CONTINENTAL EQUITY INVESTORS INC, S-4/A, 1997-02-11

CONTINENTAL EQUITY INVESTORS INC
S-4/A, 1997-02-11
OPERATORS OF APARTMENT BUILDINGS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1997

Registration Statement No. 333-15351
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

AMENDMENT NO. 2 TO FORM S-4

REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933

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

CONTINENTAL EQUITY INVESTORS, INC.
(Exact name of registrant as specified in its governing instrument)

NEVADA 6513 75-2674937
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
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:
J. GREGORY HOLLOWAY, ESQ.
Andrews & Kurth L.L.P.
4400 Thanksgiving Tower
Dallas, Texas 75201

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: ASSUMING
SHAREHOLDERS APPROVE THE PROPOSED INCORPORATION PROCEDURE, AS SOON AS
PRACTICABLE AFTER THE DATE OF THE SPECIAL MEETING OF SHAREHOLDERS OF
CONTINENTAL MORTGAGE AND EQUITY TRUST

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

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

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

The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE> 2
CONTINENTAL MORTGAGE AND EQUITY TRUST
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231

_____________, 1997

Dear Shareholders:

We are pleased to invite you to a Special Meeting of Shareholders of
Continental Mortgage and Equity Trust (the "Trust") to be held at 10:00 a.m.,
Dallas time, on ___________, 1997, at 10670 North Central Expressway, Suite
600, Dallas, Texas 75231. At the Special Meeting, you will be asked to consider
and vote upon a proposal (the "Incorporation Procedure") to convert the Trust
from a California business trust into a Nevada corporation, Continental Equity
Investors, Inc. ("CEI Nevada").

As discussed in the accompanying Proxy Statement/Prospectus, the
Incorporation Procedure would be implemented by incorporating the Trust in
California and merging the Trust, after it is so incorporated, with and into
its wholly-owned Nevada subsidiary, CEI Nevada, which has been organized for
this purpose. If the Shareholders approve the Incorporation Procedure, after
the Merger you will own one share of common stock of CEI Nevada for each share
of beneficial interest in the Trust you now own. The Incorporation Procedure
will not affect your proportionate equity interest. The Incorporation Procedure
is not expected to cause any interruption in the trading of your shares on the
NASDAQ Stock Market. If Shareholders approve the Incorporation Procedure, it
would be effected without further action by the Shareholders. Each of the
current Trustees of the Trust would continue to serve as a director of CEI
Nevada until his initial term expires under CEI Nevada's Articles of
Incorporation or until a successor is elected. CEI Nevada would succeed to and
assume, by operation of law, all rights and obligations of the Trust.

The Incorporation Procedure, if approved, will result in a significant
change in the nature of the Shareholders' investment. Unlike the Trust, the new
corporation will not be subject to any restrictions on its investments except
to the extent any investment activity involves related party transactions,
which, pursuant to the Articles of Incorporation of CEI Nevada, will require
the approval of a majority of the independent directors. At this time, however,
the Trustees do not intend to alter their investment strategies if the
Incorporation Procedure is approved. The Incorporation Procedure will also have
the following effects: (a) more transactions with insiders will be permitted
and, as a result, insiders may receive an increase in fees and commissions
payable to them; (b) the directors will be indemnified for liability arising
from gross negligence or reckless disregard of duty; (c) certain anti-takeover
defenses permitted pursuant to Nevada law will be adopted; (d) certain
protections available under California law will be eliminated; (e) CEI Nevada
will be able to issue preferred stock; and (f) there will be certain legal and
procedural differences resulting from the Trust's change from a business trust
governed by California law, its Declaration of Trust and Trustee's Regulations
to a corporation governed by Nevada law, its Articles of Incorporation and
Bylaws. As discussed more fully in the attached Proxy Statement/Prospectus, the
anti-takeover defenses to be adopted could have the effect of rendering more
difficult or discouraging a future attempt to acquire control of CEI Nevada by
a merger, tender offer, proxy contest or removal of incumbent management
without the approval of the Board of Directors, even though certain
stockholders of CEI Nevada might desire such a change in control. The
Incorporation Procedure, therefore, should be viewed as limiting Shareholders'
rights.

Except as discussed in the preceding paragraph, the Incorporation Procedure
would not otherwise materially change the nature or conduct of the Trust's
business or, except to the extent CEI Nevada may issue preferred stock in the
future, voting rights per common share, nor would it affect the tax status of
the Trust as a real estate investment trust under the Internal Revenue Code of
1986. The attached Proxy

<PAGE> 3
Statement/Prospectus provides a detailed description of the Incorporation
Procedure. Please give this information your careful attention.

The Trustees have approved the Incorporation Procedure as in the best
interest of the Trust and its Shareholders and strongly recommend that you vote
FOR the Incorporation Procedure. Whether or not you plan to attend the Special
Meeting in person, please sign, date and return the enclosed proxy card today.
We appreciate your support.

Cordially,

Randall M. Paulson
President

================================================================================

IF YOUR SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, NOMINEE OR
OTHER INSTITUTION, ONLY IT CAN VOTE YOUR SHARES. PLEASE CONTACT
PROMPTLY THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS FOR
YOUR SHARES TO BE VOTED.

================================================================================

SHAREHOLDERS SHOULD NOT SURRENDER THEIR SHARE CERTIFICATES AT THIS TIME. IF
THE PROPOSED INCORPORATION PROCEDURE IS APPROVED, SHAREHOLDERS WILL BE
INSTRUCTED AS TO WHEN AND WHERE THEIR SHARE CERTIFICATES SHOULD BE SURRENDERED.

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<PAGE> 4
CONTINENTAL MORTGAGE AND EQUITY TRUST

10670 North Central Expressway, Suite 300
Dallas, Texas 75231
(214) 692-4700

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the Shareholders of Continental Mortgage and Equity Trust:

PLEASE TAKE NOTICE that a Special Meeting of the Shareholders of
Continental Mortgage and Equity Trust (the "Trust") will be held at 10:00 a.m.,
Dallas time, on ___________, 1997, at 10670 North Central Expressway, Suite
600, Dallas, Texas 75231, to consider and vote on a proposal described in the
accompanying Proxy Statement/Prospectus to convert the Trust from a California
business trust (which, pursuant to the terms of its Declaration of Trust, is
subject to certain restrictions on its investment activities, into a Nevada
corporation, which, pursuant to its Articles of Incorporation, would have no
restrictions on its investment activities (the "Incorporation Procedure").

The principal components of the Incorporation Procedure are the following:

(i) the filing of articles of incorporation with the Secretary of
State of California, converting the Trust from a California business
trust into Continental Equity Corporation, a California corporation (the
"California Corporation") and converting shares of the Trust into shares of
the California Corporation on a one-for-one basis;

(ii) the execution of an Agreement and Plan of Merger between the
California Corporation (as successor to the Trust) and its recently
organized, wholly- owned Nevada subsidiary Continental Equity Investors,
Inc. ("CEI Nevada"), that provides for, among other things, (a) the merger
of the California Corporation with and into CEI Nevada such that the
California Corporation shall cease to exist and CEI Nevada shall be the
surviving corporation (the "Merger"), (b) the issuance by CEI Nevada of one
share of its common stock in exchange for each share of common stock of the
California Corporation and (c) the cancellation of all shares of CEI
Nevada's common stock then held by the California Corporation, with the
effect that (i) the shareholders of the California Corporation would become
the stockholders of CEI Nevada without any change in their percentage
ownership, (ii) the California Corporation would cease to exist and (iii)
CEI Nevada would succeed to all the rights and properties, and be subject to
all the obligations and liabilities, of the Trust incorporated as the
California Corporation; and

(iii) the filing of articles of merger with the Secretary of State
of the State of Nevada and the Secretary of State of the State of
California to effect the Merger.

THE INCORPORATION PROCEDURE IS PRESENTED AS A SINGLE UNIFIED PROPOSAL TO BE
APPROVED OR REJECTED BY SHAREHOLDERS IN ITS ENTIRETY. APPROVAL OF THE
INCORPORATION PROCEDURE WILL CONSTITUTE APPROVAL OF EACH OF COMPONENTS (I) TO
(III) ABOVE, INCLUDING (1) ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, (2)
APPROVAL AND RATIFICATION OF (A) THE FORMATION OF CEI NEVADA AS A WHOLLY-OWNED
SUBSIDIARY OF THE TRUST AND (B) EACH OF THE OTHER COMPONENTS OF THE
INCORPORATION PROCEDURE AND (3) APPROVAL AND RATIFICATION OF ANY AND ALL
FURTHER STEPS NECESSARY OR APPROPRIATE IN THE JUDGMENT OF MANAGEMENT TO
EFFECTUATE THE INCORPORATION PROCEDURE.

<PAGE> 5
If Shareholders approve the proposed Incorporation Procedure, each of the
current Trustees of the Trust would continue to serve as a director of CEI
Nevada until his initial term expires under CEI Nevada's Articles of
Incorporation or until a successor is elected. CEI Nevada would succeed to and
assume, by operation of law, all rights and obligations of the Trust.

Only Shareholders of record at the close of business on _____________, 1997
will be entitled to vote at the Special Meeting. Shareholders are cordially
invited to attend the Special Meeting in person.

Regardless of whether you plan to be present at the Special Meeting, please
promptly date, mark, sign and mail the enclosed proxy ballot card to American
Stock Transfer and Trust Company in the envelope provided. ANY SHAREHOLDER WHO
EXECUTES AND DELIVERS THE ENCLOSED PROXY CARD MAY REVOKE THE AUTHORITY GRANTED
THEREUNDER AT ANY TIME PRIOR TO ITS USE BY GIVING WRITTEN NOTICE OF SUCH
REVOCATION TO AMERICAN STOCK TRANSFER AND TRUST COMPANY, 40 WALL STREET, NEW
YORK, NEW YORK 10005, OR BY EXECUTING AND DELIVERING A PROXY BEARING A LATER
DATE. A SHAREHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE
SPECIAL MEETING. YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU
OWN.

Dated: ____________, 1997.
BY ORDER OF THE BOARD OF TRUSTEES OF
CONTINENTAL MORTGAGE AND EQUITY
TRUST

Robert A. Waldman
Secretary

IMPORTANT

YOU CAN HELP THE TRUST AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY BALLOT
CARD. IF YOU ARE UNABLE TO ATTEND THE SPECIAL MEETING, PLEASE MARK, DATE, SIGN
AND RETURN THE ENCLOSED PROXY BALLOT CARD SO THAT THE NECESSARY QUORUM MAY BE
REPRESENTED AT THE SPECIAL MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.

FAILURE TO VOTE MAY SUBJECT THE TRUST TO FURTHER EXPENSE.

================================================================================

IF YOUR SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, NOMINEE OR
OTHER INSTITUTION, ONLY IT CAN VOTE YOUR SHARES. PLEASE CONTACT PROMPTLY
THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS FOR YOUR
SHARES TO BE VOTED.

================================================================================

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<PAGE> 6

PROXY STATEMENT/PROSPECTUS

PROXY STATEMENT PROSPECTUS

CONTINENTAL MORTGAGE AND EQUITY TRUST CONTINENTAL EQUITY
10670 North Central Expressway INVESTORS, INC.
Suite 300 10670 North Central Expressway
Dallas, Texas 75231 Suite 300
(214) 692-4700 Dallas, Texas 75231
(214) 692-4700

Special Meeting of Shareholders To Be 4,028,053 Shares of Common Stock,
Held on , 1997 par value $.01 per share
-------------

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

This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Trustees of Continental Mortgage and Equity Trust
(the "Trust") of proxies to be used at a Special Meeting of Shareholders for a
vote upon a proposal to convert the Trust from a California business trust into
a Nevada corporation.

The Incorporation Procedure will have the following effects: (a) more
transactions with insiders will be permitted and, as a result, insiders may
receive an increase in fees and commissions payable to them; (b) the directors
of the Nevada corporation, unlike the Trustees of the Trust, will be
indemnified for liability arising from gross negligence or reckless disregard
of duty; (c) certain anti-takeover defenses permitted pursuant to Nevada law
will be adopted; and (d) certain protections available under California law
will be eliminated. As discussed more fully herein, the anti-takeover defenses
to be adopted could have the effect of rendering more difficult or discouraging
a future attempt to acquire control of the Nevada corporation by a merger,
tender offer, proxy contest or removal of incumbent management without the
approval of the Board of Directors, even though certain stockholders of the
Nevada corporation might desire such a change in control. The Incorporation
Procedure, therefore, should be viewed as limiting Shareholders' rights.

FOR A DESCRIPTION OF RISKS ASSOCIATED WITH THE APPROVAL OF THE
INCORPORATION PROCEDURE AND AN INVESTMENT IN THE SHARES OF COMMON STOCK OF
CONTINENTAL EQUITY INVESTORS, INC. ("CEI NEVADA"), SEE "SUMMARY -- RISK
FACTORS" BEGINNING ON PAGE 6 AND " RISK FACTORS" BEGINNING ON PAGE 13 HEREIN.
IN PARTICULAR, SHAREHOLDERS SHOULD CONSIDER THAT THE INCORPORATION PROCEDURE
WILL RESULT IN A SIGNIFICANT CHANGE TO SHAREHOLDERS IN THE NATURE OF THEIR
INVESTMENT.

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

THE COMMON STOCK OF CEI NEVADA TO BE ISSUED IN CONNECTION WITH THE
INCORPORATION PROCEDURE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<PAGE> 7
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

The Special Meeting to vote on the Incorporation Procedure will be held at
10:00 a.m, Dallas time, on ____________, 1997, at 10670 North Central
Expressway, Suite 600, Dallas, Texas 75231. This Proxy Statement/Prospectus and
the accompanying proxy card are first being mailed to Shareholders on or about
_______________, 1997.

THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THE INCORPORATION
PROCEDURE.

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

The date of this Proxy Statement/Prospectus is , 1997.
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<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Elimination of Certain Provisions of the Declaration of Trust . . . . . . 12

Certain Anti-Takeover Effects . . . . . . . . . . . . . . . . . . . . . 12
Authorization to Issue Preferred Stock . . . . . . . . . . . . . . . . 13
Effect of Certain Majority and Super-Majority Voting
Provisions of CEI Nevada . . . . . . . . . . . . . . . . . . . . . . . 13
Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . 14
Market Price of CEI Nevada Stock . . . . . . . . . . . . . . . . . . . 15
Other Potential Conflicts of Interest . . . . . . . . . . . . . . . . . 15

GENERAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 15
Shareholders Entitled to Vote . . . . . . . . . . . . . . . . . . . . . 16
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Vote Required for Approval . . . . . . . . . . . . . . . . . . . . . . 16
Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 17

PROPOSED INCORPORATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . 17
General Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Principal Reasons for the Incorporation Procedure . . . . . . . . . . . 18
Possible Negative Considerations . . . . . . . . . . . . . . . . . . . 22
Certain Potential Conflicts of Interest . . . . . . . . . . . . . . . . 23
The One-for-One Exchange of Shares . . . . . . . . . . . . . . . . . . 23
Comparison of Principal Differences Between the Trust and CEI Nevada . 24
Management After Incorporation Procedure . . . . . . . . . . . . . . . 25
Liability of Certain Persons . . . . . . . . . . . . . . . . . . . . . 27
Business Activities after Incorporation Procedure . . . . . . . . . . . 30
Comparison of the Securities of CEI Nevada and the Trust . . . . . . . 36
Stockholder-Management Relations . . . . . . . . . . . . . . . . . . . 39
Establishment of Subsidiaries . . . . . . . . . . . . . . . . . . . . . 44
Amendment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 44
Material Federal Income Tax Consequences . . . . . . . . . . . . . . . 46
Certain Foreign, State and Local Taxes . . . . . . . . . . . . . . . . 47

MARKET PRICES OF THE SHARES; DIVIDENDS . . . . . . . . . . . . . . . . . . 47

BUSINESS AND PROPERTIES OF CEI NEVADA . . . . . . . . . . . . . . . . . . . 49
CEI Nevada's Policy with Respect to Certain Activities . . . . . . . . 50

BUSINESS AND PROPERTIES OF THE TRUST . . . . . . . . . . . . . . . . . . . 51
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Business Plan and Investment Policies . . . . . . . . . . . . . . . . . 51
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Certain Factors Associated with Real Estate and Related Investments . . 60
Method of Operating and Financing . . . . . . . . . . . . . . . . . . . 60
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>

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<PAGE> 9
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Property Management . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Real Estate Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . 62
The Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . 62
Involvement in Certain Legal Proceedings . . . . . . . . . . . . . . . 64
Certain Business Relationships and Related Party Transactions . . . . . 66
Security Ownership of Certain Beneficial Owners And Management . . . . 67

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . 69

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . 71
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 73
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 77
Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Recent Accounting Pronouncement . . . . . . . . . . . . . . . . . . . . 78

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . 79

SOLICITATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . 81
</TABLE>

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<PAGE> 10
<TABLE>
<CAPTION>
Page
----
<S> <C>
APPENDICES
Glossary of Principal Defined Terms . . . . . . . . . . . . . . . Appendix A
Form of Agreement and Plan of Merger . . . . . . . . . . . . . . Appendix B
Articles of Incorporation of Continental Equity
Investors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Appendix C
Bylaws of Continental Equity Investors, Inc. . . . . . . . . . . Appendix D
Second Amended and Restated Declaration of Trust of
Continental Mortgage and Equity Trust, with amendments. . . . . Appendix E
Restated Trustees' Regulations of Continental
Mortgage and Equity Trust . . . . . . . . . . . . . . . . . . . Appendix F
Proposed Advisory Agreement between Continental
Equity Investors, Inc. and Basic Capital Management, Inc. . . . Appendix G
</TABLE>

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<PAGE> 11
SUMMARY

The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. This summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
appearing elsewhere in this Proxy Statement/Prospectus, including the
Appendices hereto. Shareholders are urged to review carefully the entire Proxy
Statement/Prospectus, including the Appendices. Capitalized terms used in this
summary but not defined herein have the meanings set forth in this Proxy
Statement/Prospectus. A glossary of principal defined terms appears in Appendix
A of this Proxy Statement/Prospectus.

RISK FACTORS

In evaluating the proposed Incorporation Procedure, Shareholders should
consider, among other things, risk factors such as:

(1) CEI Nevada will not be subject to the Trust's charter provisions that
mandate (a) a limit on annual operating expenses and (b) shareholder
approval of annual renewals of advisory agreements;

(2) The acquisition safeguards provided by the Nevada corporate structure
of CEI Nevada could discourage future attempts to acquire CEI Nevada;

(3) The ability of CEI Nevada to issue preferred stock could, in the
future, discourage parties from acquiring CEI Nevada and/or dilute the
ownership of the stockholders of CEI Nevada;

(4) The Trustees, executive officers of the Trust, and entities they are
affiliated with, including Basic Capital Management, Inc. ("BCM")
collectively own a majority of the outstanding Shares of the Trust and
even if such holdings are reduced below 50%, such entities will still
have effective veto power over certain corporate actions of CEI Nevada
due to the existence of certain super-majority voting provisions in
the charter of CEI Nevada;

(5) The directors of CEI Nevada will have greater discretion with respect
to transactions with related parties and, accordingly, CEI Nevada may
engage in more related party transactions than the Trust currently is
allowed to do;

(6) There can be no assurance that the market price of the common stock of
CEI Nevada after the Incorporation Procedure will be equal to that of
the shares in the Trust prior to the Incorporation Procedure; and

(7) The officers and trustees of the Trust (as well as the officers and
directors of CEI Nevada), as representatives of other real estate-
related companies (including other affiliates of BCM), may be subject
to certain conflicts of interests in selling and buying properties for
the Trust and CEI Nevada, respectively.

GENERAL SHAREHOLDER INFORMATION

The Trust is a California business trust that has invested in mortgage
loans and in equity interests in real estate. CEI Nevada is a Nevada
corporation and a wholly-owned subsidiary of the Trust formed on

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<PAGE> 12
October 30, 1996 to facilitate the proposed Incorporation Procedure. The
principal executive offices of the Trust and CEI Nevada are located at 10670
North Central Expressway, Suite 300, Dallas, Texas 75231, telephone number
(214) 692-4700.

A special meeting of the Trust's Shareholders(the "Special Meeting") will
be held at 10:00 a.m., Dallas time, on _______________, 1997, at 10670 North
Central Expressway, Suite 600, Dallas, Texas 75231. At the Special Meeting,
Shareholders will be asked to consider and vote upon a proposal to convert the
Trust from a California business trust into a Nevada corporation. Only holders
of record of issued and outstanding shares of beneficial interest of the Trust
(the "Shares") at the close of business on the record date, _______________,
1997, will be entitled to vote at the Special Meeting.

As of December 31, 1996, there were 4,028,053 Shares outstanding and
entitled to one vote each, and the affirmative vote of the holders of a
majority of the outstanding Shares (i.e., at least 2,014,027 Shares) will be
required to approve the proposed Incorporation Procedure. As of December 31,
1996, affiliates of the Trustees and executive officers of the Trust
collectively held 2,126,148 Shares, representing 52.8% of the outstanding
Shares. Accordingly, insiders of the Trust have the voting power to effectuate
the Incorporation Procedure on their own. Shareholders will not have any
dissenters' rights of appraisal with respect to the Incorporation Procedure.
See "General Shareholder Information" and "Proposed Incorporation Procedure --
Comparison of the Securities of CEI Nevada and the Trust -- Dissenters' Rights
to Dissent and Obtain Payment".

PROPOSED INCORPORATION PROCEDURE

GENERAL DISCUSSION. The Incorporation Procedure, if approved, will result
in a significant change to Shareholders in the nature of their investment.
Investors will own an equity interest in a Nevada corporation rather than a
California business trust. In addition, the Incorporation Procedure will have
the following effects, which should be viewed as limiting Shareholders' rights:
(i) the directors of CEI Nevada will be entitled to indemnification for gross
negligence and reckless disregard of duty; (ii) CEI Nevada will adopt certain
anti-takeover defenses, and (iii) certain protections available under
California law will be eliminated. See "Proposed Incorporation Procedure --
Possible Negative Considerations," "-- Certain Potential Conflicts of Interest"
and "-- Comparison of Principal Differences between the Trust and CEI Nevada."

The Incorporation Procedure would be accomplished by incorporating the
Trust in California into a California corporation named Continental Equity
Corporation (the "California Corporation") and merging the Trust, after it is
so incorporated, with and into CEI Nevada (the "Merger"). As a result of the
Merger, (i)the California corporation would cease to exist as a separate
entity, (ii) CEI Nevada, by operation of law, would succeed to all the rights
and properties, and be subject to all the obligations and liabilities, of the
Trust as incorporated as the California Corporation, (iii) each of the current
Trustees of the Trust would continue to serve as directors of CEI Nevada and
(iv) existing Shareholders would automatically become stockholders of CEI
Nevada by the exchange of all shares of the California Corporation for newly
issued shares of common stock, par value $.01 per share, of CEI Nevada ("Nevada
Common Stock") on the basis of a one-to-one exchange (the "One-for-One
Exchange"). The issuance of shares of Nevada Common Stock via the One-for-One
Exchange will not affect the proportionate security holdings of any Shareholder
of the Trust. Although Shareholders will be required to surrender their Share
certificates in exchange for Nevada Common Stock certificates if the
Incorporation Procedure is approved, Shareholders should not return their Share
certificates with their proxies at this time. See "Proposed Incorporation
Procedure -- General Discussion. "

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The principal components of the Incorporation Procedure are the following:

(i) the filing of articles of incorporation with the Secretary of
State of California, converting the Trust from a California business trust
into the California Corporation and converting shares of the Trust into
shares of the California Corporation on a one-for-one basis;

(ii) the execution of an Agreement and Plan of Merger between the
California Corporation (as successor to the Trust) and CEI Nevada that
provides for, among other things, (a) the merger of the California
Corporation with and into CEI Nevada such that the California Corporation
shall cease to exist and CEI Nevada shall be the surviving corporation, (b)
the issuance by CEI Nevada of one share of Nevada Common Stock in exchange
for each share of common stock outstanding of the California Corporation
and (c) the cancellation of all shares of Nevada Common Stock then held by
the California Corporation, with the effect that (1) the shareholders of
the California Corporation would become the stockholders of CEI Nevada
without any change in their percentage ownership, (2) the California
Corporation would cease to exist and (3) CEI Nevada would succeed to all
the rights and properties, and be subject to all the obligations and
liabilities, of the Trust incorporated as the California Corporation,
including, without limitation, those under the Advisory Agreement referred
to above (as amended to provide for a substantially identical contractual
operating expense limitation); and

(iii) the filing of articles of merger with the Secretary of State
of the State of Nevada and the Secretary of State of the State of
California to effect the Merger.

THE INCORPORATION PROCEDURE IS PRESENTED AS A SINGLE UNIFIED PROPOSAL TO BE
APPROVED OR REJECTED BY SHAREHOLDERS IN ITS ENTIRETY. APPROVAL OF THE
INCORPORATION PROCEDURE WILL CONSTITUTE APPROVAL OF EACH OF THE AFOREMENTIONED
COMPONENTS OF THE INCORPORATION PROCEDURE, INCLUDING (1) ADOPTION OF THE
AGREEMENT AND PLAN OF MERGER REFERENCED ABOVE IN ALL RESPECTS, INCLUDING AS A
SHAREHOLDER OF THE CALIFORNIA CORPORATION, (2) APPROVAL AND RATIFICATION OF (A)
THE FORMATION OF CEI NEVADA AS A WHOLLY-OWNED SUBSIDIARY OF THE TRUST AND (B)
EACH OF THE OTHER COMPONENTS OF THE INCORPORATION PROCEDURE AND (3) APPROVAL
AND RATIFICATION OF ANY AND ALL FURTHER STEPS NECESSARY OR APPROPRIATE IN THE
JUDGMENT OF MANAGEMENT TO EFFECTUATE THE INCORPORATION PROCEDURE.

PRINCIPAL REASONS FOR THE INCORPORATION PROCEDURE.

Acquisition Safeguards. The Board of Trustees believes the change from a
California business trust to a Nevada corporation will be beneficial in that
certain safeguards regarding the acquisition of CEI Nevada not available to the
Trust will be available to CEI Nevada. Such safeguards are designed to (a)
discourage unsolicited, non-negotiated takeover attempts that can be unfair to
stockholders, pressure management and disrupt the operational continuity,
long-range planning and long-term growth of the business of CEI Nevada as
successor to the Trust and (b) encourage persons who may wish to make a bona
fide offer to acquire CEI Nevada to negotiate with the Board of Directors in
good faith and to submit a proposal that is fair and equitable to CEI Nevada
and all its stockholders. Other changes will be beneficial in attracting and
retaining qualified management and in defining management's relationship to
stockholders and CEI Nevada. See "Proposed Incorporation Procedure -- Principal
Reasons for the Incorporation Procedure -- Acquisition Safeguards."

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<PAGE> 14
Greater Legal Certainty. As a Nevada corporation, CEI Nevada will have
greater legal certainty in matters of corporate governance and indemnification
as a corporation as opposed to a business trust and hence greater
predictability in the conduct of its business as a corporation . Because no
substantial body of law has developed concerning the legal status, rights,
obligations and liabilities of business trusts and their trustees and
shareholders, there is a degree of uncertainty as to the legal principles
applicable to business trusts under the laws of the various states, including
California, the jurisdiction of organization of the Trust. By contrast, the
status, rights, obligations and liabilities of the stockholders, officers and
directors of a corporation are governed not only by a corporation's charter
documents, but also by comprehensive statutes and a body of case law
interpreting those statutes and their application to a corporation and its
charter documents.

The Board of Trustees believes that the Articles of Incorporation of CEI
Nevada, coupled with the existence of a growing body of Nevada corporate law,
would allow CEI Nevada to plan the legal aspects of its future activities with
more certainty and predictability than currently exists with respect to the
Declaration of Trust and the less well-defined provisions of law currently
applicable to the operations of a business trust. See "Proposed Incorporation
Procedure -- Principal Reasons for the Incorporation Procedure -- Greater Legal
Certainty".

POSSIBLE NEGATIVE CONSIDERATIONS. Shareholders should note that affiliates
of BCM own approximately 52.8% of the outstanding Shares of the Trust, and, as
a result, effectively have control over all corporate actions requiring the
vote of a majority of stockholders. Additionally, even if such holdings are
reduced below 50%, such entities will still have effective veto power over the
removal of directors, the amendment of the Bylaws and certain key provisions of
the Articles of Incorporation of CEI Nevada, and the consummation of Business
Confirmations (as defined in the Articles of Incorporation), based on the
super-majority voting provisions included in the Articles of Incorporation of
CEI Nevada. See "Proposed Incorporation Procedure -- Possible Negative
Considerations," "-- Management after Incorporation Procedure -- The Director
Removal Provision" and "-- Amendment Provisions."

CERTAIN POTENTIAL CONFLICTS OF INTEREST. The Incorporation Procedure may
result in BCM, as advisor, earning greater fees than would be the case under
the Declaration of Trust. See "Proposed Incorporation Procedure -- Certain
Potential Conflicts of Interest." The advisory fees of BCM are currently
subject to an operating expense limitation contained in the Declaration of
Trust, and this limitation does not exist in the Articles of Incorporation of
CEI Nevada. However, the Advisory Agreement will be amended upon consummation
of the Incorporation Procedure to provide for a substantially identical
contractual operating expense limitation. See " Risk Factors -- Elimination of
Certain Provisions of the Declaration of Trust" and "Proposed Incorporation
Procedure -- Business Activities after Incorporation Procedure -- Limitations
on Operating Expenses." While the Board of Trustees believes that the
Incorporation Procedure is in the best interest of the Trust and its
Shareholders, certain members of management could benefit from the
Incorporation Procedure and, therefore, may be viewed as having a conflict of
interest. See "Risk Factors -- Other Potential Conflicts of Interest." For
detail on the nature of affiliation among members of

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management of BCM, Carmel Realty and the Trust, see "Business and Properties of
the Trust -- Certain Business Relationships and Related Party Transactions."

BUSINESS ACTIVITIES AFTER INCORPORATION PROCEDURE. The Incorporation
Procedure will not significantly change the nature or conduct of the Trust's
business, assets, operations, location of executive office, liabilities,
financial status or, except to the extent CEI Nevada may issue preferred stock
in the future, voting rights per share. See "Proposed Incorporation Procedure
- -- Comparison of the Securities of CEI Nevada and the Trust -- Preferred
Stock". The affairs and the rights of stockholders of CEI Nevada will be
governed by Nevada corporate law and articles of incorporation and bylaws
rather than by California law and the Declaration of Trust and the Trustees'
Regulations.

The Declaration of Trust includes certain restrictions on the investment
activities of the Trust. Specifically, the Declaration of Trust prohibits or
restricts the Trustees from investing in (i) any foreign currency, bullion or
commodities and (ii) certain contracts of sale for real estate. The Declaration
of Trust also prohibits the Trustees from investing more than 10% of the assets
of the Trust estate in junior mortgage loans, excluding wraparound loans, and
from issuing certain equity and debt securities. The Declaration of Trust also
prohibits the Trust from (i) making any loan to Consolidated Capital Equities
Corporation, the original sponsor of the Trust ("CCEC"), the Advisor, or any of
their affiliates; (ii) purchasing, selling or leasing any real property to or
from CCEC, the Advisor, or any of their affiliates, (iii) engaging in any short
sale; (iv) engaging in trading as compared with investment activities or
engaging in the business of underwriting or agency distribution of securities
issued by others; (v) purchasing insurance either through or from any
affiliate; (vi) purchasing any real property on which the total real estate
commission paid by the Trust to anyone exceeds 6% of the total purchase price,
or selling any real property on which the total real estate commission paid by
the Trust to anyone exceeds 5% of the total sales price; or (vii) acquiring
securities in any company holding any of the investments proscribed by the
Declaration of Trust or engaging in any of the activities prohibited by the
Declaration of Trust.

Although the Board of Trustees currently does not intend to engage in the
foregoing activities or change the nature or conduct of the Trust's business if
the Incorporation Procedure is approved, the governing documents of CEI Nevada
provide for no restrictions on the investment activities of CEI Nevada. See
"Proposed Incorporation Procedure -- Business Activities after Incorporation
Procedure -- Restrictions on Investment Activities".

MATERIAL FEDERAL INCOME TAX CONSEQUENCES. The following discussion of the
material federal income tax consequences of the Incorporation Procedure is
based on the opinion of Andrews & Kurth L.L.P., securities and tax counsel to
the Trust ("Counsel"). The Trust and CEI Nevada have received an opinion from
Counsel to the effect that: (i) the Incorporation Procedure will constitute a
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the "Code"); (ii) upon consummation of the
Incorporation Procedure, CEI Nevada will be treated as the same taxpayer as the
Trust for federal income tax purposes; (iii) the conversion of the Trust into
CEI Nevada essentially will be irrelevant for federal income tax purposes and
the operations of the Trust and CEI Nevada will be combined for purposes of
determining whether CEI Nevada qualifies as a real estate investment trust for
the taxable year in which the Incorporation Procedure is consummated; (iv) the
Incorporation Procedure will not, in and of itself, adversely affect the
ability of the Trust or CEI Nevada to qualify as a real estate investment trust
for federal income tax purposes; and (v) the information in this Proxy
Statement/Prospectus under the caption "Proposed Incorporation Procedure --
Material Federal Income Tax Consequences," to the extent it constitutes matters
of law or legal conclusions, is correct in all material respects. It should be
noted that an opinion of counsel is not binding on the Internal Revenue Service
or on the courts.

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<PAGE> 16
No gain or loss will be recognized by the Trust as a result of the
Incorporation Procedure. Similarly, no gain or loss will be recognized by
Shareholders. The federal income tax consequences of the Incorporation
Procedure to the Trust and to Shareholders would be materially different from
those described herein if a determination were made that the Incorporation
Procedure did not constitute a reorganization under the Code. Such a
determination could have adverse federal income tax consequences to CEI Nevada
and to Shareholders. All Shareholders should carefully read the discussion
under "Proposed Incorporation Procedure -- Material Federal Income Tax
Consequences" and should consult their own tax advisors as to the effect of the
Incorporation Procedure on their individual tax liability under applicable
foreign, state or local income tax laws. See "Proposed Incorporation Procedure
- -- Material Federal Income Tax Consequences".

MARKET PRICES OF THE SHARES; DIVIDENDS

The Trust's Shares are traded on the NASDAQ Stock Market ("NASDAQ") using
the symbol "CMETs". Pending approval of the proposed Incorporation Procedure,
the Nevada Common Stock will be listed on the NASDAQ at the time of the
effectiveness of the Merger. As of the close of business on December 31, 1996,
there were 4,028,053 Shares outstanding. The range of high and low bid
quotations per Share as reported by NASDAQ: (i) during the 1994 fiscal year
were $10 and $85/16, respectively, (ii) during the 1995 fiscal year were
$1011/16 and $911/16, respectively, and (iii) during the 1996 fiscal year were
$12 1/4 and $9 5/8, respectively (as restated for the three-for-two forward
share split effected February 15, 1996, as applicable). Distributions on the
Shares are declared and paid quarterly.

As of December 31, 1996, there were 5,429 Shareholders of record. On
December 5, 1989, the Board of Trustees approved a program pursuant to which
the Trust is authorized to repurchase up to a total of 1,465,000 of its shares
of beneficial interest. As of December 31, 1996, the Trust had repurchased
1,453,869 shares pursuant to such program. None of such shares were purchased
in 1995, and 276,144 of such shares were purchased in 1996. See "Market Price
of the Shares; Dividends".

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

CEI Nevada is a newly-created corporation that, by operation of law, would
succeed to all the rights and properties, and be subject to all the obligations
and liabilities, of the Trust as incorporated as the California Corporation,
upon consummation of the proposed Incorporation Procedure. Thus, for accounting
purposes, the assets, liabilities and stockholders' equity of CEI Nevada would
be accounted for on a carry-over basis, as the continuing entity which would be
the successor to the Trust. The Incorporation Procedure, if adopted, will have
no effect on the book value of the assets, liabilities or Shareholders' equity
of the Trust. See "Selected Historical Consolidated Financial Information" for
a summary of selected historical consolidated financial information of the
Trust for the nine months ended September 30, 1996 and 1995, and the last five
years ended December 31, 1995.

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<PAGE> 17
RISK FACTORS

In evaluating the proposed Incorporation Procedure, Shareholders should
consider, among other things, the risk factors set forth below.

ELIMINATION OF CERTAIN PROVISIONS OF THE DECLARATION OF TRUST

Under certain provisions of the Declaration of Trust, Operating Expenses of
the Trust (as defined in the Declaration of Trust and discussed specifically
under "Proposed Incorporation Procedure -- Business Activities after
Incorporation Procedure") for any fiscal year must not exceed the lesser of (a)
1.5% of the average of the Book Values of Invested Assets (as defined in the
Declaration of Trust) of the Trust at the end of each calendar month of such
fiscal year or (b) the greater of 1.5% of the average of the Net Asset Value
(as defined in the Declaration of Trust) of the Trust at the end of each
calendar month of such fiscal year or 25% of the Trust's Net Income (as defined
in the Declaration of Trust). The Declaration of Trust also provides that any
advisory agreement must specifically provide for a refund to the Trust of the
amount, if any, by which the operating expenses exceed the applicable amount,
provided that the maximum amount of such refund shall not exceed the amount of
the advisory fees paid to the advisor with respect to such fiscal year. The
Operating Expenses of the Trust in 1995 totaled $1.7 million and exceeded the
limitation set forth in the Declaration of Trust by $250,000, and that amount
was refunded to the Trust by the advisor.

In accordance with such provisions, the current Advisory Agreement with BCM
specifically provides for a refund to the Trust of the amount by which the
Operating Expenses of the Trust for any fiscal year exceed the limitation set
forth in the aforementioned provisions of the Declaration of Trust, "or any
similar limitation (if contained) in a successor Declaration of Trust or
[Articles] of Incorporation . . . ." The Articles of Incorporation place no
such limits on CEI Nevada's operating expenses. Although a limitation on
operating expenses initially will be included contractually in an amended
advisory agreement, upon the consummation of the Incorporation Procedure, there
is no guarantee that future advisory agreements will include such a limitation.
If the limitation on operating expenses is eliminated from future advisory
agreements, there is a risk to shareholders that, to the extent additional sums
are paid to the Advisor, less money will be available for distributions to
shareholders. See "Proposed Incorporation Procedure -- Business Activities
after Incorporation Procedure".

The Trust's Declaration of Trust provides that any contract with an advisor
must provide for annual renewal or extension after an initial term of no more
than two years, subject to approval by Shareholders of the Trust. The Articles
of Incorporation of CEI Nevada contain no such requirement. Although the
current directors of CEI Nevada intend to continue to submit the Advisory
Agreement annually to stockholders following consummation of the Incorporation
Procedure, such practice may be discontinued at some time in the future. If
this practice is discontinued, shareholders will not have the opportunity to
review and approve future advisory agreements.

The various fees payable to BCM under the current Advisory Agreement and
the means by which such fees are calculated are discussed in detail below under
"Business and Properties of the Trust -- The Advisory Agreement".

CERTAIN ANTI-TAKEOVER EFFECTS

Shareholders should recognize that the acquisition safeguards discussed
more fully below under "Proposed Incorporation Procedure -- Principal Reasons
for the Incorporation Procedure -- Acquisition Safeguards" could have the
effect of rendering more difficult or discouraging a future attempt to acquire

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<PAGE> 18
control of CEI Nevada by a merger, tender offer, proxy contest or removal of
incumbent management without the approval of the Board of Directors, even if
certain stockholders of CEI Nevada might desire such a change in control and
even if such a change in control would be beneficial to the stockholders
generally. As a result, stockholders might be deprived of an opportunity to
receive a premium for their shares over prevailing market prices and the
Incorporation Procedure, therefore, should be viewed as limiting stockholders'
rights. See "Proposed Incorporation Procedure". These safeguards against
acquisition of CEI Nevada include (i) the requirement of an 80% vote to make,
adopt, alter, amend, change or repeal (a) CEI Nevada's Bylaws and (b) certain
key provisions of CEI Nevada's Articles of Incorporation that embody, among
other things, the acquisition-related safeguards, (ii) the requirement of a
two-thirds super-majority vote for (a) the removal of a director from the Board
of Directors and (b) the consummation of Business Combinations (as defined in
the Articles of Incorporation) and (iii) the inability generally of
stockholders to call meetings of stockholders. The Trustees, the Trust's
executive officers, and entities with which they are affiliated, including BCM,
collectively own approximately 52.8% of the outstanding Shares of the Trust
and, therefore, effectively have veto power over those corporate actions
requiring a super-majority vote of shareholders, as well as other corporate
actions requiring only a majority vote of shareholders. Accordingly, the
Incorporation Procedures could entrench the Board of Directors and will
effectively give CEI Nevada's management the power to block certain
extraordinary corporate transactions, as discussed more fully below under
"Proposed Incorporation Procedure -- Possible Negative Considerations,"--
"Comparison of Principal Differences Between the Trust and CEI Nevada".

AUTHORIZATION TO ISSUE PREFERRED STOCK

The Articles of Incorporation of CEI Nevada authorize the issuance of up to
1,000,000 shares of preferred stock by action of the Board of Directors without
stockholder approval, which preferred stock may be issued in one or more series
with such preferences, limitations and rights as shall be determined by the
Board of Directors of CEI Nevada. See "Proposed Incorporation Procedure --
Comparison of the Securities of CEI Nevada and the Trust -- Preferred Stock".
The issuance of preferred stock could dilute the stock ownership or voting
power of current shareholders. Although no preferred stock has been issued or
is being issued as part of the Incorporation Procedure, and the current
directors of CEI Nevada have no present intention of issuing any preferred
stock, such stock could be issued as a safeguard against acquisition of CEI
Nevada to dilute the stock ownership and voting power of a person or entity
seeking to acquire control of CEI Nevada by (i) privately placing such
preferred stock with purchasers not hostile to the CEI Nevada Board of
Directors to oppose an unsolicited takeover bid or (ii) authorizing holders of
a series of preferred stock to vote as a class, either separately or with the
holders of the Nevada Common Stock, on any merger, sale or exchange of assets
or any other extraordinary corporate transaction involving CEI Nevada.

EFFECT OF CERTAIN MAJORITY AND SUPER-MAJORITY VOTING PROVISIONS OF CEI NEVADA

Shareholders should note that the Trustees, the Trust's executive officers,
and entities with which they are affiliated, including BCM, collectively own
approximately 52.8% of the outstanding Shares of the Trust, and, therefore,
effectively have control over all corporate actions requiring the vote of a
majority of the stockholders. Additionally, even if such holdings are reduced
below 50%, such entities will still have effective veto power over the removal
of directors, the amendment of the Bylaws and certain key provisions of the
Articles of Incorporation of CEI Nevada, and the consummation of Business
Combinations (as defined in the Articles of Incorporation) based on the super-
majority voting provisions (i.e., provisions requiring more than a simple
majority vote) included in the Articles of Incorporation of CEI Nevada. Because
of these significant holdings by affiliates of the Trust, non-affiliated
stockholders would effectively have to vote as a group to exercise veto power
over the actions requiring a super-majority vote of stockholders. See

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<PAGE> 19
"Proposed Incorporation Procedure -- Possible Negative Considerations," "--
Management after Incorporation Procedure -- The Director Removal Provision" and
"-- Amendment Provisions".

TRANSACTIONS WITH RELATED PARTIES

The Trust has engaged, and CEI Nevada may continue to engage, in
transactions with certain related parties, as discussed more fully below under
"Business and Properties of the Trust -- Certain Business Relationships and
Related Party Transactions". Currently, pursuant to the provisions of the
Modification of Stipulation of Settlement (the "Olive Modification") dated
April 28, 1994 with regard to a class and derivative action entitled Olive et
al. v. National Income Realty Trust et al. (the "Olive Litigation") certain
related party transactions require the unanimous approval of the Trust's Board
of Trustees. Additionally, pursuant to the Olive Modification, related party
transactions currently are to be discouraged and may only be entered into in
exceptional circumstances and after a determination by the Trust's Board of
Trustees that (i) the transaction is in the best interest of the Trust and (ii)
no other opportunity exists that is as good as the opportunity presented by
such transaction. BCM, in its position as advisor to the Trust, as well as the
officers and trustees of the Trust, are obligated to comply with the Olive
Modification and discourage related party transactions in accordance with the
Olive Modification.

Even if the Incorporation Procedure is adopted, the requirements under the
Olive Modification pertaining to certain related party transactions will
continue until April 28, 1999, and will require the unanimous approval of the
Board of Directors rather than the Board of Trustees. Likewise, the Board of
Directors will be required to discourage related party transactions and to make
the determination as to whether (i) the transaction is in the best interest of
CEI Nevada and (ii) no other opportunity exists that is as good as the
opportunity presented by such related party transaction. See "Business and
Properties of the Trust -- Involvement in Certain Legal Proceedings" for a more
complete description of the Olive Litigation and the resulting Olive
Modification. After April 28, 1999, however, the Board of Directors will have
greater discretion as to related party transactions, subject to the limitations
set forth in the Articles of Incorporation of CEI Nevada.

CEI Nevada's Articles of Incorporation generally permit related party
transactions if approved by a majority of the independent directors, whereas
the existing Declaration of Trust absolutely prohibits certain transactions
between the Trust and certain related parties, regardless of the fairness of
the terms of such transactions and whether such transactions are authorized by
a majority of unaffiliated Trustees or approved by the Shareholders. Such
specific prohibitions as well as the general restrictions on transactions
between the Trust and certain related parties are described under "Proposed
Incorporation Procedure -- Business Activities after Incorporation Procedure --
Restrictions on Related-Party Transactions". Because CEI Nevada's Articles of
Incorporation contain no analogous prohibitions, the Incorporation Procedure
will permit CEI Nevada greater flexibility to engage in a larger class of
transactions with related parties than the Declaration of Trust currently
permits between the Trust and certain related parties (but, for the reasons
discussed above, only subsequent to April 28, 1999). There is a risk to
Shareholders that, following consummation of the Incorporation Procedure,
related parties may benefit from a related party transaction to the detriment
of stockholders if it is determined that such related party transaction was
less beneficial to CEI Nevada than a similar transaction with an unrelated
party. However, the Board of Directors and officers of CEI Nevada will have a
fiduciary duty to act in the best interests of CEI Nevada and its stockholders.
See "Proposed Incorporation Procedure -- Comparison of Principal Differences
Between the Trust and CEI Nevada".

The Board of Trustees believes that the restrictions in CEI Nevada's
Articles of Incorporation and those under Chapter 78 of the Nevada Revised
Statutes, together with the oversight of related party

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<PAGE> 20

transactions mandated by the Olive Modification (see "Proposed Incorporation
Procedure -- Business Activities after Incorporation Procedure --
Restrictions on Related-Party Transactions"), will offer adequate protection
to ensure the fairness and propriety of transactions between CEI Nevada and
related parties.

MARKET PRICE OF CEI NEVADA STOCK

As part of the Merger, existing Shareholders of the Trust would
automatically become stockholders of CEI Nevada by the exchange of all shares
of the California Corporation for newly issued Nevada Common Stock on the basis
of the One-for-One Exchange. However, there can be no assurance that the market
price per share of Nevada Common Stock after the One-for-One Exchange will be
equal to the market price per share of the shares of the California corporation
before the One-for-One Exchange or that the marketability of Nevada Common
Stock will remain consistent with the marketability of the shares of the Trust
or the California corporation. Prices for CEI Nevada Common Stock will be
determined in the marketplace and may be influenced by many factors, including
investor perception of the changes effected through the Incorporation
Procedure.

OTHER POTENTIAL CONFLICTS OF INTEREST

The real estate business is highly competitive, and the Trust competes, and
CEI Nevada will compete, with numerous entities engaged in real estate
activities. As described below under "Business and Properties of the Trust --
Certain Business Relationships and Related Party Transactions", the officers
and trustees of the Trust also serve as officers, directors, or trustees of
certain other entities, each of which is also advised by BCM, and each of which
has business objectives similar to those of the Trust. Such Trustees and
officers and BCM each owe a fiduciary duty to such other entities as well as to
the Trust under applicable law. Additionally, the Trust also competes with
other entities that are affiliates of BCM and that may have investment
objectives similar to those of the Trust and that may compete with the Trust in
leasing, selling and financing real estate and mortgage notes. In resolving any
potential conflicts of interest which may arise, BCM has informed the Trust
that it intends to continue to exercise its best judgment as to what is fair
and reasonable under the circumstances.

GENERAL SHAREHOLDER INFORMATION

This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Trustees of the Trust of proxies to be used at a
Special Meeting of Shareholders for a vote upon a proposal to convert the Trust
from a California business trust into a Nevada corporation that would have
perpetual duration (the "Incorporation Procedure") by incorporating the Trust
in California and merging the Trust, after it is so incorporated, with and into
its wholly-owned Nevada subsidiary that has been organized for this purpose.
The Special Meeting will be held at 10:00 a.m., Dallas time, on _____________,
1997, at 10670 North Central Expressway, Suite 600, Dallas, Texas 75231. The
Trust's financial statements for the year ended December 31, 1995 were audited
by BDO Seidman, LLP. A representative from BDO Seidman, LLP is expected to be
present at the Special Meeting to respond to appropriate questions and such
representative will have an opportunity to make a statement if such
representative desires to do so. This Proxy Statement/Prospectus and the
accompanying Proxy are first being mailed to shareholders on or about
_______________, 1997.

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<PAGE> 21
SHAREHOLDERS ENTITLED TO VOTE

Only holders of record of issued and outstanding shares of beneficial
interest of the Trust (the "Shares") at the close of business on _____________,
1997 (the "Record Date"), are entitled to vote at the Special Meeting and at
any adjournments thereof. At the close of business on December 31, 1996, there
were 4,028,053 Shares outstanding. Each holder is entitled to one vote for each
Share held on the Record Date.

VOTING OF PROXIES

When the enclosed proxy card is properly executed and returned, the Shares
represented thereby will be voted at the Special Meeting in accordance with the
instructions noted thereon. Shareholders may choose to vote for, against or
abstain from voting on the Incorporation Procedure proposal in its entirety.

In the absence of other instructions, the Shares represented by a properly
executed and submitted proxy card will be voted in favor of the Incorporation
Procedure.

When a signed proxy card is returned with choices specified with respect to
voting matters, the Shares represented are voted by the proxies designated on
the proxy card in accordance with the Shareholder's instructions to the
tabulator. A Shareholder wishing to name another person as his or her proxy may
do so by crossing out the names of the designated proxies and inserting the
name of such other person to act as his or her proxy. In that case, it will be
necessary for the Shareholder to sign the proxy card and deliver it to the
person named as his or her proxy and for the person so named to be present and
to vote at the Special Meeting. Proxy cards so marked should not be mailed
directly to the Trust.

VOTE REQUIRED FOR APPROVAL

Pursuant to Section 6.7 of the Declaration of Trust, a majority of the
issued and outstanding Shares entitled to vote at a meeting of Shareholders,
represented in person or by proxy, shall constitute a quorum at the Special
Meeting. For the purposes of determining the presence of a quorum at the
Special Meeting and the number of votes cast with respect to the Incorporation
Procedure, all votes cast for or against and abstentions will be included.
Abstentions will have the same legal effect as a vote against the proposal.
Broker nonvotes, if any, will be treated as not present and not entitled to
vote for the proposal. If a quorum should not be present, the Special Meeting
may be adjourned from time to time until a quorum is obtained. Shareholders
are, therefore, urged to sign the accompanying form of proxy and return it
promptly.

Although Section 3.5 of the Declaration of Trust requires the affirmative
vote of only a majority of the votes cast at a meeting of Shareholders to
incorporate the Trust, Section 200.5 of the California General Corporation Law
requires an affirmative vote of the holders of a majority of the outstanding
Shares to approve the Incorporation Procedure. The provisions of the
Declaration of Trust would only prevail over the California General Corporation
law if the Declaration of Trust required a greater proportion of the
outstanding Shares to approve the Incorporation Procedure. Since it does not,
the California General Corporation law controls, and the Incorporation
Procedure must be approved by the affirmative vote of the holders of a majority
of the outstanding Shares of the Trust. As of December 31, 1996, the Trustees,
executive officers of the Trust and their affiliates collectively held
approximately 52.8% of the outstanding Shares of the Trust and could,
therefore, approve the Incorporation Procedure on their own.

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<PAGE> 22
REVOCATION OF PROXIES

A proxy card is enclosed herewith. Any Shareholder who executes and
delivers the proxy card may revoke the authority granted thereunder at any time
prior to its use by giving written notice of such revocation to American Stock
Transfer and Trust Company, 40 Wall Street, 46th Floor, New York, New York
10005, or by executing and delivering a proxy bearing a later date. A
SHAREHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE SPECIAL
MEETING.

PROPOSED INCORPORATION PROCEDURE

GENERAL DISCUSSION

Shareholders should recognize that the Incorporation Procedure will result
in a change in the nature of their investment. Investors will own an equity
interest in a Nevada corporation rather than a California business trust. In
addition, the Incorporation Procedure will have the following effects, each of
which should be viewed as limiting Shareholders' rights: (i) the directors of
CEI Nevada, unlike the Trustees of the Trust, will be entitled to
indemnification for liability arising from gross negligence and reckless
disregard of duty; (ii) CEI Nevada will adopt certain anti-takeover defenses
that have not been adopted by the Trust, which will have the effect of
rendering more difficult or discouraging a future attempt to acquire control of
CEI Nevada by a merger, tender offer, proxy contest or removal of incumbent
management, even though certain stockholders of CEI Nevada might desire such a
change in control; and (iii) certain protections available under California law
will be eliminated. See "-- Principal Reasons for the Incorporation Procedure
- -- Acquisition Safeguards," "-- Possible Negative Considerations," "-- Certain
Potential Conflicts of Interest" and "-- Comparison of Principal Differences
Between the Trust and CEI Nevada".

Because no explicit statutory authority permits a California business trust
to become a Nevada corporation directly or to merge directly with and into a
Nevada corporation, the Incorporation Procedure would be accomplished by
incorporating the Trust in California as the California Corporation, and
merging the California Corporation (as successor to the Trust) with and into
its wholly-owned Nevada subsidiary, CEI Nevada. The Board of Trustees has
caused CEI Nevada to be organized in Nevada to facilitate the Incorporation
Procedure. Prior to the Merger, CEI Nevada will have no significant business,
assets or liabilities of any consequence and no operating history. The audited
balance sheet of CEI Nevada as of November 5, 1996 is included under "Index to
Financial Statements and Supplementary Data".

The Merger will be accomplished pursuant to the terms of the proposed
agreement and plan of merger, a form of which is attached as Appendix B to this
Proxy Statement/Prospectus (the "Agreement and Plan of Merger") and which is
incorporated herein by reference and made a part of this Proxy
Statement/Prospectus. As a result of the Merger, (i) the California Corporation
would cease to exist as a separate entity; (ii) CEI Nevada, by operation of
law, would succeed to all the rights and properties, and be subject to all the
obligations and liabilities, of the Trust incorporated as the California
Corporation including, without limitation, those under (a) the current Advisory
Agreement (the "Advisory Agreement") with BCM (as amended to provide for the
continuation of certain operating expense limitations) and (b) the current
Brokerage Agreement (the "Brokerage Agreement") with Carmel Realty, Inc.
("Carmel Realty"); (iii) each of the current Trustees of the Trust would
continue to serve as a director of CEI Nevada until his initial term expires
under CEI Nevada's Articles of Incorporation or until a successor is elected;
and (iv) existing Shareholders would automatically become stockholders of CEI
Nevada by the exchange of all shares of the California Corporation for newly
issued Nevada Common Stock on the basis of the One-for-One Exchange.

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<PAGE> 23
The issuance of Nevada Common Stock via the One-for-One Exchange will not
affect the proportionate security holdings of any Shareholder of the Trust,
either individually or in a group.

Shareholders will be required to surrender their Share certificates in
exchange for Nevada Common Stock certificates, but should not do so at this
time. Shareholders who do not surrender their Share certificates will accrue
dividends, if declared, but will have their distribution checks, if any, held
by American Stock Transfer and Trust Company until they surrender their old
certificates. No interest will be paid on amounts so held.

SHAREHOLDERS OF THE TRUST WILL NOT HAVE ANY DISSENTERS' RIGHTS OF APPRAISAL
WITH RESPECT TO THE INCORPORATION PROCEDURE.

The discussion of the material terms of the Merger contained in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the Agreement
and Plan of Merger. THE PROPOSED INCORPORATION PROCEDURE IS A SINGLE UNIFIED
PROPOSAL TO BE APPROVED OR REJECTED BY SHAREHOLDERS IN ITS ENTIRETY. If
Shareholders do not approve the Incorporation Procedure, the Trust would not
incorporate in California, the formation of CEI Nevada as a wholly-owned
subsidiary of the Trust will be reversed and the Merger with CEI Nevada and the
attendant One-for-One Exchange will not occur. Rather, the Trust would continue
to operate as an unincorporated California business trust, subject to the
Declaration of Trust.

No change in the Trust's continued qualification for taxation as a real
estate investment trust ("REIT") under the Code is expected to result from the
Incorporation Procedure or CEI Nevada's operation of the Trust's business in
corporate form following the Merger. See "-- Material Federal Income Tax
Consequences".

Consummation of the Incorporation Procedure is contingent upon Shareholder
approval of the Incorporation Procedure. Pursuant to the California General
Corporation Law, the affirmative vote of the holders of a majority of the
outstanding Shares will be required to approve the Incorporation Procedure. In
addition, Section 3.5 of the Declaration of Trust requires a vote of two-thirds
of the Trustees to approve the Incorporation Procedure, which exceeds the
voting requirement for aspects of the Incorporation Procedure by applicable
state law. The Trustees have approved the Incorporation Procedure.

The Board of Trustees may, in its discretion and without further approval
by Shareholders, abandon the proposed Incorporation Procedure, in whole or in
part, at any time before the Merger is effective if any event occurs that, in
the Board's opinion, makes consummation of any part of the Incorporation
Procedure inadvisable. The Trustees anticipate consummating the Incorporation
Procedure as promptly as practicable after approval by the Shareholders.

PRINCIPAL REASONS FOR THE INCORPORATION PROCEDURE

As mentioned above, the Board of Trustees have approved the Incorporation
Procedure as in the best interest of the Trust and its Shareholders because the
Board of Trustees believes it would afford CEI Nevada (i) certain acquisition
safeguards not available to the Trust, which safeguards are designed to (a)
discourage unsolicited, non-negotiated takeover attempts that can be unfair to
stockholders, pressure management and disrupt the operational continuity,
long-range planning and long-term growth of the business of CEI Nevada as
successor to the Trust and (b) encourage persons who may wish to make a bona
fide offer to acquire CEI Nevada to negotiate with the Board of Directors in
good faith and to submit a proposal that is fair and equitable to CEI Nevada
and all its stockholders and (ii) greater legal certainty in matters of
corporate

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<PAGE> 24
governance and indemnification as a corporation as opposed to a business trust
and hence greater predictability in the conduct of its business as a
corporation under Nevada law.

ACQUISITION SAFEGUARDS. Taking into account the negative considerations set
forth below under "Possible Negative Considerations", the Board of Trustees
also endorses the Incorporation Procedure because it will afford CEI Nevada
certain safeguards against acquisition of CEI Nevada that, together with
certain provisions of Nevada law, are designed to (a) discourage unsolicited,
non-negotiated takeover attempts that can be unfair to stockholders, pressure
management and disrupt the operational continuity, long-range planning and
long-term growth of the business and (b) encourage persons who may wish to make
a bona fide offer to acquire CEI Nevada to negotiate in good faith and to
submit a proposal that is fair and equitable to CEI Nevada and all its
stockholders. See "-- Management after Incorporation Procedure -- -- The
Director Removal Provision", "--Stockholder-Management Relations --The Business
Combination Provision", "--Stockholder-Management Relations -- The Evaluation
Provision", and "-- Amendment Provisions".

It has become common for third parties to accumulate substantial stock
positions in public companies as a prelude to proposing a takeover,
restructuring, sale of all or a substantial part of the target company or other
similar extraordinary corporate action, or simply as a means to put the target
company "in play". Such actions are often undertaken by the third party without
advance notice to or consultation with management of the target company. In
many cases, the purchaser seeks representation on the target company's board of
directors or trustees in order to increase the likelihood that its proposal
will be implemented by the company. If the target company resists the efforts
of the purchaser to obtain representation on the company's board, the purchaser
may commence a proxy contest to have its nominees elected to the board in place
of certain directors or the entire board. The purchaser may not be truly
interested in taking over and running the target company, but rather in using
the threat of a proxy fight or a bid to take over the company as a means of
forcing it to repurchase the purchaser's equity position at a substantial
premium over market price. This predatory practice has come to be known as
"greenmail".

The Board of Trustees believes that the imminent threat of removal of
management in such situations would severely curtail management's ability to
negotiate effectively with such purchasers and with any other third party
interested in acquiring the Trust. Management would be deprived of the time and
information necessary to evaluate the takeover proposal, to study alternative
proposals and to help ensure that the best price is obtained. Furthermore,
management could be faced with the following dilemma: either to pay greenmail
or to allow the Trust's business and management to be disrupted, perhaps
irreparably.

In addition to pressuring the management of the target company, unsolicited
tender offers and other non-negotiated acquisition proposals may involve terms
and be structured in ways that may be less favorable to all the stockholders
than those of a transaction negotiated and approved by the board of directors.
Although such proposals may be made at a price substantially above prevailing
market prices, they are sometimes made for less than all of the outstanding
shares of a company. As a result, stockholders may be forced either to
partially liquidate their investment under circumstances that may be
disadvantageous to them or to retain their investment as minority stockholders
in an enterprise that is controlled by persons whose objectives may be at odds
with those of the remaining minority stockholders and former management.
Unsolicited tender offers or other purchases of substantial blocks of
outstanding shares may also be followed by non-negotiated mergers or similar
transactions that involve the elimination of the remaining public stockholders
of the target company. Such transactions may not assure fair treatment of the
public stockholders remaining after the first step of the acquisition, because
the controlling stockholder's influence dominates the negotiations. Such tender
offers or purchase programs may also take the form of a two-tiered offer in
which cash is offered for a portion of a company's outstanding shares, and,
thereafter, securities that

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<PAGE> 25
are or may be worth less than the cash portion are offered for the remaining
shares. Thus, stockholders are pressured into selling as many of their shares
as possible either to the purchaser or in the open market without having the
opportunity to make a considered investment choice between remaining a
stockholder of the company or disposing of their shares. Two-tiered pricing
tactics, as well as certain other unsolicited proposals, may also be timed and
designed to foreclose or minimize the possibility of more favorable competing
bids, which in turn may result in stockholders losing the opportunity to
consider alternative and possibly more attractive proposals. In addition,
persons who accumulate large blocks of stock without negotiating with
management through private or open market transactions may achieve a position
of substantial influence and control without paying stockholders a fair control
premium.

The Trustees recognize that acquisition proposals that have not been
negotiated with and approved by a company's board of directors do not always
have the unfavorable consequences or effects described above. See "-- Possible
Negative Considerations". However, it is the view of the Board of Trustees that
the potential disadvantages of non-negotiated acquisition proposals are
sufficiently great that it would be in the best interest of CEI Nevada and its
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors of CEI Nevada and to submit proposals that are fair and
equitable to CEI Nevada and all of its stockholders. In the judgment of the
Board of Trustees, the proposed acquisition safeguards will help ensure that
the Board of Directors of CEI Nevada, if confronted by a proposal from a third
party that has acquired a significant block of CEI Nevada stock, will have
sufficient opportunity to review and analyze the proposal and appropriate
alternatives, and to act as it believes the best interest of all stockholders
dictates. The Trustees also believe that the changes resulting from the
Incorporation Procedure should not prevent acquisition proposals at a price
reflective of the true value of CEI Nevada that are fair and equitable to all
stockholders. None of the proposed acquisition safeguards would prevent any
person from making a tender offer to CEI Nevada's stockholders or prevent any
stockholder from accepting such an offer.

The Incorporation Procedure does not reflect any present knowledge on the
part of the Trustees of any pending, proposed or threatened takeover, tender
offer, leveraged buyout, proxy contest, sale of assets or other similar
transaction involving a change in control of the Trust. In addition to the
reasons discussed above, the Board of Trustees believes that the acquisition
safeguards are nonetheless necessary at this time because the effectiveness of
the acquisition safeguards depends on their being implemented before an
acquisition proposal is made. Otherwise, one of the purposes of the acquisition
safeguards--to encourage potential acquirors to negotiate directly with the
Board of Directors of CEI Nevada--might be thwarted. In any event, it is
unlikely that the Trust or CEI Nevada would be able to implement the full range
of acquisition safeguards once a takeover attempt is already in progress. For
these reasons, the Board of Trustees believes that it would be beneficial to
adopt the acquisition safeguards as part of the Incorporation Procedure.

The Board of Trustees does not currently have under consideration, and does
not have any current intention to propose or adopt, any other measures that may
have the effect of discouraging acquisitions apart from those proposed in this
Proxy Statement/Prospectus. However, circumstances may change and it is, of
course, possible that the Board of Directors of CEI Nevada may adopt further
measures in the future, which measures may or may not require stockholder
approval. See "-- Comparison of Principal Differences Between the Trust and CEI
Nevada".

GREATER LEGAL CERTAINTY. The Trustees urge Shareholders to adopt the
Incorporation Procedure because it will convert the Trust from a California
business trust to the more legally certain and predictable form of a Nevada
corporation. For the purpose of carrying on a business enterprise, the business
trust is an adaptation of the traditional common law trust. Business trusts are
entities created by agreement or under a governing document, such as the
Declaration of Trust, for which there is no prescribed form. Accordingly,

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<PAGE> 26
the powers, rights and obligations of the Trustees and Shareholders of the
Trust are determined to a large extent by contractual interpretation, rather
than by reference to powers or privileges under any statute.

Unlike a corporation, many basic legal issues affecting a business trust
are not determined by a body of statutory law, but must be spelled out in the
declaration of trust. Subject to overriding principles of common law, the
declaration of trust serves as a substitute for a corporate statute. Thus,
management and shareholders of business trusts must look to the trust
instrument or common law to determine questions which would usually be answered
by a corporation statute if that form were selected. On the other hand, state
corporation statutes generally provide detailed and comprehensive rules
concerning corporate organization, the composition, election, and duties of
boards of directors and corporate officers, the form and issuance of equity
shares (including voting, dividend, and merger rights), rules on meetings,
mergers, reorganizations, dissolutions, and derivative actions. Moreover, many
matters not detailed in the statutes are usually covered by a well developed
body of case law.

Although the business trust form is regarded as legal and valid in
California, the jurisdiction of organization of the Trust, no substantial body
of law has developed concerning the legal status, rights, obligations and
liabilities of business trusts and their trustees and shareholders, and there
is a degree of uncertainty as to the legal principles applicable to business
trusts under the laws of California. For example, although the trustees of a
business trust are clearly fiduciaries owing a duty as such to the trust and
its shareholders, it might be asserted that their fiduciary duties are governed
by principles of law and equity applicable to traditional common law trusts,
rather than by the standards of care, loyalty and business judgment applied to
the directors of a corporation and by the standards defined in the governing
trust documents.

By contrast, the status, rights, obligations and liabilities of the
stockholders, officers and directors of a corporation are governed not only by
a corporation's charter documents, but also by comprehensive statutes and a
body of case law interpreting those statutes and their application to a
corporation and its charter documents. The existence of a more well-defined
body of law allows a corporation to plan the legal aspects of its future
activities with more certainty and predictability than currently exists with
respect to the Declaration of Trust and the less well-defined provisions of law
currently applicable to the operations of a business trust. Additionally, state
law governing qualification of an out-of-state business entity to transact
business is generally clearer for corporations than for business trusts.
Furthermore, corporations are far more numerous than business trusts and are
more familiar to investors or persons doing or proposing to do business with a
company.

Nevada has been selected as the proposed new governing jurisdiction
because, among other reasons, the Trustees believe that the Nevada Revised
Statutes, as amended ("NRS") set forth modern statutes that will meet the
business needs of the Trust once the Incorporation Procedure is effected. The
NRS is regarded as an extensive and modern corporate statute. In adopting the
NRS, the legislature in Nevada has demonstrated an ability and a willingness to
act quickly and effectively to meet businesses' changing needs. For many years,
Nevada has followed a policy of encouraging incorporation in that state and, in
furtherance of that policy, has adopted comprehensive, modern, flexible
corporate statutes (very similar to those in effect in Delaware) that are
periodically updated and reviewed to meet changing business needs. The Board of
Trustees believes that the Articles of Incorporation of CEI Nevada, coupled
with the existence of a growing body of Nevada corporate law, will allow CEI
Nevada to plan the continuing legal aspects of its future activities with more
certainty and predictability than presently exists with respect to the
Declaration of Trust and the less-well defined provisions of law currently
applicable to the operations of a business trust. This certainty and
predictability could be beneficial in attracting and retaining qualified
management for CEI Nevada, in part because Nevada corporate law provides, among
other things, for a greater degree (and greater

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<PAGE> 27
clarity) of indemnification of directors and officers than is found with
respect to California business trusts. Incorporating in Nevada will also enable
the Trust to avoid significant annual franchise taxes assessed in certain other
states of incorporation. Further, CEI Nevada, as a corporation incorporated in
Nevada, will not be required to pay annual franchise or income taxes. The only
annual corporate fee in Nevada which CEI Nevada will be required to pay is an
$85.00 filing fee.

POSSIBLE NEGATIVE CONSIDERATIONS

In addition to the risk factors discussed above under " Risk Factors",
Shareholders should take into account the following possible negative
considerations concerning the acquisition safeguards described above in
evaluating the proposed Incorporation Procedure as a whole. Notwithstanding the
benefits of the Incorporation Procedure anticipated by the Board of Trustees,
Shareholders should recognize that the acquisition safeguards could discourage
a future attempt to acquire control of CEI Nevada that is not presented to and
approved by the Board of Directors, but which some of CEI Nevada's stockholders
might believe to be in their best interest or which might offer stockholders a
premium for their shares over prevailing market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so, and the Incorporation Procedure should therefore be
viewed as limiting stockholders' rights. Furthermore, unsolicited proposals are
not necessarily less advantageous than transactions negotiated with management.

Consummation of the Incorporation Procedure could have the effect of making
it more difficult for holders of even a majority of the outstanding shares of
CEI Nevada (i) to obtain control either directly by making a tender offer for
the outstanding stock of CEI Nevada (see "--Stockholder-Management Relations --
The Business Combination Provision") or by soliciting proxies or consents (see
"-- Stockholder-Management Relations -- The Consent Provision") for use at a
special or regular meeting of CEI Nevada's stockholders (see "-- Stockholder-
Management Relations -- The Stockholder Meeting Provision") or (ii) to change
the composition of the Board to remove incumbent management (see "-- Management
after Incorporation Procedure -- The Director Removal Provision"). Accordingly,
the Incorporation Procedure, together with the protection afforded by the
collective beneficial ownership of 52.8% of the Trust's Shares (as of December
31, 1996) by entities with which the Trustees and the Trust's executive
officers are affiliated, could entrench the Board of Directors, even in
circumstances where a majority of the stockholders who are not affiliated with
management may be dissatisfied with the performance of the incumbent directors
or otherwise desire to make changes.

With respect to (i) certain mergers and other related transactions and (ii)
certain amendments to CEI Nevada's Articles of Incorporation, the acquisition
safeguards will also effectively give veto power to holders of more than one-
third and one-fifth, respectively, of the outstanding voting shares of CEI
Nevada, even if such mergers or amendments were desired by a majority of the
stockholders. At present, the Trustees are aware of one Shareholder, American
Realty Trust, Inc. ("ART") (which is an affiliate of BCM), who holds more than
20% of the outstanding shares of the Trust and would hold more than 20% of the
outstanding common stock of CEI Nevada if the Incorporation Procedure is
effected. As of December 31, 1996, ART owned approximately 40.6% of the
outstanding shares of the Trust.

The cumulative effect of the various changes resulting from the
Incorporation Procedure might also discourage some persons from investing in or
acquiring a large block of CEI Nevada stock by making it more difficult for a
substantial stockholder to exercise control, to complete an acquisition of CEI
Nevada or to negotiate a repurchase of such stockholder's shares by CEI Nevada.
Stockholders may also have less opportunity to take advantage of temporary
increases in the market price of CEI Nevada's shares that might be caused by
takeover speculation.

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<PAGE> 28
The Trustees have considered these potential disadvantages and differences
and have concluded that the benefits of the acquisition safeguards included in
the Incorporation Procedure outweigh these possible disadvantages.

CERTAIN POTENTIAL CONFLICTS OF INTEREST

While the Board of Trustees believes that the Incorporation Procedure is in
the best interest of the Trust and its Shareholders, certain members of
management could benefit from the Incorporation Procedure and, therefore, may
be viewed as having a conflict of interest.

Mr. Gene E. Phillips served as a Trustee of the Trust until December 31,
1992, and as a director of BCM until December 22, 1992 and as Chief Executive
Officer of BCM until September 1, 1992. Although Mr. Phillips no longer serves
as an officer or director of BCM or as a Trustee of the Trust, he serves as a
representative of a trust established for the benefit of his children, which
trust owns BCM, and, in such capacity, Mr. Phillips has substantial contact
with the management of BCM and input regarding its performance of advisory
services for the Trust. As such, Mr. Phillips or his children could benefit
financially from Shareholder approval of, and may be viewed as having a
conflict of interest in connection with, the Incorporation Procedure. If the
Incorporation Procedure is approved, advisory fees paid to BCM, as advisor,
would not be subject to the operating expense limitation currently contained in
the Declaration of Trust, although a substantially similar provision would be
included in an amendment to the current Advisory Agreement, as discussed under
"Business and Properties of the Trust -- The Advisory Agreement" and "Proposed
Incorporation Procedure -- Business Activities after Incorporation Procedure".
See also "Business and Properties of the Trust -- Certain Business
Relationships and Related Party Transactions".

Additionally, in the future, BCM may benefit from the elimination of
certain limitations on investments currently applicable to the Trust. The
Articles of Incorporation of CEI Nevada would permit it to engage in a larger
class of transactions, including transactions with related parties than is
currently permitted by the Declaration of Trust. However, pursuant to the terms
of the Olive Modification (as defined herein), certain related party
transactions prior to April 28, 1999, will require the unanimous approval of
CEI Nevada's Board of Directors. See "Proposed Incorporation Procedure --
Business Activities after Incorporation Procedure -- Restrictions on Related-
Party Transactions". Furthermore, the proposed Incorporation Procedure contains
certain safeguards regarding acquisition of CEI Nevada which may, among other
things, have the effect of making it more difficult for Shareholders to remove
incumbent management. See "Proposed Incorporation Procedure -- Possible
Negative Considerations". The Articles of Incorporation of CEI Nevada would
also limit the liability of directors to a greater degree than the Declaration
of Trust, as discussed more fully below under "Proposed Incorporation Procedure
- -- Liability of Certain Persons -- The Management Liability Provision".

THE ONE-FOR-ONE EXCHANGE OF SHARES

As part of the Merger, existing Shareholders of the Trust would
automatically become stockholders of CEI Nevada by the exchange of all shares
of the California Corporation for newly issued Nevada Common Stock on the basis
of the One-for-One Exchange. For reasons discussed below under "Proposed
Incorporation Procedure -- Comparison of the Securities of CEI Nevada and the
Trust -- Common Equity", each new share of Nevada Common Stock would have $0.01
par value, unlike each existing Share, which has no par value.

The One-for-One Exchange would result in the issuance by CEI Nevada of a
number of shares of Nevada Common Stock equal to the number of Shares of the
Trust outstanding immediately before

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<PAGE> 29
commencement of the Incorporation Procedure. Based upon the 4,028,053 Shares
outstanding on December 31, 1996, the One-for-One Exchange would result in
issuance of 4,028,053 shares of Nevada Common Stock.

The One-for-One Exchange will not affect any Shareholder's proportionate
equity interest in the Trust. Upon consummation of the Incorporation Procedure,
each outstanding share of Nevada Common Stock will be entitled to one vote at
each meeting of stockholders, as is the case with each currently outstanding
Share of the Trust.

THERE CAN BE NO ASSURANCE THAT THE MARKET PRICE PER SHARE OF NEVADA COMMON
STOCK AFTER THE ONE-FOR-ONE EXCHANGE WILL BE EQUAL TO THE MARKET PRICE PER
SHARE OF THE SHARES BEFORE THE ONE-FOR-ONE EXCHANGE OR THAT THE MARKETABILITY
OF NEVADA COMMON STOCK WILL REMAIN CONSISTENT WITH THE MARKETABILITY OF THE
SHARES. Prices for CEI Nevada Common Stock will be determined in the
marketplace and may be influenced by many factors, including investor
perception of the changes resulting from the Incorporation Procedure.

Assuming that the proposed Incorporation Procedure is approved,
Shareholders will be furnished with the necessary materials and instructions to
exchange their certificates representing the existing Shares for new
certificates representing Nevada Common Stock.

ADOPTION AND APPROVAL OF THE INCORPORATION PROCEDURE WILL SIGNIFICANTLY
AFFECT CERTAIN RIGHTS OF SHAREHOLDERS. ACCORDINGLY, SHAREHOLDERS ARE URGED TO
READ CAREFULLY THIS ENTIRE PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO
AND TO CONSIDER CAREFULLY THE DIFFERENCES BETWEEN THEIR RIGHTS AS SHAREHOLDERS
OF THE TRUST AND AS STOCKHOLDERS OF CEI NEVADA BEFORE VOTING.

COMPARISON OF PRINCIPAL DIFFERENCES BETWEEN THE TRUST AND CEI NEVADA

If the proposed Incorporation Procedure is approved and consummated, the
business of the Trust will be conducted by a Nevada corporation rather than by
a business trust organized under the laws of the State of California. The
rights and powers of the Trust and its Shareholders and Trustees currently are
governed primarily by the Declaration of Trust and the Trustees' Regulations
and, to a lesser extent, by California business trust law, while those of CEI
Nevada and its stockholders and directors would be governed by its Articles of
Incorporation and Bylaws and by Nevada corporate law. Set forth below is a
comparison of the principal differences between those respective rights and
powers. Although the Trustees believe that the following discussion sets forth
the material differences between the rights of Shareholders of the Trust and
stockholders of CEI Nevada, the comparison does not purport to be a complete
statement of all differences and is qualified in its entirety by reference to
the Articles of Incorporation and Bylaws of CEI Nevada and the Declaration of
Trust and the Trustees' Regulations. Shareholders should refer to the full text
of CEI Nevada's Articles of Incorporation and Bylaws attached hereto as
Appendices C and D, respectively, and compare them with the Declaration of
Trust and the Trustees' Regulations, attached hereto as Appendices E and F,
respectively.

For convenience and ease of reference, comparisons between the Trust and
CEI Nevada are set forth as follows: "Management after Incorporation Procedure"
discusses the role of CEI Nevada's advisor and how the Trust's Board of
Trustees would be reconstituted as CEI Nevada's Board of Directors; "Liability
of Certain Persons" addresses exculpation of trustees and directors,
indemnification of trustees, directors and

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<PAGE> 30
officers and shareholder liability; "Business Activities after Incorporation
Procedure" compares business objectives and restrictions on certain activities
and related party transactions; "Comparison of the Securities of CEI Nevada and
the Trust", in addition to comparing the Shares with the Nevada Common Stock,
outlines dissenters' rights, preferred stock, listing with the NASDAQ and the
elimination of certain restrictions on ownership and transfer of shares;
"Stockholder-Management Relations" describes the mechanics of stockholder
voting and meetings; "The Business Combination Provision" discusses certain
provisions of CEI Nevada's Articles of Incorporation relating to acquisition
transactions with interested stockholders; "Stockholder-Management Relations --
The Evaluation Provision" describes certain new provisions; and "Amendment
Provisions" sketches the requirements for amending the governing documents of
the Trust and CEI Nevada.

MANAGEMENT AFTER INCORPORATION PROCEDURE

CONSTITUENCY OF THE BOARD. The Olive Modification required that the Board
of Trustees be reduced from 8 to 7 members. The Articles of Incorporation of
CEI Nevada sets the number of initial directors at 4. The exact number of
directors may be fixed or changed by the affirmative vote of a majority of the
entire Board of Directors, from time to time, within the limits set by the
Articles of Incorporation, subject to the limitations mandated by the Olive
Modification. By comparison, the Declaration of Trust provides that the number
of Trustees shall be no less than 5 nor more than 15 as determined by the vote
of the Shareholders of the Trust or the Trustees.

Notwithstanding any limitation on the maximum number of directors in the
Articles of Incorporation, whenever CEI Nevada issues preferred stock and gives
its holders the right to elect a director at an annual or special meeting of
stockholders, then the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the terms of the Articles
of Incorporation or the resolution(s) adopted by the Board applicable thereto.
See "Proposed Incorporation Procedure -- Comparison of the Securities of CEI
Nevada and the Trust -- Preferred Stock".

Any vacancy on the Board of CEI Nevada will be filled by a vote of the
majority of the directors then in office or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his predecessor. The
Declaration of Trust provides for filling Board of Trustees vacancies by the
remaining Trustees or by the vote or consent of a majority of the outstanding
shares entitled to vote thereon.

The Declaration of Trust requires that a majority of Trustees be persons
who are not affiliates of CCEC, the original sponsor of the Trust and one of
the Trust's former advisors, or any of CCEC's affiliates or successor entities.
Under the Declaration of Trust, "Affiliate" is defined as follows: "as to any
Person any other Person who owns beneficially, directly or indirectly, 1% or
more of the outstanding capital stock, shares or equity interests of such
Person or of any other Person which controls, is controlled by, or is under
common control with, such Person or is an officer, retired officer, director,
employee, partner, or trustee (excluding independent trustees not otherwise
affiliated with the entity) of such Person or of any other Person which
controls, is controlled by, or is under common control with, such Person".
Under the Declaration of Trust, "Person" is defined to include "individuals,
corporations, limited partnerships, general partnerships, joint stock companies
or associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof". By contrast, Article SIXTH of the
Articles of Incorporation does not require that any of CEI Nevada's directors
be independent of the advisor or any other person. It should be noted, however,
that each of the Trustees, who would serve as directors of CEI Nevada, are
unaffiliated with BCM.

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THE DIRECTOR REMOVAL PROVISION. Under Article ELEVENTH of the Articles of
Incorporation (the "Director Removal Provision"), each Director of the Board
may be removed only by the affirmative vote of the holders of not less than
two-thirds of the outstanding stock of CEI Nevada then entitled to vote for the
election of such director. By contrast, under the Declaration of Trust,
Trustees may be removed by vote or consent of the holders of a majority of the
outstanding Shares entitled to vote thereon, or by a majority of the remaining
Trustees. The Director Removal Provision makes removal of a director of CEI
Nevada more difficult by requiring a super-majority vote.

Shareholders should note that an affiliate of BCM, effectively will have
veto power over the removal of directors of CEI Nevada pursuant to the Director
Removal Provision.

The Director Removal Provision tends to ensure managerial continuity and to
deter certain kinds of unsolicited takeovers while making changes in control
somewhat more difficult. See "Proposed Incorporation Procedure -- Possible
Negative Considerations".

CEI NEVADA'S ADVISOR. It is anticipated that the day-to-day operations of
CEI Nevada will be performed by BCM from the effective time of the Merger under
the modified Advisory Agreement described under "Business and Properties of the
Trust -- The Advisory Agreement", subject to Shareholder approval of the
Incorporation Procedure.

The Declaration of Trust currently requires that all advisory agreements
have an initial term of no more than two years and provide for annual renewal
or extension thereafter, subject to shareholder approval. In contrast, Article
THIRTEENTH of the Articles of Incorporation provides that the Board of
Directors may authorize advisory agreements; however there is no requirement
that the Board of Directors obtain stockholder approval prior to any renewal or
modification of such advisory agreements (although the Board of Directors
intends to continue this practice). Pursuant to the terms of the Olive
Modification, which became effective on January 11, 1995, if BCM or any other
entity affiliated with members of the Trust's management serves as advisor,
advisory agreements are and will remain subject to the review and approval of
two-thirds of the Board of Directors. See "Proposed Incorporation Procedure --
Business Activities after Incorporation Procedure -- Restrictions on Related-
Party Transactions ".

The Declaration of Trust also provides for termination of advisory
agreements without penalty (i) by the advisor upon 120 days' written notice or
(ii) by the Shareholders (by a vote of the majority of the outstanding Shares)
or (iii) by the Board of Trustees (by majority vote including a majority of
unaffiliated Trustees) upon 60 days' written notice. The CEI Nevada Articles of
Incorporation leave termination provisions regarding advisory agreements to the
negotiation of the parties. See "Business and Properties of the Trust -- The
Advisor" for a discussion of the relationship between the Trust and BCM.
Neither CEI Nevada's Articles of Incorporation nor the Declaration of Trust
requires Shareholder approval for the selection of the advisor per se.

The Declaration of Trust requires that any advisory agreement entered into
with a Trustee or an affiliate of a Trustee must be made, approved or ratified
by a majority of the Trustees who are not so affiliated. Transactions of CEI
Nevada with any advisor or affiliate thereof would be governed by the NRS and
the unified related-party provisions contained in Article FOURTEENTH of the
Articles of Incorporation together with the Olive Modification. As explained
more fully in "Proposed Incorporation Procedure -- Business Activities after
Incorporation Procedure -- Restrictions on Related-Party Transactions " and
pursuant to the Olive Modification, until April 28, 1999, prior to entering
certain related party transactions, with the exception of certain specified
contracts including the Advisory Agreement, the Board of Directors would be
required to unanimously agree that the transaction is in the best interest of
the corporation and that

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no other opportunity exists that is as good as the opportunity presented by
such transaction. Direct contractual agreements for services, such as the
Advisory Agreement between CEI Nevada and BCM or one of its affiliates, would
only require the prior approval of two-thirds of the directors.

Section 4.3 of the Declaration of Trust requires the Trust's advisor to use
its best efforts to present to the Trust a continuing and suitable investment
program, consistent with the Trust's investment policies and objectives.
However, consistent with the Declaration of Trust, neither the advisor nor any
affiliate of the advisor is obligated to present any particular investment
opportunity to the Trust. The advisor is, in fact, expressly authorized to take
for its own account or recommend to others any particular investment
opportunity. There is no comparable provision to such Section 4.3 in the
Articles of Incorporation.

The Articles of Incorporation impose fewer explicit restrictions on
compensation of CEI Nevada's advisor than does the Declaration of Trust.
Article THIRTEENTH of the Articles of Incorporation provides that the
compensation payable under the Advisory Agreement must be approved as "fair and
equitable" by the Board of Directors, and the Restrictions on Related-Party
Transactions Provision also applies to compensation of the advisor. See,
however, the discussion of contractual limits on operating expenses below under
"Proposed Incorporation Procedure -- Business Activities after Incorporation
Procedure -- Limitations on Operating Expenses".

LIABILITY OF CERTAIN PERSONS

THE MANAGEMENT LIABILITY PROVISION. The Incorporation Procedure will enable
CEI Nevada to define the liability of corporate officers and directors with
greater precision. The Board of Trustees believes that limited liability will
help retain and attract the best possible officers and directors. Currently,
each of the Trustees has been offered contractual indemnification to the
fullest extent permitted by the Declaration of Trust or to the fullest extent
not prohibited under applicable law. Under the Management Liability Provision
(Article NINTH of the Articles of Incorporation), the directors will not have
personal liability to CEI Nevada or its stockholders for monetary damages for
any breach of their fiduciary duties as directors (including, without
limitation, any liability for gross negligence in the performance of their
duties), except for (i) acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law or (ii) the payment of dividends in
violation of NRS 78.300. By precluding personal liability for certain breaches
of fiduciary duty, including grossly negligent business decisions in evaluating
takeover proposals to acquire CEI Nevada, the Management Liability Provision
supplements indemnification rights afforded under CEI Nevada's Articles of
Incorporation and Bylaws which provide, in substance, that CEI Nevada shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by the NRS and other applicable laws.

The Articles of Incorporation provide that "CEI Nevada shall indemnify to
the fullest extent authorized or permitted by law (as now or hereafter in
effect) . . . to any person made or threatened to be made a party or witness to
any action, suit or proceeding (whether civil or criminal or otherwise) by
reason of the fact that such person is or was a director, officer, employee or
agent of CEI Nevada . . . ." Further, the Bylaws provide that "[e]ach officer,
director or employee . . . shall be indemnified . . . to the full extent
permitted under Chapter 78 of the Nevada Revised Statutes . . . and other
applicable law." Pursuant to the NRS, a corporation may indemnify persons for
expenses related to an action, suit or proceeding, except an action by or in
the right of the corporation, by reason of the fact that such person is or was
a director, officer, employee or agent, if such person acted in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. The expenses indemnified against in this provision include attorneys'
fees, judgments, fines and amounts paid in settlement

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actually and reasonably incurred in connection with the action, suit or
proceeding. The NRS further provides that a corporation may indemnify persons
for attorneys' fees related to an action, suit or proceeding by or in the right
of the corporation to procure a judgment in its favor by reason of the fact
that such person is or was a director, officer, employee or agent, if such
person acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation. The corporation may
also indemnify directors for amounts paid in judgments and settlements in such
a suit, but only if ordered by a court after determining that the person is
"fairly and reasonably" entitled to indemnity.

The Management Liability Provision contained in the Articles of
Incorporation is analogous to Article VII of the Declaration of Trust. Article
VII, however, explicitly exculpates Trustees, officers, employees and agents of
the Trust while the Management Liability Provision explicitly exculpates only
directors. Further, under the Declaration of Trust, a Trustee would not be
indemnified for liability arising from gross negligence or reckless disregard
of duty, whereas a director of CEI Nevada may be indemnified for such liability
under the Articles of Incorporation.

Current Trustees and the directors of CEI Nevada could personally benefit
from expanding the limitation on their personal liability.

The NRS and Nevada common law provide that a corporation's board of
directors owes certain fiduciary duties to the corporation and its
stockholders, including a duty of loyalty and a duty of care. The duty of care
is generally considered to require directors to be sufficiently diligent and
careful in informing themselves regarding, and in deciding whether to take or
not to take, corporate action. The duty of care to which directors are bound is
that which ordinarily prudent and diligent men would exercise under similar
circumstances. The duty of loyalty is generally considered to require directors
to act in what they determine in good faith, after appropriate consideration,
to be in the best interest of the corporation and not to engage in self-
dealing. With respect to limitations on the personal liability of directors to
CEI Nevada or its stockholders, the Management Liability Provision is more
expansive than the provision in the Declaration of Trust that addresses the
limitations on the personal liability of Trustees to the Trust or its
shareholders. Consequently, the Management Liability Provision expands the
current limitation on personal liability of members of management to cover, in
addition, certain violations of their fiduciary duty of care rising to the
level of gross negligence or reckless disregard of duty. The Management
Liability Provision would not, however, insulate directors of CEI Nevada from
liability to CEI Nevada or its stockholders for (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law or (ii) the
payment of distributions in violation of NRS 78.300. The limitation of
liability applies only to claims by CEI Nevada or its stockholders and does not
preclude or limit recovery of damages by others, such as creditors.
Furthermore, the limitation of liability applies prospectively only and would
therefore not affect a Trustee's potential liability for acts or omissions in
his capacity as a Trustee prior to the effective time of the Merger.

The Management Liability Provision further provides that any repeal or
modification of Article NINTH would not increase the personal liability of any
director of CEI Nevada for any act or occurrence taking place prior to such
repeal or modification, or otherwise adversely affect any right or protection
of a director of CEI Nevada existing at the time of such repeal or
modification. Moreover, the Management Liability Provision provides that if
Nevada law is in the future amended to further eliminate or limit the liability
of directors, then the liability of a director shall be eliminated or limited
to the fullest extent permitted by Nevada law, as so amended.

By protecting directors from assessments of monetary damages for breaches
of the duty of care, the Management Liability Provision limits the remedies
available to a stockholder seeking to challenge a Board decision protected by
the Management Liability Provision, including, for example, decisions relating
to

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acquisition proposals or similar transactions. However, it does not eliminate
or change the duty of care. Accordingly, the Management Liability Provision
does not limit the availability of equitable remedies, such as an injunction or
rescission based on a director's breach of the duty of care, although, as a
practical matter, particular equitable remedies may not be available (e.g.,
after a transaction has already been effected). Additionally, the Bylaws of CEI
Nevada provide indemnification to each officer, director and employee of CEI
Nevada to the fullest extent permitted by Chapter 78 of the NRS and other
applicable law.

The Management Liability Provision also provides that CEI Nevada shall
indemnify to the fullest extent permitted by law any person who is a party or
is made or threatened to be made a party or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
such person is or was a director, officer, employee or agent of CEI Nevada, or
is or was serving at the request of CEI Nevada, any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity. The Management Liability Provision also provides that CEI Nevada
shall advance expenses to the fullest extent permitted by law to such
indemnitee. The Management Liability Provision further states that any
amendment to or repeal of Article NINTH would not diminish such indemnification
with respect to any acts or omissions occurring prior to such amendment or
repeal. The Declaration of Trust provides that the Trust shall indemnify and
reimburse any person made a party to any action, suit or proceeding or against
whom any claim or liability is asserted because he, his testator or intestate
was or is a Trustee, officer, employee or agent of the Trust for any judgments,
fines, amounts paid on amount thereof (whether in settlement or otherwise) and
reasonable expenses, including attorneys' fees, actually and reasonably
incurred by him in defending against such claim, action, suit or proceeding, or
alleged liability or in connection with any appeal therein, except where the
claim, obligation or liability arose out of such person's willful misfeasance,
bad faith, gross negligence or reckless disregard of duty. The indemnity
provisions of the Management Liability Provision and Section 78.751 of the NRS
are comparable except that Section 78.751 of the NRS provides that a
corporation shall make no indemnification in respect of any claim as to which a
final adjudication establishes that the director is liable to CEI Nevada or for
amounts paid in settlement to CEI Nevada unless and only to the extent that the
court in which the action was brought determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses.

As herein described, directors and officers of CEI Nevada are indemnified
against certain liabilities under provisions of the Articles of Incorporation
and Bylaws. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.

In addition, the Management Liability Provision provides, as permitted by
the NRS, that CEI Nevada may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of CEI Nevada or another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against such expense, liability or loss, whether or not CEI Nevada
would have the power to indemnify such person against any such expense,
liability or loss under the NRS. Section 7.4 of the Trust's Declaration of
Trust is analogous to this portion of the Management Liability Provision. The
Trust purchased such insurance for the benefit of its officers and Trustees in
July 1996, and such insurance will be transferred to CEI Nevada for the benefit
of its officers and directors upon the consummation of the Incorporation
Procedure.

The Trustees and officers of the Trust are indemnified under the
Declaration of Trust against judgments, fines, amounts paid on account of and
reasonable expenses (including attorneys' fees) incurred in connection with the
defense of suits or proceedings in which a claim or liability against a person
is

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asserted by reason of the fact that he is a Trustee or officer of the Trust, as
the case may be. Currently, each of the Trustees of the Trust has been offered
contractual indemnification to the fullest extent permitted by the Declaration
of Trust or to the fullest extent not prohibited under applicable law.

SHAREHOLDER LIABILITY. Limitations on the potential personal liability of
stockholders for the acts and obligations applicable to CEI Nevada under Nevada
law are comparable to the limitations under California law and the Declaration
of Trust applicable to Shareholders of the Trust with respect to the Trust's
acts and obligations. Though the Articles of Incorporation do not expressly
limit stockholder liability, pursuant to Article 8 Section 3 of the Nevada
constitution and Section 78.225 of the NRS, stockholders are not personally
liable for the payment of a corporation's debts, except to the extent a
stockholder has not paid the consideration for which that stockholder's shares
were authorized to be issued or which was specified in a written subscription
agreement between the corporation and the stockholder. Similarly, the
Declaration of Trust provides that Shareholders shall not be subject to any
personal liability for the acts or obligations of the Trust and that every
written undertaking made by the Trust shall contain a provision that such
undertaking is not binding on any Shareholders personally. Under Section 23001
of the California Corporations Code, no shareholder of a real estate investment
trust like the Trust shall be personally liable for any liabilities, debts or
obligations of, or claims against, such real estate investment trust. Section
23002 of the California Corporations Code further provides that Section 23001
applies to any real estate investment trust organized under the laws of
California with respect to liabilities, debts, obligations and claims wherever
arising. Under Section 23000 of the California Corporations Code, the Trust is
classified as a "real estate investment trust" for purposes of the foregoing
provisions of California law. Thus, it appears that the Incorporation Procedure
will not materially alter Shareholder liability in California. It should be
noted that the law regarding trusts in other states where the Trust does
business might treat Shareholders' liability in a different manner (i.e.,
impose liability) if a court in such state were not to apply California law to
such issue.

BUSINESS ACTIVITIES AFTER INCORPORATION PROCEDURE

Although no significant change in the nature of the Trust's business is
anticipated as a result of the Incorporation Procedure, it should be noted that
the Articles of Incorporation place fewer restrictions on the business
activities of CEI Nevada and no limitations on CEI Nevada's operating expenses,
as discussed below.

RESTRICTIONS ON INVESTMENT ACTIVITIES. Section 5.3 of the Declaration of
Trust includes certain restrictions on the investment activities of the Trust.
Specifically, the Trustees are restricted from the following activities:

(a) investing in any foreign currency, bullion or commodities;

(b) investing in contracts of sale for real estate, except in conjunction
with acquisition or sale of real property or when held as security for
Mortgages made or acquired by the Trust;

(d) issuing warrants, options or rights to buy shares, except as part of a
ratable issue to shareholders or as part of a public offering or as
part of a financial arrangement with parties other than the Advisor or
directors, Trustees, officers or employees of the Trust or the Advisor
or as part of a ratable distribution to shareholders;

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(e) issuing equity securities of more than one class (other than
convertible obligations, warrants, rights and options, and regular or
residual interests in real estate mortgage investment conduits
("REMICs"));

(f) making any loan to the Sponsor of the Trust, Consolidated Capital
Equities Corporation, the Advisor or any of their affiliates;

(g) engaging in trading as compared with investment activities, or
engaging in the business of underwriting or agency distribution of
securities issued by others, but this prohibition shall not prevent
the Trust from selling participations or interests in mortgage loans
or real property or from selling or pledging a pool of notes
receivable from property sales or selling interests in REMICs or
collateralized mortgage obligations ("CMOs");

(h) investing more than 10% of total Trust assets in junior mortgage
loans, excluding wrap-around mortgage loans;

(i) acquiring securities in any company holding investments or engaging in
activities prohibited by the Declaration of Trust;

(j) issuing "redeemable securities," as defined in Section 2(a)(32) of the
Investment Company Act of 1940, "face-amount certificates of the
installment type" as defined in Section 2(a)15 thereof and "periodic
payment plan certificates" as defined in Section 2(a)(27) thereof;

(k) purchasing insurance either through or from any affiliate;

(l) purchasing any real property on which the total real estate commission
paid by the Trust to anyone exceeds 6% of the total purchase price, or
sell any real property on which the total real estate commission paid
by the Trust to anyone exceeds 5% of the total sales price;

(m) purchasing, selling or leasing any real properties or mortgages to or
from the Sponsor, Consolidated Capital Equities Corporation, the
Advisor or any of their Affiliates, including any investor program in
which any of the foregoing may also be a general partner or sponsor;
or

(n) issuing convertible or non-convertible debt securities (other than
interests in REMICs and CMOs) to the public unless the historical cash
flow of the Trust or the substantiated future cash flow of the Trust,
excluding extraordinary items, is sufficient to cover the interest on
the debt securities.

Subject to the foregoing restrictions and the restrictions on
related-party transactions discussed below, the Trustees may change the
investment policy of the Trust without Shareholder approval if they determine
that such change would be in the best interest of the Trust.

Article THIRD of the Articles of Incorporation states that CEI Nevada may
engage in any lawful activity, subject to the restrictions on related party
transactions described below under "Proposed Incorporation Procedure --
Business Activities after Incorporation Procedure -- Restrictions on Related-
Party Transactions ". While, unlike the Declaration of Trust, the Articles of
Incorporation neither dictate specific investment policies nor formally
restrict particular activities of CEI Nevada, it is currently expected that the
investment policies and activities of CEI Nevada will be substantially similar
to the existing

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investment policies and activities of the Trust. Notwithstanding such
expectation, CEI Nevada may avail itself of the greater flexibility permitted
by the Articles of Incorporation to make certain investments that the Trust is
not authorized to make. No assurance can be given that CEI Nevada's investment
policies will not change if, in the opinion of the Board of Directors,
circumstances so require, and certain investment policies may be changed
without stockholder approval.

To continue to qualify for taxation as a REIT under the Code, CEI Nevada
will be required to, among other things, (i) hold at least 75% of the value of
its total assets in real estate assets, government securities, cash and cash
items at the close of each quarter of each taxable year, (ii) distribute 95% of
its taxable income each year (excluding any net capital gain) as dividends,
(iii) ensure that no more than 50% in value of its outstanding stock is held by
five or fewer individuals or certain organizations at any time during the last
half of each taxable year and (iv) ensure that no fewer than 100 persons are
beneficial owners of stock of CEI Nevada during at least 335 days of each
taxable year. Certain of the restrictions on investing activities of the Trust
contained in the Declaration of Trust facilitate compliance with the REIT Code
requirements.

Provided CEI Nevada operates as a REIT, its investment policies will be
limited by applicable Code provisions, and it is expected that CEI Nevada will
conduct its future business activities in such a manner as to maintain its
anticipated REIT status. Nevertheless, CEI Nevada would have substantially
greater flexibility and fewer restrictions on its investment policy than the
Trust currently has.

LIMITATIONS ON OPERATING EXPENSES. Additionally, Section 4.4 of the
Declaration of Trust places specific limits on the Trust's operating expenses
(defined in Section 1.4(u) of the Declaration of Trust). For purposes of these
limitations, operating expenses include (i) aggregate annual expenses
constituting operating expenses under generally accepted accounting principles,
(ii) the advisory fee payable to the Trust's advisor and (iii) the fees and
expenses paid to the Trustees who are not employees or affiliates of the
advisor. However, such operating expenses specifically exclude (i) the cost of
money borrowed by the Trust, (ii) income taxes, taxes and assessments on real
property and all other taxes applicable to the Trust, (iii) expenses and taxes
incurred in connection with the issuance, distribution, transfer, registration
and stock exchange listing of the Trust's securities, (iv) fees and expenses
paid to independent mortgage servicers, contractors, consultants, managers and
other agents retained by or on behalf of the Trust, (v) expenses directly
connected with the purchase, origination, ownership and disposition of real
properties or mortgage loans, other than expenses with respect thereto (with
the exception of legal services) of employees of the Trust's advisor, (vi) the
expenses of maintaining and managing real estate equity interests and
processing and servicing mortgage and other loans, (vii) expenses connected
with payments of dividends, interest or distributions by the Trust to
Shareholders, (viii) expenses connected with communicating to Shareholders and
maintaining Shareholder relations, (ix) transfer agent's, registrar's and
indenture trustee's fees and charges, and (x) reserves for depletion,
depreciation and amortization and losses and provisions for losses. The
following direct expenses of the advisor are excluded from the Trust's
operating expenses and are borne by the advisor: (a) employment expenses of the
advisor's personnel (including Trustees, officers and employees of the Trust
who also serve as directors, officers, or employees of the Trust's advisor or
affiliates of the advisor), (b) advertising and promotional expenses incurred
in seeking investments for the Trust, (c) rent, telephone, utilities, office
furnishings and other office expenses of the Trust's advisor (except those
relating to a separate office, if any, maintained solely for the Trust) and (d)
miscellaneous administrative expenses relating to performance by the advisor of
its functions under the Advisory Agreement.

Under Section 4.4 of the Declaration of Trust, operating expenses of the
Trust for any fiscal year may not exceed the lesser of (a) 1.5% of the average
of the "Book Values of Invested Assets" (as defined in the Declaration of
Trust) of the Trust at the end of each calendar month of such fiscal year, or
(b) the greater of (i) 1.5% of the average of the "Net Asset Value" (as defined
in the Declaration of Trust) of the

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Trust at the end of each calendar month of such fiscal year and (ii) 25% of the
Trust's "Taxable Income" (as defined in the Declaration of Trust). The
Declaration of Trust further provides that any advisory agreement shall
specifically provide for a refund to the Trust of the amount, if any, by which
the operating expenses exceed the applicable amount, provided that the amount
of such refund shall not exceed the aggregate of the advisory fees paid to the
advisor under such contract with respect to such fiscal year.

In accordance with this section, the Advisory Agreement described under
"Business and Properties of the Trust -- The Advisory Agreement" specifically
provides for a refund to the Trust of the amount by which the operating
expenses of the Trust for any fiscal year exceed the limitation set forth in
Section 4.4 of the Declaration of Trust, "or in any similar limitation (if
contained) in a successor Declaration of Trust or [Articles] of Incorporation .
. . ." Although the Articles of Incorporation place no limitations on CEI
Nevada's operating expenses, the limitation on operating expenses under the
Declaration of Trust, assuming Shareholders approve the Incorporation
Procedure, will be included contractually in the Advisory Agreement through an
amendment thereto. See " Risk Factors -- Elimination of Certain Provisions of
the Declaration of Trust". The operating expenses of the Trust in 1995 exceeded
the operating expense limitation by $250,000, which amount was refunded to the
Trust by the advisor.

With the exception of the inclusion of an explicit limitation on operating
expenses in the Advisory Agreement, the Advisory Agreement will not be
otherwise amended in conjunction with the Incorporation Procedure. The fees and
commissions payable by CEI Nevada to the advisor will remain the same if the
Incorporation Procedure is approved as those currently paid by the Trust.

RESTRICTIONS ON RELATED-PARTY TRANSACTIONS . Article FOURTEENTH of the
Articles of Incorporation provides that CEI Nevada shall not, directly or
indirectly, contract or engage in any transaction with (i) any director,
officer or employee of CEI Nevada, (ii) any director, officer or employee of
the advisor, (iii) the advisor or (iv) any affiliate or associate (as such
terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of CEI Nevada or any person identified in the
foregoing clauses (i) through (iii) unless (a) the material facts as to the
relationship among or financial interest of the relevant individuals or persons
and as to the contract or transaction are disclosed to or are known by the
Board of Directors or the appropriate committee thereof and (b) the Board of
Directors or committee thereof determines that such contract or transaction is
fair to CEI Nevada and simultaneously authorizes or ratifies such contract or
transaction by the affirmative vote of a majority of the independent directors
of CEI Nevada entitled to vote thereon. Article FOURTEENTH defines an
"independent director" as one who is neither an officer or employee of CEI
Nevada nor a director, officer or employee of CEI Nevada's advisor.

Pursuant to the Olive Modification, prior to April 28, 1999, certain
related party transactions require the unanimous approval of the Trust's Board
of Trustees and may only be entered into in exceptional circumstances and after
a determination by the Trust's Board of Trustees that no other opportunity
exists that is as good as the opportunity presented by such related-party
transactions. If the Incorporation Procedure is adopted, the Board of Directors
will continue to review such related party transactions to determine whether
such transactions satisfy the criteria established by the Olive Modification.
While the Board of Directors will necessarily consider the permissibility of
any related-party transaction under CEI Nevada's Articles of Incorporation,
such Articles of Incorporation generally permit related-party transactions if
approved by a majority of the independent directors. None of the members of the
Board of Directors is an officer, director or employee of CEI Nevada's advisor
and none will be an officer or employee of CEI Nevada. Apart from the different
standards applicable to related-party transactions under the Articles of
Incorporation and Declaration of Trust, respectively, the proposed
Incorporation Procedure is not expected to affect the review and approval of
related-party transactions.

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Stockholders should note that Article FOURTEENTH does not supplant Nevada
law regarding related-party transactions; rather, Article FOURTEENTH provides
additional protection against the possibility of related-party transactions
unfavorable to CEI Nevada. Under the NRS, a contract or transaction between a
corporation and one or more of its directors or officers, or between a
corporation and any corporation, firm or association in which one or more of
its directors or officers are directors or officers or are financially
interested, is not void or voidable solely for this reason, or solely because
the director or officer is present at the meeting of the board of directors or
a committee thereof which authorizes or approves the contract or transaction,
or because the vote or votes of common or interested directors are counted for
that purpose, provided that one of the four requirements below is met:

(i) The fact of the common directorship, office or financial interest
is disclosed or known to the board of directors or committee and noted in
the minutes, and the board or committee authorizes, approves or ratifies
the contract or transaction in good faith by a vote sufficient for the
purpose without counting the vote or votes of the common or interested
director or directors.

(ii) The fact of the common directorship, office or financial
interest is disclosed or known to the stockholders, and they approve or
ratify the contract or transaction in good faith by a majority vote of
stockholders holding a majority of voting power. The votes of the common or
interested directors or officers must be counted in any such vote of
stockholders.

(iii) The fact of the common directorship, office or financial
interest is not disclosed or known to the director or officer at the time
the transaction is brought before the board of directors of the corporation
for action.

(iv) The contract or transaction is fair as to the corporation at the
time it is authorized or approved.

The basic restriction on transactions between the Trust and related parties
contained in the Declaration of Trust is similar to restrictions contained in
CEI Nevada's Articles of Incorporation and the NRS. Section 7.6 of the
Declaration of Trust provides that absent fraud and except as otherwise
prohibited by the Declaration of Trust, a contract, act or other transaction
between the Trust and any other person, or in which the Trust is interested,
shall be valid even though one or more of the Trustees or officers of the Trust
(i) are directly or indirectly interested in, or connected with, or are
trustees, partners, directors, officers or related officers of such other
person or (ii) individually or jointly with others, is a party or are parties
to or directly or indirectly interested in, or connected with, such contract,
act or transaction. Further, no Trustee or officer shall be under any
disability from or have any liability as a result of entering into any such
contract, act or transaction provided that (i) such interest or connection is
disclosed or known to the Trustees and thereafter the non-interested Trustees
vote to authorize such contract, act or other transaction; (ii) such interest
or connection is disclosed or known to the Shareholders and thereafter such
contract, act or transaction is approved by the Shareholders; and (iii) such
contract, act or transaction is fair and reasonable to the Trust at the time it
is authorized by the Trustees or by the Shareholders.

The Declaration of Trust also contains specific restrictions on certain
transactions between the Trust and certain other persons. Although the
standards and procedures by which such transactions are permissible under CEI
Nevada's Articles of Incorporation and Nevada law, on the one hand, and the
Declaration of Trust, on the other, are not dissimilar in the opinion of the
Board of Trustees, the Declaration of Trust absolutely prohibits certain
transactions between the Trust and certain related parties, as discussed below,
regardless of the fairness of the terms of such transactions and whether such
transactions are authorized by a majority of unaffiliated Trustees or approved
by the Shareholders. Because CEI Nevada's Articles of Incorporation

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contains no analogous prohibition, the Incorporation Procedure will permit CEI
Nevada greater flexibility to engage in a larger class of transactions with
related parties than the more limited class of transactions between the Trust
and certain related parties that is currently permitted by the Declaration of
Trust. Nevertheless, the Board of Trustees believes that the restrictions in
CEI Nevada's Articles of Incorporation and the restrictions mandated by the
NRS, together with the oversight by the Board of Directors required through
April 28, 1999, pursuant to the Olive Modification, will offer adequate
protection to ensure the fairness and propriety of transactions between CEI
Nevada and related parties. See "Business and Properties of the Trust --
Involvement in Certain Legal Proceedings".

Section 7.6 of the Declaration of Trust states that the Trust "shall not
purchase or lease, directly or indirectly, any [r]eal [p]roperty or purchase
any [m]ortgage from the [a]dvisor or any affiliated Person or from any
partnership in which any of the foregoing may also be a general partner."
Further, the Trust shall not "sell or lease, directly or indirectly, any of its
[r]eal [p]roperty or sell any [m]ortgage to any of the foregoing Persons." CCEC
or the Trust's advisor may make mortgage loans, purchase real property and
assume loans in connection therewith in its own name and temporarily hold title
thereto for the purpose of facilitating the acquisition of such real property
or mortgage loans or the borrowing of money or obtaining of financing for the
Trust, or for any other purpose related to the Trust's business, provided the
price for which the Trust purchases such asset is no greater than the cost to
CCEC or the Trust's advisor and there is no difference in the interest rates of
the loans related thereto at the time acquired by CCEC or the Trust's advisor
and the time acquired by the Trust, nor any other benefit to CCEC or the
Trust's advisor arising out of such transaction apart from compensation
otherwise permitted by the prospectus pursuant to which the Trust offered its
Shares to the public. As discussed under "-- Business Activities After
Incorporation Procedure", Section 5.3 of the Declaration of Trust also
prohibits the Trustees from (i) making any loan to CCEC, the Trust's advisor,
or any of their affiliates and (ii) purchasing, selling or leasing any real
properties or mortgages to or from CCEC, the Trust's advisor or any of their
affiliates, including any investor program in which any of the foregoing may
also be a general partner or sponsor. CCEC no longer has any relationship to
the Trust.

The Declaration of Trust further provides in Section 7.6 that:

the Trust shall not, directly or indirectly, engage in any transaction
with any Trustee, officer or employee of the Trust or any director, officer
or employee of the [a]dvisor, of [CCEC] or of any company or other
organization of which any of the foregoing is an Affiliate, except for . .
. (c) transactions with [CCEC] or the [a]dvisor or Affiliates thereof
involving loans, real estate brokerage services, mortgage brokerage
services, real property management services, the servicing of [m]ortgages,
the leasing of real or personal property, or other services, provided such
transactions are on terms not less favorable to the Trust than the terms on
which non-affiliated parties are then making similar loans or performing
similar services for comparable entities in the same area and are not
entered into on an exclusive basis with such Person; provided, however,
that any transaction referred to in clause (c) may be entered into only
upon approval by affirmative vote or consent of a majority of the Trustees
who are not, other than as Trustees, interested in or Affiliates of any
Person who is interested in the transaction.

The Declaration of Trust defines "Affiliate" as follows:

[A]s to any Person, any other Person who owns beneficially, directly or
indirectly, 1% or more of the outstanding capital stock, shares or equity
interests of such Person or of any other Person which controls, is
controlled by, or is under common control with, such Person

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or is an officer, retired officer, director, employee, partner, or trustee
(excluding independent trustees not otherwise affiliated with the entity)
of such Person or of any other Person which controls, is controlled by, or
is under common control with such Person.

COMPARISON OF THE SECURITIES OF CEI NEVADA AND THE TRUST

COMMON EQUITY. CEI Nevada is authorized by its Articles of Incorporation to
issue up to 10,000,000 shares of Nevada Common Stock. By contrast, the Trust
may issue an unlimited number of Shares, and such Shares have no par value per
share. The directors of CEI Nevada decided to fix the par value of the common
stock at $0.01 per share because the filing fees associated with organizing CEI
Nevada in Nevada are considerably less expensive than if CEI Nevada had common
stock with no par value.

With respect to conversion, preemptive rights, dividends and, except to the
extent CEI Nevada may issue preferred stock in the future, voting rights, the
Nevada Common Stock is comparable to the Shares. For a discussion of
liquidation preferences, voting rights and other features of the Nevada
preferred stock, see the discussion on preferred stock below. As with the
Shares, each holder of Nevada Common Stock will be entitled to one vote for
each share on all matters submitted to the stockholders. Similarly, there is no
cumulative voting, redemption right, sinking fund provision or right of
conversion with respect to either the Nevada Common Stock or the Shares. The
holder of the Nevada Common Stock will not have any preemptive rights to
acquire additional shares of Nevada Common Stock when issued, as Trust
Shareholders currently have no such preemptive rights. All outstanding shares
of CEI Nevada issued in the One-for-One Exchange will be fully paid and
nonassessable.

DISTRIBUTIONS. All shares of the common stock of CEI Nevada will be
entitled to share equally in dividends from funds legally available therefor,
when, as and if declared by the Board of Directors of CEI Nevada, and upon
liquidation or dissolution of CEI Nevada, whether voluntary or involuntary, to
share equally in the assets of CEI Nevada available for distribution to
stockholders, subject to any rights of holders of preferred stock, as discussed
below. Similarly, the Declaration of Trust provides that Shareholders have no
right to any dividend or distribution unless and until the Trustees declare
such dividend or distribution. The Declaration of Trust imposes an additional
requirement not contained in CEI Nevada's Articles of Incorporation: the
Trustees must furnish the Shareholders with a statement in writing not later
than 60 days after the close of each fiscal year in which a distribution is
made identifying the source of the funds so distributed. The Trustees currently
intend to continue this practice after the Incorporation Procedure. In prior
years, the Trust's distribution policy provided for an annual determination of
distributions after the Trust's year end until such time as property operations
stabilized at a level producing cash flow from property operations in excess of
anticipated needs. In January 1993, the Trust's Board of Trustees approved the
resumption of quarterly distributions. CEI Nevada intends to continue this
policy. The minimum amount of distributions will be determined by the amount
required to continue to qualify as a REIT under the Code, which is presently
95% of taxable income (excluding any net capital gain).

The Declaration of Trust provides that cash distributions may be paid from
any source, in the discretion of the Trustees. In contrast, under Nevada law,
CEI Nevada may pay dividends from any source, but only if (i) CEI Nevada would
continue to be able to pay its debts as they become due in the usual course of
business and (ii) CEI Nevada's total assets would continue to equal or exceed
the sum of its total liabilities plus the amount that would be needed, if CEI
Nevada were to be dissolved at the time of distribution, to satisfy the
preferential rights upon dissolution of stockholders whose preferential rights
are superior to those receiving the distribution.

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PREFERRED STOCK. Unlike the Declaration of Trust, the Articles of
Incorporation of CEI Nevada authorize the issuance of up to 1,000,000 shares of
preferred stock by action of the Board of Directors without stockholder
approval, which may be issued in one or more series with such preferences,
qualifications, limitation and rights as shall be determined by the Board of
Directors of CEI Nevada. The Board of Directors may fix and determine, among
other things, (i) the distinctive designation and number of shares comprising
such series; (ii) the dividend rates payable with respect to such shares of
preferred stock (including whether and in what manner such dividends shall be
accumulated); (iii) the extent of the voting rights, if any, of such shares;
(iv) whether such shares shall be redeemable and, if so, the prices, terms and
conditions of such redemption; (v) the rights and preferences given such shares
in the event of voluntary or involuntary liquidation, dissolution or
distribution of assets; (vi) the nature of any purchase, retirement or sinking
fund provisions with respect to such shares; (vii) the nature of any conversion
rights with respect to such shares; (viii) whether the issuance of additional
shares of Preferred Stock shall be subject to restrictions as to issuance, or
as to the powers, preferences or other rights of any other series; (ix) the
right of the shares of such series to the benefits of conditions and
restrictions upon the creation of indebtedness of CEI Nevada or any subsidiary
thereof; and (x) any other preferences, privileges and powers, in relative
participating, optional or other special rights, and qualifications,
limitations or restrictions of such shares, as the Board of Directors may deem
advisable.

Although no preferred stock has been issued or is being issued as part of
the Incorporation Procedure, and the Board of Directors has no present
intention of issuing any preferred stock, it is deemed advisable to have such
shares available for issuance (i) for possible use to raise additional equity
capital or to make acquisitions, (ii) as an acquisition safeguard to dilute the
stock ownership and voting power of a person or entity seeking to obtain
control of CEI Nevada by (a) privately placing such preferred stock with
purchasers not hostile to the CEI Nevada Board of Directors to oppose an
unsolicited takeover bid or (b) authorizing holders of a series of preferred
stock to vote as a class, either separately or with the holders of Nevada
Common Stock, on any merger, sale or exchange of assets or any other
extraordinary corporate transaction involving CEI Nevada or (iii) for such
other uses as the Board of Directors of CEI Nevada may deem appropriate from
time to time.

In contrast, the Trust is not authorized to issue preferred shares. In
addition, Section 5.3 of the Declaration of Trust prohibits the Trustees from
issuing warrants, options or rights to buy Shares, except as part of (i) a
ratable issue or distribution to Shareholders, (ii) a public offering or (iii)
a financial arrangement with parties other than the Trust's advisor or
directors, Trustees, officers, or employees of the Trust or its advisor. The
Trustees are also prohibited from issuing (a) equity securities of more than
one class (other than convertible obligations, warrants, rights and options and
regular or residual interests in REMICs); (b) "redeemable securities", as
defined in Section 2(a)(32) of the Investment Company Act of 1940, as amended,
"face-amount certificates of the installment type", as defined in Section
2(a)(15) thereof, and "periodic payment plan certificates", as defined in
Section 2(a)(27) thereof; or (c) convertible or non-convertible debt securities
to the public unless the historical cash flow of the Trust or the substantiated
future cash flow of the Trust, excluding extraordinary items, is sufficient to
cover the interest on the debt securities. The Articles of Incorporation impose
no such explicit prohibitions on CEI Nevada's power to issue securities.

DISSENTERS' RIGHTS TO DISSENT AND OBTAIN PAYMENT. Under Nevada law, CEI
Nevada's stockholders will not have the right to dissent and obtain payment
with respect to any plan of merger or exchange upon which the stockholders may
be entitled to vote for so long as CEI Nevada's Common Stock is listed on the
NASDAQ or is held of record by at least 2,000 persons. As discussed below under
"Listing" CEI Nevada will file a listing application with the NASDAQ and
expects its shares of Nevada Common Stock to be listed at the time of the
effectiveness of the Merger. Similarly, the Declaration of Trust provides

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that Shareholders have no dissenters' rights. Dissenting Shareholders will,
therefore, not have any right of appraisal in connection with the Incorporation
Procedure.

WARRANTS. The Trust has no outstanding warrants for the purchase of Shares.
CEI Nevada has no outstanding warrants and does not currently anticipate
issuing any warrants for the purchase of its capital stock.

LISTING. The Shares have been listed on the NASDAQ since October 29, 1980.
CEI Nevada has filed a listing application with the NASDAQ for the common stock
of CEI Nevada. If Shareholders approve the proposed Incorporation Procedure,
the Nevada Common Stock will be listed on the NASDAQ at the time of the
effectiveness of the Merger.

NO RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK. Neither CEI
Nevada's Articles of Incorporation nor its Bylaws contain any restriction on
the transfer or percentage ownership of shares of the Nevada Common Stock.
Although there are no such restrictions imposed on the Trust either, in the
past the Board of Trustees has limited Mr. Phillips' ownership percentage in
the Trust as described below.

On March 24, 1989, the Trust distributed one share purchase right for each
outstanding share of beneficial interest of the Trust. On December 10, 1991,
the Trust's Board of Trustees voted to redeem the rights, having determined
that they were no longer necessary to protect the Trust from coercive tender
offers. On February 10, 1992, the rights were redeemed, the Shareholders of the
Trust receiving $.04 for each right. In connection with such redemption, Mr.
Phillips and his affiliates, who owned approximately 28% of the Trust's
outstanding shares of beneficial interest at the time, agreed not to acquire
more than 40% of the Trust's outstanding shares of beneficial interest without
the prior action of the Trust's Board of Trustees to the effect that they do
not object to such increased ownership.

In August 1994, Mr. Phillips, Mr. Friedman and their affiliates, primarily
ART and BCM, owned approximately 39.9% of the Trust's outstanding shares of
beneficial interest. Mr. Phillips and his affiliates desired to purchase
additional shares of the Trust and requested that the Trust's Board of Trustees
consider the elimination of the limitation on the percentage of shares which
may be acquired by them. The Board of Trustees reviewed the limitation and
determined that, due to the fact that Mr. Friedman was no longer affiliated
with Mr. Phillips or his affiliates, and had disposed of any shares of the
Trust which Mr. Friedman or his affiliates may have owned, the limitation
should no longer apply to Mr. Friedman or his affiliates. The Board of Trustees
also determined that there was no reason to object to the purchase of
additional shares of the Trust by Mr. Phillips and his affiliates and, on
August 23, 1994 the Trust's Board of Trustees adopted a resolution to the
effect that they did not object to the acquisition of up to 49% of the Trust's
outstanding shares of beneficial interest by Mr. Phillips and his affiliates.
Pursuant to this action, Mr. Phillips and his affiliates could not acquire more
than 49% of the Trust's outstanding shares of beneficial interest without the
prior action of the Trust's Board of Trustees to the effect that they do not
object to such increased ownership. At March 21, 1996, Mr. Phillips and his
affiliates, primarily ART and BCM, owned approximately 50.5% of the Trust's
outstanding shares of beneficial interest. The increase in ownership above 49%
is the result of the Trust repurchasing its shares in 1996.

On March 21, 1996, the Trust's Board of Trustees reconsidered the share
ownership limitation and determined there was no reason to object to the
purchase by Mr. Phillips and his affiliates of additional Shares in excess of
49%. Accordingly, there is no longer any limitation on the percentage of Shares
of the Trust which may be acquired by Mr. Phillips and his affiliates.

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In the Trustees' view, concentration of ownership of CEI Nevada stock is
unlikely to threaten CEI Nevada's continued qualification for taxation as a
REIT under the Code. In the opinion of the Trustees, the carefully designed
acquisition safeguards built into the Articles of Incorporation and Bylaws of
CEI Nevada are sufficient to meet the needs of CEI Nevada. See "-- Principal
Reasons for the Incorporation Procedure -- Acquisition Safeguards".
Accordingly, CEI Nevada's Articles of Incorporation and Bylaws do not contain
restrictions on voting rights of "Excess Shares" of the Nevada Common Stock,
and the certificates representing the Nevada Common Stock will contain no
legend to that effect.

STOCKHOLDER-MANAGEMENT RELATIONS

THE CONSENT PROVISION. The Consent Provision (Article EIGHTH of the
Articles of Incorporation) provides that stockholders of CEI Nevada may not act
without a duly called annual or special meeting except by written consent
setting forth the action to be taken and signed by all of the stockholders
entitled to vote thereon. Under the NRS, unless otherwise provided in a
corporation's articles of incorporation, any action which is required or
permitted to be taken at an annual or special meeting of stockholders may
instead be taken without a meeting if a written consent setting forth the
action to be taken is signed by stockholders holding at least a majority of the
voting power, or of such greater proportion as is required for such action.
Unlike the CEI Nevada Articles of Incorporation, the Declaration of Trust
permits Shareholders of the Trust to approve certain acts by written consent
without a meeting if such consent sets forth the action so taken and is signed
by holders of the majority of the Trust's outstanding Shares.

For all practical purposes, the Consent Provision would allow stockholders
to act only at an annual or special meeting. By effectively prohibiting
stockholders from acting without a meeting, the Consent Provision ensures that
all stockholders will have the opportunity to consider any matter that could
affect their rights. However, such a limitation on a major stockholder's
ability to act could conceivably adversely affect a potential major
stockholder's decision to purchase voting securities of CEI Nevada.

THE STOCKHOLDER MEETING PROVISION. The Stockholder Meeting Provision (also
set forth in Article EIGHTH of the Articles of Incorporation) provides that
subject to the rights of the holders of any series of preferred stock, special
meetings of stockholders may be called only by the Board of Directors, the
Chairman of the Board or the President of CEI Nevada. Stockholders of CEI
Nevada may not by themselves call a special meeting of stockholders. In
contrast to the Stockholder Meeting Provision, the Declaration of Trust permits
Shareholders to call special meetings upon the written request of Shareholders
holding not less than 10% of the outstanding Shares of the Trust entitled to
vote in the manner provided in the Trustees' Regulations. The Trustees'
Regulations further provide that special meetings of Shareholders may be called
at any time by the President or the Trustees or by any two or more Trustees, or
by one or more Shareholders holding not less than two-thirds of the outstanding
Shares of the Trust.

The Stockholder Meeting Provision would have the effect of inhibiting
stockholder actions that require a meeting of stockholders unless the Board of
Directors, the Chairman thereof or the President of CEI Nevada calls such a
meeting. Such meetings can impose considerable expenses upon CEI Nevada. The
Trustees believe that the Board of Directors will be in the best position to
determine those issues which are properly the subject of a special meeting of
stockholders. In the view of the Board of Trustees, stockholders would have a
full opportunity to make proper proposals at duly convened stockholder meetings
and to request that any such proposal be presented for consideration to other
stockholders in CEI Nevada's annual proxy statement.

OTHER PROVISIONS REGARDING STOCKHOLDER-MANAGEMENT RELATIONS. CEI Nevada's
Bylaws provide, among other things, that any stockholder entitled to vote in
the election of directors of CEI Nevada's

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Board of Directors generally may nominate one or more persons for election as
directors at a meeting only if such stockholder gives not fewer than 35 nor
more than 60 days' prior written notice of intent to make such nomination or
nominations to the Secretary of CEI Nevada (or, if fewer than 45 days' notice
or prior public disclosure of the meeting date is given or made to
stockholders, not later than 10 days following such notice or disclosure). Each
such notice must set forth (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated;
(ii) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such stockholder as of the record date for the
meeting and as of the date of such notice; (iii) a representation that the
stockholder intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (iv) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons pursuant to which the nomination or nominations are to
be made by the stockholder; (v) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Commission; and (vi) the
consent of each nominee to serve as a director of CEI Nevada if so elected. The
Chairman of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure, which is referred to
herein as the "Nomination Provision". Neither the Declaration of Trust nor the
Trustees' Regulations contains any provisions analogous to the Nomination
Provision.

Although the Nomination Provision will not give CEI Nevada's Board any
power to approve or disapprove of stockholder nominations for the election of
directors, the Nomination Procedure may have the effect of precluding a
nomination for the election of directors at a particular annual meeting if the
proper procedures are not followed and may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of CEI Nevada, even if such attempt
might be deemed by some stockholders to be beneficial to CEI Nevada and its
stockholders. The Board of Trustees is currently unaware of any controlling
judicial precedent addressing the validity of the Nomination Provision and
therefore the matter is not entirely free from doubt. The Board of Trustees
nevertheless believes that this provision is appropriate because it requires
stockholders to give adequate notice to allow orderly and considered evaluation
of nominees and fair elections.

CEI Nevada's Bylaws also provide that, in addition to any other applicable
requirements, for business not specified in the notice of meeting or brought by
or at the direction of the Board of Directors of CEI Nevada to be properly
introduced by a stockholder, the stockholder must give not fewer than 35 nor
more than 60 days' prior notice to the Secretary of CEI Nevada (or if fewer
than 45 days' notice or prior public disclosure of the meeting date is given or
made to stockholders, not later than 10 days following such event). This
provision (the "Stockholder Proposal Provision") does not preclude discussion
by any stockholder of any business properly brought before any meeting. Each
such notice must set forth (i) a description of each item of business proposed
to be brought before the meeting; (ii) the name and address of the stockholder
proposing to bring such item of business before the meeting; (iii) the class
and number of shares of stock held of record, owned beneficially and
represented by proxy by such stockholder as of the record date for the meeting
and as of the date of such stockholder meeting notice; and (iv) all other
information that would be required to be included in a proxy statement filed
with the Commission. Neither the Declaration of Trust nor the Trustees'
Regulations contains any provisions analogous to the Stockholder Proposal
Provision.

Although the Stockholder Proposal Provision does not give CEI Nevada's
Board of Directors or the Chairman of the meeting any powers to approve or
disapprove such matters, the Stockholder Proposal Provision may have the effect
of precluding the consideration of matters at a particular meeting if the
proper procedures are not followed, even if approval of such matters may be
deemed by some stockholders to be beneficial to CEI Nevada and its
stockholders. CEI Nevada is presently unaware of any controlling judicial

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precedent addressing the validity of the Stockholder Proposal Provision and
therefore the matter is not entirely free from doubt. As with the Nomination
Provision, the Trustees believe that the Stockholder Proposal Provision is
appropriate because it requires stockholders to give both management and other
stockholders adequate notice of such proposals and time to consider and respond
to such proposals.

CEI Nevada's Bylaws also provide that annual meetings of stockholders shall
be held within the first eight months of the calendar year, or as soon as
practicable thereafter, beginning in 1997. Written or printed notice of annual
and special meetings of stockholders shall be given to stockholders entitled to
vote not fewer than 10 nor more than 60 days before the date of such meeting,
unless stockholders are to vote upon a proposed merger, consolidation or
disposition of substantially all of CEI Nevada's assets, in which case notice
shall be given no later than 20 nor more than 60 days before the date of such
meeting. The Declaration of Trust contains similar provisions except that
pursuant to the Declaration of Trust annual meetings of stockholders are to be
held in the first six months of the calendar year.

A full and correct statement of the affairs of CEI Nevada is to be prepared
annually and submitted at the annual meeting. Such annual reports will include
a balance sheet and a statement of operations for the preceding fiscal year.
CEI Nevada will be subject to the information requirements of the Exchange Act
and the balance sheet and statement of operations will be required by the
Exchange Act to be certified by independent certified public accountants,
although the Bylaws do not impose such a requirement. The Declaration of Trust
provides that the Trustees must mail an annual report not later than 120 days
after the close of each fiscal year. The annual report must include a statement
of assets and liabilities and a statement of income and expenses of the Trust,
accompanied by the report of an independent certified public accountant. The
Trustees are also required to send shareholders interim reports at least
quarterly.

THE BUSINESS COMBINATION PROVISION. The Business Combination Provision
(Article TENTH of the Articles of Incorporation) is designed to encourage
companies interested in acquiring CEI Nevada to negotiate with the Board of
Directors and to give greater assurance to the stockholders of CEI Nevada that
they will receive fair and equitable treatment in the event of a "Business
Combination" (as defined below) involving CEI Nevada or a subsidiary thereof
with, or proposed by or on behalf of, an "Interested Stockholder" (as defined
below) or certain related parties.

Under Article TENTH of the Articles of Incorporation, a Business
Combination with, or proposed by or on behalf of, any Interested Stockholder or
any affiliate or associate (as such terms are defined in Rule 12b-2 promulgated
under the Exchange Act) of any Interested Stockholder or any Person who
thereafter would be an affiliate or associate of any Interested Stockholder
would require approval by the affirmative vote of not less than sixty-six and
two-thirds of the votes entitled to be cast on such transaction by the holders
of all shares of voting stock of CEI Nevada then outstanding (the "Voting
Stock"), voting together as a single class, excluding shares beneficially owned
by such Interested Stockholders. However, the two-thirds affirmative vote of
stockholders is not required if a majority of the members of the Board of
Directors or, in the case of such Business Combination involving any affiliate
of CEI Nevada, a majority of the Board of Directors including a majority of the
members of the Board of Directors who at the time are neither officers or
employees of CEI Nevada nor directors, officers or employees of CEI Nevada's
advisor, approves the Business Combination prior to the date on which the
Interested Stockholder became the beneficial owner of 20% or more of CEI
Nevada's shares (the "Acquisition Date"). If such prior Board of Director's
approval is obtained, the Business Combination will be subject to the
applicable voting requirement under the NRS. Presently, for most types of
Business Combination transactions on which a stockholder vote would be
required, the affirmative vote of the holders of a majority of the outstanding
shares entitled to vote on the matter (including shares beneficially owned by
the Interested Stockholder) is required. If the two-thirds vote required by the
Business Combination Provision is obtained in connection with a particular
proposed

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<PAGE> 47
Business Combination, approval of a majority of CEI Nevada's Board of Directors
will not be necessary. Under certain circumstances a business combination will
be presumed to be proposed by or on behalf of an Interested Stockholder unless
a majority of the members of the Board of Directors determines otherwise.

An "Interested Stockholder" is defined in the Business Combination
Provision to include any Person who (i) is or has announced or publicly
disclosed a plan or intention to become, the Beneficial Owner of 20% or more of
the Voting Stock or (ii) is an affiliate or associate of CEI Nevada and at any
time within the two year period immediately prior to the date in question was
the Beneficial Owner of 20% or more of the Voting Stock. A person is the
"Beneficial Owner" of Voting Stock that such person and certain related
parties, directly or indirectly, own or have the right to acquire, hold, vote
or dispose of. CEI Nevada, any of its subsidiaries and certain profit-sharing
and employee-benefit plans are among the entities specifically excepted from
the definition of "Interested Stockholder." Following the Incorporation
Procedure, ART will be considered an Interested Stockholder of CEI Nevada.
Currently the Board of Directors is not aware of any other Shareholder or group
of Shareholders that would be an "Interested Stockholder" following the
Incorporation Procedure.

A "Business Combination" includes the following transactions with, or
proposed by or on behalf of, any Interested Stockholder or certain related
parties: (i) a merger or consolidation of CEI Nevada or any subsidiary with an
Interested Stockholder or certain related parties, (ii) the sale, lease,
exchange, mortgage, pledge, transfer or other disposition by CEI Nevada or a
subsidiary of any assets or securities to an Interested Stockholder or certain
related parties, or any other arrangement with or for the benefit of an
Interested Stockholder or any such related party (including investments, loans,
advances, guarantees, extensions of credit, security interests and joint
venture participation) that (except in certain circumstances), together with
all other such arrangements (including all contemplated future events), involve
assets or securities having a value (or involving aggregate commitments) of $5
million or more or constitute more than 5% of the book value of the total
assets (in the case of transactions involving assets or commitments other than
capital stock) or 5% of the stockholders equity (in the case of transactions in
capital stock) of the entity in question, as reflected in the most recent
fiscal year-end consolidated balance sheet of such entity existing at the time
the stockholders of CEI Nevada would be required to approve or authorize such
transaction, (iii) the adoption of any plan or proposal for the liquidation or
dissolution of CEI Nevada, (iv) any reclassification of securities,
recapitalization, merger with a subsidiary or other transaction which has the
effect, directly or indirectly, of increasing an Interested Stockholder's
proportionate share of the outstanding capital stock of CEI Nevada or a
subsidiary or (v) any agreement or arrangement providing for any one or more of
the actions specified in the foregoing clauses (i) through (iv).

By providing that the two-thirds vote requirement would not be invoked if a
majority of CEI Nevada's Board of Directors approves a Business Combination
prior to the Acquisition Date, the Business Combination Provision is intended
to encourage companies interested in acquiring CEI Nevada to negotiate in
advance with CEI Nevada's Board of Directors. See "-- Principal Reasons for the
Incorporation Procedure -- Acquisition Safeguards". The Business Combination
Provision may discourage attempts to take over CEI Nevada by a principal
stockholder. By requiring a two-thirds vote of stockholders other than the
relevant Interested Stockholder to approve a Business Combination not approved
by CEI Nevada's Board of Directors, the Business Combination Provision may
enable a minority of CEI Nevada's stockholders to prevent consummation of a
Business Combination. To the extent that the Business Combination Provision
discourages tender offers or the accumulation of Nevada Common Stock by a third
party, stockholders may be deprived of higher market prices for their stock
which may result from such events.

Article TENTH effectively allows the Board of Directors to waive the
requirement that any Business Combination with, or proposed by or on behalf of,
any Interested Stockholder requires the approval of not

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<PAGE> 48
less than two-thirds of the votes cast by the holders of all shares of Voting
Stock (excluding Voting Stock owned by such Interested Stockholder). If a
majority of the members of the Board of Directors or, in the case of such
Business Combination involving any affiliate of CEI Nevada, a majority of the
Board of Directors including a majority of the members of the Board of
Directors who at the time are neither officers or employees of CEI Nevada nor
directors, officers or employees of CEI Nevada's advisor, approves such
Business Combination prior to the Acquisition date, such Business Combination
requires only such affirmative vote, if any, as is required by applicable law
or by any other provision of the Articles of Incorporation or Bylaws or by any
agreement with any national securities exchange.

The NRS imposes generally similar restrictions upon certain business
combinations with interested stockholders of a Nevada corporation, but, among
other differences, the NRS defines the terms "business combination" and
"interested stockholder" differently and, unlike Article TENTH of the Articles
of Incorporation, Nevada law subjects certain business combinations with
interested stockholders to a three-year moratorium unless specified conditions
are met. The NRS prohibits a Nevada corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the
date that such person becomes an "interested stockholder." With certain
exceptions, an "interested stockholder" is a person or group that owns 10% or
more (compared to more than 20% under Article TENTH of the Articles of
Incorporation) of such corporation's outstanding voting stock, or is an
affiliate or associate of the corporation and was the beneficial owner of 10%
or more of such voting stock at any time within the previous three years.

However, a Nevada corporation may elect not to be governed by the Business
Combination provisions of Nevada law by expressly electing not to be governed
by such statutes in the original Articles of Incorporation or an amendment
thereto. Because CEI Nevada's Board of Directors believes that the Business
Combination Provision offers sufficient protection, Article TENTH of the
Articles of Incorporation contains a provision expressly electing not to be
governed by NRS statutes governing business combinations with interested
stockholders (NRS Sections 78.411 through 78.444, inclusive) and acquisitions
of a controlling interest (NRS Sections 78.378 through 78.3793, inclusive).

California has adopted legislation that has certain anti-takeover
implications. Although the California Corporations Code does not specifically
apply to business trusts, certain of its provisions could be applied to
business trusts by analogy. If the proposed Incorporation Procedure is adopted,
such legislation will not apply to CEI Nevada.

Sections 1101 and 407 of the California General Corporation Law require
that holders of nonredeemable common stock receive nonredeemable common stock
in a merger of the corporation with the holder of more than 50% but less than
90% of such common stock or its affiliate unless either (i) all of the holders
of such common stock consent to the transaction or (ii) the terms and
conditions of the transaction and the fairness of such terms and conditions
have been approved by the appropriate state regulatory agency. This provision
of California law may have the effect of making a "cash-out" merger by a
majority shareholder more difficult to accomplish. Nevada law has no comparable
provision. California law also requires that shareholders be provided with a
fairness opinion under certain circumstances when a tender offer or a proposal
for a reorganization or for a sale of assets is made by an interested party.
Again, Nevada law has no comparable provision.

THE EVALUATION PROVISION. Article TWELFTH of the Articles of Incorporation
(the "Evaluation Provision") permits the Board of Directors to take into
account all factors it deems relevant in evaluating, among other things, tender
offers, proposals of business sales or combinations and proposals for corporate
liquidation or reorganizations involving CEI Nevada, including the potential
impact of any such transaction

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<PAGE> 49
on CEI Nevada's creditors, partners, joint venturers, other constituents or CEI
Nevada and the communities in which its offices, other establishments or
investments are located (collectively, "Non-Stockholder Constituencies") and on
CEI Nevada's continuing status as a qualified REIT under the Code.

The Evaluation Provision does not specify the relative weight that the
Board of Directors should give to the various factors. Under the Evaluation
Provision, the Board of Directors might, for example, take into account whether
a potential acquiror proposed to use CEI Nevada's assets to finance an
acquisition of CEI Nevada and the effect that such use of CEI Nevada's assets
might have on its Non-Stockholder Constituencies, if any, and its REIT status.
The Trustees believe that consideration of the effect of a business combination
proposal on CEI Nevada's Non-Stockholder Constituencies and REIT status may
help to maintain or improve the financial condition of CEI Nevada and, as a
result, confer related benefits upon its stockholders. However, because the
Evaluation Provision allows the Board of Directors to consider numerous
judgmental or subjective factors affecting such a proposal, including certain
non-financial matters, their consideration may lead the Board of Directors to
oppose a transaction that, as an exclusively financial matter, may be
attractive to stockholders.

The Declaration of Trust does not contain any provision similar to the
Evaluation Provision. Courts construing California law have held that the
decisions of California corporate directors in evaluating takeover bids
generally are protected by the "business judgment rule," under which a court
will not question the directors' business judgment so long as they act in
accordance with their fiduciary duties to the corporation and to all of the
stockholders. The Trustees are currently unaware of any judicial precedent
construing California law that addresses the question of whether corporate
directors (and, by analogy, trustees of unincorporated business trusts) may
consider the interests of Non-Stockholder Constituencies or whether the
consideration of such interests would be protected by the "business judgment
rule".

The NRS expressly provides that directors in evaluating acquisition
proposals may consider certain interests of Non-Stockholder Constituencies
including (i) the interests of the corporation's employees, suppliers,
creditors and customers; (ii) the economy of the state and nation; (iii) the
interests of the community and of society; and (iv) the long term as well as
short term interests of the corporation and its stockholders, including the
possibility that these interests may be best served by the continued
independence of the corporation.

ESTABLISHMENT OF SUBSIDIARIES

Under Section 3.5 of the Declaration of Trust, a vote of two-thirds of the
Trustees and holders of a majority of the Shares voting at a meeting called for
such purpose is required for the formation of a subsidiary to hold all or part
of the Trust's assets. Shareholders, by approving the Incorporation Procedure,
will be ratifying the actions of the Trustees in forming CEI Nevada. There
exists no comparable provision in the Articles of Incorporation.

AMENDMENT PROVISIONS

The Bylaw Amendment Provision and the Articles of Incorporation Amendment
Provision (each as defined below) generally require a super-majority vote for
changes in the governing documents of CEI Nevada submitted to stockholders.
Although those provisions may by themselves have a deterrent effect on some
potential acquisitions of CEI Nevada, they are designed primarily to ensure
that an acquiror cannot circumvent the acquisition safeguards contained in the
governing documents. See "-- Principal Reasons for the Incorporation Procedure
- -- Acquisition Safeguards" and "-- Comparison of Principal Differences Between
the Trust and CEI Nevada". The Trustees recognize that the amendment provisions
may serve to

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<PAGE> 50
entrench current management (see "--Principal Reasons for the Incorporation
Procedure -- Acquisition Safeguards" and " -- Possible Negative
Considerations"); however, for the same reasons the Trustees deem acquisition
safeguards to be in the best interest of CEI Nevada and its stockholders, the
amendment provisions are required to buttress those safeguards.

THE BYLAW AMENDMENT PROVISION. Article SEVENTH of the Articles of
Incorporation (the "Bylaw Amendment Provision") expressly authorizes CEI
Nevada's Board of Directors to make, adopt, alter, amend, change or repeal CEI
Nevada's Bylaws. The Bylaw Amendment Provision further states that the
stockholders of CEI Nevada may not make, adopt, alter, amend, change or repeal
CEI Nevada's Bylaws except upon the affirmative vote of holders of not less
than 75% of the outstanding stock of CEI Nevada entitled to vote thereon. The
Trustees are currently unaware of any controlling judicial precedent under the
NRS addressing the validity of this aspect of the Bylaw Amendment Provision
and, therefore, the matter is not entirely free from doubt. This super-majority
voting provision could enable holders of only 26% of the Nevada Common Stock to
prevent holders of a substantial majority of the Nevada Common Stock who do not
approve of certain provisions of the Bylaws from amending or repealing such
provisions. In this regard, it should be noted that entities affiliated with
which certain executive officers of the Trust have collective beneficial
ownership of 52.8% of the Shares (as of December 31, 1996). Nevertheless, CEI
Nevada's Board of Directors believes that the Bylaw Amendment Provision will
help to ensure continuity with respect to the management of the day-to-day
operations of CEI Nevada. In addition, the provision will prevent a purchaser
who acquires a majority of the shares of the Nevada Common Stock from adopting
Bylaws that are not in the best interest of the minority stockholders or
repealing Bylaws that are in such stockholders' interest.

Section 3.3 of the Declaration of Trust vests in the Trustees the power to
make, adopt, amend or repeal Trustees' Regulations. Nevertheless, the Trustees'
Regulations provide that the Trustees' powers to make, adopt, amend or repeal
the Trustees' Regulations may be revoked either by vote or written consent of
two-thirds of the Shareholders.

THE ARTICLES OF INCORPORATION AMENDMENT PROVISION. Article SEVENTEENTH of
the Articles of Incorporation (the "Articles of Incorporation Amendment
Provision") requires the affirmative vote of at least 75% of all of the Voting
Stock to alter, amend or repeal the Bylaw Amendment Provision, Consent
Provision, Stockholder Meeting Provision, Business Combination Provision,
Director Removal Provision, Evaluation Provision and Articles of Incorporation
Amendment Provision, unless a majority of CEI Nevada's Board of Directors
approves such alteration, amendment or repeal.

In contrast, the Declaration of Trust generally may be amended (i) by
Shareholders holding a majority of the outstanding Shares entitled to vote
thereon or (ii) by the Trustees without the vote or consent of Shareholders to
the extent they deem it necessary to conform the Declaration of Trust to REIT
requirements or other applicable federal law, unless the proposed amendment
would change certain rights with respect to any outstanding securities of the
Trust, in which case the Declaration of Trust requires the vote or consent of
the holders of two-thirds of the outstanding Shares entitled to vote thereon.

Although the Declaration of Trust already requires a super-majority vote
for certain proposed amendments, the Articles of Incorporation Amendment
Provision will make it more difficult for stockholders to make changes in the
Articles of Incorporation, including changes designed to enable holders of a
majority of the Nevada Common Stock to obtain control over CEI Nevada. However,
the Articles of Incorporation Amendment Provision may help protect minority
stockholders from disadvantageous changes supported by less than a substantial
majority of other stockholders.

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<PAGE> 51
THE FOREGOING IS ONLY A SUMMARY OF THE SIMILARITIES AND DIFFERENCES BETWEEN
CEI NEVADA'S ARTICLES OF INCORPORATION AND BYLAWS, ON THE ONE HAND, AND THE
TRUST'S DECLARATION OF TRUST AND TRUSTEES' REGULATIONS, ON THE OTHER, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXTS OF THOSE
DOCUMENTS, WHICH ARE ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS APPENDICES
C THROUGH F, RESPECTIVELY.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

GENERAL. The following is a general discussion of the anticipated material
federal income tax consequences to the Trust and Shareholders of the
Incorporation Procedure. The discussion is based on laws, regulations, rulings
and decisions now in effect, all of which are subject to change or possibly
differing interpretations.

CEI Nevada has received an opinion from Andrews & Kurth L.L.P., securities
and tax counsel to the Trust, to the effect that (i) the Incorporation
Procedure will constitute a reorganization within the meaning of Section
368(a)(1)(F) of the Code; (ii) upon consummation of the Incorporation
Procedure, CEI Nevada will be treated as the same taxpayer as the Trust for
federal income tax purposes; (iii) the conversion of the Trust into CEI Nevada
essentially will be irrelevant for federal income tax purposes and the
operations of the Trust and CEI Nevada will be combined for purposes of
determining whether CEI Nevada qualifies as a real estate investment trust for
the taxable year in which the Incorporation Procedure is consummated; (iv) the
Incorporation Procedure will not, in and of itself, adversely affect the
ability of the Trust or CEI Nevada to qualify as a real estate investment trust
for federal income tax purposes; and (v) the information in this Proxy
Statement/Prospectus under the caption "-- Material Federal Income Tax
Consequences," to the extent it constitutes matters of law or legal
conclusions, is correct in all material respects. It should be noted that an
opinion of counsel is not binding on the Internal Revenue Service or on the
courts.

CONSEQUENCES TO SHAREHOLDERS. Pursuant to the Incorporation Procedure, (i)
each Shareholder will receive one share of Nevada Common Stock for each share
of beneficial interest in the Trust that it owns, and (ii) the shares of
beneficial interest in the Trust will be canceled. No gain or loss will be
recognized by Shareholders in respect of these transactions and the tax basis
to a Shareholder of the shares of the Nevada Common Stock it receives will
equal the tax basis to the Shareholder of its shares of beneficial interest in
the Trust. In addition, the holding period of the Nevada Common Stock received
by a Shareholder will include the period during which the Shareholder held its
shares of beneficial interest in the Trust, provided that the shares of
beneficial interest in the Trust were held by the Shareholder as a capital
asset at the time the Incorporation Procedure was effected.

CONSEQUENCES TO THE TRUST AND CEI NEVADA. Pursuant to the Incorporation
Procedure, the Trust will be incorporated in California and the California
Corporation will be merged with and into CEI Nevada. No gain or loss will be
recognized by the Trust as a result of these transactions. The tax basis of the
assets received by CEI Nevada in the Merger will equal the tax basis of those
assets to the Trust immediately prior to the time the Incorporation Procedure
is effected. The holding period of the assets received by CEI Nevada in the
Merger will include the period during which such assets were held by the Trust.

The Trust has not applied to the Internal Revenue Service for a ruling
confirming that the Incorporation Procedure will qualify as a reorganization
under the Code. The federal income tax consequences of the Incorporation
Procedure to the Trust and to Shareholders would be materially different from
those described herein if a determination were made that the Incorporation
Procedure did not constitute

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<PAGE> 52
a reorganization under the Code. Such a determination could have adverse
federal income tax consequences to the Trust and to Shareholders.

CERTAIN FOREIGN, STATE AND LOCAL TAXES

If the Incorporation Procedure is consummated, CEI Nevada may become
subject to state franchise or income taxes in addition to those which the Trust
is already obligated to pay. See the discussion of filing fees associated with
organizing CEI Nevada under "Proposed Incorporation Procedure -- Comparison of
the Securities of CEI Nevada and the Trust -- Common Equity" above. Management
of the Trust believes that the net effect on CEI Nevada of any additional state
franchise or income taxes will not be material.

No determination has been made as to how the proposed Incorporation
Procedure would be treated under the various foreign, state or local tax laws
that might apply to Shareholders, and Shareholders should consult their own tax
advisors as to the effect of the Incorporation Procedure on their individual
tax liability under applicable foreign, state or local income tax laws.

REGULATORY REQUIREMENTS

The Board of Trustees is not aware of any license, regulatory permit or of
any approval by any domestic or foreign governmental or administrative agency
that would be required to effect the Incorporation Procedure.

MARKET PRICES OF THE SHARES; DIVIDENDS

The Shares of the Trust have been traded on the NASDAQ since October 29,
1980 using the symbol "CMETs." As of the close of business on December 31,
1996, there were 4,028,053 Shares outstanding. The range of high and low bid
quotations per share as reported by NASDAQ are set forth in the table below:

<TABLE>
<CAPTION>
Quarter High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter, 1994 $ 9 11/16* $ 8 5/16*

Second Quarter, 1994 9 11/16* 9 5/16*

Third Quarter, 1994 9 13/16* 9 5/16*

Fourth Quarter, 1994 10* 9 5/16*

First Quarter, 1995 $10 3/16* $10 *

Second Quarter, 1995 10 11/16* 9 11/16*

Third Quarter, 1995 10 5/16* 9 11/16*

Fourth Quarter, 1995 10 1/2* 9 11/16*

First Quarter, 1996 $10 1/2 $ 9 5/8
</TABLE>

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<PAGE> 53
<TABLE>
<S> <C> <C> <C> <C>
Second Quarter, 1996 11 3/4 9 5/8

Third Quarter, 1996 11 1/2 10

Fourth Quarter, 1996 12 1/4 10 1/2
</TABLE>

* Restated for the three-for-two forward share split effected February 15,
1996.

As of December 31, 1996 there were 5,429 Shareholders of record. On
December 5, 1989, the Board of Trustees approved a share repurchase program
pursuant to which the Trust is authorized to repurchase a total of 1,465,000 of
its shares of beneficial interest. As of December 31, 1996, the Trust had
repurchased 1,453,869 shares pursuant to such program. None of such shares were
purchased in 1995, and 276,144 of such shares were purchased in 1996.

On August 1, 1996, the Trust announced an offer to buy back shares of
beneficial interest from shareholders owning 99 or fewer shares as of the
record date August 1, 1996. The Trust paid a premium of $.50 per share over the
average of the closing market prices as reported from August 8, 1996 through
September 30, 1996, the expiration date of the offer. On October 17, 1996, the
Trust repurchased 82,861 shares pursuant to such offer at a total cost of
$912,000. The purpose of the buy back offer is to reduce expenses of servicing
the shareholders, including the printing and mailing of investor materials.

On December 31, 1996, the closing price per Share on NASDAQ was $11.50. On
November 14, 1996, the Trust publicly reported that the Board of Trustees was
evaluating whether to recommend changes similar to the Incorporation Procedure
to Shareholders. Shareholders should obtain current market quotations for
Shares.

Distributions were declared and paid by the Trust on the following dates in
the following amounts during the periods indicated below.

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<PAGE> 54
<TABLE>
<CAPTION>
Amount
Date Declared Date of Record Date Payable Per Share
<S> <C> <C> <C> C>
1993 01/27/93 02/15/93 03/01/93 .10*

04/30/93 05/24/93 06/01/93 .10*

06/30/93 08/16/93 09/01/93 .15*

10/29/93 11/15/93 12/1/93 .15*

1994 02/15/94 03/01/94 03/21/94 .10*

05/06/94 06/01/94 06/15/94 .10*

08/24/94 09/15/94 09/30/94 .10*

12/01/94 12/15/94 12/30/94 .10*

1995 03/03/95 03/15/95 03/31/95 .10*

05/22/95 06/15/95 06/30/95 .10*

08/25/95 09/15/95 09/30/95 .10*

11/30/95 12/15/95 12/31/95 .10*

1996 03/01/96 03/15/96 03/31/96 $.13

06/03/96 06/14/96 06/28/96 .13

08/23/96 09/03/96 09/09/96 .13

08/23/96 09/03/96 09/09/96 .37**

10/02/96 12/13/96 12/31/96 .13
</TABLE>

* Restated for the three-for-two forward share split effected February 15,
1996.
** Special dividend.

The Trust reported to the Internal Revenue Service that 100% of the
distributions paid in 1993, 1994 and 1995 represented a return of capital.

BUSINESS AND PROPERTIES OF CEI NEVADA

CEI Nevada was formed as a Nevada corporation on October 30, 1996. It is a
wholly-owned subsidiary of the Trust. Prior to the Merger, CEI Nevada will have
no business, assets or liabilities of any consequence and no operating history.
The audited balance sheet of CEI Nevada is included under "Index to Financial
Statements." As a result of the Merger, CEI Nevada, by operation of law, would
succeed to all

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<PAGE> 55
the rights and properties, and be subject to all the obligations and
liabilities, of the Trust incorporated as the California Corporation,
including, without limitation, those under the modified Advisory Agreement
described under "Business and Properties of the Trust -- The Advisory
Agreement" (if approved). The principal assets of the Trust to which CEI Nevada
would succeed as a result of the Merger are described below under "Business and
Properties of the Trust -- Trust Assets -- Mortgage Loans". As described more
fully under "Proposed Incorporation Procedure -- Business Activities after
Incorporation Procedure," no significant change in the nature of the Trust's
business or investment policies is currently expected as a result of the
Incorporation Procedure, though CEI Nevada would be empowered under the
Articles of Incorporation to engage in a wider range of business activities
than those currently permitted under the Declaration of Trust, and CEI Nevada
would be able to alter its investment policies without obtaining stockholder
approval.

CEI NEVADA'S POLICY WITH RESPECT TO CERTAIN ACTIVITIES

The Articles of Incorporation impose no limitations on CEI Nevada's ability
to invest in equity securities of, or acquire interests in, other persons
engaged in real estate activities. Although CEI Nevada has no present intention
of purchasing securities of other issuers for the purpose of exercising
control, it reserves the right to purchase securities of other issuers in the
future. CEI Nevada does not propose to engage in underwriting the securities of
other issuers. Furthermore, to continue to qualify for taxation as a REIT under
the Code, CEI Nevada will, among other things, be required to hold at least 75%
of the value of its total assets in real estate assets, government securities,
cash and cash items at the close of each quarter of each taxable year. See
"Proposed Incorporation Procedure -- Business Activities after Incorporation
Procedure".

CEI Nevada has the authority to issue shares of Nevada Common Stock (up to
a total of 10,000,000) and preferred stock (in one or more series up to a total
of 1,000,000) on terms which the CEI Nevada's Board of Directors believe to be
in the best interests of CEI Nevada. However, the directors currently do not
intend to issue any preferred stock. See "Proposed Incorporation Procedure --
Comparison of the Securities of CEI Nevada and the Trust -- Preferred Stock".

Subject to available financing, CEI Nevada may borrow money for its day-to-
day operations and to acquire additional assets or refinance existing assets.
Market financing terms available at the time of any borrowings and the
objective of paying dividends on the Nevada Common Stock will place a practical
limit on the nature and extent of those borrowings. Borrowing may come from
banks, other institutional lenders and private lenders, including BCM and other
REITs of which the directors of CEI Nevada may serve as directors, officers or
trustees, subject to the limitations set forth in the "Proposed Incorporation
Procedure -- Business Activities after Incorporation Procedure -- Restrictions
on Related-Party Transactions ". CEI Nevada may also take properties subject
to, or assume, existing debt and may mortgage, pledge or otherwise obtain
financing for its real properties. CEI Nevada may also establish lines of
credit with banks or other lenders. The Declaration of Trust prohibits the
aggregate secured and unsecured indebtedness of the Trust from exceeding 300%
of the Trust's net asset value (defined as the book value, as defined in the
Declaration of Trust, of all assets of the Trust minus all of its liabilities).
Although the Articles of Incorporation impose no such limitation, the Board of
Directors currently intends to continue this policy. However, the directors of
CEI Nevada may alter such policy without a vote of the stockholders. No
assurance can be given as to the availability of credit for CEI Nevada, the
amount or terms thereof or of the restrictions that may be imposed upon CEI
Nevada by lenders. For a discussion of the Trust's access to credit, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". CEI Nevada also has the
authority to issue notes, debentures, convertible notes and other debt
securities. CEI Nevada has the authority to repurchase or otherwise reacquire
its shares of capital stock without the consent of its stockholders, except as
and unless restricted by Nevada law. Nevada law does not

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<PAGE> 56
presently restrict the repurchase of capital stock by a corporation. See
"Proposed Incorporation Procedure -- Comparison of the Securities of CEI Nevada
and the Trust" above.

BUSINESS AND PROPERTIES OF THE TRUST

GENERAL

The Trust is a California business trust organized pursuant to a
declaration of trust dated August 27, 1980, and amended and restated as of May
27, 1987, as amended pursuant to (i) Amendment No. 1 to the Second Amended and
Restated Declaration of Trust of Consolidated Capital Special Trust, (ii)
Amendment Number 2 to the Second Amended and Restated Declaration of Trust of
Continental Mortgage and Equity Trust (formerly Consolidated Capital Special
Trust), (iii) Amendment Number 3 to the Second Amended and Restated Declaration
of Trust of Continental Mortgage and Equity Trust (formerly Consolidated
Capital Special Trust), and (iv) Amendment No. 4 to the Second Amended and
Restated Declaration of Trust of Continental Mortgage and Equity Trust (as
amended, the "Declaration of Trust"). The Trust commenced operations on
December 3, 1980. The Trust has elected to be treated as a REIT under Sections
856 through 860 of the Code, and has qualified for taxation as a REIT for all
periods since December 31, 1980. See "Proposed Incorporation Procedure --
Business Activities after Incorporation Procedure".

On April 13, 1989, the Trust changed its name from Consolidated Capital
Special Trust to Continental Mortgage and Equity Trust. The Trust's Shares are
traded on the NASDAQ under the symbol "CMETs". The Trust's real estate
portfolio at December 31, 1995 consisted of 39 properties held for investment,
two equity method real estate partnerships (owning 31 industrial warehouse
facilities and two office buildings) and eight properties held for sale,
primarily acquired through foreclosure. Seven of the properties held for
investment were purchased during 1995, and one of the properties held for sale
was obtained in 1995 through foreclosure of the collateral securing a mortgage
note receivable. The Trust's mortgage notes receivable portfolio at December
31, 1995 consisted of 15 mortgage loans. The Trust's real estate and mortgage
note receivable portfolios are more fully discussed below.

BUSINESS PLAN AND INVESTMENT POLICIES

The Trust's primary business and only industry segment is investing in
equity interests in real estate through direct acquisitions and partnerships
and financing real estate and real estate related activities through
investments in mortgage loans, including first, wraparound and junior mortgage
loans. The properties in which the Trust invests are located throughout the
continental United States. Information regarding the properties and mortgage
notes receivable of the Trust is set forth below and in Schedules III and IV,
respectively, to the Consolidated Financial Statements included in "Index to
Financial Statements".

The business of the Trust is not seasonal. The Trust has pursued a balanced
investment policy, seeking both current income and capital appreciation. With
respect to new investments, the Trust's plan of operation has been to make
equity investments in real estate and to continue its program of investing in
capital improvements and emphasizing high maintenance standards with respect to
its existing real estate portfolio. The Trust has determined that it will no
longer actively seek to fund or purchase mortgage loans. It may, however,
originate mortgage loans in conjunction with providing purchase money financing
of a property sale. The Trust does intend however, to service and hold for
investment the mortgage notes currently in its portfolio. The Trust also
intends to pursue its rights vigorously with respect to mortgage notes that are
in default.

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<PAGE> 57
TRUST ASSETS

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

Details of the Trust's real estate and mortgage note receivable portfolios
at December 31, 1995 are set forth in Schedules III and IV, respectively, to
the Consolidated Financial Statements included under "Index to Financial
Statements". The discussion set forth below under the headings "Business and
Properties of the Trust -- Trust Assets --Real Estate" and "-- Trust Assets --
Mortgage Loans" provide certain summary information concerning the Trust's real
estate and mortgage notes receivable portfolios.

The Trust's real estate portfolio consists of commercial properties (office
buildings, industrial facilities and shopping centers) and apartments or
similar properties having established income-producing capabilities. The
discussion set forth below under the heading "-- Real Estate" provides certain
summary information concerning the Trust's real estate and further summary
information with respect to the portion of the Trust's real estate which
consists of equity investments and the Trust's investments in partnerships.

The Trust's real estate is geographically diversified. At December 31,
1995, the Trust held equity investments in apartments or commercial properties
in each of the geographic regions of the continental United States, as shown
more specifically in the table under "-- Real Estate". The majority of the
Trust's properties, however, are concentrated in the Southeast and Southwest
regions. At December 31, 1995, the Trust held 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, as shown more specifically in the table under "-- Mortgage Loans".

At December 31, 1995, none of the Trust's properties, partnerships,
investments or mortgage notes receivable exceeded 10% of the Trust's total
assets. At December 31, 1995, 80% of the Trust's assets consisted of properties
held for investment, 4% consisted of properties held for sale, 6% consisted of
investments in partnerships, and 2% consisted of mortgage notes and interest
receivable. The remaining 8% of the Trust's assets at December 31, 1995, were
cash, cash equivalents, marketable equity securities and other assets. It
should be noted, however, that the percentage of the Trust assets invested in
any one category is subject to change and that no assurance can be given that
the composition of the Trust's assets in the future will approximate the
percentages listed herein. To continue to qualify for federal taxation as a
REIT under the Code, the Trust is required, among other things, to hold at
least 75% of the value of its total assets in real estate assets, government
securities, cash and cash equivalents at the close of each quarter of each
taxable year. See "Proposed Incorporation Procedure -- Business Activities
after Incorporation Procedure".

GEOGRAPHIC LOCATION OF REAL ESTATE INVESTMENTS. The Trust has divided the
continental United States into the following geographic regions.

Northeast region comprised of the states of Connecticut, Delaware,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont and the District of Columbia. The Trust has one
apartment building in this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. The
Trust has 6 apartment buildings and 5 commercial properties in this region.

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<PAGE> 58
Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas. The Trust has 17 apartment buildings and 5
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. The Trust has 2 apartment
buildings and 3 commercial properties in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. The Trust has 3 apartment buildings and 1
commercial property in this region.

Pacific region comprised of the states of California, Oregon and
Washington. The Trust has 2 apartment buildings in this region.

REAL ESTATE. At December 31, 1995, 90% of the Trust's assets were invested
in real estate, located throughout the continental United States, either on a
leveraged or nonleveraged basis. The Trust's real estate portfolio consisted of
properties held for investment, investments in partnerships, properties held
for sale, which were primarily acquired through foreclosure of the collateral
securing mortgage notes receivable, and investments in the equity securities of
real estate entities.

Types of Real Estate Investments. The Trust has made real estate
investments in commercial properties, primarily office buildings, industrial
facilities and shopping centers, and in apartments or similar properties having
established income-producing capabilities. In selecting real estate for
investment, the location, age and type of property, gross rentals, lease terms,
financial and business standing of tenants, operating expenses, fixed charges,
land values and physical conditions are among the factors considered. The Trust
may acquire properties subject to or assume existing debt and may mortgage,
pledge or otherwise obtain financing for its properties.

At December 31, 1995, the Trust had no properties on which significant
capital improvements were in process. In the opinion of the Trust's management,
the properties owned by the Trust are adequately covered by insurance.

The following table sets forth the percentages, by property type and
geographic region, of the Trust's real estate (other than unimproved land as
described below) at December 31, 1995:

<TABLE>
<CAPTION>
Region Apartments Commercial Properties
------ ---------- ---------------------
<S> <C> <C>
Northeast 1.4% 0.0%
Southeast 20.4% 39.8%
Southwest 49.0% 39.1%
Midwest 16.1% 15.4%
Mountain 5.6% 5.7%
Pacific 7.5% 0.0%
----- -----
100.0% 100.0%
</TABLE>

The foregoing table is based solely on the number of apartment units and
commercial square footage owned by the Trust and does not reflect the value of
the Trust's investment in each region. The Trust also owns three parcels of
unimproved land, 5 acres located in the Southeast region and 128 acres and 6
acres in

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<PAGE> 59
the Southwest region. See Schedule III to the Consolidated Financial Statements
included under "Index to Financial Statements" below.

Properties Held for Investment. Set forth below is the real estate owned by
the Trust and held for investment:

<TABLE>
<CAPTION>
Occupancy
Property Location Units at Dec. 31, 1995
-------- -------- ----- ----------------
<S> <C> <C> <C>
Apartments
- ----------
Applecreek Dallas, TX 216 90%
Camelot Largo, FL 120 93%
Country Crossing Tampa, FL 227 91%
Edgewood Lansing, IL 353 94%
El Chapparal San Antonio, TX 190 92%
Fairways Longview, TX 152 90%
Forest Ridge Denton, TX 56 95%
4242 Cedar Springs Dallas, TX 76 95%
Fountain Lake Texas City, TX 166 90%
Heritage on the River Jacksonville, FL 301 94%
In the Pines Gainesville, FL 242 98%
McCallum Crossing Dallas, TX 322 98%
McCallum Glen Dallas, TX 275 95%
Park Avenue IV Clute, TX 108 73%
Park Lane Dallas, TX 97 92%
Parkwood Knoll San Bernardino, CA 178 98%
Pierce Tower Denver, CO 57 97%
Quail Oaks Balch Springs, TX 131 99%
Ravenswood Stratford, NJ 80 93%
Somerset Texas City, TX 200 91%
Southgate Square Roundrock, TX 200 96%
Stone Oak San Antonio, TX 252 93%
Sunset Lake Waukegan, IL 414 95%
Sunset Towers San Francisco, CA 243 99%
Willow Creek El Paso, TX 112 80%
Willo-Wick Gardens Pensacola, FL 152 66%
Willow Wick North Augusta, SC 104 99%
Woodbridge Westminister, CO 194 97%

Office Buildings
- -----------------
Genesee Towers Flint, MI 171,114 87%
NASA Office Park Clear Lake, TX 78,159 55%
Tollhill West Dallas, TX 159,546 94%
Windsor Plaza Windcrest, TX 80,522 87%

Industrial Facilities
- ---------------------
Brookfield Corporate Center Chantilly, VA 63,504 85%
</TABLE>

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<PAGE> 60
<TABLE>
<S> <C> <C> <C>
Kelly Warehouses Dallas, TX 330,334 88%
McLeod Commerce Center Orlando, FL 110,914 83%
Northgate Distribution Marietta, GA 208,386 89%
Sullyfield Commerce Center Chantilly, VA 243,813 84%

Shopping Centers
- ----------------
Builders Square St. Paul, MN 115,492 100%
Rio Pinar Orlando, FL 113,638 89%
</TABLE>

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

In February 1995, after determining that further investment in Genesee
Towers Office Building in Flint, Michigan, could not be justified without a
substantial modification of the mortgage debt, the Trust ceased making debt
service payments on the $8.8 million nonrecourse mortgage secured by the
property. Accordingly, as of December 31, 1994, the Trust wrote down the
carrying value of the property by $1.2 million. In February 1996, the Trust and
the lender entered into a forbearance agreement that provided, among other
things, that until August 20, 1996, the Trust make monthly payments of the
greater of regular scheduled principal and interest or cash flow from the
property. The deed to the property was placed in escrow during the term of the
forbearance agreement. The Trust transferred the property to the lender in
September 1996. The Trust had written down the carrying value of the property
to the amount of the nonrecourse mortgage debt, which approximated fair value
of the property. During the pendency of the foreclosure negotiations, the Trust
continued to accrue and expense its interest obligations on such note. In
September 1996, the Trust recorded a negative provision for loss with the
elimination of its obligation for such accrued interest on the transfer of the
property to the lender.

In March 1996, the Trust purchased the Hampton Court Office Building, a
104,001 square foot office building in Dallas, Texas, for $7.7 million. The
Trust paid $1.4 million in cash and obtained new mortgage financing of $6.3
million. The Trust paid a real estate brokerage commission of $205,000 to
Carmel Realty and an acquisition fee of $77,000 to BCM based on the $7.7
million purchase price of the property.

In April 1996, the Trust purchased the Amoco Building, a 378,244 square
foot office building in New Orleans, Louisiana, for $5.9 million in cash. The
Trust paid a real estate brokerage commission of $188,000 to Carmel Realty and
an acquisition fee of $59,000 to BCM based on the $5.9 million purchase price
of the property.

Also in April 1996, the Trust purchased the Central Storage Warehouse, a
216,035 square foot warehouse in Dallas, Texas, for $2.2 million in cash. The
Trust paid a real estate brokerage commission of $86,000 to Carmel Realty and
an acquisition fee of $22,000 to BCM based on the $2.2 million purchase price
of the property.

In May 1996, the Trust sold the Sunset Towers Apartments in San Francisco,
California for $24.1 million in cash. The Trust received $9.7 million after the
payoff of $14.0 million in existing mortgage debt and the payment of various
closing costs associated with the sale. The Trust paid a real estate sales
commission of $482,000 to Carmel Realty based on the $24.1 million sales price
of the property. The Trust recognized a gain of $5.4 million on the sale.

In June 1996, the Trust purchased the Grove Park Apartments, a 188 unit
apartment complex in Plano, Texas for $4.4 million. The Trust paid $1.2 million
in cash and assumed the existing first lien

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<PAGE> 61
mortgage of $3.2 million. The mortgage bears interest at a rate of 8.9% per
annum, requires monthly payments of principal and interest of $26,315 and
matures in March 1998. The Trust paid a $153,000 real estate brokerage
commission to Carmel Realty and a $44,000 acquisition commission to BCM based
on the $4.4 million purchase price of the property.

In July 1996, the Trust purchased the Promenade Shopping Center, a 133,558
square foot shopping center in Highlands Ranch, Colorado for $8.1 million. The
Trust paid $1.8 million in cash and obtained new mortgage financing for the
remaining $6.3 million of the purchase price. The Trust paid a $232,000 real
estate brokerage commission to Carmel Realty and a $81,000 acquisition
commission to BCM based on the $8.1 million purchase price of the property.

Also in July 1996, the Trust purchased the Park at Colonnade Apartments, a
211 unit apartment complex in San Antonio, Texas for $4.2 million. The Trust
paid $700,000 in cash and obtained new mortgage financing for the remaining
$3.5 million of the purchase price. The Trust paid a $146,000 real estate
brokerage commission to Carmel Realty and a $42,000 acquisition commission to
BCM based on the $4.2 million purchase price of the property.

Also in July 1996, the Trust purchased the 3400 Carlisle Building, a 74,000
square foot office building in Dallas, Texas for $5.3 million. The Trust paid
$800,000 in cash and obtained new mortgage financing for the remaining $4.5
million of the purchase price. The Trust paid a $177,000 real estate brokerage
commission to Carmel Realty and a $53,000 acquisition commission to BCM based
on the $5.3 million purchase price of the property.

In August 1996, the Trust sold the Southgate Square Apartments in Round
Rock, Texas for $6.1 million in cash. The Trust received net cash of $3.0
million after the payoff of $2.9 million in existing mortgage debt and the
payment of various closing costs associated with the sale. The Trust paid a
real estate sales commission of $192,000 to Carmel Realty based on the $6.1
million sales price. The Trust recognized a gain of $3.6 million on the sale.

In September 1996, the Trust purchased the Shady Trail Warehouse, a 42,900
square foot warehouse in Dallas, Texas for $681,000. The Trust paid $131,000 in
cash and obtained new mortgage financing for the remaining $550,000 of the
purchase price. The Trust paid a $27,000 real estate brokerage commission to
Carmel Realty and a $7,000 acquisition commission to BCM based on the $681,000
purchase price of the property.

Also in September 1996, the Trust sold the Ravenswood Apartments in
Stratford, New Jersey for $1.2 million in cash. The Trust paid a real estate
sales commission of $49,600 to Carmel Realty based on the $1.2 million sales
price. The Trust recognized no gain or loss on the sale.

In November 1996, the Trust purchased the Glenwood Apartments, a 168 unit
apartment complex in Addison, Texas for $4.2 million. The Trust paid $1.3
million in cash and assumed existing mortgage financing of $2.9 million. The
Trust paid a $145,000 real estate brokerage commission to Carmel Realty and a
$42,000 acquisition commission to BCM based upon the $4.2 million purchase
price of the property.

In December 1996, the Trust purchased the Oak Run Apartments, a 160 unit
apartment complex in Pasadena, Texas for $3.8 million. The Trust paid $1.2
million in cash and obtained new mortgage financing for the remaining $2.6
million of the purchase price. The Trust paid a $133,000 real estate brokerage
commission to Carmel Realty and a $38,000 acquisition commission to BCM based
upon the $3.8 million purchase price of the property.

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<PAGE> 62
Also in December 1996, the Trust purchased Northpoint Central, a 176,043
square foot office building in Houston, Texas for $8.5 million. The Trust paid
$5.8 million in cash with the seller financing the remaining $2.7 million of
the purchase price. The Trust paid a $241,000 real estate brokerage commission
to Carmel Realty and a $85,000 acquisition commission to BCM based upon the
$8.5 million purchase price of the property.

Also in December 1996, the Trust purchased the 2626 Cole, a 119,632 square
foot office building in Dallas, Texas for $8.7 million. The Trust paid $2.2
million in cash and obtained new mortgage financing for the remaining $6.5
million of the purchase price. The Trust paid a $245,000 real estate brokerage
commission to Carmel Realty and a $87,000 acquisition commission to BCM based
upon the $8.7 million purchase price of the property.

Partnership Properties. The following table summarizes the Trust's
investments in partnership properties as of December 31, 1995:

<TABLE>
<CAPTION>
Occupancy
Property Location Square Footage at Dec. 31, 1995
-------- -------- -------------- ----------------
<S> <C> <C> <C>
Sacramento Nine Rancho Cordova, CA 105,249 100%
Indcon, L.P. Dallas, TX 424,813 89%
San Antonio, TX 418,317 100%
Atlanta, GA 1,584,447 99%
Memphis, TN 655,077 89%
</TABLE>

The Trust, in partnership with National Income Realty Trust ("NIRT"), owns
Sacramento Nine ("Sac 9") which in turn owns two office buildings. The Trust
has a 30% general partner interest in the partnership. The Trust accounts for
its investment in the partnership using the equity method. Until August 1994,
Ted P. Stokely, a Trustee of the Trust, also served as a Trustee of NIRT. Until
March 31, 1994, BCM served as advisor to NIRT.

The Trust and NIRT are also the partners in Income Special Associates
("ISA"), a joint venture partnership in which the Trust has a 60% partnership
interest. ISA in turn owns a 100% interest in Indcon, L.P. ("Indcon"), formerly
known as Adams Properties Associates. At December 31, 1995, Indcon owned 31
industrial warehouse facilities. The Indcon partnership agreement requires
consent of both the Trust and NIRT for any material changes in the operations
of the partnership's properties, including sales, refinancings and changes in
property manager. Therefore, the Trust is a non-controlling partner and
accounts for its investment in Indcon using the equity method.

In February and March 1996, Indcon completed the sale of 25 of its
industrial warehouses for a total of $36.2 million in cash. Indcon received net
cash of $14.2 million, of which the Trust's equity share was $8.5 million,
after the payoff of existing mortgage debt with a principal balance of $23.4
million. Indcon recognized a gain of $617,000 on the sale, of which the Trust's
equity share was $370,000. Indcon paid a real estate sales commission of
$585,000 to Carmel Realty based upon the $36.2 million sales price of the
properties.

In April 1996, Indcon sold two additional industrial warehouses for $1.8
million in cash, of which the Trust's equity share was $1.1 million. Indcon
paid a real estate sales commission of $16,000 to Carmel Realty based upon the
$1.8 million sales price of the properties.

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<PAGE> 63
Properties Held for Sale. Set forth below is the real estate owned by the
Trust and held for sale and a property under contract for sale, at December 31,
1995:

<TABLE>
<CAPTION>
Units/ Occupancy
Property Location Square Footage at Dec. 31, 1995
-------- -------- -------------- ----------------
<S> <C> <C> <C>
Apartments
- ----------
Crystal Court Detroit, MI 129 units 85%

Rivertree Hurst, TX 205 units 84%

Shadowridge Rocksprings, WY 64 units 92%

Office Buildings
- ----------------
Pinemont Houston, TX 19,685 sq. ft. 80%

Industrial Facility
- -------------------
Ogden Industrial Ogden, UT 107,112 sq. ft. 100%

Land
- ----
Del Ray Forum Del Ray Beach, FL 5 acres

Northwest Crossings Houston, TX 6 acres

Round Mountain Austin, TX 128 acres
</TABLE>

At December 31, 1995, Rivertree Apartments was under contract for sale. In
February 1996, the Trust completed the sale of the apartment complex for $1.8
million. In conjunction with the sale the Trust provided $750,000 of purchase
money financing in the form of a wraparound mortgage note, which was paid in
full in August 1996. The Trust received net cash of $959,000 after the payment
of various closing costs associated with the sale. The Trust paid a real estate
sales commission of $70,000 to Carmel Realty based on the $1.8 million sales
price of the property. The Trust recognized a gain of $378,000 on the sale. See
"-- Mortgage Loans" below.

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

MORTGAGE LOANS. A substantial portion of the Trust's assets are invested in
mortgage notes receivable, principally those secured by income-producing real
estate. The Trust expects that the percentage of its assets invested in
mortgage loans will decrease, as it has determined that it will no longer
actively seek to fund or acquire mortgage loans. It may, however, originate
mortgage loans in conjunction with providing purchase money financing of a
property sale. The Trust does intend, however, to service and hold for
investment the mortgage notes currently in its portfolio. The Trust's mortgage
notes receivable consist of first mortgage loans and junior mortgage loans.

In the past, the Trust has originated its own mortgage loans as well as
acquired existing mortgage notes either directly from builders, developers or
property owners, or through mortgage banking firms, commercial banks or other
qualified brokers. The Trust is generally not considering new mortgage lending,

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<PAGE> 64
except in connection with purchase money financing offered to facilitate the
sale of Trust properties. BCM, in its capacity as a mortgage servicer, services
the Trust's mortgage notes. The properties securing the Trust's mortgage notes
receivable portfolio at December 31, 1995, consisted of office buildings,
apartments and single-family residences.

At December 31, 1995, the Trust's mortgage notes receivable portfolio
included eight mortgage loans with an aggregate outstanding balance of $7.6
million secured by income-producing real estate located throughout the United
States and seven mortgage loans with an aggregate outstanding balance of
$654,000 secured by single-family residences also located throughout the United
States. At December 31, 1995, a total of 2% of the Trust's assets were invested
first in mortgage notes.

The following table sets forth the percentages (based on the outstanding
mortgage note balance), by both property type and geographic region, of the
properties that serve as collateral for the Trust's outstanding mortgage notes
receivable portfolio at December 31, 1995. The table does not include the
$654,000 in mortgage notes secured by single-family residences discussed in the
preceding paragraph or the $1.6 million first mortgage secured by a ranch
located in Southwest region.

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties Total
------ ---------- ---------- -----
<S> <C> <C> <C>
Southeast . . . . . . . 12.5% 52.2% 64.7%
Southwest . . . . . . . 22.1 7.3 29.4
Midwest . . . . . . . . 5.9 -- 5.9
------- ------ -------
40.5% 59.5% 100.0%
</TABLE>

The Trust's mortgage notes have included first mortgage loans, wraparound
mortgage loans and junior mortgage loans. BCM, in its capacity as a mortgage
servicer, services the Trust's mortgage notes.

In February 1996, the Trust funded a $1.5 million second lien mortgage
secured by the Signature Athletic Club Building in Dallas, Texas. The note
bears interest at 12% per annum and requires monthly interest only payments to
the extent of available cash flow. Any accrued but unpaid interest is added to
the principal balance of the note annually. In addition, the note requires
quarterly principal payments equal to the excess property cash flow for the
quarter. The note matures in October 1998 with an option to extend the note to
December 2000. The Trust has also guaranteed the underlying $3.0 million first
mortgage secured by the property which is current. The Trust has an option to
purchase a 50% interest in the partnership which owns the Signature Athletic
Club Building. The option expires in December 2005. The Club has had no
available cash flow during 1996, therefore the Trust ceased recognizing
interest income effective June 1996.

In July 1996, the Trust agreed to fund a $500,000 promissory note secured
by a contract to purchase land in Frisco, Texas. Through September 30, 1996,
the Trust has funded $300,000. The note bears interest at 13% per annum and all
interest and principal is payable at the December 31, 1996 maturity date.

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<PAGE> 65
EQUITY INVESTMENTS IN REAL ESTATE ENTITIES. In September 1990, the
Trust's Board of Trustees authorized the purchase of up to $2.0 million of the
common stock of ART through negotiated or open market transactions. The
officers of the Trust also serve as officers of ART and BCM. BCM, the Trust's
advisor, also serves as advisor to ART. At December 31, 1996, ART owned
approximately 40.6% of the Trust's outstanding shares of beneficial interest.
At December 31, 1996, the Trust owned 409,044 shares of ART's common stock,
approximately 6% of ART's outstanding shares of common stock, which the Trust
had purchased in open market transactions in 1990 and 1991, at a total cost to
the Trust of $1.6 million. The ART common stock owned by the Trust is
considered to be available for sale and accordingly, is carried at fair value
defined as the period end closing market value. At December 31, 1996, the
market value of the ART common stock was $5.3 million.

In December 1990, the Trust's Board of Trustees authorized the purchase
of up to $1.0 million of NIRT, a REIT that until March 31, 1994, was also
advised by BCM, and up to $1.0 million in shares of common stock of
Transcontinental Realty Investors, Inc. ("TCI") through negotiated or open
market transactions. The Trustees of the Trust serve as directors of TCI. BCM,
the Trust's advisor, also serves as advisor to TCI. At September 30, 1996, the
Trust owned 84,580 shares of beneficial interest of NIRT acquired at a total
cost to the Trust of $415,000, all of which the Trust purchased in open market
transactions in 1990 and 1991. On November 8, 1996, the Trust's Board of
Trustees approved the sale of the NIRT shares for $1.1 million. Such sale was
completed on December 7, 1996. On December 31, 1996, the Trust owned 79,500
shares to NIRT of common stock of TCI acquired at a total cost to the Trust
of $235,000 all of which shares the Trust purchased in open market transactions
in 1990 and 1991. The Trust's investment in TCI is also considered as available
for sale and is also carried at fair value. At December 31, 1996, the market
value of the Trust's investment in TCI shares was $875,000.

Under the original terms of its Declaration of Trust, the Trust was
prohibited from investing in equity securities for a period in excess of 18
months. However, pursuant to an amendment to the Trust's Declaration of Trust
approved by the Trust's shareholders in May 1992, the Trust was permitted to
hold these shares of ART, NIRT and TCI until July 30, 1996. At the Annual
Meeting of Shareholders held in May 1996, shareholder's of the Trust repealed
that section of the Trust's Declaration of Trust which limited the holding
period for equity securities.

CERTAIN FACTORS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS

The Trust is subject to all the risks incident to ownership of real
estate and interests therein, many of which relate to the general illiquidity
of real estate investments. These risks include, but are not limited to,
changes in general or local economic conditions, changes in interest rates and
availability of permanent mortgage financing that may render the acquisition,
sale or refinancing of a property difficult or unattractive and that may make
debt service more burdensome, changes in federal or local economic or rent
controls, floods, earthquakes, other acts of God and other factors beyond the
control of the advisor or the Trust. The illiquidity of real estate investments
generally may impair the ability of the Trust to respond promptly to changed
circumstances. The Trust's management believes that such risks are partially
mitigated by the diversification by geographical location and property type of
the Trust's real estate portfolio.

METHOD OF OPERATING AND FINANCING

The Declaration of Trust has permitted the Trust to acquire real estate
investments for cash, for other property, through issuing Shares, notes,
debentures, bonds or other obligations of the Trust, including borrowing money,
subject to the following restrictions. Under the Declaration of Trust, upon and
after giving effect to any proposed borrowing, the amount of outstanding
indebtedness of the Trust may not

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<PAGE> 66
exceed 300% of the net asset value of the Trust. The Declaration of Trust does
not limit the number or amount of mortgages which can be placed on any one of
the Trust's real estate investments. Apart from the aforementioned
restrictions, the Trustees may alter the Trust's method of operating and
financing without a vote of Shareholders. CEI Nevada's Articles of
Incorporation impose no limitations either on borrowing or on the number or
amount of mortgages which can be placed on any one of CEI Nevada's real estate
investments. See "Proposed Incorporation Procedure -- Business Activities after
Incorporation Procedure".

OFFICERS

The following persons currently serve as executive officers of the Trust
and, if the Incorporation Procedure is approved, will serve as the executive
officers of CEI Nevada: Randall M. Paulson, President, Thomas A. Holland,
Executive Vice President and Chief Financial Officer, and Bruce A. Endendyk,
Executive Vice President. Although not executive officers of the Trust, the
following persons currently serve as officers of the Trust and, if the
Incorporation Procedure is approved, will serve as officers of the CEI Nevada:
Lynn W. Humphries, Senior Vice President-Commercial Asset Management, Mark W.
Branigan, Senior Vice President-Residential Asset Management, Drew D. Potera,
Vice President and Treasurer, and Robert A. Waldman, Senior Vice President,
General Counsel and Secretary.

THE ADVISOR

Although the Board of Trustees is directly responsible for managing the
affairs of the Trust and for setting the policies which guide the Trust, the
day-to-day operations of the Trust are performed by a contractual advisor under
the supervision of the Board of Trustees. The duties of the advisor include,
among other things, locating, investigating, evaluating and recommending real
estate and mortgage note investment and sales opportunities for the Trust. The
advisor also serves as a consultant in connection with business planning and
investment policy decision for the Trust.

BCM has served as the Trust's advisor since March 1989. BCM also serves
as advisor to Income Opportunity Realty Investors, Inc. ("IORI"), ART and TCI.
The Trustees of the Trust are also directors of IORI and TCI, and the officers
of the Trust are also officers of IORI, ART and TCI. Randall M. Paulson,
President of the Trust, also serves as President of CMET, TCI, BCM and Syntek
Asset Management, Inc. ("SAMI"), the managing general partner of Syntek Asset
Management, L.P. ("SAMLP"). As of December 31, 1996, ART owned approximately
40.6% and BCM owned approximately 12.2% of the Trust's outstanding shares of
beneficial interest, and BCM owned approximately 41.6% and the Trust owned
approximately 7% of ART's outstanding shares of common stock.

PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM have provided property
management services to the Trust. Currently Carmel Realty Services, Ltd.
("Carmel Ltd.") provides such property management services for a fee of 5% or
less of the monthly gross receipts collected on the properties under its
management. Carmel Ltd. subcontracts with other entities for the provision of
the property-level management services to the Trust at various rates. The
general partner of Carmel Ltd. is BCM. Carmel Ltd. subcontracts the property-
level management and leasing of twelve of the Trust's commercial properties and
the industrial warehouse facilities owned by a real estate partnership in which
the Trust is a partner to Carmel Realty, which is a company owned by Syntek
West, Inc. ("SWI"). Carmel Realty is entitled to receive property and
construction management fees and leasing commissions in accordance with the
terms of its property-level management agreement with Carmel Ltd.

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<PAGE> 67
REAL ESTATE BROKERAGE

Since December 1, 1992, Carmel Realty has been engaged, on a
non-exclusive basis, to provide brokerage services to the Trust. Under the
brokerage agreement between the Trust and Carmel Realty, Carmel Realty is
entitled to receive a commission for property acquisitions and sales by the
Trust in accordance with the following sliding scale of total fees to be paid
by the Trust: (i) maximum fee of 5% on the first $2.0 million of any purchase
or sale transaction, of which no more than 4% would be paid to Carmel Realty or
affiliates; (ii) maximum fee of 4% on transaction amounts between $2.0 million
and $5.0 million, of which no more than 3% would be paid to Carmel Realty or
affiliates; (iii) maximum fee of 3% on transaction amounts between $5.0 million
and $10.0 million, of which no more than 2% would be paid to Carmel Realty or
affiliates; and (iv) maximum fee of 2% on transaction amounts in excess of
$10.0 million, of which no more than 1 1/2% would be paid to Carmel Realty or
affiliates. If the Incorporation Procedure is approved, the Brokerage Agreement
will not be amended and will continue in full force and effect with CEI Nevada,
as successor to the Trust, being substituted for the Trust.

THE ADVISORY AGREEMENT

BCM has served as advisor to the Trust since March 28, 1989. The current
Advisory Agreement was entered into effective December 1, 1992. At the Trust's
annual meeting of shareholders held on May 31, 1996, the renewal (until the
next Annual Meeting of the Trust or CEI Nevada as its successor) of the Trust's
Advisory Agreement with BCM was approved.

Under the Advisory Agreement, BCM is required to formulate and submit
annually for approval by the Board of Trustees a budget and business plan for
the Trust containing a twelve-month forecast of operations and cash flow, a
general plan for asset sales, acquisitions, lending, foreclosure and borrowing
activity, and other investments. BCM is required to report quarterly to the
Board of Trustees on the Trust's performance against the business plan. In
addition, all transactions by the Trust require prior approval by the Board of
Trustees unless such transactions are explicitly provided for in the approved
business plan or are made pursuant to authority expressly delegated to BCM by
the Board of Trustees.

The Advisory Agreement also requires prior approval of the Board of
Trustees for the retention of all consultants and third party professionals,
other than legal counsel. The Advisory Agreement provides that BCM shall be
deemed to be in a fiduciary relationship to the Trust's shareholders; contains
a broad standard governing BCM's liability for losses by the Trust; and
contains guidelines for BCM's allocation of investment opportunities as among
itself, the Trust and other entities it advises.

The Advisory Agreement provides for BCM to be responsible for the day-to-
day operations of the Trust and to receive an advisory fee comprised of a gross
asset fee of .0625% per month (.75% per annum) of the average of the gross
asset value of the Trust (total assets less allowance for amortization,
depreciation or depletion and valuation reserves) and an annual net income fee
equal to 7.5% per annum of the Trust's net income.

The Advisory Agreement also provides for BCM to receive an annual
incentive sales fee equal to 10% of the amount, if any, by which the aggregate
sales consideration for all real estate sold by the Trust during such fiscal
year exceeds the sum of: (i) the cost of each such property as originally
recorded in the Trust's books for tax purposes (without deduction for
depreciation, amortization or reserve for losses), (ii) capital improvements
made to such assets during the period owned by the Trust and (iii) all closing
costs (including real estate commissions) incurred in the sale of such
property; provided, however, no incentive fee shall be paid unless (a) such
real estate sold in such fiscal year, in the aggregate, has produced an 8%

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simple annual return on the Trust's net investment including capital
improvements, calculated over the Trust's holding period before depreciation
and inclusive of operating income and sales consideration and (b) the aggregate
net operating income from all real estate owned by the Trust for each of the
prior and current fiscal years shall be at least 5% higher in the current
fiscal year than in the prior fiscal year.

Additionally, pursuant to the Advisory Agreement, BCM or an affiliate of
BCM is to receive an acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate for the Trust equal to the lesser of
(i) up to 1% of the cost of acquisition, inclusive of commissions, if any, paid
to nonaffiliated brokers or (ii) the compensation customarily charged in arm's-
length transactions by others rendering similar property acquisition services
as an ongoing public activity in the same geographical location and for
comparable property; provided that the aggregate purchase price of each
property (including acquisition fees and all real estate brokerage commissions)
may not exceed such property's appraised value at acquisition.

The Advisory Agreement requires BCM or any affiliate of BCM to pay to the
Trust one-half of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by the Trust,
provided, however, that the compensation retained by BCM or any affiliate of
BCM shall not exceed the lesser of (i) 2% of the amount of the loan committed
by the Trust or (ii) a loan brokerage and commitment fee that is reasonable and
fair under the circumstances.

The Advisory Agreement also provides that BCM or an affiliate of BCM is
to receive a mortgage or loan acquisition fee with respect to the acquisition
or purchase of any existing mortgage loan by the Trust equal to the lesser of
(i) 1% of the amount of the loan purchased or (ii) a loan brokerage or
commitment fee which is reasonable and fair under the circumstances. Such fee
will not be paid in connection with the origination or funding by the Trust of
any mortgage loan.

Under the Advisory Agreement, BCM or an affiliate of BCM is also to
receive a mortgage brokerage and equity refinancing fee for obtaining loans to
the Trust or refinancing on Trust properties equal to the lesser of (i) 1% of
the amount of the loan or the amount refinanced or (ii) a brokerage or
refinancing fee that is reasonable and fair under the circumstances; provided,
however, that no such fee shall be paid on loans from BCM or an affiliate of
BCM without the approval of the Board of Trustees. No fee shall be paid on loan
extensions.

Under the Advisory Agreement, BCM is to receive reimbursement of certain
expenses incurred by it in the performance of advisory services to the Trust.

Under the Advisory Agreement (as required by the Declaration of Trust),
all or a portion of the annual advisory fee must be refunded by the Advisor to
the Trust if the Operating Expenses of the Trust (as defined in the Declaration
of Trust) exceed certain limits specified in the Declaration of Trust based on
the book value, net asset value and net income of the Trust during such fiscal
year. In 1995, the effect of this limitation was to require that BCM refund
$250,000 of the 1995 annual advisory fee. The Operating Expenses of the Trust
did not exceed such limitation in 1994 or 1993.

Additionally, if the Trust were to request that BCM render services to
the Trust other than those required by the Advisory Agreement, BCM or an
affiliate of BCM will be separately compensated for such additional services on
terms to be agreed upon from time to time. The Trust has hired Carmel Ltd., an
affiliate of BCM, to provide property management for the Trust's properties,
and the Trust has engaged Carmel Realty, also an affiliate of BCM, on a
non-exclusive basis, to provide brokerage services for the Trust.

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<PAGE> 69
BCM may only assign the Advisory Agreement with the prior consent of the
Trust.

As discussed above and as mandated by the Declaration of Trust, the
current Advisory Agreement requires that a portion of the annual advisory fee
be refunded to the Trust if operating expenses exceed certain limits. Although
CEI Nevada's Articles of Incorporation do not require such a limitation, it
will be included contractually in an amendment to the Advisory Agreement if the
Incorporation Procedure is approved. See Appendix G for the form of the
proposed advisory agreement between CEI Nevada and BCM that will be executed if
the Incorporation Procedure is approved.

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

Mickey N. Phillips Director
Ryan T. Phillips Director
Randall M. Paulson President
Mark W. Branigan Executive Vice President
Bruce A. Endendyk Executive Vice President
Thomas A. Holland Executive Vice President and Chief Financial Officer
Cooper B. Stuart Executive Vice President
Clifford C. Towns, Jr. Executive Vice President, Finance
Dan S. Allred Senior Vice President-Land Development
Lynn W. Humphries Senior Vice President
Robert A. Waldman Senior Vice President, General Counsel and Secretary
Drew D. Potera Vice President, Treasurer and Securities Manager

Mickey N. Phillips is Gene E. Phillips' brother, and Ryan T. Phillips is
Gene E. Phillips' son. Gene E. Phillips served as a Trustee of the Trust until
December 31, 1992, as a Director of BCM until December 22, 1992 and as Chief
Executive Officer of BCM until September 1, 1992. Although Gene E. Phillips no
longer serves as an officer or director of BCM or as a Trustee of the Trust, he
serves as a representative of the trust established for the benefit of his
children, which trust owns BCM, and, in such capacity, Gene E. Phillips has
substantial contact with the management of BCM and input with respect to its
performance of advisory services for the Trust.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

In February 1990, the Trust, together with IORI, NIRT and TCI, three
real estate entities with, at the time, the same officers, directors or
trustees and advisor as the Trust, entered into a settlement of a class and
derivative action entitled Olive et al. v. National Income Realty Trust et al.
pending before the United States District Court for the Northern District of
California and relating to the operation and management of each of the entities
(the "Olive Litigation"). The Olive Litigation was originally filed on December
8, 1989, and alleged, among other things, a breach of the terms of the
Declaration of Trust, a breach of trust, and a breach of the fiduciary duty
owed by the Trustees to the Trust. These allegations were based in part on the
Trustees' actions in retaining BCM as the advisor to the Trust without
Shareholder approval. The plaintiffs in the case originally sought injunctive
and other equitable relief. On April 23, 1990, the court granted final approval
of the terms of the settlement.

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On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Olive Modification") that settled
subsequent claims of breaches of the settlement that were asserted by the
plaintiffs and that modified certain provisions of the April 1990 settlement.
The Olive Modification was preliminarily approved by the court on July 1, 1994,
and final court approval was entered on December 12, 1994. The effective date
of the Olive Modification was January 11, 1995.

The Olive Modification, among other things, provided for the addition of
three new unaffiliated members to the Trust's Board of Trustees and set forth
new requirements for the approval of any transactions with affiliates over the
next five years. In addition, BCM, the Trust's advisor, Gene E. Phillips and
William S. Friedman, who served as President and Trustee of the Trust until
February 24, 1994, President of BCM until May 1, 1993 and Director of BCM until
December 22, 1989, agreed to pay a total of $1.2 million to the Trust, IORI,
NIRT and TCI, of which $750,000 was paid to the Trust. As of August 1, 1996,
all payments required to be paid to the Trust under the Olive Modification by
BCM and Messrs. Phillips and Friedman have been made.

Under the Olive Modification, the Trust, IORI, NIRT, TCI and their
shareholders released the defendants from any claims relating to the
plaintiffs' allegations. The Trust, IORI, NIRT and TCI also agreed to waive any
demand requirement for the plaintiffs to pursue claims on behalf of each of
them against certain persons or entities. The Olive Modification also requires
that any shares of the Trust held by Messrs. Phillips, Friedman or their
affiliates shall be (i) voted in favor of the reelection of all current members
of the Board of Trustees that stand for reelection during the two calendar
years following the effective date of the Olive Modification and (ii) voted in
favor of all new members of the Board of Trustees appointed pursuant to the
terms of the Olive Modification that stand for reelection during the three
calendar years following the effective date of the Olive Modification.

Pursuant to the terms of the Olive Modification, certain related party
transactions which the Trust (or CEI Nevada, as successor to the Trust) may
enter into prior to April 28, 1999, will require the unanimous approval of the
Board of Trustees. In addition, such related party transactions are to be
discouraged and may only be entered into in exceptional circumstances and after
a determination by the Board of Trustees that the transaction is in the best
interest of the Trust and that no other opportunity exists that is as good as
the opportunity presented by such transaction.

For purposes of the Olive Modification requirements, the term "related
party transaction" means and includes (i) any transaction between or among the
Trust and IORI, NIRT or TCI or any of their affiliates or subsidiaries; (ii)
any transaction between or among the Trust, its affiliates or subsidiaries and
BCM, Mr. Phillips, Mr. Friedman or any of their affiliates; and (iii) any
transaction between or among the Trust or any of its affiliates or subsidiaries
and a third party with whom BCM, Mr. Phillips, Mr. Friedman or any of their
affiliates has an ongoing or contemplated business or financial transaction or
relationship of any kind, whether direct or indirect, or has had such a
transaction or relationship in the preceding one year.

The Olive Modification requirements for related party transactions do not
apply to direct contractual agreements for services between the Trust and BCM
or one of its affiliates, including the Advisory Agreement, the Brokerage
Agreement and property management contracts. These agreements, pursuant to the
specific terms of the Olive Modification, require the prior approval by two-
thirds of the Trustees of the Trust and, pursuant to the terms of the
Declaration of Trust, approval by a majority of the shareholders. The Olive
Modification requirements for related party transactions also do not apply to
joint ventures between or among the Trust and IORI, NIRT or TCI or any of their
affiliates or subsidiaries and a third party having no prior or intended future
business or financial relationship with Mr. Phillips, Mr. Friedman, BCM, or any

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<PAGE> 71
affiliate of such parties. Such joint ventures may be entered into on the
affirmative vote of a majority of the Trustees of the Trust.

The Olive Modification also terminated a number of the provisions of the
original settlement including the requirement that the Trust, IORI, NIRT and
TCI maintain a Related Party Transaction Committee and a Litigation Committee
of their respective Boards. The Court retained jurisdiction to enforce the
Olive Modification, and during August and September 1996, the Court held
evidentiary hearings to assess compliance with the terms of the Olive
Modification by the various parties. The Court has not issued any ruling or
order with respect to the matters addressed at the hearings.

Separately, in 1996, legal counsel for the plaintiffs notified the
Trust's Board of Trustees that he intends to assert that certain actions taken
by the Board of Trustees during 1994, 1995 and 1996 breached the terms of the
Olive Modification. Plaintiffs' counsel has not made a petition to the court on
any of these claims.

CERTAIN BUSINESS RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

CERTAIN BUSINESS RELATIONSHIPS. In February 1989, the Board of Trustees
voted to retain BCM as the Trust's advisor. The Trust's President and Executive
Vice Presidents serve also as executive officers of BCM.

Since February 1, 1990, affiliates of BCM have provided property
management services to the Trust. Currently, Carmel Ltd. provides such property
management services. The general partner of Carmel Ltd. is BCM. The limited
partners of Carmel Ltd. are (i) SWI, of which Mr. Phillips is the sole
shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel Ltd. subcontracts the property-level
management and leasing of twelve of the Trust's commercial properties and the
industrial warehouse facilities owned by a real estate partnership in which the
Trust and NIRT are partners to Carmel Realty, which is a company owned by SWI.

Prior to December 1, 1992, affiliates of BCM provided brokerage services
to the Trust and received brokerage commissions in accordance with the Advisory
Agreement. Since December 1, 1992, the Trust has engaged, on a non-exclusive
basis, Carmel Realty to perform brokerage services to the Trust.

The Trustees and officers of the Trust also serve as directors and
officers of IORI and TCI. The Trustees owe fiduciary duties to such entities as
well as to the Trust under applicable law. IORI and TCI have the same
relationship with BCM as the Trust. Mr. Phillips is a general partner of SAMLP,
the general partner of National Realty, L.P. ("NRLP") and National Operating,
L.P. ("NOLP"). BCM performs certain administrative functions for NRLP and NOLP
on a cost-reimbursement basis. BCM also serves as advisor to ART. Mr. Phillips
served as Chairman of the Board and director of ART, until November 16, 1992.
The officers of the Trust also serve as officers of ART.

From April 1992 to December 31, 1992, Ted P. Stokely, a Trustee of the
Trust, was employed as a paid real estate consultant and since January 1993 as
a part-time unpaid consultant for Eldercare Housing Foundation ("Eldercare"), a
nonprofit corporation engaged in the operation of a nursing home. Eldercare has
a revolving loan commitment from SWI, of which Mr. Phillips is the sole
shareholder. Eldercare filed for bankruptcy protection in July 1993 and was
dismissed from bankruptcy on October 12, 1994. Eldercare filed again for
bankruptcy protection in May 1995 and was reorganized in February 1996, at
which time all creditors, including SWI, were paid.

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<PAGE> 72
RELATED PARTY TRANSACTIONS. Historically, the Trust has engaged in and
may continue to engage in business transactions, including real estate
partnerships, with related parties. The Trust's management believes that all of
the related party transactions represented the best investments available at
the time and were at least as advantageous to the Trust as investments that
could have been obtained from unrelated third parties.

The Trust is engaged with NIRT in the Sacramento Nine and Indcon , L.P.
partnerships.

In September 1990, the Board of Trustees authorized the purchase of up to
$2.0 million of the common shares of ART through negotiated or open market
transactions. BCM also serves as advisor to ART and at December 31, 1996 ART
owned approximately 40.6% of the Trust's outstanding shares of beneficial
interest. At December 31, 1996, the Trust owned 409,044 shares of ART common
stock which the Trust had purchased in open market transactions in 1990 and
1991 at a total cost to the Trust of $1.6 million. At December 31, 1996, the
market value of the ART shares was $5.3 million.

In December 1990, the Board of Trustees authorized the purchase of up to
$1.0 million of the shares of beneficial interest of NIRT and up to $1.0
million of the shares of TCI common stock through negotiated or open market
transactions. The Trustees of the Trust also serve as directors of TCI and the
officers of the Trust also serve as officers of TCI. BCM also serves as advisor
to TCI. Until March 31, 1994, BCM also served as advisor to NIRT. At September
30, 1996, the Trust owned 84,580 shares of beneficial interest of NIRT at a
total cost of $415,000, all of which the Trust purchased in open market
transactions in 1990 and 1991. On November 8, 1996, the Trust's Board of
Trustees approved the sale of the NIRT shares to NIRT for $1.1 million. Such
sale was completed on December 17, 1996. On December 31, 1996, the Trust owned
79,500 shares of TCI common stock at a total cost of $235,000, all of which the
Trust had purchased in open market transactions in 1990 and 1991. At December
31, 1996, the market value of the TCI common stock was $875,000.

In 1995, the Trust paid BCM and its affiliates $1.3 million in advisory
fees, $1.6 million in real estate brokerage commissions, $142,000 in mortgage
brokerage and equity refinancing fees and $806,000 in property and construction
management fees and leasing commissions (net of property management fees paid
to subcontractors, other than Carmel Realty). In addition, also as provided in
the Advisory Agreement, BCM received cost reimbursements from the Trust of
$506,000 in 1995. Under the Advisory Agreement (as required by the Trust's
Declaration of Trust), all or a portion of the annual advisory fee must be
refunded by the advisor to the Trust if the Operating Expenses of the Trust (as
defined in the Trust's Declaration of Trust) exceed certain limits specified in
the Declaration of Trust. The effect of this limitation was to require that BCM
refund $250,000 of the annual advisory fee for 1995 to the Trust.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth the ownership of the Trust's shares of beneficial interest, both
beneficially and of record, both individually and in the aggregate, for those
persons or entities known by the Trust to be beneficial owners of more than 5%
of its shares of beneficial interest as of the close of business on December
31, 1996.

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<PAGE> 73

<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Percent of of Beneficial
Beneficial Owner Ownership Class (1)
- --------------------------- ------------------------ ---------
<S> <C> <C>

American Realty Trust, Inc. 1,633,819 40.6%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Basic Capital Management, Inc.
10670 N. Central Expressway 492,329 12.2%
Suite 600
Dallas, Texas 75231
</TABLE>

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

(1) Percentages are based upon 4,028,053 shares of beneficial interest
outstanding at December 31, 1996.

SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
ownership of the Trust's shares of beneficial interest, both beneficially and
of record, both individually and in the aggregate, for the Trustees and
executive officers of the Trust as of the close of business on December 31,
1996.

<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name of Beneficial Owner Ownership Class (1)
- ------------------------------- ----------------------- ---------
<S> <C> <C>

All Trustees and Executive 2,126,148(2) 52.8%
Officers as a group
(9 individuals)
</TABLE>

- ------------------
(1) Percentage is based upon 4,028,053 shares of beneficial interest
outstanding at December 31, 1996.

(2) Includes 1,633,819 shares owned by ART and 492,329 shares owned by BCM,
of which the executive officers of the Trust may be deemed to be
beneficial owners by virtue of their positions as executive officers of
ART and BCM. The Trust's Trustees and executive officers disclaim
beneficial ownership of such shares. Each of the directors of ART may be
deemed to be beneficial owners of the shares owned by ART by virtue of
their position as directors of ART. Each of the directors of BCM may be
deemed to be beneficial owners of the shares owned by BCM by virtue of
their positions as directors of BCM. The directors of ART and BCM
disclaim such beneficial ownership.

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<PAGE> 74

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table summarizes selected historical consolidated financial
information of the Trust for the six months ended June 30, 1996 and 1995 and
the last five years ended December 31, 1991 through 1995. CEI Nevada is a
newly-created corporation that, by operation of law, would succeed to all the
rights and properties, and be subject to all the obligations and liabilities,
of the Trust as incorporated as the California Corporation, upon consummation
of the proposed Incorporation Procedure. Thus, for accounting purposes, the
assets, liabilities and stockholder's equity of CEI Nevada would be accounted
for on a carry-over basis, as the continuing entity which would be the
successor to the Trust. The Incorporation Procedure, if adopted, will have no
effect on the book value of the assets, liabilities or Shareholder's equity of
the Trust.

The historical consolidated financial information is not necessarily
indicative of CEI Nevada's future results of operations or financial condition.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Trust's Consolidated Financial Statements and notes thereto
appearing under "Index to Financial Statements". Results for the interim
periods are not necessarily indicative of the results for a full year.

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CONTINENTAL MORTGAGE AND EQUITY TRUST

Selected Financial Data (Historical)
(Dollars in thousands, except per share)

<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, For the Years Ended December 31,
---------------------- --------------------------------------------------------------
EARNINGS DATA: 1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income $ 34,026 $ 27,918 $ 38,309 $ 29,741 $ 24,288 $ 21,162 $ 15,486

Expense 34,789 29,195 39,982 31,803 23,460 20,443 15,812
---------- ---------- ---------- ---------- ---------- ---------- -----------

Income (loss) from
operations (763) (1,277) (1,673) (2,062) 828 719 (326)
Equity in income (loss) of
partnerships 197 213 230 98 (213) (344) (308)

Gain on sale of real estate 9,397 - - 1,131 - 383 91
---------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before
extraordinary gain 8,831 (1,064) (1,443) (833) 615 758 (543)

Extraordinary gain 812 - - - - - 930
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net income (loss) $ 9,643 $ (1,064) $ (1,433) $ (833) $ 615 $ 758 $ 387
========== ========== ========== ========== ========== ========== ===========
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:

Income (loss) before $
extraordinary gain $ 2.08 $ (.24) $ (0.33) (0.19) $ 0.13 $0.15 $ (0.10)

Extraordinary gain $ 0.20 - - - - - 0.17
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net Income (loss) $ 2.28 $ (.24) $.33) $ (.19) $ 0.13 $0.15 $ 0.07
========== ========== ========== ========== ========== ========== ===========
Weighted average number
of Shares outstanding 4,243,754 4,377,177 4,377,165 4,379,722 4,521,384 5,058,762 5,308,398

Distributions per share $ .76 $ .30 $ .40 $ .40 $ .33 - $ .71
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

The Trust reported to the Internal Revenue Service that 100% of the
distributions paid in 1991, 1993, 1994 and 1995 represented a return of
capital.

September 30, December 31,
------------- ---------------------------------------------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992 1991
---- ---------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Notes and interest
receivable $ 7,218 $ 5,351 $ 7,117 $ 32,129 $ 34,590 $ 41,748

Real estate held for sale

Foreclosed 5,716 6,436 19,533 10,486 9,669 24,571

Other - 1,268 - - - -

Real estate held for
investment 182,724 174,713 124,706 94,440 78,170 49,638

Investment in partnerships 2,265 12,970 13,805 14,079 14,537 20,148

Total assets 232,390 218,568 182,839 160,462 143,925 140,950

Notes and interest payable 142,516 135,590 98,252 74,786 58,834 54,226

Shareholders' equity 82,412 75,985 78,767 81,139 81,985 83,290

Book value per share $ 19.71 $ 17.36 $ 17.99 $ 18.53 $ 17.13 $ 15.94
</TABLE>

- -----------------
Shares and per share data have been restated to give effect to the three-for-
two forward share split effected February 15, 1996.

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<PAGE> 76

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

INTRODUCTION

The Trust was formed to invest in real estate through acquisitions,
leases and partnerships and in mortgage loans, including wraparound, first, and
junior mortgage loans. The Trust was organized on August 27, 1980 and commenced
operations on December 3, 1980.

It is anticipated that the Incorporation Procedure will have no adverse
effect on the financial condition of CEI Nevada. There can be no assurance that
the market price per share of CEI Nevada common stock after the one-for-one
exchange will be equal to the market price per share of the Shares before the
one-for-one exchange or that the marketability of CEI Nevada common stock will
remain consistent with the marketability of the Shares.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at September 30, 1996 aggregated $16.5 million
as compared with $6.4 million at December 31, 1995 and $7.5 million at December
31, 1994. The Trust's principal sources of cash have been and will continue to
be from property operations, proceeds from property sales, principal payments
on mortgage notes receivable, and borrowings. The Trust expects that net cash
provided by operating activities and from anticipated external sources, such as
property sales, financings and refinancings, will be sufficient to meet the
Trust's various cash needs in 1996, including, but not limited to, the payment
of distributions, debt service obligations coming due and property maintenance
and improvements, as more fully discussed in the paragraphs below.

The Trust's cash flow from property operations (rents collected less
payments for property operating expenses) has continually increased over the
past three years from $8.4 million in 1993 to $10.7 million in 1994 to $15.1
million in 1995. Of this $6.7 million net increase from 1993 to 1995, $6.1
million is the result of the Trust having acquired additional income producing
properties, both through purchase and foreclosure, and the remaining $600,000
is due to increased occupancy and rental rates, primarily at apartments owned
by the Trust, and the Trust's control of operating expenses. The Trust's
management believes that this trend will continue, particularly in the Trust's
apartments, if the economy remains stable or improves.

Interest collected on mortgage notes receivable decreased over the past
three years from $2.4 million in 1993 to $2.2 million in 1994 to $688,000 in
1995. These decreases are primarily attributable to the foreclosure of the
collateral property securing mortgage notes receivable and the payoff of
mortgage notes receivable in 1994 and 1995.

Interest will continue to decrease as a source of cash to the Trust as
the Trust has determined that generally, it will not seek to originate new
mortgage loans, other than those resulting from Trust provided purchase money
financing in connection with a property sale.

Interest paid on the Trust's notes payable increased from $6.6 million in
1994 to $8.9 million in 1995. This increase is primarily attributable to
interest paid on mortgages secured by properties acquired in 1994 and 1995, and
interest paid on borrowings in 1994 and 1995 secured by mortgages on previously
unencumbered properties. The Trust believes that interest paid on notes payable
will continue to increase in 1996 if the Trust continues to acquire additional
properties and/or obtain financing on unencumbered properties.

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The Trust was involved in significant investing activities during 1995.
The Trust purchased four apartment complexes and three commercial properties
during 1995, for which the Trust paid a total of $40.8 million. The Trust paid
$9.8 million in cash, with the remaining $31.0 million financed through new or
assumed mortgage debt. The Trust also made improvements to its properties
totaling $1.2 million. In addition, the Trust collected $1.1 million on its
mortgage notes receivable, primarily from the payoff of one note of $1.0
million, with the remainder being collected from scheduled paydowns on the
Trust's other mortgage notes receivable.

During 1995, the Trust received net financing proceeds of $734,000 from
mortgage financing secured by a previously unencumbered apartment complex. In
addition, the Trust refinanced the mortgage secured by another apartment
complex. The Trust received a total of $11.8 million in net cash proceeds after
the payoff of $6.3 million in existing mortgage debt and the payment of various
closing costs associated with the financings. Also during 1995, the Trust made
scheduled principal payments on mortgages totaling $1.3 million.

The Trust's distribution policy previously provided for an annual
determination of distributions after the Trust's year end until such time as
property operations stabilized at a level producing cash flow from property
operations in excess of anticipated needs. In January 1993, the Board of
Trustees approved the resumption of quarterly distributions. In 1995 and 1994,
the Trust paid distributions to shareholders of $.40 per share or a total of
$1.8 million in each year.

During the first nine months of 1996, the Trust purchased three office
buildings, two industrial warehouses, a shopping center and an apartment
complex for a total of $34.1 million. The Trust paid $13.7 million in cash with
the remainder of the purchase prices being financed by mortgage debt. Also
during the first nine months of 1996, the Trust sold four apartment complexes
for a total of $32.7 million. The Trust received net cash of $15.1 million
after the payoff of $16.9 million of existing mortgage debt and the payment of
various closing costs associated with the sales. In addition, during the first
nine months of 1996, the Trust refinanced six of its properties and obtained
mortgage financing on two of its previously unencumbered properties in the
total amount of $28.1 million. The Trust received net cash of $7.6 million
after the payoff of $19.6 million in existing mortgage debt. The remainder of
the financing or refinancing proceeds were used to pay various closing costs
associated with the financings or refinancings.

In February, March and April 1996, Indcon, a joint venture partnership in
which the Trust has a 60% interest, sold 27 of its industrial warehouses. The
Trust received cash of $9.6 million as its equity share of such sales proceeds.

Pursuant to a repurchase program originally announced by the Trust on
December 5, 1989, the Board of Trustees authorized the Trust to repurchase a
total of 1,465,000 of its shares of beneficial interest. Through September 30,
1996, the Trust had repurchased 1,372,836 of its shares at a total cost to the
Trust of $6.9 million, of which 195,111 shares were repurchased in 1996.

In August 1996, the Trust announced an offer to buy back its shares of
beneficial interest from shareholders owning 99 or fewer shares. The Trust paid
a premium of $.50 per share over the average closing price of its shares as
reported from August 8, 1996 through September 30, 1996, the expiration of the
offer. On October 17, 1996, the Trust repurchased 82,861 shares pursuant to
such offer at a total cost of $912,000.

On a quarterly basis, the Trust's management reviews the carrying value
of the Trust's mortgage notes receivable, properties held for investment and
properties held for sale. Generally accepted accounting

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

RESULTS OF OPERATIONS

FIRST NINE MONTHS OF 1996 COMPARED TO FIRST NINE MONTHS OF 1995. For the
three and nine months ended September 30, 1996, the Trust had net income of
$3.7 million and $9.6 million, compared to a net loss of $337,000 and $1.1
million for the three and nine months ended September 30, 1995. The primary
factors contributing to the Trust's net income in 1996 are discussed in the
following paragraphs.

Rents increased from $9.6 million and $27.3 million for the three and
nine months ended September 30, 1995 to $11.4 million and $33.2 million for the
three and nine months ended September 30, 1996. Of these increases $2.6 million
and $6.6 million are attributable to the acquisition of six apartment complexes
and nine commercial properties during 1995 and 1996. These increases are
partially offset by decreases of $1.2 million and $1.6 million attributable to
four properties sold in 1996.

Interest income was $196,000 and $600,000 for the three and nine months
ended September 30, 1995 compared to $268,000 and $821,000 for the three and
nine months ended September 30, 1996. Of these increases $16,000 and $100,000
for the three and nine months are due to the funding of a $1.5 million second
lien mortgage in February 1996, $370,000 of a $500,000 note in July 1996 and a
$750,000 purchase money note accepted in February 1996 in conjunction with the
sale of Rivertree Apartments. Additional increases of $138,000 and $248,000 for
the three and nine months are due to increased dividend and short-term
investment income. Interest income for the remainder of 1996 is expected to
approximate that of the third quarter of 1996.

Property operating expenses increased from $5.9 million and $16.5 million
for the three and nine months ended September 30, 1995 to $7.2 million and
$20.1 million for the three and nine months ended September 30, 1996. Increases
of $1.5 million and $3.6 million are due to the acquisition of six apartment
complexes and nine commercial properties during 1995 and 1996. The remainder of
the increase is primarily due to increased repair and maintenance and personnel
expenses in an effort to maintain the Trust's increased rental and occupancy
rates. These increases are partially offset by decreases of $551,000 and
$841,000 due to properties sold in 1996.

Interest expense increased from $2.5 million and $7.0 million for the
three and nine months ended September 30, 1995 to $3.3 million and $9.3 million
for the three and nine months ended September 30, 1996. Of these increases,
$806,000 and $1.9 million for the three and nine months, respectively, are due
to interest expense recorded on mortgages secured by nine properties,
encumbered by debt, acquired during 1996 and 1995. An additional $210,000 and
$708,000 for the three and nine months, respectively, is due to interest
expense recorded on borrowings during 1996 and 1995, secured by mortgages on
three previously unencumbered apartment complexes and one industrial property
and the refinancing of five existing mortgages. These increases are partially
offset by decreases of $245,000 and $336,000 for the three and nine months,
respectively, due to two properties sold in 1996. Interest expense is expected
to increase in the

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remainder of 1996, as a result of the Trust's acquisition of other properties
and refinancings during the remainder of 1996.

Depreciation expense increased from $1.1 million and $3.1 million for the
three and nine months ended September 30, 1995 to $1.3 million and $3.6 million
for the three and nine months ended September 30, 1996. Of these increases,
$356,000 and $600,000 for the three and nine months, respectively, are due to
the acquisition of six apartment complexes and nine commercial properties
during 1996 and 1995. These increases are partially offset by decreases of
$151,000 and $237,000 due to properties sold in 1996. Depreciation is expected
to increase in the remainder of 1996, as a result of the Trust's acquisition of
six commercial properties and two apartment complexes in 1996, as well as
acquisitions subsequent to September 30, 1996.

A provision for losses of $541,000 was recognized in the nine months
ended September 30, 1995 to provide for the loss on the discounted payoff of
the mortgage note receivable secured by Alderwood Apartments. A negative
provision for losses of $884,000 was recognized in the three and nine months
ended September 30, 1996. Such negative provisions represents accrued interest
recorded on a mortgage between February 1995, the date the Trust stopped making
payments on the mortgage, and September 1996 when the property was transferred
to the lender.

Advisory fee to affiliate increased from $394,000 and $1.1 million for
the three and nine months ended September 30, 1995 to $449,000 and $1.3 million
for the three and nine months ended September 30, 1996. These increases are due
to an increase in the Trust's gross assets, the basis for the advisory fee, as
a result of property acquisitions during 1995 and 1996. The advisory fee is
expected to continue to increase as the Trust makes additional property
acquisitions.

General and administrative expenses increased from $299,000 and $928,000
for the three and nine months ended September 30, 1995 to $461,000 and $1.4
million for the three and nine months ended September 30, 1996. These increases
are primarily attributable to an increase in legal fees and Advisor cost
reimbursements.

The Trust's equity in earnings of partnerships was $21,000 and $197,000
for the three and nine months ended September 30, 1996 compared to $28,000 and
$213,000 for the three and nine months ended September 30, 1995. Included in
equity earnings of partnerships for the nine months ended September 30, 1996 is
a gain on sale of real estate of $370,000, the Trust's equity share of the gain
recognized by Indcon, a joint venture partnership, on the sale of its 27
warehouse facilities. Without such gain the Trust's equity in earnings of
partnerships would have been a loss of $173,000. Such decrease is primarily due
to the sale of Indcon's 27 warehouse facilities in the first quarter of 1996.
In addition, interest expense for SAC 9, also a joint venture partnership,
increased as a result of new mortgage financing secured on a previously
unencumbered office building. Equity in earnings of partnerships is expected to
be minimal for the remainder of 1996.

For the three and nine months ended September 30, 1996, the Trust
recognized gains on the sale of real estate of $378,000 on the sale of
Rivertree Apartments in February 1996, $5.4 million on the sale of Sunset
Towers Apartments in May 1996, $3.6 million on the sale of Southgate Apartments
in August 1996.

In the three months ended September 30, 1996, the Trust recognized an
extraordinary gain of $149,000 representing an insurance settlement at the
Rivertree Apartments which the Trust had sold in February 1996. In the nine
months ended September 30, 1996, the Trust also recognized an extraordinary

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gain of $663,000, its equity share of an insurance settlement from a fire loss
on an industrial warehouse owned by Indcon. The Trust recognized no
extraordinary gains in 1995.

1995 COMPARED TO 1994. For the year ended December 31, 1995, the Trust
had a net loss of $1.4 million, as compared to a net loss of $833,000 for the
year ended December 31, 1994. The primary factors contributing to the increase
in the Trust's net loss are discussed in the following paragraphs.

Net rental income (rental income less expenses applicable to rents)
increased from $10.2 million in 1994 to $14.9 million in 1995. Of this
increase, $1.8 million is due to the acquisition of four apartment complexes
and three commercial properties in 1995, $1.7 million is due to the acquisition
of seven apartment complexes and one commercial property in 1994, which did not
contribute to net rental income for the full year in 1994, and $804,000 of the
increase is attributable to two apartment complexes obtained through
foreclosure in 1994. An additional increase of $640,000 is attributable to
generally higher rents and occupancy at the Trust's apartment complexes. These
increases are offset in part by a $244,000 decrease in net rental income at one
of the Trust's commercial properties and one of the Trust's apartment complexes
due to a decrease in occupancy and higher operating expenses incurred in an
effort to increase occupancy. Net rental income is expected to continue to
increase in 1996, primarily from a full year of operations from the four
apartment complexes and three commercial properties acquired in 1995 and from
the anticipated purchase of additional real estate in 1996.

Interest income decreased from $2.7 million in 1994 to $723,000 in 1995.
Of this decrease, $1.7 million is attributable to a $14.0 million wraparound
mortgage note receivable which was paid in full in December 1994 and $99,000 is
attributable to the discounted payoff of a $1.5 million first mortgage note
receivable in May 1995. An additional $486,000 is due to the foreclosure of two
properties during 1994 and one property during 1995 which secured three of the
Trust's other mortgage notes receivable. These decreases are partially offset
by an increase of $299,000 attributable to a $1.4 million first mortgage note
receivable which was received in December 1994 in connection with the payoff of
the $14.0 million mortgage note receivable discussed above. Interest income is
expected to continue at the current level in 1996, as the Trust is generally
not considering new mortgage lending except in connection with purchase money
financing of sales of the Trust's properties.

The Trust's equity in partnerships improved from a loss of $479,000 in
1994 to income of $230,000 in 1995. This improvement is primarily due to higher
rents and occupancy at the 31 industrial warehouse facilities owned by Indcon,
a joint venture partnership. This improvement is partially offset by an
increase in losses in SAC 9, a joint venture partnership due to increased
interest expense, as a result of a new mortgage financing secured by a
previously unencumbered office building. In February and March 1996, Indcon
completed the sale of 25 of its 31 industrial warehouse facilities.

Interest expense increased from $7.7 million in 1994 to $10.0 million in
1995. Of this increase, $2.4 million is due to interest expense recognized on
mortgages secured by properties acquired in 1994 and 1995. An additional
$766,000 is due to interest expense on six borrowings in 1994 and 1995, secured
by mortgages on previously unencumbered apartment complexes and refinancing of
existing mortgages. These increases are partially offset by a decrease of
$855,000 due to the payoff of the underlying lien related to the payoff of a
$14.0 million wraparound mortgage note receivable in December 1994.

Depreciation expense increased from $3.2 million in 1994 to $4.3 million
in 1995. This increase is due to the acquisition of four apartment complexes
and three commercial properties in 1995 and seven apartment complexes and one
commercial property in 1994.

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A provision for losses of $541,000 was recorded in 1995 to provide for
the loss on the discounted payoff of the mortgage note receivable secured by
Alderwood Apartments. A provision for losses of $1.2 million was recorded in
1994 to write down the Genessee Towers, an office building, to the amount of
the nonrecourse mortgage debt. In addition, a provision for losses of $200,000
was recorded in 1994 to provide for the loss on the sale of Oak Forest
Apartments, one of the Trust's foreclosed properties held for sale.

The advisory fee paid to affiliates was comparable at $1.3 million in
1995 and 1994. Although the Trust's gross assets, the basis for the advisory
fee, increased in 1995, the advisory agreement requires a portion of the
advisory fee be refunded if certain operating expenses exceed limits specified
in the Declaration of Trust. The effect of this limitation was to require that
BCM refund $250,000 of the annual advisory fee for 1995.

General and administrative expenses were comparable at $1.2 million in
1995 and 1994. A decrease in legal fees was offset by expenses incurred in
connection with the Trust's annual meeting.

For the year ended December 31, 1994, the Trust recognized a gain on the
sale of real estate of $577,000 related to the sale of an industrial warehouse
facility by Indcon. In addition, the Trust recognized a gain of $1.1 million on
the settlement of a profit participation related to the December 1994 payoff of
one of the Trust's wraparound mortgage note receivable.

1994 COMPARED TO 1993. For the year ended December 31, 1994, the Trust
had a net loss of $833,000, as compared to net income of $615,000 for the year
ended December 31, 1993. The primary factors contributing to the decrease in
the Trust's net income are discussed in the following paragraphs.

Net rental income (rental income less expenses applicable to rents)
increased from $8.2 million in 1993 to $10.2 million in 1994. Of this increase,
$1.5 million is due to the acquisition of seven apartment complexes and one
commercial property in 1994. An additional $284,000 of the increase is
attributable to two apartment complexes obtained through foreclosure in 1994,
and $1.1 million is due to the acquisition of three apartment complexes and one
commercial property in 1993. An additional increase of approximately $400,000
is attributable to generally higher rents and occupancy rates at the Trust's
properties. These increases are offset in part by a $1.3 million decrease in
net rental income at four of the Trust's commercial properties and three of the
Trust's apartment complexes due to a decrease in occupancy and higher operating
expenses incurred in an effort to increase occupancy.

Interest income decreased from $3.3 million in 1993 to $2.7 million in
1994. Of this decrease, $356,000 is attributable to a loan on which the
borrower filed for bankruptcy protection in November 1993 and began making cash
flow only payments in April 1994. The Trust completed foreclosure of the
property securing this loan in October 1994. Of the decrease, an additional
$191,000 is attributable to three loans which were paid off subsequent to
August 1993 and $38,000 is attributable to loans which were classified as
nonperforming in 1994.

The Trust's equity in losses of partnerships decreased from $578,000 in
1993 to $479,000 in 1994. This decrease in equity losses is primarily due to
higher rents and occupancy at the industrial warehouse facilities owned by
Indcon.

Interest expense increased from $5.5 million in 1993 to $7.7 million in
1994. Of this increase, $1.5 million is due to interest expense recorded on
mortgages secured by properties acquired in 1993 and 1994. An additional
$597,000 is due to interest expense on a borrowing in September 1993 and four
borrowings in 1994, all secured by mortgages on previously unencumbered
apartment complexes.

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Depreciation expense increased from $2.4 million in 1993 to $3.2 million
in 1994. This increase is due to the acquisition of seven apartment complexes
and one commercial property in 1994 and four apartment complexes and one
commercial property in 1993.

A provision for losses of $1.2 million was recorded in 1994 to write down
the Genessee Towers, an office building, to the amount of the nonrecourse
mortgage debt. In addition, a provision for losses of $200,000 was recorded in
1994 to provide for the loss on the sale of Oak Forest Apartments, one of the
Trust's foreclosed properties held for sale. A provision for loss of $221,000
was recorded in 1993 to provide for the loss on the sale of English Hills
Apartments, also a foreclosed property held for sale.

The advisory fee paid to affiliates increased from $1.2 million in 1993
to $1.3 million in 1994. This increase is due to an increase in the Trust's
gross assets, the basis for the advisory fee, as a result of the Trust's
acquisition of eight properties in 1994 and five properties in 1993.

General and administrative expenses decreased from $1.3 million in 1993
to $1.2 million in 1994. A decrease in legal fees and expenses incurred in
connection with the Trust's annual meeting were offset in part by an increase
in cost reimbursements to the Trust's advisor.

For the year ended December 31, 1994, the Trust recognized a gain on the
sale of real estate of $577,000 related to the sale of an industrial warehouse
facility by Indcon. In addition, the Trust recognized a gain of $1.1 million on
the settlement of a profit participation related to the 1994 payoff of one of
the Trust's notes receivable. For the year ended December 31, 1993, the Trust
recognized gains on sale of real estate of $365,000 related to the sale of
three properties by SAC 9.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, the Trust 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 Trust for personal injury
associated with such materials. The Trust's management is not aware of any
environmental liability relating to the above matters that would have a
materially adverse effect on the Trust's business, assets or results of
operations.

INFLATION

The effects of inflation on the Trust's operations are not quantifiable.
Gross revenues from property operations fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the rate
of inflation also affect the sale value of properties and, correspondingly, the
ultimate realizable value of the Trust's real estate and notes receivable
portfolios. Inflation also has an effect on the Trust's earning from short-term
investments.

TAXATION

For the years ended December 31, 1995, 1994 and 1993, the Trust elected
and, in management's opinion, qualified to be treated as a REIT as defined
under Sections 856 through 860 of the Code. To continue to qualify for federal
taxation as a REIT under the Code, the Trust must satisfy certain provisions of
the Code. Under one such provision, the Trust is required to hold at least 75%
of the value of its total

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assets in real estate assets, government securities, cash and cash equivalents
at the close of each quarter of each taxable year. Under another such
provision, a REIT is required to distribute at least 95% of its REIT taxable
income plus 95% of its net income from foreclosure property, all as defined in
Section 857 of the Code, on an annual basis to shareholders.

RECENT ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121 -"Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of."
The statement requires that long-lived assets 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 asset." If impairment exists,
an impairment loss shall be recognized by a charge against earnings equal to
"... the amount by which the carrying amount of the asset exceeds the fair
value of the asset." If impairment of a long-lived asset is recognized, the
carrying amount of the asset shall be reduced by the amount of the impairment,
shall be accounted for as the asset's "new cost" and such new cost shall be
depreciated over the asset's remaining useful life.

SFAS No. 121 further requires that long-lived assets held for sale ". .
.be reported at the lower of carrying amount or fair value less cost to sell."
If a reduction in a held for sale asset's carrying amount to fair value less
cost to sell 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 asset's fair value less cost to sell must be recorded as an adjustment
to the asset's carrying amount, but not in excess of the asset's carrying
amount when originally classified as held for sale. A corresponding charge
against or credit to earnings is to be recognized. Long-lived assets held for
sale are not to be depreciated.

The Trust adopted SFAS No. 121 effective as of January 1, 1996. The
effect of adopting SFAS No. 121 was the discontinuance of depreciation on the
Trust's properties held for sale of $26,000 and $75,000 in the three and nine
months ended September 30, 1996, and a corresponding increase in reported net
income.

LEGAL MATTERS

The validity of the shares of the Nevada Common Stock to be issued by CEI
Nevada pursuant to the Incorporation Procedure and the federal income tax
consequences of the Incorporation Procedure have been passed upon by Kummer
Kaempfer Bonner & Renshaw, Las Vegas, Nevada.

EXPERTS

The financial statements and schedules included in this Proxy
Statement/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.

AVAILABLE INFORMATION

The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such

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reports, proxy statements and other information filed by the Trust may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549, and the following regional offices of the SEC: Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048 and Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained from the
Commission at prescribed rates by addressing written requests for such copies
to the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such materials may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov. The
Trust's shares are listed on the NASDAQ and such material can also be inspected
at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed with the Commission by the Trust under the
Exchange Act (File No. 0-10503), are incorporated in and made a part of this
Proxy Statement/Prospectus by reference:

(i) the Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed with the Commission on March 22, 1996, as
amended by Form 10-K/A, filed with the Commission on November 12,
1996;

(ii) the Trust's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, filed with the Commission on May 14, 1996, as
amended by Form 10-Q/A, filed with the Commission on November 12,
1996;

(iii) the Trust's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed with the Commission on August 19,
1996, as amended by Form 10-Q/A, filed with the Commission on
November 12, 1996;

(iv) the Trust's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, filed with the Commission on November 13, 1996,
as amended by Form 10-Q/A, filed with the Commission on November
15, 1996;

(v) the Trust's Current Report on Form 8-K, filed with the Commission
on June 7, 1996, as amended by Form 8-K/A, filed with the
Commission on June 17, 1996;

(vi) the Trust's Current Report on Form 8-K, filed with the Commission
on July 22, 1996, as amended by Form 8-K/A, filed with the
Commission on September 9, 1996, as further amended by Form 8-K/A,
filed with the Commission on February 7, 1997;

(vii) the Trust's Current Report on Form 8-K, filed with the Commission
on November 15, 1996, as amended by Form 8-K/A, filed with the
Commission on January 6, 1997; and

(viii) the Trust's Current Report on Form 8-K, filed with the Commission
on January 3, 1997.

THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM CONTINENTAL MORTGAGE AND
EQUITY TRUST, 10670 NORTH CENTRAL EXPRESSWAY, SUITE 300, DALLAS, TEXAS 75231.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL
MEETING, ANY REQUEST SHOULD BE RECEIVED BY _______________, 1997.

Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent
that a statement contained in this Proxy Statement/Prospectus, or in any other
subsequently filed document which is also, or is deemed to be, incorporated by
reference, modifies or replaces such statement. Any such statement so modified
or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.

CEI Nevada has filed a registration statement on Form S-4, No. 333-15351
(the "Registration Statement"), pursuant to the Securities Act of 1933, as
amended, with respect to the shares of Nevada Common Stock to be issued in
connection with the Merger. This Proxy Statement/Prospectus constitutes

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the prospectus of CEI Nevada filed as part of the Registration Statement. All
information herein with respect to the Trust and CEI Nevada has been furnished
by the Trust.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR CEI NEVADA. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES
OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST OR CEI NEVADA SINCE THE DATE
HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

-80-
<PAGE> 86
SOLICITATION OF PROXIES

THIS PROXY STATEMENT/PROSPECTUS IS FURNISHED TO SHAREHOLDERS TO SOLICIT
PROXIES ON BEHALF OF THE TRUSTEES OF THE TRUST. The cost of soliciting proxies
will be borne by the Trust. Trustees and officers of the Trust may, without
additional compensation, solicit proxies by mail, in person or by
telecommunication. In addition, the Trust has retained Beacon Hill Partners
("Beacon Hill") to assist in the solicitation of proxies. An agreement with
Beacon Hill provides that Beacon Hill will distribute materials relating to the
solicitation of proxies, contact Shareholders to confirm receipt of such
materials and answer questions relating thereto. Beacon Hill is to be paid a
base fee of [$2,000] plus out-of-pocket expenses and is to be indemnified
against all liability incurred as a result of any material omission or
misstatement in any of the materials so distributed.

By Order of the Board of Trustees

By:
------------------------------------
Randall M. Paulson, President

THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE INCORPORATION PROCEDURE AND RATIFICATION OF CERTAIN COMPONENTS
THEREOF BY VOTING FOR THE INCORPORATION PROPOSAL ON THE ENCLOSED PROXY.
REGARDLESS OF HOW YOU WISH TO VOTE YOUR SHARES, YOUR BOARD OF TRUSTEES URGES
YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY.

-81-
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

Board of Directors and Shareholder
Continental Equity Investors, Inc.

We have audited the accompanying balance sheet of Continental Equity Investors,
Inc. as of November 5, 1996. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Continental Equity Investors, Inc.
as of November 5, 1996 in conformity with generally accepted accounting
principles.

BDO Seidman, LLP

November 6, 1996

F-1
<PAGE> 88
CONTINENTAL EQUITY INVESTORS, INC.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
November 5,
1996
-----------
<S> <C>
Cash.......................................................... $1,000

Total assets.......................................... 1,000
======

STOCKHOLDER'S EQUITY

Common stock, $.01 par value; 10,000,000 authorized shares,
100 shares issued and outstanding........................... 1

Preferred stock, no par value, 1,000,000 shares authorized,
no shares issued............................................
------
Additional paid-in capital.................................... 999

Total stockholder's equity............................ $1,000
======

</TABLE>

F-2
<PAGE> 89
CONTINENTAL EQUITY INVESTORS, INC.

NOTES TO BALANCE SHEET

1. ORGANIZATION Continental Equity Investors, Inc. (the "Company"), a
Nevada corporation, was formed on October 30, 1996 and
has had no operations since that date. The corporation
is a wholly-owned subsidiary of Continental Mortgage and
Equity Trust, a California business trust (the
"Trust").

2. PURPOSES The Company was formed to facilitate the incorporation
of the Trust in Nevada. It is anticipated that the Trust
will be incorporated as a California corporation, which
corporation will be merged into the Company to complete
this reorganization.

3. INCOME The Company intends to qualify as a real estate
investment trust ("REIT"), as defined TAXES in Section
856 through 860 of the Internal Revenue Code of 1986, as
amended, and as such, will not be taxed for federal
income tax purposes on that portion of its taxable
income which is distributed to its shareholders;
provided that at least 95 percent of its REIT taxable
income, plus 95 percent of its net income from
foreclosure property, is distributed.

F-3
<PAGE> 90

APPENDIX A

GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page Reference Definition
- ---- -------------- ----------
<S> <C> <C>
Acquisition Date 41 The date, if any, on which an Interested Stockholder becomes
the beneficial owner of 20% or more of the Common Stock of
CEI Nevada

Advisory Agreement 17 The advisory agreement between BCM and the Trust providing
for BCM to be responsible for the day-to-day operations of
the Trust in exchange for an advisory fee

Affiliate 25,35 As to any Person any other Person who owns beneficially,
directly or indirectly, 1% or more of the outstanding
capital stock, shares or equity interests of such Person or
of any other Person which controls, is controlled by, or is
under common control with, such Person or is an officer,
retired officer, director, employee, partner, or trustee
(excluding independent trustees not otherwise affiliated with
the entity) of such Person or of any other Person which
controls, is controlled by, or is under common control with,
such Person.

Agreement and Plan
of Merger 17 The proposed agreement and plan of merger of the California
Corporation and CEI Nevada, a form of which is attached as
Appendix B

ART 22 American Realty Trust, Inc., an affiliate of BCM

Articles of Incorporation
Amendment Provision 45 Article SEVENTEENTH of the Articles of Incorporation of CEI
Nevada, whereby the affirmative vote of at least 75% of all
of the Voting Stock is required to alter, amend or repeal the
Bylaw Amendment Provision, Consent Provision, Stockholder
Meeting Provision, Business Combination Provision,
</TABLE>

A-1
<PAGE> 91
<TABLE>
<CAPTION>
Term Page Reference Definition
- ---- -------------- ----------
<S> <C> <C>
Director Removal Provision, Evaluation Provision and Articles
of Incorporation Amendment Provision, unless a majority of
CEI Nevada's Board of Directors approves such alteration,
amendment or repeal

BCM 6 Basic Capital Management, Inc., the advisor to the Trust

Beacon Hill 81 Beacon Hill Partners, retained by the Trust to assist in the
solicitation of proxies

Beneficial Owner 42 The Person who, individually or through certain related
parties, owns or has the right to acquire, hold, vote or
dispose of Voting Stock of CEI Nevada

Brokerage Agreement 17 The non-exclusive brokerage agreement between the Trust and
Carmel Realty providing for Carmel Realty to provide
brokerage services in exchange for commissions

Business Combination 42 The following transactions with, or proposed by or on behalf
of, any Interested Stockholder or certain related parties:
(i) a merger or consolidation of CEI Nevada or any subsidiary
with an Interested Stockholder or certain related parties,
(ii) the sale, lease, exchange, mortgage, pledge, transfer or
other disposition by CEI Nevada or a subsidiary of any assets
or securities to an Interested Stockholder or certain related
parties, or any other arrangement with or for the benefit of
an Interested Stockholder or any such related party
(including investments, loans, advances, guarantees,
extensions of credit, security interests and joint venture
participation) that (except in certain circumstances),
together with all other such arrangements (including all
contemplated future events), involve assets or securities
having a value (or involving aggregate commitments) of $5
million or more or constitute more than 5% of the book value
of the total assets (in the case of
</TABLE>

A-2
<PAGE> 92

<TABLE>
<CAPTION>
Term Page Reference Definition
- ---- -------------- ----------
<S> <C> <C>
transactions involving assets or
commitments other than capital
stock) or 5% of the stockholders
equity (in the case of
transactions in capital stock) of
the entity in question, as
reflected in the most recent
fiscal year-end consolidated
balance sheet of such entity
existing at the time the
stockholders of CEI Nevada would
be required to approve or
authorize such transaction, (iii)
the adoption of any plan or
proposal for the liquidation or
dissolution of CEI Nevada, (iv)
any reclassification of
securities, recapitalization,
merger with a subsidiary or other
transaction which has the effect,
directly or indirectly, of
increasing an Interested
Stockholder's proportionate share
of the outstanding capital stock
of CEI Nevada or a subsidiary or
(v) any agreement or arrangement
providing for any one or more of
the actions specified in the
foregoing clauses (i) through (iv)

Bylaw Amendment Provision 45 Article SEVENTEENTH of the Articles
of Incorporation of CEI Nevada,
whereby CEI Nevada's Board of
Directors is authorized to make,
adopt, alter, amend, change or
repeal CEI Nevada's Bylaws

California Corporation 7 Continental Equity Corporation, the
California corporation that will be
the successor entity to the Trust

Carmel Realty 17 Carmel Realty, Inc., a corporation
that provides brokerage services to
the Trust pursuant to the Brokerage
Agreement and that is owned 100% by
SWI

Carmel, Ltd. 61 Carmel Realty Services, Ltd., an
affiliate of BCM that provides
property management services to the
Trust

CCEC 10 Consolidated Capital Equities
Corporation, the original sponsor
of the Trust and one of the Trust's
former advisors
</TABLE>

A-3
<PAGE> 93

Term Page Reference Definition
- ---- -------------- ----------

<TABLE>
<S> <C> <C>
CEI Nevada Cover Continental Equity Investors, Inc.,
a wholly-owned Nevada subsidiary of
Continental Equity Corporation

CMETs 11, 51 The NASDAQ trading symbol for
Continental Mortgage and Equity
Trust

CMOs 31 Collateralized mortgage obligations

Code 10 Internal Revenue Code of 1986, as
amended

Commission 78 Securities and Exchange Commission

Counsel 10 Andrews & Kurth L.L.P., securities
and tax counsel to the Trust

Declaration of Trust 51 Second Amended and Restated
Declaration of Trust dated as of
May 27, 1987, as amended

Director Removal Provision 26 Article ELEVENTH of the Articles of
Incorporation of CEI Nevada,
whereby each Director of the Board
may be removed only by the
affirmative vote of the holders of
not less than two-thirds of the
outstanding stock of CEI Nevada
then entitled to vote for the
election of such director

Eldercare 61 Eldercare Housing Foundation, a
nonprofit corporation engaged in
the operation of a nursing home

Evaluation Provision 43 Article TWELFTH of the Articles of
Incorporation of CEI Nevada,
whereby the Board of Directors is
permitted to take into account all
factors it deems relevant in
evaluating, among other things,
tender offers, proposals of
business sales or combinations and
proposals for corporate liquidation
or reorganizations involving CEI
Nevada, including the potential
impact of any such transaction on
CEI Nevada's creditors, partners,
joint venturers, other constituents
or CEI Nevada and the communities
in which its offices, other
establishments or investments
</TABLE>

A-4
<PAGE> 94
<TABLE>
<CAPTION>
Term Page Reference Definition
- ---- -------------- ----------
<S> <C> <C>
are located and on CEI Nevada's
continuing status as a qualified
REIT under the Code

Exchange Act 33, 78 Securities Exchange Act of 1934,
as amended

Incorporation Procedure 15 The procedure by which the Trust
will be converted from a California
business trust into a Nevada
corporation

Indcon 57, 75 Indcon, L.P., formerly known as
Adams Properties Associates of
which ISA owns a 100% interest

Independent Director 33 A director of CEI Nevada who is
neither an officer or employee of
CEI Nevada nor a director, officer
or employee of CEI Nevada's advisor

ISA 57 Income Special Associates, a joint
venture partnership in which the
Trust has a 60% partnership
interest

Interested Stockholder 42 Any person who (i) is, or who has
announced or publicly disclosed a
plan or intention to become, the
Beneficial Owner of 20% or more of
the Voting Stock or (ii) is an
affiliate or associate of CEI
Nevada and at any time within the
two year period immediately prior
to the date in question was the
Beneficial Owner of 20% or more of
the Voting Stock

IORI 61 Income Opportunity Realty
Investors, Inc., a Nevada
corporation

Merger 7 The merger of the Trust with and
into CEI Nevada

NASDAQ 11 NASDAQ Stock Market

Nevada Common Stock 7 CEI Nevada common stock, par value
$.01 per share

NIRT 57 National Income Realty Trust

NOLP 66 National Operating, L.P.
</TABLE>

A-5
<PAGE> 95
<TABLE>
<CAPTION>
Term Page Reference Definition
- ---- -------------- ----------
<S> <C> <C>
Nomination Provision 40 Section 3.6 of the
Bylaws of CEI Nevada, which
provides that any stockholder
entitled to vote in the election
of directors of CEI Nevada's Board
of Directors generally may
nominate one or more persons for
election as directors at a meeting
only if such stockholder gives not
fewer than 35 nor more than 60
days' prior written notice of
intent to make such nomination or
nominations to the Secretary of
CEI Nevada (or, if fewer than 45
days' notice or prior public
disclosure of the meeting date is
given or made to stockholders, not
later than 10 days following such
notice or disclosure)

Non-Stockholder Constituencies 44 CEI Nevada's creditors, partners,
joint venturers, other
constituents or CEI Nevada and the
communities in which its offices,
other establishments or
investments are located

NRLP 66 National Realty, L.P.

NRS 9,21 The Nevada Revised Statutes, as
amended

Olive Litigation 14, 64 A class and derivative action
entitled Olive et al. v. National
Income Realty Trust et al. which
has been settled pursuant to the
Olive Modification

Olive Modification 14, 65 Modification of Stipulation of
Settlement dated April 28, 1994
with regard to the Olive
Litigation

One-for-One Exchange 7 Exchange of shares of the
California Corporation with the
common stock of CEI Nevada
pursuant to the Incorporation
Procedure

Person 25 Individuals, corporations, limited
partnerships, general
partnerships, joint stock
companies or associations, joint
ventures, associations, companies,
trusts, banks, trust companies,
land trusts, business trusts, or
</TABLE>

A-6
<PAGE> 96
<TABLE>
<CAPTION>
Term Page Reference Definition
- ---- -------------- ----------
<S> <C> <C>
other entities and governments and
agencies and political
subdivisions thereof

Record Date 16 __________, 1997

Registration Statement 79 The registration statement filed
by CEI Nevada on Form S-4, No.
333-15351, pursuant to the
Securities Act of 1933, as
amended, with respect to the
shares of Nevada Common Stock to
be issued in connection with the
Merger

REIT 18 Real estate investment trust as
defined in the Code

REMICs 31 Real estate mortgage investment
conduits

SAC 9 57, 75 Sacramento Nine, a joint venture
partnership

SAMI 61 Syntek Asset Management, Inc., the
managing general partner of SAMLP

SAMLP 61 Syntek Asset Management, L.P.

SFAS 78 Statement of Financial Accounting
Standards

Shares 16 Issued and outstanding shares of
beneficial interest of the Trust

Special Meeting 7 A special meeting of the Trust's
Shareholders to be held at 10:00
a.m., Dallas time, on _____, 1997
at 10670 North Central Expressway,
Suite 600, Dallas, Texas 75231

Stockholder Proposal Provision 40 Section 2.5 of the Bylaws of CEI
Nevada, which provides that in
addition to any other applicable
requirements, for business not
specified in the notice of meeting
or brought by or at the direction
of the Board of Directors of CEI
Nevada to be properly introduced
by a stockholder, the stockholder
must give not fewer than 35 nor
more than 60 days' prior notice to
the Secretary of CEI Nevada (or if
fewer than 45 days' notice or
prior public disclosure of the
meeting date is given or made to
stockholders, not later than 10
days following such event)
</TABLE>

A-7
<PAGE> 97
<TABLE>
<CAPTION>
Term Page Reference Definition
- ---- -------------- ----------
<S> <C> <C>
SWI 61 Syntek West, Inc., a corporation
that owns 100% of Carmel Realty
and that is owned 100% by Gene E.
Phillips

TCI 60 Transcontinental Realty Investors,
Inc., a Nevada corporation

Trust Cover Continental Mortgage and Equity
Trust, a California business trust

Voting Stock 4 The issued and outstanding common
stock of CEI Nevada
</TABLE>

A-8
<PAGE> 98

APPENDIX B

AGREEMENT AND PLAN OF MERGER

CONTINENTAL EQUITY CORPORATION
(A CALIFORNIA CORPORATION)

AND

CONTINENTAL EQUITY INVESTORS, INC.
(A NEVADA CORPORATION)

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
____________, 1997, is by and between Continental Equity Corporation, a
California corporation ("Continental California"), and Continental Equity
Investors, Inc., a Nevada corporation ("Continental Nevada").

WHEREAS, Continental California is a California corporation with its
resident agent therein located at CT Corporation System, 818 West Seventh
Street, Los Angeles, California 90017; and

WHEREAS, the shares of stock that Continental California has authority
to issue are 11,000,000 shares of which 10,000,000 shares, par value $0.01 per
share, are designated Common Stock (the "Continental California Common Stock")
and 1,000,000 shares, par value $0.01 per share, are designated Preferred
Stock; and

WHEREAS, Continental Nevada is a Nevada corporation with its
registered office therein located at CT Corporation System, One East First
Street, County of Washoe, Reno, Nevada 89501; and

WHEREAS, the total number of shares of stock which Continental Nevada
has authority to issue is 11,000,000 shares, of which 10,000,000 shares, par
value $0.01 per share, are designated Common Stock ("Continental Nevada Common
Stock"), and 1,000,000 shares, par value $0.01 per share, are designated
Preferred Stock; and

WHEREAS, the Nevada Revised Statutes (the "Nevada Law") permit the
merger of one or more foreign corporations with one or more domestic
corporations into a single corporation; and

WHEREAS, Continental California and Continental Nevada and the
respective Boards of Directors thereof deem it advisable and to the advantage,
welfare, and best interests of said corporations and their respective
stockholders to merge Continental California with and into Continental Nevada
pursuant to the provisions of the Nevada Law upon the conditions hereinafter
set forth;

B-1
<PAGE> 99
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. The Merger. Upon the terms and subject to the conditions
hereof, the Merger (as defined below) shall be consummated in accordance with
the Nevada Law and the General Corporation Law of California (the "California
Law") on ____________, 1997 or as soon thereafter as is reasonably practicable.
At the Effective Time (as hereinafter defined) and subject to and upon the
terms and conditions of this Agreement, the Nevada Law and the California Law,
Continental California shall be merged with and into Continental Nevada (the
"Merger"), the separate corporate existence of Continental California shall
cease, and Continental Nevada shall continue as the surviving corporation.

2. Effective Time. On ________________, 1997 or as soon
thereafter as is reasonably practicable, the parties hereto shall cause the
Merger to be consummated by filing articles of merger with the Secretary of
State of the State of Nevada and the documents required by Section 1108 of the
California Law with the Secretary of State of the State of California, in such
form as required by, and executed in accordance with, the relevant provisions
of the Nevada Law and the California Law. The Merger shall become effective
upon the filing of such articles of merger with the Secretary of State of the
State of Nevada (the "Effective Time").

3. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in Section 78.459 of the Nevada Law.

4. Articles of Incorporation. At the Effective Time, the
Articles of Incorporation of Continental Nevada, as in effect immediately prior
to the Effective Time, shall remain the Articles of Incorporation of
Continental Nevada as the surviving corporation until thereafter further
amended as provided by law.

5. Bylaws. The Bylaws of Continental Nevada, as in effect
immediately prior to the Effective Time, shall remain the Bylaws of Continental
Nevada as the surviving corporation until thereafter amended as provided by
law.

6. Directors. The directors of Continental Nevada immediately
prior to the Effective Time shall remain the directors of Continental Nevada
and will hold office from the Effective Time until their successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation and the Bylaws of Continental Nevada, or as otherwise provided by
law.

7. Officers. The officers of Continental Nevada immediately
prior to the Effective Time shall remain the officers of Continental Nevada and
will hold office from the Effective Time until their successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation and the Bylaws of Continental Nevada, or as otherwise provided by
law.

8. Additional Actions. If, at any time after the Effective Time,
Continental Nevada shall consider or be advised that any deeds, bills of sale,
assignments, assurances, or any other actions or

B-2
<PAGE> 100
things are necessary or desirable to vest, perfect or confirm, of record or
otherwise, in Continental Nevada its right, title or interest in, to or under
any of the rights, properties or assets of Continental California acquired or
to be acquired by Continental Nevada as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
Continental Nevada shall be authorized to execute and deliver, in the name and
on behalf of Continental California, all such deeds, bills of sale, assignments
and assurances and to take and do, in the name and on behalf of Continental
California, all such other actions and things as may be necessary or desirable
to vest, perfect or confirm any and all right, title and interest in, to and
under such rights, properties or assets in Continental Nevada or otherwise to
carry out this Agreement.

9. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Continental Nevada,
Continental California or the holder of any of the following securities, the
following shall occur:

(a) each of the shares of Continental California Common
Stock issued and outstanding immediately prior to the
Effective Time, other than any shares of Continental
California Common Stock to be canceled pursuant to
Section 9(b) hereof, shall be converted into one
validly issued, fully paid and nonassessable share of
Continental Nevada Common Stock, upon surrender of
the certificate representing such share;

(b) each share of Continental California Common Stock
held in the treasury of Continental California
immediately prior to the Effective Time shall be
canceled and extinguished and no payment or other
consideration shall be made with respect thereto;

(c) each share of Continental Nevada Common Stock issued
and outstanding immediately prior to the Effective
Time shall be canceled; and

(d) from and after the Effective Time, holders of
certificates formerly evidencing shares of
Continental California Common Stock shall have rights
as stockholders of Continental Nevada (and not
Continental California) in accordance with applicable
law.

10. Surrender of Shares; Stock Transfer Books.

(a) Each holder of a certificate or certificates formerly
representing any shares of Continental California
Common Stock converted in the Merger pursuant to
Section 9(a) shall surrender such certificate or
certificates to Continental Nevada as promptly as
practicable. Upon surrender by such holder to
Continental Nevada of a certificate, together with
such other instruments and acknowledgments as
Continental Nevada may require, the holder of such
certificate shall be entitled to receive in exchange
therefor an equal number of shares of Continental
Nevada Common Stock represented by such certificate,
and such former certificate shall forthwith be
canceled.

B-3
<PAGE> 101
(b) At the Effective Time, the stock transfer books of
Continental California shall be closed and there
shall be no further registration of transfers of
shares of Continental California Common Stock
thereafter on the records of Continental California.
No interest shall accrue or be paid on any cash
payable upon the surrender of a certificate or
certificates which immediately prior to the Effective
Time represented outstanding shares of Continental
California Common Stock.

11. Certain Changes.

(a) The Boards of Directors of Continental Nevada and
Continental California may amend this Agreement at
any time prior to the filing of the articles of
merger with the Secretary of State of the State of
Nevada, provided that an amendment made subsequent to
the adoption of the Merger by the stockholders of
Continental Nevada and Continental California shall
not (1) alter or change the amount of consideration
to be received in exchange for or on conversion of
the shares of any class or series thereof of
Continental California, (2) further alter or change
any term of the Articles of Incorporation of
Continental Nevada, or (3) alter or change any of the
terms and conditions of this Agreement if such
alteration or change would adversely affect the
holders of the shares of any class or series of
Continental Nevada or Continental California.

(b) This Agreement may be terminated and the Merger
abandoned at any time prior to the filing of the
articles of merger with the Secretary of State of the
State of Nevada, notwithstanding approval hereof by
the stockholders of Continental Nevada or Continental
California or by the Board of Directors of
Continental Nevada or Continental California.

12. Tax Effect. The parties hereby agree to treat the Merger for
federal income tax purposes as a reorganization within the meaning of Section
368(a)(1)(f) of the Internal Revenue Code, with no gain or loss recognized by
Continental Nevada or its stockholders or by Continental California or its
shareholders.

13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.

14. Counterparts. This Agreement may be executed in counterparts.

B-4
<PAGE> 102
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Merger to be executed by their respective officers as of the ______ day of
_______________, 1997.

CONTINENTAL EQUITY CORPORATION

By:
-------------------------------------

Name:
--------------------------------

Title:
-------------------------------

ATTEST:

----------------------------------------
Its Secretary

CONTINENTAL EQUITY INVESTORS, INC.

By:
-------------------------------------

Name:
--------------------------------

Title:
-------------------------------

ATTEST:

----------------------------------------
Its Secretary

B-5
<PAGE> 103
The undersigned, being the Secretary of Continental Equity
Corporation, does hereby certify that (a) the holders of 100% of the
outstanding stock of said corporation were entitled to vote on the
foregoing Agreement and Plan of Merger, (b) the principal terms of the
agreement in the form attached were approved by _______% of the outstanding
shares and (c) such vote exceeded the majority vote required to approve the
foregoing Agreement and Plan of Merger.

----------------------------------------
Robert A. Waldman, Secretary
Continental Equity Corporation

The undersigned, being the Secretary of Continental Equity Investors,
Inc., does hereby certify that the holder of all of the outstanding stock of
said corporation dispensed with a meeting and vote of stockholders, and such
sole stockholder consented in writing, pursuant to the provisions of Section
78.320 of the Nevada Revised Statutes, to the adoption of the foregoing
Agreement and Plan of Merger.

----------------------------------------
Robert A. Waldman, Secretary
Continental Equity Investors, Inc.

B-6
<PAGE> 104
APPENDIX C

ARTICLES OF INCORPORATION

CONTINENTAL EQUITY INVESTORS, INC.

I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of Chapter 78 of the
Nevada Revised Statutes (the "NRS"), do hereby certify as follows:

FIRST: The name of the Corporation is Continental Equity Investors,
Inc. (hereinafter the "Corporation").

SECOND: The address of the principal office of the Corporation in the
State of Nevada is c/o CT Corporation System, One East First Street, County of
Washoe, Reno, Nevada 89501. The name of the registered agent of the
Corporation at such address is CT Corporation System.

THIRD: The Corporation may engage in any lawful activity.

FOURTH: A. The total number of shares of all classes which the
Corporation shall have authority to issue is 11,000,000 shares, of which
10,000,000 shares, par value $0.01 per share, shall be of a class designated
"Common Stock" and 1,000,000 shares, par value $0.01 per share, shall be of a
class designated "Preferred Stock".

B. 1. The Board of Directors of the Corporation (the "Board of
Directors") is authorized, subject to applicable law and the provisions of this
Article FOURTH, to provide for the issuance from time to time in one or more
series of any number of shares of Preferred Stock, and, by filing a certificate
pursuant to the NRS, to establish the number of shares to be included in each
such series, and to fix the designation, relative rights, preferences,
qualifications and limitations of the shares of each such series. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of the following:

(a) the distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the Board of Directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by like action of the Board of
Directors;

(b) the dividend rate or rates on the shares of such
series and the preferences, if any, over any other series (or of any
other series over such series) with respect to dividends, the terms
and conditions upon which and the periods in respect of which
dividends shall be payable, whether and upon what conditions such
dividends shall be cumulative and, if cumulative, the date or dates
from which dividends shall accumulate;

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(c) the voting powers, full or limited, if any, of shares
of such series, and under what conditions, if any, the shares of such
series (alone or together with the shares of one or more other series
having similar provisions) shall be entitled to vote separately as a
class for the election of one or more directors of the Corporation in
case of dividend arrearages or other specified events or upon other
matters;

(d) whether the shares of such series shall be
redeemable, the limitations and restrictions with respect to such
redemptions, the time or times when, the price or prices at which and
the manner in which such shares shall be redeemable, including, but
not limited to, the manner of selecting shares of such series for
redemption if less than all shares are to be redeemed;

(e) the rights to which the holders of shares of such
series shall be entitled, and the preferences, if any, over any other
series (or of any other series over such series), upon the voluntary
or involuntary liquidation, dissolution, distribution of assets or
winding up of the Corporation, which rights may vary depending on
whether such liquidation, dissolution, distribution or winding up is
voluntary or involuntary, and, if voluntary, may vary at different
dates;

(f) whether the shares of such series shall be subject to
the operation of a purchase, retirement or sinking fund, and, if so,
whether and upon what conditions such purchase, retirement or sinking
fund shall be cumulative or noncumulative, the extent to which and the
manner in which such fund shall be applied to the purchase or
redemption of the shares of such series, including, but not limited
to, the price or prices at which the shares may be purchased or
redeemed, or to other corporate purposes and the terms and provisions
relative to the operation thereof;

(g) whether the shares of such series shall be
convertible into or exchangeable for shares of stock of any other
class or classes, or of any other series of the same class, and, if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of such conversion or
exchange;

(h) whether the issuance of additional shares of
Preferred Stock shall be subject to restrictions as to issuance, or as
to the powers, preferences or other rights of any other series;

(i) the right of the shares of such series to the benefit
of conditions and restrictions upon the creation of indebtedness of
the Corporation or any subsidiary, upon the issue of any additional
stock (including additional shares of such series or any other series)
and upon the payment of dividends or the making of other distributions
on, and the purchase, redemption or other acquisition by the
Corporation or any subsidiary of, any outstanding stock of the
Corporation; and

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(j) any other preferences, privileges and powers, and
relative participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as the
Board of Directors may deem advisable and as shall not be inconsistent
with applicable law or the provisions of these Articles of
Incorporation, as amended from time to time.

2. Shares of Preferred Stock which have been issued and
reacquired in any manner by the Corporation (excluding until the Corporation
elects to retire them, shares which are held as treasury shares, but including
shares redeemed, shares purchased and retired and shares which have been
converted into shares of Common Stock) shall have the status of authorized but
unissued shares of Preferred Stock and may be reissued as a part of the series
of which they were originally a part or may be reissued as a part of another
series of Preferred Stock, all subject to the conditions or restrictions on
issuance set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of any series of Preferred Stock.

3. Except as otherwise provided by the resolution or resolutions
providing for the issuance of any series of Preferred Stock, after payment
shall have been made to the holders of Preferred Stock of the full amount of
dividends to which they shall be entitled pursuant to the resolution or
resolutions providing for the issuance of any series of Preferred Stock, the
holders of Common Stock shall be entitled, to the exclusion of the holders of
Preferred Stock of any and all series, to receive such dividends as from time
to time may be declared by the Board of Directors.

4. Except as otherwise provided by the resolution or resolutions
providing for the issuance of any series of Preferred Stock, in the event of
any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment shall have been made to the holders of
Preferred Stock of the full amounts to which they shall be entitled pursuant to
such resolution or resolutions, the holders of Common Stock shall be entitled,
to the exclusion of the holders of Preferred Stock of any and all series, to
share, ratably according to the number of shares of Common Stock held by them,
in all remaining assets of the Corporation available for distribution to its
stockholders.

5. The holders of Preferred Stock shall not have any preemptive
rights except to the extent such rights shall be specifically provided for in
the resolution or resolutions providing for the issuance thereof adopted by the
Board of Directors.

C. Except as otherwise specifically required by law or as
specifically provided in any resolution of the Board of Directors providing for
the issuance of any particular series of Preferred Stock, the exclusive voting
power of the Corporation shall be vested in the Common Stock of the
Corporation. Except as otherwise provided in these Articles of Incorporation,
each share of Common Stock shall entitle the holder thereof to one vote at all
meetings of the stockholders of the Corporation.

D. The capital stock of the Corporation, after the amount of the
subscription price has been paid, in money, property or services, as the Board
of Directors shall determine, shall not be subject to assessment to pay the
debts of the Corporation, nor for any other purpose, and no stock

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issued as fully paid up shall ever be assessable or assessed, and these
Articles of Incorporation shall not be amended in this particular.

FIFTH: The name and address of the incorporator are as follows:

Name Address
---- -------

Muriel C. McFarling 4400 Thanksgiving Tower
Dallas, TX 75201

SIXTH: The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors, which shall consist of not
fewer than three (3) nor more than twelve (12) directors, the exact number of
directors to be determined from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors. Initially,
the number of directors of the Corporation shall be four (4), and their names
shall be as follows:

Ted P. Stokely
Martin L. White
Edward G. Zampa
Edward L. Tixier

Each of the above directors can be reached c/o the Corporation at 10670 North
Central Expressway, Suite 300, Dallas, Texas 75231. Such directors are hereby
elected for a term to expire at the first annual meeting of stockholders. At
each succeeding annual meeting of stockholders beginning with the first,
successors to directors shall be elected. A director shall hold office until
the annual meeting for the year in which such director's term expires and until
such director's successor shall be elected, subject, however, to prior death,
resignation, retirement or removal from office. Except as provided by
applicable law, any vacancy in the Board of Directors shall be filled by a
majority of the directors then in office or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of such director's
predecessor.

Whenever the holders of any one or more series of Preferred Stock
issued by the Corporation shall have the right, voting separately or by class
or series, to elect directors at an annual or special meeting of stockholders,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of these Articles of Incorporation
or the resolution or resolutions adopted by the Board of Directors pursuant to
Article FOURTH applicable thereto.

SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation. The stockholders
of the Corporation may not make, adopt, alter, amend, change or repeal the
Bylaws of the Corporation except upon the affirmative vote of not less than
seventy five percent (75%) of the outstanding stock of the Corporation entitled
to vote thereon; provided, however, that the power of the stockholders to make,
adopt, alter, amend, change or repeal the Bylaws of the Corporation is further
subject to the provisions of Article TENTH of these Articles

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of Incorporation. In addition to the powers and authority expressly conferred
upon them herein or by statute, the directors of the Corporation are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to applicable
provisions of the statutes of Nevada, these Articles of Incorporation and any
Bylaws adopted by the stockholders; provided, however, that no Bylaws hereafter
adopted by the stockholders or otherwise shall invalidate any prior act of the
directors which would have been valid if such Bylaws had not been adopted.

EIGHTH: Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws of the Corporation to the contrary, no action
required to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken by written consent without such a
meeting except any action taken upon the signing of a consent in writing by all
stockholders of the Corporation entitled to vote thereon setting forth the
action to be taken. Subject to the rights of the holders of any series of
Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Board of Directors, the Chairman of the Board or the
President of the Corporation and not by any other person or persons.

NINTH: A. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except that this part A of Article
NINTH shall not eliminate or limit a director's liability (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (ii) for the payment of dividends in violation of NRS 78.300. If the
NRS is amended after the date these Articles of Incorporation became effective
under the NRS to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the NRS, as so amended from time to time.

Any repeal or modification of this part A of Article NINTH shall not
increase the personal liability of any director of the Corporation for any act
or occurrence taking place prior to such repeal or modification, or otherwise
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.

The provisions of this part A of Article NINTH shall not be deemed to
limit or preclude indemnification of a director by the Corporation for any
liability of a director which has not been eliminated by the provisions of this
part A of Article NINTH.

B. The Corporation shall indemnify to the fullest extent
authorized or permitted by law (as now or hereafter in effect) and shall
advance expenses, to the fullest extent authorized or permitted by law (as now
or hereinafter in effect), to any person made or threatened to be made a party
or witness to any action, suit or proceeding (whether civil or criminal or
otherwise) by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or by reason of the fact that
such person, at the request of the Corporation, is or was serving any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, in any capacity. Nothing contained herein shall affect any rights
to indemnification to which employees other than directors and officers may be
entitled by law. No amendment to or repeal of this part B

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of Article NINTH shall apply to or have any affect on any right to
indemnification provided hereunder with respect to any acts or omissions
occurring prior to such amendment or repeal.

C. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise against any such expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the NRS. The Board of Directors, without
the approval of the stockholders of the Corporation, may also create a trust
fund, grant a security interest or use other means (including, but not limited
to, letters of credit, surety bonds or other similar arrangements), as well as
enter into contracts providing indemnification to the fullest extent authorized
or permitted by law and including as part thereof provisions with respect to
any or all of the foregoing, to ensure the payment of such amounts as may
become necessary to effect indemnification as provided therein, or elsewhere.

TENTH: A. The Corporation expressly elects not to be governed by
the Nevada "Combinations with Interested Stockholders" statutes contained in
NRS 78.411 to 78.444 and the Nevada "Acquisition of Controlling Interest"
statutes contained in NRS 78.378-78.3793.

B. In addition to any affirmative vote required by law, these
Articles of Incorporation or the Bylaws of the Corporation, and except as
otherwise expressly provided in part C of this Article TENTH, a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of, any
Interested Stockholder (as hereinafter defined) or any Affiliate or Associate
(as such terms are hereinafter defined) of any Interested Stockholder or any
Person (as hereinafter defined) who thereafter would be an Affiliate or
Associate of any Interested Stockholder shall require the affirmative vote of
not less than sixty-six and two-thirds percent (66-2/3%) of the votes entitled
to be cast by the holders of all the shares of Voting Stock (as hereinafter
defined) then outstanding, voting together as a single class, excluding Voting
Stock Beneficially Owned (as hereinafter defined) by such Interested
Stockholder. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage or separate class
vote may be specified, by applicable law or in any agreement with any national
securities exchange or otherwise.

C. The provisions of part B of this Article TENTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required by
applicable law or by any other provision of these Articles of Incorporation or
the Bylaws of the Corporation, or any agreement with any national securities
exchange, if such Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority of the Board of Directors or, in the case of such a
Business Combination involving any Person (as hereinafter defined) that is an
Affiliate (as hereinafter defined) of the Corporation, by a majority of the
Board of Directors including a majority of the members of the Board of
Directors who at the time are neither officers or employees of the Corporation
nor directors, officers or employees of any Advisor (as defined in Article
THIRTEENTH), prior to the Acquisition Date (as hereinafter defined) with
respect to any Person involved in such Business Combination.

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D. The following definitions shall apply with respect to this
Article TENTH and, when noted therein, to Articles TWELFTH, FOURTEENTH and
SEVENTEENTH:

1. The terms "Affiliate" and "Associate" shall have the
respective meanings set forth in Rule 12b- 2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as in
effect on the date these Articles of Incorporation became effective
under the NRS (the term "registrant" in such Rule meaning in this case
the Corporation).

2. The term "Acquisition Date", with respect to any
Person, shall mean the date on which such Person becomes the
Beneficial Owner of Voting Stock representing twenty percent (20%) or
more of the votes entitled to be cast by the holders of all the shares
of Voting Stock then outstanding.

3. A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "Beneficially Own", shares of Capital Stock:

(a) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the sole
or shared right to vote or dispose of or has beneficial
ownership of (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act or pursuant to any successor
provision), including, but not limited to, pursuant to any
agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed
the Beneficial Owner of, or to Beneficially Own, any security
under this clause (a) as a result of an agreement, arrangement
or understanding to vote such security that both (i) arises
solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the rules and
regulations under the Exchange Act and (ii) is not reportable
by such person on Schedule 13D under the Exchange Act (or any
comparable or successor report or schedule) without giving
effect to any applicable waiting period; or

(b) which are Beneficially Owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding, whether or not in writing, for the purpose of
acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to clause (a) above) or
disposing of any shares of Capital Stock; provided, however,
that (i) no director or officer of the Corporation (nor any
Affiliate or Associate of any such director or officer) shall,
solely by reason of any or all of such directors or officers
acting in their capacities as such, be deemed the Beneficial
Owner of or to Beneficially Own any shares of Capital Stock
that are Beneficially Owned by any other such director or
officer; and (ii) no Person shall be deemed the Beneficial
Owner of or to Beneficially Own any shares of Voting Stock
held in any voting trust, any employee stock ownership plan or
any similar plan or trust if such Person does not possess the
right to vote, to direct the voting of or to be consulted with
respect to the voting of such shares.

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4. The term "Business Combination" shall mean:

(a) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter defined) with
(i) any Interested Stockholder or (ii) any other company
(whether or not itself an Interested Stockholder) which is or
after such merger or consolidation would be an Affiliate or
Associate of an Interested Stockholder;

(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to purchase,
agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a
series of transactions) with or for the benefit of any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder involving the Corporation or any
Subsidiary and any assets, securities or commitments of the
Corporation, any Subsidiary or any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder that
(except for any arrangement, whether as employee, consultant
or otherwise, other than as a director, pursuant to which any
Interested Stockholder or any Affiliate or Associate thereof
shall, directly or indirectly, have any control over or
responsibility for the management of any aspect of the
business or affairs of the Corporation, with respect to which
arrangements the value tests set forth below shall not apply),
together with all other such arrangements (including all
contemplated future events), has an aggregate fair market
value or involves aggregate commitments of $5,000,000 or more
or constitutes more than five percent (5%) of the book value
of the total assets (in the case of transactions involving
assets or commitments other than shares of Capital Stock) or
five percent (5%) of the stockholders' equity (in the case of
transactions in shares of Capital Stock) of the entity in
question (a "Substantial Part"), as reflected in the most
recent fiscal year-end consolidated balance sheet of such
entity existing at the time the stockholders of the
Corporation would be required to approve or authorize the
Business Combination involving the assets, securities or
commitments constituting any Substantial Part;

(d) any reclassification of securities of the
Corporation (including any reverse stock split), or
recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries
or any other transaction (whether or not with or otherwise
involving an Interested Stockholder) that has the effect,
directly or indirectly, of increasing the proportionate share
of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of
any Subsidiary, that is Beneficially Owned by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder; or

(e) any agreement, contract or other arrangement
providing for any one or more of the actions specified in the
foregoing clauses (a) through (d).

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5. The term "Capital Stock" shall mean all capital stock
of the Corporation authorized to be issued from time to time under
Article FOURTH of these Articles of Incorporation, and, with respect
to any particular Business Combination, the term "Voting Stock" shall
mean all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation generally or which by its
terms may be voted on such Business Combination.

6. The term "Interested Stockholder" shall mean any
Person (other than the Corporation or any Subsidiary and other than
any profit-sharing, employee stock ownership or other employee plan of
the Corporation or any Subsidiary or any trustee of or fiduciary with
respect to any such plan when acting in such capacity and other than
Continental Mortgage and Equity Trust, a California business trust, or
any successor thereof, which remains the record owner of all the
outstanding shares of Common Stock) who (a) is or has announced or
publicly disclosed a plan or intention to become the Beneficial Owner
of Common Stock representing twenty percent (20%) or more of the votes
entitled to be cast by the holders of all then outstanding shares of
Common Stock or (b) is an Affiliate or Associate of the Corporation
and at any time within the two-year period immediately prior to the
date in question was the Beneficial Owner of Common Stock representing
twenty percent (20%) or more of the votes entitled to be cast by the
holders of all shares of Common Stock then outstanding.

7. The term "Person" shall mean any individual, firm,
corporation, partnership or other entity and shall include any group
comprised of any Person and any other Person with whom such Person or
any Affiliate or Associate of such Person has any agreement,
arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of shares of Capital Stock.

8. The term "Subsidiary" means any entity of which a
majority of any class of equity security is beneficially owned by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in sub-part 6 of this
part D, the term Subsidiary shall mean only a company of which a
majority of each class of equity securities is Beneficially Owned by
the Corporation.

E. 1. A majority of the Board of Directors shall have the power to
determine all questions arising under this Article TENTH, including, without
limitation, (a) whether a Person is an Interested Stockholder, (b) the number
of shares of Capital Stock or other securities Beneficially Owned by any
Person, (c) whether a Person is an Affiliate or Associate of another, (d)
whether a Business Combination is with, or proposed by, or on behalf of an
Interested Stockholder or an Affiliate or Associate of an Interested
Stockholder, (e) whether the assets that are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate fair market value of $5,000,000 or more or
constitutes more than five percent (5%) of the book value of the total assets
or five percent (5%) of the stockholders' equity of the entity in question, (f)
whether the assets or securities that are the subject of any Business
Combination constitute a Substantial Part, (g) the date

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on which an Interested Stockholder became an Interested Stockholder, (h) the
occurrence and time of any Acquisition Date and (i) any other matter relating
to the applicability or effect of this Article TENTH. Any such determination
shall be binding and conclusive on all parties.

2. The Board of Directors shall have the right to demand that any
Person who it believes is or may be an Interested Stockholder (or who holds of
record shares of Capital Stock that are Beneficially Owned by any Person that
the Board of Directors believes is or may be an Interested Stockholder) supply
the Corporation with complete information as to (a) the record holders of all
shares of Capital Stock that are Beneficially Owned by such Person, (b) the
number of shares of each class or series of Capital Stock that are Beneficially
Owned by such Person and held of record by each such record holder and the
numbers of the stock certificates evidencing such shares and (c) any other
matter relating to the applicability or effect of this Article TENTH as the
Board of Directors may reasonably request. Each such Person shall furnish such
information within ten (10) days after the receipt of such demand.

F. Nothing contained in this Article TENTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law
or to be in derogation of any action, past or future, which has been or may be
taken by the Board of Directors or the stockholders with respect to the subject
matter contained herein.

G. For the purposes of this Article TENTH, a Business Combination
is presumed to have been proposed by, or on behalf of, an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder or a
Person who thereafter would become such if such Interested Stockholder,
Affiliate, Associate or Person votes for or consents to the adoption of any
such Business Combination, unless as to such Interested Stockholder, Affiliate,
Associate or Person a majority of the Board of Directors makes a determination
that such Business Combination is not proposed by or on behalf of such
Interested Stockholder, Affiliate, Associate or Person.

ELEVENTH: Any director of the Corporation may be removed from office
at any time by the vote of stockholders representing not less than two-thirds
of the voting power of the issued and outstanding stock entitled to voting
power.

TWELFTH: The Board of Directors, when evaluating any (a) tender offer
or invitation for tenders, or proposal to make a tender offer or request or
invitation for tenders, by another party, for any equity security of the
Corporation or (b) proposal or offer by another party to (i) merge or
consolidate the Corporation or any Subsidiary (as defined in part C of Article
TENTH) with another corporation, (ii) purchase or otherwise acquire all or a
substantial portion of the properties or assets of the Corporation or any
Subsidiary, or sell or otherwise dispose of to the Corporation or any
Subsidiary all or a substantial portion of the properties or assets of such
other party or (iii) liquidate, dissolve, reclassify the securities of, declare
an extraordinary dividend of, recapitalize or reorganize the Corporation, shall
take into account all factors which the Board of Directors deems relevant,
including, without limitation, to the extent so deemed relevant, the continuing
status of the Corporation as a "real estate investment trust", as defined in
Section 856 of the Internal Revenue Code of 1986, as amended, the potential
impact on creditors, partners, joint venturers and other

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constituents of the Corporation and the communities in which the Corporation's
offices, other establishments or investments are located.

THIRTEENTH: Subject to Article FOURTEENTH and applicable law, the
Board of Directors may authorize the Corporation to enter into and perform one
or more agreements with any person whereby, subject to the supervision and
control of the Board of Directors, any such person shall render or make
available to the Corporation managerial, investment, advisory or related
services, office space and other services and facilities, including, if deemed
advisable by the Board of Directors, the management or supervision of the
investments or the day-to-day operations of the Corporation (any such person
being referred to herein as an "Advisor"), upon such terms and conditions as
may be provided in such agreement or agreements, including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder by the
Corporation.

FOURTEENTH: The Corporation shall not, directly or indirectly,
contract or engage in any transaction with (a) any director, officer or
employee of the Corporation, (b) any director, officer or employee of any
Advisor, (c) any Advisor or (d) any Affiliate or Associate (as such terms are
defined in part D of Article TENTH) of the Corporation or of any person
identified in the foregoing clauses (a) through (c) unless the material facts
as to the relationship among or financial interest of the relevant individuals
or persons and as to the contract or transaction are disclosed or are known to
the Board of Directors or committee thereof, as the case may be, and the Board
of Directors or committee thereof, as the case may be, determines that such
contract or transaction is fair as to the Corporation and simultaneously
authorizes or ratifies such contract or transaction by the affirmative vote of
a majority of independent directors (as hereinafter defined) entitled to vote
thereon. For purposes of this Article FOURTEENTH, a director of the
Corporation shall be deemed "independent" if such director is neither an
officer or employee of the Corporation nor a director, officer or employee of
any Advisor.

FIFTEENTH: Meetings of stockholders may be held within or without the
State of Nevada, as the Bylaws of the Corporation may provide. The books of
the Corporation may be kept (subject to any provision contained in the NRS)
outside the State of Nevada at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.

SIXTEENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Nevada may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of NRS 78.635 or on the application of trustees in dissolution
or of any receiver or receivers appointed for this Corporation under the
provisions of NRS 78.600 order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence
of such compromise or arrangement, the said compromise or arrangement and said
reorganization shall, if sanctioned by the

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court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.

SEVENTEENTH: A. Notwithstanding any other provision of these
Articles of Incorporation or the Bylaws of the Corporation, any agreement with
any national securities exchange or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock (as defined in
part D of Article TENTH) required by any other provision of these Articles of
Incorporation, any agreement with any national securities exchange or any
provision of law, the affirmative vote of the holders of record of shares of
Voting Stock representing at least seventy five percent (75%) of the votes cast
by such holders voting thereon shall be required to alter, amend or repeal
Article SIXTH, Article SEVENTH, Article EIGHTH, Article TENTH, Article
ELEVENTH, Article TWELFTH or this Article SEVENTEENTH or to adopt any provision
inconsistent therewith; provided, however, that this part A shall not apply to,
and such seventy five percent (75%) vote shall not be required for, any
alteration, amendment, repeal or adoption recommended by more than fifty
percent (50%) of the entire Board of Directors.

B. Except as provided in part D of Article FOURTH the Corporation
reserves the right to amend, alter, change or repeal any provision contained in
these Articles of Incorporation, or any amendment hereof, in the manner now or
hereafter prescribed by the laws of the State of Nevada and these Articles of
Incorporation, and all rights and powers conferred herein on stockholders,
directors and officers are subject to such reservation.

If any provision of these Articles of Incorporation is determined to
be invalid, void, illegal or unenforceable, the remaining provisions of these
Articles of Incorporation shall continue to be valid and enforceable and shall
in no way be affected, impaired or invalidated.

IN WITNESS WHEREOF, I have executed these Articles of Incorporation
this 28th day of October, 1996.

/s/ MURIEL C. MCFARLING
----------------------------------------
Muriel C. McFarling, Incorporator

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STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )

On this 28th day of October, 1996, personally appeared before me, a
Notary Public in and for said County and State, MURIEL C. McFARLING, known to
me personally, having been first duly sworn, who deposes and says that she is
the incorporator named in the foregoing Articles of Incorporation, and that she
executed the same, and that the statements contained therein are true as she
verily believes, that she executed the instrument freely and voluntarily for
the uses and purposes therein mentioned.

WITNESS my hand and official seal.

/s/ SANDY PARKS
----------------------------------
NOTARY PUBLIC

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CERTIFICATE OF ACCEPTANCE OF APPOINTMENT

OF RESIDENT AGENT

In the matter of CONTINENTAL EQUITY INVESTORS, INC., I hereby certify
that on the ___ day of __________, 1996, I accepted the appointment as
Resident Agent of the above-entitled corporation in accordance with Section
78.090, Nevada Revised Statutes 1957.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
__________, 1996.

THE CORPORATION TRUST COMPANY
OF NEVADA

By:
-------------------------------------

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APPENDIX D

BYLAWS OF
CONTINENTAL EQUITY INVESTORS, INC.

ARTICLE ARTICLE I

OFFICES

SECTION 1.1 Registered Office in Nevada. The registered
office of Continental Equity Investors, Inc. (the "Corporation") in the State
of Nevada shall be in the City of Carson City, or such other place as the Board
of Directors may from time to time authorize by resolution.

SECTION 1.2 Principal Office. The principal office for the
transaction of the business of the Corporation is located at 10670 North
Central Expressway, Suite 300, Dallas, Texas 75231. The Board of Directors of
the Corporation (the "Board of Directors") is hereby granted full power and
authority to change the location of the principal office.

SECTION 1.3 Other Offices. The Corporation may also have
offices at such other places inside or outside the State of Nevada as the Board
of Directors may from time to time determine or the business of the Corporation
may require.

ARTICLE ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 2.1 Annual Meetings. Annual meetings of stockholders
shall be held within the first eight months of each calendar year, or as soon
as practicable thereafter, commencing with the calendar year 1997.

SECTION 2.2 Special Meetings. Special meetings of the
stockholders of the Corporation may be called by resolution of the Board of
Directors, the Chairman of the Board or the President.

SECTION 2.3 Time and Place of Meetings. Each meeting of
stockholders shall be held at such place within the United States, and at such
hour on such date, as shall be designated by the Board of Directors and stated
in the notice of meeting delivered pursuant to Section 2.4.

SECTION 2.4 Notice of Meetings. Except as otherwise provided
by law, written or printed notice of each meeting of stockholders, whether
annual or special, shall be given not less than 10 nor more than 60 days before
the date of such meeting to each stockholder entitled to vote at such meeting
or, in the event that the stockholders are to vote upon any proposal to merge
or consolidate the Corporation or to sell, lease or exchange all or
substantially all of its property and

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assets, not less than 20 nor more than 60 days before the date of such meeting.
Such notice shall be delivered either personally or by mail or at the direction
of the Chairman of the Board, the President or the Secretary. Each notice of
meeting shall state the place, date and hour of the meeting.

SECTION 2.5 Nature of Business. At any meeting of
stockholders, only such business shall be conducted as shall have been brought
before such meeting by or at the direction of the Board of Directors, the
Chairman of the Board or the President, as applicable, or by any stockholder
who complies with the procedures set forth in this Section 2.5.

Except as otherwise provided by Section 3.6 of these Bylaws or by law,
the only business which shall be conducted at any meeting of stockholders shall
(i) have been specified in the written notice of meeting (or any supplement
thereto) given as provided in Section 2.4, (ii) be brought before the meeting
at the direction of the Board of Directors or the chairman of the meeting or
(iii) have been specified in a written notice (a "Stockholder Meeting Notice")
given to the Corporation, in accordance with all of the following requirements,
by or on behalf of any stockholder who shall have been a stockholder of record
on the record date for such meeting and who shall continue to be entitled to
vote at such meeting. Each Stockholder Meeting Notice must be delivered
personally to, or be mailed to and received by, the Secretary at the principal
office of the Corporation not less than 35 days nor more than 60 days prior to
such meeting; provided, however, that in the event that less than 45 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Each Stockholder Meeting Notice shall set forth (a) a description of
each item of business proposed to be brought before the meeting, (b) the name
and address of the stockholder proposing to bring such item of business before
the meeting, (c) the class and number of shares of stock held of record, owned
beneficially and represented by proxy by such stockholder as of the record date
for the meeting (if such date shall then have been made publicly available) and
as of the date of such Stockholder Meeting Notice and (d) all other information
which would be required to be included in a proxy statement filed with the
Securities and Exchange Commission (the "Commission") if, with respect to any
such item of business, such stockholder were a participant in a solicitation
subject to Section 14 of the Securities Exchange Act of 1934. No business
shall be brought before any meeting of stockholders otherwise than as provided
in this Section 2.5 or in Section 3.6.

When a meeting is adjourned to another time or place, notice of the
adjourned meeting need not be given if the time and place thereof are announced
at the meeting at which the adjournment is taken, unless the adjournment is for
more than 30 days, or unless after the adjournment a new record date is fixed
for the adjourned meeting, in which case notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the adjourned
meeting. At the adjourned meeting, any business may be transacted that might
have been transacted at the original meeting.

SECTION 2.6 Quorum. Subject to the provisions of the
Articles of Incorporation of the Corporation (the "Articles") and any
applicable statute, the presence in person or by proxy of holders of a majority
of the outstanding shares of the Corporation's voting stock shall constitute a
quorum.

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SECTION 2.7 Voting. Subject to the provisions of the
Articles and any applicable statute, a majority of the votes cast at a meeting
of stockholders, duly called and at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting, unless more than a majority of the votes cast is required
by law or by the Articles.

Subject to the Articles and any applicable statute, each stockholder
of record shall be entitled to one vote for each share registered in such
stockholder's name as of the record date determined pursuant to Section 6.5
below or applicable law. A stockholder entitled to vote may do so either in
person or by proxy executed in writing by such stockholder or by such
stockholder's duly authorized attorney-in-fact. No proxy shall be valid after
eleven months from its date, unless otherwise provided in the proxy. At all
meetings of stockholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of
the meeting.

SECTION 2.8 Organization and Order of Business. At each
meeting of stockholders, the Chairman of the Board or, if the Chairman of the
Board is absent or unable to act, the President or, in the absence or inability
to act of both the Chairman of the Board and the President, the Treasurer shall
act as chairman of the meeting. The Secretary or, if the secretary is absent
or unable to act, any other person appointed by the chairman of the meeting
shall act as secretary of the meeting and keep the minutes thereof. The order
of business at all meetings of the stockholders shall be as determined by the
chairman of the meeting.

SECTION 2.9 Inspectors of Election. The Board of Directors
may, in advance of any meeting of stockholders, appoint one or more inspectors
to act at such meeting or any adjournment thereof. If the inspectors shall not
be so appointed or if any of them shall fail to appear or act, the chairman of
the meeting may, and on the request of any stockholder entitled to vote at such
meeting shall, appoint inspectors. The number of inspectors shall be either
one or three. The inspectors shall determine the number of shares represented
at the meeting, the existence of a quorum and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine the result and do such
acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the chairman of the meeting or any stockholder
entitled to vote at such meeting, the inspectors shall make a report in writing
of any challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors
need not be stockholders.

SECTION 2.10 Action Without Meeting. Except as otherwise
provided by statute or the Articles, any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth such
action, is signed by all the stockholders entitled to vote on the subject
matter thereof and if any other stockholders entitled to notice of a meeting of
stockholders but not to vote at such meeting have waived in writing any rights
which they may have to dissent from such action, and such consent and waiver
shall be delivered to the registered office of the Corporation in the State of
Nevada, its

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principal office or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Every consent or
waiver shall bear the date of signature of each stockholder who signs such
consent or waiver.

ARTICLE ARTICLE III

BOARD OF DIRECTORS

SECTION 3.1 Number, Election and Term of Directors. The
Board of Directors shall consist of not fewer than 3 nor more than 12
directors. Subject to the foregoing limits, the Board of Directors may
increase or decrease the number of directors from time to time by resolution
adopted by the affirmative vote of a majority of the entire Board of Directors;
provided, however, that the tenure of office of an incumbent director shall not
be affected by any such increase or decrease. Initially, the names of the
directors shall be as specified in the Articles. A director shall hold office
until the annual meeting of stockholders for the year in which such director's
term expires and until such director's successor shall be elected, subject,
however, to prior death, resignation, retirement or removal from office in
accordance with the Articles and these Bylaws. Any director elected to fill a
vacancy not resulting from an increase in the number of directors shall have
the same remaining term as that of such director's predecessor.

Notwithstanding the foregoing, whenever the holder of any one or more
series of Preferred Stock shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders, the
election and term of office of such directorships shall be governed by the
terms of the Articles.

Directors need not be stockholders.

SECTION 3.2 Powers. The business and affairs of the
Corporation shall be managed in accordance with the Articles by its Board of
Directors, which may exercise all of the powers of the Corporation, except such
as are by law, the Articles or these Bylaws conferred upon or reserved to the
stockholders. As provided in the Articles, the Board of Directors may delegate
certain duties, including the duty of management of the Corporation's
day-to-day operations or investments, to one or more persons.

SECTION 3.3 Vacancies. Except as provided by applicable law,
any vacancy in the Board of Directors shall be filled by a majority of the
directors then in office or by a sole remaining director.

SECTION 3.4 Resignation of Directors. Any director or member
of a committee may resign at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein or, if no time is
specified, at the time of receipt thereof by the Chairman of the Board, the
President or the Secretary. The acceptance of a resignation, unless otherwise
stated therein, shall not be necessary to make it effective.

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SECTION 3.5 Removal of Directors. Any director of the
Corporation may be removed from office at any time by the vote of stockholders
representing not less than two-thirds of the voting power of the issued and
outstanding stock entitled to voting power.

SECTION 3.6 Nomination of Directors. Except as otherwise
fixed pursuant to Article FOURTH of the Articles relating to the rights of the
holders of any one or more classes or series of Preferred Stock, acting
separately by class or series, to elect, under specified circumstances,
directors at a meeting of stockholders, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholders, intent to
make such nomination or nominations has been delivered personally to, or been
mailed to and received by the Secretary at, the principal office of the
Corporation not less than 35 days nor more than 60 days prior to the meeting;
provided, however, that, in the event that less than 45 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders'
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made. Each
such notice shall set forth (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated,
(ii) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such stockholder as of the record date for the
meeting (if such date shall then have been made publicly available) and as of
the date of such notice, (iii) a representation that the stockholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice, (iv) a description of all arrangements or
understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder, (v) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Commission and (vi) the consent of each nominee to serve as a director of the
Corporation if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.

SECTION 3.7 Committees. The Board of Directors shall appoint
from among its members an Audit Committee and may appoint other committees,
each to be composed of three or more directors. None of the members of the
Audit Committee shall be employees of the Corporation or any Advisor (as
defined in Article THIRTEENTH of the Articles). Subject to any provisions of
the Articles calling for action by the entire Board of Directors, the Board of
Directors may delegate to any committee any of the powers of the Board of
Directors except the power to determine the number of directors constituting
the Board of Directors, to fill vacancies in the Board of Directors, to take
any action pursuant to Articles TENTH and SEVENTEENTH of the Articles, to
declare dividends or distributions on stock, to recommend to the stockholders
any action which requires stockholder approval, to amend the Bylaws, to approve
any merger or share exchange which does not require stockholder approval and to
issue stock.

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Notice of committee meetings shall be given in the same manner as
notice for special meetings of the Board of Directors.

One-third, but not less than two, of the members of any committee
shall be present in person or by telephone at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The
Board of Directors may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. In the absence or
disqualification of any member of any such committee, the members thereof
present at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of the absent or disqualified member.

The committees shall keep minutes of their proceedings and shall
report the same to the Board of Directors at the meeting next succeeding, and
any action by the committees shall be subject to revision and alteration by the
Board of Directors, provided that no rights of third persons shall be affected
by any such revision or alteration.

The Board of Directors shall have the power at any time to change the
membership of any committee, to fill all vacancies, to designate alternate
members to replace any absent or disqualified member or to dissolve any such
committee.

SECTION 3.8 Meetings. The first meeting of each newly
elected Board of Directors shall be held as soon as practicable after each
annual meeting of stockholders. The meeting may be held at such time and place
as shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written
waiver as provided in Section 4.1, except that no notice or waiver shall be
necessary if such meeting is held immediately after the adjournment, and at the
site, of the annual meeting of stockholders.

Regular meetings of the Board of Directors may be held without notice
at such time and place as shall from time to time be designated by the Board of
Directors.

Special meetings of the Board of Directors may be called at any time
by two or more directors, or in writing by a majority of the members of the
Executive Committee, if one is constituted, or by the Chairman of the Board or
the President. Special meetings may be held at such place or places inside or
outside the State of Nevada as may be designated from time to time by the Board
of Directors; in the absence of such designation, such meetings shall be held
at such places as may be designated in the notice of meeting.

Notice of the place and time of every special meeting of the Board of
Directors shall be delivered by the Secretary to each director either
personally or by telephone, facsimile, telegram or telegraph, or by leaving the
same at his residence or usual place of business at least twenty-four hours
before the time at which such meeting is to be held, or by first-class mail, at
least four days before the day on which such meeting is to be held. If mailed,
such notice shall be deemed to be

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given when deposited in the United States mail addressed to the director at his
post-office address as it appears on the records of the Corporation, with
postage thereon prepaid.

SECTION 3.9 Quorum and Voting. At any meeting of the Board,
a majority of directors shall constitute a quorum for the transaction of
business and the action of a majority of the directors present at any meeting
at which a quorum is present shall be the action of the Board of Directors,
unless the concurrence of a greater proportion is required for such action by
law, the Articles or these Bylaws. If a quorum shall not be present at any
meeting of directors, the directors present at such meeting may, by a majority
vote, adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.

SECTION 3.10 Organization. At each meeting of the Board of
Directors, the Chairman of the Board or, if the Chairman of the Board is absent
or unable to act, the President or, in the absence or inability to act of both
the Chairman of the board and the President, another director chosen by a
majority of the directors present shall act as chairman of and preside at the
meeting. The Secretary or, if the Secretary is absent or unable to act, any
person appointed by the chairman of the meeting shall act as secretary of the
meeting and keep the minutes thereof.

SECTION 3.11 Meeting by Telephone Conference. Members of the
Board of Directors may participate in a meeting of the Board of Directors or
any committee thereof by means of a telephone conference or similar
communications if all persons participating in the meeting can hear each other
at the same time. Participation in a meeting by these means constitutes
presence in person at a meeting.

SECTION 3.12 Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board or of such committee, as the case
may be, and such written consent is filed with the minutes of proceedings of
the Board of Directors or such committee.

SECTION 3.13 Compensation of Directors. Directors, as such, shall
not receive any stated salary for their services. Directors deemed
"independent" pursuant to the terms of Article FOURTEENTH of the Articles shall
receive compensation of (i) $15,000 per year plus expenses for serving on the
Board of Directors and (ii) up to $1,000 per day for any special services
rendered by such director to the Corporation outside of ordinary duties as
director, plus reimbursement for expenses. The Chairman of the Board shall
receive additional compensation of $1,500 per year. By resolution, the Board
of Directors may change or eliminate such compensation or eliminate
reimbursement for expenses. Nothing contained herein shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.

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ARTICLE ARTICLE IV

WAIVERS OF NOTICE

SECTION 4.1 Waivers of Notice. Notice of the time, place or
purpose of any meeting of stockholders, directors or committees required to be
given under law or under the provisions of the Articles or these Bylaws need
not be given to a person who shall have signed a written waiver, whether before
or after the relevant meeting, or who shall attend such meeting in person (or,
in the case of a meeting of stockholders, in person or by proxy). All such
waivers shall be filed with the records of the relevant meeting.

ARTICLE ARTICLE V

OFFICERS

SECTION 5.1 Officers. The executive officers of the
Corporation shall be chosen by the Board of Directors and shall consist of a
President, one or more Vice Presidents, a Secretary and a Treasurer. The Board
of Directors may from time to time choose other officers or agents of the
Corporation, including in its discretion a Chairman of the Board or one or more
Assistant Secretaries or Assistant Treasurers. Two or more offices, except
those of (i) President and Vice President, (ii) Secretary and Assistant
Secretary and (iii) Treasurer and Assistant Treasurer, may be held by the same
person, but no officer shall execute, acknowledge or verify an instrument in
more than one capacity if such instrument is required by law, the Articles or
these Bylaws to be executed, acknowledged or verified by two or more officers.

Any officer or agent may be, but need not be, a director of the
Corporation.

SECTION 5.2 Compensation. The salaries of all officers and
agents of the Corporation shall be fixed from time to time by the Board of
Directors.

SECTION 5.3 Term; Removal; Resignation. An officer of the
Corporation shall hold office until the first meeting of the Board of Directors
to occur after the next succeeding annual meeting of stockholders and until
such officer's successor is chosen and qualifies, subject, however, to prior
death, resignation, retirement or removal from office in accordance with these
Bylaws. Any officer or agent may be removed by the Board of Directors
whenever, in its judgment, the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contractual rights,
if any, of the person so removed. Any officer may resign at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein or, if no such time is specified, at the time of receipt
thereof by the Chairman of the Board, the President or the Secretary. The
acceptance of a resignation, unless otherwise stated therein, shall not be
necessary to make it effective. If any office becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.

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SECTION 5.4 Chairman of the Board. The Chairman of the
Board, if one shall be elected, shall have the power to preside at all meetings
of the Board of Directors and stockholders and exercise and perform such other
powers and duties as are specified in these Bylaws and as may from time to time
be prescribed by the Board of Directors.

SECTION 5.5 President. The President shall be the Chief
Executive Officer of the Corporation. The President shall have general control
of the business, finances and affairs of the Corporation, subject to the
control of the Board of Directors. Except as may otherwise be provided by the
Board of Directors from time to time, the President shall have the general
power to execute bonds, deeds, contracts, conveyances and other instruments in
the name of the Corporation and to affix the Corporate Seal, to appoint all
employees and agents of the Corporation whose appointment is not otherwise
provided for and to fix their compensation subject to the provisions of these
Bylaws and subject to the approval of the Board of Directors, to remove or
suspend any employee or agent who shall not have been appointed by the Board of
Directors and to suspend for cause, pending final action by the Board of
Directors, any employee or agent who shall have been appointed by the Board of
Directors. The President shall exercise and perform such other powers and
duties as are specified in these Bylaws and as may from time to time be
prescribed by the Board of Directors.

SECTION 5.6 Vice President. The Vice President, if one shall
be elected, or, if there shall be more than one, the Vice Presidents in the
order specified by the Board of Directors shall in the absence or disability of
the President perform the duties and exercise the powers of the President, and
shall exercise and perform such other powers and duties as are specified in
these Bylaws and as may from time to time be prescribed by the Board of
Directors.

SECTION 5.7 Secretary. The Secretary shall keep a minute
book of all meetings of stockholders and of the Board of Directors. The
Secretary shall keep in safe custody the Corporate Seal and, when authorized by
the Board of Directors, affix the same to any instrument requiring it and shall
exercise and perform such other powers and duties as are specified in these
Bylaws and as may from time to time be prescribed by the Board of Directors.

SECTION 5.8 Treasurer. The Treasurer shall have the custody
of corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Treasurer.
The Treasurer shall disburse the funds of the Corporation as ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors at its regular meetings, or
when the Board of Directors so requires, an account of all transactions and of
the financial condition of the Corporation.

If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of that office and for the restoration to the Corporation, in case of
the death, resignation, retirement or removal of the Treasurer from office, of
all books, papers, vouchers, money and other property of whatever kind in the
possession or under the control of the Treasurer and belonging to the
Corporation. The Treasurer shall exercise and perform such other powers and

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duties as are specified in these Bylaws and as may from time to time be
prescribed by the Board of Directors.

SECTION 5.9 Delegation of Duties. In the case of the absence
of any officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors may confer for the time
being the powers or duties, or any of them, of such officer upon any director.

SECTION 5.10 Indemnification. Each officer, director or employee
of the Corporation shall be indemnified by the Corporation to the full extent
permitted under Chapter 78 of the Nevada Revised Statutes and other applicable
law.

ARTICLE ARTICLE VI

CERTIFICATES OF STOCK

SECTION 6.1 Certificates. Records shall be kept by or on
behalf of the Corporation which shall contain the names and addresses of
stockholders, the number and class of shares held by them respectively and the
number of certificates, if any, representing the shares, and in which there
shall be recorded all transfers of shares. Each stockholder shall be entitled
to a certificate or certificates which shall certify the number and class of
shares owned by such stockholder in the corporation. Each certificate shall be
signed by the Chairman of the Board, the President or a Vice President and
countersigned by the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer and may be sealed with the Corporate Seal; provided,
however, that such signatures may be either manual or facsimile signatures and
the Corporate Seal may be either a facsimile or any other form of Corporate
Seal. In case any officer who has signed any certificate ceases to hold the
office in question before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as if the
officer had not ceased to hold such office as of the date of its issue. Each
stock certificate shall include on its face the name of the Corporation, the
name of the stockholder and the class of stock and number of shares represented
by the certificate. If the Corporation has authority to issue stock of more
than one class, each stock certificate shall contain on its face or back a full
statement or summary of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, the differences
in the relative rights and preferences between the shares of each series to the
extent they have been set and the authority of the Board of Directors to set
the relative rights and preferences of subsequent series. In lieu of such full
statement or summary, there may be set forth upon the face or back of the
certificate a statement that the Corporation will furnish to any stockholder
upon request and without charge a full statement of such information. A
summary of such information included in a registration statement permitted to
become effective under the federal Securities Act of 1933, as now or hereafter
amended, shall be an acceptable summary for the purposes of this Section 6.1.
Every stock certificate representing shares of stock which are restricted as to
transferability by the Corporation shall contain a full statement of the
restriction or state that the Corporation will furnish

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information about the restriction to the stockholder on request and without
charge. A stock certificate may not be issued until the stock represented by
it is fully paid, except in the case of stock purchased under an option plan as
permitted by law.

SECTION 6.2 Lost Certificates. In case any certificate for
shares of the Corporation shall be lost, stolen, mutilated or destroyed, the
Board of Directors, in its discretion, or any transfer agent thereunto duly
authorized by the Board, may authorize the issue of a substitute certificate in
place of the certificate so lost, stolen, mutilated or destroyed, and may cause
such substitute certificate to be countersigned by the appropriate transfer
agent (if any); provided, however, that in each such case the applicant for a
substitute certificate shall furnish to the Corporation and to such of its
transfer agents and registrars as may require the same, evidence to their
satisfaction, in their discretion, of the loss, theft, mutilation or
destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may by them be required. The Board of Directors may
adopt such other provisions and restrictions with reference to lost, stolen,
mutilated or destroyed certificates, not inconsistent with applicable law, as
it shall in its discretion deem appropriate.

SECTION 6.3 Transfer Agents and Registrars. The Board of
Directors may in its discretion appoint one or more banks or trust companies in
such city or cities as the Board of Directors may deem advisable, from time to
time, to act as transfer agents or registrars of the Corporation's shares, and
upon such appointments being made, no certificate representing shares shall be
valid until countersigned by one of such transfer agents (if any) and
registered by one of such registrars (if any).

SECTION 6.4 Transfer of Stock. Subject to the restrictions
contained in the Articles, upon surrender to the Corporation or its transfer
agent of a stock certificate duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.

SECTION 6.5 Fixing of Record Dates; Closing of Transfer
Books. The Board of Directors may fix in advance a date as the record date for
the purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or in order to make
a determination of stockholders for any other proper purpose. Such date, in
any case, shall not be more than sixty (60) days, and in case of meeting of
stockholders not less than ten (10) days, prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
In lieu of fixing a record date, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period not to exceed, in any
case, twenty (20) days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.

SECTION 6.6 Registered Stockholders. The Corporation shall
be entitled to recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends and to vote as such owner,
and to hold liable for calls and assessments, if any, a person registered on
its

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books as the owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.

SECTION 6.7 Regulations. The Board of Directors may make
such additional rules and regulations, not inconsistent with these Bylaws, as
it may deem expedient concerning the issue, transfer and registration of
certificates for the Corporation's shares.

ARTICLE ARTICLE VII

GENERAL PROVISIONS

SECTION 7.1 Dividends. Dividends, if any, upon the capital
stock of the Corporation, subject to the provisions of the Articles, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to applicable law. Dividends may be paid in cash, property or the
Corporation's shares, subject to the provisions of applicable law and of the
Articles. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sums as the directors
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, for equalizing dividends or for repairing or maintain
any property of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.

SECTION 7.2 Annual Report. The Chairman of the Board, the
President, a Vice President or the Treasurer shall prepare or cause to be
prepared annually a full and correct statement of the affairs of the
Corporation, including a balance sheet and a financial statement of operations
for the preceding fiscal year. Such balance sheet and financial statement may
be, but are not required by these Bylaws to be, certified by independent
certified public accountants. Such report shall also be submitted at the
annual meeting and shall be filed within twenty (20) days thereafter at the
principal office of the Corporation.

SECTION 7.3 Checks. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness issued in the name
of the Corporation shall be signed by the President or the Treasurer or by such
officer or officers as the Board of Directors may from time to time designate.

SECTION 7.4 Depositories and Custodians. The funds of the
Corporation shall be deposited with such banks or other depositories as the
Treasurer may from time to time designate. All securities and other
investments shall be deposited in the safekeeping of such banks or other
companies as the Board of Directors may from time to time designate.

SECTION 7.5 Books of Account and Records. The Corporation
shall maintain at its principal office correct and complete books and records
of account of all the business and transactions of the Corporation. Upon
request of any stockholder, there shall be made available in accordance with
the provisions of Nevada law a record containing the number of shares of stock

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issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.

SECTION 7.6 Information for Inspection. Any stockholder of
the Corporation, or any agent thereof, may inspect and copy during usual
business hours these Bylaws, minutes of the proceedings of meetings of
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.

SECTION 7.7 Fiscal Year. The fiscal year of the Corporation
shall be the calendar year.

SECTION 7.8 Corporate Seal. The Corporate Seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Nevada." The Corporate Seal may be used by causing
it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.

ARTICLE ARTICLE VIII

AMENDMENTS

SECTION 8.1 Directors. In furtherance and not in limitation
of the powers conferred by statute, the Board of Directors is expressly
authorized to make, adopt, alter, amend, change or repeal the Bylaws of the
Corporation.

SECTION 8.2 Stockholders. The stockholders of the
Corporation may not make, adopt, alter, amend, change or repeal the Bylaws of
the Corporation except upon the affirmative vote of not less than seventy five
percent (75%) of the outstanding stock of the Corporation entitled to vote
thereon; provided, however, that the power of the stockholders to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation is further subject
to the provisions of the Articles of Incorporation.

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APPENDIX E

SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
OF
CONTINENTAL MORTGAGE AND EQUITY TRUST
(FORMERLY CONSOLIDATED CAPITAL SPECIAL TRUST)

This Second Amended and Restated Declaration of Trust is made and
entered into as of May 27, 1987 and will be recorded in Alameda County,
California, as soon as reasonably possible after execution. The original
Declaration of Trust was entered into on August 27, 1980 and was first amended
and restated on November 4, 1980, and further amended on August 13, 1986. This
Second Amended and Restated Declaration of Trust supersedes and overrides all
prior Declarations of Trust of Consolidated Capital Special Trust (the "Trust")
and incorporates changes approved by the Shareholders at the Trust's Annual
Meeting of Shareholders held May 27, 1987.

Fred H. Field, Albert H. Schaaf, Douglas M. Temple, Thomas J.
Fitzmyers, David V. John, and Betty Hood-Gibson do hereby agree to hold in
trust, as Trustees, any and all property, real, personal, or otherwise,
tangible or intangible, of every type and description, which is transferred,
conveyed, or paid to them as such Trustees, and all rents, income, profits, and
gains therefrom for the benefit of the Shareholders hereunder, subject to the
terms and conditions and for the uses and purposes hereinafter set forth.

ARTICLE I

The Trust: Definitions

1.1. Name. The name of the Trust shall be "Consolidated Capital
Special Trust." As far as practicable and except as otherwise provided in this
Declaration, the Trustees shall conduct the Trust's activities, execute all
documents, and sue or be sued in the name of Consolidated Capital Special
Trust, or in their names as Trustees of Consolidated Capital Special Trust. If
the Trustees determine that the use of such name is not practicable, legal, or
convenient, they may use such other designation or may adopt another name under
which the Trust may hold property or conduct its activities.

If Consolidated Capital Equities Corporation, a Colorado corporation,
or any subsidiary, affiliate, or successor of such limited partnership shall
cease, for any reason, to render to the Trust the services of Advisor (as
defined in Section 1.4 hereof) pursuant to the contract referred to in Article
IV hereof and any renewal or extension of such contract, then the Trustees
shall, upon request of Consolidated Capital Equities Corporation, or its
successors, and without any vote or consent of the Shareholders of this Trust
being required, promptly amend this Declaration of Trust to change the name of
the Trust to one which does not include any reference to "Consolidated
Capital," or "Johnstown/Consolidated" or any approximation thereof.

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1.2. Place of Business. The principal office of the Trust shall be
2000 Powell Street in the City of Emeryville, California 94608. However, the
Trustees may, from time to time, change such location and maintain other
offices or places of business.

1.3. Nature of Trust. The Trust is a real estate investment trust.
(also known as a business trust for real estate purposes) organized under the
laws of the state of California. It is intended that the Trust shall carry on
business as a "real estate investment trust" (hereinafter called "REIT") as
described in the REIT Provisions of the Internal Revenue Code. The Trust is
not a general partnership, limited partnership, joint venture, corporation, or
joint stock company or association (but nothing herein shall preclude the Trust
from being taxed as an association under the REIT Provisions of the Internal
Revenue Code) nor shall the Trustees or Shareholders or any of them for any
purpose be, nor be deemed to be, nor treated in any way whatsoever to be,
liable or responsible hereunder as partners or joint venturers. The
relationship of the Shareholders to the Trustees shall be solely that of
beneficiaries of the Trust and their rights shall be limited to those conferred
upon them by this Declaration.

1.4. Definitions. The terms defined in this Section 1.4, whenever
used in this Declaration, shall, unless the context otherwise requires, have
the respective meanings hereinafter specified in this Section 1.4. In this
Declaration, words in the singular number include the plural, and words in the
plural number include the singular.

(a) Advisor. "Advisor" shall mean any Person appointed,
employed, or contracted with by the Trustees under the provisions of
Article IV hereof.

(b) Affiliate. "Affiliate" shall mean, as to any Person
any other Person who owns beneficially, directly or indirectly, 1% or
more of the outstanding capital stock, shares or equity interests of
such Person or of any other Person which controls, is controlled by,
or is under common control with, such Person or is an officer, retired
officer, director, employee, partner, or trustee (excluding
independent trustees not otherwise affiliated with the entity) of such
Person or of any other Person which controls, is controlled by, or is
under common control with such Person.

(c) Annual Meeting of Shareholders. "Annual Meeting of
Shareholders" shall have the meaning set forth in the first sentence
of Section 6.7.

(d) Annual Report. "Annual Report" shall have the
meaning set forth in Section 6.9.

(e) Appraisal. "Appraisal" shall mean the value, as of
the date of the appraisal, of Real Property in its existing state or
in a state to be created as determined by the Trustees, the Advisor,
or by a disinterested Person having no economic interest in the Real
Property and who is a member in good standing of the American
Institute of Real Estate Appraisers (MAI), or who in the sole judgment
of the Trustees is properly qualified to make such determination. The
Trustees may in good faith rely on a previous Appraisal made on behalf
of other Persons provided (i) it meets the aforesaid standards and was
made in connection

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with an investment in which the Trust acquires an entire or
participating interest, or (ii) it was prepared not earlier than two
years prior to the acquisition by the Trust of its interest in the
Real Property. In appraising such properties appraisers may take into
consideration each of the specific terms and conditions of a purchase
including any leaseback or other guarantee arrangement contained
therein. Such Appraisal may not necessarily represent the cash value
of the property but may consider the value of the income stream from
such property plus the discounted value of the fee interest and other
terms of the purchase. "Appraisal" when pertaining to Mortgage Loans,
shall mean value as determined by the Advisor.

(f) Appraised Value. "Appraised Value" shall mean the
value stated in the most recent Appraisal of the Real Property owned
by the Trust. Appraisals shall be made at the time of purchasing each
Real Property by an independent member of the American Institute of
Real Estate Appraisers. "Appraised Value," when pertaining to
Mortgage Loans shall mean value as determined by the Advisor.

(g) Book Value. "Book Value" shall mean the value of an
asset or assets of the Trust on the books of the Trust, before
provision for amortization, depreciation or depletion, and before
deducting any indebtedness or other liability in respect thereto,
except that no asset shall be valued at more than its fair value as
determined by the Trustees.

(h) Book Value of Invested Assets. "Book Value of
Invested Assets" shall mean the Book Value of the Trust's total assets
(without deduction of any liabilities) but excluding: (i) goodwill
and other intangible assets; (ii) cash; and (iii) cash-equivalent
investments with terms which mature in one year or less.

(i) Construction Loans. "Construction Loans" shall mean
Mortgage Loans made to finance all or part of the cost of acquiring
land (including leaseholds therein) and the construction of buildings
or other improvements thereon.

(j) Declaration. "Declaration" shall mean this
Declaration of Trust and all amendments, restatements, or
modifications thereof. References in this Declaration to "herein,"
"hereof," and "hereunder" shall be deemed to refer to this Declaration
and shall not be limited to the particular text article or section in
which such words appear.

(k) Development Loans. "Development Loans" shall mean
Mortgage Loans made to finance all or part of the cost of the
acquisition of land (including leaseholds therein) and the development
of such land into finished sites, including the installation of
utilities, drainage, sewage, road systems, and other improvements
prior to commencement of construction.

(l) First Mortgage. "First Mortgage" shall mean a
Mortgage which takes priority or precedence over all other charges or
liens upon the same Real Property, other than a lessee's interest
therein, and which must be satisfied before such other charges are
entitled to participate in the proceeds of any sale. Such Mortgage
may be upon a lessee's interest in Real Property. Such priority shall
not be deemed as abrogated by liens for taxes,

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assessments which are not delinquent or remain payable without
penalty, contracts (other than contracts for repayment of borrowed
monies), or leases, mechanic's and materialman's liens for work
performed and materials furnished which are not in default or are in
good faith being contested, and other claims normally deemed in the
same local jurisdiction not to abrogate the priority of a First
Mortgage.

(m) First Mortgage Loans. "First Mortgage Loans" shall
mean Mortgage Loans secured or collateralized by First Mortgages.

(n) Interim Loans. "Interim Loans" shall mean any loan
for the purpose of funding the development and/or construction of real
estate.

(o) Junior Mortgage. "Junior Mortgage" shall mean a
Mortgage which (i) has the same priority or precedence over charges or
encumbrances upon Real Property as that required for a First Mortgage
except that it is subject to the priority of one or more other
Mortgages, and (ii) must be satisfied before such other charges or
liens (other than prior Mortgages) are entitled to participate in the
proceeds of any sale.

(p) Junior Mortgage Loans. "Junior Mortgage Loans" shall
mean Mortgage Loans secured or collateralized by Junior Mortgages.

(q) Mortgage Loans. "Mortgage Loans" shall mean notes,
debentures, bonds, and other evidences of indebtedness or obligations
which are negotiable or non-negotiable and which are secured or
collateralized by Mortgages.

(r) Mortgages. "Mortgages" shall mean Mortgages, deeds
of trust, or other security deeds on Real Property or rights or
interests in Real Property.

(s) Net Asset Value. "Net Asset Value" shall mean the
Book Value of all the assets of the Trust minus all the liabilities of
the Trust.

(t) Net Income. "Net Income" for any period shall mean
the Net Income of the Trust for such period computed on the basis of
its results of operations for such period, after deduction of all
expenses other than the Subordinated Trust Management Fee payable to
the Advisor and other than extraordinary items, gains and losses from
the disposition of assets of the Trust and amortization, depreciation
or depletion of the assets of the Trust.

(u) Operating Expenses. "Operating Expenses" shall mean
the aggregate annual expenses of every character regarded as operating
expenses in accordance with generally accepted accounting principles,
as determined by independent accountants selected by the Trustees,
including the Subordinated Trust Management Fee payable to the Advisor
and the fees and expenses paid to the Trustees who are not employees
or Affiliates of the Advisor, excluding, however, the following: the
cost of money borrowed by the Trust; taxes on income and taxes and
assessments on Real Property and all other taxes applicable to the
Trust; legal, auditing, accounting, underwriting, brokerage, listing,
registration and other

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fees, and printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration,
and stock exchange listing of the Trust's securities; fees and
expenses paid to independent contractors, mortgage servicers,
consultants, managers, and other agents retained by or on behalf of
the Trust; expenses directly connected with the origination, purchase,
ownership and disposition of Mortgage Loans and with the acquisition,
disposition and ownership of real estate interests or other property
(including the costs of foreclosure, insurance premiums, legal
services, brokerage and sales commissions, maintenance, repair and
improvement of property); other than expenses with respect thereto
(with the exception of legal services) of employees of the Advisor;
expenses of maintaining and managing real estate equity interests and
processing and servicing mortgage and other loans; expenses connected
with payments of dividends or interest or distributions in cash or any
other form made or caused to be made by the Trustees to holders of
securities of the Trust; all expenses connected with communications to
holders of securities of the Trust and the other bookkeeping and
clerical work necessary in maintaining relations with holders of
securities, including the cost of printing and mailing certificates
for securities and proxy solicitation materials and reports to such
holders; transfer agent's, registrar's, and indenture trustee's fees
and charges; and exclusive of reserves for depletion, depreciation,
and amortization and losses and provisions for losses.

(v) Person. "Person" shall mean and include individuals,
corporations, limited partnerships, general partnerships, joint stock
companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies land trusts, business trusts or other
entities and governments and agencies and political subdivisions
thereof.

(w) Real Property. "Real Property it shall mean and
include land, rights in land, leasehold interests (including but not
limited to interests of a lessor or lessee therein), and any buildings
structures, improvements, fixtures, and equipment located on or used
in connection with land, leasehold interests and rights in land or
interests therein, but shall not include Mortgages, Mortgage Loans, or
interests therein.

(x) REIT Provisions of the Internal Revenue Code. "REIT
Provisions of the Internal Revenue Code" shall mean Part II,
Subchapter M of Chapter 1, of the Internal Revenue Code of 1954, as
now enacted or hereafter amended, or successor statutes, and
regulations and rulings promulgated thereunder.

(y) Securities. "Securities" shall mean any stock,
shares, voting trust certificates, bonds, debentures, notes, or other
evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly
known as "securities," or any certificates of interest, shares, or
participations in temporary or interim certificates for receipts for,
guarantees of, or warrants, options, or rights to subscribe to,
purchase, or acquire any of the foregoing.

(z) Shares. "Shares" shall mean the Shares of beneficial
interest of the Trust as described in Section 6.1.

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(aa) Shareholders. "Shareholders" shall mean, as of any
particular time, all holders of record of outstanding Shares at such
time.

(bb) Total Assets of the Trust Estate. "Total Assets of
the Trust Estate" shall mean the value of all the assets of the Trust
Estate as shown on the books of the Trust.

(cc) Trust Estate. "Trust Estate" shall mean, as of any
particular time, any and all property, real, personal, or otherwise,
tangible or intangible, which is owned or held by the Trust or the
Trustees, including, but not limited to, property which is
transferred, conveyed, or paid to the Trust or Trustees, and all
rents, income, profits, and gains therefrom.

(dd) Trustees. "Trustees" shall mean, as of any
particular time, Trustees holding office under this Declaration at
such time, whether they be the Trustees named herein or additional or
successor Trustees , and shall not include the officers,
representatives, or agents of the Trust, or the Shareholders, but
nothing herein shall be deemed to preclude the Trustees from also
serving as officers, representatives, or agents of the Trust, or from
owning Shares.

(ee) Trustees' Regulations. "Trustees' Regulations" shall
have the meaning set forth in Section 3.3.

(ff) Wrap-Around Mortgage Loan. "Wrap-Around Mortgage
Loan" shall mean a loan in an amount equal to the balance due under an
existing Mortgage Loan plus an additional amount advanced by the
lender holding the Wrap-Around Mortgage Loan, where the existing
Mortgage Loan will not be retired, and such Wrap-Around Mortgage Loan
shall be deemed to include hypothecation loans, the payment of which
is secured by assignment to the Trust of other existing notes and
deeds of trust or mortgages which the borrower holds, and which
assigned loans, in the event of default of the hypothecation loan made
by the Trust, may be collected directly by the Trust.

ARTICLE II

Trustees

2.1. Number, Term of Office, and Qualifications of Trustees.
There shall be no less than five (5) nor more than fifteen (15) Trustees. The
current Trustees are the six signatories hereto. Within the limits set forth
in this Section 2.1, the number of Trustees may be increased or decreased from
time to time by the Trustees or by the Shareholders. Subject to the provisions
of Section 2.3 each Trustee shall hold office until the expiration of his term
and until the election and qualification of his successor. The terms of the
Trustees executing this Declaration, or of any successor or successors to them,
duly elected hereunder prior to the Annual Meeting of the Shareholders to be
held following the close of the Trust's fiscal year in 1982, shall expire at
such Annual Meeting of the Shareholders. Thereafter, the term of each Trustee
shall expire at the Annual Meeting of the Shareholders following the election
of such Trustee. Trustees may be re-elected.

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A Trustee shall be an individual at least twenty-one (21) years of
age who is not under legal disability. A Trustee shall qualify as such when he
has either signed this Declaration or agreed in writing to be bound by it.
Unless otherwise required by law or by action of the Trustees, no Trustee shall
be required to give bond, surety, or security in any jurisdiction for the
performance of any duties or obligations hereunder. The Trustees, in their
capacity as Trustees, shall not be required to devote their entire time to the
business and affairs of the Trust. A majority of the Trustees shall at all
times be Persons who are not Affiliates of Consolidated Capital Equities
Corporation or any of its Affiliates, provided, however, that upon a failure to
comply with this requirement because of the death, resignation, or removal of a
Trustee who is not such an Affiliate, such requirement shall not be applicable
for a period of sixty (60) days.

2.2. Compensation and Other Remuneration. The Trustees shall be
entitled to receive such reasonable compensation for their services as Trustees
as they may determine from time to time; provided, however, that Trustees and
officers of the Trust who are affiliated with the Advisory Company or any of
its Affiliates shall not receive compensation from the Trust for their services
as Trustees or officers of the Trust. The Trustees either directly or
indirectly shall also be entitled to receive remuneration for services rendered
to the Trust in any other capacity. Such services may include, without
limitation, services as an officer of the Trust, legal, accounting, or other
professional services, or services as a broker, transfer agent, or underwriter,
whether performed by a Trustee or by any Person affiliated with a Trustee.

2.3. Resignation, Removal, and Death of Trustees. The term of
office of a Trustee shall terminate and vacancy shall occur in the event of the
death, resignation, bankruptcy, adjudicated incompetence, or other incapacity
to exercise the duties of the office, or removal of a Trustee. A Trustee may
resign at any time by his giving written notice in recordable form to the
remaining Trustees at the principal office of the Trust. Such resignation
shall take effect on the date such notice is given, or at any later time
specified in the notice, without need for prior or subsequent accounting. A
Trustee may be removed at any time, with or without cause, by vote or consent
of holders of a majority of the outstanding Shares entitled to vote thereon, or
by a majority of the remaining Trustees. A Trustee judged incompetent or
bankrupt, or for whom a guardian or conservator has been appointed, shall be
deemed to have resigned as of the date of such adjudication or appointment.
Upon the resignation or removal of any Trustee, or upon his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the conveyance of any Trust property held in his
name and shall account to the remaining Trustee or Trustees, as they require,
for all property which he holds as Trustee and shall thereupon be discharged as
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall perform the acts set forth in the preceding sentence, and the discharge
mentioned therein shall run to such legal representative and to the
incapacitated Trustee or the estate of the deceased Trustee, as the case may
be.

2.4. Vacancies. If any or all of the Trustees cease to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death, or
otherwise, such event shall not terminate the Trust or affect its continuity.
Until vacancies are filled, the remaining Trustee or Trustees (even though less
than five (5)) may exercise the powers of the Trustees hereunder. Vacancies
(including vacancies created by increases in number) may be filled by the
remaining Trustee or Trustees, or by the vote or consent of holders of a
majority of the outstanding Shares entitled to vote thereon. If at

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any time there shall be no Trustees in office, successor Trustees shall be
elected by the Shareholders as provided in Section 6.7.

2.5. Successor and Additional Trustees. The right, title, and
interest of the Trustees in and to the Trust Estate shall also vest in
successor and additional Trustees upon their qualification, and they shall
thereupon have all the rights and obligations of Trustees hereunder. Such
right, title, and interest shall vest in the Trustees, whether or not
conveyance documents have been executed and delivered pursuant to Section 2.3
or otherwise.

2.6. Actions by Trustees. A quorum for all meetings of the
Trustees shall be a majority of the Trustees. Common, interested, or
affiliated Trustees may be counted in determining the presence of: a quorum at
a meeting of the Trustees. Unless specifically provided otherwise in this
Declaration, the Trustees may act by a vote or resolution at a meeting at which
a quorum is present or without a meeting by a written vote, resolution, or
other writing consenting to said action, signed by a majority of the Trustees.
Every act or decision done or made by a majority of the Trustees present at a
meeting duly held at which a quorum is present is the act of the Trustees. Any
agreement, deed, Mortgage, lease, or other instrument or writing executed by
one or more of the Trustees, or by any authorized person, shall be valid and
binding upon the Trustees and upon the Trust when ratified by action of the
Trustees.

2.7. Executive Committee. The Trustees may appoint from among
their own number an executive committee of three or more Persons to whom they
may delegate from time to time such of the powers herein given to the Trustees
as they may deem advisable. A majority of the Executive Committee shall at all
times be Trustees who are not Affiliates of Consolidated Capital Equities
Corporation or any of its Affiliates, provided, however, that upon a failure to
comply with this requirement because of the death, resignation, or removal of a
Trustee who is not such an Affiliate, such requirement shall not be applicable
for a period of sixty (60) days.

ARTICLE III

Trustees' Powers

3.1. Power and Authority of Trustees. The Trustees, subject only
to the specific limitations contained in this Declaration, shall have, without
further or other authorization and free from any power or control on the part
of the Shareholders, full, absolute, and exclusive power, control, and
authority over the Trust Estate and over the business and affairs of the Trust
to the same extent as if the Trustees were the sole owners thereof in their own
right, and may do all such acts and things as in their sole judgment and
discretion are necessary for or incidental to or desirable for the carrying out
of any of the purposes of the Trust or the conducting of the business of the
Trust. Any determination made in good faith by the Trustees of the purposes of
the Trust or the existence of any power or authority hereunder shall be
conclusive. In construing the provisions of this Declaration, a presumption
shall favor of the grant of powers and authority to the Trustees. The
enumeration of any specific power or authority herein shall not be construed as
limiting the general powers or authority or any other specified power or
authority conferred herein upon the Trustees.

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3.2. Specific Powers and Authorities. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule or law, the Trustees, without
any action or consent by the Shareholders, shall have and may exercise at any
time and from time to time the following powers and authorities which may or
may not be exercised by them in their sole judgment and discretion and in such
manner and upon such terms and conditions as they may from time to time deem
proper:

(a) To retain, invest, and reinvest the capital or other
funds of the Trust in mortgage and/or equity interests in real or
personal property of any kind, all without regard to whether any such
property is authorized by law for the investment of Trust funds or
whether any investments may mature before the possible termination of
the Trust, and to possess and exercise all the rights, powers, and
privileges appertaining to the ownership of the Trust Estate and to
increase the capital of the Trust at any time by the issuance of
additional Shares for such consideration as they deem appropriate.

(b) For such consideration as they deem proper, to invest
in, purchase, or otherwise acquire for cash or other property or
through the issuance of Shares or through the issuance of notes,
debentures, bonds, or other obligations of the Trust and hold for
investment real, personal or mixed, tangible or intangible, property
of any kind wherever located in the world, including without
limitation: (i) the entire or any participating interest in rents,
lease payments, or other income from, or the entire or any
participating interest in the profits from, or the entire or any
participating interest in the equity or ownership of, Real Property;
(ii) the entire or any participating interest in notes, bonds, or
other obligations which are secured by Mortgages; (iii) in connection
with any such investment, purchase or acquisition, a share of rents,
lease payments, or other gross income from or a share of the profits
from or a share in the equity or ownership of Real Property, either
directly or through joint venture, general or limited partnership, or
other lawful combinations or associations; (iv) loans secured by the
pledge or transfer of Mortgages; and (v) Securities of every nature,
whether or not secured by Mortgage Loans. The Trustees shall also
have the power to develop, operate, pool, unitize, grant production
payments out of or lease or otherwise dispose of mineral, oil, and gas
properties and rights.

(c) To sell, rent, lease, hire, exchange, release,
partition, assign, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer, or otherwise
dispose of any and all of the Trust Estate by deeds, trust deeds,
assignments bills of sale, transfers, leases, mortgages, financing
statements, security agreements, and other instruments for any of such
purposes executed and delivered for and on behalf of the Trust or the
Trustees by one or more of the Trustees or by a duly authorized
officer, employee, agent, or any nominee of the Trust.

(d) To issue Shares, bonds, debentures, notes, or other
evidences of indebtedness which may be secured or unsecured and may be
subordinated to any indebtedness of the Trust and may be convertible
into Shares and which include options, warrants, and rights to
subscribe to, purchase, or acquire any of the foregoing, all without
vote of or other action by

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the Shareholders to such Persons for such cash, property or other
consideration (including Securities issues or created by or interests
in any Person) at such time or times and on such terms as the Trustees
in their sole discretion and in good faith may deem advisable and to
list any of the foregoing Securities issued by the Trust on any
securities exchange and to purchase or otherwise acquire, hold,
cancel, reissue, sell and transfer any of such Securities.

(e) To enter into leases, contracts, obligations, and
other agreements for a term extending beyond the term of office of the
Trustees and beyond the possible termination of the Trust or for a
lesser term.

(f) To borrow money and give negotiable or non-negotiable
instruments therefor; to guarantee, indemnify or act as surety with
respect to payment or performance of obligations of third parties; to
enter into other obligations on behalf of the Trust; and to assign,
convey, transfer, mortgage, subordinate, pledge, grant security
interests in, encumber or hypothecate the Trust Estate to secure any
of the foregoing, provided that upon and after giving effect to any
proposed borrowing the amount of outstanding, secured and unsecured
indebtedness of the Trust for money borrowed from or guaranteed to
others, including Mortgages on acquired Real Property, would not
exceed three hundred percent (300%) of the Net Asset Value of the
Trust. Any excess in borrowing over such 300% level shall be approved
by a majority of the Trustees who are not Affiliates of the Advisor or
any of its Affiliates, and disclosed to the Shareholders in the next
quarterly report of the Trust, along with justification for such
excess; provided that such authority can only be exercised to permit
the issuance of collateralized mortgage obligations ("CMOs"), regular
or residual interests in real estate mortgage investment conduits
("REMICs"), or any other mortgage-backed security.

(g) To lend money, whether secured or unsecured.

(h) To create reserve funds for any purpose.

(i) To incur and pay out of the Trust Estate any charges
or expenses, and disburse any funds of the Trust, which charges,
expenses or disbursements are, in the opinion of the Trustees,
necessary for or incidental to or desirable for the carrying out of
any of the purposes of the Trust or the conducting of the business of
the Trust, including, without limitation, taxes and other governmental
levies, charges and assessments of whatever kind or nature, imposed
upon or against the Trustees in connection with the Trust or the Trust
Estate or upon or, against the Trust Estate or any part thereof, and
for any of the purposes herein.

(j) To deposit funds or Securities held by the Trust in
banks, trust companies, savings and loan associations and other
depositories, whether or not such deposits will draw interest, the
same to be subject to withdrawal on such terms and in such manner and
by such Person or Persons (including any one or more Trustees,
officers, agents or representatives) as the Trustees may determine.

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(k) To possess and exercise all the rights, powers and
privileges appertaining to the ownership of all or any interests in,
Mortgages or Securities issued or created by, any Person, forming part
of the Trust Estate, to the same extent that an individual might, and,
without limiting the generality of the foregoing, to vote or give any
consent, request or notice, or waive any notice, either in person or
by proxy or power of attorney, with or without power of substitution,
to one or more Persons, which proxies and powers of attorney may be
for meetings or actions generally, or for any particular meeting or
action, and may include the exercise of discretionary powers.

(l) To enter into joint ventures, general or limited
partnerships, and any other lawful combinations or associations.

(m) To elect, appoint engage or employ such officers for
the Trust as the Trustees may determine, who may be removed or
discharged at the discretion of the Trustees, such officers to have
such powers and duties, and to serve such terms and at such
compensation as may be prescribed by the Trustees or by the Trustees'
Regulations, to engage or employ any Persons (including, subject to
the provisions of Sections 7.5 and 7.6, any Trustee or officer and any
Person with which any Trustee or officer is directly or indirectly
connected) as agents, representatives, employees, or independent
contractors (including, without limitation, real estate advisors,
investment advisors, transfer agents, registrars, underwriters,
accountants, attorneys at law, real estate agents, managers,
appraisers, brokers, architects, engineers, construction managers,
general contractors or otherwise) in one or more capacities, and to
pay compensation from the Trust for services in as many capacities as
such Person may be so engaged or employed and, except as prohibited by
law, to delegate any of the powers and duties of the Trustees to any
one or more Trustees, agents, representatives, officers, employees,
independent contractors or other Persons.

(n) To determine whether monies, Securities or other
assets received by the Trust shall be charged or credited to income or
capital or allocated between income and capital, such determination
including the power to amortize or fail to amortize any part or all of
any premium or discount, to treat any part or all of the profit
resulting from the maturity or sale of any asset, whether purchased at
a premium or at a discount, as income or capital or to apportion the
same between income and capital; to apportion the sale price of any
asset between income and capital, and to determine in what manner any
expenses or disbursements are to be borne as between income and
capital, whether or not in the absence of the power and authority
conferred by this subsection such monies Securities or other assets
would be regarded as income or as capital or such expense or
disbursement would be charged to income or to capital; to treat any
dividend or other distribution on any investment as income or capital
or apportion the same between income and capital; to provide or fail
to provide reserves for depreciation, amortization or obsolescence in
respect of all or any part of the Trust Estate subject to
depreciation, amortization or obsolescence in such amounts and by such
methods as they shall determine; to allocate to the share of
beneficial interest account less than all of the consideration
received for Shares and to allocate the balance thereof to paid-in
capital; and to determine the method or form in which the accounts and
records of the Trust shall be kept and to change from time to time
such method or form.

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(o) To determine from time to time the value of all or
any part of the Trust Estate and of any services, Securities, assets,
or other consideration to be furnished to or acquired by the Trust,
and from time to time to revalue all or any part of the Trust Estate
in accordance with such appraisals or other information as are, in the
Trustees' sole judgment, necessary and/or satisfactory.

(p) To collect, sue for, and receive all sums of money or
other assets coming due to the Trust, and to engage in, intervene in,
prosecute, join, defend, compound, compromise, abandon or adjust, by
arbitration or otherwise, any actions, suits, proceedings, disputes,
claims, controversies, demands or other litigation relating to the
Trust, the Trust Estate or the Trust's affairs, to enter into
agreements therefor, whether or not any suit is commenced or claim
accrued or asserted and, in advance of any controversy, to enter into
agreements regarding arbitration, adjudication or settlement thereof.

(q) To renew, modify, release, compromise, extend,
consolidate, or cancel, in whole or in part, any obligation to or of
the Trust.

(r) To purchase and pay for out of the Trust Estate
insurance contracts and policies insuring the Trust Estate against any
and all risks and insuring the Trust and/or any or all of the
Trustees, the Shareholders, officers, employees, agents, investment
advisors or independent contractors of the Trust against any and all
claims and liabilities of every nature asserted by any Person arising
by reason of any action alleged to have been taken or omitted by the
Trust or by any such Person as Trustee, Shareholder, officer,
employee, agent, investment advisor or independent contractor, whether
or not the Trust would have the power to indemnify such Person against
such liability.

(s) To cause legal title to any of the Trust Estate to be
held by and/or in the name of the Trustees, or except as prohibited by
law, by and/or in the name of the Trust or one or more of the Trustees
or any other Person, on such terms, in such manner, with such powers
in such Person as the Trustees may determine, and with or without
disclosure that the Trust or Trustees are interested therein.

(t) To adopt a fiscal year for the Trust, and from time
to time to change such fiscal year without the approval of the
Shareholders.

(u) To adopt and use a seal (but the use of a seal shall
not be required for the execution of instruments or obligations of the
Trust).

(v) To make, perform, and carry out, or cancel and
rescind, contracts of every kind for any lawful purpose without limit
as to amount, with any Person, firm, trust, association, corporation,
municipality, county, parish, state, territory, government or other
municipal or governmental subdivision. These contracts shall be for
such duration and upon such terms as the Trustees in their sole
discretion shall determine.

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(w) To do all other such acts and things as are
incidental to the foregoing, and to exercise all powers which are
necessary or useful to carry on the business of the Trust; to promote
any of the purposes for which the Trust is formed, and to carry out
the provisions of this Declaration.

3.3. Trustees' Regulations. The Trustees may make, adopt, amend or
repeal regulations (the "Trustees' Regulations") containing provisions relating
to the business of the Trust, the conduct of its affairs, its rights or powers
and the rights or powers of its Shareholders, Trustees or officers not
inconsistent with law or with this Declaration.

3.4. Additional Powers. The Trustees shall additionally have and
exercise all the powers conferred by the laws of California upon business
trusts or real estate investment trusts formed under such laws, insofar as such
laws are not in conflict with the provisions of this Declaration.

3.5. Incorporation. Upon a vote of two-thirds (2/3) of the
Trustees, and with the approval of the holders of a majority of the outstanding
Shares, the Trustees shall have the power to cause to be organized or to assist
in organizing a corporation or corporations under the laws of any jurisdiction
or any other trust, partnership, association, or other organization to take
over the Trust Estate or any part or parts thereof or to carry on any business
in which the Trust shall directly or indirectly have any interest, and to sell,
convey and transfer the Trust Estate or any part or parts thereof to any such
corporation, trust, partnership, association, or organization in exchange for
the Shares or Securities thereof or otherwise, and to lend money to, subscribe
for the Shares or Securities of, and enter into any contracts with any such
corporation, trust, partnership, association, or organization, or any
corporation, trust partnership, association, or organization in which the Trust
holds or is about to acquire Shares or any other interest. The Trustees may
also cause a merger or consolidation between the Trust or any successor thereto
and any such corporation if and to the extent permitted by law, provided that
under the law then in effect, the federal income tax benefits available to
qualified real estate investment trusts and their shareholders, or
substantially similar benefits, are also available to such corporation, trust,
partnership, association, or organization and its stockholders or members, and
provided that the resulting investment would be substantially equal in quality
and substantially the same in type as an investment in the Shares.

ARTICLE IV

Advisor: Limitation on Operating Expenses

4.1. Employment of Advisor. The Trustees are responsible for the
general policies of the Trust and for such general supervision of the
business of the Trust conducted by all officers, agents, employees, advisors,
managers or independent contractors of the Trust as may be necessary to ensure
that such business conforms to the provisions of this Declaration. However,
the Trustees shall not be required personally to conduct all the business of
the Trust, and consistent with their ultimate responsibility as stated above
the Trustees shall have the power to appoint, employ or contract with any
Person (including one or more of themselves or any corporation, partnership, or
trust in which one or more of them may be directors, officers, stockholders,
partners or trustees) as the Trustees

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may deem necessary or proper for the transaction of the business of the Trust.
The Trustees may therefor employ or contract with such Person (herein referred
to as the "Advisor"), and the Trustees may grant or delegate such authority to
the Advisor as the Trustees may in their sole discretion deem necessary or
desirable without regard to whether such authority is normally granted or
delegated by Trustees.

The Trustees (subject to the provisions of Sections 4.2 and
4.4) shall have the power to determine the terms and compensation of the
Advisor or any other Person whom they may employ or with whom they may contract
provided, however, that any determination to employ or contract with any
Trustee or any Person of which a Trustee is an Affiliate, shall be valid only
if made, approved or ratified by a Majority of the Trustees who are not
Affiliates of such Person. The Trustees may exercise broad discretion in
allowing the Advisor to administer and regulate the operations of the Trust, to
act as agent for the Trust, to execute documents on behalf of the Trustees, and
to make executive decisions which conform to general policies and general
principles previously established by the Trustees.

4.2. Term. The Trustees shall not enter into any contract with the
Advisor unless such contract has an initial term of no more than two (2) years
and provides for annual renewal or extension thereafter, subject to approval by
the Shareholders of the Trust. However, the first such term shall extend from
the date of its execution to the date of the first annual meeting of the
Shareholders. The Trustees shall not enter into such a contract with any
Person of which a Trustee is an Affiliate unless such contract provides for
renewal or extension thereof by the affirmative vote of a majority of the
Trustees who are not Affiliates of such Person. The contract with the Advisor
may be terminated without penalty by the Advisor upon one hundred twenty (120)
days' written notice or by action of holders of a majority of the outstanding
Shares of the Trust without penalty, or by the Trust without penalty by action
of a majority of the Trustees, including a majority of the Trustees not
affiliated with the Advisor or any of its Affiliates, upon sixty (60) days,
written notice, in a manner to be set forth in the contract with the Advisor.

4.3. Other Activities of Advisor. The Advisor shall not be
required to administer the investment activities of the Trust as its sole and
exclusive function and may have other business interests and may engage in
other activities similar or in addition to those relating to the Trust,
including the rendering of services and advice to other Persons (including
other real estate investment trusts) and the management of other investments
(including investments of the Advisor and its Affiliates). The Trustees may
request the Advisor to engage in other activities which complement the Trust's
investments and to provide services requested by the borrowers or prospective
borrowers from the Trust, and the Advisor may receive compensation or
commissions therefor from the Trust or other Persons.

The Advisor shall be required to use its best efforts to
present to the Trust a continuing and suitable investment program which is
consistent with the investment policies and objectives, of the Trust, but
neither the Advisor nor any Affiliate of the Advisor (subject to any applicable
provisions of Section 7.6) shall be obligated to present any particular
investment opportunity to the Trust even if such opportunity is of a character
which, if presented to the Trust,

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could be taken by the Trust, and, subject to the foregoing, shall be protected
in taking for its own account or recommending to others any such particular
investment opportunity.

Upon request of any Trustee, the Advisor and any Person who
controls, is controlled by, or is under common control with the Advisor, shall
from time to time promptly furnish the Trustees with information on a
confidential basis as to any investments within the Trust's investment policies
made by the Advisor or such other Person for its own account.

4.4. Limitation on Operating Expenses. The Operating Expenses of
the Trust for any fiscal year shall not exceed the lesser of (a) one and
one-half percent (1 1/2%) of the average of the Book Values of Invested Assets
of the Trust at the end of each calendar month of such fiscal year, or (b) the
greater of one and one-half percent (1 1/2%) of the average of the Net Asset
Value of the Trust at the end of each calendar month of such fiscal year or
twenty-five percent (25%) of the Trust's Net Income, and each contract made
with the Advisor shall specifically provide for a refund to the Trust of the
amount, if any, by which the Operating Expenses so exceed the applicable amount
provided, however, that the Advisor shall not be required to refund to the
Trust, with respect to any fiscal year, any amount which exceeds the aggregate
of the Subordinated Trust Management Fee paid to the Advisor under such
contract with respect to such fiscal year.

ARTICLE V

Investment Policy

5.1. General Statement of Policy. The Trustees intend initially,
and to the extent funds are not fully invested in Construction Loans,
Development Loans, Interim Loans, Mortgages and Real Property as described
below, to invest the Trust Estate in investments such as: (a short-term
government Securities, (b) Securities of government agencies, (c) bankers'
acceptances, (d) certificates of deposit, (e) deposits in commercial banks, (f)
participations in pools of mortgages or bonds and notes (such as Federal Home
Loan Mortgage Corporation participation sale certificates ("Freddie Mac PCS"),
Government National Mortgage Association modified pass-through certificates
("Ginnie Mae Pass- Throughs") and Federal National Mortgage Association bonds
and notes ("Fannie Maes"), collateralized mortgage obligations ("CMOs"),
regular or residual interests in real estate mortgage investment conduits
("REMICs"), and any other mortgage-backed security), and/or (g) obligations of
municipal, state and federal governments and government agencies. Otherwise,
the Trustees intend to invest the major portion of the Trust Estate to fund
Construction Loans, Development Loans and Interim Loans, and to develop Real
Property and expenses reasonably related to the development of Real Property.
The Trustees may also invest in ownership or other interests in Mortgages and
in Real Property or in Persons involved in owning, operating, leasing,
developing, financing or dealing in Mortgages or Real Property (which
investments shall ordinarily be made in connection with properties having
income-producing capabilities). The Trustees may make commitments to make
investments consistent with the foregoing policies. The Trustees may also
participate in the investments with other investors, including Investors having
investment policies similar to those of the Trust, on the same or different
terms, and the Advisor may act as advisor to such other investors, including
investors who have the same investment policies.

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The Trustees may retain, as permanent reserves, amounts, if
any, which they deem reasonable in cash and in the types of investments
described above at items (a)-(g) and at Section 5.2 (a)-(c).

Subject to the investment restrictions in Section 5.3, the
Trustees may alter any or all of the above- described investment policies if
they should determine such change to be in the best interest of the Trust.
Subject to the preceding terms, the Trustees shall endeavor to invest the
Trust's assets in accordance with the investment policies set forth in this
Article V, but the failure so to invest its assets shall not affect the
validity of any investment made or action taken by the Trustees.

The general purpose of the Trust is to seek income which
qualifies under the REIT Provisions of the Internal Revenue Code. The Trustees
intend to make investments in such a manner as to comply with the requirements
of the REIT Provisions of the Internal Revenue Code with respect to the
composition of the Trust's investments and the derivation of its income,
provided, however, that no Trustee, officer, employee, agent, investment
advisor or independent contractor of the Trust shall be liable for any act or
omission resulting in the loss of tax benefits under the Internal Revenue Code,
except for that arising from his own bad faith, willful misconduct, gross
negligence or reckless disregard of his duties, and provided further that for a
period of time as the portfolio of equity investments and other investments is
developed, the Trust s assets may be invested in investments with income which
does not qualify under the REIT Provisions of the Internal Revenue Code.

5.2. Uninvested Assets. To the extent that the Trust has assets
not otherwise invested in accordance with Section 5.1, the Trustees may invest
such assets in:

(a) obligations of, or guaranteed by, the United States
Government or any agencies or political subdivisions thereof;

(b) obligations of, or guaranteed by, any state,
territory or possession of the United States of America or any
agencies or political subdivisions thereof; and

(c) evidences of deposits in, or obligations of, banking
institutions, state and federal savings and loan associations and
savings institutions which are members of the Federal Deposit
Insurance Corporation or of the Federal Home Loan Bank Systems.

5.3. Restrictions. The Trustees shall not:

(a) invest in any foreign currency, bullion or
commodities;

(b) invest in contracts of sale for real estate, except
in conjunction with acquisition or sale of Real Property or when held
as security for Mortgages made or acquired by the Trust;

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(d) issue warrants, options or rights to buy Shares,
except as part of a ratable issue to Shareholders or as part of a
public offering or as part of a financial arrangement with parties
other than the Advisor or directors, Trustees, officers or employees
of the Trust or the Advisor or as part of a ratable distribution to
Shareholders;

(e) invest any of the total Trust assets in unimproved,
non-income-producing Real Property, or in participations in
unimproved, non-income-producing Real Property, or Mortgage Loans on
unimproved, non-income- producing Real Property, excluding Real
Property which is being developed or will be developed within a
reasonable period of time, and excluding a lien interest when given by
a borrower as additional security on a permitted type of mortgage
loan;

(f) issue equity Securities of more than one class (other
than convertible obligations, warrants, rights and options, and
regular or residual interests in REMICs);

(g) invest in any equity Security, including the Shares
of other REITs for a period in excess of 18 months, except for shares
of a qualified REIT subsidiary, as defined in Section 856(i) of the
Internal Revenue Code, and regular or residual interests in REMICs;

(h) make any loan to the Sponsor of the Trust,
Consolidated Capital Equities Corporation, the Advisor or any of their
Affiliates;

(i) engage in trading as compared with investment
activities, or engage in the business of underwriting or agency
distribution of Securities issued by others, but this prohibition
shall not prevent the Trust from selling participations or interests
in Mortgage Loans or Real Property or from selling or pledging a pool
of notes receivable from property sales or selling interests in REMICs
or CMOs;

(j) invest more than 10% of total Trust assets in Junior
Mortgage Loans, excluding Wrap-Around Mortgage Loans;

(k) acquire Securities in any company holding investments
or engaging in activities prohibited by this Section;

(l) issue "redeemable securities," as defined in Section
2(a)(32) of the Investment Company Act of 1940, "face-amount
certificates of the installment type" as defined in Section 2(a)15
thereof and "periodic payment plan certificates" as defined in Section
2(a)(27) thereof;

(m) purchase insurance either through or from any
Affiliate;

(n) purchase any Real Property on-which the total real
estate commission paid by the Trust to anyone exceeds 6% of the total
purchase price, or sell any real Property on

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which the total real estate commission paid by the Trust to anyone
exceeds 5% of the total sales price;

(o) purchase, sell or lease any Real Properties or
Mortgages to or from the Sponsor, Consolidated Capital Equities
Corporation, the Advisor or any of their Affiliates, including any
Investor program in which any of the foregoing may also be a general
partner or sponsor; or

(p) issue convertible or non-convertible debt securities
(other than interests in REMICs and CMOs) to the public unless the
historical cash flow of the Trust or the substantiated future cash
flow of the Trust, excluding extraordinary items, is sufficient to
cover the interest on the debt securities.

ARTICLE VI

The Shares and Shareholders

6.1. Shares. The units into which the beneficial interest in the
Trust will be divided shall be designated as Shares, which Shares shall be all
of one class. All Shares shall have equal non-cumulative voting, distribution,
liquidation and other rights. All Shares shall be without par value. The
certificates evidencing the Shares shall be in such form and signed (manually
or by facsimile) on behalf of the Trust in such manner as the Trustees may from
time to time prescribe or as may be prescribed in the Trustees' Regulations.
The certificates shall be negotiable, and title thereto and to the Shares
presented thereby shall be transferred by assignment and delivery thereof to
the same extent and in all respects as a Share certificate of a California
corporation. There shall be no limit upon the number of Shares to be issued.
The Shares may be issued for such consideration as the Trustees in their sole
discretion and in good faith shall determine or by way of Share dividend or
Share split in the discretion of the Trustees. Shares reacquired by the Trust
shall no longer be deemed outstanding and shall have no voting or other rights
unless and until re-issued. Shares reacquired by the Trust may be canceled and
restored to the status of authorized and unissued Shares by action of the
Trustees. All Shares shall be fully paid and non-assessable by or on behalf of
the Trust upon receipt of full consideration for which they have been issued or
without additional consideration if issued by way of Share dividend or Share
split. The Shares shall not entitle the holder to preference, preemptive,
appraisal, conversion, or exchange rights of any kind.

6.2. Legal Ownership of Trust Estate. The legal ownership of the
Trust Estate and the right to conduct the business of the Trust are vested
exclusively in the Trustees, and the Shareholders shall have no interest
therein other than beneficial interest in the Trust conferred by their Shares
issued hereunder, and they shall have no right to compel any partition,
divisions dividend or distribution of the Trust or any of the Trust Estate.

6.3. Shares Deemed Personal Property. The Shares shall be deemed
personal property and shall confer upon the holders thereof only the interest
and rights specifically set forth in this Declaration. The death, insolvency
or incapacity of a Shareholder shall not dissolve or terminate

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the Trust or affect its continuity nor give his legal representative any rights
whatsoever, whether against or in respect of other Shareholders, the Trustees
or the Trust Estate or otherwise except the sole right to demand and, subject
to the provisions of this Declaration, the Trustees' Regulations and any
requirements of law, to receive a new certificate for Shares registered in the
name of such legal representative, in exchange for the certificate held by such
Shareholder.

6.4. Share Record; Issuance and Transferability of Shares. Records
shall be kept by or on behalf of and under the direction of the Trustees, which
records shall contain the names and addresses of the Shareholders, the number
of Shares held by them respectively, and the numbers of the certificates
representing the Shares, and in which there shall be recorded all transfers of
Shares. Certificates shall be issued, listed and transferred in accordance
with the Trustees' Regulations. The Persons in whose names certificates are
registered on the records of the Trust shall be deemed the absolute owners of
the Shares represented thereby for all purposes of this Trust, but nothing
herein shall be deemed to preclude the Trustees or officers, or their agents or
representatives, from inquiring as to the actual ownership of Shares. Until a
transfer is duly effected on the records of the Trust, the Trustees shall not
be affected by any notice of such transfer, either actual or constructive. The
receipt by the Person in whose name any Shares are registered on the records of
the Trust or by the duly authorized agent of such Person, or if such Shares are
so registered in the names of more than one Person, the receipt by any one of
such Persons, or by the duly authorized agent of such Persons, shall be a
sufficient discharge for all dividends or distributions payable or deliverable
in respect of such Shares and from all liability to see the application
thereof.

Shares shall be transferable on the records of the Trust only
by the record holder thereof or by his agent, thereunto duly authorized in
writing upon delivery to the Trustees or a transfer agent of the certificate or
certificates therefor, properly endorsed or accompanied by duly executed
instruments of transfer and accompanied by all necessary documentary stamps
together with such evidence of the genuineness of each such endorsement
execution or authorization and of other matters as may reasonably be required
by the Trustees or such transfer agent. Upon such delivery, the transfer shall
be recorded in the records of the Trust and a new certificate for the Shares so
transferred shall be issued to the transferee, and, in case of a transfer of
only a part of the Shares represented by any certificate, a new certificate for
the balance shall be issued to the transferor. Any Person becoming entitled to
any Shares in consequence of the death of a Shareholder or otherwise by
operation of law shall be recorded as the holder of such Shares and shall
receive a new certificate therefor but only upon delivery to the Trustees or a
transfer agent of instruments and other evidence required by the Trustees or
the transfer agent to demonstrate such entitlement, the existing certificate
for such Shares and such necessary releases from applicable government
authorities.

In case of loss, mutilation or destruction of any certificates
for Shares, the Trustees may issue or cause to be issued a replacement
certificate on such terms and subject to such rules and regulations as the
Trustees may from time to time prescribe. Nothing in this declaration shall
impose u on the Trustee or a transfer agent a duty or limit their rights to
inquire into adverse claims.

6.5. Dividends or Distributions to Shareholders. The Trustees may
from time to time declare and pay to Shareholders such dividends or
distributions in cash or other form out of current or accumulated Income,
capital, capital gains, principal, surplus, proceeds from the increase or

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refinancing of Trust obligations, or from the sale of portions of the Trust
Estate or from any other source as the Trustees in their discretion shall
determine. Shareholders shall have no right to any dividend or distribution
unless and until such dividend or distribution is declared by the Trustees.
The Trustees shall furnish the Shareholders with a statement in writing
advising as to the source of the funds so distributed or, if the source thereof
has not then been determined, the communication shall so state and in such
event the statement as to such source shall be sent to the Shareholders not
later than sixty (60) days after the close of the fiscal year in which the
distribution was made.

6.6. Transfer Agent, Dividend Disbursing Agent and Registrar. The
Trustees shall have power to employ one or more transfer agents, dividend
disbursing agents and registrars and to authorize them on behalf of the Trust
to keep records, to hold and disburse any dividends and distributions, and to
have and perform, in respect to all original issues and transfers of Shares,
dividends and distributions and reports and communications to Shareholders, the
powers and duties usually had and performed by transfer agents, dividend
disbursing agents and registrars of a California corporation.

6.7. Shareholders' Meetings. There shall be an annual meeting of
the Shareholders at such time and place as the Trustees' Regulations shall
prescribe, at which the Trustees shall be elected and any other proper business
may be conducted. The Annual Meeting of Shareholders shall be held after
delivery to the Shareholders of the Annual Report and within six (6) months
after the end of each fiscal year, commencing with the 1982 fiscal year.
Special meetings of Shareholders may be called upon the written request of
Shareholders holding not less than ten percent (10%) of the outstanding Shares
of the Trust entitled to vote in the manner provided in the Trustees'
Regulations. If there shall be no Trustees, the officers of the Trust
shall promptly call a special meeting of the Shareholders for the election of
successor Trustees. Notice of any special meeting shall state the purposes of
the meeting. A majority of the outstanding Shares entitled to vote at any
meeting represented in person or by proxy shall constitute a quorum at any such
meeting. Whenever any action is to be taken by the Shareholders, it shall,
except as otherwise required by this Declaration or by law, be authorized by a
majority of the votes cast at a meeting of Shareholders by holders of Shares
entitled to vote thereon, which Shares are not entitled to cumulative voting.
The affirmative vote at a meeting of Shareholders of the holders of a majority
of all outstanding Shares shall be required to approve the principal terms of
the transaction and the nature and amount of the consideration involving any
sale, lease, exchange or other disposition of fifty percent (50%) or more of
the Trust Estate in a single sale, or in multiple sales in the same twelve-
(12-) month period. Whenever Shareholders are required or permitted to take
any action, such action may be taken without a meeting on written consent
setting forth the action so taken, signed by the holders of a majority of all
outstanding Shares entitled to vote thereon, or such larger proportion thereof
as would be required for a vote of Shareholders at a meeting. The vote or
consent of Shareholders shall not be required for the pledging, hypothecating,
granting security interests in, mortgaging, or encumbering of all or any of the
Trust Estate, or for the sale, lease, exchange or other disposition of less
than fifty percent (50%) of the Trust Estate in a single sale, or in multiple
sales in the same twelve- (12-) month period.

6.8. Proxies. Whenever the vote or consent of Shareholders is
required or permitted under this declaration, such vote or consent may be given
either directly by the Shareholders or to proxies

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in the form prescribed in the Trustees' Regulations. The Trustees may solicit
such proxies from the Shareholders or any of them in any matter requiring or
permitting the Shareholders' vote or content.

6.9. Reports to Shareholders.

(a) Not later than one hundred twenty (120) days after
the close of each fiscal year of the Trust, the Trustees shall mail a
report of the business and operation of the Trust during such fiscal
year to the Shareholders, which report shall constitute the accounting
of the Trustees for such fiscal year. The report (hereinafter "Annual
Report") shall be in such form and have such content as the Trustees
deem proper. The Annual Report shall include a statement of assets
and liabilities and a statement of income and expenses of the Trust.
Such financial statements shall be accompanied by the report of an
independent certified public accountant thereon. A manually signed
copy of the accountant's report shall be filed with the Trustees.

(b) At least quarterly the Trustees shall send to the
Shareholders interim reports having such form and content as the
Trustees deem proper.

6.10. Fixing Record Date. The Trustees' Regulations may provide for
fixing, or, in the absence of such provision, the Trustees may fix in advance,
a date as the record date for determining the Shareholders entitled to notice
of or to vote at any meeting of Shareholders or to express consent to any
proposal without a meeting, or for the purpose of determining Shareholders
entitled to receive payment of any dividend or distribution (whether before or
after termination of the Trust) or any Annual Report or other communication
from the Trustees, or for any other purpose. The record date so fixed shall be
not less than five (5) days nor more than fifty (50) days prior to the date of
the meeting or event for purposes for which it is fixed.

6.11. Notice to Shareholders. Any notice of meeting or other
notice, communication or report to any Shareholder shall be deemed duly
delivered to such Shareholder when such notice, communication or report is
deposited, with postage thereon prepaid, in the United States mail, addressed
to such Shareholder at his address as it appears on the records of the Trust or
is delivered in person to such Shareholder.

6.12. Shareholders' Disclosures; Redemption of Shares. The
Shareholders shall, upon demand, disclose to the Trustees in writing such
information with respect to direct and indirect ownership of the Shares as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code and the regulations thereunder, as the same shall be from time to time
amended, or to comply with the requirements of any other taxing authority. If
the Trustees shall at any time and in good faith be of the opinion that direct
or indirect ownership of Shares of the Trust has or may become concentrated to
an extent which would prevent the Trust from qualifying as an REIT under the
REIT Provisions of the Internal Revenue Code, the Trustees shall have the power
by lot or other means deemed equitable by them to prevent the transfer of
and/or call for redemption a number of such Shares sufficient in the opinion of
the Trustees to maintain or bring the direct or indirect ownership of Shares of
the Trust into conformity with the requirements for such an REIT. The
redemption price shall be (i) the last reported sale price of the Shares on the
last business day prior

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to the redemption date on the principal national securities exchange on which
the Shares are listed or admitted to trading; or (ii) if the Shares are not so
listed or admitted to trading, the average of the highest bid and lowest asked
prices on such last business day as reported by the National Quotation Bureau
Incorporated or a similar organization selected by the Trust for such purpose;
or (iii) if not determined as aforesaid, as determined in good faith by the
Trustees. From and after the date fixed for redemption by the Trustees, the
holder of any Shares so called for redemption shall cease to be entitled to
dividends, distributions, voting rights and other benefits with respect to such
Shares, excepting only to the right to payment of the redemption price fixed as
aforesaid. For the purpose of this Section 6.12, the term "individual" shall
be construed as provided in Section 542 (a) (2) of the Internal Revenue Code or
any, successor provision, and "ownership" of Shares shall be determined as
provided in Section 544 of the Internal Revenue Code or any successor
provision.

6.13. Right to Refuse to Transfer Shares. Whenever it is deemed by
them to be reasonably necessary to protect the tax status of the Trust, the
Trustees may require a statement or affidavit from each Shareholder or proposed
transferee of Shares setting forth the number of Shares already owned by him
and any related person specified in the form prescribed by the Trustees for
that purpose. If, in the opinion of the Trustees, which shall be conclusive
upon any proposed transferor or proposed transferee of Shares any proposed
transfer would jeopardize the status of the Trust as an REIT under the Internal
Revenue Code of 1954, as now enacted or as hereafter amended, the Trustees may
refuse to permit such transfer. Any attempted transfer for which the Trustees
have refused their permission shall be void and of no effect to transfer any
legal or beneficial interest in the Shares. All contracts for the sale or
other transfer of Shares shall be subject to this provision.

6.14. Issuance of Shares. Notwithstanding any other provision of
this Declaration, the Trust may issue an unlimited number of Shares from time
to time in the Trustees sole discretion and in good faith. Any Security issued
in any such Share shall have the same characteristics and entitle the
registered holder thereof to the same rights as any identical Securities of the
same class or series issued separately by the Trust.

ARTICLE VII

Liability of Trustees, Shareholders
and Officers, and Other Matters

7.1. Exculpation of Trustees, Officers and Others. No Trustee,
officer, employee or agent of the Trust shall be liable for obligations or
contracts of the Trust or liable in tort or otherwise in connection with the
affairs of this Trust, to the Trust or to any Shareholder, Trustee, officer,
employee or agent of the Trust or to any other Person for any action or failure
to act (including, without limitation, the failure to compel in any way any
former or acting Trustee to redress any breach of trust), except only that
arising from his own willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty.

7.2. Limitation of Liability of Shareholders, Trustees and
Officers. The Trustees, officers, employees and agents of the Trust, in
incurring any debts, liabilities or obligations or in taking or

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omitting any other actions for or in connection with the Trust are, and shall
be deemed to be, acting as Trustees, officers, employees or agents of the Trust
and not in their own individual capacities. Except to the extent provided in
Section 7.1, no Trustee, officer, employee or agent shall, nor shall any
Shareholder, be liable for any debt, claim, demand, judgment, decree, liability
or obligation of any kind, against or with respect to the Trust, arising out of
any action taken or omitted for or on behalf of the Trust, and the Trust shall
be solely liable therefor, and resort shall be had solely to the Trust Estate
for the payment or performance thereof. Each Shareholder shall be entitled to
pro rata indemnity from the Trust Estate if, contrary to the provisions hereof,
such Shareholder shall be held to any personal liability.

7.3. Express Exculpatory Clauses and Instruments. In all
agreements, obligations, instruments, and actions in regard to the affairs of
this Trust, this Trust and not the Shareholders, officers, employees or agents
shall be the principal and entitled as such to enforce the same collect
damages, and take all other action. All such agreements, obligations
instruments, and actions shall be made, executed, incurred, or taken by or In
the name and on behalf of this Trust or by the Trustees as Trustees hereunder,
but not personally. All such agreements, obligations, and instruments shall
acknowledge notice of this paragraph or shall refer to this Declaration and
contain a statement to the effect that the name of this Trust refers to the
Trustees as Trustees but not personally, and that no Trustee, Shareholder,
officer, employee or agent shall be held to any personal liability thereunder,
and neither the Trustees nor any officer, employee or agent shall have any
power or authority to make, execute, incur, or take any agreement, obligation,
instrument or action unless the requirements of this paragraph are met;
however, the omission of such provisions from any such instrument shall not
render the Shareholders or any Trustee or any officer, employee or agent
liable, nor shall the Trustees or any officer, employee or agent of the Trust
be liable to anyone for such omission.

7.4. Indemnification and Reimbursement of Trustees and Officers.
Any Person made a party to any action, suit or proceeding or against whom a
claim or liability is asserted by reason of the fact that he, his testator or
intestate was or is a Trustee or officer, employee or agent or active in such
capacity on behalf of the Trust shall be indemnified and held harmless by the
Trust against judgments, fines, amounts paid on account thereof (whether in
settlement or otherwise) and reasonable expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense of such
action, suit, proceeding, claim or alleged liability or in connection with any
appeal therein, whether or not the same proceeds to judgment or is settled or
otherwise brought to a conclusion, provided, however, that no such Person shall
be so indemnified or reimbursed for any claim, obligation or liability which
arose out of such Person's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty, and provided further that such Person gives prompt
notice thereof, executes such documents and takes such action as will permit
the Trust to conduct the defense or settlement thereof and cooperates therein.
In the event of a settlement approved by the Trustees of any such claim,
alleged liability, action, suit or proceeding, indemnification and
reimbursement shall be provided except as to such matters covered by the
settlement which the Trust is advised by its counsel arose from such Person's
willful misfeasance, bad faith, gross negligence, or reckless disregard of
duty. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding as authorized by the Trust in the specific action
upon receipt of an undertaking by or on behalf of a Person indemnified to pay
over such amount unless it shall

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ultimately be determined he is entitled to be indemnified by the Trust as
authorized herein. Such rights of indemnification and reimbursement shall be
satisfied only out of the Trust Estate. The rights accruing to any Person
under these provisions shall not exclude any other right to which he may be
lawfully entitled, nor shall anything contained herein restrict the right of
the Trust to indemnify or reimburse such Person in any proper case even though
not specifically provided for herein, nor shall anything contained herein
restrict such Person's right to contribution as may be available under
applicable law. The Trust shall have power to purchase and maintain insurance
on behalf of any Person entitled to indemnity hereunder against any liability
asserted against him and incurred by him in a capacity mentioned above, or
arising out of his status as such, whether or not the Trust would have the
power to indemnify him against such liability under the provisions hereof.

7.5. Right of Trustees, Officers and Others To Own Shares or Other
Property and To Engage in Other Business. Any Trustee, officer, employee or
agent of the Trust may acquire, own, hold and dispose of Shares in the Trust,
for his individual account, and may exercise all rights of a-Shareholder to the
same extent and in the same manner as if he were not a Trustee, officer,
employee or agent of the Trust. Any Trustee, officer, employee or agent of the
Trust may have personal business interests and may engage in personal business
activities, which interests and activities may include the acquisition,
syndication, holding, management, operation or disposition, for his own account
or for the account of others, of interests in Mortgages, interests in Real
Property, or interests in Persons engaged in real estate business. Subject to
the provisions of Article IV, any Trustee, officer, employee or agent may be
interested as trustee, officer, director, stockholder, partner, member, advisor
or employee, or otherwise have a direct or indirect interest in any Person who
may be engaged to render advice or services to the Trust, and may receive
compensation from such Person as well as compensation as Trustee, officer, or
otherwise hereunder. None of these activities shall be deemed to conflict with
his duties and powers as Trustee or officer.

7.6. Transactions Between the Trust and Affiliated Persons. Except
as prohibited by this Declaration, and in the absence of fraud, a contract, act
or other transaction between the Trust and any other Person, or in which the
Trust is interested, shall be valid even though (a) one or more of the Trustees
or officers are directly or indirectly interested in, or connected with, or are
trustees, partners, directors, officers or retired officers of such other
Person, or (b) one or more of the Trustees or officers of the Trust,
individually or jointly with others, is a party or are parties to or directly
or indirectly interested in, or connected with, such contract, act or
transaction. No Trustee or officer shall be under any disability from or have
any liability as a result of entering into any such contract, act or
transaction, provided that (a) such interest or connection is disclosed or
known to the Trustees and thereafter the Trustees authorize such contract, act
or other transaction by vote sufficient for such purpose by an affirmative vote
of the Trustees not so interested, or (b) such interest or connection is
disclosed or known to the Shareholders, and thereafter such contract, act or
transaction is approved by the Shareholders, or (c) such contract, act or
transaction is fair and reasonable to the Trust at the time it is authorized by
the Trustees or by the Shareholders.

The Trust shall not purchase or lease, directly or indirectly,
any Real Property or purchase any Mortgage from the Advisor or any affiliated
Person, or from any partnership in which any of the foregoing may also be a
general partner, and the Trust will not sell or lease, directly or indirectly,
any of its Real Property or sell any Mortgage to any of the foregoing Persons.
The

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Sponsor or the Advisor may make Mortgage Loans or purchase Real Property in
their own name (and assume loans in connection therewith) and temporarily hold
title thereto for the purpose of facilitating the acquisition of such Mortgage
Loans or Real Property or the borrowing of money or obtaining of financing for
the Trust, or for any other purpose related to the business of the Trust,
provided that such Mortgage Loan or Real Property is purchased by the Trust for
a price no greater than the cost of such Mortgage Loan or Real Property to the
Sponsor or Advisor and provided there is no difference in interest rates of the
loans related thereto at the time acquired by the Sponsor or Advisor and the
time acquired by the Trust, nor any other benefit to the Sponsor or Advisor
arising out of such transaction apart from compensation otherwise permitted by
the Prospectus.

Notwithstanding any other provisions of this Declaration, the
Trust shall not, directly or indirectly, engage in any transaction with any
Trustee, officer or employee of the Trust or any director, officer or employee
of the Advisor, of Consolidated Capital Equities Corporation, or of any company
or other organization of which' any of the foregoing is an Affiliate, except
for (a) the execution and performance of the agreements contemplated by Article
IV hereof; (b) transactions involving the purchase of Securities of the Trust
on the same terms on which such Securities are then being offered to all
holders of any class of Securities of the Trust or to the public; and (c)
transactions with Consolidated Capital Equities Corporation or the Advisor or
Affiliates thereof involving loans, real estate brokerage services, mortgage
brokerage services, real property management services, the servicing of
Mortgages, the leasing of real or personal property, or other services,
provided such transactions are on terms not less favorable to the Trust than
the terms on which non-affiliated parties are then making similar loans or
performing similar services for comparable entities in the same area and are
not entered into on an exclusive basis with such Person; provided, however,
that any transaction referred to in clause (c) may be entered into only upon
approval by affirmative vote or consent of a majority of the Trustees who are
not, other than as Trustees, interested in or Affiliates of any Person who is
interested in the transaction, and provided further that for providing real
estate brokerage services such Affiliates of the Advisor (together with any
non-affiliated parties) may receive a real estate brokerage commission of up to
and including six percent (6%) of the total purchase price of each Real
Property investment acquired or five percent (5%) of the total sales price of
each Real Property investment sold by the Trust on sales to or purchases from
third parties which are handled by such Affiliate. Such real estate brokerage
commissions may be paid by the seller or buyer of the property or by the Trust,
and in the case of purchases the aggregate of the total purchase price of the
Investment property and such real estate brokerage commission shall not exceed
the Appraised Value of such property. The simultaneous acquisition by the
Trust and the Advisor or any Affiliate of the Advisor of participations in any
investment shall not be deemed to constitute the purchase or sale of property
by one of them to the other. This Section 7.6 shall not prevent the payment to
any Person of commissions or fees for the so-called "private placement" of such
Securities with investors. The Trustees are not restricted by this Section 7.6
from forming a corporation, partnership, trust or other business association
owned by the Trustees or by their nominees for the purpose of holding title to
property of the Trust, providing the Trustees' motive for the formation of such
business association is not for their own enrichment.

7.7. Restriction of Duties and Liabilities. To the extent that the
nature of this Trust (that is, as business trust) will permit, the duties and
liabilities of Shareholders, Trustees and officers shall

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in no event be greater than the duties and liabilities of shareholders,
directors and officers of a California corporation. The Shareholders, Trustees
and officers shall in no event have any greater duties or liabilities than
those imposed by applicable laws as shall be in effect from time to time.

7.8. Persons Dealing with Trustees or Officers. Any act of the
Trustees or officers purporting to be done in their capacity as such shall, as
to any Persons dealing in good faith with such Trustees or officers, be
conclusively deemed to be within the purposes of this Trust and within the
powers of the Trustees and officers.

The Trustees may authorize any officer or officers or agent or
agents to enter into any contract or execute any instrument In the name and on
behalf of the Trust and/or Trustees.

No Person dealing in good faith with the Trustees or any of
them or with the authorized officers, employees, agents or representatives of
the Trust shall be bound to see to the application of any funds or property
passing into their hands or control. The receipt of the Trustees, or any of
them, or of authorized officers, employees, agents, or representatives of the
Trust for monies or other consideration, shall be binding upon the Trust.

7.9. Reliance. The Trustees and officers may consult with counsel,
and the advice or opinion of such counsel shall be full and complete personal
protection to all of the Trustees and officers, in respect to any action taken
or suffered by them in good faith and in reliance on and in accordance with
such advice or opinion. In discharging their duties, Trustees and officers,
when acting in good faith, may rely upon financial statements of the Trust
represented to them to be correct by the Chairman or the officer of the Trust
having charge of its books of account, or stated in a written report by an
independent certified public accountant fairly to present the financial
position of the Trust. The Trustees may rely, and shall be personally
protected in acting, upon any instrument or other document believed by them to
be genuine.

7.10. Income Tax Status. Anything to the contrary herein
notwithstanding and without limitation of any rights of indemnification or
non-liability of the Trustees herein, said Trustees by this Declaration make no
commitment or representation that the Trust will qualify for the dividends paid
deduction permitted by the Internal Revenue Code and by the Rules and
Regulations thereunder pertaining to real estate investment trusts in any given
year. The failure of the Trust to qualify as a real estate investment trust
under the Internal Revenue Code shall not render the Trustees liable to the
Shareholders or to any other person or in any manner operate to annul the
Trust.

ARTICLE VIII

Duration, Amendment, Termination
and Qualification of Trust

8.1. Duration of Trust. Unless the Trust is sooner terminated as
otherwise provided herein, the Trust shall continue in such manner that the
Trustees shall have all the powers and

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discretions, express and implied, conferred upon them by law or by this
Declaration, until the expiration of twenty (20) years after the death of the
last survivor of the following persons.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Date of Birth Parents and Present Residence
- --------------------------------------------------------------------------------
<S> <C> <C>
Anna Louise Carlson 1/16/66 Mr. & Mrs. Don W. Carlson
2 Sand Hill Rod
Orinda, CA 94563
- --------------------------------------------------------------------------------
Deborah Ellen Casparian 7/8/67 Mr. & Mrs. Robert J. Casparian
1945 Parkmont Drive
Danville, CA 94526
- --------------------------------------------------------------------------------
Margaret Ella De Monte 4/3/75 Mr. & Mrs. Robert J. De Monte
2045 Oakland Avenue
Piedmont, CA 94611
- --------------------------------------------------------------------------------
Scott Jay Kaplan 4/16/80 Mr. & Mrs. Jay Kaplan
167 Avenida Miraflores
Tiburon, CA 94920
- --------------------------------------------------------------------------------
Melissa Dawn Sheldon 1/9/78 Mr. & Mrs. Terry E. Sheldon
451 Montcrest Place
Danville, CA 94526
- --------------------------------------------------------------------------------
</TABLE>

8.2. Termination of Trust.

(a) The Trust may be terminated by the affirmative vote
or written consent of the holders of a majority of all outstanding
Shares entitled to vote thereon; provided, however, that if the
California Commissioner of Corporations has suspended for more than
thirty (30) days, or revoked a permit issued by him under the
California Corporations Code finding that the Trust is a real estate
investment trust, this Trust may be terminated by the holders of ten
percent (10%) or more of all outstanding Shares. Upon the termination
of the Trust:

(i) The Trust shall carry on no business except
for the purpose of winding up its affairs.

(ii) The Trustees shall proceed to wind up the
affairs of the Trust, and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the
Trust shall have been wound up, including the power to fulfill
or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust Estate to one or
more Persons at public or private sale for consideration which
may consist in whole or in part of cash, Securities or other
property of any kind, discharge or pay its liabilities and do
all other acts appropriate to liquidate its business,
provided, that any sale, conveyance,

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assignment, exchange, transfer or other disposition of fifty
percent (50%) or more of the Trust Estate in a single
transaction or in multiple transactions in the same twelve
(12-) month period shall require approval of the principal
terms of the transaction and the nature and amount of the
consideration by vote or consent of the holders of a majority
of all the outstanding Shares entitled to vote thereon.

(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities, and refunding agreements as they deem necessary
for their protection, the Trustees may distribute the
remaining Trust Estate, in cash or in kind, or partly in each,
among the Shareholders according to their respective rights.

(b) After termination of the Trust and distribution to
the Shareholders as herein provided, the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting
forth the facts of such termination, and the Trustees shall thereupon
be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders shall thereupon cease.

(c) The Trustees shall liquidate the Trust's assets by
making liquidating distributions to Shareholders Mortgage loan
proceeds shall be distributed to Shareholders as the loans mature,
except for necessary reserves. The Trust's real property investments
shall be sold within ten years from the date of adoption of this
Amendment; the cash proceeds therefrom shall be distributed to
Shareholders as cash is received it the time of sale and/or as
payments are received on any financing provided by the Trust in
connection with such sale. The Trustees shall have full discretion,
in their best judgment, to direct the Trust to make additional real
property investments until December 31, 1986. The Trustees shall also
have full authority to direct such liquidation in a manner so as to
protect the value of the Trust's assets.

8.3. Amendment Procedure.

(a) This Declaration may be amended by Shareholders
holding a majority of the outstanding Shares entitled to vote thereon.
The Trustees may also amend this Declaration without the vote or
consent of Shareholders to the extent they deem it necessary to
conform this declaration to the requirements of the REIT Provisions of
the Internal Revenue Code or to other applicable federal laws, rulings
or regulations, but the Trustees shall not be liable for failing to do
so.

(b) No amendment may be made, under Section 8.3(a) above,
which would change any rights with respect to any outstanding
Securities of the Trust by reducing the amount payable thereon upon
liquidation of the Trust, or by diminishing or eliminating any voting
rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the outstanding Shares entitled to vote
thereon.

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(c) A certification, in recordable form signed by a
majority of the Trustees setting forth an amendment and reciting that
it was duly adopted by the Shareholders or by the Trustees as
aforesaid, or a copy of the Declaration as amended, in recordable form
and executed by a majority of the Trustees shall be conclusive
evidence of such amendment when lodged among the records of the Trust.

(d) Nothing contained in this Declaration shall permit
the amendment of this Declaration to impair the exception from
personal liability of the Shareholders, Trustees, officers, employees
and agents of this Trust.

8.4. Qualification Under the REIT Provisions of the Internal
Revenue Code. It is intended that the Trust shall qualify as a "real estate
investment trust" under the REIT Provisions of the Internal Revenue Code during
such period as the Trustees shall deem it advisable so to qualify the Trust.

ARTICLE IX

Miscellaneous

9.1. Applicable Law. This Declaration is executed and
acknowledged by the Trustees in the State of California and with reference to
the statutes and laws thereof and the rights of all parties and the
construction and effect of every provision hereof shall be subject to and
construed according to the statutes and laws of said state.

9.2. Index and Headings for Reference Only. The index and headings
preceding the text articles and sections hereof have been inserted for
convenience and reference only and shall not be construed to affect the
meaning, construction or effect of this Declaration.

9.3. Successors in Interest. This Declaration and the Trustees'
Regulations shall be binding upon and inure to the benefit of the undersigned
Trustees and their successors, assigns, heirs, distributees, and legal
representatives and to the benefit of every Shareholder and his successors,
assigns, heirs, distributees, and legal representatives.

9.4. Inspection of Records. Trust records shall be available for
inspection and copying by shareholders at the same time and in the same manner
and to the extent that comparable records of a California corporation would be
available for inspection by shareholders under the laws of the state of
California. Except as specifically provided for in this Declaration,
Shareholders shall have no greater right than shareholders of a California
corporation to require financial or other information from the Trust, Trustees
or officers. Any federal or state securities administration or other similar
authority shall have the right, at reasonable times during business hours and
for proper purposes, to inspect the books and records of the Trust.

9.5. Counterparts. This Declaration may be simultaneously executed
in several counterpart, each of which when so executed shall be deemed to be an
original, and such

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counterparts together shall constitute one and the same instrument, which shall
be sufficiently evidenced by any such original counterpart.

9.6. Provisions of the Trust in Conflict with Law or Regulations.

(a) The provisions of this Declaration are severable and
if the Trustees shall determine, with the advice of counsel, that any
one or more of such provisions (the "Conflicting Provisions") are in
conflict with the REIT Provisions of the Internal Revenue Code or with
other applicable laws or regulations, the Conflicting Provisions shall
be deemed never to have constituted a part of the Declaration,
provided, however, that such determination by the Trustees shall not
affect or impair any of the remaining provisions of this Declaration
or render invalid or improper any action taken or omitted (including,
but not limited to, the election of Trustees) prior to such
determination A certification in recordable form signed by a majority
of the Trustees setting forth any such determination and reciting that
it was duly adopted by the Trustees or a copy of this Declaration with
the Conflicting Provisions removed pursuant to such determination, in
recordable form signed by a majority of the Trustees, shall be
conclusive evidence of such determination when lodged in the records
of the Trust. The Trustees shall not be liable for failure to make
any determination under this Section 9.6(a). Nothing in this Section
9.6(a) shall in any way limit or affect the right of the Trustees to
amend this Declaration as provided in Section 8.3(a).

(b) If any provisions of this Declaration shall be held
invalid or unenforceable, such invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or
render invalid or unenforceable any other provision of this
Declaration, and this Declaration shall be carried out as if any such
invalid or unenforceable provision were not contained herein.

9.7. Certifications. The following certifications shall be final
and conclusive as to any Persons dealing with the Trust:

(a) A certification of a vacancy among the Trustees by
reason of resignation, removal, increase in the number of Trustees,
incapacity, death or otherwise, when made in writing by a majority of
the remaining Trustees;

(b) A certification as to the persons holding office as
Trustees or officers at any particular time, when made in writing by
the Secretary of the Trust or by any Trustee;

(c) A certification that a copy of this Declaration or of
the Trustees' Regulations is a true and correct copy thereof as then
in force, when made in writing by the Secretary of the Trust or by any
Trustee;

(d) The certifications referred to in Sections 8.3(c) and
9.6(a) hereof; and

(e) A certification as to any actions by Trustees, other
than the above, when made in writing by the Secretary of the Trust or
by any Trustee.

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9.8. Recording and Filing. A copy of this Declaration and any
amendments shall be recorded in the office of the County Recorder of the County
of Alameda California and in the office of the County Recorder or its equivalent
in every county where the Trust is or the Trustees are the record owner(s) of
Real Property, provided, however, that provision is made in such county for such
recording and further provided that this Declaration is accepted for recording.
This Declaration and any amendments may also be filed or recorded in such other
places as the Trustees deem appropriate.

IN WITNESS WHEREOF, the undersigned have executed this Declaration of
Trust as of the date first hereinabove set forth.

/s/ DAVID V. JOHN /s/ BETTY L. HOOD-GIBSON
- ----------------------- ------------------------
David V. John Betty L. Hood-Gibson

/s/ THOMAS J. FITZMYERS /s/ ALBERT H. SCHAAFF
- ----------------------- ------------------------
Thomas J. Fitzmyers Albert H. Schaaff

/s/ FRED H. FIELD /s/ DOUGLAS M. TEMPLE
- ----------------------- ------------------------
Fred H. Field Douglas M. Temple

State of California )
ss.
County of Alameda )

On this 24th day of July in the year 1987 before me, R. Scott, a
Notary Public, for the State of California duly commissioned and sworn,
personally appeared David V. John, Betty L. Hood-Gibson, Thomas J. Fitzmyers,
Fred H. Field, Albert H. Schaaf, and Douglas M. Temple, known to me to be the
persons whose names are subscribed to the within instrument, and acknowledged
to me that they executed the same.

IN WITNESS WHEREOF I have hereunto set my hand and affixed my official
seal in the County of Alameda, State of California, the day and year in this
certificate first above written.

/s/ R. SCOTT
----------------------------------
Notary Public, State of California

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TRUSTEES' CERTIFICATE

The undersigned, being a majority of the members of the Board of
Trustees of Consolidated Capital Special Trust (the "Trust"), hereby certify
that pursuant to the authorization granted in Section 1.1, of the Trust's
Second Amended and Restated Declaration of Trust (the "Declaration"), the Board
of Trustees of the Trust, at meeting held on April 13, 1989, approved Amendment
No. 1 to the Declaration, a copy of which amendment is attached hereto as
Exhibit A.

IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 22nd day of June, 1989.

/s/ WILLIAM S. FRIEDMAN
-------------------------
William S. Friedman

/s/ GENE E. PHILLIPS
-------------------------
Gene E. Phillips

/s/ RICHARD N. LAPP
-------------------------
Richard N. Lapp

/s/ MICHAEL E. SMITH
-------------------------
Michael E. Smith

/s/ WILLIE K. DAVIS
-------------------------
Willie K. Davis

-------------------------
Raymond J. J. Schrag

/s/ RANDALL K. GONZALES
-------------------------
Randall K. Gonzales

/s/ JAMES W. HAMMOND, JR.
-------------------------
James W. Hammond, Jr.

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On this 22nd day of June, 1989 before me, Rhonda Grimshaw, a Notary
Public, for the State of Texas duly commissioned and sworn, personally appeared
William S. Friedman, Gene E. Phillips, Richard H. Lapp, Michael E. Smith,
Willie K. Davis, Randall K. Gonzalez and James W. Hammond, Jr., known to me to
be the persons whose names are subscribed to the within instrument, and
acknowledged to me that they executed the same.

IN WITNESS WHEREOF I have hereunto set by hand and affixed my
official seal in the County of Dallas, State of Texas, the day and year in this
certificate first above written.

/s/ RHONDA GRIMSHAW
-----------------------------
Notary Public, State of Texas

(Seal)

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<PAGE> 164
EXHIBIT A

Amendment No. 1 to the Second Amended and Restated
Declaration of Trust of Consolidated Capital Special
Trust

The Second and Amended Restated Declaration of Trust for
Consolidated Capital Special Trust is hereby amended as follows:

(a) Section 1.1 shall be deleted and replaced with the
following:

1.1 Name. The name of the Trust shall be
"Continental Mortgage and Equity Trust." As far as
practicable and except as otherwise provided in this
Declaration, the Trustees shall conduct the Trust's
activities, execute all documents, and sue or be sued in the
name of continental Mortgage and Equity Trust or in their
names an Trustees of Continental Mortgage and Equity Trust.
If the Trustees determine that the use of such name is not
practicable, legal or convenient, they may use such other
designation or may adopt another name under which the Trust
may hold property or conduct its activities.

(b) The phrase "Consolidated Capital Special Trust",
wherever it appears on the Second Amended and Restated Declaration of Trust of
Consolidated Capital Special Trust, shall be deleted and replaced with the
phrase "Continental Mortgage and Equity Trust."

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OFFICER'S CERTIFICATE

The undersigned, being the President of Continental Mortgage and
Equity Trust ("the Trust") (formerly consolidated Capital Special Trust),
hereby certifies that the shareholders of the Trust, at the Trust's Annual
Meeting of Shareholders, approved Amendment Number 2 to the Trust's Second
Amended and Restated Declaration of Trust, a copy of which amendment is
attached hereto as Exhibit A. The Declaration of Trust was filed on July 29,
1987 as No. 87-2124-34.

IN WITNESS WHEREOF, I have executed this Certificate this 22nd day of
March, 1990.
CONTINENTAL MORTGAGE AND EQUITY TRUST

/s/ WILLIAM S. FRIEDMAN
-----------------------
William S. Friedman
President

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On this 22nd day of March, 1990 before Marry Elizabeth Montianino, a
Notary Public, for the State of New York duly commissioned and sworn,
personally appeared William S. Friedman, known to me to be the person whose
name is subscribed to the within instrument, and acknowledged to me that he
executed the same.

IN WITNESS WHEREOF, I have hereunto set by hand and affixed my
official seal in the County of New York, State of New York, the day and year in
this certificate first above written.

/s/ MARY ELIZABETH MONTIANINO
--------------------------------
Notary Public, State of New York

(Seal)

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<PAGE> 167
EXHIBIT A

Amendment Number 2 to the
Second Amended and Restated
Declaration of Trust of
Continental Mortgage and Equity
Trust (formerly Consolidated
Capital Special Trust)

The Second Amended and Restated Declaration of Trust for Continental
Mortgage and Equity Trust (the "Declaration of Trust") is hereby amended as
follows:

(a) Section 8.2(c) cf the Declaration of Trust is hereby
deleted in its entirety.

(b) The following language shall be added to Section 6.1
of the Declaration of Trust following the fifth sentence of such Section:

The Trustees shall also have the power, in their sole
discretion, to effect reverse share splits on a
pro-rata basis and to redeem for cash any fractional
Shares outstanding as a result thereof.

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AMENDED DECLARATION OF TRUST

Amendment Number 3 to the Second Amended and
Restated Declaration of Trust of Continental
Mortgage and Equity Trust (formerly Consolidated
Capital Special Trust)

The Second Amended and Restated Declaration of Trust f or Continental
Mortgage and Equity Trust (the "Declaration of Trust") is hereby amended as
follows:

Subpart (g) of Section 5.3 of the Declaration of Trust, Recorded on
July 29, 1987, instrument No. 87-212434 in the Alameda County Records, shall be
deleted and replaced in its entirety with the following:

"(g) invest in any equity Security, including the Shares of
other REITs f or a period in excess of 18 months except for
shares of a qualified REIT subsidiary, as defined in Section
856(i) of the Internal Revenue Code, and regular or residual
interests in REMICs and except for the Share of American
Realty Trust, Inc., National Income Realty Trust and
Transcontinental Realty Investor owned as of February 18,1992,
which investments may be held until July 30, 1996."

IN WITNESS WHEREOF, I have executed this Amendment this 27th day of
May, 1992.
CONTINENTAL MORTGAGE AND EQUITY TRUST

/s/ WILLIAM S. FRIEDMAN
-----------------------
William S. Friedman
President and Trustee

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STATE OF TEXAS

COUNTY OF DALLAS

On this 27th day of May, 1992, before me, the undersigned a Notary
Public, for the State of Texas duly commissioned and sworn, personally appeared
William S. Friedman, known to me to be the person whose name is subscribed to
the within instrument, and acknowledged to me that he executed the same.

IN WITNESS WHEREOF, I have hereunto set by, hand and affixed by
official seal in the County of Dallas, State of Texas, the day and year in this
certificate first above written.

/s/ CHERYL WEAVER
-----------------------------
Notary Public, State of Texas

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OFFICER'S CERTIFICATE

The undersigned, being the Senior Vice President of Continental
Mortgage and Equity Trust ("the Trust") (formerly Consolidated Capital Special
Trust), hereby certifies that the shareholders of the Trust, at the Trust's
Annual Meeting of Shareholders, approved Amendment Number 4 to the Trust's
Second Amended and Restated Declaration of Trust, a copy of which amendment is
attached hereto as Exhibit "A". The Declaration of Trust was filed on July 29,
1987 as No. 87-212434.

IN WITNESS WHEREOF, I have executed this Certificate this 12th day of
June, 1996.

CONTINENTAL MORTGAGE AND EQUITY TRUST

/s/ Robert A. Waldman
-------------------------------------
Robert A. Waldman,
Senior Vice President

STATE OF TEXAS )
)
COUNTY OF DALLAS )

The foregoing Officer's Certificate was acknowledged before me this
12th day of June, 1996 by Robert A. Waldman, Senior Vice President of
Continental Mortgage and Equity Trust.

/s/ Alan O. Goodrich
--------------------------------------
Notary Public, State of Texas
My Commission Expires: 3/2/97

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<PAGE> 171
AMENDMENT NO. 4 TO THE SECOND AMENDED AND RESTATED
DECLARATION OF TRUST OF CONTINENTAL MORTGAGE AND EQUITY TRUST

The Second and Amended and Restated Declaration of Trust of
Continental Mortgage and Equity Trust is hereby amended as follows:

(a) Section 5.3 shall be deleted and replaced in its entirety with
the following:

5.3 Restrictions. The Trustees shall not:

(a) invest in any foreign currency,
bullion or commodities;

(b) invest in contracts of sale for real
estate, except in conjunction with acquisition or sale of Real
Property or when held as security for Mortgages made or
acquired by the Trust;

(d) issue warrants, options or rights to
buy Shares, except as part of a ratable issue to Shareholders
or as part of a public offering or as part of a financial
arrangement with parties other than the Advisor or directors,
Trustees, officers or employees of the Trust or the Advisor or
as part of a ratable distribution to Shareholders;

(e) [REPEALED EFFECTIVE MAY 31, 1996]

(f) issue equity Securities of more than
one class (other than convertible obligations, warrants,
rights and options, and regular or residual interests in
REMICs);

(g) [REPEALED EFFECTIVE MAY 31, 1996]

(h) make any loan to the Sponsor of the
Trust, Consolidated Capital Equities Corporation, the Advisor
or any of their Affiliates;

(i) engage in trading as compared with
investment activities, or engage in the business of
underwriting or agency distribution of Securities issued by
others, but this prohibition shall not prevent the Trust from
selling participations or interests in Mortgage Loans or Real
Property or from selling or pledging a pool of notes
receivable from property sales or selling interests in REMICs
or CMOs;

(j) invest more than 10% of total Trust
assets in Junior Mortgage Loans, excluding Wrap-Around
Mortgage Loans;

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(k) acquire Securities in any company
holding investments or engaging in activities prohibited by
this Section;

(l) issue "redeemable securities," as
defined in Section 2(a) (32) of the Investment Company Act of
1940, "face-amount certificates of the installment type" as
defined in Section 2(a) (15) thereof and "periodic payment
plan certificates" as defined in Section 2(a) (27) thereof;

(m) purchase insurance either through
or from any Affiliate;

(n) purchase any Real Property on which
the total real estate commission paid by the Trust to anyone
exceeds 6% of the total purchase price, or sell any Real
Property on which the total real estate commission paid by the
Trust to anyone exceeds 5% of the total sales price;

(o) purchase, sell or lease any Real
Properties or Mortgages to or from the Sponsor, Consolidated
Capital Equities Corporation, the Advisor or any of their
Affiliates, including any investor program in which any of the
foregoing may also be a general partner or sponsor; or

(p) issue convertible or non-convertible
debt securities (other than interests in REMICs and CMOs) to
the public unless the historical cash flow of the Trust or the
substantiated future cash flow of the Trust, excluding
extraordinary items, is sufficient to cover the interest on
the debt securities.

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APPENDIX F

RESTATED TRUSTEES' REGULATIONS
OF CONTINENTAL MORTGAGE AND EQUITY TRUST
(FORMERLY CONSOLIDATED CAPITAL SPECIAL TRUST)
AS OF APRIL 21, 1989

ARTICLE I

Officers

Section 1. Enumeration. The officers of Consolidated Capital
Special Trust (the "Trust") shall be a Presidents one or more Vice Presidents,
a Secretary, a Treasurer, and such other officers as are elected by the
Trustees, including in their discretion a Chairman of the Board. Officers
shall be elected by, and shall hold office at the pleasure of the Trustees.
When the duties do not conflict, any two or more offices, except those of
President and Secretary, or President and Assistant Secretary, may be held by
the same person.

Section 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board, if there shall be such an officer, shall, if present,
preside at all meetings of the Trustees and exercise and perform such other
powers and duties as may be from time to time assigned to him by the Trustees.

Section 3. Powers and Duties of the President. Subject to such
supervisory powers, if any, as may be given by the Trustees to the Chairman of
the Board, if there be such an officer, the President shall be the chief
executive officer of the Trust and, subject to the control of the Trustees,
shall have general supervision, direction and control of the business of the
Trust and its employees and shall exercise such general powers of management as
are usually vested in the office of president of a corporation. He shall
preside at all meetings of the Shareholders and in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Trustees. He shall
be, ex officio, a member of all standing committees.

Section 4. Powers and Duties of the Vice President. In the absence
or disability of the President, the Vice Presidents in order of their rank as
fixed by the Trustees or, if not ranked, the Vice President designated by the
Trustees, shall perform all of the duties of the President and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other powers and perform such
other duties as are prescribed for them from time to time by the Trustees.

Section 5. Duties of the Secretary. The Secretary shall:

(a) Minutes. Keep full and complete minutes of the meetings
of the Trustees and of the meetings of the Shareholders and give notice,
as required, of all such meetings;

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(b) Trust Seal. Keep the seal of the Trust, and affix the
same to all instruments executed by the Trust which requires it;

(c) Books and Other Records. Maintain custody of and keep
the books of account and other records of the Trust except such as are in
the custody of the Treasurer;

(d) Share Register. Keep at the principal office of the
Trust a share register, or duplicate share register if a transfer agent is
employed to keep the original share register, showing the ownership and
transfers of ownership of all Shares; and

(e) General Duties. Generally, perform all duties which
pertain to his office and which are required by the Trustees.

Section 6. Duties of the Treasurer. The Treasurer shall:

(a) Books and Other Records. Maintain custody of and keep
books of account and other records of the Trust, except such as are in the
custody of the Secretary;

(b) Receipt, Deposit and Disbursement of Funds. Receive,
deposit and disburse funds belonging to the Trust; and

(c) General Duties. Generally, the Treasurer shall perform
all duties which pertain to his office and which are required by the
Trustees.

ARTICLE II

Trustees

Section 1. Number. The authorized number of Trustees shall be 15
but in no event shall the number of Trustees be less than 3 for more than 60
days.

Section 2. Qualifying Shares Not Required. Trustees need not be
Shareholders of the Trust.

Section 3. Quorum. A simple majority of the Trustees shall
constitute a quorum.

Section 4. Election. Trustees shall be elected at each Annual
Meeting of Shareholders and shall continue in office until the election of
their successors. If Trustees are not elected at an annual meeting or if such
meeting is not held, Trustees may be elected at a special meeting of
Shareholders.

Section 5. Vacancies. Vacancies occurring among the Trustees
(except in case of the removal of one or more Trustees under provisions of
Section 2.3 of the Declaration) shall be filled by a majority of the remaining
Trustees, though less than a quorum, or by a sole remaining Trustee,

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and the person so appointed shall hold office until his successor is elected at
an annual, regular, or special meeting of the Shareholders.

Section 6. Place of Meeting. Meetings of the Trustees shall be
held at the principal office of the Trust or at such place within or without
the state of California as is fixed from time to time by resolution of the
Trustees or by written consent of all Trustees. Whenever a place other than
the principal office is fixed by resolution as the place at which future
meetings are to be held, written notice thereof shall be sent not later than
the following business day to all Trustees who are absent from the meeting at
which the resolution was adopted.

Section 7. Organization Meeting. Immediately following each
Annual Meeting of Shareholders, a regular meeting of the Trustees shall be held
for the purposes of organizing, electing officers, and transacting other
business. Notice of such meetings need not be given.

Section 8. Regular Meetings. Regular meetings of the Trustees
shall be held at the principal office of the Trust or at any other place within
the state of California which has been designated by the Trustees' Regulations
or from time to time by resolution of the Trustees or by written consent of all
of the Trustees on the first Wednesday of each calendar month at 8:30 a.m., and
notice of such regular meetings of the Trustees in hereby dispensed with.

Section 9. Special Meetings. Special meetings of the Trustees
may be called at any time by the President. The President also shall call a
special meeting at any time upon the written request of two (2) Trustees.
Written notice a copy thereof of the time and place of a special meeting shall
be given to each Trustee, either personally or by sending a copy thereof by
mail or by telegraph, charges prepaid, to his address appearing on the books of
the Trust or theretofore given by him to the Trust for the purpose of notice.
In case of personal service, such notice shall be so delivered at least
twenty-four (24) hours prior to the time fixed for the meeting. If
telegraphed, it shall be delivered to the telegraph company at least
forty-eight (48) hours prior to the time fixed for the holding of the meeting.
Notice may also be given by telephone. If notice is not so given by the
Secretary, it may be given by the President or the Trustees requesting the
meeting may issue the call and give the notice. Failure to give written notice
shall not invalidate action taken at meetings.

Section 10. Adjourned Meetings. A quorum of the Trustees may
adjourn any Trustees' meeting to meet again at a stated day and hour. In the
absence of a quorum, a majority of the Trustees present may adjourn from time
to time to meet again at a stated day and hour prior to the time fixed for the
next regular meeting of the Trustees. The motion for adjournment shall be
lodged with the records of the Trust. Notice of the time and place of an
adjourned meeting need not be given to any Trustee if the time and place is
fixed at the meeting adjourned.

Section 11. Waiver of Notice. The transactions of any meeting
of the Trustees, however called and noticed or wherever held, shall be as valid
as though conducted at a meeting duly held after regular call and notice if a
quorum is present, and if either before or after the meeting each of the
Trustees not present signs a written waiver of notice or consent to the holding
of such meeting or an approval of the minutes thereof. All such waivers,
consents, or approvals shall be lodged with the Trust records or made a part of
the minutes of the meeting.

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Section 12. Action Without Meeting. Any action required or
permitted to be taken by the Trustees may be taken by the Trustees without a
meeting, if a majority of the Trustees shall individually or collectively
consent in writing to such action. Such written consent or consents shall be
lodged with the records of the Trust. Such action by written consent shall
have the same force and effect as a unanimous vote of such Trustees.

Section 13. Powers and Duties. The powers and duties of the
Trustees, in addition to the powers and duties set forth in the Declaration,
are:

(a) Selection and Removal of Officers, Agents, and Employees.
To select all the other officers, agents, and employees of the Trust, to
remove them at pleasure, either with or without cause, to prescribe for
them duties consistent with the Declaration and the Trustees' Regulations,
and to fix their compensation.

(b) Authorization of Signatures. From time to time to
designate the person or persons authorized to sign or endorse checks,
drafts, or other orders for the payment of money, issued in the name of or
payable to the Trust; and to execute contracts and legal documents on
behalf of the Trust.

(c) Fixing Principal Office and Place of Meetings. From time
to time to change the location of the principal office of the Trust and
from time to time to designate any place within or without the state of
California as the place at which meetings of the Trustees or of the
Shareholders shall be held.

(d) Committees. To appoint an executive committee and other
committees, and to delegate to the executive committee any of the powers
and authority of the Trustees over the business and affairs of the
Trustees, except the power to declare dividends and to adopt, amend, or
repeal Trustees' Regulations. The Trustees shall have the power to
prescribe the manner in which proceedings of the executive committee and
other committees shall be conducted. The executive committee and the
audit committee shall be composed of three (3) or more Trustees.

(e) General Powers. Generally to exercise such other powers
as are usually vested in directors of corporations organized under the
laws of the state of California.

Section 14. Trustees' Compensation. Trustees who are not officers
of the Trust shall receive reasonable compensation for their services as
determined by the Trustees from time to time, provided that such compensation
shall initially be up to $350 for each Trustees' meeting or Executive meeting
actually attended, which meeting shall be held not less frequently than
quarterly. Trustees who are not officers of the Trust shall, in addition, be
reimbursed for expenses incurred in attending meetings of the Trustees.

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ARTICLE III

Advisory Trustees

Section 1. Appointment. The Trustees may at their option appoint
not more then fifteen (15) individuals to serve as Advisory Trustees for the
Trust, whose duties will be to review the Trust operations, investments, and
policies and make recommendations in connection therewith to the Trustees. The
Trustees, however, shall not be bound by the recommendations of the Advisory
Trustees, and the Advisory Trustees shall have no power or authority to, and no
action taken by them shall, bind or restrict the Trustees of the Trust.

Section 2. Election and Term of Office. The Advisory Trustees shall
be elected annually by the Trustees at their organization meeting. Each
Advisory Trustee shall hold office until his death, resignation, removal, or
until his successor shall be elected and qualified.

Section 3. Compensation to Advisory Trustees. The amount of
compensation to be paid to Advisory Trustees shall be fixed from time to time
by the Trustees provided that such compensation shall initially be the sum of
$150.00 for each monthly meeting attended by an Advisory Trustee, and, when the
initial public offering is substantially subscribed, may be increased up to
$350.00 for each monthly meeting. In addition to the foregoing, the Trustees
may authorize the payment of expenses incurred by an Advisory Trustee to attend
any meeting and may also authorize the payment of additional compensation to
any Advisory Trustee for services actually rendered the Trust in addition to
attending meetings.

Section 4. Limitation of Liability. No Advisory Trustee shall be
liable to the Trust, the Trustees hereunder or the Shareholders in any amount
except for disclosure or use of confidential information obtained by such
Advisory Trustee in connection with his duties as an Advisory Trustee.

ARTICLE IV

Shareholders

Section 1. Quorum. The presence in person or by proxy of persons
entitled to vote a majority of the voting shares at any meeting of Shareholders
shall constitute a quorum. The Shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough Shareholders to leave less
than a quorum.

Section 2. Place of Meeting. Meetings of the Shareholders shall he
held at the principal office of the Trust or at such place within or without
the state of California as is designated by the Trustees or by the written
consent of all Shareholders entitled to vote thereat, given either before or
after the meeting and filed with the Secretary of the Trust.

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Section 3. Annual Meeting. A regular annual meeting of the
Shareholders shall be held during May at a time, place and on a date selected
by the Trustees after notice is given to shareholders in accordance with
federal securities laws.

Section 4. Special Meeting. Special meetings of the Shareholders
may be held at any time for any purpose or purposes. Such special meetings may
be called at any time by the President or by the Trustees or by any two or more
Trustees, or by one or more Shareholders holding not less than 66-2/3% of the
outstanding Shares of the Trust.

Section 5. Adjourned Meetings. Any meetings of Shareholders,
whether or not a quorum is present, may be adjourned from day to day or from
time to time by the vote of a majority of the Shares, the holders of which are
either present at the meeting or represented by proxy. The motion for
adjournment shall be lodged with the records of the Trust.

Section 6. Notice of Regular or Special Meetings. Written notice
specifying the place, day, and hour of any regular or special meeting, the
general nature of the business to be transacted thereat, and all other matters
required by law, shall be given to each Shareholder of record entitled to vote,
either personally or by sending a copy thereof by mail or telegraph, charges
prepaid, to his address appearing on the books of the Trust or theretofore
given by him to the Trust for the purpose of notice or, if no address appears
or has been given, addressed to the place where the principal office of the
Trust is situated. It shall be the duty of the Secretary to give notice of
each Annual Meeting of the Shareholders at least ten (10) days and not more
then sixty (60) days before the date on which it is to be held. If notice is
not so given by the Secretary, it may be given by any other officer not less
than seven (7) days before such date. Whenever an officer has been duly
requested to call a special meeting of Shareholders, it shall be his duty to
fix the date and the hour thereof, which date shall be not less then ten (10)
days and not more than sixty (60) days after the receipt of such request, if
the request has been delivered in person, or after the date of mailing the
request, as the case may be, and to give notice of such special meeting not
less than seven (7) days before the date on which the meeting is to be held. If
the date of such special meeting is not so fixed and notice thereof given
within seven (7) days after the date of delivery or the date of mailing the
request, the date and hour of such meeting may be fixed by the person or
persons calling or requesting the meeting and notice thereof shall be given by
such person or persons not less than seven (7) nor more than sixty (60) days
before the date on which the meeting is to be held.

Section 7. Notice of Adjourned Meetings. It shall not be necessary
to give any notice of the time and place of any adjourned meeting or of the
business to be transacted thereat other than by announcement at the meeting at
which such adjournment is taken, except that when a meeting is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting.

Section 8. Proxies. The appointment of a proxy or proxies shall be
made by an instrument in writing executed by the Shareholder or his duly
authorized agent and filed with Secretary of the Trust. No proxy shall be
valid after the expiration of eleven (11) months from the date of its execution
unless the Shareholder executing it specified therein the length of time for
which it was to continue in force, which in no case shall exceed seven (7)
years from the date of its

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execution. At a meeting of Shareholders all questions concerning the
qualification of voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by the Secretary of the meeting unless
inspectors of election are appointed pursuant to Section 11 of this Article IV,
in which event such inspectors shall pass upon all questions and shall have all
other duties specified in said section. "Mailgram" or "Datagram" or other
telegraphed proxies shall be legal proxies in the event that the notice to
shareholders soliciting proxies shall so state.

Section 9. Consent of Absentees. The transactions of any meeting
of Shareholders, either annual, special, or adjourned, however called and
noticed, shall, if a quorum is present, be as valid as though conducted at a
meeting duly held after the regular call and notice and, if either before or
after the meeting each Shareholder entitled to vote, not present in person or
by proxy, signs a written waiver of notice of a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be lodged with the Trust records or made a part of the minutes
of the meeting.

Section 10. Voting Rights. If no future date is fixed for the
determination of the Shareholders entitled to vote at any meeting of
Shareholders, only persons in whose names Shares entitled to vote stand on the
share records of the Trust on the day of any meeting of Shareholders shall be
entitled to vote at such meeting.

Section 11. Inspectors of Election. In advance of any meeting of
Shareholders the Trustees may appoint inspectors of election to act at the
meeting or any adjournment thereof. If inspectors of election are not so
appointed, the Chairman of any meeting of Shareholders may and, on the request
of any Shareholder or his proxy, shall appoint inspectors of election at the
meeting. The number of inspectors shall be either one or three. If appointed
at the meeting on the request of one or more Shareholders or proxies, a
majority of Shares present shall determine whether one or three inspectors are
to be appointed. In case any person appointed as inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
Person acting as Chairman. The inspectors of election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity, and effect of proxies,
receive votes, ballots, or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count, and
tabulate all votes or consents, determine the results, and do such acts as may
be proper to conduct the election or vote with fairness to all Shareholders. If
there are three inspectors of election, the decision, act, or certificate of a
majority is effective in all respects as the decision, act, or certificate of
all. On request of the Chairman of the meeting or of any Shareholder or his
proxy, the inspector shall make a report in writing of any challenge or
question or matter determined by them and execute a certificate of any facts
found by them.

Section 12. Excess Shares. No person shall at any time be or become
the owner of more then 9.8% of the outstanding shares of the Trust. Any shares
held in excess of this limit shall be "Excess Shares" which shall not be
entitled to voting rights or dividends (until they cease to become Excess
Shares) and are subject to redemption by the Trustees. This provision can be
waived or suspended at any time by the formal action of the Trustees acting in
accordance with these Regulations.

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Section 13. Action Without Meeting.

(a) Action by Written Consent. Any action which is required
to be or may be taken at any annual or special meeting of Shareholders of
the Trust may be taken without a meeting, without prior notice and without
a vote, if consents in writing, setting forth the action so taken, shall
have been signed by the holders of outstanding Shares having not less than
the minimum number of votes that would be necessary to authorize or to
take such action at a meeting at which all Shares entitled to vote thereon
were present and voted; provided, however, that prompt notice of the
taking of the action without a meeting and by less than unanimous written
consent shall be given to those Shareholders who have not consented in
writing.

(b) Record Date. The record date for determining
Shareholders entitled to express consent to action in writing without a
meeting shall be fixed by the Board of Trustees of the Trust (the
"Board"). Any Shareholder seeking to have the Shareholders authorize or
take action by written consent without a meeting shall, by written notice,
request the Board of Trustees to fix a record date. The Board shall, upon
receipt of such a request, fix the record date an the 15th day following
receipt of the request or such later date as may be specified by such
Shareholder. If the record date falls on a Saturday, Sunday or legal
holiday, the record date shall be the day next following which is not a
Saturday, Sunday or legal holiday.

(c) Date of Consent. The date for determining if an action
has been consented to by the holder or holders of Shares having the
requisite voting power to authorize or take the action specified therein
(the "Consent Date") shall be the close of business an the 31st day after
the later of (x) the record date fixed pursuant to paragraph (b) of this
Section 13 and (y) the date on which materials soliciting consents are
mailed to Shareholders if such materials are required to be mailed under
applicable law. If the Consent Date falls on a Saturday, Sunday or legal
holiday, the Consent Date shall be the day next following which is not a
Saturday, Sunday or legal holiday. On or prior to the Consent Date,
consents may be revoked by written notice (i) to the Trust, (ii) to the
Shareholder or Shareholders soliciting consents or soliciting revocations
in opposition to action by consent proposed by the Trust (the "Soliciting
Shareholders"), or (iii) to a proxy solicitor or other agent designated by
the Trust or the Soliciting Shareholder(s).

(d) Procedures. In the event of the delivery to the Trust of
a written consent or consents purporting to authorize or take action
and/or related revocations (each such written consent and related
revocation being referred to in this Section 13 as a "Consent"), the
Secretary of the Trust shall provide for the safekeeping of such consent
and, as soon as practicable after the Consent Date, shall conduct such
reasonable investigation as he deems necessary or appropriate for the
purpose of ascertaining the validity of such Consent and all matters
incident thereto, including, without limitation, whether the holders of
Shares having the requisite voting power to authorize or take the action
specified in the Consent have given consent; provided, however, that if
the action to which the Consent relates is the removal or

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replacement of one or more members of the Board, the Secretary of the
Trust shall designate two persons, who may not be members of the Board or
otherwise affiliated with the Trust, or a firm of nationally recognized
independent inspectors of election, to serve an Inspectors with respect to
such Consent and such Inspectors shall discharge the functions of the
Secretary of the Trust under this paragraph (d). If after such
investigation the Secretary or the Inspectors (as the case may be) shall
determine that the Consent is valid, that fact shall be certified on the
records of the Trust kept for the purpose of recording the proceedings of
meeting of Shareholders, and the Consent shall be filed in such records at
which time the Consent shall become effective as Shareholder action as of
the fifth business day following such certification.

ARTICLE V

Miscellaneous

Section 1. Record Dates and Closing of Transfer Books. From time
to time the Trustees may fix a future date, not exceeding sixty (60) days
preceding (a) the date of any meeting of Shareholders or (b) the date fixed for
the payment of any dividend or distribution or for the allotment of rights or
(c) when any change or conversion or exchange of Shares is to go into effect,
as the record date for the determination of the Shareholders entitled to notice
of and to vote at any such meeting or to receive any such dividend or
distribution or any allotment of rights or to exercise the rights with respect
to any such change, conversion or exchange of Shares. If a time is so fixed,
only Shareholders of record on the date so fixed shall be entitled to notice of
and to vote at such meeting or to receive such dividend or distribution or
allotment of rights or to exercise such rights, as the case may be,
notwithstanding any transfer of Shares on the books of the Trust after the
record date so fixed. The Trustees may close the books of the Trust against
transfers of Shares during the whole or any part of the period between the
record date and the date so fixed for the meeting, payment, distribution,
allotment, change, or exercise of rights.

Section 2. Inspection of Trust Records. The share register or
duplicate share register, the books of account, and the minutes of the
proceedings of the Shareholders and Trustees shall be open to inspection upon
the written demand of any Shareholder at any reasonable time and for a purpose
reasonably related to his interests as a Shareholder and shall be exhibited at
any time when required by the demand of ten percent (10%) or more of the Shares
represented at any Shareholders' meeting. Such inspection may be made in
person or by an agent or attorney and shall include the right to make extracts.
Demand of inspection other than at a Shareholders' meeting shall be made in
writing to the President, Secretary, or Assistant Secretary of the Trust.

Section 3. Inspection of Trustees' Regulations. The Trustees
shall keep at the principal office for the transaction of business of the Trust
the original or a copy of the Trustees' Regulations as amended to date,
certified by the Secretary, which Regulations shall be open to inspection by
the Shareholders at all reasonable times during office hours.

Section 4. Representation of Shares of Corporations. The
President or any Vice President and the Secretary or Assistant Secretary of the
Trust, acting either in person or by a proxy or proxies designated in a written
instrument duly executed by said officers, are authorized to vote,

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represent, and exercise on behalf of the Trust all rights incident to any
shares of any corporation standing in the name of the Trust.

ARTICLE VI

Seal

The Trust shall elect to have a seal containing the words: "CONSOLIDATED
CAPITAL SPECIAL TRUST, a California business trust, organized August 27, 1980,
CALIFORNIA." The application of the seal is not necessary to make documents
binding on the Trust.

ARTICLE VII

Amendments

These Trustees' Regulations may be amended or repealed, or new or
additional Trustees' Regulations may be adopted by the vote or written consent
of the Trustees, but the Trustees may not decrease the authorized number of
Trustees below three (3) or increase the authorized number of Trustees above
fifteen (15) without the vote or written consent of Shareholders entitled to
exercise a majority of the voting power of the Trust. The power hereby
delegated may be revoked by the vote or written consent of Shareholders
entitled to vote two-thirds of the outstanding shares of the Trust.

ARTICLE VIII

Definitions

All terms defined in the Declaration of Trust dated August 27, 1980 as
amended to date, shall have the same meaning when used in these Trustees'
Regulations.

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APPENDIX G

DRAFT
ADVISORY AGREEMENT
BETWEEN
CONTINENTAL EQUITY INVESTORS, INC.
AND
BASIC CAPITAL MANAGEMENT, INC.

THIS AGREEMENT dated as of_______________, 1997, between Continental
Equity Investors, Inc., a Nevada corporation (the "Company") and Basic Capital
Management, Inc., a Nevada corporation (the "Advisor").

WITNESSETH:

WHEREAS:

1. The Company owns a complex, diversified portfolio of real
estate, mortgages and other assets, including many non-performing or troubled
assets.

2. The Company is an active real estate investment trust with
funds available for investment primarily in the acquisition of income-producing
real estate and to a lesser extent in short and medium term mortgages.

3. The Advisor and its employees have extensive experience in
the administration of real estate assets and the origination, structuring and
evaluation of real estate and mortgage investments.

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree as follows:

1. DUTIES OF THE ADVISOR. Subject to the supervision of the
Board of Directors, the Advisor will be responsible for the day-to-day
operations of the Company and, subject to Section 17 hereof, shall provide such
services and activities relating to the assets, operations and business plan of
the Company as may be appropriate, including:

(a) preparing and submitting an annual budget and business
plan for approval by the Board of Directors of the Company (the
"Business Plan");

(b) using its best efforts to present to the Company a
continuing and suitable investment program consistent with the
investment policies and objectives of the Company as set forth in the
Business Plan;

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(c) using its best efforts to present to the
Company investment opportunities consistent with the Business
Plan and such investment program as the Directors may adopt
from time to time;

(d) furnishing or obtaining and supervising the
performance of the ministerial functions in connection with
the administration of the day-to-day operations of the
Company, including the investment of reserve funds and surplus
cash in short-term money market investments;

(e) serving as the Company's investment and
financial advisor and providing research, economic, and
statistical data in connection with the Company's investments
and investment and financial policies;

(f) on behalf of the Company, investigating,
selecting and conducting relations with borrowers, lenders,
mortgagors, brokers, investors, builders, developers and
others; provided however, that the Advisor shall not retain on
the Company's behalf any consultants or third party
professionals, other than legal counsel, without prior Board
approval;

(g) consulting with the Directors and furnishing
the Directors with advice and recommendations with respect to
the making, acquiring (by purchase, investment, exchange, or
otherwise), holding, and disposition (through sale, exchange,
or otherwise) of investments consistent with the Business Plan
of the Company;

(h) obtaining for the Directors such services as
may be required in acquiring and disposing of investments,
disbursing and collecting the funds of the Company, paying the
debts and fulfilling the obligations of the Company, and
handling, prosecuting, and settling any claims of the Company,
including foreclosing and otherwise enforcing mortgage and
other liens securing investments;

(i) obtaining for and at the expense of the
Company such services as may be required for property
management, loan disbursements, and other activities relating
to the investments of the Company, provided, however, the
compensation for such services shall be agreed to by the
Company and the service provider;

(j) advising the Company in connection with
public or private sales or shares or other securities of the
Company, or loans to the Company, but in no event in such a
way that the Advisor could be deemed to be acting as a broker
dealer or underwriter;

(k) quarterly and at any time requested by the
Directors, making reports to the Directors regarding the
Company's performance to date in relation to the Company's
approved Business Plan and its various components, as well as
the Advisor's performance of the foregoing services;

(l) making or providing appraisal reports, where
appropriate, on investments or contemplated investments of the
Company;

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(m) assisting in preparation of reports and other
documents necessary to satisfy the reporting and other requirements of
any governmental bodies or agencies and to maintain effective
communications with stockholders of the Company; and

(n) doing all things necessary to ensure its ability to
render the services contemplated herein, including providing office
space and office furnishings and personnel necessary for the
performance of the foregoing services as Advisor, all at its own
expense, except as otherwise expressly provided for herein.

2. NO PARTNERSHIP OR JOINT VENTURE. The Company and the
Advisor are not partners or joint venturers with each other, and nothing herein
shall be construed so as to make them such partners or joint venturers or
impose any liability as such on either of them.

3. RECORDS. At all times, the Advisor shall keep proper books
of account and records of the Company's affairs which shall be accessible for
inspection by the Company at any time during ordinary business hours.

4. ADDITIONAL OBLIGATIONS OF THE ADVISOR. The Advisor shall
refrain from any action (including, without limitation, furnishing or rendering
services to tenants of property or managing or operating real property) that
would (a) adversely affect the status of the Company as a real estate investment
trust, as defined and limited in Sections 856-860 of the Internal Revenue Code,
(b) violate any law, rule, regulation, or statement of policy of any
governmental body or agency having jurisdiction over the Company or over its
securities, (c) cause the Company to be required to register as an investment
company under the Investment Company Act of 1940, or (d) otherwise not be
permitted by the Articles of Incorporation of the Company.

5. BANK ACCOUNTS. The Advisor may establish and maintain one
or more bank accounts in its own name, and may collect and deposit into any such
account or accounts, and disburse from any such account or accounts, any money
on behalf of the Company, under such terms and conditions as the Directors may
approve, provided that no funds in any such account shall be commingled with
funds of the Advisor; and the Advisor shall from time to time render appropriate
accounting of such collections and payments to the Directors and to the auditors
of the Company.

6. BONDS. The Advisor shall maintain a fidelity bond with a
responsible surety company in such amount as may be required by the Directors
from time to time, covering all directors, officers, employees, and agents of
the Advisor handling funds of the Company and any investment documents or
records pertaining to investments of the Company. Such bond shall inure to the
benefit of the Company in respect to losses of any such property from acts of
such directors, officers, employees, and agents through theft, embezzlement,
fraud, negligence, error, or omission or otherwise, the premium for said bond to
be at the expense of the Company.

7. INFORMATION FURNISHED ADVISOR. The Directors shall have the
right to change the Business Plan at any time, effective upon receipt by the
Advisor of notice of such change. The Company shall furnish the Advisor with a
certified copy of all financial statements, a signed copy

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of each report prepared by independent certified public accountants, and such
other information with regard to the Company's affairs as the Advisor may from
time to time reasonably request.

8. CONSULTATION AND ADVICE. In addition to the services
described above, the Advisor shall consult with the Directors, and shall, at
the request of the Directors or the officers of the Company, furnish advice and
recommendations with respect to any aspect of the business and affairs of the
Company, including any factors that in the Advisor's best judgment should
influence the policies of the Company.

9. ANNUAL BUSINESS PLAN AND BUDGET. No later than January 15th
of each year, the Advisor shall submit to the Directors a written Business Plan
for the current Fiscal Year of the Company. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Company. To the
extent possible, the Business Plan shall set forth the Advisor's recommendations
and the basis therefor with respect to all material investments of the Company.
Upon approval by the Board of Directors, the Advisor shall be authorized to
conduct the business of the Company in accordance with the explicit provisions
of the Business Plan, specifically including the borrowing, leasing,
maintenance, capital improvements, renovations and sale of investments set forth
in the Business Plan. Any transaction or investment not explicitly provided for
in the approved Business Plan shall require the prior approval of the Board of
Directors unless made pursuant to authority expressly delegated to the Advisor.
Within sixty (60) days of the end of each calendar quarter, the Advisor shall
provide the Board of Directors with a report comparing the Company's actual
performance for such quarter against the Business Plan.

10. DEFINITIONS. As used herein, the following terms shall have
the meanings set forth below:

(a) "Affiliate" shall mean, as to any Person, any other
Person who owns beneficially, directly, or indirectly, 1% or more of
the outstanding capital stock, shares or equity interests of such
Person or of any other Person which controls, is controlled by, or is
under common control with such Person or is an officer, retired
officer, director, employee partner, or trustee (excluding
non-interested trustees not otherwise affiliated with the entity) of
such Person or of any other Person which controls, is controlled by,
or is under common control with, such Person.

(b) "Appraised Value" shall mean the value of a Real
Property according to an appraisal made by an independent qualified
appraiser who is a member in good standing of the American Institute
of Real Estate Appraisers and is duly licensed to perform such services
in accordance with the applicable state law, or, when pertaining to
Mortgage Loans, the value of the underlying property as determined by
the Advisor.

(c) "Book Value" of an asset or assets shall mean the
value of such asset or assets on the books of the Company, before
provision for amortization, depreciation, depletion or valuation
reserves and before deducting any indebtedness or other liability in
respect thereof,

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except that no asset shall be valued at more than its fair market
value as determined by the Directors.

(d) "Book Value of Invested Assets" shall mean the Book
Value of the Company's total assets (without deduction of any
liabilities), but excluding (i) goodwill and other intangible assets,
(ii) cash, and (iii) cash equivalent investments with terms which
mature in one year or less.

(e) "Business Plan" shall mean the Company's investment
policies and objectives and the capital and operating budget based
thereon, approved by the Board as thereafter modified or amended.

(f) "Fiscal Year" shall mean any period for which an
income tax return is submitted to the Internal Revenue Service and
which is treated by the Internal Revenue Service as a reporting period.

(g) "Gross Asset Value" shall mean the total assets of
the Company after deduction of allowance for amortization,
depreciation or depletion and valuation reserves.

(h) "Mortgage Loans" shall mean notes, debentures, bonds,
and other evidences of indebtedness or obligations, whether negotiable
or non-negotiable, and which are secured or collateralized by
mortgages, including first, wraparound, construction and development,
and junior mortgages.

(i) "Net Asset Value" shall mean the Book Value of all
the assets of the Company minus all the liabilities of the Company.

(j) "Net Income" for any period shall mean the Net Income
of the Company for such period computed in accordance with generally
accepted accounting principles after deduction of the Gross Asset Fee,
but before deduction of the Net Income Fee, as set forth in Sections
11(a) and 11(b), respectively, herein, and inclusive of gain or loss
of the sale of assets.

(k) "Net Operating Income" shall mean rental income less
property operating expenses.

(l) "Operating Expenses" shall mean the aggregate annual
expenses regarded as operating expenses in accordance with generally
accepted accounting principles as determined by the independent
auditors selected by the Directors and including the Gross Asset Fee
payable to the Advisor and fees and expenses paid to the Directors
who are not employees or Affiliates of the Advisor.

The operating expenses shall exclude, however, the following:

(i) the cost of money borrowed by the Company;

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(ii) income taxes, taxes and assessments on real property
and all other taxes applicable to the Company;

(iii) expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and
stock exchange listing of the Company's securities
(including legal, auditing, accounting, underwriting,
brokerage, printing, engraving and other fees);

(iv) fees and expenses paid to independent mortgage
servicers, contractors, consultants, managers and
other agents retained by or on behalf of the Company;

(v) expenses directly connected with the purchase,
origination, ownership and disposition of Real
Properties or Mortgage Loans (including the costs of
foreclosure, insurance, legal, protective, brokerage,
maintenance, repair and property improvement
services) other than expenses with respect thereto of
employees of the Advisor, except legal, internal
auditing, foreclosure and transfer agent services
performed by employees of the Advisor;

(vi) expenses of maintaining and managing real estate
equity interests and processing and servicing
mortgage and other loans;

(vii) expenses connected with payments of dividends,
interest or distributions by the Company to
stockholders;

(viii) expenses connected with communications to
stockholders and bookkeeping and clerical expenses
for maintaining stockholder relations, including the
cost of printing and mailing stock certificates,
proxy solicitation materials and reports;

(ix) transfer agent's registrar's and indenture trustee's
fees and charges; and

(x) the cost of any accounting, statistical, bookkeeping
or computer equipment necessary for the maintenance
of books and records of the Company.

Additionally, the following expenses of the Advisor shall be
excluded:

(i) employment expenses of the Advisor's personnel
(including Directors, officers and employees of the
Company who are directors, officers or employees of
the Advisor or its Affiliates), other than the
expenses of those employee services listed at (v)
above.

(ii) rent, telephone, utilities and office furnishings and
other office expenses of the Advisor (except those
relating to a separate office, if any, maintained by
the Company); and

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(iii) the Advisor's overhead directly related to performance
of its functions under this Agreement.

(m) "Person" shall mean and include individuals,
corporations, limited partnerships, general partnerships, joint stock
companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other
entities and governments and agencies and political subdivisions
thereof.

(n) "Real Property" shall mean and include land, rights
in land, leasehold interests (including but not limited to interests
of a lessor or lessee therein), and any buildings, structures,
improvements, fixtures, and equipment located on or used in connection
with land, leasehold interests, and rights in land or interests
therein.

All calculations made pursuant to this Agreement shall be based on
statements (which may be unaudited, except as provided herein) prepared on an
accrual basis consistent with generally accepted accounting principles,
regardless of whether the Company may also prepare statements on a different
basis. All other terms shall have the same meaning as set forth in the
Company's Articles of Incorporation and Bylaws.

11. ADVISORY COMPENSATION.

(a) Gross Asset Fee. On or before the
twenty-eighth day of each month during the term hereof the
Company shall pay to the Advisor, as compensation for the
basic management and advisory services rendered to the Company
hereunder, a fee at the rate of .0625% per month of the
average of the Gross Asset Value of the Company at the
beginning and at the end of the next preceding calendar month.
Without negating the provisions of Sections 18, 19, 22 and 23
hereof, the annual rate of the Gross Asset Fee shall be .75%
per annum.

(b) Net Income Fee. As an incentive for
successful investment and management of the Company's assets,
the Advisor will be entitled to receive a fee equal to 7.5%
per annum of the Company's Net Income for each Fiscal Year or
portion thereof for which the Advisor provides services. To
the extent the Company has Net Income in a quarter, the 7.5%
Net Income Fee is to be paid quarterly on or after the third
business day following the filing of the report on Form 10-Q
with the Securities and Exchange Commission, except for the
payment for the fourth quarter, ended December 31, which is to
be paid on or after the third business day following the
filing of the report on Form 10-K with the Securities and
Exchange Commission. The 7.5% Net Income Fee is to be
cumulative within any Fiscal Year, such that if the Company
has a loss in any quarter during the Fiscal Year, each
subsequent quarter's payment shall be adjusted to maintain the
7.5% per annum rate, with final settlement being made with the
fourth quarter payment and in accordance with audited results
for the Fiscal Year. The 7.5% Net Income Fee is not
cumulative from year to year.

(c) Acquisition Commission. For supervising the
acquisition, purchase or long term lease of Real Property for
the Company, the Advisor is to receive an Acquisition

G-7
<PAGE> 190
Commission equal to the lesser of (i) up to 1% of the cost of
acquisition, inclusive of commissions, if any, paid to
nonaffiliated brokers; or (ii) the compensation customarily
charged in arm's-length transactions by others rendering
similar property acquisition services as an ongoing public
activity in the same geographical location and for comparable
property. The aggregate of each purchase price of each
property (including the Acquisition Commissions and all real
estate brokerage fees) may not exceed such property's
Appraised Value at acquisition.

(d) Incentive Sales Compensation. To encourage
periodic sales of appreciated Real Property at optimum value
and to reward the Advisor for improved performance of the
Company's Real Property, the Company shall pay to the Advisor,
on or before the 45th day after the close of each Fiscal Year,
an incentive fee equal to 10% of the amount, if any, by which
the aggregate sales consideration for all Real Property sold
by the Company during such Fiscal Year exceeds the sum of: (i)
the cost of each such Real Property as original recorded in
the Company's books for tax purposes (without deduction for
depreciation, amortization or reserve for losses), (ii)
capital improvements made to such assets during the period
owned by the Company, and (iii) all closing costs (including
real estate commissions) incurred in the sale of such Real
Property; provided, however, no incentive fee shall be paid
unless (a) such Real Property sold in such Fiscal Year, in the
aggregate, has produced an 8% simple annual return on the
Company's net investment including capital improvements,
calculated over the Company's holding period before
depreciation and inclusive of operating income and sales
consideration and (b) the aggregate Net Operating Income from
all Real Property owned by the Company for all of the prior
Fiscal Year and the current Fiscal Year shall be at least 5%
higher in the current Fiscal Year than in the prior Fiscal
Year.

(e) Mortgage or Loan Acquisition Fees. For the
acquisition or purchase from an unaffiliated party of any
existing mortgage or loan by the Company, the Advisor or an
Affiliate is to receive a Mortgage or Loan Acquisition Fee
equal to the lesser of (a) 1% of the amount of the mortgage or
loan purchased by the Company or (b) a brokerage or commitment
fee which is reasonable and fair under the circumstances.
Such fee will not be paid in connection with the origination
or funding by the Company of any mortgage loan.

(f) Mortgage Brokerage and Equity Refinancing
Fees. For obtaining loans to the Company or refinancing on
Company properties, the Advisor or an Affiliate is to receive
a Mortgage Brokerage and Equity Refinancing Fee equal to the
lesser of (a) 1% of the amount of the loan or the amount
refinanced or (b) a brokerage or refinancing fee which is
reasonable and fair under the circumstances; provided, however
that no such fee shall be paid on loans from the Advisor or an
Affiliate without the approval of the Board of Directors. No
fee shall be paid on loan extensions.

12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENT FEES.
The Advisor or any of its Affiliates shall pay to the Company one-half of any
compensation received by the Advisor or any such Affiliate from third parties
with respect to the origination, placement or brokerage of any loan made by the
Company, provided, however, the compensation retained by the Advisor or
Affiliate

G-8
<PAGE> 191
shall not exceed the lesser of (a) 2% of the amount of the loan committed by
the Company or (b) a loan brokerage and commitment fee which is reasonable and
fair under the circumstances.

13. STATEMENTS. The Advisor shall furnish to the Company
not later than the tenth day of each calendar month, beginning with the second
calendar month of the term of this Agreement, a statement showing the
computation of the fees, if any, payable in respect to the next preceding
calendar month (or, in the case of incentive compensation, for the preceding
Fiscal Year, as appropriate) under the Agreement. The final settlement of
incentive compensation for each Fiscal Year shall be subject to adjustment in
accordance with, and upon completion of, the annual audit of the Company's
financial statements; any payment by the Company or repaying by the Advisor
that shall be indicated to be necessary in accordance therewith shall be made
promptly after the completion of such audit and shall be reflected in the
audited statements to be published by the Company.

14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the
extent that the Company shall request the Advisor or any director, officer,
partner, or employee of the Advisor to render services for the Company other
than those required to be rendered by the Advisor hereunder, such additional
services, if performed, will be compensated separately on terms to be agreed
upon between such party and the Company from time to time. In particular, but
without limitation, if the Company shall request that the Advisor perform
property management, leasing, loan disbursement or similar functions, the
Company and the Advisor shall enter into a separate agreement specifying the
obligations of the parties and providing for reasonable additional compensation
to the Advisor for performing such services.

15. EXPENSES OF THE ADVISOR. Without regard to the
amount of compensation or reimbursement received hereunder by the Advisor, the
Advisor shall bear the following expenses:

(a) employment expenses of the personnel employed
by the Advisor (including Directors, officers, and employees
of the Company who are directors, officers, or employees of
the Advisor or of any company that controls, is controlled by,
or is under common control with the Advisor), including, but
not limited to, fees, salaries, wages, payroll taxes, travel
expenses, and the cost of employee benefit plans and temporary
help expenses except for those personal expenses described in
Sections 16(e) and (p);

(b) advertising and promotional expenses incurred
in seeking investments for the Company;

(c) rent, telephone, utilities, office furniture
and furnishings, and other office expenses of the Advisor and
the Company, except as any of such expenses relates to an
office maintained by the Company separate from the office of
the Advisor; and

(d) miscellaneous administrative expenses
relating to performance by the Advisor of its functions
hereunder.

G-9
<PAGE> 192
16. EXPENSES OF THE COMPANY. The Company shall pay all
of its expenses not assumed by the Advisor, including without
limitation, the following expenses:

(a) the cost of money borrowed by the Company;

(b) income taxes, taxes and assessments on real
property, and all other taxes applicable to the Company;

(c) legal, auditing, accounting, underwriting,
brokerage, listing, registration and other fees, printing, and
engraving and other expenses, and taxes incurred in connection
with the issuance, distribution, transfer, registration, and
stock exchange listing of the Company's securities;

(d) fees, salaries, and expenses paid to
officers, and employees of the Company who are not directors,
officers or employees of the Advisor, or of any company that
controls, is controlled by, or is under common control with
the Advisor;

(e) expenses directly connected with the
origination or purchase of Mortgage Loans and with the
acquisition, disposition, and ownership of real estate equity
interests or other property (including the costs of
foreclosure, insurance, legal, protective, brokerage,
maintenance, repair, and property improvement services) and
including all compensation, traveling expenses, and other
direct costs associated with the Advisor's employees or other
personnel engaged in (i) real estate transaction legal
services, (ii) internal auditing, (iii) foreclosure and other
mortgage finance services, (iv) sale or solicitation for sale
of mortgages, (v) engineering and appraisal services, and (vi)
transfer agent services;

(f) expenses of maintaining and managing real
estate equity interests;

(g) insurance, as required by the Directors
(including Directors' liability insurance);

(h) the expenses of organizing, revising,
amending, converting, modifying, or terminating the Company;

(i) expenses connected with payments of dividends
or interest or distributions in cash or any other form made or
caused to be made by the Directors to holders of securities of
the Company;

(j) all expenses connected with communications to
holders of securities of the Company and the other bookkeeping
and clerical work necessary in maintaining relations with
holders of securities, including the cost of printing and
mailing certificates for securities and proxy solicitation
materials and reports to holders of the Company's securities;

G-10
<PAGE> 193
(k) the cost of any accounting, statistical,
bookkeeping or computer equipment or computer time necessary
for maintaining the books and records of the Company and for
preparing and filing Federal, State and local tax returns;

(l) transfer agent's, registrar's, and indenture
trustee's fees and charges;

(m) legal, accounting, investment banking, and
auditing fees and expenses charged by independent parties
performing these services not otherwise included in clauses
(c) and (e) of this Section 16;

(n) expenses incurred by the Advisor, arising
from the sales of Company properties, including those expenses
related to carrying out foreclosure proceedings;

(o) commercially reasonable fees paid to the
Advisor for efforts to liquidate mortgages before maturity,
such as the solicitation of offers and negotiation of terms of
sale;

(p) costs and expenses connected with computer
services, including but not limited to employee or other
personnel compensation, hardware and software costs, and
related development and installation costs associated
therewith;

(q) costs and expenses associated with risk
management (i.e. insurance relating to the Company's assets);

(r) loan refinancing compensation; and

(s) expenses associated with special services
requested by the Directors pursuant to Section 14 hereof.

17. OTHER ACTIVITIES OF ADVISOR. The Advisor, its
officers, directors, or employees or any of its Affiliates may engage in other
business activities related to real estate investments or act as advisor to any
other person or entity (including another real estate investment trust),
including those with investment policies similar to the Company, and the
Advisor and its officers, directors, or employees and any of its Affiliates
shall be free from any obligation to present to the Company any particular
investment opportunity that comes to the Advisor or such persons, regardless of
whether such opportunity is in accordance with the Company's Business Plan.
However, to minimize any possible conflict, the Advisor shall consider the
respective investment objectives of, and the appropriateness of a particular
investment to each such entity in determining to which entity a particular
investment opportunity should be presented. If appropriate to more than one
entity, the Advisor shall present the investment opportunity to the entity that
has had sufficient uninvested funds for the longest period of time.

18. LIMITATION ON OPERATING EXPENSES. To the extent that
the Operating Expenses of the Company for any Fiscal Year exceed the lesser of
(a) 1.5% of the average of the book Values of Invested Assets of the Company at
the end of each calendar month of such fiscal year, of (b) the greater of 1.5%
of the average of the Net Asset Value of the Company at the end of each
calendar

G-11
<PAGE> 194
month of such fiscal year or 25% of the Company's Net Income, the Advisor shall
refund to the Company from the fees paid to the Advisor the amount, if any, by
which the Operating Expenses so exceed the applicable amount, provided,
however, that the Advisor shall not be required to refund to the Company, with
respect to any fiscal year, any amount which exceeds the aggregate of the Gross
Asset Fees paid to the Advisor under this Agreement with respect to such fiscal
year.

19. TERM; TERMINATION OF AGREEMENT. This Agreement shall
continue in force until the next Annual Meeting of Stockholders of the Company,
and, thereafter, it may be renewed from year to year, subject to any required
approval of the Stockholders of the Company and, if any Director is an
Affiliate of the Advisor, the approval of a majority of the Directors who are
not so affiliated. Notice of renewal shall be given in writing by the
Directors to the Advisor not less than 60 days before the expiration of this
Agreement or of any extension thereof. This Agreement may be terminated for
any reason without penalty upon 60 days' written notice by the Company to the
Advisor or 120 days' written notice by the Advisor to the Company, in the
former case by the vote of a majority of the Directors who are not Affiliates
of the Advisor or by the vote of holders of a majority of the outstanding
shares of the Company. Notwithstanding the foregoing, however, in the event of
any material change in the ownership, control or management of the Advisor, the
Company may terminate this Agreement without penalty and without advance notice
to the Advisor.

20. AMENDMENTS. This Agreement shall not be changed,
modified, terminated or discharged in whole or in part except by an instrument
in writing signed by both parties hereto, or their respective successors or
assigns, or otherwise as provided herein.

21. ASSIGNMENT. This Agreement shall not be assigned by
the Advisor without the prior consent of the Company. The Company may
terminate this Agreement in the event of its assignment by the Advisor without
the prior consent of the Company. Such an assignment or any other assignment
of this Agreement by the Advisor shall bind the assignee hereunder in the same
manner as the Advisor is bound hereunder. This Agreement shall not be
assignable by the Company without the consent of the Advisor, except in the
case of assignment by the Company to a corporation, association, Company, or
other organization that is a successor to the Company. Such successor shall be
bound hereunder and by the terms of said assignment in the same manner as the
Company is bound hereunder.

22. DEFAULT, BANKRUPTCY, ETC. At the option solely of
the Directors, this Agreement shall be and become terminated immediately upon
written notice of termination from the Directors to the Advisor if any of the
following events shall occur:

(a) If the Advisor shall violate any provision of
this Agreement, and after notice of such violation shall not
cure such default within 30 days; or

(b) If the Advisor shall be adjudged bankrupt or
insolvent by a court of competent jurisdiction, or an order
shall be made by a court of competent jurisdiction for the
appointment of a receiver, liquidator, or trustee of the
Advisor or of all or substantially all of its property by
reason of the foregoing, or approving any petition filed
against the Advisor

G-12
<PAGE> 195
for its reorganization, and such adjudication or order shall
remain in full force or unstayed for a period of 30 days; or

(c) If the Advisor shall institute proceedings
for voluntary bankruptcy or shall file a petition seeking
reorganization under the Federal bankruptcy laws, or for
relief under any law for the relief of debtors, or shall
consent to the appointment of a receiver of itself or of all
or substantially all its property, or shall make a general
assignment for the benefit of its creditors, or shall admit in
writing its inability to pay its debts generally, as they
become due.

The Advisor agrees that if any of the events specified in
subsections (b) and (c) of this Section 22 shall occur, it will give
written notice thereof to the Directors within seven days after the
occurrence of such event.

23. ACTION UPON TERMINATION. From and after the
effective date of termination of this Agreement, pursuant to Sections
19, 21 or 22 hereof, the Advisor shall not be entitled to compensation
for further services hereunder but shall be paid all compensation
accruing to the date of termination. The Advisor shall forthwith upon
such termination:

(a) pay over to the Company all monies collected
and held for the account of the Company pursuant to this
Agreement;

(b) deliver to the Directors a full accounting,
including a statement showing all payments collected by it and
a statement of any monies held by it, covering the period
following the date of the last accounting furnished to the
Directors; and

24. MISCELLANEOUS. The Advisor shall be deemed to be in
a fiduciary relationship to the stockholders of the Company. The
Advisor assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith, and shall not
be responsible for any action of the Directors in following or
declining to follow any advice or recommendations of the Advisor.
Neither the Advisor nor any of its shareholders, directors, officers,
or employees shall be liable to the Company, the Directors, the
holders of securities of the Company or to any successor or assign of
the Company for any losses arising from the operation of the Company
if the Advisor had determined, in good faith, that the course of
conduct which caused the loss or liability was in the best interests
of the Company and the liability or loss was not the result of
negligence or misconduct by the Advisor. However, in no event will
the directors, officers or employees of the Advisor be personally
liable for any act or failure to act unless it was the result of such
person's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.

25. NOTICES. Any notice, report, or other communication
required or permitted to be given hereunder shall be in writing unless
some other method of giving such notice, report, or other
communication is accepted by the party to whom it is given, and shall
be given by being delivered at the following addresses of the parties
hereto:

G-13
<PAGE> 196

The Directors and/or the Company:
Continental Equity Investors, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President

The Advisor:
Basic Capital Management, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Executive Vice President and Chief Financial Officer

Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 25.

26. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.

27. GOVERNING LAW. This Agreement has been prepared, negotiated
and executed in the State of Texas. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely in the State of
Texas.

28. EXECUTION. This instrument is executed and made on behalf of
the Company by an officer of the Company, not individually but solely as an
officer and the obligations under this Agreement are not binding upon, nor
shall resort be had to the private property of, any of the Directors,
stockholders, officers, employees, or agents of the Company personally, but
bind only the Company property.

IN WITNESS WHEREOF, CONTINENTAL EQUITY INVESTORS, INC. and BASIC
CAPITAL MANAGEMENT, INC, by their duly authorized officers, have signed these
presents all as of the day and year first above written.

CONTINENTAL EQUITY INVESTORS, INC.

By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------

G-14
<PAGE> 197
BASIC CAPITAL MANAGEMENT, INC.

By:
---------------------------
Name:
-------------------------
Title:
------------------------

G-15
<PAGE> 198

No person is authorized to give any information or to make any representation
not contained in this Proxy Statement/Prospectus and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement/Prospectus constitutes neither an offer to
sell, nor a solicitation of an offer to purchase, the securities offered by
this Proxy Statement/Prospectus, nor the solicitation of a proxy, in any
jurisdiction to or from any person to or from whom it is unlawful to make such
offer or solicitation of an offer or proxy solicitation in such jurisdiction.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General Shareholder
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Proposed Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . 17
Market Prices of the Shares; Dividends . . . . . . . . . . . . . . . . . . 47
Business and Properties of CEI Nevada . . . . . . . . . . . . . . . . . . . 49
Business and Properties of the Trust . . . . . . . . . . . . . . . . . . . 51
Selected Historical Consolidated
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 81
</TABLE>

CONTINENTAL MORTGAGE AND EQUITY
TRUST

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

PROXY STATEMENT

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

CONTINENTAL EQUITY
INVESTORS, INC.

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

PROSPECTUS

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

4,028,053 Shares

of Common Stock

(par value $0.01 per share)

, 1997
----------- ---

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

During the 25-day period following the effective time of the Merger, all
dealers effecting transactions in the shares of Common Stock of CEI Nevada,
whether or not participating in this distribution, may be required to deliver a
copy of this Proxy Statement/Prospectus.
<PAGE> 199
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Articles of Incorporation and By-Laws of CEI Nevada provide, in
substance, that CEI Nevada shall indemnify its directors, officers, and
employees to the fullest extent permitted by the Nevada Revised Statutes (the
"NRS") and other applicable law. Section 78.751 of the Nevada Revised Statutes
permits indemnification of officers, directors, employees and agents under
certain conditions and subject to certain limitations. Pursuant to the NRS, a
corporation may indemnify persons for expenses related to an action, suit or
proceeding, except an action by or in the right of the corporation, by reason
of the fact that such person is or was a director, officer, employee or agent,
if such person acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and with
respect to any criminal action or proceeding, if such person had no reasonable
cause to believe his conduct was unlawful. The expenses indemnified against in
this provision include attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with the action, suit
or proceeding. The NRS further provides that a corporation may indemnify
persons for attorneys' fees related to an action, suit or proceeding by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was a director, officer, employee or agent, if
such person acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation. The corporation
may also indemnify directors for amounts paid in judgments and settlements in
such a suit, but only if ordered by a court after determining that the person
is "fairly and reasonably" entitled to indemnity.

The Trust maintains liability insurance for each of its officers and
Trustees and such insurance will be transferred to CEI Nevada upon consummation
of the Incorporation Procedure.

Currently, each of the Trustees of the Trust has been offered contractual
indemnification to the fullest extent permitted by the Declaration of Trust or
to the fullest extent not prohibited under applicable law.

II-1
<PAGE> 200
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

The following exhibits are filed as part of this Registration
Statement:

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
2.1 Form of Agreement and Plan of Merger by and between Continental Equity
Corporation and Continental Equity Investors, Inc. (included herewith
as Appendix B)

3.1 Articles of Incorporation of Continental Equity Investors, Inc.
(included herewith as Appendix C)

3.2 By-Laws of Continental Equity Investors, Inc. (included herewith as
Appendix D)

5.1 Opinion of Kummer Kaempfer Bonner & Renshaw regarding legality of the
Common Stock being offered (2)

8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters(1)

10.1 Advisory Agreement dated as of March 7, 1995 between Continental
Mortgage and Equity Trust and Basic Capital Management, Inc.
(incorporated by reference to Exhibit 10.2 to Continental Mortgage and
Equity Trust's Annual Report on Form 10-K for the year ended
December 31, 1993)

10.2 Brokerage Agreement dated as of February 11, 1994 between Continental
Mortgage and Equity Trust and Carmel Realty, Inc. (incorporated by
reference to Exhibit No. 10.3 to Continental Mortgage and Equity
Trust's Annual Report on Form 10-K for the year ended December 31,
1993)

10.3 Brokerage Agreement dated as of February 11, 1995, between Continental
Mortgage and Equity Trust and Carmel Realty, Inc. (incorporated by
reference to Exhibit No. 10.4 to Continental Mortgage and Equity
Trust's Annual Report on Form 10-K for the year ended December 31,
1994)

10.4 Brokerage Agreement dated as of February 11, 1996, between Continental
Mortgage and Equity Trust and Carmel Realty, Inc. (incorporated by
reference to Exhibit No. 10.4 to Continental Mortgage and Equity
Trust's Annual Report on Form 10-K for the year ended December 31,
1995)

*23.1 Consent of BDO Seidman, independent accountants

23.2 Consent of Farmer, Fuqua, Hunt & Munselle, P.C., independent
accountants(2)
</TABLE>

II-2
<PAGE> 201

<TABLE>
<S> <C>
23.3 Consent of Andrews & Kurth L.L.P.(1)

23.4 Consent of Kummer Kaempfler Bonner & Renshaw (2)

24.1 Power of Attorney(1)

27.0 Financial Data Schedule (2)

99.1 Form of Proxy Card (2)
- -------------------
</TABLE>

(1) Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-15351) filed with the Commission on November 1, 1996 and
incorporated by reference herein.

(2) Filed as an Exhibit to Amendment No. 1 to the Registrant's Registration
Statement in Form S-4 (No. 333-15351) filed with the Commission on January
23, 1997 and incorporated by reference herein.

* Filed herewith.

ITEM 22. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(a) 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 (the "Act");

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the 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 the Registration Statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;

(b) That, for the purpose of determining any liability under the Act, 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;

(c) 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 (in the event the Incorporation Procedure is not approved by
the shareholders of the Trust);

(d) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to

II-3
<PAGE> 202
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form;

(e) that every Prospectus (i) that is filed pursuant to paragraph (d)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment
to the Registration Statement and will not be used until such amendment
is effective, and that, for purposes of determining any liability under
the Act, 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;

(f) Insofar as indemnification for liabilities arising under the 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 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 whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue;

(g) To respond to requests for information that is incorporated by reference
into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first-class mail or other equally prompt means;
this includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of
responding to the request; and

(h) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.

II-4

<PAGE> 203

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment No. 2 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 February 11, 1997.

CONTINENTAL EQUITY INVESTORS, INC.

By: /s/ RANDALL M. PAULSON
------------------------------------
Randall M. Paulson, President

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:

<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----

/s/ RANDALL M. PAULSON President (Principal Executive February 11, 1997
- ---------------------- Officer)
Randall M. Paulson

* Executive Vice President and February 11, 1997
- ---------------------- Chief Financial Officer
Thomas A. Holland (Principal Financial and
Accounting Officer)

* Director February 11, 1997
- ----------------------
Ted P. Stokely

* Director February 11, 1997
- ----------------------
Martin L. White
</TABLE>

<PAGE> 204
\

<TABLE>
<S> <C> <C>
* Director February 11, 1997
- ----------------------
Edward L. Tixier

* Director February 11, 1997
- ----------------------
Edward G. Zampa

* By:/s/RANDALL M. PAULSON
---------------------
Randall M. Paulson
Attorney-in-Fact
</TABLE>

<PAGE> 205
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
2.1 Form of Agreement and Plan of Merger by and between
Continental Equity Corporation and Continental Equity
Investors, Inc. (included herewith as Appendix B)

3.1 Articles of Incorporation of Continental Equity Investors,
Inc. (included herewith as Appendix C)

3.2 By-Laws of Continental Equity Investors, Inc. (included
herewith as Appendix D)

5.1 Opinion of Kummer Kaempfer Bonner & Renshaw regarding
legality of the Common Stock being offered (2)

8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters (1)

10.1 Advisory Agreement dated as of March 7, 1995 between
Continental Mortgage and Equity Trust and Basic Capital
Management, Inc. (incorporated by reference to Exhibit 10.2 to
Continental Mortgage and Equity Trust's Annual Report on Form
10-K for the year ended December 31, 1993)

10.2 Brokerage Agreement dated as of February 11, 1994 between
Continental Mortgage and Equity Trust and Carmel Realty,
Inc. (incorporated by reference to Exhibit No. 10.3 to
Continental Mortgage and Equity Trust's Annual Report on Form
10-K for the year ended December 31, 1993)

10.3 Brokerage Agreement dated as of February 11, 1995, between
Continental Mortgage and Equity Trust and Carmel Realty,
Inc. (incorporated by reference to Exhibit No. 10.4 to
Continental Mortgage and Equity Trust's Annual Report on Form
10-K for the year ended December 31, 1994)

10.4 Brokerage Agreement dated as of February 11, 1996, between
Continental Mortgage and Equity Trust and Carmel Realty,
Inc. (incorporated by reference to Exhibit No. 10.4 to
Continental Mortgage and Equity Trust's Annual Report on Form
10-K for the year ended December 31, 1995)

*23.1 Consent of BDO Seidman, independent accountants

23.2 Consent of Farmer, Fuqua, Hunt & Munselle, P.C., independent
accountants (2)

23.3 Consent of Andrews & Kurth L.L.P. (1)

23.4 Consent of Kummer Kaempfler Bonner & Renshaw (2)
</TABLE>

<PAGE> 206

<TABLE>
<S> <C>
24.1 Power of Attorney (1)

27.0 Financial Data Schedule (2)

99.1 Form of Proxy Card (2)

- -------------------
</TABLE>

(1) Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-15351) filed with the Commission on November 1, 1996 and
incorporated by reference herein.

(2) Filed as an Exhibit to Amendment No. 1 to the Registrant's Registration
Statement in Form S-4 (No. 333-15351) filed with the Commission on January
23, 1997 and incorporated by reference herein.

* Filed herewith.

<PAGE> 1
EXHIBIT 23.1

Consent of Independent Certified Public Accountants

The Board of Trustees of
Continental Mortgage and Equity Trust

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March
21, 1996, relating to the consolidated financial statements and schedules of
Continental Mortgage and Equity Trust appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP
BDO Seidman, LLP

Dallas, Texas
January 22, 1997
<PAGE> 2

Consent of Independent Certified Public Accountants

The Board of Directors of
Continental Equity Investors, Inc.

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated November 6, 1996, relating to the
financial statements of Continental Equity Investors, Inc. which is contained
in that Prospectus.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Dallas, Texas
February 7, 1997