same
date, the Company entered into a term loan in the same amount with First City,
Texas-Dallas, N.A. ("First City"), a sister association of Collecting Bank.
The Company pledged to First City its interest in the participation agreement
with Collecting Bank as collateral for the term loan. The principal and
interest on the participation and the term loan were each due in 20 quarterly
installments through October 1994. In October 1992, both Collecting Bank and
First City were placed under the receivership of the Federal Deposit Insurance
Corporation ("FDIC"). In October 1993, the Company and the FDIC agreed to
terminate both the participation and term loan agreements each having a
principal balance of $7.6 million. The Company recorded a $58,000 gain on the
termination of the agreements.

56
57
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)

In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. Assets
transferred by the Company pursuant to the asset sales agreement included a
retail shopping center in Lubbock, Texas with a carrying value of $2.0 million
prior to transfer, a $1.5 million senior participation in a second lien
mortgage note secured by the Las Vegas Plaza, a retail shopping center in Las
Vegas, Nevada, with a carrying value of $18.8 million prior to transfer, a
$315,000 participation in a first mortgage note secured by unimproved land in
Virginia Station, Virginia and a $799,000 participation in a second lien
mortgage note secured by the Country Club Apartments, an apartment complex in
Flagstaff, Arizona. In return, the Company received a $1.9 million
participation in a first mortgage note secured by a hotel site in Lihue,
Hawaii, a $1.0 million first mortgage note secured by land in Maricopa County,
Arizona, a $118,000 first lien mortgage note secured by a single-family
residence in Silver Creek, Colorado and $1.5 million in cash. The asset sales
agreement contained put and guaranty provisions whereby, at any time, either
party could demand that the seller reacquire any asset sold pursuant to the
terms of the asset sales agreement for the consideration originally received.
In March 1992, the Company received payment in full on the $118,000 note
secured by the single-family residence in Silver Creek, Colorado.

In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions, of the asset sales agreement, of its desire to
divest itself of all assets received. The Receiver refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
In September 1992, the Court approved the Receiver's Petition for an Order of
Liquidation for the insurance company.

In March 1992, the Company recorded a provision for loss of $496,000 to reduce
the note receivable secured by land in Maricopa County, Arizona, to its then
estimated fair value. The Company foreclosed on the land securing the note in
June 1992. In December 1992, the Company recorded an additional provision for
loss on such land of $349,000 to reduce the land's carrying value to its then
estimated fair value. During September 1992, the Company recorded the
insubstance foreclosure of the hotel site in Lihue, Hawaii, which secured the
$1.9 million first mortgage participation received by the Company. In March
1995, the Company collected in full the second lien mortgage note secured by
the Country Club Apartments, but did not remit such amount to the insurance
company.

57
58
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)

Company all of the assets which it received from the Company, except for the
participation in the first mortgage note secured by unimproved land in Virginia
Station, Virginia. In exchange, the Company is to return to the insurance
company $1.0 million in cash and all assets which it received from the
insurance company, other than the note secured by the residence in Colorado
which the Company collected. The asset transfers and the Company's cash
payment are anticipated to occur in second quarter of 1995. The settlement
requires the Company to pay interest on the cash portion of the settlement from
March 17, 1995 until the asset transfers are completed. Interest is payable
monthly in advance. The Company expects to incur no loss on the settlement in
excess of amounts previously provided.

The borrower on a $1.9 million first mortgage note receivable failed to make
the principal payment due on December 31, 1992, the note's maturity date. The
note was secured by a vacant, former hotel in Shaker Heights, Ohio. In
December 1992, the Company recorded a provision for loss of $1.3 million to
reduce the carrying value of the note to the estimated fair value of the
collateral, as a hotel. In June 1994, the Company and the borrower entered
into an agreement of settlement and release. The Company accepted $1.0 million
in cash and the right to participate in the future appreciation of the
property, if any, in full payment of its note. The Company incurred no loss in
excess of the amounts previously provided.

The Company did not receive the payment due on October 1, 1991 on the first
mortgage note receivable secured by the 386 Ocean Parkway Co-op. In February
1994, the Company agreed to reinstate and modify its note in exchange for the
pledge to the Company, as additional collateral, of 21 shares in the co-op
equating to 21 unsold apartment units. The reinstated note reduced the
principal balance from $900,000 to $750,000, waived all defaults on the note
and extended the maturity date of the note to September 15, 1999. In December
1993, the Company recorded a provision for losses of $300,000 to reduce the
carrying value of the note to its estimated sales price. In June 1994, the
Company sold its

58
59
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)

mortgage note and the 21 unsold apartment units for $450,000 in cash. The
Company incurred no loss on the sale in excess of the amounts previously
provided.

In March 1994, as partial consideration for the sale of a restaurant site in
Los Angeles, California, the Company provided $100,000 of purchase money
financing. The note bears interest at the rate of 8% per annum and requires
monthly interest only payments until May 1, 1997, at which time the principal
balance shall have been paid down to no more than $50,000. Interest only
payments are to continue until the note's maturity on April 1, 1999, at which
time all unpaid principal and accrued interest shall be due. See NOTE 4. "REAL
ESTATE."

In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino property at foreclosure subject to first and
second lien mortgages totaling $10.0 million and a disputed third lien
mortgage. In June 1992, the Company sold the hotel and casino to the third
lienholder for a $22 million wraparound mortgage note receivable, a $500,000
unsecured note receivable, and $100,000 in cash. The $22 million note bears
interest at 11%, originally was to mature June 19, 1995, and required monthly
interest payments of $175,000 through December 1993, $250,000 through June 1,
1995 and a "balloon" payment at maturity. The $500,000 note was paid off in
July 30, 1993. The Company recorded a deferred gain of $4.3 million in
connection with the sale of the hotel and casino resulting from the disputed
third lien mortgage being subordinated to the Company's wraparound mortgage
note receivable. Payments of interest and principal on the Company's
wraparound note receivable are made directly by the borrower to the holder of
the first and second lien mortgages and are applied against interest and
principal thereon. In October 1993, the borrower ceased making the monthly
payments required by the Company's wraparound mortgage note receivable to the
holder of the first and second lien mortgages. In April 1994, the Company, the
borrower and the underlying lienholder agreed to modify and extend both the
Company's wraparound mortgage note receivable and the underlying liens. The
Company's modified wraparound mortgage note receivable continues to accrue
interest at 11% per annum with any unpaid interest being added monthly to the
principal balance and required payments of $150,000 per month through January
1, 1995, at which time the monthly payments increased to $175,000 until July 1,
1995, the note's new maturity date, when the unpaid principal balance together
with any accrued but unpaid interest is due. The borrower is making payments in
accordance with the terms of the modified note. The Company's wraparound
mortgage note receivable had a principal balance of $22.7 million at December
31, 1994, including compounded interest.

In conjunction with the modification of the Company's wraparound mortgage note
receivable, the underlying lienholder agreed to forebear

59
60
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)

exercising its rights under the first and second liens on the condition that
the Company remit to it the greater of either $150,000 or all sums received by
the Company, after May 1, 1994, on the Company's wraparound mortgage note
receivable and that the Company make a principal reduction payment of $225,000
upon execution of the forbearance agreement, which was made on June 29, 1994.
The Company is in compliance with the terms of the forbearance agreement.

As discussed in NOTE 4. "REAL ESTATE", in March 1993, the Company recorded the
insubstance foreclosure of the Kansas City Holiday Inn, the collateral securing
a mortgage note receivable with a principal balance of $7.0 million at the date
of foreclosure. In June 1993, the Company acquired the first mortgage note
secured by Boulevard Villas Apartments foreclosing on the collateral property
in July 1993. The Company held a second lien mortgage that was in default at
December 31, 1992.

Also as discussed in NOTE 4. "REAL ESTATE", in November 1994, the Company sold
its apartment complex in San Antonio, Texas, along with its three apartment
complexes in Biloxi, Mississippi to a newly formed partnership in exchange for
a 27% limited partner interest, $3.2 million in net cash, $100,000 certificate
of deposit and second and third lien mortgages totaling $1.3 million secured by
the apartment complex in San Antonio, Texas. Both notes require interest only
payments at the rate of 6% per annum, with principal and any accrued but unpaid
interest due at maturity, September 1, 2004.

At December 31, 1994, the Company held a mortgage note receivable which it had
acquired in 1989, secured by a third lien on a commercial property in South
Carolina and personal guaranties of several individuals. In May 1992, a
settlement was entered into between the Company and the guarantors. In
accordance with the terms of the settlement, the borrower made a principal
reduction payment of $127,812, and monthly interest payments on the note at a
rate of 10% per annum. The note matured May 11, 1993. Effective May 11, 1993,
the note was again modified to bear interest at 18% per annum, have a maturity
date of October 1, 1993, and provide for monthly principal payments of $200,000
July 1, 1993 through October 1, 1993. The Company received none of the
payments required by this second modification. Effective September 1, 1993,
the note was modified a third time. The guarantors paid $100,000, $68,000 of
which was applied to reduce the note's principal balance and the remainder to
bring interest on the note current. The third modification extended the note's
maturity date to September 1, 1995, required monthly interest payments at 12%
per annum beginning October 1, 1993 and a $25,000 principal reduction payment
every ninety days beginning December 1, 1993. The borrower has failed to make
the required payments of principal and interest since December 1, 1994. The
Company has accelerated the note and is in the process of instituting
foreclosure proceedings as well as actions against the guarantors' of the note.
The principal balance of the note was $422,000 at December 31, 1994. The
Company expects to incur no loss on this note in excess of amounts previously
provided.

60
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AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)

In January 1992, the Company received notice that the lender had declared an
event of default on the $14.0 million loan and in June 1993 the lender
foreclosed on the hotel securing the loan. In May 1994, the Company and the
lender entered into a settlement agreement relating to the Company's
performance under its guarantee. Pursuant to the settlement agreement the
Company is to pay a total of $850,000 to the lender, $750,000 was paid in 1994,
with the remaining $100,000 to be paid on or before March 31, 1995. The
Company had written off its two notes receivable secured by the foreclosed
hotel as uncollectible as of December 31, 1993. The Company did not incur a
loss with respect to either the guarantee settlement or the notes receivable in
excess of the amounts previously provided.

Related party. In April 1990, SAMLP made a $1.4 million unsecured loan to
Equity Health and Finance Corporation ("Equity Health"), an entity affiliated
with Basic Capital Management, Inc. ("BCM" or the "Advisor"), the Company's
advisor. The Company owns a 76.8% limited partner interest in SAMLP which it
consolidates for financial statement purposes. In June 1991, Equity Health
merged into BCM, and BCM assumed the note. The loan matured on May 9, 1994 and
its outstanding balance of $497,000, including accrued but unpaid interest, was
paid in full.

NOTE 4. REAL ESTATE

In May 1992, the Company acquired Fox City, a shopping center in Culver City,
California for $5.7 million subject to first and second lien mortgage debt
equal to the purchase price. In August 1993, the Company sold the shopping
center for net cash of $416,000 with the buyer assuming the first and second
lien mortgage debt aggregating $5.5 million. The Company incurred a loss on
the sale of $85,000.

At December 31, 1992, the Company held a mortgage note receivable with an
outstanding principal balance of $7.0 million secured by the Kansas City
Holiday Inn, a 303 room hotel in Kansas City, Missouri. In April 1993, title
to the hotel was conveyed to a wholly-owned subsidiary of the Company, subject
to the Company's note receivable. The Company

61
62
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. REAL ESTATE (Continued)

incurred no loss on foreclosure in excess of the amounts previously provided.
The Company's note receivable is pledged as collateral for a $3.0 million loan
to the Company from a financial institution.

In November 1994, the Company sold its three Mississippi apartment complexes,
Watersedge III Apartments, Edgewater Garden Apartments, Chateau Bayou
Apartments, and its apartment complex in San Antonio, Texas, Mediterranean
Villa Apartments, to a newly formed limited partnership in exchange for, a 27%
limited partner interest in the partnership, $3.2 million in net cash, a
$100,000 certificate of deposit, and second and third liens totaling $1.3
million secured by the Mediterrean Villa Apartments. See NOTE 3. "NOTES AND
INTEREST RECEIVABLE." The Company has deferred any gain related to the
property sales due to the Company having a continuing ownership interest in the
properties, through its 27% limited partner interest in the owning partnership
and the Company also having the option to reacquire the properties and unwind
the partnership under certain circumstances. The Company's option to
repurchase the properties and unwind the partnership may be exercised at
anytime after September 15, 1995, but prior to September 2, 1997. However, if
at anytime during the option period, the net equity of the properties (fair
market value less unpaid principal and accrued but unpaid interest then owing
on the loans secured by the first mortgages) falls to below $7.5 million, the
partnership shall have the right to request in writing that the Company
exercise its purchase option within 90 days of the Company's receipt of such
request. If the Company fails to exercise the option within such 90 day
period, the option terminates. The deferred gain of $5.6 million is offset
against the Company's investment in the partnership in the accompanying
December 31, 1994, Consolidated Balance Sheet.

In March 1994, the Company sold a restaurant site in Los Angeles, California,
that was held for sale for $190,000. The Company received $90,000 in cash and
provided purchase money financing of $100,000. The Company recognized a gain
of $18,000 gain on the sale. See NOTE 3. "NOTES AND INTEREST RECEIVABLE."

Also in March 1994, the Company acquired for $26,000 in cash, all of the
capital stock of the corporate general partner of Merchandise Mart Associates,
Ltd. (" Mart, Ltd."). Concurrently, the Company also acquired all of the
capital stock of Garden Capital Merchandise Mart, Inc. ("GCMMI") for $1,000 and
the assumption of $271,000 in debt including $125,000 payable to the Company.
The GCMMI stock was purchased from individuals who also own the corporate
general partner of a limited partnership in which NOLP is a 99.3% limited
partner. (See NOTE 6. "INVESTMENTS IN REAL ESTATE ENTITIES.") The assets of
GCMMI included a wraparound mortgage note receivable with a principal balance
of $33.4 million secured by the Denver Mart, a 509,008 square foot
merchandise mart in Denver, Colorado, title to the Inn at the Mart, a 156 room
hotel adjacent to the Denver Mart and parcels of land contiguous to the Mart.
In May 1992,

62
63
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. REAL ESTATE (Continued)

the Company had acquired title to land in Denver, Colorado subject to a ground
lease to Mart, Ltd. as lessee, for the operation of the Denver Mart and a 2.9%
limited partner interest in Mart, Ltd.

During the first quarter of 1992, a mortgage note receivable with an original
principal balance of $1.0 million, secured by the Boulevard Villas Apartments,
a 303 unit apartment complex in Las Vegas, Nevada, became nonperforming.
Subsequently, the borrower on the note filed for bankruptcy protection. In
October 1992, the Company reached an agreement with the first lienholder to
acquire its mortgage of $8.3 million for $6.8 million, paying $1.0 million upon
signing the purchase agreement. In June 1993, the Company and the first
lienholder modified the note purchase agreement to allow the Company to become
the owner of the mortgage and foreclose on the collateral property. The first
lienholder provided purchase money financing for the then balance owed under
the note purchase agreement. The Company completed foreclosure of the
collateral property in July 1993. In October 1993, the Company refinanced the
property in the amount of $6.0 million. The Company realized net financing
proceeds of $280,000 after the payoff of the existing mortgage of $5.3 million
and the establishment of required repair and tax escrows and the payment of
associated refinancing costs.

In February 1995, the Company sold the Boulevard Villas Apartments for $9.6
million. The Company initially treated the sale as a financing transaction,
the Company having provided the purchaser with his $1.6 million down payment,
by loaning a like amount, secured by a second lien on an office building in
Houston, Texas, with an approximate value of $8.5 million. In March 1995, the
office building was sold and the Company's loan was paid in full. The Company
received net cash of $3.4 million after the payoff of $5.9 million in existing
mortgage debt. The Company will recognize a gain of approximately $1.0 million
on the sale.

In 1991, the Company purchased all of the capital stock of a corporation which
owned 181 developed residential lots in Fort Worth, Texas subject to $1.2
million of mortgage debt. The loan was paid in full August 1993. Through
December 31, 1991, a total of 50 of the residential lots were sold for an
aggregate gain of $250,000. During 1994, 1993 and

63
64
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. REAL ESTATE (Continued)

1992, an additional 26, 56 and 37 residential lots, respectively, were sold for
aggregate gains of $46,800, $220,000 and $190,000, respectively. At December
31, 1994, 29 lots remained to be sold.

Also in 1991, the Company purchased all of the capital stock of Denton Road
Investment Corporation ("Denton Road"), a corporation which owns a 60% interest
in a joint venture which in turn owned 113 partially developed residential lots
in Denton, Texas. Proceeds from the lot sales were first applied to reduce the
debt secured by the lots until March 30, 1993 when the debt was paid in full.
During 1992, 47 of the residential lots were sold for an aggregate gain of
$423,000. During 1993, 37 of the residential lots were sold for an aggregate
gain of $356,000. During 1994, 25 additional lots were sold for an aggregate
gain of $213,000. At December 31, 1994, 4 lots remained to be sold.

As of December 31, 1993, the Company recorded a provision for losses of $2.0
million to reduce the carrying value of 3.5 acres of undeveloped land in
downtown Atlanta, Georgia to its then estimated fair value.

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

Activity in the allowance for estimated losses was as follows:

1994 1993 1992
------------- ------------- -------------

Balance January 1, . . . . . . . . $ 9,913 $ 12,444 $ 14,154
Provision for losses . . . . . . . - 2,300 2,986
Amounts charged off . . . . . . . . (1,712) (3,159) (4,696)
Amounts reclassified to
liabilities . . . . . . . . . . - (1,672) -
------------- ------------- -------------
Balance December 31, . . . . . . . $ 8,201 $ 9,913 $ 12,444
============= ============= =============

In addition to the provision for losses above, the provision for losses in the
accompanying Consolidated Statement of Operations for 1992 includes a direct
charge against earnings of $771,000 relating to the write down of the Company's
investment in the equity securities of National Income Realty Trust ("NIRT") to
an agreed sales price. See NOTE 6. "INVESTMENTS IN REAL ESTATE ENTITIES."

NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES

The Company's investment in real estate entities at December 31, 1994, includes
(i) equity securities of three publicly traded real estate investment trusts
(collectively the "Trusts"), Continental Mortgage and Equity Trust ("CMET"),
Income Opportunity Realty Trust ("IORT") and Transcontinental Realty Investors,
Inc. ("TCI"), (ii) units of limited partner interest of NRLP, (iii) a general
partner interest in NRLP and NOLP, the operating partnership of NRLP, through
its 76.8% limited partner interest in SAMLP and (iv) interests in real estate
joint venture partnerships. Mr. Phillips, the Chairman of the Board and a

64
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AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

Director of the Company until November 16, 1992, is a general partner of SAMLP,
the general partner of NRLP and NOLP and a director and Chief Executive Officer
of SAMI. Oscar W. Cashwell, a Director of the Company, serves as President of
BCM, the Company's advisor, the Trusts and as President and a director of SAMI,
the managing general partner of SAMLP. In addition, BCM serves as advisor to
the Trusts, and performs certain administrative and management functions for
NRLP and NOLP on behalf of SAMLP.

The Company accounts for its investment in the Trusts, NRLP and the joint
venture partnerships using the equity method as more fully described in NOTE 1.
"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investment in real estate
entities."

Substantially all of the Company's equity securities of the Trusts and NRLP are
pledged as collateral for borrowings. See NOTE 8. "NOTES AND INTEREST
PAYABLE."

The Company's investment in real estate entities, accounted for using the
equity method, at December 31, 1994 was as follows:

Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1994 December 31, 1994 December 31, 1994 December 31, 1994
-------- ----------------- ----------------- ----------------- -----------------

NRLP 48.1% $ 13,727 $ * $ 31,623
CMET 33.9 11,389 26,723 14,850
IORT 21.0 2,285 5,378 3,267
TCI 24.6 7,833 22,909 9,782
------------- ------------
35,234 $ 59,522
============

General partner
interest in NRLP and NOLP 7,791
Other (4,181)
-------------
$ 38,844
=============

__________________

* At December 31, 1994, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $144.9
million (unaudited). Revaluation equity is defined as the difference
between the appraised value of the partnership's real estate, adjusted
to reflect the partnership's estimate of disposition costs, and the
amount of the mortgage notes payable and accrued interest encumbering
such property as reported in NRLP's Annual Report on Form 10-K for the
year ended December 31, 1994.

65
66
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

The Company's investment in real estate entities, accounted for using the
equity method, at December 31, 1993 was as follows:

Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1993 December 31, 1993 December 31, 1993 December 31, 1993
-------- ----------------- ----------------- ----------------- -----------------

NRLP 43.8% $ 12,001 $ - * $ 23,642
CMET 30.2 10,947 24,510 11,349
IORT 18.0 1,952 4,740 2,154
TCI 20.0 6,223 19,265 7,203
------------- ------------
31,123 $ 44,348
============
General partner
interest in NRLP and NOLP 8,233
Other 649
-------------
$ 40,005
=============

____________________

* At December 31, 1993, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $113.0
million. Revaluation equity is defined as the difference between the
appraised value of the partnership's real estate, adjusted to reflect
the partnership's estimate of disposition costs, and the amount of the
mortgage notes payable and accrued interest encumbering such property
as reported in NRLP's Annual Report on Form 10-K for the year ended
December 31, 1993.

The Company's management continues to believe that the market value of each of
the Trusts and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1994, as its liquidity
has permitted.

On February 25, 1992, in connection with the settlement of Southmark adversary
proceedings, the Company assigned a 19.2% limited partner interest in SAMLP,
the general partner of NRLP and NOLP, to Southmark. The Company had an option
which expired on December 27, 1994, to reacquire Southmark's 19.2% interest in
SAMLP for $2.4 million, less any distributions received by Southmark. See NOTE
17. "COMMITMENTS AND CONTINGENCIES - Settlement of Southmark Adversary
Proceedings".

IORT is scheduled, unless and until its shareholders decide on a contrary
course of action, to begin liquidation of its assets prior to October 24, 1996.
IORT's Declaration of Trust requires the distribution to shareholders of (i)
the net cash proceeds from sale or refinancing of equity investments received,
and (ii) after October 24, 1996, the net cash proceeds received from the
satisfaction of mortgage notes receivable. However, IORT's board of trustees
has discretionary authority to hold any investment past October 24, 1996,
should circumstances so dictate.

66
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AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

In addition to the equity securities of the Trusts and NRLP, the Company also
owned significant amounts of equity securities of two other publicly traded
real estate investment trusts having, at the time, the same advisor as the
Company and which the Company had accounted for using the equity method.

In September 1992, the Company agreed to sell its entire share holdings in
Vinland Property Trust ("VPT") to Lucy N. Friedman, the wife of William S.
Friedman, the President and a trustee of VPT. Mr. Friedman also served as the
President and a Director of the Company until December 31, 1992. The agreement
provided for the Company to sell the 831,620 VPT shares which it owned at the
then current market price of $0.415 per share. The Company recognized a gain
of $71,000 on the disposition of its VPT shares. As of December 31, 1992, the
Company had transferred all of its VPT shares to Mrs. Friedman for $345,000 in
cash.

Also, in September 1992, the Company agreed to sell its entire holdings in NIRT
to Mr. Friedman, also the President and a trustee of NIRT, members of his
family and his affiliates. The agreement provided for the Company to sell its
741,592 NIRT shares at the then market price of $6.875 per share. As payment
for the NIRT shares, the Company received $2.9 million in cash ($657,000 in
1992 and $2.2 million in 1993) and $2.2 million in securities of CMET (105,096
shares at $6.625 per share), IORT (10,075 shares at $5.375 per share), TCI
(118,500 shares at $5.25 per share) and NRLP (42,260 units at $20.50 per unit).
In September 1992, the Company wrote the carrying value of its NIRT shares down
to their agreed sales price, recorded a provision for loss of $771,000 and
discontinued accounting for its investment in NIRT under the equity method. As
of December 31, 1993, the Company had transferred all of its NIRT shares to Mr.
Friedman and his affiliates and had received payment in full.

In January 1992, the Company entered into a partnership agreement with an
entity affiliated with Donald C. Carter, the owner, at the time, of in excess
of 14% of the Company's outstanding shares of Common Stock, to acquire 287
developed residential lots adjacent to the Company's other residential lots in
Fort Worth, Texas. The Company paid $717,000 in cash for its 50% general
partnership interest. The partnership agreement designates the Company as
managing general partner. The partnership agreement also provides each of the
partners with a guaranteed 10% return on their respective investments. During
1993, 18 of the residential lots owned by the partnership were sold. During
1994, 42 additional lots were sold, with 227 lots remaining to be sold at
December 31, 1994. See NOTE 8. "NOTES AND INTEREST PAYABLE".

In November 1994, the Company sold four apartment complexes to a newly formed
limited partnership in exchange for cash, a 27% limited partner interest in
the partnership and two mortgage notes receivable, secured by one of the
properties sold by the Company. In conjunction with

67
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AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)

the exchange transaction the Company recorded a deferred gain of $5.6 million
which is offset against the Company's investment in the partnership. See NOTE
3. "NOTES AND INTEREST RECEIVABLE" and NOTE 4. "REAL ESTATE."

Set forth below are summary financial data for the real estate entities the
Company accounts for using the equity method (unaudited):

1994 1993
---------------- ----------------

Property and notes
receivable, net . . . . . . . . . . . . . . $ 680,451 $ 647,049
Other assets. . . . . . . . . . . . . . . . . 89,527 80,680
Notes payable . . . . . . . . . . . . . . . . (591,258) (547,364)
Other liabilities . . . . . . . . . . . . . . (73,027) (63,212)
---------------- ----------------
Equity . . . . . . . . . . . . . . . . . . . $ 105,693 $ 117,153
================ ================

1994 1993 1992
---------------- ---------------- ---------------

Revenues. . . . . . . . . . . . . . . . . . . $ 181,639 $ 166,050 $ 178,145
Depreciation. . . . . . . . . . . . . . . . . (20,310) (18,984) (20,374)
Provision for losses. . . . . . . . . . . . . (1,429) (1,094) (8,759)
Interest. . . . . . . . . . . . . . . . . . . (54,409) (50,661) (57,529)
Operating expenses. . . . . . . . . . . . . . (120,815) (112,975) (107,109)
Gains on sale of real estate. . . . . . . . .
and partnership interests . . . . . . . . . 14,627 389 -
Extraordinary gains . . . . . . . . . . . . . 1,189 11,446 -
---------------- ---------------- ---------------
Net income (loss) . . . . . . . . . . . . . . $ 492 $ (5,829) $ (15,626)
================ ================ ===============

The difference between the carrying value of the Company's investment and the
equivalent investee book value is being amortized over the life of the
properties held by each investee.

The Company's cash flow from the Trusts and NRLP is dependent on the ability of
each of the entities to make distributions. TCI's distribution policy provides
for an annual determination of distributions after year end, and then only to
the extent of its REIT taxable income, if any. TCI made no distributions in
1993 or 1994. In March 1993, CMET and IORT resumed regular quarterly
distributions at the current rate of $0.15 per share. In December 1993, NRLP
also resumed regular distributions at a rate of $0.20 per unit. The Company
received distributions from CMET and IORT totaling $506,000 in 1993 and
$170,000 from NRLP in December 1993. During 1994, the Company received
distributions from CMET and IORT totaling $675,000 and $1.4 million from NRLP.

The Company's investments in the Trusts and NRLP were initially acquired in
1989. In 1994, the Company purchased an additional $6.5 million of equity
securities of the Trusts and NRLP.

68
69
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

In the first quarter of 1994, the Company began purchasing equity securities of
entities other than those of the Trusts and NRLP to diversify and increase the
liquidity of its margin accounts. Through December 31, 1994, the Company had
made purchases of $16.5 million and sales of $15.1 million of such securities.
These equity securities are considered a trading portfolio and are carried at
market value. At December 31, 1994, the Company recognized an unrealized
decline in the market value of the equity securities in its trading portfolio
of $242,000. In 1994, the Company realized a net loss of $101,000 from the
sale of trading portfolio securities and received $274,000 in dividends on
such securities. Unrealized and realized gains and losses in the trading
portfolio are included in other income in the accompanying Consolidated
Statements of Operations.

NOTE 8. NOTES AND INTEREST PAYABLE

Notes and interest payable consisted of the following:

1994 1993
--------------------------------- -------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------------- ------------ ------------ ------------

Notes payable
Mortgage loans . . . . . . . . . . . . $ 26,020 $ 26,239 $ 31,236 $ 30,948
Borrowings from financial
institutions. . . . . . . . . . . . 7,929 9,298 11,958 11,842
Notes payable to affiliates. . . . . . 1,533 5,166 3,501 6,486
-------------- ------------ ------------ ------------
$ 35,482 40,703 $ 46,695 49,276
============== ============

Interest payable (including
$4,566 in 1994 and $4,009
in 1993 to affiliate) . . . . . . . 4,992 4,417
------------ ------------
$ 45,695 $ 53,693
============ ============

Scheduled principal payments on notes payable are due as follows:

1995 . . . . . . . . . . . . . . . . $ 13,639
1996 . . . . . . . . . . . . . . . . 9,475
1997 . . . . . . . . . . . . . . . . 10,335
1998 . . . . . . . . . . . . . . . . 231
1999 . . . . . . . . . . . . . . . . 351
Thereafter . . . . . . . . . . . . . 6,672
--------------
$ 40,703
==============

Stated interest rates on notes payable ranged from 6.0% to 13.75% at December
31, 1994, and mature in varying installments between 1995 and 2007. At
December 31, 1994, notes payable were collateralized by mortgage notes
receivable with a net carrying value of $17.1 million and by deeds of trust on
real estate with a net carrying value of $35.9 million.

69
70
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8. NOTES AND INTEREST PAYABLE (Continued)

Borrowings from financial institutions includes a borrowing of $9.3 million at
December 31, 1994 ($10.4 million at December 31, 1993) which matured on
December 18, 1994. The borrowing is collateralized by a note receivable with a
principal balance of $17.1 million at December 31, 1994. In March 1995,
effective December 18, 1994, the lender extended the note's maturity to
December 18, 1997 and modified its interest and payment terms. The modified
note required a $500,000 principal paydown, bears interest at the lender's
prime rate plus 2%, requires monthly payments of interest and monthly principal
payments of $80,000, with the unpaid principal balance due at maturity. Such
borrowing is excluded from 1995 maturities in the table above.

Also excluded from 1995 maturities is a loan with a principal balance of $2.9
million at December 31, 1994, secured by the Kansas City Holiday Inn. In March
1995, the Company exercised its option to extend the loan's maturity date from
March 1995 to March 1997. All other terms of the loan remained unchanged.

In March 1992, the Company obtained a $1.3 million working capital loan from a
financial institution. The loan was secured by equity securities of the Trusts
and NRLP. The loan required monthly payments of interest only and matured
April 1, 1994. The loan required the Company to make a principal paydown of
$275,000 by May 1, 1993 and $250,000 on each of June 1 and July 1, 1993 and
$100,000 in January 1994 with interest at the lender's prime rate plus 2%, at
no time to be less than 8% per annum. The balance of this note plus accrued
but unpaid interest, was paid off at the note's April 1, 1994 maturity.

Notes payable to affiliates at December 31, 1994 and 1993 include a $4.2
million note due to NRLP as payment for SAMLP's general partner interest in
NRLP. The note bears interest at 10% per annum compounded semi-annually and is
due at the earlier of September 2007, the liquidation of NRLP or the withdrawal
of SAMLP as general partner of NRLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT,
L.P."

In June 1992, the Company obtained a $3.3 million loan from Donald C. Carter,
the owner, at the time, of in excess of 14% of the Company's outstanding shares
of Common Stock. The note bears interest at 10% and matures in May 1995.
Interest payments are made monthly in addition to ten quarterly principal
payments of $330,000 which commenced March 1, 1993. The note is collateralized
by an assignment of the Company's interest in a partnership which owns
residential lots in Fort Worth, Texas and the Company's interest in undeveloped
land in downtown Atlanta, Georgia. The loan also provided for Mr. Carter's
participation in the proceeds from either the sale or refinancing of the
Company's land in Atlanta, Georgia. Mr. Carter also had the right to put his
participation to the Company in exchange for a payment of $623,000. On
December 2, 1993, Mr. Carter exercised his put which required full payment by
the Company within 30 days, January 2, 1993. Mr. Carter has

70
71
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8. NOTES AND INTEREST PAYABLE (Continued)

agreed to extend the payment date to January 2, 1996, and BCM, the Company's
advisor, and the trust that owns BCM, have agreed to guarantee the Company's
payment obligation. The Company recognized such payment obligation as
additional interest on the $3.3 million loan. As of March 17, 1995, BCM owned
approximately 41% of the outstanding shares of the Company's Common Stock.
Such put obligation is included in accrued interest payable in the accompanying
Consolidated Balance Sheets. See NOTE 6. "INVESTMENTS IN REAL ESTATE ENTITIES"
and NOTE 9. "REDEEMABLE COMMON STOCK."

In May 1993, the Company obtained a $1.8 million mortgage secured by the
previously unencumbered Rosedale Towers, an office building in Minneapolis,
Minnesota. The Company received net financing proceeds of $1.7 million after
payment of associated closing costs. The Company pledged as additional
collateral for the loan 141,176 newly issued shares of its Common Stock. The
loan matured April 30, 1994. Effective May 1, 1994, the lender extended the
loan's maturity date to May 1, 1997, increased the principal balance to $2.5
million and reduced the interest rate to the three-month London Interbank
Offered Rate ("LIBOR") plus .75%, fixed at the beginning of each quarter
currently 13.75% per annum. The loan extension requires monthly interest only
payments, with the principal balance and accrued but unpaid interest due at
maturity. In conjunction with the mortgage principal increase and maturity
extension, the Company pledged as additional collateral an additional 240,000
newly issued shares of its Common Stock. The Company received net cash of
$526,000 as a result of the increase in the principal balance of the loan, after
the payment of various closing costs.

In June 1992, the Company purchased the Park Plaza Shopping Center in
Manitowoc, Wisconsin. The $4.2 million mortgage secured by the shopping center
was scheduled to mature on May 1, 1995. Effective June 1, 1993, the mortgage
was amended extending its maturity date to May 10, 2003, providing for a
variable interest rate of 6% to 8% per annum and requiring monthly payments of
principal and interest.

In addition, the same lender made a second loan, also effective June 1, 1993,
in the amount of up to $1.0 million to be used for capital and tenant
improvements to the shopping center. Cash was advanced by the lender upon
costs being incurred for the improvements. In the event that all sums advanced
on the new loan were repaid by May 31, 1994, the principal balance of the first
mortgage was to be reduced by the lesser of $500,000 or one-half of the amount
advanced on the new loan. The balance of the new loan, $887,000, was paid in
full on December 23, 1993, with the Company receiving a credit of $443,000
against the first mortgage reducing its balance to $3.5 million at December 31,
1994. The Company also deposited into an escrow account $105,000 to complete
remaining parking lot and exterior renovations at the shopping center. As of
June 30, 1994, the Company had expended such escrowed funds, completing the
parking lot and exterior renovations and received an

71
72
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8. NOTES AND INTEREST PAYABLE (Continued)

additional credit of $50,000 against the first mortgage. The Company
recognized extraordinary gains of $50,000 and $443,000 in 1994 and 1993,
respectively, resulting from the first mortgage principal reductions.

In December 1993, the Company refinanced Watersedge III and Edgewater Gardens
Apartments in the amount of $4.2 million and $2.9 million, respectively. The
Company realized net refinancing proceeds of $924,000 after the pay off of the
existing mortgage of $3.0 million and payment of associated refinancing costs
on Watersedge III and net refinancing proceeds of $728,000 after the payoff of
the existing mortgage of $1.9 million on Edgewater Gardens. In November 1994,
the Company sold the apartment complexes subject to the debt, to a newly formed
limited partnership. The partnership assumed a total of $10.2 million in
mortgage notes payable secured by these and two additional apartment complexes.
See NOTE 3. "NOTES AND INTEREST RECEIVABLE" and NOTE 4. "REAL ESTATE."

In October 1993, the Company refinanced the mortgage secured by the Boulevard
Villas Apartments in Las Vegas, Nevada in the amount of $6.0 million. The
Company had acquired the property through foreclosure in July 1993. In March
1995, the Company completed the sale of the apartment complex paying off the
then $5.9 million principal balance of the mortgage. See NOTE 4. "REAL
ESTATE."

The Company has margin arrangements with various brokerage firms which provide
for borrowings of up to 50% of the market value of the Company's marketable
equity securities. The borrowings under such margin arrangements are secured
by equity securities of the Trusts, NRLP and the Company's trading portfolio
and bear interest rates ranging from 6.125% to 10.25%. Margin borrowings at
December 31, 1994, were $26.4 million and $16.1 million at December 31, 1993,
44.5% and 36%, respectively, of the market values of such equity securities at
such dates.

NOTE 9. REDEEMABLE COMMON STOCK

In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to Donald C. Carter for $2.0 million in cash. Terms of the sale agreement
provided Mr. Carter with the option of requiring the Company to reacquire up to
360,000 of the purchased shares at a price of $6.11 per share, a total of $2.2
million, such option expiring in March 1995. The Company accreted the
difference between the issuance price and the redemption price using the
"interest method". As of December 31, 1993, the balance of the Redeemable
Common Stock account was $2.2 million. In December 1994, Mr. Carter
contributed his shares of the Company's Common Stock to a newly formed
partnership in which he is a limited partner. Concurrent with the share
contribution, the partnership rescinded the put provision of the original sales
agreement. Accordingly, the Company has reclassified such redeemable Common
shares to stockholder's equity in the accompanying December 31, 1994
Consolidated Balance Sheet.

72
73
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. RIGHTS PLAN

In April 1990, the Company adopted a Preferred Share Purchase Rights Plan (the
"Rights Plan") and approved the distribution to stockholders of a dividend of
one share purchase right (the "Rights") for each then outstanding share of the
Company's Common Stock. Each Right will entitle stockholders to purchase one
one-hundredth of a share of a new series of preferred stock at an exercise
price of $25.00. The Rights will generally be exercisable only if a person or
group (the "Adverse Group") increases its then current ownership in the Company
by more than 25% or commences a tender offer for 25% or more of the Company's
Common Stock. If any person or entity actually increases its then current
ownership in the Company by more than 25% or if the Company's Board of
Directors determines that any 10% stockholder is adversely affecting the
business of the Company, holders of the Rights, other than the Adverse Group,
will be entitled to buy, at the exercise price, the Common Stock of the Company
with a market value of twice the exercise price. Similarly, if the Company is
acquired in a merger or other business combination, each Right will entitle its
holder to purchase, at the Right's exercise price, the number of shares of the
surviving company having a market value of twice the Right's exercise price.
In connection with the one-for-three reverse share split effected in December
1990, the Rights were proportionately adjusted so that each post-split share
certificate represents three Rights, each of which permit the holder thereof to
purchase one-hundredth of a preferred share for $25.00 under such
circumstances. The Rights expire in 2000 and may be redeemed at the Company's
option for $.01 per Right under certain circumstances.

On March 5, 1991, the Company's Board of Directors approved an amendment to the
Rights Plan. The amendment excludes the Company, the Company's subsidiaries,
and the Company's advisor or its officers and Directors from the class of
persons who may cause the Rights to become exercisable by increasing their
ownership of the Company's stock.

NOTE 11. ADVISORY AGREEMENT

Although the Company's Board of Directors is directly responsible for managing
the affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by BCM, a contractual
advisor under the supervision of the Company's Board of Directors. The duties
of the advisor include, among other things, locating, investigating, evaluating
and recommending real estate and mortgage loan investment and sales
opportunities as well as financing and refinancing sources for the Company.
BCM as advisor also serves as a consultant in connection with the Company's
business plan and investment policy decisions made by the Company's Board of
Directors.

BCM has been providing advisory services to the Company since February 6, 1989.
BCM is a company owned by a trust for the benefit of the children of Mr.
Phillips. Mr. Phillips served as Chairman of the Board

73
74

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. ADVISORY AGREEMENT (Continued)

and as a Director of the Company until November 16, 1992. Mr. Phillips also
served as a director of BCM until December 22, 1989, and as Chief Executive
Officer of BCM until September 1, 1992. Mr. Phillips serves as a
representative of the trust for the benefit of his children that owns BCM and,
in such capacity, has substantial contact with the management of BCM and input
with respect to BCM's performance of advisory services to the Company. Ryan T.
Phillips, a Director of the Company, is a director of BCM and a trustee of the
trust that owns BCM. Mr. Cashwell, a Director of the Company, serves as
president of BCM.

The Advisory Agreement provides that BCM shall receive base compensation at the
rate of 0.125% per month (1.5% on an annualized basis) of the Company's Average
Invested Assets. On October 23, 1991, based on the recommendation of BCM, the
Company's advisor, the Company's Board of Directors approved a reduction in
BCM's base advisory fee by 50% effective October 1, 1991. This reduction
remains in effect until the Company's earnings for the four preceding quarters
equals or exceeds $2.00 per share.

In addition to base compensation, BCM, or an affiliate of BCM, receives the
following forms of additional compensation:

(a) an acquisition fee for locating, leasing or purchasing real estate for
the Company in an amount equal to the lesser of (i) the amount of
compensation customarily charged in similar arm's-length transactions
or (ii) up to 6% of the costs of acquisition, inclusive of commissions,
if any, paid to non-affiliated brokers;

(b) a disposition fee for the sale of each equity investment in real estate
in an amount equal to the lesser of (i) the amount of compensation
customarily charged in similar arm's-length transactions or (ii) 3% of
the sales price of each property, exclusive of fees, if any, paid to
non-affiliated brokers;

(c) a loan arrangement fee in an amount equal to 1% of the principal amount
of any loan made to the Company arranged by BCM;

(d) an incentive fee equal to 10% of net income for the year in excess of a
10% return on stockholders' equity, and 10% of the excess of net
capital gains over net capital losses, if any, realized from sales of
assets made under contracts entered into after April 15, 1989; and

(e) a mortgage placement fee, on mortgage loans originated or purchased,
equal to 50%, measured on a cumulative basis, of the total amount of
mortgage origination and placement fees on mortgage loans advanced by
the Company for the fiscal year.

74
75
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. ADVISORY AGREEMENT (Continued)

The Advisory Agreement further provides that BCM shall bear the cost of certain
expenses of its employees, excluding fees paid to the Company's Directors; rent
and other office expenses of both BCM and the Company (unless the Company
maintains office space separate from that of BCM); costs not directly
identifiable to the Company's assets, liabilities, operations, business or
financial affairs; and miscellaneous administrative expenses relating to the
performance by BCM of its duties under the Advisory Agreement.

If and to the extent that the Company shall request BCM, or any director,
officer, partner or employee of BCM, to render services to the Company other
than those required to be rendered by BCM under the Advisory Agreement, such
additional services, if performed, will be compensated separately on terms
agreed upon between such party and the Company from time to time. The Company
has requested that BCM perform loan administration functions, and the Company
and BCM have entered into a separate agreement, as described below.

The Advisory Agreement automatically renews from year to year unless terminated
in accordance with its terms. The Company's management believes that the terms
of the Advisory Agreement are at least as fair as could be obtained from
unaffiliated third parties.

BCM is the loan administration/servicing agent for the Company, under an
agreement dated as of October 4, 1989, and terminable by either party upon
thirty days' notice, under which BCM services most of the Company's mortgage
notes and receives as compensation a monthly fee of .125% of the month-end
outstanding principal balances of the mortgage notes serviced.

NOTE 12. PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under its management. Carmel,
Ltd. subcontracts with other entities for the property-level management
services to the Company at various rates. The general partner of Carmel, Ltd.
is BCM. The limited partners of Carmel, Ltd. are (i) Syntek West, Inc.
("SWI"), of which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and
(iii) a trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management of the Company's shopping center to
Carmel Realty, Inc. ("Carmel Realty"), which is a company owned by SWI. Carmel
Realty is entitled to receive property and construction management fees and
leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd.

75
76
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.

Fees and cost reimbursements to BCM, the Company's advisor, and its affiliates
were as follows:

1994 1993 1992
-------------- ------------ ------------

Fees
Advisory and mortgage
servicing . . . . . . . . . . $ 1,242 $ 1,258 $ 1,340
Brokerage commissions . . . . . . . 497 180 596
Property and construction
management and leasing
commissions* . . . . . . . . . 70 45 49
Loan arrangement. . . . . . . . . . 25 102 76
-------------- ------------ ------------

$ 1,834 $ 1,585 $ 2,061
============== ============ ============

Cost reimbursements . . . . . . . . $ 434 $ 288 $ 299
============== ============ ============

_________________________________

* Net of property management fees paid to subcontractors, other than Carmel
Realty.

NOTE 14. INCOME TAXES

Financial statement income varies from taxable income, principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated
losses. At December 31, 1994, the Company had a tax net operating loss
carryforward of $17.3 million expiring through 2009.

At December 31, 1994, the Company recognized a deferred tax benefit of $5.8
million due to tax deductions available to it in future years. However, due to,
among other factors, the Company's inconsistent earnings history, the Company
was unable to conclude that the future realization of such deferred tax
benefit, which requires the generation of taxable income, was more likely than
not. Accordingly, a valuation allowance for the entire amount of the deferred
tax benefit has been recorded.

In 1987, the Company provided deferred income taxes for certain capital gains
(which were reported under the installment method for tax purposes) because the
Company did not anticipate distributing these gains to stockholders. In 1992,
the portion of the deferred gains which became taxable were offset by the
Company's tax loss for such year. Accordingly, applicable deferred taxes of
$939,000 were reversed in 1992.

76
77
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. INCOME TAXES (Continued)

The components of tax expense are as follows:

1994 1993 1992
------------- -------------- -------------

Income tax provision (benefit)
Current . . . . . . . . . . . . . . . . . . . . $ 9 $ 11 $ 18
Reversal of deferred tax
liability . . . . . . . . . . . . . . . . . . . - - (939)
------------- -------------- -------------
$ 9 $ 11 $ (921)
============= ============== =============

A reconciliation of the federal statutory tax rate (34%) with the income tax
provision (benefit) in the Consolidated Statements of Operations is as follows:

1994 1993 1992
------------- -------------- -------------

Income tax at statutory rate . . . . . . . . $ (825) $ (1,450) $ (3,572)
Carryforward of net operating
loss income tax benefit. . . . . . . . . . 825 1,450 3,572
Reversal of deferred tax
liability . . . . . . . . . . . . . . . . - - (939)
State income tax, net of
federal benefit. . . . . . . . . . . . . . 9 11 18
------------- -------------- -------------
Income tax provision (benefit) . . . . . . . $ 9 $ 11 $ (921)
============= ============== =============

NOTE 15. EXTRAORDINARY GAIN

In 1994, the Company recognized an extraordinary gain of $273,000 representing
its equity share of TCI's extraordinary gain from the settlement of claims
against it by a lender. The Company also recognized $50,000 from the
forgiveness of a portion of a first mortgage from early payoff of the second
mortgage. See NOTE 8. "NOTES AND INTEREST PAYABLE."

In 1993, the Company recognized an extraordinary gain of $3.4 million
representing its equity share of NRLP's extraordinary gain of $9.0 million from
its acquisition at a discount of certain of its mortgage debt. The Company
also recognized an additional $443,000 from the forgiveness of a portion of a
first mortgage from the early payoff of a second mortgage. See NOTE 8. "NOTES
AND INTEREST PAYABLE."

In 1992, NOLP transferred 52 apartment complexes and a wraparound mortgage note
receivable to Garden Capital, L.P. ("GCLP"), a Delaware limited partnership in
which NOLP owns a 99.3% limited partnership interest. Concurrent with such
transfer, GCLP refinanced all of the mortgage debt associated with the
transferred properties and the wraparound note receivable, under a new first
mortgage of $223.0 million. NOLP recognized an extraordinary gain of $1.6
million from the early or discounted payoff of the old mortgage debt, of which
the Company's equity share was $534,000, which is included in "Equity in
(losses) of investees," in the accompanying Consolidated Statements of
Operations.

77
78
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 16. RENTALS UNDER OPERATING LEASES

The Company's rental operations include the leasing of an office building and a
shopping center. The leases thereon expire at various dates through 2009. The
following is a schedule of minimum future rentals on non-cancelable operating
leases as of December 31, 1994:

1995 . . . . . . . . . . . . . . . . . . . . . . . $ 1,556
1996 . . . . . . . . . . . . . . . . . . . . . . . 1,550
1997 . . . . . . . . . . . . . . . . . . . . . . . 1,282
1998 . . . . . . . . . . . . . . . . . . . . . . . 1,008
1999 . . . . . . . . . . . . . . . . . . . . . . . 691
Thereafter . . . . . . . . . . . . . . . . . . . . 2,576
-------------
$ 8,663
=============

NOTE 17. COMMITMENTS AND CONTINGENCIES

Settlement of Southmark Adversary Proceedings. During 1990 and 1991, several
adversary proceedings were initiated against the Company and others by
Southmark and its affiliates. On December 27, 1991, an agreement to settle all
claims in connection with the Southmark adversary proceedings was executed by
Southmark and the Company. The settlement covered all claims between Southmark
and its affiliates and Messrs. Phillips and Friedman, SWI, NRLP, CMET, IORT,
TCI, the Company and their affiliates. Pursuant to the settlement agreement,
Southmark received $13.2 million from the various settling defendants. The
final installment of $1.3 million was paid in July 1994.

The Company paid Southmark a total of $1.4 million of which $435,000 was paid
in July 1994. In addition, on February 25, 1992, the Company assigned
Southmark a 19.2% limited partner interest in SAMLP, the general partner of
NRLP and NOLP. The Company had an option which expired on December 27, 1994,
to reacquire Southmark's 19.2% interest in SAMLP for $2.4 million, less any
distributions received by Southmark. The Company received from Southmark,
Southmark's interest in Novus Nevada, Inc., and certain real estate and
mortgage notes. The assets that the Company received had an aggregate value at
least equal to the consideration the Company paid to Southmark.

78
79
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17. COMMITMENTS AND CONTINGENCIES (Continued)

of $25 million. In July 1994, upon satisfaction of the settlement obligations,
the judgments were returned to the defendants and cancelled.

On February 25, 1992, the Company entered into an agreement with Messrs.
Phillips and Friedman, SWI, and the Trusts relating to their settlement of
litigation with Southmark. Pursuant to the agreement, TCI obtained the right to
acquire four apartment complexes, five mortgage notes, two commercial
properties and four parcels of developed land from Southmark and its
affiliates.

Other Litigation. The Company is also involved in various lawsuits arising in
the ordinary course of business. Management of the Company is of the opinion
that the outcome of these lawsuits will have no material impact on the
Company's financial condition.

NOTE 18. QUARTERLY RESULTS OF OPERATIONS

The following is a tabulation of the Company's quarterly results of operations
for the years 1994 and 1993 (unaudited):

Three Months Ended
------------------------------------------------------------------------------
1994 March 31, June 30, September 30, December 31,
---------- ------------- -------------- ----------------- ---------------

Revenue . . . . . . . . . . . . . . $ 2,960 $ 5,685 $ 7,260 $ 4,636
Expense . . . . . . . . . . . . . . 4,529 6,946 7,844 7,171
------------- -------------- ----------------- ---------------
(Loss) before gain
on sale of real estate
and extraordinary gain . . . . (1,569) (1,261) (584) (2,535)
Gain on sale of
real estate . . . . . . . . . 176 57 910 2,057
Extraordinary gain . . . . . . . . 36 14 273 -
------------- -------------- ----------------- ---------------
Net income (loss) . . . . . . . . . $ (1,357) $ (1,190) $ 599 $ (478)
============= ============== ================= ===============

Earnings per share
(Loss) before gain on
sale of real estate
and extraordinary gain . . . . $ (.54) $ (.40) $ (.20) $ (.84)

Gain on sale of real
estate . . . . . . . . . . . . .06 .02 .31 .69
Extraordinary gain . . . . . . . . .01 - .09 -
------------- -------------- ----------------- ---------------
Net income (loss) per share . . . . $ (.47) $ (.38) $ .20 $ (.15)
============= ============== ================= ===============

[THIS SPACE INTENTIONALLY LEFT BLANK.]

79
80
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 18. QUARTERLY RESULTS OF OPERATIONS (Continued)

Revenue includes equity in losses of investees of $527,000, $545,000, $1.0
million and $415,000 in the first, second, third and fourth quarters of 1994,
respectively.

Three Months Ended
------------------------------------------------------------------------------
1993 March 31, June 30, September 30, December 31,
---------- ------------- -------------- ----------------- ---------------

Revenue . . . . . . . . . . . . . . $ 2,317 $ 2,484 $ 2,722 $ 1,890
Expense . . . . . . . . . . . . . . 3,113 3,280 4,685 7,050
------------- -------------- ----------------- ---------------
(Loss) before gain
on sale of real estate
and extraordinary gain . . . . (796) (796) (1,963) (5,160)
Gain on sale of
real estate . . . . . . . . . 143 119 44 175
Extraordinary gain . . . . . . . . 3,364 - - 443
------------- -------------- ----------------- ---------------
Net income (loss) . . . . . . . . . 2,711 (677) (1,919) (4,542)

Redeemable Common Stock
accretion of discount . . . . (129) - - -
------------- -------------- ----------------- ---------------
Income (loss) applicable
to Common shares . . . . . . . $ 2,582 $ (677) $ (1,919) $ (4,542)
============= ============== ================= ===============

Earnings per share
(Loss) before gain on
sale of real estate
and extraordinary gain . . . . $ (.27) $ (.26) $ (.64) $ (1.71)

Gain on sale of real estate . . . . .05 .04 .01 .06
Extraordinary gain . . . . . . . . 1.15 - - .11
------------- -------------- ----------------- ---------------
Net income (loss) per share . . . . .93 (.22) (.63) (1.54)

Redeemable Common Stock,
accretion of discount . . . . (.05) - - -
------------- -------------- ----------------- ---------------

Income (loss) applicable
to Common shares . . . . . . . $ .88 $ (.22) $ (.63) $ (1.54)
============= ============== ================= ===============

Revenue includes equity in losses of investees of $798,000, $424,000, $1.3
million and $1.5 million in the first, second, third and fourth quarters of
1993, respectively. Expenses include provision for losses of $2.3 million in
the fourth quarter of 1993.

80
81
SCHEDULE III

AMERICAN REALTY TRUST, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994

Cost
Capitalized
Subsequent
to Gross Amounts of Which Carried
Initial Cost to Company Acquisition at End of Year
----------------------- ------------- ---------------------------------
Buildings & Buildings & (1)
Property/Description Encumbrances Land Improvements Improvements Land Improvements Total
-------------------- ------------ -------- ------------ ------------ -------- ------------ --------
(DOLLARS IN THOUSANDS)

PROPERTIES HELD FOR INVESTMENT

OFFICE BUILDING
Rosedale Towers........ $ 2,500 $ 665 $ 3,769 $ 564 $ 715 $ 4,283 $ 4,998
Roseville, MN

SHOPPING CENTER
Park Plaza............. 3,520 891 3,584 989 891 4,573 5,464
Manitowoc, WI

MERCHANDISE MART
Denver Mart............ 5,683 4,824 5,184 1,033 5,098 5,943 (3) 11,041
Denver, CO

HOTELS
Inn at the Mart........ - - 302 262 - 564 564
Denver, CO
KC Holiday Inn.......... 2,912 1,110 4,535 1,632 1,110 6,167 7,277
Kansas City, MO ------- -------- ------- ------- -------- -------- --------

14,615 7,490 17,374 4,480 7,814 21,530 29,344
PROPERTIES HELD FOR SALE
APARTMENTS
Boulevard Villas....... 5,878 980 7,577 232 980 7,809 8,789
Las Vegas, NV

OFFICE BUILDING
Mopac.................. - 676 5,098 - 676 5,098 5,774
St. Louis, MO

LAND
Hotel site............. - 397 1,587 - 397 1,587 1,984
Lihue, HI
Atlanta Land, GA....... - (2) 11,052 - - 11,052 - 11,052
Denton Road, TX........ - 2,102 - (2,063) 39 - 39
Krneta Land, AZ........ - 1,044 - - 1,044 - 1,044
Rivertrails I, TX...... - 1,139 - (773) 291 - 291
Other (4 properties)... - 200 - - 200 - 200
------- -------- ------- ------- -------- -------- --------
5,878 17,590 14,262 (2,604) 14,679 14,494 29,173
------- -------- ------- ------- -------- -------- --------

$20,493 $ 25,080 $31,636 $ 1,876 $ 22,493 $ 36,024 58,517
======= ======== ======= ======= ======== ========
Allowance for
estimated losses..... (4,172)
--------
$ 54,345
========

Life On Which
Depreciation
in Latest
Statement
Accumulated Date of Date of Operations
Property/Description Depreciation Construction Acquired is Computed
-------------------- ------------ ------------ -------- ---------------
(DOLLARS IN THOUSANDS)

PROPERTIES HELD FOR INVESTMENT

OFFICE BUILDING
Rosedale Towers........ $ 530 1974 1990 10 - 40 years
Roseville, MN

SHOPPING CENTER
Park Plaza............. 393 1957 1992 10 - 40 years
Manitowoc, WI

MERCHANDISE MART
Denver Mart............ 232 1965/ 1992 10 - 40 years
Denver, CO 1986

HOTELS
Inn at the Mart........ 18 1974 1994 10 - 40 years
Denver, CO
KC Holiday Inn.......... 223 1974 1993 10 - 40 years
--------
Kansas City, MO
1,396
PROPERTIES HELD FOR SALE
APARTMENTS
Boulevard Villas....... 325 1971 1993 10 - 40 years
Las Vegas, NV

OFFICE BUILDING
Mopac.................. 5,098 1925 1965 10 - 40 years
St. Louis, MO

LAND
Hotel site............. - N/A 1992 10 - 40 years
Lihue, HI
Atlanta Land, GA....... - N/A 1990 -
Denton Road, TX........ - N/A 1991 -
Krneta Land, AZ........ -
Rivertrails I, TX...... - N/A 1991 -
Other (4 properties)... - N/A Various -
--------
5,423
--------

$ 6,819
========

-------------------------

(1) The aggregate cost for federal income tax purposes is $51,902.
(2) Property is pledged as additional collateral for a note payable with a
principal balance of $2.3 million.
(3) The carrying amount at yearend includes $254,000 of construction in
progress.

81
82

SCHEDULE III
(Continued)

AMERICAN REALTY TRUST, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION

1994 1993 1992
--------- ---------- ----------
(dollars in thousands)

Reconciliation of Real Estate

Balance at January 1,................ $ 59,181 $ 51,475 $ 59,188

Additions
Acquisitions and improvements...... 9,714 9,900 18,595
Foreclosures....................... - 5,645 -

Deductions
Sales of real estate............... (10,378) (7,839) (26,308)
--------- ---------- --------

Balance at December 31,.............. $ 58,517 $ 59,181 $ 51,475
========= ========== ========

Reconciliation of Accumulated Depreciation

Balance at January 1,................ $ 6,744 $ 6,158 $ 6,534

Additions
Depreciation....................... 1,026 657 640

Deductions
Sales of real estate............... (951) (71) (1,016)
--------- ---------- --------

Balance at December 31,.............. $ 6,819 $ 6,744 $ 6,158
========= ========== ========

82
83
SCHEDULE IV

AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994

Periodic
Interest Maturity Payment Prior
Description Rate (1) Date (1) Terms Liens
-------------------- ---------- -------- ----------------------- ---------

FIRST MORTGAGE LOANS
--------------------

Hall Land........................ 10.00% 08/94 Principal and interest due $ -
Secured by 4.2 acres residential at maturity.
land in Maricopa County, Arizona.

Osceola Land..................... 12.00% 11/93 Principal and interest due -
Secured by unimproved land in monthly.
Osceola County, Florida.

Webster & Banc Boston............. Various Various Principal and interest due -
Secured by condominiums in Ft. monthly.
Lauderdale, Florida.

J. W. Sherman..................... 7.00% 08/98 Principal and interest -
Secured by 1 co-op apartment in payments due monthly.
Brooklyn, NY.

Nak Chung Building................ 8.00% 04/99 Interest due monthly. -
Secured by restaurant in Principal to be paid down
California. to $50,000 by May 1, 1997,
balance due at maturity.

WRAPAROUND MORTGAGE LOANS

Las Vegas Plaza(3)............... 9.74% 12/97 Principal and interest due 9,298
Secured by 93,320 square foot monthly of $170,360 based on 25
retail shopping center in Las year amortization.

Continental Hotel................ 11.00% 06/95 Principal and interest of 5,346
Secured by hotel and casino in $175,000 due monthly.
Las Vegas, Nevada.

JUNIOR MORTGAGE LOANS

Williamsburg Hospitality
House(4)......................... 9.75% 06/95 Pay greater of available 17,077
Secured by 297 room hotel in cash or 6% from 2/1/94 to
Williamsburg, Virginia. 7/1/94. Thereafter, pay
greater of available cash
or 8%.

NO. SO. II...................... 12.00% 09/95 Interest due monthly, with 1,317
Secured by shopping center in principal reductions of
Columbia, South Carolina. $25,000 due quarterly.
Principal balance due at
maturity.

Principal Amount of
Face Carrying Loan Subject to
Amount of Amount of Delinquent Principal
Description Mortgages Mortgages (2) or Interest
-------------------- --------- ------------- --------------------
(dollars in thousands)

FIRST MORTGAGE LOANS

Hall Land........................ $ 100 $ 112 $ 112
Secured by 4.2 acres residential
land in Maricopa County, Arizona.

Osceola Land..................... 1,960 1,592 1,592
Secured by unimproved land in
Osceola County, Florida.

Webster & Banc Boston............. 158 151 -
Secured by condominiums in Ft.
Lauderdale, Florida.

J. W. Sherman..................... 32 32 -
Secured by 1 co-op apartment in
Brooklyn, NY.

Nak Chung Building................ 100 100 -
Secured by restaurant in
California.

WRAPAROUND MORTGAGE LOANS

Las Vegas Plaza(3)............... 17,600 17,139 -
Secured by 93,320 square foot
retail shopping center in Las

Continental Hotel................ 22,000 22,713 -
Secured by hotel and casino in
Las Vegas, Nevada.

JUNIOR MORTGAGE LOANS

Williamsburg Hospitality
House(4)......................... 6,477 6,127 -
Secured by 297 room hotel in
Williamsburg, Virginia.

NO. SO. II...................... 852 422 422
Secured by shopping center in
Columbia, South Carolina.

83
84
SCHEDULE IV
(Continued)

AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994

Periodic
Interest Maturity Payment Prior
Description Rate (1) Date (1) Terms Liens
-------------------- ---------- -------- ----------------------- ---------

JUNIOR MORTGAGE LOANS - Continued

Hall Land.................... 10.00% 08/94 Principal and interest $ 112
Secured by 4.2 acres of due at maturity.
residential land in Maricopa
County, Arizona.

OTHER

MS Holding................... Prime +3% 09/95 Principal and interest 5,727
Secured by loans secured by of $40,000 due monthly.
personal and real property.

Tiberon Trails(5)............ Greater of 11/96 Interest only monthly. 7,014
Secured by assignment of 99% Prime +2.5% Principal at maturity.
limited partner interest in a or 10.00%
375 unit apartment complex in
Merrillville, Indiana.

Mediterranean Villas(5)...... 09/04
Secured by second and third 09/04
liens on an apartment complex
in San Antonio, TX.
--------
$ 45,891
========

Interest receivable

Deferred gains

Discounts

Allowance for estimated losses

JUNIOR MORTGAGE LOANS - Continued

Hall Land.................... $ 71 $ 80 $ 80
Secured by 4.2 acres of
residential land in Maricopa
County, Arizona.

OTHER

MS Holding................... 3,100 779 -
Secured by loans secured by
personal and real property.

Tiberon Trails(5)............ 4,000 3,503 -
Secured by assignment of 99%
limited partner interest in a
375 unit apartment complex in
Merrillville, Indiana.

Mediterranean Villas(5)...... 1,000 1,000 -
Secured by second and third 300 300 -
liens on an apartment complex
in San Antonio, TX.
---------- --------- ----------
$ 57,750 54,050 $ 2,207
========== ==========

Interest receivable 286

Deferred gains (4,617)

Discounts (26)

Allowance for estimated losses (4,029)
---------

$ 45,664
=========

------------------------------

(1) Interest rates and maturity dates shown are as stipulated in the loan
documents at December 31, 1994. Where applicable, these rates have
been adjusted at issuance to yield between 8% and 12%.
(2) The aggregate cost for federal income tax purposes is $55,352.
(3) Note is pledged as additional collateral for a note payable with a
principal balance of $990,000.
(4) Mortgage note is receivable from a related party.
(5) Mortgage note is receivable from a partnership in which the Company is
a 27% limited partner.

84
85
SCHEDULE IV
(Continued)

AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE

1994 1993 1992
----------- ------------ ----------
(dollars in thousands)

Balance at January 1,................ $ 56,018 $ 75,402 $ 65,470

Additions
New mortgage loans................. 1,400 32 31,009
Compounding of interest............ - 369 801
Funding on existing loans.......... 600 609 -
Restructures....................... - - (156)

Deductions
Collections of principal........... (2,446) (1,332) (4,848)
Settlement of term loan obligation
in exchange for receivable
participation.................... - (9,940) -
Write-off of principal............. (1,522) (679) (2,346)
Loans sold net of loan loss
provision......................... - - (7,740)
Foreclosures....................... - (8,443) (6,788)
----------- ------------ ----------

Balance at December 31,.............. $ 54,050 $ 56,018 $ 75,402
=========== ============ ==========

85
86

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable.

______________________________________

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT

Directors

The affairs of American Realty Trust, Inc. (the "Company" or the "Registrant")
are managed by a five-member Board of Directors. The Company's By-laws provide
for three classes of Directors to serve for staggered three-year terms. The
Directors are elected at the annual meeting of stockholders or are appointed by
the Company's incumbent Board of Directors and serve until their respective
terms expire or until a successor has been elected or appointed.

The Directors of the Company are listed below, together with their ages, terms
of service, all positions and offices with the Company or its advisor, Basic
Capital Management, Inc. ("BCM" or the "Advisor"), their principal occupations,
business experience and directorships with other companies during the last five
years or more. The designation "Affiliate" when used below with respect to a
Director means that the Director is an officer, director or employee of the
Advisor or an officer or employee of the Company. The designation
"Independent", when used below with respect to a Director, means that the
Director is neither an officer or employee of the Company nor a director,
officer or employee of the Advisor, although the Company may have certain
business or professional relationships with such Director, as discussed in ITEM
13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Certain Business
Relationships."

OSCAR W. CASHWELL: Age 67, Director (Class I) (Affiliated) (since November
1992).

President (since February 1994) of Continental Mortgage and Equity Trust
("CMET"), Income Opportunity Realty Trust ("IORT") and Transcontinental
Realty Investors, Inc. ("TCI"); President and Director of Property and
Asset Management (since January 1994) and Assistant to the President, Real
Estate Operations (July 1989 to December 1993) of BCM; President (since
February 1994) and Director (since March 1994) of Syntek Asset Management,
Inc. ("SAMI"), the managing general partner of Syntek Asset Management,
L.P. ("SAMLP"), which is the general partner of National Realty, L.P.
("NRLP") and National Operating, L.P. ("NOLP"), and a company owned by
BCM; and Assistant to the President, Real Estate Operations (March 1982 to
June 1989) of Southmark Corporation ("Southmark").

86
87
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Directors (Continued)

DALE A. CRENWELGE: Age 36, Director (Class III) (Independent) (since December
1994).

President (since 1989) of Longhorn Consultants Commercial Real Estate
Group, Inc. and Crenwelge Commercial Consultants, Inc. real estate
marketing and management firms; and Assistant to the President (1985 to
1989) of Thompson Properties, a commercial real estate development,
brokerage, management and investment company.

AL GONZALEZ: Age 58, Director (Class II) (Independent) (since 1989).

President (since March 1991) of AGE Refining, Inc., a petroleum refining
and marketing firm; President (January 1988 to March 1991) of Moody-Day
Inc., which sells and leases construction equipment and supplies; owner
and President of Gulf-Tex Construction Company ("Gulf-Tex"); owner and
lessor of two restaurant sites in Dallas, Texas; Director (since April
1990) of Avacelle, Inc. ("Avacelle"); Director (1988 to 1992) of Medical
Resource Companies of America; and member (1987 to 1989) of the Dallas
City Council.

On January 20, 1989, Gulf-Tex filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code which proceeding was dismissed on July 25,
1989 upon the motion of Gulf-Tex. On March 18, 1992, Avacelle filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code and an
Order confirming its plan of Reorganization was entered October 18, 1993 by the
United States Bankruptcy Court, Northern Division of Oklahoma.

RYAN T. PHILLIPS: Age 25, Director (Class III) (Affiliated) (since 1992).

President (since July 1994) of Signature Asset Management, Inc., a real
estate investment company in Dallas, Texas; Real Estate Investor (since
January 1992); Real Estate Analyst (1991 to 1993) with Kelley, Lundeen &
Crawford in Dallas, Texas; graduate of Southern Methodist University
School of Business (May 1991); and Trustee of a trust for the benefit of
the children of Gene E. Phillips. Such trust is the 100% beneficial owner
of BCM, the advisor to the Company. Ryan T. Phillips is the son of Gene
E. Phillips, and has served as a Director of BCM since February 1991.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

87
88
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Directors (Continued)

G. WAYNE WATTS: Age 52, Director (Class II) (Independent) (since 1984).

President (since December 1993) of Palmetto Industries, Inc., manufacturer
of industrial products; Director (since 1988) of International Operations
of Harkness International; Director (since 1987) of Southmark California;
Marketing Manager (1985 to 1988) of Steel Heddle Manufacturing Company, a
manufacturer and major supplier of textile machinery and industrial
replacement parts; Director (1983 to 1989) of Syntek Finance Corporation
("SFC"); Vice President of Sales and owner (1989 to March 1994) of
Fountain Industries, a manufacturer of automotive parts and assemblies and
metal stampings; and Director (since January 1994) of Avacelle.

On November 1, 1993, Fountain Industries filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code. In January 1994, the Chapter
11 proceedings were converted to Chapter 7 liquidation proceedings.
Liquidation was completed in 1994.

Litigation and Claims Involving Mr. Phillips

Gene E. Phillips, served as Chairman of the Board and a Director of the Company
until November 16, 1992, and as a director until December 22, 1992 and Chief
Executive Officer until September 1, 1992 of BCM. Although Mr. Phillips no
longer serves as an officer or director of BCM or as a Director of the Company,
he does serve as a representative of the trust established for the benefit of
his children which owns BCM and, in such capacity, has substantial contact with
the management of BCM and input with respect to its performance of advisory
services for the Company.

Southmark Bankruptcy. Until January 1989, Mr. Phillips served as Chairman of
the Board and Director (since 1980) and President and Chief Executive Officer
(since 1981) of Southmark. As a result of a deadlock on Southmark's Board of
Directors, Mr. Phillips, among others, reached an agreement with Southmark on
January 17, 1989, whereby Mr. Phillips resigned his positions with Southmark
and certain of Southmark's subsidiaries and affiliates. Southmark filed a
voluntary petition in bankruptcy under Chapter 11 of the United States
Bankruptcy Code on July 14, 1989.

Litigation Relating to Southmark Bankruptcy. During 1990 and 1991, several
adversary proceedings were initiated against the Company and others by
Southmark and its affiliates. On December 27, 1991, an agreement to settle all
claims in connection with the Southmark adversary proceedings was executed by
Southmark and the Company. The settlement covers all claims between Southmark
and its affiliates and Messrs. Phillips and William S. Friedman, the President
and Director of the Company until December 31, 1992, and director of BCM until
December 22, 1989 and President of BCM until May 1, 1993, Syntek West, Inc.
("SWI"), NRLP, CMET, IORT, National Income Realty Trust ("NIRT"), TCI,

88
89
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Litigation and Claims Involving Mr. Phillips (Continued)

Vinland Property Trust ("VPT") and the Company. The final settlement of such
litigation concludes all suits in which the Company was a defendant. Pursuant
to the settlement agreement, Southmark received $13.2 million from the various
settling defendants. The final installment of $1.3 million was paid in July
1994.

The Company paid Southmark a total of $1.4 million of which $435,000 was paid
in July 1994. In addition, on February 25, 1992, the Company assigned
Southmark a 19.2% limited partnership interest in SAMLP, the general partner of
NRLP and NOLP. The Company had an option which expired on December 27, 1994,
to reacquire Southmark's 19.2% interest in SAMLP for $2.4 million, less any
distributions received by Southmark. The Company received from Southmark,
Southmark's interest in Novus Nevada, Inc., land and a ground lease in Denver,
Colorado, land in Forest Park, Georgia, a mortgage note secured by land in
Tabonia, Utah and a participation in a mortgage note secured by a retail
property in Forest Park, Georgia. The assets that the Company received had an
aggregate value at least equal to the consideration the Company paid to
Southmark.

On February 25, 1992, the Company entered into an agreement with Messrs.
Phillips and Friedman, SWI, and the Trusts relating to their settlement of
litigation with Southmark. Pursuant to the agreement, TCI obtained the right to
acquire four apartment complexes, five mortgage notes, two operating commercial
properties and four parcels of developed land from Southmark and its
affiliates.

San Jacinto Savings Association. On November 30, 1990, San Jacinto Savings
Association ("SJSA"), a savings institution that had been owned by Southmark
since 1983 and for which Mr. Phillips served as a director from 1987 to January
1989, was placed under conservatorship of the Resolution Trust Corporation
("RTC") by federal banking authorities. On December 14, 1990, SJSA was
converted into a Federal Association and placed in receivership. On November
26, 1993, the RTC filed lawsuits in

89
90
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Litigation and Claims Involving Mr. Phillips (Continued)

Dallas and New York City against Mr. Phillips, six former directors, auditors
and lawyers of SJSA, alleging that the auditors and former directors could and
should have stopped SJSA's poor lending practice during the period it was owned
by Southmark and that the former directors abdicated their responsibility for
reviewing loans during the same period. The Office of Thrift Supervision
("OTS") also conducted a formal examination of SJSA and its affiliates.

On November 26, 1994, Mr. Phillips entered into an agreement with the RTC and
OTS settling all claims relating to his involvement with SJSA.

Litigation Against Southmark and its Affiliates Alleging Fraud or
Mismanagement. There were several lawsuits filed against Southmark, its former
officers and directors (including Mr. Phillips) and others, alleging, among
other things, that such persons and entities engaged in conduct designed to
defraud and mislead the investing public by intentionally misrepresenting the
financial condition of Southmark. All such lawsuits have been settled or
dismissed without any findings or admissions of wrongdoing by Mr. Phillips.
THE COMPANY WAS NOT A DEFENDANT IN ANY OF THESE LAWSUITS.

Litigation Relating to Lincoln Savings and Loan Association, F.A. In an action
filed in the United States District Court for the District of Arizona on behalf
of Lincoln Savings and Loan Association, F.A. ("Lincoln"), and captioned RTC v.
Charles H. Keating, Jr., et al., the RTC alleged that Charles H. Keating, Jr.
and other persons, including Mr. Phillips, fraudulently diverted funds from
Lincoln.

The RTC alleged that Mr. Phillips aided and abetted the insider defendants in a
scheme to defraud Lincoln and its regulators; that Southmark, its subsidiaries
and affiliates, including SJSA, facilitated and concealed the use of Lincoln
funds to finance the sale, at inflated prices, of assets of Lincoln's parent,
American Continental Corp. ("ACC"), in return for loans from Lincoln and
participations in contrived transactions; and that the insider defendants
caused Southmark to purchase ACC assets at inflated prices. The RTC alleged
that Lincoln and/or ACC engaged in three illegal transactions with Southmark or
its affiliates while Mr. Phillips was affiliated with Southmark. Southmark was
not a defendant in this action.

The RTC alleged nine separate causes of action against Mr. Phillips, including
aiding and abetting the violation of, and conspiracy to violate, federal and
state Racketeer Influenced and Corrupt Organization Act ("RICO") statutes,
violations of Arizona felony statutes, common law fraud, civil conspiracy and
breach of fiduciary duty. The RTC sought to recover from the defendants more
than $1 billion, as well as treble damages under the federal RICO statute,
punitive damages of at least $100 million and attorneys' fees and costs.

On November 21, 1994, Mr. Phillips entered into an agreement with the RTC
settling claims relating to his involvement with Lincoln.

90
91
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Litigation and Claims Involving Mr. Phillips (Continued)

Southmark Partnership Litigation. One of Southmark's principal businesses was
real estate syndication and from 1981 to 1987 Southmark raised over $500
million in investments from limited partners of several hundred partnerships.
The following two lawsuits relate to and involve such activities.

In an action filed in May 1992 in a Texas state court captioned HCW Pension
Real Estate Fund, et al. v. Phillips et al., the plaintiffs, fifteen former
Southmark related public limited partnerships, alleged that the defendants
violated the partnership agreements by charging certain administrative costs
and expenses to the plaintiffs. The complaint alleged claims for breach of
fiduciary duty, fraud and conspiracy to commit to fraud and sought to recover
actual damages of approximately $12.6 million plus punitive damages and
attorneys' fees and costs. The defendants included, among others, Mr.
Phillips. In October 1993, the court granted partial summary judgment in favor
of Mr. Phillips on the plaintiffs' breach of fiduciary duty claims. Notice of
non-suit in favor of Mr. Phillips was entered on March 9, 1994.

In an action filed in January 1993 in a Michigan state court captioned Van
Buren Associates Limited Partnership, et al. v. Friedman, et al., the
plaintiff, a former Southmark sponsored limited partnership, alleged a claim
for breach of fiduciary duty in connection with the 1988 transfer of certain
property by the partnership. The plaintiff sought damages in an unspecified
amount, plus costs and attorneys' fees. The plaintiff also sought quiet title
to the property at issue. The defendants included, among others, Mr. Phillips.
The lawsuit was settled in November 1994.

Board Meetings and Committees

The Company's Board of Directors held three meetings during 1994. For such
year, no incumbent Director attended fewer than 75% of (i) the total number of
meetings held by the Board of Directors during the period for which he had been
a Director and (ii) the total number of meetings held by all committees of the
Board of Directors on which he served during the periods that he served,
except that Mr. Gonzalez attended only one of the Board meetings held in 1994.

The Company's Board of Directors has an Audit Committee the function of which
is to review the Company's operating and accounting procedures. The members of
the Audit Committee are Messrs. Watts (Chairman) and Gonzalez. The Audit
Committee met twice during 1994.

The Company's Board of Directors has a Stock Option Committee to administer its
1987 Stock Option Plan. The function of the Stock Option Committee is, among
other things, to determine which persons will be granted options, the number of
shares to be covered by the options and

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Board Meetings and Committees (Continued)

the exercise period of the options within the terms of the 1987 Stock Option
Plan. The members of the Stock Option Committee are Messrs. Watts and
Gonzalez. The Stock Option Committee did not meet in 1994.

The Company's Board of Directors does not have nominating or compensation
committees.

Executive Officers

The following persons currently serve as executive officers of the Company:
Karl L. Blaha, President; Bruce A. Endendyk, Executive Vice President; Randall
M. Paulson, Executive Vice President; and Hamilton P. Schrauff, Executive Vice
President and Chief Financial Officer. Their positions with the Company are
not subject to a vote of the Company's stockholders. The age, terms of
service, all positions and offices with the Company or BCM, other principal
occupations, business experience and directorships with other companies during
the last five years or more is set forth below.

KARL L. BLAHA: Age 46, President (since October 1993) and formerly Executive
Vice President and Director of Commercial Management (April 1992 to September
1993).

Executive Vice President and Director of Commercial Management (since
April 1992) of BCM, SAMI, CMET, IORT and TCI; Executive Vice President
(since October 1992) of Carmel Realty, Inc. ("Carmel Realty"), a company
owned by SWI; Executive Vice President and Director of Commercial
Management (April 1992 to February 1994) of NIRT and VPT; Partner -
Director of National Real Estate Operations of First Winthrop Corporation
(August 1988 to March 1992); Corporate Vice President of Southmark (April
1984 to August 1988); and President of Southmark Commercial Management
(March 1986 to August 1988).

BRUCE A. ENDENDYK: Age 46, Executive Vice President (since January 1995).

President (since January 1995) of Carmel Realty; Executive Vice President
(since January 1995) of BCM, SAMI, CMET, IORT and TCI; Management
Consultant (November 1990 to December 1994); Executive Vice President
(January 1989 to November 1990) of Southmark; President and Chief
Executive Officer (March 1988 to January 1989) of Southmark Equities
Corporation; and Vice President/Resident Manager (December 1975 to March
1988) of Coldwell Banker Commercial/Real Estate Services in Houston,
Texas.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Executive Officers (Continued)

RANDALL M. PAULSON: Age 48, Executive Vice President (since January 1995).

Executive Vice President (since January 1995) of SAMI, CMET, IORT and TCI
and (since October 1994) of BCM; Vice President (1993 to 1994) of GSSW,
LP, a joint venture of Great Southern Life and Southwestern Life; Vice
President (1990 to 1993) of Property Company of America Realty, Inc.;
President (1990) of Paulson Realty Group; President (1983 to 1989) of
Johnstown Management Company; and Vice President (1979 to 1982) of Lexton-
Ancira.

HAMILTON P. SCHRAUFF: Age 59, Executive Vice President and Chief Financial
Officer (since October 1991).

Executive Vice President and Chief Financial Officer (since October 1991)
of BCM, SAMI, CMET, IORT and TCI; Executive Vice President and Chief
Financial Officer (October 1991 to February 1994) of NIRT and VPT;
Executive Vice President - Finance of Partnership Investments, Hallwood
Group (December 1990 to October 1991); Vice President - Finance and
Treasurer (October 1980 to October 1990) and Vice President - Finance
(November 1976 to September 1980) of Texas Oil & Gas Corporation; and
Assistant Treasurer - Finance Manager (February 1975 to October 1976) of
Exxon U.S.A.

Officers

Although not executive officers of the Company, the following persons currently
serve as officers of the Company: Thomas A. Holland, Senior Vice President and
Chief Accounting Officer; Robert A. Waldman, Senior Vice President, Secretary
and General Counsel; and Drew D. Potera, Treasurer. Their positions with the
Company are not subject to a vote of the Company's stockholders. Their ages,
terms of service, all positions and offices with the Company or BCM, other
principal occupations, business experience and directorships with other
companies during the last five years or more are set forth below.

THOMAS A. HOLLAND: Age 52, Senior Vice President and Chief Accounting Officer
(since July 1990).

Senior Vice President and Chief Accounting Officer (since July 1990) of
BCM, SAMI, CMET, IORT and TCI; Senior Vice President and Chief Accounting
Officer (July 1990 to February 1994) of NIRT and VPT; Vice President and
Controller (December 1986 to June 1990) of Southmark; Vice
President-Finance (January 1986 to December 1986) of Diamond Shamrock
Chemical Company; Assistant Controller (May 1976 to January 1986) of Maxus
Energy Corporation (formerly Diamond Shamrock Corporation); Trustee
(August 1989 to June 1990) of Arlington Realty Investors; and Certified
Public Accountant (since 1970).

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

Officers (Continued)

ROBERT A. WALDMAN: Age 42, Senior Vice President and General Counsel (since
January 1995), Vice President (January 1993 to January 1995 and Secretary
(since December 1989).

Senior Vice President and General Counsel (since January 1995); Vice
President (December 1990 to January 1995) and Secretary (since December
1993) of CMET, IORT and TCI; Vice President (December 1990 to February
1994) and Secretary (December 1993 to February 1994) of NIRT and VPT;
Senior Vice President and General Counsel (since November 1994); Vice
President and Corporate Counsel (November 1989 to November 1994) and
Secretary (since November 1989) of BCM; Senior Vice President and General
Counsel (since January 1995), Vice President (April 1990 to January 1995)
and Secretary (since December 1990) of SAMI; Director (February 1987 to
October 1989) and General Counsel and Secretary (1985 to October 1989) of
Red Eagle Resources Corporation (oil and gas); Assistant General Counsel,
Senior Staff Attorney and Staff Attorney (1981 to 1985) of Texas
International Company (oil and gas) and Staff Attorney (1979 to 1981) of
Iowa Beef Processors, Inc.

DREW D. POTERA: Age 35, Treasurer (since August 1991) and Assistant Treasurer
(December 1990 to August 1991).

Treasurer (since December 1990) of CMET, IORT and TCI; Treasurer (December
1990 to February 1994) of NIRT and VPT; Vice President, Treasurer and
Securities Manager (since July 1990) of BCM; Vice President and Treasurer
(since February 1992) of SAMI; and Financial Consultant with Merrill
Lynch, Pierce, Fenner & Smith, Incorporated (June 1985 to June 1990).

In addition to the foregoing officers, the Company has several vice presidents
and assistant secretaries who are not listed herein.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's shares of Common Stock are required to report their ownership of the
Company's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to report any failure to file
by these dates during 1994. All of these filing requirements were satisfied by
the Company's Directors and executive officers and ten percent holders. In
making these statements, the Company has relied on the written representations
of its incumbent Directors and executive officers and its ten percent holders
and copies of the reports that they have filed with the Commission.

94
95
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

The Advisor

Although the Company's Board of Directors is directly responsible for managing
the affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by BCM, a contractual
advisor under the supervision of the Company's Board of Directors. The duties
of the advisor include, among other things, investigating, evaluating and
recommending real estate and mortgage loan investment and sales opportunities
as well as financing and refinancing sources for the Company. The advisor also
serves as consultant in connection with the Company's business plan and
investment policy decisions made by the Company's Board of Directors.

BCM has served as advisor to the Company since February 1989. BCM is a
company owned by a trust for the benefit of the children of Mr. Phillips, who
served as Chairman of the Board and a Director of the Company until November
16, 1992. Ryan T. Phillips, the son of Mr. Phillips and a Director of the
Company, is also a director of BCM and a trustee of the trust for the benefit
of the children of Mr. Phillips which owns BCM. Mr. Cashwell, a Director of the
Company, serves as President of BCM. Mr. Phillips served as a director of BCM
until December 22, 1989 and as Chief Executive Officer of BCM until September
1, 1992. Mr. Phillips serves as a representative of the trust for the benefit
of his children which owns BCM and, in such capacity, has substantial contact
with the management of BCM and input with respect to BCM's performance of
advisory services to the Company. As of March 17, 1995, BCM owned 1,200,051
shares of the Company's Common Stock, approximately 41% of the shares then
outstanding.

The Advisory Agreement provides for the advisor to receive monthly base
compensation at the rate of 0.125% per month (1.5% on an annualized basis) of
Average Invested Assets. On October 23, 1991, based on the recommendation of
BCM, the Company's advisor, the Company's Board of Directors approved a
reduction in the advisor's base fee by 50% effective October 1, 1991. This
reduction remains in effect until the Company's earnings for the four preceding
quarters equals or exceeds $2.00 per share.

In addition to base compensation, BCM, or an affiliate of BCM, receives the
following forms of additional compensation:

(a) an acquisition fee for locating, leasing or purchasing real estate for the
Company in an amount equal to the lesser of (i) the amount of compensation
customarily charged in similar arm's-length transactions or (ii) up to 6%
of the costs of acquisition, inclusive of commissions, if any, paid to
non-affiliated brokers;

(b) a disposition fee for the sale of each equity investment in real estate in
an amount equal to the lesser of (i) the amount of compensation
customarily charged in similar arm's-length transactions or (ii) 3% of the
sales price of each property, exclusive of fees, if any, paid to
non-affiliated brokers;

95
96
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

The Advisor (Continued)

(c) a loan arrangement fee in an amount equal to 1% of the principal amount of
any loan made to the Company arranged by BCM;

(d) an incentive fee equal to 10% of net income for the year in excess of a
10% return on stockholders' equity, and 10% of the excess of net capital
gains over net capital losses, if any, realized from sales of assets made
under contracts entered into after April 15, 1989; and

(e) a mortgage placement fee, on mortgage loans originated or purchased, equal
to 50%, measured on a cumulative basis, of the total amount of mortgage
origination and placement fees on mortgage loans advanced by the Company
for the fiscal year.

Pursuant to the Advisory Agreement, BCM is the loan administration/ servicing
agent for the Company, under an agreement dated as of October 4, 1989, and
terminable by either party upon thirty days' notice, under which BCM services
most of the Company's mortgage notes and receives as compensation a monthly fee
of 0.125% of the month-end outstanding principal balances of the mortgage loans
serviced.

Situations may develop in which the interests of the Company are in conflict
with those of one or more Directors or officers in their individual capacities
or of BCM, or of their respective affiliates. In addition to services
performed for the Company, as described above, BCM actively provides similar
services as agent for, and advisor to, other real estate enterprises, including
persons and entities involved in real

96
97
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

The Advisor (Continued)

estate development and financing, including CMET, IORT and TCI. BCM also
performs certain administrative services for NRLP and NOLP, the operating
partnership of NRLP, on behalf of NRLP's and NOLP's general partner, SAMLP.
The Advisory Agreement provides that BCM may also serve as advisor to other
entities. As advisor, BCM is a fiduciary of the Company's public investors.
In determining to which entity a particular investment opportunity will be
allocated, BCM will consider the respective investment objectives of each
entity and the appropriateness of a particular investment in light of each such
entity's existing mortgage note and real estate portfolios and which entity has
had uninvested funds for the longest period of time. To the extent any
particular investment opportunity is appropriate to more than one such entity,
such investment opportunity will be allocated to the entity that has had
uninvested funds for the longest period of time, or, if appropriate, the
investment may be shared among various entities. See ITEM 13. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Certain Business Relationships."

The directors and principal officers of BCM are set forth below:

RYAN T. PHILLIPS: Director

OSCAR W. CASHWELL: President and Director of Property and Asset
Management

KARL L. BLAHA: Executive Vice President and Director of
Commercial Management

BRUCE A. ENDENDYK: Executive Vice President

RANDALL M. PAULSON: Executive Vice President

HAMILTON P. SCHRAUFF: Executive Vice President and Chief Financial
Officer

CLIFFORD C. TOWNS, JR.: Executive Vice President, Finance

STEPHEN R. YOUNG: Executive Vice President and Director of
Acquisitions

THOMAS A. HOLLAND: Senior Vice President and Chief Accounting
Officer

ROBERT A. WALDMAN: Senior Vice President, Secretary and General
Counsel

DREW D. POTERA: Vice President, Treasurer and Securities
Manager

Ryan T. Phillips is the son of Gene E. Phillips. Gene E. Phillips serves as a
representative of the trust established for the benefit of

97
98
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)

The Advisor (Continued)

his children which owns BCM and, in such capacity, has substantial contact with
the management of BCM and input with respect to its performance of advisory
services to the Company.

Property Management

Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services for a fee of 5% or less of
the monthly gross rents collected on the properties under management. Carmel,
Ltd. subcontracts with other entities for the provision of the property-level
management services to the Company at various rates. The general partner of
Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) SWI, of
which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a
trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management of the Company's shopping center to
Carmel Realty, which is company owned by SWI. Carmel Realty is entitled to
receive property and construction management fees and leasing commissions in
accordance with terms of its property-level management agreement with Carmel,
Ltd.

Real Estate Brokerage

Affiliates of BCM provide real estate brokerage services to the Company and
receive brokerage commissions in accordance with the Advisory Agreement.

ITEM 11. EXECUTIVE COMPENSATION

The Company has no employees, payroll or benefit plans and pays no compensation
to the executive officers of the Company. The Directors and executive officers
of the Company who are also officers or employees of the Company's Advisor are
compensated by the Advisor. Such affiliated Directors and executive officers
of the Company perform a variety of services for the Advisor and the amount of
their compensation is determined solely by the Advisor. BCM does not allocate
the cash compensation of its officers among the various entities for which it
serves as advisor. See ITEM 10. "DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF
THE REGISTRANT - The Advisor" for a more detailed discussion of compensation
payable to BCM by the Company.

The only direct remuneration paid by the Company is to those Directors who are
not officers or employees of BCM or its affiliated companies. The Company
compensates such Independent Directors at a rate of $5,000 per year, plus $500
per meeting attended and $300 per Audit Committee meeting attended. During
1994, $24,150 was paid to Independent Directors in total Directors' fees for
all meetings as follows: Al Gonzalez, $6,100; Tilmon Kreiling, Jr., $5,250;
Ryan T. Phillips, $6,500; and G. Wayne Watts, $6,300.

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99
ITEM 11. EXECUTIVE COMPENSATION (Continued)

In July 1987, the Company's Board of Directors, including all of the
Independent Directors, approved the Company's 1987 Stock Option Plan (the
"Plan"). The Plan was approved by the Company's Stockholders at the Company's
annual meeting of stockholders held on June 8, 1988. The Plan was intended
principally as an incentive for, and as a means of encouraging ownership of the
Company's Common Stock by, eligible persons, including certain Directors and
officers of the Company. Options may be granted either as incentive stock
options (which qualify for certain favorable tax treatment), or as
non-qualified stock options. Incentive stock options can not be granted to,
among others, persons who are not employees of the Company, or to persons who
fail to satisfy certain criteria concerning ownership of less than 10% of the
Company's shares of Common Stock. The Plan is administered by the Stock Option
Committee, which currently consists of two Independent Directors of the
Company. The exercise price per share of an option can not be less than 100%
of the fair market value per share on the date of grant. The Company receives
no consideration for the grant of an option. As of March 17, 1995, there were
no stock options outstanding under the Plan.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

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100
ITEM 11. EXECUTIVE COMPENSATION (Continued)

Performance Graph

The following graph compares the cumulative total stockholder return on the
Company's shares of Common Stock with the Dow Jones Equity Market Index ("DJ
Equity Index") and the Dow Jones Real Estate Investment Index ("DJ Real Estate
Index"). The comparison assumes that $100 was invested on December 31, 1989 in
shares of the Company's Common Stock and in each of the indices and further
assumes the reinvestment of all dividends. Past performance is not necessarily
an indicator of future performance.

[GRAPH]

1989 1990 1991 1992 1993 1994
THE COMPANY 100 32 30 36 70 75

DJ EQUITY INDEX 100 96 127 138 152 153

DJ REAL ESTATE INDEX 100 66 74 67 78 74

100
101
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's Common Stock both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be the owner of more than 5% of the shares of the
Company's Common Stock as of the close of business on March 17, 1995.

Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership Class (1)
------------------------------------ ---------------------- ----------

Basic Capital Management, Inc. 1,200,051 41.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Davister Corp./Nanook Partners, L.P. 417,359 14.2%
10670 N. Central Expressway
Suite 640
Dallas, TX 75231

Rosedale Equities, Inc. 381,176 13.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Continental Mortgage and Equity
Trust 204,522 7.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Oscar W. Cashwell 1,453,506(2)(3) 49.6%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Ryan T. Phillips 1,224,634(3)(4) 41.8%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231

_________________________

(1) Percentages are based upon 2,929,164 shares outstanding as of March 17,
1995.

(2) Includes 204,522 shares owned by CMET over which Oscar W. Cashwell may be
deemed to be beneficial owner by virtue of his position as President of
CMET. Also includes 48,933 shares owned by NRLP over which Mr. Cashwell
may be deemed to be beneficial owner by virtue of his positions as
President and director of SAMI, the managing general partner of SAMLP, the
general partner of NRLP. Mr. Cashwell disclaims beneficial ownership of
such shares.

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102
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)

(3) Includes 1,200,051 shares owned by BCM over which Mr. Cashwell and Ryan T.
Phillips may be deemed to be the beneficial owners by virtue of their
positions as President and director, respectively, of BCM. Messrs.
Cashwell and Phillips disclaim beneficial ownership of such shares.

(4) Includes 24,583 shares owned by the Gene E. Phillips Children's Trust of
which Ryan T. Phillips is a trustee and beneficiary.

Security Ownership of Management. The following table sets forth the ownership
of shares of the Company's Common Stock, both beneficially and of record, both
individually in the aggregate, for the Directors and executive officers of the
Company, as of the close of business on March 17, 1995.

Number of
Shares Beneficially Percent of
Name of Beneficial Owner Owned Class (1)
------------------------ -------------------------------- ----------

All Directors and 1,834,682(2)(3) 62.6%
Executive Officers as a (4)
group (nine individuals)

___________________________
(1) Percentage is based upon 2,929,164 shares outstanding as of March 17,
1995.

(2) Includes 1,200,051 shares owned by BCM over which Ryan T. Phillips and
Oscar W. Cashwell may be deemed to be beneficial owners by virtue of their
positions as a director and President, respectively, of BCM. Also
includes 48,933 shares owned by NRLP over which Mr. Cashwell may be deemed
to be beneficial owner by virtue of his position as President and director
of SAMI, the managing general partner of SAMLP, the general partner of
NRLP and 204,522 shares owned by CMET over which Mr. Cashwell may be
deemed to be beneficial owner by virtue of his position as President of
CMET.

(3) Includes 24,583 shares owned by the Gene E. Phillips Children's Trust of
which Ryan T. Phillips is a beneficiary.

(4) Includes 381,176 shares issued to Rosedale Equities, Inc., a wholly-owned
subsidiary of the Company. Such shares are pledged as additional
collateral for a loan secured by the Rosedale Towers Office Building.

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103
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Policies with Respect to Certain Activities

The By-laws of the Company as amended, provide, in accordance with Georgia law,
that no contract or transaction between the Company and one or more of its
Directors or officers, or between the Company and any other corporation,
partnership, association or other organization in which one or more of its
Directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for that reason, or solely because the
Director or officer is present at or participates in the meeting of the
Company's Board of Directors or committee thereof which authorizes the contract
or transaction, or solely because his or her votes are counted for such
purpose, if one or more of the following three conditions are met: (i) the
material facts as to his or her interest and as to the contract or transaction
are disclosed or are known to the Company's Board of Directors or the
committee, and Board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors constitute less than a
quorum; (ii) the material facts as to his or her interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved or
ratified in good faith by vote of such stockholders; or (iii) the contract or
transaction is fair to the Company as of the time it is authorized, approved or
ratified by the Company's Board of Directors, a committee thereof, or the
stockholders.

The Company's policy is to have such contracts or transactions approved or
ratified by a majority of the disinterested Directors of the Company with full
knowledge of the character of such transactions, as being fair and reasonable
to the stockholders at the time of such approval or ratification under the
circumstances then prevailing. Such Directors also consider the fairness of
such transactions to the Company. The Company's management believes that,
to date, such transactions have represented the best investments available at
the time and that they were at least as advantageous to the Company as other
investments that could have been obtained.

The Company expects to enter into future transactions with entities the
officers, trustees, directors or shareholders of which are also officers,
Directors or stockholders of the Company, if such transactions would be
beneficial to the operations of the Company and consistent with the Company's
then-current investment objectives and policies, subject to approval by a
majority of disinterested Directors as discussed above.

The Company does not prohibit its officers, Directors, stockholders or related
parties from engaging in business activities of the types conducted by the
Company.

Certain Business Relationships

BCM, the Company's advisor, is a company of which Messrs. Cashwell, Blaha,
Endendyk, Paulson and Schrauff, serve as executive officers. BCM is a company
owned by a trust for the benefit of the children of Gene E. Phillips, the
trustee of which is Ryan T. Phillips. Ryan T. Phillips,

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104
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Certain Business Relationships (Continued)

a Director of the Company, is the son of Gene E. Phillips, and also a director
of BCM.

Mr. Cashwell is the President of CMET, IORT and TCI, and owes fiduciary duties
to such entities as well as to BCM under applicable law. CMET, IORT and TCI
have the same relationship with BCM as does the Company. In addition, BCM has
been engaged to perform certain administrative functions for NRLP and NOLP.
Gene E. Phillips is a general partner of SAMLP, NRLP's and NOLP's general
partner, and is director and Chief Executive Officer of SAMLP's managing
general partner, SAMI. BCM is the sole shareholder of SAMI. The Company owns
a 76.8% limited partner interest in SAMLP.

In February 1995, Davister Corp., a general partner of Nanook Partners, L.P.,
which owns in excess of 14% of the outstanding shares of the Company's Common
Stock, funded two loans each in the amount of $100,000 to Al Gonzalez, a
director of the Company. One note is dated February 14, 1995 and the second
note is dated February 28, 1995. Both notes are unsecured, accrue interest at
a rate of 12% per annum and both mature 120 days from the date of their
respective originations.

Since February 1, 1990, the Company has contracted with affiliates of BCM for
property management services. Currently, Carmel, Ltd. provides such property
management services. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) SWI, a company of which Mr. Phillips is the
sole shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel, Ltd. subcontracts the property-level
management of the Company's shopping center and office building to Carmel
Realty, which is a company owned by SWI.

Affiliates of BCM provide real estate brokerage services to the Company and
receive brokerage commissions in accordance with the Advisory Agreement.

The Company owns an equity interest in each of CMET, IORT, TCI, NRLP and SAMLP.
In addition, CMET and NRLP own an equity interest in the Company and SAMLP owns
an equity interest in TCI. See ITEM 1. "PROPERTIES - Investments in Real
Estate Investment Trusts and Real Estate Partnerships."

Related Party Transactions

In April 1990, SAMLP made a $1.4 million unsecured loan to Equity Health and
Finance Corporation ("Equity Health"), an entity affiliated with BCM, the
Company's advisor. The Company owns a 76.8% limited partner interest in SAMLP
which it consolidated for financial statement purposes. In June 1991, Equity
Health merged into BCM, and BCM assumed the note. The loan matured on May 9,
1994 and its outstanding balance of $497,000, including accrued but unpaid
interest, was paid in full.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Related Party Transactions

In 1990, SAMLP executed a settlement agreement in a class action lawsuit
arising from the formation of NRLP. Among other things, the settlement
required that Messrs. Phillips and Friedman, general partners of SAMLP at the
time, make a capital contribution to NRLP of $2.0 million in the form of a
promissory note which was guaranteed by SAMLP. In addition, SAMLP paid
$500,000 to NRLP under the settlement on behalf of Messrs. Phillips and
Friedman pursuant to the indemnification provisions under the SAMLP agreement
of limited partnership and indemnified them for their obligations under the
$2.0 million promissory note. In May 1991, 1992 and 1993, SAMLP made the
annual installments of principal and interest on such note in the amount of
$631,000. The final installment of $631,000 was paid in May 1994. See ITEM 2.
"PROPERTIES - Investments in Real Estate Investment Trusts and Real Estate
Partnerships."

In January 1992, the Company entered into a partnership agreement with an
entity affiliated with Donald C. Carter, a private investor, to acquire 287
developed residential lots adjacent to the Company's other residential lots in
Fort Worth, Texas. The Company paid $717,000 in cash for its 50% general
partner interest. The partnership agreement designates the Company as managing
general partner. The partnership agreement also provides that each of the
partners with a guaranteed 10% return on their respective investments. During
1993, 18 of the lots were sold and during 1994 an additional 42 lots were sold
and at December 31, 1994, 227 lots remained to be sold.

In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to Mr. Carter for $1.9 million cash. Terms of the sale agreement provided Mr.
Carter with the option of requiring the Company to reacquire up to 360,000 of
the purchased shares at a price of $6.11 per share, a total of $2.2 million.
Such option was exercisable by Mr. Carter for a two-year period expiring in
March 1995. In December 1994, Mr. Carter contributed his shares of the
Company's Common Stock to Nanook Partners, L.P., a newly formed partnership in
which he is a limited partner and Davister Corp. is general partner. Concurrent
with the share contribution, the partnership rescinded the put provision of the
original sales agreement.

In June 1992, the Company obtained a $3.3 million loan from Mr. Carter. The
note bears interest at 10% and matures in May 1995. Interest payments are made
monthly in addition to ten quarterly principal payments of $330,000 which
commenced March 1, 1993. The note is collateralized by an assignment of the
Company's interest in a partnership which owns residential lots in Fort Worth,
Texas and the Company's interest in undeveloped land in downtown Atlanta,
Georgia. The loan also provided for Mr. Carter's participation in the proceeds
from either the sale or refinancing of the Company's land in Atlanta, Georgia.
Mr. Carter also had the right during a period beginning eighteen months from
the date of the loan and continuing ninety days thereafter to put his
participation to the Company in exchange for a payment of $623,000. On
December 2, 1993, Mr. Carter exercised his put which required full payment by
the Company within 30 days, January 2,

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106
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Related Party Transactions (Continued)

1993. Mr. Carter has agreed to extend the payment date to January 2, 1996, and
BCM and the trust that owns BCM, have agreed to guarantee the Company's payment
obligation.

In 1994, the Company paid BCM and its affiliates $1.2 million in advisory and
mortgage servicing fees, $497,000 in real estate brokerage commissions, $25,000
in loan arrangement fees and $70,000 in property and construction management
fees and leasing commissions, net of property management fees paid to
subcontractors, other than Carmel Realty. In addition, as provided in the
Advisory Agreement, BCM received cost reimbursements from the Company of
$434,000 in 1994.

____________________________________

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K

(a) The following documents are filed as part of this Report:

1. Consolidated Financial Statements

Report of Independent Certified Public Accountants

Consolidated Balance Sheets -
December 31, 1994 and 1993

Consolidated Statements of Operations -
Years Ended December 31, 1994, 1993 and 1992

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1994, 1993 and 1992

Consolidated Statements of Cash Flows -
Years Ended December 31, 1994, 1993 and 1992

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedule III - Real Estate and Accumulated Depreciation

Schedule IV - Mortgage Loans on Real Estate

All other schedules are omitted because they are not applicable or because the
required information is shown in the financial statements or the notes thereto.

106
107
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

3. Incorporated Financial Statements

Consolidated Financial Statements of National Realty, L.P. (Incorporated by
reference to Item 8 of National Realty, L.P.'s Annual Report on Form 10-K for
the year ended December 31, 1994).

Consolidated Financial Statements of Continental Mortgage and Equity Trust
(Incorporated by reference to Item 8 of Continental Mortgage and Equity Trust's
Annual Report on Form 10-K for the year ended December 31, 1994).

Consolidated Financial Statements of Income Opportunity Realty Trust
(Incorporated by reference to Item 8 of Income Opportunity Realty Trust's
Annual Report on Form 10-K for the year ended December 31, 1994).

Consolidated Financial Statements of Transcontinental Realty Investors, Inc.
(Incorporated by reference to Item 8 of Transcontinental Realty Investors,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994).

4. Exhibits

The following documents are filed as Exhibits to this Report:

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

3.0 Articles of Incorporation dated November 24, 1987 and By-laws dated
December 30, 1987 for American Realty Trust, Inc. (Incorporated by
reference to Exhibits No. 3.1 and No. 3.1(a), respectively, of
Registrant's Registration Statement No. 33-19636 on Form S-4).

3.1 Amendment to Articles of Incorporation dated September 15, 1989
(Incorporated by reference to Exhibit No. 3.2 of the Registrant's
Registration Statement No. 33-19920 on Form S-11).

3.2 Articles of Amendment setting forth Certificate of Designation of
Series A Cumulative Participating Preferred Stock dated as of April
11, 1990 (Incorporated by reference to Exhibit No. 3-1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1990).

3.3 Articles of Amendment dated December 10, 1990 to Articles of
Incorporation (Incorporated by reference to Exhibit No. 3.4 of
Registrant's Current Report on Form 8-K dated December 5, 1990).

3.4 Amended By-laws of American Realty Trust, Inc., dated December 11,
1991. (Incorporated by reference to Exhibit No. 3.5 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).

107
108
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

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

4.0 Rights Agreement dated April 11, 1990 between American Realty Trust, Inc. and American Stock Transfer and
Trust Company, as Rights Agent (Incorporated by reference to Registrant's Current Report on Form 8-K dated
April 20, 1990).

4.1 Amendment No. 1 to Rights Agreement dated March 5, 1991 between American Realty Trust, Inc. and American Stock
Transfer and Trust Company, as Rights Agent (Incorporated by reference to Registrant's Amendment No. 1 on Form
8 dated March 27, 1991).

4.2 Amendment No. 2 to Rights Agreement dated June 23, 1992 between American Realty Trust, Inc. and American Stock
Transfer and Trust Company, as Rights Agent (Incorporated by reference to Registrant's Amendment No. 2 on Form
8 dated June 30, 1992).

10.0 Agreement of Merger by and among American Realty Trust, Inc., Novus Property Company and ART Maryland, Inc.
dated September 22, 1986 (Incorporated by reference to Exhibit No. 2.1 to Registrant's Registration Statement
No. 33-8837 on Form S-4).

10.1 1987 Stock Option Plan (Incorporated by reference to Appendix E to Proxy Statement/Prospectus filed as part of
Registration Statement No. 33-19636 on Form S-4).

10.2 Promissory notes executed by American Realty Trust, Inc. to First City, Texas-Dallas dated as of September 29,
1989 (Incorporated by reference to Exhibit No. 10.12 to the Registrant's Registration Statement No. 33-19920
on Form S-11).

10.3 Collateral Assignment of Participation Agreement between American Realty Trust, Inc. and First City,
Texas-Dallas, dated as of September 29, 1989 (Incorporated by reference to Exhibit No. 10.13 to the
Registrant's Registration Statement No. 33-19920 on Form S-11).

10.4 Participation Agreement between Collecting Bank, National Association and American Realty Trust, Inc., dated
as of September 29, 1989 (Incorporated by reference to Exhibit No. 10.14 to the Registrant's Registration
Statement No. 33-19920 on Form S-11).

10.5 Advisory Agreement between American Realty Trust, Inc. and Basic Capital Management, Inc., formerly National
Realty Advisors, Inc., dated as of October 4, 1989 (Incorporated by reference to Exhibit No. 10.15 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989).

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109
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

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

10.6 Amendment No. 1 to the Advisory Agreement between American Realty Trust, Inc. and Basic Capital Management,
Inc., formerly National Realty Advisors, Inc., dated as of December 5, 1989 (Incorporated by reference to
Exhibit No. 10.17 to the Registrant's Registration Statement No. 33-19920 on Form S-11).

10.8 Amendment No. 2 to the Advisory Agreement between American Realty Trust, Inc. and Basic Capital Management,
Inc., formerly National Realty Advisors, Inc., dated August 1, 1990 (Incorporated by reference to Exhibit
No. 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990).

10.9 Loan Servicing Agreement between American Realty Trust, Inc. and Basic Capital Management, Inc., formerly
National Realty Advisors, Inc., dated as of October 4, 1989 (Incorporated by reference to Exhibit No. 10.16 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989).

21.0 Subsidiaries of the Registrant.

27.0 Financial Data Schedule

99.0 Settlement Agreement and Mutual Release, dated as of December 27, 1991, between Southmark Corporation, et al
and Gene E. Phillips, et al (Incorporated by reference to Exhibit No. 28.1 to the Registrant's Current Report
on Form 8-K dated December 27, 1991).

99.1 Agreement dated as of February 25, 1992, between Gene E. Phillips, William S. Friedman, American Realty Trust,
Inc., Syntek West, Inc., National Realty Advisors, Inc., Transcontinental Realty Investors, Inc., Continental
Mortgage and Equity Trust, National Income Realty Trust and Income Opportunity Realty Trust (Incorporated by
reference to Exhibit No. 28.1 to the Registrant's Current Report on Form 8-K dated February 25, 1992).

(b) Reports on Form 8-K:

None.

109
110
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

AMERICAN REALTY TRUST, INC.

Dated: March 31, 1995 By: /s/ Karl L. Blaha
-------------------------- ---------------------------------
Karl L. Blaha
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

By: /s/ Oscar W. Cashwell By: /s/ Al Gonzalez
----------------------------- ---------------------------------
Oscar W. Cashwell Al Gonzalez
Director Director

By: /s/ Dale A. Crenwelge By: /s/ Ryan T. Phillips
----------------------------- ---------------------------------
Dale A. Crenwelge Ryan T. Phillips
Director Director

By: /s/ G. Wayne Watts
---------------------------------
G. Wayne Watts
Director

By: /s/ Hamilton P. Schrauff By: /s/ Thomas A. Holland
----------------------------- ---------------------------------
Hamilton P. Schrauff Thomas A. Holland
Executive Vice President and Senior Vice President and
Chief Financial Officer Chief Accounting Officer

Dated: March 31, 1995
----------------------------

110
111
ANNUAL REPORT ON FORM 10-K

EXHIBIT INDEX

FOR THE YEAR ENDED DECEMBER 31, 1994

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

21.0 Subsidiaries of Registrant. 112

27.0 Financial Data Schedule. 113

111