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                                                                    EXHIBIT 99.5



                              SANDSTONE APARTMENTS

                              STATEMENT OF REVENUES
                          AND DIRECT OPERATING EXPENSES
                          YEAR ENDED DECEMBER 31, 1996



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                          Independent Auditors' Report



To the Board of Trustees
Transcontinental Realty Investors, Inc.

We have audited the accompanying statement of revenues and direct operating
expenses of Sandstone Apartments for the year ended December 31, 1996. This
statement of revenues and direct operating expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
statement of revenues and direct operating expenses based on our audit.

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

The accompanying financial statement is prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in Form 8-K of Transcontinental Realty Investors, Inc.) and, as
described in Note 1, is not intended to be a complete presentation of the
results of operations.

In our opinion, the statement of revenues and direct operating expenses referred
to above presents fairly, in all material respects, the revenues and direct
operating expenses of Sandstone Apartments for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.





                                            Farmer, Fuqua, Hunt & Munselle, P.C.

Dallas, Texas
July 18, 1997


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                              SANDSTONE APARTMENTS
                              STATEMENT OF REVENUES
                          AND DIRECT OPERATING EXPENSES
                          Year Ended December 31, 1996



                                                          
REVENUES
         Net rental revenues                          $1,118,464
         Other revenues                                   67,301
                                                      ----------

                  Total revenues                       1,185,765

DIRECT OPERATING EXPENSES
         Salaries and benefits                           145,539
         Repairs and maintenance                         105,772
         Utilities                                        83,588
         Property taxes                                   53,965
         Insurance                                        17,679
                                                      ----------

                  Total direct operating expenses        406,543
                                                      ----------

REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES       $  779,222
                                                      ==========





         The accompanying notes are an integral part of this statement.


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                              SANDSTONE APARTMENTS
                         NOTES TO STATEMENT OF REVENUES
                          AND DIRECT OPERATING EXPENSES
                                December 31, 1996


NOTE 1:  ORGANIZATION AND BASIS OF PRESENTATION

         The Sandstone Apartments is a 238-unit apartment complex located in
         Mesa, Arizona. During 1996, the property was owned by EAG Mesa Villas.

         The accompanying financial statement does not include a provision for
         depreciation and amortization, bad debt expense, interest expense or
         income taxes. Accordingly, this statement is not intended to be a
         complete presentation of the results of operations.

NOTE 2:  ACCOUNTING ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of revenues and
         expenses during the reporting period. Actual results could differ from
         those estimates.

NOTE 3:  OTHER REVENUES

         Other revenues consist of the following:



                                                                    
               Security deposit                                    $20,629
               Late and NSF charges                                 14,289
               Washer and dryer income                              11,200
               Lease termination and processing fees                 8,373
               Eviction fees                                         7,168
               Miscellaneous                                         5,642
                                                                   -------

                                                                   $67,301
                                                                   =======



NOTE 4:  SUBSEQUENT EVENT

         The property was sold to Transcontinental Realty Investors, Inc., a
         Nevada corporation, on October 1, 1997.