TRANSCONTINENTAL REALTY INVESTORS INC, 424B3, 1999-08-17

TRANSCONTINENTAL REALTY INVESTORS INC
424B3, 1999-08-17
REAL ESTATE INVESTMENT TRUSTS

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Filed pursuant to Rule 424(b)(3)
SEC File No. 333-70515

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONTINENTAL MORTGAGE AND EQUITY TRUST

MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT

The Board of Directors of Transcontinental Realty Investors, Inc. ("TCI")
and the Board of Trustees of Continental Mortgage and Equity Trust (the
"Trust") have agreed on a merger designed to create a more efficient, cost-
effective and profitable company. The combined company will be named
Transcontinental Realty Investors, Inc.
The proposed merger is in all material respects identical to the merger
proposed in the Joint Proxy Statement/ Prospectus dated May 12, 1999. While
shareholders of the Trust approved the merger as previously proposed, the
stockholders of TCI have not yet approved the merger proposal by the requisite
percentage of the outstanding TCI common stock. The merger is being resubmitted
for a vote to shareholders of the Trust and stockholders of TCI.
As described in this Joint Proxy Statement/Prospectus, the articles of
incorporation of TCI currently require a super-majority vote to approve the
merger. At the TCI stockholders' meeting, TCI stockholders will be asked to
consider an amendment to the articles of incorporation of TCI that would allow
approval of the merger by a simple majority vote of the outstanding shares of
TCI common stock
If the merger is completed, shareholders of the Trust will receive 1.181
shares of TCI common stock for each share of beneficial interest in the Trust
that they own. Stockholders of TCI will continue to own their existing shares
after the merger. The shares of common stock of TCI are listed on the New York
Stock Exchange and are traded under the symbol "TCI".
We estimate that approximately 4,750,384 shares of common stock of TCI, par
value $0.01 per share, will be issued to the Trust's shareholders, representing
approximately 55% of the outstanding common stock of TCI after the merger. The
shares of common stock of TCI held by stockholders of TCI prior to the merger
will represent approximately 45% of the outstanding common stock of TCI after
the merger.
The merger cannot be completed unless the stockholders of both entities
approve it. Both TCI and the Trust have scheduled special meetings for its
stockholders to vote on the merger and, in the case of TCI, the proposed
amendment to its articles of incorporation. YOUR VOTE IS VERY IMPORTANT.

Whether or not you plan to attend a meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card without indicating how you want to vote and you are a
shareholder of the Trust, your proxy will be counted as a vote for the merger,
and if you are a stockholder of TCI, your proxy will be counted as a vote for
the proposed amendment and the merger. If you fail to return your card, the
effect in most cases will be a vote against the merger.

The dates, times and places of the meetings are as follows:

FOR SHAREHOLDERS OF CONTINENTAL MORTGAGE AND EQUITY TRUST:

September 28, 1999, 10:00 a.m.
Offices of Continental Mortgage and Equity Trust
10670 North Central Expressway, Suite 600
Dallas, Texas

FOR STOCKHOLDERS OF TRANSCONTINENTAL REALTY INVESTORS, INC.:

September 28, 1999, 10:00 a.m.
Offices of Transcontinental Realty Investors, Inc.
10670 North Central Expressway, Suite 600
Dallas, Texas

THIS DOCUMENT PROVIDES YOU WITH DETAILED INFORMATION ABOUT THE PROPOSED
MERGER AND THE PROPOSED AMENDMENT AND INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT THE COMPANIES THAT IS NOT INCLUDED IN OR DELIVERED
WITH THIS DOCUMENT. THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO YOU UPON
WRITTEN OR ORAL REQUEST, BY WRITING TO THE PRINCIPAL OFFICES LISTED ABOVE OR BY
CALLING (214) 692-4800 (INVESTOR RELATIONS). TO OBTAIN TIMELY DELIVERY, YOU
MUST REQUEST THE INFORMATION NO LATER THAN SEPTEMBER 6, 1999. IN ADDITION, YOU
MAY OBTAIN INFORMATION ABOUT OUR COMPANIES FROM DOCUMENTS THAT WE HAVE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC").

WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE RISK
FACTORS BEGINNING ON PAGE 14.

/s/ RANDALL M. PAULSON
Randall M. Paulson
President
Transcontinental Realty Investors, Inc.

/s/ RANDALL M. PAULSON
Randall M. Paulson
President
Continental Mortgage and Equity Trust

Neither the Securities and Exchange Commission nor any state securities regu-
lators has approved or disapproved of the shares of Transcontinental Realty
Investors, Inc. common stock to be issued under this Joint Proxy
Statement/Prospectus or determined if this Joint Proxy Statement/Prospectus
is accurate or adequate. Any representation to the contrary is a criminal of-
fense.
Joint Proxy Statement/Prospectus dated August 10, 1999, and first mailed to
stockholders on August 13, 1999.
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TABLE OF CONTENTS

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SUMMARY.................................................................... 2

RISK FACTORS............................................................... 14
General; Forward-Looking Statements...................................... 14
Elimination of Certain Protections of the Declaration of Trust........... 14
Certain Anti-Takeover Effects............................................ 15
Consummation of the Merger Could Trigger Defaults........................ 16
Authorization to Issue Preferred Stock................................... 16
Effect of Certain Majority and Super- Majority Voting Provisions of TCI.. 17
Market Price of TCI Common Stock......................................... 18
Tax Risks................................................................ 18
Dilutive Effect of the Incorporation Procedure and the Merger............ 18
Potential Adverse Effects of Combining TCI and the Trust................. 18
Other Potential Conflicts of Interest.................................... 19

GENERAL SHAREHOLDER INFORMATION............................................ 20
Shareholders of the Trust................................................ 20
Stockholders of TCI...................................................... 21

PROPOSED INCORPORATION PROCEDURE AND MERGER................................ 23
Introduction............................................................. 23
Background of the Incorporation Procedure and Merger..................... 23
Overview of Incorporation Procedure and Merger........................... 25
Principal Reasons for the Incorporation Procedure and the Merger;
Recommendations of the Boards........................................... 26
Opinions of Financial Advisors........................................... 32
Possible Negative Considerations......................................... 38
Certain Potential Conflicts of Interest.................................. 39
The Conversion of Shares................................................. 40
Comparison of Principal Differences Between the Trust and TCI............ 40
Management After Incorporation Procedure and Merger...................... 41
Liability of Certain Persons............................................. 46
Business Activities after Incorporation Procedure and Merger............. 49
Comparison of the Securities of TCI and the Trust........................ 54
Stockholder-Management Relations......................................... 57
Establishment of Subsidiaries............................................ 62
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Amendment Provisions.................................................... 63
Material Federal Income Tax Consequences................................ 64
Certain Foreign, State and Local Taxes.................................. 66

GENERAL PROVISIONS OF THE MERGER AGREEMENT................................ 66
Conditions to Consummation of the Incorporation Procedure and the
Merger................................................................. 66
No Solicitation......................................................... 67
Termination............................................................. 68
Conduct of the Business Pending the Merger.............................. 68
Amendment and Waiver.................................................... 69
Expenses................................................................ 69
Representations and Warranties.......................................... 69

PROPOSED AMENDMENT OF TCI'S ARTICLES OF INCORPORATION..................... 69
General................................................................. 69
The Amendment........................................................... 69

MARKET PRICES OF THE SHARES; DIVIDENDS; COMPARATIVE PER SHARE MARKET
PRICE.................................................................... 71

BUSINESS AND PROPERTIES OF TCI............................................ 73
General................................................................. 73
Business Plan and Investment Policies................................... 73
TCI Assets.............................................................. 74
Certain Factors Associated with Real Estate and Related Investments..... 85
Method of Operating and Financing....................................... 86
Officers................................................................ 86
The TCI Advisor......................................................... 86
Property Management..................................................... 87
Real Estate Brokerage................................................... 87
The TCI Advisory Agreement.............................................. 87
Involvement in Certain Legal Proceedings................................ 89
Certain Business Relationships and Related Party Transactions........... 91
Security Ownership of Certain Beneficial Owners and Management.......... 92

BUSINESS AND PROPERTIES OF THE TRUST...................................... 93
General................................................................. 93
Business Plan and Investment Policies................................... 93
Trust Assets............................................................ 93
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Certain Factors Associated with Real Estate and Related Investments..... 104
Method of Operating and Financing....................................... 104
Officers................................................................ 105
The Trust Advisor....................................................... 105
Property Management..................................................... 105
Real Estate Brokerage................................................... 106
The Trust Advisory Agreement............................................ 106
Involvement in Certain Legal Proceedings................................ 108
Certain Business Relationships and Related Party Transactions........... 108
Security Ownership of Certain Beneficial Owners And Management.......... 109

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION.................... 110

TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 113
Introduction............................................................ 113
Liquidity and Capital Resources......................................... 113
Results of Operations................................................... 115
Environmental Matters................................................... 118
Inflation............................................................... 119
Tax Matters............................................................. 119
Year 2000............................................................... 119

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TCI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 120
Introduction............................................................ 120
Liquidity and Capital Resources......................................... 120
Results of Operations................................................... 121
Environmental Matters................................................... 125
Inflation............................................................... 125
Tax Matters............................................................. 125
Year 2000............................................................... 125

LEGAL MATTERS............................................................. 127

EXPERTS................................................................... 127

AVAILABLE INFORMATION..................................................... 127

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 127

SOLICITATION OF PROXIES................................................... 129

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Appendix A: Index of Principal Defined Terms A-1

Appendix B: Agreement and Plan of Merger B-1

Appendix C: Fairness Opinion of Wedbush
Morgan Securities C-1

Appendix D: Fairness Opinion of Sutro & Co. D-1

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: Why are the two companies proposing to merge? How will I benefit?

A: This merger means that you will have a stake in a company that expects to
have greater access to capital and lower operating costs than either had prior
to the merger. Both TCI and the Trust are real estate investment trusts
investing in real estate, real estate partnerships and mortgage loans on real
estate. By merging the businesses of both companies, the combined company will
be better positioned to attract capital and will benefit from the economies of
scale which will result from operating as a single company.

Q: What do I need to do now?

A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meetings. The
Transcontinental Realty Investors, Inc. meeting will take place on September
28, 1999. The Continental Mortgage and Equity Trust meeting will take place on
September 28, 1999. The Board of Directors of TCI and the Board of Trustees of
the Trust unanimously recommend voting in favor of the proposed merger.

Q: Should I send in my stock certificates now?

A: No. After the merger is completed, we will send shareholders of the Trust
written instructions for exchanging their share certificates. Shareholders of
the Trust should not return their share certificates at this time. The
stockholders of TCI will keep their certificates.

Q: Please explain the exchange ratio.

A: The total number of shares of TCI common stock to be distributed to
shareholders of the Trust was determined in conjunction with the opinions
rendered by the financial advisors hired by both TCI and the Trust to evaluate
the companies. Shareholders of the Trust will receive 1.181 shares of TCI
common stock for each Trust share. We will not issue fractional shares.
Shareholders of the Trust who would otherwise be entitled to receive a
fractional share instead will receive cash based on the market value of the
fractional share of TCI common stock.

Example: If you currently own 100 shares in the Trust, then after the merger
you will be entitled to receive 118 shares of TCI common stock and a check for
the market value of the .1 fractional share. If you currently own 100 shares of
TCI common stock, then you will continue to hold those 100 shares after the
merger.

Q: What happens to my future dividends?

A: We expect no changes in our current dividend policies prior to the merger.
After the merger, we expect the initial annualized dividend rate to be $0.60
per share of TCI common stock, reflecting our desire to provide you with
competitive dividends. The annualized rate of $0.60 per share is the historic
dividend rate paid to shareholders of the Trust.

Q: When do you expect the merger to be completed?

A: We are working to complete the merger as quickly as possible. We hope to
complete the merger by October 5, 1999.

Q: What are the tax consequences of the merger to stockholders?

A: The exchange of shares by shareholders of the Trust will be tax-free to
shareholders of the Trust for federal income tax purposes, except for taxes on
cash received for a fractional share. The merger will be tax-free to
stockholders of TCI for federal income tax purposes. To review the tax
consequences in greater detail, see page 64.

Q: Who can help answer other questions I may have regarding the merger?

A: If you have more questions about the merger you should contact: Investor
Relations, phone number (214) 692-4800.

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SUMMARY

This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents we
have referred you to. See "Available Information," on page 127.

An index of principal defined terms appears in Appendix A of this document.

The Companies
(page 73)

Transcontinental Realty Investors, Inc.
10670 North Central Expressway, Suite 300
Dallas, Texas 75231
(214) 692-4700

Transcontinental Realty Investors, Inc. is a real estate investment trust,
or "REIT", that invests in (1) real estate, (2) real estate partnerships and
(3) mortgage loans on real estate.

Continental Mortgage and Equity Trust
10670 North Central Expressway, Suite 300
Dallas, Texas 75231
(214) 692-4700

Continental Mortgage and Equity Trust is a REIT that also invests in (1)
real estate, (2) real estate partnerships and (3) mortgage loans on real
estate.

Continental Mortgage and Equity Corporation
10670 North Central Expressway, Suite 300
Dallas, Texas 75231
(214) 692-4700

Continental Mortgage and Equity Corporation ("CME Corporation") will be the
successor in interest to the Trust when the Trust converts into CME Corporation
immediately prior to the merger of CME Corporation and TCI. At the time of the
merger, CME Corporation will have conducted no business other than in
connection with the Agreement and Plan of Merger (the "Merger Agreement")
between TCI and the Trust. After the merger, CME Corporation will no longer
exist. The conversion of the Trust into CME Corporation is referred to as the
"Incorporation Procedure" and the merger of CME Corporation with TCI is
referred to as the "Merger".

Principal Reasons for the Merger
(page 26)

By combining the companies, we believe that we will be able to increase our
revenues, reduce our costs and attract greater capital for investment. As a
single company, we will build on our common strengths and we expect to provide
our stockholders with added value.

The Trust's Board of Trustees also believes the Merger will be beneficial
because it will be more difficult for the business of TCI to be acquired. In
addition, TCI has greater legal certainty in matters of corporate governance
and indemnification as a corporation than does the Trust as a California
business trust. Also, TCI's status as a Nevada corporation is favorable
because, among other things, the Trust's Board of Trustees believes the laws
that govern TCI will better meet the business needs of the Trust's business
once the Incorporation Procedure and the Merger are completed.

Recommendations to Stockholders
(page 26)

To Transcontinental Realty Investors, Inc. Stockholders:

The Board of Directors of TCI believes that the merger is in your best
interest and unanimously recommends that you vote FOR the proposal to:

(a) approve the amendment to the articles of incorporation of TCI to allow
approval of the Merger by a simple majority vote of the outstanding shares of
TCI common stock;

(b) approve the Merger and the Merger Agreement; and

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To Continental Mortgage and Equity Trust Shareholders:

The Board of Trustees of the Trust believes that the Merger is in your best
interest and unanimously recommends that you vote FOR the proposal to:

(a) approve the Incorporation Procedure; and

(b) approve the Merger and the Merger Agreement.

The Incorporation Procedure and the Merger (page 23)

The Merger Agreement is attached as Appendix B to this document. We encourage
you to read carefully the Merger Agreement, which is the legal document that
governs the Incorporation Procedure and the Merger.

General Discussion.

The Incorporation Procedure and the Merger, if approved, will result in a
significant change in the nature of the investment made by shareholders of the
Trust. TCI, like the Trust, has elected to be treated as a REIT, for federal
income tax purposes. However, TCI is not restricted from changing that election
at any time, although at present its Board of Directors has no intention of
doing so.

Other than TCI's present intention of continuing to conduct its business as
a REIT, TCI is not subject to restrictions on its investments except to the
extent any investment activity involves related party transactions. Those
transactions require the approval of a majority of the independent directors of
TCI.

Procedure.

The Incorporation Procedure and the Merger would be accomplished as follows:

(i) the Trust will convert from a California business trust into a
California corporation, CME Corporation;

(ii) immediately thereafter, CME Corporation will be merged into TCI
pursuant to the Merger Agreement; and

(iii) TCI and CME Corporation will file 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 Merger Agreement provides for, among other things, (a) the tax-free
merger of CME Corporation with and into TCI such that CME Corporation will
cease to exist and TCI will be the surviving corporation, (b) the conversion of
each share of CME Corporation's common stock then held into 1.181 shares of TCI
common stock, par value $0.01 per share, and (c) the cancellation of all shares
of CME Corporation's common stock then held.

What Shareholders of the Trust will Receive after the Incorporation
Procedure and the Merger.

As a result of the Incorporation Procedure and the Merger, each shareholder
of the Trust will receive 1.181 shares of TCI's common stock for each share of
beneficial interest of the Trust held by the shareholder, except that TCI will
pay cash for fractional shares that it would otherwise issue. The shareholders
of the Trust will become shareholders of TCI, holding, in the aggregate,
approximately 55% of all of the issued and outstanding shares of TCI common
stock.

Ownership of TCI Following the Merger.

We anticipate that TCI will issue approximately 4,750,384 shares of TCI
common stock to shareholders of the Trust in the Merger. The shares of TCI
common stock issued to shareholders of the Trust in the Merger will constitute
approximately 55% of the outstanding shares of common stock of TCI after the
Merger.

The Board of Directors and Management of TCI Following the Merger.

The current members of the TCI Board of Directors and its management are the
same as the current members of the Board of Trustees of the Trust and the
Trust's management. If the Merger is completed, the Board of Directors and
management of TCI will remain the same.

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Surrender of Trust Share Certificates.

Although shareholders of the Trust will be required to surrender their Trust
share certificates in exchange for TCI common stock certificates if the
Incorporation Procedure and the Merger are approved, shareholders of the Trust
should not return their Trust share certificates with their proxies at this
time.

Amendment of TCI's Articles of Incorporation
(page 69)

Stockholders of TCI will vote on whether to amend Article TENTH of TCI's
articles of incorporation. To approve the Merger, Article TENTH currently
requires an affirmative vote of both (1) a majority of the outstanding shares
of TCI common stock and (2) 66 2/3% of the outstanding shares of TCI common
stock, excluding shares held by American Realty Trust, Inc. and its affiliates
and associates. The amendment to Article TENTH proposed by the Board of
Directors of TCI would eliminate the 66 2/3% voting requirement with respect to
the Merger, thereby requiring only a simple majority vote of outstanding shares
of TCI common stock to approve the Merger.

Risk Factors
(page 14)

In evaluating the proposed Merger, shareholders of the Trust and
stockholders of TCI should consider, among other things, risk factors such as:

(1) TCI is not subject to the Trust's charter provisions that require (a) a
limit on annual operating expenses and (b) stockholder approval of renewals of
advisory agreements;

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

(3) The Merger could trigger events of default under certain mortgage loans
held by TCI and the Trust, requiring that the companies obtain consents from
certain lenders or, alternatively, refinance or repay the mortgage loans before
or after finalization of the Merger;

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

(5) Following the Merger, the Board of Directors of TCI, executive officers
of TCI and entities they are affiliated with, including Basic Capital
Management, Inc., will collectively own a majority of the outstanding shares of
TCI. Even if such holdings were reduced below 50%, those entities would still
be able to, effectively, veto certain corporate actions of TCI due to the
existence of certain super-majority voting provisions in the charter of TCI;

(6) The Board of Directors of TCI has greater discretion than the Board of
Trustees of the Trust with respect to transactions with related parties and,
accordingly, TCI could engage in more related party transactions than the Trust
currently is allowed;

(7) There can be no assurance that the market price of the common stock of
TCI after the Merger will be equal to that of such shares prior to the Merger;

(8) The charter documents of TCI do not require that TCI be qualified as a
REIT. In the future, the Board of Directors of TCI could elect not to have TCI
qualify as a REIT, resulting in TCI being taxed as a corporation for federal
income tax purposes. If that were to occur, the amount of cash available for
distributions to stockholders of TCI could be reduced, among other things;

(9) The Merger may adversely affect holders of shares of TCI common stock
prior to the Merger by possibly resulting in a dilutive effect on net income
per share in the future and on the voting rights of those holders;

(10) There can be no assurance that costs or other factors associated with
the merger of TCI and the Trust would not adversely affect future combined
results of operations or the benefits of expected costs savings; and

(11) The executive officers and trustees of the Trust (as well as the
executive officers and directors of TCI), as representatives of other real
estate-related companies (including other affiliates of Basic Capital
Management, Inc.), may be subject to certain conflicts of interests in selling
and buying properties for TCI.

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General Shareholder Information
(page 20)

General.

The Trust is a California business trust that invests in real estate,
mortgage loans and equity interests in real estate. TCI is a Nevada corporation
that invests in real estate, mortgage loans and equity interests in real
estate. The principal executive offices of the Trust and TCI are located at
10670 North Central Expressway, Suite 300, Dallas, Texas 75231, telephone
number (214) 692-4700.

Special Meetings; Voting; Dissenters' Rights.

A special meeting of the Trust's shareholders will be held at 10:00 a.m.,
Dallas time, on September 28, 1999, at 10670 North Central Expressway, Suite
600, Dallas, Texas 75231. At the Trust special meeting, shareholders will be
asked to consider and vote upon the proposed Incorporation Procedure and the
Merger. Only holders of record of issued and outstanding shares of beneficial
interest of the Trust at the close of business on the record date, August 9,
1999, will be entitled to vote at the Trust special meeting.

As of June 30, 1999, there were 4,022,341 Trust shares outstanding and
entitled to one vote each. The affirmative vote of the holders of a majority of
the outstanding Trust shares will be required to approve the proposed
Incorporation Procedure and the Merger. As of June 30, 1999, the Trustees and
executive officers of the Trust and their affiliates collectively held
approximately 58.6% of the outstanding Trust shares. Shareholders of the Trust
will not have any dissenters' rights of appraisal with respect to the
Incorporation Procedure and the Merger except under limited circumstances.

A special meeting of TCI's stockholders will be held at 10:00 a.m., Dallas
time, on September 28, 1999, at 10670 North Central Expressway, Suite 600,
Dallas, Texas 75231. At the TCI special meeting, stockholders will be asked to
consider and vote upon the proposed Merger, the issuance of TCI common stock
and the amendment to articles of incorporation of TCI. Only holders of record
of issued and outstanding shares of TCI common stock at the close of business
on the record date, August 9, 1999, will be entitled to vote at the TCI special
meeting.

As of June 30, 1999, there were 3,880,014 shares of TCI common stock
outstanding and entitled to one vote each. The affirmative vote of the holders
of a majority of the outstanding shares of TCI common stock will be required to
approve the proposed amendment to TCI's articles of incorporation. If the
amendment to the articles of incorporation is approved, the affirmative vote of
the holders of a simple majority of the outstanding shares of TCI common stock
will be required to approve the proposed Merger. If the amendment to the
articles of incorporation is not approved, the articles of incorporation will
require an affirmative vote of both (i) a majority of the outstanding shares of
TCI common stock and (ii) 66 2/3% of the outstanding shares of TCI common
stock, excluding shares held by American Realty Trust, Inc. and its affiliates
and associates. Stockholders of TCI will not have any dissenters' rights of
appraisal with respect to the Merger.

Management after Incorporation
Procedure and Merger
(page 41)

The Incorporation Procedure and the Merger will not significantly change the
nature or conduct of the Trust's business as merged with TCI, or its assets,
operations, location of executive office, liabilities, financial status, except
with respect to the following (i) TCI may issue additional preferred stock in
the future; (ii) the affairs and the rights of stockholders of TCI are 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; and
(iii) the Declaration of Trust includes certain restrictions on the investment
activities of the Trust while the governing documents of TCI do not provide any
restrictions on the investment activities of TCI.

Material Federal Income Tax Consequences
(page 64)

We have structured the Incorporation Procedure and the Merger so that
neither the Trust, TCI nor any stockholders or shareholders will recognize any
gain or loss for federal income tax purposes in connection with the
Incorporation Procedure and the Merger (except for tax payable because of cash

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received instead of fractional shares by the Trust shareholders). We have
conditioned the Incorporation Procedure and the Merger on our receipt of legal
opinions that such is the case.

Stockholders should note, however, that even if we receive the legal
opinions outlined above, those opinions are not binding on the Internal Revenue
Service or the courts.

All stockholders should carefully read the discussion under "Proposed
Incorporation Procedure and Merger -- Material Federal Income Tax Consequences"
and should consult their own tax advisors as to the effect of the Incorporation
Procedure and the Merger on their individual tax liability under applicable
U.S. federal, foreign, state or local income tax laws.

Market Prices of the Shares; Dividends
(page 71)

The shares of the Trust are traded on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") using the symbol "CMETS". As of
the close of business on June 30, 1999, there were 4,022,341 Trust shares
outstanding, held of record by approximately 4,215 holders. On September 18,
1998, the last trading day prior to the public announcement of TCI's and CMET's
intent to enter into the Merger Agreement, the closing price of Trust shares on
the NASDAQ was $16.5625 per Trust share, and on August 5, 1999, the most recent
date for which prices were available prior to the date of filing this Joint
Proxy Statement/Prospectus, the closing price of Trust shares on the NASDAQ was
$15.00 per Trust share. The range of high and low bid quotations per Trust
share as reported by NASDAQ: (i) during the six months ending June 30, 1999,
were $17.00 and $14.50, respectively, (ii) during the 1998 fiscal year were
$23.00 and $14.00, respectively, (iii) during the 1997 fiscal year were $21.50
and $11.00, respectively, and (iv) during the 1996 fiscal year were $12.25 and
$9.625, respectively. Distributions on the Trust shares are declared and paid
quarterly.

The shares of TCI common stock are traded on the New York Stock Exchange
("NYSE") using the symbol "TCI". As of the close of business on June 30, 1999,
there were 3,880,014 shares of TCI common stock outstanding, held of record by
approximately 4,937 holders. On September 18, 1998, the last trading day prior
to the public announcement of TCI's and CMET's intent to enter into the Merger
Agreement, the closing price of TCI common stock on the NYSE was $13.0625 per
TCI share, and on August 5, 1999, the most recent date for which prices were
available prior to the date of filing this Joint Proxy Statement/Prospectus,
the closing price of TCI common stock on the NYSE was $11.38 per TCI share. The
range of high and low bid quotations per share of TCI common stock as reported
on the NYSE: (i) during the six months ending June 30, 1999, were $16.375 and
$11.375, respectively, (ii) during the 1998 fiscal year were $18.25 and $11.50,
respectively, (iii) during the 1997 fiscal year were $21.375 and $10.75,
respectively, and (iv) during the 1996 fiscal year were $11.50 and $9.25,
respectively. Distributions on the shares of TCI common stock are declared and
paid quarterly.

-6-
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OF TCI AND THE TRUST

The following unaudited pro forma combined financial information of TCI and
the Trust presents the historical consolidated balance sheets and statements of
operations of TCI and the Trust after giving effect to the Merger. The
unaudited pro forma combined balance sheet data at March 31, 1999 gives effect
to the Merger as if it had occurred on March 31, 1999. The unaudited pro forma
combined statements of operations for the three months ended March 31, 1999 and
the fiscal year ended December 31, 1998 gives effect to the Merger as if it had
occurred on January 1, 1998. These statements have been prepared on the basis
of accounting for the Merger as a purchase and are based on the assumptions set
forth in the notes thereto.

The following unaudited pro forma combined financial information has been
prepared from, and should be read in conjunction with, the consolidated
financial statements and related notes thereto of TCI and the consolidated
financial statements and related notes thereto of the Trust, both of which are
incorporated by reference in this Joint Proxy Statement/Prospectus. The
following information is not necessarily indicative of the financial position
or operating results that would have occurred had the Merger been consummated
on the date as of which, or at the beginning of the periods for which, the
Merger is being given effect, nor is it necessarily indicative of future
operating results or financial position.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

March 31, 1999

<TABLE>
<CAPTION>
Historical
-------------------- Proforma Proforma
Assets TCI Trust Adjustments Combined
------ --------- --------- -------------- -----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Notes and interest
receivable $ 2,327 $ 674 $ 3,001
Less - allowance for
estimated losses (864) (250) (1,114)
--------- --------- ---------
1,463 424 1,887
Foreclosed real estate held
for sale, net of
accumulated depreciation 1,356 3,325 4,681
Real estate held for
investment, net of
accumulated depreciation 354,162 298,285 ${ 500 (B)} 624,741
{ (28,206)(C)}
Investment in real estate
entities 3,269 - 3,269
Investment in marketable
securities of affiliates,
at market - 13,759 (933)(D) 12,826
Cash and cash equivalents 13,346 723 14,069
Other assets 15,960 14,899 (1,035)(C) 29,824
--------- --------- ----------- ---------
$ 389,556 $ 331,415 $ (29,674) $691,297
========= ========= =========== =========
</TABLE>

-7-
<PAGE>

UNAUDITED PROFORMA COMBINED BALANCE SHEET--continued

March 31, 1999

<TABLE>
<CAPTION>
Historical
-------------------- Proforma Proforma
Liabilities and Stockholders' Equity TCI Trust Adjustments Combined
- ------------------------------------ --------- --------- ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Liabilities
Notes and interest payable $ 292,067 $ 235,291 $ 527,358
Other liabilities 6,656 11,676 $ 500 (B) 18,832
--------- --------- --------- ----------
298,723 246,967 500 546,190
Stockholders' Equity
TCI
Preferred Stock
Series A; $.01 par value;
authorized, 6,000 shares;
issued and outstanding 5,829
shares (liquidation
preference $583) -- --
Common Stock $.01 par value,
authorized 10,000,000 shares;
issued and outstanding
3,878,463 shares historical;
8,547,208 shares pro forma 39 { (1)(D)} 85
{ 47 (A)}
Paid in capital 218,087 { 55,160 (A)} 272,315
{ (932)(D)}
Accumulated distributions in
excess of accumulated
earnings (127,293) (127,293)
Trust
Shares of Beneficial interest,
no par value; authorized
shares unlimited; issued and
outstanding 4,021,180 shares 8,054 (8,054)(A) -
Paid in capital 257,093 (257,093)(A) -
Accumulated distributions in
excess of accumulated
earnings (193,100) 193,100 (A) -
Net unrealized gains on
marketable equity securities
of affiliates 12,401 (12,401)(A) -
--------- --------- --------- ----------
90,833 84,448 (30,174) 145,107
--------- --------- --------- ----------
$ 389,556 $ 331,415 $ (29,674) $ 691,297
========= ========= ========= ==========
</TABLE>

-8-
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET

March 31, 1999
(dollars in thousands)

Note A. To record the purchase price of the Trust at its estimated fair value.
Estimated fair value of 4,749,013 shares of TCI common stock at $11.625 per
share (the closing price on March 31, 1999) issued at the exchange rate of
1.181 share of TCI common stock for each of the 4,021,180 outstanding Trust
shares of beneficial interest or $55,207.

Note B. To record estimate of additional closing costs.

Note C. To record allocation of purchase price to assets and liabilities
acquired as follows:

<TABLE>
<S> <C>
Notes and interest receivable $ 424
Foreclosed real estate held for sale 3,325
Real estate held for investment 270,079
Investment in marketable equity securities of affiliates 13,759
Cash and cash equivalents 723
Other assets 13,864
Notes and interest payable (235,291)
Other liabilities (11,676)
---------
$ 55,207
=========
</TABLE>

The adjustment to "Real estate held for investment" resulting from the
above allocation is due to the application of purchase accounting, and is not
indicative of the appraised value of such real estate.

Note D. To record retirement of 80,268 shares of TCI common stock included in
the acquired Trust assets at the Trust's carrying value (March 31, 1999 market
value) of $933.

9
<PAGE>

UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS FOR

THE THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
Historical
-------------------- Proforma Proforma
TCI Trust Adjustments Combined
--------- --------- ----------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues
Rents......................... $ 19,093 $ 16,541 $ 35,634
Interest...................... 102 96 (12)(C) 186
--------- --------- ---- ---------
19,195 16,637 (12) 35,820
Expenses
Property operations........... 10,320 9,743 20,063
Interest...................... 6,230 5,473 11,703
Depreciation.................. 2,884 2,076 (231)(A) 4,729
Advisory fee.................. 715 625 (52)(B) 1,288
Net income fee................ 18 -- 19 (D) 37
General and administrative.... 632 518 1,150
--------- --------- ---- ---------
20,799 18,435 (264) 38,970
--------- --------- ---- ---------
(Loss) from operations.......... (1,604) (1,798) 252 (3,150)

Equity in income of investees... 25 56 81
Gain on sale of real estate..... 1,868 152 2,020
--------- --------- ---- ---------
Net income (loss)............... 289 (1,590) 252 (1,049)
Preferred dividend requirement.. (7) -- (7)
--------- --------- ---- ---------
Net income (loss) applicable to
common shares $ 282 $ (1,590) $252 $ (1,056)
========= ========= ==== =========
Earnings per share
Net income (loss)............. $ .07 $ (.40) $ (.12)
========= ========= =========
Weighted average shares used in
computing earnings per share... 3,878,463 4,021,156 8,547,208
</TABLE>

10
<PAGE>

NOTES TO UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1999
(dollars in thousands)

Note A. To adjust depreciation for the $27,706 write down of the acquired real
estate held for investment, amortized over such assets' 30 year estimated
average remaining useful life.

Note B. To adjust the .75% per annum advisory fee for the $27,706 write down of
the acquired real estate held for investment.

Note C. To eliminate the divided income of $.15 per share, on the 80,268 shares
of TCI common stock acquired with the Trust assets and retired.

Note D. To adjust the 7.5% net income fee for the effects of the items
described in Notes A, B and C above.

11
<PAGE>

UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
Historical
--------------------- Proforma Proforma
TCI Trust Adjustments Combined
---------- --------- ----------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues
Rents $ 69,829 $ 63,593 $ 133,422
Interest 807 698 $ (48)(C) 1,457
---------- --------- ------ ---------
70,636 64,291 (48) 134,879
Expenses
Property operations 38,282 37,368 75,650
Interest 22,797 21,362 44,159
Depreciation 10,691 8,095 (924)(A) 17,862
Advisory fee 1,962 1,507 (208)(B) 3,261
Net income fee 558 28 81 (D) 667
General and administrative 2,312 2,305 4,617
Provision for losses -- (506) (506)
---------- --------- ------ ---------
76,602 70,159 (1,051) 145,710
---------- --------- ------ ---------
(Loss) from operations (5,966) (5,868) 1,003 (10,831)

Equity in income of investees 288 157 445
Gain on sale of real estate 12,584 6,058 18,642
---------- --------- ------ ---------
Net income 6,906 347 1,003 8,256
Preferred dividend requirement (1) -- (1)
---------- --------- ------ ---------
Net income applicable to
common shares $ 6,905 $ 347 $1,003 $ 8,255
========== ========= ====== =========
Earnings per share
Net income $ 1.78 $ .09 $ .97
========== ========= =========
Weighted average shares used
in computing earnings per
share 3,876,797 4,012,614 8,615,694
========== ========= =========
</TABLE>

12
<PAGE>

NOTES TO UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)

Note A. To adjust depreciation for the $27,706 write down of the acquired real
estate held for investment, amortized over such assets' 30 year estimated
average remaining useful life.

Note B. To adjust the .75% per annum advisory fee for the $27,706 write down
of the acquired real estate held for investment.

Note C. To eliminate the dividend income of $.60 per share, on the 80,268
shares of TCI common stock acquired with the Trust assets and retired.

Note D. To adjust the 7.5% net income fee for the effects of the items
described in notes A, B and C, above.

COMPARATIVE PER SHARE DATA

We have summarized below the per share information for our respective
companies on a historical, pro forma combined and equivalent basis. The pro
forma information gives effect to the Merger accounted for on a purchase
basis. You should read this information in conjunction with our historical
financial statements (and related notes) contained in the annual reports and
other information that we have filed with the SEC. You should also read this
information in connection with the pro forma financial information set forth
on pages 7 through 13. You should not rely on the pro forma information as
being indicative of the historical results that we would have had or the
future results that we will experience after the Incorporation Procedure and
the Merger.
TCI Common Shares

<TABLE>
<CAPTION>
Historical Proforma Combined
---------- -----------------
<S> <C> <C>
Income (loss) per Common Share
Three months ended March 31, 1999 $ .07 $ (.12)
Year end December 31, 1998 1.78 .97
Cash Dividends per Common Share
Three months ended March 31, 1999 .15 .15
Year end December 31, 1998 .60 .60
Book Value per Common Share
March 31, 1999 23.27 16.98
December 31, 1998 23.35 17.00

Trust Shares of Beneficial Interest

<CAPTION>
Historical Proforma Combined
---------- -----------------
<S> <C> <C>
Income (loss) per Share
Three months ended March 31, 1999 $ (.40) $ (.12)
Year ended December 31, 1998 .09 .97
Cash Dividends per Share
Three months ended March 31, 1999 .15 .18
Year ended December 31, 1998 .60 .71
Book Value per Share
March 31, 1999 21.00 20.05
December 31, 1998 21.72 20.08
</TABLE>

13
<PAGE>

RISK FACTORS

In addition to the other information contained in this document, you should
consider the following risk factors before you decide whether or not you wish
to approve the Incorporation Procedure and the Merger.

General; Forward-Looking Statements

This document contains forward-looking statements that are subject to risks
and uncertainties. Forward-looking statements include the information
concerning future results of operations, economic benefits of participation in
TCI and expanded business opportunities relating to the Trust after the
Incorporation Procedure and the Merger. These statements are set forth in the
letter to stockholders accompanying this document and under "Summary",
"Proposed Incorporation Procedure and Merger", "Market Prices of the Shares;
Dividends", "Business and Properties of TCI", "Business and Properties of the
Trust", "TCI Management's Discussion and Analysis of Financial Condition and
Results of Operations", and "Trust Management's Discussion and Analysis of
Financial Condition and Results of Operations". These statements are usually
preceded by, followed by or otherwise include the words "believes", "expects",
"anticipates", "intends", "estimates" or similar expressions.

For those statements, TCI and the Trust claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The following important factors, in addition to
those discussed elsewhere in this Joint Proxy Statement/Prospectus and in the
documents which are incorporated by reference, could affect future results.
These factors could cause those results to differ materially from those
expressed in the forward-looking statements:

. the declaration or payment of distributions by TCI;

. the completion of the Incorporation Procedure and the Merger;

. the policies of TCI regarding investments, acquisitions,
dispositions, financings, conflicts of interest and other
matters;

. risks associated with the real estate markets in general;

. the availability of equity and debt financing;

. interest rates;

. general economic conditions;

. trends affecting TCI's financial condition or results of
operations; and

. the risks described below.

You should be aware that forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements as a result of
various factors. The information contained in this document, including the
information set forth below, identifies important facts that could cause such
differences.

Elimination of Certain Protections of the Declaration of Trust

Upon completion of the Incorporation Procedure and the Merger, the Trust
will cease to exist. Consequently, the shareholders of the Trust will no longer
have certain protections of the organizational documents of the Trust since
they will be, at that time, stockholders of TCI. TCI is governed by articles of
incorporation and bylaws containing provisions that are distinct from those
contained in the Declaration of Trust.

14
<PAGE>

Under certain provisions of the Declaration of Trust, the Operating Expenses
of the Trust (as defined in the Declaration of Trust and discussed more fully
under "Proposed Incorporation Procedure and Merger -- Business Activities
after Incorporation Procedure and Merger") 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 the 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. However, the maximum
amount of such refund cannot exceed the amount of the advisory fees paid to the
advisor for that fiscal year. The limitation required the advisor to refund a
portion of the annual advisory fee totaling $952,000 for 1998, $606,000 for
1997 and $589,000 for 1996.

In accordance with these provisions, the current advisory agreement between
the Trust and Basic Capital Management, Inc. dated October 15, 1998 (the "Trust
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 the 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 of TCI place no similar limits on TCI's
operating expenses. Although a limitation on operating expenses is included in
the current advisory agreement between TCI and Basic Capital Management, Inc.
dated October 15, 1998 (the "TCI Advisory Agreement"), there is no guarantee
that future advisory agreements will include any limitation. If the limitation
on operating expenses is eliminated from future advisory agreements, there is a
risk to stockholders that, to the extent additional sums are paid to the
advisor, less money will be available for distributions to stockholders. See
"Proposed Incorporation Procedure and Merger -- Business Activities after
Incorporation Procedure and Merger".

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 TCI contain no such requirement. Although the current
directors of TCI intend to continue to submit the TCI Advisory Agreement to
stockholders for approval each year following the Merger, this practice could
be discontinued at any time in the future. If this practice is discontinued,
stockholders will not have the opportunity to review and approve future
advisory agreements.

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

Certain Anti-Takeover Effects

Stockholders should recognize that the acquisition safeguards discussed more
fully below under "Proposed Incorporation Procedure and Merger -- Principal
Reasons for the Incorporation Procedure and the Merger -- Acquisition
Safeguards" could have the effect of rendering difficult or discouraging a
future attempt to acquire control of TCI without the approval of the Board of
Directors. This would be the case even if stockholders of TCI 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. The Incorporation Procedure and the Merger, therefore, may be viewed as
limiting stockholders' rights. See "Proposed Incorporation Procedure and
Merger".

15
<PAGE>

The safeguards against acquisition of TCI include the following:

(i) The requirement of an 80% vote to remove a director from the
Board of Directors;

(ii) The requirement of a 75% vote to make, adopt, alter, amend,
change or repeal

(a) TCI's bylaws and

(b) certain key provisions of TCI's articles of
incorporation that require, among other things, a
two-thirds super-majority vote (see below);

(iii) The requirement of a two-thirds super-majority vote for
the undertaking of Business Combinations involving an
Interested Stockholder, its affiliates and associates (as
such terms are defined in the articles of incorporation),
excluding from the vote any shares held by such Interested
Stockholder, its affiliates and associates;

(iv) The inability generally of stockholders to call meetings of
stockholders.

If the Incorporation Procedure and Merger are consummated, the following
persons and entities will hold, collectively, approximately 52.3% of the
outstanding shares of TCI and, therefore, they will effectively have veto power
over those corporate actions requiring a super-majority vote of stockholders,
as well as other corporate actions requiring only a majority vote of
stockholders: the Board of Directors of TCI, the officers of TCI and certain
affiliates of TCI (including Basic Capital Management, Inc., currently the
advisor to both the Trust and TCI). Accordingly, the Merger could entrench the
present Board of Directors and will effectively give TCI's management the power
to block certain corporate transactions, as discussed more fully below under
"Proposed Incorporation Procedure and Merger -- Possible Negative
Considerations," --"Comparison of Principal Differences Between the Trust and
TCI".

Consummation of the Merger Could Trigger Defaults

Certain of the mortgage loans encumbering properties owned by TCI and the
Trust require or may require that TCI and the Trust obtain consent from lenders
prior to finalization of the Merger. In some instances, consummation of the
Merger would constitute a default under the mortgage loans requiring that TCI
and the Trust obtain a waiver from the lenders to avoid a possible default. If
either TCI or the Trust is unable to obtain required consents or waivers, the
affected loans may need to be refinanced or paid off, and the respective
company could incur fees or other costs and expenses in connection with such
refinancings, including the possibility that the substitute financing will be
at a higher interest rate.

Authorization to Issue Preferred Stock

The articles of incorporation of TCI authorize the issuance of up to
1,000,000 shares of preferred stock by action of the Board of Directors without
stockholder approval. The 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 TCI. See "Proposed Incorporation Procedure and Merger --
Comparison of the Securities of TCI and the Trust-- Preferred Stock".

The Board of Directors of TCI has authorized the creation and issuance of
6,000 shares of Series A Cumulative Convertible Preferred Stock, of which 5,829
shares were issued in connection with the acquisition of real property. See
"Proposed Incorporation Procedure and Merger -- Comparison of the Securities of
TCI and the Trust -- Preferred Stock". Any future issuance of preferred stock
could dilute the stock ownership or voting power of current stockholders.

Although no preferred stock has been issued or is being issued as part of
the Incorporation Procedure and the Merger, and although the current directors
of TCI have no present intention of issuing any additional shares of preferred
stock, preferred stock could be issued as a safeguard against acquisition of
TCI by diluting

16
<PAGE>

the stock ownership and voting power of a person or entity seeking to acquire
control of TCI. This could occur in at least one of two ways:

(1) by privately placing such preferred stock with purchasers
not hostile to the TCI Board of Directors to oppose an
unsolicited takeover bid; or

(2) by authorizing holders of a series of preferred stock to
vote as a class, either separately or with the holders of
shares of TCI common stock, on any merger, sale or exchange
of assets or any other extraordinary corporate transaction
involving TCI.

Effect of Certain Majority and Super-Majority Voting Provisions of TCI

Following the Merger, the Board of Directors and executive officers of TCI
and entities with which TCI is affiliated, including Basic Capital Management,
Inc., will collectively own approximately 52.3% of the outstanding shares of
TCI common stock. They will, therefore, have control over corporate actions
requiring the vote of a majority of the stockholders.

Even if such shareholdings were reduced below 50%, however, such entities
could still have effective veto power over the following actions based on the
super-majority voting provisions (i.e., provisions requiring more than a simple
majority vote) included in the articles of incorporation of TCI:

. the removal of directors,

. the amendment of the bylaws and certain key provisions of the
articles of incorporation of TCI, and

. the consummation of Business Combinations (as defined in the
articles of incorporation).

Because of these significant holdings by affiliates of TCI, all other
stockholders would effectively have to vote as a group to exercise veto power
over the actions requiring a super-majority vote of stockholders. See "Proposed
Incorporation Procedure and Merger -- Possible Negative Considerations," "--
Management after Incorporation Procedure and Merger -- The Director Removal
Provision" and "--Amendment Provisions".

The Trust has engaged, and TCI 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".

TCI's articles of incorporation generally permit related party transactions
if approved by a majority of the independent directors. 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 or whether such transactions are authorized by a majority of
unaffiliated trustees or approved by the Trust's shareholders. These specific
prohibitions and the general restrictions on transactions between the Trust and
certain related parties are described under "Proposed Incorporation Procedure
and Merger -- Business Activities after Incorporation Procedure and Merger --
Restrictions on Related-Party Transactions". Because TCI's Articles of
Incorporation contain no analogous prohibitions, the Merger will permit TCI
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.

There is a risk to stockholders that, following the Merger, related parties
may benefit from a related party transaction to the detriment of stockholders
if it is determined that the transaction was less beneficial to TCI than a
similar transaction with an unrelated party would have been. However, the Board
of Directors and officers of TCI will have a fiduciary duty to act in the best
interests of TCI and its stockholders. See "Proposed Incorporation Procedure
and Merger -- Comparison of Principal Differences Between the Trust and TCI".

17
<PAGE>

The Board of Trustees believes that the restrictions in TCI's articles of
incorporation will offer adequate protection to ensure the fairness and
propriety of transactions between TCI and related parties.

Market Price of TCI Common Stock

As part of the Merger, existing shareholders of the Trust would
automatically become stockholders of TCI upon the conversion of all shares of
CME Corporation into newly issued TCI common stock on the basis of the ratio of
1.181 shares of TCI common stock for each Trust share (the "Exchange Ratio").
However, there can be no assurance that the market price per share of the TCI
common stock after the Merger will be equal to the market price per share of
such shares before, or that the marketability of the TCI common stock will
remain consistent with the marketability of such shares prior thereto. Prices
for TCI common stock will be determined in the marketplace and may be
influenced by many factors, including investor perception of the changes
effected through the Merger.

Tax Risks

Continued Qualification as a REIT. TCI has elected to be treated as a REIT
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"). TCI has, in the opinion of TCI's management, qualified for
federal taxation as a REIT for each year subsequent to December 31, 1983.

Notwithstanding TCI's current qualification as a REIT, the articles of
incorporation of TCI do not require that TCI remain qualified as a REIT. At
present, the Board of Directors of TCI intends to continue electing REIT
treatment. However, should the Board of Directors change that policy, TCI would
be required to pay federal income tax on its taxable income at corporate rates.
Unless entitled to relief under certain statutory provisions, TCI also would
not be allowed to re-elect REIT status for the following four taxable years.
This would reduce the net earnings of TCI available for distribution to
stockholders because of the additional tax liability to TCI for the year or
years involved unless TCI had loss carryforwards. TCI might be required to
borrow funds or to sell certain of its investments to pay the tax due on any
distributions made.

Ad Valorem Tax Reassessments. A risk exists that consummation of the Merger
will cause an ad valorem tax reassessment on the properties held by the Trust
in some states.

Dilutive Effect of the Incorporation Procedure and the Merger

As a result of the issuance of shares of TCI common stock to shareholders of
the Trust, the Incorporation Procedure and the Merger may have a dilutive
effect on net income per share in the future. In addition, the issuance of
additional shares of TCI common stock to shareholders of the Trust will result
in a reduction in the ownership and voting interests of holders of TCI common
stock before the Merger. After the Merger, TCI shareholders will own
approximately 45% of all outstanding shares of TCI common stock and
shareholders of the Trust will own approximately 55% of all outstanding shares
of TCI common stock. Neither group of holders will have separate approval
rights with respect to any actions or decisions of TCI.

Potential Adverse Effects of Combining TCI and the Trust

TCI and the Trust are large enterprises with operations in a number of
different states. There can be no assurance that costs or other factors
associated with the integration of the two entities would not adversely affect
future combined results of operations or the benefits of expected costs
savings.

18
<PAGE>

Real property investments are subject to varying degrees of risk and are
relatively illiquid. Income from real property investments and TCI's ability to
make expected distributions to its stockholders may be adversely affected by
the following:

. the general economic climate,

. local conditions such as oversupply of rental properties or a
reduction in demand for rental properties in the area,

. the attractiveness of the properties owned by TCI to tenants,

. zoning or other regulatory restrictions,

. the ability of TCI to provide adequate maintenance and
insurance, and

. increased operating costs (including insurance premiums and
real estate taxes).

TCI would also be adversely affected if tenants were unable to pay rent or
TCI were unable to rent its properties on favorable terms. If TCI were unable
to promptly relet its rental properties or renew the leases for a significant
number of its rental properties, or if the rental rates upon such renewal or
reletting were significantly lower than expected rates, then TCI's funds from
operations and its ability to make expected distributions to stockholders may
be adversely affected. In addition, certain expenditures associated with each
equity investment (such as real estate taxes and maintenance costs) generally
are not reduced when there is a reduction in income from the investment.

Other Potential Conflicts of Interest

The real estate business is highly competitive, and both the Trust and TCI
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 or directors of certain other entities, each of
which is also advised by Basic Capital Management, Inc., and each of which has
business objectives similar to those of the Trust and TCI. Such trustees and
officers and Basic Capital Management, Inc. each owe a fiduciary duty to such
other entities as well as to the Trust and TCI under applicable law.

Additionally, the Trust and TCI also compete with other entities that are
affiliates of Basic Capital Management, Inc. and that may have investment
objectives similar to those of the Trust and TCI and that may compete with the
Trust and TCI in leasing, selling and financing real estate and mortgage notes.

In resolving any potential conflicts of interest which may arise, Basic
Capital Management, Inc. has informed the Trust and TCI that it intends to
continue to exercise its best judgment as to what is fair and reasonable under
the circumstances.

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GENERAL SHAREHOLDER INFORMATION

Shareholders of the Trust

General. This Joint Proxy Statement/Prospectus is furnished in connection
with the solicitation by the Board of Trustees of the Trust of proxies to be
used at the Trust special meeting for a vote upon a proposal to convert the
Trust from a California business trust into a California corporation, CME
Corporation, and to merge CME Corporation with and into TCI.

The Trust special meeting will be held at 10:00 a.m., Dallas time, on
September 28, 1999, at 10670 North Central Expressway, Suite 600, Dallas, Texas
75231. The Trust's financial statements for the year ended December 31, 1998
were audited by BDO Seidman, LLP. A representative from BDO Seidman, LLP will
be present at the Trust 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 Joint Proxy Statement/Prospectus and the
accompanying Proxy are first being mailed to Trust shareholders on or about
August 13, 1999.

If the Incorporation Procedure and Merger are approved at the Trust special
meeting, holders of Trust shares will automatically become shareholders of CME
Corporation (without any need to exchange share certificates or take any other
action). At the Trust special meeting, holders of Trust shares will be voting
on the Incorporation Procedure and the Merger as both shareholders of the Trust
and as shareholders of CME Corporation.

Shareholders Entitled to Vote. Only holders of record of issued and
outstanding Trust shares at the close of business on August 9, 1999 (the "Trust
Record Date"), are entitled to vote at the Trust special meeting and at any
adjournments thereof. At the close of business on June 30, 1999, there were
4,022,341 Trust shares outstanding, held of record by approximately 4,215
holders. Each holder is entitled to one vote for each Trust share held on the
Trust Record Date.

Voting of Proxies. When the enclosed proxy card is properly executed and
returned, the Trust shares represented thereby will be voted at the Trust
special meeting in accordance with the instructions noted thereon. Shareholders
may choose to vote for, against or abstain from voting on the Incorporation
Procedure and the Merger proposal in its entirety.

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

When a signed proxy card is returned with choices specified with respect to
voting matters, the Trust 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 Trust 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 Trust shares entitled to vote
at a meeting of shareholders, represented in person or by proxy, shall
constitute a quorum at the Trust special meeting. For the purposes of
determining the presence of a quorum at the Trust special meeting and the
number of votes cast with respect to the Incorporation Procedure and the
Merger, 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 Trust 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.

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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
approve the Incorporation Procedure and the Merger, Section 200.5 of the
California General Corporation Law requires an affirmative vote of the holders
of a majority of the outstanding Trust shares to approve the Incorporation
Procedure and the Merger. 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 Trust shares to approve the
Incorporation Procedure and the Merger. Because it does not, the California
General Corporation Law controls, and the Incorporation Procedure and the
Merger must be approved by the affirmative vote of the holders of a majority of
the outstanding Trust shares.

As of June 30, 1999, the trustees and executive officers of the Trust and
their affiliates collectively held approximately 58.6% of the outstanding Trust
shares. Accordingly, the trustees, executive officers of the Trust and their
affiliates will be able to approve, with respect to the Trust, the
Incorporation Procedure and the Merger on their own.

Dissenters' Rights. Under California law, shareholders of the Trust will not
have the right to dissent and obtain payment with respect to Merger unless
demands for such payment are received from shareholders holding 5 percent or
more of the outstanding Trust shares. As of June 30, 1999, there were 4,022,341
Trust shares outstanding. Consequently, no Trust shareholder will have the
right to dissent and receive payment for Trust shares in lieu of shares of TCI
common stock unless shareholders holding in the aggregate no less than 201,118
Trust shares file a demand that the Trust purchase those shares at their fair
market value. See "Proposed Incorporation Procedure and Merger -- Comparison of
the Securities of TCI and the Trust --Dissenters' Rights to Dissent and Obtain
Payment."

Revocation of Proxies. A proxy card is enclosed. Any shareholder who
executes and delivers the proxy card may revoke the authority granted under the
proxy at any time before 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
Trust special meeting.

Stockholders of TCI

General. This Joint Proxy Statement/Prospectus is also furnished in
connection with the solicitation by the Board of Directors of TCI of proxies to
be used at the TCI special meeting for a vote upon proposals to amend Article
TENTH of TCI's articles of incorporation and to merge CME Corporation with and
into TCI.

The TCI special meeting will be held at 10:00 a.m., Dallas time, on
September 28, 1999, at 10670 North Central Expressway, Suite 600, Dallas, Texas
75231. TCI's financial statements for the year ended December 31, 1998 were
audited by BDO Seidman, LLP. A representative from BDO Seidman, LLP will be
present at the TCI 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 Joint Proxy Statement/Prospectus and the
accompanying Proxy are first being mailed to stockholders on or about August
13, 1999.

Stockholders Entitled to Vote. Only holders of record of issued and
outstanding shares TCI common stock at the close of business on August 9, 1999
(the "TCI Record Date"), are entitled to vote at the TCI special meeting and at
any adjournments thereof. At the close of business on June 30, 1999, there were
3,880,014 shares of TCI common stock outstanding. Each holder is entitled to
one vote for each share of TCI common stock held on the TCI Record Date.

Voting of Proxies. When the enclosed proxy card is properly executed and
returned, the shares of TCI common stock represented thereby will be voted at
the TCI special meeting in accordance with the instructions noted thereon.
Stockholders may choose to vote for, against or abstain from voting on the
amendment to the articles of incorporation of TCI or the Merger proposals in
their entirety.

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<PAGE>

In the absence of other instructions, the shares of TCI common stock
represented by a properly executed and submitted proxy card will be voted in
favor of the amendment to the articles of incorporation of TCI and the Merger.

When a signed proxy card is returned with choices specified with respect to
voting matters, the shares of TCI common stock represented are voted by the
proxies designated on the proxy card in accordance with the stockholder's
instructions to the tabulator. A stockholder 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 stockholder 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 TCI special meeting. Proxy cards so marked
should not be mailed directly to TCI.

Vote Required for Approval. Pursuant to Section 2.06 of TCI's bylaws, a
majority of the issued and outstanding shares of TCI common stock entitled to
vote at a meeting of stockholders, represented in person or by proxy, shall
constitute a quorum at the TCI special meeting. For the purposes of determining
the presence of a quorum at the TCI special meeting and the number of votes
cast with respect to the amendment to the articles of incorporation of TCI and
the Merger, 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 TCI special
meeting may be adjourned from time to time until a quorum is obtained.
Stockholders are, therefore, urged to mark and sign the accompanying form of
proxy and return it promptly.

With respect to the amendment to the articles of incorporation of TCI,
Article SEVENTEENTH of TCI's articles of incorporation generally requires the
affirmative vote of 75% of the votes entitled to be cast by the holders of all
the shares of TCI common stock outstanding on the TCI Record Date to approve an
amendment to the articles of incorporation; but the 75% approval requirement
does not apply to any amendment recommended by more than 50% of the entire
Board of Directors of TCI. The Board of Directors of TCI has unanimously
approved the proposed amendment, and, accordingly, approval of the amendment by
the stockholders of TCI requires the affirmative vote of only a simple majority
of the votes entitled to be cast by the holders of all shares of TCI common
stock outstanding on the TCI Record Date.

To approve the Merger, Article TENTH of TCI's articles of incorporation
currently requires both the affirmative vote of a simple majority of the
outstanding shares of TCI common stock and the affirmative vote of 66 2/3% of
the outstanding shares of TCI common stock, excluding shares beneficially owned
by "Interested Shareholders," which for this purpose means American Realty
Trust, Inc. and its affiliates and associates. If the amendment to the articles
of incorporation of TCI is approved, then only the affirmative vote of a simple
majority of the outstanding shares of TCI common stock will be required to
approve the Merger.

As of June 30, 1999, the Board of Directors, executive officers of TCI and
their affiliates collectively held approximately 45.5% of the outstanding
shares of TCI common stock.

Dissenters' Rights. Under Nevada law, TCI'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 TCI
common stock is listed on the NYSE or is held of record by at least 2,000
persons. TCI common stock is listed on the NYSE.

Revocation of Proxies. A proxy card is enclosed. Any stockholder who
executes and delivers the proxy card may revoke the authority granted under the
proxy at any time before 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 stockholder may also revoke a proxy by attending and voting at the TCI
special meeting.

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<PAGE>

PROPOSED INCORPORATION PROCEDURE AND MERGER

The following description of the Incorporation Procedure and the Merger
describes the material provisions of the Merger Agreement, but does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached to this Joint Proxy Statement/Prospectus as
Appendix B. Stockholders of TCI and shareholders of the Trust are urged to
carefully review the Merger Agreement in its entirety.

Introduction

TCI and the Trust have entered into the Merger Agreement providing for the
Incorporation Procedure and the Merger. Pursuant to the Merger Agreement, the
Trust shall file articles of incorporation with the Secretary of State of the
State of California, pursuant to which each outstanding Trust share shall
become, without any additional action of any stockholder of the Trust, one
fully paid, nonassessable share of the common stock of CME Corporation, par
value $0.01 per share. Immediately thereafter, at the time specified in the
Merger Agreement (the "Effective Time"), CME Corporation will merge with and
into TCI, with TCI to be the surviving corporation. As a result of the
Incorporation Procedure and the Merger, each share of common stock of CME
Corporation outstanding immediately prior to the Effective Time will be
automatically converted into 1.181 shares of TCI common stock.

At June 30, 1999, there were 4,022,341 Trust shares outstanding. At June 30,
1999, there were 3,880,014 shares of TCI common stock outstanding. At the
Effective Time there will be no Trust shares (or CME Corporation shares)
outstanding and there will be, in the aggregate, approximately 8,550,130 shares
of TCI common stock outstanding. At the Effective Time, shareholders of the
Trust will own approximately 55%, in the aggregate, of all of the issued and
outstanding shares of TCI common stock, and stockholders of TCI will own
approximately 45%, in the aggregate, of all issued and outstanding shares of
TCI common stock.

The total number of shares of TCI common stock to be distributed to
shareholders of the Trust was determined in conjunction with the opinions
rendered by the financial advisors hired by both TCI and the Trust to evaluate
the companies. See "-- Opinions of Financial Advisors", below.

The proposed Merger is in all material respects identical to the merger
proposed in the Joint Proxy Statement/Prospectus dated May 12, 1999.

Background of the Incorporation Procedure and Merger

The Board of Trustees of the Trust and the Board of Directors of TCI have
unanimously approved the Incorporation Procedure and the Merger after
conducting a thorough evaluation of strategic alternatives available to each of
them.

In June 1997, the Board of Trustees of the Trust and the Board of Directors
of TCI directed that Basic Capital Management, Inc. study possible methods for
long term growth of the companies including the possible consolidation of the
companies with each other as well as other companies. Basic Capital Management,
Inc. commenced a review of alternative methods to restructure the portfolios
and operations of the Trust and TCI. Management of Basic Capital Management,
Inc. sought to determine a course of action which would result in one or more
entities which would be more attractive to the investment community and be able
to provide increased value to the stockholders.

On September 9, 1997, Basic Capital Management, Inc. provided the Boards
with long term business plan proposals for each of the companies. The proposals
included the possibility of mergers with other unspecified REITS or spin-offs
of real estate assets into new entities. The Boards met and reviewed these
proposals and directed Basic Capital Management, Inc. to continue the review of
such possible transactions. The Boards met again on December 11, 1997, and
reviewed a new proposal for long term strategy for each of the Trust and TCI.
Basic Capital Management, Inc. recommended that the Trust be merged into TCI.
The Boards decided to

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<PAGE>

wait until after the four new Board members joined the Boards in January and
February 1998 to consider this matter.

The Boards met again on February 10, 1998, with the new board members in
attendance. The board members directed Basic Capital Management, Inc. to
determine what would be involved in the proposed merger including the costs
which would be incurred.

On February 25, 1998, Basic Capital Management, Inc. provided the Boards
with additional information on the proposed merger as well as the various steps
which would need to be taken.

On April 9, 1998, the Boards met and authorized Basic Capital Management,
Inc. to proceed with the engagement of investment banking firms and legal
counsel to evaluate and advise the Boards on the proposed merger transaction.

On May 14, 1998, the Board of Trustees of the Trust approved the engagement
of Strategic Law Partners to serve as the California legal counsel to the Board
of Trustees in connection with the merger transaction. On May 29, 1998, the
Board of Trustees of the Trust approved the engagement of Sutro & Co. to
provide investment banking services in connection with the merger transaction.

On May 14, 1998, the Board of Directors of TCI approved the engagement of
Kummer Kaempfer Bonner and Renshaw to serve as the Nevada legal counsel to
TCI's Board of Directors in connection with the merger transaction. On May 12,
1998, the Board of Directors approved the engagement of Wedbush Morgan
Securities to provide investment banking services in connection with the merger
transaction.

On June 2, 1998, representatives of Sutro & Co. and Wedbush Morgan
Securities visited Basic Capital Management, Inc.'s offices to interview key
personnel of the Trust and TCI.

On June 19, 1998, the Trust and TCI engaged Marshall & Stevens Incorporated
to provide current valuations of the real property owned by the Trust and TCI.
On August 13, 1998, the valuations were provided to the Trust and TCI.

On August 4, 1998, representatives of Wedbush Morgan Securities met with the
TCI Board of Directors and reviewed the methods being used to analyze the
values of TCI and the Trust. Also on August 4, 1998, representatives of Sutro &
Co. met with the Trust's Board of Trustees and reviewed the methods they were
employing to determine the values of TCI and the Trust.

On September 10, 1998, representatives of Wedbush Morgan Securities met with
the Board of Trustees of the Trust. The Board of Trustees was provided with a
review of the initial results of the various analyses performed by them.

On September 10, 1998, representatives of Sutro & Co. met with the Board of
Directors of TCI. The Board of Directors was provided with a review of the
various analyses performed by them.

On September 21, 1998, the Board of Trustees of the Trust and the Board of
Directors of TCI were informed by their respective investment banking firms
that they each recommended as fair an exchange ratio of 1.181 shares of TCI
common stock for each share of the Trust. The Board of Trustees of the Trust
and the Board of Directors of TCI each approved the recommended exchange ratio.
On September 21, 1998, the Trust and TCI executed a Letter of intent and
distributed a press release announcing the matter.

On November 18, 1998, the Trust and TCI executed the Merger Agreement.

On June 29, 1999, shareholders of the Trust approved the Merger and the
Merger Agreement.

On June 29, 1999, the TCI special meeting of stockholders was adjourned to
July 15, 1999.

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<PAGE>

On July 15, 1999, the TCI special meeting of stockholders was adjourned to
July 29, 1999.

At the July 29, 1999, meeting, sufficient affirmative votes by holders of
TCI common stock were present to approve the Merger by 66 2/3% of the votes
entitled to be cast by all stockholders. Also, of the holders that were present
by proxy or in person, other than American Realty Trust, Inc. and its
affiliates and associates, more than 66 2/3% voted to approve the Merger.
However, due to the large number of stockholders who did not return their
proxy, the Merger failed to be approved by 66 2/3% of the outstanding shares of
TCI common stock, excluding the shares held by American Realty Trust, Inc. and
its affiliates and associates.

On July 28, 1999, the Board of Directors of TCI voted unanimously to amend
Article TENTH of TCI's articles of incorporation to allow approval of the
Merger by a simple majority of the outstanding shares of TCI common stock. That
amendment is being submitted to TCI's stockholders for approval. Also, the
Merger is being resubmitted at this time for a vote by both shareholders of the
Trust and stockholders of TCI.

Overview of Incorporation Procedure and Merger

Shareholders of the Trust should recognize that the Incorporation Procedure
and the Merger 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 and the
Merger will have the following effects, each of which may be viewed as limiting
stockholders' rights: (i) the directors of TCI, unlike the trustees of the
Trust, are entitled to indemnification for liability arising from gross
negligence and reckless disregard of duty; (ii) TCI has adopted 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 TCI by a merger, tender offer, proxy contest or removal of incumbent
management, even though certain stockholders of TCI might desire such a change
in control; and (iii) certain protections available under California law will
be eliminated.

Stockholders of TCI should recognize that the Incorporation Procedure and
the Merger will result in the dilution of their existing interests in TCI as a
result of the shares of TCI common stock to be issued to the shareholders of
the Trust. See "-- Principal Reasons for the Incorporation Procedure and the
Merger -- Acquisition Safeguards," "-- Possible Negative Considerations," "--
Certain Potential Conflicts of Interest" and "-- Comparison of Principal
Differences Between the Trust and TCI".

Because no explicit statutory authority permits a California business trust
to merge directly with and into a Nevada corporation, the Incorporation
Procedure and the Merger would be accomplished by converting the Trust into a
California corporation (CME Corporation) and then merging CME Corporation (as
successor to the Trust) with TCI. As of the time of the Merger, and because the
conversion of the Trust into CME Corporation will occur immediately prior to
the Merger, CME Corporation will have no significant business, assets or
liabilities of any consequence and no operating history.

The Incorporation Procedure and Merger will be accomplished pursuant to the
terms of the Merger Agreement, a copy of which is attached as Appendix B to
this Joint Proxy Statement/Prospectus, and which is incorporated by reference
and made a part of this document. As a result of the Merger, (i) CME
Corporation will cease to exist as a separate entity; (ii) TCI, by operation of
law, will succeed to all the rights and properties, and be subject to all the
obligations and liabilities, of the Trust including, without limitation, those
under (a) Trust Advisory Agreement, (b) the current property management
agreement with Carmel Realty Services Ltd. and (c) the current brokerage
agreement with Carmel Realty, Inc.; and (iii) existing shareholders of the
Trust would automatically become stockholders of TCI by conversion of all
shares of CME Corporation for newly issued shares of TCI common stock on the
basis of a conversion ratio of 1.181 shares of TCI common stock for each Trust
share.

Shareholders of the Trust will be required to surrender their Trust share
certificates in exchange for TCI common stock certificates, but should not do
so at this time. Shareholders who do not surrender their Trust

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<PAGE>

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 with respect
to the Incorporation Procedure and the Merger except under limited
circumstances. See "-- Comparison of the Securities of TCI and the Trust --
Dissenters' Rights to Dissent and Obtain Payment".

The discussion of the material terms of the Incorporation Procedure and the
Merger contained in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the Merger Agreement. The proposed Incorporation
Procedure and the Merger are a single unified proposal to be approved or
rejected by the shareholders of the Trust and stockholders of TCI in its
entirety. If the Incorporation Procedure and the Merger are not approved, the
Trust will not convert to a California corporation and the Merger with TCI and
the attendant conversion of securities will not occur. The Trust would continue
to operate as an unincorporated California business trust, subject to the
Declaration of Trust.

No change in TCI's continued qualification for taxation as a REIT under the
Code is expected to result from the Incorporation Procedure and the Merger or
TCI's operation of the Trust's business following the Incorporation Procedure
and the Merger.

Consummation of the Incorporation Procedure and the Merger is contingent
upon stockholder approval. For shareholders of the Trust, pursuant to Section
3.5 of the Declaration of Trust, the affirmative vote of the holders of a
majority of the outstanding Trust shares represented at the Trust special
meeting of shareholders will be required to approve the Incorporation Procedure
and the Merger. In addition, Section 200.5 of the California General
Corporation Law requires a vote of a majority of the outstanding Trust shares
to approve the Incorporation Procedure and the Merger, which exceeds the voting
requirement for aspects of the Incorporation Procedure and the Merger provided
for in the Declaration of Trust.

For stockholders of TCI, if the amendment to the articles of incorporation
of TCI is approved, approval of the Merger will require the affirmative vote of
a simple majority of the outstanding shares of TCI common stock. However, if
the amendment to the articles of incorporation of TCI is not approved, then
approval of the Merger will require the affirmative vote of both the holders of
a majority of the outstanding shares of TCI common stock and the holders of 66
2/3% of the outstanding shares of TCI common stock other than those held by
American Realty Trust, Inc. and its affiliates and associates. Holders of
shares of TCI preferred stock are not entitled to vote on the Merger.

The Board of Trustees and the Board of Directors anticipate consummating the
Incorporation Procedure and the Merger as promptly as practicable after
approval by the shareholders of the Trust and stockholders of TCI.

Principal Reasons for the Incorporation Procedure and the Merger;
Recommendations of the Boards

The Board of Directors of TCI and the Board of Trustees of the Trust have
unanimously approved the Merger as in the best interest of TCI, the Trust and
their respective stockholders. The following discussions identify the principal
reasons underlying the unanimous approvals by both the Board of Directors of
TCI and the Board of Trustees of the Trust.

TCI

The Board of Directors of TCI has determined the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the
best interests of the holders of shares of TCI common stock. In reaching this
determination, the Board of Directors concluded that the Merger was likely to
increase the value of each stockholder's investment in TCI over what that value
would have been had TCI not agreed to the

26
<PAGE>

Merger and the opportunities created by the Merger to increase stockholder
value more than offset the risk inherent in the Merger. In reaching this
conclusion, the Board of Directors considered that the Merger would:

(a) create a REIT with the same management team responsible for
the performance to date continuing to operate the entity
after the consolidation with future prospects for growth,
income and asset values;

(b) create a larger combined enterprise with total assets with
book value in excess of $665 million with complimentary
geographic real estate assets;

(c) permit the realization of administrative and capital expense
efficiencies in connection with the joint development of the
assets of TCI and the Trust in the future to generate cash
available for distribution reflective of the true value of
the properties spreading the combined overhead over a
greater number of assets; and

(d) create an opportunity for the next several years for the
combined entities' stockholders to achieve a substantial
market premium without disrupting the operation of the
properties of either entity.

In addition, the Board of Directors considered Basic Capital Management,
Inc.'s position with respect to the Merger. In Basic Capital Management, Inc.'s
view, TCI's best strategic alternative is to combine with another REIT to
create an enterprise with the scale and scope of operations necessary to
compete effectively in the industry. The Board of Directors considered Basic
Capital Management, Inc.'s conclusion that a combined company would have an
improved cost structure which would allow it to better meet competitive
challenges in an industry that is likely to experience further consolidation
and substantially increased competition. In making its determination, the Board
of Directors also considered the view expressed by Basic Capital Management,
Inc. that entities with significant scale and scope will be likely to attract
the most desirable investment and financing opportunities as the real estate
industry continues to evolve. The Board of Directors further evaluated the
conclusion of Basic Capital Management, Inc. that a significant alignment
existed between the strategic prospective of TCI and the Trust which share the
same management and similar business philosophies including mutual emphasis on
real properties located in several different states.

The Board of Directors weighed the advantages and opportunities against the
following risks associated with the Merger:

(a) The challenges inherent in the combination of two business
enterprises the size of the Trust and TCI and the possible
resulting diversion of management attention for an extended
period of time (which risk is lessened by the fact of the
common management of both entities); and

(b) The risk associated with a greater concentration of assets
in real estate and the risk incident to ownership and
financing of that real estate and interests therein,
including the general illiquidity of real estate
investments.

In reaching the determination that the terms of the Merger were fair to and
in the best interests of TCI's stockholders, the Board of Directors also
considered a number of additional factors, including its knowledge of the
Trust's business and discussions with the Trust's management concerning the
results of TCI's due diligence investigation of the Trust, the economic and
regulatory environment for real estate, the strategic, operational and
financial opportunities and risks associated with the Merger and the terms of
the Merger Agreement, the historical and current market prices of the Trust
shares and the opinion of TCI's financial advisor, Wedbush Morgan Securities,
(which opinion was confirmed in writing on September 21, 1998), to the effect
that as of September 21, 1998 the Exchange Ratio is fair to TCI and its
stockholders from a financial point of view. A copy of Wedbush Morgan
Securities' written opinion to the Board of Directors dated as of September 21,
1998 is attached as Appendix "C" to this Joint Proxy Statement/Prospectus.

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<PAGE>

The foregoing discussion of the information and factors which were given
weight by the Board of Directors is not intended to be exhaustive but is
believed to include all material factors considered by the Board of Directors.
The Board of Directors did not assign specific weights to the foregoing factors
and individual directors may have given different weights to different factors.
The Board of Directors, however, unanimously approved the Merger Agreement and
all of the independent directors recommend to the stockholders that they
approve and adopt the Merger Agreement and approve the transactions
contemplated thereby, including the issuance of shares of TCI common stock in
the Merger.

All of the independent directors of TCI recommend that TCI stockholders vote
for approval and adoption of the amendment to the articles of incorporation of
TCI and the Merger Agreement and approval of the transactions contemplated in
the Merger Agreement, including the issuance of shares of TCI common stock
pursuant to the Merger Agreement.

The Trust

The Trust's Board of Trustees has determined that the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the
best interests of, the Trust and its shareholders. In reaching this
determination, the Board of Trustees gave significant consideration to a number
of factors including, without limitation, the factors referred to below. In
view of the wide variety of factors bearing on its decision, the Board of
Trustees did not consider it practical to, nor did it attempt to, quantify or
otherwise assign relative weight to the factors it considered in reaching its
decision. The Board of Trustees received the advice of independent counsel
throughout its consideration of the Merger Agreement.

Such factors considered by the Board of Trustees included the following:

Opportunity for Market Premium. The Board of Trustees considered that the
Merger would create an opportunity for the stockholders of the combined entity
to achieve a substantial market premium without disrupting the operation of
either entity. The Board of Trustees also believed that the combined entity
would be able to attract greater attention from the financial markets that
could, over time, increase investor interest in the combined entity's stock. As
well, the Board of Trustees considered it beneficial that the shares of TCI
common stock are listed for trading on the New York Stock Exchange.

Opinion of Sutro & Co.; Market Premium. The Board of Trustees viewed as
favorable to its decision the opinion of Sutro & Co. to the effect that as of
September 21, 1998 the Exchange Ratio is fair to holders of Trust shares from a
financial point of view. The Board of Trustees also considered the oral and
written presentations made to it by Sutro & Co. A copy of Sutro & Co.'s written
opinion to the Board of Trustees dated as of September 21, 1998, is attached as
Appendix "D" to this Joint Proxy Statement/Prospectus.

The Board of Trustees reviewed the historical market prices and recent
trading activities of the Trust shares and TCI common stock. The Board of
Trustees considered as favorable to its decision that the per share value
consideration to be received by the Trust's shareholders in the Merger
represented a fair exchange for the per share value of the Trust shares.

Basic Capital Management, Inc.'s View as Advisor. The Board of Trustees
considered Basic Capital Management, Inc.'s view that the Trust's best
strategic alternative is to combine with another REIT to create an enterprise
with the scale and scope of operations necessary to compete effectively in the
industry. The Board of Trustees evaluated Basic Capital Management, Inc.'s
conclusion that such combined company would have an improved cost structure
which would allow it to better meet competitive challenges in an industry that
is likely to experience further consolidation and substantially increased
competition. In making its determination, the Board of Trustees also considered
the view expressed by Basic Capital Management, Inc. that entities with
significant scale and scope will be likely to attract the most desirable
investment and financing opportunities as the real estate industry continues to
evolve. The Board of Trustees also weighed the conclusion of Basic Capital
Management, Inc. that a significant alignment existed between the strategic
prospective of TCI and the

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Trust which share the same management and similar business philosophies
including mutual emphasis on real properties located in several different
states.

The Trust's Business, Financial Condition and Prospects. In evaluating the
Merger, the Board of Trustees considered information with respect to the
business, financial condition and results of operation of the Trust, as well as
the Trust's prospects for growth in view of industry and market conditions. The
Board of Trustees considered the constraints on the Trust's ability to raise
additional capital to take advantage of attractive opportunities due to its
trust structure.

TCI's Business, Financial Condition and Prospects. The Board of Trustees
considered, among other things, information provided by Basic Capital
Management, Inc. with respect to the business, financial condition and results
of operation of TCI. Such consideration included, among other things, TCI's
historically increasing earnings growth and prospects for continued growth,
TCI's relatively strong borrowing capacity and lower capital costs, the
strength and experience of the senior management team which is the same
management team which will remain in place following the Merger, TCI's
interests in real property operations and the markets in which it competes. The
Board of Trustees also considered risks associated with the proposed Merger
including, among other things, the possibility that the Merger will not be
consummated, diversion of management attention from operational matters as a
result of the proposed Merger, the impact of limitations in the Merger
Agreement on the Trust's ability to undertake significant new initiatives prior
to the Effective Time, the effect of rising levels of competition on the
Trust's existing properties and the possibility that expected operating
benefits from the Merger would be more difficult to achieve than expected.

Alternative Transactions. The Board of Trustees considered strategic
alternatives other than a combination with TCI, such as possible joint ventures
or acquisitions, and concurred with Basic Capital Management, Inc.'s view that
none of the alternatives considered would offer as much value to the holders of
Trust shares as a combination with TCI. The Board of Trustees also determined
that, taking into account, among other things, preliminary inquiries of other
possible combination candidates, the desire to continue the successful services
of Basic Capital Management, Inc. and other legal considerations, that it was
unlikely that the Trust would be able to negotiate a combination with another
entity on terms as attractive to the proposed Merger with TCI.

Terms of the Merger Agreement. The Board of Trustees reviewed presentations
from, and discussed the terms and conditions of the Merger Agreement with,
Basic Capital Management, Inc. and representatives of its other financial and
legal advisors. Among other things, the Board of Trustees considered the fact
that the Merger Agreement provides a fixed value of the consideration to be
received by the holders of Trust shares and the potential advantages and
disadvantages associated therewith. The Board of Trustees also gave
consideration to the fact that the Merger would be a tax-free transaction to
the holders of Trust shares (except with respect to any cash received for
fractional shares) and the fact that the Merger Agreement would permit
continued payment of dividends to the holders of Trust shares prior to the
Effective Time of the Merger. The Board of Trustees also considered the
possible effect of interim operating covenants and restrictions which would
apply to the operations of the Trust and TCI during the period from the signing
of the Merger Agreement to the Effective Time. The Board of Trustees also
weighed and found reasonable the views of Basic Capital Management, Inc. and
advisors that the various provisions were not preclusive of any opportunities
the Trust might encounter prior to the Effective Time.

Acquisition Safeguards. Taking into account the negative considerations set
forth below under "Possible Negative Considerations", the Board of Trustees
also endorsed the Incorporation Procedure and the Merger because it will afford
its investors certain safeguards against acquisition of TCI 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 TCI to negotiate in good faith and to submit a
proposal that is fair and equitable to TCI and all its stockholders. See "--
Management After Incorporation Procedure and Merger -- The Director Removal

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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 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

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"-- 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 the
Trust and its shareholders to encourage potential acquirors to negotiate
directly with the Board of Directors of TCI and to submit proposals that are
fair and equitable to TCI 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 TCI, if confronted by a proposal from a third party
that has acquired a significant block of shares of TCI common 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 and the Merger should not prevent acquisition proposals
at a price reflective of a true value that are fair and equitable to all
stockholders. None of the proposed acquisition safeguards would prevent any
person from making a tender offer to TCI's stockholders or prevent any
stockholder from accepting such an offer.
The Incorporation Procedure and the Merger do 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 Trustees -- might be thwarted. In any event, it is
unlikely that the Trust 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
move forward with the Incorporation Procedure and to merge with TCI which has
already adopted the acquisition safeguards.

Greater Legal Certainty. The trustees urge shareholders to adopt the
Incorporation Procedure and the Merger because it will merge the business of
the Trust with TCI which has a 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,
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 stockholders 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 stockholders, 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.

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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.

The trustees have unanimously approved the Incorporation Procedure and the
Merger with TCI, a Nevada corporation, 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 and the Merger are 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 (similar in many respects 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 TCI, coupled
with the existence of a growing body of Nevada corporate law, will allow the
planning of 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 TCI, in part because Nevada corporate law
provides, among other things, for a greater degree (and greater clarity) of
indemnification of directors and officers than is found with respect to
California business trusts. The Trust will also avoid significant annual
franchise taxes assessed in certain other states of incorporation. Further,
TCI, as a corporation incorporated in Nevada, is not required to pay annual
franchise or income taxes in Nevada. The only annual corporate fee in Nevada
which TCI is required to pay is an $85.00 filing fee.

All of the independent trustees of the Trust recommend that the Trust
shareholders vote for approval and adoption of the Merger Agreement and the
Incorporation Procedure and Merger and the related transactions.

Opinions of Financial Advisors

TCI

TCI has retained Wedbush Morgan Securities (the "TCI Financial Advisor") to
act as its independent financial advisor with respect to the Merger. The TCI
Financial Advisor delivered its written opinion to the Board of Directors to
the effect that as of September 21, 1998 the Exchange Ratio is fair to TCI and
the holders of shares of TCI common stock, from a financial point of view.

A copy of the full text of the opinion of the TCI Financial Advisor, dated
as of September 21, 1998, which sets forth the assumptions made, matters
considered, and limitations on the review undertaken in connection with the
opinion, is attached hereto as Appendix C and is incorporated herein by
reference with the consent of the TCI Financial Advisor. This summary
discussion of the opinion of the TCI Financial Advisor is qualified in its
entirety by reference to the full text of the opinion. The engagement of the
TCI Financial Advisor and its opinion are for the benefit of the Board of
Directors of TCI and its opinion was rendered to the Board of Directors of TCI
in connection with its consideration of the Merger. The TCI Financial Advisor
opinion is directed only to the fairness of the Exchange Ratio from a financial
point of view to TCI and the holders of shares of TCI common stock and does not
address any other aspect of the Merger. The opinion is not intended to, and
does not constitute, a recommendation to any holder of shares of TCI common
stock as to whether such stockholder should vote for the Merger at the TCI
special meeting.

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Holders of shares of TCI common stock are urged to read the opinion of the
TCI Financial Advisor in its entirety.

Analyses Conducted by the TCI Financial Advisor. In arriving at its opinion,
the TCI Financial Advisor reviewed and analyzed, among other things: (1) a
draft of the Merger Agreement and specific terms of the Merger, (2) certain
publicly available business and financial information relating to TCI and the
Trust which the TCI Financial Advisor deemed to be relevant, (3) certain
historical and projected financial and operating information with respect to
the business and operations of TCI and the Trust furnished to the TCI Financial
Advisor by the management of TCI and the Trust, (4) appraisals of real estate
assets of both TCI and CMET as prepared by the firm Marshall & Stevens
Incorporated ("Marshall & Stevens"), (5) the market prices, trading history,
and valuation multiples for the shares of TCI common stock and the Trust shares
and a comparison of them relative to each other, as well as with those of
certain publicly traded companies that the TCI Financial Advisor deemed to be
relevant, (6) the proposed financial terms of the Merger and a comparison of
them with the terms of certain other transactions which the TCI Financial
Advisor deemed to be relevant, and (7) other such financial studies and
analyses and such other financial, economic and market criteria as the TCI
Financial Advisor deemed appropriate in arriving at its opinion. In addition,
the TCI Financial Advisor had discussions with the management of TCI and the
Trust concerning their respective businesses, operations, assets, liabilities,
financial conditions and their assessment of the potential cost savings,
operating synergies, revenue enhancements and strategic benefits of the Merger.

The TCI Financial Advisor relied, without any independent evaluation or
appraisal, on the Marshall & Stevens appraisals. The TCI Financial Advisor also
accepted, without independent investigation, supplemental information and
suggested adjustments recommended by TCI and the Trust. The TCI Financial
Advisor understood that while Marshall & Stevens did not reissue its
appraisals, Marshall & Stevens had been informed of this information and raised
no objections to the adjustments.

In arriving at its opinion, the TCI Financial Advisor assumed and relied
upon the accuracy and completeness of all financial and other information and
data used by the TCI Financial Advisor without assuming any responsibility for
independent investigation and verification of such information. The TCI
Financial Advisor further relied upon the assurances of the management of both
TCI and the Trust that they were not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of TCI and the Trust, the TCI Financial Advisor assumed
that such projections had been reasonably prepared in good faith on a basis
reflecting the best currently available estimates and judgments of the
respective management of TCI and the Trust regarding, among other items,
management's assessment regarding the lack of projected cost savings, operating
synergies, revenue enhancements expected to result from a combination of the
businesses, and that TCI, the Trust and the combined company will perform
substantially in accordance with such projections. The TCI Financial Advisor
further assumed that all conditions of the Merger Agreement will be satisfied
and not waived.

The opinion of the TCI Financial Advisor relates to the relative values of
TCI and the Trust. The TCI Financial Advisor did not express any opinion as to
what the prices of the shares of TCI common stock will trade or otherwise be
transferable subject to the Merger. The TCI Financial Advisor did not make any
physical inspection of the property or assets of TCI or the Trust, or make any
evaluations or appraisals of the assets or liabilities of TCI or the Trust. The
TCI Financial Advisor was not requested to consider, and the opinion does not
address, the relative merits of the Merger as compared to any alternative
business strategies that might exist for TCI or any other transaction in which
TCI might engage. The TCI Financial Advisor did not express any opinion
regarding the tax or accounting consequences of the Merger to TCI or the
stockholders of TCI.

The TCI Financial Advisor only participated in the negotiation of the
Exchange Ratio and did not participate in any other aspect of the Merger. The
TCI Financial Advisor and the Trust Financial Advisor together arrived at the
Exchange Ratio of 1.181 shares of TCI common stock for each Trust share. The
TCI Financial Advisor was not authorized to solicit, and did not solicit,
interests from any third party.

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The opinion of the TCI Financial Advisor is based upon financial, economic,
market and other conditions as in effect on, and the information made available
to the TCI Financial Advisor as of, September 21, 1998. Events occurring after
September 21, 1998 could materially affect the assumptions used in preparing
the opinion. The TCI Financial Advisor has not updated, reaffirmed or revised
the opinion or otherwise commented upon any events occurring after September
21, 1998.

The TCI Financial Advisor was selected to render its opinion as to the
fairness of the Exchange Ratio from a financial point of view based upon its
qualifications, expertise and reputation. The TCI Financial Advisor is an
investment banking firm and member of the New York Stock Exchange and other
principal stock exchanges in the United States, and is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and other transactions.

Summary of Analyses of the TCI Financial Advisor. While the following
summaries describe the principal elements of the analyses and examinations that
the TCI Financial Advisor performed in arriving at its opinion, they are not a
comprehensive description of all analyses and examinations actually conducted
by the TCI Financial Advisor. The preparation of a fairness opinion involves
various determinations of the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not susceptible to partial
analysis or summary description. Each of the analyses conducted by the TCI
Financial Advisor was carried out in order to provide a different perspective
on the transaction and to add to the total mix of information available. The
TCI Financial Advisor did not form a conclusion as to whether any individual
analysis, considered alone, supported or failed to support an opinion as to
fairness from a financial point of view. Rather, in reaching its conclusion,
the TCI Financial Advisor considered the results of the analyses as a whole and
did not place particular reliance or weight on any individual factor.
Therefore, selecting portions of the analyses and the factors considered,
without considering all such analyses and factors, would create an incomplete
or misleading view of the valuation process underlying its opinion. The
valuations resulting from any particular analysis described herein should not
be taken to be the TCI Financial Advisor's view of the actual value or
predicted future value of the shares of TCI common stock or the Trust shares.

In performing its analyses, the TCI Financial Advisor made numerous
assumptions with respect to industry performance and general business and
economic conditions such as industry growth, inflation, interest rates and
various other matters, many of which are beyond the control of TCI, the Trust
and the TCI Financial Advisor. Any estimates contained in the TCI Financial
Advisor's analyses are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than indicated by
such analyses. Such analyses were prepared solely as part of the TCI Financial
Advisor's analysis of the fairness of the Exchange Ratio to TCI's stockholders.
Additionally, estimates of the values of the business and securities do not
purport to be appraisals of the assets or market values of TCI or the Trust, or
their respective securities, nor do they necessarily reflect the prices at
which such businesses securities may actually be sold.

The following is a summary of the material financial analyses performed by
the TCI Financial Advisor in connection with its opinion:

Summary of the Proposed Transaction. The TCI Financial Advisor reviewed the
terms of the Merger, including the Exchange Ratio and the implied aggregate and
per share transaction value. Based on the Exchange Ratio and TCI's closing
stock price of $13.25 on September 21, 1998, the TCI Financial Advisor
calculated an implied aggregate transaction value of approximately $62.2
million, and an implied transaction value per share of TCI common stock of
approximately $15.50.

Historical Trading and Exchange Ratio Analysis. The TCI Financial Advisor
analyzed the ratios of closing prices per share of the Trust shares to shares
of TCI's common stock as reported on the NASDAQ National Market and the New
York Stock Exchange respectively, during various periods. The TCI Financial

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Advisor observed that for the 30 trading day period ending September 21, 1998,
the average ratio of closing stock prices of TCI to the Trust was 1.221. For
the 50 day trading period ending September 21, 1998, the average ratio of
closing stock prices of TCI to the Trust was 1.190. For the 90 day trading
period ending September 21, 1998, the average ratio of closing stock prices of
TCI to the Trust was 1.149.

Analysis of Selected REIT Merger Transactions. The TCI Financial Advisor
reviewed certain publicly available information regarding selected merger and
acquisition transactions: (1) involving REITS concentrating in a diversified
portfolio of properties and (2) with similar total asset values. The selection
of the comparable transactions involved complex considerations and judgments
concerning similarities and differences in financial, operational and other
characteristics that could affect the acquisition value of potentially
comparable REITs. None of the REITs included in the analysis of selected merger
transactions was identical to TCI and none of the transactions was identical to
the Merger.

The transactions deemed appropriate for comparison (the "Comparison Merger
Transactions") involved the following sets of institutions (identified by
acquirer/acquired): United Dominion Realty / South West Property Trust, Camden
Property Trust / Paragon Group, Inc., Equity Residential Properties / Wellsford
Residential Property, Post Properties, Inc. / Columbus Realty Trust, Equity
Residential Properties / Evans Withycombe Residential, Apartment Investment /
Ambassador Apartments, Inc., Camden Property Trust / Oasis Residential, Inc.,
Bay Apartment Communities / Avalon Properties, Inc., Security Capital Pacific
Trust / Security Capital Atlantic, Inc.

For each of the Comparison Merger Transactions, the TCI Financial Advisor
analyzed the consideration paid relative to the book value of the stockholders'
equity of the target and the last twelve months ("LTM") Funds From Operations
("FFO" -- defined as net income, plus depreciation and amortization, minus any
gains and losses from property sales and extraordinary items) of the target.
The TCI Financial Advisor used this analysis to evaluate the consideration paid
for the Trust relative to the book value of stockholders' equity and LTM FFO of
the Trust.

Discounted Cash Flow Analysis. The TCI Financial Advisor performed several
variations of discounted future Funds Available for Distribution ("FAD")
valuation methods in its evaluation of the Exchange Ratio. Upon consideration
of the historical FAD to the common stockholders for each of TCI and the Trust,
the uncertainty involved in projecting the future FAD for each of these
companies, and the lack of historical correlation between the public market
valuations of each of these companies and their respective FAD, the TCI
Financial Advisor deemed the discounted future FAD valuation methodology to be
non-meaningful in the evaluation of the Exchange Ratio.

Comparable REIT Analysis. Using publicly available information, the TCI
Financial Advisor compared certain financial, operating and stock market data
of TCI with similar data of selected publicly traded companies in the real
estate industry of a size considered by the TCI Financial Advisor to be
appropriate for comparison to TCI. Although such REITs were considered similar
to TCI, none of them has the same management, make up, and assets as TCI.

The TCI Financial Advisor considered the following REITs appropriate for
comparison (the "Comparison REITs") to TCI: Banyan Strategic Realty Trust
("BSRTS"), BRT Realty Trust ("BRT"), Camden Property Trust ("CPT"), Colonial
Properties Trust ("CLP"), Glenborough Realty Trust, Inc. ("GLB"), Mid-America
Apartment Communities Inc. ("MAA"), National Income Realty Trust ("NIRTS"),
Pacific Gulf Properties Inc. ("PAG"), Sizeler Property Investors ("SIZ"), Town
& Country Trust ("TCT"), and Walden Residential Properties, Inc. ("WDN").

For each of the Comparison REITs, the TCI Financial Advisor analyzed the
market value of stockholders' equity relative to the book value of the
stockholders' equity of the Comparison REIT and the LTM FFO of the REIT. The
TCI Financial Advisor used this analysis to evaluate the consideration paid for
the Trust relative to the book value of stockholders' equity and LTM FFO of the
Trust.

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Pro Forma Merger Analysis/Contribution Analysis. Based on projections and
various other assumptions provided by TCI and the Trust, including estimated
cost savings and revenue enhancements expected to result from the Merger, the
TCI Financial Advisor and analyzed the pro forma impact of the Merger on a
variety of projected financial measures including, among others, the Trust's
earnings per share ("EPS"), book value per share and tangible book value per
share during the calendar years 1999 through 2000 relative to TCI's on a stand-
alone basis.

The TCI Financial Advisor also performed a pro forma sensitivity analysis by
varying many of the underlying assumptions of the analysis including, among
others, the cost savings, revenue enhancement, and growth estimates of TCI, the
Trust and the combined company as part of the analysis of the estimated pro
forma effect of the Merger.

The TCI Financial Advisor examined the estimated relative contributions of
the TCI and the Trust to the pro forma financial projections for the combined
entity. Among the considerations were the relative contributions of each to the
estimated total assets of the combined entity, the estimated net tangible book
value of the combined entity, the estimated stockholders' equity of the
combined entity, the estimated future FFO of the combined entity, and the
estimated future FAD of the combined entity. The relative contribution of TCI
and the Trust to the pro forma financial projections of the combined entity
relative to the percentage of the common equity of the combined entity that
would be owned by the stockholders of TCI and the Trust, given the Exchange
Ratio, was used by the TCI Financial Advisor in evaluating the fairness of the
Exchange Ratio.

Market Value Appraisal Analysis. The TCI Financial Advisor analyzed the
respective market values of TCI and the Trust properties based on the report of
the independent appraisal firm, Marshall & Stevens, who had been engaged by
TCI. The TCI Financial Advisor also accepted, without independent
investigation, supplemental information and suggested adjustments recommended
by TCI and the Trust to the Marshall & Stevens appraisals. The TCI Financial
Advisor understood that while Marshall & Stevens did not reissue its
appraisals, Marshall & Stevens has been informed of this information and the
suggested adjustments and has raised no objections. A net asset value was
calculated by taking the appraised value of the respective properties of TCI
and the Trust plus all other assets, less the respective liabilities of TCI and
the Trust divided by the number of outstanding shares of each entity. The TCI
Financial Advisor subsequently compared the Net Asset Value per share of TCI
versus the Trust as a factor in evaluating the fairness of the Exchange Ratio.
The TCI Financial Advisor did not undertake any obligation independently to
verify the underlying assumptions made in connection with the Marshall &
Stevens appraisals.

TCI Financial Advisor Fee. Pursuant to the terms of the agreement between
TCI and the TCI Financial Advisor, TCI has paid the TCI Financial Advisor a fee
of $300,000, 12.5% of which was payable upon execution of the agreement between
TCI and the TCI Financial Advisor and the remainder of which became payable at
the time the TCI Financial Advisor notified TCI that it was prepared to deliver
to the Board of Directors of TCI its opinion as to the fairness of the Exchange
Ratio, without disclosing the conclusion reached therein. TCI has also agreed
to reimburse the TCI Financial Advisor for its reasonable out-of-pocket
expenses incurred in connection with its engagement and to indemnify the TCI
Financial Advisor and its employees, agents, officers, attorneys and
stockholders and any person who controls or is deemed to control the TCI
Financial Advisor against certain liabilities, including liabilities under the
federal securities laws. In the ordinary course of business, the TCI Financial
Advisor and its affiliates may actively trade the equity securities of TCI
and/or the Trust for their own account and for accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
The TCI Financial Advisor has not been previously engaged to provide investment
banking services to TCI or the Trust.

Conclusion. The TCI Financial Advisor concluded that, as of September 21,
1998, the Exchange Ratio is fair, from a financial point of view, to the
holders of shares of TCI common stock.

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The Trust

The Trust has retained Sutro & Co. (the "Trust Financial Advisor") to act
as its independent financial advisor with respect to the Incorporation
Procedure and the Merger. The Trust Financial Advisor delivered its written
opinion to the Board of Trustees to the effect that as of September 21, 1998
the Exchange Ratio is fair to the Trust and the holders of Trust shares, from
a financial point of view.

A copy of the full text of the opinion of the Trust Financial Advisor,
dated as of September 21, 1998, which sets forth the assumptions made, matters
considered, and limitations on the review undertaken in connection with the
opinion, is attached hereto as Appendix D and is incorporated herein by
reference. This summary discussion of the opinion of the Trust Financial
Advisor is qualified in its entirety by reference to the full text of the
opinion. The engagement of the Trust Financial Advisor and its opinion are for
the benefit of the Board of Trustees and its opinion was rendered to the Board
of Trustees in connection with its consideration of the Incorporation
Procedure and the Merger. The Trust Financial Advisor opinion is directed only
to the fairness of the Exchange Ratio from a financial point of view to the
Trust and the holders of Trust shares and does not address any other aspect of
the Incorporation Procedure and the Merger. The opinion is not intended to,
and does not constitute, a recommendation to any holder of Trust shares as to
whether such stockholder should vote for the Incorporation Procedure and the
Merger at the Trust special meeting.

Holders of Trust shares are urged to read the opinion of the Trust
Financial Advisor in its entirety.

The Trust Financial Advisor was authorized to undertake studies to enable
it to render its opinion, regardless of their effect on the outcome of the
opinion. No limitations were imposed by the Trust with respect to the scope of
the investigation made or procedures followed by the Trust Financial Advisor
in rendering its opinion. In performing its evaluation and rendering its
opinion, the Trust Financial Advisor relied upon the accuracy and completeness
of all information provided to it, whether obtained from public or private
sources, and did not attempt to independently verify such information. The
Trust Financial Advisor also took into account its assessment of general
economic, market and financial conditions as they existed and could be
evaluated as of the date of its opinion, as well as its experience in similar
transactions and securities valuation generally. The Trust Financial Advisor
did not make any independent appraisals of the assets or liabilities of the
Trust or TCI. The analysis was prepared with information available as of the
date of the opinion. In general, historical financial information was analyzed
for the periods ending no later than June 30, 1998.

On August 4, 1998, representatives of the Trust Financial Advisor met with
the Board of Trustees to review the methods employed to determine the values
of TCI and the Trust. Thereafter, on September 10, 1998, the Trust Financial
Advisor met with the Board of Directors of TCI to share with them their
analyses of the respective values of both companies. On September 21, 1998,
the Trust Financial Advisor informed the Board of Trustees that, in its
opinion, an exchange ratio of 1.181 shares of TCI common stock for each Trust
share was fair and that as of the date thereof, the Merger is fair to the
Trust and the holders of Trust shares from a financial point of view. The
Trust Financial Advisor and the TCI Financial Advisor together arrived at the
Exchange Ratio of 1.181 shares of TCI common stock for each Trust share.

Analyses Conducted by the Trust Financial Advisor. In conducting its
analyses and in preparing the opinion that the Exchange Ratio is fair from a
financial point of view to the Trust and the holders of the Trust shares, the
Trust Financial Advisor, among other things, reviewed and analyzed (1) annual
reports and reports on Form 10-K for the years ended December 31, 1996 and
December 31, 1997 for the Trust and TCI, (2) quarterly reports on Form 10-Q
for the six month period ended June 30, 1998 for the Trust and TCI, (3)
certain internal information, primarily financial in nature (including
analytical models, projections, forecasts, estimates and analyses) prepared by
or on behalf of the management of the Trust and TCI, including financial
projections covering the years 1998 through 2002 for both the Trust and TCI,
(4) appraisals of the real properties of both the Trust and TCI prepared by
Marshall & Stevens dated August 13, 1998 with a valuation date of July 1,
1998, (5) certain other publicly available business, financial and other
information concerning the Trust and TCI and (6) such other information which
the Trust Financial Advisor deemed to be relevant to provide the

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fairness opinion. In the course of the Trust Financial Advisor's engagement,
the Trust Financial Advisor held discussions with the senior management of the
Trust and TCI concerning the historical, current and projected future
operations, business plans, financial conditions and results, and prospects of
both the Trust and TCI. The Trust Financial Advisor has not, however,
independently verified the accuracy or completeness of the appraisals prepared
by Marshall & Stevens referenced herein or independently appraised any
particular assets or conducted any inspection of the properties of the Trust or
TCI.

The Trust Financial Advisor is in the investment banking business and is
regularly engaged in the evaluation of capital structures, the valuation of
businesses and their securities in connection with mergers and acquisitions,
firm commitment underwritings, secondary distributions of listed and unlisted
securities, private placements, financial restructurings and other financial
services. The Board of Trustees of the Trust selected the Trust Financial
Advisor based on its review of these qualifications and advised the Trust
Financial Advisor that in connection with the Merger shareholders of the Trust
would receive 1.181 shares of TCI's common stock per share of the Trust's
shares of beneficial interest. The Trust Financial Advisor has not been
previously engaged to provide investment banking services to the Trust or TCI.
The Trust Financial Advisor will receive a fee for delivering its fairness
opinion. The Trust has agreed to indemnify the Trust Financial Advisor against
certain liabilities arising out of or in connection with the services rendered
by the Trust Financial Advisor under such engagement.

Conclusion. The Trust Financial Advisor concluded that, as of September 21,
1998, the Exchange Ratio is fair, from a financial point of view, to the
holders of Trust shares. The Trust Financial Advisor has not updated,
reaffirmed or revised the conclusion or otherwise commented upon any events
occurring after September 21, 1998.

Possible Negative Considerations

In addition to the risk factors discussed above under "Risk Factors",
shareholders of the Trust should take into account the following possible
negative considerations concerning the acquisition safeguards described above
in evaluating the proposed Incorporation Procedure and the Merger as a whole.
Notwithstanding the benefits of the Incorporation Procedure and the Merger
anticipated by the Board of Trustees, shareholders should recognize that the
acquisition safeguards could discourage a future attempt to acquire control of
TCI that is not presented to and approved by the Board of Directors, but which
some of TCI'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 and the Merger 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 and the Merger could have the
effect of making it more difficult for holders of even a majority of the
outstanding shares of TCI (i) to obtain control either directly by making a
tender offer for the outstanding stock of TCI (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 TCI's stockholders (see "--
Stockholder-Management Relations -- The Stockholder Meeting Provision") or
(ii) to change the composition of the Board of Directors to remove incumbent
management (see "-- Management after Incorporation Procedure and Merger -- The
Director Removal Provision"). Accordingly, the Incorporation Procedure and the
Merger, together with the protection afforded by the collective beneficial
ownership of approximately 52.3% of the outstanding shares of TCI common stock
(upon consummation of the Incorporation Procedure and the Merger) by entities
with which TCI's executive officers are affiliated could entrench the TCI 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 (1) certain mergers and other related transactions and (2)
certain amendments to TCI's articles of incorporation, the acquisition
safeguards will also effectively give veto power to holders of more

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than one-third and one-fifth, respectively, of the outstanding voting shares of
TCI, 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. (which is an affiliate of Basic Capital Management, Inc.),
who holds approximately 41.0% of the outstanding shares of the Trust and would
hold approximately 36.9% of the outstanding common stock of TCI if the
Incorporation Procedure and the Merger are effected. As of June 30, 1999,
American Realty Trust, Inc. owned approximately 41.0% of the outstanding shares
of the Trust and approximately 31.0% of the outstanding shares of TCI.

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

The trustees have considered these potential disadvantages and differences
and have concluded that the benefits of the acquisition safeguards included in
the Incorporation Procedure and the Merger outweigh these possible
disadvantages. Furthermore, the trustees have considered the negotiated nature
of the Incorporation Procedure and the Merger and are satisfied that the
Incorporation Procedure and the Merger are in the best interests of its
shareholders.

Certain Potential Conflicts of Interest

The Board of Directors of TCI and the Board of Trustees of the Trust have
both unanimously approved the Merger. While the Board of Trustees believes that
the Merger is in the best interest of the Trust and its shareholders, certain
members of Basic Capital Management, Inc.'s management could benefit from the
Incorporation Procedure and the Merger 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 Basic Capital Management, Inc. until December 22,
1992 and as Chief Executive Officer of Basic Capital Management, Inc. until
September 1, 1992. Although Mr. Phillips no longer serves as an officer or
director of Basic Capital Management, Inc. 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 Basic Capital Management, Inc., and, in such
capacity, Mr. Phillips has substantial contact with the management of Basic
Capital Management, Inc. and input regarding its performance of advisory
services for the Trust and TCI. 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 and the
Merger.

If the Incorporation Procedure and the Merger are approved, advisory fees
paid to Basic Capital Management, Inc., as advisor, would not be subject to the
operating expense limitation currently contained in the Declaration of Trust,
although a substantially similar provision is included in the current TCI
Advisory Agreement, as discussed under "Business and Properties of TCI -- The
TCI Advisory Agreement" and "Proposed Incorporation Procedure and Merger --
Business Activities After Incorporation Procedure and Merger". See also
"Business and Properties of the Trust -- Certain Business Relationships and
Related Party Transactions". Notwithstanding, the current Board of Directors of
TCI does not intend to increase the compensation level of Basic Capital
Management, Inc. from the level included in the current TCI Advisory Agreement.

Additionally, in the future, Basic Capital Management, Inc. may benefit from
the elimination of certain limitations on investments currently applicable to
the Trust which would not exist upon consummation of the Incorporation
Procedure and the Merger. The articles of incorporation of TCI permit it to
engage in a larger class of transactions, including transactions with related
parties, than is currently permitted by the Declaration

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of Trust. The articles of incorporation of TCI 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 and Merger --
Liability of Certain Persons -- The Management Liability Provision".

The Conversion of Shares

As part of the Merger, existing shareholders of the Trust would
automatically become stockholders of TCI by the conversion of all shares of CME
Corporation for newly issued shares of TCI common stock on the basis of 1.181
shares of TCI common stock for each Trust share (the "Conversion"). For reasons
discussed below under "Proposed Incorporation Procedure and Merger --
Comparison of the Securities of TCI and the Trust --Common Equity", each new
share of TCI common stock would have $0.01 par value, unlike each existing
Trust share, which has no par value.

The Conversion would result in the issuance by TCI of a number of shares of
TCI common stock equal to 1.181 multiplied by the total number of Trust shares
outstanding immediately before commencement of the Incorporation Procedure and
the Merger. Based upon the 4,022,341 Trust shares outstanding on June 30, 1999,
the Conversion would result in issuance of approximately 4,750,384 shares of
TCI common stock.

The Conversion will affect the proportionate equity interest of the Trust's
shareholders and TCI's stockholders. Upon consummation of the Incorporation
Procedure and the Merger, each outstanding share of TCI common stock will be
entitled to one vote at each meeting of stockholders, as is the case with each
currently outstanding Trust share. However, the aggregate number of shares to
be issued to shareholders of the Trust upon Conversion is 4,750,384, or
approximately 55% of the total number of issued and outstanding shares of TCI
common stock. Similarly, the Conversion may have a dilutive effect on net
income per share in the future.

There can be no assurance that the market price per share of TCI common
stock after the Conversion will be equal to the market price per share of such
stock before the Conversion or that the marketability of TCI common stock will
remain consistent with the marketability of such stock before the Conversion.

Prices for TCI 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 and the Merger.

Assuming that the proposed Incorporation Procedure and the Merger are
approved, the Trust's shareholders will be furnished with the necessary
materials and instructions to exchange their certificates representing the
existing Trust shares for new certificates representing shares of TCI common
stock.

Adoption and approval of the Incorporation Procedure and the Merger will
significantly affect certain rights of shareholders of the Trust. Accordingly,
shareholders are urged to read carefully this entire Joint 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 TCI before voting.

Comparison of Principal Differences Between the Trust and TCI

If the proposed Incorporation Procedure and the Merger are approved and
consummated, the business of the Trust will be conducted by TCI, 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 TCI and its stockholders and directors are 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

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following discussion sets forth the material differences between the rights of
shareholders of the Trust and stockholders of TCI, 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 TCI and
the Declaration of Trust and the Trustees' Regulations. For further
information, stockholders may refer to the full text of TCI's articles of
incorporation and bylaws, and compare them with the Declaration of Trust and
the Trustees' Regulations, each of which has been filed or incorporated by
reference as an exhibit to the Registration Statement.

For convenience and ease of reference, comparisons between the Trust and TCI
are set forth as follows: "Management after Incorporation Procedure and Merger"
discusses the role of TCI's advisor and the constitution of TCI's Board of
Directors; "Liability of Certain Persons" addresses exculpation of trustees and
directors, indemnification of trustees, directors and officers and shareholder
liability; "Business Activities after Incorporation Procedure and Merger"
compares business objectives and restrictions on certain activities and related
party transactions; "Comparison of the Securities of TCI and the Trust", in
addition to comparing the Trust shares with the TCI common stock, outlines
dissenters' rights, preferred stock, listing with the NASDAQ and the NYSE, 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 TCI'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 TCI.

Management After Incorporation Procedure and Merger

Constituency of the Board. The articles of incorporation of TCI, as amended,
provides that the Board of Directors shall consist of at least three and no
more than twelve directors. Each member of the Board of Trustees of the Trust
is also a member of the Board of Directors of TCI. 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. By comparison, the Declaration of Trust provides
that the number of trustees shall be no less than five 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 TCI 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 of Directors
applicable thereto. See "Proposed Incorporation Procedure and Merger --
Comparison of the Securities of TCI and the Trust -- Preferred Stock".

Any vacancy on the Board of TCI 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 Consolidated Capital Equities Corporation ("CCEC"), the
original sponsor of the Trust and one of the Trust's former advisors, or any of
CCEC's affiliates or successor entities. CCEC no longer has any relationship to
the Trust. 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

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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
TCI's directors be independent of the advisor or any other person. It should be
noted, however, that each of the Trustees, all of whom are also directors of
TCI, are unaffiliated with Basic Capital Management, Inc.

Directors. The members of the Board of Directors and the executive officers
of TCI will remain unchanged following the Merger. The current directors of TCI
are set forth below, together with their ages as of April 30, 1999, terms of
service, all positions and offices with TCI or its advisor, Basic Capital
Management, Inc. ("BCM"), their principal occupations, business experience and
directorships with other companies during the last five years or more. The
designation "Affiliated", when used below with respect to a director, means
that the director is an officer, director or employee of BCM or an officer of
TCI. The designation "Independent", when used below with respect to a director,
means that the director is neither an officer of TCI nor a director, officer of
employee of BCM although TCI may have certain business or professional
relations with such director, as discussed below in "Business and Properties of
TCI -- Certain Business Relationships and Related Party Transactions".

Ted P. Stokely: Age 65, Director (Independent) (since April 1990) and
Chairman of the Board of Directors (since January 1995).

General Manager (since January 1995) of ECF Senior Housing Corporation, a
nonprofit corporation; General Manager (since January 1993) of Housing
Assistance Foundation, Inc., a nonprofit corporation; Part-time unpaid
consultant (since January 1993) and paid consultant (April 1992 to December
1992) of Eldercare Housing Foundation ("Eldercare"), a nonprofit
corporation; President (April 1992 to April 1994) of PSA Group; Executive
Vice President (1987 to 1991) of Key Companies, Inc.; Trustee (since April
1990) and Chairman of the Board (since January 1995) of the Trust; Director
(since April 1990) and Chairman of the Board (since January 1995) of Income
Opportunity Realty Investors, Inc. ("IORI"); and Trustee (April 1990 to
August 1994) of National Income Realty Trust ("NIRT").

Richard W. Douglas: Age 52, Director (Independent) (since January 1998).

Executive Vice President (since February 1999) of the Staubach Company;
President (1991 to 1999) of Dallas Chamber of Commerce; President (1988 to
1991) of North Texas Commission; President (1978 to 1981) of Las Colina
Corporation and Southland Investment Properties, both affiliates of
Southland Financial Corporation; Trustee (since January 1998) of the Trust;
and Director (since January 1998) of IORI.

Larry E. Harley: Age 58, Director (Independent) (since January 1998).

President (1993 to 1997) and Executive Vice President (1992 to 1993) of
U.S. Operations, Executive Vice President (1989 to 1992) and Senior Vice
President (1986 to 1989) of Distribution Operations, Director of Marketing
(1984 to 1986), and Manager of North Central Distribution Center (1974 to
1984) of Mary Kay Cosmetics; Trustee (since January 1988) of the Trust; and
Director (since January 1998) of IORI.

R. Douglas Leonhard: Age 63, Director (Independent) (since January 1998).

Director (since November 1998) of Optel, Inc.; Senior Vice President
(1986 to 1997) of LaCantera Development Company, a wholly-owned subsidiary
of USAA; Senior Vice President (1980 to 1985) of The Woodlands Development
Corporation; Vice President (1973 to 1979) of Friendswood Development
Company; Manager in various capacities (1960 to 1973) of Exxon Corp.;
Trustee (since January 1998) of the Trust; and Director (since January
1998) of IORI.

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Murray Shaw: Age 67, Director (Independent) (since February 1998).

Chairman of the Board of Regents (since 1997) of Stephen F. Austin
University; Vice President (1967 to 1996) of Tracor, Inc.; Trustee (since
February 1998) of the Trust; and Director (since February 1998) of IORI.

Martin L. White: Age 59, Director (Independent) (since January 1995).

Chief Executive Officer (since 1995) of Builders Emporium, Inc.; Chairman
and Chief Executive Officer (since 1993) of North American Trading Company,
Ltd.; President and Chief Operating Officer (since 1992) of Community Based
Developers, Inc.; Development Officer and Loan Manager (1986 to 1992) of
the City of San Jose, California; Vice President and Director of Programs
(1967 to 1986) of Arpact, Inc., a government contractor for small business
development and trade; Trustee (since January 1995) of the Trust; and
Director (since January 1995) of IORI.

Edward G. Zampa: Age 64, Director (Independent) (since January 1995).

General Partner (since 1976) of Edward G. Zampa and Company; Trustee
(since January 1995) of the Trust; and Director (since January 1995) of
IORI.

Executive Officers. The following persons currently serve as executive
officers of TCI and will continue to serve as executive officers of TCI
following the Merger. Their positions with TCI are not subject to a vote of
TCI's stockholders. Their ages as of July 31, 1999, terms of service, all
positions and offices with TCI or BCM, other principal occupations, business
experiences and directorships with other companies during the last five years
or more are set forth below.

Randall M. Paulson: Age 53, President (since August 1995) and Executive
Vice President (January 1995 to August 1995).

President (since August 1995) and Executive Vice President (January 1995
to August 1995) of the Trust, IORI and Syntek Asset Management, Inc.
("SAMI"); President (since August 1995) and Executive Vice President
(October 1994 to August 1995) of BCM; President (since January 1998) of
NRLP Management Corp. ("NMC"), the general partner of National Realty, L.P.
("NRLP") and National Operating, L.P. ("NOLP"); Director (August 1995 to
November 1998) of SAMI; Executive Vice President (since January 1995) of
ART; Vice President (1993 to 1994) of GSSW, LP, a joint venture of Great
Southern Life and Southwestern Life; Vice President (1990 to 1993) of
Property Company of America Realty, Inc.; and President (1990) of Paulson
Realty Group.

Karl L. Blaha: Age 51, Executive Vice President -- Commercial Asset
Management (since July 1997).

Executive Vice President -- Commercial Asset Management (since July 1997)
and Executive Vice President and Director of Commercial Management (April
1992 to August 1995) of BCM, the Trust, IORI and SAMI; Director (since June
1996), President (since October 1993) and Executive Vice President and
Director of Commercial Management (April 1992 to October 1993) of ART;
Director (since December 1998) and Executive Vice President (since January
1998) of NMC; Executive Vice President (October 1992 to July 1997) of
Carmel Realty, Inc. ("Carmel Realty") a company owned by First Equity
Properties, Inc. ("First Equity"), which is 50% owned by a subsidiary of
BCM; Director (since November 1988) of SAMI; President and Director (since
1996) of First Equity; Executive Vice President and Director of Commercial
Management (April 1992 to February 1994) of NIRT and Vinland Property Trust
("VPT"); Partner -- Director of National Real Estate Operations (August
1988 to March 1992) of First Winthrop Corporation; and Vice President
(April 1984 to August 1988) of Southmark Corporation ("Southmark").

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Bruce A. Endendyk: Age 51, Executive Vice President (since January 1995).

President (since January 1995) of Carmel Realty; Executive Vice President
(since January 1995) of BCM, SAMI, ART, the Trust and IORI and (since
January 1998) of NMC; Management Consultant (November 1990 to December
1994); Executive Vice President (January 1989 to November 1990) of
Southmark; and President and Chief Executive Officer (March 1988 to January
1989) of Southmark Equities Corporation.

Thomas A. Holland; Age 56, Executive Vice President and Chief Financial
Officer (since August 1995); Secretary (since February 1997) and Senior
Vice President and Chief Accounting Officer (July 1990 to August 1995).

Executive Vice President and Chief Financial Officer (since August 1995)
and Senior Vice President and Chief Accounting Officer (July 1990 to August
1995) of SAMI, BCM, ART, IORI and the Trust; Secretary (since February
1997) of IORI and the Trust; Executive Vice President and Chief Financial
Officer (since January 1998) of NMC; and Senior Vice President and Chief
Accounting Officer (July 1990 to February 1994) of NIRT and VPT.

Steven K. Johnson; Age 41, Executive Vice President--Residential Asset
Management (since August 1998).

Executive Vice President -- Residential Asset Management (since August
1998) and Vice President (August 1990 to August 1991) of BCM, SAMI, ART,
IORI and the Trust; Executive Vice President -- Residential Asset
Management (since August 1998) of NMC; Chief Operating Officer (January
1993 to August 1998) of Garden Capital, Inc.; Executive Vice President
(December 1994 to August 1998) of Garden Capital Management, Inc.; and Vice
President (August 1991 to January 1993) of SHL Properties Realty Advisors,
Inc. and SHL Acquisition Corporation II and III.

Officers. Although not executive officers of TCI, the following persons
currently serve as officers of TCI. Their positions with TCI are not subject
to a vote of stockholders. Their ages as of July 31, 1999, terms of service,
all positions and offices with TCI or BCM, other principal occupations,
business experience and directorships with other companies during the last
five years or more are set forth below.

Robert A. Waldman; Age 47, Senior Vice President and General Counsel (since
January 1995); Vice President (December 1990 to January 1995); and
Secretary (December 1993 to February 1997).

Senior Vice President and General Counsel (since January 1995), Vice
President (December 1990 to January 1995) and Secretary (December 1993 to
February 1997) of IORI and the Trust; Vice President (December 1990 to
February 1994) and Secretary (December 1993 to February 1994) of NIRT and
VPT: Senior Vice President and General Counsel (since January 1995), Vice
President (January 1993 to January 1995) and Secretary (since December
1989) of ART; Senior Vice President and General Counsel (since November
1994), Vice President and Corporate Counsel (November 1989 to November
1994) and Secretary (since November 1989) of BCM; Senior Vice President and
General Counsel (since January 1995), Vice President (April 1990 to January
1995) and Secretary (since December 1990) of SAMI; and Senior Vice
President, Secretary and General Counsel (since January 1998) of NMC.

Drew D. Potera; Age 40, Vice President (since December 1996) and Treasurer
(since December 1990).

Vice President (since December 1996) and Treasurer (since December 1990)
of IORI and the Trust; Treasurer (December 1990 to February 1994) of NIRT
and VPT; Vice President (since December 1996) and Assistant Treasurer
(December 1990 to August 1991) and Treasurer (since August 1991) of ART;
Vice President, Treasurer and Securities Manager (since July 1990) of BCM;
Vice President and Treasurer (since February 1992) of SAMI and (since
January 1998) of NMC; and Financial Consultant with Merrill Lynch, Pierce,
Fenner & Smith Incorporated (June 1985 to June 1990).

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

The only remuneration paid by TCI is to the directors who are not officers
or directors of BCM or its affiliated companies. The Independent directors (1)
review the investment policies of TCI to determine that they are in the best
interest of TCI's stockholders, (2) review TCI's contract with its advisor, (3)
supervise the performance of TCI's advisor and review the reasonableness of the
compensation which TCI pays to its advisor in terms of the nature and quality
of services performed, (4) review the reasonableness of the total fees and
expenses of TCI and (5) select, when necessary, a qualified independent real
estate appraiser to appraise properties purchased by TCI.

Each Independent director receives compensation in the amount of $15,000 per
year plus reimbursement for expenses, and the Chairman of the Board receives an
additional fee of $1,500 per year for serving in such position. In addition,
each Independent director receives $1,000 per day for any special services
rendered by him to TCI outside of his ordinary duties as Director, plus
reimbursement of expenses.

During 1998, $116,000 was paid to the Independent directors in total
directors' fees for all services, including the annual fee for service, during
the period January 1, 1998 through December 1998, and 1998 special service fees
as follows: Richard W. Douglas, $15,000; Larry E. Harley, $15,000; R. Douglas
Leonhard, $15,000; Murray Shaw, $15,000; Ted P. Stokely, $16,500; Edward L.
Tixier, $3,750; Martin L. White, $15,000; and Edward G. Zampa, $22,000.

The Director Removal Provision. Under Article ELEVENTH of the articles of
incorporation (the "Director Removal Provision"), each director of the Board of
Directors may be removed only by the affirmative vote of the holders of not
less than 80% of the outstanding stock of TCI 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 TCI
more difficult by requiring a super-majority vote.

Stockholders should note that affiliates of TCI, BCM and American Realty
Trust, Inc., effectively will have veto power over the removal of directors of
TCI pursuant to the Director Removal Provision. BCM and American Realty Trust,
Inc. will own approximately 15.1% and 36.9%, respectively, of the shares of TCI
following the Incorporation Procedure and the Merger.

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 and Merger --
Possible Negative Considerations".

TCI's Advisor. The day-to-day operations of TCI are currently, and it is
anticipated that they will continue to be, performed by BCM under the TCI
Advisory Agreement described under "Business and Properties of TCI -- The TCI
Advisory Agreement", subject to stockholder approval of the Incorporation
Procedure and the Merger.

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).

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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 TCI articles of
incorporation leave termination provisions regarding advisory agreements to the
negotiation of the parties. See "Business and Properties of the Trust -- The
Trust Advisor" for a discussion of the relationship between the Trust and BCM.
Neither TCI'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 TCI
with any advisor or affiliate thereof would be governed by the NRS and the
related-party provisions contained in Article FOURTEENTH of the articles of
incorporation.

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 TCI's advisor than does the Declaration of Trust. Article
THIRTEENTH of the articles of incorporation provides that the compensation
payable under the TCI 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 and Merger -- Business Activities after
Incorporation Procedure and Merger --Limitations on Operating Expenses".

Liability of Certain Persons

The Management Liability Provision. The corporate structure of TCI enables
TCI to define the liability of corporate officers and directors with greater
precision. The Board of Trustees believes that limited liability will help to
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 TCI 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 TCI, the Management Liability Provision supplements indemnification
rights afforded under TCI's articles of incorporation and bylaws which provide,
in substance, that TCI 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 TCI "shall indemnify to the
fullest extent authorized or permitted by law (as now or hereafter in
effect) . . . 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 [TCI]. . . ." 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

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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 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 TCI may be indemnified for such liability under
the articles of incorporation.

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
TCI 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 TCI from liability to TCI 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
TCI 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 TCI 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 TCI 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 of Directors decision
protected by the Management Liability Provision, including, for example,
decisions relating to 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

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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 TCI provide indemnification to each officer, director and
employee of TCI to the fullest extent permitted by Chapter 78 of the NRS and
other applicable law.

The Management Liability Provision also provides that TCI 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 TCI, or is or was serving
at the request of TCI, any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity. The
Management Liability Provision also provides that TCI 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 TCI or for
amounts paid in settlement to TCI 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 TCI are indemnified against
certain liabilities under provisions of the articles of incorporation and
bylaws of TCI. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
TCI pursuant to the foregoing provisions, TCI 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 TCI may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of TCI or another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against such expense, liability or loss, whether or not TCI 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 TCI
has comparable insurance in place for its Board of Directors.

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 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.

Stockholder Liability. Limitations on the potential personal liability of
stockholders for the acts and obligations applicable to TCI under Nevada law
are comparable to the limitations under California law and the Declaration of
Trust applicable to stockholders of the Trust with respect to the Trust's acts
and obligations.

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Though the articles of incorporation of TCI 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 shareholder's shares were authorized to
be issued or which was specified in a written subscription agreement between
the corporation and the shareholder. 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 and the Merger 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 and Merger

Although no significant change in the nature of TCI's business (including
the business of the Trust following the Incorporation Procedure and the Merger)
is anticipated as a result of the Incorporation Procedure and the Merger, it
should be noted that the articles of incorporation place fewer restrictions on
the business activities of TCI and no limitations on TCI's operating expenses,
as discussed below in "-- Limitations on Operating Expenses".

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;

(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"));

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(f) making any loan to the sponsor of the Trust, CCEC, 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
selling 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 of the Trust, CCEC, 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 of TCI states that TCI may
engage in any lawful activity. However, TCI's activities are subject to the
restrictions on related party transactions described below under "Proposed
Incorporation Procedure and Merger -- Business Activities after Incorporation
Procedure and Merger -- 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
TCI, it is currently expected that the investment policies and activities of
TCI will be substantially similar to the existing investment policies and
activities of the Trust. Notwithstanding such expectation, TCI 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 TCI'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, TCI 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 TCI 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.

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Provided TCI operates as a REIT, its investment policies will be limited by
applicable Code provisions, and it is expected that TCI will conduct its future
business activities in such a manner as to maintain its anticipated REIT
status. Nevertheless, TCI 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 Trust 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 Trust at the end of each calendar month of
such fiscal year and (ii) 25% of the Trust's "Net 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 Trust Advisory Agreement described
under "Business and Properties of the Trust -- The Trust 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 of TCI place no
limitations on TCI's operating expenses, the limitation on operating expenses
under the Declaration of Trust, assuming shareholders approve the Incorporation
Procedure and the Merger, are included contractually in the TCI Advisory
Agreement. See "Risk Factors -- Elimination of Certain Protections of the
Declaration of Trust". The effect of this limitation was to require the advisor
to refund to the Trust a portion of the annual advisory fee totalling $952,000
for 1998, $606,000 for 1997 and $589,000 for 1996.

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The TCI Advisory Agreement will not be amended in conjunction with the
Incorporation Procedure and the Merger. The fees and commissions payable by TCI
to the advisor will remain the same if the Incorporation Procedure and the
Merger are approved as those currently paid by the Trust.

Restrictions on Related-Party Transactions. Article FOURTEENTH of the
articles of incorporation provides that TCI shall not, directly or indirectly,
contract or engage in any transaction with (i) any director, officer or
employee of TCI, (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 TCI 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 TCI and
simultaneously authorizes or ratifies such contract or transaction by the
affirmative vote of a majority of the Independent directors of TCI entitled to
vote thereon. Article FOURTEENTH defines an "independent director" as one who
is neither an officer or employee of TCI nor a director, officer or employee of
TCI's advisor.

If the Incorporation Procedure and the Merger are adopted, the Board of
Directors of TCI will continue to be required to consider the permissibility of
any related-party transaction under TCI's articles of incorporation; however,
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 TCI's advisor and
none will be an officer or employee of TCI. Apart from the different standards
applicable to related-party transactions under the articles of incorporation
and Declaration of Trust, respectively, the proposed Incorporation Procedure
and the Merger are not expected to affect the review and approval of related-
party transactions.

Shareholders 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 TCI. 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
known to the board of directors or committee, 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
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 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
TCI's articles of incorporation and the NRS. Section 7.6 of the

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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 retired 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 TCI'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 TCI's articles of incorporation contains no analogous
prohibition, the Incorporation Procedure and the Merger will permit TCI 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 TCI's
articles of incorporation and the restrictions mandated by the NRS will offer
adequate protection to ensure the fairness and propriety of transactions
between TCI and related parties.

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 [p]ersons."
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 Trust
shares to the public. As discussed under "-- Business Activities After
Incorporation Procedure and Merger", 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 [t]rustee, 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 [a]ffiliate, except for . . .
(c) transactions with [CCEC] or the [a]dvisor or
[a]ffiliates thereof involving loans, real estate
brokerage services, mortgage brokerage services, real

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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 [t]rustees who are not, other than as
[t]rustees, interested in or [a]ffiliates of any
Person who is interested in the transaction.

Comparison of the Securities of TCI and the Trust

Common Equity. TCI is authorized by its Articles of Incorporation to issue
up to 10,000,000 shares of common stock. By contrast, the Trust may issue an
unlimited number of shares of beneficial interest, and such Trust shares have
no par value per share. The Articles of Incorporation of TCI establish the par
value of the shares of TCI common stock at $0.01 per share.

With respect to conversion, preemptive rights, dividends, voting rights and,
except to the extent TCI may issue additional shares of preferred stock in the
future, the TCI common stock is comparable to the Trust shares. For a
discussion of liquidation preferences, voting rights and other features of the
TCI preferred stock, see the discussion on preferred stock below. As with the
Trust shares, each holder of TCI common stock is 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 TCI common stock or the Trust shares. The
holder of TCI common stock will not have any preemptive rights to acquire
additional shares of TCI common stock when issued. All outstanding shares of
TCI issued in the Conversion will be fully paid and nonassessable.

Distributions. All shares of the common stock of TCI are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Board of Directors of TCI, and upon liquidation or dissolution
of TCI, whether voluntary or involuntary, to share equally in the assets of TCI
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 TCI'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. There
is no obligation on the part of TCI's Board of Directors to engage in this
practice, and the Board does not currently intend to commence such a practice.
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. TCI intends to
continue its policy of paying quarterly distributions. 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,
TCI may pay dividends from any source, but only if (i) TCI may continue to able
to pay its debts as they become due in the usual course of business and (ii)
TCI's total assets continue to equal or exceed the sum of its total liabilities
plus the amount that would be needed, if TCI 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 TCI 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 TCI. 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 TCI 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.

On October 20, 1998, the Board of Directors of TCI designated and authorized
the issuance of 6,000 shares of its Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") with a par value of $0.01 per share and
a preference on liquidation of $100.00 per share plus payment of accrued and
unpaid dividends. In December 1998, TCI issued 5,829 shares of the Series A
Preferred Stock in connection with the acquisition of real property.

TCI is not obligated to maintain a sinking fund with respect to the Series A
Preferred Stock. The Series A Preferred Stock is non-voting except as provided
by law.

The Series A Preferred Stock is convertible at any time and from time to
time, in whole or in part, after November 1, 2003 at the option of the holders
thereof. The Series A Preferred Stock is convertible into that number of shares
of TCI common stock obtained by dividing $100.00 (plus all accrued and unpaid
dividends) by the simple average of the daily closing price of the TCI common
stock for the 5 business days ending on the last business day of the calendar
week immediately preceding the date of conversion on the principal stock
exchange on which such TCI common stock is then listed.

The Series A Preferred Stock bears a cumulative, compounded dividend per
share equal to $5.00 per annum, payable quarterly and commencing accrual upon
issuance. Dividends on the Series A Preferred Stock are in preference to and
with priority over dividends upon the TCI common stock. The Series A Preferred
Stock ranks on a parity as to dividends and upon liquidation, dissolution or
winding up with all other shares of preferred stock which may be issued in the
future by TCI.

TCI may redeem all or any of the Series A Preferred Stock at any time and
from time to time, at its option, for cash. The redemption price of the Series
A Preferred Stock shall be $100.00 per share (plus all accrued and unpaid
dividends to the date of redemption). As of December 31, 1998, 5,829 shares of
the Series A Preferred Stock were issued and outstanding.

Holders of shares of Series A Preferred Stock are not entitled to vote on
the Merger.

Although the Board of Directors has no present intention of issuing any
additional preferred stock of TCI, 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
TCI by (a) privately placing such preferred stock with purchasers not hostile
to the TCI Board of Directors to oppose an unsolicited takeover bid or (b)
authorizing

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<PAGE>

holders of a series of preferred stock to vote as a class, either separately or
with the holders of TCI common stock, on any merger, sale or exchange of assets
or any other extraordinary corporate transaction involving TCI or (iii) for
such other uses as the Board of Directors of TCI 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 stockholders, (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
(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. The articles of incorporation impose no such explicit prohibitions
on TCI's power to issue securities.

Dissenters' Rights to Dissent and Obtain Payment. Under Nevada law, TCI'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 TCI common stock is listed on the NYSE or is held of
record by at least 2,000 persons. TCI common stock is listed on the NYSE.

Shareholders of the Trust will not have the right to dissent and obtain
payment except under the limited circumstances described herein. Section 1300
of the California General Corporation Law ("CGCL") provides that a shareholder
of a corporation who is entitled to vote on a merger may require the
corporation to purchase for cash, at their fair market value, the shares owned
by the shareholder but only if shareholders holding 5% or more of the
corporation's common stock demand payment for such shares. While the Trust is
not a corporation, Section 1300 of the CGCL will apply to the stockholders of
the Trust once the Trust shares are converted into shares of common stock of
CME Corporation immediately prior to the Merger between CME Corporation and the
Trust.

In order for the dissenters' rights outlined in Section 1300 of the CGCL to
apply, shareholders of the Trust holding in the aggregate at least 201,118
shares of common stock of CME Corporation (which are the shares into which all
Trust shares will be converted immediately prior to the Merger) must both (A)
abstain from voting on the Merger or vote against the Merger and (B) demand
that CME Corporation purchase such shares at their fair market value.

To determine if shareholders holding 5% or more of CME Corporation's common
stock are dissenting, the only shares which will be counted will be the shares
of stockholders

(1) who make written demand upon CME Corporation for the purchase of such
shares and for payment to the shareholder in cash of the fair market
value of such shares,

(2) whose written demand is received by CME Corporation within 30 days
following the date on which CME Corporation mails notice to all
shareholders of the Trust that the Merger has been approved, and who
send to CME Corporation within such 30 day period the shareholder's
certificates representing the shares which the shareholder demands be
purchased (with an endorsement thereon that such shares are dissenting
shares) and

(3) whose written demand states the number and class of the shares held of
record by the shareholder which the shareholder demands that CME
Corporation purchase, and a statement by the shareholder of what the
shareholder claims to be the fair market value of those shares as of
September 18, 1998.

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<PAGE>

If the Merger is approved by shareholders of the Trust and TCI, then CME
Corporation will send out to all shareholders of the Trust who did not vote in
favor of the Merger, within 10 days after the date of approval, a notice that
the Merger was approved and a statement of the price which CME Corporation has
determined represents the fair market value of the dissenting shares as of
September 18, 1998. In addition, the notice will include a brief description of
the procedure to be followed if the shareholder desires to exercise its right
to dissent.

If it is determined by CME Corporation that shareholders holding 5% or more
of the shares of common stock of CME Corporation are dissenting and if CME
Corporation and any dissenting shareholder agree upon the price of the shares,
such dissenting shareholder is entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement. Payment
of the fair market value of the dissenting shares must be made within 30 days
after the parties agree on the fair market value or within 30 days after any
conditions to the Merger are satisfied, whichever is later.

If CME Corporation denies that shareholders holding 5% or more of the shares
of common stock of CME Corporation are dissenting or if CME Corporation and any
dissenting shareholder cannot agree on the fair market values of the shares,
then the dissenting shareholder, CME Corporation or TCI may sue to determine
whether the shares are dissenting or the fair market value of such shares, as
the case may be.

A dissenting shareholder will not be entitled to payment of the fair market
value of their shares if (A) the Merger is not approved, (B) the shares of such
dissenting shareholder are transferred prior to being sent to CME Corporation
or are converted into shares of TCI common stock by such dissenting shareholder
or (C) if the dissenting shareholder and CME Corporation cannot agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares and neither files suit within six months after the date on which CME
Corporation mailed notice of approval of the Merger. In any of the foregoing
cases, the dissenting shareholders' shares will be converted into shares of TCI
common stock at the Exchange Ratio.

Warrants. The Trust has no outstanding warrants for the purchase of shares.
TCI has no outstanding warrants and does not currently anticipate issuing any
warrants for the purchase of its capital stock.

Listing. The Trust shares have been listed on the NASDAQ since October 29,
1980. TCI common stock has been listed on the NYSE since September 10, 1986.

No Restrictions on Ownership and Transfer of Common Stock. Neither TCI's
articles of incorporation nor its bylaws contain any restriction on the
transfer or percentage ownership of shares of TCI common stock.

In the trustees' view, concentration of ownership of shares of TCI common
stock is unlikely to threaten TCI'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
TCI are sufficient to meet the needs of TCI. See "-- Principal Reasons for the
Incorporation Procedure and the Merger -- Acquisition Safeguards".
Accordingly, TCI's articles of incorporation and bylaws do not contain
restrictions on voting rights of "Excess Shares" of the TCI common stock, and
the certificates representing shares of TCI 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 TCI 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

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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 TCI 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
outstanding Trust 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 TCI.

The Stockholder Meeting Provision. The Stockholder Meeting Provision (also
set forth in Article EIGHTH of the articles of incorporation of TCI) 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 TCI. Stockholders of TCI may not
by themselves call a special meeting of stockholders. In contrast to the
Stockholder Meeting Provision, the Declaration of Trust permits its
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 TCI calls such a meeting.
Such meetings can impose considerable expenses upon TCI. The trustees believe
that the Board of Directors are 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 TCI's
annual proxy statement.

Other Provisions Regarding Stockholder-Management Relations. TCI's bylaws
provide, among other things, that any stockholder entitled to vote in the
election of directors of TCI'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 TCI (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 TCI
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 does not give TCI's Board any power to
approve or disapprove of stockholder nominations for the election of directors,
the Nomination Procedure may have the effect of

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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 TCI, even if such
attempt might be deemed by some stockholders to be beneficial to TCI 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 beneficial because it requires
stockholders to give adequate notice to allow orderly and considered evaluation
of nominees and fair elections.

TCI'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 TCI 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 TCI (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 TCI'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 TCI and its stockholders. TCI is
presently unaware of any controlling judicial 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 beneficial 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.

TCI'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 1992. 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 TCI's assets, in which case notice shall be given not
less 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 shareholders are to be held in the
first six months of the calendar year.

A full and correct statement of the affairs of TCI 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.
TCI is subject to the information requirements of the Exchange Act and the
balance sheet and statement of operations are 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.

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The Business Combination Provision. Article TENTH of the articles of
incorporation of TCI (the "Business Combination Provision") is designed to
encourage companies interested in acquiring TCI to negotiate with the Board of
Directors and to give greater assurance to the stockholders of TCI that they
will receive fair and equitable treatment in the event of a "Business
Combination" (as defined below) involving TCI 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 percent of the votes entitled to be cast on such transaction by the
holders of all shares of voting stock of TCI 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 TCI, 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 TCI nor directors, officers or employees of TCI's advisor,
approves the Business Combination prior to the date on which the Interested
Stockholder became the beneficial owner of 20% or more of TCI'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 Business Combination,
approval of a majority of TCI's Board of Directors is not 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 TCI 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 or has beneficial
ownership of. TCI, any of its subsidiaries and certain profit-sharing and
employee-benefit plans are among the entities specifically excepted from the
definition of "Interested Stockholder."

American Realty Trust, Inc. is currently considered an Interested
Stockholder of TCI and will remain an Interested Stockholder following the
Incorporation Procedure and the Merger. Currently the Board of Directors is not
aware of any other stockholder or group of stockholders that is an Interested
Stockholder or that would be an "Interested Stockholder" following the
Incorporation Procedure and the Merger.

A "Business Combination" includes the following transactions: (i) a merger
or consolidation of TCI or any subsidiary with an Interested Stockholder or
certain related parties, (ii) the sale, lease, exchange, mortgage, pledge,
transfer or other disposition by TCI 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

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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 TCI would be required to approve or authorize such transaction, (iii) the
adoption of any plan or proposal for the liquidation or dissolution of TCI,
(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 TCI 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).

The Board of Directors has unanimously approved an amendment to Article
TENTH which would exclude the proposed Merger from the super-majority voting
requirements of Article TENTH. See "Proposed Amendment of TCI'S Articles of
Incorporation."

By providing that the two-thirds vote requirement would not be invoked if a
majority of TCI'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 TCI to negotiate in advance with
TCI's Board of Directors. See "-- Principal Reasons for the Incorporation
Procedure and the Merger -- Acquisition Safeguards". The Business Combination
Provision may discourage attempts to take over TCI 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 TCI's
Board of Directors, the Business Combination Provision may enable a minority of
TCI'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 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 TCI, 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 TCI nor directors, officers or employees of TCI'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 TCI'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 and acquisitions of a controlling interest.

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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 and the
Merger are adopted, such legislation will not apply to TCI.

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 TCI, including the potential impact of
any such transaction on TCI's creditors, partners, joint venturers, other
constituents or TCI and the communities in which its offices, other
establishments or investments are located (collectively, "Non-Stockholder
Constituencies") and on TCI'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 TCI's assets to finance an acquisition of
TCI and the effect that such use of TCI'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 TCI's
Non-Stockholder Constituencies and REIT status help to maintain or improve the
financial condition of TCI 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 outstanding shares is required for
the formation of a subsidiary to hold all or part of the Trust's assets. There
exists no comparable provision in the articles of incorporation of TCI.

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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 TCI submitted to stockholders. Although
those provisions may by themselves have a deterrent effect on some potential
acquisitions of TCI, 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 and
Merger -- Acquisition Safeguards" and "-- Comparison of Principal Differences
Between the Trust and TCI". The trustees recognize that the amendment
provisions may serve to entrench current management (see "-- Principal Reasons
for the Incorporation Procedure and the Merger -- Acquisition Safeguards" and
"-- Possible Negative Considerations"); however, for the same reasons the
trustees deem acquisition safeguards to be in the best interest of TCI and its
stockholders, the amendment provisions are required to buttress those
safeguards.

The Bylaw Amendment Provision. Article SEVENTH of the articles of
incorporation of TCI (the "Bylaw Amendment Provision") expressly authorizes
TCI's Board of Directors to make, adopt, alter, amend, change or repeal TCI's
bylaws. The Bylaw Amendment Provision further states that the stockholders of
TCI may not make, adopt, alter, amend, change or repeal TCI's bylaws except
upon the affirmative vote of holders of not less than 75% of the outstanding
stock of TCI entitled to vote thereon. The TCI Board of Directors is 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 TCI common stock to prevent holders of a
substantial majority of TCI 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 certain executive
officers of TCI have collective beneficial ownership of 45.5% of TCI common
stock (as of June 30, 1999). Nevertheless, TCI'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 TCI. In addition, the
provision will prevent a purchaser who acquires a majority of the shares of the
TCI 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 outstanding shares of the Trust.

The Articles of Incorporation Amendment Provision. Article SEVENTEENTH of
the articles of incorporation of TCI (the "Articles of Incorporation Amendment
Provision") requires the affirmative vote of at least 75% of the votes cast by
shareholders voting thereon 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 TCI'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
TCI common stock to obtain control over TCI. However, the Articles of
Incorporation Amendment Provision may

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help protect minority stockholders from disadvantageous changes supported by
less than a substantial majority of other stockholders.

The foregoing is only a summary of the similarities and differences between
TCI's articles of incorporation and bylaws, on the one hand, and the Trust's
Declaration of Trust and Trustees' Regulations, on the other. The complete
texts of those documents may be referred to by stockholders and are either
filed or incorporated by reference as exhibits to the Registration Statement.

Material Federal Income Tax Consequences

The following discussion is a summary of the material U.S. federal income
tax consequences of the Incorporation Procedure and the Merger to a shareholder
of the Trust. The discussion is based on the Code, the Treasury Regulations
promulgated thereunder (the "Treasury Regulations"), administrative rulings and
pronouncements and judicial decisions as of the date hereof, all of which are
subject to change (possibly with retroactive effect).

This discussion does not address all aspects of U.S. federal taxation that
may be relevant to particular shareholders of the Trust in light of their
personal investment circumstances or to shareholders of the Trust subject to
special treatment under the Code (including banks, tax-exempt organizations,
insurance companies, dealers in securities or foreign currency, shareholders of
the Trust who received their Trust shares through the exercise of employee
stock options or otherwise as compensation, shareholders of the Trust who are
not U.S. persons (under the Code) and shareholders of the Trust who hold their
Trust shares as part of a straddle, hedge or conversion transaction). In
addition, this discussion does not address any foreign, state or local tax
consequences of the Incorporation Procedure or the Merger. For purposes of this
discussion, a holder of depositary receipts will be treated as holding a direct
interest in the underlying securities.

Each shareholder of the Trust is urged to consult his or her own tax advisor
as to the particular tax consequences to him or her of the Incorporation
Procedure and the Merger, including the applicability and effect of U.S.
federal, foreign, state, local and other tax laws.

In the opinion of Andrews & Kurth L.L.P., counsel to TCI, the Incorporation
Procedure and the Merger should be treated for federal income tax purposes as
two separate reorganizations within the meaning of Section 368(a) of the Code.
The Trust and CME Corporation should each be a party to the Incorporation
Procedure reorganization within the meaning of Section 368(b) of the Code. TCI
and CME Corporation should each be a party to the Merger reorganization within
the meaning of Section 368(b) of the Code. In that event as a result of both
the Incorporation Procedure and the Merger,

(i) no gain or loss will be recognized by shareholders of the Trust who
receive TCI common stock pursuant to the Incorporation Procedure and the
Merger in exchange for Trust shares;

(ii) the tax basis of TCI common stock received by shareholders of the Trust
pursuant to the Incorporation Procedure and the Merger will be the same
as the tax basis in the Trust shares exchanged therefor;

(iii) the holding period of TCI common stock received by holders of the
Trust shares pursuant to the Incorporation Procedure and the Merger
will include the holding period of the Trust shares surrendered in
exchange therefor; and

(iv) no gain or loss will be recognized by the Trust, CME Corporation or
TCI as a result of the Incorporation Procedure or the Merger.

Notwithstanding the foregoing, cash received in lieu of a fractional share
interest in TCI common stock will be treated as if such fractional share was
actually received and then redeemed for cash, and in general, gain or loss will
be recognized, measured by the difference between the amount of cash received
and the basis

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of the Trust shares allocable to such fractional share. In general, such gain
or loss will constitute capital gain or loss if the Trust shares were held as
capital assets at the Effective Time. Any capital gain recognized as a result
of the Merger will be taxed at rates applicable to capital gains.

Furthermore, if the liabilities of the Trust exceeds the Trust's adjusted
basis of its assets the Trust will recognize gain equal to such excess. The
Trust does not expect its liabilities to exceed its assets' adjusted basis.

If the Incorporation Procedure does not qualify as a tax-free reorganization
for federal income tax purposes, the Incorporation Procedure would be treated
as a liquidation of the Trust and a deemed pro rata distribution of the Trust
assets to the holders of Trust shares, followed by the incorporation and
contribution of such assets to CME Corporation and, accordingly,

(i) a holder of Trust shares would recognize gain or loss, measured by the
difference between the fair market value of the Trust assets deemed to
have been distributed to the shareholder and the shareholder's basis in
the Trust shares exchanged therefor. Such gain or loss would constitute
capital gain or loss if the Trust shares were held as capital assets at
the Effective Time;

(ii) the tax basis of the CME Corporation common stock received in
connection with the Incorporation Procedure by a shareholder of the
Trust would be its fair market value at the Effective Time; and

(iii) the holding period of TCI common stock received by a shareholder of
CME Corporation pursuant to the Merger would commence on the day
following the date of the Effective Time.

Further, if the Incorporation Procedure did not qualify as a tax-free
reorganization, the Trust would recognize gain or loss equal to the difference
between the Trust's basis in its assets and the sum of the fair market value of
the consideration provided by CME Corporation in the Incorporation Procedure
and the liabilities assumed by CME Corporation. The consideration provided by
CME Corporation would be treated as distributed by the Trust in liquidation. In
computing its taxable income for its taxable year ended on the date of the
Incorporation Procedure, the Trust would generally be entitled to a dividends
paid deduction equal to the fair market value of the consideration provided by
CME Corporation and received by the shareholders of the Trust. In addition, if
the Trust would recognize built-in gain with respect to certain assets
previously acquired from a C corporation in a carryover basis transaction, the
gain would be subject to a corporate level tax under a Treasury Regulation
announced by the Internal Revenue Service but not yet issued. However, the
Trust does not believe that it has any such built-in gain. CME Corporation
would succeed to any tax liability of the Trust in the Incorporation Procedure.

If the Merger did not qualify as a tax-free reorganization for federal
income tax purposes, the Merger would be treated as a taxable exchange and,
accordingly,

(i) a holder of CME Corporation common stock would recognize gain or loss,
measured by the difference between the fair market value of TCI common
stock and cash received and the CME Corporation shareholder's basis in
the CME Corporation common stock exchanged therefor. Such gain or loss
would constitute capital gain or loss if the CME common stock were held
as capital assets at the Effective Time;

(ii) the tax basis of the TCI common stock received in connection with the
Merger by a shareholder of CME Corporation would be its fair market
value at the Effective Time; and

(iii) the holding period of TCI common stock received by a shareholder of
CME Corporation pursuant to the Merger would commence on the day
following the date of the Effective Time.

Further, if the Merger did not qualify as a tax-free reorganization, CME
Corporation would recognize gain or loss equal to the difference between CME
Corporation's basis in its assets and the sum of the fair market value of the
consideration provided by TCI in the Merger and the liabilities assumed by TCI.
The consideration provided by TCI would be treated as distributed by CME
Corporation in liquidation. In computing its taxable

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income for its taxable year ended on the date of the Merger, CME Corporation
would generally be entitled to a dividends paid deduction equal to the fair
market value of the consideration provided by TCI and received by the
shareholders of CME Corporation. In addition, if CME Corporation would
recognize built-in gain with respect to certain assets previously acquired from
a C corporation in a carryover basis transaction, the gain would be subject to
a corporate level tax under a Treasury Regulation announced by the Internal
Revenue Service but not yet issued. However, CME Corporation does not believe
that it has any such built-in gain. TCI would succeed to any tax liability of
CME Corporation in the Merger.

Certain Foreign, State and Local Taxes

If the Incorporation Procedure and the Merger are consummated, TCI may
become subject to state franchise or income taxes in addition to those which
the Trust is already obligated to pay. Management of the Trust believes that
the net effect on TCI of any additional state franchise or income taxes will
not be material.

No determination has been made as to how the proposed Incorporation
Procedure and the Merger would be treated under the various foreign, state or
local tax laws that might apply to shareholders, including without limitation
ad valorem tax laws in effect in the various states. Shareholders should
consult their own tax advisors as to the effect of the Incorporation Procedure
and the Merger on their individual tax liability under applicable foreign,
state or local tax laws.

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 and the Merger.

GENERAL PROVISIONS OF THE MERGER AGREEMENT

The Board of Directors of TCI and the Board of Trustees of the Trust have
unanimously approved the Merger Agreement which provides for the Merger to
occur at the Effective Time, with TCI continuing as the surviving corporation.
This section of the Joint Proxy Statement/Prospectus describes certain aspects
of the proposed Incorporation Procedure and the Merger, including certain
provisions of the Merger Agreement. The description of the Merger Agreement
contained in this Joint Proxy Statement/Prospectus does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is attached hereto as Appendix B and which is incorporated by
reference. All stockholders of TCI and shareholders of the Trust are urged to
read carefully the Merger Agreement in its entirety.

Conditions to Consummation of the Incorporation Procedure and the Merger

Each party's obligation to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of various conditions which include,
in addition to other customary closing conditions, the following:

(1) the stockholders of TCI and the shareholders of the Trust having
approved the Merger Agreement;

(2) the representations and warranties of TCI and the Trust contained in
the Merger Agreement must be true, complete and accurate as of the date
when made and at and as of the closing date as though such
representations, warranties and statements were made at and as of such
date (except for breaches of such representations, warranties and
statements which would, in aggregate, not cause a Material Adverse
Effect (defined below) regarding TCI, the Trust, the Trust's business
or its assets);

(3) the Trust and TCI must have performed and complied with all agreements,
obligations and conditions required by the Merger Agreement to be so
performed or complied with by it at or prior to the closing;

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(4) on the closing date, there cannot be any effective injunction, writ,
preliminary restraining order or any order of any nature issued by a
court of competent jurisdiction restraining or prohibiting the
consummation of the Incorporation Procedure and the Merger;

(5) there cannot be threatened, instituted or pending any suit, action,
investigation, inquiry or other proceeding by or before any court or
governmental or other regulatory or administrative agency or commission
requesting or looking toward an order, judgment or decree that (i)
restrains or prohibits the consummation of the Incorporation Procedure
and the Merger or (ii) would have a Material Adverse Effect on the
business, operations, condition (financial or otherwise), liabilities,
the assets of the Trust or earnings of TCI after the closing;

(6) all licenses, permits, approvals and authorizations of all third
parties and governmental bodies and agencies (including, without
limitation, SEC approval of this Joint Proxy Statement/Prospectus),
must have been obtained in the reasonable determination of TCI in
connection with (a) the execution and delivery by each of the parties
of the Merger Agreement, (b) the consummation by each of the parties of
the transactions contemplated thereby or (c) the conduct by TCI after
the Merger of the business of the Trust substantially as conducted
previously, except those consents and approvals which, if not obtained,
would not reasonably be expected to result, in the aggregate, in a
Material Adverse Effect;

(7) except as specifically disclosed in the Merger Agreement or by the
Trust in connection with the Merger Agreement, the events occurring
since December 31, 1997, and the conditions arising since such date
shall not, in the aggregate, have resulted in, or with the passage of
time or otherwise, reasonably be expected to result in, a Material
Adverse Change regarding TCI or the Trust, the business of the Trust or
the assets of the Trust;

(8) TCI and the Trust each shall have received the opinion of Andrews &
Kurth L.L.P. to the effect that the Incorporation Procedure and the
Merger constitute tax-free reorganizations within the meaning of
Section 368(a) of the Code; and

(9) the Registration Statement shall have been declared effective, and no
stop order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the Commission.

A "Material Adverse Change" or "Material Adverse Effect" means, with respect
to any party, any change, occurrence or effect (direct or indirect) on the
business, operations, properties (including tangible properties), condition
(financial or otherwise), assets, prospects (solely to the extent such
prospects are related to events specifically involving the affected party),
obligations or liabilities (whether absolute, contingent or otherwise and
whether due or to become due) of such party and its subsidiaries taken as a
whole that reasonably could be expected to exceed $5,000,000. "Material" or
"materially" or words of like effect shall (unless otherwise so provided) refer
to items capable of producing a monetary effect of at least $5,000,000 on the
business, operations, properties (including intangible properties), condition
(financial or otherwise), assets, prospects (solely to the extent such
prospects are related to events specifically involving the affected party),
obligations or liabilities (whether absolute, contingent or otherwise and
whether due or to become due) of the relevant party and its subsidiaries taken
as a whole.

No Solicitation

The Merger Agreement provides that prior to the closing, neither the Trust
nor TCI shall, and neither shall permit any of its officers, trustees,
directors or other representatives to, directly or indirectly, encourage,
solicit or initiate or (except as set forth below) participate in negotiations
with, or (except as set forth below) provide any information or assistance to,
any person (other than TCI and its representatives or CMET and its
representatives, as the case may be) concerning any merger, sale of securities,
sale of the assets of the Trust or TCI, as the case may be, or similar
transaction involving the Trust or TCI, as the case may be, or any of the
assets of the Trust or TCI, as the case may be, (any of the foregoing, a
"Transaction"), other than the

67
<PAGE>

transactions contemplated between the parties by the Merger Agreement. In the
event that the Board of Trustees of the Trust or the Board of Directors of TCI
makes a reasonable determination that its fiduciary obligations require it to
negotiate with or provide information to an unsolicited third party regarding a
Transaction, then the Trust or TCI, as the case may be, must notify the other
promptly of the existence of such negotiations and the names of each person,
other than the Trust or TCI, as the case may be, participating in discussions
regarding such a Transaction, although the Trust or TCI may engage in such
negotiations notwithstanding such prohibition.

Termination

The Merger Agreement may be terminated at any time prior to the Merger,
whether before or after adoption thereof by the stockholders of the Trust or
TCI:

(1) by mutual agreement of the Trust and TCI;

(2) by TCI, on or after June 30, 1999, if any of the conditions precedent
to the Merger contained in the Merger Agreement have not been met or,
to the extent permitted by applicable law, have not been waived in
writing by TCI prior to such date; or

(3) by the Trust, on or after June 30, 1999, if any of the conditions
precedent to the Merger contained in the Merger Agreement have not been
met or, to the extent permitted by applicable law, have not been waived
in writing by the Trust prior to such date.

In the event of termination of the Merger Agreement by the Trust or TCI,
written notice thereof shall promptly be given to the other parties and the
transactions contemplated by the Merger Agreement shall be terminated, without
further action by any party. The Merger Agreement does not provide the payment
of any termination fees if the Merger Agreement is terminated.

Conduct of the Business Pending the Merger

Pursuant to the Merger Agreement, the Trust and TCI have each agreed to
carry on their respective businesses only in the ordinary course, in accordance
with prudent practice and consistent with past practices. In addition, TCI and
the Trust have each agreed that, among other things and subject to certain
exceptions, neither it nor any of its subsidiaries may:

(1) incur any liabilities or obligations of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become
due), except in limited circumstances;

(2) sell, transfer or otherwise dispose of any of their assets other than
in the ordinary course of business;

(3) grant any increase in the compensation payable to or to become payable
to any trustees, directors or officers (including, without limitation,
any increase or change pursuant to any bonus, pension, profit-sharing
or other plan or commitment);

(4) enter into any employment agreement, or enter into any consulting
agreement or other agreement that contains any provision for severance
or termination liabilities or obligations (including, without
limitation, change of control or "golden parachute" provisions);

(5) make aggregate capital expenditures or commitments in excess of
$100,000 for additions to property or for any other purpose;

(6) enter into any agreement or contract or commitment of the type outside
the ordinary course of business; or

(7) issue any additional shares of capital stock of or beneficial interests
or options, warrants, rights (including, without limitation, stock
appreciation rights and phantom stock rights) or other securities
exercisable for, convertible into or exchangeable for shares of capital
stock of or beneficial interests

68
<PAGE>

except for shares issued pursuant to a dividend reinvestment plan, or
pay any dividend (or make any other distribution) to its holders of
capital stock or beneficial interests except regular quarterly
dividends.

Amendment and Waiver

The Merger Agreement may only be amended by an instrument in writing signed
on behalf of each party. Prior to the Merger, the Trust or TCI may waive any
obligation of the other party contained in the Merger Agreement.

Expenses

Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
(including the Incorporation Procedure) will be paid by the party incurring
such fees or expenses (including, without limitation, legal fees, accounting
fees and investment advisor, broker and/or agent fees).

Representations and Warranties

The Merger Agreement contains customary mutual representations and
warranties relating to, among other things, (i) corporate organization and
similar corporate matters; (ii) subsidiaries; (iii) the capital structures of
each of the Trust and TCI; (iv) authorization, execution, delivery,
performance and enforceability of, and required consents, approvals, orders
and authorizations of governmental authorities relating to, the Merger
Agreement and related matters; (v) absence of conflicts; (vi) accuracy of
financial and operating statements supplied to the other party; (vii) absence
of undisclosed or contingent liabilities that are not disclosed on the
financial and operating statements; (viii) material assets; (ix) the absence
of certain changes in 1998; (x) current material contracts and commitments;
(xi) status of accounts and notes receivable; (xii) status of pending and/or
threatened litigation; (xiii) insurance coverage; (xiv) compensation of
employees, officers and trustees/directors; (xv) permits applicable to their
respective businesses; (xvi) environmental and tax matters; (xvii) title to
assets; (xviii) absence of claims for redemption of capital stock; (xix)
brokers' commissions payable in connection with the Merger Agreement; and (xx)
fairness opinions received by both entities with respect to the Merger
consideration.

PROPOSED AMENDMENT OF TCI'S ARTICLES OF INCORPORATION

General

On July 28, 1999, the Board of Directors of TCI unanimously approved an
amendment to Article TENTH of TCI's articles of incorporation which, if
approved by the stockholders of TCI, would exclude the proposed Merger from
the super-majority voting requirements of Article TENTH. The effect of the
amendment would be to allow approval of the Merger by a simple majority vote
of the outstanding shares of TCI common stock.

The Amendment

At present, Article TENTH of TCI's articles of incorporation provides,
among other things, that a Business Combination with, or proposed by or on
behalf of, any Interested Stockholder requires approval by the affirmative
vote of not less than 66 2/3% of the votes entitled to be cast on such
transaction, excluding shares held by the Interested Stockholder and its
associates and affiliates. See "Proposed Incorporation Procedure and Merger --
Business Activities after Incorporation Procedure and Merger -- The Business
Combination Provision". American Realty Trust, Inc. is an Interested
Stockholder of TCI and the proposed Merger falls within the definition of
Business Combination. Without the adoption of the proposed amendment to
approve the Merger, holders of at least 66 2/3% of the shares of TCI common
stock, other than American Realty Trust, Inc. and its affiliates and
associates, must vote in favor of the Merger.

69
<PAGE>

The proposed amendment carves out a very limited exception which would allow
approval of the Merger by a simple majority vote of all of the outstanding
shares of TCI common stock, including those held by American Realty Trust, Inc.
and its associates and affiliates. Specifically, the amendment would exclude
any Business Combination of TCI and the Trust, which would include the Merger,
from the super-majority voting requirements of Article TENTH. No other use of
this exception would be permitted by the terms of the amendment.

In arriving at its decision to approve the amendment, the Board of Directors
considered that few stockholders attended or mailed proxies for the special
meeting of TCI stockholders held on June 29, 1999, at which the stockholders
were to consider and vote on the proposed Merger. The June 29, 1999 special
meeting was adjourned to July 15, 1999 to allow for additional stockholder
turnout. However, at the July 15, 1999 special meeting few additional
stockholders were present or had signed proxies. Thus, the Board of Directors
again adjourned the special meeting to July 29, 1999.

At the July 29, 1999 meeting, sufficient affirmative votes by holders of TCI
common stock were present to approve the Merger by 66 2/3% of the votes
entitled to be cast by all stockholders. Also, of the holders that were present
by proxy or in person, other than American Realty Trust, Inc., its affiliates
and its associates, more than 66 2/3% voted to approve the Merger. However, due
to the continued low voter turnout, the Merger was not approved by 66 2/3% of
the outstanding shares of TCI common stock, excluding the shares held by
American Realty Trust, Inc. and its affiliates and associates.

In light of the continued low voter turnout, the Board of Directors believes
it is in the best interest of TCI to approve the amendment. If the amendment is
approved, only a simple majority vote of all outstanding TCI common stock will
be required to approve the Merger, and TCI can avoid the continued cost and
delay associated with locating stockholders who have not responded.

To approve the amendment, holders of a majority in interest of TCI common
stock must vote in favor of the amendment.

70
<PAGE>

MARKET PRICES OF THE SHARES; DIVIDENDS;
COMPARATIVE PER SHARE MARKET PRICE

The TCI common stock is listed on the NYSE and is traded under the ticker
symbol "TCI". The Trust shares are traded on the NASDAQ using the symbol
"CMETS". Following the Incorporation Procedure and the Merger, the TCI common
stock will continue to be listed on the NYSE and traded under the ticker symbol
"TCI".

The tables below set forth, for the calendar quarters indicated, the
reported high and low sale prices of the TCI common stock and the Trust shares
on the NYSE and NASDAQ, respectively, in each case based on published financial
sources, and the dividends declared on such stock.

<TABLE>
<CAPTION>
TCI common TCI common
Trust shares Trust shares stock stock
Quarter High Low High Low
------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
First Quarter, 1996 $10 1/2 $9 5/8 $11 1/2 $9 5/8
Second Quarter, 1996 11 3/4 9 5/8 10 1/2 9 1/4
Third Quarter, 1996 11 1/2 10 10 1/2 9 3/4
Fourth Quarter, 1996 12 1/4 10 1/2 11 1/8 9 7/8
First Quarter, 1997 15 1/2 11 14 7/8 10 3/4
Second Quarter, 1997 16 1/4 11 15 5/8 10 3/4
Third Quarter, 1997 21 1/4 11 1/2 21 1/4 14 1/2
Fourth Quarter, 1997 21 1/2 15 1/2 21 3/8 13 3/8
First Quarter, 1998 18 15 1/2 18 1/4 14 1/4
Second Quarter, 1998 23 14 3/4 17 5/16 14 3/4
Third Quarter, 1998 17 1/2 15 16 1/4 12 1/2
Fourth Quarter, 1998 16 14 14 1/2 11 1/2
First Quarter, 1999 17 14 5/16 16 3/8 11 5/8
Second Quarter, 1999 15 1/2 14 1/2 12 1/2 11 3/8
</TABLE>

The Trust paid dividends as follows:

<TABLE>
<CAPTION>
Date Declared Record Date Payable Date Amount
------------- ----------- ------------ ------
<S> <C> <C> <C>
March 1, 1996 March 15, 1996 March 31, 1996 $ .13
June 3, 1996 June 14, 1996 June 28, 1996 .13
August 23, 1996 September 3, 1996 September 9, 1996 .13
August 23, 1996 September 3, 1996 September 9, 1996 .37*
December 2, 1996 December 13, 1996 December 31, 1996 .13
February 26, 1997 March 14, 1997 March 31, 1997 .13
June 5, 1997 June 13, 1997 June 30, 1997 .13
September 3, 1997 September 15, 1997 September 30, 1997 .13
December 1, 1997 December 15, 1997 December 31, 1997 .13
February 16, 1998 March 13, 1998 March 31, 1998 .15
May 27, 1998 June 4, 1998 June 19, 1998 .15
August 31, 1998 September 15, 1998 September 30, 1998 .15
November 24, 1998 December 15, 1998 December 30, 1998 .15
March 4, 1999 March 15, 1999 March 31, 1999 .15
June 2, 1999 June 14, 1999 June 30, 1999 .15
</TABLE>
- --------
* Special dividend.

71
<PAGE>

In November 1995 the TCI Board of Directors approved the resumption of the
payment of regular quarterly dividends. TCI has paid dividends as follows:

<TABLE>
<CAPTION>
Date Declared Record Date Payable Date Amount
------------- ------------------ ------------------ ------
<S> <C> <C> <C>
March 1, 1996 March 15, 1996 March 31, 1996 $ .07
June 3, 1996 June 14, 1996 June 28, 1996 .07
August 23, 1996 September 13, 1996 September 30, 1996 .07
December 2, 1996 December 13, 1996 December 31, 1996 .07

February 26, 1997 March 14, 1997 March 31, 1997 .07
June 5, 1997 June 13, 1997 June 30, 1997 .07
September 3, 1997 September 15, 1997 September 30, 1997 .07
December 1, 1997 December 15, 1997 December 31, 1997 .07
December 24, 1997 January 2, 1998 January 8, 1998 1.00*

February 16, 1998 March 13, 1998 March 31, 1998 .15
May 27, 1998 June 4, 1998 June 19, 1998 .15
August 31, 1998 September 15, 1998 September 30, 1998 .15
November 24, 1998 December 15, 1998 December 31, 1998 .15

March 4, 1999 March 15, 1999 March 31, 1999 .15
June 2, 1999 June 14, 1999 June 30, 1999 .15
</TABLE>
- --------
* Special dividend.

As of June 30, 1999 there were approximately 4,215 Trust shareholders of
record.

On December 5, 1989, the Trust's Board of Trustees approved a share
repurchase program pursuant to which the Trust is authorized to repurchase a
total of 1,465,000 Trust shares. The Trust completed the authorized repurchase
during the first quarter of 1998. The Trust repurchased such shares at a total
cost to the Trust of $7.8 million.

In April 1998, the Trust's Board of Trustees authorized the Trust to
repurchase an additional 200,000 of the Trust shares. No Trust shares have been
repurchased under this authorization.

As of the date of this Joint Proxy Statement/Prospectus, the Board of
Trustees of the Trust has suspended all purchases under its share repurchase
program pending approval of the Merger.

As of June 30, 1999 there were approximately 4,937 TCI shareholders of
record.

On December 5, 1989, TCI's Board of Directors approved a share repurchase
program. The Board of Directors authorized TCI to repurchase a total of 687,000
shares of TCI common stock pursuant to such program. Through April 30, 1999,
TCI had repurchased 409,765 shares of TCI common stock pursuant to such program
at a cost to TCI of $3.3 million. TCI repurchased 21,950 shares of TCI common
stock at a cost of $336,000 during the first nine months of 1998.

As of the date of this Joint Proxy Statement/Prospectus, the Board of
Directors of TCI has suspended all purchases under its share repurchase program
pending approval of the Merger.

On September 18, 1998, the closing price per Trust share on the NASDAQ was
$16.625 and the closing price per share of TCI common stock on the NYSE was
$13.0625. On September 21, 1998, the Trust and TCI publicly reported that the
Board of Trustees and the Board of Directors were evaluating whether to
recommend changes similar to the Incorporation Procedure and the Merger to
their respective shareholders. On May 11, 1999, the most recent date for which
prices were available prior to the date of filing this Joint Proxy
Statement/Prospectus, the closing price per Trust share on the NASDAQ was
$14.50 and the closing price per TCI share on the NYSE was $12.00. Stockholders
of TCI and shareholders of the Trust should obtain current market quotations
for their respective shares.

72
<PAGE>

BUSINESS AND PROPERTIES OF TCI

TCI, a Nevada corporation, is the successor to a California business trust,
which was organized on September 6, 1983 and commenced operations on January
31, 1984. TCI has elected to be treated as a REIT under Sections 856 through
860 of the Code. TCI has, in the opinion of TCI's management, qualified for
federal taxation as a REIT for each year subsequent to December 31, 1983.

General

The articles of incorporation impose no limitations on TCI's ability to
invest in equity securities of, or acquire interests in, other persons engaged
in real estate activities. Although TCI 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. TCI 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, TCI 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 and
Merger -- Business Activities after Incorporation Procedure and Merger".

TCI has the authority to issue shares of TCI 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 TCI's Board of Directors believe to be in the
best interests of TCI. As of June 30, 1999, there were 3,880,014 shares of
issued and outstanding shares of TCI common stock and there were 5,829 shares
of issued and outstanding preferred stock. See "Proposed Incorporation
Procedure and Merger -- Comparison of the Securities of TCI and the Trust --
Preferred Stock".

Subject to available financing, TCI 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 TCI 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 TCI may serve as directors, officers or
trustees, subject to the limitations set forth in the "Proposed Incorporation
Procedure and Merger -- Business Activities after Incorporation Procedure and
Merger -- Restrictions on Related-Party Transactions". TCI may make loans to
other persons or entities. TCI may also take properties subject to, or assume,
existing debt and may mortgage, pledge or otherwise obtain financing for its
real properties. TCI may also establish lines of credit with banks or other
lenders. The articles of incorporation of TCI impose no limitation on the
aggregate amount of secured and unsecured indebtedness which TCI may incur. No
assurance can be given as to the availability of credit for TCI, the amount or
terms thereof or of the restrictions that may be imposed upon TCI 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". TCI also has the authority to issue notes, debentures,
convertible notes and other debt securities. TCI 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 presently restrict the repurchase of capital stock by a
corporation. See "Proposed Incorporation Procedure and Merger -- Comparison of
the Securities of TCI and the Trust" above. TCI provides its stockholders with
annual and other reports as required by the Exchange Act and Securities Act.

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

Business Plan and Investment Policies

TCI's business is investing in equity interests in real estate through
direct equity ownership and partnerships and financing real estate and real
estate related activities through investments in mortgage loans,

73
<PAGE>

including first, wraparound and junior mortgage loans. TCI's real estate is
located throughout the continental United States. Information regarding the
real estate and mortgage notes receivable portfolios of TCI is set forth below
and in Schedules III and IV included in the "Index to Financial Statements"
included in TCI's Annual Report on Form 10-K for the year ended December 31,
1998, which is incorporated by reference herein.

TCI's business is not seasonal. TCI has determined to continue to pursue a
balanced investment policy, seeking both current income and capital
appreciation. With respect to new real estate investments, TCI's plan of
operation is to consider all types of real estate, but in an attempt to bring
balance to its real estate portfolio, TCI will focus on apartments, primarily
located in the Southeast and Southwest regions of the United States. In making
any new real estate investments, emphasis will be on acquiring properties
generating current cash flow. TCI expects to continue to invest in and improve
these assets to maximize both their immediate and longer term value.

TCI expects to consider property sales opportunities for properties in
stabilized real estate markets where TCI's properties have reached their
potential. TCI may also be an opportunistic seller of properties in markets
that have become overheated, i.e. an abundance of buyers.

TCI's operating strategy with regard to its properties is to maximize each
property's operating income by aggressive property management through closely
monitoring expenses while at the same time making property renovations and/or
improvements where appropriate. While such expenditures increase the amount of
revenue required to cover operating expenses, TCI's management believes that
such expenditures are necessary to maintain or enhance the value of TCI's
properties.

TCI has determined that in 1999 it may seek to fund or acquire new mortgage
loans to take advantage of favorable interest rate spreads or profit
participation opportunities. TCI may also originate mortgage loans in
conjunction with providing purchase money financing of a property sale. TCI
intends to service and hold for investment the mortgage notes in its portfolio.
TCI may, however, borrow against its mortgage notes receivable using the
proceeds from such borrowings to fund additional mortgage loans or for general
working capital needs . TCI also intends to pursue its rights vigorously with
respect to mortgage notes that are in default. TCI's articles of incorporation
impose no limitations on TCI's investment policy with respect to mortgage loans
and do not prohibit TCI from investing more than a specified percentage of its
assets in any one mortgage loan.

TCI Assets

Details of TCI's real estate and mortgage notes receivable portfolios at
December 31, 1998, are set forth in Schedules III and IV, respectively, to the
Consolidated Financial Statements. The discussions set forth below under the
headings "Real Estate" and "Mortgage Loans" provide certain summary information
concerning the TCI's real estate and mortgage notes receivable portfolios.

TCI's real estate portfolio consists of properties held for investment,
properties held for sale, primarily obtained through foreclosure of the
collateral securing mortgage notes receivable and investment in partnerships.
The discussion set forth below under the heading "Real Estate" provides certain
summary information concerning TCI's real estate and further summary
information with respect to the TCI's properties held for investment,
properties held for sale and its investment in partnerships.

At December 31, 1998 and March 31, 1999, none of TCI's properties, mortgage
notes receivable or investment in partnerships exceeded 10% or more of TCI's
total assets. At March 31, 1999, 91% of TCI's assets consisted of properties
held for investment and 1% consisted of properties held for sale and investment
in partnerships. The remaining 8% of TCI's assets at December 31, 1998 were
invested in cash, cash equivalents, mortgage notes and interest receivable and
other assets. The percentage of TCI's assets invested in any one category is
subject to change and no assurance can be given that the composition of TCI's
assets in the future will approximate the percentages listed above.

74
<PAGE>

TCI's real estate is geographically diverse. At March 31, 1999, TCI held
investments in apartments and commercial properties in each of the geographic
regions of the continental United States, although its apartments and
commercial properties are concentrated in the Southeast and Southwest regions,
as shown more specifically in the table under "Real Estate" below. At March 31,
1999, TCI held mortgage notes receivable secured by apartments in the Southwest
region and commercial properties in the Southwest region of the continental
United States, as shown more specifically in the table under "Mortgage Loans"
below.

To continue to qualify for federal taxation as a REIT under the Code, TCI 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.

Geographic Location of Real Estate Investments. TCI 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. TCI has three
apartments in this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. TCI
has three apartments and 12 commercial properties in this region.

Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas. TCI has 27 apartments and eight 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. TCI has three commercial
properties and three hotels in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. TCI has two commercial properties in this region.

Pacific region comprised of the states of California, Oregon and
Washington. TCI has five apartments, five commercial properties and a hotel
in this region.

Excluded from the above are ten parcels of unimproved land, as described
below.

Real Estate. At March 31, 1999, over 90% of TCI's assets were invested in
real estate. TCI invests in real estate located throughout the continental
United States, either on a leveraged or nonleveraged basis. TCI's real estate
portfolio consists of properties held for investment, investments in
partnerships and properties held for sale (which were primarily obtained
through foreclosure of the collateral securing mortgage notes receivable).

Types of Real Estate Investments. TCI's real estate consists of commercial
properties (office buildings, industrial warehouses and shopping centers),
hotels and apartments or similar properties having established income-producing
capabilities. In selecting new real estate investments, the location, age and
type of property, gross rentals, lease terms, financial and business standing
of tenants, operating expenses, fixed charges, land values and physical
condition are among the factors considered. TCI may acquire properties subject
to or assume existing debt and may mortgage, pledge or otherwise obtain
financing for its properties. TCI's Board of Directors may alter the types of
and criteria for selecting new real estate investments and for obtaining
financing without a vote of stockholders.

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

75
<PAGE>

At March 31, 1999, TCI had expended $5.6 million for the construction of
the 260 unit Limestone Canyon Apartments in Austin, Texas. TCI expects to
expend an additional $9.1 million to complete construction in the fourth
quarter of 1999. TCI has in place a construction loan which will fund up to
$13.0 million of such construction costs.

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

The following table sets forth the percentages, by property type and
geographic region, of TCI's real estate (other than four hotels in the Pacific
and Midwest regions and ten parcels of unimproved land, as described below) at
March 31, 1999.

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
------ ---------- ----------
<S> <C> <C>
Pacific 6% 9%
Midwest - 14
Northeast 10 -
Southwest 75 22
Southeast 9 50
Mountain - 5
--- ---
100% 100%
</TABLE>

The foregoing table is based solely on the number of apartment units and
amount of commercial square footage owned by TCI and does not reflect the
value of TCI's investment in each region. TCI also owns ten parcels of
unimproved land, three parcels of 65.79 acres, 4.66 acres, and 4.67 acres in
the Southeast region and seven parcels of 14.39 acres, .9250 acres, 4.7 acres,
8.844 acres, 22.99 acres, 1.41 acres and 2.14 acres in the Southwest region,
all of which, other than the last five parcels, are held for sale.

A summary of activity in TCI's owned real estate portfolio during 1998 and
the first three months of 1999 was as follows:

<TABLE>
<S> <C>
Owned properties in real estate portfolio at January 1, 1998 62
Properties purchased 24
Properties sold (5)
Property obtained through foreclosure 1
---
Owned properties in real estate portfolio at March 31, 1999 82
===
</TABLE>

76
<PAGE>

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

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Units/ ------------------------- ------------------------
Property Location Square Footage 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- ------------------ ------------------------- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
4400................ Midland, TX 92 Units/94,472 Sq. Ft. $ .49 $ * $ * $ * $* 98 * * * *
Arbor Point......... Odessa, TX 195 Units/178,920 Sq. Ft. .42 .41 .37 * * 78 85 65 * *
Ashton Way.......... Midland, TX 178 Units/138,964 Sq. Ft. .41 * * * * 93 * * * *
Bent Tree........... Addison, TX 204 Units/196,300 Sq. Ft. .70 * * * * 93 * * * *
Carseka............. Los Angeles, CA 54 Units/37,068 Sq. Ft. 1.01 .97 .93 * * 97 98 100 * *
Cliffs of Eldorado.. McKinney, TX 208 Units/182,288 Sq. Ft. .92 * * * * 80 * * * *
Country Bend........ Fort Worth, TX 166 Units/143,366 Sq. Ft. .58 .54 * * * 94 92 * * *
Coventry............ Midland, TX 120 Units/105,608 Sq. Ft. .42 .39 .37 * * 91 96 92 * *
Crescent Place...... Houston, TX 120 Units/95,520 Sq. Ft. .60 .57 * * * 97 93 * * *
Fairpark............ Los Angeles, CA 49 Units/43,431 Sq. Ft. .93 .24 * * * 99 91 * * *
Fountain Village.... Tucson, AZ 410 Units/363,079 Sq. Ft. .69 .65 .65 .65 .64 91 93 93 93 95
Fountains of
Waterford.......... Midland, TX 172 Units/129,200 Sq. Ft. .35 * * * * 2 * * * *
Gladstell Forest.... Conroe, TX 168 Units/121,536 Sq. Ft. .70 .67 .65 .62 * 97 92 92 94 *
Harper's Ferry...... Lafayette, LA 122 Units/112,500 Sq. Ft. .55 .51 .48 .47 .44 95 97 96 94 97
Heritage............ Tulsa, OK 136 Units/92,464 Sq. Ft. .69 .64 .62 .60 .60 94 95 95 94 93
Hunters Glen........ Midland, TX 212 Units/174,180 Sq. Ft. .37 * * * * 90 * * * *
Limestone Canyon.... Austin, TX 260 Units/216,000 Sq. Ft. ** ** ** ** ** ** ** ** ** **
Mariners Pointe..... St. Petersburg, FL 368 Units/310,494 Sq. Ft. .53 .51 .51 .49 .52 93 85 89 91 89
Mountain Plaza...... El Paso, TX 188 Units/220,710 Sq. Ft. .47 * * * * 92 * * * *
Sandstone........... Mesa, AZ 238 Units/363,079 Sq. Ft. .33 .30 * * * 94 93 * * *
Shadow Run.......... Pinellas Park, FL 276 Units/216,400 Sq. Ft. .76 .74 .71 .70 .68 97 97 96 98 99
South Cochran....... Los Angeles, CA 64 Units/43,100 Sq. Ft. 1.06 .96 .93 .93 .93 99 96 96 97 96
Southgate........... Odessa, TX 180 Units/151,656 Sq. Ft. .44 .43 .39 * * 88 87 63 * *
Southgreen.......... Bakersfield, CA 80 Units/66,000 Sq. Ft. .17 * * * * 95 * * * *
Spa Cove............ Annapolis, MD 303 Units/305,989 Sq. Ft. .81 .77 .75 .75 .74 95 94 93 95 96
Summerfield......... Orlando, FL 224 Units/204,116 Sq. Ft. .66 .63 .59 .56 .54 91 93 92 89 82
Summerstone......... Houston, TX 242 Units/188,734 Sq. Ft. .63 .61 .59 .57 .57 96 93 94 96 95
Sunchase............ Odessa, TX 300 Units/223,048 Sq. Ft. .44 .43 * * * 92 90 * * *
Terrace Hills....... El Paso, TX 310 Units/233,192 Sq. Ft. .63 .58 * * * 97 95 * * *
Timbers............. Tyler, TX 180 Units/101,666 Sq. Ft. .54 .54 * * * 87 92 * * *
Treehouse........... Irving, TX 160 Units/153,072 Sq. Ft. .68 .62 * * * 96 99 * * *
Villas at
Countryside........ Sterling, VA 102 Units/92,840 Sq. Ft. .97 .94 * * * 99 96 * * *
Villa Piedra........ Los Angeles, CA 132 Units/81,790 Sq. Ft. 1.04 .30 * * * 98 89 * * *
Westgate of Laurel.. Laurel, MD 218 Units/201,704 Sq. Ft. .85 .82 .81 .79 .79 95 96 96 94 94
Westwood............ Odessa, TX 79 Units/49,001 Sq. Ft. .45 .45 .40 * * 99 87 65 * *
Woodland Hills...... San Antonio, TX 96 Units/57,800 Sq. Ft. .66 .66 .66 .64 .59 84 86 90 94 97
Woods Edge.......... Rockville, MD 162 Units/146,460 Sq. Ft. 1.02 .95 .93 .93 .91 96 94 93 94 94
Woodview............ Odessa, TX 232 Units/165,840 Sq. Ft. .51 * * * * 85 * * * *
</TABLE>

77
<PAGE>

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Units/ ---------------------------------- ------------------------
Property Location Square Footage 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- -------------------- --------------- ------ ------ ------ ------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office Buildings
74 New Montgomery.. San Francisco, CA 109,497 Sq. Ft. $20.46 $16.18 $14.88 $14.67 $14.59 98 97 92 89 53
Atrium............. Palm Beach, FL 74,603 Sq. Ft. 8.86 * * * * 99 * * * *
Bonita Plaza....... Bonita, CA 47,777 Sq. Ft. 16.59 20.81 * * * 88 61 * * *
Corporate Pointe... Chantilly, VA 65,918 Sq. Ft. 14.92 13.69 13.41 13.07 12.74 100 100 100 100 81
Daley Plaza........ San Diego, CA 62,425 Sq. Ft. 14.69 * * * * 92 * * * *
Forum.............. Richmond, VA 79,791 Sq. Ft. 14.82 14.64 14.02 13.38 11.46 81 96 100 98 86
Hartford........... Dallas, TX 174,513 Sq. Ft. 9.93 8.86 9.44 9.55 9.64 57 46 46 50 56
Institute Place.... Chicago, IL 144,915 Sq. Ft. 14.73 12.95 12.31 13.14 12.49 95 86 75 73 70
Lexington Center... Colorado Springs, CO 74,603 Sq. Ft. 10.93 9.57 * * * 80 60 * * *
One Steeplechase... Sterling, VA 103,376 Sq. Ft. 15.74 15.24 14.75 14.32 13.91 100 100 100 100 100
Parkway North...... Dallas, TX 71,041 Sq. Ft. 12.62 * * * * 78 * * * *
Plaza on Bachman
Creek............. Dallas, TX 80,278 Sq. Ft. 10.66 * * * * 69 * * * *
Plaza Towers....... St. Petersburg, FL 186,281 Sq. Ft. 13.33 12.77 12.15 11.84 11.85 100 96 88 82 75
Savings of
America........... Houston, TX 68,634 Sq. Ft. 9.70 11.16 * * * 89 90 * * *
Town and Country... Houston, TX 64,089 Sq. Ft. 5.06 4.80 4.47 4.18 3.69 68 76 67 62 76
Valley Rim......... San Diego, CA 54,194 Sq. Ft. 15.81 * * * * 88 * * * *
Venture Center..... Atlanta, GA 38,272 Sq. Ft. 14.74 13.07 12.67 12.10 11.65 71 100 94 89 100
Viewridge.......... San Diego, CA 25,062 Sq. Ft. 7.20 * * * * 87 * * * *
Waterstreet........ Boulder, CO 106,257 Sq. Ft. 17.56 16.73 15.60 14.70 14.30 98 99 96 99 98

Industrial
Warehouses
Corporate Center... Ashburn, VA 177,563 Sq. Ft. 6.32 5.93 5.64 5.19 5.96 100 98 80 51 71
Encon.............. Fort Worth, TX 256,410 Sq. Ft. 2.00 1.66 * * * 100 100 * * *
Parke Long......... Chantilly, VA 217,132 Sq. Ft. 6.69 6.15 5.32 5.61 5.55 87 87 80 71 71
Technology
Trading........... Sterling, VA 197,659 Sq. Ft. 5.76 5.10 5.26 4.83 4.69 87 70 78 77 74
Texstar............ Arlington, TX 97,846 Sq. Ft. 2.11 2.11 1.86 1.86 1.86 100 100 100 100 100
Tricon............. Atlanta, GA 570,877 Sq. Ft. 3.59 3.44 3.29 3.05 3.17 98 91 93 98 92

Shopping Centers
Dunes Plaza........ Michigan City, IN 223,869 Sq. Ft. 4.84 4.58 4.49 4.40 4.31 43 77 82 85 77
K-Mart............. Cary, NC 92,033 Sq. Ft. 3.28 *** *** *** *** 100 *** *** *** ***
Parkway Center..... Dallas, TX 28,374 Sq. Ft. 13.86 13.00 12.01 11.24 11.09 94 100 94 94 95
Sadler Square...... Amelia Island, FL 70,295 Sq. Ft. 6.90 6.76 6.54 6.14 5.90 95 96 95 92 96
Sheboygan.......... Sheboygan, WI 74,532 Sq. Ft. 1.99 1.99 1.99 1.99 1.99 100 100 100 100 100

Land
Eagle Crest........ Farmers Branch, TX 22.99 Acres
Las Colinas........ Las Colinas, TX 4.7 Acres
Laws............... Dallas, TX 1.41 Acres
Lemmon Carlisle.... Dallas, TX 2.14 Acres
West End........... Dallas, TX 8.844 Acres
</TABLE>
- --------
* Property was purchased in either 1995, 1996, 1997 or 1998.
** Property was under construction at December 31, 1998.
*** Obtained through foreclosure in 1998.

78
<PAGE>

<TABLE>
<CAPTION>
Total Room Revenues
Divided By
Average Room Rate Occupancy % Total Available Rooms
------------------------------------- ------------------------ ---------------------
Property Location Rooms 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 1998 1997 1996
- -------- ----------------- -------- ------- ------- ------- ------ ------ ---- ---- ---- ---- ---- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hotels
Belmont......... Chicago, IL 45 Rooms $101.13 $ * $ * $ * $ * 68 * * * * $ 67.93 $ * $ *
Brompton........ Chicago, IL 52 Rooms 98.08 * * * * 50 * * * * 46.54 * *
Majestic Inn.... San Francisco, CA 57 Rooms 148.96 136.08 117.45 106.79 107.15 71 73 70 56 58 112.54 93.26 76.50
Surf............ Chicago, IL 55 Rooms 98.85 * * * * 57 * * * * 56.12 * *
</TABLE>
- -------
* Property was purchased in 1998.

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

In January 1998, TCI purchased the 188 unit Mountain Plaza Apartments, in El
Paso, Texas, for $4.0 million, paying $1.0 million in cash and obtaining
mortgage financing of $3.0 million. The mortgage bears interest at 8.2% per
annum, requires monthly payments of interest only and matures in January 2000.

Also in January 1998, TCI purchased the 212 unit Hunters Glen Apartments in
Midland, Texas, for $2.5 million, paying $600,000 in cash and obtaining seller
financing of the remaining $1.9 million of the purchase price. The financing
bears interest at a variable rate, currently 8.0% per annum, requires monthly
payments of interest only for the first twenty-four months and thereafter
requires monthly payments of principal and interest of $14,302 and matures in
January 2003.

Further in January 1998, TCI purchased the Laws Street land, a 1.41 acre
parcel of land in Dallas, Texas, for $1.9 million in cash.

In January 1998, TCI purchased the 204 unit Bent Tree Apartments, in
Addison, Texas, for $8.1 million, paying $1.7 million in cash and obtaining
mortgage financing of $6.4 million. The mortgage bears interest at 7.2% per
annum, requires monthly payments of principal and interest of $46,054 and
matures in February 2008.

In February 1998, TCI purchased Parkway North, a 71,041 sq ft office
building in Dallas, Texas, for $5.4 million, paying $1.5 million in cash and
obtaining mortgage financing of $3.9 million. The mortgage bears interest at a
variable rate, currently 8.69% per annum, requires monthly payments of interest
only and matures in March 2000.

Also in February 1998, TCI purchased the Lemmon Carlisle land, a 2.14 acre
parcel of land in Dallas, Texas, for $3.4 million in cash. In May 1998, TCI
obtained mortgage financing of $2.2 million secured by the unencumbered Lemmon
Carlisle land. TCI received net cash of $2.1 million after the payment of
various closing costs. The mortgage bears interest at 9.25% per annum, requires
monthly payments of interest only and matures in May 2000.

In March 1998, TCI purchased the Plaza on Bachman Creek, a 80,278 sq. ft.
retail/office complex in Dallas, Texas, for $3.5 million, paying $1.1 million
in cash and obtaining mortgage financing of $2.4 million. The mortgage bears
interest at a variable rate, currently 9% per annum, requires monthly payments
of principal and interest of $21,593 and matures in March 2018.

Also in March 1998, TCI refinanced the mortgage debt secured by the 570,808
sq. ft. Tricon Warehouses in Atlanta, Georgia in the amount of $10.2 million,
receiving net cash of $5.4 million after paying off $4.8 million in mortgage
debt, the funding of escrows and the payment of various closing costs. The new
mortgage bears interest at a variable rate, currently 7.53% per annum, requires
monthly payments of principal and interest of $75,576 and matures in April
2008.

In April 1998, TCI purchased in a single transaction, the 178 unit Ashton
Way Apartments in Midland, Texas, and the 92 unit 4400 Apartments, also in
Midland, Texas, and in May 1998, the 232 unit Woodview Apartments in Odessa,
Texas, for a total of $6.8 million. TCI paid a total of $1.5 million in cash
and obtained new mortgage financing totaling $5.3 million. The first mortgage
of $4.5 million bears interest at 7.2% per annum and the second mortgage of
$845,000

79
<PAGE>

bears interest at a variable rate, currently 8.2% per annum. The mortgages
require monthly payments of principal and interest totaling $38,003 and mature
in October 1999 and May 2008, respectively.

In May 1998, TCI purchased the Eagle Crest land, a 22.99 acre parcel of land
in Farmers Branch, Texas, for $2.5 million in cash.

Also in May 1998, TCI purchased the 172 unit Emerald Terrace Apartments in
Midland, Texas, for $1.5 million, paying $425,000 in cash, assuming the
existing mortgage of $584,000 and obtaining seller financing of the remaining
$491,000 of the purchase price. The mortgages bear interest at a variable and a
fixed rate, currently 9.91% and 7.5% per annum, respectively, require monthly
payments of principal and interest totaling $10,643 and mature in November 1999
and June 2008.

Further in May 1998, TCI purchased, in a single transaction, Daley Plaza, a
62,425 sq. ft. office building and View Ridge, a 25,062 sq. ft. office
building, both in San Diego, California, for a total of $6.5 million. TCI paid
$1.7 million in cash and obtained mortgage financing totaling $4.8 million. The
mortgages bear interest at a variable rate, currently 9.5% per annum, require
monthly payments of principal and interest totaling $42,416 and mature in May
2005.

In May 1998, TCI refinanced the mortgage debt secured by the 188,218 sq. ft.
Plaza Towers Office Building in St. Petersburg, Florida, in the amount of $7.4
million, receiving net cash of $2.6 million after paying off $4.8 million in
mortgage debt, the funding of required escrows and the payment of various
closing costs. The new mortgage bears interest at a variable rate, currently
7.57% per annum, requires monthly payments of principal and interest of $55,023
and matures in June 2008.

In June 1998, TCI purchased the Atrium, a 74,603 sq. ft. office building in
Palm Beach, Florida, for $5.4 million, paying $1.3 million in cash and
obtaining mortgage financing of $4.1 million. The mortgage bears interest at a
variable rate, currently 7.93% per annum, requires monthly payments of
principal and interest of $31,455 and matures in July 2001.

In July 1998, TCI purchased Valley Rim, a 54,194 sq. ft. office building in
San Diego, California, for $5.1 million, paying $1.4 million in cash and
obtaining new mortgage financing of $3.7 million. The mortgage bears interest
at a variable rate, currently 9.5% per annum, requires monthly payments of
principal and interest of $32,576 and matures in June 2005.

Also in July 1998, TCI purchased Limestone Canyon land, a 27 acre parcel of
unimproved land in Austin, Texas, for $1.8 million in cash. In conjunction with
the purchase, TCI obtained a financing commitment of $13.0 million for the
construction of a 260 unit apartment on the site. The mortgage bears interest
at a variable rate, currently 7.63% per annum, requires monthly payments of
interest only and matures in July 2000. Construction was commenced in August
1998 and is expected to be completed in the fourth quarter of 1999.

Further in July 1998, TCI refinanced the matured mortgage debt secured by
the 102 unit Villas at Countryside Apartments in Sterling, Virginia, in the
amount of $5.4 million, receiving net cash of $400,000 after paying off $5.0
million in mortgage debt, funding of required escrows and the payment of
various closing costs. The new mortgage bears interest at 6.85% per annum,
requires monthly payments of principal and interest of $35,692 and matures in
August 2005.

In August 1998, TCI obtained second lien financing of $1.8 million secured
by the 310 unit Terrace Hills Apartments in El Paso, Texas, receiving net cash
of $1.7 million after the payment of various closing costs. The mortgage bears
interest at 7.275% per annum, requires monthly payments of principal and
interest of $11,968 and matures in September 2009.

At December 31, 1997, TCI held a wraparound mortgage note with a principal
balance of $2.5 million secured by a K-Mart in Cary, North Carolina. In
February 1998, TCI was informed that the first lien mortgage in the amount of
$2.0 million was in default. To protect its interest, TCI foreclosed on the
property in August 1998 and refinanced the first lien mortgage in the amount of
$2.0 million, paying $265,000 in cash to complete

80
<PAGE>

the refinancing. The new mortgage bears interest at 7.51% per annum, requires
monthly payments of principal and interest of $15,721 and matures in September
2008. No loss was recognized on the foreclosure as the fair value of the
property exceeded the carrying value of the note receivable. The property was
classified as held for investment as of December 31, 1998.

In 1997, Montgomery Ward ("Ward"), a tenant at the Northtown Mall, a 354,174
sq. ft. shopping center in Dallas, Texas, filed for bankruptcy protection. In
an attempt to keep the Ward lease from being sold, Northtown Mall was placed in
administrative bankruptcy. Wards' Northtown Mall lease, as well as other Ward
leases were, however, sold for the benefit of the Ward bankruptcy estate. In
September 1998, TCI bought back the lease concurrent with the $15.6 million
sale of Northtown Mall. TCI received net cash of $12.1 million after paying off
$2.5 million of mortgage debt, $900,000 for the Ward lease and the payment of
various closing costs. In conjunction with the sale, the Northtown Mall
bankruptcy proceeding was dismissed. A gain of $3.4 million was recognized on
the sale.

In September 1998, TCI sold Chesapeake Ridge, a 100,484 sq. ft. office
building in San Diego, California, sold for $13.2 million, receiving net cash
of $7.6 million after paying off $5.3 million in mortgage debt and the payment
of various closing costs. A gain of $5.9 million was recognized on the sale.

In October 1998, TCI purchased the 208 unit Cliffs of Eldorado Apartments in
McKinney, Texas, for $12.8 million, paying $1.6 million in cash, assuming the
existing mortgage of $10.6 million and issuing 5,829 shares of Series A
Cumulative Convertible Preferred Stock with a total liquidation value of
$583,000. The assumed mortgage bears interest at 8.125% per annum, requires
monthly payments of principal and interest of $75,197 and matures in November
2037.

Also in October 1998, TCI sold Denton Drive, a 123,800 sq. ft. industrial
warehouse in Dallas, Texas, for $1.2 million, receiving net cash of $891,000
after paying off $309,000 in mortgage debt and the payment of various closing
costs. A gain of $219,000 was recognized on the sale.

Further in October 1998, TCI refinanced the matured mortgage debt secured by
the 47,777 sq. ft. Bonita Plaza Office Building in Bonita, California in the
amount of $5.2 million, receiving net cash of $1.2 million after paying off
$4.0 million in mortgage debt, funding of required escrows and the payment of
various closing costs. The new mortgage bears interest at a variable rate,
currently 7.4% per annum, requires monthly payments of principal and interest
of $37,722 and matures in November 2001.

In December 1998, TCI purchased the assets of the Neighborhood Inns of
Chicago, consisting of three hotels in Chicago, Illinois, the Belmont with 45
rooms, the Brompton with 52 rooms, and the Surf with 55 rooms, for $11.6
million. TCI paid $2.3 million in cash and obtained mortgage financing secured
by all three hotels of $9.2 million. The mortgage bears interest at a variable
rate, currently 9.376% per annum, requires monthly payments of principal and
interest of $94,108 and matures in December 2001.

Also in December 1998, TCI purchased the 80 unit Southgreen Apartments in
Bakersfield, California, for $3.6 million, paying $1.1 million in cash and
obtaining mortgage financing of $2.5 million. The mortgage bears interest at a
variable rate, currently 8.25% per annum, requires monthly payments of
principal and interest of $19,953 and matures in December 2005.

In February 1999, TCI sold the 368 unit Mariner's Pointe Apartments in St.
Petersburg, Florida, for $6.7 million, receiving net cash of $2.6 million after
paying off $3.9 million in mortgage debt and the payment of various closing
costs. A gain of $1.9 million was recognized on the sale.

In March 1999, TCI purchased the 264 unit Vista Hills Apartments in El Paso,
Texas, for $5.2 million, paying $1.6 million in cash and obtaining mortgage
financing of $3.6 million. The mortgage bears interest at a variable rate,
currently 7.625% per annum, requires monthly payments of principal and interest
of $26,897 and matures in April 2004.

81
<PAGE>

Also in March 1999, TCI purchased the Dominion land, a 14.39 acre parcel of
land in Dallas, Texas, for $3.6 million, paying $1.2 million in cash and
obtaining mortgage financing of $2.4 million. The mortgage bears interest at
15% per annum, requires quarterly payments of interest only and matures in
March 2000.

Further in March 1999, TCI refinanced the matured mortgage debt secured by
the Lexington Center Office Building in Colorado Springs, Colorado in the
amount of $4.3 million, receiving net cash of $136,000 after paying off $4.0
million in mortgage debt and the payment of various closing costs. The new
mortgage bears interest at a variable rate, currently 7.75% per annum, requires
monthly payments of principal and interest of $32,479 and matures in April
2004.

In April 1999, TCI refinanced the matured mortgage debt secured by the
97,846 sq. ft. Texstar Industrial Warehouse in Arlington, Texas, in the amount
of $1.3 million, receiving net cash of $100,000 after paying off $1.2 million
in mortgage debt and the payment of various closing costs. The new mortgage
bears interest at 8.5% per annum, requires monthly payments of principal and
interest of $11,282 and matures in April 2004.

Also in April 1999, TCI refinanced the mortgage debt secured by the 106,257
sq. ft. Waterstreet Office Building in Boulder, Colorado, in the amount of
$13.3 million receiving net cash of $5.4 million after paying off $7.9 million
in mortgage debt and the payment of various closing costs. The new mortgage
bears interest at 7.76% per annum, requires monthly payments of principal and
interest of $95,375 and matures in April 2009.

Further in April 1999, TCI refinanced the matured mortgage debt secured by
the 70,295 sq. ft. Sadler Square Shopping Center in Amelia Island, Florida, in
the amount of $2.9 million, receiving net cash of $500,000 after paying off
$2.4 million in mortgage debt and the payment of various closing costs. The new
mortgage bears interest at 7.96% per annum, requires monthly payments of
principal and interest of $22,382 and matures in April 2009.

In May 1999, TCI sold the 109,497 sq. ft. 74 New Montgomery Office Building
in San Francisco, California, for 19.3 million, receiving net cash of $12.1
million after paying off $6.5 million in mortgage debt and the payment of
various closing costs. A gain of $8.3 million was recognized on the sale.

Properties Held for Sale. Set forth below are TCI's properties held for
sale, primarily obtained through foreclosure.

<TABLE>
<CAPTION>
Property Location Acres
- -------- ------------------ -----------
Land
<S> <C> <C>
Fiesta........................................... San Angelo, TX .6657 Acres
Fruitland........................................ Fruitland Park, FL 4.66 Acres
Moss Creek....................................... Greensboro, NC 65.79 Acres
Republic land.................................... Dallas, TX .9250 Acres
</TABLE>

In March 1998, the Company completed the sale of Shaws Plaza, a 103,482 sq.
ft. shopping center in Sharon, Massachusetts, which was under contract for sale
at December 31, 1997, for $3.8 million, receiving net cash of $1.1 million
after paying off $2.6 million in existing mortgage debt and the payment of
various closing costs. No gain or loss was recognized on the sale.

In October 1998, TCI sold approximately 19 acres of foreclosed land held for
sale in Greensboro, North Carolina for $375,000, receiving net cash of $371,000
after the payment of various closing costs. A gain of $350,000 was recognized
on the sale.

Partnership Properties. TCI is not limited in the proportion of its assets
which may be invested in any type of partnership interest and has no stated
criteria for purchasing interests in such partnerships.

82
<PAGE>

Set forth below are the properties owned by partnerships which TCI accounts
for using the equity method and the monthly rental rate for apartments and the
average annual rental rate for commercial properties and occupancy thereof at
December 31, 1998, 1997, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Units/ -------------------------- ------------------------
Property Location Square Footage 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- -------------- ----------------------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment
Lincoln Court........... Dallas, TX 55 Units/40,063 Sq. Ft. $1.08 $1.04 $.99 $.96 $.94 95 99 98 94 98

Office Building
MacArthur Mills......... Carrollton, TX 53,472 Sq. Ft. 9.84 9.35 8.38 7.80 6.99 100 97 94 95 88

Shopping Centers
Chelsea Square.......... Houston, TX 70,275 Sq. Ft. 8.61 9.21 9.32 9.14 8.67 81 49 69 77 78
Summit at Bridgewood.... Fort Worth, TX 48,696 Sq. Ft. 9.63 9.48 8.67 9.23 8.92 79 65 62 63 62
</TABLE>

TCI owns a noncontrolling combined 55% limited and general partnership
interest in Jor-Trans Investors Limited Partnership which owns the Lincoln
Court Apartments.

TCI owns a noncontrolling combined 63.7% limited and general partner
interest and IORI owns a 36.3% general partner interest in Tri-City Limited
Partnership ("Tri-City") which owns the three commercial properties in the
table above. In May 1998, Tri-City sold its 198 unit Oaks of Inwood and 126
unit Inwood Green Apartments for a total of $3.3 million. Tri-City received net
cash of $1.4 million after paying off $1.9 million in mortgage debt and the
payment of various closing costs. TCI received a distribution of $701,000 of
such net cash. Tri-City recognized a gain of $496,000 on the sale of which
TCI's equity share was $316,000.

Mortgage Loans. In addition to investments in real estate, a portion of
TCI's assets are invested in mortgage notes receivable, principally secured by
income-producing real estate. TCI expects that the percentage of its assets
invested in mortgage loans may increase, as it has determined that in 1999 it
may seek to fund or acquire mortgage loans. It may also originate mortgage
loans in conjunction with providing purchase money financing of a property
sale. TCI intends to service and hold for investment the mortgage notes in its
portfolio. TCI's mortgage notes receivable consist of first, wraparound and
junior mortgage loans. TCI has not limited the amount of mortgages which may be
placed on any one piece of property, nor does TCI have any policy as to the
amount or percentage of assets which can be invested in any specific property.
Similarly, TCI is not limited in the proportion of assets which may be invested
in each type of mortgage or in any single mortgage.

Types of Mortgage Activity. TCI may originate its own mortgage loans, as
well as acquire existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. BCM, in its capacity as a mortgage servicer,
services TCI's mortgage notes.

Types of Properties Securing Mortgage Notes. The properties securing TCI's
mortgage notes receivable portfolio at March 31, 1999, consisted of an
apartment, a hotel, a developed residential lot and a 34,847 sq. ft. parcel of
unimproved land. TCI's Board of Directors may alter the types of properties
securing or collateralizing mortgage loans in which TCI invests without a vote
of stockholders. TCI's articles of incorporation impose certain restrictions on
transactions with related parties.

At March 31, 1999, TCI's mortgage notes receivable portfolio included three
mortgage loans with an aggregate outstanding balance of $1.7 million secured by
income-producing real estate located in the Southeast and Southwest regions of
the continental United States and eight loans with an aggregate outstanding
balance of $654,000 secured by collateral other than income-producing real
estate. At March 31, 1999, less than 1% of TCI's assets were invested in notes
and interest receivable.

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<PAGE>

The following table sets forth the percentages (based on the mortgage note
principal balance) by property type and geographic region, of the properties
(other than unimproved land) that serve as collateral for TCI's mortgage notes
receivable at March 31, 1999.

<TABLE>
<CAPTION>
Region Apartments Hotel Total
------ ---------- ----- -----
<S> <C> <C> <C>
Southwest............................................. 79% 21% 100%
</TABLE>

A summary of the activity in TCI's mortgage notes receivable portfolio
during 1998 and the first three months of 1999 was as follows:

<TABLE>
<S> <C>
Loans in mortgage notes receivable portfolio at January 1, 1998 20
Loan purchased 1
Loan foreclosed (1)
Loans paid off (8)
---
Loans in mortgage notes receivable portfolio at March 31, 1999 12
===
</TABLE>

During 1998 and the first three months of 1999, $2.9 million was collected
in settlement of four mortgage notes receivable and $82,000 in mortgage
principal payments were received.

At December 31, 1998, and March 31, 1999, less than 1% of TCI's assets were
invested in mortgage notes secured by non-income-producing real estate,
comprised of a first mortgage note secured by 34,847 sq. ft. of unimproved land
in Milwaukee, Wisconsin and a first mortgage note secured by developed
residential lots in Greensboro, North Carolina.

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

The following discussion briefly describes the events that affected
previously funded first mortgage loans during 1998 and the first three months
of 1999.

In February 1994, TCI provided $6.7 million of purchase money financing in
conjunction with the sale of 1,406 acres of land in 16 developed residential
and commercial subdivisions in Maumelle, Arkansas, secured by a first mortgage
on the properties sold. The borrower did not make the scheduled February 1995
principal and interest payments. In September 1995, TCI reached a settlement
with the borrower that provided for, among other things: the payment by the
borrower of $2.5 million in cash and TCI's acceptance of a new $1.4 million
note secured by 36.3 acres of commercial land. Such note matured in January
1996. In April 1998, TCI received $2.1 million in full settlement of its note
and accrued but unpaid interest. The original sale had been recorded under the
cost recovery method with gain being deferred until the note was collected.
Accordingly, TCI recognized the previously deferred gain of $2.1 million on
collection of the note receivable.

In July 1998, a mortgage note receivable which had been written off in a
prior year was collected. A gain of $671,000 was recognized.

In March 1999, TCI accepted $33,000 for the early discounted payoff of four
mortgage notes receivable with a combined principal balance of $55,000 and
secured by developed residential lots in Greensboro, North Carolina. No loss
was incurred in excess of the reserves previously established.

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<PAGE>

Wraparound Mortgage Loans. A wraparound mortgage loan, sometimes called an
all-inclusive loan, is a mortgage loan having an original principal balance
equal to the outstanding balance under the prior existing mortgage loan(s) plus
the amount actually advanced under the wraparound mortgage loan. Wraparound
mortgage loans may provide for full, partial or no amortization of principal.
TCI's policy is to make wraparound mortgage loans in amounts and on properties
as to which it would otherwise make first mortgage loans.

The following discussion briefly describes the events that affected
previously funded wraparound mortgage loans in 1998.

As discussed under "Real Estate" above, at December 31, 1997, TCI held a
wraparound mortgage note with a principal balance of $2.5 million secured by a
K-Mart in Cary, North Carolina. In February 1998, TCI was informed that the
first lien mortgage in the amount of $2.0 million was in default. To protect
its interest, TCI foreclosed on the property in August 1998 and refinanced the
first lien mortgage in the amount of $2.0 million, paying $265,000 in cash to
complete the refinancing. No loss was recognized on the foreclosure as the fair
value of the property exceeded the carrying value of the note receivable.

Junior Mortgage Loans. TCI may invest in junior mortgage loans. Such loans
are secured by mortgages that are subordinate to one or more prior liens either
on the fee or a leasehold interest in real estate. Recourse on such loans
ordinarily includes the real estate on which the loan is made, other collateral
and personal guarantees by the borrower. TCI's Board of Directors restricts
investment in junior mortgage loans, excluding wraparound mortgage loans, to
not more than 10% of TCI's assets. At December 31, 1998, and March 31, 1999,
less than 1% of TCI's assets were invested in junior mortgage loans.

The following discussion briefly describes the events that affected
previously funded junior mortgage loans in 1998.

In August 1998, a mortgage note receivable with a principal balance of $2.0
million and a carrying value of $207,000 secured by a second lien on a hotel in
Lake Charles, Louisiana became delinquent. To protect its interest, TCI
purchased the first lien mortgage for $149,000. Foreclosure proceedings have
commenced and title to the property is expected to be received in the second
quarter of 1999. No loss is expected to be incurred on the foreclosure, as the
estimated fair value of the property exceeds the carrying value of the mortgage
notes receivable.

Loans Secured by Collateral Other than Real Estate. In June 1992, TCI
received ten notes receivable secured by collateral other than real estate in
satisfaction of a $622,000 obligation to TCI. At December 31, 1997, five of the
notes with a combined principal balance of $374,000 remained outstanding. TCI's
investment policy precludes the origination of loans secured by collateral
other than real estate.

Partnership Mortgage Loans. TCI owns a 60% general partner interest and IORI
owns a 40% general partner interest in Nakash Income Associates ("NIA"). NIA in
turn owns a wraparound mortgage note receivable, secured by a shopping center
in Maulden, Missouri.

Certain Factors Associated with Real Estate and Related Investments

TCI is subject to all the risks incident to ownership and financing of real
estate and interests therein, many of which relate to the general illiquidity
of real estate investments. These risks include, but are not limited to,
changes in general or local economic conditions, changes in interest rates and
the availability of permanent mortgage financing which may render the
acquisition, sale or refinancing of a property difficult or unattractive and
which may make debt service burdensome, changes in real estate and zoning laws,
increases in real estate taxes, federal or local economic or rent controls,
floods, earthquakes, hurricanes and other acts of God and other factors beyond
the control of TCI's management or advisor. The illiquidity of real estate
investments may also impair the ability of TCI to respond promptly to changing
circumstances. TCI's management believes that

85
<PAGE>

such risks are partially mitigated by the diversification by geographic region
and property type of TCI's real estate and mortgage notes receivable
portfolios. However, to the extent new property investments or mortgage lending
is concentrated in any particular region or property type, the advantages of
diversification may be mitigated.

Method of Operating and Financing

TCI's articles of incorporation impose no limitations on TCI's investment
policy with respect to mortgage loans and do not prohibit TCI from investing
more than a specified percentage of its assets in any one mortgage loan. TCI
may originate mortgage loans in conjunction with providing purchase money
financing of a property sale. TCI intends to service and hold for investment
the mortgage notes in its portfolio. TCI may, however, borrow against its
mortgage notes receivable using the proceeds from such borrowings to fund
additional mortgage loans or for general working capital needs of TCI. TCI also
intends to pursue its rights vigorously with respect to mortgage notes that are
in default. TCI's Board of Directors currently intends to continue its policy
of prohibiting TCI from incurring aggregate secured and unsecured indebtedness
in excess of 300% of TCI's net asset value (defined as the book value of all
assets of TCI minus all of its liabilities); however, the Board of Directors
may alter such policy at any time and may reconsider the continuation of this
policy following the Merger.

Officers

The following persons currently serve as executive officers of TCI and also
serve as the executive officers of the Trust: Randall M. Paulson, President;
Karl L. Blaha, Executive Vice President -- Commercial Asset Management; Bruce
A. Endendyk, Executive Vice President; Steven K. Johnson, Executive Vice
President --Residential Asset Management; and Thomas A. Holland, Executive Vice
President and Chief Financial Officer. Their positions with TCI are not subject
to a vote of stockholders.

Although not executive officers of TCI, the following persons currently
serve as officers of TCI and also serve as officers of the Trust: Robert A.
Waldman, Senior Vice President and General Counsel, and Drew D. Potera, Vice
President and Treasurer. Their positions with TCI are not subject to a vote of
stockholders.

The TCI Advisor

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

BCM has served as TCI's advisor since March 28, 1989. BCM is a corporation
of which Messrs. Paulson, Blaha, Endendyk, Johnson and Holland serve as
executive officers. BCM is owned by a trust for the benefit of the children of
Gene E. Phillips. Prior to December 22, 1989, Mr. Phillips served as a director
of BCM, and until September 1, 1992, Mr. Phillips served as Chief Executive
Officer of BCM. Mr. Phillips serves as a representative of his children's trust
which owns BCM and, in such capacity, has substantial contact with the
management of BCM and input with respect to its performance of advisory
services to TCI.

At TCI's annual meeting of stockholders held on May 8, 1997, TCI's
stockholders approved the renewal of the TCI Advisory Agreement through the
next annual meeting of TCI's stockholders. The current TCI Advisory Agreement
was executed on October 15, 1998. Subsequent renewals of the TCI Advisory
Agreement with BCM do not require the approval of TCI's stockholders but do
require the approval of TCI's Board of Directors. BCM also serves as advisor to
IORI and the Trust. The members of TCI's Board of Directors also serve as
directors of IORI and Trustees of the Trust, and the executive officers of TCI
are also executive

86
<PAGE>

officers of IORI and the Trust. BCM also serves as advisor to American Realty
Trust, Inc. ("ART"). NMC, a wholly-owned subsidiary of ART, is the general
partner of NRLP and NOLP, the operating partnership of NRLP. BCM performs
certain administrative functions for NRLP and NOLP on a cost-reimbursement
basis. The executive officers of TCI are also officers of ART, NMC and SAMI.

As of June 30, 1999, American Realty Trust, Inc. owned approximately 31.0%
and BCM owned approximately 11.7% of TCI's outstanding common stock, and BCM
owned approximately 55.8% and TCI owned no shares of American Realty Trust
Inc.'s common stock.

Property Management

Since February 1, 1990, affiliates of BCM have provided property management
services to TCI. Currently, Carmel Realty Services Ltd. ("Carmel Ltd.")
provides such property management services. Carmel Ltd. subcontracts with other
entities for the provision of property-level management services to TCI. The
general partner of Carmel Ltd. is BCM. The limited partners of Carmel Ltd. are
(1) First Equity, which is 50% owned by a subsidiary of BCM, (2) Gene E.
Phillips and (3) a trust for the benefit of the children of Mr. Phillips.
Carmel Ltd. subcontracts the property-level management and leasing of 28 of
TCI's commercial properties and its hotels and the commercial properties owned
by a real estate partnership in which TCI and IORI are partners to Carmel
Realty, which is a company owned by First Equity. Carmel Realty is entitled to
receive property and construction management fees and leasing commissions in
accordance with the terms of its property-level management agreement with
Carmel Ltd.

Real Estate Brokerage

Since December 1, 1992, Carmel Realty has been engaged, on a non-exclusive
basis, to provide brokerage services for TCI. Carmel Realty is entitled to
receive a commission for property acquisitions and sales in accordance with the
following sliding scale of total fees to be paid: (1) 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; (2) 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; (3) 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 (4) 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.

The TCI Advisory Agreement

BCM has served as advisor to TCI since March 28, 1989. The current TCI
Advisory Agreement was entered into effective October 15, 1998. Renewals of the
TCI Advisory Agreement do not require the approval of TCI's stockholders but do
require the approval of TCI's Board of Directors.

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

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

87
<PAGE>

The TCI Advisory Agreement provides for BCM to be responsible for the day-
to-day operations of TCI 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 TCI (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 TCI's net income.

The TCI 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 TCI during such fiscal year
exceeds the sum of: (1) the cost of each such property as originally recorded
in TCI's books for tax purposes (without deduction for depreciation,
amortization or reserve for losses), (2) capital improvements made to such
assets during the period owned by TCI and (3) 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% simple annual return on TCI's net
investment including capital improvements, calculated over TCI'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 TCI
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 TCI 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 TCI equal to the lesser of (1)
up to 1% of the cost of acquisition, inclusive of commissions, if any, paid to
nonaffiliated brokers or (2) 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 TCI Advisory Agreement requires BCM or any affiliate of BCM to pay to
TCI one-half of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by TCI, provided,
however, that the compensation retained by BCM or any affiliate of BCM shall
not exceed the lesser of (1) 2% of the amount of the loan committed by TCI or
(2) a loan brokerage and commitment fee which is reasonable and fair under the
circumstances.

The TCI 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 TCI equal to the lesser of (1) 1%
of the amount of the mortgage or loan purchased or (2) 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 TCI of any
mortgage loan.

Under the TCI Advisory Agreement, BCM or an affiliate of BCM is also to
receive a mortgage brokerage and equity refinancing fee for obtaining loans to
TCI or refinancing on TCI properties equal to the lesser of (1) 1% of the
amount of the loan or the amount refinanced or (2) 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 Directors. No fee shall be paid on loan
extensions.

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

Under the TCI Advisory Agreement, all or a portion of the annual advisory
fee must be refunded by the advisor to TCI if the Operating Expenses of TCI (as
defined in the TCI Advisory Agreement) exceed certain limits specified in the
TCI Advisory Agreement based on the book value, net asset value and net income
of TCI during such fiscal year. The effect of this limitation was to require
that BCM refund $206,000 of the annual advisory fee for 1997.

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<PAGE>

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

BCM may only assign the TCI Advisory Agreement with the prior consent of
TCI.

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

<TABLE>
<S> <C>
Mickey N. Phillips Director
Ryan T. Phillips Director
Randall M. Paulson President
Karl L. Blaha Executive Vice President -- Commercial
Asset Management
Bruce A. Endendyk Executive Vice President
Thomas A. Holland Executive Vice President and Chief
Financial Officer
Steven K. Johnson Executive Vice President -- Residential
Asset Management
Cooper B. Stuart Executive Vice President
A. Cal Rossi, Jr. Executive Vice President
Clifford C. Towns, Jr. Executive Vice President -- Finance
Dan S. Allred Senior Vice President -- Land Division
James D. Canon, III Senior Vice President
Robert A. Waldman Senior Vice President, General Counsel
and Secretary
Drew D. Potera Vice President, Treasurer and Securities
Manager
</TABLE>

Mickey N. Phillips is Gene E. Phillips' brother, and Ryan T. Phillips is
Gene E. Phillips' son. Gene E. Phillips serves as a representative of the trust
established for the benefit of his children, which trust owns BCM. In such
capacity, Gene E. Phillips has substantial contact with the management of BCM
and input with respect to its performance of advisory services to TCI.

Involvement in Certain Legal Proceedings

In February 1990, TCI, together with IORI, NIRT and the Trust, three real
estate entities with, at the time, the same officers, directors or trustees and
advisor as TCI, entered into a settlement of a class and derivative action
entitled Olive et al. V. National Income Realty Trust et al. (the "Olive
Litigation"), which was pending before the United States District Court for the
Northern District of California, relating to the operation and management of
each of the entities. On April 23, 1990, the court granted final approval of
the terms of the settlement.

On May 4, 1994, the parties entered into the Modification of Stipulation of
Settlement (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. Pursuant to the Olive Modification,
certain

89
<PAGE>

related party transactions which TCI entered into prior to April 28, 1999,
required the unanimous approval of TCI's Board of Directors. In addition, such
related party transactions were to be discouraged and could only be entered
into in exceptional circumstances and after a determination by the Board of
Directors that the transaction was in the best interests of TCI and that no
other opportunity existed that was as good as the opportunity presented by such
transaction.

The Olive Modification requirements for related party transactions did not
apply to direct contractual agreements for services between TCI and the advisor
(BCM) or one of its affiliates (including the TCI Advisory Agreement, the
brokerage agreement with Carmel Realty and the property management contracts).
These agreements, pursuant to the specific terms of the Olive Modification,
required the prior approval by two-thirds of the directors of TCI, and if
required, approval by a majority of TCI's stockholders. The Olive Modification
requirements for related party transactions also did not apply to joint
ventures between or among TCI and IORI, NIRT or the Trust or any of their
affiliates or subsidiaries and a third party having no prior or intended future
business of financial relationship with Gene E. Phillips, William S. Friedman,
the advisor (BCM), or any affiliate of such parties. Such joint ventures could
be entered into on the affirmative vote of a majority of the Directors of TCI.

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 issued no ruling or order with respect to the matters addressed at the
hearings.

Separately, in 1996, legal counsel for the plaintiffs notified the Board of
Directors that he intended to assert that certain actions taken by the Board of
Directors breached the terms of the Olive Modification. On January 27, 1997,
the parties entered into an amendment to the Olive Modification (the "Olive
Amendment"), which was submitted to the Court for approval on January 29, 1997.
The Olive Amendment provided for the settlement of all matters raised at the
evidentiary hearings and by plaintiffs' counsel in his notices to the Board of
Directors of TCI. On May 2, 1997, a hearing was held for the Court to consider
approval of the Olive Amendment. As a result of the hearing, the parties
entered into a revised Olive Amendment. The Court issued an order approving the
Olive Amendment on July 3, 1997.

The Olive Amendment provided for the addition of four new unaffiliated
members to TCI's Board of Directors and set forth new requirements for the
approval of any transactions with affiliates until April 28, 1999. In addition,
TCI, IORI, the Trust and their shareholders released the defendants from any
claims relating to the plaintiffs' allegations and matters which were the
subject of the evidentiary hearings. The plaintiffs' allegations of any
breaches of the Olive Modification were to be settled by mutual agreement of
the parties or, lacking such agreement, by an arbitration proceeding.

Under the Olive Amendment, all shares of TCI owned by Gene E. Phillips or
any of his affiliates had to be voted at all stockholder meetings of TCI held
until April 28, 1999, in favor of all new members of the Board of Directors
added under the Olive Amendment. The Olive Amendment also required that, until
April, 28, 1999, all shares of TCI owned by Mr. Phillips or his affiliates in
excess of forty percent (40%) of TCI's outstanding shares had to be voted in
proportion to the votes cast by all non-affiliated stockholders of TCI.

In accordance with the Olive Amendment, Richard W. Douglas, Larry E. Harley
and R. Douglas Leonhard were added to the Board of Directors of TCI in January
1998 and Murray Shaw was added to the Board of Directors of TCI in February
1998. The restrictions and requirements of the Olive Amendment expired on April
29, 1999.

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<PAGE>

Certain Business Relationships and Related Party Transactions

Certain Business Relationships. In February 1989, the Board of Trustees
voted to retain BCM as TCI's advisor. TCI's executive officers serve also as
executive officers of BCM.

Since February 1999, affiliates of BCM have provided property management
services to TCI. Currently, Carmel Ltd. provides such property management
services. The general partner of Carmel Ltd. is BCM. The limited partners of
Carmel Ltd. are (1) First Equity, which is 50% owned by a subsidiary of BCM,
(2) Mr. Phillips and (3) a trust for the benefit of the children of Mr.
Phillips. Carmel Ltd. subcontracts the property-level management and leasing of
29 of TCI's commercial properties and its hotels and the commercial properties
owned by a real estate partnership in which TCI and IORI are partners to Carmel
Realty, which is a company owned by First Equity.

Prior to December 1, 1992, affiliates of BCM provided brokerage services to
TCI and received brokerage commissions in accordance with the TCI Advisory
Agreement. Since December 1, 1992, TCI has engaged, on a non-exclusive basis,
Carmel Realty to perform brokerage services for TCI. Carmel Realty is a company
owned by First Equity.

The directors and executive officers of TCI also serve as Trustees or
directors and executive officers of IORI and the Trust. The directors owe
fiduciary duties to such entities as well as to TCI under applicable law. IORI
and the Trust have the same relationship with BCM as TCI. TCI owned
approximately 22.6% of the outstanding shares of common stock of IORI at June
30, 1999. BCM performs certain administrative functions for NRLP and NOLP on
behalf of NMC, on a cost-reimbursement basis. BCM also serves as advisor to
ART. Messrs. Paulson, Blaha, Endendyk, Holland and Johnson serve as executive
officers of ART.

From April 1992 to December 31, 1992, Ted P. Stokely was employed as a paid
consultant and since January 1, 1993 as a part-time unpaid consultant for
Eldercare, a nonprofit corporation engaged in the acquisition of low income and
elderly housing. Eldercare has a revolving loan commitment from Syntek West,
Inc. ("SWI"), of which Gene E. Phillips is the sole shareholder. Eldercare
filed for bankruptcy protection in July 1993 and was dismissed from bankruptcy
in October 1994. Eldercare filed again for bankruptcy protection in May 1995,
and was reorganized in bankruptcy in February 1996, and has since paid all
debts as directed by the Bankruptcy Court.

Related Party Transactions. Historically, TCI has engaged in and may
continue to engage in business transactions, including real estate
partnerships, with related parties. TCI'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 TCI as investments that could have
been obtained from unrelated third parties.

TCI is a partner with IORI in the Tri-City and NIA limited partnerships. TCI
owns 345,728 shares of the common stock of IORI, an approximate 22.6% interest.

In 1998, TCI paid BCM and its affiliates $4.1 million in advisory and net
income fees, $341,000 in mortgage brokerage and equity refinancing fees, $3.5
million in property acquisition fees, $767,000 in real estate brokerage
commission and $2.8 million in property and construction management fees and
leasing commissions, net of property management fees paid to subcontractors,
other than Carmel Realty. In addition, as provided in the TCI Advisory
Agreement, BCM received cost reimbursements from TCI of $1.1 million in 1997.

On December 5, 1989, TCI's Board of Directors approved a share repurchase
program. The Board of Directors authorized TCI to repurchase a total of 687,000
shares of TCI common stock pursuant to such program. Through April 30, 1999,
TCI had repurchased 409,765 shares of TCI common stock pursuant to such program
at a cost of TCI of $3.3 million. In 1998, TCI repurchased 21,950 shares at a
cost of $336,000.

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<PAGE>

Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of TCI common stock, both beneficially and of record, both
individually and in the aggregate, for those persons or entities known by TCI
to be beneficial owners of more than 5% of TCI common stock as of the close of
business on June 30, 1999.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
------------------- ----------------- ----------
<S> <C> <C>
American Realty Trust, Inc. 1,204,470 31.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Basic Capital Management, Inc. 454,157 11.7%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231

Maurice A. Halperin 326,450 8.4%
2500 North Military Trail
Suite 225
Boca Raton, Florida 33431
- --------
(1) Percentages are based upon 3,880,014 shares of TCI common stock outstanding
at June 30, 1999.

Security Ownership of Management. The following table sets forth the
ownership of TCI common stock, both beneficially and of record, both
individually and in the aggregate, for the directors and executive officers of
TCI as of the close of business on June 30, 1999.

<CAPTION>
Amount and Nature
of Beneficial Percent of
Name of Beneficial Owner Ownership Class(1)
------------------------ ----------------- ----------
<S> <C> <C>
All Directors and Executive Officers 1,766,370(2)(3) 45.6%
as a group (12 individuals)
</TABLE>
- --------
(1) Percentage is based upon 3,880,014 shares of TCI common stock outstanding
at June 30, 1999.
(2) Includes 80,268 shares owned by the Trust of which TCI's directors
may be deemed to be beneficial owners by virtue of their positions
as Trustees of the Trust. The directors of TCI disclaim beneficial
ownership of such shares. Also includes 1,000 shares owned directly
by Ted P. Stokely.
(3) Includes 26,475 shares owned by SAMLP, 454,157 shares owned by BCM and
1,204,470 shares owned by American Realty Trust, Inc., of which the
executive officers of TCI may be deemed to be beneficial owners by virtue
of their position as executive officers or directors of SAMI, BCM and
American Realty Trust, Inc. The executive officers of TCI disclaim
beneficial ownership of such shares. Each of the directors of American
Realty Trust, Inc. may be deemed to be beneficial owners of the shares
owned by American Realty Trust, Inc. by virtue of their positions as
directors of American Realty Trust, Inc. Each of the directors of BCM may
be deemed to be beneficial owners by virtue of their positions as directors
of BCM. The directors of American Realty Trust, Inc. and BCM disclaim such
beneficial ownership.

92
<PAGE>

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 (1) Amendment No. 1 to the Second Amended and Restated
Declaration of Trust of Consolidated Capital Special Trust, (2) Amendment
Number 2 to the Second Amended and Restated Declaration of Trust of Continental
Mortgage and Equity Trust (formerly Consolidated Capital Special Trust), (3)
Amendment Number 3 to the Second Amended and Restated Declaration of Trust of
Continental Mortgage and Equity Trust (formerly Consolidated Capital Special
Trust), and (4) 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. The
Trust has, in the opinion of the Trust's management, qualified for federal
taxation as a REIT for each year subsequent to December 31, 1980. See "Proposed
Incorporation Procedure and Merger -- Business Activities after Incorporation
Procedure and Merger".

The Trust's Shares are traded on the NASDAQ under the symbol "CMETS." The
Trust's real estate portfolio at March 31, 1999, consisted of 66 properties
held for investment, three properties held for sale, obtained through
foreclosure, and one equity method real estate partnership (owning two office
buildings). Eight of the properties held for investment were purchased during
1998. The Trust's mortgage notes receivable portfolio at March 31, 1999
consisted of two mortgage loans. The Trust's real estate and mortgage note
receivable portfolios are more fully discussed below.

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.

Business Plan and Investment Policies

The Trust's business is investing in real estate through equity ownership
and investments in real estate partnerships and financing real estate and real
estate related activities through investments in mortgage loans, including
first, wraparound and junior mortgage loans. The Trust's real estate is located
throughout the continental United States. Information regarding the real estate
and mortgage notes receivable portfolios of the Trust is set forth below and in
Schedules III and IV, respectively, to the Consolidated Financial Statements
included in the "Index to Financial Statements" included in the Trust's Annual
Report on Form 10-K for the year ended December 31, 1998, which is incorporated
by reference herein.

The business of the Trust is not seasonal. The Trust has determined to
continue to pursue a balanced investment policy, seeking both current income
and capital appreciation. With respect to new investments, the Trust's plan of
operation is to continue 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, in selected instances, originate mortgage
loans or it may provide purchase money financing in connection with a property
sale. The Trust does intend to service and may either hold for investment or
sell any or all of the mortgage notes currently in its portfolio.

Trust Assets

Details of the Trust's real estate and mortgage notes receivable portfolios
at December 31, 1998 are set forth in Schedules III and IV, respectively, to
the Consolidated Financial Statements included under the "Index to Financial
Statements" included in the Trust's Annual Report on Form 10-K for the year
ended December 31, 1998, which is incorporated by reference herein. The
discussion set forth below under the

93
<PAGE>

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 properties held for
investment, properties held for sale, which were obtained through foreclosure
of the collateral securing mortgage notes receivable, and an investment in a
partnership. The Trust holds a fee simple title to all of the properties in its
real estate portfolio. The discussion set forth below under the heading "--
Real Estate" provides certain summary information concerning the Trust's
properties held for investment, properties held for sale and its partnership
investment.

The Trust's real estate is geographically diversified. At March 31, 1999,
the Trust held investments in apartments and/or commercial properties in each
geographic region of the continental United States, with a concentration in the
Southeast and Southwest regions, as shown more specifically in the table under
"-- Real Estate" below. At March 31, 1999, the Trust held mortgage notes
receivable secured by real estate located in the Southwest and Midwest regions
of the continental United States, as shown more specifically in the table under
"-- Mortgage Loans" below.

At December 31, 1998 and March 31, 1999, none of the Trust's properties, its
partnership investment or a mortgage note receivable exceeded 10% of the
Trust's total assets. At March 31, 1999, 90% of the Trust's assets consisted of
properties held for investment, 1% consisted of properties held for sale, less
than 1% consisted of an investment in a partnership and mortgage notes and
interest receivable. The remaining 9% of the Trust's assets were cash, cash
equivalents, marketable equity securities and other assets. The percentage of
the Trust's assets invested in any one category is subject to change and 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 and Merger -- Business Activities after Incorporation
Procedure and Merger".

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 commercial property in
this region.

Southeast region comprised of the states of Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina, Tennessee
and Virginia. The Trust has six apartments and eight commercial
properties in this region.

Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. The Trust has 21
apartments and 13 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 two apartments in this region.

Mountain region comprised of the states of Colorado, Idaho,
Montana, Nevada, Utah and Wyoming. The Trust has three
apartments and two commercial properties in this region.

Pacific region comprised of the states of California, Oregon and
Washington. The Trust has two apartments in this region.

Excluded from the above are 11 parcels of land, as described
below.

94
<PAGE>

Real Estate. At December 31, 1998, approximately 90% of the Trust's assets
were invested in real estate. The Trust invests in real estate located
throughout the continental United States, either on a leveraged or nonleveraged
basis. The Trust's real estate portfolio consists of properties held for
investment, properties held for sale, which were obtained through foreclosure
of the collateral securing mortgage notes receivable, an investment in a
partnership and investments in the equity securities of real estate entities.

Types of Real Estate Investments. The Trust's real estate consists of
commercial properties (office buildings, industrial facilities and shopping
centers) and apartments or similar properties having established income-
producing capabilities. In selecting new real estate investments, the location,
age and type of property, gross rentals, lease terms, financial and business
standing of tenants, operating expenses, fixed charges, land values and
physical condition are among the factors considered. The Trust may acquire
properties subject to or assume existing debt and may mortgage, pledge or
otherwise obtain financing for its properties. The Trust's Board of Trustees
may alter the types of and criteria for selecting new real estate investments
and for obtaining financing without a vote of shareholders to the extent such
policies are not governed by the Trust's Declaration of Trust.

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

At March 31, 1999, the Trust was making significant capital improvements to
two office buildings in New Orleans, Louisiana. The Trust expects to spend a
total of $2.2 million on the 225 Baronne Office Building and $3.0 million on
the 1010 Common Office Building in 1999.

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 March 31, 1999:

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
------ ---------- ----------
<S> <C> <C>
Northeast -% 2%
Southeast 19 28
Southwest 60 64
Midwest 12 -
Mountain 5 6
Pacific 4 -
--- ---
100% 100%
=== ===
</TABLE>

95
<PAGE>

The foregoing table is based solely on the number of apartment units and
amount of 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 10 parcels
of unimproved land consisting of 36.4 acres, 16.8 acres, 100.2 acres, 55.8
acres, 163 acres, 140 acres, 156 acres, 103 acres, 128 acres, and 236 acres in
the Southwest region. The Trust also owns a 18,000 sq. ft. parcel of developed
land in the Southwest region. See Schedule III to the Consolidated Financial
Statements included in the "Index to Financial Statements" included in the
Trust's Annual Report on Form 10-K for the year ended December 31, 1998, which
is incorporated by reference herein, for a more detailed description of the
Trust's real estate portfolio.

A summary of the activity in the Trust's owned real estate portfolio during
1998 and the first three months of 1999 was as follows:

<TABLE>
<S> <C>
Owned properties in real estate portfolio at January 1, 1998............. 66
Properties purchased..................................................... 9
Properties sold.......................................................... (6)
---
Owned properties in real estate portfolio at March 31, 1999.............. 69
===
</TABLE>

96
<PAGE>

Properties Held for Investment. Set forth below are the Trust's properties
held for investment and the monthly rental rate for apartments and the average
annual rental rate for commercial properties and occupancy thereof at December
31, 1997, 1996, 1995, 1994 and 1993:

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Units/ ------------------------------- ------------------------
Property Location Square Footage 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- -------- -------------------------- ------ ------ ------ ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
4242 Cedar
Springs........ Dallas, TX 76 units/ 60,600 sq. ft. $ .82 $ .79 $ .75 $ .71 $.71 99 98 96 95 96
Applecreek...... Dallas, TX 216 units/ 225,952 sq. ft. .54 .53 .52 .50 .48 91 92 90 90 88
Ashley Crest.... Houston, TX 168 units/ 133,104 sq. ft. .64 .57 * * * 85 83 * * *
Camelot......... Largo, FL 120 units/ 141,024 sq. ft. .51 .50 .48 .46 .44 100 98 94 93 98
Country
Crossing....... Tampa, FL 227 units/ 199,952 sq. ft. .54 .53 .51 .51 .48 91 91 93 91 91
Eagle Rock...... Los Angeles, CA 99 units/ 68,614 sq. ft. .98 .93 * * * 95 92 * * *
El Chapparal.... San Antonio, TX 190 units/ 174,220 sq. ft. .66 .64 .64 .63 .61 91 95 89 92 93
Fairways........ Longview, TX 152 units/ 134,176 sq. ft. .53 .51 .51 .50 .48 83 91 91 90 91
Fontenelle
Hills.......... Bellevue, NE 338 units/ 380,198 sq. ft. .60 * * * * 99 * * * *
Forest Ridge.... Denton, TX 56 units/ 65,480 sq. ft. .62 .61 .59 .57 .53 88 90 98 95 96
Fountain Lake... Texas City, TX 166 units/ 161,220 sq. ft. .55 .53 .52 .52 .50 88 95 90 90 95
Glenwood........ Addison, TX 168 units/ 134,432 sq. ft. .74 .70 .66 * * 96 97 96 * *
Grove Park...... Plano, TX 188 units/ 143,556 sq. ft. .72 .69 .65 * * 97 93 95 * *
Heritage on the
River.......... Jacksonville, FL 301 units/ 289,490 sq. ft. .62 .60 .58 .55 * 95 92 92 94 *
In the Pines.... Gainesville, FL 242 units/ 294,860 sq. ft. .51 .50 .48 .48 .44 97 97 92 98 96
Madison at Bear
Creek.......... Houston, TX 180 units/ 138,448 sq. ft. .63 .58 * * * 96 90 * * *
McCallum
Crossing....... Dallas, TX 322 units/ 172,796 sq. ft. .93 .88 .84 .81 .76 95 96 98 98 96
McCallum Glen... Dallas, TX 275 units/ 159,850 sq. ft. .89 .83 .80 .76 * 95 96 97 95 *
Oak Park IV..... Clute, TX 108 units/ 78,708 sq. ft. .50 .50 .49 .50 .48 90 94 79 73 81
Oak Run......... Pasadena, TX 160 units/ 128,016 sq. ft. .72 .69 .68 * * 91 92 96 * *
Park at
Colonnade...... San Antonio, TX 211 units/ 188,000 sq. ft. .56 .53 .52 * * 95 91 96 * *
Park Lane....... Dallas, TX 97 units/ 87,260 sq. ft. .60 .58 .55 .53 .51 97 91 93 92 93
Parkwood Knoll.. San Bernardino, CA 178 units/ 149,802 sq. ft. .66 .65 .64 .62 .61 98 96 95 98 93
Pierce Tower.... Denver, CO 57 units/ 45,120 sq. ft. 1.10 1.01 .93 .91 .88 94 97 97 97 98
Quail Oaks...... Balch Springs, TX 131 units/ 72,848 sq. ft. .68 .65 .63 .58 .53 96 95 99 99 98
Somerset........ Texas City, TX 200 units/ 163,368 sq. ft. .60 .60 .59 .60 .52 92 92 89 91 91
Stone Oak....... San Antonio, TX 252 units/ 187,686 sq. ft. .63 .60 .60 .58 .55 92 92 88 93 93
Sunset Lake..... Waukegan, IL 414 units/ 302,640 sq. ft. .81 .80 .79 .76 .73 91 90 88 95 91
Trails at
Windfern....... Houston, TX 240 units/ 173,376 sq. ft. .64 .61 * * * 96 95 * * *
Willow Creek.... El Paso, TX 112 units/ 103,140 sq. ft. .48 .47 .47 .52 .51 92 93 87 80 94
Willo-Wick
Gardens........ Pensacola, FL 152 units/ 153,360 sq. ft. .52 .52 .51 .46 * 87 89 96 66 *
Willow Wick..... North Augusta, SC 104 units/ 94,128 sq. ft. .52 .50 .50 .47 * 99 98 93 99 *
Woodbridge...... Westminster, CO 194 units/ 104,500 sq. ft. .94 .88 .83 .82 .72 99 96 97 97 79

Office Buildings
225 Baronne..... New Orleans, LA 416,834 sq. ft. 7.34 * * * * 62 * * * *
1010 Common..... New Orleans, LA 494,579 sq. ft. 8.20 * * * * 13 * * * *
3400 Carlisle... Dallas, TX 74,000 sq. ft. 15.12 13.42 10.50 * * 77 95 98 * *
Amoco........... New Orleans, LA 378,244 sq. ft. 12.02 12.25 9.93 * * 79 66 33 * *
Bay Plaza....... Tampa, FL 75,780 sq. ft. 14.48 12.30 * * * 87 95 * * *
Durham Centre... Durham, NC 207,171 sq. ft. 17.30 15.33 * * * 92 88 * * *
Hampton Court... Dallas, TX 104,001 sq. ft. 17.01 15.18 12.80 * * 100 79 92 * *
Jefferson....... Washington, DC 71,877 sq. ft. 30.83 27.71 * * * 94 87 * * *
NASA............ Clear Lake, TX 78,159 sq. ft. 10.81 10.27 10.46 10.00 9.74 78 76 64 55 63
Westgrove Air
Plaza.......... Addison, TX 78,326 sq. ft. 11.04 7.33 * * * 85 67 * * *
Windsor Plaza... Windcrest, TX 80,522 sq. ft. 12.85 13.32 11.38 10.22 9.56 49 58 84 87 78
</TABLE>

97
<PAGE>

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Square Footage/ ----------------------------- ------------------------
Property Location Acres 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- -------- --------------- ----- ----- ----- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments-- continued
Industrial Warehouses
5360 Tulane............. Atlanta, GA 30,000 sq. ft. $2.45 $2.45 $2.19 $2.26 $2.14 65 100 32 32 99
5700 Tulane............. Atlanta, GA 67,850 sq. ft. -- -- -- -- -- -- -- -- -- --
Brookfield.............. Chantilly, VA 63,504 sq. ft. 6.54 6.26 6.19 6.00 * 100 100 100 85 *
Central Storage......... Dallas, TX 216,035 sq. ft. 1.48 1.48 .99 * * 100 100 100 * *
Kelly................... Dallas, TX 330,334 sq. ft. 2.90 2.96 2.43 2.20 * 100 95 93 88 *
McLeod.................. Orlando, FL 110,914 sq. ft. 7.05 6.69 6.38 6.05 6.08 90 96 80 93 88
Northgate............... Marietta, GA 208,386 sq. ft. 4.14 4.02 3.91 3.82 3.70 100 100 100 89 100
Shady Trail............. Dallas, TX 42,900 sq. ft. 2.95 3.18 2.25 * * 100 66 66 * *
Space Center............ San Antonio, TX 101,500 sq. ft. 2.96 2.04 1.93 2.12 * 65 72 77 100 *
Sullyfield.............. Chantilly, VA 243,813 sq. ft. 6.17 5.96 5.23 5.17 * 89 96 90 84 *

Shopping Center
Promenade............... Highland Ranch, CO 133,558 sq. ft. 9.75 9.56 9.35 * * 99 96 80 * *

Land
1013 Common............. New Orleans, LA 18,000 sq. ft.
McKinney 36............. Collin County, TX 36.4 Acres
McKinney 140............ McKinney, TX 140.0 Acres
OPUBCO.................. Collin County, TX 156.0 Acres
Sandison................ Collin County, TX 100.2 Acres
Solco Allen............. Collin County, TX 55.8 Acres
Stacy Road.............. Allen, TX 163.0 Acres
State Highway 121....... Collin County, TX 236.0 Acres
Watters Road............ Collin County, TX 103.0 Acres
Whisenant............... Collin County, TX 16.8 Acres
</TABLE>
- -------
* Property was purchased in 1995, 1996, 1997 or 1998.

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

In January 1998, the Trust refinanced the mortgage debt secured by the
133,558 sq. ft. Promenade Shopping Center in Highlands Ranch, Colorado in the
amount of $7.7 million, receiving net cash of $2.1 million after paying off
$5.4 million in mortgage debt, the funding of escrows and the payment of
various closing costs. The new mortgage bears interest at 7.42% per annum,
requires monthly payments of principal and interest of $56,502 and matures in
January 2008.

Also in January 1998, the Trust purchased the McKinney 36 land, 36.4 acres
of unimproved land in Collin County, Texas, for $2.1 million in cash. In April
1998, the Trust obtained mortgage financing secured by the unencumbered
McKinney 36 land in the amount of $2.1 million, receiving net cash of $2.0
million after the payment of various closing costs. The mortgage bears
interest at 9.25% per annum, requires monthly payments of interest only and
matures in April 2000.

In March 1998, the Trust purchased 1010 Common, a 494,579 sq. ft. office
building in New Orleans, Louisiana, for $14.5 million. The building was
acquired subject to ground leases that expire from November 2029 to April
2069. The Trust paid $6.3 million in cash and obtained mortgage financing of
$8.2 million. The lender has committed to fund an additional $3.8 million for
tenant improvements. The mortgage bears interest at 9.7% per annum, requires
monthly payments of interest only and matures in April 2001. In April 1998,
the Trust purchased four of the ground leases for $200,000 in cash. In
November and December 1998, the Trust purchased the fee interest in two
additional ground leases for a total of $1.2 million in cash. Also in December
1998, the Trust purchased another ground lease for $225,000, obtaining seller
financing of the entire purchase price. The financing bears interest at 12.0%
per annum, requires monthly payments of interest only and matures in December
2003.

Also in March 1998, the Trust purchased 225 Baronne, a 416,834 sq. ft.
office building in New Orleans, Louisiana, for $11.2 million. The Trust paid
$3.8 million in cash and obtained mortgage financing of $7.4 million.

98
<PAGE>

The lender has committed to fund an additional $1.6 million for tenant
improvements. The mortgage bears interest at 9.7% per annum, requires monthly
payments of interest only and matures in April 2001.

Further in March 1998, the Trust refinanced the mortgage debt secured by the
378,244 sq. ft. AMOCO Office Building in New Orleans, Louisiana, and by seven
mortgage notes receivable in the amount of $15.0 million, receiving net cash of
$10.9 million after paying off $3.8 million in mortgage debt and the payment of
various closing costs. The lender has committed to fund an additional $1.0
million for tenant improvements. The new mortgage bears interest at 8.7% per
annum, requires monthly payments of interest only and matures in April 2001.

The mortgage debt secured by the above three New Orleans properties is
cross-collateralized and cross defaulted. Both BCM and the Trust have
guaranteed repayment of this debt.

In March 1998, the Trust refinanced the mortgage debt secured by the 322
unit McCallum Crossing Apartments in Dallas, Texas in the amount of $8.4
million, receiving net cash of $1.8 million after paying off $6.3 million in
mortgage debt and the payment of various closing costs. The new mortgage bears
interest at 7.19% per annum, requires monthly payments of principal and
interest of $56,961 and matures in April 2008.

Also in March 1998, the Trust sold 4050 Getwell, a 112,382 sq. ft.
industrial warehouse in Memphis, Tennessee, for $2.1 million, receiving net
cash of $1.2 million after paying off $793,000 in mortgage debt and the payment
of various closing costs. No gain or loss was recognized on the sale.

In April 1998, the Trust purchased the 338 unit Fontenelle Hills Apartments
in Bellevue, Nebraska, for $12.8 million. The Trust paid $2.0 million in cash
and obtained mortgage financing of $10.8 million. The mortgage bears interest
at 7.16% per annum, requires monthly payments of principal and interest of
$73,017 and matures in April 2008.

In May 1998, the Trust purchased the Whisenant land, 16.802 acres of
unimproved land in Collin County, Texas, for $600,000 in cash.

Also in May 1998, the Trust refinanced the mortgage debt secured by the 104
unit Willow Wick Apartments in North Augusta, South Carolina, in the amount of
$2.1 million, receiving net cash of $1.1 million after paying off $854,000 in
mortgage debt and the payment of various closing costs. The new mortgage bears
interest at 7.205% per annum, requires monthly payments of principal and
interest of $13,990 and matures in June 2008.

In July 1998, the Trust purchased the Solco Allen land, 55.725 acres of
unimproved land in Collin County, Texas, for $1.3 million in cash.

Also in July 1998, the Trust purchased the Sandison land, 100.171 acres of
unimproved land in Collin County, Texas, for $4.7 million in cash.

Concurrent with these two land purchases, the Trust obtained mortgage
financing in the amount of $5.2 million, receiving net cash of $4.9 million
after the payment of various closing costs. The mortgage is secured by the
Solco Allen, Sandison and Whisenant land, all in Collin County, Texas. The
mortgage bears interest at 9.25% per annum, requires monthly payments of
interest only and matures in April 2000.

In August 1998, the Trust purchased the 1013 Common land, 18,000 sq. ft. of
improved land in New Orleans, Louisiana, for $582,000 in cash.

In September 1998, the Trust sold the 113,638 sq. ft. Rio Pinar Shopping
Center in Orlando, Florida, for $8.8 million, receiving net cash of $3.1
million after paying off $5.1 million in mortgage debt and the payment of
various closing costs. A gain of $478,000 was recognized on the sale.

99
<PAGE>

During 1998, the Trust expended $636,000 to rebuild 5700 Tulane, a 67,850
sq. ft.industrial warehouse in Atlanta, Georgia that had been destroyed by fire
in 1996. Construction was completed in the third quarter of 1998.

In January 1999, the Trust purchased a ground lease under the 1010 Common
Office Building for $273,000 in cash.

As discussed in "Mortgage Loans" below, in February 1999, the Trust obtained
ownership of the partnership that owns the Signature Athletic Club in Dallas,
Texas. The partnership refinanced the property in the amount $2.7 million,
receiving no net cash after paying off the matured $2.6 million first lien and
the payment of various closing costs. The new mortgage bears interest at 8.5%
per annum, requires monthly payments of principal and interest of $23,000 and
matures in February 2004.

In March 1999, the Trust refinanced the mortgage debt secured by the 99 unit
Eagle Rock Apartments in Los Angeles, California, in the amount of $3.3
million, paying net cash of $50,000 after paying off $3.3 million in mortgage
debt and the payment of various closing costs. The new mortgage bears interest
at 7.33% per annum, requires monthly payments of principal and interest of
$22,609 and matures in April 2009.

Also in March 1999, the Trust refinanced the mortgage debt secured by the
240 unit Trails of Windfern Apartments in Houston, Texas, in the amount of $3.8
million, receiving net cash of $414,000 after paying off $3.3 million in
mortgage debt and the payment of various closing costs. The new mortgage bears
interest at 7.23% per annum, requires monthly payments of principal and
interest of $25,871 and matures in April 2009.

Further in March 1999, the Trust refinanced the mortgage debt secured by the
168 unit Ashley Crest Apartments in Houston, Texas, in the amount of $2.9
million, receiving net cash of $54,000 after paying off $2.6 million in
mortgage debt and the payment of various closing costs. The new mortgage bears
interest at 7.12% per annum, requires monthly payments of principal and
interest of $19,191 and matures in April 2009.

In April 1999, the Trust refinanced the mortgage debt secured by the 63,504
sq. ft. Brookfield Corporate Center in Chantilly, Virginia, in the amount of
$2.9 million, receiving net cash of $62,000 after paying off $2.7 million in
mortgage debt and the payment of various costs. The new mortgage bears interest
at 7.71% per annum, requires monthly payments of principal and interest of
$21,678 and matures in May 2009.

Also in April 1999, the Trust sold the 74,000 sq. ft. 3400 Carlisle Office
Building in Dallas, Texas, for $6.1 million, receiving net cash of $1.1 million
after paying off $4.6 million in mortgage debt, including a $166,000 prepayment
penalty, and the payment of various closing costs. A gain of $48,000 was
recognized on the sale.

Further in April 1999, the Trust refinanced the mortgage debt secured by the
166 unit Fountain Lake Apartments in Texas City, Texas, in the amount of $2.6
million, receiving net cash of $89,000 after paying off $2.4 million in
mortgage debt and the payment of various closing costs. The new mortgage bears
interest at 7.56% per annum, requires monthly payments of principal and
interest of $19,018 and matures in May 2002.

In May 1999, the Trust sold the 104,001 sq. ft. Hampton Court Office
Building in Dallas, Texas, for $11.3 million, receiving net cash of $5.6
million after paying off $6.2 million in mortgage debt, including a $252,000
prepayment penalty, and the payment of various closing costs. A gain of $2.3
million recognized on the sale.

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Properties Held for Sale. Set forth below are the Trust's properties held
for sale, which were primarily obtained through foreclosure, and the monthly
rental rate for apartments and the average annual rental rate for commercial
properties and occupancy thereof at December 31, 1997, 1996, 1995, 1994 and
1993:

<TABLE>
<CAPTION>
Units/ Rent Per Square Foot Occupancy %
Square Footage/ ----------------------------- ------------------------
Property Location Acres 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- -------- ----------------------- ----- ----- ----- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
Shadowridge........... Rocksprings, WY 64 units/52,700 sq. ft. $ .57 $ .54 $ .57 $ .59 $ .57 95 99 87 92 95

Industrial Warehouse
Ogden Industrial...... Ogden, UT 107,112 sq. ft. 4.12 3.56 2.80 2.76 2.64 86 100 100 100 100

Land
Round Mountain........ Austin, TX 128 Acres
</TABLE>

In January 1998, the Trust completed the sale of the 353 unit Edgewood
Apartments in Lansing, Illinois, for $12.1 million, receiving net cash of $2.3
million after paying off $9.3 million in mortgage debt and the payment of
various closing costs. A gain of $5.6 million was recognized on the sale.

In May 1998, the Trust sold the 19,685 sq. ft. Pinemont Professional
Building in Houston, Texas, for $570,000, receiving net cash of $57,000 and
providing $467,000 of seller financing in the form of a wraparound mortgage
note. The note bears interest at 10.4% per annum, requires monthly payments of
principal and interest of $6,281 and matures in July 2008. A loss of $154,000
was recognized on the sale.

In December 1998, the Trust sold the Northwest Crossing land, 4.9 acres in
Houston, Texas, for $965,000, receiving net cash of $901,000 after the payment
of various closing costs. A gain of $5,000 was recognized on the sale.

Also in December 1998, the Trust sold the Del Ray Forum land, 5 acres in
Delray Beach, Florida, for $1.0 million, receiving net cash of $922,000 after
the payment of various closing costs. A gain of $137,000 was recognized on the
sale.

The Round Mountain parcel of unimproved land listed above was obtained
through foreclosure, having been intended to be developed in 1983 when the
Trust funded the mortgage loan secured by the land. The Trust intends to hold
this parcel of unimproved land until the market conditions improve, at which
time the Trust intends to offer the property for sale.

Partnership Properties. The Trust is a noncontrolling 30%, general partner
in Sacramento Nine ("SAC 9") which owns two office buildings. The Trust
accounts for its investment in the partnership using the equity method. Set
forth below are the properties owned by SAC 9 and the average annual rental
rate and occupancy thereof at December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
Rent Per Square Foot Occupancy %
---------------------------------- ----------------------------
Square
Property Location Footage 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- -------- ------- ------ ------ ------ ------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prospect Park #29....... Rancho 40,807 $17.91 $16.97 $11.06 $12.30 $10.70 100% 100% 100% 100% 100%
Cordova, sq. ft.
CA
U.S. Sprint............. Rancho 62,957 11.67 10.68 10.56 10.52 10.70 100 100 100 100 100
Cordova, sq. ft.
CA

</TABLE>

Mortgage Loans. In addition to real estate, a portion of the Trust's assets
are invested in mortgage notes receivable, principally secured by income-
producing real estate. The Trust expects that the percentage of its

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<PAGE>

assets invested in mortgage loans will continue to decrease, as it is not
actively seeking to fund or acquire mortgage loans. It may, however, in
selective instances, originate mortgage loans or it may provide purchase money
financing in conjunction with a property sale. The Trust intends to service and
may either hold for investment or sell any or all of the mortgage notes
currently in its portfolio. The Trust's mortgage notes receivable consist of
first mortgage, wraparound and junior mortgage loans.

Types of Mortgage Activity. 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, except in special circumstances or 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.

Types of Properties Subject to Mortgages. The properties securing the
Trust's mortgage notes receivable portfolio at March 31, 1999, consisted of an
office building and a mobile home park. To the extent that the Declaration of
Trust does not control such matters, the Trust's Board of Trustees may alter
the types of properties subject to mortgage loans in which the Trust invests
without a vote of the Trust's shareholders. In addition to restricting the
types of collateral and priority of mortgage loans in which the Trust may
invest, the Declaration of Trust imposes certain restrictions on transactions
with related parties.

At March 31, 1999, the Trust's mortgage notes receivable portfolio consisted
of two mortgage loans with an aggregate outstanding balance of $674,000 million
secured by income-producing real estate located in the Midwest and Southwest
regions. At March 31, 1999, approximately 1% of the Trust's assets were
invested in mortgage notes receivable.

The following table sets forth the percentages (based on the outstanding
mortgage note receivable 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 March 31, 1999. See Schedule IV to the
Consolidated Financial Statements for further details of the Trust's mortgage
notes receivable portfolio.

<TABLE>
<CAPTION>
Mobil Home Commercial
Region Park Propertiy Total
------ ---------- ---------- -----
<S> <C> <C> <C>
Southwest -% 67 67
Midwest 33 - 33
--- --- ---
33% 67% 100%
=== === ===
</TABLE>

A summary of the activity in the Trust's mortgage notes receivable portfolio
during 1998 and the first three months of 1999 was as follows:

<TABLE>
<S> <C>
Loans in mortgage notes receivable portfolio at January 1, 1998 11
Loan from sale of property 1
Purchase of property securing loan 1
Loans paid in full (2)
Loans sold (6)
Loan written off (1)
---
Loans in mortgage notes receivable portfolio at March 31, 1999 2
===
</TABLE>

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

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<PAGE>

The following discussion briefly describes the events that affected
previously funded first mortgage loans during 1998 and the first three months
of 1999.

In April 1998, the Trust sold five mortgage notes secured by single-family
residences in Arizona and Hawaii for $319,000, receiving net cash of $304,000
after the payment of various closing costs. No gain or loss was recognized on
the sale.

In June 1998, the Trust collected in full a mortgage note with a principal
balance of $304,000.

In December 1998, the Trust collected in full a mortgage note with a
principal balance of $547,000.

At December 31, 1998, a matured mortgage note with a principal balance of
$700,000 was in default. Until July 1998, the Trust had been receiving partial
interest payments monthly. In December 1998, the Trust wrote off the note after
it determined that it was uncollectible. No loss was incurred in excess of the
reserve previously established.

As discussed above in "Real Estate," seven of the Company's mortgage notes
with a combined principal balance, at December 31, 1997, of $1.4 million were
pledged as additional collateral on a $2.3 million loan, primarily secured by
the AMOCO Office Building. In March 1998, the AMOCO mortgage was refinanced and
the collateral loans were released.

In February 1999, the Trust sold, to the underlying lienholder, its mortgage
note receivable secured by the Cypress Creek Office Building in Ft. Lauderdale,
Florida, for $1.6 million, receiving net cash of $111,000 after paying off $1.4
million in mortgage debt and the payment of various closing costs. The
purchaser has no recourse to the Trust if the note should not be collected in
full. A gain will be recognized on the sale.

Wraparound Mortgage Loans. The Trust has invested in wraparound mortgage
loans, sometimes called all-inclusive loans, made on real estate subject to
prior mortgage indebtedness. A wraparound mortgage loan is a mortgage loan
having an original principal amount equal to the outstanding balance under the
prior existing mortgage loan(s) plus the amount actually advanced under the
wraparound mortgage loan.

Wraparound mortgage loans may provide for full, partial or no amortization
of principal. The Trust's policy is to make wraparound mortgage loans in
amounts and on properties as to which it would otherwise make first mortgage
loans.

The following discussion describes a wraparound mortgage loan funded in
1998.

As discussed above in "Real Estate," in May 1998, the Trust sold the
Pinemont Professional Building for $570,000. The Trust received net cash of
$57,000 and provided $467,000 of seller financing in the form of a wraparound
mortgage note. The note bears interest at 10.4% per annum, requires monthly
payments of principal and interest of $6,281 and matures in July 2008.

Junior Mortgage Loans. The Trust has invested in junior mortgage loans. Such
loans are secured by mortgages that are subordinate to one or more prior liens
either on the fee or a leasehold interest in real estate. Recourse on such
loans ordinarily includes the real estate on which the loan is made, other
collateral and personal guarantees by the borrower. The Trust's Declaration of
Trust restricts investment in junior mortgage loans, excluding wraparound
mortgage loans, to not more than 10% of the Trust's assets. At September 30,
1998, less than 1% of the Trust's assets were invested in junior mortgage
loans.

The following discussion briefly describes events that affected previously
funded junior mortgage loans during 1998 and the first three months of 1999.

In February 1996, the Trust funded a $1.5 million second lien mortgage
secured by the Signature Athletic Club in Dallas, Texas. The note matured in
October 1998. The Trust had also guaranteed the underlying first

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<PAGE>

lien mortgage secured by the property, which also matured in October 1998. The
Trust ceased recognizing interest income on the note in June 1996. In February
1999, the Trust obtained ownership of the partnership that owns the property.
The partnership refinanced the property in the amount of $2.7 million,
receiving no net cash after paying off the matured $2.6 million first lien and
the payment of various closing costs. The mortgage bears interest at 8.5% per
annum, requires monthly payments of principal and interest of $23,000 and
matures in February 2004. The Trust incurred no loss as the fair value of the
property exceeded the carrying value of the Trust's note receivable and assumed
first lien mortgage.

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 executive
officers of the Trust also serve as executive officers of American Realty Trust
Inc. ("ART") and BCM. BCM, the Trust's advisor, also serves as advisor to ART.
At June 30, 1999, ART owned approximately 41.0% of the Trust's outstanding
shares of beneficial interest. At June 30, 1999, the Trust owned 820,850 shares
of ART's common stock, approximately 7.8% of ART's outstanding common shares,
which the Trust primarily 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 June 30, 1999,
the market value of the ART common stock was $13.1 million.

In December 1990, the Trust's Board of Trustees authorized the purchase of
up to $1.0 million of the shares of common stock of TCI through negotiated or
open market transactions. The trustees of the Trust serve as directors of TCI
and the executive officers of the Trust also serve as executive officers of
TCI. BCM, the Trust's advisor, also serves as advisor to TCI. At June 30, 1999,
the Trust owned 80,268 shares of TCI common stock, approximately 2.1% of the
outstanding shares of TCI common stock, which the Trust primarily purchased in
open market transactions in 1990 and 1991 at a total cost of to the Trust of
$235,000. The Trust's investment in TCI is considered to be available for sale
and is carried at fair value. At June 30, 1999, the market value of the Trust's
investment in TCI common stock was $1.0 million.

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 burdensome, changes in real estate and zoning laws, increases in
real estate taxes, federal or local economic or rent controls, floods,
earthquakes, hurricanes and other acts of God and other factors beyond the
control of the Trust's management of the advisor. Also, the illiquidity of real
estate investments 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 and mortgage notes receivable
portfolios. However, to the extent property acquisitions are concentrated in
any particular geographic region or property type, the advantages of
diversification may be mitigated.

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 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.
TCI's Articles

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<PAGE>

of Incorporation impose no limitations either on borrowing or on the number or
amount of mortgages which can be placed on any one of TCI's real estate
investments. See "Proposed Incorporation Procedure and Merger -- Business
Activities after Incorporation Procedure and Merger".

Officers

The following persons currently serve as executive officers of the Trust and
also serve as executive officers of TCI: Randall M. Paulson, President, Karl L.
Blaha, Executive Vice President -- Commercial Asset Management; Bruce A.
Endendyk, Executive Vice President; Steven K. Johnson, Executive Vice
President -- Residential Asset Management; and Thomas A. Holland, Executive
Vice President and Chief Financial Officer. Their positions with the Trust are
not subject to a vote of shareholders.

Although not executive officers of the Trust, the following persons
currently serve as officers of the Trust and also serve as officers of TCI:
Robert A. Waldman, Senior Vice President and General Counsel, and Drew D.
Potera, Vice President and Treasurer. Their positions with the Trust are not
subject to a vote of shareholders.

The Trust 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 BCM, a contractual advisor
under the supervision of the Board of Trustees. The stated 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 as well as financing and refinancing sources for the Trust. The
advisor also serves as a consultant to the Board of Trustees in connection with
the business plan and investment policy decisions.

BCM has served as the Trust's advisor since March 29, 1989. BCM is a
corporation of which Messrs. Paulson, Blaha, Endendyk, Johnson and Holland
serve as executive officers. BCM is owned by a trust for the benefit of the
children of Gene E. Phillips. Prior to December 22, 1989, Mr. Phillips served
as a director of BCM, and until September 1, 1992, as Chief Executive Officer
of BCM. Mr. Phillips serves as a representative of his children's trust which
owns BCM and, in such capacity, has substantial contact with the management of
BCM and input with respect to its performance of advisory services to the
Trust.

BCM has been providing advisory services to the Trust since March 29, 1989.
Renewal of the Trust Advisory Agreement was approved at the annual meeting of
the Trust's shareholders held on May 8, 1997. The current Trust Advisory
Agreement was executed on October 15, 1998. BCM also serves as advisor to IORI
and TCI. The Trustees of the Trust are also directors of IORI and TCI and the
executive officers of the Trust are also executive officers of IORI and TCI.
BCM performs certain administrative functions for NRLP and NOLP on behalf of
NMC, on a cost-reimbursement basis. BCM also serves as advisor to ART. The
executive officers of the Trust are also executive officers of ART and NMC.

As of June 30, 1999, ART owned approximately 41.0% and BCM owned
approximately 17.6% of the Trust's outstanding shares of beneficial interest,
and BCM owned approximately 55.8% and the Trust owned approximately 7.8% 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 Ltd. provides such property management
services. Carmel Ltd. subcontracts with other entities for the provision of the
property-level management services to the Trust. The general partner of Carmel
Ltd. is BCM. The limited partners of Carmel Ltd. are (1) First Equity, which is
50% owned by a subsidiary of BCM, (2) Gene E. Phillips and (3) a trust for the
benefit of the children of Mr. Phillips. Carmel Ltd. subcontracts the property-
level management and leasing of 18 of the Trust's commercial properties to
Carmel

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<PAGE>

Realty, which is a company owned by First Equity. Carmel Realty is entitled to
receive property and construction management fees and leasing commissions in
accordance with the terms of its property-level management agreement with
Carmel Ltd.

Real Estate Brokerage

Since December 1, 1992, Carmel Realty has been engaged, on a non-exclusive
basis, to provide brokerage services for the Trust. 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: (1) 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; (2) 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; (3) 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 (4) 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 and the Merger are approved, the brokerage
agreement between Carmel Realty and the Trust will not be amended and will
continue in full force and effect with TCI, as successor to the Trust, being
substituted for the Trust.

The Trust Advisory Agreement

BCM has served as advisor to the Trust since March 29, 1989. The current
Trust Advisory Agreement was entered into effective October 15, 1998. Renewals
of the Trust Advisory Agreement require the approval of the Trust's
shareholders.

Under the Trust 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 and 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 or investments by the Trust require prior
approval by the Board of Trustees unless they 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 Trust 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 Trust 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 Trust 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 Trust 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: (1) 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), (2) capital improvements
made to such assets during the period owned by the Trust and (3) 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%
simple

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<PAGE>

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 Trust 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
(1) up to 1% of the cost of acquisition, inclusive of commissions, if any, paid
to nonaffiliated brokers or (2) 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 Trust 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 (1) 2% of the amount of the loan committed
by the Trust or (2) a loan brokerage and commitment fee which is reasonable and
fair under the circumstances.

The Trust 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 from an unaffiliated
party 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 Trust 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 (1) 1% of
the amount of the loan or the amount refinanced or (2) 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 Trust Advisory Agreement, BCM is to receive reimbursement of
certain expenses incurred by it in the performance of advisory services to the
Trust.

Under the Trust 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. The effect of this limitation was to require that BCM
refund $952,000 of the annual advisory fee for 1998.

Additionally, if the Trust were to request that BCM render services to the
Trust other than those required by the Trust Advisory Agreement, BCM or an
affiliate of BCM is 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.

BCM may only assign the Trust Advisory Agreement with the prior consent of
the Trust.

As discussed above and as mandated by the Declaration of Trust, the current
Trust Advisory Agreement requires that a portion of the annual advisory fee be
refunded to the Trust if operating expenses exceed certain limits. Although
TCI's articles of incorporation do not require such a limitation, such a
provision is included in the TCI Advisory Agreement.

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<PAGE>

The directors and principal officers of BCM are set forth above under
"Business and Properties of TCI -- The TCI Advisory Agreement".

Involvement in Certain Legal Proceedings

The Trust was involved in the Olive Litigation, described more fully above
under "Business and Properties of TCI -- Involvement in Certain Legal
Proceedings". The terms and conditions of the Olive Modification and the Olive
Amendment apply equally to the Trust and required, among other things, the
following: (1) the unanimous approval of the Board of Trustees to related party
transactions (which were, generally, to be discouraged and could only be
entered into in exceptional circumstances and after a determination by the
Board of Trustees that the transaction was in the best interests of the Trust
and that no other opportunity existed that was as good as the opportunity
presented by such transaction), but did not apply to direct contractual
agreements for services between the Trust, BCM or one of its affiliates
(including the Trust Advisory Agreement); and (2) the addition of four new
unaffiliated members to the Trust's Board of Trustees.

As described more fully above under "Business and Properties of TCI --
Involvement in Certain Legal Proceedings", all shares of the Trust owned by
Gene E. Phillips or any of his affiliates had to be voted at all shareholder
meetings of the Trust held until April 28, 1999 in favor of all new members of
the Board of Trustees added under the Olive Amendment. The Olive Amendment also
required that, until April, 28, 1999, all shares of the Trust owned by Mr.
Phillips or his affiliates in excess of forty percent (40%) of the Trust's
outstanding shares had to be voted in proportion to the votes cast by all non-
affiliated shareholders of the Trust.

In accordance with the Olive Amendment, Richard W. Douglas, Larry E. Harley
and R. Douglas Leonhard were added to the Board of Trustees in January 1998 and
Murray Shaw was added to the Board of Trustees in February 1998. The
restrictions and requirements of the Olive Amendment expired on April 29, 1999.

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, 1991, 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 (1) First Equity, which is 50% owned by a subsidiary of BCM,
(2) Mr. Phillips and (3) a trust for the benefit of the children of Mr.
Phillips. Carmel Ltd. subcontracts the property-level management and leasing of
18 of the Trust's commercial properties to Carmel Realty, which is a company
owned by First Equity.

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

The Trustees and executive officers of the Trust also serve as directors and
executive 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. BCM performs certain administrative
functions for NRLP and NOLP on behalf of NMC, on a cost-reimbursement basis.
BCM also serves as advisor to ART. Messrs. Paulson, Blaha, Endendyk, Johnson
and Holland serve as executive officers of ART and NMC.

From April 1992 to December 31, 1992, Ted P. Stokely, a Trustee of the
Trust, was employed as a paid consultant and since January 1, 1993 as a part-
time unpaid consultant for Eldercare, a nonprofit corporation engaged in the
acquisition of low income and elderly housing. Eldercare has a revolving loan
commitment from

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<PAGE>

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 bankruptcy in February 1996, and has since paid all debts as
directed by the bankruptcy court.

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.

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. The officers of the Trust also serve as officers of ART. BCM, the
Trust's advisor, also serves as advisor to ART and at April 30, 1999, ART owned
approximately 41.0% of the Trust's outstanding shares of beneficial interest.
At April 30, 1999, the Trust owned 820,850 shares of ART common stock which the
Trust had primarily purchased in open market transactions in 1990 and 1991 at a
total cost to the Trust of $1.6 million. At April 30, 1999, the market value of
the ART shares was $13.4 million.

In December 1990, the Board of Trustees authorized the purchase of 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.
The officers of the Trust also serve as officers of TCI. BCM, the Trust's
advisor, also serves as advisor to TCI. At June 30, 1999, the Trust owned
80,268 shares of TCI common stock which the Trust had primarily purchased in
open market transactions in 1990 and 1991 at a total cost to the Trust of
$235,000. At June 30, 1999, the market value of the TCI common stock was $1.0
million.

In 1998, the Trust paid BCM and its affiliates $2.6 million in advisory, net
income and incentive sales fees, $2.3 million in real estate brokerage
commissions, $353,000 in mortgage brokerage and equity refinancing fees and
$2.7 million 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 Trust Advisory Agreement,
BCM received cost reimbursements from the Trust of $1.2 million in 1998. Under
the Trust 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 $952,000 of
the annual advisory fee for 1998.

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 the Trust shares of beneficial interest as of the close of business on June
30, 1999.

<TABLE>
<CAPTION>
Amount of Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class(1)
------------------------ -------------------- -------------------
<S> <C> <C>
American Realty Trust, Inc. 1,650,970 41.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Basic Capital Management, Inc. 706,840 17.6%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
</TABLE>
- --------
(1) Percentages are based upon 4,022,341 shares of beneficial interest
outstanding at June 30, 1999.

109
<PAGE>

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 June 30, 1999.

<TABLE>
<CAPTION>
Amount of Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class(1)
------------------------ -------------------- -------------------
<S> <C> <C>
All Trustees and Executive 2,357,810(2) 58.6%
Officers as a group
(12 individuals)
</TABLE>
- --------
(1) Percentage is based upon 4,022,341 shares of beneficial interest
outstanding at June 30, 1999.
(2) Includes 1,650,970 shares owned by ART and 706,840 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 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.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table summarizes selected historical consolidated financial
information of the Trust and for TCI for the three months ended March 31, 1999
and 1998 and the five years ended December 31, 1994 through 1998.

The historical consolidated financial information is not necessarily
indicative of TCI's future results of operations or financial condition
following the Incorporation Procedure and the Merger. The information set forth
below should be read in conjunction with "Trust Management's Discussion and
Analysis of Financial Condition and Results of Operations", the Trust's
Consolidated Financial Statements and notes thereto appearing under "Index to
Financial Statements" included in the Trust's Annual Report on Form 10-K for
the year ended December 31, 1998, and the Trust's Quarterly Report on Form 10-
Q, for the quarter ended March 31, 1999, both of which are incorporated by
reference herein, "TCI Management's Discussion and Analysis of Financial
Condition and Results of Operations", and TCI's Consolidated Financial
Statements and notes thereto appearing under "Index to Financial Statements"
included in the TCI's Annual Report on Form 10-K for the year ended December
31, 1998, and TCI's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, both of which are incorporated by reference herein.

110
<PAGE>

CONTINENTAL MORTGAGE AND EQUITY TRUST

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Three
Months Ended March
31, For the Years Ended December 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenues $ 16,637 $ 15,041 $ 64,291 $ 56,475 $ 45,363 $ 38,309 $ 29,741
Expenses 18,435 17,105 70,159 60,647 47,799 39,982 31,803
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations (1,798) (2,064) (5,868) (4,172) (2,436) (1,673) (2,062)
Equity in income (loss)
of partnerships 56 35 157 99 228 230 98
Gain on sale of real
estate and marketable
equity securities 152 5,616 6,058 8,249 10,122 - 1,131
Extraordinary gain - - - - 812 - -
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ (1,590) $ 3,587 $ 347 $ 4,176 $ 8,726 $ (1,443) $ (833)
========= ========= ========= ========= ========= ========= =========
EARNINGS PER SHARE DATA
Income (loss) before
extraordinary gain $ (.40) $ .89 $ .09 $ 1.04 $ 1.89 $ (.33) $ (.19)
Extraordinary gain - - - - .19 - -
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ (.40) $ .89 $ .09 $ 1.04 $ 2.08 $ (.33) $ (.19)
========= ========= ========= ========= ========= ========= =========
Distributions per share $ .15 $ .15 $ .60 $ .52 $ .89 $ .40 $ .40
Weighted average shares
outstanding 4,021,180 4,013,236 4,012,614 4,025,794 4,199,147 4,377,165 4,379,722
</TABLE>

<TABLE>
<CAPTION>
March 31, December 31,
--------- --------------------------------------------
1999 1998 1997 1996 1995 1994
--------- -------- -------- -------- -------- --------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable, net $ 424 $ 33,76 $ 3,629 $ 7,074 $ 5,351 $ 7,117
Foreclosed real estate
held for sale, net 3,325 3,325 5,670 5,738 6,436 19,533
Real estate held for
investment, net 298,285 294,227 256,024 214,460 5,981 124,706
Investment in
partnerships - - 144 2,293 12,970 13,805
Total assets 331,415 333,788 299,370 250,010 218,568 182,839
Notes and interest
payable 235,921 233,693 199,712 160,554 135,590 98,252
Shareholders' equity 84,448 87,353 88,043 79,183 75,985 78,767
Book value per share $ 21.00 $ 21.72 $ 21.89 $ 19.67 $ 17.36 $ 17.99
</TABLE>
- --------
Shares and per share dates have been restated for the three-for-two forward
share split effected February 15, 1996.

111
<PAGE>

TRANSCONTINENTAL REALTY INVESTORS, INC.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Years Ended December 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- --------- --------- --------- --------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenues $ 19,195 $ 16,272 $ 70,636 $ 55,961 $ 46,878 $ 48,272 $ 37,983
Expenses 20,799 17,460 76,602 65,578 56,499 58,174 47,154
---------- ---------- --------- --------- --------- --------- ---------
(Loss) from operations (1,604) (1,188) (5,966) (9,617) (9,621) (9,902) (9,171)
Equity in income (loss)
of investees 25 (18) 288 812 (20) (1,083) (90)
Gain on sale of
partnership interests - - - - - - 2,514
Gain on sale of real
estate 1,868 - 12,584 21,404 1,579 5,822 2,153
Extraordinary gain - - - - - 1,243 1,189
---------- ---------- --------- --------- --------- --------- ---------
Net income (loss) 289 (1,206) 6,906 12,599 (8,062) (3,870) (3,405)
Preferred divided
requirement (7) - (1) - - - -
---------- ---------- --------- --------- --------- --------- ---------
Net income (loss)
applicable to common
shares $ 282 $ (1,206) $ 6,905 $ 12,599 $ (7,806) $ (3,726) $ (3,405)
========== ========== ========= ========= ========= ========= =========
PER SHARE DATA
Income (loss) before
extraordinary gain $ .07 $ (.31) $ 1.78 $ 3.22 $ (2.02) $ (1.29) $ (1.15)
Extraordinary gain - - - - - .32 .30
---------- ---------- --------- --------- --------- --------- ---------
Net income (loss)
applicable to common
shares $ .07 $ (.31) $ 1.78 $ 3.22 $ (2.02) $ (.97) $ (.85)
========== ========== ========= ========= ========= ========= =========
Dividends per share $ .15 $ .15 $ .60 $ 1.28 $ .28 $ .07 $ -
Weighted average common
shares outstanding 3,878,463 3,886,866 4,033,332 3,907,221 3,994,687 4,012,275 4,012,275
</TABLE>

<TABLE>
<CAPTION>
March 31 December 31,
-------- --------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable, net $ 1,463 $ 1,493 $ 3,947 $ 8,606 $ 10,017 $ 11,201
Real estate held for
sale, net
Foreclosed 1,356 1,356 1,356 910 2,460 8,032
Other - - 3,630 2,089 3,415 341
Real estate held for
investment, net 354,162 347,389 269,845 217,010 220,105 213,445
Total assets 389,556 382,203 319,135 244,971 260,036 247,964
Notes and interest
payable 292,067 282,688 222,029 158,692 159,889 145,514
Stockholders' equity 90,833 91,132 86,133 78,959 89,040 93,177
Book value per share $ 23.27 $ 23.35 $ 22.15 $ 20.10 $ 22.19 $ 23.22
</TABLE>
- --------
Shares and per share data have been restated for the three-for-two common stock
split effected February 15, 1996.

112
<PAGE>

TRUST 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.

Liquidity and Capital Resources

Cash and cash equivalents totaled 723,000 at March 31, 1999, compared with
$2.2 million at December 31, 1998. The principal reasons for the decrease in
cash are discussed in the paragraphs below.

The Trust's principal sources of cash have been and will continue to be
property operations, proceeds from property sales and borrowings. The Trust's
management expects that net cash provided by operating activities and from
external sources, such as property sales, financings and refinancings, will be
sufficient to meet the Trust's various cash needs in 1999, including, but not
limited to, debt service obligations, shareholders distributions and property
maintenance and improvements.

The Trust's cash flow from property operations (rents collected less
payments for expenses applicable to rental income) increased to $5.4 million in
the first quarter of 1999 from $3.0 million in 1997 in the first quarter of
1998. Of this net increase, $268,000 was due to the acquisition of three income
producing properties in 1998 and one property in 1999, $1.6 million was due to
the payment in 1998 of expenses accrued at December 31, 1997, and $411,000 was
due to increased occupancy rates at the Trust's commercial and residential
properties. The increase was partially offset by a decrease of $89,000 due to
the sale of three commercial properties and an apartment complex in 1998. The
Trust's management believes that this trend of increasing cash flow from
property operations will continue as it benefits from the properties purchased
in 1998 and assuming the economy remains stable or improves.

Interest collected on mortgage notes receivable decreased to $38,000 in 1999
from $69,000 in 1998. The decrease was primarily due to the collection of two
notes receivable in 1998 and the sale of five notes receivable in 1998 and one
note receivable in 1999. Miscellaneous interest income collected decreased to
$58,000 in 1999 from $154,000 in 1998 due to a decrease in short-term
investments. Interest is expected to continue to decrease as a source of cash
as the Trust has determined that generally, it will not actively seek to
originate new mortgage loans other than those resulting from the Trust
providing purchase money financing in connection with a property sale.

Interest paid increased to $5.1 million in 1999 from $4.5 million in 1998.
This increase was primarily attributable to interest paid on mortgages secured
by three leveraged property purchases in 1998; four borrowings in 1998 secured
by mortgage on encumbered properties; and interest paid on new notes resulting
from the refinancing of four properties in 1998 and three properties in 1999
where the loan balance was increased. Interest paid on notes payable is
expected to continue to increase as additional properties are purchased on a
leverage basis and financing is obtained on remaining unencumbered properties.

General and administrative expenses paid decreased to $505,000 in 1999 from
$588,000 in 1998. The decrease was due to a decrease in legal fees.

Under its advisory agreement, all or a portion of the annual advisory fee
must be refunded by BCM, the Trust's advisor, if the operating expenses of the
Trust exceed certain limits specified in the Trust's Declaration of Trust. The
Trust received a refund of $981,000 of its 1998 advisory fee in March 1999 as
compared to $606,000 of its 1997 advisory fee in March 1998.

113
<PAGE>

In January 1999, the Trust purchased a ground lease under the 1010 Common
Office Building for $273,000 in cash.

In March 1999, the Trust refinanced the mortgage debt secured by the Eagle
Rock Apartments in Los Angeles, California, in the amount of $3.3 million,
paying net cash of $83,000 to pay off $3.3 million in mortgage debt and the
payment of various closing costs.

Also in March 1999, the Trust refinanced the mortgage debt secured by the
Trails of Windfern Apartments in Houston, Texas, in the amount of $3.8 million,
receiving net cash of $414,000 after paying off $3.3 million in mortgage debt
and the payment of various closing costs.

Further in March 1999, the Trust refinanced the mortgage debt secured by the
Ashley Crest Apartments in Houston, Texas, in the amount of $2.9 million,
receiving net cash of $54,000 after paying off $2.6 million in mortgage debt
and the payment of various closing costs.

In April 1999, the Trust refinanced the mortgage debt secured by the
Brookfield Corporate Center in Chantilly, Virginia, in the amount of $2.9
million, receiving net cash of $91,000 after paying off $2.7 million in
mortgage debt and the payment of various closing costs.

Also in April 1999, the Trust sold the 3400 Carlisle Office Building in
Dallas, Texas, for $6.1 million, receiving net cash of $1.1 million after
paying off $4.6 million in mortgage debt, including a $166,000 prepayment
penalty, and the payment of various closing costs.

Further in April 1999, the Trust refinanced the mortgage debt secured by the
Fountain Lake Apartments in Texas City, Texas, in the amount of $2.6 million,
receiving net cash of $89,000 after paying off $2.4 million in mortgage debt
and the payment of various closing costs.

In May 1999, the Trust sold the Hampton Court Office Building in Dallas,
Texas, for $11.3 million, receiving net cash of $5.6 million after paying off
$6.2 million in mortgage debt, including a $252,000 prepayment penalty, and the
payment of various closing costs.

In April 1998, the Trust's Board of Trustees authorized the Trust to
repurchase a total of 200,000 of its shares of beneficial interest. No shares
have been purchased under this authorization.

In the first quarter of 1999, the Trust paid distributions of $.15 per
share, or a total of $604,000.

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

114
<PAGE>

Results of Operations

Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998. The Trust had a net loss of $1.6 million, which includes a gain on sale
of a mortgage note receivable of $152,000, in the three months ended March 31,
1999, compared to net income of $3.6 million in the three months ended March
31, 1998, which included a gain on sale of real estate of $5.6 million.
Fluctuations in these and other components of the Trust's revenues and expenses
between the 1998 and 1999 periods are discussed below.

Rents increased to $16.5 million in the three months ended March 31, 1999,
from $14.8 million in 1998. Of this increase, $1.7 million was attributable to
the acquisition of one apartment and two commercial properties in 1998 and one
commercial property in 1999. The remainder of the increase was due to increased
rental and occupancy rates at the Trust's apartments and commercial properties.
These increases were partially offset by a decrease of $382,000 due to the sale
of three commercial properties and an apartment in 1998. Rents are expected to
increase during the remaining quarters of 1999 due to a full year of revenue
from properties acquired in 1998 and 1999.

Interest income was $96,000 in the three months ended March 31, 1999,
compared to $231,000 in 1998. The decrease was due to the collection of two
notes receivable and the sale of five notes receivable in 1998 and the sale of
a note receivable in 1999 and by a decrease in short-term investment income.
Interest income in the remaining quarters of 1999 is expected to be
insignificant.

Property operating expenses increased to $9.7 million in the three months
ended March 31, 1999, from $8.5 million in 1998. Of this increase, $1.5 million
was due to the acquisition of one apartment and three commercial properties
subsequent to March 31, 1998. This increase was partially offset by a decrease
of $357,000 due to the sale of three commercial properties and an apartment in
1998. Property operating expenses are expected to increase during the remaining
quarters of 1999 due to a full year of operations of properties acquired in
1998 and 1999.

Interest expense increased to $5.5 million in the three months ended March
31, 1999, from $5.1 million in 1998. Of this increase, $525,000 was due to
interest expense recorded on mortgages secured by three leveraged property
purchases in 1998 and one in 1999. An additional $195,000 was due to interest
expense recorded on borrowings in 1998, secured by mortgages on four previously
unencumbered land parcels and the refinancing of four mortgages in 1998 where
the loan balance was increased. These increases were partially offset by a
decrease of $259,000 due to the sale of three commercial properties and an
apartment in 1998 and a decrease of $62,000 due to normal principal
amortization and decreases in variable interest rates. Interest expense is
expected to increase in the remaining quarters of 1998 as a result of a full
year of interest expense on properties acquired or refinanced in 1998 and in
the first quarter of 1999.

Depreciation was $2.1 million in the three months ended March 31, 1999,
comparable to 1998.

Advisory fee to affiliate increased to $625,000 in the three months ended
March 31, 1999 from $564,000 in 1998. This increase is due to an increase in
the Trust's gross assets, the basis for the advisory fee, as a result of
property acquisitions in 1998. The advisory fee is expected to continue to
increase as the Trust makes additional property acquisitions.

The Trust recorded a net income fee of $291,000 in the three months ended
March 31, 1998, as a result of the gain on the sale of the Edgewood Apartments
of $5.6 million as discussed below. No such fee was earned by the advisor in
1999.

General and administrative expenses decreased to $518,000 in the three
months ended March 31, 1999, from $604,000 in 1998. The decrease is due to a
decrease in legal expenses.

The Trust's equity in earnings of partnerships of $56,000 in the three
months ended March 31, 1999 was comparable to the $35,000 in 1998.

115
<PAGE>

The Trust recognized a gain on the sale of a note receivable of $152,000 in
the three months ended March 31, 1999. The Trust recognized a gain on the sale
of real estate of $5.6 million on the sale of Edgewood Apartments in the three
months ended March 31, 1998.

1998 Compared to 1997. In 1998, the Trust had net income of $347,000,
compared to $4.2 million in 1997. The Trust's 1998 net income includes gains on
the sale of real estate of $6.1 million. The Trust's 1997 net income includes
gains on the sale of real estate of $8.2 million. The primary factors
contributing to the Trust's net income in 1998 are discussed in the following
paragraphs.

Rents increased to $63.6 million in 1998 from $55.2 million in 1997. Of this
increase, $11.5 million was due to properties purchased in 1997 and 1998 and
$2.3 million was due to increased occupancy and rental rates, primarily at the
Trust's apartments. These increases were partially offset by a decrease of $5.4
million due to eight properties sold in 1997 and 1998. Rents are expected to
increase in 1999 due to a full year of operations for properties acquired in
1998 and higher rental and occupancy rates.

Interest income decreased to $698,000 in 1998 from $1.3 million in 1997. The
decrease was due to the collection of five notes receivable in 1997 and two
notes receivable in 1998, the sale of five notes receivable in 1998, and to
decreased short-term investments in 1998. Interest income is expected to
decrease in 1999 due to a continued decline in the amount of the Trust's
mortgage notes receivable.

Property operating expenses increased to $37.4 million in 1998 from $32.0
million in 1997. Of this increase, $7.9 million was due to properties purchased
in 1997 and 1998. This increase is partially offset by a decrease of $3.4
million due to eight properties sold in 1997 and 1998. Property operating
expenses are expected to increase in 1999 due to a full year of operations of
the properties purchased in 1998.

Interest expense increased to $21.4 million in 1998 from $17.1 million in
1997. Of this increase, $4.8 million was due to properties purchased in 1997
and 1998 and $1.4 million was due to properties financed or refinanced in 1997
and 1998. These increases were partially offset by a decrease of $1.9 million
due to eight properties sold in 1997 and 1998 encumbered by debt. Interest
expense is expected to increase in 1999 due to a full year of interest expense
on properties purchased or refinanced in 1998.

Depreciation expense increased to $8.1 million in 1998 from $6.2 million in
1997. Of this increase, $1.9 million was due to properties acquired in 1997 and
1998, $265,000 was due to the completion of construction of an industrial
warehouse and $460,000 was due to improvements in 1997 and 1998, primarily at
the commercial properties. These increases were partially offset by a decrease
of $727,000 due to properties sold in 1997 and 1998. Depreciation is expected
to increase in 1999, as a result of a full year of depreciation on the
properties purchased in 1998.

In 1998, the Trust reversed $506,000 of its "allowance for estimated
losses," by a negative provision for losses, due to the collection or sale of a
majority of its mortgage notes receivable portfolio.

Advisory fee to BCM was comparable at $1.5 million in 1997 and 1998. The
Declaration of Trust requires a portion of the advisory fee be refunded if
certain operating expenses, as defined, exceed limits specified in the
Declaration of Trust. The effect of this limitation was to require the Trust's
advisor to refund $952,000 of the annual advisory fee for 1998 as compared to
$606,000 refunded in 1997.

Net income and incentive sales fees of $28,000 in 1998 and $1.0 million in
1997 were earned by BCM. Such fees are based on a percentage of the Trust's net
income, before such fee.

General and administrative expenses decreased to $2.3 million in 1998 from
$2.7 million in 1997. This decrease was primarily due to a decrease in legal
fees related to the Olive Litigation.

Equity in earnings of partnerships increased to $157,000 in 1998 from
$99,000 in 1997. Included in equity earnings of partnerships in 1997 is a
$49,000 loss on sale of real estate by a joint venture partnership, on the

116
<PAGE>

sale of one of its industrial warehouses. In October 1997, the Trust purchased
the remaining 40% interest in the partnership. Without such loss, the equity in
earnings of partnerships would have been income of $148,000 in 1997.

In 1998, the Trust recognized gains on the sale of real estate totaling $6.1
million, $5.6 million on the sale of Edgewood Apartments in January, a loss of
$154,000 on the sale of Pinemont Professional Building in May, a gain of
$454,000 on the sale of Rio Pinar Shopping Center in September, and gains of
$5,000 and $137,000 on the sale of the Northwest Crossing land and the Delray
land in December, respectively.

In 1997, the Trust recognized gains on the sale of real estate totaling $8.2
million, $5.4 million on the sale of Tollhill West Office Building in April,
$1.4 million on the sale of 2626 Cole Office Building in May, $1.5 million on
the sale of Northpoint Central Office Building in October, a loss of $245,000
on the sale of the Builders Square Shopping Center in September and a deferred
gain of $141,000 was recognized on the collection of a mortgage note
receivable.

1997 Compared to 1996. For the year 1997, the Trust had net income of $4.2
million, as compared to net income of $8.7 million for the year 1996. The
Trust's 1997 net income includes gains on sale of real estate of $8.2 million
and its 1996 net income includes gains on the sale of real estate and
marketable equity securities of $10.1 million and an extraordinary gain of
$812,000. The primary factors contributing to the decrease in the Trust's net
income are discussed in the following paragraphs.

Rents increased from $44.2 million in 1996 to $55.2 million in 1997. Of this
increase, $8.3 million is due to the acquisition of four apartment complexes
and eight commercial properties in 1996 and $6.0 million is due to the
acquisition of four apartment complexes and seven commercial properties in
1997. An additional increase of $1.7 million is attributable to generally
higher rents and occupancy at the Trust's apartment complexes and commercial
properties. These increases are offset in part by a decrease of $3.8 million
due to the sale of five apartment complexes in 1996 and four commercial
properties in 1997 and a decrease of $1.4 million due to the loss of a
commercial property to foreclosure in 1996. Rents are expected to increase in
1998 due to a full year of operations for properties acquired in 1997.

Interest income increased from $1.1 million in 1996 to $1.3 million in 1997.
This increase is due to the receipt of unpaid interest on the collection of a
matured mortgage note receivable. Interest income is expected to decrease in
1998 due to note maturities, payoffs and notes placed on non-accrual status
during 1997.

Property operating expenses increased from $26.7 million in 1996 to $32.0
million in 1997. An increase of $5.2 million is due to the acquisition of four
apartment complexes and eight commercial properties during 1996 and an
additional $3.1 million is due to the acquisition of four apartment complexes
and seven commercial properties in 1997. The remainder of the increase is
primarily due to increased repair and maintenance and personnel expenses
incurred in an effort to maintain and increase the Trust's rental and occupancy
rates. These increases are partially offset by a decrease of $2.3 million due
to the sale of five apartment complexes in 1996 and four commercial properties
in 1997 and a decrease of $808,000 is due to the loss of a property to
foreclosure in 1996. Property operating expenses are expected to increase in
1998 due to a full year of operations of the properties acquired in 1997.

Interest expense increased from $12.8 million in 1996 to $17.1 million in
1997. Of this increase, $4.5 million is due to interest expense recognized on
mortgages secured by properties acquired in 1996 and 1997. An additional
$825,000 is due to interest expense on six borrowings in 1996 and 1997, secured
by mortgages on previously unencumbered apartment complexes, an office building
and eleven notes receivable and refinancing of seven existing mortgages. These
increases are partially offset by a decrease of $978,000 due to the sale of
three apartment complexes encumbered by debt in 1996 and four commercial
properties encumbered by debt in 1997 and a decrease of $495,000 due to the
loss of a property to foreclosure in 1996. Interest expense is expected to
increase in 1998, as a result of a full year of interest expense on properties
acquired or refinanced in 1997.

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Depreciation expense increased from $4.8 million in 1996 to $6.2 million in
1997. This increase is due to the acquisition of four apartment complexes and
eight commercial properties in 1996 and four apartment complexes and seven
commercial properties in 1997, partially offset by the sale of four commercial
properties in 1997 and five apartment complexes in 1996. Depreciation is
expected to increase in 1998, as a result of a full year of depreciation on the
properties acquired in 1997.

A negative provision for losses of $884,000 was recognized in 1996. Such
negative provision 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 collateral property was transferred to the lender.

Advisory fee to BCM increased from $1.1 million in 1996 to $1.5 million in
1997, due to the increase in the Trust's gross assets, the basis for such fee.
The Trust's Declaration of Trust requires a portion of the advisory fee to be
refunded if certain operating expenses, as defined, exceed limits specified in
the Declaration of Trust. The effect of this limitation is to require the
Trust's advisor to refund $606,000 of the annual advisory fee for 1997 and
$589,000 of the annual advisory fee for 1996. Such fee is expected to continue
to increase as the Trust's assets increase.

Net income and incentive sales fees of $1.0 million were earned by BCM in
1996 and 1997. Such fees are the result of the Trust recognizing gains totaling
$9.4 million from the sale of three apartment complexes in 1996 and gains
totaling $8.2 million on the sale of four commercial properties in 1997.

General and administrative expenses increased from $2.2 million in 1996 to
$2.7 million in 1997. Of this increase, $235,000 is due to an increase in cost
reimbursements to BCM, $129,000 is due to increased professional fees and
$127,000 is due to trustees and officers insurance premiums and other fees.

The Trust's equity in earnings of partnerships was $228,00 in 1996 as
compared to $99,000 in 1997. Included in equity earnings of partnerships in
1997 is a $49,000 loss on sale of real estate, the Trust's equity share of the
loss recognized by Indcon, L.P. ("Indcon"), a joint venture partnership at the
time, on the sale of one of its industrial warehouses. In October 1997, the
Trust purchased the remaining 40% interest in Indcon. Included in the 1996
equity in earnings of partnerships is a $370,000 gain on sale of real estate,
the Trust's equity share of the gain recognized by Indcon on the sale of 27 of
its industrial warehouses. Excluding such gain and loss, the Trust's equity in
earnings of partnerships would have been a loss of $143,000 in 1996 and income
of $148,000 in 1997. Equity in earnings of partnerships is expected to be
minimal in 1998 as a result of the Trust's purchase of the remaining 40%
interest in Indcon.

In 1997, the Trust recognized gains on the sale of real estate consisting of
$5.4 million on the sale of Tollhill West Office Building in April 1997, $1.4
million on the sale of 2626 Cole Office Building in May 1997, $1.5 million on
the sale of Northpoint Central Office Building in October 1997, a loss of
$245,000 on the sale of the Builders Square Shopping Center in September 1997
and recognized a deferred gain of $141,000 on the payoff of a mortgage note
receivable. In 1996, the Trust recognized gains on the sale of real estate
consisting 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 and $3.6
million on the sale of Southgate Apartments in August 1996. In 1996, the Trust
also recognized a gain of $725,000 on the sale of equity securities.

The Trust recognized no extraordinary gains in 1997. In 1996, the Trust
recognized an extraordinary gain of $149,000 representing an insurance
settlement for a fire loss at an apartment complex received subsequent to its
sale. Also in 1996, the Trust recognized an extraordinary gain of $663,000, its
equity share of an insurance settlement for a fire loss to an industrial
warehouse owned by Indcon that was not expected to be rebuilt.

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

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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 sales value of properties and, correspondingly,
the ultimate gains to be realized by the Trust from property sales. Inflation
also has an effect on the Trust's earnings from short-term investments, the
cost of new financings as well as the cost of variable interest rate debt.

Tax Matters

For the years ended December 31, 1998, 1997 and 1996, the Trust elected and,
in management's opinion, qualified to be treated as a REIT under Sections 856
through 860 of the Code. To continue to qualify for federal taxation as a REIT
under the Code, the Trust is required 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. The Code also
requires a REIT 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.

Year 2000

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

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

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

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

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

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

Introduction

TCI invests in real estate through direct ownership and partnerships and
invests in mortgage loans, including first, wraparound and junior mortgage
loans. TCI is the successor to a business trust which was organized on
September 6, 1983, and commenced operations on January 31, 1984.

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 1999 totaled $13.3 million compared
with $10.5 million at December 31, 1998. The principal reasons for the increase
in cash are discussed in the paragraphs below.

TCI's principal sources of cash have been and will continue to be from
property operations, proceeds from property sales, the collection of mortgage
notes receivable and borrowings. TCI's management expects that cash on hand and
cash that will be generated in 1999 from the sales of properties and
refinancing or extension of certain of its mortgage debt will be sufficient to
meet all of TCI's cash requirements, including debt service obligations coming
due in 1999, dividend payments and property maintenance and improvements, as
more fully discussed in the paragraphs below.

Net cash provided by operating activities increased to $1.9 million for the
three months ended March 31, 1999, from $113,000 for the three months ended
March 31, 1998. The primary factors affecting TCI's cash from operations are
discussed in the following paragraphs.

TCI's cash flow from property operations (rents collected less payments for
expenses applicable to rental income) increased to $8.0 million in the three
months ended March 31, 1999, from $7.3 million in 1998. Of this increase,
$734,000 was due to TCI having acquired 23 properties during 1998 and 1999 and
$697,000 was due to an increase in rental rates and a decrease in vacancies at
the Company's commercial properties. These increases were partially offset by a
decrease of $583,000 due to five properties sold during 1998 and 1999.

Interest collected decreased to $99,000 in the three months ended March 31,
1999, from $222,000 in 1998. The decrease was due to eight mortgage notes
receivable being collected in full in 1998 and 1999, the foreclosure of the
collateral securing one note receivable in 1998 and the foreclosure of another
note receivable expected to occur in the second quarter of 1999.

Interest paid increased to $6.1 million in the three months ended March 31,
1999, from $4.9 million in 1998. This increase was due to the acquisition of 21
properties subject to debt, refinancings of properties where the debt balance
was increased and financings obtained on two previously unencumbered properties
during 1998 and 1999. These increases were partially offset by a decrease of
$297,000 due to the sale of five properties in 1998 and 1999.

Advisory and net income fee payments decreased to a refund of $32,000 in the
three months ended March 31, 1999, from the $1.4 million paid in 1998. The
decrease was primarily due to the 1998 payment of the accrued fourth quarter
1997 net income fee of $1.0 million, no such fee being earned by the advisory
in 1998, and an additional $458,000 was due to an increase in the advisory fee
refund for 1998 received in the first quarter of 1999. Under its advisory
agreement with BCM, all or a portion of the annual advisory fee must be
refunded by the advisor if the operating expenses of TCI exceed certain limits
specified in the advisory agreement.

General and administrative expenses paid increased to $639,000 in the three
months ended March 31, 1999, from $539,000 in 1998. This increase was mainly
due to an increase in legal fees and other professional fees. Distributions
from equity joint ventures increased to $216,000 in the three months ended
March 31, 1999, from $33,000 in 1998.

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In February 1999, TCI sold the Mariner's Point Apartments in St. Petersburg,
Florida, receiving net cash of $2.6 million after paying off $3.9 million in
mortgage debt and the payment of various closing costs.

In March 1999, TCI purchased (1) the 264 unit Vista Hills Apartments in El
Paso, Texas, for $5.2 million, consisting of $1.6 million in cash and mortgage
financing of $3.6 million; and, (2) the Dominion land, a 14.39 acre parcel of
unimproved land in Dallas, Texas, for $3.6 million, consisting of $1.2 million
in cash and mortgage financing of $2.4 million.

Also in March 1999, TCI received $33,000 on the early discounted payoff of
four mortgage note receivables.

Further in March 1999, TCI refinanced the mortgage debt secured by the
Lexington Center Office Building in Colorado Springs, Colorado, receiving net
cash of $136,000 after paying off $4.0 million in mortgage debt and the payment
of various closing costs.

In April 1999, TCI refinanced the mortgage debt secured by (1) the Texstar
Industrial Warehouse in Arlington, Texas, receiving net cash of $100,000 after
paying off $1.2 million in mortgage debt and the payment of various closing
costs; (2) the Waterstreet Office Building in Boulder, Colorado, receiving net
cash of $5.4 million after paying off $7.9 million in mortgage debt and the
payment of various closing costs; and, (3) the Sadler Square Shopping Center in
Amelia Island, Florida, receiving net cash of $500,000 after paying off $2.4
million in mortgage debt and the payment of various closing costs.

In May 1999, TCI sold the 74 New Montgomery Office Building in San
Francisco, California, receiving net cash of $12.1 million after paying off
$6.5 million in mortgage debt and the payment of various closing costs.

Pursuant to a repurchase program originally announced on December 5, 1989,
TCI's Board of Directors has authorized the repurchase of a total of 687,000
shares of Common Stock. As of March 31, 1999, a total of 409,765 shares had
been repurchased at a total cost of $3.3 million, 21,950 shares having been
repurchased in 1998 at a total cost of $336,000. During the first quarter of
1999, no shares were repurchased.

In the first quarter of 1999, TCI declared and paid dividends to Common
stockholders of $.15 per share, or a total of $581,000, and $1.25 per share or
a total of $7,000 to Preferred stockholders.

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

Results of Operations

Three months ended March 31, 1999 Compared to three months ended March 31,
1998. TCI had net income of $289,000 in the three months ended March 31, 1999
as compared to a net loss of $1.2 million in the corresponding period in 1998.
Net income in the three months ended March 31, 1999, included a $1.9 million
gain on the sale of real estate. Fluctuations in this and other components of
revenues and expense between the 1998 and 1999 periods are discussed below.

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Rents in the three months ended March 31, 1999, were $19.1 million compared
to $16.1 million in 1998. Of the increase, $697,000 was due to an increase in
rental rates and a decrease in vacancies at TCI's commercial properties and
$2.8 million was due to the acquisition of 23 properties in 1998 and 1999.
These increases were partially offset by a decrease of $877,000 due to the sale
of five properties in 1998 and 1999. Rents are expected to continue to increase
due to properties acquired in 1998 and 1999.

Interest income decreased to $102,000 in the three months ended March 31,
1999, compared to $218,000 in 1998. Of this decrease, $91,000 was due to the
collateral securing one mortgage note receivable being foreclosed in 1998 and
the collateral securing one note receivable expected to be foreclosed in the
second quarter of 1999 and $16,000 was due to eight mortgage notes receivable
being paid in full in 1998 and 1999. Interest income for the remaining quarters
of 1999 is expected to approximate that of the first quarter of 1999.

Property operations expense in the three months ended March 31, 1999
increased to $10.3 million from $8.4 million in 1998. Of this increase, $2.1
million was due to the acquisition of 23 properties in 1998 and 1999, partially
offset by a decrease of $294,000 due to the sale of five properties during 1998
and 1999. Property operating expenses are expected to continue to increase due
to properties acquired in 1998 and 1999.

Interest expense increased to $6.2 million in the three months ended March
31, 1999, from $5.3 million in 1998. Of this increase, $1.2 million is due to
the debt incurred or assumed on 21 of the 23 properties acquired in 1998 and
1999 and $143,000 was due to refinancings where the debt balance was increased
and financing obtained on unencumbered properties. These increases were
partially offset by a decrease of $274,000, due to the sale of five properties
in 1998 and 1999. Interest expense for the remainder of 1999 is expected to
increase due to properties acquired in 1998 and 1999.

Depreciation increased to $2.9 million in the three months ended March 31,
1999, from $2.5 million in 1998. Of this increase, $414,000 was due to the
acquisition of 18 income producing properties in 1998 and 1999 and $154,000 was
due to depreciation of prior years capital and tenant improvements. These
increases were partially offset by a decrease of $208,000 due to five
properties being sold during 1998 and 1999. Depreciation is expected to
continue to increase during the remainder of 1999 as a result of the properties
acquired in 1998 and 1999.

Advisory fee increased to $715,000 in the three months ended March 31, 1999,
from $614,000 in 1998. This increase was due to an increase in the Company's
gross assets, the basis for such fee. Advisory fees are expected to continue to
increase with increases in TCI's gross assets.

Net income fee was $18,000 in the three months ended March 31, 1999. The net
income fee is payable to the Company's advisor based on 7.5% of TCI's net
income. No such fee was incurred in the first quarter of 1998.

General and administrative expenses increased to $632,000 in the three
months ended March 31, 1999, from $579,000 in 1998. The increase was mainly due
to an increase in other professional fees.

Equity in earnings of investees was income of $25,000 in the three months
ended March 31, 1999, compared to a loss of $18,000 in 1998. The increase was
mainly due to a decrease in property operating expenses at one of the
commercial properties in the Tri-City joint venture.

In the three months ended March 31, 1999, TCI recognized a gain of $1.9
million from the sale of Mariner's Pointe Apartments. No gains were recognized
on the sale of real estate in the first quarter of 1998.

1998 Compared to 1997. TCI's net income for 1998 was $6.9 million compared
to $12.6 million in 1997. TCI's 1998 net income included gains on the sale of
real estate of $12.6 million. TCI's 1997 net income included gains on sale of
real estate of $21.4 million. Fluctuations in the components of TCI's revenues
and expenses between 1998 and 1997 are discussed below.

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Rents increased $15.3 million in 1998 to $69.8 million compared to $54.5
million in 1997. An increase of $16.1 million was due to properties purchased
or obtained through foreclosure in 1997 and 1998; and $2.2 million was due to
increased occupancy and rental rates at the Company's apartments and commercial
properties primarily: Spa Cove Apartments, Arbor Pointe Apartments, Woods Edge
Apartments, Plaza Towers Office Building, 74 New Montgomery Office Building,
Waterstreet Office Building, Parke Long Warehouse and Hartford Office Building.
These increases were partially offset by a decrease of $3.0 million due to
properties sold in 1997 and 1998.

Property operating expenses increased $5.9 million in 1998 to $38.3 million
as compared to $32.4 million in 1997. Of the increase, $10.0 million was due to
properties purchased in 1997 and 1998. This increase was partially offset by a
decrease of $4.0 million due to properties sold in 1997 and 1998.

Rents and property operations expenses both are expected to increase in 1999
due to anticipated increases in rents at the Company's apartments, increased
occupancy of its commercial properties and as a result of a full year of
operations of the properties acquired during 1998 and in the first quarter of
1999.

Interest income decreased to $807,000 in 1998 from $1.5 million in 1997. The
decrease in interest income was due to seven mortgage notes receivable being
collected in 1997 and 1998 and the foreclosure of the collateral property
securing another note in 1998. Interest income in 1999 is expected to
approximate 1998.

Interest expense increased to $22.8 million in 1998 from $16.8 million in
1997. Of this increase, $5.8 million was attributable to properties purchased
in 1998 and 1997 and $984,000 was attributable to property financings and
refinancings during 1998 and 1997. These increases were partially offset by a
decrease of $759,000 due to properties sold and mortgages paid off in 1998 and
1997. Interest expense is expected to increase in 1999 due to anticipated
property refinancings and the properties purchased in the first quarter of 1999
on a leveraged basis.

Depreciation increased to $10.7 million in 1998 from $9.6 million in 1997.
An increase of $2.0 million was attributable to property purchases in 1998 and
1997 and an increase of $522,000 was due to increased depreciation from
property additions and tenant improvements. These increases were partially
offset by decreases of $1.4 million due to properties sold in 1998 and 1997 and
$21,000 due to assets becoming fully depreciated. Depreciation expense is
expected to increase in 1999 due to a full year of depreciation of properties
acquired in 1998 and the income producing property purchased in the first
quarter of 1999.

Advisory and net income fees to BCM decreased to $2.5 million in 1998 from
$2.8 million in 1997. The decrease was due to a decrease in the net income fee
in 1998 due to a decrease in net income partially offset by an increase in the
advisory fee due to an increase in gross assets, the basis for the fee. The
advisory fee is expected to increase as TCI's asset base increases.

General and administrative expenses decreased to $2.3 million in 1998 from
$2.6 million in 1997. The decrease was primarily due to a decrease in legal
fees related to the Olive Litigation and other litigation.

Equity in income of investees decreased to $288,000 in 1998 from $812,000 in
1997. Included in equity earnings in 1998 were gains on the sale of real estate
of $316,000, TCI's equity share of the gain recognized by an equity partnership
on the sale of its two apartments. Included in equity earnings in 1997 were
gains on the sale of real estate of $890,000, TCI's equity share of the gain
recognized by Income IORI on the sale of three of its apartments. TCI expects
its share of equity investees' income or losses to be minimal in 1999.

In 1998, TCI recognized gains totaling $12.6 million; a $2.1 million
previously deferred gain upon collection of a mortgage note receivable related
to a property sale that had been recorded under the cost

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recovery method, $671,000 from the collection of a mortgage note receivable
which had been written off in a prior year, $3.4 million from the sale of a
shopping center in Dallas, Texas, $219,000 from the sale of an industrial
warehouse in Dallas, Texas, $5.9 million from the sale of an office building in
San Diego, California and $350,000 from the sale of 19 acres of foreclosed land
in Greensboro, North Carolina. In 1997, the Company recognized gains totaling
$21.4 million; $1.4 million from the sale of a .9976 acre parcel of land in
Dallas, Texas and $19.4 million from the sale of an office building in Dallas,
Texas, $55,000 from the sale of a foreclosed single family residence in
Scottsdale, Arizona and $554,000 from the sale of a shopping center in San
Antonio, Texas.

1997 Compared to 1996. TCI's net income for 1997 was $12.6 million compared
to a net loss of $7.8 million in 1996. TCI's 1997 net income includes gains on
sale of real estate of $21.4 million. TCI's 1996 net loss includes gains on
sale of real estate of $1.6 million and extraordinary gains of $256,000.
Fluctuations in the components of TCI's revenues and expenses between the 1997
and 1996 are described below.

Rents increased $9.1 million in 1997 to $54.5 million compared to $45.4
million in 1996. An increase of $6.9 million in rents is due to property
acquisitions in 1996 and 1997; and $3.1 million is due to increases in
occupancy and rental rates at TCI's residential and commercial properties,
primarily: Plaza Tower Office Building, a 1% increase; Waterstreet Office
Building, a 2% increase; Institute Place Office Building, a 10% increase; 74
New Montgomery Office Building, a 2% increase; Corporate Center at Beaumeade
Office Building, a 2% increase; and Majestic Inn, a 3% increase. These
increases are partially offset by a decrease of $865,000 due to properties sold
in 1996 and 1997.

Property operating expenses increased $3.9 million in 1997 to $32.4 million
as compared to $28.5 million in 1996. Of this increase, $4.3 million is due to
properties acquired in 1996 and 1997. This increase is partially offset by a
decrease of $504,000 due to properties sold in 1996 and 1997.

Rents and property operations expenses both are expected to increase in 1998
due to anticipated increases in rents at TCI's apartments and increased
occupancy of its commercial properties as a result of a full year of operations
of the properties acquired during 1997 and in the first quarter of 1998.

Interest income for 1997 of $1.5 million approximated that of 1996.

Interest expense increased to $16.8 million in 1997 as compared to $15.0
million in 1996. Of this increase $1.6 million is attributable to properties
acquired in 1997 and $316,000 is attributable to property financings and
refinancings during 1997. These increases are partially offset by decreases of
$73,000 due to properties sold and mortgages paid off and $71,000 due to a
decrease in interest rates on variable interest rate debt. Interest expense is
expected to increase in 1998 due to anticipated property refinancings and the
properties acquired in the first quarter of 1998.

Depreciation expense increased to $9.6 million in 1997 as compared to $8.5
million in 1996. An increase of $752,000 is attributable to property
acquisitions and an increase of $515,000 is due to increased depreciation from
property additions and tenant improvements. These increases were partially
offset by decreases of $63,000 due to properties sold and $88,000 due to assets
becoming fully depreciated. Depreciation expense is expected to increase in
1998 due to a full year of depreciation of properties acquired in 1997 and the
properties acquired in the first quarter of 1998.

Advisory fee expense of $1.8 million in 1997 approximated that of 1996.

General and administrative expenses decreased from $2.7 million in 1996 to
$2.6 million in 1997. The decrease is due to a decrease in legal fees related
to the Olive Litigation and other litigation partially offset by an increase in
BCM cost and reimbursements and other professional fees.

In 1997 TCI received an insurance settlement of $9.6 million. In 1996, TCI
received a litigation settlement of $1.5 million.

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In the fourth quarter of 1997, TCI recognized a provision for loss of $1.3
million to reduce the carrying value of a shopping center to its agreed sales
price less estimated costs of sale. Sale of the property is anticipated in
March 1998. In the second quarter of 1996, TCI recognized a provision for loss
of $1.6 million to reduce the carrying value of an office building to its
agreed sales price less estimated costs of sale. Sale of the property was
completed in July 1996.

Equity in earnings of investees was $812,000 in 1997 compared to a loss of
$20,000 in 1996. Included in equity earnings of investees in 1997 are gains on
the sale of real estate of $890,000 which is TCI's share of the gain recognized
on the sale of three of its apartment complexes.

In 1996, TCI recognized extraordinary gains totaling $256,000 on the
modification of the mortgage debt secured by the Dunes Plaza Shopping Center.
No such gain was recognized in 1997.

In 1997, TCI recognized gains totaling $21.4 million, $1.4 million from the
sale of a .9976 acre parcel of land and $19.4 million from the sale of an
office building, both located in Dallas, Texas, $55,000 from the sale of a
foreclosed single family residence in Scottsdale, Arizona and $554,000 from the
sale of a shopping center in San Antonio, Texas.

In 1996, TCI recognized gains of $218,000, $1.4 million and $56,000 from the
sales of Cheyenne Mountain land, Park Forest Apartments and Moss Creek land. In
September 1996, TCI recognized a loss of $63,000 from the sale of Byron land.

Environmental Matters

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

Inflation

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

Tax Matters

For the years 1998, 1997 and 1997, TCI elected and in the opinion of
management, qualified to be taxed 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, TCI is required 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. The Code also requires a
REIT 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
a annual basis to stockholders.

Year 2000

TCI's advisor has informed TCI's management that its computer hardware
operating system and computer software have been certified as year 2000
compliant.

125
<PAGE>

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

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

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

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

126
<PAGE>

LEGAL MATTERS

The validity of the shares of the TCI common stock to be issued by TCI
pursuant to the Incorporation Procedure and the Merger has been passed upon by
Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada.

The federal income tax consequences of the Incorporation Procedure and the
Merger have been passed upon by Andrews & Kurth L.L.P., Dallas, Texas.

EXPERTS

The financial statements and schedules of TCI and the Trust incorporated by
reference in this Joint 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 incorporated herein by reference and
such reports are incorporated herein in reliance upon the authority of said
firm as experts in auditing and accounting.

AVAILABLE INFORMATION

The Trust and TCI are subject to the informational requirements of the
Exchange Act, and in accordance therewith are required to file periodic
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Trust and TCI 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 relating to the Trust can
also be inspected at the National Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, D.C. 20006. TCI's shares are listed on the
NYSE and such material relating to TCI can also be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.

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
Joint Proxy Statement/Prospectus by reference:

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

2. The Trust's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, as filed with the Commission on May 14, 1999.

These documents are available upon request without charge from Continental
Mortgage and Equity Trust, 10670 North Central Expressway, Suite 300, Dallas,
Texas 75231, Phone (214) 692-4800 (Investor Relations). In order to ensure
timely delivery of the documents prior to the Trust special meeting, any
request should be received by September 6, 1999.

127
<PAGE>

In addition, the following documents, filed with the Commission by TCI under
the Exchange Act (File No. 1-9240), are incorporated in and made a part of this
Joint Proxy Statement/Prospectus by reference:

1. TCI's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, as filed with the Commission on March 26, 1999, as amended by
TCI's Annual Report on Form 10-K/A, as filed with the Commission on
May 12, 1999; and

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

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

These documents are available upon request without charge from
Transcontinental Realty Investors, Inc., 10670 North Central Expressway, Suite
300, Dallas, Texas 75231, Phone (214) 692-4800 (Investor Relations). In order
to ensure timely delivery of the documents prior to the TCI special meeting,
any request should be received by September 6, 1999.

Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Joint 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 Joint Proxy
Statement/Prospectus, except as so modified or superseded.

TCI has filed a registration statement on Form S-4, No. 333-70515 (the
"Registration Statement"), pursuant to the Securities Act of 1933, as amended,
with respect to the shares of TCI common stock to be issued in connection with
the Merger. This Joint Proxy Statement/Prospectus constitutes the prospectus of
TCI filed as part of the Registration Statement.

All information contained in this Joint Proxy Statement/Prospectus with
respect to TCI has been supplied by TCI, and all information with respect to
the Trust has been supplied by the Trust.

No person has been authorized to give any information or to make any
representation other than those contained in this Joint 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 TCI. This Joint 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 Joint 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 TCI 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.

128
<PAGE>

SOLICITATION OF PROXIES

This Joint Proxy Statement/Prospectus is furnished to stockholders 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 Georgeson Shareholder
Communication Inc. ("GSC") to assist in the solicitation of proxies. An
agreement with GSC provides that GSC will distribute materials relating to the
solicitation of proxies, contact stockholders to confirm receipt of such
materials and answer questions relating thereto. GSC is to be paid a base fee
of $2,500 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:
/s/ Randall M. Paulson
Randall M. Paulson,
President

The Board of Trustees of the Trust recommends that you vote for the approval
of the Incorporation Procedure and the Merger and ratification of certain
components thereof by voting for the Incorporation Procedure and Merger 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.

129
<PAGE>

SOLICITATION OF PROXIES

This Joint Proxy Statement/Prospectus is furnished to stockholders to
solicit proxies on behalf of the Board of Directors of TCI. The cost of
soliciting proxies will be borne by TCI. Board members and officers of TCI may,
without additional compensation, solicit proxies by mail, in person or by
telecommunication. In addition, TCI has retained GSC to assist in the
solicitation of proxies. An agreement with GSC provides that GSC will
distribute materials relating to the solicitation of proxies, contact
stockholders to confirm receipt of such materials and answer questions relating
thereto. GSC is to be paid a base fee of $2,500 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 Directors

/s/ Randall M. Paulson
By: _______________________
Randall M. Paulson,
President

The Board of Directors of TCI recommends that you vote for the approval of
the amendment, the Merger, the issuance of shares of TCI common stock in
connection with the Merger and ratification of certain components thereof by
voting for the amendment and the Merger on the enclosed Proxy. Regardless of
how you wish to vote your shares, your Board of Directors urges you to promptly
sign, date and mail the enclosed Proxy.

130
<PAGE>

APPENDIX A

INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<S> <C>
Acquisition Date............................................................ 59
Affiliate................................................................... 40
ART......................................................................... 85
Articles of Incorporation Amendment Provision............................... 62
BCM......................................................................... 42
Beneficial Owner............................................................ 59
Business Combination Provision.............................................. 59
Business Combination........................................................ 59
Bylaw Amendment Provision................................................... 62
Carmel Ltd.................................................................. 87
Carmel Realty............................................................... 43
CCEC........................................................................ 40
CGCL........................................................................ 55
CME Corporation............................................................. 2
CMOs........................................................................ 48
Code........................................................................ 16
Commission.................................................................. 122
Conversion.................................................................. 39
Declaration of Trust........................................................ 91
Director Removal Provision.................................................. 44
Effective Time.............................................................. 22
Eldercare................................................................... 41
Evaluation Provision........................................................ 61
Exchange Act................................................................ 51
Exchange Ratio.............................................................. 16
First Equity................................................................ 42
GSC......................................................................... 124
Incorporation Procedure..................................................... 2
Indcon...................................................................... 114
Independent................................................................. 41
Interested Stockholder...................................................... 59
IORI........................................................................ 41
Marshall & Stevens.......................................................... 31
Material Adverse Change..................................................... 66
Material Adverse Effect..................................................... 66
Merger Agreement............................................................ 2
</TABLE>
<TABLE>
<S> <C>
Merger.................................................................... 2
NASDAQ.................................................................... 5
NIA....................................................................... 83
NIRT...................................................................... 41
NMC....................................................................... 42
NOLP...................................................................... 42
Nomination Provision...................................................... 57
Non-Stockholder Constituencies............................................ 61
NRLP...................................................................... 42
NRS....................................................................... 30
NYSE...................................................................... 6
Olive Amendment........................................................... 90
Olive Litigation.......................................................... 89
Olive Modification........................................................ 89
Person.................................................................... 40
Registration Statement.................................................... 123
REIT...................................................................... 2
REMICS.................................................................... 48
SAMI...................................................................... 42
SEC....................................................................... Cover
Series A Preferred Stock.................................................. 54
Southmark................................................................. 42
Stockholder Proposal Provision............................................ 58
SWI....................................................................... 88
TCI Advisory Agreement.................................................... 13
TCI Financial Advisor..................................................... 31
TCI Record Date........................................................... 20
TCI....................................................................... Cover
Treasury Regulations...................................................... 63
Trust Advisory Agreement.................................................. 13
Trust Financial Advisor................................................... 35
Trust Record Date......................................................... 19
Trust..................................................................... Cover
Voting Stock.............................................................. 59
VPT....................................................................... 42
Ward...................................................................... 79
</TABLE>

A-1
<PAGE>

APPENDIX B

Execution Copy

AGREEMENT AND PLAN OF MERGER

By and Between

TRANSCONTINENTAL REALTY INVESTORS, INC.,

and

CONTINENTAL MORTGAGE AND EQUITY TRUST

Dated as of November 18, 1998

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I -- THE INCORPORATION AND THE MERGER............................ B-1
SECTION 1.01. The Incorporation...................................... B-1
SECTION 1.02. The Merger............................................. B-1
SECTION 1.03. Effective Time......................................... B-1
SECTION 1.04. Effect of the Merger................................... B-1
SECTION 1.05. Articles of Incorporation; Bylaws...................... B-2
SECTION 1.06. Directors and Officers................................. B-2
SECTION 1.07. Additional Actions..................................... B-2
SECTION 1.08. Conversion of Common Shares............................ B-2
SECTION 1.09. Exchange Procedure..................................... B-3
SECTION 1.10. Dissenting Shares...................................... B-4
ARTICLE II -- CLOSING.................................................... B-5
SECTION 2.01. Closing................................................ B-5
SECTION 2.02. Deliveries by CMET to TCI.............................. B-5
SECTION 2.03. Deliveries by TCI to CMET (and/or CME Corporation)..... B-5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF CMET.................... B-6
SECTION 3.01. Organization and Qualification of CMET................. B-6
SECTION 3.02. Power and Capacity; Charter Documents of CMET.......... B-6
SECTION 3.03. Subsidiaries........................................... B-6
SECTION 3.04. Capitalization and Ownership of CMET................... B-6
SECTION 3.05. No Conflicts........................................... B-7
SECTION 3.06. Consents and Approvals................................. B-7
SECTION 3.07. Financial and Operating Statements..................... B-7
SECTION 3.08. No Material Undisclosed or Contingent Liabilities...... B-8
SECTION 3.09. Assets of CMET......................................... B-8
SECTION 3.10. Absence of Certain Changes............................. B-9
SECTION 3.11. Real Property.......................................... B-10
SECTION 3.12. CMET Equipment......................................... B-11
SECTION 3.13. Contracts and Commitments.............................. B-11
SECTION 3.14. Litigation............................................. B-12
SECTION 3.15. Insurance.............................................. B-12
SECTION 3.16. Employees; Officer and Trustee Compensation............ B-13
SECTION 3.17. Compliance with Law.................................... B-13
SECTION 3.18. Material Permits....................................... B-13
SECTION 3.19. Environmental Matters.................................. B-14
SECTION 3.20. Tax Matters............................................ B-14
SECTION 3.21. Title to Assets........................................ B-15
SECTION 3.22. Redemptions of Capital Stock by CMET................... B-15
SECTION 3.23. Bank Accounts.......................................... B-15
SECTION 3.24. Brokers................................................ B-15
SECTION 3.25. Fairness Opinion....................................... B-16
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF TCI...................... B-16
SECTION 4.01. Organization and Qualification of TCI.................. B-16
SECTION 4.02. Power and Capacity; Charter Documents of TCI........... B-16
SECTION 4.03. Subsidiaries........................................... B-16
SECTION 4.04. Capitalization and Ownership of TCI.................... B-16
SECTION 4.05. No Conflicts........................................... B-17
</TABLE>

i
<PAGE>

TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 4.06. Consents and Approvals................................ B-17
SECTION 4.07. Financial and Operating Statements.................... B-17
SECTION 4.08. No Material Undisclosed or Contingent Liabilities..... B-18
SECTION 4.09. Assets of TCI......................................... B-18
SECTION 4.10. Absence of Certain Changes............................ B-18
SECTION 4.11. Real Property......................................... B-20
SECTION 4.12. TCI Equipment......................................... B-20
SECTION 4.13. Contracts and Commitments............................. B-21
SECTION 4.14. Litigation............................................ B-22
SECTION 4.15. Insurance............................................. B-22
SECTION 4.16. Employees; Officer and Director Compensation.......... B-22
SECTION 4.17. Compliance with Law................................... B-23
SECTION 4.18. Material Permits...................................... B-23
SECTION 4.19. Environmental Matters................................. B-23
SECTION 4.20. Tax Matters........................................... B-24
SECTION 4.21. Title to Assets....................................... B-25
SECTION 4.22. Redemptions of Capital Stock by TCI................... B-25
SECTION 4.23. Brokers............................................... B-25
SECTION 4.24. Fairness Opinion...................................... B-25
ARTICLE V -- OTHER OBLIGATIONS OF THE PARTIES........................... B-25
SECTION 5.01. Conduct of CMET Business.............................. B-25
SECTION 5.02. Conduct of TCI Business............................... B-27
SECTION 5.03. Access to Books and Records........................... B-28
SECTION 5.04. Consents.............................................. B-28
SECTION 5.05. Other Transactions.................................... B-28
SECTION 5.06. Supplemental Disclosure by CMET....................... B-29
SECTION 5.07. Supplemental Disclosure by TCI........................ B-29
SECTION 5.08. Governmental Filings.................................. B-30
SECTION 5.09. Covenants Relating to TCI Common Stock................ B-30
SECTION 5.10. Covenant to Satisfy Conditions........................ B-30
SECTION 5.11. Shareholder Approvals................................. B-30
SECTION 5.12. Information Delivered to Shareholders................. B-30
SECTION 5.13. Non-Public Information................................ B-31
SECTION 5.14. Confidentiality....................................... B-31
ARTICLE VI -- CONDITIONS PRECEDENT...................................... B-31
SECTION 6.01. Conditions Precedent to Obligations of TCI............ B-31
SECTION 6.02. Conditions Precedent to Obligations of CMET........... B-32
ARTICLE VII -- TERMINATION OF AGREEMENT................................. B-34
SECTION 7.01. Termination of Agreement.............................. B-34
SECTION 7.02. Procedure Upon Termination............................ B-34
SECTION 7.03. Effect of Termination................................. B-34
ARTICLE VIII -- MISCELLANEOUS........................................... B-34
SECTION 8.01. Survival of Representations and Warranties............ B-34
SECTION 8.02. Definition of Knowledge............................... B-34
SECTION 8.03. Definition of Material Adverse Effect and Material
Adverse Change........................................ B-34
</TABLE>

ii
<PAGE>

TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 8.04. Expenses, Taxes, Etc. .................................. B-35
SECTION 8.05. Successors and Assigns.................................. B-35
SECTION 8.06. No Third-Party Benefit.................................. B-35
SECTION 8.07. Entire Agreement; Amendment............................. B-35
SECTION 8.08. Reformation and Severability............................ B-35
SECTION 8.09. Notices................................................. B-36
SECTION 8.10. Number and Gender....................................... B-36
SECTION 8.11. Governing Law........................................... B-36
SECTION 8.12. Counterparts............................................ B-36
</TABLE>

EXHIBITS

Appendix I CMET 1997 Balance Sheet (as of 12/31/97)
Appendix II CMET 1998 Financial Statements (for the 6 months ended 6/30/98)
Appendix III TCI 1997 Balance Sheet (as of 12/31/97)
Appendix IV TCI 1998 Financial Statements (for the 6 months ended 6/30/98)

iii
<PAGE>

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
18, 1998, is by and between Transcontinental Realty Investors, Inc., a Nevada
corporation ("TCI"and sometimes the "Surviving Corporation"), and Continental
Mortgage and Equity Trust, a California business trust ("CMET").

INTRODUCTORY STATEMENTS

CMET desires to incorporate as a California corporation to be named
Continental Mortgage and Equity Corporation ("CME Corporation") under the
General Corporation Law of the State of California (the "California Law") (the
"Incorporation").

TCI and CMET desire to effect, immediately following the Incorporation, the
merger of CME Corporation with TCI, with TCI as the surviving corporation,
pursuant to the terms hereof (the "Merger").

Accordingly, for and in consideration of the foregoing and the mutual
agreements, representations, warranties, covenants and conditions herein set
forth, and other good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:

ARTICLE I

THE INCORPORATION AND THE MERGER

SECTION 1.01. The Incorporation. Upon the terms and subject to the
conditions hereof, the Incorporation shall be consummated in accordance with
the Second Amended and Restated Declaration of Trust of CMET (the "Declaration
of Trust") as soon as practicable following the satisfaction or waiver of the
conditions set forth in Article VI hereof and immediately before the Merger.
Immediately before the Effective Time (as hereinafter defined) and subject to
and upon the terms and conditions of this Agreement and the Declaration of
Trust, CMET shall file Articles of Incorporation pursuant to Section 200.5 of
the California Law, pursuant to which each outstanding share of beneficial
interest, no par value, (the "CMET Common Stock") of CMET shall become, without
any additional action of any shareholder of CMET, one fully paid, non-
assessable share of the common stock of CME Corporation (the "Common Shares").

SECTION 1.02. The Merger. Upon the terms and subject to the conditions
hereof, the Merger shall be consummated in accordance with the law of the State
of Nevada (the "Nevada Law") and the California Law as soon as practicable
following the satisfaction or waiver of the conditions set forth in Article VI
hereof and immediately following the Incorporation. At the Effective Time and
subject to and upon the terms and conditions of this Agreement and the Nevada
Law and the California Law, CME Corporation shall be merged with and into TCI,
the separate corporate existence of CME Corporation shall cease, and TCI shall
continue as the Surviving Corporation.

SECTION 1.03. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI hereof, 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 California Law.
The Merger shall become effective upon the later of the date and time at which
the articles of merger are successfully filed with the Secretary of State of
the State of Nevada and the filing of the documents required by Section 1108 of
the California Law with the Secretary of State of the State of California (the
"Effective Time").

SECTION 1.04. Effect of the Merger. At the Effective Time, the effect of the
Merger in Nevada shall be as provided in Section 92A.250 of the Nevada Law.

B-1
<PAGE>

SECTION 1.05. Articles of Incorporation; Bylaws.

(a) At the Effective Time, the Articles of Incorporation of TCI shall become
the Articles of Incorporation of the Surviving Corporation.

(b) The Bylaws of TCI shall become the Bylaws of the Surviving Corporation.

SECTION 1.06. Directors and Officers.

(a) The directors of TCI at the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
sooner death, resignation or removal in accordance with the Articles of
Incorporation and the Bylaws.

(b) The officers of TCI at the Effective Time shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified.

SECTION 1.07. Additional Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances, or any other actions or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the Trust
Estate which is to become the assets and property of the Surviving Corporation
as a result of, or in connection with, the Incorporation or the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of CMET and/or CME Corporation, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
CMET and/or CME Corporation, or otherwise, 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 the
Surviving Corporation or otherwise to carry out this Agreement.

SECTION 1.08. Conversion of Common Shares. At the Effective Time, by virtue
of the Merger and without any action on the part of TCI, CMET, CME Corporation
or any holders of any of the securities of either of these entities:

(a) Each Common Share shall be canceled and converted into the right to
receive 1.181 (the "Merger Consideration") shares of common stock, par
value $0.01 per share, of TCI ("TCI Common Stock"). The number of shares of
TCI Common Stock to be issued in the Merger shall be appropriately adjusted
to reflect the effect of any stock split, reverse stock split, stock
dividend, reorganization, recapitalization or other like change with
respect to the TCI Common Stock, CMET Common Stock or Common Shares
occurring after the date hereof and prior to the Effective Time.

(b) Each Common Share, if any, held in the treasury of CME Corporation
shall be canceled and extinguished and no payment or other consideration
shall be made with respect thereto.

(c) From and after the Effective Time, all Common Shares (or CMET Common
Stock, the certificates of which have not been exchanged for certificates
representing Common Shares) outstanding immediately prior to the Effective
Time shall cease to be outstanding and shall be canceled and retired and
shall cease to exist, and each holder of a certificate (a "Certificate")
representing any Common Share (or CMET Common Stock) shall thereafter cease
to have any rights with respect to such Common Share, except the right to
receive, without interest, the TCI Common Stock into which such Common
Shares were converted and cash in lieu of fractional shares of TCI Common
Stock upon the surrender of such Certificate, except as provided otherwise
by Law (as defined in Section 3.18, below). Each share of TCI Common Stock
issued in connection with the Merger will be duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights.

(d) At the Effective Time, the stock transfer books of CMET and CME
Corporation shall be closed and there shall be no further registration of
transfers of the CMET Common Stock or the Common Shares

B-2
<PAGE>

issued prior to the Merger on the records of the Surviving Corporation. If,
after the Effective Time, certificates for Common Shares (or CMET Common
Stock) are presented to the Surviving Corporation, they shall be entitled
only to be exchanged for the number of shares of TCI Common Stock (and cash
in lieu of fractional shares of TCI Common Stock) into which such Common
Shares were converted pursuant to Section 1.08(a).

(e) For federal income tax purposes, it is intended that the
Incorporation and the Merger shall qualify as a reorganization within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code").

SECTION 1.09. Exchange Procedure.

(a) As of the Effective Time, TCI shall deposit, or shall cause to be
deposited, with an exchange agent selected by TCI, which shall be reasonably
satisfactory to CMET (the "Exchange Agent"), for the benefit of the holders of
Common Shares, for exchange in accordance with this Article I, certificates
representing the Merger Consideration (other than fractional shares), cash in
lieu of fractional shares of the Merger Consideration to be issued pursuant to
Section 1.08 and paid pursuant to this Section 1.09 in exchange for outstanding
Common Shares, and dividends and other distributions on the Merger
Consideration contemplated by Section 1.09(c).

(b) Promptly after the Effective Time, TCI shall cause the Exchange Agent to
mail to each holder of record of a Certificate or Certificates (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as TCI may reasonably specify and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing the Merger Consideration (other than fractional shares), cash in
lieu of fractional shares of the Merger Consideration, and dividends and other
distributions on the Merger Consideration contemplated by Section 1.09(c). Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) certificates representing the number of whole
shares of the Merger Consideration and (y) a check representing the amount of
cash in lieu of fractional shares of the Merger Consideration, if any, and
unpaid dividends and distributions, if any, which such holder has the right to
receive in respect of the Certificate surrendered pursuant to the provisions of
this Article I, after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued on the cash in lieu of fractional shares of the Merger
Consideration and dividends and distributions on the Merger Consideration
contemplated by Section 1.09(c) hereto payable to holders of Certificates. In
the event of a transfer of ownership of CMET Common Stock or Common Shares
which is not registered in the transfer records of CMET or CME Corporation,
respectively, certificates representing the proper number of shares of the
Merger Consideration, together with a check for the cash to be paid in lieu of
fractional shares of the Merger Consideration and dividends and distributions
on the Merger Consideration contemplated by Section 1.09(c) hereof, may be
issued to such a transferee if the Certificate representing such CMET Common
Stock or Common Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. Notwithstanding any other
provision of this Agreement, the letter of transmittal referred to above will,
at CMET's election, provide for the ability of a holder of one or more
Certificates to elect that shares of TCI Common Stock to be received in
exchange for the CMET Common Stock or Common Shares formerly represented by
such surrendered Certificates be credited to an appropriate book entry account
or, as applicable, an account established for the holder under the dividend
reinvestment plan of TCI.

(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions on the Merger Consideration with a record date after the
Effective Time shall be paid with respect to any Common Shares represented by a
Certificate until such Certificate is surrendered for exchange as provided
herein. Subject to the effect of applicable laws, following surrender of any
such Certificate, there shall be paid to the

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holder of the certificates representing whole shares of the Merger
Consideration issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of the Merger Consideration, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of the Merger
Consideration, less the amount of any withholding taxes which may be required
thereon.

(d) If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for certificates
for the Merger Consideration and cash in lieu of fractional shares, if any, of
the Merger Consideration, and unpaid dividends and distributions on the Merger
Consideration deliverable in respect thereof pursuant to this Agreement in
accordance with the procedures set forth in this Article I. Appropriate
procedures shall be established by TCI and the Exchange Agent so that each
holder of a Certificate at the Effective Time shall be entitled to vote on all
matters subject to the vote of holders of TCI Common Stock with a record date
on or after the date of the Effective Time, whether or not such Certificate
holder shall have surrendered Certificates in accordance with the provisions of
this Agreement. For purposes of the immediate foregoing sentence, TCI may rely
conclusively on the shareholder records of CMET (and CME Corporation) in
determining the identity of and the number of CMET Common Stock or Common
Shares held by each holder of a Certificate at the Effective Time.

(e) No fractional shares of the Merger Consideration shall be issued
pursuant hereto. In lieu of the issuance of any fractional shares of the Merger
Consideration pursuant to Section 1.09(b), cash adjustments will be paid to
holders in respect of any fractional shares of the Merger Consideration that
would otherwise be issuable (after taking into account all shares held by each
record or beneficial owner of the Merger Consideration), and the amount of such
cash adjustment shall be equal to such fractional proportion of the closing
sale prices of the TCI Common Stock on the New York Stock Exchange ("NYSE") as
reported in The Wall Street Journal, or, if not reported thereby, by another
authoritative source, on the trading day on which the Effective Time occurs.

(f) Any portion of the Merger Consideration held by the Exchange Agent
(together with any cash in lieu of fractional shares of the Merger
Consideration and the proceeds of any investments thereof) that remains
unclaimed by the former shareholders of CME Corporation one year after the
Effective Time shall be delivered to TCI. Any former shareholders of CME
Corporation who have not theretofore complied with this Section 1.09 shall
thereafter look only to TCI for payment of their shares constituting the Merger
Consideration, cash in lieu of fractional shares of the Merger Consideration
and dividends and other distributions on the Merger Consideration contemplated
by Section 1.09(c), in each case, without any interest thereon.

(g) None of TCI, CMET, CME Corporation, the Exchange Agent or any other
person shall be liable to any former holder of CMET Common Stock or Common
Shares for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.

(h) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by TCI, the
posting by such person of a bond in such reasonable amount as TCI may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent or TCI will issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration and cash in lieu of
fractional shares and unpaid dividends and distributions on shares of the
Merger Consideration as provided in this Section 1.09, deliverable in respect
thereof pursuant to this Agreement.

SECTION 1.10. Dissenting Shares. Notwithstanding any other provisions of
this Agreement to the contrary, but solely if required by Section 1300 of the
California Law or other applicable Law (if any), shares of CMET Common Stock
outstanding immediately prior to the Effective Time which are held by
shareholders (i) who shall have not voted in favor of the Merger or consented
thereto in writing and (ii) who shall have

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<PAGE>

demanded properly an appraisal for such shares in accordance with California
Law (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Such shareholders
instead shall be entitled to receive payment of the appraised value of such
shares of CMET Common Stock held by them in accordance with the provisions of
California Law, except that all Dissenting Shares held by shareholders who
shall have failed to perfect or who effectively shall have withdrawn or
otherwise lost their rights to appraisal of such shares of CMET Common Stock
under California Law shall thereupon be deemed to have been converted into and
to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Consideration upon surrender
in the manner provided in Section 1.09, of the Certificate or Certificates that
immediately prior to the Effective Time, evidenced such shares of CMET Common
Stock.

ARTICLE II

CLOSING

SECTION 2.01. Closing. On the terms and subject to the conditions of this
Agreement, and provided that this Agreement has not been terminated under
Article VII hereof, the closing of the Merger (the "Closing") shall take place
(a) at the offices of Andrews & Kurth L.L.P. in Dallas, Texas, at 10:00 a.m.,
local time, on the third business day immediately following the day on which
the condition set forth in Section 6.01(j) has been satisfied, provided that if
all the other conditions set forth in Article VI are not then fulfilled or
waived on such third business day, the Closing shall be automatically extended
from time to time until the first subsequent business day on which all such
conditions are so fulfilled or waived, subject however, to Article VII hereof,
or (b) at such other time, date or place as CMET and TCI may agree. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date." As
used herein, "business day" shall mean a day on which banks are not required or
authorized to close in Dallas, Texas.

SECTION 2.02. Deliveries by CMET to TCI. At the Closing, CMET shall deliver,
or cause to be delivered, to TCI (unless delivered previously) the following:

(a) the Officers' certificates referred to in Section 6.01(e) hereof;

(b) the Certificates of the Secretary of CMET and CME Corporation
referred to in Section 6.01(f) hereof;

(d) all other previously undelivered documents, instruments and writings
required to be delivered by CMET (and/or CME Corporation) to TCI at or
prior to the Closing pursuant to this Agreement or otherwise required in
connection herewith.

SECTION 2.03. Deliveries by TCI to CMET (and/or CME Corporation). At the
Closing, TCI shall deliver, or cause to be delivered, to CMET (unless delivered
previously) and/or CME Corporation the following:

(a) the Officers' Certificate referred to in Section 6.02(e) hereof;

(b) the Secretary's Certificate referred to in Section 6.02(f) hereof;

(d) all other previously undelivered documents, instruments and writings
required to be delivered by TCI to CMET and/or CME Corporation at or prior
to the Closing pursuant to this Agreement or otherwise required in
connection herewith.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF CMET

CMET hereby represents and warrants to TCI as follows, except as otherwise
set forth in the relevant section of the disclosure schedule of CMET (the "CMET
Disclosure Schedule"):

SECTION 3.01. Organization and Qualification of CMET. CMET is (a) a business
trust duly organized, validly existing and in good standing under the laws of
the State of California and (b) duly qualified to do business as a foreign
business trust and in good standing in each jurisdiction in which the character
of the properties and assets now owned or leased by it or the nature of the
business transacted by it requires it to be so qualified, except where the
failure to be so qualified, individually or in the aggregate, would not have a
Material Adverse Effect (as defined herein) upon CMET or the consummation of
the transactions contemplated hereby. Each jurisdiction in which CMET is
qualified to do business is listed in Section 3.01 of the CMET Disclosure
Schedule. No jurisdiction in which CMET is not qualified or licensed has
claimed, in writing or otherwise, that CMET is required to qualify or be
licensed therein.

SECTION 3.02. Power and Capacity; Charter Documents of CMET.

(a) CMET has all requisite power and authority to enter into, execute and
deliver this Agreement and, upon requisite approval of the Incorporation and
the Merger by the shareholders of CMET, to perform its obligations hereunder.
CMET has the power and authority to carry on its business as now being
conducted and to own and lease its properties. This Agreement has been duly
executed and delivered by CMET and is a valid and binding obligation of CMET,
enforceable in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.

(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by CMET will not result in
a violation or breach of or constitute a default under any term or provision of
the Declaration of Trust or the Restated Trustees' Regulations of CMET (the
"Trust Regulations"). CMET has made available to TCI true and complete copies
of the Declaration of Trust and Trust Regulations, as in effect on the date
hereof, and the minute books of CMET for the last five years. Such minute books
are accurate and complete in all material respects and contain the minutes of
all meetings (and written consents in lieu thereof) of the shareholders and the
board of trustees (and all committees thereof) of CMET held during the five
years immediately preceding the date of this Agreement. All actions taken at
such meetings were appropriately passed or ratified.

SECTION 3.03. Subsidiaries. Section 3.03 of the CMET Disclosure Schedule
lists all other corporations, partnerships and other entities in which CMET
owns, beneficially or of record, shares or interests, and identifies all joint
ventures, corporate alliance agreements or corporate partnering agreements to
which CMET is a party. CMET does not have an interest in, or is subject to, any
agreement, obligation or commitment to make any equity investment in or loan or
advance to, any other any corporation, association, partnership, organization,
business, individual, government or political subdivision thereof or government
agency (collectively, a "Person").

SECTION 3.04. Capitalization and Ownership of CMET. Section 3.04 of the CMET
Disclosure Schedule lists, for CMET, its authorized capitalization, the number
of shares of beneficial interest of CMET (or other equity interests) issued and
outstanding, and, to the knowledge of CMET, the number of shares of beneficial
interest (or other equity interests) owned of record by each shareholder owning
more than five percent of the issued and outstanding shares of beneficial
interest as of the date set forth in the CMET Disclosure Schedule. All of the
outstanding shares of CMET Common Stock are validly issued, fully paid and non-
assessable and were not issued in violation of any preemptive rights or any
applicable Law. All shares of CMET Common Stock are owned free and clear of any
lien, claim or encumbrance of any type whatsoever imposed by CMET. There are no
outstanding options, warrants or other rights to acquire any shares of CMET

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<PAGE>

Common Stock, and there are no outstanding securities authorized, granted or
issued by CMET that are convertible into or exchangeable for shares of CMET
Common Stock, and there are no phantom stock rights, stock appreciation rights
or similar rights regarding CMET. There are no rights of any Person to have
CMET repurchase any shares of CMET Common Stock.

SECTION 3.05. No Conflicts. The execution, delivery and performance of this
Agreement by CMET and the consummation of the transactions contemplated hereby
will not:

(a) result in the creation or imposition of any security interest, lien,
charge or other encumbrance against the Trust Estate, with or without the
giving of notice and/or the passage of time, or

(b) violate, affect acceleration of, or result in termination,
cancellation or modification of, or constitute a default under (i) any
contract, agreement or other instrument to which CMET is a party or by
which CMET or its assets is bound or (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment,
understanding, arrangement, agreement or restriction of any kind or
character to which CMET is a party or by which CMET may be bound or
affected, or to which any of the Trust Estate may be subject, or

which violation, acceleration, requirement, termination, modification or
default described in (a), (b), or (c), above, could reasonably be expected to
result in a Material Adverse Effect on CMET or the transactions contemplated by
this Agreement.

SECTION 3.06. Consents and Approvals. Except for (i) the filing with the
Securities and Exchange Commission (the "Commission") of proxy material
regarding the Incorporation and the Merger and the related vote of CMET's
shareholders, (ii) the filing of Articles of Incorporation of CME Corporation
to effect the Incorporation, and (iii) any required filing pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act"), CMET is not
required to obtain, transfer or cause to be transferred any consent, approval,
license, permit or authorization of, or make any declaration, filing or
registration with, any third party or any public body or authority in
connection with (x) the execution and delivery by CMET of this Agreement, (y)
the consummation of the Incorporation, the Merger and the other transactions
contemplated hereby or (z) the conduct by the Surviving Corporation of the
business of CMET (the "CMET Business").

SECTION 3.07. Financial and Operating Statements.

(a) CMET 1997 Financial Statements. Attached hereto as Appendix I is a true
and complete copy of the audited balance sheet of CMET as of December 31, 1997
(the "CMET 1997 Balance Sheet"), together with related statements of
operations, equity and cash flow of CMET (and notes thereto) for such period
(collectively, the "CMET 1997 Financial Statements"). The CMET 1997 Financial
Statements fairly present the consolidated financial position and the results
of operations of CMET for the period therein identified in conformity with
generally accepted accounting principles ("GAAP") consistently applied.

(b) CMET 1998 Financial Statements. Attached hereto as Appendix II is a true
and complete copy of the unaudited consolidated financial statements of CMET
for the six months ended June 30, 1998 (the "CMET 1998 Financial Statements",
which CMET 1998 Financial Statements include an unaudited consolidated balance
sheet of CMET as of June 30,1998 (the "CMET 1998 Balance Sheet")). The CMET
1998 Financial Statements fairly present the financial position and results of
operations of CMET for the period therein identified, except that the CMET 1998
Financial Statements do not include notes or normal year end adjustments.

(c) Accounting Records. CMET (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions, dispositions
and assets of CMET and (ii) maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed
in accordance with the management's general or specific authorization, and (B)
transactions are recorded as

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<PAGE>

necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets and (C) access to such books, records
and accounts is permitted only in accordance with management's general or
specific authorizations.

SECTION 3.08. No Material Undisclosed or Contingent Liabilities. Except for
(a) liabilities or obligations incurred by CMET in the ordinary course of
business and not required by GAAP to be set forth on the CMET 1998 Balance
Sheet (all of which items, to the extent material (individually or in
aggregate), are described in Section 3.08 of the CMET Disclosure Schedule), and
(b) liabilities and obligations incurred by CMET in the ordinary course of
business since the date of the CMET 1998 Balance Sheet (none of which could
reasonably be expected to cause a Material Adverse Effect on CMET), to the best
knowledge of CMET, there is no basis for the assertion against CMET of any
liability or obligation of any nature whatsoever (whether absolute, accrued,
contingent or otherwise) that may materially encumber or affect CMET or the
transactions contemplated hereby which is not fully reflected or reserved
against on the CMET 1998 Balance Sheet.

SECTION 3.09. Assets of CMET. The material assets of CMET (collectively, the
"Trust Estate") include the assets referenced below (for purposes of this
Section 3.09, Section 3.10, Section 3.11, Section 3.13 and Section 3.14,
"material" shall refer to items capable of producing a monetary effect of at
least $1,000,000 on the business, operations, properties, condition, assets,
obligations or liabilities of CMET and its subsidiaries taken as a whole; the
fact that any asset is listed or otherwise described below or in the CMET
Disclosure Schedule is not, and shall not be interpreted to be, evidence that
such asset is a "material" asset of CMET):

(a) Receivables. All material accounts receivable, bills and notes
receivable, commercial paper and acceptances or any other evidences of
indebtedness to CMET including, without limitation, those items listed in
Section 3.09(a) of the CMET Disclosure Schedule;

(b) Company Equipment. All material furniture, fixtures and equipment of
CMET (the "CMET Equipment") including, without limitation, those items
listed in Section 3.09(b) of the CMET Disclosure Schedule, whether or not
such items are in any way attached or affixed to real property;

(c) Contracts. All material leases (other than residential leases on
apartment properties), contracts, agreements, arrangements, commitments and
understandings (whether written or oral), including, without limitation,
all mortgages, leases, security deposits and options under leases,
acquisition agreements, confidentiality agreements and deferred
compensation agreements (collectively, "Contracts"), to which CMET is a
party, including, without limitation, all such contracts listed or referred
to in Section 3.09(c) of the CMET Disclosure Schedule;

(d) Insurance. All insurance policies covering CMET, its properties or
equipment, and its trustees, officers and agents (and all rights and claims
thereunder for damage to, or otherwise relating to, the Trust Estate),
including, without limitation, those items listed in Section 3.09(d) of the
CMET Disclosure Schedule;

(e) Permits. All material licenses, permits and authorizations issued by
any federal, state, local or foreign governmental authority (the "Permits")
relating to CMET, the Trust Estate or the conduct of the CMET Business,
including, without limitation, those items listed in Section 3.09(e) of the
CMET Disclosure Schedule;

(f) Real Property. Any and all fee and leasehold interests of CMET as
lessee regarding any of its real property (collectively, the "CMET
Properties") described and listed in Section 3.09(f) of the CMET Disclosure
Schedule; and

(g) Miscellaneous. Any and all other material property, real, personal,
or otherwise, tangible or intangible, which is owned or held by the CMET or
the trustees of CMET, including, but not limited to, property which is
transferred, conveyed, or paid to CMET or the trustees of CMET, and all
rents, income, profits, and gains therefrom.

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SECTION 3.10. Absence of Certain Changes. Since December 31, 1997, except as
set forth in the CMET Disclosure Schedule or the CMET SEC Reports (as defined
in Section 3.17, below), CMET has not:

(a) suffered any Material Adverse Effect and there has not been any
event, whether occurring before or after December 31, 1997, that could
reasonably be expected to have a Material Adverse Effect on CMET; or

(b) experienced any material decrease in the book value of the Trust
Estate from the amounts reflected on the CMET 1997 Balance Sheet, other
than decreases resulting from depreciation in accordance with accounting
practices in effect at all times since January 1, 1997; or

(c) incurred any material liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise and whether due or to
become due, except (i) liabilities or obligations for rent under the CMET
Leases (as defined herein), (ii) liabilities or obligations for other items
incurred in the ordinary course of business of CMET and consistent with
past practice, none of which other items exceeds $1,000,000, considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the CMET Leases) or other agreement providing for
periodic installments or payments, as a single obligation or liability, and
(iii) loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans; or

(d) increased (other than increases resulting from the calculation of
reserves in the ordinary course of business and in a manner consistent with
past practice), or experienced any change in any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves; or

(e) paid, discharged or satisfied any claims, encumbrances, liabilities
or obligations (whether absolute, accrued, contingent or otherwise and
whether due or to become due) other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in
the CMET 1997 Balance Sheet or incurred in the ordinary course of business
and consistent with past practice since the date thereof; or

(f) permitted, allowed or suffered any of the Trust Estate, including,
without limitation, real property, personal property or any leasehold
interest, to be subjected to any mortgage, pledge, lien, encumbrance,
restriction or charge of any kind, except for liens for Taxes (as defined
herein) not yet owing or in connection with any refinancing in the ordinary
course of business; or

(g) determined as collectible any notes or accounts receivable or any
portion thereof which were previously considered uncollectible, or written
off as uncollectible any notes or accounts receivable or any portion
thereof, except for write-downs in the ordinary course of business,
consistent with past practice in accordance with GAAP consistently applied;
or

(h) canceled any amount of indebtedness or waived any claims or rights;
or

(i) sold, transferred or otherwise disposed of any of the Trust Estate
except in the ordinary course of business and consistent with past
practice; or

(j) granted any increase in the salary, compensation, rate of
compensation, commissions or bonuses payable to or to become payable by
CMET to any officer or trustee of CMET (including, without limitation, any
increase or change pursuant to any bonus, pension, profit-sharing or other
plan or commitment or any grant of severance, change of control or other
"golden parachute" benefits), except in the ordinary course of business and
consistent with past practice; or

(k) paid, loaned or advanced any amount to any officer, trustee or
shareholder of CMET except for amounts advanced to trustees or officers of
CMET in the ordinary course of business consistent with past practice for
out-of-pocket expenses in connection with travel; or

(l) sold, transferred or leased any of the Trust Estate to, or entered
into any agreement or arrangement with, any officer, trustee or shareholder
of CMET; or

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<PAGE>

(m) made aggregate capital expenditures or commitments in excess of
$1,000,000 for additions to property, plant, equipment or for any other
purpose, other than the acquisition of real property or interests in real
property in the ordinary course of business; or

(n) made any change in any method of accounting or accounting practice
or policy; or

(o) suffered aggregate casualty losses in excess of $1,000,000 (whether
or not insured against); or

(p) issued any additional shares of CMET Common Stock or any option,
warrant, right or other security exercisable for, convertible into or
exchangeable for shares of CMET Common Stock; or

(q) paid dividends on or made other distributions or payments in respect
of the shares of CMET Common Stock, other than regular quarterly dividends;
or

(r) taken any other action not either in the ordinary course of business
and consistent with past practice or provided for in this Agreement; or

(s) paid any advisory, consulting or similar fees to any Person except
in the ordinary course of business and pursuant to the Advisory Agreement
between CMET and Basic Capital Management, Inc. ("Basic"); or

(t) agreed (other than with respect to the transactions contemplated by
this Agreement), whether in writing or otherwise, to take any of the
actions set forth in this Section 3.10.

SECTION 3.11. Real Property.

(a) Set forth in Section 3.11 of the CMET Disclosure Schedule is a complete
list of all real property that CMET currently owns. CMET has good and
indefeasible title in fee simple to such currently owned real property and to
all buildings and improvements thereon, free and clear of any mortgages,
liens, claims, charges, pledges, security interests or other encumbrances of
any nature whatsoever ("Encumbrances"), other than those Encumbrances
described in the CMET SEC Reports.

(b) To the best knowledge of CMET, with respect to any deeds, title
insurance policies, surveys, mortgages, agreements and other documents
granting to CMET title to or an interest in or otherwise affecting any such
real property, (i) no material breach or event of default on the part of CMET,
(ii) no material breach or event of default, on the part of any other party
thereto, and (iii) no event that, with the giving of notice or lapse of time
or both, would constitute such material breach or event of default on the part
of CMET or on the part of any other party thereto, has occurred and is
continuing.

(c) Section 3.11 of the CMET Disclosure Schedule contains a complete and
accurate list of all of CMET's material leasehold interests as lessee in real
property (collectively, "CMET Leases") (including all amendments thereof and
modifications thereto). CMET's interests in and to all CMET Leases are free
and clear of all material mortgages, liens, claims, charges, pledges, security
interests or other encumbrances of any nature whatsoever. CMET has not
received notice of any default by CMET under any of the CMET Leases, and there
are no facts or conditions that would, with notice or lapse of time or both,
constitute a default by CMET under any of the CMET Leases. To the best
knowledge of CMET, none of the landlords under any of the CMET Leases is in
default.

(d) The buildings and improvements owned or leased by CMET on any real
property owned by CMET and on any CMET Lease, and the operation and
maintenance thereof as operated and maintained, do not materially (i)
contravene any zoning or building Law or ordinance or other administrative
regulation or (ii) violate any restrictive covenant or any applicable Law. All
of the plants, buildings and structures located on any real property owned by
CMET or on any CMET Lease are in a state of good maintenance and repair
(normal wear and tear excepted) suitable in all material respects for the
operation of the CMET Business.

(e) There is no material pending or, to the best knowledge of CMET,
threatened condemnation, eminent domain or similar proceeding with respect to,
or that could reasonably be expected to affect, any real property owned by
CMET or any CMET Lease.

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SECTION 3.12. CMET Equipment. CMET has good and valid title to each piece of
CMET Equipment, except for those pieces of CMET Equipment that have been
disposed of in the ordinary course of business since December 31, 1997 without
violation of the terms of Section 6.01 hereof. Taken as a whole, the CMET
Equipment is (and, to the knowledge of CMET, all pieces of the CMET Equipment
are) in good and normal operating condition and repair (ordinary wear and tear
excepted) and adequate for the uses to which it is being put by CMET. CMET has
not received any notification from any governmental or regulatory authority
that CMET is in current violation of any health, sanitation, fire, safety,
zoning, building or other Law (provided that this Section does not cover
Environmental Laws, which are addressed more particularly in Section 3.20),
ordinance or regulation in respect of the CMET Equipment or operations, which
violation has not been or is not in the process of being appropriately
resolved.

SECTION 3.13. Contracts and Commitments.

(a) All material contracts, agreements and commitments to which CMET is a
party or is bound (and which provide for payment by CMET or receipt by CMET of
more than $1,000,000 over the life of the contract, agreement or commitment or
which are otherwise material to CMET) are listed in Section 3.13(a) of the CMET
Disclosure Schedule.

(b) CMET is not a party to or bound by any agreements, contracts or
commitments which individually or when aggregated with all related agreements,
contracts or commitments, provide for the grant of any material preferential
rights to purchase or lease any of the Trust Estate, except as described in
Section 3.13(b) of the CMET Disclosure Schedule.

(c) CMET has delivered or made available to TCI true and complete copies of
each written agreement, contract or commitment listed in Section 3.13(a) of the
CMET Disclosure Schedule, as well as true and accurate summaries of any oral
agreement listed thereon.

(d) The enforceability of the material agreements, contracts and commitments
referred to in this Section 3.13 will not be affected in any respect by the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

(e) CMET is not a party to or bound by any outstanding agreements,
arrangements or contracts with any of its officers, shareholders, trustees,
agents, consultants or advisors (or any affiliates of such Persons) that
(i) are not cancelable by it on notice of not longer than 30 days and without
the imposition of any liability, penalty or premium, (ii) require non-
cancelable payment by CMET of over $1,000,000, or (iii) provide for any bonus
or other payment based on the sale of CMET or the Trust Estate or any portion
thereof.

(f) CMET is not a party to or bound by any agreement that contains any
provision for severance or termination pay liabilities or obligations
(including, without limitation, change of control or "golden parachute"
provisions).

(g) CMET is not a party to or bound by:

(i) any mortgage, indenture, note, installment obligation or other
instrument, agreement or arrangement for or relating to any borrowing of
money by CMET, other than as described in the CMET SEC Reports or the CMET
Disclosure Schedule;

(ii) any guaranty, direct or indirect, by CMET of any obligation for
borrowings or otherwise, excluding endorsements made for collection in the
ordinary course of business, other than guaranties of obligations of
subsidiaries of CMET described in Section 3.03 of the CMET Disclosure
Schedule;

(iii) any obligation to make payments, contingent or otherwise, of over
$1,000,000 in the aggregate arising out of any prior acquisition of the
business, assets or stock of other persons, other than in the ordinary
course of business;

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(iv) any agreement containing noncompetition or other limitations
restricting the conduct of the CMET Business; and

(v) any partnership, joint venture or similar agreement, other than in
connection with any ownership of any real property described in Section
3.09 of the CMET Disclosure Schedule by any entity described in Section
3.01 of the CMET Disclosure Schedule.

(h) Neither CMET nor any of its officers or trustees is a party to or bound
by any agreement or arrangement for the sale of any of the Trust Estate or
shares of CMET Common Stock or for the grant of any preferential rights to
purchase any of the Trust Estate or shares of CMET Common Stock, other than in
the ordinary course of business.

(i) CMET is not bound by any agreement to redeem shares of CMET Common Stock
held by any shareholder, which agreement will not be effectively and properly
terminated by the consummation of the Incorporation and the Merger.

(j) With respect to each material contract and agreement listed in Section
3.13 of the CMET Disclosure Schedule, except as set forth therein, (i) each of
such contracts and agreements is valid, binding and in full force and effect
and is enforceable by CMET in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other Laws and judicial decisions of general
applicability relating to or affecting creditors' rights and to general
principles of equity; (ii) there have been no cancellations or threatened
cancellations thereof nor are there any outstanding disputes thereunder; (iii)
neither CMET nor, to the best knowledge of CMET, any other party is in breach
of any material provision thereof; and (iv) there does not exist any material
default under, or any event or condition which with the giving of notice or
passage of time or both would become a material breach or default under, the
terms of any such contract or agreement on the part of CMET or, to the best
knowledge of CMET, on the part of any other party thereto.

SECTION 3.14. Litigation. There are no open and unresolved claims, actions,
suits, proceedings, investigations or inquiries that have been made or served
against CMET or, to the best knowledge of CMET, that are pending against
(without having been so served), threatened by or against, or otherwise
affecting or that would adversely affect, the transactions contemplated hereby
at law or in equity or before or by any federal, state, local, foreign or other
governmental department, commission, board, agency, or authority; and no other
such claim, action, suit, proceeding, inquiry or investigation could be brought
against CMET for which valid defenses are not available. No claim, action,
suit, proceeding, inquiry or investigation set forth in Section 3.14 of the
CMET Disclosure Schedule would, if adversely decided, have a Material Adverse
Effect on CMET or the transactions contemplated hereby. CMET is not a party to
or a recipient of service of process regarding (and has not otherwise been
named and noticed in) any judgment, order or decree entered in any lawsuit or
proceeding which has had or may have a Material Adverse Effect on CMET or on
its ability to acquire any property or conduct its business in any way.

SECTION 3.15. Insurance.

(a) All policies of fire, liability, product liability and all other forms
of insurance relating to the CMET Business (the "CMET Insurance Policies") are
in full force and effect.

(b) All billed premiums with respect to the CMET Insurance Policies covering
all periods up to and including the Closing Date have been paid or will be paid
prior to the Closing Date.

(d) The CMET Insurance Policies are sufficient for compliance with all
requirements of Law and of all agreements with respect to the operation of the
CMET Business and are valid, outstanding and enforceable policies (subject to
bankruptcy, insolvency, reorganization and other Laws and judicial decisions of
general applicability relating to or affecting creditors' rights and to general
principles of equity).

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(e) The coverage provided by the CMET Insurance Policies, with respect to
any insured act or event occurring on or prior to the Closing Date, will not in
any way be affected by or terminate or lapse by reason of the transactions
contemplated hereby.

SECTION 3.16. Employees; Officer and Trustee Compensation.

(a) CMET does not have any employees. CMET does not have any plans or
intentions to hire any employees, nor is CMET currently engaged in any
discussions to hire any employees.

(b) Section 3.16 of the CMET Disclosure Schedule sets forth a complete and
accurate list showing the names, the rate of compensation and the portions
thereof attributable to salary and bonuses, respectively, as well as the
location of all officers and trustees of CMET and of all consultants to CMET
that received annual base compensation and cash bonus payable by CMET totaling
in excess of $75,000 for the fiscal year ended December 31, 1997.

SECTION 3.17. Compliance with Law.

(a) To the best knowledge of CMET, CMET is in compliance in all material
respects with all federal, state, foreign and local laws (whether statutory or
otherwise), ordinances, rules, regulations, orders, judgments, decrees, writs
and injunctions of any governmental authority (collectively, "Laws") applicable
to the CMET Business.

(b) Since December 31, 1997, filings required to be made by CMET under the
Securities Act of 1933, as amended (the "Securities Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act") have been filed with the
SEC as required by each such law or regulation, including all forms,
statements, reports, agreements and all documents, exhibits, amendments and
supplements appertaining thereto, and CMET has complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder.

(c) CMET has made available to TCI a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by CMET
with the SEC since December 31, 1997 and through the date hereof (such
documents as filed, and any and all amendments thereto (the "CMET SEC
Reports").

(d) The CMET SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and all forms,
reports or other documents filed by CMET with the SEC after the date hereof,
did not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

(e) CMET has not received written notification from any governmental or
regulatory authority within the past five years of any asserted present or past
failure to so comply with Laws, which failure has not been appropriately and
completely resolved.

(f) CMET has not been notified by any governmental or regulatory authority
that CMET is in violation or alleged violation of any Law applicable to the
CMET Business which violation has not been appropriately and completely
resolved, or that any governmental or regulatory authority contemplates any
investigation or proceeding with respect to any such violation or alleged
violation which has not been appropriately and completely resolved.

SECTION 3.18. Material Permits. CMET has all material Permits necessary for
the ownership or leasing of its properties and the conduct of the CMET Business
as now being conducted. All such material Permits are in full force and effect.
No violations exist or, to the best knowledge of CMET, have been reported in
respect of such material Permits. No notice of any proceeding has been served
or otherwise given to CMET or, to the best knowledge of CMET, is pending
(without service or other notice) or threatened seeking the

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revocation or limitation of any of such material Permits. Section 3.09(e) of
the CMET Disclosure Schedule contains a complete list of all material Permits
of CMET.

SECTION 3.19. Environmental Matters. Except as set forth in the CMET SEC
Reports or in Section 3.19 of the CMET Disclosure Schedule and any
environmental assessment or report listed therein, to the actual knowledge of
the executive officers of CMET: none of CMET, any of its subsidiaries or any
other person has caused or permitted (a) the unlawful presence of any hazardous
substances, hazardous materials, toxic substances or waste materials
(collectively, "Hazardous Materials") on any of the CMET Properties, or (b) any
unlawful spills, releases, discharges or disposal of Hazardous Materials to
have occurred or be presently occurring on or from the CMET Properties, which
presence or occurrence would, individually or in the aggregate, have a Material
Adverse Effect; CMET and its subsidiaries have not failed to comply with all
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials or environmental matters or contamination ("Environmental Laws"),
except where the failure to so comply would not reasonably be expected to have
a Material Adverse Effect; and CMET, its assets and businesses and all
operations related thereto are now in compliance with all Environmental Laws
and not subject to any liability, or, with respect to any required remediation,
corrective action or prophylactic or other like action, obligation under any
Environmental Law, except where the failure to comply with any such
Environmental Law would not reasonably be expected to have a Material Adverse
Effect.

SECTION 3.20. Tax Matters.

(a) For purposes of this Agreement, (i) "Tax Return" means any report,
statement, form, return or other document or information required to be
supplied to a taxing authority in connection with Taxes and (ii) "Tax" or
"Taxes" means any United States or foreign federal, state, or local tax,
including, without limitation, income tax, ad valorem tax, excise tax, sales
tax, use tax, franchise tax, gross receipts tax, withholding tax, social
security tax, occupation tax, service tax, license tax, payroll tax, transfer
and recording tax, severance tax, customs tax, import tax, export tax,
employment tax, or any similar or other tax, assessment, duty, fee, levy or
other governmental charge, together with and including, without limitation, any
and all interest, fines, penalties, assessments and additions to tax resulting
from, relating to, or incurred in connection with any such tax or any contest
or dispute thereof.

(b) All Tax Returns required to be filed on or before the Closing Date by
CMET have been or will be filed within the time prescribed by Law (including
extensions of time approved by the appropriate taxing authority). The Tax
Returns so filed are complete, correct and accurate representations of the Tax
liabilities of CMET and such Tax Returns accurately set forth or will
accurately set forth all items to the extent required to be reflected or
included in such returns.

(c) CMET has timely paid or has made adequate provision in the CMET 1997
Balance Sheet for the payment of all Taxes due on such Tax Returns that have
been filed or will be filed for periods ending on or before the date of the
CMET 1997 Balance Sheet.

(d) There is no action, suit, investigation, proceeding, audit or claim that
has been served against or otherwise properly noticed to CMET, or, to the best
knowledge of CMET, pending or proposed against or with respect to CMET in
respect of any Tax. There are no material liens for Taxes upon any of the Trust
Estate.

(e) CMET has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any creditor, independent
contractor, or other Person.

(f) CMET has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.

(g) CMET does not have in effect a consent under Section 341(f) of the Code
concerning collapsible corporations.

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(h) CMET has not made any payment, and is not obligated to make any payment,
and is not a party to any agreement that could obligate it to make any payment
that will not be deductible under section 280G of the Code or will be subject
to Tax under section 4999 of the Code.

(i) There has never been a Tax sharing or allocation agreement in place
between CMET and any other Person other than those, if any, with respect to
which the applicable statute of limitations has run.

(j) CMET is not liable for a Tax incurred by any other corporation that was
a member of a consolidated group of corporations (within the meaning of
Treasury regulation section 1.1502) that included CMET.

(k) CMET has delivered or made available to TCI correct and complete copies
of all Tax Returns filed by CMET for 1995, 1996 and 1997, all examination
reports, and any statements of deficiencies assessed against or agreed to by
CMET.

(l) Since December 31, 1997, CMET has incurred no liability for Taxes under
Sections 857(b) (other than 857(b)(1) or (3)), 860(c) or 4981 of the Code,
including without limitation, any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and CMET has not incurred any
liability for Taxes other than in the ordinary course of business.

(m) CMET (i) has elected to be taxed as a REIT commencing December 3, 1980,
(ii) has been subject to taxation as a REIT within the meaning of Section 856
of the Code and has satisfied all requirements to qualify as a REIT for all
taxable years commencing December 3, 1980, through its taxable year ended
December 31, 1997, (iii) has operated since December 31, 1997 to the date of
this representation, and intends to continue to operate, in such a manner so as
to qualify as a REIT for its taxable year ending immediately after the Closing
Date, and (iv) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT, and to
the knowledge of the executive officers of CMET, no such challenge is pending
or threatened. CMET represents that each of its corporate subsidiaries is, and
at all times since its affiliation with CMET has qualified as, a qualified REIT
subsidiary as defined in Section 856(i) of the Code, and that each partnership,
limited liability company, joint venture or other legal entity (other than a
corporation) in which CMET (either directly or indirectly) owns any of the
capital stock or other equity interests thereof has been treated since its
formation and continues to be treated for federal income tax purposes as a
partnership or disregarded as an entity separate from its owner and not as an
association taxable as a corporation. CMET has no net unrealized built-in gain
within the meaning of Section 1374(d)(1) of the Code that would be subject to
an election under IRS Notice 88-19 or has any earning and profits accumulated
in any non-REIT year within the meaning of Section 857 of the Code.

SECTION 3.21. Title to Assets. CMET has good, valid and indefeasible title
to the Trust Estate, including, without limitation, those assets set forth on
the CMET 1997 Balance Sheet.

SECTION 3.22. Redemptions of Capital Stock by CMET. There exists no
continuing claim by any former or current shareholder, for money or otherwise,
against CMET regarding any redemptions of its capital stock, and no basis for
any such claim exists.

SECTION 3.23. Bank Accounts. Section 3.23 of the CMET Disclosure Schedule
sets forth the names and locations of all banks, trust companies, savings and
loan associations, stock brokerages and other financial institutions at which
CMET maintains accounts of any nature and the name of all persons authorized to
draw thereon or make withdrawals therefrom.

SECTION 3.24. Brokers. CMET has not employed any broker, finder or similar
agent in connection with the transactions contemplated by this Agreement,
except that CMET has retained Sutro & Co. to render a fairness opinion with
respect to the Merger. Other than the foregoing arrangement, CMET is not aware
of any claim for payment of any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations by CMET leading to
this Agreement or the consummation of the transactions contemplated hereby.

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SECTION 3.25. Fairness Opinion. CMET has received the opinion of Sutro & Co.
to the effect that, as of September 21, 1998, the Merger Consideration is fair
from a financial point of view to the holders of CMET Common Stock.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF TCI

TCI hereby represents and warrants to CMET and, upon its formation, CME
Corporation as follows, except as otherwise set forth in the relevant section
of the disclosure schedule of TCI (the "TCI Disclosure Schedule"):

SECTION 4.01. Organization and Qualification of TCI. TCI is (a) a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and (b) duly qualified to do business as a foreign
corporation and in good standing in each jurisdiction in which the character of
the properties and assets now owned or leased by it or the nature of the
business transacted by it requires it to be so qualified, except where the
failure to be so qualified, individually or in the aggregate, would not have a
Material Adverse Effect (as defined herein) upon TCI or the consummation of the
transactions contemplated hereby. Each jurisdiction in which TCI is qualified
to do business is listed in Section 4.01 of the TCI Disclosure Schedule. No
jurisdiction in which TCI is not qualified or licensed has claimed, in writing
or otherwise, that TCI is required to qualify or be licensed therein.

SECTION 4.02. Power and Capacity; Charter Documents of TCI.

(a) TCI has all requisite power and authority (corporate and otherwise) to
enter into, execute and deliver this Agreement and, upon requisite approval of
the Merger by the shareholders of TCI, to perform its obligations hereunder.
TCI has the power and authority (corporate and otherwise) to carry on its
business as now being conducted and to own and lease its properties. This
Agreement has been duly executed and delivered by TCI and is a valid and
binding obligation of TCI, enforceable in accordance with its terms, except to
the extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally or by general equitable principles.

(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by TCI will not result in
a violation or breach of or constitute a default under any term or provision of
the articles of incorporation of TCI or the bylaws of TCI. TCI has made
available to CMET true and complete copies of the minute books of TCI for the
last five years. Such minute books are accurate and complete in all material
respects and contain the minutes of all meetings (and written consents in lieu
thereof) of the shareholders and the board of directors (and all committees
thereof) of TCI held during the five years immediately preceding the date of
this Agreement. All actions taken at such meetings were appropriately passed or
ratified.

SECTION 4.03. Subsidiaries. Section 4.03 of the TCI Disclosure Schedule
lists all other corporations, partnerships and other entities in which TCI
owns, beneficially or of record, shares or interests, and identifies all joint
ventures, corporate alliance agreements or corporate partnering agreements to
which TCI is a party. TCI does not have an interest in, or is subject to, any
agreement, obligation or commitment to make any equity investment in or loan or
advance to, any other Person.

SECTION 4.04. Capitalization and Ownership of TCI. Section 4.04 of the TCI
Disclosure Schedule lists, for TCI, its authorized capitalization, the number
of shares of capital stock of TCI (or other equity interests) issued and
outstanding, and, to the knowledge of TCI, the number of shares of capital
stock (or other equity interests) owned of record by each shareholder owning
more than five percent of the issued and outstanding shares of common stock as
of the date set forth in the TCI Disclosure Schedule. All of the outstanding
shares of capital stock of TCI are validly issued, fully paid and non-
assessable and were not issued in violation of any preemptive rights or any
applicable Law. All shares of capital stock of TCI are owned free

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and clear of any lien, claim or encumbrance of any type whatsoever imposed by
TCI. There are no outstanding options, warrants or other rights to acquire any
shares of capital stock of TCI, and there are no outstanding securities
authorized, granted or issued by TCI that are convertible into or exchangeable
for capital stock of TCI and there are no phantom stock rights, stock
appreciation rights or similar rights regarding TCI. There are no rights of any
Person to have TCI repurchase any capital stock of TCI.

SECTION 4.05 Conflicts. The execution, delivery and performance of this
Agreement by TCI and the consummation of the transactions contemplated hereby
will not

(a) result in the creation or imposition of any security interest, lien,
charge or other encumbrance against the TCI Assets (as defined herein),
with or without the giving of notice and/or the passage of time, or

(b) violate, affect acceleration of, or result in termination,
cancellation or modification of, or constitute a default under (i) any
contract, agreement or other instrument to which TCI is a party or by which
TCI or its assets is bound or (ii) any note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which TCI
is a party or by which TCI may be bound or affected, or to which any of the
TCI Assets may be subject, or

which violation, acceleration, requirement, termination, modification or
default described in (a), (b), or (c) above could reasonably be expected to
result in a Material Adverse Effect on TCI or the transactions contemplated by
this Agreement.

SECTION 4.06. Consents and Approvals. Except for (i) the filing with the
Commission of proxy material regarding the Merger and the related vote of TCI's
shareholders and (ii) any required filing pursuant to the HSR Act, TCI is not
required to obtain, transfer or cause to be transferred any consent, approval,
license, permit or authorization of, or make any declaration, filing or
registration with, any third party or any public body or authority in
connection with (x) the execution and delivery by TCI of this Agreement, (y)
the consummation of the Merger and the other transactions contemplated hereby
or (z) the conduct by the Surviving Corporation of the CMET Business.

SECTION 4.07. Financial and Operating Statements.

(a) TCI 1997 Financial Statements. Attached hereto as Appendix III is a true
and complete copy of the audited balance sheet of TCI as of December 31, 1997
(the "TCI 1997 Balance Sheet"), together with related statements of operations,
equity and cash flow of TCI (and notes thereto) for such period (collectively,
the "TCI 1997 Financial Statements"). The TCI 1997 Financial Statements fairly
present the consolidated financial position and the results of operations of
TCI for the period therein identified in conformity with GAAP consistently
applied.

(b) TCI 1998 Financial Statements. Attached hereto as Appendix IV is a true
and complete copy of the unaudited consolidated financial statements of TCI for
the six months ended June 30, 1998 (the "TCI 1998 Financial Statements"). The
TCI 1998 Financial Statements fairly present the financial position and results
of operations of TCI for the period therein identified, except that the TCI
1998 Financial Statements do not include notes or normal year end adjustments.

(c) Accounting Records. TCI (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions, dispositions
and assets of TCI and (ii) maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed
in accordance with the management's general or specific authorization, and (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets
and (C) access to such books, records and accounts is permitted only in
accordance with management's general or specific authorizations.

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SECTION 4.08. No Material Undisclosed or Contingent Liabilities. Except for
(a) liabilities or obligations incurred by TCI in the ordinary course of
business and not required by GAAP to be set forth on the TCI 1997 Balance Sheet
(all of which items, to the extent material (individually or in aggregate), are
described in Section 4.08 of the TCI Disclosure Schedule), and (b) liabilities
and obligations incurred by TCI in the ordinary course of business since the
date of the TCI 1997 Balance Sheet (none of which could reasonably be expected
to cause a Material Adverse Effect on TCI), to the best knowledge of TCI, there
is no basis for the assertion against TCI of any liability or obligation of any
nature whatsoever (whether absolute, accrued, contingent or otherwise) that may
materially encumber or affect TCI or the transactions contemplated hereby which
is not fully reflected or reserved against on the TCI 1997 Balance Sheet.

SECTION 4.09. Assets of TCI. The material assets of TCI (collectively, the
"TCI Assets") include the assets referenced below (for purposes of this Section
4.09, Section 4.10, Section 4.11, Section 4.13 and Section 4.14, "material"
shall refer to items capable of producing a monetary effect of at least
$1,000,000 on the business, operations, properties, condition, assets,
obligations or liabilities of TCI and its subsidiaries taken as a whole; the
fact that any asset is listed or otherwise described below or in the TCI
Disclosure Schedule is not, and shall not be interpreted to be, evidence that
such asset is a "material" asset of TCI):

(a) Receivables. All material accounts receivable, bills and notes
receivable, commercial paper and acceptances or any other evidences of
indebtedness to TCI including, without limitation, those items listed in
Section 4.09(a) of the TCI Disclosure Schedule;

(b) Company Equipment. All material furniture, fixtures and equipment of
TCI (the "TCI Equipment") including, without limitation, those items listed
in Section 4.09(b) of the TCI Disclosure Schedule, whether or not such
items are in any way attached or affixed to real property;

(c) Contracts. All material leases (other than residential leases on
apartment properties), contracts, agreements, arrangements, commitments and
understandings (whether written or oral), including, without limitation,
all mortgages, leases, security deposits and options under leases,
acquisition agreements, confidentiality agreements and deferred
compensation agreements (collectively, "Contracts"), to which TCI is a
party, including, without limitation, all such contracts listed or referred
to in Section 4.09(c) of the TCI Disclosure Schedule;

(d) Insurance. All insurance policies covering TCI, its properties or
equipment, and its trustees, officers and agents (and all rights and claims
thereunder for damage to, or otherwise relating to, the TCI Assets),
including, without limitation, those items listed in Section 4.09(d) of the
TCI Disclosure Schedule;

(e) Permits. All material licenses, permits and authorizations issued by
any federal, state, local or foreign governmental authority (the "Permits")
relating to TCI, the TCI Assets or the conduct of the business of TCI (the
"TCI Business"), including, without limitation, those items listed in
Section 4.09(e) of the TCI Disclosure Schedule;

(f) Real Property. Any and all fee and leasehold interests of TCI as
lessee regarding any of its real property (collectively, the "TCI
Properties") described and listed in Section 4.09(f) of the TCI Disclosure
Schedule; and

(g) Miscellaneous. Any and all other material property, real, personal,
or otherwise, tangible or intangible, which is owned or held by the TCI or
the trustees of TCI, including, but not limited to, property which is
transferred, conveyed, or paid to TCI or the trustees of TCI, and all
rents, income, profits, and gains therefrom.

SECTION 4.10. Absence of Certain Changes. Since December 31, 1997, except
as set forth in the TCI Disclosure Schedule or the TCI SEC Reports (as defined
in Section 4.17, below), TCI has not:

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(b) experienced any material decrease in the book value of the TCI
Assets from the amounts reflected on the TCI 1997 Balance Sheet, other than
decreases resulting from depreciation in accordance with accounting
practices in effect at all times since January 1, 1997; or

(c) incurred any material liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise and whether due or to
become due, except (i) liabilities or obligations for rent under the TCI
Leases (as defined herein), (ii) liabilities or obligations for other items
incurred in the ordinary course of business of TCI and consistent with past
practice, none of which other items exceeds $1,000,000, considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the TCI Leases) or other agreement providing for periodic
installments or payments, as a single obligation or liability, and (iii)
loans in connection with acquisitions of assets in the ordinary course of
business or refinancing of existing loans; or

(e) paid, discharged or satisfied any claims, encumbrances, liabilities
or obligations (whether absolute, accrued, contingent or otherwise and
whether due or to become due) other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in
the TCI 1997 Balance Sheet or incurred in the ordinary course of business
and consistent with past practice since the date thereof; or

(f) permitted, allowed or suffered any of the TCI Assets, including,
without limitation, real property, personal property or any leasehold
interest, to be subjected to any mortgage, pledge, lien, encumbrance,
restriction or charge of any kind, except for liens for Taxes not yet owing
or in connection with any refinancing in the ordinary course of business;
or

(h) canceled any amount of indebtedness or waived any claims or rights;
or

(i) sold, transferred or otherwise disposed of any of the TCI Assets
except in the ordinary course of business and consistent with past
practice; or

(j) granted any increase in the salary, compensation, rate of
compensation, commissions or bonuses payable to or to become payable by TCI
to any officer or director of TCI (including, without limitation, any
increase or change pursuant to any bonus, pension, profit-sharing or other
plan or commitment or any grant of severance, change of control or other
"golden parachute" benefits), except in the ordinary course of business and
consistent with past practice; or

(k) paid, loaned or advanced any amount to any officer, director or
shareholder of TCI except for amounts advanced to trustees or officers of
TCI in the ordinary course of business consistent with past practice for
out-of-pocket expenses in connection with travel; or

(l) sold, transferred or leased any of the TCI Assets to, or entered
into any agreement or arrangement with, any officer, director or
shareholder of TCI; or

(n) made any change in any method of accounting or accounting practice
or policy; or

(o) suffered aggregate casualty losses in excess of $1,000,000 (whether
or not insured against); or

B-19
<PAGE>

(p) issued any additional shares of TCI Common Stock or any option,
warrant, right or other security exercisable for, convertible into or
exchangeable for TCI Common Stock; or

(q) paid dividends on or made other distributions or payments in respect
of TCI Common Stock, other than regular quarterly dividends; or

(r) taken any other action not either in the ordinary course of business
and consistent with past practice or provided for in this Agreement; or

(s) paid any advisory, consulting or similar fees to any Person except
in the ordinary course of business and pursuant to the Advisory Agreement
between TCI and Basic; or

(t) agreed (other than with respect to the transactions contemplated by
this Agreement), whether in writing or otherwise, to take any of the
actions set forth in this Section 4.10.

SECTION 4.11. Real Property.

(a) Set forth in Section 4.11 of the TCI Disclosure Schedule is a complete
list of all real property that TCI currently owns. TCI has good and
indefeasible title in fee simple to such currently owned real property and to
all buildings and improvements thereon, free and clear of any mortgages, liens,
claims, charges, pledges, security interests or other encumbrances of any
nature whatsoever ("Encumbrances"), other than those Encumbrances described in
the CMET SEC Reports.

(b) To the best knowledge of TCI, with respect to any deeds, title insurance
policies, surveys, mortgages, agreements and other documents granting to TCI
title to or an interest in or otherwise affecting any such real property, (i)
no material breach or event of default on the part of TCI, (ii) no material
breach or event of default on the part of any other party thereto, and (iii) no
event that, with the giving of notice or lapse of time or both, would
constitute such material breach or event of default on the part of TCI or on
the part of any other party thereto, has occurred and is continuing.

(c) Section 4.11 of the TCI Disclosure Schedule contains a complete and
accurate list of all of TCI's material leasehold interests as lessee in real
property (collectively, "TCI Leases") (including all amendments thereof and
modifications thereto). TCI's interests in and to all TCI Leases are free and
clear of all material mortgages, liens, claims, charges, pledges, security
interests or other encumbrances of any nature whatsoever. TCI has not received
notice of any default by TCI under any of the TCI Leases, and there are no
facts or conditions that would, with notice or lapse of time or both,
constitute a default by TCI under any of the TCI Leases. To the best knowledge
of TCI, none of the landlords under any of the TCI Leases is in default.

(d) The buildings and improvements owned or leased by TCI on any real
property owned by TCI and on any TCI Lease, and the operation and maintenance
thereof as operated and maintained, do not materially (i) contravene any zoning
or building Law or ordinance or other administrative regulation or (ii) violate
any restrictive covenant or any applicable Law. All of the plants, buildings
and structures located on any real property owned by TCI or on any TCI Lease
are in a state of good maintenance and repair (normal wear and tear excepted)
suitable in all material respects for the operation of the TCI Business.

(e) There is no material pending or, to the best knowledge of TCI,
threatened condemnation, eminent domain or similar proceeding with respect to,
or that could reasonably be expected to affect, any real property owned by TCI
or any TCI Lease.

SECTION 4.12. TCI Equipment. TCI has good and valid title to each piece of
TCI Equipment, except for those pieces of equipment that have been disposed of
in the ordinary course of business since December 31, 1997 without violation of
Section 6.02 hereof. Taken as a whole, the TCI Equipment is (and, to the
knowledge of TCI, all pieces of TCI Equipment are) in good and normal operating
condition and repair (ordinary wear and tear excepted) and adequate for the
uses to which it is being put by TCI. TCI has not received any notification
from any governmental or regulatory authority within the last five years that
TCI is in current violation of any

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<PAGE>

health, sanitation, fire, safety, zoning, building or other Law (provided that
this Section does not cover Environmental Laws, which are addressed more
particularly in Section 4.20), ordinance or regulation in respect of the TCI
Equipment or operations, which violation has not been appropriately and
completely resolved.

SECTION 4.13. Contracts and Commitments.

(a) All material contracts, agreements and commitments to which TCI is a
party or is bound (and which provide for payment by TCI or receipt by TCI of
more than $1,000,000 over the life of the contract, agreement or commitment or
which are otherwise material to TCI) are listed in Section 4.13(a) of the TCI
Disclosure Schedule.

(b) TCI is not a party to or bound by any agreements, contracts or
commitments which individually or when aggregated with all related agreements,
contracts or commitments, provide for the grant of any material preferential
rights to purchase or lease any of the TCI Assets, except as described in
Section 4.13(b) of the TCI Disclosure Schedule.

(c) TCI has delivered or made available to CMET true and complete copies of
each written agreement, contract or commitment listed in Section 4.13(a) of the
TCI Disclosure Schedule, as well as true and accurate summaries of any oral
agreement listed thereon.

(d) The enforceability of the material agreements, contracts and commitments
referred to in this Section 4.13 will not be affected in any respect by the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

(e) TCI is not a party to or bound by any outstanding agreements,
arrangements or contracts with any of its officers, shareholders, directors,
agents, consultants or advisors (or any affiliates of such Persons) that (i)
are not cancelable by it on notice of not longer than 30 days and without the
imposition of any liability, penalty or premium or (ii) require non-cancelable
payment by TCI of over $1,000,000.

(f) TCI is not a party to or bound by any agreement that contains any
provision for severance or termination pay liabilities or obligations
(including, without limitation, change of control or "golden parachute"
provisions).

(g) TCI is not a party to or bound by:

(i) any mortgage, indenture, note, installment obligation or other
instrument, agreement or arrangement for or relating to any borrowing of
money by TCI, other than as described in the TCI SEC Reports or the TCI
Disclosure Schedule;

(ii) any guaranty, direct or indirect, by TCI of any obligation for
borrowings or otherwise, excluding endorsements made for collection in the
ordinary course of business, other than guaranties of obligations of
subsidiaries of TCI described in Section 4.03 of the TCI Disclosure
Schedule;

(iv) any agreement containing noncompetition or other limitations
restricting the conduct of the TCI Business; and

(v) any partnership, joint venture or similar agreement, other than in
connection with any ownership of any real property described in Section
4.09 of the TCI Disclosure Schedule by any entity described in Section 4.01
of the TCI Disclosure Schedule.

(h) Neither TCI nor any of its officers or directors is a party to or bound
by any agreement or arrangement for the sale of any of the TCI Assets or TCI
Common Stock or for the grant of any preferential rights to purchase any of the
TCI Assets or TCI Common Stock, other than in the ordinary course of business.

B-21
<PAGE>

(i) With respect to each material contract and agreement listed in Section
4.13 of the TCI Disclosure Schedule, except as set forth therein, (i) each of
such contracts and agreements is valid, binding and in full force and effect
and is enforceable by TCI in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other Laws and judicial decisions of general
applicability relating to or affecting creditors' rights and to general
principles of equity; (ii) there have been no cancellations or threatened
cancellations thereof nor are there any outstanding disputes thereunder; (iii)
neither TCI, nor, to the best knowledge of TCI, any other party is in breach of
any material provision thereof; and (iv) there does not exist any material
default under, or any event or condition which with the giving of notice or
passage of time or both would become a material breach or default under, the
terms of any such contract or agreement on the part of TCI or, to the best
knowledge of TCI, on the part of any other party thereto.

SECTION 4.14. Litigation. There are no open and unresolved claims, actions,
suits, proceedings, investigations or inquiries that have been made or served
against TCI or, to the best knowledge of TCI, that are pending against (without
having been so served), threatened by or against, or otherwise affecting or
that would adversely affect, the transactions contemplated hereby at law or in
equity or before or by any federal, state, local, foreign or other governmental
department, commission, board, agency, or authority; and no other such claim,
action, suit, proceeding, inquiry or investigation could be brought against TCI
for which valid defenses are not available. No claim, action, suit, proceeding,
inquiry or investigation set forth in Section 4.14 of the TCI Disclosure
Schedule would, if adversely decided, have a Material Adverse Effect on TCI or
the transactions contemplated hereby. TCI is not a party to or a recipient of
service of process regarding (and has not otherwise been named and noticed in)
any judgment, order or decree entered in any lawsuit or proceeding which has
had or may have a Material Adverse Effect on TCI or on its ability to acquire
any property or conduct its business in any way.

SECTION 4.15. Insurance.

(a) All policies of fire, liability, product liability and all other forms
of insurance relating to the TCI Business (the "TCI Insurance Policies") are in
full force and effect.

(b) All billed premiums with respect to the TCI Insurance Policies covering
all periods up to and including the Closing Date have been paid or will be paid
prior to the Closing Date.

(d) The TCI Insurance Policies are sufficient for compliance with all
requirements of Law and of all agreements with respect to the operation of the
TCI Business and are valid, outstanding and enforceable policies (subject to
bankruptcy, insolvency, reorganization and other Laws and judicial decisions of
general applicability relating to or affecting creditors' rights and to general
principles of equity).

(e) The coverage provided by the TCI Insurance Policies, with respect to any
insured act or event occurring on or prior to the Closing Date, will not in any
way be affected by or terminate or lapse by reason of the transactions
contemplated hereby.

SECTION 4.16. Employees; Officer and Director Compensation.

(a) TCI does not have any employees. TCI does not have any plans or
intentions to hire any employees, nor is TCI currently engaged in any
discussions to hire any employees.

(b) Section 4.16 of the TCI Disclosure Schedule sets forth a complete and
accurate list showing the names, the rate of compensation and the portions
thereof attributable to salary and bonuses, respectively, as well as the
location of all officers and directors of TCI and of all consultants to TCI
that received annual base compensation and cash bonus payable by TCI totaling
in excess of $75,000 for the fiscal year ended December 31, 1997.

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<PAGE>

SECTION 4.17. Compliance with Law.

(a) To the best knowledge of TCI, TCI is in compliance in all material
respects with all Laws applicable to the TCI Business.

(b) Since December 31, 1997, filings required to be made by TCI under the
Securities Act or the Exchange Act have been filed with the SEC as required by
each such law or regulation, including all forms, statements, reports,
agreements and all documents, exhibits, amendments and supplements appertaining
thereto, and TCI has complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.

(c) TCI has made available to CMET a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by TCI
with the SEC since December 31, 1997 and through the date hereof (such
documents as filed, and any and all amendments thereto (the "TCI SEC Reports").

(d) The TCI SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and all forms,
reports or other documents filed by TCI with the SEC after the date hereof, did
not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

(e) TCI has not received written notification from any governmental or
regulatory authority within the past five years of any asserted present or past
failure to so comply with Laws, which failure has not been appropriately and
completely resolved.

(f) TCI has not been notified by any governmental or regulatory authority
that TCI is in violation or alleged violation of any Law applicable to the TCI
Business which violation has not been appropriately and completely resolved, or
that any governmental or regulatory authority contemplates any investigation or
proceeding with respect to any such violation or alleged violation which has
not been appropriately and completely resolved.

SECTION 4.18. Material Permits. TCI has all material Permits necessary for
the ownership or leasing of its properties and the conduct of the TCI Business
as now being conducted. All such material Permits are in full force and effect.
No violations exist or, to the best knowledge of TCI, have been reported in
respect of such material Permits. No notice of any proceeding has been served
or otherwise given to TCI or, to the best knowledge of TCI, is pending (without
service or other notice) or threatened seeking the revocation or limitation of
any of such material Permits. Section 4.09(e) of the TCI Disclosure Schedule
contains a complete list of all material Permits of TCI.

SECTION 4.19. Environmental Matters. Except as set forth in the TCI SEC
Reports or in Section 4.19 of the TCI Disclosure Schedule and any environmental
assessment or report listed therein, to the actual knowledge of the executive
officers of TCI: none of TCI, any of its subsidiaries or any other person has
caused or permitted (a) the unlawful presence of any hazardous substances,
hazardous materials, toxic substances or waste materials (collectively,
"Hazardous Materials") on any of the TCI Properties, or (b) any unlawful
spills, releases, discharges or disposal of Hazardous Materials to have
occurred or be presently occurring on or from the TCI Properties, which
presence or occurrence would, individually or in the aggregate, have a Material
Adverse Effect; TCI and its subsidiaries have not failed to comply with all
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials or environmental matters or contamination ("Environmental Laws"),
except where the failure to so comply would not reasonably be expected to have
a Material Adverse Effect; and TCI, its assets and businesses and all
operations related thereto are now in compliance with all Environmental Laws
and not subject to any liability, or, with respect to any required remediation,
corrective action or prophylactic or other like action, obligation under any
Environmental Law, except where the failure to comply with any such
Environmental Law would not reasonably be expected to have a Material Adverse
Effect.

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<PAGE>

SECTION 4.20. Tax Matters.

(a) All Tax Returns required to be filed on or before the Closing Date by
TCI have been or will be filed within the time prescribed by Law (including
extensions of time approved by the appropriate taxing authority). The Tax
Returns so filed are complete, correct and accurate representations of the Tax
liabilities of TCI and such Tax Returns accurately set forth or will accurately
set forth all items to the extent required to be reflected or included in such
returns.

(b) TCI has timely paid or has made adequate provision in the TCI 1997
Balance Sheet for the payment of all Taxes due on such Tax Returns that have
been filed or will be filed for periods ending on or before the date of the TCI
1997 Balance Sheet.

(c) There is no action, suit, investigation, proceeding, audit or claim that
has been served against or otherwise properly noticed to TCI, or, to the best
knowledge of TCI, pending or proposed against or with respect to TCI in respect
of any Tax. There are no material liens for Taxes upon any of the TCI Assets.

(d) TCI has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any creditor, independent
contractor, or other Person.

(e) TCI has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.

(f) TCI does not have in effect a consent under Section 341(f) of the Code
concerning collapsible corporations.

(g) TCI has not made any payment, and is not obligated to make any payment,
and is not a party to any agreement that could obligate it to make any payment
that will not be deductible under section 280G of the Code or will be subject
to Tax under section 4999 of the Code.

(h) There has never been a Tax sharing or allocation agreement in place
between TCI and any other Person other than those, if any, with respect to
which the applicable statute of limitations has run.

(i) TCI is not liable for a Tax incurred by any other corporation that was a
member of a consolidated group of corporations (within the meaning of Treasury
regulation section 1.1502) that included TCI.

(j) TCI has delivered or made available to CMET correct and complete copies
of all Tax Returns filed by TCI for 1995, 1996 and 1997, all examination
reports, and any statements of deficiencies assessed against or agreed to by
TCI.

(k) Since December 31, 1997, TCI has incurred no liability for Taxes under
Sections 857(b) (other than 857(b)(1) or (3)), 860(c) or 4981 of the Code,
including without limitation, any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and TCI has not incurred any
liability for Taxes other than in the ordinary course of business.

(l) TCI (i) has elected to be taxed as a REIT commencing January 31, 1984,
(ii) has been subject to taxation as a REIT within the meaning of Section 856
of the Code and has satisfied all requirements to qualify as a REIT for all
taxable years commencing December 31, 1984, through its taxable year ended
December 31, 1997, (iii) has operated since December 31, 1997 to the date of
this representation, and intends to continue to operate, in such a manner so as
to qualify as a REIT for its taxable year ending immediately after the Closing
Date, and (iv) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT, and to
the knowledge of the executive officers of TCI, no such challenge is pending or
threatened. TCI represents that each of its corporate subsidiaries is, and at
all times since its affiliation with TCI has qualified as, a qualified REIT
subsidiary as defined in Section 856(i) of the Code, and that each partnership,
limited liability company, joint venture or other legal entity (other than a
corporation) in

B-24
<PAGE>

which TCI (either directly or indirectly) owns any of the capital stock or
other equity interests thereof has been treated since its formation and
continues to be treated for federal income tax purposes as a partnership or
disregarded as an entity separate from its owner and not as an association
taxable as a corporation. TCI has no net unrealized built-in gain within the
meaning of Section 1374(d)(1) of the Code that would be subject to an election
under IRS Notice 88-19 or has any earning and profits accumulated in any non-
REIT year within the meaning of Section 857 of the Code.

SECTION 4.21. Title to Assets. TCI has good, valid and indefeasible title to
the TCI Assets, including, without limitation, those assets set forth on the
TCI 1997 Balance Sheet.

SECTION 4.22. Redemptions of Capital Stock by TCI. There exists no
continuing claim by any former or current shareholder, for money or otherwise,
against TCI regarding any redemptions of its capital stock, and no basis for
any such claim exists.

SECTION 4.23. Brokers. TCI has not employed any broker, finder or similar
agent in connection with the transactions contemplated by this Agreement,
except that TCI has retained Wedbush Morgan Securities to render a fairness
opinion with respect to the Merger. Other than the foregoing arrangement, TCI
is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
by TCI leading to this Agreement or the consummation of the transactions
contemplated hereby.

SECTION 4.24. Fairness Opinion. TCI has received the opinion of Wedbush
Morgan Securities to the effect that, as of September 21, 1998, the Merger
Consideration is fair from a financial point of view to the holders of TCI
Common Stock.

ARTICLE V

OTHER OBLIGATIONS OF THE PARTIES

SECTION 5.01. Conduct of CMET Business. From the date hereof to the Closing,
except as otherwise expressly set forth in this Agreement, CMET shall conduct
its business, operations, activities and practices only in the ordinary course,
in accordance with prudent practice and consistent with past practice. Without
limiting the generality of the foregoing, from the date hereof until the
Closing, without the prior consent of TCI, CMET shall not:

(a) incur any liabilities or obligations of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due), except for liabilities or obligations for (i) rent under the
CMET Leases (provided, that CMET shall not enter into any new, modified or
extended leases for real property without the consent of TCI), (ii) other
items incurred in the ordinary course of business and consistent with past
practice, none of which other items shall exceed $100,000 (considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the CMET Leases) or other agreement providing for
periodic installments or payments, as a single obligation or liability) and
(iii) loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans;

(b) increase (other than an increase resulting from the calculation of
reserves in the ordinary course of business and in a manner consistent with
past practice) or change any assumptions underlying, or methods of
calculating, any bad debt, contingency or other reserves;

(c) pay, discharge or satisfy any claim, encumbrance, liability or
obligation (whether absolute, accrued, contingent or otherwise and whether
due or to become due), other than the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice of
liabilities and obligations which are reflected or reserved against in the
CMET 1997 Balance Sheet or which have been incurred since the date thereof
in the ordinary course of business and consistent with past practice, or
prepay any liability or obligation having a fixed maturity of more than 90
days from the date such liability or obligation was issued or incurred;

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<PAGE>

(d) permit, allow or suffer any of the Trust Estate to be subjected to
any new or additional mortgage, pledge, lien, encumbrance, restriction or
charge of any kind (except for liens arising as a result of Taxes not yet
owing and loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans);

(e) determine as collectible any notes or accounts receivable or any
portion thereof which was previously considered uncollectible or write off
as uncollectible any notes or accounts receivable or any portion thereof
other than in the ordinary course of business and consistent with past
practice;

(f) cancel any aggregate amount of indebtedness in excess of $100,000 or
waive any claims or rights of value in excess of $100,000 and in no case
other than in the ordinary course of business and consistent with past
practice;

(g) sell, transfer or otherwise dispose of any of the Trust Estate other
than in the ordinary course of business;

(h) grant any increase in the compensation payable to or to become
payable to any trustees, directors or officers (including, without
limitation, any increase or change pursuant to any bonus, pension, profit-
sharing or other plan or commitment);

(i) pay, loan or advance any amount (except for advances in the ordinary
course of business and consistent with past practice for out-of-pocket
expenses in connection with travel that do not in the aggregate exceed
$25,000) to any officers, directors, trustees or shareholders;

(j) enter into any employment agreement, or enter into any consulting
agreement or other agreement that contains any provision for severance or
termination liabilities or obligations (including, without limitation,
change of control or "golden parachute" provisions);

(k) sell, transfer or lease any of the Trust Estate to, or enter into
any agreement or arrangements with, any officers, directors, trustees or
shareholders;

(l) enter into any collective bargaining or labor agreement;

(m) make aggregate capital expenditures or commitments in excess of
$100,000 for additions to property or for any other purpose;

(n) make any change in any method of accounting or accounting practice
or policy;

(o) enter into any agreement or contract or commitment of the type
required to be disclosed pursuant to Section 3.10 hereof or outside the
ordinary course of business;

(p) terminate or amend in any material respect any contract, lease,
license, or other agreement to which it is a party that is required to be
set forth in Section 3.13(a) of the CMET Disclosure Schedule;

(q) exercise, or permit the expiration of, any CMET Lease option or
option to purchase any property;

(r) issue any additional shares of capital stock of or beneficial
interests or options, warrants, rights (including, without limitation,
stock appreciation rights and phantom stock rights) or other securities
exercisable for, convertible into or exchangeable for shares of capital
stock of or beneficial interests except for shares issued pursuant to a
dividend reinvestment plan, or pay any dividend (or make any other
distribution) to its holders of capital stock or beneficial interests
except regular quarterly dividends;

(s) omit to do any act, or permit any act or omission to act, which may
cause a breach of any contract, commitment or obligation, or any breach of
any representation, warranty, covenant or agreement made by such party
herein;

(t) take any other action not in the ordinary course of business and
consistent with past practice or provided for in this Agreement; or

(u) agree, whether in writing or otherwise, to do any of the foregoing.

Notwithstanding anything to the contrary in this Section 5.01, CMET may
consummate the Incorporation pursuant to Article I hereof.

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<PAGE>

SECTION 5.02. Conduct of TCI Business. From the date hereof to the Closing,
except as otherwise expressly set forth in this Agreement, TCI shall conduct
its business, operations, activities and practices only in the ordinary course,
in accordance with prudent practice and consistent with past practice. Without
limiting the generality of the foregoing, from the date hereof until the
Closing, without the prior consent of CMET, TCI shall not:

(a) incur any liabilities or obligations of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due), except for liabilities or obligations for (i) rent under the
TCI Leases (provided, that TCI shall not enter into any new, modified or
extended leases for real property without the consent of CMET), (ii) other
items incurred in the ordinary course of business and consistent with past
practice, none of which other items shall exceed $100,000 (considering
liabilities or obligations arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any
lease (other than the TCI Leases) or other agreement providing for periodic
installments or payments, as a single obligation or liability) and (iii)
loans in connection with acquisitions of assets in the ordinary course of
business or refinancing of existing loans;

(c) pay, discharge or satisfy any claim, encumbrance, liability or
obligation (whether absolute, accrued, contingent or otherwise and whether
due or to become due), other than the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice of
liabilities and obligations which are reflected or reserved against in the
TCI 1997 Balance Sheet or which have been incurred since the date thereof
in the ordinary course of business and consistent with past practice, or
prepay any liability or obligation having a fixed maturity of more than 90
days from the date such liability or obligation was issued or incurred;

(d) permit, allow or suffer any of the TCI Assets to be subjected to any
new or additional mortgage, pledge, lien, encumbrance, restriction or
charge of any kind (except for liens arising as a result of Taxes not yet
owing and loans in connection with acquisitions of assets in the ordinary
course of business or refinancing of existing loans);

(g) sell, transfer or otherwise dispose of any of the TCI Assets other
than in the ordinary course of business;

(h) grant any increase in the compensation payable to or to become
payable to any directors or officers (including, without limitation, any
increase or change pursuant to any bonus, pension, profit-sharing or other
plan or commitment);

(k) sell, transfer or lease any of the TCI Assets to, or enter into any
agreement or arrangements with, any officers, directors or shareholders;

B-27
<PAGE>

(l) enter into any collective bargaining or labor agreement;

(m) make aggregate capital expenditures or commitments in excess of
$100,000 for additions to property or for any other purpose;

(n) make any change in any method of accounting or accounting practice
or policy;

(o) enter into any agreement or contract or commitment of the type
required to be disclosed pursuant to Section 4.10 hereof or outside the
ordinary course of business;

(p) terminate or amend in any material respect any contract, lease,
license, or other agreement to which it is a party that is required to be
set forth in Section 4.13(a) of the TCI Disclosure Schedule;

(q) exercise, or permit the expiration of, any TCI Lease option or
option to purchase any property;

(r) issue any additional shares of capital stock or options, warrants,
rights (including, without limitation, stock appreciation rights and
phantom stock rights) or other securities exercisable for, convertible into
or exchangeable for shares of capital stock except for shares issued
pursuant to a dividend reinvestment plan, or pay any dividend (or make any
other distribution) to its holders of capital stock except regular
quarterly dividends;

(t) take any other action not in the ordinary course of business and
consistent with past practice or provided for in this Agreement; or

(u) agree, whether in writing or otherwise, to do any of the foregoing.

SECTION 5.03. Access to Books and Records. In order that each of TCI and
CMET may have full opportunity to make investigations of each other in
connection with the actions contemplated by this Agreement, CMET shall permit
TCI, TCI shall permit CMET, and each shall permit the other's counsel,
accountants, auditors, lenders, environmental consultants and other
representatives, reasonable access, upon reasonable notice, to all of the
offices, properties, books and records, contracts and commitments of CMET and
TCI, respectively, from the date hereof through the Closing Date.

SECTION 5.04. Consents. CMET agrees to use commercially reasonable best
efforts to obtain prior to the Closing all consents and approvals necessary, in
the reasonable determination of TCI, to consummate the transactions
contemplated hereby, including, without limitation, the approvals, licenses,
permits and authorizations (and the declarations, filings and registrations)
listed or referred to in Section 3.06 of the CMET Disclosure Schedule. TCI
agrees to use commercially reasonable best efforts to obtain prior to the
Closing all consents and approvals necessary, in the reasonable determination
of CMET, to consummate the transactions contemplated hereby, including, without
limitation, the approvals, licenses, permits and authorizations (and the
declarations, filings and registrations) listed or referred to in Section 4.06
of the TCI Disclosure Schedule. All such consents shall be in writing and in
form and substance mutually satisfactory to the parties.

SECTION 5.05. Other Transactions.

(a) CMET Transactions. Prior to the Closing, CMET shall not, and shall not
permit any of its officers, trustees or other representatives to, directly or
indirectly, encourage, solicit or initiate or (except as set forth below)
participate in negotiations with, or (except as set forth below) provide any
information or assistance to, any Person (other than TCI and its
representatives) concerning any merger, sale of securities, sale of the Trust
Estate or similar transaction involving CMET or any of the Trust Estate (a
"CMET Transaction"), other than the transactions contemplated between the
parties by this Agreement. In the event that the Board of Trustees of CMET
makes a reasonable determination that its fiduciary obligations require it to
negotiate with or provide information to an unsolicited third party regarding a
CMET Transaction, CMET shall notify TCI promptly of the existence of such
negotiations and the names of each Person, other than CMET, participating in
discussions

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<PAGE>

regarding such a Transaction, although CMET may engage in such negotiations and
provide such information notwithstanding the other provisions of this Section
5.05.

(b) TCI Transactions. Prior to the Closing, TCI shall not, and shall not
permit any of its officers, directors or other representatives to, directly or
indirectly, encourage, solicit or initiate or (except as set forth below)
participate in negotiations with, or (except as set forth below) provide any
information or assistance to, any Person (other than CMET and its
representatives) concerning any merger, sale of securities, sale of the TCI
Assets or similar transaction involving TCI or any of the TCI Assets (a "TCI
Transaction"), other than the transactions contemplated between the parties by
this Agreement. In the event that the Board of Directors of TCI makes a
reasonable determination that its fiduciary obligations require it to negotiate
with or provide information to an unsolicited third party regarding a TCI
Transaction, TCI shall notify CMET promptly of the existence of such
negotiations and the names of each Person, other than TCI, participating in
discussions regarding such a TCI Transaction, although TCI may engage in such
negotiations and provide such information notwithstanding the other provisions
of this Section 5.05.

SECTION 5.06. Supplemental Disclosure by CMET.

(a) The CMET Disclosure Schedule shall be considered to be part of the
representations and warranties of CMET.

(b) Until the Closing, each of CMET and CME Corporation shall have the
continuing obligation to promptly supplement or amend its disclosure schedule
with respect to any matter hereafter arising or discovered which, if existing
or known at the date of this Agreement, would have been required to be set
forth or described in such Sections of its disclosure schedule ("Supplemental
Disclosures").

(c) CMET acknowledges that its disclosure schedule is an important and
integral part of this Agreement and that TCI shall be entitled to treat any
such supplementation or amendment as a breach of the appropriate representation
or warranty, whether or not the event or condition giving rise to such
supplementation or amendment occurred on or prior to the date hereof except to
the extent that such supplementation or amendment is a result of any of the
activities not prohibited by Section 5.01 ("Section 5.01 Items"), which
supplementation or amendment shall not be deemed a breach by CMET of any
obligation hereunder or be deemed the non-fulfillment of a condition hereunder;
provided, that as a result of the occurrence of the Closing despite such
supplementation or amendment of their disclosure schedules, TCI shall be deemed
to have waived any breach arising from such supplementation or amendment.

SECTION 5.07. Supplemental Disclosure by TCI.

(a) The TCI Disclosure Schedule shall be considered to be part of the
representations and warranties of TCI.

(b) Until the Closing, TCI shall have the continuing obligation to promptly
supplement or amend the TCI Disclosure Schedule with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the TCI
Disclosure Schedule ("TCI Supplemental Disclosures").

(c) TCI acknowledges that the TCI Disclosure Schedule is an important and
integral part of this Agreement and that CMET and CME Corporation shall be
entitled to treat any such supplementation or amendment as a breach of the
appropriate representation or warranty, whether or not the event or condition
giving rise to such supplementation or amendment occurred on or prior to the
date hereof except to the extent that such supplementation or amendment is a
result of any of the activities not prohibited by Section 5.02 ("Section 5.02
Items"), which supplementation or amendment shall not be deemed a breach by TCI
of any obligation hereunder or be deemed the non-fulfillment of a condition
hereunder; provided, that as a result of the occurrence of the Closing despite
such supplementation or amendment of the TCI Disclosure Schedule, CMET shall be
deemed to have waived any breach arising from such supplementation or
amendment.

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<PAGE>

SECTION 5.08. Governmental Filings. As soon as practicable, CMET and TCI
shall make any and all filings and submissions to any governmental agency
(including, without limitation, any filings required with the Commission) that
are required to be made in connection with the transactions contemplated
hereby. CMET shall furnish to TCI, and TCI shall furnish to CMET, such
information and assistance as the other party or parties may reasonably request
in connection with the preparation of any such filings or submissions.

SECTION 5.09. Covenants Relating to TCI Common Stock.

(a) TCI shall, as soon as practicable following execution of this Agreement,
reserve for issuance to the shareholders of CME Corporation in accordance with
Section 1.08, 4,731,641 shares of TCI Common Stock, which shares of TCI Common
Stock shall be, upon the conversion provided for in Section 1.08, validly
issued, fully paid and non-assessable and not issued in violation of any
preemptive rights or any applicable Law. Such shares of TCI Common Stock shall
be, when delivered to the shareholders of CME Corporation, owned by the
shareholders of CME Corporation free and clear of any lien, claim or
encumbrance of any type whatsoever imposed by TCI.

(b) TCI shall, as soon as practicable following execution of this Agreement,
file a registration statement on Form S-4 (or similar or successor form) with
the Commission covering the 4,731,641 shares of TCI Common Stock into which the
Common Shares is to be converted in accordance with Section 1.08 (the
"Registration Statement"). CMET shall cooperate with TCI in working toward
causing the Registration Statement to be declared effective by the Commission
as soon as possible.

(c) TCI shall, as soon as practicable following execution of this Agreement,
exercise all reasonable efforts to cause such 4,731,641 shares of TCI Common
Stock to be listed on any exchange on which similar securities issued by TCI
are then listed.

SECTION 5.10. Covenant to Satisfy Conditions. CMET and TCI shall each use
their commercially reasonable best efforts to insure that the conditions set
forth in Article VI hereof are satisfied, insofar as such matters are within
their respective control.

SECTION 5.11. Shareholder Approvals.

(a) Subject to the provisions of Section 5.13, below, CMET shall, as soon
as practicable following execution of this Agreement, prepare, file with the
Commission and deliver to its shareholders a proxy statement submitting this
Agreement and the consummation of the Incorporation and the Merger to a vote of
its shareholders in accordance with the California Law.

(b) TCI shall, as soon as practicable following execution of this
Agreement, prepare, file with the Commission and deliver to its shareholders a
proxy statement submitting this Agreement and the consummation of the Merger to
a vote of its shareholders in accordance with the Nevada Law.

SECTION 5.12. Information Delivered to Shareholders.

(a) CMET shall submit all shareholder notices, any proxy solicitation
material required in connection with a meeting of shareholders, written
consents and other shareholder information (to the extent that such information
pertains to the transactions contemplated by this Agreement) to TCI for
approval (which approval shall not be unreasonable withheld) at least five days
prior to delivering such materials to its shareholders. All such materials
shall comply with the California Law and the Nevada Law and all applicable
state and federal securities Laws (including, without limitation, the anti-
fraud provisions thereof).

(b) TCI shall submit all shareholder notices, any proxy solicitation
material required in connection with a meeting of shareholders, written
consents and other shareholder information (to the extent that such information
pertains to the transactions contemplated by this Agreement) to CMET for
approval (which approval shall not be unreasonable withheld) at least five days
prior to delivering such materials to its shareholders. All such materials
shall comply with the Nevada Law and all applicable state and federal
securities Laws (including, without limitation, the anti-fraud provisions
thereof).

B-30
<PAGE>

SECTION 5.13. Non-Public Information. As recipients of what may be deemed to
be non-public information regarding each of TCI and CMET, each of TCI and CMET
agree not to trade in the CMET Common Stock or TCI Common Stock from the date
hereof until the earlier of the Closing or the termination of this Agreement.

SECTION 5.14. Confidentiality. Each party hereto shall hold, and cause its
respective officers, directors, trustees, employees, consultants and advisors
(collectively, "party representatives") to hold, in strict confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of Law, all documents and information concerning the other parties
furnished to it by any other party or its party representatives in connection
with the transactions contemplated by this Agreement (except to the extent that
such information can be shown to have been (i) previously known by the party to
which it was furnished, (ii) in the public domain through no fault of such
party or (iii) later lawfully acquired from other sources by the party to which
it was furnished), and neither party shall release or disclose to any other
Person (or otherwise use) such information except in connection with the
transactions contemplated hereby. No party shall release any information
regarding this Agreement or the transactions contemplated hereby without the
prior written consent of each other party hereto.

ARTICLE VI

CONDITIONS PRECEDENT

SECTION 6.01. Conditions Precedent to Obligations of TCI. The obligations of
TCI under this Agreement are subject to the satisfaction or, unless prohibited
by law, the waiver by TCI, at or before the Closing, of each of the following
conditions:

(a) Representations and Warranties. The representations and warranties
of CMET contained herein shall be true, complete and accurate as of the
date when made and at and as of the Closing Date as though such
representations, warranties and statements were made at and as of such date
(except for breaches of such representations, warranties and statements
which would, in aggregate, not cause a Material Adverse Effect regarding
CMET, the CMET Business, or the Trust Estate); provided, however, that the
representations and warranties contained herein shall be deemed as of the
date hereof to include any Section 5.01 Items specifically referenced in
the CMET Supplemental Disclosures.

(b) Performance. CMET shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be so
performed or complied with by it at or prior to the Closing.

(c) No Injunction. On the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction restraining or prohibiting the
consummation of the transactions contemplated hereby.

(d) No Litigation. There shall not be threatened, instituted or pending
any suit, action, investigation, inquiry or other proceeding by or before
any court or governmental or other regulatory or administrative agency or
commission requesting or looking toward an order, judgment or decree that
(i) restrains or prohibits the consummation of the transactions
contemplated hereby or (ii) would have a Material Adverse Effect on the
business, operations, condition (financial or otherwise), liabilities,
Trust Estate or earnings of the Surviving Corporation.

(e) Officers' Certificates. Each of CMET and CME Corporation shall have
delivered to TCI a certificate, dated the Closing Date, executed by its
Chief Executive Officer and Chief Financial Officer, certifying the
fulfillment of the conditions specified in Section 6.01(a) and (b) hereof.

(f) Secretary's Certificates. Each of CMET and CME Corporation shall
have delivered to TCI a certificate, dated the Closing Date, executed by
its Secretary or Assistant Secretary and certifying as to its
organizational documents, enabling resolutions, incumbency of officers and
other reasonably related matters.

B-31
<PAGE>

(g) Consents and Approvals. All licenses, permits, approvals and
authorizations of all third parties and governmental bodies and agencies
(including, without limitation, the Commission) (the "CMET Consents and
Approvals") shall have been obtained in accordance with the terms of
Section 5.04 hereof which are necessary in connection with (a) the
execution and delivery by each of the parties, as appropriate, of this
Agreement, (b) the consummation by each of the parties of the transactions
contemplated hereby or thereby or (c) the conduct by the Surviving
Corporation of the CMET Business substantially as conducted on the date
hereof, except those CMET Consents and Approvals which, if not obtained,
would not reasonably be expected to result, in the aggregate, in a Material
Adverse Effect.

(h) No Material Adverse Change. Except as specifically disclosed herein
or in the CMET Disclosure Schedule, the events occurring since December 31,
1997, and the conditions arising since such date shall not, in the
aggregate, have resulted in, or with the passage of time or otherwise,
reasonably be expected to result in, a Material Adverse Change regarding
CMET, the CMET Business, or the Trust Estate.

(i) Non-Foreign Status. At or prior to Closing, CME Corporation shall
have delivered to TCI a statement certifying that it is not a foreign
person, which statement shall comply with the requirements of Treasury
regulation Section 1.1445-2(b).

(j) Shareholder Approval. The shareholders of each of CMET and TCI shall
have duly approved, as appropriate, the Incorporation, the Merger and the
other transactions contemplated hereby.

(k) Documents. All documents to be delivered by CMET and/or CME
Corporation at the Closing shall be duly executed and in form and substance
reasonably satisfactory to TCI.

(l) Other. TCI shall have received such other documents or certificates
as TCI may reasonably have requested, including, without limitation,
certificates of good standing with respect to CMET from the appropriate
authority in its jurisdiction of formation and certificates of good
standing with respect to CMET from the appropriate authority in each
jurisdiction in which it is qualified to do business.

(m) Legal Opinion. TCI shall have received the opinion of Andrews &
Kurth L.L.P. to the effect that the Incorporation and the Merger constitute
tax-free reorganizations within the meaning of Section 368(a) of the Code.

(n) The Registration Statement shall have been declared effective, and
no stop order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the SEC.

SECTION 6.02. Conditions Precedent to Obligations of CMET. The obligations
of CMET under this Agreement are subject to the satisfaction or, unless
prohibited by law, the waiver by CMET at or before the Closing, of each of the
following conditions:

(a) Representations and Warranties. The representations and warranties
of TCI contained herein shall be true, complete and accurate as of the date
when made and at and as of the Closing Date as though such representations
and warranties were made at and as of such date (except for breaches of
such representations, warranties and statements which would, in aggregate,
not cause a Material Adverse Effect regarding TCI); provided, however, that
the representations and warranties contained herein shall be deemed as of
the date hereof to include any Section 5.02 Items specifically referenced
in the TCI Supplemental Disclosures.

(b) Performance. TCI shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be so
performed or complied with by it at or prior to the Closing.

(c) No Injunction. On the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction restraining or prohibiting
consummation of the transactions contemplated hereby.

B-32
<PAGE>

(e) Officers' Certificate. TCI shall have delivered to CMET and CME
Corporation a certificate, dated the Closing Date and executed by its
respective duly authorized representative, certifying its fulfillment of
the conditions specified in Sections 6.02(a) and (b) hereof.

(f) Secretary's Certificate. TCI shall have delivered to CMET and CME
Corporation a certificate, dated the Closing Date, executed by its
Secretary or Assistant Secretary and certifying as to its organizational
documents, enabling resolutions, incumbency of signatories and other
related matters.

(g) Consents and Approvals. All licenses, permits, approvals and
authorizations of all third parties and governmental bodies and agencies
(including, without limitation, the Commission) (the "TCI Consents and
Approvals") shall have been obtained in accordance with the terms of
Section 5.04 hereof which are necessary in connection with (a) the
execution and delivery by each of the parties, as appropriate, of this
Agreement, (b) the consummation by each of the parties of the transactions
contemplated hereby or thereby or (c) the conduct by the Surviving
Corporation of the CMET Business substantially as conducted on the date
hereof, except those TCI Consents and Approvals which, if not obtained,
would not reasonably be expected to result, in the aggregate, in a Material
Adverse Effect.

(h) No Material Adverse Change. Except as specifically disclosed herein
or in the TCI Disclosure Schedule, the events occurring since December 31,
1997, and the conditions arising since such date shall not, in the
aggregate, have resulted in, or with the passage of time or otherwise,
reasonably be expected to result in, a Material Adverse Change regarding
TCI.

(i) Shareholder Approval. The shareholders of each of CMET and TCI shall
have duly approved, as appropriate, the Incorporation, the Merger and the
other transactions contemplated hereby.

(j) Documents. All documents to be delivered by TCI to CMET and/or CME
Corporation at the Closing shall be duly executed and in form and substance
reasonably satisfactory to CMET and/or CME corporation, as the case may be.

(k) Other. CMET shall have received such other documents or certificates
as CMET may have reasonably requested, including, without limitation,
certificates of good standing with respect to TCI from the appropriate
authority in its jurisdiction of incorporation and certificates of good
standing with respect to TCI from the appropriate authority in each
jurisdiction in which they are qualified to do business.

(l) Legal Opinion. CMET shall have received the opinion of Andrews &
Kurth L.L.P. to the effect that the Incorporation and the Merger constitute
tax-free reorganizations within the meaning of Section 368(a) of the Code.

(m) Securities Exchange Listing. The 4,731,641 shares of TCI Common
Stock referred to in Section 5.09 hereof shall have been approved for
listing on any exchange on which similar securities issued by TCI are
listed as of the Closing.

B-33
<PAGE>

ARTICLE VII

TERMINATION OF AGREEMENT

SECTION 7.01. Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:

(a) by mutual agreement of CMET or TCI;

(b) by TCI, on or after June 30, 1999, if (i) any of the conditions
provided in Section 6.01 hereof of this Agreement have not been met or, to
the extent permitted by applicable law, have not been waived in writing by
TCI prior to such date; or

(c) by CMET, on or after June 30, 1999, if (i) any of the conditions
provided in Section 6.02 hereof of this Agreement have not been met or, to
the extent permitted by applicable law, have not been waived in writing by
CMET prior to such date.

SECTION 7.02. Procedure Upon Termination. In the event of termination by
CMET or TCI pursuant to Section 7.01 hereof, written notice thereof shall
promptly be given to the other parties and the transactions contemplated by
this Agreement shall be terminated, without further action by any party. If the
transactions contemplated by this Agreement are terminated as provided herein
CMET or TCI shall return all documents, work papers and other material of any
other party relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, to the party furnishing the
same.

SECTION 7.03. Effect of Termination. Except as provided in Section 8.01, in
the event of the termination of this Agreement pursuant to Section 7.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of CMET or TCI or any of their respective officers,
trustees or directors and all rights and obligations of any party hereto shall
cease; provided, however, that nothing herein shall relieve any party from
liability for, or be deemed to waive any rights of specific performance of this
Agreement available to a party by reason of, any willful breach by the other
party of its willful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. Survival of Representations and Warranties. All
representations and warranties made hereunder shall survive any investigation
made by or on behalf of any party hereto, but shall not survive the Closing
hereunder.

SECTION 8.02. Definition of Knowledge. For the purpose of this Agreement,
the Exhibits and Appendices to this Agreement, and the CMET Disclosure Schedule
and the TCI Disclosure Schedule, the phrases "to the best knowledge" of any
party and "known" and words of like effect shall mean to the knowledge of such
party and any officer, director, trustee or manager of any such party, as such
knowledge has been, or should have been obtained in the performance of their
duties in the ordinary course of business in a prudent and diligent manner,
which knowledge shall also include information existing in the records and
files of such party.

SECTION 8.03. Definition of Material Adverse Effect and Material Adverse
Change. "Material Adverse Effect" or "Material Adverse Change" means, with
respect to any party, any change, occurrence or effect (direct or indirect) on
the business, operations, properties (including tangible properties), condition
(financial or otherwise), assets, prospects (solely to the extent such
prospects are related to events specifically involving the affected party),
obligations or liabilities (whether absolute, contingent or otherwise and
whether due or to become due) of such party and its subsidiaries taken as a
whole that reasonably could be expected to exceed $5,000,000. "Material" or
"materially" or words of like effect shall (unless otherwise so provided)

B-34
<PAGE>

refer to items capable of producing a monetary effect of at least $5,000,000 on
the business, operations, properties (including intangible properties),
condition (financial or otherwise), assets, prospects (solely to the extent
such prospects are related to events specifically involving the affected
party), obligations or liabilities (whether absolute, contingent or otherwise
and whether due or to become due) of the relevant party and its subsidiaries
taken as a whole.

SECTION 8.04. Expenses, Taxes, Etc. Each of the parties hereto shall pay all
fees and expenses (including, without limitation, legal fees, accounting fees
and investment advisor, broker and/or agent fees) incurred by it or any of its
affiliates in connection with the transactions contemplated by this Agreement.

SECTION 8.05. Successors and Assigns. No party shall have the right to
assign all or any part of its interest in this Agreement without the prior
written consent of the other parties, and any attempted transfer without such
consent shall be null and void.

SECTION 8.06. No Third-Party Benefit. Nothing in this Agreement shall be
deemed to create any right or obligation in any Person not a party hereto and
this Agreement shall not be construed in any respect to be a contract or
agreement in whole or in part for the benefit of or binding upon any Person not
a party hereto.

SECTION 8.07. Entire Agreement; Amendment. This Agreement, the Exhibits, the
Appendices, the CMET Disclosure Schedule and the TCI Disclosure Schedule hereto
constitute the entire agreement among the parties hereto with respect to the
transactions contemplated herein and supersede all prior oral and written
agreements, memoranda, understandings and undertakings between the parties
hereto relating to the subject matter hereof. This Agreement may not be
modified, amended, altered or supplemented except by a written instrument
executed and delivered by each of the parties hereto.

SECTION 8.08. Reformation and Severability. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term hereof and such illegality, invalidity or
unenforceability does not result in a material failure of consideration, then;

(a) in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable; and

(b) the legality, validity and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.

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<PAGE>

SECTION 8.09. Notices. All notices, claims, certificates, requests, demands
and other communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, mailed (registered or certified
mail, postage prepaid, return receipt requested) or sent by facsimile
transmission as follows:

If to:

CMET
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Robert A. Waldman
Fax: (214) 750-0779

If to:

TCI
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Robert A. Waldman
Fax: (214) 750-0779

with a copy to:

Andrews & Kurth L.L.P.
1717 Main Street
Suite 3700
Dallas, Texas 75201
Attention: Thomas R. Popplewell
Fax: (214) 659-4401

or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.

SECTION 8.10. Number and Gender. When the context in which words are used in
this Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.

SECTION 8.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES.

SECTION 8.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

The remainder of this page is intentionally left blank.

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<PAGE>

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
parties hereto on the date first above written.

TCI:

TRANSCONTINENTAL REALTY INVESTORS,
INC.

/s/ Randall M. Paulson
By: _________________________________
Randall M. Paulson, President

/s/ Thomas A. Holland
By: _________________________________
Thomas A. Holland, Secretary

CMET:

CONTINENTAL MORTGAGE AND EQUITY
TRUST

/s/ Randall M. Paulson
By: _________________________________
Randall M. Paulson, President

/s/ Thomas A. Holland
By: _________________________________
Thomas A. Holland, Secretary

B-37
<PAGE>

APPENDIX I

CMET 1997 BALANCE SHEET

December 31, 1997

[Incorporated by reference to
Continental Mortgage and Equity Trust
Report on Form 10-K for December 31, 1997]

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<PAGE>

APPENDIX II

CMET 1998 FINANCIAL STATEMENTS

For the Six Months Ended June 30, 1998

[Incorporated by reference to
Continental Mortgage and Equity Trust
Report on Form 10-Q for June 30, 1998]

B-39
<PAGE>

APPENDIX III

TCI 1997 BALANCE SHEET

December 31, 1997

[Incorporated by reference to
Transcontinental Realty Investors, Inc.
Report on Form 10-K for December 31, 1997]

B-40
<PAGE>

APPENDIX IV

TCI 1998 FINANCIAL STATEMENTS

For the Six Months Ended June 30, 1998

[Incorporated by reference to
Transcontinental Realty Investors, Inc.
Report on Form 10-Q for June 30, 1998]

B-41
<PAGE>

APPENDIX C

[LETTERHEAD OF WEDBUSH MORGAN SECURITIES]

September 21, 1998

Board of Directors
Transcontinental Realty Investors, Inc.
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Members of the Board:

We understand that Transcontinental Realty Investors, Inc. ("TCI") and
Continental Mortgage and Equity Trust ("CMET") have entered into an agreement
as of September 21, 1998 pursuant to which CMET will be merged with and into
TCI, in a transaction (the "Merger") in which each outstanding share of CMET
common stock will be converted into the right to receive 1.181 shares (the
"Exchange Ratio") of the common stock of TCI. The terms and conditions of the
Merger are set forth in more detail in an agreement and Plan of Merger
("Agreement") by and among TCI and CMET.

You have asked us to recommend to TCI an exchange ratio for purposes of this
Merger and based upon the Exchange Ratio agreed to by the parties and contained
in the Agreement to deliver our opinion as to the fairness, from a financial
point of view (the "Opinion"), to the stockholders of TCI of the consideration
to be paid by TCI pursuant to the terms and subject to the conditions set forth
in the Agreement. The Opinion shall not address TCI's underlying business
decision to effect the Transaction. Other than recommending the Exchange Ratio
for the Transaction and rendering the Opinion, Wedbush Morgan Securities shall
not be responsible for any other services in connection with the Transaction.

Wedbush Morgan Securities is an investment banking firm and member of the New
York Stock Exchange and other principal stock exchanges in the United States,
and is regularly engaged as part of its business in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements, secondary distributions of listed and
unlisted securities, and valuations for corporate, estate and other purposes.

In arriving at our Opinion, we have reviewed and analyzed, among other
things: (1) A preliminary agreement and specific terms of the Merger, (2)
certain publicly available business and financial information relating to TCI
and CMET which we deemed to be relevant, (3) certain historical and projected
financial and operating information with respect to the business and operations
of TCI and CMET furnished to us by the Management Board of TCI and CMET, (4)
Appraisals of real estate assets of both TCI and CMET as prepared by the firm
of Marshall & Stevens, (5) the market prices, trading history, and valuation
multiples for the TCI Shares and CMET Shares and compared them relative to each
other, as well as with those of certain publicly traded companies that we
deemed to be relevant, (6) the proposed financial terms of the Merger and
compared them with the financial terms of certain other transactions which we
deemed to be relevant, and (7) other such

[MEMBER NYSE LOGO APPEARS HERE]

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financial studies and analyses and took into account such other financial,
economic and market criteria as we deemed appropriate in arriving at our
Opinion. In addition, we have had discussions with the management of TCI and
CMET concerning their respective businesses, operations, assets, liabilities,
financial conditions and prospects, and their assessment of the potential cost
savings, operating synergies, revenue enhancements and strategic benefits.

With respect to the Marshall & Stevens appraisals, we have accepted without
independent investigation supplemental information and suggested adjustments
recommended by TCI and CMET. We understand that while Marshall & Stevens has
not reissued its appraisal it has been informed of this information and the
suggested adjustments and has raised no objections.

In arriving at our Opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information and data used by us without
assuming any responsibility for independent investigation and verification of
such information. With respect to the financial projections of TCI and CMET, we
have been advised by management of TCI and CMET that such projections have been
reasonably prepared in good faith on a basis reflecting the best currently
available estimates and judgments of the respective management of TCI and CMET
regarding, among other items, management's assessment regarding the lack of
projected cost savings, operating synergies, and revenue enhancements expected
to result from a combination of the businesses, and that TCI, CMET and the
combined company will perform substantially in accordance with such
projections. We further assumed that all conditions of the Agreement will be
satisfied and not waived.

Our Opinion, as set forth herein, related to the relative values of TCI and
CMET. We are not expressing any opinion as to what the prices of TCI common
stock will trade or otherwise be transferable subject to the Merger. We have
not made any physical inspection of the properties or assets of TCI or CMET. We
were not requested to consider, and our Opinion does not address, the relative
merits of the Merger as compared to any alternative business strategies that
might exist for TCI of the effect of any other transaction in which TCI might
engage. We express no opinion regarding the tax accounting consequences of the
Merger to TCI or the stockholders of TCI.

Our Opinion is based upon financial, economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this Opinion. We have not undertaken to update,
reaffirm or revise this opinion or otherwise comment upon any events occurring
after the date hereof.

We have acted as TCI's financial advisor in connection with the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon the delivery of the Opinion. In the ordinary course of our
business, we and our affiliates may hold or actively trade the common stock of
TCI and/or CMET for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in TCI and/or CMET
common stock.

It is understood that this letter is for the information of the Board of
Directors of Transcontinental Realty Investors, Inc. in its evaluation of the
Merger and may not be used for any other purpose without our prior written
consent. We hereby consent, however, to the inclusion of this Opinion as an
exhibit to any proxy statement distributed in connection to the Merger. Our
Opinion is not intended to be and does not constitute a recommendation to any
stockholder as to how such stockholder should vote on any matter relating to
the proposed Merger.

Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and such other matters as we consider
relevant, it is our Opinion that, as the date hereof, the Exchange Ratio is
fair, from a financial point of view, to TCI.

Very truly yours,

/s/ Michael G. Gardner
WEDBUSH MORGAN SECURITIES
By: Michael G. Gardner, CFA
Managing Director
Capital Markets

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APPENDIX D

[LETTERHEAD OF SUTRO & CO. APPEARS HERE]

September 21, 1998

Board of Trustees of Continental Mortgage and Equity Trust
10670 North Central Expressway, Suite 300
Dallas, Texas 75231

Gentlemen:

You have requested Sutro & Co., Inc.'s ("Sutro & Co.") opinion as investment
bankers as to the fairness, from a financial point of view, of the exchange
ratio (the "Exchange Ratio") of shares of common stock of Transcontinental
Realty Investors, Inc. ("Transcontinental") to be received by the shareholders
of shares of beneficial interest of Continental Mortgage and Equity Trust
("Continental" or the "Company") in connection with the proposed merger (the
"Transaction") of Continental with and into Transcontinental.

Sutro & Co. has been advised by the Board of Trustees of the Company that in
connection with the proposed Transaction shareholders of Continental will
receive 1.181 shares of Transcontinental's $0.01 par value common stock per
share of Continental's no par value shares of beneficial interest.

Sutro & Co., in conducting its review and arriving at its opinion, noted
that the Exchange Ratio in the Transaction is based on, in part, appraisals of
the real estate properties of both the Company and Transcontinental prepared by
Marshall & Stevens Incorporated dated August 13th, 1998 with a valuation date
of July 1, 1998 (the "Appraisals"). Sutro noted that the information provided
by Marshall and Stevens Incorporated in the Appraisals included a combination
of complete summary appraisals, desktop analysis relying solely on the income
capitalization approach and third party appraisals that were recently completed
by disinterested third parties. Additionally, Sutro noted that the management
of both the Company and Transcontinental did not project any overhead expense
or other expense savings as a result of the Transaction. As a result, Sutro has
assumed no overhead expense or other expense savings as a result of the
Transaction.

Based upon and subject to the foregoing and following, Sutro & Co. is of the
opinion, as investment bankers, that, as of the date hereof, the Exchange Ratio
of shares of common stock of Transcontinental to be received by the
shareholders of shares of beneficial interest of Continental in connection with
the Transaction is fair, from a financial point of view, to the shareholders of
the Company.

Sutro & Co., as part of its investment banking business, is regularly
engaged in the evaluation of capital structures, the valuation of businesses
and their securities in connection with mergers and acquisitions, firm
commitment underwritings, secondary distributions of listed and unlisted
securities, private placements, financial restructurings and other financial
services. Sutro & Co. is currently acting as a fairness opinion provider to the
Board of Trustees of Continental in connection with the proposed Transaction
and will receive a fee for delivering this opinion. The Company has agreed to
indemnify Sutro & Co. against certain liabilities arising out of or in
connection with the services rendered by Sutro & Co. under such engagement.
Sutro & Co., in the ordinary course of business, may in the future trade
securities of the Company or Transcontinental for its own account or for the
accounts of its customers, and accordingly, may at any time hold a long or
short position in those securities.

Sutro & Co., in arriving at its opinion, reviewed and analyzed, among other
things, the following:

(i) Annual Reports and Reports on Form 10-K for the years ended December
31, 1996 and December 31, 1997 for the Company and Transcontinental,

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<PAGE>

(ii) Quarterly Reports on Form 10-Q for the six month period ended June
30, 1998 for the Company and Transcontinental,

(iii) certain internal information, primarily financial in nature
(including analytical models, projections, forecasts, estimates and
analyses) prepared by or on behalf of the management of the Company and
Transcontinental, including financial projections covering the years 1998
through 2002 for both the Company and Transcontinental,

(iv) the Appraisals,

(v) certain other publicly available business, financial and other
information concerning the Company and Transcontinental, and

(vi) such other information which Sutro & Co. deemed to be relevant to
provide the fairness opinion.

In the course of Sutro & Co.'s engagement, Sutro & Co. held discussions
with the senior management of the Company and Transcontinental concerning the
historical, current and projected future operations, business plans, financial
conditions and results, and prospects of the both the Company and
Transcontinental. Sutro & Co. has not, however, independently verified the
accuracy or completeness of the Appraisals or independently appraised any
particular assets or conducted any inspections of the properties of the
Company or Transcontinental.

In conducting its review, Sutro & Co. has relied upon and assumed the
accuracy and completeness of the financial and other information, including
the Appraisals, provided to Sutro & Co. or which were publicly available and
have not attempted to verify the same. Sutro & Co. has relied upon the
statements and information provided by the management of the Company and
Transcontinental as to the reasonableness and achievability of the financial
and operating forecasts and projections that project future results of the
Company and Transcontinental (and the assumptions and bases therefor) provided
to Sutro & Co. The financial models and the financial projections that were
provided by the management of the Company and Transcontinental are inherently
subject to uncertainty; however, Sutro & Co. has assumed that such forecasts
and projections were prepared in good faith, upon reasonable estimates and
represent the best judgment of the management of the Company and
Transcontinental as to the future performance of the Company and
Transcontinental.

In rendering its opinion, Sutro & Co. notes that the consummation of the
proposed Transaction is conditioned upon, among other things, the approval of
the majority of the shareholders of both Company and Transcontinental. Sutro &
Co. is not recommending or disapproving of any action that may be taken by the
Company, its Trustees, its shareholders or any other person in regard to the
Transaction. This opinion does not constitute a recommendation of the proposed
Transaction over any alternative transactions which may be possible for the
Company and does not address the Company's underlying business decision to
effect the proposed Transaction. Furthermore, our analysis in this matter has
not considered any other aspect of the proposed Transaction or any agreement
or other matters, which include, but are not limited to, the terms of all
external service agreements with affiliates of the Company and
Transcontinental. Sutro & Co. was not asked to opine on and is not expressing
an opinion as to: (i) the terms of the Transaction other than the Exchange
Ratio, (ii) the tax consequences of the Transaction to the shareholders of the
Company, and (iii) the prices at which the Company's or Transcontinental's
securities may trade at in the future.

In connection with this opinion, Sutro has assumed that the Board of
Trustees of the Company has completed all of the appropriate and necessary
procedures and actions relating to recommending to the shareholders of the
Company the proposed Transaction and we have assumed that the documents to be
prepared and used to effect the Transaction will reflect substantially the
terms set forth in the Agreement and Plan of Merger between the Company and
Transcontinental and that all parties to such agreement are duly authorized to
execute such agreement. Sutro has not participated in the negotiation of the
Transaction or provided any legal or other advice with respect to the
Transaction.
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Sutro & Co.'s opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date hereof
and the information made available to Sutro & Co. as of the dates that such
information was prepared and based upon.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description.
Accordingly, Sutro & Co. has advised the Company that its entire analysis must
be considered as a whole and that the review of selected portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
its opinion.

It is understood and agreed that this opinion is provided solely for the use
of the Board of Trustees of the Company as one element of their consideration
of the Transaction, and may not be used for any other purpose or any other
party, or otherwise referred to, relied upon, quoted, summarized or circulated,
except with Sutro & Co.'s prior written consent. This opinion may be reproduced
in full in the Company's Prospectus/Consent Solicitation Statement pertaining
to the Transaction.

Sutro & Co., Inc.
/s/ Sutro & Co., Inc.
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No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus and, if
given or made, such information or representation should not be relied upon as
having been authorized. This Joint Proxy Statement/Prospectus constitutes
neither an offer to sell, nor a solicitation of an offer to purchase, the
securities offered by this Joint 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.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
Summary.................................................................. 2
Risk Factors............................................................. 14
General Shareholder Information.......................................... 20
Proposed Incorporation Procedure and Merger.............................. 23
General Provisions of the Merger Agreement............................... 66
Proposed Amendment of TCI's Articles of Incorporation.................... 69
Market Prices of the Shares; Dividends; Comparative Per Share Market
Price................................................................... 71
Business and Properties of TCI........................................... 73
Business and Properties of the Trust..................................... 93
Selected Historical Consolidated Financial Information................... 110
Trust Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 113
TCI Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 120
Legal Matters............................................................ 127
Experts.................................................................. 127
Available Information.................................................... 127
Incorporation of Certain Documents by Reference.......................... 127
Solicitation of Proxies.................................................. 129
Index of Principal Defined Terms......................................... A-1
Agreement and Plan of Merger............................................. B-1
Fairness Opinion of Wedbush Morgan Securities............................ C-1
Fairness Opinion of Sutro & Co. ......................................... D-1
</TABLE>

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CONTINENTAL MORTGAGE AND EQUITY TRUST

and

TRANSCONTINENTAL REALTY INVESTORS, INC.

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JOINT PROXY STATEMENT

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TRANSCONTINENTAL REALTY INVESTORS, INC.

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PROSPECTUS

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4,763,014 Shares

of Common Stock

(par value $0.01 per share)

During the 25-day period following the effective time of the Merger, all
dealers effecting transactions in the shares of Common Stock of TCI, whether
or not participating in this distribution, may be required to deliver a copy
of this Joint Proxy Statement/Prospectus.

August 10, 1999

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