1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1999
Registration Statement No. 333-21583
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
POST-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-4

REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-------------------------

AMERICAN REALTY TRUST, INC.
(Exact name of registrant as specified in its governing instrument)

GEORGIA 6513 54-0697989
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)

10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Address and telephone number of principal executive offices)
ROBERT A. WALDMAN, ESQ.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Name, address and telephone number of agent for service)

-------------------------
Copy to:
THOMAS R. POPPLEWELL, ESQ.
Andrews & Kurth L.L.P.
1717 Main Street, Suite 3700
Dallas, Texas 75201
-------------------------

Approximate date of commencement of proposed sale of the securities to the
public. From time to time.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is a compliance
with General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [X]

CALCULATION OF REGISTRATION FEE

===============================================================================================================================
PROPOSED
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE OFFERING
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING PRICE(1) AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT(1) REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------------------

Preferred Stock, $2.00 par value ................. 12,500,000 Shares $10.00 $125,000,000.00 $37,878.79(3)
-------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value .................... (2)
-------------------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purpose of computing the registration fee.

(2) The number of shares of Common Stock of the Registrant to be registered
is such currently indeterminate number of shares of Common Stock as may be
required for issuance upon conversion of the Preferred Stock being registered
hereunder. Such shares of Common Stock will, if issued, be issued for no
additional consideration and therefore no registration fee is required.

(3) Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
Prospectus contained in this Registration Statement also relates to 5,000,000
shares of Preferred Stock and an indeterminate number of shares of Common Stock
included in this table covered by the registrant's Registration Statement on
Form S-2 (Registration Statement No. 333-21583), as to which a registration fee
of $15,151.52 was previously paid in the registrant's original filing of such
Registration Statement on February 11, 1997. The remaining $22,272.27 of the
registration fee was previously paid in connection with the registrant's filing
of the registrant's Registration Statement on Form S-4 (Registration Statement
No. 333-21591) on February 11, 1997.

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

PROSPECTUS

$125,000,000

AMERICAN REALTY TRUST, INC.

PREFERRED STOCK
COMMON STOCK

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

We may from time to time issue up to $125,000,000 aggregate principal
amount of Preferred Stock and underlying Common Stock. The terms of these
securities will be specified in supplements to this prospectus.

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

These securities have not been approved by the Securities and Exchange
Commission ("SEC") or any state securities commission, nor have these
organizations determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.

The date of this prospectus is July 29, 1999

TABLE OF CONTENTS

Page

SUMMARY ........................................................................... 3

WHERE YOU CAN FIND MORE INFORMATION ............................................... 5

RATIO OF EARNINGS TO FIXED CHARGES ................................................ 6

USE OF PROCEEDS ................................................................... 6

THE COMPANY ....................................................................... 6

EXECUTIVE COMPENSATION OF THE COMPANY ............................................. 8

THE BUSINESS OF THE COMPANY ....................................................... 8

General ......................................................................... 8
Geographic Regions .............................................................. 11
Real Estate ..................................................................... 11
Mortgage Loans .................................................................. 30
Investments in Real Estate Investment Trusts and Real Estate Partnerships ....... 33

SELECTED FINANCIAL DATA OF THE COMPANY ............................................ 41

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ....................................................... 43
Introduction .................................................................... 43
Liquidity and Capital Resources ................................................. 43
Commitments and Contingencies ................................................... 46
Results of Operations ........................................................... 47
Environmental Matters ........................................................... 51
Inflation ....................................................................... 52
Year 2000 ....................................................................... 52

ACQUISITION TERMS ................................................................. 52

DESCRIPTION OF THE CAPITAL STOCK .................................................. 53
General ......................................................................... 53
Common Stock .................................................................... 53
Preferred Stock ................................................................. 53

PLAN OF DISTRIBUTION .............................................................. 59

LEGAL MATTERS ..................................................................... 60

EXPERTS ........................................................................... 60

FINANCIAL STATEMENTS .............................................................. F-1

APPENDIX - GLOSSARY OF TERMS ..................................................... A-1

SUMMARY

This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the terms
of our securities, you should carefully read this document and the prospectus
supplement that gives the specific terms of the securities we are offering. You
should also read the documents we have referred you to in Where You Can Find
More Information on page 4 for information on our Company and our financial
statements.

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may,
from time to time, sell shares of preferred stock and shares of common voting
stock into which the preferred stock may be convertible in one or more offerings
up to a total dollar amount of $125,000,000. This prospectus provides you with a
general description of the securities we may offer. Each time we sell
securities, we will provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus supplement may also
add, update or change information contained in this prospectus. You should read
both this prospectus and any prospectus supplement together with additional
information described under the heading Where You Can Find More Information on
page 5. You can find the definitions of the capitalized terms used in t his
prospectus under the appendix Glossary of Terms, beginning on page A-1.

AMERICAN REALTY TRUST, INC.

Our Company invests in equity interests in real estate (including equity
securities of real estate-related entities), leases, joint venture development
projects and partnerships. We also finance real estate and real estate related
activities through investments in mortgage loans. The Company has also invested
in the equity securities of the following companies: Continental Mortgage and
Equity Trust ("CMET"); Income Opportunity Realty Investors, Inc. ("IORI");
Transcontinental Realty Investors, Inc.
("TCI"); and National Realty, L.P. ("NRLP").

The Company's board of directors has broad authority under the Company's
governing documents to make all types of real estate investments, including
mortgage loans and equity real estate investments, as well as investments in the
securities of other entities whether or not those entities are engaged in real
estate-related activities.

RISK FACTORS

See "Risk Factors" in the related prospectus supplement for information that
should be considered by prospective investors.

USE OF PROCEEDS

Unless otherwise indicated in a prospectus supplement, the Company plans to
use the net proceeds from the sale of the offered securities for working capital
and general corporate purposes.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of the Company's earnings to combined fixed charges and preferred
stock dividends for each of the periods indicated is as follows:

----------- --------- --------- --------- ---------
Twelve Twelve Twelve Twelve Twelve
months months months months months
ended ended ended ended ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------

* * * * *
----------- --------- --------- --------- ---------

* Earnings were inadequate to cover fixed charges and preferred stock dividends
by $4,887,000, $8,474,000, $4,819,000, $189,000 and $1,390,000 in 1998, 1997,
1996, 1995 and 1994, respectively.

THE SECURITIES WE MAY OFFER

We may offer up to $125,000,000 of preferred stock and common voting stock
into which the preferred stock may be convertible either separately or in units.
The prospectus supplement will describe the specific amounts, prices and terms
of these securities.

PREFERRED STOCK

The following description of the terms of the preferred stock sets forth
certain general terms and provisions of our authorized preferred stock. If we
offer preferred stock, the specific designations and rights will be described in
the prospectus supplement and a description will be filed with the SEC.

-3-

Our board of directors can, without approval of shareholders, issue one or
more series of preferred stock. The board can also determine the number of
shares of each series and the rights, preferences and limitations of each series
including the dividend rights, voting rights, conversion rights, redemption
rights and any liquidation preferences of any wholly unissued series of
preferred stock, the number of shares constituting each series and the terms and
conditions of issue. In some cases, the issuance of preferred stock could delay
a change in control of the Company and make it harder to remove present
management. Under certain circumstances, preferred stock could also restrict
dividend payments to holders of our common stock. The preferred stock will, when
issued, be fully paid and non-assessable.

COMMON STOCK

The Company may issue preferred stock which is convertible into shares of
the Company's common stock. Common stock holders are entitled to receive
dividends declared by the Company's board of directors (subject to rights of
preferred stock holders). Currently, we pay a dividend. Each holder of common
stock is entitled to one vote per share. The holders of common stock have no
preemptive rights or cumulative voting rights.

-4-

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's web site at http:\\www.sec.gov.

The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities.

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, as filed with the SEC on March 31, 1999, as amended by the
Company's Annual Report on Form 10-K/A, as filed with the SEC on April 19, 1999,
as further amended by the Company's Annual Report on Form 10-K/A Amendment No.
1, as filed with the SEC on June 2, 1999.

2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1999, as filed with the SEC on May 17, 1999.

3. The Annual Report on Form 10-K for CMET for the year ended December
31, 1998, as filed with the SEC on March 25, 1999, as amended by CMET's Annual
Report on Form 10-K/A, as filed with the SEC on May 12, 1999.

4. CMET's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, as filed with the SEC on May 14, 1999.

5. The Annual Report on Form 10-K for IORI for the year ended December
31, 1998, as filed with the SEC on March 25, 1999, as amended by IORI's Annual
Report on Form 10-K/A, as filed with the SEC on May 19, 1999.

6. IORI's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, as filed with the SEC May 13, 1999.

7. The Annual Report on Form 10-K for TCI for the year ended December
31, 1998, as filed with the SEC on March 26, 1999, as amended by TCI's Annual
Report on Form 10-K/A, as filed with the SEC on May 12, 1999.

8. TCI's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, as filed with the SEC on May 14, 1999.

9. TCI's Current Report on Form 8-K dated December 2, 1998, as filed
with the SEC on February 18, 1999.

10. The Annual Report on Form 10-K for NRLP for the year ended December
31, 1998, as filed with the SEC on March 26, 1999, as amended by NRLP's Annual
Report on Form 10-K/A, as filed with the SEC on May 20, 1999.

11. NRLP's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, as filed with the SEC on May 14, 1999.

12. The description of the common stock contained in the Company's
Registration Statement under Section 12 of the Exchange Act and all amendments
and reports filed for the purpose of updating that description.

-5-

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:

Investor Relations
American Realty Trust, Inc.
10670 North Central Expressway
Suite 300
Dallas, Texas 75231
(214) 692-4700

You should rely only on the information incorporated by reference or
provided in this prospectus or the prospectus supplement. We have authorized no
one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or the prospectus supplement is
accurate as of any date other than the date on the front of the document.

RATIO OF EARNINGS TO FIXED CHARGES

The following table summarizes the ratio of the Company's earnings to
combined fixed charges and preferred stock dividends for each of the five fiscal
years ended December 31, 1998:

Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----

RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS * * * * *

* Earnings were inadequate to cover fixed charges and preferred stock dividends
by $4,887,000, $8,474,000, $4,819,000, $189,000 and $1,390,000 in 1998, 1997,
1996, 1995 and 1994, respectively.

USE OF PROCEEDS

Unless otherwise indicated in a Prospectus Supplement with respect to
the proceeds from the sale of the particular shares of the Preferred Stock to
which the Prospectus Supplement relates, the Company plans to use the net
proceeds from each sale of Preferred Stock for working capital and general
corporate purposes, including, among other things, the development and
acquisition of additional properties and other acquisition transactions and the
payment of certain outstanding debt.

THE COMPANY

The Company, 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 invests in equity interests in real estate (including equity securities
of real estate-related entities), leases, joint venture development projects and
partnerships and finances real estate and real estate activities through
investments in mortgage loans. The Company has invested in private and open
market purchases in the equity securities of CMET, IORI, TCI and NRLP.

The board of directors of the Company has broad authority under the
Company's governing documents to make all types of real estate investments,
including mortgage loans and equity real estate investments, as well as
investments in the securities of other entities, whether or not the entities are
engaged in real estate related activities.

-6-
8

Although the board of directors of the Company 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, an affiliate of
and advisor to the Company. BCM is a contractual advisor under the supervision
of the board of directors of the Company. The duties of BCM 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. BCM also serves as a consultant in
connection with the Company's business plan and investment policy decisions made
by the board of directors of the Company.

BCM, an affiliate of and advisor to the Company, 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. Gene E. Phillips
served as a director of BCM until December 22, 1989 and as Chief Executive
Officer of BCM until September 1, 1992. Gene E. Phillips currently serves as a
representative of the trust that owns BCM for the benefit of his children, and
in that capacity, Gene E. Phillips 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 31, 1999, BCM owned 5,753,072 shares of Common Stock,
representing approximately 54.5% of the shares of the Common Stock then
outstanding. BCM has been providing advisory services to the Company since
February 6, 1989. BCM also serves as advisor to CMET, IORI and TCI. Karl L.
Blaha, Randall M. Paulson, Bruce A. Endendyk, Steven K. Johnson and Thomas A.
Holland, executive officers of the Company, are also executive officers of CMET,
IORI and TCI. Karl L. Blaha also serves as a Director of the Company and as a
director of NMC, the general partner of NRLP and NOLP. On December 18, 1998,
NMC, a wholly-owned subsidiary of the Company, was elected general partner of
NRLP and NOLP. BCM performs certain administrative functions for NRLP and NOLP
on a cost reimbursement basis.

Gene E. Phillips is the former chairman of Southmark, a real estate
syndicator and parent of San Jacinto. As a result of a deadlock on Southmark's
board of directors, Mr. Phillips, among others, reached an agreement whereby he
resigned his positions with Southmark and certain of Southmark's subsidiaries
and affiliates in January 1989. Southmark filed a voluntary petition in
bankruptcy under Chapter 11 of the United States Bankruptcy Code in July 1989.
In November 1990, San Jacinto was placed under conservatorship of the RTC by
federal banking authorities. In December 1990, San Jacinto was converted into a
Federal Association and placed in receivership. Mr. Phillips has been named as a
defendant in a number of lawsuits brought by the RTC and private plaintiffs in
which the allegations made against Mr. Phillips included breach of fiduciary
duty and other misconduct, which allegations were denied by Mr. Phillips. These
actions have been dismissed or settled.

Since February 1, 1990, affiliates of BCM have provided property
management services to the Company. Currently, 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) First Equity which is 50% owned by a subsidiary of BCM,

(ii) Gene E. Phillips, and

(iii) a trust for the benefit of the children of Gene E. Phillips.

Carmel, Ltd. subcontracts the property-level management of 15 of the Company's
commercial properties (shopping centers, office buildings and a merchandise
mart) and its hotels to Carmel Realty which is a company owned by First Equity.
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 BCM are also entitled to receive real estate brokerage
commissions in accordance with the terms of the advisory agreement between the
Company and BCM.

-7-
9

The Company has no employees itself, but PWSI, a wholly-owned food
service subsidiary of the Company has approximately 900 employees as of March
31, 1999. Employees of BCM render services to the Company.

The Company's principal offices are located at 10670 North Central
Expressway, Suite 300, Dallas, Texas 75231. The Company's telephone number is
(214) 692-4700.

EXECUTIVE COMPENSATION OF THE COMPANY

The Company itself has no employees, payroll or employee benefit plans
and pays no compensation to executive officers of the Company. The Directors and
executive officers of the Company who are also officers or employees of BCM are
compensated by BCM. Such affiliated Directors and executive officers of the
Company perform a variety of services for BCM and the amount of their
compensation is determined solely by BCM. BCM does not allocate the cash
compensation of its officers among the various entities for which it serves as
advisor.

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 its independent Directors at the rate of $20,000 per year,
plus $300 per Audit Committee meeting attended. In addition, the Chairman of the
Audit Committee receives an annual fee of $500. During 1998, the Company paid a
total of $65,600 to its independent Directors for all meetings as follows: Roy
E. Bode, $21,900; Al Gonzalez, $22,400; and Cliff Harris, $21,300.

In September 1997, the board of directors of the Company, including all
of the independent Directors, approved the 1997 Stock Option Plan. The 1997
Stock Option Plan was approved by the Company's stockholders at the Company's
annual meeting on January 19, 1998. The 1997 Stock Option Plan is intended
principally as an incentive for and as a means of encouraging ownership of the
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 cannot be granted to, among others, persons who are not
employees of the Company, or of any parent or subsidiary of the Company, or to
persons who fail to satisfy certain criteria concerning ownership of less than
10% of the shares of the Company. The 1997 Stock Option Plan is administered by
the Stock Option Committee, which currently consists of three independent
Directors of the Company. The exercise price per share of an option will not be
less than 100% of the fair market value per share on the date of grant thereof.
The Company receives no consideration for the grant of an option. As of December
31, 1998, there were 276,750 stock options outstanding under the 1997 Stock
Option Plan.

In January 1999, the Company's stockholders approved the Director Stock
Option Plan which provides for options to purchase up to 40,000 shares of Common
Stock. Options granted pursuant to the Director Stock Option Plan are
immediately exercisable and expire on the earlier of the first anniversary of
the date on which a Director ceases to be a Director or ten years from the date
of grant. Each independent Director was granted an option to purchase 1,000
shares at an exercise price of $16.25 per share on January 11, 1999, the date
stockholders approved the plan. Each independent Director will be awarded an
option to purchase an additional 1,000 shares on January 1 of each year.

THE BUSINESS OF THE COMPANY

GENERAL

The Company, a Georgia corporation, is the successor to a District of
Columbia business trust. The Company elected to be treated as a REIT under
Sections 856 through 860 of the Code, during the period July 1, 1987 through
December 31, 1990. The Company allowed its REIT tax status to lapse in 1991.

The Company's primary business 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

-8-
10

activities through investments in mortgage loans, including first, wraparound
and junior mortgage loans. The board of directors of the Company has broad
authority under the Company's governing documents to make all types of real
estate investments, including mortgage loans and equity real estate investments,
as well as investments in the securities of other entities, whether or not those
entities are engaged in real estate related activities. The Company does not
have a policy limiting the amount or percentage of assets that may be invested
in any particular property or type of property or in any geographic area. The
Company's governing documents do not contain any limitation on the amount or
percentage of indebtedness the Company may incur.

Effective December 18, 1998, NMC, a wholly-owned subsidiary of the
Company, was elected general partner of NRLP and NOLP. NRLP is a publicly traded
master limited partnership which was formed under the Delaware Uniform Limited
Partnership Act on January 29, 1998. 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 partnership. 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. Until December 18, 1998, the general partner and owner of 1% of
the beneficial interest in each of NRLP and NOLP was SAMLP, a Delaware limited
partnership, of which the Company is a 96% limited partner. With its election as
general partner, NMC succeeded to SAMLP's 1% beneficial interest in each of NRLP
and NOLP. NMC also assumed liability for SAMLP's note for its capital
contribution to the Partnership. In addition, under the Moorman Settlement
Agreement, NMC assumed liability for a note which requires the repayment of the
$11.5 million paid by the Partnership under a litigation settlement plus the
$808,000 in court ordered attorney's fees and the $30,000 paid to Joseph B.
Moorman. This note requires repayment over a ten-year period, bears interest at
a variable rate, currently 7.2% per annum, and is guaranteed by the Company.

At March 31, 1999 in addition to its general partner interest, the
Company owned approximately 55.0% of the outstanding limited partner units of
NRLP. Prior to NMC's being elected as general partner of NRLP and NOLP, the
Company accounted for its investment in the Partnership under the equity method.
As of December 31, 1998, the Company has consolidated the Partnership's accounts
and will consolidate its operations subsequent to that date. NMC, has discretion
in determining methods of obtaining funds for the Partnership's operations, and
the acquisition and disposition of its assets.

The Company, through PWSI, also operates and franchises pizza parlors
featuring pizza delivery, carry-out and dine-in under the trademark "Me-N-Ed's"
in California and Texas. The first Me-N-Ed's pizza parlor opened in 1962. At
March 31, 1999 there were 56 Me-N-Ed's pizza parlors in operation, consisting of
50 owned and six franchised pizza parlors. Seven of the owned pizza parlors were
in Texas and the remainder were in California.

The Company's businesses are not seasonal. With regard to real estate
investments, the Company is 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 income producing real estate
such as apartment complexes and commercial properties or equity securities of
real estate-related entities. The Company also intends to pursue higher risk,
higher reward investments, such as improved and unimproved land where it can
obtain financing of substantially all of a property's purchase price. The
Company intends to seek selected dispositions of certain of its assets, in
particular certain of its land holdings, where the prices obtainable for those
assets justify their disposition. The Company has determined that it will no
longer actively seek to fund or purchase mortgage loans. It may, however, in
selected instances, originate mortgage loans or it may provide purchase money
financing in conjunction with a property sale. The Partnership, however, has
increased its lending activity, funding 16 loans in 1998, including a $95.0
million loan commitment to the Company and a $12.4 million loan assumed by NMC
in connection with the Moorman litigation settlement.

The Company may purchase or lease properties for long-term investment,
develop or redevelop its properties or sell those properties, in whole or in
part, when circumstances warrant. The Company currently participates and may
continue to participate with other entities in property ownership, through joint
ventures or other types of co-ownership. Equity investments may be subject to
existing mortgage financing and other indebtedness that have priority over the
Company's equity interest.

-9-
11

The Company may repurchase or otherwise reacquire Common Stock,
Preferred Stock (as defined under "Description of the Capital Stock of the
Company -- General") or other securities and may also invest in securities of
other entities engaged in real estate activities or securities of other issuers.
The Company may invest in the securities of other issuers in connection with
acquisitions of indirect interests in real estate (normally general or limited
partnership interests in special purpose partnerships owning one or more
properties). The Company may in the future acquire all or substantially all of
the securities or assets of real estate investment trusts, management companies
or similar entities where those investments would be consistent with its
investment policies. The Company may also invest in securities of other issuers
from time to time for the purpose of exercising control. It is not intended that
the Company's investments in securities will require it to register as an
"investment company" under the Investment Company Act of 1940, as amended, and
it is intended that the Company would divest securities before any such
registration would be required.

The board of directors of the Company 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 may be changed at any time by the
board of directors of the Company without the approval of the Company's
stockholders.

To the extent that the board of directors of the Company determines to
seek additional capital, the Company may raise the capital through additional
equity offerings, debt financing or retention of cash flow, or a combination of
these methods. If the board of directors of the Company determines to raise
additional equity capital, it may, without stockholder approval, issue
additional shares of Common Stock or Preferred Stock up to the amount of its
authorized capital in any manner (and on those terms and for that consideration)
as it deems appropriate, including in exchange for property. Such securities may
be senior to the outstanding Common Stock and may include additional series of
Preferred Stock (which may be convertible into Common Stock). Existing
stockholders of the Company will have no preemptive right to purchase shares in
any subsequent offering of securities by the Company, and any such offering
could cause a dilution of a stockholder's investment in the Company.

To the extent that the board of directors of the Company determines to
obtain additional debt financing, the Company intends to do so generally through
mortgages on properties. Such mortgages may be recourse, non-recourse or
cross-collateralized. The Company does not have a policy limiting the number or
amount of mortgages that may be placed on any particular property, but mortgage
financing instruments usually limit additional indebtedness on those properties.
The Company may also borrow funds through bank borrowings, publicly and
privately placed debt instruments, or purchase money obligations to the sellers
of properties, any of which indebtedness may be unsecured or may be secured by
any or all of the assets of the Company or any existing or new property-owning
entity in which the Company holds an interest and may have full or limited
recourse to all or any portion of the assets of the Company, or any such
existing or new property-owning entity.

The Company may seek to obtain unsecured or secured lines of credit or
may determine to issue debt securities (which may be convertible into capital
stock or be accompanied by warrants to purchase capital stock), or to sell or
securitize its receivables. The proceeds from any borrowings may be used to
finance acquisitions, to develop or redevelop properties, to refinance existing
indebtedness or for working capital or capital improvements. The Company also
may determine to finance acquisitions through the exchange of properties or
issuance of additional shares of Common Stock, Preferred Stock or other
securities.

The Company has made and may in the future make loans to joint ventures
or other entities in which it participates. The Company does not intend to
engage in

(i) trading, underwriting or agency distribution or sale of securities
of other issuers and

(ii) the active trade of loans and investments, other than in
connection with acquisitions of additional interests in CMET, IORI, TCI
and NRLP.

-10-
12

Except as required under the Exchange Act, and the rules and
regulations of the New York Stock Exchange, the Company is not required to make
annual or other reports to its securityholders.

The specific composition of the Company's real estate and mortgage
notes receivable portfolios from time to time depends 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 CMET, IORI, TCI and NRLP.

GEOGRAPHIC REGIONS

For purposes of its investments, 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.
As of March 31, 1999, the Company had no properties in this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. As
of March 31, 1999, the Company had 42 apartment complexes and two
hotels in this region.

Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. As of March 31, 1999, the
Company had 19 apartment complexes and five commercial 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. As of March
31, 1999, the Company had 22 apartment complexes, two commercial
properties and one hotel in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. As of March 31, 1999, the Company had two
apartment complexes, three commercial properties and two hotels in this
region.

Pacific region comprised of the states of Alaska, California, Oregon
and Washington. As of March 31, 1999, the Company had three apartment
complexes, three commercial properties and four hotels in this region.

Excluded from the above are a single family residence in Dallas, Texas and 60
parcels of improved and unimproved land as described below.

REAL ESTATE

At March 31, 1999, approximately 84% of the Company's assets were
invested in real estate and the equity securities of 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 and investments in equity securities of
CMET, IORI and TCI.

Types of Real Estate Investments . The Company's real estate consists
of apartments, commercial properties (office buildings, shopping centers and a
merchandise mart), hotels and improved and unimproved land. In selecting new
real estate investments, the location, age and type of property, gross rents,
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

-11-
13

properties. The board of directors of the Company 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.

Although the Company has typically invested in developed real estate,
the Company may also invest in new construction or development either directly
or in partnership with nonaffiliated parties or affiliates (subject to approval
by the board of directors of the Company). To the extent that the Company
invests in construction and development projects, the Company would be subject
to business risks, such as cost overruns and construction delays, associated
with higher risk projects.

During 1998, the Company completed construction of One Hickory Center,
a 102,615 sq. ft. office building in Farmers Branch, Texas. In December 1998,
the Company commenced construction of Two Hickory Center, a 102,607 sq. ft.
office building also in Farmers Branch, Texas.

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 the 60 parcels
of improved and unimproved land, and a single family residence, described below)
at March 31, 1999.

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

Midwest 32.2% 34.7% 13.9%
---------------------------------------------------------------------------
Mountain 4.4 26.6 11.4
---------------------------------------------------------------------------
Pacific 2.6 9.5 45.9
---------------------------------------------------------------------------
Southeast 30.6 16.8 28.8
---------------------------------------------------------------------------
Southwest 30.2 12.4 --
---------------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
---------------------------------------------------------------------------

The foregoing table is based solely on the number of apartment units,
commercial square footage and hotel rooms owned by the Company, as applicable,
and does not reflect the value of the Company's investment in each region.
Excluded from the above table are a single family residence in Dallas, Texas and
60 parcels of improved and unimproved land consisting of: one developed
residential lot in a residential subdivision in Fort Worth, Texas, a 46.1 acre
land parcel in Las Colinas, Texas; a 3.5 acre land parcel in downtown Atlanta,
Georgia; a 329.4 acre land parcel in Denver, Colorado; seven parcels of land in
Dallas County, Texas, totaling 436.0 acres; three parcels of land in Irving,
Texas, totaling 294.1 acres; a 420.0 acre land parcel in Duchense, Utah; a 82.4
acre land parcel in Oceanside, California; four parcels of land in Tarrant
County, Texas, totaling 1,688.0 acres; two parcels of land in Harris County,
Texas, totaling 456.4 acres; ten parcels of land in Collin County, Texas,
totaling 1,082.2 acres; eight parcels of land in Farmers Branch, Texas, totaling
101.24 acres; three parcels of land in Plano, Texas, totaling 175.4 acres; a
1,448 acre land parcel in Austin, Texas; three parcels of land in Palm Desert,
California, totaling 946.8 acres; a 41.8 acre land parcel in Travis County,
Texas; two parcels of land in Houston, Texas, totaling 139.5 acres; a 54.2 acre
land parcel in Fort Worth, Texas; a 160.0 acre land parcel in Lewisville, Texas;
a 7.7 acre land parcel in Carrollton, Texas; a 19.4 acre land parcel in Santa
Clarita, California; and six additional land parcels totaling approximately
113.5 acres.

-12-
14

A summary of the activity in the Company's owned real estate portfolio
during 1998 and through March 31, 1999 was as follows:

Owned properties in real estate portfolio at January 1, 1998.......56
Partnership properties........................................ 66
Properties purchased.............................................. 57
Property constructed.......................................... 1
Property obtained through foreclosure......................... 1
Properties sold................................................... (6)
Owned properties in real estate portfolio at ---
March 31, 1999............................................... 175
===

Properties Held for Investment . Set forth below are the Company's
properties held for investment and the monthly rental rate for apartments and
the average annual rental rate for commercial properties and the average daily
room rate and total room revenue divided by total available rooms for hotels and
occupancy at December 31, 1998, 1997, 1996, 1995 and 1994 for apartments and
commercial properties and average occupancy during those periods for hotels:

-------------------------------------------------------------------------------------------------------------------------------
Rent per Square Foot
Units/Square -------------------------------------------------------
Property Location Footage 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------------

Apartments:
Ashford Tampa, FL 56 units/42,196 sq. ft. $.74 $ * $ * $ * $ *
Bay Anchor Panama City, FL 12 units/10,700 sq. ft. .54 * * * *
Carriage Park Tampa, FL 46 units/36,750 sq. ft. .80 * * * *
Chateau Bayou Ocean Springs, MS 122 units/105,536 sq. ft. .71 * * * *
Concord Indianapolis, IN 198 units/129,380 sq. ft. .19 * * * *
Conradi House Tallahassee, FL 98 units/49,900 sq. ft. .71 * * * *
Country Squire Indianapolis, IN 225 units/158,625 sq. ft. .15 * * * *
Crossing Church Tampa, FL 52 units/40,024 sq. ft. .73 * * * *
Daluce Tallahassee, FL 112 units/95,432 sq. ft. .59 * * * *
Edgewater
Gardens Biloxi, MS 140 units/148,900 sq. ft. .56 * * * *
Falcon House Ft. Walton, FL 82 units/71,220 sq. ft. .62 * * * *
Georgetown Panama City, FL 44 units/36,160 sq. ft. .61 * * * *
Governor Square Tallahassee, FL 168 units/146,550 sq. ft. .60 * * * *
Grand Lagoon Panama City, FL 54 units/47,460 sq. ft. .73 * * * *
Greenbriar Tallahassee, FL 50 units/36,600 sq. ft. .70 * * * *
Lake Chateau Thomasville, GA 98 units/65,800 sq. ft. .56 * * * *
Landings/Marina Pensacola, FL 52 units/34,464 sq. ft. .67 * * * *
Lee Hills Tallahassee, FL 16 units/14,720 sq. ft. .54 * * * *
Med Villas San Antonio, TX 140 units/158960 sq. ft. .49 * * * *
Morning Star Tallahassee, FL 82 units/41,000 sq. ft. .76 * * * *
Northside Villas Tallahassee, FL 81 units/134,000 sq. ft. .57 * * * *
Oak Hill Tallahassee, FL 92 units/81,240 sq. ft. .60 * * * *
Park Avenue Tallahassee, FL 121 units/78979 sq. ft. .79 * * * *
Pinecrest Tallahassee, FL 48 units/46,400 sq. ft. .57 * * * *
Regency Tampa, FL 78 units/55,810 sq. ft. .81 * * * *
Rolling Hills Tallahassee, FL 134 units/115,730 sq. ft. .61 * * * *
Seville Tallahassee, FL 62 units/63,360 sq. ft. .56 * * * *
Stonegate Tallahassee, FL 83 units/34,900 sq. ft. .77 * * * *
Sunset Odessa, TX 240 units/160,400 sq. ft. .46 * * * *
Valley Hi Tallahassee, FL 54 units/27,800 sq. ft. .71 * * * *
Villager Ft. Walton, FL 33 units/22,840 sq. ft. .71 * * * *
-------------------------------------------------------------------------------------------------------------------------------

-13-
15

Waters Edge III Gulfport, MS 238 units/212,216 sq. ft. .59 * * * *
Westwood Mary Ester, FL 120 units/93,000 sq. ft. .67 * * * *
Westwood Parc Tallahassee, FL 94 units/55,950 sq. ft. .69 * * * *
White Pines Tallahassee, FL 85 units/17,000 sq. ft. .74 * * * *
Windsor Tower Ocala, FL 64 units/66,000 sq. ft. .45 * * * *
Arlington Place Pasadena, TX 230 units/205,476 sq. ft. .64 .63 .62 .60 .60
Barcelona Tampa, FL 368 units/346,144 sq. ft. .52 .50 .49 .47 .49
Bavarian Middletown, OH 259 units/229,560 sq. ft. .63 .63 .62 .60 .59
Bent Tree Addison, TX 292 units/244,480 sq. ft. .73 .70 .66 .60 .56
Blackhawk Ft. Wayne, IN 209 units/190,520 sq. ft. .57 .54 .53 .53 .53
Bridgestone Friendswood, TX 76 units/65,519 sq. ft. .67 .64 .64 .62 .62
Candlelight Square Lenexa, KS 119 units/114,630 sq. ft. .61 .58 .55 .53 .51
Chalet I Topeka, KS 162 units/131,791 sq. ft. .65 .62 .61 .61 .61
Chalet II Topeka, KS 72 units/49,164 sq. ft. .70 .68 .67 .67 *
Chateau Bellevue, NE 115 units/99,220 sq. ft. .71 .69 .63 .60 .59
Club Mar Sarasota, FL 248 units/230,180 sq. ft. .65 .61 .59 .57 .59
Confederate Point Jacksonville, FL 206 units/277,860 sq. ft. .58 .46 .45 .44 .42
Country Place Round Rock, TX 152 units/119,808 sq. ft. .72 .71 .71 .68 .63
Covered Bridge Gainesville, FL 176 units/171,416 sq. ft. .64 .64 .63 .60 .57
Fair Oaks Euless, TX 208 units/166,432 sq. ft. .65 .61 .58 .55 .52
Four Seasons Denver, CO 384 units/254,900 sq. ft. .86 .80 .78 .77 .74
Fox Club Indianapolis, IN 336 units/317,600 sq. ft. .56 .54 .54 .54 .54
Foxwood Memphis, TN 220 units/212,000 sq. ft. .57 .54 .51 .49 .46
Hidden Valley Grand Rapids, MI 176 units/260,970 sq. ft. .54 .52 .52 .51 .49
Horizon East Dallas, TX 166 units/141,081 sq. ft. .55 .53 .52 .50 .48
Kimberly Woods Tucson, AZ 279 units/249,678 sq. ft. .59 .57 .55 .54 .52
La Mirada Jacksonville, FL 320 units/341,400 sq. ft. .52 .51 .50 .47 .46
Lake Nora Arms Indianapolis, IN 588 units/429,380 sq. ft. .68 .65 .63 .61 .60
Lantern Ridge Richmond, VA 120 units/112,296 sq. ft. .54 .53 .51 .50 .49
Mallard Lake Greensboro, NC 336 units/295,560 sq. ft. .64 .63 .62 .59 .57
Manchester
Commons Manchester, MO 280 units/331,820 sq. ft. .56 .53 .50 .49 .46
Mesa Ridge Mesa, AZ 480 units/386,336 sq. ft. .68 .65 .65 .61 .57
Nora Pines Indianapolis, IN 254 units/254,676 sq. ft. .60 .59 .57 .55 .55
Oak Hollow Austin, TX 409 units/290,072 sq. ft. .90 .87 .87 .81 .75
Oak Tree Grandview, MO 189 units/160,591 sq. ft. .90 .57 .54 .52 .52
Olde Towne Middletown, OH 199 units/179,395 sq. ft. .60 .57 .57 .57 .57
Pheasant Ridge Bellevue, NE 264 units/243,960 sq. ft. .58 .61 .56 .51 .51
Pines Little Rock, AR 257 units/221,981 sq. ft. .62 .41 .41 .39 .37
Place One Tulsa, OK 407 units/302,263 sq. ft. .42 .57 .51 .49 .47
Quail Point Huntsville, AL 184 units/202,602 sq. ft. .58 .42 .42 .41 .41
Regency Lincoln, NE 106 units/111,700 sq. ft. .44 .63 .60 .56 .56
Regency Falls San Antonio, TX 546 units/348,692 sq. ft. .67 .63 .63 .63 .60
Rockborough Denver, CO 345 units/249,723 sq. ft. .64 .73 .70 .70 .67
Santa Fe Kansas City, MO 225 units/180,416 sq. ft. .80 .56 .53 .52 .51
Shadowood Addison, TX 184 units/134,616 sq. ft. .58 .74 .69 .66 .64
Sherwood Glen Urbandale, IA 180 units/143,745 sq. ft. .76 .77 .75 .74 .72
Stonebridge Florissant, MO 100 units/140,576 sq. ft. .79 .45 .43 .46 .46
Summerwind Reseda, CA 172 units/114,711 sq. ft. .46 .90 .90 .97 .97
Sun Hollow El Paso, TX 216 units/156,000 sq. ft. .93 .65 .64 .63 .63

-14-
16

Tanglewood Arlington
Heights, IL 838 units/612,816 sq. ft. 1.07 1.03 .99 .96 .96
Timber Creek Omaha, NE 180 units/162,252 sq. ft. .70 .66 .64 .60 .59
Villa Del Mar Wichita, KS 162 units/128,004 sq. ft. .60 .58 .58 .58 .57
Villas Plano, TX 208 units/156,632 sq. ft. .80 .77 .73 .70 .67
Whispering Pines Canoga Park, CA 102 units/61,671 sq. ft. 1.05 1.01 1.00 .98 .98
Whispering Pines Topeka, KS 320 units/299,264 sq. ft. .51 .49 .49 .49 .49
Windridge Austin, TX 408 units/281,778 sq. ft. .89 .88 .88 .85 .80
Windtree I & II Reseda, CA 159 units/109,062 sq. ft. .93 .90 .90 .90 .90
Woodlake Carrollton, TX 256 units/210,208 sq. ft. .77 .73 .68 .66 .63
Woodsong II Smyrna, GA 190 units/207,460 sq. ft. .56 .54 .54 .51 .46
Woodstock Dallas, TX 320 units/222,112 sq. ft. .63 .60 .56 .54 .51
-------------------------------------------------------------------------------------------------------------------------------
Office Buildings:
56 Expressway Oklahoma City, OK 54,649 sq. ft. 9.53 8.64 8.21 7.94 7.77
Executive Court Memphis, TN 41,840 sq. ft. 10.64 9.79 10.11 9.87 9.91
Marina Playa Santa Clara, CA 124,322 sq. ft. 21.55 20.54 19.54 18.11 17.00
Melrose Business
Park Oklahoma City, OK 124,200 sq. ft. 3.03 2.88 2.76 2.65 2.59
One Hickory Farmers
Center Branch, TX 102,615 sq. ft. -- * * * *
Rosedale Towers Minneapolis, MN 84,798 sq. ft. 15.48 15.03 14.88 13.16 14.46
University Square Anchorage, AK 22,260 sq. ft. 13.83 14.07 15.07 13.16 13.81
-------------------------------------------------------------------------------------------------------------------------------
Shopping Centers:
Collection Denver, CO 267,812 sq. ft. 8.92 9.46 * * *
Cross County Mall Mattoon, IL 304,575 sq. ft. 4.99 4.88 4.90 4.86 4.39
Cullman Cullman, AL 92,466 sq. ft. 3.91 3.87 3.86 3.83 3.82
Harbor Plaza Aurora, CO 45,863 sq. ft. 9.86 9.44 8.73 8.42 7.82
Katella Plaza Orange, CA 52,169 sq. ft. 9.79 9.20 7.73 9.97 11.34
Oak Tree Village Lubbock, TX 45,623 sq. ft. 8.27 8.17 7.98 7.34 *
Preston Square Dallas, TX 35,508 sq. ft. 16.04 15.26 * * *
Regency Point Jacksonville, FL 67,410 sq. ft. 12.36 12.07 11.39 11.26 10.63
Westwood Tallahassee, FL 149,855 sq. ft. 6.77 6.44 6.42 5.31 5.00
-------------------------------------------------------------------------------------------------------------------------------
Merchandise Mart:
Denver Mart Denver, CO 509,008 sq. ft. 11.35 14.75 15.33 14.53 14.18
-------------------------------------------------------------------------------------------------------------------------------

-15-
17

-------------------------------------------------------------------------------------------------------------------------------
Average Room Rate
----------- ---------- ----------- ---------- ---------
Property Location Rooms 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------------

Hotels:
Best Western
Oceanside Virginia Beach, VA 110 Rooms $92.65 $90.44 $41.11 $* $*
Continental Las Vegas, NV 371 Rooms ** * * * *
Holiday Inn Kansas City, MO 196 Rooms 65.38 70.73 66.46 61.66 52.47
Piccadilly Airport Fresno, CA 185 Rooms 68.53 62.98 * * *
Piccadilly Chateau Fresno, CA 78 Rooms 55.18 50.86 * * *
Piccadilly Shaw Fresno, CA 194 Rooms 70.63 64.07 * * *
Piccadilly Fresno, CA 190 Rooms 67.42 62.22 * * *
University
Quality Inn Denver, CO 161 Rooms 54.07 53.15 46.66 44.69 42.38
Williamsburg
Hospitality House Williamsburg, VA 296 Rooms 85.87 81.87 * * *
-------------------------------------------------------------------------------------------------------------------------------

* Property was acquired in 1995, 1996, 1997 or 1998.
** Leased to a licensed casino operator.

- ------------------------------------------------------------------------------------------------------
Total Room Revenues Divided
by Total Available Rooms
- ------------------------------------------------------------------------------------------------------

Property 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------

Hotels:
Best Western
Oceanside $60.37 $54.03 $17.69 $ * $ *
Continental ** * * * *
Holiday Inn 51.38 54.13 52.63 46.31 39.27
Piccadilly Airport 41.68 35.94 * * *
Piccadilly Chateau 33.19 27.74 * * *
Piccadilly Shaw 46.71 41.17 * * *
Piccadilly University 39.42 35.65 * * *
Quality Inn 32.95 28.02 16.80 17.79 17.73
Williamsburg
Hospitality House 54.85 55.30 * * *
- ------------------------------------------------------------------------------------------------------

* Property was acquired in 1995, 1996, 1997 or 1998.
** Leased to a licensed casino operator.

-16-
18

- --------------------------------------------------------------------------------------------------
Occupancy %
- --------------------------------------------------------------------------------------------------
Property 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------

Apartments:
Ashford 98 * * * *
Bay Anchor 83 * * * *
Carriage Park 94 * * * *
Chateau Bayou 98 * * * *
Concord 33 * * * *
Conradi House 96 * * * *
Country Squire 27 * * * *
Crossing Church 98 * * * *
Daluce 94 * * * *
Edgewater Gardens 99 * * * *
Falcon House 93 * * * *
Georgetown 93 * * * *
Governor Square 92 * * * *
Grand Lagoon 80 * * * *
Greenbriar 96 * * * *
Lake Chateau 97 * * * *
Landings/Marina 87 * * * *
Lee Hills 94 * * * *
Med Villas 93 * * * *
Morning Star 100 * * * *
Northside Villas 93 * * * *
Oak Hill 97 * * * *
Park Avenue 90 * * * *
Pinecrest 90 * * * *
Regency 96 * * * *
Rolling Hills 92 * * * *
Seville 100 * * * *
Stonegate 93 * * * *
Sunset 96 * * * *
Valley Hi 100 * * * *
Villager 97 * * * *
Waters Edge III 96 * * * *
Westwood 91 * * * *
Westwood Parc 100 * * * *
White Pines 94 * * * *
Windsor Tower 96 * * * *
Arlington Place 98 95 91 95 88
Barcelona 91 94 93 96 85
Bavarian 90 92 96 92 95
Bent Tree 93 96 97 100 99
Blackhawk 94 96 95 94 96
Bridgestone 97 99 94 97 93
Candlelight Square 96 94 97 96 92
Chalet I 97 96 96 94 87
Chalet II 91 93 89 97 *
Chateau 94 95 99 97 94
Club Mar 93 99 91 95 92
Confederate Point 93 91 94 98 92
Country Place 94 88 93 95 97
- --------------------------------------------------------------------------------------------------

-17-
19

Covered Bridge 97 98 94 100 99
Fair Oaks 93 96 96 98 96
Four Seasons 96 98 94 93 96
Fox Club 89 95 88 91 95
Foxwood 90 94 93 95 97
Hidden Valley 96 96 93 97 96
Horizon East 96 93 92 94 93
Kimberly Woods 92 92 93 94 95
La Mirada 99 91 93 98 93
Lake Nora Arms 94 95 91 95 94
Lantern Ridge 97 93 95 93 98
Mallard Lake 91 93 95 97 98
Manchester Commons 91 95 93 95 94
Mesa Ridge 95 98 88 92 95
Nora Pines 95 92 94 97 95
Oak Hollow 97 94 91 97 99
Oak Tree 99 95 94 96 95
Olde Towne 90 94 92 91 94
Pheasant Ridge 89 93 94 97 85
Pines 92 90 93 90 88
Place One 93 92 96 96 92
Quail Point 89 91 96 86 90
Regency 87 98 95 88 97
Regency Falls 82 92 93 93 90
Rockborough 94 94 92 92 96
Santa Fe 92 93 91 92 90
Shadowood 94 96 97 97 98
Sherwood Glen 90 94 96 93 93
Stonebridge 95 100 98 92 92
Summerwind 97 96 92 91 92
Sun Hollow 93 97 90 96 92
Tanglewood 92 93 92 95 96
Timber Creek 97 95 98 94 91
Villa Del Mar 92 97 94 90 89
Villas 94 98 95 95 97
Whispering Pines 93 94 92 93 93
Whispering Pines 95 95 89 90 92
Windridge 94 95 93 95 96
Windtree I & II 95 96 94 91 24
Woodlake 97 98 99 98 99
Woodsong II 99 96 85 99 97
Woodstock 95 92 95 96 94
- --------------------------------------------------------------------------------------------------

-18-
20

Office Buildings:
56 Expressway 91 94 88 93 85
Executive Court 96 96 95 92 92
Marina Playa 97 100 99 97 95
Melrose Business Park 80 93 90 97 81
One Hickory Center 0 * * * *
Rosedale Towers 94 93 91 90 94
University Square 81 100 84 90 82
- --------------------------------------------------------------------------------------------------
Shopping Centers:
Collection 94 82 * * *
Cross County Mall 90 89 90 95 87
Cullman 98 97 98 100 96
Harbor Plaza 86 94 97 78 87
Katella Plaza 71 71 71 71 71
Oak Tree Village 70 90 89 91 *
Preston Square 77 92 * * *
Regency Point 91 83 84 81 95
Westwood 93 93 74 59 81
- --------------------------------------------------------------------------------------------------
Merchandise Mart:
Denver Mart 92 93 95 96 97
- --------------------------------------------------------------------------------------------------
Hotels:
Best Western
Oceanside 65 60 42 * *
Continental ** * * * *
Holiday Inn 79 77 79 75 75
Piccadilly Airport 61 50 * * *
Piccadilly Chateau 60 49 * * *
Piccadilly Shaw 66 62 * * *
Piccadilly University 59 49 * * *
Quality Inn 61 53 36 40 42
Williamsburg
Hospitality House 64 60 * * *
- --------------------------------------------------------------------------------------------------

* Property was acquired in 1995, 1996, 1997 or 1998.
** Leased to a licensed casino operator.

Occupancy presented above is without reference to whether leases in
effect are at, below or above market rates.

As of March 31, 1999, none of the Company's properties had a book value
which exceeded 10% of the Company's total assets. For the fiscal quarter ended
March 31, 1999, the revenues of the Denver Merchandise Mart exceeded 10% of the
Company's total revenues.

Denver Merchandise Mart. The Denver Merchandise Mart is a wholesale
trade mart located in Denver, Colorado. No tenant occupies ten percent or more
of the rentable square footage of the Denver Merchandise Mart. The principal
business carried on in or from the Denver Merchandise Mart is wholesale sales of
goods.

-19-
21

The following table shows lease expiration information for the tenants
of the Denver Merchandise Mart at March 31, 1999:

Number of Gross Leased % of Aggregate
Leases Area 1999 Minimum 1999 Minimum
Year Expiring(a) (Sq. Ft.) Annual Rent Annual Rent
---- ----------- ------------ ------------ -----------

Month to Month 9 8,877 $ 136,992 2.57
1999 189 109,463 1,788,744 31.61
2000 132 106,017 1,739,616 30.62
2001 168 118,870 1,907,796 34.33
2002 2 754 -- .22
2003 -- -- -- --
2004 -- -- -- --
2005 -- -- -- --
2006 1 2,278 -- --
------ --------
TOTAL 501 346,259 $ 5,573,148 100.0
====== ======== =========== =====

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

(a) Assumes no renewal options will be exercised in order to show the
earliest termination of the leases.

In October 1997, the Company refinanced the mortgage debt secured by
the Denver Merchandise Mart for $25.0 million. The new loan is secured by a
mortgage against the Denver Merchandise Mart. The Company received net
refinancing proceeds of $10.2 million after the payoff of $14.8 million in
existing mortgage debt that was scheduled to mature in October 1997. The new
loan bears interest at 8.3% per annum, requires monthly principal and interest
payments of $198,000 and matures in October 2012. In March 1999, the lender
funded an additional $5.0 million, as provided in the loan documents. The
principal balance of the mortgage debt as of March 31, 1999 was $29.5 million.
The Company substantially completed a renovation and expansion of the Denver
Merchandise Mart in December 1997.

In October 1997, the Company contributed the Denver Merchandise Mart to
a limited partnership in exchange for $6.0 million in cash, a 1% managing
general partner interest in the partnership, all of the Class B limited partner
units in the partnership and the partnership's assumption of the mortgage debt
secured by that property. The existing general and limited partners converted
their general and limited partner interests into Class A limited partner units
in the partnership. The Class A units have an agreed value of $1.00 per unit and
are entitled to a fixed preferred return of 10% per annum, paid quarterly. The
Class A units may be converted into a total of 529,000 shares of the Company's
Series F Preferred Stock at any time after the first but not later than the
sixth anniversary of the closing, on the basis of one share of Series F
Preferred Stock for each ten Class A units.

Real estate taxes are levied against the Denver Merchandise Mart for
county and township, and school tax purposes. Denver Merchandise Mart paid
$448,262 in real estate taxes in 1998. The 1998 millage rate was 8.3351/100. The
Company estimates that Denver Merchandise Mart will owe approximately $402,000
in real estate taxes in 1999. Real estate taxes are substantially reimbursed by
the tenants through real estate tax recovery billings.

-20-
22

As of March 31, 1999, for Federal income tax purposes, the Company
depreciates the Denver Merchandise Mart under the MACRS as follows:

Buildings:

Gross Federal Income Tax Basis $ 27,315,538
Accumulated Depreciation $ 9,680,861
Depreciation Method MACRS - Straight Line
Depreciable Life Various

Land Improvements:

Gross Federal Income Tax Basis $ 207,070
Accumulated Depreciation $ 37,336
Depreciation Method MACRS - 150% Declining Balance
Depreciable Life 15 years

Personal Property:

Gross Federal Income Tax Basis $ 954,189
Accumulated Depreciation $ 681,273
Depreciation Method MACRS - 200% Declining Balance
Depreciable Life Various

In November 1994, the Company and an affiliate of BCM, an affiliate of
and advisor to the Company, sold five apartment complexes with a total of 880
units to a newly formed limited partnership in exchange for $3.2 million in
cash, a 27% limited partner interest in the partnership and two mortgage notes
receivable, secured by one of the properties sold. The Company had the option to
reacquire the properties at any time after September 1997 for their original
sales prices. Accordingly, a deferred gain of $5.6 million which was offset
against the Company's investment in the partnership. In February 1998, the
Company reacquired three of the properties for $7.7 million. The Company paid
$4.0 million in cash and assumed the existing mortgages of $3.7 million.
Simultaneously the Company refinanced the three properties for a total of $7.8
million, receiving net cash of $3.9 million after paying off of $3.7 million in
mortgage debt and the payment of various costs. The new mortgages bear interest
at 9.5% per annum, require monthly principal and interest payments of a total of
$66,000 and mature in February 2008. In June 1998, the remaining two properties
were reacquired for $8.6 million. The Company paid $2.1 million in cash and
assumed the existing mortgages of $6.5 million. The mortgages bear interest at
8.73% per annum, require monthly principal and interest payments of a total of
$57,000 and mature in January 2019.

In April 1998, the Company foreclosed on the Continental Hotel and
Casino in Las Vegas, Nevada, the collateral securing a wraparound mortgage note
with a principal balance of $22.7 million at March 31, 1998. The property is
classified as held for investment. See "Mortgage Loans," below.

In May 1998, but effective April 1, 1998, the Company purchased the IGI
Properties in a single transaction for $55.8 million. The IGI Properties include
29 apartment complexes totaling 2,441 units in Florida and Georgia. The Company
acquired the properties through three newly-formed Texas limited partnerships.
The partnerships paid a total of $6.1 million in cash, assumed $43.4 million in
existing mortgage debt and issued a total of $6.6 million in Class A Limited
Partner units in the acquiring partnerships, having the Company as the Class B
Limited Partner and a wholly-owned subsidiary of the Company, as the Managing
General Partner. The Class A Limited Partners were entitled to an annual
preferred return of $.08 per unit in 1998 and are entitled to an annual
preferred return of $.09 per unit in 1999 and $.10 per unit in 2000 and
thereafter. The units are exchangeable at any time on or before April 30, 2008,
into shares of Series F Preferred Stock on the basis of ten units for one share
of Series F Preferred Stock. The mortgages bear interest at rates

-21-
23

ranging between 7.86% and 11.22% per annum, require monthly principal and
interest payments totaling $384,000 and mature between July 1, 2000 and
September 1, 2017.

In November 1998, the Company purchased two apartment complexes with a
total of 423 units in Indianapolis, Indiana for $7.2 million. The properties
were acquired through a newly-formed controlled partnership. The partnership
paid a total of $14,000 in cash, assumed $5.9 million in mortgage debt and
issued $649,486 in class A limited partner units in the acquiring partnership,
in which the Company is the Class B limited partner and a wholly-owned
subsidiary of the Company is the Managing General Partner. The Class A units are
exchangeable after November 18, 1999, into shares of Series F Preferred Stock on
the basis of ten units for one share of Series F Preferred Stock. The assumed
mortgages bear interest at 9.95% per annum and 10.75% per annum, one requires
monthly payments of interest and principal of $25,000 and matures in October
2012 and the other requires monthly interest only payments and matures in June
1999.

At December 31, 1997, the Company had under construction One Hickory
Center, a 102,615 sq. ft. office building in Farmers Branch, Texas. Construction
was completed in December 1998, at a cost of $7.8 million.

In January 1999, the Partnership sold the 199 unit Olde Towne
Apartments in Middleton, Ohio, for $4.6 million, receiving net cash of $4.4
million after the payment of various closing costs. A gain of $2.2 million was
recognized on the sale.

In February 1999, the Partnership sold the 225 unit Santa Fe Apartments
in Kansas City, Missouri, for $4.6 million, receiving net cash of $4.3 million
after the payment of various closing costs. A gain of $706,000 was recognized on
the sale.

Also in February 1999, the Partnership obtained mortgage financing
secured by the unencumbered Melrose Business Park in Oklahoma City, Oklahoma, in
the amount of $900,000, receiving net cash of $870,000 after the payment of
various closing costs. The mortgage bears interest at a variable rate, currently
8.5% per annum, requires monthly payments of principal and interest of $8,000
and matures in February 2019.

Further in February 1999, the Partnership obtained mortgage financing
secured by the unencumbered 56 Expressway Office Building in Oklahoma City,
Oklahoma, in the amount of $1.7 million, receiving net cash of $1.7 million
after the payment of various closing costs. The mortgage bears interest at a
variable rate, currently 8.5% per annum, requires monthly payments of principal
and interest of $15,000 and matures in February 2019.

In February 1999, the Partnership sold the 480 unit Mesa Ridge
Apartments in Mesa, Arizona, for $19.5 million, receiving net cash of $793,000
after the payment of various closing costs and remitting $17.8 million to the
lender to hold in escrow pending a substitution of collateral. Such funds will
be released when substitute collateral is approved. If substitute collateral is
not provided by August 1999, $13.0 million of the escrow will be applied against
the mortgage's principal balance, approximately $800,000 will be retained by the
lender as a prepayment penalty and the remaining $4.0 million will be returned
to the Partnership. A gain of $9.6 million was recognized on the sale, after
consideration of payment of the prepayment penalty.

In April 1999, the Partnership sold the 166 unit Horizon East
Apartments in Dallas, Texas, for $4.0 million, receiving net cash of $1.2
million after paying off $2.6 million in mortgage debt and the payment of
various closing costs. A gain will be recognized on the sale.

Also in April 1999, the Partnership sold the 120 unit Lantern Ridge
Apartments in Richmond, Virginia, for $3.4 million, receiving net cash of
$880,000 after the payment of various closing costs. The purchaser assumed the
$2.4 million mortgage secured by the property. A gain will be recognized on the
sale.

-22-
24

Properties Held for Sale . Set forth below are the Company's properties
held for sale, at December 31, 1998, consisting of improved and unimproved land:

Property Location Acres
-------- -------- -----

Atlanta Atlanta, GA 3.5 Acres
Bad Lands Duchense, UT 420.0 Acres
Bonneau Dallas County, TX 8.4 Acres
Chase Oaks Plano, TX 39.0 Acres
Croslin Dallas, TX .8 Acres
Dalho Farmers Branch, TX 3.4 Acres
Dessert Wells Palm Dessert, CA 420.0 Acres
Dowdy Collin County, TX 165.0 Acres
Eldorado Parkway Collin County, TX 8.5 Acres
FRWM Cummings Farmers Branch, TX 6.4 Acres
Hollywood Casino Farmers Branch, TX 51.7 Acres
HSM Farmers Branch, TX 6.2 Acres
Jeffries Ranch Oceanside, CA 82.4 Acres
JHL Connell Carrollton, TX 7.7 Acres
Katrina Palm Dessert, CA 454.8 Acres
Katy Road Harris County, TX 130.6 Acres
Keller Tarrant County, TX 811.8 Acres
Lacy Longhorn Farmers Branch, TX 17.1 Acres
Las Colinas I Las Colinas, TX 46.1 Acres
Marine Creek Fort Worth, TX 54.2 Acres
Mason/Goodrich Houston, TX 244.8 Acres
McKinney Corners I Collin County, TX 30.4 Acres
McKinney Corners II Collin County, TX 173.9 Acres
McKinney Corners III Collin County, TX 15.5 Acres
McKinney Corners IV Collin County, TX 31.3 Acres
McKinney Corners V Collin County, TX 9.7 Acres
Mendoza Dallas, TX .35 Acres
Messick Palm Springs, CA 72.0 Acres
Pantex Collin County, TX 182.5 Acres
Parkfield Denver, CO 329.4 Acres
Pioneer Crossing Austin, TX 1,448.0 Acres
Plano Parkway Plano, TX 81.2 Acres
Rasor Plano, TX 141.7 Acres
Santa Clarita Santa Clarita, CA 19.5 Acres
Scoggins Tarrant County, TX 314.5 Acres
Scout Tarrant County, TX 546.0 Acres
Stagliano Farmers Branch, TX 3.2 Acres
Stone Meadow Houston, TX 13.5 Acres
Thompson Farmers Branch, TX 4.0 Acres
Thompson II Dallas County, TX 3.5 Acres
Tomlin Farmers Branch, TX 9.2 Acres
Tree Farm - LBJ Dallas County, TX 10.4 Acres
Valley Ranch Irving, TX 319.8 Acres
Valley Ranch III Irving, TX 12.5 Acres
Valley Ranch IV Irving, TX 12.4 Acres
Valwood Dallas, TX 280.0 Acres
Van Cattle McKinney, TX 126.6 Acres

-23-
25

Property Location Acres
-------- -------- -----

Vineyards Grapevine, TX 15.8 Acres
Vista Business Park Travis County, TX 41.8 Acres
Vista Ridge Lewisville, TX 160.0 Acres
Walker Dallas County, TX 132.6 Acres
Yorktown Harris County, TX 325.8 Acres
Other (7 properties) Various 113.5 Acres

In January 1998, the Company purchased El Dorado Parkway land, a 8.5
acre parcel of unimproved land in McKinney, Texas, for $952,000. The Company
paid $307,000 in cash, assumed the existing mortgage of $164,000, and obtained
seller financing of the remaining $481,000 of the purchase price. The mortgage
bears interest at 10% per annum, requires semiannual payments of principal and
interest of $18,000 and matures in May 2005. The seller financing bears interest
at 8% per annum, requires semiannual principal and interest payments of $67,000
and matures in January 2002.

Also in January 1998, the Company purchased Valley Ranch IV land, a
12.3 acre parcel of unimproved land in Irving, Texas, for $2.0 million. The
Company paid $500,000 in cash and obtained seller financing of the remaining
$1.5 million of the purchase price. The financing bears interest at 10% per
annum, requires quarterly payments of interest only and matures in December
2000.

Further in January 1998, the Company purchased JHL Connell land, a 7.7
acre parcel of unimproved land in Carrollton, Texas, for $1.3 million in cash.

In February 1998, the Company purchased Scoggins land, a 314.5 acre
parcel of unimproved land in Tarrant County, Texas, for $3.0 million. The
Company paid $1.5 million in cash and obtained mortgage financing of $1.5
million. The mortgage bore interest at 14% per annum, required quarterly
payments of interest only, required a principal paydown of $300,000 in May 1998,
which was paid, and matured in February 1999. In May 1998, the Company
refinanced the mortgage debt along with the debt secured by its Scout land
parcel under the Las Colinas I term loan, as discussed below.

Also in February 1998, the Company purchased Bonneau land, a 8.4 acre
parcel of unimproved land in Dallas County, Texas, for $1.0 million. The Company
obtained mortgage financing of $1.0 million. The mortgage bore interest at 18.5%
per annum with principal and interest due at the maturity in February 1999. The
Company's JHL Connell land was pledged as additional collateral for this loan.
In March 1999, the Company refinanced the mortgage debt secured by the property
along with the mortgage debt secured by the Dalho and Stagliano land parcels
under the Las Colinas I term loan in the amount of $703,000. The Company paid an
additional $1.5 million in cash to pay off the $2.1 million in mortgage debt and
accrued but unpaid interest.

Further in February 1998, the Company financed its unencumbered
Kamperman land in the amount of $1.6 million, receiving net cash of $1.5 million
after the payment of various closing costs. The mortgage bears interest at 9.0%
per annum, requires monthly payments of interest only and matures in February
2000.

In February 1998, the Company financed its unencumbered Valley Ranch
land in the amount of $4.3 million, receiving net cash of $4.1 million after the
payment of various closing costs. The mortgage bears interest at 9.0% per annum,
requires monthly payments of interest only and matures in February 2000.

Also in February 1998, the Company refinanced the mortgage debt secured
by its Vineyards land in the amount of $3.4 million, receiving net cash of $2.3
million, after paying off mortgage debt of $540,000 and the payment of various
closing costs. The new mortgage bears interest at 9.0% per annum, requires
monthly payments of interest only and matures in February 2000.

In March 1998, the Company financed its unencumbered Stagliano and
Dalho land in the amount of $800,000 with the lender on the Bonneau land,
described above, receiving net cash of $790,000 after the payment of various
closing costs. The mortgage bore interest at 18.5% per annum with principal and
interest due at maturity in February 1999. The Company's JHL Connell land was
pledged as additional collateral for this loan. In March 1999, the Company
refinanced the

-24-
26

mortgage debt secured by the property along with the mortgage debt secured by
the Dalho and Stagliano land parcels under the Las Colinas I term loan in the
amount of $703,000. The Company paid an additional $1.5 million in cash to pay
off the $2.1 million in mortgage debt and accrued but unpaid interest.

Also in March 1998, the Company purchased Desert Wells land, a 420 acre
parcel of unimproved land in Palm Desert, California, for $12.0 million. The
Company paid $400,000 in cash, obtained mortgage financing of $10.0 million and
obtained seller financing of the remaining $1.6 million of the purchase price.
The mortgage bore interest at 4.5% above the prime rate, currently 12.25% per
annum, required monthly payments of interest only and matured in March 1999. The
seller financing bore interest at 10% per annum, required monthly payments of
interest only and matured in July 1998. The seller financing was paid off at
maturity in July 1998. The mortgage lender has agreed to an extension of its
matured mortgage to March 2000. All other terms would remain unchanged.

Further in March 1998, the Company refinanced the mortgage debt secured
by the McKinney Corners I, II, III, IV and V and Dowdy land in the amount of
$20.7 million, receiving net cash of $5.9 million after the payoff of $2.5
million in existing mortgage debt, the paydown of $10.2 million on the Las
Colinas I term loan and the payment of various closing costs. the Company also
pledged 800,000 shares of Series F Preferred Stock as additional security for
the loan. The new mortgage bore interest at 12% per annum, required monthly
payments of interest only and matured in March 1999. The lender has agreed to
extend its mature mortgage to January 2000, for a 2% fee and a paydown of any
net refinancing proceeds received by the Company from refinancing the
Williamsburg Hospitality House. All other terms would remain unchanged.

In April 1998, the Company purchased Yorktown land, a 325.8 acre parcel
of unimproved land in Harris County, Texas, for $7.4 million. the Company paid
$3.0 million in cash and obtained seller financing of the remaining $4.4 million
of the purchase price. The seller financing bore interest at 8.5% per annum,
required monthly payments of interest only and matured in February 1999. the
Company has received a written commitment from a lender to refinance the matured
mortgage in the amount of $4.8 million. The new mortgage financing closed on
April 5, 1999.

Also in April 1998, the Company sold a 77.7 acre tract of its
Lewisville land parcel, for $6.8 million, receiving net cash of $153,000 after
paying off first and second lien mortgages totaling $5.9 million and the payment
of various closing costs. the Company recognized a gain of $1.9 million on the
sale.

Further in April 1998, the Company obtained a second lien mortgage of
$2.0 million secured by its BP Las Colinas land from the limited partner, at the
time, in a partnership that owned approximately 15.8% of the outstanding shares
of Common Stock. The mortgage bore interest at 12% per annum, with principal and
interest due at maturity in October 1998.

In April 1998, the Company refinanced the mortgage debt secured by its
Parkfield land in the amount of $7.3 million, receiving net cash of $1.2 million
after paying off $5.0 million in mortgage debt and the payment of various
closing costs. The new mortgage bears interest at 9.5% per annum, requires
monthly payments of interest only and matures in April 2000.

In May 1998, the Company sold a 15.4 acre tract of its Valley Ranch
land parcel, for $1.2 million, receiving no net cash after paying down by $1.1
million the mortgage secured by that land parcel and the payment of various
closing costs. the Company recognized a gain of $663,000 on the sale.

Also in May 1998, the Company purchased the FRWM Cummings land, a 6.4
acre parcel of unimproved land in Farmers Branch, Texas, for $1.2 million in
cash.

Further in May 1998, the Company sold a 21.3 acre tract of the
Parkfield land parcel, for $1.3 million, receiving no net cash after paying down
by $1.1 million the mortgage secured by that land parcel and the payment of
various closing costs. The Company recognized a gain of $670,000 on the sale.

-25-
27

In May 1998, the Company refinanced the mortgage debt secured by its
Scout and Scoggins land in the amount of $10.4 million under the Las Colinas I
term loan, receiving net cash of $6.6 million after paying off $1.4 million in
mortgage debt on the Scout land and $1.5 million in mortgage debt on the
Scoggins land, a pay down of $250,000 on the Keller land mortgage, and the
payment of various closing costs. The Company also pledged 250,000 shares of its
Common Stock and BCM, an affiliate of and advisor to the Company, pledged
177,000 shares of the Company's Common Stock as additional security on the term
loan.

In June 1998, the Company sold a 21.6 acre tract of its Chase Oaks
land, for $3.3 million, receiving net cash of $418,000 after paying down by $2.0
million the mortgage secured by that land parcel and the payment of various
closing costs. The Company recognized a gain of $848,000 on the sale.

Also in June 1998, the Company sold a 150.0 acre tract of its Rasor
land, for $6.8 million, receiving net cash of $1.4 million after paying down by
$5.3 million the mortgage secured by that land parcel and the payment of various
closing costs. The Company recognized a gain of $789,000 on the sale.

Further in June 1998, the Company sold its entire 315.2 acre Palm
Desert land parcel, for $17.2 million, receiving net cash of $8.6 million after
paying off $7.2 million in mortgage debt and the payment of various closing
costs. The Company recognized a gain of $3.9 million on the sale.

In July 1998, the Company purchased Thompson II land, a 3.5 acre parcel
of unimproved land in Dallas County, Texas, for $471,000 in cash.

Also in July 1998, the Company purchased, through a newly formed
partnership, the Katrina land, a 454.8 acre parcel of improved land in Palm
Desert, California, for $38.2 million. The partnership issued $23.2 million of
Class A limited partner units and obtained mortgage financing of $15.0 million.
The Class A limited partners were entitled to an annual preferred return of $.07
per unit in 1998, and are entitled to an annual preferred return of $.08 per
unit in 1999, $.09 per unit in 2000 and $.10 per unit in 2001 and thereafter.
The Class A units may be converted into shares Series H Preferred Stock anytime
after July 13, 1999 on the basis of 100 Class A units for each share of Series H
Preferred Stock. The Series H Preferred Stock may be converted into Common Stock
using a 90% factor starting in December 2000.

Further, in July 1998, the Company purchased the Walker land, a 132.6
acre parcel of unimproved land in Dallas County, Texas, for $12.8 million in
cash. Also in July, the Company obtained mortgage financing of $13.3 million,
receiving net cash of $12.8 million after the payment of various closing costs.
The mortgage bears interest at 15.5% per annum, requires monthly payments of
interest only and matures in July 1999. The mortgage is also secured by the FRWM
Cummings land.

In July 1998, the Company sold a 2.5 acre tract of its Las Colinas I
land parcel, for $1.6 million, receiving net cash of $605,000 after paying down
by $750,000 the Las Colinas I term loan secured by that land parcel and the
payment of various closing costs. The Company recognized a gain of $869,000 on
the sale.

In August 1998, the Company financed its unencumbered Keller land in
the amount of $5.0 million under the Las Colinas I term loan, receiving net cash
of $4.9 million after the payment of various closing costs.

In September 1998, a newly formed controlled limited partnership, in
which the Company has a combined 95% general and limited partner interest,
purchased the Messick land, a 72.0 acre parcel of unimproved land in Palm
Springs, California, for $3.5 million. The Company paid $1.0 million in cash and
obtained seller financing of the remaining $2.5 million of the purchase price.
The seller financing bears interest at 8.5% per annum, requires quarterly
payments of interest only, principal payments of $300,000 in July 1999 and July
2000, and matures in July 2001.

Also in September 1998, the Company sold a 60.0 acre tract of its
Parkfield land parcel, for $1.5 million, receiving no net cash after paying down
by $1.4 million the mortgage secured by that land parcel and the payment of
various closing costs. The Company recognized a gain of $44,000 on the sale.

-26-
28

Further in September 1998, the Company purchased HSM land, a 6.2 acre
parcel of unimproved land in Farmers Branch, Texas, for $2.2 million in cash.

In September 1998, the Company sold the remaining 10.5 acres of its BP
Las Colinas land for $4.7 million, receiving net cash of $1.8 million after
paying off $2.6 million in mortgage debt and the payment of various closing
costs. The Company recognized a gain of $3.4 million on the sale.

Also in September 1998, the Company purchased Vista Ridge land, a 160
acre parcel of unimproved land in Lewisville, Texas, for $15.6 million. The
Company paid $3.1 million in cash and obtained mortgage financing of $12.5
million. The mortgage bears interest at 15.5% per annum, requires monthly
interest only payments at a rate of 12.5% per annum with the deferred interest
and principal due at maturity in July 1999.

Further in September 1998, the Company sold its entire 30.0 acre
Kamperman land parcel for $2.4 million, receiving net cash of $584,000 after
paying down by $1.6 million the Las Colinas I term loan secured by that parcel
and the payment of various closing costs. The Company recognized a gain of
$969,000 on the sale.

In September 1998, the Company sold a 1.1 acre tract of its Santa
Clarita land parcel for $543,000, receiving net cash of $146,000 after paying
down by $350,000 the Las Colinas I term loan secured by that land parcel and the
payment of various closing costs. The Company recognized a gain of $409,000 on
the sale.

Also in September 1998, the Company purchased Marine Creek land, a 54.2
acre parcel of unimproved land in Fort Worth, Texas, for $2.2 million in cash.

Further in September 1998, the Company obtained second lien financing
of $5.0 million secured by its Katy Road land from the limited partner, at the
time, in a partnership that owned approximately 15.8% of the outstanding shares
of the Company's Common Stock. The second lien mortgage bears interest at 12.5%
per annum, compounded monthly, with principal and interest due at maturity in
June 1999. The loan is guaranteed by Gene E. Phillips.

In October 1998, the Company purchased Vista Business Park land, a 41.8
acre parcel of unimproved land in Travis County, Texas, for $3.0 million. The
Company paid $730,000 in cash and obtained mortgage financing of $2.3 million.
The mortgage bears interest at 8.9% per annum, requires monthly payments of
interest only and matures in September 2000.

Also in October 1998, the Company purchased Stone Meadows land, a 13.5
acre parcel of unimproved land in Houston, Texas, for $1.6 million. The Company
paid $491,000 in cash and obtained seller financing for the remaining $1.1
million of the purchase price. The seller financing bears interest at 10% per
annum, requires quarterly principal and interest payments of $100,000 and
matures in October 1999.

Further in October 1998, the Company financed its unencumbered Rasor
land in the amount of $15.0 million, receiving net cash of the $13.5 million
after the payment of various closing costs. Portions of the Company's Las
Colinas I and Valwood land parcels are included as additional collateral for
this loan. The Company used the proceeds from this loan along with an additional
$1.8 million to payoff the $15.8 million in mortgage debt secured by its Las
Colinas I and Valwood land parcels. The new mortgage bears interest at 14% per
annum, required a principal reduction payment of $3.0 million in November 1998,
requires monthly interest only payments and matures in September 1999.

In October 1998, the Company purchased Mendoza land, a .35 acre parcel
of unimproved land in Dallas, Texas, for $180,000. The Company paid $27,000 in
cash and obtained seller financing for the remaining $153,000 of the purchase
price. The seller financing bears interest at 10% per annum, requires quarterly
interest only payments and matures in October 2001.

Also in October 1998, the Company purchased Croslin land, a .8 acre
parcel of unimproved land in Dallas, Texas, for $306,000. The Company paid
$46,000 in cash and obtained seller financing for the remaining $260,000 of the
purchase

-27-
29
price. The seller financing bears interest at 10% per annum, requires quarterly
interest only payments and matures in October 2001.

Further in October 1998, the Company financed its unencumbered Marine
Creek and HSM land in the amount of $2.8 million under the Las Colinas I term
loan, receiving net cash of $2.7 million after the payment of various closing
costs.

In November 1998, the Company obtained a $95.0 million line of credit
from GCLP, a partnership controlled by NOLP. The Company received fundings of
$18.9 million in November 1998, $31.1 million in December 1998, and an
additional $26.7 million in the first quarter of 1999. The line of credit is
secured by second liens on the Company's Waters Edge III, Edgewater Gardens,
Chateau Bayou and Sunset Apartments, Rosedale Towers Office Building, Katy Road
land and the stock of its wholly-owned subsidiaries, NMC, the general partner of
the Partnership, and the Company Holdings, Inc., which owns 3,349,535 NRLP units
of limited partner interest. The loan bears interest at 12% per annum, requires
monthly interest only payments and matures in November 2003. The Company
accounted for its investment in the Partnership under the equity method until
December 1998 when NMC was elected general partner of the Partnership. As of
December 31, 1998, the accounts of the Partnership are consolidated with those
of the Company. The line of credit is eliminated in consolidation.

Also in November 1998, the Company purchased Mason/Goodrich land, a
265.5 acre parcel of unimproved land in Houston, Texas, for $10.9 million. The
Company paid $3.7 million in cash and obtained mortgage financing of $7.2
million. The mortgage bore interest at 8.9% per annum, required monthly interest
only payments and matured in February 1999. In March 1999, the Company sold two
tracts of its Mason/Goodrich land parcel totaling 9.9 acres for $956,000,
receiving net cash of $4,000 after paying down by $860,000 the mortgage secured
by that land parcel and the payment of various closing costs. A gain will be
recognized on the sale. The lender has agreed to extend its matured mortgage to
September 1999, for a $500,000 principal paydown. All other terms of the loan
would remain unchanged.

In December 1998, the Company purchased Plano Parkway land, a 81.2 acre
parcel of unimproved land in Plano, Texas, for $11.1 million. The Company paid
$2.2 million in cash and obtained seller financing of the remaining $8.9 million
of the purchase price. The seller financing bore interest at 10% per annum and
required the payment of principal and interest at maturity in January 1999. In
February 1999, the Company sold a 4.6 acre tract for $1.2 million receiving net
cash of $1.1 million after payment of various closing costs. A gain of $473,000
was recognized on the sale. Simultaneously with the sale, the debt securing the
parcel was refinanced in the amount of $7.1 million. The new mortgage bears
interest at the prime rate plus 4.5%, currently 12.25% per annum, requires
monthly interest only payments and matures in January 2000. The net cash from
the sale and refinancing along with an additional $921,000 were used to pay off
the seller financing.

Also in December 1998, the Company purchased Van Cattle land, a 126.6
acre parcel of unimproved land in McKinney, Texas, for $2.0 million. The Company
paid $500,000 in cash and obtained seller financing for the remaining $1.5
million of the purchase price. The seller financing bears interest at 10% per
annum, requires monthly interest only payments and matures in December 2000.

Further in December 1998, the Company sold two tracts totaling 63.1
acres of its Valley Ranch land parcel for $4.2 million, receiving net cash of
$135,000 after a $3.0 million paydown on the mortgage secured by that land
parcel and the payment of various closing costs. No gain or loss was recognized
on the sales.

In December 1998, the Company financed its unencumbered Valwood land in
the amount of $12.0 million, receiving net cash of $4.7 million after paying
down by $5.5 million the Rasor land mortgage and the payment of various closing
costs. The mortgage bears interest at 13% per annum, requires monthly payments
of interest only and matures in December 2000.

In the third and fourth quarters of 1998, provisions for loss of $3.0
million and $916,000, respectively, were recorded to write down the Valley Ranch
land to its estimated realizable value less estimated costs of sale. Such write
downs were necessitated by an increase in the acreage designated as flood plain.

-28-
30

In February 1999, the Company purchased Frisco Bridges land, a 336.8
acre parcel of unimproved land in Collin County, Texas, for $46.8 million. The
Company paid $7.8 million in cash and obtained mortgage financing totaling $39.0
million. Seller financing in the amount of $22.0 million, secured by 191.5 acres
of the parcel, bears interest at 14% per annum, requires monthly interest only
payments and matures in January 2000. A mortgage in the amount of $15.0 million,
secured by 125.0 acres of the parcel, bears interest at the prime rate plus
4.5%, currently 12.25% per annum, requires principal reduction payments of $1.0
million on each of May 1, June 1 and July 1, and $3.0 million on August 1 and
November 1, 1999 in addition to monthly interest payments and matures in
February 2000. Another mortgage in the amount of $2.0 million, secured by 13.5
acres of the parcel, bears interest at 14% per annum, requires monthly interest
only payments and matures in January 2000. The Company's Double O land in Las
Colinas, Texas and its Desert Wells land in Palm Desert, California are pledged
as additional collateral for these loans. The Company drew down $6.0 million
under its line of credit with the GCLP, for a portion of the cash requirement.

In March 1999, the Company obtained a second mortgage on its Frisco
Bridges land in the amount of $2.0 million. The mortgage bears interest at 12.5%
per annum, and requires interest and principal to be paid at maturity in June
1999.

Also in March 1999, the Las Colinas I term loan lender provided
additional financing on the Company's Stagliano, Dalho, Bonneau and Valley Ranch
III land in the amount of $2.2 million. The proceeds from this financing along
with an additional $1.4 million in cash were used to pay off the $3.1 million in
mortgage debt secured by those land parcels.

Further in March 1999, the Company sold a 13.0 acre tract of its Rasor
land parcel, for $1.6 million, receiving no net cash after paying down by $1.5
million the mortgage debt secured by that land parcel and the payment of various
closing costs. A gain of $979,000 was recognized on this sale.

In March 1999, the Company sold two tracts totaling 9.9 acres of its
Mason/Goodrich land parcel, for $956,000, receiving net cash of $33,000 after
paying down by $860,000 the mortgage debt secured by that land parcel and the
payment of various closing costs. A gain of $432,000 was recognized on the sale.

Also in March 1999, the Company sold, in a single transaction, a 13.7
acre tract of its McKinney II land parcel and a 20.0 acre tract of its McKinney
IV land parcel, for $7.7 million, receiving no net cash after paying down by
$5.5 million the mortgage secured by that land parcel, the funding of required
escrows and the payment of various closing costs. A gain of $3.1 million was
recognized on the sale.

At March 31, 1999, the mortgage debt secured by the Company's McKinney
I, II, III, IV, V and Dowdy land in the amount of $15.2 million matured. The
Company and the lender had reached an agreement to extend the mortgage's
maturity to January 2000 in exchange for, among other things, the Company's
payment of an extension fee and a loan paydown. On March 31, 1999, the Company
requested a loan payoff letter from the lender intending to refinance the
maturing debt. Such letter contained a demand for fees and other consideration
that management believes the lender is not entitled to receive under the loan
documents. The lender began foreclosure proceedings. On April 30, 1999, the
Court granted a temporary restraining order to prevent foreclosure. On May 12,
1999, a hearing was held on the Company's request for a temporary injunction. As
of June 7, 1999, the Court had not ruled on the request. On May 28, 1999, the
Court did extend the temporary restraining order. The Company continues to
negotiate with the lender.

In April 1999, the Company refinanced the matured mortgage debt secured
by its Yorktown land in the amount of $4.8 million, receiving net cash of
$580,000 after paying off $4.0 million in mortgage debt and the payment of
various closing costs. The new mortgage bears interest at the prime rate plus
4.5%, currently 12.25% per annum, requires monthly interest only payments, a
principal reduction payment of $368,000 in July 1999 and matures in February
2000.

Competition . Identifying, completing and realizing on real estate
investments has from time to time been highly competitive, and involves a high
degree of uncertainty. The Company competes for investments with many public and
private real estate investment vehicles, including financial institutions (such
as mortgage banks, pension funds and real estate investment trusts) and other
institutional investors, as well as individuals. Many of those with whom the
Company competes

-29-
31

for investments and its services are far larger than the Company, may have
greater financial resources than the Company and may have management personnel
with more experience than the officers of the Company.

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 may acquire existing mortgage loans either directly
from builders, developers or property owners, or through mortgage banking firms,
commercial banks or other qualified brokers. BCM, an affiliate of and advisor to
the Company, services the Company's mortgage notes receivable in its capacity as
a mortgage servicer.

Types of Properties Subject to Mortgages . The types of properties
securing the Company's mortgage notes receivable portfolio at March 31, 1999
consisted of commercial properties (an office building and shopping centers),
unimproved land and partnership interests. The board of directors of the Company
may alter the types of properties subject to mortgages in which the Company
invests without a vote of the Company's stockholders.

At March 31, 1999, the obligors on $594,000 or 1.1% of the Company's
mortgage notes receivable portfolio were affiliates of the Company. Also at that
date, $3.7 million or 6.5% of the Company's mortgage notes receivable portfolio
was nonperforming.

A summary of the activity in the Company's mortgage notes receivable
portfolio during 1998 and through March 31, 1999 is as follows:

Loans in mortgage notes receivable portfolio
at January 1, 1998.................. 11*
Partnership loans....................... 19
Loans funded............................ 2
Loans collected in full................. (6)
Loans sold.............................. (3)
Loan foreclosed......................... (1)
---
Loans in mortgage notes receivable portfolio
at March 31, 1999................... 22*
===

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

* Includes a mortgage note receivable collateralized by two condominium
mortgage loans at January 1998 and one condominium mortgage loan at March
31, 1999.

During 1998, the Company collected $188,000 in interest and $3.1 million in
principal on its mortgage notes receivable. During the first three months of
1999, the Company collected $772,000 in interest and $10.9 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 remainder of 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 or all interest 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 title
policy or an acceptable legal opinion of title as to the

-30-
32

validity and the priority of the Company's 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 1998 and through April 30, 1999.

As of December 31, 1998, the Company sold a matured first mortgage note at
its carrying value of $124,000 to BCM, an affiliate of and advisor to the
Company. No gain or loss was recognized on the sale. See "Junior Mortgage
Loans," below.

During 1998 and the first quarter of 1999, the Partnership funded a total
of $11.9 million of a $23.8 million loan commitment to Centura Tower, Ltd. The
loan is secured by 2.2 acres of land and an office building under construction
in Dallas, Texas. The loan bears interest at 12.0% per annum, requires monthly
payments based on net revenues after development of the land and building and
matures in January 2003. The borrower has not obtained a construction loan,
therefore, the Partnership may be required to fund construction costs in excess
of its loan commitment, in order to preserve its collateral interest. Estimated
cost to construct the office building is in excess of $60.0 million.
Through April 1999, the Partnership funded an additional $2.3 million.

In August 1998, the Partnership funded a $6.0 million loan to Centura
Holdings, LLC, a subsidiary of Centura Tower, Ltd. The loan is secured by 6.4109
acres of land in Dallas, Texas. The loan bears interest at 15.0% per annum and
matures in August 2000. All principal and interest are due at maturity. In
February 1999, the Partnership funded an additional $37,500.

In 1997 and 1998, the Partnership funded a $3.8 million loan to Stratford &
Graham Developers, L.L.C. The loan is secured by 1,485 acres of unimproved land
in Riverside County, California. The loan bears interest at 15.0% per annum and
matures in June 1999. All principal and interest are due at maturity. In the
first quarter of 1999, the Partnership funded an additional $119,000 increasing
the loan balance to $3.9 million. In April 1999, the Partnership funded an
additional $66,000, increasing the loan balance to $4.0 million.

In March 1998, the Partnership ceased receiving the required payments on a
$3.0 million note receivable secured by an office building in Dallas, Texas. In
October 1998, the Partnership began foreclosure proceedings. In March 1999, the
Partnership received payment in full, including accrued but unpaid interest.

Wraparound Mortgage Loans . The Company may invest in wraparound mortgage
loans, sometimes called all-inclusive loans, 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 loan plus the amount actually advanced under the
wraparound mortgage loan. Wraparound mortgage loans may provide for full,
partial or no amortization of principal. The Company's policy is to make
wraparound mortgage loans 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 1998 and through April 30, 1999.

In December 1997, the Company sold its Pin Oak Land, a 567.6 acre parcel of
unimproved land in Houston, Texas, for $11.4 million. In connection with that
sale, the Company provided $6.9 million in short term purchase money financing
that was paid in full in January 1998.

In June 1992, the Company sold the Continental Hotel and Casino in Las
Vegas, Nevada, for among other consideration, a $22.0 million wraparound
mortgage note. In March 1997, the wraparound note was modified and extended in
exchange for, among other things, the borrower's commitment to invest $2.0
million in improvements to the hotel and casino within four months of March
1997, and an additional $2.0 million prior to December 1997. The borrower
stopped making the required payments in April 1997, and did not make the
required improvements. In December 1997, the borrower filed for

-31-
33

bankruptcy protection. In February 1998, a hearing was held to allow the Company
to foreclose on the hotel and casino. At the hearing, the bankruptcy court
allowed the borrower 90 days to submit a reorganization plan and beginning March
2, 1998 required the borrower to make monthly payments of $175,000 to the
Company. The Company received only the first payment. The Company's wraparound
mortgage note had a principal balance of $22.7 million at March 31, 1998. In
April 1998, the bankruptcy court allowed the Company to foreclose on the hotel
and casino. The Company did not incur a loss on foreclosure as the fair value of
the property exceeded the carrying value of the Company's mortgage note
receivable.

At December 1998, the Partnership's one wraparound mortgage note receivable
with a principal balance of $5.0 million, was in default. The Partnership has
been vigorously pursuing its rights regarding the loan. If the Partnership
should be unsuccessful and the underlying lienholder forecloses the collateral
property, the Partnership will incur no loss in excess of previously established
reserves.

Junior Mortgage Loans . The Company may invest in junior mortgage loans.
Junior Mortgage 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 those notes ordinarily includes the real estate which secures the
note, other collateral and personal guarantees of the borrower.

The following discussion briefly describes the events that affected
previously funded junior mortgage notes during 1998 and through April 30, 1999.

In December 1997, the Company sold two tracts of Valley Ranch land,
totaling 25.1 acres, for $3.3 million. In conjunction with the sale, the Company
provided $891,000 in purchase money financing. The purchase money financing bore
interest at 10.0% per annum and matured in January 1998. The Company received a
$624,000 paydown on the purchase money financing in January 1998, with the
remaining $267,000 being received in February 1998.

As of December 31, 1998, the Company sold two matured second lien mortgage
notes at their carrying values totaling $504,000 to BCM, an affiliate of and
advisor to the Company. No gain or loss was recognized on the sale. See "First
Mortgage Loans," above.

In October 1998, the Partnership funded three loans to JNC or affiliated
entities. The first JNC loan of $1.0 million is secured by a second lien on 3.5
acres of land in Dallas, Texas, the guaranty of the borrower and the personal
guarantees of its partners. The loan bears interest at 14.0% per annum and
matures in October 1999. All principal and interest are due at maturity. The
second loan, also $1.0 million, was secured by a second lien on 2.9 acres of
land in Dallas, Texas, the guaranty of the borrower and the personal guarantees
of its partners. The loan bore interest at 14.0% per annum and matured in
October 1999. All principal and interest were due at maturity. This loan was
paid in full in March 1999. The third loan, in the amount of $2.1 million was to
Frisco Panther Partners, Ltd. The loan is secured by a second lien on 408.2
acres of land in Frisco, Texas, the guaranty of the borrower and the personal
guarantees of its partners. The loan bears interest at 14.0% per annum and
matures in October 1999. All principal and interest are due at maturity. These
loans are cross-collateralized with other JNC loans funded by the Partnership.
In January 1999, the Partnership received a paydown of $820,000 on the Frisco
Panther Partners, Ltd. loan.

In December 1998, the Partnership funded $3.3 million of a $5.0 million
loan commitment to JNC. The loan is secured by a second lien on 1,791 acres of
land in Denton County, Texas, and a second lien on 220 acres of land in Tarrant
County, Texas. The loan bears interest at 12.0% per annum and matures in
December 1999. All principal and interest are due at maturity. The loan is
cross-collateralized with other JNC loans funded by the Partnership. In January
1999, the Partnership received a $1.3 million paydown. In January and February
1999, the Partnership funded an additional $2.0 million.

In March 1999, the Company funded $322,000 of a $2.0 million loan
commitment to Lordstown, L.P. The loan is secured by second liens on land in
Ohio and Florida and 100% of the general and limited partnership interest in
Partners Capital, Ltd. and a 50% profits interest in subsequent land sales. The
loan bears interest at 14% per annum and matures in March 2000, with all
principal and interest due at maturity. The remaining $1.7 million was funded in
April 1999.

-32-
34

Other

Beginning in 1997 and through January 1999, the Partnership funded a $1.6
million loan commitment to Bordeaux . The loan is secured by (1) a 100% interest
in Bordeaux, which owns a shopping center in Oklahoma City, Oklahoma; (2) 100%
of the stock of Bordeaux Investments One, Inc., which owns 6.5 acres of
undeveloped land in Oklahoma City, Oklahoma; and (3) the personal guarantees of
the Bordeaux partners. The loan bears interest at 14.0% per annum. Until
November 1998, the loan required monthly payments of interest only at the rate
of 12.0% per annum, with the deferred interest payable at maturity in January
1999. In November 1998, the loan was modified to allow payments based on monthly
cash flow of the collateral property and the maturity date was extended to
December 1999. In April 1999, the Partnership funded an additional $10,000. The
property has had no cash flow, therefore, the Partnership ceased accruing
interest in the second quarter of 1999.

In June 1998, the Partnership funded a $365,000 loan to RB Land & Cattle,
L.L.C. The loan is secured by a pledge of a note secured by 7,200 acres of
undeveloped land near Crowell, Texas, and the personal guarantee of the
borrower. The loan bore interest at 10.0% per annum and matured in December
1998. All principal and interest were due at maturity. The borrower did not make
the required payments and the loan was classified as nonperforming. The
Partnership has begun foreclosure proceedings. The Partnership expects to incur
no loss on foreclosure as the fair value of the collateral property, less
estimated costs of sale, exceeds the carrying value of the note.

In August 1998, the Partnership funded a $3.7 million loan to JNC. The loan
was secured by a contract to purchase 387 acres of land in Collin County, Texas,
the guaranty of the borrower and the personal guarantees of its partners. The
loan bore interest at 12.0% per annum and matured the earlier of termination of
the purchase contract or February 1999. All principal and interest were due at
maturity. This loan was cross-collateralized with other JNC loans. In January
1999, the Company purchased the contract from JNC and acquired the land. In
connection with the purchase, GCLP funded an additional $6.0 million of its
$95.0 million loan commitment to the Company. A portion of the funds were used
to payoff the $3.7 million loan, including accrued but unpaid interest, a $1.3
million paydown of the JNC line of credit and a $820,000 paydown of the JNC
Frisco Panther Partners, Ltd. loan.

Also in August 1998, the Partnership funded a $635,000 loan to La Quinta
Partners, LLC. The loan is secured by interest bearing accounts prior to being
used as escrow deposits toward the purchase of a total of 956 acres of land in
La Quinta, California. The loan bore interest at 10.0% per annum and matured in
November 1998. All principal and interest were due at maturity. In November and
December 1998, the Partnership received $250,000 in principal paydowns and in
the second quarter of 1999, the remaining $385,000 is expected to be collected.

In April 1999, the Company funded $2.4 million loan to 261, LP. The loan is
secured by 100% of the limited partnership interest in Partners Capital, Ltd.
and a 75% profits interest in subsequent land sales. The loan bears interest at
14% per annum and matures in March 2000, with all principal and interest due at
maturity.

Related Party

In February 1999, GCLP funded a $5.0 million unsecured loan to Davister
Corp., which at March 31, 1999, owned approximately 15.8% of the outstanding
shares of Common Stock. The loan bears interest at 12.0% per annum and matures
in February 2000. All principal and interest are due at maturity. The loan is
guaranteed by BCM, an affiliate of and advisor to the Company.

INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS AND REAL ESTATE PARTNERSHIPS

The Company's investment in real estate entities includes (1) equity
securities of the Affiliated REITs, CMET, IORI and TCI, (2) units of limited
partner interest of NRLP, and (3) interests in real estate joint venture
partnerships. On December 18, 1998, NMC, a wholly-owned subsidiary of the
Company, was elected general partner of NRLP and 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. BCM, an affiliate of and advisor to the Company, also serves as advisor

-33-
35

to the Affiliated REITs, and performs certain administrative and management
functions for the Partnership on behalf of NMC.

Since acquiring its initial investments in the equity securities of the
Affiliated REITs and NRLP in 1989, the Company has made additional investments
in the equity securities of these entities through private and open market
purchases. The Company's cost with respect to shares of the Affiliated REITs at
March 31, 1999 totaled $22.0 million, and its cost with respect to units of
limited partner interest in NRLP totaled $24.3 million. The aggregate carrying
value (cost plus or minus equity in income or losses and less distributions
received) of such equity securities of the Affiliated REITs was $28.0 million at
March 31, 1999 and the aggregate market value of such equity securities was
$42.6 million. The aggregate investee book value of the equity securities of the
Affiliated REITs based upon the March 31, 1999 financial statements of each
Affiliated REIT was $70.0 million.

The board of directors of the Company has authorized the expenditure by the
Company of up to an aggregate of $35.0 million to acquire, in open market
purchases, units of NRLP and shares of the Affiliated REITs, excluding private
purchase transactions which were separately authorized. As of March 31, 1999,
the Company had expended $4.6 million to acquire units of NRLP and a total of
$6.4 million to acquire shares of the Affiliated REITs, in open market
purchases, in accordance with these authorizations. The Company expects to make
additional investments in the equity securities of the Affiliated REITs and
NRLP.

The purchases of the equity securities of the Affiliated REITs 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 Affiliated REITs 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. Substantially all of the
equity securities of the Affiliated REITs 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 Affiliated REITs and NRLP,
at March 31, 1999, is summarized below (dollars in thousands):

Percentage Carrying Equivalent
of the Company's Value of Investee Market Value
Ownership at Investment at Book Value at of Investment at
Investee March 31, 1999 March 31, 1999 March 31, 1999 March 31, 1999
- -------- -------------- -------------- -------------- --------------

NRLP....... 55.0% $ 33,589 $ * $ 58,469
CMET....... 41.1 14,713 34,708 24,558
IORI....... 30.8 3,049 7,199 3,601
TCI........ 30.9 9,82528,067 14,454

- ---------------
* The Company accounted for its investment in the Partnership under the
equity method until December 1998 when NMC, a wholly-owned subsidiary of
the Company, was elected general partner of NRLP and NOLP, as more fully
discussed in "NRLP", below. As of December 31, 1998, the accounts of the
Partnership are consolidated with those of the Company.

Each of the Affiliated REITs 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 Affiliated
REITs 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 Affiliated REITs, and that the Affiliated REITs have

-34-
36

the same advisor as the Company and that Mr. Randall M. Paulson, an Executive
Vice President of the Company, is also the President of the Affiliated REITs and
BCM, an affiliate of and advisor to the Company. 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 Affiliated REITs using the equity method. Under the equity method, the
Company recognizes its proportionate share of the income or loss from the
operations of the Affiliated REITs currently, rather than when realized through
dividends or on sale. The Company discontinued accounting for its investment in
the Partnership under the equity method as of December 31, 1998, due to the
election of NMC, a wholly-owned subsidiary of the Company, as general partner of
NRLP and NOLP, as more fully discussed in "NRLP" below. The carrying value of
the Company's investment in the Affiliated REITs, as set forth in the table
above, is the original cost of each investment adjusted for the Company's
proportionate share of each entity's income or loss and distributions received.

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 management continues to believe that the market value of
each of the Affiliated REITs and NRLP undervalues their assets and the Company
may, therefore, continue to increase its ownership in these entities in 1999.

The following is a summary description of each of NRLP and the
Affiliated REITs, based upon information publicly reported by those 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. NRLP is the sole limited partner of NOLP and owns 99% of
the beneficial interest in NOLP. In December 1998, NMC, a wholly-owned
subsidiary of the Company, was elected general partner and succeeded to SAMLP's
1% beneficial interest in each of NRLP and NOLP. NMC also assumed liability for
SAMLP's note for its capital contribution. In addition, NMC assumed liability
for a note which requires the repayment of the $11.5 million paid by the
Partnership under the Moorman litigation settlement plus the $808,000 in court
ordered attorney's fees and the $30,000 paid to Joseph B. Moorman.

In November 1992, NOLP transferred 52 apartment complexes and a
wraparound mortgage note receivable to GCLP, a Delaware limited partnership in
which NOLP owns a 99.3% limited partner interest. Concurrent with that transfer,
GCLP refinanced all of the mortgage debt associated with the transferred
properties and the wraparound mortgage note. Effective August 1998, a
wholly-owned subsidiary of the Company acquired the .7% managing general partner
interest of Garden Capital Management Incorporated in GCLP and the 1% general
partner interest of Garden Capital Incorporated in 50 single asset limited
partnerships in which GCLP is the 99% limited partner, in exchange for 250,000
shares of Series F Preferred Stock.

At March 31, 1999, the Company owned approximately 55.0% of the
outstanding limited partner units of NRLP.

NMC as general partner, 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
March 31, 1999, the aggregate loan-to-value ratio of the Partnership's real
estate portfolio was 67.4% computed on the basis of the ratio of total
property-related debt to aggregate estimated current values. As of March 31,
1999 NRLP owned 63 properties located in 21 states. These properties consisted
of 52 apartments comprising 13,053 units, five office buildings with an
aggregate of 367,271 sq. ft. and six shopping centers with an aggregate of
712,388 sq. ft.

The Partnership reported net income of $47.5 million in 1998 compared
to net income of $8.7 million in 1997. The Partnership had a loss from
operations, prior to gains on sale of real estate, of $5.1 million in 1998
compared to income of $362,000 in 1997. The decline in the Partnership's 1998
income from operations was due to $13.0 million of GCLP deferred borrowing costs
written off on the refinancing of the GCLP properties in 1998 and the sale of 10
apartments and two shopping centers by the Partnership in 1998. The decline was
mitigated by a 4% increase in average rental rates at the

-35-
37

Partnership's apartments and an average 4% increase in rental rates at the
Partnership's commercial properties coupled with an average 1% decrease in
occupancy at the Partnership's apartments and an average 3.5% decrease in
occupancy at the Partnership's commercial properties.

The Partnership's cash flow from property operations (rents collected
less payments for property operations) decreased to $42.9 million in 1998 from
$50.5 million in 1997. At December 31, 1998, the Partnership had total assets of
$337.8 million, which consisted of $167.4 million of real estate held for
investment, $114.5 million of notes and interest receivable, $46.9 million of
investments in equity securities and other assets and $9.0 million in cash and
cash equivalents.

For the fiscal quarter ended March 31, 1999, the Partnership reported
net income of $17.4 million compared to net income of $508,000 in the fiscal
quarter ended March 31, 1998. The Partnership's net income for the fiscal
quarter ended March 31, 1999, included gains on the sale of real estate of $15.7
million, there were no such gains in the fiscal quarter ended March 31, 1998.

The Partnership has paid quarterly distributions to unitholders since
the fourth quarter of 1993. In 1998, the Company received a total of $7.2
million in distributions from the Partnership including $5.5 million that was
accrued at December 31, 1997.

The Company owns a 96% limited partner interest in SAMLP. SAMLP was the
general partner of the Partnership until December 18, 1998 when NMC, a
wholly-owned subsidiary of the Company, was elected general partner. Gene E.
Phillips, a Director and Chairman of the board of directors of the Company until
November 16, 1992, is also a general partner of SAMLP.

The Partnership, SAMLP and Mr. Phillips, were among the defendants in a
class action lawsuit arising out of the formation of the Partnership. The
Moorman Settlement Agreement became effective on July 5, 1990. The Moorman
Settlement Agreement provided for, among other things, the appointment of the
NRLP Oversight Committee and the establishment of specified annually increasing
targets for a five-year period relating to the price of NRLP units of limited
partner interest.

The Moorman Settlement Agreement provided for the resignation and
replacement of SAMLP as general partner if the unit price targets were 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 to meet the unit price targets for two
successive years and that it expected to resign as general partner of NRLP and
NOLP.

The Moorman Settlement Agreement provided that the withdrawal of SAMLP
as general partner would require the Partnership to purchase SAMLP's 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, calculated the fair value of that Redeemable General
Partner Interest to be $49.6 million at December 31, 1997 before reduction for
the principal balance ($4.2 million at December 31, 1997) and accrued interest
($7.2 million at December 31, 1997) on the note receivable from SAMLP for its
original capital contribution to the Partnership.

On July 15, 1998, NRLP, SAMLP and the NRLP Oversight Committee executed
the Cash Distribution Agreement which provides for the nomination of an entity
affiliated with SAMLP to be the successor general partner of NRLP, for the
distribution of $11.4 million to the plaintiff class members and for the
resolution of all related matters under the Moorman Settlement Agreement. The
Cash Distribution Agreement was submitted to the Court on July 23, 1998. On
August 4, 1998, the Court entered an order granting preliminary approval of the
Cash Distribution Agreement. On September 9, 1998, a notice was mailed to the
plaintiff class members describing the Cash Distribution Agreement. On October
16, 1998, a hearing was held to consider any objections to the Cash Distribution
Agreement. On October 23, 1998, the Court entered an order granting final
approval of the Cash Distribution Agreement. The Court also entered orders
requiring NRLP to pay $404,000 in attorney's fees to Joseph B. Moorman's legal
counsel, $30,000 to Joseph B. Moorman and $404,000 in attorney's fee to Robert
A. McNeil's legal counsel.

-36-
38

Pursuant to the order, $11.4 million was deposited by the Partnership
into an escrow account and then transferred to the control of an independent
settlement administrator. The distribution of the cash shall be made to the
plaintiff class members pro rata based upon the number of units originally
issued to each plaintiff class member upon the formation of the Partnership in
1987. On March 10, 1999, the Court entered an order providing for the initial
distribution of the cash not later than March 31, 1999. The distribution of cash
commenced on March 24, 1999 and is under the control of the independent
settlement administrator.

The proposal to elect NMC, a wholly-owned subsidiary of the Company, as
the successor general partner was submitted to the unitholders of NRLP for a
vote at a special meeting held on December 18, 1998. All units of NRLP owned by
affiliates of the Company and SAMLP (approximately 61.8% of the outstanding
limited partner units of NRLP as of the November 27, 1998 record date) were
voted pro rata with the vote of the other limited partners. NMC was elected by a
majority vote of the NRLP unitholders. On December 18, 1998, SAMLP withdrew as
general partner and NMC, as successor general partner, took office. Upon the
election and taking of office of NMC as the successor general partner, the
Moorman Settlement Agreement terminated.

Under the Cash Distribution Agreement, SAMLP waived its right under the
Moorman Settlement Agreement to receive any payment from NRLP for its Redeemable
General Partner Interest and fees it was entitled to receive upon the election
of a successor general partner. In addition, pursuant to the Cash Distribution
Agreement, the NRLP partnership agreement was amended to provide that, upon
voluntary resignation of the general partner, the resigning general partner
shall not be entitled to the repurchase of its general partner interest under
Paragraph 17.9 of the NRLP partnership agreement.

Under the Cash Distribution Agreement, NMC as successor general partner
assumed liability for the note from SAMLP for its capital contribution to NRLP.
In addition, NMC assumed liability for a note which requires the repayment to
NRLP of the $11.4 million paid by NRLP under the Cash Distribution Agreement
plus the $808,000 in Court ordered attorney's fees and the $30,000 paid to
Joseph B. Moorman. This note requires repayment over a ten-year period, bears
interest at a variable rate, currently 7.2% per annum and is guaranteed by the
Company, which is the parent of NMC and (as of December 31, 1998) was the owner
of approximately 55.0% of the outstanding units of NRLP. As of December 31,
1998, the Company discontinued accounting for its investment in the Partnership
under the equity method upon the election of NMC as general partner of the
Partnership and the settlement of the Moorman litigation. The Company began
consolidation of the Partnership's accounts at that date and its operations
subsequent to that date.

In August 1996, the Company consolidated its existing NRLP margin debt
held by various brokerage firms into a single margin loan. The Company pledged
3,349,169 of its NRLP units as security for that margin loan which had a
principal balance of $10.6 million at September 30, 1998. The margin loan was
currently due and payable. Subsequent to September 30, 1998, the Company paid
down that loan by $5.0 million. At December 31, 1998, the loan had a principal
balance of $5.0 million. In February 1999, the loan was paid off.

CMET . CMET is a California business trust which was organized on
August 27, 1980 and commenced operations on December 3, 1980. CMET's 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. CMET holds equity investments in apartment complexes and
commercial properties (office buildings, industrial warehouses 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. At December 31, 1998, CMET
owned 57 income producing properties located in 14 states consisting of 34
apartment complexes comprising of 6,158 units, 11 office buildings with an
aggregate of 2.1 million sq. ft., 11 industrial warehouses with an aggregate of
1.6 million sq. ft. and a shopping center with 133,558 sq. ft. CMET also holds
mortgage notes receivable secured by real estate located in the Southeast,
Southwest and Midwest regions of the continental United States, with a
concentration in the Southeast and Southwest regions.

CMET reported net income of $347,000 in 1998 as compared to net income
of $4.2 million in 1997. CMET's 1998 net income included gains on the sale of
real estate of $6.1 million, whereas its 1997 net income included gains on the
sale of real estate of $8.2 million. CMET's cash flow from property operations
improved to $28.9 million in 1998 from $23.7 million in 1997. At December 31,
1998, CMET had total assets of $333.8 million, which consisted of $294.2 million
of real

-37-
39

estate held for investment, $3.3 million of real estate held for sale,
$3.4 million of notes and interest receivable, $30.7 million of investments in
marketable equity securities and other assets and $2.2 million in cash and cash
equivalents.

For the fiscal quarter ended March 31, 1999, CMET reported a net loss
of $1.6 million compared to net income of $3.6 million in the fiscal quarter
ended March 31, 1998. CMET's net loss for the fiscal quarter ended March 31,
1999, included gains on the sale of real estate of $152,000 compared to $5.6
million in the fiscal quarter ended March 31, 1998.

On September 25, 1998, CMET and TCI announced that they had reached an
agreement for CMET to be acquired by TCI. TCI will issue 1.181 shares of its
common stock for each share of CMET. A date for the special meeting of
shareholders to vote on the merger proposal has been set for June 29, 1999.

CMET has paid quarterly distributions since the first quarter of 1993.
The Company received a total of $868,000 in distributions from CMET in 1998.

IORI . IORI is a Nevada corporation which was originally organized on
December 14, 1984 as a California business trust and commenced operations on
April 10, 1985. Like CMET, IORI's business is investing in real estate through
direct equity investments and partnerships. IORI holds equity investments in
apartment complexes and commercial properties (office buildings) in the Pacific,
Southeast and Southwest regions of the continental United States. At December
31, 1998, IORI owned 14 income producing properties located in four states.
These properties consisted of four apartment complexes comprising 654 units and
ten office buildings with an aggregate of 620,577 sq. ft.

IORI reported a net loss of $679,000 in 1998 as compared to net income
of $3.3 million in 1997. IORI's net income in 1997, is attributable to $4.0
million of gains on sale of real estate. IORI had no such gains in 1998. IORI's
cash flow from property operations increased to $7.9 million in 1998 from $6.5
million in 1997. At December 31, 1998, IORI had total assets of $88.7 million,
which consisted of $83.7 million, which consisted of $83.7 million in real
estate held for investment, $4.9 million in investments in partnerships and
other assets and $103,000 in cash and cash equivalents.

For the fiscal quarter ended March 31, 1999, IORI reported a net loss
of $221,000 compared to a net loss of $89,000 in the fiscal quarter ended March
31, 1998.

IORI has paid quarterly dividends since the first quarter of 1993. The
Company received a total of $264,000 in dividends from IORI in 1998.

TCI . TCI is a Nevada corporation which was originally organized on
September 6, 1983, as a California business trust, and commenced operations on
January 31, 1984. TCI also has investment policies similar to those of CMET and
IORI. TCI holds equity investments in apartment complexes, commercial properties
(office buildings, industrial warehouses and shopping centers) and hotels
throughout the continental United States with a concentration in the Southeast
and Southwest regions. At December 31, 1998, TCI owned 72 income producing
properties located in 14 states. These properties consisted of 38 apartment
complexes comprising 7,000 units, 19 office buildings with an aggregate of 1.6
million sq. ft., six industrial warehouses with an aggregate of 1.5 million sq.
ft., five shopping centers with an aggregate of 489,103 sq. ft. and four hotels
with a total of 209 rooms. TCI also holds mortgage notes receivable secured by
real estate located in the Southeast and Southwest regions of the continental
United States.

TCI reported net income of $6.9 million in 1998 as compared to net
income of $12.6 million in 1997. TCI's net income for 1998 included gains on the
sale of real estate of $12.6 million whereas its net income for 1997 included
gains on the sale of real estate of $21.4 million. TCI's cash flow from property
operations increased to $29.8 million in 1998 as compared to $16.2 million in
1997. At December 31, 1998, TCI had total assets of $382.2 million, which
consisted of $347.4 million in real estate held for investment, $1.4 million in
real estate held for sale, $3.4 million in investments in real estate entities,
$19.5 million in notes and interest receivable and other assets and $10.5
million in cash and cash equivalents. At December 31, 1998, TCI owned 345,728
shares of IORI's common stock, approximately 22.7% of IORI's shares then
outstanding.

-38-
40

For the fiscal quarter ended March 31, 1999, TCI reported net income of
$289,000 compared to a net loss of $1.2 million in the fiscal quarter ended
March 31, 1998. TCI's net income for the fiscal quarter ended March 31, 1999,
included gains on the sale of real estate of $1.9 million, there were no such
gains in the fiscal quarter ended March 31, 1998.

On September 25, 1998, TCI and CMET announced that they had reached
agreement for TCI to acquire CMET. TCI will issue 1.181 shares of its common
stock for each share of CMET. A date of the special meeting of stockholders to
vote on the merger proposal has been set for June 29, 1999.

TCI has paid quarterly dividends since the fourth quarter of 1995. In
1998, the Company received a total of $1.9 million in dividends from TCI,
including $1.2 million accrued in December 31, 1997.

River Trails II . In January 1992, the Company entered into a
partnership agreement with an entity affiliated with a limited partner, at the
time, in a partnership that owned approximately 15.8% 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
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. Through December 31, 1997, 214
residential lots had been sold. During 1998, an additional 52 lots were sold and
at December 31, 1998 and March 31, 1999, 21 lots remained to be sold. During
1998, each partner received $418,000 in return of capital distributions from the
partnership and $493,000 in profit distributions. No such distributions have
been received in 1999.

R. G. Bond, Ltd . In June 1995, the Company purchased the corporate
general partner of a limited partnership which owned apartment complexes in
Illinois, Florida and Minnesota, with a total of 900 units. In August 1998, in
conjunction with the sale of the apartment complexes, the Company sold its
general partner interest for $903,000 in cash. The Company recognized a gain of
$270,000 on the sale. In December 1998, the Company received a return of capital
distribution of $100,000.

Campbell Center Associates, Ltd. In April 1996, the Company purchased a
28% general partner interest in Campbell Associates which in turn had a 56.25%
interest in Campbell Centre Joint Venture, which owned at the time a 413,175 sq.
ft. office building in Dallas, Texas. The purchase price of the general partner
interest was $550,000 in cash and a $500,000 note. In January 1997, the Company
exercised its option to purchase an additional 28% general partner interest in
Campbell Associates. The purchase price was $300,000 in cash and a $750,000
note. In July 1997, the Company purchased an additional 9% general partner
interest in Campbell Associates for $868,000 in cash. In March 1998,
Consolidated Equity Properties, Inc., a wholly-owned subsidiary of the Company,
acquired a 30% limited partner interest in Campbell Associates for $500,000 in
cash. In June 1998, the Company purchased the remaining 5% general partner
interest in Campbell Associates for $1.1 million in cash. Also in June 1998,
Campbell Centre Joint Venture sold the office building for $32.2 million in
cash. Campbell Associates, as a partner, received net cash of $13.2 million from
the sales proceeds and escrowed an additional $190,000 for pending parking lot
issues. Campbell Associates recognized a gain of $8.2 million on the sale.

Highway 380/Preston Partners, Ltd. In June 1996, a newly formed limited
partnership, of which the Company is 1% general partner, purchased 580 acres of
unimproved land in Collin County, Texas for $5.7 million in cash. The Company
contributed $100,000 in cash to the partnership with the remaining $5.6 million
being contributed by the limited partner. The partnership agreement designates
the Company as the managing general partner. At January 1, 1998, 251.9 acres
remained to be sold. In January 1998, the partnership sold a 155.4 acre tract
for $2.9 million. The partnership received $600,000 in cash and provided
financing of an additional $2.2 million. Of the net sales proceeds, $300,000 was
distributed to the limited partner and $300,000 was distributed to the Company
as general partner in accordance with the partnership agreement. The seller
financing bore interest at 12% per annum, required monthly payments of interest
only and matured in July 1998. The seller financing was collected at maturity,
with the net proceeds being distributed $1.1 million to the limited partner and
$1.1 million to the Company as general partner. The partnership recognized a
gain of $1.2 million on the sale. In September 1998, the partnership sold the
remaining 96.5 acres for $1.3 million in cash. Of the net proceeds, $587,000 was
distributed to the limited partner and $587,000 was distributed to the Company
as general partner. The partnership recognized a gain of $128,000 on the sale.

-39-
41

Elm Fork Branch Partners, Ltd. In September 1997, a newly formed
limited partnership of which the Company is a 1% general partner and 21.5%
limited partner, purchased a 422.4 acre parcel of unimproved land in Denton
County, Texas, for $16.0 million in cash. The Company contributed $3.6 million
in cash to the partnership with the remaining $12.4 million being contributed by
the other limited partners. The partnership agreement designates the Company as
the managing general partner. In September 1997, the partnership obtained
mortgage financing of $6.5 million secured by the 422.4 acres of land. The
mortgage bears interest at 10% per annum, requires quarterly payments of
interest only and matures in September 2001. The net financing proceeds were
distributed to the partners, the Company receiving a return of $2.9 million of
its initial investment. The partnership agreement also provides that the limited
partners receive a 12% preferred cumulative return on their investment before
any sharing of partnership profits occurs. One of the limited partners in the
partnership was, at the time, also a limited partner in a partnership that owned
15.8% of the outstanding shares of Common Stock.

[Remainder of Page Intentionally Left Blank]

-40-

SELECTED FINANCIAL DATA OF THE COMPANY

For the Years Ended December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(dollars in thousands, except per share)

EARNINGS DATA
Revenue .............................. $ 87,086 $ 57,031 $ 41,522 $ 22,952 $ 23,070
Expense .............................. 165,111 90,252 52,601 28,314 26,490
------------ ------------ ------------ ------------ ------------
(Loss) from operations ............... (78,025) (33,221) (11,079) (5,362) (3,420)
Equity in income (loss)
of investees ................ 37,966 10,497 1,485 (851) 292
Gain on sale of real estate .......... 17,254 20,296 3,659 2,594 379
------------ ------------ ------------ ------------ ------------
(Loss) before extraordinary
gain ........................ (22,805) (2,428) (5,935) (3,619) (2,749)
Extraordinary gain ................... -- -- 381 783 323
------------ ------------ ------------ ------------ ------------
Net (loss) ........................... (22,805) (2,428) (5,554) (2,836) (2,426)
Preferred Dividend
Requirement ................. (1,177) (206) (113) -- --
------------ ------------ ------------ ------------ ------------
(Loss) applicable to
Common Shares ............... $ (23,982) $ (2,634) $ (5,667) $ (2,836) $ (2,426)
============ ============ ============ ============ ============
PER SHARE DATA
(Loss) before extraordinary
gain ........................ $ (2.24) $ (.22) $ (.46) $ (.31) $ (.23)
Extraordinary Gain ................... -- -- .03 .07 .03
------------ ------------ ------------ ------------ ------------
Net (Loss) ........................... $ (2.24) $ (.22) $ (.43) $ (.24) $ (.20)
============ ============ ============ ============ ============
Dividends per Common Share ........... $ .20 $ .20 $ .15 $ -- $ --
Weighted average Common
Shares outstanding .......... 10,695,388 11,710,013 12,765,082 11,716,656 12,208,876
============ ============ ============ ============ ============

December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share)

BALANCE SHEET DATA
Notes and interest
receivable, net .............. $ 52,053 $ 25,526 $ 48,485 $ 49,741 $ 45,664
Real estate, net .................. 734,907 302,453 119,035 59,424 47,526
Total assets ...................... 918,605 433,799 239,783 162,033 137,362
Notes and interest
payable ...................... 768,272 261,986 127,863 61,163 45,695
Margin borrowings ................. 35,773 53,376 40,044 34,017 26,391
Stockholders' equity 38,272 63,453 47,786 53,058 55,894
Book value per
Common Share .................... $ .44 $ 3.53 $ 3.74 $ 4.53 $ 4.77

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

Shares and per share data have been adjusted for the 2 for 1 forward Common
Stock splits effected January 2, 1996 and February 17, 1997.

-41-
43

For the Three Months Ended
March 31,
1999 1998
------------ ------------
EARNINGS DATA (dollars in thousands, except per share)

Revenues ............................... $ 47,508 $ 18,249
Expenses ............................... 73,426 29,744
------------ ------------
(Loss) from operations ................. (25,918) (11,495)
Equity in income (Loss)
of investees ........................ (725) 2,387
Gain on sale of real estate ............ 17,516 --
Net (Loss) ............................. (9,127) (9,108)
Preferred dividend
requirement ......................... (566) (51)
------------ ------------
Net (Loss) applicable to
Common Shares ....................... $ (9,693) $ (9,159)
============ ============
EARNINGS PER SHARE DATA
Net (Loss) ............................. $ (.90) $ (.86)
============ ============
Dividends per share of
Common Stock ........................ $ .05 $ .05
Weighted average shares
of Common Stock
outstanding ......................... 10,742,325 10,711,921
============ ============

March 31, 1999
--------------
BALANCE SHEET DATA (dollars in thousands, except per share)

Notes and interest receivable,
net ...................................... $ 54,399
Real estate, net ............................ 766,158
Total Assets ................................ 947,712
Notes and interest payable. ................. 806,504
Margin borrowings ........................... 35,422
Stockholders' equity ........................ 28,042
Book value per Common Share ................. $ (0.52)

-42-
44

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

INTRODUCTION

The Company was organized in 1961 to provide investors with a
professionally managed, diversified portfolio of equity real estate and mortgage
loan investments selected to provided opportunities for capital appreciation as
well as current income.

LIQUIDITY AND CAPITAL RESOURCES

General . Cash and cash equivalents at March 31, 1999 totaled $3.2
million, compared with $11.5 million at December 31, 1998. Although the Company
anticipates that during the remainder of 1999 it will generate excess cash flow
from property operations, as discussed below, such excess cash is not sufficient
to discharge all of the Company's debt obligations as they mature. The Company
will therefore continue to rely on externally generated funds, including
borrowings against its investments in various real estate entities, mortgage
notes receivable, refinancing of properties and, to the extent necessary,
borrowings from its advisor to meet its debt service obligations, pay taxes,
interest and other non-property related expenses.

At December 31, 1998, notes payable totaling $168.0 million had either
scheduled maturities or required principal reduction payments during 1999.
During the first quarter of 1999, the Company either extended, refinanced, paid
down, paid off or received commitments from lenders to extend or refinance $36.8
million of the debt scheduled to mature in 1999.

Net cash used in operating activities increased to $13.4 million in the
three months ended March 31, 1999, from $1.5 million in the three months ended
March 31, 1998. Fluctuations in the components of cash flow from operations are
discussed in the following paragraphs.

Net cash from pizza operations (sales less cost of sales) in the three
months ended March 31, 1999, was $1.6 million compared to a use of $200,000 in
the three months ended March 31, 1998. The increase was due to the effects of a
more aggressive marketing and advertising strategy offset in part by record high
cheese prices in January 1999.

Net cash from property operations (rents collected less payments for
expenses applicable to rental income) increased to $3.6 million in the three
months ended March 31, 1999 from $1.2 million in 1998. The increase is primarily
attributable to the 16 land parcels and 36 apartments purchased by the Company
in 1998, and the consolidation of the Partnership effective December 31, 1998.

The Company expects an increase in cash flow from property operations
during the remainder of 1999. Such increase is expected to be derived from a
full year of operations of the 36 apartments that were acquired during 1998 and
the consolidation of the Partnership effective December 31, 1998. The Company is
also expecting substantial land sales and selected property sales to generate
additional cash.

Interest collected increased to $772,000 in the three months ended
March 31, 1999, from $203,000 in 1998. The increase was attributable to loans
funded in 1998.

Interest paid increased to $17.7 million in the three months ended
March 31, 1999, from $6.4 million in 1998. The increase was primarily due to
debt incurred or assumed relating to 16 land parcels acquired by the Company in
1998, the purchase of 36 apartments by the Company in 1998 and the consolidation
of the Partnership effective December 31, 1998.

Advisory fees paid increased to $1.1 million in the three months ended
March 31, 1999, from $760,000 in 1998. The increase was due to an increase in
the Company's gross assets, the basis for that fee.

-43-
45

General and administrative expenses paid increased to $4.1 million in
the three months ended March 31, 1999, from $2.3 million in 1998. The increase
was primarily attributable to the consolidation of the Partnership effective
December 31, 1998.

Distributions from equity investees' decreased to $306,000 in the three
months ended March 31, 1999 from $7.0 million in 1998. Included in 1998
distributions, were special distributions totaling $6.1 million from TCI and the
Partnership that had been accrued at December 31, 1997.

Other cash from operating activities increased to $3.2 million in the
three months ended March 31, 1999, from a use of $1.2 million in 1998. The
increase was due to a decrease in property prepaids, other miscellaneous
property receivables and property escrows.

In January 1999, the Partnership sold the 199 unit Olde Town Apartments
in Middleton, Ohio for $4.6 million, receiving net cash of $4.4 million after
the payment of various closing costs.

In February 1999, the Company purchased Frisco Bridges land, a 336.8
acre parcel of unimproved land in Frisco, Texas, for $46.8 million. The Company
paid $7.8 million in cash and obtained mortgage financing totaling $39.0
million.

Also in February 1999, the Company sold a 4.6 acre tract of its Plano
Parkway land parcel, for $1.2 million. Simultaneously with the sale, the
mortgage debt secured by that land parcel was refinanced in the amount of $7.1
million. The net cash from the sale and refinancing along with an additional
$921,000 were used to payoff the $8.9 million mortgage secured by the land
parcel.

Further in February 1999, the Partnership sold the 225 unit Santa Fe
Apartments in Kansas City, Missouri, for $4.6 million, receiving net cash of
$4.3 million after the payment of various closing costs.

In February 1999, the Partnership sold the 480 unit Mesa Ridge
Apartments in Mesa, Arizona, for $19.5 million, receiving net cash of $793,000
after the payment of various closing costs and remitting $17.8 million to the
lender to hold in escrow pending substitution collateral. Such funds will be
released when substitute collateral is approved. If substitute collateral is not
provided by August 1999, $13.0 million of the escrow will be applied against the
mortgage's principal balance, approximately $800,000 will be retained by the
lender as a prepayment penalty and the remaining $4.0 million will be returned
to the Partnership.

In March 1999, the Company sold two tracts totaling 9.9 acres of its
Mason/Goodrich land parcel for $956,000 in cash, receiving net cash of $33,000
after paying down by $860,000 the mortgage secured by that land parcel and the
payment of various closing costs.

Also in March 1999, the Company sold a 13.7 acre tract of its McKinney
II land parcel and a 20.0 acre tract of its McKinney IV land parcel, for $7.7
million in cash, receiving no net cash after paying down by $5.5 million the
mortgage secured by those land parcels, the funding or required escrows and the
payment of various closings costs.

Also in April 1999, the Partnership sold the 120 unit Lantern Ridge
Apartments in Richmond, Virginia, for $3.4 million, receiving net cash of
$880,000 after the payment of various closing costs. The buyer assumed the $2.4
million mortgage secured by the property.

Notes Receivable . The Company received $10.9 million in principal
payments in the three months ended March 31, 1999.

-44-
46

In February 1999, the Partnership funded a $5.0 million unsecured loan
to Davister Corp., which at March 31, 1999, owned approximately 15.8% of the
outstanding shares of Common Stock. The loan is guaranteed by BCM.

In 1998, the Partnership funded a $6.0 million loan to Centura
Holdings, LLC, a subsidiary of Centura Tower, Ltd. The loan is secured by 6.4109
acres of land in Dallas, Texas. In February 1999, the Partnership funded an
additional $37,500.

Also in 1998, the Partnership funded a $3.7 million loan to JNC. The
loan was secured by a contract to purchase 387 acres of land in Collin County,
Texas, the guaranty of the borrower and the personal guarantees of its partners.
In January 1999, the Company purchased the contract from JNC and acquired the
land. In connection with purchase, GCLP funded an additional $6.0 million of its
$95.0 million loan commitment to the Company. A portion of the funds were used
to pay off the $3.7 million loan, including accrued but unpaid interest, a $1.3
million paydown of the JNC line of credit and a $820,000 paydown of the JNC
Frisco Panther Partners, Ltd. loan.

In 1997 and 1998, the Partnership funded a $3.8 million loan to
Stratford & Graham Developers, LLC. The loan is secured by 1,485 acres of
unimproved land in Riverside County, California. In the first quarter of 1999,
the Partnership funded an additional $119,000, increasing the loan balance to
$3.9 million. In April 1999, the Partnership funded an additional $66,000,
increasing the loan balance to $4.0 million.

Also in 1998 and the first quarter of 1999, the Partnership funded $3.3
million of a $5.0 million loan commitment to JNC. The loan is secured by a
second lien on 1,791 acres of land in Denton County, Texas, and a second lien on
220 acres of land in Tarrant County, Texas. In January 1999, the Partnership
received a $1.3 million paydown on the loan.

During 1998 and the first quarter of 1999, the Partnership funded a
total of $11.9 million of a $23.8 million loan commitment to Centura Tower, Ltd.
The loan is secured by a mortgage on 2.244 acres of land and a building under
construction in Dallas, Texas. In April 1999, the Partnership funded an
additional $2.2 million.

In 1997, 1998 and 1999, the Partnership funded a $1.6 million loan
commitment to Bordeaux. The loan is secured by (1) a 100% interest in Bordeaux,
which owns a shopping center in Oklahoma City, Oklahoma; (2) 100% of the stock
of Bordeaux Investments One, Inc., which owns approximately 6.5 acres of
undeveloped land in Oklahoma City, Oklahoma; and (3) the personal guarantees of
the Bordeaux partners.

In April 1999, the Company funded the remaining $1.7 million on a $2.0
million loan commitment to Lordstown, L.P. The loan is secured by a second lien
on land in Ohio and Florida and by 100% of the general and limited partner
interest in Partners Capital, Ltd. and a 50% profits interest in subsequent land
sales.

Also in April 1999, the Company funded $2.4 million to 261, L.P. The
loan is secured by 100% of the general and limited partner interest in Partners
Capital, Ltd. and a 75% profits interest in subsequent land sales.

Notes Payable . In February 1999, the Partnership obtained mortgage
financing secured by the unencumbered 56 Expressway Office Building in Oklahoma
City, Oklahoma, in the amount of $1.7 million. The Partnership received net cash
of $1.7 million after the payment of various closing costs.

Also in February 1999, the Partnership obtained mortgage financing
secured by the unencumbered Melrose Business Park in Oklahoma City, Oklahoma, in
the amount of $900,000. The Partnership received net cash of $870,000 after the
payment of various closing costs.

In March 1999, the Company obtained a second mortgage on its Frisco
Bridges land in the amount of $2.0 million.

-45-
47

Equity Investments . During the fourth quarter of 1988, the Company
began purchasing shares of the Affiliated REITs which have the same advisor as
the Company. It is anticipated that additional equity securities of NRLP and the
Affiliated REITs will be acquired in the future through open-market and
negotiated transactions to the extent that the Company's liquidity permits.

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

The Company's cash flow from the Affiliated REIT investments is
dependent on the ability of each of the entities to make distributions. The
Company received distributions totaling $306,000 in the first quarter of 1999
from the Affiliated REITs.

The Company has margin arrangements with various brokerage firms which
provide for borrowing up to 50% of the market value of the Company's marketable
equity securities. The borrowings under those margin arrangements are secured by
equity securities of the Affiliated REITs, NRLP and the Company's trading
portfolio and bear interest rates ranging from 7.0% to 11.0%. Margin borrowing
totaled $35.4 million at March 31, 1999.

The Company expects that it will be necessary for it to sell $111.2
million, $48.0 million and $17.0 million of its land holdings during each of the
next three years to satisfy the debt on that land as it matures. If the Company
is unable to sell at least the minimum amount of land to satisfy the debt
obligations on that land as it matures, or, if it was not able to extend that
debt, the Company would either sell other of its assets to pay that debt or
return the property to the lender.

The Company's management reviews the carrying values of the Company's
properties and mortgage notes receivable at least annually and whenever events
or a change in circumstances indicate that impairment may exist. Impairment is
considered to exist if, in the case of a property, the future cash flow from the
property (undiscounted and without interest) is less than the carrying amount of
the property. For notes receivable impairment is considered to exist if it is
probable that all amounts due under the terms of the note will not be collected.
In those instances where impairment is found to exist, a provision for loss is
recorded by a charge against earnings. The mortgage note receivable review
includes an evaluation of the collateral property securing each note. The
property review generally includes selective property inspections and
discussions with the manager of the property and visits to selected properties
in the surrounding area and a review of the following: (1) the property's
current rents compared to market rents; (2) the property's expenses; (3) the
property's maintenance requirements; and, (4) the property's cash flow.

COMMITMENTS AND CONTINGENCIES

In 1996, the Company was admitted to the Valley Ranch, L.P.
partnership, as general partner and Class B Limited Partner. The existing
general and limited partners converted their general and limited partner
interests into 8,000,000 Class A units. The units are exchangeable into shares
of the Company's Series E Preferred Stock at the rate of 100 Class A units for
each share of Series E Preferred Stock. In February 1999, the Class A
unitholders notified the Company that it intended

-46-
48

to convert 100,000 Class A units into 1,000 shares of Series E Preferred Stock.
In March 1999, the Company purchased the 100,000 Class A units for $100,000. The
Company has subsequently reached agreement with the Class A unitholder to
acquire the remaining 7,900,000 Class A units for $1.00 per unit. In April 1999,
900,000 units were purchased and 1 million units will be purchased in July and
October 1999 and January 2000 and 2 million units in May 2001 and May 2002.

RESULTS OF OPERATIONS

Fiscal Quarter Ended March 31, 1999, Compared to the Fiscal Quarter
Ended March 31, 1998. For the three months ended March 31, 1999, the Company
reported a net loss of $9.1 million, comparable to the net loss of $9.1 million
for the three months ended March 31, 1998. The primary factors contributing to
the Company's net loss are discussed in the following paragraphs.

Pizza parlor sales and cost of sales were $7.1 million and $6.2
million, respectively, in the three months ended March 31, 1999 compared to $6.8
million and $5.8 million in 1998. The increased sales were primarily
attributable to the effects of a more aggressive marketing and advertising
strategy, offset by an increase in cost of sales attributable to record high
cheese prices in January 1999. Cheese prices returned to more historic levels in
February 1999.

Rents increased to $40.2 million in the three months ended March 31,
1999 from $11.6 million in 1998. Rents from commercial properties increased to
$7.3 million for the three months ended March 31, 1999 from $4.9 million in
1998, rent from hotels of $6.7 million in the three months ended March 31, 1999
approximated the $6.3 million in 1998 and rent from apartments increased to
$26.0 million in the three months ended March 31, 1999 compared to $204,000 in
1998. The increase in commercial property rents was primarily attributable to
the consolidation of the Partnership effective December 31, 1998 and the
increase in apartment rent was due to the 36 apartments acquired by the Company
in 1998 and the consolidation of the Partnership effective December 31 1998.
Rental income is expected to increase significantly in 1999 as a result of the
consolidation of the Partnership's operations subsequent to December 31, 1998.

Property operations expense increased to $27.9 million in the three
months ended March 31, 1999 from $9.7 million in 1998. Property operations
expense for commercial properties increased to $3.8 million in the three months
ended March 31, 1999 from $2.7 million in 1998. For hotels expenses of $5.5
million in the three months ended March 31, 1999 approximated the $5.4 million
in 1998. For land expenses increased to $2.7 million in the three months ended
March 31, 1999 from $1.5 million in 1998. For apartments expense was $15.8
million in the three months ended March 31, 1999 and $120,000 in 1998. The
increase in commercial property operations expense was primarily due to the
consolidation of the Partnership effective December 31, 1998. The increase for
land was primarily due to the 16 land parcels acquired in 1998. Property
operations expense for apartments was due to the 36 apartments acquired by the
Company in 1998 and the consolidation of the Partnership effective December 31,
1998. Property operations expense is expected to increase significantly in the
remainder of 1999 as a result of the consolidation of the Partnership's
operations subsequent to December 31, 1998.

Interest income from mortgage notes receivable increased to $1.9
million in the three months ended March 31, 1999 from $138,000 in 1998. The
increase of $1.1 million is attributable to loans funded by the Partnership in
1998. Interest income is expected to increase significantly in the remainder of
1999 as a result of the consolidation of the Partnership's operations subsequent
to December 31, 1998.

Other income increased to a loss of $1.7 million in the three months
ended March 31, 1999 from a loss of $209,000 in 1998. The Company recognized an
unrealized decrease in market value of its trading portfolio securities of $1.8
million in the three months ended March 31, 1999 compared to $400,000 in 1998.

Interest expense increased to $21.1 million in the three months ended
March 31, 1999 from $9.5 million in 1998. Of the increase $7.1 million was
attributable to the consolidation of the Partnership, effective December 31,
1998, $3.2 million was due to 16 parcels of land acquired in 1998 and $413,000
was due to the 36 apartments the Company acquired in 1998. In the remainder of
1999, interest expense is expected to continue to rise due to a full year of
operations from the 36 apartments acquired by the Company in 1998 and the
consolidation of the Partnership, effective December 31, 1998.

-47-
49

Depreciation expense increased to $4.5 million in the three months
ended March 31, 1999 from $1.2 million in 1998. The increase was attributable to
the consolidation of the Partnership effective December 31, 1998 and the
Company's acquisition of 36 apartments in 1998.

Advisory fees increased to $1.1 million in the three months ended March
31, 1999 from $760,000 in 1998. The increase was attributable to the increase in
the Company's gross assets, the basis for that fee. Such fee is expected to
increase as the Company's gross assets increase.

General and administrative expenses increased to $4.1 million in the
three months ended March 31, 1999 from $2.3 million in 1998. The increase was
primarily attributable to the consolidation of the Partnership effective
December 31, 1998.

Minority interest increased to $8.4 million in the three months ended
March 31, 1999 from $488,000 in 1998. Of the increase, $8.0 million was
attributable to the consolidation of the Partnership effective December 31,
1998.

Equity in income of investees decreased to a loss of $725,000 in the
three months ended March 31, 1999 from income of $2.4 million in 1998. The
decrease in equity income was attributable to the consolidation of the
Partnership effective December 31, 1998 and the lack of gains from the sale of
real estate in the Affiliated REITs.

In the three months ended March 31, 1999, the Company recognized $17.5
million in gains on sale of real estate. In the first quarter of 1999, the
Company recognized a $472,000 gain on the sale of a 4.6 acre tract of its Plano
Parkway land, a $432,000 gain on the sale of a 9.9 acre tract of its
Mason/Goodrich land, a $3.1 million gain on the sale of two tracts of its
McKinney II and McKinney IV land totaling 33.7 acres and a $979,000 gain on the
sale of a $13.0 acre tract of its Rasor land. GCLP recognized a $2.2 million
gain on the sale of the Olde Towne Apartments, a $706,000 gain on the sale of
the Santa Fe Apartments and a $9.6 million gain on the sale of the Mesa Ridge
Apartments.

1998 Compared to 1997. The Company reported a net loss of $22.8 million
in 1998 as compared to a net loss of $2.4 million in 1997. The primary factors
contributing to the Company's net loss are discussed in the following
paragraphs.

Sales and cost of sales were $28.9 million and $24.8 million in 1998
and $25.0 million and $20.0 million, respectively, in 1997. These items of
revenue and cost relate to PWSI. PWSI experienced lower profit margins in 1998
due to higher labor and pizza ingredient costs, primarily cheese. Cheese prices
have declined since January 1, 1999.

Rents increased to $63.5 million in 1998 from $29.1 million in 1997.
Rent from commercial properties increased to $16.5 million in 1998 from $13.9
million in 1997, rent from hotels increased to $32.2 million in 1998 from $14.9
million in 1997 and rent from apartments was $14.2 million in 1998. The increase
in rent from hotels was primarily attributable to a full year of operations of
the five hotels acquired in 1997, the increase in rent from commercial
properties was primarily attributable to a full year of operations of the two
shopping centers acquired in 1997 and apartment rent was due to the 36
apartments acquired in 1998. The Company owned no apartments in 1997. Rental
income is expected to increase significantly in 1999 as a result of the
consolidation of the Partnership's operations subsequent to December 31, 1998.

Property operations expense increased to $49.2 million in 1998 from
$24.2 million in 1997. Property operations expense for commercial properties of
$9.7 million in 1998 approximated the $10.0 million in 1997, for hotels that
expense increased to $24.4 million in 1998 from $11.2 million in 1997, for land
it increased to $6.3 million in 1998 from $3.0 million in 1997 and for
apartments was $8.8 million in 1998. The increase in hotel property operations
expense was primarily due to a full year of operations of the five hotels
acquired in 1997, the increase for land was primarily due to the 16 land parcels
acquired in 1998. Property operations expense for apartments was due to the 36
apartments acquired in 1998. The Company owned no apartments in 1997. Property
operations expense is expected to increase significantly in 1999 as a result of
the consolidation of the Partnership's operation subsequent to December 31,
1998.

Interest income decreased to $188,000 in 1998 from $2.8 million in
1997. The decrease was attributable to the sale of two notes receivable and the
foreclosure of the collateral securing a third note receivable in 1997 and the
foreclosure of

-48-
50

the collateral securing a wraparound mortgage note receivable in 1998. Interest
income is expected to increase significantly in 1999 as a result of the
consolidation of the Partnership's operations subsequent to December 31, 1998.

Other income decreased to a loss of $5.5 million in 1998 from income of
$168,000 in 1997. This decrease was due to recognizing an unrealized loss on
marketable equity securities of $6.1 million in 1998, compared to an unrealized
loss of $850,000 in 1997. Also contributing to the decrease was a decrease in
dividend income and net gains on sales of marketable equity securities of
$15,000 and $260,000, respectively.

Interest expense increased to $51.6 million in 1998 from $30.2 million
in 1997. Of this increase, $7.5 million was due to a full year of interest on
the debt secured by the five hotels, two shopping centers and 24 parcels of land
acquired in 1997 and an additional $10.4 million was due to debt secured by 36
apartment complexes and 16 parcels of land acquired in 1998. Interest on margin
debt also increased by $1.5 million and deferred borrowing costs by $3.5
million. Interest is expected to increase significantly in 1999 as a result of
the consolidation of the Partnership's operations subsequent to December 31,
1998.

Advisory and mortgage servicing fees increased to $3.8 million in 1998
from $2.7 million in 1997. The increase was attributable to the increase in the
Company's gross assets, the basis for that fee. Such fee will continue to
increase as the Company's gross assets increase.

General and administrative expenses increased to $8.5 million in 1998
from $7.8 million in 1997. The increase was primarily attributable to the
general and administrative expenses of a development subsidiary established in
1998. General and administrative expenses are expected to increase significantly
in 1999 as a result of the consolidation of the Partnership's operations
subsequent to December 31, 1998.

Depreciation and amortization increased to $7.0 million in 1998 from
$3.5 million in 1997. The increase was due to a full year of depreciation on the
five hotels and two shopping centers acquired in 1997 and 36 apartment complexes
acquired in 1998. Depreciation and amortization is expected to increase
significantly in 1999 as a result of the consolidation of the Partnership's
results subsequent to December 31, 1998.

In December 1998, upon the election of NMC, a wholly-owned subsidiary
of the Company, as general partner of the Partnership, NMC assumed liability for
certain legal settlement payments. Such obligation is included in litigation
expense in the accompanying Consolidated Statement of Operations.

Minority interest increased to $3.2 million in 1998 from $1.4 million
in 1997. Minority interest is the preferred return paid on limited partner units
of certain controlled limited partnerships. Minority interest in 1997 was
attributable to the preferred returns paid on a limited partner units of Ocean
Beach Partners, L.P., Valley Ranch, L.P., Grapevine American, L.P., Edina Park
Plaza Associates, L.P. and Hawthorne Lakes Associations, L.P. In 1998 preferred
returns paid on limited partner units for ART Florida Portfolio III and ART
Palm, L.L.C. also were included.

Equity in income of investees increased to $38.0 million in 1998 from
$10.5 million in 1997. The increase in equity income was attributable to an
increase totaling $55.2 million in gains on sale of real estate in IORI, the
Partnership and TCI, offset in part by a decrease of $1.2 million in CMET. The
Company's equity share of those gains was $33.3 million. This net increase was
offset by decreased operating income totaling $7.5 million in IORI, the
Partnership and CMET offset in part by an increase in operating income of $3.1
million in TCI. The Company's equity share of equity investees' net operating
losses was $6.9 million. Equity in income of investees is expected to decrease
significantly in 1999 as a result of the consolidation of the Partnership's
operations subsequent to December 31, 1998.

-49-
51

Gains on sale of real estate decreased to $17.3 million in 1998 from
$20.3 million in 1997. In 1998, the Company recognized gains of $663,000 on the
sale of three tracts totaling 78.5 acres of its Valley Ranch land in Irving,
Texas; $1.9 million on its Lewisville land in Lewisville, Texas; $714,000 on a
21.3 acre tract of its Parkfield land in Denver, Colorado; $848,000 on a 21.6
acre tract of its Chase Oaks land in Plano, Texas; $789,000 on a 150.0 acre
tract of its Rasor land in Plano, Texas; $3.9 million on its Palm Desert land in
Palm Desert, California; $869,000 on a 2.5 acre tract of its Las Colinas I land
in Las Colinas, Texas; $898,000 on its Kamperman land in Collin County, Texas;
$3.4 million on its final 10.5 acre tract of BP Las Colinas land in Las Colinas,
Texas; $409,000 on a 1.1 acre tract of its Santa Clarita land in Santa Clarita,
California; $2.6 million on a 20.8 acre tract of its Mason Goodrich land in
Houston, Texas, and the Company recognized a $179,000 previously deferred gain
on a sale of its Valley Ranch land in 1997. In 1997, the Company recognized
gains of $5.9 million on the sale of a 49.7 acre tract of BP Las Colinas land in
Las Colinas, Texas; $3.5 million on the sale of tracts totaling 116.8 acres of
Valley Ranch land in Irving, Texas; $2.7 million on the sale of a 12.5 acre
tract of Las Colinas I land in Las Colinas, Texas; $3.6 million on the sale of
Pin Oak land in Houston, Texas; $216,000 on the sale of a 99.7 acre tract of
Kamperman land in Collin County, Texas; $371,000 on the sale of a 32.0 acre
tract of Parkfield land in Denver, Colorado; $211,000 on the sale of a 86.5 acre
tract of Rasor land in Plano, Texas; $106,000 on the sale of Park Plaza Shopping
Center in Manitowoc, Wisconsin; $480,000 on the sale of the Mopac Building in
St. Louis, Missouri; and $172,000 on the sale of a mortgage note receivable. The
Company also recognized a previously deferred gain of $3.0 million on the sale
of Porticos Apartments.

1997 Compared to 1996. The Company reported a net loss of $2.4 million
in 1997 as compared to a net loss of $5.6 million in 1996. The primary factors
contributing to the Company's net loss are discussed in the following
paragraphs.

Sales and cost of sales were $25.0 million and $20.0 million in 1997
and $14.4 million and $11.0 million in 1998. The Company had no sales or cost of
sales prior to April 1996. These items of revenue and cost relate to PWSI. In
April 1996, a wholly-owned subsidiary of the Company acquired 80% of the
outstanding common stock of PWSI.

Rents increased from $20.7 million in 1996 to $29.1 million in 1997.
Rent from hotels increased from $6.1 million in 1996 to $14.9 million in 1997
and rent from commercial properties increased from $12.4 million in 1996 to
$13.8 million 1997. The increase in rent from hotels as due to the acquisition
of four hotels in October 1997 and the obtaining of a fifth hotel through
foreclosure in September 1997. The increase in rent from commercial properties
was due to the acquisition of a shopping center in September 1997.

Property operations expense increased from $15.9 million in 1996 to
$24.2 million in 1997. Property operations expense for hotels increased from
$4.8 million in 1996 to $11.2 million in 1997, for commercial properties it
decreased from $10.4 million in 1996 to $10.0 million in 1997 and for land that
expense increased from $735,000 in 1996 to $3.0 million in 1997. The increase in
hotel property operations expense was due to the acquisition of the four hotels
in October 1997 and the obtaining of a fifth hotel through foreclosure in
September 1997, the decrease for commercial properties was due to control of
property operations expenses, primarily at the Company's merchandise mart and
the increase for land was due to 24 land parcels acquired in 1997.

Interest income decreased from $4.8 million in 1996 to $2.8 million in
1997. This decrease is primarily attributable to the sale of two notes
receivable and the collection of a third note receivable in 1997.

Other income decreased from $1.7 million in 1996 to $168,000 in 1997.
This decrease is due in part to recognizing a unrealized gain on marketable
equity securities of $486,000 in 1996 compared to an unrealized loss of $850,000
in 1997. This decrease was also attributable in part to a decrease in dividend
income and net gains on sales of marketable equity securities of $67,000 and
$56,000, respectively.

Interest expense increased from $16.5 million in 1996 to $30.2 million
in 1997. Of this increase, $10.8 million is due to the debt secured by the Best
Western Oceanside Hotel acquired in 1996 and the Williamsburg Hospitality House,
Piccadilly Hotels, Pin Oak land, Scout land, Katy land, McKinney land, Lacy
Longhorn land, Santa Clarita land, Chase Oaks land, Pioneer Crossing land,
Pantex land, Keller land, Perkins land, Rasor land, Dowdy land, Palm Desert land
and LBJ land

-50-
52

acquired in 1997, $2.0 million is due to additional borrowings and a full years
interest on the loan secured by NRLP units and $1.1 million is due to
refinancing the debt secured by the Kansas City Holiday Inn and Denver
Merchandise Mart.

Advisory and mortgage servicing fees increased from $1.5 million in
1996 to $2.7 million in 1997. The increase was attributable to the increase in
the Company's gross assets, the basis for that fee.

General and administrative expenses, increased from $3.9 million in
1996 to $7.8 million in 1997. The increase was attributable to a $1.1 million
increase in legal fees and travel expenses in 1997 relating to potential
acquisitions, financings and refinancings, a $1.1 million increases in advisor
cost reimbursements and $1.3 million attributable to a full year of general and
administrative expenses of PWSI.

Depreciation and amortization increased from $2.4 million in 1996 to
$3.5 million in 1997 due to the acquisition of six properties in 1997.

Minority interest in 1997 is the preferred return paid on limited
partner units of Ocean Beach Partners, L.P., Valley Ranch, L.P., Grapevine
American, L.P., Edina Park Plaza Associates, L.P. and Hawthorne Lakes
Associates, L.P.

Equity in income of investees improved from $1.5 million in 1996 to
$10.5 million in 1997. The increase in equity income is primarily attributable
to an increase of $32.1 million in gains on sale of real estate in IORI, NRLP
and TCI offset by a decrease of $1.9 million in CMET. The Company's equity share
of those gains was $13.5 million. The increase is also attributable to an
improvement in income from property operations for the Affiliated REITs and
NRLP, from increased rental rates and operating expense control.

Gains on the sale of real estate increased from $3.7 million in 1996 to
$20.3 million in 1997. In 1996, the Company recognized a $2.0 million gain on
the sale of a 32.3 acre tract of BP Las Colinas land in Las Colinas, Texas, and
a $1.1 million gain on the sale of a 4.6 acre tract of Las Colinas I land also
in Las Colinas, Texas. In 1997, the Company recognized gains of $5.9 million on
the sale of a 49.7 acre tract of BP Las Colinas land in Las Colinas, Texas; $3.5
million on the sale of tracts totaling 116.8 acres of Valley Ranch land in
Irving, Texas; $2.7 million on the sale of a 12.5 acre tract of Las Colinas I
land in Las Colinas, Texas; $3.6 million on the sale of Pin Oak land in Houston,
Texas; $216,000 on the sale of a 99.7 acre tract of Kamperman land in Collin
County, Texas; $371,000 on the sale of a 32.0 acre tract of Parkfield land in
Denver, Colorado; $211,000 on the sale of a 86.5 acre tract of Rasor land in
Plano, Texas; $106,000 on the sale of Park Plaza Shopping Center in Manitowoc,
Wisconsin; $480,000 on the sale of the Mopac Building in St. Louis, Missouri;
and $172,000 on the sale of a mortgage note receivable. The Company also
recognized a previously deferred gain of $3.0 million on the sale of Porticos
Apartments.

The Company reported $381,000 in extraordinary gains in 1996 compared
to no extraordinary gains in 1997. The 1996 extraordinary gains were the
Company's share of equity investees' extraordinary gains from the early payoff
of debt and gain from an insurance settlement.

ENVIRONMENTAL MATTERS

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

-51-
53

INFLATION

The effects of inflation on the Company's operations are not
quantifiable. Revenues from apartment operations fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the rate
of inflation also affect the sale values of properties and the ultimate gains to
be realized from property sales. To the extent that inflation affects interest
rates, earnings from short-term investments and the cost of new financings as
well as the cost of variable interest rate debt will be affected.

YEAR 2000

BCM, an affiliate of and the advisor to the Company, has informed the
Company's management that its computer hardware operating system and computer
software have been certified as year 2000 compliant.

Carmel, Ltd., an affiliate of BCM that performs property management
services for the Company's properties, has informed the Company's management
that effective January 1, 1999, it began using year 2000 compliant computer
hardware and property management software for the Company's commercial
properties. With regard to the Company's apartment complexes, Carmel, Ltd. has
informed the Company management that its subcontractors are also using year 2000
compliant computer hardware and property management software.

The Company has not incurred, nor does it expect to incur, any costs
related to its computer hardware and accounting and property management software
being modified, upgraded or replaced in order to make it year 2000 compliant.
Such costs have been or will be borne by either BCM, Carmel, Ltd. or the
property management subcontractors of Carmel, Ltd.

The Company's management has completed its evaluation of the Company's
computer controlled building systems, such as security, elevators, heating and
cooling, etc. to determine what systems are not year 2000 compliant. The
Company's management believes that necessary modifications to those systems are
insignificant and do not require significant expenditures to make the affected
system year 2000 compliant, as enhanced operating systems are readily available.

The Company has or will have in place the year 2000 compliant systems
that will allow it to operate. The risks the Company faces are that certain of
its vendors will not be able to supply goods or services and that financial
institutions and taxing authorities will not be able to accurately apply
payments made to them. The Company's management believes that other vendors are
readily available and that financial institutions and taxing authorities will,
if necessary, apply monies received manually. The likelihood of the above having
a significant impact on the Company's operations is negligible.

ACQUISITION TERMS

This Prospectus covers Preferred Stock that may be issued from time to
time in the future by the Company on the completion of acquisitions of assets,
businesses or securities, or on the payment of dividends on or conversion of or
payment of interest on convertible notes issued in connection with the
acquisitions of other businesses or properties.

It is expected that the terms of acquisitions involving the issuance of
the Preferred Stock covered by this Prospectus will be determined by direct
negotiations with the owners or controlling persons of the assets, businesses or
securities to be acquired, and that the Preferred Stock issued will be valued at
prices reasonably related to the market price of the Preferred Stock either at
the time an agreement is entered into concerning the terms of the acquisition or
at or about the time the Shares are delivered. No underwriting discounts or
commissions will be paid, although finder's fees may be paid in connection with
certain acquisitions. Any person receiving those fees may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on the
resale of shares of Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.

-52-
54

DESCRIPTION OF THE CAPITAL STOCK

GENERAL

The Company is authorized by its articles of incorporation, as amended,
to issue up to 100,000,000 shares of Common Stock, $.01 par value per share, and
20,000,000 shares of Preferred Stock, $2.00 par value per share, which may be
designated by the board of directors of the Company from time to time. The
Preferred Stock to be offered hereunder will be one or more series of the
Preferred Stock.

COMMON STOCK

All shares of the Common Stock are entitled to share equally in
dividends from funds legally available therefor, when declared by the board of
directors of the Company, and upon liquidation or dissolution of the Company,
whether voluntary or involuntary (subject to any prior rights of holders of the
Preferred Stock), and to share equally in the assets of the Company available
for distributions to shareholders. Each holder of Common Stock is entitled to
one vote for each share held on all matters submitted to the shareholders. There
is no cumulative voting, redemption right, sinking fund provision or right of
conversion with respect to the Common Stock. The holders of Common Stock do not
have any preemptive rights to acquire additional shares of Common Stock when
issued. All outstanding Common Stock is fully paid and nonassessable. As of
December 31, 1998, 10,758,624 shares of Common Stock were outstanding.

PREFERRED STOCK

The following is a description of certain general terms and provisions
of the Preferred Stock. The particular terms of any series of Preferred Stock
will be described in the applicable Prospectus Supplement.

Article 5 of the articles of incorporation of the Company, as amended,
authorizes the issuance of up to 20,000,000 shares of Preferred Stock in one or
more series with the preferences, limitations and rights the board of directors
of the Company determines. In particular, the board of directors of the Company
may fix and determine, among other things, the dividend payable with respect to
the shares of Preferred Stock (including whether and in what manner the dividend
shall be accumulated); whether those shares shall be redeemable, and if so, the
prices, terms and conditions of the redemption; the amount payable on those
shares in the event of voluntary or involuntary liquidation; the nature of any
purchase, retirement or sinking fund provisions; the nature of any conversion
rights with respect to those shares; and the extent of the voting rights, if
any, of those shares. Certain provisions of the Preferred Stock may, under
certain circumstances, adversely affect the rights or interests of holders of
Common Stock. For example, the board of directors of the Company could, without
shareholder approval, issue a series of Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the common
shareholders. In addition, the Preferred Stock may be issued under certain
circumstances as a defensive device to thwart an attempted hostile takeover of
the Company.

The Prospectus Supplement relating to the series of Preferred Stock
being offered will describe its terms, including:

(i) its title and stated value;

(ii) the number of shares offered, the liquidation preference per share
and the purchase price;

(iii) the dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculating dividends;

(iv) whether dividends are cumulative or non-cumulative and, if
cumulative, the date from which dividends accumulate;

(v) the procedures for any auction and remarketing, if any;

-53-
55

(vi) the provisions for a sinking fund, if any; (vii) the provisions
for redemption, if applicable;

(viii) any listing of the Preferred Stock on a securities exchange;

(ix) the terms and conditions, if applicable, for its conversion into
Common Stock, including the conversion price (or manner of calculation)
and conversion period;

(x) voting rights, if any;

(xi) its relative ranking and preferences as to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of
the Company; and

(xii) any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with the series of Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding
up of the affairs of the Company.

The Prospectus Supplement for the Preferred Stock will also include a discussion
of any material and/or special Federal income tax considerations applicable to
the Preferred Stock.

Through the date of this Prospectus, the Company has amended its
articles of incorporation to designate eight series of the Preferred Stock as
explained below. Each outstanding series of Preferred Stock ranks on a parity as
to dividends and upon liquidation, dissolution or winding up with all other
shares of Preferred Stock.

The following description of the provisions of each series of the
Preferred Stock designated by the Company does not purport to be complete and is
subject to and qualified in its entirety by reference to the definitive articles
of amendment of the articles of incorporation relating to that series of
Preferred Stock.

Series A Preferred Stock; Terminated Rights Plan. On April 11, 1990,
the board of directors of the Company designated 500,000 shares of the Series A
Preferred Stock, adopted a preferred share purchase rights plan and approved the
distribution to shareholders of a dividend of one preferred share purchase right
on each outstanding share of Common Stock. On February 27, 1997, filed articles
of amendment to its articles of incorporation, reducing the number of authorized
shares of Series A Preferred Stock to zero and eliminating that designation.

Series B Preferred Stock . On April 3, 1996, the board of directors of
the Company designated 4,000 shares of Series B Preferred Stock with a par value
of $2.00 per share and a preference on liquidation of $100 per share plus
payment of accrued and unpaid dividends. On May 27, 1998, filed articles of
amendment to its articles of incorporation, reducing the number of authorized
shares of Series B Preferred Stock to zero and eliminating that designation.

Series C Preferred Stock . On May 23, 1996, the board of directors of
the Company designated 16,681 shares of Series C Preferred Stock with a par
value of $2.00 per share and a preference on liquidation of $100 per share plus
all accrued and unpaid dividends.

The Company redeemed all of the outstanding shares of Series C
Preferred Stock at their liquidation value of $100 per share plus all accrued
and unpaid dividends on November 24, 1998. On January 11, 1999, the Company
filed articles of amendment to its articles of incorporation reducing the number
of authorized shares of Series C Preferred Stock to zero and eliminating that
designation.

Series D Preferred Stock. On August 2, 1996 the board of directors of
the Company designated 91,000 shares of Series D Preferred Stock with a par
value of $2.00 per share and a preference on liquidation of $20.00 per share
plus payment of accrued and unpaid dividends. The Series D Preferred Stock is
non-voting except as required by law and is not convertible. The Company is not
required to maintain a sinking fund for the Series D Preferred Stock.

-54-
56

Each Share of Series D Preferred Stock has a cumulative dividend per
share of 9.50% per annum of the $20.00 liquidation preference, payable quarterly
in equal installments of $0.475. Dividends on the Series D Preferred Stock are
in preference to and with priority over dividends upon the shares of Common
Stock. The Series D Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Preferred Stock.

The Company may from time to time after June 1, 2001 redeem any or all
of the Series D Preferred Stock upon payment of the liquidation value of $20.00
per share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series D Preferred Stock by the Company while
there is any arrearage in payment of dividends except that at the time of that
repurchase or redemption the Company must pay all accrued and unpaid dividends
on the shares being redeemed. As of March 31, 1999, there were no shares of
Series D Preferred Stock issued or outstanding.

The Series D Preferred Stock is reserved for issuance upon the
conversion Class A units held by the limited partners of Ocean Beach Partners
L.P.

Series E Preferred Stock. On December 3, 1996, the board of directors
of the Company designated 80,000 shares of Series E Preferred Stock with a par
value of $2.00 per share and a preference on liquidation of $100 per share plus
payment of all accrued and unpaid dividends. The Series E Preferred Stock is
non-voting except as required by law. The Company is not required to maintain a
sinking fund for the Series E Preferred Stock.

Each share of Series E Preferred Stock is convertible into that number
of shares of Common Stock obtained by multiplying the number of shares being
converted by $100, then adding all accrued and unpaid dividends on those shares,
then dividing that sum by (in most instances) 80% of the Common Stock's
then-recent average trading price for the 20 business days ending on the last
business day of the calendar week immediately preceding the date of conversion
on the principal stock exchange on which the shares of Common Stock are then
listed or admitted to trading as determined by the Company. The schedule
pursuant to which shares of Series E Preferred Stock may be so converted is as
follows: up to 30,000 shares of the Series E Preferred Stock may be converted
beginning as of November 4, 1998 and thereafter; up to an additional 10,000
shares of the Series E Preferred Stock may be converted beginning as of November
4, 1999; and up to an additional 40,000 shares of the Series E Preferred Stock
may be converted beginning as of November 4, 2001.

The Series E Preferred Stock bears a cumulative dividend per share
equal to $10.00 per annum, payable quarterly in equal installments of $2.50 for
the period from date of issuance to November 4, 1999, and $11.00 per annum
($2.75 per quarter) thereafter. Dividends on the Series E Preferred Stock are in
preference to and with priority over dividends upon the Common Stock. The Series
E Preferred Stock ranks on a parity as to dividends and upon liquidation,
dissolution or winding up with all other shares of Special Stock.

The Company may redeem any or all of the shares of Series E Preferred
Stock from time to time upon payment of $100.00 per share plus all accrued and
unpaid dividends. There is no restriction on the repurchase or redemption of the
Series E Preferred Stock by the Company while there is any arrearage in payment
of dividends except that at the time of that repurchase or redemption the
Company must pay all accrued and unpaid dividends on the shares being redeemed.
As of March 31, 1999, there were no shares of Series E Preferred Stock issued or
outstanding.

The Series E Preferred Stock is reserved for issuance upon the
conversion of Class A units held by the limited partners in the Valley Ranch
Limited Partnership.

In February 1999, the Class A unitholder notified the Company that it
intended to convert 100,000 Class A units into 1,000 shares of Series E
Preferred Stock. In March 1999, the Company purchased the 100,000 Class A units
for $100,000. The Company has subsequently reached agreement with the Class A
unitholder to acquire the remaining 7,900,000 Class A units for $1.00 per unit.
In April 1999, 900,000 units were purchased and 1 million units will be
purchased in July and October 1999 and January 2000 and 2 million units in May
2001 and May 2002.

-55-
57

Series F Preferred Stock. On August 13, 1997, the board of directors of
the Company designated and authorized the issuance of a total of 7,500,000
shares of Series F Preferred Stock with a par value of $2.00 per share and an
Adjusted Liquidation Value of $10.00 per share plus payment of accrued and
unpaid dividends. On October 23, 1998, the board of directors of the Company
authorized the issuance of an additional 7,500,000 shares of Series F Preferred
Stock, thereby increasing the total number of authorized and issued shares of
Series F Preferred Stock to 15,000,000. The Series F Preferred Stock is
non-voting except

(i) as provided by law,

(ii) with respect to an amendment to the Company's articles of
incorporation or bylaws that would materially alter or change the
existing terms of the Series F Preferred Stock, and

(iii) at any time or times when all or any portion of the dividends on
the Series F Preferred Stock for any six quarterly dividends, whether
or not consecutive, shall be in arrears and unpaid.

In the latter event, the number of directors constituting the board of directors
of the Company shall be increased by two and the holders of Series F Preferred
Stock, voting separately as a class, shall be entitled to elect two Directors to
fill the newly created directorships with each holder being entitled to one vote
in the election for each share of Series F Preferred Stock held. The Company is
not obligated to maintain a sinking fund with respect to the Series F Preferred
Stock.

The Series F Preferred Stock is convertible, at the option of the
holder, into Common Stock at any time and from time to time, in whole or in
part, after the earliest to occur of

(i) August 15, 2003;

(ii) the first business day, if any, occurring after a Quarterly
Dividend Payment Date (as defined below), on which an amount equal to
or in excess of 5% of the $10.00 liquidation value (i.e., $.50 per
share of Series F Preferred Stock) is accrued and unpaid, or

(iii) when the Company becomes obligated to mail a statement, signed by
an officer of the Company, to the holders of record of each of the
shares of Series F Preferred Stock because of a proposal by the Company
at any time before all of the shares of Series F Preferred Stock have
been redeemed by or converted into Common Stock, to merge or
consolidate with or into any other corporation (unless the Company is
the surviving entity and holders of Common Stock continue to hold the
shares of Common Stock without modification and without receipt of any
additional consideration), or to sell, lease, or convey all or
substantially all its property or business, or to liquidate, dissolve
or wind up.

The Series F Preferred Stock is convertible into that number of shares of Common
Stock obtained by multiplying the number of shares being converted by $10.00,
then adding all accrued and unpaid dividends, then dividing those sums by the
Conversion Price. Notwithstanding the foregoing, the Company, at its option, may
elect to redeem any shares of Series F Preferred Stock sought to be so converted
by paying the holder of the Series F Preferred Stock cash in an amount equal to
the Conversion Price.

The Series F Preferred Stock bears a cumulative compounded dividend per
share equal to 10% per annum of the Adjusted Liquidation Value, payable on each
Quarterly Dividend Payment Date, and commencing accrual on the date of issuance
to and including the date on which the redemption price of the shares is paid,
whether or not those dividends have been declared and whether or not there are
profits, surplus or other funds of the Company legally available for the payment
of those dividends. Dividends on the Series F Preferred Stock are in preference
to and with priority over dividends upon the Common Stock. Except as provided in
the following sentence, the Series F Preferred Stock ranks on a parity as to
dividends and upon liquidation, dissolution or winding up with all other Special
Stock issued by the Company. The Company will not issue any shares of Preferred
Stock of any series which are superior to the Series F Preferred Stock as to
dividends or rights upon liquidation, dissolution or winding up of the Company
as long as any shares of Series E Preferred Stock are issued and

-56-
58

outstanding, without the prior written consent of the holders of at least 66b
%of the shares of the Series F Preferred Stock then outstanding voting
separately as a class.

In addition to the Company's redemption rights described above upon a
conversion of Series F Preferred Stock, the Company may redeem any or all of the
Series F Preferred Stock at any time and from time to time, at its option, for
cash upon no less than twenty (20) days nor more than thirty (30) days prior
notice thereof. The redemption price of the Series F Preferred Stock shall be an
amount per share equal to

(i) 104% of the Adjusted Liquidation Value during the period from
August 16, 1998 through August 15, 1999; and

(ii)103% of the Adjusted Liquidation Value at any time on or after
August 16, 1999.

As of March 31, 1999, 3,350,000 shares of the Series F Preferred Stock were
issued and outstanding. Each share of Series F Preferred Stock will be
convertible, at the option of the holder, into fully paid and nonassessable
shares of Common Stock. 1,998,797 shares of Series F Preferred Stock have been
reserved for issuance as future consideration in various business transactions
of the Company.

Series G Preferred Stock. On September 18, 1997, the board of directors
of the Company designated 11,000 shares of Series G Preferred Stock with a par
value of $2.00 per share and a preference on liquidation of $100 per share plus
all accrued and unpaid dividends. On May 27, 1998, the Company filed articles of
amendment to its articles of incorporation increasing the number of authorized
shares of Series G Preferred Stock from 11,000 to 12,000. The Series G Preferred
Stock is non-voting except as required by the Georgia Business Code. The Georgia
Business Code grants the holders of the outstanding shares of a class the
authority to vote as a separate voting group on a proposed amendment if that
amendment would effect a detrimental reclassification of the existing shares,
create a new class with preferences over the existing shares, or cancel or
otherwise affect the rights to distributions and dividends. The Company is not
required to maintain a sinking fund for the Series G Preferred Stock.

Each share of Series G Preferred Stock is convertible, but only after
October 6, 2000, into that number of shares of Common Stock obtained by
multiplying the number of shares of Series G Preferred Stock being converted by
$100 and then dividing that sum by (in most instances) 90% of the simple average
of the daily closing price of the Common Stock for the 20 trading days ending on
the last trading day of the calendar week immediately preceding the conversion
on the market where the Common Stock is then regularly traded. The right of
conversion shall terminate upon receipt of the notice of redemption from the
Company and on the earlier of

(i) the commencement of any liquidation, dissolution or winding up of
the Company or

(ii) the adoption of any resolution authorizing the commencement
thereof.

The Company may elect to redeem the shares of Series G Preferred Stock sought to
be converted instead of issuing shares of Common Stock.

The Series G Preferred Stock bears a cumulative dividend per share
equal to $10.00 per annum, payable in arrears in quarterly equal installments of
$2.50 on each Quarterly Dividend Payment Date, and commencing accrual on the
date of issuance to and including the date on which the redemption price of the
shares is paid. Dividends on the Series G Preferred Stock are in preference to
and with priority over dividends upon the Common Stock. The Series G Preferred
Stock ranks on a parity as to dividends and upon liquidation, dissolution or
winding up with all other shares of Preferred Stock.

The Company may redeem any or all of the shares of the Series G
Preferred Stock at any time and from time to time, at its option, for cash upon
no less than twenty (20) days nor more than thirty (30) days prior notice
thereof. The redemption price of the shares of the Series G Preferred Stock
shall be an amount per share equal to the $100 liquidation value plus all
accrued and unpaid dividends on those shares through the redemption date. The
right of the Company to redeem shares of Series G Preferred Stock remains
effective notwithstanding prior receipt by the Company of notice by any

-57-
59

holder of Series G Preferred Stock of that holder's intent to convert shares of
Series G Preferred Stock. As of March 31, 1999 there were 1,000 issued and
outstanding shares of Series G Preferred Stock.

11,000 shares of Series G Preferred Stock have been reserved for
issuance upon the conversion of Class A units held by the limited partners in
Grapevine American, Ltd.

Series H Preferred Stock. On June 26, 1998, the board of directors of
the Company designated 231,750 shares of the Series H Preferred Stock with a par
value of $2.00 per share and a preference on liquidation of $10 per share plus
all accrued and unpaid dividends. The Series H Preferred Stock is non-voting
except as required by the Georgia Business Code. The Georgia Business Code
grants the holders of the outstanding shares of a class the authority to vote as
a separate voting group on a proposed amendment if that amendment would effect a
detrimental reclassification of the existing shares, create a new class with
preferences over the existing shares, or cancel or otherwise affect the rights
to distributions and dividends. The Company is not required to maintain a
sinking fund for the Series H Preferred Stock.

Each share of Series H Preferred Stock is convertible at the option of
the holders thereof in the following amounts at any time on or after the
respective dates

(i) 25,000 shares on or after December 31, 2000,

(ii) 25,000 shares on or after June 30, 2002,

(iii) 25,000 shares on or after June 30, 2003,

(iv) 25,000 shares on or after December 31, 2005, and

(v) all remaining outstanding shares on or after December 31, 2006
into that number of shares of Common Stock obtained by multiplying the
number of shares of Series H Preferred Stock being converted by $10 and
then dividing that sum by (in most instances) 90% of the simple average
of the daily closing price of the Common Stock for the 20 trading days
ending on the last trading day of the calendar week immediately
preceding the conversion on the market where the Common Stock is then
regularly traded.

The right of conversion shall terminate upon receipt of the notice of redemption
from the Company and on the earlier of

(i) the commencement of any liquidation, dissolution or winding up of
the Company or

(ii) the adoption of any resolution authorizing the commencement
thereof.

The Company may elect to redeem the shares of Series H Preferred Stock sought to
be converted instead of issuing shares of Common Stock.

The Series H Preferred Stock bears a cumulative quarterly dividend per
share in an amount equal to

(i) 7% per annum during the period from issuance to June 30, 1999,

(ii) 8% per annum during the period from July 1, 1999 to June 30,
2000,

(iii) 9% per annum during the period from July 1, 2000 to June 30,
2001, and

(iv) 10% per annum from July 1, 2001 and thereafter, in each case
calculated on the basis of the Adjusted Liquidation Value of the Series
H Preferred Stock, payable in arrears in cash on each Quarterly
Dividend Payment Date, and commencing accrual on the date of issuance
to and including the date on which the redemption price of the shares
is paid.

-58-
60

Dividends on the Series H Preferred Stock are in preference to and with priority
over dividends upon the Common Stock. The Series H Preferred Stock ranks on a
parity as to dividends and upon liquidation, dissolution or winding up with all
other shares of Preferred Stock.

The Company may redeem all or a portion of the shares of the Series H
Preferred Stock issued and outstanding at any time after January 1, 1999 and
from time to time, at its option, for cash upon no less than twenty (20) days
nor more than thirty (30) days prior notice thereof. The redemption price of the
shares of the Series H Preferred Stock shall be an amount per share equal to the
sum of

(i)(a) 105% of liquidation value during the period from issuance
through December 31, 1999;

(b) 104% of liquidation value during the period from January 1, 2000
through December 31, 2000;

(d) 102% of liquidation value during the period from January 1, 2002
through December 31, 2002;

(e) 101% of liquidation value during the period from January 1, 2003
through December 31, 2003; and

(f) 100% of liquidation value from January 1, 2004 and thereafter,
and

(ii) all accrued and unpaid dividends on those shares through the
redemption date.

The right of the Company to redeem shares of Series H Preferred Stock remains
effective notwithstanding prior receipt by the Company of notice by any holder
of Series H Preferred Stock of that holder's intent to convert shares of Series
H Preferred Stock. As of December 31, 1998 there were no issued or outstanding
shares of Series H Preferred Stock.

The Series H Preferred Stock is reserved for issuance upon the
conversion of Class A units held by the limited partners in ART Palm, Ltd.

The description of the foregoing provisions of each series of the
Preferred Stock does not purport to be complete and is subject to and qualified
in its entirety by reference to the definitive articles of amendment of the
articles of incorporation relating to that series of Preferred Stock.

PLAN OF DISTRIBUTION

Preferred Stock may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of the Preferred Stock in respect of which this Prospectus is delivered
will be named, and any commissions payable by the Company to that agent will be
set forth, in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.

Underwriters, dealers and agents may be entitled under agreements
entered into with the Company to indemnifications by the Company against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution by the Company to payments they may be required to make in respect
thereof. The terms and conditions of the indemnification will be described in an
applicable Prospectus Supplement. Underwriters, dealers and agents may be
customers of, engage in transactions with, or perform services for the Company
in the ordinary course of business.

-59-
61

LEGAL MATTERS

Certain legal matters with respect to the Preferred Stock and, if
applicable, the Common Stock offered by the Company will be passed upon for the
Company by Holt Ney Zatcoff & Wasserman, LLP, Atlanta, Georgia.

EXPERTS

The financial statements and schedules included and incorporated by
reference in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the registration statement, and
such reports are included herein in reliance upon the authority of said firm as
experts in auditing and accounting.

-60-

FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

FINANCIAL STATEMENTS:

Report of Independent Certified Public Accountants..............................................................F-2

Consolidated Balance Sheets -
December 31, 1998 and 1997.................................................................................F-3

Consolidated Statements of Operations -
Years Ended December 31, 1998, 1997 and 1996..............................................................F-4

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1998, 1997 and 1996...............................................................F-5

Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996...............................................................F-7

Notes to Consolidated Financial Statements................................................................... F-10

Interim Financial Statements (Unaudited):

Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998........................................................................F-41

Consolidated Statements of Operations -
Three Months Ended March 31, 1999 and 1998..................................................................F-43

Consolidated Statements of Stockholders' Equity -
Three Months Ended March 31, 1999...........................................................................F-44

Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998..................................................................F-45

Notes to Consolidated Financial Statements.....................................................................F-47

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.

F-1
63

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, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 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, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

Dallas, Texas
March 30, 1999

F-2
64

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

December 31,
----------------------
1998 1997
--------- ---------
(dollars in thousands, except per share)

Assets
Notes and interest receivable
Performing (including $594 in 1998 and $1,307 in 1997 from affiliate) $ 47,823 $ 9,300
Nonperforming, nonaccruing 6,807 18,624
--------- ---------
54,630 27,924

Less - allowance for estimated losses (2,577) (2,398)
--------- ---------
52,053 25,526

Real estate held for sale 282,301 178,938
Real estate held for investment net of accumulated depreciation ($208,396 in 1998
and $5,380 in 1997 ) 452,606 123,515
Pizza parlor equipment, net of accumulated depreciation ($1,464 in 1998
and $905 in 1997) 6,859 6,693
Marketable equity securities, at market value 2,899 6,205
Cash and cash equivalents 11,523 5,347
Investments in equity investees 34,433 45,851
Intangibles, net of accumulated amortization ($1,298 in 1998 and
$704 in 1997) 14,776 15,230
Other assets 61,155 26,494
--------- ---------
$ 918,605 $ 433,799
========= =========

Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable ($12,600 in 1998 and $11,400 in 1997
to affiliates) $ 768,272 $ 261,986
Margin borrowings 35,773 53,376
Accounts payable and other liabilities (including $8,900 in 1998 and $22,900
in 1997 to affiliate) 38,321 34,442
--------- ---------
842,366 349,804

Minority interest 37,967 20,542
Commitments and contingencies
Stockholders' equity
Preferred Stock, $2 00 par value, authorized 20,000,000 shares, issued and outstanding
Series B, 4,000 shares in 1997 -- 8
Series C, 16,681 shares in 1997 -- 33
Series F, 3,350,000 shares in 1998 and 2,000,000 in 1997
(liquidation preference $33,500) 6,100 4,000
Series G, 1,000 shares in 1998 (liquidation preference $100) 2 --
Common Stock, $ 01 par value, authorized 100,000,000 shares; issued 13,298,802
shares in 1998 and 13,479,348 in 1997 133 135
Paid-in capital 83,945 84,943
Accumulated (deficit) (51,880) (25,638)
Treasury stock at cost, 2,737,216 shares in 1998 and 2,767,427 shares in 1997 (28) (28)
--------- ---------
38,272 63,453
--------- ---------
$ 918,605 $ 433,799
========= =========

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

F-3
65

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
(dollars in thousands, except per share)

Income
Sales .................................................................... $ 28,883 $ 24,953 $ 14,386
Rents .................................................................... 63,491 29,075 20,658
Interest (including $39 in 1998, $230 in 1997, and $539 in
1996 from affiliates) ........................................... 188 2,835 4,751
Other .................................................................... (5,476) 168 1,727
------------ ------------ ------------
87,086 57,031 41,522

Expenses
Cost of sales ............................................................ 24,839 19,964 11,036
Property operations ($1,752 in 1998, $865 in 1997 and $892 in 1996
to affiliates) .................................................. 49,193 24,195 15,874
Interest ($1,082 in 1998, $433 in 1997 and $418 in 1996
to affiliates) .................................................. 51,624 30,231 16,489
Advisory and servicing fees to affiliate ................................. 3,845 2,657 1,539
General and administrative ($1,832 in 1998, $1,809 in 1997 and $691
in 1996 to affiliate) ........................................... 8,521 7,779 3,930
Depreciation and amortization ............................................ 6,990 3,542 2,367
Litigation Settlement .................................................... 13,026 -- --
Provision for loss on real estate ........................................ 3,916 -- --
Minority interest ........................................................ 3,157 1,884 1,366
------------ ------------ ------------
165,111 90,252 52,601
------------ ------------ ------------

(Loss) from operations ............................................................ (78,025) (33,221) (11,079)
Equity in income of investees ..................................................... 37,966 10,497 1,485
Gain on sale of real estate ....................................................... 17,254 20,296 3,659
------------ ------------ ------------

(Loss) before income taxes ........................................................ (22,805) (2,428) (5,935)
Income tax expense ................................................................ -- -- --
------------ ------------ ------------
(Loss) before extraordinary gain .................................................. (22,805) (2,428) (5,935)
Extraordinary gain ................................................................ -- -- 381
------------ ------------ ------------

Net (loss) ........................................................................ (22,805) (2,428) (5,554)
Preferred dividend requirement .................................................... (1,177) (206) (113)
------------ ------------ ------------

Net (loss) applicable to Common shares ............................................ $ (23,982) $ (2,634) $ (5,667)
============ ============ ============

Earnings per share
(Loss) before extraordinary gain .................................................. $ (2.24) $ (22) $ (46)
Extraordinary gain ................................................................ -- -- .03

Net (loss) applicable to Common shares ............................................ $ (2.24) $ (22) $ (43)
============ ============ ============

Weighted average Common shares used in computing earnings per share ............... $ 10,695,388 $ 11,710,013 $ 12,765,082
============ ============ ============

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

F-4
66

AMERICAN REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Series B Series C Series F Series G
Preferred Preferred Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Stock Stock Capital (Deficit) Equity
-------- -------- -------- ------- -------- -------- -------- -------- --------

Balance, January 1, 1996 .... $ -- $ -- $ -- $ -- $ 117 $ -- $ 66,661 $(13,720) $ 53,058
Common Stock issued ......... -- -- -- -- 18 -- (18) -- --
Series B Preferred Stock
issued ................. 8 -- -- -- -- -- 392 -- 400
Series C Preferred Stock
issued ................. -- 30 -- -- -- -- 1,469 -- 1,469
Common Stock cash
dividend ($.15 per
share) ................. -- -- -- -- -- -- -- (1,491) (1,491)
Redemption of share
purchase rights ($.01
per right) ............. -- -- -- -- -- -- -- (101) (101)
Series B Preferred Stock
cash dividend ($6.46
per share) ............. -- -- -- -- -- -- -- (25) (25)
Series C Preferred Stock
stock dividend ($5.74
per share) ............. -- 2 -- -- -- -- 85 (87) --
Treasury stock, at
cost ................... -- -- -- -- -- (6) 6 -- --
Net (loss) .................. -- -- -- -- -- -- -- (5,554) (5,554)
-------- -------- -------- ------- -------- -------- -------- -------- --------

Balance, December 31,
1996 ................... 8 32 -- -- 135 (6) 68,595 (20,978) 47,786
Series F Preferred Stock
issued ................. -- -- 4,000 -- -- -- 16,000 -- 20,000
Common Stock cash
dividend
($.20 per share) ....... -- -- -- -- -- -- -- (2,026) (2,026)
Series B Preferred Stock
cash dividend ($10.00
per share) ............. -- -- -- -- -- -- -- (40) (40)
Series C Preferred Stock,
stock and cash
dividend ($10.00
per share) ............. -- 1 -- -- -- -- 81 (166) (84)
Sale of Common Stock ........ -- -- -- -- -- -- 245 -- 245
Treasury stock, at
cost ................... -- -- -- -- -- (22) 22 -- --
Net (loss) .................. -- -- -- -- -- -- -- (2,428) (2,428)
-------- -------- -------- ------- -------- -------- -------- -------- --------

F-5
67

AMERICAN REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED

Balance, December 31,
1997 .................. 8 33 4,000 -- 135 (28) 84,943 (25,638) 63,453
Repurchase of Common
Stock issued .......... -- -- -- -- (2) -- (267) -- (269)
Series G Preferred Stock
issued ................ -- -- -- 2 -- -- 98 -- 100
Series F Preferred Stock
issued ................ -- -- 2,100 -- -- -- 529 -- 2,629
Common Stock cash
dividend
($.20 per share) ...... -- -- -- -- -- -- -- (2,261) (2,261)
Series B Preferred Stock
cash dividend ($2.50
per share) ............ -- -- -- -- -- -- -- (54) (54)
Series C Preferred Stock
cash dividend ($7.50
per share) ............ -- -- -- -- -- -- -- (148) (148)
Series F Preferred Stock
cash dividend ($.625
per share) ............ -- -- -- -- -- -- -- (966) (966)
Series G Preferred Stock
cash dividend ($7.50
per share) ............ -- -- -- -- -- -- -- (8) (8)
Sale of Common Stock
under dividend
reinvestment plan ..... -- -- -- -- -- -- 224 -- 224
Conversion of Series B
Preferred Stock to
Common Stock .......... (8) -- -- -- -- -- 53 -- 45
Series C Preferred Stock
redeemed .............. -- (33) -- -- -- -- (1,635) -- (1,668)
Net (loss) ................. -- -- -- -- -- -- -- (22,805) (22,805)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31,
1998 .................. $ -- $ -- $ 6,100 $ 2 $ 133 $ (28) $ 83,945 $(51,880) $ 38,272
======== ======== ======== ======== ======== ======== ======== ======== ========

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

F-6
68

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(dollars in thousands)

Cash Flows From Operating Activities
Pizza parlor sales collected .......................................... $ 28,173 $ 24,953 $ 14,386
Rents collected ....................................................... 64,029 28,199 19,013
Interest collected ($262 in 1997 and $385 in 1996
from affiliates) ............................................. 188 2,592 4,331
Distributions from equity investees' operating activities ............. 10,274 5,689 9,054
Interest paid ......................................................... (34,139) (19,092) (9,640)
Payments for property operations ($1,752 in 1998, $865 in 1997
and $892 in 1996 to affiliate) ............................... (42,551) (22,821) (15,034)
Payments for pizza parlor operations .................................. (25,765) (19,964) (11,036)
Advisory fee paid to affiliate ........................................ (3,845) (2,657) (1,539)
Distributions to minority interest holders ............................ (3,157) (2,088) (1,366)
Purchase of marketable equity securities .............................. (7,670) (15,147) (22,613)
Proceeds from sale of marketable equity securities .................... 5,502 10,588 23,557
General and administrative expenses paid ($1,832 in 1998, $1,809
in 1997 and $691 in 1996 to affiliate) ....................... (8,489) (7,764) (4,313)
Other ................................................................. (5,538) (537) (642)
--------- --------- ---------

Net cash provided by (used in) operating activities ................... (22,988) (18,049) 4,158

Cash Flows From Investing Activities
Collections on notes receivable ($3,503 in 1997 and $1,166
in 1996 from affiliates) ..................................... 3,121 4,489 1,495
Proceeds from sale of notes receivable ................................ 599 16,985 --
Notes receivable funded ............................................... (594) (8,716) (250)
Proceeds from sale of real estate ..................................... 51,602 38,169 7,718
Contributions from minority interest holders .......................... -- 9,799 2,571
Distributions from equity investees activities ........................ 14,429 -- --
Acquisitions of real estate ........................................... (106,884) (123,074) (41,636)
Real estate improvements .............................................. (4,070) (10,993) (2,862)
Pizza parlor equipment purchased ...................................... (166) (2,695) (2,942)
Earnest money deposits ................................................ (577) (6,221) 577
Investment in real estate investees ................................... (6,116) (1,331) (15,471)
--------- --------- ---------

Net cash (used in) investing activities ...................... (48,656) (83,588) (50,800)

Cash Flows From Financing Activities
Proceeds from notes payable ........................................... 237,895 161,103 86,490
Margin borrowings (payments), net ..................................... (21,908) 8,914 2,981
Proceeds from issuance of Preferred Stock ............................. -- -- 400
Payments on notes payable ............................................. (120,394) (81,639) (30,003)
Deferred borrowing costs .............................................. (10,156) (5,174) (5,028)
Net advances (payments) to/from affiliates ............................ (2,913) 23,274 (4,979)
Redemption of Preferred Stock ......................................... (1,668) -- --
Sale of Common Stock under dividend reinvestment plan ................. 224 -- --
Dividends ............................................................. (3,260) (2,150) (1,617)
--------- --------- ---------

Net cash provided by financing activities ............................. 77,820 104,328 48,244
--------- --------- ---------

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

F-7
69

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

For The Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(dollars in thousands)

Net increase in cash and cash equivalents ........................................... $ 6,176 $ 2,691 $ 1,602
Cash and cash equivalents, beginning of year ........................................ 5,347 2,656 1,054
-------- -------- --------

Cash and cash equivalents, end of year .............................................. $ 11,523 $ 5,347 $ 2,656
======== ======== ========

Reconciliation of net (loss) to net cash provided by (used in)
operating activities
Net (loss) .......................................................................... $(22,805) $ (2,428) $ (5,554)
Adjustments to reconcile net (loss) to net cash provided by (used in)
operating activities
Extraordinary gain ................................................ -- -- (381)
Gain on sale of real estate ....................................... (17,254) (20,296) (3,659)
Depreciation and amortization ..................................... 6,990 3,542 2,367
Amortization of deferred borrowing costs .......................... 8,916 4,042 2,692
Provision for loss ................................................ 3,916 -- --
Litigation settlement ............................................. 13,076 -- --
Equity in (income) losses of investees ............................ (37,966) (10,497) (1,485)
Distributions from equity investees' operating activities ......... 10,274 5,689 9,054
Increase (decrease) in marketable equity securities ............... (3,306) (4,559) 944
(Increase) decrease in accrued interest receivable ................ (2,269) 66 (117)
(Increase) decrease in other assets ............................... 20,201 634 (4,103)
Increase in accrued interest payable .............................. 2,537 1,019 1,417
Increase in accounts payable and other liabilities ................ (5,716) 4,978 2,908
Other ............................................................. 418 (239) 75
-------- -------- --------

Net cash provided by (used in) operating activities ...... $(22,988) $(18,049) $ 4,158
======== ======== ========

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

F-8
70

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

For The Years Ended December 31,
----------------------------------
1998 1997 1996
--------- --------- ---------
(dollars in thousands)

Schedule of noncash investing and financing activities
Notes payable from acquisition of real estate ......................... $ 45,632 $ 44,151 $ 9,099
Stock dividends on Series C Preferred Stock ........................... -- 82 31
Issuance of Series G Preferred Stock .................................. 100 -- --
Series F Preferred Stock issued for real estate ....................... 2,100 20,000 --
Dividend obligation on conversion of Series F Preferred Stock 134 ..... -- --
Current value of property obtained through foreclosure of note
receivable ................................................... 20,985 20,226 --
Note receivable cancelled on acquisition of property .................. 1,300 2,737 --
Issuance of partnership units ......................................... 24,474 -- --
Note payable assumed on property obtained through foreclosure ......... -- 11,867 --
Carrying value of real estate exchanged ............................... -- 7,882 --
Notes payable from acquisition of minority interest in subsidiary ..... -- 5,000 --
Conversion of Series B Preferred Stock into
Common Stock ................................................. 45 -- --

Consolidation of National Realty, L P
Carrying value of notes receivable .................................... 52,168 -- --
Carrying value of real estate ......................................... 228,042 -- --
Carrying value of investment in equity investee eliminated ............ 41,182 -- --
Carrying value of other assets ........................................ 32,571 -- --
Carrying value of minority interest ................................... 15,600 -- --
Carrying value of the Company Common
Stock eliminated ............................................. 269 -- --
Carrying value of notes and interest payable .......................... 295,743 -- --
Carrying value of accounts payable and other liabilities .............. 751 -- --

Acquisition of IGI properties
Carrying value of real estate ......................................... 51,820 -- --
Issuance of partnership units ......................................... 6,568 -- --
Carrying value of other assets ........................................ (1,122) -- --
Carrying value of notes payable and other liabilities ................. 43,713 -- --
Investment in partnerships ............................................ 1,980 -- --

Acquisition of Pizza World Supreme, Inc
Carrying value of intangible .......................................... -- -- 9,768
Carrying value of pizza parlor equipment .............................. -- -- --
Carrying value of note receivable retired ............................. -- -- 10,286
Carrying value of accounts payable and other liabilities .............. -- -- 2,834

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

F-9
71

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 1996 and 1997 have been reclassified to conform to the
1998 presentation. Shares and per share data have been restated for a 2 for 1
forward Common Stock split effected February 17, 1997.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and company business. American Realty Trust, Inc. ("ART"), a
Georgia corporation, is successor to a District of Columbia business trust, 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 controlled subsidiaries and partnerships other than
National Realty, L.P. ("NRLP") prior to December 31, 1998. The Company used the
equity method to account for its investment in NRLP prior to December 31, 1998.
See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P." All significant intercompany
transactions and balances have been eliminated.

Accounting estimates. In the preparation of the Company's Consolidated
Financial Statements in conformity with generally accepted accounting principles
it was necessary for management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the Consolidated Financial Statements and
the reported amounts of revenues and expense for the year then ended.
Actual results could differ from these estimates.

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 net realizable value of the underlying
collateral exceeds the carrying value of the receivable.

Allowance for estimated losses. Valuation allowances are provided for
estimated losses on notes receivable considered to be impaired. Impairment is
considered to exist when it is probable that all amounts due under the terms of
the note will not be collected. Valuation allowances are provided for estimated
losses on notes receivable to the extent that the Company's investment in the
note exceeds management's estimate of fair value of the collateral securing such
note.

Real estate held for investment and depreciation. Real estate held for
investment is carried at cost. Statement of Financial Accounting Standards No.
121 ("SFAS No. 121") requires that a property be considered impaired, if the sum
of the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the property. If impairment exists, an
impairment loss is recognized by a charge against earnings, equal to the amount
by which the carrying amount of the property exceeds the fair value of the
property. If impairment of a property is recognized, the carrying amount of the
property is reduced by the amount of the impairment, and a new cost for the
property is established. Such new cost is depreciated over the property's
remaining useful life. Depreciation is provided by the straight- line method
over estimated useful lives, which range from 10 to 40 years.

F-10
72

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Real estate held for sale. Foreclosed real estate is initially recorded at
new cost, defined as the lower of original cost or fair value minus estimated
costs of sale. SFAS No. 121 also requires that properties held for sale be
reported at the lower of carrying amount or fair value less costs of sale. If a
reduction in a held for sale property's carrying amount to fair value less costs
of sale is required, a provision for loss shall be recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held for
sale property's estimated fair value less costs of sale is recorded as an
adjustment to the property's carrying amount, but not in excess of the
property's carrying amount when originally classified as held for sale. A
corresponding charge against or credit to earnings is recognized. Properties
held for sale are not depreciated.

Investments in equity investees. 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, they are accounted for by the
equity method. Under the equity method, the Company's initial investment,
recorded at cost, is increased by its 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.

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

Operating segments. Management has determined that the Company's reportable
operating segments are those that are based on the Company's method of internal
reporting, which disaggregates its operations by type of real estate.

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. 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.

Loss per share. Loss per share is presented in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Loss per share is
computed based upon the weighted average number of shares of Common Stock
outstanding during each year, adjusted for a two for one forward Common Stock
split effected February 17, 1997.

F-11
73

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

The Company owns a 96% limited partner interest in Syntek Asset Management,
L.P. ("SAMLP"). Until December 18, 1998, SAMLP was the general partner of
National Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"), the
operating partnership of NRLP, (collectively the "Partnership"). Gene E.
Phillips, a Director and Chairman of the Board of the Company until November 16,
1992, is also a general partner of SAMLP. As of December 31, 1998, the Company
owned approximately 55.0% of the outstanding limited partner units of NRLP.

NRLP, SAMLP and Mr. Phillips were among the defendants in a class action
lawsuit arising from the formation of NRLP. An agreement settling such lawsuit
(the "Settlement Agreement") for the above named defendants became effective on
July 5, 1990. The Settlement Agreement provided for, among other things, the
appointment of an NRLP oversight committee and the establishment of specified
annually increasing targets for five years relating to the price of NRLP's units
of limited partner interest.

The Settlement Agreement provided for the resignation and replacement of
SAMLP as general partner if the unit price targets were 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 expected to resign as general partner of NRLP
and NOLP.

The Settlement Agreement provided that 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 NRLP partnership
agreement. Syntek Asset Management, Inc. ("SAMI"), the managing general partner
of SAMLP, calculated the fair value of such Redeemable General Partner Interest
to be $49.6 million at December 31, 1997, before reduction for the principal
balance ($4.2 million at December 31, 1997) and accrued interest ($7.2 million
at December 31, 1997) on the note receivable from SAMLP for its original capital
contribution to the partnership.

On July 15, 1998, NRLP, SAMLP and the NRLP oversight committee executed an
Agreement for Cash Distribution and Election of Successor General Partner (the
"Cash Distribution Agreement") which provides for the nomination of an entity
affiliated with SAMLP to be the successor general partner of NRLP, for the
distribution of $11.4 million to the plaintiff class members and for the
resolution of all related matters under the Settlement Agreement. The Cash
Distribution Agreement was submitted to the Court on July 23, 1998. On August 4,
1998, the Court entered an order granting preliminary approval of the Cash
Distribution Agreement. On September 9, 1998, a notice was mailed to the
plaintiff class members describing the Cash Distribution Agreement. On October
16, 1998, a hearing was held to consider any objections to the Cash Distribution
Agreement. On October 23, 1998, the Court entered an order granting final
approval of the Cash Distribution Agreement. The Court also entered orders
requiring NRLP to pay $404,000 in attorney's fees to Joseph B. Moorman's legal
counsel, $30,000 to Joseph B. Moorman and $404,000 in attorney's fees to Robert
A. McNeil's legal counsel.

Pursuant to the order, $11.4 million was deposited by NRLP into an escrow
account and then transferred to the control of an independent settlement
administrator. The distribution of the cash shall be made to the plaintiff class
members pro rata based upon the number of units originally issued to each
plaintiff class member upon the formation of NRLP in 1987. The distribution of
cash is under the control of the independent settlement administrator. On March
10, 1999, the Court entered an order providing for the initial distribution of
the cash not later than March 31, 1999.

F-12
74

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The proposal to elect NRLP Management Corp. ("NMC"), a wholly-owned
subsidiary of the Company, as the successor general partner was submitted to the
unitholders of NRLP for a vote at a special meeting of unitholders held on
December 18, 1998. All units of NRLP owned by the Company and affiliates of
SAMLP (approximately 61.5% of the outstanding units of NRLP as of the November
27, 1998 record date) were voted pro rata with the vote of the other limited
partners. NMC was elected by a majority of the NRLP unitholders. The Settlement
Agreement remained in effect until December 18, 1998, when SAMLP resigned as
general partner and NMC was elected successor general partner and took office.

Under the Cash Distribution Agreement, SAMLP waived its right under the
Settlement Agreement to receive any payment from NRLP for its Redeemable General
Partner Interest and fees it was entitled to receive upon the election of a
successor general partner. As of December 31, 1997, the Redeemable General
Partner Interest was calculated to be $49.6 million. In addition, pursuant to
the Cash Distribution Agreement, the NRLP partnership agreement was amended to
provide that, upon voluntary resignation of the general partner, the resigning
general partner shall not be entitled to the repurchase of its general partner
interest under Paragraph 17.9 of the NRLP partnership agreement.

Under the Cash Distribution Agreement, NMC assumed liability for SAMLP's
note for its original capital contribution to NRLP. In addition, NMC assumed
liability for the note which requires the repayment of the $11.4 million paid by
NRLP under the Cash Distribution Agreement, plus the $808,000 in court ordered
attorney's fees and $30,000 paid to Joseph B. Moorman. This note requires
repayment over a ten-year period, bears interest at a variable rate, currently
7.0% per annum, and is guaranteed by the Company, the parent of NMC. The
liability assumed under the Cash Distribution Agreement was expensed as a
"litigation settlement" in the accompanying Consolidated Statement of
Operations.

As of December 31, 1998, the Company discontinued accounting for its
investment in the Partnership under the equity method upon the election of NMC
as general partner of the Partnership and the settlement of the class action
lawsuit. The Company began consolidation of the Partnership's accounts at that
date and its operations subsequent to that date. The consolidation of the
accounts of the Company with those of the Partnership (after intercompany
eliminations) resulted in an increase in the Partnership's net real estate of
$60.6 million. This amount was allocated to the individual real estate assets
based on their relative individual fair market value.

The Partnership's operating results for 1998 were as follows:

Revenues ......................................... $ 113,834

Property operating expenses ...................... 75,699
Interest ......................................... 26,722
Depreciation ..................................... 9,691
General and administrative expenses .............. 6,820
---------
118,932
---------

(Loss) from operations ........................... (5,098)
Gain on sales of real estate ..................... 52,589
---------

Net income ....................................... $ 47,491
=========

F-13
75

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 3. NOTES AND INTEREST RECEIVABLE

1998 1997
------------------------ ------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
---------- ------- -------- --------

Notes Receivable
Performing (including $594 in 1998 and
$1,307 in 1997 from affiliates)....... $44,488 $45,310 $ 9,217 $ 9,340
Nonperforming.............................. 9,200 9,200 26,344 23,212
------- ------- -------- --------

$53,688 54,510 $35,561 32,552
======= ========

Interest receivable........................ 2,648 380
Unamortized premiums/(discounts)........... (72) (124)
Deferred gains............................. (2,456) (4,884)
------- --------

$54,630 $27,924
======= ========

The Company recognizes interest income on nonperforming notes receivable on
a cash basis. For the years 1998, 1997 and 1996 unrecognized interest income on
such nonperforming notes receivable totaled $716,000, $2.2 million and $1.6
million, respectively.

Notes receivable at December 31, 1998, mature from 1999 to 2009 with
interest rates ranging from 7.2% to 18.0% per annum and a weighted average rate
of 11.9% per annum. Notes receivable are generally collateralized by real estate
or interests in real estate and personal guarantees of the borrower. A majority
of the notes receivable provide for interest to be paid at maturity. Scheduled
principal maturities of $37.0 million are due in 1999 of which $3.2 million is
due on nonperforming notes receivable.

In December 1997, the Company sold its Pin Oak land, a 567.6 acre parcel of
unimproved land in Houston, Texas, for $11.4 million, receiving net cash of $3.5
million and providing $6.9 million in short-term purchase money financing. The
purchase money financing was collected in full in January 1998, the Company
receiving net cash of $1.5 million after paying off $5.2 million in underlying
mortgage debt and the payment of various closing costs.

In December 1997, the Company sold a 25.1 acre tract of its Valley Ranch
land parcel, for $3.3 million, receiving net cash of $2.2 million and providing
$891,000 of short-term purchase money financing. The Company received a $624,000
paydown on the purchase money financing in January 1998 with the remaining
$267,000 being received in February 1998.

In June 1992, the Company sold the Continental Hotel and Casino in Las
Vegas, Nevada for, among other consideration, a $22.0 million wraparound
mortgage note. The Company recorded a deferred gain of $4.6 million on the sale
resulting from a disputed third lien mortgage being subordinated to the
Company's wraparound

F-14
76

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

mortgage note. In March 1997, the wraparound note was modified and extended in
exchange for the borrower's commitment to invest $2.0 million in improvements to
the hotel and casino within four months of March 1997, and an additional $2.0
million prior to December 1997. The borrower stopped making the payments
required by the note in April 1997, and did not make the required improvements.
In December 1997, the borrower filed for bankruptcy protection. In February
1998, a hearing was held to allow foreclosure of the hotel and casino. At the
hearing, the bankruptcy court allowed the borrower 90 days to submit a
reorganization plan and beginning March 2, 1998 required the borrower to make
monthly payments of $175,000. The Company received only the first such payment.
The wraparound mortgage note had a principal balance of $22.7 million at March
31, 1998. In April 1998, the bankruptcy court allowed the foreclosure of the
hotel and casino. No loss was incurred on foreclosure as the fair market value
of the property exceeded the carrying value of the mortgage note. The property
is included in real estate held for investment in the accompanying Consolidated
Balance Sheet.

As of December 31, 1998, the Company sold to Basic Capital Management, Inc.
("BCM"), the Company's advisor, three matured mortgage notes at their carrying
value of $628,000. No gain or loss was recognized on the sale. See NOTE 11.
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

The borrower on a $1.7 million mortgage note receivable secured by land in
Osceola, Florida failed to pay the note on its November 1, 1993 maturity. The
Company instituted foreclosure proceedings and was awarded summary judgment in
January 1994. In April 1995, the borrower filed for bankruptcy protection. In
August 1996, the bankruptcy court's stay was lifted allowing foreclosure to
proceed. In February 1997, the Company sold its mortgage note receivable for
$1.8 million in cash. A gain of $171,000 was recognized on the sale.

In September 1997, the Company sold its $16.3 million wraparound mortgage
note receivable secured by the Las Vegas Plaza Shopping Center in Las Vegas,
Nevada, for $15.0 million. The Company received net cash of $5.5 million after
paying off $9.2 million in underlying debt. No loss was incurred on the sale in
excess of the reserve previously established.

In September 1997, the Company foreclosed on its $8.9 million junior
mortgage note receivable secured by the Williamsburg Hospitality House in
Williamsburg, Virginia. The Company obtained the property through foreclosure
subject to the first mortgage of $12.0 million. No loss was incurred on
foreclosure as the fair value of the property exceeded the carrying value of the
Company's mortgage note receivable and assumed mortgage debt. The property is
included in real estate held for investment in the accompanying Consolidated
Balance Sheet.

NOTE 4. ALLOWANCE FOR ESTIMATED LOSSES

Activity in the allowance for estimated losses on notes and interest
receivable was as follows:

1998 1997 1996
------- ------- -------

Balance January 1, ................ $ 2,398 $ 3,926 $ 7,254
Partnership allowance ........ 1,910 -- --
Amounts charged off .......... -- (1,528) --
Writedown of property ........ (1,731) -- (3,328)
------- ------- -------

Balance December 31, .............. $ 2,577 $ 2,398 $ 3,926
======= ======= =======

F-15
77

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 5. REAL ESTATE

In January 1998, in separate transactions, the Company purchased (1) El
Dorado Parkway land, a 8.5 acre parcel of unimproved land in Collin County,
Texas, for $952,000, consisting of $307,000 in cash, assumption of the existing
mortgage of $164,000 which bears interest at 10% per annum, requires semi-annual
payments of principal and interest of $18,000 and matures in May 2005 and seller
financing of the remaining $481,000 of the purchase price which bears interest
at 8% per annum, requires semi-annual payments of principal and interest of
$67,000 and matures in January 2000; (2) Valley Ranch IV land, a 12.3 acre
parcel of unimproved land in Irving, Texas, for $2.0 million, consisting of
$500,000 in cash and seller financing of the remaining $1.5 million of the
purchase price which bears interest at 10% per annum, requires quarterly
payments of interest only and matures in December 2000; and, (3) JHL Connell
land, a 7.7 acre parcel of unimproved land in Carrollton, Texas, for $1.3
million in cash.

In February 1998, in separate transactions, the Company purchased (1)
Scoggins land, a 314.5 acre parcel of unimproved land in Tarrant County, Texas,
for $3.0 million, consisting of $1.5 million in cash and mortgage financing of
$1.5 million which bore interest at 14% per annum, required quarterly payments
of interest only and matured in February 1999; and, (2) Bonneau land, a 8.4 acre
parcel of unimproved land in Dallas County, Texas, for $1.0 million in mortgage
financing which bore interest at 18.5% per annum with principal and interest due
at maturity in February 1999. The Scoggins land was refinanced in May 1998 and
the Bonneau land was refinanced in March 1999.

In November 1994, the Company and an affiliate of BCM, sold five apartments
with a total of 880 units to a newly formed limited partnership in exchange for
$3.2 million in cash, a 27% limited partner interest and two mortgage notes
receivable, secured by one of the properties. The Company had the option to
reacquire the properties at any time after September 1997 for their original
sales prices. Accordingly, a deferred gain of $5.6 million was offset against
the Company's investment in the partnership. In February 1998, three of the
properties, one of which secured the two notes receivable, were reacquired, for
$7.7 million. The Company paid $4.0 million in cash and assumed the existing
mortgages of $3.7 million. Simultaneously, the Company refinanced the three
properties for a total of $7.8 million, receiving net cash of $3.9 million after
paying off $3.7 million in mortgage debt and the payment of various costs. The
new mortgage bears interest at 9.5% per annum, require monthly principal and
interest payments totaling $66,000 and mature in February 2008. In June 1998,
the remaining two properties were reacquired for $8.6 million. The Company paid
$2.1 million in cash and assumed the existing mortgages totaling $6.5 million.
The mortgages bear interest at 8.73% per annum, require monthly principal and
interest payments totaling $49,000 and mature in January 2019.

In March 1998, the Company purchased Desert Wells land, a 420 acre parcel
of unimproved land in Palm Desert, California, for $12.0 million. The Company
paid $400,000 in cash, obtained mortgage financing of $10.0 million and obtained
seller financing of the remaining $1.6 million of the purchase price. The
mortgage bore interest at the prime rate plus 4.5%, currently 12.25% per annum,
required monthly payments of interest only and matured in March 1999. The lender
has agreed to an extension of its matured mortgage to March 2000. All other
terms would remain unchanged. The seller financing bore interest at 10% per
annum, required monthly payments of interest only and matured in July 1998. The
debt was paid in full at maturity.

In April 1998, the Company purchased Yorktown land, a 325.8 acre parcel of
unimproved land in Harris County, Texas, for $7.4 million. The Company paid $3.0
million in cash and obtained seller financing of the remaining $4.4 million of
the purchase price. The seller financing bore interest at 8.5% per annum,
required monthly interest only payments and matured in February 1999. The
Company has received a written commitment from a lender to refinance the matured
mortgage in the approximate amount of $5.0 million. The new mortgage is
scheduled to close on or about April 15, 1999.

F-16
78

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Also in April 1998, the Company sold a 77.7 acre tract of its Lewisville
land parcel for $6.8 million, receiving net cash of $153,000 after paying off
first and second lien mortgages totaling $5.9 million and the payment of various
closing costs. A gain of $1.9 million was recognized on the sale.

In May 1998, but effective April 1, 1998, the Company purchased, in a
single transaction, twenty-nine apartments with a total of 2,441 units
(collectively the "IGI properties") in Florida and Georgia for $56.1 million.
The properties were acquired through three newly-formed controlled limited
partnerships. The partnerships paid a total of $6.1 million in cash, assumed
$43.4 million in mortgage debt and issued a total of $6.6 million in Class A
limited partner units in the acquiring partnerships, which have the Company as
the Class B Limited Partner and a wholly-owned subsidiary of the Company as the
Managing General Partner. The Class A limited partners were entitled to a
preferred return of $.08 per unit in 1998 and are entitled to an annual
preferred return of $.09 per unit in 1999 and $.10 per unit in 2000 and
thereafter. The Class A units are exchangeable after April 1, 1999 into shares
of Series F Preferred Stock on the basis of ten Class A units for each preferred
share. The assumed mortgages bear interest at rates ranging from 7.86% and
11.22% per annum, require monthly principal and interest payments totaling
$384,000 and mature between June 1, 2000 and September 2017. See NOTE 13.
"PREFERRED STOCK."

Also in May 1998, the Company purchased the FRWM Cummings land, a 6.4 acre
parcel of unimproved land in Farmers Branch, Texas, for $1.2 million in cash.

Further in May 1998, in separate transactions, the Company sold (1) a 21.3
acre tract of the Parkfield land parcel, for $1.3 million, receiving no net cash
after paying down by $1.1 million the mortgage secured by such land parcel and
the payment of various costs and, (2) a 15.4 acre tract of the Valley Ranch land
parcel, for $1.2 million, receiving no net cash after paying down by $1.1
million the mortgage secured by such land parcel and the payment of various
closing costs. A gain of $670,000 was recognized on the Parkfield sale and a
gain of $663,000 was recognized on the Valley Ranch sale.

In June 1998, in separate transactions, the Company sold (1) a 21.6 acre
tract of the Chase Oaks land parcel, for $3.3 million, receiving net cash of
$418,000 after paying down by $2.0 million the mortgage secured by such land
parcel and the payment of various closing costs; (2) a 150.0 acre tract of the
Rasor land parcel, for $6.8 million, receiving net cash of $1.4 million after
paying down by $5.3 million the mortgage secured by such land parcel and the
payment of various closing costs; and, (3) the entire 315.2 acre Palm Desert
land parcel, for $17.2 million, receiving net cash of $8.6 million after paying
off $7.2 million in mortgage debt and the payment of various closing costs. A
gain of $848,000 was recognized on the Chase Oaks sale, a gain of $789,000 was
recognized on the Rasor sale and a gain of $3.9 million was recognized on the
Palm Desert sale.

In July 1998, in separate transactions, the Company purchased (1) the
Thompson II land, a 3.5 acre parcel of unimproved land in Dallas County, Texas,
for $471,000 in cash; and (2) the Walker land, a 132.6 acre parcel of unimproved
land in Dallas County, Texas, for $12.6 million in cash.

Also in July 1998, the Company purchased the Katrina land, a 454.8 acre
parcel of undeveloped land in Palm Desert, California, for $38.2 million. The
purchase was made by a newly formed controlled partnership of which a wholly-
owned subsidiary of the Company is the general partner and Class B limited
partner. The partnership issued $23.2 million Class A limited partnership units
and obtained mortgage financing of $15.0 million. The mortgage bears interest at
15.5% per annum, requires monthly payments of interest only and matures in July
1999. The Class A limited partners were entitled to an annual preferred return
of $.07 per unit in 1998, and are entitled to an annual preferred return of $.08
per unit in 1999, $.09 per unit in 2000 and $.10 per unit in 2001 and
thereafter. The Class A units may be converted into a total of 231,750 shares of
Series H Cumulative Convertible Preferred Stock after July 13, 1999, on the
basis of 100 Class A units for each preferred share. See NOTE 13. "PREFERRED
STOCK."

F-17
79

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In July 1998, the Company sold a 2.5 acre tract of its Las Colinas I land
parcel, for $1.6 million, receiving net cash of $605,000 after paying down by
$750,000 the Las Colinas I term loan secured by such land parcel and the payment
of various closing costs. A gain of $869,000 was recognized on the sale.

In September 1998, a newly formed controlled limited partnership, in which
the Company has a combined 95% general and limited partner interest, purchased
Messick land, a 72.0 acre parcel of unimproved land in Palm Springs, California,
for $3.5 million, paying $1.0 million in cash and obtaining seller financing of
the remaining $2.5 million of the purchase price. The seller financing bears
interest at 8.5% per annum, requires quarterly payments of interest only,
principal payments of $300,000 in July 1999 and July 2000, and matures in August
2001.

Also in September 1998, in separate transactions, the Company sold (1) a
60.0 acre tract of the Parkfield land parcel, for $1.5 million, receiving no net
cash after paying down by $1.4 million the mortgage secured by such land parcel
and the payment of various closing costs; (2) the remaining 10.5 acres of the BP
Las Colinas land parcel for $4.7 million, receiving net cash of $1.8 million
after paying off the $2.7 million mortgage secured by such land parcel and the
payment of various closing costs; (3) the entire 30.0 acre Kamperman land parcel
for $2.4 million, receiving net cash of $584,000 after paying down by $1.6
million the Las Colinas I term loan secured by such parcel and the payment of
various closing costs; and (4) a 1.1 acre tract of the Santa Clarita land parcel
for $543,000, receiving net cash of $146,000 after paying down by $350,000 the
Las Colinas I term loan secured by such land parcel and the payment of various
closing costs. A gain of $44,000 was recognized on the Parkfield sale, a gain of
$3.4 million was recognized on the BP Las Colinas sale, a gain of $969,000 was
recognized on the Kamperman sale and a gain of $409,000 was recognized on the
Santa Clarita sale.

Further in September 1998, in separate transactions, the Company purchased
(1) the HSM land, a 6.2 acre parcel of unimproved land in Farmers Branch, Texas,
for $2.2 million in cash; (2) the Vista Ridge land, a 160.0 acre parcel of
unimproved land in Lewisville, Texas, for $15.6 million, consisting of $3.1
million in cash and mortgage financing of $12.5 million which bears interest at
15.5% per annum, requires monthly interest only payments at a rate of 12.5% per
annum, with the deferred interest and principal due at maturity in July 1999;
and (3) the Marine Creek land, a 54.2 acre parcel of unimproved land in Fort
Worth, Texas, for $2.2 million in cash.

In October 1998, in separate transactions, the Company purchased (1) Vista
Business Park land, a 41.8 acre parcel of unimproved land in Travis County,
Texas, for $3.0 million, consisting of $730,000 in cash and mortgage financing
of $2.3 million which bears interest at 8.9% per annum, requires monthly
payments of interest only and matures in September 2000; (2) Mendoza land, a .35
acre parcel of unimproved land in Dallas, Texas, for $180,000, consisting of
$27,000 in cash and seller financing of the remaining $153,000 of the purchase
price which bears interest at 10% per annum, requires quarterly payments of
interest only and matures in October 2001; (3) Croslin land, a .8 acre parcel of
unimproved land in Dallas, Texas, for $306,000, consisting of $46,000 in cash
and seller financing of the remaining $260,000 of the purchase price which bears
interest at 10% per annum, requires quarterly payments of interest only and
matures in October 2001; and (4) Stone Meadows land, a 13.5 acre parcel of
unimproved land in Houston, Texas, for $1.6 million, consisting of $491,000 in
cash and seller financing of the remaining $1.1 million of the purchase price,
which bears interest at 10% per annum, requires quarterly principal and interest
payments of $100,000 and matures in October 1999.

In November 1998, the Company purchased Mason/Goodrich land, a 265.5 acre
parcel of unimproved land in Houston, Texas, for $10.9 million, consisting of
$3.7 million in cash and mortgage financing of $7.2 million. The mortgage bore
interest at 8.9% per annum, required monthly interest only payments and matured
in February 1999. The lender has agreed to extend its matured mortgage to
September 1999, for a $500,000 principal paydown. All other terms would remain
unchanged.

F-18
80

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In November 1998, the Company purchased two apartments with a total of 423
units in Indianapolis, Indiana for $7.2 million. The properties were acquired
through a newly-formed controlled partnership. The partnership paid a
total of $14,000 in cash, assumed $5.9 million in mortgage debt and issued $1.3
million in Class A limited partner units in the acquiring partnership, in which
the Company is the Class B limited partner and a wholly-owned subsidiary of the
Company is the Managing General Partner. The Class A limited partners are
entitled to a preferred return of $.07 per annum per unit. The Class A units are
exchangeable after November 18, 1999, into shares of Series F Cumulative
Convertible Preferred Stock on the basis of ten units for each preferred share.
The assumed mortgages bear interest at 9.95% per annum and 10.75% per annum, one
requires monthly payments of interest and principal of $25,000 and matures
October 2012 and the other requires monthly interest only payments and matures
in June 1999.

In December 1998, in separate transactions, the Company purchased (1) Plano
Parkway land, a 81.2 acre parcel of unimproved land in Plano, Texas, for $11.0
million, consisting of $2.2 million in cash and seller financing of the
remaining $8.9 million of the purchase price, which bore interest at 10% per
annum and required the payment of principal and interest at maturity in January
1999; and, (2) Van Cattle land, a 126.6 acre parcel of unimproved land in
McKinney, Texas, for $2.0 million, consisting of $500,000 in cash and seller
financing of the remaining $1.5 million of the purchase price, which bears
interest at 10% per annum, requires interest only payments and matures in
December 2000.

Also in December 1998, the Company sold two tracts totaling 63.1 acres of
the Valley Ranch land parcel for a total of $4.2 million, receiving net cash of
$135,000 after paying down by $3.0 million the mortgage secured by such land
parcel and the payment of various closing costs. No gain or loss was recognized
on the sales.

At December 31, 1997, the Company had under construction One Hickory
Center, a 102,615 sq. ft office building in Farmers Branch, Texas. Construction
was completed in December 1998, at cost of $7.8 million.

In the third and fourth quarters of 1998, provisions for loss of $3.0
million and $916,000, respectively, were recorded to write down the Valley Ranch
land to its estimated realizable value less estimated costs of sale. Such write
down was necessitated by an increase in the acreage designated as flood plain.

In September 1997, the Company purchased the Collection, a 267,812 sq. ft.
retail and commercial center in Denver, Colorado, for $19.5 million. The Company
paid $791,000 in cash, assumed existing mortgages totaling $14.7 million and
issued 400,000 shares of Series F Cumulative Convertible Preferred Stock. See
NOTE 13. "PREFERRED STOCK." A first mortgage in the amount of $14.2 million
bears interest at 8.64% per annum, requires monthly principal and interest
payments of $116,000 and matures in May 2017. A second lien mortgage in the
amount of $580,000 bears interest at 7% per annum until April 2001, 7.5% per
annum from May 2001 to April 2006, and 8% per annum from May 2006 to May 2010,
requires monthly principal and interest payments of $3,000 and matures in May
2010.

In October 1997, the Company contributed its Pioneer Crossing land in
Austin, Texas, to a limited partnership in exchange for $3.4 million in cash, a
1% managing general partner interest in the partnership, all of the Class B
limited partner units in the partnership and the partnership's assumption of the
$16.1 million mortgage debt secured by the property. The existing general and
limited partners converted their general and limited partner interests into
Class A limited partner units in the partnership. The Class A limited partner
units have an agreed value of $1.00 per unit and are entitled to a fixed
preferred return of 10% per annum, paid quarterly. The Class A units may be
converted into a total of 360,000 shares of Series F Cumulative Convertible
Preferred Stock at any time prior to the sixth anniversary of the closing, on
the basis of one share of Series F Preferred Stock for each ten Class A units.
See NOTE 13. "PREFERRED STOCK."

F-19
81

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Also in October 1997, the Company contributed its Denver Merchandise Mart
in Denver, Colorado, to a limited partnership in exchange for $6.0 million in
cash, a 1% managing general partner interest in the partnership, all of the
Class B limited partner units in the partnership and the partnership's
assumption of the $23.0 million in mortgage debt secured by the property. The
existing general and limited partners converted their general and limited
partner interests into Class A limited partner units in the partnership. The
Class A units have an agreed value of $1.00 per unit and are entitled to a fixed
preferred return of 10% per annum, paid quarterly. The Class A units may be
converted into a total of 529,000 shares of Series F Cumulative Convertible
Preferred Stock at any time prior to the sixth anniversary of the closing, on
the basis of one share of Series F Preferred Stock for each ten Class A units.
See NOTE 13. "PREFERRED STOCK."

Further in October 1997, the Company purchased the Piccadilly Inns, four
hotels in Fresno, California, with a total of 697 rooms, for $33.0 million. The
Company issued 1.6 million shares of its Series F Cumulative Convertible
Preferred Stock for $16.0 million of the purchase price and obtained mortgage
financing of $19.8 million. See NOTE 13. "PREFERRED STOCK." The Company received
net financing proceeds of $2.2 million after the payment of various closing
costs. The mortgage bears interest at 8.40% per annum, requires monthly
principal and interest payments of $158,000 and matures in November 2012.

In October 1997, a newly formed controlled partnership, of which the
Company is the general partner and Class B limited partner, purchased Vineyards
land, a 15.8 acre parcel of unimproved land in Tarrant County, Texas, for $4.5
million. The partnership paid $800,000 in cash, assumed the existing mortgage of
$2.5 million and issued the seller $1.1 million of Class A limited partner units
in the partnership as additional consideration. The Class A units have an agreed
value of $1.00 per unit and are entitled to a fixed preferred return of 10% per
annum, paid quarterly. The Class A units may be exchanged for either shares of
the Company's Series G Preferred Stock on or after the second anniversary of the
closing at the rate of one share of Series G Preferred Stock for each 100 Class
A units exchanged, or on or after the third anniversary of the closing, the
Class A units may be exchanged for shares of the Company's Common Stock. The
assumed mortgage bore interest at 12.95% per annum required quarterly payments
of interest only and matured in June 1998. See NOTE 13. "PREFERRED STOCK."

Also in October 1997, the Company sold a 11.6 acre tract of its Valley
Ranch land parcel for $1.2 million. The net cash proceeds of $990,000, after the
payment of various closing costs, were deposited in a certificate of deposit for
the benefit of the lender, in accordance with the term loan secured by such land
parcel. The certificate of deposit was released to the lender in December 1997,
in conjunction with the payoff of the loan. A gain of $629,000 was recognized on
the sale.

In November 1997, the Company sold two tracts of its Valley Ranch land,
totaling 8 acres, for $577,000. The net cash proceeds of $451,000, after the
payment of various closing costs, were deposited in a certificate of deposit for
the benefit of the lender, in accordance with the term loan secured by such land
parcel. The certificate of deposit was released to the lender in December 1997
in conjunction with the payoff of the loan. A gain of $216,000 was recognized on
the sale.

Also in December 1997, the Company exchanged a 43.0 acre tract of its
Valley Ranch land parcel for Preston Square, a 35,508 sq. ft. shopping center in
Dallas, Texas. In accordance with the provisions of the term loan securing the
Valley Ranch land parcel, the Company paid $2.8 million to the lender in
exchange for the lender's release of its collateral interest in such land.
Simultaneously, the Company obtained new mortgage financing of $2.5 million
secured by the shopping center. The mortgage bears interest at 8.2% per annum,
requires monthly payments of interest only and matures in December 1999. The
Company recognized no gain or loss on the exchange.

Also in 1997, the Company purchased 25 parcels of unimproved land; Scout,
546 acres in Tarrant County, Texas; Katy Road, 130.6 acres in Harris County,
Texas; McKinney Corners I, 30.4 acres in Collin County, Texas;

F-20
82

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

McKinney Corners II, 173.9 acres in Collin County, Texas; McKinney Corners III,
15.5 acres in Collin County, Texas; Lacy Longhorn, 17.1 acres in Farmers Branch,
Texas; Chase Oaks, 60.5 acres in Plano, Texas; Pioneer Crossing, 1,448 acres in
Austin, Texas; Kamperman, 129.6 acres in Collin County, Texas; Keller, 811.8
acres in Tarrant County, Texas; McKinney Corners IV, 31.3 acres in Collin
County, Texas; Pantex, 182.5 acres in Collin County, Texas; Dowdy/McKinney V,
174.7 acres in Collin County, Texas; Perkins, 645.4 acres in Collin County,
Texas; LBJ, 10.4 acres in Dallas County, Texas; Palm Desert, 315.2 acres in Palm
Desert, California; Thompson, 4 acres in Dallas County, Texas; Santa Clarita,
20.6 acres in Santa Clarita, California; Tomlin, 9.2 acres in Dallas County,
Texas; Rasor, 378.2 acres in Plano, Texas; Dalho, 3.4 acres in Farmers Branch,
Texas; Hollywood Casino, 51.7 acres in Farmers Branch, Texas; Valley Ranch III,
12.5 acres in Irving, Texas; and, Stagliano, 3.2 acres in Farmers Branch, Texas.
The Company paid a total of $44.4 million in cash and either obtained mortgage
financing or assumed existing mortgage debt for the remaining $77.2 million of
the purchase prices. In conjunction with the Rasor purchase, the Company
transferred its Perkins land to the seller as part of the purchase price.

In September 1997, the Company sold the Mopac Building, a 400,000 sq. ft.
office building, in St. Louis, Missouri, for $1.0 million, receiving net cash of
$1.0 million after the payment of various closing costs. In accordance with the
provisions of the Las Colinas I term loan, the Company applied $350,000 of the
net cash received to paydown the term loan in exchange for the lender's release
of its collateral interest in the property. A gain of $481,000 was recognized on
the sale.

In December 1997, the Company sold Park Plaza, a 105,507 sq. ft. shopping
center in Manitowoc, Wisconsin, for $4.9 million, receiving net cash of $1.6
million, after paying off $3.1 million in mortgage debt and the payment of
various closing costs. A gain of $105,000 was recognized on the sale.

Also in 1997, the Company sold all or portions of six land parcels; 12.6
acres of Las Colinas I in Irving, Texas; 40.2 acres of BP Las Colinas in Las
Colinas, Texas; 73.8 acres of Valley Ranch in Irving, Texas; 86.5 acres of Rasor
in Plano, Texas; 32.0 acres of Parkfield in Denver, Colorado; and 567.6 acres of
Pin Oak in Houston, Texas. The Company received $14.2 million in net cash after
paying off $15.7 million in mortgage debt and the payment of various closing
costs. Gains totaling $16.5 million were recognized on the sales.

In 1991, the Company purchased all of the capital stock of a corporation
which owned 198 developed residential lots in Fort Worth, Texas. Through
December 31, 1998, 197 of the residential lots had been sold.

NOTE 6. INVESTMENTS IN EQUITY INVESTEES

The Company's investment in equity investees at December 31, 1998, included
(1) equity securities of three publicly traded real estate investment trusts,
Continental Mortgage and Equity Trust ("CMET"), Income Opportunity Realty
Investors, Inc. ("IORI") and Transcontinental Realty Investors, Inc. ("TCI")
(collectively the "REITs"); and (2) interests in real estate joint venture
partnerships. BCM, the Company's advisor, serves as advisor to the REITs, and
performs certain administrative and management functions for NRLP and NOLP on
behalf of NMC. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

The Company accounts for its investment in the REITs, the joint venture
partnerships and accounted for its investment in NRLP and NOLP prior to December
31, 1998, using the equity method as more fully described in NOTE 1. "SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES--Investments in equity investees." As of
December 31, 1998, the accounts of NRLP and NOLP are consolidated with those of
the Company. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

Substantially all of the Company's equity securities of the REITs and NRLP
are pledged as collateral for borrowings. See NOTE 10. "MARGIN BORROWINGS."

F-21
83

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company's investment in equity investees accounted for using the equity
method, at December 31, 1998 was as follows:

Percentage Carrying Equivalent
of the Company's Value of Investee Market Value
Ownership at Investment at Book Value at of Investment at
Investee December 31, 1998 December 31, 1998 December 31, 1998 December 31, 1998
- -------- ----------------- ----------------- ----------------- -----------------

CMET................ 40.9% $15,550 $35,727 $25,052
IORI................ 30.0 3,132 7,068 3,034
TCI................. 31.0 10,291 28,251 15,398

28,973 $43,484
=======

Other............... 5,460
-------

$34,433
=======

The Company's investment in equity investees accounted for using the equity
method, at December 31, 1997 was as follows:

Percentage Carrying Equivalent
of the Company's Value of Investee Market Value
Ownership at Investment at Book Value at of Investment at
Investee December 31, 1997 December 31, 1997 December 31, 1997 December 31, 1997
- -------- ----------------- ----------------- ----------------- -----------------

NRLP..................... 54.4% $11,479 $ * $ 83,018
CMET..................... 40.6 14,939 35,745 25,733
IORI..................... 29.7 3,511 7,439 5,176
TCI...................... 30.6 8,378 26,652 20,664
------- --------
38,307 $134,591
========

General partner interest
in NRLP and NOLP......... 6,230
Other.................... 1,314
-------
$45,851
=======

- ----------------
* At December 31, 1997, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $198.9 million.
Revaluation equity is defined as the difference between the estimated
current 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, 1997.

F-22
84

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company's management continues to believe that the market value of each
of the REITs and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1998, as its liquidity
has permitted.

In April 1996, the Company purchased a 28% general partner interest in
Campbell Center Associates, Ltd. ("Campbell Associates"), which in turn had a
56.25% interest in Campbell Centre Joint Venture, which owned a 413,175 sq. ft.
office building in Dallas, Texas, for $550,000 in cash and a $500,000 note. In
January 1997, the Company exercised its option to purchase an additional 28%
general partner interest in Campbell Associates, for $300,000 in cash and a
$750,000 note. In July 1997, the Company purchased an additional 9% general
partner interest in Campbell Associates, for $868,000 in cash. In March 1998,
Consolidated Equity Properties, Inc., a wholly-owned subsidiary of the Company,
acquired a 30% limited partner interest in Campbell Associates for $500,000 in
cash. In June 1998, the Company purchased the remaining 5% general partner
interest in Campbell Associates for $1.1 million in cash. In June 1998, Campbell
Centre Joint Venture sold the office building for $32.2 million in cash.
Campbell Associates, as a partner, received net cash of $13.2 million from the
sales proceeds and escrowed an additional $190,000 for pending parking lot
issues. Campbell Associates recognized a gain of $8.2 million on the sale.

In June 1996, a newly formed limited partnership, of which the Company is a
1% general partner, purchased 580 acres of unimproved land in Collin County,
Texas, for $5.7 million in cash. The Company contributed $100,000 in cash to the
partnership with the remaining $5.6 million being contributed by the limited
partner. The partnership agreement provided that the limited partner receive a
12% preferred cumulative return on his investment before any sharing of
partnership profits occurs. In April 1997, the partnership sold a 35.0 acre
tract for $1.3 million. Net cash of $1.2 million was distributed to the limited
partner. The partnership recognized a gain of $884,000 on the sale. In July
1997, the partnership sold a 24.6 acre tract for $800,000. Net cash of $545,000
was distributed to the limited partner. The partnership recognized a gain of
$497,000 on the sale. In September 1997, the partnership sold a 77.2 acre tract
for $1.5 million. No net cash was received. The partnership recognized a gain of
$704,000 on the sale. In October 1997, the partnership sold a 96.5 acre tract
for $1.7 million. Net cash of $1.1 million was distributed to the limited
partner in accordance with the partnership agreement. The partnership recognized
a gain of $691,000 on the sale. In December 1997, the partnership sold a 94.4
acre tract for $2.5 million. Of the net cash $1.8 million was distributed to the
limited partner and $572,000 was distributed to the Company as general partner
in accordance with the partnership agreement. The partnership recognized a gain
of $1.4 million on the sale. In January 1998, the partnership sold a 155.4 acre
tract for $2.9 million, receiving $721,000 in cash and providing financing of an
additional $2.2 million. Of the net cash, $300,000 was distributed to the
limited partner and $300,000 was distributed to the Company as general partner.
The seller financing was collected at maturity, in July 1998, with the net cash
distributed $1.1 million to the limited partner and $1.1 million to the Company
as general partner. The partnership recognized a gain of $1.2 million on the
sale. In September 1998, the partnership sold the remaining 96.59 acres for $1.3
million. Of the net cash $587,000 was distributed to the limited partner and
$587,000 was distributed to the Company as general partner. The partnership
recognized a gain of $128,000 on the sale.

In September 1997, a newly formed limited partnership, of which the Company
is a 1% general partner and 21.5% limited partner, purchased a 422.4 acre parcel
of unimproved land in Denton County, Texas, for $16.0 million in cash. The
Company contributed $3.6 million in cash to the partnership with the remaining
$12.4 million being contributed by the other limited partners. In September
1997, the partnership obtained financing of $6.5 million secured by the land.
The mortgage bears interest at 10% per annum, requires quarterly payments of
interest only and matures in September 2001. The net financing proceeds were
distributed to the partners, the Company receiving a return of $2.9 million of
its initial investment. The partnership agreement also provides that the limited
partners receive a 12% preferred cumulative return on their investment before
any sharing of partnership profits occurs. One of the limited partners in the
partnership was, at the time, a limited partner in a partnership that owned

F-23
85

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

approximately 15.8% of the Company's outstanding shares of Common Stock. See
NOTE 11. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

In January 1992, the Company entered into a partnership agreement with an
entity affiliated with, at the time, a limited partner in a partnership that
owned approximately 15.8% of the Company's outstanding shares of Common Stock,
that acquired 287 developed residential lots adjacent to the Company's other
residential lots in Fort Worth, Texas. The partnership agreement also provides
each of the partners with a guaranteed 10% return on their respective
investments. Through December 31, 1997, 214 of the residential lots had been
sold. During 1998, an additional 52 lots were sold with 21 lots remaining to be
sold at December 31, 1998. During 1997 and 1998, each partner received $21,000
and $418,000 in return of capital distributions and $12,000 and $493,000 in
profit distributions.

Set forth below are summary financial data for equity investees owned over
50%:

1997
---------

Property and notes receivable, net........................... $ 236,367
Other assets................................................. 43,213
Notes payable................................................ (339,102)
Other liabilities............................................ (17,311)
---------

Equity....................................................... $ (76,833)
=========

The above table includes the accounts of NRLP in 1997. In 1998, NRLP's
accounts are included in the accompanying Consolidated Balance Sheet. See NOTE
2. "SYNTEK ASSET MANAGEMENT, L.P."

1998 1997 1996
--------- --------- ---------

Revenues ......................................... $ 113,834 $ 117,461 $ 109,501
Depreciation ..................................... (9,691) (10,214) (10,783)
Interest ......................................... (26,722) (34,481) (34,601)
Operating expenses ............................... (82,519) (74,195) (65,789)
--------- --------- ---------

Income (loss) before gains on sale of real
estate and extraordinary gains .................. (5,098) (1,429) (1,672)
Gains on sale of real estate ..................... 52,589 8,356 61
--------- --------- ---------

Net income ....................................... $ 47,491 $ 6,927 $ (1,611)
========= ========= =========

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.

F-24
86

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company's equity share of:

1998 1997 1996
-------- -------- --------

Income (loss) before gains on sale of real estate ..... $ (2,794) $ 654 $ (249)
Gains on sale of real estate .......................... 34,055 3,022 --
-------- -------- --------
Net income ............................................ $ 31,261 $ 3,676 $ (249)
======== ======== ========

Set forth below are summary financial data for equity investees owned less
than 50%:

1998 1997
--------- ---------

Property and notes receivable, net .......... $ 734,857 $ 631,825
Other assets ................................ 69,829 80,789
Notes payable ............................... (577,167) (483,064)
Other liabilities ........................... (25,474) (28,326)
--------- ---------

Equity ...................................... $ 202,045 $ 201,224
========= =========

1998 1997 1996
--------- --------- ---------

Revenues ......................................... $ 150,163 $ 129,531 $ 101,246
Depreciation ..................................... (20,954) (17,429) (14,408)
Provision for losses ............................. 506 (1,337) 844
Interest ......................................... (49,915) (38,537) (30,401)
Operating expenses ............................... (91,868) (85,387) (69,698)
--------- --------- ---------

(Loss) before gains on sale of real estate
and extraordinary gains ......................... (12,068) (13,159) (12,417)
Gains on sale of real estate ..................... 18,642 34,297 11,701
Extraordinary gains .............................. -- -- 1,068
--------- --------- ---------

Net income (loss) ................................ $ 6,574 $ 21,138 $ 352
========= ========= =========

F-25

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company's equity share of:

1998 1997 1996
-------- -------- --------

(Loss) before gains on sale of real estate and
extraordinary gains .................................. $ (686) $ (3,703) $ (3,292)
Gains on sale of real estate .......................... 7,391 -- 4,645
Extraordinary gains ................................... -- 10,524 381
-------- -------- --------

Net income (loss) ..................................... $ 6,705 $ 6,821 $ 1,734
======== ======== ========

The Company's cash flow from the REITs and NRLP is dependent on the ability
of each of the entities to make distributions. CMET and IORI have been making
quarterly distributions since the first quarter of 1993, NRLP since the fourth
quarter of 1993 and TCI since the fourth quarter of 1995. In 1998, the Company
received distributions totaling $3.0 million from the REITs and $7.2 million
from NRLP, including distributions accrued at December 31, 1997, but not
received until 1998. In 1997, the Company received total distributions from the
REITs of $1.4 million and $1.4 million from NRLP and accrued an additional $6.7
million in NRLP and TCI distributions that were not received until January 1998.

The Company's investments in the REITs and NRLP were initially acquired in
1989. In 1998, the Company purchased an additional $1.1 million of equity
securities of the REITs and NRLP.

NOTE 7. MARKETABLE EQUITY SECURITIES--TRADING PORTFOLIO

In 1994, the Company began purchasing equity securities of entities other
than those of the REITs and NRLP to diversify and increase the liquidity of its
margin accounts. In 1998, the Company purchased $15.1 million and sold $5.2
million of such securities. These equity securities are considered a trading
portfolio and are carried at market value. At December 31, 1998, the Company
recognized an unrealized decline in the market value of the equity securities in
its trading portfolio of 6.1 million. In 1998, the Company realized a net loss
of $112,000 from the sale of trading portfolio securities and received 79,000 in
dividends. At December 31, 1997, the Company recognized an unrealized decline in
the market value of the equity securities in its trading portfolio of $850,000.
In 1997, the Company realized a net gain of $154,000 from the sale of trading
portfolio securities and received $107,000 in dividends. In 1996, the Company
realized a net gain of $29,000 from the sale of trading portfolio securities and
received $163,000 in dividends. At December 31, 1996, the Company recognized an
unrealized decline in the market value of the equity securities in its trading
portfolio of $486,000. Unrealized and realized gains and losses in the trading
portfolio are included in other income in the accompanying Consolidated
Statements of Operations.

NOTE 8. ACQUISITION OF PIZZA WORLD SUPREME, INC.

In April 1996, a wholly-owned subsidiary of the Company purchased, for
$10.7 million in cash, 80% of the common stock of Pizza World Supreme, Inc.
"PWSI", which in turn had acquired 26 operating pizza parlors in various
communities in California's San Joaquin Valley. Concurrent with the purchase,
the Company granted to an individual an option to purchase 36.25% of the
Company's subsidiary at any time for the Company's net investment in such
subsidiary. In May 1997, the Company acquired the remaining 20% of PWSI for $5.0
million, the sellers providing purchase money financing in the form of two $2.5
million term loans. The term loans bear interest at 8% per annum, require
quarterly payments of interest only and mature in May 2007.

F-26
88

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 9. NOTES AND INTEREST PAYABLE

Notes and interest payable consisted of the following:

1998 1997
------------------------ -----------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------- -------- -------- --------

Notes payable
Mortgage loans................. $723,567 $736,320 $ 84,050 $ 96,654
Borrowings from financial
institutions.................. 17,546 17,074 170,491 153,369
Notes payable to affiliates.... 5,519 5,049 7,342 4,570
-------- -------- -------- --------

$746,632 $758,443 $261,883 $254,593
======== ========

Interest payable ($5,440 in 1998
and $4,836 in 1997 to
affiliates)................... 9,829 7,393
-------- --------

$768,272 $261,986
======== ========

Scheduled principal payments on notes payable are due as follows:

1999............................ $167,955
2000............................ 77,920
2001............................ 41,855
2002............................ 34,090
2003............................ 151,097
Thereafter...................... 285,526
--------

$758,443
========

Stated interest rates on notes payable ranged from 6.2% to 18.5% per annum
at December 31, 1998, and mature in varying installments between 1999 and 2017.
At December 31, 1998, notes payable were collateralized by mortgage notes
receivable with a net carrying value of $22.7 million and by deeds of trust on
real estate with a net carrying value of $636.3 million. Excluded from interest
expense in the accompanying Consolidated Statement of Operations is capitalized
interest of $67,000 in 1997.

F-27

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In February 1998, the Company financed its unencumbered Kamperman land in
the amount of $1.6 million, receiving net cash of $1.5 million after the payment
of various closing costs. The mortgage bears interest at 9.0% per annum,
requires monthly payments of interest only and matures in February 2000.

Also in February 1998, the Company refinanced its Vineyards land in the
amount of $3.4 million, receiving net cash of $2.3 million, after paying off
$540,000 in mortgage debt and the payment of various closing costs. The new
mortgage bears interest at 9% per annum, requires monthly payments of interest
only and matures in February 2000.

Further in February 1998, the Company financed its unencumbered Valley
Ranch land in the amount of $4.3 million, receiving net cash of $4.1 million
after the payment of various closing costs. The mortgage bears interest at 9.0%
per annum, requires monthly payments of interest only and matures in February
2000.

In March 1998, the Company financed its unencumbered Stagliano and Dalho
land in the amount of $800,000, receiving net cash of $790,000 after the payment
of various closing costs. The mortgage bore interest at 18.5% per annum, with
principal and interest due at maturity in February 1999. The JHL Connell land
was pledged as additional collateral for this loan. In March 1999, the Company
refinanced the mortgage debt secured by these properties along with the mortgage
debt secured by its Bonneau land parcel under the Las Colinas I term loan in the
amount of $703,000. The Company paid an additional $1.5 million in cash to pay
off the $2.1 million in mortgage debt and accrued but unpaid interest.

Also in March 1998, the Company refinanced the mortgage debt secured by its
McKinney Corners I, II, III, IV and V and Dowdy land in the amount of $20.7
million, receiving net cash of $5.9 million after paying off $2.5 million in
mortgage debt, the paydown of $10.2 million on the Las Colinas I term loan and
the payment of various closing costs. The mortgage bore interest at 12.0% per
annum, required monthly payments of interest only and matured in March 1999. The
lender has agreed to extend its mature mortgage to January 2000, for a 2% fee
and a paydown of any net refinancing proceeds received by the Company from
refinancing the Williamsburg Hospitality House. All other terms would remain
unchanged.

In April 1998, the Company obtained a second lien mortgage of $2.0 million
secured by its BP Las Colinas land from the limited partner, at the time, in a
partnership that owned approximately 15.8% of the outstanding shares of the
Company's Common Stock. The second lien mortgage bore interest at 12% per annum
with principal and interest paid at maturity in October 1998. See NOTE 11.
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

Also in April 1998, the Company refinanced the mortgage debt secured by its
Parkfield land in the amount of $7.3 million, receiving net cash of $1.2 million
after paying off $5.0 million in mortgage debt and the payment of various
closing costs. The new mortgage bears interest at 9.5% per annum, requires
monthly payments of interest only and matures in April 2000.

In May 1998, the Company refinanced the mortgage debt secured by its Scout
and Scoggins land in the amount of $10.4 million under the Las Colinas I term
loan, receiving net cash of $6.6 million after paying off mortgage debt of $1.4
million on the Scout land and $1.5 million on the Scoggins land, a pay down of
$250,000 on the Keller land mortgage, and the payment of various closing costs.
The Company also pledged 250,000 shares of its Common Stock and BCM, the
Company's advisor, pledged 177,000 shares of the Company's Common Stock as
additional collateral on the term loan.

In July, the Company financed its unencumbered Walker land in the amount of
$13.3 million, receiving net cash of $12.8 million after the payment of various
closing costs. The mortgage bears interest at 15.5% per annum,

F-28
90

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

requires monthly payments of interest only and matures in July 1999. The
mortgage is also secured by the FRWM Cummings land.

In August 1998, the Company financed its unencumbered Keller land in the
amount of $5.0 million under the Las Colinas I term loan, receiving net cash of
$4.9 million after the payment of various closing costs.

In September 1998, the Company obtained second lien financing of $5.0
million secured by its Katy Road land from the limited partner, at the time, in
a partnership that owned approximately 15.8% of the outstanding shares of the
Company's Common Stock. The second lien mortgage bears interest at 12.5% per
annum, compounded monthly, with principal and interest due at maturity in April
1999. See NOTE 11. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

In October 1998, the Company financed its unencumbered Rasor land in the
amount of $15.0 million, receiving net cash of $13.5 million after the payment
of various closing costs. Portions of the Company's Las Colinas and Valwood land
parcels are included as additional collateral. The Company used the proceeds
from this loan along with an additional $1.8 million to payoff the $15.8 million
in mortgage debt secured by its Las Colinas I and Valwood land parcels. The new
mortgage bears interest at 14% per annum, required a principal reduction payment
of $3.0 million in November 1998, requires monthly interest only payments and
matures in September 1999.

Also in October 1998, the Company financed its unencumbered Marine Creek
and HSM land in the amount of $2.8 million under the Las Colinas I term loan,
receiving net cash of $2.7 million after the payment of various closing costs.

In December 1998, the Company financed its unencumbered Valwood land in the
amount of $12.0 million, receiving net cash of $4.7 million after paying down by
$5.5 million the Rasor land mortgage and the payment of various closing costs.
The mortgage bears interest at 13% per annum, requires monthly interest only
payments and matures in December 2000.

Notes payable to affiliates at December 31, 1997 included a $4.2 million
note due to NRLP as payment for the general partner interest in NRLP. The note
bears interest at 10% per annum compounded semi-annually and matures in
September 2007. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

In 1997, the Company financed six unencumbered properties and refinanced an
additional four properties in the total amount of $80.5 million, receiving net
cash of $32.7 million after paying off $42.7 million in debt. The mortgages bore
interest at rates ranging from 9.0% to 18.5% per annum and matured from February
1999 to December 2000.

NOTE 10. MARGIN BORROWINGS

The Company has margin arrangements with various brokerage firms which
provide for borrowings of up to 50% of the market value of marketable equity
securities. The borrowings under such margin arrangements are secured by equity
securities of the REITs, NRLP and the Company's trading portfolio of marketable
equity securities and bear interest rates ranging from 7.0% to 11.0% per annum.
Margin borrowings were $35.8 million at December 31, 1998, and $53.4 million at
December 31, 1997, 43.9% and 39.7%, respectively, of the market values of such
equity securities at such dates.

In August 1996, the Company consolidated its existing NRLP margin debt held
by various brokerage firms into a single loan of $20.3 million. In July 1997,
the lender advanced an additional $3.7 million, increasing the loan balance to
$24.0 million. The loan was secured by the Company's NRLP units with a market
value of at least 50%

F-29
91

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

of the principal balance of the loan. The Company paid down the loan by $14.0
million in September 1998 and an additional $5.0 million in October 1998. At
December 31, 1998, the loan had a principal balance of $5.0 million. In February
1999, the loan was paid off.

NOTE 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In November 1998, the Company obtained a $95.0 million line of credit from
Garden Capital, L.P. ("GCLP"), which is a partnership controlled by NOLP. The
Company received fundings of $18.9 million in November 1998, $31.1 million in
December 1998, and an additional $26.7 million in the first quarter of 1999. The
line of credit is secured by second liens on the Company's Waters Edge III,
Edgewater Gardens, Chateau Bayou, and Sunset Apartments, its Rosedale Towers
Office Building, Katy Road land and the stock of its wholly-owned subsidiaries,
NMC, the general partner of Partnership, and ART Holdings, Inc., which owns
3,349,535 NRLP units of limited partner interest. The loan bears interest at 12%
per annum, requires monthly interest only payments and matures in November 2003.
The Company accounted for its investment in the Partnership under the equity
method until December 1998 when NMC was elected general partner of the
Partnership. As of December 31, 1998, the accounts of the Partnership are
consolidated with those of the Company. The line of credit is eliminated in
consolidation. See NOTE 2 "SYNTEK ASSET MANAGEMENT, L.P."

In August 1996, the Company obtained a $2.0 million loan from a financial
institution secured by a pledge of equity securities of the REITs owned by the
Company and Common Stock of the Company owned by BCM, with a market value at the
time of $4.0 million. The Company received net cash of $2.0 million after the
payment of various closing costs. The loan was paid in full from the proceeds of
a new $4.0 million loan from another financial institution secured by a pledge
of equity securities of the REITs owned by the Company and Common Stock of the
Company owned by BCM with a market value at the time of $10.4 million. The
Company received net cash of $2.0 million after paying off the $2.0 million
loan. In January 1998, the lender made an additional $2.0 million loan. This
loan is also secured by a pledge of Common Stock of the Company owned by BCM
with a market value at the time of $4.7 million. The Company received net cash
of $2.0 million. The loans mature in February 2000.

In September 1996, the Company obtained a $2.0 million loan from a
financial institution secured by a pledge of equity securities of the REITs
owned by the Company and Common Stock of the Company owned by BCM with a market
value, at the time, of $9.1 million. The Company received net cash of $2.0
million after the payment of various closing costs. In October 1998, the lender
advanced an additional $1.0 million, increasing the loan balance to $3.0
million. The loan matures in January 2000.

In May, June and July 1997, the Company obtained a total of $8.0 million in
mortgage loans from entities and trusts affiliated with the limited partner, at
the time, in a partnership that owned approximately 15.8% of the Company's
outstanding shares of Common Stock. See NOTE 9. "NOTES AND INTEREST PAYABLE." In
January 1998, one of the loans in the amount of $2.0 million was paid off and in
April 1998, a second loan in the amount of $3.0 million was also paid off. In
April 1998, the Company obtained an additional $2.0 million loan from such
entities. In July 1998, the third loan of $3.0 million loan was paid off. In
September 1998, the Company obtained a $5.0 million loan from such entities. In
October 1998, the April $2.0 million loan was paid off. In December 1998, the
Company obtained a $2.0 million loan from such entities. At December 31, 1998,
loans with a

F-30
92

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

principal balance of $7.0 million were outstanding, they bear interest at 12.5%
per annum compounded monthly and mature in April 1999 and May 1999. See NOTE 9.
"NOTES AND INTEREST PAYABLE."

As of December 31, 1998, the Company sold to BCM three matured mortgage
notes, at their carrying value of $628,000. No gain or loss was recognized on
the sale. See NOTE 3. "NOTES AND INTEREST RECEIVABLE."

NOTE 12. DIVIDENDS

In June 1996, the Board of Directors resumed the payment of quarterly
dividends on the Company's Common Stock. Common dividends totaling $2.3 million
or $.20 per share were declared in 1998, $2.0 million or $.20 per share in 1997
and $1.5 million or $.15 per share in 1996. The Company reported to the Internal
Revenue Service that 100% of the dividends paid in 1998 and 1996 represented a
return of capital and 100% of the dividends paid in 1997 represented ordinary
income.

NOTE 13. PREFERRED STOCK

The Company's Series B 10% Cumulative Convertible Preferred Stock consisted
of a maximum of 4,000 shares with a par value of $2.00 per share and a
liquidation preference of $100.00 per share. Dividends were payable at the rate
of $10.00 per year or $2.50 per quarter to stockholders of record on the 15th
day of each March, June, September and December when and as declared by the
Board of Directors. The Series B Preferred Stock was convertible between May 8,
1998 and June 8, 1998, into Common Stock of the Company at 90% of the average
daily closing price of the Company's Common Stock on the prior 30 trading days.
In May 1998, the 4,000 shares of Series B Preferred Stock outstanding were
converted into 30,211 shares of the Company's Common Stock.

The Company's Series C 10% Cumulative Convertible Preferred Stock consisted
of a maximum of 16,681 shares with a par value of $2.00 per share and a
liquidation preference of $100.00 per share. Dividends were payable at the rate
of $10.00 per year or $2.50 per quarter to stockholders of record on the 15th
day of each March, June, September and December when and as declared by the
Board of Directors. The Series C Preferred Stock was convertible between
November 25, 1998 and February 23, 1999, into Common Stock of the Company at 90%
of the average daily closing price of the Company's Common Stock on the prior 30
trading days. In November 1998, the 16,681 outstanding shares of Series C
Preferred Stock were redeemed at their liquidation preference of $100.00 per
share plus accrued and unpaid dividends.

The Company's Series D 9.5% Cumulative Preferred Stock consists of a
maximum of 91,000 shares with a par value of $2.00 per share and a liquidation
preference of $20.00 per share. Dividends are payable at the rate of $1.90 per
year or $.475 per quarter to stockholders of record on the 15th day of each
March, June, September and December when and as declared by the Board of
Directors. The Series D Preferred Stock is reserved for the conversion of the
Class A limited partner units of Ocean Beach Partners, L.P. The Class A units
may be exchanged for Series D Preferred Stock at the rate of 20 Class A units
for each share of Series D Preferred Stock. No more than one-third of the Class
A units may be exchanged prior to May 31, 2001. Between June 1, 2001 and May 31,
2006 all unexchanged Class A units are exchangeable. At December 31, 1998, none
of the Series D Preferred Stock was issued.

The Company's Series E 10% Cumulative Convertible Preferred Stock consists
of a maximum of 80,000 shares with a par value of $2.00 per share and a
liquidation preference of $100.00 per share. Dividends are payable at the rate
of $10.00 per year or $2.50 per quarter to stockholders of record on the 15th
day of each March, June, September and December when and as declared by the
Board of Directors, for periods prior to November 4, 1999 and $11.00 per year or
$2.75 per quarter thereafter. The Series E Preferred Stock is reserved for the
conversion of the Class A limited partner units of Valley Ranch, L.P. The Class
A units may be exchanged for Series E Preferred

F-31
93

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Stock at the rate of 100 Class A units for each share of Series E Preferred
Stock. The Series E Preferred Stock is convertible into Common Stock of the
Company at 80% of the average daily closing price of the Company's Common Stock
on the prior 20 trading days. Only 37.50% of the Series E Preferred Stock may be
converted prior to November 3, 1999. Between November 4, 1999 and November 3,
2001 an additional 12.50% of the Series E Preferred Stock may be converted, and
the remainder may be converted on or after November 4, 2001. At December 31,
1998, none of the Series E Preferred Stock was issued.

The Company's Series F 10% Cumulative Convertible Preferred Stock consists
of a maximum of 15,000,000 shares with a par value of $2.00 per share and a
liquidation preference of $10.00 per share. Dividends are payable at the rate of
$1.00 per year or $.25 per quarter to stockholders of record on the 15th day of
eachMarch, June, September and December when and as declared by the Board of
Directors. The Series F Preferred Stock may be converted, after August 15, 2003,
into Common Stock of the Company at 90% of the average daily closing price of
the Company's Common Stock for the prior 20 trading days. At December 31, 1998,
3,350,000 shares of Series F Preferred Stock were issued and outstanding and
1,948,797 shares were reserved for issuance as future consideration in various
business transactions.

The Company's Series G 10% Cumulative Convertible Preferred Stock consists
of a maximum of 11,000 shares with a par value of $2.00 per share, and a
liquidation preference of $100.00 per share. Dividends are payable at the rate
of $10.00 per year or $2.50 per quarter to stockholders of record on the 15th
day of each March, June, September and December when and as declared by the
Board of Directors. 10,000 shares of the Series G Preferred Stock are reserved
for the conversion of the Class A limited partner units of Grapevine American,
L.P. The Class A units may be exchanged for Series G Preferred Stock at the rate
of 100 Class A units for each share of Series G Preferred Stock, on or after
October 6, 1999. The Series G Preferred Stock may be converted, after October 6,
2000, into Common Stock of the Company at 90% of the average daily closing price
of the Company's Common Stock for the 20 prior trading days. At December 31,
1998, 1,000 shares of the Series G Preferred Stock was issued.

The Company's Series H 10% Cumulative Convertible Preferred Stock consists
of a maximum of 231,750 shares with a par value of $2.00 per share, and a
liquidation preference of $10.00 per share. Dividends are payable quarterly at
the rate of $.70 per year until June 30, 1999, $.80 from July 1, 1999 through
June 30, 2000, $.90 per year from July 1, 2000 through June 30, 2001 and $.10
per year from July 1, 2001 and thereafter. The Series H Preferred Stock is
reserved for the conversion of the Class A limited partner units of ART Palm,
L.L.C. The Class A units may be exchanged for Series H Preferred Stock at the
rate of 100 Class A units for each share of Series H Preferred Stock at any time
after July 13, 1999. The Series H Preferred Stock may be converted into 25,000
shares of the Company's Common Stock after December 31, 2000, 25,000 shares on
or after June 30, 20002, 25,000 shares on or after June 30, 2003, 25,000 shares
on or after December 31, 2005 and all remaining outstanding shares on or after
December 31, 2006 at 90% of the average daily closing price of the Company's
Common Stock for the 20 prior trading days. At December 31, 1998, none of the
Series H Preferred Stock was issued.

NOTE 14. STOCK OPTIONS

In January 1998, the Company's shareholders approved the 1997 Stock Plan
("Option Plan"). Under the Option Plan, options have been granted to certain
Company officers and key employees of BCM and its affiliates. The Option Plan
provides for options to purchase up to 300,000 shares of the Company's Common
Stock. All grants are determined by the Option Committee of the Board of
Directors. Options granted pursuant to the Option Plan are exercisable beginning
one year after the date of grant and expire the earlier of three months after
termination of employment or ten years from the date of grant.

F-32
94

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table summarizes stock option activity:

Options
Exercise --------------------------
Price Outstanding Exercisable
-------- ----------- -----------

January 1, 1998 .............. $ -- -- --
Options granted .............. 15.00 293,750 --
Options forfeited ............ 15.00 (17,000) --
--------- -------- ------

December 31, 1998 ............ $ 15.00 276,750 --
========= ======= ======

In January 1999, the Company's stockholders approved the Director's Stock
Option Plan ("Director's Plan") which provides for options to purchase up to
40,000 shares of the Company's Common Stock. Options granted pursuant to the
Director's Plan are immediately exercisable and expire on the earlier of the
first anniversary of the date on which a Director ceases to be a Director or ten
years from the date of grant. Each Independent Director was granted an option to
purchase 1,000 shares at an exercise price of $16.25 per share on January 11,
1999, the date stockholders approved the plan. Each Independent Director will be
awarded an option to purchase an additional 1,000 shares on January 1 of each
year.

The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its Option Plans. All share options issued by the Company have exercise prices
equal to the market price of the shares at the dates of grant. Accordingly, no
compensation cost has been recognized for its option plans. Had compensation
cost for the Company's option plans been determined based on the fair value at
the grant dates consistent with the method of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation,", the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below.

1998
---------------------------
As Reported Pro Forma
----------- ---------

Net (loss) applicable to common shares $(23,982) $(24,374)
Net (loss) applicable to common shares, per share (2.24) (2.38)

F-33
95

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:

1998
----

Dividend yield........................................ 1.25%
Expected volatility................................... 30%
Risk-free interest rate............................... 5.35%
Expected lives (in years)............................. 7
Forfeitures........................................... 10%

The weighted average fair value per share of options granted in 1998 was
$5.67.

NOTE 15. ADVISORY AGREEMENT

Although the 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 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. BCM as advisor also serves as a
consultant in connection with the Company's business plan and investment policy
decisions made by the 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 Gene
E. Phillips. Mr. Phillips served as Chairman of the Board 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. Karl L. Blaha, President and a Director of
the Company serves as Executive Vice President--Commercial Asset Management 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 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 $.50 per
share.

In addition to base compensation, the Advisory Agreement provides that BCM,
or an affiliate of BCM, receive an acquisition fee for locating, leasing or
purchasing real estate for the Company; a disposition fee for the sale of each
equity investment in real estate; a loan arrangement fee; 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; and a mortgage placement fee, on mortgage loans originated or purchased.

F-34
96

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Advisory Agreement further provides that BCM shall bear the cost of
certain expenses of its employees not directly identifiable to the Company's
assets, liabilities, operations, business or financial affairs; and
miscellaneous administrative expenses relating to the performance 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. Management believes that the terms of
the Advisory Agreement are at least as fair as could be obtained from
unaffiliated third parties. Since October 4, 1989, BCM has acted as loan
administration/servicing agent for the Company, under an agreement terminable by
either party upon thirty days' notice, under which BCM services 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 16. 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 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 (1) First Equity Properties, Inc. ("First
Equity"), which is 50% owned by a subsidiary of BCM, (2) Gene E. Phillips and
(3) a trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management of 15 of the Company's commercial
properties (office buildings, shopping centers and a merchandise mart) and its
hotels to Carmel Realty, Inc. ("Carmel Realty"), which is a company owned by
First Equity. 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.

NOTE 17. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.

Fees and cost reimbursements to BCM and its affiliates were as follows:

1998 1997 1996
------- ------- -------

Fees
Advisory and mortgage servicing ........................... $ 3,845 $ 2,657 $ 1,539
Loan arrangement .......................................... 804 592 806
Brokerage commissions ..................................... 7,450 7,586 1,889
Property and construction management and leasing
commissions* ............................................. 1,752 865 892
------- ------- -------

$13,851 $11,700 $ 5,126
======= ======= =======

Cost reimbursements ........................................ $ 1,832 $ 1,809 $ 691
======= ======= =======

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

F-35
97

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 18. OPERATING SEGMENTS

Significant differences among the accounting policies of the segments as
compared to the Company's consolidated financial statements principally involve
the calculation and allocation of administrative expenses. Management evaluates
the performance of its operating segments and allocates resources to them based
on net operating income and cash flow. The Company based reconciliation of
expenses that are not reflected in the segments is $8.2 million of
administrative expenses. There are no intersegment revenues and expenses and the
Company conducts all of its business within the United States.

The table below presents information about the reported operating income of
the Company for 1998 and 1997. Asset information by operating segment is also
presented below.

Commercial
Properties Apartments Hotels Land PWSI Receivables Other Total
---------- ---------- --------- --------- --------- ----------- --------- ---------

1998
Operating revenue ....... $ 16,539 $ 14,230 $ 32,221 $ 501 $ 28,883 $ -- $ -- $ 92,374
Operating expenses ...... 9,727 8,755 24,361 6,349 24,840 -- -- 74,032
Interest income ......... -- -- -- -- -- 188 -- 188
--------- --------- --------- --------- --------- --------- --------- ---------

Net operating income
(loss) ................. 6,812 5,475 7,860 (5,848) 4,043 188 -- 18,530
Depreciation and
amortization ........... 1,574 1,412 2,320 -- 1,273 -- 411 6,990
Interest on debt ........ 3,803 4,396 7,560 29,058 579 -- 6,228 51,624
Capital expenditures .... 110 -- 1,383 2,577 166 -- -- 4,236
Segment assets .......... 87,581 286,317 78,455 282,300 24,449 52,053 253 811,408

Land
-------

Property sales:
Sales price........... $51,602
Cost of sales......... 34,348
-------
Gain on sale.......... $17,254
=======

Commercial
Properties Hotels Land PWSI Receivables Other Total
---------- -------- -------- -------- ----------- -------- --------

1997
Operating revenue ....... $ 13,842 $ 14,944 $ 289 $ 24,953 $ -- $ -- $ 54,028
Operating expenses ...... 10,006 11,232 2,957 19,964 -- -- 44,159
Interest income ......... -- -- -- -- 2,835 -- 2,835
-------- -------- -------- -------- -------- -------- --------

Net operating income
(loss) ................. 3,836 3,712 (2,668) 4,989 2,835 -- 12,704
Depreciation and
amortization ........... 1,266 973 -- 677 -- 626 3,542
Interest on debt ........ 3,252 2,698 20,573 935 -- 2,773 30,231
Capital expenditures .... 8,855 1,568 570 2,695 -- -- 13,688
Segment assets .......... 50,185 73,072 178,9381 18,271 25,526 258 346,250

F-36
98

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Commercial
Properties Land
----------- --------

Property sales:
Sales price..................................................... $ 10,986 $52,970
Cost of sales................................................... 10,400 36,427
-------- -------

Gain on sale.................................................... $ 586 $16,543
======== =======

NOTE 19. INCOME TAXES

Financial statement loss varies from federal tax return loss, 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 the difference in the allowance for estimated losses. At
December 31, 1998, the Company had tax net operating loss carryforwards of $29.0
million expiring through 2018.

At December 31, 1998, the Company had a deferred tax benefit of $8.0
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.

NOTE 20. EXTRAORDINARY GAIN

In 1996, the Company recognized an extraordinary gain of $381,000
representing its equity share of equity investees' extraordinary gains from the
early payoff of debt and from an insurance settlement.

NOTE 21. RENTS UNDER OPERATING LEASES

The Company's operations include the leasing of commercial properties
(office buildings, shopping centers and a merchandise mart). The leases thereon
expire at various dates through 2013. The following is a schedule of minimum
future rents under non-cancelable operating leases as of December 31, 1998:

1999............................................................ $11,248
2000............................................................ 9,390
2001............................................................ 7,273
2002............................................................ 6,518
2003............................................................ 5,833
Thereafter...................................................... 16,294
-------

$56,556
=======

PWSI conducts its operations from leased facilities which includes an
office, warehouse, and 57 pizza parlor locations for which a lease was signed
and the pizza parlor was either open at December 31, 1998 or scheduled to

F-37
99

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

open thereafter. The leases expire over the next 14 years. PWSI also leases
vehicles under operating leases. The following is a schedule of minimum future
rent commitments under operating leases as of December 31, 1998:

1999............................................................ $ 2,318
2000............................................................ 2,271
2001............................................................ 2,130
2002............................................................ 2,039
2003............................................................ 1,922
Thereafter...................................................... 9,187
-------

$19,867
=======

Total facilities and automobile rent expense relating to these leases was
$2.7 million in 1998 and $1.3 million in 1997.

NOTE 22. QUARTERLY RESULTS OF OPERATIONS

The following is a tabulation of the Company's quarterly results of
operations for the years 1998 and 1997 (unaudited):

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

1998
Revenue ................................ $ 18,249 $ 22,690 $ 23,291 $ 22,856
Expense ................................ 29,744 35,830 38,676 60,861
-------- -------- -------- --------

(Loss) from operations ................. (11,495) (13,140) (15,385) (38,005)
Equity in income of investees .......... 2,387 8,943 6,099 10,537
Gains on sale of real estate ........... -- 8,974 5,718 2,562
-------- -------- -------- --------

Net income (loss) ...................... (9,108) 14,777 (3,568) (24,906)
Preferred dividend
requirement ........................... (51) (84) (502) (540)
-------- -------- -------- --------

Net income (loss) applicable to
Common shares ......................... $ (9,159) $ 14,693 $ (4,070) $(25,446)
======== ======== ======== ========

Earnings per share
Net income (loss) ...................... $ (.86) $ 1.38 $ (.38) $ (2.38)
======== ======== ======== ========

F-38
100

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

1997
Revenue ................................ $ 12,126 $ 12,100 $ 15,039 $ 17,766
Expense ................................ 16,288 18,364 24,296 31,304
-------- -------- -------- --------

(Loss) from operations ................. (4,162) (6,264) (9,257) (13,538)
Equity in income of investees .......... 146 4,941 (145) 5,555
Gains on sale of real estate ........... 4,287 3,863 3,205 8,941
-------- -------- -------- --------

Net income (loss) ...................... 271 2,540 (6,197) 958
Preferred dividend
requirement .......................... (50) (49) (49) (58)
-------- -------- -------- --------

Net income (loss) applicable to
Common shares ........................ $ 221 $ 2,491 $ (6,246) $ 900
======== ======== ======== ========

Earnings per share
Net income (loss) ...................... $ .02 $ .21 $ (.52) $ .07
======== ======== ======== ========

NOTE 23. COMMITMENTS AND CONTINGENCIES

Liquidity. Although the Company anticipated that it would generate excess
cash from operations in 1998, such excess cash did not materialize and,
therefore, was not sufficient to discharge all of the Company's debt obligations
as they became due. The Company relied on additional borrowings and, to a lesser
extent, land sales to meet its cash requirements. In 1999, the Company expects
that it will generate excess cash from operations, due to increased rental rates
and occupancy at its properties, however, such excess will not be sufficient to
discharge all of the Company's debt obligations as they mature. The Company will
also rely on aggressive land sales, selected property sales and, to the extent
necessary, additional borrowings to meet its cash requirements.

Litigation. The Company is involved in various lawsuits arising in the
ordinary course of business. In the opinion of the Company's management the
outcome of these lawsuits will not have a material impact on the Company's
financial condition, results of operations or liquidity.

NOTE 24. SUBSEQUENT EVENTS

In January 1999, the Partnership sold the 199 unit Olde Towne Apartments in
Middleton, Ohio, for $4.6 million, receiving net cash of $4.4 million after the
payment of various closing costs. A gain will be recognized on the sale.

In February 1999, the Company purchased Frisco Bridges land, a 336.8 parcel
of unimproved land in Collin County, Texas, for $46.8 million. The Company paid
$7.8 million in cash and obtained mortgage financing totaling $39.0 million.
Seller financing in the amount of $22.0 million, secured by 191.5 acres of the
parcel, bears interest at 14% per annum, requires monthly interest only payment,
and matures in January 2000. A mortgage in the amount

F-39
101

of $15.0 million, secured by 125.0 acres of the parcel, bears interest at the
prime rate plus 4.5%, currently 12.25% per annum, requires three quarterly
principal reduction payments of $3.0 million on each of May 1, August 1 and
November 1, 1999 in addition to monthly interest payments and matures in
February 2000. Another mortgage in the amount of $2.0 million, secured by 13.5
acres of the parcel, bears interest at 14% per annum, requires monthly interest
only payments and matures in January 2000. The Company's Double O land in Las
Colinas, Texas and its Desert Wells land in Palm Desert, California are pledged
as additional collateral for these loans. The Company drew down $6.0 million
under its line of credit with the CCLP, for a portion of the cash requirement.

Also in February 1999, the Company sold a 4.6 acre tract of its Plano
Parkway land parcel, for $1.2 million. Simultaneously with the sale, the
mortgage debt secured by such land parcel was refinanced in the amount of $7.1
million. The new mortgage bears interest at the prime rate plus 4.5%, currently
12.25% per annum, requires monthly interest only payments and matures in January
2000. The net cash from the sale and refinancing along with an additional
$921,000 were used to payoff the $8.9 million mortgage secured by the land
parcel.

In February 1999, the Partnership sold the 480 unit Mesa Ridge Apartments
in Mesa, Arizona, for $19.5 million, receiving net cash of $793,000 after the
payment of various closing costs and remitting $17.8 million to the lender to
hold in escrow pending a substitution of collateral. Such funds will be released
when substitute collateral is approved. If substitute collateral is not provided
by August 1999, $13.0 million of the escrow will be applied against the
mortgage's principal balance, approximately $885,000 will be retained by the
lender as a prepayment penalty and the remaining $3.9 million will be returned
to the Partnership. A gain will be recognized on the sale.

Also in February 1999, GCLP funded a $5.0 million unsecured loan to
Davister Corp., which at December 31, 1998, owned approximately 15.8% of the
outstanding shares of the Company's Common Stock. The loan bears interest at
12.0% per annum and matures in February 2000. All principal and interest are due
at maturity. The loan is guaranteed by BCM.

In March 1999, the Company sold two tracts totaling 9.9 acres of its
Mason/Goodrich land parcel, for $956,000, receiving net cash of $33,000 after
paying down by $860,000 the mortgage secured by such land parcel and the payment
of various closing costs. A gain will be recognized on the sale.

Also in March 1999, the Company sold a 13.7 acre tract of its McKinney
Corners II and IV land parcels, for $7.7 million, receiving no net cash after
paying down by $5.5 million the mortgage debt secured by such land parcels, the
funding of required escrows and the payment of various closing costs. A gain
will be recognized on the sale.

F-40
102

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

March 31, December 31,
1999 1998
--------- ------------
(dollars in thousands)

Assets

Notes and interest receivable
Performing ($650 in 1999 and $594 in 1998 from
affiliates) ........................................ $ 53,245 $ 47,823
Nonperforming ...................................... 3,731 6,807
--------- ---------
56,976 54,630

Less - allowance for estimated losses ................. (2,577) (2,577)
--------- ---------
54,399 52,053

Real estate held for sale ............................. 333,873 282,301

Real estate held for investment, net of accumulated
depreciation ($205,723 in 1999 and $208,396 in
1998) .............................................. 432,285 452,606

Pizza parlor equipment, net of accumulated
depreciation ($1,869 in 1999 and
$1,464 in 1998) .................................... 6,848 6,859

Marketable equity securities, at market value ......... 979 2,899
Cash and cash equivalents ............................. 3,191 11,523
Investments in equity investees ....................... 33,822 34,433
Intangibles, net of accumulated amortization,
($1,420 in 1999 and $1,298 in 1998) ................ 14,654 14,776
Other assets .......................................... 67,661 61,155
--------- ---------

$ 947,712 $ 918,605
========= =========

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

F-41
103

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED

March 31, December 31,
1999 1998
--------- ---------
(dollars in thousands,
except per share)

Liabilities and Stockholders' Equity

Liabilities
Notes and interest payable ($12,900 in 1999 and
$12,600 in 1998 to affiliates) .......................... $ 806,504 $ 768,272
Margin borrowings .......................................... 35,422 35,773
Accounts payable and other liabilities ($9,070
in 1999 and $8,900 in 1998 to affiliate) ................ 32,089 38,321
--------- ---------

874,015 842,366

Minority interest .......................................... 45,655 37,967

Commitments and contingencies

Stockholders' equity
Preferred Stock, $2.00 par value, authorized
20,000,000 shares, issued and outstanding
Series F, 3,350,000 shares in 1999 and
1998 (liquidation preference $33,500) ............. 6,100 6,100
Series G, 1,000 in 1999 and 1998 (liquidation
preference $100) .................................. 2 2
Common stock, $.01 par value; authorized
100,000,000 shares, issued 13,496,677 shares in
1999 and 13,479,348 shares in 1998 ...................... 135 133
Paid-in capital ............................................ 83,945 83,945
Accumulated (deficit) ...................................... (62,112) (51,880)
Treasury stock at cost, 2,737,216 shares in 1999
and 1998 ................................................ (28) (28)
--------- ---------

28,042 38,272
--------- ---------

$ 947,712 $ 918,605
========= =========

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

F-42
104

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three Months
Ended March 31,
------------------------------
1999 1998
------------ ------------
(dollars in thousands,
except per share)

Income
Sales .............................................. $ 7,124 $ 6,753
Rents .............................................. 40,242 11,567
Interest ........................................... 1,852 138
Other .............................................. (1,710) (209)
------------ ------------
47,508 18,249
Expenses
Cost of sales ...................................... 6,174 5,780
Property operations ................................ 27,878 9,663
Interest ........................................... 21,114 9,536
Advisory fee to affiliate .......................... 1,101 760
General and administrative ......................... 4,053 2,285
Depreciation ....................................... 4,480 1,232
Litigation settlement .............................. 184 --
Minority interest .................................. 8,442 488
------------ ------------
73,426 29,744
------------ ------------

(Loss) from operations ................................ (25,918) (11,495)
Equity in income (loss) of investees .................. (725) 2,387
Gain on sale of real estate ........................... 17,516 --
------------ ------------

Net (loss) ............................................ (9,127) (9,108)

Preferred dividend requirement ........................ (566) (51)
------------ ------------

Net (loss) applicable to Common shares ................ $ (9,693) $ (9,159)
============ ============

Earnings per share
Net (loss) ......................................... $ (.90) $ (.86)
============ ============

Weighted average Common shares used in computing
earnings per share ................................. 10,742,325 10,711,921
============ ============

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

F-43
105

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1999 (UNAUDITED)

Series F Series G
Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Capital (Deficit) Equity
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share)

Balance, January 1, 1999 ............ $ 6,100 $ 2 $ 133 $ (28) $ 83,945 $(51,880) $ 38,272

Dividends
Common Stock ($.05 per share) .... -- -- -- -- -- (535) (535)
Series F Preferred Stock ($.25
per share) .................... -- -- -- -- -- (563) (563)
Series G Preferred Stock ($2.50
per share) .................... -- -- -- -- -- (3) (3)

Sale of Common Stock under
dividend reinvestment plan ....... -- -- 2 -- -- (4) (2)

Net (loss) .......................... -- -- -- -- -- (9,127) (9,127)
-------- -------- -------- -------- -------- -------- --------

Balance, March 31, 1999 ............. $ 6,100 $ 2 $ 135 $ (28) $ 83,945 $(62,112) $ 28,042
======== ======== ======== ======== ======== ======== ========

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

F-44
106

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Three Months
Ended March 31,
----------------------
1999 1998
-------- --------
(dollars in thousands)

Cash Flows From Operating Activities
Pizza parlor sales collected ..................................................... $ 7,824 $ 6,614
Rents collected .................................................................. 39,370 11,500
Interest collected ............................................................... 772 203
Distributions received from equity investees'
operating cash flow ........................................................... 306 7,010
Payments for property operations ................................................. (35,737) (10,334)
Payments from pizza parlor operations ............................................ (6,257) (6,779)
Interest paid .................................................................... (17,723) (6,383)
Advisory fee paid to affiliate ................................................... (1,101) (760)
Purchase of marketable equity securities ......................................... (696) (1,114)
Proceeds from sale of marketable equity
securities .................................................................... 791 2,044
General and administrative expenses paid ......................................... (4,101) (2,285)
Other ............................................................................ 3,198 (1,208)
-------- --------
Net cash (used in) operating activities ....................................... (13,355) (1,492)

Cash Flows From Investing Activities
Collections on notes receivable .................................................. 10,915 7,600
Proceeds from sale of real estate ................................................ 35,955 --
Acquisition of real estate ....................................................... (28,894) (26,206)
Pizza parlor equipment purchased ................................................. (207) (670)
Notes receivable funded .......................................................... (12,179) (432)
Earnest money/escrow deposits .................................................... (11,277) (474)
Investment in real estate entities ............................................... (35) (177)
Real estate improvements ......................................................... (3,081) (1,652)
-------- --------
Net cash (used in) investing activities ....................................... (8,803) (22,011)

Cash Flows From Financing Activities
Proceeds from notes payable ...................................................... 37,440 51,419
Payments on notes payable ........................................................ (21,496) (25,194)
Deferred borrowing costs ......................................................... (758) (3,514)
Net advances (payments) to/from affiliates ....................................... 137 (1,679)
Common dividends paid ............................................................ (535) (541)
Preferred dividends paid ......................................................... (566) (52)
Minority interest ................................................................ (754) (488)
Margin borrowings (repayments), net .............................................. 357 (821)
-------- --------
Net cash provided by financing activities ..................................... 13,825 19,130

Net (decrease) in cash and cash equivalents ................................... (8,332) (4,373)

Cash and cash equivalents, beginning of period ...................................... 11,523 5,347
-------- --------

Cash and cash equivalents, end of period ............................................ $ 3,191 $ 974
======== ========

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

F-45
107

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED

For the Three Months
Ended March 31,
----------------------
1999 1998
-------- --------
(dollars in thousands)

Reconciliation of net (loss) to net cash
(used in) operating activities

Net (loss) ....................................................................... $ (9,127) $ (9,108)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities
Depreciation and amortization ................................................ 4,480 1,232
Gain on sale of real estate .................................................. (17,516) --
Distributions from equity investees' operating
cash flow ................................................................. 306 7,010
Equity in (income) loss of investees ......................................... 725 (2,387)
Decrease in marketable equity securities ..................................... 1,825 1,187
(Increase) decrease in accrued interest
receivable ................................................................ (1,079) 128
Decrease in other assets ..................................................... 13,563 2,535
Increase (decrease) in accrued interest payable .............................. (477) 51
(Decrease) in accounts payable and other
liabilities ............................................................... (6,319) (1,937)
Other ........................................................................ 265 (203)
-------- --------

Net cash (used in) operating activities ................................... $(13,354) $ (1,492)
======== ========

Schedule on noncash investing and financing
activities

Notes payable from acquisition of real estate .................................... $ 22,000 $ 3,614

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

F-46
108

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

NOTE 1. BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements of American Realty
Trust, Inc. and consolidated entities ("ART") have been prepared in conformity
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the Consolidated Financial
Statements and Notes thereto included in ART's Annual Report on Form 10-K for
the year ended December 31, 1998 (the "1998 Form 10-K").

Certain balances for 1998 have been reclassified to conform to the 1999
presentation.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

ART owns a 96% limited partner interest in Syntek Asset Management,
L.P. ("SAMLP"). Until December 18, 1998, SAMLP was the general partner of
National Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"), the
operating partnership of NRLP (collectively the "Partnership"). Gene E.
Phillips, a Director and Chairman of the Board of ART until November 16, 1992,
is also a general partner of SAMLP. As of March 31, 1999, ART owned
approximately 55.0% of the outstanding limited partner units of the Partnership.

The Partnership, SAMLP and Gene E. Phillips were among the defendants
in a class action lawsuit arising from the formation of the Partnership (the
"Moorman Litigation"). An agreement settling such lawsuit (the "Settlement
Agreement") for the above named defendants became effective on July 5, 1990. The
Settlement Agreement provided for, among other things, the appointment of the
Partnership oversight committee for the Partnership and the establishment of
specified annually increasing targets for five years relating to the price of
the Partnership's units of limited partner interest.

The Settlement Agreement provided for the resignation and replacement
of SAMLP as general partner if the unit price targets were 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 15, 1998, the Partnership, SAMLP and the Partnership oversight
committee executed an Agreement for Cash Distribution and Election of Successor
General Partner (the "Cash Distribution Agreement") which provided for the
nomination of an entity affiliated with SAMLP to be the successor general
partner of the Partnership, for the distribution of $11.4 million to the
plaintiff class members and for the resolution of all related matters under the
Settlement Agreement. On October 23, 1998, the Court entered an order granting
final approval of the Cash Distribution Agreement. The Court also entered orders
requiring the Partnership to pay $404,000 in attorney's fees to Joseph B.
Moorman's legal counsel, $30,000 to Joseph B. Moorman and $404,000 in attorney's
fees to Robert A. McNeil's legal counsel.

Pursuant to the order, $11.4 million was deposited by the Partnership
into an escrow account and then transferred to the control of an independent
administrator. The distribution of cash is under the control of the independent
settlement administrator. On March 24, 1999, the initial distribution of cash
was made to the plaintiff class members.

The proposal to elect NRLP Management Corp. ("NMC"), a wholly-owned
subsidiary of ART, as the successor general partner was submitted to the
unitholders of the Partnership for a vote at a special meeting of unitholders
held on December 18, 1998. NMC was elected by a majority of the Partnership
unitholders. The Settlement Agreement remained in effect until December 18,
1998, when SAMLP resigned as general partner and NMC was elected successor
general partner and took office.

F-47
109

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

Under the Cash Distribution Agreement, NMC assumed liability for
SAMLP's note for its original capital contribution to the Partnership. In
addition, NMC assumed liability for the note which requires the repayment of the
$11.4 million paid by the Partnership under the Cash Distribution Agreement,
plus the $808,000 in court ordered attorney's fees and $30,000 paid to Joseph B.
Moorman. This note requires repayment over a ten-year period, bears interest at
a variable rate, currently 7.0% per annum, and is guaranteed by ART. The
liability assumed under the Cash Distribution Agreement was expensed as a
"litigation settlement." An additional $184,000 was expensed as a "litigation
settlement" in the first quarter of 1999.

As of December 31, 1998, ART discontinued accounting for its investment
in the Partnership under the equity method upon the election of NMC as general
partner of the Partnership and the settlement of the Moorman Litigation. ART
began consolidation of the Partnership's accounts at that date and its
operations subsequent to that date.

NOTE 3. NOTES RECEIVABLE

In January 1999, the Partnership received $350,000 on the collection of
a mortgage note receivable.

During 1998 and the first quarter of 1999, the Partnership funded a
total of $11.9 million of a $23.8 million loan commitment to Centura Tower, Ltd.
The loan is secured by 2.2 acres of land and an office building under
construction in Dallas, Texas. The loan bears interest at 12.0% per annum,
requires monthly payments based on net revenues after development of the land
and building and matures in January 2003. The borrower has not obtained a
construction loan, therefore, the Partnership may be required to fund
construction costs in excess of its loan commitment, in order to preserve its
collateral interest. Estimated cost to construct the office building is in
excess of $60.0 million. Through April 1999, the Partnership funded an
additional $2.3 million.

Beginning in 1997 and through January 1999, the Partnership funded a
$1.6 million loan commitment to Bordeaux Investments Two, L.L.C. ("Bordeaux").
The loan is secured by (1) a 100% interest in Bordeaux, which owns a shopping
center in Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux Investments
One, Inc., which owns 6.5 acres of undeveloped land in Oklahoma City, Oklahoma;
and (3) the personal guarantees of the Bordeaux partners. The loan bears
interest at 14.0% per annum. Until November 1998, the loan required monthly
payments of interest only at the rate of 12.0% per annum, with the deferred
interest payable at maturity in January 1999. In November 1998, the loan was
modified to allow payments based on monthly cash flow of the collateral property
and the maturity date was extended to December 1999. In April 1999, the
Partnership funded an additional $10,000. The property has had no cash flow,
therefore, the Partnership ceased accruing interest in the second quarter of
1999.

In June 1998, the Partnership funded a $365,000 loan to RB Land &
Cattle, L.L.C. The loan is secured by a pledge of a note secured by 7,200 acres
of undeveloped land near Crowell, Texas, and the personal guarantee of the
borrower. The loan bore interest at 10.0% per annum and matured in December
1998. All principal and interest were due at maturity. The borrower did not make
the required payments and the loan was classified as nonperforming. The
Partnership has begun foreclosure proceedings. The Partnership expects to incur
no loss on foreclosure as the fair value of the collateral property, less
estimated costs of sale, exceeds the carrying value of the note.

F-48
110

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

Also in August 1998, the Partnership funded a $3.7 million loan to JNC
Enterprises, Inc. ("JNC"). The loan was secured by a contract to purchase 387
acres of land in Collin County, Texas, the guaranty of the borrower and the
personal guarantees of its partners. The loan bore interest at 12.0% per annum
and matured the earlier of termination of the purchase contract or February
1999. All principal and interest were due at maturity. This loan was
cross-collateralized with other JNC loans. In January 1999, ART purchased the
contract from JNC and acquired the land. In connection with the purchase, Garden
Capital, L.P. ("GCLP") funded an additional $6.0 million of its $95.0 million
loan commitment to ART. GCLP is a partnership in which NOLP is the sole limited
partner with a 99.3% limited partner interest and a wholly-owned subsidiary of
ART is the general partner with .7% general partner interest. A portion of the
funds were used to payoff the $3.7 million loan, including accrued but unpaid
interest, a $1.3 million paydown of the JNC line of credit and a $820,000
paydown of the JNC Frisco Panther Partners, Ltd. loan, discussed below. See NOTE
7. "NOTES PAYABLE."

Further in August 1998, the Partnership funded a $635,000 loan to La
Quinta Partners, LLC. The loan is secured by interest bearing accounts prior to
being used as escrow deposits toward the purchase of a total of 956 acres of
land in La Quinta, California. The loan bore interest at 10.0% per annum and
matured in November 1998. All principal and interest were due at maturity. In
November and December 1998, the Partnership received $250,000 in principal
paydowns and in the second quarter of 1999, the remaining $385,000 is expected
to be collected.

In 1997 and 1998, the Partnership funded a $3.8 million loan to
Stratford & Graham Developers, L.L.C. The loan is secured by 1,485 acres of
unimproved land in Riverside County, California. The loan bears interest at
15.0% per annum and matures in June 1999. All principal and interest are due at
maturity. In the first quarter of 1999, the Partnership funded an additional
$119,000, increasing the loan balance to $3.9 million. In April 1999, the
Partnership funded an additional $66,000, increasing the loan balance to $4.0
million.

In October 1998, the Partnership funded three loans to JNC or
affiliated entities. The first JNC loan of $1.0 million is secured by a second
lien on 3.5 acres of land in Dallas, Texas, the guaranty of the borrower and the
personal guarantees of its partners. The loan bears interest at 14.0% per annum
and matures in October 1999. All principal and interest are due at maturity. The
second loan, also $1.0 million, was secured by a second lien on 2.9 acres of
land in Dallas, Texas, the guaranty of the borrower and the personal guarantees
of its partners. The loan bore interest at 14.0% per annum and matured in
October 1999. All principal and interest were due at maturity. This loan was
paid in full in March 1999. The third loan, in the amount of $2.1 million was to
Frisco Panther Partners, Ltd. The loan is secured by a second lien on 408.2
acres of land in Frisco, Texas, the guaranty of the borrower and the personal
guarantees of its partners. The loan bears interest at 14.0% per annum and
matures in October 1999. All principal and interest are due at maturity. These
loans are cross-collateralized with other JNC loans funded by the Partnership.
In January 1999, the Partnership received a paydown of $820,000 on the Frisco
Panther Partners, Ltd. loan.

In March 1998, the Partnership ceased receiving the required payments
on a $3.0 million note receivable secured by an office building in Dallas,
Texas. In October 1998, the Partnership began foreclosure proceedings. In March
1999, the Partnership received payment in full, including accrued but unpaid
interest.

In December 1998, the Partnership funded $3.3 million of a $5.0 million
loan commitment to JNC. The loan is secured by a second lien on 1,791 acres of
land in Denton County, Texas, and a second lien of 220 acres of land in Tarrant
County, Texas. The loan bears interest at 12.0% per annum and matures in
December 1999. All principal and interest are due at maturity. The loan is
cross-collateralized with other JNC loans funded by the Partnership. In January
1999, the Partnership received a $1.3 million paydown. In January and February
1999, the Partnership funded an additional $2.0 million.

F-49
111

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

At December 1998, the Partnership's one wraparound mortgage note
receivable with a principal balance of $5.0 million, was in default. The
Partnership has been vigorously pursuing its rights regarding the loan. If the
Partnership should be unsuccessful and the underlying lienholder forecloses the
collateral property, the Partnership will incur no loss in excess of previously
established reserves.

Related Party. In February 1999, GCLP funded a $5.0 million unsecured
loan to Davister Corp., which at March 31, 1999, owned approximately 15.8% of
the outstanding shares of ART's Common Stock. The loan bears interest at 12.0%
per annum and matures in February 2000. All principal and interest are due at
maturity. The loan is guaranteed by Basic Capital Management, Inc. ("BCM"),
ART's advisor.

NOTE 4. REAL ESTATE

In January 1999, GCLP sold the 199 unit Olde Town Apartments in
Middleton, Ohio, for $4.6 million, receiving net cash of $4.4 million after the
payment of various closing costs, including a real estate brokerage commission
of $136,000 to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of BCM. A
gain of $2.2 million was recognized on the sale.

In February 1999, ART purchased Frisco Bridges land, a 336.8 acre
parcel of unimproved land in Collin County, Texas, for $46.8 million. ART paid
$7.8 million in cash and obtained mortgage financing totaling $39.0 million.
Seller financing in the amount of $22.0 million, secured by 191.5 acres of the
parcel, bears interest at 14% per annum, requires monthly interest only
payments, and matures in January 2000. A mortgage in the amount of $15.0
million, secured by 125.0 acres of the parcel, bears interest at the prime rate
plus 4.5%, currently 12.25% per annum, requires principal reduction payments of
$1.0 million on each of May 1, June 1, and July 1, and $3.0 million on August 1
and November 1, 1999 in addition to monthly interest payments and matures in
February 2000. Another mortgage in the amount of $2.0 million, secured by 13.5
acres of the parcel, bears interest at 14% per annum, requires monthly interest
only payments and matures in January 2000. ART's Double O land in Las Colinas,
Texas and its Desert Wells land in Palm Desert, California are pledged as
additional collateral for these loans. ART drew down $6.0 million under its line
of credit with the GCLP, for a portion of the cash requirement. See NOTE 7.
"NOTES PAYABLE." A real estate brokerage commission of $1.4 million was paid to
Carmel Realty.

Also in February 1999, ART sold a 4.6 acre tract of its Plano Parkway
land parcel, for $1.2 million. ART received net cash of $1.1 million after the
payment of various closing costs, including a real estate brokerage commission
of $36,000 to Carmel Realty. Simultaneously with the sale, the mortgage debt
secured by such land parcel was refinanced in the amount of $7.1 million. The
new mortgage bears interest at the prime rate plus 4.5%, currently 12.25% per
annum, requires monthly interest only payments and matures in January 2000. The
net cash from the sale and refinancing along with an additional $921,000 were
used to payoff the $8.9 million mortgage secured by the land parcel. A mortgage
brokerage and equity refinancing fee of $71,000 was paid to BCM. A gain of
$473,000 was recognized on the sale.

In February 1999, GCLP sold the 225 unit Santa Fe Apartments in Kansas
City, Missouri, for $4.6 million, receiving net cash of $4.3 million after the
payment of various closing costs, including a real estate brokerage commission
of $137,000 to Carmel Realty. A gain of $706,000 was recognized on the sale.

Also in February 1999, GCLP sold the 480 unit Mesa Ridge Apartments in
Mesa, Arizona, for $19.5 million, receiving net cash of $793,000 after the
payment of various closing costs, including a real estate brokerage commission
of $585,000 to Carmel Realty and remitting $17.8 million to the lender to hold
in escrow pending a substitution of collateral. Such funds will be released when
substitute collateral is approved. If substitute collateral is not provided by
August 1999, $13.0 million of the escrowed monies will be applied against the
mortgage's

F-50
112

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

principal balance, approximately $800,000 will be retained by the lender as a
prepayment penalty and the remaining $4.0 million will be returned to GCLP. A
gain of $9.6 million was recognized on the sale, after consideration of payment
of the prepayment penalty.

In March 1999, ART sold a 13.0 acre tract of its Rasor land parcel, for
$1.6 million, receiving no net cash after paying down by $1.5 million the
mortgage debt secured by such land parcel and the payment of various closing
costs, including a real estate brokerage commission of $48,000 to Carmel Realty.
A gain of $979,000 was recognized on the sale.

Also in March 1999, ART sold two tracts totaling 9.9 acres of its
Mason/Goodrich land parcel, for $956,000, receiving net cash of $33,000 after
paying down by $860,000 the mortgage debt secured by such land parcel and the
payment of various closing costs, including a real estate brokerage commission
of $29,000 to Carmel Realty. A gain of $432,000 was recognized on the sale.

Further in March 1999, ART sold, in a single transaction, a 13.7 acre
tract of its McKinney II land parcel and a 20.0 acre tract of its McKinney IV
land parcel, for $7.7 million, receiving no net cash after paying down by $5.5
million the mortgage secured by such land parcel, the funding of required
escrows and the payment of various closing costs, including a real estate
brokerage commission of $231,000 to Carmel Realty. A gain of $3.1 million was
recognized on the sale.

NOTE 5. INVESTMENTS IN EQUITY INVESTEES

Real estate entities. ART's investment in real estate entities at March
31, 1999, included equity securities of three publicly traded Real Estate
Investment Trusts (collectively the "REITs"), Continental Mortgage and Equity
Trust ("CMET"), Income Opportunity Realty Investors, Inc. ("IORI") and
Transcontinental Realty Investors, Inc. ("TCI"), and interests in real estate
joint venture partnerships. BCM, ART's advisor, serves as advisor to the REITs.

ART accounts for its investment in the REITs and the joint venture
partnerships using the equity method. Substantially all of the equity securities
of the REITs are pledged as collateral for borrowings. See NOTE 8.
"MARGIN BORROWINGS."

ART's investment in real estate entities, accounted for using the
equity method, at March 31, 1999 was as follows:

Equivalent
Percentage Carrying Investee
of ART's Value of Book Value Market Value of
Ownership at Investment at at Investment at
Investee March 31, 1999 March 31, 1999 March 31, 1999 March 31, 1999
- -------- ------------------ ------------------ ------------------ --------------

CMET 41.1% $ 14,713 $ 34,708 $ 24,558
IORI 30.8 3,049 7,199 3,601
TCI 30.9 9,825 28,067 14,454
------------- --------------
27,587 $ 42,613
==============

Other 6,235
$ 33,822
=============

F-51
113

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

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

Management continues to believe that the market value of each of the
REITs undervalues their assets and ART may, therefore, continue to increase its
ownership in these entities in 1999.

Set forth below is summarized results of operations of equity investees
for the three months ended March 31, 1999:

Revenues ........................................ $ 39,567
Equity in income of partnerships ................ 133
Property operating expenses ..................... 24,567
Depreciation .................................... 5,603
Interest expense ................................ 13,072
--------
(Loss) before gains on sale of real estate ...... (3,542)

Gain on sale of real estate ..................... 2,020
--------
Net (loss) ...................................... $ (1,522)
========

ART's share of equity investees' loss before gains on the sale of real
estate was $1.2 million for the three months ended March 31, 1999, and its share
of equity investees' gains on sale of real estate was $448,000 for the three
months ended March 31, 1999.

ART's cash flow from the REITs is dependent on the ability of each of
them to make distributions. In the first quarter of 1999, distributions totaling
$306,000 were received from the REITs.

In the first quarter of 1999, ART purchased a total of $35,000 of
equity securities of the REITs and $196,000 of NRLP units of limited partner
interest.

In January 1992, ART entered into a partnership agreement with an
entity affiliated with the owner, at the time, of in excess of 14% of ART's
outstanding shares of Common Stock, to acquire 287 developed residential lots
adjacent to ART's other residential lots in Fort Worth, Texas. The partnership
agreement designates ART as managing general partner. The partnership agreement
also provides each of the partners with a guaranteed 10% return on their
respective investments. Through December 31, 1998, 266 residential lots had been
sold. In the first quarter of 1999, no additional lots were sold.

NOTE 6. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

Since 1994, ART has been purchasing equity securities of entities other
than those of the REITs and the Partnership to diversify and increase the
liquidity of its margin accounts. In the first quarter of 1999, ART purchased
$696,000 and sold $791,000 of such securities. These equity securities are
considered a trading portfolio and are carried at market value. At March 31,
1999, ART recognized an unrealized decrease in the market value of its trading
portfolio securities of $1.8 million. Also in the first quarter of 1999, ART
realized a net gain of $33,000 from the sale of trading portfolio securities and
received no dividends. Unrealized and realized gains and losses on trading
portfolio securities are included in other income in the accompanying
Consolidated Statements of Operations.

F-52
114

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

NOTE 7. NOTES PAYABLE

In February 1999, the Partnership obtained mortgage financing secured
by the unencumbered Melrose Business Park in Oklahoma City, Oklahoma, in the
amount of $900,000, receiving net cash of $870,000 after the payment of various
closing costs, including a mortgage brokerage and equity refinancing fee of
$9,000 to BCM. The mortgage bears interest at a variable rate, currently 8.5%
per annum, requires monthly payments of principal and interest of $8,000 and
matures in February 2019.

Also in February 1999, the Partnership obtained mortgage financing
secured by the unencumbered 56 Expressway Office Building in Oklahoma City,
Oklahoma, in the amount of $1.7 million, receiving net cash of $1.7 million
after the payment of various closing costs, including a mortgage brokerage and
equity refinancing fee of $17,000 to BCM. The mortgage bears interest at a
variable rate, currently 8.5% per annum, requires monthly payments of principal
and interest of $15,000 and matures in February 2019.

In March 1999, ART obtained a second mortgage on its Frisco Bridges
land in the amount of $2.0 million. The mortgage bears interest at 12.5% per
annum, and requires interest and principal to be paid at maturity in June 1999.

Also in March 1999, the Las Colinas I term loan lender provided
additional financing on ART's Stagliano, Dalho, Bonneau and Valley Ranch III
land in the amount of $2.2 million. The proceeds from this financing along with
an additional $1.4 million in cash were used to pay off the $3.1 million in
mortgage debt secured by such land parcels. A mortgage brokerage and equity
refinancing fee of $22,000 was paid to BCM.

At March 31, 1999, the mortgage debt secured by ART's McKinney I, II,
III, IV, V and Dowdy land in the amount of $15.2 million matured. ART and the
lender had reached an agreement to extend the mortgage's maturity to January
2000 in exchange for, among other things, ART's payment of an extension fee and
a loan paydown. On March 31, 1999, ART requested a loan payoff letter from the
lender intending to refinance the maturing debt. Such letter contained a demand
for fees and other consideration that management believes the lender is not
entitled to receive under the loan documents. The lender began foreclosure
proceedings. On April 30, 1999, the Court granted a temporary restraining order
to prevent foreclosure. On May 12, 1999, a hearing was held on ART's application
for a temporary injunction. The Court has not yet ruled on ART's request. ART
continues to negotiate with the lender.

Related Party. In 1998 and the first quarter of 1999, GCLP funded $76.0
million of a $95.0 million loan commitment to ART. The loan is secured by second
liens on (1) an office building in Minnesota, (2) four apartments in
Mississippi, and (3) 130.54 acres of land in Texas, (4) by the stock of ART
Holdings, Inc., a wholly-owned subsidiary of ART that owns 3,349,535 National
Realty units of limited partnership, and (5) by the stock of NMC. The loan bears
interest at 12.0% per annum, requires monthly payments of interest only and
matures in November 2003. In February 1999, ART made a $999,000 paydown on the
loan. In April 1999, GCLP funded an additional $5.7 million. Such loan balance
is eliminated in consolidation.

In December 1998, in connection with the Litigation Settlement, NMC,
the general partner of the Partnership, assumed responsibility for repayment to
the Partnership of the $12.4 million paid by the Partnership to the Moorman
Litigation plaintiff class members and legal counsel; $184,000 of such amount
being paid in March 1999. The loan bears interest at 90 day LIBOR (London
InterBank Offered Rate) plus 2.0% per annum, currently 7.0% per annum, adjusted
every 90 days and requires annual payments of accrued interest plus principal
payments of $500,000 in each of the first three years, $750,000 in each of the
next three years, $1.0 million in each of the next three years, with payment in
full of the remaining balance in the tenth year. The note is guaranteed by ART.
The note matures upon the earlier of the liquidation or dissolution of the
Partnership, NMC ceasing to be general partner or ten years from March 24, 1999,
the date of the first cash distribution to the Moorman Litigation plaintiff
class members.

F-53
115

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

NOTE 8. MARGIN BORROWINGS

ART has margin arrangements with various brokerage firms which provide
for borrowing of up to 50% of the market value of marketable equity securities.
The borrowings under such margin arrangements are secured by equity securities
of the REITs, NRLP and ART's trading portfolio and bear interest rates ranging
from 7.0% to 11.0%. Margin borrowing totaled $35.4 million at March 31, 1999.

In August 1996, ART consolidated its existing NRLP margin debt held by
various brokerage firms into a single loan of $20.3 million. In July 1997, the
lender advanced an additional $3.7 million, increasing the loan balance to $24.0
million. The loan was secured by ART's NRLP units with a market value of at
least 50% of the principal balance of the loan. ART paid down the loan by $14.0
million in September 1998 and an additional $5.0 million in October 1998. At
December 1998, the loan had a principal balance of $5.0 million. In February
1999, the loan was paid off.

NOTE 9. 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. ART had no taxable income or provision for income taxes in the three
months ended March 31, 1999 or 1998.

NOTE 10. OPERATING SEGMENTS

Significant differences among the accounting policies of ART's
operating segments as compared to ART's consolidated financial statements
principally involve the calculation and allocation of administrative expenses.
Management evaluates the performance of each of the operating segments and
allocates resources to them based on their net operating income and cash flow.
ART based reconciliation of expenses that are not reflected in the segments is
$4.1 million and $2.3 million of administrative expenses for the three months
ended March 31, 1999 and 1998, respectively. There are no intersegment revenues
and expenses and the Partnership conducts all of its business within the United
States.

Presented below are ART's reportable segments operating income for the
three months ended March 31, and segment assets at March 31.

Commercial Pizza
1999 Properties Apartments Hotels Land Parlors Receivables Total
- ---------- ----------- ---------- ---------- ---------- ---------- ----------- ---------

Operating
revenue .................. $ 7,347 $ 26,049 $ 6,721 $ 125 $ 7,124 $ -- $ 47,366
Operating
expenses ................. 3,815 15,830 5,486 2,747 6,174 -- 34,052
Interest
income ................... -- -- -- -- -- 1,852 1,852
Interest
expense -
notes
receivable ............... -- -- -- -- -- 881 881
--------- --------- --------- --------- --------- --------- ---------
Net operating
income
(loss) ................... $ 3,532 $ 10,219 $ 1,235 $ (2,622) $ 950 $ 971 $ 14,285
========= ========= ========= ========= ========= ========= =========

Depreciation/
amortization ............... $ 899 $ 2,619 $ 638 $ -- $ 324 $ -- $ 4,480
Interest on
debt ....................... 1,691 7,553 1,819 8,084 230 -- 19,377
Capital
expenditures ............... 1,985 371 143 -- 394 -- 2,893
Segment
assets ..................... 93,503 254,403 88,782 329,470 21,502 54,399 842,059

F-54
116

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

Property Sales: Apartments Land Total
---------- --------- ----------

Sales price............ $ 28,605 $ 11,464 $ 40,069
Cost of sales.......... 16,112 6,441 22,553
---------- --------- ----------
Gain on sales.......... $ 12,493 $ 5,023 $ 17,516
========== ========= ==========

Commercial Pizza
1998 Properties Apartments Hotels Land Parlors Receivables Total
- ---------- ----------- ---------- ---------- ---------- --------- ----------- ---------

Operating
revenue .................. $ 4,898 $ 204 $ 6,327 $ 138 $ 6,753 $ -- $ 18,320
Operating
expenses ................. 2,685 123 5,350 1,505 5,780 -- 15,443
Interest
income ................... -- -- -- -- -- 138 138
Interest
expense -
notes
receivable ............... -- -- -- -- -- 544 544
--------- --------- --------- --------- --------- --------- ---------
Net
operating
income
(loss) ................... $ 2,213 $ 81 $ 977 $ (1,367) $ 973 $ (406) $ 2,471
========= ========= ========= ========= ========= ========= =========

Depreciation/
amortization ............. $ 370 $ 109 $ 516 $ 5 $ 232 $ -- $ 1,232
Interest on
debt ..................... 1,067 47 1,172 5,293 65 -- 7,644
Capital
expenditures ............. 5,110 -- 173 -- 670 -- 5,953
Segment
assets ................... 51,375 8,486 72,831 200,910 22,335 16,649 372,586

NOTE 11. COMMITMENTS AND CONTINGENCIES

In 1996, ART was admitted to the Valley Ranch, L.P. partnership, as
general partner and Class B Limited Partner. The existing general and limited
partners converted their general and limited partner interests into 8,000,000
Class A units. The units are exchangeable into shares of ART's Series E
Cumulative Convertible Preferred Stock at the rate of 100 Class A units for each
share of Series E Preferred Stock. In February 1999, the Class A unitholder
notified ART that it intended to convert 100,000 Class A units into 1,000 shares
of Series E

F-55
117

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED

Preferred Stock. In March 1999, ART purchased the 100,000 of the Class A units
for $100,000. ART subsequently reached an agreement with the other Class A
unitholders to acquire the remaining 7,900,000 Class A units for $1.00 per unit.
In April 1999, 900,000 units were purchased and 1 million units will be
purchased in July and October 1999 and January 2000 and 2 million units in May
2001 and May 2002.

Litigation. ART is involved in various lawsuits arising in the ordinary
course of business. In the opinion of ART's management, the outcome of these
lawsuits will not have a material impact on ART's financial condition, results
of operations or liquidity.

NOTE 12. SUBSEQUENT EVENTS

In April 1999, ART refinanced the matured mortgage debt secured by its
Yorktown land in the amount of $4.8 million, receiving net cash of $580,000
after paying off $4.0 million in mortgage debt and the payment of various
closing costs, including a mortgage brokerage and equity refinancing fee of
$48,000 to BCM. The new mortgage bears interest at the prime rate plus 4.5%,
currently 12.25% per annum, requires monthly interest only payments, a principal
reduction payment of $368,000 in July 1999 and matures in February 2000.

Also in April 1999, GCLP sold the 166 unit Horizon East Apartments in
Dallas, Texas, for $4.0 million, receiving net cash of $1.2 million after paying
off $2.6 million in mortgage debt and the payment of various closing costs,
including a real estate brokerage commission of $79,000 to Carmel Realty. A gain
will be recognized on the sale.

Further in April 1999, GCLP sold the 120 unit Lantern Ridge Apartments
in Richmond, Virginia, for $3.4 million, receiving net cash of $880,000 after
the payment of various closing costs, including a real estate brokerage
commission of $103,000 to Carmel Realty. The purchaser assumed the $2.4 million
mortgage secured by the property. A gain will be recognized on the sale.

In March 1999, ART funded $322,000 of a $2.0 million loan commitment to
Lordstown, L.P. The loan is secured by second liens on land in Ohio and Florida
and 100% of the general and limited partnership interest in Partners Capital,
Ltd. and a 50% profits interest in subsequent land sales. The loan bears
interest at 14% per annum and matures in March 2000, with all principal and
interest due at maturity. The remaining $1.7 million was funded in April 1999.

Also in April 1999, ART funded $2.4 million loan to 261, L.P. The loan
is secured by 100% of the limited partnership interest in Partners Capital, Ltd.
and a 75% profits interest in subsequent land sales. The loan bears interest at
14% per annum and matures in March 2000, with all principal and interest due at
maturity.

F-56
118
APPENDIX
GLOSSARY OF TERMS

ADJUSTED LIQUIDATION VALUE -- The liquidation value of Preferred Stock
plus the amount of any accrued and unpaid dividends on that stock.

AFFILIATED REITS -- The three publicly traded real estate investment
trusts, CMET, IORI and TCI, each of which is an affiliate of the Company.

BCM -- Basic Capital Management, Inc., an affiliate of and advisor to
the Company.

BORDEAUX -- Bordeaux Investments Two, L.L.C.

COMMON STOCK -- The Common Stock of the Company.

CAMPBELL ASSOCIATES -- Campbell Center Associates, Ltd.

CARMEL REALTY -- Carmel Realty, Inc., a company owned by First Equity.

CARMEL, LTD. -- Carmel Realty Services, Ltd., which subcontracts with
other entities for 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) First Equity which is 50% owned by a subsidiary of BCM,

(ii) Gene E. Phillips, and

(iii) a trust for the benefit of the children of Gene E. Phillips.

CASH DISTRIBUTION AGREEMENT -- The Agreement for Cash Distribution and
Election of Successor General Partner which provides for the nomination of an
entity affiliated with SAMLP to be the successor general partner of NRLP, for
the distribution of $11.4 million to the plaintiff class members and for the
resolution of all related matters under the Moorman Settlement Agreement. The
Cash Distribution Agreement was granted final approval by the Court on October
23, 1998.

CMET -- Continental Mortgage and Equity Trust, an Affiliated REIT.

CODE -- The Internal Revenue Code of 1986, as amended.

CONVERSION PRICE -- 90% of the simple average of the daily closing
price of the Common Stock for the 20 business days ending on the last business
day of the calendar week immediately preceding the date of conversion of the
convertible Preferred Stock on the principal stock exchange on which the Common
Stock is then listed.

FIRST EQUITY -- First Equity Properties, Inc., which is 50% owned by a
subsidiary of BCM.

GCLP -- Garden Capital, L.P., a partnership controlled by NOLP.

IGI PROPERTIES -- 29 apartment complexes, totaling 2,441 units in
Florida and Georgia, purchased by the Company in a single transaction in May
1998.

IORI -- Income Opportunity Realty Investors, Inc., an Affiliated REIT.

JNC -- JNC Enterprises, Inc.

MACRS -- Modified Accelerated Cost Recovery System.

A-1
119

MOORMAN SETTLEMENT AGREEMENT -- An agreement settling a class action
lawsuit arising out of the formation of the Partnership and naming the
Partnership, SAMLP and Mr. Phillips as defendants. The Moorman Settlement
Agreement became effective on July 5, 1990. The Moorman Settlement Agreement
provided for, among other things, the appointment of the NRLP Oversight
Committee and the establishment of specified annually increasing targets for a
five-year period relating to the price of NRLP units of limited partner
interest.

NMC -- NRLP Management Corp., which is the general partner of NRLP and
NOLP.

NOLP -- National Operating, L.P., the operating partnership of NRLP and
a wholly-owned subsidiary of the Company.

NRLP OVERSIGHT COMMITTEE -- An oversight committee for the Partnership
provided by the Moorman Settlement Agreement.

PARTNERSHIP -- NRLP and NOLP as a unit.

PREFERRED STOCK -- The Preferred Stock of the Company, including the
Series A, Series B, Series C, Series D, Series E, Series F, Series G and Series
H Preferred Stock.

PWSI -- Pizza World Supreme, Inc., a wholly-owned subsidiary of the
Company.

REDEEMABLE GENERAL PARTNER INTEREST -- SAMLP's general partnership
interest in the Partnership.

REIT -- A real estate investment trust.

RTC -- Resolution Trust Corporation.

SAMI -- Syntek Asset Management, Inc., the managing general partner of
SAMLP.

SAMLP -- The general partner of the Partnership until December 18, 1998
when NMCwas elected general partner.

SAN JACINTO -- San Jacinto Savings Association.

SECURITIES ACT -- The Securites Act of 1933, as amended.

SERIES A PREFERRED STOCK -- The Company's Series A Cumulative
Participating Preferred Stock.

SERIES B PREFERRED STOCK -- The Company's Series B 10% Cumulative
Convertible Preferred Stock.

SERIES C PREFERRED STOCK -- The Company's Series C Cumulative
Convertible Preferred Stock.

SERIES D PREFERRED STOCK -- The Company's Series D 9.50% Cumulative
Preferred Stock.

SERIES E PREFERRED STOCK -- The Company's Series E 10% Cumulative
Convertible Preferred Stock.

SERIES F PREFERRED STOCK -- The Company's Series F Cumulative
Convertible Preferred Stock.

SERIES G PREFERRED STOCK -- The Company's Series G Cumulative
Convertible Preferred Stock.

SERIES H PREFERRED STOCK -- The Company's Series H Cumulative
Convertible Preferred Stock.

SOUTHMARK -- Southmark Corporation, a real estate syndicator and parent
of San Jacinto.

TCI -- Transcontinental Realty Investors, Inc., an Affiliated REIT.

A-2
120

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.

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

TABLE OF CONTENTS

PAGE
----

Summary.................................................................... 3
Where You Can Find More Information........................................ 5
Ratio of Earnings to Fixed Charges......................................... 6
Use of Proceeds............................................................ 6
The Company................................................................ 6
Executive Compensation of the Company...................................... 8
The Business of the Company................................................ 8
Selected Financial Data of the Company..................................... 41
Management's Discussion and Analysis
of Financial Condition and Result
of Operations............................................................ 43
Acquisition Terms.......................................................... 52
Description of the Capital Stock........................................... 53
Plan of Distribution....................................................... 59
Legal Matters.............................................................. 60
Experts.................................................................... 60
Index to Consolidated Financial
Statements............................................................... F-1
Report of Independent Certified Accountants................................ F-2
Consolidated Balance Sheets, December 31, 1998
and 1997................................................................. F-3
Consolidated Statements of Operations, Three Years
Ended December 31, 1998, 1997 and 1996................................... F-4
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1998, 1997 and 1996............................. F-5
Consolidated Statements of Cash Flows, Three Years
Ended December 31, 1998, 1997 and 1996................................... F-7
Notes to Consolidated Financial Statements................................. F-10
Consolidated Balance Sheets March 31, 1999 and
December 31, 1998........................................................ F-41
Consolidated Statements of Operations, Three Months
Ended September 30, 1998 and 1997........................................ F-43
Consolidated Statements of Stockholders' Equity,
Three Months Ended March 31, 1999........................................ F-44
Consolidated Statements of Cash Flows, Three Months
Ended March 31, 1999 and 1998............................................ F-45
Notes to Consolidated Interim Financial Statements......................... F-47
Glossary of Terms.......................................................... A-1

$125,000,000

AMERICAN REALTY TRUST, INC.

PREFERRED STOCK

COMMON STOCK

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

PROSPECTUS

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

JULY 29, 1999

121

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Thirteen of the Company's articles of incorporation provides
that, to the fullest extent permitted by Georgia law, as the same exists or may
be hereafter be amended, no director of the Company shall be personally liable
to the Company or the shareholders of the Company for monetary damages for
breach of the duty of care as a director, provided that Article Thirteen does
not limit or eliminate liability for (i) a breach of duty involving an
appropriation of a business opportunity of the Company; (ii) an act or omission
not in good faith or involving intentional misconduct or a knowing violation of
law; or (iii) a transaction from which the director derived an improper personal
benefit. In addition, a director's liability will not be limited as to any
payment of a dividend or approval of a stock repurchase that is illegal under
Section 14-2-640 of the Georgia Business Corporation Code.

Article Thirteen applies only to claims against a director arising out
of his or her role as a director and not, if he or she is also an officer, his
or her role as an officer or in any other capacity. In addition, Article
Thirteen does not reduce the exposure of directors to liability under Federal
securities laws.

The Bylaws of the Company require the Company to indemnify any person
who, by reason of the fact that he is or was a director of the Company, is made
or is threatened to be made a party to an action, including an action brought by
the Company or its shareholders. The Bylaws provide that the Company will
indemnify such person against reasonably incurred expenses (including, but not
limited to, attorneys' fees and disbursements, court costs, and expert witness
fees), and against any judgments, fines and amounts paid in settlement, provided
that the Company shall not indemnify such person under circumstances in which
the Georgia Business Corporation Code, as in effect from time to time, would not
allow indemnification.

The Bylaws of the Company give the board of directors the power to
cause the Company to provide to officers, employees, and agents of the Company
all or any part of the right to indemnification afforded to directors of the
Company as set forth in the Bylaws, subject to the conditions, limitations and
obligations therein, upon a resolution to that effect identifying such officer,
employee or agent and specifying the particular rights provided.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

3.1 -- Articles of Incorporation(1)

3.2 -- Amendment to Articles of Incorporation dated
September 15, 1989(1)

3.3 -- Articles of Amendment setting forth Certificate of
Designation of Series A Cumulative Participating Preferred
Stock dated as of April 11, 1990(1)

3.4 -- Articles of Amendment dated December 10, 1990 to Articles of
Incorporation(1)

3.5 -- Amended By-laws of American Realty Trust, Inc., dated
December 11, 1991(1)

3.6 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations on Restrictions thereof of Preferred Stock of
American Realty Trust, Inc. (Series B 10% Cumulative
Preferred Stock) dated April 4, 1996(1)

II-1
122

3.7 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations on Restrictions thereof of Preferred Stock of
American Realty Trust, Inc. (Series C 10% Cumulative
Preferred Stock) dated June 4, 1996(1)

3.8 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof of Series D Cumulative
Preferred Stock of American Realty Trust, Inc. dated
August 2, 1996(1)

3.9 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof of Series E Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated December 3, 1996(1)

3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated February 28, 1997(2)

3.11 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof of Series G Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated September 18, 1997(3)

3.12 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. increasing the number of
authorized shares of Common Stock to 100,000,000 shares,
dated March 26, 1998(4)

3.13 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. reducing the number of
authorized shares of Series B Preferred Stock to zero and
eliminating such designation, dated May 27, 1998(3)

3.14 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. increasing the number of
authorized shares of Series G Cumulative Convertible
Preferred Stock from 11,000 to 12,000, dated
May 27, 1998(3)

3.15 -- Articles of Amendment of the Articles of Incorporation of
American Realty Trust, Inc. setting forth the Certificate of
Designations, Preferences and Relative Participating or
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof of Series H Cumulative
Convertible Preferred Stock of American Realty Trust, Inc.
dated June 24, 1998(5)

3.16 -- Amended and Restated Articles of Amendment of the Articles
of Incorporation of American Realty Trust, Inc. setting
forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions thereof of
Series F Cumulative Convertible Preferred Stock of American
Realty Trust, Inc. dated October 23, 1998(6)

3.17 -- Articles of Amendment to the Articles of Incorporation
Decreasing the Number of Authorized Shares of and
Eliminating Series C Preferred Stock dated
January 4, 1999(7)

3.18 -- Articles of Correction and Certificate of American Realty
Trust, Inc. dated June 1, 1999(10)

3.19 -- Articles of Restatement and Certificate of American Realty
Trust, Inc. dated June 1, 1999(10)

4.1 -- Instruments defining the rights of security holders
(included in Exhibits 3.1 through 3.19)(2)

II-2
123

5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the
legality of the Preferred Stock being offered(1)

11.1 -- Statement re: computation of per share earnings(9)

12.1 -- Statement re: computation of ratios(9)

15.1 -- Letter re: unaudited interim financial information(9)

21.1 -- Subsidiaries of the registrant(4)

23.1 -- Consent of BDO Seidman, LLP (American Realty Trust,
Inc.)(10)

23.2 -- Consent of BDO Seidman, LLP (Continental Mortgage and Equity
Trust)(10)

23.3 -- Consent of BDO Seidman, LLP (Income Opportunity Realty
Investors, Inc.)(10)

23.4 -- Consent of BDO Seidman, LLP (Transcontinental Realty
Investors, Inc.)(10)

23.5 -- Consent of BDO Seidman, LLP (National Realty, L.P.)(10)

23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP (incorporated
in Exhibit 5.1)(1)

24.1 -- Power of Attorney (1) 29.1 -- Financial Data Schedule(4)

99.1 -- Form of Prospectus Supplement(2)

- ----------
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4 (No. 333-21591), filed with the Commission on February 11, 1997 and
incorporated by reference herein.
(2) Filed as an Exhibit to the Registrant's Amendment No. 1 to the
Registration Statement on Form S-4 (No. 333-21583), filed with the
Commission on April 29, 1997 and incorporated by reference herein.
(3) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4 (No. 333-43777), filed with the Commission on January 6, 1998 and
incorporated by reference herein.
(4) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997, as filed with the Commission on March
30, 1998 and incorporated by reference herein.
(5) Filed as an Exhibit to the Registrant's Amendment No. 2 to Registration
Statement on Form S-4 (No. 333-43777), filed with the Commission on
September 3, 1998 and incorporated by reference herein.
(6) Filed as an Exhibit to the Registrant's Amendment No. 3 to Registration
Statement on Form S-4 (No. 333-43777), filed with the Commission on
December 2, 1998 and incorporated by reference herein.
(7) Filed as an Exhibit to the Registrant's Amendment No. 4 to Registration
Statement on Form S-4 (No. 333-43777) filed with the Commission on
January 29, 1999 and incorporated by reference herein.
(8) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998, as filed with the Commission on March
31, 1999 and incorporated by reference herein.
(9) Not applicable.
(10) Filed herewith.

ITEM 22. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the charges in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;

II-3
124

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do
not apply if this Registration Statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

(d) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 1933 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(e) For the purpose of determining any liability under the 1933 Act, each
post-effective-amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-4
125

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Post- Effective
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 29th day of July, 1999.

AMERICAN REALTY TRUST, INC.

By: /s/ Karl L. Blaha
-------------------------------------
Karl L. Blaha
President (Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.

Signature Title Date

/s/ Karl L. Blaha President (Principal July 29, 1999
- ---------------------------- Executive Officer) and
Karl L. Blaha Director

* July 29, 1999
- ---------------------------- Director
Roy E. Bode

* July 29, 1999
- ---------------------------- Director
Collene C. Currie

* July 29, 1999
- ---------------------------- Director
Cliff Harris

* July 29, 1999
- ---------------------------- Director
Al Gonzalez

* Executive Vice President and July 29, 1999
- ---------------------------- Chief Financial Officer
Thomas A. Holland (Principal Financial and
Accounting Officer)

*By: /s/ Karl L. Blaha
-----------------------
Karl L. Blaha
Attorney-in-Fact

II-5

126

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1 -- Articles of Incorporation(1)

3.2 -- Amendment to Articles of Incorporation dated
September 15, 1989(1)

3.3 -- Articles of Amendment setting forth Certificate of
Designation of Series A Cumulative Participating Preferred
Stock dated as of April 11, 1990(1)

3.4 -- Articles of Amendment dated December 10, 1990 to Articles of
Incorporation(1)

3.5 -- Amended By-laws of American Realty Trust, Inc., dated
December 11, 1991(1)

127

3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated February 28, 1997(2)

3.12 -- Articles of Amendment to the Articles of Incorporation of
American Realty Trust, Inc. increasing the number of
authorized shares of Common Stock to 100,000,000 shares,
dated March 26, 1998(4)

3.17 -- Articles of Amendment to the Articles of Incorporation
Decreasing the Number of Authorized Shares of and
Eliminating Series C Preferred Stock dated
January 4, 1999(7)

3.18 -- Articles of Correction and Certificate of American Realty
Trust, Inc. dated June 1, 1999(10)

3.19 -- Articles of Restatement and Certificate of American Realty
Trust, Inc. dated June 1, 1999(10)

4.1 -- Instruments defining the rights of security holders
(included in Exhibits 3.1 through 3.19)(2)

128

5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the
legality of the Preferred Stock being offered(1)

11.1 -- Statement re: computation of per share earnings(9)

12.1 -- Statement re: computation of ratios(9)

15.1 -- Letter re: unaudited interim financial information(9)

21.1 -- Subsidiaries of the registrant(4)

23.1 -- Consent of BDO Seidman, LLP (American Realty Trust,
Inc.)(10)

23.2 -- Consent of BDO Seidman, LLP (Continental Mortgage and Equity
Trust)(10)

23.3 -- Consent of BDO Seidman, LLP (Income Opportunity Realty
Investors, Inc.)(10)

23.4 -- Consent of BDO Seidman, LLP (Transcontinental Realty
Investors, Inc.)(10)

23.5 -- Consent of BDO Seidman, LLP (National Realty, L.P.)(10)

23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP (incorporated
in Exhibit 5.1)(1)

24.1 -- Power of Attorney (1) 29.1 -- Financial Data Schedule(4)

99.1 -- Form of Prospectus Supplement(2)